<PAGE>
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
/ / Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section 240.14a-11(c) or Section
240.14a-12
CLAYTON WILLIAMS ENERGY, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/X/ No fee required
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(1)
and 0-11
(1) Title of each class of securities to which transaction applies:
------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (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>
CLAYTON WILLIAMS ENERGY, INC.
Six Desta Drive, Suite 6500
Midland, Texas 79705
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
MAY 13, 1998
- -------------------------------------------------------------------------------
To Our Stockholders:
The Annual Meeting of Stockholders of Clayton Williams Energy, Inc., a Delaware
corporation, will be held at the Petroleum Club of Midland, 501 West Wall,
Midland, Texas, on Wednesday, May 13, 1998, at 10:00 A.M., local time, for the
following purposes:
1. To elect two directors for a term of three years in accordance with
the Certificate of Incorporation of the Company.
2. To transact such other business as may properly come before the
meeting.
Stockholders of record at the close of business on March 27, 1998, are entitled
to notice of and to vote at the meeting or any adjournments thereof.
Midland, Texas By Order of the Board
April 8, 1998 Mel G. Riggs
Secretary
- -------------------------------------------------------------------------------
WHETHER OR NOT YOU EXPECT TO ATTEND THE MEETING, PLEASE SIGN THE PROXY AND
RETURN IT PROMPTLY IN THE ENCLOSED ENVELOPE.
<PAGE>
CLAYTON WILLIAMS ENERGY, INC.
Six Desta Drive, Suite 6500
Midland, Texas 79705
PROXY STATEMENT
This proxy statement and related proxy are being mailed to stockholders of
Clayton Williams Energy, Inc. (the "Company") on or about April 8, 1998, in
connection with the solicitation by the Company of proxies to be used at the
Annual Meeting of Stockholders of the Company to be held at the Petroleum Club
of Midland, 501 West Wall, Midland, Texas, on Wednesday, May 13, 1998, at
10:00 A.M., local time, and at all adjournments thereof.
Any person giving a proxy has the power to revoke it at any time before it
is voted by filing with the Secretary of the Company an instrument revoking the
proxy, by delivering a properly executed proxy of a later date or attending the
meeting and voting in person. The Company will bear the costs of this
solicitation of proxies. The Company may also reimburse persons holding stock
in their names or in those of their nominees for their reasonable expenses in
sending proxy material to their principals and obtaining their proxies. The
solicitation is being made by mail and may also be made by telephone or by
telegraph by officers, directors and regular employees of the Company, who will
receive no additional compensation therefor. Total expenses of the solicitation
are expected to be nominal.
Stockholders of record at the close of business on March 27, 1998, are
entitled to notice of and to vote at the meeting. At the close of business on
such date, the Company had 8,891,263 shares of Common Stock $.10 par value per
share (the "Common Stock") outstanding, each share being entitled to one vote.
Shares held by the Company's 401(k) Plan & Trust will be voted by the Plan
Trustee, as provided by the Plan.
Properly executed proxies will be voted in accordance therewith, or if no
direction is indicated thereon, (i) in favor of the nominees for director named
herein and (ii) in the discretion of the persons appointed as proxies upon any
other business that may properly come before the meeting or any adjournment
thereof. With respect to the election of directors, a stockholder may, by
properly completing the enclosed proxy, vote in favor of all nominees or
withhold his or her votes as to all nominees or as to specific nominees.
Directors will be elected by the affirmative vote of a plurality of the shares
represented at the meeting in person or by proxy and entitled to vote on the
election of directors. The Company's Certificate of Incorporation prohibits
cumulative voting in the election of directors. All other matters properly
coming before the meeting will be decided by the affirmative vote of a majority
of the shares represented at the meeting in person or by proxy and entitled to
vote on such matters, except as otherwise required by law or by the Company's
Certificate of Incorporation or bylaws.
The votes will be counted by one or more inspectors appointed by the Board
of Directors, who will determine, among other things, the number of votes
necessary for the stockholders to take action in accordance with the foregoing
requirements and the votes withheld or cast for and against each matter. All
properly executed proxies and ballots, regardless of the nature of vote or the
absence of a vote indication (but not including broker non-votes), are counted
in determining the number of shares represented at the meeting. Neither broker
non-votes nor abstentions are counted as affirmative votes, in whole or in part.
1
<PAGE>
PROPOSAL NO. 1 ELECTION OF TWO DIRECTORS
The Board of Directors is composed of three classes of members. One class
of directors is elected each year to hold office for a three-year term and until
successors of such class are duly elected and qualified. Except where the
authority to do so has been withheld, it is the intention of the persons named
in the proxy to vote to elect Clayton W. Williams and L. Paul Latham as
directors for three-year terms. Each of the nominees has consented to being
named in the Proxy Statement and to serve, if elected, but if, for any
unforeseen cause, either of them should decline or be unable to serve, the
proxies will be voted to fill any vacancy so arising in accordance with the
discretionary authority of the persons named in the proxy.
With respect to the nominees for election, and directors continuing in
office, information regarding age, positions with the Company or other principal
occupations for the past five years, other directorships and the year each was
initially elected a director of the Company is as follows (there are no family
relationships among the following named persons):
NOMINEES FOR ELECTION TO THE BOARD OF DIRECTORS
FOR THREE-YEAR TERM EXPIRING IN 2001
CLAYTON W. WILLIAMS, age 66, is Chairman of the Board, President, Chief
Executive Officer and a Director of the Company, having served in such
capacities since September 1991. For more than fifteen years, Mr. Williams has
been the chief executive officer and director of (i) certain companies
previously controlled by Mr. Williams which were consolidated into the Company
in May, 1993 in connection with the Company's initial public offering (the
"Williams Companies"); and (ii) certain entities other than the Williams
Companies which are controlled directly or indirectly by Mr. Williams (the
"Williams Entities").
L. PAUL LATHAM, age 46, is Executive Vice President, Chief Operating Officer and
a Director of the Company, having served in such capacities since September
1991. Mr. Latham also serves in various capacities with certain of the Williams
Entities.
MEMBERS OF THE BOARD OF DIRECTORS CONTINUING IN OFFICE
TERM EXPIRING IN 1999
WILLIAM P. CLEMENTS, age 80, is a Director of the Company and a member of the
Compensation and Audit Committees of the Board of Directors. Mr. Clements was
elected a director in October 1991. Mr. Clements is a former Governor of the
State of Texas, having served two terms in such office from 1979 to 1983 and
from 1987 to 1991 and has been engaged in private investments for more than the
past five years.
ROBERT L. PARKER, age 74, is a Director of the Company and a member of the
Compensation and Audit Committees of the Board of Directors. Mr. Parker was
elected a director of the Company in October 1991. Mr. Parker is Chairman of the
Board of Parker Drilling Company, a publicly owned corporation providing
contract drilling services, having served in such capacity for more than the
past five years. He also serves as a director of MAPCO, Inc., a diversified
energy company, and Bank of Oklahoma Financial Corp.
2
<PAGE>
MEMBERS OF THE BOARD OF DIRECTORS CONTINUING IN OFFICE
TERM EXPIRING IN 2000
STANLEY S. BEARD, age 57, is a Director of the Company and a member of the
Compensation and Audit Committees of the Board of Directors. Mr. Beard has
served as a director since September 1991. Mr. Beard has been an independent
oil and gas operator for over twenty years, and has been a consultant to
Mr. Williams periodically since 1968.
MEL G. RIGGS, age 43, is Senior Vice President and Chief Financial Officer and a
Director of the Company, having served in such capacities since September 1991.
Mr. Riggs has served as a director since May 1994.
3
<PAGE>
INFORMATION CONCERNING SECURITY OWNERSHIP
Under regulations of the Securities and Exchange Commission, persons who
have power to vote or dispose of shares of the Company, either alone or jointly
with others, are deemed to be beneficial owners of such shares. The following
table sets forth certain information regarding the beneficial ownership of
Common Stock as of March 25, 1998, by (i) each person who is the beneficial
owner of 5 percent or more of the outstanding Common Stock (based upon copies of
all Schedule 13Gs and 13Ds provided to the Company), (ii) each director of the
Company and each nominee for director, (iii) each executive officer named in the
Summary Compensation Table and (iv) all officers and directors of the Company as
a group. Because the voting or dispositive power of certain shares listed in
the following table is shared, the same securities in such cases are listed
opposite more than one name in the table and the sharing of voting or
dispositive power is described in the referenced footnote. The total number of
shares of Common Stock of the Company listed below for directors and executive
officers as a group eliminates such duplication. Unless otherwise noted, the
persons and entities named below have sole voting and investment power with
respect to the shares listed opposite each of their names.
<TABLE>
Amount and Nature of Percent
Name Beneficial Ownership of Class
- -------------------------------------- -------------------- --------
<S> <C> <C>
Clayton Williams Partnership, Ltd. (1) 3,972,009 44.7%
CWPLCO, Inc. (1) 3,972,009 44.7%
Clayton W. Williams (1) 4,413,947 (2) 49.1%
Heartland Advisors, Inc. 801,900 (3) 9.0%
790 North Milwaukee Street
Milwaukee, WI 53202
Dimensional Fund Advisors Inc. 455,600 (4) 5.1%
1299 Ocean Avenue, 11th Floor
Santa Monica, CA 90401
L. Paul Latham 13,711 (5) *
Mel G. Riggs 11,502 (6) *
Stanley S. Beard 14,401 (7) *
William P. Clements 42,032 (7) *
Robert L. Parker 16,940 (7) *
Gerald F. Groner 61,753 (8) *
T. Mark Tisdale 10,065 (9) *
All officers and directors as a
group (10 persons) 4,599,074 (10) 50.8%
</TABLE>
- --------------------
* Less than 1 percent of the shares outstanding.
(1) The mailing address of Clayton Williams Partnership, Ltd., CWPLCO, Inc. and
Mr. Williams is Six Desta Drive, Suite 3000, Midland, Texas 79705. Clayton
Williams Partnership, Ltd. and CWPLCO, Inc. are referred to collectively
herein as the "Affiliated Holders". CWPLCO, Inc. is the sole general
partner of
4
<PAGE>
Clayton Williams Partnership, Ltd. Mr. Williams shares voting and
investment power with respect to the shares owned by the Affiliated
Holders.
(2) Includes (a) an aggregate of 3,972,009 shares owned by the Affiliated
Holders beneficially owned by Mr. Williams due to Mr. Williams' control of
the Affiliated Holders, (b) 11,044 shares owned by Mr. Williams' spouse,
(c) 588 shares owned by an estate administered by Mr. Williams' spouse,
(d) 252,403 shares owned directly by Mr. Williams (including approximately
8,589 shares held in the Company's 401(k) Plan & Trust over which
Mr. Williams exercises investment control), (e) 17,319 shares owned by
three of Mr. Williams' children residing with him, (f) 60,677 shares in
trusts of which Mr. Williams is the Trustee and (g) the right to acquire
beneficial ownership through presently exercisable options to purchase
99,907 shares of Common Stock granted under the 1993 Stock Compensation
Plan. See "EXECUTIVE COMPENSATION."
(3) Represents shares owned by clients of Heartland Advisors, Inc.
(4) Represents shares held in portfolios of DFA Investment Dimensions Group
Inc., a registered open-end investment company, or in series of the DFA
investment Trust Company, a Delaware business trust, or the DFA Group Trust
and DFA Participation Group Trust, investment vehicles for qualified
employee benefit plans, all of which Dimensional Fund Advisors Inc. serves
as investment manager. Dimensional Fund Advisors Inc. disclaims beneficial
ownership of all such shares.
(5) Includes (a) 539 shares held in the Company's 401(k) Plan & Trust over
which Mr. Latham exercises investment control and (b) the right to acquire
beneficial ownership through presently exercisable options to purchase
13,172 shares of Common Stock granted under the 1993 Stock Compensation
Plan. See "EXECUTIVE COMPENSATION."
(6) Includes (a) 515 shares held in the Company's 401(k) Plan & Trust over
which Mr. Riggs exercises investment control, (b) 1,382 shares over which
Mr. Riggs exercises control under a Power of Attorney and (c) the right to
acquire beneficial ownership through presently exercisable options to
purchase 8,605 shares of Common Stock granted under the 1993 Stock
Compensation Plan. See "EXECUTIVE COMPENSATION."
(7) Includes, in the case of Messrs. Beard, Clements and Parker, the right to
acquire beneficial ownership through presently exercisable options to
purchase 6,000 shares each of Common Stock granted under the Outside
Directors Stock Option Plan. See "BOARD OF DIRECTORS AND COMMITTEES."
(8) Includes (a) 1,261 shares held in the Company's 401(k) Plan & Trust over
which Mr. Groner exercises investment control, (b) 46,116 shares owned by
Mr. Groner's wife as her separate property, (c) 628 shares owned by Mr.
Groner's children residing with him, and (d) the right to acquire
beneficial ownership through presently exercisable options to purchase
10,850 shares of Common Stock granted under the 1993 Stock Compensation
Plan. See "EXECUTIVE COMPENSATION."
(9) Includes (a) 3,993 shares held in the Company's 401(k) Plan & Trust over
which Mr. Tisdale exercises investment control and (b) the right to acquire
beneficial ownership through presently exercisable options to purchase
4,700 shares of Common Stock under the 1993 Stock Compensation Plan. See
"EXECUTIVE COMPENSATION."
(10) Includes all rights of directors and executive officers to acquire
beneficial ownership through presently exercisable options to purchase
shares of Common Stock granted under the Outside Directors Stock Option
Plan and the 1993 Stock Compensation Plan.
5
<PAGE>
BOARD OF DIRECTORS AND COMMITTEES
Compensation for non-employee directors consists of an annual retainer fee
of $10,000 plus a $5,000 fee for each Board meeting attended, and a $1,000 fee
for attending a committee meeting held on a day other than the same day of a
Board meeting. All three non-employee directors serve on one or more committees
of the Board. As compensation for service on the Board, employee directors
receive an annual fee of $5,000 together with an additional $2,500 for each
Board meeting they attend.
The Company has adopted its Outside Directors Stock Option Plan in which
only those directors who are not employed by the Company or any of its
affiliates (collectively the "Outside Directors") are eligible to participate.
A total of 86,300 shares of Common Stock has been authorized and reserved for
issuance under the plan, subject to adjustments to reflect changes in the
Company's capitalization resulting from stock splits, stock dividends and
similar events. The plan provides that an option for 1,000 shares of Common
Stock of the Company will be granted on January 1 of each calendar year to each
Outside Director in office on that date. The plan further provides that (i) the
exercise price of each option granted under the plan may not be less than the
fair market value of the Common Stock at the date of grant of such option, (ii)
the exercise price must be paid in cash upon exercise of such option, (iii) no
option may be exercisable more than ten years after the date of grant, and (iv)
no option is transferable other than by will or the laws of descent and
distribution. In the event that a participant in the plan ceases to be an
Outside Director, other than by reason of death, such participant may exercise
an outstanding option at any time within 90 days after such termination. In the
event of the death of a participant to whom any option has been granted pursuant
to the plan, such option may be exercised by the legatees of such participant or
by his personal representatives or distributees at any time within one year
after his death. Options granted under the plan are immediately exercisable and
expire not later than ten years from date of grant. Messrs. Beard, Clements and
Parker (who presently constitute all of the Outside Directors) each received
options under the plan on January 1, 1997 and January 1, 1998, each option
covering 1,000 shares, at option prices of $18.50 per share and $15.00 per
share, respectively. Such options are currently exercisable and expire in
January 2007 and January 2008, respectively.
The Board of Directors has two committees. The Compensation Committee has
certain responsibilities relating to compensation of officers and employee
directors and is composed of Messrs. Beard, Clements and Parker, none of whom is
an employee nor eligible for awards under the Company's Bonus Incentive Plan,
the Executive Incentive Stock Compensation Plan or 1993 Stock Compensation Plan.
The Compensation Committee met four times during 1997. The Compensation
Committee administers awards under the Company's Bonus Incentive Plan, the
Executive Incentive Stock Compensation Plan and 1993 Stock Compensation Plan,
takes certain other actions relating to compensation matters and benefits plans
and sets the salaries of all officers.
The Audit Committee, composed of Messrs. Beard, Clements and Parker, met
two times during 1997. The Committee recommended to the Board of Directors the
selection of Arthur Andersen LLP as the Company's independent accountants;
reviewed the annual financial statements and discussed them with the auditors
and financial staff of the Company; reviewed the independence of the independent
accountants conducting the audit; reviewed the services provided by the
independent accountants; discussed with management and the auditors the
Company's accounting system and related systems of internal control; and
consulted as it deemed necessary with the independent accountants and the
Company's internal financial staff.
The Board of Directors held four meetings during 1997. All directors
attended more than 75 percent of the aggregate of all meetings of the Board of
Directors and the committees on which they served during 1997.
6
<PAGE>
CERTAIN TRANSACTIONS AND RELATIONSHIPS
SERVICE AGREEMENT. The Company and the Williams Entities are parties to an
agreement (the "Service Agreement") pursuant to which the Company furnishes
services to, and receives services from, such entities. Under the Agreement,
the Company provides legal, payroll, benefits administration, and financial and
accounting services to the Williams Entities, as well as lease operating and
technical services with respect to certain properties owned by the Williams
Entities. The Williams Entities provide tax preparation services, tax planning
services, aircraft usage and business entertainment to or for the benefit of the
Company. To the extent that the Company has provided services to the Williams
Entities at cost under the Service Agreement, the Company believes that the
terms upon which it has provided such services may be less favorable than the
terms the Company could have negotiated with unaffiliated third parties.
Conversely, to the extent that the Company has received services from the
Williams Entities at cost under the Service Agreement, the Company believes that
the terms upon which such services were available to the Company may be more
favorable than the terms the Company could have negotiated with unaffiliated
third parties. During 1997, the Williams Entities paid the Company
approximately $684,000, while the Company paid the Williams Entities
approximately $135,000, both pursuant to the Service Agreement.
OFFICE LEASE. The Company subleases 7,164 square feet from ClayDesta
Corporation, a Williams Entity, pursuant to an agreement which expires
November 15, 1998. During 1997, the Company paid a total of $65,000 in rent
and associated charges to ClayDesta Corporation.
<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth information with respect to the compensation
of the Company's chief executive officer and each of the other four most highly
compensated executive officers during 1997.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
AWARDS
----------
SECURITIES
ANNUAL COMPENSATION UNDERLYING ALL OTHER
NAME AND PRINCIPAL ------------------------------- OPTIONS COMPENSATION
POSITION YEAR SALARY($)(1) BONUS($)(2) (#)(3)(4) ($)(5)
- --------------------------- ---- ------------ ----------- --------- ------------
<S> <C> <C> <C> <C> <C>
Clayton W. Williams, 1997 $450,000 $27,500 150,000 $ 1,620
Chairman of the Board, 1996 $396,100 $11,003 235,000 $ 1,781
President and Chief 1995 $396,100 $11,003 32,407 $ 5,653
Executive Officer (6)
L. Paul Latham, Executive 1997 $180,795 $45,338 6,000 $36,403
Vice President and Chief 1996 $171,860 $14,750 10,300 $35,061
Operating Officer 1995 $159,900 $11,942 13,022 $34,919
Mel G. Riggs, Senior Vice 1997 $135,795 $37,753 5,000 $ 2,000
President and Chief 1996 $125,254 $13,472 8,000 $ 1,781
Financial Officer 1995 $118,752 $10,799 9,605 $ 1,695
Gerald F. Groner, Vice 1997 $103,193 $26,261 6,000 $ 1,032
President - Land and 1996 $ 88,333 $ 7,727 7,300 $ 1,047
Lease Administration 1995 $ 85,050 $ 9,863 7,200 $ 1,261
T. Mark Tisdale, Vice 1997 $ 98,180 $20,477 1,000 $ 1,409
President and General 1996 $ 94,055 $ 2,727 1,000 $ 1,472
Counsel 1995 $ 92,680 $11,074 4,200 $ 1,465
</TABLE>
- ----------------
(1) All of Mr. Williams' net salary for 1995, 1996 and 1997 was paid in the
form of Common Stock in lieu of cash pursuant to the Company's Executive
Incentive Stock Compensation Plan.
(2) The amounts shown in this column with respect to Messrs. Groner and Tisdale
for 1997 include $10,304 and $9,808, respectively, attributable to 644
shares and 613 shares, respectively, of Common Stock awarded pursuant to
the Company's Bonus Incentive Plan. The amounts shown in this column with
respect to Messrs. Williams, Latham and Riggs include directors fees for
1997 of $15,000 each.
(3) All amounts shown represent the number of option shares granted under the
Company's 1993 Stock Compensation Plan, a description of which follows
"TABLE OF OPTION GRANTS IN 1997."
(4) Amounts shown include options granted in connection with repricing
transactions. See "TABLE OF TEN-YEAR OPTION REPRICINGS."
8
<PAGE>
(5) The amounts shown in this column with respect to Mr. Latham for 1995, 1996
and 1997 include $32,781, $32,276 and $34,732, respectively, of
distributions made pursuant to two plans which were discontinued by the
Williams Companies during 1991. Until such time, the Williams Companies
assigned overriding royalty interests to certain employees to reward such
employees with incentive compensation based on the results of drilling
activities by the Williams Companies. Under this arrangement, the Williams
Companies assigned overriding royalty interests in certain oil and gas
leases to certain employees who were employed at the time of the execution
of the lease. An individual employee's overriding royalty interest in a
lease was determined in the discretion of the management of the Williams
Companies. Employees receiving overriding royalty interests were entitled
to receive revenues immediately upon the assignment thereof and such
interests were not subject to forfeiture. The Williams Companies also
granted selected employees working interests in certain of the oil and gas
properties of the Williams Companies. Such working interests were deemed
earned by and granted to such employees upon terms determined in the sole
discretion of the management of the Williams Companies. The Company does
not anticipate re-instituting either of the arrangements described above.
All other amounts shown in this column relate to contributions made by the
Company pursuant to the Company's 401(k) Plan & Trust.
(6) Mr. Williams beneficially owns, through the Affiliated Holders and other
affiliates, 2,875,000 shares of restricted Common Stock with a value at
December 31, 1997 of $43,125,000.
The Company has no employment agreements with any of its executive
officers. Although Messrs. Williams and Latham devote a majority of their time
to the Company, both of them are engaged in other business activities.
Mr. Williams devotes a portion of his time to certain Williams Entities.
Mr. Latham is also employed by and devotes a portion of his time to the business
of certain Williams Entities. Both Messrs. Williams and Latham receive
compensation from the Williams Entities which compensation is not borne,
directly or indirectly, by the Company and does not relate to any services
provided to the Company. In addition, Gerald F. Groner, a son-in-law of
Mr. Williams, spends a portion of his time managing JACCK, L.L.C., an entity
owned by the five children of Mr. Williams which is involved in oil and gas
exploration in the Permian Basin area of West Texas and Southeast New Mexico.
TABLE OF OPTION GRANTS IN 1997
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
------------------------------------------------------- POTENTIAL REALIZED VALUE AT
NUMBER OF % OF TOTAL ASSUMED ANNUAL RATES OF
SECURITIES OPTIONS STOCK PRICE APPRECIATION
UNDERLYING GRANTED TO EXERCISE FOR OPTION TERM
OPTIONS EMPLOYEES IN PRICE EXPIRATION ----------------------------------
NAME GRANTED (#)(1) FISCAL YEAR ($/SH) DATE 5%($) 10%($)
- ------------------- -------------- ----------- ------ ---- ----- ------
<S> <C> <C> <C> <C> <C> <C>
Clayton W. Williams 150,000 71.2% $15.88 12/2/07 $1,497,750 (2) $3,795,750 (2)
L. Paul Latham 6,000 2.9% $14.00 1/14/07 $ 50,160 (3) $ 125,700 (3)
Mel G. Riggs 5,000 2.4% $14.00 1/14/07 $ 41,800 (3) $ 104,750 (3)
Gerald F. Groner 6,000 2.9% $14.00 1/14/07 $ 50,160 (3) $ 125,700 (3)
T. Mark Tisdale 1,000 .5% $14.00 1/14/07 $ 8,360 (3) $ 20,950 (3)
</TABLE>
- -----------------
(1) Amounts shown include options granted in connection with repricing
transactions. See "TABLE OF TEN-YEAR OPTION REPRICINGS."
(2) The values shown for 5% and 10% appreciation equate to a stock price of
$25.86 and $41.18, respectively, at the expiration date of the indicated
option.
(3) The values shown for 5% and 10% appreciation equate to a stock price of
$22.36 and $34.95, respectively, at the expiration date of the indicated
options, based on a market price of $13.25 per share on the date of grant.
9
<PAGE>
The assumed annual rates of stock price appreciation used in showing the
potential realizable value of stock option grants are prescribed by rules of the
Securities and Exchange Commission. The actual realized value of the options
may be significantly greater or less than the amounts shown. The closing sales
price of the Common Stock on the Nasdaq Stock Market's National Market on March
25, 1998 was $11.75 per share.
All options shown above have been granted pursuant to the Company's 1993
Stock Compensation Plan which provides for the grant of non-qualified options to
officers, directors (other than Outside Directors), employees and advisors of
the Company or a subsidiary of the Company. A total of 898,200 shares of Common
Stock is authorized and reserved for issuance under the plan subject to
adjustments to reflect changes in the Company's capitalization resulting from
stock splits, stock dividends and similar events. The Compensation Committee
has the sole authority to interpret the plan, to determine the persons to whom
options will be granted, to determine the basis upon which the options will be
granted, and to determine the exercise price, duration and other terms of
options to be granted under the plan; provided that (i) the exercise price of
each option granted under the plan may not be less than the fair market value of
the Common Stock at the date of grant of such option, (ii) the exercise price
must be paid in cash upon exercise of such option, (iii) no option may be
exercisable more than ten years after the date of grant, and (iv) no option is
transferable other than by will or the laws of descent and distribution. No
option is exercisable after an optionee terminates his relationship with the
Company or a subsidiary of the Company, subject to the right of the Compensation
Committee to extend the exercise period for not more than 90 days following the
date of termination of an optionee's employment. If an optionee's employment is
terminated by reason of disability, the Compensation Committee has the authority
to extend the exercise period for not more than one year following the date of
termination of the optionee's employment. If an optionee dies and has not fully
exercised options granted under the plan, such options may be exercised in whole
or in part within 90 days of the optionee's death by the executors or
administrators of the optionee's estate or by the optionee's heirs. The vesting
period, if any, specified for each option will be accelerated upon the
occurrence of a change of control or a threatened change of control of the
Company. The option granted to Mr. Williams in 1997, as shown in the preceding
table, vests as to one-third of the shares annually beginning with the first
anniversary of the grant date. Options granted to Messrs. Latham, Riggs, Groner
and Tisdale in 1997, as shown in the preceding table, vest as to one-third of
the shares annually beginning with the fourth anniversary of the grant date.
TABLE OF AGGREGATED OPTION EXERCISES IN 1997 AND
OPTION VALUES AS OF DECEMBER 31, 1997
<TABLE>
NUMBER OF VALUE OF
SECURITIES UNEXERCISED
UNDERLYING IN-THE-MONEY
UNEXERCISED OPTIONS AT OPTIONS AT
DECEMBER 31, 1997(#) DECEMBER 31, 1997($)
SHARES ACQUIRED VALUE EXERCISABLE/ EXERCISABLE/
NAME ON EXERCISE (#) REALIZED ($) UNEXERCISABLE UNEXERCISABLE(1)
- ------------------- --------------- ------------ ------------- ----------------
<S> <C> <C> <C> <C>
Clayton W. Williams - - 91,157/326,250 $511,951/$308,437
L. Paul Latham 5,000 $53,750 10,597/13,725 $ 131,534/$96,769
Mel G. Riggs 5,000 $53,750 6,605/11,000 $ 81,638/$75,500
Gerald F. Groner - - 9,025/11,475 $ 112,344/$70,331
T. Mark Tisdale - - 4,450/1,750 $ 55,963/$9,812
</TABLE>
- -------------------
(1) The value of In-the-Money options was computed at $15.00 per share, which
was the market price for the Common Stock on December 31, 1997.
10
<PAGE>
TABLE OF TEN-YEAR OPTION REPRICINGS
<TABLE>
LENGTH OF
NUMBER OF ORIGINAL
SECURITIES OPTION TERM
UNDERLYING MARKET PRICE OF EXERCISE PRICE REMAINING AT
OPTIONS STOCK AT TIME OF THE TIME OF NEW DATE OF
REPRICED OR REPRICING OR REPRICING OR EXERCISE REPRICING OR
NAME DATE AMENDED(1) AMENDMENT($) AMENDMENT($) PRICE AMENDMENT
- ------------------- ---- ---------- ------------ ------------ ----- ---------
<S> <C> <C> <C> <C> <C> <C>
Clayton W. Williams 8-31-94 32,407 $ 7.25 $15.75 $ 7.25 6 years
11-8-95 32,407 $ 2.38 $ 7.25 $ 2.38 5 years
L. Paul Latham 8-31-94 13,022 $ 7.25 $15.75 $ 7.25 6 years
11-8-95 13,022 $ 2.38 $ 7.25 $ 2.38 5 years
5-29-97 6,000 $13.25 $18.63 $14.00 10 years
Mel G. Riggs 8-31-94 9,605 $ 7.25 $15.75 $ 7.25 6 years
11-8-95 9,605 $ 2.38 $ 7.25 $ 2.38 5 years
5-29-97 5,000 $13.25 $18.63 $14.00 10 years
Gerald F. Groner 8-31-94 7,200 $ 7.25 $15.75 $ 7.25 6 years
11-8-95 7,200 $ 2.38 $ 7.25 $ 2.38 5 years
5-29-97 6,000 $13.25 $18.63 $14.00 10 years
T. Mark Tisdale 8-31-94 4,200 $ 7.25 $15.75 $ 7.25 6 years
11-8-95 4,200 $ 2.38 $ 7.25 $ 2.38 5 years
5-29-97 1,000 $13.25 $18.63 $14.00 10 years
</TABLE>
- -------------------
(1) The repricings shown for 1994 and 1995 represent the repricing of options
which were originally granted in 1993.
In January 1997, the Compensation Committee granted options to all
executive officers, other than Mr. Williams, at an exercise price of $18.63 per
share, which price was the market price of the Common Stock at the date of
grant. Subsequently, the Committee determined that the original exercise price
of those options did not provide the desired incentive because such price was a
peak price due to the timing of the grant. As a result, in May 1997, the
Committee repriced the January 1997 options by issuing replacement options with
an exercise price of $14.00 per share, which price was higher than the market
price of the Common Stock at the date of grant. All other terms of the
replacement options were identical to the original options. See "REPORT OF THE
COMPENSATION COMMITTEE."
REPORT OF THE COMPENSATION COMMITTEE
GENERAL
The Compensation Committee consists of Messrs. Beard, Clements and Parker,
all of whom are non-employee directors. The Committee establishes the salaries
of all corporate officers and administers the Company's incentive compensation
plans other than the Outside Directors Stock Option Plan. The Committee also
reviews with the Board of Directors its recommendations relating to the future
direction of corporate compensation practices and benefit programs.
The Compensation Committee has adopted a compensation policy which it
believes to be a balance between fair and reasonable cash compensation and
incentives linked to the Company's overall performance taking into consideration
compensation of individuals with similar duties who are employed by the
Company's peers. The policy takes into account the cyclical nature of the oil
and gas business which may result in traditional performance standards being
skewed due to erratic product prices. An analysis of the goals for the Company
has resulted in a policy which places emphasis on increasing the Company's
proved oil and gas reserves, coupled with maintaining an
11
<PAGE>
acceptable balance between the Company's overhead and profit margin. The
Compensation Committee may award stock options and bonuses based upon the
performance of the Company and efforts of individual officers.
LONG TERM COMPENSATION
The Committee grants stock options under the 1993 Stock Compensation
Plan (the "1993 Plan") as a means of both rewarding past service, as well as
providing incentive for future activities and aligning the interests of the
Company's officers with those of its stockholders. In recognition of the
efforts of the officers of the Company in the increase of the market value of
the Common Stock and the completion of a secondary public offering of the
Common Stock in 1996, and as further incentive to such officers, the
Compensation Committee authorized the grant of stock options to all officers
of the Company, other than Mr. Williams, under the 1993 Plan during the first
quarter of 1997. Subsequently, the Committee determined that the original
exercise price of those options did not provide the desired incentive because
such price was a peak price due to the timing of the grant. As a result, in
May 1997 the Committee authorized the repricing of such options through the
issuance of replacement options with identical terms other than the exercise
price, which was less than the original exercise price, but greater than the
market value of the Common Stock on the date of the repricing. See "TABLE OF
TEN-YEAR OPTION REPRICINGS."
In November 1997, the Compensation Committee authorized the grant of
additional stock options under the 1993 Plan to selected officers and
employees of the Company. Such options were granted based upon
recommendations of management for the purpose of rewarding exceptional
service and providing stock-based incentives to encourage continued
employment of key personnel.
SHORT TERM COMPENSATION
In December 1996, the Compensation Committee, upon the recommendation of
management, increased the salaries of some of the Company's officers
effective January 1, 1997. These salaries remained constant throughout 1997.
In December 1997, the Committee recommended to the Board of Directors that
awards of stock and/or cash be granted to all of the Company's officers and
many of its employees under the Company's Bonus Incentive Plan (the "Bonus
Plan") in lieu of salary increases. Such awards were based upon the criteria
set forth in the Bonus Plan and a review of the Company's performance and
evaluations of the officers and employees. In addition, the Committee
authorized a special cash award to one officer for exceptional service in the
Company's acquisition of an oil and gas prospect, and authorized year-end
cash bonuses to all officers in proportion to their salaries. The Committee
believes that consistently awarding such bonuses, both pursuant to the Bonus
Plan and otherwise, serves as both a reward for past service as well as an
incentive for future extraordinary performance in anticipation of such
monetary recognition.
COMPENSATION OF THE CHIEF EXECUTIVE OFFICER
Effective January 1, 1997, the Compensation Committee increased Mr.
Williams' salary to $450,000 per year. In December 1997, based upon a review
of chief executive officer compensation among the Company's peers, the
Compensation Committee decided to make no adjustment to Mr. Williams' salary
at that time. The Committee also decided that, consistent with the
compensation strategy and policies of recent years, Mr. Williams' salary
would continue to be paid in shares of Common Stock under the Company's
Executive Incentive Stock Compensation Plan. The Committee believes that
payment of Mr. Williams' salary in shares of Common Stock assists in aligning
Mr. Williams' interests with those of the other stockholders, encouraging
improvement of the market price of the Common Stock for the benefit of all of
the Company's stockholders. In furtherance of that policy, and as further
incentive for future performance, the Committee also granted a stock option
to Mr. Williams under the 1993 Plan in December 1997.
12
<PAGE>
The Compensation Committee believes it has developed an appropriate
structure within which to reward and motivate its officers as they build
value for the Company's stockholders.
Robert L. Parker
William P. Clements
Stanley S. Beard
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee consisted of Messrs. Clements, Parker and Beard
during 1997, none of whom has a relationship with the Company required to be
disclosed under the rules of the Securities and Exchange Commission.
COMPARISON OF CUMULATIVE TOTAL SHAREHOLDER RETURN
The Company's Common Stock began trading publicly on May 26, 1993. Set
forth below is a line graph comparing the percentage change in the cumulative
total shareholder return on the Company's Common Stock against the total return
of the Nasdaq Stock Market's Market Index and a peer group for the period from
May 31, 1993, to December 31, 1997. The peer group is composed of all the crude
petroleum and natural gas companies with stock trading on the Nasdaq Stock
Market's National Market System within SIC Code 1311, consisting of
approximately 200 companies. The chart indicates the value, at the conclusion of
each fiscal year from May 31, 1993, to December 31, 1997, of $100 invested at
May 26, 1993, and assumes reinvestment of all dividends.
EDGAR REPRESENTATION PERFORMANCE GRAPH
<TABLE>
NASDAQ PEER
MARKET GROUP
DATE COMPANY INDEX INDEX
---- ------- ----- -----
<S> <C> <C> <C>
5/93 100.00 100.00 100.00
12/93 73.53 105.77 96.36
12/94 32.35 111.04 100.99
12/95 19.12 144.03 111.06
12/96 102.21 178.99 147.68
12/97 88.24 218.94 149.69
</TABLE>
13
<PAGE>
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Based solely upon a review of Forms 3, 4 and 5 and amendments thereto
furnished to the Company pursuant to the rules and regulations promulgated under
Section 16(a) of the Securities Exchange Act of 1934 during and with respect to
the Company's last fiscal year and upon certain written representations received
by the Company, the Company is not aware of any failure by a reporting person of
the Company to timely file reports required under Section 16(a) other than the
late filing of a Form 4 by William P. Clements, relating to one transaction.
RELATIONSHIP WITH INDEPENDENT ACCOUNTANTS
Arthur Andersen LLP, who have been the Company's independent accountants
since inception, have been selected by the Board of Directors, upon
recommendation of the Audit Committee, to be its independent accountants for the
current year. A representative of this firm will be present at the Annual
Meeting of Stockholders. This representative will have an opportunity to make a
statement if he desires to do so and will be available to respond to stockholder
questions.
RECEIPT OF STOCKHOLDER PROPOSALS
For inclusion in the Company's 1999 proxy statement, all stockholder
proposals for consideration at the Annual Meeting of Stockholders of the Company
to be held in 1999 must be received at the Company's principal executive
offices, Six Desta Drive, Suite 6500, Midland, Texas 79705, Attention: Mel G.
Riggs, by December 9, 1998. Such proposals must also comply with all other
regulations of the Securities and Exchange Commission.
OTHER BUSINESS
The Company knows of no other business to come before the meeting. If,
however, other matters properly come before the meeting, it is the intention of
the persons named in the enclosed proxy to vote the shares represented thereby
in accordance with their best judgment.
AVAILABILITY OF ANNUAL REPORT
The Annual Report of the Company for the fiscal year ended December 31,
1997, which contains the Company's Form 10-K including financial statements, has
been mailed to each stockholder of record on the above-referenced record date.
By order of the Board of Directors,
Mel G. Riggs
Secretary
Dated: April 8, 1998
14
<PAGE>
[X] PLEASE MARK VOTES REVOCABLE PROXY
AS IN THIS EXAMPLE CLAYTON WILLIAMS ENERGY, INC.
ANNUAL MEETING OF STOCKHOLDERS
MAY 13, 1998
The undersigned hereby appoints L. Paul Latham and Mel G. Riggs, or
either of them, with full power of substitution, to act as attorneys and
proxies for the undersigned, and to vote all shares of Common Stock of
Clayton Williams Energy, Inc. (the Company) which the undersigned is entitled
to vote at the Meeting of Stockholders, to be held at the Petroleum Club of
Midland, 501 W. Wall, Midland, Texas on May 13, 1998 at 10:00 a.m., local
time, and at any and all adjournments thereof.
------------------------------------------
Please be sure to sign and date this |Date
Proxy in the box below. |
- -------------------------------------------------------------------------------
- ----Stockholder sign above -------------------Co-holder (if any) sign above----
Proposition No. 1: Election of Directors FOR WITHHOLD EXCEPT
/ / / / / /
The Election of two Directors listed below for the term specified in the
Proxy Statement.
BOARD OF DIRECTORS RECOMMENDED: CLAYTON W. WILLIAMS
L. PAUL LATHAM
INSTRUCTION: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE, MARK
"EXCEPT" AND WRITE THAT NOMINEE'S NAME IN THE SPACE PROVIDED BELOW.
- -------------------------------------------------------------------------------
THIS PROXY WILL BE VOTED AS DIRECTED, BUT IF NO INSTRUCTIONS ARE
SPECIFIED, IT WILL BE VOTED FOR THE DIRECTORS SHOWN ABOVE. IF ANY OTHER
BUSINESS IS PRESENTED AT SUCH MEETING, THIS PROXY WILL BE VOTED BY THE PROXY
HOLDERS IN THEIR BEST JUDGMENT. AT THE PRESENT TIME, THE BOARD OF DIRECTORS
KNOWS OF NO OTHER BUSINESS TO BE PRESENTED AT THE MEETING.
THIS PROXY IS SOLICITED BY
THE BOARD OF DIRECTORS
Should the undersigned be present and elect to vote at the Meeting or
any adjournment thereof, and after notification to the Corporate Secretary of
the Company at the meeting of the stockholders decision to terminate this
proxy, then the power of said attorneys and proxies shall be deemed
terminated and of no further force and effect.
The undersigned acknowledges receipt from the Company prior to the
execution of this Proxy, of a Notice of the Meeting, and a Proxy Statement,
both dated April 8, 1998, and a copy of the Company's 1997 Annual Report.
Please sign exactly as your name appears on this proxy card. When
signing as attorney, administrator, trustee or guardian, please give your
full title. If shares are held jointly, each holder should sign.
PLEASE ACT PROMPTLY
SIGN, DATE & MAIL YOUR PROXY CARD TODAY
- -------------------------------------------------------------------------------
DETACH ABOVE CARD, SIGN, DATE AND MAIL IN POSTAGE PAID ENVELOPE PROVIDED.
CLAYTON WILLIAMS ENERGY, INC.
SIX DESTA DRIVE, SUITE 6500
MIDLAND,TEXAS 79705-9963
