<PAGE> 1
- -------------------------------------------------------------------------------
PROXY STATEMENT
PURSUANT TO SECTION 14(a) OF THE SECURITIES EXCHANGE ACT OF 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the Appropriate Box:
[X] Preliminary Information Statement
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to [ ] 240.14a-11(c) or [ ] 240.14a-12
- -------------------------------------------------------------------------------
KELLEY OIL & GAS CORPORATION
(Name of Registrant as Specified in its Charter)
and
(Name of Person Filing Proxy Statement)
- -------------------------------------------------------------------------------
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed per Exchange Act Rules 14a-6(i)(4) and 0-11
[ ] 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 with which the offsetting fee was
previously paid. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
- -------------------------------------------------------------------------------
<PAGE> 2
KELLY OIL LOGO KELLEY OIL & GAS CORPORATION
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 27, 1999
To Our Stockholders:
The Annual Meeting of Stockholders of Kelley Oil & Gas Corporation (the
"Company") will be held at the Chase Conference Center on the eleventh floor,
270 Park Avenue (between 47th and 48th Streets), New York, New York 10017, at
10:30 a.m. EDT on Thursday, May 27, 1999. The stockholders will be asked to vote
on the following:
1. The election of a Board of Directors comprised of seven members to
serve until their successors have been elected or appointed; and
2. Any other business matter that may properly come before the
meeting.
Stockholders of record as of the close of business on Monday, April 19,
1999 are entitled to this notice and to vote at the meeting.
You are cordially invited to attend the meeting. Stockholders who do not
expect to attend the meeting in person and stockholders who plan to attend are
requested to complete, date and sign the enclosed proxy card and return it
promptly in the envelope provided. If you attend the meeting, you may vote
either in person or by your proxy. The Company values your opinion and
encourages your participation. The enclosed proxy is being solicited by the
Board of Directors.
John F. Bookout
Chairman of the Board, President
and Chief Executive Officer
Houston, Texas
April 19, 1999
<PAGE> 3
KELLEY OIL & GAS CORPORATION
PROXY STATEMENT
KELLEY OIL & GAS CORPORATION
601 JEFFERSON STREET
SUITE 1100
HOUSTON, TEXAS 77002
---------------------
1999 ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON MAY 27, 1999
PROXY SOLICITATION
This Proxy Statement is furnished in connection with the solicitation of
proxies on behalf of the Board of Directors (the "Board") of Kelley Oil & Gas
Corporation, a Delaware corporation (the "Company"), to be voted at the 1999
Annual Meeting of Stockholders (the "Meeting"). The Meeting will be held in
Conference Room A at the Chase Conference Center on the eleventh floor, 270 Park
Avenue (between 47th and 48th Streets), New York, New York 10017, at 10:30 a.m.
EDT on Thursday, May 27, 1999.
All properly executed proxies received prior to the Meeting will be voted
in accordance with the instructions marked on the proxy cards. If no
instructions are made, the shares will be voted by the proxy holders "for"
Proposal 1, the election of the nominees to the Board. Management of the Company
knows of no other business to be presented for consideration at the Meeting. If
any other business matter is properly presented, the proxy holders will have
discretionary authority to vote in accordance with their best judgment. A
majority of the total shares represented in person or by proxy and entitled to
vote at the Meeting is required for any other matter brought to a vote at the
Meeting. A stockholder giving a proxy may revoke it at any time by giving
written notice to the Secretary of the Company before it is voted, by executing
a proxy bearing a later date or by attending the Meeting and voting in person.
The Company's 1998 Annual Report and the proxy material are being mailed to
stockholders on or about April 30, 1999. Upon request, additional proxy
materials will be furnished without cost to brokers and other nominees for
forwarding to beneficial owners of shares held in their names. In addition to
the use of the mails, proxies may be solicited by directors, officers and
employees of the Company, without additional compensation, through personal
interview, telephone or otherwise. All costs of the solicitation will be borne
by the Company.
STOCKHOLDERS ENTITLED TO VOTE
Stockholders of record of the Company's common stock, $.01 par value per
share (the "Common Stock") and the Company's $2.625 convertible exchangeable
preferred stock (the "Preferred Stock") as of the close of business on Monday,
April 19, 1999 are entitled to notice of and to vote at the Meeting. As of March
26, 1999, the Company had outstanding 126,022,235 shares of Common Stock, and
1,733,628 shares of Preferred Stock. Cumulative voting is not allowed in the
election of directors or for any other purpose. The Company's bylaws provide
that a majority of the outstanding shares entitled to vote and represented in
person or by proxy constitute a quorum at the Meeting. A list of stockholders
entitled to notice of and vote at the Meeting will be made available during
regular business hours at the offices of the Company, 601 Jefferson Street,
Suite 1100, Houston, Texas 77002 from April 30, 1999 through May 26, 1999, and
at the Meeting, for inspection by any stockholder for any purpose regarding the
Meeting.
1
<PAGE> 4
PROPOSAL -- ELECTION OF DIRECTORS
GENERAL
At the Meeting, seven directors of the Company are to be elected. In
accordance with the terms of the agreements covering a two-stage equity
investment of $75 million in the Company by Contour Production Company L.L.C.
("Contour"), Messrs. John F. Bookout, Ogden M. Phipps, Michael B. Rothfeld and
Ward W. Woods, were added to the Board in February 1996. As of December 31,
1997, Contour completed the two-stage equity investment in the Company on
December 1, 1997 and owns 75 million issued shares of the Company's Common
Stock, representing 59% of the Company's voting power (the "Contour
Transactions"). Messrs. John J. Conklin, Jr., Ralph P. Davidson, and William J.
Murray were serving on the Board prior to the Contour Transaction. Mr. Michael
B. Rothfeld resigned effective March 16, 1998, and Mr. Adam P. Godfrey was
appointed by the Company's Board of Directors to replace Mr. Rothfeld. Pursuant
to an agreement, Contour is required to vote its shares of Common Stock for the
election of Mr. Bookout as a director of the Company.
Except where authority to vote for one or more nominees is withheld, John
F. Bookout and Rick G. Lester, the designated proxy holders, will vote all of
the shares represented by an executed proxy for the election of the nominees
listed below. The Company expects each of the nominees to be able to serve as a
director. If any nominee should become unavailable to serve as a director for
any reason presently not known or contemplated, the proxy holders will have
discretionary authority to vote for a substitute designated by management.
NOMINEES
The names of the nominees to the Board, together with biographical
information, are set forth below.
John F. Bookout, age 76, has served the Company as Chairman of the Board,
President and Chief Executive Officer since February 1996 in connection with the
Contour Transactions. He had served as Chairman of the Board and President of
Contour Production Company ("CPC") since its formation in 1993. Before joining
CPC as a founder, Mr. Bookout served in positions of increasing responsibility
for 38 years at Shell Oil Company, starting in 1950 as a geologist and
culminating as President, Chief Executive Officer and a director from 1976
through June 1988. From 1988 through 1993, he served as a member of the
Supervisory Board of Royal Dutch Petroleum.
John J. Conklin, Jr., age 68, has served as a director of the Company or
its predecessor since November 1993. Mr. Conklin has been a private investor
since his retirement in 1989 as a senior partner of Conklin, Cahill & Co., a
member firm of the New York Stock Exchange, where he was active for over 35
years. He has also served as a member of the Board of Governors of the New York
Stock Exchange, the Board of Directors of the New York Futures Exchange and the
National Market Advisory Board.
Ralph P. Davidson, age 71, served as Chairman of the Board of the Company
from October 1995 through February 1996 and has served as a director of the
Company or its predecessor since November 1993. Mr. Davidson provides consulting
services to nonprofit organizations as President of Davidson Associates. From
1980 through 1987, he was Chairman of the Board of Time, Inc., where he spent 21
years with Time Magazine in various executive capacities. Mr. Davidson is a
member of the Board of Trustees of Phoenix House, the National Council for
Adoption, the Emeritus Foundation and The American University in Bulgaria.
Adam P. Godfrey, age 36, has served as a director of the Company since
March 19, 1998, and, since January 1, 1998, he has been the sole shareholder and
president of a corporation that serves as a manager of the limited liability
company that is the general partner of Bessemer Holdings, L.P. ("Bessemer") and
other affiliated investment partnerships including investment partnerships that
comprise the BH Group (the "BH Group"). The BH Group owns a majority of the
membership interests in Contour. Mr. Godfrey is also the sole shareholder and
president of a corporation that is a general partner of Bessemer Partners & Co.
("BPC"), an affiliate of Bessemer. From July 1993 to December 1997, Mr. Godfrey
was a principal with
2
<PAGE> 5
BPC, and a member of the general partner of Bessemer. Mr. Godfrey is a director
of several private companies.
William J. Murray, age 84, has served as a director of the Company or its
predecessor since March 1984. Mr. Murray has been an independent petroleum
consultant for more than the past five years. He served on the Texas Railroad
Commission for 16 years, during six of which he served as Chairman. Mr. Murray
currently serves on a number of industry committees, including as Chairman of
the Industry Advisory Committee on Natural Gas Ratable Take and Chairman of the
Industry Voluntary Allocation Committee.
Ogden M. Phipps, age 58, has served as a director of the Company since his
election in February 1996. He was Chairman of the Board of BSC from 1982 through
1994 and of The Bessemer Group, Incorporated ("BGI") from 1991 through 1994. Mr.
Phipps continues to serve as a director of BSC and BGI and is also a manager of
Bessemer Securities, LLC ("BSLLC"). BSC is the principal limited partner of
Bessemer. BSC and BSLLC are principal limited partners in another partnership in
the BH Group. He also serves as a director of several private companies and an
officer and director of several nonprofit organizations.
Ward W. Woods, age 56, has served as a director of the Company since his
election in February 1996. Since 1989, he has been the sole stockholder and
president of corporations that serve as the managing general partner or
principal manager of the general partner of Bessemer and other affiliated
investment partnerships including those comprising the BH Group. He is also the
sole stockholder and president of a corporation that is a managing general
partner of BPC. Mr. Woods is the President and Chief Executive Officer of BSLLC
and BSC (which he joined in 1989). He is a director of Boise Cascade Corporation
and several private companies.
VOTE REQUIRED
Nominees receiving a plurality of votes cast at the Meeting will be elected
as directors. Abstentions and broker non-votes will not be treated as votes cast
for or against any particular director and will not affect the outcome of the
election of directors.
INFORMATION CONCERNING DIRECTORS AND EXECUTIVE OFFICERS
BOARD AND COMMITTEE MEETINGS
Since February 16, 1996, the Board has been comprised of Messrs. Conklin,
Davidson, Murray, Bookout, Phipps, Woods and in the case of Mr. Rothfeld until
March 16, 1998, and since then Mr. Godfrey. During the year, the Board took
action on a total of five meetings. No director attended or participated in
fewer than 75% of these meetings for which he was eligible.
COMMITTEES AND COMMITTEE MEETINGS
The Board has Audit, Compensation and Nominating Committees. The
assignments to these Committees, since April 1996, are as follows:
<TABLE>
<CAPTION>
AUDIT NOMINATING COMPENSATION
COMMITTEE COMMITTEE COMMITTEE
--------- ---------- ------------
<S> <C> <C>
Ralph P. Davidson -- Chairman Ogden M. Phipps -- Chairman Ward W. Woods -- Chairman
John J. Conklin, Jr. William J. Murray John J. Conklin, Jr.
Adam P. Godfrey Ward W. Woods Ralph P. Davidson
Ogden M. Phipps
</TABLE>
The Audit Committee is charged with various duties relating to the
Company's financial reporting obligations. These responsibilities include
recommending the appointment of independent auditors to the Board, reviewing the
compensation of the auditors, reviewing the scope and results of the annual
audit performed by the independent auditors, assuring that proper guidelines are
established for the dissemination of financial information, conferring with the
auditors to assure the adequate training and supervision of the Company's
accounting personnel, meeting periodically with the auditors, the Board and
senior management to
3
<PAGE> 6
ensure the adequacy of internal controls and reporting functions and reviewing
the Company's consolidated financial statements. The Audit Committee held two
meetings during 1998, with all members of the Committee participating in the
meetings.
The Compensation Committee has the authority and responsibility to review
the compensation policies of the Company, to administer and approve all elements
of compensation for elected corporate officers, to consider and recommend to the
Board succession plans for executive officers, and to grant awards to key
employees under the Company's incentive and performance plans. The Compensation
Committee held two meetings during 1998, with all members of the Committee
participating in the meetings.
The Nominating Committee was formed in 1996 to evaluate the size and
composition of the Board and establish guidelines for director qualifications.
Any recommendations by stockholders will be considered if received within 120
days prior to the anniversary date of the last annual meeting of stockholders.
The selection of all directors will be in accordance with established
guidelines. The Nominating Committee met once in 1998, with all of its members
participating in the meeting.
COMPENSATION OF DIRECTORS
The Company's nonmanagement directors receive $3,750 quarterly and $1,000
for each committee meeting attended.
EXECUTIVE OFFICERS
Set forth below are the names, ages and positions of the current executive
officers of the Company. All officers hold office until their successors are
duly appointed and qualified.
<TABLE>
<CAPTION>
OFFICER OR
DIRECTOR OF
THE COMPANY
NAME AGE POSITION SINCE
- ---- --- -------- -----------
<S> <C> <C> <C>
President, Chief Executive Officer and a
John F. Bookout................... 76 Director 1996
Senior Vice President -- Exploration and
Dallas D. Laumbach................ 62 Production 1996
Senior Vice President and Chief Financial
Rick G. Lester.................... 47 Officer 1998
</TABLE>
John F. Bookout joined the Company as Chairman of the Board, President and
Chief Executive Officer in February 1996 upon completion of the Contour
Transactions. He served as Chairman of the Board of Contour since its inception
in 1993 until February 1996.
Dallas D. Laumbach has served as Senior Vice President -- Exploration and
Production of the Company since February 1996. He served as Senior Vice
President of Contour from December 1993 to February 1996. Before joining
Contour, Mr. Laumbach served in positions of increasing responsibility at Shell
Oil Company, concluding as Manager -- Business Development within the
exploration and production segment.
Rick G. Lester was elected Senior Vice President and Chief Financial
Officer by the Board on October 1, 1998. Previously, he was Vice President and
Chief Financial Officer of Domain Energy Corporation until its merger into Lomak
Petroleum to form Range Resources Corporation. Mr. Lester served in various
positions with Tenneco, Inc. and its subsidiaries prior to his tenure at Domain.
4
<PAGE> 7
COMPENSATION OF NAMED EXECUTIVE OFFICERS
The following summary compensation table sets forth compensation paid
during the last three fiscal years to the Company's Chief Executive Officer and
the Company's other executive officers whose compensation exceeded $100,000
during 1997 (the "Named Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION
COMPENSATION(1) ------------
------------------ OPTION/SAR ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS(5) AWARDS(#) COMPENSATION(2)
- --------------------------- ---- ------- -------- ------------ ---------------
<S> <C> <C> <C> <C> <C>
David C. Baggett(4)(6)................. 1998 126,666 77,334 -- 8,284
Former Senior Vice President and 1997 148,000 -- 575,000 9,500
Chief Financial Officer 1996 -- -- -- --
Thomas E. Baker(7)..................... 1998 91,538 76,834 98,000 3,991
Former General Counsel and 1997 175,000 -- -- 9,500
Corporate Secretary 1996 80,681 -- -- 3,500
John F. Bookout(3)..................... 1998 800,000 -- -- 10,000
Chairman, President and CEO 1997 800,000 -- -- 8,000
1996 700,000 -- -- 2,667
Dallas D. Laumbach(3).................. 1998 190,000 -- -- 10,000
Senior Vice President -- 1997 190,000 -- -- 9,500
Exploration and Production 1996 166,250 -- 862,500 3,800
Rick G. Lester(6)...................... 1998 43,750 50,000 381,000 2,625
Senior Vice President and
Chief Financial Officer
William C. Rankin(3,4)................. 1997 37,500 -- -- 167,063
Former Senior Vice President and 1996 144,375 -- 862,500 3,300
Chief Financial Officer
</TABLE>
- ---------------
(1) Perquisites and other benefits did not exceed 10% of any named officer's
total annual salary and bonus and therefore are excluded.
(2) 1997 and 1996 amounts include matching contributions by the Company to the
named executive officer's 401(k) account. Prior to 1996, the Company made
annual contributions to the ESOP, on behalf of all employees, in an amount
equal to 15% of their cash compensation up to a specified level. See
"Employee Section 401(k) and Stock Ownership Plan."
(3) In February 1996, Mr. Bookout was appointed Chairman, President and CEO of
the Company. Mr. Laumbach was appointed Senior Vice President -- Exploration
and Production, and Mr. Rankin was appointed Senior Vice President and Chief
Financial Officer.
(4) In March 1997, Mr. Baggett was appointed Senior Vice President and Chief
Financial Officer after Mr. Rankin left the employment of the Company. Mr.
Rankin was paid $165,000 in severance payments in accordance with his
employment agreement.
(5) Does not include annual performance awards granted in respect of 1997 under
the 1997 Annual and Long-Term Incentive-Performance Plan. Awards are based
on 1997 performance criteria and were paid in 1998.
(6) In October 1998, Mr. Lester was appointed Senior Vice President and Chief
Financial Officer after Mr. Baggett left the employment of the Company.
(7) Mr. Baker resigned as an employee on July 31, 1998 and his option
terminated, and as General Counsel and Corporate Secretary on March 3, 1999.
5
<PAGE> 8
STOCK OPTIONS PLANS
The Company maintains stock option plans (collectively, the "Stock Option
Plans") providing for the authority to grant options intended to be (i) not
qualified ("NQSOs") under section 422 of the Internal Revenue Code of 1986, as
amended (the "Code"), (ii) qualified ("QSOs") under section 422 of the Code or
(iii) either NQSOs or QSOs. Stock Option Plans covering the grant of QSOs only
were adopted in 1987 (the "1987 Plan"), 1991 (the "1991 Plan"), 1995 (the "1995
Plan") and 1996 (the "1996 Plan"), covering the grants of options for 500,000
shares, 500,000 shares, 1.5 million shares and 1 million shares, respectively,
of Common Stock. In February 1996 a Stock Option Plan covering the grant of
NQSOs only (the "1996 NQSO Plan") was adopted in accordance with the terms of
the Contour Agreements and provides for the grant of options to purchase a total
of 2.5 million shares of Common Stock to senior executives designated by Mr.
Bookout.
In March 1997, the Board of Directors of the Company adopted, subject to
stockholder approval, the Company's 1997 Annual and Long-Term
Incentive-Performance Plan (the "1997 Plan"). The stockholders of the Company
approved the 1997 Plan on May 29, 1997. The 1997 Plan amended the 1996 Plan in
its entirety, with effect from January 1, 1997, except as to the 10,000
outstanding grant of options. Awards granted under the 1997 Plan may be (i)
annual performance awards ("Annual Performance Awards"); (ii) stock options
designated as either NQSOs or QSOs; or (iii) other forms of stock-based
performance awards (collectively, (i), (ii) and (iii) referred to as
"Awards").The total number of shares authorized for issuance under the 1997 Plan
is 4,200,000 shares.
The exercise price for NQSOs granted under the 1997 Plan and QSOs are fixed
either by the Compensation Committee of the Board or the Board at the fair
market value of the Common Stock at the time of the grant. Options granted under
the 1987, 1991 and 1995 Plans are exercisable during the term of the optionee's
employment and three years thereafter for up to ten years from the date of
grant. Options granted under the 1996 Plan, the 1996 NQSO Plan, and the 1997
Plan are exercisable after vesting (generally, at the annual rates of 100%,
33 1/3%, 25%, respectively) during the term of the optionee's employment and six
months thereafter for up to ten years from the date of grant. The exercise price
for options granted under the 1996 NQSO Plan was fixed in the plan. The QSO
Plans and 1996 NQSO Plan will terminate upon the earlier of (i) the date on
which all shares available for issuance have been issued upon the exercise of
options granted thereunder, or (ii) ten years from the date of adoption. Under
the 1997 Plan, no award may be granted after May 29, 2001.
Under the 1987 Plan, options were granted to purchase a total of 185,000
shares of common stock of Kelley Oil Corporation (the Company's predecessor)
("Kelley Oil") at $1.10 per share during 1988 and 315,000 shares at $2.00 per
share during 1989. Under the 1991 Plan, options were granted to purchase a total
of 219,000 shares of Kelley Oil's common stock at $7 5/8 per share during 1991,
15,000 shares at $7.00 per share during 1993, 266,000 shares of Common Stock at
$2 3/8 per share during 1995, and 14,000 shares at $2 3/16 per share. The
options granted under the 1991 Plan with an exercise price of $7 5/8 and $7.00
per share were repriced in 1995, to the extent then outstanding, at $4 1/8 per
share. Under the 1995 Plan, options to purchase a total of 1,500,000 shares of
Common Stock were granted during 1995 at exercise prices ranging from $1 3/4 to
$2 3/8 per share. Under the 1996 Plan, options were granted to purchase a total
of 20,000 shares of Common Stock at $2 7/8 per share during 1996, and 25,000
shares of Common Stock at $2 9/16 per share in February 1997. Under the 1996
NQSO Plan, options were granted to purchase a total of 2,500,000 shares of
Common Stock at the exercise price of $1.00 per share.
In 1997 under the 1997 Plan, NQSOs were granted to purchase a total of
442,500 shares of Common Stock at prices ranging from $2 9/16 to $3 1/4 per
share. In 1998 under the 1997 Plan, NQSOs were granted to purchase a total of
727,000 shares of Common Stock at prices ranging from $0.6875 to $2.21875 per
share. In 1998, 1997 and 1996, options were exercised for a total of 272,167
shares; 415,400 shares; and 35,600 shares, respectively, at prices from $1.00 to
$2 3/8 per share during 1997. At December 31, 1998, options issued and
outstanding to purchase shares of Common Stock under the 1987, 1991, 1996, 1996
NQSO and 1997 Plans were 111,000 shares; 448,205 shares; 1,393,795 shares;
10,000 shares; 1,680,167 shares; and 853,500 shares, respectively, or a total of
4,496,667 shares of Common Stock subject to options under all of the Plans.
Mr. Bookout has not participated in any of the Stock Option Plans or in the
1997 Plan.
6
<PAGE> 9
The following table provides information about NQSOs granted during 1997
under the 1996 NQSO Plan and the 1997 Plan to the following Named Executive
Officers.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL REALIZABLE
--------------------------------------------------- VALUE AT ASSUMED ANNUAL
NUMBER OF % OF TOTAL RATES OF STOCK PRICE
SECURITIES OPTIONS/SARS EXERCISE APPRECIATION FOR
UNDERLYING GRANTED TO OR BASE OPTION TERM(1)
OPTIONS/SARS EMPLOYEES IN PRICE EXPIRATION -----------------------
NAME GRANTED FISCAL YEAR ($/SH) DATE 5% ($) 10% ($)
---- ------------ ------------ -------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Rick G. Lester........ 381,000(2) 57.64% 1.00 10/19/2008 239,609 607,216
Thomas E. Baker....... 98,000(3) 9.82% 2.2188 7/31/1998(3) 136,748(3) 346,547(3)
</TABLE>
- ---------------
(1) Potential realizable value is based on an assumption that the stock price of
the Common Stock appreciates at the annual rate shown (compounded annually)
from the date of grant until the end of the 10-year option term. These
numbers are calculated based on the requirements promulgated by the
Securities and Exchange Commission and do not reflect the Company's future
stock price growth, which is dependent on future performance and stock
market conditions.
(2) This was granted on October 19, 1998 by the Board in accordance with the
1996 NQSO Plan.
(3) This was granted on March 19, 1998 in accordance with the 1997 Plan; Mr.
Baker resigned as an employee on July 31, 1998, and the option terminated on
that date.
The following table sets forth information on stock options exercised in
1998, unexercised stock options held, and option values held by the Named
Executive Officers as of December 31, 1998.
AGGREGATED OPTION EXERCISES IN 1998
AND 1998 YEAR END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SHARES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS AT
SHARES OPTIONS AT YEAR END YEAR END(1)
ACQUIRED ON VALUE --------------------------- ---------------------------
NAME EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
David C. Baggett........ 191,667 75,239 None None(2) N/A N/A
Thomas E. Baker......... None N/A 29,500 None(2) N/A(3) N/A
John F. Bookout......... None N/A None None N/A N/A
Dallas D. Laumbach...... None N/A 575,000 287,500 N/A(3) N/A(3)
Rick G. Lester.......... None N/A None 381,000 N/A N/A(3)
William C. Rankin....... 287,500(2) 483,615(4) None None(2) N/A N/A
</TABLE>
- ---------------
(1) Calculated utilizing the closing price of the Common Stock listed on the
NASDAQ National Market System on December 31, 1998.
(2) Mr. Rankin left the employment of the Company in March 1997. At such time,
287,500 options had vested. The remaining 575,000 options were forfeited in
accordance with the terms and conditions of the NQSO Plan, and those 575,000
options were granted to David C. Baggett on March 20, 1997. Mr. Baggett
resigned from the Company on August 31, 1998. At such time, 191,667 options
had vested. The remaining 383,333 options were forfeited in accordance with
the terms and conditions of the NQSO Plan, and 381,000 options were granted
to Mr. Lester. Mr. Baker resigned as an employee on July 31, 1998.
(3) The exercise price exceeded the closing price of the Common Stock at year
end.
(4) This value was calculated by subtracting the exercise prices from the
closing prices on the NASDAQ National Market System of the underlying Common
Stock on the exercise dates. The value reflects the increase in the prices
of the Common Stock from the option grant dates to the option exercise
dates, but does not reflect actual proceeds received upon the option
exercises.
7
<PAGE> 10
EMPLOYEE SECTION 401(K) AND STOCK OWNERSHIP PLAN
In 1984 an employee stock ownership plan ("ESOP") was established for the
benefit of substantially all of the employees. Effective September 1, 1996, the
ESOP was converted into a Section 401(k) Plan (the "401(k) Plan"). All employees
are eligible to participate in the 401(k) Plan. The Company previously
contributed to the ESOP an annual amount equal to 15% of each employee's
compensation (up to a specified level) to enable the ESOP to purchase qualifying
securities for the accounts of employees. Qualifying securities were allocated
to employees' accounts in the ESOP in amounts that were proportionate to the
ESOP's repayment of borrowings incurred to purchase those securities, all of
which are currently allocated following repayment of ESOP borrowings in 1995.
Employees become fully vested in their accounts in the 401(k) Plan after
two years of service. Prior to converting the ESOP into a Section 401(k) Plan,
the ESOP held Preferred Stock which the Board redeemed in exchange for the same
number of shares of Common Stock. Effective with the conversion of the ESOP into
a Section 401(k) Plan, participants have the opportunity to invest their
accounts in various mutual funds and in Common Stock. The Company matches 100%
of the employees' contributions to the 401(k) Plan in an amount up to 6% of the
employee's salary, subject to limits required by the Code.
EMPLOYMENT AGREEMENTS
In connection with the Contour Transactions, the Company entered into
three-year employment agreements with John F. Bookout and Dallas D. Laumbach at
base salaries of $800,000 and $190,000, respectively. In October 1998, the
Company entered into a one-year evergreen employment agreement with Rick G.
Lester at a base salary of $175,000 and an initial bonus of $50,000. Each of the
agreements provides for a lump sum severance payment if the covered executive is
terminated by the Company without cause or as otherwise permitted, as defined in
the agreements. The severance payment would be equal to one year's compensation
as defined in the respective agreements, except that Mr. Bookout would be
entitled to a payment covering the balance of the three-year term, Mr. Lester's
severance payment would be equal to one year's salary if terminated prior to one
year, and in the case of a change of control, eighteen months' salary plus
annual performance awards as defined in the agreement. Each of the agreements
provides for various other benefits and for indemnification of the covered
executive under certain conditions. In 1999, the Board extended the agreement
with Mr. Bookout for an additional three-year term on the same compensation
terms.
CHANGE OF CONTROL AGREEMENTS AND SEVERANCE PAYMENTS
In November 1995, the Company entered into change of control agreements
with 16 management and professional personnel, entitling them to severance
benefits in the event their employment with the Company was terminated prior to
February 15, 1998. For this purpose, the Contour Transactions constituted a
change of control. The severance benefits amount to salary continuation for
twelve months, based on the employee's highest compensation rate during the two
years prior to termination, for all covered employees other than three specified
persons, who were entitled upon termination of employment to salary continuation
for periods of 36, 24 and 18 months, respectively. Pursuant to the employment
agreement with Mr. Rankin, the Company became obligated upon his departure in
1997 to make payments to him of $165,000 in 1997.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
None of the directors serving on the Board's Compensation Committee (the
"Committee") has ever served as an officer or employee of the Company or any of
its subsidiaries, and are not eligible to participate in the 1997 Plan.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
Compensation Policy. In 1996, Deloitte & Touche LLP's Performance
Management and Compensation Group ("D&T PMC Group") was retained to review the
competitiveness of the Company's current compensation program ("Compensation
Review") including various comparisons by specific positions with a
representative peer group, consisting of base salary, annual incentives,
long-term incentives, retirement
8
<PAGE> 11
benefits and non-qualified deferred compensation. Upon consideration of the
Compensation Review, the Committee requested D&T PMC Group to design an annual
and long-term incentive plan which would permit the Company to be competitive
with industry peers and linked to corporate, team and individual performances.
D&T PMC Group then in consultation with the Committee developed the 1997 Annual
and Long-Term Incentive-Performance Plan (the "1997 Plan"), which was approved
by the Committee and recommended to the Board for its approval, subject to
stockholder approval. As previously mentioned, the 1997 Plan was approved on May
29, 1997 by stockholders.
The Committee's goal is to maintain executive compensation at levels that
are competitive with industry peers and linked to corporate performance;
nevertheless it recognizes that the actual compensation in any particular year
may be above or below published rates for competitors. In addition, due to the
volatility of the energy industry, the Company's compensation levels from year
to year may not correlate directly with various corporate performance measures
in a particular year. The Committee believes, however, that the Company's 1997
Plan enables it to balance the relationship between compensation and performance
in the best interests of the stockholders.
Salary Determinations. The salaries for Messrs. Bookout and Laumbach were
established in contracts executed pursuant to the terms and conditions in the
initial Contour Transaction. The salary for Mr. Lester in 1998 was established
in his employment contract approved by the Committee, and the salary for Mr.
Baker was set by the Committee in July 1996 at the time of his retention. There
have been no other changes by the Committee or otherwise to the Company's Named
Executive Officers' salaries subsequent to the initial Contour Transaction.
Incentive-Performance Recommendations. The Committee, in accordance with
the 1997 Plan, approved the specific individual NQSO grants and annual cash
incentive-performance awards in 1997, including specific criteria to be used in
determining the amounts of 1997 cash incentive-performance awards which were
paid in 1998. There have been no other bonuses paid to the Named Executive
Officers in 1998. In 1998 in accordance with the 1997 Plan, the Committee
approved the specific individual NQSO grants and annual cash incentive-
performance awards, including specific criteria to be used in determining the
amounts of 1998 awards. Since the threshold criteria was not met in 1998, no
annual cash incentive-performance award payments have been authorized.
This report has been approved by Ward W. Woods, Chairman, John J. Conklin,
Jr., Ralph P. Davidson and Ogden M. Phipps, comprising all of the members of the
Compensation Committee.
9
<PAGE> 12
STOCK PERFORMANCE CHART
The following chart graphs the performance of the cumulative total return
to shareholders (stock price appreciation plus dividends) during the previous
five years in comparison to returns of the Standard & Poor's 500 Composite Stock
Price Index, the peer group and the prior peer group. This chart was prepared by
using data provided by the Compustat division of Standard & Poor, and is based
on the following assumptions that $100 was invested at the close of trading on
the last trading day preceding the first day of 1994, and the reinvestment of
dividends. The companies in the peer group, the Morgan Stanley, Inc. median gas
independent peer group, have been modified to exclude Wainoco Oil Corp. (who has
significant activities other than exploration and production).
Stock Performance Chart
<TABLE>
<CAPTION>
Measurement Period
(Fiscal Year Covered) KOGC S & P 500 Peer Group
<S> <C> <C> <C>
1994 38.16 101.32 87.71
1995 13.81 139.40 102.04
1996 25.65 171.40 170.28
1997 23.02 228.59 129.90
1998 14.48 293.91 78.78
</TABLE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information as of April 2, 1999 with respect
to the persons other than the 401(k) Plan known by the Company to own
beneficially more than five percent of any class of its capital stock.
<TABLE>
<CAPTION>
NAME AND ADDRESS AMOUNT AND NATURE PERCENTAGE
TITLE OF CLASS OF BENEFICIAL OWNER OF BENEFICIAL OWNERSHIP OF CLASS
-------------- ------------------- ----------------------- ----------
<S> <C> <C> <C>
Common Stock................ Bessemer Holdings, L.P. and 72,144,048 59.4%
Contour Production Company L.L.C.
630 Fifth Avenue
New York, New York 10111
</TABLE>
Bessemer Holdings, L.P. ("Bessemer") owns a majority of the membership
interests in Contour. Based on a Statement on Schedule 13-D filed with the SEC,
Contour and Bessemer are each deemed to beneficially own the shares of Common
Stock held of record by Contour. As of April 2, 1999, those shares represented
56.8% of the Company's total voting power. Bevairohn, Ltd., a partnership
controlled by John F. Bookout, Chairman, President and CEO of the Company, and
six other investment partnerships having the same general partner as Bessemer
own the remaining interests in Contour and may be deemed to beneficially own the
Common Stock held by Contour. Contour has agreed, subject to certain
limitations, to vote for the election of Mr. Bookout as a director of the
Company.
10
<PAGE> 13
The following table sets forth information as of March 31, 1999 with
respect to the Company's Common Stock and its Preferred Stock beneficially
owned, directly or indirectly, by each of the Company's directors, by the Named
Executive Officers during 1998 and by all of its directors and Named Executive
Officers as a group.
<TABLE>
<CAPTION>
COMMON PERCENT PREFERRED PERCENT
NAME OF BENEFICIAL OWNER STOCK(1) OF CLASS STOCK OF CLASS(3)
- ------------------------ --------- -------- --------- -----------
<S> <C> <C> <C> <C>
David C. Baggett(6).................................. -- -- -- --
Thomas E. Baker(7)................................... -- -- -- --
John F. Bookout(2)(5)................................ -- -- -- --
John J. Conklin, Jr. ................................ 71,037 0.06 -- --
Ralph P. Davidson(3)................................. 154,862 0.12 -- --
Adam P. Godfrey(2)................................... -- -- -- --
Dallas D. Laumbach(1)................................ 862,500 0.69 -- --
Rick G. Lester....................................... -- -- -- --
William J. Murray(4)................................. 81,805 0.07 2,000 .11
Ogden M. Phipps(2)................................... -- -- -- --
William C. Rankin(6)................................. -- -- -- --
Ward W. Woods(2)..................................... -- -- -- --
All current directors and Named Executive Officers as
a group (12 persons)(1)............................ 1,170,204 0.86 2,000 .11
</TABLE>
- ---------------
(1) Represents shares of Common Stock owned directly and indirectly as indicated
below, including shares subject to vested options under the 1996 NQSO Plan
as follows: Mr. Laumbach, 862,500.
(2) Excludes 72,144,048 shares of Common Stock held by Contour, in which Messrs.
Bookout, Godfrey and Woods and partnerships controlled by Mr. Bookout have
an indirect interest, and as to which each of Messrs. Godfrey and Woods have
disclaimed beneficial ownership.
(3) Includes 122,253 shares of Common Stock held by Mr. Davidson's wife and 609
shares of Common Stock held by his daughter.
(4) Includes 2,000 shares of Preferred Stock held in Mr. Murray's defined
benefit pension plan.
(5) Excludes 2,855,952 shares of Common Stock (2.3% of class) held by JFB
Squared, Ltd., in which Mr. Bookout has sole voting power.
(6) Mr. Baggett and Mr. Rankin left the Company in August 1998 and March 1997,
respectively.
(7) Mr. Baker resigned as an employee of the Company in July 1998.
RELATED PARTY TRANSACTION
In connection with the Contour Transactions, the Company entered into an
agreement (the "Advisory Agreement") with BPC, providing for the engagement of
BPC to provide the Company with financial advisory services for a term expiring
at the end of 1998. Under the Advisory Agreement, BPC assisted the Company in
arranging a new credit facility and negotiating the related agreements. BPC has
also agreed to assist the Company in restructuring its current capital
structure. For its services under the Advisory Agreement, BPC received in 1996
an advisory fee of $2 million at the closing of the Contour Transactions and
$500,000 received in each of December 1996, 1997 and 1998. In addition, BPC is
entitled to reimbursement of expenses incurred in connection with rendering
advisory services. The Company has also agreed to indemnify BPC and its
affiliates against certain liabilities under the Advisory Agreement. As
previously mentioned, Mr. Woods is the sole stockholder and president of a
corporation that is the managing general partner of BPC, and Mr. Godfrey is the
sole stockholder and president of a corporation that is a general partner of
BPC. Upon satisfaction of certain conditions, the Company intends to execute a
similar advisory agreement with BPC for annual financial advisory services and
containing the same annual remuneration arrangements.
11
<PAGE> 14
It is the policy of the Company to structure any transactions between the
Company and its officers, directors, principal stockholders or other affiliates
only on terms no less favorable to the Company than terms that could be obtained
on an arms length basis from unrelated parties and only upon approval by a
majority of the Company's independent and disinterested directors.
SECTION 16(a) BENEFICIAL OWNERSHIP AND REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
directors and executive officers, and persons who own more than 10% of a
registered class of the Company's equity securities, to file with the Securities
and Exchange Commission reports of ownership and changes in ownership of common
stock and other equity securities of the Company. Based on a review of reports
and information provided to the Company by executive officers, directors and
greater than 10% stockholders, the Company believes all reports required to be
filed in 1998 were timely filed, except, as a result of an administrative
oversight, one report for Mr. Conklin was filed shortly after the prescribed
filing date.
INDEPENDENT PUBLIC ACCOUNTANTS
Deloitte & Touche LLP ("D&T") is engaged as the Company's independent
public accountant to audit its financial statements. D&T has audited the
financial statements of the Company for the years ended December 31, 1995, 1996,
1997, and 1998. Stockholder ratification of the appointment of auditors is not
required. D&T will be represented at the Meeting, will have the opportunity to
make statements, and will be available to respond to appropriate questions.
PROPOSALS BY STOCKHOLDERS
In accordance with rules of the Securities and Exchange Commission,
stockholders of the Company may present proposals to the Company for inclusion
in its proxy statement prepared in connection with the next regular annual
meeting of stockholders. Proposals to be included in that proxy statement must
be received by the Company no later than January 31, 2000 in order to be
considered for inclusion.
OTHER MATTERS
The Board knows of no business other than the matters discussed in this
Proxy Statement that properly may be, or is likely to be, brought before the
Meeting. In the event any other business is properly brought before the Meeting,
however, the proxyholder will vote in accordance with his best judgment on those
matters.
John F. Bookout
Chairman of the Board, President
and Chief Executive Officer
Houston, Texas
April 19, 1999
12
<PAGE> 15
- -------------------------------------------------------------------------------
This proxy, when properly executed, will be voted in the manner specified by the
undersigned stockholder. If no direction is made, this proxy will be voted for
all nominees.
Please mark [X]
your vote as
indicated in
this example
ELECTION OF DIRECTORS: IMPORTANT: To withhold authority to vote for any
individual nominee, strike a line
through the nominee's name in the list
below.
FOR all nominees WITHHOLD
listed to the right AUTHORITY
(except as marked to vote for all nominees
to the contrary) located to the right
[ ] [ ]
John F. Bookout Adam P. Godfrey
John J. Conklin, Jr. William J. Murray
Ralph P. Davidson Ogden M. Phipps
Ward W. Woods
In their discretion, the Proxies are authorized to vote upon any other matters
that may properly come before the meeting.
Please sign exactly as name appears
hereon. When shares are held by joint
tenants, both should sign. When signing
as attorney, executor, administrator
trustee, guardian or officer, please
give full title as such. If a
corporation, please sign in full
corporate name by authorized officer. If
a partnership, please sign in
partnership name by authorized person.
DATED: , 1999
-----------------------
---------------------------------------
Signature
---------------------------------------
Signature if held jointly
Please mark, sign, date and promptly return the proxy using the enclosed
envelope.
===============================================================================
FOLD AND DETACH HERE
KELLEY OIL & GAS CORPORATION
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 27, 1999
To Our Stockholders:
The Annual Meeting of Stockholders of Kelley Oil & Gas Corporation will be
held at the Chase Conference Center on the eleventh floor in Conference Room A
at 270 Park Avenue (between 47th and 48th Streets), New York, New York 10017,
at 10:30 a.m. EDT on Thursday, May 27, 1999.
You are cordially invited to attend the meeting. Stockholders who do not
expect to attend the meeting in person are requested to complete, date and sign
the above proxy card and return it promptly in the envelope provided. If you
attend the meeting, you may vote either in person or by your proxy. The Company
values your opinion and encourages your participation.
<PAGE> 16
- -------------------------------------------------------------------------------
PROXY
KELLEY OIL & GAS CORPORATION
601 JEFFERSON STREET, SUITE 110
HOUSTON, TEXAS 77002
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints John F. Bookout and Rick G. Lester, and
each of them, the proxy and attorney-in-fact for the undersigned, with full
power of substitution, to vote as designated hereon, all the shares of capital
stock of Kelley Oil & Gas Corporation held of record by the undersigned on
April 19, 1999 at the Annual Meeting of Stockholders to be held on May 27, 1999
or any adjournment thereof.
===============================================================================
FOLD AND DETACH HERE
