SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
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 (S) 240.14a-11(c) or (S) 240.14a-12
SPINNAKER EXPLORATION COMPANY
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(Name of Registrant as Specified in its Charter)
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(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.
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(3) Per unit price or other underlying value of transaction computed
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[_] Fee paid previously with preliminary materials.
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[Spinnaker Exploration Company Logo]
SPINNAKER EXPLORATION COMPANY
Houston, Texas
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
Tuesday, May 8, 2001
To the Stockholders:
The 2001 Annual Meeting of Stockholders (the "Annual Meeting") of Spinnaker
Exploration Company (the "Company") will be held on Tuesday, May 8, 2001, at
10:00 a.m., local time, at the Hyatt Regency Houston, 1200 Louisiana Street,
Houston, Texas, for the following purposes:
(1) To elect seven directors to serve until the 2002 Annual Meeting of
Stockholders;
(2) To approve the Spinnaker Exploration Company 2001 Stock Incentive
Plan;
(3) To ratify the selection of Arthur Andersen LLP as independent
public accountants of the Company for the fiscal year ending
December 31, 2001; and
(4) To transact such other business as may properly come before such
meeting or any adjournment(s) thereof.
The close of business on March 16, 2001 has been fixed as the record date
for the determination of stockholders entitled to receive notice of and to
vote at the Annual Meeting or any adjournment(s) thereof.
You are cordially invited to attend the Annual Meeting. WHETHER OR NOT YOU
PLAN TO ATTEND THE ANNUAL MEETING, WE ASK THAT YOU SIGN AND RETURN THE
ENCLOSED PROXY AS PROMPTLY AS POSSIBLE. A SELF-ADDRESSED, POSTAGE-PAID
ENVELOPE IS ENCLOSED FOR YOUR CONVENIENCE.
By Order of the Board of Directors
/s/ Robert M. Snell
Robert M. Snell
Secretary
March 27, 2001
[Spinnaker Exploration Company Logo]
SPINNAKER EXPLORATION COMPANY
1200 Smith Street, Suite 800
Houston, Texas 77002
(713) 759-1770
----------------
PROXY STATEMENT
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SOLICITATION AND REVOCABILITY OF PROXIES
The enclosed proxy is solicited by and on behalf of the Board of Directors
of the Company (the "Board of Directors") for use at the Annual Meeting to be
held on Tuesday, May 8, 2001, at 10:00 a.m., local time, at the Hyatt Regency
Houston, 1200 Louisiana Street, Houston, Texas or at any adjournment(s)
thereof. The solicitation of proxies by the Board of Directors will be
conducted primarily by mail. In addition, officers, directors and employees of
the Company may solicit proxies personally or by telephone, telegram or other
forms of wire or facsimile communication. The Company will reimburse brokers,
custodians, nominees and fiduciaries for reasonable expenses incurred by them
in forwarding proxy material to beneficial owners of common stock of the
Company ("Common Stock"). The costs of the solicitation will be borne by the
Company. This proxy statement and the form of proxy were first mailed to
stockholders of the Company on or about March 27, 2001.
The enclosed proxy, even though executed and returned, may be revoked at
any time prior to the voting of the proxy (a) by execution and submission of a
revised proxy, (b) by written notice to the Secretary of the Company or (c) by
voting in person at the Annual Meeting. In the absence of such revocation,
shares represented by the proxies will be voted at the Annual Meeting.
At the close of business on March 16, 2001, the record date for the
determination of stockholders entitled to notice of and to vote at the Annual
Meeting, there were 27,055,622 outstanding shares of Common Stock. Each
stockholder is entitled to one vote for each share of Common Stock. The Common
Stock is the only class of outstanding securities of the Company entitled to
notice of and to vote at the Annual Meeting. In order to transact business at
the Annual Meeting, a quorum consisting of a majority of all outstanding
shares entitled to vote must be present or represented by proxy. Abstentions
and proxies returned by brokerage firms for which no voting instructions have
been received from their principals will be counted for the purpose of
determining whether a quorum is present.
The Company's annual report to stockholders for the year ended December 31,
2000, including financial statements, is being mailed with the enclosed proxy
to all stockholders entitled to vote at the Annual Meeting. The annual report
does not constitute a part of the proxy soliciting material.
ELECTION OF DIRECTORS
(Proposal One)
Seven directors are to be elected at the Annual Meeting. The nominees for
election as directors are Roger L. Jarvis, Sheldon R. Erikson, Jeffrey A.
Harris, Michael E. McMahon, Howard H. Newman, Michael G. Morris and Michael E.
Wiley. If elected, each director will serve until the Company's 2002 Annual
Meeting of Stockholders and until his successor shall have been elected and
qualified. Each of the nominees for director
1
currently serves as a director of the Company. All of the directors are
required to stand for election at the Annual Meeting because directors hold
annual terms. The affirmative vote of the holders of a majority of the Common
Stock present or represented by proxy and entitled to vote at the Annual
Meeting is required to elect a director. Accordingly, abstentions and "broker
non-votes" would have the same effect as a vote against a director. A broker
non-vote occurs if a broker or other nominee does not have discretionary
authority and has not received instructions with respect to a particular item.
Stockholders may not cumulate their votes in the election of directors.
Two directors designated by Petroleum Geo-Services ASA ("PGS") to serve on
the Board of Directors since the formation of the Company, Bjarte Bruheim and
Reidar Michaelsen, resigned effective March 8, 2001. The Board of Directors
appointed Messrs. Morris and Wiley to fill the vacant positions created by
their resignations that same day.
Unless otherwise instructed or unless authority to vote is withheld, the
enclosed proxy will be voted FOR the election of the nominees listed below.
Although the Board of Directors does not contemplate that any of the nominees
will be unable to serve, if such a situation arises prior to the Annual
Meeting, the persons named in the enclosed proxy will vote for the election of
such other person(s) as may be nominated by the Board of Directors.
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE "FOR" THE ELECTION OF
THE ABOVE NOMINEES.
The following table sets forth information as to each nominee regarding
their name, age as of March 16, 2001, principal occupation, other
directorships in certain companies held by them and the length of their
continuous service as a director of the Company.
Director
Nominees Principal Occupation and Directorships Since Age
-------- -------------------------------------- -------- ---
Roger L. Jarvis..... Chairman of the Board, President and Chief 1996 47
Executive Officer of the Company
Jeffrey A. Harris... Member and Senior Managing Director, E.M. 1996 45
Warburg, Pincus & Co., LLC; General
Partner, Warburg, Pincus & Co.; Director,
ECsoft Group plc, Industri-Matematik
International Corp., Knoll, Inc. and Avaya
Inc.
Howard H. Newman.... Vice Chairman, Member and Managing 1996 53
Director, E.M. Warburg, Pincus & Co., LLC;
General Partner, Warburg, Pincus & Co.;
Director, ADVO, Inc., Cox Insurance
Holdings, Plc, Dime Bancorp, Inc., Eagle
Family Foods Holdings, Inc., EEX
Corporation, Encore Acquisition Company
and Newfield Exploration Company
Michael E. McMahon.. Partner, RockPort Partners LLC; Director, 1999 53
Triton Energy Limited
Sheldon R. Erikson.. Chairman of the Board, President and Chief 2000 59
Executive Officer, Cooper Cameron
Corporation; Director, Triton Energy
Corporation, Layne Christensen Co., NCI
Building Systems, Inc., Petroleum
Equipment Suppliers Association and
American Petroleum Institute
Michael G. Morris... Chairman of the Board, President and Chief 2001 54
Executive Officer, Northeast Utilities;
Director, Webster Financial Corporation
Michael E. Wiley.... Chairman of the Board, Chief Executive 2001 50
Officer and President, Baker Hughes
Incorporated; Director, American Petroleum
Institute
Each of the nominees has been engaged in the principal occupation set forth
opposite his name for the past five years except as follows:
2
Mr. McMahon was a Managing Director of Chase Securities, Inc., from July
1997 to June 1998. From October 1994 until July 1997, Mr. McMahon was a
Managing Director of Lehman Brothers.
Mr. Morris was President and Chief Executive Officer of Consumers Energy
Company, a subsidiary of CMS Energy Corporation, from 1994 to 1997.
Mr. Wiley was President and Chief Operating Officer of Atlantic Richfield
Company (ARCO) from 1998 through May 2000. Prior to 1998, Mr. Wiley served as
Chairman, President and Chief Executive Officer of Vastar Resources, Inc.
Directors' Meetings and Committees of the Board of Directors
The Board of Directors held five meetings during 2000 and executed nine
unanimous consents in lieu of meetings. During 2000, each of the directors,
except Mr. Bruheim, attended at least 75 percent of the aggregate of (i) the
total number of meetings of the Board of Directors held during the period that
such director served as a director and (ii) the total number of meetings held
by each committee of the Board of Directors on which such director served
during the period that such director so served.
The Board of Directors has the following standing committees:
Audit Committee. The Audit Committee, which consisted of Messrs. McMahon
and Erikson, met six times during 2000. Mr. McMahon serves as Chairman of the
Audit Committee. Mr. Harris was also a member of the Audit Committee through
July 25, 2000. In connection with the Company's listing on the New York Stock
Exchange ("NYSE") on July 26, 2000, Mr. Harris resigned from the Audit
Committee as required by the listing standards of the NYSE related to
independence. All current members of the Audit Committee are independent as
defined by the listing standards of the NYSE. The Board of Directors will
appoint at least one additional independent director to the Audit Committee.
The Audit Committee is responsible for:
. overseeing the quality of quarterly and annual financial reporting;
. selecting, evaluating and, where appropriate, replacing the independent
public accountants and ensuring their independence;
. consulting with the independent public accountants regarding the plan of
audit, the report on the audit, the scope of their work and the quality
of their performance;
. reviewing significant developments in accounting rules, issues involving
judgment and affecting quality, proposed changes in methods of accounting
or consolidated financial statements and adequacy of internal accounting
controls;
. overseeing and improving the process through which the Company identifies
and controls business and financial reporting risks;
. reviewing internal control systems intended to ensure the reliability of
financial reporting and compliance with applicable laws and regulations;
and
. reviewing the establishment and maintenance of an environment that
promotes ethical behavior and compliance with policies and procedures.
The Board of Directors adopted a written Audit Committee Charter in 2000. A
copy of the Audit Committee Charter is attached hereto as Appendix A.
Compensation Committee. The Compensation Committee, which consisted of
Messrs. Harris, Bruheim, Erikson, McMahon, Michaelsen and Newman, met four
times during 2000. Mr. Harris is the Chairman of the Compensation Committee.
The Compensation Committee is responsible for:
. administering and granting awards under all equity plans;
. reviewing the compensation of the Company's Chief Executive Officer and
recommendations of the Chief Executive Officer as to appropriate
compensation for the other executive officers and key personnel;
3
. examining periodically the Company's general compensation structure; and
. supervising the Company's welfare and pension plans and compensation
plans.
Risk Management Committee. The Risk Management Committee, which consisted
of Messrs. Jarvis and Newman, met three times during 2000. The Risk Management
Committee is responsible for monitoring the hedging program and adherence to
the hedging policy.
The Board of Directors currently has no nominating committee or committee
performing a similar function.
Compensation of Directors
Prior to 2001, non-employee directors unaffiliated with Warburg, Pincus
Ventures, L.P. have been granted options pursuant to the Company's equity
plans to purchase 16,000 shares of Common Stock at fair market value, as
defined, upon appointment to the Board of Directors, with 20 percent vesting
on the date of grant and 20 percent vesting on each anniversary of the grant
date. These directors have also been awarded a variable number of options to
purchase Common Stock at fair market value, as defined, annually on the date
of the annual meeting of stockholders, with 100 percent vesting on the date of
grant. In 2000, the Compensation Committee granted options to purchase 18,100
and 2,700 shares of Common Stock to Messrs. Erikson and McMahon, respectively.
The Compensation Committee is currently reviewing the Company's director
compensation policy. Non-employee directors are also reimbursed for out-of-
pocket expenses incurred to attend board and committee meetings.
Security Ownership of Certain Beneficial Owners and Management
The following table sets forth certain information, unless otherwise
indicated, as of March 16, 2001, regarding beneficial ownership of Common
Stock by (i) each person known by the Company to own beneficially five percent
or more of its outstanding Common Stock, (ii) the Company's Chief Executive
Officer and each of the Company's other four most highly compensated executive
officers, (iii) each director and (iv) all executive officers and directors as
a group. In addition, had James M. Alexander remained an executive officer
through December 31, 2000, he would have been one of the four most highly
compensated executive officers. Accordingly, certain information regarding Mr.
Alexander's beneficial ownership of Common Stock is also presented.
Beneficial Ownership(3)
---------------------------
Name of Beneficial Owner Shares Percent
------------------------ -------------- ------------
Warburg, Pincus Ventures, L.P. (1)(2).............. 6,800,585 25.1%
Roger L. Jarvis.................................... 914,772 3.3
William D. Hubbard................................. 291,366 1.1
L. Scott Broussard................................. 64,337 *
Kelly M. Barnes.................................... 158,336 *
Jeffrey C. Zaruba.................................. 21,843 *
James M. Alexander................................. 500,257 1.8
Sheldon R. Erikson................................. 8,500 *
Jeffrey A. Harris (2).............................. 6,800,585 25.1
Michael E. McMahon................................. 23,575 *
Michael G. Morris.................................. -- --
Howard H. Newman (2)............................... 6,800,585 25.1
Michael E. Wiley................................... -- --
Executive officers and directors as a group
(consisting of 13 persons) (2).................... 8,388,212 29.4
- --------
* Represents beneficial ownership of less than one percent.
(1) The stockholder is Warburg, Pincus Ventures, L.P. ("Warburg"). Warburg,
Pincus & Co. ("WP") is the sole general partner of Warburg. Warburg is
managed by E.M. Warburg, Pincus & Co., LLC ("EMWP"). Lionel
4
I. Pincus is the managing partner of WP and the managing member of EMWP and
may be deemed to control both entities. The address of the Warburg Pincus
entities is 466 Lexington Avenue, New York, New York 10017.
(2) Messrs. Harris and Newman, directors of the Company, are general partners
of WP and managing directors and members of EMWP. All shares indicated as
owned by Messrs. Harris and Newman are included because of their
affiliation with the Warburg Pincus entities. Messrs. Harris and Newman
disclaim beneficial ownership of all shares owned by the Warburg Pincus
entities.
(3) Pursuant to the rules and regulations promulgated under the Securities
Exchange Act of 1934, shares are deemed to be "beneficially owned" by a
person if he directly or indirectly has or shares the power to vote or
dispose of such shares, whether or not he has any pecuniary interest in
such shares, or if he has the right to acquire the power to vote or
dispose of such shares within 60 days, including any right to acquire such
power through the exercise of any option, warrant or right. The shares
beneficially owned by Messrs. Jarvis, Hubbard, Barnes, Broussard, Zaruba,
Erikson and McMahon include 816,011, 268,544, 147,957, 62,679, 21,670,
8,500 and 9,100 shares, respectively, that may be acquired by such persons
within 60 days through the exercise of stock options. The shares owned by
the executive officers and directors as a group include 1,435,451 shares
that may be acquired by such persons within 60 days through the exercise
of stock options.
MANAGEMENT
The following table sets forth certain information with respect to the
executive officers of the Company as of March 16, 2001. The Company's
executive officers serve at the discretion of the Board of Directors.
Name Age Position
---- --- --------
Roger L. Jarvis.................. 47 Chairman of the Board, President and
Chief Executive Officer
Robert M. Snell.................. 45 Vice President, Chief Financial Officer
and Secretary
William D. Hubbard............... 57 Vice President--Exploration
L. Scott Broussard............... 43 Vice President--Drilling and Production
Kelly M. Barnes.................. 47 Vice President--Land
Jimmy W. Bennett................. 54 Vice President--Systems Technology and
Processing
Jeffrey C. Zaruba................ 36 Treasurer
- --------
Roger L. Jarvis has served as President, Chief Executive Officer and
Director of Spinnaker since 1996 and as Chairman of the Board of Spinnaker
since 1998. From 1986 to 1994, Mr. Jarvis served in various capacities with
King Ranch Inc. and its subsidiary, King Ranch Oil and Gas, Inc., including
Chief Executive Officer, President and Director of King Ranch Inc. and Chief
Executive Officer and President of King Ranch Oil and Gas, Inc., where he
expanded its activities in the Gulf of Mexico.
Robert M. Snell has served as Vice President, Chief Financial Officer and
Secretary of Spinnaker since December 26, 2000. From 1983 to 2000, Mr. Snell
served in various capacities with Bank of America and its predecessors, most
recently as a Managing Director of Banc of America Securities LLC, focused on
the energy sector.
William D. Hubbard has served as Vice President--Exploration of Spinnaker
since 1996. From 1992 to 1996, Mr. Hubbard served as Senior Vice President--
Exploration of Global Natural Resources Corporation and its affiliated
corporations, where he was responsible for both onshore and offshore
exploration.
L. Scott Broussard has served as Vice President--Drilling and Production of
Spinnaker since August 1999 after joining the Company as Operations Manager in
1998. From 1994 to 1998, Mr. Broussard served as Vice President and co-owner
of HTK Consultants, Inc., an engineering consulting firm.
Kelly M. Barnes has served as Vice President--Land of Spinnaker since 1997.
From 1992 to 1997, Mr. Barnes served as Vice President--Land and Assistant
Corporate Secretary of Global Natural Resources Corporation and its affiliated
corporations.
5
Jimmy W. Bennett has served as Vice President--Systems Technology and
Processing of Spinnaker since May 2000. From 1997 to 2000, Mr. Bennett served
as Spinnaker's Systems Manager. From 1991 to 1997, Mr. Bennett served as
Systems Manager for King Ranch Oil and Gas, Inc.
Jeffrey C. Zaruba has served as Treasurer of Spinnaker since August 1999.
From 1992 to 1999, Mr. Zaruba served as Assistant Controller and held various
financial and tax reporting positions with Cliffs Drilling Company, which
merged with R&B Falcon Corporation in 1998.
Retired Executive Officer
James M. Alexander served as Vice President, Chief Financial Officer and
Secretary of Spinnaker from 1996 through December 26, 2000. From 1995 to 1996,
Mr. Alexander served as President of Alexander Consulting. Mr. Alexander is a
director of Dril-Quip, Inc.
Employment Agreements
Mr. Jarvis entered into an employment agreement with Spinnaker effective
December 20, 1996. The agreement provides that Mr. Jarvis will receive a
minimum annual base salary equal to $250,000. Under the agreement, Mr. Jarvis
also may receive bonuses, at the discretion of the Board of Directors, and
will be allowed to participate in all benefit plans offered by Spinnaker to
similarly situated employees. Either the Board of Directors or Mr. Jarvis can
terminate the employment agreement at any time. The initial term of the
employment agreement ended on December 31, 2000. Under the terms of the
agreement, it automatically extended for one additional year. In addition, if
any payment or distribution by Spinnaker or its affiliates to Mr. Jarvis is
subject to Section 4999 of the Internal Revenue Code of 1986, as amended (the
"Code"), Spinnaker is required to compensate him for the amount of any excise
tax imposed on any payments or distributions pursuant to Section 4999 of the
Code and for any taxes imposed on that additional payment. Section 4999 of the
Code addresses additional taxes payable in the event of a change in control of
Spinnaker.
Mr. Alexander entered into an employment agreement with Spinnaker effective
December 20, 1996. The agreement provided that he would receive a minimum
annual base salary equal to $175,000. The other terms of Mr. Alexander's
employment agreement were substantially similar to the terms of Mr. Jarvis'
employment agreement. With his retirement, Mr. Alexander's employment
agreement terminated in December 2000.
Mr. Hubbard entered into an employment agreement with Spinnaker effective
December 20, 1996. The agreement provides that he will receive a minimum
annual base salary equal to $165,000. The other terms of Mr. Hubbard's
employment agreement are substantially similar to the terms of the employment
agreements described above. However, on December 31, 1998, Mr. Hubbard's
employment agreement became a year-to-year employment agreement. As a result,
if his employment is not terminated before December 15, 2001, or on each year
thereafter, the term of the agreement will automatically be extended for one
additional year.
Mr. Barnes entered into an employment agreement with Spinnaker effective
December 20, 1996. The agreement provides that he will receive a minimum
annual base salary equal to $110,000. The other terms of Mr. Barnes'
employment agreement are substantially similar to the terms of Mr. Hubbard's
employment agreement.
6
EXECUTIVE COMPENSATION
The following table sets forth certain information with respect to the
compensation of the Chief Executive Officer of the Company and each of its
four other most highly compensated executive officers (collectively, the
"named executive officers") for the years ended December 31, 2000, 1999 and
1998. All information presented in this section is restated to reflect the
two-for-one split of the Common Stock effected in September 1999.
In addition, had Mr. Alexander remained an executive officer through
December 31, 2000, he would have been one of the four other most highly
compensated executive officers. Accordingly, certain information with respect
to the compensation of Mr. Alexander is also presented.
Summary Compensation Table
Long-Term
Compensation
Awards
Annual ------------
Compensation Securities
Name and Principal ----------------- Underlying All Other
Position Year Salary Bonus(1) Options Compensation(2)
- ------------------ ---- -------- -------- ------------ ---------------
Roger L. Jarvis........... 2000 $285,833 $345,100 73,500 $11,250
Chairman of the Board, 1999 265,000 134,000 236,529 750
President and 1998 265,000 91,498 -- 750
Chief Executive Officer
William D. Hubbard........ 2000 $182,292 $134,138 25,000 $11,250
Vice President-- 1999 175,000 60,000 59,960 750
Exploration 1998 175,000 56,042 -- 750
L. Scott Broussard........ 2000 $155,250 $110,228 25,000 $10,065
Vice President--Drilling 1999 137,700 62,100 23,798 750
and Production 1998 112,500 43,233 52,800 625
Kelly M. Barnes........... 2000 $125,375 $ 90,064 25,000 $ 8,273
Vice President--Land 1999 118,000 41,300 63,593 750
1998 118,000 37,789 -- 750
Jeffrey C. Zaruba......... 2000 $103,125 $ 41,500 10,000 $ 5,419
Treasurer 1999 39,253 20,000 37,000 125
1998 -- -- -- --
James M. Alexander........ 2000 $191,667 $172,000 33,000 $ 6,457
Vice President, Chief 1999 184,000 65,000 95,898 750
Financial Officer and 1998 184,000 67,342 -- 750
Secretary (through
December 26, 2000)
- --------
(1) Represents annual bonus earned for the fiscal year noted, even if such
bonus was paid in the following year.
(2) The All Other Compensation column includes amounts contributed or accrued
by the Company under the Spinnaker Exploration Company 401(k) Retirement
Savings Plan ("401(k) Plan") and the dollar value of insurance premiums
paid by the Company with respect to term life insurance for the benefit of
the named executive officer.
7
Stock Options Granted in 2000
The following table contains information concerning stock option grants in
2000.
Individual Grants Potential Realizable
----------------------------------------- Value at Assumed
Number of % of Total Annual Rates of Stock
Securities Options Exercise Price Appreciation for
Underlying Granted to Price Option Terms(3)
Options Employees Per Expiration -----------------------
Name Granted(1) In 2000(2) Share Date 5% 10%
---- ---------- ---------- -------- ---------- ---------- ------------
Roger L. Jarvis......... 73,500 9.2% $16.13 02/28/10 $ 745,358 $ 1,888,884
William D. Hubbard...... 25,000 3.1% 16.13 02/28/10 253,523 642,477
L. Scott Broussard...... 25,000 3.1% 16.13 02/28/10 253,523 642,477
Kelly M. Barnes......... 25,000 3.1% 16.13 02/28/10 253,523 642,477
Jeffrey C. Zaruba....... 10,000 1.2% 16.13 02/28/10 101,409 256,991
James M. Alexander...... 33,000 4.1% 16.13 02/28/10 334,651 848,070
- --------
(1) The options expire ten years from the date of grant and vest 20 percent on
the grant date and 20 percent on each anniversary of the grant date.
(2) The Company granted options to purchase 802,470 shares of Common Stock in
2000.
(3) Calculated based upon the indicated rates of appreciation, compounded
annually, from the date of grant to the end of each option term. Actual
gains, if any, on stock option exercises and Common Stock holdings are
dependent upon the future performance of the Common Stock and overall
market conditions. There can be no assurance that the amounts reflected in
this table will be achieved. The calculation does not take into account
the effects, if any, of provisions of the Company's option plans governing
termination of options upon employment termination, transferability or
vesting.
Stock Option Exercises and Fiscal Year-End Values
The following table contains certain information concerning stock options
exercised during 2000 and the value of unexercised options at December 31,
2000.
Number of Securities
Underlying Unexercised Value of Unexercised
Options at In-the-Money Options at
Shares December 31, 2000 December 31, 2000(2)
Acquired Value ------------------------- -------------------------
Name On Exercise Realized(1) Exercisable Unexercisable Exercisable Unexercisable
---- ----------- ----------- ----------- ------------- ----------- -------------
Roger L. Jarvis......... -- $ -- 1,101,311 200,718 $36,156,821 $5,524,554
William D. Hubbard...... 20,000 380,000 256,984 55,976 8,333,427 1,534,828
L. Scott Broussard...... 5,000 105,250 41,199 55,399 1,279,057 1,637,537
Kelly M. Barnes......... 10,000 190,000 132,037 58,156 4,181,611 1,575,618
Jeffrey C. Zaruba....... -- -- 16,800 30,200 450,500 807,625
James M. Alexander...... 194,560 4,815,360 247,199 83,939 7,200,127 2,307,392
- --------
(1) The value realized upon exercise of a stock option is equal to the
difference between the price of the Common Stock as reported by the New
York Stock Exchange on the date of exercise and the exercise price of the
stock option multiplied by the number of shares acquired.
(2) The value of each unexercised in-the-money stock option is equal to the
difference between the closing price of the Common Stock as reported by
the New York Stock Exchange on December 29, 2000 of $42.50 per share and
the exercise price of the stock option.
Transactions with Management and Others
Mr. Wiley is Chairman of the Board, Chief Executive Officer and President
of Baker Hughes Incorporated. The Company purchases oilfield goods, equipment
and services from Baker Hughes Incorporated in the ordinary course of
business. The Company believes that the charges and fees that it pays for such
goods, equipment and
8
services are competitive with the charges and fees of other companies
providing oilfield goods, equipment and services to the oil and gas
exploration and production industry. The Company paid approximately $3.4
million to Baker Hughes Incorporated for oilfield goods, equipment and
services in 2000.
Compensation Committee Interlocks and Insider Participation
The Compensation Committee of the Board of Directors in 2000 consisted of
Messrs. Harris, Bruheim, Erikson, McMahon, Michaelsen and Newman. None of the
members of the Compensation Committee served as an officer or employee of the
Company, and none were formerly an officer of the Company or any of its
subsidiaries. None of the Company's executive officers serves as a member of
the board of directors or compensation committee of any entity that has one or
more of its executive officers serving as a member of the Board of Directors
or Compensation Committee.
Mr. Michaelsen serves as Chairman of the Board and Chief Executive Officer
of PGS, and Mr. Bruheim previously served as President and Chief Operating
Officer of PGS. On December 20, 1996, the Company entered into a seismic data
agreement with PGS. The Company agreed to purchase $2.0 million of seismic-
related services from PGS prior to December 31, 2002. The Company's purchases
of seismic-related services from PGS were approximately $449,000 in 2000. The
Company believes the terms of the seismic data agreement are at least as fair
to the Company as it could have obtained from an unaffiliated third party.
Mr. Erikson is Chairman of the Board, President and Chief Executive Officer
of Cooper Cameron Corporation. The Company purchases oilfield goods, equipment
and services from Cooper Cameron Corporation in the ordinary course of
business. The Company believes that the charges and fees that it pays for such
goods, equipment and services are competitive with the charges and fees of
other companies providing oilfield goods, equipment and services to the oil
and gas exploration and production industry. The Company paid approximately
$0.5 million to Cooper Cameron Corporation for oilfield goods, equipment and
services in 2000.
Compensation Committee Report on Executive Compensation
The Compensation Committee oversees the administration of compensation
programs applicable to all employees of the Company, including its executive
officers. Executive compensation is reviewed and approved annually by the
Compensation Committee.
The Compensation Committee seeks to encourage growth in the Company's oil
and gas reserves and cash flow and to enhance stockholder value through the
creation and maintenance of compensation opportunities that attract and retain
committed, highly qualified personnel. To achieve those goals, the
Compensation Committee believes that the compensation of all employees,
including executive officers, should include the following components:
. A base salary that is competitive with compensation offered by other oil
and gas exploration and production enterprises similar to the Company.
. Annual incentive compensation, based on Company performance and
profitability, to reward achievement of Company objectives, individual
responsibility and productivity, high quality work and impact on Company
results.
. Case-specific compensation plans to accommodate individual circumstances
or non-recurring situations as required.
Section 162(m) of the Code generally disallows a tax deduction to a public
company for compensation paid to its chief executive officer or four other
most highly compensated executive officers if the compensation of any such
officers exceeds $1.0 million in a particular year. Qualifying performance-
based compensation is not subject to the deduction limit if certain
requirements are met. A portion of the Company's compensation is performance-
based. The Company has structured portions of its performance-based
compensation, including certain stock option grants, in a manner that excludes
such compensation from the deduction limit.
9
The Compensation Committee has not intended and does not currently intend
to award compensation to any executive officer that would exceed the deduction
limit of Section 162(m), but no assurance can be given that such limit will
not be exceeded. In connection with its policies relating to executive
compensation, the Compensation Committee considered the implications of
Section 162(m) along with the various other factors described elsewhere in
this report in making its executive compensation determinations in 2000.
Company Performance. The following summarizes the Company's operational and
financial highlights for the year ended December 31, 2000:
. Production of 30.2 billion cubic feet of gas equivalent ("Bcfe"), up 131
percent
. Proved reserves of 182.7 Bcfe, up 75 percent, with reserve and production
replacements of 104 percent and 359 percent, respectively
. Income from operations of $57.3 million, up from $1.3 million in 1999
. Net income of $38.6 million, or $1.61 per diluted share in 2000 compared
to a net loss in 1999
. Cash flow from operating activities, before working capital changes, of
$107.5 million, up 395 percent
. Per unit lease operating expenses of $0.30, down 28 percent
. Per unit depreciation, depletion and amortization of $1.57, down one
percent
Executive Compensation. Before taking the actions described in this report,
the Compensation Committee thoroughly reviewed and discussed the Company's
financial and operating results. A summary of the indicators deemed
particularly relevant by the Compensation Committee are presented above.
Specific actions taken by the Compensation Committee regarding executive
compensation are summarized below.
Base salary. The Compensation Committee evaluated peer group information in
setting base salary levels. Annual salary adjustments for the Company's
executive group are based on general levels of market salary increases,
individual performance and the Company's overall financial and operating
results, without any specific relative weight assigned to any of these
factors.
Incentive Bonus. Awards granted to the named executive officers in February
2001 for the 2000 performance period are presented under "Bonus" in the
Summary Compensation Table. Such awards were based on level of responsibility,
the Company's performance and on individual productivity, quality of work and
impact on the Company's results. The Compensation Committee established awards
for each executive after reviewing the recommendations of the Chief Executive
Officer.
Stock Option Awards. In February 2000, the Compensation Committee granted
options to purchase 25,000, 25,000, 25,000, 10,000 and 33,000 shares of Common
Stock to Messrs. Hubbard, Barnes, Broussard, Zaruba and Alexander,
respectively, to provide incentive with respect to the Company's future
performance. Additionally, these awards have a meaningful retention component
since 20 percent vest on the grant date and on each succeeding anniversary of
the grant date.
401(k) Plan. Under the 401(k) Plan, eligible employees may defer the
maximum income allowed under current tax law. Salary deferrals are 100 percent
vested. Effective January 1, 2000, the Company began matching employee
contributions to the 401(k) Plan. The Company matches 100 percent of each
participant's contributions, up to six percent of the participant's annual
base salary, with Common Stock.
Chief Executive Officer Compensation. As described above, the Company's
executive compensation philosophy, including compensation of the Chief
Executive Officer, is a competitive base salary and incentive compensation
based upon the Company's performance. Specific actions taken by the
Compensation Committee regarding Mr. Jarvis' compensation are summarized
below.
10
Base Salary. The Compensation Committee increased Mr. Jarvis salary from
$265,000 in 1999 to $290,000 effective March 1, 2000. The Compensation
Committee considered operating and financial results for 1999 and the
compensation received by chief executive officers of comparable companies in
the oil and gas exploration and production industry.
Incentive Bonus. The Compensation Committee approved a bonus of $345,100 to
Mr. Jarvis for 2000, which was paid in February 2001. This award was based
upon the Company's performance and his impact on the Company's results in
2000.
Stock Option Awards. In February 2000, the Compensation Committee granted
options to purchase 73,500 shares of Common Stock to Mr. Jarvis to provide
incentive with respect to the Company's future performance. This award vests
20 percent on the grant date and on each succeeding anniversary of the grant
date.
Compensation Committee
Jeffrey A. Harris
Bjarte Bruheim
Sheldon R. Erikson
Michael E. McMahon
Reidar Michaelsen
Howard H. Newman
11
Report of the Audit Committee
March 1, 2001
To the Board of Directors:
We have reviewed and discussed with management the Company's audited
financial statements as of and for the year ended December 31, 2000.
We have discussed with the independent public accountants the matters
required to be discussed by Statement of Auditing Standards No. 61,
Communication with Audit Committees, as amended by the Auditing Standards
Board of the American Institute of Certified Public Accountants.
We have received and reviewed the written disclosures and the letter from
the independent public accountants required by Independence Standard No. 1,
Independence Discussions with Audit Committees, as amended by the Independence
Standards Board, and have discussed with the independent public accountants
their independence.
Based on the review and discussions referred to above, we recommend to the
Board of Directors that the financial statements referred to above be included
in the Company's Annual Report on Form 10-K for the year ended December 31,
2000.
Audit Committee
Michael E. McMahon
Sheldon R. Erikson
Fiscal 2000 Audit Fee Summary
During fiscal year 2000, the Company retained its independent public
accountants, Arthur Andersen LLP, to provide services in the following
categories and amounts:
Audit Fees.......................................................... $125,000
Financial Information Systems Design and Implementation Fees........ $ --
All Other Fees...................................................... $150,000
Other fees include costs primarily related to federal and state income tax
filings and registration statements. The Audit Committee has considered
whether the provision of non-audit services by the Company's independent
public accountants is compatible with maintaining auditor independence.
12
Stockholder Return Performance Presentation
As required by applicable rules of the Securities and Exchange Commission,
the performance graph shown below was prepared based upon the following
assumptions:
1. $100 was invested in Common Stock on September 29, 1999, and $100 was
invested in each of the S&P 500 Index, the S&P 400 Oil/Gas--
Exploration/Production Index and the Peer Group (as defined below) on
September 29, 1999 at the closing price on such date.
2. The Peer Group investment is weighted based on the stock market
capitalization of each individual company within the Peer Group at the
beginning of the period.
3. Dividends are reinvested on the ex-dividend dates.
Considering the Company's significant growth from 1999 to 2000, the Company
has added the S&P 500 Index for comparison purposes. The companies that
comprise the Peer Group are as follows: Basin Exploration, Inc., Chieftain
International, Inc., The Houston Exploration Company, Newfield Exploration
Company and Stone Energy Corporation.
[Graph Appears Here]
09/29/99 12/31/99 12/31/00
-------- -------- --------
Spinnaker Exploration Company..................... $100 $ 97.41 $293.09
S&P 500........................................... $100 $111.73 $101.56
S&P 400 Oil/Gas-Exp/Prod.......................... $100 $ 85.81 $156.64
Peer Group........................................ $100 $ 81.71 $143.25
The foregoing stock price performance comparisons shall not be deemed
incorporated by reference by any general statement incorporating by reference
this Definitive Proxy Statement into any filing under the Securities Act of
1933 or under the Securities Exchange Act of 1934, except to the extent that
the Company specifically incorporates this graph by reference, and shall not
otherwise be deemed filed under such Acts.
There can be no assurance that the Company's stock performance will continue
into the future with the same or similar trends depicted in the graph above.
The Company will not make or endorse any predictions as to future stock
performance.
13
APPROVAL OF THE SPINNAKER 2001 STOCK INCENTIVE PLAN
(Proposal Two)
General
At the Annual Meeting, the stockholders will be asked to approve the
adoption of the Spinnaker Exploration Company 2001 Stock Incentive Plan (the
"2001 Plan"). A copy of the 2001 Plan is attached hereto as Appendix B. As of
March 16, 2001, an aggregate of 79,884 shares of Common Stock were available
for grant pursuant to all of the Company's employee stock plans. The primary
differences between the 2001 Plan and prior plans are the number of shares of
Common Stock subject to the 2001 Plan will be 1,500,000 and a limit of 300,000
shares will be imposed on the number of shares of Common Stock that may be
subject to options granted under the 2001 Plan to any one individual during a
calendar year. The Board of Directors unanimously adopted the 2001 Plan on
February 16, 2001, subject to stockholder approval at the Annual Meeting. If
the stockholders do not approve the 2001 Plan at the Annual Meeting, then no
awards will be granted under the 2001 Plan. The following description of
certain features of the 2001 Plan is qualified in its entirety by reference to
the 2001 Plan. Approval of the 2001 Plan requires the affirmative vote of the
holders of a majority of the Common Stock present, or represented by proxy and
entitled to vote at the Annual Meeting. Accordingly, an abstention or a broker
non-vote would have the same effect as a vote against this proposal.
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE "FOR" APPROVAL OF THE
SPINNAKER 2001 STOCK INCENTIVE PLAN.
Purpose
The 2001 Plan is designed to provide a means through which the Company may
attract able persons to serve as directors, consultants or advisors or to
enter the employ of the Company and to provide a means whereby those
individuals upon whom the responsibilities of the successful administration
and management of the Company rest, and whose present and potential
contributions to the welfare of the Company are of importance, can acquire and
maintain stock ownership, thereby strengthening their concern for the welfare
of the Company. A further purpose of the 2001 Plan is to provide such
individuals with additional incentive and reward opportunities designed to
enhance the profitable growth of the Company. Accordingly, the 2001 Plan
provides for granting incentive stock options, options that do not constitute
incentive stock options, restricted stock awards, or any combination of the
foregoing, as is best suited to the circumstances of the particular employee,
consultant, advisor or director.
Effective Date and Duration
The 2001 Plan shall become effective upon the date of its adoption by the
Board of Directors, provided the 2001 Plan is approved by stockholders within
twelve months thereafter. Notwithstanding any provision in the 2001 Plan, in
any option agreement or in any restricted stock agreement, no option shall be
exercisable and no restricted stock award shall vest prior to such stockholder
approval. No further awards may be granted under the 2001 Plan after February
16, 2011. The 2001 Plan shall remain in effect until all options granted under
the 2001 Plan have been exercised or expired, and all restricted stock awards
granted under the 2001 Plan have vested or been forfeited.
Administration
The 2001 Plan shall be administered by a committee, appointed by the Board
of Directors, comprised solely of two or more outside directors of the Company
("Compensation Committee"). Subject to the express provisions of the 2001
Plan, the Compensation Committee shall have authority, in its discretion, to
determine which employees, consultants or directors shall receive an award,
the time or times when such award shall be made, whether an incentive stock
option or nonqualified option shall be granted, and the number of shares to be
subject to each option or restricted stock award.
14
Shares Subject to the 2001 Plan and Award Limits
Subject to adjustment in the event of the recapitalization or
reorganization or other change in the Company's capital structure, the
aggregate number of shares of Common Stock that may be issued under the Plan
shall not exceed 1,500,000 shares. To the extent that an award lapses or the
rights of its holder terminate, any shares of Common Stock subject to such
award shall again be available for granting by the Compensation Committee
under the 2001 Plan. Notwithstanding any provision in the 2001 Plan to the
contrary, the maximum number of shares of Common Stock that may be subject to
awards granted to any one individual during any calendar year may not exceed
300,000 shares of Common Stock, subject to adjustment in the event of the
recapitalization or reorganization or other change in the Company's capital
structure. The limitation set forth in the preceding sentence shall be applied
in a manner which will permit compensation generated under the Plan to
constitute "performance-based" compensation for purposes of section 162(m) of
the Code, including, without limitation, counting against such maximum number
of shares, to the extent required under section 162(m) of the Code and
applicable interpretive authority thereunder, any shares subject to options
that are canceled or repriced.
Grant of Options
The Compensation Committee may from time to time grant options and
restricted stock awards to one or more employees, consultants or directors
determined by it to be eligible for participation in the 2001 Plan in
accordance with the terms of the 2001 Plan. Currently there are 46 employees,
five consultants and seven directors to whom the Compensation Committee may
grant awards under the 2001 Plan.
Eligibility
Awards may be granted only to persons who, at the time of grant, are
employees, consultants or directors. An award may be granted on more than one
occasion to the same person, and, subject to the limitations set forth in the
2001 Plan, such award may include an incentive stock option, an option that is
not an incentive stock option, a restricted stock award, or any combination
thereof.
Stock Options
The term of each option shall be as specified by the Compensation Committee
at the date of grant. An option shall be exercisable in whole or in such
installments and at such times as determined by the Compensation Committee. An
incentive stock option may be granted only to an individual who is an employee
of the Company or any parent or subsidiary corporation of the Company at the
time the option is granted. Each option shall be evidenced by an option
agreement in such form and containing such provisions not inconsistent with
the provisions of the 2001 Plan as the Compensation Committee from time to
time shall approve, including, without limitation, provisions to qualify an
incentive stock option. Each option agreement shall specify the effect of
termination of (i) employment, (ii) the consulting or advisory relationship or
(iii) membership on the Board of Directors, as applicable, on the
exercisability of the option. An option agreement may provide for the payment
of the option price, in whole or in part, by the delivery of a number of
shares of Common Stock (plus cash if necessary) having a fair market value
equal to such option price. Moreover, an option agreement may provide for a
"cashless exercise" of the option by establishing procedures satisfactory to
the Compensation Committee with respect thereto. Further, an option agreement
may provide for the surrender of the right to purchase shares under the option
in return for a payment in cash or shares of Common Stock or a combination of
cash and shares of Common Stock equal in value to the excess of the fair
market value of the shares with respect to which the right to purchase is
surrendered over the option price therefor ("Stock Appreciation Rights"), on
such terms and conditions as the Compensation Committee in its sole discretion
may prescribe. In the case of any such Stock Appreciation Right that is
granted in connection with an incentive stock option, such right shall be
exercisable only when the fair market value of the Common Stock exceeds the
price specified therefor in the option or the portion thereof to be
surrendered. The terms and conditions of the respective option agreements need
not be identical. Subject to the consent of the holder, the Compensation
Committee may, in its sole discretion, amend an outstanding option agreement
from time to time in any manner that is not inconsistent with the provisions
of
15
the 2001 Plan; provided, however, that the Compensation Committee may not,
without approval of the stockholders of the Company, amend any outstanding
option agreement to lower the option price or cancel and replace any
outstanding option agreements with option agreements having a lower option
price.
The price at which a share of Common Stock may be purchased upon exercise
of an option shall be determined by the Compensation Committee but, subject to
adjustment as provided in the 2001 Plan, such purchase price shall not be less
than the fair market value of a share of Common Stock on the date such option
is granted. As of March 23, 2001, the last reported sales price of the Common
Stock was $41.00. The option or portion thereof may be exercised by delivery
of an irrevocable notice of exercise to the Company, as specified by the
Compensation Committee. The purchase price of the option or portion thereof
shall be paid in full in the manner prescribed by the Compensation Committee.
Separate stock certificates shall be issued by the Company for those shares
acquired pursuant to the exercise of an incentive stock option and for those
shares acquired pursuant to the exercise of any option that does not
constitute an incentive stock option.
The holder of an option shall be entitled to all the privileges and rights
of a stockholder only with respect to such shares of Common Stock as have been
purchased under the option and for which certificates of stock have been
registered in the holder's name.
Options and Stock Appreciation Rights may be granted under the 2001 Plan
from time to time in substitution for stock options held by individuals
employed by corporations who become employees of the Company as a result of a
merger or consolidation or other business combination of a corporation with
the Company or any subsidiary. Options and Stock Appreciation Rights granted
as a result of the events described in the preceding sentence may be granted
with an exercise price less than the fair market value of a share of Common
Stock on the date such option is granted.
Restricted Stock Awards
Shares of Common Stock that are the subject of a restricted stock award are
subject to restrictions on disposition by the holder and an obligation of the
holder to forfeit and surrender the shares to the Company under certain
circumstances. Common Stock awarded pursuant to a restricted stock award shall
be represented by a stock certificate registered in the name of the holder of
such restricted stock award. The holder shall have the right to receive
declared dividends with respect to Common Stock subject to a restricted stock
award, to vote Common Stock subject thereto and to enjoy all other stockholder
rights, with certain exceptions. The Compensation Committee shall determine
the amount and form of any payment for Common Stock received pursuant to a
restricted stock award, provided that in the absence of such a determination,
a holder shall not be required to make any payment for Common Stock received
pursuant to a restricted stock award, except to the extent otherwise required
by law. The Compensation Committee may, in its discretion and as of a date
determined by the Compensation Committee, fully vest any or all Common Stock
awarded to a holder pursuant to a restricted stock award and, upon such
vesting, all restrictions applicable to such restricted stock award shall
terminate as of such date. At the time any award is made under the 2001 Plan,
the Company and the holder shall enter into a restricted stock agreement
setting forth each of the matters contemplated hereby and such other matters
as the Compensation Committee may determine to be appropriate. The terms and
provisions of the respective restricted stock agreements need not be
identical.
Recapitalization or Reorganization
The existence of the 2001 Plan and the awards granted thereunder shall not
affect in any way the right or power of the Board of Directors or the
stockholders of the Company to make or authorize any adjustment,
recapitalization, reorganization or other change in the Company's capital
structure or its business, any merger or consolidation of the Company, any
issue of debt or equity securities ahead of or affecting Common Stock or the
rights thereof, the dissolution or liquidation of the Company or any sale,
lease, exchange or other disposition of all or any part of the Company's
assets or business or any other corporate act or proceeding. The shares with
respect to which options may be granted are shares of Common Stock as
presently constituted, but if, and
16
whenever, prior to the expiration of an option theretofore granted, the
Company shall effect a subdivision or consolidation of shares of Common Stock
or the payment of a stock dividend on Common Stock without receipt of
consideration by the Company, the number of shares of Common Stock with
respect to which such option may thereafter be exercised (i) in the event of
an increase in the number of outstanding shares shall be proportionately
increased, and the purchase price per share shall be proportionately reduced,
and (ii) in the event of a reduction in the number of outstanding shares shall
be proportionately reduced, and the purchase price per share shall be
proportionately increased. Any fractional share resulting from such adjustment
shall be rounded up to the next whole share.
If the Company recapitalizes, reclassifies its capital stock or otherwise
changes its capital structure (a "Recapitalization"), the number and class of
shares of Common Stock covered by an option theretofore granted shall be
adjusted so that such option shall thereafter cover the number and class of
shares of stock and securities to which the holder would have been entitled
pursuant to the terms of the Recapitalization if, immediately prior to the
Recapitalization, the holder had been the holder of record of the number of
shares of Common Stock then covered by such option.
In the event of changes in the outstanding Common Stock by reason of
recapitalizations, reorganizations, mergers, consolidations, combinations,
split-ups, split-offs, spin-offs, exchanges or other relevant changes in
capitalization or distributions to the holders of Common Stock occurring after
the date of the grant of any award and not otherwise provided for by the 2001
Plan, such award and any agreement evidencing such award shall be subject to
adjustment by the Compensation Committee at its discretion as to the number
and price of shares of Common Stock or other consideration subject to such
award. In the event of any such change in the outstanding Common Stock or
distribution to the holders of Common Stock, the aggregate number of shares
available under the 2001 Plan and the maximum number of shares that may be
subject to awards granted to any one individual shall be appropriately
adjusted by the Compensation Committee, whose determination shall be
conclusive. In connection with certain mergers and other events, the 2001 Plan
provides for automatic vesting of options and the lapse of restrictions on
restricted shares.
Amendment and Termination of the 2001 Plan
The Board of Directors in its discretion may terminate the 2001 Plan at any
time with respect to any shares of Common Stock for which awards have not
theretofore been granted. The Board of Directors shall have the right to alter
or amend the 2001 Plan or any part thereof from time to time; provided that no
change in the 2001 Plan may be made which would impair the rights of the
holder of an award theretofore granted without the consent of the holder, and
provided, further, that the Board of Directors may not, without approval of
the stockholders of the Company, (a) amend the 2001 Plan to increase the
maximum aggregate number of shares that may be issued under the 2001 Plan or
change the class of individuals eligible to receive awards under the 2001 Plan
or (b) amend any outstanding option agreement in any way that would have the
effect of lowering the exercise price.
17
New Plan Benefits
The Compensation Committee has determined targeted stock option grants in
2001 for officers and employees. The Compensation Committee authorized for
issuance certain options that will be granted on the date of the Annual
Meeting, assuming the stockholders of the Company approve the 2001 Plan. The
exercise price of those options will be the average of the high and low sales
price of the Common Stock on the date of the Annual Meeting.
The following table sets forth the number of options that have been
authorized to be granted under the 2001 Plan by the Compensation Committee,
the number of options granted by the Compensation Committee on January 11,
2001 under the Company's other stock plans and the total targeted 2001 option
grants to the following persons or groups of persons:
Number of Number of
Stock Options Stock Options Total
Authorized in Granted in Targeted
2001 Under 2001 Under 2001 Stock
Name and Position the 2001 Plan Other Plans Option Grants
- ----------------- ------------- ------------- -------------
Roger L. Jarvis...................... 200,000 -- 200,000
Chairman of the Board, President and
Chief Executive Officer
William D. Hubbard................... 47,200 32,800 80,000
Vice President--Exploration
L. Scott Broussard................... 35,400 24,600 60,000
Vice President--Drilling and
Production
Kelly M. Barnes...................... 35,400 24,600 60,000
Vice President--Land
Jeffrey C. Zaruba.................... 20,650 14,350 35,000
Treasurer
James M. Alexander................... -- -- --
Executive Group...................... 368,150 116,850 485,000
Non-Executive Director Group......... -- -- --
Non-Executive Officer Employee
Group............................... 263,789 183,311 447,100
Total................................ 631,939 300,161 932,100
Federal Income Tax Consequences
"Nonqualified" stock options granted under the 2001 Plan are not intended
to, and do not qualify for, the favorable tax treatment available to
"incentive" stock options under Section 422 of the Code. Generally, no income
is taxable to the holder of an option upon the grant of a nonqualified stock
option, and the Company is not entitled to any deduction. When a nonqualified
stock option is exercised, the holder of an option generally must recognize
compensation taxable as ordinary income equal to the difference between the
option price and the fair market value of the shares on the date of exercise.
Subject to certain limitations on compensation in excess of $1 million set
forth in Section 162(m) of the Code, the Company will receive a deduction
equal to the amount of compensation the holder of an option is required to
recognize as ordinary income if the Company complies with applicable federal
withholding requirements.
"Incentive" stock options granted under the 2001 Plan are intended to
qualify for favorable tax treatment under Section 422 of the Code. Under
Section 422, a holder of an option realizes no taxable income when an
incentive stock option is granted. Further, the holder of an option generally
will not realize any taxable income when the incentive stock option is
exercised if he or she has at all times from the date of the option's grant
until three months before the date of exercise been an employee of the
Company. The Company ordinarily is not entitled to any deduction upon the
grant or exercise of an incentive stock option. Certain other favorable tax
consequences may be available to the holder of an option if he or she does not
dispose of the shares acquired upon the exercise of an incentive stock option
for a period of two years from the granting of the option and one year from
the receipt of the shares.
18
A participant who receives a restricted stock award and who does not elect
to be taxed at the time of grant will not recognize taxable income upon such
grant and the Company will not be entitled to a deduction until the
termination of restrictions with respect to such shares. Upon such
termination, the participant will recognize taxable ordinary income in an
amount equal to the fair market value of the Common Stock at that time, and
subject to certain limitations on compensation in excess of $1 million set
forth in Section 162(m) of the Code, the Company will be entitled to a
deduction in the same amount. A participant may, however, elect to recognize
taxable ordinary income in the year the shares are granted in an amount equal
to their fair market value at that time, determined without regard to the
restrictions. In that event, the Company will be entitled to a deduction in
such year in the same amount, and any gain or loss recognized by the
participant upon subsequent disposition of the Common Stock will be capital
gain or loss. Any dividends with respect to shares that are paid or made
available to a participant who has not elected to be taxed on the date of
grant while such shares remain forfeitable are treated as additional
compensation taxable as ordinary income to the participant and deductible by
the Company. If such election has been made with respect to the shares,
dividends represent ordinary dividend income to the participant and are not
deductible by the Company. If the participant elects to be taxed on the
restricted shares on the date of grant and the participant subsequently
forfeits such shares, the participant is not entitled to a deduction as a
consequence of such forfeiture and the Company must include as ordinary income
the amount it previously deducted in the year of grant with respect to such
shares.
Certain provisions in the 2001 Plan provide for the acceleration of the
time at which options then outstanding may be exercised and the lapse of
restrictions on restricted shares. Such acceleration or lapse may constitute
"parachute payments" which, when aggregated with certain other payments
received by an individual, could result in the individual receiving "excess
parachute payments," a portion of which would be allocated to those payments
derived from an award of stock. The Company would not be allowed a deduction
for any excess parachute payments and the recipient of the payments would be
subject to a nondeductible 20 percent excise tax on such payments in addition
to income tax otherwise owed with respect to such payment.
Miscellaneous
Neither the adoption of the 2001 Plan nor any action of the Board of
Directors or of the Compensation Committee shall be deemed to give an
employee, consultant or director any right to be granted an option, a right to
a restricted stock award or any other rights hereunder except as may be
evidenced by an option agreement or a restricted stock agreement duly executed
on behalf of the Company, and then only to the extent and on the terms and
conditions expressly set forth therein. The 2001 Plan shall be unfunded. The
Company shall not be required to establish any special or separate fund or to
make any other segregation of funds or assets to assure the performance of its
obligations under any award.
19
APPOINTMENT OF INDEPENDENT PUBLIC ACCOUNTANTS
(Proposal Three)
Pursuant to the recommendation of the Audit Committee, the Board of
Directors appointed Arthur Andersen LLP, independent public accountants, to
audit the consolidated financial statements of the Company for the year ending
December 31, 2001.
Ratification of this appointment shall be effective upon receiving the
affirmative vote of the holders of a majority of the Common Stock present or
represented by proxy and entitled to vote at the Annual Meeting. Accordingly,
an abstention or a broker non-vote would have the same effect as a vote
against this proposal.
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE "FOR" RATIFICATION OF
THIS APPOINTMENT.
In the event the appointment is not ratified, the Board of Directors will
consider the appointment of other independent public accountants. The Board of
Directors may terminate the appointment of Arthur Andersen LLP as the
Company's independent public accountants without the approval of the
stockholders of the Company whenever the Board of Directors deems such
termination necessary or appropriate. A representative of Arthur Andersen LLP
is expected to be present at the Annual Meeting, will be offered the
opportunity to make a statement if such representative desires to do so and
will be available to respond to appropriate questions.
OTHER MATTERS
The Board of Directors does not know of any other matters that are to be
presented for action at the Annual Meeting. However, if any other matters
properly come before the Annual Meeting or any adjournments(s) thereof, it is
intended that the enclosed proxy will be voted in accordance with the judgment
of the persons voting the proxy.
STOCKHOLDER PROPOSALS AND NOMINATIONS
Any stockholder who wishes to submit a proposal for inclusion in the proxy
material for the Company's 2002 Annual Meeting of Stockholders must forward
such proposal to the Secretary of the Company at the address indicated on the
cover page of this proxy statement, so that the Secretary receives it no later
than November 27, 2001.
In addition, the Company's Bylaws provide that only such business as is
properly brought before the Annual Meeting will be conducted. For business to
be properly brought before the meeting or for nominations of persons for
election to the Board of Directors to be properly made at the Annual Meeting
by a stockholder, notice must be received by the Secretary of the Company at
the address indicated on the cover page not earlier than January 8, 2002 and
not later than February 7, 2002.
On request, the Secretary of the Company will provide detailed instructions
for submitting proposals or nominations.
By Order of the Board of Directors
/s/ Robert M. Snell
Robert M. Snell
Secretary
March 27, 2001
20
Appendix A
SPINNAKER EXPLORATION COMPANY
AUDIT COMMITTEE CHARTER
OF THE BOARD OF DIRECTORS
Purpose
The Audit Committee (the "Committee") of the Board of Directors (the
"Board") of Spinnaker Exploration Company ("Spinnaker") is responsible for
providing independent and objective oversight of the accounting functions and
internal controls of Spinnaker in order to enhance the quality of financial
reporting. The primary purpose of the Audit Committee Charter ("Charter") is
to document the scope of the Committee's responsibilities and how it carries
out those responsibilities, including the structure, processes and membership
requirements.
Scope of Responsibilities
Oversight of Quarterly and Annual Financial Reporting
The Committee shall consider relevance, reliability, comparability and
clarity in its oversight of the quality of quarterly and annual financial
reporting. The Committee shall engage in meaningful discussions with
management and the independent public accountants about the quality, not just
the acceptability, of financial reporting decisions and judgments.
The Committee shall review with management and the independent public
accountants annual consolidated financial statements and such other
consolidated financial statements and information as the Committee so
determines. Following the satisfactory completion of each year-end review, the
Committee shall recommend to the Board the inclusion of the audited
consolidated financial statements in the Annual Report on Form 10-K.
Independent Public Accountants
The Committee and the Board shall have the ultimate authority and
responsibility to select, evaluate and, where appropriate, replace the
independent public accountants. The Committee shall recommend to the Board the
firm to be employed by Spinnaker as its independent public accountants, which
firm shall be ultimately accountable to the Board and the Committee as
representatives of stockholders. The Committee shall evaluate the independent
public accountants on an annual basis.
The Committee is responsible for ensuring the independent public
accountants periodically submit to the Committee a formal written statement
regarding relationships and services which may affect objectivity and
independence, for discussing any matters relating to the independent public
accountants' independence and for recommending that the full Board take
appropriate action to address the independent public accountants'
independence.
Audits
The Committee's function is one of oversight and review, and it is not
expected to audit Spinnaker, to define the scope of the audit, to control
Spinnaker's accounting practices or to define the standards to be used in
preparation of the consolidated financial statements. The Committee shall
consult with the independent public accountants regarding the plan of audit.
The Committee shall also review with the independent public accountants their
report on the audit. The Committee shall maintain independent communication
and information flow with the independent public accountants and actively
review and assess the scope of their work and the quality of their
performance.
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Accounting Principles
The Committee shall review significant developments in accounting rules.
The Committee shall also review with management and the independent public
accountants issues involving judgment and affecting quality and significant
proposed changes in Spinnaker's methods of accounting or consolidated
financial statements.
Internal Accounting Controls
The Committee shall consult with management and the independent public
accountants regarding the adequacy of internal accounting controls. This
consultation should be conducted out of management's presence, where
appropriate.
Business Risk Management
The Committee shall oversee and improve the business risk management
process, which is the process through which Spinnaker identifies and controls
business and financial reporting risks.
Compliance with Laws and Regulations
The Committee shall review with management Spinnaker's internal control
systems intended to ensure the reliability of financial reporting and
compliance with applicable laws and regulations. The review shall include any
significant problems and regulatory concerns.
Ethical Environment
The Committee shall review with management the establishment and
maintenance of an environment that promotes ethical behavior, including the
establishment, communication and enforcement of codes of conduct to guard
against dishonest, unethical or illegal activities.
Oversight of Directors and Executive Officers and Conflicts of Interest
The Committee shall review significant conflicts of interest involving
directors and executive officers. The Committee shall review compliance with
Spinnaker's policies and procedures with respect to officers' expense accounts
and perquisites, including their use of corporate assets. The Committee also
shall review any questionable or illegal payments.
In the event that a Committee member faces a potential or actual conflict
of interest with respect to a matter before the Committee, that Committee
member shall be responsible for alerting the Committee Chairman, and in the
case where the Committee Chairman faces a potential or actual conflict of
interest, the Committee Chairman shall advise the Chairman of the Board. In
the event that the Committee Chairman or the Chairman of the Board concurs
that a potential or actual conflict of interest exists, an independent
substitute director shall be appointed as a Committee member until the matter
posing the potential or actual conflict of interest is resolved.
Charter Amendments
The Committee shall review this Charter annually, assess its adequacy and
propose appropriate amendments to the Board.
Communications to the Board
The Committee shall report to the Board from time to time with respect to
its activities and its recommendations. When presenting any recommendation or
advice to the Board, the Committee shall provide such background and
supporting information as may be necessary for the Board to make an informed
decision. The Committee shall keep minutes of its meetings and make such
minutes available to the full Board for its review.
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Communications to Stockholders
The Committee shall report to stockholders in Spinnaker's proxy statement
for its annual meeting the information required by law.
Other Authority
The Committee is authorized to confer with Spinnaker management and other
employees to the extent it may deem necessary or appropriate to fulfill its
duties. The Committee is authorized to conduct or authorize investigations
into any matters within the Committee's scope of responsibilities. The
Committee also is authorized to seek outside legal or other advice to the
extent it deems necessary or appropriate, provided it shall keep the Board
advised as to the nature and extent of such outside advice. The Committee will
perform such other functions as are authorized for this Committee by the
Board.
Composition and Membership Requirements
The Board shall appoint not less than three independent directors to the
Committee. "Independent director" means a person other than an officer or
employee of Spinnaker or its subsidiaries or any other individual having a
relationship which, in the opinion of the Board, would interfere with the
exercise of independent judgment in carrying out the responsibilities of a
director. Members of the Committee shall be financially literate or become
financially literate within a reasonable period of time after appointment to
the Committee and at least one member of the Committee shall have accounting,
related financial management expertise or any other comparable experience or
background that results in the individual's financial sophistication. The
Committee will self-assess the financial literacy and other skills of
Committee members against those skills that are needed to fulfill the
Committee's roles and responsibilities on an annual basis. The Committee will
solicit feedback on the skill requirements and skill gaps of the Committee and
assess the contribution and performance of individual Committee members from
the Board, management and independent public accountants. The Committee shall
continually monitor membership requirements.
Quorum and Committee Meetings
A quorum of the Committee shall be declared when a majority of the
appointed members of the Committee are in attendance. The Committee shall, at
a minimum, meet quarterly. Additional meetings shall be scheduled at the
discretion of the Chairman. The Committee may ask members of management or
others to attend the meeting and provide pertinent information as necessary.
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Appendix B
SPINNAKER EXPLORATION COMPANY
2001 STOCK INCENTIVE PLAN
I. PURPOSE
The purpose of the SPINNAKER EXPLORATION COMPANY 2001 STOCK INCENTIVE PLAN
is to provide a means through which SPINNAKER EXPLORATION COMPANY, a Delaware
corporation, and its affiliates may attract able persons to serve as
directors, consultants, or advisors or to enter the employ of the Company and
its affiliates and to provide a means whereby those individuals upon whom the
responsibilities of the successful administration and management of the
Company and its affiliates rest, and whose present and potential contributions
to the welfare of the Company and its affiliates are of importance, can
acquire and maintain stock ownership, thereby strengthening their concern for
the welfare of the Company and its affiliates. A further purpose of the Plan
is to provide such individuals with additional incentive and reward
opportunities designed to enhance the profitable growth of the Company and its
affiliates. Accordingly, the Plan provides for granting Incentive Stock
Options, options that do not constitute Incentive Stock Options, Restricted
Stock Awards, or any combination of the foregoing, as is best suited to the
circumstances of the particular employee, consultant, advisor, or director as
provided herein.
II. DEFINITIONS
The following definitions shall be applicable throughout the Plan unless
specifically modified by any paragraph:
(a) "Affiliate" means any corporation, partnership, limited liability
company or partnership, association, trust or other organization which,
directly or indirectly, controls, is controlled by, or is under common control
with, the Company. For purposes of the preceding sentence, "control"
(including, with correlative meanings, the terms "controlled by" and "under
common control with"), as used with respect to any entity or organization,
shall mean the possession, directly or indirectly, of the power (i) to vote
more than 50% of the securities having ordinary voting power for the election
of directors of the controlled entity or organization, or (ii) to direct or
cause the direction of the management and policies of the controlled entity or
organization, whether through the ownership of voting securities or by
contract or otherwise.
(b) "Award" means, individually or collectively, any Option or Restricted
Stock Award.
(c) "Board" means the Board of Directors of the Company.
(d) "Code" means the Internal Revenue Code of 1986, as amended. Reference
in the Plan to any section of the Code shall be deemed to include any
amendments or successor provisions to such section and any regulations under
such section.
(e) "Committee" means the Board or a committee of the Board that is
selected by the Board as provided in Paragraph IV(a).
(f) "Common Stock" means the common stock, par value $.01 per share, of the
Company, or any security into which such Common Stock may be changed by reason
of any transaction or event of the type described in Paragraph IX.
(g) "Company" means Spinnaker Exploration Company, a Delaware corporation.
(h) "Consultant" means any person who is not an employee and who is
providing advisory or consulting services to the Company or any Affiliate.
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(i) "Director" means an individual elected to the Board by the stockholders
of the Company or by the Board under applicable corporate law who is serving
on the Board on the date the Plan is adopted by the Board or is elected to the
Board after such date.
(j) An "employee" means any person (including a Director) in an employment
relationship with the Company or any Affiliate.
(k) "Fair Market Value" means, as of any specified date, the mean of the
high and low sales prices of the Common Stock reported by (i) the New York
Stock Exchange on that date or (ii) the National Market System of NASDAQ on
that date; or, in either case, if no prices are reported on that date, on the
last preceding date on which such prices of the Common Stock are so reported.
If the Common Stock is traded over the counter at the time a determination of
its fair market value is required to be made hereunder, its fair market value
shall be deemed to be equal to the average between the reported high and low
or closing bid and asked prices of Common Stock on the most recent date on
which Common Stock was publicly traded. In the event Common Stock is not
publicly traded at the time a determination of its value is required to be
made hereunder, the determination of its fair market value shall be made by
the Committee in such manner as it deems appropriate.
(l) "Holder" means an employee, Consultant, or Director who has been
granted an Award.
(m) "Incentive Stock Option" means an incentive stock option within the
meaning of section 422 of the Code.
(n) "1934 Act" means the Securities Exchange Act of 1934, as amended.
(o) "Option" means an Award granted under Paragraph VII of the Plan and
includes both Incentive Stock Options to purchase Common Stock and Options
that do not constitute Incentive Stock Options to purchase Common Stock.
(p) "Option Agreement" means a written agreement between the Company and a
Holder with respect to an Option.
(q) "Plan" means the Spinnaker Exploration Company 2001 Stock Incentive
Plan, as amended from time to time.
(r) "Restricted Stock Agreement" means a written agreement between the
Company and a Holder with respect to a Restricted Stock Award.
(s) "Restricted Stock Award" means an Award granted under Paragraph VIII of
the Plan.
(t) "Rule 16b-3" means Securities and Exchange Commission Rule 16b-3
promulgated under the 1934 Act, as such may be amended from time to time, and
any successor rule, regulation or statute fulfilling the same or a similar
function.
(u) "Stock Appreciation Right" shall have the meaning assigned to such term
in Paragraph VII(d) of the Plan.
III. EFFECTIVE DATE AND DURATION OF THE PLAN
The Plan shall become effective upon the date of its adoption by the Board,
provided the Plan is approved by the stockholders of the Company within twelve
months thereafter. Notwithstanding any provision in the Plan, in any Option
Agreement or in any Restricted Stock Agreement, no Option shall be exercisable
and no Restricted Stock Award shall vest prior to such stockholder approval.
No further Awards may be granted under the Plan after ten years from the date
the Plan is adopted by the Board. The Plan shall remain in effect until all
Options granted under the Plan have been exercised or expired, and all
Restricted Stock Awards granted under the Plan have vested or been forfeited.
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IV. ADMINISTRATION
(a) Composition of Committee. The Plan shall be administered by the Board
and/or a committee of, and appointed by, the Board, comprised solely of two or
more outside Directors (within the meaning of the term "outside directors" as
used in section 162(m) of the Code and applicable interpretive authority
thereunder and within the meaning of "Non-Employee Director" as defined in
Rule 16b-3).
(b) Powers. Subject to the express provisions of the Plan, the Committee
shall have authority, in its discretion, to determine which employees,
Consultants, or Directors shall receive an Award, the time or times when such
Award shall be made, whether an Incentive Stock Option or nonqualified Option
shall be granted, and the number of shares to be subject to each Option or
Restricted Stock Award. In making such determinations, the Committee shall
take into account the nature of the services rendered by the respective
employees, Consultants, or Directors, their present and potential contribution
to the Company's success and such other factors as the Committee in its sole
discretion shall deem relevant.
(c) Additional Powers. The Committee shall have such additional powers as
are delegated to it by the other provisions of the Plan. Subject to the
express provisions of the Plan, this shall include the power to construe the
Plan and the respective agreements executed hereunder, to prescribe rules and
regulations relating to the Plan, and to determine the terms, restrictions and
provisions of the agreement relating to each Award, including such terms,
restrictions and provisions as shall be requisite in the judgment of the
Committee to cause designated Options to qualify as Incentive Stock Options,
and to make all other determinations necessary or advisable for administering
the Plan. The Committee may correct any defect or supply any omission or
reconcile any inconsistency in the Plan or in any agreement relating to an
Award in the manner and to the extent it shall deem expedient to carry it into
effect. The determinations of the Committee on the matters referred to in this
Paragraph IV shall be conclusive.
V. SHARES SUBJECT TO THE PLAN; AWARD LIMITS;
GRANT OF AWARDS
(a) Shares Subject to the Plan and Award Limits. Subject to adjustment in
the same manner as provided in Paragraph IX with respect to shares of Common
Stock subject to Options then outstanding, the aggregate number of shares of
Common Stock that may be issued under the Plan shall not exceed 1,500,000
shares. Shares shall be deemed to have been issued under the Plan only (i) to
the extent actually issued and delivered pursuant to an Award or (ii) to the
extent an Award is settled in cash. To the extent that an Award lapses or the
rights of its Holder terminate, any shares of Common Stock subject to such
Award shall again be available for the grant of an Award under the Plan.
Notwithstanding any provision in the Plan to the contrary, the maximum number
of shares of Common Stock that may be subject to Awards granted to any one
individual during any calendar year may not exceed 300,000 shares of Common
Stock (subject to adjustment in the same manner as provided in Paragraph IX
with respect to shares of Common Stock subject to Options then outstanding).
The limitation set forth in the preceding sentence shall be applied in a
manner which will permit compensation generated under the Plan to constitute
"performance-based" compensation for purposes of section 162(m) of the Code,
including, without limitation, counting against such maximum number of shares,
to the extent required under section 162(m) of the Code and applicable
interpretive authority thereunder, any shares subject to Options that are
canceled or repriced.
(b) Grant of Options. The Committee may from time to time grant Options to
one or more employees, Consultants, or Directors determined by it to be
eligible for participation in the Plan in accordance with the terms of the
Plan.
(c) Grant of Restricted Stock Awards. The Committee may from time to time
grant Restricted Stock Awards to one or more employees, Consultants, or
Directors determined by it to be eligible for participation in the Plan in
accordance with the terms of the Plan.
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(d) Stock Offered. Subject to the limitations set forth in Paragraph V(a),
the stock to be offered pursuant to the grant of an Award may be authorized
but unissued Common Stock or Common Stock previously issued and outstanding
and reacquired by the Company. Any of such shares which remain unissued and
which are not subject to outstanding Awards at the termination of the Plan
shall cease to be subject to the Plan but, until termination of the Plan, the
Company shall at all times make available a sufficient number of shares to
meet the requirements of the Plan.
VI. ELIGIBILITY
Awards may be granted only to persons who, at the time of grant, are
employees, Consultants, or Directors. An Award may be granted on more than one
occasion to the same person, and, subject to the limitations set forth in the
Plan, such Award may include an Incentive Stock Option, an Option that is not
an Incentive Stock Option, a Restricted Stock Award, or any combination
thereof.
VII. STOCK OPTIONS
(a) Option Period. The term of each Option shall be as specified by the
Committee at the date of grant.
(b) Limitations on Exercise of Option. An Option shall be exercisable in
whole or in such installments and at such times as determined by the
Committee.
(c) Special Limitations on Incentive Stock Options. An Incentive Stock
Option may be granted only to an individual who is an employee of the Company
or any parent or subsidiary corporation (as defined in section 424 of the
Code) of the Company at the time the Option is granted. To the extent that the
aggregate Fair Market Value (determined at the time the respective Incentive
Stock Option is granted) of Common Stock with respect to which Incentive Stock
Options granted after 1986 are exercisable for the first time by an individual
during any calendar year under all incentive stock option plans of the Company
and its parent and subsidiary corporations exceeds $100,000, such Incentive
Stock Options shall be treated as Options which do not constitute Incentive
Stock Options. The Committee shall determine, in accordance with applicable
provisions of the Code, Treasury Regulations and other administrative
pronouncements, which of a Holder's Incentive Stock Options will not
constitute Incentive Stock Options because of such limitation and shall notify
the Holder of such determination as soon as practicable after such
determination. No Incentive Stock Option shall be granted to an individual if,
at the time the Option is granted, such individual owns stock possessing more
than 10% of the total combined voting power of all classes of stock of the
Company or of its parent or subsidiary corporation, within the meaning of
section 422(b)(6) of the Code, unless (i) at the time such Option is granted
the option price is at least 110% of the Fair Market Value of the Common Stock
subject to the Option and (ii) such Option by its terms is not exercisable
after the expiration of five years from the date of grant. An Incentive Stock
Option shall not be transferable otherwise than by will or the laws of descent
and distribution, and shall be exercisable during the Holder's lifetime only
by such Holder or the Holder's guardian or legal representative.
(d) Option Agreement. Each Option shall be evidenced by an Option Agreement
in such form and containing such provisions not inconsistent with the
provisions of the Plan as the Committee from time to time shall approve,
including, without limitation, provisions to qualify an Incentive Stock Option
under section 422 of the Code. Each Option Agreement shall specify the effect
of termination of (i) employment, (ii) the consulting or advisory
relationship, or (iii) membership on the Board, as applicable, on the
exercisability of the Option. An Option Agreement may provide for the payment
of the option price, in whole or in part, by the delivery of a number of
shares of Common Stock (plus cash if necessary) having a Fair Market Value
equal to such option price. Moreover, an Option Agreement may provide for a
"cashless exercise" of the Option by establishing procedures satisfactory to
the Committee with respect thereto. Further, an Option Agreement may provide
for the surrender of the right to purchase shares under the Option in return
for a payment in cash or shares of Common Stock or a combination of cash and
shares of Common Stock equal in value to the excess of the Fair
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Market Value of the shares with respect to which the right to purchase is
surrendered over the option price therefor ("Stock Appreciation Rights"), on
such terms and conditions as the Committee in its sole discretion may
prescribe. In the case of any such Stock Appreciation Right that is granted in
connection with an Incentive Stock Option, such right shall be exercisable
only when the Fair Market Value of the Common Stock exceeds the price
specified therefor in the Option or the portion thereof to be surrendered. The
terms and conditions of the respective Option Agreements need not be
identical. Subject to the consent of the Holder, the Committee may, in its
sole discretion, amend an outstanding Option Agreement from time to time in
any manner that is not inconsistent with the provisions of the Plan; provided,
however, that the Committee may not, without approval of the stockholders of
the Company, amend any outstanding Option Agreement to lower the option price
(or cancel and replace any outstanding Option Agreements with Option
Agreements having a lower option price).
(e) Option Price and Payment. The price at which a share of Common Stock
may be purchased upon exercise of an Option shall be determined by the
Committee but, subject to adjustment as provided in Paragraph IX and to the
provisions of Paragraph VII(g), such purchase price shall not be less than the
Fair Market Value of a share of Common Stock on the date such Option is
granted. The Option or portion thereof may be exercised by delivery of an
irrevocable notice of exercise to the Company, as specified by the Committee.
The purchase price of the Option or portion thereof shall be paid in full in
the manner prescribed by the Committee. Separate stock certificates shall be
issued by the Company for those shares acquired pursuant to the exercise of an
Incentive Stock Option and for those shares acquired pursuant to the exercise
of any Option that does not constitute an Incentive Stock Option.
(f) Stockholder Rights and Privileges. The Holder shall be entitled to all
the privileges and rights of a stockholder only with respect to such shares of
Common Stock as have been purchased under the Option and for which
certificates of stock have been registered in the Holder's name.
(g) Options and Rights in Substitution for Stock Options Granted by Other
Corporations. Options and Stock Appreciation Rights may be granted under the
Plan from time to time in substitution for stock options held by individuals
employed by corporations who become employees as a result of a merger or
consolidation or other business combination of the employing corporation with
the Company or any subsidiary. Notwithstanding the provisions of Paragraph
VII(e), the price at which a share of Common Stock may be purchased upon
exercise of an Option granted pursuant to this Paragraph VII(g) may be less
than the Fair Market Value of a share of Common Stock on the date such Option
is granted.
VIII. RESTRICTED STOCK AWARDS
(a) Forfeiture Restrictions To Be Established by the Committee. Shares of
Common Stock that are the subject of a Restricted Stock Award shall be subject
to restrictions on disposition by the Holder and an obligation of the Holder
to forfeit and surrender the shares to the Company under certain circumstances
(the "Forfeiture Restrictions"). The Forfeiture Restrictions shall be
determined by the Committee in its sole discretion, and the Committee may
provide that the Forfeiture Restrictions shall lapse upon (i) the attainment
of one or more performance targets established by the Committee that are based
on (1) the price of a share of Common Stock, (2) the Company's earnings per
share, (3) the Company's market share, (4) the market share of a business unit
of the Company designated by the Committee, (5) the Company's sales, (6) the
sales of a business unit of the Company designated by the Committee, (7) the
net income (before or after taxes) of the Company or any business unit of the
Company designated by the Committee, (8) the cash flow return on investment of
the Company or any business unit of the Company designated by the Committee,
(9) the earnings before or after interest, taxes, depreciation, and/or
amortization of the Company or any business unit of the Company designated by
the Committee, (10) the economic value added, or (11) the return on
stockholders' equity achieved by the Company, (ii) the Holder's continued
employment with the Company or continued service as a Consultant or Director
for a specified period of time, (iii) the occurrence of any event or the
satisfaction of any other condition specified by the Committee in its
discretion, or (iv) a combination of any of the foregoing. The performance
measures described in clause (i) of the preceding sentence may be subject to
adjustment for specified significant
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extraordinary items or events, and may be absolute, relative to one or more
other companies, or relative to one or more indexes, and may be contingent
upon future performance of the Company or any Affiliate, division, or
department thereof by or in which the Holder is employed during the
performance period. Each Restricted Stock Award may have different Forfeiture
Restrictions, in the discretion of the Committee.
(b) Other Terms and Conditions. Common Stock awarded pursuant to a
Restricted Stock Award shall be represented by a stock certificate registered
in the name of the Holder of such Restricted Stock Award. The Holder shall
have the right to receive declared dividends with respect to Common Stock
subject to a Restricted Stock Award, to vote Common Stock subject thereto and
to enjoy all other stockholder rights, except that (i) the Holder shall not be
entitled to delivery of the stock certificate until the Forfeiture
Restrictions have expired, (ii) the Company shall retain custody of the stock
until the Forfeiture Restrictions have expired, (iii) the Holder may not sell,
transfer, pledge, exchange, hypothecate or otherwise dispose of the stock
until the Forfeiture Restrictions have expired, and (iv) a breach of the terms
and conditions established by the Committee pursuant to the Restricted Stock
Agreement shall cause a forfeiture of the Restricted Stock Award. At the time
of such Award, the Committee may, in its sole discretion, prescribe additional
terms, conditions or restrictions relating to Restricted Stock Awards,
including, but not limited to, rules pertaining to the termination of
employment or service as a Consultant or Director (by retirement, disability,
death or otherwise) of a Holder prior to expiration of the Forfeiture
Restrictions. Such additional terms, conditions or restrictions shall be set
forth in a Restricted Stock Agreement made in conjunction with the Award.
(c) Payment for Restricted Stock. The Committee shall determine the amount
and form of any payment for Common Stock received pursuant to a Restricted
Stock Award, provided that in the absence of such a determination, a Holder
shall not be required to make any payment for Common Stock received pursuant
to a Restricted Stock Award, except to the extent otherwise required by law.
(d) Committee's Discretion to Accelerate Vesting of Restricted Stock
Awards. The Committee may, in its discretion and as of a date determined by
the Committee, fully vest any or all Common Stock awarded to a Holder pursuant
to a Restricted Stock Award and, upon such vesting, all restrictions
applicable to such Restricted Stock Award shall terminate as of such date. Any
action by the Committee pursuant to this Subparagraph may vary among
individual Holders and may vary among the Restricted Stock Awards held by any
individual Holder. Notwithstanding the preceding provisions of this
Subparagraph, the Committee may not take any action described in this
Subparagraph with respect to a Restricted Stock Award that has been granted to
a "covered employee" (within the meaning of Treasury Regulation section 1.162-
27(c)(2)) if such Award has been designed to meet the exception for
performance-based compensation under section 162(m) of the Code.
(e) Restricted Stock Agreements. At the time any Award is made under this
Paragraph VIII, the Company and the Holder shall enter into a Restricted Stock
Agreement setting forth each of the matters contemplated hereby and such other
matters as the Committee may determine to be appropriate. The terms and
provisions of the respective Restricted Stock Agreements need not be
identical.
IX. RECAPITALIZATION OR REORGANIZATION
(a) No Effect on Right or Power. The existence of the Plan and the Awards
granted hereunder shall not affect in any way the right or power of the Board
or the stockholders of the Company to make or authorize any adjustment,
recapitalization, reorganization or other change in the Company's or any
Affiliate's capital structure or its business, any merger or consolidation of
the Company or any Affiliate, any issue of debt or equity securities ahead of
or affecting Common Stock or the rights thereof, the dissolution or
liquidation of the Company or any Affiliate or any sale, lease, exchange or
other disposition of all or any part of its assets or business or any other
corporate act or proceeding.
(b) Subdivision or Consolidation of Shares; Stock Dividends. The shares
with respect to which Options may be granted are shares of Common Stock as
presently constituted, but if, and whenever, prior to the expiration
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of an Option theretofore granted, the Company shall effect a subdivision or
consolidation of shares of Common Stock or the payment of a stock dividend on
Common Stock without receipt of consideration by the Company, the number of
shares of Common Stock with respect to which such Option may thereafter be
exercised (i) in the event of an increase in the number of outstanding shares
shall be proportionately increased, and the purchase price per share shall be
proportionately reduced, and (ii) in the event of a reduction in the number of
outstanding shares shall be proportionately reduced, and the purchase price
per share shall be proportionately increased. Any fractional share resulting
from such adjustment shall be rounded up to the next whole share.
(c) Recapitalizations and Corporate Changes. If the Company recapitalizes,
reclassifies its capital stock, or otherwise changes its capital structure (a
"recapitalization"), the number and class of shares of Common Stock covered by
an Option theretofore granted shall be adjusted so that such Option shall
thereafter cover the number and class of shares of stock and securities to
which the Holder would have been entitled pursuant to the terms of the
recapitalization if, immediately prior to the recapitalization, the Holder had
been the holder of record of the number of shares of Common Stock then covered
by such Option. If (i) the Company merges with or into any entity or is a
party to a consolidation, (ii) the Company sells, leases or exchanges or
agrees to sell, lease or exchange all or substantially all of its assets to
any other person or entity, (iii) the Company is to be dissolved and
liquidated, (iv) any person or entity, including a "group" as contemplated by
section 13(d)(3) of the 1934 Act, acquires or gains ownership or control
(including, without limitation, power to vote) of more than 50% of the
outstanding shares of the Company's voting stock (based upon voting power), or
(v) as a result of or in connection with a contested election of Directors,
the persons who were Directors of the Company before such election shall cease
to constitute a majority of the Board (each such event is referred to herein
as a "Corporate Change"), no later than (x) ten days after the approval by the
stockholders of the Company of such merger, consolidation, reorganization,
sale, lease or exchange of assets or dissolution or such election of Directors
or (y) thirty days after a Corporate Change of the type described in clause
(iv), the Committee, acting in its sole discretion without the consent or
approval of any Holder, shall effect one or more of the following
alternatives, which alternatives may vary among individual Holders and which
may vary among Options held by any individual Holder: (1) accelerate the time
at which Options then outstanding may be exercised so that such Options may be
exercised in full for a limited period of time on or before a specified date
(before or after such Corporate Change) fixed by the Committee, after which
specified date all unexercised Options and all rights of Holders thereunder
shall terminate, (2) require the mandatory surrender to the Company by
selected Holders of some or all of the outstanding Options held by such
Holders (irrespective of whether such Options are then exercisable under the
provisions of the Plan) as of a date, before or after such Corporate Change,
specified by the Committee, in which event the Committee shall thereupon
cancel each such Option and pay or cause to be paid to each Holder the
securities or other property (including, without limitation, cash) referred to
in clause (4) below with respect to the shares subject to such Option in
exchange for payment by such Holder of the exercise price(s) under such Option
for such shares, (3) make such adjustments to Options then outstanding as the
Committee deems appropriate to reflect such Corporate Change (provided,
however, that the Committee may determine in its sole discretion that no
adjustment is necessary to Options then outstanding), or (4) provide that the
number and class of shares of Common Stock covered by an Option theretofore
granted shall be adjusted so that such Option shall thereafter cover the
number and class of shares of stock or other securities or property
(including, without limitation, cash) to which the Holder would have been
entitled pursuant to the terms of the agreement of merger, consolidation or
sale of assets and dissolution if, immediately prior to such merger,
consolidation or sale of assets and dissolution, the Holder had been the
holder of record of the number of shares of Common Stock then covered by such
Option. Notwithstanding the foregoing, if (A) the Company is involved in a
merger or consolidation and, immediately after giving effect to such merger or
consolidation, less than 50% of the total voting power of the outstanding
voting stock of the surviving or resulting entity and of the parent company of
the surviving or resulting entity, if any, is then "beneficially owned"
(within the meaning of Rule 13d-3 under the 1934 Act) in the aggregate by the
stockholders of the Company immediately prior to such merger or consolidation
or (B) any person or entity, including a "group" as contemplated by section
13(d)(3) of the 1934 Act, acquires or gains ownership or control (including,
without limitation, power to vote) of more than 50% of the outstanding shares
of the Company's voting stock (based upon voting power) other than as a result
of a merger or consolidation in which 50% or more of the total voting power of
the outstanding voting stock of
B-7
the parent company of the surviving or resulting entity is beneficially owned
in the aggregate by the stockholders of the Company immediately prior to such
merger or consolidation, then, except as provided in any Award agreement, (I)
outstanding Awards shall immediately vest and become exercisable or
satisfiable, as applicable, and (II) any such Award that is an Option shall
continue to be exercisable for the remainder of the applicable Option term
unless the Committee has determined, in its sole discretion, to take the
action described in clause (1) or (2) above with respect to such Option. The
provisions contained in this Subparagraph shall not terminate any rights of
the Holder to further payments pursuant to any other agreement with the
Company following a Corporate Change.
(d) Other Changes in the Common Stock. In the event of changes in the
outstanding Common Stock by reason of recapitalizations, reorganizations,
mergers, consolidations, combinations, split-ups, split-offs, spin-offs,
exchanges or other relevant changes in capitalization or distributions to the
holders of Common Stock occurring after the date of the grant of any Award and
not otherwise provided for by this Paragraph IX, such Award and any agreement
evidencing such Award shall be subject to adjustment by the Committee at its
discretion as to the number and price of shares of Common Stock or other
consideration subject to such Award. In the event of any such change in the
outstanding Common Stock or distribution to the holders of Common Stock, the
aggregate number of shares available under the Plan and the maximum number of
shares that may be subject to Awards granted to any one individual shall be
appropriately adjusted by the Committee, whose determination shall be
conclusive.
(e) Stockholder Action. Any adjustment provided for in the above
Subparagraphs shall be subject to any required stockholder action.
(f) No Adjustments unless Otherwise Provided. Except as hereinbefore
expressly provided, the issuance by the Company of shares of stock of any
class or securities convertible into shares of stock of any class, for cash,
property, labor or services, upon direct sale, upon the exercise of rights or
warrants to subscribe therefor, or upon conversion of shares or obligations of
the Company convertible into such shares or other securities, and in any case
whether or not for fair value, shall not affect, and no adjustment by reason
thereof shall be made with respect to, the number of shares of Common Stock
subject to Awards theretofore granted or the purchase price per share, if
applicable.
X. AMENDMENT AND TERMINATION OF THE PLAN
The Board in its discretion may terminate the Plan at any time with respect
to any shares of Common Stock for which Awards have not theretofore been
granted. The Board shall have the right to alter or amend the Plan or any part
thereof from time to time; provided that no change in the Plan may be made
which would impair the rights of the Holder of an Award theretofore granted
without the consent of the Holder, and provided, further, that the Board may
not, without approval of the stockholders of the Company, (a) amend the Plan
to increase the maximum aggregate number of shares that may be issued under
the Plan or change the class of individuals eligible to receive Awards under
the Plan or (b) amend or delete the final sentence of Paragraph VII(d).
XI. MISCELLANEOUS
(a) No Right To An Award. Neither the adoption of the Plan nor any action
of the Board or of the Committee shall be deemed to give an employee,
Consultant, or Director any right to be granted an Option, a right to a
Restricted Stock Award, or any other rights hereunder except as may be
evidenced by an Option Agreement or a Restricted Stock Agreement duly executed
on behalf of the Company, and then only to the extent and on the terms and
conditions expressly set forth therein. The Plan shall be unfunded. The
Company shall not be required to establish any special or separate fund or to
make any other segregation of funds or assets to assure the performance of its
obligations under any Award.
B-8
(b) No Employment/Membership Rights Conferred. Nothing contained in the Plan
shall (i) confer upon any employee or Consultant any right with respect to
continuation of employment or of a consulting or advisory relationship with the
Company or any Affiliate or (ii) interfere in any way with the right of the
Company or any Affiliate to terminate his or her employment or consulting or
advisory relationship at any time. Nothing contained in the Plan shall confer
upon any Director any right with respect to continuation of membership on the
Board.
(c) Other Laws; Withholding. The Company shall not be obligated to issue any
Common Stock pursuant to any Award granted under the Plan at any time when the
shares covered by such Award have not been registered under the Securities Act
of 1933, as amended, and such other state and federal laws, rules and
regulations as the Company or the Committee deems applicable and, in the
opinion of legal counsel for the Company, there is no exemption from the
registration requirements of such laws, rules and regulations available for the
issuance and sale of such shares. No fractional shares of Common Stock shall be
delivered, nor shall any cash in lieu of fractional shares be paid. The Company
shall have the right to deduct in connection with all Awards any taxes required
by law to be withheld and to require any payments required to enable it to
satisfy its withholding obligations.
(d) No Restriction on Corporate Action. Nothing contained in the Plan shall
be construed to prevent the Company or any Affiliate from taking any corporate
action which is deemed by the Company or such Affiliate to be appropriate or in
its best interest, whether or not such action would have an adverse effect on
the Plan or any Award made under the Plan. No employee, Consultant, Director,
beneficiary or other person shall have any claim against the Company or any
Affiliate as a result of any such action.
(e) Restrictions on Transfer. An Award (other than an Incentive Stock
Option, which shall be subject to the transfer restrictions set forth in
Paragraph VII(c)) shall not be transferable otherwise than (i) by will or the
laws of descent and distribution, (ii) pursuant to a qualified domestic
relations order as defined by the Code or Title I of the Employee Retirement
Income Security Act of 1974, as amended, or the rules thereunder, or (iii) with
the consent of the Committee.
(f) Governing Law. The Plan shall be construed in accordance with the laws
of the State of Delaware.
B-9
SPINNAKER EXPLORATION COMPANY
Proxy for Annual Meeting of Stockholders--May 8, 2001
THIS PROXY IS SOLICITED ON BEHALF OF THE SPINNAKER EXPLORATION COMPANY
BOARD OF DIRECTORS
The undersigned hereby appoints Roger L. Jarvis, Robert M. Snell and Jeffrey C.
Zaruba, and each of them, proxies for the undersigned with full power of
substitution, to vote all shares of Spinnaker Exploration Company Common Stock
which the undersigned may be entitled to vote at the Annual Meeting of
Stockholders of Spinnaker Exploration Company to be held in Houston, Texas, on
Tuesday, May 8, 2001 at 10:00 a.m., or at any adjournment thereof, upon the
matters set forth on the reverse side and described in the accompanying Proxy
Statement and upon such other business as may properly come before the meeting
or any adjournment thereof.
PLEASE MARK THIS PROXY AS INDICATED ON THE REVERSE SIDE TO VOTE ON ANY ITEM. IF
YOU WISH TO VOTE IN ACCORDANCE WITH THE BOARD OF DIRECTORS' RECOMMENDATIONS,
PLEASE SIGN THE REVERSE SIDE, NO BOXES NEED TO BE CHECKED.
(CONTINUED AND TO BE SIGNED ON OTHER SIDE)
- --------------------------------------------------------------------------------
. FOLD AND DETACH HERE .
SPINNAKER EXPLORATION COMPANY
PLEASE MARK VOTE IN OVAL IN THE FOLLOWING MANNER USING DARK INK ONLY. [X]
1. ELECTION OF DIRECTORS For Withheld For All
1) Roger L. Jarvis, 2) Sheldon R. Erikson, All All Except Nominee Exception(s)
3) Jeffrey A. Harris, 4) Michael E. McMahon, [_] [_] [_] --------------------
5) Howard H. Newman, 6) Michael G. Morris --------------------
and 7) Michael E. Wiley
2. TO APPROVE THE SPINNAKER 2001 STOCK For Against Abstain
INCENTIVE PLAN [_] [_] [_]
3. TO RATIFY SELECTION OF INDEPENDENT For Against Abstain
PUBLIC ACCOUNTANTS [_] [_] [_]
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" ITEMS 1, 2 AND 3
NOTE: Please sign as name appears hereon. Joint
owners should each sign. When signing as attorney,
executor, administrator, trustee or guardian, please
give full title as such.
Signature: ______________________ Date: _________
Signature: ______________________ Date: _________
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. FOLD AND DETACH HERE .