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SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement [_] Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
TITAN EXPLORATION, INC.
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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)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which
the filing fee is calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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(4) Date Filed:
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Notes:
TITAN EXPLORATION, INC.
500 WEST TEXAS, SUITE 500
MIDLAND, TEXAS 79701
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON MAY 28, 1998
To the Stockholders of
TITAN EXPLORATION, INC.
Notice is hereby given that the annual meeting of stockholders of Titan
Exploration, Inc., a Delaware corporation (the "Company"), will be held on
Thursday, May 28, 1998, at 10:00 a.m., local time, at the Midland Room, Tower
Two, Fasken Center, 550 West Texas, Midland, Texas 79701 for the following
purposes:
1. To elect five directors to serve until the Annual Meeting of
Stockholders in 1999;
2. To approve the appointment of KPMG Peat Marwick LLP as independent
auditors of the Company for the year ending December 31, 1998; and
3. To transact such other business as may properly come before the meeting
or any adjournment(s) thereof.
Only stockholders of record at the close of business on April 22, 1998 are
entitled to notice of, and to vote at, the meeting or any adjournment(s)
thereof.
You are cordially invited and urged to attend the meeting, but if you are
unable to attend, please sign and date the enclosed proxy and return it promptly
in the enclosed self-addressed stamped envelope. A prompt response will be
appreciated. If you attend the meeting, you may vote in person, if you wish,
whether or not you have returned your proxy. In any event, a proxy may be
revoked at any time before it is exercised.
BY ORDER OF THE BOARD OF DIRECTORS
SUSAN D. ROWLAND
Secretary
Midland, Texas
April 30, 1998
TITAN EXPLORATION, INC.
500 WEST TEXAS, SUITE 500
MIDLAND, TEXAS 79701
PROXY STATEMENT
FOR
ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON MAY 28, 1998
SOLICITATION OF PROXIES
SOLICITATION AND REVOCABILITY OF PROXIES
This proxy statement is furnished to holders of Titan Exploration, Inc.
("Titan" or the "Company") common stock, $0.01 par value ("Common Stock"), in
connection with the solicitation of proxies on behalf of the Board of Directors
of the Company for use at the annual meeting of stockholders of Titan to be held
on Thursday, May 28, 1998, at 10:00 a.m., local time, at the Midland Room,
Fasken Center, 550 West Texas, Midland, Texas 79701, and at any adjournment(s)
thereof, for the purposes set forth in the accompanying Notice of Annual Meeting
of Stockholders.
Shares represented by a proxy in the form enclosed, duly signed, dated and
returned to the Company and not revoked, will be voted at the meeting in
accordance with the directions given, but in the absence of directions to the
contrary, such shares will be voted (i) for the election of the Board's nominees
for directors, (ii) for the appointment of KPMG Peat Marwick LLP as independent
auditors of the Company for the year ending December 31, 1998 and (iii) in
accordance with the best judgment of the persons voting on any other proposals
that may come before the meeting. The Board of Directors knows of no other
matters, other than those stated in the foregoing notice, to be presented for
consideration at the meeting or any adjournment(s) thereof. If, however, any
other matters properly come before the meeting or any adjournment(s) thereof, it
is the intention of the persons named in the enclosed proxy to vote such proxy
in accordance with their judgment on any such matters. The persons named in the
enclosed proxy may also, if it is deemed to be advisable, vote such proxy to
adjourn the meeting from time to time.
Any stockholder executing and returning a proxy has the power to revoke it at
any time before it is voted by delivering to the Secretary of the Company, 500
West Texas, Suite 500, Midland Texas 79701, a written revocation thereof or by
duly executing a proxy bearing a later date. Any stockholder attending the
annual meeting of stockholders may revoke his proxy by notifying the Secretary
at such meeting and voting in person if he desires to do so. Attendance at the
annual meeting will not by itself revoke a proxy.
The approximate date on which this proxy statement and the form of proxy are
first sent to stockholders is April 30, 1998.
The cost of soliciting proxies will be borne by the Company. Solicitation
may be made, without additional compensation, by directors, officers and regular
employees of the Company in person or by mail, telephone or telegram. The
Company may also request banking institutions, brokerage firms, custodians,
trustees, nominees and fiduciaries to forward solicitation material to the
beneficial owners of the Common Stock held of record by such persons, and Titan
will reimburse the forwarding expense. All costs of preparing, printing and
mailing the form of proxy and the material used in the solicitation thereof will
be borne by the Company.
SHARES OUTSTANDING AND VOTING RIGHTS
The close of business on April 22, 1998 is the record date for determination
of stockholders entitled to notice of and to vote at the meeting or any
adjournment(s) thereof. The only voting security of the Company outstanding is
the Common Stock, each share of which entitles the holder thereof to one vote.
At the record date for the meeting, there were outstanding and entitled to be
voted 39,274,675 shares of Common Stock.
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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The table below sets forth information concerning (i) the only persons known
by the Company, based upon statements filed by such persons pursuant to Section
13(d) or 13(g) of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), to own beneficially in excess of 5% of the Common Stock as of April 22,
1998 and (ii) the shares of Common Stock beneficially owned, as of April 22,
1998, by each director of the Company, each executive officer listed in the
Summary Compensation Table included elsewhere in this proxy statement, and all
executive officers and directors of the Company as a group. Except as
indicated, each individual has sole voting power and sole investment power over
all shares listed opposite his name.
SHARES BENEFICIALLY
OWNED
--------------------
NAME OF BENEFICIAL OWNER NUMBER PERCENT
- ------------------------ ---------- --------
Directors and Named Executive Officers (1):
Jack D. Hightower (2)........................................ 4,421,782 10.83%
George G. Staley (3)......................................... 1,114,611 2.77%
William K. White (4)......................................... 24,250 *
Rodney L. Woodard (5)........................................ 243,121 *
Dan P. Colwell (6)........................................... 239,232 *
David R. Albin (7) (8)....................................... 148,906 *
Kenneth A. Hersh (7) (9)..................................... 98,258 *
William J. Vaughn, Jr. (10).................................. 345,041 *
Executive Officers and Directors as a Group (11 persons) (11).. 7,052,225 16.61%
Holders of 5% or More Not Named Above
Natural Gas Partners II, L.P. (12)........................... 5,000,777 12.73%
777 Main Street, Suite 2700
Forth Worth, Texas 76102
R. Gamble Baldwin (7) (13)................................... 6,190,541 15.76%
1130 Park Avenue
New York, New York 10128
Natural Gas Partners, L.P. (14).............................. 6,159,366 15.68%
777 Main Street, Suite 2700
Fort Worth, Texas 76102
Enron Corp. and Joint Energy Development Investment Limited
Partnership (15).......................................... 3,423,194 8.72%
1400 Smith Street
Houston, Texas 77002
Harris Associates L.P. and Harris Associates, Inc. (16)..... 3,170,000 8.07%
Two N. Lasalle Street, Suite 500
Chicago, Illinois 60602
Franklin Resources, Inc. (17)............................... 2,098,810 5.34%
777 Mariners Island Boulevard
San Mateo, California 94404
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* Less than 1%.
(1) The business address of each director and executive officer of Titan is c/o
Titan Exploration, Inc., 500 West Texas, Suite 500, Midland, Texas 79701.
(2) Includes (i) 2,667,588 shares held by Mr. Hightower, (ii) 199,524 shares
held by Mr. Hightower's spouse and children and (iii) 1,554,670 shares
subject to stock options that are exercisable within 60 days.
(3) Includes (i) 199,525 shares held by Mr. Staley and (ii) 915,086 shares
subject to stock options that are exercisable within 60 days.
(4) Includes (i) 3,000 shares held by Mr. White and (ii) 21,250 shares subject
to stock options that are exercisable within 60 days.
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(5) Includes (i) 46,556 shares held by Mr. Woodard and (ii) 196,565 shares
subject to stock options that are exercisable within 60 days.
(6) Includes (i) 46,556 shares held by Mr Colwell and (ii) 192,676 shares
subject to stock options that are exercisable within 60 days.
(7) David R. Albin, R. Gamble Baldwin and Kenneth A. Hersh constitute three of
the four managers of each of the general partners of NGP II and NGP -
Louisiana Partners, L.P. ("NGP - Louisiana"). As such, Messrs. Albin,
Baldwin and Hersh may be deemed to share voting and investment power with
respect to the 5,000,777 and 357,486 shares of Common Stock beneficially
owned by NGP II and NGP - Louisiana, respectively. Messrs. Albin, Baldwin
and Hersh disclaim beneficial ownership of such shares, which are not
included in the total number of shares reported for each above.
(8) Includes (i) 16,567 shares held by Mr. Albin and (ii) 132,339 shares held
in trust for the benefit of Mr. Albin.
(9) Includes 98,258 shares held by Mr. Hersh.
(10) Includes (i) 5,500 shares held by Mr. Vaughn, (ii) 299,287 shares held in
trust for Mr. Vaughn and his spouse, and (iii) 40,254 shares held by
affiliates of Mr. Vaughn.
(11) Includes 3,194,520 shares that officers and directors as a group have the
right to acquire within 60 days through the exercise of options granted
pursuant to the initial stock option plan and the 1996 incentive plan.
(12) Based upon information reported in a Schedule 13G dated February 12, 1997
filed by NGP II, G.F.W. Energy II, L.P. ("GFW II") and GFW II, L.L.C. with
the Commission. GFW II, L.L.C., as the sole general partner of GFW II, and
GFW II, as the sole general partner of NGP II, may each be deemed to be the
beneficial owner of all of the 5,000,777 shares of Common Stock
beneficially owned by NGP II.
(13) Based upon information reported in an Amendment to Schedule 13G dated
February 13, 1998 filed by R. Gamble Baldwin with the Commission. Mr.
Baldwin has sole voting and investment power with respect to 31,175 shares
of Common Stock he beneficially owns. In addition, Mr. Baldwin may, as the
sole general partner of G.F.W. Energy, L.P., the sole general partner of
NGP, be deemed to be the beneficial owner of all 6,159,366 shares of Common
Stock beneficially owned by NGP.
(14) Based upon information reported in an Amendment to Schedule 13G dated
February 13, 1998 filed by NGP and G.F.W. Energy, L.P. with the Commission.
G.F.W. Energy, L.P., as the sole general partner of NGP, may be deemed to
be the beneficial owner of all of the 6,159,366 shares of Common Stock
beneficially owned by NGP.
(15) Based upon information reported in a Schedule 13G dated January 20, 1997
filed by Enron Corp. and Joint Energy Development Investments Limited
Partnership ("JEDI") with the Commission. The general partner of JEDI is
Enron Capital Management Limited Partnership, whose general partner is
Enron Capital Corp., an indirect wholly-owned subsidiary of Enron Corp.
(16) Based upon information reported in an Amendment to Schedule 13G dated
February 10, 1998 filed by Harris Associates L.P. and Harris Associates,
Inc. with the Commission. Harris Associates, Inc., as the sole general
partner of Harris Associates L.P., may be deemed to be the beneficial owner
of all of the shares of Common Stock owned by Harris Associates L.P.
Harris Associates L.P. serves as investment adviser to Harris Associates
Investment Trust. The Oakmark Small Cap Fund, a series of Harris
Associates Investment Trust, owns 2,525,000 shares of the Common Stock
owned by Harris Associates L.P. and Harris Associates, Inc.
(17) Based upon information reported in a Form 13G dated February 13, 1998 filed
by Franklin Resources, Inc., Charles B. Johnson, Rupert H. Johnson, Jr. and
Franklin Advisors, Inc. with the Commission.
PROPOSAL 1. ELECTION OF DIRECTORS
The business and affairs of the Company are managed by and under the
direction of the Board of Directors, which exercises all corporate powers of the
Company and establishes broad corporate policies.
The Company's Board of Directors formed standing compensation and audit
committees on October 1, 1996 and March 20, 1997, each of which are composed of
David R. Albin, Kenneth A. Hersh and William J. Vaughn, Jr. Although the
Compensation Committee was formed to address all compensation issues, during
1997, the Company's Board of Directors reviewed and approved all matters
relating to compensation of executive officers, employee benefit plans and the
administration of the Company's stock option programs.
The Audit Committee's primary responsibilities is to (i) recommend the
Company's independent auditors to the Board of Directors, (ii) review with the
Company's auditors the plan and scope of the auditor's annual audit, the
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results thereof and the auditors' fees, (iii) review the Company's financial
statements and (iv) take such other action as they deem appropriate as to the
accuracy and completeness of financial records of the Company and financial
information gathering, reporting policies and procedures of the Company.
All duly submitted and unrevoked proxies will be voted for the nominees for
directors selected by the Board of Directors, except where authorization so to
vote is withheld. If any nominee(s) should become unavailable for election for
any presently unforeseen reason, the persons designated as proxies will have
full discretion to cast votes for another person(s) designated by the Board.
The five nominees of the Board of Directors of the Company are named below.
Each of the nominees has consented to serve as a director if elected. Set forth
below is certain information with respect to the nominees, including information
as to each nominee's age as of April 30, 1997, position with the Company,
business experience during the past five years and directorships of publicly
held companies.
JACK D. HIGHTOWER, age 49, has served as President, Chief Executive
Officer and Chairman of the Board of Directors of the Company since he founded
the Company in March 1995. Prior to forming the Company, from 1986 to January
1996, Mr. Hightower served as Chairman of the Board and Chief Executive Officer
of United Oil Services, Inc., an oil field service Company serving customers in
the Permian Basin. From 1978 to 1995, Mr. Hightower served as Chairman of the
Board and President of Amber Energy, Inc., a Company formed to identify oil and
gas exploration prospects. From 1991 to 1994, Mr. Hightower served as Chairman
of the Board, Chief Executive Officer and President of Enertex, Inc., which
served as the operator of record for several oil and gas properties involving
Mr. Hightower and other nonoperators, including Selma International Investment
Limited. Since 1990, Mr. Hightower has served on the Board of Directors of
Texas Commerce Bank, N.A., Midland.
GEORGE G. STALEY, age 63, has served as Executive Vice President,
Exploration and Director of the Company since its formation. From 1975 until
1995, Mr. Staley served as President and Chief Executive Officer of Staley Gas
Co., Inc. and Staley Operating Co., which are oil and gas exploration and
operating companies.
DAVID R. ALBIN, age 38, has served as a director of the Company since its
formation. Since 1988, Mr. Albin has been a manager of the NGP investment
funds, which were organized to make direct equity investments in the North
American oil and gas industry. He is currently responsible for co-managing
NGP's overall investment portfolio. Mr. Albin serves as a director of
Petroglyph Energy, Inc.
KENNETH A. HERSH, age 35, has served as a director of the Company since its
formation. Since 1989, Mr. Hersh has been a manager of the NGP investment funds,
which were organized to make direct equity investments in the North American oil
and gas industry. He is currently responsible for co-managing NGP's overall
investment portfolio. Mr. Hersh serves as a director of Pioneer Natural
Resources Company, HS Resources, Inc. and Petroglyph Energy, Inc.
WILLIAM J. VAUGHN, JR., age 77, has served as director of the Company since
March 1997. Since 1975, Mr. Vaughn has served as Chairman of the Board and
President of WJV, Inc. and DMV, Inc., which are oil and gas exploration
companies. From 1986 to 1996, Mr. Vaughn served as Vice President of United Oil
Services, Inc., an oil field service Company. From 1975 to 1995, Mr. Vaughn was
an independent geologist in association with Mr. Hightower.
COMPENSATION OF DIRECTORS
Fees and Expenses. In 1997, each director who is not an employee of the
Company received a fee of $15,000 for serving as a director. The Company also
reimburses directors for travel, lodging and related expenses they may incur in
attending Board and committee meetings.
COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the 1934 Act requires directors and officers of the
Company, and persons who own more than 10 percent of the Common Stock, to file
with the SEC initial reports of ownership and reports of changes in ownership of
the Common Stock. Directors, officers and more than 10 percent stockholders are
required by SEC regulations to furnish the Company with copies of all Section
16(a) forms they file. To the Company's knowledge, based solely on a review of
the copies of such reports furnished to the Company and written representations
that no other reports were required, during the year ended December 31, 1997,
all Section 16(a) filing requirements applicable to its directors,
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officers and more than 10 percent beneficial owners were met, except that
William J. Vaughn and John L. Benfatti were each not timely in the filing of one
monthly report of one transaction.
COMPENSATION OF EXECUTIVE OFFICERS
The following table sets forth certain summary information concerning the
compensation paid or awarded to the Chief Executive Officer of the Company and
the other four most highly compensated executive officers of the Company
(collectively, the "named executive officers") for the years indicated.
SUMMARY COMPENSATION TABLE
LONG TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
------------------------------------------------ ------------
SHARES
NAME AND OTHER ANNUAL UNDERLYING ALL OTHER
PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION (1) Options (#) COMPENSATION
- ---------------------------------- ---- ----------- --------- ----------------- ------------ ------------
Jack Hightower.................... 1997 $ 153,333 $48,000 $ -- -- $ 12,577 (2)
President and Chief Executive 1996 109,167 12,000 -- 73,103 10,455
Officer 1995 75,000 1,000 -- 1,682,491 6,201
George G. Staley.................. 1997 $ 153,333 $32,000 $ -- -- $ 15,227 (3)
Executive Vice President, 1996 109,167 12,000 -- 56,858 15,139
Exploration 1995 75,000 1,000 -- 975,313 10,423
William K. White (4)............. 1997 $ 129,375 $27,000 $ -- -- $ 10,560 (5)
Vice President, Finance and 1996 35,846 (6) 500 (6) -- 85,000 943
Chief Operating Officer
Rodney L. Woodard................ 1997 $ 129,375 $27,000 $ 13,431 (7) -- $ 10,485 (8)
Vice President, Engineering 1996 97,875 10,800 13,431 24,367 9,442
1995 67,500 1,000 -- 196,313 5,596
Dan P. Colwell................... 1997 $ 129,375 $27,000 $ -- -- $ 11,440 (9)
Vice President, Land 1996 79,425 8,640 -- 20,306 9,600
1995 54,000 1,000 -- 196,313 5,869
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(1) Other Annual Compensation does not include perquisites and other personal
benefits if the aggregate amount of such compensation does not exceed the
lesser of (i) $50,000 or (ii) 10% of individual combined salary and bonus
for the named executive officer in each year.
(2) Consists of premiums paid by the Company under a nondiscriminatory group
insurance program and contributions by the Company under its 401(k)
Retirement Plan of $5,392 and $7,185, respectively, during 1997.
(3) Consists of premiums paid by the Company under a nondiscriminatory group
insurance program and contributions by the Company under its 401(k)
Retirement Plan of $8,042 and $7,185, respectively, during 1997.
(4) Mr. White was elected Vice President, Finance and Chief Financial Officer
of the Company on September 30, 1996.
(5) Consists of premiums paid by the Company under a nondiscriminatory group
insurance program and contributions by the Company under its 401(k)
Retirement Plan of $5,510 and $5,050, respectively, during 1997.
(6) Represents amounts earned in 1996 that were paid in 1997.
(7) Consists of lease payments made by the Company for an automobile used by
Mr. Woodard in connection with his position with the Company.
(8) Consists of premiums paid by the Company under a nondiscriminatory group
insurance program and contributions by the Company under its 401(k)
Retirement Plan of $4,942 and $5,543, respectively, during 1997.
(9) Consists of premiums paid by the Company under a nondiscriminatory group
insurance program and contributions by the Company under its 401(k)
Retirement Plan of $5,378 and $6,062, respectively, during 1997.
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Option Grants
No stock options were granted to the named executive officers in 1997.
Option Exercises and Year-End Option Values
The following table provides information about the number of shares issued
upon option exercises by the named executive officers during 1997, and the value
realized by the named executive officers. The table also provides information
about the number and value of options that were held by the named executive
officers at December 31, 1997.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FY-END OPTION VALUES
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISE IN-THE-MONEY OPTIONS
SHARES OPTIONS AT FY-END (#) AT FY-END ($)
ACQUIRED ON VALUE -------------------------- ---------------------------------
NAME EXERCISE (#) REALIZED ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ------------------- ------------ ------------ ----------- ------------- ----------- --------------------
(DOLLARS IN THOUSANDS)
Jack Hightower..... -- -- 967,098 788,496 7,176 5,851
George G. Staley... -- -- 569,137 463,034 4,223 3,436
William K. White... -- -- 21,250 63,750 -- --
Rodney L. Woodard.. -- -- 122,165 98,515 899 731
Dan P. Colwell..... -- -- 119,774 96,845 889 719
REPORT OF THE BOARD OF DIRECTORS ON EXECUTIVE COMPENSATION POLICY
To the Stockholders
of Titan Exploration, Inc.:
As members of the Board of Directors, it is our responsibility to review
and set the compensation levels of the Company's Chief Executive Officer ("CEO")
and other executives, evaluate the performance of management and consider
management succession and related matters. In addition, we administer the
annual and long-term incentive compensation plans of the Company.
The Board of Directors considers information with respect to the
reasonableness of compensation paid to senior officers of the Company, as well
as all employees of the Company and its subsidiaries in managerial positions.
The Board of Directors also takes into account how compensation compares to
compensation paid by competitors in the Company's industry as well as the
performance of the Company.
COMPENSATION POLICIES AND PROGRAMS
The Company's executive compensation policy is designed to attract,
motivate, reward and retain the key executive talent necessary to achieve the
Company's business objectives and contribute to the long-term success of the
Company. In order to meet these goals, the Company's compensation policy for
its executive officers focuses primarily on determining appropriate salary
levels and providing long-term stock-based incentives. To a lesser extent, the
Company's compensation policy also contemplates performance-based cash bonuses.
The Company's compensation principles for the Chief Executive Officer are
identical to those of the Company's other executive officers. The executive
compensation program for 1997 consisted of two elements: base salary and annual
incentive bonus.
Base Salary. Base salary for executive officers is determined principally
by competitive factors and the marketplace. In determining its recommendations
for adjustments to officers' base salaries for fiscal 1997, the Company focused
primarily on the scope of each officer's responsibilities, each officer's
contributions to the Company's success in moving toward its long-term goals
during the fiscal year, the completion of the Company's acquisitions of Offshore
Energy Development Corporation, Carrollton Resources, L.L.C. and properties from
Pioneer Natural Resources
6
Company, the Company's assessment of the quality of services rendered by the
officer, comparison with compensation for officers of comparable companies and
an appraisal of the Company's financial position.
Annual Incentive Bonus. The compensation policy of the Company is that a
part of the annual compensation of each officer be related to and contingent
upon the performance of the Company, as well as the individual contribution of
each officer. In addition, the Board of Directors has reviewed compensation
information for executives of companies comparable to the Company in an effort
to ensure that the Company's bonuses are competitive.
Equity Compensation. The grant of stock options to executive officers
constitutes an important element of long-term compensation for the executive
officers. The grant of stock options increases management's equity ownership in
the Company with the goal of ensuring that the interests of management remain
closely aligned with those of the Company's stockholders. The Board believes
that stock options in the Company provide a direct link between executive
compensation and stockholder value. By attaching vesting requirements, stock
options also create an incentive for executive officers to remain with the
Company for the long term.
CHIEF EXECUTIVE OFFICER COMPENSATION
As indicated above, the factors and criteria upon which the compensation of
Jack D. Hightower, the Chief Executive Officer, is based are identical to the
criteria used in evaluating the compensation packages of the other executive
officers of the Company. The Chief Executive Officer's individual contributions
to the Company included his leadership role in establishing and retaining a
strong management team, developing and implementing the Company's business plans
and attracting investment capital to the Company. In addition, the Company
reviewed compensation levels of chief executive officers at comparable companies
in the Company's industry. In December 1997, the Committee approved an increase
in salary for the CEO to $240,000 per year, based upon competitive and financial
factors.
SUMMARY
The members of the Committee believe that linking executive compensation to
corporate performance results in a better alignment of compensation with
corporate goals and stockholder interests. As performance goals are met or
exceeded, resulting in increased value to stockholders, executive officers are
to be rewarded commensurately. The members of the Committee believe that
compensation levels during 1997 adequately reflect the compensation goals and
policies of the Company.
March 17, 1998 BOARD OF DIRECTORS
Jack D. Hightower, Chairman
George G. Staley
David R. Albin
Kenneth A. Hersh
William J. Vaughn, Jr.
SECTION 162(m) OF THE INTERNAL REVENUE CODE.
Section 162(m) of the Internal Revenue Code of 1986, as amended, generally
limits (to $1 million per covered executive) the deductibility for federal
income tax purposes of annual compensation paid to a Company's chief executive
officer and each of its other four most highly compensated executive officers.
All options granted under the Company's Long-term Incentive Plan in 1996 will
qualify for an exemption from the application of Section 162(m) of the Code,
thereby preserving the deductibility for federal income tax purposes of
compensation that may be attributable to the exercise of such options.
EMPLOYMENT AGREEMENTS
The Company and Jack Hightower are parties to an Employment Agreement (the
"Employment Agreement") that provides for the employment of Mr. Hightower as
President, Chief Executive Officer and Chairman of the Board of the Company for
a two year period. The agreement provides for an annual salary of $240,000,
subject to any increases that
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may be approved by the Compensation Committee of the Board of Directors from
time to time during the term of the Employment Agreement. Under the Employment
Agreement, Mr. Hightower shall be entitled to participate in any employee
benefit programs which the Company provides to its executive officers. As of the
date hereof, the employee benefit programs offered by the Company to its
officers and employees include group insurance coverage, participation in the
Company's 401(k) Retirement Plan and the 1996 Incentive Plan. Under the
Employment Agreement, Mr. Hightower will be entitled to receive up to one year's
base salary if his employment is terminated other than for cause prior to the
expiration of his employment term. The agreement also provides that Mr.
Hightower will not compete with the Company for a certain period of time
following any termination of his employment for any reason.
Each of the other executive officers of the Company is a party to a
confidentiality and noncompete agreement with the Company.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
David R. Albin and Kenneth A Hersh, directors of the Company, serve as
members of the compensation committee of the Company's Board of Directors.
Messrs. Albin and Hersh own limited partnership interests in the general partner
of NGP, which, as of December 31, 1997, owned 6,159,366 shares (15.68%) of
Common Stock, which includes 1,391,959 shares received upon conversion of
2,209,460 shares of common stock of OEDC pursuant to the OEDC Acquisition. R.
Gamble Baldwin is the general partner of the general partner of NGP. Messrs.
Albin, Baldwin and Hersh are three of the four managing members of the general
partner of NGP II and also own limited partnership interests in NGP II's general
partner. As of December 31, 1997, NGP II owned 5,000,777 shares (12.73%) of
Common Stock. In addition to the shares of the Common Stock owned by NGP, Mr.
Baldwin directly owns 31,175 shares of Common Stock, which includes 22,075
shares received upon conversion of 35,041 shares of common stock of OEDC
pursuant to the OEDC Acquisition. Messrs. Albin and Hersh, who disclaim
beneficial ownership of the Common Stock owned by NGP II, beneficially own
148,906 shares and 98,258 shares, respectively, of Common Stock, which includes
33,134 shares and 30,877 shares, respectively, received upon conversion of
52,596 shares and 49,012 shares, respectively, of common stock of OEDC pursuant
to the OEDC Acquisition. Although OEDC informed Mr. Albin from time to time on
a limited basis of the general status of negotiations with the Company and,
likewise, the Company informed Mr. Hersh of the general status of negotiations
with OEDC, none of these individuals participated in such negotiations or the
deliberations of the board of either Company in reviewing and approving the OEDC
Acquisition.
On November 7, 1997, the Company and Pioneer Natural Resources USA, Inc., a
wholly-owned subsidiary of Pioneer, entered into an agreement by which the
Company acquired on December 16, 1997 certain producing properties from Pioneer.
The properties, 87% of which are operated, are located in 46 fields in the
Permian Basin of West Texas and Southeastern New Mexico and produced, as of
September 30, 1997, approximately 2,500 BOEs per day. Of the reserves, 81% are
oil. The Company paid $54.4 million, subject to adjustments. The Company
funded the acquisition with its existing credit facilities. The Company was one
of several companies submitting bids for the properties. As of December 31,
1997, NGP II owned an approximate 6.0% limited partnership interest in DNR-MESA
Holdings, L.P., a Texas limited partnership that owned approximately 11% of the
outstanding common stock of Pioneer as of December 31, 1997. Natural Gas
Partners III, L.P., a fund that is under common management with NGP II and in
which Messrs. Albin, Baldwin and Hersh own indirect partnerships interests, also
owned an approximate 8% limited partnership interest in DNR as of December 31,
1997. Mr. Hersh, a director of the Company, is also a director of Pioneer and
currently owns 8,480 shares of the common stock of Pioneer. Mr. Hersh did not
participate in any of the negotiations of the terms of the acquisition agreement
between the Company and Pioneer or in any of the deliberations of the Boards of
either the Company or Pioneer concerning the acquisition.
The Company issued approximately 900,000 shares of Common Stock in
connection with the Carrollton Acquisition. NGP-Louisiana Partners, L.P. ("NGP-
Louisiana") owned 39.7207% of Carrollton's outstanding membership units. NGP is
the sole limited partner of NGP-Louisiana, owning a 95.07% limited partnership
interest. A corporation serves as the general partner and owned the remaining
4.93% of NGP-Louisiana. Messrs. Albin, Baldwin and Hersh collectively own a
majority of the common stock of the corporate general partner and disclaim
beneficial ownership of the shares owned by NGP - Louisiana. These individuals
were only informed from time to time on a limited basis of the general status of
negotiations between the Company and Carrollton and did not participate in
negotiation of the terms of the acquisition agreement or in the deliberations
concerning the agreement of the Company Board or the Carrollton management
committee.
8
In consideration of NGP's agreement to terminate its rights under (i) the
Registration Rights Agreement among OEDC, NGP and certain other stockholders of
OEDC and (ii) the Registration Rights Agreement among Carrollton, NGP and
certain other stockholders, the Company has agreed with NGP to use its best
efforts to prepare, file and have declared effective within 180 days of
consummation of the OEDC Acquisition a shelf registration statement registering
for resale the 1,391,959 shares of Common Stock received by NGP in the Merger
and 357,486 shares of Common Stock received by NGP in the Carrollton
Acquisition. One half of these shares will remain subject to lock-up agreements
with the Company until one year after consummation of the OEDC Acquisition. The
Company has also agreed to include in the same shelf registration an aggregate
of 86,088 shares of Common Stock that Messrs. Albin, Baldwin and Hersh received
in the OEDC Acquisition.
The Company is party to the Amended and Restated Registration Rights
Agreement with NGP, NGP II, Jack Hightower, Joint Energy Development Investments
Limited Partnership, First Union Corporation and Selma International Investment
Limited (the "Shareholder Parties"). Pursuant to the Amended and Restated
Registration Rights Agreement, on three separate occasions, commencing on the
180th day following the date of the Company's initial public offering under the
securities laws, Shareholder Parties owning at least 35% of the outstanding
shares then subject to such agreement may require the Company to register shares
held by them under applicable securities laws, provided that the shares to be
registered have an estimated aggregate offering price to the public of at least
$3,000,000. The Amended and Restated Registration Rights Agreement also
provides that the Shareholder Parties have piggyback registration rights
pursuant to which such persons may include shares of the Company Common Stock
held by them in certain registrations initiated by the Company or by any other
holder of the Company's Common Stock. The piggyback rights are subject to
customary cutback provisions.
CERTAIN TRANSACTIONS
David R. Albin and Kenneth A Hersh, directors of the Company, serve as
members of the compensation committee of the Company's Board of Directors.
Messrs. Albin and Hersh own limited partnership interests in the general partner
of NGP, which, as of December 31, 1997, owned 6,159,366 shares (15.68%) of the
outstanding Common Stock, which includes 1,391,959 shares received upon
conversion of 2,209,460 shares of common stock of OEDC pursuant to the OEDC
Acquisition. R. Gamble Baldwin is the general partner of the general partner of
NGP. Messrs. Albin, Baldwin and Hersh are three of the four managing members of
the general partner of NGP II and also own limited partnership interests in NGP
II's general partner. As of December 31, 1997, NGP II owned 5,000,777 shares
(12.73%) of the outstanding Common Stock. In addition to the shares of Common
Stock owned by NGP, Mr. Baldwin directly owns 31,175 shares of Common Stock,
which includes 22,075 shares received upon conversion of 35,041 shares of common
stock of OEDC pursuant to the OEDC Acquisition. Messrs. Albin and Hersh, who
disclaim beneficial ownership of Common Stock owned by NGP II, beneficially own
148,906 shares and 98,258 shares, respectively, of Common Stock, which includes
33,134 shares and 30,877 shares, respectively, received upon conversion of
52,596 shares and 49,012 shares, respectively, of common stock of OEDC pursuant
to the OEDC Acquisition. Although OEDC informed Mr. Albin from time to time on a
limited basis of the general status of negotiations with the Company and,
likewise, the Company informed Mr. Hersh of the general status of negotiations
with OEDC, none of these individuals participated in such negotiations or the
deliberations of the board of either Company in reviewing and approving the OEDC
Acquisition.
On November 7, 1997, the Company and Pioneer Natural Resources USA, Inc., a
wholly-owned subsidiary of Pioneer, entered into an agreement by which the
Company acquired on December 16, 1997 certain producing properties from Pioneer.
The properties, 87% of which are operated, are located in 46 fields in the
Permian Basin of West Texas and Southeastern New Mexico and produced, as of
September 30, 1997, approximately 2,500 BOEs per day. Of the reserves, 81% are
oil. The Company paid $54.4 million, subject to adjustments. The Company funded
the acquisition with its existing credit facilities. The Company was one of
several companies submitting bids for the properties. As of December 31, 1997,
NGP II owned an approximate 6.0% limited partnership interest in DNR-MESA
Holdings, L.P., a Texas limited partnership that owned approximately 11% of the
outstanding common stock of Pioneer as of December 31, 1997. Natural Gas
Partners III, L.P., a fund that is under common management with NGP II and in
which Messrs. Albin, Baldwin and Hersh own indirect partnerships interests, also
owned an approximate 8% limited partnership interest in DNR as of December 31,
1997. Mr. Hersh, a director of the Company, is also a director of Pioneer and
currently owns 8,480 shares of the common stock of Pioneer. Mr. Hersh did not
participate in any of the negotiations of the terms of the acquisition agreement
between the Company and Pioneer or in any of the deliberations of the Boards of
either the Company or Pioneer concerning the acquisition.
9
The Company issued approximately 900,000 shares of Common Stock in
connection with the Carrollton Acquisition. NGP-Louisiana owned 39.7207% of
Carrollton's outstanding membership units. NGP is the sole limited partner of
NGP-Louisiana, owning a 95.07% limited partnership interest. A corporation
serves as the general partner and owned the remaining 4.93% of NGP-Louisiana.
Messrs. Albin, Baldwin and Hersh collectively own a majority of the common stock
of the corporate general partner and disclaim beneficial ownership of the shares
owned by NGP-Louisiana. These individuals were only informed from time to time
on a limited basis of the general status of negotiations between the Company and
Carrollton and did not participate in negotiation of the terms of the
acquisition agreement or in the deliberations concerning the agreement of the
Company's Board of Directors or the Carrollton management committee.
In consideration of NGP's agreement to terminate its rights under (i) the
Registration Rights Agreement among OEDC, NGP and certain other stockholders of
OEDC and (ii) the Registration Rights Agreement among Carrollton, NGP and
certain other stockholders, the Company has agreed with NGP to use its best
efforts to prepare, file and have declared effective within 180 days of
consummation of the OEDC Acquisition a shelf registration statement registering
for resale the 1,391,959 shares of Common Stock received by NGP in the Merger
and 357,486 shares of Common Stock received by NGP-Louisiana in the Carrollton
Acquisition. One half of these shares will remain subject to lock-up agreements
with the Company until one year after consummation of the OEDC Acquisition. The
Company has also agreed to include in the same shelf registration an aggregate
of 86,088 shares of Common Stock that Messrs. Albin, Baldwin and Hersh received
in the OEDC Acquisition.
The Company is party to the Amended and Restated Registration Rights
Agreement with the Shareholder Parties. Pursuant to the Amended and Restated
Registration Rights Agreement, on three separate occasions, commencing on the
180th day following the date off the Company's initial public offering under the
securities laws, Shareholder Parties owning at least 35% of the outstanding
shares then subject to such agreement may require the Company to register shares
held by them under applicable securities laws, provided that the shares to be
registered have an estimated aggregate offering price to the public of at least
$3,000,000. The Amended and Restated Registration Rights Agreement also provides
that the Shareholder Parties have piggyback registration rights pursuant to
which such persons may include shares of Common Stock held by them in certain
registrations initiated by the Company or by any other holder of Common Stock.
The piggyback rights are subject to customary cutback provisions.
The Company has entered into an administrative services contract with
Staley Operating Co. ("Staley Operating"), an affiliate of Mr. Staley. Pursuant
to the agreement, the Company provided certain administrative, accounting and
other office and technical services on behalf of Staley Operating, in its
capacity as the operator of certain producing oil and gas properties, in return
for which the Company received the amounts charged by Staley Operating for
providing such services under the applicable operating agreements for such
properties. The total amount of payments received by the Company under such
agreement was approximately $9,700 for the year ended December 31, 1997.
Messrs. Hightower, Staley and Vaughn and certain of their affiliates have
common ownership interests in wells operated by the Company and, in accordance
with a standard industry operating agreement, Messrs. Hightower, Staley and
Vaughn and certain of their affiliates make payments to the Company of leasehold
costs and lease operating and supervision charges. These payments aggregated
approximately $88,000 for the year ended December 31, 1997. Revenue received in
connection with these wells was approximately $16,000 for the year ended
December 31, 1997. The fees charged by the Company to Messrs. Hightower, Staley
and Vaughn are the same as those charged to unaffiliated third parties that are
also party to the operating agreement.
From time to time, the Company enters into certain hedging arrangements
with Enron Capital & Trade Resources Corp. ("ECTRC"), an affiliate of JEDI.
Pursuant to the terms of such arrangements relating to natural gas hedges,
during the year ended December 31, 1997, the Company received approximately
$551,000 from ECTRC.
For the year ended December 31, 1997, sales to Enron Corp. (an affiliate of
JEDI), its subsidiaries and affiliates were approximately 36%, of the Company's
oil and gas revenues.
The Company's offices are in Fasken Center located at 500 West Texas, Suite
500, in Midland, Texas and are leased from Fasken Center Ltd., an affiliate of
Mr. Hightower. The lease is a noncancellable operating lease that terminates on
March 15, 2002 and requires monthly rent payments of approximately $31,000,
subject to increase as the Company assumes additional space.
10
PERFORMANCE GRAPH
The following graph shows a comparison of cumulative total stockholder
returns for the Common Stock of the Company, the Standard & Poor's 500 Index and
the composite peer group since December 17, 1996.
[PERFORMANCE GRAPH APPEARS HERE]
COMPARISON OF CUMULATIVE STOCKHOLDER TOTAL RETURN (1)
AMONG THE COMPANY, S&P 500 INDEX AND COMPOSITE PEER GROUP
December 17, 1996 December 31, 1996 December 31, 1997
----------------- ----------------- -----------------
Titan............ 100 109 86
S&P 500 Index.... 100 105 136
Peer Group (2)... 100 102 81
- --------------
(1) Total return assuming reinvestment of dividends. Assumes $100 invested on
December 17, 1996 in Common Stock of Titan, the Standard & Poor's 500 Index
and the composite peer group.
(2) The Company maintains as its peer group the companies that comprise the
John S. Herold Midsize Exploration and Production Companies, of which the
Company is a member. This composite peer group includes the following
companies: Belco Oil & Gas Corp., Berry Petroleum Co., Chesapeake Energy
Corp., Coho Energy Inc., Cross Timbers Oil Co., Forcenergy, Inc., Forest
Oil Corp., Helmerich & Payne, Inc., Houston Exploration Co., KCS Energy,
Inc., Kelley Oil & Gas Corp., Lomak Petroleum, Inc., Mitchell Energy &
Development Corp., Newfield Exploration Co., Ocean Energy Inc., Patina Oil
& Gas Corp., Plains Resources, Inc., Pogo Producing Co., Titan Exploration,
Inc., Tom Brown, Inc., United Meridian Corp. and Wiser Oil Company.
11
PROPOSAL 2. APPOINTMENT OF INDEPENDENT PUBLIC ACCOUNTANTS
The Board of Directors has appointed, and recommends the approval of the
appointment of, KPMG Peat Marwick LLP, who have been the Company's auditors
since the Company's formation on September 30, 1996, as independent auditors for
the year ending December 31, 1998. Representatives of KPMG Peat Marwick LLP are
expected to be present at the Annual Meeting and will be given the opportunity
to make a statement, if they desire to do so, and to respond to appropriate
questions.
Unless stockholders specify otherwise in the proxy, proxies solicited by
the Board of Directors will be voted by the persons named in the proxy at the
Annual Meeting to ratify the selection of KPMG Peat Marwick LLP as the Company's
auditors for 1998. The affirmative vote of a majority of the votes cast at the
Annual Meeting will be required for ratification.
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE FOR THE
RATIFICATION OF THE APPOINTMENT OF KPMG PEAT MARWICK LLP.
OTHER MATTERS
The Board of Directors of the Company does not intend to present any other
matters at the meeting and knows of no other matters which will be presented.
However, if any other matters come before the meeting, it is the intention of
the persons named in the enclosed proxy to vote in accordance with their
judgment on such matters.
STOCKHOLDER PROPOSALS
It is contemplated that the 1999 annual meeting of stockholders of the
Company will take place during the fourth week of May 1999. Stockholder
proposals for inclusion in the Company's proxy materials for the 1999 annual
meeting of stockholders must be received at the Company's principal executive
office in Midland, Texas, addressed to the Secretary of the Company, not less
than 60 days prior to such meeting; provided that if the 1999 annual meeting of
stockholders is changed by more than 30 days from the presently contemplated
date, proposals must be so received a reasonable time in advance of the meeting.
FORM 10-K ANNUAL REPORT
The Company will provide without charge to each person from whom a proxy
is solicited by this proxy statement, upon the written request of any such
person, a copy of the Company's annual report on Form 10-K, including the
financial statements and the schedules thereto, required to be filed with the
Securities and Exchange Commission pursuant to Section 13(a)-1 under the 1934
Act for the Company's most recent fiscal year. Requests should be directed to
the Vice President, Administration and Secretary, Titan Exploration, Inc., 500
West Texas, Suite 500, Midland, Texas 79701.
By Order of the Board of Directors
Susan D. Rowland, Secretary
April 30, 1998
Midland, Texas
12
TITAN EXPLORATION , INC.
500 WEST TEXAS, SUITE 500
MIDLAND, TEXAS 79701
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Jack D. Hightower and William K. White, and
each of them, as the undersigned's attorneys and proxies, each with the power
to appoint his substitute, and hereby authorizes them to represent and to vote,
as directed below, all the shares of common stock of TITAN EXPLORATION, INC.
(the "Company") held of record by the undersigned on April 22, 1998, at the
annual meeting of stockholders of the Company to be held on May 28, 1998, at
10:00 a.m., local time, at the Midland Room, Tower Two, Fasken Center, 550 West
Texas, Midland, Texas 79701, and at any adjournment(s) thereof.
1. ELECTION OF DIRECTORS:
[_] FOR all nominees listed above
[_] WITHHOLD AUTHORITY to vote
(except as marked to the contrary below)
for all nominees listed above
(INSTRUCTION: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE,
STRIKE A LINE THROUGH THE NOMINEE'S NAME BELOW.)
Jack D. Hightower George G. Staley David R. Albin Kenneth A. Hersh William
J. Vaughn
2. PROPOSAL TO RATIFY APPOINTMENT OF KPMG PEAT MARWICK LLP AS INDEPENDENT
PUBLIC ACCOUNTANTS OF THE COMPANY FOR THE FISCAL YEAR ENDING DECEMBER 31, 1998
[_] FOR [_] AGAINST [_] ABSTAIN
3. In their discretion, the proxies are authorized to vote with respect to any
other matter which may properly come before the meeting or any adjournment(s)
thereof.
(continued on other side)
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED HEREIN
BY THE UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE
VOTED FOR MANAGEMENT'S NOMINEES FOR ELECTION AS DIRECTORS AND FOR THE
APPOINTMENT OF KPMG PEAT MARWICK LLP AS INDEPENDENT PUBLIC ACCOUNTANTS OF THE
COMPANY FOR THE FISCAL YEAR ENDING DECEMBER 31, 1998.
Dated: ____________________, 1998
---------------------------------
Signature
---------------------------------
Signature
Please sign exactly as name ap-
pears hereon. When shares are
held by joint tenants, both
should sign. When signing as at-
torney, executor, administrator,
trustee or guardian, please give
full title as such. If a corpo-
ration, please sign in full cor-
porate name by President or
other authorized officer. If a
partnership, please sign in
partnership name by authorized
person.
SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY USING THE ENCLOSED ENVELOPE.