SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
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[ ] Soliciting Material Pursuant to (S) 240.14a-11(c) or (S) 240.14a-12
LOUIS DREYFUS NATURAL GAS CORP.
(Name of Registrant as Specified in its Charter)
NOT APPLICABLE
(Name of Person(s) Filing Proxy Statement if Other Than Registrant)
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previously. Identify the previous filing by registration statement number,
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LOUIS DREYFUS NATURAL GAS CORP.
14000 Quail Springs Parkway
Suite 600
Oklahoma City, Oklahoma 73134
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON MAY 18, 1999
TO THE SHAREHOLDERS OF LOUIS DREYFUS NATURAL GAS CORP.:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Shareholders of Louis
Dreyfus Natural Gas Corp., an Oklahoma corporation (the "Company"), will be held
on Tuesday, May 18, 1999 at 9:00 a.m. at the Company's principal corporate
office, 14000 Quail Springs Parkway, Suite 600, Oklahoma City, Oklahoma, for the
following purposes:
1. To elect twelve directors for the ensuing year and until their
successors are duly elected and qualified.
2. To approve amendments to the Company's Stock Option Plan (the "Plan")
(i) increasing from 2,000,000 shares to 3,000,000 shares the maximum
number of shares of Common Stock in respect of which stock options may
be granted under the Plan and (ii) limiting to 400,000 shares the
maximum number of shares in respect of which options may be granted to
any one person under the Plan.
3. To ratify the selection of Ernst & Young LLP as independent auditors
of the Company for the year ending December 31, 1999.
4. To transact such other business as may come before the meeting or any
adjournment thereof.
The foregoing items of business are more fully described in the Proxy
Statement accompanying this Notice. The meeting may be adjourned from time to
time and, at any reconvened meeting, action with respect to the matters
specified in this Notice may be taken without further notice to the
shareholders, unless required by applicable law or the Bylaws of the Company.
Only shareholders of record at the close of business on April 5, 1999 are
entitled to notice of, and to vote at, the meeting. A list of such shareholders
will be available at the meeting and at the Company's principal corporate
office, 14000 Quail Springs Parkway, Suite 600, Oklahoma City, Oklahoma 73134
for ten days before the meeting. All shareholders are cordially invited to
attend the meeting in person. Whether or not you expect to attend the meeting,
please complete, date, sign and return the enclosed proxy as promptly as
possible in order to ensure your representation at the meeting. A return
envelope (which is postage prepaid if mailed in the United States) is enclosed
for that purpose. Even if you have given your proxy, you may still vote in
person if you attend the meeting. Please note, however, that if your shares are
held of record by a broker, bank or other nominee and you wish to vote at the
meeting, you must bring to the meeting a proxy issued in your name by the record
holder.
BY ORDER OF THE BOARD OF DIRECTORS
Kevin R. White, Secretary
Oklahoma City, Oklahoma
April 26, 1999
LOUIS DREYFUS NATURAL GAS CORP.
14000 Quail Springs Parkway
Suite 600
Oklahoma City, Oklahoma 73134
PROXY STATEMENT
FOR
ANNUAL MEETING OF SHAREHOLDERS
To Be Held On May 18, 1999
The following information is furnished in connection with the Annual
Meeting of Shareholders (the "Annual Meeting") of Louis Dreyfus Natural Gas
Corp., an Oklahoma corporation (the "Company"), to be held on Tuesday, May 18,
1999 at 9:00 a.m. at the Company's principal corporate office, 14000 Quail
Springs Parkway, Suite 600, Oklahoma City, Oklahoma. This Proxy Statement will
be mailed on or about April 28, 1999 to holders of record of Common Stock as of
the record date.
The record date and time for determining shareholders entitled to vote at
the Annual Meeting have been fixed at the close of business on April 5, 1999. On
that date, the Company had outstanding 40,109,758 shares of Common Stock. Each
outstanding share of Common Stock is entitled to one vote.
The enclosed proxy for the Annual Meeting is being solicited by the
Company's Board of Directors. The Company will bear the entire cost of such
solicitation of proxies, including preparation, assembly, printing and mailing
of this proxy statement, the proxy and any additional information furnished to
shareholders. Copies of solicitation materials will be furnished to banks,
brokerage houses, fiduciaries and custodians holding in their names shares of
Common Stock beneficially owned by others to forward to such beneficial owners.
The Company may reimburse persons representing beneficial owners of Common Stock
for their costs of forwarding solicitation materials to such beneficial owners.
Original solicitation of proxies by mail may be supplemented by telephone,
telegram or personal solicitation by directors, officers or other regular
employees of the Company. No additional compensation will be paid to directors,
officers or other regular employees for such services.
Any person giving a proxy pursuant to this solicitation has the power to
revoke it at any time before it is voted. It may be revoked by filing with the
Secretary of the Company at the Company's principal corporate office, 14000
Quail Springs Parkway, Suite 600, Oklahoma City, Oklahoma 73134, a written
notice of revocation or a duly executed proxy bearing a later date, or it may be
revoked by attending the Annual Meeting and voting in person. Attendance at the
Annual Meeting will not, by itself, revoke a proxy.
Shares represented by valid proxies will be voted, unless otherwise
directed in the proxy, FOR the election of the director nominees, FOR the
approval of the amendments to the Company's Stock Option Plan and FOR the
ratification of the selection of Ernst & Young LLP as independent
auditors of the Company for the year ending December 31, 1999. As to any other
business which may properly come before the Annual Meeting, shares represented
by proxies will be voted in accordance with the recommendations of the Board of
Directors, although the Company does not presently know of any other such
business.
PROPOSAL ONE
ELECTION OF DIRECTORS
The Board of Directors of the Company has established the size of the Board
of Directors as twelve members and has nominated the current eleven members of
the Board for re-election and one new nominee, Nancy K. Quinn, for election to
the Board. Each nominee, if elected, will hold office until the next annual
meeting of shareholders and until his or her successor is duly elected and
qualified, or until his or her earlier death, resignation or removal. Each
nominee has agreed to serve if elected, and the Company has no reason to believe
that any nominee will be unable to serve. Should any of the nominees named below
cease to be a nominee at or prior to the Annual Meeting, the shares represented
by the enclosed proxy will be voted in favor of the remainder of the nominees
named below and for such substitute nominees, if any, as may be designated by
the Board of Directors and nominated by either of the proxies named in the
enclosed proxy. Proxies cannot be voted for a greater number of nominees than
the number of nominees named herein.
Nominees
The nominees for the position of director of the Company are as follows:
Name Age Principal Occupation
---- --- --------------------
Mark E. Andrews, III 48 Private Investor
E. William Barnett 66 Senior Counsel of Baker & Botts, L.L.P.
Richard E. Bross 50 Executive Vice President - Land and
Operations of the Company
Daniel R. Finn, Jr. 55 Executive Vice President and Chairman of the
Energy Group of Louis Dreyfus Corporation
Peter G. Gerry 53 Managing Director of Sycamore Management
Corporation
Gerard Louis-Dreyfus 66 Chairman, President and Chief Executive
Officer of S.A. Louis Dreyfus et Cie
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Mark E. Monroe 44 President and Chief Executive Officer of the
Company
John H. Moore 73 Petroleum Consultant
James R. Paul 64 Retired, Former President and Chief
Executive Officer of The Coastal Corporation
Nancy K. Quinn 45 Limited Partner of The Beacon Group, LP
Simon B. Rich, Jr. 54 Vice Chairman, President and Chief Executive
Officer of Louis Dreyfus Holding Company
Inc.
Ernest F. Steiner 57 Executive Vice President and Chief Financial
Officer of Louis Dreyfus Holding Company
Inc.
The following is a brief description of the business background of each of
the nominees:
Mark E. Andrews, III was first elected as a director of the Company in
October 1997 following the Company's acquisition of American Exploration Company
and has served as Vice Chairman of the Board since such time. Mr. Andrews is a
private investor and previously served as Chairman of the Board and Chief
Executive Officer of American Exploration Company from 1983 until its
acquisition by the Company. He is also a director of IVAX Corporation. Mr.
Andrews holds a B.A. from Harvard College and an M.B.A. from Harvard Business
School.
E. William Barnett was elected to the Board in 1998. Mr. Barnett joined
Baker & Botts, L.L.P. in 1958 and is currently Senior Counsel and was the
Managing Partner from 1984-1998. His primary areas of practice have been
commercial litigation and antitrust Law. Mr. Barnett serves as Chairman of the
Board of Trustees of Rice University, is a director of Chase Bank of Texas and a
director or trustee of numerous other civic and professional organizations. He
received his B.A. from Rice University and his LL.B. from the University of
Texas School of Law.
Richard E. Bross is Executive Vice President - Land and Operations of the
Company and was first elected as a director of the Company in September 1993.
Mr. Bross joined the Company in 1991 and served as its President until September
1993. Prior to joining the Company, Mr. Bross served in various capacities at
Argent Energy, Inc. (previously named Woods Petroleum Corporation) from 1977
until 1991, culminating with his appointment as Executive Vice President and
Chief Operating Officer in September 1990. Mr. Bross joined Argent Energy, Inc.
in 1977 after working for Gulf Oil Corporation for seven years in various
engineering functions. Mr. Bross holds a B.S. from the University of Missouri
and an M.B.A. from Oklahoma City University.
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Daniel R. Finn, Jr. has been a director of the Company since 1990. Mr. Finn
is Executive Vice President and Chairman of the Energy Group of Louis Dreyfus
Corporation, an indirect subsidiary of S.A. Louis Dreyfus et Cie. Mr. Finn has
been employed by S.A. Louis Dreyfus et Cie or its subsidiaries since 1972,
serving in various capacities including Chairman of Louis Dreyfus Energy Corp.,
a former indirect subsidiary of S.A. Louis Dreyfus et Cie which was engaged in
natural gas trading and crude oil and petroleum product trading and marketing,
Chief Executive Officer of Duke/Louis Dreyfus LLC, Vice President of worldwide
wheat merchandising and Senior Vice President of worldwide grain merchandising.
In addition, Mr. Finn is a director of Louis Dreyfus Corporation and Louis
Dreyfus Holding Company Inc., a subsidiary of S.A. Louis Dreyfus et Cie. Mr.
Finn holds a B.A. from Fairfield University and an M.B.A. from Northwestern
University.
Peter G. Gerry was first elected as a director of the Company in October
1997 following the Company's acquisition of American Exploration Company. Mr.
Gerry, a former director of American Exploration Company, is Managing Director
of Sycamore Management Corporation, an investment management firm, and is a
former President of Citicorp Venture Capital Ltd. and director of Pond Hill
Homes, Ltd. Mr. Gerry holds a B.A. from Harvard College and an M.B.A. from
Harvard Business School.
Gerard Louis-Dreyfus has been a director of the Company since September
1993. Mr. Louis-Dreyfus is the Chairman, President and Chief Executive Officer
of S.A. Louis Dreyfus et Cie, the parent company of the Louis Dreyfus worldwide
organization of companies. S.A. Louis Dreyfus et Cie is privately owned by
family members and has been in business for almost 150 years. The activities of
the Louis Dreyfus group include worldwide trading and merchandising of various
agricultural and energy commodities, crushing and refining, citrus processing,
ownership and management of ocean vessels, real estate ownership, development
and management, forestry management and particleboard manufacturing and
petroleum refining and marketing. Mr. Louis-Dreyfus is the great-grandson of the
founder. Mr. Louis-Dreyfus is a graduate of Duke University and Duke University
School of Law. Upon graduation he joined the firm of Dewey Ballantine, New York,
until 1965 when he joined S.A. Louis Dreyfus et Cie.
Mark E. Monroe is President and Chief Executive Officer of the Company and
has been a director of the Company since 1986. Mr. Monroe joined the Company in
1980, which was then known as Bogert Oil Company and which was later acquired by
S.A. Louis Dreyfus et Cie, and served as Vice President and Chief Financial
Officer of the Company until April 1991. From April 1991 until September 1993,
Mr. Monroe served as a Vice President of Louis Dreyfus Energy Corp., a former
indirect subsidiary of S.A. Louis Dreyfus et Cie which was engaged in oil and
natural gas trading and marketing. Mr. Monroe rejoined the Company in September
1993 and served as Chief Operating Officer until his election to his present
position in August 1996. Mr. Monroe holds a B.B.A. from the University of Texas
and is a Certified Public Accountant.
John H. Moore was first elected as a director of the Company in October
1997 following the Company's acquisition of American Exploration Company. Mr.
Moore, a former director of American Exploration Company, is a petroleum
consultant and was Chairman of the Board and Chief Executive Officer of Ladd
Petroleum Corporation from 1986 to 1988. He is also a former
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director of First Interstate Bank of Denver and a former director of General
Atlantic Resources. Mr. Moore holds B.S. and M.E. degrees from the University of
Oklahoma.
James R. Paul was first elected to the Board of Directors of the Company in
February 1994. Mr. Paul is Chairman of a private investment company and retired
in January 1994 from The Coastal Corporation after twenty years of service in
various executive capacities, including President and Chief Executive Officer
from 1989, and a director from 1981, until his retirement. He is also a director
of Transcanada Pipelines, Ltd. Mr. Paul holds a B.S. from Wichita State
University.
Nancy K. Quinn, a nominee for director for the first time in 1999, is a
Limited Partner of The Beacon Group, LP, a private investment and advisory
partnership headquartered in New York City, which she joined in 1996. Prior to
1996, Ms. Quinn was a Managing Director and Co-Head of the Energy and Natural
Resources Group at Paine Webber Inc. and Kidder Peabody & Co. Inc. She is a
director of a private oil and gas company and was previously a director of
DeepTech International. Ms. Quinn holds a B.F.A. from Louisiana State
University and an M.B.A. from the University of Arkansas.
Simon B. Rich, Jr. has been a director of the Company since 1990 and has
served as Chairman of the Board of Directors since August 1996. Mr. Rich is Vice
Chairman, President and Chief Executive Officer of Louis Dreyfus Holding Company
Inc., a subsidiary of S. A. Louis Dreyfus et Cie. From October 1996 until June
1997, Mr. Rich served as Managing Director and Chief Operating Officer of
Duke/Louis Dreyfus LLC. From September 1993 until August 1996, Mr. Rich served
as President and Chief Executive Officer of the Company. From 1990 to 1993, Mr.
Rich served as Executive Vice President of Louis Dreyfus Energy Corp. From 1986
to 1990, Mr. Rich served as Executive Vice President-Development and Strategic
Planning of S.A. Louis Dreyfus et Cie. Mr. Rich holds a B.A. from Duke
University.
Ernest F. Steiner has been a director of the Company since October 1997.
Mr. Steiner is a director of S.A. Louis Dreyfus et Cie and the Chief Financial
Officer of the Louis Dreyfus group. He is also Executive Vice President of Louis
Dreyfus Holding Company Inc. and Louis Dreyfus Corporation, subsidiaries of S.A.
Louis Dreyfus et Cie, and has been employed by Louis Dreyfus Corporation or
other subsidiaries of S.A. Louis Dreyfus et Cie since 1972. Mr. Steiner is also
a director of Louis Dreyfus Citrus S.A. Mr. Steiner holds a B.S. from Cornell
University.
The Board of Directors recommends that the shareholders vote "For" the
named nominees.
Board Committees and Meetings
The Board of Directors has an Executive Committee, a Compensation Committee
and an Audit Committee.
The Executive Committee may exercise all of the powers of the Board of
Directors, except to the extent limited by resolution of the Board of Directors,
the Company's Bylaws and by applicable law. The Executive Committee, which
during 1998 consisted of Messrs. Andrews,
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Louis-Dreyfus, Rich, Monroe and Finn, did not hold any meetings but acted by
unanimous consent without a meeting once during 1998.
The Compensation Committee establishes general compensation policies,
reviews and makes specific recommendations to the Board of Directors concerning
salaries and incentive compensation for executive officers of the Company and
administers the Company's Stock Option Plan. The Compensation Committee, which
during 1998 consisted of Messrs. Finn, Moore and Paul until July 1998 and
Messrs. Barnett, Moore and Paul from and after July 1998, met twice and acted by
unanimous consent without a meeting twice during 1998.
The Audit Committee is responsible to the Board of Directors for
establishing and reviewing internal and external audits of the Company and
meeting with representatives of the Company's independent auditors to receive
the results of their audits. The Audit Committee, which during 1998 consisted
of Messrs. Gerry, Moore and Paul, met once during 1998.
The Board of Directors does not have a nominating committee. The entire
Board performs this function and evaluates and recommends nominees for election
to the Board of Directors. Although there is no formal procedure for
shareholders to recommend nominees for the Board of Directors, the Board will
consider such recommendations if submitted in writing addressed to the Secretary
of the Company.
During the year ended December 31, 1998, the Board of Directors held six
meetings and acted by unanimous consent without a meeting seven times. During
1998, all incumbent directors of the Company attended at least 75% of the
aggregate of all meetings of the Board of Directors and committees on which they
served, except Mr. Louis-Dreyfus who attended 50% of all such meetings and Mr.
Steiner who attended 67% of all such meetings.
Compensation of Directors
Each non-employee director, other than the Chairman and Gerard Louis-
Dreyfus, receives an annual retainer of $20,000 and a fee of $1,000 for each
meeting of the Board of Directors or committee thereof attended and is
reimbursed for certain expenses in connection with attendance at such meetings.
The Chairman of the Board of Directors receives an annual retainer of $56,250,
but does not receive additional fees for meetings attended. Under the Company's
Stock Option Plan approved by the shareholders, each non-employee director
receives, while serving as a director, option grants to purchase 2,000 shares of
Common Stock as of the date of each annual meeting of shareholders. Any new
non-employee director will receive under the Company's Stock Option Plan an
initial option grant to purchase 6,000 shares of Common Stock upon election to
the Board of Directors and, while serving as a director, will receive additional
option grants to purchase 2,000 shares of Common Stock as of the date of each
subsequent annual meeting of shareholders.
Under the Company's Non-Employee Director Deferred Stock Compensation
Program adopted in 1998 (the "Deferred Stock Program"), each non-employee
director received during 1998 a deferred stock award of 1,000 shares of Common
Stock and, while serving as a director, will receive deferred stock awards of
1,000 shares of Common Stock following each annual meeting of
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shareholders. Any new non-employee director will receive under the Deferred
Stock Program a deferred stock award of 1,000 shares of Common Stock upon
election to the Board of Directors and, while serving as a director, will
receive deferred stock awards of 1,000 shares of Common Stock following each
annual meeting of shareholders commencing with the annual meeting held in the
calendar year following the date of the initial deferred stock award received by
the new non-employee director under the Deferred Stock Program. Under the
Deferred Stock Program, non-employee directors may also make an annual
irrevocable election to receive all or a portion of the annual cash fees that
the non-employee director would otherwise be entitled to receive from the
Company in the form of deferred stock. The shares issued under the Deferred
Stock Program are held by the Louis Dreyfus Natural Gas Corp. Non-Employee
Director Deferred Stock Compensation Award Trust (the "Trust") and will be
delivered to the applicable non-employee directors after termination of service
as a director of the Company, upon a Change in Control (as defined in the Trust
Agreement) of the Company or at such other times as the Company determines. The
non-employee directors have the right to direct the voting of their respective
deferred shares held in the Trust.
PROPOSAL TWO
APPROVAL OF AMENDMENTS TO STOCK OPTION PLAN
The Company's Stock Option Plan (the "Plan") is intended to promote and
advance the interests of the Company and its shareholders by providing a means
for the Company to offer appropriate equity incentive and compensation
opportunities to its directors, officers, managers and key employees and to
encourage stock ownership by such persons in order to increase the proprietary
interests of such persons in the growth and financial success of the Company.
Summary of Amendments to the Plan
The Plan was amended and restated in 1997 and was approved by the
shareholders at the Company's 1997 Annual Meeting. During 1998, the Board of
Directors adopted further amendments to the Plan (i) to increase the maximum
number of shares of Common Stock in respect of which options may be granted
under the Plan from 2,000,000 shares to 3,000,000 shares and (ii) to limit to
400,000 shares the maximum number of shares in respect of which options may be
granted to any one person under the Plan. Such maximum limits are subject to
appropriate equitable adjustment in the event of a reorganization, stock split,
stock dividend, reclassification or other change affecting the Company's Common
Stock.
The amendment to the Plan to increase from 2,000,000 shares to 3,000,000
shares the maximum number of shares of Common Stock in respect of which options
may be granted under the Plan was adopted in order to ensure that the Company
will continue to have appropriate equity incentive and compensation
opportunities for its directors, officers, managers and key employees. The Board
of Directors considers the Company's ability to offer competitive compensation
opportunities, including long-term equity based compensation in the form of
stock options, as an important component of the Company's officer and key
employee retention and recruitment strategy.
7
At the time that the amendment to the Plan was adopted, a total of 22,920 shares
were available for issuance in connection with future awards under the Plan, and
the amendment increased this number by 1,000,000. Subsequent to the amendment,
options to purchase an additional 195,250 shares, net of cancellations, have
been granted leaving a total of 827,670 shares available for issuance in
connection with future awards under the Plan.
The amendment to the Plan to limit to 400,000 shares the maximum number of
shares in respect of which options may be granted to any one person was adopted
principally to implement the current views of the Board of Directors as to
maximum award activity under the Plan and in order that options granted in the
future under the Plan may qualify as "performance-based compensation" excludable
from the limits on deductibility for federal income tax purposes of executive
compensation in excess of $1 million per individual under Section 162(m) of the
Internal Revenue Code of 1986, as amended (the "Internal Revenue Code"), and the
regulations thereunder. Section 162(m) generally limits deductions for
compensation in excess of $1 million per person in any year for the most highly
paid executive officers of public corporations. In order for compensation
recognized in connection with the exercise of a stock option to qualify as
"performance-based compensation," which is excludable from the Section 162(m)
deduction limit, the Plan must specify a maximum number of shares that can be
awarded to any individual, and the amendment so provides. In addition, the
material terms of the Plan as amended must be approved by the shareholders. The
Company believes that the Plan as presently administered will satisfy other
applicable requirements of Section 162(m) and that approval of the amendments to
the Plan by the shareholders will enable the Company, in the event the $1
million limit on deductibility is ever exceeded, to maximize the deductibility
to the Company of compensation recognized in connection with the exercise of
stock options granted in the future under the Plan.
Description of the Plan
Administration. The Plan is administered by the Board of Directors of the
Company or, if the Board so authorizes, by a committee of the Board of Directors
consisting of not less than two members of the Board of Directors. The Board of
Directors will consider in selecting the members of any such committee the
requirements of Section 162(m) of the Code and Rule 16b-3 promulgated under
Section 16 of the Securities Exchange Act of 1934, as amended. The Plan is
presently administered by the Compensation Committee of the Board of Directors
(the "Committee"). Unless the context otherwise requires, references herein to
the Committee shall be references to the Board of Directors or the Committee.
The selection of participants and the terms and conditions of options granted
under the Plan are determined by the Committee, subject to applicable
limitations under the Plan. The Company may grant pursuant to the Plan both
incentive stock options intended to qualify under Section 422 of the Internal
Revenue Code and options which are not qualified as incentive stock options.
However, if the amendments are not approved, incentive stock option treatment
will not be available for options granted under the Plan unless shareholder
approval is obtained in the future.
Shares Subject to the Plan. The maximum number of shares of Common Stock
in respect of which options may be granted under the Plan is 3,000,000 shares.
These shares consist of
8
authorized but unissued shares or treasury shares that may be held by the
Company. This number is subject to appropriate equitable adjustment in the event
of a reorganization, stock split, stock dividend, reclassification or other
change affecting the Company's Common Stock.
Eligibility. All executive officers of the Company and other key employees
who hold positions of significant responsibility or whose performance or
potential contribution, in the judgment of the Committee, will benefit the
future success of the Company are eligible to receive grants under the Plan. In
addition, each director of the Company who is not an employee of the Company is
eligible to receive certain non-discretionary option grants pursuant to
provisions of the Plan described below. At March 31, 1999, outstanding options
had been granted to 105 persons under the Plan.
Grant of Options. The number of shares to be covered by each option
granted to an executive officer or other key employee is determined by the
Committee. However, the maximum number of shares in respect of which options
may be granted to any one person under the Plan is limited to 400,000 shares,
subject to appropriate equitable adjustment in the event of a reorganization,
stock split, stock dividend, reclassification or other change affecting the
Company's Common Stock. The exercise price for options granted under the Plan is
not less than 100% of the fair market value of the shares of Common Stock on the
date an option is granted. Options granted under the Plan to officers and key
employees become exercisable at such time as the Committee may determine in
connection with the grant of each option. In addition, the Committee may at any
time accelerate the date that any option granted to an officer or key employee
becomes exercisable.
Effect of Termination of Employment or Death. If an optionee's employment
with the Company is terminated for any reason other than death or termination
for cause, an option will be exercisable for a period of three months after the
date of termination of employment as to all then vested portions of the option.
In addition, the Committee may, in its sole discretion, approve acceleration of
the vesting of any unvested portion of the option. If an optionee's employment
with the Company is terminated for cause (as defined in the Plan), the option
shall terminate as of the date of such termination of employment and the
optionee shall have no further rights to exercise any portion of the option. If
an optionee dies while employed by the Company, any unvested portion of the
option as of the date of death shall be vested as of the date of death and the
option shall be exercisable in full by the legal representatives of the optionee
for a period of 12 months following the date of death. In any event, options
terminate and are no longer exercisable after 10 years from the date of the
grant.
Continued Service as a Director. In the event any optionee who is an
employee and also a director of the Company ceases to be employed by the Company
but continues to serve as a director of the Company, the Committee may determine
that all or a portion of such optionee's options shall not expire three months
following the date of employment as described above, but instead shall continue
in effect until the earlier of the date the optionee ceases to be a director of
the Company or the date the option otherwise expires according to its stated
date of expiration. Termination of any such option in connection with the
optionee's termination of service as a director will be on terms similar to
those described above in connection with termination of employment.
9
Grants to Non-Employee Directors. In order to retain, motivate and reward
non-employee directors of the Company, the Plan extends participation to non-
employee directors on the terms and conditions described below.
Each non-employee director of the Company receives, while serving as a
director, option grants to purchase 2,000 shares of Common Stock immediately
following each annual meeting of shareholders. Any new non-employee director
will also receive an initial option grant of 6,000 shares of Common Stock
immediately following his or her election to the Board of Directors and, while
continuing to serve as a director, will be granted additional options to
purchase 2,000 shares of Common Stock immediately following each annual meeting
of shareholders after the initial grant.
The option price for options granted to non-employee directors is equal to
100% of the fair market value per share of Common Stock on the date the option
is granted. Options granted to non-employee directors are immediately vested
and fully exercisable on the date of grant, and remain exercisable for a period
of 10 years from the date of grant, subject to earlier termination in the event
of termination of service as a director.
Other than as described above, all options granted to non-employee
directors are subject to the same terms and conditions as options granted to
employees under the Plan.
Limited Transferability. Options granted under the Plan generally are not
assignable or transferable by optionees other than by will or the laws of
descent and distribution and are otherwise exercisable only by optionees.
However, optionees are permitted, with the prior consent of the Committee, to
transfer nonqualified stock options under the Plan by gift or other means
pursuant to which no consideration is given for the transfer. Any options so
transferred will remain subject to all of the restrictions and limitations of
the Plan. Due to the limited scope of permitted transfers, it is anticipated
that optionees who may elect to utilize such transferability feature will do so
primarily for estate planning or other family oriented purposes and that any
transferees will be family members of the optionee.
Exercise of Options. The exercise price of options may be paid in cash, by
tender of shares of Common Stock of the Company (valued at fair market value at
the date of exercise), by surrender of a portion of the option, or by a
combination of such means of payment. The prior consent of the Committee is
required in connection with the payment of the exercise price of options by
tender of shares or surrender of a portion of the option, except that the
consent of the Committee is not required if the exercise price is paid by
surrender of shares that have been owned by the optionee for more than six
months prior to the date of exercise of the option or by a combination of cash
and shares that have been owned for more than six months.
Effect of Certain Corporate Transactions. In the event of any
reorganization, merger, consolidation or sale of substantially all of the assets
of the Company while options remain outstanding under the Plan, the Plan
provides for substitute options with an appropriate number of shares or other
securities of the reorganized, merged, consolidated or acquiring corporation
which were distributed to the shareholders of the Company. In addition, unless
the Committee expressly
10
determines otherwise, in the event of a Change in Control (as defined in the
Plan) of the Company, all outstanding options will become immediately and fully
exercisable and optionees will be entitled to surrender, within 60 days
following the Change in Control, unexercised options or portions of options in
return for cash payment equal to the difference between the aggregate exercise
price of the surrendered options and the fair market value of the shares of
Common Stock underlying the surrendered options.
Modification and Termination of the Plan. The Plan will terminate on
February 6, 2007, except with respect to awards then outstanding. The Committee
may from time to time amend, alter, suspend, or discontinue the Plan or alter or
amend any and all options granted thereunder without the further approval of the
shareholders of the Company, except to the extent such approval may be required
by applicable laws or by the rules of the New York Stock Exchange or other
securities exchange upon which the Company shares are admitted to listed
trading.
Satisfaction of Tax Withholding Obligations. The Company may require as a
condition to the issuance of any shares of Common Stock upon exercise of an
option that the optionee remit an amount sufficient to satisfy applicable tax
withholding requirements. Optionees are permitted to satisfy such withholding
obligations in cash, by tendering shares of Common Stock of the Company owned by
the optionee (valued at fair market value at the date of exercise of the
option), by surrender of a portion of the option or by a combination of such
means. The prior consent of the Committee is not required in connection with
the tender of shares or the surrender of a portion of the option in satisfaction
of tax withholding obligations.
Federal Income Tax Consequences. An optionee receiving an option
qualifying as an "incentive stock option" under Section 422 of the Internal
Revenue Code will not recognize taxable income upon the grant or exercise of the
option. Upon disposition of the shares acquired, the optionee will recognize a
capital gain or loss based on the difference between the amount realized and the
option price, assuming certain holding period requirements are satisfied and the
shares are held as a capital asset. However, the alternative minimum tax may be
applicable. The Company will not receive any tax deduction in connection with
the grant or exercise of an incentive stock option or, assuming the holding
period requirements are satisfied, sale of the shares by an optionee.
An optionee receiving a nonqualified stock option will not recognize
taxable income on the grant of an option, but will be deemed to have received
ordinary income on the exercise of an option equal in amount to the difference
between the fair market value of the shares acquired as of the date of exercise
and the option price. The Company will be entitled to a tax deduction at the
same time in the same amount, assuming the deduction is not disallowed by
Section 162(m) of the Internal Revenue Code (which limits the deduction in any
one year for certain compensation paid to certain executive officers). An
optionee's tax basis in the shares acquired will be equal to the fair market
value of the shares as of the date of exercise for purposes of measuring any
gain or loss on subsequent disposition of the shares.
11
Summary of Award Activity Pursuant to the Plan
The following table indicates as of March 31, 1999 the number of shares
authorized for issuance under the Plan, the aggregate number of shares subject
to outstanding awards (net of cancellations), the number of shares issued
pursuant to prior awards, and the number of shares available for future awards:
Subject to Outstanding
Awards (net of Issued Pursuant Available for
Authorized cancellations)(1) to Prior Awards Future Awards
---------- ----------------- --------------- ------------
3,000,000 2,119,580 52,750 827,670
- --------------------
(1) Includes options to purchase 2,049,580 shares of Common Stock granted to
officers, managers, key employees and former executive officers of the
Company at exercise prices ranging from $12.47 to $23.16 per share. The
exercise prices of such options are 100% of the market value of the Common
Stock on the date of grant. The expiration dates of such options range
from November 5, 2003 to February 14, 2008. Of such options, 753,500 were
granted to employees of the Company other than executive officers and
1,296,080 were granted to current or former executive officers of the
Company as follows: Mark E. Monroe - 335,000; Simon B. Rich, Jr., -160,000;
Mark E. Andrews - 153,330; Jeffrey A. Bonney - 127,500; Richard E. Bross -
179,000; Ronnie K. Irani - 210,000; and Kevin R. White - 131,250. Also
includes options to purchase 70,000 shares granted to non-employee
directors pursuant to the non-discretionary grant provisions of the Plan at
exercise prices ranging from $13.44 to $23.16 per share.
Based on the closing price of the Common Stock as reported by the New York
Stock Exchange on March 31, 1999 of $14.50 per share, the market value of the
total number of shares of Common Stock previously issued pursuant to exercise of
options under the Plan was $764,875 and the market value of shares underlying
outstanding options under the Plan was $30,733,910.
Except as described above in connection with the non-discretionary awards
to non-employee directors, the Committee has not at this time considered or
approved any future awards under the Plan, and, as a result, the identity of
future award recipients and the size and terms of future awards are not known at
this time.
The Board of Directors recommends that the shareholders vote for "FOR" the
approval of the amendments to the Stock Option Plan.
12
PROPOSAL THREE
RATIFICATION OF SELECTION OF INDEPENDENT AUDITORS
The Board of Directors has selected Ernst & Young LLP as the Company's
independent auditors for the year ending December 31, 1999 and has further
directed that management submit the selection of the independent auditors for
ratification by the shareholders at the Annual Meeting. Ernst & Young LLP has
audited the Company's consolidated financial statements since 1992.
Representatives of Ernst & Young LLP are expected to be present at the Annual
Meeting, will have an opportunity to make a statement if they so desire and will
be available to respond to appropriate questions.
Shareholder ratification of the selection of Ernst & Young LLP as the
Company's independent auditors is not required by the Company's Bylaws or
otherwise. If the shareholders fail to ratify the selection, the Board will
reconsider whether or not to retain that firm. Even if the selection is
ratified, the Board in its discretion may direct the appointment of a different
independent accounting firm at any time during the year if the Board determines
that such a change would be in the best interests of the Company and its
shareholders.
The Board of Directors recommends that the shareholders vote "FOR"
ratification of the selection of Ernst & Young LLP as independent auditors of
the Company for the year ending December 31, 1999.
EXECUTIVE COMPENSATION AND OTHER INFORMATION
Executive Officers
The executive officers of the Company are as follows:
Name Age Position
---- --- --------------------------------------------------
Mark E. Monroe 44 President and Chief Executive Officer
Jeffrey A. Bonney 42 Executive Vice President and Chief
Financial Officer
Richard E. Bross 50 Executive Vice President - Land and Operations
Ronnie K. Irani 42 Executive Vice President - Engineering and
Exploration
Kevin R. White 41 Executive Vice President - Corporate
Development and Strategic Planning
and Secretary
13
The executive officers of the Company are elected by the Board of Directors
and serve at its discretion. The following is a brief description of the
business background of each of the executive officers who are not also directors
of the Company. For descriptions of the business background of Mark E. Monroe
and Richard E. Bross, each a director of the Company, see "Election of Directors
- -Nominees."
Jeffrey A. Bonney is Executive Vice President and Chief Financial Officer
of the Company. Mr. Bonney joined the Company in November 1993. From April 1990
to November 1993, Mr. Bonney was the Vice President and Controller of Hadson
Energy Resources Corporation, an international oil and gas concern. Prior
thereto, Mr. Bonney held various management positions with other independent oil
and gas companies. He began his career as an auditor with Deloitte, Haskins &
Sells in 1978. Mr. Bonney is a Certified Public Accountant and holds a B.S.
from Oklahoma Christian University.
Ronnie K. Irani is Executive Vice President - Engineering and Exploration
of the Company. He joined the Company in March 1991 from Argent Energy, Inc.
(previously named Woods Petroleum Corporation) where he had worked for the
previous 12 years. At Argent Energy, Inc., Mr. Irani held the title of Manager
of Reservoir Engineering. Mr. Irani holds a B.S. from Bombay University, India,
a B.S. and M.S. from the University of Oklahoma and an M.B.A. from Oklahoma City
University.
Kevin R. White is Executive Vice President - Corporate Development and
Strategic Planning and Secretary of the Company. Mr. White joined the Company in
1983, which was then known as Bogert Oil Company, and served in various
management capacities prior to appointment to his present position. From 1981
until 1982, Mr. White was employed as an auditor with Arthur Andersen & Co. and
Ernst & Young. Mr. White is a Certified Public Accountant and holds B.S. and
M.S. degrees from Oklahoma State University.
14
Executive Compensation
The following table sets forth information with respect to compensation
received by the chief executive officer of the Company and the four other mostly
highly compensated executive officers of the Company during 1998. Such
individuals are hereinafter referred to as the "named executive officers."
Summary Compensation Table
Long Term
Compensa-
Annual Compensation tion(1)
------------------- --------
Securities All Other
Underlying Compensa-
Name and Principal Position Year Salary Bonus Options(#) tion(2)
--------------------------- ---- ------ ----- ---------- -------
Mark E. Monroe 1998 $335,000 $270,000 75,000 $12,348
President and Chief Executive 1997 272,115 300,000 100,000 12,388
Officer 1996 250,000 260,000 20,000 11,869
Jeffrey A. Bonney 1998 $150,000 $ 80,000 37,500 $12,348
Executive Vice President and 1997 114,540 85,000 40,000 12,388
Chief Financial Officer 1996 111,000 75,000 20,000 11,420
Richard E. Bross 1998 $225,000 $ 95,000 44,000 $12,348
Executive Vice President - 1997 178,000 100,000 40,000 12,388
Land and Operations 1996 178,000 85,000 20,000 11,869
Ronnie K. Irani 1998 $225,000 $140,000 50,000 $12,348
Executive Vice President - 1997 174,425 150,000 65,000 12,388
Engineering and Exploration 1996 164,600 140,000 20,000 11,869
Kevin R. White 1998 $150,000 $ 85,000 31,250 $12,348
Executive Vice President - 1997 134,425 90,000 40,000 12,388
Corporate Development and 1996 130,000 85,000 20,000 11,869
Strategic Planning
__________________
(1) During 1994, certain of the named executive officers received awards
expressed in units that were equivalent to one share of Common Stock of the
Company for each unit. The unit awards were granted pursuant to the Louis
Dreyfus Deferred Compensation Stock Equivalent Plan (the "SEP") sponsored
by an affiliate of S.A. Louis Dreyfus et Cie. The total number of units
awarded to each of the named executive officers was as follows: Mark E.
Monroe - 20,000 units; Richard E. Bross - 15,000 units; Ronnie K. Irani -
15,000 units; and Kevin R. White - 5,000 units. Units awarded pursuant to
the SEP were payable solely in cash after termination of employment with
the Louis Dreyfus group of companies, subject to forfeiture for termination
due to cause and to forfeiture for competitive post-termination activities.
The amount payable in respect of each unit was equal to the average prices
(as defined in the SEP) of one share of Common Stock on the New York Stock
Exchange over all trading days in December of the year of, or preceding,
termination. In 1998, the named executive officers holding unit awards
agreed to terminate their participation in the SEP and in exchange received
shares of restricted Common Stock from the Company consisting of a number
of shares of Common Stock equal to the number of units forfeited upon
termination of participation in the SEP. The shares of restricted stock are
held by the Louis Dreyfus Natural Gas Corp. Deferred Stock Award Trust (the
"Trust") and
15
will be delivered to the applicable named executive officers after
termination of employment with the Company or upon a Change in Control (as
defined in the Trust Agreement) of the Company, subject to forfeiture in
the event of termination for cause or certain competitive post-termination
activities. The applicable named executive officers have the right to
direct the voting of the restricted shares held in the Trust. If any cash
dividends are received with respect to the shares while held by the Trust,
the dividends will be invested in an interest bearing account and the
dividends and interest will be paid to the applicable named executive
officers when the shares are delivered. The dollar value of the restricted
shares held for the benefit of the applicable named executive officers as
of December 31, 1998, based on the market price of the Common Stock on such
date of $14.25 per share, was as follows: Monroe - $285,000; Bross -
$213,750; Irani -$213,750; and White -$71,250.
(2) All Other Compensation consists of (i) employer contributions to the
Company's 401(k) plan on behalf of each of the named executive officers to
match pre-tax elective deferral contributions (included under Salary) made
by each of the named executive officers to such plan and (ii) certain
employer discretionary profit sharing contributions allowed by such plan.
The following table contains information concerning the grant of stock
options during the year ended December 31, 1998 under the Company's Stock Option
Plan to the named executive officers.
Option Grants in Last Fiscal Year
Individual Grants
--------------------------------------------------------
% of Total
Options
Granted to
Employees Exercise or
Options in Fiscal Base Price Expiration Grant Date
Name Granted (#)(1) Year ($/Sh)(2) Date Present Value(3)
---- -------------- ---- --------- ---- ----------------
Mark E. Monroe 30,000 2.8% $14.44 9/21/08 $241,800
45,000 4.3% 12.47 12/14/08 311,850
Jeffrey A. Bonney 15,000 1.4% $14.44 9/21/08 $120,900
22,500 2.1% 12.47 12/14/08 155,925
Richard E. Bross 17,500 1.7% $14.44 9/21/08 $141,050
26,500 2.5% 12.47 12/14/08 183,645
Ronnie K. Irani 20,000 1.9% $14.44 9/21/08 $161,200
30,000 2.8% 12.47 12/14/08 207,900
Kevin R. White 12,500 1.2% $14.44 9/21/08 $100,750
18,750 1.8% 12.47 12/14/08 129,938
- --------------------
(1) All options granted to the named executive officers during 1998 were
granted under the Company's Stock Option Plan. The exercise price of such
options is equal to 100% of the price per share of the Common Stock on the
date of grant. The options become exercisable at the rate of 25% per year
commencing one year after the date of grant so long as the optionee remains
employed by the Company, and will become immediately exercisable in the
event of death of an optionee or in the event of a Change in Control of the
Company (as defined in the Stock Option Plan) unless the Compensation
Committee expressly determines otherwise. The options expire if not
exercised 10 years after the date of grant.
16
(2) Exercise price of options must be paid in cash, by tender of shares of
Common Stock (valued at fair market value at the date of exercise), by
surrender of a portion of the option, or by a combination of such means of
payment.
(3) Grant Date Present Value is based on application of the Black-Scholes
option pricing model. The actual value, if any, realized will depend on the
excess of the stock price over the exercise price on the date the option is
exercised. There is no assurance that the value realized will be at or near
the value estimated by the Black-Scholes model. The estimated values under
that model are based on the following assumptions: (i) annualized price
volatility of the Company's Common Stock of 36% calculated over the period
commencing on November 12, 1993 and ending on the option grant dates; (ii)
a risk-free rate of return equal to the 10 year United States Treasury Bond
rate on the option grant dates as follows: September 21, 1998 - 4.67% and
December 14, 1998 -4.57%; (iii) a dividend yield of 0%; and (iv) exercise
of all options at the expiration date of 10 years from dates of grant.
The following table provides information with respect to the named
executive officers concerning the exercise of options during the year ended
December 31, 1998 and unexercised options held as of December 31, 1998.
Option Exercises and Year-end Value Table
Number of Securities Value of
Underlying Unexercised Unexercised In-the-Money
Options at Options at
December 31, 1998 December 31, 1998(1)
----------------- --------------------
Shares Acquired Value
Name on Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
---- ----------- -------- ----------- ------------- ----------- -------------
Mark E. Monroe - - 160,000 175,000 $16,875 $85,725
Jeffrey A. Bonney - - 44,250 83,250 $ 6,328 $42,159
Richard E. Bross - - 90,500 88,500 $ 4,219 $48,576
Ronnie K. Irani - - 91,750 118,250 $10,547 $56,916
Kevin R. White - - 54,250 77,000 $ 6,328 $35,484
- --------------------
(1) Value of unexercised in-the-money options at December 31, 1998 is
calculated based on the market price per share of Common Stock of $14.25
per share on December 31, 1998 less the option exercise price.
Termination of Employment and Change In Control Arrangements
The Company has entered into agreements with the named executive officers
providing for the payment of certain severance benefits upon involuntary
termination of such persons, other than for cause, within two years after a
Change in Control (as defined in such agreements) of the Company, including
constructive termination as a result of certain changes in duties or reduction
of compensation. The agreements are intended to promote the retention of the
named executive officers by providing them with an extra measure of financial
security in the event of a Change in Control of the Company. In the event of
involuntary termination within two years after a Change in Control, the
agreements provide that the named executive officer will receive a lump sum
severance payment equal to two times the named executive officer's annual
compensation. For this purpose, annual compensation is defined as (i) the named
executive officer's annual salary immediately prior to the
17
date on which a Change in Control occurs plus (ii) the average annual bonus
received by the named executive officer over the three years immediately prior
to the Change in Control or such lesser period as the named executive officer
has been employed by the Company prior to the Change in Control. The agreements
will remain in effect until March 31, 2000, at which time the Company will have
the right to determine in its discretion whether to continue the agreements,
terminate the agreements or offer the named executive officers different
agreements. No amounts will be payable by the Company under the agreements
unless a Change in Control occurs and such Change in Control is followed within
two years by the involuntary termination of the named executive officer.
Shareholder Return Performance
Set forth below is a line graph comparing the percentage change in the
cumulative total shareholder returns on the Company's Common Stock against the
cumulative total shareholder returns of the S&P 500 Index and the Dow Jones Oil
Secondary Index (the "Indices") for the period between December 31, 1993 and
December 31, 1998. The line graph assumes a $100 investment in the Company's
Common Stock and in each of the Indices on December 31, 1998 and that any
dividends were reinvested. The graph is presented in accordance with the
requirements of the Securities and Exchange Commission.
Cumulative Total Return
----------------------------------------
12/93 12/94 12/95 12/96 12/97 12/98
LOUIS DREYFUS NATURAL GAS CORP. 100 80 95 107 117 89
S & P 500 100 101 139 171 229 294
DOW JONES OIL, SECONDARY 100 97 112 138 147 107
18
Compensation Committee Interlocks and Insider Participation
During 1998, the Compensation Committee of the Board of Directors consisted
of Daniel R. Finn, Jr., John H. Moore and James R. Paul until July 1998 and
Messrs. Moore and Paul and E. William Barnett from and after July 1998. Mr.
Finn serves as a director or executive officer of various subsidiaries of S.A.
Louis Dreyfus et Cie.
Report on Executive Compensation
General. The Compensation Committee is primarily responsible for the
development and implementation of the Company's executive compensation programs.
The Committee makes recommendations to the Board of Directors of the Company
with respect to the various executive compensation plans which have been or may
be adopted by the Company, as well as approving the specific compensation levels
of executive officers. The Committee also administers the Company's Stock
Option Plan. The Committee periodically reviews the Company's results of
operations and future plans in conjunction with meetings of the full Board of
Directors. The Committee seeks to ensure that the Company's executive officer
compensation programs support the objectives of the Company's plans.
In general, in recommending levels of base salary, bonus and long-term
equity-based compensation for the Company's Chief Executive Officer and the
other named executive officers, the Committee fosters the Company's goals
through the application of three key criteria: first, through comparability to
compensation levels of equivalent officers in similarly situated companies in
the oil and gas industry; second, through review of the executive's individual
contribution to the Company; and third, through the executive's contribution to
the achievement of specific results, such as increases in revenues, production,
reserves, cash flow and net income. The Committee applies the foregoing
criteria subjectively, including the weight given the respective criteria.
Base Salaries and Cash Bonuses. Base salaries for the Company's executive
officers are based primarily on the level of salaries historically paid to the
Company's executive officers and are designed to be comparable to the general
level of salaries of executive officers in similarly situated companies.
Discretionary annual bonuses are paid based on the Committee's subjective
evaluation of the performance of the Company and of each executive officer in
the context of the criteria described above. Total bonuses authorized by the
Committee for the named executive officers for 1998 were $670,000. This amount
is approximately 8% lower than the bonuses awarded to the named executive
officers for 1997. The decrease is primarily attributable to a general
weakening in the energy sector, including commodity prices, which is adversely
affecting the Company's financial results and stock price performance. The
Committee believes that the salaries and cash bonuses paid during 1998 to
executive officers, including the Chief Executive Officer, are reasonable when
compared to the Company's increases in revenues, production, reserves and cash
flow in 1998 compared to 1997.
Long-Term Equity Incentive Compensation. The Company's Stock Option Plan
is administered by the Compensation Committee and is designed to provide long-
term equity-based compensation to executive officers, vice presidents, managers
and other key employees. The
19
Committee noted that, pursuant to information compiled in previous studies by
compensation consultants, the option holdings of the Company's executive
officers are generally less than those of similar executives at comparable
companies, and the Committee approved during 1998 the grant of options to
purchase a total of 237,750 shares of Common Stock under the Company's Stock
Option Plan to the named executive officers as indicated under "Executive
Compensation and Other Information -- Executive Compensation." The number of
options granted to the Chief Executive Officer and each of the other named
executive officers was established based on the Committee's subjective judgment,
but reflects the Committee's favorable evaluation of the performance of the
Company and the named executive officers during 1998 and the Committee's desire
to provide competitive long-term equity incentive awards to these members of
senior management at a level that compares favorably with the long-term equity
incentive compensation practices of the Company's competitors.
Compensation of the Chief Executive Officer. With respect to 1998, Mark E.
Monroe, President and Chief Executive Officer of the Company, was awarded a
bonus of $270,000. Mr. Monroe also was awarded options to purchase 75,000
shares of Common Stock under the Company's Stock Option Plan. The bonus and
option awards reflected the Committee's evaluation of Mr. Monroe's leadership of
the Company. During 1998, the Company (i) completed the largest drilling
program in the Company's history, investing $215 million and drilling 224
operated wells with 90% completed as producers and a finding cost of $.86 per
Mcfe, (ii) completed the successful integration of the American Exploration
acquisition, reducing pro-forma combined per unit G&A expenses and operating
costs by an aggregate of $.05 per Mcfe, (iii) reported record revenues, cash
flows, production and year-end proved reserves, and (iv) successfully negotiated
a $40 million long-term contract termination payment.
Section 162(m). The Committee has not adopted a policy with respect to
qualification of executive compensation in excess of $1 million per individual
for deduction under Section 162(m) of the Internal Revenue Code of 1986, as
amended, and the regulations thereunder. The Committee currently does not
anticipate that the compensation of any executive officer during 1999 will
exceed the limits on deductibility for 1999. In determining a policy for future
periods, the Committee would expect to consider a number of factors, including
the tax position of the Company, the materiality of amounts likely to be
involved and any potential ramifications of the loss of flexibility to respond
to unforeseeable changes in circumstances.
Members of the Compensation Committee:
E. William Barnett
John H. Moore
James R. Paul
20
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the beneficial
ownership of the Company's Common Stock as of March 31, 1999 (except as
otherwise indicated) by (i) each director or nominee for director, (ii) each of
the named executive officers, (iii) all executive officers and directors of the
Company as a group, and (iv) all those known by the Company to be beneficial
owners of more than five percent of the Company's Common Stock.
Beneficial Ownership(1)
-----------------------
Number Percentage
Beneficial Owner of Shares of Total
- ---------------- --------- --------
S.A. Louis Dreyfus et Cie (2) 20,750,000 51.7%
AXA, Mutuelles AXA and The Equitable 2,104,400 5.2%
Companies, as a group (3)
Mark E. Monroe (4) (5) 210,000 *
Jeffrey A. Bonney (4) 48,250 *
Richard E. Bross (4) (5) 107,500 *
Ronnie K. Irani (4) (5) 109,450 *
Kevin R. White (4) (5) 64,250 *
Simon B. Rich, Jr. (4) (5) 157,400 *
Mark E. Andrews, III (4) (6) 301,620 *
E. William Barnett (4) (5) 7,000 *
Daniel R. Finn, Jr. (4) (5) 18,000 *
Peter G. Gerry (4) (5) 9,810 *
Gerard Louis-Dreyfus (4) (5) 21,000 *
John H. Moore (4) (5) 12,240 *
Nancy K. Quinn - -
James R. Paul (4) (5) 14,000 *
Ernest F. Steiner (4) (5) 24,000 *
All executive officers and directors 1,104,520 2.8%
as a group (14 persons) (7)
- --------------------
* Less than one percent.
21
(1) This table is based upon information supplied by officers, directors and
principal shareholders and applicable Schedules 13D or 13G filed with the
Securities and Exchange Commission. Unless otherwise indicated in the
footnotes to this table and subject to community property laws where
applicable, each of the shareholders named in this table has sole voting
and investment power with respect to the shares indicated as beneficially
owned. The percentage of ownership for each person is calculated in
accordance with rules of the Securities and Exchange Commission without
regard to shares of Common Stock issuable upon exercise of outstanding
stock options, except that any shares a person is deemed to own by having a
right to acquire by exercise of an option are considered outstanding solely
for purposes of calculating such person's percentage ownership.
(2) S.A. Louis Dreyfus et Cie, 87 Avenue de la Grande Armee, 75782 Paris,
France, shares voting and investment power over the shares indicated as
beneficially owned by it with its direct or indirect wholly-owned
subsidiaries Louis Dreyfus Holding Company Inc. and Louis Dreyfus
Commercial Activities, Inc. ("LDCA"), 10 Westport Road, Wilton, Connecticut
06897-0810, and Louis Dreyfus Natural Gas Holdings Corp. ("LDNGHC") and
L.D. Fashions Holdings Corp. ("LDFHC"), 3411 Silverside Road, Suite 210E,
Baynard Building, Wilmington, Delaware 19810-4808. These shares are owned
of record as follows: LDNGHC - 11,000,000 shares; LDFHC -9,000,000 shares;
and LDCA -750,000 shares. The 11,000,000 shares of Common Stock held by
LDNGHC have been pledged to certain banks to secure a loan made to S.A.
Louis Dreyfus et Cie in the ordinary course of its business. A default by
S.A. Louis Dreyfus et Cie under the terms of such arrangements could result
in the sale of all or a portion of the pledged shares. In addition, on
January 25, 1999, a judgement in the amount of $166,131,529 was entered
against LDNGHC and other defendants in Texas state court proceedings in
connection with matters unrelated to the Company. LDNGHC has advised the
Company that it intends to vigorously contest the judgment by appealing and
to prevent any collection by the posting of a bond. If these steps are
unsuccessful, it is possible that all or a portion of the shares held by
LDNGHC may be sold or otherwise disposed of in connection with such
proceedings. The sale of all or a portion of the shares held by LDNGHC
whether in connection with the pledge or the litigation could result in a
change in control of the Company.
(3) The named group consists of (i) a group collectively referred to as
Mutuelles AXA, consisting of AXA Conseil Vie Assurance Mutuelle, Terrasse
Boieldieu, 92042 Paris La Defense, France; AXA Assurances I.A.R.D. Mutuelle
and AXA Assurances Vie Mutuelle, 21 Rue de Chateaudun, 75009 Paris, France;
and AXA Courtage Assurance Mutuelle, 26 Rue Louis le Grand, 75002 Paris,
France; (ii) AXA, 9 Place Vendome, 75001 Paris, France; and (iii) The
Equitable Companies Incorporated, 1290 Avenue of the Americas, New York,
New York, 10104 as a parent holding company of Alliance Capital Management
L.P. and The Equitable Life Assurance Society of the United States. The
group reports sole dispositive power for all of the shares indicated as
beneficially owned, sole voting power over 1,278,800 of such shares and
shared voting power over 640,100 of such shares. Beneficial ownership
information is as of December 31, 1998.
(4) Includes shares that the named individuals have the right to acquire by
exercise of stock options that are currently exercisable as follows:
Monroe - 160,000; Bonney - 44,250; Bross - 90,500; Irani - 91,750; White
- 54,250; Rich - 144,000; Andrews - 153,330; Barnett - 6,000; Finn -
12,000; Gerry - 8,000; Louis-Dreyfus -12,000; Moore - 8,000; Paul -
12,000; and Steiner - 8,000.
(5) Includes shares of Common Stock held for the benefit of the named
individuals by (i) the Louis Dreyfus Natural Gas Corp. Deferred Stock Award
Trust in the following amounts: Monroe - 20,000; Bross - 15,000; Irani -
15,000; and White - 5,000 and (ii) the Louis Dreyfus Natural Gas Corp. Non-
Employee Director Deferred Stock Compensation Award Trust in the following
amounts: Rich - 1,000; Barnett - 1,000; Finn - 1,000; Gerry -1,000; Louis-
Dreyfus - 1,000; Moore - 1,000; Paul - 1,000; and Steiner - 1,000. Under
the terms of the trust agreements, the named individuals do not currently
have the power to dispose of such shares but have sole power to direct the
voting of such shares.
(6) Includes 42,708 shares held directly or indirectly by Mr. Andrews' children
and a company of which Mr. Andrews' wife is a principal shareholder and a
director, and as to which he disclaims beneficial ownership.
22
(7) Includes 804,080 shares that the directors and executive officers as a
group have a right to acquire by exercise of currently exercisable stock
options and 63,000 shares held for the benefit of certain executive
officers and directors by the Trusts described in footnote (5) above.
CERTAIN TRANSACTIONS
Prior to the completion of the Company's initial public offering in
November 1993, the Company was a wholly-owned subsidiary of S.A. Louis Dreyfus
et Cie. For purposes of the following discussion of certain transactions
involving the Company, unless the context requires otherwise, references to the
"Company" refer to the Company and its subsidiaries and predecessors and
references to "S.A. Louis Dreyfus et Cie" refer to S.A. Louis Dreyfus et Cie and
its subsidiaries (other than the Company and its subsidiaries and predecessors).
Pursuant to a Services Agreement between the Company and S.A. Louis Dreyfus
et Cie entered into in 1993, the Company has agreed to reimburse S.A. Louis
Dreyfus et Cie for a portion of the salaries of employees performing services
requested by the Company based on the amount of time expended ("Hourly
Charges"), overhead costs equal to 40% of Hourly Charges and all direct third
party costs incurred by S.A. Louis Dreyfus et Cie on behalf of the Company.
During 1998, the Company paid to S.A. Louis Dreyfus et Cie $1.4 million under
the Services Agreement primarily for allocated insurance premiums and related
insurance services provided by S.A. Louis Dreyfus et Cie.
In 1993, the Company entered into a fixed-price sales contract with S.A.
Louis Dreyfus et Cie hedging 33 Bcf of the Company's natural gas production over
a five-year period beginning in 1996 at a weighted-average fixed price of $2.49
per Mcf.
During 1998, the Company used the commodity trading resources of S.A. Louis
Dreyfus et Cie when purchasing natural gas futures contracts on the New York
Mercantile Exchange. The Company reimburses S.A. Louis Dreyfus et Cie for
margin posted by it on behalf of the Company. The margin posted on the Company's
behalf under this arrangement at December 31, 1997 was $1.5 million. The
largest amount of margin posted at any time during 1998 was $4.5 million.
The terms of the transactions described above between the Company and S.A.
Louis Dreyfus et Cie and its subsidiaries were not established on an arms-length
basis and involved conflicts of interest. Nonetheless, the Company believes that
such transactions with S.A. Louis Dreyfus et Cie were on terms at least as
favorable to the Company as could have been obtained from unaffiliated third
parties. It is possible that S.A. Louis Dreyfus et Cie and the Company may
enter into material intercompany transactions from time to time in the future,
and the Company intends that the terms of any future transactions and agreements
between the Company and S.A. Louis Dreyfus et Cie will be at least as favorable
to the Company as could be obtained from unaffiliated third parties.
Gerard Louis-Dreyfus, Simon B. Rich, Jr., Daniel R. Finn, Jr. and Ernest F.
Steiner, all directors of the Company, are also executive officers and/or
directors of S.A. Louis Dreyfus et Cie or various of its subsidiaries. See
"Election of Directors."
23
During 1998, the Company loaned $90,000 to Kevin R. White, Executive Vice
President -Corporate Development and Strategic Planning of the Company. The
unsecured loan bears interest at the rate of 6% per annum and matures in March
2000. The outstanding principal balance of the loan at December 31, 1998 was
$90,000 and at March 31, 1999 was $55,000.
COMPLIANCE WITH SECTION 16 REPORTING REQUIREMENTS
Section 16(a) of the Securities and Exchange Act of 1934 requires directors
and executive officers of the Company and persons who beneficially own more than
10% of the Company's Common Stock to file reports of ownership and changes in
ownership of the Company's Common Stock with the Securities and Exchange
Commission. The Company is required to disclose delinquent filings of reports
by such persons.
Based on a review of the copies of such reports and amendments thereto
received by the Company, or written representations that no filings were
required, the Company believes that all Section 16(a) filing requirements
applicable to its executive officers, directors and 10% shareholders were met
during 1998, except as described below. Mark E. Andrews, III was delinquent in
the reporting of certain gift transactions during 1998. The gifts by Mr.
Andrews, which consisted of seven transactions, were reported promptly upon
discovery of the delinquency.
VOTING
Directors will be elected by a plurality of the votes of the shares present
in person or represented by proxy at the Annual Meeting. The affirmative vote
of the holders of a majority of the shares of Common Stock that are represented
in person or by proxy at the Annual Meeting is required to approve the
amendments to the Stock Option Plan and to ratify the selection of Ernst & Young
LLP as independent auditors of the Company for the year ending December 31,
1999. All other matters properly brought before the Annual Meeting will be
decided by a majority of the votes cast on the matter, unless otherwise required
by law.
Shares represented by proxies that are marked "withhold authority" with
respect to the election of any one or more nominees for election as directors
and proxies that are marked "abstain" on the proposals to approve the amendments
to the Stock Option Plan or to ratify the selection of Ernst & Young LLP as
independent auditors will be counted for the purpose of determining the number
of shares represented by proxy at the meeting. As a result, proxies marked
"abstain" with regard to the approval of the amendments to the Stock Option Plan
or the ratification of the selection of Ernst & Young LLP as independent
auditors will have the same effect as if the shares represented thereby were
voted against the proposal. However, because directors are elected by a
plurality rather than a majority of the shares present in person or represented
by proxy at the Annual Meeting, proxies marked "withhold authority" with respect
to any one or more nominee will not affect the outcome of the nominee's election
unless the nominee receives no affirmative votes or unless other candidates are
nominated for election as directors.
24
Shares represented by limited proxies will be treated as represented at the
meeting only as to such matter or matters for which authority is granted in the
limited proxy. Shares represented by proxies returned by brokers where the
brokers' discretionary authority is limited by stock exchange rules will be
treated as represented at the Annual Meeting only as to such matter or matters
voted on in the proxies.
PROPOSALS OF SHAREHOLDERS
The Board of Directors will consider proposals of shareholders intended to
be presented for action at the Annual Meeting of Shareholders. According to the
rules of the Securities and Exchange Commission, such proposals shall be
included in the Company's Proxy Statement if they are received in a timely
manner and if certain other requirements are met. For a shareholder proposal to
be included in the Company's Proxy Statement relating to the 2000 Annual Meeting
of Shareholders, a written proposal complying with the requirements established
by the Securities and Exchange Commission must be received at the Company's
principal executive offices, located at 14000 Quail Springs Parkway, Suite 600,
Oklahoma City, Oklahoma 73134, no later than December 16, 1999.
OTHER MATTERS
Management does not know of any matters to be presented for action at the
Annual Meeting other than those listed in the Notice of Meeting and referred to
herein. If any other matters properly come before the Annual Meeting, it is
intended that the proxy solicited hereby will be voted in accordance with the
recommendations of the Board of Directors.
ANNUAL REPORT
The Company's Annual Report to Shareholders for the year ended December 31,
1998, including audited financial statements, is enclosed. No part of the
Annual Report to Shareholders is incorporated in this Proxy Statement or is
deemed to be a part of the material for the solicitation of proxies.
A copy of the Company's Annual Report to the Securities and Exchange
Commission on Form 10-K for the year ended December 31, 1998 is available to
shareholders without charge upon written request to the Secretary of the
Company, 14000 Quail Springs Parkway, Suite 600, Oklahoma City, Oklahoma 73134.
25
PROXY
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
LOUIS DREYFUS NATURAL GAS CORP.
14000 Quail Springs Parkway
Suite 600
Oklahoma City, Oklahoma 73134
The undersigned hereby appoints Kevin R. White and David B. Oshel as
proxies (the "Proxies"), each with the power to appoint his substitute, and
hereby authorizes them to represent and to vote, as designated on the other
side, all of the shares of Common Stock of Louis Dreyfus Natural Gas Corp. held
of record by the undersigned on the record date at the Annual Meeting of
Shareholders to be held on May 18, 1999 or any reconvention thereof.
(Continued, and to be marked, dated, and signed, on the other side)
Please mark
your votes as
WITHHELD indicated in
FOR FOR ALL this example
Item 1-ELECTION OF DIRECTORS [_] [_] [X]
Nominees:
Mark E. Andrews, III Mark E. Monroe
E. William Barnett John H. Moore
Richard E. Bross James R. Paul
Daniel R. Finn, Jr. Nancy K. Quinn
Peter G. Gerry Simon B. Rich, Jr.
Gerard Louis-Dreyfus Ernest F. Steiner
WITHHELD FOR (Write nominee name(s) in the space provided):
----------------------------------
Item 2-APPROVAL OF AMENDMENTS TO FOR AGAINST ABSTAIN
STOCK OPTION PLAN
[_] [_] [_]
Item 3-RATIFICATION OF SELECTION OF FOR AGAINST ABSTAIN
INDEPENDENT ACCOUNTANTS
[_] [_] [_]
In their discretion, the Proxies are authorized to vote upon such other business
as may properly come before the meeting. If any other business is presented at
the Annual Meeting, this Proxy shall be voted in accordance with the
recommendations of the Board. As to Items 1, 2 and 3, this Proxy will be voted
as directed, but if no directions are indicated, it will be voted FOR the
nominees listed in Item 1 and FOR Items 2 and 3.
Signature(s) Date
----------------------------------------- -----------------
NOTE: Please sign as name appears hereon. Joint owners should each sign. When
signing as attorney, administrator, trustee or guardian, please give full title
as such.