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LOGO[NUEVO LETTERHEAD]
April 12, 2000
NOTICE OF ANNUAL MEETING
Dear Fellow Stockholder,
You are cordially invited to attend the Annual Meeting of Stockholders of
Nuevo Energy Company which will be held at the Four Seasons Hotel, 1300 Lamar,
Houston, Texas, on Wednesday, May 24, 2000 at 9:00 a.m. local time.
At this annual meeting you will be asked to vote on the following
matters:
1. to elect our board of directors to serve until the annual
meeting of stockholders in 2001;
2. to ratify the selection of our 2000 auditors; and
3. to conduct any other business which is properly raised at the
meeting.
The attached proxy statement provides information concerning the matters
to be voted on at this meeting. I am particularly proud of the corporate
governance principles adopted by our board of directors in 1998 and I encourage
you to read them carefully. I believe these principles fully align management's
efforts with the interests of our stockholders. The Annual Report to
Stockholders for 1999 is also being mailed to stockholders along with these
proxy materials. Our proxy materials are being sent to stockholders on April 12,
2000.
It is important that your shares be represented at the annual meeting,
regardless of the size of your holdings. We urge you to return the signed proxy
in the enclosed envelope as soon as possible. If you do attend the annual
meeting in person, you may withdraw your proxy and vote your stock at the
meeting. We value your opinions and encourage you to participate in the annual
meeting by voting your proxy.
This is the second year that we have used the SEC's "plain English"
drafting principals in writing our proxy statement. This was done to make our
proxy materials easier to understand which we hope will enable you to make the
best informed decision possible.
Thank you for your continued support and interest in Nuevo Energy.
Very truly yours,
/s/ Douglas L. Foshee
Douglas L. Foshee
Chairman, President and
Chief Executive Officer
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TABLE OF CONTENTS PAGE
Questions and Answers.......................................................... 3
Beneficial Ownership of Our Common Stock....................................... 6
Our Corporate Governance Principles............................................ 8
Proposal I. Election of Directors...................................... 13
Executive Compensation......................................................... 20
Proposal II. Ratification of the Selection of Our 2000 Auditors......... 27
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QUESTIONS AND ANSWERS:
WHO IS ASKING FOR MY PROXY?
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Your proxy is being solicited by our board of directors for use at our 2000
annual meeting of stockholders. Our directors and officers may also solicit
proxies on behalf of our board of directors, in person, or by telephone, telefax
or mail. If our directors, officers or employees solicit proxies they will not
be specially compensated. Nuevo will pay all costs and expenses of this proxy
solicitation.
WHAT ARE STOCKHOLDERS BEING
ASKED TO VOTE ON?
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At our 2000 annual meeting, stockholders will be asked to vote:
-- to elect our board of directors to serve until the annual meeting
of stockholders in 2001;
-- to ratify the selection of KPMG LLP as our independent auditors
for 2000.
HOW DO I VOTE MY SHARES?
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A proxy card is included with the materials being sent to stockholders with
these proxy materials. If the proxy card is properly signed and returned to us,
shares covered by the proxy card will be voted in accordance with the directions
you specify on the card. Shares covered by a properly signed proxy card which
does not specify how to vote the shares will be voted for the election of the
director nominees named in this proxy statement and in favor of the ratification
of the selection of KPMG LLP as our independent auditors.
If any matters other than those described above are raised at the annual
meeting, the proxy card gives the proxy holders the right to vote for or against
such matter in their discretion. At the date of this proxy statement, we do not
know of any matters to be presented at the annual meeting other than those
described herein.
WHAT VOTE IS REQUIRED?
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Under Delaware law, we cannot conduct business at the annual meeting unless a
quorum is present. A quorum will be present if a majority of our outstanding
shares of stock on the record date are present at the meeting in person or by
proxy. If a quorum is present,
-- directors are elected by a plurality vote, which means that the
nine director nominees receiving the most votes will be elected;
With respect to the election of directors, you may (i) vote for the election of
all nine director nominees, (ii) withhold authority to vote for all director
nominees or (iii) withhold authority to vote for any director nominee by so
indicating in the appropriate space on the proxy card. Our stockholders do not
have the right to cumulate votes in the election of directors.
WHAT IS THE EFFECT OF AN
ABSTENTION OR A BROKER
NON-VOTE?
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You may mark "abstain" on your proxy card for any of the matters submitted to a
vote. An abstention is the equivalent of a no vote on all matters.
Many of our shares are held in "street name" which means that a depository,
broker-dealer or other institution holds shares in its name which are
beneficially owned by another person. The rules of the New York Stock Exchange
provide that a street name holder must receive the direction of the beneficial
owner of the shares to vote on issues other than routine stockholder matters
such as the election of directors. A "broker non-vote" refers to a proxy which
votes on one matter, but indicates that the holder does not have the authority
to vote on other matters. Broker non-votes will have the following effects at
our annual meeting:
-- For purposes of determining whether a quorum is present under
Delaware law, a broker non-vote is deemed to be present at the
meeting.
-- For purposes of the election of directors, and other matters to
be voted on at the meeting, a broker non-vote will not be
counted.
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HOW DOES THE BOARD OF
DIRECTORS RECOMMEND I
VOTE?
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The board of directors unanimously recommends that you vote to Approve each of
the matters to be voted on at the annual meeting.
HOW MANY SHARES MAY VOTE AT
THE ANNUAL MEETING?
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The only stock with the right to vote at the meeting is our common stock, and
only shares owned on the record date may be voted at the meeting. Each share of
common stock is entitled to one vote on each matter voted on at the annual
meeting. On the record date, there were 17,581,725 shares of common stock
outstanding.
WHAT IS THE RECORD DATE?
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April 5, 2000.
WHY HAVE YOU ADOPTED
CORPORATE GOVERNANCE
PRINCIPLES?
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In 1997, our chairman and chief executive officer committed to the investment
community that Nuevo would become a leader in Corporate Governance. As a result,
several important initiatives were undertaken, including an exhaustive review of
our governance principles. The board felt it important for our stockholders and
other interested parties to know exactly where we stand on the important issues
surrounding the proper governance of a public company. We believe that the
principles adopted unanimously by the board and published in this proxy do in
fact make us a leader in corporate governance and that adhering to these
principles will help us provide superior returns to our stockholders.
CAN I REVOKE MY PROXY?
Yes. You may revoke your proxy at any time before a vote is taken in any of the
following ways:
-- attend the annual meeting and vote in person;
-- submit a proxy with a later date; or
-- notify our corporate secretary in writing that you wish to
revoke your proxy.
Our corporate secretary's name is Sandra Kraemer and she may be reached by
writing to her at our principal executive offices located at 1021 Main, Suite
2100, Houston, Texas 77002.
HOW DO I NOMINATE A PERSON
FOR MEMBERSHIP ON THE
BOARD OF DIRECTORS?
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Our certificate of incorporation and bylaws require that stockholders notify us
of their intent to nominate directors for the annual meeting in 2001 prior to
January 24, 2001. The nomination should be in writing and addressed to our Board
of Directors c/o Nuevo Energy Company, 1021 Main, Suite 2100, Houston, Texas
77002 with a copy to our president and secretary. The nomination must contain
the name and address of the nominee and describe his or her qualifications for
being a director. All nominations will be forwarded to our nominating and
governance committee who will make a recommendation to the board of directors
concerning nominations for director. The opportunity for stockholders to submit
nominations for this year's annual meeting ended on January 13, 2000. No
stockholder nominations were submitted.
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WHEN ARE PROPOSALS BY
STOCKHOLDERS FOR THE 2001
MEETING DUE?
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Proposals to be included in our proxy, other than nominations for director, must
be received by us on or before December 13, 2000. Such proposals should be
addressed to Nuevo Energy Company, 1021 Main, Suite 2100, Houston, Texas 77002
Attention: corporate secretary. In order to avoid any controversy as to the date
you deliver notice to us, you should consider using registered mail, return
receipt requested. Under the SEC's rules, we are not obligated to include all
proposals made by stockholders in our proxy statement. The proxies we solicit
for next year's annual meeting will give us the right to use our discretion in
voting on any matter that we do not have notice of by February 26, 2001.
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BENEFICIAL OWNERSHIP OF OUR COMMON STOCK:
The following tables show the ownership of our common stock by (i) anyone
who is known by us to beneficially own 5% or more of our outstanding common
stock, (ii) each of our non-employee directors, (iii) our six most highly
compensated executive officers, and (iv) all of our executive officers and
directors taken together as a group. Unless otherwise indicated, each person
named in the following table has the sole power to vote and dispose of the
shares listed next to their name. Information in the tables has been obtained
from filings made with the SEC or, in the case of our directors and executive
officers, has been provided by such individuals. Unless otherwise indicated, the
information provided below is based on information available to us as of the
record date.
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OUR 5% STOCKHOLDERS:
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NUMBER OF SHARES PERCENT
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Franklin Resources, Inc.................................. 2,771,523 14.6(1)
777 Mariners Island Blvd
San Mateo, California 94404
Relational Investors, LLC................................ 1,914,300 10.9(2)
David H. Batchelder
Joel L. Reed
Ralph V. Whitworth
Suite 300
11975 El Camino Real
San Diego, California 92130
Dimensional Fund Advisors................................ 970,500 5.5(3)
1299 Ocean Avenue, 11th floor
Santa Monica, California 90401
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MEMBERS OF OUR BOARD OF DIRECTORS WHO ARE NOT EMPLOYEES:
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SHARES BENEFICIALLY OWNED
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UNDER
STOCK
OUTSTANDING OPTIONS** TOTAL PERCENT
------------ ---------- --------- -------
Isaac Arnold, Jr. .............................. 50,820(4) 58,000 108,820 *
David H. Batchelder............................. 1,914,300(2) 1,750 1,916,050 10.9
Thomas D. Barrow................................ 3,450(5) 58,000 61,450 *
Charles M. Elson................................ 2,778 13,000 15,778 *
Robert L. Gerry III............................. 6,500 259,666 266,166 1.5
Gary R. Petersen................................ 4,000 20,500 24,500 *
David Ross III.................................. 10,000 13,000 23,000 *
Robert W. Shower................................ 10,000 13,000 23,000 *
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OUR EXECUTIVE OFFICERS:
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SHARES BENEFICIALLY OWNED
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UNDER UNDER UNDER
401(K) STOCK DEFERRED
OUTSTANDING PLAN OPTIONS** COMPENSATION TOTAL PERCENT
----------- ---- --------- ------------ ----- -------
Douglas L. Foshee................. 5,100 4,090 475,000 59,378 543,568 3.0%
Michael P. Darden................. -- 2,106 47,083 21,019 70,208 *
Bruce K. Murchison................ 300 943 -- 8,216 9,459 *
John P. McGinnis.................. -- 677 -- 5,226 5,903 *
Dennis A. Hammond................. 260 1,954 165,605 30,036 197,855 1.1
Robert M. King.................... 3,684(6) 1,766 153,400 29,711 188,561 1.1
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ALL DIRECTORS AND EXECUTIVE OFFICERS TOGETHER:
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TOTAL PERCENT
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3,454,318 18.3%
Footnotes:
* Under 1%.
** Stock options include only options which may be exercised within 60 days.
(1) Of the shares reported in a Schedule 13G/A filed on January 28, 2000 by
Franklin Resources, Inc., Franklin Advisers, Inc. is reported to have sole
voting power over 2,532,023 shares and Franklin Advisory Services, LLC has
sole voting power over 98,500 shares. In addition, Franklin Advisers, Inc.
is reported to have sole dispositive power over 2,532,023 shares and
Franklin Advisory Services, LLC is reported to have sole dispositive over
239,500 shares. Franklin Advisers, Inc. and Franklin Advisory Services,
LLC are both wholly owned investment advisory subsidiaries of Franklin
Resources, Inc. Each of Messrs. Charles B. Johnson and Rupert H. Johnson,
Jr. own in excess of 10% of the outstanding common stock of Franklin
Resources, Inc. As the principal shareholders of Franklin Resources, Inc.,
each of Messrs. Charles B. Johnson and Rupert H. Johnson, Jr. may be
deemed for certain purposes to be beneficial owners of the shares
beneficially owned by Franklin Resources, Inc. Shares beneficially owned
by Franklin Resources, Inc. include 1,339,023 shares which may be received
upon conversion of our outstanding term convertible securities ("TECONS").
(2) Relational Investors, LLC, reported sole dispositive and voting power with
respect to all 1,914,300 shares in a Schedule 13D/A filed on March 2,
1999. These shares are owned by an account managed at Relational
Investors, LLC and by the following limited partnerships of which
Relational Investors, LLC is the sole general partner: Relational
Investors, L.P., Relational Fund Partners, L.P., Relational Coast
Partners, L.P. and Relational Partners, L.P. Each of Messrs. Batchelder,
Whitworth and Reed are managing members of Relational Investors, LLC, and
may be deemed for certain purposes to beneficially own shares beneficially
owned by Relational Investors, LLC.
(3) Information based on a Schedule 13G filed on February 3, 2000 by
Dimensional Fund Advisors Inc. ("Dimensional"), an investment adviser
registered under Section 203 of the Investment Advisers Act of 1940,
furnishes investment advice to four investment companies registered under
the Investment Company Act of 1940, and serves as investment manager to
certain other commingled group trusts and separate accounts. These
investment companies, trusts and accounts are the "Funds". All securities
reported in the 13G are owned by the Funds. Dimensional has sole voting
power and sole dispositive power with respect to all 970,500 shares.
Dimensional disclaims beneficial ownership of such securities.
(4) Includes 5,820 shares owned indirectly by The Arnold Corporation, of which
Mr. Arnold owns an approximate 25% equity interest.
(5) Includes indirect ownership of 1,450 shares owned by individual retirement
accounts for Mr. Barrow and his wife, his minor children or a corporation
he controls.
(6) Includes 1,684 shares of common stock that would be received upon
conversion of 2,000 convertible preferred shares.
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OUR CORPORATE GOVERNANCE PRINCIPLES:
Upon his appointment as Chief Executive Officer in August 1997, Mr.
Foshee committed publicly to our stockholders and to the investment community
that our management and board of directors would immediately begin the process
of reviewing our corporate governance principles. In 1998, our board of
directors established a nominating and governance committee whose members are
David Ross III, who acts as Chairman, Charles M. Elson and Robert W. Shower.
In 1998, the nominating and governance committee recommended, and the
full board of directors adopted, the "Nuevo Energy Company Corporate Governance
Guidelines." These guidelines have been published in order to inform
stockholders of the board's current thinking with respect to selected corporate
governance issues. The board will continue to assess the appropriateness and
effectiveness of the guidelines, and it is likely that changes to the guidelines
will be considered from time to time.
BOARD MISSION & OBJECTIVES
Mission Statement
The company's primary objective is to maximize stockholder value, while
adhering to the laws of the jurisdictions wherein it operates and at all times
observing the highest ethical standards. The company will pursue this objective
primarily through participation in the energy industry.
Corporate Authority & Responsibility
All corporate authority resides in the board of directors as the
representative of the stockholders. Authority is delegated to management by the
board in order to implement the company's mission. Such delegated authority
includes the authorization of spending limits and the authority to hire
employees and terminate their services. The board retains responsibility to
recommend candidates to the stockholders for election to the board of directors.
The board retains responsibility for selection and evaluation of the CEO,
oversight of the succession plan, determination of senior management
compensation, approval of the annual budget, assurance of adequate systems,
procedures and controls, as well as assisting in the preparation and approval of
the strategic plan. Additionally, the board provides advice and counsel to
senior management.
DIRECTORS
Personal Characteristics & Core Competencies of Directors
Individual directors should possess all of the following personal
characteristics:
Integrity and Accountability - Character is the primary consideration in
evaluating any board member. Directors should demonstrate high ethical
standards and integrity in their personal and professional dealings and
be willing to act on and remain accountable for their boardroom
decisions.
Informed Judgment - Board members should have the ability to provide
wise, thoughtful counsel on a broad range of issues. Directors should
possess high intelligence and wisdom and apply it in decision making.
Financial Literacy - One of the important roles of the board is to
monitor the company's financial performance. Board members should be
financially literate. Directors should know how to read a balance sheet,
income statement, cash flow statement, and understand the use of
financial ratios and other indices for evaluating company performance.
Mature Confidence - The board functions best when directors value board
and team performance over individual performance. Openness to other
opinions and the willingness to listen should rank as highly as the
ability to communicate persuasively. Board members should approach others
assertively, responsibly and supportively and raise tough questions in a
manner that encourages open discussion.
High Performance Standards - In today's highly competitive world, only
companies capable of performing at the highest levels are likely to
prosper. Board members should have a history of achievements that reflect
high standards for themselves and others.
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Passion - Directors should be passionate about the performance of the
company, both in absolute terms and relative to its peers. That passion
should manifest itself in engaged debate about the future of the company
and an esprit de corps among the board that both challenges and inspires
the company's employees.
Creativity - Success in the energy business will ultimately go to the
participants who adapt quickly to changing environments and implement
creative solutions to the significant challenges faced by industry
participants. Board members should possess the creative talents needed to
augment those of management.
Core Competencies of the Board as a Whole
To adequately fulfill the board's complex roles, from overseeing the
audit and monitoring managerial performance to responding to crises and
approving the company's strategic plan, a host of core competencies need to be
represented on the board. The board as a whole should possess the following core
competencies, with each member contributing knowledge, experience and skills in
one or more domains.
Accounting and Finance - Among the most important missions of the board
is ensuring that stockholder value is both enhanced through corporate
performance and protected through adequate internal financial controls.
The board should have one or more directors with specific expertise in
financial accounting and corporate finance, especially with respect to
trends in debt and equity markets.
Business Judgment - Stockholders rely on directors to make sensible
choices on their behalf. The majority of directors should have a record
of making good business decisions in the corporate sector.
Management - To monitor corporate management, the board needs to
understand management trends in general and industry trends in
particular. The board should have one or more directors who understand
and stay current on general management "best practices" and their
application in complex, rapidly evolving business environments.
Crisis Response - Organizations inevitably experience both short and
long-term crises. The ability to deal with crises can minimize
ramifications and limit negative impact on firm performance. Boards
should have one or more directors who have the ability and time to
perform during periods of both short-term and prolonged crises.
Industry Knowledge - Companies continually face new opportunities and
threats that are unique to their industries. The board should have one or
more members with appropriate and relevant industry-specific knowledge.
International Markets - To succeed in an increasingly global economy, the
board should have one or more directors who appreciate the importance of
global business trends and who have first-hand knowledge of international
business experience in those markets.
Leadership - Ultimately, a company's performance will be determined by
the directors' and CEO's ability to attract, motivate, and energize a
high-performance leadership team. The board should have one or more
directors who understand and possess empowerment skills and have a
history of motivating high-performing talent.
Strategy & Vision - A key board role is to approve and monitor company
strategy to ensure the company's continued high performance. The board
should have one or more directors with the skills and capacity to provide
strategic insight and direction by encouraging innovation,
conceptualizing key trends, evaluating strategic decisions, and
continuously challenging the organization to sharpen its vision.
Changes in Professional Responsibility
The board should consider whether a change in an individual's
professional responsibilities directly or indirectly impacts that person's
ability to fulfill directorship obligations. To facilitate the board's
consideration, the board requires that the CEO and other inside directors submit
a resignation as a matter of course upon retirement, resignation, or other
significant change in professional roles and responsibilities. All directors
should submit a resignation as a matter of course upon retirement, a change in
employer, or other significant change in their professional roles and
responsibilities. If the board believes that a director will continue to make a
contribution to the organization, the continued membership of that director may
be supported.
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Identification and Recruitment of Board Members
One of the tasks of the nominating and governance committee is to
identify and recruit candidates to serve on the board of directors. A list of
candidates shall be presented to the board for nomination and to the
stockholders for consideration. The committee may, at its discretion, seek
third-party resources to assist in the process. The CEO will be included in the
process on a non-voting basis. The nominating and governance committee will make
the final recommendation to the board.
Independent Directors
A substantial majority of the board of directors should be independent.
An independent director is defined as a director who:
-- has not been employed by the company in an executive capacity
within the last five years
-- is not, and is not affiliated with a company that is, an adviser,
or consultant to the company or a member of the company's senior
management
-- is not affiliated with a significant customer or supplier of the
company
-- has no personal services contract(s) with the company, or a member
of the company's senior management
-- is not affiliated with a not-for-profit entity that receives
significant contributions from the company
-- within the last five years, has not had any business relationship
with the company (other than service as a director) for which the
company has been required to make disclosure under Regulation S-K
of the Securities and Exchange Commission as currently in effect
-- is not employed by a public company at which an executive officer
of the company serves as a director
-- has not had any of the relationships described above with any
affiliate of the company
-- is not a member of the immediate family of any person described
above
Outside Directorships
The CEO and senior management of Nuevo should limit outside directorships
to one or two; non-employee directors who are employed on a full-time basis
should limit other directorships to three or four; and retired executives should
limit other directorships to five or six.
Directors are expected to attend all board and committee meetings in
person or by phone. Directors shall be prepared by reviewing in advance all
materials and be present at the meeting in person or by phone until its
adjournment.
Compensation of Directors
In order to align the interests of directors and stockholders, directors
will be compensated in the form of cash and company equity only, with equity
constituting a substantial portion of the total up to 100%.
Direct Investment in the Company Stock by Directors
Since a significant ownership stake leads to a stronger alignment of
interests between directors and stockholders, each director is required to
personally invest at least $100,000 in company stock within 3 years of joining
the board. Exceptions to this requirement may only be made by the board under
compelling mitigating circumstances.
Service Limitations of Directors
In order to replenish the board with fresh approaches to managing the
company, the maximum board tenure shall be 15 years.
A board member may not stand for reelection after age 70, but need not
resign until the end of his or her term.
In order to retain freshness in the process and to give new management
the unfettered ability to provide new leadership, a retiring CEO shall not
continue to serve on the board.
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BOARD ORGANIZATION
Board Size
In general, smaller boards are more cohesive, work better together and
tend to be more effective monitors than larger boards. Therefore, the board
shall be composed of six to twelve members. However, in order to accommodate the
availability of an outstanding candidate the number of positions on the board
may be expanded.
Committee Structure
It is the general policy of the company that all major decisions will be
considered by the board as a whole. As a consequence, the committee structure of
the board is limited to those committees considered to be basic to or required
for the operation of the company as a publicly owned entity. Standing committees
shall include audit, compensation, and nominating and governance. All of the
committees shall be composed solely of independent directors. The board may form
other committees as it determines appropriate.
Independent Chair
The board believes that the company is best served by unifying the
positions of Chairman and CEO. This structure provides a single leader with a
single vision for the company and results in a more effective organization.
BOARD OPERATIONS
Board Access to Senior Management
Board members have full access to senior management and to information
about the corporation's operations. Except in unusual circumstances, the CEO
should be advised of significant contacts with senior management.
Board Ability to Retain Advisors
The board shall retain advisors as it believes to be appropriate. If
management is retaining advisors to the board, such decision must be ratified by
the board. Individual directors should not retain their own advisors except in
exceptional circumstances.
Material in Advance of Meetings
The board must be given sufficient information to fully exercise its
governance functions. This information comes from a variety of sources,
including management reports, a comparison of performance to plans, security
analysts' reports, articles in various business publications, etc. Generally,
board members will receive information prior to board meetings so they will have
an opportunity to reflect properly on the items to be considered at the meeting.
The board will ensure that adequate time is provided for full discussion
of important items and that management presentations are scheduled in a manner
that permits a substantial proportion of board meeting time to be available for
open discussion.
Executive Session
Time will be allotted at the end of each board meeting for an executive
session involving only the independent directors.
Evaluation of CEO
The selection and evaluation of the chief executive officer and
concurrence with the CEO's selection and evaluation of the corporation's top
management team are the most important function of the board. In its broader
sense, "selection and evaluation" includes considering compensation, planning
for succession and, when appropriate, replacing the CEO or other members of the
top management team. The performance of the CEO will be reviewed at least
annually without the presence of the CEO or other inside directors. The board
should have an understanding with the CEO with respect to criteria on which he
or she will be evaluated, and the results of the evaluation will be communicated
to the CEO.
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Management Development
The CEO will report annually to the board on the company's program for
management development.
Succession Plan
CEO succession is a board-driven, collaborative process. Although the
current CEO has an important role to play, the board must develop its own plan
for succession while collaborating with the CEO in deciding the timing and the
necessary qualifications for making a final decision.
Outside Contacts
The board believes that the management speaks for the company. Individual
board members may, from time to time at the request of management, meet or
otherwise communicate with various constituencies that are involved with the
company. If comments from the board are appropriate, they should, in most
circumstances, come from the Chairman; however, this does not preclude
directors, in the exercise of their fiduciary duties and subject to
confidentiality constraints, from communicating with stockholders or others.
STOCKHOLDER RIGHTS
Annual Election of Directors
In order to create greater alignment between the board's and our
stockholder's interests and to promote greater accountability to the
stockholders, directors shall be elected annually.
Stockholder Rights Plan
The company believes that in the hands of a properly aligned and properly
governed board, a Terminable Stockholder Rights Plan is in the best interests of
all stockholders. Because the board acknowledges that conditions change, the
nominating and governance committee of the board will undertake a complete
review of the efficacy of the company's stockholder rights plan every three
years.
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PROPOSAL I. ELECTION OF DIRECTORS:
At the 1999 annual meeting, the stockholders elected to declassify our
board of directors so that all of our directors are elected annually.
Accordingly, all of our directors are standing for re-election at the 2000
annual meeting. The nominating and governance committee has nominated Isaac
Arnold, Jr., Thomas D. Barrow, David H. Batchelder, Charles M. Elson, Douglas L.
Foshee, Robert L. Gerry III, Gary R. Petersen, David Ross III and Robert W.
Shower to serve as directors.
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INFORMATION ABOUT OUR DIRECTORS AND EXECUTIVE OFFICERS
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The following is information about our directors and executive officers.
In the following materials, "options owned" includes all options owned by the
director, even those which have not vested.
DIRECTORS
[PHOTO OF MR. ARNOLD] ISAAC ARNOLD, JR.
63 years old
Director since 1990
Shares owned directly and indirectly: 50,820
Options owned: 59,750
Restricted Shares: 2,500
Board committees: Audit, compensation
Relationship to Nuevo: None, other than as a director
BIOGRAPHICAL INFORMATION
Since 1984, Mr. Arnold has been chairman of the board of Quintana
Petroleum Corporation, a privately held production company which does not
compete with Nuevo. He is also chairman of the board of Legacy Trust Company. He
has been a director of Cullen Center Bank & Trust since its inception in 1969
and is a director of Cullen/Frost Bankers, Inc. Mr. Arnold is a trustee of the
Museum of Fine Arts and The Texas Heart Institute. Mr. Arnold received his
B.B.A. from the University of Houston in 1959.
WHY DID YOU JOIN NUEVO'S BOARD IN 1990?
I have been involved in the energy industry for many years. In 1990, I
saw Nuevo as an exciting young entrepreneurial company that was trying to do
things differently. It has been a gratifying experience to watch this company
grow into the organization it is today and I am equally excited about our
future.
[PHOTO OF MR. BARROW] THOMAS D. BARROW
56 years old
Director since 1990
Shares owned: 3,450
Options owned: 59,750
Restricted shares: 2,500
Board committees: Audit
Relationship to Nuevo: None, other than as a director
BIOGRAPHICAL INFORMATION
Mr. Barrow is president of Barrow Energy Corporation, a position he has
held since its formation in 1988. Barrow Energy is a privately held company in
the business of exploring for oil and gas primarily in East Texas which does not
compete with Nuevo. Mr. Barrow is also a founder and director of Bargo Energy
Company, a public company engaged in the acquisition of oil and gas properties.
Bargo does not compete with Nuevo. Mr. Barrow serves on the Board of Trustees of
Good Shephard Medical Center and serves in numerous other civic organizations.
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WHY DID YOU JOIN NUEVO'S BOARD IN 1990?
I joined Nuevo's board because I believed in the concept of an
opportunistic acquisition company with low overhead due to outsourcing being
able to create significant shareholder value. We have in fact been able to do
just that and I think we've been good stewards of our stockholders' investments.
[PHOTO OF MR. BATCHELDER] DAVID H. BATCHELDER
50 years old
Director since 1999
Shares owned: 1,914,300 (beneficially through Relational
partnerships)
Options owned: 3,500 (beneficially through Relational
partnerships)
Restricted Shares: 2,500 (beneficially through Relational
partnerships)
Board committees: Compensation, Audit
Relationship to Nuevo: None, other than as a director
BIOGRAPHICAL INFORMATION
Mr. Batchelder has been chairman and chief executive officer of
Batchelder & Partners, Inc., a financial advisory and investment banking firm,
since 1988. He also has been a managing member of Relational Investors LLC, the
general partner of an active investment fund, since March 1996. Mr. Batchelder
is also a director of Morrison Knudson Corporation, ICN Pharmaceuticals, Inc.
and Apria Healthcare Group Inc. Mr. Batchelder received a B.S. in accounting
from Oklahoma State University in 1971 and is a certified public accountant.
WHY DID YOU JOIN NUEVO'S BOARD IN 1999?
I joined Nuevo's board of directors because I believe that board
representation by a substantial shareholder with no conflicts of interests with
other shareholders is consistent with sound corporate governance and positively
impacts board dynamics. I expect to continue to utilize my substantial industry
experience to assist the company in understanding and responding to changes in
our business sector.
[PHOTO OF MR. ELSON] CHARLES M. ELSON
40 years old
Director since 1998
Shares owned: 2,778
Options owned: 14,750
Restricted shares: 2,500
Board committees: Compensation (chairman), nominating and
governance
Relationship to Nuevo: None, other than as a director
BIOGRAPHICAL INFORMATION
Mr. Elson has been a professor of law at Stetson University College of
Law since 1990 and serves as of counsel to the law firm of Holland & Knight
(since 1995). He is a member of the American Law Institute and the Advisory
Council and Commissions on Director Compensation, Audit Committees, and Director
Professionalism of the National Association of Corporate Directors. Mr. Elson is
widely regarded as an expert on corporate governance and has served on panels
and blue ribbon commissions on such issues as executive compensation, director
compensation, director professionalism, chief executive officer succession and
others. He is a trustee of Talledega College and a Salvatori Fellow of the
Heritage Foundation. Mr. Elson currently serves as a director of Sunbeam
Corporation, a consumer products company, a position he has held since 1996. He
also served as a director of Circon Corporation, a medical products
manufacturer, from 1996 until its sale in 1999. Mr. Elson received his B.A. from
Harvard College in 1981 and his J.D. from the University of Virginia in 1985.
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WHY DID YOU JOIN NUEVO'S BOARD IN 1998?
I was attracted to Nuevo because I sensed a true desire on the part of
its board and senior management to be a leader among public companies in terms
of corporate governance. The nominating and governance committee on which I
serve is committed to keeping Nuevo on the leading edge of shareholder-oriented
governance. I believe that our accomplishments in implementing governance
guidelines will in the long term increase shareholder wealth.
[PHOTO OF MR FOSHEE] DOUGLAS L. FOSHEE
40 years old
Director since 1997
Shares owned: 9,190
Options owned: 620,000
Board committees: None
Relationship to Nuevo: None, other than as chairman, president
and chief executive officer
BIOGRAPHICAL INFORMATION
Mr. Foshee became a director of Nuevo in 1997 concurrent with his
assumption of the position of president and chief executive officer in August.
In December 1997, Mr. Foshee was also appointed chairman of the board of
directors. Mr. Foshee served from 1993 until 1997 in various capacities for
Torch Energy Advisors Incorporated ("Torch"), including vice president special
projects, executive vice president acquisitions and financial analysis,
president, chief operating officer, and ultimately chief executive officer.
Prior to his tenure at Torch, Mr. Foshee was employed by ARCO International Oil
and Gas Company in various positions in finance and new business ventures. His
finance background also includes seven years in commercial banking, primarily as
an energy lender for major financial institutions. Mr. Foshee serves on the
board of Small Steps Nurturing Center, and is a member of the Independent
Petroleum Association of America, the National Petroleum Council, and the
Council of Overseers for the Jones Graduate School at Rice University. Mr.
Foshee received his B.B.A. from Southwest Texas State University in 1982 and his
M.B.A. from the Jesse H. Jones Graduate School at Rice University in 1992. He is
also a graduate of the Southwestern Graduate School of Banking at Southern
Methodist University (1991).
WHY DID YOU JOIN NUEVO IN 1997?
I had a unique perspective on Nuevo in 1997, having served as the chief
executive officer of Nuevo's largest service provider, Torch Energy Advisors. I
also ran Torch's acquisitions department during many of Nuevo's most significant
acquisitions, including having direct responsibility for negotiating the $480
million acquisition in 1996 of the company's California assets. So I knew a
great deal about the company's assets and I had worked with most of Nuevo's
talented staff for many years. That made my decision easy. Nuevo is endowed with
great assets and great people. I thought that I was uniquely qualified to lead
this incredible company.
[PHOTO OF MR GERRY] ROBERT L. GERRY III
62 years old
Director since 1990
Shares owned: 6,500
Options owned: 261,416
Restricted Shares: 2,500
Board committees: None
Relationship to Nuevo: Served as Nuevo's vice chairman from
1994 to 1997 and president and chief operating officer from
1990 to 1994
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BIOGRAPHICAL INFORMATION
Since 1997, Mr. Gerry has been chairman of the board of directors and
chief executive officer of Vaalco Energy, Inc., a public independent oil and gas
company which does not compete with Nuevo. From 1994 to 1997, Mr. Gerry was vice
chairman of Nuevo. Prior to that, he was president and chief operating officer
of Nuevo since its formation in 1990. Mr. Gerry currently serves as a trustee of
Texas Children's Hospital.
WHY DID YOU JOIN NUEVO IN 1990 AS ITS FIRST PRESIDENT?
We believed we had a unique opportunity to grow an underperforming
limited partnership into a powerhouse independent oil and gas company. We felt
we could build value by reinvesting income in prudent acquisitions and drilling
opportunities. Our vision was correct and Nuevo exceeded our wildest dreams.
Over this past year we have once again seen our highly competent management team
take significant steps to build a solid company into a major independent.
[PHOTO OF MR. PETERSEN] GARY R. PETERSEN
53 years old
Director since 1990
Shares owned: 4,000
Options owned: 22,250
Restricted Shares: 2,500
Board committees: Compensation
Relationship to Nuevo: In addition to participation on the
board, Mr. Petersen is a principal in a company which
participated with a group of lenders in 1992 in lending $12
million to a joint venture in which Nuevo was an owner. That
loan was repaid in full in 1997.
BIOGRAPHICAL INFORMATION
Mr. Petersen is a co-founder and has been a partner of EnCap Investments,
Inc., a firm which provides capital in the form of both debt and equity to the
energy industry. From 1984 to 1988, he served as senior vice president and
manager of the corporate finance division of the energy banking group for
RepublicBanc Houston. From 1979 to 1984, he was executive vice president and a
director of Nicklos Oil and Gas Company. He also served as a group vice
president in the petroleum and minerals division of RepublicBanc Dallas. He is a
member of the board of Harken Energy Corporation, Energy Capital Investment
Company, Equus II Incorporated and the Petroleum Club of Houston. Mr. Petersen
received his B.B.A. from Texas Tech University in 1968 and his M.B.A. from Texas
Tech University in 1970.
WHY DID YOU JOIN NUEVO'S BOARD IN 1990?
Nuevo is my kind of company. We take a different approach to the
exploration and production business. We manage this company's assets as a
portfolio, much like we do at EnCap where we serve institutional investors in a
different capacity. I think that's the right way to go about this business and I
think that's to a large degree why Nuevo has been so successful.
[PHOTO OF MR. ROSS] DAVID ROSS III
59 years old
Director since 1997
Shares owned: 10,000
Options owned: 14,750
Restricted Shares: 2,500
Board committees: Nominating and governance (chairman)
Relationship to Nuevo: None, other than as a director
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BIOGRAPHICAL INFORMATION
Mr. Ross is a private investor. From 1987 to 1993, Mr. Ross was chairman
and chief executive officer of Sterling Consulting Group, which provided
corporate planning, treasury management and economic evaluation to the oil and
gas industry. He was a principal of The Sterling Group, a firm specializing in
leveraged buyouts, from 1986 to 1987. He currently serves on the Council of
Overseers and is an Adjunct Professor of Finance at the Jesse H. Jones Graduate
School of Administration at Rice University, where he has served since 1994 and
1979, respectively. Mr. Ross is a member of the board of Cooper Cameron
Corporation, an oilfield services equipment manufacturer. He also serves as vice
president and a board member of Da Camera of Houston, a nonprofit arts
organization. Mr. Ross also serves on the board of the Nantucket Conservation
Foundation. Mr. Ross received his B.A. from Yale University in 1962 and his
M.B.A. from Harvard University in 1970.
WHY DID YOU JOIN NUEVO'S BOARD IN 1997?
I teach a finance course at Rice University which Doug Foshee attended,
so I was familiar with him, but not with Nuevo when I was approached in 1997 to
join the board. After meeting with management and the board as a whole, I was
convinced that this was a company that would succeed over the long term. I was
particularly impressed by the company's efforts to align compensation with
stockholder objectives. My experience in different industries tells me that when
management is on the hook financially, good things tend to happen.
[PHOTO OF MR. SHOWER] ROBERT W. SHOWER
62 years old
Director since 1998
Shares owned: 10,000
Options owned: 14,750
Restricted Shares: 2,500
Board committees: Audit (chairman), nominating and governance
Relationship to Nuevo: None, other than as a director
BIOGRAPHICAL INFORMATION
Mr. Shower served as executive vice president and chief financial officer
of Seagull Energy Corporation, an oil and gas company, from 1994 until his
retirement in 1996. From 1992 to 1994, he served as Seagull's senior vice
president and chief financial officer. From 1991 to 1992, Mr. Shower served as
senior vice president, corporate development, for Albert Fisher, Inc., a company
engaged in produce distribution. Mr. Shower served for 10 years as chief
financial officer for the Williams Companies and also served on its board from
1977 to 1986. Mr. Shower currently serves on the boards of Lear Corporation, one
of the world's largest automotive suppliers; Highlands Insurance Group, Inc.;
and Edge Petroleum Corporation, a technology-oriented exploration company. Mr.
Shower received his B.S. from the University of Tulsa in 1960. He also attended
the Program for Management Development at Harvard Business School in 1972.
WHY DID YOU JOIN NUEVO'S BOARD IN 1998?
In my capacity as chief financial officer at Seagull Energy, I worked
with Bob King, who subsequently became Nuevo's chief financial officer. So I had
some familiarity with Nuevo when I was approached by the board. I was convinced
after meeting the board and members of the management team that they were doing
some exciting things. The company has great long-lived assets and a talented and
motivated group of employees who continue to demonstrate their commitment to
creating shareholder value through implementing such programs as Economic Value
Added financial modeling.
EXECUTIVE OFFICERS AND OTHER KEY EMPLOYEES
Robert M. King, 39, joined us as senior vice president and chief
financial officer in January 1996. Prior to that, Mr. King was vice president,
corporate development and treasurer of Seagull Energy Corporation, which he
joined in 1990 after having spent over seven years in energy finance with The
First National Bank of Chicago and Mellon Bank, N.A. Mr. King has a B.A. in
economics and political science from Southern Methodist University and an M.B.A.
in finance from the Cox School of Business at Southern Methodist University.
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Michael P. Darden, 42, joined us as vice president -- business
development in May 1998. Prior to that he was special counsel for Baker Botts,
L.L.P., a law firm, since 1993, where his practice focused on international and
domestic oil and gas ventures, asset acquisitions and sales, and energy-based
financings. Mr. Darden was employed by Hunt Oil Company from 1990 to 1993 where
he was senior international counsel. From 1988 to 1990, he was employed by BHP
Petroleum (Americas) Inc. as attorney-international/ offshore and from 1986 to
1988 he was employed by Tenneco Oil Company as senior international negotiator.
Mr. Darden has worked extensively on petroleum projects outside the United
States and in all regions of the world. His experience encompasses petroleum
projects at all stages, working with governments, industry partners,
contractors, suppliers, lenders and insurers. Mr. Darden received a B.B.A. in
Petroleum Land Management from The University of Texas in 1980 and a J.D. from
the University of Houston Law Center in 1986.
Dennis A. Hammond, 44, joined us as vice president -- engineering in
1990. In 1983, he was a co-founder of IDM Engineering, Inc., a petroleum
engineering consulting firm. He has held various reservoir engineering positions
with Chevron and Pogo Producing Company. He holds a B.S. degree in petroleum
engineering from Texas A&M University and is a registered professional engineer
in the State of Texas. Mr. Hammond is a member of the Society of Petroleum
Engineers and the American Petroleum Institute.
John P. McGinnis, 39, joined our company as vice president -- exploration
in August 1999. Mr. McGinnis came to our company from Amerada Hess Corp., most
recently as Division Explorationist for the Central Gulf of Mexico. He joined
Amerada Hess Corp. in 1995 after receiving his Ph.D. in marine geology and
geophysics from Columbia University. From 1984 to 1988, he was employed as an
Exploration Geophysicist at Tenneco Oil Company. Mr. McGinnis holds a B.S. in
geology and M.S. in geophysics, both from Purdue University.
Bruce K. Murchison, 50, joined our company as vice president and general
counsel in June 1999. Most recently, he had been a consultant to Plains
Resources' senior management on transactional matters. From 1994 to 1998, he
served as president of Celeron Corporation, the energy subsidiary of the
Goodyear Tire and Rubber Company and operator of the 1,200-mile All American
Pipeline System. Prior to assuming duties as president of Celeron, Mr. Murchison
was Celeron's general counsel for six years. From 1991 to 1994, in addition to
his general counsel responsibilities at Celeron, he was chief operating officer
of All American Pipeline Company. He began his career with Goodyear as an
attorney in 1985. From 1981 to 1985, Mr. Murchison practiced corporate law and
litigation at Texaco Inc. Mr. Murchison holds a J.D. from St. John's School of
Law.
Sandra D. Kraemer, 32, has been our controller since 1993 and our
corporate secretary since 1997. Prior to 1993, she had been employed by Torch
Energy Advisors Incorporated since 1991. From 1990 to 1991, Ms. Kraemer was
employed by Price Waterhouse in its audit department, specializing in the oil
and gas industry. She graduated summa cum laude from Stephen F. Austin State
University with a B.B.A. in accounting in 1990 and is a certified public
accountant.
All executive officers and directors of the Company are United States
citizens.
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COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934
- --------------------------------------------------------------------------------
Section 16(a) of the Securities Exchange Act of 1934, as amended,
requires our directors and executive officers, and persons who beneficially own
more than ten percent of our common stock, to file with the SEC and the New York
Stock Exchange reports of ownership and reports of changes in ownership of
common stock. Officers, directors and greater than ten percent stockholders are
required by the SEC's regulations to furnish us with copies of all Section 16(a)
forms they filed with the SEC. Based on a review of the copies of such reports
furnished to us, we believe that all reporting obligations under Section 16(a)
were satisfied.
- --------------------------------------------------------------------------------
OPERATION OF OUR BOARD OF DIRECTORS
- --------------------------------------------------------------------------------
Our board of directors has regularly scheduled quarterly meetings, and
has special meetings as necessary. Each non-officer director receives an annual
retainer of $30,000 and he or she may elect to receive all or a portion of his
retainer in shares of restricted stock for service on the board. Elections are
made in 25% increments with a 33% increase in value for the amounts invested in
restricted stock, so that a director electing to convert $7,500 in cash retainer
will be awarded $9,975 in restricted stock. Six directors elected to receive all
restricted shares while two directors chose to receive their retainer in cash.
In addition, each director receives a semi-annual grant of 10-year options to
purchase 1,750 shares of common stock, with an exercise price equal
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to the closing price of our common stock on the date of grant. Each director
also receives a semi-annual grant of 1,250 shares of restricted stock subject to
a three year restricted period and directors have the option to rollover this
period until their retirement from the board. During 1999, the board of
directors of the company held nine meetings and each director attended at least
75% of the meetings of the board of directors and any committee on which he
served, except for Mr. Arnold.
AUDIT COMMITTEE. The audit committee recommends the appointment of
independent public accountants to conduct audits of our financial statements,
reviews with the accountants the plan and results of the auditing engagement,
approves other professional services provided by the accountants and evaluates
the independence of the accountants. The audit committee also reviews the scope
and results of the company's procedures for internal auditing and the adequacy
of our system of internal accounting controls. In addition, the audit committee
also reviews our corporate disclosure policies and procedures. Members are
Messrs. Shower (chairman), Arnold, Barrow, and Batchelder. The audit committee
held nine meetings during 1999.
COMPENSATION COMMITTEE. The compensation committee approves the
compensation of officers, administers the bonus plan for key employees, makes
recommendations to the board regarding any present or future employee incentive
stock option plans and, pursuant to our stock option plans, awards stock options
to those key employees who have been recommended by management. Members are
Messrs. Elson (chairman), Arnold, Batchelder and Petersen. The compensation
committee met three times in 1999.
NOMINATING AND GOVERNANCE COMMITTEE. The duties of our nominating and
governance committee include recommending the appropriate size of our board,
establishing and reviewing the qualification, stock ownership and mandatory
resignation and tenure of our directors. Our nominating committee also considers
director nominees recommended by stockholders. Our nominating and governance
committee also periodically evaluates our board and management's communication
with the board. The members of the nominating and governance committee are
Messrs. Ross (chairman), Elson and Shower. The nominating and governance
committee met three times in 1999.
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EXECUTIVE COMPENSATION:
The following summary compensation table sets forth cash compensation for
the past three years for our chief executive officer and our four other most
highly compensated executive officers in 1999.
NUEVO ENERGY COMPANY
Summary Compensation Table
LONG-TERM
RESTRICTED COMPENSATION
YEAR SALARY BONUS STOCK AWARDS OPTIONS
---- ------ ----- ------------ -------
Douglas L. Foshee 1999 $375,000(1) $375,000(1) $ -- 55,000
Chairman, Chief Executive 1998 375,000 -- -- 220,000(3)
Officer
and President 1997 143,466(2) 317,500 -- 330,000
Robert M. King 1999 160,000 160,000 -- 34,250
Senior Vice President and 1998 160,000 30,000 -- 66,250
Chief Financial Officer 1997 160,000 130,000 79,856(6) 32,500
Dennis A. Hammond 1999 160,000 160,000 -- 34,250
Vice President - Engineering 1998 160,000 -- -- 66,250
1997 160,000 130,000 79,856(6) 32,500
Bruce K. Murchison 1999 93,333(4) 142,000(5) -- 48,000
Vice President and General
Counsel
Michael P. Darden 1999 155,000 155,000 -- 34,250
Vice President - Business 1998 99,950(7) 100,000(8) -- 91,250
Development
- ------------------
(1) Mr. Foshee deferred one-third of his 1999 salary and 100% of his 1999
bonus pursuant to our deferred compensation plan in order to purchase
shares of Nuevo common stock.
(2) Mr. Foshee became an employee in August 1997. Information regarding Mr.
Foshee is for periods during which he was employed by Nuevo.
(3) Mr. Foshee was granted 100,000 options in August of 1998 as part of his
employment agreement.
(4) Mr. Murchison became an employee in June 1999. Information regarding Mr.
Murchison is for the periods during which he was employed by Nuevo.
(5) Mr. Murchison was hired by us in June 1999 and was paid a signing bonus
of $60,000. Mr. Murchison contributed 100% of the bonus to the company's
deferred compensation plan in order to purchase shares of Nuevo common
stock.
(6) Represents 2,000 shares of vested, restricted shares each for Mr. King
and Mr. Hammond.
(7) Mr. Darden became an employee in May 1998. Information regarding Mr.
Darden is for the periods during which he was employed by Nuevo.
(8) Mr. Darden was hired by us in May 1998 and was paid a signing bonus of
$100,000. Mr. Darden contributed 75% of the bonus to the company's
deferred compensation plan in order to purchase shares of Nuevo common
stock.
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The following table sets forth certain information concerning grants of
options to purchase our common stock made during 1999 to the executive officers
named in the summary compensation table. The exercise price of options granted
to our executive officers is the closing price of the common stock on the date
of grant.
1999 STOCK OPTION GRANTS
% OF TOTAL
NUMBER OF OPTIONS PER SHARE GRANT DATE
OPTIONS GRANTED TO EXERCISE EXPIRATION PRESENT
NAME GRANTED EMPLOYEES PRICE DATE VALUE(1)
- ---- ------- --------- ----- ---- --------
Douglas L. Foshee.................... 25,000 5.5% $16.38 12/02/09 $297,750
30,000 6.6% 15.50 08/04/09 338,100
Robert M. King....................... 18,000 3.9% 16.38 12/02/09 214,380
16,250 3.6% 15.50 08/04/09 183,138
Dennis A. Hammond.................... 18,000 3.9% 16.38 12/02/09 214,380
16,250 3.6% 15.50 08/04/09 183,138
Bruce K. Murchison................... 18,000 3.9% 16.38 12/02/09 214,380
5,000 1.1% 15.50 08/04/09 56,350
25,000(2) 5.5% 13.38 06/01/09 243,250
John P. McGinnis..................... 18,000 3.9% 16.38 12/02/09 214,380
25,000(2) 5.5% 15.50 08/02/09 281,750
Michael P. Darden.................... 18,000 3.9% 16.38 12/02/09 214,380
16,250 3.6% 15.50 08/04/09 183,138
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(1) We calculated the grant date present value using the "Black Scholes"
model, a widely accepted method of valuing options. This valuation model
is hypothetical; the actual value, if any, depends on the excess of the
market price of the shares over the exercise price on the date the
option is exercised. If the market price does not increase above the
exercise price, compensation to the grantee will be zero. The
Black-Scholes option pricing model is a mathematical formula used for
estimating option values that incorporates various assumptions. The
"Grant Date Present Value" set out in the above table is based on the
following assumptions: (a) a ten-year option term; (b) 55.7% expected
future annual stock volatility for the options; (c) a risk-free rate of
return of 6.0% for the options granted; and (d) no expected dividend
yield. The above model does not include any reduction in value for non-
transferability, forfeiture or vesting of options.
(2) Mr. Murchison and Mr. McGinnis were each granted 25,000 options in June
and August 1999, respectively, upon their first day of employment.
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The following table shows the number of options owned by our named and
key executives. Options in the column marked "unexercisable" are subject to
vesting and will be forfeited if the named executive's employment with us is
terminated for certain reasons. The value of unexercised options is calculated
using an $18.75 per share closing price for our stock on December 31, 1999. None
of our named executives exercised options in 1999.
VALUE OF UNEXERCISED
IN-THE-MONEY OPTIONS AT
NUMBER OF UNEXERCISED OPTIONS DECEMBER 31, 1999(1)
------------------------------ ------------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ----------- ------------- ----------- -------------
Douglas L. Foshee............... 475,000 145,000 $210,375 $577,625
Robert M. King.................. 153,400 34,250 350,625 95,563
Dennis A. Hammond............... 165,605 34,250 350,625 95,563
Bruce K. Murchison.............. -- 48,000 -- 193,375
John P. McGinnis................ -- 43,000 -- 124,000
Michael P. Darden............... 47,083 78,417 116,875 329,313
- ------------------
(1) Based on $18.75 per share which was the closing price per share of our
common stock on the New York Stock Exchange Composite Tape on December
31, 1999.
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COMPENSATION COMMITTEE REPORT:
- --------------------------------------------------------------------------------
Our compensation committee consists of four directors who are not
employees or executive officers of the company. The members of the compensation
committee in 1999 were Mr. Elson, who was chairman, and Messrs. Arnold,
Batchelder and Petersen.
OUR EXECUTIVE COMPENSATION PROGRAM
Our executive compensation program reflects a policy of attracting highly
qualified executives who strive to achieve outstanding individual performance
and who collectively seek outstanding corporate and share price performance
compared to that of peer group companies. The committee believes that Nuevo
should seek executives who desire a work environment characterized by a high
level of "at-risk" compensation, which rewards excellent performance and aligns
overall compensation with the objectives of our stockholders. Accordingly, our
compensation system consists of the following elements:
BASE SALARY. The base salaries for our named executive officers
are established by employment agreements with those officers. The base
salaries in these agreements are intended to represent approximately 50%
to 60% of the executives' total salary and cash bonus.
INCENTIVE BONUS. Under the employment agreements with most of our
executives, bonuses are awarded at the discretion of the compensation
committee. It has been the committee's overall objective that the sum of
base salaries plus cash bonuses should generally be at or about the 75th
percentile of peer group companies.
During 1999, the company adopted an Economic Value Added (EVA)
model for financial planning and capital allocation. The committee has
tied 2000 bonuses solely to EVA performance. Our executives will earn
bonuses set at or about the 50th to 60th percentile of peer group
companies if we have earned the return on capital targeted in the EVA
model. The bonus is reduced, or eliminated altogether, if we fall short
of the targeted return on capital. The executive may receive more than
the targeted bonus if our performance exceeds the EVA targeted return on
capital.
STOCK OPTIONS. Each of our employees receives stock options as a
component of his or her compensation, in order to align the interests of
employees with those of our stockholders. The number of options granted
to an employee is based on the committee's view of the employee's ability
to impact the value of Nuevo's shares. We believe that because we
outsource non-strategic functions, resulting in substantially fewer
employees eligible to receive options, we have a substantial advantage
over peer companies in the number of options that we can grant to our
employees. It is the committee's overall objective that the sum of base
salaries plus incentive bonuses plus options should generally compare at
or about the 80th to 90th percentile of peer group companies.
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During 1997, the compensation committee established a stock ownership
program for its senior executives that provides incentives for each executive to
achieve and maintain a targeted level of ownership of Nuevo common stock. Target
levels of stock ownership are set by the compensation committee for each
executive. Counted against this stock ownership are shares owned directly by the
executive or owned beneficially through an immediate family member, shares
acquired through the exercise of options and shares acquired through our
deferred compensation and 401(k) plans. Shares that may be received upon
exercise of options do not count toward the ownership objectives. Under the
program, each executive's common stock ownership is reported to the committee
twice a year. An executive's progress toward meeting stated ownership objectives
is an important element of each executive's performance review.
During 1999, Messrs. King and Hammond satisfied the stock ownership
targets set by the committee. Upon meeting and maintaining the ownership target,
the executive is eligible for two benefits: the vesting schedule on all options
granted after implementation of the program is accelerated; and, second, the
investment options available under our deferred compensation plan are broadened
to include a diversified equity fund.
OVERVIEW
During early 1999, oil prices were at historic lows, when adjusted for
inflation. The executive team used much of its time to lay a foundation to
increase financial flexibility and increase stockholder value. For example,
Nuevo completed an exchange of its bonds to streamline our bond covenants and to
extend the term of the bonds. We adopted an Economic Value Added model for
financial and capital allocation decisions and have instituted a long-term hedge
policy to help us meet our performance objectives. We continued to acquire
properties in our core areas while selling properties that we considered
non-core. Effective January 1, 2000, we entered into a long-term crude oil sales
contract with Tosco which will contribute to price stability.
CHIEF EXECUTIVE OFFICER. Douglas L. Foshee was appointed chief
executive officer in August 1997, at which time he entered into an
employment agreement providing for a base salary of $375,000 during 1999.
As a result of Mr. Foshee's leadership role and significant contribution
in accomplishing the goals discussed in the overview, Mr. Foshee received
a bonus in 1999 of $375,000 and was granted options to purchase 55,000
shares of common stock.
KEY EXECUTIVE OFFICERS. The compensation committee continues to
review on an individual level each such executive's leadership in his
area of expertise, and also evaluates years of service, experience level,
position and general economic and industry conditions. However, no
specific weight is assigned to these factors. The committee also studies
peer group compensation levels for comparable positions. With respect to
bonus compensation in 1999, the committee followed its historic
philosophy of allocating a specific portion of the total compensation
paid to executive officers as "at risk" compensation in order to
emphasize pay for performance. Beginning in 2000, this approach has been
enhanced by tying executive bonuses to the goal of achieving a return on
capital invested equal to or greater than the return used in the Economic
Value Added (EVA) model.
The committee believes that the company's key executive officers played a
significant role in 1999 in laying a foundation for financial flexibility
and value creation. After two consecutive years with no salary increases,
the committee increased base salaries in December by between 3% and 19%
over then existing salaries. By virtue of the accomplishments discussed
above, and the leadership exhibited by those individuals in their
respective areas of expertise, the committee determined that cash bonus
awards having a collective value of between 29% and 100% of total
compensation were appropriate.
STOCK BASED COMPENSATION
The compensation committee believes the stock options that it has granted
in the past, and those granted in 1999, serve a valuable purpose by attracting
and retaining key executives, and encouraging increased job performance by the
recipients of such grants. The committee bases the number of awards granted to
executive officers on no predetermined formula, but rather on each individual's
accomplishments, level of responsibility, and impact on Nuevo's performance for
the year.
Messrs. Foshee, King, Hammond, Darden, Murchison and McGinnis were
granted a total of 55,000, 34,250, 34,250, 34,250, 48,000 and 43,000 options in
1999, respectively. Mr. Murchison and Mr. McGinnis's options each include 25,000
options granted upon signing employment contracts. Grants of stock options were
made at the market price of the common stock of the company on the date of the
grant (as defined in the plan).
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EXECUTIVE EMPLOYMENT CONTRACTS
In 1997, we entered into an employment contract with Mr. Foshee, our
Chief Executive Officer. The agreement provided for the following compensation
during 1999:
-- a base salary of $375,000,
-- discretionary bonuses based upon performance to be determined by
our compensation committee,
-- reimbursement for membership fees to the Houston Center Club, the
Petroleum Club and the Young Presidents' Organization
Mr. Foshee's employment agreement is terminable by either party but, in
the event that his employment is terminated for reasons other than just cause or
his voluntary resignation, we are obligated to pay him a sum equal to two times
the aggregate of:
-- his salary for the twelve months immediately preceding the date of
termination (less applicable withholdings and deductions required
by law), plus
-- any bonus paid to Mr. Foshee in the twelve-month period.
In the agreement, just cause is generally defined as the failure to
render services to Nuevo as provided in the agreement or the commission of fraud
or other specified illegal act.
In 1998, we entered into a two-year employment agreement with Robert M.
King, providing for the following compensation during 1999:
-- annual compensation of $160,000
-- reimbursement for reasonable country club dues.
Mr. King's employment agreement is terminable by either party but, in the
event his employment is terminated for reasons other than just cause or at his
option, we must pay him the greater of two times his annual salary and bonus or
$320,000. Just cause has the same meaning in Mr. King's contract as in Mr.
Foshee's contract.
In 1997, we entered into an employment agreement with Mr. Dennis A.
Hammond providing for a monthly salary of $13,333.34, payable in semi-monthly
installments and an annual discretionary bonus, stock option and stock bonus
awards as determined by our compensation committee. Mr. Hammond's employment
agreement is for no definite term and is terminable by either party at any time
for any lawful reason. In the event that Mr. Hammond's employment is terminated
as a result of a change of control, then Mr. Hammond is entitled to receive two
years salary and bonus (calculated based on the average of the last two year's
bonus awards) if he is not offered an equivalent job with our successor.
In 1998, the company entered into an employment agreement with Mr.
Michael Darden. His contract was similar in all material respects to Mr.
Hammond's except that Mr. Darden was paid an initial minimum annual salary of
$155,000 and a signing bonus of $100,000. Mr. Darden contributed 75% of the
signing bonus to the company's deferred compensation plan in order to purchase
shares of Nuevo common stock.
In 1999, we entered into an employment agreement with Bruce K. Murchison.
Mr. Murchison's contract was also similar to that of Mr. Darden's in all
material respects except that Mr. Murchison was paid an annual salary of
$160,000 and a $60,000 signing bonus. Mr. Murchison contributed this entire
bonus to the company's deferred compensation plan in order to purchase shares of
Nuevo common stock.
In 1999, we entered into an employment agreement with John McGinnis. Mr.
McGinnis's contract was also similar in all material respects to that of Mr.
Darden except that Mr. McGinnis was paid an annual salary of $140,000 and a
$50,000 signing bonus. Mr. McGinnis contributed this entire bonus to the
company's deferred compensation plan in order to purchase shares of Nuevo common
stock.
LONG-TERM INCENTIVE PLAN AWARDS
We do not have a long-term incentive plan for our employees, other than
the 1990 stock option plan, the 1993 stock incentive plan and the 1999 stock
incentive plan. Under the 1990 stock option plan, 1993 stock incentive plan and
the 1999 stock incentive plan, our executive officers, directors and employees
are eligible to receive awards of stock options or of shares of stock or other
awards which have a value which increases or decreases with the price of our
stock. In addition to the awards under the 1990 stock option plan and the 1993
stock incentive plan, the 1999 stock incentive plan permits the award of
restricted stock, restricted stock units,
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performance share awards and performance units. All of the awards are designed
to generate an increased incentive to contribute to the company's future success
resulting in the enhanced value of the company for the benefit of its
stockholders.
DEFERRED COMPENSATION PLAN
During 1997, we adopted the Nuevo Energy Deferred Compensation Plan to
encourage senior executive officers to personally invest in our shares.
Executives at the level of vice president and above are eligible to participate
in the plan. The plan allows our senior executives to defer all or a portion of
their annual salaries and bonuses. Currently, such deferred salaries and bonuses
must be invested in our common stock or a money market account until the
employee satisfies the stock ownership criteria established by the compensation
committee. After the stock ownership thresholds are met (the "target"), deferred
amounts may be invested in any equity indexed investment selected by the
compensation committee. Nuevo stock is acquired under the plan at a discount of
25% to the then current market price, and is subject to restrictions on
transfer.
The following table shows the target stock ownership amounts under our
Deferred Compensation Plan. The actual investment column includes investments in
Nuevo stock directly and indirectly in our 401(k) plan and deferred compensation
plan, but does not include shares which may be issued pursuant to stock options.
TARGET
NAME ACTUAL INVESTMENT INVESTMENT
- ---- ----------------- ----------
Douglas L. Foshee................ $1,026,357 $1,125,000
Robert M. King................... 735,752 400,000
Dennis A. Hammond................ 631,281 320,000
Michael P. Darden................ 351,120 310,000
Bruce K. Murchison............... 132,557 320,000
John P. McGinnis................. 89,762 280,000
TREATMENT OF OPTIONS UPON A CHANGE OF CONTROL
In 1999, the compensation committee approved a change to the treatment of
options when a change of control occurs. Under certain circumstances, in
connection with a change of control, if the exercise price of the options is
greater than the consideration to be received in the change of control
transaction, the option holder will be entitled to receive the Black-Scholes
model value of his or her options.
CHARLES M. ELSON, CHAIRMAN
ISAAC ARNOLD, JR.
DAVID H. BATCHELDER
GARY R. PETERSEN
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PERFORMANCE GRAPH
- --------------------------------------------------------------------------------
The following graph compares the yearly percentage change in our
cumulative total stockholder return on our common stock to the total return on
the New York Stock Exchange and the cumulative total return on a peer group of
oil and gas exploration companies selected by us from January 1, 1995 until
December 31, 1999.
[NUEVO ENERGY CHART]
- --------------------------------------------------------------------------------------------------------------------
1994 1995 1996 1997 1998 1999
- --------------------------------------------------------------------------------------------------------------------
Nuevo 100.00 124.31 288.89 226.39 63.89 104.17
NYSE Market Index 100.00 129.66 156.20 205.49 244.52 267.75
Peer group 1998 100.00 154.70 187.22 132.23 58.13 84.65
Peer group 1999 100.00 129.32 188.90 162.49 81.47 101.41
For our proxy this year and in future years, we will include a comparison
to a peer group. In 1998, in addition to the NYSE market index, we included a
comparison to a peer group composed of independent energy companies. Two of the
companies in our 1998 peer group reorganized under bankruptcy procedures and two
are no longer deemed comparable to our asset base. We have therefore changed our
peer group to include the following:
Belco Oil and Gas, Cross Timbers Oil Company, EEX Corporation, Forest
Oil, HS Resources, Inc., Newfield Exploration Company, Plains Resources Inc.,
Pogo Producing Company, Range Resources Corporation, Stone Energy Corporation
and Vintage Petroleum, Inc.
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- --------------------------------------------------------------------------------
PROPOSAL II: RATIFICATION OF THE SELECTION OF OUR
2000 AUDITORS:
The board of directors has appointed KPMG LLP ("KPMG"), independent
public accountants, for the examination of the accounts and audit of our
financial statements for the year ending December 31, 2000. KPMG also served in
such capacity for the year ended December 31, 1999. At the annual meeting, the
board of directors will present a proposal to the stockholders to approve and
ratify the engagement of KPMG. A representative of KPMG will be present and will
have the opportunity to make a statement, if he desires, and to respond to
appropriate questions. An adverse vote will be considered as a direction to our
audit committee to select other auditors in the following year.
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_ _ |
[X] PLEASE MARK YOUR | |
VOTES AS IN THIS | |
EXAMPLE |_ _ _ _
FOR all nominees WITHHOLD
listed below (except AUTHORITY
1. Election of as marked to the for all nominees
Directors contrary below) listed below
[ ] [ ]
NOMINEES FOR DIRECTOR: Isaac Arnold, Jr., Thomas D. Barrow,
David H. Batchelder, Charles M. Elson,
Douglas L. Foshee, Robert L. Gerry III,
Gary R. Petersen, David Ross III,
Robert W. Shower
(INSTRUCTION: To withhold authority to vote for one or more of the
nominees, write the name of the nominee in the space provided.)
-------------------------------------------------------------------
2. PROPOSAL to ratify the appointment of KPMG LLP as the Company's
independent auditors for the fiscal year ending December 31, 2000.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
3. In their discretion, the proxies are authorized to vote with respect to
approval of the minutes of the last meeting of stockholders, the election
of any person as a director if a nominee is unable to serve or for good
cause will not serve, matters incident to the conduct of the meeting, and
upon such other matters as may properly come before the meeting.
SIGNATURE(S) DATE 2000
-------------------------------------- -------------------
NOTE: Please sign this exactly as your name(s) appear(s) on this proxy. When
signing in a representative capacity, please give title. When shares are
held jointly, only one holder need sign.
29
REVOCABLE PROXY
NUEVO ENERGY COMPANY
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF NUEVO ENERGY
COMPANY ("COMPANY") FOR USE AT THE ANNUAL MEETING OF STOCKHOLDERS TO BE HELD ON
MAY 24, 2000 AND AT ANY OTHER ADJOURNMENT THEREOF.
The undersigned, being a stockholder of the Company as of April 5, 2000, hereby
authorizes Douglas L. Foshee and Robert M. King or any successors thereto as
proxies with full powers of substitution, to represent the undersigned at the
Annual Meeting of Stockholders of the Company to be held at the Four Seasons
Hotel, 1300 Lamar, Houston, Texas 77010, on Wednesday May 24, 2000 at 9:00
a.m., Central Daylight Time, and at any adjournment of said meeting, and
thereat to act with respect to all votes that the undersigned would be entitled
to cast, if then personally present, as follows:
The Board of Directors recommends that you vote FOR the Board of Directors'
nominees listed above and FOR Proposal 2. Shares of common stock of the Company
will be voted as specified. IF NO SPECIFICATION IS MADE, SHARES WILL BE VOTED
FOR THE ELECTION OF THE BOARD OF DIRECTORS' NOMINEES TO THE BOARD OF DIRECTORS,
AND FOR PROPOSAL 2, AND OTHERWISE AT THE DISCRETION OF THE PROXIES. THIS PROXY
MAY BE REVOKED AT ANY TIME BEFORE IT IS VOTED AT THE ANNUAL MEETING.
The undersigned hereby acknowledges receipt of a Notice of Annual Meeting of
the Stockholders of the Company called for May 24, 2000, a Proxy Statement for
the Annual Meeting and the 1999 Annual Report to Stockholders (which may have
been previously mailed).
PLEASE MARK, SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY
USING THE ENCLOSED ENVELOPE.