def14a
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
Filed by the Registrant þ
Filed by a Party other than the Registrant o
Check the appropriate box:
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Preliminary Proxy Statement |
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Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2)) |
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Definitive Proxy Statement |
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Definitive Additional Materials |
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Soliciting Material under § 240.14a-12 |
THE HOUSTON EXPLORATION COMPANY
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
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Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11. |
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Check box if
any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the
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THE HOUSTON EXPLORATION COMPANY
1100 Louisiana Street, Suite 2000
Houston, Texas 77002
March 17, 2006
TO OUR STOCKHOLDERS:
We cordially invite you to attend the Annual Meeting (the Annual Meeting) of Stockholders of
The Houston Exploration Company to be held on Friday, April 28, 2006, at 10:00 a.m., Central
Daylight Time, at the Four Seasons Hotel, 1300 Lamar, Houston, Texas 77010. The following items
are enclosed with respect to our Annual Meeting:
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Notice of the Annual Meeting |
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Proxy Statement |
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Proxy Card |
We encourage you to read all of the materials to learn about the business to come before the
meeting. Your participation is important, regardless of the number of shares you own. To ensure
your representation at the meeting, please promptly sign, date and return the accompanying proxy
card in the enclosed postage-paid envelope.
We look forward to seeing you on April 28th.
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Sincerely, |
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/s/ William G. Hargett |
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William G. Hargett |
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Chairman of the Board of Directors |
Notice of Annual Meeting of Stockholders
To Be Held
To the Stockholders of The Houston Exploration Company:
The Annual Meeting of Stockholders of The Houston Exploration Company will be held on
Friday, April 28, 2006, at 10:00 a.m., Central Daylight Time, at the Four Seasons Hotel,
1300 Lamar, Houston, Texas 77010, for the following purposes:
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To elect eight directors to our Board of Directors to serve
until our Annual Meeting in 2007; |
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To ratify our appointment of Deloitte & Touche LLP as our
independent public accountants for the fiscal year ending December 31, 2006;
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To consider any other business as may properly come before the
meeting or any adjournments thereof. |
Only stockholders of record at the close of business on March 9, 2006 are entitled to notice
of and to vote at the Annual Meeting.
It is important that your shares be represented at the Annual Meeting regardless of whether
you plan to attend. Therefore, please mark, sign and date the enclosed proxy card and return it in
the accompanying postage-paid envelope as promptly as possible. We recommend that you complete and
return a proxy even if you plan to attend the Annual Meeting; you will be free to revoke your proxy
and vote in person at the meeting if you wish.
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By Order of the Board of Directors, |
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/s/ Karol L. Adams |
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Karol L. Adams |
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Corporate Secretary |
Houston, Texas
March 17, 2006
Table of Contents
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THE HOUSTON EXPLORATION COMPANY
1100 Louisiana Street, Suite 2000
Houston, Texas 77002
PROXY STATEMENT
FOR
ANNUAL MEETING OF STOCKHOLDERS
To Be Held April 28, 2006
The Board of Directors (the Board) of The Houston Exploration Company (the Company) is
soliciting your proxy to be voted at the Annual Meeting of Stockholders to be held on Friday, April
28, 2006, at 10:00 a.m., Central Daylight Time, at the Four Seasons Hotel, 1300 Lamar, Houston,
Texas 77010, for the purposes set forth in the accompanying Notice of Annual Meeting of
Stockholders, and at any adjournments of the Annual Meeting. In this Proxy Statement, unless the
context requires otherwise, when we refer to we, us, our or the Company, we are describing
The Houston Exploration Company.
SOLICITATION AND REVOCABILITY OF PROXIES
If you complete and submit your proxy, the shares represented by your proxy will be voted at
the Annual Meeting in accordance with your instructions. If you submit a proxy but you do not fill
out the voting instructions on the proxy card, the shares represented by your proxy will be voted
as follows:
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FOR the election of the director nominees listed in Proposal Number 1: Election
of Directors on page 3; |
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FOR ratification of our appointment of Deloitte & Touche LLP as our independent
public accountants for the fiscal year ending December 31, 2006 described in
Proposal Number 2: Ratification of Independent Public Accountants on page 12. |
In addition, if other matters come before the Annual Meeting, the persons named as proxies
have discretionary authority to vote on those matters in accordance with their best judgment. The
Board of Directors is not currently aware of any other matters to come before the meeting.
You have the right to revoke your proxy at any time prior to its exercise, either in person at
the Annual Meeting or by written notice addressed to: Corporate Secretary, The Houston Exploration
Company, 1100 Louisiana Street, Suite 2000, Houston, Texas 77002. Your revocation of your proxy by
written notice will be effective only if the Corporate Secretary receives the notice prior to the
day of the Annual Meeting or the Inspector of Election receives the notice at the Annual Meeting.
Our principal executive offices are located at 1100 Louisiana Street, Suite 2000, Houston,
Texas 77002. We are mailing this Proxy Statement and the accompanying Notice of Annual Meeting of
Stockholders and form of proxy to our stockholders on or about March 17, 2006.
In addition to the solicitation of proxies by use of this Proxy Statement, our directors,
officers and employees may solicit the return of proxies by mail, personal interview, telephone or
facsimile. We will not pay additional compensation to our directors, officers or employees for
their solicitation efforts, but we will reimburse them for any outofpocket expenses they incur in
their solicitation efforts. We will request that brokerage houses and other custodians, nominees
and fiduciaries forward solicitation materials to the beneficial owners of stock registered in
their names. We have retained Georgeson Shareholder Communications, Inc. to assist us in
soliciting your proxy for an estimated fee of $7,500, plus reasonable out-of-pocket expenses.
Georgeson will ask brokerage houses and other custodians and nominees whether other persons are
beneficial owners of The Houston Exploration Company common stock. If so, we will supply them with
additional copies of the proxy materials for distribution to the beneficial owners. We will also
reimburse banks, nominees, fiduciaries, brokers and other custodians for their costs of sending the
proxy materials to the beneficial owners of The Houston Exploration Company common stock.
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We will bear all costs of preparing, printing, assembling and mailing the Notice of Annual
Meeting of Stockholders, this Proxy Statement, the enclosed form of proxy and any additional
materials, as well as the cost of forwarding solicitation materials to the beneficial owners of
stock and all other costs of solicitation.
PURPOSES OF THE MEETING
At the Annual Meeting, we will ask our stockholders to consider and act upon the following
matters:
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Election of eight directors for the 2006 term
ending at the Annual Meeting to be held in 2007; |
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Ratification of our appointment of Deloitte &
Touche LLP as our independent public accountants for the fiscal year
ending December 31, 2006; and |
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Any other business as may properly come before
the meeting or any adjournments thereof. |
QUORUM AND VOTING
Our Board of Directors has fixed the close of business on March 9, 2006 as the record date.
Only stockholders of record as of the record date will be entitled to vote at the Annual Meeting
and any adjournments thereof. As of the record date, we had issued and outstanding 29,071,130
shares of common stock, par value $0.01 per share.
Each holder of record of common stock will be entitled to one vote per share on each matter
that is called to vote at the Annual Meeting. Stockholders may not vote shares of common stock
cumulatively.
The holders of a majority of the outstanding shares of common stock must be present, either in
person or by proxy, to constitute a quorum at the Annual Meeting. We will count abstentions and
broker non-votes for purposes of determining whether a quorum is present.
Directors will be elected by a plurality of votes cast on Proposal Number 1. Consequently,
withholding authority to vote for a director nominee and broker non-votes in the election of
directors will not affect the outcome of the election of directors. All other proposals will be
decided by a majority vote of the votes cast with respect thereto. Because abstentions are not
counted as votes cast, they will have no effect on any vote, including as to the election of
directors. Similarly, broker non-votes will have no effect on the vote. Under the current rules
of the New York Stock Exchange (NYSE) in effect at the time of this Proxy Statement, if you hold
your shares through a broker and fail to provide your broker with specific voting instructions,
your broker is permitted to vote your shares on routine matters, which include the election of
directors and the ratification of independent public accountants.
Karol L. Adams and Steven L. Mueller will vote all forms of proxy that are properly completed,
signed and returned prior to the Annual Meeting in accordance with their instructions, and in their
discretion as to any other matters that may properly come before the meeting. You may revoke your
form of proxy at anytime prior to closing of the polls at the Annual Meeting by any of the
following methods:
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Filing a written revocation with the Corporate Secretary; |
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Executing and returning a proxy bearing a later date; or |
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Attending the Annual Meeting in person and expressing a desire to vote your shares in person. |
The Bank of New York, our transfer agent and registrar, will act as Inspector of Election and
preside over counting the votes.
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PROPOSAL NUMBER 1:
ELECTION OF DIRECTORS
Our Board of Directors is currently comprised of eight directors. The Board has nominated
each of the eight persons named below for election to the Board for the 2006 term, which expires at
the Annual Meeting of Stockholders to be held in 2007.
If, at the time of or prior to the Annual Meeting, any of the nominees are unable or decline
to serve, the persons named as proxies may use the discretionary authority provided in the proxy to
vote for a substitute or substitutes designated by the Board of Directors. The Board of Directors
has no reason to believe that any substitute nominee or nominees will be required.
Nominees for Election as Directors
The names and professional backgrounds of the nominees for election at the Annual Meeting are
set forth below.
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Robert B. Catell |
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69 |
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1986 |
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John U. Clarke |
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53 |
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2003 |
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David G. Elkins |
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64 |
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1999 |
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William G. Hargett |
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56 |
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2001 |
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Harold R. Logan, Jr. |
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61 |
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Thomas A. McKeever |
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62 |
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Stephen W. McKessy |
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68 |
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Donald C. Vaughn |
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70 |
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1997 |
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Robert B. Catell has been a director since 1986 and served as Chairman of the Board of
Directors from 1986 to June 2004. As a result of KeySpan Corporations reduced ownership in our
stock in June 2004, KeySpan reduced its representation on our Board of Directors, and Mr. Catell
resigned as Chairman of the Board, but continues to serve as a member of the Board. Mr. Catell is
the Chairman and Chief Executive Officer of KeySpan Corporation, a publicly traded diversified
energy provider, and has held this position since July 1998. Mr. Catell joined KeySpans
subsidiary, The Brooklyn Union Gas Company, in 1958 and was elected Assistant Vice President in
1974, Vice President in 1977, Senior Vice President in 1981 and Executive Vice President in 1984.
Mr. Catell was appointed Brooklyn Unions Chief Operating Officer in 1986 and President in 1990.
Mr. Catell served as President and Chief Executive Officer of Brooklyn Union from 1991 to 1996 when
he was elected Chairman and Chief Executive Officer and held these positions until the formation of
KeySpan in May 1998 through the combination of Brooklyn Unions parent company, KeySpan Energy
Corporation, and certain assets of Long Island Lighting Company. Mr. Catell serves on the Boards
of Alberta Northeast Gas, Ltd., Keyera Facilities Income Fund, Edison Electric Institute, New York
State Energy Research and Development Authority, Independence Community Bank Corp., the Business
Council of New York State, Inc., The Partnership for New York City, and is Chairman of the Board of
the Long Island Association. Mr. Catell received both his Bachelors and Masters Degrees in
Mechanical Engineering from City College of New York. He holds a Professional Engineers License
in New York State, and attended Columbia Universitys Executive Development Program and Harvard
Business Schools Advanced Management Program.
John U. Clarke became a director in December 2003. Since December 2004, Mr. Clarke has been
Chairman and Chief Executive Officer of NATCO Group Inc., a publicly traded oil services and
equipment company. From May 2001 to such time, Mr. Clarke was President of Concept Capital Group,
a financial and strategic advisory firm originally founded by Mr. Clarke in 1995. Immediately
prior to reestablishing the firm, Mr. Clarke was a managing director of SCF Partners, a private
equity investment company focused on the oil and gas services and equipment sectors of the energy
industry. From 1999 to June 2000, Mr. Clarke was Executive Vice President of Dynegy, Inc. where he
was also an Advisory Director and member of the Office of the Chairman. Mr. Clarke joined Dynegy
in April 1997 as Senior Vice President and Chief Financial Officer. Prior to joining Dynegy, Mr.
Clarke was a managing director and co-head of a specialty energy practice group with Simmons &
Company
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International, a Houston-based investment banking firm. From 1995 to 1997, he served as
president of Concept Capital Group. Mr. Clarke was Executive Vice President and Chief Financial and
Administrative Officer with Cabot
Oil and Gas from 1993 to 1995. He was with Transco Energy from 1981 to 1993 in various
capacities, last serving as Senior Vice President and Chief Financial Officer. Mr. Clarke is a
member of the Board of Directors of Harvest Natural Resources, a publicly traded international oil
and gas company. He is also Chairman of the Board of Directors of FuelQuest, a privately held
market service provider to the petroleum industry. He received a Bachelor of Arts Degree in
Economics from the University of Texas in 1975 and Master of Business Administration from Southern
Methodist University in 1976.
David G. Elkins has been a director since July 1999. In January 2003, Mr. Elkins retired
as President and Co-Chief Executive Officer of Sterling Chemicals, Inc., a chemicals producing
company. Sterling Chemicals commenced voluntary reorganization proceedings under Chapter 11 of the
Bankruptcy Code in July 2001 and successfully emerged in December 2002. Prior to joining Sterling
Chemicals in 1998, Mr. Elkins was a senior partner in the law firm of Andrews & Kurth L.L.P., where
he specialized in corporate and business law, including mergers and acquisitions, securities law
matters and corporate governance matters. Mr. Elkins serves as a director of ZiLOG, Inc. and
Memorial Hermann Hospital System. He received his J.D. degree from Southern Methodist University
in 1968.
William G. Hargett was appointed President and Chief Executive Officer and a director in April
2001, and was appointed Chairman of the Board of Directors in June 2004. Prior to joining Houston
Exploration, Mr. Hargett was a private investor. From May 1999 until August 2000, Mr. Hargett was
President-North America of Santa Fe Snyder Corporation. Prior to that he was President and Chief
Operating Officer and a director of Snyder Oil Corporation. Prior to joining Snyder Oil
Corporation in April 1997, Mr. Hargett served as President of Greenhill Petroleum Corporation, the
U.S. oil and gas subsidiary of Australian-based Western Mining Corporation, from 1994 to 1997, Amax
Oil & Gas, Inc. from 1993 to 1994 and North Central Oil Corporation from 1988 to 1993. Mr. Hargett
was employed in various exploration capacities by Tenneco Oil Corporation from 1974 to 1988 and
Amoco Production Company from 1973 to 1974. Mr. Hargett earned a B.S. and an M.S. from the
University of Alabama.
Harold R. Logan, Jr. was appointed to our Board of Directors in December 2002. Mr. Logan is
presently a Director and Chairman of the Finance Committee of the Board of Directors of
TransMontaigne Inc. and from 1995 through 2002 he was the Chief Financial Officer, Executive Vice
President and Treasurer and a Director of TransMontaigne. From 1985 to 1994, Mr. Logan was Senior
Vice President/Finance and a Director of Associated Natural Gas Corporation. Prior to joining
Associated Natural Gas Corporation, Mr. Logan was with Dillon, Read & Co. Inc. and Rothschild, Inc.
In addition, Mr. Logan is a Director of Suburban Propane Partners, L.P., Graphic Packaging
Corporation, Rivington Capital Advisors LLC, and Hart Energy Publishing LLP. Mr. Logan received a
B.S. in Economics from Oklahoma State University and an M.B.A. Finance from Columbia University
Graduate School of Business.
Thomas A. McKeever was appointed to our Board of Directors in February 2005. Mr. McKeever is
currently Chairman of Sempra Metals Group, a global metals trading business headquartered in
London, where he has served in that position since February 2002. From July 2001 to January 2002,
Mr. McKeever worked as a private consultant. From July 2000 to July 2001, he served as Vice
Chairman of Enron Europe Limited, a subsidiary of Enron Corp., an integrated provider of products
and services related to natural gas, electricity and communications, where he oversaw the
integration of MG plc, a metals trading group listed on the London Stock Exchange, into Enron
Europe. Mr. McKeever resigned from Enron Europe in July 2001. MG plc was spun off from
Metallgesellschatf Group, a German-based metals and engineering group, in September 1999 via an
initial public offering. Mr. McKeever served as Executive Chairman of MG plc until its acquisition
by Enron Europe in July 2000. From 1994 until September 1999, Mr. McKeever worked in various
capacities for the Metallgesellschaft Group. From 1977 to 1994, Mr. McKeever worked at AMAX, Inc.,
a global metals and energy producer. At AMAX he served in a variety of positions, including
Executive Vice President and Board member. From 1973 to 1976, Mr. McKeever was employed at JWP, a
utility holding company in Long Island, New York. From 1965 to 1972 Mr. McKeever worked at Arthur
Andersen, New York. Mr. McKeever received a Bachelor of Science degree from Fordham University in
1965 and a Certified Public Accountant license from New York State in 1968.
Stephen W. McKessy was elected to our Board of Directors in July 2003. Mr. McKessy is a
retired partner of PricewaterhouseCoopers. He was admitted to the partnership as a tax partner and
subsequently became the firms National Director of State and Local Taxes. Thereafter, and during
his 37 years with the firm, he held various management positions. He was the Managing Partner of
the Stamford Office and then became the Managing
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Partner of the New York office and region. He was
elected to the firms Executive Committee and became Deputy Chairman of U.S. operations. He
concluded his career at the firm as Vice Chairman Client Services. He is a
member of the Board of Directors of KeySpan Corporation where he serves as the Lead Director.
He also serves on the Executive Committee, the Audit Committee and the Compensation & Management
Development Committee. He graduated from St. Johns University in New York where he now serves as a
member of the College of Business Administration Board of Advisors. He also serves as a director
of the Greater New York Boy Scouts of America.
Donald C. Vaughn has been a Director since 1997 and is retired Vice Chairman of Halliburton
Company, a publicly traded oilfield services company, where he served in that capacity from the
time Dresser Industries, Inc. merged with Halliburton in 1998 until his retirement on March 2001.
Prior to the merger, Mr. Vaughn was President, Chief Operating Officer and member of the board of
directors of Dresser starting in 1996. Prior to his appointment as President and Chief Operating
Officer of Dresser, Mr. Vaughn served as Executive Vice President of Dresser, responsible for
Dressers Petroleum Products and Services and Engineering Services Segment from November 1995 to
December 1996; Senior Vice President of Operations of Dresser from January 1992 to November 1995;
and Chairman, President and Chief Executive Officer of The M.W. Kellogg Company, an international
engineering and construction company, from November 1983 to June 1996. Mr. Vaughn joined M.W.
Kellogg in 1958 and is a registered Professional Engineer (inactive) in the State of Texas. He has
been recognized as a distinguished engineering alumnus of Virginia Polytechnic Institute, from
which he holds a B.S. in civil engineering. Mr. Vaughn serves as a director of SHAWCOR Ltd., a
publicly traded Canadian oil service company.
OUR
BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR THE
ELECTION OF EACH OF THE EIGHT NOMINEES. FORMS OF PROXY EXECUTED AND RETURNED WILL BE VOTED FOR ALL EIGHT NOMINEES UNLESS THE FORM OF PROXY SPECIFIES OTHERWISE.
Director Compensation
The Compensation and Management Development Committee periodically reviews the Companys
director compensation practices and compares them to the practices of the Companys peers with the
assistance of an independent outside consultant. In performing this review, the Committee focuses
on ensuring that the Companys non-management directors have a proprietary stake in the Company and
that the interests of the directors continue to be closely aligned with the interests of the
Companys stockholders. The Committee believes that the Companys total director compensation
package continues to be competitive with the compensation offered by other companies and is fair
and appropriate in light of the responsibilities and obligations of the Companys non-employee
directors.
Effective as of January 1, 2006, each director who is not an employee or officer of the
Company (non-employee director) receives an annual retainer of $40,000. Each non-employee
director also receives $1,500 per Board meeting attended and $1,500 per committee meeting attended.
Additionally, the chairman of the Audit Committee receives an additional annual retainer of
$10,000 and all other committee chairmen receive an additional $5,000 annual retainer.
Effective as of January 1, 2006, each non-employee director is no longer eligible to receive
grants of nonqualified stock options. However, non-employee directors will continue to receive
automatic grants of restricted stock each year, except that such grants will be made as of the date
of the Companys Annual Meeting of Stockholders and the number of shares received by each
non-employee director will be calculated by dividing $100,000 by the closing price of the Companys
common stock on the date of grant, with a three-year vesting period. The grants are made under the
Companys Amended and Restated 2004 Long-Term Incentive Plan (the 2004 LTIP).
Prior to January 1, 2006, each non-employee director was paid an annual retainer of
$30,000. Each non-employee director also received $1,500 per Board meeting attended and
$1,000 per committee meeting attended. Additionally, the chairman of the Audit Committee received
an additional annual retainer of $7,500 and all other committee chairmen received an additional
$3,000 annual retainer. In addition to cash fees, prior to January 1, 2006, non-employee directors
received automatic awards of stock options to purchase 2,000 shares of our common stock and were
granted 2,000 shares of restricted common stock annually. Options granted to non-employee
directors were priced at the fair market value of the underlying shares on the date of grant and
were fully vested and exercisable when granted. With respect to restricted stock granted prior to
January 1, 2006, transfer is restricted until the earlier of five years or termination by reason of
death, disability or retirement from the Board.
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The Board has discretion to remove any transfer restrictions on restricted stock in the case
of any other circumstance deemed appropriate by the Board.
All retainers and meeting fees are payable in cash, but can be deferred at the option of the
director under our Deferred Compensation Plan for Non-Employee Directors, which was amended in 2005
in order to comply with provisions added to the Internal Revenue Code by the American Jobs Creation
Act of 2004. Deferred compensation earns interest at not less than the prime interest rate or, at
the directors election, is deemed to be invested in shares of phantom stock, without any voting or
similar rights incident to ownership of our common stock, in accordance with such Deferred
Compensation Plan.
CORPORATE GOVERNANCE
Corporate Governance Guidelines
Our Board of Directors has adopted comprehensive Corporate Governance Guidelines, which were
amended in January 2006, outlining the functions and responsibilities of the Board, and various
processes and procedures designed to ensure effective and responsive corporate governance. The
Companys Nominating and Governance Committee reviews these guidelines periodically in response to
changing regulatory requirements and best practices and revises them accordingly. Our Corporate
Governance Guidelines are designed to conform to all rules and regulations of the NYSE and the
Securities and Exchange Commission (SEC). Our Corporate Governance Guidelines are available
under the Corporate Governance section of our website at www.houstonexploration.com and
are also available upon request, without charge, by contacting the Corporate Secretary at The
Houston Exploration Company, 1100 Louisiana Street, Suite 2000, Houston, TX 77002.
Board Size and Composition
Our Board of Directors is currently comprised of eight directors. The Board has nominated
eight persons for election to the Board for the 2006 term, which expires at the Annual Meeting of
Stockholders to be held in 2007.
Independence of Board Members
To promote effective corporate governance, a majority of the members of our Board qualify as
independent under criteria established by the NYSE. The Nominating and Governance Committee
regularly reviews the independence and qualifications of each member of the Board and its various
Committees. Directors are deemed independent only if the Board affirmatively determines that they
have no material relationship with the Company, directly or as an officer, share owner or partner
of an organization that has a relationship with the Company. The Board observes all criteria for
independence established by the NYSE and the SEC.
As contemplated by NYSE listing standards, our Board adopted categorical standards to assist
it in making independence determinations. A copy of the Board of Directors Standards of
Independence is attached to this Proxy Statement as Appendix A and is available under the
Corporate Governance section of our website at www.houstonexploration.com. These
Independence Standards specify the relationships that the Board deems sufficiently material to
create the presumption that a director is not independent. The presumption that any director is
not independent may be overcome by the vote of a majority of the Board if, based on the totality of
the facts and circumstances, the Board determines that the affected directors relationship does
not violate any applicable law or NYSE or SEC regulations and is not in fact material.
Consistent with these considerations, after review of all relevant transactions and/or
relationships between each director, or any of his family members, and the Company, its senior
management and its independent auditors, the Board of Directors has affirmatively determined that
six of the current directors and nominees for election, Messrs. Clarke, Elkins, Logan, McKeever,
McKessy, and Vaughn are independent. William G. Hargett, our Chairman, President and Chief
Executive Officer, and Robert B. Catell are not independent. Mr. Catell serves as Chairman and
Chief Executive Officer of KeySpan Corporation which, prior to November 24, 2004, owned at least
24% of our common stock. Notwithstanding that KeySpan has divested all of its holdings in the
Company, under NYSE rules, Mr. Catell cannot be deemed independent until 2007, although Mr. Catell
satisfies all other NYSE criteria relating to independence.
-6-
John U. Clarke serves as Chairman and Chief Executive Officer of NATCO Group, a publicly
traded oil field services and equipment company. During 2005, 2004 and 2003 we purchased services
and supplies from NATCO for $1.3 million, $0.9 million and $1.1 million, respectively. These
payments are below the materiality
thresholds, for both The Houston Exploration Company and NATCO Group, as set forth in NYSE
independence standards for at least the past four fiscal years and Mr. Clarke meets all
requirements of the NYSE to be considered an independent director of our Company. After a review
of the relevant information concerning these payments, the Board of Directors determined that they
do not constitute a material relationship that affects Mr. Clarkes independence.
Standing Committees of the Board of Directors
Our Board of Directors has created four standing committees:
|
|
|
Audit Committee |
|
|
|
|
Nominating and Governance Committee |
|
|
|
|
Compensation and Management Development Committee |
|
|
|
|
Executive Committee. |
Committee Assignments and Meeting Attendance
The following table reflects the members of each of the Boards committees and the number of
meetings during 2005:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
COMPENSATION AND |
|
|
|
|
|
|
|
|
NOMINATING AND |
|
MANAGEMENT |
|
|
|
|
AUDIT |
|
GOVERNANCE |
|
DEVELOPMENT |
|
EXECUTIVE |
Robert B. Catell |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
X |
|
John U. Clarke* (1) |
|
XX |
|
|
|
|
|
|
X |
|
|
|
|
|
David G. Elkins* |
|
|
X |
|
|
|
X |
|
|
|
|
|
|
|
|
|
William G. Hargett |
|
|
|
|
|
|
|
|
|
|
|
|
|
XX |
Thomas A. McKeever* |
|
|
|
|
|
|
|
|
|
|
X |
|
|
|
|
|
Stephen W. McKessy* |
|
|
X |
|
|
|
X |
|
|
|
|
|
|
|
|
|
Harold R. Logan, Jr.* |
|
|
X |
|
|
XX |
|
|
|
|
|
|
X |
|
Donald C. Vaughn* |
|
|
|
|
|
|
X |
|
|
XX |
|
|
|
|
|
Number of Meetings Held in 2005 |
|
|
8 |
|
|
|
5 |
|
|
|
6 |
|
|
|
1 |
|
|
|
|
|
* |
|
Independent Directors |
(1) |
|
Audit Committee Financial Expert |
|
|
|
X Committee Member |
|
|
|
XX Committee Chairman |
Committee Functions
Audit Committee
The Audit Committees purpose is to assist the Board of Directors in fulfilling its
responsibilities to oversee management activities related to accounting and financial reporting
policies, internal controls, auditing practices and related legal and regulatory compliance. In
that connection, the Audit Committee is directly responsible for the appointment, compensation,
retention and oversight of the work of our independent public accountants for the purposes of
preparing or issuing an audit report or performing other audit, review or attest services. The
Audit Committee determines the independence of our independent public accountants, and our
independent public accountants report directly to the Audit Committee, which also must review and
pre-approve the current years audit and non-audit fees. The Committee has the authority to
select, retain and/or replace as needed, consultants to provide independent advice to the
Committee.
-7-
The Audit Committee operates under a charter that is available under the Corporate
Governance section of the Companys website at www.houstonexploration.com and also upon
request, without charge, by contacting the Corporate Secretary at The Houston Exploration Company,
1100 Louisiana Street, Suite 2000, Houston, TX 77002.
The Audit Committee Charter prescribes the Committees responsibilities, which include the
following:
|
|
|
Maintaining our compliance with legal and regulatory requirements relating to
financial reporting accounting and controls |
|
|
|
|
Overseeing our whistleblower procedures |
|
|
|
|
Overseeing the pre-approval of audit fees |
|
|
|
|
Appointing and overseeing our independent public accountants |
|
|
|
|
Overseeing our internal audit function |
|
|
|
|
Overseeing the integrity of our financial reporting processes, both internal and external |
|
|
|
|
Assessing the effect of regulatory and accounting initiatives, as well as any
off-balance sheet structures, on our financial statements |
|
|
|
|
Reviewing our earnings press releases and guidance |
|
|
|
|
Performing an annual self-assessment of its effectiveness |
|
|
|
|
Overseeing our risk analysis and risk management procedures |
|
|
|
|
Resolving any disagreements between management and the independent public
accountants regarding financial reporting. |
All members of the Audit Committee satisfy all NYSE criteria for independence and meet all
financial literacy and other NYSE requirements for Committee service. The Board has determined
that John U. Clarke is an audit committee financial expert as defined by the rules of the SEC.
The Audit Committees report for 2005 appears on page 13 of this Proxy Statement under Report
of the Audit Committee of the Board of Directors.
Nominating and Governance Committee
The Nominating and Governance Committees purpose is to assist the Board of Directors in
promoting the interests of the Company and its stockholders through the implementation of sound
corporate governance principles and practices. In that connection, the Nominating and Governance
Committee is responsible for establishing the standards and process for the selection of
individuals to serve on the Board and developing and implementing policies and practices relating
to corporate governance. The Nominating and Governance Committee operates under a charter that was
amended in January 2006 and is available under the Corporate Governance section of the Companys
website at www.houstonexploration.com or upon request, without charge, by contacting the
Corporate Secretary at The Houston Exploration Company, 1100 Louisiana Street, Suite 2000, Houston,
TX 77002. The Nominating and Governance Committee Charter prescribes the Committees
responsibilities, which include the following:
|
|
|
Reviewing the independence of all Board and committee members on a regular basis |
|
|
|
|
Recommending changes in the size or composition of the Board or any of its
various committees |
|
|
|
|
Reviewing our certificate of incorporation, bylaws, and committee charters, and
recommending such amendments thereto as it may deem necessary or appropriate |
|
|
|
|
Reviewing our Corporate Governance Guidelines and ensuring compliance with NYSE
and SEC guidelines and regulations. |
|
|
|
|
Overseeing the annual self-assessment performed by the Board and each committee |
|
|
|
|
Receiving stockholder proposals and recommending action with respect thereto |
-8-
|
|
|
Recommending such additional actions related to corporate governance matters as
the Committee may deem necessary or appropriate from time to time. |
The Committee has the authority for the appointment, termination, compensation and oversight
of special legal counsel, firms and other advisors and consultants to advise and assist the
Committee in carrying out its responsibilities or exercising its powers.
The Board of Directors has determined that all members of the Nominating and Governance
Committee meet the NYSE standards for independence.
Compensation and Management Development Committee
The purpose of the Compensation and Management Development Committee is to be responsible for
reviewing all aspects of development and compensation of our Board and executive officers. The
Compensation and Management Development Committee operates pursuant to a charter that is available
under the Corporate Governance section of the Companys website at
www.houstonexploration.com or upon request, without charge, by contacting the Corporate
Secretary at The Houston Exploration Company, 1100 Louisiana Street, Suite 2000, Houston, TX 77002.
The Compensation and Management Development Committee Charter prescribes the Committees
responsibilities, which include the following:
|
|
|
Assisting the Board in developing and evaluating potential candidates for
executive positions |
|
|
|
|
Reviewing and approving on an annual basis the corporate goals and objectives
with respect to the chief executive officer |
|
|
|
|
Reviewing and approving on an annual basis the evaluation process and
compensation structure for the Companys executive officers |
|
|
|
|
Reviewing the Companys incentive compensation and other stock-based plans and
recommending changes to such plans to the Board |
|
|
|
|
Overseeing the establishment and administration of the Companys benefit
programs |
|
|
|
|
Preparing and publishing an annual executive compensation report in the
Companys Proxy Statement. |
The Committee has the authority to retain compensation consultants, outside counsel and other
advisors as the Committee deems appropriate in its sole discretion. In this regard, the Committee
has retained Towers Perrin to act as an independent compensation consultant reporting directly to
the Committee to advise and consult on compensation issues.
The Board of Directors has determined that all members of the Compensation and Management
Development Committee meet NYSE standards for independence.
Executive Committee
The Executive Committee is vested with all power and authority of the Board of Directors in
the management or direction of our business and affairs during intervals when it is not practicable
to assemble the entire Board, except as to those matters that are expressly reserved to the Board
of Directors, delegated to another Committee or prohibited by the Restated Bylaws or applicable
law.
Qualifications for Nominations to the Board of Directors
The Nominating and Governance Committee independently identifies qualified candidates for
nomination to the Board of Directors and evaluates, in the same manner as all other candidates, the
qualifications of all candidates that stockholders properly recommend for nomination. All
candidates are considered under the Qualifications for Nominations to the Board of Directors Policy
which is attached to this Proxy Statement as Appendix B and is available under the Corporate
Governance section of the Companys website at
-9-
www.houstonexploration.com. In addition, the Company has an established process for the
selection of nominees as described in Item 8 of the Corporate Governance Guidelines. Nominees are
evaluated based on their background, experience and other relevant factors described in the
Qualifications for Nominations to the Board of Directors Policy. Stockholders desiring to make
Board of Director candidate recommendations for the 2006 Annual Meeting should have submitted such
nominations between 120 and 150 days in advance of the first anniversary of the mailing of the
previous years Proxy Statement in accordance with our Restated Bylaws and Corporate Governance
Guidelines to: Corporate Secretary, The Houston Exploration Company, 1100 Louisiana St., Suite
2000, Houston, Texas 77002. No such recommendations were received.
Commencing with the annual meeting of stockholders to be held in 2007, to be timely, a
stockholder wishing to recommend candidates for our Board of Directors must submit such nomination
so that it is received at our principal executive office not less than 60 days nor more than 90
days in advance of the first anniversary of the date of mailing of the Companys proxy statement
for the previous year in accordance with our Restated Bylaws and Corporate Governance Guidelines
to: Corporate Secretary, The Houston Exploration Company, 1100 Louisiana St., Suite 2000, Houston,
Texas 77002.
Each of the current nominees for director listed under the caption Proposal Number 1:
Election of Directors is an existing director standing for re-election. The Company has not paid
any fee to a third-party to identify, evaluate, or assist in identifying or evaluating potential
nominees. In connection with the 2006 Annual Meeting, the Nominating and Governance Committee did
not receive any recommendation for a nominee proposed from any stockholder or group of
stockholders.
Executive Sessions of the Board
Our Corporate Governance Guidelines require our non-management directors to meet in executive
session in conjunction with each of the Boards regularly scheduled meetings and our independent
directors to meet alone in special session at least once each calendar year. Executive sessions
including only non-management directors are chaired by the Chairman of the Audit Committee,
currently John U. Clarke. The Chairman of the Nominating and Governance Committee, currently
Harold R. Logan, Jr., presides over executive sessions of only independent directors.
Director Orientation and Continuing Education
The Board of Directors has adopted a Director Education Policy that encourages all directors
to pursue formal ongoing education and development studies on topics that they deem relevant given
their individual backgrounds and committee assignments on the Board. Our Director Education Policy
is available under the Corporate Governance section of our website at
www.houstonexploration.com. The Nominating and Governance Committee is authorized to make
such director educational recommendations to individual directors as the Committee deems in the
best interests of effective stewardship and Board operation. The directors are provided with
continuing education materials covering upcoming seminars and conferences.
Board of Directors Committee Meeting Attendance and Annual Meeting Attendance
Our Corporate Governance Guidelines dictate that directors use all reasonable efforts to
attend all meetings of stockholders, the Board and all Committees on which they serve unless
impracticable or excused. During 2005, our Board of Directors met 16 times. All directors
attended at least 75 percent of the aggregate number of meetings of our Board of Directors and
meetings of Committees on which they served. In addition, all members of the Board attended the
2005 Annual Meeting of Stockholders.
Communications Between Stockholders and the Board of Directors
Our Corporate Governance Guidelines permit stockholders to communicate in writing directly
with our Board of Directors or individual Board members. Correspondence should be addressed to the
intended recipient, c/o Corporate Secretary, The Houston Exploration Company, 1100 Louisiana, Suite
2000, Houston, Texas 77002.
All communications received as described above and intended for the Board of Directors as a
group or any director individually will be relayed to the appropriate directors.
-10-
Code of Business Conduct and Code of Ethics for Senior Financial Officers
All of our employees, officers and directors are required to comply with the Companys
longstanding Code of Business Conduct to help ensure that the Companys business is conducted in
accordance with the highest standards of moral and ethical behavior. Our Code of Business Conduct
covers all areas of professional conduct including:
|
|
|
Conflicts of interest |
|
|
|
|
Customer relationships |
|
|
|
|
Insider trading of our securities |
|
|
|
|
Financial disclosure |
|
|
|
|
Protection of confidential information |
|
|
|
|
Strict legal and regulatory compliance. |
Our employees, officers and directors are required to certify their compliance with our Code of
Business Conduct Statement once each year.
In addition to the Code of Business Conduct, all members of our senior financial management,
including our Chief Executive Officer, have agreed in writing to our Code of Ethics for Senior
Financial Officers, which prescribes additional ethical obligations pertinent to the integrity of
our internal controls and financial reporting process, as well as the overall fairness of all
financial disclosures.
The full text of our Code of Business Conduct and the Code of Ethics for Senior Financial
Officers, which were both amended in 2005, can be found under the Corporate Governance section of
our website at www.houstonexploration.com, and a copy will be provided, without charge,
upon request by contacting the Corporate Secretary at The Houston Exploration Company, 1100
Louisiana Street, Suite 2000, Houston, TX 77002.
-11-
PROPOSAL NUMBER 2:
RATIFICATION OF INDEPENDENT PUBLIC ACCOUNTANTS
Our Audit Committee has appointed the firm of Deloitte & Touche LLP (Deloitte) as our
independent public accountants to audit our accounts for the fiscal year ending December 31, 2006.
Deloitte served as our independent public accountants for the fiscal year ended December 31, 2005.
While the Audit Committee is responsible for the appointment, compensation, retention, termination
and oversight over the independent public accountants, we are requesting, as a matter of good
corporate governance, that the stockholders ratify the appointment of Deloitte to audit the books,
records and accounts of the Company for the year ending December 31, 2006.
If the stockholders fail to ratify the selection, the Audit Committee will reconsider whether
to retain Deloitte and may retain that firm or another without re-submitting the matter to our
stockholders. Even if the appointment is ratified, the Audit Committee may, in its discretion,
direct the appointment of different independent public accountants at anytime during the year if it
determines that such change would be in the best interest of our stockholders.
Representatives of Deloitte will be present at the Annual Meeting to respond to appropriate
questions and to make such statements as they may desire.
Fees Billed by Independent Public Accountants
The following table provides a summary of fees for professional services performed by Deloitte
for the audit of our financial statements for the years ended December 31, 2005 and 2004, together
with fees billed for other services:
|
|
|
|
|
|
|
|
|
|
|
Fees Paid |
|
|
Fees Paid |
|
Services Rendered |
|
2005 |
|
|
2004 |
|
Audit fees |
|
$ |
693,750 |
(1) |
|
$ |
826,593 |
(2) |
Audit related fees |
|
|
126,103 |
(3) |
|
|
63,898 |
(4) |
Tax fees |
|
|
|
|
|
|
|
|
All other fees |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
819,853 |
|
|
$ |
890,491 |
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Includes our annual financial statement audit including our Sarbanes-Oxley
Section 404 Certification. |
|
(2) |
|
Includes (i) our annual financial statement audit $275,000; (ii) review of our
Sarbanes-Oxley Section 404 Certification $340,130; and (iii) review of various Prospectus
Supplements, Form S-3 Registration Statement and amended quarterly reports $211,463. |
|
(3) |
|
Includes (i) the review of our annual Employee Incentive Compensation Bonus Plan
calculation $18,500; (ii) the audit of our 401(k) Plan $22,000; (iii) review of a
derivative transaction $46,515; and (iv) review of various potential acquisitions and
dispositions $39,088. |
|
(4) |
|
Includes (i) the review of our annual Employee Incentive Compensation Bonus Plan
calculation $21,000; (ii) the audit of our 401(k) Plan $26,250; and (iii) review of our
accounting under Statements of Financials Accounting Standards No. 133 Accounting for
Derivative Instruments and Hedging Activities $16,648. |
The Audit Committee has reviewed the nature and scope of the services provided by
Deloitte and considers the services provided to have been compatible with the maintenance of
Deloittes independence throughout its service to our Company.
The Audit Committee has determined that the scope of services to be provided by Deloitte in
2006 will generally be limited to audit and audit related services. The Audit Committee must
expressly approve the provision of any services by Deloitte outside the scope of the foregoing
services.
THE
BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR PROPOSAL NUMBER 2. PROXIES EXECUTED AND RETURNED WILL BE VOTED FOR PROPOSAL NUMBER 2 UNLESS THE PROXY SPECIFIES OTHERWISE.
-12-
Pre-Approval Policies and Procedures
The Audit Committee has adopted guidelines for the pre-approval of audit and permitted
non-audit services by the Companys independent public accountants. The Audit Committee will
consider annually and, if appropriate, approve the provision of audit services by its independent
public accountants and consider and, if appropriate, pre-approve the provision of certain defined
audit and non-audit services. The Audit Committee will also consider on a case-by-case basis and,
if appropriate, approve specific engagements that are not otherwise pre-approved. The Audit Fee
Pre-Approval Policy adopted by the Audit Committee is available under the Corporate Governance
section of our website at www.houstonexploration.com. Any proposed engagement that does
not fit within the definition of a pre-approved service may be presented to the Chairman of the
Audit Committee. The Chairman of the Audit Committee will report any specific approval of services
at its next regular meeting. The Audit Committee will review a summary report detailing all
services being provided to the Company by its independent public accountants. All of the fees and
services described above under audit fees, audit-related fees, tax fees and all other fees
were pre-approved by the Audit Committee under the Audit Fee Pre-Approval Policy and pursuant to
Section 202 of the Sarbanes-Oxley Act of 2002.
REPORT OF THE AUDIT COMMITTEE OF THE BOARD OF DIRECTORS
The Audit Committees purpose is to assist the Board of Directors in fulfilling its
responsibilities to oversee management activities related to accounting and financial reporting
policies, internal controls, auditing practices and related legal and regulatory compliance. In
that connection, the Committee reviews and reports to the Board of Directors with respect to
various auditing and accounting matters, including overseeing the integrity of the quarterly and
annual financial statements of the Company; the compliance by the Company with legal and regulatory
requirements; the selection, and annual review of independence, qualifications, performance and
compensation of the Companys independent public accountants; the performance of the Companys
internal audit function; the review and pre-approval of the current year audit and non-audit fees;
compliance with the business practices and ethical standards of the Company; and overseeing the
Companys risk analysis and risk management. The Audit Committee also performs an annual
self-assessment of its effectiveness and reviews its charter annually. This is a report on the
Audit Committees activities relating to the year ended December 31, 2005.
The Audit Committee is composed of four independent directors. The Board of Directors has made
a determination that each member of the Audit Committee is independent and financially literate as
required by the Sarbanes-Oxley Act of 2002 and applicable SEC and NYSE rules. The Board has also
determined that one or more members of the Audit Committee has accounting or related financial
management expertise. The Board determined that Mr. John U. Clarke is an audit committee
financial expert as defined by rules of the SEC.
The Audit Committee operates pursuant to a charter that can be found on the Companys website
at www.houstonexploration.com under the Corporate Governance section. In addition, a
copy of the Audit Committee Charter will be provided, without charge, upon request by contacting
the Corporate Secretary at The Houston Exploration Company, 1100 Louisiana Street, Suite 2000,
Houston, TX 77002.
As set forth in the charter, management of the Company is responsible for the preparation,
presentation and integrity of the Companys financial statements, and for the procedures designed
to assure compliance with accounting standards and applicable laws and regulations. The
independent public accountants are responsible for auditing the Companys financial statements and
expressing an opinion as to their conformity with generally accepted accounting principles.
The members of the Audit Committee are not professionally engaged in the practice of auditing
or accounting and are not experts in the fields of accounting or auditing, including the issue of
auditor independence. Members of the Committee rely, without independent verification, on the
information provided to them and on the representations made by management and the independent
public accountants. Accordingly, the Audit Committees oversight does not provide an independent
basis to determine that management has maintained appropriate accounting and financial reporting
principles or appropriate internal controls and procedures designed to assure compliance with
accounting standards and applicable laws and regulations. Furthermore, the Audit Committees
considerations and discussions referred to above do not assure that the audit of the Companys
financial statements has been carried out in accordance with generally accepted auditing standards,
that the financial statements are presented in accordance with generally accepted accounting
principles or the Companys independent public accountants are in fact independent.
-13-
The Committee met eight times during 2005. At least once each quarter the Committee meets in
executive sessions with the Companys independent public accountants without the presence of the
Companys management.
In performing its oversight function, the Committee reviews and discusses with management and
the independent public accountants the annual audited financial statements and quarterly operating
results prior to their issuance. During 2005, management advised the Committee that the financial
statements reviewed had been prepared in accordance with generally accepted accounting principles,
and reviewed significant accounting and disclosure issues with the Committee. These reviews
included discussion with the independent public accountants of matters required to be discussed
pursuant to Statement on Auditing Standards No. 61, Communication with Audit Committees, as
modified or supplemented. The Committee has received the written disclosures from the independent
public accountants required by Independence Standards Board Standard No. 1, Independence
Discussions with Audit Committees, as currently in effect and has discussed such independence with
the independent public accountants. The Committee also reviewed the requirements and the Companys
compliance with the requirements of Section 404 of the Sarbanes-Oxley Act of 2002 and related
regulations.
Based on its reviews and discussions, the Audit Committee recommended to the Board of
Directors that the Board approve the inclusion of the Companys audited financial statements in the
Companys Annual Report on Form 10-K for the year ended December 31, 2005 for filing with the SEC.
The following members of the Audit Committee have given this report:
John U. Clarke Chairman
David G. Elkins Committee Member
Harold R. Logan, Jr. Committee Member
Stephen W. McKessy Committee Member
This report of the Audit Committee will not be deemed incorporated by reference by any general
statement incorporating this Proxy Statement by reference into any filing under the Securities Act
of 1933, as amended, or the Securities Exchange Act of 1934, as amended, except to the extent that
we specifically incorporate the Audit Committee Report by reference, and will not otherwise be
deemed filed under those Acts.
-14-
EXECUTIVE MANAGEMENT
Executive Officers
The following information concerns our executive officers as of March 17, 2006, including the
business experience of each during the past five years:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Executive |
|
|
Name |
|
Age |
|
Since |
|
Office |
William G. Hargett
|
|
|
56 |
|
|
|
2001 |
|
|
Chairman, President and Chief Executive Officer |
Steven L. Mueller
|
|
|
53 |
|
|
|
2001 |
|
|
Executive Vice President and Chief Operating Officer |
Robert T. Ray
|
|
|
45 |
|
|
|
2006 |
|
|
Senior Vice President and Chief Financial Officer |
Roger B. Rice
|
|
|
61 |
|
|
|
2002 |
|
|
Senior Vice President Administration |
Jeffrey B. Sherrick
|
|
|
52 |
|
|
|
2005 |
|
|
Senior Vice President Business Development |
John E. Bergeron, Jr.
|
|
|
48 |
|
|
|
2005 |
|
|
Vice President and General Manager Southern Division |
Joanne C. Hresko
|
|
|
44 |
|
|
|
2004 |
|
|
Vice President and General Manager Northern
Division |
James F. Westmoreland
|
|
|
50 |
|
|
|
1986 |
|
|
Vice President and Chief Accounting Officer |
William G. Hargett was appointed President and Chief Executive Officer and a Director in April
2001 and was appointed Chairman of the Board of Directors in June 2004. Prior to joining Houston
Exploration and from September 2000, Mr. Hargett was a private investor. From May 5, 1999 until
August 29, 2000, Mr. Hargett was President-North America of Santa Fe Snyder Corporation. Prior to
that he was President and Chief Operating Officer and a director of Snyder Oil Corporation. Prior
to joining Snyder Oil Corporation in April of 1997, Mr. Hargett served as President of Greenhill
Petroleum Corporation, the U.S. oil and gas subsidiary of Australian-based Western Mining
Corporation from 1994 to 1997, Amax Oil & Gas, Inc. from 1993 to 1994 and North Central Oil
Corporation from 1988 to 1993. Mr. Hargett was employed in various exploration capacities by
Tenneco Oil Corporation from 1974 to 1988 and Amoco Production Company from 1973 to 1974. Mr.
Hargett earned a B.S. and an M.S. from the University of Alabama.
Steven L. Mueller was appointed Executive Vice President and Chief Operating Officer in
November 2004. Mr. Mueller joined the Company in 2001 as Senior Vice President and General Manager
- Onshore Division. Immediately prior to joining Houston Exploration, Mr. Mueller had been Senior
Vice President Exploration and Production for Belco Oil and Gas Corp. Mr. Mueller joined Belco
Oil and Gas Corp. in 1996 and held various senior management positions involving oil and gas
exploration. From 1992 to 1996 Mr. Mueller was Exploitation Vice President for American Exploration
Company. From 1988 to 1992, Mr. Mueller was Exploration Manager South Louisiana for Fina Oil and
Chemical Company. Mr. Mueller began his career with Tenneco Oil Corporation in 1975 and held
various geological and engineering positions with Tenneco from 1975 to 1988. Mr. Mueller received
his B.S. in Geological Engineering from the Colorado School of Mines in 1975.
Robert T. Ray was appointed Senior Vice President and Chief Financial Officer on January 18,
2006. Prior to joining Houston Exploration, Mr. Ray was employed as Senior Vice President, Chief
Financial Officer and Treasurer of Group 1 Automotive, a Fortune 500 automotive retailer from May
2004 to December 2005. Prior to joining Group 1 Automotive, Mr. Ray worked for more than 13 years
at Dynegy Inc., a Houston-based energy company, holding several senior positions in finance and
corporate development. From December 2002 through May 2004, he served as Dynegys Senior Vice
President and Treasurer with responsibility for all corporate finance, treasury, credit, insurance
and trust investment activities. Mr. Ray served as Dynegys Senior Vice President-Corporate
Development from September 2002 through December 2002; Vice President-Strategic Investments from
August 2000 through September 2002; Vice President-Corporate Finance from October 1999 through
August 2000; and Assistant Treasurer from January 1994 through October 1999. From January 1991
through January 1994, Mr. Ray was responsible for Dynegys financial planning and analysis
activities. Finally, Mr. Rays prior work
-15-
experience also includes positions in banking, public accounting and petroleum engineering. Mr. Ray
received a bachelors degree in petroleum engineering from The University of Texas at Austin and
masters degrees in finance and accounting from the University of Houston.
Roger B. Rice was appointed Senior Vice President of Administration in November 2004. Mr.
Rice joined the Company as Vice President Human Resources and Administration in 2002. Prior to
that, Mr. Rice worked as a paid consultant for Houston Exploration since June 2001. From January
2001 to June 2001, Mr. Rice was a private management consultant and oil and gas investor. From
December 1998 to December 2000, Mr. Rice was Vice President and General Manager for Santa Fe Snyder
Corporation, where he was responsible for all onshore exploration and production activities in
Texas and New Mexico. Mr. Rice had been Vice President Human Resources with Snyder Oil
Corporation from 1997 until its merger with Santa Fe Resources in 1999. From 1992 to 1997, Mr.
Rice was Vice President Human Resources and Administration for Apache Corporation. From 1989 to
1992, he was Managing Consultant with Barton Raben, Inc., an executive search and consulting firm
specializing in the energy industry. Previously, Mr. Rice was Vice President Administration for
The Superior Oil Company and held various management positions with Shell Oil Company. He earned
his B.A. and M.B.A. from Texas Technological University.
Jeffrey B. Sherrick was appointed Senior Vice President of Corporate Development in April
2005. Immediately prior to joining Houston Exploration, Mr. Sherrick was self-employed working in
the energy industry. From February 2004 to December 2004, Mr. Sherrick served as Senior Vice
President, Production and Non-Regulated Services for El Paso Production Company, an exploration and
production company and a wholly-owned subsidiary of El Paso Corporation. . From August 2003 until
February 2004, Mr. Sherrick was self-employed. From March 2003 to August 2003, Mr. Sherrick was
President and Chief Executive Officer of EVP Oil & Gas (formerly Energy Virtual Partners), a
privately held company providing asset management services to major oil and gas producers. From
January 2003 until joining EVP Oil and Gas in March 2003, Mr. Sherrick was self-employed. From
August 1999 to December 2002, Mr. Sherrick was Chairman and Chief Executive Officer of Enron Global
Exploration Production, Inc., a wholly-owned subsidiary of Enron Corp., which was engaged in the
international exploration and development of natural gas and oil. Prior to that time, Mr. Sherrick
held various management positions with Enron Oil & Gas Company. Prior to that time, Mr. Sherrick
received a B.S. in Petroleum Engineering from Marietta College in Marietta, Ohio.
John E. Bergeron Jr., Vice President and General Manager Southern Division, is responsible
for all aspects of the Companys South Texas and Gulf Coast operations. Mr. Bergeron joined the
Company as Vice President and General Manager Offshore Division in March 2005. From June 1995
until his employment with Houston Exploration, Mr. Bergeron worked for Fina Oil and Chemical
Company, which was subsequently acquired by Total E&P USA Inc. While at Total, he served as the
Quality Manager from August 2004 until March 2005, overseeing management systems and operational
improvements for the organizations operations. From November 2002 until August 2004, he was
Manager of Totals exploration operations at Alaskas North Slope. From January 2000 until
November 2002, he served as Deputy & Manager of Totals U.S. onshore development operations, and
from October 1996 until January 2000, he was the Engineering Manager of the Development Division.
He has also held positions at Southwest Royalties, Inc., Fina Oil and Chemical, Tenneco Oil Company
and Gulf Oil Corporation. Mr. Bergeron is a licensed Professional Engineer in the State of Texas
and received a bachelors degree in petroleum engineering from The University of Texas at Austin.
Joanne C. Hresko, Vice President and General Manager Northern Division, is responsible for
the Companys operations in the Rockies, Arkoma and East Texas areas. Ms. Hresko was appointed
Vice President and General Manager Onshore Division in November 2004. Ms. Hresko joined the
Company in 1992 as operations manager and has supervised the exploration and production operations
for the onshore region for the past several years. Prior to joining Houston Exploration, she
worked at Tex/Con Oil & Gas Company, a subsidiary of BP Exploration. Ms. Hresko received both a
bachelors and masters degree in petroleum engineering from Texas A&M University.
James F. Westmoreland has been Vice President and Chief Accounting Officer since October 1995,
and also held the title of Corporate Secretary from October 1995 until January 2003. Prior to
that, Mr. Westmoreland was Vice President and Comptroller from 1986 to 1995. Mr. Westmoreland was
supervisor of natural gas and oil accounting at Seagull Energy Corp. from 1983 to 1986. Mr.
Westmoreland holds a B.B.A. in Accounting from the University of Houston.
-16-
REPORT OF THE COMPENSATION AND MANAGEMENT DEVELOPMENT COMMITTEE OF THE BOARD OF DIRECTORS
The Compensation and Management Development Committee of our Board of Directors currently
consists of John U. Clarke, Thomas A. McKeever and Donald C. Vaughn, none of whom is an employee of
The Houston Exploration Company. The Compensation and Management Development Committee is
responsible for evaluating the performance of management, determining the compensation for our
officers, employees and agents, and administering our benefit and equity plans under which we may
make grants or awards to our employees or provide other assistance to any of our employees. The
Committee has the authority to retain such compensation consultants, outside counsel and other
advisors as the Committee deems appropriate in its sole discretion.
The Committee has furnished the following report on executive compensation for 2005:
Compensation Policies for Executive Officers
The Compensation and Management Development Committee has developed a multifaceted executive
compensation program designed to achieve three goals:
|
|
|
Attract and retain key executives responsible for our continued growth and profitability |
|
|
|
|
Motivate management to enhance long-term stockholder value |
|
|
|
|
Correlate a substantial portion of managements compensation to measurable performance. |
In order to accomplish these goals, the Committee structured a compensation program based on
three components of remuneration consisting of:
|
|
|
A defined base salary that reflects the experience, responsibilities and
contribution of each individual executive officer |
|
|
|
|
An annual incentive compensation bonus opportunity tied to achievement of
various corporate goals or milestones that are pre-established by the Committee |
|
|
|
|
Long-term stock-based incentive awards that strengthen the mutuality of
interests between the executive officers and our stockholders. |
The Committee believes that its current compensation practice of granting a combination of
stock options and restricted stock creates significant ownership levels among our officer group.
While continuing its policy of annual grants of options and restricted stock, the Committee has
recommended stock ownership levels to all executive officers. Restricted stock, stock owned
outright and stock held in Company savings plans, applies toward the recommended target levels of
ownership. Under these newly established guidelines, individuals have a five-year period to
achieve ownership of stock valued at the recommended target ownership levels as outlined below:
|
|
|
|
|
|
|
Ownership Target |
|
|
as a |
Officer |
|
Multiple of Annual Salary |
|
President & CEO |
|
|
5 |
|
Executive Vice President & COO |
|
|
3 |
|
Senior Vice Presidents |
|
|
2 |
|
Vice Presidents |
|
|
1 |
|
Individuals who do not achieve compliance with these recommendations within the prescribed time
frame will be asked to discuss their ownership levels with the CEO and to develop a plan for
achieving compliance.
-17-
The Committees policy is to structure executive compensation so that total cash compensation
represents roughly one-half of each executives total annual compensation and that the remaining
portion be derived from the performance- based components, either in the form of bonus opportunity
or stock-based incentive awards.
As a general principle, the Committee sets the value of each executives total annual
compensation package inclusive of base salary, incentive bonus and stock based incentive awards
at the fiftieth percentile of similarly situated executives in a comparable, peer group of
companies in the exploration and production industry. This peer group includes the same companies
comprising the peer group reflected in the performance graph in this Proxy Statement. Annually,
the Committee retains the independent executive compensation firm of Towers Perrin to review our
compensation program, objectively define the responsibilities of each executive, advise us on
appropriate peer group composition, and provide a statistical compensation comparison.
At hiring, base compensation is initially established for each executive through negotiation
and is reflected in the executives employment agreement. Thereafter, the Committee annually
reviews each executives base compensation based on a number of factors, both quantitative,
including a detailed organizational and competitive analyses performed by Towers Perrin, and
qualitative, including the Committees perception of the executives experience and contribution.
The Committee does not assign any pre-determined weight to any factors in its annual review process
and deviates from the fiftieth percentile policy in individual cases when market conditions or
other factors warrant.
In addition to base compensation, the Committee provides each executive the opportunity to
earn an additional cash incentive compensation bonus based on the achievement of pre-determined
operating or financial results established annually by the Committee relating to such metrics as
reserve additions, finding cost and cash flow from operations. Each executives bonus opportunity
is initially reflected in the executives employment agreement and subsequently reviewed annually.
Currently, the Committee has set the bonus opportunity for the CEO at 85% of annual earned salary,
for the COO at 65% of annual earned salary and for other executives at 55% of their respective
earned salary for the year.
Our executive officers are also eligible to receive long-term stock-based incentive awards
under the 2004 LTIP, as a means of providing management with a continuing proprietary interest in
the Company. The determination of these grants will be determined by the Committee each year based
on competitive market data. These grants further the mutuality of interest between our employees
and our stockholders by providing significant incentives for these employees to achieve and
maintain high levels of performance. Stock options and restricted stock enhance our ability to
attract and retain the services of qualified individuals.
Chief Executive Compensation
Effective April 4, 2001, Mr. Hargett became our Chief Executive Officer and President. On
that date, we entered into an employment agreement with Mr. Hargett, which was amended on May 17,
2002. On February 8, 2005, we amended and restated our employment agreement with Mr. Hargett. By
entering into the amended and restated employment agreement, Mr. Hargett waived a number of rights
under his prior employment agreement with us, including, among others, the right to receive a
significant transaction bonus upon the occurrence of certain corporate transactions, the right to
receive severance following a change of control of the Company absent actual termination or good
reason, and the right to guaranteed annual stock option grants and incentive compensation bonuses,
which matters will now be left to the discretion of our independent Compensation and Management
Development Committee. Our amended and restated agreement with Mr. Hargett also contains expanded
non-competition provisions. In consideration of Mr. Hargetts entering into the amended and
restated agreement and conceding these benefits, we agreed to pay Mr. Hargett a one-time, lump sum
payment of $4,220,043.
-18-
For the year ended December 31, 2005, Mr. Hargetts annual compensation was comprised of:
|
|
|
A base salary of $500,000 per year until September 30, 2005, which was
increased effective October 1, 2005 to $525,000 per year. This increase was based upon
his performance and competitive assessments provided by Towers Perrin. For 2005, Mr.
Hargett earned a total salary of $506,200. |
|
|
|
|
An annual incentive cash bonus of 85% of earned salary if certain
pre-established operating and financial targets were achieved for the year. For 2005,
the Company and Mr. Hargett successfully attained 79% of the targeted goals and
objectives, in accordance with the pre-established targets, and therefore, Mr. Hargett
received a cash bonus of $340,807. Mr. Hargetts year-end earned salary of $506,200
was used in calculating his bonus award for 2005 in accordance with the terms of his
employment agreement. |
|
|
|
|
A long-term stock-based incentive award of 38,000 non-qualified stock options
granted on October 25, 2005 at an exercise price of $54.18 per share, the closing price
of our common stock as reported by the NYSE on the date of grant. Mr. Hargetts 2005
stock option grant was made pursuant to the terms of the 2004 LTIP. The options expire
10 years from the grant date and vest in one-third increments on each of the first
three anniversaries of the grant date. Mr. Hargett was also awarded 17,000 shares of
restricted stock under the 2004 LTIP that are subject to transfer restrictions that
generally expire in 2008 as set forth in the award agreement. |
Section 162(m) of the Internal Revenue Code of 1986, as amended
Section 162(m) of the Code, added by the Revenue Reconciliation Act of 1993, places a $1
million per executive cap on the deductible compensation that can be paid to executives of
publicly-traded corporations each year. Amounts that qualify as performance based compensation
under Section 162(m)(4)(c) of the Code are exempt from the cap and do not count toward the $1
million limit if certain requirements are satisfied. Although our compensation policy is generally
designed to correlate compensation to performance, certain payments may not meet Code requirements
because they allow our Committee and Board to exercise discretion in setting compensation.
Generally, stock options will qualify as performance based compensation. The Committee has
discussed and considered and will continue to evaluate the potential impact of Section 162(m) on us
in making compensation determinations, but has not established a set policy with respect to future
compensation determinations.
The following members of the Compensation and Management Development Committee have given this
report:
Donald C. Vaughn Chairman
John U. Clarke Committee Member
Thomas A. McKeever Committee Member
This report of the Compensation and Management Development Committee is not deemed
incorporated by reference by any general statement incorporating this Proxy Statement by reference
into any filing under the Securities Act of 1933, as amended, or under the Securities Exchange Act
of 1934, as amended, except to the extent that we specifically incorporate this information by
reference, and is not otherwise deemed filed under these Acts.
Compensation Committee Interlocks and Insider Participation
The Companys Compensation and Management Development Committee consists of Messrs. John U.
Clarke, Thomas A. McKeever and Donald C. Vaughn. None of the Committee members has served as an
officer of the Company, and none of the Companys executive officers has served as a member of a
compensation committee or board of directors of any other entity which has an executive officer
serving as a member of the Companys Board of Directors.
-19-
EXECUTIVE COMPENSATION
Summary Compensation Table
The following table sets forth summary information concerning the compensation we paid or
accrued during each of the last three fiscal years to our Chief Executive Officer and each of our
four other most highly compensated executive officers and one former executive officer
(collectively, the Named Executive Officers):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-Term Compensation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted |
|
Securities |
|
|
|
|
|
|
|
|
|
|
Annual Compensation(1) |
|
Stock |
|
Underlying |
|
LTIP |
All Other |
Name and Principal Position |
|
Year |
|
Salary($) |
Bonus($) |
Awards($)(2) |
Options(#)(3) |
Payouts($) |
Compensation($)(4) |
|
William G. Hargett |
|
|
2005 |
|
|
$ |
506,200 |
|
|
$ |
340,807 |
|
|
$ |
921,060 |
|
|
|
38,000 |
|
|
$ |
|
|
|
$ |
4,356,387 |
(5) |
Chairman, President and Chief |
|
|
2004 |
|
|
|
485,000 |
|
|
|
3,817,300 |
(6) |
|
|
769,080 |
|
|
|
27,000 |
|
|
|
|
|
|
|
117,400 |
|
Executive Officer |
|
|
2003 |
|
|
|
457,500 |
|
|
|
387,072 |
|
|
|
|
|
|
|
67,900 |
|
|
|
|
|
|
|
105,860 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Steven L. Mueller |
|
|
2005 |
|
|
$ |
312,500 |
|
|
$ |
160,875 |
|
|
|
696,030 |
(5) |
|
|
13,000 |
|
|
$ |
|
|
|
$ |
431,811 |
(5) |
Executive Vice President and Chief |
|
|
2004 |
|
|
|
273,700 |
|
|
|
368,870 |
(6) |
|
|
236,640 |
|
|
|
9,000 |
|
|
|
|
|
|
|
63,600 |
|
Operating Officer |
|
|
2003 |
|
|
|
250,000 |
|
|
|
167,904 |
|
|
|
|
|
|
|
20,300 |
|
|
|
|
|
|
|
77,238 |
(7) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
James F. Westmoreland |
|
|
2005 |
|
|
$ |
248,500 |
|
|
$ |
108,246 |
|
|
|
413,768 |
(5) |
|
|
4,000 |
|
|
$ |
|
|
|
$ |
379,800 |
(5),(8) |
Vice President and Chief Accounting |
|
|
2004 |
|
|
|
240,700 |
|
|
|
249,973 |
(6) |
|
|
118,320 |
|
|
|
5,000 |
|
|
|
|
|
|
|
63,400 |
(8) |
Officer |
|
|
2003 |
|
|
|
235,583 |
|
|
|
151,430 |
|
|
|
|
|
|
|
13,600 |
|
|
|
|
|
|
|
78,612 |
(8) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Roger B. Rice |
|
|
2005 |
|
|
$ |
243,000 |
|
|
$ |
105,850 |
|
|
|
460,700 |
(5) |
|
|
7,000 |
|
|
$ |
|
|
|
$ |
344,349 |
(5) |
Senior Vice President,
Administration |
|
|
2004 |
|
|
|
232,500 |
|
|
|
320,096 |
(6) |
|
|
177,480 |
|
|
|
6,000 |
|
|
|
|
|
|
|
55,700 |
|
|
|
|
2003 |
|
|
|
211,250 |
|
|
|
145,900 |
|
|
|
|
|
|
|
14,900 |
|
|
|
|
|
|
|
50,500 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jeffrey B. Sherrick(9) |
|
|
2005 |
|
|
$ |
203,580 |
|
|
$ |
113,679 |
(10) |
|
|
684,075 |
(9) |
|
|
29,000 |
(9) |
|
$ |
|
|
|
$ |
35,616 |
|
Senior Vice President, Corporate |
|
|
2004 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Development |
|
|
2003 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
John H. Karnes(11) |
|
|
2005 |
|
|
$ |
286,000 |
|
|
$ |
130,135 |
|
|
|
1,000,845 |
(5) |
|
|
11,000 |
|
|
$ |
|
|
|
$ |
1,557,707 |
(12) |
Former Senior Vice President and |
|
|
2004 |
|
|
|
287,500 |
|
|
|
639,805 |
(6) |
|
|
295,800 |
|
|
|
11,000 |
|
|
|
|
|
|
|
66,900 |
|
Chief Financial Officer |
|
|
2003 |
|
|
|
277,501 |
|
|
|
180,576 |
|
|
|
|
|
|
|
30,900 |
|
|
|
|
|
|
|
87,511 |
(7) |
|
|
|
(1) |
|
Annual compensation amounts exclude perquisites and other personal benefits because
the compensation did not exceed the lesser of $50,000 or 10% of the total annual salary and
bonus reported for each Named Executive Officer. |
|
(2) |
|
On October 25, 2005, the Company issued to each executive officer, pursuant to his
or her existing employment agreement with the Company, a restricted stock award at $54.18 per
share, which is subject to transfer restrictions that expire in 2008 (or sooner in certain
instances, as described in the 2004 LTIP). On October 22, 2004, the
Company issued to each executive officer, pursuant to his existing employment agreement with
the Company, a restricted stock award at $59.16 per share, which is subject to transfer
restrictions that expire in 2009 (or sooner in certain instances, as described in the 2004
LTIP). These awards were issued pursuant to the 2004 LTIP. |
|
(3) |
|
On October 25, 2005, the Company issued to each executive officer, pursuant to his
or her existing employment agreement with the Company, a stock option award with a grant price
of $54.18 per share. On October 22, 2004, the Company issued to each executive officer,
pursuant to his existing employment agreement with the Company a stock option award with a
grant price of $59.16 per share. These awards were issued pursuant to the 2004 LTIP. On
October 21, 2003, the Company issued to each executive officer, pursuant to his existing
employment agreement with the company, a stock option award with a grant price of $35.62 per
share. These awards were issued pursuant to the Amended and Restated 2002 Long-Term Incentive
Plan. |
|
(4) |
|
Includes matching contributions we made under our 401(k) Plan and Deferred
Compensation Plan and car allowances of $8,400 to each Named Executive Officer. |
|
(5) |
|
Includes payments made in February 2005 in consideration of entering into the
amended and restated employment agreements and foregoing certain rights. We paid Mr. Hargett
$4,220,043 in cash, paid Mr. Mueller $353,866 in cash and granted him 6,553 shares
of restricted stock; granted Mr. Karnes 12,892 shares of restricted stock; paid Mr. Westmoreland,
$291,300 in cash and granted him 5,394 shares of restricted stock; and paid Mr. Rice, $284,349 in
cash and granted him 5,266 shares of restricted stock. The |
-20-
|
|
|
|
|
restricted stock will vest over a period of five years in accordance with the terms of the amended
and restated employment agreements and the terms of the 2004 LTIP, at that time (see Transactions
Between the Company and Management beginning on page 25 of this Proxy Statement). |
|
(6) |
|
Bonus amounts for 2004 include a Board approved special bonus paid in June 2004 in
connection with the consummation of an asset exchange transaction in June 2004 with KeySpan
pursuant to which we redeemed and cancelled 10,800,000 shares of our common stock owned by
KeySpan in exchange for all the stock of Seneca-Upshur Petroleum, Inc., our wholly-owned
subsidiary, to which we contributed all of our Appalachian Basin assets and $389 million in
cash. Bonus amounts were: $3,300,000 for Mr. Hargett; $400,000 for Mr. Karnes; $125,000 each
for Messrs. Mueller and Rice; and $50,000 for Mr. Westmoreland. |
|
(7) |
|
Mr. Karnes and Mr. Mueller were reimbursed in 2003 for relocation expenses pursuant
to their employment agreements, as well as for the federal income tax they incurred as a
result of the reimbursements for a total of $39,424 for Mr. Karnes and $19,216 for Mr.
Mueller. |
|
(8) |
|
Includes distributions attributable to overriding royalty interests in our
properties paid to Mr. Westmoreland of $31,100, $9,000 and $25,400, respectively, for 2005,
2004 and 2003. |
|
(9) |
|
Mr. Sherrick commenced his employment with the Company effective April 11, 2005, and
was awarded 7,500 shares of restricted stock at $55.09 per share, and 20,000 stock options at
a grant price of $55.09 per share. |
|
(10) |
|
Includes a sign on bonus of $25,000 on April 11, 2005. |
|
(11) |
|
Effective as of December 8, 2005, Mr. Karnes resigned as Senior Vice President and
Chief Financial Officer and all restricted stock and stock options held by Mr. Karnes became
vested and fully exercisable effective December 8, 2005 pursuant to the terms of his
separation agreement. |
|
(12) |
|
Includes a lump sum payment of $1,485,657 pursuant to the terms of Mr. Karnes
separation agreement. |
Options Granted in 2005
The following table provides certain information with respect to options granted to the Named
Executive Officers during 2005 under the 2004 LTIP. We have not issued any stock appreciation
rights to the Named Executive Officers.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Individual Grants |
|
|
|
|
|
|
|
|
Percent of |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
Number of |
|
Options |
|
|
|
|
|
|
|
|
|
Potential Realizable Value |
|
|
Securities |
|
Granted to |
|
|
|
|
|
|
|
|
|
at Assumed Annual |
|
|
Underlying |
|
Employees |
|
Exercise or |
|
|
|
|
|
Rates of Stock Price |
|
|
Options |
|
in Fiscal |
|
Base Price |
|
Expiration |
|
Appreciation for Option Term(1) |
Name |
|
Granted(#)(2) |
|
Year |
|
($/Sh) |
|
Date |
|
5% ($) |
|
10% ($) |
William G. Hargett |
|
|
38,000 |
|
|
|
11.01 |
% |
|
$ |
54.18 |
|
|
|
10/25/2015 |
|
|
$ |
1,294,793 |
|
|
$ |
3,281,261 |
|
Steven L. Mueller |
|
|
13,000 |
|
|
|
3.77 |
% |
|
$ |
54.18 |
|
|
|
10/25/2015 |
|
|
$ |
442,956 |
|
|
$ |
1,122,537 |
|
James F. Westmoreland |
|
|
4,000 |
|
|
|
1.16 |
% |
|
$ |
54.18 |
|
|
|
10/25/2015 |
|
|
$ |
136,294 |
|
|
$ |
345,396 |
|
Roger B. Rice |
|
|
7,000 |
|
|
|
2.03 |
% |
|
$ |
54.18 |
|
|
|
10/25/2015 |
|
|
$ |
238,515 |
|
|
$ |
604,443 |
|
Jeffrey B. Sherrick (3) |
|
|
20,000 |
|
|
|
5.79 |
% |
|
$ |
55.09 |
|
|
|
04/11/2015 |
|
|
$ |
692,916 |
|
|
$ |
1,755,985 |
|
Jeffrey B. Sherrick |
|
|
9,000 |
|
|
|
2.61 |
% |
|
$ |
54.18 |
|
|
|
10/25/2015 |
|
|
$ |
306,662 |
|
|
$ |
777,141 |
|
John H. Karnes (4) |
|
|
11,000 |
|
|
|
3.19 |
% |
|
$ |
54.18 |
|
|
|
12/08/2006 |
|
|
$ |
29,799 |
|
|
$ |
59,598 |
|
|
|
|
(1) |
|
The SEC requires disclosure of the potential realizable value or present value
of each grant. The disclosure assumes the options will be held for the full ten-year term.
The actual value, if any, an executive officer may realize will depend upon the excess of the
stock price over the exercise price on the date the option is exercised. There can be no
assurance that the stock price will appreciate at the rates shown in the table. |
|
(2) |
|
On October 25, 2005, the Company issued to each executive officer, pursuant
to his or her existing employment agreement with the Company, a stock option award with a
grant price of $54.18. |
|
(3) |
|
Mr. Sherrick also received an initial option grant of 20,000 shares of
stock options on April 11, 2005 upon commencement of his employment with the Company. |
-21-
|
|
|
(4) |
|
Effective December 8, 2005, Mr. Karnes resigned as Senior Vice President
and Chief Financial Officer. All restricted stock and stock options held by Mr. Karnes became
vested and fully exercisable effective December 8, 2005 pursuant to the terms of his
separation agreement. |
Aggregated Options Exercised in 2005 and Fiscal Year-End Option Values
The following table provides information regarding stock options exercised by the Named
Executive Officers during the fiscal year ended December 31, 2005, the number of shares of common
stock underlying unexercised options held by each Named Executive Officer as of the end of 2005,
and the value, based on the closing price of our common stock on the NYSE of $52.80 on December 30,
2005, of unexercised in the money stock options held by each of the Named Executive Officers.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Securities |
|
Value of Unexercised |
|
|
|
|
|
|
|
|
|
|
Underlying |
|
In-the-Money |
|
|
Shares |
|
|
|
|
|
Unexercised Options at |
|
Options at |
|
|
Acquired on |
|
Value |
|
Fiscal Year-End (#) |
|
Fiscal Year-End ($) |
Name |
|
Exercise(#) |
|
Realized($)(1) |
|
Exercisable |
|
Unexercisable |
|
Exercisable |
|
Unexercisable |
William G. Hargett |
|
|
¾ |
|
|
$ |
¾ |
|
|
|
69,580 |
|
|
|
169,940 |
|
|
$ |
1,526,516 |
|
|
$ |
2,424,425 |
|
Steven L. Mueller |
|
|
¾ |
|
|
$ |
¾ |
|
|
|
58,320 |
|
|
|
57,980 |
|
|
$ |
1,221,932 |
|
|
$ |
783,872 |
|
James F. Westmoreland |
|
|
32,416 |
|
|
$ |
878,347 |
|
|
|
12,920 |
|
|
|
33,683 |
|
|
$ |
279,594 |
|
|
$ |
532,697 |
|
Roger B. Rice |
|
|
¾ |
|
|
$ |
¾ |
|
|
|
15,180 |
|
|
|
42,740 |
|
|
$ |
299,398 |
|
|
$ |
649,993 |
|
Jeffrey B. Sherrick (2) |
|
|
¾ |
|
|
$ |
¾ |
|
|
|
¾ |
|
|
|
29,000 |
|
|
$ |
¾ |
|
|
$ |
¾ |
|
John H. Karnes (3) |
|
|
78,900 |
|
|
$ |
1,771,748 |
|
|
|
22,000 |
|
|
|
¾ |
|
|
$ |
¾ |
|
|
$ |
¾ |
|
(1) |
|
The value realized upon the exercise of a stock option is equal to the
difference between the market price on the date of exercise and grant price of the stock
option. |
|
(2) |
|
None of Mr. Sherricks unexercised options were in-the-money at fiscal
year-end. |
|
(3) |
|
Effective December 8, 2005, Mr. Karnes resigned as Senior Vice President
and Chief Financial Officer. All restricted stock and stock options held by Mr. Karnes became
vested and fully exercisable effective December 8, 2005 pursuant to the terms of his
separation agreement. None of Mr. Karnes unexercised options were in-the-money at fiscal
year-end. |
-22-
PERFORMANCE GRAPH
The following performance graph compares the performance of our common stock to the S&P 500
Index and to a peer group. This peer group (new peer group) includes other independent oil and gas
exploration and production companies with a similar mix of offshore and onshore operations and is
composed of Cabot Oil & Gas, Cimarex Energy, Forest Oil Corp., Newfield Exploration Company, Noble
Energy Inc., Plains Exploration, Pogo Producing Company, Southwestern Energy, Stone Energy and XTO
Energy Inc. The peer group for 2004 (old peer group) consisted of Cabot Oil & Gas Corp., Forest
Oil, Corp., Newfield Exploration Company, Pogo Producing Company, Southwest Energy Company, Stone
Energy Corp. and XTO Energy Inc. The index of peer group companies is weighted according to the
respective market capitalization of its component companies as of December 31, 2005. The graph
covers the period from December 31, 2000 to December 31, 2005. The graph assumes that the value of
the investment in the common stock and each index was $100 at December 31, 2000 and that all
dividends were reinvested.
COMPARISON
OF 5 YEAR CUMULATIVE TOTAL RETURN*
AMONG THE HOUSTON EXPLORATION COMPANY, THE S & P 500 INDEX,
NEW PEER GROUP AND THE OLD PEER GROUP
|
|
|
* |
|
$100 invested on 12/31/00 in stock or index, including reinvestment of dividends.
Fiscal year ending December 31. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,(1) |
|
|
2000 |
|
2001 |
|
2002 |
|
2003 |
|
2004 |
|
2005 |
|
The Houston Exploration Company |
|
$ |
100.00 |
|
|
$ |
88.08 |
|
|
$ |
80.26 |
|
|
$ |
95.79 |
|
|
$ |
147.70 |
|
|
$ |
138.49 |
|
S & P 500 |
|
$ |
100.00 |
|
|
$ |
88.12 |
|
|
$ |
68.64 |
|
|
$ |
88.33 |
|
|
$ |
97.94 |
|
|
$ |
102.75 |
|
New Peer Group |
|
$ |
100.00 |
|
|
$ |
79.72 |
|
|
$ |
91.27 |
|
|
$ |
121.84 |
|
|
$ |
167.96 |
|
|
$ |
259.78 |
|
Old Peer Group |
|
$ |
100.00 |
|
|
$ |
80.50 |
|
|
$ |
93.60 |
|
|
$ |
125.60 |
|
|
$ |
170.85 |
|
|
$ |
275.98 |
|
|
|
|
Copyright © 2006, Standard & Poors, a division of The McGraw-Hill Companies, Inc. All rights
reserved.
www.researchdatagroup.com/S&P.htm |
|
(1) |
|
Assumes reinvestment of dividends. |
The above stock price performance comparison is not deemed incorporated by reference by any
general statement incorporating by reference this Proxy Statement into any filing under the
Securities Act of 1933, as amended, or under the Securities Exchange Act of 1934, as amended,
except to the extent that we specifically incorporate this graph by reference, and is not otherwise
deemed filed under these Acts.
Our stock performance may not continue into the future with the same or similar trends
depicted in the graph above. We will not make or endorse any predictions as to future stock
performance.
-23-
EQUITY COMPENSATION PLAN INFORMATION
The information in the following table is presented as of December 31, 2005 with respect to
the shares of our common stock that may be issued upon exercise of stock options and restricted
stock units granted under equity compensation plans that have been approved by our stockholders
(the 1996 Stock Option Plan, the Amended and Restated 2002 Long-Term Incentive Plan and the 2004
LTIP) and under equity compensation plans that have not been approved by our stockholders (the 1999
Non-Qualified Stock Option Plan). We have not issued any warrants or rights to acquire equity
securities of the Company.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of securities |
|
|
|
|
|
|
|
|
|
to be issued upon |
|
|
|
|
|
|
|
|
|
exercise of |
|
|
Weighted averaged |
|
|
|
|
|
|
outstanding options, |
|
|
exercise price of |
|
|
Number of securities |
|
|
|
warrants and |
|
|
outstanding options, |
|
|
remaining available |
|
Plan Category |
|
rights(1) |
|
|
warrants and rights |
|
|
for future issuance(2) |
|
|
Equity compensation
plans approved by
shareholders |
|
|
1,480,998 |
|
|
$ |
41.59 |
|
|
|
695,986 |
|
Equity compensation
plans not approved
by shareholders |
|
|
215,612 |
(3) |
|
$ |
27.94 |
|
|
|
¾ |
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
1,696,610 |
|
|
$ |
39.85 |
|
|
|
695,986 |
(4) |
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Does not include (i) 52,501 outstanding restricted stock units awarded to
Company employees in 2005 that vest over the next three years or (ii) restricted stock
awarded to the Companys non-employee directors, and executive officers. |
|
(2) |
|
Upon approval of the 2004 LTIP, existing ungranted shares from the 1996
Stock Option Plan, the 1999 Non-Qualified Stock Option Plan and the Amended and Restated
2002 Long-Term Incentive Plan were cancelled. All outstanding awards under those prior
plans will remain outstanding in accordance with their terms. |
|
(3) |
|
Includes options granted under our 1999 Non-Qualified Stock Option Plan. |
|
(4) |
|
Also accounts for (i) 52,501 outstanding restricted stock units awarded
to Company employees in 2005 that vest over the next three years, and (ii) restricted stock
awarded to the Companys non-employee directors and executive officers. |
Amended and Restated 2004 Long-Term Incentive Plan
On June 3, 2004, The Houston Exploration Companys stockholders approved the 2004 LTIP for our
non-employee directors and employees, consultants and advisors of our Company and our affiliates.
The Compensation and Management Development Committee administers the 2004 LTIP and, in its
discretion, may grant awards to those employees and consultants and advisors of the Company or its
affiliates as it may from time to time determine, subject to the terms of the plan. Awards under
the 2004 LTIP may consist of stock options, stock appreciation rights, performance stock,
performance units, restricted stock and/or restricted stock units.
On January 31, 2006, our Board of Directors approved certain amendments to the 2004 LTIP with
respect to equity compensation of non-employee directors. Prior to these amendments, commencing on
September 20, 2004, each non-employee director of the Company received an automatic grant on
September 20th of each year of (i) nonqualified stock options to purchase 2,000 shares
of the Companys common stock and (ii) 2,000 shares of the Companys restricted stock. Under the
2004 LTIP as amended, non-employee directors will no longer be eligible to receive grants of
nonqualified stock options. However, non-employee directors will continue to receive automatic
grants of restricted stock each year, except that such grants will be made as of the date of the
Companys Annual Meeting of Stockholders and the number of shares received by each non-employee
director will be calculated by dividing $100,000 by the closing price of the Companys common stock
on the date of grant. Beginning with the awards to be made in 2006, the 2004 LTIP, as amended,
shortens the vesting period for restricted stock granted to non-employee directors from five years
to three years following the date of grant.
At December 31, 2005, a total of 695,986 shares remained available for grant under the 2004
LTIP. We may adjust options issued under the 2004 LTIP in the event of stock splits and other
corporate events. In addition, we may appropriately adjust the exercise price for options in the
event that the outstanding shares of common stock are changed into or exchanged for a different
number or kind of shares or other securities by reason of merger, stock dividend, combination of
shares or the like.
-24-
Plans Not Approved by Our Stockholders:
1999 Non-Qualified Stock Option Plan
On October 26, 1999, our Board of Directors adopted the 1999 Non-Qualified Stock Option Plan
(the 1999 Plan) for employees (excluding executive officers), non-employee directors, consultants
and advisors of our Company and any of our affiliates. Upon adoption of the 2004 LTIP by
stockholders, any remaining ungranted shares under the 1999 Plan were cancelled. With respect to
non-employee directors only, the 1999 Plan amended and succeeded the 1996 Plan (under which no more
options may be granted to non-employee directors). The 1999 Plan is administered by the
Compensation and Management Development Committee, which at its discretion, granted awards to
eligible individuals with the exception of non-employee directors who received automatic grants
under the 1999 Plan. The options granted under the 1999 Plan were all non-qualified, expire 10
years from date of grant and vested immediately for non-employee directors and in one-fifth
increments on each of the first five anniversaries of the grant for other eligible individuals.
The Board may adjust options issued under the 1999 Plan in the event of stock splits and other
corporate events. In addition, the Board may appropriately adjust the exercise price for options
in the event that the outstanding shares of common stock are changed into or exchanged for a
different number or kind of shares or other securities by reason of merger, stock dividend,
combination of shares or the like.
This description of the 1999 Plan is being made pursuant to Regulation S-K, §229.201(d) which
requires that the material features of each compensation plan under which equity securities of the
registrant are authorized for issuance that was adopted without the approval of security holders be
described. For a description of all stock option plans adopted by the Company, please see Note 4
to the Companys financial statements included in the Companys Form 10-K for the fiscal year ended
December 31, 2005.
RELATED PARTY TRANSACTIONS
John U. Clarke serves as Chairman and Chief Executive Officer of NATCO Group, a publicly
traded oil field services and equipment company. During 2005, 2004 and 2003. we purchased services
and supplies from NATCO of approximately $1.3 million, $0.9 million and $1.1 million, respectively.
Because these amounts are significantly less that the 2% threshold prescribed by NYSE standards
and our Board of Directors Standards of Independence. Mr. Clarke meets all requirements of the
NYSE to be considered an independent director of our Company.
TRANSACTIONS BETWEEN THE COMPANY AND MANAGEMENT
Overriding Royalty Interests Held by Key Employees and Certain Executive Officers
Prior to our initial public offering in September 1996, we were party to an employment
agreement with our former President and Chief Executive Officer. Under this employment agreement,
we assigned to key employees designated by the former President and Chief Executive Officer
overriding royalty interests in specified properties of the Company. Assignments were made at the
time we acquired the properties. No assignments were made subsequent to 1995; however, due to the
nature of an overriding royalty interest, any employees who received assignments will continue to
receive payments pursuant to their overriding interest until production from the related property
ends. Mr. Westmoreland was included in assignments made to key employees.
Amended and Restated Employment Agreements
We entered into an amended and restated employment agreement with Mr. Hargett, our President
and Chief Executive Officer, effective February 8, 2005. Under this agreement, Mr. Hargett
currently is entitled to an annual base salary of $525,000 (pursuant to a recent increase by the
Compensation and Management Development Committee of our Board of Directors as part of its annual
review) and an annual incentive bonus equal to 85% of his annual earned salary (which the Board
recently increased from 70% of his annual earned salary) based on achievement of performance goals
established each year by the Compensation and Management Development Committee. The agreement also
provides for an automobile allowance of $700 per month for Mr. Hargett and reimbursement of certain
business expenses. The agreement is for a rolling term of three years, which automatically renews
for a new three-year period each year on each anniversary of the effective date unless we or Mr.
Hargett provide notice of termination at least 90 days prior to the end of the applicable term.
-25-
Like our prior employment agreement with Mr. Hargett, the amended and restated employment
agreement provides that if we terminate Mr. Hargett without cause (as defined in the employment
agreement), or if he terminates his employment with the Company for good reason (as defined in
the agreement, which includes, among other things, the occurrence of certain events following a
change of control of the Company), we are obligated to pay Mr. Hargett a lump-sum severance payment
equal to 2.99 times his then current annual rate of total compensation, and to continue certain
welfare benefits. Total Compensation is defined to include salary, targeted bonus (calculated as
though the performance goals had been met) and car allowance. Based on his current compensation,
Mr. Hargett would receive approximately $2.9 million in such instance. In addition, in the event
Mr. Hargetts employment is terminated by us without cause or upon death or disability, or by him
for good reason, all unvested options, restricted stock and similar deferred compensation
automatically shall vest and any other conditions to such awards shall be deemed satisfied.
By entering into the amended and restated employment agreement, Mr. Hargett waived a number of
rights under his prior employment agreement with us, including, among others, the right to receive
a significant transaction bonus upon certain corporate transactions, the right to receive severance
following a change of control of the Company absent actual termination or good reason, and the
right to guaranteed annual stock option grants and incentive compensation bonuses, which matters
will now be left to the discretion of the Compensation and Management Development Committee. Our
amended and restated agreement with Mr. Hargett also contains expanded non-competition provisions.
In consideration of Mr. Hargetts entering into the amended and restated agreement and conceding
these benefits, we agreed to pay Mr. Hargett a one-time, lump sum payment of $4,220,043.
We also amended and restated our employment agreements with each of Messrs. Mueller, Karnes,
Westmoreland and Rice, effective February 8, 2005. Under the terms of these agreements, these
individuals received annual base salaries of $300,000, $295,000, $246,000, and $240,000,
respectively, subject to annual review by our Compensation and Management Development Committee and
approval by our Board of Directors. We also entered into new employment agreements with Ms.
Hresko, effective February 8, 2005; with Mr. Bergeron on March 10, 2005; with Mr. Sherrick on April
13, 2005; and Mr. Ray on January 18, 2006. Under the terms of these agreements, these individuals
received annual base salaries of, $215,000 for Ms. Hresko and Mr. Bergeron, $275,000 for Mr.
Sherrick; and $315,000 for Mr. Ray, each subject to annual review by our Compensation and
Management Development Committee and approval by our Board of Directors. On October 25, 2005 our
Board of Directors, upon recommendation by the Compensation Committee, approved the following new
annual salaries for Messrs. Mueller, Karnes, Sherrick, Westmoreland and Rice of $350,000, $310,
000, $289,000, $256,000 and $252,000, respectively, and $226,000 for each of Ms. Hresko and Mr.
Bergeron. Also under these agreements, Mr. Mueller is entitled to an annual incentive bonus equal
to 65% of his respective annual earned salary, and each of Messrs. Ray, Sherrick, Westmoreland,
Rice and Ms. Hresko and Mr. Bergeron are entitled to an annual incentive bonus equal to 55% of his
or her respective annual earned salary if achievements of certain performance goals established by
the Compensation and Management Development Committee are met, plus an automobile allowance of $700
per month and reimbursement of certain business expenses. Like our agreement with Mr. Hargett,
each of these employment agreements is for a rolling term of three years, which automatically
renews for a new three-year period each year on each anniversary of the effective date unless we or
the executive gives notice of termination at least 90 days prior to the end of the applicable term.
In addition, we may terminate any employment agreement for cause without financial obligation
(other than payment of any accrued obligations). Each executive may terminate his or her
employment agreement at any time for any reason upon at least 30 days prior written notice.
As with Mr. Hargett, by entering into the amended and restated employment agreements with
Messrs. Mueller, Westmoreland and Rice, these executives have foregone their right to receive
severance following a change of control of the Company absent actual termination or the existence
of good reason, as well as their right to guaranteed annual stock option grants and incentive
compensation bonuses, and agreed to expanded non-competition and enforcement provisions. In
consideration for entering into the amended and restated employment agreements and foregoing such
rights, in February 2005, we paid Mr. Mueller $353,866 in cash and granted him 6,553 shares of
restricted stock; granted to Mr. Karnes 12,892 shares of restricted stock; paid Mr. Westmoreland,
$291,300 in cash and granted him 5,394 shares of restricted stock; and paid Mr. Rice, $284,349 in
cash and granted him 5,266 shares of restricted stock. The restricted stock will vest over a
period of five years in accordance with the terms of the amended and restated employment agreements
and the terms of the 2004 LTIP at that time.
If we terminate any one of these executives without cause (as defined in their employment
agreements) or if the executive terminates his or her employment with the company for good reason
(as defined in the employment agreements, including the occurrence of certain events following a
change in control of the Company), we are obligated to pay the executive a lump-sum severance
payment of 2.99 times his or her then current annual rate of total compensation, which is defined
to include salary, targeted bonus (calculated as though the applicable performance goals
-26-
had been met) and car allowance, and to continue certain welfare benefits. Based on their
current compensation, if this occurred, Mr. Mueller would receive approximately $1.8 million, Mr.
Ray would receive approximately $1.5 million, Mr. Sherrick would receive approximately $1.3,
million, Mr. Westmoreland and Mr. Rice would receive approximately $1.2 million and Ms. Hresko and
Mr. Bergeron would receive approximately $1.1 million. In addition, all unvested options,
restricted stock and similar deferred compensation automatically would vest and any other
conditions to such awards would be deemed satisfied.
The agreements further provide that if any payments made to the executives, whether or not
under the applicable agreement, would result in an excise tax being imposed on the executives under
Section 4999 of the Internal Revenue Code, we will make each of the executives whole on a net
after-tax basis.
We entered into a Separation Agreement and General Release effective December 8, 2005 with
John H. Karnes, who resigned as our Senior Vice President and Chief Financial Officer. The
separation agreement provides for full settlement of any compensation and benefits to which Mr.
Karnes would otherwise be entitled under his Amended and Restated Employment Agreement dated
February 8, 2005, which is now terminated (other than with respect to certain provisions relating
to confidentiality and tax indemnity). Pursuant to the separation agreement, Mr. Karnes received
his accrued salary, a lump-sum cash severance payment of $1.46 million (2.99 times his annual rate
of total compensation at the time of his resignation) and a bonus of $130,000 for 2005, and will
continue to receive certain welfare benefits. All of Mr. Karnes restricted stock, stock options
and deferred compensation also became fully vested.
Change of Control Plan
In 1999, our Board of Directors established the Change of Control Plan pursuant to which, upon
a change of control (as defined in the plan), all employees, including executive officers, are
entitled to receive stay-on bonuses in the amount of 125% of the employees regular target bonus
percentage. One-half of this bonus will be paid on or as soon as reasonably practical following
the date of the change of control and the remaining one-half will be paid 60 days later (or the
date of termination, if earlier). As a result, based on their current compensation, Messrs.
Hargett, Mueller, Ray, Sherrick, Westmoreland, Rice, Ms. Hresko and Mr. Bergeron would receive
approximately $558,000, $284,000, $217,000, $199,000, $176,000, $173,000, $155,00 and $155,000,
respectively. In addition, a change of control would cause all stock options, restricted stock,
phantom stock and other employee benefits to become fully vested.
Further, if we or our successor in a change of control terminates employees, other than
executive officers, within one year of the change of control other than for cause, as defined in
the Change of Control Plan, or our employees suffer a significant adverse change in employment, a
reduction in salary or job relocation of more than 30 miles, these employees will be entitled to
severance benefits in the form of a lump sum payment calculated pursuant to a formula based upon
each employees base salary and years of service. The calculation of lump sum payments for
executive officers is stated in their respective employment agreements.
In general, a change of control is deemed to occur if either:
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a person, entity or group other than us acquires 20% or more of the combined
voting power of our then outstanding voting securities; |
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|
a reorganization, merger, consolidation or liquidation is approved; or |
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|
the individuals constituting our Board of Directors on October 26, 1999 cease
to constitute a majority of our Board of Directors unless the election of each new
director was approved by a vote of at least a majority of the directors then still in
office who were directors at the beginning of the period. |
401(k) Plan
We maintain a 401(k) Plan for our employees. Under the 401(k) Plan, eligible employees may
elect to have us contribute on their behalf up to 12.5% of their compensation on a before tax basis
in accordance with the limitations imposed under the Internal Revenue Code. We match 100% of each
employees deferrals in accordance with the limitations imposed by the 401(k) Plan and the Internal
Revenue Code. The cash amounts contributed under the 401(k) Plan are held in a trust and invested
among various investment funds in accordance with the directions of each participant. An
employees salary deferral contributions under the 401(k) Plan are 100% vested. Our matching
contributions vest at the rate of 20% per year of service. Participants are entitled to payment of
their vested account balances upon termination of employment.
-27-
Deferred Compensation Plan
In November 2002, our Board of Directors adopted a deferred compensation plan for the benefit
of our employees. The plan is intended to supplement our 401(k) Plan by allowing highly
compensated employees to save on a tax deferred basis a portion of their eligible compensation
subject to limitations imposed by the plan. Under the terms of the plan, employees who have made
the maximum allowable contribution to their 401(k) accounts for any year ($14,000, $13,000 and
$12,000 per year, respectively, for 2005, 2004 and 2003, with an additional one-time contribution
of $4,000 in 2005, $3,000 in 2004 and $2,000 in 2003 for employees 50 years of age or older) may
elect to defer an additional portion of their compensation into the deferred compensation plan. We
match 100% of each employees deferral up to an aggregate contribution of 12.5% under both the
401(k) plan and the deferred compensation plan. Employer contributions vest 20% per year and
become fully vested after a five-year period. All cash contributions to the plan are held in trust
and invested, at the direction of the employee, in various investment funds. Participants are
entitled to distribution of their deferrals and the vested portion of our matching contributions at
predetermined future dates or upon termination of their employment.
On January 31, 2006, the Board of Directors of the Company amended the Companys deferred
compensation plan in order to comply with provisions added to the Internal Revenue Code by the
American Jobs Creation Act of 2004.
Employee Annual Incentive Compensation Plan
We maintain an Annual Incentive Compensation Plan that provides an annual incentive bonus to
all full-time employees if certain performance goals are met during the year. The plan is
administered by the Compensation and Management Development Committee which establishes annual
objectives and incentive opportunity levels that are approved by the Board of Directors. Incentive
awards are earned based on our actual performance in relation to pre-established objectives and on
an assessment of individual contribution during the year.
Supplemental Executive Retirement Plan
Effective January 1, 2006, we adopted a new Supplemental Executive Retirement Plan (SERP) to
provide retirement benefits to certain management level or other highly compensated employees. The
SERP is an unfunded, non-tax qualified defined benefit pension plan. Initial participation in the
SERP is currently limited to our executive officers. Participants in the SERP will be entitled to
a retirement benefit payable monthly for life. The annual amount of this retirement benefit is
equal to 2.5% times final average compensation, times years of service with the Company (not to
exceed 20 years), reduced by an annuity based on a hypothetical account that is credited with 6% of
the participants compensation during each year of employment and investment returns as defined in
the plan (offset). Participants are fully vested in their benefits after five years of plan
participation or age 65, whichever is earlier. If a vested participant retires prior to age 65,
then the monthly retirement benefit as described above (before reduction for the offset) will be
reduced by 5% for each year that retirement precedes age 65. In the event a participant is
terminated for cause, all benefits under the SERP will be forfeited. All benefits become fully
vested upon a change of control (as defined in the plan) and may become payable in a lump-sum if a
participants employment is terminated by us without cause or the participant resigns for good
reason within two years following a change of control.
-28-
The following table shows the annual retirement benefit payable pursuant to the SERP, before
reduction for the offset. The amounts shown assume an age 65 retirement date and are computed as a
straight life annuity.
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Final Average |
|
Years of Service(2) |
Compensation(1) |
|
5 |
|
10 |
|
15 |
|
20 or more |
|
$400,000 |
|
$ |
50,000 |
|
|
$ |
100,000 |
|
|
$ |
150,000 |
|
|
$ |
200,000 |
|
500,000 |
|
|
62,500 |
|
|
|
125,000 |
|
|
|
187,500 |
|
|
|
250,000 |
|
600,000 |
|
|
75,000 |
|
|
|
150,000 |
|
|
|
225,000 |
|
|
|
300,000 |
|
800,000 |
|
|
100,000 |
|
|
|
200,000 |
|
|
|
300,000 |
|
|
|
400,000 |
|
1,000,000 |
|
|
125,000 |
|
|
|
250,000 |
|
|
|
375,000 |
|
|
|
500,000 |
|
1,200,000 |
|
|
150,000 |
|
|
|
300,000 |
|
|
|
450,000 |
|
|
|
600,000 |
|
1,400,000 |
|
|
175,000 |
|
|
|
350,000 |
|
|
|
525,000 |
|
|
|
700,000 |
|
1,600,000 |
|
|
200,000 |
|
|
|
400,000 |
|
|
|
600,000 |
|
|
|
800,000 |
|
1,800,000 |
|
|
225,000 |
|
|
|
450,000 |
|
|
|
675,000 |
|
|
|
900,000 |
|
|
|
|
(1) |
|
Final Average Compensation consists of the average of the highest
three consecutive years of a participants base salary and annual bonus earned during the
five year period preceding termination of employment. The amounts reported as Annual
Compensation in the Summary Compensation Table of this proxy statement, excluding special
bonuses, represent plan compensation. |
|
(2) |
|
As of December 31, 2005, the Named Executive Officers were credited with
years of service as follows: Mr. Hargett five,
Mr. Mueller four, Mr. Rice four, Mr.
Westmoreland 20 and Mr. Sherrick 0. Mr. Karnes was not vested upon his resignation
and will not receive any benefits under the SERP. |
-29-
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table presents information as of March 9, 2006 regarding the beneficial
ownership of our common stock by each person who we know to own beneficially more than five percent
of the outstanding shares of common stock, each director, our Named Executive Officers and all
Directors and all executive officers as a group. Unless otherwise indicated, each person shown
below has the sole power to vote and the sole power to dispose of the shares of common stock listed
as beneficially owned.
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|
|
|
Number of Shares |
|
Total Percent |
|
|
of |
|
of |
Name of Beneficial Owner |
|
Common Stock |
|
Common Stock(1) |
|
FMR Corp.(2) |
|
|
3,583,900 |
(3) |
|
|
12.3 |
% |
82 Devonshire Street
Boston, MA 02109 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EARNEST Partners, LLC(4) |
|
|
3,424,165 |
(5) |
|
|
11.8 |
% |
75 Fourteenth Street, Suite 2300
Atlanta, GA 30309 |
|
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|
|
|
|
|
|
|
|
|
|
|
|
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Barclays Global Investors, NA.(6) |
|
|
3,294,855 |
(7) |
|
|
11.3 |
% |
45 Fremont Street
San Francisco, CA 94105 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
JANA Partners LLC(8) |
|
|
2,853,900 |
(9) |
|
|
9.8 |
% |
200 Park Avenue, Suite 3300
New York, NY 10166 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
William G. Hargett |
|
|
120,247 |
(10) |
|
|
* |
|
David G. Elkins |
|
|
30,000 |
(11) |
|
|
* |
|
Robert B. Catell |
|
|
29,000 |
(12) |
|
|
* |
|
Donald C. Vaughn |
|
|
29,000 |
(13) |
|
|
* |
|
Harold R. Logan, Jr. |
|
|
19,000 |
(14) |
|
|
* |
|
John U. Clarke |
|
|
15,000 |
(15) |
|
|
* |
|
Stephen W. McKessy |
|
|
12,000 |
(16) |
|
|
* |
|
Thomas A. McKeever |
|
|
4,000 |
(17) |
|
|
* |
|
Steven L. Mueller |
|
|
74,873 |
(18) |
|
|
* |
|
Roger B. Rice |
|
|
29,246 |
(19) |
|
|
* |
|
James F. Westmoreland |
|
|
26,837 |
(20) |
|
|
* |
|
Jeffrey B. Sherrick |
|
|
17,775 |
(21) |
|
|
* |
|
Robert T. Ray |
|
|
7,500 |
(22) |
|
|
* |
|
John H. Karnes(23) |
|
|
10,300 |
(24) |
|
|
* |
|
All directors and
executive officers as a group (15 persons) |
|
|
433,079 |
(25) |
|
|
1.5 |
% |
|
|
|
* |
|
Less than 1%. |
|
(1) |
|
Based upon 29,071,130 shares outstanding as of March 9, 2006. |
|
(2) |
|
Based on Schedule 13G/A filed on February 14, 2006 by FMR Corp. (FMR) on behalf of
itself and its affiliates, Fidelity Management and Research Company (Fidelity), a wholly
owned subsidiary of FMR, Fidelity Management Trust Company (FMTC), a wholly owned subsidiary
of FMR, Edward C. Johnson 3d, chairman and a significant stockholder of FMR, Abigail Johnson,
a director and significant stockholder of FMR, certain other members of the Johnson family who
are party to a voting agreement with respect to shares of FMR, and Fidelity International
Limited (Fidelity International) and certain of its foreign-based subsidiaries. |
|
(3) |
|
Includes 3,279,600 shares beneficially owned by Fidelity as to which Fidelity,
together with FMR, and Mr. Johnson through their control of Fidelity have sole dispositive
power; 68,100 shares beneficially owned by FMTC as to which FMTC, together with FMR and Mr.
Johnson, through their control of FMTC, have sole dispositive power; and 36,200 |
-30-
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|
shares
beneficially owned by Fidelity International. The voting of all of these shares is directed
by the funds Board of Trustees. FMR disclaims beneficial ownership of the shares
beneficially owned by Fidelity International, and Fidelity International disclaims beneficial
ownership of the shares beneficially owned by FMR. |
|
(4) |
|
Based on Schedule 13G/A filed on February 7, 2006 by EARNEST Partners, LLC
(EARNEST). |
|
(5) |
|
Includes 1,158,247 shares as to which EARNEST has sole voting power. EARNEST has
sole dispositive power over all of the shares listed as beneficially owned by it. |
|
(6) |
|
Based on Schedule 13G filed on January 26, 2006 by Barclays Global Investors, NA on
behalf of itself and its affiliates, Barclays Global Fund Advisors, Barclays Global Investors,
Ltd, and Barclays Global Investors Japan Trust and Banking Company Limited. |
|
(7) |
|
Includes 2,698398 shares as to which Barclays Global Investors, NA has sole voting
power and 2,941,614 shares as to which it has sole dispositive power; 353,241 shares as to
which Barclays Global Fund Advisors has sole voting and dispositive power. The shares
reported are held in trust accounts for the economic benefit of the beneficiaries of those
accounts. |
|
(8) |
|
Based on Schedule 13D filed on February 21, 2006 by JANA Partners LLC. |
|
(9) |
|
Includes (i) 866,900 shares beneficially owned outright, (ii) 1,837,000 shares
issuable upon the exercise of call options with an exercise price of $30.00 per share, (iii)
100,000 shares issuable upon the exercise of call options with an exercise price of $50.00 per
share and (iii) 50,000 shares issuable upon the exercise of call options with an exercise
price of $55.00 per share. |
|
(10) |
|
Includes options to acquire 83,580 shares of common stock that are currently vested
or vest within 60 days of the date hereof. Also includes 30,000 shares of restricted stock
subject to transfer restrictions expiring as follows: 17,000 shares in 2008; 13,000 shares in
2009. |
|
(11) |
|
Includes options to acquire 19,000 shares of common stock that are currently
vested. Also includes 6,000 shares of restricted stock subject to transfer restrictions
expiring as follows: 2,000 shares in 2008; 2,000 shares in 2009; and 2,000 in 2010. |
|
(12) |
|
Includes options to acquire 21,000 shares of common stock that are currently
vested. Also includes 4,000 shares of restricted stock subject to transfer restrictions
expiring as follows: 2,000 shares in 2008; and 2,000 in 2010. |
|
(13) |
|
Includes options to acquire 23,000 shares of common stock that are currently
vested. Also includes 6,000 shares of restricted stock subject to transfer restrictions
expiring as follows: 2,000 shares in 2008; 2,000 shares in 2009; and 2,000 in 2010. |
|
(14) |
|
Includes options to acquire 11,000 shares of common stock that are currently
vested. Also includes 6,000 shares of restricted stock subject to transfer restrictions
expiring as follows: 2,000 shares in 2008; 2,000 shares in 2009; and 2,000 in 2010. |
|
(15) |
|
Includes options to acquire 6,000 shares of common stock that are currently vested.
Also includes 6,000 shares of restricted stock subject to transfer restrictions expiring as
follows: 2,000 shares in 2008; 2,000 shares in 2009; and 2,000 in 2010. |
|
(16) |
|
Includes options to acquire 6,000 shares of common stock that are currently vested.
Also includes 6,000 shares of restricted stock subject to transfer restrictions expiring as
follows: 2,000 shares in 2008; 2,000 shares in 2009; and 2,000 in 2010. |
|
(17) |
|
Includes options to acquire 2,000 shares of common stock that are currently vested.
Also includes 2,000 shares of restricted stock with restrictions that expires in 2010. |
|
(18) |
|
Includes options to acquire 58,320 shares of common stock that are currently vested
or vest within 60 days of the date hereof. Also includes 16,553 shares of restricted stock
subject to transfer restrictions expiring as follows: 6,000 shares in 2008; 4,000 shares in
2009; and 6,553 shares in 2010. |
|
(19) |
|
Includes options to acquire 17,980 shares of common stock that are currently vested
or vest within 60 days of the date hereof. Also includes 11,266 shares of restricted stock
subject to transfer restrictions expiring as follows: 3,000 shares in 2008; 3,000 shares in
2009; and 5,266 shares in 2010. |
-31-
|
|
|
(20) |
|
Includes options to acquire 17,243 shares of common stock that are currently
vested or vest within 60 days of the date hereof. Also includes 9,394 shares of restricted
stock subject to transfer restrictions expiring as follows: 2,000 shares in 2008; 2,000 shares
in 2009; and 5,394 shares in 2010. |
|
(21) |
|
Includes (i) options to acquire 4,000 shares of common stock that are currently
vested or vest within 60 days of the date hereof (ii) 275 shares owned in a custodial account
for Mr. Sherricks son, (iii) 11,500 shares of restricted stock subject to transfer
restrictions expiring as follows: 4,000 shares in 2008 and 7,500 shares in 2010. |
|
(22) |
|
Includes 7,500 shares of restricted stock subject to transfer restrictions expiring
in 2008. |
|
(23) |
|
Effective December 8, 2005, Mr. Karnes resigned as Senior Vice President and Chief
Financial Officer. All restricted stock and stock options held by Mr. Karnes became vested
and fully exercisable effective December 8, 2005 pursuant to the terms of his separation
agreement. |
|
(24) |
|
Includes options to acquire 10,300 shares of common stock that are currently
vested or vest within 60 days of the date hereof. |
|
(25) |
|
Includes (i) 14,601 options which were granted to a additional executive officers
not named in the preceding table (Hresko and Bergeron) that are currently vested or vest
within 60 days hereof and (ii) 4,000 shares of restricted stock with restrictions that expire
in 2008 (Hresko and Bergeron). |
-32-
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires our directors and officers, and
persons who own more than 10% of our common stock, to file initial reports of ownership and reports
of changes in ownership of common stock on Forms 3, 4, and 5 with the SEC and the NYSE. Directors,
executive officers and greater than 10% stockholders are required by SEC regulations to furnish us
with copies of any forms that they file. The Company assists its directors and executive officers
in complying with these requirements and is required to disclose in this Proxy Statement the
failure to file these reports on behalf of any reporting person when due.
Based on the Companys review of such reports, the Company believes that all such Section
16(a) filing requirements were satisfied during fiscal year 2005, except for the following late
filings: (1) due to an administrative oversight, a Form 3 for Mr. Bergeron with respect to a grant
of options to purchase shares of the Companys common stock and an award of restricted stock
related to his appointment as Vice President and General Manager, Offshore Division in March 2005,
and (2) a Form 4 for Mr. Sherrick with respect to the purchase of 275 shares for the custodial
account of one of his sons on November 18, 2005.
PROPOSAL OF STOCKHOLDERS
Under Rule 14a-8 of the Exchange Act, stockholders proposals may be eligible for inclusion in
our 2007 Proxy Statement. We must receive any stockholders proposal intended to be presented at
the 2007 Annual Meeting at our principal executive offices no later than November 17, 2006, if the
proposal is to be considered for inclusion in our Proxy Statement relating to the 2007 Annual
Meeting. In addition, in order for a matter proposed by a stockholder to be considered at the 2007
Annual Meeting, it must be made timely. To be made timely, a stockholder must give notice in
accordance with the Restated Bylaws between December 17, 2006 and January 16, 2007. Nominations
for election of directors by stockholders must be received by the Corporate Secretary at our
principal executive office between December 17, 2006 and January 16, 2007 to be properly nominated
before the 2007 Annual Meeting, although we are not required to include such nominees in our Proxy
Statement.
In accordance with our Restated Bylaws, however, if the date of the 2007 Annual Meeting of
Stockholders is changed by more than 30 calendar days from the date contemplated at the time of the
previous years proxy statement, the stockholder notice must be received by us not later than the
close of business on the later of (i) the 90th day prior to such annual meeting or (ii)
the 10th day following the date on which public announcement of the date of such meeting
is first made.
In addition, in the event a stockholder proposal is not submitted to us prior to January 16,
2007, the proxy to be solicited will authorize the proxies to vote the shares in accordance with
their best judgment and discretion if a proposal is presented at the meeting without any discussion
of the proposal in the proxy statement for such meeting.
FINANCIAL INFORMATION
A
copy of our Annual Report on Form 10-K, including the financial statements and any schedules and exhibits thereto, may be obtained without charge by written request to Karol L. Adams, Corporate Secretary, The Houston Exploration Company, 1100 Louisiana
Street, Suite 2000, Houston, Texas 77002.
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By Order of the Board of Directors, |
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/s/ Karol L. Adams |
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Karol L. Adams |
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Corporate Secretary |
March 17, 2006
Houston, Texas
-33-
APPENDIX A
THE HOUSTON EXPLORATION COMPANY
Board of Directors Standards of Independence
The Board of Directors of The Houston Exploration Company has adopted the following
standards for determining the independence of its members. Independence determinations are made
both in accordance with applicable laws and New York Stock Exchange rules as well as for purposes
of the Companys Corporate Governance Guidelines, which state that the Company should strive to
maintain a substantial independent and diverse viewpoint among members of its Board of Directors.
Members of the Board who fail any of the standards set forth below shall presumptively be deemed
not independent. The presumption that any director is not independent may be overcome by the vote
of a majority of the Board if, based on the totality of the facts and circumstances, the Board
determines that the affected directors relationship does not violate any applicable law or New
York Stock Exchange rule and is not in fact material notwithstanding its reference in these
standards.
Members of the Board of Directors who meet all of the following standards shall be deemed to
be independent for all purposes under applicable law and New York Stock Exchange rules.
|
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|
Neither the director nor any immediate family member is or has in the past three years
been an employee of the Company. |
|
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|
Neither the director nor any immediate family member receives or has received during the
past three years any compensation from the Company other than director and committee fees
and pension or other forms of deferred compensation for prior service (provided such
compensation is not contingent in any way on continued service). |
|
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|
Neither the director nor any immediate family member is now or has during the past three
years been employed by or affiliated with a present or former internal or external auditor
of the Company. |
|
|
|
|
Neither the director nor any immediate family member is or has during the past three
years been employed as an executive officer by a company on whose board of directors an
executive officer of the Company serves. |
|
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|
|
The director is not now, nor during the past three years has been an executive officer
or an employee of any company that makes payments to, or receives payments from the Company
for property or services in an amount which, in any single fiscal year, exceeds the greater
of $1 million or 2% of such other companys consolidated gross revenues, nor has any
immediate family member been an executive officer of such other company during such period. |
|
|
|
|
Neither the director nor any immediate family member is now or has during the past three
years been in a material relationship with the Company (either directly or as a partner,
shareholder or officer of an organization that has a relationship with the Company), which
material relationship can include commercial, industrial, banking, consulting, legal,
accounting, charitable and familial relationships. |
* * *
A-1
APPENDIX B
THE HOUSTON EXPLORATION COMPANY
Qualifications for Nominations to the Board of Directors
The following principles enunciate the general personal and professional characteristics that
the Nominating and Governance Committee deems most relevant in assessing any candidates
qualifications for nomination to the Board of Directors. Candidates must satisfy all mandatory
qualifications set forth below in order to be considered for nomination to the Board. The
Committee will discern between candidates based upon the discretionary qualifications set forth
below in light of such facts and circumstances as the Committee deems relevant, including the
following:
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The size, composition and diversity of the Board |
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The number and qualifications of other candidates |
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The need for continuity on the Board |
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The relevance of the candidates background and experience to the issues facing the
Board and the Company during the coming year |
Nominations for election to the Board are made in the sole discretion of the Committee and are
final for the election year involved.
Qualified candidates for nomination to the Board must:
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Embody the highest personal and professional ethical character and espouse the
values of The Houston Exploration Company. |
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Fully comprehend the role of a director on the board of directors of a public
company and the fiduciary obligations owed to the Company and its shareholders. |
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Enjoy a reputation for prominence, leadership, stewardship and the exercise of sound
and responsible judgment in his or her personal and professional affairs. |
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Commit the substantial time and effort required to adequately perform the
obligations of a director of a New York Stock Exchange company. |
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Offer the prospect of a reasonable tenure on the Board in accordance with the
Boards mandatory retirement age of 75, generally at least five years from the date of
initial election to the Board. |
Qualified candidates for nomination to the Board generally should:
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Have significant experience as a director or a senior most executive officer (e.g,
chief executive officer, chief operating officer, chief financial officer, or similar
position) within an organization of comparable size and complexity. |
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Have substantial substantive understanding of issues pertaining to the exploration
and production segment of the oil and gas industry, a relevant energy-related industry
(e.g., oil field services, transportation, marketing, or distribution), or an otherwise
complimentary or helpful industry or profession (e.g., accounting, investment banking,
or human resources management). |
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Contribute to a substantial independent and diverse viewpoint on the Board, unbiased
toward any particular constituency and able to effectively represent all shareowners. |
* * *
B-1
PROXY
THE HOUSTON EXPLORATION COMPANY
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF THE COMPANY
Annual Meeting April 28, 2006
The undersigned having received the notice and accompanying Proxy Statement for said meeting
hereby constitutes and appoints KAROL L. ADAMS and STEVEN L. MUELLER, and each of them, his true
and lawful agents and proxies with power of substitution in each, to represent and vote at the
Annual Meeting to be held at 10:00 a.m. on April 28, 2006 at the Four Seasons Hotel, 1300 Lamar,
Houston, Texas 77010, or at any adjournment thereof, on all matters properly coming before said
meeting, all shares of THE HOUSTON EXPLORATION COMPANY which the undersigned may be entitled to
vote. The above proxies are hereby instructed to vote as shown on the reverse side of this card.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED BY THE UNDERSIGNED
STOCKHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED FOR PROPOSALS (1) AND (2). IN
ADDITION, KAROL L. ADAMS, AND STEVEN L. MUELLER, AS PROXIES, ARE AUTHORIZED TO VOTE IN THEIR
DISCRETION ON ANY OTHER MATTERS THAT MAY PROPERLY COME BEFORE THE MEETING.
You are encouraged to specify your choices by marking the appropriate boxes above, but you do not
need to mark any boxes if you wish to vote in accordance with our Board of Directors
recommendations. The proxies cannot vote your shares unless you sign and return this card.
(Continued and to be dated and signed on the reverse side.)
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To change your address, please mark this box. o
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THE HOUSTON EXPLORATION COMPANY
PO BOX 11370
NEW YORK, NY 10203-0370 |
To include any comments, please mark this box. o |
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x Please mark your votes as in this example
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1.
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Election of
Directors;
Nominees: Robert
B. Catell, John U.
Clarke, David G.
Elkins, William G.
Hargett, Harold R.
Logan, Jr., Thomas
A. McKeever,
Stephen W. McKessy
and Donald C.
Vaughn.
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FOR
(to vote for all nominees)
o
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WITHHOLD
AUTHORITY
o
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*EXCEPTIONS
o |
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(INSTRUCTIONS
: To
withhold
authority to
vote for any
individual
nominee,
mark the
Exceptions
box and
write that
nominees
name in the
space
provided
below.)
*Exceptions
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2.
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Ratification
and approval of
Deloitte & Touche
LLP as our
independent public
accountants for the
fiscal year ending
December 31, 2006.
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FOR
o
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AGAINST
o
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ABSTAIN
o |
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3.
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In the
discretion of the
proxies, Karol L.
Adams and Steven L.
Mueller, upon such
other matters as
may properly come
before the meeting. |
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This proxy, when properly executed, will be voted in the manner directed by the undersigned
stockholder. If no direction is made, this proxy will be voted FOR proposals (1) and (2). In
addition, KAROL L. ADAMS and STEVEN L. MUELLER, as proxies, are authorized to vote in their
discretion on any other matters that may properly come before the meeting.
You are encouraged to specify your choices by marking the appropriate boxes above, but you do not
need to mark any boxes if you wish to vote in accordance with our Board of Directors
recommendations. The proxies cannot vote your shares unless you sign, date and return this card.
PLEASE MARK, SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY USING THE ENCLOSED ENVELOPE.
Note: Executors, administrators, trustees, etc., please give your full title. If a corporation,
please sign full corporate name by duly authorized officer. Joint owners should each sign
personally.