SCHEDULE 14A
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INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
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Remington Oil and Gas Corporation
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REMINGTON OIL AND GAS
CORPORATION
Proxy Statement and
Notice of Annual Meeting
Meeting Date May 27, 2003
LETTER TO OUR STOCKHOLDERS
To Our Stockholders:
I cordially invite all of our Stockholders to the Park Cities Hilton at
9:00 a.m. on May 27, 2003, for our Annual Meeting. This proxy statement and
proxy card are sent to you in connection with the Annual Meeting. Also enclosed
is a copy of our annual report.
Please vote as soon as possible. We look forward to seeing you at the
Annual Meeting.
Sincerely,
/s/ JAMES A. WATT
James A. Watt
President and Chief Executive
Officer
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS-
MAY 27, 2003
TIME
9:00 a.m. CDT, on Tuesday, May 27, 2003
PLACE
Park Cities Hilton
5954 Luther Lane
Dallas, Texas
BUSINESS
(1) Elect a Board of Directors of 7 members, and
(2) Transact all other business that may properly come before the meeting.
DOCUMENTS
The Proxy Statement, proxy card, and Remington Oil and Gas Corporation's 2002
Annual Report are included in this mailing.
RECORD DATE
Stockholders owning common stock of the Company at the close of business on
April 16, 2003, are entitled to vote at the Annual Meeting.
VOTING
Even if you plan to attend the meeting in person, please provide us your voting
instructions by marking, signing and dating the proxy card and returning it in
the enclosed postage-paid envelope.
BY ORDER OF THE
BOARD OF DIRECTORS -- March 21, 2003
/S/ J. BURKE ASHER
J. Burke Asher
Secretary
TABLE OF CONTENTS
Questions and Answers....................................... 1
Proposal.................................................... 3
Corporate Governance -- Our Directors and Officers.......... 4
Corporate Governance -- Board Compensation and Committees... 10
Independent Public Accountants.............................. 12
Audit Committee Report...................................... 13
Audit Committee Charter..................................... 14
Executive Compensation...................................... 20
Stock Option Plans.......................................... 21
Pension Plans............................................... 23
Change in Control Arrangements and Employment Contracts..... 25
Board Compensation Committee Report on Executive
Compensation.............................................. 27
Performance Graph........................................... 29
Security Ownership of Certain Beneficial Owners and
Management -- Ownership of Certain Beneficial Owners...... 30
Security Ownership of Certain Beneficial Owners and
Management -- Ownership of Management..................... 30
Certain Relationships and Related Transactions.............. 32
(i)
QUESTIONS AND ANSWERS
Q: WHY AM I RECEIVING THIS PROXY STATEMENT AND CARD?
A: The Board of Directors of Remington Oil and Gas Corporation is soliciting
your proxy for the 2003 Annual Meeting of Stockholders and any adjournments or
postponements thereof. The meeting will be held at 9:00 a.m. CDT on Tuesday, May
27, 2003, at the Park Cities Hilton, Dallas, Texas. This Proxy Statement and
card are initially being provided to stockholders on or about April 24, 2003.
Q: WHAT AM I VOTING ON?
A: The election of seven directors who will constitute the Company's Board of
Directors.
Q. WHO IS ENTITLED TO VOTE?
A: Stockholders as of the close of business on April 16, 2003. Each share of
common stock is entitled to one vote. As of April 16, 2003, there were
26,459,991 shares of Remington common stock outstanding.
Q: HOW DO I GIVE VOTING INSTRUCTIONS?
A: You may attend the meeting and vote and give instructions in person or by
mail. Instructions are on the proxy card. The persons named on the proxy card
will vote all properly executed proxies that are delivered pursuant to this
solicitation and not subsequently revoked in accordance with the instructions
given by you.
Q: MAY I CHANGE MY VOTE?
A: Yes, you may revoke your proxy by submitting a subsequent proxy or by written
request received by the Company's secretary before the meeting. The Company's
executive offices are located at 8201 Preston Road, Suite 600, Dallas, Texas
75225-6211. The telephone number is (214) 210-2650.
Q: HOW DO I VOTE IF I HOLD MY STOCK THROUGH A BROKER, BANK OR OTHER NOMINEE?
A: Only stockholders of record as of April 16, 2003, are entitled to vote. If
you hold your shares through a broker, bank, or other nominee, you hold your
shares in "street name." You most likely will receive a request for voting
instructions from the record holder through whom you hold your shares. Follow
the instructions in such a request in order for the record holder to follow your
voting wishes.
Q: WHAT DOES IT MEAN IF I GET MORE THAN ONE PROXY CARD?
A: You will receive a proxy card for each account that you have. Please vote
proxies for all accounts to ensure that all your shares are voted.
Q: WHAT CONSTITUTES A QUORUM?
A: A majority of the outstanding shares of the Company must be represented at
the meeting, whether in person or by proxy, for there to be a quorum for the
meeting. For purposes of determining the existence of a quorum so that business
may be conducted at the meeting, abstentions are counted as are properly
executed proxies which withhold voting authority on any matter. Abstentions for
purposes of tabulating the vote have the same effect as a vote against the
proposal as does a proxy withholding voting authority.
Q: WHO PAYS THE EXPENSE OF SOLICITING PROXIES?
A: The Company pays the cost of soliciting proxies. The officers or other
employees of the Company may solicit proxies to have a larger representation at
the meeting.
Q: ARE THERE ANY OTHER MATTERS WHICH MAY BE BROUGHT BEFORE THE MEETING?
A: The Board of Directors knows of no matters to be brought before the meeting
other than the election of directors discussed in this Proxy Statement.
Q: DOES THE COMPANY HAVE A NOMINATING COMMITTEE CONSISTING OF ONLY INDEPENDENT
DIRECTORS?
A: All five members of the Nominating and Corporate Governance Committee are
independent.
Q: HOW IS THE COMPANY'S SLATE OF NOMINEES FOR DIRECTOR DETERMINED?
A: The Nominating and Corporate Governance Committee by a majority vote proposes
a slate of directors to the full Board who must approve the slate by a majority
vote in order for the slate to be presented at the Annual Meeting.
Q: WHY DOES THE SLATE OF DIRECTORS FOR THIS YEAR'S ANNUAL MEETING CONSIST OF
ONLY SEVEN DIRECTORS?
A: Three current directors, David H. Hawk, James Arthur Lyle and Don D. Box are
not standing for re-election. The new nominee for director is Robert P. Murphy,
the Company's Chief Operating Officer.
1
QUESTIONS AND ANSWERS-CONTINUED
Q: HOW MANY INDEPENDENT DIRECTORS ARE THERE ON REMINGTON'S BOARD OF DIRECTORS?
A: At present our Board consists of nine members. Six members are independent,
one member is considered affiliated with a major stockholder, and two members
are officers of the Company. If the proposed slate of directors is elected, the
Board will consist of seven members, five of whom are independent, and two of
whom are officers of the Company.
Q: WHAT BOARD COMMITTEES ARE THERE AND HOW ARE THEIR MEMBERS AND CHAIRMEN
SELECTED?
A: There are currently four standing committees of the Board: Audit,
Compensation, Nominating and Corporate Governance, and Executive. The members of
these committees and their chairmen are selected by a vote of the Board. All
members of the Audit, Nominating and Corporate Governance, and Compensation
committees must be independent directors.
Q: DO YOU INTEND TO INCREASE THE SIZE OF THE BOARD OF DIRECTORS BACK TO NINE
MEMBERS?
A: Under our By-laws, the Board may fill vacancies on the Board, or the
Nominating and Corporate Governance Committee can propose a slate of directors
that results in an increase in the size of the Board. Board size is an issue to
be studied as the Board considers appropriate.
2
PROPOSAL
- PROPOSAL NO. 1 ELECTION OF A SLATE OF SEVEN DIRECTORS
- The Nominating and Corporate Governance Committee and the full Board
unanimously nominated the following for election as directors:
- John E. Goble, Jr. (age 56, director since 1997)
- William E. Greenwood (age 64, director since 1997)
- Robert P. Murphy (age 44, new nominee)
- David E. Preng (age 56, director since 1997)
- Thomas W. Rollins (age 72, director since 1996)
- Alan C. Shapiro (age 57, director since 1994)
- James A. Watt (age 53, director since 1997)
- The nominees if elected will constitute the entire Board of Directors, and
each has consented to serve until the Annual Meeting in the year 2004.
- The affirmative vote of a plurality of shares present and entitled to vote is
required for the election of directors.
- The Board of Directors recommends a vote "For" the nominees listed in Proposal
No. 1.
3
CORPORATE GOVERNANCE-
OUR DIRECTORS AND OFFICERS
The following information relates to the members of our Board of Directors or
executive officers during 2002. Each current director holds office until the
2003 Annual Meeting or until his earlier resignation or removal. Each director
re-elected at the 2003 Annual Meeting shall serve until the 2004 Annual Meeting
or his earlier resignation or removal. Executive officers hold their respective
offices at the pleasure of the Board of Directors.
CURRENT DIRECTORS WHO ARE STANDING FOR RE-ELECTION
JOHN E. GOBLE, JR., CPA Age: 56
Positions with us:
- Director since April 1997
- Member -- Audit Committee (Chairman)
- Member -- Nominating and Corporate Governance Committee
Employment:
- Byrd Investments -- Investment and financial advisor since 1986
Outside directorships:
- Miracle of Pentecost Foundation
Education:
- Bachelor of Business Administration -- Southern Methodist University
WILLIAM E. GREENWOOD Age: 64
Positions with us:
- Director since April 1997
- Member -- Audit Committee
- Member -- Compensation Committee
- Member -- Nominating and Corporate Governance Committee
Employment:
- Consultant since 1995
- Director and Chief Operating Officer -- Burlington Northern Railroad
Corporation from 1990 until 1994
Outside directorships:
- Transport Dynamics Inc. (Chairman)
- President -- Mendota Museum and Historical Society
Education:
- Bachelor of Science -- Marquette University
DAVID E. PRENG Age: 56
Position with us:
- Director since April 1997
- Member -- Compensation Committee (Chairman)
- Member -- Nominating and Corporate Governance Committee (Chairman)
Employment:
- Chief Executive Officer and President since 1980 -- Preng and Associates, an
international executive search firm specializing in the energy industry
4
CORPORATE GOVERNANCE-
OUR DIRECTORS AND OFFICERS - CONTINUED
Outside directorships:
- Director -- Community National Bank
- Fellow -- Institute of Directors
Education:
- Bachelor of Science in Business Administration -- Marquette University
- Master of Business Administration -- DePaul University
THOMAS W. ROLLINS Age: 72
Positions with us:
- Director since July 1996
- Member -- Nominating and Corporate Governance Committee
- Member -- Executive Committee
Employment:
- Chief Executive Officer since 1985 -- Rollins Resources, a natural gas and oil
consulting firm
- Previously held executive positions and/or directorships with Shell Oil
Company, Pennzoil Company, Florida Gas Transmission Company, Pogo Producing
Company, Magma Copper Company and Felmont Oil Corporation.
Outside directorships:
- Director -- Pheasant Ridge Winery
- Director -- The Teaching Company
- Director -- Nature Conservancy of Texas
Education:
- Geological Engineering Degree and Distinguished Graduate Medalist -- The
Colorado School of Mines
ALAN C. SHAPIRO Age: 57
Positions with us:
- Director since May 1994
- Member -- Audit Committee
- Member -- Nominating and Corporate Governance Committee
Employment:
- The Ivadelle and Theodore Johnson Professor of Banking and Finance in the
Department of Finance and Business Economics, Marshall School of Business,
University of Southern California, since 1992
- Previously Chairman of the Department of Finance and Business Economics,
University of Southern California, 1993-1998
- Frequent consultant and expert witness to business and government
Publications:
- Multinational Financial Management, a best selling textbook used in MBA
programs worldwide
- Numerous other books and articles
Education:
- Bachelor of Arts in Mathematics -- Rice University
- Ph.D. in Economics -- Carnegie Mellon University
5
CORPORATE GOVERNANCE-
OUR DIRECTORS AND OFFICERS - CONTINUED
JAMES A. WATT Age: 53
Positions with us:
- Chief Executive Officer since February 1998
- President since March 1997
- Director since September 1997
- Member -- Executive Committee (Chairman)
Positions with our affiliates:
- CKB Petroleum, Inc.
-- Director and President since January 1999
- CKB & Associates, Inc.
-- Director and President since January 1999
Previous employment highlights:
- Vice President/Exploration -- Seagull E&P, Inc., 1993-1997
- Vice President/Exploration and Exploitation -- Nerco Oil & Gas, Inc.,
1991-1993
Outside directorships:
- Director -- Suzuki Institute of Dallas
Education:
- Bachelor of Science in Physics -- Rensselaer Polytechnic Institute
CURRENT DIRECTORS WHO ARE NOT STANDING FOR RE-ELECTION
DON D. BOX Age 52
Positions with us:
- Director since March 1991
- Executive Vice President since October 1997
- Chairman of the Board January 1994-October 1997
- Chief Executive Officer August 1996-October 1997
- President August 1996-March 1997
Positions with our affiliates:
- CKB Petroleum, Inc.
-- Vice President since September 1997
-- Director August 1982-September 1997
-- President August 1982-September 1997
- CKB & Associates, Inc.
-- Vice President since May 1981
-- Director May 1981-September 1997
Outside directorships:
- Authoriszer, Inc.
Education:
- Bachelor of Arts -- University of Pennsylvania
- Bachelor of Science in Economics -- The Wharton School of the University of
Pennsylvania
- Masters of Business Administration -- Southern Methodist University
6
CORPORATE GOVERNANCE-
OUR DIRECTORS AND OFFICERS - CONTINUED
DAVID H. HAWK Age: 58
Positions with us:
- Director since September 1997
- Chairman of the Board since October 1997
- Member -- Executive Committee
Employment:
- J.R. Simplot Company -- Director, Energy Natural Resources since 1984
- Previously employed with Atlantic Richfield Company and Tenneco Inc. as an
Exploration Geologist
- Prior executive positions with IGC Production Company, Sundance Oil Company
and Horn Resources Corporation
Education:
- Bachelor of Science in Geology and Distinguished Graduate
Medalist -- University of Idaho
- Master of Science in Geology -- University of Oklahoma
JAMES ARTHUR LYLE, CCIM Age: 58
Current positions with us:
- Director since September 1997
- Member -- Compensation Committee
Employment:
- Owner -- James Arthur Lyle & Associates, Inc., a commercial, industrial and
investment real estate firm, since 1976
Outside directorships:
- Director, Chief Operating Officer and President since 1984 -- Hueco Mountain
Estates, Inc., a 10,500 acre multi-use real estate development located in El
Paso County, Texas
Education:
- Bachelor of Science in Industrial Management -- Georgia Institute of
Technology
NEW NOMINEE FOR DIRECTOR
ROBERT P. MURPHY Age: 44
Positions with us:
- Chief Operating Officer since October 2000 and Senior Vice
President/Exploration & Production since July 1999
- Vice President/Exploration, January 1998-June 1999
Previous employment:
- Director -- Cairn Energy USA, Inc., May 1996-November 1997
- Vice President -- Exploration -- Cairn Energy USA, March 1993-January 1998
- Exploration Geologist -- Cairn Energy USA, 1990-March 1993
- Exploration Geologist -- Enserch Exploration, 1984-1990
Education:
- Bachelor of Science in Geology -- The University of Texas at Austin
- Master of Science in Geosciences -- The University of Texas at Dallas
7
CORPORATE GOVERNANCE-
OUR DIRECTORS AND OFFICERS - CONTINUED
EXECUTIVE OFFICERS NOT ALSO SERVING AS DIRECTORS
STEVEN J. CRAIG Age: 51
Positions with us:
- Senior Vice President/Planning and Administration since April 1997
Positions with our affiliates:
- CKB Petroleum, Inc.
-- Director and Vice President since January 1999
-- Vice President and Assistant Treasurer, March 1997-October 1997
-- Director, March 1997-August 1997
- CKB & Associates, Inc.
-- Director and Vice President since January 1999
-- Vice President and Assistant Treasurer, March 1997-October 1997
-- Director, March 1997-August 1997
- S-Sixteen Holding Company
-- Vice President and Assistant Treasurer, March 1997-October 1997
-- Director, March 1997-August 1997
Education:
- Bachelor of Arts in Economics -- Southern Methodist University
- Master of Business Administration in Finance and Quantitative
Analysis -- Southern Methodist University
J. BURKE ASHER Age: 62
Positions with us:
- Vice President/Finance since December 1997
- Secretary since October 1996
- Chief Accounting Officer, September 1996-December 1997
Positions with our affiliates:
- CKB Petroleum, Inc.
-- Treasurer and Assistant Secretary since March 1997
-- Director, March 1997-April 1997
- CKB & Associates, Inc.
-- Treasurer and Assistant Secretary since March 1997
-- Director, March 1997-August 1997
- S-Sixteen Holding Company
-- Treasurer and Assistant Secretary, March 1997-December 1998
-- Director, March 1997-August 1997
Education:
- Bachelor of Science in Economics -- The Wharton School of the University of
Pennsylvania
GREGORY B. COX Age: 49
Positions with us:
- Vice President/Exploration since January 2002
- Exploration Manager since October 1997
8
CORPORATE GOVERNANCE-
OUR DIRECTORS AND OFFICERS - CONTINUED
Education:
- Bachelor of Science in Geology -- University of Texas at Arlington
EDWARD V. HOWARD, CPA Age: 39
Positions with us:
- Vice President/Controller since March 1992
- Assistant Secretary since October 1997
Education:
- Bachelor of Business Administration -- West Texas State University
Except for Mr. Rollins' consulting practice, no director has a significant
personal interest in the exploration, development or production of oil and gas.
Mr. Rollins is required to abstain on matters in which there may be a conflict
of interest between us and one of his clients.
LITIGATION INVOLVING DIRECTORS AND EXECUTIVE OFFICERS
We know of no reportable litigation involving the directors or executive
officers.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Based solely upon our review of Forms 3, 4, and 5 received by us for 2002, all
persons required by Section 16(a) of the Securities Exchange Act of 1934 ("the
Act") to file such forms complied with Section 16(a) of the Act.
9
CORPORATE GOVERNANCE-
BOARD COMPENSATION AND COMMITTEES
COMPENSATION OF DIRECTORS
- Only non-employee directors are compensated for Board service
- Compensation includes:
-- Annual retainer of $20,000
-- $1,000 per Board meeting attended (Chairman of the Board receives extra
$250 per Board meeting attended)
-- Eligible for stock grant (see discussion of grant on page 22)
-- Committee meeting fee of $750 per meeting attended by committee members or
$1,000 for the committee chairman per meeting attended, if on a different
day than a full Board meeting
-- Directors are entitled to reimbursement of Company related out-of-pocket
expenses
-- We provide directors and officers insurance and indemnification to the full
extent allowed by law
-- All or part of a director's Board compensation may be received in Company
stock in accordance with the Non-Employee Director Stock Purchase Plan
- There were five Board meetings in 2002
- All directors attended at least 75% of the meetings
- In 2002, non-employee directors were awarded non-qualified stock options with
exercise prices of $17.15, exercisable 1/3 per year beginning one year after
the date of grant, as follows:
-- David H. Hawk -- 10,000 shares
-- John E. Goble, Jr., David E. Preng, and Alan C. Shapiro -- 7,500 shares
each
-- William E. Greenwood, Thomas W. Rollins, and James Arthur Lyle -- 5,000
shares each
NON-EMPLOYEE DIRECTOR STOCK PURCHASE PLAN
- This plan was approved by our stockholders December 4, 1997
- Each non-employee director may, once a year, elect to receive all or part of
his Board compensation in our common stock
- The number of shares received equals 150% of the cash amount of compensation
divided by the closing market price of our common stock on the day the cash
fees would be payable
- Shares received under this plan may not be transferred for one year after
issuance
- Shares may be transferred earlier than one year in the case of a director's
death, disability or departure from the Board
- During the restricted transfer period the director may vote the stock and
receive any dividends
- The Board may terminate this plan at any time
- Shares received under plan for 2002:
-- John E. Goble, Jr........ 1,041 shares in lieu of $12,000 cash
-- William E. Greenwood..... 2,560 shares in lieu of $29,500 cash
-- James Arthur Lyle........ 2,243 shares in lieu of $25,750 cash
-- David E. Preng........... 2,266 shares in lieu of $26,000 cash
-- Thomas W. Rollins........ 692 shares in lieu of $ 8,000 cash
-- Alan C. Shapiro.......... 2,560 shares in lieu of $29,500 cash.
- BOARD COMMITTEES
- Audit Committee:
- Members are Mr. Goble, Mr. Greenwood, and Dr. Shapiro
- Met six times in 2002
- The Audit Committee and its functions are governed by an Audit Committee
Charter adopted by our Board of Directors. The Audit Committee Charter is set
forth on pages 14 through 19 of this Proxy Statement. The Audit Committee
Report is included on page 13 in this Proxy Statement
- Compensation Committee:
- Members are Mr. Preng, Mr. Lyle, and Mr. Greenwood
- Met once in 2002
- Evaluates performance of executive officers and approves their compensation
- Approves compensation for other employees
- Administers the Company's long-term incentive compensation plans
- Oversight responsibility for Company's pension and 401(k) plans
- The Nominating and Corporate Governance Committee
- Members are Mr. Preng, Mr. Goble, Mr. Greenwood, Mr. Rollins, and Dr. Shapiro
- The Nominating and Corporate Governance Committee's primary purposes are to
identify individuals qualified to become members of the Board of Directors,
and to recommend a slate of directors to the Board of Directors for election
at the Company's annual meeting or, if requested by the Board of Directors,
recommend director candidates to fill a vacancy on
10
the Board; to assist in the development of the Company's Corporate Governance
Guidelines and the Company's Code of Business Conduct and Ethics
- Met twice in 2002
- Executive Committee:
- Members are Mr. Hawk, Mr. Watt, and Mr. Rollins
- Met once in 2002
- Has authority to perform in place of the Board of Directors except for matters
relating to amending the Certificate of Incorporation, declaring dividends,
adopting a merger agreement, recommending to the stockholders a sale or
dissolution of the Company, removing or indemnifying directors, and amending
the By-Laws
- From time to time, other committees of the Board of Directors may be
established for special purposes.
11
INDEPENDENT PUBLIC ACCOUNTANTS
The Audit Committee of our Board of Directors has selected Ernst & Young LLP as
our principal independent public accountants. Ernst & Young performed our audit
for the fiscal year ended December 31, 2002. A representative of Ernst & Young
is expected to be present at our Annual Meeting. The representative will have
the opportunity to make a statement if so desired, and will be available to
respond to appropriate questions.
On April 17, 2002, our Board of Directors, based on the recommendation of our
Audit Committee, dismissed Arthur Andersen as our principal independent public
accountants and selected Ernst & Young. Arthur Andersen had been our principal
independent public accountants since 1996. There had been no disagreements with
Arthur Andersen on any matter of accounting principles or practices, financial
statement disclosure or auditing scopes or procedures during that period. Our
principal independent public accountants' report on the financial statements for
either of the past two years has not contained an adverse opinion or a
disclaimer of opinion, and was not qualified or modified as to uncertainty,
audit scope, or accounting principles. During our two most recent fiscal years
prior to the engagement of Ernst & Young, we did not consult Ernst & Young with
respect to the application of accounting principles to a specified transaction,
either completed or proposed, or the type of audit opinion that might be
rendered on our consolidated financial statements, or any other matters or
reportable events listed in Items 304(a)(2)(i) and (ii) of Regulation S-K.
FEES
For the fiscal year ended December 31, 2002, we incurred the following charges
from Arthur Andersen in connection with their services:
Audit Fees -- $24,000 for various review procedures in connection with the
financial statements for the year ended December 31, 2001. No such fees to
Arthur Andersen were incurred pertaining to fiscal year ended December 31, 2002;
Financial Information Systems Design and Implementation Fees -- None
All Other Fees -- $20,625. This amount represents fees for work by Arthur
Andersen relating to corporate taxes.
For the fiscal year ended December 31, 2002, we incurred the following charges
from Ernst & Young in connection with their services:
Audit Fees -- $120,000. This amount represents the aggregate fees to Ernst &
Young for the independent audit of our financial statements and review of our
interim financial statements for fiscal year ended December 31, 2002;
Financial Information Systems Design and Implementation Fees -- None
All Other Fees -- $4,800. This amount represents fees for work by Ernst & Young
relating to preparation of benefit plan annual reports.
12
AUDIT COMMITTEE REPORT
The Audit Committee, consisting solely of independent directors, submits the
following report:
The Audit Committee of our Board of Directors consists of the three directors
named below. Each member of the committee is an independent director as defined
by the proposed New York Stock Exchange rules. In addition, our Board of
Directors has determined that all three members are independent and Audit
Committee Financial Experts as defined by Securities and Exchange Commission
rules. This year, our Board of Directors approved a revision of our Audit
Committee Charter. The revised charter, which contains among other things the
Audit Committee's key practices, is set forth in full below. During 2002 the
Committee met six times.
On April 17, 2002, the Company dismissed Arthur Andersen as its independent
public accountants and engaged Ernst & Young LLP to serve as the Company's
independent public accountants for fiscal year 2002 (see the Company's Current
Report on Form 8-K filed with the Securities and Exchange Commission on April
24, 2002).
In discharging its oversight responsibility as to the audit process, the
Committee obtained from Ernst & Young a formal written statement describing all
relationships between Ernst & Young and the Company that might bear on Ernst &
Young's independence consistent with Independence Standards Board Standard No.
1, "Independence Discussions with Audit Committees;" discussed with Ernst &
Young any relationships that may affect their objectivity and independence,
including the compatibility of non-audit services with Ernst & Young's
independence; and satisfied itself as to Ernst & Young's independence. The
Committee also discussed with management and Ernst & Young the quality and
adequacy of the Company's internal controls.
The Committee discussed and reviewed with Ernst & Young all communications
required by generally accepted auditing standards, including those described in
Statement on Auditing Standards No. 61, as amended, "Communication with Audit
Committees," and discussed and reviewed the results of Ernst & Young's
examination of the financial statements, including quarterly unaudited financial
statements.
The Committee reviewed the audited financial statements of the Company for the
year ended December 31, 2002, with management and Ernst & Young.
Based on the above-mentioned review and discussions with management and Ernst &
Young, the Committee recommended to the Board that the Company's audited
financial statements be included in its Annual Report on Form 10-K for the year
ended December 31, 2002, for filing with the Securities and Exchange Commission.
John E. Goble, Jr.
Alan C. Shapiro
William E. Greenwood
13
AUDIT COMMITTEE CHARTER
PURPOSE AND RESPONSIBILITIES
The Audit Committee is a standing committee of the Board of Directors. Its
purpose is to oversee the accounting and financial reporting processes of the
Company and the audits of the financial statements of the Company, including
assisting the Board of Directors oversight of (1) the integrity of the Company's
financial statements, (2) the Company's compliance with legal and regulatory
requirements, (3) the Company's Registered Public Accounting Firm's
qualifications and independence, and (4) the performance of the Company's
internal audit function and the Company's Registered Public Accounting Firm, and
preparing the Audit Committee Report that the Securities and Exchange Commission
rules require be included in the Company's annual proxy statement.
In carrying forth this purpose, the Audit Committee, as a committee of the Board
of Directors shall be directly responsible for the appointment, compensation,
and oversight of the work of the Company's Registered Public Accounting Firm
retained for the purpose of preparing or issuing an audit report and related
work. The Company's Registered Public Accounting Firm shall report directly to
the Audit Committee. The Audit Committee shall have the sole authority to retain
and terminate the Company's Registered Public Accounting Firm, and to approve
all audit engagement fees and terms and all significant non-audit engagements
with a Registered Public Accounting Firm. The Audit Committee may, but is not
required to, seek the input of the Company's management as to such matters,
provided that the Audit Committee's responsibilities are not delegated to
management. No engagement by the Company of a Registered Public Accounting Firm
in connection with an audit, quarterly reviews or other material non-audit
related work shall be valid unless the engagement letter relating to such work
has been executed by the Chairperson of the Audit Committee. As used throughout
this Audit Committee Charter, the term "Registered Public Accounting Firm" shall
have the meaning set forth in the Sarbanes-Oxley Act of 2002 (the
"Sarbanes-Oxley Act"), and shall also mean independent public accountants until
such time as independent public accountants used by the Company become
Registered Public Accounting Firms as required under the Sarbanes-Oxley Act.
Unless the context otherwise requires, as used in this Audit Committee Charter,
the term "Registered Public Accounting Firm" shall refer to the Registered
Public Accounting Firm retained for the purpose of preparing or issuing an audit
opinion on the consolidated financial statements of the Company.
The Audit Committee shall have the ultimate power of determination regarding
issues of the qualifications, performance and independence of the Company's
Registered Public Accounting Firm and shall prepare the Audit Committee Report
required by the Securities and Exchange Commission to be included in the
Company's annual proxy statement.
The Audit Committee shall establish a P.O. Box or address independent of the
Company in order to receive communications addressed to the Audit Committee.
This address shall be published in the Company's Proxy Statement and posted on
its website.
ORGANIZATION
- Appointment and Term. The members of the Audit Committee shall be appointed
annually by the vote of the majority of the Board of Directors. The Board of
Directors, by majority vote, may remove any member of the Audit Committee.
Except for the prior resignation or removal, each member of the Audit
Committee shall serve on the Audit Committee until his or her term of office
as a director of the Company expires.
- Composition. The Audit Committee shall be composed of three Independent
Directors.
- Eligibility. Only Independent Directors who receive only director fees and
expense reimbursement from the Company as compensation may be members of the
Audit Committee and only members of the
14
Audit Committee may vote on matters before the Audit Committee. Decisions of the
Audit Committee shall require the affirmative vote of a majority of members of
the Audit Committee.
- Qualifications. All members of the Audit Committee must be financially
literate, and the Chairperson of the Audit Committee shall have a background
in financial reporting, accounting, auditing, or finance
- Audit Committee Financial Expert. The Audit Committee shall have an "Audit
Committee Financial Expert" on the Committee and the Company shall disclose in
its Annual Report on Form 10-K and its Proxy Statement for the Annual Meeting
that there is an "Audit Committee Financial Expert" on the Audit Committee.
The term "Audit Committee Financial Expert" shall have such meaning as
promulgated under the regulations in accordance with the Sarbanes-Oxley Act.
The "Audit Committee Financial Expert" must understand financial statements
and GAAP; have the ability to assess the general application of such
principles in connection with accounting for estimates, accruals and reserves;
have experience preparing, auditing, analyzing or evaluating financial
statements generally comparable to the Company's financial statements, or has
experience supervising one or more persons engaged in such activities;
understand internal controls and procedures for financial reporting; and
understand audit committee functions.
- Independence. All members of the Audit Committee must be Independent (as
defined in the Company's By-Laws).
- Appointment of a Chairperson. The Audit Committee shall recommend a
Chairperson from among its members to the Board of Directors for approval. It
is the responsibility of the Chairperson to schedule all meetings of the Audit
Committee and provide the Audit Committee, other members of the Board, and the
Company's Secretary with a written notice and written agenda for all meetings.
- Meetings. The Audit Committee shall meet at least four times per year or more
frequently as circumstances require. The Audit Committee may ask members of
management or others to attend the meetings and provide pertinent information
as necessary.
- Reporting and Minutes. The Audit Committee shall report to the entire Board
of Directors and shall provide all notices and minutes of meetings of the
Audit Committee to the Board of Directors. All notices, agendas, and minutes
of meetings shall be provided to the Company's management in order for payment
of any applicable meeting fees and expenses to be made.
- Power to retain Advisors. The Audit Committee is authorized and empowered to
retain such independent advisors, including counsel that the Audit Committee
may deem necessary in order to carry out its responsibilities. No engagement
shall be a valid act of the committee and no compensation for the services of
such advisors shall be paid by the Company unless, prior to such engagement,
the Company Secretary was advised of the decision to engage the advisor, a
preliminary budget for the engagement of the advisor was submitted to the
Company Secretary, the identity of the advisor was made known to the Company
Secretary so that conflicts could be checked and independence verified, and
the Company Secretary was provided an undertaking by the committee chairperson
that any and all letters, reports, and studies prepared by the advisor will be
made known and made available to the Company's Board of Directors as a whole.
- Procedures. The Audit Committee shall establish procedures for:
-- the receipt, retention, and treatment of complaints received by the Company
regarding accounting, internal accounting controls, or auditing matters.
-- the confidential, anonymous submission by Company employees of concerns
regarding questionable accounting or auditing matters.
-- the receipt, retention, and treatment of submissions by attorneys regarding
possible violations of securities laws.
15
- Review of Charter. The Audit Committee shall at least on an annual basis
review and update its charter and recommend any changes to the Board of
Directors for approval.
- Annual Performance Review. The Audit Committee shall perform an annual
performance evaluation of the Audit Committee in accordance with the Company's
By-Laws.
OUTSIDE AUDITORS
- At least annually, the Audit Committee shall obtain a report by the Company's
Registered Public Accounting Firm responsible for the Company's audit and
audit related work which describes:
-- the Registered Public Accounting Firm's internal quality control
procedures,
-- any material issues raised by the most recent internal quality control
review of the Registered Public Accounting Firm,
-- any material issues raised by any inquiries or investigations by any
governmental or quasi-governmental, professional authorities or the Public
Company Accounting Oversight Board established pursuant to the
Sarbanes-Oxley Act within the preceding five years, respecting one or more
of the independent audits carried out by the Registered Public Accounting
Firm, and any steps taken to deal with such issues, and
-- all relationships between the Registered Public Accounting Firm and the
Company, so that the Audit Committee may assess the Registered Public
Accounting Firm's independence.
- This report from the Registered Public Accounting Firm shall be in addition to
an on-going duty of the Registered Public Accounting Firm and the Audit
Committee to engage in a continuing dialog regarding any matters,
relationships or services that may affect the objectivity of the Registered
Public Accounting Firm. In this regard the Audit Committee may require a
statement from the Registered Public Accounting Firm on a basis more frequent
than annually regarding all relationships between the Registered Public
Accounting Firm and the Company. The Audit Committee shall take such action as
is appropriate in response to the Registered Public Accounting Firm's report
to satisfy itself as to the Firm's independence.
- The Audit Committee shall at least on an annual basis review and evaluate the
performance of the Registered Public Accounting Firm's lead partner
responsible for the Company's audit and see that such partner is rotated off
the Company's audit at least as frequently (5 years) as required by the
Sarbanes-Oxley Act. The Company's management and the personnel responsible for
the Company's internal audit function should be consulted in relation to this
review. The Audit Committee should also consider whether there should be a
rotation on a regular basis of the Registered Public Accounting Firm
responsible for the Company's audit.
- The Audit Committee should present its conclusions regarding the independence
of the Registered Public Accounting Firm to the Board of Directors.
OVERSIGHT RESPONSIBILITIES
- The Audit Committee shall discuss the Company's annual audited financial
statements and quarterly financial statements with management and the
Registered Public Accounting Firm including the Company's disclosures under
"Management's Discussion and Analysis of Financial Condition and Results of
Operations." The Audit Committee should also review and discuss Company
earnings press releases (paying particular attention to any use of "pro
forma," or "adjusted" non-GAAP information), as well as financial information
and earnings guidance provided to analysts and rating agencies.
- The Audit Committee shall discuss policies with respect to risk assessment and
risk management, and should review and evaluate the effectiveness of the
Company's process for assessing significant risks or exposures and the steps
management has taken to minimize such risks to the Company.
16
- The Audit Committee should consider and review with management and the
Registered Public Accounting Firm:
-- the effectiveness of or weaknesses in the Company's internal controls
including the Company's internal audit function, computerized information
system controls and security, the overall control environment, and
accounting and financial controls.
-- any related significant findings and recommendations of the Registered
Public Accounting Firm together with management's responses thereto,
including the timetable for implementation of recommendations to correct
weaknesses in internal controls.
- The Audit Committee shall review with the Registered Public Accounting Firm
the coordination of audit efforts to assure completeness of coverage of key
business controls and risk areas, reduction of redundant efforts, and the
effective use of audit resources.
- The Audit Committee shall discuss with management and the Company's Registered
Public Accounting Firm the status and adequacy of management information
systems and other information technology, including the significant risks
related thereto and major controls over such activities.
- The Audit Committee shall set clear hiring guidelines for employees or former
employees of the Company's Registered Public Accounting Firm.
- The Audit Committee shall report regularly to the Board of Directors. In doing
so, the Audit Committee should review with the full Board of Directors any
issues that arise with respect to the quality or integrity of the Company's
financial statements, the Company's compliance with legal or regulatory
requirements, the performance and independence of the Company's Registered
Public Accounting Firm and the performance of the Company's internal audit
function.
FINANCIAL REPORTING
- Although it is not the responsibility of the Audit Committee to prepare the
Company's financial statements and disclosures, the Audit Committee must
review:
-- major issues regarding accounting principles and financial statement
presentations, including any significant changes in the Company's selection
or application of accounting principles, and major issues as to the
adequacy of the Company's internal controls and any special audit steps
adopted in light of material control deficiencies;
-- analyses prepared by the Company's management and or the Registered Public
Accounting Firm setting forth significant financial reporting issues and
judgments made in connection with the preparation of the Company's
financial statements, including analyses of the effects of alternative GAAP
methods on financial statements; and
-- the effect of regulatory accounting initiatives, as well as any off-balance
sheet structures, on the Company's financial statements.
- The Audit Committee shall regularly review with the Company's Registered
Public Accounting Firm any audit problems or difficulties encountered in the
course of the audit work and the response of the Company's management to such
problems or difficulties. Such regular review shall include any restrictions
on the scope of the Registered Public Accounting Firm's activities or
requested information, and any significant disagreement with management. To
that end, the Audit Committee should review and discuss the following items
with the Registered Public Accounting Firm:
-- any accounting adjustments that were noted or proposed by the Registered
Public Accounting Firm but were "passed" (as immaterial or otherwise);
-- any communications between the Registered Public Accounting Firm's audit
team and the Registered Public Accounting Firm's national office respecting
auditing or accounting issues presented by the engagement;
17
-- any "management" or "internal control" letter issued, or proposed to be
issued, by the Registered Public Accounting Firm to the Company; and
-- the responsibilities, budget and staffing of the Company's internal audit
function.
- The Audit Committee shall review the Company's filings with the Securities and
Exchange Commission and other agencies and other published documents
containing the Company's financial statements, including annual and interim
reports, press releases and statutory filings, and consider whether the
information contained in these documents is consistent with the information
contained in the Company's financial statements.
- The Audit Committee shall review with management and the Company's Registered
Public Accounting Firm at the completion of the annual examination:
-- the Company's annual financial statements and related footnotes.
-- the Registered Public Accounting Firm's audit of the financial statements
and their report thereon.
-- any significant changes required in the Registered Public Accounting Firm's
audit plan.
-- any serious difficulties or disputes with management encountered during the
course of the audit.
-- the existence of significant estimates and judgments underlying the
financial statements, including the rationale behind those estimates as
well as the details on material accruals and reserves.
-- other matters related to the conduct of the audit which are to be
communicated to the Audit Committee under generally accepted auditing
standards or applicable standards established by the Public Company
Accounting Oversight Board.
-- review and approve the Company's accounting principles.
- The Audit Committee shall review with management and the Registered Public
Accounting Firm at the completion of the quarterly review and the annual audit
prior to the filing of the Forms 10-Q and 10-K, respectively, the matters set
forth above and other matters contained within Statement of Auditing Standards
61, including, but not limited to, significant adjustments, management
judgments and accountant estimates, significant new accounting policies and
disagreements with management and as such standards as may be promulgated by
the Public Company Accounting Oversight Board.
AUDIT COMMITTEE REPORT
- In connection with the annual audit of the Company's financial statements and
the Audit Committee's discussions with the Company's Registered Public
Accounting Firm and the Company's management, the Audit Committee shall
provide a report in the Company's proxy statement, no less frequently than
required by the rules and regulations of the Securities and Exchange
Commission, stating whether the Audit Committee has reviewed and discussed the
audited financial statements with management, whether the Audit Committee has
discussed with the Registered Public Accounting Firm the matters required to
be discussed pursuant to Statement of Auditing Standards 61 and any other
applicable standards and whether the Audit Committee has received the written
disclosures and the letter from the Registered Public Accounting Firm required
by Independence Standards Board Standard No. 1 and has discussed with the
Registered Public Accounting Firm its independence.
COMPLIANCE WITH LAWS AND REGULATIONS
- The Audit Committee shall ascertain whether the Company has an effective
process for determining risks and exposures from asserted and unasserted
litigation and claims and from noncompliance with laws and regulations.
- The Audit Committee shall review with the Company's general counsel and others
any legal, tax, or regulatory matters that may have a material impact on
Company operations and the financial statements, related Company compliance
policies, and programs and reports received from regulators.
18
COMPLIANCE WITH CODES OF ETHICAL CONDUCT
- The Audit Committee shall review and assess the Company's processes for
administering those sections of the Company's Corporate Governance Guidelines
and the Company's Code of Business Conduct and Ethics which relate to matters
within the purview of the Audit Committee Charter.
- The Audit Committee shall review with the Registered Public Accounting Firm
the results of the Registered Public Accounting Firm's review of the Company's
monitoring of compliance with the Company's Corporate Governance Guidelines
and the Company's Code of Business Conduct and Ethics, including compliance
with the Foreign Corrupt Practices Act.
- The Audit Committee shall review policies and procedures with respect to
officers' expense accounts and perquisites, including their use of corporate
assets, and consider the results of any review of these areas by the
Registered Public Accounting Firm.
19
EXECUTIVE COMPENSATION
The following table summarizes the compensation paid by the Company during 2002,
2001, and 2000 to the Company's Chief Executive Officer and its four most highly
compensated executive officers, other than the Chief Executive Officer, whose
total annual salary and bonus in 2002 exceeded $100,000.
SUMMARY COMPENSATION TABLE
LONG-TERM COMPENSATION
--------------------------------------
ANNUAL COMPENSATION SECURITIES
------------------------------- RESTRICTED UNDERLYING
OTHER ANNUAL STOCK OPTIONS/ ALL OTHER
NAME AND FISCAL SALARY BONUS COMPENSATION AWARDS SAR'S COMPENSATION
PRINCIPAL POSITION YEAR ($) ($) ($)(1) ($) (#) ($)(4)
------------------ ------ ------- ------- ------------ ---------- ---------- ------------
James A. Watt.................... 2002 360,000 252,000 -- --(2) 35,000 1,242
Chief Executive 2001 320,004 405,000 -- 768,351(3) 35,000 1,242
Officer and President 2000 282,501 296,000 -- -- 123,000 1,242
Robert P. Murphy................. 2002 275,004 159,000 -- -- 32,000 540
Chief Operating Officer and 2001 225,000 200,000 -- 517,164(3) 25,000 480
Senior Vice President/ 2000 187,506 140,000 -- -- 66,000 390
Exploration and Production
Gregory B. Cox................... 2002 167,004 57,000 -- -- 20,000 511
Vice President/ 2001 147,000 45,000 -- 372,351(3) 15,000 439
Exploration 2000 132,300 43,000 -- -- 45,000 387
Steven J. Craig.................. 2002 165,000 41,000 -- -- 18,000 773
Senior Vice President/ 2001 125,808 46,000 -- 338,964(3) 12,000 364
Planning and Administration 2000 121,008 29,000 -- -- 39,000 346
J. Burke Asher................... 2002 150,000 37,000 -- -- 17,500 1,980
Vice President/Finance 2001 119,600 44,000 -- 322,703(3) 11,500 1,505
and Secretary 2000 115,008 27,600 -- -- 37,000 928
---------------
(1) No amount is included, as it is less than 10% of the total salary and bonus
of the individual for the year.
(2) Effective March 17, 1997, in connection with his initial employment
agreement, Mr. Watt was awarded 15,000 restricted shares of common stock,
which vested and became unrestricted 20% per year from the effective date.
(3) On January 24, 2001, contingent grants of common stock became effective as
follows: Mr. Watt 62,089 shares; Mr. Murphy 41,791 shares; Mr. Cox 30,089
shares; Mr. Craig 27,391 shares; and Mr. Asher 26,077 shares. The closing
price of our common stock on that date was $12.375 per share. For Mr. Cox,
the shares vest 50% on June 17, 2002, and 25% each on June 17, 2003 and
2004. For the other officers, the shares vest 20% annually beginning January
17, 2002. Except in the event of death, long-term disability, or change of
control, the officers will forfeit unvested shares if their employment with
us terminates prior to the vesting dates. As of December 31, 2002, Mr. Watt
held 37,254 shares of unvested stock with an aggregate market value of
$611,338; Mr. Murphy held 25,075 shares of unvested stock with an aggregate
market value of $411,481; Mr. Cox held 15,045 shares of unvested stock with
an aggregate market value of $246,888; Mr. Craig held 16,435 shares of
unvested stock with an aggregate market value of $269,698; and Mr. Asher
held 15,647 shares of unvested stock with an aggregate market value of
$256,767. These unvested shares will not actually be issued until the
vesting period has been fulfilled by the officer. The value of the unvested
stock as of December 31, 2002, is based on the closing price of our common
stock on that date, which was $16.41 per share. Dividends, if any, paid by
us will not be paid on the unvested shares.
(4) These amounts are for group term life insurance premiums paid by the
Company.
See "Change in Control Arrangements and Employment Contracts" below.
20
STOCK OPTION PLANS
We have stock option plans for our employees and directors because we believe
these options act as both an incentive and a reward for the long-term growth of
our Company. The core of our stock option program is the 1997 stock option plan.
Both directors and employees are eligible for options under this plan.
Significant attributes of the 1997 plan include the following:
- Approved by the stockholders.
- Administered by the Compensation Committee of our Board of Directors.
- Subject to adjustments, up to 3,750,000 shares of our common stock may be
issued under the plan.
- Up to 25% of issuable shares may be issued to any single individual.
- Both qualified incentive and non-qualified options may be issued.
- No options may be granted after December 4, 2007.
The importance of whether an option is granted as a qualified incentive option
or a non-qualified option is mainly tax driven. If an option is an incentive
option, the exercise price can be no less than the fair market value on the date
of grant. Additional details concerning the 1997 stock option plan are contained
in the plan itself. For a copy of the plan, call Investor Relations at (214)
210-2650.
OPTION GRANTS IN LAST FISCAL YEAR
INDIVIDUAL GRANTS
--------------------------------------------------
NUMBER OF PERCENT OF
SECURITIES TOTAL OPTIONS
UNDERLYING GRANTED TO EXERCISE GRANT DATE
OPTIONS EMPLOYEES IN PRICE EXPIRATION PRESENT
NAME GRANTED FISCAL YEAR $/SHARE DATE VALUE $(1)
---- ---------- ------------- -------- ---------- ----------
James A. Watt.......................... 35,000 11% 17.15 12/17/12 440,640
Robert P. Murphy....................... 32,000 10% 17.15 12/17/12 402,870
Gregory B. Cox......................... 20,000 6% 17.15 12/17/12 251,794
Steven J. Craig........................ 18,000 6% 17.15 12/17/12 226,615
J. Burke Asher......................... 17,500 5% 17.15 12/17/12 220,320
---------------
(1) We determined these values using the Black-Scholes option pricing model with
the following assumptions: stock price volatility of 61.61%; interest rate
based on the yield to maturity of a 10-year Treasury security; exercise in
the tenth year; and a dividend rate of zero. We made no adjustments for
nontransferability or risk of forfeiture. Our use of this model does not
constitute an endorsement or an acknowledgment that such model can
accurately determine the value of options. No assurance can be given that
the actual value, if any, realized by an executive upon the exercise of
these options will approximate the estimated values calculated by using the
Black-Scholes model.
21
STOCK OPTION PLANS - CONTINUED
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES
NUMBER OF SECURITIES VALUE OF UNEXERCISED
NUMBER OF UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS AT
SHARES VALUE OPTIONS AT FISCAL YEAR-END FISCAL YEAR-END ($)(2)
ACQUIRED ON REALIZED --------------------------- ---------------------------
NAME EXERCISE ($)(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- -------- ----------- ------------- ----------- -------------
James A. Watt................. 49,099 603,580 308,197 99,333 3,633,763 544,493
Robert P. Murphy.............. 33,588 495,251 137,742 70,666 1,514,724 296,686
Gregory B. Cox................ -- -- 73,666 45,000 809,762 200,800
Steven J. Craig............... 56,402 563,653 23,597 21,000 248,450 173,300
J. Burke Asher................ 32,151 494,442 54,499 37,500 550,277 164,493
---------------
(1) Computed as the number of securities multiplied by the difference between
the option exercise price and the mean of the high and low price of our
common stock on the date of exercise.
(2) Computed as the number of securities multiplied by the difference between
the option exercise prices and the closing price of our common stock on
December 31, 2002.
CONTINGENT STOCK GRANTS
In 1999, the Board of Directors approved contingent awards of stock to employees
and directors totaling 679,937 shares of our common stock. The number of shares
awarded to each employee and director was based on the employee's annual base
salary as of June 17,1999, or in the case of non-employee directors, $100,000,
divided by $4.19, which was the closing stock price on June 17, 1999. In order
for the grant to become effective, our stock had to close above a trigger price
of $10.42 for 20 consecutive trading days within 5 years of the grant date. This
trigger was achieved on January 24, 2001. Recipients of the grant must remain an
employee or a director during the vesting schedules in order to receive the
shares. Employees and directors individually elected one of two vesting periods.
The first vesting schedule has 50% percent of the grant vesting on June 17,
2002, with an additional 25% vesting on June 17, 2003, and the final 25% vesting
on June 17, 2004. 264,863 shares are subject to this vesting schedule. The
second vesting option has 20% of the grant vesting on January 17, 2002, with an
additional 20% vesting on each successive January 17 through 2006. 395,090
shares are subject to the second vesting schedule. While 679,937 shares of
restricted stock were granted in 1999, as of April 15, 2003, 659,953 shares are
subject to the grant because a director voluntarily surrendered 23,880 shares, a
new employee was granted 6,535 shares, and an employee terminated, forfeiting
2,639 shares. The number of shares subject to the grant may decrease to the
degree that participants fail to remain with us during the vesting period. In
the event of a participant's death while employed or serving as a director with
us, or reaching the retirement age of 65 or receiving long term disability
benefits while employed with us, a grant becomes 100% vested. In addition, the
grants can become 100% vested upon a change of control.
22
PENSION PLANS
Our defined benefit pension plans provide retirement and other benefits to
eligible employees upon reaching the "normal retirement age," which is age 65 or
after 3 years of service (5 years if employment terminated prior to January 1,
2001), if later. Directors who are not also employees of the Company are not
eligible to participate in the plans. Employees are eligible to participate on
January 1 following the completion of six months of service or the attainment of
age 20 1/2, if later. Additional provisions are made for early or late
retirement, disability retirement and benefits to surviving spouses. At normal
retirement age, an eligible employee will receive a monthly retirement income
equal to 35% of his or her average monthly compensation during the three
consecutive calendar years in the prior 10 years which provide the highest
average compensation, plus 0.65% of such average compensation in excess of the
amount shown in the Social Security Covered Compensation Table (as published
annually by the Internal Revenue Service) multiplied by his or her years of
service, limited to 35 years. If an employee terminates employment (other than
by death or disability) before completion of three years of service (five years
if employment terminated prior to January 1, 2001), no benefits are payable. If
an employee terminates employment after three years of service (five years if
employment terminated prior to January 1, 2001), the employee is entitled to all
accrued benefits. The following table illustrates the annual pension for plan
participants that retire at "normal retirement age" in 2002:
PENSION PLAN TABLE
YEARS OF SERVICE(1)(3)(4)
AVERAGE --------------------------------------------
COMPENSATION(1)(2) 15 20 25 30 35
------------------ ------ ------ ------ ------- -------
($) ($) ($) ($) ($) ($)
125,000................................. 52,135 54,930 57,725 60,520 63,315
150,000................................. 63,323 66,930 70,538 74,145 77,753
175,000................................. 74,510 78,930 83,350 87,770 92,190
200,000................................. 85,698 90,930 96,163 101,395 106,628
225,000................................. 85,698 90,930 96,163 101,395 106,628
250,000................................. 85,698 90,930 96,163 101,395 106,628
300,000................................. 85,698 90,930 96,163 101,395 106,628
400,000................................. 85,698 90,930 96,163 101,395 106,628
450,000................................. 85,698 90,930 96,163 101,395 106,628
500,000................................. 85,698 90,930 96,163 101,395 106,628
---------------
(1) As of December 31, 2002, the Internal Revenue Code does not allow qualified
plan compensation to exceed $200,000 or the benefit payable annually to
exceed $160,000. The Internal Revenue Service will adjust these limitations
for inflation in future years. When the limitations are raised, the
compensation considered and the benefits payable under the pension plans
will increase to the level of the new limitations or the amount otherwise
payable under the pension plans, whichever amount is lower.
(2) Subject to the above limitations, compensation in this table is generally
equal to all of a participant's cash compensation paid in a fiscal year (the
total of Salary, Bonus, and Other Annual Compensation in the Summary
Compensation Table). Average compensation in this table is the average of a
plan participant's compensation during the highest three consecutive years
out of the prior 10 years.
23
PENSION PLANS - CONTINUED
(3) The estimated credited service at December 31, 2002, for the executive
officers shown in the Summary Compensation Table on page 20 is as follows:
James A. Watt (6 years), Robert P. Murphy (5 years), Steven J. Craig (8
years), J. Burke Asher (6 years), and Gregory B. Cox (5 years).
(4) The normal form of payment is a life annuity for a single participant or a
50% joint and survivor annuity for a married participant. Such benefits are
not subject to a deduction for Social Security or other offset amounts.
24
CHANGE IN CONTROL ARRANGEMENTS AND
EMPLOYMENT CONTRACTS
All of our full-time regular employees are covered by a severance plan that we
adopted in 1997. Under this plan, if an employee is involuntarily terminated, as
that term is defined in the plan, the employee will be entitled to a payment of
between two months base pay and eighteen months base pay depending on the
employee's job and years of service. If an employee voluntarily quits, is
terminated for cause as defined in the plan, dies, leaves due to a disability
for which benefits are payable, or the termination is expected to be of short
duration, the employee is not eligible for payment under the plan. In addition,
under certain circumstances, a change in control could cause immediate vesting
and triggering of stock options and contingent stock grants. As of December 31,
2002, if the contingent stock grants were vested by a change in control, it
would result in the issuance of a maximum aggregate of 447,192 shares to
directors and employees.
Employment Agreements
We have employment agreements with James A. Watt, Robert P. Murphy, Gregory B.
Cox, Steven J. Craig, and J. Burke Asher. The most significant terms of such
agreements are summarized below:
James A. Watt
- Term of three years from January 31, 2000, subject to single year
extensions by mutual agreement
- Base salary of $270,000 a year, subject to discretionary increases
- Eligible to receive discretionary performance bonus (targeted at 70%
of base salary)
- If terminated prior to a change in control, without cause, he receives
his salary plus a pro rata bonus
- He receives 2.99 times the sum of his base salary plus his target
bonus if he is terminated within 24 months of a change in control,
other than for death, disability or cause, or he leaves for good
reason within the 24 month period
Robert P. Murphy
- Term of three years from September 30, 1999, subject to single year
extensions by mutual agreement
- Base salary of $175,000 a year, subject to discretionary increases
- Eligible to receive discretionary performance bonus (targeted at 50%
of base salary)
- If terminated prior to a change in control, without cause, he receives
his salary plus a pro rata bonus
- He receives 2.99 times the sum of his base salary plus his target
bonus if he is terminated within twelve months of a change in control,
other than for death, disability or cause, or he leaves for good
reason within the twelve month period
Gregory B. Cox
- Term of two years from April 30, 2002, subject to one year extensions
by mutual agreement
- Base salary of $167,000, subject to discretionary increases
- Eligible to receive discretionary performance bonus (targeted at 35%
of base salary)
25
CHANGE IN CONTROL ARRANGEMENTS AND
EMPLOYMENT CONTRACTS - CONTINUED
- If terminated prior to a change in control, without cause, he receives
all accrued compensation and a pro rata bonus plus a severance payment
in lieu of further compensation equal to 1 times his current base
salary
- He receives accrued compensation and a pro rata bonus and 2 times the
sum of his base salary plus target bonus if he is terminated within
twelve months of a change in control, other than for death, disability
or cause, or he leaves for good reason within the twelve month period
Steven J. Craig and J. Burke Asher
- Term of two years from September 30, 1999, subject to single year
extensions by mutual agreement
- Base salary of $114,200 (Mr. Craig) and $109,200 (Mr. Asher), subject
to discretionary increases
- Eligible to receive discretionary performance bonus (targeted at 20%
of base salary)
- Severance payments similar to Robert Murphy's, except that Mr. Craig
and Mr. Asher each receive 2 times the sum of his annual salary plus
target bonus in connection with leaving employment within twelve
months of a change in control
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION IN COMPENSATION
DECISIONS
David E. Preng, William E. Greenwood, and James Arthur Lyle served on the
compensation committee in 2002. No executive officer or employee serves on the
compensation committee of the Board. None of our executive officers serves on
the board of directors of any other entity that has an executive officer serving
on our Board.
26
BOARD COMPENSATION COMMITTEE REPORT ON
EXECUTIVE COMPENSATION
We believe that employing and retaining highly qualified and high performing
executive officers is vital to our achievement of long-term business goals. To
this end, the Compensation Committee of the Board of Directors (the "Committee")
developed an executive compensation program which is designed to attract and
retain such officers.
The philosophy is to develop a systematic, competitive executive compensation
program which recognizes an executive officer's position and responsibilities,
takes into account competitive compensation levels payable within the industry
by similarly sized companies, and reflects both individual and Company
performance.
The executive compensation program developed by the Committee is composed of the
following three elements: (i) a base salary, (ii) a performance-based annual
cash incentive (short-term), and (iii) a stock- based incentive (long-term).
Under this program, short-term and long-term incentives are "at risk" and are
based on performance of the Company versus defined goals.
The Committee compiles data reflecting the compensation practices of a broad
range of organizations in the oil and gas industry that are similar to us in
size and performance. For both the base salary and annual cash incentives
portions of executive compensation discussed below, the Committee adopted a
philosophy of paying the executive officers at a level that is competitive and
within the ranges reflected by the data compiled.
BASE SALARIES
Base salary is the portion of an executive officer's total compensation package
which is payable for performing the specific duties and assuming the specific
responsibilities defining the executive's position with the Company. The
Committee's objective is to provide each executive officer a base salary that is
competitive at the desired level.
ANNUAL CASH INCENTIVES
The Committee developed a performance-based annual cash incentive plan covering
the executive officers and top managers. The objectives in designing the plan
are to reward participants for accomplishing objectives which are generally
measurable and increase shareholder value. Under the annual cash incentive plan,
the Committee has established a "target" cash incentive award for each executive
officer (including the Chief Executive Officer) that is payable based mostly
upon the Company's achieving certain performance targets and, to a lesser
extent, for achieving highly challenging individual performance objectives. The
performance targets are increasing reserves and production; controlling finding,
development, production, and general and administrative costs; and achieving an
acceptable overall return on capital; all of which are competitive with a peer
group of oil and gas companies. The Committee also determined that award levels
under the plan should be fiscally prudent.
27
BOARD COMPENSATION COMMITTEE REPORT ON
EXECUTIVE COMPENSATION - CONTINUED
LONG-TERM STOCK-BASED INCENTIVES
We maintain a stock option plan for officers and other employees. The philosophy
is to award stock options to selected plan participants based on their levels
within the Company and upon individual merit. The plan is to grant stock options
which are competitive within the industry for other individuals at the
employee's level and which provide the employee a meaningful incentive to remain
with the Company, to increase performance, and to focus on achieving long-term
increases in shareholder value. Other factors the Committee considers in
granting stock options include the employee's contributions toward achieving the
Company's long-term objectives, such as reserve and production growth, as well
as the employee's contributions in achieving the Company's short-term and
long-term profitability targets.
COMPENSATION COMMITTEE
David E. Preng
William E. Greenwood
James Arthur Lyle
28
PERFORMANCE GRAPH
The following performance graph compares the performance of all classes of our
common stock to the Nasdaq indices of United States companies and to a peer
group comprising Nasdaq companies listed under the Standard Industrial
Classification Codes 1310-1319 for the Company's last five fiscal years. Such
industrial codes include companies engaged in the oil and gas business. The
graph assumes that the value of an investment in our common stock and in each
index was $100 at December 31, 1997, and that all dividends were reinvested.
(GRAPH)
--------------------------------------------------------------------------------------------------
12/31/1997 12/31/1998 12/31/1999 12/31/2000 12/31/2001 12/31/2002
--------------------------------------------------------------------------------------------------
REMA(1) 100.00 69.88 84.99 284.76 378.95 359.46
REMB(1) 100.00 61.46 74.76 250.48 333.33 316.18
NASDAQ U.S. 100.00 141.00 261.50 157.40 124.90 86.30
NASDAQ O&G 100.00 48.60 50.20 104.30 78.10 77.50
(1) The last day of trading for REMA and REMB was December 24, 1998. Effective
at the opening of trading on December 28, 1998, both former classes of stock
were replaced by a new single class of voting common stock (REM). The values
shown above as of December 31, 1998, 1999, 2000, 2001 and 2002 give effect
to the 1.15:1 exchange ratio that the former holders of REMA received in the
exchange for the new class of common stock, and the 1:1 exchange ratio that
the former holders of REMB received in the exchange for the new class of
common stock.
Until December 24, 1998, our 2 classes of common stock were traded on the
Nasdaq Stock Exchange under the symbols ROILA and ROILB. From December 28,
1998, through June 19, 2002, our single class of common stock traded on the
Nasdaq Stock Exchange under the symbol ROIL. Since June 20, 2002, our common
stock has traded on the New York Stock Exchange under the symbol REM. The
designation REMA and REMB are used in the table above only to distinguish
between the two classes of common stock that were outstanding on December
31, 1997.
29
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Ownership of Certain Beneficial Owners
As of April 15, 2003, the following persons held shares of the Company's common
stock in amounts totaling more than 5% of the total shares of common stock
outstanding. This information was furnished to us by such persons or statements
filed with the Commission.
SHARES OF
NAME AND ADDRESS OF COMMON STOCK PERCENT OF
BENEFICIAL OWNER BENEFICIALLY OWNED COMMON STOCK
------------------- ------------------ ------------
J.R. Simplot......................................... 5,477,928(1) 20.8%
999 Main Street
Boise, Idaho 83702(1)
---------------
(1) 2,785,028 shares are directly owned by JRS Properties III L.P. ("JRS
Properties III"). The J.R. Simplot Self Declaration of Revocable Trust (the
"Trust"), of which Mr. Simplot is the beneficiary and trustee, controls JRS
Properties III. The Trust and a trust for the benefit of Mr. Simplot's
spouse ("Mrs. Simplot's Trust"), which exercises no investment control,
holds approximately 79.6% of the beneficial interest in the shares owned by
JRS Properties III. 2,692,900 shares are directly owned by JRS Properties
L.P. ("JRS Properties"). Of these shares, 950,000 are subject to variable
share forward sale contracts. Further information regarding these forward
sale contracts is disclosed in Forms 4 filed by Mr. Simplot. These Forms 4
are available through our website, www.remoil.net. The Trust controls JRS
Properties. The Trust and Mrs. Simplot's Trust hold approximately 98.7% of
the beneficial interest in the shares owned by JRS Properties.
Ownership of Management
The number of shares of the Company's common stock beneficially owned as of
April 15, 2003, by directors of the Company, each officer listed in the
compensation table on page 20, and as a group comprising all directors and
executive officers, are set forth in the following table. This information was
furnished to the Company by such persons.
SHARES OF OPTIONS
COMMON STOCK EXERCISABLE PERCENT OF
BENEFICIALLY WITHIN 60 DAYS OF COMMON
NAME OWNED APRIL 15, 2003 TOTAL STOCK
---- ------------ ----------------- --------- ----------
J. Burke Asher..................... 18,397 66,833 85,230 *
Don D. Box......................... 73,947 191,667 265,614 1.0%
Gregory B. Cox..................... 48,546 40,120 88,666 *
Steven J. Craig.................... 84,642 28,264 112,906 *
John E. Goble, Jr. ................ 23,930 90,001 113,931 *
William E. Greenwood............... 23,615 116,667 140,282 *
David H. Hawk...................... 2,606 -- 2,606 *
James Arthur Lyle.................. 13,403 116,667 130,070 *
Robert P. Murphy................... 34,719 156,742 191,461 *
David E. Preng..................... 57,763 126,667 184,430 *
Thomas W. Rollins.................. 21,155 91,667 112,822 *
Alan C. Shapiro.................... 48,617 116,667 165,284 *
James A. Watt...................... 108,988 349,197 458,185 1.7%
All directors and executive
officers as a group (14
persons)......................... 588,074 1,512,991 2,101,065 7.5%
---------------
* Less than one percent of the outstanding shares.
30
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT - CONTINUED
The following table presents information about our equity compensation plans at
December 31, 2002:
NUMBER OF SECURITIES
TO BE ISSUED WEIGHTED AVERAGE
UPON EXERCISE OF EXERCISE PRICE OF NUMBER OF SECURITIES
OUTSTANDING OPTIONS, OUTSTANDING OPTIONS, REMAINING AVAILABLE
WARRANTS AND RIGHTS WARRANTS AND RIGHTS FOR FUTURE ISSUANCE
-------------------- -------------------- --------------------
PLAN CATEGORY (A) (B) (C)
------------- -------------------- -------------------- --------------------
Equity compensation plans
approved by stockholders...... 2,552,219 $8.68 544,235
Equity compensation plans not
approved by stockholders...... 447,192 $0.00 0
--------- ----- -------
Total........................... 2,999,411 $7.39 544,235
========= ===== =======
The information above regarding equity compensation plans not approved by the
stockholders includes contingent one-time stock grants made in 1999 to all
employees and directors, which include the following significant attributes:
- Shares awarded based on annual base salary as of June 17, 1999, or in the case
of non-employee directors $100,000, divided by $4.19 (the closing price on
June 17, 1999).
- In order for the grants to become effective, our common stock had to close at
or above $10.42 per share for 20 consecutive trading days within 5 years of
the grant date (the "trigger event").
- The trigger event was achieved on January 24, 2001.
- 686,472 shares were awarded. As of December 31, 2002, 212,761 shares have
vested, and 26,519 shares have been forfeited. Of the remaining 447,192
shares, 131,117 shares vest 50% on June 17, 2003, and 50% on June 17, 2004;
and 316,075 shares vest 25% on each successive January 17 beginning January
17, 2003.
- Each employee and director must remain an employee or director during his/her
respective vesting schedule in order to receive the shares.
- In the event of death, long-term disability, change of control, or reaching
the retirement age of 65, the shares will fully vest.
31
CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS
A resolution adopted in 1992 by our Board of Directors authorizes us to enter
into a transaction with an affiliate of ours so long as the Board of Directors
determines that such a transaction is fair and reasonable to us and is on terms
no less favorable to us than can be obtained from an unaffiliated party in an
arms' length transaction.
We acquired a long-term receivable under a Collateral Assignment Split Dollar
Insurance Agreement between CKB Petroleum, Inc. and Don D. Box in a merger in
1998. The amount due CKB Petroleum from Don D. Box under the Collateral
Assignment Split Dollar Insurance Agreement was $140,000 on December 31, 2002,
and $135,000 on December 31, 2001.
32
PLEASE DATE, SIGN AND MAIL YOUR
PROXY CARD BACK AS SOON AS POSSIBLE!
ANNUAL MEETING OF STOCKHOLDERS
REMINGTON OIL AND GAS CORPORATION
May 27, 2003
o PLEASE DETACH AND MAIL IN THE ENVELOPE PROVIDED o
------------------------------------------------------------------------------------------------------------------------------------
PLEASE MARK YOUR
VOTES AS INDICATED
[X] IN THIS EXAMPLE.
FOR WITHHELD
1. Election of NOMINEES: John E. Goble, Jr., 2. In their discretion, the
Directors. [ ] [ ] William E. Greenwood, proxies are authorized
Robert P. Murphy, to vote upon such other
For, except vote withheld from the following David E. Preng, business as may properly
Nominee(s). Thomas W. Rollins, come before the meeting.
Alan C. Shapiro and
-------------------------------------------- James A. Watt
--------------------------------------------
--------------------------------------------
Signature(s) Date: 2003
------------------------------------------------- ---------------------------------- -------------------,
NOTE: Please sign exactly as name appears hereon. Joint owners should each sign. When signing as attorney, executor, administrator,
trustee, or guardian, please give full title as such.
REMINGTON OIL AND GAS CORPORATION
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
FOR THE ANNUAL MEETING OF STOCKHOLDERS
The undersigned hereby appoints Steven J. Craig and J. Burke Asher, or
either of them, proxies with the full power of substitution, to vote as set
forth herein all shares of common stock of Remington Oil and Gas Corporation
(the "Company") held of record by the undersigned as of April 16, 2003, at the
Annual Meeting of Stockholders of the Company (the "Annual Meeting"), to be held
on May 27, 2003 at 9:00 a.m. central daylight time, and any adjournments or
postponements thereof, hereby revoking any proxies heretofore given.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER
DIRECTED BY THE UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS MADE, THE PROXY WILL
BE VOTED "FOR" THE ELECTION OF THE DIRECTORS NOMINATED BY THE BOARD OF
DIRECTORS, AND IN THE DISCRETION OF THE PROXIES ON ANY OTHER BUSINESS AS MAY
PROPERLY COME BEFORE THE ANNUAL MEETING OR ANY ADJOURNMENT OR POSTPONEMENT
THEREOF.
You are encouraged to specify your choices by marking the appropriate
box. SEE REVERSE SIDE, but you need not mark any box if you wish to vote in
accordance with the Board of Directors recommendations. The Proxies cannot vote
your shares unless you sign and return this card.
(TO BE SIGNED ON THE REVERSE SIDE)