<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a)
of the Securities Exchange Act of 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of Commission Only (as permitted by Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
SHERIDAN ENERGY, INC.
-----------------------------------------------------------------------------
(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):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(a)(4) and 0-11.
1) Title of each class of securities to which transaction applies:
2) Aggregate number of securities to which transaction applies:
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
4) Proposed maximum aggregate value of transaction:
5) Total fee paid:
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form of Schedule and the date of its filing.
1) Amount Previously Paid:
2) Form, Schedule or Registration Statement No.:
3) Filing Party:
4) Date Filed:
<PAGE>
SHERIDAN ENERGY, INC.
1000 LOUISIANA, SUITE 800
HOUSTON, TEXAS 77002
April 15, 1998
Dear Fellow Stockholder:
You are cordially invited to attend the first Annual Meeting of
Stockholders of Sheridan Energy, Inc. scheduled to be held on Thursday, May 21,
1998 at the Doubletree Hotel at Allen Center, 400 Dallas Street, Houston, Texas
commencing at 9:00 a.m., Houston time. Your Board of Directors and Management
look forward to greeting personally those Stockholders able to attend.
At the meeting, Stockholders are being asked to elect a Board of seven
directors to serve for a term of one year, to consider and vote upon the
Sheridan Energy, Inc. 1998 Flexible Incentive Plan, and to transact such other
business as may properly come before the meeting.
It is important that your shares are represented at the meeting whether or
not you plan to attend. Accordingly, we request your cooperation by promptly
signing, dating and mailing the enclosed proxy in the envelope provided for your
convenience.
Sincerely,
Jeffrey E. Susskind
Chairman of the Board
<PAGE>
SHERIDAN ENERGY, INC.
1000 LOUISIANA, SUITE 800
HOUSTON, TEXAS 77002
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 21, 1998
TO THE STOCKHOLDERS OF SHERIDAN ENERGY, INC.:
Notice is hereby given that the Annual Meeting of the Stockholders of
Sheridan Energy, Inc., a Delaware corporation (the "Company") will be held at
the Doubletree Hotel at Allen Center, 400 Dallas Street in Houston, Texas on May
21, 1998 commencing at 9:00 a.m. Houston time, for the following purposes:
A. To elect a Board of Directors of seven members having a term of one
year;
B. To consider and act upon the adoption of the Sheridan Energy, Inc.
1998 Flexible Incentive Plan; and
C. To transact such other business as may properly come before the
meeting or any adjournment or adjournments thereof.
The stock transfer books will not be closed. Stockholders of record as of
the close of business on April 1, 1998 (the "Record Date") are entitled to
notice of, and to vote at, the Annual Meeting or any adjournment or adjournments
thereof, notwithstanding any transfer of stock on the books of the Company after
such Record Date.
You are cordially invited to attend the meeting in person. YOU ARE URGED
TO COMPLETE, DATE AND SIGN THE ENCLOSED PROXY AND RETURN IT PROMPTLY IN THE
ENCLOSED ENVELOPE WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING.
Jon W. Wright, Jr.
Secretary
Houston, Texas
April 15, 1998
<PAGE>
SHERIDAN ENERGY, INC.
1000 LOUISIANA, SUITE 800
HOUSTON, TEXAS 77002
_______________
PROXY STATEMENT
_______________
ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON MAY 21, 1998
_______________
SOLICITATION AND VOTING RIGHTS
The accompanying Proxy is solicited by the Board of Directors of Sheridan
Energy, Inc., a Delaware corporation (the "Company") for use at the Annual
Meeting of Stockholders of the Company to be held on Thursday, May 21, 1998 at
9:00 a.m. Houston time at the Doubletree Hotel at Allen Center, 400 Dallas
Street in Houston, Texas, or at any adjournment or adjournments thereof.
This Proxy Statement and Proxy and the accompanying Notice of Annual
Meeting, Annual Report to Stockholders, and Form 10-KSB for the year ended
December 31, 1997, including consolidated financial statements, will be mailed
to the Stockholders on or about April 15, 1998. The cost of soliciting proxies
in the enclosed form will be borne by the Company. The Board of Directors of
the Company has fixed April 1, 1998 as the record date (the "Record Date") for
determination of Stockholders entitled to receive notice of, and to vote at, the
Annual Meeting. As of the Record Date there were 6,731,331 shares of the
Company's common stock, par value $0.01 per share (the "Common Stock"),
outstanding and entitled to vote. Each holder of Common Stock will be entitled
to one vote for each share owned. The presence, in person or by proxy, of the
holders of a majority of the outstanding shares of Common Stock is necessary to
constitute a quorum at the Annual Meeting. Proxies marked as abstaining
(including proxies containing broker non-votes) on any matter to be acted upon
by the Stockholders will be treated as present at the Annual Meeting for
purposes of determining a quorum but will not be counted as votes cast on such
matters. The seven persons receiving the greatest number of votes cast at the
Annual Meeting to fill the directorships with a term to expire at the 1999
Annual Meeting of Stockholders, will be elected as Directors of the Company.
Thus, abstentions and broker non-votes will have no effect on the election of
directors. Regarding other matters, under Delaware law, generally the vote of
Stockholders holding at least a majority of the voting power present at a
meeting in which a quorum is present is the act of the Stockholders.
Accordingly, abstentions and broker non-votes will have the effect of negative
votes with respect to any such other matters. The shares represented by each
valid Proxy received by the Company on the form solicited by the Board of
Directors will be voted in accordance with the instructions specified on the
Proxy. Under Delaware law, any Stockholder giving a duly executed proxy may
revoke it before it is exercised by giving written notice to the Secretary of
the Company or by voting in person at the Annual Meeting.
Reference is made to the caption "Election of Directors" herein for a
discussion of the Company's contractual obligation to place two persons on the
Company's Board of Directors who have been designated by Enron Capital & Trade
Resources Corp. ("ECT"). Messrs. Dunn and Childers are the ECT designees (the
"Designees"). Each has been nominated for election and are two of the nominees
set forth herein. In the event the Designees are not elected by the
Stockholders of the Company, the Board of Directors will be required to expand
the size of the Board of Directors and to name the Designees to fill the
expanded Board positions.
<PAGE>
BENEFICIAL OWNERSHIP OF SECURITIES
The following table reflects the holdings of the only persons known to the
Company to own beneficially five percent or more of the Company's Common Stock
or the Company's Series A Preferred Stock ($0.01 par value) (the "Preferred
Stock"):
<TABLE>
<CAPTION>
NAME AND ADDRESS AMOUNT AND NATURE OF PERCENT OF CLASS
OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP ON RECORD DATE
- ------------------- -------------------- ----------------
<S> <C> <C>
Jeffrey and Janis Susskind 1,000,037 Common Stock 14.9%
FBO The Susskind Family Trust
100 Wilshire Boulevard, 15th Floor
Santa Monica, CA 90401
AIF-Lion Group/(1)/ 911,100 Common Stock 13.5%
c/o Apollo Advisers L.P.
Two Manhattanvile Rd.
Purchase, NY 10577
Enron Capital & Trade Resources Corp./(2)/ 2,600,000 Common Stock 37.8%
1400 Smith Street 1,000,000 Preferred Stock 100%
Houston, TX 77002
Oppenheimer Funds, Inc./(3)/ 394,283 Common Stock 5.9%
Two World Trade Center
New York, NY 10048
Goldman, Sachs & Co./(4)/ 398,841 Common Stock 5.9%
85 Broad Street
New York, NY 10004
</TABLE>
- ------------------
(1) As reported in its Schedule 13D filed with the Securities and Exchange
Commission on February 27, 1995, such securities are held jointly by AIF
II, L.P. and Lyon Advisors, L.P., each a Delaware limited partnership. AIF
and Lyon are engaged in the business of managing investment funds while
serving as advisors and representatives for its clients.
(2) Includes warrants ("Warrants") exercisable at a price of $5.50 per share on
or before December 31, 2002 to acquire 82,500 shares of the Company's
Common Stock and 467,500 shares of Common Stock owned by Joint Energy
Development Investments Limited Partnership, a Delaware limited partnership
("JEDI") and Warrants to acquire 67,500 shares of the Company's Common
Stock and 382,500 shares of Common Stock owned by JEDI Hydrocarbon
Investments I Limited Partnership, a Delaware limited partnership ("JEDI
I"). JEDI shares voting and investment power over the securities of the
Company owned of record by JEDI I with certain entities that may be deemed
to be control persons of JEDI I. JEDI Capital L.L.C., a Delaware limited
liability company ("JEDI Capital"), is the general partner, and JEDI is the
sole limited partner, of JEDI I. JEDI Capital is a majority-owned
subsidiary of JEDI.
Entities that may be deemed to be control persons of JEDI are (a) Enron
Capital Management Limited Partnership, a Delaware limited partnership and
the general partner of JEDI ("ECMLP"), (b) Enron Capital Corp., a Delaware
corporation and the general partner of ECMLP ("ECC"), and
2
<PAGE>
(c) ECT. ECC is a wholly-owned subsidiary of ECT, and an indirect, wholly-
owned subsidiary of Enron Corp., an Oregon corporation. ECT is a wholly-
owned subsidiary of Enron Corp.
(3) In its Schedule 13G, Oppenheimer Funds, Inc. states that it is an
investment advisor and that it has shared dispositive power with respect to
394,283 shares of the Company's common stock (sole voting power being held
by Oppenheimer's Strategic Income Fund).
(4) In its Schedule 13G, Goldman, Sachs & Co. and the Goldman Sachs Group, L.P.
in their capacity as investment advisors state that they have sole voting
power as to no shares and shared voting and dispositive power as to 398,841
shares.
The following table sets forth the amounts and percentages of Common Stock
beneficially owned as of the Record Date by each nominee for election as a
Director of the Company, by each of the individuals named in the Summary
Compensation Table and by all Directors and Executive Officers of the Company as
a group. Beneficial ownership has been determined in accordance with Rule 13d-3
under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and
does not necessarily bear on the economic incidents of ownership or the right to
transfer such shares:
AMOUNT AND NATURE OF
BENEFICIAL OWNERSHIP OF
NAME OF INDIVIDUAL SHARES OF COMMON STOCK PERCENT OF CLASS
- ------------------ ------------------------ ----------------
B. A. Berilgen 8,000 *
Jonathan P. Carroll 35,000 *
W. Craig Childers/(1)/ 2,600,000 37.8%
D. Bradley Dunn/(1)/ 2,600,000 37.8%
Michael A. Gerlich 25,000 *
David A. Scheiber 5,000 *
Jeffrey E. Susskind/(2)/ 1,000,037 14.9%
Jon W. Wright, Jr. -0- N/A
All Directors and Executive
Officers as a Group
(8 persons) including those
named above 3,673,037 53.4%
* Less than 1%
(1) Mr. Dunn and Mr. Childers are employees of ECT. However, Messrs. Dunn and
Childers, disclaim beneficial ownership of any shares owned directly or
indirectly by ECT and its affiliates. ECT also owns 100% of the Preferred
Stock to which Messrs. Dunn and Childers also disclaim beneficial
ownership. For information concerning the Common Stock and warrants owned
directly or indirectly by ECT and its affiliates, see footnote (2) to the
previous table.
(2) Includes 1,000,037 shares held by The Susskind Family Trust which is
controlled by Mr. Susskind and his wife.
3
<PAGE>
ELECTION OF DIRECTORS
Seven Directors are to be elected, each to hold office until the next
Annual Meeting of Stockholders and until his successor is elected and qualifies.
The persons named as proxies on the enclosed Proxy have been designated by the
Board of Directors and intend to vote, unless otherwise directed, for the
nominees listed below. With the exception of Messrs. Dunn and Childers, all of
such nominees were elected at the 1997 Special Meeting of the Company's
Stockholders. During 1998, in accordance with an agreement entered into between
the Company and ECT, ECT was given the right to require the Company to name two
ECT designees to the Board of Directors. ECT made such request in 1998 and as a
result, the Board of Directors increased the Board from five to seven members
and elected Messrs. Dunn and Childers to serve until the Annual Meeting.
In accordance with an agreement entered into among ECT, JEDI, JEDI I, and
Mr. and Mrs. Jeffrey Susskind acting on behalf of The Susskind Family Trust, the
Susskind's have agreed to vote their 1,000,037 shares equal to 14.9% of the
outstanding shares of Common Stock for the Designees. ECT has, conversely,
agreed to vote its 2,450,000 shares or 36.4% of the outstanding Common Stock for
the nominees listed below.
Although the Board of Directors does not contemplate that any of the
nominees will be unable to serve, if such a situation arises prior to the Annual
Meeting, the persons named on the enclosed Proxy will vote in accordance with
their best judgment for a substitute nominee.
For information regarding the proposed plan to provide employee and
nonemployee directors and officers of Sheridan with increased equity ownership
in Sheridan, see "Proposal--1998 Flexible Incentive Plan."
The following table sets forth for each nominee his name, age, principal
occupation and employment for the past five years, offices held with Sheridan
and the date he first became a director. Each of the directors may be contacted
at the Company's address set forth on the Notice to Stockholders.
<TABLE>
<CAPTION>
POSITION, PRINCIPAL OCCUPATION, BUSINESS DIRECTOR
NOMINEES AGE EXPERIENCE AND DIRECTORSHIPS HELD SINCE/(1)/
- ------------------------ --- -------------------------------------------------------------------- ----------
<S> <C> <C> <C>
B. A. Berilgen.......... 49 Mr. Berilgen is currently President and Chief Executive Officer of 1997
the Company. He joined the Company in June, 1997. Prior
thereto he was Vice-President and Chief Technical Officer with
Forest Oil Company, a position he held from January to June
1997. From 1992 to January 1997, he was Vice President of
Operations in charge of field operations, reservoir engineering and
domestic and international development, exploration and
acquisition functions.
Jonathan P. Carroll..... 36 Mr. Carroll has served on the Board since the merger (the 1997
"Merger") of the Company with TGX Corporation ("TGX") in
1997. He is currently President of a privately owned investment
management company. He was previously President of Enserch
Energy Services, Inc., and from 1991 until 1995, President and
CEO of DGS Holdings Corp., an oil and gas marketing company.
He has also served as a Vice President at Manufacturers Hanover
Bank and Head Trader in the Capital Markets Group of First
Interstate Bank, Ltd.
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
POSITION, PRINCIPAL OCCUPATION, BUSINESS DIRECTOR
NOMINEES AGE EXPERIENCE AND DIRECTORSHIPS HELD SINCE/(1)/
- ------------------------ --- -------------------------------------------------------------------- ----------
<S> <C> <C> <C>
W. Craig Childers/(2)/.. 49 Mr. Childers has been a Director of the Company since February 1998
1998. He was a Principal in Canberras Energy Associates from
January 1, 1993 through May 15, 1994. Mr. Childers was Vice
President of Enron Capital & Trade Resources from May 1994
through January 1998 and has been a Managing Director of the
same company since January 1998.
D. Bradley Dunn/(2)/ 34 Mr. Dunn is a director of ECT and has held various positions 1998
with ECT since September of 1994. Prior to this Mr. Dunn
worked as a Petroleum Engineer with Delhi Gas Pipeline
Corporation and Mobil Oil Corporation.
Michael A. Gerlich...... 43 Mr. Gerlich has been Vice President and Chief Financial Officer 1997
of the Company since the Merger. He was elected Vice President
and Chief Financial Officer of TGX in December, 1994. In April
1997 he was appointed interim President. From January 1993
until joining TGX, he owned and managed Chalk Hill Resources,
Inc., an independent oil and gas investing and financial consulting
company. Prior thereto, he was Executive Vice President from
January 1989 to December 1992 and Vice President of Finance
from May 1982 to December 1988 for Trinity Resources, Inc., an
independent public oil and gas company.
David H. Scheiber....... 39 Mr. Scheiber is currently an investment consultant. From April 1995
1996 through early May 1997 Mr. Scheiber was a principal of
Chesapeake Bay Investors, L.L.C., an investment management
company in Baltimore, Md. From September 1992 to April, 1996,
Mr. Scheiber was President of Cana Capital, LLC, an investment
banking and financial services company located in Laguna Niguel,
California. From September 1991 to August 1992, Mr. Scheiber
was affiliated with Monitor Company, Inc., a management
consulting firm headquartered in Boston, Massachusetts, as
manager of their bankruptcy practice. Since April 1997
Mr. Scheiber has been a member of the Board of Directors of
Tuneup Masters, Inc.
Jeffrey E. Susskind..... 44 Mr. Susskind is a principal of Strome, Susskind Investment 1992
Management, L.P., an investment management company in Santa
Monica, California. Mr. Susskind previously was an investment
manager with Kayne, Anderson & Co.
</TABLE>
- ----------------------
(1) Includes time served as a director of TGX
(2) In the event Messrs. Dunn and Childers are not elected by the Stockholders
at the Annual Meeting, the Board of Directors, upon request by ECT, would
be required to increase the Board of Directors by two and to place on the
Board those persons designated by ECT. Upon reduction of ECT's ownership
of Common Stock below 14%, ECT's right to designate directors reduces to
5
<PAGE>
one and, upon a further reduction below 7%, ECT no longer retains the right
to designate a director. At such times, one or more of the ECT designees
will resign from the Board.
Only those directors who are not employees of the Company are entitled to
receive a fee, plus reimbursement for reasonable travel expenses incurred in
conjunction with meetings. Under the Company's standard arrangement for
compensation of directors, directors receive a retainer fee of $833 per month
plus a meeting fee of $1,000 per day and $250 for each telephone meeting. The
monthly retainer fee is subject to forfeiture on a six-month prospective basis
if a director attends less than 75% of the meetings. In addition, while the
Company has not adopted a formal policy, it is the intention of the Company to
grant to all nonemployee directors options to acquire Common Stock. As a
result, in 1997 Messrs. Susskind, Carroll and Scheiber were granted options to
acquire 25,000, 20,000, and 20,000 shares of stock respectively. Such options
vest over three years and are exercisable for a ten year period. The Designees
have elected to waive any right to stock options. Eight meetings of the Board
were held in the last fiscal year (including meetings of TGX). No incumbent
director attended fewer than 75% of the meetings of the Board held in the last
fiscal year after his election as a Director. The Designees have elected to
waive all Director fees for 1998.
The Board has a standing Audit Committee which met once during 1997. The
Audit Committee consists of Messrs. Carroll, Scheiber and Dunn. The Audit
Committee assists the Board in fulfilling its fiduciary responsibilities with
respect to the accounting policies and reporting practices of the Company and
the sufficiency of the audits of all Company activities. It is the Board's agent
in ensuring the integrity of financial reports of the Company, and the adequacy
of disclosures to shareholders. The Audit Committee is the focal point for
communication between the directors, the independent accountants and management
as their duties relate to financial accounting, reporting, and controls.
The Board has a standing Compensation Committee which met once during the
last fiscal year, and consists of Messrs. Carroll, Childers and Susskind.
During the years, the Compensation Committee consulted with management regarding
the compensation and benefits that are provided to the directors, officers and
employees of the Company.
The Board has a standing Executive Committee which did not meet during the
last fiscal year. The Executive Committee is authorized to exercise all of the
powers of the Board of Directors except those not permitted by the General
Corporation Law of Delaware. In 1997, the Executive Committee consisted of
Messrs. Susskind, Berilgen and Gerlich.
SECTION 16(a) - BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended,
requires the Company's Executive Officers and Directors and persons who own more
than ten percent of a registered class of the Company's equity securities to
file initial reports of ownership and changes in ownership with the SEC. Such
Officers, Directors and stockholders are required by SEC regulations to furnish
the Company with copies of all Section 16(a) forms they file. Based solely on a
review of the copies of such forms furnished to the Company and written
representations from the Company's Executive Officers and Directors, all persons
subject to the reporting requirements of Section 16(a) filed the required
reports on a timely basis.
6
<PAGE>
EXECUTIVE OFFICERS
For information regarding the Executive Officers of the Company. See
"Election of Directors." Pursuant to the Company's Bylaws, the officers serve
at the discretion of the Board and may be removed, with or without cause, at any
time.
EMPLOYMENT AGREEMENTS
The Company has entered into an Employment Agreement dated and effective as
of June 5, 1997 which was subsequently amended in 1998, with Mr. B. A. Berilgen
(the "Berilgen Agreement"). Pursuant to the Berilgen Agreement, Mr. Berilgen
has been retained as President and Chief Executive Officer of the Company for a
term ending December 31, 1999, which may be extended on an annual basis unless
terminated by either party. Pursuant to the Berilgen Agreement, Mr. Berilgen
receives a base salary of $190,000 per annum subject to the Compensation
Committee's annual review, and annual discretionary bonuses. As a result of the
Berilgen Agreement, Mr. Berilgen was granted options to acquire 175,000 shares
of the Company's Common Stock at an option exercise price of $2.50 per share.
The Berilgen Agreement can be terminated at any time by the Company, but if
terminated for any reason other than for "cause," the Company is obligated to
pay the full amount that Mr. Berilgen is entitled to under the Berilgen
Agreement with a minimum of one-year's base salary as severance. Mr. Berilgen
would also be entitled to receive such payments upon a change of control which,
without his consent, results in a significant diminishment in the nature of Mr.
Berilgen's employment.
Larry H. Carpenter, former President and Chief Executive Officer of
TGX, entered into an employment agreement (the "Carpenter Employment Agreement")
with the Company on April 1, 1995, covering a period of two years ending March
31, 1997. Mr. Carpenter received compensation of $225,000 per annum, plus
discretionary bonuses as determined by the Board of Directors. In addition, Mr.
Carpenter received 200,000 shares of TGX's Senior Preferred Stock (equal to
100,000 shares of Sheridan Common Stock) which vested over the term of the
Employment Agreement. On February 10, 1997, Mr. Carpenter resigned. Pursuant to
a Settlement Agreement, entered into between TGX and Mr. Carpenter, Mr.
Carpenter forfeited 100,000 shares of TGX's Preferred Stock (equal to 50,000
shares of Sheridan Common Stock) which would have become non-forfeitable on
April 1, 1997, released TGX and others from all liabilities and agreed that he
would not acquire or attempt to acquire or help others to acquire any stock in
the Company for a period of three years. In consideration for these agreements,
Mr. Carpenter was paid $225,000 plus accrued vacation and released from all
liabilities arising from his employment.
7
<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth certain information concerning the
compensation of the Chief Executive Officer of the Company (and TGX), and of the
Company's most highly compensated executive officers (other than the CEO) whose
total annual salary and bonus exceeded $100,000, for each of the Company's
fiscal years ending December 31, 1997, 1996 and December 31, 1995. No other
officers earned in excess of $100,000.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long Term
Annual Compensation Compensation Awards
----------------------------- --------------------------
Restricted Securities
Stock Underlying All
Name and Awards Options/ Other
Principal Position Year Salary($)/(1)/ Bonus($)/(2)/ (#) SARs(#) Compensation ($)
- ------------------------- ---- -------------- ------------- ------------- ----------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Larry H. Carpenter/(3)/ 1997 269,000 -- -- -- 20,000
President & CEO 1996 225,000 50,000 -- -- -0-
1995 209,000 125,000/(4)/ 200,000/(5)/ -- -0-
B. A. Berilgen/(6)/ 1997 98,000 50,000 -- 175,000 --
President and CEO
Michael A. Gerlich/(7)/ 1997 121,000 30,000/(3)/ -- 60,000 3,000/(7)/
Vice-President & CFO 1996 120,000 12,000/(3)/ -- -- 3,000/(7)/
1995 107,000 10,000/(3)/ 15,000 -- --
Jon W. Wright, Jr. 1997 101,000/(8)/ 16,000/(3)/ -- 3,000 --
Secretary
</TABLE>
_____________
(1) Includes perquisites and other benefits, unless the aggregate amount of
such does not exceed the lesser of either $50,000 or 10% of the total
annual salary and bonus reported for the named executive officer. See
"Employment Agreements."
(2) Bonus was granted for year shown and paid in January following the year of
grant.
(3) Mr. Carpenter resigned on February 10, 1997. Upon resignation, Mr.
Carpenter forfeited 100,000 shares of TGX Senior Preferred Stock (equal to
50,000 shares of Common Stock). The $20,000 "All Other Compensation"
represents estimated compensation value recognized by Mr. Carpenter related
to restricted stock awards upon vesting of unforfeited shares.
(4) Of the bonus amount shown for Mr. Carpenter, $75,000 was granted in regards
to 1994 accomplishments and paid in 1995. The remaining $50,000 is for 1995
accomplishments and was paid in January 1996.
(5) Such award of 200,000 shares of TGX Senior Preferred Stock was subject to
forfeiture. In February 1997 Mr. Carpenter resigned as CEO and forfeited
100,000 shares of TGX Senior Preferred Stock (equal to 50,000 shares of
Common Stock). See "Employment Agreements."
(6) Mr. Berilgen was hired effective June 5, 1997.
(7) Mr. Gerlich acted as interim President from April 1997 to June 1997. Mr.
Gerlich was awarded 30,000 shares of TGX Senior Preferred Stock (equal to
15,000 shares of Common Stock) in 1995 which was subject to forfeiture.
The forfeiture provisions have lapsed. The $3,000 of "All Other
Compensation" represents estimated compensation value recognized related to
restricted stock awards upon vesting.
(8) Includes $4,500 paid in 1997 as a bonus for 1996 accomplishments.
8
<PAGE>
STOCK OPTION GRANTS AND EXERCISES
The following table sets forth information concerning individual grants of
stock options under the 1997 Flexible Incentive Plan to each of the Executive
Officers named in the Summary Compensation Table.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
Individual Grants/(1)/
---------------------------------------------------------
Potential Realizable
Value at Assumed
% of Total Annual Rates of Stock
Number of Options Price Appreciation for
Securities Granted to Exercise Option Term/(2)/
Underlying Employees in Price Expiration ---------------------
Name Options Granted Fiscal Year Per Share/(3)/ Date 5% 10%
- -------------------- --------------- ------------ -------------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
B. A. Berilgen...... 175,000/(4)/ 57.6 $2.50 06/26/07 $274,750 $698,250
Michael A. Gerlich.. 60,000/(4)/ 19.7 $2.50 06/26/07 $ 94,200 $239,400
Jon W. Wright, Jr... 3,000/(5)/ * $2.56 09/25/07 $ 4,830 $ 12,240
</TABLE>
- ------------------------------
* Less than one percent
(1) No options granted by the Company were exercised in the fiscal year ending
December 31, 1997.
(2) The Company does not believe that the value estimated herein, or any other
model, will necessarily be indicative of the values to be realized by an
executive.
(3) The exercise price may be paid in cash or in shares of Common Stock.
(4) Such options become exercisable at the rate of 33-1/3% per year on each of
the first three anniversaries of the date of grant, provided that the
officer remains employed by the Company.
(5) Such options become exercisable at the rate of 25% per year on each of the
first four anniversaries of the date of grant, provided that the officer
remains employed by the Company.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FY-END VALUES
The following table sets forth information concerning each exercise of
stock options during the last completed fiscal year by each of the Executive
Officers named in the Summary Compensation Table and the fiscal year end value
of unexercised options.
<TABLE>
<CAPTION>
Number of Securities
Underlying Unexercised Value of Unexercised
Options at In-the-Money Options at
Shares December 31, 1997 December 31, 1997 ($)/(1)/
Acquired on Value Realized ------------------------- --------------------------
Name Exercise (#) ($) Exercisable/Unexercisable Exercisable/Unexercisable
- -------------------- ------------ --------------- ------------------------- --------------------------
<S> <C> <C> <C> <C>
B. A. Berilgen 0 N/A 0 175,000 N/A / $175,000
Michael A. Gerlich 0 N/A 0 60,000 N/A / 60,000
Jon W. Wright, Jr. 0 N/A 0 3,000 N/A / 2,820
</TABLE>
- -----------------------------
(1) Based on a closing stock price on the Nasdaq Small-Cap Market of $3.50
per share on December 31, 1997.
9
<PAGE>
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
No non-employee director is or has been an officer or employee of the
Company or had any relationship requiring disclosure pursuant to Item 404 of the
SEC Regulation S-K. No executive officer of Sheridan served as a member of the
Compensation Committee (or other board committee performing similar functions
or, in the absence of any such committee, the entire board of directors) of
another corporation, any of whose executive officers served on the Sheridan
Compensation Committee. No executive officer of Sheridan served as a director of
another corporation, one of whose executive officers served on the Sheridan
Compensation Committee. No executive officer of Sheridan served as a member of
the compensation committee (or other board committee performing equivalent
functions or, in the absence of any such committee, the entire board of
directors) of another corporation, one of whose executive officers served as a
director of Sheridan.
REPORT ON EXECUTIVE COMPENSATION
We are pleased to present this report to stockholders on executive
compensation. This report summarizes the responsibilities of certain of the
Company's non-employee directors who act as a Compensation Committee (the
"Committee") although the Company has not formally established such a Committee.
In establishing the compensation policy and objectives that guide the
development and administration of the executive compensation program, and the
basis on which the compensation for the Chief Executive Officer, corporate
officers and other key executives was determined for the fiscal year ended
December 31, 1997.
During the fiscal year, the Committee was comprised of the following Board
members, all of whom were non-employee directors of the Company: Jonathan P.
Carroll, Jeffrey E. Susskind, and David H. Scheiber. The Committee's
responsibilities are to oversee the development and administration of the
compensation program for corporate officers and subsidiary presidents, and
administer the executive incentive and stock option plans. During fiscal year
1997, the Committee also reviewed market compensation trends for outside
directors.
The objective of the executive compensation program is to create strong
financial incentive for corporate officers and managers to increase profits and
grow revenues. The following objectives guide the Committee in its
deliberations:
. Provide a competitive compensation program that enables the Company to
attract and retain key executives and Board members.
. Assure a strong relationship between the performance results of the
Company and the total compensation received.
. Balance both annual and longer performance objectives of the Company.
. Encourage executives to acquire and retain meaningful levels of equity
ownership in the Company.
. Work closely with the Chief Executive Officer to assure that the
compensation program supports the management style and culture of the
Company.
In addition to normal employee benefits, the executive total compensation
program includes base salary, annual cash bonus compensation, and longer term
stock based grants and awards.
10
<PAGE>
Section 162(m) of the Internal Revenue Code imposes a $1,000,000 limit,
with certain exceptions, on the deductibility of compensation paid to each of
the five highest paid executives. In particular, compensation that is determined
to be "performance based" is exempt from this limitation. To be "performance
based," incentive payments must use predetermined objective standards, limit the
use of discretion in making awards, and be certified by the Compensation
Committee made up of "outside directors." While the Committee intends to comply
with the provisions of Section 162(m) with respect to the longer term stock
based incentives, it believes that the use of discretion in evaluating the
individual contributions of corporate management is appropriate. As such, the
Committee has taken no action to comply with Section 162(m) with respect to
annual incentive payments. It is not anticipated that any executive will receive
compensation in excess of this limit during 1998. The Committee will continue to
monitor this situation and will take appropriate action if it is warranted in
the future.
Primary market comparisons are made to a broad group of oil and gas
companies adjusted for size and job responsibilities.
The base salary objective of the Committee is to target the median of the
primary comparison group for corporate officers. Salary adjustments are based
on an individual's experience, background performance during the year, the
general movement of salaries in the marketplace and the Company's financial
position. Similar criteria are used to determine discretionary bonuses.
Stock ownership is encouraged through the use of stock option grants which
are made on a periodic basis.
The Chief Executive Officer participates in the executive compensation
program described in this report.
In establishing the total compensation program for Mr. Berilgen, the
Committee assessed the pay levels for CEOs in similar companies in the oil and
gas industry, Mr. Berilgen's efforts in seeking out growth opportunities for the
Company and controlling costs, and other relevant factors. The Committee also
took into consideration the necessity to retain a qualified CEO after the
resignation of Mr. Carpenter in 1997.
Respectfully submitted,
Jonathan P. Carroll
Jeffrey E. Susskind
David H. Scheiber
11
<PAGE>
MANAGEMENT RELATIONSHIPS AND TRANSACTIONS
As set forth above, during 1997, the Company entered into a series of
agreements with ECT and Jeffrey E. Susskind, Chairman of the Board on behalf of
The Susskind Family Trust ("Susskind"), entered into further agreements with
ECT. Pursuant to the Company's agreements with ECT, in connection with the
acquisition of producing and non-producing oil and gas properties acquired from
Pioneer Natural Resources USA, Inc., ECT acquired 100% of the Company's
outstanding Preferred Stock in consideration for a payment of $10,000,000, and
further acquired 1,600,000 shares of Common Stock of the Company for a further
and additional payment of $10,000,000. The Preferred Stock has a cumulative
dividend which, if paid in cash, is in the amount of 12% per annum. However,
the Company has the option to pay such dividend with additional shares of
Preferred Stock. In such event, the Preferred Stock bears a dividend rate of
13.5% per annum. Shares of Preferred Stock are entitled to a liquidation
preference of $10 per share plus accrued, unpaid dividends, before any
distribution to holders of Common Stock on dissolution of the Company. The
Preferred Stock is fully redeemable before December 15, 1998, at a premium of
105% decreasing to 100% after December 15, 2001. The Preferred Stock must be
redeemed on or before December 15, 2002. In addition, upon certain defined
defaults by the Company, including failure to name two directors to the
Company's Board of Directors after the request of ECT or failure to pay the
appropriate dividend, the Preferred Stock is immediately redeemable. In
addition, at such time, the holders of the Preferred Stock will have right to
elect a majority of the Board of Directors. In connection with the issuance of
the Preferred and Common Stock to ECT, ECT agreed that, except in limited
circumstances or with the Company's permission, it would not acquire any
additional shares of the Company's Common Stock for a period of two years. In
addition, ECT, the Company and Susskind agreed that Susskind would vote its
shares in favor of the ECT nominees and, conversely, ECT would vote its shares
in favor of Susskind's nominees to the Board. In connection with the
transaction, ECT was granted certain registration rights including certain
demand and piggy-back registration rights. ECT's demand registration rights do
not become effective until the first anniversary of the agreement, and all
registration rights terminate when ECT's Common Stock ownership is reduced below
2% of the Company's outstanding shares.
On December 31, 1997, in connection with the Company's acquisition of
certain assets from Grand Gulf L.L.C. and JEDI Hydrocarbon Investments I Limited
Partnership, JEDI and JEDI I, each an affiliate of ECT, collectively acquired an
additional 850,000 shares of the Company's Common Stock and Warrants to acquire
an additional 150,000 shares of Common Stock. In connection with this
transaction, JEDI and JEDI I received similar registration rights as ECT and
also agreed to be bound by the ECT obligation on voting and on acquiring
additional Common Stock of the Company.
On June 12, 1997, TGX Corporation merged with and into the Company. As a
result of such merger, TGX Shareholders owning Series A Senior Preferred Stock
were entitled to receive .5 shares of Sheridan Common Stock for each share of
TGX Series A Senior Preferred Stock they held on the date of the merger. As of
such date, Susskind held 1,778,002 shares of Series A Senior Preferred Stock.
In connection with the merger, all other preferred stockholders and common
stockholders of TGX received no shares of Sheridan and, as a result, their
interest in the assets of TGX was cancelled and they received no ongoing
interest in the Company. Mr. Susskind may be deemed to have had a conflict of
interest in recommending to the Stockholders of TGX that the merger be
consummated.
12
<PAGE>
PROPOSAL (2)--SHERIDAN 1998 FLEXIBLE INCENTIVE PLAN
GENERAL
The Board of Directors approved the 1998 Flexible Incentive Plan to become
effective on May 21, 1998, subject to the approval of the Stockholders of the
Company at the Annual Meeting. A copy of the Flexible Incentive Plan is attached
hereto as Appendix "A". The description of the Flexible Incentive Plan contained
herein is not intended to be complete and is qualified in its entirety by
reference to Appendix "A", which contains the complete text of the Flexible
Incentive Plan.
At the Special Meeting of Stockholders held in connection with the merger
of TGX and Sheridan, the Sheridan Stockholders approved and adopted the 1997
Flexible Incentive Plan. Pursuant to that plan, 450,000 shares of Common Stock
were reserved for issuance upon exercise of options granted by the Company's
Board or stock option committee. Since the adoption of the 1997 Flexible
Incentive Plan, the Board has granted options to acquire up to 348,000 shares of
Common Stock at prices ranging from $2.50 to $3.75. Of such amount, none are
currently exercisable. The Board of Directors believes that the adoption of the
1998 Flexible Incentive Plan will continue to provide the benefits achieved by
the 1997 Flexible Incentive Plan.
The purposes of the Flexible Incentive Plan are to enable Sheridan to
attract, motivate and retain highly talented officers, employees, non-employee
directors and consultants by enabling Sheridan to make awards that recognize the
creation of long-term value for Sheridan's stockholders and promote the
continued growth and success of Sheridan. To accomplish this purpose, the
Flexible Incentive Plan provides for the granting to eligible persons of stock
options, stock appreciation rights, restricted stock, performance awards,
performance stock, dividend equivalent rights or any combination thereof.
AVAILABLE SHARES
The aggregate number of shares of Common Stock which may be issued under
the Flexible Incentive Plan (or with respect to which awards may be granted)
shall not exceed 250,000 shares. Shares issued under the Flexible Incentive Plan
may be either authorized and unissued Common Stock or Common Stock held in or
acquired for the treasury of Sheridan. Any shares of Common Stock subject to a
stock option or stock appreciation right that are not issued before the
expiration of such awards, or any restricted stock or performance shares that
are forfeited, will again be available for award under the Flexible Incentive
Plan. If shares of Common Stock are delivered to Sheridan in payment of the
exercise price with respect to any stock option granted under the Flexible
Incentive Plan, the number of shares available for future awards under the
Flexible Incentive Plan will be reduced only by the net number of shares issued.
PERSONS ELIGIBLE TO PARTICIPATE
Eligibility for participation in the Flexible Incentive Plan is confined to
employees, non-employee directors and consultants of Sheridan and its
subsidiaries, as determined by the Compensation Committee (the "Committee") in
its sole discretion.
ADMINISTRATION
The Committee will administer the Flexible Incentive Plan and has broad
powers under the Flexible Incentive Plan to, among other things, administer and
interpret the Flexible Incentive Plan, establish guidelines for the Flexible
Incentive Plan's operation, select persons to whom awards are to be made under
the Flexible Incentive Plan, determine the types, sizes and combinations of
awards to be
13
<PAGE>
granted under the Flexible Incentive Plan and determine other terms and
conditions of an award. In addition, except as set forth below under "Amendment
and Termination," the Committee also has the power to modify or waive
restrictions or limitations on the exercisability of awards and to accelerate
and extend existing awards. The Committee may also determine whether, and to
what extent and under what conditions to provide loans to eligible participants
to purchase Common Stock under the Flexible Incentive Plan. In addition, the
Committee has the power to modify the terms of existing awards, including, in
the case of stock options, the exercise price thereof.
TYPES OF AWARDS
The Flexible Incentive Plan provides for the grant of any or all of the
following types of awards: (1) stock options, including incentive stock options
and non-qualified stock options; (2) stock appreciation rights, either in tandem
with stock options or freestanding; (3) restricted stock awards; (4) performance
shares; (5) performance units; (6) dividend equivalent rights; and (7) other
stock-based awards. Each of these types of awards is discussed in more detail
below. Awards may be granted singly, in combination or in tandem, as determined
by the Committee. The specific amount of awards to be received by or allocated
to the officers or employees or any other participant under the Flexible
Incentive Plan is in the discretion of the Committee and is therefore not
determinable for future periods.
Stock Options. Under the Flexible Incentive Plan, the Committee may grant
awards in the form of options to purchase shares of the Common Stock. Options
may be in the form of incentive stock options or nonqualified stock options. The
Committee will, with regard to each stock option, determine the number of shares
subject to the option, the term of the option (which, for incentive stock
options, shall not exceed ten years), the exercise price per share of stock
subject to the option (which, for incentive stock options, must be not less than
the fair market value of the Common Stock at the time of grant), the vesting
schedule (if any) and the other material terms of the option. Any option granted
in the form of an incentive stock option must satisfy the applicable
requirements of Section 422 of the Internal Revenue Code of 1986, as amended.
Non-qualified stock options may have an exercise price that is less than fair
market value (but not less than the par value of the Common Stock).
The option price upon exercise may, to the extent determined by the
Committee at or after the time of grant, be paid by a participant in cash, in
shares of Common Stock owned by the participant, in shares of stock awarded
under the Plan, including restricted stock, by a reduction in the number of
shares of Common Stock issuable upon the exercise of the option or by other
consideration. The Committee may offer to buy an option previously granted on
such terms and conditions as the Committee shall establish. Options may, at the
discretion of the Committee, provide for "reloads," whereby a new option is
granted for the same number of shares as the number of shares of Common Stock or
restricted stock used by the participant to pay the option price upon exercise.
Unless the Committee determines otherwise at the time of grant, the
Flexible Incentive Plan provides that upon termination of employment by reason
of death or disability, stock options, to the extent vested, will be exercisable
for one year or until the end of the option term, whichever is shorter. Unless
the Committee determines otherwise at the time of grant or thereafter, the
Flexible Incentive Plan provides that upon termination of employment for any
reason other than death or disability, stock options, to the extent vested, will
be exercisable for three months, or until the end of the option term, whichever
is shorter.
Stock Appreciation Rights ("SARs"). The Flexible Incentive Plan authorizes
the Committee to grant SARs either with a stock option ("Tandem SARs") or
independent of a stock option ("Non-Tandem SARs"). An SAR is a right to receive
a payment either in cash or Common Stock, as the Committee may determine, equal
in value to the excess of the fair market value of a share of Common Stock on
the date
14
<PAGE>
of exercise over the reference price per share of Common Stock established in
connection with the grant of the SAR. The reference price per share covered by
an SAR will be the per share exercise price of the related option in the case of
a Tandem SAR and will be a percentage designated by the Committee of the per
share fair market value of the Common Stock on the date of grant (or any other
date chosen by the Committee) in the case of a Non-Tandem SAR.
A Tandem SAR may be granted at the time of the grant of the related stock
option or, if the related stock option is a non-qualified stock option, at any
time thereafter during the term of the stock option. A Tandem SAR generally may
be exercised only at the times and to the extent the related stock option is
exercisable. A Tandem SAR is exercised by surrendering the same portion of the
related option. A Tandem SAR expires upon the termination of the related stock
option.
A Non-Tandem SAR will be exercisable as provided by the Committee and will
have such other terms and conditions as the Committee may determine. A Non-
Tandem SAR may have a term of no longer than ten years from its date of grant. A
Non-Tandem SAR is subject to acceleration of vesting or immediate termination in
certain circumstances, in the same manner as discussed above in the case of
stock options.
The Committee is also authorized to grant "limited SARs," either as Tandem
SARs or Non-Tandem SARs. Limited SARs would become exercisable only upon the
occurrence of a "Change in Control" (as defined in the Flexible Incentive Plan)
or such other event as the Committee may designate at the time of grant or
thereafter.
Restricted Stock Awards. The Flexible Incentive Plan authorizes the
Committee to grant awards in the form of restricted shares of Common Stock.
These awards may be in such amounts and subject to such terms and conditions as
the Committee may determine, including without limitation, the price (if any) to
be paid by the recipient, the time or times within which such awards may be
subject to forfeiture, the vesting schedule (which may be based on service,
performance or other factors) and rights to acceleration of vesting (including
whether non-vested shares are forfeited or vested upon termination of
employment). The Committee may award performance-based shares of restricted
stock by conditioning the grant, vesting or the release, expiration or lapse of
restrictions of such restricted stock, or the acceleration of any of such
conditions, upon the attainment of specified performance goals or such other
factors as the Committee may determine.
Performance Shares. The Flexible Incentive Plan permits the granting of
"performance shares," consisting of the right to receive Common Stock,
restricted stock or cash of an equivalent value, as the Committee may determine,
at the end of a specified performance period established by the Committee. These
awards may be in such number of shares and subject to such additional terms and
conditions as the Committee may determine, including without limitation, the
criteria to be used to determine the vesting of performance shares and whether
performance shares are forfeited or vest upon termination of employment during
the performance period. The Committee may condition the grant of performance
shares upon the attainment of specified performance goals, such as the Company's
achievement of certain earnings levels or the Company's performance (or the
performance of its stock) measured against the performance of its competition,
or such other facts as the Committee may determine.
Performance Units. The Flexible Incentive Plan permits the granting of
"performance units," consisting of the right to receive a fixed dollar amount
payable in cash, Common Stock or restricted stock, or any combination thereof,
as the Committee may determine, at the end of a performance cycle established by
the Committee. Except for the fact that the award is denominated in dollars
rather than shares, the provisions of the Flexible Incentive Plan regarding
performance units are substantially similar to those regarding performance
shares, as described above.
15
<PAGE>
Dividend Equivalent Rights. The Committee may in its discretion provide
that any stock option, restricted stock, performance shares or units or other
stock-based awards under the Flexible Incentive Plan may earn dividend
equivalent rights. In respect of any such award which is outstanding on a
dividend record date for Common Stock, the Committee may credit a participant
with an amount equal to the cash or stock dividends or other distributions that
would have been paid on the shares of Common Stock covered by such award if such
covered shares had been issued and outstanding on such dividend record date. The
rules and procedures governing the crediting of dividend equivalent rights,
including the timing, form of payment and payment contingencies thereof, shall
be established by the Committee.
Other Stock-Based Awards. The Flexible Incentive Plan also permits other
awards of Common Stock and other awards that are valued in whole or in part by
reference to, or are payable in cash or Common Stock, or otherwise based on
Common Stock. The terms and conditions of any such awards will be determined by
the Committee, including without limitation, the price, if any, and the vesting
schedule, if any. The Committee may provide for the grant of Common Stock under
such an award upon the completion of a specified performance period.
PAYMENT FOR AWARDS
The purchase price of any shares of Common Stock purchased pursuant to the
exercise of an award granted under the Flexible Incentive Plan shall be payable
in full on the exercise date in cash, by check, by surrender to Sheridan of
shares of Common Stock of Sheridan registered in the name of the participant, by
delivery to Sheridan of such other lawful consideration as the Committee may
determine or by a combination of the foregoing. Any such shares so surrendered
shall be deemed to have a value per share equal to the fair market value of a
share of Common Stock on such date.
AMENDMENT AND TERMINATION
The Committee may at any time, and from time to time, amend, in whole or in
part, any or all of the provisions of the Flexible Incentive Plan or suspend or
terminate it entirely, retroactively or otherwise; provided, however, that
unless otherwise required by law or specifically provided in the Flexible
Incentive Plan, the rights of a participant with respect to options or other
awards granted prior to such amendment, suspension or termination may not be
impaired without the consent of such participants; and, provided further, that
without the approval of the stockholders of Sheridan, no amendment may be made
which would materially increase the aggregate number of shares of Common Stock
that may be issued under the Flexible Incentive Plan; materially change the
definition of employees eligible to receive awards under the Flexible Incentive
Plan; decrease the minimum option price permitted under the Flexible Incentive
Plan; or increase the ten-year maximum option term permitted under the Plan.
No award or grant may be made under the Flexible Incentive Plan on or after
September 1, 2006 (the tenth anniversary of the effective date of the Plan).
The Flexible Incentive Plan is not subject to any provision of ERISA and is
not qualified under Section 401(a) of the Internal Revenue Code of 1986.
The Committee has not designated any persons to receive any awards under
the Flexible Incentive Plan.
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE FOR THE APPROVAL
OF THE 1998 FLEXIBLE INCENTIVE PLAN. YOUR PROXY WILL BE SO VOTED UNLESS YOU
SPECIFY OTHERWISE.
16
<PAGE>
OTHER MATTERS
As of the date of this statement, the Board has no knowledge of any
business which will be presented for consideration at the Annual Meeting other
than the election of directors and the proposed merger of the Company. Should
any other matters be properly presented, it is intended that the enclosed proxy
will be voted in accordance with the best judgment of the persons voting the
matter.
INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP has been selected to serve as independent accountants
of the Company for the fiscal year ending December 31, 1998, and also served as
the independent accountants of the Company for the fiscal years ended December
31, 1996 and 1997. Representatives of such firm are expected to be present at
the Annual Meeting. They will have the opportunity to make a statement if they
desire to do so, and are expected to be available to respond to appropriate
questions.
STOCKHOLDER'S PROPOSALS
Proposals of stockholders to be presented at the Annual Meeting of
Stockholders to be held in 1999 must be received at the office of the Secretary
of the Company no later than December 15, 1998 in order to be included in the
applicable proxy statement and form of proxy relating to that meeting.
By Order of the Board of Directors
Jon W. Wright, Jr.
Secretary
Houston, Texas
April 15, 1998
17
<PAGE>
SHERIDAN ENERGY, INC.
1998 FLEXIBLE INCENTIVE PLAN
____________________________________
SECTION 1. PURPOSE OF THIS PLAN
The purposes of the Sheridan Energy, Inc. 1998 Flexible Incentive Plan are
to (i) promote the interests of Sheridan Energy, Inc. (the "Company") and its
shareholders by enabling the Company and each of its Subsidiaries (as
hereinafter defined) to (A) attract, motivate and retain their respective
employees and non-employee Directors (as hereinafter defined) by offering such
employees and non-employee Directors performance-based stock incentives and
other equity interests in the Company and other incentive awards and (B)
compensate Consultants (as hereinafter defined) by offering such Consultants
performance-based stock incentives and other equity interests in the Company and
other incentive awards that recognize the creation of value for the shareholders
of the Company and (ii) promote the Company's long-term growth and success. To
achieve these purposes, eligible Persons may receive Stock Options, Stock
Appreciation Rights, Restricted Stock, Performance Awards, Dividend Equivalent
Rights and any other Awards (as such terms are hereinafter defined), or any
combination thereof.
SECTION 2. DEFINITIONS
As used in this Plan, the following terms shall have the meanings set forth
below unless the context otherwise requires:
2.1 "Award" shall mean the grant of a Stock Option, a Stock
Appreciation Right, Restricted Stock, a Performance Award, a Dividend
Equivalent Right or any other grant of incentive compensation pursuant to
this Plan.
2.2 "Award Period" shall have the meaning set forth in Subsection 172
of this Plan.
2.3 "Book Value" shall mean the excess of the value of the assets of
an entity over the liabilities of such entity (determined in accordance
with United States generally accepted accounting principles, consistently
applied).
2.4 "Board" shall mean the Board of Directors of the Company, as the
same may be constituted from time to time.
2.5 "Cause" shall mean termination of a Participant's employment with
the Company or a Subsidiary upon the occurrence of one or more of the
following events:
(a) The Participant's failure to substantially perform such
Participant's duties with the Company or any Subsidiary as determined
by the Committee or the Board following receipt by the Participant of
written notice of such failure and the Participant's failure to remedy
such failure within thirty (30) days after receipt
<PAGE>
of such notice (other than a failure resulting from the Participant's
incapacity during physical or mental illness);
(b) The Participant's willful failure or refusal to perform
specific directives of the Board, which directives are consistent with
the scope and nature of the Participant's duties and responsibilities,
and which are not remedied by the Participant within thirty (30) days
after being notified in writing of such Participant's failure by the
Board;
(c) The Participant's conviction of a felony; or
(d) A breach of the Participant's fiduciary duty to the Company
or any Subsidiary or willful violation in the course of performing the
Participant's duties for the Company or any Subsidiary of any law,
rule or regulation (other than traffic violations or other minor
offenses). No act or failure to act on the Participant's part shall
be considered willful unless done or omitted to be done in bad faith
and without reasonable belief that the action or omission was in the
best interest of the Company.
2.6 "Change in Control" shall mean, after the Effective Date, (i) the
occurrence of an event of a nature that would be required to be reported by
the Company in response to Item 1 of a Current Report on Form 8-K (or any
successor to such form), whether or not the Company is, in fact, required
to report on such form, promulgated pursuant to the Exchange Act; provided,
without limitation, such a Change in Control shall be deemed to have
occurred if (a) any Person or Group (other than (A) the Company, (B) a
wholly-owned Subsidiary, (C) any employee benefit plan (including, without
limitation, an employee stock ownership plan) adopted by the Company or any
wholly-owned Subsidiary or (D) any trustee or other fiduciary holding
securities under any employee benefit plan adopted by the Company or any
Subsidiary), becomes the "beneficial owner" (as defined in Rule 13d-3 (or
any successor to such rule) promulgated under the Exchange Act), directly
or indirectly, of securities of the Company or any Material Subsidiary
representing fifty percent (50%) or more of the combined voting power of
the Company's or such Material Subsidiary's then outstanding securities or
(b) during any period of twenty-four (24) months, individuals who at the
beginning of such period constitute the Board cease for any reason to
constitute at least a majority thereof, unless the election by the Board or
the nomination for election by the Company's shareholders was approved by a
vote of at least two-thirds (2/3) of the directors then still in office who
either were directors at the beginning of such twenty-four (24) month
period or whose election or nomination for election was previously so
approved; (ii) a Corporate Transaction is consummated, other than a
Corporate Transaction that would result in substantially all of the holders
of voting securities of the Company outstanding immediately prior thereto
owning (directly or indirectly and in substantially the same proportions
relative to each other and in substantially the same proportions relative
to each other) not less than fifty percent (50%) of the combined voting
power of the voting securities of the issuing/surviving/resulting entity
outstanding immediately after such Corporate Transaction or (iii) an
agreement for the sale or other disposition of all or substantially
A-2
<PAGE>
all of the Company's assets (evaluated on a consolidated basis, without
regard to whether the sale or disposition is effected via a sale or
disposition of assets of the Company, the sale or disposition of the
securities of one or more Subsidiaries or the sale or disposition of the
assets of one or more Subsidiaries) is consummated.
2.7 "Code" shall mean the Internal Revenue Code of 1986, as amended
from time to time (or any successor to such legislation).
2.8 "Committee" shall mean the Stock Option and Compensation
Committee of the Board as such Stock Option and Compensation Committee may
be constituted from time to time; provided, however, membership on the
Committee shall be limited to "Non-Employee Directors" (as that term is
defined in Rule 16b-3 (or any successor to such rule) promulgated under the
Exchange Act) who are also "outside directors," as required pursuant to
Section 162(m) of the Code and such Treasury regulations as may be
promulgated thereunder; and provided further, the Committee will consist of
not less than two (2) Directors. All members of the Committee will serve
at the pleasure of the Board.
2.9 "Common Stock" shall mean the Common Stock, par value $1.00 per
share, of the Company.
2.10 "Company" shall have the meaning set forth in Section 1 of this
Plan.
2.11 "Consultant" shall mean any Person who or which is engaged by
the Company or any Subsidiary to render consulting services.
2.12 "Corporate Transaction" shall mean any recapitalization (other
than a transaction contemplated by Subsection 13..(a)), merger,
consolidation or conversion involving the Company or any exchange of
securities involving the Common Stock (other than a transaction
contemplated by Subsection 13..(a)).
2.13 "Designated Beneficiary" shall mean the beneficiary designated
by a Participant, in a manner authorized by the Committee or the Board, to
exercise the rights of such Participant in the event of such Participant's
death. In the absence of an effective designation by a Participant, the
Designated Beneficiary shall be such Participant's estate.
2.14 "Director" shall mean any member of the Board.
2.15 "Disability" shall mean permanent and total inability to engage
in any substantial gainful activity, even with reasonable accommodation, by
reason of any medically determinable physical or mental impairment which
has lasted or can reasonably be expected to last without material
interruption for a period of not less than twelve (12) months, as
determined in the sole discretion of the Committee or the Board.
2.16 "Dividend Equivalent Right" shall mean the right of the holder
thereof to receive payments based on the cash dividends that would have
been paid on the number
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of Shares specified in an Award granting Dividend Equivalent Rights if the
number of Shares subject to such Award were held by such holder on the
record date for determining shareholders to whom dividends are payable.
2.17 "Effective Date" shall mean May 21, 1998.
2.18 "Exchange Act" shall mean the Securities Exchange Act of 1934,
as amended from time to time (or any successor to such legislation).
2.19 "Fair Market Value" shall mean with respect to the Shares, as of
any date, (i) if the Common Stock is listed or admitted to trade on a
national securities exchange, the closing price of the Common Stock on the
composite tape, as published in the Wall Street Journal, of the principal
national securities exchange on which the Common Stock is so listed or
admitted to trade, on such date or, if there is no trading in Shares on
such date, then the closing price of the Common Stock as quoted on such
composite tape on the next preceding date on which there was trading in
such Shares; (ii) if the Common Stock is not listed or admitted to trade on
a national securities exchange, then the closing price of the Common Stock
as quoted on the National Market System of the NASD; (iii) if the Common
Stock is not listed or admitted to trade on a national securities exchange
or the National Market System of the NASD, the mean between the bid and
asked price for the Common Stock on such date, as furnished by the NASD
through NASDAQ or a similar organization if NASDAQ is no longer reporting
such information; or (iv) if the Common Stock is not listed or admitted to
trade on a national securities exchange or the National Market System of
the NASD and if bid and asked prices for the Common Stock are not so
furnished by the NASD or a similar organization, the value established by
the Board. Fair market value shall be determined without regard to any
restriction other than a restriction which, by its terms, will never lapse.
2.20 "Group" shall have the meaning ascribed to such term in Section
13(d) of the Exchange Act.
2.21 "Incentive Stock Option" shall mean any option to purchase
Shares awarded pursuant to this Plan which qualifies as an "Incentive Stock
Option" pursuant to Section 422 of the Code.
2.22 "Limited Stock Appreciation Rights" shall have the meaning set
forth in Subsection 7.4 of this Plan.
2.23 "Material Subsidiary" shall mean any Subsidiary of which the
Book Value or fair market value (whichever is greater) constitutes fifty
percent (50%) or more of the Book Value of the Company. The fair market
value of a Subsidiary will be determined in good faith by the Board.
2.24 "Named Executive Officer" shall have the meaning set forth in
Subsection 171 of this Plan.
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2.25 "NASD" shall mean the National Association of Securities
Dealers, Inc.
2.26 "Non-Qualified Stock Option" shall mean any option to purchase
Shares awarded pursuant to this Plan that does not qualify as an Incentive
Stock Option (including, without limitation, any option to purchase Shares
originally designated as or intended to qualify as an Incentive Stock
Option) but which does not (for whatever reason) qualify as an Incentive
Stock Option.
2.27 "Non-Share Method" shall have the meaning set forth in
Subsection 6.6 of this Plan.
2.28 "Non-Tandem Stock Appreciation Right" shall mean any Stock
Appreciation Right granted alone and not in connection with an Award which
is a Stock Option.
2.29 "Optionee" shall mean any Participant who has been granted and
holds a Stock Option awarded pursuant to this Plan.
2.30 "Participant" shall mean any Person who has been granted and
holds an Award granted pursuant to this Plan.
2.31 "Performance Award" shall mean any Award granted pursuant to
this Plan of Shares, rights based upon, payable in or otherwise related to
Shares (including Restricted Stock) or cash, as the Committee or Board may
determine, at the end of a specified performance period established by the
Committee or Board and may include, without limitation, Performance Shares
or Performance Units.
2.32 "Performance Shares" shall have the meaning set forth in
Subsection 9.1 of this Plan.
2.33 "Performance Units" shall have the meaning set forth in
Subsection 9.1 of this Plan.
2.34 "Permitted Modification" shall be deemed to be any modification
of an Award which is made in connection with a Corporate Transaction and
which provides (i) in connection with a Stock Option, that subsequent to
the consummation of the Corporate Transaction (A) the exercise price of
such Stock Option will be proportionately adjusted to reflect the exchange
ratio applicable to the particular Corporate Transaction and/or (B) the
nature and amount of consideration to be received upon exercise of the
Stock Option will be the same (on a per share basis) as was received by
Persons who were holders of shares of Common Stock immediately prior to the
consummation of the Corporate Transaction, (ii) in connection with a Stock
Appreciation Right, that subsequent to the consummation of the Corporate
Transaction (A) the base price of such Stock Appreciation Right will be
proportionately adjusted to reflect the exchange ratio applicable to the
particular Corporate Transaction and/or (B) the benefits to be received by
the holder of such Stock Appreciation Right will be measured based upon the
nature and amount of consideration received (on a per share basis) by
Persons who were holders
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of shares of Common Stock immediately prior to the consummation of the
Corporate Transaction, and (iii) in connection with a Dividend Equivalent
Right, that subsequent to the consummation of the Corporate Transaction the
benefits to be received by the holder of such Dividend Equivalent Right
will be measured based upon the nature and amount of consideration received
(on a per share basis) by Persons who were holders of shares of Common
Stock immediately prior to the consummation of the Corporate Transaction.
2.35 "Person" shall mean an individual, partnership, limited
liability company, corporation, joint stock company, trust, estate, joint
venture, association or unincorporated organization or any other form of
business organization.
2.36 "Plan" shall mean this Sheridan Energy, Inc. Flexible Incentive
Plan as it may be amended from time to time.
2.37 "Reload Option" shall mean a Stock Option as defined in
Subsection 6.6(b) of this Plan.
2.38 "Reorganization" shall mean any stock split, stock dividend,
reverse stock split, combination of Shares or any other similar increase or
decrease in the number of Shares issued and outstanding.
2.39 "Restricted Stock" shall mean any Shares granted pursuant to
this Plan that are subject to restrictions or substantial risk of
forfeiture.
2.40 "Retirement" shall mean termination of employment of an employee
of the Company or any Subsidiary, other than discharge for Cause, after age
65 or on or before age 65 if pursuant to the terms of any retirement plan
maintained by the Company or any Subsidiary in which such employee
participates.
2.41 "Securities Act" shall mean the Securities Act of 1933, as
amended from time to time (or any successor to such legislation).
2.42 "Share Retention Method" shall have the meaning set forth in
Subsection 6.6(c) of this Plan.
2.43 "Shares" shall mean shares of the Common Stock and any shares of
capital stock or other securities hereafter issued or issuable upon, in
respect of or in substitution or exchange for shares of Common Stock.
2.44 "Stock Appreciation Right" shall mean the right of the holder
thereof to receive property or Shares with a Fair Market Value equal to or
cash in an amount equal to the excess of the Fair Market Value of the
aggregate number of Shares subject to such Stock Appreciation Right on the
date of exercise over the Fair Market Value of the aggregate number of
Shares subject to such Stock Appreciation Right on the date of the grant of
such Stock Appreciation Right (or such other value as may be specified in
the agreement granting such Stock Appreciation Right). A Stock
Appreciation Right may be
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a Tandem Stock Appreciation Right, Non-Tandem Stock Appreciation Right or
Limited Stock Appreciation Right.
2.45 "Stock Option" shall mean any Incentive Stock Option or Non-
Qualified Stock Option.
2.46 "Subsidiary" shall mean a subsidiary corporation of the Company,
as defined in Section 424(f) of the Code.
2.47 "Tandem Stock Appreciation Right" shall mean a Stock
Appreciation Right granted in connection with an Award which is a Stock
Option.
2.48 "Transactional Consideration" shall have the meaning set forth
in Subsection 13..(b) of this Plan.
SECTION 3. ADMINISTRATION OF THIS PLAN
3.1 Committee/Board. This Plan shall be administered and interpreted
by the Committee and/or the Board.
3.2 Awards. (a) Subject to the provisions of this Plan and
directions from the Board, the Committee is authorized to:
(i) determine the Persons to whom Awards are to be granted;
(ii) determine the types and combinations of Awards to be
granted; the number of Shares to be covered by an Award; the exercise
price of an Award; the time or times when an Award shall be granted
and may be exercised; the terms, performance criteria or other
conditions, vesting periods or any restrictions for an Award; any
restrictions on Shares acquired pursuant to the exercise of an Award;
and any other terms and conditions of an Award;
(iii) interpret the provisions of this Plan;
(iv) prescribe, amend and rescind rules and regulations relating
to this Plan;
(v) determine whether, to what extent and under what
circumstances to provide loans from the Company to Participants to
exercise Awards granted pursuant to this Plan, and the terms and
conditions of such loans;
(vi) rely upon employees of the Company for such clerical and
recordkeeping duties as may be necessary in connection with the
administration of this Plan;
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(vii) accelerate or defer (with the consent of the Participant)
the vesting of any rights pursuant to an Award; and
(viii) make all other determinations and take all other actions
necessary or advisable for the administration of this Plan.
(b) Without limiting the Board's right to amend this Plan pursuant to
Section 14, the Board may take all actions authorized by Subsection 3.2(a)
of this Plan, including, without limitation, granting such Awards pursuant
to this Plan as the Board may deem necessary or appropriate.
3.3 Procedures. (a) Proceedings by the Board with respect to this
Plan will be conducted in accordance with the articles of incorporation and
bylaws of the Company.
(b) A majority of the Committee members shall constitute a quorum for
action by the Committee. All determinations of the Committee shall be made
by not less than a majority of its members.
(c) All questions of interpretation and application of this Plan or
pertaining to any question of fact or Award granted hereunder will be
decided by the Committee or the Board, whose decision will be final,
conclusive and binding upon the Company and each other affected party.
SECTION 4. SHARES SUBJECT TO PLAN
4.1 Limitations. The maximum number of Shares that may be issued
with respect to Awards granted pursuant to this Plan shall not exceed
250,000 unless increased or decreased by reason of changes in the
capitalization of the Company as hereinafter provided or by amendment of
this Plan. The Shares issued pursuant to this Plan may be authorized but
unissued Shares, or may be issued Shares which have been reacquired by the
Company.
4.2 Changes. To the extent that any Award granted pursuant to this
Plan shall be forfeited, shall expire or shall be cancelled, in whole or in
part, then the number of Shares covered by the Award so forfeited, expired
or cancelled may again be awarded pursuant to the provisions of this Plan.
In the event that Shares are delivered to the Company in full or partial
payment of the exercise price for the exercise of a Stock Option, the
number of Shares available for future Awards granted pursuant to this Plan
shall be reduced only by the net number of Shares issued upon the exercise
of the Stock Option. Awards that may be satisfied either by the issuance
of Shares or by cash or other consideration shall, until the form of
consideration to be paid is finally determined, be counted against the
maximum number of Shares that may be issued pursuant to this Plan. If the
Award is ultimately satisfied by the payment of consideration other than
Shares, as, for example, a Stock Option granted in tandem with a Stock
Appreciation Right that is settled by a cash payment, such Shares may again
be made the subject of an Award
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granted pursuant to this Plan. Awards will not reduce the number of Shares
that may be issued pursuant to this Plan if the settlement of the Award
will not require the issuance of Shares, as, for example, a Stock
Appreciation Right that can be satisfied only by the payment of cash.
SECTION 5. ELIGIBILITY
Eligibility for participation in this Plan shall be confined to those
individuals who are employed by the Company or a Subsidiary and such Consultants
and non-employee Directors as may be designated by the Committee or the Board.
In making any determination as to Persons to whom Awards shall be granted, the
type of Award and/or the number of Shares to be covered by the Award, the
Committee or the Board shall consider the position and responsibilities of the
Person, the importance of the Person to the Company, the duties of the Person,
the past, present and potential contributions of the Person to the growth and
success of the Company and such other factors as the Committee or the Board may
deem relevant in connection with accomplishing the purposes of this Plan.
SECTION 6. STOCK OPTIONS
6.1 Grants. The Committee or the Board may grant Stock Options alone
or in addition to other Awards granted pursuant to this Plan to any
eligible Person. Each Person so selected shall be offered a Stock Option
to purchase the number of Shares determined by the Committee or the Board.
The Committee or the Board shall specify whether such Stock Option is an
Incentive Stock Option or Non-Qualified Stock Option and any other terms or
conditions relating to such Award; provided, however only employees of the
Company or a Subsidiary may be granted Incentive Stock Options. To the
extent that any Stock Option designated as an Incentive Stock Option does
not qualify as an Incentive Stock Option (whether because of its
provisions, the failure of the shareholders of the Company to authorize the
issuance of Incentive Stock Options, the time or manner of its exercise or
otherwise), such Stock Option or the portion thereof which does not qualify
shall be deemed to constitute a Non-Qualified Stock Option. Each Person to
be granted a Stock Option shall enter into a written agreement with the
Company, in such form as the Committee or the Board may prescribe, setting
forth the terms and conditions (including, without limitation, the exercise
price and vesting schedule) of the Stock Option. At any time and from time
to time, the Optionee and the Committee or the Board may agree to modify an
option agreement in such respects as they may deem appropriate, including,
without limitation, the conversion of an Incentive Stock Option into a Non-
Qualified Stock Option. The Committee or the Board may require that an
Optionee meet certain conditions before the Stock Option or a portion
thereof may vest or be exercised, as, for example, that the Optionee remain
in the employ of the Company or a Subsidiary for a stated period or periods
of time.
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6.2 Incentive Stock Options Limitations.
(a) In no event shall any individual be granted Incentive Stock
Options to the extent that the Shares covered by any Incentive Stock
Options (and any incentive stock options granted pursuant to any other
plans of the Company or its Subsidiaries) that may be exercised for
the first time by such individual in any calendar year have an
aggregate Fair Market Value in excess of $100,000. For this purpose,
the Fair Market Value of the Shares shall be determined as of the
date(s) on which the Incentive Stock Options are granted. It is
intended that the limitation on Incentive Stock Options provided in
this Subsection 6.2(a) be the maximum limitation on Stock Options
which may be considered Incentive Stock Options pursuant to the Code.
(b) The option exercise price of an Incentive Stock Option shall
not be less than one hundred percent (100%) of the Fair Market Value
of the Shares subject to such Incentive Stock Option on the date of
the grant of such Incentive Stock Option.
(c) Notwithstanding anything herein to the contrary, in no event
shall any employee owning more than ten percent (10%) of the total
combined voting power of the Company or any Subsidiary be granted an
Incentive Stock Option unless the option exercise price of such
Incentive Stock Option shall be at least one hundred ten percent
(110%) of the Fair Market Value of the Shares subject to such
Incentive Stock Option on the date of the grant of such Incentive
Stock Option.
(d) In no event shall any individual be granted an Incentive
Stock Option after the expiration of ten (10) years from the date this
Plan is adopted or is approved by the shareholders of the Company (if
shareholder approval is required by Section 422 of the Code).
(e) To the extent shareholder approval of this Plan is required
by Section 422 of the Code, no individual shall be granted an
Incentive Stock Option unless this Plan is approved by the
shareholders of the Company within twelve (12) months before or after
the date this Plan is initially adopted. In the event this Plan is
amended to increase the number of Shares subject to issuance upon the
exercise of Incentive Stock Options or to change the class of
employees eligible to receive Incentive Stock Options, no individual
shall be granted an Incentive Stock Option unless such amendment is
approved by the shareholders of the Company within twelve (12) months
before or after such amendment.
(f) No Incentive Stock Option shall be granted to any employee
owning more than ten percent (10%) of the total combined voting power
of the Company or any Subsidiary unless the term of such Incentive
Stock Option is equal to or less than five (5) years measured from the
date on which such Incentive Stock Option is granted.
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6.3 Option Term. The term of a Stock Option shall be for such period
of time from the date of its grant as may be determined by the Committee or
the Board; provided, however, that no Incentive Stock Option shall be
exercisable later than ten (10) years from the date of its grant.
6.4 Time of Exercise. No Stock Option may be exercised unless it is
exercised prior to the expiration of its stated term and, in connection
with options granted to employees of the Company or its Subsidiaries, at
the time of such exercise, the Optionee is, and has been continuously since
the date of grant of such Stock Option, employed by the Company or a
Subsidiary, except that:
(a) A Stock Option may, to the extent vested as of the date the
Optionee ceases to be an employee of the Company or a Subsidiary, be
exercised during the three-month period immediately following the date
the Optionee ceases (for any reason other than death, Disability or
termination for Cause) to be an employee of the Company or a
Subsidiary (or within such other period as may be specified in the
applicable option agreement), provided that, if the Stock Option has
been designated as an Incentive Stock Option and the option agreement
provides for a longer exercise period, the exercise of such Stock
Option after such three-month period shall be treated as the exercise
of a Non-Qualified Stock Option;
(b) If the Optionee dies while in the employ of the Company or a
Subsidiary, or within three months after the Optionee ceases (for any
reason other than termination for Cause) to be such an employee (or
within such other period as may be specified in the applicable option
agreement), a Stock Option may, to the extent vested as of the date of
the Optionee's death, be exercised by the Optionee's Designated
Beneficiary during the one year period immediately following the date
of the Optionee's death (or within such other period as may be
specified in the applicable option agreement); provided that, if the
Stock Option has been designated as an Incentive Stock Option and the
option agreement provides for a longer exercise period, the exercise
of such Stock Option after such one-year period shall be treated as
the exercise of a Non-Qualified Stock Option;
(c) If the Optionee ceases to be an employee of the Company or a
Subsidiary by reason of the Optionee's Disability, a Stock Option, to
the extent vested as of the date the Optionee ceases to be an employee
of the Company or a Subsidiary, may be exercised during the one year
period immediately following the date on which the Disability is
determined to exist (or within such other period as may be specified
in the applicable option agreement); provided that, if the Stock
Option has been designated as an Incentive Stock Option and the option
agreement provides for a longer exercise period, the exercise of such
Stock Option after such one-year period shall be treated as the
exercise of a Non-Qualified Stock Option; and
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(d) If the Optionee's employment is terminated for Cause, all
Stock Options held by such Optionee shall simultaneously terminate
and will no longer be exercisable.
Nothing contained in this Subsection 6.4 will be deemed to extend the term
of a Stock Option or to revive any Stock Option which has previously lapsed
or been cancelled, terminated or surrendered. Stock Options granted under
this Plan to Consultants or non-employee Directors will contain such terms
and conditions with respect to the death or disability of a Consultant or
non-employee Director or termination of a Consultant's or non-employee
Director's relationship with the Company as the Committee or the Board
deems necessary or appropriate. Such terms and conditions will be set
forth in the option agreements evidencing the grant of such Stock Options.
6.5 Vesting of Stock Options.
(a) Each Stock Option granted pursuant to this Plan may only be
exercised to the extent that the Optionee is vested in such Stock
Option. Each Stock Option shall vest separately in accordance with
the option vesting schedule determined by the Committee or the Board,
which will be incorporated in the option agreement entered into
between the Company and such Optionee. The option vesting schedule
may be accelerated if, in the sole discretion of the Committee or the
Board, the acceleration of the option vesting schedule would be in the
best interests the Company.
(b) In the event of the dissolution or liquidation of the
Company, each Stock Option granted pursuant to this Plan shall
terminate as of a date to be fixed by the Committee or Board;
provided, however, that not less than thirty (30) days' written notice
of the date so fixed shall be given to each Optionee. During such
period all Stock Options which have not previously been terminated,
exercised or surrendered will (subject to the provisions of
Subsections 6.3 and 6.4) fully vest and become exercisable,
notwithstanding the vesting schedule set forth in the option agreement
evidencing the grant of such Stock Option. Upon the date fixed by the
Committee or the Board, any unexercised Stock Options shall terminate
and be of no further effect.
(c) Upon the occurrence of a Change in Control, all Stock Options
and any associated Stock Appreciation Rights shall become fully vested
and immediately exercisable.
6.6 Manner of Exercise of Stock Options.
(a) Except as otherwise provided in this Plan, Stock Options may
be exercised as to Shares only in amounts and at intervals of time
specified in the written option agreement between the Company and the
Optionee. Each exercise of a Stock Option, or any part thereof, shall
be evidenced by a written notice delivered by the Optionee to the
Company. The purchase price of the Shares as
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to which a Stock Option shall be exercised shall be paid in full at
the time of exercise, and may be paid to the Company either:
(i) in cash (including check, bank draft or money order); or
(ii) by other consideration deemed acceptable by the
Committee or the Board in its sole discretion.
(b) If an Optionee delivers Shares (including Shares of
Restricted Stock) already owned by the Optionee in full or partial
payment of the exercise price for any Stock Option, or if the Optionee
elects to have the Company retain that number of Shares out of the
Shares being acquired through the exercise of the Stock Option having
a Fair Market Value equal to the exercise price of the Stock Option
being exercised, the Committee or the Board may, in its sole
discretion, authorize the grant of a new Stock Option (a "Reload
Option") for that number of Shares equal to the number of already
owned Shares surrendered (including Shares of Restricted Stock) or
newly acquired Shares being retained by the Company in payment of the
option exercise price of the underlying Stock Option being exercised.
The grant of a Reload Option will become effective upon the exercise
of the underlying Stock Option. The option exercise price of the
Reload Option shall be the Fair Market Value of a Share on the
effective date of the grant of the Reload Option. Each Reload Option
shall be exercisable no later than the time when the underlying stock
option being exercised could be last exercised. The Committee or the
Board may also specify additional terms, conditions and restrictions
for the Reload Option and the Shares to be acquired upon the exercise
thereof.
(c) The amount, as determined by the Committee or the Board, of
any federal, state or local tax required to be withheld by the Company
due to the exercise of a Stock Option shall, subject to the
authorization of the Committee or the Board, be satisfied, at the
election of the Optionee, either (a) by payment by the Optionee to the
Company of the amount of such withholding obligation in cash or other
consideration acceptable to the Committee or the Board in its sole
discretion (the "Non-Share Method") or (b) through either the
retention by the Company of a number of Shares out of the Shares being
acquired through the exercise of the Stock Option or the delivery of
already owned Shares having a Fair Market Value equal to the amount of
the withholding obligation (the "Share Retention Method"). If an
Optionee elects to use the Share Retention Method in full or partial
satisfaction of any tax liability resulting from the exercise of a
Stock Option, the Committee or the Board may authorize the grant of a
Reload Option for that number of Shares as shall equal the number of
Shares used to satisfy the tax liabilities of the Optionee arising out
of the exercise of such Stock Option. Such Reload Option will be
granted at the price and on the terms set forth in Subsection 6.6(b).
The cash payment or an amount equal to the Fair Market Value of the
Shares so withheld, as the case may be, shall be remitted by the
Company to the appropriate taxing authorities.
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(d) An Optionee shall not have any of the rights of a shareholder of the
Company with respect to the Shares subject to a Stock Option except to
the extent that such Stock Option is exercised and one or more
certificates representing such Shares shall have been delivered to the
Optionee.
SECTION 7. STOCK APPRECIATION RIGHTS
7.1 Grants. The Committee or the Board may grant to any eligible
Consultant, non-employee Director or employee of the Company or a
Subsidiary either Non-Tandem Stock Appreciation Rights or Tandem Stock
Appreciation Rights. Stock Appreciation Rights shall be subject to such
terms and conditions as the Committee or the Board shall impose. The grant
of the Stock Appreciation Right may provide that the holder will be paid
for the value of the Stock Appreciation Right either in cash or in Shares,
or a combination thereof, at the sole discretion of the Committee or the
Board. In the event of the exercise of a Stock Appreciation Right payable
in Shares, the holder of the Stock Appreciation Right shall receive that
number of whole Shares having an aggregate Fair Market Value on the date of
exercise equal to the value obtained by multiplying (i) either (a) in the
case of a Tandem Stock Appreciation Right, the difference between the Fair
Market Value of a Share on the date of exercise over the per share exercise
price of the related Stock Option, or (b) in the case of a Non-Tandem Stock
Appreciation Right, the difference between the Fair Market Value of a Share
on the date of exercise over the Fair Market Value on the date of the grant
by (ii) the number of Shares as to which the Stock Appreciation Right is
exercised. However, notwithstanding the foregoing, the Committee or the
Board, in its sole discretion, may place a ceiling on the amount payable
upon exercise of a Stock Appreciation Right, but any such limitation shall
be specified at the time that the Stock Appreciation Right is granted.
7.2 Exercisability. A Tandem Stock Appreciation Right granted in
connection with an Incentive Stock Option (i) may be exercised at, and only
at, the times and to the extent the related Incentive Stock Option is
exercisable, (ii) will expire upon the termination of the related Incentive
Stock Option, (iii) may not exceed 100% of the difference between the
exercise price of the related Incentive Stock Option and the Fair Market
Value of the Shares subject to the related Incentive Stock Option at the
time the Tandem Stock Appreciation Right is exercised and (iv) may be
exercised at, and only at, such times as the Fair Market Value of the
Shares subject to the related Incentive Stock Option exceeds the exercise
price of the related Incentive Stock Option. A Tandem Stock Appreciation
Right may be transferred at, and only at, the times and to the extent the
related Stock Option is transferable. If a Tandem Stock Appreciation Right
is granted, there shall be surrendered and cancelled from the related Stock
Option at the time of exercise of the Tandem Stock Appreciation Right, in
lieu of exercise pursuant to the related Stock Option, that number of
Shares as shall equal the number of Shares as to which the Tandem Stock
Appreciation Right shall have been exercised.
7.3 Certain Limitations on Non-Tandem Stock Appreciation Rights. A
Non-Tandem Stock Appreciation Right will be exercisable as provided by the
Committee or the Board and will have such other terms and conditions as the
Committee or the
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Board may determine. A Non-Tandem Stock Appreciation Right is subject to
acceleration of vesting or immediate termination in certain circumstances
in the same manner as Stock Options pursuant to Subsections 6.4 and 6.5 of
this Plan.
7.4 Limited Stock Appreciation Rights. The Committee and the Board
may grant "Limited Stock Appreciation Rights," either as Tandem Stock
Appreciation Rights or Non-Tandem Stock Appreciation Rights. Limited Stock
Appreciation Rights will become exercisable only upon the occurrence of a
Change in Control or such other event as the Committee or the Board may
designate at the time of grant or thereafter.
SECTION 8. RESTRICTED STOCK
8.1 Grants. The Committee or the Board may grant Awards of
Restricted Stock to any Consultant, non-employee Director or employee of
the Company or a Subsidiary for such minimum consideration, if any, as may
be required by applicable law or such greater consideration as may be
determined by the Committee or the Board, in its sole discretion. The
terms and conditions of the Restricted Stock shall be specified by the
grant agreement. The Committee or the Board, in its sole discretion, may
specify any particular rights which the Participant to whom a grant of
Restricted Stock is made shall have in the Restricted Stock during the
restriction period and the restrictions applicable to the particular Award,
the vesting schedule (which may be based on service, performance or other
factors) and rights to acceleration of vesting (including, without
limitation, whether non-vested Shares are forfeited or vested upon
termination of employment). Further, the Committee or the Board may grant
performance-based Awards consisting of Restricted Stock by conditioning the
grant, or vesting or such other factors, such as the release, expiration or
lapse of restrictions upon any such Award (including the acceleration of
any such conditions or terms) of such Restricted Stock upon the attainment
of specified performance goals or such other factors as the Committee or
the Board may determine. The Committee or the Board shall also determine
when the restrictions shall lapse or expire and the conditions, if any,
pursuant to which the Restricted Stock will be forfeited or sold back to
the Company. Each Award of Restricted Stock may have different restrictions
and conditions. Unless otherwise set forth in the grant agreement,
Restricted Stock may not be sold, pledged, encumbered or otherwise disposed
of by the recipient until the restrictions specified in the Award expire.
Awards of Restricted Stock are subject to acceleration of vesting,
termination of restrictions and termination in the same manner as Stock
Options pursuant to Subsections 6.4 and 6.56.5 of this Plan.
8.2 Awards and Certificates. Any Restricted Stock issued hereunder
may be evidenced in such manner as the Committee or the Board, in its sole
discretion, shall deem appropriate including, without limitation, book-
entry registration or issuance of a stock certificate or certificates. In
the event any stock certificate is issued in respect of Shares of
Restricted Stock, such certificate shall bear an appropriate legend with
respect to the restrictions applicable to such Award. The Company may
retain, at its option, the physical custody of any stock certificate
representing any awards of Restricted Stock during the restriction period
or require that the certificates evidencing Restricted Stock be placed in
escrow or trust, along with a stock power endorsed in blank, until all
restrictions are removed or expire.
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<PAGE>
SECTION 9. PERFORMANCE AWARDS
9.1 Grants. A Performance Award may consist of either or both, as
the Committee or the Board may determine, of (i) the right to receive
Shares or Restricted Stock, or any combination thereof as the Committee or
the Board may determine ("Performance Shares"), or (ii) the right to
receive a fixed dollar amount payable in Shares, Restricted Stock, cash or
any combination thereof, as the Committee or the Board may determine
("Performance Units"). The Committee or the Board may grant Performance
Awards to any eligible Consultant, non-employee Director or employee of the
Company or a Subsidiary, for such minimum consideration, if any, as may be
required by applicable law or such greater consideration as may be
determined by the Committee or the Board, in its sole discretion. The
terms and conditions of Performance Awards shall be specified at the time
of the grant and may include provisions establishing the performance
period, the performance criteria to be achieved during a performance
period, the criteria used to determine vesting (including the acceleration
thereof), whether Performance Awards are forfeited or vest upon termination
of employment during a performance period and the maximum or minimum
settlement values. Each Performance Award shall have its own terms and
conditions, which shall be determined in the sole discretion of the
Committee or the Board. If the Committee or the Board determines, in its
sole discretion, that the established performance measures or objectives
are no longer suitable because of a change in the Company's business,
operations, corporate structure or for other reasons that the Committee or
the Board deems satisfactory, the Committee or the Board may modify the
performance measures or objectives and/or the performance period. Awards
of Performance Shares and/or Performance Units are subject to acceleration
of vesting, termination of restrictions and termination in the same manner
as Stock Options pursuant to Subsections 6.46.4 and 6.5 of this Plan.
9.2 Terms and Conditions. Performance Awards may be valued by
reference to the Fair Market Value of a Share or according to any other
formula or method deemed appropriate by the Committee or the Board, in its
sole discretion, including, but not limited to, achievement of specific
financial, production, sales, cost or earnings performance objectives that
the Committee or the Board believes to be relevant or the Company's
performance or the performance of the Common Stock measured against the
performance of the market, the Company's industry segment or its direct
competitors. Performance Awards may also be conditioned upon the
applicable Participant remaining in the employ of the Company or one of its
Subsidiaries for a specified period. Performance Awards may be paid in
cash, Shares (including Restricted Stock) or other consideration, or any
combination thereof. Performance Awards may be payable in a single payment
or in installments and may be payable at a specified date or dates or upon
attaining the performance objective or objectives, all at the sole
discretion of the Committee or the Board. The extent to which any
applicable performance objective has been achieved shall be conclusively
determined by the Committee or the Board in its sole discretion.
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<PAGE>
SECTION 10. DIVIDEND EQUIVALENT RIGHTS
The Committee or the Board may grant a Dividend Equivalent Right to any
eligible Consultant, non-employee Director or employee of the Company or a
Subsidiary, either as a component of another Award or as a separate Award, and,
in general, each such Participant awarded a Dividend Equivalent Right that is
outstanding on a dividend record date for the Common Stock shall be credited
with an amount equal to the cash or stock dividends or other distributions that
would have been received had the Shares subject to the Award been issued and
outstanding on the dividend record date. The terms and conditions of the
Dividend Equivalent Right shall be specified in a dividend equivalent right
agreement which evidences such Award. Dividend Equivalent Rights may be settled
in cash or Shares, or a combination thereof, in a single payment or in
installments. A Dividend Equivalent Right granted as a component of another
Award may provide that such Dividend Equivalent Right shall be settled upon
exercise, settlement or payment for or lapse of restrictions on such other
Award, and that such Dividend Equivalent Right shall expire or be forfeited or
annulled pursuant to the same conditions as such other Award. A Dividend
Equivalent Right granted as a component of another Award may also contain terms
and conditions different from such other Award.
SECTION 11. OTHER AWARDS
The Committee or the Board may grant to any eligible Consultant, non-
employee Director or employee of the Company or a Subsidiary other forms of
Awards based upon, payable in or otherwise related to, in whole or in part,
Shares, if the Committee or the Board, in its sole discretion, determines that
such other form of Award is consistent with the purposes of this Plan. The
terms and conditions of such other form of Award shall be specified in a written
agreement which sets forth the terms and conditions of such Award, including,
but not limited to, the price, if any, and the vesting schedule, if any, of such
Award. Such Awards may be granted for such minimum consideration, if any, as
may be required by applicable law or for such other greater consideration as may
be determined by the Committee or the Board, in its sole discretion.
SECTION 12. COMPLIANCE WITH SECURITIES AND OTHER LAWS
As a condition to the issuance or transfer of any Award or any security
issuable in connection with such Award, the Company may require an opinion of
counsel, satisfactory to the Company, to the effect that (i) such issuance
and/or transfer will not be in violation of the Securities Act or any other
applicable securities laws and (ii) such issuance and/or transfer will not be in
violation of the rules and regulations of any securities exchange or automated
quotation system on which the Common Stock is listed or admitted to trading.
Further, the Company may refrain from issuing, delivering or transferring any
Award or any security issuable in connection with such Award until the Committee
or the Board has determined that such issuance, delivery or transfer will not
violate such securities laws or rules and regulations and that the recipient has
tendered to the Company any federal, state or local tax owed as a result of such
issuance, delivery or transfer, when the Company has a legal liability to
satisfy such tax. The Company shall not be liable for damages due to delay in
the issuance, delivery or transfer of any Award or any security issuable in
connection with such Award or any agreement, instrument or certificate
evidencing such Award or security for any reason whatsoever, including, but not
limited to, a delay caused by the listing requirements of any securities
exchange or automated
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<PAGE>
quotation system or any registration requirements under the Securities Act, the
Exchange Act, or under any other state or federal law, rule or regulation. The
Company is under no obligation to take any action or incur any expense to
register or qualify the issuance, delivery or transfer of any Award or any
security issuable in connection with such Award under applicable securities laws
or to perfect any exemption from such registration or qualification or to list
any security on any securities exchange or automated quotation system.
Furthermore, the Company will have no liability to any person for refusing to
issue, deliver or transfer any Award or any security issuable in connection with
such Award if such refusal is based upon the foregoing provisions of this
Section 12. As a condition to any issuance, delivery or transfer of any Award
or any security issuable in connection with such Award, the Company may place
legends on any agreement, instrument or certificate evidencing such Award or
security, issue stop transfer orders with respect thereto and require such
agreements or undertakings as the Company may deem necessary or advisable to
assure compliance with applicable laws or regulations, including, if the Company
or its counsel deems it appropriate, representations from the recipient of such
Award or security to the effect that such recipient is acquiring such Award or
security solely for investment and not with a view to distribution and that no
distribution of the Award or the security will be made unless registered
pursuant to applicable federal and state securities laws, or in the opinion of
counsel to the Company, such registration is unnecessary.
SECTION 13. ADJUSTMENTS UPON THE OCCURRENCE OF A REORGANIZATION OR
CORPORATE TRANSACTION
(a) In the event of a Reorganization, the number of Shares subject to
this Plan and to each outstanding Award, and the exercise price of each
Award which is based upon Shares, shall (to the extent deemed appropriate
by the Committee or the Board) be proportionately adjusted (as determined
by the Committee or the Board in its sole discretion) to account for any
increase or decrease in the number of issued and outstanding Shares of the
Company resulting from such Reorganization.
(b) If a Corporate Transaction is consummated and immediately
following the consummation of such Corporate Transaction the Persons who
were holders of shares of Common Stock immediately prior to the
consummation of such Corporate Transaction do not receive any securities or
other property (hereinafter collectively referred to as "Transactional
Consideration") as a result of such Corporate Transaction and substantially
all of such Persons continue to hold the shares of Common Stock held by
them immediately prior to the consummation of such Corporate Transaction
(in substantially the same proportions relative to each other), the Awards
will remain outstanding and will (subject to the provisions of Subsections
6.1, 6.5(c), 7.1, 7.3, 8.1 and 9.1) continue in full force and effect in
accordance with its terms (without any modification) following the
consummation of the Corporate Transaction9
(c) If a Corporate Transaction is consummated and immediately
following the consummation of such Corporate Transaction the Persons who
were holders of shares of Common Stock immediately prior to the
consummation of such Corporate Transaction do receive Transactional
Consideration as a result of such Corporate Transaction or substantially
all of such Persons do not continue to hold the shares of Common Stock held
by them immediately prior to the consummation of such Corporate Transaction
(in
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<PAGE>
substantially the same proportions relative to each other), the terms and
conditions of the Awards will be modified as follows:
(i) If the documentation pursuant to which a Corporate
Transaction will be consummated provides for the assumption (by the
entity issuing Transactional Consideration to the Persons who were the
holders of shares of Common Stock immediately prior to the
consummation of such Corporate Transaction) of the Awards granted
pursuant to this Plan without any modification or amendment (other
than Permitted Modifications and the modifications contemplated by
Subsections 6.1, 6.5(c), 7.1, 7.3, 8.1 and 9.1 of this Plan), such
Awards will remain outstanding and will continue in full force and
effect in accordance with its terms following the consummation of such
Corporate Transaction (subject to such Permitted Modifications and the
provisions of Subsections 6.1, 6.5(c), 7.1, 7.3, 8.1 and 9.1.
(ii) If the documentation pursuant to which a Corporate
Transaction will be consummated does not provide for the assumption by
the entity issuing Transactional Consideration to the Persons who were
the holders of shares of Common Stock immediately prior to the
consummation of such Corporate Transaction of the Awards granted
pursuant to this Plan without any modification or amendment (other
than Permitted Modifications), all vesting restrictions (performance
based or otherwise) applicable to Awards which will not be so assumed
will accelerate and the holders of such Awards may (subject to the
expiration of the term of such Awards) exercise/receive the benefits
of such Awards without regard to such vesting restrictions during the
ten (10) day period immediately preceding the consummation of such
Corporate Transaction. For purposes of the immediately preceding
sentence, all performance based goals will be deemed to have been
satisfied in full. The Company will provide each Participant holding
Awards which will not be so assumed with reasonable notice of the
termination of such vesting restrictions and the impending termination
of such Awards. Upon the consummation of such a Corporate
Transaction, all unexercised Awards which are not to be so assumed
will automatically terminate and cease to be outstanding.
Nothing contained in this Section 13 will be deemed to extend the term of
an Award or to revive any Award which has previously lapsed or been
cancelled, terminated or surrendered.
SECTION 14. AMENDMENT OR TERMINATION OF THIS PLAN
14.1 Amendment of This Plan. Notwithstanding anything contained in this
Plan to the contrary, all provisions of this Plan (including, without
limitation, the maximum number of Shares that may be issued with respect to
Awards to be granted pursuant to this Plan) may at any time or from time to time
be modified or amended by the Board; provided, however, that no Award at any
time outstanding pursuant to this Plan may be modified, impaired or cancelled
adversely to the holder of the Award without the consent of such holder.
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<PAGE>
14.2 Termination of This Plan. The Board may suspend or terminate this
Plan at any time, and such suspension or termination may be retroactive or
prospective. Termination of this Plan shall not impair or affect any Award
previously granted hereunder and the rights of the holder of the Award shall
remain in effect until the Award has been exercised in its entirety or has
expired or otherwise has been terminated by the terms of such Award.
SECTION 15. AMENDMENTS AND ADJUSTMENTS TO AWARDS
The Committee or the Board may amend, modify or terminate any outstanding
Award with the Participant's consent at any time prior to payment or exercise in
any manner not inconsistent with the terms of this Plan, including, without
limitation, (i) to change the date or dates as of which and/or the terms and
conditions pursuant to which (A) a Stock Option becomes exercisable or (B) a
Performance Award is deemed earned, (ii) to amend the terms of any outstanding
Award to provide an exercise price per share which is higher or lower than the
then current exercise price per share of such outstanding Award or (iii) to
cancel an Award and grant a new Award in substitution therefor under such
different terms and conditions as the Committee or the Board determines in its
sole discretion to be appropriate including, but not limited to, having an
exercise price per share which may be higher or lower than the exercise price
per share of the cancelled Award. The Committee or the Board may also make
adjustments in the terms and conditions of, and the criteria included in
agreements evidencing Awards in recognition of unusual or nonrecurring events
(including, without limitation, the events described in Section 13 hereof)
affecting the Company, or the financial statements of the Company or any
Affiliate, or of changes in applicable laws, regulations or accounting
principles, whenever the Committee or the Board determines that such adjustments
are appropriate to prevent reduction or enlargement of the benefits or potential
benefits intended to be made available pursuant to this Plan. Any provision of
this Plan or any agreement regarding an Award to the contrary notwithstanding,
the Committee or the Board may cause any Award granted to be cancelled in
consideration of a cash payment or alternative Award made to the holder of such
cancelled Award equal in value to the Fair Market Value of such cancelled Award.
The determinations of value pursuant to this Section 15 shall be made by the
Committee or the Board in its sole discretion.
SECTION 16. GENERAL PROVISIONS
16.1 No Limit on Other Compensation Arrangements. Nothing contained in
this Plan shall prevent the Company from adopting or continuing in effect other
compensation arrangements, and such arrangements may be either generally
applicable or applicable only in specific cases.
16.2 No Right to Employment or Continuation of Relationship. Nothing in
this Plan or in any Award, nor the grant of any Award, shall confer upon or be
construed as giving any Participant any right to remain in the employ of the
Company or a Subsidiary or to continue as a Consultant or non-employee Director.
Further, the Company or a Subsidiary may at any time dismiss a Participant from
employment or terminate the relationship of any Consultant or non-employee
Director with the Company or any Subsidiary, free from any liability or any
claim pursuant to this Plan, unless otherwise expressly provided in this Plan or
in any agreement evidencing an Award made under this Plan. No Consultant, non-
employee Director or employee of the Company or any Subsidiary shall have any
claim to be granted any Award, and there is
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<PAGE>
no obligation for uniformity of treatment of any Consultant, non-employee
Director or employee of the Company or any Subsidiary or of any Participants.
16.3 GOVERNING LAW. THE VALIDITY, CONSTRUCTION AND EFFECT OF THIS PLAN AND
ANY RULES AND REGULATIONS RELATING TO THIS PLAN SHALL BE DETERMINED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS, WITHOUT GIVING EFFECT TO THE
CONFLICT OF LAWS PRINCIPLES THEREOF.
16.4 Severability. If any provision of this Plan or any Award is or
becomes or is deemed to be invalid, illegal or unenforceable in any jurisdiction
or as to any individual or Award, or would disqualify this Plan or any Award
under any law deemed applicable by the Committee or the Board, such provision
shall be construed or deemed amended to conform to applicable law, or if it
cannot be construed or deemed amended without, in the sole determination of the
Committee or the Board, materially altering the intent of this Plan or the
Award, such provision shall be stricken as to such jurisdiction, individual or
Award and the remainder of this Plan and any such Award shall remain in full
force and effect.
16.5 No Fractional Shares. No fractional Shares shall be issued or
delivered pursuant to this Plan or any Award, and the Committee or the Board
shall determine, in its sole discretion, whether cash, other securities or other
property shall be paid or transferred in lieu of any fractional Shares or
whether such fractional Shares or any rights thereto shall be cancelled,
terminated or otherwise eliminated.
16.6 Headings. Headings are given to the Sections and Subsections of this
Plan solely as a convenience to facilitate reference. Such headings shall not
be deemed in any way material or relevant to the construction or interpretation
of this Plan or any provision thereof.
16.7 Effective Date. The provisions of this Plan that relate to the grant
of Incentive Stock Options shall be effective as of the date of the approval of
this Plan by the shareholders of the Company.
16.8 Transferability of Awards. Awards shall not be transferable otherwise
than by will or the laws of descent and distribution without the written consent
of the Committee or the Board (which may be granted or withheld at the sole
discretion of the Committee or the Board). Awards may be exercised, during the
lifetime of the holder, only by the holder. Any attempted assignment, transfer,
pledge, hypothecation or other disposition of an Award contrary to the
provisions hereof, or the levy of any execution, attachment or similar process
upon an Award shall be null and void and without effect.
16.9 Rights of Participants. Except as hereinbefore expressly provided in
this Plan, any Person to whom an Award is granted shall have no rights by reason
of any subdivision or consolidation of stock of any class or the payment of any
stock dividend or any other increase or decrease in the number of shares of
stock of any class or by reason of any dissolution, liquidation, reorganization,
merger or consolidation or spinoff of assets or stock of another corporation,
and any issue by the Company of shares of stock of any class or securities
convertible into shares of stock of any class shall not affect, and no
adjustment by reason thereof shall be made with respect to, the number or
exercise price of Shares subject to an Award.
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<PAGE>
16.10 No Limitation Upon the Rights of the Company. The grant of an Award
pursuant to this Plan shall not affect in any way the right or power of the
Company to make adjustments, reclassifications, or changes of its capital or
business structure; to merge, convert or consolidate; to dissolve or liquidate;
or sell or transfer all or any part of its business or assets.
16.11 Date of Grant of an Award. Except as noted in this Section 16.11,
the granting of an Award shall take place only upon the execution and delivery
by the Company and the Participant of a written agreement and neither any other
action taken by the Committee or the Board nor anything contained in this Plan
or in any resolution adopted or to be adopted by the Committee, the Board or the
shareholders of the Company shall constitute the granting of an Award pursuant
to this Plan. Solely, for purposes of determining the Fair Market Value of the
Shares subject to an Award, such Award will be deemed to have been granted as of
the date specified by the Committee or the Board notwithstanding any delay which
may elapse in executing and delivering the applicable agreement.
SECTION 17. NAMED EXECUTIVE OFFICERS
17.1 Applicability of Section 17. The provisions of this Section 17 shall
apply only to those executive officers (i) whose compensation is required to be
reported in the Company's proxy statement pursuant to Item 402(a)(3)(i) and (ii)
(or any successor thereto) of Regulation S-K (or any successor thereto) under
the general rules and regulations under the Exchange Act and (ii) whose total
compensation, including estimated Awards, is determined by the Committee or the
Board to possibly be subject to the limitations on deductions imposed by Section
162(m) of the Code ("Named Executive Officers"). In the event of any
inconsistencies between this Section 17 and the other Plan provisions as they
pertain to Named Executive Officers, the provisions of this Section 17 shall
control.
17.2 Establishment of Performance Goals. Awards for Named Executive
Officers, other than Stock Options and Stock Appreciation Rights, shall be based
on the attainment of certain performance goals. No later than the earlier of
(i) ninety (90) days after the commencement of the applicable fiscal year of the
Company or one of its Subsidiaries or such other award period as may be
established by the Committee or the Board ("Award Period") and (ii) the
completion of twenty-five percent (25%) of such Award Period, the Committee or
the Board shall establish, in writing, the performance goals applicable to each
such Award for Named Executive Officers. At the time the performance goals are
established, their outcome must be substantially uncertain. In addition, the
performance goal must state, in terms of an objective formula or standard, the
method for computing the amount of compensation payable to the Named Executive
Officer if the goal is obtained. Such formula or standard shall be sufficiently
objective so that a third party with knowledge of the relevant performance
results could calculate the amount to be paid to the subject Named Executive
Officer. The material terms of the performance goals for Named Executive
Officers and the compensation payable thereunder shall be submitted to the
shareholders of the Company for their review and approval if and to the extent
required for such compensation to be deductible pursuant to Section 162(m) (or
any successor thereto) of the Code, and the Treasury Regulations thereunder.
Shareholder approval, if necessary, shall be obtained for such performance goals
prior to any Award being paid to such Named Executive Officer. If shareholder
approval is required and not received with respect to such performance goals, no
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<PAGE>
amount shall be paid to such Named Executive Officer for such applicable Award
Period pursuant to this Plan.
17.3 Components of Awards. Each Award granted to a Named Executive
Officer, other than Stock Options and Stock Appreciation Rights, shall be based
on performance goals which are sufficiently objective so that a third party
having knowledge of the relevant facts could determine whether the goal was met.
Except as provided in Subsection 17.8 herein, performance measures which may
serve as determinants of Named Executive Officers' Awards shall be limited to
the following measures: earnings per share; return on assets; return on equity;
return on capital; net profit after taxes; net profit before taxes; operating
profits; stock price; and sales or expenses. Within ninety (90) days following
the end of each Award Period, the Committee or the Board shall certify in
writing that the performance goals, and any other material terms were satisfied.
Thereafter, Awards shall be made for each Named Executive Officer as determined
by the Committee or the Board. The Awards may not vary from the pre-established
amount based on the level of achievement.
17.4 No Mid-Year Change in Awards. Except as provided in Subsections 17.8
and 17.9 herein, each Named Executive Officer's Awards shall be based
exclusively on the performance measures established by the Committee or the
Board pursuant to Subsections 17.2 and 17.3.
17.5 No Partial Award Period Participation. A Named Executive Officer who
becomes eligible to participate in this Plan after performance goals have been
established in an Award Period pursuant to Subsections 17.2 and 17.3 may not
participate in this Plan prior to the next succeeding Award Period, except with
respect to Awards which are Stock Options or Stock Appreciation Rights.
17.6 Performance Goals. Except as provided in Subsection 17.8 herein,
performance goals shall not be changed following their establishment, and Named
Executive Officers shall not receive any payout, except with respect to Awards
which are Stock Options or Stock Appreciation Rights, when the minimum
performance goals are not met or exceeded.
17.7 Individual Performance and Discretionary Adjustments. Except as
provided in Subsection 17.8 herein, subjective evaluations of individual
performance of Named Executive Officers shall not be reflected in their Awards,
other than Awards which are Stock Options or Stock Appreciation Rights. The
payment of such Awards shall be entirely dependent upon the attainment of the
preestablished performance goals.
17.8 Amendments. No amendment of this Plan with respect to any Named
Executive Officer may be made which would (i) increase the maximum amount that
can be paid to any one Participant pursuant to this Plan, (ii) change the
specified performance goal for payment of Awards, or (iii) modify the
requirements as to eligibility for participation in this Plan, unless the
Company's shareholders have first approved such amendment in a manner which
would permit the deduction under Section 162(m) (or any successor thereto) of
the Code of such payment in the fiscal year it is paid. The Committee or the
Board shall amend this Section 17 and such other provisions as it deems
appropriate, to cause amounts payable to Named Executive Officers to satisfy the
requirements of Section 162(m) (or any successor thereto) and the Treasury
regulations promulgated thereunder.
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<PAGE>
17.9 Stock Options and Stock Appreciation Rights - Grant Price.
Notwithstanding any provision of this Plan (including the provisions of this
Section 17) to the contrary, the amount of compensation which a Named Executive
Officer may receive with respect to Stock Options and Stock Appreciation Rights
which are granted hereunder is based solely on an increase in the value of the
applicable Shares after the date of grant of such Award. Thus, no Stock Option
may be granted hereunder to a Named Executive Officer with an exercise price
less than the Fair Market Value of Shares on the date of grant. Furthermore,
the maximum number of Shares (or cash equivalent value) with respect to which
Stock Options or Stock Appreciation Rights may be granted hereunder to any Named
Executive Officer during any calendar year may not exceed 400,000 Shares,
subject to adjustment as provided in Section 13 hereunder.
17.10 Maximum Amount of Compensation. The maximum amount of compensation
payable as an Award (other than an Award which is a Stock Option or Stock
Appreciation Right) to any Named Executive Officer during any calendar year may
not exceed $1,000,000.
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<PAGE>
PLEASE DATE, SIGN AND MAIL YOUR
PROXY CARD BACK AS SOON AS POSSIBLE!
PROXY FOR ANNUAL MEETING OF STOCKHOLDERS
SHERIDAN ENERGY, INC.
MAY 21, 1998
The undersigned hereby appoints B.A. Berilgen, Michael A. Gerlich and Jon
W. Wright, Jr. as proxies, each with the power to appoint his substitute and
hereby authorizes each of them, individually, to represent and vote, as
designated below, all shares of common stock of Sheridan Energy, Inc. held of
record by the undersigned on April 1, 1998 at the Annual Meeting of Stockholders
to be held on May 21, 1998 or any adjournment thereof.
(To be signed on reverse side.)
Please Detach and Mail in the Envelope Provided
[X] Please mark your
votes as in this
example.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
1. Election of FOR WITHHOLD 2. Approval of the 1998 FOR AGAINST WITHHOLD
Directors [ ] [ ] Flexible Incentive Plan. [ ] [ ] [ ]
Nominees: Mr. B.A. Berilgen 3. In their discretion with FOR AGAINST WITHHOLD
Mr. Jonathan P. Carroll respect to (1) any other [ ] [ ] [ ]
Mr. W. Craig Childers matters as may properly come
Mr. Douglas Bradley Dunn before the meeting and any
Mr. Michael A. Gerlich adjustment thereof, (2)
Mr. David H. Scheiber approval of the prior
Mr. Jeffrey E. Susskind meeting, if such approval
does not amount to
Instructions: To withhold authority to vote for ratification of the action
an individual nominee, write that nominee's name taken at that meeting, (3)
on the line provided below. the election of any other
person as a director if a
_____________________________________________ nominee named above is
unable to serve or for good
cause will not serve, and
(4) matters incident to the
conduct of the meeting.
</TABLE>
