<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement [_] Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to (S)240.14a-11(c) or (S)240.14a-12
Bellwether Exploration Company
- - --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- - -------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-6(i)(2)
or Item 22(a)(2) of Schedule 14A.
[_] $500 per each party to the controversy pursuant to Exchange Act Rule 14a-
6(i)(3).
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(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 or Schedule and the date of its filing.
(1) Amount Previously Paid:
----------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
---------------------------------------------------------------------------
(3) Filing Party:
---------------------------------------------------------------------------
(4) Date Filed:
---------------------------------------------------------------------------
Notes:
<PAGE>
BELLWETHER EXPLORATION COMPANY
1331 LAMAR STREET, SUITE 1455
HOUSTON, TEXAS 77010-3039
(713) 650-1025
Dear Stockholder,
You are cordially invited to attend the Annual Meeting of Stockholders of
Bellwether Exploration Company which will be held at the Houston Center Club,
1100 Caroline Street, Houston, Texas, on Friday, November 15, 1996, at 10:00
a.m.
The Notice of the Annual Meeting and Proxy Statement, which are attached,
provide information concerning the matters to be considered at the meeting. The
annual report to Stockholders for fiscal year 1996 is being mailed to
Stockholders along with these proxy materials.
It is important that your shares be represented at the meeting, regardless
of the size of your holdings. We urge you to return the signed proxy in the
enclosed envelope as soon as possible. If you do attend the meeting in person,
you may withdraw your proxy and vote your stock if you so desire. We value your
opinions and encourage you to participate in the Annual Meeting by voting your
proxy.
Very truly yours,
J. DARBY SERE
President and Chief Executive Officer
<PAGE>
BELLWETHER EXPLORATION COMPANY
1331 LAMAR STREET, SUITE 1455
HOUSTON, TEXAS 77010-3039
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD NOVEMBER 15, 1996
To the Stockholders of
Bellwether Exploration Company:
The Annual Meeting of Stockholders of BELLWETHER EXPLORATION COMPANY (the
"Company") will be held at the Houston Center Club, 1100 Caroline Street,
Houston, Texas at 10:00 a.m., Houston time, on Friday, November 15, 1996, for
the following purposes:
1. To elect the nominees of the Board of Directors to serve until their
successors are duly elected and qualified.
2. To consider and act upon a proposal to ratify and approve the Board of
Directors' adoption of the Bellwether Exploration Company 1996 Stock
Incentive Plan.
3. To consider and act upon a proposal to ratify the appointment of
Deloitte & Touche LLP as the independent auditors of the Company for
the year ending June 30, 1997.
4. To transact such other business as may properly come before the
meeting or any adjournment(s) thereof.
Stockholders of record at the close of business on October 4, 1996, are
entitled to notice of and to vote at the meeting and any adjournment(s) thereof.
You are cordially invited to attend the meeting. Whether or not you are
planning to attend the meeting, you are urged to complete, date and sign the
enclosed proxy and return it promptly.
Sincerely,
J. Darby Sere
President and Chief Executive Officer
Houston, Texas
October 22, 1996
=============================================================================
YOUR VOTE IS IMPORTANT
TO ENSURE REPRESENTATION AT THE MEETING, PLEASE COMPLETE, DATE AND
SIGN AND PROMPTLY RETURN THE ENCLOSED PROXY IN THE ACCOMPANYING
ENVELOPE. NO ADDITIONAL POSTAGE IS NECESSARY IF MAILED IN THE UNITED
STATES.
=============================================================================
<PAGE>
PROXY STATEMENT
_____________________________________
BELLWETHER EXPLORATION COMPANY
1331 LAMAR STREET
SUITE 1455
HOUSTON, TEXAS 77010-3039
(713) 650-1025
____________________________________
ANNUAL MEETING OF STOCKHOLDERS
NOVEMBER 15, 1996
____________________________________
INTRODUCTION
This Proxy Statement is being furnished in connection with the solicitation
of proxies by and on behalf of the Board of Directors of Bellwether Exploration
Company (the "Company") for use at the Annual Meeting of Stockholders of the
Company to be held on Friday, November 15, 1996 (the "Annual Meeting") at 10:00
a.m. local time at the Houston Center Club, 1100 Caroline Street, Houston,
Texas, and at any adjournment thereof, for the purposes set forth in this Proxy
Statement.
This Proxy Statement and the enclosed form of proxy are being mailed on or
about October 22, 1996, to the Stockholders of record as of October 4, 1996.
The annual report to Stockholders for the Company's fiscal year ended June 30,
1996, is also being mailed to Stockholders contemporaneously with this Proxy
Statement, although the annual report does not form a part of the material for
the solicitation of Proxies.
MATTERS TO BE CONSIDERED AT THE ANNUAL MEETING
Unless otherwise indicated, proxies in the form enclosed that are properly
executed, duly returned and not revoked will be voted in favor of:
(1) the election of the eight nominees to the Board of Directors of the
Company named herein;
(2) the approval of a proposal to ratify and approve the Board of
Directors' adoption of the Bellwether Exploration Company 1996 Stock
Incentive Plan; and
(3) the ratification of the appointment of Deloitte & Touche LLP as
independent auditors for the Company for the current fiscal year
ending June 30, 1997.
The Board of Directors is not presently aware of other proposals which may
be brought before the Annual Meeting. In the event other proposals are brought
before the Annual Meeting, the persons named in the enclosed form of proxy will
vote in accordance with what they consider to be in the best interests of the
Company and its Stockholders.
-1-
<PAGE>
VOTING REQUIREMENTS
The Board of Directors of the Company has fixed the close of business on
October 4, 1996, as the record date (the "Record Date") for the determination of
Stockholders entitled to notice of and to vote at the Annual Meeting. On the
Record Date, the Company had issued and outstanding 9,145,479 shares of its
common stock, $.01 par value ("Common Stock"). A complete list of all
Stockholders entitled to vote at the Annual Meeting will be open for examination
by any Stockholder during normal business hours for a period of ten days prior
to the Annual Meeting at the offices of the Company, 1331 Lamar, Suite 1455,
Houston, Texas 77010. Such list will also be available at the Annual Meeting
and may be inspected by any Stockholder who is present. Only the record owners
of the Company's Common Stock on the Record Date are entitled to notice of and
to vote at the Annual Meeting.
QUORUM AND OTHER MATTERS
The presence in person or by proxy of the holders of a majority of the
shares of Common Stock outstanding on the Record Date is necessary to constitute
a quorum at the Annual Meeting. Each share of Common Stock is entitled to one
vote, in person or by proxy, with respect to the election of directors and any
other proposals properly brought before the Annual Meeting.
Shares of Common Stock represented by a properly signed and returned proxy
will be counted as present at the Annual Meeting for purposes of determining a
quorum, without regard to whether the proxy is marked as casting a vote or
abstaining. Shares of Common Stock held by nominees which are voted on at least
one matter coming before the Annual Meeting will also be counted as present for
purposes of determining a quorum, even if the beneficial owner's discretion has
been withheld (a "non-vote") for voting on some or all other matters.
The holders of a majority of the total shares of Common Stock issued and
outstanding, whether present in person or represented by proxy, will constitute
a quorum for the transaction of business at the Annual Meeting. The election of
directors requires the favorable vote of the holders of a plurality of shares of
Common Stock present and voting, in person or by proxy, at the Annual Meeting.
Abstentions and broker non-votes have no effect on determinations of plurality
except to the extent that they affect the total votes received by any particular
candidate. A majority of the votes represented by the Stockholders present at
the Annual Meeting, in person or by proxy, is necessary for approval of the
Bellwether Exploration Company 1996 Stock Incentive Plan (the "1996 Plan") and
for ratification of the Company's auditors. With respect to abstentions and
broker non-votes, the shares will not be considered present at the Annual
Meeting for these matters so that abstentions and broker non-votes will have the
practical effect of reducing the number of affirmative votes required to achieve
a majority vote by reducing the total number of shares from which the majority
is calculated.
Votes at the Annual Meeting will be tabulated by an Inspector of Election
appointed by the Company.
PROXY INFORMATION
The enclosed form of proxy may be revoked at any time prior to its exercise
by executing a new proxy with a later date, by voting in person at the Annual
Meeting, or by giving written notice of revocation to Roland E. Sledge,
Secretary of the Company, at any time before the proxy is voted at the Annual
Meeting. Please ensure that your shares will be voted by signing, dating and
returning the enclosed form of proxy in the enclosed postage-paid envelope.
-2-
<PAGE>
BENEFICIAL OWNERSHIP OF SECURITIES
MANAGEMENT AND PRINCIPAL STOCKHOLDERS
The following table sets forth, as of the Record Date, the name, address,
and number of shares of Common Stock owned beneficially by (a) all persons known
to the Company to be the beneficial owners of more than five percent of the
outstanding shares of Common Stock and (b) each director (c) each nominee for
director (d) each of the executive officers named in the Summary Compensation
Table, and (e) all executive officers and directors of the Company as a group.
The information set forth in the following table is based on public filings made
with the Securities and Exchange Commission (the "Commission") as of the Record
Date and certain information supplied to the Company by the persons listed
below. Unless otherwise indicated, all shares are owned directly and the owner
has sole voting and investment power with respect thereto.
<TABLE>
<CAPTION>
NAME AND AMOUNT OF NATURE PERCENT
ADDRESS OF OF BENEFICIAL OF
BENEFICIAL OWNER OWNERSHIP CLASS
- - ----------------------------------- ----------------- -------
<S> <C> <C>
Allstate Insurance Company
3075 Sanders Road, Suite G5B
Northbrook, Illinois 60062 1,340,584 14.7
Torchmark Corporation
2001 Third Avenue South
Birmingham, Alabama 35233 750,196 (a) 8.2
Alpine Investment Partners
767 Fifth Avenue
New York, New York 10153 729,832 (b) 8.0
Ppm America Inc.
225 West Wacker Drive, Suite 1200
Chicago, Illinois 60606 506,568 5.5
J.P. Bryan 139,372 (c) 1.5
J. Darby Sere 262,950 (d) 2.8
A.K. McLanahan 13,750 (e) *
Vincent H. Buckley 9,000 (e) *
Dr. Jack Birks 9,000 (e) *
Michael D. Watford 62,497 (f) *
C. Barton Groves 176,625 (g) 1.9
Kenneth W. Welch 92,812 (h) 1.0
Habib Kairouz 6,000 (i) *
All officers and directors as 835,296 (j) 8.4
a group (12 persons)
</TABLE>
-3-
<PAGE>
__________
* Under 1%
(a) Of the 750,196 shares indicated as beneficially owned by Torchmark
Corporation ("Torchmark"), 187,500 shares are issuable pursuant to a
warrant owned by a wholly owned subsidiary of Torchmark and the remainder
are owned by that and other wholly owned subsidiaries of Torchmark.
(b) Jan Philipp F. Reemtsma and Joshua Ruch may be deemed to be the beneficial
owners of the shares held in the name of Alpine Investment Partners.
Messrs. Reemtsma and Ruch share voting and dispositive power over 716,006
of such shares, and Mr. Ruch has sole voting and dispositive power over
13,826 of such shares. Amount shown includes 1,242 shares beneficially
owned by Mr. Ruch held in the name of XBF Inc.
(c) Includes 126,875 shares which Mr. Bryan has the right to acquire, within 60
days, pursuant to options. Excludes 6,250 shares owned by Mr. Bryan's wife
as to which he has no voting or dispositive power.
(d) Includes 236,560 shares that Mr. Sere has the right to acquire within 60
days pursuant to vested stock options. Does not include 6,000 shares owned
by Mr. Sere's wife as to which he has no voting or dispositive power.
(e) Includes 9,000 shares which the director has the right to acquire within 60
days pursuant to options.
(f) Includes 50,000 shares that Mr. Watford has the right to acquire within 60
days pursuant to options.
(g) Includes 165,000 shares that Mr. Groves has the right to acquire within 60
days pursuant to options.
(h) Includes 82,500 shares that Mr. Welch has the right to acquire within 60
days pursuant to options.
(i) Includes 6,000 shares which Mr. Kairouz has the right to acquire with in 60
days pursuant to options.
(j) Includes the following: the shares beneficially owned by Messrs. Bryan as
described in note (c); shares which officers and directors of the Company
have the right to acquire pursuant to options, as described in note (d),
(e) (f), (g), (h) and (i) and 50,000 shares, 5,000 shares and 2,000 shares
that Charles C. Green, III, Michael B. Smith and Roland E. Sledge,
respectively have the right to acquire within 60 days pursuant to options.
-4-
<PAGE>
PROPOSAL I
ELECTION OF DIRECTORS
NOMINEES
Each incumbent director identified in the table below is a nominee for
election as a director of the Company. The term of office for which the
following persons are nominated will expire at the time of the 1997 Annual
Meeting of Stockholders of the Company or when their respective successors shall
have been elected and qualified. It is the intention of the persons named in
the accompanying proxy that proxies will be voted for the election of the eight
nominees named below unless otherwise indicated thereon. Should any nominee for
the office of director named herein become unable or unwilling to accept
nomination or election, the person or persons acting under the proxies will vote
for the election in his stead such other person as the Board of Directors may
recommend. The Board of Directors has no reason to believe that any of the
nominees will be unable to serve if elected to office and, to the knowledge of
the Board of Directors, the nominees intend to serve the entire term for which
election is sought. The Bylaws of the Company provide for the Board of
Directors to consist of no less than three and no more than nine members.
Directors will be elected by a plurality vote of the shares of Common Stock
present, in person or by proxy, at the Annual Meeting. The Board of Directors
recommends a vote FOR each of the nominees listed and, unless marked to the
contrary, proxies received from a Stockholder will be voted for the election of
such nominees.
DIRECTORS AND EXECUTIVE OFFICERS
The following table provides information with respect to the nominees for
director, each of whom is currently a director, and present executive officers
of the Company and the Company's wholly owned subsidiary, Odyssey Petroleum
Company ("Odyssey"). Each executive officer has been elected to serve until his
successor is duly appointed or elected by the Board of Directors or his earlier
removal or resignation from office.
<TABLE>
<CAPTION>
COMPANY
POSITION PRESENT
NAME AGE SINCE COMPANY POSITION
- - ------------------ --- ------- ---------------------------------------
<S> <C> <C> <C>
J. P. Bryan 56 1987 Chairman of the Board
J. Darby Sere 49 1988 Director, President and Chief Executive Officer
Charles C. Green III 50 1992 Vice President and Assistant Secretary
Roland E. Sledge 51 1987 Vice President and Secretary
Michael B. Smith 34 1995 Vice President and Chief Financial
Officer
C. Barton Groves 58 1994 Director of the Company; President of Odyssey
Kenneth W. Welch 39 1994 Vice President - Land of Odyssey
</TABLE>
-5-
<PAGE>
<TABLE>
<CAPTION>
COMPANY
POSITION PRESENT
NAME AGE SINCE COMPANY POSITION
- - ------------------ --- ------- ---------------------------------------
<S> <C> <C> <C>
Dr. Jack Birks 76 1988 Director
Vincent H. Buckley 74 1987 Director
Habib Kairouz 30 1994 Director
A. K. McLanahan 70 1987 Director
Michael D. Watford 42 1994 Director
</TABLE>
Mr. Bryan has been Chairman of the Board of the Company since August 31,
1987, and was Chief Executive Officer of the Company from June 30, 1994 to
January 25, 1995. On January 25, 1995, Mr. Bryan became Chief Executive Officer
of Gulf Canada Resources Limited. He has been Chairman of the Board of Nuevo
Energy Company ("Nuevo") since March 1990 and was Chief Executive Officer of
Nuevo from March 1990 to January 1995. Mr. Bryan has also been Chairman of the
Board and Chief Executive Officer of Torch Energy Advisors Incorporated
("Torch") and its predecessor since January 1, 1985. Mr. Bryan is a member of
the Board of Directors of Republic Waste Industries.
Mr. Sere has been Chief Executive Officer of the Company since January 25,
1995, President since March 7, 1988, and a director since March 25, 1988. Mr.
Sere was Chief Executive Officer of the Company from March 7, 1988, to June 29,
1994. He was a consultant with Patrick Petroleum Company, an independent oil
and gas company, from September 1987 to February 1988 and was a co-founder,
President, Chief Executive Officer and a director of Bayou Resources, Inc., an
independent oil and gas exploration and development company, from January 1982
until its acquisition by Patrick Petroleum Company in August 1987. Mr. Sere
served in various positions with Howell Corporation and Howell Petroleum
Corporation, an independent oil and gas company, from 1977 to 1981, the last of
which was Executive Vice President.
Mr. Green, Vice President and Assistant Secretary, has been an officer of
the Company since December 31, 1992, and of Torch since November 1992. He
currently serves as Vice Chairman and Chief Investment Officer of Torch. For
over ten years prior to joining Torch as the senior financial officer, Mr. Green
was President and Chief Operating Officer of Treptow Development Company, a real
estate development company. Previously, at J. P. Morgan Investment Management,
he was Vice President and Senior Portfolio Manager and Head of International
Fixed Income in London (1974-1982) and, in New York, was Assistant Vice
President in the Investment Department (1973-1974) and Investment Research
Officer and Energy Analyst (1969-1973). He has been a director of Teletouch
Communications, Inc. since May, 1995. Mr. Green is a Certified Financial
Analyst.
Mr. Sledge, Vice President and Secretary of the Company since September 1,
1987, is Senior Vice President, Secretary and General Counsel of Torch and has
been an officer with Torch and its predecessor since July 1983. He was an
attorney with the law firm of Watt, White & Craig, Houston, Texas from 1980 to
1983.
Mr. Smith has been Vice President and Chief Financial Officer of the
Company since September 1995. He was Vice President and Chief Financial Officer
of Nuevo from September 1995 to January 1996. Mr. Smith joined Torch in April
1995 as Vice President of Acquisitions and Financial Analysis and in September
1995 became Torch's Chief Financial Officer. Prior to joining Torch, Mr. Smith
held various positions in finance with ARCO beginning August 1989, the last of
which was Financial Advisor in the Corporate Treasury department.
-6-
<PAGE>
Mr. Groves has been President of Odyssey and a director of the Company
since August 26, 1994. He was President of the managing general partner of
Odyssey Partners Ltd., the predecessor in interest of Odyssey (the "Odyssey
Partnership"), from 1986 to August 1994. Between 1973 and 1986, Mr. Groves held
various positions with Diamond Shamrock Corporation, including President of its
Diamond Shamrock Exploration Company subsidiary.
Mr. Welch has been Vice President-Land of Odyssey since August 26, 1994.
From 1987 to August 1994, Mr. Welch was Land Manager of the Odyssey Partnership.
Between 1979 and 1987, Mr. Welch held Area Landman and Senior Landman positions
with Enseach Exploration, Inc., Penn Resources, Inc., and Moore McCormack
Energy, Inc.
Dr. Birks has been a Director of the Company since 1988. He is Chairman of
the Board of North American Gas Investment Trust Plc. and Midland & Scottish
Resources Plc. He is life president of British Marine Technology Limited. Dr.
Birks served as Chairman of the Board of British Marine Technology Limited from
1985 to 1995; as Chairman of the Board of Charterhouse Petroleum Plc from 1982
to 1986; as Chairman of the Board of London American Energy Inc. from 1982 to
1988; as Vice Chairman of the Board of Petrofina (UK) Limited from 1986 to 1989;
and as a director of George Wimpey Plc, a construction company, from 1982 to May
1990.
Mr. Buckley has been a Director of the Company since 1987. He has been Of
Counsel to the law firm of Liddell, Sapp, Zivley, Hill & LaBoon since January
1989. He serves as a Director of Enron Cactus III Corporation, Houston, Texas,
an oil and gas company, and as a Director on the Houston Medical Area Advisory
Board of Texas Commerce Bank National Association. Mr. Buckley was President
and Chief Executive Officer of Cockburn Oil Corporation from August 1984 until
September 1, 1988, and was Vice President of Apache Corporation, an oil and gas
company, Denver, Colorado, from October 1982 to August 1984.
Mr. Kairouz has been a director of the Company since August 26, 1994.
Since December 1993 he has been employed by Rho Management Company, Inc., an
investment advisory firm which serves as advisor to the principal investor of
Alpine Investment Partners. Prior to that, Mr. Kairouz was employed for five
years in investment banking at the firms of Jesup & Lamont Securities, Inc. and
more recently, Reich & Co., Inc. Under the agreement pursuant to which the
Company acquired Odyssey, certain former owners ("Owners") of the Odyssey
Partnership acquired the right to designate one representative to the Company's
board of directors. Pursuant to such agreement, until the earlier to occur of
the five-year anniversary of the closing of such acquisition or the date such
Owners no longer own at least 5% of the outstanding Common Stock, the Company is
obligated to nominate and recommend to the Company's Stockholders one
representative of the Owners. Mr. Kairouz is the person so designated by the
Owners.
Mr. McLanahan has been a director of the Company since November 6, 1987.
He has been a First Vice President of PaineWebber Incorporated since January,
1995. He was a Vice President of Kidder Peabody & Co., Inc., an investment
banking firm from April 1985 until its sale to Paine Webber Incorporated in
1995. From April 1982 to April 1985 he served as a Senior Vice President and
Branch Office Manager of Donaldson, Lufkin & Jenrette, Inc., Houston, Texas, an
investment banking firm.
Mr. Watford has a been a Director of the Company since March 1994. He has
been Chief Executive Office of Nuevo since January 1995 and President, Chief
Operating Officer, and a member of the Board of Directors of Nuevo since
February 1994. He was President of Torch Energy Marketing, Inc., a subsidiary
of Torch, from 1990 until April 1995 and was Director of Natural Gas Marketing
for Meridian Oil, Inc. from 1985 until 1990. Mr. Watford was employed by
Superior Oil Company from 1981 until 1985 and Shell Oil Company from 1975 until
1981.
-7-
<PAGE>
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following Summary Compensation Table sets forth the past three years
cash compensation and certain other components of the compensation of J. Darby
Sere, the Company's President and Chief Executive Officer, C. Barton Groves,
President of Odyssey and Kenneth W. Welch, Vice President-Land of Odyssey, who
were the only officers of the Company in fiscal 1996 whose total salary and
bonus exceeded $100,000. All other executive officers of the Company are also
officers or employees of Torch and provided services to the Company (including
holding executive officer positions with Company) pursuant to the Management
Agreement between the Company and Torch (the "Management Agreement"). Executive
officers who perform services for the Company under the Management Agreement
received no compensation from the Company other than the grant of stock options
under the 1994 Plan and were all compensated primarily by Torch.
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG TERM COMPENSATION
Awards Payouts
------------------------------------------------------ --------------------- ------------------
OTHER ALL
NAME AND ANNUAL RESTRICTED NUMBER OTHER
PRINCIPAL COMPENSA- STOCK OF LTIP COMPENSA-
POSITION YEAR SALARY BONUS TION(1) AWARD(S) OPTIONS PAYOUTS TION(2)
- - --------------------------- ---- -------- ------------ ------------ ------------- -------- ------------ -----------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
J. Darby Sere 1996 $171,000 $ 50,000 (3) 0 0 0 (4) 0 $ 8,752
President and Chief 1995 158,000 0 0 0 25,000 0 8,450
Executive Officer 1994 147,000 16,500 0 0 234,450 0 7,561
C. Barton Groves 1996 154,000 30,000 (3) 0 0 0 (4) 0 30,500
President of Odyssey 1995 125,000 0 0 0 165,000 0 21,013
1994 0 0 0 0 0 0 0
Kenneth W. Welch 1996 98,000 15,000 (3) 0 0 0 (4) 0 10,750
Vice President - Land of 1995 80,486 0 0 0 82,500 0 7,899
Odyssey 1994 0 0 0 0 0 0 0
</TABLE>
(1) These amounts do not include the value of the benefit to Mr. Sere of the
use of a Company-owned automobile used primarily for commuting to the
Company; the expense of a $7,110 per month disability insurance policy
under which Mr. Sere is the insured, the premiums of which are paid by the
Company; and the expenses of Mr. Sere's membership in certain professional
and athletic clubs. While some personal benefit may be derived from the
foregoing, the expenses are considered by the Company to be ordinary,
necessary and reasonable to its business and such expenses did not exceed
$10% of Mr. Sere's salary in fiscal 1996.
(2) Represents premiums paid on a $500,000 term life insurance policy for Mr.
Sere and an annual payment pursuant to a Simplified Employee Pension Plan
for Mr. Sere, Mr. Groves and Mr. Welch. Also includes $17,000 per year for
personal benefit plans paid to Mr. Groves in lieu of certain Company
benefits and amounts paid for a car allowance for Mr. Groves and Mr. Welch.
(3) Represents the bonuses paid during fiscal 1996 based upon performance in
fiscal 1995. On October 1, 1996, Messrs. Sere, Groves and Welch were
granted bonuses of $70,000, $32,500 and $17,500, respectively, in
recognition of their performance during fiscal 1996.
(4) Represents the number of options granted during fiscal 1996 based upon
performance in fiscal 1995. On September 16, 1996, Messrs. Sere, Groves
and Welch were granted, subject to stockholder approval of the 1996 Plan,
options to purchase 55,000, 15,000 and 7,500 shares of Common Stock,
respectively, in recognition of their performance during fiscal 1996.
-8-
<PAGE>
OPTION/SAR GRANTS IN LAST FISCAL YEAR
None
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL-YEAR AND FISCAL YEAR END
OPTION/SAR VALUES
The following table sets forth certain information concerning the exercise
in fiscal 1996 of options to purchase Common Stock by the executive officers
named in the Summary Compensation Table and the number and value of unexercised
options to purchase Common Stock held by such individuals at June 30, 1996.
Also reported are the values for "in-the-money" options which represent the
positive spread between the exercise price of any such existing stock options
and the June 30, 1996 price of the Common Stock. The actual amount, if any,
realized upon exercise of stock options will depend upon the market price of the
Common Stock relative to the exercise price per share of Common Stock at the
time the stock option is exercised. There is no assurance that the values of
unexercised, "in-the-money" stock options reflected in this table will be
realized.
<TABLE>
<CAPTION>
NUMBER OF NUMBER OF VALUE OF UNEXERCISED
SHARES UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS AT
ACQUIRED VALUE AT JUNE 30, 1996 JUNE 30, 1996(1)
ON EXERCISES REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
------------ -------- --------------- ----------------- ----------- ----------------
<S> <C> <C> <C> <C> <C> <C>
NAME
- - -------------------
J. Darby Sere --- --- 236,560 22,890 $154,255 $25,751
C. Barton Groves --- --- 165,000 --- $ 60,000 ---
Kenneth W. Welch --- --- 82,500 --- $ 30,000 ---
</TABLE>
(1) Based upon $6.00, the closing price of Common Stock on June 30, 1996.
LONG-TERM INCENTIVE PLAN-AWARDS IN LAST FISCAL YEAR
At this time, the Company does not have a long-term incentive plan for its
employees, other than the 1988 Non-Qualified Stock Option Plan, the 1994 Plan
and the 1996 Plan.
1988 PLAN
In 1988, the Board of Directors and stockholders approved the Company's
1988 Non-Qualified Stock Option Plan ("1988 Plan"). The Company has reserved
131,325 shares of common stock under the 1988 Plan and no further options will
be granted under the plan. Options under the 1988 Plan may be granted by the
Compensation Committee to any director, executive officer or key employee of the
Company. The exercise price of an option is 100% of the fair market value on
the date of the grant. Options granted under the 1988 Plan may be exercised at
any time for up to 10 years from the date of grant but prior to termination of
the 1988 Plan on March 25, 1998, or such shorter time as the Compensation
Committee determines.
1994 PLAN
In 1994, the Board of Directors adopted the Bellwether Exploration Company
1994 Stock Incentive Plan (the "1994 Plan"). The Company has reserved 825,000
shares of Common Stock under the 1994 Plan. The Company has issued options to
purchase an aggregate of 807,000 shares under the 1994 Plan.
-9-
<PAGE>
The 1994 Plan is administered by the Compensation Committee of the Board of
Directors. The Compensation Committee has full power to select, from among the
persons eligible for awards, the individuals to whom awards are granted, to make
any combination of awards to any participant and to determine the specific terms
of each grant, subject to the provisions of the 1994 Plan. The option price per
share of Common Stock deliverable upon the exercise of a Stock Option shall be
100% of the fair market value of a share of Common Stock on the date the Stock
Option is granted.
Directors, officers and key employees of the Company and officers and key
employees of Torch who render services for the Company under the Management
Agreement are eligible to receive stock options or performance shares under the
1994 Plan. Members of the Board of Directors who are not employed by the
Company ("Non-employee Directors") receive annual automatic grants of stock
options.
1996 PLAN
On September 16, 1996, the Board of Directors adopted, subject to
stockholder approval, the Bellwether Exploration Company 1996 Stock Incentive
Plan (the "1996 Plan"). For a description of the 1996 Plan, see Proposal II in
this Proxy Statement.
INFORMATION CONCERNING THE OPERATION OF THE BOARD OF DIRECTORS
The small size of the Board of Directors lends itself to frequent informal
discussions of Company matters among its members. The Board of Directors met
formally four times and executed no unanimous consents during the fiscal year
ended June 30, 1996.
The Company has a Compensation Committee comprised of Messrs. Birks,
McLanahan and Buckley (the "Compensation Committee"). The function of the
Compensation Committee is to administer the 1988 Plan, the 1994 Plan and the
1996 Plan, to establish the compensation of the Company's President and Chief
Executive Officer and to review the compensation of the other officers of the
Company. The Compensation Committee generally meets quarterly to review Torch's
performance under the Management Agreement. See "Transactions with Related
Parties - Management Agreement." The Management Agreement may be terminated by
the Compensation Committee. The Company has an Audit Committee composed of
Messrs. McLanahan and Buckley and Dr. Birks. The primary function of the Audit
Committee is to review the annual audit of the Company's financial statements
with the Company's independent accountants. The Audit Committee met two times
during fiscal 1996. During fiscal 1996, each director attended at least 75% of
the total number of meetings of the Board of Directors, and 75% of the total
number of meetings held by all Committees on which he served. The Company does
not have a nominating committee.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The members of the Company's Compensation Committee are Messrs. Birks,
Buckley and McLanahan. The service of these individuals on the Compensation
Committee does not create any corporate interlocks or insider participation
between the Company's Compensation Committee and another entity.
COMPENSATION OF DIRECTORS
Directors of the Company who are neither officers nor employees of the
Company or Torch received $2,000 for the first quarter meeting of the Board of
Directors and $3,000 per meeting thereafter during the fiscal year ended June
30, 1996, and were reimbursed for reasonable expenses incurred in attending such
meetings. Directors who are officers or employees of the Company or Torch did
not receive any additional compensation for
-10-
<PAGE>
services as members of the Board of Directors. The Company paid a total of
$39,000 in director fees for the fiscal year ended June 30, 1996. Each non-
employee board member also receives an annual grant of 2,000 options under the
1994 Plan. If the 1996 Plan is approved by the Stockholders, the Company will
discontinue awarding automatic grants of options under the 1994 Plan and each
non-employee director will thereafter receive an annual grant of 4,000 options
under the 1996 Plan.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended ("Exchange
Act"), requires the Company's Directors and executive officers, and persons who
own more than ten percent of a registered class of the Company's equity
securities, to file with the Commission initial reports of ownership and reports
of changes in ownership of Common Stock and other equity securities of the
Company. Officers, directors and greater than ten percent stockholders are
required by the Commission's regulations to furnish the Company with copies of
all Section 16(a) forms they filed with the Commission.
Based on a review of the copies of such reports furnished to the Company,
the Company believes that all reporting obligations under Section 16(a) were
satisfied.
REPORT OF THE COMPENSATION COMMITTEE ON EXECUTIVE COMPENSATION
The Compensation Committee, a committee of the Board of Directors, is
responsible for establishing policies concerning the compensation of the
Company's executive officers. The report of the Compensation Committee
describing the Company's compensation philosophy and objectives is presented
below.
COMPENSATION COMMITTEE REPORT
As members of the Compensation Committee, we are responsible for
administration of the Company's 1988 Plan, the 1994 Plan and, pending approval
by the Company's stockholders, the 1996 Plan. We also evaluate compensation
levels of management and review with the Board of Directors the various factors
affecting compensation of the Company's highest paid officers. In addition, the
Compensation Committee considers management succession and related matters.
The Compensation Committee has reviewed the compensation for J. Darby Sere,
the President and Chief Executive Officer of the Company, C. Barton Groves,
President of Odyssey, and Kenneth W. Welch, Vice President-Land of Odyssey for
1996 and has concluded that each of their compensation was reasonable in view of
the Company's performance and their respective contributions to that
performance. Generally, such compensation was comprised of three elements: (1)
base compensation; (2) incentive bonus; and (3) stock options.
The Compensation Committee continues to endorse the compensation policy of
the Company, which is that a substantial portion of the annual compensation of
each officer must be related to the performance of the Company, as well as the
particular contribution of each officer.
The specific bonus an executive receives is dependent on individual
performance and level of responsibility. Assessment of the officer's relative
performance is made annually based on a number of factors which include
initiative, business judgment, technical expertise, and management skills. For
purposes of determining compensation, the Compensation Committee also considers
the Company's performance compared with its performance in the previous year as
well as the status of goals set by the Company at the beginning of each year.
-11-
<PAGE>
For 1996, as compared to 1995, the Compensation Committee noted an 27%
increase in revenues, a 40% increase in operating cash flows, a 4% increase in
the Company's net income, and a 48% decrease in the Company's debt to equity
ratio.
As provided for in the Management Agreement between the Company and Torch,
all of the salary and bonus of J.P. Bryan, Chairman of the Board, Roland E.
Sledge, Vice President and Secretary, Michael B. Smith, Vice President and Chief
Financial Officer and Charles C. Green, III, Vice President and Assistant
Secretary, are paid by Torch.
Effective October 1, 1996, J. Darby Sere was granted a salary increase of
$12,000, for a total base salary of $186,000 per year, plus a bonus of $70,000.
This bonus and salary increase were granted because of Mr. Sere's overall
leadership of the Company, and in particular, his efforts in negotiating the
$9.9 million gas contract settlement with Texas Gas Transmission Corporation.
C. Barton Groves was granted a bonus of $32,500 and a salary increase of $6,000
for a total base salary of $162,000 per year effective October 1, 1996. This
bonus and salary increase were granted because of Mr. Groves overall leadership
of the Company's exploration program, and in particular, his efforts in leading
the Fausse Pointe 3-D seismic project. Mr. Kenneth W. Welch was granted a bonus
of $17,500 and a salary increase of $4,200 for a total base salary of $103,200
effective October 1, 1996. This bonus and salary increase were granted because
of Mr. Welch's efforts in coordinating activities at the Fausse Pointe 3-D
seismic project.
The Compensation Committee believes that stock options serve as important
long term incentives for executive officers of the Company by encouraging their
continued employment and commitment to the performance of the Company.
Moreover, the Compensation Committee believes that stock options are an
excellent means to align the interests of the Company's officers with those of
its stockholders.
The numbers of options that the Compensation Committee grants to executive
officers is based on individual performance and level of responsibility. In
addition, the Compensation Committee strives to grant options at a level
sufficient to provide a strong incentive for executives to work for the long-
term success of the business. The Committee does not consider the number of
options currently held by an executive in determining individual grants since
such a factor would create an incentive to exercise options and sell the shares.
On September 16, 1996, Messrs. Sere, Groves and Welch were considered for
and granted options to purchase 55,000, 15,000 and 7,500 shares, respectively,
subject to stockholder approval of the 1996 Plan. The grants of stock options
to Messrs. Sere, Groves and Welch were made in recognition of Mr. Sere's efforts
in negotiating the $9.9 million gas contract settlement with Texas Gas
Transmission Corporation and Mr. Groves' and Mr. Welch's efforts in the Fausse
Pointe 3-D seismic project.
The main elements of the Company's compensation policy-base salary, bonus
and stock options--constitute an appropriate reward for the short and long-term
efforts of the Company's executives. The Compensation Committee is devoted to
the continual evaluation of the compensation of the executive officers of the
Company and its principal subsidiaries in order to support the future
development of the Company and growth in stockholder value.
Dr. Jack Birks
Vincent H. Buckley
Alexander K. McLanahan
-12-
<PAGE>
TRANSACTIONS WITH RELATED PERSONS
RELATIONSHIP WITH TORCH
Management Agreement. The Company has been managed by Torch since 1987.
Torch, headquartered in Houston, Texas, is primarily engaged in the business of
providing management and advisory services relating to oil and gas assets for
institutional and public investors. As of June 30, 1996, Torch managed assets
with an historic acquisition price of approximately $1.8 billion. The
Management Agreement, which was amended effective January 1, 1994, is subject to
termination by the Compensation Committee of the Board of Directors of the
Company, upon twelve months notice. The current term of the Management
Agreement expires on December 31, 2002. Thereafter, the agreement renews
automatically for successive one-year periods until terminated by either party.
The Management Agreement requires Torch to administer the business
activities of the Company for a monthly fee equal to (i) one-twelfth of two
percent of the book value of the Company's assets, excluding cash and cash
equivalents, at the end of such month, plus (ii) two percent of operating cash
flows during such month. These administrative services include providing the
Company with office space, equipment and supplies, retaining and managing
accounting, legal, financial, geological, engineering, technical and insurance
professionals as needed by the Company, maintaining the books and records of the
Company, assisting the Company in determining its capital requirements,
preparing any reports or other documents required by governmental authorities,
analyzing economic and other data related to the Company's business and
otherwise providing general management services and advice to the Company's
business. The Company has agreed to indemnify Torch and its affiliates for
liabilities incurred by Torch or its affiliates for actions taken under the
Management Agreement, other than acts of fraud, willful misconduct or gross
negligence of Torch or its affiliates or any of their employees. The Company
presently intends to continue to operate under the Management Agreement. The
executive officers of the Company (with the exception of the President) who are
also officers or employees of Torch provide services to the Company pursuant to
the Management Agreement and are compensated solely by Torch without
reimbursement by the Company. The salary of the President is paid by the
Company.
The Company believes that the terms and fees under the Management Agreement
are comparable with those that would result from the negotiation of an arm's
length third-party transaction and are fair to the Company. The Management
Agreement was amended effective January 1, 1994 and contains a fee structure
different from that used in prior agreements. See "-Prior Management
Agreement." If the Management Agreement had been in effect during the full
fiscal year ended June 30, 1994, the amount payable under the Management
Agreement for administrative services would have been $610,000.
Under the Management Agreement, the monthly fee for administrative services
does not apply to investing and financing services that Torch may provide, at
its discretion, to the Company upon the Company's request. For such investing
and financing services the Company pays Torch a fee for the Torch employees
providing such services on an hourly basis, and certain overhead expenses with
respect to such employees and any related expenses. If the Management Agreement
had been in effect during the year ended June 30, 1994 the Company would have
paid Torch $20,000 for investing and financing services.
The monthly fee under the Management Agreement also does not include fees
for extraordinary investing and financing services, such as bridge financing and
merger and acquisition services, that Torch provides to the Company in
connection with certain substantial acquisition or financing transactions.
The Company believes that its working association with Torch significantly
enhances the Company's access to capital markets and the number of acquisition
prospects to which the Company is exposed and allows the
-13-
<PAGE>
Company to compete for acquisition prospects with greater developmental
potential. The Company believes its access to Torch's staff provides accounting,
financial, technical and management resources that a business of the Company's
size might not otherwise be able to afford.
In the course of its business, Torch generates potential investments in oil
and gas properties, processing plants, gathering systems and pipelines, and
other oil and gas assets (collectively "Investments"). Under various
partnership and other agreements in which Torch has an interest (the
"Institutional Program Agreements"), Torch is required to offer first to certain
institutional partnerships and other institutional investors, including
subsidiaries of Torchmark (collectively, the "Institutional Programs"),
Investments that meet certain criteria set forth under such agreements. Torch
also provides services to Nuevo. Under the Management Agreement and the Nuevo
Administrative Services Agreement, Torch is required to offer to the Company and
Nuevo all Investments (i) that are not within the investment parameters of the
Institutional Programs, (ii) that the Institutional Programs elect not to pursue
and (iii) that are within the scope of the Company's or Nuevo's business. The
Institutional Programs may dispose of or farmout Investments, and the Company
will not have any preferential right to acquire such Investments. The Company
has reviewed the investment criteria of the Institutional Programs and believes
that they generally are not competitive with the Company's business and
acquisition strategy. No assurances can be made that the investment criteria of
Institutional Programs formed by Torch in the future will not compete with the
Company's acquisition strategy or that Institutional Programs will not acquire
Investments that the Company would otherwise propose to acquire.
The business and acquisition strategy of the Company and Nuevo are
anticipated to overlap regarding certain Investments. The Company, Nuevo and
Torch have adopted a policy regarding the rights as between Nuevo and the
Company to Investments generated by Torch that Torch is required to offer to the
Company and Nuevo. If an Investment is located in the Company's Area of
Exclusive Interest (as hereinafter defined), the Investment will be offered
first to the Company. If an Investment is located in Nuevo's Area of Exclusive
Interest, the Investment will be offered first to Nuevo. Investments located
outside of or in both the Areas of Exclusive Interest will be offered by Torch
to both the Company and Nuevo. Unless the Company and Nuevo agree otherwise,
the Company will be entitled to acquire a 20% interest in the assets
representing the Investment, and Nuevo will be entitled to acquire the remaining
80%. With respect to assets that form part of an Investment which is not
capable of division, Torch will allocate such assets between Nuevo and the
Company in a manner deemed fair and reasonable by Torch, whose decision shall be
final and binding.
The Company's Area of Exclusive Interest is defined as (i) for Investments
in an oil and gas property, any geographic area which produces from the same
formation as the proposed Investment and in which the Company owns proved
reserves with a discounted present value of future net cash flows of $500,000 or
more, and (ii) for Investments that are not an oil and gas property, any area in
which the Company owns a non-oil and gas property investment with a book value
of over $100,000. Nuevo's Area of Exclusive Interest is defined as (i) for
Investments in an oil and gas property, any geographic area which produces from
the same formation as the proposed Investment and in which Nuevo owns proved
reserves with a discounted present value of future net cash flows of $5 million
or more, and (ii) for Investments that are not an oil and gas property, any area
in which Nuevo owns a non-oil and gas property investment with a book value of
over $1 million.
The Company will continue to generate its own investments in the future,
and neither Torch nor Nuevo will have any right to participate in such
investments. The decision to accept an Investment generated by Torch will be
made by the Company's management and Board of Directors, some of whom are
members of Torch's executive management. The Compensation Committee of the
Board of Directors, which is composed of persons who are not employees of Torch
or the Company, will meet quarterly to review Torch's performance under the
Management Agreement.
-14-
<PAGE>
Torch also invests in oil and gas assets for its own account and may do so
in the future. In accordance with the Management Agreement, Torch may not
acquire an Investment within the scope of the Company's business and acquisition
strategy without first offering such Investment to the Company pursuant to the
criteria set forth above.
Prior Management Agreement. Prior to January 1, 1994, the fee for
administrative services under the management agreements was a fixed amount, plus
for services related to certain filings with the Commission and tax reporting, a
fee based on the salaries of the Torch employee rendering the services, on an
hourly basis, and certain related overhead expenses for such employees. During
the fiscal years ended June 30, 1994, 1995 and 1996, the Company paid Torch fees
for these services of $637,000, $1,196,000 and $1,533,000, respectively. Under
the management arrangements in effect prior to January 1, 1994, the Company paid
Torch a fee for acquisitions originated by Torch equal to a percentage of the
value of the acquisition price. During the year ended June 30, 1994, in
connection with the AGRI Acquisition, the Company issued Torch a warrant to
purchase 187,500 shares of common stock for $6.40 per share in lieu of cash
payments incurred under the management agreement with respect to such
transaction.
Other Relationships with Torch. Torch markets a portion of the oil and
natural gas production for certain properties in which the Company owns an
interest. The Company is charged a fee of 2% of revenues for natural gas
marketed and a fee based on the difference between the posted and sales price of
oil and for oil marketed. For fiscal years ending June 30, 1994, 1995, and
1996, such charges amounted to $3,000, $12,000, and $114,000, respectively. The
Company believes such fees were fair to the Company.
Torch began operating the Gas Plant in December 1993 pursuant to an
operating agreement with the Company and other interest owners in the Gas Plant.
The amount paid to Torch in connection with such operations during the seven
months ended June 30, 1994 and the years ended June 30, 1995 and 1996, were
$38,000, $71,000 and $83,000, respectively.
Certain officers and directors of the Company are also officers or
employees of Torch. On September 30, 1996, Torch Acquisition Company, a company
formed by executive management of Torch ("TAC"), acquired all of the outstanding
shares of capital stock of Torch from United Investors Management Company, a
subsidiary of Torchmark Corporation ("United"). J.P. Bryan, Chairman of the
Board of the Company, is also Chairman of the Board of TAC and owns options to
purchase approximately 20% of the outstanding shares of common stock of TAC, on
a fully diluted basis.
Certain Acquisitions. A joint venture 90% owned by the Company (the
"Company Venture") acquired 7.6% and 23.3% interests in the Snyder Plant and the
Diamond M Plant, respectively, in July 1993. The interests were acquired for
$8.45 million. The other partner in the Company Venture is not affiliated with
the Company or Torch. In a simultaneous transaction, a joint venture 90% owned
by Torch (the "Torch Venture") acquired 4.1% and 12.5% interests in the Snyder
Plant and Diamond M Plant, respectively, for $4.55 million. In December 1993,
Torch sold its interests in the Torch Venture to Associated Gas Resources, Inc.
("AGRI") for a promissory note in the amount of $4.55 million, which bore
interest at 7% per annum. Thereafter, in December 1993, the Company acquired
AGRI by merger. In March 1994, the Company repaid the $4.55 million note to
Torch with borrowings under an existing credit facility.
The Company acquired AGRI by merger in December 1993. Under the terms of
the management agreement in effect at that time, Torch became entitled to
consideration equal to 2.5% of the consideration paid to the shareholders of
AGRI. In lieu of this fee, the Company issued Torch a warrant to purchase
187,500 shares of Common Stock for $6.40 per share. The warrant is exercisable
at any time prior to December 31, 1998. In connection with the sale of the
capital stock of Torch to TAC, Torch transferred the warrant to United.
-15-
<PAGE>
Prior to its acquisition by the Company, AGRI was managed by Torch. During
the fiscal year ending June 30, 1994, AGRI paid Torch management fees of
$300,000.
In connection with the merger of AGRI into the Company, AGRI issued
650,000, 150,000, 150,000 and 50,000 shares of its common stock to Torch, Mr.
Bryan, Mr. Watford and an employee of Torch, respectively. In connection with
the Company's acquisition of AGRI, the shares owned by Torch, Mr. Bryan, Mr.
Watford and the employee were converted into 54,151, 12,497 and 12,497 shares of
Common Stock, and $25,000, respectively.
Purchases from and Sales to Nuevo. During fiscal 1993 the Company sold
undeveloped acreage to Nuevo for $62,500, which amount represented the Company's
investment costs in such acreage. During the fiscal years 1992, 1993, and 1994,
the Company acquired interests in four exploratory prospects from Nuevo for an
aggregate cost of $142,595 on the same terms as interests in such prospects were
acquired by unaffiliated persons.
Mining Ventures. During fiscal year 1992, the Company acquired an average
24.4% interest in three mining ventures (the "Mining Ventures") from an
unaffiliated person for $128,500. At the time of such acquisition, Mr. Bryan,
his brother and Robert L. Gerry, a director and executive officer of Nuevo (the
"Affiliated Group"), owned an average 21.5% interest in the Mining Ventures.
The Company's interest in the Mining Ventures increased as it paid costs of the
venture. As of June 30, 1996, the Company had invested $324,000 in the Mining
Ventures.
Odyssey Merger. In connection with the Odyssey Merger, the former owners
of Odyssey assigned approximately 5% of the consideration to the then current
management of Odyssey, all of whom became employees of the Company following the
acquisition. Pursuant to this agreement, a corporation owned by Mr. Groves
received 20,625 shares of Common Stock and $123,750 and Mr. Welch received
10,312 shares of Common Stock and $61,875. The former owners of Odyssey also
formed a new partnership ("New Odyssey") and transferred to it interests in
certain prospects formerly owned by Odyssey. Messrs. Groves and Welch received
a 2.25% and 1.125% interest, respectively, in New Odyssey. Certain subsidiaries
of Torchmark which own Common Stock have agreed with Odyssey's former owners
that if the Torchmark subsidiaries sell Common Stock in certain transactions,
such subsidiaries will arrange for the sale of the Common Stock held by the
former owners of Odyssey on the same basis as the Torchmark subsidiaries' shares
are sold. Additionally, former owners of Odyssey have been granted registration
rights with respect to such shares.
3DX. Odyssey and Hampton entered into agreements with 3DX pursuant to
which 3DX is a participant in the 3-D seismic projects in the Fausse Pointe and
Cove fields. Nuevo owns a 27% interest in a partnership that owns a 10%
interest in 3DX.
Hampton Acquisition. In connection with the purchase of 7,500 shares of
Hampton Preferred Stock from R. Chaney & Partners - 1993, L.P. (the "Chaney
Partnership"), the Company agreed to indemnify and hold harmless the Chaney
Partnership and its affiliates from any expenses to which they may become
subject, to the extent arising out of the Company's purchase of such shares of
Hampton Preferred Stock. One of the limited partners in the Chaney Partnership
is Nuevo. The Company also agreed to reimburse the Chaney Partnership and its
affiliates for any reasonable legal or other expenses incurred by them in
connection with investigating or defending any claims giving rise to a right to
indemnification. In addition, the Company agreed to reimburse the Chaney
Partnership for legal fees (not to exceed $2,000) incurred by it in connection
with the sale of such shares of Hampton Preferred Stock.
-16-
<PAGE>
PERFORMANCE GRAPH
The following graph compares the yearly percentage change in the Company's
cumulative total stockholder return on its Common Stock (assuming reinvestment
of dividends at a date of payment into Common Stock of the Company) to the
cumulative total return on the NASDAQ Market Index ("Broad Market") and the
cumulative total return on the Dow Jones Secondary Oil Index ("Industry Index")
from June 30, 1991 until June 30, 1996.
<TABLE>
<CAPTION>
- - -----------------------------------------------------FISCAL YEAR ENDING------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
COMPANY 1991 1992 1993 1994 1995 1996
BELLWETHER EXPLORATION 100 109.08 163.61 199.97 218.15 218.15
INDUSTRY INDEX 100 93.76 114.41 111.02 116.09 135.52
BROAD MARKET 100 107.75 132.27 145.04 170.11 214.14
</TABLE>
-17-
<PAGE>
PROPOSAL II
APPROVAL OF ADOPTION OF THE 1996 STOCK INCENTIVE PLAN
INTRODUCTION
On September 16, 1996, the Board of Directors adopted the Bellwether
Exploration Company 1996 Stock Incentive Plan ("1996 Plan"), subject to
stockholder approval. A copy of the 1996 Plan is attached as Exhibit A. The
following general description of certain features of the 1996 Plan is qualified
in its entirety by reference to Exhibit A.
GENERAL PLAN INFORMATION
The 1996 Plan was adopted for the benefit of the executive officers,
directors and other key employees and consultants of the Company and its
subsidiaries and affiliates and authorizes for issuance upon the exercise of
stock options or grants of performance shares an aggregate of 500,000 shares of
Common Stock.
The purpose of the 1996 Plan is to promote the interests of the Company by
providing incentives to the directors, officers and other key employees and
consultants of the Company to use their best efforts on the Company's behalf and
to aid the Company in attracting, maintaining and developing capable management
personnel by offering such persons competitive compensation levels and an
opportunity to become stockholders of the Company, thereby rewarding outstanding
quality and encouraging continued employment.
ADMINISTRATION
The 1996 Plan may be administered by (i) the Board of Directors of the
Company, (ii) any duly constituted committee of the Board of Directors
consisting of at least two members of the Board of Directors, all of whom shall
be Non-Employee Directors, or (iii) any other duly constituted committee of the
Board of Directors. The administering party is referred to herein as the "Plan
Administrator". At the current time, the Compensation Committee of the Board of
Directors is serving as the Plan Administrator. A Non-Employee Director is
defined as any director who: (i) is not an officer of the Company or a parent
or subsidiary of the Company, or otherwise employed by the Company or parent or
subsidiary of the Company; (ii) does not receive compensation, either directly
or indirectly, from the Company or a parent or subsidiary of the Company, for
services rendered as a consultant or any capacity other than as a director,
except for an amount not exceeding $60,000; (iii) does not possess an interest
in any transaction for which disclosure would be required under Item 404(a) of
Regulation S-K of the Securities Act of 1933, as amended ("Securities Act"); or
(iv) is not engaged in a business relationship for which disclosure would be
required pursuant to Item 404(b) of Regulation S-K under the Securities Act.
The Plan Administrator selects the participants to whom options are to be
granted and, with respect to each option, determines the number of shares
covered thereby, the price payable on its exercise, and the period during which
it may be exercised, all in a manner not inconsistent with the 1996 Plan. The
Plan Administrator also resolves all questions of application or interpretation
of the 1996 Plan.
The names and addresses of the Compensation Committee members during 1996
are: Dr. Jack Birks, 1331 Lamar, Suite 1455, Houston, Texas 77010; A. K.
McLanahan, 1331 Lamar, Suite 1455, Houston, Texas 77010; and Vincent H. Buckley,
1331 Lamar, Suite 1455, Houston, Texas 77010.
-18-
<PAGE>
DESCRIPTION OF COMMON STOCK
The Company has one class of authorized capital stock, Common Stock. The
1996 Plan currently authorizes the issuance, upon the exercise of stock options
by eligible participants, of an aggregate of 500,000 shares of the Company's
Common Stock. Holders of Common Stock are entitled to receive dividends if,
when and as declared by the Board of Directors of the Company out of funds
legally available therefor. All shares of Common Stock have equal voting rights
on the basis of one vote per share on all matters to be voted upon by
stockholders. Cumulative voting for the election of directors is not permitted.
Shares of Common Stock have no preemptive, conversion, sinking fund or
redemption provisions and are not liable for further call or assessment. Each
share of Common Stock is entitled to share on a pro rata basis in any assets
available for distribution to the holders of the Company's equity securities
upon liquidation of the Company.
The Company has not paid any dividends on its Common Stock since its
formation. Although the Company intends to invest any future earnings in its
business, it may determine at some future date that the payment of cash
dividends would be desirable. The payment of any such dividends would depend,
among other things, upon the earnings and financial condition of the Company.
ELIGIBILITY
Participants in the 1996 Plan are selected by the Committee from the
directors, executive officers and other key employees and consultants of the
Company who occupy responsible managerial or professional positions and who have
the capability of making a substantial contribution to the success of the
Company. In making this selection and in determining the form and amount of
awards, the Plan Administrator may consider any factors deemed relevant,
including the individual's functions, responsibilities, value of services to the
Company and past and potential contributions to the Company's profitability and
growth.
TYPES OF AWARDS
Awards under the 1996 Plan may be in the form of any one or more of the
following: stock options, incentive stock options, and performance shares as
described below. The 1996 Plan permits the granting of both incentive stock
options ("ISOs"), intended to qualify as such under the provisions of Section
422 of the Internal Revenue Code of 1986 (the "Code"), and non-qualified
options. To qualify as ISOs, options must meet additional Federal income tax
requirements. These requirements include a limitation that the aggregate fair
market value of ISOs that first become exercisable during any calendar year may
not exceed $100,000. The term of each option will be fixed by the Plan
Administrator but, for incentive stock options, may not exceed ten years from
date of grant. The Plan Administrator will determine at which time or times
each option may be exercised. Awards are evidenced by award agreements, the
terms and provisions of which may differ, in form and substance satisfactory to
the Plan Administrator and not inconsistent with the 1996 Plan.
EXERCISE PRICE
A stock option entitles the grantee to purchase a set number of shares of
Common Stock at a set price ("Exercise Price"). The Exercise Price for each
share covered by an option will be an amount selected by the Plan Administrator
and will be 100% or more of the fair market value of a share of Common Stock on
the date the option is granted. The Exercise Price must be paid in full with
cash or by delivery of previously owned Common Stock valued at its fair market
value on the exercise date.
-19-
<PAGE>
RESTRICTIONS
As soon as practicable after receipt of payment of the Exercise Price, the
Company will deliver to the optionee a certificate or certificates for such
shares of Common Stock represented by the option exercised. The optionee will
become a stockholder of the Company with respect to Common Stock represented by
the share certificates issued and as such will be fully entitled to receive
dividends, to vote and to exercise all other rights of a stockholder, including
the right to dispose of such shares. Prior to the receipt of certificates for
shares of Common Stock, an optionee will have no rights of a stockholder.
AUTOMATIC GRANTS
The 1996 Plan provides that each director who is not employed by the
Company ("Non-employee Director"), on the date he or she is initially elected or
appointed and on the first business day following the Annual Meeting of
Stockholders of each subsequent year thereafter in which the Non-employee
Director is still serving as a director, will automatically be granted a stock
option to purchase 4,000 shares of Common Stock for the fair market price on the
date of such grant.
PERFORMANCE SHARES
The Plan Administrator is also authorized to award shares of Common Stock
("Performance Shares") that are subject to certain conditions set forth in the
1996 Plan and subject to such other conditions and restrictions as the Plan
Administrator may determine, but without the payment of any consideration.
Performance Shares may, in the Plan Administrator's discretion, be subject to
forfeiture, in whole or in part, in the event that performance targets
established by the Plan Administrator are not met.
TAX INFORMATION
The following is a brief summary of the general rules relating to the tax
consequences under present federal income tax laws with respect to grants under
the 1996 Plan:
TAXATION OF ISOS. No taxable income will be realized by an optionee upon
the grant or exercise of an ISO. If shares of Common Stock are issued to an
optionee pursuant to the exercise of an ISO and if no disposition of such shares
is made within two years after the date of grant or within one year after the
transfer of such shares to such optionee, then, upon the sale of such shares,
any amount realized in excess of the exercise price will be taxed to such
optionee as a long-term capital gain and any loss sustained will be a long-term
capital loss and no deduction will be allowed to the optionee's employer for
Federal income tax purposes. If no disqualifying disposition is made, the
exercise of an ISO will give rise to an adjustment in computing alternative
minimum taxable income that may result in alternative minimum tax liability for
the optionee.
If shares of Common Stock acquired upon the exercise of an ISO are disposed
of prior to the expiration of either holding period described above, the
optionee in most instances will realize ordinary income in the year of such
disqualifying disposition in an amount equal to the excess (if any) of the fair
market value of the shares at exercise (or, if less, the amount realized on the
disposition of the shares) over the exercise price thereof and the optionee's
employer will be entitled to deduct such amount. Any additional gain realized
by the participant will be taxed as short-term or long-term capital gain,
depending on how long the shares have been held, and will not result in any
deduction by the employer. The holding period for long-term capital gain
treatment is more than one year.
-20-
<PAGE>
If an ISO is exercised at a time when it no longer qualifies as an ISO, the
option will be treated as a non-qualified option. Subject to certain exceptions
for disability or death, an ISO generally will not be eligible for the tax
treatment described above if it is exercised more than three months following
the termination of employment.
TAXATION OF NON-QUALIFIED OPTIONS. No income will be realized by an
optionee at the time a non-qualified option is granted. In most instances,
ordinary income will be realized by the optionee upon exercise in an amount
equal to the difference between the fair market value of the shares on the date
of exercise and the exercise price (the amount paid for the shares) and the
optionee's employer will be entitled to a tax deduction in the same amount. At
disposition, appreciation (or depreciation) after the date of exercise will be
treated as either short-term or long-term capital gain (or loss) depending on
how long the shares have been held.
TAXATION OF COMMON STOCK USED TO EXERCISE OPTIONS. Shares of Common Stock
delivered to pay for shares of Common Stock purchased on the exercise of an ISO
or a non-qualified stock option will be valued at the fair market value at the
date of exercise. Unless the delivery of shares constitutes a disqualifying
disposition of shares acquired upon exercise of an ISO, no taxable gain or loss
on the surrendered shares will be realized at the time of delivery. For Federal
income tax purposes, the optionee receives the same tax basis and holding period
in a number of the new shares equal to the number of old shares exchanged. The
optionee will also receive a tax basis in the additional shares equal to zero in
the case of an ISO or equal to their fair market value at the date of exercise
in the case of a non-qualified stock option and a new holding period in either
case.
PERFORMANCE SHARES. A grantee normally will not realize taxable income and
the Company will not be entitled to a deduction upon the grant of Performance
Shares assuming the shares granted are subject to restrictions resulting in a
"substantial risk of forfeiture." When the shares are no longer subject to a
substantial risk of forfeiture or if there are no restrictions at the time of
grant, the grantee will realize taxable ordinary income in an amount equal to
the fair market value of the stock at that time and the Company will be entitled
to a deduction in the same amount. A grantee, however, may elect to realize
taxable ordinary income in the year the restricted stock is granted in an amount
equal to their fair market value at the time of grant, determined without regard
to the restrictions. In that event, the Company will be entitled to a deduction
in such year in the same amount, and any gain or loss realized by the grantee
upon the subsequent disposition of the shares will be taxable at short or long-
term in capital gain rates but will not result in any further deduction to the
Company.
WITHHOLDING. The Company has the right to require an optionee or grantee
to remit an amount necessary to satisfy any federal, state or local tax
withholding requirements prior to the delivery of certificates for such shares.
An optionee or grantee may be required to deposit cash with the Company in an
amount necessary to satisfy the applicable federal and state law requirements
with respect to withholding of taxes on wages. Alternatively, the Company may
issue such shares, net of the number of shares sufficient to satisfy the
withholding requirements. For withholding purposes, Common Stock will be valued
on the date the withholding obligation is incurred.
OTHER TAX INFORMATION. The foregoing does not constitute a definitive
statement on the tax effects of awards under the 1996 Plan and is based on the
laws and regulations presently in effect. There can be no assurance that the
tax consequences as discussed above will continue or that other tax laws will
not be applicable. Accordingly, it is suggested that prior to exercising an
award granted under the 1996 Plan and prior to disposing of shares acquired
pursuant to an exercise thereof, a grantee should consult his tax advisor.
The 1996 Plan is not qualified under Section 401(a) of the Internal Revenue
Code of 1986, as amended.
-21-
<PAGE>
ASSIGNMENT OF INTEREST
No award granted under the 1996 Plan is assignable or transferable other
than by will or by the laws of the descent and distribution. During the
lifetime of the optionee, the award may be exercisable only by the optionee.
TERMINATION OF EMPLOYMENT
Upon the termination of an optionee's employment, all stock options shall
likewise terminate immediately unless (i) the termination was the result of
retirement or permanent disability (as each is determined by the Plan
Administrator), in which case the optionee may within six months exercise any
awards to the extent such awards are exercisable during the six month period
(ii) the termination was caused by the optionee's death, in which case any
rights exercisable on the date of death may be exercised by the optionee's
estate, or by a person acquiring such right by bequest or inheritance, provided
that such exercise occurs within both the remaining effective term of the awards
and one year after the optionee's death or (iii) the termination was caused by
reason other than death, retirement, disability or cause (as determined by the
Plan Administrator), in which case the optionee may within 120 days exercise any
awards to the extent such awards are exercisable during such 120-day period.
Assuming the term of an ISO granted under the 1996 Plan has not otherwise
expired, upon termination of employment (i) by reason of death or permanent
disability, the ISO shall remain exercisable for a period of up to one year,
(ii) by reason of retirement, the ISO shall remain exercisable for a period of
up to three months, and (iii) by reason other than death, permanent disability,
retirement or cause, the ISO shall remain exercisable for a period of up to 30
days. If an employee is terminated for cause, his ISO's will be immediately
canceled. If an employee is terminated for any reason, his unvested Performance
Shares will be immediately forfeited.
AMENDMENT AND TERMINATION
The Plan Administrator is permitted to amend the 1996 Plan without further
approval by the stockholders. No amendment may adversely affect any outstanding
grants without the holder's consent.
CHANGES IN CAPITAL STRUCTURE
The 1996 Plan provides for proportionate adjustments upwards or downwards
upon an increase or decrease, respectively, in the number of shares of Common
Stock outstanding or other subdivision or consolidation of shares. Upon the
merger or consolidation of the Company in which the Company is the survivor,
each holder of an option will be entitled to receive upon exercise the number
and class of securities to which the holder would have been entitled pursuant to
the merger or consolidation agreement if, immediately prior to such event, such
holder had been the record holder of a number of shares of Common Stock as to
which such option was exercisable.
In the event of a merger or consolidation in which the Company is not the
surviving corporation, or in the event of a sale or other disposition of all of
the Company's assets to another entity, the Plan Administrator may elect any of
the following: (i) in the event the successor entity assumes the obligation to
deliver securities, to entitle each holder to receive upon exercise of an option
such securities as the holder would have been entitled to receive had such
option been exercised immediately prior to the merger or consolidation; (ii) to
waive any limitations with respect to an option or Performance Shares such that
such option becomes exercisable prior to the date of the merger, consolidation
or sale of assets or the vesting of the Performance Shares shall occur upon such
merger, consolidation or sale of assets; or (iii) to cancel all outstanding
options as of the effective date of such merger, consolidation or sale, provided
notice is given to each holder and each holder has the right to exercise options
for a period of not less than thirty days prior to the effective date of the
merger, consolidation or sale.
-22-
<PAGE>
OTHER INFORMATION
The fair market value of the Common Stock shall be determined by the Plan
Administrator and, generally, shall be the average of the high and low sales
prices of the Common Stock as reported on the consolidated trading tables of The
Wall Street Journal on the date the option is granted. If at any time the
Common Stock shall not have been traded on National Association of Securities
Dealers, Inc. Automatic Quotation System/National Market or other public
securities market for more than 10 days immediately preceding such date, the
Plan Administrator may provide other appropriate means of determining fair
market value.
Optionees will not be given periodic reports on the status of their
options; however, grantees may obtain information as to the amount and status of
their options at any time upon written request to the Company. The Plan
Administrator may permit the Company to withhold Common Stock to satisfy all or
part of the optionee's withholding tax. The Common Stock will be valued at its
fair market value. The payment of withholding taxes by surrendering Common
Stock is subject to any restrictions the Plan Administrator may impose.
Neither the adoption of the 1996 Plan by the Board of Directors nor the
submission of the Plan to the stockholders of the Company for approval shall be
construed as creating any limitations of the power of the Board of Directors to
adopt such other incentive arrangements as it may deem desirable including
without limitation, the granting of stock options otherwise than under the 1996
Plan, and such arrangements may be either generally applicable or applicable
only in specific cases.
The 1996 Plan is not subject to the provisions of the Employee Retirement
Income Security Act of 1974.
GRANTS OF OPTIONS UNDER THE 1996 PLAN
On September 16, 1996, the Compensation Committee granted, subject to
stockholder approval of the 1996 Plan, options to purchase the following number
of shares of Common Stock under the 1996 Plan: J. Darby Sere, President and
Chief Executive Officer, 55,000 shares; C. Barton Groves, President of Odyssey,
15,000 shares; and Kenneth W. Welch, Vice President-Land of Odyssey, 7,500
shares at $6.25 per share, the fair market value of the Common Stock on the date
of grant.
APPROVAL OF ADOPTION OF 1996 PLAN
There are currently available for grant under the 1994 Plan 18,000 shares
of Common Stock. Management and the Board of Directors believe it is in the
best interest of the Company to adopt the 1996 Plan to increase the Company's
ability to attract and retain the valuable services of individuals of
outstanding quality and ability to serve in the offices and directorships of the
Company.
Approval of the amendment to the 1996 Plan requires the affirmative vote of
a majority of the outstanding shares of Common Stock present and voting at the
Annual Meeting in person or by proxy.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE ADOPTION OF THE BELLWETHER
EXPLORATION COMPANY 1996 STOCK INCENTIVE PLAN, AS IDENTIFIED IN THE ENCLOSED
PROXY CARD. PROXIES RECEIVED BY THE COMPANY WILL BE SO VOTED UNLESS A CONTRARY
VOTE IS SPECIFIED.
-23-
<PAGE>
PROPOSAL III
RATIFICATION OF APPOINTMENT OF
INDEPENDENT AUDITORS
The Stockholders will be asked to ratify the appointment of Deloitte &
Touche LLP as independent auditors of the Company and its subsidiaries for the
current fiscal year ending June 30, 1997.
The engagement of Deloitte & Touche LLP as independent auditors of the
Company is subject to approval by a majority of the shares of Common Stock
present, in person or by proxy, at the Annual Meeting.
A representative of Deloitte & Touche LLP will be present at the Annual
Meeting with an opportunity to make a statement if the representative so desires
and will be available to respond to appropriate questions.
MANAGEMENT RECOMMENDS THAT THE STOCKHOLDERS APPROVE AND RATIFY THE
APPOINTMENT OF DELOITTE & TOUCHE LLP AS INDEPENDENT AUDITORS OF THE COMPANY AND
ITS SUBSIDIARIES FOR THE FISCAL YEAR ENDING JUNE 30, 1997. PROXIES RECEIVED BY
THE COMPANY WILL BE SO VOTED UNLESS A CONTRARY VOTE IS SPECIFIED.
STOCKHOLDERS' PROPOSALS FOR 1997 ANNUAL MEETING
Proposals of Stockholders of the Company that are intended to be presented
at the 1997 Annual Meeting of the Stockholders of the Company must be received
by the Secretary of the Company not less than 120 days in advance of the one
year anniversary of the date of 1996 Annual Meeting. Such proposals must be in
conformity with all applicable legal provisions including Rule 14a-8 of the
General Rules and Regulations under the Exchange Act and the Bylaws of the
Company.
-24-
<PAGE>
OTHER MATTERS
The cost of soliciting proxies, including the cost of preparing and mailing
this Proxy Statement and the expenses incurred by brokerage houses nominees and
fiduciaries in forwarding proxy materials to beneficial owners, will be borne by
the Company. In addition to solicitation by mail, certain directors, officers
and regular employees of the Company may solicit the return of proxies by
telephone, telecopy, fax telegram or personal interview. Such persons will
receive no additional compensation for such services. In addition, the Company
has retained Automatic Data Processing to assist in soliciting proxies for a fee
of $0.70 per proxy solicited plus out-of-pocket expenses. At such rate their
fee for handling the 1996 proxies will be about $1,800.
The Board of Directors has no information that any matters other than those
referred to in this Proxy Statement will be brought before the Annual Meeting.
If, however, other matters should properly come before the meeting, the
accompanying proxy confers discretionary authority on the persons named therein
to vote it in accordance with the recommendations of the Board of Directors.
By Order of the Board of
Directors
Roland E. Sledge
Secretary
October 22, 1995
COPIES OF THE COMPANY'S ANNUAL REPORT ON FORM 10-K FOR THE FISCAL YEAR
ENDED JUNE 30, 1996 ARE AVAILABLE AT NO COST TO THE STOCKHOLDERS OF THE COMPANY
UPON WRITTEN REQUEST TO ROLAND E. SLEDGE, SECRETARY OF THE COMPANY, 1331 LAMAR
STREET, SUITE 1455, HOUSTON, TEXAS 77010-3039.
-25-
<PAGE>
EXHIBIT A
===========================================================
BELLWETHER EXPLORATION COMPANY
1996 STOCK INCENTIVE PLAN
SEPTEMBER 16, 1996
============================================================
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I. GENERAL............................................................. 1
SECTION 1.1. PURPOSE...................................................... 1
SECTION 1.2. ADMINISTRATION............................................... 1
SECTION 1.3. ELIGIBILITY FOR PARTICIPATION................................ 2
SECTION 1.4. TYPES OF AWARDS UNDER PLAN................................... 2
SECTION 1.5. AGGREGATE LIMITATION ON AWARDS............................... 2
SECTION 1.6. EFFECTIVE DATE AND TERM OF PLAN.............................. 3
ARTICLE II. STOCK OPTIONS...................................................... 3
SECTION 2.1. AWARD OF STOCK OPTIONS....................................... 3
SECTION 2.2. STOCK OPTION AGREEMENTS...................................... 3
SECTION 2.3. STOCK OPTION PRICE........................................... 3
SECTION 2.4. TERM AND EXERCISE............................................ 4
SECTION 2.5. MANNER OF PAYMENT............................................ 4
SECTION 2.6. ISSUANCE OF CERTIFICATES..................................... 4
SECTION 2.7. DEATH, RETIREMENT AND TERMINATION OF EMPLOYMENT OF OPTIONEE.. 4
ARTICLE III. INCENTIVE STOCK OPTIONS........................................... 5
SECTION 3.1. AWARD OF INCENTIVE STOCK OPTIONS............................. 5
SECTION 3.2. INCENTIVE STOCK OPTION AGREEMENTS............................ 5
SECTION 3.3. INCENTIVE STOCK OPTION PRICE................................. 5
SECTION 3.4. TERM AND EXERCISE............................................ 5
SECTION 3.5. MAXIMUM AMOUNT OF INCENTIVE STOCK OPTION GRANT............... 5
SECTION 3.6. DEATH OF OPTIONEE............................................ 6
SECTION 3.7. RETIREMENT OR DISABILITY..................................... 6
SECTION 3.8. TERMINATION FOR OTHER REASONS................................ 6
SECTION 3.9. TERMINATION FOR CAUSE........................................ 6
SECTION 3.10. APPLICABILITY OF STOCK OPTIONS SECTIONS..................... 6
SECTION 3.11. CODE REQUIREMENTS........................................... 7
ARTICLE IV. PERFORMANCE SHARE AWARDS........................................... 7
SECTION 4.1. AWARDS GRANTED BY PLAN ADMINISTRATOR......................... 7
SECTION 4.2. AMOUNT OF AWARD.............................................. 7
SECTION 4.3. COMMUNICATION OF AWARD....................................... 7
SECTION 4.4. AMOUNT OF AWARD PAYABLE...................................... 8
SECTION 4.5. ADJUSTMENTS.................................................. 8
SECTION 4.6. PAYMENTS OF AWARDS........................................... 8
SECTION 4.7. TERMINATION OF EMPLOYMENT.................................... 8
SECTION 4.8. TRANSFER RESTRICTION......................................... 9
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
Page
---
<S> <C>
ARTICLE V. AUTOMATIC GRANTS.................................................... 9
SECTION 5.1. GRANT........................................................ 9
SECTION 5.2. APPLICABLE PROVISIONS........................................ 9
ARTICLE VII. MISCELLANEOUS..................................................... 9
SECTION 6.1. GENERAL RESTRICTION.......................................... 9
SECTION 6.2. NON-ASSIGNABILITY............................................ 9
SECTION 6.3. WITHHOLDING TAXES............................................ 10
SECTION 6.4. RIGHT TO TERMINATE EMPLOYMENT................................ 10
SECTION 6.5. NON-UNIFORM DETERMINATIONS................................... 10
SECTION 6.6. RIGHTS AS A STOCKHOLDER...................................... 10
SECTION 6.7. DEFINITIONS.................................................. 10
SECTION 6.8. LEAVES OF ABSENCE............................................ 11
SECTION 6.9. NEWLY ELIGIBLE EMPLOYEES..................................... 11
SECTION 6.10. ADJUSTMENTS................................................. 11
SECTION 6.11. CHANGES IN THE COMPANY'S CAPITAL STRUCTURE.................. 12
SECTION 6.12. AMENDMENT OF THE PLAN....................................... 13
</TABLE>
ii
<PAGE>
BELLWETHER EXPLORATION COMPANY
1996 STOCK INCENTIVE PLAN
ARTICLE I. GENERAL
SECTION 1.1. PURPOSE. The purposes of this Stock Incentive Plan (the
"Plan") are to: (1) associate the interests of the management of BELLWETHER
EXPLORATION COMPANY and its subsidiaries and affiliates (collectively referred
to as the "Company") closely with the stockholders to generate an increased
incentive to contribute to the Company's future success and prosperity, thus
enhancing the value of the Company for the benefit of its stockholders; (2)
provide management with a proprietary ownership interest in the Company
commensurate with Company performance, as reflected in increased stockholder
value; (3) maintain competitive compensation levels thereby attracting and
retaining highly competent and talented directors, employees and consultants;
and (4) provide an incentive to management for continuous employment with the
Company. Certain capitalized terms are defined in Section 6.7.
SECTION 1.2. ADMINISTRATION.
(a) The Plan shall be administered by (i) the Board of Directors
of the Company, (ii) any duly constituted committee of the Board of
Directors consisting of at least two members of the Board of Directors, all
of whom shall be Non-Employee Directors, or (iii) any other duly
constituted committee of the Board of Directors. Such administrating party
shall be referred to herein as the "Plan Administrator".
(b) The Plan Administrator shall have the authority, in its sole
discretion and from time to time to:
(i) designate the officers and key employees and
consultants of the Company and its Subsidiaries eligible to
participate in the Plan;
(ii) grant Awards provided in the Plan in such form and
amount as the Plan Administrator shall determine;
(iii) impose such limitations, restrictions and
conditions, not inconsistent with this Plan, upon any such Award
as the Plan Administrator shall deem appropriate; and
(iv) interpret the Plan and any agreement, instrument or
other document executed in connection with the Plan, adopt,
amend and rescind rules and regulations relating to the Plan,
and make all other determinations and take all other action
necessary or advisable for the implementation and administration
of the Plan.
(c) Decisions and determinations of the Plan Administrator on
all matters relating to the Plan shall be in its sole discretion and shall
be final, conclusive and binding upon all persons, including the Company,
any participant, any stockholder of the Company, any employee and any
consultant. No member of any committee acting as Plan Administrator shall
be liable for any action taken or decision made relating to the Plan or any
Award thereunder.
<PAGE>
SECTION 1.3. ELIGIBILITY FOR PARTICIPATION. Participants in the Plan
shall be selected by the Plan Administrator from the directors, executive
officers and other key employees and consultants of the Company, executive
officers and key employees of any Subsidiary of the Company and executive
officers and key employees of any consultant to, administrator for or manager of
the Company who have the capability of making a substantial contribution to the
success of the Company. In making this selection and in determining the form
and amount of awards, the Plan Administrator shall consider any factors deemed
relevant, including the individual's functions, responsibilities, value of
services to the Company and past and potential contributions to the Company's
profitability and growth. For the purposes of this Plan, the term "Subsidiary"
means any corporation or other entity of which at least 50% of the voting
securities are owned by the Company directly or through one or more other
corporations, each of which is also a Subsidiary. With respect to non-corporate
entities, Subsidiary shall mean an entity managed or controlled by the Company
or any Subsidiary and with respect to which the Company or any Subsidiary is
allocated more than half of the profits and losses thereof.
SECTION 1.4. TYPES OF AWARDS UNDER PLAN. Awards under the Plan may be in
the form of any or more of the following:
(i) Stock Options, as described in Article II;
(ii) Incentive Stock Options, as described in Article III; and/or
(iii) Performance Shares, as described in Article IV.
Awards under the Plan shall be evidenced by an Award Agreement between the
Company and the recipient of the Award, in form and substance satisfactory to
the Plan Administrator, and not inconsistent with this Plan. Award Agreements
may provide such vesting schedules for Stock Options, Incentive Stock Options
and Performance Shares, and such other terms, conditions and provisions as are
not inconsistent with the terms of this Plan. Subject to the express provisions
of the Plan, and within the limitations of the Plan, the Plan Administrator may
modify, extend or renew outstanding Award Agreements, or accept the surrender of
outstanding Awards and authorize the granting of new Awards in substitution
therefor. However, except as provided in this Plan, no modification of an Award
shall impair the rights of the holder thereof without his consent.
SECTION 1.5. AGGREGATE LIMITATION ON AWARDS.
(a) Shares of stock which may be issued under the Plan shall be
authorized and unissued or treasury shares of Common Stock of the Company
("Common Stock"). The maximum number of shares of Common Stock which may
be issued pursuant to Awards issued under the Plan shall be 500,000 which
may be increased by the Board of Directors pursuant to Section 6.12.
(b) For purposes of calculating the maximum number of shares of Common
Stock which may be issued under the Plan at any time:
-2-
<PAGE>
(i) all the shares issued (including the shares, if any,
withheld for tax withholding requirements) under the Plan shall be
counted when issued upon exercise of a Stock Option or Incentive Stock
Option; and
(ii) only the net shares issued as Performance Shares shall be
counted (shares reacquired by the Company because of failure to
achieve a performance target or failure to become fully vested for any
other reason shall again be available for issuance under the Plan).
(c) Shares tendered by a participant as payment for shares issued upon
exercise of a Stock Option or Incentive Stock Option shall be available for
issuance under the Plan. Any shares of Common Stock subject to a Stock
Option or Incentive Stock Option which for any reason is terminated
unexercised or expires shall again be available for issuance under the
Plan.
SECTION 1.6. EFFECTIVE DATE AND TERM OF PLAN.
(a) The Plan shall become effective on the date adopted by the Board
of Directors, subject to approval by the holders of a majority of the
shares of Common Stock at a meeting or by written consent.
(b) The Plan and all Awards made under the Plan shall remain in
effect until such Awards have been satisfied or terminated in accordance
with the Plan and the terms of such Awards.
ARTICLE II. STOCK OPTIONS
SECTION 2.1. AWARD OF STOCK OPTIONS. The Plan Administrator may from
time to time, and subject to the provisions of the Plan and such other terms and
conditions as the Plan Administrator may prescribe, grant to any participant in
the Plan one or more options to purchase for cash or shares the number of shares
of Common Stock ("Stock Options") allotted by the Plan Administrator. The date
a Stock Option is granted shall mean the date selected by the Plan Administrator
as of which the Plan Administrator allots a specific number of shares to a
participant pursuant to the Plan.
SECTION 2.2. STOCK OPTION AGREEMENTS. The grant of a Stock Option
shall be evidenced by a written Award Agreement, executed by the Company and the
holder of a Stock Option (the "Optionee"), stating the number of shares of
Common Stock subject to the Stock Option evidenced thereby, and in such form as
the Plan Administrator may from time to time determine.
SECTION 2.3. STOCK OPTION PRICE. The option price per share of
Common Stock deliverable upon the exercise of a Stock Option shall be 100% of
the fair market value of a share of Common Stock on the date the Stock Option is
granted unless otherwise determined by the Plan Administrator.
-3-
<PAGE>
SECTION 2.4. TERM AND EXERCISE. A Stock Option shall not be
exercisable prior to six months from the date of its grant and unless a shorter
period is provided by the Plan Administrator or by another Section of this Plan,
and may be subject to such vesting scheduling and term ("Option Term") as the
Plan Administrator may provide in an Award Agreement. No Stock Option shall be
exercisable after the expiration of its Option Term.
SECTION 2.5. MANNER OF PAYMENT. Each Award Agreement providing for
Stock Options shall set forth the procedure governing the exercise of the Stock
Option granted thereunder, and shall provide that, upon such exercise in respect
of any shares of Common Stock subject thereto, the Optionee shall pay to the
Company, in full, the option price for such shares with cash or, if duly
authorized by the Plan Administrator, Common Stock.
SECTION 2.6. ISSUANCE OF CERTIFICATES. As soon as practicable after
receipt of payment, the Company shall deliver to the Optionee a certificate or
certificates for such shares of Common Stock. The Optionee shall become a
stockholder of the Company with respect to Common Stock represented by share
certificates so issued and as such shall be fully entitled to receive dividends,
to vote and to exercise all other rights of a stockholder.
SECTION 2.7. DEATH, RETIREMENT AND TERMINATION OF EMPLOYMENT OF
OPTIONEE. Unless otherwise provided in an Award Agreement or otherwise agreed
to by the Plan Administrator:
(a) Upon the death of the Optionee, any rights to the extent
exercisable on the date of death may be exercised by the Optionee's estate,
or by a person who acquires the right to exercise such Stock Option by
bequest or inheritance or by reason of the death of the Optionee, provided
that such exercise occurs within both (i) the remaining Option Term of the
Stock Option and (ii) one year. The provisions of this Section shall apply
notwithstanding the fact that the Optionee's employment may have terminated
prior to death, but only to the extent of any rights exercisable on the
date of death.
(b) Upon termination of the Optionee's employment by reason of
retirement or permanent disability (as each is determined by the Plan
Administrator), the Optionee may exercise any Stock Options, provided such
option exercise occurs within both (i) the remaining Option Term of the
Stock Option and (ii) six months (in the case of permanent disability) or
three months (in the case of retirement).
(c) Upon termination of the Optionee's employment by reason other than
death, disability, retirement or cause (as each is determined by the Plan
Administrator), the Optionee may exercise any Stock Options, provided such
option exercise occurs within both (i) the remaining Option Term of the
Stock Option and (ii) 120 days of the date of termination.
(d) Except as provided in Subsections (a), (b) and (c) of this Section
2.7, all Stock Options shall terminate immediately upon the termination of
the Optionee's employment.
-4-
<PAGE>
ARTICLE III. INCENTIVE STOCK OPTIONS
SECTION 3.1. AWARD OF INCENTIVE STOCK OPTIONS. The Plan
Administrator may, from time to time and subject to the provisions of the Plan
and such other terms and conditions as the Plan Administrator may prescribe,
grant to any officer or key employee who is a participant in the Plan one or
more "incentive stock options" (intended to qualify as such under the provisions
of Section 422 of the Internal Revenue Code of 1986, as amended ("Incentive
Stock Options")) to purchase for cash or shares the number of shares of Common
Stock allotted by the Plan Administrator. No Incentive Stock Options shall be
made under the Plan after the tenth anniversary of the effective date of the
Plan. The date an Incentive Stock Option is granted shall mean the date
selected by the Plan Administrator as of which the Plan Administrator allots a
specific number of shares to a participant pursuant to the Plan.
Notwithstanding the foregoing, Incentive Stock Options shall not be granted to
any owner of 10% or more of the total combined voting power of the Company and
its subsidiaries.
SECTION 3.2. INCENTIVE STOCK OPTION AGREEMENTS. The grant of an
Incentive Stock Option shall be evidenced by a written Award Agreement, executed
by the Company and the holder of an Incentive Stock Option (the "Optionee"),
stating the number of shares of Common Stock subject to the Incentive Stock
Option evidenced thereby, and in such form as the Plan Administrator may from
time to time determine.
SECTION 3.3. INCENTIVE STOCK OPTION PRICE. The option price per
share of Common Stock deliverable upon the exercise of an Incentive Stock Option
shall be 100% of the fair market value of a share of Common Stock on the date
the Incentive Stock Option is granted.
SECTION 3.4. TERM AND EXERCISE. Each Incentive Stock Option shall
not be exercisable prior to six months from the date of its grant and unless a
shorter period is provided by the Plan Administrator or another Section of this
Plan, may be exercised during a period of ten years from the date of grant
thereof (the "Option Term") and may be subject to such vesting scheduling as the
Plan Administrator may provide in an Award Agreement. No Incentive Stock Option
shall be exercisable after the expiration of its Option Term.
SECTION 3.5. MAXIMUM AMOUNT OF INCENTIVE STOCK OPTION GRANT. The
aggregate fair market value (determined on the date the Incentive Stock Option
is granted) of Common Stock with respect to which Incentive Stock Options first
become exercisable by an Optionee during in any calendar year (under all plans
of the Optionee's employer corporations and their parent and subsidiary
corporations) shall not exceed $100,000.
SECTION 3.6. DEATH OF OPTIONEE.
(a) Upon the death of the Optionee, any Incentive Stock Option
exercisable on the date of death may be exercised by the Optionee's estate
or by a person who acquires the right to exercise such Incentive Stock
Option by bequest or inheritance or by reason of the death of the Optionee,
provided that such exercise occurs within both the remaining Option Term of
the Incentive Stock Option and one year after the Optionee's death.
-5-
<PAGE>
(b) The provisions of this Section shall apply notwithstanding the
fact that the Optionee's employment may have terminated prior to death, but
only to the extent of any Incentive Stock Options exercisable on the date
of death.
SECTION 3.7. RETIREMENT OR DISABILITY. Unless otherwise provided in an
Award Agreement or otherwise agreed to by the Plan Administrator, upon the
termination of the Optionee's employment by reason of permanent disability or
retirement (as each is determined by the Plan Administrator), the Optionee may
exercise any Incentive Stock Options, provided such option exercise occurs
within both (i) the remaining Option Term of the Incentive Stock Option and (ii)
one year (in the case of permanent disability) or three months (in the case of
retirement). Notwithstanding the terms of an Award Agreement, the tax treatment
available pursuant to Section 422 of the Internal Revenue Code of 1986 (the
"Code") upon the exercise of an Incentive Stock Option shall not be available to
an Optionee who exercises any Incentive Stock Options more than (i) one year
after the date of termination of employment due to permanent disability or (ii)
three months after the date of termination of employment due to retirement.
SECTION 3.8. TERMINATION FOR OTHER REASONS. Unless otherwise provided in
an Award Agreement or otherwise agreed to by the Plan Administrator, except as
provided in Sections 3.6 and 3.7, upon termination of the Optionee's employment
by reason other than cause (as determined by the Plan Administrator), the
Optionee may exercise any Incentive Stock Options, provided such option exercise
occurs within both (i) the remaining Incentive Option Term of the Stock Option
and (ii) 30 days of the date of termination.
SECTION 3.9. TERMINATION FOR CAUSE. Unless otherwise provided in an Award
Agreement or otherwise agreed to by the Plan Administrator, except as provided
in Sections 3.6, 3.7 and 3.8, all Incentive Stock Options shall terminate
immediately upon the termination of the Optionee's employment.
SECTION 3.10. APPLICABILITY OF STOCK OPTIONS SECTIONS. Sections 2.5,
Manner of Payment; and 2.6, Issuance of Certificates, applicable to Stock
Options, shall apply equally to Incentive Stock Options. Said Sections are
incorporated by reference in this Article III as though fully set forth herein.
SECTION 3.11. CODE REQUIREMENTS. The terms of any Incentive Stock Option
granted under the Plan shall comply in all respects with the provisions of Code
Section 422. Anything in the Plan to the contrary notwithstanding, no term of
the Plan relating to Incentive Stock Options shall be interpreted, amended or
altered, nor shall any discretion or authority granted under the Plan be
exercised, so as to disqualify either the Plan or any Incentive Stock Option
under Code Section 422, unless the participant has first requested the change
that will result in such disqualification.
-6-
<PAGE>
ARTICLE IV. PERFORMANCE SHARE AWARDS
SECTION 4.1. AWARDS GRANTED BY PLAN ADMINISTRATOR. Coincident with
or following designation for participation in the Plan, a participant may be
granted Performance Shares. Certificates representing Performance Shares shall
be issued to the participant effective as of the date of the Award. Holders of
Performance Shares shall have all of the voting, dividend and other rights of
stockholders of the Company, subject to the terms of any Award Agreement.
SECTION 4.2. AMOUNT OF AWARD. The Plan Administrator shall establish
a maximum amount of a participant's Award, which amount shall be denominated in
shares of Common Stock.
SECTION 4.3. COMMUNICATION OF AWARD. Written notice of the maximum
amount of a participant's Award and the Performance Cycle determined by the Plan
Administrator, if any, shall be given to a participant as soon as practicable
after approval of the Award by the Plan Administrator. The grant of Performance
Shares shall be evidenced by a written Award Agreement, executed by the Company
and the recipient of Performance Shares, in such form as the Plan Administrator
may from time to time determine, providing for the terms of such grant.
SECTION 4.4. AMOUNT OF AWARD PAYABLE. Performance Shares may be
granted based upon past performance or future performance. In addition to any
other restrictions the Plan Administrator may place on Performance Shares, the
Plan Administrator may, in its discretion, provide that Performance Shares shall
vest upon the satisfaction of performance targets to be achieved during an
applicable "Performance Cycle." Failure to satisfy the performance targets may
result, in the Plan Administrator's discretion as set forth in an Award
Agreement, in the forfeiture of the Performance Shares by the participant and
the return of such shares to the Company, or have any other consequence as
determined by the Plan Administrator. Performance targets established by the
Plan Administrator may relate to corporate, group, unit or individual
performance and may be established in terms of market price of common stock,
cash flow or cash flow per share, reserve value or reserve value per share, net
asset value or net asset value per share, earnings, or such other measures or
standards determined by the Plan Administrator. Multiple performance targets
may be used and the components of multiple performance targets may be given the
same or different weight in determining the amount of an Award earned, and may
relate to absolute performance or relative performance measured against other
groups, units, individuals or entities. The Plan Administrator may also
establish that none, a portion or all of a participant's Award will vest
(subject to Section 4.6) for performance which falls below the performance
target applicable to such Award. Certificates representing Performance Shares
shall bear a legend restricting their transfer and requiring the forfeiture of
the shares to the Company if any performance targets or other conditions to
vesting are not met. The Plan Administrator may also require a participant to
deliver certificates representing unvested Performance Shares to the Company in
escrow until the Performance Shares vest.
SECTION 4.5. ADJUSTMENTS. At any time prior to vesting of a
Performance Share, the Plan Administrator may adjust previously established
performance targets or other terms and conditions to reflect events such as
changes in laws, regulations, or accounting practice, or mergers, acquisitions,
divestitures or any other event determined by the Plan Administrator.
-7-
<PAGE>
SECTION 4.6. PAYMENTS OF AWARDS. Following the conclusion of each
Performance Cycle, the Plan Administrator shall determine the extent to which
performance targets have been attained, and the satisfaction of any other terms
and conditions with respect to vesting an Award relating to such Performance
Cycle. Subject to the provisions of Section 6.3, to the extent the Plan
Administrator determines Performance Shares have vested, the Company shall issue
to the participant certificates representing vested shares free of any legend
regarding performance targets or forfeiture in exchange for such participant's
legended certificates.
SECTION 4.7. TERMINATION OF EMPLOYMENT. Unless the Award Agreement
provides for vesting upon death, disability, retirement or termination of
employment, upon any such termination of employment of a participant prior to
vesting of Performance Shares, all outstanding and unvested Awards of
Performance Shares to such participant shall be cancelled, shall not vest and
shall be returned to the Company.
SECTION 4.8. TRANSFER RESTRICTION. Unless otherwise provided in an
Award Agreement or otherwise agreed to by the Plan Administrator, any Award
Agreement providing for the issuance of Performance Shares to any person who, at
the time of grant, is subject to the restrictions of Section 16(b) of the
Exchange Act, shall provide that such Common Stock cannot be resold for a period
of six months following the grant of such Performance Shares.
ARTICLE V. AUTOMATIC GRANTS
SECTION 5.1. GRANT. Each director who is not an employee of the
Company, its subsidiaries, affiliates and managers shall on the date on which he
or she is initially elected or appointed a director of the Company, be granted a
Stock Option to purchase 4,000 shares of Common Stock for the fair market price
on the date of such grant, for an Option Term of ten years. Thereafter, on the
first business day following the Annual Meeting of Stockholders of each
subsequent year in which such person is still serving as a director (whether or
not such director's term has been continuous), he or she shall automatically be
granted a Stock Option to purchase an additional 4,000 shares of Common Stock
for the fair market price on the date of such grant for an Option Term of ten
years.
SECTION 5.2. APPLICABLE PROVISIONS. The provisions of Section 2.7(a)
relating to the death of a director shall apply to options granted under Section
5.1 and the Plan Administrator may not agree to the contrary in an Award
Agreement or otherwise. The provisions of Subsections 2.7(b), (c) and (d)
relating to disability and other termination of employment shall not apply to
options granted under Section 5.1, and the failure to be re-elected as a
director of the Company shall not effect the Stock Options granted under this
Section.
-8-
<PAGE>
ARTICLE VI. MISCELLANEOUS
SECTION 6.1. GENERAL RESTRICTION. Each Award under the Plan shall be
subject to the requirement that, if at any time the Plan Administrator shall
determine that (i) the listing, registration or qualification of the shares of
Common Stock subject or related thereto upon any securities exchange or under
any state or Federal law, or (ii) the consent or approval of any government
regulatory body, or (iii) an agreement by the grantee of an Award with respect
to the disposition of shares of Common Stock, is necessary or desirable as a
condition of, or in connection with, the granting of such Award or the issue or
purchase of shares of Common Stock thereunder, such Award may not be consummated
in whole or in part unless such listing, registration, qualification, consent,
approval or agreement shall have been effected or obtained free of any
conditions not acceptable to the Plan Administrator.
SECTION 6.2. NON-ASSIGNABILITY. No Award under the Plan shall be
assignable or transferable by the recipient thereof, except by will or by the
laws of descent and distribution. During the life of the recipient, such Award
shall be exercisable only by such person or by such person's guardian or legal
representative.
SECTION 6.3. WITHHOLDING TAXES. Whenever the Company proposes or is
required to issue or transfer shares of Common Stock under the Plan, the Company
shall have the right to require the grantee to remit to the Company an amount
sufficient to satisfy any Federal, state and/or local withholding tax
requirements prior to the delivery of any certificate or certificates for such
shares. Alternatively, the Company may issue, transfer or vest only such number
of shares of the Company net of the number of shares sufficient to satisfy the
withholding tax requirements. For withholding tax purposes, the shares of
Common Stock shall be valued on the date the withholding obligation is incurred.
SECTION 6.4. RIGHT TO TERMINATE EMPLOYMENT. Nothing in the Plan or
in any agreement entered into pursuant to the Plan shall confer upon any
participant the right to continue in the employment of the Company or affect any
right which the Company may have to terminate the employment of such
participant.
SECTION 6.5. NON-UNIFORM DETERMINATIONS. The Plan Administrator's
determinations under the Plan (including without limitation determinations of
the persons to receive Awards, the form, amount and timing of such Awards, the
terms and provisions of such Awards and the agreements evidencing same) need not
be uniform and may be made by it selectively among persons who receive, or are
eligible to receive, Awards under the Plan, whether or not such persons are
similarly situated.
SECTION 6.6. RIGHTS AS A STOCKHOLDER. The recipient of any Award
under the Plan shall have no rights as a stockholder with respect thereto unless
and until certificates for shares of Common Stock are issued to him.
-9-
<PAGE>
SECTION 6.7. DEFINITIONS. In this Plan the following definitions shall
apply:
(a) "Award" shall mean a grant of Stock Options, Incentive Stock
Options or Performance Shares under the Plan.
(b) "Fair market value" as of any date and in respect of any share of
Common Stock means the average of the high and low sales price on such date
or on the next business day, if such date is not a business day, of a share
of Common Stock reflected in the consolidated trading tables of The Wall
Street Journal or any other publication selected by the Plan Administrator
provided that, if shares of Common Stock shall not have been traded on the
National Association of Securities Dealers, Inc. Automated Quotation
System/National Market System or other public securities market for more
than 10 days immediately preceding such date or if deemed appropriate by
the Plan Administrator for any other reason, the fair market value of
shares of Common Stock shall be as determined by the Plan Administrator in
such other manner as it may deem appropriate. In no event shall the fair
market value of any share of Common Stock be less than its par value.
(c) "Non-Employee Director" shall mean a director who (i) is not an
officer of the Company or a parent or subsidiary of the Company, or
otherwise employed by the Company or parent or subsidiary of the Company;
(ii) does not receive compensation, either directly or indirectly, from the
Company or a parent or subsidiary of the Company, for services rendered as
a consultant or in any capacity other than as a director, except for an
amount not exceeding $60,000; (iii) does not possess an interest in any
transaction for which disclosure would be required under Item 404(a) of
Regulation S-K of the Securities Act of 1933, as amended ("Securities
Act"); or (iv) is not engaged in a business relationship for which
disclosure would be required pursuant to Item 404(b) of Regulation S-K of
the Securities Act.
(d) "Option" means a Stock Option or Incentive Stock Option.
(e) "Option price" means the purchase price per share of Common Stock
deliverable upon the exercise of a Stock Option or Incentive Stock Option.
(f) "Performance Cycle" means the period of time, if any, as specified
by the Plan Administrator over which Performance Shares are to be vested.
SECTION 6.8. LEAVES OF ABSENCE. The Plan Administrator shall be entitled
to make such rules, regulations and determinations as it deems appropriate under
the Plan in respect of any leave of absence taken by the recipient of any Award.
Without limiting the generality of the foregoing, the Plan Administrator shall
be entitled to determine (i) whether or not any such leave of absence shall
constitute a termination of employment within the meaning of the Plan and (ii)
the impact, if any, of any such leave of absence on Awards under the Plan
theretofore made to any recipient who takes such leave of absence.
-10-
<PAGE>
SECTION 6.9. NEWLY ELIGIBLE EMPLOYEES. The Plan Administrator shall be
entitled to make such rules, regulations, determinations and Awards as it deems
appropriate in respect of any employee who becomes eligible to participate in
the Plan or any portion thereof after the commencement of an Award or incentive
period.
SECTION 6.10. ADJUSTMENTS. In the event of any change in the outstanding
Common Stock by reason of a stock dividend or distribution, recapitalization,
merger, consolidation, split-up, combination, exchange of shares or the like,
the Plan Administrator may appropriately adjust the number of shares of Common
Stock which may be issued under the Plan, the number of shares of Common Stock
subject to Options or Performance Shares theretofore granted under the Plan, and
any and all other matters deemed appropriate by the Plan Administrator.
SECTION 6.11. CHANGES IN THE COMPANY'S CAPITAL STRUCTURE.
(a) The existence of outstanding Options or Performance Shares shall
not affect in any way the right or power of the Company or its stockholders
to make or authorize any or all adjustments, recapitalizations,
reorganizations or other changes in the Company's capital structure or its
business, or any merger or consolidation of the Company, or any issue of
bonds, debentures, preferred or prior preference stock ahead of or
affecting the Common Stock or the rights thereof, or the dissolution or
liquidation of the Company, or any sale or transfer of all or any part of
its assets or business, or any other corporate act or proceeding, whether
of a similar character or otherwise.
(b) If, while there are outstanding Options, the Company shall effect
a subdivision or consolidation of shares or other increase or reduction in
the number of shares of the Common Stock outstanding without receiving
compensation therefor in money, services or property, then, subject to the
provisions, if any, in the Award Agreement (a) in the event of an increase
in the number of such shares outstanding, the number of shares of Common
Stock then subject to Options hereunder shall be proportionately increased;
and (b) in the event of a decrease in the number of such shares outstanding
the number of shares then available for Option hereunder shall be
proportionately decreased.
(c) After a merger of one or more corporations into the Company, or
after a consolidation of the Company and one or more corporations in which
the Company shall be the surviving corporation, (i) each holder of an
outstanding Option shall, at no additional cost, be entitled upon exercise
of such Option to receive (subject to any required action by stockholders)
in lieu of the number of shares as to which such Option shall then be so
exercisable, the number and class of shares of stock, other securities or
consideration to which such holder would have been entitled to receive
pursuant to the terms of the agreement of merger or consolidation if,
immediately prior to such merger or consolidation, such holder had been the
holder of record of a number of shares of the Company equal to the number
of shares as to which such Option had been exercisable and (ii) unless
otherwise provided by the Plan Administrator, the number of shares of
Common Stock, other securities or consideration to be received with respect
to unvested Performance Shares shall continue to be subject to the Award
Agreement, including any vesting provisions thereof.
-11-
<PAGE>
(d) If the Company is about to be merged into or consolidated with
another corporation or other entity under circumstances where the Company
is not the surviving corporation, or if the Company is about to sell or
otherwise dispose of substantially all of its assets to another corporation
or other entity while unvested Performance Shares or unexercised Options
remain outstanding, then the Plan Administrator may direct that any of the
following shall occur:
(i) If the successor entity is willing to assume the
obligation to deliver shares of stock or other securities after the
effective date of the merger, consolidation or sale of assets, as the
case may be, each holder of an outstanding Option shall be entitled to
receive, upon the exercise of such Option and payment of the option
price, in lieu of shares of Common Stock, such shares of stock or
other securities as the holder of such Option would have been entitled
to receive had such Option been exercised immediately prior to the
consummation of such merger, consolidation or sale, and the terms of
such Option shall apply as nearly as practicable to the shares of
stock or other securities purchasable upon exercise of the Option
following such merger, consolidation or sale of assets;
(ii) The Plan Administrator may waive any limitations set
forth in or imposed pursuant to this Plan or any Award Agreement with
respect to such Option or Performance Share such that (A) such Option
shall become exercisable prior to the record or effective date of such
merger, consolidation or sale of assets or (B) the vesting of such
Performance Share shall occur upon such merger, consolidation or sale
of assets; and/or
(iii) The Plan Administrator may cancel all outstanding
Options as of the effective date of any such merger, consolidation or
sale of assets provided that prior notice of such cancellation shall
be given to each holder of an Option at least 30 days prior to the
effective date of such merger, consolidation or sale of assets, and
each holder of an Option shall have the right to exercise such Option
in full during a period of not less than 30 days prior to the
effective date of such merger, consolidation or sale of assets.
(e) Except as herein provided, the issuance by the Company of Common
Stock or any other shares of capital stock or securities convertible into
shares of capital stock, for cash, property, labor done or other
consideration, shall not affect, and no adjustment by reason thereof shall
be made with respect to, the number or price of shares of Common Stock then
subject to outstanding Options.
SECTION 6.12. AMENDMENT OF THE PLAN. The Board of Directors may, without
further approval by the stockholders and without receiving further consideration
from the participants, amend this Plan or condition or modify Awards under this
Plan, including increases to the number of shares which may be covered by Awards
under this Plan.
-12-
<PAGE>
PROXY
BELLWETHER EXPLORATION COMPANY
1331 LAMAR, SUITE 1455, HOUSTON, TEXAS 77010-3039
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF THE COMPANY FOR THE
ANNUAL MEETING ON NOVEMBER 15, 1996.
The undersigned hereby constitutes and appoints J. Darby Sere and Roland E.
Sledge and each of them, his true and lawful agents and proxies with full power
of substitution in each, to represent and to vote, as designated below, all of
the shares of common stock of Bellwether Exploration Company held of record by
the undersigned on October 4, 1996, at the Annual Meeting of Stockholders to be
held at the Houston Center Club, 1100 Caroline Street, Houston, Texas on
Friday, November 15, 1996, and at any adjournments thereof, on all matters
coming before said meeting. IF NO DIRECTION AS TO THE MANNER OF VOTING THE
PROXY IS MADE, THE PROXY WILL BE VOTED FOR THE ELECTION OF DIRECTORS AND FOR
ITEMS 2 AND 3 AS INDICATED ON THE REVERSE SIDE HEREOF.
Please check the box if you plan to attend the annual meeting on November
15, 1996. Proper identification will be required. [_]
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED
HEREIN. IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED FOR THE ELECTION OF
DIRECTORS AND FOR PROPOSALS 2 AND 3.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE ELECTION OF DIRECTORS AND FOR
PROPOSALS 2 AND 3.
YOU ARE ENCOURAGED TO SPECIFY YOUR CHOICES BY MARKING THE APPROPRIATE BOXES
(SEE REVERSE SIDE) BUT YOU NEED NOT MARK ANY BOXES IF YOU WISH TO VOTE IN
ACCORDANCE WITH THE BOARD OF DIRECTORS' RECOMMENDATIONS. THE PROXIES CANNOT
VOTE YOUR SHARES UNLESS YOU SIGN AND RETURN THIS CARD.
PLEASE MARK, SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY IN THE STAMPED,
PRE-ADDRESSED ENVELOPE ENCLOSED.
(TO BE SIGNED ON REVERSE SIDE)
X PLEASE MARK YOUR
VOTES AS IN THIS
EXAMPLE.
FOR WITHHELD NOMINEES: J. P. Bryan J. Darby Sere
1. Election of / / / / C. Barton Groves
Directors Dr. Jack Birks
Vincent H. Buckley
Habib Kairouz A. K. McLanahan
To withhold authority to vote for any Michael D. Watford
specific nominee(s), mark the "FOR" box
and write the name of each such nominee
on the line provided below
- - ----------------------------------------
FOR AGAINST ABSTAIN
2. To approve the adoption of the 1996 / / / / / /
Stock Incentive Plan
3. To ratify the appointment of Deloitte & / / / / / /
Touche LLP as independent public
accountants
4. In their discretion, the Proxies are
authorized to vote upon such other
business as may properly come before the
meeting or any adjournments thereof.
.
SIGNATURE(S) ____________________________________________________________ DATE
NOTE: Please sign exactly as name appears hereon. Joint owners should each
sign. When signing as attorney, executor, administrator, trustee or
guardian, please indicate your full title as such.
