SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (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 ss.240.14a-11(c) or ss.240.14a-12
SOUTH TEXAS DRILLING & EXPLORATION, INC.
________________________________________________________________________________
(Name of Registrant as Specified In Its Charter)
Not Applicable
________________________________________________________________________________
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
|X| No Fee Required
|_| Fee computed on table below per Exchange Act Rules 14a-6(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 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 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:
--------------------------------------------------------------------
<PAGE>
SOUTH TEXAS DRILLING & EXPLORATION, INC.
9310 Broadway, Bldg. I
San Antonio, Texas 78217
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD AUGUST 30, 2000
To the Holders of $0.10 par value Common Stock (the "Common Stock") and
Series A 8% Cumulative Convertible Preferred Stock and Series B 8% Cumulative
Convertible Preferred Stock of South Texas Drilling & Exploration, Inc.:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Shareholders of South
Texas Drilling & Exploration, Inc., a Texas corporation (the "Company"), will be
held at the Petroleum Club of San Antonio, 7th Floor Energy Plaza, 8620 N. New
Braunfels Street, San Antonio, Texas, on August 30, 2000, at 10:00 a.m. (CDT)
for the following purposes:
(1) To elect five directors to serve until their successors are duly elected
and qualified.
(2) To consider and vote upon a proposal to amend the Company's Articles of
Incorporation to increase the number of authorized shares of Common Stock
from 15,000,000 to 30,000,000.
(3) To approve the adoption of the 1999 South Texas Drilling & Exploration,
Inc. Stock Plan (the "1999 Stock Plan").
(4) To approve the selection of KPMG Peat Marwick as auditors of the Company
for the fiscal year ending March 31, 200l.
(5) To transact such other business as may properly come before the meeting or
any adjournment thereof.
To assist you in evaluating the matters to be acted upon at the meeting,
the Board of Directors of the Company has prepared the accompanying Proxy
Statement, which contains detailed information about these proposals.
In accordance with the Bylaws of the Company and a resolution of the Board
of Directors, the record date for the meeting has been fixed at July 14, 2000.
Only Shareholders of record at the close of business on that date will be
entitled to vote at the meeting or any adjournment thereof.
A complete list of Shareholders entitled to vote at the meeting will be on
file at the Company's corporate office at 9310 Broadway, Bldg. I, San Antonio,
Texas, for a period of ten days prior to the meeting. During such time, the list
will be open to the examination of any Shareholder during ordinary business
hours for any purpose germane to the meeting.
<PAGE>
To ensure your representation at the meeting, whether or not you
personally attend, please complete, date, sign and return the accompanying proxy
at your earliest convenience. No postage is required if the proxy is mailed in
the United States. You may revoke your proxy as provided in the accompanying
Proxy Statement at any time before it is voted.
SOUTH TEXAS DRILLING & EXPLORATION, INC.
/s/ Chris F. Parma
-----------------------------------
Chris F. Parma
Corporate Secretary
Dated: July 31, 2000
<PAGE>
South Texas Drilling & Exploration, Inc.
9310 Broadway, Bldg. I
San Antonio, Texas 78217
PROXY STATEMENT
General
This Proxy Statement and the accompanying Notice of Annual Meeting of
Shareholders and proxy card are being furnished to the Shareholders of South
Texas Drilling & Exploration, Inc. (the "Company") who hold the Company's Common
Stock, par value of $.10 a share (the "Common Stock") and the holders of Series
A 8% Cumulative Convertible Preferred Stock (the "Series A Stock") and Series B
8% Cumulative Convertible Preferred Stock (the "Series B Stock"), in connection
with the solicitation of proxies by the Board of Directors of the Company for
use at the Annual Meeting of Shareholders of the Company, or at any adjournment
thereof, to be held at the Petroleum Club of San Antonio, 7th Floor Energy
Plaza, 8620 N. New Braunfels, San Antonio, Texas on August 30, 2000, at 10:00
a.m. (the "Meeting"). The Company's principal executive offices are located at
9310 Broadway, Bldg. I, San Antonio, Texas 78217, and its telephone number at
that address is (210) 828-7689. Shareholders should review the information
provided herein in conjunction with the Company's Annual Report on Form 10K for
the year ended March 31, 2000, which accompanies this Proxy Statement.
This Proxy Statement and the accompanying proxy are first being mailed to
Shareholders on or about July 31, 2000.
Information Concerning Proxy
The enclosed proxy is solicited on behalf of the Company"s Board of
Directors. The giving of a proxy does not preclude the right to vote in person
should any shareholder giving the proxy so desire. Shareholders have an
unconditional right to revoke their proxy at any time prior the exercise
thereof, either in person at the Meeting or by filing with the Company"s
Secretary at the Company"s headquarters a written revocation or duly executed
proxy bearing a later date; however, no such revocation will be effective until
written notice of the revocation is received by the Company at or prior to the
Meeting.
The cost of preparing, assembling and mailing this Proxy Statement, the
Notice of Annual Meeting of Shareholders and the enclosed proxy will be borne by
the Company. In addition to the solicitation of proxies by mail, the Company,
through its directors, officers, employees and agents, may also solicit proxies
personally and by telephone. Only independent third party agents not otherwise
affiliated with the Company will be specifically compensated for such
solicitation activities. The Company, at this time, does not anticipate
retaining a third party proxy solicitation firm; however should the Company
determine that it is in its best interest to retain the services of such a
solicitation firm, the Company will pay for all costs and expenses of such
solicitation firm. The Company will also request persons, firms and corporations
holding shares in their names or in the names of their nominees, which are
beneficially owned by others, to send proxy materials to and
<PAGE>
obtain proxies from such beneficial owners, and will reimburse such holders for
their reasonable expenses in doing so. The Bank of New York acts as the
Company"s transfer agent and, as part of its services to the Company, may
solicit the return of voted proxies from banks, brokers, nominees and
intermediaries. The Bank of New York does not receive any set compensation for
such services, other than compensation it receives for acting as transfer agent.
All shares represented by properly executed proxies received by the
Corporate Secretary prior to the Meeting, unless previously revoked, will be
voted at the Meeting in accordance with the Shareholders' directions. In absence
of instructions, the shares represented by such proxies will be voted (i) FOR
the election of the directors named in the proxy, (ii) FOR the amendment of the
Company's Articles of Incorporation to increase the number of authorized shares
of Common Stock from 15,000,000 to 30,000,000, (iii) FOR the adoption of the
Company's 1999 Stock Plan, (iv) FOR the approval of the appointment of KPMG Peat
Marwick as the independent auditors of the Company, and (v) as the proxy holders
see fit on any other business that lawfully comes before the meeting or any
adjournment thereof.
Record Date and Voting Securities
Only holders of record of Common Stock and Series A Stock and Series B
Stock of the Company at the close of business on July 14, 2000 (the "Record
Date"), will be entitled to vote at the Meeting. There were 10,952,845 shares of
Common Stock, 400,000 shares of Series A Stock and 184,615 shares of Series B
Stock outstanding on the Record Date. Each share of Common Stock outstanding as
of the Record Date is entitled to one vote for each matter to be voted upon at
the Meeting. Shares of Series A Stock and Series B Stock outstanding as of the
Record Date are entitled to 2 and 5 votes per share, respectively. A majority of
the Company"s capital stock outstanding and entitled to vote will constitute a
quorum at the meeting. Abstentions and shares held by brokers that are present,
but not voted because the brokers were prohibited from exercising discretionary
authority will be counted as present for purposes of determining the presence or
absence of a quorum.
ELECTION OF DIRECTORS
All of the current four directors have been nominated by the Board of
Directors for reelection to serve until their successors are duly elected and
qualified. In addition, the Board of Directors have nominated Mr. William H.
White, who is the nominee of WEDGE Energy Services, L.L.C. ("WEDGE"). Incident
to its sale of common stock to WEDGE, the Company agreed to support and cause to
be placed on the ballot at each election of directors of the Company one (1)
person designated by WEDGE who shall also serve on the Audit and Compensation
Committees of the Board of Directors which will be established upon the election
of Mr. White. Messrs. Mike Little and Stacy Locke (Chairman and President of the
Company, respectively) have executed a Voting Agreement requiring them to vote
their shares in the Company in favor of the WEDGE nominee for director. The
current directors, all of whom have been nominated for reelection, are Michael
E. Little, Wm. Stacy Locke, William D. Hibbetts, and Richard Phillips. The Board
of Directors recommends a vote FOR such nominees.
-2-
<PAGE>
The proxies named in the accompanying proxy, who have been designated by
the Board of Directors, intend to vote for the above mentioned nominees for
election as directors, unless otherwise specified. Such nominees have indicated
a willingness to serve as directors, but should any of them decline or be unable
to serve, the persons named as proxies may vote for another person in the place
of such nominee according to their best judgment and in the interest of the
Company.
The following information is furnished with respect to each of the
nominees. Such information includes all positions with the Company and principal
occupations during at least the last five years.
Nominees for Election
MICHAEL E. LITTLE, 45, Chairman of the Board and Chief Executive Officer
since November 1998. From March 1982, to October 1998, Mr. Little served as
President, Chief Executive Officer and a director of Dawson Production Services,
Inc., and Chairman of the Board since 1983. From 1980 to 1982, he was Vice
President of Cambern Engineering, Inc., a company that provided drilling and
completion consulting services in the Texas Gulf Coast area. From 1976 to 1980,
he was employed by Chevron USA as a drilling foreman in Midland, Texas, and as a
drilling engineer in New Orleans, Louisiana. Mr. Little received his Bachelor of
Science degree in Petroleum Engineering in 1978 from Texas Tech University. Mr.
Little is a director of Venus Exploration, Inc., an oil and gas exploration
company, and Intercontinental Bank Shares Corporation, a bank holding company.
WILLIAM D. HIBBETTS, 51, CPA, a Director since June 1984. Mr. Hibbetts was
Chief Accounting Officer of Southwest Venture Management Company. He was
Treasurer/Controller of Gary Pools, Inc. from May 1986, to July 1988. He served
as an officer of the Company from January 1, 1982, until May 1, 1986. Mr.
Hibbetts served in various positions as an accountant with KPMG Peat Marwick LLP
from June 1971, to December 1981. Mr. Hibbetts served as manager in that
accounting firm's audit group from July 1978, to December 1981.
RICHARD PHILLIPS, 69, a Director since June 1997. From 1981 he has served
as President of San Patricio Corporation in Corpus Christi, Texas, an oil and
gas operator and three-rig drilling contractor which sold its drilling related
assets to the Company in 1997. Mr. Phillips was engaged in petroleum engineering
consulting from 1979 until 1981 when he founded San Patricio Corporation.
WM. STACY LOCKE, 44, a Director since May 1995. Mr. Locke is President and
Chief Operating Officer since November 1998. He was President and Chief
Executive Officer from May 1995, to November 1998. He was Vice President-
Investment Banking with Arneson, Kercheville, Ehrenberg & Associates, Inc. from
January 1, 1993, to April 30, 1995. From 1988-1992, Mr. Locke was Vice
President-Investment Banking with Chemical Banking Corporation, Texas Commerce
Bank. He was Senior Geologist with Huffco Petroleum Corporation from 1982-1986.
From 1979 to 1982, Mr. Locke worked for Tesoro Petroleum Corporation and Valero
Energy as a Geologist.
-3-
<PAGE>
WILLIAM H. WHITE, 46, has been the President and Chief Executive Officer
of WEDGE Group Incorporated since April 1997. WEDGE Group Incorporated is a
diversified firm with subsidiaries in engineering and construction, hotel, oil
and gas services and real estate businesses. From December 1995, to June 1998,
Mr. White served as the Chairman of the Democratic Party of Texas. Mr. White
served as Deputy Secretary and Chief Operating Officer of the United States
Department of Energy from 1993 to 1995. Prior to his service with the Department
of Energy, Mr. White practiced law and served on the management committee of the
law firm of Susman Godfrey L.L.P. and taught law at the University of Texas at
Austin. Mr. White is the founder and Chairman of the Board of Frontera
Resources, an international energy company with projects in emerging markets,
and chairman of Howe-Baker International, one of the largest engineering and
construction firms for hydrocarbon processing. Mr. White is also a director of
USEC Inc., a global energy company which produces and sells uranium fuel
enrichment services for nuclear power plants.
Meetings and Committees of the Board of Directors
The Board of Directors held three (3) meetings in fiscal 2000, and all
incumbent directors attended at least 75 percent of the meetings of the Board of
Directors while they were directors. The Board of Directors does not have an
audit, general compensation or nominating committee of the Board of Directors or
committees performing similar functions. The Company has a 1995 and 1999 Plan
Administration Committee which administers the Company"s 1995 Stock Plan and the
1999 Stock Plan to be presented to the Shareholders for their approval at the
Annual Meeting. The 1995 and 1999 Plan Administration Committee consists of the
Company's two non-employee directors, Messrs. Hibbetts and Phillips. All
directors are reimbursed for reasonable out of pocket expenses associated with
travel to meetings. In addition, outside Directors of the Company receive $1,000
each quarter for their service on the Board and $250 for each meeting attended.
AMEND ARTICLES OF INCORPORATION
TO INCREASE AUTHORIZED COMMON STOCK
The Board of Directors has approved and recommends to the Shareholders the
adoption of an amendment to the Company's Articles of Incorporation which will
recapitalize the Company by increasing the number of authorized shares of its
Common Stock from 15,000,000 to 30,000,000. Specifically, Article Four of the
Company's Articles of Incorporation is proposed to be amended by changing the
number of authorized shares of Common Stock from 15,000,000 to 30,000,000. There
are currently 10,952,845 shares outstanding, or 14,431,920 shares, assuming the
exercise of all outstanding options and warrants. The holders of the Common
Stock of the Company do not have preemptive rights (See "Change In Control",
below for description of contractual preemptive rights of WEDGE) or rights of
cumulative voting. The recapitalization will occur automatically upon the filing
of the amendment with the Secretary of State's office of the State of Texas.
The Board of Directors believes the recapitalization will facilitate the
Company's raising of additional capital needed for the future expansion of the
Company's operations. Further, the Board of Directors believes that the
recapitalization will provide the Company with enhanced opportunities for
mergers and acquisitions. Accordingly, the Board of Directors recommends that
you vote FOR
-4-
<PAGE>
the recapitalization. Although the Company intends to seek additional capital
during this fiscal year by the issuance of additional Common Stock or other
securities, including rights to convert into or purchase Common Stock, no such
transaction is pending. Future issuances of Common Stock could result in
dilution to existing shareholders. No further authorization is required before
the issuance of any such shares.
In addition to the corporate purposes described above, an increase in the
number of authorized shares of Common Stock could be used to make difficult a
change in control of the Company. Under certain circumstances, the Board of
Directors could create impediments to, or frustrate persons seeking to effect, a
takeover or transfer of control of the Company by causing such shares to be
issued to a holder or holders who might side with the Board of Directors in
opposing a takeover bid that the Board of Directors determines is not in the
best interest of the Company and its shareholders. Furthermore, the existence of
such additional authorized shares of Common Stock might have the effect of
discouraging any attempt by a person or entity, through the acquisition of a
substantial number of shares of Common Stock, to acquire control of the Company
since the issuance of such additional shares could dilute the Common Stock
ownership of such person or entity. The Company is not aware of any such action
that may be proposed or pending.
ADOPTION OF THE 1999 STOCK PLAN
On December, 13, 1999, the Board of Directors of the Company adopted the
1999 Stock Plan, subject to the approval of the Shareholders of the Company.
Also on such date Mr. Little was granted an incentive stock option under the
1999 Plan covering 650,000 shares of Common Stock, exercisable at $.75 per
share, then constituting all of the Common Stock included in the 1999 Plan.
Incident to such grant Mr. Little agreed to the cancellation of an Incentive
Stock Option under the Company"s 1995 Stock Plan covering 650,000 shares of
Common Stock, also exercisable at $.75 per share. On July 14, the Board of
Directors increased the number of shares of Common Stock under the 1999 Plan
from 650,000 to 1,500,000, subject to the approval of the Shareholders of the
Company. No grants have been made under the 1999 Stock Plan except the grant to
Mr. Little. As of July 13, 2000, the approximate market value for a share of
Common Stock of the Company was $2.50.
Under the 1999 Stock Plan (a) officers of the Company (including any
subsidiary) and others qualifying as employees under applicable law and
regulations may be awarded Incentive Stock Options ("ISO" or "ISOs"), as defined
in Section 422A(b) of the Internal Revenue Code of 1986 (the "Code"); (b)
directors, officers, employees and consultants of the Company or any other
person or entity, as determined by the applicable Administrator (as defined
below) to be in the best interests of the Company, may be granted (i) options
which do not qualify as ISOs ("Non-Qualified Option" or "Non-Qualified
Options"), and (ii) awards of stock in the Company ("Awards"); and (c) outside
directors may receive options to purchase 5,000 shares of Common Stock on each
June 15 while they are non-employee directors of the Company, exercisable at a
purchase price per share equal to the market price of Common Stock on the date
of grant ("Outside Directors' Options"). Non-employee directors who become
directors after the approval of the Plan will receive Outside Directors' Options
covering 10,000 shares on the first June 15 after becoming non-employee
-5-
<PAGE>
directors and Outside Directors' Options covering 5,000 shares on each June 15
thereafter. ISOs, Outside Directors' Options, and Non-Qualified Options are
collectively referred to as "Stock Rights." Recipients of such Stock Rights are
hereafter referred to individually as an "Optionee" and collectively as
"Optionees." ISOs and Non-Qualified Options are sometimes collectively referred
to as "Options." Anything in the 1999 Stock Plan to the contrary
notwithstanding, Stock Rights shall not be granted or awarded to any
administrator or administrators if such grant, award or purchase would cause
such administrator or administrators not to satisfy the "disinterested person"
requirements of Rule 16b-3, or any successor or amended rule ("Rule 16b-3"),
promulgated by the Securities and Exchange Commission under the Securities
Exchange Act of 1934, as amended (the "1934 Act").
The Company believes that grants under the 1999 Stock Plan will be
granted primarily to those persons who possess a capacity to contribute
significantly to the successful performance of the Company. Because persons to
whom grants may be made are to be determined from time to time by the
Administrator in its discretion, it is not possible at this time reasonable to
indicate the number, names or positions of persons who will hereafter receive
grants or the nature or terms of such grants. The Company had 215 full time
employees at May 8, 2000, of whom 184 were paid on an hourly basis and were
engaged in operating the Company's drilling rigs or in other operations.
The complete text of the 1999 Stock Plan is attached hereto as Exhibit
"A". The following discussion summarizes certain aspects and consequences of the
1999 Stock Plan. However, this summary is not intended to be complete and is
qualified in its entirety by reference to the 1999 Stock Plan.
1. Administration. The 1999 Plan is to be administered (i) to the extent
required by Rule 16b-3, by an administrator or administrators in compliance with
Rule 16b-3, and (ii) in all other cases, by such administrator or administrators
as the Board of Directors (the "Board") may designate (collectively, the
"Administrators"). Essentially, the current Rule 16b-3 requires that awards or
grants of Stock Rights to officers and directors be administered by the Board or
by a committee of the Board consisting of at least two directors, each of whom
must be a "disinterested person." A director is a disinterested person if he has
not, for the year prior to his service as an Administrator, been granted or
awarded Common Stock pursuant to the 1999 Stock Plan or any other plan of the
Company or any of its affiliates other than Outside Directors' Options.
Subject to the terms of the 1999 Stock Plan, the applicable
Administrator has the authority to determine the persons to whom Stock Rights
shall be granted, the number of shares covered by each such grant, the exercise
or purchase price per share, the time or times at which Stock Rights shall be
granted, whether each Option granted shall be an ISO or a Non-Qualified Option,
whether restrictions such as repurchase options are to be imposed on shares
subject to Stock Rights and the nature of such restrictions, if any. The
interpretation or construction by such applicable Administrator of the 1999
Stock Plan or with respect to any Stock Rights granted thereunder shall, unless
otherwise determined by the Board, be final.
-6-
<PAGE>
2. Shares Subject to the 1999 Stock Plan. The 1999 Stock Plan authorizes
the issuance of up to 1,500,000 shares of Common Stock pursuant to the exercise
of a Stock Right. The number of shares authorized for the grant of Stock Rights
under the 1999 Stock Plan shall be subject to further adjustment as described
below under "Adjustments; Changes in Stock; Recapitalization and
Reorganization". Pursuant to the terms of the 1999 Stock Plan, shares subject to
Options which for any reason expire or are terminated unexercised and shares
which are reacquired by the Company after issuance under the 1999 Stock Plan may
again be available for grant or purchase under the 1999 Plan to the extent
permitted by Rule 16b-3. As of December 13, 1999, an ISO covering 650,000 shares
was granted under the 1999 Stock Plan to the Company's Chairman of the Board and
Chief Executive Officer, Mr. Little, at an exercise price of $.75 per share. In
the event the 1999 Stock Plan is not approved by the Shareholders, Mr. Little"s
option will remain in effect on the same terms except that such options will not
be ISOs (see "Certain Relationships and Related Transactions"). As a result,
850,000 shares remain available for issuance under the 1999 Stock Plan.
3. Eligible Employees and Others. Subject to the above mentioned
limitations, ISOs under the 1999 Stock Plan may be granted only to persons who
are employees of the Company under the law and regulations applicable to ISOs.
In no event may the aggregate fair market value (determined on the date of the
grant of an ISO) of Common Stock for which ISOs granted to any employee under
the 1999 Stock Plan are exercisable for the first time by such employee during
any calendar year (under all stock option plans of the Company) exceed
$100,000.00. Otherwise, there is no restriction as to the maximum or minimum
amount of Options an employee may receive. Non-Qualified Options, SARs and Units
may be granted to any director, officer, employee or consultant of the Company,
or any other person or entity, as determined by the applicable Administrator to
be in the best interests of the Company.
4. Granting of Stock Rights. Stock Rights may be granted under the 1999
Stock Plan at any time on or after December 13, 1999, even if prior to the date
of Shareholder approval of the 1999 Stock Plan.
5. Terms and Conditions of ISOs. ISOs shall be subject to the following
terms except that each of the following provisions (a) through (e) is effective
only to the extent that its inclusion in the 1999 Stock Plan is necessary for
Options issued as ISOs thereunder to qualify as ISOs pursuant to the Code and
the regulations issued thereunder.
(a) ISO Grants. No ISO may be granted under the 1999 Stock Plan
after ten (10) years of the date the 1999 Stock Plan was approved by the Board.
(b) ISO Price. The exercise price per share of ISOs granted under
the 1999 Stock Plan cannot be less than the fair market value of the Common
Stock on the date of grant, or in the case of ISOs granted to employees holding
more than ten percent (10%) of the total combined voting power of all classes of
stock of the Company, one hundred ten percent (110%) of the fair market value of
the Common Stock on the date of grant.
-7-
<PAGE>
(c) Duration of ISOs. Subject to earlier termination as provided in
the 1999 Stock Plan, each ISO shall expire on the date specified by the
applicable Administrator, but not more than (i) ten years from the date of grant
in the case of ISOs generally, and (ii) five years from the date of grant in the
case of ISOs granted to an employee owning stock possessing more than ten
percent (10%) of the total combined voting power of all classes of stock of the
Company. Subject to the foregoing provisions, the term of each ISO shall be the
term set forth in the original instrument granting such ISO, except with respect
to any part of such ISO that is converted into a Non-Qualified Option by the
applicable Administrator with the consent of the holder of the ISO.
(d) Effect of Termination of Employment on ISO. If an ISO Optionee
ceases to be employed by the Company other than by reason of death or
disability, any ISO granted to such Optionee within the six-month period
immediately preceding such termination shall be cancelled forthwith. With
respect to any ISOs granted to such Optionee more than six months prior to such
termination, no further installments of such ISOs shall become exercisable and
his ISOs shall terminate after the passage of 90 days from the date of
termination of his employment, but in no event, later than on their specified
expiration dates, except to the extent that such ISOs (or unexercised
installments thereof) have been converted into Non-Qualified Options. Leave of
absence with the written approval of the applicable Administrator shall not be
considered an interruption of employment under the 1999 Stock Plan. Employment
shall also be considered as continuing uninterrupted during any other bona fide
leave of absence (such as those attributable to illness, military obligations or
governmental service) provided that the period of such leave does not exceed 90
days or, if longer, any period during which such Optionee's right to
reemployment is guaranteed by statute. ISOs granted under the 1999 Stock Plan
shall not be affected by any change of employment within the Company, so long as
the Optionee continues to be an employee of the Company.
(e) Effect of Death or Disability on ISOs. If an Optionee ceases to
be employed by the Company by reason of his death, any ISO of his may be
exercised, to the extent of the number of shares with respect to which he could
have exercised it on the date of his death, by his estate, personal
representative or beneficiary who has acquired the ISO by will or by the laws of
descent and distribution, at any time prior to the earlier of the date specified
in the ISO agreement, the ISO's specified expiration date or one year of the
death of the Optionee.
If an Optionee ceases to be employed by the Company by reason
of his disability, he shall have the right to exercise any ISO held by him on
the date of termination of employment, to the extent of the number of shares
with respect to which he could have exercised it on that date, at any time prior
to the earlier of the date specified in the ISO agreement, the ISO's specified
expiration date or one year from the date of the termination of the Optionee's
employment. For the purposes of the 1999 Stock Plan, the term "disability" shall
mean "permanent and total disability" as defined in Section 22(e)(3) of the Code
or successor statute.
6. Non-Qualified Options. Non-Qualified Options shall have such terms and
conditions as the applicable Administrator may determine, except with respect to
the following:
-8-
<PAGE>
(a) Minimum Option Price. The exercise price per share of a
Non-Qualified Option granted under the 1999 Stock Plan shall not be less than
the fair market value of the Common Stock on the date of the grant.
(b) Duration of Non-Qualified Options. Subject to earlier
termination as provided in the 1999 Stock Plan, each Non-Qualified Option shall
expire on the date specified by the applicable Administrator, but not more than
ten (10) years from the date of grant.
(c) Vesting. Subject to any shorter or longer vesting provisions and
any termination provisions under the 1999 Stock Plan, Non-Qualified Options
shall vest and become exercisable at the rate of 20% per year commencing the
first year after the date of the grant of a Non-Qualified Option.
7. Outside Directors' Options. Under the 1999 Stock Plan, each outside
director may receive an Outside Director's Option to purchase 10,000 shares of
Common Stock, subject to the approval of the 1999 Stock Plan, and on each June
15 of each calendar year, each outside director then serving shall receive an
option to purchase 5,000 shares of Common Stock. Future outside directors may
also receive Outside Directors' Options for 10,000 shares on the initial June
15th of their tenure and for 5,000 shares on each June 15 thereafter. The
exercise price per share of the Outside Directors' Options shall not be less
than the fair market value per share of the Common Stock on the date of such
grant. Each Outside Director's Option shall expire five (5) years from the date
of its grant; otherwise, the Outside Director's Option shall not be subject to
forfeiture or termination. A director may exercise an Outside Director's Option,
if exercisable, by providing written notice to the Company; however, an Outside
Director may not dispose of any shares acquired as a result of the exercise of
an Outside Director's Option until six (6) months after the date of its grant.
Upon the termination of the 1999 Stock Plan or the unavailability of shares of
Common Stock for issuance under the 1999 Stock Plan, no additional Outside
Directors' Options shall be granted.
8. Written Agreements. Stock Rights shall be evidenced by instruments
(which need not be identical) in such forms as the applicable Administrator may
from time to time approve. Such instruments shall conform to such terms,
conditions and provisions as are applicable under the 1999 Stock Plan and may
contain such other terms and conditions and provisions as the applicable
Administrator deems advisable which are not inconsistent with the 1999 Stock
Plan, including restrictions applicable to shares of Common Stock issuable upon
exercise of Stock Rights. A Stock Right may provide for acceleration of exercise
in the event of a change in control of the Company, in the discretion of and as
defined by the applicable Administrator.
9. Exercise of Stock Rights. A Stock Right (or any part or installment
thereof) shall be exercised as specified in the written instrument granting such
Stock Right, which instrument may specify any legal method of exercise. The
holder of a Stock Right exercisable for shares shall not have the rights of a
Shareholder with respect to the shares covered by his Stock Right until the date
of issuance of a stock certificate to him for such shares. Except as expressly
provided in the 1999 Stock Plan with respect to changes in capitalization and
stock dividends, no adjustment shall be
-9-
<PAGE>
made for dividends or similar rights for which the record date is before the
date such stock certificate is issued.
By allowing payment of the exercise price by delivering shares of
the Company if authorized by the Administrator, the 1999 Stock Plan permits the
"pyramiding" of shares. Pyramiding occurs when the Optionee holder in a series
of successive transactions uses the shares received upon the prior exercise of
an Option to purchase additional shares under further outstanding Options. A
participant can thereby substantially increase his equity ownership in the
Company without a significant capital contribution. For example, assume that the
Optionee has outstanding Options to purchase 100 shares of the Company's Common
Stock at an exercise price of $10 per share and that the Common Stock is
currently selling at $20 per share. One share could be submitted for the receipt
of two shares, which in turn could be immediately resubmitted for the receipt of
four shares. These successive exchanges could theoretically continue until all
available Options were exercised. The result, under this example, would be that
an Optionee would obtain the value of the spread between the stock's Option
exercise price and its market value of $1,000 without any cash contribution and
with an investment equivalent only to the value of one share.
While pyramiding offers significant advantages to an Optionee, the
use of the stock payment method, including pyramiding, is subject to certain
restrictions. Under the Code, the use of the stock payment method will result in
unfavorable tax treatment to the Optionee where the exchanged shares were
acquired under ISOs or certain other tax advantaged plans and the applicable
period for disqualifying dispositions has not expired. In addition, under
accounting principles, a charge against the Company's income may be necessary
for Options exercised by the use of pyramiding.
10. Adjustments; Changes in Stock; Recapitalization and Reorganization.
Upon the happening of any of the following events, an Optionee's rights with
respect to Options granted to him and the recipient's rights with respect to
Common Stock to be acquired pursuant to an Award, shall be adjusted as provided
below, unless otherwise specifically provided, in addition or to the contrary,
in the written agreement between the recipient and the Company relating to such
Stock Right.
In the event shares of Common Stock of the Company shall be
subdivided or combined into a greater or smaller number of shares if, upon a
merger, consolidation, reorganization, split-up, liquidation, combination,
recapitalization or the like of the Company, the shares of the Company's Common
Stock shall be exchanged for other securities of the Company or of another
corporation, each holder of Options shall be entitled to purchase such number of
shares of Common Stock or amount of other securities of the Company or such
other corporation as were exchangeable for the number of shares of Common Stock
of the Company which such Optionee would have been entitled to purchase except
for such action, and appropriate adjustments shall be made in the purchase price
per share to reflect such subdivision, combination, or exchange. If any person
holding restricted Common Stock obtained by the exercise of an Option or by an
Award receives new, additional or different securities in connection with any
corporate transaction described in this paragraph, such new securities shall be
subject to all of the conditions and restrictions applicable to the Common Stock
with respect to which the new securities were issued.
-10-
<PAGE>
In the event the Company shall issue any of its shares as a stock
dividend upon or with respect to the shares of stock of the class which shall at
the time be subject to Option, each Optionee upon exercising such an Option
shall be entitled to receive (for the purchase price paid upon such exercise)
the shares as to which he is exercising his Option and, in addition thereto (at
no additional cost), such number of shares of the class or classes in which such
stock dividend or dividends were declared or paid, and such amount of cash in
lieu of fractional shares, as he would have received if he had been the holder
of the shares as to which he is exercising his Option at all times between the
date of grant of such Option and the date of its exercise.
Upon the happening of any of the foregoing events, the class and
aggregate number of shares reserved for issuance under the 1999 Stock Plan shall
also be appropriately adjusted to reflect the events described above.
11. Termination and Amendment of the 1999 Stock Plan. The Board of
Directors may terminate or amend the 1999 Stock Plan in any respect or at any
time, except that (i) no amendment requiring Shareholder approval under the
provisions of the Code and related regulations relating to ISOs or under Rule
16b-3 will be effective without approval of shareholders as required and within
the times set by such rules, and (ii) no amendment may be made more than once
every six (6) months to the provisions of the 1999 Stock Plan dealing with,
related to, affecting or governing Outside Directors' Options (other than those
required to comport with changes in the Code, the Employee Retirement Income
Security Act, or the rules thereunder).
12. Federal Income Tax Consequences
A. Incentive Stock Options. The following general rules are
applicable for Federal income tax purposes under existing law to employees who
receive and exercise ISOs granted under the 1999 Stock Plan:
1. If the Optionee does not own shares possessing more than
10% of the total voting power of the shares of the Company, or if the Optionee
owns shares possessing more than 10% of the total voting power of the shares of
the Company and (i) the per share ISO exercise price is at least 110% of the
fair market value of the shares at the date of grant, and (ii) the ISO by its
terms is not exercisable after the expiration of five (5) years from the date
such ISO was granted, no taxable income results to the Optionee upon the grant
of an ISO or upon the issuance of shares to him upon exercise of the ISO.
2. No tax deduction is allowed to the Company upon either
grant or exercise of an ISO under the 1999 Stock Plan. No deduction is allowed
to the Company on account of the disposition of the shares acquired upon the
exercise of an ISO, except in the case of a disqualifying disposition described
below.
3. If shares acquired upon exercise of an ISO are not disposed
of prior to the later of (i) two years following the date the Option was
granted, or (ii) one year following the date the shares are transferred to the
Optionee pursuant to the exercise of the Option, the difference
-11-
<PAGE>
between the amount realized on any subsequent disposition of the shares and the
exercise price will be treated as long-term capital gain or loss to the
Optionee.
4. If shares acquired upon exercise of an ISO are disposed of
before the expiration of one or both of the requisite holding periods (a
"disqualifying disposition"), then in most cases the lesser of (i) any excess of
the fair market value of the shares at the time of exercise of the Option over
the exercise price, or (ii) the actual gain on disposition, will be treated as
compensation to the Optionee and will be taxed as ordinary income in the year of
such disposition.
5. In any year that an Optionee recognizes income on a
disqualifying disposition of shares acquired by exercising an ISO, the Company
will generally be entitled to a corresponding business expense deduction for
income tax purposes.
6. Any excess of the amount realized by the Optionee as the
result of a disqualifying disposition over the sum of (i) the exercise price,
and (ii) the amount of ordinary income recognized under the above rules, will be
treated as either long-term or short-term capital gain, depending upon the time
elapsed between receipt and disposition of such shares.
B. Non-Qualified Options. A Non-Qualified Option granted under the
1999 Stock Plan is taxed in accordance with Section 83 of the Code and the
regulations issued thereunder. The following general rules are applicable to
holders of such Options and to the Company for Federal income tax purposes under
existing law, based upon the assumptions that (i) the Options do not have a
readily ascertainable fair market value at the date of grant, and (ii) the
Common Stock acquired by exercising the Non-Qualified Option is either
transferable or not subject to a substantial risk of forfeiture (as defined in
regulations under Section 83 of the Code):
1. The Optionee does not realize any taxable income upon the
grant of a Non-Qualified Option, and the Company is not allowed a business
expense deduction by reason of such grant.
2. The Optionee will recognize ordinary compensation income at
the time of exercise of a Non-Qualified Option in an amount equal to the excess,
if any, of the fair market value of the shares on the date of exercise over the
exercise price. In accordance with the regulations under the Code, the Company
will require the Optionee to pay to the Company an amount sufficient to satisfy
withholding taxes in respect of such compensation income at the time of the
exercise of the Option. If the Company withholds shares to satisfy this
withholding tax obligation, instead of cash, the Optionee nonetheless will be
required to include in income the fair market value of the shares withheld.
3. When the Optionee sells the shares, he will recognize a
capital gain or loss in an amount equal to the difference between the amount
realized upon the sale of the shares and his basis in the shares (i.e., the
exercise price plus the amount taxed to the Optionee as compensation income). If
the Optionee holds the shares after exercise for longer than one year, this gain
or loss will be a long-term capital gain or loss.
-12-
<PAGE>
4. In general, the Company will be entitled to a corresponding
business expense tax deduction in the year in which compensation income is
recognized by the Optionee.
C. Special Rules for Restricted Stock. Common Stock that is subject
to restrictions on transfer and also to a substantial risk of forfeiture (as
defined in regulations under Section 83 of the Code), referred to herein as
"Restricted Stock," is subject to special tax rules. If the Common Stock
acquired on the exercise of a Non-Qualified Option is Restricted Stock, the
amount of income recognized by the Optionee generally will be determined as of
the time the restrictions lapse or the substantial risk of forfeiture no longer
exists. Officers and directors of the Company who exercise Non-Qualified Options
may receive stock treated as Restricted Stock for this purpose because of
certain securities-law rules applicable to such Optionees.
Restricted Stock acquired by exercising an ISO generally is
not subject to the rules of Section 83, but rather to the rules discussed above
under "Incentive Stock Options."
Under Section 83(b) of the Code, an election is available to
the Optionee to include in gross income, in the taxable year that Restricted
Stock is first transferred to the Optionee, the amount of any excess of the fair
market value (as determined under Section 83) of the Restricted Stock over the
amount (if any) paid for such stock. If this election is timely made, no further
tax liability will arise at the time the transfer restrictions on the Restricted
Stock lapse or the substantial risk of forfeiture no longer exists. However, if
shares of Restricted Stock for which a Section 83(b) election is in effect are
forfeited while such shares are both nontransferable and subject to a
substantial risk of forfeiture, the loss realized by the Optionee on the
forfeiture, for tax purposes, is limited to the amount paid for such shares (not
including any compensation income recognized by the Optionee at the time of
transfer) less any amount realized by the Optionee on such forfeiture.
D. Alternative Minimum Tax. In addition to the tax consequences
described above, the exercise of ISOs granted under the 1999 Stock Plan may
result in a further "minimum tax" under the Code, as follows: The Code provides
that an "alternative minimum tax" (at graduated rates up to 28%) will be applied
against a taxable base which is equal to regular taxable income, adjusted for
certain limited deductions and losses, increased by items of tax preference, and
reduced by a statutory exemption ($33,750 for single individuals, $45,000 for
joint return filers and surviving spouses and $22,500 for married persons filing
separately). The statutory exemption is phased out for certain higher income
taxpayers. The bargain element at the time of exercise of an ISO, i.e., the
amount by which the value of the Common Stock received upon exercise of the ISO
exceeds the exercise price, is included in the Optionee's alternative minimum
taxable income for purposes of the minimum tax, subject to the rules of Section
83 of the Code. Thus, if upon exercise of an ISO an Optionee receives stock
which is not Restricted Stock (as defined in Paragraph C above), the bargain
element is included in the Optionee's alternative minimum taxable income in the
year of exercise. If the Optionee receives Restricted Stock on exercise of an
ISO, the bargain element is measured and included in alternative minimum taxable
income in the year(s) that the restriction(s) on the stock lapse(s), unless the
Optionee files a Code Section 83(b) election with the Internal Revenue Service
within 30 days of the date of exercise of the ISO and thereby elects to include
the bargain element in minimum taxable income in the year of exercise. For
purposes of determining alternative
-13-
<PAGE>
minimum taxable income (but not regular taxable income) for any subsequent year
in which the taxpayer sells the stock acquired by exercise of the ISO, the basis
of such stock will be its fair market value at the time the ISO was exercised. A
taxpayer is required to pay the higher of his regular tax liability or the
alternative minimum tax. A taxpayer who pays alternative minimum tax
attributable to the exercise of an ISO may be entitled to a tax credit against
regular tax liability in later years.
E. ERISA. The 1999 Stock Plan is not an employee benefit plan which
is subject to the provisions of the Employee Retirement Income Security Act of
1974, and the provisions of Section 401(a) of the Code are not applicable to the
Plan.
13. Proposed Action. Approval of the adoption of the 1999 Stock Plan will
require the affirmative vote of a majority of the votes cast regarding the
proposal to approve the 1999 Plan. The Board of Directors recommends approval of
the 1999 Stock Plan.
1995 Stock Plan
In addition to the 1999 Plan proposed to be approved at the Meeting, the
Company has a 1995 Stock Plan which was approved by the shareholders of the
Company on August 31, 1995. The 1995 Plan contains the same provisions as the
1999 Plan proposed above. Of the 1,500,000 shares reserved under the 1995 Plan,
1,106,000 are under option and 394,000 are available for additional grants.
VOTE REQUIRED
The five nominees for director receiving the highest number of affirmative
votes of the shares voted shall be elected to the Board of Directors. The
affirmative approval of two-thirds (2/3rds) of the outstanding shares of Common
Stock and Series A Stock and Series B Stock voting together is required for the
approval of the amendments to the Company's Articles of Incorporation. The
ratification and approval of the 1999 Stock Plan requires a majority of the
votes cast. The ratification of the appointment of KPMG Peat Marwick requires a
majority of the votes cast.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company's chairman and chief executive officer, Mr. Michael E. Little,
commenced employment by the Company on November 15, 1998, under a two year
employment agreement calling for a base salary of $40,000 for the first year of
the two year term and no less than $40,000 for year two. Mr. Little was also
granted an option to purchase 100,000 shares of the Company"s common stock at a
price of $0.75 per share. This option, which was scheduled to expire April 1,
1999, was exercised in March, 1999. Mr. Little was granted another option to
purchase 650,000 shares of the Company"s common stock at a price of $0.75 per
share. This option was canceled in December 1999, and replaced by an option to
purchase 650,000 shares of the Company"s common stock at a price of $0.75 per
share under the Company"s 1999 Stock Option Plan. These options shall vest at a
rate of 20% per year for each 12-month period Mr. Little is employed by the
-14-
<PAGE>
Company. All of Mr. Little"s options would become exercisable upon a change in
control of the Company.
Mr. Locke has an employment agreement with the Company to serve as its
President and Chief Operating Officer until April 30, 2001, at an annual salary
of $95,000. If his employment is extended past April 30, 2001, Mr. Locke's
annual salary will not be less than $115,000.
-15-
<PAGE>
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's directors, executive officers, and any persons holding more than ten
percent of the Company's Common Stock to report their initial ownership of the
Company's Common Stock and any subsequent changes in that ownership to the
Securities and Exchange Commission and to provide copies of such reports to the
Company. Based upon the Company's review of copies of such reports received by
the Company and written representations of its directors and executive officers,
the Company believes that during the year ended March 31, 2000, all Section
16(a) filing requirements were satisfied.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
The following table sets forth certain information, as of June 1, 2000,
with respect to each person who is known by the Company to be the beneficial
owner of more than 5% of the outstanding shares of Common Stock, the Series A
Stock and the Series B Stock, each director of the Company, and all officers and
directors of the Company as a group. Except as otherwise indicated, each person
has sole investment and voting power with respect to the shares shown.
Number of Percentage
Title of Name and Address of Shares Ownership
Class Beneficial Owner Owned of Class(6)
------- --------------------- ----- -----------
Series A Stock T.L.L. Temple Foundation 400,000 100.0%
109 Temple Blvd., Suite 300
Lufkin, TX 75901-7321
Series B Stock T.L.L. Temple Foundation 153,915 83.4%
109 Temple Blvd., Suite 300
Lufkin, TX 75901-7321
Series B Stock Temple Interests L.P. 30,700 16.6%
109 Temple Blvd, Suite 100
Lufkin, TX 75901-7321
Common WEDGE Energy Services, L.L.C. 4,832,007 38.2%
1415 Louisiana, Suite 3000
Houston, TX 77002
-16-
<PAGE>
Number of Percentage
Title of Name and Address of Shares Ownership
Class Beneficial Owner Owned of Class(6)
------- --------------------- ----- -----------
Common Rowan Companies, Inc. 750,000 5.9%
1900 Post Oak Tower
5051 Westheimer
Houston, TX 77056
Common William D. Hibbetts 126,612(1) 1.0%
13007 Blanche Coker
San Antonio, TX 78216
Common Michael E. Little 883,882(2) 7.0%
9310 Broadway, Bldg. 1
San Antonio, TX 78217
Common Wm. Stacy Locke 1,170,480(3) 9.3%
9310 Broadway, Bldg. I
San Antonio, TX 78217
Common Richard Phillips 390,144(4) 3.1%
5701 Agnes Street
Corpus Christi, TX 78408
All officers and directors 2,658,806(5) 21.0%
as a group (6 persons)
(1) Includes options issued to Mr. Hibbetts by the Board of Directors to
purchase 10,000 shares.
(2) Includes options issued to Mr. Little by the Board of Directors to
purchase 650,000 shares.
(3) Includes options issued to Mr. Locke to purchase 800,000 shares.
(4) Includes 240,144 shares and an option issued to San Patricio Corporation,
which is wholly owned by Richard Phillips, to purchase an additional
150,000 shares.
(5) Includes options to purchase 1,695,000 shares issued to the officers and
directors by the Board of Directors.
(6) Percentage of class outstanding is calculated assuming all officers and
directors exercise all outstanding options and warrants.
-17-
<PAGE>
CHANGE IN CONTROL
On May 11, 2000, the Company sold in a private transaction 3,678,161
shares of $.10 par value common stock to WEDGE Energy Services, L.L.C., a
Delaware limited liability company ("WEDGE"). WEDGE previously purchased
1,153,846 shares from the Company on February 18, 2000, for an aggregate
purchase price of $1,500,000. The Company understands that Mr. Issam M. Fares is
the ultimate beneficial owner of all of the outstanding ownership interests of
WEDGE. WEDGE paid an aggregate $8,000,000 for the 3,678,161 shares of common
stock purchased by WEDGE on May 11. The Company understands that the $8,000,000
aggregate purchase price was obtained by WEDGE from affiliated entities or
persons. The Agreement under which the May 11 sale occurred included contractual
preemptive rights in favor of WEDGE and a right of first offer in favor of the
Company with regard to the Company's common stock held by WEDGE. The preemptive
right granted to WEDGE provides, subject to certain exceptions, that WEDGE has
the right to acquire additional capital stock of any class or series, or debt
convertible into capital stock, which the Company may issue equal to the
percentage of the Company's outstanding Common Stock (assuming the conversion of
all outstanding convertible preferred stock or debt) held by WEDGE immediately
preceding any such issuance of capital stock or debt. These preemptive rights
will terminate in the event WEDGE holds less than 10% of the outstanding Common
Stock of the Company or four years following the date the Company becomes listed
on the NASDAQ National Market List or on a nationally recognized securities
exchange.
The aggregate 4,832,007 shares owned by WEDGE, which constitute all of the
capital stock of the Company owned by WEDGE, represents 44.1 % of the Company"s
common stock outstanding; or 33.5% on a fully diluted basis assuming conversion
of all of the Company"s Convertible Preferred Stock and stock options
outstanding.
Incident to its sale of common stock to WEDGE, the Company agreed to
support and cause to be placed on the ballot at each election of directors of
the Company one (1) person designated by WEDGE who shall also serve on the Audit
and Compensation Committees of the Board which are intended to be established by
the Board of Directors upon the election of Mr. White, the nominee of Wedge for
director at the Meeting. Messrs. Mike Little and Stacy Locke (Chairman and
President of the Company, respectively) have executed a Voting Agreement
requiring them to vote their shares in the Company in favor of the WEDGE nominee
for director.
EXECUTIVES AND EXECUTIVE COMPENSATION
Executive Officers
The Company's officers are elected annually by the Board of Directors and
serve at the discretion of the Board of Directors. In addition to Mr. Michael E.
Little, Chairman of the Board and Chief Executive Officer, and Mr. Wm. Stacy
Locke, President and Chief Operating Officer, whose age, experience and
background is described above as nominees for director, the Company's executive
officers are:
-18-
<PAGE>
ERNEST E. BURNS, 71, Vice President-Drilling of the Company since
September 1999. Mr. Burns was President of Howell Drilling, Inc. from February
1988 through September 1999.
CHRIS F. PARMA, 50, CPA, Vice President and Chief Financial Officer of the
Company since December 1995, and Secretary of the Company since December 1998.
He has been employed as Controller of the Company since October 1990. He served
in various accounting positions from Staff Accountant to Controller from 1972 to
1990 with J. H. Uptmore & Associates, Inc., a real estate development company.
He served as Vice President of Uptmore from 1985 to 1990.
Executive Compensation
The following table sets forth the compensation paid or accrued by the
Company and its subsidiaries for services performed during the fiscal year ended
March 31, 2000, to the chief executive officer and to the president of the
Company. No other officer was paid total compensation of $100,000 or more.
<TABLE>
<CAPTION>
Summary Compensation Table
--------------------------
Other Annual Restricted Warrants/ LTIP All Other
Name and Salary Bonus Compensation Stock Award Options Pay-Outs Compensation
Principal Position Year $ $ $ $ SARs # $ $
------------------ ---- ------ ----- ------------ ----------- -------- -------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Wm. Stacy Locke
President 2000 94,672 -- -- -- -- -- --
President 1999 94,392 -- 993(1) -- -- -- --
CEO 1998 85,730 -- 1,231(1) 55,000(2) -- -- --
Michael E. Little
CEO 2000 40,000 -- -- -- -- -- --
CEO 1999 15,915 -- -- -- -- -- --
</TABLE>
(1) Includes value of personal use of company-provided vehicle.
(2) Includes 12,342 shares paid per employment agreement.
Since April, 1997, outside Directors of the Company receive $1,000 each quarter
for their service on the Board and $250 for each meeting attended.
The following table summarizes as to the chief executive officer of the Company,
the number and terms of stock options granted during the year ended March 31,
2000:
-19-
<PAGE>
Option/SAR Grants in Last Fiscal Year
<TABLE>
<CAPTION>
% of Total Potential
Number of Options/ Realized Value at
Securities SARs Assumed Annual Rates of
Underlying Granted to Exercise Stock Price Appreciation
Options Employees or Base for Option Term
SAR in Fiscal Price Expiration ---------------------------
Name Granted (#) Year ($/sh) Date 5%($) 10%($)
---- ----------- -------- ------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Michael E. Little 650,000 90% $0.75 12/13/2009 1,100,730 2,041,397
</TABLE>
The following table shows as to the chief executive officer of the Company
the net value realized (market value less exercise price) with respect to stock
options exercisable/unexercisable during the last year:
Aggregated Option/SAR Exercises in Last Fiscal Year and FY-End Option/SAR Values
<TABLE>
<CAPTION>
Number of
Securities Value of
Underlying Unexercised
Unexercised In-the-Money
Options/SARs Options/SARs
at FY-End (#) at FY-End ($)
Shares
Shares Acquired Value Exercisable/ Exercisable/
Name on Exercise (#) Realized($) Unexercisable Unexercisable
---- ---------------- ----------- ------------- -------------
<S> <C> <C> <C> <C>
Michael E. Little -- -- 130,000/520,000 97,500/390,000
</TABLE>
INDEPENDENT AUDITORS
Representatives of KPMG Peat Marwick, the Company's independent auditors,
are expected to be present at the Annual Meeting of Shareholders with the
opportunity to make a statement if they desire to do so and are expected to be
available to respond to appropriate questions.
SHAREHOLDER PROPOSALS FOR 200l ANNUAL MEETING
Proposals of Shareholders intended to be presented at the 2001 Annual
Meeting of Shareholders must be received in writing by the Company at its
corporate office no later than April 27, 2001. The Company's corporate office is
located at 9310 Broadway, Bldg. I, San Antonio, Texas 78217.
The cost of soliciting proxies will be borne by the Company. The Company
has not engaged any person or entity to assist in proxy solicitation. Proxies
may be solicited through the mail and through telephonic or telegraphic
communication to, or by meeting with, Shareholders or their representatives by
directors, officers and other employees of the Company who will receive no
additional compensation therefor.
-20-
<PAGE>
The Company requests persons such as brokers, nominees and fiduciaries
holding stock in their names for others, or holding stock for others who have
the right to give voting instructions, to forward proxy material to their
principals and to request authority for the execution of the proxy. The Company
reimburses such persons for their reasonable expenses.
ANY PERSON SOLICITED MAY, UPON WRITTEN REQUEST AND WITHOUT CHARGE, RECEIVE
A COPY OF THE COMPANY'S ANNUAL REPORT ON FORM 10-K, INCLUDING FINANCIAL
STATEMENTS AND FINANCIAL STATEMENT SCHEDULES, FOR THE COMPANY'S FISCAL YEAR
ENDED MARCH 31, 2000.
OTHER MATTERS
No business other than the matters set forth in this Proxy Statement is expected
to come before the Meeting, but should any other matters requiring a vote of
Shareholders arise, including a question of adjourning the Meeting, the persons
named in the accompanying proxy will vote thereon according to their best
judgment in the interest of the Company.
-21-
<PAGE>
EXHIBIT "A"
1999 STOCK PLAN
1. Purpose. This 1999 Stock Plan (the "Plan") is intended to provide
incentives (a) to the officers and employees of South Texas Drilling &
Exploration, Inc. (the "Company"), its parent (if any) and any present or future
subsidiaries of the Company (collectively, "Related Corporations"), by providing
them with opportunities to purchase stock in the Company pursuant to options
granted hereunder which qualify as "incentive stock options" under Section
422A(b) of the Internal Revenue Code of 1986 (the "Code") ("ISO" or "ISOs"); (b)
to directors, officers, employees and consultants of the Company and Related
Corporations, or any other person or entity, including persons providing regular
services to the Company or Related Corporations ("Other Person or Entity"), by
providing them with opportunities to purchase stock in the Company pursuant to
options granted hereunder which do not qualify as ISOs ("Non-Qualified Option"
or "Non-Qualified Options"); and (c) to outside directors by providing each of
them with a grant of five-year options to purchase 10,000 shares of Common Stock
upon becoming a director of the Company and thereafter by providing each of them
with annual grants of five-year options to purchase 5,000 shares of Common Stock
("Outside Directors' Options"). Anything in this Plan to the contrary
notwithstanding, Stock Rights (as defined below) shall not be granted or awarded
hereunder to any administrator or administrators if such grant, award or
purchase would cause such administrator or administrators not to satisfy the
"disinterested person" requirements of Rule 16b-3, or any successor or amended
rule ("Rule 16b-3"), promulgated by the Securities and Exchange Commission under
the Securities Exchange Act of 1934, as amended (the "1934 Act").
ISOs, Non-Qualified Options and Outside Directors' Options are referred to
hereafter individually as an "Option" and collectively as "Options." Options are
referred to hereafter as "Stock Rights." Recipients of such Stock Rights are
hereafter referred to individually as an "Optionee" and collectively as
"Optionees." As used herein, the terms "parent" and "subsidiary" mean "parent
corporation" and "subsidiary corporation" respectively, as those terms are
defined in Section 425 of the Code.
-1-
<PAGE>
2. Administration of the Plan. The Plan shall be administered (i) to the
extent required by Rule 16b-3, by an administrator or administrators in
compliance with Rule 16b-3, and (ii) in all other cases, by such administrator
or administrators as the Board of Directors (the "Board") may designate
(collectively, the "Administrators"). Subject to the terms of the Plan, the
applicable Administrator shall have the authority to (i) determine the employees
of the Company and Related Corporations (from among the class of employees
eligible under paragraph 1 to receive ISOs) to whom ISOs may be granted and to
determine (from among the class of individuals and entities eligible under
paragraph 1 to receive Non-Qualified Options) to whom Non-Qualified Options may
be granted; (ii) determine the time or times at which Options may be granted;
(iii) determine the option price of shares subject to each Option (subject to
the requirements of paragraph 4 with respect to ISOs and paragraph 5 with
respect to Non-Qualified Options); (iv) determine whether each Option granted
shall be an ISO or a Non-Qualified Option; (v) determine the time or times when
each Option shall become exercisable and the duration of the exercise period
(subject to paragraph 4 with respect to ISOs and paragraph 5 with respect to
Non-Qualified Options); (vi) determine whether restrictions such as repurchase
options are to be imposed on shares subject to Stock Rights and the nature of
such restrictions, if any; and (vii) interpret the Plan and prescribe and
rescind rules and regulations relating to it; however, neither the Board nor the
applicable Administrator shall have any authority to determine whether or when
an outside director shall receive or exercise Outside Directors' Options (or to
determine the exercise price of such Outside Directors' Options) other than to
ensure compliance with the terms of the Plan with respect to Outside Directors'
Options. With respect to persons subject to Section 16 of the 1934 Act,
transactions under the Plan are intended to comply with all applicable
conditions of Rule 16b-3. To the extent any provision of the Plan or action by
the applicable Administrator fails to so comply, it shall be deemed null and
void, to the extent permitted by law and deemed advisable by the applicable
Administrator. The interpretation and construction by the applicable
Administrator of any provisions of the Plan or of any Stock Right granted under
it shall be final unless otherwise determined by the Board. Administrators or
the Board may from time to time adopt such rules and regulations for carrying
out the Plan as they may deem best. No member of the Board, any Administrator
nor the Company shall be liable for any action or determination made in good
faith with respect to the Plan or any Stock Right granted under it.
3. Stock. The stock subject to the Stock Rights shall be authorized but
unissued shares of the Company's Common Stock, par value $.10 per share (the
"Common Stock"), or shares of Common Stock reacquired by the Company in any
manner. The aggregate number of shares of Common Stock which may be issued
pursuant to the Plan is 1,500,000 . The number of shares authorized for the
grant of Stock Rights under the Plan shall be subject to adjustment as provided
in paragraph 8. If any Option or any other Stock Right granted under the Plan
shall expire or terminate for any reason without having been exercised in full
or shall cease for any reason to be exercisable in whole or in part, or if the
Company shall reacquire any unvested shares issued pursuant to any Stock Right,
the unpurchased shares subject to such Options or Stock Rights and any unvested
shares so reacquired by the Company shall again be available for grants of Stock
Rights under the Plan to the extent permitted by Rule 16b-3.
-2-
<PAGE>
4. ISO Provisions. Any of the following provisions shall have no force or
effect if its inclusion in the Plan is not necessary for Options issued as ISOs
to qualify as ISOs pursuant to the Code and the regulations issued thereunder.
A. Grant of ISO. All ISOs shall be granted under the Plan within ten
(10) years of the date of the Plan's adoption by the Board or the date the Plan
receives the requisite shareholder approval, whichever is earlier.
B. Minimum Option Price for ISOs.
(i) The price per share specified in the agreement relating to
each ISO granted under the Plan shall not be less than the fair market value per
share of Common Stock on the date of such grant. In the case of an ISO to be
granted to an employee owning stock representing more than ten percent of the
total combined voting power of all classes of stock of the Company or any
Related Corporation, the price per share specified in the agreement relating to
such ISO shall not be less than 110 percent of the fair market value per share
of Common Stock on the date of grant.
(ii) In no event shall the aggregate fair market value
(determined at the time an ISO is granted) of Common Stock for which ISOs
granted to any employee are exercisable for the first time by such employee
during any calendar year (under all stock option plans of the Company and any
Related Corporation) exceed $100,000.
(iii) If, at the time an ISO is granted under the Plan, the
Company's Common Stock is publicly traded, "fair market value" shall be
determined as of the last business day for which the prices or quotes discussed
in this sentence are available prior to the date such Option is granted and
shall mean (a) the last reported sales price of the Common Stock on the
principal national securities exchange on which the Common Stock is traded, if
the Common Stock is then traded on a national securities exchange; or (b) the
last reported sale price (on that date) of the Common Stock on the NASDAQ
National Market List, if the Common Stock is not then traded on a national
securities exchange; or (c) the closing bid price (or the average of bid prices)
last quoted (on that date) by an established quotation service for
over-the-counter securities, if the Common Stock is not reported on the NASDAQ
National Market List. However, if the Common Stock is not publicly traded at the
time an ISO is granted under the Plan, "fair market value" shall be deemed to be
the fair market value of the Common Stock as determined by the applicable
Administrator after taking into consideration all factors which it deems
appropriate, including, without limitation, recent sale and offer prices of the
Common Stock in private transactions negotiated at arm's length.
C. Duration of ISOs. Subject to earlier termination as provided in
subparagraphs F and G hereunder, each ISO shall expire on the date specified by
the applicable Administrator, but not more than (i) ten years from the date of
grant in the case of ISOs generally, and (ii) five years from the date of grant
in the case of ISOs granted to an employee owning stock possessing more than ten
percent of the total combined voting power of all classes of stock of the
Company or any Related Corporation. Subject to the foregoing provisions and such
earlier termination as provided in said subparagraphs F and G, the term of each
ISO shall be the term set
-3-
<PAGE>
forth in the original instrument granting such ISO, except with respect to any
part of such ISO that is converted into a Non-Qualified Option pursuant to
subparagraph K below.
D. Eligible Employees. ISOs may be granted to any employee of the
Company or any Related Corporation. Those officers and directors of the Company
who are not employees may not be granted ISOs under the Plan.
E. Acceleration of Exercise of ISOs. The Administrator shall not,
without the consent of the Optionee, accelerate the exercise date of any
installment of any ISO granted to any employee (and not previously converted
into a Non-Qualified Option pursuant to subparagraph K below) if such
acceleration would violate the annual vesting limitation contained in Section
422A(d) of the Code, as described in subparagraph B(ii) hereinabove.
F. Effect of Termination of Employment on ISOs. If an ISO Optionee
ceases to be employed by the Company or any Related Corporation other than by
reason of death or disability (as such term is defined in subparagraph G
hereunder), any ISO granted to such Optionee within the six-month period
immediately preceding such termination shall be cancelled forthwith. With
respect to any ISOs granted to such Optionee more than six months prior to such
termination, no further installments of such ISOs shall become exercisable and
his ISOs shall terminate after the passage of 90 days from the date of
termination of his employment, but in no event later than on their specified
expiration dates, except to the extent that such ISOs (or unexercised
installments thereof) have been converted into Non-Qualified Options pursuant to
subparagraph K below. Leave of absence with the written approval of the
applicable Administrator shall not be considered an interruption of employment
under the Plan, provided that such written approval contractually obligates the
Company or any Related Corporation to continue the employment of the employee
after the approved period of absence. Employment shall also be considered as
continuing uninterrupted during any other bona fide leave of absence (such as
those attributable to illness, military obligations or governmental service)
provided that the period of such leave does not exceed 90 days or, if longer,
any period during which such Optionee's right to reemployment is guaranteed by
statute. ISOs granted under the Plan shall not be affected by any change of
employment within or among the Company and Related Corporations, so long as the
Optionee continues to be an employee of the Company or any Related Corporation.
G. Effect of Death or Disability on ISOs. If an Optionee ceases to
be employed by the Company or any Related Corporation by reason of his death,
any ISO of his may be exercised, to the extent of the number of shares with
respect to which he could have exercised it on the date of his death, by his
estate, personal representative or beneficiary who has acquired the ISO by will
or by the laws of descent and distribution, at any time prior to the earlier of
the date specified in the ISO agreement, the ISO's specified expiration date or
one year of the death of the Optionee.
If an Optionee ceases to be employed by the Company and all
Related Corporations by reason of his disability, he shall have the right to
exercise any ISO held by him on the date of termination of employment, to the
extent of the number of shares with respect to which he could have exercised it
on that date, at any time prior to the earlier of the date specified in the ISO
-4-
<PAGE>
agreement, the ISO's specified expiration date or one year from the date of the
termination of the Optionee's employment. For the purposes of the Plan, the term
"disability" shall mean "permanent and total disability" as defined in Section
22(e)(3) of the Code or successor statute.
H. Adjustments. Any adjustment made pursuant to paragraphs 8(A) or
(B) with respect to ISOs shall be made only after the applicable Administrator,
after consulting with counsel for the Company, determines whether such
adjustments would constitute a "modification" of such ISOs (as that term is
defined in Section 425 of the Code) or would cause any adverse tax consequences
for the holders of such ISOs. If the applicable Administrator determines that
such adjustments made with respect to ISOs would constitute a modification of
such ISOs, it may refrain from making such adjustments.
I. Notice to Company of Disqualifying Dispositions. Each employee
who receives an ISO must agree to notify the Company in writing immediately
after the employee makes a "disqualifying disposition" of any Common Stock
acquired pursuant to the exercise of an ISO. A "disqualifying disposition" is
any disposition (including any sale) of such Common Stock before the later of
(a) two years after the date the employee was granted the ISO, or (b) one year
after the date the employee acquired Common Stock by exercising the ISO. If the
employee has died before such stock is sold, these holding period requirements
do not apply and no Disqualifying Disposition can occur thereafter.
J. Other Requirements. ISOs shall be issued subject to such
additional requirements as may be imposed from time to time by the Code or the
regulations issued thereunder.
K. Conversion of ISOs into Non-Qualified Options; Termination of
ISOs. The applicable Administrator, at the written request of any Optionee, may
in its discretion take such actions as may be necessary to convert such
Optionee's ISOs (or any installments or portions of installments thereof) that
have not been exercised on the date of conversion into Non-Qualified Options at
any time prior to the expiration of such ISOs, regardless of whether the
Optionee is an employee of the Company or a Related Corporation at the time of
such conversion. Such actions may include, but not be limited to, extending the
exercise period or reducing the exercise price of the appropriate installments
of such Options. At the time of such conversion, the applicable Administrator
(with the consent of the Optionee) may impose such conditions on the exercise of
the resulting Non-Qualified Options as the applicable Administrator in its
discretion may determine, provided that such conditions shall not be
inconsistent with the provisions of paragraph 5 or any other paragraph of the
Plan. Nothing in the Plan shall be deemed to give any Optionee the right to have
such Optionee's ISOs converted into Non-Qualified Options, and no such
conversion shall occur until and unless the Administrator takes appropriate
action. The applicable Administrator, with the consent of the Optionee, may also
terminate any portion of any ISO that has not been exercised at the time of such
termination.
-5-
<PAGE>
5. Non-Qualified Options.
A. Minimum Option Price. The price per share specified in the
agreement relating to each Non-Qualified Option granted under the Plan shall not
be less than the fair market value per share of Common Stock on the date of such
grant. If, at the time a Non-Qualified Option is granted under the Plan, the
Company's Common Stock is publicly traded, "fair market value" shall be
determined as of the last business day for which the prices or quotes discussed
in this sentence are available prior to the date such Non-Qualified Option is
granted and shall mean (i) the last reported sales price of the Common Stock on
the principal national securities exchange on which the Common Stock is traded,
if the Common Stock is then traded on a national securities exchange; or (ii)
the last reported sale price (on that date) of the Common Stock on the NASDAQ
National Market List, if the Common Stock is not then traded on a national
securities exchange; or (iii) the closing bid price (or the average of bid
prices) last quoted (on that date) by an established quotation service for
over-the-counter securities, if the Common Stock is not reported on the NASDAQ
National Market List. However, if the Common Stock is not publicly traded at the
time a Non-Qualified Option is granted under the Plan, "fair market value" shall
be deemed to be the fair market value of the Common Stock as determined by the
applicable Administrator after taking into consideration all factors which it
deems appropriate, including, without limitation, recent sale and offer prices
of the Common Stock in private transactions negotiated at arm's length.
B. Duration of Non-Qualified Options. Each Non-Qualified Option
shall expire on the date specified by the applicable Administrator, but not more
than ten (10) years from the date of grant.
C. Vesting of Non-Qualified Options. Subject to any shorter or
longer vesting period and any termination provisions which the applicable
Administrator may impose, a Non-Qualified Option shall be exercisable as
follows: (i) 20% of the shares under the Non-Qualified Option shall be
exercisable one calendar year after the date of its grant, (ii) an additional
20% of the shares under the Non-Qualified Option shall be exercisable two
calendar years after the date of its grant, (iii) an additional 20% of the
shares under the Non-Qualified Option shall be exercisable three calendar years
after the date of its grant, (iv) an additional 20% of the shares under the
Non-Qualified Option shall be exercisable four calendar years after the date of
its grant, and (v) the last 20% of the shares under the Non-Qualified Option
shall be exercisable five calendar years after the date of its grant.
D. Maintain Non-ISO Status. If the applicable Administrator
determines to issue a Non-Qualified Option, it shall take whatever actions it
deems necessary, under Section 422A of the Code and the regulations promulgated
thereunder, to ensure that such Non-Qualified Option is not treated as an ISO.
-6-
<PAGE>
6. Outside Directors' Options.
A. Grant. Upon becoming a director of the Company each outside
director shall receive an option to purchase 10,000 shares of Common Stock and
on June 15 of each calendar year after the date the Plan is approved by the
shareholders of the Company, each outside director then serving may receive an
option to purchase 5,000 shares of Common Stock (individually, an "Outside
Director's Option," and collectively, "Outside Directors' Options").
B. Minimum Purchase Price. The exercise price per share of the
Outside Directors' Options shall not be less than the fair market value per
share of Common Stock on the date of such grant. If, at the time an Outside
Director's Option is granted under the Plan, the Company's Common Stock is
publicly traded, "fair market value" shall be determined as of the last business
day for which the prices or quotes discussed in this sentence are available
prior to the date such Outside Director's Option is granted and shall mean (i)
the last reported sales price of the Common Stock on the principal national
securities exchange on which the Common Stock is traded, if the Common Stock is
then traded on a national securities exchange; or (ii) the last reported sale
price (on that date) of the Common Stock on the NASDAQ National Market List, if
the Common Stock is not then traded on a national securities exchange; or (iii)
the closing bid price (or the average of bid prices) last quoted (on that date)
by an established quotation service for over-the-counter securities, if the
Common Stock is not reported on the NASDAQ National Market List. However, if the
Common Stock is not publicly traded at the time an Outside Director's Option is
granted under the Plan, "fair market value" shall be the average of the three
most recent sale and offer prices of the Common Stock in private transactions
negotiated at arm's length.
C. Duration of Outside Directors' Options. Each Outside Director's
Option shall expire five (5) years from the date of grant; otherwise, an Outside
Director's Option shall not be subject to forfeiture or termination.
D. Exercise. An outside director may exercise an Outside Director's
Option, if exercisable, by providing written notice to the Company addressed to
the Secretary of the Company at 9310 Broadway, Bldg. I, San Antonio, Texas
78217. The written notice shall specify the number of options being exercised,
and by paying the full exercise price. The written notice shall also include
such written representations, warranties and covenants as may be required by the
Company, Company counsel or the applicable Administrator.
E. Maintain Non-ISO Status. The applicable Administrator shall take
whatever actions it deems necessary, under Section 422A of the Code and the
regulations promulgated thereunder, to ensure that any such Outside Director's
Option is not treated as an ISO.
F. Holding Period and Termination. An outside director may not
dispose of any shares acquired as a result of the exercise of an Outside
Director's Option until six months after the date of the "grant" of the Outside
Director's Option, as determined in accordance with Rule 16(b)-3. Upon the
termination of the Plan or the unavailability of shares of Common Stock for
issuance under the Plan, no additional Outside Directors' Options shall be
granted.
-7-
<PAGE>
7. Written Agreements. Stock Rights shall be evidenced by instruments
(which need not be identical) in such forms as the applicable Administrator may
from time to time approve. Such instruments shall conform to such terms,
conditions and provisions as are applicable hereunder and may contain such other
terms and conditions and provisions as the applicable Administrator deems
advisable which are not inconsistent with the Plan, including restrictions
applicable to shares of Common Stock issuable upon exercise of Stock Rights. A
Stock Right may provide for acceleration of exercise in the event of a change in
control of the Company, in the discretion of and as defined by the applicable
Administrator. The applicable Administrator may from time to time confer
authority and responsibility on one or more of its own members and/or one or
more officers of the Company to execute and deliver such instruments. The proper
officers of the Company are authorized and directed to take any and all action
necessary or advisable from time to time to carry out the terms of such
instruments.
8. Adjustments. Upon the happening of any of the following described
events, an Optionee's rights with respect to Options granted to him hereunder,
shall be adjusted as hereinafter provided, unless otherwise specifically
provided, in addition or to the contrary, in the written agreement between the
recipient and the Company relating to such Stock Right.
A. Certain Corporate Events. In the event shares of Common Stock
shall be subdivided or combined into a greater or smaller number of shares or
if, upon a merger, consolidation, reorganization, split-up, liquidation,
combination, recapitalization or the like of the Company, the shares of Common
Stock shall be exchanged for other securities of the Company or of another
corporation, each grantee of a Stock Right shall be entitled, subject to the
conditions herein stated, to purchase (or have used for measurement purposes)
such number of shares of Common Stock or amount of other securities of the
Company or such other corporation as were exchangeable for the number of shares
of Common Stock which such grantee would have been entitled to purchase (or have
used for measurement purposes) except for such action, and appropriate
adjustments shall be made in the purchase price per share to reflect such
subdivision, combination or exchange.
B. Stock Dividends. In the event the Company shall issue any of its
shares as a stock dividend upon or with respect to the shares of stock of the
class which at the time shall be subject to a Stock Right hereunder, each
grantee upon exercising a Stock Right shall be entitled to receive (for the
purchase price paid upon such exercise) (or have used for measurement purposes)
the shares or other consideration as to which he is exercising his Stock Right
and, in addition thereto (at no additional cost), such number of shares of the
class or classes in which such stock dividend or dividends were declared or
paid, and such amount of cash in lieu of fractional shares, or other
consideration as he would have received if he had been the holder of the shares
as to which he is exercising (or which are used for measurement in connection
with) his Stock Right at all times between the date of grant of such Stock Right
and the date of its exercise.
C. New Securities. If any person or entity owning restricted Common
Stock obtained by exercise of a Stock Right made hereunder receives new or
additional or different shares or securities ("New Securities") in connection
with a corporate transaction described in
-8-
<PAGE>
subparagraph A above or a stock dividend described in subparagraph B above as a
result of owning such restricted Common Stock, such New Securities shall be
subject to all of the conditions and restrictions applicable to the restricted
Common Stock with respect to which such New Securities were issued.
D. Cash Dividends. No adjustments shall be made for dividends paid
in cash or in property other than securities of the Company, unless specified to
the contrary by the applicable Administrator in the instrument evidencing such
Stock Right.
E. Fractional Shares. No fractional shares shall actually be issued
under the Plan. Any fractional shares which, but for this subparagraph E, would
have been issued to a grantee pursuant to a Stock Right shall be deemed to have
been issued and immediately sold to the Company for their fair market value, and
the grantee shall receive from the Company cash in lieu of such fractional
shares.
F. Adjustments. Upon the happening of any of the foregoing events
described in subparagraphs A or B above, the class and aggregate number of
shares set forth in paragraph 3 hereof that are subject to Stock Rights which
previously have been or subsequently may be granted under the Plan shall also be
appropriately adjusted to reflect the events described in such subparagraphs.
The Board shall determine the specific adjustments to be made under this
paragraph 8 and, subject to paragraph 4(H), its determination shall be
conclusive.
9. Means of Exercising Stock Rights. A Stock Right (or any part or
installment thereof) shall be exercised as specified in the written instrument
granting such Stock Right, which instrument may specify any legal method of
exercise. The holder of a Stock Right exercisable for shares shall not have the
rights of a shareholder with respect to the shares covered by his Stock Right
until the date of issuance of a stock certificate to him for such shares. Except
as expressly provided above in paragraph 8 with respect to changes in
capitalization and stock dividends, no adjustment shall be made for dividends or
similar rights for which the record date is before the date such stock
certificate is issued.
10. Transferability of Stock Rights. Except as otherwise provided in the
Plan, no Stock Right granted under the Plan shall be transferrable by an
Optionee other than by (i) will or the laws of descent and distribution, or (ii)
pursuant to a qualified domestic relations order as defined by the Code or Title
I of the Employee Retirement Income Security Act, or the rules thereunder.
11. Term of the Plan. This Plan was adopted by the Board as of April 21,
1995, effective as of May 1, 1995, subject to approval of the Plan by the
holders of a majority of the outstanding shares of the Company at the next
meeting of shareholders present in person or by proxy at the next meeting of
shareholders. Stock Rights may be granted under the Plan at any time on or after
May 1, 1995, even if prior to the date of shareholder approval of the Plan;
provided, however, that such date shall not be prior to the date on which the
applicable Administrator acts to approve the grant or award. If the requisite
shareholder approval is not obtained by April 21, 1996, any grants of ISOs under
the Plan and any grants of Stock Rights to officers and directors, as the case
may be,
-9-
<PAGE>
made prior to that date will be automatically rescinded, except in the case of
an ISO granted to Wm. Stacy Locke which, in such event, shall remain in effect
but without the benefits of this Plan.
12. Termination; Amendment. The Board may terminate or amend the Plan in
any respect at any time, except that (i) no amendment requiring shareholder
approval under provisions of the Code and related regulations relating to ISOs
or under Rule 16b-3 will be effective without approval of shareholders as
required and within the times set by such rules, and (ii) no amendment may be
made more than once every six (6) months to the provisions of the Plan dealing
with, related to, affecting or governing Outside Directors' Options (other than
those required to comport with changes in the Code, the Employee Retirement
Income Security Act, or the rules thereunder, or Rule 16b-3).
13. Application of Funds. The proceeds received by the Company from
the sale of shares pursuant to Stock Rights authorized under the Plan shall
be used for general corporate purposes.
14. Governmental Regulation. The Company's obligation to sell and
deliver shares of the Common Stock under this Plan is subject to the approval
of any governmental authority required in connection with the authorization,
issuance or sale of such shares.
15. Withholding of Additional Income Taxes. Upon the exercise of a
Non-Qualified Option, an Outside Director's Option, the making of a Purchase of
Common Stock for less than its fair market value, the making of a Disqualifying
Disposition (as defined in paragraph 4(I)), the vesting of restricted Common
Stock acquired on the exercise of a Stock Right hereunder, or any other event in
connection with a Stock Right, the Company, in accordance with Section 3402(a)
of the Code, may require the Optionee, purchaser, or holder or exerciser of a
Stock Right to pay additional withholding taxes in respect of the amount that is
considered compensation includable in such person's gross income.
16. Governing Law; Construction. The validity and construction of the Plan
and the instruments evidencing Stock Rights shall be governed by the laws of the
State of Texas. In construing this Plan, the singular shall include the plural
and the masculine gender shall include the feminine and neuter, unless the
context otherwise requires.
-10-
<PAGE>
SOUTH TEXAS DRILLING & EXPLORATION, INC.
9310 Broadway, Bldg. 1
San Antonio, Texas 78217
The undersigned acknowledges receipt of the Notice of Annual Meeting of
South Texas Drilling & Exploration, Inc. (the "Company") and hereby appoints
Michael E. Little and Wm. Stacy Locke, and each of them, the attorneys of the
undersigned, with power of substitution, for and in the name of the undersigned,
to vote as proxies for the undersigned according to the number of shares of
Common Stock the undersigned would be entitled to vote if then personally
present at the Annual Meeting of Shareholders of the Company to be held August
30, 2000, or at any adjournament thereof, and to vote all shares of Common Stock
of the Company held by the undersigned and entitled to be voted upon the
following matters as indicated on the reverse side.
This Proxy may be revoked at any time prior to the voting thereof.
This Proxy, when properly executed, will be voted in the manner directed
herein by the undersigned shareholder. If no direction is made, the Proxy will
be voted FOR Proposals Number 1, Number 2, Number 3 and Number 4.
(Continued and to be dated and signed on the reverse side).
SOUTH TEXAS DRILLING & EXPLORATION, INC.
P.O. BOX 11489
NEW YORK, N.Y. 10203-0489
<PAGE>
--------------------------------------------------------------------------------
Please Detach Here
You Must Detach This Portion of the Proxy Card
Before Returning it in the Enclosed Envelope
--------------------------------------------------------------------------------
DETACH PROXY CARD HERE
-------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C> >
[_]
1. Election of nominees to the For all nominees WITHHOLD AUTHORITY to vote *EXCEPTIONS
Board of Directors listed below [X] for all nominees listed below [X] [X]
</TABLE>
Nominees: Michael E. Little, Wm. Stacy Locke, William D. Hibberts, Richard
Phillips and William W. White
INSTRUCTIONS: To withhold authority to vote for any individual nominee, mark the
"Exceptions" box and write that nominee's name in the space provided below.)
*Exceptions_____________________________________________________________________
2. To vote approval of the amendment of the Articles of incporation to increase
the number of authorized shares of Common Stock from 15,000,000 to
30,000,000
FOR [X] AGAINST [X] ABSTAIN [X]
3. To vote approval of the 1999 South Texas Drilling & Exploration, Inc., Stock
Plan.
FOR [X] AGAINST [X] ABSTAIN [X]
4. To vote the appointment of KPMG as the Company's auditors for the fiscal year
ending March 31, 2001.
FOR [X] AGAINST [X] ABSTAIN [X]
5. In their discretion to vote upon such other business as may properly come
before the meeting of any adjournment thereof.
FOR [X] AGAINST [X] ABSTAIN [X]
Change of Address and
Comments Mark Here [X]
Please sign your name exactly as it appears hereon. When signing as attorney,
executor, administrator, trustee or guardian, please give full title as such. If
a corporation, please sign in full corporate name by President or other
authorized officer. If a partnership, please sign name by authorized person.
Dated , 2000
----------------------------------
-----------------------------------------------
(Signature of Shareholder)
-----------------------------------------------
(Signature of Shareholder)
Votes must be indicated (x) in Black or Blue Ink. [X]
Please Complete, Sign, Date and Return the Proxy Card Promptly Using the
Enclosed Envelope.
