August 14, 2000
VIA EDGAR
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Attention: Document Control
RE: South Texas Drilling & Exploration, Inc.
Preliminary Proxy Statement for the
2000 Annual Meeting of Shareholders
Commission File No. 2-70145
Dear Sir or Madam:
Please find attached for filing the Preliminary Proxy
Statement and form of Proxy for the 2000 Annual Meeting of
Shareholders of South Texas Drilling & Exploration, Inc., a Texas
corporation (the "Company").
The only matter to be presented to the shareholders requiring
the filing of preliminary material under Rule 14a-6 is a proposal
to increase the amount of authorized shares of the Company. Items
to be presented for shareholder approval include the election of
five (5) nominees to the Company's Board of Directors, 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, the adoption of the 1999 South Texas Drilling &
Exploration, Inc. Stock Plan, and the approval of the selection of
KPMG Peat Marwick as auditors of the Company for the fiscal year
ending March 31, 2001.
We previously filed this Preliminary Proxy Statement with your
office on July 14, 2000, as a paper filing. On August 11, 2000, we
were informed that that filing was rejected by the SEC and was
being returned to our office. The Company has filed its Definitive
Proxy Statement on EDGAR and mailed to its shareholders such
Definitive Proxy Statement, form of Proxy and Annual Report on Form
10-K, on or about July 30, 2000. The Annual Meeting is scheduled
for August 30, 2000.
Because the Company anticipates that grants under the 1999
Stock Plan proposed to be approved at its annual meeting will be
made only to executive officers or managers, the Company believes
that such grants will be exempt from registration under Section
4(2) of the Securities Act of 1933. The Company also anticipates
filing a registration statement on Form S-8 covering such grants.
Should you have any questions about any of the above, please
call the undersigned at (210) 357-9319.
Sincerely yours,
MATTHEWS & BRANSCOMB
A Professional Corporation
/s/ John D. Fisch
John D. Fisch
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%
CumulativeConvertible 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, 2001.
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.
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.
___________________________________
Chris F. Parma
Corporate Secretary
Dated: July 31, 2000
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 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.
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.
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
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
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.
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.
(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:
(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
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.
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
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.
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
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 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.
<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
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 as a
group (6 persons) 2,658,806(5) 21.0%
(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.
<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:
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.
<PAGE>
Summary Compensation Table
Name and Other Annual
Restricted Warrants/ LTIP All Other
Principal Position Year Salary $ Bonus $ Compensation $ Stock
Award $ Options/SARs # Pay-outs $Compensation$
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 - - -
- - -
(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 $250 for each
meeting attended.
The following table summarizes as to the chief executive officer
of the Company, the number and terms of stock options granted
during the year ended March 31, 2000:
<PAGE>
Option/SAR Grants in Last Fiscal Year
Percent of Total
Number of Options/
Potential
Securities SARs
Realized Balue at
Underlying Granted to
Assumed Annual Rates of
Options/ Employees Exercise or
Stock Price Appreciation
SARs In Fiscal Base
Expiration For Option Term
Name Granted(#) Year Price($/sh)
Date 5percent 10percent
Michael E. Little 650,000 90 $0.75
12/13/2009 1,100,730 2,041,397
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
Number of
Securities Value of
Underlying Unexercised
Unexercised In-the-Money
Options/SARs at Options/SARs at
FY-End FY-End
Shares Acquired Value
Exercisable/ Exercisable/
Name On Exercise Realized
Unexercisable Unexercisable
Michael E. Little - -
130,000 /520,000 97,500/390,000
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.TheCompany'scorporateofficeislocatedat9310 Broadway,Bldg.
I,SanAntonio, 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.
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.
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
hereunderwhichqualifyas"incentivestockoptions"underSection 422A(b
)of theInternalRevenue
Code of1986(the"Code")("ISO"or"ISOs");(b) todirectors,officers,em
ployeesandconsultants of the Company
andRelatedCorporations,oranyotherpersonorentity,includingpersonsp
roviding
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.
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
andconstructionbytheapplicableAdministratorofanyprovisionsofthePl
anorof any Stock Right
granted under it
shallbefinalunlessotherwisedeterminedbytheBoard.Administratorsort
he
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.
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
pershareofCommonStockonthedateofsuchgrant.InthecaseofanISOtobegra
ntedtoanemployeeowningstockrepresenting
morethantenpercentofthetotalcombinedvotingpowerofallclassesofstoc
koftheCompany 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
Stockontheprincipal
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
Stockisnotthentradedonanationalsecuritiesexchange;or(c) theclosin
gbidprice(ortheaverage ofbidprices)lastquoted
(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
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
datespecifiedintheISO
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. 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. 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
begranted.
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,
orother
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 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
adjustmentshallbe
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,
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-
3willbeeffectivewithout
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.
<PAGE>
FRONT
SOUTH TEXAS DRILLING & EXPLORATION, INC.
9310 Broadway, Bldg. 1
San Antonio, Texas 78217
This Proxy is solicited on behalf of the Board of Directors
of South Texas Drilling & Exploration, Inc.
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 30th, 2000, or at any
adjournment 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, this Proxy will be voted FOR Proposals Number 1, Number
2, Number 3 and Number 4.
(Please date and sign on other side)
South Texas Drilling & Exploration, Inc.
P.O. Box 11015
NEW YORK, NY 10203-0015
BACK
1. To vote the FOR all nominees WITHHOLD AUTHORITY EXCEPTIONS
nominees for listed below To vote for all
the Board of nominees listed
Directors Below
Nominees: Michael E. Little, Wm. Stacy Lo cke, William D.
Hibbetts, Richard Phillips and William H. (Bill) 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
Incorporation to increase the number of authorized shares of
Common Stock from 15,000,000 to 30,000,000
FOR AGAINST ABSTAIN
3. To vote approval of the 1999 South Texas Drilling &
Exploration, Inc. Stock Plan.
FOR AGAINST ABSTAIN
4. To vote the appointment of KPMG, LLP as the company's auditors
for the fiscal year ending March 31, 2001.
FOR AGAINST ABSTAIN
5. In their discretion, to vote upon such other business as may
properly come before the meeting or any adjournment thereof.
FOR AGAINST ABSTAIN
Change of Address and/or Comments Mark Here
Please sign exactly as your name appears in the left. When
shares are held by joint tenants, both should sign. When signing
as attorney, as 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 in partnership name by authorized
person.
DATE:___________________________________________________
________________________________________________________
(Signature(s))
________________________________________________________
(Signature(s))
Please Complete, Sign, Date and Return this Proxy Statement Card
Promptly Using the Enclosed Envelope.
Votes MUST be indicated
(x) in Black or Blue Ink X
