<PAGE> 1
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
--------- --------
COMMISSION FILE NUMBER 0-8043
SOUTHERN MINERAL CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER.)
NEVADA 36-2068676
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
500 DALLAS, SUITE 2800 77002-4708
HOUSTON, TEXAS (ZIP CODE)
(ADDRESS OF PRINCIPAL EXECUTIVE
OFFICES)
Registrant's telephone number, including area code: (713) 658-9444
Securities Registered pursuant to Section 12(b) of the Act:
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
------------------- ---------------------
None None
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
COMMON STOCK, PAR VALUE $0.01
(TITLE OF CLASS)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months and (2) has been subject to such filing
requirements for the past 90 days. Yes /X/ No / /
Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B not contained in this form, and no disclosure will be
contained, to the best of the registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. /X/
Revenues for the year ended December 31, 1995 were approximately
$2,360,000.
As of March 5, 1996, 6,552,919 shares of Common Stock were outstanding and
the aggregate market value of these shares at such date (based upon the last
reported sales price in the NASDAQ SmallCap Market) held by non-affiliates of
the Registrant was approximately $7,239,165. Determination of Common Stock
ownership by affiliates was made solely for the purpose of responding to this
requirement and the Registrant is not bound by this determination for any other
purpose.
Portions of the Registrant's definitive proxy statement for the 1995 Annual
Meeting of Stockholders are incorporated herein by reference in Part III, Items
9, 10, 11 and 12.
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<PAGE> 2
PART I
ITEM 1. BUSINESS
GENERAL
Southern Mineral Corporation and its subsidiaries (the "Company") is an oil
and gas exploration and production company headquartered in Houston, Texas. The
Company owns interests in over 1,800 oil and gas properties located along the
Texas Gulf Coast, in the Mid-continent and in Canada. Operations are currently
conducted in south central Texas where the Company operates two fields producing
from the Wilcox formation. In addition to interests in oil and gas wells, the
Company currently owns approximately 346,760 net mineral acres underlying some
665,148 gross surface acres. The Company currently has 23,071 net mineral acres
in Mississippi, New Mexico and in the Texas panhandle under lease to others.
BACKGROUND
The Company was incorporated in 1937 as a vehicle to consolidate mineral
tracts retained as it lumbered large tracts of southern Mississippi forest
lands. For the next fifty years, the Company was largely a passive participant
in the oil and gas business, merely granting leases on its spread of mineral
interests in Mississippi. In the mid-1980's, the Company became a more active
participant in the oil and gas business, redeploying its significant cash flow
from revenues derived from the Poplarville Field into exploration activities.
For the next ten years, the Company pursued the sole strategy of exploration for
oil and gas. As a result of generally poor results, the Company changed its
focus in late 1994 to one of a more balanced approach to the oil and gas
business. The Company currently pursues acquisitions, exploitation and
controlled risk exploration.
ACQUISITION ACTIVITIES
Beginning in 1995, the Company began to seek out and evaluate potential oil
and gas property acquisitions. The Company intends to finance such acquisitions
from multiple funding sources. Such funding sources may include internally
generated funds, issuance of the Company's capital stock, public or private
borrowings or a combination of such sources. The acquisitions the Company
effected in 1995 are generally described below.
Diverse GP III Acquisition:
The Company acquired Diverse Production Co., subsequently named SMC
Production Co., Inc., whose primary asset is a 15% general partnership interest
in Diverse GP III ("DGP III") on April 6, 1995. DGP III is a Texas based general
partnership that owns interests in over four hundred oil and gas properties
located in eleven states. DGP III is generally involved in the acquisition,
exploitation and production of oil and gas properties. As a result of the
acquisition of the DGP III interest, the Company's proven reserves more than
doubled from its January 1, 1995, reported reserves. The Company issued
2,193,919 shares of common stock and 325,000 share options (at an exercise price
of $1.25 per share for a term of five years) in consideration for the DGP III
interest.
Stone & Webster Acquisition:
On December 20, 1995, the Company completed the acquisition of certain oil
and gas assets and outstanding capital stock of three subsidiaries of Stone &
Webster, Inc. ("S&W"). The oil and gas assets acquired include interests in more
than 1,400 wells, including 14 wells operated by Company personnel in two Wilcox
formation fields in Dewitt and Lavaca Counties, Texas. One of the acquired
subsidiaries is a Delaware corporation that owns interests in approximately
1,200 wells located in Canada. Another acquired subsidiary holds interests in
ten pipeline and gathering systems located in Oklahoma, Texas and Louisiana. The
third acquired subsidiary owns interests in approximately 270,000 gross mineral
acres in the Texas panhandle and New Mexico together with associated producing
royalties. The purchase price for the assets and capital stock of the three
subsidiaries acquired in the transaction was approximately $16,400,000,
including adjustments and related transaction costs. The acquisitions of DGP III
and S&W increased the Company's proven oil reserves
<PAGE> 3
from 228 thousand barrels of oil to approximately 1.5 million barrels, and
increased the Company's proven gas reserves from 786 Mmcf of natural gas to 26.4
Bcf as of January 1, 1996.
The Company financed the S&W acquisition with working capital and two loans
aggregating $15,215,000 from Compass Bank -- Houston. The Company borrowed
$3,500,000 pursuant to a term loan arrangement due July 1, 1996. The Company
borrowed $11,715,000 pursuant to a reducing revolving credit arrangement with an
initial borrowing base of $12,500,000.
EXPLORATION ACTIVITIES
The Company made a substantial change in its business strategy in late
1994. Prior to this time, the Company had pursued exploration as the sole focus
of its business. Beginning in 1995, the Company hired a new management team, and
began a strategy that encompasses the acquisition and exploitation of oil and
gas properties together with a more controlled risk exploration program. To that
end, the Company effected the acquisitions noted above. In addition, the Company
has decided to refocus its exploration activities in the Gulf Coast region.
Thus, in 1995 the Company divested itself of exploration acreage in Upton
County, Texas, sold its interest in an exploration prospect in Union County,
Arkansas, and sold its interest in the Bandera and Equipo Field production and
exploration activity in Maverick County, Texas.
In line with the Company's current strategy of pursuing controlled risk
exploration, the Company has entered into two separate joint ventures. These
joint ventures are described below.
Southern Links Group Joint Venture
In September, 1995, the Company entered into a joint venture with The Links
Group, Inc. called Southern Links Group Joint Venture ("Southern Links").
Southern Links was formed to jointly develop exploration prospects in the
shallow offshore Texas state waters. The application of new technologies,
including 3-D seismic surveys, makes the area more appealing to a growing market
of potential participants. Southern Links will define prospects in the area and
package and market the prospects to industry participants. At a lease auction
held by the Texas General Land Office in October, Southern Links was successful
in acquiring seven tracts at a consideration of just over $600,000. The joint
venture is currently marketing its first prospect, which includes two of the
seven tracts that it acquired at the auction. The joint venture intends to
continue to redeploy proceeds from the sale of its prospects into new tracts at
subsequent lease auctions.
Diasu Oil & Gas Company, Inc. Joint Venture
In a separate arrangement with Diasu Oil & Gas Co., Inc. ("Diasu"), the
Company has the option to pay leasehold, seismic and other third party costs in
the development of exploration prospects with Diasu for a two year period
beginning in 1996. Under the arrangement, as funded prospects are sold the
Company will recoup its prospect costs plus one-third of any potential promote
or carried interest received by Diasu after the sale of the prospect. The
Company has an option to receive this carried interest or to take a one-third
interest in each prospect and drill the property without further burden or
profit by Diasu. This arrangement provides the Company with considerable
flexibility in structuring its risk profile on a prospect by prospect basis.
BUSINESS RISKS
The Company's operations are subject to numerous federal, state and local
laws, rules and regulations relating to the protection of the environment,
health and safety, including but without limitation, laws concerning the release
and containment and disposal of pollutants and wastes that can be produced by
operations in which the Company owns interests. In addition, the Company's
operations are affected by numerous federal, state and local laws, rules and
regulations relating to the exploration, production, transportation, marketing
and sales of oil and natural gas. In the past, the Company's compliance with
such laws, rules and regulations have not had a material adverse effect on its
capital expenditures, earnings or competitive position. However, the Company
cannot predict whether its future compliance with, or the effect
2
<PAGE> 4
of, such laws, rules and regulations would have a material adverse effect on its
capital expenditures, earnings or competitive position.
The Company anticipates that in the near term it will rely on various
sources to fund its principal business activity of acquiring oil and gas
producing reserves. Such funding sources may include, but not be limited to, use
of working capital, the issuance of the Company's own capital stock, public and
private equity markets and lending institutions such as banks and energy
investment firms. The Company's ability to access any or all of these sources of
funds may be impacted by a wide variety of factors that may include its own
financial condition as well as specific or general economic conditions that each
capital or debt market may experience at the time the Company requires funding.
There can be no assurances that the Company will be successful in utilizing any
of these sources to fund its acquisitions.
The Company is not dependent on any patents, trademarks, licenses,
franchises, or concessions.
COMPETITION
There is a high degree of competition in the acquisition of producing oil
and gas properties and the oil and gas exploration industry. Consequently, the
Company competes with many other entities for desirable potential acquisitions
and exploration and development prospects. The Company's competitors include the
major integrated oil companies as well as numerous independent oil and gas
companies and other producers of energy sources and fuels. Many of these
competitors have capital resources and other competitive advantages much greater
than that of the Company, and may therefore be better able than the Company to
withstand and compete during adverse market conditions. The Company's ability to
generate revenues and reserves in the future will be dependent upon, among other
things, its success in competing with these competitors, as to which there can
be no assurances.
The Company, as an owner of oil and gas mineral rights, does not compete in
the conventional sense with the owners of other oil, gas and mineral rights to
lease such right. Rather the Company considers proposals to lease its mineral
rights on the basis of the best offer from prospective lessees.
REGULATIONS
Environmental Regulation. Operations of the Company are subject to numerous
federal, state, and local laws and regulations governing the discharge of
materials into the environment or otherwise relating to environmental
protection. These laws and regulations may require the acquisition of a permit
before drilling commences; restrict or prohibit the types, quantities and
concentration of substances that can be released into the environment in
connection with drilling and production activities; prohibit drilling activities
on certain lands lying within wetlands or other protected areas; and impose
substantial liabilities for pollution resulting from drilling and production
operations. Moreover, state and federal environmental laws and regulations may
become more stringent. These environmental laws and regulations may affect the
Company's operations and costs as a result of their effect on oil and gas
development, exploration, and production operations. For instance, legislation
has been proposed in Congress from time to time that would amend the federal
Resource Conservation and Recovery Act of 1976 ("RCRA") to reclassify oil and
gas production wastes as "hazardous waste". If such legislation were enacted, it
could have a significant impact on the Company's operating costs, as well as on
the oil and gas industry in general. It is not anticipated that the Company will
be required in the near future to expend amounts that are material in relation
to its total capital expenditures program by reason of environmental laws and
regulations, but inasmuch as such laws and regulations are frequently changed,
the Company is unable to predict the ultimate cost of compliance. In addition,
the Comprehensive Environmental Response, Compensation and Liability Act of 1980
("CERCLA" or "Superfund") and certain state laws and regulations impose
liability for cleanup of waste sites.
Oil and Gas Regulation. Complex regulations concerning all phases of energy
development at the local, state and federal levels apply to the Company's
operations and often require interpretation by the Company's professional staff
or outside advisors. The federal government and various state governments have
adopted numerous laws and regulations respecting the production, transportation,
marketing and sale of oil and natural gas. Regulation by state and local
governments usually covers matters such as the spacing of wells, allowable
3
<PAGE> 5
production rates, environmental protection, pollution control, taxation and
other related matters. Moreover, future changes in local, state or federal laws
and regulations could adversely affect the operations of the Company.
Domestic exploration for, and production and sale of, oil and gas are
extensively regulated at both the federal and state levels. Legislation
affecting the oil and gas industry is under constant review for amendment or
expansion, frequently increasing the regulatory burden. Numerous departments and
agencies, both federal and state, are also authorized by statute to issue, and
have issued, rules and regulations binding on the oil and gas industry that
often are costly to comply with and that carry substantial penalties for
non-compliance. In addition, production operations are affected by changing tax
and other laws relating to the petroleum industry, by constantly changing
administrative regulations, and possible interruption or termination by
government authorities.
Effective January 1, 1993, all price controls on natural gas were
eliminated, ending decades of federal pricing control of natural gas. The impact
of price decontrol on the Company is uncertain at present, but would appear not
to cause a material adverse effect on the business of the Company.
In the late 1980's, the Federal Energy Regulatory Commission ("FERC"),
through a series of orders, made major changes in certain of its regulations
that have since significantly affected the transportation and marketing of gas.
These regulations require gas pipelines to transport gas on a non-discriminatory
basis. As a result, many pipelines have become transporters of gas owned by
others and have greatly reduced their purchases of gas for resale.
Commencing in April, 1992, the FERC issued Order Nos. 636, 636-A, and 636-B
("Order No. 636"), which require interstate pipelines to provide transportation
separate, or "unbundled", from the pipelines' sales of gas. Also, Order No. 636
requires pipelines to provide open-access transportation on a basis that is
equal for all gas shippers. Although Order No. 636 does not directly regulate
the Company's activities, the FERC has stated that it intends for Order No. 636
to foster increased competition within all phases of the natural gas industry.
It is unclear what impact, if any, increased competition within the natural gas
industry under Order No. 636 will have on the Company's activities. Although
Order No. 636, assuming it is upheld in its entirety, could provide the Company
with additional market access and more fairly applied transportation service
rates, Order No. 636 could also subject the Company to more restrictive pipeline
imbalance tolerances and greater penalties for violation of those tolerances.
The FERC has issued final orders of virtually all Order No. 636 pipeline
restructuring proceedings. Appeals of Order No. 636, as well as orders in the
individual pipeline restructuring proceedings, are currently pending, and the
Company cannot predict the ultimate outcome of court review. This review may
result in the reversal, in whole or in part, of Order No. 636.
In December 1992, the FERC issued Order No. 547, governing the issuance of
blanket marketer sales certificates to all natural gas sellers other than
interstate pipelines. Order No. 547 applies to non-first sales that remain
subject to the FERC's NGA jurisdiction. The FERC intends Order No. 547, in
tandem with Order No. 636, to foster a competitive market for natural gas by
giving natural gas purchasers access to multiple supply sources at market-driven
prices. Order No. 547 may increase competition in markets in which the Company's
natural gas is sold which may negatively affect revenues in the future.
Commencing in May 1994, the FERC has issued a series of orders in
individual cases that delineate its gathering policy as a result of the comments
received. Among other matters, the FERC slightly narrowed its statutory tests
for establishing gathering status and reaffirmed that it does not have
jurisdiction over natural gas gathering facilities and services and that such
facilities and services are properly regulated by state authorities. As a
result, natural gas gathering may receive greater regulatory scrutiny by state
agencies. In addition, the FERC has approved several transfers by interstate
pipelines of gathering facilities to unregulate gathering companies, including
affiliates. This could allow such companies to compete more effectively with
independent gatherers. The FERC's orders delineating its new gathering policy
are subject to possible court appeals.
The FERC has announced its intention to reexamine certain of its
transportation-related policies, including the appropriate manner for setting
rates for new interstate pipeline construction and the manner in
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<PAGE> 6
which interstate pipelines release transportation capacity under Order No. 636.
While any resulting FERC action would affect the Company only indirectly, these
inquiries are intended to further enhance competition in natural gas markets.
CUSTOMERS
Oil and gas hydrocarbons are the principal products produced by the Company
and sales of such products are usually made in spot market or on such other
bases that may be impacted by the effect of changes in current market prices.
Future oil and natural gas prices may be affected by a variety of factors
including, but not limited to, supply and demand, world and regional market
conditions, political conditions and seasonal factors, all of which the Company
is unable to control or accurately predict. In the past, there have not been,
and management does not expect there to be in the near term, any material
adverse effects on the Company's business due to seasonal aspects. Backlog is
not a factor in the Company's operations. The Company is principally engaged in
a single industry segment, the acquisition, exploration, development, and
production of oil and gas reserves, all in the United States and Canada. Sales
of oil and gas to customers accounting for 10% or more of revenues were as
follows:
<TABLE>
<CAPTION>
CUSTOMER 1995 1994 1993
-------- ---- ---- ----
<S> <C> <C> <C>
Moon-Hines-Tigrett Operating Co., Inc......................... $ 21 $ 76 $529
Mike Rogers Drilling Company.................................. 746 651 965
Ashtola Exploration Company................................... 208 283 144
</TABLE>
OPERATIONAL HAZARDS AND INSURANCE
The Company's operations are subject to all of the risks normally incident
to the production of oil and gas, including blowouts, cratering, pipe failure,
casing collapse, oil spills and fires, each of which could result in severe
damage to or destruction of oil and gas wells, production facilities or other
property, or injury to persons. The energy business also is subject to
environmental hazards, such as oil spills, gas leaks, and ruptures and discharge
of toxic substances or gases that could expose the Company to substantial
liability due to pollution and other environmental damage. Although the Company
maintains insurance coverage considered to be customary in the industry, it is
not fully insured against certain of these risks, either because such insurance
is not available or because of high premium costs. The occurrence of a
significant event that is not fully insured against could have a material
adverse effect on the Company's financial position.
EMPLOYEES
At March 1, 1996, the Company employed fifteen full-time persons including
one engineer, one geologist and thirteen administrative, technical and
accounting personnel.
5
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SELECTED FINANCIAL DATA (IN THOUSANDS)
COMPARATIVE CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
--------------------------------------------------
1995 1994 1993 1992 1991
------- ------- ------ ------- -------
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets................................. $ 2,071 $ 1,973 $2,865 $ 2,343 $ 5,157
Property and equipment......................... 18,042 1,347 4,106 5,384 4,511
Oil and gas properties held for sale and
other........................................ 1,554 50 350 376 --
------- ------ ------- ------- -------
$21,667 $ 3,370 $7,321 $ 8,103 $ 9,668
------- ------ ------- ------- -------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities............................ $ 5,960 $ 290 $ 561 $ 421 $ 853
Deferred income taxes.......................... 606 -- 547 730 617
Long term debt................................. 9,920 -- -- -- --
Stockholders' equity........................... 5,181 3,080 6,213 6,952 8,198
------- ------ ------- ------- -------
$21,667 $ 3,370 $7,321 $ 8,103 $ 9,668
------- ------ ------- ------- -------
WORKING CAPITAL................................ $(3,889) $ 1,683 $2,304 $ 1,922 $ 4,304
</TABLE>
COMPARATIVE STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
--------------------------------------------------
1995 1994 1993 1992 1991
------- ------- ------ ------- -------
<S> <C> <C> <C> <C> <C>
REVENUES
Oil and gas.................................... $ 2,044 $ 1,747 $2,891 $ 2,465 $ 2,195
Gains (losses) on sales of properties.......... 170 66 146 (26) (15)
Interest....................................... 85 56 41 78 390
Other income................................... 61 20 -- -- 8
------- ------- ------ ------- -------
2,360 1,889 3,078 2,517 2,578
EXPENSES....................................... 2,488 5,580 3,959 4,048 3,890
------- ------- ------ ------- -------
Loss before income taxes and the cumulative
effect of a change in accounting for income
taxes........................................ (128) (3,691) (881) (1,531) (1,312)
Provision (benefit) for income taxes........... 9 (558) (279) (487) (418)
------- ------- ------ ------- -------
Loss before the cumulative effect of a change
in accounting for income taxes............... (137) (3,133) (602) (1,044) (894)
Cumulative effect of a change in accounting for
income taxes................................. -- -- 65 -- --
------- ------- ------ ------- -------
Net loss....................................... $ (137) $(3,133) $ (537) $(1,044) $ (894)
------- ------- ------ ------- -------
PER SHARE OF STOCK:
Net loss before the cumulative effect of a
change in accounting for income taxes........ $ (.02) $ (0.78) $(0.15) $ (0.26) $ (0.22)
Cumulative effect of a change in accounting for
income taxes................................. -- -- $ 0.02 -- --
------- ------- ------ ------- -------
Net loss....................................... $ (.02) $ (0.78) $(0.13) $ (0.26) $ (0.22)
======= ======= ====== ======= =======
Dividends...................................... $ -- $ -- $ 0.05 $ 0.05 $ 0.10
======= ======= ====== ======= =======
</TABLE>
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Note A Pursuant to the provisions of Financial Accounting Standards Board
Statement No. 109, "Accounting for Income Taxes", the Company changed
its method of accounting for income taxes and recorded an adjustment of
$65 benefitting 1993.
Note B In 1994, Company recognized a Valuation Reduction of $1,724 in
connection with the writedown of its investment in certain producing oil
and gas properties. For further information, please see the Management's
Discussion and Analysis For the Period Ended December 31, 1994 as
Compared to the Period Ended December 31, 1993.
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<PAGE> 8
ITEM 2. PROPERTIES
GENERAL
At December 31, 1995, the Company held interests in excess of 600 wells in
the continental United States and approximately 1,200 wells in Canada consisting
of working interests, royalty interests and overriding royalty interests.
Approximately 26% of the Company's proved oil and gas reserves are oil and
approximately 74% are gas, measured in energy equivalent barrels of oil basis
(natural gas is converted at the rate of six thousand cubic feet of gas for each
barrel of oil).
OIL AND GAS RESERVE INFORMATION
The following two tables reflect the estimated proved reserves of the
Company. The oil and gas reserves are principally located onshore in the
continental United States and Canada. The Company's reserve information has been
based on estimates prepared by an independent consulting petroleum engineer. The
independent consultant who prepared the reserve estimate information as of
December 31, 1993 and 1994 was Hedrick and Associates. Netherland, Sewell &
Associates, Inc. has prepared the domestic reserve estimates as of December 31,
1995 and McDaniel & Associates Consultants Ltd. prepared the Canadian reserves
estimates as of December 31, 1995. Since the beginning of the last fiscal year,
the Company has not filed any estimates of its reserves with any Federal
authority or agency.
<TABLE>
<CAPTION>
DOMESTIC CANADIAN TOTAL
----------------------- ---------------------- -----------------------
OIL GAS OIL GAS OIL GAS
(BARRELS) (MCF) (BARRELS) (MCF) (BARRELS) (MCF)
--------- ---------- --------- --------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Proved Reserves
Balance, December 31, 1992..................... 852,879 1,870,656 -- -- 852,879 1,870,656
Extensions, discoveries and other additions.... 500 131,019 -- -- 500 131,019
Revisions of previous estimates................ (268,785) (216,876) -- -- (268,785) (216,876)
Production..................................... (110,108) (545,942) -- -- (110,108) (545,942)
-------- ---------- ------- --------- --------- ----------
Balance, December 31, 1993..................... 474,486 1,238,857 -- -- 474,486 1,238,857
Extensions, discoveries and other additions.... 45,834 245,190 -- -- 45,834 245,190
Revisions of previous estimates................ (213,258) (397,443) -- -- (213,258) (397,443)
Production..................................... (78,866) (300,544) -- -- (78,866) (300,544)
-------- ---------- ------- --------- --------- ----------
Balance, December 31, 1994..................... 228,196 786,060 -- -- 228,196 786,060
Extensions, discoveries and other additions.... 66 8,449 -- -- 66 8,449
Revisions of previous estimates................ (24,715) (145,903) -- -- (24,715) (145,903)
Purchases of minerals in place................. 568,702 20,400,151 868,495 5,786,239 1,437,197 26,186,390
Production..................................... (84,848) (404,319) -- -- (84,848) (404,319)
-------- ---------- ------- --------- --------- ----------
Balance, December 31, 1995..................... 687,401 20,644,438 868,495 5,786,239 1,555,896 26,430,677
======== ========== ======= ========= ========= ==========
Proved Developed Reserves
Balance, December 31, 1993..................... 474,486 1,238,857 -- -- 474,486 1,238,857
Balance, December 31, 1994..................... 228,196 786,060 -- -- 228,196 786,060
Balance, December 31, 1995..................... 687,401 20,644,438 868,495 5,786,239 1,555,896 26,430,677
</TABLE>
PRODUCTION AND PRICE HISTORY
The following table sets forth certain information concerning the Company's
annual net oil and gas production and average price information for the year
ended December 31:
<TABLE>
<CAPTION>
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
Production:
Oil (barrels).................................... 84,848 78,866 110,108
Gas (MCF)........................................ 404,319 300,544 545,942
Average sales price:
Per barrel of oil................................ $ 16.23 $ 15.31 $ 16.69
Per MCF of gas................................... $ 1.65 $ 1.80 $ 1.93
Average lifting cost per equivalent barrel of
oil.............................................. $ 4.31 $ 4.25 $ 2.75
</TABLE>
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<PAGE> 9
PRODUCTIVE WELLS STATISTICS
The following table sets forth information concerning productive wells in
which the Company has an interest as of December 31, 1995:
<TABLE>
<CAPTION>
OIL GAS TOTAL
-------------- -------------- --------------
GROSS NET GROSS NET GROSS NET
----- ---- ----- ---- ----- ----
<S> <C> <C> <C> <C> <C> <C>
Canada................................. 678 14.9 497 6.3 1,175 21.2
United States(1)....................... 107 4.1 556 21.1 663 25.2
</TABLE>
- ---------------
(1) Includes producing units that contain numerous wells. Each unit is counted
as one gross well and the unit working interest is included in the net
wells.
DEVELOPMENT AND EXPLORATORY WELLS DRILLED
The following table includes the drilling results of wells in which the
Company has a working interest for the year ended December 31:
<TABLE>
<CAPTION>
1995 1994 1993
-------------- -------------- ---------------
GROSS NET GROSS NET GROSS NET
----- ---- ----- ---- ----- -----
<S> <C> <C> <C> <C> <C> <C>
Exploratory:
Oil.................................. 0 .000 0 .000 2 .438
Gas.................................. 0 .000 3 .307 1 .219
Dry hole............................. 0 .000 3 .430 10 2.551
Development:
Oil.................................. 0 .000 1 .250 0 .000
Gas.................................. 0 .000 0 .000 0 .000
Dry hole............................. 1 .150 2 .068 0 .000
Total
Productive........................... 0 .000 4 .557 3 .657
Dry hole............................. 1 .150 5 .498 10 2.551
</TABLE>
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<PAGE> 10
DEVELOPED AND UNDEVELOPED LEASEHOLD ACREAGE:
The following table shows the Company's leasehold interest in developed and
undeveloped oil and gas acreage as of December 31, 1995. This table does not
reflect certain mineral acreage owned by the Company. In the following data
"Gross" refers to the total acres in which the Company has a working interest
and "Net" refers to gross acres multiplied by the percentage of the working
interest owned by the Company.
<TABLE>
<CAPTION>
DEVELOPED UNDEVELOPED
ACREAGE ACREAGE
---------------- -----------------
GROSS NET GROSS NET
------- ----- ------- ------
<S> <C> <C> <C> <C>
United States
Alabama......................................... 651 26 188 7
Arkansas........................................ 1,040 247 1,799 450
Louisiana....................................... 4,153 281 0 0
Mississippi..................................... 972 191 1,207 132
Texas........................................... 30,482 3,706 1,074 351
Texas -- Offshore............................... 5,760 105 3,040 3,040
Wyoming......................................... 10,200 430 0 0
Colorado........................................ 288 21 0 0
Kansas.......................................... 204 53 0 0
Michigan........................................ 96 2 0 0
Montana......................................... 24 2 0 0
North Dakota.................................... 120 48 0 0
New Mexico...................................... 2,970 213 0 0
Oklahoma........................................ 2,136 296 0 0
Utah............................................ 672 148 0 0
------- ----- ------- ------
Total-Domestic.......................... 59,768 5,769 7,308 3,980
======= ===== ======= ======
Canada
Alberta......................................... 85,280 3,057 247,096 15,484
Saskatchewan.................................... 2,160 1 960 1
British Columbia................................ 2,086 260 28,715 1,737
------- ----- ------- ------
Total-Canadian.......................... 89,526 3,318 276,771 17,222
======= ===== ======= ======
Total Leasehold Acreage................. 149,294 8,645 284,079 21,202
======= ===== ======= ======
</TABLE>
"Developed acreage" consists of lease acres spaced or assignable to
production on which wells have been drilled or completed to a point that would
permit production of commercial quantities of oil or gas.
The Company's ownership of mineral rights is set forth below:
<TABLE>
<CAPTION>
GROSS MINERAL NET MINERAL
STATE ACRES ACRES
----- ------------- -------------
<S> <C> <C>
Mississippi............................................... 262,000 118,000
Wisconsin................................................. 121,000 110,000
Texas..................................................... 212,514 84,183
New Mexico................................................ 67,634 32,577
Other..................................................... 2,000 2,000
------- -------
Total........................................... 665,148 346,760
======= =======
</TABLE>
The Company is not aware of any valuable minerals appurtenant to the
mineral rights in Wisconsin, and therefore has no plans to develop minerals on
such properties. Currently, the Company has 2,550 net mineral acres in southern
Mississippi, 17,344 net mineral acres in Texas and 3,177 net mineral acres in
New Mexico under lease to others.
9
<PAGE> 11
ITEM 3. LEGAL PROCEEDINGS.
No material legal proceedings are pending.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to a vote of the security holders during the
fourth quarter of the Company's last fiscal year.
10
<PAGE> 12
PART II
ITEM 5. MARKET FOR COMPANY'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
Prices are based on trades made while the Company was listed on the NASDAQ
National Market System through March 9, 1995. Since March 10, 1995, the
Company's Common Stock has been listed on the NASDAQ SmallCap Market with the
trading symbol SMIN.
The Company did not declare any dividends in fiscal 1995 or 1994. The
payment of future dividends on common stock, if any, will be reviewed
periodically by the Company's Board of Directors and will depend upon, among
other things, Company's financial condition, funds available from operations,
the amount of anticipated capital and other expenditures, and the Company's
future business prospects. It is likely that for the foreseeable future, funds
available for dividends on common stock, if any, will be retained by the Company
to finance the growth of its business. Payment of dividends is also restricted
by the terms of the Company's bank indebtedness.
There were 699 stockholders of record on March 5, 1996.
The following table sets forth the high and low sales prices on the market
systems noted above for the Company's common stock for the periods indicated:
<TABLE>
<CAPTION>
1995 1994 1993
------------- -------------- --------------
HIGH LOW HIGH LOW HIGH LOW
----- ---- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C>
First Quarter............................ $1.25 $.63 $2.13 $1.63 $3.25 $2.25
Second Quarter........................... 1.25 .94 2.00 .69 3.00 2.25
Third Quarter............................ 1.06 .75 1.38 .94 2.63 1.75
Fourth Quarter........................... 1.63 .75 1.13 .44 2.50 1.75
----- ---- ----- ----- ----- -----
For the Year............................. $1.63 $.63 $2.13 $ .44 $3.25 $1.75
===== ==== ===== ===== ===== =====
</TABLE>
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS.
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
For the Period Ended December 31, 1995
As Compared to the Period Ended December 31, 1994
The Company reported a net loss in 1995 of $137,000 or $.02 per share
compared to a loss of $3,133,000 or $.78 per share in 1994. Revenues for 1995
were $2,360,000, up 24% compared to revenues for 1994 of $1,899,000. Expenses
for 1995 were $2,488,000, down 55% compared to expenses of $5,580,000 for 1994.
The increase in revenues reflects higher production volumes of both natural
gas and crude oil and higher prices for crude oil. Natural gas production in
1995 was 404.3 Mmcf, a 35% increase compared to 1994 production of 300.5 Mmcf.
The Company's crude oil production in 1995 increased 8% to 84,848 barrels
compared to 78,866 barrels in 1994. The Company's average gas price in 1995
decreased 8% to $1.65 per Mcf compared to $1.80 per Mcf in 1994. Offsetting
lower gas prices, crude oil prices in 1995 increased 6% to $16.23 per barrel as
compared to $15.31 per barrel in 1994. Higher production volumes were primarily
due to the acquisition of an interest in Diverse GP III, which was acquired in
April of 1995. Revenues also increased as a result of an increase in the gain on
the sale of assets to $170,000 in 1995 from $66,000 in 1994. The gain in 1995
was primarily a result of the Company's sale of its interest in the Bandera and
Equipo prospects located in Maverick County, Texas.
The reduction in expenses in 1995 was primarily the result of special
charges of $1,724,000 related to writedowns in valuation of three producing
properties in 1994, which were non-recurring in 1995. Production expenses
increased 20% to $656,000 in 1995 from $548,000 in 1994. The increase in
production expenses is primarily due to the inclusion of Diverse GP III in 1995.
Exploration expenses declined 86% to $221,000 in 1995 from $1,566,000 in 1994.
Since the Company uses the successful efforts method of accounting, exploration
expenses may generally vary greatly from year to year based upon the level of
exploration activity
11
<PAGE> 13
during the year. The decline in exploration expenses in 1995 is primarily the
result of decreased exploration activity due to a change in the Company's focus
away from higher risk exploration and towards the acquisition of existing
reserves, exploitation and controlled risk exploration. The Company participated
in the drilling of one well drilled in 1995 compared to nine wells in 1994.
Drilling results in 1995 include one dry hole drilled in Refugio County, Texas.
Depreciation and depletion increased 13% to $792,000 in 1995 from $704,000 in
1994, due to the inclusion of Diverse GP III in 1995 and adjustments in reserve
estimates for certain properties owned by the Company. The Company computes
depreciation and depletion expenses on each producing property on a
unit-of-production method. Since this method employs estimates of remaining
reserves, depreciation and depletion expenses may vary from year to year because
of revisions to reserve estimates, production rates and other factors. General
and administrative costs were $702,000 in 1995, down 22% from $903,000 in 1994.
The decline in general and administrative expenses is a result of the Company's
ongoing cost cutting plans implemented in 1994 and carried out in 1995.
For the Period Ended December 31, 1994
As Compared to the Period Ended December 31, 1993
The Company recorded a loss of $3,133,000, or $.78 per share, in 1994
compared to a loss of $537,000, or $.13 per share, in 1993. The increase in the
loss from 1993 to 1994 is principally due to a $1,621,000 increase in expenses
and a $1,189,000 drop in revenues.
Most of the increase to expenses is due to $1,724,000 in writedowns
recorded as a valuation reduction to three producing properties. The Company had
no comparable writedown in 1993. Two of these three properties are the Company's
interests in the Redwater Field, an oil field located in Bowie County, Texas and
the Cascade Deep Field, an oil field located in Los Angeles County, California.
The Company classified the original cost of these properties less the
accumulated depreciation and depletion and the related valuation allowance,
amounting to $1,494,000, as oil and gas producing properties held for sale.
During the 1994 third quarter, the Company recorded a gain of $37,000 as a
result of its sale of its interests in the Redwater Field. However, it is
unknown whether proceeds, if any, from the sale of its interests in the Cascade
Deep Field will exceed the current carrying value amounting to about $50,000 or
when such property may be sold or disposed. In addition, the Company recorded a
valuation reduction of $230,000 to the net carrying value of its investment in
the Hub Field, a producing gas field located in Marion County, Mississippi. The
original cost less depreciation and depletion and the valuation allowance are
included in producing oil and gas properties. The Company does not currently
anticipate that other oil and gas producing properties in which it has a
material investment either will become candidates for sale or disposal or
otherwise require a significant writedown.
Exploration expenses increased $399,000 from $1,167,000 in 1993 to
$1,566,000 in 1994. Approximately $948,000 of the current year's exploration
expense is the Company's cost in the leasehold and an unsuccessful exploratory
well of the Pheasant Prospect, located in Lawrence County, Mississippi. In
addition, $478,000 of 1994's exploration expense is for the writeoff of all
unproven leasehold costs in the Sendero Program, a multiple prospect program
located in an area approximately 70 miles southwest of Midland, Texas. Due to
current year writeoffs of unproven property costs, the remaining balance in
unproven properties amounts to $22,000. Because the Company utilizes the
successful efforts method of accounting, exploration expenses typically vary
materially from period to period based upon the number of wells drilled,
spending levels for individual wells and other exploration program activities,
the Company's working interest participation, success rates and other factors.
The Company anticipates that spending levels in connection with its exploration
program activities will be significantly lower overall compared to $997,000,
which was expended for such activities in 1994.
Partly offsetting the increases to exploration expenses and the valuation
reduction, depreciation and depletion expenses and general and administrative
expenses decreased $504,000 and $127,000, respectively. The Company computes the
depreciation and depletion expenses of each producing property separately on the
unit-of-production method. Because this method employs estimates of remaining
reserves, depreciation and depletion expense may vary materially from period to
period because of revisions to reserve estimates, production rates, and other
factors. Most of the decrease in general and administrative expenses is
attributable
12
<PAGE> 14
to cost cutting measures implemented by the Company during the 1994 first
quarter. These measures have included, but are not limited to, a reduction in
the number of employees from seven employed during most of 1993 to a level of
four employees. As a result of the retirement of the former President and CEO
effective December 31, 1994 the Company recorded a severance benefit liability
of $135,000 to such officer. The Company had no comparable 1993 expense for
severance benefits.
The decline in revenues is mostly due to a decrease in oil and gas
revenues. While oil revenues dropped 34% from $1,838,000 in 1993 to $1,207,000
in 1994, gas revenues declined 49% from $1,053,000 to $540,000 in those
respective periods. Both of these revenue declines are due to lower sales
volumes and lower average prices. While oil sales volumes declined 28% from
110,108 barrels in 1993 to 78,866 barrels in 1994, gas sales volumes dropped 45%
from 545,942 thousand cubic feet of gas ("Mcf") in 1993 to 300,544 Mcf in 1994.
Average oil prices decreased 8%, or $1.38 per barrel of oil, and average gas
prices declined 7%, or $.13 per Mcf, from 1993 to 1994. The decline in oil and
gas sales volumes from 1993 to 1994 is mostly attributable to the Company's lack
of success in its exploration program during 1993 and 1994 to obtain new
comparable sources of production in order to offset natural production declines
of existing fields in which it has an interest. However, although the Company
will continue to explore for oil and gas reserves, it has recently commenced a
new direction whereby it will emphasize the acquisition of interests in
producing oil and gas reserves and deemphasize its exploration activities.
During 1994, the two primary sources of the Company's oil and gas revenues
were its working interest in the State Line Field, an oil field located in Union
County, Arkansas, and its working interest in two oil wells and five gas wells
situated in the Bandera Prospect, located in Maverick County, Texas. The
Company's average working interest of about 26% in the State Line Field's six
producing wells amounted to about 42% of its 1994 oil and gas revenues while its
average working interest of about 24% in the Bandera Prospect wells totaled
about 17% of such revenues.
The Company's sales of crude oil and natural gas are made on spot sales or
other basis which is affected by the changes in current market prices. Future
crude oil and natural gas prices may be affected by a variety of factors
including, but not limited to, supply and demand, world and/or regional market
conditions, political conditions, and seasonal factors all of which the Company
is unable to control or accurately predict.
The income tax benefit increased from $279,000 in 1993 to $558,000 in 1994.
However, the income tax benefit for 1994 was limited by the Company's inability
to recognize all of the tax benefits of its net operating loss and future
deductible temporary differences in the calculation of its tax expense under
Statement of Financial Accounting Standards No. 109 (SFAS 109). These amounts
will be available to reduce future tax liabilities in years in which the Company
has taxable earnings. In addition, pursuant to the provisions of SFAS No. 109,
the Company changed its method of accounting for income taxes. As a result of
the adoption of such method during 1993, the Company recorded an adjustment of
$65,000 benefitting the 1993 results. The Company had no similar adjustment in
1994.
LIQUIDITY AND CAPITAL RESOURCES
For the Period Ended December 31, 1995
On December 20, 1995, the Company entered into credit facilities with a
bank that consists of a secured reducing revolving line of credit of $12,500,000
("Revolver Note") and a note payable of $3,500,000 ("Term Note"), (collectively,
the "Credit Facility"). The proceeds of the Credit Facility were used to finance
the acquisition of certain oil and gas assets of Stone & Webster, Inc. ("S&W").
The Revolver Note at December 31, 1995, had a balance of $11,715,000 and
available commitments to borrow $785,000. The Revolver Note borrowing base
reduces $215,000 per month beginning January 1, 1996, and is reviewed by the
bank semi-annually until maturity on June 1, 1998. The Term Note is due on July
1, 1996, and is expected to be refinanced prior to July 1, 1996 by the Company.
The obligations under the Credit Facility are secured by substantially all of
the assets of the Company and its subsidiaries. The Credit Facility contains
certain covenants relating to the Company's financial condition. The Term Note
bears an interest rate of the lending bank's prime rate plus two percent,
floating. The Revolver Note bears interest at the Company's option, of either
prime rate floating or at the LIBOR rate plus two and one-half percent. Upon
payment of the Term
13
<PAGE> 15
Note, the LIBOR rate on the Revolver Note is reduced to LIBOR plus two and
one-quarter percent. The Revolver Note is payable $1,795,000 in 1996, $2,580,000
in 1997, and $7,340,000 in 1998.
The acquisition of S&W was consummated through bank borrowings of
$15,215,000 and cash of $1,209,000. The Company's working capital decreased to a
deficit $3,889,000 at December 31, 1995 from a positive $1,683,000 at December
31, 1994. The decrease in working capital is primarily due to the expenditure of
working capital to consummate the S&W acquisition and due to the inclusion of
current liabilities of $1,795,000 under the Revolver Note and $3,500,000 under
the Term Note at December 31, 1995, with no comparable debt at December 31,
1994.
Cash flow from operating activities was $823,000 in 1995 up 6% from
$779,000 in 1994. Cash and cash equivalents and marketable securities declined
to $562,000 at December 31, 1995, from $1,624,000 at December 31, 1994.
Unadvanced bank commitments to borrow under the Revolver Note at December 31,
1995, were $785,000.
The Company anticipates that it will rely on various sources to fund its
principal business activity of acquiring oil and gas producing reserves. Such
funding sources may include, but not be limited to, working capital, the
issuance of the Company's capital stock, public and private equity markets and
lending institutions such as banks and energy investment firms.
The Company did not declare dividends in fiscal 1995 or 1994. In addition,
the Company's Credit Facility currently restricts the declaration or payment of
dividends. It is likely that for the foreseeable future, funds available for
dividends on common stock, if any, will be retained by the Company to finance
future growth.
ITEM 7. FINANCIAL STATEMENTS.
Financial Statements are filed as a part of this report. See page 17, Index
to Financial Statements. The Financial Statement Schedules are not applicable
and have been omitted.
14
<PAGE> 16
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
DESCRIPTION NUMBER
----------- ------
<S> <C>
Report of Independent Certified Public Accountants:
Grant Thornton LLP.............................................................. 16
Financial Statements:
Consolidated Balance Sheets at December 31, 1995 and 1994....................... 17
Statements of Consolidated Operations
for the Years Ended December 31, 1995, 1994 and 1993......................... 18
Statements of Consolidated Stockholders' Equity
for the Years Ended December 31, 1995, 1994 and 1993......................... 19
Statements of Consolidated Cash Flows
for the Years Ended December 31, 1995, 1994 and 1993......................... 20
Notes to Consolidated Financial Statements
for the Years Ended December 31, 1995, 1994 and 1993......................... 21
</TABLE>
15
<PAGE> 17
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Stockholders of
Southern Mineral Corporation:
We have audited the accompanying consolidated balance sheets of Southern
Mineral Corporation (a Nevada corporation) and subsidiaries as of December 31,
1995 and 1994, and the related consolidated statements of operations,
stockholders' equity and cash flows for each of the three years in the period
ended December 31, 1995. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Southern Mineral Corporation
and subsidiaries as of December 31, 1995 and 1994, and the consolidated results
of their operations and their consolidated cash flows for each of the three
years in the period ended December 31, 1995, in conformity with generally
accepted accounting principles.
GRANT THORNTON LLP
Houston, Texas
February 21, 1996
16
<PAGE> 18
SOUTHERN MINERAL CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31
-------------------
1995 1994
------- -------
(IN THOUSANDS)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents.............................................. $ 562 $ 55
Marketable securities.................................................. -- 1,569
Receivables............................................................ 1,122 277
Other.................................................................. 387 72
------- -------
Total current assets........................................... 2,071 1,973
PROPERTY AND EQUIPMENT, AT COST USING SUCCESSFUL EFFORTS METHOD FOR
OIL AND GAS ACTIVITIES
Oil and gas producing properties....................................... 20,530 3,544
Mineral rights......................................................... 167 102
Unproven properties.................................................... 15 22
Office equipment....................................................... 178 160
Accumulated depreciation and depletion................................. (2,848) (2,481)
------- -------
18,042 1,347
PROPERTIES HELD FOR SALE AND OTHER....................................... 1,554 50
------- -------
Total assets................................................... $21,667 $ 3,370
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable....................................................... $ 665 $ 290
Note payable bank...................................................... 3,500 --
Current maturities of long term debt................................... 1,795 --
------- -------
Total current liabilities...................................... 5,960 290
Long term debt........................................................... 9,920 --
DEFERRED INCOME TAXES.................................................... 606 --
STOCKHOLDERS' EQUITY
Common stock -- par value $.01 per share; authorized 10,000,000 shares
at December 31, 1995 and 1994, issued 6,369,519 and 4,161,600 at
December 31, 1995 and 1994.......................................... 64 42
Additional paid-in capital............................................. 3,038 843
Retained earnings...................................................... 2,131 2,268
------- -------
5,233 3,153
Less: Treasury stock................................................... (52) (73)
------- -------
Total stockholders' equity..................................... 5,181 3,080
------- -------
Total liabilities and stockholders' equity..................... $21,667 $ 3,370
======= =======
</TABLE>
The accompanying notes to financial statements of Southern Mineral Corporation
and subsidiaries are an integral part of these statements.
17
<PAGE> 19
SOUTHERN MINERAL CORPORATION
STATEMENTS OF CONSOLIDATED OPERATIONS
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31
---------------------------------
1995 1994 1993
------ ------- ------
(IN THOUSANDS, EXCEPT PER SHARE
AMOUNTS)
<S> <C> <C> <C>
REVENUES
Oil and gas............................................... $2,044 $ 1,747 $2,891
Interest.................................................. 85 56 41
Gains on sales of properties.............................. 170 66 146
Other income.............................................. 61 20 --
------ ------- ------
2,360 1,889 3,078
EXPENSES
Production................................................ 656 548 554
Exploration............................................... 221 1,566 1,167
Depreciation and depletion................................ 792 704 1,208
General and administrative................................ 702 903 1,030
Valuation reduction....................................... -- 1,724 --
Severance benefit......................................... 117 135 --
------ ------- ------
2,488 5,580 3,959
Loss before income taxes and the cumulative effect of a
change in accounting for income taxes..................... (128) (3,691) (881)
Provision (benefit) for federal and state income taxes
Current provision (benefit)............................... 9 (11) (161)
Deferred Benefit.......................................... -- (547) (118)
------ ------- ------
9 (558) (279)
------ ------- ------
Loss before the cumulative effect of a change in accounting
for income tax............................................ (137) (3,133) (602)
Cumulative effect of a change in accounting for income
taxes..................................................... -- -- 65
------ ------- ------
Net loss.................................................... $ (137) $(3,133) $ (537)
====== ======= ======
Loss per share before the cumulative effect of a change in
accounting for income taxes............................... $(0.02) $ (0.78) $(0.15)
Cumulative effect per share of a change in accounting for
income taxes.............................................. -- -- 0.02
------ ------- ------
Net loss per share.......................................... $(0.02) $ (0.78) $(0.13)
====== ======= ======
</TABLE>
The accompanying notes to financial statements of Southern Mineral Corporation
and subsidiaries are an integral part of these statements.
18
<PAGE> 20
SOUTHERN MINERAL CORPORATION
STATEMENTS OF CONSOLIDATED STOCKHOLDERS EQUITY
FOR THE YEAR ENDED DECEMBER 31,
(IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL TREASURY STOCK
---------------- PAID-IN RETAINED ----------------
SHARES AMOUNT CAPITAL EARNINGS SHARES AMOUNT
------ ------ ---------- -------- ------ ------
<S> <C> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1992............. 4,162 $ 42 $ 843 $ 6,140 137 $ 73
Net loss................................. -- -- -- (537) -- --
Cash dividend of $.05 per share.......... -- -- -- (202) -- --
----- --- ------ ------- --- ----
BALANCE AT DECEMBER 31, 1993............. 4,162 42 843 5,401 137 73
Net loss................................. -- -- -- (3,133) -- --
----- --- ------ ------- --- ----
BALANCE AT DECEMBER 31, 1994............. 4,162 42 843 2,268 137 73
Stock issued for director's fees......... 14 -- 12 -- -- --
Odd lot tender offer..................... -- -- -- -- 4 6
Sale of treasury stock................... -- -- 11 -- (50) (27)
Issuance of common stock for acquisition
of Diverse Production Co............... 2,194 22 2,172 -- -- --
Net loss................................. -- -- -- (137) -- --
----- --- ------ ------- --- ----
BALANCE AT DECEMBER 31, 1995............. 6,370 $ 64 $3,038 $ 2,131 91 $ 52
===== === ====== ======= === ====
</TABLE>
The accompanying notes to financial statements of Southern Mineral Corporation
and subsidiaries are an integral part of these statements.
19
<PAGE> 21
SOUTHERN MINERAL CORPORATION
STATEMENTS OF CONSOLIDATED CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
-------------------------------
1995 1994 1993
--------- ------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss..................................................... $ (137) $(3,133) $ (537)
Adjustments to reconcile net loss to cash provided by (used
in) operating activities:
Depreciation and depletion................................ 792 704 1,208
Gains on sales of assets.................................. (170) (66) (146)
Valuation reduction....................................... -- 1,724 --
Exploration expenses...................................... 221 1,566 1,167
Decrease in deferred taxes................................ -- (547) (118)
Common stock issued as compensation....................... 12 -- --
Decrease in deferred taxes due to the cumulative effect of
a change in accounting for income taxes................. -- -- (65)
Change in assets and liabilities, net of effects of
acquisitions in 1995
Decrease (increase) in receivables...................... 214 216 (104)
(Increase) decrease in other current assets............. (39) 259 342
Other................................................... (70) 56 57
-------- ------- -------
Total adjustments.................................... 960 3,912 2,341
-------- ------- -------
Net cash provided by operating activities................. 823 779 1,804
-------- ------- -------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sales of:
Producing properties...................................... 511 42 13
Properties held for sale and unproven properties.......... 97 94 649
Decrease (increase) in marketable securities:
Purchases................................................. (1,914) (3,810) (3,960)
Maturities and sales...................................... 3,483 4,201 2,000
Capital expenditures:
Acquisition, exploration and development.................. (651) (1,107) (1,412)
Properties held for sale.................................. (684) -- (107)
Cash paid for acquisition of Stone & Webster properties, net
of cash received.......................................... (16,215) -- --
Other........................................................ (63) (8) (26)
-------- ------- -------
Net cash used in investing activities................ (15,436) (588) (2,843)
-------- ------- -------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from long term debt and note payable................ 15,215 -- --
Loan acquisition costs....................................... (127) -- --
Proceeds from sale of treasury stock......................... 38 -- --
Purchase of treasury stock................................... (6) -- --
Dividends paid............................................... -- (202) (202)
-------- ------- -------
Net cash provided (used) in financing activities..... 15,120 (202) (202)
-------- ------- -------
Net increase (decrease) in cash and cash equivalents........... 507 (11) (1,241)
Cash and cash equivalents at beginning of year................. 55 66 1,307
-------- ------- -------
Cash and cash equivalents at end of year....................... $ 562 $ 55 $ 66
======== ======= =======
</TABLE>
The accompanying notes to financial statements of Southern Mineral Corporation
and subsidiaries are an integral part of these statements.
20
<PAGE> 22
SOUTHERN MINERAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994, AND 1993
NOTE 1
General Business -- The Company is an oil and gas exploration and
production company headquartered in Houston, Texas. The Company owns interests
in over 1,800 oil and gas properties located along the Texas Gulf Coast, in the
Mid-continent and in Canada. Operations are currently conducted in south central
Texas where the Company operates two fields producing from the Wilcox formation.
In addition to interests in oil and gas wells, the Company currently owns
approximately 346,760 net mineral acres underlying some 665,148 gross surface
acres. The Company currently has 23,071 net mineral acres in Mississippi, New
Mexico and in the Texas panhandle under lease to others.
Summary of Significant Accounting Policies
Principles of Consolidation -- The consolidated financial statements
include the accounts of Southern Mineral Corporation and its subsidiaries, all
wholly-owned. In consolidation, all significant intercompany transactions have
been eliminated.
Property and Equipment -- The Company uses the successful efforts method of
accounting for its oil and gas properties. Under this method of accounting, the
tangible and intangible development costs of productive wells and development
dry holes are capitalized, and dry hole costs on exploratory wells are charged
against income when the well is determined to be non-productive. Other
exploratory expenditures, including geological and geophysical costs and delay
rentals, are expensed as incurred. The cost of unevaluated leasehold
acquisitions and wells in progress are included in unproven properties pending
evaluation.
Depreciation and depletion of producing oil and gas properties are computed
separately on each individual property on the unit-of-production method based on
estimated proved reserves. Depreciation of other property and equipment is
computed on the straight-line method over the estimated useful lives of the
assets.
Maintenance and repairs are charged to expense as incurred.
Oil and Gas Properties Held for Sale -- The costs of non-producing
exploratory properties held for sale, including lease bonuses and other
acquisition costs, are capitalized. Geological, geophysical, and other
exploration costs of non-producing properties are capitalized to the extent such
costs are reimbursed upon sale of the property, otherwise, such costs, if any,
are expensed. For those properties in which the Company sells a portion of its
interest, the cost of such properties, net of reimbursements, are removed from
this account and included in property and equipment.
Producing oil and gas properties, which have been identified for sale, are
carried at the lower of cost or estimated market.
Assets held for sale at December 31, 1995 include Venture Resources, Inc.
and subsidiaries, which has a carrying cost of $675,000 (see Note 2). The assets
of Venture Resources, Inc. and its subsidiaries consist of ten non-contiguous
pipeline and gathering systems which are not part of the Company's core business
operations.
Income Taxes -- The Company adopted prospectively the Statement of
Financial Accounting Standards (SFAS) No. 109 "Accounting for Income Taxes," in
1993. The adoption of SFAS No. 109 changes the Company's method of accounting
for income taxes from the deferred method of accounting for income tax items to
the asset and liability method. Previously, under the deferred method, the
Company deferred the past tax effects of timing differences between financial
reporting and taxable income. The asset and liability method requires the
recognition of deferred tax assets and liabilities for the expected future tax
consequences of temporary differences between tax bases and financial reporting
bases of other assets and liabilities. (See Note 3.)
21
<PAGE> 23
SOUTHERN MINERAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company deducts intangible development costs as incurred and deducts
statutory depletion (percentage depletion) when it exceeds cost depletion for
federal income tax purposes.
Cash Equivalents and Marketable Securities -- Management considers all highly
liquid investments with a maturity of three months or less when purchased to be
cash equivalents. Cash equivalents and marketable securities are U.S. Treasury
Bill investments and are carried at cost plus accrued interest, which
approximates market.
Use of Estimates in the Preparation of Financial Statements -- The preparation
of financial statements in conformity with generally accepted accounting
principles requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and the reported amounts
of revenues and expenses during the reporting period. Actual results could
differ from those estimates.
New Pronouncements -- In 1995, the Financial Accounting Standards Board (FASB)
issued Statement of Financial Accounting Standards No. 121 Accounting for the
Impairment of Long-Lived Assets to Be Disposed Of (SFAS No. 121). SFAS No. 121
established guidance for the recognition and measurement of impairment losses
for long-lived assets and certain intangibles and valuation of long-lived assets
to be disposed. This statement is effective for years beginning after December
15, 1995. The Company does not believe the effect of SFAS No. 121 would be
material to the financial statements taken as a whole.
In 1995, the FASB also issued SFAS No. 123 Accounting for Stock-Based
Compensation (SFAS No. 123). SFAS No. 123 allows entities to compute
compensation cost related to employee stock options by either using a
fair-value-based method or by continuing to use the method prescribed in APB No.
25 Accounting for Stock Issued to Employees (APB No. 25). Even if entities plan
to continue to apply APB No. 25, they will be required to adopt the new
disclosure requirements of SFAS No. 123. The effective date of this Statement is
for years beginning after December 15, 1995. The Company plans to continue to
apply APB No. 25.
Reclassifications -- Certain amounts in prior financial statements have been
reclassified to conform to the 1995 financial statement presentation.
NOTE 2 ACQUISITIONS
On April 6, 1995, the Company completed the acquisition of Diverse
Production Co. (subsequently renamed SMC Production Co.), a Texas corporation,
whose primary asset is its 15% general partner interest in Diverse GP III, a
Texas general partnership. The total cost of the acquisition was $2,345,144. The
Company issued 2,193,919 shares of common stock and 325,000 share options at an
exercise price of $1.25 per share for a term of five years. The operating
results of this acquisition are included in the Company's consolidated results
of operations from April 1, 1995.
On December 20, 1995, the Company completed the acquisition of certain oil
and gas assets of Stone & Webster Oil Company, Inc., and the outstanding capital
stock of Spruce Hills Production Company, Inc., San Salvador Development
Company, Inc., and Venture Resources, Inc., which are engaged in oil and gas
related business, including production, marketing and pipelines. The total cost
of the acquisition was approximately $16,400,000.
The acquisition was financed by bank borrowings of $15,215,000 and
internally generated working capital of $1,209,000.
22
<PAGE> 24
SOUTHERN MINERAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following summarized pro forma (unaudited) information and assumes the
acquisitions had occurred on January 1, 1994.
<TABLE>
<CAPTION>
TWELVE MONTHS ENDED
DECEMBER 31,
--------------------
1995 1994
------ -------
(000'S OMITTED,
EXCEPT
PER SHARE DATA)
<S> <C> <C>
Revenues........................................................ $8,001 $11,716
Net loss........................................................ (557) (2,852)
Net loss per share.............................................. $ (.09) $ (.46)
</TABLE>
These pro forma results are not necessarily indicative of those that would
have occurred had the acquisition taken place at the beginning of 1994 or 1995,
respectively. The above amounts reflect adjustments for interest on notes
payable issued as part of the purchase price and depreciation on revalued
property, plant and equipment.
Subsequent to December 31, 1995, the Company entered into an exploration
arrangement with Diasu Oil & Gas Co., Inc. ("Diasu") and Diasu's two principal
shareholders. Pursuant to the arrangement, on January 5, 1996, the Company
issued the Diasu shareholders 175,000 shares of common stock and warrants to
purchase up to 600,000 shares at $2.00 per share for a term of five years. The
last reported sale price for the Company's common stock on January 5, 1996 on
the NASDAQ SmallCap Market was $1.375 per share.
NOTE 3 FEDERAL AND STATE INCOME TAXES
Differences between the effective tax rate and the statutory federal rate
are as follows:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
DECEMBER 31,
---------------------------
1995 1994 1993
----- ----- -----
<S> <C> <C> <C>
Statutory rate for benefit................................ (34.0%) (34.0%) (34.0%)
Valuation allowance....................................... 33.6 18.7 --
State taxes, net of federal benefit....................... 4.5 .1 .9
Other..................................................... 2.9 .1 1.4
------ ------ ------
Effective tax rate........................................ 7.0% (15.1%) (31.7%)
======= ======= =======
</TABLE>
Deferred taxes at December 31, consist of the following:
<TABLE>
<CAPTION>
1995 1994
--------- ---------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards........................... $ 779,000 $ 676,000
Alternative minimum tax credits............................ 96,000 83,000
Statutory depletion carryforwards.......................... 110,000 96,000
--------- ---------
985,000 855,000
Valuation allowance.......................................... (405,000) (812,000)
--------- ---------
580,000 43,000
Deferred tax liabilities:
Oil and gas properties..................................... 580,000 43,000
Oil and gas properties -- Canadian taxes................... 606,000 --
--------- ---------
1,186,000 43,000
--------- ---------
$(606,000) $ --
========= =========
</TABLE>
23
<PAGE> 25
SOUTHERN MINERAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Effective January 1, 1993, the Company adopted the provisions of Statement
of Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS No. 109"),
which superseded both Accounting Principles Board Opinion No. 11 and Statement
of Accounting Standards No. 96, "Accounting for Income Taxes." As permitted
under this new standard, the Company elected to apply these provisions
prospectively rather than restating prior year financial statements. The
financial statement effect under the new standard resulted in a deferred tax
benefit of approximately $65,000, or $.02 per share. This amount is reflected in
1993 as a cumulative effect of a change in accounting principle.
For the year ended December 31, 1995, the income tax benefit was limited by
the Company's inability to recognize all of the tax benefits of its net
operating loss and future deductible temporary differences in the calculation of
its tax expense under SFAS No. 109. For federal tax purposes, the Company has
net operating loss carryforwards of approximately $1,987,000 and $2,293,000 for
the years ended 1995 and 1994 respectively, which are available to offset future
federal taxable income through 2011. The Company also has an alternative minimum
tax credit carryforward of approximately $96,000 and statutory depletion
carryforwards of $324,000 at December 31, 1995.
Cash payments of approximately $9,000, $11,000 and $125,000 were made for
federal and state income taxes during 1995, 1994 and 1993, respectively. The
Company received approximately $14,000, $282,000 and $628,000 in refunds for
federal and state income taxes during 1995, 1994 and 1993, respectively.
NOTE 4 RELATED PARTY TRANSACTIONS
From time to time, certain directors and employees of the Company have
participated as working interest owners in properties in which the Company holds
a working interest. The total of such individuals' share of costs was not
material in 1995. The Company does not anticipate that such individuals' share
of future costs for such participations will be material.
In September, 1995, the Company entered into a joint venture, Southern
Links Group Joint Venture ("Southern Links"), to acquire, develop and market
exploration prospects. The Company's joint venture partner is The Links Group,
Inc. ("Links"), a company that is controlled by Robert Hillery, a director of
the Company. The Company has agreed to fund all third party costs of Southern
Links. Any proceeds from the sale of prospects or oil and gas from such
prospects is distributed 100% to the Company until it receives an amount equal
to the return of its invested capital, after which time all such proceeds and
property interests, if any, are to be distributed 75% to the Company and 25% to
Links.
In connection with the Company's acquisition of DPC discussed in Note 2
above, the Company granted options exercisable for the following indicated
number of shares of its common stock at $1.25 per share through April 6, 2000 to
the indicated individual or entity controlled by him as partial consideration
for DPC's stock: B. Travis Basham -- 77,500, Thomas R. Fuller -- 77,500, Donald
H. Wiese, Jr. -- 77,500 and Spencer L. Youngblood -- 77,500. Each of these
individuals became directors of the Company in connection with Company's
acquisition of DPC. Entities controlled by these individuals are also general
partners of Diverse GP III, each having an approximate 20% general partner
interest.
In consideration for initiating the transactions pursuant to which the
Company acquired DPC, the Company granted Robert R. Hillery, a director of the
Company, an option to acquire 43,878 shares of the Company's common stock at
$1.00 per share exercisable through April 6, 2000.
24
<PAGE> 26
SOUTHERN MINERAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 5 MAJOR CUSTOMERS
The Company is principally engaged in a single industry segment, the
exploration, development, and production of oil and gas reserves in the United
States and Canada. Sales of oil and gas to customers accounting for 10% or more
of revenues were as follows:
<TABLE>
<CAPTION>
CUSTOMER 1995 1994 1993
-------- ---- ---- ----
(IN THOUSANDS)
<S> <C> <C> <C>
Moon-Hines-Tigrett Operating Co., Inc......................... $ 21 $ 76 $529
Mike Rogers Drilling Company.................................. 746 651 965
Ashtola Exploration Company................................... 208 283 144
</TABLE>
NOTE 6 COMMON STOCK
In connection with the offer and acceptance of employment, the new
President and CEO was granted a non-qualified stock option on December 28, 1994,
to purchase 450,000 shares of the Company's common stock at a price of $1.00 per
share. The option is non-assignable, and is exercisable until ten years after
the date of grant. Payment for the option can be made in cash, common stock of
the Company, or a combination thereof. The average of the high and low price of
a share of the Company's common stock on the date of grant was $.594. In
addition, the Company sold 50,000 shares of the Company's treasury stock to the
new President and CEO at a price per share of $.75, the high price of such stock
on January 3, 1995.
The Company has established the "1995 Non-Employee Director Compensation
Plan" (the "1995 Plan") in order to compensate non-employee Directors with
shares of the Company's common stock in lieu of cash fees. The 1995 Plan
authorizes a total of 100,000 shares of common stock for issuance and provides
that for attending a regular or special meeting of the Board of Directors each
non-employee Director will be issued 1,000 shares of common stock.
Subsequent to year end, the Board of Directors adopted the Company's 1996
Stock Option Plan ("Stock Option Plan"), subject to shareholder approval,
pursuant to which certain key employees of the Company may receive stock
options, in addition to any other compensation they may receive from the
Company. An aggregate of 300,000 shares of the Company's common stock is
reserved for issuance upon the exercise of options granted under the Stock
Option Plan. The Company's President, Steven H. Mikel, has been granted an
option exercisable for 10,000 shares of the Company's common stock at $1.50 per
share, the last reported sales price of the common stock on the NASDAQ SmallCap
Market on February 22, 1996, the date of grant. No other options have been
granted under the Stock Option Plan.
Subsequent to year end, concurrent with the adoption of the Stock Option
Plan, the Board of Directors adopted the Company's 1996 Employee Stock Purchase
Plan (the "Employee Stock Purchase Plan"), subject to shareholder approval,
which covers substantially all employees. An aggregate of 300,000 shares of the
Company's common stock are reserved for issuance upon the exercise of options
granted under the Employee Stock Purchase Plan. No options have been granted
under the Employee Stock Purchase Plan.
25
<PAGE> 27
SOUTHERN MINERAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following table reflects the activity under the Company's various plans
during the three-year period ended December 31, 1995:
<TABLE>
<CAPTION>
NUMBER OF EXERCISE PRICE
SHARES PER SHARE
--------- --------------
<S> <C> <C>
Outstanding at December 31, 1992.............................. 40,000 $ 3.38
Granted....................................................... -- --
Cancelled..................................................... -- --
Exercised..................................................... -- --
-------
Outstanding at December 31, 1993.............................. 40,000 $ 3.38
Granted....................................................... 450,000 1.00
Cancelled..................................................... -- --
Exercised..................................................... -- --
-------
Outstanding at December 31, 1994.............................. 490,000 $1.00-$3.38
Granted....................................................... 368,878 1.00- 1.25
Cancelled..................................................... (40,000) 3.38
Exercised..................................................... -- --
-------
Outstanding at December 31, 1995.............................. 818,878 $1.00-$1.25
=======
</TABLE>
NOTE 7 COMMITMENTS AND CONTINGENCIES
The Company leases office space under a noncancellable operating lease
expiring July 1, 1997. Lease commitments at December 31, 1995, are payable
$137,328 in 1996 and $68,664 in 1997.
No material legal proceedings are pending.
The Company is unaware of any possible exposure from actual or potential
claims or lawsuits involving environmental matters. As such, no liability has
been accrued as of December 31, 1995 and 1994.
NOTE 8 QUARTERLY FINANCIAL DATA (UNAUDITED)
Selected quarterly financial data of the Company are presented below for
the years ended December 31, 1995 and 1994:
<TABLE>
<CAPTION>
INCOME NET INCOME
FROM INCOME (LOSS)
1995 QUARTER REVENUES OPERATIONS(A) (LOSS) PER SHARE
------------ ---------- ------------- ----------- ---------
<S> <C> <C> <C> <C>
March 31............................. $ 472,000 $ 379,000 $ (101,000) $(.02)
June 30.............................. 687,000 504,000 (9,000) (.00)
September 30......................... 620,000 430,000 92,000 .01
December 31.......................... 581,000 391,000 (119,000) (.02)
---------- ---------- ----------- -----
$2,360,000 $1,704,000 $ (137,000) $(.02)
========== ========== =========== =====
1994 QUARTER
------------
March 31............................. $ 461,000 $ 310,000 $(2,075,000) $(.52)
June 30.............................. 480,000 332,000 (110,000) (.02)
September 30......................... 505,000 387,000 99,000 .02
December 31.......................... 443,000 312,000 (1,047,000) (.26)
---------- ---------- ----------- -----
$1,889,000 $1,341,000 $(3,133,000) $(.78)
========== ========== =========== =====
</TABLE>
- ---------------
(a) Revenues less production expenses
26
<PAGE> 28
SOUTHERN MINERAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 9 RETIREMENT BENEFITS
Prior to October 1, 1995, the Company had a 401(k) retirement plan covering
all of its eligible employees. Under the 401(k) plan, subject to certain plan
limitations and certain provisions of the Internal Revenue Code, plan
participants may contribute up to 15% of their pre-tax compensation. The
Company's matching contributions were generally limited to 10% of each plan
participant's compensation for the year ended December 31, 1993. For the years
ended December 31, 1994 and 1995, the Company contributed a matching
contribution limited to 5% of each plan participant's compensation, except an
additional qualified non-elective contribution of 3% of participant's
compensation was made for non-key employees. The Company's contributions
amounted to $5,000, $16,000 and $25,000 in 1995, 1994 and 1993, respectively.
The Company terminated its 401(k) Retirement Plan in 1995, and adopted a
Simplified Employee Pension Plan ("SEP"). The SEP allows employees to defer part
of their salary. Employer contributions are optional, and the Company will
determine annually whether it will contribute and at what level. The maximum
amount that can be contributed annually per SEP plan participant from a
combination of salary deferrals plus Company optional contributions is $22,500.
NOTE 10 OIL AND GAS PRODUCING ACTIVITIES
The Company's capitalized costs of all oil and gas properties and related
allowances for depreciation and depletion are as follows at December 31:
<TABLE>
<CAPTION>
1995 1994
------- -------
(IN THOUSANDS)
<S> <C> <C>
Proved properties................................................ $20,530 $ 3,544
Unproven properties.............................................. 15 22
Less accumulated depreciation and depletion...................... (2,848 (2,377)
------- -------
Total............................................................ $17,697 $ 1,189
</TABLE>
The Company's share of oil and gas revenues produced from its royalty
interests was $169,000, $170,000 and $240,000 for the years ended December 31,
1995, 1994, and 1993, respectively.
The Company incurred the following costs in oil and gas activities for the
year ended December 31:
<TABLE>
<CAPTION>
1995 1994 1993
------- ---- ------
(IN THOUSANDS)
<S> <C> <C> <C>
Property acquisition costs
Proved.................................................. $18,009 $ -- $ --
Unproved................................................ 873 115 258
Exploration costs......................................... 214 657 962
Development cost.......................................... 248 225 192
------- ---- ------
Total costs incurred...................................... $19,334 $997 $1,412
======= ==== ======
</TABLE>
27
<PAGE> 29
SOUTHERN MINERAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
RESERVE QUANTITY INFORMATION (UNAUDITED) --
The following two tables reflect the estimated proved reserves of the
Company. The oil and gas reserves are principally located onshore in the
continental United States and Canada. The information is provided by independent
petroleum engineering firms.
<TABLE>
<CAPTION>
DOMESTIC CANADIAN TOTAL
----------------------- ---------------------- -----------------------
OIL GAS OIL GAS OIL GAS
(BARRELS) (MCF) (BARRELS) (MCF) (BARRELS) (MCF)
--------- ---------- --------- --------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
PROVED RESERVES
Balance, December 31, 1992........ 852,879 1,870,656 -- -- 852,879 1,870,656
Extensions, discoveries and other
additions....................... 500 131,019 -- -- 500 131,019
Revisions of previous estimates... (268,785) (216,876) -- -- (268,785) (216,876)
Production........................ (110,108) (545,942) -- -- (110,108) (545,942)
------- ---------- ------- --------- --------- ----------
Balance, December 31, 1993........ 474,486 1,238,857 -- -- 474,486 1,238,857
Extensions, discoveries and other
additions....................... 45,834 245,190 -- -- 45,834 245,190
Revisions of previous estimates... (213,258) (397,443) -- -- (213,258) (397,443)
Production........................ (78,866) (300,544) -- -- (78,866) (300,544)
------- ---------- ------- --------- --------- ----------
Balance, December 31, 1994........ 228,196 786,060 -- -- 228,196 786,060
Extensions, discoveries and other
additions....................... 66 8,449 -- -- 66 8,449
Revisions of previous estimates... (24,715) (145,903) -- -- (24,715) (145,903)
Purchases of minerals in place.... 568,702 20,400,151 868,495 5,786,239 1,437,197 26,186,390
Production........................ (84,848) (404,319) -- -- (84,848) (404,319)
------- ---------- ------- --------- --------- ----------
Balance, December 31, 1995........ 687,401 20,644,438 868,495 5,786,239 1,555,896 26,430,677
======= ========== ======= ========= ========= ==========
PROVED DEVELOPED RESERVES
Balance, December 31, 1993........ 474,486 1,238,857 0 0 474,486 1,238,857
Balance, December 31, 1994........ 228,196 786,060 0 0 228,196 786,060
Balance, December 31, 1995........ 687,401 20,644,438 868,495 5,786,239 1,555,896 26,430,677
</TABLE>
STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS (UNAUDITED) --
The information that follows has been developed by the Company pursuant to
procedures prescribed by Statement No. 69 of the Financial Accounting Standards
Board and utilizes reserve data estimated by independent petroleum engineering
firms. The information may be useful for certain comparison purposes, but should
not be solely relied upon in evaluating the Company or its performance.
Moreover, the projections should not be construed as realistic estimates of
future cash flows, nor should the standardized measure be viewed as representing
current value.
The future cash flows are based on sales prices, costs, and statutory
income tax rates in existence at the dates of the projections. Since future
projections are inherently imprecise, material revisions to reserve estimates
may occur in the future. Further, production of the oil and gas reserves may not
occur in the periods assumed, and actual prices realized and actual costs
incurred are expected to vary from those used. Management does not rely upon the
information that follows in making investment and operating decisions; rather,
those decisions are based upon a wide range of factors, including estimates of
probable reserves, proved reserves, and price and cost assumptions different
from those reflected herein.
28
<PAGE> 30
SOUTHERN MINERAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following table sets forth the standardized measure of discounted
future net cash flows from projected production of the Company's proved oil and
gas reserves as of December 31 (all Company reserves were located in the United
States prior to 1995): (in thousands)
<TABLE>
<CAPTION>
1995
-------------------------------
U.S. CANADA TOTAL 1994 1993
-------- ------- -------- ------- -------
<S> <C> <C> <C> <C> <C>
Future cash inflows........................ $ 53,075 $21,063 $ 74,138 $ 4,891 $ 9,113
Future production and development costs.... (12,827) (9,520) (22,347) (1,412) (2,705)
Future income taxes........................ (9,165) (1,938) (11,103) (697) (1,058)
------- ------- ------- ------- -------
Future net cash flows............ 31,083 9,605 40,688 2,782 5,350
10% Annual discount........................ (13,793) (2,295) (16,088) (448) (1,315)
------- ------- ------- ------- -------
Standardized measure of discounted future
net cash flows........................... $ 17,290 $ 7,310 $ 24,600 $ 2,334 $ 4,035
======= ======= ======= ======= =======
Standardized measure -- Beginning of
year..................................... $ 2,334 $ -- $ 2,334 $ 4,035 $ 6,036
Oil and gas sales, net of production
costs.................................... (1,388) -- (1,388) (1,199) (2,338)
Sales of reserves in place................. -- -- -- -- --
Purchases of reserves in place............. 17,281 8,065 25,346 -- --
Net changes in prices, net of production
costs.................................... (73) -- (73) (78) (374)
Extensions and discoveries................. 14 -- 14 810 169
Revisions to previous quantity estimates... (390) -- (390) (1,835) (1,783)
Net change in income taxes................. 1,556 (755) 801 -- 1,008
Accretion of discount...................... 284 -- 284 454 755
Changes in estimated future development
costs.................................... 230 -- 230 27 542
Changes in production rates and other...... (2,558) -- (2,558) 120 20
------- ------- ------- ------- -------
Standardized measure -- end of year........ $ 17,290 $ 7,310 $ 24,600 $ 2,334 $ 4,035
======= ======= ======= ======= =======
</TABLE>
NOTE 11 LONG TERM DEBT AND NOTE PAYABLE BANK
On December 20, 1995, the Company entered into a credit facility consisting
of a secured reducing revolving line of credit with an initial borrowing base of
$12,500,000 ("Revolver Note") and a term note for $3,500,000 ("Term Note"). The
Term Note matures on July 1, 1996. The Revolver Note reduces by $215,000 per
month commencing January 1, 1996, and is reviewed by the bank semi-annually
until maturity on June 1, 1998. Under the terms of the Revolver Note, the
borrowing base is redetermined semi-annually by the lending bank based upon its
calculation of changes in the underlying reserve values securing the credit
facility. As of December 31, 1995, the Company has borrowed $11,715,000 under
the Revolver Note leaving an unfunded commitment of $785,000. The Term Note
bears an interest rate of the lending bank's prime rate plus two percent,
floating. The Revolver Note bears interest at the Company's option, of either
prime rate floating or at the LIBOR rate plus two and one-half percent. Upon
payment of the Term Note, the LIBOR rate on the Revolver Note is reduced to
LIBOR plus two and one-quarter percent. The Revolver Note is payable $1,795,000
in 1996, $2,580,000 in 1997, and $7,340,000 in 1998.
The loans are cross-collateralized by substantially all of the assets of
the Company and its subsidiaries. The credit facility contains certain covenants
relating to the Company's financial condition.
29
<PAGE> 31
SOUTHERN MINERAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None
PART III
Items 9 through 12 of this Part III are omitted since the Company expects
to file with the Securities and Exchange Commission within 120 days after the
close of its fiscal year ended December 31, 1995 a definitive proxy statement
pursuant to Regulation 14A under the Securities Exchange Act of 1934 which
involves the election of directors. Items 9 through 12 are hereby incorporated
by reference herein from such proxy statement. If, for any reason, such proxy
statement is not filed within such period, this Form 10-KSB will be
appropriately amended.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ---------- ----------------------------------------------------------------------------------
<S> <C>
3.1 -- Amended and Restated Articles of Incorporation of the Company (incorporated
herein by reference to Exhibit (a)(3)(a) of Item 14, Part IV of the Company's
Annual Report on Form 10-K filed for the year ended December 31, 1989).
3.2 -- Amended and Restated Bylaws of the Company, as amended (incorporated herein by
reference to Exhibit (a)(3)(b) of Item 14, Part IV of the Company's Annual
Report on Form 10-K filed for the year ended December 31, 1989).
10.1 -- Stock Option Agreement made as of December 31, 1994 between Southern Mineral
Corporation and Steven H. Mikel (incorporated by reference to Exhibit (h) to
annual report on Form 10-K for year ended December 31, 1994).
10.2 -- Exchange Agreement by and among Diverse Production Co., the Shareholders of
Diverse Production Co., and Southern Mineral Corporation dated March 2, 1995
(incorporated by reference to Exhibit (i) to annual report on Form 10-K for
year ended December 31, 1994).
10.3 -- Severance Agreement between Phinn W. Townsend and Southern Mineral Corporation
dated December 28, 1994 (incorporated by reference to Exhibit (j) to annual
report on Form 10-K for year ended December 31, 1994).
10.4 -- Southern Mineral Corporation 1995 Non-employee Director Compensation Plan
(incorporated by reference to Exhibit (k) to a current report on Form 10-K
filed on March 23, 1995).
10.5 -- Purchase and Sale Agreement, dated as of October 31, 1995, by and among Stone &
Webster, Incorporated, Stone & Webster Oil Company, Inc. and Southern Mineral
Corporation (incorporated by reference to Exhibit 2.1 to Form 8-K of Registrant
dated October 31, 1995).
10.6 -- Credit Agreement, dated December 20, 1995, between Southern Mineral
Corporation, SMC Production Co., San Salvador Development Company, Inc.,
Venture Resources, Inc., Venture Pipeline Company, VenGas Pipeline Company,
Spruce Hills Production Company, Inc., and Compass Bank-Houston for Reducing
Revolving Line of Credit of up to $25,000,000 (incorporated by reference to
Exhibit 10.1 to Form 8-K of Registrant dated December 20, 1995).
10.7 -- Promissory Note, dated December 20, 1995, in the original principal amount of
$25,000,000 made by Southern Mineral Corporation, SMC Production Co., San
Salvador Development Company, Inc., Venture Resources, Inc., Venture Pipeline
Company, VenGas Pipeline Company, Spruce Hills Production Company, Inc. in
favor of Compass Bank-Houston (incorporated by reference to Exhibit 10.2 to
Form 8-K of Registrant dated December 20, 1995).
</TABLE>
30
<PAGE> 32
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ---------- ----------------------------------------------------------------------------------
<S> <C>
10.8 -- Credit Agreement, dated December 20, 1995, between Southern Mineral
Corporation, SMC Production Co., San Salvador Development Company, Inc.,
Venture Resources, Inc., Venture Pipeline Company, VenGas Pipeline Company,
Spruce Hills Production Company, Inc. and Compass Bank-Houston for Term Loan of
$3,500,000 (incorporated by reference to Exhibit 10.3 to Form 8-K of Registrant
dated December 20, 1995).
10.9 -- Promissory Note, dated December 20, 1995, in the original principal amount of
$3,500,000 made by Southern Mineral Corporation, SMC Production Co., San
Salvador Development Company, Inc., Venture Resources, Inc., Venture Pipeline
Company, VenGas Pipeline Company, Spruce Hills Production Company, Inc. in
favor of Compass Bank-Houston (incorporated by reference to Exhibit 10.4 to
Form 8-K of Registrant dated December 20, 1995).
10.10 -- 1996 Stock Option Plan (filed herewith).
10.11 -- 1996 Employee Stock Purchase Plan (filed herewith).
10.12 -- Joint Venture Agreement, dated October 1, 1995, between Southern Mineral
Corporation and The Links Group, Inc. (filed herewith).
10.13 -- Option Agreement, dated January 5, 1996, between Southern Mineral Corporation
and Diasu Oil & Gas Co., Inc. covering an exploration joint venture agreement
(filed herewith).
10.14 -- Stock Option Agreement dated April 6, 1995, between Southern Mineral
Corporation and Robert R. Hillery (filed herewith).
21.1 -- Subsidiaries of the Company
</TABLE>
<TABLE>
<CAPTION>
OTHER NAME UNDER WHICH JURISDICTION OF
NAME OF SUBSIDIARY SUBSIDIARY CONDUCTS BUSINESS INCORPORATION
--------------------------------------------- ---------------------------- ---------------
<S> <C> <C> <C>
SMC Production Company None Texas
Venture Resources, Inc. None Texas
Venture Pipeline Company None Texas
Venture Processing Company None Texas
Vengas Marketing Company None Texas
Venture Distribution Company None Texas
Vengas Pipeline Company None Texas
Spruce Hills Production Co. None Delaware
San Salvador Development Company, Inc. None Texas
23.1 -- Consent of Independent Certified Public Accountants (filed herewith).
27.1 -- Financial Data Schedule (filed herewith).
</TABLE>
(b) Report on Form 8-K
None.
31
<PAGE> 33
SIGNATURES
Pursuant to Requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Company has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
SOUTHERN MINERAL CORPORATION
By: /s/ STEVEN H. MIKEL
------------------------------
Steven H. Mikel
President and Chief Executive
Officer
Date: March 22, 1996
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the Company
and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ B. TRAVIS BASHAM Director March 22, 1996
- ------------------------------
B. Travis Basham
/s/ THOMAS R. FULLER Director March 22, 1996
- ------------------------------
Thomas R. Fuller
/s/ ROBERT R. HILLERY Director March 22, 1996
- ------------------------------
Robert R. Hillery
/s/ E. RALPH HINES, JR. Director March 22, 1996
- ------------------------------
E. Ralph Hines, Jr.
/s/ HOWELL H. HOWARD Director and Chairman of the March 22, 1996
- ------------------------------ Board of Directors
Howell H. Howard
/s/ STEVEN H. MIKEL Director, President, Chief March 22, 1996
- ------------------------------ Executive Officer, and
Steven H. Mikel Acting Principal Financial
and Accounting Officer
/s/ JAMES E. NIELSON Director March 22, 1996
- ------------------------------
James E. Nielson
/s/ DONALD H. WIESE, JR. Director March 22, 1996
- ------------------------------
Donald H. Wiese, Jr.
/s/ SPENCER L. YOUNGBLOOD Director March 22, 1996
- ------------------------------
Spencer L. Youngblood
</TABLE>
32
<PAGE> 34
SOUTHERN MINERAL CORPORATION
EXHIBIT INDEX
<TABLE>
<S> <C>
10.10 -- 1996 Stock Option Plan (filed herewith).
10.11 -- 1996 Employee Stock Purchase Plan (filed herewith).
10.12 -- Joint Venture Agreement, dated October 1, 1995, between Southern
Mineral Corporation and The Links Group, Inc. (filed herewith).
10.13 -- Option Agreement, dated January 5, 1996, between Southern Mineral
Corporation and Diasu Oil & Gas Co., Inc. covering an exploration
joint venture agreement (filed herewith).
10.14 -- Stock Option Agreement dated April 6, 1995, between Southern Mineral
Corporation and Robert R. Hillery (filed herewith).
23.1 -- Consent of Independent Certified Public Accountants (filed herewith).
27.1 -- Financial Data Schedule (filed herewith).
</TABLE>
<PAGE> 1
EXHIBIT 10.10
SOUTHERN MINERAL CORPORATION
1996 STOCK OPTION PLAN
1. PURPOSE OF THE PLAN
This Southern Mineral Corporation 1996 Stock Option Plan (the "Plan")
is intended to promote the interests of the Company by providing the officers
and other key employees of the Company, who are largely responsible for the
management, growth and protection of the business of the Company, with a
proprietary interest in the Company.
2. DEFINITIONS
As used in the Plan, the following definitions apply to the terms
indicated below:
(a) "Board of Directors" or "Board" shall mean the Board of
Directors of Southern Mineral Corporation.
(b) "Cause," when used in connection with the termination of an
Employee's employment with the Company, shall mean the termination of the
Employee's employment by the Company by reason of (i) failure to perform the
Employee's duties diligently and with reasonable care, which failure(s) the
Board of Directors determines remains uncured thirty (30) days after the Board
has caused written notice of such failure(s) to be delivered to the Employee;
(ii) use of drugs or alcohol that impairs the Employee's job performance; (iii)
commission of an act of fraud or misappropriation against the Company or its
affiliated entities; (iv) conviction of, or plea of no contest to, any felony,
or to a misdemeanor involving moral turpitude; (v) the knowing engagement by
the Participant in any direct, material conflict of interest with the Company
without compliance with the Company's conflict of interest policy, if any, then
in effect; (vi) the knowing engagement by the Participant, without the written
approval of the Board of Directors of the Company, in any activity which
competes with the business of the Company or which would result in a material
injury to the Company; or (vii) the knowing engagement in any activity which
would constitute a material violation of the provisions of the Company's
insider trading policy or business ethics policy, if any, then in effect.
(c) "Change in Control" shall mean the occurrence of any of the
following events:
(i) any Person becomes, after the Effective Date of this
Plan, the "beneficial owner" (as defined in Rule 13d-3 promulgated
under the Exchange Act), directly or indirectly, of securities of the
Company representing more than fifty percent (50%) of the combined
voting power of the Company's then outstanding securities;
(ii) as a result of or in connection with a contested
election of Directors, the persons who were Directors of the Company
before such election shall cease to constitute a majority of the
Board.
(iii) the Board of Directors determines in its sole and
absolute discretion that there has been a change in control of the
Company.
<PAGE> 2
(iv) "Code" shall mean the Internal Revenue Code of 1986,
as amended from time to time. Reference in this Plan to any section
of the Code shall be deemed to include any amendments or successor
provisions to any section and any Regulations under such section.
(d) "Committee" shall mean the Compensation Committee of the Board
of Directors or such other committee as the Board of Directors shall appoint
from time to time to administer the Plan, which shall be constituted so as to
permit the Plan to comply with Rule 16b-3.
(e) "Common Stock" shall mean the Company's common stock, par
value $.01 per share.
(f) "Company" shall mean Southern Mineral Corporation, a Nevada
corporation, and each of its Subsidiaries and its successors.
(g) "Employee" shall mean any person (including an officer or
Director) who is an employee of the Company or any Parent or Subsidiary of the
Company within the meaning of Section 3401(c) of the Code and the Regulations
promulgated thereunder.
(h) "Exchange Act" shall mean the Securities Exchange Act of 1934,
as amended from time to time.
(i) the "Fair Market Value" of a share of Common Stock on any date
shall be (i) the closing sales price on the immediately preceding business day
of a share of Common Stock as reported on the principal securities exchange on
which shares of Common Stock are then listed or admitted to trading or (ii) if
not so reported, the average of the closing bid and asked prices for a share of
Common Stock on the immediately preceding business day as quoted on the
National Association of Securities Dealers Automated Quotation System
("NASDAQ") or (iii) if not quoted on NASDAQ, the average of the closing bid and
asked prices for a share of Common Stock as quoted by the National Quotation
Bureau's "Pink Sheets" or the National Association of Securities Dealers' OTC
Bulletin Board System. If the price of a share of Common Stock shall not be so
reported, the Fair Market Value of a share of Common Stock shall be determined
by the Committee in its absolute discretion.
(j) "Incentive Stock Option" shall mean an Option which is an
"incentive stock option" within the meaning of Section 422 of the Code and
which is identified as an Incentive Stock Option in the agreement by which it
is evidenced.
(k) "Non-Qualified Stock Option" shall mean an Option which is not
an Incentive Stock Option and which is identified as a Non-Qualified Stock
Option in the agreement by which it is evidenced.
(l) "Option" shall mean an option to purchase shares of Common
Stock of the Company granted pursuant to Section 6 hereof. Each Option shall
be identified either as an Incentive Stock Option or a Non-Qualified Stock
Option in the agreement by which it is evidenced.
(m) "Parent" shall mean a "parent corporation," whether now or
hereafter existing, as defined in Section 424(e) of the Code.
(n) "Participant" shall mean an Employee of the Company who is
eligible to participate in the Plan and to whom an Option is granted pursuant
to the Plan and his successors, heirs, executors and administrators, as the
case may be, to the extent permitted hereby.
(o) "Person" shall mean a "person," as such term is defined in
Section 3(a)(9) and used in Sections 13(d) and 14(d) of the Exchange Act,
respectively, and the rules and regulations in effect from time to time
thereunder.
-2-
<PAGE> 3
(p) "Plan" shall mean this 1996 Stock Option Plan, as it may be
amended from time to time.
(q) "Regulations" shall mean all regulations promulgated pursuant
to the Code.
(r) "Securities Act" shall mean the Securities Act of 1933, as
amended from time to time.
(s) "Subsidiary" or "Subsidiaries" shall mean any and all
corporations in which at the pertinent time the Company owns, directly or
indirectly, stock vested with more than fifty percent (50%) of the total
combined voting power of all classes of stock of such corporation within the
meaning of Section 424(f) of the Code.
3. STOCK SUBJECT TO THE PLAN
The Committee may grant Options under the Plan with respect to a
number of shares of Common Stock that in the aggregate does not exceed 300,000
shares; provided, however, that if and whenever the Company effects a
subdivision or consolidation of shares of Common Stock or the payment of a
stock dividend on Common Stock without receipt of consideration by the Company,
the number of shares of Common Stock subject to the Plan automatically shall be
proportionately increased or reduced accordingly. The Company will, during the
term of this Plan, reserve and keep available for issuance a sufficient number
of shares of Common Stock to satisfy the requirements of the Plan.
If any outstanding Option expires, terminates or is canceled for any
reason, the shares of Common Stock subject to the unexercised portion of such
Option shall again be available for grant under the Plan.
Shares of Common Stock issued under the Plan may be either newly
issued or treasury shares, at the discretion of the Committee.
4. ADMINISTRATION OF THE PLAN
The Plan shall be administered by the Committee which shall consist of
two or more persons each of whom shall be both (i) a "disinterested person"
within the meaning of Rule 16b-3(c)(2)(i) promulgated under Section 16 of the
Exchange Act and (ii) an "outside director" within the meaning of Section
162(m)(4)(C) of the Code and the Regulations promulgated thereunder. The
Committee shall continue to serve until otherwise directed by the Board of
Directors. From time to time, the Board of Directors may increase the size of
the Committee and appoint additional members thereof, remove members (with or
without cause) and appoint new members to fill any vacancies.
The Committee shall from time to time designate the Participants who
shall be granted Options and the amount and type of such Options. The
Committee shall have full authority to administer the Plan, including authority
to interpret and construe any provision of the Plan and the terms of any Option
issued under it and to adopt such rules and regulations for administering the
Plan as it may deem necessary. Decisions of the Committee shall be final and
binding on all parties.
-3-
<PAGE> 4
The Committee may, in its absolute discretion (i) accelerate the date
on which any Option granted under the Plan becomes exercisable, or (ii) extend
the date on which any Option granted under the Plan ceases to be exercisable.
In addition, the Committee may, in its absolute discretion, grant
Options to Participants on the condition that such Participants surrender to
the Committee for cancellation such other Options (including, without
limitation, Options with higher exercise prices) as the Committee specifies.
Notwithstanding Section 3 hereof, Options granted on the condition of surrender
of outstanding Options shall not count against the limits set forth in such
Section 3 until such time as such Options are surrendered.
Except as provided in Section 6(f)(4) hereof, whether an authorized
leave of absence or leave of absence for military or government service shall
constitute termination of employment shall be determined by the Committee in
its absolute discretion.
No member of the Committee shall be liable for any action, omission,
or determination relating to the Plan, and the Company shall indemnify and hold
harmless each member of the Committee and each other Director or Employee of
the Company to whom any duty or power relating to the administration or
interpretation of the Plan has been delegated from and against any cost or
expense (including attorneys' fees) or liability (including any sum paid in
settlement of a claim with the approval of the Committee) arising out of any
action, omission or determination relating to the Plan, unless, in either case,
such action, omission or determination was taken or made by such member,
Director or Employee in bad faith and without reasonable belief that it was in
the best interests of the Company.
5. ELIGIBILITY
The persons who shall be eligible to receive Options pursuant to the
Plan shall be Employees who are largely responsible for the management, growth
and protection of the business of the Company (including officers of the
Company) as the Committee, in its absolute discretion, shall select from time
to time.
6. OPTIONS
The Committee may grant Options pursuant to the Plan, which Options
shall be evidenced by agreements in such form as the Committee shall from time
to time approve. Options shall comply with and be subject to the following
terms and conditions:
(a) Identification of Options
All Options granted under the Plan shall be clearly identified in the
agreement evidencing such Options as either Incentive Stock Options or as
Non-Qualified Stock Options.
(b) Exercise Price
The exercise price of any Non-Qualified Stock Option granted under the
Plan shall be such price as the Committee shall determine on the date on which
such Non-Qualified Stock Option is granted; provided, that such price may not
be less than the minimum price required by law. Except as provided in Section
6(e) hereof, the exercise price of any Incentive Stock Option granted under the
Plan shall be not less than one hundred percent
-4-
<PAGE> 5
(100%) of the Fair Market Value of a share of Common Stock on the date on which
such Incentive Stock Option is granted.
(c) Term and Exercise of Options
(1) Each Option shall be exercisable on such date
or dates, during such period and for such number of shares of
Common Stock as shall be determined by the Committee on the
day on which such Option is granted and set forth in the
agreement evidencing the Option; provided, however, that (A)
no Option shall be exercisable after the expiration of ten
(10) years from the date such Option was granted, subject to
the restrictions set forth in Section 6(e)(2) relating to the
grant of certain Incentive Stock Options, and (B) no Option
shall be exercisable until six (6) months after the date of
grant; and, provided, further, that each Option shall be
subject to earlier termination, expiration or cancellation as
provided in the Plan.
(2) Each Option shall be exercisable in whole or in
part with respect to whole shares of Common Stock. The
partial exercise of an Option shall not cause the expiration,
termination or cancellation of the remaining portion thereof.
On the partial exercise of an Option, the agreement evidencing
such Option shall be returned to the Participant exercising
such Option together with the delivery of the certificates
described in Section 6(c)(5) hereof.
(3) An Option shall be exercised by delivering
notice to the Company's principal office, to the attention of
its Secretary, no fewer than five business days in advance of
the effective date of the proposed exercise. Such notice
shall be accompanied by the agreement evidencing the Option,
shall specify the number of shares of Common Stock with
respect to which the Option is being exercised and the
effective date of the proposed exercise, and shall be signed
by the Participant. The Participant may withdraw such notice
at any time prior to the close of business on the business day
immediately preceding the effective date of the proposed
exercise, in which case such agreement shall be returned to
the Participant. Payment for shares of Common Stock purchased
upon the exercise of an Option shall be made on the effective
date of such exercise either (i) in cash, by certified check,
bank cashier's check or wire transfer or (ii) subject to the
approval of the Committee, in shares of Common Stock owned by
the Participant and valued at their Fair Market Value on the
effective date of such exercise, or partly in shares of Common
Stock with the balance in cash, by certified check, bank
cashier's check or wire transfer. Any payment in shares of
Common Stock shall be effected by the delivery of such shares
to the Secretary of the Company, duly endorsed in blank or
accompanied by stock powers duly executed in blank, together
with any other documents and evidences as the Secretary of the
Company shall require from time to time.
(4) Any Option granted under the Plan may be
exercised by a broker-dealer acting on behalf of a Participant
if (i) the broker-dealer has received from the Participant or
the Company a duly endorsed agreement evidencing such Option
and instructions signed by the Participant requesting the
Company to deliver the shares of Common Stock subject to such
Option to the broker-dealer on behalf of the Participant and
specifying the account into which such shares should be
deposited, (ii) adequate provision has been made with respect
to the payment of any withholding taxes due on such exercise
and (iii) the broker-dealer and the Participant have otherwise
complied with Section 220.3(e)(4) of Regulation T, 12 CFR Part
220.
-5-
<PAGE> 6
(5) Certificates for shares of Common Stock
purchased on the exercise of an Option shall be issued in the
name of the Participant and delivered to the Participant as
soon as practicable following the effective date on which the
Option is exercised; provided, however, that such delivery
shall be effected for all purposes when a stock transfer agent
of the Company shall have deposited such certificates in the
United States mail, addressed to the Participant. Separate
stock certificates shall be issued by the Company for those
shares acquired pursuant to the exercise of an Incentive Stock
Option and for those shares acquired pursuant to the exercise
of any Option that does not constitute an Incentive Stock
Option.
(6) During the lifetime of a Participant each
Option granted to him shall be exercisable only by him or a
broker-dealer acting on behalf of such Participant pursuant to
Section 6(c)(4) hereof. No Option shall be assignable or
transferable otherwise than by will or by the laws of descent
and distribution.
(d) Limitations on Grant of Options
(1) No Participant may be granted Options for more
than 100,000 shares of Common Stock during any Company fiscal
year, such maximum number of shares subject to Options being
referred to in this Plan as the "Annual Option Limitation".
(2) Solely for purposes of the Annual Option
Limitation, shares of Common Stock subject to Options granted
to a Participant hereunder which are (i) subsequently canceled
shall continue to be counted against the 100,000 share Annual
Option Limitation with respect to such Participant, and/or
(ii) subsequently amended to reduce the exercise price of such
Options shall be deemed a cancellation of such original
Options and the grant of a deemed new Option with respect to
such Participant, resulting in both the deemed canceled
Options and the new Options counting against the 100,000 share
Annual Option Limitation with respect to such Participant.
(e) Limitations on Grant of Incentive Stock Options
(1) The aggregate Fair Market Value of shares of
Common Stock (subject to adjustment in the same manner as
provided in Section 7 with respect to shares of Common Stock
subject to Options then outstanding) with respect to which
Incentive Stock Options are exercisable for the first time by
a Participant during any calendar year under the Plan and any
other stock option plan of the Company or of its Parent or any
Subsidiary shall not exceed $100,000. Such Fair Market Value
shall be determined as of the date on which each such
Incentive Stock Option is granted. If the aggregate Fair
Market Value of shares of Common Stock underlying such
Incentive Stock Options exceeds $100,000, then Incentive Stock
Options granted hereunder to such Participant shall, to the
extent and in the order required by Regulations promulgated
under the Code (or any other authority having the force of
Regulations), automatically be deemed to be Non-Qualified
Stock Options, but all other terms and provisions of such
Incentive Stock Options shall remain unchanged. In the
absence of such Regulations (and authority), or if such
Regulations (or authority) require or permit a designation of
the Options which shall cease to constitute Incentive Stock
Options, Incentive Stock Options shall, to the extent of such
excess and in the order in which they were granted,
automatically be deemed to be Non-Qualified Stock Options, but
all other terms and provisions of such Incentive Stock Options
shall remain unchanged.
-6-
<PAGE> 7
(2) No Incentive Stock Option may be granted to an
individual if, at the time of the proposed grant, such
individual owns stock possessing more than ten percent (10%)
of the total combined voting power of all classes of stock of
the Company or of its Parent or any Subsidiary unless (i) the
exercise price of such Incentive Stock Option is at least one
hundred and ten percent (110%) of the Fair Market Value of a
share of Common Stock at the time such Incentive Stock Option
is granted and (ii) such Incentive Stock Option is not
exercisable after the expiration of five (5) years from the
date such Incentive Stock Option is granted.
(f) Effect of Termination of Employment
(1) If the Participant's employment with the
Company terminates for any reason other than Cause, "permanent
and total disability" (within the meaning of Section 22(e)(3)
of the Code) or by reason of the Participant's death (i)
Options granted to Participant, to the extent that they were
exercisable at the time of such termination, shall remain
exercisable until the expiration of three (3) months after
such termination, on which date they shall expire, and (ii)
Options granted to such Participant, to the extent that they
were not exercisable at the time of such termination, shall
expire at the close of business on the date of such
termination; provided, however, that no Option shall be
exercisable after the expiration of its term.
(2) If the Participant's employment with the
Company terminates on account of the "permanent and total
disability" (within the meaning of Section 22(e)(3) of the
Code) or on account of the Participant's death (i) Options
granted to such Participant, to the extent that they were
exercisable at the time of such termination, shall remain
exercisable until the expiration of one (1) year after such
termination, on which date they shall expire, and (ii) Options
granted to such Participant, to the extent that they were not
exercisable at the time of such termination, shall expire at
the close of business on the date of such termination;
provided, however, that no Option shall be exercisable after
the expiration of its term.
(3) In the event of the termination of a
Participant's employment for Cause, all outstanding Options
granted to such Participant shall expire at the commencement
of business on the date of such termination.
(4) An Employee's employment with the Company shall
be deemed terminated if the Employee's leave of absence
(including, military or sick leave or other bona fide leave of
absence) extends for more than 90 days and the Employee's
continued employment with the Company is not guaranteed by
contract or statute.
(g) Acceleration of Exercise Date Upon Change in Control
Upon the occurrence of a Change in Control, the Committee (as
constituted immediately prior to the Change in Control) shall determine, in its
absolute discretion, whether each Option granted under the Plan and outstanding
at such time shall become fully and immediately exercisable and shall remain
exercisable until its expiration, termination or cancellation pursuant to the
terms of the Plan or whether each such Option shall continue to vest according
to its terms.
-7-
<PAGE> 8
7. ADJUSTMENT ON CHANGES IN COMMON STOCK
(a) Outstanding Options, Increase or Decrease in Issued Shares
Without Consideration
Subject to any required action by the stockholders of the Company, in
the event of any increase or decrease in the number of issued shares of Common
Stock resulting from a subdivision or consolidation of shares of Common Stock
or the payment of a stock dividend (but only on the shares of Common Stock), or
any other increase or decrease in the number of such shares effected without
receipt of consideration by the Company, the Committee shall proportionally
adjust the number of shares and the exercise price per share of Common Stock
subject to each outstanding Option. Conversion of any of the Company's
convertible securities shall not be deemed to have been "effected without
receipt of consideration by the Company."
(b) Outstanding Options, Certain Mergers
Subject to any required action by the stockholders of the Company, if
the Company shall be the surviving corporation in any merger or consolidation
(except a merger or consolidation as a result of which the holders of shares of
Common Stock receive securities of another corporation), each Option
outstanding on the date of such merger or consolidation shall entitle the
Participant to acquire on exercise the securities which a holder of the number
of shares of Common Stock subject to such Option would have received in such
merger or consolidation.
(c) Outstanding Options, Certain Other Transactions
In the event of a dissolution or liquidation of the Company, a sale of
all or substantially all of the Company's assets, a merger or consolidation
involving the Company in which the Company is not the surviving corporation or
a merger or consolidation involving the Company in which the Company is the
surviving corporation but the holders of shares of Common Stock receive
securities of another corporation and/or other property, including cash, the
Committee shall, in its absolute discretion, have the power to:
(i) cancel, effective immediately prior to the occurrence of
such event, each Option outstanding immediately prior to such event
(whether or not then exercisable), and, in full consideration of such
cancellation, pay to the Participant to whom such Option was granted
an amount in cash, for each share of Common Stock subject to such
Option equal to the excess of (A) the value, as determined by the
Committee in its absolute discretion, of the property (including cash)
received by the holder of a share of Common Stock as a result of such
event over (B) the exercise price of such Option; or
(ii) provide for the exchange of each Option outstanding
immediately prior to such event (whether or not then exercisable) for
an option on some or all of the property for which such Option is
exchanged and, incident thereto, make an equitable adjustment as
determined by the Committee in its absolute discretion in the exercise
price of the option, or the number of shares or amount of property
subject to the option or, if appropriate, provide for a cash payment
to the Participant to whom such Option was granted in partial
consideration for the exchange of the Option.
-8-
<PAGE> 9
(d) Outstanding Options, Other Changes
In the event of any change in the capitalization of the Company or
corporate change other than those specifically referred to in Sections 7(a),
(b) or (c) hereof, the Committee may, in its absolute discretion, make such
adjustments in the number and class of shares subject to Options outstanding on
the date on which such change occurs and in the per share exercise price of
each such Option as the Committee may consider appropriate to prevent dilution
or enlargement of rights.
(e) No Other Rights
Except as expressly provided in the Plan, no Participant shall have
any rights by reason of any subdivision or consolidation of shares of stock of
any class, the payment of any dividend, any increase or decrease in the number
of shares of stock of any class or any dissolution, liquidation, merger or
consolidation of the Company or any other corporation. Except as expressly
provided in the Plan, no issuance by the Company of shares of stock of any
class, or securities convertible into shares of stock of any class, shall
affect, and no adjustment by reason thereof shall be made with respect to, the
number of shares of Common Stock subject to an Option or the exercise price of
any Option.
8. RIGHTS AS A STOCKHOLDER
No Participant shall have any rights as a stockholder with respect to
any shares of Common Stock covered by or relating to an Option granted pursuant
to this Plan until the date of the issuance of a stock certificate with respect
to such shares. Except as otherwise expressly provided in Section 7 hereof, no
adjustment to any Option shall be made for dividends or other rights for which
the record date occurs prior to the date such stock certificate is issued.
9. NO SPECIAL EMPLOYMENT RIGHTS; NO RIGHT TO OPTIONS
Nothing contained in the Plan or any Option shall confer on any
Participant any right with respect to the continuation of his employment by the
Company or interfere in any way with the right of the Company, subject to the
terms of any separate employment agreement to the contrary, at any time to
terminate such employment or to increase or decrease the compensation of any
such Participant from the rate in existence at the time of the grant of an
Option.
No Employee shall have any claim or right to receive an Option
hereunder. The grant of an Option to a Participant by the Committee at any
time shall neither require the Committee to grant an Option to such Participant
or any other Participant or person at any time nor preclude the Committee from
making subsequent grants to such Participant or any other Participant or
person.
10. SECURITIES MATTERS
The Company shall be under no obligation to effect the registration
pursuant to the Securities Act of any shares of Common Stock to be issued as a
result of the exercise of any Option granted hereunder or to effect similar
compliance under any state laws. Notwithstanding anything herein to the
contrary, the Company shall not be obligated to cause to be issued or delivered
any certificates evidencing shares of Common Stock pursuant to the exercise of
any Option granted hereunder unless and until the Company is advised by its
counsel that the issuance and delivery of such certificates is in compliance
with all applicable laws, regulations of governmental
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<PAGE> 10
authority and the requirements of any securities exchange or quotation system
on which shares of Common Stock are traded or quoted. The Committee may
require, as a condition of the issuance and delivery of certificates evidencing
shares of Common Stock pursuant to the terms hereof, that the recipient of such
shares make such covenants, agreements and representations, and that such
certificates bear such legends, as the Committee, in its sole discretion, deems
necessary or desirable.
The exercise of any Option granted hereunder shall only be effective
at such time as counsel to the Company shall have determined that the issuance
and delivery of shares of Common Stock pursuant to such exercise is in
compliance with all applicable laws, regulations of governmental authorities
and the requirements of any securities exchange or quotation system on which
shares of Common Stock are traded or quoted. The Company may, in its sole
discretion, defer the effectiveness of any exercise of an Option granted
hereunder in order to allow the issuance of shares of Common Stock pursuant
thereto to be made pursuant to registration or an exemption from registration
or other methods for compliance available under federal or state securities
laws. The Company shall inform the Participant in writing of its decision to
defer the effectiveness of the exercise of an Option granted hereunder. During
the period that the effectiveness of the exercise of an Option has been
deferred, the Participant may, by written notice, withdraw such exercise and
obtain the refund of any amount paid with respect thereto.
It is intended that the Plan, transactions thereunder, and any Option
granted under the Plan to Persons subject to Section 16 of the Exchange Act
meet all applicable requirements of Rule 16b-3 or its successors under the
Exchange Act. To the extent any provision of the Plan or action by the
Committee fails to so comply, it shall be deemed null and void, to the extent
permitted by law and deemed advisable by the Committee. Moreover, in the event
the Plan does not include a provision required by Rule 16b-3 to be stated
therein, such provision (other than one relating to eligibility requirements,
or the price and amount of Options granted) shall be deemed automatically to be
incorporated by reference into the Plan insofar as Participants subject to
Section 16 are concerned.
11. WITHHOLDING TAXES
Whenever shares of Common Stock are to be issued on the exercise of an
Option, the Company shall have the right to require the Participant to remit to
the Company in cash an amount sufficient to satisfy federal, state and local
withholding tax requirements, if any, attributable to such exercise, prior to
the delivery of any certificate or certificates for such shares.
12. AMENDMENT OF THE PLAN
The Board of Directors may at any time suspend or discontinue the Plan
or revise or amend it in any respect whatsoever, provided, however, that
without approval of the holders of a majority of the Company's outstanding
securities present in person or by proxy and entitled to vote at an annual or
special meeting of stockholders (or such greater percentage as may be required
by applicable law or the Company's articles of incorporation), no revision or
amendment shall (i) increase the number of shares of Common Stock that may be
issued under the Plan, except as provided in Sections 3 and 7 hereof, (ii)
materially increase the benefits accruing to Participants, (iii) materially
modify the requirements as to eligibility for participation in the Plan, (iv)
increase the Annual Option Limitation set forth in Section 6(d) hereof, (v)
extend the term of the Plan, or (vi) to decrease any authority granted to the
Committee under the Plan in contravention of Rule 16b-3.
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<PAGE> 11
13. NO OBLIGATION TO EXERCISE
The grant to a Participant of an Option shall impose no obligation on
such Participant to exercise such Option.
14. TRANSFERS UPON DEATH
On the death of a Participant, outstanding Options granted to such
Participant may be exercised only by the executors or administrators of the
Participant's estate or by any person or persons who shall have acquired such
right to exercise by will or by the laws of descent and distribution. No
transfer by will or the laws of descent and distribution of any Option, or the
right to exercise any Option, shall be effective to bind the Company unless the
Committee shall have been furnished with (a) written notice thereof and with a
copy of the will and/or such evidence as the Committee may deem necessary to
establish the validity of the transfer and (b) an agreement by the transferee
to comply with all the terms and conditions of the Options that are or would
have been applicable to the Participant and to be bound by the acknowledgments
made by the Participant in connection with the grant of such Options.
15. EXPENSES AND RECEIPTS
The expenses of the Plan shall be paid by the Company. Any proceeds
received by the Company in connection with any Option will be used for general
corporate purposes.
16. FAILURE TO COMPLY
In addition to the remedies of the Company elsewhere provided for
herein, failure by a Participant to comply with any of the terms and conditions
of the Plan or the agreement executed by such Participant evidencing an Option,
unless such failure is remedied by such Participant within ten days after
having been notified of such failure by the Committee, shall be grounds for the
cancellation and forfeiture of such Option, in whole or in part as the
Committee, in its absolute discretion, may determine.
17. NO RESTRICTION ON CORPORATE ACTION
Nothing contained in the Plan shall be construed to prevent the
Company or any Subsidiary from taking any corporate action that is deemed by
the Company or such Subsidiary to be appropriate or in its best interest,
whether or not such action would have an adverse effect on the Plan or any
Option granted under the Plan. No Employee, beneficiary or other person shall
have any claim against the Company or any Subsidiary as a result of any such
action.
18. GOVERNING LAW
This Plan shall be construed in accordance with the laws of the State
of Texas.
19. EFFECTIVE DATE AND TERM OF PLAN
The Plan was adopted by the Board of Directors on February 22, 1996,
subject to the approval by the stockholders of the Company, in accordance with
applicable law, the requirements of Sections 422 and 162(m) of the Code and the
requirements of Rule 16b-3 under Section 16(b) of the Exchange Act. Except
with respect
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<PAGE> 12
to Options then outstanding, the Plan shall terminate and no further Options
shall be granted at the earlier of (i) the expiration of ten years from the
date of its adoption by the Board, or (ii) the point in time when no shares of
Common Stock reserved for issuance subject to Options granted under the Plan
are available. Options may be granted under the Plan at any time prior to
receipt of such stockholder approval; provided, however, that each such grant
shall be subject to such approval. If the Plan is not approved by the
stockholders prior to February 22, 1997, then the Plan and all Options then
outstanding hereunder shall automatically terminate and be of no further force
and effect.
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<PAGE> 1
EXHIBIT 10.11
SOUTHERN MINERAL CORPORATION
1996 EMPLOYEE STOCK PURCHASE PLAN
1. PURPOSE OF THE PLAN
The purpose of the SOUTHERN MINERAL CORPORATION 1996 EMPLOYEE STOCK
PURCHASE PLAN (the "PLAN") is to furnish to eligible employees an incentive to
advance the best interests of SOUTHERN MINERAL CORPORATION (the "COMPANY") by
providing a method whereby they may voluntarily purchase stock of the Company
at a favorable price and upon favorable terms through the granting of options
to purchase shares of the Company's common stock ("OPTION" or "OPTIONS"). The
Plan is intended to constitute an "employee stock purchase plan" within the
meaning of Section 423 of the Internal Revenue Code of 1986, as amended from
time to time (the "CODE").
2. ADMINISTRATION OF THE PLAN
The Plan shall be administered by a committee (the "COMMITTEE") of two
or more directors of the Company appointed by the Board of Directors of the
Company (the "BOARD"). Once appointed, the Committee shall continue to serve
until otherwise directed by the Board of Directors. From time to time, the
Board of Directors may increase the size of the Committee and appoint
additional members thereof, remove members (with our without cause) and appoint
new members to fill any vacancies.
Subject to the provisions of the Plan, the Committee shall interpret
the Plan and all options granted under the Plan, shall make such rules as it
deems necessary for the proper administration of the Plan, shall make all other
determinations necessary or advisable for the administration of the Plan and
shall correct any defect or supply any omission or reconcile any inconsistency
in the Plan or in any option granted under the Plan in the manner and to the
extent that the Committee deems desirable to carry the Plan or any option into
effect. Any action taken or determination made by the Committee pursuant to
this and the other paragraphs of the Plan shall be conclusive on all parties.
The act or determination of a majority of the Committee shall be deemed to be
the act or determination of the Committee.
Notwithstanding any provision in the Plan to the contrary, no options
may be granted under the Plan to any member of the Committee during the term of
his or her membership on the Committee. No person shall be eligible to serve
on the Committee unless such a person is then a "DISINTERESTED PERSON" within
the meaning of Rule 16b-3(c)(2)(i) of the Securities and Exchange Commission,
promulgated under Section 16 of the Securities Exchange Act of 1934, as amended
(the "EXCHANGE ACT"), if and as such Rule is then in effect.
<PAGE> 2
No member of the Committee shall be liable for any action, omission,
or determination relating to the Plan, and the Company shall indemnify and hold
harmless each member of the Committee and each other director or employee of
the Company to whom any duty or power relating to the administration or
interpretation of the Plan has been delegated from and against any cost or
expense (including attorneys' fees) or liability (including any sum paid in
settlement of a claim with the approval of the Committee) arising out of any
action, omission or determination relating to the Plan, unless, in either case,
such action, omission or determination was taken or made by such member,
director or employee in bad faith and without reasonable belief that it was in
the best interests of the Company.
3. ELIGIBILITY
All employees of the Company and those of any present or future
subsidiary corporations of the Company (within the meaning of Section 424(f) of
the Code), except for employees whose customary employment is less than 20
hours per week or for not more than five months in any calendar year, shall be
eligible to participate in the Plan; provided, however, no option shall be
granted to an employee if such employee, immediately after the option is
granted, owns stock possessing five percent (5%) or more of the total combined
voting power or value of all classes of stock of the Company or of its parent
or subsidiary corporation (within the meaning of Section 423(b)(3) and 424(d)
of the Code). For purposes of the 5% stock ownership test, stock which an
employee may purchase under outstanding options shall be treated as owned by
such employee.
4. STOCK SUBJECT TO THE PLAN
Subject to the provisions of paragraph 11 (relating to adjustment upon
changes in stock), the aggregate number of shares for which options may be
granted under the Plan shall not exceed 300,000 shares of the Company's
authorized common stock, par value $.01 per share ("STOCK"), which shares may
be authorized but unissued shares or treasury shares or both. Should any
option granted under the Plan expire or terminate prior to its exercise in
full, the shares theretofore subject to such option may again be subject to an
option granted under the Plan. Any shares which are not subject to outstanding
options upon the termination of the Plan shall cease to be subject to the Plan.
5. GRANT OF OPTIONS
(a) General Statement; "date of grant"; "option period"; "date of
exercise"
Following the effective date of the Plan and continuing while the Plan
remains in force, the Company shall offer options under the Plan to all
eligible employees to purchase shares of Stock. Unless the Committee
determines otherwise, these options shall be granted on January 1 and July 1 of
each year (each of which dates is hereinafter referred to as a "DATE OF
GRANT"). The term of each option is six months (each of which six month
periods is hereinafter referred to as an "OPTION
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<PAGE> 3
PERIOD") which shall begin on a date of grant (the last day of each option
period is hereinafter referred to as a "DATE OF EXERCISE"). The number of
whole shares of Stock subject to each option shall be the quotient of (i) the
total payroll deductions authorized by each participant (defined below) in
accordance with subparagraph 6(b) as extended for the full applicable option
period, divided by (ii) eighty-five percent (85%) of the "fair market value"
(as defined in subparagraph 6(b)) per share of Stock as of the date of grant of
such option, rounded down to the nearest whole share of Stock.
(b) Election to Participate; Payroll Deduction Authorization
Except as provided in subparagraph 6(e), an eligible employee may
participate in the Plan only by means of payroll deduction. Each eligible
employee who elects to participate in the Plan shall deliver to the Company
during the calendar month immediately preceding a date of grant a written
payroll deduction authorization in a form prepared by the Company, whereby the
employee gives notice of his or her election to participate in the Plan (the
"PARTICIPANT") as of the next following date of grant, and whereby the employee
designates a stated percentage to be deducted from his or her eligible
compensation (defined below) on a monthly basis or for each of the Company's
pay days (at the participant's election) and paid into the Plan for his or her
account. The stated percentage may not be less than two percent (2%), nor
greater than ten percent (10%), of the amount of eligible compensation (defined
below) from which the deduction is made; provided, however, such stated
percentage shall not exceed that amount, when considered with other options
which may be granted under the Plan for the same calendar year, which will
result in noncompliance with the $25,000 limitation stated in subparagraph
6(d).
The term "ELIGIBLE COMPENSATION" means base rate of pay or base
monthly salary on the date of grant. "ELIGIBLE COMPENSATION" does not include
management incentives and bonuses, overtime, extended work-week premiums, or
other special payments, fees, or allowances.
(c) Changes in Payroll Authorization
The payroll deduction authorization referred to in subparagraph 6(b)
may be reduced at any time during the option period by the employee by giving
written notice to the Company that the employee's payroll deduction with
respect to such option period shall thereafter be reduced to a specified
percentage (subject to the limitations set forth in subparagraphs 6(b) and (d))
of the employee's eligible compensation. Such reduction shall be irrevocable.
(d) $25,000 Limitation
No employee shall be granted an option under the Plan to the extent
the grant of an option under the Plan would permit the employee's right to
purchase Stock under the Plan and under all other employee stock purchase plans
of the Company and its parent and subsidiary corporations (as such terms are
defined in Section 424(e) and (f) of the Code) to accrue at a rate which
exceeds
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<PAGE> 4
$25,000 of fair market value of Stock (determined at the time the option is
granted) for each calendar year in which any such option granted to such
employee (the "OPTIONEE") is outstanding at any time (within the meaning of
Section 423(b)(8) of the Code). A right to purchase stock which has accrued
under one option granted under the Plan may not be carried over to any other
option pursuant to Section 423(b)(8)(C) of the Code.
(e) Leaves of Absence
During leaves of absence (including military or sick leave or other
bona fide leaves of absence) approved by the Company not exceeding 90 days and
meeting the requirements of Treasury Regulation Section 1.421-7(h)(2), a
participant may continue participation in the Plan by cash payments to the
Company on the participant's normal pay days equal to the reduction in the
participant's payroll deductions caused by his or her leave.
6. EXERCISE OF OPTIONS
(a) General Statement
Unless a participant gives written notice to the Company to withdraw
from the Plan pursuant to paragraph 7, each participant in the Plan
automatically and without any act on the participant's part shall be deemed to
have exercised his or her option on each date of exercise to the extent that
the balance then in the participant's account under the Plan is sufficient to
purchase at the "option price" (as defined in subparagraph 6(b)) whole shares
of Stock subject to the participant's option. Any balance remaining in the
participant's account after payment of the purchase price of those whole shares
of Stock subject to the participant's option shall be refunded to the
participant promptly. If the total number of shares for which options are
exercised on any date of exercise exceeds the maximum number of remaining
shares of Stock available to be issued pursuant to options under the Plan, the
Company shall make a pro rata allocation of such shares of Stock available for
delivery and distribution among the participants, in as nearly a uniform manner
as shall be practicable and as it shall determine to be equitable. Any balance
remaining in the participant's account shall be refunded to the participant
promptly after the purchase price for such pro rata shares of Stock has been
credited to the account of each participant under the Plan. No participant
shall have the right to exercise options with respect to fractional shares of
Stock.
(b) "Option Price" Defined
The option price per share of Stock to be paid by each optionee on
each exercise of his or her option shall be a sum equal to eighty-five percent
(85%) of the fair market value of the Stock on the date of exercise or on the
date of grant of such option, whichever amount is less (the "OPTION PRICE").
For all purposes under the Plan, the "FAIR MARKET VALUE" of a share of Stock on
any date shall be (i) the closing sales price on the immediately preceding
business day of a share of Stock as
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<PAGE> 5
reported on the principal securities exchange on which shares of Stock are then
listed or admitted to trading or (ii) if not so reported, the average of the
closing bid and asked prices for a share of Stock on the immediately preceding
business day as quoted on the National Association of Securities Dealers
Automated Quotation System ("NASDAQ") or (iii) if not quoted on NASDAQ, the
average of the closing bid and asked prices for a share of Stock as quoted by
the National Quotation Bureau's "Pink Sheets" or the National Association of
Securities Dealers' OTC Bulletin Board System. If the price of a share of
Stock shall not be so reported, the fair market value of a share of Stock shall
be determined by the Committee in its absolute discretion.
(c) Delivery of Stock Certificates
The Company shall deliver to each optionee a certificate issued in the
optionee's name for the number of whole shares of Stock with respect to which
his or her option was exercised and for which the optionee has paid the option
price. The certificate shall be delivered as soon as practicable following the
date of exercise. In the event the Company is required to obtain from any
commission or agency authority to issue any such certificate, the Company shall
seek to obtain such authority. Inability of the Company to obtain from any
such commission or agency authority which counsel for the Company deems
necessary for the lawful issuance of any such certificate shall relieve the
Company from liability to any participant in the Plan except to return to the
participant the amount of the balance in his or her account.
7. WITHDRAWAL FROM THE PLAN
(a) General Statement
Any participant may withdraw in whole from the Plan at any time.
Partial withdrawals shall not be permitted. A participant who wishes to
withdraw from the Plan must deliver to the Company a notice of withdrawal in a
form prepared by the Company. The Company, promptly following the time when
the notice of withdrawal is delivered, shall refund to the participant the
amount of the balance in the participant's account under the Plan; and
thereupon, automatically and without any further act on his or her part, the
participant's payroll deduction authorization, the participant's interest in
the Plan, and the participant's options under the Plan shall terminate.
(b) Eligibility Following Withdrawal
A participant who withdraws from the Plan shall be eligible to
participate again in the Plan upon expiration of the option period during which
the participant withdrew (provided that the participant is otherwise eligible
to participate in the Plan at such time). Notwithstanding the foregoing, if
the withdrawing participant is subject to Section 16 of the Exchange Act, such
participant shall not again be eligible to participate in the Plan until six
months after the date of his or her withdrawal.
5
<PAGE> 6
8. TERMINATION OF EMPLOYMENT
(a) Termination of Employment Other Than by Retirement or Death
If the employment of a participant terminates other than by retirement
or death, his or her participation in the Plan automatically and without any
act on his or her part shall terminate as of the date of the termination of the
participant's employment. The Company shall promptly refund to the participant
the amount of the balance in the participant's account under the Plan, and
thereupon his or her interest in the Plan and options under the Plan shall
terminate.
(b) Termination by Retirement
A participant who retires on or after his or her attainment of age 65
may, at the participant's election by written notice to the Company, exercise
his or her outstanding options granted under the Plan as of the participant's
retirement date. Pursuant to such written request, the Company shall apply the
balance in the participant's account under the Plan to the purchase of whole
shares of Stock, at the option price, and refund the excess in the account, if
any, to the participant. If the participant elects to exercise his or her
options, the date of his or her retirement shall be deemed to be the date of
exercise for the purpose of computing the number of outstanding options and the
option price per share of Stock. The Company shall also deliver to such
participant a certificate issued in the participant's name pursuant to
subparagraph 6(c) for the number of whole shares of Stock with respect to which
his or her options were exercised and for which the participant has paid the
option price. In lieu of exercising his or her options under the Plan, the
participant may, by written notice to the Company, request payment of the
balance in his or her account under the Plan, in which event the Company shall
promptly make such payment, and thereupon the participant's interest in the
Plan and the participant's options under the Plan shall terminate. If the
Company does not receive either notice referred to above in this subparagraph
8(b) within 90 days of the participant's retirement date, the participant shall
be conclusively presumed to have requested the payment of the balance of his or
her account.
(c) Termination by Death
If the employment of a participant is terminated by the participant's
death, the executor of the participant's will or the administrator of the
participant's estate may, by written notice to the Company, exercise the
participant's outstanding options granted under the Plan as of the date of the
participant's death. Pursuant to such written request the Company shall apply
the balance in the participant's account under the Plan to the purchase of
whole shares of Stock, at the option price, and refund the excess in the
account, if any, to such executor or administrator. If the executor of the
participant's will or the administrator of the participant's estate elects to
exercise the participant's options, the date of the participant's death shall
be deemed to be the date of exercise for the purpose
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<PAGE> 7
of computing the number of outstanding options and the option price per share
of Stock. The Company shall also deliver to such participant's executor or
administrator a certificate issued in the name of the participant's estate
pursuant to subparagraph 6(c) for the number of whole shares of Stock with
respect to which the participant's options were exercised and for which the
participant has paid the option price. In lieu of exercising the participant's
options under the Plan, the participant's executor or administrator may, by
written notice to the Company, request payment of the balance in the
participant's account under the Plan, in which event the Company shall promptly
make such payment, and thereupon the participant's interest in the Plan and the
participant's options under the Plan shall terminate. If the Company does not
receive either notice referred to above in this subparagraph 8(c) within 90
days of the participant's death, the participant's executor or administrator
shall be conclusively presumed to have requested the payment of the balance of
the participant's account.
9. RESTRICTION ON TRANSFER AND EXERCISE
An option granted under the Plan shall not be transferable otherwise
than by will or the laws of descent and distribution. Each option shall be
exercisable, during the participant's lifetime, only by the employee to whom
the option was granted. The Company shall not recognize and shall be under no
duty to recognize any assignment or purported assignment by an employee of his
or her option or of any rights under his or her option.
If an employee to whom an option has been granted (i) exercises such
option for shares of Stock and (ii) is subject to Section 16 of the Exchange
Act, then such employee may not transfer or otherwise dispose of any of such
stock for six months from the date of exercise of the underlying option.
10. NO RIGHTS OF STOCKHOLDER UNTIL CERTIFICATE ISSUED
With respect to shares of Stock subject to an option, an optionee
shall not be deemed to be a stockholder, and the optionee shall not have any of
the rights or privileges of a stockholder. An optionee shall have the rights
and privileges of a stockholder when, but not until, a certificate for shares
has been issued to the optionee following exercise of his or her option.
11. CHANGES IN STOCK ADJUSTMENTS
Whenever any change is made in the Stock, by reason of a stock
dividend or by reason of subdivision, combinations, or reclassification of
shares, appropriate action will be taken by the Board to adjust accordingly the
number of shares subject to the Plan and the number and option price of shares
subject to options outstanding under the Plan.
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<PAGE> 8
If the Company shall not be the surviving corporation in any merger or
consolidation (or survives only as a subsidiary of an entity other than a
previously wholly-owned subsidiary of the Company), or if the Company is to be
dissolved or liquidated, then, unless a surviving corporation assumes or
substitutes new options (within the meaning of Section 424(a) of the Code) for
all options then outstanding, (i) the date of exercise for all options then
outstanding shall be accelerated to dates fixed by the Committee prior to the
effective date of such merger or consolidation or such dissolution or
liquidation, (ii) a participant (or his or her legal representative) may, at
the participant's (or legal representative's) election by written notice to the
Company, either (x) withdraw from the Plan pursuant to paragraph 7 and receive
a refund from the Company in the amount of the balance in the participant's
account under the Plan, (y) exercise a portion of his or her outstanding
options as of such exercise date to purchase whole shares of Stock, at the
option price, to the extent of the balance in the participant's account under
the Plan or (z) exercise in full his or her outstanding option as of such
exercise date to purchase whole shares of Stock, at the option price, which
exercise shall require such participant (or legal representative) to make a
cash deposit as of the date of exercise in an amount sufficient to fully
exercise the option and pay the related option price, and (iii) upon such
effective date any unexercised option shall expire. The date the Committee
selects for the exercise date under the preceding sentence shall be deemed to
be the exercise date for purposes of computing the option price per share of
Stock. If the participant (or legal representative) elects to exercise all or
any portion of the options, the Company shall deliver to such participant (or
legal representative) a certificate issued in the respective participant's (or
legal representative's) name pursuant to subparagraph 6(c) for the number of
whole shares of Stock with respect to which such options were exercised and for
which such participant (or legal representative) has paid the option price, and
refund the excess in the account, if any, to the respective participant (or
legal representative). If the participant (or legal representative) fails to
provide the notice set forth above within three days after the exercise date
selected by the Committee under this paragraph 11, the participant (or legal
representative) shall be conclusively presumed to have requested to withdraw
from the Plan and receive payment of the balance of his or her account.
12. PLAN EXPENSES; USE OF FUNDS; NO INTEREST PAID
The expenses of the Plan shall be paid by the Company. All funds
received or held by the Company under the Plan shall be included in the general
funds of the expenses the Company free of any trust or other restriction, and
may be used for any corporate purpose. No interest shall be paid to any
participant or credited to his account under the Plan.
13. TERM OF THE PLAN
The Plan shall be effective upon the date of its adoption by the
Board, provided the Plan is approved by the stockholders of the Company within
12 months thereafter. Except with respect to options then outstanding, if not
terminated sooner under the provisions of paragraph 14, the Plan shall
terminate and no further options shall be granted at the earlier of (i) the
expiration of ten years
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<PAGE> 9
from the date of its adoption by the Board, or (ii) the point in time when no
shares of Stock reserved for issuance pursuant to options granted under the
Plan are available.
14. AMENDMENT OR TERMINATION OF THE PLAN
The Board in its discretion may terminate the Plan at any time with
respect to any shares for which options have not theretofore been granted. The
Board shall have the right to alter or amend the Plan or any part thereof from
time to time; provided, that no change in any option theretofore granted may be
made which would impair the rights of the optionee without the consent of such
optionee; and provided, further, that the Board may not make any alteration or
amendment which would materially increase the benefits accruing to participants
under the Plan, increase the aggregate number of shares for which options may
be granted pursuant to the provisions of the Plan (other than as a result of
the anti-dilution provisions of paragraph 11), change the class of individuals
eligible to receive options under the Plan, extend the term of the Plan, cause
options issued under the Plan to fail to meet the requirements of employee
stock purchase options as defined in Section 423 of the Code, or otherwise
modify the requirements as to eligibility for participation in the Plan without
the approval of the stockholders of the Company.
15. SECURITIES LAWS
The Company shall not be obligated to issue any Stock pursuant to any
option granted under the Plan at any time when the shares covered by such
option have not been registered under the Securities Act of 1933 and such other
state and federal laws, rules or regulations as the Company or the Committee
deems applicable and, in the opinion of legal counsel for the Company, there is
no exemption from the registration requirements of such laws, rules or
regulations available for the issuance and sale of such shares.
16. NO RESTRICTION ON CORPORATE ACTION
Nothing contained in the Plan shall be construed to prevent the
Company or any subsidiary from taking any corporate action which is deemed by
the Company or such subsidiary to be appropriate or in its best interest,
whether or not such action would have an adverse effect on the Plan or any
award made under the Plan. No employee, beneficiary or other person shall have
any claim against the Company or any subsidiary as a result of any such action.
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<PAGE> 1
EXHIBIT 10.12
SOUTHERN LINKS GROUP
JOINT VENTURE AGREEMENT
THIS JOINT VENTURE AGREEMENT (the "AGREEMENT"), effective as
of September ___, 1995, is by and between SOUTHERN MINERAL CORPORATION ("SMC"),
a Texas corporation, and THE LINKS GROUP, INC. ("LINKS"), a [Texas]
corporation, and will constitute a binding agreement with respect to the rights
and obligations of SMC and Links in and to prospects generated within the AMI
Area, as hereinafter defined. SMC and Links may sometimes individually be
referred to as "PARTY" and collectively as the "PARTIES."
PRELIMINARY STATEMENTS
1. Links has assembled over 2,000 miles of 2-D seismic data (the
"DATA") in the offshore Texas state waters encompassing the Brazos and
Matagorda areas as delineated in the attached Exhibit A (such area shall
hereinafter be referred to as the "AMI AREA") and has identified more than ten
prospect areas within such AMI Area.
2. Links desires to provide SMC with access to and copies of such
Data and SMC desires to provide Links with financial and marketing assistance
in the acquisition of and farm-in of any prospects which are generated within
the AMI Area and the subsequent sale of or farm-out of such prospects.
NOW THEREFORE, in consideration of the mutual promises
contained herein, the benefits to be derived by each Party hereunder, and
intending to be legally bound, the Parties hereby agree as follows:
ARTICLE I
CERTAIN DEFINITIONS AND REFERENCES
1.1 As used in this Agreement, the words and terms which are
capitalized herein and the references used herein shall have the meaning
ascribed to them in Exhibit B attached hereto and made a part hereof for all
purposes.
ARTICLE II
FORMATION OF THE JOINT VENTURE
2.1 FORMATION OF THE JOINT VENTURE.
(a) The Parties hereby join in and form a joint venture
(hereinafter referred to a the "VENTURE" or "JOINT VENTURE") for the
limited purposes and scope hereinafter set forth.
<PAGE> 2
(b) Except as expressly provided for herein to the
contrary, the rights and obligations of the Parties and the
administration and termination of the Joint Venture shall be governed
by the Texas Uniform Partnership Act (the "ACT"). Each Party's
interest in the Joint Venture shall be personal property for all
purposes. All real and other property owned by the Joint Venture
shall be deemed owned by the Joint Venture as an entity, and no Party,
individually, shall have any ownership of such property.
2.2 NAME OF THE JOINT VENTURE. The business of the Joint Venture
shall be conducted solely under the name Southern Links Group and such name
shall be used at all times in connection with the Joint Venture affairs. The
Parties shall execute and file all assumed or fictitious name certificates
required by law to be filed in connection with the formation of the Joint
Venture.
2.3 PURPOSES AND SCOPE OF JOINT VENTURE. The purposes of the
Joint Venture are, and the sole and exclusive business of the Joint Venture
shall be, to acquire and own, operate, develop, lease, sell, exchange, promote
or otherwise dispose of oil and gas properties located within the AMI Areas.
2.4 POWERS. To accomplish the purposes of the Joint Venture, the
Joint Venture shall have the power to take any lawful action which is permitted
by the Act and which is reasonably related to the purposes of the Joint
Venture.
2.5 PRINCIPAL PLACE OF BUSINESS. The principal place of business
of the Joint Venture shall be 17001 Northchase, Suite 690, Houston, Texas
77060-2138.
ARTICLE III
MANAGEMENT OF THE JOINT VENTURE
3.1 MANAGEMENT OF THE JOINT VENTURE.
(a) The overall management and control of the business
and affairs of the Joint Venture shall be vested solely in SMC.
Effective September __, 1995, SMC is hereby designated as the manager
(hereinafter sometimes referred to as the "MANAGER") with duties
prescribed in this Agreement. The Manager shall be responsible for
the implementation of the decisions of the Parties and for conducting
the ordinary and usual business and affairs of the Joint Venture.
(b) No act shall be taken, sum expended, or obligation
incurred by the Joint Venture, Manager, or any Party with respect to a
matter within the ambient of any of the major decisions ("MAJOR
DECISIONS") affecting the Joint
2
<PAGE> 3
Venture, as enumerated below, unless such of the Major Decisions have
been approved by all of the Parties. The Major Decisions shall
include:
(1) Purchase and acquisition of any Prospect;
(2) Financing of the Joint Venture, including but
not limited to interim and permanent financing of acquiring
any Prospect;
(3) Sale, lease or other transfer, or mortgaging
or other encumbrance of any Prospect;
(4) Making any expenditure or incurring any
obligation by or of the Joint Venture involving a sum in
excess of $5000; provided, however, that expenditures made and
obligations incurred in excess of the dollar limits set forth
above in the event of an emergency or other situation
requiring an immediate decision which should not reasonably be
delayed until approval by all of the Parties has been secured,
but as promptly as practicable, the Parties shall be informed
of such emergency or other situation necessitating the
immediate decision and, if known, the approximate total amount
of the expenditure or obligations so made or incurred; and
(5) Any other decision or action which by any
provision of this Agreement is required to be approved by the
Parties and shall not be subject to receiving its approval
outside the terms of this Agreement.
3.2 DUTIES OF MANAGER.
(a) The Manager, at the expense of and on behalf of the
Joint Venture, shall implement or cause to be implemented all Major
Decisions of the Joint Venture and shall conduct or cause to be
conducted the ordinary and usual business and affairs of the Joint
Venture, all in accordance with the provisions of this Agreement.
(b) Any provision of this Agreement to the contrary
notwithstanding, the Manager shall not have any authority to make any
expenditure or incur any obligation on behalf of the Joint Venture
involving in the aggregate for each such transaction or group of
similar transactions in excess of the sums specified pursuant to
Section 3.1(b)(4) hereof, unless approved by all of the Parties.
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<PAGE> 4
ARTICLE IV
PROSPECTS
[4.1 INITIAL PROSPECTS. Exhibit C, attached hereto and made a part
hereof, describes the initial prospects that are subject to this Agreement
("INITIAL PROSPECTS"). Links continues to work on the Initial Prospects and is
concurrently herewith furnishing SMC with respect to each Initial Prospect the
geological and geophysical data and other information which Links has acquired
with respect thereto (exclusive of data and information which Links is by prior
agreement prohibited from disclosing), along with the maps, evaluations and
studies made by Links. Such information shall also contain, where available, a
specification of the location of the initial well to be drilled on the
prospect, the specified objective depth to which the initial well is to be
drilled, and an estimate of the costs and expenses to be incurred in drilling,
testing, completing and equipping, or in plugging and abandoning, the initial
well (which is an estimate only and not a representation).
4.2 PROPOSED ADDITIONAL PROSPECT ACQUISITIONS. As Links
identifies additional opportunities to acquire any acreage, or the rights
thereto, within the AMI Area then Links shall give written notice of the
proposed acquisition to Southern, specifying the location of the proposed
acquisition, the estimated number of acres to be acquired, the identity of the
party owning the right to produce oil and gas from such acreage if such
acquisition is a farm-in and the estimated cost to acquire such acreage or
rights. Southern shall have thirty (30) days after receipt of the notice
within which to notify Links whether they elect to participate in the cost of
such acquisition. If both Parties agree to the acquisition of the proposed
acreage, then such acquisition shall be deemed to be a Prospect for purposes of
this Agreement. Failure of Southern to reply within the period above fixed
shall constitute an election by Southern not to participate in the cost of the
acquisition and Links shall be free to acquire leases for the lands covering
said acreage in its own name and Southern shall have no rights with respect to
such leases or lands.
ARTICLE V
SMC CONTRIBUTIONS
5.1 INITIAL CONTRIBUTION. In consideration for the Data, the
exclusive use of Links' personnel and Links' best efforts to pursue the
objectives of this Agreement, SMC agrees to pay to Links upon execution of the
Agreement by both Parties an amount equal to SEVENTY FIVE THOUSAND AND
NO/DOLLARS ($75,000.00) (the "INITIAL CONTRIBUTION").
5.2 PROSPECT ACQUISITIONS. SMC agrees to pay for any and all
Investment Amounts, which are deemed necessary or advisable in SMC's sole
discretion, related to the acquisition of a Prospect.
4
<PAGE> 5
ARTICLE VI
OWNERSHIP INTERESTS
6.1 RECOUPMENT OF CONTRIBUTIONS. Notwithstanding the Ownership
Interests set forth in Section 6.2, SMC shall be entitled to receive 100% of
the Joint Venture's share of proceeds from any Prospect until such time
(hereinafter referred to as "PAYOUT") that the proceeds of the sale of such
share, calculated at the well, or market value thereof if such share is not
sold (after deducting any and all costs of production, applicable ad valorem,
production, severance, and excise taxes, royalty, overriding royalty and other
interests payable out of or measured by the production from such well accruing
with respect to such interest until it reverts), shall equal an amount which is
the sum of (a) any Initial Contributions which have not been recouped by SMC
and (b) any unrecouped Investment Amounts contributed by SMC whether such
amounts are attributed to said Prospect or are unrecouped amounts from any
prior Prospect which was acquired by the Parties pursuant to this Agreement.
6.2 OWNERSHIP INTERESTS. Upon acquisition of any lease for lands
covering a Prospect acquired pursuant to this Agreement, all income and costs
attributable to such Prospect shall be allocated on the basis of seventy-five
percent (75%) interest to SMC and twenty-five percent (25%) interest to Links.
After Payout for any Prospect, any and all income and costs incurred in
connection with the Prospect shall be allocated seventy-five percent (75%) to
SMC and twenty-five percent (25%) to Links. In addition, after Payout, any
property interest or income received therefrom which is retained, backed in or
farmed out in connection with a Prospect by the Parties hereto shall be
allocated seventy-five percent (75%) to SMC and twenty-five percent (25%) to
Links.
ARTICLE VII
COVENANTS
7.1 EXCLUSIVE DEALINGS. Links shall furnish the Data and any and
all technical support which is required in connection therewith to SMC and
shall undertake to lease, develop and promote exploratory prospects on an
exclusive basis with SMC in the AMI Area. Links will provide all management
and technical support necessary to identify, lease, package and sell the
Prospects.
7.2 OPERATIONS. Prospects which are developed jointly by SMC and
Links or in which SMC and Links retain an interest in accordance with this
Agreement, shall be operated in accordance with a joint operating agreement
which is mutually agreed to by the Parties and any third party holding an
interest in such Prospect upon development.
5
<PAGE> 6
ARTICLE VIII
CONFIDENTIALITY
8.1 CONFIDENTIALITY. During the period that a Prospect is covered
by this Agreement or an operating agreement agreed to by the Parties, the
Parties shall be prohibited from disclosing to any third party any geological,
geophysical or reservoir information with respect to any Prospect, or any logs
or other information pertaining to the progress, tests or results of any well
drilled thereon, unless agreed to by all Parties; except that a Party may make
confidential information available to:
(a) courts or governmental agencies as required by
statute, regulation or order; provided that the disclosing Party shall
use its best efforts to require the court or governmental agency be
bound by the confidentiality provisions hereof;
(b) officers, directors, employees, agents and other
representatives of the Parties; provided that such officers,
directors, employees, agents and other representatives agree to be
bound by the confidentiality provisions hereof
(c) prospective assignees under a purchase or farmout
agreement; provided that such prospective assignee agrees to be bound
by the confidentiality provisions hereof.
8.2 PUBLICITY. It is agreed that all Parties shall mutually
approve the timing and content of all news releases concerning a Prospect.
ARTICLE IX
TERM AND TERMINATION
9.1 TERM. This Agreement shall be in effect for a term beginning
on the date hereof and shall continue through December 31, 1997, unless
otherwise terminated in accordance with this Agreement. Thereafter the
Agreement shall continue in full force and effect from year to year unless
terminated by either Party upon written notice delivered to the other Party on
or before sixty (60) days prior to the end of the calendar year.
9.2 AUTOMATIC TERMINATION.
(a) If any Party shall file a voluntary petition under
any bankruptcy or insolvency law or under the arrangement or
reorganization provisions of the United States Bankruptcy Code or
under the provisions of any law of like import, or makes an assignment
of its property for the benefit of creditors, or if an involuntary
petition is filed against any Party under any bankruptcy,
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<PAGE> 7
insolvency, or reorganization provision of any law or if a receiver of
any Party or for the property of any Party shall be appointed and if
such proceedings are not stayed or terminated within the sixty (60)
day period following such occurrence, the Joint Venture shall
terminate automatically, such Party shall be deemed to be the
"WITHDRAWING PARTY."
(b) The Joint Venture shall terminate automatically upon
the dissolution or termination of any corporation, partnership, or
trust which is or shall hereafter become a Party. The corporation,
partnership, or trust which is a Party which so dissolves shall be the
Withdrawing Party.
9.3 TERMINATION FOR DEFAULT.
(a) Except where expressly provided for herein to the
contrary, if any Party fails to perform any of its respective
obligations hereunder, the other party ("NON-DEFAULTING PARTY") shall
have the right to give such party ("DEFAULTING PARTY") a notice of
default ("NOTICE OF DEFAULT"). The notice of Default shall set forth
the nature of the obligation which the Defaulting Party has not
performed.
(b) If, within the thirty (30) day period following
receipt of the Notice of Default, the Defaulting Party in good faith
commences to perform such obligation and cure such default and
thereafter prosecutes to completion with diligence and continuity the
curing thereof and cures such default within a reasonable time, it
shall be deemed that the Notice of Default was not given and the
Defaulting Party shall lose no rights hereunder. If within such
thirty (30) day period, the Defaulting Party does not commence in good
faith the curing of such default or does not thereafter prosecute to
completion with diligence and continuity the curing thereof, the
Non-Defaulting Party shall have the right to terminate this Joint
Venture by giving the Defaulting Party written notice thereof. If the
Joint Venture is so terminated, the Defaulting Party shall be deemed
to be the Withdrawing Party and the Non-Defaulting Party shall be
referred to as the Non-Withdrawing Party.
9.4 REMEDIES OF THE NON-WITHDRAWING PARTY. In the case of a
termination of the Joint Venture under Sections 9.2 and 9.3 hereof, the
Non-Defaulting Party shall have all the remedies available at law or in equity
in connection therewith, and, further, shall have the right to purchase the
Ownership Interest and all of the right, title and interest of the Withdrawing
Party in and to the Joint Venture for an amount equal to [do we want to set up
capital accounts and if so is the positive balance in the Withdrawing Parties
capital account satisfactory as a settlement mechanism for such purchase]. In
the event the Non-Withdrawing Party shall elect to purchase such Ownership
Interest and all of the right, title and interest of the Withdrawing Party
under this Section 9.4, the Non-Withdrawing Party is hereby appointed
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<PAGE> 8
as the agent and attorney-in-fact of the Withdrawing Party to execute such
assignments and bills of sale as shall be necessary to effect such transfer.
9.5 TERMINATION UPON DISPOSITION OF VENTURE PROPERTY. Upon sale
(not including an exchange) or condemnation of all or substantially all of the
Venture assets the Venture shall terminate. In such case, the Manager shall
immediately commence to wind up the Venture's affairs and shall liquidate the
assets of the Venture as promptly as possible, but in an orderly and
businesslike manner, so as not to involve undue sacrifice. The proceeds of
such liquidations (or the non-cash assets as the case may be) shall be applied
and distributed in the order of priority provided in Article 6.2 hereof.
ARTICLE X
MISCELLANEOUS
10.1 NOTICES. All notices, elections, demands or other
communications required or permitted to be made or given pursuant to this
Agreement shall be in writing and shall be considered as properly given or made
if given by (a) personal delivery, (b) expedited delivery service with proof of
delivery, (c) first class mail postage prepaid, or (i) prepaid telegram, telex
or facsimile (provided that such telegram, telex or facsimile is confirmed by
expedited delivery service in the manner previously described). Each Party's
address for notices and other communications hereunder shall be that set forth
below. Any Party may change its address by giving notice in writing to the
other Party of its new address.
SMC:
Southern Mineral Corporation
17001 Northchase, Suite 690
Houston, Texas 77060-2138
Telecopy: (713) 872-5232
Attention: Mr. Steven H. Mikel
LINKS:
The Links Group, Inc.
13131 Champions Drive, Suite 206
Houston, Texas 77069
Telecopy: (713)
Attention: Mr. Robert R. Hillery
10.2 OTHER BUSINESS ACTIVITIES. Each of the Parties reserves the
right to generate and formulate prospects other than those generated within the
AMI Area and to carry on
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<PAGE> 9
exploratory, drilling and production operations with respect thereto, either
alone or with other parties.
10.3 KNOWLEDGEABLE INVESTOR. Each of the Parties hereby
acknowledges that it is sophisticated, knowledgeable and active in the business
of oil and gas investments, operations and exploration, that such business
involves substantial risks, and that there is no guarantee or representation
whatsoever that any of the prospects covered by this Agreement will be
productive of oil, gas or other minerals.
10.4 BINDING EFFECT. This Agreement shall be binding upon and
inure to the benefit of the successors and assigns of the parties.
10.5 ENTIRE AGREEMENT. This Agreement constitutes the entire
Agreement and understanding between the Parties and supersedes any and all
prior agreements, understandings and negotiations, written or oral, relating to
the subject matter hereof, unless referenced and incorporated herein. This
Agreement may be modified and amended only by written instrument executed by
the Parties.
10.6 ASSIGNMENT. The Parties agree that they shall not have the
right to transfer, sell, pledge or assign their shares in the Joint Venture, or
any of their obligations or duties under this Agreement, without the prior
written consent of the other Party.
10.7 GOVERNING LAW. Any dispute between the Parties concerning the
interpretation, performance or breach of this Agreement shall be governed by
the laws of the State of Texas without regard to conflict of laws principles.
10.8 NO WAIVER OF RIGHTS. Failure to exercise any right or power
by any Party under this Agreement does not constitute a waiver of such power or
right, unless expressly agreed in writing.
10.9 SEVERABILITY. Each of the provisions of this Agreement is
severable from every other provision of this Agreement and the invalidity or
unenforceability of any one or more provisions of this Agreement shall not
affect the validity or enforceability of the remaining provisions of this
Agreement.
[SIGNATURES ON THE NEXT PAGE]
<PAGE> 10
IN WITNESS WHEREOF, the undersigned has executed this
Agreement effective as of the day first written above.
SOUTHERN MINERAL CORPORATION
By:
-----------------------------------
Name:
---------------------------------
Title:
--------------------------------
THE LINKS GROUP, INC.
By:
-----------------------------------
Name:
---------------------------------
Title:
--------------------------------
EXECUTION COPY
<PAGE> 11
EXHIBIT B
Attached to that certain Joint Venture Agreement
by and between Southern Mineral Corporation
and The Links Group, Inc. dated
September ___, 1995
1. DEFINITIONS. When used in the Agreement, the following terms
shall have the respective meanings assigned to them in this Exhibit B or in the
sections, subsections or other subdivisions referred to below:
ACT shall have the meaning attributed to it in Section 2.1(b)
of this Agreement.
AGREEMENT shall have the meaning attributed to it in the first
paragraph herein.
AMI AREA shall have the meaning attributed to it in the first
recital of this Agreement.
DATA shall have the meaning attributed to it in the first
recital of this Agreement.
DEFAULTING PARTY shall have the meaning attributed to it in
Section 9.3(a) of this Agreement.
ELECTING PARTY shall have the meaning attributed to it in
Section 4.2.
EVENT OF DISSOLUTION shall have the meaning attributed to in
Section 9.2 of this Agreement.
INITIAL CONTRIBUTION shall have the meaning attributed to it
in Section 5.1.
INVESTMENT AMOUNT shall mean the sum of (1) the actual amount
paid by or on behalf of the Joint Venture for the acquisition of the Prospects,
and (2) examination costs, broker's commissions, attorney's fees, due diligence
fees, filing fees, recording costs, and transfer and sales taxes, if any, and
other similar costs incurred with respect to such Prospects in connection with
their acquisition.
JOINT VENTURE shall have the meaning attributed to it in
accordance with Section 2.1 of this Agreement.
LINKS shall mean The Links Group, Inc., a [Texas] corporation.
B-1
<PAGE> 12
MANAGER shall have the meaning attributed to it in accordance
with Section 3.1(a) of this Agreement.
NON-DEFAULTING PARTY shall have the meaning attributed to it
in Section 9.3(a) of this Agreement.
NON-WITHDRAWING PARTY shall have the meaning attributed to it
in Section ___ of this Agreement.
NOTICE OF DEFAULT shall have the meaning attributed to it in
Section 9.3(a) of this Agreement.
PARTY or PARTIES shall have the meaning attributed to them in
the first paragraph of this Agreement.
PAYOUT shall have the meaning attributed to it in Section 6.1.
PROPOSING PARTY shall have the meaning attributed to it in
Section 4.2.
PROSPECT shall mean
SMC shall mean Southern Mineral Corporation, a Texas
corporation.
VENTURE shall have the meaning attributed to it in accordance
with Section 2.1 of this Agreement.
WITHDRAWING PARTY shall have the meaning attributed to it in
Section ___ of this Agreement.
2. REFERENCES. All references in this Agreement to articles,
sections, subsections and other subdivisions of this Agreement unless expressly
provided otherwise. Titles appearing at the beginning of any of such articles,
sections, subsections and other subdivisions are for convenience only and shall
not constitute part of such subdivisions and shall be disregarded in construing
the language contained in such subdivisions. The words "this Agreement,"
"herein," "hereof," "hereby," "hereunder," and words of similar import refer to
this Agreement as a whole and not to any particular subdivision unless
expressly so limited. Words in the singular form shall be construed to include
the plural and vice versa, unless the context otherwise requires.
B-2
<PAGE> 1
EXHIBIT 10.13
OPTION AGREEMENT
THIS OPTION AGREEMENT (hereinafter referred to as the
"AGREEMENT"), is made and entered into this 5th day of January, 1996, by and
between DIASU OIL & GAS COMPANY, INC., ("DIASU"), a Texas corporation, with its
principal place of business at 4420 F.M. 1960 West, Suite 400, Houston, Texas
77068, and SOUTHERN MINERAL CORPORATION, a Texas corporation, with its
principal place of business at 500 Dallas Avenue, Suite 2800, Houston, Texas
77002 ("SOUTHERN").
NOW THEREFORE, in consideration of the mutual covenants and
agreements set forth herein, the parties hereby agree as follows:
ARTICLE I
OPTION
1.1 SOUTHERN'S OPTION. During the term of this Agreement, if
Diasu, or its Affiliates, acquire any oil, gas or mineral leases or any
interest therein, any mineral interest or any farmouts or other contracts with
respect thereto (such acquired interest shall hereinafter be referred to as a
"NEW PROSPECT"), Southern shall have the right to acquire an interest in such
New Prospect in accordance with the other terms of this Agreement; provided,
however, Southern's right hereunder shall not extend to the acquisition of any
interest located within the area described on Exhibit 1-1 attached hereto.
1.2 SOUTHERN WARRANT SHARES. As consideration for Diasu granting
Southern an option on New Prospects as provided in Section 1.1 of this
Agreement, Southern hereby agrees to issue and deliver to Diasu, or its
designated holder, a warrant, in a form substantially similar to that attached
hereto as Exhibit B, exercisable as provided below beginning on or after
January 5, 1996, for a period ending on the date five years after the date
hereof to acquire 200,000 shares of common stock of Southern at an exercise
price of $2.00 per share, subject to the restrictions and other attributes
contained in the Registration Rights Agreement attached hereto as Exhibit C
(the "SECOND WARRANT"); provided, however that the warrant for Second Warrant
Shares shall provide that neither Diasu, nor its successors or assigns may
exercise their rights pursuant to said warrant on or before the occurrence of
the Second Payout, as defined in that certain Agreement of Limited Partnership
SMC Development, L.P. dated contemporaneously with this Agreement. Southern
agrees that Diasu shall have the right to assign all or any portion of the
Second Warrant to Thomas J. McMinn and Gary L. Chitty.
1.3 NOTICE. On or before ten (10) days following of Diasu's
delivery a binding offer to purchase an interest in any New Prospect, Diasu
shall, advise Southern in writing
<PAGE> 2
of its intent to make such acquisition (such notice shall hereinafter be
referred to as the "NEW PROSPECT NOTICE").
1.4 ELECTION TO FUND NEW PROSPECT. Southern shall have a period
of thirty (30) days (inclusive of Saturday, Sunday and legal holidays) after
receipt of the New Prospect Notice within which to furnish Diasu written notice
of its election to fund all the Acquisition Costs related to such New Prospect.
For purposes of this Agreement, Acquisition Costs shall mean all actual costs
and expenses incurred by Diasu in acquiring a New Prospect, including but not
limited to review of lease records, payment of bonuses and payments made to
unaffiliated parties for services performed in connection with such
acquisition. Acquisition Costs shall exclude any salaries, benefits or
consulting fees paid or incurred in connection with the use of Diasu officers,
directors or employees in connection with such acquisition. Diasu shall
cooperate with Southern in the evaluation of such New Prospect and shall
provide any and all information, in accordance with Section 1.10 of this
Agreement, related to such New Prospect immediately upon Diasu's receipt of
such information or upon Diasu's preparation thereof and shall use its best
efforts to obtain any additional information which may be reasonably requested
by Southern from time to time in connection with such New Prospect (such period
to be hereinafter referred to as the "FUNDING ELECTION PERIOD"). For purposes
of this Agreement, an Excluded Prospect shall be any New Prospect for which
Southern elects not to fund the Acquisition Costs. Diasu shall have the right
to acquire any Excluded Prospect for its own account, independent of Southern,
and Diasu shall be relieved of any obligations pursuant to this Agreement in
connection with an Excluded Property. If Southern fails to provide Diasu with
a written election of its intent to fund Acquisition Costs on or before 30 days
following receipt of a New Prospect Notice, then the affected New Prospect
shall be deemed to be an Excluded Prospect.
1.5 FUNDING OF ACQUISITION COSTS. If Southern elects to fund the
Acquisition Costs incurred in connection with a New Prospect in accordance with
Section 1.4 of this Agreement, then Diasu will from time to time as needed,
deliver an invoice to Southern for such Acquisition Costs; provided, however,
that Southern will not be obligated to pay said invoice on or before thirty
(30) days prior to the date on which such amounts are due from Diasu. In the
case of lease bonuses, Diasu covenants that such bonuses will be paid to the
respective lessor on or before fifteen (15) days after receipt of such amounts
from Southern.
1.6 ELECTION TO PARTICIPATE. Diasu will use its best efforts to
acquire leases in connection with any New Prospect as soon as reasonably
possible following Southern's election to fund in accordance with Section 1.4.
Upon completion of the acquisition of said leases, or sooner if the marketing
of such New Prospect so allows, Diasu will prepare for Southern's review, a
sales brochure for such New Prospect (the "BROCHURE") containing
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<PAGE> 3
such information that is customarily presented to potential purchasers of
similar prospects within the oil and gas industry, including without
limitation, land maps, lease information, seismic data, geological and
geophysical data from surrounding areas and reserve estimates, if available.
Southern shall have a period of thirty (30) days (inclusive of Saturday, Sunday
and legal holidays) after receipt of the Brochure within which to furnish Diasu
written notice of its election (such period to be hereinafter referred to as
the "PARTICIPATION ELECTION PERIOD"):
(a) to participate in the development of the New Prospect
by acquiring a one-third interest in and to the New Prospect (such
interest acquired by Southern shall hereinafter be referred to as the
"PARTICIPATION INTEREST"), in which case, Southern shall be entitled
to the rights and shall incur the obligations as provided in
accordance with Section 1.7 of this Agreement;
(b) to participate in the marketing of the New Prospect
by acquiring a one-third interest in and to the New Prospect (such
interest acquired by Southern shall hereinafter be referred to as the
"CARRIED INTEREST"), in which case, Southern shall be entitled to the
rights and shall incur the obligations as provided in accordance with
Section 1.8 of this Agreement; or
If Diasu shall not have received actual written notice of the
election of Southern to acquire an interest in the New Prospect on or before
expiration of the Participation Election Period, then such failure shall
constitute an election by Southern to acquire a Carried Interest.
1.7 RIGHTS AND OBLIGATIONS OF SOUTHERN RELATED TO A PARTICIPATION
INTEREST. If Southern elects to acquire a Participation Interest in accordance
with Section 1.6 of this Agreement, then promptly upon such election, Diasu
shall execute and deliver an Assignment in a form acceptable to Southern (the
"ASSIGNMENT") conveying the Participation Interest related to such New Prospect
to Southern. The Assignment shall warrant title to the interest being conveyed
by, through and under Diasu with full rights of substitution and subrogation of
Diasu's rights thereto. Except as otherwise provided in this Section,
Southern, its successors and assigns, shall be obligated to pay one-third of
any and all subsequent drilling and development costs related to such New
Prospect. If Diasu sells any remaining portion of a New Prospect not acquired
by Southern in accordance with this Section, then Diasu shall apply any
proceeds received by Diasu related to the sale of such New Prospect interest
against the then current balance of the New Prospect Account (as hereinafter
defined) and shall pay such amount to Southern immediately upon the
consummation thereof.
3
<PAGE> 4
1.8 RIGHTS AND OBLIGATIONS OF THE CARRIED INTEREST. If Southern
elects to acquire a Carried Interest in accordance with Section 1.6 of this
Agreement, then Diasu shall use its best efforts to sell the New Prospect
covering the Carried Interest to a third party on or before 180 days after the
receipt of written notice from Southern of said election. In no event shall
Southern, or its successors and assigns, be obligated to pay any subsequent
drilling or development costs related to the Carried Interest. Diasu shall
apply any proceeds related to the sale of all or any portion of a New Prospect
in accordance with this Section against the then current balance of the New
Prospect Account (as hereinafter defined) and shall pay such amount to Southern
immediately upon the consummation thereof. Immediately upon the consummation
of such sale, Diasu shall execute and deliver to Southern, its successors and
assigns, an appropriate assignment conveying one-third of any and all back-in
or other rights or real property interests reserved by Diasu related to the
sale of such New Prospect.
1.9 NEW PROSPECT BALANCE. Diasu shall establish and maintain an
account on behalf of Southern (the "NEW PROSPECT ACCOUNT"). The New Prospect
Account shall be increased by the amount of (a) any deficiency realized from
the subsequent sale of any New Prospect or a portion thereof, as determined by
the positive difference, if any, when the purchase price received by Southern
upon the resale of such New Prospect or portion thereof is subtracted from the
Acquisition Costs paid by Southern in connection with such New Prospect or
portion thereof and (b) the Acquisition Costs paid by Southern in connection
with any New Prospect which is not sold on or before 180 days after receipt by
Diasu of Southern's election to fund such Acquisition Costs. The New Prospect
Account shall be decreased by (c) the gain realized by Southern from the resale
of any remaining interest not acquired by Southern in a New Prospect, if any,
in which Southern has elected to acquire a Participation Interest, as
determined by the positive difference, if any, when the proceeds received by
Southern in connection such remaining interest is subtracted from the
Acquisition Costs paid by Southern in connection with such remaining interest
and (d) the gain realized by Southern from the resale of a New Prospect, if
any, in which Southern has elected to acquire a Carried Interest, as determined
by the positive difference, if any, when the proceeds received by Southern in
connection with the resale of such New Prospect is subtracted from any
Acquisition Costs paid by Southern in connection with such New Prospect. In
the event, a portion of a New Prospect (such portion shall hereinafter be
referred to as a "PARTIAL PROSPECT") is subsequently sold, the Acquisition
Costs allocated to the Partial Prospect shall be the actual costs incurred in
the acquisition of the Partial Prospect when such amount is determinable from
actual expenditures. In the event actual expenditures for a Partial Prospect
are not available, then the Acquisition Costs allocated to the Partial Prospect
will be determined by multiplying the Acquisition Costs related to the smallest
tract containing the Partial Prospect for which such costs can be determined by
a ratio, the numerator of which is the number of acres contained in the Partial
Prospect and the denominator is the number of acres contained in
4
<PAGE> 5
such tract. The proceeds received from the sale of a Partial Prospect shall be
allocated in the same proportion as the Acquisition Costs for such Partial
Prospect.
Diasu hereby grants to Southern a security interest in and to and a first lien
upon all of Diasu's right, title and interest in and to any New Prospects
acquired by Diasu or its Affiliates, and the proceeds, products, additions,
substitutions and accessions of and to any or all of such New Prospects to
secure the prompt and unconditional payment of proceeds from the sale of any
New Prospect up to an amount equal to the balance in the New Prospect Account.
1.10 INFORMATION TO BE PROVIDED BY DIASU. From time to time, as
received by Diasu from third parties or as prepared by Diasu, Diasu shall
provide to Southern any and all information and data which is relevant and
necessary to Southern's election to fund a New Prospect pursuant to Section 1.4
of this Agreement or acquire a Participation Interest or Carried Interest in
such New Prospect, including but not limited to copies of all instruments of
acquisition including, by way of example but not of limitation, (a) copies of
the leases, assignments, subleases, farmouts or other contracts affecting the
New Prospect and (b) projected costs to drill and complete the Test Well.
1.11 LOCATION AND APPROVAL OF THE TEST WELL. Diasu shall not
commence drilling of a Test Well on any New Prospect covering a Participation
Interest without prior written approval of the location of such Test Well from
Southern.
1.12 WARRANTY. Any assignment by Diasu to Southern of an interest
in a New Prospect shall be made free and clear of any burdens placed thereon by
Diasu.
1.13 APPLICATION. The terms of this agreement shall apply to
transactions that may be in the process of being negotiated or pursued by Diasu
or its Affiliates as of the date of execution hereof, or that relate to options
to acquire New Prospects in the future pursuant to agreements executed by Diasu
or its Affiliates prior to the execution date hereof.
ARTICLE II
TERM
2.1 TERM. The provisions of this Agreement shall be binding on
Diasu or its Affiliates with respect to any final agreements entered into by
Diasu or its Affiliates within a period of twenty four months from the date of
execution hereof.
5
<PAGE> 6
ARTICLE III
MISCELLANEOUS
3.1 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original but all of which
together shall constitute one and the same instrument.
3.2 ENFORCEABILITY. In the event any one or more provisions
contained in this Agreement or the documents to be executed hereunder shall,
for any reason be held to be invalid, illegal, or unenforceable in any respect,
such invalidity, illegality, or unenforceability shall not affect any other
provision.
3.3 GOVERNING LAW. THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS
OF THE PARTIES HERETO SHALL BE GOVERNED, CONSTRUED, AND ENFORCED IN ACCORDANCE
WITH THE LAWS OF THE STATE OF TEXAS, EXCEPT FOR ANY LAWS CALLING FOR
APPLICATION OF THE LAWS OF ANOTHER STATE. ANYTHING HEREIN TO THE CONTRARY
NOTWITHSTANDING, NO PARTY SHALL BE LIABLE TO THE OTHER FOR INDIRECT,
CONSEQUENTIAL OR EXEMPLARY OR PUNITIVE DAMAGES. THE PARTIES AGREE THAT ANY
LITIGATION RELATING DIRECTLY OR INDIRECTLY TO THIS AGREEMENT MUST BE BROUGHT
BEFORE AND DETERMINED BY A COURT OF COMPETENT JURISDICTION WITHIN THE STATE OF
TEXAS.
3.4 THIRD PARTIES. Nothing in this Agreement shall entitle any
party other than Buyer and Seller to any claim, cause of action, remedy or
right of any kind.
3.5 NOTICES. All communications required or permitted under this
Agreement shall be in writing, and any communications hereunder shall be deemed
to have been duly made if delivered by hand, overnight delivery services or
telecopies, or when placed in first class certified mail, postage prepaid, with
return receipt requested to the following addresses:
If to Diasu:
Diasu Oil & Gas Co., Inc.
4420 F.M. 1960 West, Suite 400
Houston, Texas 77068
Fax: 713/537-9153
Attention: Gary L. Chitty or Thomas J. McMinn
6
<PAGE> 7
If to Southern:
Southern Mineral Corporation
500 Dallas, Suite 2800
Houston, Texas 77002
Fax: 713/872-5232
Attention: Steven H. Mikel
Either party may, by written notice so delivered to the other, change the
address to which delivery shall thereafter be made.
[THE NEXT SUCCEEDING PAGE IS THE EXECUTION PAGE]
7
<PAGE> 8
EXECUTED by each party as of the date first above written but
effective for all purposes as of the Effective Date.
SELLER:
DIASU OIL & GAS CO., INC.
Attest:
By:
- ---------------------------------- -----------------------------------
Name: Name:
----------------------------- ---------------------------------
Title: President
----------------------------
- ----------------------------------
Name:
-----------------------------
Title:
----------------------------
BUYER:
SOUTHERN MINERAL CORPORATION
Attest:
By:
- ---------------------------------- -----------------------------------
Name: Steven H. Mikel
----------------------------- President
Title:
----------------------------
- ----------------------------------
Name:
-----------------------------
Title:
----------------------------
EXECUTION PAGE
<PAGE> 9
EXHIBIT A
DEFINITIONS
1. AFFILIATES shall mean an entity which controls Diasu or is
controlled by Diasu, Thomas J. McMinn or Gary L. Chitty, or is under common
control with Diasu, Thomas J. McMinn or Gary L. Chitty, or who may have a
material economic effect on Diasu through the acquisition of rights or
obligations pursuant to agreements entered into by Diasu, Thomas J. McMinn or
Gary L. Chitty. For purposes of this Agreement, Diasu, Thomas J. McMinn and
Gary L. Chitty will be deemed to have received the economic benefit of any
subsequent agreement, if such benefit is received by Diasu, Thomas J. McMinn or
Gary L. Chitty or any of their respective agents, representatives, affiliates
and subsidiaries and their respective directors, officers, agents,
representatives and employees.
2. ACQUISITION COSTS shall have the meaning attributed to it
accordance with Section 1.4 of this Agreement.
3. AGREEMENT shall have the meaning attributed to it in
accordance with the first paragraph of this Agreement.
4. CARRIED INTEREST shall have the meaning attributed to it in
accordance with Section 1.6(b) of this Agreement.
5. DIASU shall have the meaning attributed to it in accordance
with the first paragraph of this Agreement.
6. ELECTION PERIOD shall have the meaning attributed to it
accordance with Section 1.4 of this Agreement.
7. NEW PROSPECT shall have the meaning attributed to it in
accordance with Section 1.1 of this Agreement.
8. PARTICIPATION INTEREST shall have the meaning attributed to it
in accordance with Section 1.6(a) of this Agreement.
9. SOUTHERN shall have the meaning attributed to it in accordance
with the first paragraph of this Agreement.
10. TEST WELL shall mean for each New Prospect acquired, a well
drilled at a location and to a depth mutually agreed to by Diasu and Southern,
after the date of
A-i
<PAGE> 10
execution of this Agreement, prior to the completion of a well capable of
producing hydrocarbons in commercial quantities on such New Prospect.
A-ii
<PAGE> 11
EXHIBIT B
Attached to and made a part of that certain Option Agreement by and between
Southern Mineral Corporation and Diasu Oil & Gas Co., Inc. dated
January ___, 1996.
WARRANT
For the Purchase of [_______] shares of
Common Stock, $[_______] Par Value,
of
SOUTHERN MINERAL CORPORATION
THIS CERTIFIES THAT, for value received, [_______] and its assigns
("Holder"), is entitled to purchase from Southern Mineral Corporation, a Nevada
corporation (the "Company"), up to the number of shares of the Company's common
stock, $[_______] par value per share (the "Common Stock"), specified above
(such number of shares as adjusted in accordance with this Agreement, the
"Underlying Shares") at a purchase price of $2.00 per share (the "Warrant
Price") as hereinafter provided. This Warrant shall be exercisable only during
the period (the "Exercise Period") commencing January 5, 1996 and ending
January 5, 2001 (the "Expiration Date").
1. This Warrant may be exercised in whole or in part as herein
provided during the Exercise Period but not after the Expiration Date, by
presentation and surrender of this certificate at the Company's office with an
executed Exercise Notice (in the attached form) evidencing Holder's election to
purchase shares pursuant to the Warrant and accompanied by payment of the
Warrant Price for the number of shares for which exercise is made. If
exercised in part, a new Warrant Certificate in the same form as this
certificate shall be issued for the remaining unexercised portion of this
Warrant.
2. To the extent this Warrant is not exercised in whole prior to
the Expiration Date, the Warrant or such portion not exercised shall expire and
Holder's rights shall become null and void and of no effect.
3. The Company covenants and agrees that all shares which may be
delivered upon the exercise of this Warrant will, upon delivery, be fully paid
and nonassessable shares of stock, and free from all taxes, liens, and charges
with respect to the purchase thereof (other than transfer taxes or other
governmental charges imposed upon any transfer occurring contemporaneously with
such issue). Without limiting the generality of the foregoing, the Company
covenants and agrees that it will from time to time take all such action as may
be required to assure that the par value per share of the Common Stock is at
all times equal to or less than the then-current Warrant Price per share of the
Common Stock issuable pursuant to this Warrant. The Company further covenants
and agrees at all times to have authorized and reserved a sufficient number of
shares of Common Stock to cover the number of shares issuable upon the exercise
of the rights represented by this Warrant.
4. The purchase rights represented by this Warrant are
exercisable at Holder's option as provided herein; provided, however, that such
purchase rights shall not be exercisable with respect to a fraction of a share
of Common Stock. In lieu of issuing any fraction of a share remaining after
exercise of this Warrant as to all full shares covered hereby, the Company will
make a payment therefor in cash equal to the same fraction of the difference
between the then-current Warrant Price per share and the fair market value per
share.
<PAGE> 12
5. The number of Underlying Shares and the Warrant Price per
share shall be subject to adjustment from time to time, prior to the expiration
of this Warrant by exercise or by its terms, as follows:
(a) If the Company shall subdivide the number of
outstanding shares of Common Stock into a greater number of shares,
the Warrant Price per Underlying Share in effect at the time of such
action shall be proportionately reduced and the number of Underlying
Shares shall be proportionately increased; and conversely, if the
Company shall reduce the number of outstanding shares of Common Stock
by combining such shares into a smaller number of shares, then, in
such case, the Warrant Price per Underlying Share in effect at the
time of such action shall be proportionately increased and the number
of Underlying Shares shall be proportionately decreased.
(b) If the Company shall pay a dividend or make a
distribution upon its Common Stock in shares of Common Stock, then in
such case from and after the record date for such action the Warrant
Price per Underlying Share shall be proportionately reduced, and the
number of Underlying Shares shall be proportionately increased. Any
dividend paid or distributed upon the Common Stock in stock of any
other class or securities convertible into shares of Common Stock
shall be treated as a dividend paid in Common Stock to the extent that
shares of Common Stock are or were issuable upon the conversion
thereof.
(c) If the Company shall effect a capital reorganization
or reclassification of its outstanding Common Stock, or shall
consolidate or merge with or convey all or substantially all of its
property and assets to any other corporation or corporations, Holder
shall be given not less than ten (10) days prior written notice of the
record date and planned effective date of such event and of the terms
and conditions of such event as would enable a reasonable investor to
determine whether or not to exercise any part of this Warrant. Upon
the occurrence of such event, to the extent this Warrant is not
exercised, Holder shall have the right to purchase, upon the basis and
on the terms and conditions specified in this Warrant and in lieu of
the Underlying Shares, such share of stock, securities or assets as
may be issued or payable with respect to, or in exchange for, the
number of shares of Common Stock theretofore purchasable upon the
exercise of this Warrant had such reorganization, recapitalization,
consolidation, merger or conveyance not taken place, and in any such
event appropriate provision shall be made with respect to Holder's
rights to the end that the provisions hereof (including, without
limitation, provisions for adjustment of the Warrant Price and of the
number of Underlying Shares) shall thereafter be applicable, as nearly
as reasonably may be, in relation to any stock, securities, or assets
thereafter deliverable upon the exercise hereof.
(d) Whenever the Warrant Price is adjusted, the number of
Underlying Shares shall be increased or decreased, as the case may be,
to reflect such adjustment in the Warrant Price so that the adjusted
exercise price times the adjusted number of shares of Common Stock
purchasable hereunder will equal the initial Warrant Price times the
initial number of shares of Common Stock purchasable hereunder.
(e) Upon the occurrence of any event requiring an
adjustment of the Warrant Price hereunder, the Company shall forthwith
give written notice thereof to the registered Holder stating the
adjusted Warrant Price and the adjusted number of Underlying Shares
resulting from such event and setting forth in reasonable detail the
method of calculation and the facts upon which such calculation is
based.
2
<PAGE> 13
6. Except as otherwise herein provided, neither this Warrant nor
any of the rights granted hereunder shall be transferable after the date
hereof. Holder may sell, assign or transfer the Warrant, in whole or in part,
so long as the Company shall have first received an opinion of counsel
satisfactory to it that such sale, assignment or other transfer will not result
in a violation of any applicable law or regulation, state or federal. Upon
such sale, assignment or transfer, the Company shall issue new Warrant
certificates in such denominations and tenor as Holder shall request, in
substitution for this Warrant. The Company may deem and treat the registered
holder of this Warrant at any time as the absolute owner hereof for all
purposes and shall not be affected by any notice to the contrary. The Warrant
represented by this certificate and any shares of Common Stock issuable upon
exercise hereof have not been registered under the Securities Act or any state
or foreign securities laws. Holder, by acceptance hereof, agrees that this
Warrant has been acquired for investment and not with a view to distribution or
resale, and may not be mortgaged, pledged, hypothecated or otherwise
transferred without an effective registration statement for such Warrant under
the Securities Act or an opinion of counsel satisfactory to the Company that
registration is not required under the Securities Act. Any shares issued upon
the exercise of this Warrant shall bear the following legend:
The shares this certificate represents have not been
registered under the Securities Act of 1933, as amended (the
"Act"), or under any state securities laws. The shares may
not be offered for sale, sold, assigned, transferred or
pledged without registration under the Act and any applicable
state securities laws or without an opinion of counsel
satisfactory to the Company that registration is not required.
7. This Warrant shall not entitle Holder to any voting rights or
other rights as a stockholder of the Company, or to any other rights whatsoever
except the rights herein expressed, and no dividends shall be payable or accrue
in respect of this Warrant or the interest represented hereby or the shares
purchasable hereunder until or unless, and except to the extent that, this
Warrant shall be exercised.
8. If this Warrant is lost, stolen, mutilated or destroyed, the
Company shall, upon receipt of indemnification in form and substance
satisfactory to the Company in its sole discretion and in the case of a
mutilated Warrant, the surrender thereof, issue a new Warrant of like
denomination and tenor as, and in substitution for, this Warrant.
3
<PAGE> 14
IN WITNESS WHEREOF, the Company has caused this Warrant to be
executed by its duly authorized officer effective as of the date first
set forth above.
SOUTHERN MINERAL CORPORATION
By:
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
THE WARRANTS EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED ("ACT"), AND SAID
WARRANTS MAY NOT BE SOLD, ASSIGNED OR OTHERWISE TRANSFERRED UNLESS THE
SHARES ARE REGISTERED UNDER THE ACT OR NATIONWIDE INTERACTIVE
SERVICES, INC. SHALL HAVE RECEIVED A WRITTEN OPINION OF COUNSEL
SATISFACTORY TO IT THAT SUCH SALE, ASSIGNMENT OR OTHER TRANSFER WILL
NOT RESULT IN A VIOLATION OF ANY APPLICABLE LAW OR REGULATION, STATE
OR FEDERAL. TRANSFER OF THE WARRANTS AND THE SHARES OF COMMON STOCK
TO BE ISSUED UPON EXERCISE OF THE WARRANTS IS PROHIBITED OTHER THAN IN
ACCORDANCE WITH REGULATIONS PROMULGATED UNDER THE ACT.
4
<PAGE> 15
The undersigned Holder of this Warrant hereby irrevocably exercises
the option to acquire the shares of Common Stock of Southern Mineral
Corporation covered by this Warrant, below designated, in accordance with the
terms of this Warrant, directs that the shares issuable and deliverable upon
such exercise, together with any check in payment for fractional shares be
issued and delivered to the Holder hereof.
--------------------------------
Name of Holder
- ----------------------
Date
Number of shares as to
which Warrant Exercised:
-----
If shares of Common Stock are to be issued to any other person or in
any name other than the Holder hereof, then the Holder should indicate such
person and the number of shares of Common Stock to be received by such person
in the space below provided and provide to the Company an opinion of counsel
satisfactory to the Company that (i) such sale, assignment or other transfer to
such person shall not result in a violation of any applicable law or
regulation, state or federal, and (ii) no transfer or other taxes are or will
be due and payable to any governmental authority by reason of such sale,
assignment or other transfer, or issuance of shares of Common Stock to such
person as requested by Holder.
Name:
------------------------------------
Address:
---------------------------------
-----------------------------------------
Shares of Common Stock:
-----------------------------------------
<PAGE> 16
EXHIBIT C
Attached to and made a part of that certain Option Agreement by and between
Southern Mineral Corporation and Diasu Oil & Gas Co., Inc. dated
January ___, 1996.
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement (this Agreement) dated as of
January ___, 1996, is by and among Southern Mineral Corporation, a Texas
corporation (the Company), Diasu Oil & Gas Co., Inc., a Texas corporation
(Diasu), Thomas J. McMinn and Gary L. Chitty (Diasu and Messrs. Chitty and
McMinn collectively, the Stockholders).
W I T N E S S E T H
A. On the date hereof, the Company and one or more of the
Stockholders have entered into that certain Subscription
Agreement and Assumption of Obligations and that Option
Agreement, both of even date herewith.
B. Pursuant to the agreements in paragraph A above, one of more
of the Stockholders shall own: (1) 175,000 shares (the First
Tranche Shares) of the Company's Common Stock (the First
Tranche Shares), par value [_______] (the Common Stock); (2)
immediately exercisable warrants to purchase 400,000 shares
(the Second Tranche Shares) of Common Stock at an exercise
price of $2.00 exercisable for five years from the date
hereof; and (3) warrants to purchase 200,000 shares (the Third
Tranche Shares) of Common Stock at an exercise price of $2.00
exercisable for five years from the date hereof, but not prior
to the date on which Payout No. 2 occurs under that certain
SMC Development L.P. partnership agreement of even date
herewith.
C. In connection with the acquisition of the above Common Stock
and Warrants by the Stockholders, the Company has agreed to
grant to each Stockholder certain registration rights set
forth below.
NOW, THEREFORE, in consideration of these premises and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged by each Stockholder and the Company, the parties hereto agree as
follows:
SECTION 1
DEFINITIONS
1.1 SPECIFIC DEFINITIONS. The following terms are defined as
follows:
Affiliate - defined in Rule 12b-2 under the Exchange Act.
Exchange Act - the Securities Exchange Act of 1934, as amended.
Indemnified Party - defined in Section 5.3.
Indemnifying Party - defined in Section 5.3.
<PAGE> 17
Inspectors - defined in Section 3.1(l).
Loss or Losses - defined in Section 5.1.
person - any business entity (including, without limitation, a
corporation, partnership (limited or general), limited liability company or
business trust) or a natural person.
Prospectus - defined in Section 5.1.
register, registered and registration and words of similar import
refer to a registration effected by preparing and filing with the SEC a
registration statement in compliance with the Securities Act, and the
declaration and ordering by the SEC of effectiveness of such registration
statement or document.
Registerable Common Stock - any of the Restricted Common Stock issued
to the Stockholders (or their permitted assigns), and any securities issued or
issuable in respect of any Registerable Common Stock by way of any stock split
or stock dividend or in connection with any combination of shares,
recapitalization, merger, consolidation, reorganization or otherwise.
Registerable Common Stock shall not include Restricted Common Stock a
Stockholder has held for more than three years.
Restricted Common Stock - the: (i) First Tranche Shares, (ii) Second
Tranche Shares once such shares have been issued to the applicable Stockholder
pursuant to the exercise of the applicable overlying stock warrants, and (iii)
Third Tranche Shares once such shares have been issued to the applicable
Stockholder pursuant to the exercise of the applicable overlying stock
warrants.
SEC - the United States Securities and Exchange Commission.
Securities Act - the Securities Act of 1933, as amended.
SECTION 2
REGISTRATION RIGHTS
2.1 PIGGYBACK REGISTRATION RIGHTS. If at any time or from time to
time the Company shall propose to register any Common Stock for public sale
under the Securities Act, the Company shall give each Stockholder prompt
written notice of the proposed registration and shall include in such
registration on the same terms and conditions as the other securities included
in such registration such number of shares of Registerable Common Stock as any
Stockholder shall request within 15 business days after the giving of such
notice; provided, however, that the Company may at any time prior to the
effectiveness of any such registration statement, in its sole discretion and
without the consent of Stockholders, abandon the proposed offering in which a
Stockholder had requested to participate; and provided further that any
Stockholder shall be entitled to withdraw any or all of its shares of
Registerable Common Stock to be included in a registration statement under this
Section 2.1 at any time prior to the date on which the registration statement
with respect to such shares of Registerable Common Stock is declared effective
by the SEC. The Company shall be entitled to select the investment bankers
and/or managers, if any, to be retained in connection with any registration
referred to in this Section 2.1.
-2-
<PAGE> 18
2.2 RESTRICTIONS ON PIGGYBACK REGISTRATION RIGHTS. Notwithstanding
anything to the contrary contained elsewhere herein, the registration rights
granted to Stockholders in Section 2.1 are expressly subject to the following
terms and conditions:
(a) The Company shall not be obligated to include the number of
shares of Registerable Common Stock in an offering as contemplated by Section
2.1 if the Company is advised in writing by the managing underwriter or
underwriters of such offering (with a copy to each Stockholder), that the
success of such offering would in its or their good faith judgment be
jeopardized by the inclusion of such number (or a portion of such number) of
shares (after consideration of all relevant factors, including without
limitation, the impact of any delay caused by including such shares).
(b) The Company shall not be obligated to include any shares of
Registerable Common Stock in any registration by the Company of any Common
Stock in connection with any merger, acquisition, exchange offer, or any other
business combination, including any transaction within the scope of Rule 145
promulgated pursuant to the Securities Act, subscription offer, dividend
reinvestment plan or stock option or other director or employee incentive or
benefit plan.
(c) The Company shall use all commercially reasonable efforts to
cause the managing underwriter or underwriters of a proposed underwritten
offering to permit the Registerable Common Stock requested to be included in a
registration of Company Common Stock pursuant to this Section 2 to be included
on the same terms and conditions as any similar securities included therein.
Notwithstanding the foregoing, the Company shall not be required to include any
Stockholder's Registerable Common Stock in such offering unless such
Stockholder accepts the terms of the underwriting agreement between the Company
and the managing underwriter or underwriters and otherwise complies with the
provisions of Section 5. If the managing underwriter or underwriters of a
proposed underwritten offering advise the Company in writing that in its or
their good faith judgment the total amount of securities, including securities
requested to be included in a registration of Company Common Stock pursuant to
this Section 2 and other similar securities, to be included in such offering is
sufficiently large to jeopardize the success of such offering, then in such
event the securities to be included in such offering shall be allocated first
to the Company and then, to the extent that any additional securities can, in
the good faith judgment of such managing Underwriter or Underwriters, be sold
without creating any such jeopardy to the success of such offering, pro rata
among each Person participating in the offering based upon the number of shares
of Common Stock requested to be included in such registration by each such
holder.
(d) If some but less than all of a Stockholder's shares of
Restricted Common Stock are included in an offering contemplated by a
registration statement pursuant to Section 2, such Stockholder shall execute
one or more "lockup" letters, in customary form, setting forth an agreement by
such Stockholder not to offer for sale, sell, grant any option for the sale of,
or otherwise dispose of, directly or indirectly, any shares of Common Stock, or
any securities convertible into or exchangeable into or exercisable for any
shares of Common Stock, for a period of not longer than that which any
investment banker or manager engaged in connection with such offering may
reasonably request from the date such offering commences.
2.3 SHELF REGISTRATION RIGHTS. Upon receipt of a written request
from the Stockholders to register under the Securities Act (whether for
purposes of a public offering, an exchange offer or otherwise) all or part of
the Registerable Common Stock held by the Stockholders, the Company shall as
expeditiously as reasonably possible (but in any event not later than 60 days
after receipt of such request) prepare and file, and use its best efforts to
cause to become effective as soon thereafter as practicable, a registration
statement under the Securities Act on Form S-3 with respect to the shares of
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<PAGE> 19
Registerable Common Stock; provided that the Company shall have no obligation
to file a registration statement if Form S-3 is unavailable to the Company.
The Company shall use its commercially reasonable efforts to have such
registration statement remain continuously effective until the first
anniversary of the date such registration statement is effective. During the
period that such registration statement is effective, it shall be available for
use by the Stockholders only for a period of 30 days following a filing of the
Company of (i) a quarterly report on Form 10-Q or (ii) an annual report on Form
10-K. Notwithstanding the foregoing, the Company may suspend effectiveness of
such registration statement from time to time at any time upon the good faith
determination of the Company's board of directors, or the executive committee
thereof, that such action is desirable in connection with any proposed
acquisition, transaction, offering of the Company's securities, or other
matters; provided that if the Company suspends such effectiveness, then the
Company shall use its commercially reasonable efforts to keep such registration
statement effective starting one year from the date of initial effectiveness of
such registration statement for the amount of days such registration
statement's effectiveness was suspended by the Company.
2.4 RESTRICTIONS ON SHELF REGISTRATION RIGHTS. Notwithstanding
anything to the contrary contained elsewhere herein, the registration rights
granted to the Stockholders in Section 2.3 are expressly subject to the
following terms and conditions:
(a) The Stockholders, collectively, shall only be entitled to one
request to register Registerable Common Stock under Section 2.3. A "request"
as it is used in this Section 2.4(a) shall be deemed to have occurred only upon
completion of a requested registration and the maintenance of the registration
statement's effectiveness for an aggregate of one year.
(c) The Company shall be entitled to defer for a reasonable period
of time, but not in excess of 90 days, the filing of any registration statement
otherwise required to be prepared and filed by it under Section 2.3 if the
Company notifies the Stockholders within 10 business days after they requested
registration under Section 2.3 that the Company (i) is at such time conducting
or about to conduct an underwritten public offering of its securities for its
own account and the Board of Directors determines in good faith that such
offering would be materially adversely affected by such registration requested
by the Stockholders or (ii) would, in the opinion of its counsel, be required
to disclose in such registration statement information not otherwise then
required by law to be publicly disclosed and, in the good faith judgment of the
Board of Directors, such disclosure might adversely affect any material
business transaction or negotiation in which the Company is then engaged.
(d) The Stockholders shall not exercise their rights pursuant to
Section 2.3 during the 180-day period immediately following the effective date
of any registration statement filed by the Company under the Securities Act
(other than on Form S-8 or another similar form) in respect of an offering or
sale of securities of the Company by or on behalf of the Company or any other
stockholder of the Company.
SECTION 3
COVENANTS
3.1 COVENANTS OF THE COMPANY. In connection with any offering of
shares of Registerable Common Stock pursuant to this Agreement, the Company
shall:
(a) Prepare and file with the Commission such amendments and
post-effective amendments to the registration statement as may be necessary to
keep the registration statement effective for a period of not less than 120
days, or such shorter period which will terminate when all Registrable Common
Stock covered by such registration statement have been sold or withdrawn at the
request of participating
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<PAGE> 20
holders of Common Stock; and cause the prospectus to be supplemented by any
required prospectus supplement, and as so supplemented to be filed pursuant to
Rule 424 under the Securities Act;
(b) Furnish to each Stockholder and to each managing underwriter,
if any, (i) at least two business days prior to filing with the SEC, a
substantially complete draft of a registration statement covering shares of
Registerable Common Stock, any amendment or supplement thereto, and any
prospectus used in connection therewith, which documents will be subject to the
reasonable review of such Stockholders and such underwriter; and (ii) if
requested, a copy of any and all transmittal letters or other correspondence
with the SEC or any other body having jurisdiction (including any domestic or
foreign securities exchange) relating to such offering of shares of
Registerable Common Stock;
(c) Furnish to each Stockholder and each managing underwriter, if
any, such number of copies of such registration statement, each amendment and
supplement thereto (in each case including all exhibits thereto and documents
incorporated by reference therein) and the prospectus included in such
registration statement (including each preliminary prospectus and prospectus
supplement) as such Stockholder or such underwriter may reasonably request to
facilitate the sale of the shares of Registerable Common Stock;
(d) After the filing of such registration statement, promptly
notify each Stockholder of any stop order issued or, to the knowledge of the
Company, threatened to be issued by the SEC and promptly take all reasonable
actions to prevent the entry of such stop order or to obtain its withdrawal if
entered;
(e) Use its commercially reasonable efforts to qualify such shares
of Registerable Common Stock for offer and sale under the securities, "blue
sky" or similar laws of such jurisdictions (including any foreign country or
any political subdivision thereof in which shares of Common Stock are then
listed) as any Stockholder or any underwriter shall reasonably request and use
its commercially reasonable efforts to obtain all appropriate registrations,
permits and consents required in connection therewith, except that the Company
shall not for any such purpose be required to qualify generally to do business
as a foreign corporation in any jurisdiction wherein it is not so qualified, or
to subject itself to taxation or to file a general consent to service of
process in any such jurisdiction;
(f) Furnish to each managing underwriter, if any, an opinion of
counsel for the Company addressed to each of them, dated as of the date of the
closing of the offering of shares of Registerable Common Stock, and a "comfort"
letter or letters signed by the Company's independent public accountants, each
in reasonable and customary form and covering such matters of the type
customarily covered by opinions or comfort letters delivered by such parties in
underwritten public offerings;
(g) Furnish unlegended certificates representing ownership of the
shares of Registerable Common Stock being sold in such denominations as shall
be requested by a Stockholder or the managing underwriter, if any, provided
such request is made at least two business days prior to the closing of the
sale of such shares;
(h) Promptly inform each Stockholder (i) in the case of any
offering of shares of Registerable Common Stock in respect of which a
registration statement is filed under the Securities Act, of the date on which
such registration statement or any post-effective amendment thereto becomes
effective and, if applicable, of the date of filing a Rule 430A prospectus
(and, in the case of an offering abroad of shares of Registerable Common Stock,
of the date when any required filing under the securities and other laws of
such foreign jurisdictions shall have been made and when the offering may be
commenced in accordance with such laws) and (ii) of any request by the SEC, any
securities exchange, government agency, self-regulatory body or other body
having jurisdiction for any amendment of or supplement to
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<PAGE> 21
any registration statement or preliminary prospectus or prospectus included
therein or any offering memorandum or other offering document relating to such
offering;
(i) Subject to subparagraph (k) below, until the earlier of (i)
such time as all of the shares of Registerable Common Stock being offered have
been disposed of in accordance with the intended method of disposition by such
Stockholder set forth in the registration statement or other offering document
(and the expiration of any prospectus delivery requirements in connection
therewith) or (ii) the expiration of four months after such registration
statement or other offering document becomes effective (unless the offering is
a continuous offering of securities under Rule 415, in which case until the
earliest of the date the offering is completed and the 12-month anniversary of
such effective date), keep effective and maintain any registration,
qualification or approval obtained in connection with the offering of the
shares of Registerable Common Stock, and amend or supplement the registration
statement or prospectus or other offering document used in connection therewith
to the extent necessary to comply with applicable securities laws;
(j) Use its commercially reasonable efforts to have the shares of
Registerable Common Stock listed on any domestic and foreign securities
exchanges on which the Common Stock is then listed;
(k) As promptly as practicable, notify each Stockholder at any
time when a prospectus relating to the sale of the shares of Registerable
Common Stock is required by law to be delivered in connection with sales by an
underwriter or dealer, of the occurrence of an event requiring the preparation
of a supplement or amendment to such prospectus so that, as thereafter
delivered to the purchasers of such shares, such prospectus will not contain an
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary to make the statement therein, in light of
the circumstances under which they were made, not misleading, and as promptly
as practicable make available to each Stockholder and to each managing
underwriter, if any, any such supplement or amendment; if the Company shall
give such notice, the Company shall extend the period during which such
registration statement shall be maintained effective as provided in Section
3.1(i) by the number of days during the period from and including the date of
the giving of such notice to the date when the Company shall make available to
each Stockholder such supplemented or amended prospectus;
(l) Make available for inspection during the normal business hours
of the Company by any Stockholder, any underwriter participating in such
offering, and any attorney, accountant or other agent retained by any such
Stockholder or any such underwriter in connection with the sale of shares of
Registerable Common Stock (collectively, the "Inspectors), all relevant
financial and other records, pertinent corporate documents and properties of
the Company as shall be reasonably necessary to enable them to exercise their
due diligence responsibility, and cause the officers, directors and employees
of the Company to supply all information reasonably requested by any such
Inspector in connection with such registration statement; provided, however,
that (i) in connection with any such inspection, any such Inspectors shall
cooperate to the extent reasonably practicable to minimize any disruption to
the operation by the Company of its business and (ii) any records, information
or documents shall be kept confidential by such Inspectors, unless (1) such
records, information or documents are in the public domain or otherwise
publicly available or (2) disclosure of such records, information or documents
is required by a court or administrative order or by applicable law (including,
without limitation, the Securities Act);
(m) Enter into usual and customary agreements (including an
underwriting agreement in usual and customary form) and take such other actions
as are reasonably required to expedite or facilitate the sale of the
Registerable Common Stock.
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<PAGE> 22
(n) Make "generally available to its security holders" (within the
meaning of Rule 158 of the Securities Act) an earnings statement satisfying the
provisions of Section 11(a) of the Securities Act and Rule 158 thereunder no
later than 45 days after the end of the 12-month period beginning with the
first day of the Company's first fiscal quarter commencing after the effective
date of the registration statement, which earnings statement shall cover said
12- month period;
(o) If requested by the managing underwriter or underwriters or
the Stockholder, promptly incorporate in a prospectus supplement or
post-effective amendment such information as the managing underwriter or
underwriters or any participating Holder, as the case may be, reasonably
requests to be included therein, including, without limitation, information
with respect to the number of shares of Registerable Common Stock being sold by
the Stockholder to any underwriter or underwriters, the purchase price being
paid therefor by such underwriter or underwriters and with respect to any other
terms of an underwritten offering of the Registerable Common Stock to be sold
in such offering, and promptly make all required filings of such prospectus by
supplement or post-effective amendment;
(p) As promptly as practicable after filing with the SEC of any
document which is incorporated by reference in a prospectus contained in a
registration statement, deliver a copy of such document to each Stockholder;
and
(q) Take all other steps necessary to effect the registration of
the Registerable Common Stock contemplated hereby.
3.2 COVENANT OF STOCKHOLDERS. Each Stockholder agrees and
covenants that, upon receipt of any notice from the Company of the happening of
any event of the kind described in Section 3.1(k), such Stockholder will
forthwith discontinue disposition of Registerable Common Stock pursuant to the
registration statement covering such Registerable Common Stock until such
Stockholder's receipt of the copies of the supplemented or amended prospectus
contemplated by Section 3.1(k), and, if so directed by the Company, such
Stockholder will deliver to the Company all copies, other than permanent file
copies, then in such Stockholder's possession of the most recent prospectus
covering such Registerable Securities at the time of receipt of such notice.
SECTION 4
EXPENSES
All expenses incurred in connection with the registration of
Registerable Common Stock, including, without limitation, all filing fees,
escrow fees, fees and expenses of compliance with securities or blue sky laws
(including fees and disbursements of the Company's counsel in connection with
blue sky qualifications of the Registerable Common Stock), rating agency fees,
printing expenses, messenger and delivery expenses, internal expenses
(including, without limitation, all salaries and expenses of the Company's
officers and employees performing legal or accounting duties), the fees and
expenses incurred in connection with the listing of the securities to be
registered on each securities exchange on which similar securities issued by
the Company are then listed, and fees and disbursements of counsel for the
Company and the Company's independent certified public accountants (including
the expenses of any special audit or "cold comfort" letters required by or
incident to such performance) directly attributable to the registration of
securities, Securities Act liability insurance (if the Company elects to obtain
such insurance), and the fees and expenses of any special experts or other
persons retained by the Company will be borne by the Company in connection with
registrations under Section 2.1 and by the Stockholders in connection with
registrations under Section 2.3. The Company shall have no obligation to pay
and shall not pay any underwriting fees, discounts or commissions in connection
with any Registerable
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<PAGE> 23
Common Stock registered pursuant to this Agreement or any out-of-pocket
expenses of the Stockholders, including, without limitation, legal fees, in
connection therewith.
SECTION 5
INDEMNIFICATION
5.1 INDEMNIFICATION BY THE COMPANY. The Company agrees to
indemnify and hold harmless each Stockholder, its officers, directors and
agents, and will agree to indemnify and hold harmless any underwriter of
Registerable Common stock, and each person, if any, who controls any of the
foregoing persons within the meaning of either Section 15 of the Securities Act
or Section 20 of the Exchange Act, from and against any and all losses, claims,
damages and liabilities (individually, a Loss; collectively, Losses) arising
from or caused by (x) any untrue statement or alleged untrue statement of a
material fact contained in any registration statement or prospectus relating to
the Registerable Common Stock (as amended or supplemented if the Company shall
have furnished any amendments or supplements thereto) or any preliminary
prospectus, or caused by any omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, and (y) any violation or alleged violation by the
Company of the Securities Act, any blue sky laws, securities laws or other
applicable laws of any state in which shares of Registerable Common Stock are
offered and relating to action or inaction required of the Company in
connection with such offering; and will reimburse each such person for any
legal or other out-of-pocket expenses reasonably incurred in connection with
investigating, or defending against, any such Loss (or any proceeding in
respect thereof), subject to Section 5.3, except that the indemnification
provided for in this Section 5.1 shall not apply to Losses that are caused by
any such untrue statement or omission or alleged untrue statement or omission
based upon and in conformity with information furnished in writing to the
Company by or on behalf of any Stockholder expressly for use therein.
Notwithstanding the foregoing, the Company shall not be liable in any such case
to the extent that any such Loss arises out of, or is based upon, an untrue
statement or alleged untrue statement or omission or alleged omission made in
any preliminary prospectus if (i) a Stockholder failed to send or deliver a
copy of the prospectus included in the relevant registration statement at the
time it became effective (the Prospectus) with or prior to the delivery of
written confirmation of the sale of Registerable Common Stock to the person
asserting such Loss or who purchased such Registerable Common Stock which are
the subject thereof if, in either case, such delivery is required by the
Securities Act and (ii) the Prospectus would have corrected such untrue
statement or omission or alleged untrue statement or alleged omission; and the
Company shall not be liable in any such case to the extent that any such Loss
arises out of, or is based upon, an untrue statement or alleged untrue
statement of a material fact or omission or alleged omission to state a
material fact in the Prospectus, if such untrue statement or alleged untrue
statement or omission or alleged omission is corrected in any amendment or
supplement to the Prospectus and if, having previously been furnished by or on
behalf of the Company with copies of the Prospectus as so amended or
supplemented, a Stockholder thereafter fails to deliver such Prospectus as so
amended or supplemented prior to or concurrently with the sale of Registerable
Common Stock if such delivery is required by the Securities Act.
5.2 INDEMNIFICATION BY STOCKHOLDERS. Each Stockholder agrees to
indemnify and hold harmless the Company, its officers and directors, and each
person, if any, who controls the Company within the meaning of either Section
15 of the Securities Act or Section 20 of the Exchange Act to the same extent
as the indemnity made pursuant to clause (x) of Section 5.1 from the Company to
such Stockholder, but only with reference to information furnished in writing
by or on behalf of such Stockholder expressly for use in any registration
statement or prospectus relating to shares of Registerable Common Stock, or any
amendment or supplement thereto, or any preliminary prospectus.
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<PAGE> 24
5.3 CONDUCT OF INDEMNIFICATION PROCEEDINGS. In case any
proceeding (including any governmental investigation) shall be instituted
involving any person in respect of which indemnity may be sought pursuant to
Section 5.1 or 5.2, such person (the Indemnified Party) shall promptly notify
the person against whom such indemnity may be sought (the Indemnifying Party)
in writing, provided that the omission to so notify the Indemnifying Party will
not relieve the Indemnifying Party of any liability it may have under this
Agreement or otherwise except to the extent of any loss, damage, liability or
expense arising from such omission. The Indemnifying Party, upon the request
of the Indemnified Party, shall retain counsel reasonably satisfactory to such
Indemnified Party to represent such Indemnified Party and any others the
Indemnifying Party may designate in such proceeding and shall pay the fees and
disbursements of such counsel related to such proceeding. In any such
proceeding, any Indemnified Party shall have the right to retain its own
counsel, but the fees and expenses of such counsel shall be at the expense of
such Indemnified Party unless (i) the Indemnifying Party and the Indemnified
Party shall have mutually agreed to the retention (ii) the Indemnifying Party
shall have failed to comply with its obligations under the preceding sentence
or (iii) the Indemnified Party shall have been advised by its counsel in
writing that actual or potential differing interests exist between the
Indemnifying Party and the Indemnified Party. The Indemnifying Party shall not
be liable for any settlement of any proceeding effected without its written
consent, which consent shall not be unreasonably withheld. The Indemnifying
Party shall not agree to any settlement as the result of which any remedy or
relief, other than monetary damages for which the Indemnifying Party shall be
fully responsible, shall be applied to or against an Indemnified Party without
the prior written consent of such Indemnified Party.
5.4 CONTRIBUTION. If the indemnification provided for in this
Section 5 from the Indemnifying Party is unavailable to an Indemnified Party
hereunder in respect of any Losses referred to therein, then the Indemnifying
Party, in lieu of indemnifying such Indemnified Party, shall contribute to the
amount paid or payable by such Indemnified Party as a result of such Losses in
such proportion as is appropriate to reflect the relative fault of the
Indemnifying Party and Indemnified Party in connection with the actions which
resulted in such losses, claims, damages, liabilities or expenses, as well as
any other relevant equitable considerations. The relative fault of such
Indemnifying Party and Indemnified Party shall be determined by reference to,
among other things, whether any action in question, including any untrue or
alleged untrue statement of a material fact or omission or alleged omission to
state a material fact, has been made by, or relates to information supplied by,
such Indemnifying Party or Indemnified Party, and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
action. The amount paid or payable by a party as a result of the losses,
claims, damages, liabilities and expenses referred to above shall be deemed to
include, subject to the limitations set forth in Section 5.3, any legal or
other fees or expenses reasonably incurred by such party in connection with any
investigation or proceeding. No party shall be liable for contribution with
respect to any action or claim settled without its written consent, which
consent shall not be unreasonably withheld.
Notwithstanding the provisions of this Section 5.4, no Stockholder
shall be required to contribute any amount in excess of the amount by which the
total price at which the Registerable Common Stock of such Stockholder was sold
to the public exceeds the amount of any damages which such Stockholder has
otherwise been required to pay due to such untrue or alleged untrue statement
or omission of alleged omission.
The parties hereto agree that it would not be just and equitable if
contribution pursuant to this Section 5.4 were determined by pro rata
allocation or by any other method of allocation which does not take into
account the equitable considerations referred to in the immediately preceding
paragraph. No person guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation.
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<PAGE> 25
SECTION 6
TERMINATION
This Agreement will terminate with respect to a specific Stockholder,
and it will terminate separately with respect to each Tranche of shares, such
that it terminates with respect to each Tranche at the first instance as such
Stockholder ceases to own any shares of Registerable Common Stock within such
Tranche. For this Section 6, a Stockholder shall be deemed to own any and all
Common Stock owned by (i) such Stockholder and (ii) its Affiliates.
Notwithstanding the foregoing, the Company and Stockholders' rights, duties and
obligations under Section 4 and Section 5 shall survive the termination of this
Agreement.
SECTION 7
AVAILABLE INFORMATION
The Company shall take such reasonable actions and file such
information, documents and reports as shall be required by the SEC as a
condition to the availability of Rule 144 and Rule 144A, or any successor
provisions.
SECTION 8
MISCELLANEOUS
8.1 PROVISION OF INFORMATION. Each Stockholder shall, and shall
cause it officers, directors, employees and agents to complete and execute all
such questionnaires as the Company shall reasonably request in connection with
any registration pursuant to this Agreement.
8.2 INJUNCTIONS. Irreparable damage would occur if any of the
provisions of this Agreement were not performed in accordance with its
specified terms or were otherwise breached. Therefore, the parties hereto
shall be entitled to an injunction or injunctions to prevent breaches of the
provisions of this Agreement and to enforce specifically the terms of
provisions hereof in any court having jurisdiction, such remedy being in
addition to any other remedy to which they may be entitled at law or in equity.
8.3 SEVERABILITY. If any term or provision of this Agreement is
held by a court of competent jurisdiction to be unenforceable, the remainder of
the terms and provisions set forth herein shall remain in full force and effect
and shall in no way be affected, impaired or invalidated, and the parties
hereto shall use their best efforts to, and request that a court of competent
jurisdiction, if involved, find and employ an alternative means to achieve the
same or substantially the same result as that contemplated by such term or
provision.
8.4 FURTHER ASSURANCES. Subject to the specific terms of this
Agreement, each Stockholder and the Company shall make, execute, acknowledge
and deliver such other instruments and documents, and take all such other
actions, as may be reasonably required to effectuate the purposes of this
Agreement and to consummate the transactions contemplated hereby.
8.5 ENTIRE AGREEMENT; MODIFICATION. This Agreement contains the
entire understanding of the parties with respect to the transactions
contemplated hereby and supersedes all agreements and understandings entered
into prior to the execution hereof. This Agreement may be modified only by a
written instrument duly executed by or on behalf of the parties hereto. No
breach of any covenant, agreement, warranty or representation shall be deemed
waived unless expressly waived in writing by or on behalf of the party who
might assert such breach.
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<PAGE> 26
8.6 COUNTERPARTS. Any number of counterparts of this Agreement
may be executed by the parties hereto, but all such counterparts shall be
deemed one and the same instrument.
8.7 NOTICES. All notices, consents, requests, demands, and other
communications hereunder shall be in writing and shall be given by hand or by
mail (return receipt requested) or sent by overnight delivery service, cable,
telegram, or facsimile transmission to the parties at the address specified
beside each party's name on the signature pages hereto or at such other address
as shall be specified by the parties by like notice.
Notice so given shall, in the case of notice so given by mail, be
deemed to be given and received on the fourth business day after posting, in
the case of notice so given by overnight delivery service, on the day after
notice is deposited with such service, and in the case of notice so given by
cable, telegram, fax transmission or, as the case may be, personal delivery, on
the date of actual delivery.
8.8 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS
WITHOUT REGARD TO ANY CHOICE OF LAW PRINCIPLES.
8.9 SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon
and shall inure to the benefit of and be enforceable by and against the
successors and permitted assigns of the parties hereto. The parties may not
assign their rights under this Agreement and the Company may not delegate its
obligations under this Agreement unless agreed to by all parties in writing.
Any attempted assignment or delegation prohibited hereby shall be void.
8.10 PARTIES IN INTEREST. Except as otherwise specifically
provided herein, nothing in this Agreement expressed or implied is intended or
shall be construed to confer any right or benefit upon any person, firm or
corporation other than Stockholder and the Company and their respective
successors and permitted assigns.
[NEXT PAGE IS SIGNATURE PAGE]
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<PAGE> 27
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the date first above written.
SOUTHERN MINERAL CORPORATION
By:
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
THOMAS J. MCMINN
By:
------------------------------------
Name: Thomas J. McMinn, individually
GARY L. CHITTY
By:
------------------------------------
Name: Gary L. Chitty, individually
DIASU OIL & GAS CO., INC.
By:
------------------------------------
Name: Thomas J. McMinn, President
<PAGE> 1
EXHIBIT 10.14
SOUTHERN MINERAL CORPORATION
STOCK OPTION AGREEMENT
THIS AGREEMENT, made as of this 6th day of April 1995, between
Southern Mineral Corporation, a Nevada corporation (hereinafter called the
"Company") and Robert R. Hillery (hereinafter called the "Optionee").
W I T N E S S E T H:
WHEREAS, on even date herewith, the transactions contemplated by that
certain Exchange Agreement dated March 2, 1995 (the "Exchange Agreement"),
between the Company, Diverse Production Co. and the Diverse Shareholders (as
defined in the Exchange Agreement) were consummated;
WHEREAS, effective upon consummation of the transactions contemplated
by the Exchange Agreement, the Board of Directors of the Company (the "Board of
Directors") has authorized the granting to the Optionee of a non-qualified
stock option to purchase 43,878 shares of the Company's common stock, par value
$.01 per share (the "Common Stock"), on the terms and conditions set forth
herein;
NOW, THEREFORE, in consideration of the foregoing and of the mutual
covenants hereinafter set forth and other good and valuable consideration, the
receipt and adequacy of which are hereby acknowledged, the parties hereto
hereby agree as follows:
1. The Company hereby grants to the Optionee a non-qualified
stock option to purchase all or any part of an aggregate of 43,878 shares of
Common Stock (the "Option"), on the terms and conditions set forth in this
Agreement.
2. The purchase price per share of Common Stock under the Option
shall be $1.00.
3. The purchase price of the shares as to which the Option shall
be exercised shall be paid in full at the time of the exercise, either in cash
or by check. The purchase price may also be paid in whole or in part with a
number of shares having a Fair Market Value on the date of exercise equal to
the cash amount for which substituted. "Fair Market Value" means, as of any
specified date, the closing price of the Common Stock on the New York Stock
Exchange (or, if the Common Stock is not then listed on such exchange, such
other national securities exchange on which the Common Stock is then listed) on
that date, or if no prices are reported on that date, on the last preceding
date on which such prices of the Common Stock are so reported. If the Common
Stock is not then listed on any national securities exchange but is traded over
the counter at the time a determination of its Fair Market Value is required to
be made hereunder, its Fair Market Value shall be deemed to be equal to the
average between the reported high and low sales prices of Common Stock on the
most recent date on which Common Stock was publicly traded.
4. The Option shall not be exercisable after April 6, 2000.
<PAGE> 2
5. The Option granted hereunder shall be exercisable in whole or
in part only by written notice or exercise, delivered in person or by mail to
the Secretary of the Company at its principal executive office, specifying the
number of shares of Common Stock to be purchased and accompanied by payment of
the purchase price thereof, and by giving satisfactory assurances in writing if
requested by the Company, signed by the person exercising the Option, that the
shares to be purchased upon such exercise are being purchased for investment
and not with a view to the distribution thereof. The Company will, as soon as
is reasonably possible, notify the Optionee of the amount that must be
withheld, if any, under federal, state and local law due to exercise of the
Option. The Company may satisfy its withholding obligation by withholding that
number of shares of Common Stock (valued at Fair Market Value on the date of
withholding) sufficient to satisfy such obligation.
6. The Option granted hereunder shall not be transferable by the
Optionee otherwise than by will or the laws of descent and distribution, and
the Option may be exercised during the lifetime of the Optionee only by him.
The holder of the Option shall not be deemed to be a holder of any shares
subject to any option unless and until such shares have been issued.
7. Vesting.
(i) Except as provided below, the Option may be exercised
in respect of all or any portion of the shares covered by the Option
commencing six months following the date hereof, but not later than
the date the Option expires.
(ii) In the event of a Change in Control of the Company,
all Options outstanding as of the date of such Change in Control shall
become immediately exercisable, and the Optionee will be permitted to
surrender the Option or portion thereof for cancellation and to
receive cash equal to the excess, if any, of the then Fair Market
Value of the shares subject to such Option or portion thereof over the
Option price.
8. The Optionee shall not be deemed for any purpose to be the
owner of any shares of Common Stock subject to any Option unless and until (i)
the Option shall have been exercised pursuant to the terms hereof, (ii) the
Company shall have issued and delivered certificates for the shares to the
Optionee, and (iii) the Optionee's name shall have been entered as a
stockholder of record on the books of the Company. Thereupon, the Optionee
shall have full voting, dividend and other ownership rights with respect to
such shares of Common Stock.
9. For purposes of this Agreement, a "Change in Control" shall
mean one of the following events: (i) the merger, consolidation or other
reorganization of the Company in which the outstanding Common Stock is
converted into or exchanged for a different class of securities of the Company,
a class of securities of any other issuer, cash or other property; (ii) the
sale, lease or exchange of all or substantially all of the assets of the
Company to any other corporation or entity (except a direct or indirect
wholly-owned subsidiary of the Company); (iii) the adoption by
-2-
<PAGE> 3
the stockholders of the Company of a plan of liquidation and dissolution; (iv)
the acquisition (other than any acquisition pursuant to any other clause of
this definition or any acquisition by one or more of the Diverse Shareholders
(as defined in the Exchange Agreement) or their respective affiliates) by any
person or entity, including without limitation a "group" as contemplated by
Section 13(d)(3) of the Securities Exchange Act of 1934, of beneficial
ownership, as contemplated by such Section, of more than 50% (based on voting
power) of the Company's outstanding capital stock; or (v) as a result of or in
connection with a contested election of directors, the persons who were
directors of the Company before such election shall cease to constitute a
majority of the Board of Directors.
10. If by reason of reclassification, stock split-up, combination
of shares, divestiture (including a spin- off) or dividend on the shares
payable in stock or otherwise, the outstanding shares of capital stock of the
Company are increased or decreased or changed into or exchanged for a different
number or kind of shares of other securities of the Company, the Board of
Directors shall reasonably determine in good faith the appropriate adjustment
in the Option price, in the number and kind of shares, other securities, or
contract obligations as to which the Option shall be exercisable.
11. A copy of the Company's annual report to stockholders shall be
delivered to the Optionee at the time such report is distributed to the
Company's stockholders. Upon request, the Company shall furnish to the
Optionee a copy of its most recent annual report and each quarterly report and
current report filed under the Exchange Act since the end of the Company's
prior fiscal year.
12. If at any time the Company shall determine, in its discretion,
that the listing, registration or qualification of the shares covered by the
Option upon any securities exchange or under any state or federal law, or the
consent or approval of any governmental, regulatory authority, is necessary or
desirable as a condition of the purchase of shares hereunder, the Option may
not be exercised, in whole or in part, unless and until such listing,
registration, qualification, consent or approval shall have been effected or
obtained free of any conditions not acceptable to the Company. The Company
shall make reasonable efforts to meet the requirements of any such state or
federal law or securities exchange and to obtain any such consent or approval
of any such governmental authority.
13. Government and Other Regulations; Governing Law
(i) The obligation of the Company to sell and deliver
shares of Common Stock with respect to the Option shall be subject to
all applicable laws, rules and regulations, including all applicable
federal and state securities laws, and the obtaining of all such
approvals by creditors or by governmental agencies as may be deemed
necessary or appropriate by the Board of Directors.
-3-
<PAGE> 4
(ii) This Agreement and the rights of all persons claiming
hereunder shall be construed and determined in accordance with the
laws of the State of Texas without regard to its laws governing
conflicts of law, except to the extent that such law is
preempted by federal law.
14. Upon any exercise of this Option, the Company shall have the
right to require the payment of an amount equal to the federal, state and local
income taxes required by law in connection with any such exercise.
15. The Optionee hereby acknowledges that the grant of the Option
is not exempt from Section 16(b) of the Exchange Act since the Option was not
granted pursuant to an employee benefit plan satisfying the conditions of Rule
16b-3 under the Exchange Act and, therefore, must be reported pursuant to the
corresponding reporting obligations of Section 16(a) of the Exchange Act and
the regulations thereunder.
16. In the event the disposition of shares acquired pursuant to
the Option is not covered by a then current registration statement under the
Securities Act of 1933, as amended (the "Securities Act"), and is not otherwise
exempt from such registration, the shares shall be restricted against transfer
to the extent required by the Securities Act or regulations thereunder, and the
Board of Directors may require the Optionee, as a condition precedent to the
exercise of the Option, to represent to the Company in writing that the shares
acquired by the Optionee are acquired for investment only and not with a view
to distribution.
17. Any notice to be given to the Company under the terms of this
Agreement shall be addressed to the Company, in care of its Secretary, at 17001
Northchase, Suite 690, Houston, Texas 77060, or at such other address as the
Company may hereafter designate in writing. Any notice to be given to the
Optionee shall be addressed to the Optionee at the address set forth beneath
the Optionee's signature hereto, or at such other address as the Optionee may
hereafter designate in writing. Any such notice shall be deemed to have been
duly given if and when enclosed in a properly sealed envelope, addressed as
aforesaid, registered or certified and deposited, postage and registry fee
prepaid, in a United States post office.
18. Except as otherwise herein provided, the Option herein granted
and the rights and privileges conferred hereby shall not be transferred,
assigned, pledged or hypothecated in any way (whether by operation of law or
otherwise) and shall not be subject to sale under execution, attachment or
similar process. Upon any attempt to transfer, assign, pledge, hypothecate or
otherwise dispose of said Option, or of any right or privilege conferred
hereby, contrary to the provisions hereof, or upon any attempted sale under any
execution, attachment or similar process upon the rights and privileges
conferred hereby, the Option and the rights and privileges conferred hereby
shall immediately become null and void.
-4-
<PAGE> 5
19. Subject to the limitation on the transferability of the Option
contained herein, this Agreement shall be binding upon and inure to the benefit
of the heirs, legatees, legal representatives, successors and assigns of the
parties hereto.
20. In the event that any provision in this Agreement shall be
held invalid or unenforceable, such provision shall be severable from, and such
invalidity or unenforceability shall not be construed to have any effect on,
the remaining provisions of this Agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement, in
duplicate, the day and year first above written.
OPTIONEE
/s/ ROBERT R. HILLERY
---------------------------------------
Robert R. Hillery
14235 Indian Wells
---------------------------------------
Houston TX 77069
---------------------------------------
Address
###-##-####
---------------------------------------
Social Security Number
SOUTHERN MINERAL CORPORATION
By: /s/ STEVEN H. MIKEL
------------------------------------
Name: Steven H. Mikel
----------------------------------
Title: President
---------------------------------
-5-
<PAGE> 1
EXHIBIT 23
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We have issued our report dated February 21, 1995, accompanying the
consolidated financial statements included in the Annual Report of Southern
Mineral Corporation on Form 10-K for the year ended December 31, 1995. We
hereby consent to the incorporation by reference of said report in the
Registration Statements of Southern Mineral Corporation on Form S-3 (File No.
33-60583) and on Form S-8 (File No. 33-60571).
Grant Thornton L.L.P.
Houston, Texas
February 21, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM ANNUAL
REPORT ON FORM 10-KSB FOR THE YEAR ENDED DECEMBER 31, 1995 AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<CASH> 562
<SECURITIES> 0
<RECEIVABLES> 1,122
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 2,071
<PP&E> 20,890
<DEPRECIATION> (2,848)
<TOTAL-ASSETS> 21,667
<CURRENT-LIABILITIES> 5,960
<BONDS> 9,920
<COMMON> 64
0
0
<OTHER-SE> 5,117
<TOTAL-LIABILITY-AND-EQUITY> 21,667
<SALES> 2,044
<TOTAL-REVENUES> 2,360
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 656
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (137)
<INCOME-TAX> 0
<INCOME-CONTINUING> (137)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (137)
<EPS-PRIMARY> (.02)
<EPS-DILUTED> (.02)
</TABLE>
