<PAGE> 1
SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/X/ Preliminary Proxy Statement / / Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
/ / Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section 240.14a-11(c) or
Section 240.14a-12
SOUTHERN MINERAL CORPORATION
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in its Charter)
SOUTHERN MINERAL CORPORATION
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/X/ $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-6(i)(2)
or Item 22(a)(2) of Schedule 14A.
/ / $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and
0-11.
(1) Title of each class of securities to which transaction applies:
- --------------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
- --------------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the filing fee
is calculated and state how it was determined):
- --------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
- --------------------------------------------------------------------------------
(5) Total fee paid:
- --------------------------------------------------------------------------------
/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
- --------------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
- --------------------------------------------------------------------------------
(3) Filing Party:
- --------------------------------------------------------------------------------
(4) Date Filed:
- --------------------------------------------------------------------------------
<PAGE> 2
PRELIMINARY COPY
SOUTHERN MINERAL CORPORATION
500 Dallas, Suite 2800
Houston, Texas 77002-4708
713/658-9444
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To Be Held May 15, 1996
Notice is hereby given that the annual meeting of stockholders of Southern
Mineral Corporation, (the "Company"), will be held on Wednesday, May 15, 1996,
at 8:30 a.m., Houston time, at The DoubleTree Hotel, 400 Dallas, Houston,
Texas, for the following purposes:
1. To elect a Board of nine directors to serve until the next annual
meeting of stockholders and until their successors are elected and
qualified;
2. To approve the adoption of the Company's 1996 Stock Option Plan;
3. To approve the adoption of the Company's 1996 Employee Stock Purchase
Plan;
4. To approve an amendment to the Company's Articles of Incorporation
pursuant to which the number of shares of the Company's authorized
common stock, par value $.01 per share, would be increased to
20,000,000;
5. To appoint Grant Thornton LLP as auditors of the Company for the year
ending December 31, 1996; and
6. To consider and act upon such other business as may properly be
presented to the meeting or any adjournment thereof.
A record of stockholders has been taken as of the close of business on
March 22, 1996, and only those stockholders of record on that date will be
entitled to notice of and to vote at the meeting or any adjournment thereof.
All stockholders of the Company are invited to attend the meeting. The Board
of Directors, however, requests that you promptly sign, date and mail the
enclosed proxy, even if you plan to be present at the meeting. If you attend
the meeting, you can either vote in person or by your proxy. Please return
your proxy in the enclosed, postage-paid envelope.
By order of the Board of Directors,
MARGIE EWALD
Assistant Secretary
April __, 1996
<PAGE> 3
PRELIMINARY COPY
SOUTHERN MINERAL CORPORATION
500 Dallas, Suite 2800
Houston, Texas 77002-4708
713/658-9444
PROXY STATEMENT
This Proxy Statement and the enclosed proxy are being mailed to
stockholders of Southern Mineral Corporation, a Nevada corporation (the
"Company"), commencing on or about April 20, 1996. The Company's Board of
Directors is soliciting proxies to be voted at the Company's annual meeting of
stockholders to be held in Houston, Texas on Wednesday, May 15, 1996 and at any
adjournment thereof, for the purposes set forth in the accompanying notice.
The shares covered by a proxy, if such is properly executed and received prior
to the meeting, will be voted in accordance with the directions specified
thereon regarding election of directors, adoption of the 1996 Stock Option
Plan, adoption of the 1996 Employee Stock Purchase Plan, proposed amendment to
the Company's Articles of Incorporation to increase authorized common stock,
appointment of Grant Thornton LLP as auditors, and with respect to any other
matters which may properly come before the meeting, in accordance with the
judgment of the persons designated as proxies. A proxy may be revoked at any
time before it is exercised by giving written notice to, or filing a duly
executed proxy bearing a later date with, the Secretary of the Company, or by
voting in person at the meeting. Management expects that the only matters to
be presented for action at the meeting will be the election of directors,
approval of adoption of the 1996 Stock Option Plan and 1996 Employee Stock
Purchase Plan, approval of the proposed amendment to the Company's Articles of
Incorporation to increase authorized common stock, and appointment of Grant
Thornton LLP as auditors.
At the close of business on March 22, 1996, the record date for
determining the stockholders entitled to notice of and to vote at the meeting
(the "Record Date"), there were outstanding and entitled to vote 6,552,519
shares of the Company's common stock, par value $.01 per share ("Common
Stock"). Each share of Common Stock entitles the holder to one vote on all
matters presented at the meeting.
The Company will bear the costs of soliciting proxies in the
accompanying form. In addition to solicitations by mail, a number of regular
employees of the Company may solicit proxies in person or by telephone.
ELECTION OF DIRECTORS
NOMINEES
At the meeting, nine nominees are to be elected to the Company's Board
of Directors, each director to hold office until the next annual meeting of
stockholders and until his successor is elected and qualified. Unless your
proxy specifies otherwise or withholds authority to vote for one or more
nominees named thereon and described below, it is intended that the shares
represented by your proxy will be voted for the election of these nine
nominees. Proxies cannot be voted for a greater number of persons than the
number of nominees named. If any nominee should become unavailable for
election, your proxy may be voted for a substitute nominee selected by the
Board, or the Board may be reduced accordingly. The Board is unaware of any
circumstances likely to render any nominee unavailable.
2
<PAGE> 4
<TABLE>
<CAPTION>
Director Nominee Director Since Age Position
- ----------------------------- -------------- --- ---------------------------
<S> <C> <C> <C>
B. Travis Basham . . . . . 1995 57 Director
Thomas R. Fuller . . . . . 1995 48 Director
Robert R. Hillery . . . . . 1993 67 Director
E. Ralph Hines, Jr. . . . . 1985 67 Director
Howell H. Howard . . . . . 1960 68 Director and Chairman of
the Board of Directors
Steven H. Mikel . . . . . . 1995 44 Director, President and
Chief Executive Officer,
and Acting Principal
Financial and Accounting
Officer
James E. Nielson . . . . . 1993 65 Director
Donald H. Wiese, Jr. . . . 1995 54 Director
Spencer L. Youngblood . . . 1995 50 Director
</TABLE>
Mr. Basham has been, since 1988, Manager of four Texas general
partnerships operating under the Diverse name, all of which are engaged in the
oil and gas acquisition, exploitation and production business (collectively the
"Diverse Partnerships"), and since 1992 has served as President of Venucot,
Inc., an oil and gas production and management company.
Mr. Fuller has been, since 1990, Manager of certain of the Diverse
Partnerships and since 1980, has been President of Wyogram Oil Company which is
engaged in the oil and gas production business.
Mr. Hillery has served as President and Chief Executive Officer of The
Links Group, Inc. ("LGI") since 1993. During the period from 1984 until 1992,
Mr. Hillery was Director and President of Gulf Exploration Consultants, Inc.
("GEC"). Both LGI and GEC are engaged in oil and gas exploration. He also has
been a member of the Board of Trustees of Phillips University since 1982.
Mr. Hines has been a Partner of Moon & Hines, an oil and gas
exploration partnership, since 1972. He also has held, for more than six
years, the positions of Director and Vice President of Moon-Hines-Tigrett
Operating Co., Inc., an oil and gas operating company.
Mr. Howard has been Trustee of the Ehlco Liquidating Trust since
January 1989 and was Chairman of the Board of Edward Hines Lumber Co. from 1981
until its liquidation in January 1989. He has served as Chairman of the Board
of the Company since July 1981.
Mr. Mikel has been the Company's President and Chief Executive Officer
since January 1995, and its acting principal financial and accounting officer
since July 1995. From May 1993 until December 1994 he was an independent
consultant in the oil and gas industry. Mr. Mikel served as Managing Director
of Resource Investors Management Company, an oil and gas investment management
company, from October 1985 until April 1993.
Mr. Nielson has held the position of President and Chief Executive
Officer of Nielson & Associates, Inc. since 1992. From 1979 through 1992, Mr.
Nielson was President and Chief Executive Officer of JN Oil and Gas, an oil and
gas exploration company. He has served as Director of the American Petroleum
Institute, Rocky Mountain Oil and Gas Association and Shoshone First Bank since
1974, 1989 and 1992, respectively. Mr. Nielson has been President of Rocky
Mountain Oil and Gas Association since 1993.
Mr. Wiese has been Manager, since 1988, of the Diverse Partnerships
and since 1980, has been President of Heathery Resources, Inc., an oil and gas
consulting company.
Mr. Youngblood has been Manager of certain of the Diverse Partnerships
since 1990 and President of Kona, Inc., an oil and gas production company,
since 1992.
3
<PAGE> 5
BOARD AND COMMITTEE ACTIVITY, STRUCTURE AND COMPENSATION
The Company's operations are managed under the broad supervision and
direction of the Board of Directors, which has the ultimate responsibility for
the establishment and implementation of the Company's general operating
philosophy, objectives, goals and policies. Pursuant to delegated authority,
certain Board functions are discharged by three of the Board's standing
committees, the Audit, Compensation and Nominating Committees. During the
fiscal year ended December 31, 1995, the Company's Board of Directors held
seven meetings. In 1995, each incumbent member of the Board except Messrs.
Basham and Youngblood attended or participated in at least 75% of the aggregate
number of (i) Board meetings and (ii) committee meetings held by all committees
of the Board on which he served.
The Audit Committee recommends to the Board the independent
accountants of the Company, reviews the Company's annual report on Form 10-KSB,
reviews the Company's internal controls and accounting operations, and reviews
any transactions of the Company in which management or controlling persons of
the Company have an interest. Other matters which the Audit Committee reviews
with the Company's independent accountants include financial policies and
practices; the arrangement, scope and results of the annual audit; and the
independent accountants' findings and recommendations relating to the Company's
accounting practices, internal controls and accounting procedures. The Audit
Committee held one meeting during 1995. Its current members are B. Travis
Basham, Robert R. Hillery, James E. Nielson and Spencer L. Youngblood.
Members of the Audit Committee for 1996 will be selected by the Board following
the annual stockholders' meeting.
The Compensation Committee is responsible for formulating and adopting
or recommending to the Board executive compensation plans and policies,
including those relating to incentive compensation and benefits. This
Committee also supervises the administration of all employee benefit and
executive compensation programs, including the establishment of specific
criteria against which executive officers' annual performance-based
compensation is measured. Compensation Committee decisions regarding aggregate
executive compensation, corporate performance goals relating to incentive
compensation, and the Chief Executive Officer's compensation are subject to
approval by the Company's Board. The Compensation Committee held one meeting
during 1995. Its current members are Robert R. Hillery, E. Ralph Hines, Jr.,
Howell H. Howard and Donald H. Wiese, Jr. Members of the Compensation
Committee for 1996 will be selected by the Board following the annual
stockholders' meeting.
The Nominating Committee is responsible for considering and nominating
candidates for election as directors. This Committee will consider nominees
submitted by stockholders. Stockholders who wish to suggest individuals for
possible future consideration for Board positions should direct recommendations
to the Nominating Committee at the Company's principal offices. The Nominating
Committee held one meeting during 1995. Its current members are Howell H.
Howard, Thomas R. Fuller, James E. Nielson and Spencer L. Youngblood. Members
of the Nominating Committee for 1996 will be selected by the Board following
the annual stockholders' meeting.
On March 30, 1995, the Board of Directors adopted the 1995
Non-Employee Director Compensation Plan ("Director Plan"). The Director Plan
was approved by the Company's stockholders at the May 17, 1995 annual meeting
and is effective through March 1997. Under the Director Plan during 1995, each
non-employee director of the Company was issued 1,000 shares of Common Stock
for each of the two Board meetings he attended after March 30, 1995 which were
not held by telephone conference. No retainer or other compensation for
serving as a director of the Company was paid during 1995 or is expected to be
paid during the term of the Director Plan. The Company also reimburses each
director for his actual and necessary expenses reasonably incurred in
connection with attending meetings of the Board and its committees.
1996 STOCK OPTION PLAN
On February 22, 1996, the Board of Directors adopted the 1996 Stock
Option Plan (the "Option Plan") subject to approval by the Company's
stockholders. The purpose of the Option Plan is to provide key employees of
the Company and its subsidiaries a continuing proprietary interest in the
Company, with a view to increasing the interest in the Company's welfare of
those personnel who share primary responsibility for the Company's management
and growth. Approximately 15 employees, including officers (whether or not
they are directors), are currently eligible to participate in the Option Plan.
The Company's non-employee directors will not be eligible to participate in the
Option Plan.
4
<PAGE> 6
Pursuant to the Option Plan, the Company may grant options exercisable
for up to 300,000 shares of Common Stock. 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 become available for new option grants.
The Option Plan provides for proportionate adjustments in the number of shares
of Common Stock available to be issued thereunder, and the number of shares and
exercise prices of outstanding options for subdivisions or consolidations of,
or stock dividends on Common Stock effected by the Company without receipt of
consideration.
The two types of options which may be granted under the Option Plan
are nonqualified options and incentive options. As outlined below, the
differences between the options are based upon their federal income tax
consequences.
Tax Consequences of Nonqualified Options. An optionee does not
recognize any income for federal tax purposes at the time a nonqualified option
is granted, and the Company is not then entitled to a deduction. When any part
of a nonqualified option is exercised, the optionee recognizes ordinary income
in an amount equal to the difference between the fair market value of the
shares on the exercise date and the exercise price of the nonqualified option,
and the Company generally recognizes a tax deduction in the same amount. An
optionee generally recognizes capital gain or loss on disposition of shares
acquired by exercising a nonqualified option. The optionee's tax basis in such
shares equals the fair market value of the stock at exercise. If the stock is
sold at a loss, an optionee may be limited in the amount of loss that is
currently deductible.
If all or any part of the exercise of a nonqualified option is paid by
an optionee with shares of Common Stock (including shares previously acquired
on the exercise of any options), no gain or loss will be recognized on the
shares surrendered on payment. The number of shares received on such exercise
of the nonqualified option equal to the number of shares surrendered will have
the same basis and holding period, for purposes of determining whether
subsequent dispositions result in long-term or short-term capital gain or loss,
as the basis and holding period of the shares surrendered. The balance of the
shares received on such exercise will be treated for federal income tax
purposes as described in the preceding paragraph as though issued on the
exercise of the nonqualified option for an exercise price equal to the
consideration, if any, paid by the optionee in cash. The optionee's
compensation, which is taxable as ordinary income on such exercise, and the
Company's deduction will not be affected by whether the exercise price is paid
in cash or in shares of Common Stock. However, gain on the stock transferred
to exercise the nonqualified option is deferred.
Tax Consequences of Incentive Options. An optionee does not recognize
any income for federal tax purposes when an incentive stock option is granted
or upon its qualified exercise. If an optionee does not dispose of the shares
acquired by exercising an incentive stock option within two years after its
grant and one year after its exercise, the exercise is qualified and the gain
or loss (if any) on a subsequent sale will be a long-term capital gain or loss.
Such gain or loss is the difference between the sales proceeds and the exercise
price of the option covering the stock sold. The Company is not entitled to a
tax deduction as the result of the grant or qualified exercise of an incentive
stock option.
If an optionee disposes of shares acquired upon exercise of an
incentive stock option within either two years after the date of its grant or
one year after its exercise, the disposition is a disqualifying disposition and
the optionee will recognize ordinary income in the year of such disposition.
The amount of ordinary income recognized equals the excess of the fair market
value of shares at the time the incentive stock option was exercised over the
exercise price, and the balance of the gain (if any) will be long or short term
capital gain depending on whether the shares were disposed more than one year
after exercise. If the disqualifying disposition is at a price between the
exercise price and fair market value at exercise, the ordinary income is
limited to the excess of the amount realized on the disposition over the
exercise price. If the disqualifying disposition is at a price below the
exercise price, the loss will be long or short term capital loss depending on
the optionee's holding period with respect to the disposed shares. The Company
generally is entitled to a deduction in the year of the disqualifying
disposition in an amount equal to the ordinary income recognized by the
optionee as a result of such disposition.
If all or any part of the exercise of a incentive stock option is paid
by an optionee with shares of Common Stock (including shares previously
acquired on the exercise of any options), the optionee generally will not
recognize any income, gain or loss on the transfer of the surrendered shares.
In such case, the basis of the surrendered shares will be allocated to the
shares so acquired on exercise of the incentive stock option, and the holding
period of the shares so acquired would be determined in a manner prescribed in
proposed regulations under the Internal Revenue Code of 1986, as amended
("Code"). However, if the shares of Common Stock used to exercise the
incentive stock options were either acquired on the exercise of an incentive
stock option or option granted under the Company's 1996 Employee Stock
Purchase Plan (collectively, "Tax Deferred Option Stock"), then such use is a
disqualifying disposition as to such stock if the applicable holding periods
5
<PAGE> 7
described in the preceding paragraph are not met. In such event, the optionee
would recognize gain or loss on such disqualifying disposition as described in
the preceding paragraph.
The excess of the fair market value of the shares upon exercise of an
incentive stock option over the exercise price is a positive adjustment for
alternative minimum tax ("AMT") purposes. In addition, the basis of shares
acquired through the exercise of an incentive stock option for determining gain
or loss for AMT purposes is increased by the amount of the positive AMT
adjustment created due to the earlier exercise.
Administration. The Option Plan is intended to comply with Rule 16b-3
under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), so
that the grant of options is exempt from the short-swing profit liability
provisions of Section 16 of the Exchange Act. Accordingly, the Option Plan must
be administered by a committee of disinterested directors within the meaning of
Rule 16b-3. The Option Plan also is intended to comply with Section 162(m) of
the Code so that the Company can exclude from the $1,000,000 deduction
limitation the compensation income attributable to nonqualified stock options
granted to the chief executive officer and other four most highly compensated
executives (or to incentive options granted to such individuals in the case of a
disqualifying disposition). Accordingly, the Option Plan also must be
administered by outside directors within the meaning of Section 162(m).
The Option Plan will be administered by the Compensation Committee of
the Board of Directors (the "Committee") whose members currently are Messrs.
Hillery, Hines, Howard and Wiese. The Committee will have binding authority to
interpret and construe any provision of the Option Plan and to adopt such rules
and regulations for administering the Option Plan as it deems necessary. The
Company will indemnify each member of the Committee with respect to any action,
omission, interpretation or determination made in good faith with respect to
the Option Plan.
The Committee will determine which key employees receive options, the
type of options granted and the number of shares subject to each option. The
Committee also generally will determine the prices, expiration dates and other
terms and conditions with respect to the vesting and exercise of options.
Specific terms as to each option grant will be set forth in a written option
agreement between the Company and optionee.
Although the Committee generally has discretion in establishing the
exercise price of options, certain limitations apply with respect to
nonqualified options granted to certain highly compensated executives and to
incentive options. In granting nonqualified options intended to comply with
Code Section 162(m), the exercise price must equal the Common Stock's fair
market value at the date of grant. In addition, the Option Plan provides that
no optionee may be granted options exercisable for more than 100,000 shares of
Common Stock during any one fiscal year of the Company.
Federal tax law limitations also apply to incentive stock option
grants. The exercise price of incentive stock options must be at least 100% of
the fair market value of the Common Stock on the date the option is granted.
Incentive stock options cannot be granted to any employee owning more than 10%
of the voting power of all classes of stock of the Company or its subsidiaries
unless at the time of grant the option price is at least 110% of the fair
market value of the stock subject to the incentive stock option, and such
option by its terms expires five years from its grant date. In addition, the
aggregate fair market value of the Common Stock subject to any incentive stock
option issued under the Option Plan that first becomes exercisable by an
optionee in any one calendar year may not exceed $100,000. If any option is
granted in excess of this limitation, the option, to the extent of such excess,
will be considered a nonqualified stock option.
Exercise Generally. The purchase price for shares subject to an
option generally must be paid in cash in full at the time of exercise. The
Committee can permit the purchase price to be paid in whole or in part with an
amount of shares of Common Stock having a fair market value equal to the cash
amount due.
An option generally is exercisable during an optionee's lifetime only
by him and may not be assigned or transferred except by will or the laws of
descent and distribution. No option will be exercisable during the first six
months after the date of grant. No option will be exercisable after the
earliest to occur of (i) expiration of the exercise period specified in a
specific option agreement, (ii) expiration of ten years from the date of grant;
(iii) three months after an optionee's employment terminates for any reason
other than cause (as defined in the Option Plan), permanent and total
disability (as defined in Section 22(e)(3) of the Code), or death; (iv) one
year after an optionee's employment terminates by reason of permanent and total
disability or death; or (v) date of actual termination of employment for cause.
6
<PAGE> 8
The Option Plan provides that the Company may require a participant to
satisfy certain tax withholding requirements by remitting cash to the Company
in connection with the exercise of an option. In addition, the Option Plan
provides that, at the optionee's election, an unrelated broker-dealer acting on
behalf of the optionee may exercise options granted to the optionee under the
Plan and immediately sell the shares acquired on account of the exercise to
raise funds to pay the option's exercise price and the amount of any
withholding tax which may be due on account of the exercise.
Change of Control, Mergers and Other Transactions. The Committee will
have discretion to determine whether to accelerate the vesting of options upon
a "change of control" in the Company. Under the Option Plan, a "change of
control" occurs when (i) any person becomes (after the effective date of the
Option Plan) the "beneficial owner" (as defined in Rule 13d-3 under the
Exchange Act), directly or indirectly, of securities of the Company
representing more than 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 cease to constitute a majority of the Board; or (iii) the Board
of Directors determines in its sole and absolute discretion that there has been
a change in control of the Company.
If the Company is 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 outstanding option will entitle the optionee 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.
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, in its absolute discretion, has the power to either (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 optionee an amount
in cash, for each share of Common Stock subject to such option, equal to the
excess of (A) the value 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 outstanding
option (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 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 optionee in partial consideration for the exchange of
the option.
Amendment and Termination. The Option Plan generally terminates on
the tenth anniversary of its adoption by the Board of Directors. The Board may
at any time suspend or discontinue the Option 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 Option Plan, (ii)
materially increase the benefits accruing to optionees, (iii) materially modify
the requirements as to eligibility for participation in the Option Plan, (iv)
increase the 100,000 share annual option limitation, (v) extend the term of the
Option Plan, or (vi) decrease any authority granted to the Committee under the
Option Plan in contravention of Rule 16b-3.
Certain Securities Law Matters. Transactions under the Option Plan
are intended to comply with all applicable conditions of Rule 16b-3 or its
successors under the Exchange Act. To the extent any provision of the Option
Plan or action by the Board fails to so comply, such provision or action will
be deemed null and void to the extent permitted by applicable law and deemed
advisable by the Board. The Company intends to register under the Securities
Act of 1933, as amended (the "Securities Act"), the Common Stock reserved for
issuance under the Option Plan on a registration statement on Form S-8. The
Company intends to file such Form S-8 with the Securities and Exchange
Commission after the Company's stockholders approve the Option Plan's adoption,
and before any option first becomes exercisable.
7
<PAGE> 9
New Plan Benefits. The following table provides information concerning
an incentive stock option granted under the Option Plan on February 22, 1996 to
the Company's President and Chief Executive Officer:
<TABLE>
<CAPTION>
NAME AND POSITION 1996 STOCK OPTION PLAN
----------------- ---------------------------------
DOLLAR VALUE NUMBER OF UNITS
------------ ---------------
<S> <C> <C>
Steven H. Mikel, President and
Chief Executive Officer . . . . . . . . . . . $0 (1) 10,000
Executive Officers as a group (1 person) . . $0 (1) 10,000
Non-Employee Directors as a group
(8 persons) . . . . . . . . . . . . . . . . . -- --
Non-Executive Officer Employee Group
(2 persons) . . . . . . . . . . . . . . . . . -- --
</TABLE>
(1) The exercise price of this option is $1.50 per share which was the
last sales price for the Common Stock on February 21, 1996 as reported
in the consolidated reporting system for NASDAQ Small Cap Issues. The
options will not be exercisable (i) unless stockholders approve the
Option Plan's adoption and (ii) before August 23, 1996.
If the Company's stockholders approve the Option Plan's adoption, Mr. Mikel's
incentive stock option will become 100% exercisable for 10,000 shares of Common
Stock six months after the date of grant at an exercise price of $1.50 per
share. As of April __, 1996, the last sales price of a share of Common Stock,
as reported in the consolidated reporting system for NASDAQ Small Cap Issues,
was $_._____. This option will expire ten years after the date upon which it
was granted.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE APPROVAL OF THE
ADOPTION OF THE 1996 STOCK OPTION PLAN.
1996 EMPLOYEE STOCK PURCHASE PLAN
On February 22, 1996, the Company's Board of Directors adopted the
1996 Employee Stock Purchase Plan (the "Purchase Plan"), subject to approval by
the Company's stockholders. The Purchase Plan is intended to provide a means by
which eligible employees may develop a sense of proprietorship and personal
involvement in the Company's development and financial success by providing a
method whereby they may voluntarily purchase shares of Common Stock at
favorable prices.
The Purchase Plan is intended to constitute an "employee stock
purchase plan" within the meaning of Section 423 of the Code. The Purchase
Plan grants options to purchase shares of Common Stock to those eligible
employees who elect to participate in the Purchase Plan ("Participants")
through a payroll deduction mechanism. Subject to certain anti-dilution
adjustments, the aggregate number of shares of Common Stock for which options
may be granted under the Purchase Plan is 300,000.
Eligible Employees. All employees of the Company (or any of its
present or future subsidiaries) are eligible to participate in the Purchase
Plan, except certain part-time employees and any employee who, immediately
after an option is granted, owns stock (directly or indirectly) possessing 5%
or more of the total combined voting power or value of all classes of stock of
the Company (or its subsidiary corporations). For purposes of applying this 5%
requirement, stock which an employee may purchase under any outstanding
derivative security is treated as owned by such employee (but only with respect
to the employee being tested). Approximately 15 employees of the Company
currently are eligible to participate in the Purchase Plan.
Administration. The Purchase Plan will be administered by a Committee
of two or more directors appointed by the Company's Board of Directors
("Board"), each of whom is required to be a "disinterested person" within the
meaning of Rule 16b-3 under the Exchange Act. The Committee is authorized to
interpret the Purchase Plan (and all options granted thereunder) and to adopt
rules, not inconsistent with the Purchase Plan, to administer the Purchase Plan.
8
<PAGE> 10
Grant of Options. Upon approval of the Purchase Plan's adoption by
the Company's stockholders, the Company may grant options on January 1 and July
1 of each year ("date of grant") to eligible employees who elect to participate
in the Purchase Plan. The term of each option is six months from the date of
grant ("Option Period"). The number of options granted to each Participant
equals the quotient of (i) the total payroll deductions authorized by each
Participant as extended during the full applicable Option Period, divided by
(ii) 85% of the fair market value of the Common Stock as of the date of grant
of such option.
Limitation on Grant of Options. Pursuant to the Code, no Participant
may be granted options under the Purchase Plan to the extent such grant would
permit the Participant the right to purchase Common Stock under the Purchase
Plan (and all other stock purchase plans of the Company and its subsidiary
corporations) to accrue at a rate which exceeds $25,000 of fair market value of
Common Stock (as of the date of grant) for each calendar year in which any such
option is outstanding at any time.
Payroll Deduction Authorization. Eligible employees participate in
the Purchase Plan only by completing a payroll deduction authorization form in
the month immediately preceding the date of grant. The payroll deduction
authorization form will authorize the Company to deduct a stated percentage
from the Participant's eligible compensation on a monthly basis or for each of
the Company's pay days (at the Participant's election) and to pay such amount
into the Purchase Plan for the Participant's account. The stated percentage
may not be less than 2% or greater than 10% of the Participant's eligible
compensation, subject to the $25,000 limitation described above. Subject to
these limitations, a Participant may reduce his payroll deduction at any time
during the Option Period by giving written notice to the Company. "Eligible
compensation" means the Participant's base rate of pay or base monthly salary,
and does not include incentive compensation, such as, bonuses and overtime.
Exercise of Options. Except if the Participant gives notice of
withdrawal from the Purchase Plan, each Participant is automatically deemed to
have exercised his or her option, as of the last day of the Option Period
("date of exercise"), to the extent the balance in the Participant's account is
sufficient to purchase, at the Option Price (defined below), whole shares of
Common Stock. Any balance remaining in the Participant's account under the
Purchase Plan after payment of the aggregate Option Price describe above, is
refunded to the Participant in cash. The Company will deliver to the
Participant stock certificates representing shares of Common Stock as soon as
practicable following the date of exercise of the option. No exercise of
fractional shares is permitted.
The Option Price per share of Common Stock to be paid by each
Participant on exercise of his or her option is 85% of the fair market value of
the Common Stock as of the date of grant or the date of exercise of such
option, whichever is less.
Right of Withdrawal. Any Participant may withdraw in whole (but not
in part) from the Purchase Plan at any time by giving written notice to the
Company. Upon such withdrawal, the Company is required to promptly refund to
the withdrawing Participant the balance in his or her account under the
Purchase Plan. The withdrawal by any Participant shall not affect his or her
eligibility to participate again in the Purchase Plan upon the expiration of
the Option Period during which the withdrawal occurred; provided, however, that
any withdrawing Participant who is subject to Section 16 of the Exchange Act
will not again be eligible to participate until six months from the date of his
or her withdrawal.
Termination of Employment. If a Participant's employment is
terminated for any reason other than death or eligible retirement, his or her
participation in the Purchase Plan terminates as of the date of termination,
entitling the Participant solely to a refund of the balance in his or her
account under the Purchase Plan.
If a Participant retires after reaching the age of 65, the Participant
may, by written notice to the Company within 90 days of the retirement date,
either (i) exercise the Participant's outstanding options as of the retirement
date (at an option price equal to 85% of the fair market value per share of
Common Stock as of the date of grant or the retirement date, whichever is
less), and receive a cash payment for any amount remaining in his or her
account after paying the applicable Option Price, or (ii) receive a cash
payment equal to the balance in his or her account under the Purchase Plan.
Failure to give timely notice to the Company is deemed an election to receive
the cash payment.
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<PAGE> 11
If a Participant's employment terminates due to death, the
Participant's legal representative will have the same rights as those described
above relating to a Participant's retirement upon reaching age 65, except the
date of death replaces the retirement date.
Restrictions on Transfer. No option granted under the Purchase Plan
is transferable other than by will or the laws of descent and distribution.
Each option is exercisable, during a Participant's lifetime, only by such
Participant. In addition, if a Participant to whom an option is granted (i)
exercises the option for shares of stock and (ii) is subject to Section 16 of
the Exchange Act, then such Participant may not transfer or otherwise dispose
of such stock for six months after the date of exercise of the underlying
option.
Anti-Dilution Provisions. The number of shares subject to the Plan,
and the number and option price of shares subject to outstanding options under
the Purchase Plan will be proportionately adjusted in the event of any
subdivision, combination or reclassification of the Common Stock.
Additionally, if the Company is not the surviving corporation in any
merger or consolidation, or if the Company is to be dissolved or liquidated,
then, unless the surviving corporation (if any) assumes or substitutes new
options for all then outstanding options granted under the Purchase Plan, (i)
the date of exercise of all then outstanding options is accelerated to a date
set by the Committee prior to the effective date of the transaction at issue,
(ii) a Participant (or his or her legal representative) may, at his or her
election by written notice to the Company within three days after the
accelerated exercise date, (x) receive a cash payment equal to the balance in
his or her account under the Purchase Plan, (y) exercise the option in part to
the extent of the balance then in his or her account under the Purchase Plan
and receive a cash payment for the excess, or (z) exercise the option in full
by making a cash deposit to the Company in an amount necessary to fully
exercise the option and pay the related Option Price.
Term of Purchase Plan. The Purchase Plan is effective upon its
adoption by the Company's Board, subject to stockholder approval within 12
months thereafter. Except for options then outstanding, the Purchase Plan
terminates upon the earlier of (i) the expiration of ten years or (ii) the
point in time when no Common Stock reserved for issuance pursuant to options
under the Purchase Plan are available.
Amendments to the Purchase Plan. The Board has the right to amend the
Purchase Plan at any time; provided, that no change in any granted option may
be made which would impair the rights of a Participant without the consent of
such Participant; and provided, further, without the approval of the
stockholders, no amendment may be made which would (i) increase the aggregate
number of shares for which options may be granted under the Purchase Plan
(subject to the anti-dilution provisions), (ii) materially increase the
benefits accruing to Participants under the Purchase Plan, (iii) change the
class of individuals eligible to receive options under the Purchase Plan, (iv)
cause the options to fail to qualify under Section 423 of the Code or (v)
extend the term of the Purchase Plan.
Tax Consequences. All payroll deductions under the Purchase Plan are on
an after-tax basis, and thus, all amounts so withheld with respect to each
Participant constitutes ordinary income to him and is subject to withholding by
the Company in the taxable year withheld. The federal income tax consequences to
the Participants and the Company are, with minor exceptions, identical to those
described above for incentive stock options described under the Company's 1996
Stock Option Plan. The exceptions relate to (i) a Participant's receipt of
cash (A) in lieu of fractional shares under the Purchase Plan or (B) upon
distributions of the balance of his account upon his withdrawal from the
Purchase Plan or otherwise, and (ii) recapture of ordinary income of the bargain
element of the Option Price. A Participant's receipt of cash which relates to
the balance of his account under the Purchase Plan will be tax-free to the
Participant since such amounts were taxable as ordinary income at the time they
were deducted from his pay. The ordinary income recapture is triggered on a
disqualifying disposition of the Common Stock acquired on the exercise of an
option granted under the Purchase Plan ("Option Stock") or on the death of the
Participant while holding the Option Stock.
The amount recognized as ordinary income on the occurrence of such
events is the lesser of (i) the excess of the fair market value of the Option
Stock at the date of grant, over the Option Price or (ii) the excess of the
fair market value of the Option Stock at the time of disposition or death, over
the Option Price. This formula has the effect of capping the ordinary income
element to the actual gain realized on the triggering event. Further, where
the Option Price is not fixed at the date of grant (as is the case under the
Purchase Plan), for purposes of calculating the Option Price under (i) above,
the
10
<PAGE> 12
price is determined as if the option were exercised on the date of grant.
The remainder of the gain on the disposition of the Option Stock, or the death
of the Participant, that is not taxable as ordinary income is eligible for
capital gain treatment. Even though the Participant is required to recognize
ordinary compensation income under the situations described above, the Company
is not entitled to a corresponding deduction for such amount.
Securities Law Matters. Transactions under the Purchase Plan are
intended to comply with all applicable conditions of Rule 16b-3 or its
successors under the Exchange Act. To the extent any provision of the Purchase
Plan or action by the Board fails to so comply, such provision or action will be
deemed null and void to the extent permitted by applicable law and deemed
advisable by the Board. The Company intends to register under the Securities
Act, the Common Stock reserved for issuance under the Purchase Plan on a
registration statement on Form S-8. The Company intends to file such Form S-8
with the Securities and Exchange Commission after the Company's stockholders
approve the Purchase Plan's adoption, and before any option first becomes
exercisable.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE APPROVAL OF THE
ADOPTION OF THE 1996 EMPLOYEE STOCK PURCHASE PLAN.
PROPOSED AMENDMENT TO
INCREASE NUMBER OF AUTHORIZED SHARES OF COMMON STOCK
The Company's Board of Directors has approved and declared the
advisability of amending the Company's Articles of Incorporation to increase
the number of authorized shares of Common Stock from 10,000,000 to 20,000,000.
The amendment would change the first sentence of Article Fourth of the
Company's Articles of Incorporation to be and read in its entirety as follows:
The total number of shares of stock which the corporation shall have
authority to issue is Twenty Million (20,000,000), all of which shall
be common stock of the par value of One Cent ($.01) each.
The purpose of the amendment is to provide the Company a sufficient
number of shares of authorized Common Stock to cover issuances under existing
director and employee stock compensation and option plans, outstanding options
issued in connection with past business acquisitions by the Company, and
issuances which the Company may make in the future in full or partial
consideration for business acquisitions, to raise capital through public or
private offerings, or to compensate its directors and employees. There remain
only 1,350,603 shares of the Company's authorized Common Stock which are
unissued and not already reserved for issuance for a specific purpose. As of
the Record Date, there were 6,552,519 shares of Common Stock issued and
outstanding. There are 1,128,000 shares of Common Stock reserved for issuance
under director compensation and employee stock options and plans, and 968,878
shares reserved for issuance upon exercise of options granted in connection
with past business acquisitions by the Company. Except as mentioned above, the
Company currently has no specific plans or proposals for issuing the additional
shares which are the subject of the proposed amendment. If the Company's
stockholders approve the proposed amendment, the Company does not anticipate
seeking stockholder approval in connection with specific issuances of
additional authorized shares except to the extent required by law, and rules
and regulations of exchanges or other markets upon which the Company's Common
Stock may trade.
The proposed amendment will not effect the existing rights of holders of
Common Stock. Under Nevada law, since the Company's articles of incorporation
do not deny preemptive rights, holders of Common Stock have preemptive rights to
acquire unissued shares, treasury shares or securities convertible into such
shares EXCEPT with respect to (i) shares issued to directors, officers or
employees pursuant to approval by the affirmative vote of the holders of a
majority of the shares entitled to vote or when authorized by a plan approved by
such a vote of shareholders, (ii) shares sold for a consideration other than
cash, (iii) shares issued at the same time that the shareholder who claims a
preemptive right acquired his shares, (iv) shares issued as part of the same
offering in which the shareholder who claims a preemptive right acquired his
shares, (v) shares (or shares into which convertible securities may be
converted) which upon issuance are registered pursuant to Section 12 of the
Securities Exchange Act of 1934, as amended, or (vi) shares of any class that is
preferred or limited as to dividends or assets or to any obligations, unless
convertible into Common Stock or carrying a right to subscribe to or acquire
Common Stock. To the extent any preemptive right exists, it only is an
opportunity to acquire shares or other securities upon such terms as the board
of directors fixes for the purpose of providing a fair and reasonable
opportunity for the exercise of such right. The Common Stock is registered
under Section 12 of the Exchange Act and holders thereof will have no preemptive
rights in respect of Common Stock issuances for so long as the Common Stock
remains so registered.
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<PAGE> 13
The issuance of additional shares of Common Stock may have a dilutive
effect on earnings per share and on the voting power of existing holders of
Common Stock. It also may adversely affect the market price of the Common
Stock. However, the Company's financial performance and market price of the
Common Stock may benefit from the issuance of additional shares in transactions
which yield the Company additional assets, favorable business opportunities or
additional working capital to pursue its business plans.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE APPROVAL OF THE
AMENDMENT TO THE ARTICLES OF INCORPORATION INCREASING THE NUMBER OF SHARES OF
AUTHORIZED COMMON STOCK TO 20,000,000.
APPOINTMENT OF GRANT THORNTON AS AUDITORS
The Board of Directors recommends to stockholders the certified public
accounting firm of Grant Thornton LLP to examine the Company's financial
statements for the year ending December 31, 1996. Grant Thornton has served as
the Company's independent accountants since 1992.
The Company anticipates that representatives of Grant Thornton LLP
will attend the annual meeting of stockholders and may make a statement if they
desire to do so, and will also be available to respond to appropriate questions
concerning the Company's financial statements.
The Board of Directors has the authority to appoint the Company's
auditors and has chosen to involve the stockholders in this appointment
process. If the stockholders do not approve the appointment of Grant Thornton
LLP, the Board will reconsider the selection of the Company's auditors and
notwithstanding the stockholders' lack of approval, may elect to appoint Grant
Thornton LLP as auditors of the Company for the year ending December 31, 1996.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR APPOINTMENT OF GRANT
THORNTON LLP AS AUDITORS.
MANAGEMENT
EXECUTIVE OFFICERS
The executive officers of the Company serve at the pleasure of the
Board of Directors and are subject to annual appointment by the Board. The
Company has the following two executive officers:
Howell H. Howard, age 68, is Chairman of the Board of Directors and a
director of the Company. Further information regarding Mr. Howard is provided
above under "Election of Directors--Nominees."
Steven H. Mikel, age 44, is President, Chief Executive Officer, Acting
Principal Financial and Accounting Officer and a director. Further information
regarding Mr. Mikel is provided above under "Election of Directors--Nominees."
EXECUTIVE COMPENSATION
The following table reflects all forms of compensation for Steven H.
Mikel's services to the Company during the year ended December 31, 1995, his
first year of employment by the Company. No other executive officer received
salary and bonus which exceeded $100,000.
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<PAGE> 14
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long Term Compensation
--------------------------------
Annual Compensation Awards Payouts
--------------------------------- ----------------------- --------
Securities
Restricted Underlying All
Other Annual Stock Options/ LTIP Other
NAME AND PRINCIPAL POSITION Year Salary Bonus Compensation Awards($) SARs(#) Payouts Compensation(1)
--------------------------- ---- ------ ----- ------------ --------- ------- -------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Steven H. Mikel 1995 $120,000 $10,000 -- -- -- -- $510
President and Chief 1994 -- -- -- -- -- --
Executive Officer 1993 -- -- -- -- -- --
</TABLE>
_________________
(1) Consists of the value computed in accordance with Internal Revenue
Service guidelines for premiums paid on term life insurance exceeding
$50,000 in coverages. Substantially all employees of the Company are
covered by term life insurance policies.
OPTION EXERCISES AND YEAR-END VALUES
The following table sets forth information regarding unexercised
options to purchase shares of the Common Stock at $1.00 per share which were
granted to Mr. Mikel in December 1994. Mr. Mikel did not exercise any Common
Stock options during 1995.
<TABLE>
<CAPTION>
Number of Securities Underlying Value of Unexercised In-the-Money
Name Unexercised Options/SARs at December 31, 1995 Options/SARs at December 31, 1995(1)
--------------- --------------------------------------------- --------------------------------------
Exercisable Unexercisable Exercisable Unexercisable
----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Steven H. Mikel 450,000 0 $225,000 0
</TABLE>
(1) Based upon the last sales price of $1.50 per share on December 29,
1995 as reported in the consolidated reporting system for NASDAQ Small
Cap Issues
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth as of March 31, 1996 the number of
shares of the Company's Common Stock owned by each director and director
nominee of the Company and all of the Company's directors and executive
officers as a group. Based on publicly-available filings with the Securities
and Exchange Commission, the Company knows of no person, other than the
directors, nominees and executive officers listed below, who is the holder of
more than five percent of its voting securities. Unless otherwise indicated,
each holder has sole voting and investment power with respect to the shares of
Common Stock owned by such holder, and is a United States citizen.
<TABLE>
<CAPTION>
Amount and Percent
Nature of of
Name of Beneficial Owner Beneficial Ownership Class
- -------------------------------------------------- ------------------------ -------
<S> <C> <C>
B. Travis Basham . . . . . . . . . . . . . . . . 610,807 (1) 9.2%
Thomas R. Fuller . . . . . . . . . . . . . . . . 611,807 (2) 9.2%
Robert R. Hillery . . . . . . . . . . . . . . . . 46,878 (3) 0.7%
E. Ralph Hines, Jr. . . . . . . . . . . . . . . . 44,750 (4) 0.7%
Howell H. Howard . . . . . . . . . . . . . . . . 452,417 (5) 6.9%
Steven H. Mikel . . . . . . . . . . . . . . . . . 500,000 (6) 7.1%
James E. Nielson . . . . . . . . . . . . . . . . 23,000 (7) 0.4%
Donald H. Wiese, Jr. . . . . . . . . . . . . . . 611,807 (8) 9.2%
Spencer L. Youngblood . . . . . . . . . . . . . . 610,807 (9) 9.2%
All Directors and Officers as a group (9 persons) 3,512,273(10) 47.7%
</TABLE>
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<PAGE> 15
- ----------------------
(1) Includes 476,985 shares held by Venucot, Inc., a corporation
controlled by Mr. Basham, and 7,924 and 69,576 shares issuable upon
exercise of presently exercisable options held by Mr. Basham and
Venucot, Inc., respectively.
(2) Includes 476,985 shares held by Michmatt, Inc., a corporation
controlled by Mr. Fuller, and 7,924 and 69,576 shares issuable upon
exercise of presently exercisable options held by Mr. Fuller and
Michmatt, Inc., respectively.
(3) Includes 43,878 shares issuable upon exercise of presently exercisable
options.
(4) Includes 41,750 shares owned by Mr. Hines' wife.
(5) Includes 289,747 shares held in trusts of which Mr. Howard is a
co-trustee and shares voting and dispositive power, and 7,874 shares
owned by Mr. Howard's wife.
(6) Includes 450,000 shares issuable upon exercise of presently
exercisable options. Excludes 10,000 shares issuable upon exercise of
options which are not presently exercisable.
(7) Includes 4,000 shares held by Nielson & Associates, Inc., a
corporation controlled by Mr. Nielson.
(8) Includes 476,985 shares held by DHW Energy, Inc. a corporation
controlled by Mr. Wiese, and 7,924 and 69,576 shares issuable upon
exercise of presently exercisable options held by Mr. Wiese and DHW
Energy, Inc., respectively.
(9) Includes 476,985 shares held by Kona, Inc., a corporation controlled
by Mr. Youngblood, and 7,924 and 69,576 shares issuable upon exercise
of presently exercisable options held by Mr. Youngblood and Kona,
Inc., respectively.
(10) Includes 803,878 shares issuable upon exercise of presently
exercisable options. Excludes 10,000 shares issuable upon exercise of
options which are not presently exercisable.
CERTAIN TRANSACTIONS
Acquisition of Diverse Production Co. On April 6, 1995, the Company
consummated the transactions contemplated by an Exchange Agreement ("Exchange
Agreement") executed March 2, 1995 by and among Diverse Production Co., a Texas
corporation since renamed SMC Production Co. ("DPC"), the stockholders of DPC
and the Company. Pursuant to the Exchange Agreement, the Company acquired all
of DPC's outstanding capital stock in consideration for issuing to DPC's
stockholders an aggregate of 2,193,919 shares of Common Stock and options to
acquire an additional 325,000 shares of Common Stock at any time before April
7, 2000 at an exercise price of $1.25 per share. The last sales price for the
Common Stock on April 5, 1995 as reported in the consolidated reporting system
for NASDAQ Small Cap Issues was $.9375. As part of the transactions
contemplated by the Exchange Agreement, the Company has registered under the
Securities Act the resale of Common Stock acquired by DPC's former stockholders
pursuant thereto. DPC's former stockholders include Messrs. B. Travis Basham,
Thomas R. Fuller, Donald H. Wiese, Jr. and Spencer L. Youngblood, each of whom
became a director of the Company effective April 6, 1995.
DPC's primary asset is its 15% general partner interest in Diverse GP
III, a Texas general partnership ("DGP III") which acquires, explores for,
develops and produces oil and natural gas. A non-operator, DGP III's principal
assets are its working and royalty interests in oil and gas properties located
in 11 of the continental United States, primarily in Texas, Louisiana and
Oklahoma, and the Gulf of Mexico. DGP III's general partners other than DPC and
their respective general partner interest in DGP III include Venucot, Inc.
(controlled by Mr. Basham) (20.659% interest), Michmatt, Inc. (controlled by Mr.
Fuller) (20.367% interest), DHW Energy, Inc. (controlled by Mr. Wiese) (20.659%
interest), and Kona, Inc. (controlled by Mr. Youngblood) (20.659% interest).
14
<PAGE> 16
In connection with his efforts in initiating the transactions
contemplated by the Exchange Agreement, Robert R. Hillery, a director of the
Company, was granted a non-qualified stock option on April 6, 1995 exercisable
at any time before April 7, 2000 to purchase 43,878 shares of the Company's
Common Stock at $1.00 per share.
Southern Links Group Joint Venture. Effective October 1, 1995, the
Company formed the "Southern Links Group" joint venture with The Links Group,
Inc., a Texas corporation controlled by Mr. Hillery ("LGI"). The venture is
managed by the Company and was formed to jointly develop exploration prospects
in the shallow offshore Texas state waters. The joint venture is structured to
define, develop and market exploration prospects in this area to industry
participants. In consideration of two-dimensional seismic studies and other
data which LGI contributed to the venture, and LGI's personnel and efforts to
pursue the venture's objectives, the Company paid LGI $75,000 in October 1995.
The Company has agreed to pay all third party costs of the venture, including
the purchase price of prospects. 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 LGI. The initial term of the venture agreement
expires on December 31, 1997 and generally automatically renews annually
thereafter until either party gives notice of termination at least 60 days
before the end of the calendar year.
Participation Arrangement. The Company and other industry participants
typically enter into a standard form of operating agreement on each prospect in
which the Company participates. Pursuant to the terms of such an agreement, one
of the other participating third parties is elected as operator and conducts the
operations which include, but are not limited to, the drilling and completing of
wells and the operating of producing wells. The Company participates in the Hub
Field, which is operated by Moon-Hines-Tigrett Operating Co., Inc., a
corporation controlled by director E. Ralph Hines, Jr. During the years ended
December 31, 1995 and 1994, the Company's share of costs for the Hub Field
amounted to $68,000 and $41,000, respectively, and related revenues for the same
periods were $25,000 and $76,000, respectively.
OTHER MATTERS
REQUIRED VOTE
Only holders of Common Stock as of the Record Date will be entitled to
vote in person or by proxy at the meeting. A majority of issued and
outstanding shares of Common Stock as of the Record Date represented at the
meeting in person or by proxy will constitute a quorum for the transaction of
business. Abstentions and broker non-votes will be counted for purposes of
determining the presence or absence of a quorum. Provided that a quorum is
present at the meeting, (i) the nine director nominees who receive the greatest
number of votes cast for election by stockholders entitled to vote therefore
will be elected directors, (ii) the affirmative vote for approval of adoption
of the Company's 1996 Stock Option Plan by a majority of shares entitled to
vote thereon and present in person or by proxy will constitute stockholder
approval thereof, (iii) the affirmative vote for approval of adoption of the
Company's 1996 Employee Stock Purchase Plan by a majority of shares entitled to
vote thereon and present in person or by proxy will constitute stockholder
approval thereof, (iv) the affirmative vote for approval of the proposed
amendment to the Company's Articles of Incorporation to increase the number of
shares of authorized Common Stock to 20,000,000 by a majority of shares
entitled to vote thereon will constitute approval thereof, and (v) the
affirmative vote for approval of appointment of Grant Thornton as auditors by a
majority of shares entitled to vote thereon and present in person or by proxy
will constitute stockholder approval thereof. Votes withheld in connection
with the election of one or more director nominees will not be counted as votes
cast for such individuals. Abstentions and broker non-votes with respect to
the 1996 Stock Option Plan, the 1996 Employee Stock Purchase Plan, the proposed
amendment to the Company's Articles of Incorporation and Grant Thornton's
appointment will have the same effect as a vote against approval thereof.
Votes will be tabulated and the results will be certified by the inspector of
election who is required to resolve impartially any interpretive questions as
to the conduct of the vote. In tabulating votes, a record will be made of the
number of shares (i) voted for each nominee, (ii) with respect to which
authority to vote for each nominee has been withheld, (iii) voted for, against
and abstaining from approval of the 1996 Stock Option Plan's adoption, the 1996
Employee Stock Purchase Plan's adoption, the proposed amendment to the
Company's Articles of Incorporation and Grant Thornton's appointment, and (iv)
present at the meeting but not voting. Under Nevada law, stockholders will
have no appraisal or similar dissenters' rights with respect to action on the
1996 Stock Option Plan, the 1996 Employee Stock Purchase Plan, the proposed
amendment or the appointment of Grant Thornton.
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<PAGE> 17
OWNERSHIP REPORTS
Under Section 16(a) of the Exchange Act, directors, certain officers,
and beneficial owners of 10% or more of the Company's Common Stock ("Reporting
Persons") are required from time to time to file with the Securities and
Exchange Commission reports of ownership and changes of ownership. Reporting
Persons are required to furnish the Company with copies of all Section 16(a)
reports they file. Based solely on its review of forms and written
representations received from Reporting Persons by it with respect to the year
ended December 31, 1995, the Company believes that all filing requirements
applicable to the Company's officers, directors and greater than 10%
stockholders have been met.
STOCKHOLDERS PROPOSALS
Management anticipates that the Company's 1997 annual stockholders
meeting will be held during May 1997. Any stockholder who wishes to submit a
proposal for action to be included in the proxy statement and form of proxy
relating to the Company's 1997 annual stockholders meeting must submit the
proposal to the Company on or before January 17, 1997. Any such proposals
should be timely sent by certified mail, return receipt requested, to the
Secretary of the Company, 500 Dallas, Suite 2800, Houston, Texas 77002.
AVAILABILITY OF ANNUAL REPORT
The Company is including herewith a copy of its annual report on Form
10-KSB for the fiscal year ended December 31, 1995, which has been filed with
the Securities and Exchange Commission in Washington, D.C.
By order of the Board of Directors,
MARGIE EWALD
Assistant Secretary
April __, 1996
16
<PAGE> 18
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> 19
(d) "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.
(e) "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.
(f) "Common Stock" shall mean the Company's common stock, par
value $.01 per share.
(g) "Company" shall mean Southern Mineral Corporation, a Nevada
corporation, and each of its Subsidiaries and its successors.
(h) "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.
(i) "Exchange Act" shall mean the Securities Exchange Act of 1934,
as amended from time to time.
(j) 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.
(k) "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.
(l) "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.
(m) "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.
(n) "Parent" shall mean a "parent corporation," whether now or
hereafter existing, as defined in Section 424(e) of the Code.
(o) "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.
(p) "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.
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<PAGE> 20
(q) "Plan" shall mean this 1996 Stock Option Plan, as it may be
amended from time to time.
(r) "Regulations" shall mean all regulations promulgated pursuant
to the Code.
(s) "Securities Act" shall mean the Securities Act of 1933, as
amended from time to time.
(t) "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.
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<PAGE> 21
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
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<PAGE> 22
(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.
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<PAGE> 23
(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.
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<PAGE> 24
(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.
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<PAGE> 25
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.
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<PAGE> 26
(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> 27
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> 28
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
-11-
<PAGE> 29
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> 30
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> 31
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
2
<PAGE> 32
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
3
<PAGE> 33
$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
4
<PAGE> 34
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> 35
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
6
<PAGE> 36
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.
7
<PAGE> 37
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
8
<PAGE> 38
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.
9
<PAGE> 39
PRELIMINARY COPY
SOUTHERN MINERAL CORPORATION
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS FOR THE
ANNUAL MEETING OF STOCKHOLDERS TO BE HELD ON MAY 15, 1996
The undersigned hereby appoints Howell H. Howard and Steven H. Mikel,
and each of them, either one of whom may act without joinder of the other, each
with full power of substitution and ratification, attorneys and proxies of the
undersigned to vote all shares of Southern Mineral Corporation which the
undersigned is entitled to vote at the annual meeting of stockholders to be
held at The DoubleTree Hotel, 400 Dallas, Houston, Texas on Wednesday, May 15,
1996 at 8:30 a.m., Houston, Texas time, and at any adjournment thereof.
1. [ ] FOR election (except as indicated below) as directors: B.
Travis Basham, Thomas R. Fuller, Robert R. Hillery, E. Ralph
Hines, Jr., Howell H. Howard, Steven H. Mikel, James E.
Nielson, Donald H. Wiese, Jr. and Spencer L. Youngblood.
INSTRUCTION: To withhold authority to vote for any individual
nominee, print that nominee's name on the line below:
_______________________________________________________________
[ ] WITHHOLD authority to vote for all nominees listed above.
FOR AGAINST ABSTAIN
2. [ ] [ ] [ ] Approval of 1996 Stock Option Plan.
FOR AGAINST ABSTAIN
3. [ ] [ ] [ ] Approval of 1996 Employee Stock Purchase Plan.
FOR AGAINST ABSTAIN
4. [ ] [ ] [ ] Approval of amendment to Articles of
Incorporation increasing authorized Common
Stock to 20,000,000 shares.
FOR AGAINST ABSTAIN
5. [ ] [ ] [ ] Appointment of Grant Thornton as auditors for
year ending December 31, 1996.
Continued on other side
Continued from other side
6. In their discretion, upon such other matters (including procedural and
other matters relating to the conduct of the meeting) which may
properly come before the meeting and any adjournment thereof.
THIS PROXY WILL BE VOTED IN ACCORDANCE WITH THE SPECIFICATIONS MADE
HEREON. IF NO CONTRARY SPECIFICATION IS MADE, THEN THIS PROXY WILL BE VOTED
FOR THE ELECTION OF THE NINE DIRECTOR NOMINEES NAMED IN ITEM 1 AND FOR EACH OF
THE PROPOSALS IDENTIFIED IN ITEMS 2, 3, 4 AND 5.
The undersigned hereby acknowledges receipt of the Notice of Annual Meeting of
Stockholders and the Proxy Statement furnished herewith. PLEASE DATE, SIGN AND
RETURN THIS PROXY PROMPTLY in the enclosed, pre-addressed stamped envelope.
Dated this ____day of ________, 1996.
_________________________________
_________________________________
Signature(s) of Stockholder
Please sign exactly as your name appears on
your stock certificate. When signing as
executor, administrator, trustee or other
representative, please give your full title.
All joint owners should sign.
_
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