<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:
/ / Preliminary Proxy Statement / / Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section 240.14a-11(c) or
Section 240.14a-12
SOUTHERN MINERAL CORPORATION
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/X/ $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-6(i)(2)
or Item 22(a)(2) of Schedule 14A.
/ / $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and
0-11.
(1) Title of each class of securities to which transaction applies:
- --------------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
- --------------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the filing fee
is calculated and state how it was determined):
- --------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
- --------------------------------------------------------------------------------
(5) Total fee paid:
- --------------------------------------------------------------------------------
/ / Fee paid previously with preliminary materials.
/X/ 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:
$125
- --------------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
Preliminary Proxy Statement (14A)
- --------------------------------------------------------------------------------
(3) Filing Party:
Southern Mineral Corporation
- --------------------------------------------------------------------------------
(4) Date Filed:
April 9, 1996
- --------------------------------------------------------------------------------
<PAGE> 2
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,
/s/ MARGIE EWALD
MARGIE EWALD
Assistant Secretary
April 19, 1996
<PAGE> 3
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.
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<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 18, 1996, the last sales price of a share of Common Stock,
as reported in the consolidated reporting system for NASDAQ Small Cap Issues,
was $2.125. 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,
/s/ MARGIE EWALD
MARGIE EWALD
Assistant Secretary
April 19, 1996
16
<PAGE> 18
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.
