INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
The Securities Exchange Act of 1934 (Amendment No. ________)
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Check the appropriate box:
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Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
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[ ] Soliciting Material under Sec. 240.14a-12
ABRAXAS PETROLEUM CORPORATION
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(Name of Registrant as Specified in Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
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pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the filing fee
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Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid
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the Form or Schedule and the date of its filing.
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(4) Date Filed:
ABRAXAS PETROLEUM CORPORATION
500 N. Loop 1604 East, Suite 100
San Antonio, Texas 78232
(210) 490-4788
April 21, 2006
Dear Stockholders:
You are cordially invited to attend the 2006 Annual Meeting of
Stockholders of Abraxas Petroleum Corporation to be held on Thursday, May 25,
2006, at 9:00 a.m., local time, at the Petroleum Club of San Antonio located at
8620 N. New Braunfels, Suite 700, San Antonio, Texas 78217. We hope that you
will be able to attend the meeting. Matters on which action will be taken at the
meeting are explained in detail in the Notice and Proxy Statement following this
letter.
Whether or not you expect to attend the Annual Meeting, please mark,
sign, and date the enclosed proxy and return it promptly in the enclosed
envelope.
Robert L.G. Watson
Chairman of the Board, President,
and Chief Executive Officer
ABRAXAS PETROLEUM CORPORATION
500 N. Loop 1604 East, Suite 100
San Antonio, Texas 78232
(210) 490-4788
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 25, 2006
To the Stockholders of Abraxas Petroleum Corporation:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of
Abraxas Petroleum Corporation ("Abraxas") will be held at the Petroleum Club of
San Antonio located at 8620 N. New Braunfels, Suite 700, San Antonio, Texas
78217, on Thursday, May 25, 2006, at 9:00 a.m., local time, for the following
purposes:
(1) To elect two directors to the Abraxas Board of Directors for a
term of three years. The Board of Directors has nominated the
following for election:
Franklin A. Burke
Paul A. Powell, Jr.
(2) To ratify the appointment of BDO Seidman, LLP as Abraxas'
independent auditors for the year ending December 31, 2006;
(3) To approve the Abraxas Petroleum Corporation 2005 Employee
Long-Term Equity Incentive Plan; and
(4) To transact such other business as may properly come before
the meeting or any adjournment thereof.
We cordially invite you to attend the Annual Meeting in person. To
assure your representation at the meeting, however, we urge you to mark, sign,
date, and return the enclosed proxy card as soon as possible in the enclosed
postage-prepaid envelope.
Whether or not you expect to attend the Annual Meeting, please
complete, sign, date, and promptly mail your proxy card in the envelope
provided. You may revoke your proxy at any time prior to the Annual Meeting,
and, if you attend the Annual Meeting, you may vote your shares of Abraxas stock
in person.
The Abraxas Board of Directors has fixed the close of business on April
18, 2006, as the record date for the determination of the stockholders entitled
to notice of and to vote at the Annual Meeting and any adjournment thereof.
By Order of the Board of Directors
Stephen T. Wendel
SECRETARY
San Antonio, Texas
April 21, 2006
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ABRAXAS PETROLEUM CORPORATION
500 N. Loop 1604 East, Suite 100
San Antonio, Texas 78232
(210) 490-4788
PROXY STATEMENT
-----------------------
The Board of Directors of Abraxas Petroleum Corporation is soliciting
proxies to vote shares of common stock at the 2006 Annual Meeting of
Stockholders to be held at 9:00 a.m., local time, on Thursday, May 25, 2006, at
the Petroleum Club of San Antonio located at 8620 N. New Braunfels, Suite 700,
San Antonio, Texas 78217, and at any adjournment thereof. This Proxy Statement
and the accompanying Proxy are first being mailed to stockholders on or about
April 21, 2006. For ten days prior to the annual meeting, a complete list of
stockholders entitled to vote at the annual meeting will be available for
examination by any stockholder for any purpose germane to the annual meeting
during ordinary business hours at Abraxas' executive offices, located at the
address set forth above.
Record Date; Shares Entitled To Vote; Quorum
The Board of Directors has fixed the close of business on April 18,
2006 as the record date for Abraxas stockholders entitled to notice of and to
vote at the annual meeting. Holders of common stock as of the record date are
entitled to vote at the annual meeting. As of the record date, there were
42,588,327 shares of Abraxas common stock outstanding, which were held by
approximately 1,222 holders of record. Stockholders are entitled to one vote for
each share of Abraxas common stock held as of the record date.
The holders of a majority of the outstanding shares of Abraxas common
stock issued and entitled to vote at the annual meeting must be present in
person or by proxy to establish a quorum for business to be conducted at the
annual meeting. Abstentions and "non-votes" are treated as shares that are
present and entitled to vote for purposes of determining the presence of a
quorum. "Non-votes" occur when a proxy:
o is returned by a broker or other stockholder who does not have
authority to vote;
o does not give authority to a proxy to vote; or
o withholds authority to vote on one or more proposals.
Votes Required
The votes required for each of the proposals is as follows:
Election of Directors. The nominees for director who receive the most
votes will be elected. Therefore, if you do not vote for a particular nominee or
you indicate "withhold authority to vote" for a particular nominee on your proxy
card, your abstention will have no effect on the election of directors.
Appointment of Independent Auditors. The proposal to ratify the
appointment of Abraxas' independent auditors must receive the affirmative vote
of the holders of a majority of the shares of Abraxas common stock represented
and voting at the meeting. Therefore, all abstentions will have the same legal
effect as a vote against the proposal. Non-votes are not considered present at
the meeting for this proposal and will have no effect on the ratification of the
appointment of Abraxas' independent auditors.
2005 Employee Plan. The proposal to approve the Abraxas Petroleum
Corporation 2005 Employee Long-Term Equity Incentive Plan must receive the
affirmative vote of the holders of a majority of the shares of Abraxas common
stock represented and voting at the meeting. Therefore, all abstentions will
have the same legal effect as a vote against the proposal. Non-votes are not
considered present at the meeting for this proposal and will have no effect on
the approval of the 2005 Employee Plan.
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Voting of Proxies
Votes cast in person or by proxy at the annual meeting will be
tabulated at the annual meeting. All valid, unrevoked proxies will be voted as
directed. In the absence of instructions to the contrary, properly executed
proxies will be voted in favor of each of the proposals listed in the notice of
annual meeting and for the election of the nominees for director set forth
herein.
If any matters other than those addressed on the proxy card are
properly presented for action at the annual meeting, the persons named in the
proxy will have the discretion to vote on those matters in their best judgment,
unless authorization is withheld.
How To Vote By Proxy; Revocability of Proxies
To vote by proxy, you must complete, sign, date, and return the
enclosed proxy card in the enclosed envelope. Any Abraxas stockholder who
delivers a properly executed proxy may revoke the proxy at any time before it is
voted. Proxies may be revoked by:
o delivering a written revocation of the proxy to the Abraxas Secretary
before the annual meeting;
o signing and returning a later dated proxy to the Abraxas Secretary; or
o appearing at the annual meeting and voting in person.
Attendance at the annual meeting will not, in and of itself, constitute
revocation of a proxy. An Abraxas stockholder whose shares are held in the name
of its broker, bank or other nominee must bring a legal proxy from its broker,
bank or other nominee to the meeting in order to vote in person.
Deadline for Voting by Proxy
In order to be counted, votes cast by proxy must be received by mail
prior to the annual meeting.
Solicitation of Proxies
Proxies will be solicited by mail. Proxies may also be solicited
personally, or by telephone, fax, or other means by the directors, officers, and
employees of Abraxas. Directors, officers, and employees soliciting proxies will
receive no extra compensation, but may be reimbursed for related out-of-pocket
expenses. In addition to solicitation by mail, Abraxas will make arrangements
with brokerage houses and other custodians, nominees, and fiduciaries to send
the proxy materials to beneficial owners. Abraxas will, upon request, reimburse
these brokerage houses, custodians, and other persons for their reasonable
out-of-pocket expenses in doing so. Abraxas will pay the cost of solicitation of
proxies.
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PROPOSAL ONE
Election of Directors
Abraxas' Articles of Incorporation divide the Board of Directors into
three classes of directors serving staggered three-year terms, with one class to
be elected at each annual meeting of stockholders. At this year's meeting, two
Class I directors are to be elected for a term of three years, to hold office
until the expiration of his term in 2009, or until a successor shall have been
elected and shall have qualified. The nominees for Class I directors are
Franklin A. Burke and Paul A. Powell, Jr.
Assuming the presence of a quorum, the nominees for director who
receive the most votes will be elected. The enclosed form of proxy provides a
means for stockholders to vote for or to withhold authority to vote for the
nominees for director. If a stockholder executes and returns a proxy, but does
not specify how the shares represented by such stockholder's proxy are to be
voted, such shares will be voted FOR the election of the nominees for director.
In determining whether this item has received the requisite number of
affirmative votes, abstentions and broker non-votes will not be counted and will
have no effect.
The Board of Directors recommends a vote "FOR" the election of the
nominees to the Board of Directors.
Board of Directors and Executive Officers
The following table sets forth the names, ages, and positions of the
executive officers and directors of Abraxas. The term of the Class I directors
of Abraxas expires in 2006, the term of the Class II directors expires in 2008
and the term of the Class III directors expires in 2007.
Name and Municipality of Residence Age Office Class
Robert L.G. Watson Chairman of the Board, President and Chief
San Antonio, Texas 55 Executive Officer III
Chris E. Williford Executive Vice President, Chief Financial
San Antonio, Texas 55 Officer and Treasurer --
C. Scott Bartlett, Jr.
Little Falls, New Jersey 72 Director II
Franklin A. Burke
Doyleston, Pennsylvania 72 Director I
Harold D. Carter
Dallas, Texas 67 Director III
Ralph F. Cox
Ft. Worth, Texas 73 Director II
Barry J. Galt
Houston, Texas 72 Director III
Dennis E. Logue
Enfield, New Hampshire 62 Director II
Paul A. Powell, Jr.
Salem, Virginia 60 Director I
Joseph A. Wagda
Danville, California 62 Director II
Lee T. Billingsley 53 Vice President - Exploration --
William H. Wallace 48 Vice President - Operations --
Stephen T. Wendel 56 Vice President - Land & Marketing --
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Executive Officers
Robert L.G. Watson has served as Chairman of the Board, President,
Chief Executive Officer and a director of Abraxas since 1977. Since January
2003, he has served as Chairman of the Board, Chief Executive Officer and
Director of Grey Wolf Exploration Inc. ("Grey Wolf"), an oil and gas exploration
and production company whose shares are listed on the Toronto Stock Exchange and
which was, until February 2005, a wholly-owned subsidiary of Abraxas. From May
1996 to January 2003, he served as President, Chairman of the Board and a
director of Grey Wolf Exploration, Inc., a former wholly-owned subsidiary of
Abraxas ("Old Grey Wolf"), the capital stock of which was sold by Abraxas in
January 2003. From November 1996 to January 2003, Mr. Watson was Chairman of the
Board, President and a director of Canadian Abraxas Petroleum Limited, a former
wholly-owned Canadian subsidiary of Abraxas, the capital stock of which was sold
by Abraxas in January 2003. Prior to forming Abraxas, Mr. Watson was employed in
various petroleum engineering positions with Tesoro Petroleum Corporation, a
crude oil and natural gas exploration and production company, from 1972 through
1977, and DeGolyer and MacNaughton, an independent petroleum engineering firm,
from 1970 to 1972. Mr. Watson received a Bachelor of Science degree in
Mechanical Engineering from Southern Methodist University in 1972 and a Master
of Business Administration degree from the University of Texas at San Antonio in
1974.
Chris E. Williford was elected Vice President, Treasurer and Chief
Financial Officer of Abraxas in January 1993, and as Executive Vice President
and a director of Abraxas in May 1993. In December 1999, Mr. Williford resigned
as a director of Abraxas. From November 1996 to January 2003, Mr. Williford was
Vice President and Assistant Secretary of Canadian Abraxas and Vice President of
Old Grey Wolf. Prior to joining Abraxas, Mr. Williford was Chief Financial
Officer of American Natural Energy Corporation, a crude oil and natural gas
exploration and production company, from July 1989 to December 1992, and
President of Clark Resources Corp., a crude oil and natural gas exploration and
production company, from January 1987 to May 1989. Mr. Williford received a
Bachelor of Science degree in Business Administration from Pittsburgh State
University in 1973.
Lee T. Billingsley has served as Vice President - Exploration since
joining Abraxas in 1998. In 1983, Dr. Billingsley founded Sandia Oil & Gas Corp.
and served as its President until Sandia merged into Abraxas in 1998. Prior to
forming Sandia, Dr. Billingsley worked for Tenneco Oil Company and American
Quasar Petroleum. Dr. Billingsley holds three degrees in Geology, Bachelor of
Science and Doctorate from Texas A&M University and Master of Science from
Colorado School of Mines.
William H. Wallace has served as Vice President - Operations since
2000. From 1995 to 2000, Mr. Wallace served as Abraxas' Superintendent/Senior
Operations Engineer for South Texas and Wyoming. Prior to joining Abraxas, Mr.
Wallace was associated with Dorchester Gas Producing Company and Parker and
Parsley. Mr. Wallace received a Bachelor of Science degree in Petroleum
Engineering from Texas Tech University in 1981.
Stephen T. Wendel has served as Vice President - Land and Marketing
since 1990 and as Corporate Secretary since 1988. From 1982 to 1990, Mr. Wendel
served as Abraxas' Manager of Joint Interests and Natural Gas Contracts. Prior
to joining Abraxas, Mr. Wendel held accounting, auditing and marketing positions
with Tenneco Oil Company and Tesoro Petroleum Corporation. Mr. Wendel received a
Bachelor of Business Administration degree in Accounting from Texas Lutheran
University in 1971.
Director Nominees
Franklin A. Burke, a director of Abraxas since June 1992, has served as
President and Treasurer of Venture Securities Corporation since 1971, where he
is in charge of research and portfolio management. He has also been a general
partner and director of Burke, Lawton, Brewer & Burke, a securities brokerage
firm, since 1964, where he is responsible for research and portfolio management.
Mr. Burke received a Bachelor of Science degree in Finance from Kansas State
University in 1955, a Masters degree in Finance from University of Colorado in
1960 and studied at the graduate level at the London School of Economics from
1962 to 1963.
Paul A. Powell, Jr., a director of Abraxas since August 2005, has
served as Vice President and Director of Mechanical Development Co., Inc. a tool
and die production machine company, since 1984. He also serves as trustee of 17
investment trusts, including the Paul A. Powell Trust. Mr. Powell is a managing
partner of Claytor Equity Partners, Cortland Partners, JWM Partners, Emory
Partners, Burnett Partners and President of Somerset Investments, Ltd. Mr.
Powell is also manager of Westpoint (2002) LLC and WMP Properties LLC, and
co-manager of Wessex LLC. He attended Emory and Henry College and graduated from
National Business College with a degree in Accounting. Mr. Powell previously
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served as director of Abraxas from 1987 to 1999 and as an advisory director from
1999 to August 2005.
Directors with Terms Expiring in 2007 and 2008
C. Scott Bartlett, Jr., a director of Abraxas since December 1999, has
over 40 years of commercial banking experience, the most recent being with
National Westminster Bank USA, rising to the position of Executive Vice
President, Senior Lending Officer and Chairman of the Credit Policy Committee.
Mr. Bartlett also currently serves on the board of NVR, Inc., a regional home
builder, and is active in securities arbitration. Mr. Bartlett attended
Princeton University, and has a certificate in Advanced Management from
Pennsylvania State University.
Harold D. Carter has served as a director of Abraxas since October
2003. Mr. Carter has more than 30 years experience in the oil and gas industry
and has been an independent consultant since 1990. Prior to consulting, Mr.
Carter served as Executive Vice President of Pacific Enterprises Oil Company
(USA). Before that, Mr. Carter was associated for 20 years with Sabine
Corporation, ultimately serving as President and Chief Operating Officer from
1986 to 1989. Mr. Carter consults for Associated Energy Managers, Inc. with
respect to its Energy Income Fund, L.P., an investment fund, and is a director
of Brigham Exploration Company and Energy Partners, Ltd., both publicly traded
oil and gas companies, and Longview Production Company, a private company. Mr.
Carter was a director of Abraxas from 1996 to 1999 and served as an advisory
director from 1999 to October 2003.
Ralph F. Cox, a director of Abraxas since December 1999, has over 45
years of oil and gas industry experience, over 30 of which was with Arco. Mr.
Cox retired from Arco in 1985 after serving as Vice Chairman. Mr. Cox then
joined what was known as Union Pacific Resources prior to its acquisition by
Anadarko Petroleum in July 2000, retiring in 1989 as President and Chief
Operating Officer. Mr. Cox then joined Greenhill Petroleum Corporation as
President until leaving in 1994 to pursue a consulting business. Mr. Cox has in
the past and continues to serve on many boards including CH2M Hill Companies, an
engineering and construction firm, and is a trustee for the Fidelity group of
funds. Mr. Cox earned Petroleum and Mechanical Engineering degrees from Texas
A&M University with advanced studies at Emory University.
Barry J. Galt, a director of Abraxas since October 2003, has served as
a director of Ocean Energy, Inc., an oil and gas company, since his retirement
in 1999 until the acquisition of Ocean by Devon Energy Corporation in April
2003. He served as Chairman and Chief Executive Officer of Seagull Energy
Corporation, an oil and gas company, the predecessor to Ocean, from 1983 through
1998, and as Vice Chairman of Seagull from January 1999 until May 1999. Prior to
his employment by Seagull, Mr. Galt acted as President and Chief Operating
Officer of The Williams Companies, an oil and gas company. Mr. Galt has also
served as a director of Trinity Industries, Inc., a manufacturing company, since
1989, a director of Dynegy Inc., an oil and gas company, since September 2002
and a director of Endeavor International Corporation, an oil and gas company,
since 2004.
Dennis E. Logue, a director of Abraxas since April 2003, has served as
Chairman of the Board of Directors of Ledyard National Bank since August 2005.
He served as Dean and Fred E. Brown Chair at the Michael F. Price College of
Business at the University of Oklahoma from 2001 through September 2005. Prior
to joining Price College, he was the Steven Roth Professor at the Amos Tuck
School at Dartmouth College where he had been since 1974. He is currently a
director of Waddell & Reed Financial, Inc., a national financial services
organization, and Duckwall-ALCO Stores, Inc., a general merchandise retailer
serving smaller, hometown communities. He is also on the editorial boards of
several scholarly journals, including the Journal of Banking and Finance, the
Journal of Portfolio Management, and the Journal of Management Strategy
Education. Mr. Logue holds degrees from Fordham College, Rutgers, and Cornell
University.
Joseph A. Wagda, a director of Abraxas since December 1999, has been
involved in a variety of business activities over a 30-year career. From 2000 to
the present, Mr. Wagda has been a director of BrightStar Information Technology
Group, Inc., an information technology company and from 2000 to April 2005, he
served as Chief Executive Officer of BrightStar. Mr. Wagda is also an attorney,
president and principal owner of Altamont Capital Management, Inc., where he has
been involved from 1997 - 2001 in a number of investment projects as an investor
and consultant, including leadership roles as a member of Campus LLC in
1999-2000 and as managing member of AltaNet Partners, LLC from 2000. Previously,
Mr. Wagda was President and Chief Executive Officer of American Heritage Group,
Inc., a modular homebuilder, and a Senior Managing Director and co-founder of
the Price Waterhouse corporate finance practice. He also served with the finance
staff of Chevron Corporation and in the general counsel's office at Ford Motor
Company. Mr. Wagda received a Bachelor of Science from Fordham College, a
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Masters of Business Administration, with distinction, from the Johnson Graduate
School of Management, Cornell University, and a JD, with honors, from Rutgers
University.
Robert L.G. Watson, Abraxas' Chairman of the Board, President and Chief
Executive Officer, will serve as a director until his term expires in 2007.
Advisory Director
The Board has appointed the following individual as an Advisory
Director to the Board:
Richard M. Riggs, age 85, a director of Abraxas from 1985 to 1999 and
an advisory director since 1999, is a self-employed geological consultant. He
served as Vice President of Petro Consultants Energy Corporation, a crude oil
and natural gas exploration and production company, from 1978 to 1984. He was
previously employed by Tesoro Petroleum Corporation as Exploration Vice
President for North America, and prior to that time was Manager of Domestic
Exploration for Ashland Oil, Inc. Mr. Riggs graduated with a Bachelors degree in
Geology from Dartmouth College and a Masters degree in Geology from Columbia
University.
The Advisory Director serves at the pleasure of the Board and may be
terminated as an Advisory Director at any time upon consent of a majority of the
Board of Directors. The Advisory Director has the right to receive timely notice
and information regarding, and to attend and participate in all, meetings of the
Board, but does not have the right to vote at the meetings. The Board may, in
its discretion without the Advisory Director's consent, at any meetings at which
the Advisory Director is in attendance, hold an executive session, at which the
Advisory Director may not be present. Except for purposes of indemnification,
the Advisory Director is not deemed to be a "director" of Abraxas.
Meeting Attendance
During the fiscal year ended December 31, 2005, the Abraxas Board of
Directors held seven meetings. All directors attended each meeting, except
Messrs. Carter, Galt and Logue, who attended six meetings. During 2005, Abraxas'
directors, other than Mr. Watson, received compensation for service to Abraxas
as a director. See "Executive Compensation--Compensation of Directors."
Directors also received reimbursement of travel expenses to attend meetings of
the Board of Directors. Abraxas encourages, but does not require, directors to
attend the annual meeting of stockholders. At Abraxas' 2005 Annual Meeting, all
members of the Board were present, except Mr. Carter.
Committees of the Board of Directors
The Audit Committee of the Abraxas Board of Directors, which consists
of Messrs. Bartlett, Burke, Powell and Wagda, met seven times during 2005. The
Board of Directors has determined that each of the members of the Audit
Committee is independent as determined in accordance with the listing standards
of the American Stock Exchange and Item 7(d)(3)(iv) of Schedule 14A of the
Exchange Act. In addition, the Board of Directors has determined that C. Scott
Bartlett, Jr., as defined by SEC rules, is an audit committee financial expert.
The Audit Committee Report, which begins on page 18, more fully describes the
activities and responsibilities of the Audit Committee.
The Compensation Committee of the Board of Directors, which consists of
Messrs. Cox, Carter, Galt and Logue, met five times during 2005. The duties of
the Compensation Committee are to review and make recommendations concerning the
compensation of Abraxas' executive and non-executive officers. The Compensation
Committee also administers Abraxas' 1993 Key Contributor Stock Option Plan, 1994
Long Term Incentive Plan, Directors Restricted Share Plan, Director Stock Option
Plan and the 2005 Non-Employee Directors Long-Term Equity Incentive Plan. If
approved at the 2006 Annual Meeting, the Compensation Committee will also
administer the 2005 Abraxas Petroleum Corporation Employee Long-Term Equity
Incentive Plan.
The Nominating Committee, which consists of Messrs. Bartlett, Burke,
and Cox, did not meet during 2005. The primary function of the Nominating
Committee is to assist the Board in identifying, screening and recruiting
qualified individuals to become Board members and determining the composition of
the Board and its committees, including recommending nominees for annual
stockholders meetings or to fill vacancies on the Board.
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The Corporate Governance Committee, which consists of Messrs. Carter,
Galt and Logue, did not meet in 2005, but met in February 2006. The primary
function of the Corporate Governance Committee is to develop and maintain the
corporate governance policies of Abraxas.
Each of the Board's committees has a written charter, and copies of the
charters are available for review on the Company's website at
www.abraxaspetroleum.com.
Board Independence
A majority of the members of the Board of Directors, as well as all
members of the Audit, Compensation, Nominating and Corporate Governance
Committees, are "independent," as currently defined by the Securities and
Exchange Commission and the listing standards of the American Stock Exchange.
The Board of Directors also conducts an annual self-evaluation on key Board and
Committee-related issues, which has proven to be a beneficial tool in the
process of continuous improvement in Board functioning and communication.
Code of Ethics
In April 2004, the Board of Directors unanimously approved Abraxas'
Code of Ethics. This Code is a statement of Abraxas' high standards for ethical
behavior, legal compliance and financial disclosure, and is applicable to all
directors, officers, and employees. A copy of the Code of Ethics can be found in
its entirety on Abraxas' website at www.abraxaspetroleum.com. Additionally,
should there be any changes to, or waivers from, Abraxas' Code of Ethics, those
changes or waivers will be posted immediately on our website at the address
noted above.
Stockholder Communications with Board
The Board of Directors has implemented a process by which stockholders
may communicate with the Board of Directors. Any stockholder desiring to
communicate with the Board of Directors may do so in writing by sending a letter
addressed to The Board of Directors, c/o The Corporate Secretary. The Corporate
Secretary has been instructed by the Board to promptly forward communications so
received to the members of the Board of Directors.
Nominations
The Nominating Committee is the standing committee responsible for
determining the slate of director nominees for election by stockholders, which
the committee recommends for consideration by the Board. All director nominees
are approved by the Board prior to annual proxy material preparation and are
required to stand for election by stockholders at the next annual meeting. For
positions on the Board created by a director's leaving the Board prior to the
expiration of his or her current term, whether due to death, resignation, or
other inability to serve, Article III of the Company's Amended and Restated
Bylaws provides that a Director elected by the Board to fill a vacancy shall be
elected for the unexpired term of his or her predecessor in office.
The Nominating Committee does not currently utilize the services of any
third party search firm to assist in the identification or evaluation of Board
member candidates. The Nominating Committee may engage a third party to provide
such services in the future, as it deems necessary or appropriate at the time in
question.
The Nominating Committee determines the required selection criteria and
qualifications of director nominees based upon the needs of the Company at the
time nominees are considered. A candidate must possess the ability to apply good
business judgment and must be in a position to properly exercise his or her
duties of loyalty and care. Candidates should also exhibit proven leadership
capabilities, high integrity and experience with a high level of responsibility
within their chosen fields, and have the ability to quickly understand complex
principles of, but not limited to, business and finance. Candidates with
potential conflicts of interest or who do not meet independence criteria will be
identified and disqualified. The Nominating Committee will consider these
criteria for nominees identified by the Committee, by stockholders, or through
some other source. When current Board members are considered for nomination for
reelection, the Nominating Committee also takes into consideration their prior
Board contributions, performance and meeting attendance records.
7
The Nominating Committee will consider qualified candidates for
possible nomination that are recommended by stockholders. Stockholders wishing
to make such a recommendation may do so by sending the following information to
the Nominating Committee, c/o Corporate Secretary at the address listed above:
(1) name of the candidate with brief biographical information and resume; (2)
contact information for the candidate and a document evidencing the candidate's
willingness to serve as a director if elected; and (3) a signed statement as to
the submitting stockholder's current status as a stockholder and the number of
shares currently held. Any such nomination must comply with the advance notice
provisions of Abraxas' Amended and Restated Bylaws. These provisions are
summarized under "Stockholder Proposals for 2007 Abraxas Annual Meeting" on page
25 of this document.
The Nominating Committee conducts a process of making a preliminary
assessment of each proposed nominee based upon the resume and biographical
information, an indication of the individual's willingness to serve and other
background information. This information is evaluated against the criteria set
forth above as well as the specific needs of the Company at that time. Based
upon a preliminary assessment of the candidate(s), those who appear best suited
to meet the needs of the Company may be invited to participate in a series of
interviews, which are used for further evaluation. The Nominating Committee uses
the same process for evaluating all nominees, regardless of the original source
of the information.
No candidates for director nominations were submitted to the Nominating
Committee by any stockholder in connection with the 2006 Annual Meeting.
SECURITIES HOLDINGS OF PRINCIPAL STOCKHOLDERS,
DIRECTORS, NOMINEES AND OFFICERS
Based upon information received from the persons concerned, each person
known to Abraxas to be the beneficial owner of more than five percent of the
outstanding shares of common stock of Abraxas, each director and nominee for
director, each of the named executive officers and all directors and officers of
Abraxas as a group, owned beneficially as of April 10, 2006, the number and
percentage of outstanding shares of common stock of Abraxas indicated in the
following table:
Name and Address of Beneficial Owner Number of Shares (1) Percentage (%)
Venture Securities Corp. 2,733,034 (2) 6.42
516 N. Bethlehem Pike
Spring House, PA 19477
Robert L.G. Watson 1,230,908 (3) 2.85
Chris E. Williford 223,698 (4) *
Lee T. Billingsley 182,440 (5) *
William H. Wallace 99,916 (6) *
Stephen T. Wendel 140,919 (7) *
C. Scott Bartlett, Jr. 67,500 (8) *
Franklin A. Burke 1,975,970 (9) 4.63
Harold D. Carter 95,675 (10) *
Ralph F. Cox 345,000 (11) *
Barry J. Galt 60,000 (12) *
Dennis E. Logue 60,000 (13) *
Paul A. Powell, Jr. 64,039 (14) *
Richard M. Riggs 170,263 (15) *
Joseph A. Wagda 85,000 (16) *
All Officers and Directors as a Group 4,801,328 (3)(4)(5)(6)(7)(8) 11.22
(14 persons) (9)(10)(11)(12)
(13)(14)(15)(16)
------------------
* Less than 1%
(1) Unless otherwise indicated, all shares are held directly with sole
voting and investment power.
(2) Includes 1,697,422 shares with sole voting power held by Venture
Securities and Franklin A. Burke, a director of Abraxas and the sole
owner of Venture Securities, and 1,035,612 shares managed by Venture
Securities on behalf of third parties.
8
(3) Includes 36,077 shares issuable upon exercise of options granted
pursuant to the Abraxas Petroleum Corporation 1993 Key Contributor
Stock Option Plan, 565,136 shares issuable upon exercise of options
granted pursuant to the Abraxas Petroleum Corporation 1994 Long Term
Incentive Plan (the "1994 LTIP"), and 300 shares in a retirement
account. Does not include a total of 75,880 shares owned by the Robert
L G. Watson, Jr. Trust and the Carey B. Watson Trust, the trustees of
which are Mr. Watson's brothers and the beneficiaries of which are Mr.
Watson's children. Mr. Watson disclaims beneficial ownership of the
shares owned by these trusts.
(4) Includes 187,250 shares issuable upon exercise of options granted
pursuant to the 1994 LTIP.
(5) Includes 102,000 shares issuable upon exercise of options granted
pursuant to the 1994 LTIP and 2,500 shares in a retirement account.
(6) Includes 85,500 shares issuable upon exercise of options granted
pursuant to the 1994 LTIP.
(7) Includes 90,750 shares issuable upon exercise of options granted
pursuant to the 1994 LTIP.
(8) Includes 50,000 shares issuable upon exercise of certain option
agreements and 10,000 shares issuable upon exercise of options granted
pursuant to the Abraxas Petroleum Corporation 2005 Non-Employee
Director Long-Term Equity Incentive Plan (the "2005 Director Plan").
(9) Includes 30,000 shares issuable upon exercise of options granted
pursuant to the Amended and Restated Director Stock Option Plan (the
"Director Option Plan"), 30,000 shares issuable upon exercise of
certain option agreements and 10,000 shares issuable upon exercise of
options granted pursuant to the 2005 Director Plan.
(10) Includes 30,000 shares issuable upon exercise of options granted
pursuant to the Director Option Plan, 30,000 shares issuable upon
exercise of certain option agreements and 10,000 shares issuable upon
exercise of options granted pursuant to the 2005 Director Plan.
(11) Includes 75,000 shares issuable upon exercise of certain option
agreements and 10,000 shares issuable upon exercise of options granted
pursuant to the 2005 Director Plan.
(12) Includes 50,000 shares issuable upon exercise of certain option
agreements and 10,000 shares issuable upon exercise of options granted
pursuant to the 2005 Director Plan.
(13) Includes 50,000 shares issuable upon exercise of certain option
agreements and 10,000 shares issuable upon exercise of options granted
pursuant to the 2005 Director Plan.
(14) Includes 30,000 shares issuable upon exercise of options granted
pursuant to the Director Option Plan and 10,000 shares issuable upon
exercise of options granted pursuant to the 2005 Director Plan.
(15) Includes 30,000 shares issuable upon exercise of options granted
pursuant to the Director Option Plan and 10,000 shares issuable upon
exercise of options granted pursuant to the 2005 Director Plan.
(16) Includes 75,000 shares issuable upon exercise of certain option
agreements and 10,000 shares issuable upon exercise of options granted
pursuant to the 2005 Director Plan.
EXECUTIVE COMPENSATION
Compensation Committee Report on Executive Compensation
The Compensation Committee is composed entirely of directors who are
not employees of Abraxas. The Committee is responsible for establishing and
administering the compensation levels for Abraxas' executive and non-executive
officers. The members of the Compensation Committee believe that the ability to
attract and retain qualified executive and non-executive officers and provide
appropriate incentives to Abraxas' executive and non-executive officers is
essential to the long-term success of Abraxas.
In determining executive compensation, the Committee reviews the
compensation programs, pay levels and business results of Abraxas as compared to
a peer group of oil and natural gas exploration and production companies, which
includes those in the William M. Mercer 2005 Energy Compensation Survey.
Compensation Philosophy and Objectives
The philosophy underlying the development and administration of
Abraxas' annual and long-term compensation plans is to align the interests of
management with those of Abraxas' stockholders. Key elements of this philosophy
are:
o Establishing compensation plans that deliver base salaries which
are competitive with the companies in the peer group, within
Abraxas' budgetary constraints and commensurate with Abraxas'
performance as measured by operating, financial, and strategic
objectives.
9
o Providing equity-based incentives for executive and non-executive
officers to ensure that they are motivated over the long-term to
respond to Abraxas' business challenges and opportunities as
owners rather than just as employees.
o Rewarding executive and non-executive officers for outstanding
performance particularly where such performance is reflected by
an increase in the value of Abraxas common stock.
The compensation currently paid to Abraxas' executive and non-executive
officers consists of base salary, various employee benefits (including medical
and life insurance and 401(k) plan benefits generally available to all employees
of Abraxas), annual cash bonuses, and grants of stock options and awards.
Abraxas does not have any other deferred compensation programs or supplemental
executive retirement plans. There are also no perquisites provided to Abraxas'
executive officers that are not otherwise available to all of Abraxas'
employees.
Elements of the Executive Compensation Program
Base Salaries. The Committee believes that Abraxas' base salary levels
for executive officers are consistent with the practices of the companies in the
peer group. Increases in base salary levels from time to time are designed to
reflect competitive practices in the industry, Abraxas' financial performance
and individual performance of the officer.
In the first quarter of each year, the Chief Executive Officer submits
to the Committee recommendations for salary adjustments based upon his
subjective evaluation of individual performance and his subjective judgment
regarding setting each executive and non-executive officer's salary within
Abraxas' salary range. This range is set by reference to the salaries paid by
the companies in the peer group while remaining within Abraxas' budgetary
constraints. The companies in the peer group are used to compare Abraxas' salary
structure to that of other companies that compete with Abraxas for executives
but without targeting salaries to be higher, lower, or approximately the same as
those of the companies in the peer group. The Committee does not consider the
performance of any of the companies in the peer group in setting Abraxas' salary
structure.
Annual Bonuses. In 2003, the Board of Directors adopted an annual bonus
plan, which established certain criteria for the payment of annual bonuses to
the senior management of Abraxas and certain vice president level officers of
Abraxas who are involved in the exploration and technical operations of the
Company. The plan was amended in 2005. Under the plan as amended, each
participant is given an annual bonus opportunity based on the achievement of a
goal related to the Net Asset Value ("NAV"), on a per share basis, of the
Company's common stock, established by the Board of Directors after assessing
recommendations by the Chief Executive Officer. Bonuses may be paid in cash,
stock, or a combination of both. For Messrs. Watson, Williford and Wallace and
Dr. Billingsley, the bonus will equal the percentage increase in NAV per share
over the previous year's NAV per share for the first 10% increase and twice the
percentage increase thereafter with a maximum award for any one year of 70% of
annual salary. In 1994, the Board of Directors adopted an annual cash bonus
plan, which established certain criteria for the payment of annual cash bonuses
to certain vice president level and other officers of Abraxas who are not
included in the plan described above. This plan was amended in 1997, 1999, 2003
and 2005. Under the plan as amended, each participant is given an annual bonus
opportunity based on the achievement of certain goals. For Mr. Wendel, the bonus
could be as high as 25% of base salary if all goals are attained. The amount of
the bonuses to be paid to Mr. Wendel, if any, will be based upon attaining goals
set by the Board of Directors after assessing the recommendations of management
for EBITDA, General and Administrative expenses, and Finding Costs. If all
performance goals are met or exceeded, each participant can earn additional
bonuses of up to 25% of base salary. Under both plans, the board has the
prerogative to adjust the bonus earned by any participant, including Messrs.
Watson, Williford, Wallace and Wendel and Dr. Billingsley, to take into account
extraordinary factors not contemplated by the respective bonus plans when the
impact of such contributions or factors cannot be adequately reflected by the
bonus determined under the methodology described above and to determine the cash
and/or share component of any earned awards.
10
For 2005, the goals for NAV and Finding Costs were met and the following bonuses
were earned:
Name Bonus Amount ($)
---- ----------------
Robert L.G. Watson 269,800
Chris E. Williford 142,600
Robert W. Carington, Jr. 137,083 (1)
Lee T. Billingsley 122,107
William H. Wallace 122,107
Stephen T. Wendel 32,563
------------------
(1) Mr. Carington received a bonus for the NAV goal under the terms of his
resignation in October 2005.
Long-Term Incentives. On September 13, 2005, subject to stockholder
approval at the 2006 Annual Meeting, the board adopted the Abraxas Petroleum
Corporation 2005 Employee Long-Term Equity Incentive Plan (the "2005 Employee
Plan") in order to employ and retain qualified and competent personnel and
promote the growth and success of Abraxas by aligning the long-term interests of
Abraxas' key employees with those of Abraxas' stockholders by providing an
opportunity to acquire an interest in Abraxas and by providing both rewards for
exceptional performance and long-term incentives for future contributions to the
success of Abraxas. Up to an aggregate of 1,200,000 shares of Abraxas common
stock have been reserved for issuance under the 2005 Employee Plan. The 2005
Employee Plan makes available to the Committee a number of incentive devices
such as incentive stock options, non-qualified stock options and restricted
stock. The Committee adopts administrative guidelines from time to time, which
define specific eligibility criteria, the types of awards to be employed and the
value of such awards. Specific terms of each award are provided in individual
award agreements granted to each award recipient. Award agreements also contain
change of control provisions. Option holdings and previous awards are not taken
into account.
The board believes that the 2005 Employee Plan will give Abraxas the
flexibility to structure awards to meet Abraxas' business needs. In making
long-term incentive awards under the 2005 Employee Plan, the Committee seeks to
ensure that the total compensation package, including cash compensation, is
competitive with the compensation paid by the companies included in the Mercer
Survey, yet substantially contingent upon the conclusion of individual and
corporate efforts to produce attractive long-term returns to Abraxas
stockholders.
CEO Compensation. Mr. Watson's salary in 2005 was based on the
Committee's evaluation of his performance and Abraxas' performance, after
reviewing competitive salary data from the companies included in the Mercer
Survey and Abraxas' budgetary constraints. The Committee's determination of Mr.
Watson's total salary was based upon the salaries paid to chief executive
officers of the companies included in the Mercer Survey and the salary structure
of Abraxas.
In connection with Abraxas' January 2003 financial restructuring,
certain former noteholders had required that Abraxas re-price all of its
outstanding stock options to $0.66 per share, except for those options held by
Mr. Watson. Only one-half of Mr. Watson's options were so re-priced. At that
time, the former noteholders gave the Abraxas Board the discretion to grant
certain options to purchase Abraxas' 11 1/2% secured notes due 2007, which were
being issued in connection with the January 2003 financial restructuring, to Mr.
Watson. The Board determined that it would not be in the best interests of
Abraxas and its stockholders to grant the note options to Mr. Watson as the
notes issuable pursuant to the note options would have increased Abraxas'
indebtedness and the Board believed that the issuance of the note options would
have created a conflict of interest for Mr. Watson as his interests could have
been seen to be aligned with those of the noteholders rather than with the
stockholders of Abraxas. In October 2004, Abraxas successfully completed a
recapitalization that included the redemption of Abraxas' 11 1/2% secured notes
due 2007. After the conclusion of the 2004 refinancing, the Board and Mr. Watson
engaged in a dialogue regarding a potential bonus to Mr. Watson relating to the
successful completion of the refinancing. Based upon the foregoing, on February
16, 2005, the Board approved the payment of a one-time discretionary bonus to
Mr. Watson of $490,000 for his leadership in concluding Abraxas' October 2004
refinancing as well as the completion of the initial public offering by Grey
Wolf in February 2005. In determining the amount to be paid to Mr. Watson, the
Board considered the potential value that Mr. Watson's shares would have had if
all of his stock options had been re-priced, approximately $490,000, in January
2003.
11
Review of all Components of Executive Compensation. The Committee has
reviewed all components of Mr. Watson's and each of Abraxas' four most highly
compensated executive officers compensation, including salary, bonus, equity and
long-term incentive compensation, accumulated realized and unrealized stock
option and restricted stock gains, the dollar value to the executive and the
cost to Abraxas of all perquisites and other personal benefits and any lump-sum
payments that may be payable under their respective employment agreements due to
termination of their employment or a change-in-control of Abraxas. Furthermore,
due to public concerns over the perceived inflation of CEO compensation and the
divergence between compensation paid to CEOs and the average employee,
generally, the Committee reviewed Mr. Watson's total compensation package with
an eye toward internal consistency with compensation paid to Abraxas' other
executive officers and employees generally.
Policy on Deductibility of Compensation. In 1993, the federal tax laws
were amended to limit the deduction a publicly-held company is allowed for
compensation paid to the chief executive officer and to the four most highly
compensated executive officers other than the chief executive officer.
Generally, amounts paid in excess of $1 million to a covered executive, other
than performance-based compensation, cannot be deducted. In order to constitute
performance-based compensation for purposes of the tax law, stockholders must
approve the performance measures. Since Abraxas does not anticipate that the
compensation for any executive officer will exceed the $1 million threshold in
the near term, stockholder approval necessary to maintain the tax deductibility
of compensation at or above that level is not being requested. The Compensation
Committee will reconsider this matter if compensation levels approach this
threshold, in light of the tax laws then in effect. The Compensation Committee
will consider ways to maximize the deductibility of executive compensation,
while retaining the discretion necessary to compensate executive officers in a
manner commensurate with performance and the competitive environment for
executive talent.
This report is submitted by the members of the Compensation Committee.
Ralph F. Cox, Chairman
Harold D. Carter
Barry J. Galt
Dennis E. Logue
12
Compensation Summary
The following table sets forth a summary of compensation for the fiscal
years ended December 31, 2005, 2004 and 2003 paid by Abraxas to Robert L.G.
Watson, Chairman of the Board, President, and Chief Executive Officer, Chris E.
Williford, Executive Vice President, Chief Financial Officer and Treasurer,
Robert W. Carington, Jr., former Executive Vice President, Lee T. Billingsley,
Vice President - Exploration, William H. Wallace, Vice President - Operations
and Stephen T. Wendel, Vice President - Land & Marketing.
Summary Compensation Table
---------------------------------------------------------------------------------------------------------------------
Long Term
Compensation
Awards -
Annual Compensation Securities
-------------------------------- Other Underlying
Name and Principal Position Year Salary ($) Bonus ($) Compensation ($) Options (#)
---------------------------------------------------------------------------------------------------------------------
Robert L.G. Watson, 2005 322,702 759,800 (1) 0 100,000 (2)
Chairman of the Board, 2004 308,433 - 0 0
President and Chief Executive 2003 291,750 200,200 (3) 0 0
Officer
---------------------------------------------------------------------------------------------------------------------
Chris E. Williford, 2005 197,798 142,600 0 100,000 (2)
Executive Vice President, 2004 186,894 - 0 0
Chief Financial Officer and 2003 175,615 120,400 (4) 0 0
Treasurer
---------------------------------------------------------------------------------------------------------------------
Robert W. Carington, Jr., 2005 184,542 137,083 (6) 238,615 (7) 0
Executive Vice President (5) 2004 235,558 0 0 0
2003 225,961 154,000 (8) 0 0
---------------------------------------------------------------------------------------------------------------------
Lee T. Billingsley 2005 186,212 122,107 0 50,000 (2)
Vice President -- 2004 178,442 12,093 0 0
Exploration 2003 168,346 42,023 (9) 0 15,000
---------------------------------------------------------------------------------------------------------------------
William H. Wallace, 2005 186,212 122,107 0 50,000 (2)
Vice President -- 2004 178,442 12,093 0 0
Operations 2003 168,346 42,023 (9) 0 15,000
---------------------------------------------------------------------------------------------------------------------
Stephen T. Wendel, 2005 151,404 32,563 0 50,000 (2)
Vice President - 2004 146,212 9,869 0 0
Land & Marketing 2003 141,019 34,892 (10) 0 0
---------------------------------------------------------------------------------------------------------------------
------------------
(1) Of this amount, $269,800 was paid to Mr. Watson under Abraxas' bonus
plan for senior management and $490,000 was a one-time bonus paid to
Mr. Watson for his leadership in concluding Abraxas' October 2004
refinancing as well as the completion of the initial public offering by
Grey Wolf.
(2) Subject to shareholder approval of the 2005 Employee Plan.
(3) Of this amount, $177,719 was paid in cash and $22,481 in restricted
stock. *
(4) Of this amount, $101,051 was paid in cash and $19,349 in restricted
stock. *
(5) Mr. Carington resigned from Abraxas in October 2005.
(6) As part of his severance arrangement, Mr. Carington received a bonus
for 2005.
(7) Mr. Carington received a severance payment upon his resignation in
October 2005.
(8) Of this amount, $121,211 was paid in cash and $32,789 in restricted
stock. *
(9) Of this amount, $32,123 was paid in cash and $9,900 in restricted
stock. *
(10) Of this amount, $27,844 was paid in cash and $7,048 in restricted
stock. *
* The number of shares of stock was determined based upon a price of
$2.69 per share, which was the closing price of the Company's common
stock on the AMEX on April 15, 2004.
Grants of Stock Options and Stock Appreciation Rights During the Fiscal Year
Ended December 31, 2005
Pursuant to the Abraxas Petroleum Corporation 2005 Employee Long-Term
Equity Incentive Plan (the "2005 Employee Plan"), Abraxas may grant to its
employees and officers (including its directors who are also employees)
incentive stock options and non-qualified stock options. The 2005 Employee Plan
is subject to stockholder approval at the 2006 Annual Meeting and, if approved,
the 2005 Employee Plan will be administered by the Compensation Committee which,
based upon the recommendation of the Chief Executive Officer, determines the
number of shares subject to each option award.
13
The table below contains certain information concerning stock options
granted during 2005 to Messrs. Watson, Williford, Wallace and Wendel and Dr.
Billingsley under the 2005 Employee Plan, which is subject to stockholder
approval.
Option Grants in Fiscal Year
-------------------------------------------------------------------------------------------------------------------
Name Number of
Securities % of Total
Underlying Options Exercise Price Grant Date
Options Granted Granted to Per Share Expiration Present Value
(1) Employees (Price at Grant) Date ($)
-------------------------------------------------------------------------------------------------------------------
Robert L.G. Watson 100,000 17.5 $ 4.59 09/13/15 382,000
-------------------------------------------------------------------------------------------------------------------
Chris E. Williford 100,000 17.5 $ 4.59 09/13/15 382,000
-------------------------------------------------------------------------------------------------------------------
Lee T. Billingsley 50,000 8.8 $ 4.59 09/13/15 191,000
-------------------------------------------------------------------------------------------------------------------
William H. Wallace 50,000 8.8 $ 4.59 09/13/15 191,000
-------------------------------------------------------------------------------------------------------------------
Stephen T. Wendel 50,000 8.8 $ 4.59 09/13/15 191,000
-------------------------------------------------------------------------------------------------------------------
------------------
(1) One-fourth of the options become exercisable on each of the first four
anniversaries of the date of grant.
Aggregated Option Exercises in Fiscal 2005 and Fiscal Year End Option Values
The table below contains certain information concerning exercises of
stock options during the fiscal year ended December 31, 2005, by Messrs. Watson,
Williford, Wallace and Wendel and Dr. Billingsley and the fiscal year end value
of unexercised options held by Messrs. Watson, Williford, Wallace and Wendel and
Dr. Billingsley.
Option Exercises in Fiscal Year
------------------------------------------------------------------------------------------------------------------
Shares Value Number of Unexercised Options Value of Unexercised Options
Acquired By Realized on December 31, 2005 (#) on December 31,2005 ($)
Name Exercise (#) ($) Exercisable/Unexercisable Exercisable/Unexercisable
------------------------------------------------------------------------------------------------------------------
Robert L.G. Watson 59,998 - 641,213 / 122,500 2,518,147 / 173,175
------------------------------------------------------------------------------------------------------------------
Chris E. Williford 20,000 42,800 207,250 / 110,750 957,818 / 118,773
------------------------------------------------------------------------------------------------------------------
Lee T. Billingsley - - 102,000 / 63,000 471,255 / 94,465
------------------------------------------------------------------------------------------------------------------
William H. Wallace 4,000 10,660 85,500 / 63,000 395,025 / 94,465
------------------------------------------------------------------------------------------------------------------
Stephen T. Wendel 20,000 - 101,410 / 54,250 468,642 / 54,178
------------------------------------------------------------------------------------------------------------------
Securities Authorized for Issuance Under Equity Compensation Plans
The following table gives aggregate information regarding grants under
all equity compensation plans of Abraxas through December 31, 2005.
Equity Compensation Plan Information
------------------------------------ ------------------------- ----------------------- ------------------------------
Number of Securities
Remaining Available for
Number of Securities to Weighted-Average Future Issuance under Equity
be Issued upon Exercise Exercise Price of Compensation Plans
of Outstanding Options, Outstanding Options, (Excluding Securities
Warrants and Rights Warrants and Rights Reflected in Column (a))
Plan Category (a) (b) (c)
------------------------------------ ------------------------- ----------------------- ------------------------------
Equity compensation plans approved 1,950,123 $ 1.05 810,000
by security holders
------------------------------------ ------------------------- ----------------------- ------------------------------
Equity compensation plans not 1,066,000 (1) $ 3.03 629,000 (2)
approved by security holders
------------------------------------ ------------------------- ----------------------- ------------------------------
14
------------------
(1) Includes 571,000 shares with an exercise price of $4.59 per share
subject to the Abraxas Petroleum Corporation 2005 Employee Long-Term
Equity Incentive Plan which is subject to stockholder approval at the
Annual Meeting and 495,000 shares with a weighted-average exercise
price of $1.24 per share issuable pursuant to options granted to
certain of Abraxas' directors as described below under "Compensation of
Directors." Other than the amount of shares and the exercise price, the
director options were generally granted upon the same terms. The
director options expire no later than 10 years from the grant date,
become vested and exercisable in one-third increments as of each of the
first and second anniversaries of the grant date, and as of the
earliest to occur of (i) the date on which the optionee is replaced as
a director of Abraxas as a result of the expiration of the optionee's
term and not as a result of optionee's death, disability, resignation
or removal from Abraxas' Board of Directors for cause in accordance
with Abraxas' Articles of Incorporation, and optionee's successor as a
director of Abraxas is duly elected and qualified, or (ii) the third
anniversary of the grant date.
(2) Shares remaining available for issuance under the 2005 Employee Plan.
Employment Agreements
Abraxas has entered into employment agreements with each of Messrs.
Watson, Williford, Wallace and Wendel and with Dr. Billingsley pursuant to which
each of Messrs. Watson, Williford, Wallace and Wendel and Dr. Billingsley will
receive compensation as determined from time to time by the board in its sole
discretion.
The employment agreements for Messrs. Watson and Williford are
scheduled to terminate on December 21, 2006, and shall be automatically extended
for additional one-year terms unless Abraxas gives the officer 120 days notice
prior to the expiration of the original term or any extension thereof of its
intention not to renew the employment agreement. If, during the term of the
employment agreements for each of such officers, the officer's employment is
terminated by Abraxas other than for cause or disability, by the officer other
than by reason of such officer's death or retirement, or by the officer, for
"Good Reason" (as defined in each officer's respective employment agreement),
then such officer will be entitled to receive a lump sum payment equal to the
greater of (a) his annual base salary for the last full year during which he was
employed by Abraxas or (b) his annual base salary for the remainder of the term
of each of their respective employment agreements.
If a change in control occurs during the term of the employment
agreement for Mr. Watson or Mr. Williford, and if subsequent to such change in
control, such officer's employment is terminated by Abraxas other than for cause
or disability, by reason of the officer's death or retirement or by such
officer, for Good Reason, then such terminated officer will be entitled to a
lump sum payment equal to 2.99 times his annual base salary.
Abraxas also has entered into employment agreements with Messrs.
Wallace and Wendel and Dr. Billingsley pursuant to which each of Messrs. Wallace
and Wendel and Dr. Billingsley will receive compensation as determined from time
to time by the board in its sole discretion. The employment agreements,
originally scheduled to terminate on December 31, 1998 for Mr. Wendel and Dr.
Billingsley and on December 31, 2000 for Mr. Wallace, were automatically
extended and will terminate on December 31, 2006, and shall be automatically
extended for an additional year if by December 1 of the prior year neither
Abraxas nor Messrs. Wallace and Wendel or Dr. Billingsley, as the case may be,
has given notice to the contrary. Except in the event of a change in control, at
all times during the term of the employment agreements, each of Messrs.
Wallace's and Wendel's and Dr. Billingsley's employment is at will and may be
terminated by Abraxas for any reason without notice or cause. If a change in
control occurs during the term of the employment agreement or any extension
thereof, the expiration date of Messrs. Wallace's and Wendel's and Dr.
Billingsley's employment agreement is automatically extended to a date no
earlier than three years following the effective date of such change in control.
If, following a change in control, either Messrs. Wallace's and Mr. Wendel's or
Dr. Billingsley's employment is terminated other than for Cause (as defined in
each of the employment agreements) or Disability (as defined in each of the
Employment Agreements), by reason of Messrs. Wallace's and Mr. Wendel's or Dr.
Billingsley's death or retirement or by Messrs. Wallace and Wendel or Dr.
Billingsley, as the case may be, for Good Reason (as defined in each of the
employment agreements), then the terminated officer will be entitled to receive
a lump sum payment equal to three times his annual base salary.
If any lump sum payment to Messrs. Watson, Williford, Wallace, Wendel
or Dr. Billingsley would individually or together with any other amounts paid or
payable constitute an "excess parachute payment" within the meaning of Section
280G of the Internal Revenue Code of 1986, as amended, and applicable
regulations thereunder, the amounts to be paid will be increased so that Messrs.
Watson, Williford, Wallace, Wendel or Dr. Billingsley, as the case may be, will
15
be entitled to receive the amount of compensation provided in his contract after
payment of the tax imposed by Section 280G.
Compensation of Directors
All compensation paid to directors is limited to non-employee
directors.
Stock Options. Each director has been awarded 85,000 options and the
advisory director has been awarded 40,000 options, at the prevailing market
prices at the time of issuance, between $0.68 and $4.59. Each director,
including the advisory director, is also awarded 10,000 options (or restricted
shares) each year at the first regular board meeting following the Annual
Meeting, in accordance with the terms of the 2005 Director Plan. If options are
awarded, the exercise price will be no less than 100% of the fair market value
on the date of the award while the option terms and vesting schedules are at the
discretion of the Committee.
Other Compensation. During 2005, each director received an annual fee
of $12,000, the chairman of the audit committee received an annual fee of $3,000
and the chairman of each other committee received an annual fee of $1,500. Each
director, including the advisory director, also received $1,500 for each board
meeting attended and each director also received $1,000 for each committee
meeting attended. Aggregate fees paid to directors and advisory directors in
2005 were $239,837. The directors of Abraxas received no other or additional
compensation for services as directors, except for reimbursement of travel
expenses to attend board and committee meetings.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Exchange Act requires Abraxas' directors and
executive officers and persons who own more than 10% of a registered class of
Abraxas equity securities to file with the Securities and Exchange Commission
and the AMEX initial reports of ownership and reports of changes in ownership of
Abraxas common stock. Officers, directors and greater than 10% stockholders are
required by SEC regulation to furnish us with copies of all such forms they
file. Based solely on a review of the copies of such reports furnished to us and
written representations that no other reports were required, Abraxas believes
that all of its directors and executive officers during 2005 complied on a
timely basis with all applicable filing requirements under Section 16(a) of the
Exchange Act.
16
Performance Graph
Set forth below is a performance graph comparing yearly cumulative
total stockholder return on the Abraxas common stock with (a) the monthly index
of stocks included in the Standard and Poor's 500 Index and (b) the Energy
Capital Solutions Index (the "ECS Index") of stocks of crude oil and natural gas
exploration and production companies with a market capitalization of less than
$600 million (the "Comparable Companies"). The Comparable Companies are: Adams
Resources & Energy Inc.; Callon Petroleum Company; Carrizo Oil & Gas Inc.;
Clayton Williams Energy Inc.; Double Eagle Petroleum Company; Edge Petroleum
Corporation; Contango Oil & Gas Company; CREDO Petroleum Corporation; Markwest
Hydrocarbon Inc.; NGAS Resources Inc.; Parallel Petroleum Corporation; Arena
Resources Inc.; and Abraxas Petroleum Corporation.
All of these cumulative total returns are computed assuming the value
of the investment in Abraxas common stock and each index as $100.00 on December
31, 2000, and the reinvestment of dividends at the frequency with which
dividends were paid during the applicable years. The years compared are, 2001,
2002, 2003, 2004 and 2005.
[GRAPHIC OMITTED]
ECS Index S&P 500 ABP
---------- -------- -------
12/31/00 100.00 100.00 100.00
03/30/01 79.35 87.89 116.57
06/29/01 70.37 92.74 72.23
09/28/01 47.42 78.84 44.11
12/31/01 53.29 86.96 30.17
03/29/02 56.71 86.91 30.40
06/28/02 50.33 74.97 17.14
09/30/02 43.42 61.75 17.14
12/31/02 49.55 66.64 12.80
03/31/03 50.23 64.24 15.54
06/30/03 73.69 73.81 24.69
09/30/03 78.38 75.44 20.57
12/31/03 107.81 84.22 28.11
03/31/04 125.28 85.30 60.57
06/30/04 120.81 86.41 37.94
09/30/04 115.12 84.42 48.69
12/31/04 126.94 91.79 53.03
03/31/05 154.70 89.42 64.91
06/30/05 160.56 90.23 63.09
09/30/05 249.47 93.07 181.26
12/30/05 236.39 94.55 120.69
03/31/06 251.45 97.93 135.77
Dec-00 Dec-01 Dec-02 Dec-03 Dec-04 Dec-05
ECS Index 100.00 53.29 49.55 107.81 126.94 236.39
S&P 500 100.00 86.96 66.64 84.22 91.79 94.55
ABP 100.00 30.17 12.80 28.11 53.03 120.69
17
AUDIT COMMITTEE REPORT
The Audit Committee reviews Abraxas' financial reporting process on
behalf of the Board of Directors. Management has the primary responsibility for
the financial statements and the reporting process, including the system of
internal controls. The Audit Committee is responsible for engaging independent
auditors to perform an independent audit of Abraxas' consolidated financial
statements in accordance with generally accepted accounting principles, to
perform an independent audit of Abraxas' internal controls over financial
reporting in accordance with Section 404 of the Sarbanes-Oxley Act of 2002, and
to issue reports thereon. The Committee reviews and oversees these processes,
including oversight of (i) the integrity of Abraxas' financial statements, (ii)
Abraxas' independent auditors' qualifications and independence, (iii) the
performance of Abraxas' independent auditors and (iv) Abraxas' compliance with
legal and regulatory requirements.
In this context, the Committee met and held discussions with management
and the independent auditors. Management represented to the Committee that
Abraxas' consolidated financial statements were prepared in accordance with
accounting principles generally accepted in the United States, and the Committee
reviewed and discussed the consolidated financial statements with management and
the independent auditors. The Committee also discussed with the independent
auditors the matters required to be discussed by Statement on Auditing Standards
No. 61 (Codification of Statements on Auditing Standards, AU Sec. 380), as
amended.
In addition, the Committee discussed with the independent auditors the
auditors' independence from Abraxas and its management, and the independent
auditors provided to the Committee the written disclosures and letter required
by the Independence Standards Board Standard No. 1 (Independence Discussions
With Audit Committees).
The Committee also discussed with Abraxas' independent auditors the
overall scope and plans for their respective audit. The Committee met the
independent auditors, with and without management present, to discuss the
results of their examinations, the evaluations of Abraxas' internal controls,
and the overall quality of Abraxas' financial reporting.
Based on the reviews and discussions referred to above, the Committee
recommended to the Board of Directors, and the board has approved, the audited
financial statements that were included in Abraxas' Annual Report on Form 10-K
for the year ended December 31, 2005, as filed with the Securities and Exchange
Commission. The Committee and the board also have recommended, subject to
stockholder ratification, the selection of Abraxas' independent auditors for
fiscal year 2006.
This report is submitted by the members of the Audit Committee.
C. Scott Bartlett, Jr., Chairman
Franklin A. Burke
Paul A. Powell, Jr.
Joseph A. Wagda
18
PRINCIPAL AUDITOR FEES AND SERVICES
Audit Fees. The aggregate fees billed for professional services
rendered by BDO Seidman, LLP for the audit of Abraxas' annual financial
statements for the years ended December 31, 2005 and December 31, 2004, for the
audit of Abraxas' internal controls over financial reporting for the year ended
December 31, 2005, and the reviews of the condensed financial statements
included in Abraxas' quarterly reports on Form 10-Q for the years ended December
31, 2005 and December 31, 2004, were $459,972 and $226,374, respectively.
Audit-Related Fees. The aggregate fees billed by BDO Seidman, LLP for
assurance and related services that were reasonably related to the performance
of the audit or review of Abraxas' financial statements and are not reported in
"audit fees" above, for the years ended December 31, 2005 and December 31, 2004,
were $12,270 and $171,131, respectively. These fees were for services provided
by BDO Seidman, LLP related to consulting services associated with determining
the appropriate accounting treatment of various transactions.
All Other Fees. There were no aggregate fees billed for other services,
exclusive of the fees disclosed above relating to financial statement audit
services, rendered by BDO Seidman, LLP during the years ended December 31, 2005
or December 31, 2004.
Consideration of Non-audit Services Provided by the Independent
Auditors. The Audit Committee has considered whether the services provided for
non-audit services are compatible with maintaining BDO Seidman, LLP's
independence, and has concluded that the independence of such firm has been
maintained.
AUDIT COMMITTEE PRE-APPROVAL POLICY
The Audit Committee's policy is to pre-approve all audit, audit-related
and non-audit services provided by the independent auditors. These services may
include audit services, audit-related services, tax services and other services.
The Audit Committee may also pre-approve particular services on a case-by-case
basis. The independent auditors are required to periodically report to the Audit
Committee regarding the extent of services provided by the independent auditors
in accordance with such pre-approval. The Audit Committee may also delegate
pre-approval authority to one or more of its members. Such member(s) must report
any decisions to the Audit Committee at the next scheduled meeting.
CERTAIN TRANSACTIONS
Abraxas has adopted a policy that transactions, between Abraxas and its
officers, directors, principal stockholders, or affiliates of any of them, will
be on terms no less favorable to Abraxas than can be obtained on an arm's length
basis in transactions with third parties and must be approved by the vote of at
least a majority of the disinterested directors. Since July 2002, Abraxas has
not permitted any loans to officers, directors, principal stockholders, or
affiliates of any of them.
19
PROPOSAL TWO
Ratification of Selection of Independent Auditors
The Abraxas Board of Directors has selected BDO Seidman, LLP to serve
as independent auditors of Abraxas for the fiscal year ending December 31, 2006.
Although stockholder ratification is not required, the Board of Directors has
directed that such appointment be submitted to the stockholders of Abraxas for
ratification at the annual meeting. BDO Seidman, LLP provided audit services to
Abraxas for the year ended December 31, 2005. A representative of BDO Seidman,
LLP will be present at the annual meeting, and will have an opportunity to make
a statement if he or she desires to do so and will be available to respond to
appropriate questions.
No report of BDO Seidman, LLP on Abraxas' financial statements for
either of Abraxas' last two fiscal years contained any adverse opinion or
disclaimer of opinion, nor was any such report qualified or modified as to
uncertainty, audit scope or accounting principles.
In connection with the audits of Abraxas' financial statements for the
last two fiscal years, there were no disagreements with BDO Seidman, LLP on any
matters of accounting principles, financial statement disclosure or audit scope
and procedures which, if not resolved to the satisfaction of BDO Seidman, LLP,
would have caused the firm to make reference to the matter in its report. During
Abraxas' last two fiscal years, there were no reportable events as described in
Item 304(a)(1)(v) of Regulation S-K.
Assuming the presence of a quorum, the affirmative vote of the holders
of a majority of the shares of common stock present in person or by proxy and
entitled to vote on this item at the annual meeting is necessary to ratify the
appointment of Abraxas' independent auditors. The enclosed form of proxy
provides a means for stockholders to vote for the ratification of selection of
independent auditors, to vote against it or to abstain from voting with respect
to it. If a stockholder executes and returns a proxy, but does not specify how
the shares represented by such stockholder's proxy are to be voted, such shares
will be voted FOR the ratification of selection of independent auditors.
Abstentions will have the same legal effect as a vote against the proposal.
Non-votes are not considered present at the meeting for this proposal and will
have no effect on the ratification of the appointment of Abraxas' independent
auditors.
The Board of Directors recommends a vote "FOR" the ratification of the
selection of BDO Seidman, LLP, as independent auditors of Abraxas for the fiscal
year ending December 31, 2006.
20
PROPOSAL THREE
Approval of 2005 Employee Long-Term Equity Incentive Plan
General. On September 13, 2005, subject to stockholder approval, the
Abraxas Board of Directors adopted the Abraxas Petroleum Corporation 2005
Employee Long-Term Equity Incentive Plan (the "2005 Employee Plan"), the full
text of which is set forth in Appendix A to this Proxy Statement. The following
summary of the 2005 Employee Plan is qualified in its entirety by reference to
Appendix A. The effectiveness of the 2005 Employee Plan is subject to approval
by Abraxas stockholders. In the event that stockholders do not approve the 2005
Employee Plan, the Board may consider other alternatives to compensate the
employees, including the executive officers named in the Summary Compensation
Table on page 14, covered by the 2005 Employee Plan, which could include cash or
other awards.
Purpose. The purpose of the 2005 Employee Plan is to employ and retain
qualified and competent personnel and promote the growth and success of Abraxas
by aligning the long-term interests of Abraxas' key employees with those of
Abraxas' stockholders by providing an opportunity to acquire an interest in
Abraxas and by providing both rewards for exceptional performance and long-term
incentives for future contributions to the success of Abraxas.
Administration and Eligibility. The 2005 Employee Plan will be
administered by the Compensation Committee of the Board of Directors and
authorizes the Board to grant non-qualified stock options, incentive stock
options or issue restricted stock to those persons who are employees of Abraxas.
Shares Reserved and Awards. The 2005 Employee Plan reserves 1,200,000
shares of Abraxas common stock, subject to adjustment following certain events,
as discussed below. The maximum annual award for any one employee is 200,000
shares of Abraxas common stock. If options, as opposed to restricted stock, are
awarded, the exercise share price shall be no less than 100% of the fair market
value on the date of the award, unless the employee is awarded incentive stock
options and at the time of the award, owns more than 10% of the voting power of
all classes of stock of Abraxas. Under this circumstance, the exercise share
price shall be no less than 110% of the fair market value on the date of the
award. Option terms and vesting schedules are at the discretion of the
Compensation Committee.
Option Exercise. An option is exercised when proper notice of exercise
has been given to Abraxas, or the brokerage firm or firms approved by Abraxas,
if any, to facilitate exercises and sales under the 2005 Employee Plan and full
cash payment for the shares with respect to which the option is exercised has
been received by Abraxas or the brokerage firm or firms, as applicable.
Stockholder Rights. Except as otherwise provided in the 2005 Employee
Plan, until the issuance of the share certificates evidencing the award shares,
no right to vote or receive dividends or any other rights as a stockholder shall
exist with respect to the award shares.
Transferability of Awards. An award may not be sold, pledged, assigned,
hypothecated, transferred, or disposed of in exchange for consideration, except
that an award may be transferred by will or by the laws of descent or
distribution and may be exercised, during the lifetime of the employee, only by
the employee, unless the Committee permits further transferability, on a general
or specific basis, in which case the Compensation Committee may impose
conditions and limitations on any permitted transferability.
Termination of Awards. Unless otherwise provided in the applicable
award agreement, vested options granted under the 2005 Employee Plan shall
expire and cease to be exercisable as follows:
o three (3) months after the date of the termination of the employee,
other than in circumstances covered by the following three
circumstances;
o immediately upon termination of the employee for misconduct;
o twelve (12) months after the date of the termination of the employee
if such termination was by reason of disability; and
21
o twelve (12) months after the date of the death of the employee.
U.S. Federal Tax Consequences
The following discussion summarizes the material federal income tax
consequences of participation in the 2005 Employee Plan. This discussion is
general in nature and does not address issues related to the tax circumstances
of any particular employee. The discussion is based on federal income tax laws
in effect on the date hereof and is, therefore, subject to possible future
changes in law. This discussion does not address state, local and foreign tax
consequences.
Stock Options. In general, the grant of an option will not be a taxable
event to the recipient and it will not result in a deduction to Abraxas. The tax
consequences associated with the exercise of an option and the subsequent
disposition of shares of common stock acquired on the exercise of such option
depend on whether the option is a nonqualified stock option or an incentive
stock option.
Upon the exercise of a nonqualified stock option, the participant will
recognize ordinary taxable income equal to the excess of the fair market value
of the shares of common stock received upon exercise over the exercise price.
Abraxas will generally be able to claim a deduction in an equivalent amount. Any
gain or loss upon a subsequent sale or exchange of the shares of common stock
will be capital gain or loss, long-term or short-term, depending on the holding
period for the shares of common stock.
Generally, a participant will not recognize ordinary taxable income at
the time of exercise of an incentive stock option and no deduction will be
available to Abraxas, provided the option is exercised while the participant is
an employee or within three months following termination of employment (longer,
in the case of disability or death). If an incentive stock option granted under
the 2005 Employee Plan is exercised after these periods, the exercise will be
treated for federal income tax purposes as the exercise of a nonqualified stock
option. Also, an incentive stock option granted under the 2005 Employee Plan
will be treated as a nonqualified stock option to the extent it (together with
other incentive stock options granted to the participant by Abraxas) first
becomes exercisable in any calendar year for shares of common stock having a
fair market value, determined as of the date of grant, in excess of $100,000.
If shares of common stock acquired upon exercise of an incentive stock
option are sold or exchanged more than one year after the date of exercise and
more than two years after the date of grant of the option, the participant will
not recognize ordinary income in connection with such sale or exchange, and any
gain or loss will be long-term capital gain or loss. If shares of common stock
acquired upon exercise of an incentive stock option are disposed of prior to the
expiration of these one-year or two-year holding periods (a "Disqualifying
Disposition"), the participant will recognize ordinary income at the time of
disposition, and Abraxas will generally be entitled to a deduction, in an amount
equal to the excess of the fair market value of the shares of common stock at
the date of exercise over the exercise price. Any additional gain following the
date of exercise will be treated as capital gain, long-term or short-term,
depending on how long the shares of common stock have been held. Where shares of
common stock are sold or exchanged in a Disqualifying Disposition (other than
certain related party transactions) for an amount less than their fair market
value at the date of exercise, any ordinary income recognized in connection with
the Disqualifying Disposition will be limited to the amount of gain, if any,
recognized in the sale or exchange, and any loss will be a long-term or
short-term capital loss, depending on how long the shares of common stock have
been held.
If an option is exercised through the use of shares of common stock
previously owned by the participant, such exercise generally will not be
considered a taxable disposition of the previously owned shares and, thus, no
gain or loss will be recognized with respect to such previously owned shares
upon such exercise. The amount of any built-in gain on the previously owned
shares generally will not be recognized until the new shares acquired on the
option exercise are disposed of in a sale or other taxable transaction.
Although the exercise of an incentive stock option as described above
would not produce ordinary taxable income to the participant, it would result in
an increase in the participant's alternative minimum taxable income and may
result in an alternative minimum tax liability.
Restricted Shares. A participant who receives restricted shares will
generally recognize ordinary income at the time that they "vest", i.e., when
they are not subject to a substantial risk of forfeiture. The amount of ordinary
22
income so recognized will generally be the fair market value of the common stock
at the time the shares vest, less the amount, if any, paid for the shares. This
amount is generally deductible for federal income tax purposes by Abraxas.
Dividends paid with respect to common stock that is nonvested will be ordinary
compensation income to the participant (and generally deductible by Abraxas).
Any gain or loss upon a subsequent sale or exchange of the shares of common
stock, measured by the difference between the sale price and the fair market
value on the date the shares vest, will be capital gain or loss, long-term or
short-term, depending on the holding period for the shares of common stock. The
holding period for this purpose will begin on the date following the date the
shares vest.
In lieu of the treatment described above, a participant may elect to
recognize income under Section 83(b) of the Internal Revenue Code in the year of
grant of such restricted shares. In such event, the participant will recognize
income in the amount of the fair market value of the restricted shares at the
time of grant (determined without regard to any restrictions other than
restrictions which by their terms will never lapse), less the amount, if any,
paid for the shares and Abraxas will generally be entitled to a corresponding
deduction. Dividends paid with respect to shares as to which a proper Section
83(b) election has been made will not be deductible to Abraxas. If a Section
83(b) election is made and the restricted shares are subsequently forfeited, the
participant will not be entitled to any offsetting tax deduction, and will
recognize a loss equal to the excess (if any) of the amount paid for such shares
(if any) and the amount realized upon such forfeiture (if any).
Amendments. Abraxas' Board or the Committee may amend or terminate the
2005 Employee Plan from time to time in such respects as the Board may deem
advisable (including, but not limited to, amendments which the Board deems
appropriate to enhance Abraxas' ability to claim deductions related to stock
option exercises); provided, that to the extent an amendment to the 2005
Employee Plan increases the maximum number of shares available under the plan,
changes the class of individuals eligible to receive awards under the plan, or
requires stockholder approval under the rules of the AMEX, such other exchange
upon which Abraxas common stock is either quoted or traded, or the SEC,
stockholder approval shall be required for any such amendment of the 2005
Employee Plan. Subject to the foregoing, it is specifically intended that the
Board or Committee may amend the 2005 Employee Plan without stockholder approval
to comply with legal, regulatory and listing requirements and to avoid
unanticipated consequences deemed by the Committee to be inconsistent with the
purpose of the 2005 Employee Plan or any award agreement.
Adjustments. If the outstanding shares of Abraxas' common stock shall
be changed into or exchanged for a different number or kind of shares of stock
or other securities or property of Abraxas or of another corporation, or if the
number of such shares of common stock shall be increased by a stock dividend or
stock split, there shall be substituted for or added to each share of common
stock reserved for the purposes of the 2005 Employee Plan, whether or not such
shares are at the time subject to outstanding awards, the number and kind of
shares of stock or other securities or property into which each outstanding
share of common stock shall be so changed or for which it shall be so exchanged,
or to which each such share shall be entitled, as the case may be. Outstanding
awards shall also be considered to be appropriately amended as to price and
other terms as may be necessary or appropriate to reflect the foregoing events.
If there shall be any other change in the number or kind of the outstanding
shares of Abraxas' common stock, or of any stock or other securities or property
into which such common stock shall have been changed, or for which it has been
exchanged, and if the Committee shall in its sole discretion determine that such
change equitably requires an adjustment in the number or kind or price of the
shares then reserved for the purposes of the 2005 Employee Plan, or in any award
previously granted or which may be granted under the 2005 Employee Plan, then
such adjustment shall be made by the Committee and shall be effective and
binding for all purposes of the 2005 Employee Plan.
In addition, the Committee shall have the power, in the event of any
merger or consolidation involving Abraxas to amend all outstanding awards to
permit the exercise thereof in whole or in part at anytime, or from time to
time, prior to the effective date of any such merger or consolidation and to
terminate each such award as of such effective date.
23
Estimate of Benefits.
The number of shares of restricted stock or stock options that will be
awarded to the executive officers of Abraxas is within the discretion of the
Compensation Committee and therefore is not currently determinable. The number
of options granted to the executive officers of Abraxas and to all other
employees participating in the 2005 Employee Plan are as follows:
Abraxas Petroleum Corporation 2005 Employee Long-Term Equity Incentive Plan
--------------------------------------------------------------------------------
Name Number of Options Dollar Value ($) (1)
--------------------------------------------------------------------------------
Robert L.G. Watson 100,000 459,000
--------------------------------------------------------------------------------
Chris E. Williford 100,000 459,000
--------------------------------------------------------------------------------
Lee T. Billingsley 50,000 229,500
--------------------------------------------------------------------------------
William H. Wallace 50,000 229,500
--------------------------------------------------------------------------------
Stephen T. Wendel 50,000 229,500
--------------------------------------------------------------------------------
Executive Officer Group 350,000 1,606,500
--------------------------------------------------------------------------------
Non-Executive Officers and 221,000 1,014,390
Employee Group
--------------------------------------------------------------------------------
------------------
(1) Calculated by multiplying the number of shares by the closing price for
Abraxas common stock on the AMEX on September 13, 2005, the date of the
Board approved the 2005 Employee Plan.
Effectiveness. Upon effectiveness, the 2005 Employee Plan shall remain
in effect until the tenth anniversary of the effective date or until terminated
under the terms of the plan or extended by an amendment approved by Abraxas
stockholders.
Votes Required. Assuming the presence of a quorum, the affirmative vote
of the holders of a majority of the shares of common stock present in person or
by proxy and entitled to vote on this item at the annual meeting is necessary to
approve the 2005 Employee Long-Term Equity Incentive Plan. The enclosed form of
proxy provides a means for stockholders to vote for the approval of the 2005
Employee Plan, to vote against it or to abstain from voting with respect to it.
If a stockholder executes and returns a proxy, but does not specify how the
shares represented by such stockholder's proxy are to be voted, such shares will
be voted FOR the 2005 Employee Plan. Abstentions will have the same legal effect
as a vote against the proposal. Non-votes are not considered present at the
meeting for this proposal and will have no effect on the approval of the 2005
Employee Plan.
The Board of Directors recommends a vote "FOR" the approval of the 2005
Employee Long-Term Equity Incentive Plan.
24
STOCKHOLDER PROPOSALS FOR 2007 ABRAXAS ANNUAL MEETING
Abraxas intends to hold its next annual meeting during the second
quarter of 2007, according to its normal schedule. In order to be included in
the proxy material for the 2007 Annual Meeting, Abraxas must receive eligible
proposals of stockholders intended to be presented at the annual meeting on or
before December 21, 2006, directed to the Abraxas Secretary at the address
indicated on the first page of this proxy statement.
According to our Amended and Restated Bylaws, Abraxas must receive
timely written notice of any stockholder nominations and proposals to be
properly brought before the 2007 Annual Meeting. To be timely, such notice must
be delivered to the Abraxas Secretary at the principal executive offices set
forth on the first page of this proxy statement not later than the close of
business on March 25, 2007 nor earlier than February 25, 2007. The written
notice must set forth (a) as to each person whom the stockholder proposes to
nominate for election or re-election as a director, all information relating to
such person that is required to be disclosed in solicitations of proxies for
election of directors in an election contest, or is otherwise required, in each
case pursuant to Regulation 14A under the Securities Exchange Act of 1934, as
amended; (b) as to any other business that the stockholder proposes to bring
before the meeting, a brief description of the business desired to be brought
before the meeting, the reasons for conducting such business at the meeting and
any material interest in such business of such stockholder and the beneficial
owner, if any, on whose behalf the proposal is made; and (c) as to the
stockholder giving the notice and the beneficial owner, if any, on whose behalf
the nomination or proposal is made (i) the name and address of such stockholder,
as they appear on the Corporation's books, and of such beneficial owner and (ii)
the class and number of shares of the Corporation which are owned beneficially
and of record by such stockholder and such beneficial owner.
In the event that the 2007 Annual Meeting is more than 30 days from May
25, 2007 (the anniversary of the 2006 Annual Meeting), the dates for submission
with the proxy materials and to be properly brought before the 2007 Annual
Meeting will change according to the Amended and Restated Bylaws and Regulation
14A under the Exchange Act. A copy of the Amended and Restated Bylaws of Abraxas
setting forth the advance notice provisions and requirements for submission of
stockholder nominations and proposals may be obtained from the Abraxas Secretary
at the address indicated on the first page of this proxy statement.
OTHER MATTERS
No business other than the matters set forth in this document is
expected to come before the meeting, but should any other matters requiring a
stockholder's vote arise, including a question of adjourning the meeting, the
persons named in the accompanying Proxy will vote thereon according to their
best judgment in the interests of Abraxas. If a nominee for office of director
should withdraw or otherwise become unavailable for reasons not presently known,
the persons named as proxies may vote for another person in his place in what
they consider the best interests of Abraxas.
Upon the written request of any person whose proxy is solicited
hereunder, Abraxas will furnish without charge to such person a copy of its
annual report filed with the United States Securities and Exchange Commission on
Form 10-K, including financial statements and schedules thereto, for the fiscal
year ended December 31, 2005. Such written request is to be directed to the
attention of Chris E. Williford, 500 N. Loop 1604 East, Suite 100, San Antonio,
Texas 78232.
By Order of the Board of Directors
Stephen T. Wendel
SECRETARY
San Antonio, Texas
April 21, 2006
25
APPENDIX A
ABRAXAS PETROLEUM CORPORATION
2005 EMPLOYEE LONG-TERM EQUITY INCENTIVE PLAN
ABRAXAS PETROLEUM CORPORATION
2005 EMPLOYEE LONG-TERM EQUITY INCENTIVE PLAN
TABLE OF CONTENTS
PART I PURPOSE, ADMINISTRATION AND RESERVATION OF SHARES.................................................1
SECTION 1. Purpose of this Plan 1
--------------------
SECTION 2. Definitions 1
-----------
SECTION 3. Administration of this Plan 3
---------------------------
SECTION 4. Shares Subject to this Plan 4
---------------------------
SECTION 5. Adjustments to Shares Subject to this Plan 5
------------------------------------------
PART II TERMS APPLICABLE TO ALL AWARDS...................................................................5
SECTION 6. General Eligibility and Annual Maximum Award; Procedure for Exercise
---------------------------------------------------------------------
of Awards; Rights as a Stockholder 5
----------------------------------
SECTION 7. Effect of Change of Control 6
---------------------------
PART III SPECIFIC TERMS APPLICABLE TO OPTIONS AND STOCK AWARDS...........................................6
SECTION 8. Grant, Terms and Conditions of Options 6
--------------------------------------
SECTION 9. Grant, Terms and Conditions of Stock Awards 7
-------------------------------------------
PART IV TERM OF PLAN AND STOCKHOLDER APPROVAL............................................................8
SECTION 10. Term of Plan 8
------------
SECTION 11. Amendment and Termination of this Plan. 8
--------------------------------------
SECTION 12. Stockholder Approval 8
--------------------
PART V MISCELLANEOUS.....................................................................................8
SECTION 13. Unfunded Plan 8
-------------
SECTION 14. Representations and Legends 9
---------------------------
SECTION 15. Assignment of Benefits 9
----------------------
SECTION 16. Governing Laws 9
--------------
SECTION 17. Application of Funds 9
--------------------
SECTION 18. Right of Discharge 9
------------------
2
ABRAXAS PETROLEUM CORPORATION
2005 Employee Long-Term Equity Incentive Plan
PART I
PURPOSE, ADMINISTRATION AND RESERVATION OF SHARES
SECTION 1. Purpose of this Plan. The purposes of this Plan are to (a)
employ and retain qualified and competent personnel and (b) promote the growth
and success of the Company's and its Subsidiaries' business by (i) aligning the
long-term interests of the Company's key employees with those of the Company's
stockholders by providing an opportunity to acquire an interest in the Company
and (ii) providing rewards for exceptional performance and long-term incentives
for future contributions to the success of the Company and its Subsidiaries.
This Plan permits the grant of Non-Qualified Stock Options, Incentive
Stock Options or Restricted Stock, at the discretion of the Committee and as
reflected in the terms of the Award Agreement. Each Award will be subject to
conditions specified in this Plan.
SECTION 2. Definitions. As used herein, the following definitions
shall apply:
(a) "AMEX" means the American Stock Exchange.
(b) "Award" means any award or benefit granted under this
Plan, including Options and Restricted Stock.
(c) "Award Agreement" means a written or electronic agreement
between the Company and the Participant setting forth the terms of the Award.
(d) "Beneficial Ownership" has the meaning set forth in Rule
13d-3 promulgated under the Exchange Act.
(e) "Board" means the Company's Board of Directors.
(f) "Change of Control" means the first day that any one or
more of the following conditions has been satisfied:
(i) the sale, transfer, or assignment to, or other
acquisition by any other entity or entities (other than a
Subsidiary), of all or substantially all of the Company's
assets and business in one or a series of related
transactions;
(ii) a third person, including a "group" as determined
in accordance with Section 13(d) or 14(d) of the Exchange Act,
obtains the Beneficial Ownership of Common Stock having thirty
percent (30%) or more of the then total number of votes that
may be cast for the election of members of the Board; or
(iii) during any 36-consecutive month period, the
individuals who, at the beginning of such period, constitute
the Board ("Incumbent Directors") cease for any reason other
than death to constitute at least a majority of the members of
the Board; provided, however, that except as set forth in this
Section 2(f)(iii), an individual who becomes a member of the
Board subsequent to the beginning of the 36-month period,
shall be deemed to have satisfied such 36-month requirement
and shall be deemed an Incumbent Director if such Director was
elected by or on the recommendation of, or with the approval
of, at least two-thirds of the Directors who then qualified as
Incumbent Directors either actually (because they were
Directors at the beginning of such period) or by operation of
the provisions of this Section; if any such individual
initially assumes office as a result of or in connection with
either an actual or threatened solicitation with respect to
the election of Directors (as such terms are used in Rule
14a-12(c) of Regulation 14A promulgated under the Exchange
Act) or other actual or threatened solicitations of proxies or
consents by or on behalf of a person other than the Board,
then such individual shall not be considered an Incumbent
Director; or
(iv) a merger, consolidation, reorganization or other
business combination (a "Transaction"), as a result of which
the shareholders of the Company immediately prior to such
Transaction own directly or indirectly immediately following
such Transaction less than 50% of the combined voting power of
the outstanding voting securities of the entity resulting from
such Transaction.
(g) "Change in Control Value" has the meaning set forth
in Section 5(b).
(h) "Code" means the Internal Revenue Code of 1986, as
amended.
(i) "Committee" means the Compensation Committee
appointed by the Board, which shall be comprised of two or
more outside Directors (within the meaning of the term
"outside directors" as used in section 162(m) of the Code, and
applicable interpretive authority under the Code, and within
the meaning of "Non-Employee Director" under SEC Rule 16b-3
promulgated under the Exchange Act).
(j) "Common Stock" means the common stock of the
Company, par value $.01 per share.
(k) "Company" means Abraxas Petroleum Corporation, a
Nevada corporation, and any successor thereto.
(l) "Director" means a member of the Board.
(m) "Effective Date" means the date on which the
Company's stockholders have approved this Plan in accordance
with applicable AMEX rules, or the rules of such other
exchange upon which the Company's Common Stock is then either
quoted or traded.
(n) "Exchange Act" means the Securities Exchange Act of
1934, as amended.
(o) "Fair Market Value" means the closing price per
share of the Common Stock on the AMEX as to the date specified
(or the previous trading day if the date specified is a day on
which no trading occurred), or if the AMEX shall cease to be
the principal exchange or quotation system upon which the
shares of Common Stock are listed or quoted, then such
exchange or quotation system upon which the Company elects to
list or quote its shares of Common Stock.
(p) "Incentive Stock Option" means any Option intended
to qualify as an incentive stock option with in the meaning of
Section 422 of the Code.
(q) "Incumbent Director" has the meaning set forth in
Section 2(f)(iii).
(r) "Misconduct" means the termination of employment for
"cause" as defined in Participant's employment agreement or in
the absence of such an agreement or such a definition,
"Misconduct" will mean a determination by the Committee that
Participant (i) has engaged in personal dishonesty, willful
violation of any law, rule, or regulation (other than minor
traffic violations or similar offenses), or breach of
fiduciary duty involving personal profit, (ii) is unable to
satisfactorily perform or has failed to satisfactorily perform
Participant's duties and responsibilities for the Company or
any affiliate, (iii) has been convicted of, or plead nolo
contendere to, any felony or a crime involving moral
turpitude, (iv) has engaged in negligence or willful
misconduct in the performance of his duties including, but not
limited to, willfully refusing without proper legal reason to
perform Participant's duties and responsibilities, (v) has
materially breached any corporate policy or code of conduct
established by the Company or any affiliate as such policies
or codes may be adopted from time to time, (vi) has violated
the terms of any confidentiality, nondisclosure, intellectual
property, nonsolicitation, noncompetition, proprietary
information and inventions, or any other agreement between
Participant and the Company related to Participant's
employment, or (vii) has engaged in conduct that is likely to
have a deleterious effect on the Company or any affiliate or
their legitimate business interests including, but not limited
to, their goodwill and public image.
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(s) "Non-Qualified Stock Option" means an Option that
does not qualify or is not intended to qualify as an Incentive
Stock Option.
(t) "Option" means a Non-Qualified Stock Option or an
Incentive Stock Option granted pursuant to Section 8 of this
Plan.
(u) "Optionee" means a Participant who has been granted
an Option.
(v) "Participant" means any employee of the Company or
any of its Subsidiaries that has been granted an Award.
(w) "Plan" means this Abraxas Petroleum Corporation 2005
Employee Long-Term Equity Incentive Plan, including any
amendments thereto.
(x) "Restricted Stock" means a grant of Shares pursuant
to Section 9 of this Plan.
(y) "SEC" means the Securities and Exchange Commission.
(z) "Share" means one share of Common Stock, as adjusted
in accordance with Section 5 of this Plan.
(aa) "Subsidiary" means a "subsidiary corporation,"
whether now or hereafter existing, as defined in Section
424(f) of the Code, a limited liability company, partnership
or other entity in which the Company controls fifty percent
(50%) or more of the voting power or equity interests, or an
entity with respect to which the Company possesses the power,
directly or indirectly, to direct or cause the direction of
the management and policies of that entity, whether through
the Company's ownership of voting securities, by contract or
otherwise.
(bb) "Transaction" has the meaning set forth in Section
2(f)(iv).
SECTION 3. Administration of this Plan.
(a) Authority. This Plan shall be administered by the
Committee. The Committee has full and exclusive power to administer this Plan on
behalf of the Board, subject to such terms and conditions as the Committee may
prescribe. Notwithstanding anything herein to the contrary, the Committee's
power to administer this Plan, and actions the Committee takes under this Plan,
shall be limited by the provisions set forth in the Committee's charter, as such
charter may be amended from time to time, and the further limitation that
certain actions may be subject to review and approval by the full Board and/or
stockholders.
(b) Powers of the Committee. Subject to the other
provisions of this Plan, the Committee has the authority, in its discretion:
(i) to determine the Participants to whom Awards,
if any, will be granted hereunder;
(ii) to grant Awards to Participants and to
determine the terms and conditions of such Awards,
including the determination of the Fair Market Value of
the Shares, the number of Shares to be represented by
each Award and the vesting schedule, the exercise
price, the timing of such Awards, and to modify or
amend each Award, with the consent of the Participant
when required;
(iii) to construe and interpret this Plan and the
Awards granted hereunder;
(iv) to prescribe, amend, and rescind rules and
regulations relating to this Plan, including the forms
of Award Agreements, and manner of acceptance of an
Award, such as correcting a defect or supplying any
omission, or reconciling any inconsistency so that this
Plan or any Award Agreement complies with applicable
law, rules, regulations and listing requirements and to
3
avoid unanticipated consequences deemed by the
Committee to be inconsistent with the purposes of this
Plan or any Award Agreement;
(v) to accelerate or defer (with the consent of the
Participant) the exercise or vested date of any Award;
(vi) to authorize any person to execute on behalf
of the Company any instrument required to effectuate
the grant of an Award previously granted by the
Committee; and
(vii) to make all other determinations deemed
necessary or advisable for the administration of this
Plan;
provided, that, no consent of a Participant is necessary under clauses (i) or
(v) if a modification, amendment, acceleration, or deferral, in the reasonable
judgment of the Committee, confers a benefit on the Participant or is made
pursuant to an adjustment in accordance with Section 5.
(c) Effect of Committee's Decision. All decisions,
determinations, and interpretations of the Committee shall be final and binding
on all Participants, the Company (including its Subsidiaries), any stockholder
and all other persons.
(d) Delegation. To the extent permitted by the Committee's
charter, as such charter may be amended from time to time, the Committee may
delegate its authority and duties under this Plan to one or more persons other
than its members to carry out its policies and directives, including the
authority to grant Awards, subject to the limitations and guidelines set by the
Committee, except that (i) the authority to grant or administer Awards with
respect to persons who are subject to Section 16 of the Exchange Act, or to
persons who are "covered employees" (within the meaning of Treasury Regulation,
Section 1.162-27(c)(2)), shall not be delegated by the Committee; and (ii) any
such delegation shall satisfy any other applicable requirements of Rule 16b-3 of
the Exchange Act, or any successor provision. Any action by any such delegate(s)
within the scope of such delegation shall be deemed for all purposes to have
been taken by the Committee. Any person to whom such authority is granted shall
continue to be eligible to receive Awards under this Plan, provided that such
Awards are granted directly by the Committee without delegation.
SECTION 5. Shares Subject to this Plan.
(e) Reservation of Shares. The shares of Common Stock reserved
under this Plan shall be 1,200,000 shares of Common Stock. If an Award expires,
is forfeited or becomes unexercisable for any reason without having been
exercised in full, the undelivered Shares which were subject thereto shall,
unless this Plan has been terminated, become available for future Awards under
this Plan. The Shares may be authorized but unissued, or reacquired shares of
Common Stock. The Company, during the term of this Plan, will at all times
reserve and keep available such number of Shares as shall be sufficient to
satisfy the requirements of this Plan.
(f) Time of Granting Awards. The date of grant of an Award
shall, for all purposes, be the date on which the Company completes the
corporate action relating to the grant of such Award and all conditions to the
grant have been satisfied, provided that conditions to the exercise of an Award
shall not defer the date of grant. Notice of a grant shall be given to each
Participant to whom an Award is so granted within a reasonable time after the
determination has been made.
(g) Securities Law Compliance. Shares shall not be issued
pursuant to the exercise of an Award unless the exercise of such Award and the
issuance and delivery of such Shares pursuant thereto shall comply with all
relevant provisions of law, including without limitation, the Securities Act of
1933, as amended, the Exchange Act, the rules and regulations promulgated under
either of such Acts, and the requirements of any stock exchange or quotation
system upon which the Shares may then be listed or quoted, and shall be further
subject to the approval of counsel for the Company with respect to such
compliance.
(h) Substitutions and Assumptions. The Board or the Committee
has the right to substitute or assume Awards in connection with mergers,
reorganizations, separations, or other transactions to which Section 424(a) of
the Code applies, provided such substitutions and assumptions are permitted by
Section 424 of the Code and the regulations promulgated thereunder. The number
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of Shares reserved pursuant to Section 4(a) may be increased by the
corresponding number of Awards assumed and, in the case of a substitution, by
the net increase in the number of Shares subject to Awards before and after the
substitution.
SECTION 4. Adjustments to Shares Subject to this Plan.
(a) Adjustments. If the outstanding shares of Common Stock
shall be changed into or exchanged for a different number or kind of shares of
stock or other securities or property of the Company or of another corporation
(whether by reason of merger, consolidation, recapitalization, reclassification,
split up, combination of shares or otherwise), or if the number of such shares
of Common Stock shall be increased by a stock dividend or stock split, there
shall be substituted for or added to each share of Common Stock theretofore
reserved for the purposes of this Plan, whether or not such shares are at the
time subject to outstanding Awards, the number and kind of shares of stock or
other securities or property into which each outstanding share of Common Stock
shall be so changed or for which it shall be so exchanged, or to which each such
share shall be entitled, as the case may be. Outstanding Awards shall also be
considered to be appropriately amended as to price and other terms as may be
necessary or appropriate to reflect the foregoing events. If there shall be any
other change in the number or kind of the outstanding shares of Common Stock, or
of any stock or other securities or property into which such Common Stock has
been changed, or for which it has been exchanged, and if the Committee shall in
its sole discretion determine that such change equitably requires an adjustment
in the number or kind or price of the shares then reserved for the purposes of
this Plan, or in any Award theretofore granted or which may be granted under
this Plan, then such adjustment shall be made by the Committee and shall be
effective and binding for all purposes of the Plan. In making any such
substitution or adjustment pursuant to this Section 5, fractional shares may be
ignored.
(b) Amendments. The Committee has the power, in the event of
any Transaction, to (1) amend all outstanding Options to permit the exercise
thereof in whole or in part at anytime, or from time to time, prior to the
effective date of any such merger or consolidation (2) to terminate each such
Option as of such effective date and pay each holder of such Award an amount of
cash per share equal to the excess, if any, of the Change in Control Value (as
hereinafter defined) of the shares subject to such Option over the exercise
price under such Options for such shares. For purposes of this subsection (b),
the "Change in Control Value" shall be the per share price paid to stockholders
of the Company in the Transaction, provided that in the event that the
consideration offered to stockholders of the Company consists of anything other
than cash, the Committee will determine, in its sole and absolute discretion,
the fair cash equivalent portion of the consideration offered that is other than
cash.
(c) No Other Adjustment. Except as expressly provided herein,
no issuance by the Company of shares of any class, or securities convertible
into shares of any class, shall affect, and no adjustment by reason thereof
shall be made with respect to, the number or price of shares subject to an
Award.
PART II
TERMS APPLICABLE TO ALL AWARDS
SECTION 6. General Eligibility and Annual Maximum Award; Procedure for
Exercise of Awards; Rights as a Stockholder.
(a) General Eligibility. Awards may be granted only to
Participants.
(b) Maximum Annual Participant Award. The aggregate number of
Shares with respect to which an Award or Awards may be granted to any one
Participant in any one taxable year of the Company shall not exceed 200,000
shares of Common Stock (subject to adjustment as set forth in Section 5(a)).
(c) Procedure. An Award shall be exercised when written or
electronic notice of exercise has been given to the Company, or the brokerage
firm or firms approved by the Company to facilitate exercises and sales under
this Plan, in accordance with the terms of the Award by the person entitled to
exercise the Award and full payment for the Shares with respect to which the
Award is exercised has been received by the Company or the brokerage firm or
firms, as applicable. The notification to the brokerage firm shall be made in
accordance with procedures of such brokerage firm approved by the Company. The
Company shall issue (or cause to be issued) such share certificate promptly upon
exercise of and full payment for the Award. No adjustment will be made for a
5
dividend or other right for which the record date is prior to the date the share
certificate is issued, except as provided in Section 5 of this Plan.
(d) Method of Payment. The consideration to be paid for any
Shares to be issued upon exercise or other required settlement of an Award must
be paid by cash, check or wire transfer of immediately available funds.
(e) Stockholder Rights. Except as otherwise provided in this
Plan, until the issuance (as evidenced by the appropriate entry on the books of
the Company or of a duly authorized transfer agent of the Company) of the share
certificate evidencing such Shares, no right to vote or receive dividends or any
other rights as a stockholder shall exist with respect to the Shares subject to
the Award, notwithstanding the exercise of the Award.
(f) Non-Transferability of Awards. An Award may not be sold,
pledged, assigned, hypothecated, transferred, or disposed of in exchange for
consideration, except that an Award may be transferred by will or by the laws of
descent or distribution and may be exercised, during the lifetime of the
Participant, only by the Participant; unless the Committee permits further
transferability, on a general or specific basis, in which case the Committee may
impose conditions and limitations on any permitted transferability.
SECTION 7. Effect of Change of Control. Notwithstanding any other
provision in this Plan to the contrary, the following provisions shall apply
unless otherwise provided in the most recently executed agreement between the
Participant and the Company, or specifically prohibited under applicable laws,
or by the rules and regulations of any applicable governmental agencies or
national securities exchanges or quotation systems.
(a) Acceleration. Awards of a Participant shall be Accelerated
(as defined in Section 7(b)) upon the occurrence of a Change of Control.
(b) Definition. For purposes of this Section 7, Awards of a
Participant being "Accelerated" means, with respect to such Participant:
(i) any and all Options shall become fully vested and
immediately exercisable, and shall remain exercisable
throughout their entire term; and
(ii) any restriction periods and restrictions imposed on
Restricted Stock shall lapse.
PART III
SPECIFIC TERMS APPLICABLE TO OPTIONS AND STOCK AWARDS
SECTION 8. Grant, Terms and Conditions of Options.
(a) Designation. Each Option shall be designated in an Award
Agreement as either an Incentive Stock Option or a Non-Qualified Stock Option.
However, notwithstanding such designations, to the extent that the aggregate
Fair Market Value of the Shares with respect to which Options designated as
Incentive Stock Options are exercisable for the first time by any Participant
during any calendar year (under all plans of the Company) exceeds $100,000, such
excess Options shall be treated as Non-Qualified Stock Options. Options shall be
taken into account in the order in which they were granted.
(b) Term of Options. The term of each Option shall be
established by the Committee in its sole and absolute discretion at the date of
grant. However, the term of each Incentive Stock Option shall be no more than 10
years from the date of grant, and , in the case of an Incentive Stock Option
granted to a Participant who, at the time the Option is granted, owns Shares
representing more than 10% of the voting power of all classes of stock of the
Company or any Subsidiary, the term of the Option shall be no more than 5 years
from the date of grant.
(c) Vesting. Options granted pursuant to this Section 8 shall
vest pursuant to the periods, terms and conditions determined by the Committee
in its sole discretion. The Committee in its sole and absolute discretion may
provide that an Option will be vested or exercisable upon (1) the attainment of
one or more performance goals or targets established by the Committee; (2) the
Optionee's continued employment as an Employee with the Company for a specified
period of time; (3) the occurrence of any event or the satisfaction of any other
6
condition specified by the Committee in its sole and absolute discretion; or (4)
a combination of any of the foregoing. Each Option may, in the sole and absolute
discretion of the Committee, have different provisions with respect to vesting
and/or exercise of the Option. To the extent Options vest and become exercisable
in increments, such Options shall cease vesting as of the termination of such
Optionee's employment for any reason other than death, in which case such
Options shall immediately vest in full.
(d) Exercise Prices.
(i) The per Share exercise price under an Incentive Stock
Option shall be: (A) if granted to a Participant who,
at the time of the grant of such Incentive Stock
Option, owns shares representing more than 10% of the
voting power of all classes of stock of the Company or
any Subsidiary, the per Share exercise price shall be
no less than 110% of the Fair market Value per Share of
the Common Stock on the date the Option is granted, or
(B) if granted to any other Participant, the per Share
exercise price shall be no less than 100% of the Fair
Market Value per Share of the Common Stock on the date
the Option is granted.
(ii) The per Share exercise price under a Non-Qualified
Stock Option shall be no less than 100% of the Fair
Market Value per Share of the Common Stock on the date
the Option is granted.
(e) Exercise. Any Option granted hereunder shall be
exercisable at such times and under such conditions as determined by the
Committee at the time of grant, as provided in the applicable Award Agreement,
and as are permissible under the terms of this Plan. An Option may not be
exercised for a fraction of a Share.
(f) Expiration of Options upon Termination of Employment.
Unless otherwise provided in the applicable Award Agreement as determined by the
Committee at the time of grant, Options granted under this Plan, shall expire
and cease to be exerciseable as follows:
(i) three (3) months after the date of the termination of
Optionee's employment, other than in circumstances
covered by (ii), (iii) or (iv) below;
(ii) immediately upon termination of Optionee's employment
for Misconduct;
(iii) twelve (12) months after the date of the termination
of a Optionee's employment if such termination was by
reason of disability (within the meaning of Section
22(e)(3) of the Code); and
(iv) twelve (12) months after the date of the death of a
Participant.
Notwithstanding the foregoing in this subsection (f), the Committee has the
authority to extend the expiration date of any outstanding Option in
circumstances in which it deems such action to be appropriate, provided that no
such extension shall extend the term of an Option beyond the date on which the
Option would have expired if no termination of the Optionee's employment had
occurred. To the extent that the extension of the expiration date results in an
Option no longer qualifying as an Incentive Stock Option, such extension shall
not be effective unless Optionee approves the extension and waives any and all
claims against the Committee and the Company for any losses resulting from the
disqualification of the Incentive Stock Option.
SECTION 9. Grant, Terms and Conditions of Stock Awards.
(a) Designation. Restricted Stock may be granted either alone,
in addition to, or in tandem with other Awards granted under this Plan. After
the Committee determines that it will offer Restricted Stock, it will advise the
Participant in writing or electronically, by means of an Award Agreement, of the
terms, conditions and restrictions, including vesting, if any, related to the
offer, including the number of Shares that the Participant shall be entitled to
receive or purchase, the price to be paid, if any, and, if applicable, the time
within which the Participant must accept the offer. The offer shall be accepted
by execution of an Award Agreement or as otherwise directed by the Committee.
The term of each award of Restricted Stock shall be at the discretion of the
Committee.
7
(b) Vesting. The Committee shall determine the time or times
within which an Award of shares of Restricted Stock may be subject to
forfeiture, the vesting schedule and the rights to acceleration thereof, and all
other terms and conditions of the Award. The Committee may provide that vesting
of such Award will occur upon (1) the attainment of one or more performance
goals or targets established by the Committee, which are based on (i) percentage
increases in net asset value, (ii) earnings before or after interest, taxes,
depreciation, and/or amortization, (iii) general administrative expenses, and
(iv) finding costs; (2) the Optionee's continued employment or service with the
Company for a specified period of time; (3) the occurrence of any event or the
satisfaction of any other condition specified by the Committee in its sole and
absolute discretion; or (4) a combination of any of the foregoing. Subject to
the applicable provisions of the Award Agreement and this Section 9, upon
termination of a Participant's employment for any reason, all Restricted Stock
subject to the Award Agreement may vest or be forfeited in accordance with the
terms and conditions established by the Committee as specified in the Award
Agreement. Each Restricted Stock Award may, in the sole and absolute discretion
of the Committee, have different forfeiture and vesting provisions.
PART IV
TERM OF PLAN AND STOCKHOLDER APPROVAL
SECTION 10. Term of Plan. This Plan shall become effective as of the
Effective Date and shall continue in effect until the tenth anniversary of the
Effective Date or until terminated under Section 11 of this Plan or extended by
an amendment approved by the stockholders of the Company pursuant to Section
11(a).
SECTION 11. Amendment and Termination of this Plan.
(a) Amendment and Termination. The Board or the Committee may
amend or terminate this Plan from time to time in such respects as the Board may
deem advisable (including, but not limited to, amendments which the Board deems
appropriate to enhance the Company's ability to claim deductions related to
stock option exercises); provided, that to the extent an amendment to this Plan
(1) increases the maximum number of shares available under the Plan, (2) changes
the class of individuals eligible to receive Awards under the Plan, or (3)
requires stockholder approval under the rules of the AMEX, such other exchange
upon which the Company's Common Stock is either quoted or traded, or the SEC,
stockholder approval shall be required for any such amendment of this Plan.
Subject to the foregoing, it is specifically intended that the Board or
Committee may amend this Plan without stockholder approval to comply with legal,
regulatory and listing requirements and to avoid unanticipated consequences
deemed by the Committee to be inconsistent with the purpose of this Plan or any
Award Agreement.
(b) Effect of Amendment or Termination. Any amendment or
termination of this Plan shall not impair the rights of Participants under
previously-granted Awards and such Awards shall remain in full force and effect
as if this Plan had not been so amended or terminated, unless mutually agreed
otherwise between the Participant and the Committee, which agreement must be in
writing and signed by the Participant and the Company.
SECTION 12. Stockholder Approval. The effectiveness of this Plan is
subject to approval by the stockholders of the Company in accordance with
applicable AMEX rules, or the rules of such other exchange upon which the
Company's Common Stock is either quoted or traded at the time the Plan becomes
effective.
PART V
MISCELLANEOUS
SECTION 13. Unfunded Plan. The adoption of this Plan and any setting
aside of amounts by the Company with which to discharge its obligations
hereunder shall not be deemed to create a trust. The benefits provided under
this Plan shall be a general, unsecured obligation of the Company payable solely
from the general assets of the Company, and neither a Participant nor the
Participant's beneficiaries or estate has any interest in any assets of the
Company by virtue of this Plan. Nothing in this Section 13 shall be construed to
prevent the Company from implementing or setting aside funds in a grantor trust
subject to the claims of the Company's creditors. Legal and equitable title to
any funds set aside, other than any grantor trust subject to the claims of the
Company's creditors, shall remain in the Company and any funds so set aside
shall remain subject to the general creditors of the Company, present and
8
future. Any liability of the Company to any Participant with respect to an Award
shall be based solely upon contractual obligations created by this Plan and the
Award Agreements.
SECTION 14. Representations and Legends. The Committee may require each
person purchasing shares pursuant to an Award under this Plan to represent to
and agree with the Company in writing that the purchaser is acquiring the shares
without a view to distribution thereof. In addition to any legend required by
this Plan, the certificate for such shares may include any legend which the
Committee deems appropriate to reflect a restriction on transfer.
All certificates for shares of Common Stock delivered under this Plan
shall be subject to such stock transfer orders and other restrictions as the
Committee may deem advisable under the rules, regulations and other requirements
of the SEC, any stock exchange upon which the Common Stock is listed, applicable
federal or state securities laws, and any applicable corporate law, and the
Committee may cause the legend or legends to be put on any such certificates to
make appropriate reference to such restriction.
SECTION 15. Assignment of Benefits. No Award or other benefits payable
under this Plan shall, except as otherwise provided under this Plan or as
specifically provided by law, be subject in any manner to anticipation,
alienation, attachment, sale, transfer, assignment, pledge, encumbrance or
charge. Any attempt to anticipate, alienate, attach, sell, transfer, assign,
pledge, encumber or charge, any such benefit shall be void, and any such benefit
shall not in any manner be subject to the debts, contracts, liabilities,
engagements or torts of any person who shall be entitled to such benefit, nor
shall such benefit be subject to attachment or legal process for or against that
person.
SECTION 16. Governing Laws. This Plan and actions taken in connection
herewith shall be governed, construed and enforced in accordance with the laws
of the State of Nevada.
SECTION 17. Application of Funds. The proceeds received by the Company
from the sale of shares of Common Stock pursuant to Awards granted under this
Plan will be used for general corporate purposes.
SECTION 18. Right of Discharge. Nothing in this Plan or in any Award or
Award Agreement shall confer upon any Participant or any other individual the
right to continue in the employment or service of the Company or any of its
Subsidiaries, or affect any right the Company or any of its Subsidiaries may
have to terminate the employment or service of any such Participant or any other
individual at any time for any reason.
9