SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
The Securities Exchange Act of 1934 (Amendment No. ________)
Filed by the Registrant [ X ]
Filed by a party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
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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
--------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of filing fee (Check the appropriate box):
[ X ] No fee required.
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22(a)(2) pf Schedule 14A.
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0-11.
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pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
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[ ]Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee
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statement number, or the Form or Schedule and the date of its filing.
(1) Amount previously Paid:
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(4) Date Filed:
ABRAXAS PETROLEUM CORPORATION
500 North Loop 1604 East, Suite 100
San Antonio, Texas 78232
(210) 490-4788
April 22, 2004
Dear Stockholders:
You are cordially invited to attend the 2004 Annual Meeting of Stockholders
of Abraxas Petroleum Corporation to be held on Friday, May 21, 2004, at 9:00
a.m., at the Petroleum Club of San Antonio located at 8620 North New Braunfels,
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 North Loop 1604 East, Suite 100
San Antonio, Texas 78232
(210) 490-4788
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 21, 2004
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 North New Braunfels, San Antonio, Texas 78217, on
Friday, May 21, 2004, at 9:00 a.m., local time, for the following purposes:
(1) To elect four directors to the Abraxas Board of Directors for a term of
three years with the exception of James C. Phelps who will be elected for a
two-year term expiring in 2006. The following have been nominated for election
by the Board of Directors:
Robert L.G. Watson
Harold D. Carter
Barry J. Galt
James C. Phelps
(2) To ratify the appointment of BDO Seidman, LLP as Abraxas' independent
auditors for the year ending December 31, 2004; and
(3) 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 19,
2004, 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 22, 2004
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ABRAXAS PETROLEUM CORPORATION
500 North 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 2004 Annual Meeting of
Stockholders to be held at 9:00 a.m. on May 21, 2004, at the Petroleum Club of
San Antonio located at 8620 North New Braunfels, San Antonio, Texas 78217, and
at any adjournment thereof. This Proxy Statement and the accompanying Proxy are
being mailed to stockholders on or about April 22, 2004. 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 19,
2004 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
36,301,243 shares of Abraxas common stock outstanding, which were held by
approximately 1,594 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. If you are an Abraxas stockholder and you are present
in person or represented by proxy at the meeting and abstain from voting or if
you do not instruct your broker on how to vote, it will have no effect on the
proposal because holders of shares who have abstained or for which brokers are
not able to vote will not be considered voting at the annual meeting and for
purposes of approving this proposal.
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 nominee for director set forth
herein.
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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. The cost of solicitation of proxies will be
paid by Abraxas.
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PROPOSAL ONE
Election of Directors
The Articles of Incorporation of Abraxas 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. In October 2003,
Harold D. Carter and Barry J. Galt were added to the Board of Directors and, in
accordance with Abraxas' Amended and Restated Bylaws, will stand for election at
this year's annual meeting. Mr. Carter's and Mr. Galt's appointment to the Board
was recommended by a non-management director. At this year's meeting, a total of
three Class III directors are to be elected for a term of three years, to hold
office until the expiration of his term in 2007, or until a successor shall have
been elected and shall have qualified. In order to comply with AMEX rules and
the Company's Articles of Incorporation and Amended and Restated By-Laws, Mr.
Phelps has agreed to stand for re-election for a two-year term expiring in 2006,
instead of the normal three-year term, and be designated as a Class I Director.
The nominees for Class III directors are Robert L.G. Watson, Harold D. Carter,
and Barry J. Galt. James C. Phelps has been nominated to serve a two-year term
and to be designated as a Class I Director upon election. The term of the Class
II directors (Messrs. Bartlett, Wagda, Cox, and Logue) expires in 2005 and the
term of the current Class I director (Mr. Burke) expires in 2006.
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.
Under applicable Nevada law, 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
Set forth below are 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 2005 and the term
of the Class III directors expires in 2004.
Name and Municipality of Residence Age Office Class
Robert L. G. Watson Chairman of the Board, President and Chief
San Antonio, Texas 53 Executive Officer III
Chris E. Williford Executive Vice President, Chief Financial
San Antonio, Texas 52 Officer and Treasurer --
Robert W. Carington, Jr.
San Antonio, Texas 42 Executive Vice President --
C. Scott Bartlett, Jr.
Montclair, New Jersey 70 Director II
Franklin A. Burke
Doyleston, Pennsylvania 70 Director I
Harold D. Carter
Dallas, Texas 65 Director III
Ralph F. Cox
Ft. Worth, Texas 71 Director II
Barry J. Galt
Houston, Texas 70 Director III
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Dennis E. Logue
Norman, Oklahoma 60 Director II
James C. Phelps
San Antonio, Texas 81 Director I
Joseph A. Wagda
Danville, California 60 Director II
Executive Officers
Robert L. G. Watson has served as Chairman of the Board, President,
Chief Executive Officer and a director of Abraxas since 1977. From May 1996 to
January 2003, Mr. Watson also served as Chairman of the Board and a director of
Grey Wolf Exploration, Inc., formerly a wholly-owned Canadian subsidiary of
Abraxas. Since January 2003, he has served as Chairman of the Board and a
director of a newly-formed wholly-owned Canadian subsidiary called Grey Wolf
Exploration, Inc. In November 1996, Mr. Watson was elected Chairman of the
Board, President and as a director of Canadian Abraxas, a former wholly-owned
Canadian subsidiary of Abraxas. Prior to joining 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 November 1996, Mr. Williford was
elected Vice President and Assistant Secretary of Canadian Abraxas. In December
1999, Mr. Williford resigned as a director of Abraxas. 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.
Robert W. Carington, Jr. was elected Executive Vice President and a
director of Abraxas in July 1998. In December 1999, Mr. Carington resigned as a
director of Abraxas. Prior to joining Abraxas, Mr. Carington was a Managing
Director with Jefferies & Company, Inc. Prior to joining Jefferies & Company,
Inc. in January 1993, Mr. Carington was a Vice President at Howard, Weil,
Labouisse, Friedrichs, Inc. Prior to joining Howard, Weil, Labouisse,
Friedrichs, Inc., Mr. Carington was a petroleum engineer with Unocal Corporation
from 1983 to 1990. Mr. Carington received a Bachelor of Science in Mechanical
Engineering from Rice University in 1983 and a Masters of Business
Administration from the University of Houston in 1990.
Director Nominees
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. 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.
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
6
company, since 1989, a director of StanCorp Financial Group, Inc., an insurance
company, since 1989 and a director of Dynegy Inc., an oil and gas company, since
September 2002.
James C. Phelps, a director of Abraxas since December 1983, has been a
consultant to crude oil and natural gas exploration and production companies
such as Panhandle Producing Company and Tesoro Petroleum Corporation since April
1981. Mr. Phelps served as a director of Old Grey Wolf from January 1996 to
January 2003. From April 1995 to May 1996, Mr. Phelps served as Chairman of the
Board and Chief Executive Officer of Old Grey Wolf, and from January 1996 to May
1996, he served as President of Old Grey Wolf. From March 1983 to September
1984, he served as President of Osborn Heirs Company, a privately-owned crude
oil exploration and production company based in San Antonio. Mr. Phelps was
President and Chief Operating Officer of Tesoro Petroleum Corporation from 1971
to 1981 and prior to that was Senior Vice President and Assistant to the
President of Continental Oil Company. He received a Bachelor of Science degree
in Industrial Engineering and a Master of Science degree in Industrial
Engineering from Oklahoma State University.
Robert L.G. Watson, Abraxas' Chairman of the Board, President and Chief
Executive Officer, has also been nominated for election as a director for a term
expiring in 2007.
Directors with Terms Expiring in 2005 and 2006
C. Scott Bartlett, Jr., a director of Abraxas since December 1999, has
over forty 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.
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 Master's 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.
Ralph F. Cox, a director of Abraxas since December 1999, has over 45
years of oil and gas industry experience, over thirty of which was with Arco.
Mr. Cox retired from Arco in 1985 after having become 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.
Dennis E. Logue, a director of Abraxas since April 2003, is Dean and
Fred E. Brown Chair at the Michael F. Price College of Business at the
University of Oklahoma. Prior to joining Price College in 2001, 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 Sallie Mae (GSE) and Waddell &
Reed Financial, Inc., a national financial services organization. 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 twenty-nine year career.
From 2000 to the present, Mr. Wagda has been Chief Executive Officer and a
director of BrightStar Information Technology Group, Inc., an information
technology company, and was named Chairman in 2001. He also is 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 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 home builder, 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.
7
Mr. Wagda received a Bachelor of Science from Fordham College, a Masters of
Business Administration, with distinction, from the Johnson Graduate School of
Management, Cornell University, and a JD, with honors, from Rutgers University.
Meeting Attendance
During the fiscal year ended December 31, 2003, the Abraxas Board of
Directors held seven meetings. All directors attended each meeting. During 2003,
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 stockholders. At Abraxas' 2003 Annual Meeting, all
members of the Board attended the meeting.
Committees of the Board of Directors
The Audit Committee of the Abraxas Board of Directors, which consists
of Messrs. Bartlett, Burke, Phelps, and Wagda, met seven times during 2003. 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 appears on page 20, more fully describes the
activities and responsibilities of the Audit Committee.
The Compensation Committee of the Board of Directors, which consists of
Messrs. Phelps, Cox and Logue, met four times during 2003. 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' 1984 Incentive Stock Option Plan, 1984
Nonqualified Stock Option Plan, 1993 Key Contributor Stock Option Plan, and 1994
Long Term Incentive Plan.
The Nominating and Corporate Governance Committee, which consists of
Messers. Bartlett, Burke, and Cox, met three times during 2003. The primary
functions of the Nominating and Corporate Governance Committee are to develop
and maintain the corporate governance policies of Abraxas and 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.
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 in the Investor Relations section.
Board Independence
A majority of the members of the Board of Directors, as well as all
members of the Audit, Compensation, and 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 the
Company's Code of Ethics. This Code is a statement of the Company's 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 the Company's website at
www.abraxaspetroleum.com in the Investor Relations section. Additionally, should
there be any changes to, or waivers from, the Company's Code of Ethics, those
changes or waivers will be posted immediately on our website at the address
noted above.
8
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 and Corporate Governance 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. During 2003, Messers. Carter and Galt were appointed to
the Board of Directors and, in accordance with Abraxas' Amended and Restated
Bylaws, will stand for election at this year's annual meeting. Mr. Carter's and
Mr. Galt's appointment to the Board was recommended by a non-management
director.
The Nominating and Corporate Governance 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 and
Corporate Governance 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 and Corporate Governance Committee determines the
required selection criteria and qualifications of director nominees based upon
the needs of the Company at the time nominees are considered. Minimum criteria
for director nominees are determined by the Nominating and Corporate Governance
Committee. 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 and Corporate Governance 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 and Corporate Governance Committee
also takes into consideration their prior Board contributions, performance and
meeting attendance records.
The Nominating and Corporate Governance 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 and Corporate Governance
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 2005 Abraxas Annual Meeting" on page
24 of this document.
The Nominating and Corporate Governance 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 and Corporate Governance Committee uses the same process for
evaluating all nominees, regardless of the original source of the information.
9
No candidates for director nominations were submitted to the Nominating
and Corporate Governance Committee by any stockholder in connection with the
2004 Annual Meeting.
10
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 March 31, 2004, 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 (%)
Peter S. Lynch 3,335,440 9.24
82 Devonshire St. 58A
Boston, MA 02109
Venture Securities Corp. 2,423,724 (2) 6.71
516 N. Bethlehem Pike
Spring House, PA 19477
Robert L. G. Watson 1,127,099 (3) 3.07
Franklin A. Burke 1,717,970 (4) 4.75
James C. Phelps 543,999 (5) 1.51
Chris E. Williford 220,005 (6) *
Lee T. Billingsley 174,925 (7) *
Robert W. Carington, Jr. 477,090 (8) 1.31
William H. Wallace 75,986 (9) *
C. Scott Bartlett, Jr. 87,000 (10) *
Ralph F. Cox 335,000 (10) *
Harold D. Carter 48,098 (4)
Joseph A. Wagda 75,000 (10) *
All Officers and Directors as a Group (11 persons)
(3)(4)(5)(6)(7)(8)(9)(10) 4,887,172 13.45
------------------
* Less than 1%
(1) Unless otherwise indicated, all shares are held directly with sole
voting and investment power.
(2) Includes 1,244,204 shares with sole voting power held by Venture
Securities and Franklin A. Burke, a director of Abraxas, the sole owner
of Venture Securities, and 1,179,520 shares managed by Venture
Securities on behalf of third parties.
(3) Includes 55,642 shares issuable upon exercise of options granted
pursuant to Abraxas Petroleum Corporation 1993 Key Contributor Stock
Option Plan, 551,525 shares issuable upon exercise of options granted
pursuant to the Abraxas Petroleum Corporation 1994 Long Term Incentive
Plan, 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 30,000 shares issuable upon exercise of options granted
pursuant to the Amended and Restated Director Stock Option Plan (the
"Director Option Plan").
(5) Includes 340,000 shares owned by Marie Phelps, Mr. Phelps' wife, 88,762
shares owned by JMRR LP, 2,000 shares issuable upon exercise of options
granted pursuant to an option agreement, and 30,000 shares issuable
upon exercise of options granted pursuant to the Director Option Plan.
(6) Includes 190,750 shares issuable upon exercise of options granted
pursuant to the Abraxas Petroleum Corporation 1994 Long Term Incentive
Plan.
(7) Includes 104,750 shares issuable upon exercise of options granted
pursuant to the Abraxas Petroleum Corporation 1994 Long Term Incentive
Plan and 5,000 shares in a retirement account.
(8) Includes 378,750 shares issuable upon exercise of options granted
pursuant to the Abraxas Petroleum Corporation 1994 Long Term Incentive
Plan.
(9) Includes 67,250 shares issuable upon exercise of options granted
pursuant to the Abraxas Petroleum Corporation 1994 Long Term Incentive
Plan.
(10) Includes 75,000 shares issuable upon exercise of certain option
agreements.
11
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 2003 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.
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 under
Abraxas' 1994 Long Term Incentive Plan which we sometimes refer to as the LTIP.
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. Under the plan, 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 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 Carington, 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
12
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 all vice president level officers of Abraxas.
The plan was amended in 1997, 1999 and again in 2003. Under the plan as amended,
each participant is given an annual bonus opportunity based on the achievement
of certain goals. For Mr. Wallace and Dr. Billingsley, 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. Wallace and Dr. Billingsley, 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, Carington, Wallace 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. For
2003, the goals for NAV, General and Administrative expense, and Finding Costs
were met and the following bonuses were earned:
Name Bonus Amount
---- ------
Robert L.G. Watson $200,200 (1)
Chris E. Williford 120,400 (2)
Robert W. Carington, Jr. 154,000 (3)
Lee T. Billingsley 42,023 (4)
William H. Wallace 42,023 (4)
-------------------------------------
(1) Of this amount, $177,719 will be paid in cash and $22,481 in restricted
stock. *
(2) Of this amount, $101,051 will be paid in cash and $19,349 in restricted
stock. *
(3) Of this amount, $121,211 will be paid in cash and $32,789 in restricted
stock. *
(4) Of this amount, $32,123 will be paid in cash and $9,900 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.
Long-Term Incentives. In 1994, the board adopted the LTIP in order to
compensate executive and non-executive officers and employees who contribute
significantly to the operation of Abraxas. Up to an aggregate of 5,000,000
shares of Abraxas common stock are available for issuance under the LTIP. The
LTIP makes available to the Committee a number of incentive devices such as
incentive stock options and non-qualified stock options, stock appreciation
rights, restricted stock, performance units, performance shares and dividend
units. 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, including minimum
performance criteria, which must be met to receive payment, are provided in
individual award agreements granted to each award recipient. Award agreements
also contain change in control provisions. Option holdings and previous awards
are not taken into account.
The board believes that the LTIP has given Abraxas the flexibility to
structure awards to meet Abraxas' business needs. In making long-term incentive
awards under the LTIP, 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 2003 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.
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
13
than performance-based compensation, cannot be deducted. In order to constitute
performance-based compensation for purposes of the tax law, the performance
measures must be approved by the stockholders. Since Abraxas does not anticipate
that the compensation for any executive officer will exceed the $1 million
threshold in the near term, stockholder approval necessary to maintain the tax
deductibility of compensation at or above that level is not being requested. The
Compensation Committee will reconsider this matter if compensation levels
approach this threshold, in light of the tax laws then in effect. The
Compensation Committee will consider ways to maximize the deductibility of
executive compensation, while retaining the discretion necessary to compensate
executive officers in a manner commensurate with performance and the competitive
environment for executive talent.
This report is submitted by the members of the Compensation Committee.
James C. Phelps, Chairman
Ralph F. Cox
Dennis E. Logue
Compensation Summary
The following table sets forth a summary of compensation for the fiscal
years ended December 31, 2001, 2002 and 2003 paid by Abraxas to Robert L.G.
Watson, Abraxas' Chairman of the Board, President, and Chief Executive Officer,
Chris E. Williford, Abraxas' Executive Vice President, Chief Financial Officer,
and Treasurer, Robert W. Carington, Jr., Abraxas' Executive Vice President, Lee
T. Billingsley, Abraxas' Vice - President Exploration, and to William H.
Wallace, Abraxas' Vice President - Operations.
Summary Compensation Table
Long Term
Compensation
Awards -
Securities
Underlying
Name and Principal Position Year Salary($) Bonus($) Options (#)
---- --------- --------
Annual Compensation
----------------------------------------------------------------------------------------------------------------
Robert L. G. Watson, 2001 $259,615 $27,388 60,000
Chairman of the Board, 2002 $271,442 $24,592 90,000
President and Chief Executive Officer 2003 $291,750 $200,200 (1) 0
----------------------------------------------------------------------------------------------------------------
Chris E. Williford, 2001 $155,769 $16,433 20,000
Executive Vice President, 2002 $163,653 $14,848 43,000
Chief Financial Officer and Treasurer 2003 $175,615 $120,400 (2) 0
----------------------------------------------------------------------------------------------------------------
Robert W. Carington, Jr., 2001 $207,629 $21,910 20,000
Executive Vice President 2002 $215,577 $19,488 55,000
2003 $225,961 $154,000 (3) 0
----------------------------------------------------------------------------------------------------------------
Lee T. Billingsley 2001 $134,077 $10,331 15,000
Vice President-- 2002 $156,885 $9,792 22,000
Exploration 2003 $168,346 $42,023 (4) 0
----------------------------------------------------------------------------------------------------------------
William H. Wallace, 2001 $131,577 $10,331 15,000
Vice President-- 2002 $156,885 $9,792 22,000
Operations 2003 $168,346 $42,023 (4) 0
----------------------------------------------------------------------------------------------------------------
(1) Of this amount, $177,719 will be paid in cash and $22,481 in restricted
stock. *
(2) Of this amount, $101,051 will be paid in cash and $19,349 in restricted
stock. *
(3) Of this amount, $121,211 will be paid in cash and $32,789 in restricted
stock. *
(4) Of this amount, $32,123 will be paid in cash and $9,900 in restricted stock.
*
* The number of shares of stock was determined based upon a price of $2.69 per
share, which was the closing price of the Company's common stock on the AMEX on
April 15, 2004.
Grants of Stock Options and Stock Appreciation Rights During the Fiscal Year
Ended December 31, 2002
14
Pursuant to the Abraxas Petroleum Corporation 1984 Incentive Stock
Option Plan (the "ISO Plan"), the Abraxas Petroleum Corporation 1993 Key
Contributor Stock Option Plan (the "1993 Plan"), and the Abraxas Petroleum
Corporation 1994 Long Term Incentive Plan (the "LTIP"), Abraxas grants to its
employees and officers (including its directors who are also employees)
incentive stock options and non-qualified stock options. The ISO Plan, the 1993
Plan, and the LTIP are administered by the Compensation Committee which, based
upon the recommendation of the Chief Executive Officer, determines the number of
shares subject to each option.
No options were granted to Messrs. Watson, Williford, Carington and
Wallace and Dr. Billingsley during 2003.
Aggregated Option Exercises in Fiscal 2003 and Fiscal Year End Option Values
The table below contains certain information concerning exercises of
stock options during the fiscal year ended December 31, 2003, by Messrs. Watson,
Williford, Carington and Wallace and Dr. Billingsley and the fiscal year end
value of unexercised options held by Messrs. Watson, Williford, Carington and
Wallace and Dr. Billingsley.
Option Exercises in Fiscal Year
Name Shares Value Number of Unexercised Value of Unexercised
Options on December 31,
2003 Options on December 31,
Acquired By Realized (#) 2003 ($)
Exercise(#) ($) Exercisable/Unexercisable Exercisable/Unexercisable
----------------------------------------------------------------------------------------------------------------
Robert L. G. Watson 2,019 0 592,167/134,358 337,535/76,584
----------------------------------------------------------------------------------------------------------------
Chris E. Williford 20,000 4,689 185,750/52,250 105,878/29,783
----------------------------------------------------------------------------------------------------------------
Robert W. Carington, Jr. 0 0 373,750/61,250 213,038/34,913
---------------------------------------------------------------------------------------------------------------
Lee T. Billingsley 0 0 101,000/39,000 57,570/22,230
----------------------------------------------------------------------------------------------------------------
William H. Wallace 0 0 63,500/39,000 36,195/22,230
----------------------------------------------------------------------------------------------------------------
Securities Authorized for Issuance Under Equity Compensation Plans
The following chart gives aggregate information regarding grants under
all equity compensation plans of the Company through December 31, 2003.
Equity Compensation Plan Information
Number of securities
remaining available for
Number of securities to Weighted-average future issuance under
be issued upon exercise exercise price of equity 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 plan 3,062,425 $.88 2,102,281
approved by security holders
Equity compensation plans not 1,252,000 $2.89 0
approved by security holders
Report on Repricing of Options
On December 6, 2002, the Board of Directors approved a plan pursuant to
which the price of each outstanding stock option granted to employees of Abraxas
with an exercise price greater than $0.66 per share was reduced to $0.66 per
share. However, only one-half of Mr. Watson's options were repriced at $0.66.
The repricing was approved in connection with Abraxas' financial restructuring
which was consummated in January 2003. As part of the negotiations that Abraxas
15
had undertaken with the beneficial holder of the largest block of Abraxas' then
outstanding second lien notes, the holder conditioned its participation in the
exchange offer for the second lien notes on the repricing. Because the Board
believed that the financial restructuring, including the exchange offer,
represented the best alternative available to Abraxas to reduce its long term
indebtedness and to increase its liquidity, the Board approved the repricing.
The effectiveness of the repricing was conditioned upon the consummation of the
financial restructuring which occurred on January 23, 2003. The following table
sets forth certain information concerning repricing of stock options held by any
current executive officer during the ten year period ending on December 31,
2003.
Length of
Market Original
Number of Securities Price of Exercise Option Term
Underlying Options Stock at Price at Remaining
Repriced or Amended Time of Time of New at Date of
Date of ------------------- Repricing or Repricing or Exercise Repricing
Name Repricing Old New Amendment Amendment Price or Amendment
---- --------- --- --- ------------ ------------ --------- ------------
Robert L.G. Watson, 3/07/96 60,000 60,000 $6.75 $9.50 $6.75 95 mos
Chairman of the
Board, President and 3/25/98 100,000 100,000 $7.44 $7.50 $7.44 104 mos
Chief Executive 3/25/98 100,000 100,000 $7.44 $10.75 $7.44 108 mos
Officer 3/25/98 100,000 100,000 $7.44 $14.38 $7.44 116 mos
3/25/99 60,000 60,000 $2.06 $6.75 $2.06 71 mos
3/25/99 40,000 40,000 $2.06 $5.00 $2.06 84 mos
3/25/99 100,000 100,000 $2.06 $7.44 $2.06 92 mos
3/25/99 100,000 100,000 $2.06 $7.44 $2.06 96 mos
3/25/99 100,000 100,000 $2.06 $7.44 $2.06 105 mos
3/25/99 40,000 40,000 $2.06 $5.56 $2.06 116 mos
1/23/03 33,291 16,645 $.66 $2.06 $.66 25 mos
1/23/03 26,709 13,354 $.66 $2.06 $.66 25 mos
1/23/03 40,000 20,000 $.66 $2.06 $.66 38 mos
1/23/03 7,500 3,750 $.66 $2.06 $.66 46 mos
1/23/03 92,500 46,250 $.66 $2.06 $.66 46 mos
1/23/03 100,000 50,000 $.66 $2.06 $.66 50 mos
1/23/03 100,000 50,000 $.66 $2.06 $.66 59 mos
1/23/03 4,038 2,019 $.66 $4.13 $.66 2 mos
1/23/03 40,000 20,000 $.66 $2.06 $.66 70 mos
1/23/03 2,811 1,406 $.66 $3.39 $.66 12 mos
1/23/03 120,000 60,000 $.66 $1.38 $.66 88 mos
1/23/03 3,652 1,826 $.66 $4.83 $.66 98 mos
1/23/03 28,578 14,288 $.66 $4.83 $.66 98 mos
1/23/03 27,771 13,885 $.66 $4.83 $.66 98 mos
1/23/03 13,713 6,856 $.66 $2.21 $.66 104 mos
Chris E. Williford, 3/07/96 6,252 6,252 $6.75 $7.50 $6.75 75 mos
Executive Vice 3/07/96 13,748 13,748 $6.75 $9.75 $6.75 76 mos
President, Chief 3/07/96 20,000 20,000 $6.75 $9.50 $6.75 95 mos
Financial Officer and
Treasurer 3/25/98 20,000 20,000 $7.44 $7.50 $7.44 104 mos
3/25/98 40,000 40,000 $7.44 $10.75 $7.44 108 mos
3/25/98 5,000 45,000 $7.44 $14.38 $7.44 116 mos
3/25/99 20,000 20,000 $2.06 $6.75 $2.06 51 mos
3/25/99 20,000 20,000 $2.06 $6.75 $2.06 71 mos
3/25/99 20,000 20,000 $2.06 $5.00 $2.06 84 mos
3/25/99 20,000 20,000 $2.06 $7.44 $2.06 92 mos
3/25/99 40,000 40,000 $2.06 $7.44 $2.06 96 mos
3/25/99 15,000 15,000 $2.06 $7.44 $2.06 105 mos
3/25/99 20,000 20,000 $2.06 $5.56 $2.06 116 mos
1/23/03 4,466 4,466 $.66 $2.06 $.66 5 mos
16
1/23/03 1,786 1,786 $.66 $2.06 $.66 5 mos
1/230/3 13,748 13,748 $.66 $2.06 $.66 6 mos
1/23/03 20,000 20,000 $.66 $2.06 $.66 25 mos
1/23/03 20,000 20,000 $.66 $2.06 $.66 38 mos
1/23/03 20,000 20,000 $.66 $2.06 $.66 46 mos
1/23/03 40,000 40,000 $.66 $2.06 $.66 50 mos
1/23/03 15,000 15,000 $.66 $2.06 $.66 59 mos
1/23/03 20,000 20,000 $.66 $2.06 $.66 70 mos
1/23/03 40,000 40,000 $.66 $1.38 $.66 88 mos
1/23/03 20,000 20,000 $.66 $4.83 $.66 98 mos
Robert W. Carington, 3/25/99 300,000 300,000 $2.06 $8.75 $2.06 110 mos
Jr., Executive Vice 3/25/99 20,000 20,000 $2.06 $5.56 $2.06 114 mos
President
1/23/03 100,000 100,000 $.66 $2.06 $.66 64 mos
1/23/03 100,000 100,000 $.66 $2.06 $.66 64 mos
1/23/03 100,000 100,000 $.66 $2.06 $.66 64 mos
1/23/03 20,000 20,000 $.66 $2.06 $.66 70 mos
1/23/03 40,000 40,000 $.66 $1.38 $.66 88 mos
1/23/03 20,000 20,000 $.66 $4.83 $.66 98 mos
Lee T. Billingsley, 3/25/99 50,000 50,000 $2.06 $8.75 $2.06 115 mos
Vice President - 3/25/99 8,000 8,000 $2.06 $5.56 $2.06 116 mos
Exploration
1/23/03 50,000 50,000 $.66 $2.06 $.66 69 mos
1/23/03 8,000 8,000 $.66 $2.06 $.66 70 mos
1/23/03 30,000 30,000 $.66 $1.41 $.66 82 mos
1/23/03 15,000 15,000 $.66 $4.83 $.66 98 mos
Will Wallace, Vice 3/25/99 2,000 2,000 $2.06 $6.25 $2.06 82 mos
President - 3/25/99 2,000 2,000 $2.06 $5.00 $2.06 84 mos
Operations 3/25/99 4,000 4,000 $2.06 $7.44 $2.06 92 mos
3/25/99 2,500 2,500 $2.06 $7.44 $2.06 106 mos
3/25/99 10,000 10,000 $2.06 $5.56 $2.06 116 mos
1/23/03 2,000 2,000 $.66 $2.06 $.66 36 mos
1/23/03 2,000 2,000 $.66 $2.06 $.66 38 mos
1/23/03 4,000 4,000 $.66 $2.06 $.66 46 mos
1/23/03 2,500 2,500 $.66 $2.06 $.66 60 mos
1/23/03 10,000 10,000 $.66 $2.06 $.66 70 mos
1/23/03 30,000 30,000 $.66 $1.41 $.66 82 mos
1/23/03 15,000 15,000 $.66 $4.83 $.66 98 mos
This report is submitted by the members of the Committee:
James C. Phelps, Chairman
Ralph F. Cox
Dennis E. Logue
Employment Agreements
Abraxas has entered into employment agreements with each of Messrs.
Watson, Williford, Carington, and Wallace and with Dr. Billingsley pursuant to
which each of Messrs. Watson, Williford, Carington, and Wallace 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, Williford, and Carington
are scheduled to terminate on December 21, 2004, 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
17
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 of control occurs during the term of the employment
agreement for Mr. Watson, Mr. Williford, or Mr. Carington, and if subsequent to
such change of 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 officer will be entitled to the
following, as applicable:
Mr. Watson:
(1) if such termination occurs prior to the end of the first year
of the initial term of his employment agreement, a lump sum
payment equal to five times his annual base salary;
(2) if such termination occurs after the end of the first year of
the initial term of his employment agreement but prior to the end
of the second year of the initial term of his employment
agreement, a lump sum payment equal to four times his annual base
salary;
(3) if such termination occurs after the end of the second year
of the initial term of his employment agreement but prior to the
end of the third year of the initial term of his employment
agreement, a lump sum payment equal to three times his annual
base salary; and
(4) if such termination occurs after the end of the third year of
the initial term of his employment agreement a lump sum payment
equal to 2.99 times his annual base salary.
Mr. Williford or Mr. Carington:
(1) if such termination occurs prior to the end of the first year
of the initial term of the officer's employment agreement, a lump
sum payment equal to four times the officer's annual base salary;
(2) if such termination occurs after the end of the first year of
the initial term of the officer's employment agreement but prior
to the end of the second year of the initial term of the
employment agreement, a lump sum payment equal to three times the
officer's annual base salary; and
(3) if such termination occurs after the end of the second year
of the initial term of the officer's employment agreement, a lump
sum payment equal to 2.99 times the officer's annual base salary.
Abraxas has entered into employment agreements with Mr. Wallace and Dr.
Billingsley pursuant to which each of Mr. Wallace 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 Dr. Billingsley and December 31, 2000 for Mr. Wallace,
were automatically extended and will terminate on December 31, 2004, and may be
automatically extended for an additional year if by December 1 of the prior year
neither Abraxas nor Mr. Wallace 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 Mr. Wallace'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 Mr.
Wallace'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 Mr. Wallace'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 Mr. Wallace's or Dr. Billingsley's death or
retirement or by Mr. Wallace 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, Carington,
Wallace, 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
18
applicable regulations there under, the amounts to be paid will be increased so
that Messrs. Watson, Williford, Carington, Wallace, or Dr. Billingsley, as the
case may be, will be entitled to receive the amount of compensation provided in
his contract after payment of the tax imposed by Section 280G.
Compensation of Directors
Stock Options. In 1999, each of Messrs. Bartlett, Cox, and Wagda were
each granted options to purchase 75,000 shares of common stock at an exercise
price of $0.98 per share. In April 2003, Mr. Logue was granted options to
purchase 75,000 shares of common stock at an exercise price of $0.68, Mr. Burke
was granted options to purchase 45,000 shares of common stock at an exercise
price of $0.68 and Mr. Phelps was granted options to purchase 43,000 shares of
common stock at an exercise price of $0.68. In September 2003, Mr. Carter was
granted options to purchase 45,000 shares of common stock and Mr. Galt was
granted options to purchase 75,000 shares of common stock both at an exercise
price of $1.01.
Other Compensation. During 2003, each director who was not an employee
of Abraxas or its affiliates, received an annual fee of $8,000 plus $1,000 for
each board meeting attended and $500 for each committee meeting attended.
Aggregate fees paid to directors in 2003 were $149,400. Except for the
foregoing, the directors of Abraxas received no other compensation for services
as directors, except for reimbursement of travel expenses to attend board
meetings.
Section 16(a) 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 its directors and executive officers during 2003 complied on a timely
basis with all applicable filing requirements under Section 16(a) of the
Exchange Act.
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
$300 million (the "Comparable Companies"). The Comparable Companies are: Brigham
Exploration Company; Callon Petroleum Company; Comstock Resources Inc.; Delta
Petroleum Corporation; Goodrich Petroleum Corporation; KCS Energy Inc.; Magnum
Hunter Resources Inc.; Mission Resources Corporation; Parallel Petroleum
Corporation; Prima Energy Corporation; Range Resources Corporation; Meridian
Resource Corporation; and Wiser Oil Company. Prior to this year, Abraxas had
selected the CIBC World Markets Index of stocks of crude oil and natural gas
exploration and production companies with a market capitalization of less than
$300 million for industry peer companion purposes. However, CIBC no longer
publishes this index and , therefore, Abraxas selected the ECS for industry peer
comparison purposes.
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, 1998, and the reinvestment of dividends at the frequency with which
dividends were paid during the applicable years. The years compared are 1999,
2000, 2001, 2002 and 2003.
19
Performance Graph
[OBJECT OMITTED]
ECS Index S&P 500 ABP
12/31/1998 100.00 100.00 100.00
3/31/1999 $91.55 104.65 40.00
6/30/1999 117.23 111.67 27.14
9/30/1999 128.04 104.35 51.43
12/31/1999 103.48 119.53 21.43
3/31/2000 139.70 121.91 51.43
6/30/2000 221.76 118.33 34.29
9/30/2000 266.10 116.86 88.57
12/31/2000 305.16 107.41 100.00
3/31/2001 277.37 94.39 116.57
6/30/2001 247.29 99.61 72.23
9/30/2001 188.75 84.68 44.11
12/31/2001 188.54 93.40 30.17
3/31/2002 205.02 93.34 30.40
6/30/2002 188.06 80.52 17.14
9/30/2002 157.58 66.32 17.14
12/31/2002 176.20 71.57 12.80
3/31/2003 175.78 69.00 15.54
6/30/2003 234.73 79.28 24.69
9/30/2003 255.08 81.02 20.57
12/31/2003 354.79 90.27 27.89
Dec-98 Dec-99 Dec-00 Dec-01 Dec-02 Dec-03
S&P 500 100 119.53 107.41 93.40 71.57 90.27
ECS Index 100 103.48 305.16 188.54 176.20 354.79
ABP 100 21.43 100 30.17 12.8 27.89
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 and to
issue a report 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 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.
20
Based on the reviews and discussions referred to above, the Committee
recommended to the Board of Directors, and the board has approved, that the
audited financial statements be included in Abraxas' Annual Report on Form 10-K
for the year ended December 31, 2003, for filing 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 2004.
Dated: March 9, 2004
Audit Committee
C. Scott Bartlett, Jr., Chairman
James C. Phelps
Franklin A. Burke
Joseph A. Wagda
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 year ended December 31, 2003, and the reviews of the
condensed financial statements included in Abraxas' quarterly reports on Form
10-Q for the year ended December 31, 2003, were $240,870. The aggregate fees
billed for professional services rendered by Deloitte & Touche LLP for the audit
of Abraxas' annual financial statements for the year ended December 31, 2002,
and the reviews of the condensed financial statements included in Abraxas'
quarterly reports on Form 10-Q for the year ended December 31, 2002, were
$316,492.
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 the Company's financial statements and are not
reported in "audit fees" above, for the year-ended December 31, 2003, were
$87,394. These fees were for services provided by BDO related to consulting
services associated with determining the appropriate accounting treatment of
various transactions. There were no aggregate fees billed for professional
assurance and related services rendered by Deloitte & Touche LLP other than
those disclosed above for 2002.
Tax Fees. Neither BDO during 2003 nor Deloitte & Touche LLP during 2002
provided tax services to the Company other than those related to auditing the
tax provisions of the Company's financial statements.
All Other Fees. There were no aggregate fees billed for all other
services, exclusive of the fees disclosed above relating to financial statement
audit services, rendered by BDO Seidman, LLP during the year ended December 31,
2003. The aggregate fees billed for all other services, exclusive of the fees
disclosed above relating to financial statement audit services, rendered by
Deloitte & Touche LLP during the year ended December 31, 2002, were $509,454,
related primarily to registration issues, and the exchange offer related to
Abraxas' second lien notes, which was consummated on January 23, 2003.
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
Policy on Audit Committee Pre-Approval of Audit and Permissible Non-Audit
Services of Independent Auditors
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.
21
CERTAIN TRANSACTIONS
Wind River Resources Corporation, all of the capital stock of which was
owned by Mr. Watson, owned a twin-engine airplane. The airplane was available
for business use by employees of Abraxas from time to time at Wind River's cost.
Abraxas paid Wind River a total of $132,000 for use of the plane through July of
2003.
On July 29, 2003 Abraxas acquired all of the shares of the capital
stock of Wind River Resources Corporation. The consideration for the purchase
was 106,977 shares of Abraxas common stock and $35,000 in cash. Subsequent to
this transaction, the airplane was sold.
Abraxas has adopted a policy that transactions, including loans, before
July of 2002 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, and does not permit any such loans after July of 2002.
22
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, 2004.
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, 2003. 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 representative of Deloitte & Touche LLP will be
present at the annual meeting.
On April 22, 2003, the Board of Directors engaged the accounting firm
of BDO Seidman, LLP as Abraxas' certifying accountant for the year ended
December 31, 2003. The decision to approve the dismissal of Deloitte & Touche
LLP and engagement of BDO Seidman, LLP was approved by the Audit Committee and
the entire Board of Directors. Deloitte & Touche LLP was notified of their
dismissal on April 22, 2003.
The reports of Deloitte & Touche LLP on Abraxas' financial statements
for the two fiscal years ended December 31, 2001 and 2002 did not contain any
adverse opinion or disclaimer of opinion and were not qualified or modified as
to uncertainty, audit scope or accounting principles.
In connection with the audits of Abraxas' financial statements for each
of the two fiscal years ended December 31, 2001 and 2002, there were no
disagreements with Deloitte & Touche LLP on any matters of accounting
principles, financial statement disclosure or audit scope and procedures which,
if not resolved to the satisfaction of Deloitte & Touche LLP, would have caused
the firm to make reference to the matter in its report. During each of the two
fiscal years ended December 31, 2001 and 2002, 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. Under
applicable Nevada law, 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 ratification of the
selection of BDO Seidman, LLP as independent auditors of Abraxas for the fiscal
year ending December 31, 2004.
23
STOCKHOLDER PROPOSALS FOR 2005 ABRAXAS ANNUAL MEETING
Abraxas intends to hold its next annual meeting in May of 2005,
according to its normal schedule. In order to be included in the proxy material
for the 2005 Annual Meeting, Abraxas must receive eligible proposals of
stockholders intended to be presented at the annual meeting on or before
December 21, 2004, 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 2005 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 30, 2005 nor earlier than March 1, 2005. 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 2005 Annual Meeting is more than 30 days from May
21, 2005 (the anniversary of the 2004 Annual Meeting), the dates for submission
with the proxy materials and to be properly brought before the 2005 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 the 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, 2003. Such written request is to be directed to the
attention of Chris E. Williford, 500 North Loop 1604 East, Suite 100, San
Antonio, Texas 78232.
By Order of the Board of Directors
Stephen T. Wendel
SECRETARY
San Antonio, Texas
April 22, 2004
24
FORM OF PROXY
FRONT
ABRAXAS PETROLEUM CORPORATION
500 North Loop 1604 East, Suite 100
San Antonio, Texas 78232
(210) 490-4788
This Proxy is Solicited on behalf of the Board of Directors
The undersigned stockholder of Abraxas Petroleum Corporation, a Nevada
corporation (the "Company"), hereby appoints Robert L. G. Watson, Chris E.
Williford and Robert W. Carington, Jr., and each of them, as Proxies, each with
the power to appoint his or her substitute, and hereby authorizes them to
represent and to vote, as designated below, all the shares of Abraxas common
stock which the undersigned may be entitled to vote at the Annual Meeting of
Stockholders to be held on May 21, 2004, and any adjournment thereof, with all
powers which the undersigned would possess if personally present.
The undersigned acknowledges receipt of the Notice of Annual Meeting of
Stockholders and Proxy Statement of Abraxas dated April 22, 2004.
continued and to be signed on reverse side
25
BACK
This proxy when properly executed will be voted in the manner directed
herein by the undersigned stockholder. If no direction is made, this proxy will
be voted "FOR" the election of Directors and "FOR" the Approval of Proposal 2.
FOR WITHHELD FOR ALL
ALL ALL EXCEPT
1. ELECTION OF DIRECTORS [ ] [ ] [ ] Nominees:
NOMINATED BY BOARD OF Robert L.G. Watson
DIRECTORS Harold D. Carter
Barry J. Galt
James C. Phelps
TO WITHHOLD AUTHORITY TO VOTE FOR ONE OR MORE (BUT LESS THAN ALL) NOMINEES,
WRITE SUCH NOMINEE'S NAME BELOW AND MARK "FOR ALL EXCEPT" ABOVE.
--------------------------------------
Nominee Exception
2. PROPOSAL TO RATIFY THE APPOINTMENT OF BDO SEIDMAN, LLP AS AUDITORS OF ABRAXAS
FOR THE FISCAL YEAR ENDING DECEMBER 31, 2004
[ ] FOR [ ] AGAINST [ ] ABSTAIN
3. In their discretion, the Proxies are authorized to vote upon such other
business as may properly come before the meeting.
CHECK HERE FOR ADDRESS CHANGE [ ] NEW ADDRESS:
Please sign exactly as name appears below. When shares are held by
joint tenants, both should sign. When signing as attorney, as executor,
administrator, trustee or guardian, please give full title as such. If a
corporation, please sign in full corporate name by President or other authorized
officer. If a partnership, please sign in partnership name by authorized person.
DATED: ______________, 2004
Signature
PLEASE MARK, SIGN, DATE AND RETURN
THE PROXY CARD PROMPTLY USING THE
ENCLOSED ENVELOPE. Signature if held jointly