PRELIMINARY
COPY
SABA PETROLEUM COMPANY
3201 Skyway Drive, Suite 201
Santa Maria, California 93455
--------------------------
NOTICE OF ANNUAL MEETING
OF STOCKHOLDERS AND PROXY STATEMENT
TO BE HELD AUGUST 28, 1998
Dear Stockholder:
The Annual Meeting of Stockholders of Saba Petroleum Company ("Saba" or
the "Company") will be held in the Alexanders Room at the Airport Hilton Hotel,
5711 West Century Boulevard, Los Angeles, California on August 28, 1998, at
10:30 a.m. PDT for the following purposes:
I. To amend the Bylaws of the Company to provide up to seven (7) members to
serve as Directors of the Company; and
II. To elect five Directors of the Company; and
III. To approve an amendment of the Company's 1997 Stock Option Plan for
Non-Employee Directors providing for a grant of an option to acquire 15,000
shares of Common Stock at the fair market value on the date of grant and
vesting pro rata over five years; and
IV. To ratify the selection of Coopers & Lybrand L.L.P. as independent
accountants for the Company; and
V. To consider and act upon such other matters as may properly come before the
meeting or any adjournment thereof.
The Board of Directors has fixed the close of business on June 30, 1998
as the record date for determining Stockholders entitled to notice of, and to
vote at, the meeting or any adjournments or postponements thereof.
You are cordially invited to attend the meeting in person. Whether or
not you plan to attend the meeting, you are urged to complete, date, sign and
return the enclosed proxy in the accompanying envelope, which mailing will be
postage free if mailed in the United States of America. You may revoke the proxy
by filing a properly executed proxy bearing a later date or by attending the
Annual Meeting and voting in person. Regardless of how many shares you own, your
vote is very important. Please sign, date and return the enclosed proxy card
today.
The Company's Annual Report for its 1997 fiscal year is being mailed to
Stockholders and accompanies these proxy materials. The Annual Report contains
financial and other information about the Company, but is not incorporated in
the Proxy Statement and is not deemed a part of the proxy soliciting materials.
BY ORDER OF THE BOARD OF DIRECTORS
Walton C. Vance
Secretary
Santa Maria, California
July 20, 1998
SABA PETROLEUM COMPANY
3201 Skyway Drive, Suite 201
Santa Maria, California 93455
PRELIMINARY
--------------------------
COPY
PROXY STATEMENT
This Proxy Statement is furnished to the holders ("Stockholders") of
common stock, $0.001 par value ("Common Stock") of Saba Petroleum Company, a
Delaware corporation (the "Company") in connection with the solicitation of
proxies by the Board of Directors for use at the Annual Meeting of Stockholders
to be held on August 28, 1998 at 10:30 a.m. PDT in the Alexanders Room at the
Airport Hilton Hotel located at 5711 West Century Boulevard, Los Angeles,
California (including any adjournments or postponements thereof, "Annual
Meeting"). A copy of the notice of meeting accompanies this Proxy Statement. It
is anticipated that the mailing of this Proxy Statement and the accompanying
Proxy Card will commence on or about July 20, 1997.
RECORD DATE; STOCKHOLDERS ENTITLED TO VOTE
Only Stockholders of record at the close of business on June 30, 1998,
the record date ("Record Date") for the meeting, will be entitled to notice of
and to vote at the Annual Meeting. As of the Record Date, Saba had outstanding
11,052,393 shares of Common Stock. Shares of Common Stock are the only
securities of Saba entitled to vote at the Annual Meeting and each share
outstanding as of the record date will be entitled to one vote.
VOTE REQUIRED FOR APPROVAL
The presence in person or by proxy of the holders of a majority of the
outstanding shares of Common Stock will constitute a quorum for the transaction
of business at the meeting. If a quorum is present, a majority of the shares of
Common Stock represented in person or by proxy at the meeting and voting on a
proposal is required to approve the election of Directors and all other
proposals. Capco Resources Ltd. ("Capco") and SEDCO, Inc. ("SEDCO"), which own
approximately 26.08% and 1.50% of the shares of Common Stock of the Company as
of the Record Date, respectively, have each advised the Company that they intend
to vote for each of the nominees named herein and for all other proposals
presented herein.
REVOCABILITY OF PROXIES
A Stockholder who dates, signs and returns the enclosed form of proxy
may revoke the proxy at any time before it is voted by submitting a duly
executed written revocation or a proxy bearing a later date to the Secretary of
the Company. Attendance at the meeting shall not have the effect of revoking a
proxy unless the Stockholder so attending shall, in writing, so notify the
Secretary of the meeting at any time prior to the voting of the proxy.
PROXY SOLICITATION
The cost of soliciting proxies will be borne by the Company. In
addition to soliciting proxies by mail, Directors, executive officers and
employees of the Company, without receiving extra compensation therefor, may
solicit proxies by telephone, by telegram or in person. Arrangements will also
be made with brokerage firms and other custodians, nominees and fiduciaries to
forward solicitation materials to the beneficial owner of shares of the Common
Stock and the Company will reimburse such brokerage firms and other custodians,
nominees and fiduciaries for reasonable out-of-pocket expenses incurred by them
in connection with forwarding such materials, which are anticipated to total
approximately $10,000.
VOTING OF PROXIES
Proxies will be voted in accordance with the instructions indicated
thereon. A validly executed proxy which does not indicate instructions will be
voted FOR the Director Nominees identified below and FOR the other proposals.
The proxy permits a Stockholder to withhold voting for any and all members of
the Board of Directors or to abstain from voting for any proposal if the
Stockholder so chooses. Abstentions are counted for purposes of determining the
number of shares represented and entitled to vote at the meeting. However,
abstentions are not counted in determining the number of shares voting FOR an
item of business, and, therefore, have the same effect as a vote AGAINST a
business item. Broker non-votes are counted for purposes of determining the
number of shares represented and entitled to vote at the meeting; however, the
shares represented thereby are not voted and do not represent a vote either FOR
or AGAINST an item of business. The Annual Meeting will be held for the
transaction of business described herein and for the transaction of such other
business as may properly come before the Annual Meeting. Proxies will confer
discretionary authority with respect to any other matters which may properly be
brought before the Annual Meeting (which, as defined herein, includes any
postponements or adjournments thereof). At the date of this Proxy Statement, the
only business which the Company's management intends to present, or knows that
others will present, is that described in this Proxy Statement. If other matters
come before the Annual Meeting, the persons holding proxies solicited hereunder
intend to vote such proxies in accordance with their judgment on all such
matters.
PROPOSAL NO. I - AMENDMENT OF THE BYLAWS
TO PROVIDE UP TO SEVEN (7) MEMBERS
OF THE BOARD OF DIRECTORS
The Board of Directors believes that the best interests of the Company
and its Stockholders will be served by amending the fixed number of members of
the Board of Directors, as provided in Section 3.2 of the Company's Bylaws, from
seven (7) to a number up to seven (7) as determined by the Board. The principal
reason for this change is that it affords the Board and the Stockholders greater
flexibility in the appointment of qualified Directors.
THE COMPANY'S BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" PROPOSAL NO. I.
PROPOSAL NO. II - ELECTION OF DIRECTORS
The entire Board of Directors is elected annually to serve until their
terms expire and their successors have been elected and qualified. The current
Directors, whose terms of office expire at the Annual Meeting, are Messrs. Ilyas
Chaudhary, Alex S. Cathcart, Walton C. Vance, Ronald D. Ormand, William N.
Hagler, and Faysal Sohail. Rodney C. Hill resigned from the Board during June
1998 and Messrs. Vance and Ormand have decided for personal reasons not to stand
for reelection as Directors. It is the intention of the persons named in the
proxy to vote for the nominees listed below except where authority has been
withheld as to a particular nominee or as to all nominees. In the event that any
nominee is unable or declines to serve as a Director at the time of the Annual
Meeting, the proxies will be voted for any nominee who shall be designated by
the present Board of Directors to fill the vacancy. Subject to the Stockholders'
approval of the proposed amendment to the Company's Bylaws referred to in
Proposal No. I hereinabove, the Board of Directors has determined the number of
Directors to be five (5).
NOMINEES FOR ELECTION TO THE BOARD OF DIRECTORS FOR A ONE-YEAR TERM TO EXPIRE AT
THE 1999 ANNUAL MEETING OF STOCKHOLDERS
The Board of Directors recommends a vote for the following Director
Nominees, designated as Proposal No. II on the enclosed proxy card. With one
exception, all nominees are currently Directors of the Company.
Year First
Name and Position Currently Held Became a Year Current
with the Company Age Director Term Expires
-------------------------------------------------- -------- -------------------------------- ----------------------
Ilyas Chaudhary, Chairman of the Board of 51 1985 1998
Directors
Alex S. Cathcart, Director 63 1997 1998
Faysal Sohail, Director 34 1997 1998
William N. Hagler, Director 65 1994 1998
Dr. Charles A. Kohlhaas, Chief Executive Officer 63 n/a n/a
and President
INFORMATION ABOUT DIRECTOR NOMINEES
Following is a brief account of the business experience during the past
five (5) years of each of the five Director nominees of the Company indicating
their principal occupation and employment during that period, and the name and
principal business of any organization in which such occupations and employment
were carried out.
Ilyas Chaudhary has been a director of the Company since 1985 and has
served as Chairman of the Board and Chief Executive Officer from 1993 until June
1998, when he resigned as Chief Executive Officer in favor of the selection of
Dr. Kohlhaas.. Mr. Chaudhary has served as President of the Company during parts
of 1991, 1992 and 1993, and in 1994 through December 1997. Mr. Chaudhary also
serves as Chairman of the Board and Chief Executive Officer of all subsidiaries
of the Company other than Beaver Lake Resources Corporation, Saba Petroleum
(U.K.) Limited, Saba Cayman Limited and Saba Jatiluhur Limited, and serves as
Chairman of the Board of these latter three subsidiaries. Mr. Chaudhary is a
director and controlling stockholder of Capco, the Company's majority
stockholder whose common stock is traded on the Alberta Stock Exchange and as of
March 31, 1998, owned 31.72% of the outstanding Common Stock of the Company, and
the controlling stockholder of SEDCO, which as of March 31, 1998, owned 2.46% of
the outstanding Common Stock of the Company. Mr. Chaudhary is also a director of
Meteor Industries, Inc. Mr. Chaudhary has 25 years of experience in various
capacities in the oil and gas industry, including eight years of employment with
Schlumberger Well Services from 1972 to 1979. Mr. Chaudhary received a Bachelor
of Science degree in Electrical Engineering from the University of Alberta,
Canada.
Alex S. Cathcart has been a director of the Company since January 1997
and has served as Executive Vice President of the Company since March 1997 until
his appointment as President in December 1997 until June 1998, when he resigned
such position. Mr. Cathcart is presently a consultant to the Company. Mr.
Cathcart has served as President and Chief Executive Officer of Beaver Lake
Resources Corporation since 1993 and previously as President and Chief Operating
Officer of Saba Exploration Company from May through December 1997. He has also
served as President and Chief Operating Officer of Saba Offshore, Inc. and
Sabacol, Inc., subsidiaries of the Company, from December 1996 to August 1997.
From 1987 to 1993 he was the Chairman and principal owner of Barshaw Enterprises
Ltd., a family-owned consulting and investment company operating primarily in
the oil industry. Mr. Cathcart has over 40 years experience in the oil industry.
His exploration experience was gained with Texaco Exploration Company, Francana
Oil & Gas and LL&E Canada. Since 1971 he has been involved in the management of
exploration programs with Banner Petroleum, Voyager Petroleum, Natomas
Exploration of Canada, Page Petroleum and Prime Energy.
Faysal Sohail has been a director since May 1997 and currently serves
as Vice President and General Manager for Synopsys, Inc., a leading Silicon
Valley provider of electronic design automation tools for complex integrated
circuits, where he has been employed since 1996. He is responsible at Synopsys
for corporate strategic planning and representing this company to the investment
community. From 1990 to 1996 he worked as a senior executive and co-founder of
Silicon Architects, which is a worldwide licensor of libraries for highly
complex integrated circuits to semiconductor manufacturers.
William N. Hagler has been a director of the Company since 1994. Mr.
Hagler is Chairman of the Board of Directors, Chief Executive Officer and
President of Unico, Inc., a company he founded in 1979. Unico is engaged in
petroleum refining, co-generation, natural gas production and the manufacturing
of methanol, a natural gas-based petrochemical. In addition, he is President of
Hagler Oil and Gas Company. Prior to 1979, Mr. Hagler was Vice President of
Plateau, Inc., a Rocky Mountain oil refiner and marketer. Mr. Hagler has served
for approximately 10 years on the City of Farmington, New Mexico Public Utility
Commission. Since 1955, Mr. Hagler has been continuously engaged in various
phases of petroleum manufacturing and marketing with Exxon Corporation, Cities
Service Oil Company and Riffe Petroleum Company. Mr. Hagler currently serves as
a director of Consolidated Oil & Transportation, a privately held company in the
business of asphalt transportation.
Dr. Charles A. Kohlhaas is and has been since 1992 a Director and
President of New Arcadia Resources, Ltd., an independent oil, gas, and mining
company publicly-traded on the Vancouver Stock Exchange. Dr. Kohlhaas is
responsible for directing the company's expansion into international operations,
in countries such as Canada, Indonesia, and Central America. while establishing
financing programs through private placements. From April, 1998 to the present,
Dr. Kohlhaas has been serving as a Director and President of Odessa Petroleum
Corporation and a Director of TMT Resources, Inc., both of which engage in oil
and gas operations and are publicly traded on the Vancouver Stock Exchange.
Since 1956, Dr. Kohlhaas has gained over 40 years of experience in the domestic
and international oil and gas industry through various capacities, such as
corporate executive officer and director, manager, petroleum engineer,
consultant, and professor. During June 1998, Dr. Kohlhaas was elected interim
Chief Executive Officer and President of the Company, positions which he now
occupies.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE NOMINEES SET FORTH ABOVE.
BOARD COMMITTEES AND MEETINGS
The Board of Directors met five times during fiscal year 1997. The
Company has standing Executive, Audit, and Compensation and Option Committees.
The Executive Committee, until May 1997, consisted of Messrs.
Chaudhary, Hill, and Francis Barker, and presently consists of Messrs.
Chaudhary, Sohail and Hagler. This committee has all authority, consistent with
the Delaware Business Corporations Act, as may be granted to it by the Board of
Directors. The Executive Committee did not meet during fiscal year 1997. The
Executive Committee may have and may exercise all the powers and authority of
the Board of Directors in the oversight of the management of the business and
affairs of the Company, except that the Executive Committee will not have the
power (except, to the extent authorized by a resolution of the Board of
Directors) to amend the Company's Articles of Incorporation or Bylaws, fix the
designations, preferences, and other terms of any preferred stock of the
Company, adopt an agreement of merger or consolidation, authorize the issuance
of stock, declare a dividend or recommend to the Stockholders of the Company,
the sale, lease or exchange of all or substantially all of the Company's
property and assets, a dissolution of the Company or a revocation of such a
dissolution. Additional financial limitations have been imposed upon the
authority of the Executive Committee.
The Audit Committee, until May 1997, consisted of Messrs. Hagler and
William Hickey, with one vacancy, and presently consists of Messrs. Sohail,
Ormand, and Vance. The committee reviews the professional services to be
provided by the Company's independent auditors. The Audit Committee held one
meeting during fiscal year 1997. The Audit Committee reviews the scope of the
audit by the Company's independent auditors, the annual financial statements of
the Company and such other matters with respect to the accounting, auditing and
financial reporting practices and procedures of the Company as it may find
appropriate or as may be brought to its attention.
The Compensation and Options Committee, until May 1997, consisted of
Messrs. Chaudhary, Hagler and Hickey, and presently consists of Messrs. Sohail,
Ormand, and Hagler. The committee reviews executive salaries, and approves the
salaries and other benefits of the executive officers of the Company. The
Compensation and Options Committee held two meetings during fiscal year 1997.
The Compensation and Options Committee consults with the Company's management
regarding pension and other benefit plans and compensation policies and
practices of the Company. The Compensation and Options Committee, is comprised
of all non-employee members of the Board of Directors, administers the Company's
1996 Incentive Equity Plan, which is a qualified stock option plan, and the 1997
Stock Option Plan For Non-Employee Directors.
COMPENSATION AND OPTIONS COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
For the year ended December 31, 1997, the following non-executive directors
of the Company served as members of the Compensation and Options Committee of
the Board of Directors: Messrs. Sohail, Ormand, and Hagler. Neither Mr. Sohail
nor Mr. Ormand were formerly, nor are they currently, officers or employees of
the Company or any of its subsidiaries. Mr. Hagler, although currently not an
officer or employee of the Company or any of its subsidiaries, was President
from July 1997 through September 1997 of Capco, an affiliate of the Company.
COMPENSATION AND OPTIONS COMMITTEE REPORT
ON EXECUTIVE COMPENSATION
The Compensation and Options Committee of the Board of Directors
("Committee") establishes the general compensation policies of the Company,
establishes the compensation plans and specific compensation levels for
executive officers and certain other managers, and administers the Company's
1996 Incentive Equity Plan and 1997 Stock Option Plan For Non-Employee Directors
(collectively the "Stock Option Plans"). The Committee currently consists of
three independent, non-employee directors: Messrs. Sohail, Ormand, and Hagler.
Compensation Policies and Philosophy
The Committee has determined that the compensation program of the
Company should not only be adequate to attract, motivate and retain executives,
key employees and other individuals who the Company believes may make
significant contribution to the Company's results, but should also be linked to
the value delivered to shareholders as reflected in the price of the Company's
Common Stock.
The Committee believes that the cash compensation of executive
officers, as well as other key employees, should be competitive with other
similarly situated companies while, within the Company, being fair and
discriminating on the basis of personal performance. In general, in establishing
total cash compensation for its executives, the Committee has taken into account
the median cash compensation of the Performance Graph found on page 12, which
the Committee believes represents the Company's most direct competition for
executive talent. The Committee receives recommendations from management as to
executive compensation and, in light of the Company's performance and the
economic conditions facing the Company, determines appropriate compensation
levels for recommendation to the Board of Directors. The Committee does not
assign relative weights to individual factors and criteria used in determining
executive compensation but rather employs a qualitative approach to the
compensation of senior executives.
Awards of stock options are intended both to retain executives, key
employees and other individuals who the Company believes may make significant
contributions to the Company's results and to motivate them to improve long-term
stock market performance. Generally, options are granted at or above the
prevailing market price and will have value only if the price of the Company's
Common Stock increases. Generally, options have a term of 10 years and vest 20%
per year after grant. The Committee last granted stock options under the 1996
Incentive Equity Plan to certain executives and other employees at a meeting
held on May 30, 1997.
The Committee believes that annual incentive awards should be
commensurate with performance. It further believes that in order to meet this
objective, it needs to have the ability to exercise its judgment or discretion
to evaluate performance against qualitative criteria.
On April 15, 1998, the Committee reviewed the Company's 1997 financial
results and determined to await further developments in the execution of the
Company's existing business plan prior to assessing management's
accomplishments.
Company Performance and Chief Executive Officer Compensation
The Committee, in connection with determining the appropriate
compensation for Ilyas Chaudhary as Chief Executive Officer ("CEO"), reviewed
the financial condition of the Company, including its liquidity requirements.
The Committee, taking into consideration the current cash position and near-term
requirements, approved an increase in Mr. Chaudhary's salary required pursuant
to the terms of his employment contract.
Compensation of Other Executive Officers
The Committee, in consultation with the CEO, applied the information
and other factors outlined above in reviewing and approving the compensation of
the Company's other executive officers. Three of the officers, other than the
CEO, were granted an increase pursuant to contractual arrangements.
April 15, 1998 COMPENSATION AND OPTIONS COMMITTEE
Faysal Sohail
Ronald D. Ormand
William N. Hagler
SECURITY OWNERSHIP OF MANAGEMENT
The following table sets forth certain information as of May 31, 1998
with respect to beneficial ownership of the Company's Common Stock by (i) each
Director and nominee for Director of the Company, and (ii) all Directors,
nominees for Director and officers of the Company as a group. This table assumes
that there will be 11,479,393 shares of Common Stock outstanding within the
60-day period following May 31, 1998.
Name & Address Amount & Nature of Percentage of
of Beneficial Owner Beneficial Ownership(1) Common Stock
----------------------------------------------------- ---------------------------------- ------------------------------
Ilyas Chaudhary(2)(3) 3,190,166 27.79%
3201 Airpark Drive, Suite 201
Santa Maria, CA 93455
Alex S. Cathcart ---------------------------------
3201 Airpark Drive, Suite 201
Santa Maria, CA 93455 *
25,000
Walton C. Vance
3201 Airpark Drive, Suite 201
Santa Maria, CA 93455 1.33%
153,000
William N. Hagler
P.O. Box 35
Farmington, NM 87499 *
17,000
Rodney C. Hill (4)
2010 Birnam Wood Drive
Santa Barbara, CA 93108 *
51,500
Ronald D. Ormand
1600 Smith Street, Suite 3100
Houston, TX 77002 *
3,000
Faysal Sohail
16370 Sanborn Road
Saratoga, CA 95070 *
54,600
----------------------------------------------------
Dr. Charles A. Kohlhaas
35 Crestmoor Road *
Golden, CO 80401 0
----------------------------------------------------
Imran Jattala *
3201 Airpark Drive, Suite 201 15,000
Santa Maria, CA 93455
ALL DIRECTORS, NOMINEES AND OFFICERS AS A GROUP
3,624,626 31.58%
* Less than 1.00%.
<FN>
(1) Except as otherwise indicated, the Company believes that the beneficial
owners of the Common Stock listed above have sole investment and voting power
with respect to such shares, subject to community property laws where
applicable. The table includes the following shares that were acquirable within
60 days following May 31, 1998 by exercise of all vested options to purchase
Common Stock: Ilyas Chaudhary (140,000 shares), Alex S. Cathcart (25,000),
Walton C. Vance (150,000), William N. Hagler (3,000), Rodney C. Hill (30,000),
Ronald D. Ormand (3,000), Faysal Sohail (3,000), Bradley T. Katzung (80,000),
Imran Jattala (5,000), Herb Miller (3,000), and Burt Cormany (10,000). (The
table assumes that the Stockholders shall approve Proposal No. III to amend the
Company's 1997 Stock Option Plan for Non-Employee Directors providing for a
grant of an option to acquire 15,000 shares of Common Stock at the fair market
value on the date of grant and vesting pro rata over five years.) Such ownership
was computed in accordance with Rule 13d-3(d)(1) under the Securities Exchange
Act of 1934.
(2) Mr. Chaudhary owns of record and beneficially 1,130 shares of Common Stock
and options to acquire 380,000 shares of Common Stock . Mr. Chaudhary owns fifty
percent of a privately held Canadian company, which through a subsidiary, owned
90% by it and 10% by Mr. Chaudhary, owns 1,582,126 shares, which in turn owns
directly and indirectly through a wholly owned subsidiary, 2,882,865 shares
(25.11%) of Common Stock). Mrs. Bushra Chaudhary, the wife of Mr. Chaudhary,
owns the remaining fifty percent of the privately held Canadian company. Faisal
Chaudhary, the adult son of Mr. and Mrs. Chaudhary owns 905,961 shares of the
common stock of Capco and Aamna Chaudhary, the daughter of Mr. and Mrs.
Chaudhary, owns 905,961 shares of the common stock of Capco. Mr. and Mrs.
Chaudhary each disclaim beneficial interest in the shares of Capco owned by each
other and in the shares held by Faisal Chaudhary. SEDCO, a corporation wholly
owned by Mr. Chaudhary owns 166,171 shares of Common Stock (1.45%) and 4,227,821
shares of the common stock of Capco. As of May 31, 1998, there were 9,148,311
shares outstanding of the common stock of Capco. Shares in Capco owned by
members of his family may be deemed to be owned by Mr. Chaudhary by reason of
the attribution rules of the Securities and Exchange Commission. Attributing all
shares owned by Capco, SEDCO and members of Mr. Chaudhary's family to him would
result in Mr. Chaudhary being regarded as the owner of 3,190,166 shares (27.79%)
of Common Stock, including 140,000 shares that were acquirable pursuant to
vested options to purchase Common Stock.
(3) Includes 2,882,865 and 166,171 shares of Common Stock of the Company owned
by Capco and SEDCO, respectively, and 140,000 shares that were acquirable by Mr.
Chaudhary pursuant to vested options to purchase Common Stock.
(4) During 1997, Rodney C. Hill, a Professional Corporation, of which Mr. Hill,
a director, is the sole stockholder, was retained by the Company to act as its
general counsel at an annual retainer of $150,000 per year including
reimbursement of certain expenses and was granted options to acquire 125,000
shares of Common Stock of the Company at a price equal to the current fair
market value of the Common Stock at the time of grant that vest over a period of
five years. In March, 1998, the legal services agreement was revised to provide
for the cancellation of the grant of options to acquire 125,000 shares of Common
Stock and, among other consideration, the issuance of 20,000 shares of Common
Stock, fully paid, and the grant of options exercisable for one year to acquire
30,000 shares of Common Stock at fair market value at the time of grant that
vested immediately. During 1998, the agreement was further revised to provide
that the corporation will provide additional services to the Company; the total
fee compensation for all services to be rendered during 1998 is not expected to
exceed $150,000.
</FN>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The following table sets forth certain information as of May 31, 1998
with respect to beneficial ownership of the Company's Common Stock by each
person who is known by the Company to beneficially own five percent or more of
any class of the Company's Common Stock.
Common Stock (1) Series A Preferred Stock (2)
--------------------- -----------------------------------
Name and Address Number Percent Number Percent
Of Beneficial Owner of Shares of Class of Shares of Class
------------------- --------- -------- --------- --------
Part A (3)
- ---------------
Capco Resources Ltd. (5) 3,424,315 30.50% - -
2236 S. Broadway, Ste K
Santa Maria, CA 93455
Ilyas Chaudhary (5)(6) 3,830,266 33.70% - -
3201 Skyway Dr., Ste 201
Santa Maria, CA 93455
RGC International Investors (2)(7) - - 10,000 100%
3 Bala Plaza East, Ste 200
Bala Cynwyd, PA 19004
Part B (4)
- ---------------
Capco Resources Ltd. (2)(5) 3,424,315 23.61% - -
2236 S. Broadway, Ste K
Santa Maria, CA 93455
Ilyas Chaudhary (2)(5)(6) 3,830,266 26.16% - -
3201 Skyway Dr., Ste 201
Santa Maria, CA 93455
RGC International Investors (2)(7) 3,232,126 22.28% - -
3 Bala Plaza East, Ste 200
Bala Cynwyd, PA 19004
(1) Except as otherwise indicated, the Company believes that the beneficial
owners of the Common Stock listed above have sole investment and voting power
with respect to such shares, subject to community property laws where
applicable. Such ownership was computed in accordance with Rule 13d-3(d)(1)
under the Securities Exchange Act of 1934. The table includes the following
shares that were acquirable within 60 days following May 31, 1998 by exercise of
all vested options to purchase Common Stock: Ilyas Chaudhary (140,000 shares).
(2) The number of shares set forth in the table represents an estimate of the
number of shares of Common Stock issued to the owners of the Series A Preferred
Stock. The actual number of shares of Common Stock issuable upon conversion of
Series A Preferred Stock and exercise of the warrants is indeterminate, is
subject to adjustment and could be materially less or more than such estimated
number depending on factors which cannot be predicted by the Company at this
time, including, among other factors, the future market price of the Common
Stock. The actual number of shares of Common Stock, includes such additional
number of shares of Common Stock as may be issued or issuable upon conversion of
the Series A Preferred Stock and exercise of the warrants and the redemption
warrants by reason of the floating rate conversion price mechanism or other
adjustment mechanisms described therein, or by reason of any stock split, stock
dividend or similar transaction involving the Common Stock, in order to prevent
dilution, in accordance with Rule 416 under the Securities Act. Pursuant to the
terms of the Series A Preferred Stock, the shares of Series A Preferred Stock
are convertible and the warrants are exercisable by any holder only to the
extent that the number of shares of Common Stock thereby issuable, together with
the number of shares of Common Stock owned by such holder and its affiliates
(but not including shares of Common Stock underlying unconverted shares of
Series A Preferred Stock) would not exceed 4.9% of the then outstanding Common
Stock as determined in accordance with Section 13(a) of the Exchange Act.
Accordingly, the number of shares of Common Stock set forth in the table for
this owner exceeds the number of shares of Common Stock that this owner could
own beneficially at any given time through its ownership of the Series A
Preferred Stock. In that regard, beneficial ownership of this owner set forth in
the table is not determined in accordance with Rule 13d-3 under the Exchange
Act. The Company has been advised by RGC International Investors, LDC that it is
a party to an investment management agreement with Rose Glen Capital Management,
L.P., a Delaware limited partnership, which has the same address as that of RGC
International Investors, LDC. The Company has been further advised that the
general partner of the limited partnership is RGC General Partner Corp., a
Delaware corporation, which also has the same address, and that pursuant to such
investment management agreement, Rose Glen Capital Management, L.P. has sole
voting and dispositive power over the Series A Preferred Stock.
(3) Part A of this table assumes that the Series A Convertible Preferred Stock
is not converted and that there will be 11,227,393 shares of Common Stock
outstanding within the 60-day period following April 30, 1998.
(4) Part B of this table assumes that the 10,000 shares of Series A Convertible
Preferred Stock including a $150,000 dividend are converted at $3.38 per share
(the closing price for the Company's Common Stock on April 30, 1998) and that
all 269,663 warrants issued in connection with the Series A Preferred Stock are
exercised (which includes 44,944 warrants issued as a fee for the placement of
the Series A Preferred Stock). Such conversion and exercise would increase the
outstanding shares by 3,277,070 shares to 14,504,463. Because the Series A
Preferred Stock is not required to be converted and the conversion rate varies
with the current price of the stock, these numbers could vary materially. These
numbers assume that all shares issuable upon conversion of the Series A
Preferred Stock and exercise of the warrants are issued. Part B of this table
also assumes that either shareholder or regulatory approval is obtained which
the Company is obligated to seek to comply with the terms of the Series A
Preferred Stock with respect to conversion.
(5) Mr. Chaudhary owns of record and beneficially 1,130 shares of Common Stock
and options to acquire 380,000 shares of Common Stock . Mr. Chaudhary owns fifty
percent of a privately held Canadian company, which through a subsidiary, owned
90% by it and 10% by Mr. Chaudhary, owns 1,582,126 shares, which in turn owns
directly and indirectly through a wholly owned subsidiary, 3,424,315 shares
(30.50%) of Common Stock). Mrs. Bushra Chaudhary, the wife of Mr. Chaudhary,
owns the remaining fifty percent of the privately held Canadian company. Faisal
Chaudhary, the adult son of Mr. and Mrs. Chaudhary owns 905,961 shares of the
common stock Capco and Aamna Chaudhary, the daughter of Mr. and Mrs. Chaudhary,
owns 905,961 shares of the common stock of Capco. Mr. and Mrs. Chaudhary each
disclaim beneficial interest in the shares of Capco owned by each other and in
the shares held by Faisal Chaudhary. SEDCO, a corporation wholly owned by Mr.
Chaudhary owns 264,821 shares of Common Stock (2.36%) and 4,227,821 shares of
the common stock of Capco. As of April 30, 1998, there were 9,148,311 shares
outstanding of the common stock of Capco. Shares in Capco owned by members of
his family may be deemed to be owned by Mr. Chaudhary by reason of the
attribution rules of the Securities and Exchange Commission. Attributing all
shares owned by Capco, SEDCO and members of Mr. Chaudhary's family to him would
result in Mr. Chaudhary being regarded as the owner of 3,830,266 shares (33.70%)
of Common Stock, including 140,000 shares that were acquirable pursuant to
vested options to purchase Common Stock.
(6) Includes 3,424,315 and 264,821 shares of Common Stock of the Company owned
by Capco and SEDCO, respectively, and 140,000 shares that were acquirable by Mr.
Chaudhary pursuant to vested options to purchase Common Stock.
(7) The owners of the Series A Preferred Stock do not and have not had any
material relationships with the registrant or any of its affiliates.
SHAREHOLDER RETURN PERFORMANCE PRESENTATION
Set forth below is a line graph comparing the percentage change in the
cumulative total shareholder return on the Company's Common Stock against the
AMEX market Value Index for the years 1993 through 1997, with a peer group
selected by the Company for the past five fiscal years. The peer group consists
of independent oil and gas exploration and production companies, namely: Alta
Energy Corporation; Amerac Energy Corporation (formerly Wolverine Exploration
Company); Bellweather Exploration Company; Brock Exploration Corporation; Tom
Brown, Inc.; Caspen Oil, Inc.; Chemfirst Inc. (formerly First Mississippi
Corporation); Cobb Resources Corporation; Coda Energy, Inc.; Comstock Resources,
Inc.; Crystal Oil Company; DeKalb Energy Company; Edisto Resources Company;
Energen Corporation; Forest Oil Corporation; Geodyne Resources, Inc.; Global
Natural Resources, Inc.; Goodrich Petroleum corporation (formerly Patrick
Petroleum Company) Hallador Pete Company; Hondo Oil and Gas Company; Kelley Oil
and Gas Partners; Louis Dreyfus Natural Gas (formerly American Exploration
Company); Magellan Petroleum Corporation; Maynard Oil Company; Monterey
Resources, Inc.(formerly McFarland Energy , Inc.); MSR Exploration Limited;
Numac Energy Inc.; Pacific Enterprises; Penn Virginia corporation; Plains
Resources, Inc; Presidio Oil; Wainoco Oil Corporation; Wichita River Oil; and
Wiser Oil Company. The relevant information with respect to the peer group was
furnished by Standard and Poors Comustat Service. The graph assumes that the
value of the investment in the Company's common Stock and the peer group stocks
were $100 on December 31, 1992 and that all dividends were reinvested.
[graphic omitted]
1993 1994 1995 1996 1997
Return Return Return Return Return
Saba 52.08 73.61 264.57 1,753.36 590.24
Peer Group 121.87 121.48 153.45 183.12 217.52
AMEX 119.52 108.63 137.32 146.10 171.48
CERTAIN INFORMATION WITH RESPECT TO EXECUTIVE OFFICERS AND KEY EMPLOYEES
The following table sets forth the name, age and position of the
executive officers and key employees of the Company and its significant
subsidiaries:
Name Age Position
Ilyas Chaudhary 51 Chairman of the Board of Directors
Dr. Charles A. Kohlhaas 63 Chief Executive Officer and President
Alex S. Cathcart 63 ; Consultant to the Company, Director
and President of Saba International
Limited and Sabacol, Inc.
Walton C. Vance 50 Vice President, Treasurer, Secretary
and Chief Financial Officer
Bradley T. Katzung 46 Vice President-Mid Continent
Operations; President and Chief
Operating Officer of Saba Energy of
Texas, Inc. and Saba Petroleum of
Michigan, Inc.
Burt M. Cormany 69 President and Chief Operating Officer
of Santa Maria Refining Company
Herb Miller 63 President of Beaver Lake Resources
Corporation
Imran Jattala 39 Executive Vice President and Chief
Operating Officer of the Company,
President and Chief Operating Officer
of Saba Petroleum, Inc.
Executive Officers
Ilyas Chaudhary - see resume above under "Election of Directors."
Dr. Charles A. Kohlhaas - see resume above under "Election of Directors."
Alex S. Cathcart - see resume above under "Election of Directors."
Walton C. Vance has been the Vice President and Chief Financial Officer of
the Company since 1993 and became Secretary of the Company in 1994. Mr. Vance
has been a director of the Company since September 1996. From 1990 to 1993, he
was an independent consultant and provided accounting and financial reporting
services to small businesses, including oil and gas producers. From 1985 to
1990, Mr. Vance was the Executive Director for a law firm in Dallas, Texas. Mr.
Vance was the Chief Financial Officer of Natural Resource Management Corporation
(now Edisto Resources) from 1981 to 1983 and Treasurer of such company in 1984.
Officers of Significant Subsidiaries
Bradley T. Katzung has been Vice President - Mid-Continent Operations of
the Company and President and Chief Operating Officer of Saba Energy of Texas,
Incorporated and President of Saba Petroleum of Michigan, Inc. since 1994. Mr.
Katzung joined the Company in 1993 as Vice President of Operations for Saba
Energy of Texas, Incorporated, Saba Petroleum of Michigan, Inc. and Saba
Petroleum, Inc. Mr. Katzung has more than 20 years experience in the oil and gas
industry, including Vice President of Operations for Oakland Oil Company from
1987 to 1993.
Burt M. Cormany has been President of Santa Maria Refining Company since
July 1994. Mr. Cormany worked in various capacities for the previous owners of
the Company's Santa Maria Refinery from 1951 to 1990, including refinery manager
from 1974 to 1990. In 1991, Mr. Cormany was a consultant to the previous owner
of the refinery. He retired in 1991 and returned to work in 1994 as a consultant
to the Company for several months prior to becoming President of Santa Maria
Refining Company later that year.
Herb Miller has been President of Beaver Lake since March 1998 where he had
also served as Vice President of Exploration and Land from 1993 to February
1997. At that time, Mr. Miller was transferred from Beaver Lake to the Company's
corporate office to the position of Manager of the Technical and Drilling
Departments and in August 1997 he was appointed President and Chief Operating
Officer of Saba Petroleum, Inc. in which positions he served through December
1997. In December 1997, Mr. Miller had been appointed Vice President of the
Company's international exploration and drilling operations and President and
Chief Operating Officer of Saba Exploration Company. Mr. Miller graduated from
the University of Tulsa, Oklahoma with a Bachelor of Geology degree and has 38
years of oil industry experience. Mr. Miller's exploration experience was
obtained while employed by the Pure Oil Company and Unocal Canada Explorations.
For the period 1976-1980, he was involved in managing exploration projects with
Unocal in the position of District Geologist, Division Geologist and Exploration
Co-ordinator. In 1980 he joined Westar Petroleum serving as general manager of
exploration/land and general manager exploration/engineering. Mr. Miller's
experience has been primarily in Western Canada and also includes the Northwest
Territories, Beaufort Sea, east and west coast offshore, the United States and
the North Sea. From 1991 to 1993, he was a private consultant to the energy
industry.
Imran Jattala is Executive Vice President and Chief Operating Officer of the
Company and has been President and Chief Operating Officer of Saba Petroleum,
Inc., which operates the Company's California properties, since his appointment
in December 1997. Mr. Jattala joined the Company in 1992 as Assistant Controller
for the Company and its subsidiaries. Since that time, Mr. Jattala had worked in
various capacities for the Company, including Administrative Manager. In
addition to Mr. Jattala's educational background in international business and
banking, he has over 4 years experience in revenue auditing.
EXECUTIVE COMPENSATION
Set forth below are tables prescribed by the proxy rules of the
Securities and Exchange Commission which present compensation for the Company's
Chief Executive Officer and the four other executive officers whose aggregate
cash compensation exceeds $100,000 per year (the "Named Executives").
SUMMARY COMPENSATION TABLE
- -------------------------------- --------- ----------------------------- ------------------ ------------------ -------------------
Long Term
Compensation
Securities
Annual Compensation Other Annual Underlying All Other
- -------------------------------- --------- ----------------------------- ------------------ ------------------ -------------------
- -------------------------------- --------- ---------------- ------------ ------------------ ------------------ -------------------
Name and Principal Position Year Salary Bonus Compensation Options Compensation (3)
- --------------------------- ---- ------ ----- ------------ ---------------
- -------------------------------- --------- ---------------- ------------ ------------------ ------------------ -------------------
- -------------------------------- --------- ---------------- ------------ ------------------ ------------------ -------------------
Ilyas Chaudhary............... 1997 $ 183,500 $ 2,885 (2) 500,000 (4) $ 4,420
- -------------------------------- --------- ---------------- ------------ ------------------ ------------------ -------------------
- -------------------------------- --------- ---------------- ------------ ------------------ ------------------ -------------------
Chairman of the Board, 1996 153,000 20,000 (2) --- 4,750
- -------------------------------- --------- ---------------- ------------ ------------------ ------------------ -------------------
- -------------------------------- --------- ---------------- ------------ ------------------ ------------------ -------------------
Chief Executive Officer 1995 150,000 (1) 1,731 (2) 200,000 ---
- -------------------------------- --------- ---------------- ------------ ------------------ ------------------ -------------------
- -------------------------------- --------- ---------------- ------------ ------------------ ------------------ -------------------
Walton C. Vance............... 1997 $ 120,700 $ 2,254 (2) --- $ 4,009
- -------------------------------- --------- ---------------- ------------ ------------------ ------------------ -------------------
- -------------------------------- --------- ---------------- ------------ ------------------ ------------------ -------------------
Vice President, 1996 101,633 20,000 (2) --- 2,259
- -------------------------------- --------- ---------------- ------------ ------------------ ------------------ -------------------
- -------------------------------- --------- ---------------- ------------ ------------------ ------------------ -------------------
Chief Financial Officer, and 1995 --- --- --- --- ---
- -------------------------------- --------- ---------------- ------------ ------------------ ------------------ -------------------
- -------------------------------- --------- ---------------- ------------ ------------------ ------------------ -------------------
Secretary
- -------------------------------- --------- ---------------- ------------ ------------------ ------------------ -------------------
- -------------------------------- --------- ---------------- ------------ ------------------ ------------------ -------------------
Burt Cormany.................. 1997 $ 110,040 $ 9,170 (2) 20,000 $ 1,351
- -------------------------------- --------- ---------------- ------------ ------------------ ------------------ -------------------
- -------------------------------- --------- ---------------- ------------ ------------------ ------------------ -------------------
President and 1996 113,386 8,330 (2) --- 5,549
- -------------------------------- --------- ---------------- ------------ ------------------ ------------------ -------------------
- -------------------------------- --------- ---------------- ------------ ------------------ ------------------ -------------------
Chief Operating Officer 1995 --- --- --- --- ---
- -------------------------------- --------- ---------------- ------------ ------------------ ------------------ -------------------
- -------------------------------- --------- ---------------- ------------ ------------------ ------------------ -------------------
of Santa Maria Refining
Company
- -------------------------------- --------- ---------------- ------------ ------------------ ------------------ -------------------
- -------------------------------- --------- ---------------- ------------ ------------------ ------------------ -------------------
- -------------------------------- --------- ---------------- ------------ ------------------ ------------------ -------------------
- -------------------------------- --------- ---------------- ------------ ------------------ ------------------ -------------------
Bradley T. Katzung 1997 $ 77,655 $ 70,200 (2) --- $ 1,097
- -------------------------------- --------- ---------------- ------------ ------------------ ------------------ -------------------
- -------------------------------- --------- ---------------- ------------ ------------------ ------------------ -------------------
Executive Vice President & 1996 --- --- --- --- ---
General
- -------------------------------- --------- ---------------- ------------ ------------------ ------------------ -------------------
- -------------------------------- --------- ---------------- ------------ ------------------ ------------------ -------------------
Manager -- USA 1995 --- --- --- --- ---
- -------------------------------- --------- ---------------- ------------ ------------------ ------------------ -------------------
- -------------------------------- --------- ---------------- ------------ ------------------ ------------------ -------------------
Rodney C. Hill 1997 $ 121,636 $ --- --- 125,000 ---
- -------------------------------- --------- ---------------- ------------ ------------------ ------------------ -------------------
- -------------------------------- --------- ---------------- ------------ ------------------ ------------------ -------------------
Vice President - Legal 1996 --- --- --- --- ---
Affairs
- -------------------------------- --------- ---------------- ------------ ------------------ ------------------ -------------------
- -------------------------------- --------- ---------------- ------------ ------------------ ------------------ -------------------
1995 --- --- --- --- ---
- -------------------------------- --------- ---------------- ------------ ------------------ ------------------ -------------------
- ------------------
<FN>
(1) Includes amounts reimbursed by the Company in 1995 to SEDCO, a corporation wholly owned by Ilyas Chaudhary,
of $75,000 for management services performed by Mr. Chaudhary.
(2) "Other Annual Compensation" was less than the lesser of $50,000 or 10% of such officer's annual salary and
bonus for such year.
(3) Represents the contributions made by the Company on behalf of these individuals to the Company's 401(k)
Plan.
(4) Consists of options covering 200,000 shares granted pursuant to the
Company's 1996 Incentive Equity Plan; 200,000 shares of deferred Common
Stock; and 100,000 performance shares issuable if the Company meets
1998 earnings test.
</FN>
OPTION/SAR GRANTS IN LAST FISCAL YEAR
The following stock options were granted during fiscal 1997 by the
Company to the Named Executives.
Potential
Realized Value At
Assumed annual
Rates of Stock Alternative
Individual Grants Price to (f) and
Appreciation For (g); Grant
Option Term Date Value
- -------------------------------------------------------------------------- ------------------- --------------
- --------------------- ------------ ------------- ------------- ----------- --------- --------- -------------
(a) (b) (c) (d) (e) (f) (g) (h)
% of Total
Number of Options/
Securities SARs
Underlying Granted to
Options/ Employees Exercise or Grant Date
Name SARs in Fiscal Base Expiration Present
Granted (f) Year Price($/Sh.) Date 5% ($) 10% ($) Value $
- --------------------- ------------ ------------- ------------- ----------- --------- --------- -------------
- --------------------- ------------ ------------- ------------- ----------- --------- --------- -------------
Ilyas Chaudhary 200,000 33.6 15.50 5-30-07 1,454,500
Herb Miller 15,000 2.5 15.50 5-30-07 109,100
Alex Cathcart 75,000 12.6 15.50 5-30-07 421,600
Imran Jattala 25,000 4.2 15.50 5-30-07 181,800
Rodney C. Hill 125,000 21.0 15.50 5-30-07 909,000
Burt Cormany 20,000 3.4 15.50 5-30-07 89,800
Total in 1997 595,000
<FN>
(1) Valuation Method used: Black-Scholes option pricing model:
Expected volatility - 43.16% Risk-free rate of return -
ranging from 6.18%-6.49% Dividend yield - 0% Time of Exercise
- full vesting period of each option ranging from 2-5 years
</FN>
OPTION EXERCISES AND FISCAL YEAR-END VALUES
The following table provides certain information with respect to options
exercised in fiscal 1997 and unexercised options to purchase Common Stock of the
Company at December 31, 1997 granted to the Named Executives:
- ------------------------------------------------------------------------------------------------------------------------
Securities Underlying
--------------- --------------------------- ------------------------------
Number of Unexercised Value of Unexercised,
Shares Acquired on Options SARs at In-the-Money Options at
Name --------------------- Value Fiscal Year-End (#) Fiscal Year-End ($)
- ----
Exercise (#) Realized ($) Exercisable/Unexercisable Exercisable/Unexercisable
- ------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
Ilyas Chaudhary....... 20,000 $50,000 60,000/120,000 $420,000/$840,000
- ------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
Walton C. Vance....... - - 150,000/40,000 $1,087,500/$290,000
- ------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
Bradley T. Katzung.... - - 80,000/20,000 $570,000/$142,500
- ------------------------------------------------------------------------------------------------------------------------
RETIREMENT PLAN
The Company sponsors a defined contribution retirement savings plan (the
"401(k) Plan"). The Company currently provides matching contributions equal to
50% of each employee's contribution, subject to a maximum of 4% of employee
earnings. The Company's contributions to the 401(k) Plan were $25,745 in 1995,
$44,014 in 1996, and $41,762 in 1997.
EMPLOYMENT AGREEMENTS
Ilyas Chaudhary Employment Agreement. The Company has entered into an
employment agreement with Ilyas Chaudhary for a term expiring in the year 2000,
pursuant to which Mr. Chaudhary will serve as Chief Executive Officer of the
Company. A relatively small portion of Mr. Chaudhary's time is spent working for
Capco and other companies. The Company is reimbursed for Mr. Chaudhary's time
spent on such other matters. The employment agreement provided for a base salary
of $150,000 in 1995, increasing 10% annually to $219,615 in 1999. The employment
agreement also provides Mr. Chaudhary with options to purchase 200,000 shares of
the Company's Common Stock, for $1.50 per share, 40,000 of which vest each year
of the agreement beginning in 1996. Of the total shares vested at December 31,
1997, 60,000 were unexercised and 20,000 have been exercised. Upon termination
of Mr. Chaudhary's employment during the term of the employment agreement for
any reason other than for "cause," Mr. Chaudhary's death or permanent
incapacitation or voluntary termination, the Company will be obligated to pay
Mr. Chaudhary a lump sum severance payment in the amount equal to Mr.
Chaudhary's then current annual base salary. In May 1997, the Company authorized
the issuance to Mr. Chaudhary of 200,000 shares of Deferred Common Stock, the
issuance of such deferred shares being contingent upon Mr. Chaudhary remaining
in the employ of the Company for a period of two years succeeding the expiration
of his existing employment contract and such shares being issuable 100,000
shares at the end of each such succeeding year. In addition, at that time the
Company authorized the issuance to Mr. Chaudhary of 100,000 shares of the Common
Stock should the Company meet certain earnings benchmarks during 1997 which was
later extended to 1998 by the Company in December 1997. While the employment
agreement is being renegotiated by Mr. Chaudhary and the Company, in June 1998,
it was agreed that Mr. Chaudhary would continue to provide consulting services
to the Company on an as-needed basis and at a level of compensation to be
mutually agreed upon.
Walton C. Vance Employment Agreement. The Company has entered into an
employment agreement with Walton C. Vance for a five-year term expiring June 30,
1998, pursuant to which Mr. Vance will serve as Vice President and Chief
Financial Officer of the Company. The employment agreement provides for a base
salary of $117,200 from July 1, 1997 through the end of the agreement. Under the
agreement, Mr. Vance is eligible to participate in the stock option plans of the
Company, and is also granted additional options to purchase 200,000 shares of
the Company's Common Stock at a strike price of $1.25 per share, of which
150,000 are currently vested and unexercised, 10,000 have been exercised and
40,000 will vest on June 30, 1998. Upon termination of Mr. Vance's employment
during the term of the employment agreement for any reason other than for
"cause," Mr. Vance's death or permanent incapacitation or voluntary termination,
the Company will be obligated to pay Mr. Vance a lump sum severance payment in
the amount equal to Mr. Vance's then current annual base salary. Mr. Vance and
the Company have agreed that, upon and for a period of three months following
the expiration of Mr. Vance's employment agreement, he shall continue to provide
services to the Company pursuant to a consulting arrangement on substantially
the same terms as those contained in the employment agreement.
Alex S. Cathcart Employment Agreement. The Company has entered into an
employment agreement with Alex S. Cathcart, dated March 1, 1997, for a two-year
term expiring on February 28, 1999, which can be extended for an additional two
years at the sole discretion of the Company. The employment agreement provides
for a base salary of $115,000, increasing to $123,000 in the following years.
Mr. Cathcart is granted options to purchase 50,000 shares at fair market value
as of May 31, 1997, which vest pro rata at the completion of the year of service
under the agreement to which they relate (with the first 25,000 options vesting
on March 1, 1998). In May 1997, the Company granted to Mr. Cathcart options to
purchase 25,000 shares at fair market value as of May 31, 1997, the grant of
such options being contingent upon Mr. Cathcart remaining in the employ of the
Company for an additional year succeeding the expiration of his existing
employment contract and such options vesting at the completion of the additional
year of service to which they relate. While the employment agreement has not be
formally amended, in June 1998, Mr. Cathcart and the Company agreed to change
his employment to a consulting arrangement on the same terms as those contained
in the employment agreement. In addition, Mr. Cathcart's arrangement provides
for his availability on a half-time basis to the Company at a compensation rate
of 75% ($86,250) of that called for by the agreement.
Burt Cormany Employment Agreement. Santa Maria Refining Company, a wholly
owned subsidiary of the Company, and Burt Cormany have entered into an
employment agreement for a two-year term expiring on December 31, 1998, pursuant
to which Mr. Cormany will serve as President and Chief Operating Officer of that
subsidiary. Under the agreement, Mr. Cormany is eligible to participate in the
stock option plans of the Company and will receive a base salary of $110,000 in
the first year of the agreement and $120,000 in the second year.
Bradley Katzung Employment Agreement. The Company has entered into an
employment agreement with Bradley Katzung for a five-year term expiring on
November 8, 1998, pursuant to which Mr. Katzung will serve as an executive
officer of the Company. The employment provides for an initial annual salary of
$75,000 subject to annual reviews and which was increased to $125,000 in January
1998. Under the agreement Mr. Katzung is eligible to participate in the stock
option plans of the Company, and is also granted options to purchase 100,000
shares of the Company's Common Stock at a strike price of $1.375 per share, of
which 80,000 shares are vested and unexercised as of December 31, 1997.
Herb Miller Employment Agreement. Beaver Lake Resources Corporation, a
74%-owned subsidiary of the Company, and Herb Miller have entered into an
employment agreement for a two-year term expiring on March 1, 2000, pursuant to
which Mr. Miller will serve as President of that subsidiary. The employment
provides for an annual salary of $85,000 (Cdn) and the grant of options to
purchase 500,000 shares of Beaver Lake Resources Corporation's common stock at a
strike price of $0.50 (Cdn) per share to be vested fifty percent per year over
two years. During the first year of Mr. Miller's employment, the agreement
provides that either party may terminate the agreement by providing three
months' written notice thereof to the other party..
DIRECTOR COMPENSATION
The Company does not pay any additional remuneration to executive
officers for serving as Directors. The Directors of the Company are also
reimbursed for out of pocket expenses incurred in connection with their
attendance at Board of Directors meetings, including reasonable travel and
lodging expenses. During 1997, non-employee Directors received a retainer of
$12,000 for the first four Board meetings and $1,000 per meeting for the fifth
and any additional meetings, including committee meetings attended. Pursuant to
the Company's 1997 Stock Option Plan for Non-Employee Directors, each such
Director is also to receive a stock option to acquire 3,000 (increased to 15,000
by the Board of Directors subject to Stockholder approval as described in
Proposal No. III hereof) shares of the Company's Common Stock at fair market
value at the date of grant. No family relationships exist between or among any
of the Directors or executive officers. See "Certain Relationships and Related
Transactions."
PROPOSAL NO. III - INCREASED NUMBER OF SHARES
OF THE COMPANY'S COMMON STOCK
WHICH CAN BE ACQUIRED BY NON-EMPLOYEE DIRECTORS
On May 30, 1997, the Stockholders approved the Board of Directors'
adoption of the Company's 1997 Stock Option Plan for Non-Employee Directors of
the Company (the "Directors Plan"). To date, each qualified non-employee
director has been granted options at an exercise price of $15.50 per share under
the Directors Plan. The Directors Plan currently provides an annual grant of an
option to acquire 3,000 shares of Common Stock, vesting 20% per year over the
next five years, provided that such person remains a Director of the Company. On
December 2, 1997, the Board of Directors amended the Directors Plan by
resolution, subject to Stockholders approval, to provide for one grant of a
stock option to purchase 15,000 shares of Common Stock, vesting 20% per year
over the next five years, provided that such person remains a Director of the
Company. The Board of Directors has determined that the amendment reflects the
original intention of the Company at the time the Directors Plan was adopted and
that such proposed amendment will conform the Directors Plan to such intention.
THE COMPANY'S BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" PROPOSAL NO. III.
PROPOSAL NO. IV - RATIFICATION OF THE SELECTION
OF INDEPENDENT ACCOUNTANTS
The Board of Directors has appointed Coopers & Lybrand L.L.P.,
independent accountants, as auditors of the Company for the current fiscal year.
Coopers & Lybrand L.L.P. has audited the financial statements of the Company
since 1994, and has no other relationship with or interest in the Company.
THE COMPANY'S BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" PROPOSAL NO. IV.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
SEDCO and Capco owned 166,171 shares (1.51%) and 2,882,865 shares (26.14%),
respectively, of the Company's Common Stock outstanding as of May 31, 1998.
Certain officers, directors and key employees of the Company are engaged in
the oil and gas business for their own account and have business relationships
with other oil and gas exploration and development companies or individuals. As
a result, potential conflicts of interests between such persons and the Company
may arise.
In 1997, the Company adopted a policy whereby all transactions by and
between the Company and any affiliate of the Company shall be conducted on an
arm's-length basis, and all substantial transactions shall be approved by a
majority of the Company's directors without an interest in such transactions.
In 1995, the Company borrowed $350,000 from Unico, Inc., a company
controlled by William N. Hagler, a director. The loan bore interest at 10% per
annum and was repaid in December 1995.
The Company has, from time to time, outstanding balances due to, or
receivables due from, Capco and SEDCO (or subsidiaries of such companies).
Except as indicated to the contrary, balances from and to the Company are open
accounts and are unsecured. The transactions giving rise to such matters are as
follows:
In 1995, Capco loaned $2,221,900 to the Company at 9% per annum; the
proceeds were used to acquire certain of the Company's Colombian properties. The
loans were evidenced by unsecured promissory notes. $600,000 of the initial loan
proceeds was exchanged for 150,000 shares of Common Stock at a price of $4 per
share (which exceeded market price at the time). The notes were paid in full in
1997.
In 1995, the Company borrowed $10,500 from SEDCO on a short-term basis and
repaid such amount during 1996.
In 1995, the Company paid SEDCO $10,700 for reimbursement of prior year
charges to the Company.
In 1995, the Company received $210,100 from Capco for reimbursement of prior
year charges and advances and was charged $22,700 for interest on advances.
In 1995, the Company remitted $92,100 to Capco and affiliates in settlement
of prior year charges.
During 1995, the Company loaned $101,700 to SEDCO, evidenced by a secured
promissory note bearing interest at 9% per annum, collateralized by Mr.
Chaudhary's vested, but unexercised, options to purchase the Common Stock of the
Company. The note principal and accrued, but unpaid, interest is due December
31, 1998.
In 1996, the Company received $29,300 from Capco and certain affiliates of
Mr. Chaudhary for reimbursement of prior year advances and charged Capco $9,600
for interest on such advances.
In 1996, the Company charged SEDCO $9,800 for interest on the outstanding
note receivable and was charged $5,100 by Saba Energy, Ltd. for interest due to
that company.
The Company charged SEDCO, Capco and certain affiliates of Mr. Chaudhary
$92,900 and $26,300 for administrative services provided to such companies
during 1995 and 1996, respectively. Such administrative services consisted
largely of Mr. Chaudhary's time. Of such amounts, $43,100 was unpaid at December
31, 1996.
During 1996, a subsidiary of Capco participated in the drilling of one of
the Company's exploratory wells on the same basis as did the Company. The
Company has billed the subsidiary a total of $112,200, of which $64,700 was
outstanding at December 31, 1996.
During 1996, the Company provided a short-term advance to SEDCO amounting
to $10,000. No interest was charged on the advance.
During 1996, the Company loaned $300,000 to Mr. Chaudhary, evidenced by a
promissory note bearing interest at the rate of prime plus 0.75%. Interest is
due in quarterly installments and principal is due October 31, 1998. The note is
secured by Mr. Chaudhary's vested, but unexercised, options to acquire Common
Stock of the Company. In September 1997, the Company commenced amortization of
the note by applying a portion of Mr. Chaudhary's salary thereto.
During 1996, the Company loaned $30,000 to William J. Hickey, a director at
the time. Such loan is evidenced by an unsecured promissory note, with interest
bearing at the rate of 9% and increasing to 9.25% effective June 1997, payable
at maturity on June 30, 1998.
The Company charged SEDCO and Capco $18,600 for administrative services
provided to such companies during the year ended December 31, 1997. Such
administrative services consisted largely of Mr. Chaudhary's time.
The Company charged Capco $23,300 for charges incurred in connection with
the Solv-Ex Corporation matter, and $93,600 for an advance and related expenses
against an indemnification provided by Capco during the year ended December 31,
1997.
In 1997 the Company received $10,000 in repayment of a short-term advance to
an affiliate, and $61,200 from the Mr. Chaudhary for accrued interest and
principal on his loan from the Company.
During the year ended December 31, 1997, the Company billed a subsidiary of
Capco a total of $18,800 and received payments of $92,000 which included amounts
billed in the prior year, in connection with the subsidiary's participation in
drilling and production activities in one of the Company's oil properties.
During the year ended December 31, 1997, the Company charged interest to
SEDCO, Ilyas Chaudhary and William Hickey (a former director of the Company) in
the amounts of $8,800, $27,500, and $2,700, respectively, on outstanding,
interest-bearing indebtedness to the Company.
During the year ended December 31, 1997, the Company incurred interest
charges in the total amount of $60,200 on the notes payable to Capco. The
Company paid Capco a total of $142,000 for such interest charges, which included
amounts charged, but unpaid, at the end of the previous year.
From time to time the Company chartered from a non-affiliated airplane
leasing service, a jet airplane acquired by Mr. Chaudhary in 1997. When
chartering the airplane, the Company paid the rate charged others by the leasing
service, less a discount, so that the rate paid by the Company was less than
that paid by others. Use of the airplane indirectly benefited Mr. Chaudhary
since it reduced the amount of time he was required to engage the airplane.
During 1997, the Company incurred usage charges of $72,800. Mr. Chaudhary
disposed of his ownership of the airplane in March 1998.
During the three months ended March 31, 1998, the Company advanced $36,000
to Capco, evidenced by an unsecured promissory note.
During the three months ended March 31, 1998, the Company charged interest
to Sedco, Ilyas Chaudhary, and William Hickey in the amounts of $2,200, $6,600,
and $700, respectively, on outstanding, interest-bearing, indebtedness to the
Company. The Company received $2,500 from Mr. Chaudhary for accrued interest on
his loan from the Company, and $25,000 from Sedco for accrued interest and
principal on the loan to that company.
During the three months ended March 31, 1998, the Company charged Capco
$2,500 for administrative expenses incurred in its behalf.
In July 1997, the Company and Solv-Ex Corporation, which owned interests in
two tar sands licenses in the Athabasca region of Alberta, Canada, informally
agreed to terms upon which the Company would acquire a 55% interest in the
licenses, related improvements and certain related technology, subject to
various conditions, including satisfactory results of a due diligence
investigation by the Company. Solv-Ex and its principal subsidiary have filed
for reorganization pursuant to the United States Bankruptcy Code and for
protection under analogous Canadian legislation. To conclude the transaction,
the Company would be required to invest approximately $15 million, largely to
pay creditors in Canada and would then undertake project development, which
could cost as much as $1 billion. In lieu of committing to the purchase, the
Company entered into an agreement with Capco by which the Company transferred to
Capco its rights under such agreements in exchange for Capco's agreement to
convey to the Company a 2% overriding royalty on the project (commencing after
the project generated $10 million in gross revenues) and granted to the Company
the right to acquire up to 25% of the interests in the project that are acquired
by Capco for the same proportion of Capco's cost of acquisition and maintenance
of the project. The option runs for two years from the date of Capco's
acquisition of the properties or the company. Neither of these events has
occurred. In the investigation and negotiations of the acquisition of the tar
sands project, the Company and Capco had agreed that the Company would bear all
costs, internal and third party, incurred by the Company prior to August 13,
1997 and that Capco would bear the expenses incurred subsequent to said date.
Such costs include $100,000 lent to Solv-Ex as an inducement to negotiate and
execute a purchase agreement. The Company's total costs in respect of the
acquisition (excluding the loans) are approximately $60,000.
In November 1997, the Company and a large independent oil company each
entered into an agreement with Hamar II Associates, LLC, an entity in which
Rodney C. Hill, a director of the Company is a member, providing for the Company
and the large independent to acquire oil and gas leases and to participate in
the drilling of a test well in northern California, to bear a proportionate part
of the lease acquisition and maintenance payments and to pay a proportionate
share (30% in the case of the Company and 60% in the case of the large
independent) of a consideration of $100,000 to members of Hamar, including
Rodney C. Hill. The Company has orally agreed to issue 20,000 shares of its
Common Stock for no additional consideration should the test well drilled on the
Behemoth Prospect be productive in quantities deemed commercial by the Company.
Save for the issuance of the Common Stock, the terms of participation are the
same for the Company and the large independent, which would be the operator of
the project if it were successful.
Rodney C. Hill, a director of the Company, is the sole stockholder of Rodney
C. Hill, a Professional Corporation, which acts as general counsel to the
Company. In 1997, such corporation was engaged to provide legal services to the
Company pursuant to a retainer agreement, which may be canceled by the Company
at any time, and pursuant to which such corporation receives an annual retainer
of $150,000 and reimbursement of certain expenses. During 1997, Mr. Hill was
granted options to acquire 125,000 shares of the Common Stock of the Company at
a price equal to the current fair market value of the Common Stock at the time
of grant that vest over a period of five years. In March, 1998, the legal
services agreement was amended to terminate the existing fee arrangement and
limit the scope of representation of the Company to matters pertaining to a
proposed business combination with compensation set at $100,000 upon completion
of the business combination or $50,000 if such transaction is not consummated.
The agreement was further amended to provide for the cancellation of the grant
of options to acquire 125,000 shares of Common Stock and, among other
consideration, the issuance of 20,000 shares of Common Stock, fully paid, and
the grant of options exercisable for one year to acquire 30,000 shares of Common
Stock at fair market value at the time of grant that vested immediately. During
1998, the agreement was amplified to encompass additional services, the total
fees for which should not exceed $50,000. At May 31, 1998 the Company was
indebted to the corporation controlled by Mr. Hill in an aggregate amount of
$73,561, representing accrued fees and reimbursements.
Ronald D. Ormand, a director of the Company, is a Managing Director of
CIBC-Oppenheimer & Co., Inc., which has rendered investment banking services to
the Company. During January 1998, the Company engaged CIBC-Oppenheimer, Inc. to
advise the Company with respect to strategies and procedures to adopt in an
effort to maximize shareholder values.
William N. Hagler, a director of the Company, is the President of Unico,
Inc. and was the President of Capco from July 1997 to September 1997.
In January 1998, the Company engaged Faysal Sohail, a director of the
Company, to render investor relations services to the Company for which Mr.
Sohail had been granted 20,000 shares of fully paid Common Stock.
Meteor Industries, Inc., of which Capco owns a majority of the stock, has an
interest in Saba Power Company Ltd. ("Saba Power"), a limited liability
corporation in Pakistan which was established in early 1995 to pursue
development of a power plant project in Pakistan (the "Power Project"). On
December 27, 1996, Meteor Industries, Inc. entered into an agreement with the
Company whereby the Company participated and owns a 0.5% interest in the Power
Project. This percentage, however, could be reduced in the event that other
shareholders of Saba Power are required to make additional contributions to
equity. No such additional equity contributions have been requested.
In January, 1998, a subsidiary of the Company entered into an agreement and
made a deposit of $36,000 to purchase real property located in Santa Maria,
California for $300,000. The purchasing interest of the Company's subsidiary was
thereafter assigned to Capco in April, 1998, and the sale closed in May, 1998.
Capco has agreed to reimburse to the Company's subsidiary the $36,000 deposit,
with interest at the rate of 12% per annum, within 90 days of closing.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended, and
the rules thereunder require the Company's officers and Directors and persons
who own more than 10% of the Company's Common Stock to file reports of ownership
and changes in the ownership with the Securities and Exchange Commission and to
furnish the Company with copies.
Based upon its review of the copies of such forms received by it, or
written representation from certain reporting persons, the Company believes
that, during the last fiscal year, all filing requirements applicable to its
officers, Directors, and greater than 10% beneficial owners were complied with,
except that, due to an administrative oversight, the following reports required
to be filed were filed after such reports were due to be filed:
Reports
Reporting Person Filed Late Number and Nature of Transactions
Herb Miller 3 (1) Initial Report of securities owned
Alex S. Cathcart 3 (1) Initial Report of securities owned
Rodney C. Hill 3 (1) Initial Report of securities owned
Faysal Sohail 3 (1) Initial Report of securities owned
Francis Barker 4 (1) Disposition of stock options to purchase 10,000 shares
(2) Acquisition of 10,000 shares
Bradley T. Katzung 4 (1) Acquisition of 360 shares
William N. Hagler 4 (1) Acquisition of stock options to purchase 3,000 shares
Ilyas Chaudhary 4 (1) Disposition of stock options to purchase 10,000 shares
Capco Resources, Ltd. 4 (1) Disposition of 154,000 shares
(& Ilyas Chaudhary (2) Disposition of 100,000 shares
through indirect ownership) (3) Acquisition of 120,600 shares in 18 transactions
(4) Acquisition of 207,700
shares in 48 transactions
(5) Disposition of 21,410
shares in 5 transactions
RELATIONSHIP WITH INDEPENDENT PUBLIC ACCOUNTANTS
Coopers & Lybrand L.L.P. were independent accountants for the Company for
the year ended December 31, 1997. A representative of Coopers & Lybrand L.L.P.
is expected to be present at the Annual Meeting and to be available to respond
to appropriate questions.
SUBMISSION OF PROPOSALS BY STOCKHOLDERS
In order to be eligible for inclusion in the Company's Proxy Statement
for the next Annual Meeting of Stockholders, anticipated to be held in May 1999,
any proposal by a stockholder must be received by the Company in writing at its
principal office in Santa Maria, California by December 31, 1998.
OTHER BUSINESS
The Board of Directors does not know of any business to be presented
for consideration at the Annual Meeting of Stockholders other than that stated
in the Notice of Annual Meeting of Stockholders. It is intended, however, that
persons authorized under the proxies solicited from the Stockholders by the
Board of Directors may, in the absence of instructions to the contrary, vote or
act in accordance with their judgment with respect to any other proposal
properly presented for action at such meeting.
BY ORDER OF THE BOARD OF DIRECTORS
SABA PETROLEUM COMPANY
Walton C. Vance
Secretary
Santa Maria, California
July 20, 1997
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PROXY
SABA PETROLEUM COMPANY
THIS PROXY IS SOLICITED ON BEHALF OF
THE BOARD OF DIRECTORS OF SABA PETROLEUM COMPANY
FOR ITS 1998 ANNUAL MEETING OF SHAREHOLDERS
The undersigned shareholder of SABA PETROLEUM COMPANY, a
Delaware corporation, (the "Company") hereby acknowledges receipt of
the Notice of Annual Meeting of Shareholders and Proxy Statement, each
dated July 20, 1998, and hereby appoints Ilyas Chaudhary and Walton C.
Vance, or either of them, proxies and attorneys-in-fact, with full
power to each of substitution, on behalf and in the name of the
undersigned, to represent the undersigned at the 1998 Annual Meeting of
Shareholders of SABA PETROLEUM COMPANY to be held on August 28, 1998,
at 10:30 a.m. PDT, in the Alexanders Room at the Airport Hilton Hotel
located at 5711 West Century Boulevard, Los Angeles, California and at
any adjournment or postponement thereof, and to vote all shares of
Common Stock that the undersigned would be entitled to vote if then and
there personally present upon such business as may properly come before
the meeting, including the items on the reverse side of this form which
are proposed by the Company.
This proxy when properly executed will be voted as directed,
or, if no contrary direction is indicated, will be voted FOR the
amendment to the Bylaws to provide up to seven members to serve as
Directors of the Company, FOR the election of Directors, FOR the
approval of an amendment to the Company's 1997 Stock Option Plan For
Non-Employee Directors providing for a grant of an option to acquire
15,000 shares of Common Stock at the fair market value on the date of
grant and vesting pro rata over five years, and FOR the selection of
Coopers & Lybrand L.L.P. as independent accountants for the Company,
and as said proxies deem advisable on such other matters as may
properly come before the meeting.
PLEASE MARK, SIGN, DATE, AND RETURN THE PROXY CARD
PROMPTLY USING THE ENCLOSED ENVELOPE.
(Continued and to be signed and dated on the other
side.)
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- --------------------------------------------------------------------------------
PLEASE MARK VOTE IN BOX IN THE FOLLOWING MANNER USING DARK INK ONLY. [ X ]
1. Proposal to amend the Bylaws of the Company to provide up to seven
(7) members to serve as Directors of the Company.
FOR AGAINST ABSTAIN
[_] [_] [_]
2. Proposal to elect five (5) Directors of the Company -- Nominees: Ilyas
Chaudhary; Alex S. Cathcart; William N. Hagler; Faysal Sohail; Dr. Charles A.
Kohlhaas.
FOR AGAINST ABSTAIN
[_] [_] [_]
FOR ALL (Except Nominee(s) written below)
-----------------------------------------
3. Proposal to approve an amendment of the Company's 1997 Stock Option
Plan for Non-Employee Directors providing for a grant of an option
to acquire 15,000 shares of Common Stock at the fair market value
on the date of grant and vesting pro rata over five years.
FOR AGAINST ABSTAIN
[_] [_] [_]
4. Proposal to ratify the selection of Coopers & Lybrand L.L.P. as
independent accountants for the Company.
FOR AGAINST ABSTAIN
[_] [_] [_]
(This Proxy should be marked, dated, and signed by the shareholder (s)
exactly as his or her name appears hereon, and returned promptly in the
enclosed envelope. Persons signing in a fiduciary capacity should so
indicate. If shares are held by joint tenants or as community property,
both should sign.)
Signature _________________________________ Date: _______________________, 1998
Signature _________________________________ Date: _______________________, 1998