SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE
SECURITIES EXCHANGE ACT OF 1934
Filed by Registrant: <checked-box>
Filed by a Party other than the Registrant: <square>
Check the appropriate box:
<square> Preliminary Proxy Statement
<checked-box> Definitive Proxy Statement
<square> Definitive Additional Materials
<square> Soliciting Materials Pursuant to <section> 240.14a-11(c) or
<section>240.14a-12
CAIRN ENERGY USA, INC.
(Name of Registrant as Specified in Its Charter)
CAIRN ENERGY USA, INC.
(Name of Person(s) Filing Proxy Statement)
Payment of Filing Fee (Check the appropriate box):
<checked-box> $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1) or 14a-
6(j)(2).
<square> $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
<square> Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-
11.
1) Title of each class of securities to which transaction applies:
2) Aggregate number of securities to which transaction applies:
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11:{1}
4) Proposed maximum aggregate value of transaction:
{1} Set forth amount on which the filing is calculated and state how it was
determined.
<square> Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
2) Form, Schedule or Registration Statement No.:
3) Filing Party:
4) Date Filed:
DCC14151 15467/1
CAIRN ENERGY USA, INC.
8235 DOUGLAS AVE., SUITE 1221
DALLAS, TEXAS 75225
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 22, 1996
To the Stockholders of Cairn Energy USA, Inc.:
NOTICE IS HEREBY GIVEN that the 1996 Annual Meeting (the "Annual Meeting")
of Stockholders of Cairn Energy USA, Inc. (the "Company") will be held at the
offices of Jenkens & Gilchrist, a Professional Corporation, 1445 Ross Avenue,
29th Floor, Dallas, Texas in the Henry Gilchrist Conference and Training
Center on the 22nd day of May, 1996, at 10:00 a.m. (local time) for the
following purposes:
1. To elect eight (8) directors to hold office until the next
annual election of directors by stockholders or until their respective
successors shall have been duly elected and shall have qualified;
2. To amend the Company's 1993 Stock Option Plan, as amended, to
increase the number of shares reserved for issuance upon exercise of
options granted pursuant to the 1993 Stock Option Plan;
3. To amend the Company's 1993 Stock Option Plan, as amended, to
amend certain provisions regarding the exercisability of options;
4. To amend the Company's 1993 Directors Stock Option Plan, as
amended, to increase the number of shares reserved for issuance upon
exercise of options granted pursuant to the 1993 Directors Stock Option
Plan; and
5. To transact any and all other business that may properly come
before the meeting or any adjournment(s) thereof.
The board of directors has fixed the close of business on April 1, 1996,
as the record date (the "Record Date") for the determination of stockholders
entitled to notice of and to vote at such meeting or any adjournment(s)
thereof. Only stockholders of record at the close of business on the Record
Date are entitled to notice of and to vote at such meeting. The stock
transfer books will not be closed. A list of stockholders entitled to vote at
the Annual Meeting will be available for examination at the offices of the
Company for ten days prior to the Annual Meeting.
You are cordially invited to attend the meeting; whether or not you expect
to attend the meeting in person, however, you are urged to mark, sign, date,
and mail the enclosed proxy card promptly so that your shares of stock may be
represented and voted in accordance with your wishes and in order that the
presence of a quorum may be assured at the meeting. Your proxy will be
returned to you if you should be present at the meeting and should request a
return in the manner provided for revocation of proxies on the initial page of
the enclosed proxy statement.
BY ORDER OF THE BOARD OF DIRECTORS
SUSAN H. RADER
SECRETARY
DATED: April 8, 1996
DCC14151 15467/1
CAIRN ENERGY USA, INC.
8235 DOUGLAS AVE., SUITE 1221
DALLAS, TEXAS 75225
___________________________
PROXY STATEMENT
FOR
ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 22, 1996
___________________________
SOLICITATION AND REVOCABILITY OF PROXIES
The accompanying proxy is solicited by the board of directors on behalf of
Cairn Energy USA, Inc., a Delaware corporation (the "Company"), to be voted at
the 1996 Annual Meeting of Stockholders of the Company (the "Annual Meeting")
to be held on May 22, 1996, at the time and place and for the purposes set
forth in the accompanying Notice of Annual Meeting of Stockholders (the
"Notice") and at any adjournment(s) thereof. WHEN PROXIES IN THE FORM OF THE
ACCOMPANYING PROXY CARD ARE PROPERLY EXECUTED AND RECEIVED, THE SHARES
REPRESENTED THEREBY WILL BE VOTED AT THE ANNUAL MEETING IN ACCORDANCE WITH THE
DIRECTIONS NOTED THEREON; IF NO DIRECTION IS INDICATED, SUCH SHARES WILL BE
VOTED FOR THE ELECTION OF EACH OF THE NOMINEE DIRECTORS, FOR THE AMENDMENTS OF
THE CAIRN ENERGY USA, INC. 1993 STOCK OPTION PLAN, AS AMENDED, AND FOR THE
AMENDMENT OF THE CAIRN ENERGY USA, INC. 1993 DIRECTORS STOCK OPTION PLAN, AS
AMENDED.
Management does not intend to present any business at the Annual Meeting
for a vote other than the matters set forth in the Notice and has no
information that others will do so. If other matters requiring a vote of the
stockholders properly come before the Annual Meeting, it is the intention of
the persons named in the accompanying proxy card to vote the shares
represented by the proxies held by them in accordance with their judgment on
such matters.
This proxy statement (the "Proxy Statement") and accompanying proxy card
are being mailed on or about April 8, 1996. The Company's 1995 Annual Report
to Stockholders is enclosed herewith but does not form any part of the
materials for solicitation of proxies.
Any stockholder of the Company giving a proxy in the form of the enclosed
proxy card has the unconditional right to revoke his proxy at any time prior
to the voting thereof either in person at the Annual Meeting by delivering a
duly executed proxy bearing a later date or by giving written notice of
revocation to the Company addressed to Ms. Susan H. Rader, Secretary, Cairn
Energy USA, Inc., 8235 Douglas Avenue, Suite 1221, Dallas, Texas 75225; no
such revocation shall be effective, however, until such notice of revocation
has been received by the Company at or prior to the Annual Meeting.
In addition to the solicitation of proxies by use of the mail, officers
and regular employees of the Company may solicit the return of proxies, either
by mail, telephone, telegraph, telecopy, or through personal contact. Such
officers and employees will not be additionally compensated, but will be
reimbursed for out-of-pocket expenses. Brokerage houses and other custodians,
nominees, and fiduciaries will, in connection with shares of the Company's
common stock, par value $0.01 per share (the "Common Stock"), registered in
their names, be requested to forward solicitation material to the beneficial
owners of such shares of Common Stock.
The cost of preparing, printing, assembling, and mailing the Annual
Report, the Notice, this Proxy Statement, and the enclosed proxy card, as well
as the cost of forwarding solicitation materials to the beneficial owners of
shares of Common Stock and other costs of solicitation, are to be borne by the
Company.
QUORUM AND VOTING
The record date for the determination of stockholders entitled to notice
of and to vote at the Annual Meeting was the close of business on April 1,
1996 (the "Record Date"). On the Record Date, there were 17,558,216 shares of
Common Stock issued and outstanding.
Each share of Common Stock entitles the holder to one vote on all matters
to be acted upon at the meeting. Neither the Company's Certificate of
Incorporation nor its Bylaws provide for cumulative voting rights.
The presence, in person or by proxy, of the holders of a majority of the
stockholders' votes, entitled to be voted at the meeting is necessary to
constitute a quorum to transact business. If a quorum is not present or
represented at the Annual Meeting, a majority of the votes represented at the
meeting, may adjourn the Annual Meeting from time to time without notice other
than an announcement until a quorum is present or represented. Assuming the
presence of a quorum, the affirmative vote of the holders of a plurality of
the votes represented at the meeting is required for the election of each of
the nominee directors, and the affirmative vote of the holders of a majority
of the votes represented at the meeting is required for the approval of the
amendments to the Cairn Energy USA, Inc. 1993 Stock Option Plan, as amended
(the "1993 Stock Option Plan"), and the Cairn Energy USA, Inc. 1993 Directors
Stock Option Plan, as amended (the "1993 Directors Plan").
An automated system administered by the Company's transfer agent tabulates
the votes. Abstentions are included in the determination of the number of
shares present and voting and are counted as abstentions in tabulating the
votes cast on nominations or proposals presented to stockholders. Broker
nonvotes are not included in the determination of the number of shares present
and voting or as a vote with respect to such nominations or proposals.
PRINCIPAL STOCKHOLDERS AND STOCK OWNERSHIP OF MANAGEMENT
The following table sets forth information regarding the beneficial
ownership of Common Stock as of the Record Date by (i) each person known to
the Company to own beneficially more than 5% of the outstanding Common Stock;
(ii) each director and director nominee of the Company; (iii) the Company's
chief executive officer and each executive officer of the Company who earned
in excess of $100,000 in salary and bonus in 1995 (collectively, the "named
Executive Officers"); and (iv) all directors, director nominees and executive
officers of the Company as a group.
DCC14151 15467/1
COMMON STOCK
Shares PERCENT OF CLASS
NAME OF STOCKHOLDER OR GROUP Beneficially Owned{ (1)} Beneficially Owned
Phemus Corporation{ (2)} 2,750,000 15.7%
Mellon Bank Corporation{ (3)} 982,000 5.6%
John Hancock Advisors, Inc.{ (4)} 955,000 5.4%
Michael R. Gilbert 146,802{ (5)} *
J. Munro M. Sutherland 79,171{ (6)} *
Robert P. Murphy 107,616{ (7)} *
R. Daniel Robins 22,000{ (8)} *
Jack O. Nutter, II 35,000{ (9)} *
John C. Halsted - *
William B.B. Gammell - *
Michael E. McMahon 10,000{ (10)} *
James M. Alexander 10,000 *
Thomas R. Hix - *
All directors, director nominees and executive officers
as a group/12 persons 412,228{ (11)} 2.3%
* Less than 1%.
{(1) }Unless otherwise indicated, each person or group has sole voting and
investment power with respect to all such shares. Unless otherwise
indicated, the number of shares and percentage of ownership of Common
Stock for each of the named stockholders and all directors, director
nominees and executive officers as a group assumes that shares of
Common Stock that the stockholder or directors, director nominees and
executive officers as a group may acquire within sixty days of the
Record Date are outstanding.
{(2) }The business address of Phemus Corporation is 600 Atlantic Avenue,
Boston, Massachusetts 02210-2203.
{(3) }Based on information provided in a Schedule 13G dated January 29, 1996
filed with the Securities and Exchange Commission. Includes shares
owned by Mellon Corporation ("Mellon") and the following direct and
indirect subsidiaries of Mellon: Mellon Bank, N.A. ("Mellon N.A.") and
The Dreyfus Corporation ("Dreyfus"). As of the Record Date, (i) Mellon
has sole voting power over 965,000 shares, shared voting power over
16,000 shares, sole dispositive power over 10,000 shares and shared
dispositive power over 971,000, (ii) Mellon N.A. has sole voting power
over 964,000 shares, sole dispositive power over 9,000 shares and
shared dispositive power over 972,000 shares, and (iii) Dreyfus has
sole voting power and shared dispositive power over 965,000 shares.
{
(4) }Based on information provided in a Scheduled 13G dated February 2,
1996 filed with the Securities and Exchange Commission. John Hancock
Advisors, Inc. ("JHA") has sole voting and dispositive power over
955,000 shares. Through their parent or subsidiary relationship to
JHA, the following entities are indirect beneficial owners of such
shares: John Hancock Mutual Life Insurance Company, John Hancock
Subsidiaries, Inc., John Hancock Asset Management and The Berkeley
Financial Group.
{(5) }Includes 141,667 shares issuable pursuant to the exercise of stock
options exercisable within sixty days of the Record Date and 735 shares
allocated to Mr. Gilbert's account under the Company's 401(k) Profit
Sharing Plan.
{(6) }Includes 63,667 shares issuable pursuant to the exercise of stock
options exercisable within sixty days of the Record Date and 504 shares
allocated to Mr. Sutherland's account under the Company's 401(k) Profit
Sharing Plan.
{(7) }Includes 105,834 shares issuable pursuant to the exercise of stock
options exercisable within sixty days of the Record Date and 682 shares
allocated to Mr. Murphy's account under the Company's 401(k) Profit
Sharing Plan.
{(8) }Includes 20,000 shares issuable pursuant to the exercise of stock
options exercisable within sixty days of the Record Date.
{(9) }Includes 30,000 shares issuable pursuant to the exercise of stock
options exercisable within sixty days of the Record Date.
{(10) }Consists of shares issuable pursuant to the exercise of stock options
exercisable within sixty days of the Record Date.
{(11) }Includes 300 shares of which an executive officer shares voting and
dispositive power with her mother. Includes the 371,168 shares
issuable pursuant to the exercise of stock options exercisable within
sixty days of the Record Date that are referenced in footnotes (5),
(6), (7), (8), (9) and (10) and the 1,921 shares allocated to executive
officer accounts under the Company's 401(k) Profit Sharing Plan
referenced in footnotes (5), (6) and (7).
ELECTION OF DIRECTORS
(Proposal 1)
The Company's Bylaws provide that the number of directors constituting the
board of directors shall be such a number as shall be determined from time to
time by resolution of the board of directors. By resolution of the board of
directors, the number of directors constituting the board of directors was
increased from seven (7) to eight (8) effective as of the date of the Annual
Meeting.
The board of directors is currently comprised of Michael R. Gilbert, J.
Munro M. Sutherland, Jack O. Nutter, II, R. Daniel Robins, John C. Halsted,
William B. B. Gammell and Michael E. McMahon. Messrs. Gammell and McMahon
have resigned as directors of the Company effective as of the date of the
Annual Meeting. The board of directors have nominated James M. Alexander,
Thomas R. Hix and Robert P. Murphy to fill the vacancies created by the
resignations of Messrs. Gammell and McMahan and the increase in the number of
directors.
DIRECTORS AND NOMINEES
Unless otherwise directed in the enclosed proxy card, the persons named in
such proxy intend to nominate and to vote the shares represented by such proxy
for the election of the following named nominees for the offices of directors
of the Company to hold office until the next annual meeting of stockholders or
until their respective successors shall have been duly elected and shall have
qualified.
Information regarding each director and nominee is set forth in the table
and text below:
YEAR FIRST
ELECTED
Principal Occupation Director PRESENT POSITION(S) with the
NOMINEE AGE and Business Address Company
Michael R. Gilbert 46 President and Chief Executive Officer 1992 President and Chief Executive
Cairn Energy USA, Inc. Officer and Director
8235 Douglas Avenue
Suite 1221
Dallas, Texas 75225
J. Munro M. Sutherland 41 Senior Vice President, Chief Financial 1993 Senior Vice President, Chief
Officer and Treasurer Financial Officer, Treasurer
Cairn Energy USA, Inc. and Director
8235 Douglas Avenue
Suite 1221
Dallas, Texas 75225
Jack O. Nutter, II 44 President 1987 Director
Nutter & Harris
927 Fifteenth Street, N.W.
Washington, D.C. 20005
R. Daniel Robins 45 Vice President-Marketing 1992 Director
The Coastal Corporation
Coastal Tower
Nine Greenway Plaza
Houston, Texas 77046
John C. Halsted 31 Vice President 1994 Director
Harvard Management Co.
600 Atlantic Avenue
Boston, Massachusetts 02210
William B. B. Gammell 43 Managing Director 1992 Director
Cairn Energy PLC
Cairn House
61 Dublin Street
Edinburgh EH3 6NL
UNITED KINGDOM
Michael E. McMahon 48 Managing Director 1994 Director
Lehman Brothers
3 World Financial Center
16th Floor
New York, New York 10285
James M. Alexander 44 President - -
Alexander Consulting
600 Travis Street
Suite 6500
Houston, Texas 77002
Thomas R. Hix 48 Senior Vice President - Finance and - -
Chief Financial Officer
Cooper Cameron Corporation
515 Post Oak Blvd., Suite 1200
Houston, Texas 77027
Robert P. Murphy 37 Vice President-Exploration - Vice President-Exploration
Cairn Energy USA, Inc.
8235 Douglas Avenue, Suite 1221
Dallas, Texas 75225
MICHAEL R. GILBERT has served as the President, Chief Executive Officer
and a Director of the Company since February 27, 1992. Mr. Gilbert was the
President and a Director of Cairn Energy USA, Inc. ("Cairn USA"), an oil and
gas exploration and development corporation, from Cairn USA's inception in
March 1989 until it merged (the "Merger") into the Company. From 1982 to
1989, Mr. Gilbert served as Executive Vice President of Canyon Oil and Gas
Company, an oil and gas acquisition company and a subsidiary of Slawson
Companies, Inc., an oil and gas company ("Slawson").
J. MUNRO M. SUTHERLAND has served as Senior Vice President, Chief
Financial Officer and Treasurer of the Company since November 1993.
Mr. Sutherland has been a director of the Company since June 1993. From 1988
to October 1993, Mr. Sutherland was the Finance Director of Cairn Energy PLC,
formerly the Company's majority stockholder and an independent oil and gas
exploration and production company ("Cairn PLC"). Mr. Sutherland is a
Scottish Chartered Accountant.
JACK O. NUTTER, II has served as a director of the Company since December
1987. Since 1991, Mr. Nutter has also served as President of Nutter & Harris,
a governmental relations and business consulting firm. From 1988 to 1991,
Mr. Nutter served as the Senior Vice President of The Jefferson Group, a
government relations consulting firm. From 1981 to 1987, Mr. Nutter acted as
general counsel for Slawson. From 1983 to 1986, Mr. Nutter also served as
President of Canyon Oil & Gas Company, an oil and gas acquisition company and
a subsidiary of Slawson.
R. DANIEL ROBINS has been Vice President of Marketing of The Coastal
Corporation, an integrated oil and gas company, since August 1994. From 1991
to August 1994, Mr. Robins was the President of Prairie States Oil & Gas,
Inc., a natural gas marketing company. From 1986 to 1990, Mr. Robins served
as Senior Vice President of Gas Supply for Enron Corporation, a gas purchasing
and transportation company. Mr. Robins also serves as a paid gas marketing
consultant to the Company and receives approximately ten percent (10%) of his
annual compensation in consulting fees from the Company. Mr. Robins has
served as a director of the Company since February 1992.
JOHN C. HALSTED was elected as a director of the Company on October 10,
1994. Mr. Halsted has been an associate of the Harvard Private Capital Group
since 1993. From 1991 to 1993, Mr. Halsted was an associate of Simmons &
Company International, an investment banking firm. Mr. Halsted received an
M.B.A. from Harvard University in 1991.
WILLIAM B. B. GAMMELL has served as Managing Director of Cairn PLC since
1989. From 1986 to 1989, Mr. Gammell was a director of Cairn Energy
Management Limited, an oil and gas management company. Mr. Gammell has served
as a director of the Company since September 1992.
MICHAEL E. MCMAHON was elected as a director of the Company on October 10,
1994. Mr. McMahon is a Managing Director with Lehman Brothers. From January
1993 until October 1994, he was a partner with Harvard Management Company.
Harvard Management Company is an affiliate of Phemus Corporation. From
December 1989 through December 1992, Mr. McMahon was a Managing Director of
Salomon Brothers. Mr. McMahon is also a director of Triton Energy Corporation
and Tejas Power Corporation.
JAMES ALEXANDER has been President of Alexander Consulting, Inc., an
independent corporate advisor, since November 1995. From June 1995 to
November 1995, Mr. Alexander served as President of Enron Global Power &
Pipelines, L.L.C. From November 1994 to June 1995, Mr. Alexander served as
Senior Vice President and Chief Financial Officer of Enron Global Power &
Pipelines, L.L.C. From 1992 to 1994, Mr. Alexander served as President of
Alexander Corporate Financial Consulting, Inc., an independent corporate
advisor. From 1990 to 1992, Mr. Alexander served as a Managing Director of
Howard, Weil, Labouisse, Friedrichs Inc. From 1986 to 1990, Mr. Alexander
served as a Managing Director of Drexel Burnham Lambert Incorporated. Mr.
Alexander is a director of Consolidated Graphics, Inc., a printing company.
THOMAS R. HIX has been Senior Vice President-Finance and Chief Financial
Officer of Cooper Cameron Corporation since January 1995. From 1993 to 1995
Mr. Hix was Senior Vice President of Finance, Treasurer and Chief Financial
Office of The Western Company of North America. From 1986 to 1993, Mr. Hix
was Executive Vice President and Chief Financial Officer of Oceaneering
International and Executive Vice President in 1993. Previously, Mr. Hix was
Controller and Vice President of Administration for the Western Oceanic
Drilling unit of The Western Company of North America as well as an audit
manager for Coopers & Lybrand.
ROBERT P. MURPHY joined the Company in 1990 as an exploration geologist
and became the Company's Vice President - Exploration in March 1993. From
1984 to 1990, Mr. Murphy served as an exploration geologist for Enserch
Exploration, an oil and gas company. Mr. Murphy holds a M.S. in geology from
The University of Texas at Dallas.
If elected as a director of the Company, each director will hold office
until next year's annual meeting of stockholders, expected to be held in May
1997, or until his respective successor is elected and shall have qualified.
The Company's board of directors does not expect that any of the above-
named nominees for director will refuse or be unable to accept election as a
director of the Company. Should any of them become unavailable for nomination
or election or refuse to be nominated or to accept election as a director of
the Company, then the persons named in the enclosed form of proxy intend to
vote the shares represented in such form of proxy for the election of such
other person or persons as may be nominated or designated by the Company's
board of directors. No nominee is related by blood, marriage, or adoption to
another nominee or to any executive officer of the Company.
BOARD COMMITTEES AND MEETINGS
Standing committees of the Company's board of directors are an audit
committee (the "Audit Committee") and compensation committee (the
"Compensation Committee"). The Audit Committee met once in 1995. The
Compensation Committee met two times in 1995 and took certain actions by
unanimous written consent.
The Audit Committee's principal responsibilities consist of (i)
recommending the selection of independent auditors, (ii) reviewing the scope
of the audit conducted by such auditors and the audit itself and (iii)
reviewing the Company's internal audit activities and matters concerning
financial reporting, accounting and audit procedures, and policies generally.
Current members of the Audit Committee are Messrs. Nutter, Robins and Halsted.
The Compensation Committee makes recommendations to the board of directors
regarding compensation policies, including salaries, bonuses and other
compensation and administers the Company's employee stock option plans and
reviews and approves the granting of stock options. Current members of the
Compensation Committee are Messrs. Nutter, Robins, McMahon and Gammell.
The Company has no standing nominating committee.
The board of directors held four regular or special meetings during 1995.
Various matters were approved during the last fiscal year by unanimous written
consent of the Company's board of directors. No director attended fewer than
75% of the aggregate of (i) the total number of meetings of the Company's
board of directors held during such person's term as a director and (ii) the
total number of meetings held by all committees of the Company's board on
which such director served.
DIRECTOR COMPENSATION
The members of the Company's board of directors and committees of the
board of directors who were not employees of the Company received $2,000 per
regular or special board meeting attended (other than telephonic meetings),
$1,000 for each regular or special telephonic board meeting and $500 for each
committee meeting attended.
1993 DIRECTORS STOCK OPTION PLAN
The Company has in effect the 1993 Directors Stock Option Plan. The
purpose of the 1993 Directors Stock Option Plan is to attract and retain
directors of the Company and to extend to them the opportunity to acquire a
proprietary interest in the Company so that they will apply their best efforts
for the benefit of the Company. The 1993 Directors Stock Option Plan
authorizes the granting of nonstatutory stock options to directors of the
Company (a "Nonemployee Director") who are not and have not been (i) an
employee of the Company or (ii) an employee, officer or director of Cairn PLC
or an affiliate thereof or Phemus Corporation ("Phemus") or an affiliate
thereof. The 1993 Directors Stock Option Plan was amended, effective as of
May 24, 1995, in order to exclude any person who is an employee, officer or
director of Cairn PLC or an affiliate thereof or Phemus or an affiliate
thereof from the class of persons eligible to receive options thereunder.
Such amendment was requested by Phemus to allow directors of the Company who
served in such capacity as a representative of a principal stockholder to
participate in a stock option plan that would permit the assignment of options
granted thereunder to such principal stockholder. See "-Separate Phemus Stock
Option Plan" and "-Separate PLC Stock Option Plan." At the beginning of each
term, each Nonemployee Director automatically receives a nonstatutory option
to purchase 10,000 shares of Common Stock at an exercise price equal to the
last reported sales price per share of the Common Stock on the last business
day prior to the option's date of grant. Each option is fully exercisable six
months after the date of its grant and expires five years after the date of
its grant. A proposed amendment to the 1993 Directors Stock Option Plan
discussed elsewhere herein would increase the number of shares reserved for
issuance upon the exercise of Director Options by 120,000 shares. Following
adoption of the amendment, a total of 270,000 shares (increased from 150,000
shares) of Common Stock will be reserved for issuance upon the exercise of
options granted under the 1993 Directors Stock Option Plan. See "Proposal to
Approve an Amendment to the 1993 Directors Stock Option Plan." Options to
purchase 90,000 such shares have been granted.
SEPARATE PHEMUS STOCK OPTION PLAN
The Company has in effect the Cairn Energy USA, Inc. Separate Phemus Stock
Option Plan (the "Separate Phemus Stock Option Plan"). The purpose of the
Separate Phemus Stock Option Plan is to provide an incentive for certain non-
employee directors of the Company who are not entitled to receive any options
under the 1993 Directors Stock Option Plan to serve as directors of the
Company and to extend to them the opportunity to acquire a proprietary
interest in the Company so that they will apply their best efforts for the
benefit of the Company and to permit such directors to assign such options to
Phemus or its affiliates. The Separate Phemus Stock Option Plan authorizes
the granting of nonstatutory stock options to directors of the Company (i) who
are not and have not been employees of the Company or any affiliated
corporations, (ii) who are not entitled to receive any options under the 1993
Directors Stock Option Plan, and (iii) who are an employee, officer, director
or affiliate of Phemus (an "Eligible Phemus Director"). At the beginning of
each term and, solely with respect to the first year for which the Separate
Phemus Stock Option Plan is adopted, on the date of such adoption, each
Eligible Phemus Director automatically receives a nonstatutory option to
purchase 10,000 shares of Common Stock at an exercise price equal to the last
reported sales price per share of the Common Stock on the last business day
prior to the option's date of grant except that the Separate Phemus Stock
Option Plan provides that the exercise price with respect to options granted
on the date of the adoption of the Separate Phemus Stock Option Plan would be
the same exercise price as set for options granted on May 24, 1995 under
Directors Stock Option Plan. Options are transferable by the holder thereof
to Phemus or an affiliate thereof. Each option is fully exercisable six
months after the date of its grant and expires five years after the date of
its grant. The Separate Phemus Stock Option Plan does not qualify for the
exemption from the operation of Section 16(b) of the Securities Exchange Act
of 1933, as amended (the "Exchange Act") provided by Rule 16b-3. A total of
30,000 shares of Common Stock were reserved for issuance under the Separate
Phemus Stock Option Plan. Options to purchase 10,000 such shares have been
granted. In 1996, Mr. Halsted was granted an option to purchase 10,000 shares
of Common Stock at an exercise price of $10.00 per share. Subsequent to such
grant, Mr. Halsted transferred such option to Phemus.
SEPARATE PLC STOCK OPTION PLAN
The Company has in effect the Cairn Energy USA, Inc. Separate PLC Stock
Option Plan (the "Separate PLC Stock Option Plan"). The purpose of the
Separate PLC Stock Option Plan is to provide an incentive for certain non-
employee directors of the Company who are not entitled to receive any options
under the 1993 Directors Stock Option Plan to serve as directors of the
Company and to extend to them the opportunity to acquire a proprietary
interest in the Company so that they will apply their best efforts for the
benefit of the Company and to permit such directors to assign such options to
PLC or its affiliates. The Separate PLC Stock Option Plan authorizes the
granting of nonstatutory stock options to directors of the Company (i) who are
not and have not been employees of the Company or any affiliated corporations,
(ii) who are not entitled to receive any options under the 1993 Directors
Stock Option Plan, and (iii) who are an employee, officer, director or
affiliate of Cairn PLC (an "Eligible PLC Director"). At the beginning of each
term and, solely with respect to the first year for which the Separate PLC
Stock Option Plan is adopted, on the date of such adoption, each Eligible PLC
Director automatically receives a nonstatutory option to purchase 10,000
shares of Common Stock at an exercise price equal to the last reported sales
price per share of the Common Stock on the last business day prior to the
option's date of grant except that the Separate PLC Stock Option Plan provides
that the exercise price with respect to options granted on the date of the
adoption of the Separate PLC Stock Option Plan would be the same exercise
price as set for options granted on May 24, 1995 under the 1993 Directors
Stock Option Plan. Options are transferable by the holder thereof to PLC or
an affiliate thereof. Each option is fully exercisable six months after the
date of its grant and expires five years after the date of its grant. The
Separate PLC Stock Option Plan does not qualify for the exemption from the
operation of Section 16(b) of the Exchange Act provided by Rule 16b-3. A
total of 30,000 shares of Common Stock were reserved for issuance under the
Separate PLC Stock Option Plan. Options to purchase 10,000 such shares have
been granted. In 1996, Mr. Gammell was granted an option to purchase 10,000
shares of Common Stock at an exercise price of $10.00 per share. Mr. Gammell
has resigned as a director of the Company effective as of the date of the
Annual Meeting. Consequently, the Company does not expect to grant any
additional options under the Separate PLC Stock Option Plan.
COMPENSATION OF THE COMPANY'S EXECUTIVE OFFICERS
The following table sets forth certain information for 1995, 1994 and 1993
with respect to compensation earned by the named Executive Officers.
SUMMARY COMPENSATION TABLE
LONG TERM
COMPENSATION
Annual Compensation Awards
OTHER
NAME AND Principal Position ANNUAL Compensation OPTIONS/ ALL OTHER
Year Salary Bonus SARs (#) Compensation
Michael R. Gilbert 1995 $174,100 $ 70,000{(1)} {(4)} 80,000 $19,501{ (5)}
PRESIDENT AND CHIEF 1994 1993 138,100 50,000{(2)} {(4)} 70,000 18,480{ (5)}
EXECUTIVE OFFICER 125,600 35,509{(3)} {(4)} 120,000 15,732 {(5)}
J. Munro M. Sutherland 1995 130,700 25,000{(1)} {(4)} 50,000 40,000 13,585{ (5)}
SENIOR VICE PRESIDENT 1994 115,600 25,000{(2)} {(4) 40,000 14,875 (6)
1993 19,267 -0- (4)} 1,314 {(6)}
Robert P. Murphy 1995 116,904 52,000{(1)} {(4) 70,000 18,402 (5)
VICE PRESIDENT- 1994 87,010 82,609(2)(3) (4) 60,000 12,095 (5)
EXPLORATION 1993 74,525 34,079(3) (4)} 70,000 10,044 {(5)}
___________________
{(1) }Mr. Gilbert and Mr. Sutherland were paid such bonuses in the first
quarter of 1996. Mr. Murphy was paid $12,000 of such bonus in the
second quarter of 1995 and $40,000 of such bonus in the first quarter
of 1996.
{(2) }Mr. Gilbert and Mr. Sutherland were paid such bonuses in the fourth
quarter of 1994. Mr. Murphy was paid $10,000 of such bonus in the
fourth quarter of 1994.
{(3) }Mr. Gilbert was awarded $15,509 pursuant to the Company's Incentive
Bonus Plan for the net additions to the Company's reserves in 1993.
Mr. Murphy was awarded $24,079 and $72,609 pursuant to the Company's
Incentive Bonus Plan for the net additions to the Company's reserves in
1993 and 1994, respectively. No awards were made in 1995. The awards
are payable to the recipients in three equal annual payments. Mr.
Gilbert and Mr. Sutherland did not participate in the Incentive Bonus
Plan in 1994 or 1995 pursuant to their employment agreements with the
Company.
{(4) }Each executive officer received certain personal benefits in addition
to salary, bonus and the Company's contributions under the Company's
401(k) plan. The aggregate amounts of such personal benefits, however,
did not exceed the lesser of $50,000 or 10% of the total of the annual
salary and bonus reported for such executive officer.
{(5) }Represents the Company's annual contribution to such executive
officer's account under the Company's 401(k) plan.
{(6) }Represents the Company's contribution to Mr. Sutherland's pension
plan.
The following table discloses for each of the named Executive Officers
stock options granted them during 1995 and the potential realizable values for
such stock options:
OPTIONS/SAR GRANTS IN LAST FISCAL YEAR
POTENTIAL REALIZABLE VALUE AT
ASSUMED ANNUAL RATES OF STOCK
PRICE APPRECIATION FOR Option Term
INDIVIDUAL GRANTS
% OF TOTAL
OPTIONS/SHARES
OPTIONS/ SARS GRANTED TO EXERCISE
Granted (#) EMPLOYEES IN OR BASE EXPIRATION
Name Fiscal Year Price{ (1)} Date 5%{ (2)} 10%{ (2)}
Michael R. Gilbert 80,000{ (3)(4)} 32% $12.50 9/20/05 $629,000 $1,594,000
J. Munro M. Sutherland 50,000{ (4)(5)} 20% $12.50 9/20/05 $393,125 996,250
Robert P. Murphy 70,000{ (4)(6)} 28% $12.50 9/20/05 $550,375 1,394,750
__________
{(1) }All of these stock options were granted under the Company's 1993 Stock
Option Plan with an exercise price of the "fair market value" of a
share of Common Stock on the last business day prior to the date of
grant. Pursuant to the Company's 1993 Stock Option Plan with respect
to the grant of a stock option, the "fair market value" of a share of
Common Stock is the last reported sales price per share of the Common
Stock on the last business day prior to the date of grant of such
option on the Nasdaq National Market tier of The Nasdaq Stock Market as
reported by THE WALL STREET JOURNAL.
{(2) }These dollar amounts represent the value of the option assuming
certain rates of appreciation from the market price of the Common Stock
at the date of grant. Actual gains, if any, on stock option exercises
are dependent on the future performance of the Common Stock and overall
market conditions. There can be no assurance that the amounts
reflected in this column will be achieved.
{(3) }These options are represented by incentive stock options ("ISOs") that
may receive favorable tax treatment under the Internal Revenue Code of
1986, as amended (the "Code") and nonstatutory stock options ("NSSOs")
that do not receive favorable tax treatment under the Code. The ISOs
represented by these stock options were exercisable in the aggregate
for 3,100 shares of Common Stock of which 1,550 shares will vest on
March 20, 1997, and 1,550 shares will vest on September 20, 1998. The
NSSOs represented by these options were exercisable in the aggregate
for 76,900 shares of Common Stock of which 26,667 shares vested on
March 20, 1996, 25,117 shares will vest on March 20, 1997 and the
remaining 25,116 shares will vest on September 20, 1998.
{(4) }Each of these options becomes exercisable in full upon a change-in-
control of the Company and a subsequent termination of the named
officer's employment agreement with the Company within 24 months of
such change-in-control either by the Company without "due cause" or by
the named officer pursuant to such employment agreement. A change-in-
control has occurred as a result of the Smith Acquisition (as
hereinafter defined) and the transactions pursuant to a stock purchase
agreement, dated July 12, 1994, between Cairn PLC and Phemus (the
"Stock Purchase Agreement") entered into in connection with the Smith
Acquisition.
{(5) }These options are represented by both ISOs and NSSOs. The ISOs
represented by these stock options are exercisable in the aggregate for
10,480 shares of Common Stock of which 5,240 shares will vest on March
20, 1997, and 5,240 shares will vest on September 20, 1998. The NSSOs
represented by these options are exercisable in the aggregate for
39,520 shares of Common Stock of which 16,667 shares vested on March
20, 1996, 11,427 shares will vest on March 20, 1997, and the remaining
11,426 shares will vest on September 20, 1998.
{(6) }These options are represented by both ISOs and NSSOs. The ISOs
represented by these stock options are exercisable in the aggregate for
9,550 shares of Common Stock of which 4,775 shares will vest on March
20, 1997, and 4,775 shares will vest on September 20, 1998. The NSSOs
represented by these options are exercisable in the aggregate for
60,450 shares of Common Stock of which 23,334 shares vested on March
20, 1996, 18,558 shares will vest on March 20,1997, and the remaining
18,558 shares will vest on September 20, 1998.
The following table describes stock options held by each of the named
Executive Officers and the values for their options at December 31, 1995:
OPTION/SAR VALUES AT DECEMBER 31, 1995
VALUE OF
NUMBER OF OPTIONS IN-THE-MONEY
AT FISCAL OPTIONS
YEAR-END EXERCISABLE AT FISCAL
SHARES OF ACQUIRED ON (E)/ YEAR-END{(1)}
EXERCISE VALUE UNEXERCISABLE (U) EXERCISABLE (E)/
NAME REALIZED UNEXERCISABLE (U)
Michael R. Gilbert 0 $0 115,000 (E) $943,125 (E)
155,000 (U) 721,875 (U)
J. Munro M. Sutherland 0 $0 47,000 (E) 368,375 (E)
83,000 (U) 330,375 (U)
Robert P. Murphy 0 $0 82,500 (E) 670,313 (E)
117,500 (U) 477,188 (U)
__________
{(1)} Based on $14.00 per share of Common Stock, which was the closing price
per share of Common Stock on December 31, 1995 on the NASDAQ Stock Market, as
reported by THE WALL STREET JOURNAL.
EMPLOYMENT AGREEMENTS
The Company has entered into employment agreements with Messrs. Michael R.
Gilbert, President and Chief Executive Officer of the Company, J. Munro M.
Sutherland, Senior Vice President, Chief Financial Officer and Treasurer and
Robert P. Murphy, Vice President - Exploration of the Company.
Mr. Gilbert's employment agreement expires on December 31, 1997 and
provides for a base salary of $165,000 in 1995, $185,000 in 1996 and $200,000
in 1997. Mr. Sutherland's employment agreement expires on December 31, 1997
and provides for a base salary of $130,000 in 1995, $135,000 in 1996 and
$140,000 in 1997. Mr. Murphy's employment agreement expires on December 31,
1997 and provides for a base salary of $105,000 in 1995, $135,000 in 1996 and
$135,000 in 1997. Each employment agreement specifies that the services are
to be rendered in Dallas, Texas and provides the executive with certain
benefits, such as health, life and disability insurance and a car allowance,
among other things. The board of directors may also (but is not required to)
supplement the executive's base salary with a bonus in an amount, if any, that
the board of directors shall determine in its discretion.
If the Company terminates any of these employment agreements for "due
cause," death or disability, the terminated executive would be entitled to all
compensation due him up to the date of his termination. If the Company
terminates any of these employment agreements without "due cause" or if an
executive terminates his employment agreement upon the occurrence of certain
specified events ("the Permitted Termination Events"), that executive would be
entitled to all compensation due him under the full term of the employment
agreement plus a severance payment (the "Severance Payment") in an amount
equal to one year's base salary at the date of termination.
Each executive may terminate his employment agreement if any one or more
of the following Permitted Termination Events occurs: (i) if there is a
material adverse alteration or diminution of the executive's position, duties,
responsibilities, reporting relationship, authority or status from those in
effect
when the employment agreement was executed; (ii) if the executive is required
to perform a substantial portion of his service to the Company outside the
Dallas/Fort Worth metropolitan area; or (iii) if the Company breaches his
employment agreement.
If there is a change in control of the Company, and if, within the 24
months following that change in control, any of the employment agreements is
terminated, either by the Company without "due cause" or by the executive upon
the occurrence of a Permitted Termination Event, the terminated executive
would be entitled to all compensation due him under his employment agreement,
the Severance Payment, if any, and an additional payment in the amount of one
year's base salary. Any severance payments resulting from termination
following a change in control are limited so that the terminated executive
does not incur an excise tax and so that the Company receives a deduction
under the Code for the termination payment. Each employment agreement limits
the aggregate amount of all payments to a terminated executive to three times
such executive's base salary on the date of termination. Consummation of the
Smith Acquisition (as hereinafter defined) and the transactions pursuant to
the Stock Purchase Agreement and related agreements resulted in a "change of
control" within the meaning of the employment agreements. The Company does
not expect the occurrence of events requiring payment of compensation due to
the change of control provisions.
Mr. Murphy's employment agreement also provides that if he terminates his
employment other than pursuant to his employment agreement or if the Company
terminates his employment for due cause or following a Permitted Termination
Event, Mr. Murphy would be restricted for one year from the date of such
termination from participating, whether as an employee or otherwise, in the
acquisition of any property or interest within the boundaries of a prospect or
proposal that the Company generates prior to such termination.
Messrs. Gilbert's and Sutherland's employment agreements exclude them from
participating in the Incentive Bonus Program.
REPORT OF COMPENSATION COMMITTEE
The Compensation Committee (the "Committee") of the board of directors is
responsible for administering all stock option plans and making
recommendations to the board of directors regarding compensation policies,
including salaries, bonuses and other compensation of the Company's executive
officers. The Committee is comprised of four outside directors who are not
officers or employees of the Company or its subsidiary. The Committee met two
times during 1995.
DCC13F48 15467-6
COMPENSATION PHILOSOPHY
The Committee believes that total compensation for the Company's executive
officers must be sufficient to attract, retain and motivate executive
officers, while at the same time maintaining a reasonable correlation between
executive compensation and Company performance. The Committee also believes
that incentive compensation must be an integral part of an executive's
compensation in order to motivate that executive to work to expand and replace
the Company's oil and gas reserves and to improve the Company's results.
COMPENSATION PRACTICES
The Company compensates its executive officers through payments of base
salaries, awards of bonuses based on their individual performance and on the
Company's performance, and through grants of stock options pursuant to the
Company's 1993 Stock Option Plan, as amended (the "Plan"). In setting the
compensation for the President, Executive Vice President and Vice President-
Exploration, the Committee considered a survey conducted by KPMG Peat Marwick
of compensation practices of companies in the oil and gas industry (the "KPMG
Peat Marwick Survey") and on the general familiarity of the Committee with
compensation practices of other oil and gas companies. The KPMG Peat Marwick
Survey classifies oil and gas companies by type, geographical location and
operating revenues, but does not identify them by name. The Committee in
1993, 1994 and 1995 recommended increased base salary and cash bonuses to
these executive officers to better reflect the market level compensation paid
to executive officers with comparable functions at oil and gas companies with
comparable revenues. The board of directors has approved these increases in
compensation and has incorporated the increased compensation paid to these
three executive officers in the employment agreements between each such
executive officer and the Company and in the amendments to these agreements
adopted during 1993, 1994 and 1995 and in discretionary bonus payments to
these executive officers.
In 1995, the Committee also recommended, and the board of directors
approved, extending the employment agreements between the Company and Messrs.
Gilbert and Murphy by two years, through 1997. The Company relies heavily on
its small executive staff. The Committee believes that securing their
services, as well as Mr. Sutherland's services, for the extended terms of
their respective employment agreements, will help to assure the continuity of
the Company's management and its pursuit of Company objectives.
In setting specific salaries for other executive officers, the Committee
relies to a great extent on the recommendations of the President as to each
executive officer's contribution to the Company's results. The other
executive officers have not entered into employment agreements with the
Company.
In 1995, the Committee adopted "The General Policy and Guidelines of the
Compensation Committee of Cairn Energy USA, Inc." (the "Guidelines"), which
formalized the principles and procedures that have been followed by the
Committee in setting compensation. Set forth in the Guidelines are the
factors that are to be considered in evaluating the performance of the
executive officers, which include the following: the Company's financial
performance, the Company's exploration and development performance, the
Company's success in obtaining and maintaining adequate capital resources and
increases in stockholder value for the Company's stockholders. The Guidelines
provide that the Committee will receive yearly goals and objectives from the
executive officers at the beginning of each year and that such goals and
objectives will be used as a factor in evaluating performance for such year.
SALARY AND BONUS
The Committee has established salaries based on an executive's scope of
responsibilities, level of experience, individual performance and contribution
to the Company's business and on the KPMG Peat Marwick Survey. The base
annual salaries for the President, Executive Vice President and Vice
President-Exploration are within the median levels of salaries of oil and gas
executives in the Dallas/Fort Worth Metroplex holding comparable positions, as
reported in the KPMG Peat Marwick Survey.
The Incentive Bonus Program provides a financial bonus to certain
employees based on a formula if the Company achieves or exceeds its goals with
respect to finding and developing reserves in any fiscal year. Under the
terms of their respective employment agreements with the Company, neither Mr.
Gilbert nor Mr. Sutherland is eligible to participate in the Incentive Bonus
Program.
The Committee may also, in its discretion, award additional cash bonuses
to individual executive officers based on the Committee's evaluation of such
officer's contribution to the Company's business during the fiscal year.
STOCK OPTIONS
The Committee believes the award of stock options are a key element in the
Company's executive compensation policy. It believes that the award of stock
options and the vesting of such options over time provide the executives with
an incentive to stay with the Company and to work to increase the value of the
stock underlying the options. All stock options granted during 1995 were
granted under the Plan with an exercise price equal to the fair market value
per share of Company's Common Stock (the "Common Stock") on last business day
prior to the date of grant.
In determining the size of stock option grants to the executive officers,
the Committee relied primarily on its evaluation of the performances of the
executive officer during the fiscal year and its estimate of the motivation
for future performance such options would provide to a particular executive
officer. The Committee also considered previously awarded option grants to
the executive officers. The Committee recognizes that there is a significant
subjective element in its approach to determining stock option awards, but
believes that this approach is better suited to the Company than would be a
formula-driven policy. The Committee also relied upon estimates of future
value of such options based upon different assumed compounding rates to
determine whether the grants of options were appropriate. Furthermore, the
Committee consulted with the Company's investment bankers to determine the
range of customary stock option grants to oil and gas executives holding
comparable positions to those of the executive officers of the Company. The
Committee believes that the stock options granted to its executive officers
are comparable with industry practices.
THE PRESIDENT'S 1995 COMPENSATION
Mr. Gilbert's annual base salary is set by his employment agreement with
the Company, which was amended and restated in May 1995. Mr. Gilbert's
employment agreement provides for an annual base salary of $165,000 in 1995,
$185,000 in 1996 and $200,000 in 1997. In evaluating Mr. Gilbert's
performance, the Committee considered (in their order of priorities) the
significant addition to the Company's reserves in 1994 and early 1995,
increases in stockholder value for the Company's stockholders, the increased
liquidity of the Common Stock, the acquisition of additional oil and gas
properties in the Outer Continental Shelf of the Gulf of Mexico, the
disposition of certain non-strategic oil and gas properties, the negotiation
of an increase in the Company's banking facility, and Mr. Gilbert's leadership
and management skills exhibited in connection with his management of the
Company as a publicly held corporation, including communications with
stockholders, market makers, analysts and investment bankers. The Committee
believes that this compensation level rewards Mr. Gilbert's performance,
extends his commitment to the Company, which would provide the Company greater
management continuity, and places his base salary, together with other cash
compensation, within the median range for base salary and cash compensation
paid to presidents of oil and gas companies in the Dallas/Fort Worth
Metroplex, as reported in the KPMG Peat Marwick Survey.
Mr. Gilbert's employment agreement also provides for the payment of a
discretionary cash bonus to be determined by the board of directors after
recommendation by the Committee. For 1995, the Committee recommended, and the
board of directors approved, the payment to Mr. Gilbert of $70,000 as his
discretionary bonus, which was paid in the first quarter of 1996. The
Committee recommended this amount primarily because his role in increasing
stockholder value for the Company's stockholders and increasing the liquidity
of the Common Stock in 1995 through the sale of shares by Cairn PLC, Phemus
and the Company in the public markets and to place his overall compensation
for 1995 into the median range for cash compensation for presidents of oil and
gas companies in the Dallas/Fort Worth Metroplex, as reported in the KPMG Peat
Marwick Survey.
Under the terms of his employment agreement, Mr. Gilbert is not eligible
to participate in the Incentive Bonus Program.
As an incentive for his future performance, the Committee awarded to Mr.
Gilbert options exercisable in the aggregate for 80,000 shares of Common
Stock, with exercise prices equal to the fair market value per share of Common
Stock on last business day prior to the date of grant. These shares are
vesting in equal increments in 1996, 1997 and 1998.
OTHER EXECUTIVE OFFICERS' 1995 COMPENSATION
The annual base salaries paid in 1995 to Mr. Sutherland, the Senior Vice
President, and Mr. Murphy, the Vice President-Exploration, set by the
employment agreements, which were amended and restated in 1995. The annual
base salaries in 1995 for Messrs. Sutherland and Murphy were $130,000 and
$105,000, respectively. Mr. Murphy was awarded discretionary cash bonuses of
$12,000 and $40,000 to recognize his value to the Company as an oil and gas
finder, which were paid in the second quarter of 1995 and first quarter of
1996, respectively. Under the terms of his employment agreement, Mr.
Sutherland is not eligible to participate in the Incentive Bonus Program.
However, Mr. Sutherland received a discretionary cash bonus of $25,000, which
was paid in the first quarter of 1996. The Committee recommended this bonus
primarily because of his role in increasing stockholder value for the
Company's stockholders and in increasing the liquidity of the Common Stock in
1995 through the sale of shares by Cairn PLC, Phemus and the Company in the
public markets
Mr. Sutherland's employment agreement provides for a base salary of
$130,000 in 1995, $135,000 in 1996, and $140,000 in 1997. Mr. Murphy's
employment agreement provides for a base salary of $105,000 in 1995, $135,000
in 1996, and $135,000 in 1997.
In September 1995, the Committee recommended to the board of directors
that Mr. Murphy's salary for 1996 be increased to $135,000 (from $125,000).
In recommending this extension and increased base salary, the Committee
acknowledged Mr. Murphy's importance to the Company's efforts to increase and
replace its reserves. The Committee also noted that, while the new annual
base salaries provided to Mr. Murphy in his amended employment agreement
remain slightly below the median amounts paid to persons performing similar
functions in other oil and gas companies in the Dallas/Fort Worth Metroplex,
as reported in the KPMG Peat Marwick Survey, bonuses awarded to Mr. Murphy
would increase his cash compensation to a level higher than the median.
On September 20, 1995 the Committee awarded to Mr. Sutherland options
exercisable in the aggregate for 50,000 shares of Common Stock and to Mr.
Murphy options exercisable in the aggregate for 70,000 shares of Common Stock.
The options granted to both Mr. Sutherland and Mr. Murphy on September 20 are
vesting in equal increments in 1996, 1997 and 1998 and have exercise prices
equal to the fair market value per share of Common Stock on last business day
prior to the date of grant.
The number of stock options granted to Messrs. Sutherland and Murphy were
intended to provide each with long-term performance incentives. In addition,
the Committee believes that stock options provide Mr. Murphy with a greater
performance incentive than does the level of cash compensation alone.
In recommending the base salary for the other executive officers, the
Committee relies to a great extent on the recommendations of the President as
to each executive officer's contribution to the Company's results. Also in
1995, the Committee authorized the grant of options exercisable in the
aggregate for 11,500 shares of Common Stock under the 1993 Stock Option Plan
to other executive officers. This was the first such grant of options to
other executive officers. The Committee awarded these options in recognition
of the fact that the Company has a small executive staff and that the
Company's success is largely dependent upon the performance of all of its
executive officers.
$1 MILLION DEDUCTION CAP
The Company generally is not permitted a deduction for compensation paid
to its chief executive officer or any of its next four highest paid officers
in excess of $1,000,000 each. This limitation is in section 162(m) of the
Code, which section was added to the Code by the Omnibus Budget Reconciliation
Act of 1993. Compensation subject to this limitation includes most forms of
compensation, e.g., cash compensation paid under the executive's employment
contract and bonuses under the Incentive Bonus Program or other bonuses
awarded at the discretion of the Committee. Additionally, compensation for
this purpose also may include employee stock options for the year in which the
Company would be entitled to a deduction with respect to such options, i.e.,
in the year Nonstatutory Stock Options are exercised or, for Incentive Stock
Options, the year in which the employee makes a disqualifying distribution of
the stock received upon an exercise of the Incentive Stock Option.
The current compensation of any of the Company's executives under their
employment contracts or bonus awards is significantly less than $1,000,000.
Based upon the final Treasury Regulations promulgated on December 19, 1995,
the Company does not believe that the limitation will adversely affect the
Company with respect to its current compensation structure. The Company will
consider this limitation in the final Treasury Regulations with respect to
future compensation of its executives to determine what, if any, action is
appropriate.
Jack O. Nutter, II, Chairman
R. Daniel Robins
William B. B. Gammell
Michael E. McMahon
PERFORMANCE GRAPH
[INSERT GRAPH FROM DISK]
The performance graph assumes the investment of $100 on January 1, 1991.
The MG Industry Group 361 is composed of the following companies:
Alberta Energy Co. Ltd. Louisiana Land & Exploration Co.
Barnwell Industries Inc. Maynard Oil Company
Basic Petroleum International Mitchell Energy & Development
Limited Corp.
Bellwether Exploration Company Class A Common Stk
Benton Oil & Gas Company Numac Energy
Berry Petroleum Company Class A Occidental Petroleum Corporation
Common Stk Panhandle Royalty Class A Common
Blue Dolphin Energy Company Stock
Box Energy Corporation Class B Parker & Parsley Petroleum
Common Stk Company
Broken Hill Proprietary Petroleum Development Corporation
Burlington Resources Inc. Petrominerals Corporation
Burmah Castrol PLC-ADC Powerhouse Resources Inc.
Canadian Occidental Petroleum Ranger Oil Ltd.
Limited Saga Petroleum As ADS A
Columbus Energy Corp. Saga Petroleum As ADS B
Comstock Resources Inc. Santa Fe Energy Resources Inc.
Conerstone Natural Gas Santa Fe Energy Trust
Devon Energy Corporation Sceptre Resources Ltd.
Dorchester Hugoton Ltd. Seaboard Oil Corporation
Dusty Mac Oil & Gas Ltd. Solv-Ex Corp.
ENI Spa ADS Struthers Ind
Equity Oil Company Sun Energy Partners L.P.
The Exploration Company Texas Meridian Resources
Flores & Rucks, Inc. Corporation
Gerrity Oil & Gas Corporation Tipperary Corporation
Hallwood Energy Partners L.P. TransTexas Gas Corporation
Harken Energy Corporation United States Explor Inc.
Hawkins Energy Corporation USX-Delhi Group
Hondo Oil & Gas Company Vaalco Energy Inc.
HS Resources, Inc. Wainoco Oil Corporation
Internat Petroleum Corporation Westamerica Corporation
Western Atlas
The Wiser Oil Company
The companies comprising MG Industry Group 361 are not necessarily the
same companies surveyed in the KPMG Peat Marwick Survey. (See "Report of
Compensation Committee".)
The information in the performance chart for the Company prior to
September 29, 1992 (the effective date of the Merger) relates solely to the
Company without regard to Cairn USA. Given the significant changes in the
Company resulting from the Merger and the Company's positive developments
since the Merger, the Company does not believe that the Company's performance
as reflected on the performance chart prior to that date is indicative of the
Company's current management, business or assets.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
No member of the Compensation Committee is or has been an officer or
employee of the Company or any of its subsidiaries or had any relationship
requiring disclosure pursuant to Item 404 of SEC Regulation S-K. No executive
officer of the Company served as a director or on the compensation committee
of another entity.
CERTAIN TRANSACTIONS
On June 19, 1995, Cairn Energy PLC, then a principal stockholder of the
Company, sold 2,623,260 shares of Common Stock it held at a price of $10 per
share pursuant to a registration statement on Form S-3 under the Securities
Act of 1933, as amended (the "Securities Act"). Pursuant to a registration
rights agreement, the Company bore all expenses (other than commissions and
discounts of underwriters, dealers or agent) incurred in connection with this
offering; such expenses were approximately $ 78,000. As a result of this
sale, Cairn Energy PLC is no longer a stockholder of the Company.
Phemus is an indirect wholly-owned subsidiary of the President and Fellows
of Harvard College and was the sole stockholder of Smith Offshore Exploration
Company II ("Smith"). In October 1994 the Company consummated an agreement
with Smith and Phemus, where the Company acquired (the "Smith Acquisition")
substantially all of the oil and gas assets of Smith (the "Smith Assets") in
exchange for shares of Common Stock and the assumption of certain liabilities
related to the Smith Assets. At the closing of the Smith Acquisition,
3,500,000 shares of Common Stock were issued to Phemus and an additional
1,000,000 shares of Common Stock were placed in escrow, to be distributed to
Phemus or revert to the Company based on certain valuation criteria that were
to be applied to the Smith Assets. Under the terms of the Smith Acquisition
agreement, unless the Smith Assets had a value (based upon the defined
criteria) as of June 30, 1995 equal to at least $22,350,000, Phemus was
required to return the 1,000,000 shares of the Common Stock held in escrow and
to pay $3.9 million to the Company. Simultaneously with the closing of the
Smith Acquisition, Phemus purchased 2,000,000 shares of the Company's Common
Stock at $7.50 per share from the former principal stockholder of the Company.
On the basis of preliminary engineering valuations of the Smith Assets,
Phemus and the Company agreed that Phemus would return to the Company the
1,000,000 shares of Common Stock held in escrow and pay $3.9 million in cash
to the Company. The return of the escrow shares and the cash payment to the
Company were effected in August 1995.
On September 14, 1995, Phemus sold 2,750,000 shares of Common Stock it
held at an offering price of $11.25 per share pursuant to a registration on
Form S-3 under the Securities Act. The Company sold 1,562,500 shares of
Common Stock at a price of $11.25 per share in the offering. The Company bore
approximately $64,000 of the approximately $240,000 incurred in connection
with this offering.
Mr. R. Daniel Robins serves as a consultant to the Company. The Company
paid Mr. Robins in 1995 an aggregate of $18,000 in consulting fees.
Mr. Jack O. Nutter, II serves as a consultant to the Company. During
1995, the Company paid Nutter & Harris, a consulting firm of which Mr. Nutter
is president, an aggregate of $29,800 in consulting fees.
REGISTRATION RIGHTS RELATING TO COMMON STOCK
The Company has provided registration rights to Phemus (the "Phemus
Registration Rights Agreement") with respect to shares acquired from the
Company in the Smith Acquisition and from Cairn PLC under the Stock Purchase
Agreement, including the Escrow Shares and any Warrant Shares issued to Smith
(the "Phemus Registrable Securities"). Under the Phemus Registration Rights
Agreement, Phemus has the right to two demand registrations, provided that a
registration is not within six months after the effective date of a
registration statement for an underwritten public offering of Company
securities and that the request covers at least the lesser of (i) 20% of the
Phemus Registrable Securities outstanding as of the closing of the Smith
Acquisition (which excludes the Escrow Shares and the Warrant Shares), (ii)
the number of Phemus Registrable Securities whose aggregate offering price is
expected to be at least $20,000,000, or (iii) 1,000,000 shares of the Common
Stock. The Company is not obligated to effect any Securities Act registration
(a) during the 180 days following the effective date of an underwritten public
offering of securities for the account of the Company, (b) if the Company is
conducting or will be conducting within 90 days an underwritten public
offering of equity securities (or securities convertible into equity
securities) of its own account and has been advised in writing by the managing
underwriter that Phemus' requested registration would, in such underwriter's
opinion, materially and adversely affect such offering (in which event the
Company will have the right to defer such filing for a period of not more than
120 days after receipt of the registration request), or (c) if the board of
directors determines that it would not be in the best interests of the Company
and its stockholders for such a registration to be filed at that time (in
which event the Company shall have the right to defer such filing for a period
of not more than 120 days after receipt of the registration request). The
Company may not defer the registration based on (b) or (c) above more than
once in any 12 month period.
The Phemus Registration Rights Agreement also provides that Phemus has the
right to request a registration of the Phemus Registrable Securities on Form
S-3 under the Securities Act at any time. The Company, however, is not
obligated to effect any such registration if (i) Form S-3 is not available to
the Company, (ii) the aggregate net offering proceeds (after deduction of
underwriting discounts and commissions) of the securities specified in such
request is not at least $2,000,000, (iii) the Company has already effected two
registrations on Form S-3 within the previous 12-month period, or (iv) if in
the good faith judgment of the board of directors it would not be in the best
interests of the Company and stockholders to effect such Form S-3 registration
at such time, in which even the Company would have the right to defer the
filing of the Form S-3 registration for up to 120 days after receiving the
Phemus registration request. The Company may not decline to effect such a
registration due to the circumstances described in (iv) above more than once
in any 12-month period. Phemus has exercised one Form S-3 registration right
under the Phemus Registration Rights Agreement.
The Phemus Registration Rights Agreement provides that Phemus has
piggyback registration rights to include Phemus Registrable Securities in
certain Securities Act registrations filed by the Company.
The Company will pay for all expenses, other than underwriting discounts
and commissions, relating to the sale of securities by Phemus under the Phemus
Registration Rights Agreement. The Company will not be required, however, to
pay for any expenses of the registration of Phemus' Registrable Securities on
Form S-3 after Phemus has participated in four registrations.
Phemus may transfer its rights under the Phemus Registration Rights
Agreement (i) to an affiliate of Phemus or (ii) in connection with the sale or
other transfer to a holder holding, immediately after such transfer, at least
25% of the Phemus Registrable Securities outstanding as of October 10, 1994.
Notwithstanding the foregoing, holders of fewer than 25% of the Phemus
Registrable Securities outstanding as of October 10, 1994 will be permitted to
exercise the rights under the Phemus Registration Rights Agreement if they
appoint Phemus as their representative to accept notices on their behalf.
The Phemus Registration Rights Agreement prohibits the Company from
granting registration rights to other persons that would permit such persons
to include their shares of Common Stock or other Company securities in any
Phemus demand registration, unless the inclusion of such other parties'
securities will not reduce the amount of Phemus Registrable Securities that
would otherwise be included in such registration, except with the consent of
the holders of a majority of the Phemus Registrable Securities then
outstanding. In addition, without such consent, the Company may not grant
piggy-back registration rights to other persons unless the agreements granting
such rights provide that the prospective rights holders may include their
securities in a registration only to the extent that inclusion will not reduce
the amount of Phemus Registrable Securities includable in the registration
below an amount equal to the number of Phemus Registrable Securities then
outstanding multiplied by the quotient of (x) the number of Phemus Registrable
Securities then outstanding divided by (y) the number of shares of Common
Stock held by all those holders (including Phemus) of the Common Stock seeking
to include securities in the piggy-back registration.
SECTION 16 COMPLIANCE
Section 16(a) of the Exchange Act requires that certain of the Company's
officers and all directors and persons who own more than 10% of a registered
class of the Company's equity securities, to file reports of ownership and
changes of ownership with the Securities and Exchange Commission ("SEC").
These officers, directors and greater than 10% stockholders of the Company are
required by SEC regulation to furnish the Company with copies of all Section
16(a) reports they file.
Based solely on a review of the copies of such reports received, the
Company believes that for 1995 all officers, directors and greater than 10%
beneficial owners complied with applicable filing requirements.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" THE ELECTION OF
EACH OF THE INDIVIDUALS NOMINATED FOR ELECTION AS A DIRECTOR.
DCC13F48 15467-6
PROPOSAL TO APPROVE FIRST AMENDMENT TO THE 1993 STOCK OPTION PLAN
(Proposal 2)
On February 29, 1996, the board of directors adopted, subject to
stockholder approval, an amendment to the 1993 Stock Option Plan to increase
the number of shares reserved for issuance upon exercise of options granted
pursuant to the 1993 Stock Option Plan (the "Option Shares") from 650,000 to
1,150,000. The Company has issued options to purchase 650,000 shares pursuant
to the 1993 Stock Option Plan and must increase the number of Option Shares in
order to grant additional options. No additional stock options will be
granted pursuant to the 1993 Stock Option Plan until after the Company's
stockholders approve this amendment. The material features of the 1993 Stock
Option Plan are discussed below.
GENERAL
The purpose of the 1993 Stock Option Plan is to provide an incentive for
key employees of the Company to remain in the service of the Company, to
extend to them the opportunity to acquire a proprietary interest in the
Company so that they will apply their best efforts for the benefit of the
Company and to aid the Company in attracting able persons to enter the service
of the Company. In furtherance of this purpose, the 1993 Stock Option Plan
authorizes the granting of Incentive Stock Options, as defined section 422 of
the Code, and Nonstatutory Stock Options (Incentive Stock Options and
Nonstatutory Stock Options collectively referred to as "Options") to eligible
individuals. Eligible individuals under the 1993 Stock Option Plan are key
employees, including officers and directors of the Company who are also
employees of the Company or affiliated corporations of the Company.
Stockholder approval of material amendments to the 1993 Stock Option Plan,
including an increase in the aggregate number of shares of Common Stock that
may be issued (except adjustments to prevent dilution), is required as a
condition for qualifying the Incentive Stock Options to be granted under the
1993 Stock Option Plan as such under the Code. Stockholder approval is also a
condition of Rule 16b-3, a rule promulgated by the SEC under Section 16(b) of
the Exchange Act. Section 16(b) provides, among other things, that any person
who is a beneficial owner of more than 10% of an equity security of a company
registered under the Exchange Act or who is an officer or director of that
company will be liable to the company for any profit realized from any
purchase and sale (or any sale and purchase) of any equity security of such
company within a period of less than six months, irrespective of the intention
on the part of such person entering into the transaction. Rule 16b-3 provides
an exemption from the operation of the "short-swing profit" recovery
provisions of Section 16(b) of the Exchange Act with respect to the granting
and vesting of Options.
The amendment to the 1993 Stock Option Plan will increase the number of
shares reserved for issuance upon the exercise of Options by 500,000 shares.
Following the amendments, a total of 1,150,000 shares of Common Stock (subject
to adjustment as described below) will be reserved for issuance upon the
exercise of Options. On April 1, 1996, the closing price for a share of
Common Stock on the Nasdaq National Market was $11.50.
The table headed "Options/SAR Grants in Last Fiscal Year" describes
Options granted pursuant to the 1993 Stock Option Plan during 1995; these
grants exhausted the shares reserved for issuance pursuant to options granted
under the Plan. No awards of options under the 1993 Option Plan have yet been
designated to be granted following approval of this amendment to the Plan.
ADMINISTRATION
The Compensation Committee administers the 1993 Stock Option Plan (see
"Report of Compensation Committee"). The Compensation Committee currently
consists of four members of the board of directors (and shall not consist of
fewer than two members), all of whom are "disinterested persons." For
purposes of the 1993 Stock Option Plan, a disinterested person is generally
one who, during the one-year period preceding his service as an administrator
of the 1993 Stock Option Plan and during such service, was not granted or
awarded stock, stock options, stock appreciation rights or other awards
pursuant to the 1993 Stock Option Plan or any other plan of the Company or its
affiliates, with certain exceptions. One such exception is that a
"disinterested person" who is an administrator of the 1993 Stock Option Plan
may receive formula awards under another plan of the Company if the
administrators of such other plan do not use discretion in determining the
amounts or terms of options awarded under such plan. The members of the
Compensation Committee are eligible to receive options under the 1993
Directors Stock Option Plan; however, grants of options under that Plan are
automatic and based on a set formula and, therefore, are intended not to
disqualify Compensation Committee members who receive options under the 1993
Directors Stock Option Plan from being disinterested persons under Rule 16b-3.
GRANTS AND TERMS OF OPTIONS
Options granted under the 1993 Stock Option Plan may be either Incentive
Stock Options or Nonstatutory Stock Options. The date of grant of an Option
under the 1993 Stock Option Plan is, for all purposes, the date on which the
Compensation Committee completes all actions constituting the grant of an
Option to an employee. An Option will be exercisable in such amounts and at
such intervals as the Compensation Committee will provide in the Option,
provided that the Option has not expired on the date of exercise. The
proposed amendment would modify the preceding sentence to the extent that all
options held by an employee would become exercisable upon the death of such
employee. The term of each Option is determined by the Compensation
Committee, provided that it may not exceed ten years from the date of grant.
Each Option is evidenced by an Option Agreement that may contain any terms
and conditions that the Compensation Committee deems necessary, desirable or
appropriate, provided that such terms and conditions are not inconsistent with
the 1993 Stock Option Plan or applicable law. Such other terms and conditions
may include, without limitation, relating an Option to the achievement of
specific goals or to the continued employment of the optionee for a specified
period of time. Options granted to eligible persons are in addition to
regular director's fees, salaries and other benefits relating to such eligible
person's position with the Company or affiliated corporations of the Company.
Neither the 1993 Stock Option Plan nor any Option confers any right to
continue in the employment of the Company or any affiliated corporation of the
Company or to continue to serve as a director of the Company or an affiliated
corporation of the Company. The 1993 Stock Option Plan was amended in 1994 to
provide that if an Option holder's employment is terminated within 24 months
of a change in control of the Company, all Options held by such person shall
be exercisable in full as of the date of such termination.
Shares of Common Stock issuable upon the exercise of Options granted under
the 1993 Stock Option Plan may be either shares held in the Company's treasury
or from authorized but unissued shares. If any Option or any part of such
Option, expires, terminates, or is canceled or surrendered as to any shares,
for any reason without having been exercised in full, the shares allocable to
the unexercised portion of such Option may again be subject to the grant of
Options under the 1993 Stock Option Plan. An Option shall clearly state
whether it is an Incentive Stock Option or a Nonstatutory Stock Option.
EXERCISE PRICE. The exercise price per share for an Option is the price
determined by the Compensation Committee; provided, however, that the exercise
price per share of Incentive Stock Options shall not be less than the fair
market value of the Common Stock on the date of the grant.
EXERCISE OF OPTIONS AND PAYMENT. Each Option is exercisable in such
amounts, at such intervals and upon such terms as the Compensation Committee
determines in its sole discretion upon granting such Options; however, in no
event shall an Option be exercisable during the six-month period following the
date of grant or more than ten years after the date of grant. A proposed
amendment to the 1993 Stock Option Plan would provide that all options held by
an optionee will become exercisable upon the death of such optionee. See
"Proposal to Approve Second Amendment to 1993 Stock Option Plan."
An Option may be exercised by written notice to the Company. Such written
notice must be in accordance with the terms of such Option, and accompanied by
payment of the full exercise price for the shares the optionee chooses to
exercise. In addition, arrangements must be made that are satisfactory to the
Compensation Committee for the optionee's payment to the Company of the amount
that the Compensation Committee determines to be necessary for the Company, or
an affiliated corporation of the Company employing the optionee, to withhold
amounts in accordance with applicable federal or state income tax withholding
requirements. The payment of the exercise price must be in cash or by
certified or cashier's check, or wire transfer of immediately available funds.
TERMINATION OF OPTION. Unless an Option provides otherwise, generally the
unexercised portion of an exercisable Option will terminate 90 days after the
holder ceases to be an eligible individual under the 1993 Stock Option Plan.
If an eligible individual dies or is disabled while an eligible individual
under the 1993 Stock Option Plan, such person's Options shall remain
exercisable for one year after death or disability. A proposed amendment to
the 1993 Stock Option Plan would provide that the exercise period of all
options granted under the 1993 Stock Option Plan will be twenty-four (24)
months after the holder ceases to be an eligible individual under the 1993
Stock Option Plan. See "Proposal to Approve Second Amendment to 1993 Stock
Option Plan." The portion of the Option that is not exercisable on the date
the holder ceases to be an eligible individual shall terminate and be
forfeited on such date. In any case, the unexercised portion of an Option
will automatically terminate on the tenth anniversary of such Option's date of
grant.
ADJUSTMENTS AND REORGANIZATION. To prevent dilution of the rights of a
holder of an Option, in certain instances such as stock splits, stock
dividends or other recapitalizations or reorganizations of the Company, the
Compensation Committee shall make appropriate adjustments to the number of
shares reserved under the 1993 Stock Option Plan and the number of shares
subject to and exercise price of each outstanding Option.
Generally, in the event of a dissolution or liquidation of the Company, a
material merger or consolidation of the Company in which the Company does not
survive, or a stockholder other than Cairn PLC becoming the owner of 50% or
more of the total combined voting power of all classes of the Company's stock,
the board of directors may, at its election, change the number and kind of
shares of stock and exercise price in a manner it deems appropriate or
purchase the outstanding Options from each holder for the excess of the fair
market value of the Option over its exercise price.
TRANSFERABILITY. No Option is assignable or otherwise transferable,
except by will, the laws of descent and distribution, or pursuant to a
qualified domestic relations order. Options may be exercised solely by the
optionee during his lifetime or after his death by the personal representative
of his estate or the persons entitled thereto under his will or under the laws
of descent and distribution, or pursuant to a qualified domestic relations
order.
SPECIAL PROVISIONS FOR INCENTIVE STOCK OPTIONS. Incentive Stock Options
may be granted only to employees of the Company or affiliated corporations of
the Company. The aggregate fair market value (determined at the date of grant
of the Incentive Stock Option) of shares with respect to which any Incentive
Stock Option first becomes exercisable during any calendar year under the 1993
Stock Option Plan and any other plan of the Company or any affiliated company
of the Company (as defined in the Code) shall not exceed $100,000.
An Incentive Stock Option shall not be granted to any person owning more
than ten percent of the outstanding Common Stock (or total combined voting
power if the Company issues more than one class of stock) unless the option
price for such Incentive Stock Option on the date of grant is at least 110% of
the fair market value of the Shares subject to such Incentive Stock Option at
the date of grant and the period during which the Incentive Stock Option may
be exercised does not exceed five years from the date of grant.
TERMINATION OF 1993 STOCK OPTION PLAN
The 1993 Stock Option Plan will terminate on May 19, 2003, the tenth
anniversary of the date the Company's stockholders originally approved the
1993 Stock Option Plan. Any Options outstanding on such date will remain
outstanding until they have either expired or have been exercised.
AMENDMENTS
The board of directors may at any time terminate or from time to time
amend or suspend the 1993 Stock Option Plan. Subject to changes in the law or
other legal requirements, including any changes in the provisions of Rule 16b-
3, that would permit otherwise, the 1993 Stock Option Plan may not be amended
without the approval of the stockholders to increase the aggregate number of
shares of Common Stock that may be issued under the 1993 Stock Option Plan
(except adjustments to prevent dilution, as discussed above), increase the
maximum period during which Options may be exercised or extend the effective
period of the 1993 Stock Option Plan. No amendment or termination of the 1993
Stock Option Plan may, without an optionee's consent, alter or impair, other
than as provided in the 1993 Stock Option Plan or the optionee's Option
Agreement, any of the rights or obligations under any Option previously
granted to such optionee under the 1993 Stock Option Plan.
FEDERAL INCOME TAX CONSEQUENCES
The federal tax information set forth below is based upon present federal
income tax laws and thus is subject to change when laws change. Moreover,
this summary of tax consequences attempts to paraphrase only the general rules
and is not intended to be a complete description of all tax effects from
participation in the 1993 Stock Option Plan.
GRANT OF OPTIONS. The grant of an Option will not be a taxable event to
the recipient optionee.
EXERCISE OF NONSTATUTORY STOCK OPTION. Generally, upon the exercise of a
Nonstatutory Stock Option, an optionee will recognize ordinary income at the
time of the exercise in the amount equal to the excess of the fair market
value of the shares of Common Stock received over the exercise price paid to
exercise the Nonstatutory Stock Option. The taxable income recognized upon
exercise of a Nonstatutory Stock Option will be treated as compensation
income.
When Common Stock received upon exercise of a Nonstatutory Stock Option
subsequently is sold or exchanged in a taxable transaction, the seller of the
stock generally will recognize capital gain (or loss) in the amount by which
the amount realized exceeds (or is less than) the fair market value of the
Common Stock that was included in income in connection with the exercise; the
character of such gain or loss as long-term or short-term capital gain or loss
will depend upon the holding period of the shares following exercise.
EXERCISE OF INCENTIVE STOCK OPTIONS. The exercise of an Incentive Stock
Option will not be taxable to the optionee. However, to qualify for this
favorable tax treatment of Incentive Stock Options, the optionee may not
dispose of the shares of Common Stock acquired upon the exercise of an
Incentive Stock Option until after the later of two years following the date
of grant or one year following the date of exercise of the Incentive Stock
Option. Upon any subsequent taxable disposition of shares of Common Stock
received upon exercise of a qualifying Incentive Stock Option, the optionee
generally will recognize long-term or short-term capital gain or loss measured
by the difference between the amount realized and the exercise price of the
Incentive Stock Option.
If an Incentive Stock Option does not qualify for favorable incentive
stock option treatment under the Code as described above because of a failure
to satisfy the holding period requirements, the optionee will recognize
ordinary income in the year of the disqualifying disposition equal to the
lesser of (i) the excess of the amount realized over the adjusted basis in
such shares or (ii) the excess of the fair market value of the Common Stock at
the time of exercise over the exercise price, and the Company will be entitled
to a deduction of that amount in that year; if the amount realized exceeds the
fair market value of the Common Stock on the date the Incentive Stock Option
was exercised, the excess will be taxable as long-term or short-term capital
gain, depending on the optionee's holding period for the shares received upon
exercise.
Notwithstanding the favorable tax treatment of Incentive Stock Options for
regular tax purposes, as described above, for alternative minimum tax
purposes, an Incentive Stock Option is treated in the same manner as a
Nonstatutory Stock Option. Accordingly, an optionee who is subject to
alternative minimum tax must include in alternative minimum taxable income,
for the year in which an Incentive Stock Option is exercised, the excess of
the fair market value of the shares of Common Stock received over the exercise
price.
TAX CONSEQUENCES TO THE COMPANY. The Company will not be entitled to a
deduction for federal income tax purposes for the granting of any Option. The
Company generally will be entitled to a deduction for federal income tax
purposes when an optionee exercises a Nonstatutory Stock Option, in the same
amount as the ordinary income realized by the optionee. The Company will not
be entitled to a deduction for federal income tax purposes upon the exercise
by the optionee of an Incentive Stock Option. If there is a disposition of
shares acquired by the optionee upon exercise of an Incentive Stock Option
before the optionee has satisfied the incentive stock option holding periods,
the Company will be entitled to a deduction for federal income tax purposes at
the same time and in the same amount as the ordinary income realized by the
optionee. All such deductions are subject to the usual rules regarding the
reasonableness of compensation and certain limitations under Section 162(m),
discussed herein under "Report of Compensation Committee -- $1 Million
Deduction Cap."
INDIVIDUAL TAX CONSULTATION. In addition to the federal income tax
consequences described above, the acquisition, ownership or disposition of an
Option or shares acquired upon the exercise of an Option may have tax
consequences under various state or foreign laws that may be applicable to
certain optionees. Since these tax consequences, as well as the federal
income tax consequences described above, may vary from optionee to optionee
depending upon the particular facts and circumstances involved, each optionee
should consult such optionee's own tax advisor with respect to the federal
income tax consequences of the grant or exercise of an Option, and also with
respect to any tax consequences under applicable state or foreign law.
RESTRICTIONS ON RESALE
Shares of Common Stock acquired upon exercise of Options may be sold only
in compliance with the registration requirements of the Securities Act and
applicable state securities laws. The Company intends to file with the SEC an
amendment to the Registration Statement on Form S-8 under which it has
registered under the Securities Act the offer and sale of the shares of Common
Stock reserved under the 1993 Stock Option Plan to include the additional
shares authorized by this amendment to the 1993 Stock Option Plan.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" THE PROPOSAL TO
APPROVE AND ADOPT THE ABOVE-DESCRIBED AMENDMENT TO THE 1993 STOCK OPTION PLAN.
DCC13F48 15467-6
PROPOSAL TO APPROVE SECOND AMENDMENT TO THE 1993 STOCK OPTION PLAN
(PROPOSAL 3)
On February 29, 1996, the board of directors adopted, subject to
stockholder approval, an amendment to the 1993 Stock Option Plan to (i)
provide that all options held by an employee granted under the 1993 Stock
Option Plan will vest upon the death of such employee and (ii) provide that
the exercise period of all options granted under the 1993 Stock Option Plan
will be twenty-four (24) months following the death or termination of an
employee. The material features of the 1993 Stock Option Plan are discussed
elsewhere in this Proxy Statement under the caption "Proposal to Approve First
Amendment to the 1993 Stock Option Plan."
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" THE PROPOSAL TO
APPROVE AND ADOPT THE ABOVE-DESCRIBED AMENDMENT TO THE 1993 STOCK OPTION PLAN.
DCC13F48 15467-6
PROPOSAL TO APPROVE AN AMENDMENT TO THE 1993 DIRECTORS
STOCK OPTION PLAN
(Proposal 4)
On February 29, 1996, the board of directors adopted, subject to
stockholder approval, an amendment to the 1993 Directors Stock Option Plan to
increase the number of shares reserved for issuance upon exercise of options
granted pursuant to the 1993 Directors Stock Option Plan from 150,000 to
270,000. The Company has issued options to purchase 90,000 shares pursuant to
the 1993 Directors Stock Option Plan. The material features of the 1993
Directors Stock Option Plan are discussed below.
GENERAL
The purpose of the 1993 Directors Stock Option Plan is to attract and
retain directors of the Company and to extend to them the opportunity to
acquire a proprietary interest in the Company so that they will apply their
best efforts for the benefit of the Company. In furtherance of this purpose,
the 1993 Directors Stock Option Plan authorized the granting of nonstatutory
stock options ("Director Options") to directors of the Company who are not and
have not been employees of the Company or any affiliated corporations except
Cairn PLC. The 1993 Directors Stock Option Plan authorizes the granting of
nonstatutory stock options to directors of the Company who are not and have
not been (i) employees of the Company or any affiliated corporations or (ii)
an employee, officer or director of Cairn PLC or an affiliate thereof or
Phemus or an affiliate thereof (a "Non-Employee Director"). The 1993
Directors Stock Option Plan was amended, effective as of May 24, 1995, in
order to exclude any person who is an employee, officer or director of Cairn
PLC or an affiliate thereof or Phemus or an affiliate thereof from the class
of persons eligible to receive options thereunder. Such amendment was
requested by Phemus to allow directors of the Company who served in such
capacity as a representative of a principle stockholder to participate in a
stock option plan that would permit the assignment of options granted
thereunder to such principle stockholder. See "Election of Directors-Separate
Phemus Stock Option Plan" and "Election of Directors-Separate PLC Stock Option
Plan."
Stockholder approval of material amendments to the 1993 Directors Stock
Option Plan, including an increase in the aggregate number of shares of Common
Stock that may be issued (except adjustments to prevent dilution), is required
as a condition of Rule 16b-3.
The amendment to the 1993 Directors Stock Option Plan will increase the
number of shares reserved for issuance upon the exercise of Director Options
by 120,000 shares. Following the amendments, a total of 270,000 shares of
Common Stock (subject to adjustment as described below) will be reserved for
issuance upon the exercise of Director Options. On April 1, 1996, the closing
price for a share of Common Stock on the Nasdaq National Market was $11.50.
DCC13F48 15467-6
ADMINISTRATION
The Compensation Committee administers the 1993 Directors Stock Option
Plan (see "Report of Compensation Committee"). The Compensation Committee
currently consists of four members of the board of directors (and shall not
consist of fewer than two members), all of whom are "disinterested persons."
For purposes of the 1993 Directors Stock Option Plan, a disinterested person
is generally one who, during the one-year period preceding his service as an
administrator of the 1993 Directors Stock Option Plan and during such service,
was not granted or awarded stock, stock options, stock appreciation rights or
other awards pursuant to the 1993 Stock Option Plan or any other plan of the
Company or its affiliates, with certain exceptions. One such exception is
that a "disinterested person" who is an administrator of the 1993 Directors
Stock Option Plan may receive formula awards under another plan of the Company
if the administrators of such other plan do not use discretion in determining
the amounts or terms of options awarded under such plan. The members of the
Compensation Committee are eligible to receive options under the 1993
Directors Stock Option Plan; however, grants of options under that Plan are
automatic and based on a set formula and, therefore, are intended not to
disqualify Compensation Committee members who receive options under the 1993
Directors Stock Option Plan from being disinterested persons under Rule 16b-3.
GRANTS AND TERMS OF DIRECTOR OPTIONS
GRANTS OF DIRECTOR OPTIONS. On the date a Non-Employee Director begins
each term he serves as a member of the board of directors (typically the date
of each annual meeting of stockholders of the Company at which directors are
elected), such director shall receive a Director Option exercisable for 10,000
shares of Common Stock.
Each Director Option shall be evidenced by a Director Option Agreement
that may contain any term deemed necessary or desirable by the Committee;
PROVIDED such terms are not inconsistent with the 1993 Directors Stock Option
Plan or applicable law.
Director Options granted to nonemployee directors are in addition to
regular director's fees. Neither the 1993 Directors Stock Option Plan nor any
Director Option confers any right to continue to serve as a director of the
Company or any affiliated corporation of the Company.
Shares of Common Stock to be issued upon the exercise of Director Options
granted under the 1993 Directors Stock Option Plan may be either shares held
in the Company's treasury or from authorized but unissued shares. If any
Director Option or any part of such Director Option, expires, terminates, or
is canceled or surrendered as to any shares, for any reason without having
been exercised in full, the shares allocable to the unexercised portion of
such Director Option may again be subject to the grant of Director Options
under the 1993 Directors Stock Option Plan.
EXERCISE PRICE. The exercise price per share for a Director Option shall
be the fair market value of the Common Stock on the date of the grant.
EXERCISE OF DIRECTOR OPTIONS AND PAYMENT. Each Director Option is first
fully exercisable six months after its date of grant. However, in no event
shall a Director Option be exercisable more than five (5) years after the date
of grant.
A Director Option may be exercised by written notice to the Company. Such
written notice shall be in accordance with the terms of such Director Option,
and must be accompanied by payment of the full exercise price for the shares
the optionee chooses to exercise. In addition, arrangements must be made that
are satisfactory to the Committee in its sole discretion for the Director
optionee's payment to the Company of the amount that the Committee determines
to be necessary for the Company or an affiliated corporation of the Company to
withhold in accordance with applicable federal or state income tax withholding
requirements. The exercise price of any shares of Common Stock purchased
under a Director Option shall be paid solely in cash, certified or cashier's
check or wire transfer of immediately available funds.
TERMINATION OF DIRECTOR OPTION. Unless otherwise provided in any Director
Option, generally the unexercised portion of a Director Option shall not
terminate after the holder ceases to be a Nonemployee Director; provided that
in any case, the unexercised portion of a Director's Option will automatically
terminate on the fifth anniversary of such Director Option's date of grant.
ADJUSTMENTS AND REORGANIZATION. To prevent dilution of the rights of a
holder of a Director Option, in certain instances such as stock splits, stock
dividends or other recapitalizations or reorganizations of the Company, the
Committee shall make appropriate adjustments to the number of shares reserved
under the 1993 Directors Stock Option Plan and the number of shares subject
to, and exercise price of, each outstanding Director Option.
Generally, in the event of a dissolution or liquidation of the Company, a
material merger or consolidation of the Company in which the Company does not
survive, or a stockholder other than Cairn PLC becomes the owner of 50% or
more of the total combined voting power of all classes of the Company's stock,
a holder shall be entitled to receive, upon the exercise of such Directors
Option, with respect to each share of Stock (i) the number of shares of stock
of the surviving corporation (or equity interest in any other entity) and (ii)
any other notes, evidences of indebtedness or other property that such holder
would have received in connection with such transaction had he exercised such
Directors Option with respect to such shares of stock immediately prior to the
record date or the effective date of such transaction.
TRANSFERABILITY. No Director Option is assignable or otherwise
transferable, except by will, the laws of descent and distribution, or
pursuant to a qualified domestic relations order. Director Options may be
exercised solely by the optionee during his lifetime or after his death by the
personal representative of his estate or the persons entitled thereto under
his will, under the laws of descent and distribution or pursuant to such
qualified domestic relations order.
TERMINATION OF 1993 DIRECTORS STOCK OPTION PLAN
The 1993 Directors Stock Option Plan will terminate on the fifth
anniversary of the date the stockholders adopted the plan. Any Director
Options outstanding on such date will remain outstanding until they have
either expired or have been exercised.
AMENDMENTS
The board of directors may at any time terminate or from time to time
amend or suspend the 1993 Directors Stock Option Plan. Subject to changes in
the law or other legal requirements, including any changes in the provisions
of Rule 16b-3, that would permit otherwise, the 1993 Directors Stock Option
Plan may not be amended without the approval of the stockholders to increase
the aggregate number of shares of Common Stock that may be issued under the
1993 Directors Stock Option Plan (except adjustments to prevent dilution, as
discussed above), increase the maximum period during which Options may be
exercised or extend the effective period of the 1993 Directors Stock Option
Plan. No amendment or termination of the 1993 Directors Stock Option Plan
may, without an optionee's consent, alter or impair, other than as provided in
the 1993 Directors Stock Option Plan or the optionee's Director Option
Agreement, any of the rights or obligations under any Director Option
previously granted to such optionee under the 1993 Directors Stock Option
Plan. Additionally, the 1993 Directors Stock Option Plan may not be amended
more than once every six months except to comport with changes in the Code,
the Employee Retirement Income Security Act, as amended, or the rules under
either.
FEDERAL INCOME TAX CONSEQUENCES
The federal tax information set forth below is based upon present federal
income tax laws and thus is subject to change when laws change. Moreover,
this summary of tax consequences attempts to paraphrase only the general rules
and is not intended to be a complete description of all tax effects from
participation in the 1993 Directors Stock Option Plan.
GRANT OF OPTIONS. The grant of a Director Option will not be a taxable
event to the recipient optionee.
EXERCISE OF DIRECTOR OPTION. Generally, upon the exercise of a Director
Option, an optionee will recognize ordinary income at the time of the exercise
in the amount equal to the excess of the fair market value of the shares of
Common Stock received over the exercise price of the Director Option. The
taxable income recognized upon exercise of a Director Option will be treated
as compensation income.
When Common Stock received upon exercise of a Director Option subsequently
is sold or exchanged in a taxable transaction, the holder thereof generally
will recognize capital gain (or loss) in the amount by which the amount
realized exceeds (or is less than) the fair market value of the Common Stock
that was included in income in connection with the exercise; the character of
such gain or loss as long-term or short-term capital gain or loss will depend
upon the holding period of the shares following exercise.
TAX CONSEQUENCES TO THE COMPANY. The Company will not be entitled to a
deduction for federal income tax purposes for the granting of any Director
Option. The Company generally will be entitled to a deduction for federal
income tax purposes when an optionee exercises a Director Option, in the same
amount as the ordinary income realized by the optionee. All such deductions
are subject to the usual rules regarding the reasonableness of compensation
and certain limitations under Section 162(m), discussed herein under "Report
of Compensation Committee -- $1 Million Deduction Cap."
INDIVIDUAL TAX CONSULTATION. In addition to the federal income tax
consequences described above, the acquisition, ownership or disposition of a
Director Option or shares acquired upon the exercise of a Director Option may
have tax consequences under various state or foreign laws that may be
applicable to certain optionees. Since these tax consequences, as well as the
federal income tax consequences described above, may vary from optionee to
optionee depending upon the particular facts and circumstances involved, each
optionee should consult such optionee's own tax advisor with respect to the
federal income tax consequences of the grant or exercise of an Option, and
also with respect to any tax consequences under applicable state or foreign
law.
RESTRICTIONS ON RESALE
Shares of Common Stock acquired upon exercise of Director Options may be
sold only in compliance with the registration requirements of the Securities
Act and applicable state securities laws. The Company intends to file with
the SEC an amendment to the Registration Statement on Form S-8 under which it
has registered under the Securities Act the offer and sale of the shares of
Common Stock reserved under the 1993 Directors Stock Option Plan to include
the additional shares authorized by this amendment to the 1993 Directors Stock
Option Plan.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" THE PROPOSAL TO
APPROVE AND ADOPT THE AMENDMENT TO THE 1993 DIRECTORS STOCK OPTION PLAN.
OTHER BUSINESS
(Proposal 5)
The Board knows of no other business to be brought before the Annual
Meeting. If, however, any other business should properly come before the
Annual Meeting, the persons named in the accompanying proxy will vote the
proxy as in their discretion they may deem appropriate, unless they are
directed by the proxy to do otherwise.
RELATIONSHIP WITH INDEPENDENT PUBLIC ACCOUNTANTS
The Company's independent public accountants for the fiscal year ended
December 31, 1995, were, and for the fiscal year ending December 31, 1996 will
be, the firm of Ernst & Young LLP. It is expected that one or more
representatives of such firm will attend the Annual Meeting and be available
to respond to any questions. Such representatives will be given an
opportunity to make statements at the Annual Meeting, if they so desire, and
are expected to be available to respond to appropriate questions.
DCC13F48 15467-6
DATE FOR RECEIPT OF PROPOSALS
Stockholder proposals to be included in the proxy statement for the 1997
Annual Meeting must be received by the Company no later than December 10,
1996.
BY ORDER OF THE BOARD OF DIRECTORS
SUSAN H. RADER
SECRETARY
April 8, 1996
Dallas, Texas
IT IS IMPORTANT THAT PROXIES BE RETURNED PROMPTLY. STOCKHOLDERS WHO DO NOT
EXPECT TO ATTEND THE MEETING AND WISH THEIR STOCK TO BE VOTED ARE URGED TO
DATE, SIGN AND RETURN THE ACCOMPANYING PROXY IN THE ENCLOSED SELF-ADDRESSED
ENVELOPE. NO POSTAGE IS REQUIRED IF MAILED IN THE UNITED STATES.
DCC13F48 15467-6
PROXY
CAIRN ENERGY USA, INC.
8235 DOUGLAS AVENUE
SUITE 1221
DALLAS, TEXAS 75225
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS.
The undersigned hereby appoints Michael R. Gilbert and J. Munro M.
Sutherland, and each of them, as proxies, each with the power to appoint his
substitute, and hereby authorizes them to represent and vote, as designated
below, all of the shares of the common stock of Cairn Energy USA, Inc. (the
"Company"), held of record by the undersigned on April 1, 1996, at the Annual
Meeting of Stockholders of the Company to be held on May 22, 1996, and any
adjournment(s) thereof.
THIS PROXY, WHEN PROPERLY EXECUTED AND DATED, WILL BE VOTED IN THE
MANNER DIRECTED HEREIN BY THE UNDERSIGNED STOCKHOLDER(S). IF NO DIRECTION IS
MADE, THIS PROXY WILL BE VOTED FOR THE ELECTION OF THE NOMINEES UNDER
PROPOSAL 1, FOR THE APPROVAL AND ADOPTION OF THE AMENDMENT TO THE 1993 STOCK
OPTION PLAN UNDER PROPOSAL 2, FOR THE APPROVAL AND ADOPTION OF THE AMENDMENT
TO THE 1993 STOCK OPTION PLAN UNDER PROPOSAL 3, FOR THE APPROVAL AND ADOPTION
OF THE AMENDMENT TO THE 1993 DIRECTORS STOCK OPTION PLAN UNDER PROPOSAL 4, AND
THE PROXIES WILL USE THEIR DISCRETION WITH RESPECT TO ANY MATTERS REFERRED TO
IN PROPOSAL 5.
1. PROPOSAL TO ELECT THE FOLLOWING PERSONS AS DIRECTORS OF THE COMPANY
TO HOLD OFFICE UNTIL THE NEXT ANNUAL ELECTION OF DIRECTORS BY STOCKHOLDERS OR
UNTIL THEIR SUCCESSORS SHALL HAVE BEEN DULY ELECTED AND SHALL HAVE QUALIFIED.
FOR all nominees listed (except as marked to the contrary)
WITHHOLD AUTHORITY to vote for all nominees listed
Michael R. Gilbert Jack O. Nutter, II John C. Halsted
J. Munro M. Sutherland James M. Alexander Robert P. Murphy
R. Daniel Robins Thomas R. Hix
(INSTRUCTION: To withhold authority to vote for any individual nominee,
write that nominee's name on the space provided below.)
2. PROPOSAL TO APPROVE AND ADOPT THE AMENDMENT TO THE 1993 STOCK
OPTION PLAN TO INCREASE THE NUMBER OF SHARES RESERVED FOR ISSUANCE UPON
EXERCISE OF OPTIONS GRANTED THEREUNDER.
FOR AGAINST ABSTAIN
3. PROPOSAL TO APPROVE AND ADOPT THE AMENDMENT TO THE 1993 STOCK
OPTION PLAN TO AMEND CERTAIN PROVISIONS REGARDING THE EXERCISABILITY OF
OPTIONS.
FOR AGAINST ABSTAIN
4. PROPOSAL TO APPROVE AND ADOPT THE AMENDMENT TO THE 1993 DIRECTORS
STOCK OPTION PLAN.
FOR AGAINST ABSTAIN
5. IN THEIR DISCRETION, THE PROXIES ARE AUTHORIZED TO VOTE UPON SUCH
OTHER BUSINESS AS MAY PROPERLY COME BEFORE THE MEETING.
FOR AGAINST ABSTAIN
Dated: ________________, 1996
Signature
Signature, If Held Jointly
Please execute this proxy as your name
appears hereon. When shares are held by
joint tenants, both should sign. When
signing as attorney, executor,
administrator, trustee or guardian, please
give full title as such. If a corporation,
please sign in full corporate name by the
president or other authorized officer. If
a partnership, please sign in partnership
name by authorized person. PLEASE MARK,
SIGN, DATE AND RETURN THIS PROXY PROMPTLY
USING THE ENCLOSED ENVELOPE.
DCC13F48 15467-6