ABRAXAS PETROLEUM CORPORATION
500 North Loop 1604 East, Suite 100
San Antonio, Texas 78232
(210) 490-4788
April 24, 2003
Dear Stockholders:
You are cordially invited to attend the 2003 Annual Meeting of Stockholders
of Abraxas Petroleum Corporation to be held on Thursday, May 29, 2003, at 9:00
a.m., at the Petroleum Club of San Antonio located at 8620 North New Braunfels,
San Antonio, Texas 78217. We hope that you will be able to attend the meeting.
Matters on which action will be taken at the meeting are explained in detail in
the Notice and Proxy Statement following this letter.
Whether or not you expect to attend the Annual Meeting, please mark, sign
and date the enclosed proxy and return it promptly in the enclosed envelope.
Robert L. G. Watson
Chairman of the Board, President
and Chief Executive Officer
1
ABRAXAS PETROLEUM CORPORATION
500 North Loop 1604 East, Suite 100
San Antonio, Texas 78232
(210) 490-4788
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 29, 2003
To the Stockholders of Abraxas Petroleum Corporation:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of
Abraxas Petroleum Corporation ("Abraxas") will be held at the Petroleum Club of
San Antonio located at 8620 North New Braunfels, San Antonio, Texas 78217, on
Thursday, May 29, 2003, at 9:00 a.m., local time, for the following purposes:
(1) To elect one director to the Abraxas board of directors for a term
of three years. Franklin A. Burke has been nominated for election
by the board of directors:
(2) To approve the appointment of BDO Seidman, LLP as Abraxas'
independent auditors for the year ending December 31, 2003; and
(3) To transact such other business as may properly come before the
meeting or any adjournment thereof.
We cordially invite you to attend the Annual Meeting in person. To
assure your representation at the meeting, however, we urge you to mark, sign,
date and return the enclosed proxy card as soon as possible in the enclosed
postage-prepaid envelope.
Whether or not you expect to attend the Annual Meeting, please
complete, sign, date and promptly mail your proxy card in the envelope provided.
You may revoke your proxy at any time prior to the Annual Meeting, and, if you
attend the Annual Meeting, you may vote your shares of Abraxas stock in person.
The Abraxas board of directors has fixed the close of business on April
21, 2003, as the record date for the determination of the stockholders entitled
to notice of and to vote at the Annual Meeting and any adjournment thereof.
By Order of the Board of Directors
Stephen T. Wendel
SECRETARY
San Antonio, Texas
April 24, 2003
2
ABRAXAS PETROLEUM CORPORATION
500 North Loop 1604 East, Suite 100
San Antonio, Texas 78232
(210) 490-4788
PROXY STATEMENT
-----------------------
The board of directors of Abraxas Petroleum Corporation is soliciting
proxies to vote shares of common stock at the 2003 Annual Meeting of
Stockholders to be held at 9:00 a.m. on May 29, 2003, at the Petroleum Club of
San Antonio located at 8620 North New Braunfels, San Antonio, Texas 78217, and
at any adjournments thereof. This Proxy Statement and the accompanying Proxy are
being mailed to stockholders on or about April 24, 2003. For ten days prior to
the Annual Meeting, a complete list of stockholders entitled to vote at the
Annual Meeting will be available for examination by any stockholder for any
purpose germane to the Annual Meeting during ordinary business hours at Abraxas'
executive offices, located at the address set forth above.
Record Date; Shares Entitled To Vote; Quorum
The board of directors has fixed the close of business on April 21,
2003 as the record date for Abraxas stockholders entitled to notice of and to
vote at the annual meeting. Holders of common stock as of the record date are
entitled to vote at the annual meeting. As of the record date, there were
35,630,115 shares of Abraxas common stock outstanding, which were held by
approximately 1,606 holders of record. Stockholders are entitled to one vote for
each share of Abraxas common stock held as of the record date.
The holders of a majority of the outstanding shares of Abraxas common
stock issued and entitled to vote at the annual meeting must be present in
person or by proxy to establish a quorum for business to be conducted at the
annual meeting. Abstentions and "non-votes" are treated as shares that are
present and entitled to vote for purposes of determining the presence of a
quorum. "Non-votes" occur when a proxy:
o is returned by a broker or other stockholder who does not have
authority to vote;
o does not give authority to a proxy to vote; or
o withholds authority to vote on one or more proposals.
Votes Required
The votes required for each of the proposals is as follows:
Election of Directors. The nominee for director who receives the most
votes will be elected. Therefore, if you do not vote for a particular nominee or
you indicate "withhold authority to vote" for a particular nominee on your proxy
card, your abstention will have no effect on the election of directors.
Appointment of Independent Auditors. The proposal to approve the
appointment of Abraxas' independent auditors must receive the affirmative vote
of the holders of a majority of the shares of Abraxas common stock represented
and voting at the meeting. If you are an Abraxas stockholder and you are present
in person or represented by proxy at the meeting and abstain from voting or if
you do not instruct your broker on how to vote, it will have no effect on the
proposal because holders of shares who have abstained or for which brokers are
not able to vote will not be considered voting at the annual meeting and for
purposes of approving this proposal.
Voting of Proxies
Votes cast in person or by proxy at the annual meeting will be
tabulated at the annual meeting. All valid, unrevoked proxies will be voted as
directed. In the absence of instructions to the contrary, properly executed
proxies will be voted in favor of each of the proposals listed in the notice of
annual meeting and for the election of the nominee for director set forth
herein.
3
If any matters other than those addressed on the proxy card are
properly presented for action at the annual meeting, the persons named in the
proxy will have the discretion to vote on those matters in their best judgment,
unless authorization is withheld.
How To Vote By Proxy; Revocability of Proxies
To vote by proxy, you must complete, sign, date and return the enclosed
proxy card in the enclosed envelope. Any Abraxas stockholder who delivers a
properly executed proxy may revoke the proxy at any time before it is voted.
Proxies may be revoked by:
o delivering a written revocation of the proxy to the Abraxas
Secretary before the annual meeting;
o signing and returning a later dated proxy to the Abraxas Secretary;
or
o appearing at the annual meeting and voting in person.
Attendance at the annual meeting will not, in and of itself, constitute
revocation of a proxy. An Abraxas stockholder whose shares are held in the name
of its broker, bank or other nominee must bring a legal proxy from its broker,
bank or other nominee to the meeting in order to vote in person.
Deadline for Voting by Proxy
In order to be counted, votes cast by proxy must be received by mail
prior to the Annual Meeting.
Solicitation of Proxies
Proxies will be solicited by mail. Proxies may also be solicited
personally, or by telephone, fax, or other means by the directors, officers and
employees of Abraxas. Directors, officers and employees soliciting proxies will
receive no extra compensation, but may be reimbursed for related out-of-pocket
expenses. In addition to solicitation by mail, Abraxas will make arrangements
with brokerage houses and other custodians, nominees and fiduciaries to send the
proxy materials to beneficial owners. Abraxas will, upon request, reimburse
these brokerage houses, custodians and other persons for their reasonable
out-of-pocket expenses in doing so. The cost of solicitation of proxies will be
paid by Abraxas.
4
PROPOSAL ONE
Election of Abraxas Directors
The Articles of Incorporation of Abraxas divide the board of directors
into three classes of directors serving staggered three-year terms, with one
class to be elected at each annual meeting of stockholders. In January 2003,
Frederick M. Pevow, Jr. resigned as a Class II director and the board of
directors filled the vacancy with the appointment of Dennis E. Logue to serve
the remainder of Mr. Pevow's term as a Class II director. At this year's
meeting, one Class I director is to be elected for a term of three years, to
hold office until the expiration of his term in 2006 or until a successor shall
have been elected and shall have qualified. The nominee for Class I director is
Franklin A. Burke. The term of the Class III directors (Messrs. Watson and
Phelps) expires in 2004, and the term of the Class II directors (Messrs.
Bartlett, Wagda, Cox and Logue) expires in 2005.
Assuming the presence of a quorum, the nominee for director who
receives the most votes will be elected. The enclosed form of proxy provides a
means for stockholders to vote for or to withhold authority to vote for the
nominee for director. If a stockholder executes and returns a proxy, but does
not specify how the shares represented by such stockholder's proxy are to be
voted, such shares will be voted FOR the election of the nominee for director.
Under applicable Nevada law, in determining whether this item has received the
requisite number of affirmative votes, abstentions and broker non-votes will not
be counted and will have no effect.
The board of directors recommends a vote "FOR" the election of the
nominee to the board of directors.
Directors and Executive Officers
Set forth below are the names, ages, years of service and positions of
the executive officers and directors of Abraxas. The term of the Class I
directors of Abraxas expires in 2003, the term of the Class II directors expires
in 2005 and the term of the Class III directors expires in 2004.
Name and Municipality of Residence Age Office Class
Robert L. G. Watson, Chairman of the Board, President and Chief
San Antonio, Texas.............................. 52 Executive Officer III
Chris E. Williford, Executive Vice President, Chief Financial
San Antonio, Texas.............................. 52 Officer and Treasurer --
Robert W. Carington, Jr.,
San Antonio, Texas.............................. 41 Executive Vice President --
C. Scott Bartlett, Jr.,
Montclair, New Jersey........................... 69 Director II
Franklin A. Burke,
Doyleston, Pennsylvania......................... 69 Director I
Ralph F. Cox,
Ft. Worth, Texas................................ 70 Director II
Dennis E. Logue
Norman, Oklahoma................................ 59 Director II
James C. Phelps,
San Antonio, Texas.............................. 80 Director III
Joseph A. Wagda,
Danville, California............................ 59 Director II
5
Executive Officers
Robert L. G. Watson has served as Chairman of the Board, President,
Chief Executive Officer and a director of Abraxas since 1977. From May 1996 to
January 2003, Mr. Watson also served as Chairman of the Board and a director of
Grey Wolf Exploration, Inc., formerly a wholly-owned Canadian subsidiary of
Abraxas. Since January 2003, he has served as Chairman of the Board and a
director of a newly-formed wholly-owned Canadian subsidiary called Grey Wolf
Exploration, Inc. In November 1996, Mr. Watson was elected Chairman of the
Board, President and as a director of Canadian Abraxas, a former wholly owned
Canadian subsidiary of Abraxas. Prior to joining Abraxas, Mr. Watson was
employed in various petroleum engineering positions with Tesoro Petroleum
Corporation, a crude oil and natural gas exploration and production company,
from 1972 through 1977, and DeGolyer and MacNaughton, an independent petroleum
engineering firm, from 1970 to 1972. Mr. Watson received a Bachelor of Science
degree in Mechanical Engineering from Southern Methodist University in 1972 and
a Master of Business Administration degree from the University of Texas at San
Antonio in 1974.
Chris E. Williford was elected Vice President, Treasurer and Chief
Financial Officer of Abraxas in January 1993, and as Executive Vice President
and a director of Abraxas in May 1993. In November 1996, Mr. Williford was
elected Vice President and Assistant Secretary of Canadian Abraxas. In December
1999, Mr. Williford resigned as a director of Abraxas. Prior to joining Abraxas,
Mr. Williford was Chief Financial Officer of American Natural Energy
Corporation, a crude oil and natural gas exploration and production company,
from July 1989 to December 1992 and President of Clark Resources Corp., a crude
oil and natural gas exploration and production company, from January 1987 to May
1989. Mr. Williford received a Bachelor of Science degree in Business
Administration from Pittsburgh State University in 1973.
Robert W. Carington, Jr. was elected Executive Vice President and a
director of Abraxas in July 1998. In December 1999, Mr. Carington resigned as a
director of Abraxas. Prior to joining Abraxas, Mr. Carington was a Managing
Director with Jefferies & Company, Inc. Prior to joining Jefferies & Company,
Inc. in January 1993, Mr. Carington was a Vice President at Howard, Weil,
Labouisse, Friedrichs, Inc. Prior to joining Howard, Weil, Labouisse,
Friedrichs, Inc., Mr. Carington was a petroleum engineer with Unocal Corporation
from 1983 to 1990. Mr. Carington received a Bachelor of Science in Mechanical
Engineering from Rice University in 1983 and a Masters of Business
Administration from the University of Houston in 1990.
Director Nominee
Franklin A. Burke, a director of Abraxas since June 1992, has served as
President and Treasurer of Venture Securities Corporation since 1971, where he
is in charge of research and portfolio management. He has also been a general
partner and director of Burke, Lawton, Brewer & Burke, a securities brokerage
firm, since 1964, where he is responsible for research and portfolio management.
Mr. Burke also serves as a director of Suburban Community Bank in Chalfont,
Pennsylvania. Mr. Burke received a Bachelor of Science degree in Finance from
Kansas State University in 1955, a Master's degree in Finance from University of
Colorado in 1960 and studied at the graduate level at the London School of
Economics from 1962 to 1963.
Directors with Terms Expiring in 2004 and 2005
C. Scott Bartlett, Jr., a director of Abraxas since December 1999, has
over forty years of commercial banking experience, the most recent being with
National Westminster Bank USA, rising to the position of Executive Vice
President, Senior Lending Officer and Chairman of the Credit Policy Committee.
Mr. Bartlett currently serves on the boards of NVR, Inc. and Janus Hotels and
Resorts, Inc. and is active in securities arbitration. Mr. Bartlett attended
Princeton University, and has a certificate in Advanced Management from
Pennsylvania State University.
Ralph F. Cox, a director of Abraxas since December 1999, has over 45
years of oil and gas industry experience, over thirty of which was with Arco.
Mr. Cox retired from Arco in 1985 after having become Vice Chairman. Mr. Cox
then joined what was known as Union Pacific Resources prior to its acquisition
by Anadarko Petroleum in July 2000, retiring in 1989 as President and Chief
Operating Officer. Mr. Cox then joined Greenhill Petroleum Corporation as
President until leaving in 1994 to pursue his consulting business. Mr. Cox has
in the past and continues to serve on many boards including CH2M Hill Companies,
and is a trustee for the Fidelity group of funds. Mr. Cox earned Petroleum and
Mechanical Engineering degrees from Texas A&M University with advanced studies
at Emory University.
6
Dennis E. Logue, a director of Abraxas since April 2003, is Dean and
Fred E. Brown Chair at the Michael F. Price College of Business at the
University of Oklahoma. Prior to joining Price College in 2001, he was the
Steven Roth Professor at the Amos Tuck School at Dartmouth College where he had
been since 1974. He is currently a director of Sallie Mae (GSE) and Waddell &
Reed Financial, Inc. He is also on the editorial boards of several scholarly
journals, including the Journal of Banking and Finance, the Journal of Portfolio
Management, and the Journal of Management Strategy Education. Mr. Logue holds
degrees from Fordham College, Rutgers, and Cornell University.
James C. Phelps, a director of Abraxas since December 1983, has been a
consultant to crude oil and natural gas exploration and production companies
such as Panhandle Producing Company and Tesoro Petroleum Corporation since April
1981. Mr. Phelps served as a director of Old Grey Wolf from January 1996 to
January 2003. From April 1995 to May 1996, Mr. Phelps served as Chairman of the
Board and Chief Executive Officer of Old Grey Wolf, and from January 1996 to May
1996, he served as President of Old Grey Wolf. From March 1983 to September
1984, he served as President of Osborn Heirs Company, a privately owned crude
oil exploration and production company based in San Antonio. Mr. Phelps was
President and Chief Operating Officer of Tesoro Petroleum Corporation from 1971
to 1981 and prior to that was Senior Vice President and Assistant to the
President of Continental Oil Company. He received a Bachelor of Science degree
in Industrial Engineering and a Master of Science degree in Industrial
Engineering from Oklahoma State University.
Joseph A. Wagda, a director of Abraxas since December 1999, has been
involved in a variety of business activities over a twenty-eight year career.
Currently Mr. Wagda is Chairman, Chief Executive Officer and a director of
BrightStar Information Technology Group, Inc. He also is an attorney, president
of Altamont Capital Management, Inc. and a director of Zierer Visa Service, Inc.
Mr. Wagda's business expertise emphasizes special situation consulting and
investing, including involvement in distressed investments and turnaround
opportunities. Previously, Mr. Wagda was President and Chief Executive Officer
of American Heritage Group, Inc., a modular home builder, and a Senior Managing
Director and co-founder of the Price Waterhouse corporate finance practice. He
also served with the finance staff of Chevron Corporation and in the general
counsel's office at Ford Motor Company. Mr. Wagda received an undergraduate
degree from Fordham College, a Masters of Business Administration, with
distinction, from the Johnson Graduate School of Management, Cornell University,
and a JD, with honors, from Rutgers University.
Information Concerning Directors
During the fiscal year ended December 31, 2002, the Abraxas board of
directors held seven meetings. All directors attended each meeting. During 2002,
Abraxas' directors other than Mr. Watson received compensation for service to
Abraxas as a director. See "--Compensation Summary--Compensation of Directors."
Directors also received reimbursement of travel expenses to attend meetings of
the board of directors.
Committees of the Board of Directors
The Audit Committee of the Abraxas board of directors, which consists
of Messrs. Bartlett, Burke, Phelps, and Wagda, met two times during 2002. The
board of directors has determined that each of the members of the Audit
Committee is independent as determined in accordance with the listing standards
of the American Stock Exchange. In addition, the board of directors has
determined that C. Scott Bartlett, Jr., as defined by SEC rules, is an audit
committee financial expert. The functions of the Audit Committee are to
recommend the appointment of Abraxas' independent auditors, to review the
arrangements for and the scope of the annual audit and to review internal
accounting controls. The board of directors recently adopted a revised written
Audit Committee Charter, attached hereto as Annex A, which more fully describes
the functions and responsibilities of the Audit Committee.
The Compensation Committee of the board of directors, which consists of
Messrs. Phelps and Cox , met twice during 2002. The functions of the
Compensation Committee are to review and make recommendations concerning the
compensation of Abraxas' executive and non-executive officers. The Compensation
Committee also administers Abraxas' 1984 Incentive Stock Option Plan, 1984
Nonqualified Stock Option Plan, 1993 Key Contributor Stock Option Plan, and 1994
Long Term Incentive Plan.
The board of directors has not had a standing Nominating Committee
since 1999.
7
SECURITIES HOLDINGS OF PRINCIPAL STOCKHOLDERS, DIRECTORS, NOMINEEs AND
OFFICERS
Based upon information received from the persons concerned, each person
known to Abraxas to be the beneficial owner of more than five percent of the
outstanding shares of common stock of Abraxas, each director and nominee for
director, each of the named executive officers and all directors and officers of
Abraxas as a group, owned beneficially as of March 31, 2003, the number and
percentage of outstanding shares of common stock of Abraxas indicated in the
following table:
Name and Address of Beneficial Owner Number of Shares (1) Percentage (%)
Venture Securities Corp.
516 N. Bethlehem Pike
Spring House, PA 19477 2,274,740(2) 6.38
Peter S. Lynch
82 Devonshire St. 58A
Boston, MA 02109 2,873,000 8.06
Robert L. G. Watson 934,195(3) 2.58
Franklin A. Burke 1,713,720(4) 4.81
James C. Phelps 539,749(5) 1.51
Chris E. Williford 203,003(6) *
Lee T. Billingsley 159,425(7) *
Robert W. Carington, Jr. 443,340(8) 1.23
William H. Wallace 51,775(9) *
C. Scott Bartlett, Jr. 87,000(10) *
Ralph F. Cox 335,000(10) *
Joseph A. Wagda 75,000(10) *
All Officers and Directors as a Group (10 persons) 4,542,207 12.25
(3)(4)(5)(6)(7)(8)(9)(10)
------------------
* Less than 1%
(1) Unless otherwise indicated, all shares are held directly with sole voting
and investment power.
(2) Includes 1,188,154 shares with sole voting power held by Venture Securities
and Franklin A. Burke, a director of Abraxas, the sole owner of Venture
Securities, and 1,038,536 shares managed by Venture Securities on behalf of
third parties.
(3) Includes 41,353 shares issuable upon exercise of options granted pursuant
to Abraxas Petroleum Corporation 1993 Key Contributor Stock Option Plan,
479,887 shares issuable upon exercise of options granted pursuant to the
Abraxas Petroleum Corporation 1994 Long Term Incentive Plan and 300 shares
in a retirement account. Does not include a total of 75,880 shares owned by
the Robert L. G. Watson, Jr. Trust and the Carey B. Watson Trust, the
trustees of which are Mr. Watson's brothers and the beneficiaries of which
are Mr. Watson's children. Mr. Watson disclaims beneficial ownership of the
shares owned by these trusts.
(4) Includes 25,750 shares issuable upon exercise of options granted pursuant
to the Amended and Restated Director Stock Option Plan (the "Director
Option Plan").
(5) Includes 340,000 shares owned by Marie Phelps, Mr. Phelps' wife, 88,762
shares owned by JMRR LP, 2,000 shares issuable upon exercise of options
granted pursuant to an option agreement and 25,750 shares issuable upon
exercise of options granted pursuant to the Director Option Plan.
(6) Includes 1,786 shares issuable upon exercise of options granted pursuant to
the Abraxas Petroleum Corporation 1984 Incentive Stock Option Plan, 18,214
shares issuable upon exercise of options granted pursuant to the Abraxas
Petroleum Corporation 1993 Key Contributor Stock Option Plan and 160,000
shares issuable upon exercise of options granted pursuant to the Abraxas
Petroleum Corporation 1994 Long Term Incentive Plan.
(7) Includes 62,250 shares issuable upon exercise of options granted pursuant
to the Abraxas Petroleum Corporation 1994 Long Term Incentive Plan and
5,000 shares in a retirement account.
(8) Includes 345,000 shares issuable upon exercise of options granted pursuant
to the Abraxas Petroleum Corporation 1994 Long Term Incentive Plan.
(9) Includes 46,750 shares issuable upon exercise of options granted pursuant
to the Abraxas Petroleum Corporation 1994 Long Term Incentive Plan.
(10) Includes 75,000 shares issuable upon exercise of certain option agreements.
8
Executive Compensation
Compensation Committee Report on Executive Compensation
The Compensation Committee is composed entirely of directors who are
not employees of Abraxas. The Committee is responsible for establishing and
administering the compensation levels for Abraxas' executive and non-executive
officers. The members of the Compensation Committee believe that the ability to
attract and retain qualified executive and non-executive officers and provide
appropriate incentives to Abraxas' executive and non-executive officers is
essential to the long-term success of Abraxas.
In determining executive compensation, the Committee reviews the
compensation programs, pay levels and business results of Abraxas as compared to
a peer group of oil and natural gas exploration and production companies, which
includes those in the William M. Mercer 2002 Energy Compensation Survey related
to U.S. salaries and those in the Towers Perrin 2002 Energy Industry Total
Rewards Database related to Canadian salaries.
Compensation Philosophy and Objectives
The philosophy underlying the development and administration of
Abraxas' annual and long-term compensation plans is to align the interests of
management with those of Abraxas' stockholders. Key elements of this philosophy
are:
Establishing compensation plans that deliver base salaries which are
competitive with the companies in the peer group, within Abraxas' budgetary
constraints and commensurate with Abraxas' performance as measured by operating,
financial and strategic objectives.
Providing equity-based incentives for executive and non-executive
officers to ensure that they are motivated over the long-term to respond to
Abraxas' business challenges and opportunities as owners rather than just as
employees.
Rewarding executive and non-executive officers for outstanding
performance particularly where such performance is reflected by an increase in
the value of Abraxas common stock.
The compensation currently paid to Abraxas' executive and non-executive
officers consists of base salary, various employee benefits (including medical
and life insurance and 401(k) plan benefits generally available to all employees
of Abraxas), annual cash bonuses and grants of stock options and awards under
Abraxas' 1994 Long Term Incentive Plan (the "LTIP").
Elements of the Executive Compensation Program
Base Salaries. The Committee believes that Abraxas' base salary levels
for executive officers are consistent with the practices of the companies in the
peer group. Increases in base salary levels from time to time are designed to
reflect competitive practices in the industry, Abraxas' financial performance
and individual performance of the officer.
In the first quarter of each year, the Chief Executive Officer submits
to the Committee recommendations for salary adjustments based upon his
subjective evaluation of individual performance and his subjective judgment
regarding setting each executive and non-executive officer's salary within
Abraxas' salary range. This range is set by reference to the salaries paid by
the companies in the peer group while remaining within Abraxas' budgetary
constraints. The companies in the peer group are used to compare Abraxas' salary
structure to that of other companies that compete with Abraxas for executives
but without targeting salaries to be higher, lower or approximately the same as
those of the companies in the peer group. The Committee does not consider the
performance of any of the companies in the peer group in setting Abraxas' salary
structure.
Annual Cash Bonuses. In 1994, the board of directors adopted an annual
cash bonus plan which established certain criteria for the payment of annual
cash bonuses to all officers of Abraxas at or above the Vice President level.
The plan was amended in 1997 and again in 1999. Under the plan as amended, each
participant is given an annual bonus opportunity based on the achievement of
certain goals. For Messrs. Watson, Williford and Carington, the base bonus could
be as high as 35% of base salary if all goals are attained. For Messrs. Wallace
and Dr. Billingsley, the bonus could be as high as 25% of base salary if all
goals are attained. The amount of the bonuses to be paid to Messrs. Watson,
9
Williford, Carington and Wallace and Dr. Billingsley, if any, will be based upon
attaining goals set by the board of directors after assessing the
recommendations of management for EBITDA, General and Administrative expenses,
Reserve Replacement percentage and Finding Costs, with each factor being
weighted equally in the calculation. If all performance goals are met or
exceeded, additional bonuses of up to 25% of base salary can be earned by each
participant. The board has the prerogative to adjust the bonus earned by any
participant, including Messrs. Watson, Williford, Carington and Wallace and Dr.
Billingsley, to take into account extraordinary factors not contemplated by the
bonus plan when the impact of such contributions or factors cannot be adequately
reflected by the bonus determined under the methodology described above. In
2002, the goal for General and Administrative expense was met and the following
bonuses were paid:
Name Bonus Amount
Robert L.G. Watson $24,592
Chris E. Williford 14,848
Robert W. Carington, Jr. 19,488
Lee T. Billingsley 9,792
William H. Wallace 9,792
Long-Term Incentives. In 1994, the board adopted the LTIP in order to
compensate executive and non-executive officers and employees who contribute
significantly to the operation of Abraxas. Up to an aggregate of 5,000,000
shares of Abraxas common stock are available for issuance under the LTIP. The
LTIP makes available to the Committee a number of incentive devices such as
incentive stock options and non-qualified stock options, stock appreciation
rights, restricted stock, performance units, performance shares and dividend
units. The Committee adopts administrative guidelines from time to time which
define specific eligibility criteria, the types of awards to be employed and the
value of such awards. Specific terms of each award, including minimum
performance criteria, which must be met to receive payment, are provided in
individual award agreements granted to each award recipient. Award agreements
also contain change in control provisions. Option holdings and previous awards
are not taken into account.
The board believes that the LTIP has given Abraxas the flexibility to
structure awards to meet Abraxas' business needs. In making long-term incentive
awards under the LTIP, the Committee seeks to ensure that the total compensation
package, including cash compensation, is competitive with the compensation paid
by the companies included in the Mercer Survey and the Towers Perrin Database,
yet substantially contingent upon the conclusion of individual and corporate
efforts to produce attractive long-term returns to Abraxas stockholders.
CEO Compensation. Mr. Watson's salary in 2002 was based on the
Committee's evaluation of his performance and Abraxas' performance, after
reviewing competitive salary data from the companies included in the Mercer
Survey, the Towers Perrin Database, and Abraxas' budgetary constraints. The
Committee's determination of Mr. Watson's total salary was based upon the
salaries paid to chief executive officers of the companies included in the
Mercer Survey, the Towers Perrin Database, and the salary structure of Abraxas.
Policy on Deductibility of Compensation. In 1993, the federal tax laws
were amended to limit the deduction a publicly-held company is allowed for
compensation paid to the chief executive officer and to the four most highly
compensated executive officers other than the chief executive officer.
Generally, amounts paid in excess of $1 million to a covered executive, other
than performance-based compensation, cannot be deducted. In order to constitute
performance-based compensation for purposes of the tax law, the performance
measures must be approved by the stockholders. Since Abraxas does not anticipate
that the compensation for any executive officer will exceed the $1 million
threshold in the near term, stockholder approval necessary to maintain the tax
deductibility of compensation at or above that level is not being requested. The
Compensation Committee will reconsider this matter if compensation levels
approach this threshold, in light of the tax laws then in effect. The
Compensation Committee will consider ways to maximize the deductibility of
executive compensation, while retaining the discretion necessary to compensate
executive officers in a manner commensurate with performance and the competitive
environment for executive talent.
This report is submitted by the members of the Compensation Committee.
James C. Phelps, Chairman
Ralph F. Cox
10
Compensation Summary
The following table sets forth a summary of compensation for the fiscal
years ended December 31, 2000, 2001 and 2002 paid by Abraxas to Robert L.G.
Watson, Abraxas' Chairman of the Board, President and Chief Executive Officer,
Chris E. Williford, Abraxas' Executive Vice President, Chief Financial Officer
and Treasurer, Robert W. Carington, Jr., Abraxas' Executive Vice President, Lee
T. Billingsley, Abraxas' Vice President--Exploration, and to William H. Wallace,
Abraxas' Vice President--Operations.
Summary Compensation Table
Long Term
Compensation
Awards -
Name and Principal Position Year Salary($) Bonus($) Securities
---- --------- -------- Underlying
Annual Compensation Options (#)
-------------------------------------------------------------------------------------------------------------
Robert L. G. Watson, 2000 $259,615 $29,175 962,562(1)
Chairman of the Board, 2001 $259,615 $27,388 60,000
President and Chief Executive Officer 2002 $271,442 $24,592 90,000
-------------------------------------------------------------------------------------------------------------
Chris E. Williford, 2000 $155,769 $17,505 392,701(1)
Executive Vice President, 2001 $155,769 $16,433 20,000
Chief Financial Officer and Treasurer 2002 $163,653 $14,848 43,000
-------------------------------------------------------------------------------------------------------------
Robert W. Carington, Jr., 2000 $207,629 $23,340 549,456(1)
Executive Vice President 2001 $207,629 $21,910 20,000
2002 $215,577 $19,488 55,000
-------------------------------------------------------------------------------------------------------------
Lee T. Billingsley 2000 $134,077 $22,004 97,972(1)
Vice President-- 2001 $134,077 $10,331 15,000
Exploration 2002 $156,885 $9,792 22,000
-------------------------------------------------------------------------------------------------------------
William H. Wallace, 2000 $131,577 $9,425 97,972(1)
Vice President-- 2001 $131,577 $10,331 15,000
Operations 2002 $156,885 $9,792 22,000
-------------------------------------------------------------------------------------------------------------
-------------------
(1) In March 2002, each named officer voluntarily forfeited a substantial
number of options to purchase Abraxas common stock, which were issued
in 2000. The exercise price for the forfeited options was $5.03 per
share, and the named officers each forfeited the following number of
options: Mr. Watson - 842,562; Mr. Williford - 352,701; Mr. Carington -
509,456; Mr. Billingsley - 97,972; Mr. Wallace - 97,972. See note (1)
to the Option Exercises table on the following page.
Grants of Stock Options and Stock Appreciation Rights During the Fiscal Year
Ended December 31, 2002
Pursuant to the Abraxas Petroleum Corporation 1984 Incentive Stock
Option Plan (the "ISO Plan"), the Abraxas Petroleum Corporation 1993 Key
Contributor Stock Option Plan (the "1993 Plan"), and the Abraxas Petroleum
Corporation 1994 Long Term Incentive Plan (the "LTIP"), Abraxas grants to its
employees and officers (including its directors who are also employees)
incentive stock options and non-qualified stock options. The ISO Plan, the 1993
Plan, and the LTIP are administered by the Compensation Committee which, based
upon the recommendation of the Chief Executive Officer, determines the number of
shares subject to each option.
The table below contains certain information concerning stock options
granted to Messrs. Watson, Williford, Carington and Wallace and Dr. Billingsley
during 2002:
11
Option Grants in Fiscal Year
Name Number of % of Total Exercise Expiration Potential Realizable
Value at Assumed
Securities Annual Rates of Stock
Underlying Price Per Price Appreciation
Options Options Share for
granted Granted to (Price at Option Term
(1) Employees Grant) Date 5% 10%
-------------------------------------------------------------------------------------------------------------------
Robert L.G. Watson......... 90,000 17.2 $0.65 11/22/12 $36,900 $93,600
-------------------------------------------------------------------------------------------------------------------
Chris E. Williford......... 43,000 8.2 $0.65 11/22/12 $17,630 $44,720
-------------------------------------------------------------------------------------------------------------------
Robert W. Carington, Jr.... 55,000 10.5 $0.65 11/22/12 $22,550 $57,200
-------------------------------------------------------------------------------------------------------------------
Lee T. Billingsley......... 22,000 4.2 $0.65 11/22/12 $9,020 $22,880
-------------------------------------------------------------------------------------------------------------------
William H. Wallace......... 22,000 4.2 $0.65 11/22/12 $9,020 $22,880
-------------------------------------------------------------------------------------------------------------------
------------------------------
(1) One-fourth of the options become exercisable on each of the first four
anniversaries of the date of grant.
Aggregated Option Exercises in Fiscal 2002 and Fiscal Year End Option Values
The table below contains certain information concerning exercises of
stock options during the fiscal year ended December 31, 2002, by Messrs. Watson,
Williford, Carington and Wallace and Dr. Billingsley and the fiscal year end
value of unexercised options held by Messrs. Watson, Williford, Carington and
Wallace and Dr. Billingsley. Effective January 23, 2003, the Abraxas board of
directors approved a reduction in the exercise price to $0.66 per share of
one-half of all options to purchase Abraxas common stock held by Mr. Watson
(320,282 options), and a reduction in the exercise price of all of stock options
previously issued to other Abraxas employees (approximately 1.8 million
options).
Option Exercises in Fiscal Year
Name Shares Value Number of Unexercised Value of Unexercised
Options on December 31, Options on December 31,
Acquired By Realized 2002(#) 2002 ($)
Exercise(#) ($) Exercisable/Unexercisable(1)Exercisable/Unexercisable
----------------------------------------------------------------------------------------------------------------
Robert L. G. Watson.......... 0 0 521,240/205,285 0/0
----------------------------------------------------------------------------------------------------------------
Chris E. Williford........... 0 0 180,000/78,000 0/0
----------------------------------------------------------------------------------------------------------------
Robert W. Carington, Jr...... 0 0 345,000/90,000 0/0
----------------------------------------------------------------------------------------------------------------
Lee T. Billingsley........... 0 0 84,250/40,750 0/0
----------------------------------------------------------------------------------------------------------------
William H. Wallace........... 0 0 46,750/40,750 0/0
----------------------------------------------------------------------------------------------------------------
----------------------
(1) In March 2002, a significant number of stock options granted in 2000
were voluntarily forfeited by the named officers. All forfeited options
had an exercise price in excess of the market price on the date of
forfeiture. Such forfeitures reduced the total number of
exercisable/unexercisable options held by each named officer to the
following at the forfeiture date: Mr. Watson--464,435/176,128; Mr.
Williford - 160,000/55,000; Mr. Carington - 250,000/130,000; Mr.
Billingsley - 58,500/44,500; Mr. Wallace - 32,375/33,125.
12
Securities Authorized for Issuance Under Equity Compensation Plans.
The following chart gives aggregate information regarding grants under
all equity compensation plans of the Company through December 31, 2002.
Equity Compensation Plan Information
Number of securities
remaining available for
Number of securities to Weighted-average future issuance under
be issued upon exercise exercise price of equity compensation plans
of outstanding options, outstanding options, (excluding securities
warrants and rights warrants and rights reflected in column (a))
Plan Category (a) (b) (c)
Equity compensation plan
approved by security holders 3,003,340 $1.94 2,161,366
Equity compensation plans not
approved by security holders
1,252,000 $2.89 -
Employment Agreements
Abraxas has entered into employment agreements with each of Messrs.
Watson, Williford, Carington and Wallace and with Dr. Billingsley pursuant to
which each of Messrs. Watson, Williford, Carington and Wallace and Dr.
Billingsley will receive compensation as determined from time to time by the
board in its sole discretion.
The employment agreements for Messrs. Watson, Williford, and Carington
are scheduled to terminate on December 21, 2003, and shall be automatically
extended for additional one-year terms unless Abraxas gives the officer 120 days
notice prior to the expiration of the original term or any extension thereof of
its intention not to renew the employment agreement. If, during the term of the
employment agreements for each of such officers, the officer's employment is
terminated by Abraxas other than for cause or disability, by the officer other
than by reason of such officer's death or retirement, or by the officer, for
"Good Reason" (as defined in each officer's respective employment agreement),
then such officer will be entitled to receive a lump sum payment equal to the
greater of (a) his annual base salary for the last full year during which he was
employed by Abraxas or (b) his annual base salary for the remainder of the term
of each of their respective employment agreements.
If a change of control occurs during the term of the employment
agreement for Mr. Watson, Mr. Williford or Mr. Carington, and if subsequent to
such change of control, such officer's employment is terminated by Abraxas other
than for cause or disability, by reason of the officer's death or retirement or
by such officer, for Good Reason, then such officer will be entitled to the
following, as applicable:
Mr. Watson:
(1) if such termination occurs prior to the end of the first
year of the initial term of his employment agreement, a lump
sum payment equal to five times his annual base salary;
(2) if such termination occurs after the end of the first year
of the initial term of his employment agreement but prior to
the end of the second year of the initial term of his
employment agreement, a lump sum payment equal to four times
his annual base salary;
(3) if such termination occurs after the end of the second
year of the initial term of his employment agreement but prior
to the end of the third year of the initial term of his
employment agreement, a lump sum payment equal to three times
his annual base salary; and
(4) if such termination occurs after the end of the third year
of the initial term of his employment agreement a lump sum
payment equal to 2.99 times his annual base salary.
Mr. Williford or Mr. Carington:
13
(1) if such termination occurs prior to the end of the first
year of the initial term of the officer's employment
agreement, a lump sum payment equal to four times the
officer's annual base salary;
(2) if such termination occurs after the end of the first year
of the initial term of the officer's employment agreement but
prior to the end of the second year of the initial term of the
employment agreement, a lump sum payment equal to three times
the officer's annual base salary; and
(3) if such termination occurs after the end of the second
year of the initial term of the officer's employment
agreement, a lump sum payment equal to 2.99 times the
officer's annual base salary.
Abraxas has entered into employment agreements with Mr. Wallace and Dr.
Billingsley pursuant to which each of Mr. Wallace and Dr. Billingsley will
receive compensation as determined from time to time by the board in its sole
discretion. The employment agreements, originally scheduled to terminate on
December 31, 1998 for Dr. Billingsley and December 31, 2000 for Mr. Wallace,
were automatically extended and will terminate on December 31, 2003, and may be
automatically extended for an additional year if by December 1 of the prior year
neither Abraxas nor Mr. Wallace or Dr. Billingsley, as the case may be, has
given notice to the contrary. Except in the event of a change in control, at all
times during the term of the employment agreements, each of Mr. Wallace's and
Dr. Billingsley's employment is at will and may be terminated by Abraxas for any
reason without notice or cause. If a change in control occurs during the term of
the employment agreement or any extension thereof, the expiration date of Mr.
Wallace's and Dr. Billingsley's employment agreement is automatically extended
to a date no earlier than three years following the effective date of such
change in control. If, following a change in control, either Mr. Wallace's or
Dr. Billingsley's employment is terminated other than for Cause (as defined in
each of the employment agreements) or Disability (as defined in each of the
Employment Agreements), by reason of Mr. Wallace's or Dr. Billingsley's death or
retirement or by Mr. Wallace or Dr. Billingsley, as the case may be, for Good
Reason (as defined in each of the employment agreements), then the terminated
officer will be entitled to receive a lump sum payment equal to three times his
annual base salary.
If any lump sum payment to Messrs. Watson, Williford, Carington,
Wallace or Dr. Billingsley would individually or together with any other amounts
paid or payable constitute an "excess parachute payment" within the meaning of
Section 280G of the Internal Revenue Code of 1986, as amended, and applicable
regulations there under, the amounts to be paid will be increased so that
Messrs. Watson, Williford, Carington, Wallace or Dr. Billingsley, as the case
may be, will be entitled to receive the amount of compensation provided in his
contract after payment of the tax imposed by Section 280G.
Compensation of Directors
Stock Options. In 1999, each of Messrs. Bartlett, Cox and Wagda were
each granted options to purchase 75,000 shares of common stock at an exercise
price of $0.98 per share.
Other Compensation. During 2002, each director who was not an employee
of Abraxas or its affiliates, received an annual fee of $8,000 plus $1,000 for
each board meeting attended and $500 for each committee meeting attended.
Aggregate fees paid to directors in 2002 were $131,500. Except for the
foregoing, the directors of Abraxas received no other compensation for services
as directors, except for reimbursement of travel expenses to attend board
meetings.
Section 16(a) Compliance
Section 16(a) of the Exchange Act requires Abraxas' directors and
executive officers and persons who own more than 10% of a registered class of
Abraxas equity securities to file with the Securities and Exchange Commission
and the AMEX initial reports of ownership and reports of changes in ownership of
Abraxas common stock. Officers, directors and greater than 10% stockholders are
required by SEC regulation to furnish us with copies of all such forms they
file. Based solely on a review of the copies of such reports furnished to us and
written representations that no other reports were required, Abraxas believes
that all its directors and executive officers during 2002 complied on a timely
basis with all applicable filing requirements under Section 16(a) of the
Exchange Act.
14
Performance Graph
Set forth below is a performance graph comparing yearly cumulative
total stockholder return on the Abraxas common stock with (a) the monthly index
of stocks included in the Standard and Poor's 500 Index and (b) the CIBC World
Markets Index (the "CIBC Index") of stocks of crude oil and natural gas
exploration and production companies with a market capitalization of less than
$300 million (the "Comparable Companies"). The Comparable Companies are: Adams
Resources & Energy, Inc.; Mission Resources; Callon Petroleum Company; Columbus
Energy Corporation; Goodrich Petroleum Corporation; Magnum Hunter Resources,
Inc.; The Meridian Resource Corporation; PetroCorp Incorporated; Plains
Resources, Inc.; Prima Energy Corporation; Unit Corporation; Venus Exploration,
Inc.; and Wiser Oil Company.
All of these cumulative total returns are computed assuming the value
of the investment in Abraxas common stock and each index as $100.00 on December
31, 1997, and the reinvestment of dividends at the frequency with which
dividends were paid during the applicable years. The years compared are 1998,
1999, 2000, 2001 and 2002.
Performance Graph
[OBJECT OMITTED]
S&P Small-cap
ABP 500 index
------------ ---------- -----------
Dec-97 100% 100% 100%
Mar-98 57 114 95
Jun-98 62 117 89
Sep-98 47 105 67
Dec-98 30 127 50
Mar-99 12 133 53
Jun-99 8 141 70
Sep-99 15 132 74
Dec-99 6 151 64
Mar-00 15 154 83
Jun-00 10 150 111
Sep-00 26 148 130
Dec-00 30 136 148
Mar-01 35 120 126
Jun-01 21 126 117
Sep-01 13 107 92
Dec-01 9 118 100
Mar-02 9 118 73
Jun-02 5 102 67
Sep-02 5 84 65
Dec-02 4 91 57
Dec-97 Dec-98 Dec-99 Dec-00 Dec-01 Dec-02
S&P 500 100 127 151 136 118 91
Small Cap Index 100 50 64 148 100 57
ABP 100 30 6 30 9 4
Audit Committee Report
The Audit Committee reviews Abraxas' financial reporting process on
behalf of the board of directors. Management has the primary responsibility for
the financial statements and the reporting process, including the system of
internal controls. The independent auditors are responsible for performing an
independent audit of Abraxas' consolidated financial statements in accordance
with generally accepted accounting principles and to issue a report thereon. The
Committee reviews and oversees these processes, including oversight of (i) the
integrity of Abraxas' financial statements, (ii) Abraxas' independent auditors'
qualifications and independence, (iii) the performance of Abraxas' independent
auditors and (iv) Abraxas' compliance with legal and regulatory requirements.
In this context, the Committee met and held discussions with management
and the independent auditors. Management represented to the Committee that
Abraxas' consolidated financial statements were prepared in accordance with
accounting principles generally accepted in the United States, and the Committee
reviewed and discussed the consolidated financial statements with management and
the independent auditors. The Committee also discussed with the independent
auditors the matters required to be discussed by Statement on Auditing Standards
No. 61 (Codification of Statements on Auditing Standards, AU 380), as amended.
15
In addition, the Committee discussed with the independent auditors the
auditors' independence from Abraxas and its management, and the independent
auditors provided to the Committee the written disclosures and letter required
by the Independence Standards Board Standard No. 1 (Independence Discussions
With Audit Committees).
The Committee also discussed with Abraxas' independent auditors the
overall scope and plans for their respective audit. The Committee met the
independent auditors, with and without management present, to discuss the
results of their examinations, the evaluations of Abraxas' internal controls,
and the overall quality of Abraxas' financial reporting.
Audit Fees. The aggregate fees billed for professional services
rendered by Deloitte & Touche LLP for the audit of Abraxas' annual financial
statements for the year ended December 31, 2002, and the reviews of the
condensed financial statements included in Abraxas' quarterly Reports on Forms
10-Q for the year ended December 31, 2002, were $316,492.
Financial Information Systems Design and Implementation Fees. Deloitte
& Touche LLP did not perform any financial information systems design or
implementation work on behalf of Abraxas for the year ended December 31, 2002.
All Other Fees. The aggregate fees billed for all other services,
exclusive of the fees disclosed above relating to financial statement audit
services, rendered by Deloitte & Touche LLP during the year ended December 31,
2002, were $509,454, related primarily to various tax issues, and the exchange
offer related to Abraxas' second lien notes, which was consummated on January
23, 2003.
Consideration of Non-audit Services Provided by the Independent
Auditors. The Audit Committee has considered whether the services provided for
non-audit services are compatible with maintaining Deloitte & Touche LLP's
independence, and has concluded that the independence of such firm has been
maintained.
Based on the reviews and discussions referred to above, the Committee
recommended to the board of directors, and the board has approved, that the
audited financial statements be included in Abraxas' Annual Report on Form 10-K
for the year ended December 31, 2002, for filing with the Securities and
Exchange Commission. The Committee and the board also have recommended, subject
to shareholder approval, the selection of Abraxas' independent auditors for
fiscal year 2003.
Dated: March 31, 2003
Audit Committee
C. Scott Bartlett, Jr., Chairman
James C. Phelps
Franklin A. Burke
Joseph A. Wagda
Certain Transactions
Wind River Resources Corporation, all of the capital stock of which is
owned by Mr. Watson, owns a twin-engine airplane. The airplane is available for
business use by employees of Abraxas from time to time at Wind River's cost.
Abraxas paid Wind River a total of $345,000 for use of the plane during 2002.
Abraxas has adopted a policy that transactions, including loans, between Abraxas
and its officers, directors, principal stockholders, or affiliates of any of
them, will be on terms no less favorable to Abraxas than can be obtained on an
arm's length basis in transactions with third parties and must be approved by
the vote of at least a majority of the disinterested directors.
PROPOSAL TWO
Ratification of Selection of
Independent Auditors
16
The Abraxas board of directors has selected BDO Seidman, LLP to serve
as independent auditors of Abraxas for the fiscal year ending December 31, 2003.
Although stockholder ratification is not required, the board of directors has
directed that such appointment be submitted to the stockholders of Abraxas for
ratification at the annual meeting. Deloitte & Touche LLP has provided audit
services to Abraxas for the years ended December 31, 2001 and 2002. The year
ending December 31, 2003 will be the first year that BDO Seidman, LLP is engaged
to supply audit services to Abraxas. A representative of BDO Seidman, LLP will
be present at the Annual Meeting, and will have an opportunity to make a
statement if he or she desires to do so and will be available to respond to
appropriate questions. No representative of Deloitte & Touche LLP will be
present at the annual meeting.
On April 22, 2003, the board of directors engaged the accounting firm
of BDO Seidman, LLP as Abraxas' certifying accountant for the year ended
December 31, 2003. The decision to approve the dismissal of Deloitte & Touche
LLP and engagement of BDO Seidman, LLP was approved by the Audit Committee and
the entire board of directors. Deloitte & Touche LLP was notified of their
dismissal on April 22, 2003.
The reports of Deloitte & Touche LLP on Abraxas' financial statements
for the two fiscal years ended December 31, 2001 and 2002 did not contain any
adverse opinion or disclaimer of opinion and were not qualified or modified as
to uncertainty, audit scope or accounting principles.
In connection with the audits of Abraxas' financial statements for each
of the two fiscal years ended December 31, 2001 and 2002, there were no
disagreements with Deloitte & Touche LLP on any matters of accounting
principles, financial statement disclosure or audit scope and procedures which,
if not resolved to the satisfaction of Deloitte & Touche LLP, would have caused
the firm to make reference to the matter in its report. During each of the two
fiscal years ended December 31, 2001 and 2002, there were no reportable events
as described in Item 304(a)(1)(v) of Regulation S-K.
Assuming the presence of a quorum, the affirmative vote of the holders
of a majority of the shares of common stock present in person or by proxy and
entitled to vote on this item at the annual meeting is necessary to approve the
appointment of Abraxas' independent auditors. The enclosed form of proxy
provides a means for stockholders to vote for the ratification of selection of
independent auditors, to vote against it or to abstain from voting with respect
to it. If a stockholder executes and returns a proxy, but does not specify how
the shares represented by such stockholder's proxy are to be voted, such shares
will be voted FOR the ratification of selection of independent auditors. Under
applicable Nevada law, in determining whether this item has received the
requisite number of affirmative votes, abstentions and broker non-votes will not
be counted and will have no effect.
The board of directors recommends a vote "FOR" the ratification of the
selection of BDO Seidman, LLP as independent auditors of Abraxas for the fiscal
year ending December 31, 2003.
17
STOCKHOLDER PROPOSALS FOR 2004 ABRAXAS ANNUAL MEETING
Abraxas intends to hold its next annual meeting in May of 2004,
according to its normal schedule. In order to be included in the proxy material
for the 2004 Annual Meeting, Abraxas must receive eligible proposals of
stockholders intended to be presented at the annual meeting on or before
December 26, 2003, directed to the Abraxas Secretary at the address indicated on
the first page of this proxy statement.
According to our Bylaws, Abraxas must receive timely written notice of
any stockholder nominations and proposals to be properly brought before the 2004
Annual Meeting. To be timely, such notice must be delivered to the Abraxas
Secretary at the principal executive offices set forth on the first page of this
proxy statement not later than the close of business on March 30, 2004 nor
earlier than March 1, 2004. The written notice must set forth (a) as to each
person whom the stockholder proposes to nominate for election or re-election as
a director, all information relating to such person that is required to be
disclosed in solicitations of proxies for election of directors in an election
contest, or is otherwise required, in each case pursuant to Regulation 14A under
the Securities Exchange Act of 1934, as amended; (b) as to any other business
that the stockholder proposes to bring before the meeting, a brief description
of the business desired to be brought before the meeting, the reasons for
conducting such business at the meeting and any material interest in such
business of such stockholder and the beneficial owner, if any, on whose behalf
the proposal is made; and (c) as to the stockholder giving the notice and the
beneficial owner, if any, on whose behalf the nomination or proposal is made (i)
the name and address of such stockholder, as they appear on the Corporation's
books, and of such beneficial owner and (ii) the class and number of shares of
the Corporation which are owned beneficially and of record by such stockholder
and such beneficial owner.
In the event that the 2004 Annual Meeting is more than 30 days from May
29, 2004 (the anniversary of the 2003 Annual Meeting), the dates for submission
with the proxy materials and to be properly be brought before the 2004 Annual
Meeting will change according to the Bylaws and Regulation 14A under the
Exchange Act. A copy of the Bylaws of Abraxas setting forth the advance notice
provisions and requirements for submission of stockholder nominations and
proposals may be obtained from the Abraxas Secretary at the address indicated on
the first page of this proxy statement.
OTHER MATTERS
No business other than the matters set forth in this document is
expected to come before the meeting, but should any other matters requiring a
stockholder's vote arise, including a question of adjourning the meeting, the
persons named in the accompanying Proxy will vote thereon according to their
best judgment in the interests of Abraxas. If the nominee for office of director
should withdraw or otherwise become unavailable for reasons not presently known,
the persons named as proxies may vote for another person in his place in what
they consider the best interests of Abraxas.
Upon the written request of any person whose proxy is solicited
hereunder, Abraxas will furnish without charge to such person a copy of its
annual report filed with the United States Securities and Exchange Commission on
Form 10-K, including financial statements and schedules thereto, for the fiscal
year ended December 31, 2002. Such written request is to be directed to the
attention of Chris E. Williford, 500 North Loop 1604 East, Suite 100, San
Antonio, Texas 78232.
By Order of the Board of Directors
Stephen T. Wendel
SECRETARY
San Antonio, Texas
April 24, 2003
18
FORM OF PROXY
FRONT
ABRAXAS PETROLEUM CORPORATION
500 North Loop 1604 East, Suite 100
San Antonio, Texas 78232
(210) 490-4788
This Proxy is Solicited on behalf of the Board of Directors
The undersigned shareholder of Abraxas Petroleum Corporation, a Nevada
corporation (the "Company"), hereby appoints Robert L. G. Watson, Chris E.
Williford and Robert W. Carington, Jr., and each of them, as Proxies, each with
the power to appoint his or her substitute, and hereby authorizes them to
represent and to vote, as designated below, all the shares of Abraxas common
stock which the undersigned may be entitled to vote at the Annual Meeting of
Stockholders to be held on May 29, 2003, and any adjournment thereof, with all
powers which the undersigned would possess if personally present.
The undersigned acknowledges receipt of the Notice of Annual Meeting of
Stockholders and Proxy Statement of Abraxas dated April 24, 2003.
CONTINUED AND TO BE SIGNED ON REVERSE SIDE
19
BACK
This proxy when properly executed will be voted in the manner directed
herein by the undersigned stockholder. If no direction is made, this proxy will
be voted "FOR" the election of Directors and "FOR" the Approval of Proposal 2 .
FOR WITHHELD
1. ELECTION OF [ ] [ ] Nominee:
DIRECTOR NOMINATED Franklin A. Burke
BY BOARD OF DIRECTORS
2. PROPOSAL TO APPROVE THE APPOINTMENT OF BDO SEIDMAN, LLP AS AUDITORS OF
ABRAXAS FOR THE FISCAL YEAR ENDING DECEMBER 31, 2003
[ ] FOR [ ] AGAINST [ ] ABSTAIN
3. In their discretion, the Proxies are authorized to vote upon such other
business as may properly come before the meeting.
CHECK HERE FOR ADDRESS CHANGE [ ] NEW ADDRESS:
--------------------------------
-------------------------------------------
-------------------------------------------
-------------------------------------------
Please sign exactly as name appears below. When shares are held by
joint tenants, both should sign. When signing as attorney, as executor,
administrator, trustee or guardian, please give full title as such. If a
corporation, please sign in full corporate name by President or other authorized
officer. If a partnership, please sign in partnership name by authorized person.
DATED: ______________, 2003
--------------------------------------------
Signature
PLEASE MARK, SIGN, DATE AND RETURN
THE PROXY CARD PROMPTLY USING THE
--------------------------------------------
ENCLOSED ENVELOPE. Signature if held jointly
20
ANNEX A
ABRAXAS PETROLEUM CORPORATION
Audit Committee Charter
The audit committee of the board of directors shall be comprised entirely of
directors who are independent of management and the Company. Members of the
audit committee shall be considered independent if they meet the requirements of
Section 10A(m)(3) of the Securities Exchange Act of 1934 (the "Exchange Act")
and the rules and regulations of any exchange on which Abraxas securities are
listed or quoted and the Securities and Exchange Commission. Members of the
audit committee may receive no compensation from the Company other than
directors' fees and shall not serve on the audit committee of more than two
other public companies. All audit committee members will be financially literate
and at least one member will be an "audit committee financial expert" as defined
and required by federal rules and regulations and the rules of any exchange on
which Abraxas securities are listed or quoted.
STATEMENT OF POLICY
The audit committee shall provide assistance to the directors in fulfilling
their responsibility to the shareholders, potential shareholders, and investment
community relating to corporate accounting, reporting practices of the Company,
and the quality and integrity of financial reports of the Company. In so doing,
it is the responsibility of the audit committee to maintain free and open
communication between the directors, the independent auditors, and the financial
management of the Company.
MEETINGS
The audit committee shall meet as often as may be deemed necessary or
appropriate in its judgment, but at least quarterly each year, and at such time
and places as the audit committee shall determine. The audit committee shall
meet separately, at least quarterly, with the auditors and management to discuss
any matters that the auditors or management wish to bring to the audit
committee's attention.
OUTSIDE ADVISORS
The audit committee shall have the authority to retain such outside counsel,
accountants, experts and other advisors as it deems appropriate to assist the
audit committee in the performance of its functions. The Company shall provide
for appropriate funding, as determined by the audit committee, for payment of
compensation to the independent auditor for the purpose of rendering or issuing
an audit report, to any advisor employed by the audit committee and for ordinary
administrative expenses of the audit committee that are necessary or appropriate
in carrying out its duties.
RESPONSIBILITIES
In carrying out its responsibilities, the audit committee believes its policies
and procedures should remain flexible, in order to best react to changing
conditions and to ensure to the directors and shareholders that the corporate
accounting and reporting practices of the Company are in accordance with all
requirements and are of the highest quality.
In carrying out these responsibilities, the audit committee shall:
o Obtain the full board of directors' approval of this Charter and
review and reassess this Charter as conditions dictate (at least
annually).
o Have the sole authority and responsibility to appoint, evaluate,
retain and, where appropriate, replace the independent auditors to
be selected, subject to shareholders approval, to audit the
financial statements of the Company and its divisions.
o Have the sole authority and responsibility for the compensation and
oversight of the work of the independent auditors (including
resolution of disagreements between management and the independent
auditor regarding financial reporting) for the purpose of preparing
or issuing an audit report or performing other audit review services
for the Company. The independent auditor shall report directly to
the audit committee.
o Meet with the independent auditors and financial management of the
Company to review and pre-approve the scope of the proposed audit
and timely quarterly reviews for the current year and the procedures
to be utilized, the adequacy of the independent auditor's
compensation, and at the conclusion thereof, review such audit or
review, including any comments or recommendations of the independent
auditors.
o Establish policies and procedures for the engagement of the
independent auditors to provide permissible non-audit services,
subject to the de minimus exceptions for non-audit services
described in Section 10A(i)(l)(B) of the Exchange Act, which shall
include pre-approval of permissible non-audit services to be
provided by the independent auditors. The audit committee shall
approve in advance all non-audit services to be provided by the
independent auditors.
o Review and evaluate the lead partner of the independent auditor team
and ensure the rotation of the audit partners as required by law.
o Discuss with the independent auditors the matters required to be
discussed by Statement on Auditing Standards No. 61 relating to the
conduct of the audit, including any difficulties encountered in the
course of the audit work, any restrictions on the scope of
activities or access to requested information, and any significant
disagreements with management.
o Review at least annually with the independent auditors and the
Company's financial and accounting personnel, the adequacy and
effectiveness of the accounting and financial controls of the
Company, and elicit any recommendations for the improvement of such
internal controls or particular areas where new or more detailed
controls or procedures are desirable. Particular emphasis should be
given to the adequacy of internal controls to expose any payments,
transactions, or procedures that might be deemed illegal or
otherwise improper. Further, the committee periodically should
review Company policy statements to determine their adherence to the
code of conduct.
o Establish procedures for the receipt, retention and treatment of
complaints regarding accounting, internal accounting controls or
auditing matters, including procedures for the confidential,
anonymous submission by employees of concerns regarding questionable
accounting or auditing matters.
o Review and discuss with management and the independent auditors the
adequacy and effectiveness of the Company's legal, regulatory and
ethical compliance programs.
o Obtain from the independent auditor assurance that Section 10A(b) of
the Exchange Act has not been implicated.
o Periodically review the Company's policies and Code of Ethics, with
particular focus on related party transactions and conflicts of
interest involving, directly or indirectly, the principal executive
officer, principal financial officer and principal accounting
officer, and consider whether changes are needed.
o Evaluate, decide whether to approve and monitor on an ongoing basis
any related party transactions covered by the Company's policies and
Code of Ethics and make decisions regarding the grant of any waiver
of or deviation from the Company's policies and Code of Ethics.
o Obtain reports from management and the independent auditor that the
Company and its subsidiary/foreign affiliated entities are in
conformity with applicable legal requirements.
o Review reports received from regulators and other legal and
regulatory matters that may have a material effect on the financial
statements or related Company compliance policies.
o Inquire of management and the independent auditors about significant
risks or exposures and assess the steps management has taken to
minimize such risks to the Company.
o Review and discuss the financial statements with financial
management and the independent auditors prior to the filing of the
Company's Form 10-K and Form 10-Q (or prior to the press release of
results, if possible) to determine that the independent auditors do
not take exception to the disclosure and content of the financial
statements therein, and discuss any other matters required to be
communicated to the committee by the auditors. The chair of the
committee may represent the entire committee for the purpose of
review.
o Review and discuss the financial statements contained in the annual
report to shareholders with management and the independent auditors
to determine that the independent auditors are satisfied with the
disclosure and content of the financial statements to be presented
to the shareholders. Review with financial management and the
independent auditors the results of their timely analysis of
significant financial reporting issues and practices, including
changes in, or adoptions of, accounting principles and disclosure
practices, and discuss any other matters required to be communicated
to the committee by the auditors. Also review with financial
management and the independent auditors their judgments about the
quality, not just acceptability, of accounting principles and the
clarity of the financial disclosure practices used or proposed to be
used, and particularly, the degree of aggressiveness or conservatism
of the organization's accounting principles and underlying
estimates, and other significant decisions made in preparing the
financial statements.
o Discuss with management the Company's earnings press releases,
including the use of "pro forma" or "adjusted" non-GAAP information,
as well as financial information and earnings guidance provided to
analysts and rating agencies. Such discussions may be done generally
(consisting of discussing the types of information to be disclosed
and the types of presentations to be made).
o Provide sufficient opportunity for the independent auditors to meet
with the members of the audit committee without members of
management present. Among the items to be discussed in these
meetings are the independent auditors' evaluation of the Company's
financial and accounting personnel and the cooperation that the
independent auditors received during the course of audit.
o Review accounting, financial, and human resources and succession
planning relative thereto.
o Report the results of the annual audit to the board of directors. If
requested by the board, invite the independent auditors to attend
the full board of directors meeting to assist in reporting the
results of the annual audit or to answer other directors' questions
(alternatively, the other directors, particularly the other
independent directors, may be invited to attend the audit committee
meeting during which the results of the annual audit are reviewed).
o On an annual basis, obtain from the independent auditors a written
communication delineating all their relationships and professional
services as required by Independent Standards Board Standard No. 1,
Independence Discussions with Audit Committees. In addition, review
with the independent auditors the nature and scope of any disclosed
relationships of professional services and take, or recommend that
the board of directors take, appropriate action to ensure the
continuing independence of the auditors.
o Submit the minutes of all meetings of the audit committee to, or
discuss the matters discussed at each committee meeting with, the
board of directors.
o Investigate any matter brought to its attention within the scope of
its duties, with the power to retain outside counsel for this
purpose if, in its judgment, that is appropriate.
o Review and discuss with management and the independent auditors the
Company's internal controls (with particular emphasis on the scope
and performance of the internal audit function), and review and
discuss with the internal auditors the results of the internal audit
program.
o Review and discuss the Company's disclosure controls and procedures,
and the quarterly assessments of such controls and procedures by the
chief executive officer and chief financial officer.
LIMITATION OF AUDIT COMMITTEE'S ROLE
While the audit committee has the responsibilities and powers set forth in this
Charter, it is not the duty of the audit committee to plan or conduct audits or
to determine that the Company's financial statements and disclosures are
complete and accurate and are in accordance with generally accepted accounting
principles and applicable rules and regulations. These are the responsibilities
of management and the independent auditor.