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FORM 10-K FOR FISCAL YEAR ENDED DECEMBER 31, 1995NOTES TO CONSOLIDATED FINANCIAL STATEMENTS7. Stockholders' Equity
Common Stock. On September 6, 1994, the Company declared a 10% stock dividend to shareholders of record on September 19, 1994, which was distributed on September 29, 1994. The transaction was valued based on the closing price ($11.00) of the Company's common stock on the New York Stock Exchange on September 6, 1994. As a result of the issuance of 606,262 shares of the Company's common stock as a dividend, retained earnings were reduced by $6,668,882, with the common stock and additional paid-in capital accounts increased by the same amount. Primary and fully diluted income (loss) per share was restated for all periods presented to reflect the effect of the stock dividend. During the third quarter of 1995, the Company closed the sale to the public of 5,750,000 shares of common stock at a price of $8.50 per share. Net proceeds from this offering were $45,698,912 and were used to repay outstanding indebtedness, with the remaining proceeds being used to finance the Company's exploration and development activities, and to acquire producing oil and gas properties, including limited partnership interests. Stock Options and Warrants. The Company has an employee option plan under which incentive stock options and other options and awards may be granted to employees to purchase shares of common stock and a nonqualified stock option plan under which non-employee members of the Company's Board of Directors may be granted options to purchase shares of common stock. The plans provide that the exercise prices equal 100% of the fair value of the common stock on the date of grant. Options become exercisable for 20% of the shares on the first anniversary of the grant of the option and are exercisable for an additional 20% per year thereafter. Options granted expire 10 years after the date of grant or earlier in the event of the optionee's separation from employment. No accounting entries are required until the stock options are exercised, at which time the option price is credited to the common stock and additional paid-in capital accounts. The effect of the 10% stock dividend increased the number of shares and decreased the price according to the respective agreements. |
The following is a summary of stock options under these plans:
| Year Ended December 31, | ||
| 1995 | 1994 | |
| ----------------- | ----------------- | |
| Options outstanding, beginning of period | 1,166,920 | 899,650 |
| Options granted | 227,502 | 202,760 |
| Options terminated | (80,270) | (20,658) |
| Options exercised | (5,761) | (21,472) |
| Options adjusted for stock dividend | -- | 106,640 |
| ----------------- | ----------------- | |
| Options outstanding, end of period | 1,308,391 | 1,166,920 |
| ============ | ============ | |
| Options exercisable, end of period | 722,627 | 546,172 |
| ============ | ============ | |
| Options available for future grant, end of period | 343,344 | 498,909 |
| ============ | ============ | |
| Option price range: | ||
| Options granted | $7.045--$10.114 | $9.091--$10.25 |
| Options terminated | $7.045--$10.114 | $7.045--$12.386 |
| Options exercised | $7.045--$10.114 | $7.045--$9.773 |
| Options outstanding, end of period | $5.455--$12.386 | $5.455--$12.386 |
The Company also has granted certain stock options to individuals who are neither employees, officers, nor directors, for specific services rendered to the Company. At December 31, 1995, the only outstanding options under this plan were granted in 1991 covering 68,750 shares at $9.773 (after adjustment for the September 1994 stock dividend). During the three years ended December 31, 1995, the only other activity has been the cancellation of 5,350 option shares in 1993.
The Company also has a plan which provides eligible employees the opportunity to acquire shares of Company common stock at a discount through payroll deductions. This plan was approved at the May 11, 1993, shareholders meeting. The plan year is from June 1 to the following May 31. The first year of the plan commenced June 1, 1993. Employees may authorize payroll deductions of up to 10% of their base salary during the plan year by making an election to participate prior to the start of a plan year. The purchase price for stock acquired under the plan will be 85% of the lower of the closing price of the Company's common stock as quoted on the New York Stock Exchange at the beginning or end of the plan year or a date during the year chosen by the participant. The Company issued 37,689 and 29,840 shares under this plan at a range of prices of $6.80 to $7.92 and a price of $8.71 during 1995 and 1994, respectively. As of December 31, 1995, there were 479,487 shares available for issuance under this plan. There are no charges or credits to income in connection with this plan.
In October 1995 the FASB issued SFAS No. 123, "Accounting for Stock-Based Compensation," which establishes accounting and reporting standards for stock-based employee compensation plans. SFAS No. 123 defines a fair value-based method of accounting for stock options or similar equity instruments, but allows companies to continue to measure compensation cost using the intrinsic value-based method prescribed by Accounting Principles Board Opinion ("APB") No. 25, "Accounting for Stock Issued to Employees." Under the fair value-based method, compensation cost is measured at the grant date based on the value of the award and is recognized over the service period (generally, the vesting period). Under the intrinsic value-based method, compensation cost is the excess, if any, of the quoted market price of the stock at the date of grant over the exercise price.
Under the provisions of SFAS No. 123, a company may elect to measure compensation cost associated with its stock option and similar plans as a component of compensation expense in its statement of operations. Companies may also elect to continue to measure compensation cost under the provisions of APB No. 25. Companies which elect to continue measurement under APB No. 25 are required to provide pro forma disclosure in the notes to financial statements reflecting the difference, if any, between compensation cost included in net income and the cost if the fair value-based method were used including effects on earnings per share. Since the inception of the Option Plan, the Company has not recognized any compensation cost related to grants of stock options. The disclosure requirements of this statement are effective for financial statements for fiscal years beginning after December 15, 1995. At this time, the Company does not expect to adopt the fair value-based method of accounting for its stock option plans and, accordingly, adoption of this statement will have no impact on the Company's results of operations.
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