SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE
SECURITIES EXCHANGE ACT OF 1934
(Amendment No. )
Filed by Registrant [x]
Filed by Party other than Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[x] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to ss. 240.14a-11(c) or ss. 240.14a-12
COMSTOCK RESOURCES, INC.
(Name of Registrant as Specified in its Charter)
Comstock Resources, Inc.
(Name of Person(s) Filing Proxy Statement)
Payment of Filing Fee (check the appropriate box):
[x] $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(l), or 14a-6(j)(2)
[ ] $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3)
[ ] 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:*
4) Proposed maximum aggregate value of transaction:
*Set forth amount on which filing fee is calculated and state how it was
determined.
[ ] 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 offering fee
was paid previously. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of the filing.
1) Amount previously paid:
2) Form, Schedule or Registration Statement No.:
3) Filing Party:
4) Date Filed:
COMSTOCK RESOURCES, INC.
5005 LBJ Freeway
Suite 1000
Dallas, Texas 75244
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To Be Held May 15, 1996
To the Stockholders of Comstock Resources, Inc.:
Notice is hereby given that the Annual Meeting of Stockholders of Comstock
Resources, Inc. will be held at the Dallas Petroleum Club, 2200 Ross Avenue,
Dallas, Texas, on May 15, 1996 at 9:00 A.M., Dallas time, for the following
purposes:
1. To elect two Class B directors to serve terms of three years and until
their successors are duly elected and qualified;
2. To consider and act upon a proposal to amend the Comstock Resources,
Inc. 1991 Long-term Incentive Plan;
3. To ratify the appointment of Arthur Andersen LLP as independent public
accountants for 1996; and
4. To transact such other business as may properly come before the
meeting and any adjournment thereof.
The Board of Directors has fixed the close of business on April 15, 1996 as
the record date for determining the stockholders entitled to notice of and to
vote at the meeting or any adjournment thereof. A list of such stockholders will
be open to examination of any stockholder at the Company's offices at 5005 LBJ
Freeway, Suite 1000, Dallas, Texas, 75244, during ordinary business hours, for a
period of at least ten days prior to the meeting.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ROLAND O. BURNS
ROLAND O. BURNS
Dallas, Texas,
April 17, 1996
IMPORTANT
TO ENSURE YOUR REPRESENTATION AT THE MEETING, PLEASE MARK, SIGN AND DATE THE
ENCLOSED PROXY AND RETURN IT AS PROMPTLY AS POSSIBLE IN THE ENCLOSED ENVELOPE.
NO POSTAGE NEED BE AFFIXED IF MAILED IN THE UNITED STATES. IF YOU ATTEND THE
MEETING AND WISH TO VOTE IN PERSON, YOU MAY WITHDRAW YOUR PROXY.
COMSTOCK RESOURCES, INC.
5005 LBJ Freeway
Suite 1000
Dallas, Texas 75244
PROXY STATEMENT
FOR
ANNUAL MEETING OF STOCKHOLDERS
To Be Held May 15, 1996
The Board of Directors of Comstock Resources, Inc. (the "Company") hereby
solicits your proxy in the form enclosed for use at the Annual Meeting of
Stockholders (the "Annual Meeting") to be held at the Dallas Petroleum Club,
2200 Ross Avenue, Dallas, Texas, at 9:00 A.M., Dallas time, on May 15, 1996, or
at any adjournment thereof. The expenses of this solicitation will be borne by
the Company. Proxies may be solicited by mail, personal interview, telegram and
telephone by directors, officers, employees and agents of the Company without
compensation.
This Proxy Statement and the accompanying form of proxy are being mailed to
stockholders on or about April 17, 1996. The principal executive office of the
Company is located at 5005 LBJ Freeway, Suite 1000, Dallas, Texas 75244,
telephone (214) 701-2000.
Only stockholders of record at the close of business on April 15, 1996 are
entitled to notice of and to vote at the Annual Meeting. On that date, there
were 13,120,242 shares of the Company's common stock, $.50 par value, (the
"Common Stock") outstanding. Included in the total outstanding shares are 74,506
shares reserved for conversion of shares which have not been tendered for
exchange subsequent to the Company's reincorporation in Nevada in 1981. Such
shares are not eligible to vote at the Annual Meeting. Holders of the Series
1994 Convertible Preferred Stock, the 1994 Series B Convertible Preferred Stock
and the Series 1995 Convertible Preferred Stock are entitled to vote on all
matters on an as converted basis or the equivalent of 1,500,000 shares,
2,000,000 shares, and 2,857,143 shares of Common Stock, respectively.
Accordingly, the aggregate shares entitled to vote at the meeting are
19,402,879. Each share is entitled to one vote.
You are encouraged to attend the Annual Meeting and vote in person.
Execution of the enclosed proxy will not in any way affect your right to do so.
A stockholder may revoke a proxy at any time prior to the voting thereof by
filing with the Secretary of the Company, prior to the stockholder vote, a
written revocation or duly executed form of proxy bearing a later date, or by
voting in person at the Annual Meeting.
Attendance at the Annual Meeting, either in person or by proxy, by the
record holders of a majority of the outstanding shares of the Common Stock
constitutes a quorum. Cumulative voting is not permitted.
1
SECURITY OWNERSHIP OF MANAGEMENT AND PRINCIPAL HOLDERS
The following table sets forth certain information, as of April 15, 1996,
with respect to the beneficial ownership of Common Stock by (i) each current
executive officer of the Company named in the Summary Compensation Table set
forth in this Proxy Statement, (ii) each director and each nominee for director
of the Company, (iii) all directors and executive officers of the Company as a
group and (iv) each person known by the Company to be the beneficial owner of 5%
or more of the Common Stock. Certain ownership information presented below is
based on Schedule 13-D or 13-G filings.
Name and Address of Beneficial Owner Shares (1)(2) Percent
- ---------------------------------------------------------------- -------------- ----------
M. Jay Allison, President, Chief Executive Officer and Director 742,373 5.51%
5005 LBJ Freeway, Suite 1000
Dallas, Texas 75244
Roland O. Burns, Senior Vice President, 130,750 *
Chief Financial Officer, Treasurer and Secretary
Richard S. Hickok, Director 81,056 (3) *
Franklin B. Leonard, Director 136,311 1.04%
Harold R. Logan, Chairman of the Board 163,989 1.25%
Cecil E. Martin, Jr., Director 348,961 (4) 2.65%
James L. Menke, Vice President of Operations 10,000 *
David W. Sledge, Director Nominee - -
Herbert C. Pell, III, Retiring Director 185,673 (5) 1.41%
All Directors and Executive Officers as a Group (9 persons) 1,799,113 13.03%
Enron Reserve Acquisition Corporation 2,035,920 (6) 13.46%
1400 Smith Street
Houston, Texas 77251
Fidelity Management and Research Company 1,146,000 (7) 8.73%
82 Devonshire Street
Boston Massachusetts 02109
Liberty Life Insurance Company 1,204,143 8.81%
2000 Wade Hampton
Greenville, South Carolina 29615
Continued on Following Page
2
Name and Address of Beneficial Owner Shares (1)(2) Percent
- ---------------------------------------------------------------- -------------- ----------
The TCW Group, Inc. (9) 4,479,390 (10) 25.63%
865 South Figueroa Street
Los Angeles, California 90017
- -------------------------------
* Indicates less than 1%.
(1) Unless otherwise indicated, all shares of Common Stock are held directly
with sole voting and investment powers.
(2) Includes shares issuable pursuant to stock options which are presently
exercisable or exercisable within 60 days of April 15, 1996, in the
following amounts: Mr. Allison - 365,000 shares; Mr. Burns - 76,750 shares;
Mr. Hickok - 27,000 shares; Mr. Leonard - 36,000 shares; Mr. Logan - 36,000
shares; Mr. Martin - 27,000 shares; Mr. Menke - 10,000 shares; and Mr. Pell
- 27,000 shares.
(3) Includes 32,572 shares held by a corporation owned 90% by Mr. Hickok's wife
and 10% by Mr. Hickok's children.
(4) Includes 135,632 shares and options to purchase 30,800 shares held by Mr.
Martin's wife as trustee on behalf of family trusts and 3,018 shares held
by Mr. Martin as custodian for family members.
(5) Includes options to purchase 55,600 shares held by the Pell Family Trust of
which Mr. Pell is one of the beneficiaries and 3,025 shares held by
corporations controlled by Mr. Pell.
(6) Includes 2,000,000 shares issuable upon conversion of 1,000,000 shares of
the 1994 Series B Convertible Preferred Stock.
(7) Includes 1,125,000 shares held by the Fidelity Capital Appreciation Fund.
(8) Includes 550,000 shares issuable pursuant to stock purchase warrants
currently exercisable or exercisable within 60 days of April 15, 1996.
(9) The TCW Group, Inc. is the investment manager for the following parties:
TCW Debt and Royalty Fund IVA - 301,620 shares; TCW Debt and Royalty Fund
IVB - 805,826 shares; TCW Debt and Royalty Fund IVC - 237,375 shares; Delta
Master Trust - 201,081 shares; Leland Stanford Junior University - 502,699
shares; Columbia University - 251,347 shares; Searle Trusts Limited
Partnership X - 251,347 shares; John G. Searle Charitable Trusts
Partnership - 100,539 shares; San Francisco Retirement System - 78,334
shares; and General Mills, Inc. - 1,749,222 shares.
(10) Includes 1,500,000 shares issuable upon conversion of 600,000 shares of the
Series 1994 Convertible Preferred Stock and 2,857,143 shares issuable upon
conversion of 1,500,000 shares of the Series 1995 Convertible Preferred
Stock.
PROPOSAL NO. 1
ELECTION OF DIRECTORS
The Company's Board of Directors presently consists of six members
comprised of three classes (Class A, B, and C). Directors are elected in classes
to serve terms of three years. The Class B directors (whose term expires at the
Annual Meeting) currently serving are M. Jay Allison and Herbert C. Pell, III.
The Class C directors, whose term expires in 1997, are Richard S. Hickok and
Harold R. Logan. The Class A directors, whose term expires in 1998, are Franklin
B. Leonard and Cecil E. Martin, Jr. At the Annual Meeting, two Class B directors
will be elected, each for a term of three years beginning in 1996 and until his
successor is duly elected and qualified. The Board of Directors has nominated M.
Jay Allison and David W. Sledge to serve as Class B directors. Further
information with respect to each nominee and the other directors continuing in
office is set forth below.
Nominees for Three-Year Terms
M. JAY ALLISON, (40) President, Chief Executive Officer and Director
Mr. Allison has been a director of the Company since 1987, and President
and Chief Executive Officer of the Company since 1988. From 1987 to 1988, Mr.
Allison served as Vice President and Secretary of the Company. From 1981 to
1987, he was a practicing oil and gas attorney with the firm of Lynch, Chappell
& Alsup in Midland, Texas. In 1983, Mr. Allison co-founded a private independent
oil and gas company, Midwood Petroleum, Inc., which was active in the
acquisition and development of oil and gas properties until 1987. He received
B.B.A., M.S. and J.D. degrees from Baylor University in 1978, 1980 and 1981,
respectively. Mr. Allison currently is serving on the Board of Trustees of
Howard Payne University.
3
DAVID W. SLEDGE, (39) Director Nominee
Mr. Sledge has been nominated for election to the Board of Directors of the
Company at the 1996 Annual Meeting. Mr. Sledge is currently President of Gene
Sledge Drilling Corporation, a privately held contract drilling company based in
Midland, Texas with operations primarily in West Texas and Eastern New Mexico.
Mr. Sledge has served Gene Sledge Drilling Corporation in various capacities
since 1979. Mr. Sledge is director of the International Association of Drilling
Contractors and is a past chairman of the Permian Basin chapter of this
association. He received a B.B.A. degree from Baylor University in 1979.
Directors Continuing in Office
RICHARD S. HICKOK, (70) Director
Mr. Hickok has been a director of the Company since 1987. From 1948 to
1983, he was employed by the international accounting firm of Main Hurdman where
he retired as Chairman of the Board of Directors. From 1978 to 1980, Mr. Hickok
served as a Trustee of the Financial Accounting Foundation and has extensive
involvement serving on various committees of the American Institute of Certified
Public Accountants. He currently serves as a director of Marsh & McLennan
Company, Inc., Alpine Lace Brands, Inc., Marcam, Inc. and Projectavision, Inc.
Mr. Hickok holds a B.S. degree from the Wharton School of the University of
Pennsylvania.
HAROLD R. LOGAN, (74) Chairman of the Board of Directors
Mr. Logan has served as Chairman of the Board of Directors since 1987. From
1960 to 1986, Mr. Logan was employed by W.R. Grace & Co. in various positions
including Vice Chairman of the Board of Directors and head of the W.R. Grace &
Co. Energy Division. From 1953 to 1960, Mr. Logan was a Budget Director in the
Department of Defense during the Eisenhower Administration. He is currently
serving as a trustee of the Neuberger and Berman Income Funds and is a past
director of the Whitman Corporation and Chelsea Industries. Mr. Logan holds a
B.S. degree from Oklahoma State University.
FRANKLIN B. LEONARD, (68) Director
Mr. Leonard has been a director of the Company since 1960. From 1961 to
1994, Mr. Leonard served as President of Crossley Surveys, Inc., a New York
based company which conducted statistical surveys. Mr. Leonard's family's
involvement in the Company spans four generations dating back to the 1880's when
Mr. Leonard's great grandfather was a significant stockholder of the Company.
Mr. Leonard also served as a director of Glen Ridge Savings and Loan Association
from 1968 to 1990. Mr. Leonard holds a B.S. degree from Yale University.
CECIL E. MARTIN, JR., (54) Director
Mr. Martin has been a director of the Company since 1988. Mr. Martin has
been a significant investor in the Company since 1987. From 1973 to 1991 he
served as Chairman of a public accounting firm based in Richmond, Virginia. Mr.
Martin filed for bankruptcy in July 1991 and was discharged from bankruptcy in
March 1992. Mr. Martin also serves as a director for Ten-Key, Inc. Mr. Martin
holds a B.B.A. degree from Old Dominion University and is a Certified Public
Accountant.
There is no family relationship among any of the officers or directors of
the Company.
4
Meetings of the Board of Directors and Committees
During 1995, the Board of Directors held five meetings, and each Director
participated in all of the meetings.
The Company's Audit Committee has responsibility for recommending retention
or change of the Company's independent auditors, reviewing with management and
the independent auditors the Company's financial statements, accounting and
financial policies and practices, audit scope and adequacy of the Company's
internal control structure. The Audit Committee consists of Richard S. Hickok as
Chairman, and Franklin B. Leonard and Herbert C. Pell, III as members. The Audit
Committee held two meetings during 1995 at which all members were present. In
addition, the Company's Senior Vice President, as well as the Company's
independent public accountants, consult regularly with the Audit Committee on an
informal basis to discuss various accounting related issues.
The Company's Executive Committee is authorized to act and acts during the
intervals between the meetings of the Board of Directors and has all of the
powers and authority of the Board of Directors in the management of the business
and affairs of the Company, except the power to declare dividends; to adopt,
amend or repeal bylaws; to adopt an agreement of merger or consolidation; to
sell substantially all of the Company's assets; to recommend a dissolution of
the Company to the stockholders; or to authorize the issuance of stock of the
Company. The Executive Committee consists of M. Jay Allison as Chairman, and
Cecil E. Martin, Jr. and Harold R. Logan as members. The Executive Committee
held two meetings during 1995 at which all members were present.
The Company's Compensation Committee reviews and recommends to the Board of
Directors the compensation and promotion of officers of the Company, the terms
of any proposed employee benefit arrangements and the making of awards under
such arrangements. The Compensation Committee consists of Cecil E. Martin, Jr.,
as Chairman, Harold R. Logan and Herbert C. Pell, III as members. The
Compensation Committee held two meetings during 1995 at which all members were
present.
The Company has not established a formal nominating committee and presently
the full Board of Directors considers director nominations.
Compensation of Directors
The Company pays annual fees to directors who are not employees of the
Company and reimburses such directors for expenses in attending meetings. The
Company pays an annual fee of $23,000 to the Chairman of the Board of Directors,
an annual fee of $21,000 to directors who chair committees, and an annual fee of
$18,000 to the remaining directors. The Company also pays Mr. Logan and Mr.
Martin for additional services provided to the Company under consulting
agreements which provide for annual payments of $24,000 and $18,000,
respectively. Under a plan established by the Board of Directors, each director
can make an annual election to receive his director and consulting fees in cash
or in the equivalent number of shares of Common Stock at the then current market
price of Common Stock. In January 1996, the Company issued 29,714 shares of
Common Stock, at its then current market value of $4.8125 per share, to the
non-employee directors in full payment of director fees for 1996 aggregating
$101,000 and for amounts due to Mr. Logan and Mr. Martin under the consulting
agreements aggregating $42,000.
5
In 1991, each non-employee director was awarded options to purchase 45,000
shares of Common Stock at $2.00 a share under the Company's 1991 Long-term
Incentive Plan. Each year, ten percent of such options vest based on a
director's years of service. In the event of a change in control, all such
options immediately vest and become exercisable. A proposal to amend the 1991
Long-term Incentive Plan, including the non-employee director option provisions,
will also be considered at the Annual Meeting. See "Proposal No. 2 - Proposal to
Amend the Company's 1991 Long-term Incentive Plan."
The Board of Directors recommends that the Stockholders vote FOR the
election of each of the nominees.
Vote Required
Under Nevada law, directors will be elected by a plurality vote and the two
persons receiving the greatest number of votes will be elected as the Class B
Directors. Because directors are elected by a plurality vote, abstentions and
broker non-votes will not affect the outcome of the elections since no
particular minimum vote of the shares present or represented at the meeting and
entitled to vote is required.
Shares represented by proxies will be voted FOR the election of the Board
of Directors' nominees unless otherwise indicated on the proxy. If at the time
of the meeting, either nominee has become unavailable for any reason, the
persons entitled to vote the proxy shall vote for such substitute nominee or
nominees as they, in their discretion, may determine. The Company knows of no
reason why either nominee would be unavailable to serve.
6
EXECUTIVE COMPENSATION
The following table sets forth certain information regarding compensation
earned during each of the Company's last three fiscal years by the Company's
Chief Executive Officer and all other executive officers of the Company.
Summary Compensation Table
Long-term Compensation
Annual Compensation Awards Payouts
--------------------------------- ------------------------ ---------
Other Securities Long-term
Annual Restricted Underlying Incentive All Other
Compen- Stock Options/ Plan Compen-
Name and Principal Salary Bonus sation (1) Awards (2) SARs Payouts sation (3)
Position Year ($) ($) ($) ($) (#) ($) ()
------------------ ------ --------- -------- ---------- ---------- ---------- --------- -----------
M. Jay Allison, 1995 245,000 155,000 - - 50,000 - 3,200
President and 1994 241,500 130,000 - - - - -
Chief Executive Officer 1993 241,500 110,000 - - 115,000 - -
Roland O. Burns, 1995 128,000 40,000 - - 22,500 - 1,900
Sr. Vice President and 1994 123,500 30,000 - - - - -
Chief Financial Officer 1993 107,000 35,000 - - 29,500 - -
James L. Menke, 1995 90,000 30,000 - - 10,000 - 1,331
Vice President of 1994 59,924 15,000 - - - - -
Operations (4) 1993 - - - - - - -
(1) The value of all perquisites provided to each executive officer by the
Company did not exceed the lesser of $50,000 or 10% of such officer's
salary and bonus for the year.
(2) Restricted stock grants under the Company's 1991 Long-term Incentive
Plan were made in 1991 to Mr. Allison and Mr. Burns for 250,000 and
50,000 shares of Common Stock, respectively. The restricted stock
vests 10% for each year of service provided to the Company with credit
given for service to the Company prior to the date of grant. As of
December 31, 1995, 200,000, and 25,000 shares held by Messrs. Allison
and Burns, respectively, were 100% vested.
(3) Represents the Company's matching contributions under the Company's
401-K Profit Sharing Plan.
(4) Mr. Menke was appointed Vice President of Operations on March 21,
1994.
The following table sets forth stock options granted during 1995 to the
named executive officers of the Company.
Option/SAR Grants in Last Fiscal Year
Potential Realizable
Value at Assumed
Annual Rates of Stock
Price Apprection
Individual Grants for Option Term
- ------------------------------------------------------------------------------ ---------------------
Number of
Securites
Underlying Precent of Total
Options Options Granted Exercise or
Granted To Employees in Base Price Expiration 5% 10%
Name (#) Fiscal Year ($/Share) Date ($) ($)
- -------------- ------ --------------- ------------ -------------- ------ ------
M. Jay Allison 50,000 51.3 $3.00 August 1, 2000 41,442 91,577
Roland O. Burns 22,500 23.1 $3.00 August 1, 2000 18,649 41,209
James L. Menke 10,000 10.3 $3.00 August 1, 2000 8,288 18,315
7
The following table sets forth certain information with respect to stock
options exercised in the year ended December 31, 1995 by the named executive
officers and the value of such officers' unexercised options at December 31,
1995.
Aggregated Option/SAR Exercises in Last Fiscal Year and
Fiscal Year-End Option/SAR Values
Number of Securities Value of Unexercised
Shares Underlying Unexercised Options In-the-Money Options
Acquired on Value at Fiscal Year-End at Fiscal Year-End (1)
Exercise Realized (#) ($)
Name (#) ($) Exercisable Unexercisable Exercisable Unexercisable
- --------------- ----------- ----- ------------ -------------- ----------- -------------
M. Jay Allison - - 365,000 50,000 1,190,625 181,250
Roland O. Burns - - 76,750 25,000 233,594 90,625
James L. Menke - - 10,000 - 26,250 -
(1) The last sale price for a share of Common Stock as reported by the
Nasdaq Stock Market on December 29, 1995 was $5.625 and the exercise
prices of the options ranged from $2.00 to $3.00 per share.
Employment Agreements
Effective July 1, 1995, the Company entered into employment agreements with
M. Jay Allison, the President and Chief Executive Officer of the Company, and
Roland O. Burns, Senior Vice President, Chief Financial Officer, Secretary and
Treasurer of the Company. Under the agreements, the Company agreed to employ
each of Messrs. Allison and Burns for a period of twelve months at a minimum
base rate of $245,000, and $128,000 per annum, respectively. Each of the
agreements provides for the payment of severance benefits in an amount equal to
three times the existing annual base salary of the employee upon (i) a change in
control followed by (ii) the occurrence of certain specified events, including
the assignment of the employee to duties inconsistent with his position
immediately prior to the change in control, a reduction in the employee's
salary, requiring the employee to be relocated, failure of a purchaser to assume
the obligations of the Company under the agreement, failure of the Company to
re-elect the employee to the offices held by him immediately prior to a change
in control and a breach by the Company (or any successor) of any provisions of
the agreement. The severance benefit payments are payable in cash in equal
payments (without interest over a period not to exceed twelve months). As
defined in the agreements, a "change in control" is deemed to have taken place
if (a) without the approval or recommendation of a majority of the then existing
Board of Directors of the Company, a third person causes or brings about the
removal or resignation of the then existing members of the Board or if a third
person causes or brings about an increase in the size of the Board such that the
then existing members of the Board thereafter represent a minority of the total
number of persons comprising the entire Board; (b) a third person, including a
group, becomes the beneficial owner of shares of any class of the Company's
stock having 30 percent or more of the total number of votes that may be cast
for the election of directors of the Company; (c) any shares or any class of the
Company's stock are purchased pursuant to a tender or exchange offer (other than
an offer by the Company) or (d) the Company's stockholders approve a merger or
other business combination of the Company with or into another corporation
pursuant to which the Company will not survive or will survive only as a
subsidiary of another corporation, or the sale or other disposition of all or
substantially all of the assets of the Company, or any combination of the
foregoing.
8
Report of Compensation Committee on Executive Compensation
The duties of the Company's Compensation Committee include the annual
review and approval of the Company's management compensation strategy, review
and determination of individual elements of compensation for the Company's
executive officers and oversight of the administration of the Company's 1991
Long-term Incentive Plan (the "Incentive Plan"). The Compensation Committee has
not established any specific criteria in determining executive compensation. The
goal of the Company's compensation arrangements is to attract, retain and reward
personnel critical to the long-term success of the Company. To achieve this
basic goal, the Compensation Committee sets annual base salaries for the chief
executive officer and the other executive officers and awards discretionary cash
bonuses based on the Company's financial performance during the prior year, as
well as the Compensation Committee's subjective assessment of an individual's
own performance and ability in the position held by that person. In 1995, the
Compensation Committee held two meetings.
Base Salaries. The Compensation Committee's compensation policy is to annually
review and set executive base salaries, including Mr. Allison's base salary,
within a competitive range given the Company's aggressive growth strategy. Once
generally established, base salaries are adjusted within the competitive range
on an individual basis based on past performance. In 1995, the Compensation
Committee increased Mr. Allison's base salary by approximately 1%. During 1995,
the Committee also approved increases of 4% and 6% to the base salaries of Mr.
Burns and Mr. Menke, respectively.
Discretionary Cash Bonuses. The Compensation Committee awarded cash bonuses of
$175,000 in the aggregate to three executive officers for 1995 in January 1996,
including $155,000 to Mr. Allison, the Company's President and Chief Executive
Officer, for their performance with respect to implementing the 1995 acquisition
program and for the successful oil and gas development activities completed
during the year. These 1995 accomplishments, in the opinion of the Committee,
substantially enhanced the long-term business and financial prospects of the
Company. The size of the bonuses was determined based upon the Compensation
Committee's subjective assessment of the contribution of each executive officer.
The primary factor considered by the Compensation Committee with respect to the
bonuses paid to Mr. Allison was his role and performance in directing the 1995
acquisition program.
Incentive Plan Awards. The Compensation Committee believes that a significant
portion of executive compensation should be dependent on value created for the
Company's stockholders. Through the Incentive Plan, stock options are granted to
key management to align the interests of management with the interests of
stockholders in working to increase the value of the Company's Common Stock. In
January 1996, the Compensation Committee granted options under the Incentive
Plan to purchase 326,500 shares of Common Stock, at an exercise price of $4.81
per share, to the Company's executive officers and certain key managerial
employees. Of the options granted, options to purchase 225,000 shares of Common
Stock were granted to executive officers and options to purchase 101,500 shares
of Common Stock were granted to other key managerial employees. Of the options
granted to executive officers, options to purchase 155,000 shares of Common
Stock were granted to Mr. Allison. Both the size of grants and the proportion
relative to the total number of option shares granted generally increased as a
function of the recipient's higher level of responsibility within the Company
and individual performance. The factors upon which the Committee granted
options, including the grant to Mr. Allison, were the same as those considered
in awarding discretionary cash bonuses.
Cecil E. Martin, Jr., Chairman
Harold R. Logan
Herbert C. Pell, III
9
Stock Performance Graph
The following graph compares the yearly percentage change in the cumulative
total stockholder return on the Company's Common Stock during the five years
ended December 31, 1995 with the cumulative return on the Nasdaq Stock Market
Index and an index composed of all publicly traded oil and gas companies within
SIC Code 1311, consisting of 189 companies. The graph assumes that $100 was
invested in each category on the last trading day of 1990 and that dividends, if
any, were reinvested.
[GRAPH]
1990 1991 1992 1993 1994 1995
---- ---- ---- ---- ---- ----
THE COMPANY $100 $33 $52 $84 $91 $155
OIL & GAS PRODUCERS $100 $104 $99 $118 $124 $136
NASDAQ INDEX $100 $128 $130 $155 $163 $212
PROPOSAL NO. 2
PROPOSAL TO AMEND THE COMPANY'S
1991 LONG-TERM INCENTIVE PLAN
General
In 1991 the Company adopted the 1991 Long-term Incentive Plan (the "Plan")
under which options, restricted shares of Common Stock and performance units may
be granted to key employee and non-employee directors of the Company. On April
2, 1996, the Company's Board of Directors unanimously adopted, subject to
stockholder approval, an amendment to the Plan as described below. The amendment
will become effective upon stockholder approval.
Increase in Authorized Shares under the Plan
The proposed amendment to the Plan would (i) increase the total number of
shares of Common Stock reserved for all awards under the Plan from 1,160,000 to
2,400,000 (plus 10% of the number of shares of Common Stock issued by the
Company since the initial adoption of the Plan other than pursuant to the Plan)
and (ii) increase the number of shares of Common Stock available for grant of
options to non-employee directors from 270,000 to 525,000. At April 15, 1996, a
total of 45,000 shares of Common Stock were available under the Plan for future
grants to non-employee directors and a total of 220,861
10
shares of Common Stock were available for all future grants under the Plan. The
amendment is necessary in order to continue to allocate shares of Common Stock
as a further incentive and motivation for its key employees and for its
non-employee directors.
Changes to Non-Employee Director Options
The Plan currently provides that each non-employee director automatically
receives a one-time grant of non-qualified options to acquire 45,000 shares of
Common Stock at the time the director is elected to the Board. The proposed
amendment to the Plan would eliminate this provision and instead would provide
that each non-employee director would automatically receive the following: (i)
on the date of initial election or appointment to the Board, the director would
receive non-qualified options to purchase 10,000 shares of Common Stock and (ii)
annually following each annual meeting of stockholders additional options to
acquire 10,000 shares of Common Stock. As is the case with the current Plan
provision, all options would be granted at an exercise price equal to the fair
market value of the Common Stock on the date of grant.
The proposed amendment would also provide that upon a non-employee
director's retirement from the Board, any options previously granted to such
director under the Plan would vest at the time of such retirement. The Plan
currently provides that any such options that have not vested at the time of
retirement from the Board will be forfeited. The purpose of this amendment is to
encourage ownership in the Company by and provide incentives to non-employee
directors whose services are essential to the Company's continued progress.
Description of the 1991 Long-term Incentive Plan
The purpose of the Plan is to attract, retain and motivate key
participating employees and to attract and retain well qualified members of the
Board of Directors through the use of incentives based upon the value of the
Company's Common Stock. Awards under the Plan, including the terms thereof
consistent with the Plan, are determined by the Compensation Committee of the
Board of Directors (the "Committee"), and may be made to key executives and
managerial employees of the Company or one or more of its subsidiaries.
Administration
The Plan is administered by the Committee, each member of which must be a
disinterested person as defined in Rule 16b-3 of the Securities Exchange Act of
1934, as amended. Subject to the provisions of the Plan, the Committee has
authority to select employees to receive awards, to determine the time or times
of receipt, to determine the types of awards and the number of shares covered by
the awards, to establish the terms, conditions and provisions of such awards, to
determine the number and value of performance units awarded and earned and to
cancel or suspend awards. In making such award determinations, the Committee may
take into account the nature of services rendered by the employee, his or her
present and potential contribution to the Company's success and such other
factors as the Committee deems relevant. The Committee is authorized to
interpret the Plan, to establish, amend and rescind any rules and regulations
relating to the Plan, to determine the terms and provisions of any agreements
made pursuant to the Plan and to make all other determinations that may be
necessary or advisable for the administration of the Plan.
In the event of a change in control, all outstanding stock options and
restricted stock will automatically become fully exercisable and/or vested, and
performance units may be paid out in such
11
manner and amounts as determined by the Committee. A change of control is
defined to include the acquisition by any person of 20% or more of the Company's
Common Stock; the approval by the stockholders of a business combination in
which the Company is not the surviving party; or a change in the majority of the
Board of Directors as a result of an election contest.
Stock Options
Stock options may be awarded under the Plan with an exercise price to be
established by the Committee at not less than one hundred percent (100%) of the
market value of the Common Stock on the date of the award or, if greater, the
par value of the Common Stock. The Plan authorizes the award of both
nonqualified stock options and incentive stock options. Only employees of the
Company are eligible to receive awards of incentive stock options. The aggregate
value (determined at the time of the award) of the Common Stock with respect to
which incentive stock options are exercisable for the first time by any employee
during any calendar year may not exceed $100,000. The term of incentive stock
options cannot exceed ten (10) years.
Restricted Stock
An employee will become the holder of shares of restricted stock free of
all restrictions if he or she completes a required period of employment
following the award and satisfies any other conditions; otherwise, the shares
will be forfeited. The employee will have the right to vote the shares of
restricted stock and, unless the Committee determines otherwise, the right to
receive dividends on the shares. The employee may not sell or otherwise dispose
of restricted stock until the conditions imposed by the Committee have been
satisfied.
Performance Units
Under the Plan, a number of performance units is initially assigned by the
Committee and the number of units actually earned will be contingent on future
performance of the Company over the performance period in relation to the
established performance measures. Although the performance measures and
performance period will be determined by the Committee at the time of the award
of performance units, they may be subject to such later revision as the
Committee deems appropriate to reflect significant events or changes.
Federal Income Tax Consequences
Non-Qualified Stock Options
The grant of a non-qualified stock option does not result in taxable
income to the holder of such an option or in a deduction by the Company. The tax
consequences are determined generally at the time the optionee exercises the
non-qualified stock option. Upon the exercise of a non-qualified stock option,
the optionee generally recognizes ordinary income in an amount equal to the
difference between the fair market value of the Common Stock on the date of
exercise and the exercise price of the option. The Company is entitled to a
deduction for the year in which the optionee's tax year ends in an amount equal
to the amount that was includible in the optionee's gross income.
If an optionee surrenders or delivers shares of Common Stock in whole or
partial payment of the exercise price, the optionee will not recognize taxable
income when the non-qualified stock option is exercised to the extent that the
number of shares so surrendered or delivered equals the number of shares
12
received upon the exercise of the option. The optionee will, however, recognize
ordinary income with respect to the shares received in excess of the number of
shares so surrendered or delivered, in an amount equal to the excess of the fair
market value of such excess shares on the date the non-qualified stock option is
exercised over the amount of any cash paid.
An optionee's tax basis in the stock acquired pursuant to the exercise of a
non-qualified stock option for which the option price is paid solely in cash
will be equal to the amount of cash paid plus the amount of ordinary income that
the optionee recognizes upon exercise of the option. As to the stock acquired
pursuant to exercise of a non-qualified stock option for which an optionee
surrenders stock of the Company in payment of all or part of the aggregate
option price, the optionee's tax basis in the number of shares acquired in the
exchange which is equal to the number of surrendered shares shall be the same as
that of the surrendered shares. The holding period of these acquired shares
shall be the same as that of the surrendered shares. The optionee's tax basis in
any excess shares acquired in the exchange shall be zero, increased by the
amount of cash, if any, paid upon the exercise of the non-qualified stock option
and the amount of ordinary income that the optionee recognizes upon exercise of
the option. The holding period of these acquired shares shall begin as of the
date such stock is transferred to the optionee.
Special tax rules and elections apply under certain circumstances which may
affect the timing and the measurement of income recognized in connection with
both incentive stock options and non-qualified stock options under the Plan,
particularly in the case of individuals subject to section 16(b) of the
Securities Exchange Act of 1934 (generally, officers and directors), and which
may affect the calculation of an employee's alternative minimum tax.
Incentive Stock Options
Under current law, the holder of an option will not recognize taxable
income on the grant or exercise of an incentive stock option. However, the
amount by which the fair market value of Common Stock on the date the incentive
stock option is exercised exceeds the exercise price of such option will be
treated as income for purposes of computing the optionee's alternative minimum
taxable income in the year the incentive stock option is exercised.
If the shares of Common Stock acquired through the exercise of an incentive
stock option are held by an optionee through the later of (i) two years from the
date of the grant of the option or (ii) one year after the transfer of such
shares to the optionee pursuant to the exercise, the amount received by the
optionee upon the sale or other disposition of such shares in excess of the
optionee's tax basis in such shares will be taxable to such optionee as a
long-term capital gain in the year of such sale or disposition. An optionee's
tax basis in the shares of Common Stock acquired pursuant to the exercise of an
incentive stock option will be equal to the exercise price of such options.
If the shares of Common Stock acquired through the exercise of an incentive
stock option are disposed of prior to the expiration of the two-year or one-year
holding periods, an amount equal to the difference between (i) the lesser of (a)
the amount realized on the sale or exchange, and (b) the fair market value of
the shares on the date the option was exercised, and (ii) the exercise price of
the option relating to the shares sold or exchanged will be taxable to the
optionee as ordinary income in the year of such disposition. In addition, if the
amount realized from the sale or exchange is greater than the fair market value
of the shares on the date the incentive stock option was exercised, the optionee
will also recognize gain in an amount equal to such difference. This gain will
be characterized as long-term or short-term capital gain, depending upon the
holding period of such shares. If Common Stock is disposed of by gift prior to
the expiration of the two-year or one-year holding periods, an amount equal to
the fair
13
market value of the shares on the date of exercise less the exercise price of
the option relating to the shares disposed of will be taxable to the optionee as
ordinary income in the year of such disposition.
The grant or exercise of an incentive stock option will not result in any
federal income tax consequences to the Company. However, if Common Stock
acquired through the exercise of an incentive stock option is disposed of by the
optionee prior to the expiration of the two-year or one-year holding periods
described above, the Company will be allowed a deduction equal to the amount of
income includible in the optionee's gross income as a result of the disposition.
Restricted Stock
An employee normally will not realize taxable income and the Company will
not be entitled to a deduction upon the grant of restricted shares. When the
shares are no longer subject to a substantial risk of forfeiture, the employee
will realize taxable ordinary income in an amount equal to the fair market value
of such shares at such time, and the Company will be entitled to a deduction in
the same amount. An employee may make a special tax election which affects the
timing and measurement of income recognized in connection with the grant of
restricted shares, and the Company's deduction. Dividends received by an
employee on restricted shares during the restricted period are generally taxable
to the employee as ordinary income and will be deductible by the Company.
Performance Units
An employee receiving an award of a performance unit will not realize
taxable income until the performance unit is paid, in an amount equal to the
amount of cash received or the fair market value of shares received in payment,
and the Company will be entitled to a corresponding deduction at such time.
As a majority of the members of the Board of Directors are not employees of
the Company and therefore would receive non-employee director options, such
individuals have a personal interest in the adoption of this amendment to the
Plan.
The Board of Directors recommends that the stockholders vote FOR approval
of the proposal to amend the Company's 1991 Long-term Incentive Plan. Proxies
solicited by the Board of Directors will be so voted unless stockholders specify
otherwise in their proxies.
PROPOSAL NO. 3
RATIFICATION OF APPOINTMENT OF INDEPENDENT PUBLIC ACCOUNTANTS
The Board of Directors, upon the recommendation of the Audit Committee, has
appointed Arthur Andersen LLP as independent public accountants to audit the
consolidated financial statements of the Company for 1996. Stockholders are
being asked to ratify this appointment. Arthur Andersen LLP has served the
Company in this capacity since 1989. Representatives of Arthur Andersen LLP are
expected to be present at the Annual Meeting and will have the opportunity to
make a statement if they desire to do so, and will be available to respond to
appropriate questions.
The Board of Directors recommends that stockholders vote FOR such
ratification. Proxies solicited by the Board of Directors will be so voted
unless stockholders specify otherwise in their proxies.
14
Vote Required for Proposal Nos. 2 and 3
The affirmative vote of the holders of a majority of the shares of Common
Stock present or represented and entitled to vote at the Annual Meeting is
necessary for approval of the amendment to the Company's Long-term Incentive
Plan and ratification of the appointment of the independent accountants.
Abstentions with respect to proposal 2 or 3 will have the effect of being
substantially equivalent to votes against the proposal because a minimum number
of favorable votes, based upon the number of shares held by persons present or
represented and entitled to vote at the Annual Meeting, is required for approval
and such shares will be considered as entitled to vote on the proposal. Broker
non-votes on proposal nos. 2 and 3 will not affect the outcome of the vote. Such
shares are not considered to be "entitled to vote" on such matters and therefore
are not counted in determining the number of votes eligible to be cast for the
proposal.
CERTAIN TRANSACTIONS
The Company serves as general partner of Comstock DR-II Oil & Gas
Acquisition Limited Partnership ("DR-II"). In 1995 the Company received $87,000
in management fees had approximately $380,000 receivable at December 31, 1995
from DR-II. The TCW Group, Inc., a beneficial owner of over 5% of the Company's
Common Stock, is a investment manager for certain investors which have an
interest in DR-II.
STOCKHOLDER PROPOSALS
Any proposal which a stockholder intends to present at the Company's annual
meeting of stockholders in 1997 must be received by the Company by December 18,
1996, in order to be eligible for inclusion in the proxy statement and form of
proxy relating to such meeting.
ANNUAL REPORT
The Company's 1995 Annual Report to Stockholders (including its Annual
Report on Form 10-K for the fiscal year ended December 31, 1995) is being mailed
to stockholders of record together herewith.
OTHER BUSINESS
The Board of Directors is not aware of any matters other than those set
forth above which will be presented for action by the stockholders at the
meeting, but if any other matters should be presented, the persons named in the
proxy intend to vote such proxies in accordance with their best judgement.
BY ORDER OF THE BOARD OF DIRECTORS
/S/ROLAND O. BURNS
ROLAND O. BURNS
Dallas, Texas
April 17, 1996
15
