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§14.409 PROXY STATEMENTS : STRATEGY & FORMS © 1996 Jefren Publishing Company, Inc. 14-189A §14.409 To approve a Restricted Share Plan For Directors which provides that each director who, within one year immediately preceding the determination of his or her eligibility, (i) has not been an employee of the corporation and (ii) has not received any award under any stock option or stock appreciation rights plan of the corporation shall receive (a) an initial award of 400 shares of Restricted Stock, (b) the number of shares of Restricted Stock equal to the product of (i) $1,000 times (ii) the Capitalization Factor (as defined) divided by the Average Stock Price (as defined) as of the meeting date for each Board meeting attended, and (c) the number of shares of Restricted Stock equal to the product of (i) $500 times (ii) the Capitalization Factor divided by the average Stock Price as of the meeting date for each Committee meeting attended (with a copy of the Restricted Share Plan For Directors) APPROVAL OF THE ABRAXAS PETROLEUM CORPORATION RESTRICTED SHARE PLAN FOR DIRECTORS On April 5, 1994, the Board of Directors of the Company adopted the Abraxas Petroleum Corporation Restricted Share Plan For Directors (the "Director Plan"), the full text of which is set forth on Exhibit A to this Proxy Statement. The following summary of the Director Plan is qualified in its entirety by reference to Exhibit A. The Di rector Plan is intended to increase the proprietary and vested interest of the Directors of the Company in the growth, development and financial success of the Company by granting them awards of shares of Common Stock ("Restricted Shares"). DIRECTORS§14.409 June 1996 14-189B The Director Plan is a non-discretionary plan which authorizes the grant of Restricted Shares to those persons who are Directors of the Company who are not employees of the Company and who did not, within the year immediately preceding the determination of such Director's eligibility, receive any award under any plan of the Company or any of its affiliates that entitles the participants therein to a cquire stock, stock options or stock appreciation rights of the Company or any of its affiliates (other than the Director Plan or any other plan under which the participant's entitleme nts are governed by the provisions meeting the requirements of Rule 16b-3 promulgated under the Securities Exchange Act of 1934, as amended). Currently, all Directors of the Company, other than Messrs. Watson and Williford, are eligible for awards under the Director Plan. Pursuant to the terms of the Director Plan, each Director of the Company will initially be issued 400 Restricted Shares and thereafter will receive that num ber of Restricted Shares equal to the product of $1,000 times the Capitalization Factor (a s defined in the Director Plan) divided by the Average Stock Price (as defined in the Director Plan) as of the date of a meeting of the Board of Directors of the Company. Directors will be compensated for each regular meeting of the Board of Directors attended, whether in person or by telephone, and special meetings of the Board of Directors attended in person. Members of the Board of Directors who attend regularly scheduled committee meetings will receive a share award at one-half the ra te of board meetings for each regularly scheduled committee meeting attended. Directors sha ll not be compensated for more than four regularly scheduled meetings of the entire Board of Directors and two committee meetings in any year. There is no limitation on the number of special meetings of the Board of Directors attended in person for which a Director may be compensated. On the first business day of each year, each Director entitled to receive an award under the Director Plan shall automatically be granted the numbe r of shares of Common Stock equal to the Award Amount (as defined in the Plan) due him for the previous year. A Director who leaves the Board prior to the end of any year shall not receive any payment in the form of shares of Common Stock for such year but shall receive, in lieu thereof, a cash payment equivalent to the prorata portion of his Award Amount covering the period of the year for which he served as a Director of the Company. Awards of Restricted Shares must be accepted by the Director within a period of sixty (60) days after the award date by the execution of a Restricted Share Award Agreement in the form provided by the Board. Directors are not permitted to sell, transfer, pledge, assign or otherwise encumber Restricted Shares awarded under the Director Plan prior to the date on which such shares vest (which is the earliest to oc cur of (i) six months from the date on which the Restricted Shares were awarded, (ii) the de ath or total disability of the Director or (iii) the effective date of a Change i n Control (as defined in the Director Plan). The Plan may be amended or otherwise modified, suspended or terminated at any time or from time to time by the Board of Directors; provided, however, that provisions of the Director Plan relating to the definition of persons eligible to participate i n the Plan, the amount and price of securities to be awarded and the timing of such awards shall not §14.409 PROXY STATEMENTS : STRATEGY & FORMS © 1996 Jefren Publishing Company, Inc. 14-189C be amended more than once every six months other than to comport with changes in the Internal Revenue Code, as amended, or the rules thereunder or the Employee Income Security Act of 1974, as amended, or the rules thereunder. No amendment shall be effective unless approved by the affirmative vote of the holders of a majority of the shares eligible to be cast at a meeting of stockholders of the Company held withi n twelve months of the date of adoption of such amendment where such amendment increases the total number of shares reserved for purposes of the Plan, changes in any respect the class of persons who constitute eligible directors, extends the maximum period of granting awards or otherwise materially increases the benefits accruing to directors eligibl e to receive awards under the Director Plan. The following table sets forth the benefits to be received by each of the named group under the Director Plan, assuming that (i) the Director Plan is approved by the stockholders, (ii) that the Board of Directors has four regularly scheduled meetings and (iii) that all six non-employee directors attend each meeting. NEW PLAN BENEFITS ABRAXAS PETROLEUM CORPORATION RESTRICTED SHARE PLAN FOR DIRECTORS Name Dollar Value Non-Executive Director Group $24,000(1) (1) Includes 400 Restricted Shares awarded initially to each eligible Director whi ch have been valued at $10.75 per share, the average of the high and low sale prices of the Company's Common Stock as reported on the NASDAQ Stock Market on April 5, 1994. The number of Restricted Shares to be awarded under the Director Plan other than the 400 shares for each eligible Director is not presently determinable. Awards under the Director Plan will be treated as awards of restricted stock under the Internal Revenue Code. A Director who receives a grant of restricted stock who does not elect to be taxed at the time of grant will not recognize income at the time of award of shares of Common Stock and the Company will not be entitled to a deduction until termination of the restrictions. Upon such termination, the Director will recognize ordinary income in an amount equal to the fair market value of the Restricted Sha res at that time and, upon satisfying federal income tax withholding requirements, the Company will be entitled to a deduction in the same amount. However, the Director may elect to recognize ordinary income in the year the Restricted Shares are grant ed in an amount equal to the fair market value of the shares at that time, determined without regard to the restrictions. In that event, the Company will be entitled to a deduction in such year and in the same amount after satisfying federal income tax withholding requirements. Any gain or loss recognized by the Director upon subsequent disposition of the Restricted Shares will be capital in nature. DIRECTORS§14.409 June 1996 14-189D Stockholder approval is being sought in order to exempt the grant of Restricted Shams pursuant to the Director Plan from the application of the short-swing profit recapture provisions of Section 16(b) of the Securities Exchange Act of 1934. The failure to approve the Director Plan by the stockholders will render any Restricted Shares granted pursuant to the Director Plan null and void. Approval of the Director Plan requires the affirmative vote of the holders of a majority of the outstanding shares present, or represented, and entitled to vote at the meeting. The Board of Directors recommends that the stockholders vote "FOR" Item No. 2 to approve the Director Plan. EXHIBIT A ABRAXAS PETROLEUM CORPORATION RESTRICTED SHARE PLANFOR DIRECTORS 1 . Purpose; Definitions. The purpose of the Plan is to increase the proprietary and vested interest of the Directors of the Company in the growth, development and financial success of the Company by granting them awards of Restricted Stock. Whenever the following terms are used in the Plan, they shall have the meaning specified below unless the context clearly indicates to the contrary. "Average Stock Price" shall mean, for any particular date, (i) the average of the closing sales price per Share on the NASDAQ Stock Market or such other stock market in the United States on which the Shares may be traded over the te n- day period comprising the five business days immediately preceding and the five business days immediately following such date, or (ii) if the Shares are not then quoted on the NASDAQ Stock Market or such other stock market in the United States on which the Shares are traded, such value as the Board, in its sole discretion, may determine. "Award" shall mean an award of Restricted Shares under the Plan. "Board" shall mean the Board of Directors of the Company. "Capitalization Factor" shall be an amount equal to (x) 1.0 if the Market Value of the Shares as of the date prior to the date of a meeting is less than or equal to $50,000,000 or (y) a fraction, the numerator of which shall be the Market Value of the Shares as of the date prior to the date of a meeting and the denominator of which shall be $50,000,000, if the Market Value of the Shares is greater than $50,000,000. "Change in Control" shall have the meaning set forth in Section 5.2 §14.409 PROXY STATEMENTS : STRATEGY & FORMS © 1996 Jefren Publishing Company, Inc. 14-189E hereof. DIRECTORS§14.409 June 1996 14-189F "Company" shall mean Abraxas Petroleum Corporation, a Nevada corporation, and any successor corporation. "Continuing Directors" shall mean any member of the Board as of the Effective Date of this Agreement and any successor of a Current Director who has been approved by a majority of the Current Directors. "Designated Beneficiary" shall have the meaning set forth in Section 2.2 hereof."Effective Date" shall have the meaning set forth in Section 6.1 hereof. "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended."Eligible Director" shall mean a director of the Company who has not, within one year immediately preceding the determination of such director's eligibility, (i) been an employee of the Company and (ii) received any award under any plan of the Company or any of its affiliates that entitles the partici pants therein to acquire stock, stock options or stock appreciation rights of any such company (other than the Plan or any other plan under which participants' entitlements are governed by provisions meeting the requirements of Rule 16b- 3(c)(2)(ii) promulgated under the Exchange Act). "Market Value" shall mean an amount equal to the product of (x) the aggregate issued and outstanding Shares times (y) the closing sale price of the Shares as quoted on the NASDAQ Stock Market or such other stock market in the United States on which the Shares are traded."Participant" shall mean a Director to whom an award of Restricted Shares is granted pursuant to the Plan."Plan" shall mean this Abraxas Petroleum Corporation Restricted Share Plan for Directors, as hereinafter amended from time to time."Restricted Shares" shall mean Shares which are awarded to a Director that are subject to the transfer and forfeitability restrictions described in Secti on 4.2. "Securities Act" shall mean the Securities Act of 1933, as amended. "Share" shall mean a share of the Company's Common Stock, par value $.01 per share. §14.409 PROXY STATEMENTS : STRATEGY & FORMS © 1996 Jefren Publishing Company, Inc. 14-189G 2.Administration. 2.1 Administration The Plan shall be administered by the Board, which shall have the power to interpret the Plan and to adopt such rules for the administration, interpretation and application of the Plan as are consistent with its terms and provisions and to interpret, amend or revoke any such rules; provided, however, that except as provided in paragraph 6.2 hereof, the Board shall have no discretion with respect to the selection of directors to receive Restricted Shares under the Plan, the number of Restricted Shares to be awarded, the consideration to be paid in respect of Restricted Shares or the timing of such awards. All actions taken and all interpretations and determinations made by the Board shall be binding upon all persons, including the Company, stockholders, directors, Participants and Designated Beneficiaries. The Secretary of the Company shall be authorized to implement the Plan in accordance with its terms, and to take such actions of a ministerial nature as shall be necessary to effectuate the intent and purposes the reof. No member of the Board shall be personally liable for any action, determination or interpretation made in good faith with respect to the Plan or the awards hereunder, and all members of the Board shall be fully protected by the Company in respect to any such action, determination or interpretation. 2.2 Designated Beneficiaries If a Participant dies prior to receiving any payment due under the Plan, such payment shall be made to his Designated Beneficiary. A Participant's Designated Beneficiary shall be the beneficiary specifically designated by a Participant in writing to receive amounts due the Participant in the event of the Participant's death. In the absence of an effective designation by the Participant, Designated Beneficiary shall mean the Participant's estate. 3.Shares Subject To The Plan. 3.1 Shares Subject to the Plan The maximum number of Shares that may be the subject of awards under this Plan shall be 100,000. The Company shall reserve such number of Shares for the purposes of the Plan, out of its authorized but unissued Shares or out of Shares held in the Company's treasury, or partly out of each. In the event that Restricted Shares are forfeited for any reason, such Shares shall thereafter again be available for award pursuant to the Plan. DIRECTORS§14.409 June 1996 14-189H 3.2 Changes in the Company's Shares In the event that the Board shall determine that any recapitalization, reorganization, merger, consolidation, stock split, spin-off, combination, or exchange of Shares, or other similar corporate event affects the Shares such that an adjustment is required in order to preserve the benefits or potential benefits intended under this Plan, the Board shall, in its sole discretion, and in such manner as it may deem equitable, adjust any or all of the number and kind of Shares which thereafter may be awarded under the Plan, or the number and kind of Shares subject to outstanding awards; provided, however, that the number of Shares subject to any award shall always be a whole number. 4. Restricted Shares. 4.1 Compensation Under the Plan (a) Compensation in Shares of Common Stock. Each Eligible Director shall receive an initial Award of 400 Restricted Shares which shall be paid upon approval of the Plan by the stockholders of the Company. The Award Amount for an Eligible Director after he has received the initial Award shall be equa l to the number of Restricted Shares to which he is entitled under the Plan for his attendance at (i) regularly scheduled Board meetings during a calendar year whether attended in person or by telephone and (ii) special meetings attended in person during a calendar year, which amount shall be calculated as follows: For each meeting attended, an Eligible Director shall be entitled to receive the number of Shares equal to the product of (x) $1,000 times (y) the Capitalization Factor divided by the Average Stock Price as of the meeting date. The Award Amount for members of committees of the Board of Directors shall be equal to the number of Restricted Shares to which he is entitled under t he Plan for his attendance in person at regularly scheduled Committee meetings during a calendar year, which amount shall be calculated as follows: For each meeting attended, an Eligible Director shall be entitled to receive the number of Shares equal to the product of (x) $500 times (y) the Capitalization Factor divided by the Average Stock Price as of the meeting date. Notwithstanding anything to the contrary contained herein, Board members shall not be compensated for more than four (4) regularly scheduled Board meetings each calendar year and members of committees of the Board of Directors shall not be compensated for more than two (2) meetings each calendar year. There will be no limitation on the number of special meetings of the Board of Directors attended in person for which a Director may be compensated. On the first business day of each calendar year, each Eligible Director §14.409 PROXY STATEMENTS : STRATEGY & FORMS © 1996 Jefren Publishing Company, Inc. 14-189I shall automatically be granted the number of Restricted Shares equal to the Award Amount due such Eligible Director for the previous calendar year.(b) Termination of Board Service. An Eligible Director who leaves the Board prior to the end of any calendar year shall not receive any payment in the form of Restricted Shares for such calendar year as provided in subparagraph 4(a) above but shall receive in lieu thereof a cash payment equivalent to the pro rata portion of his Award Amount covering the period of the calendar year for which such Eligible Director served as a director of the Company.(c) Fractions of Shares. Whenever under the terms of the Plan a fractional share would be required to be issued, the fractional share shall be rounded up to the next full share.4.2 Terms of Awards The Restricted Shares awarded hereunder shall be awarded only pursuant to a written agreement, which shall be executed by the Participant and a duly authorized officer of the Company and which shall contain the following terms and conditions: (a) Acceptance of Award. An award of Restricted Shares must be accepted by the Participant within a period of sixty (60) days (or such other period as the Board may specify at grant) after the award date by the executi on of a Restricted Share award agreement in the form provided by the Company. (b) Restrictions and Conditions. The Restricted Shares awarded to a Participant pursuant to this Section 4 shall be subject to the following restrictions and conditions: (i) A Participant shall not be permitted to sell, transfer, pledge, assign or otherwise encumber Restricted Shares awarded under the Plan prior to the date on which such shares vest in accordance with clause (iii), except in accordance with the laws of descent and distribution. (ii) Except as provided in clause (i) and this clause (ii), the Participant shall have, with respect to the Restricted Shares, all of the rights of a stockholder of the Company, including the right to vote the Shares and to receive any cash dividends declared on them. Stock dividends, if any, issued with respect to Restricted Shares shall be treated as additional Restricted Shares that are subject to the same restrictions and other terms and conditions that apply with respect to the Restricted Shares with respect to which such dividends are paid. DIRECTORS§14.409 June 1996 14-189J (iii) Subject to the applicable provisions of the Restricted Share award agreement and this Section, a Participant's interest in Restricted Share s shall immediately become fully vested and nonforfeitable, and the restrictions set forth in this Section 4.2 shall lapse, upon the earliest to occur of (x) the expirati on of six (6) months from the date on which such Restricted Shares were awarded, (y) the Participant's death or total disability, or (z) the effective date of a Cha nge in Control. All determinations as to whether a Director has become totally disabled shall be made by a majority of the remaining members of the Board upon the basis of such evidence as it deems necessary or desirable, and shall be final and binding on all interested persons. 4.3 Stock Certificates A stock certificate registered in the name of each Participant receiving a Restricted Share award (or in the name of a trustee for the benefit of each Participant) shall be issued in respect of such shares. Such certificate shall bear whatever appropriate legend referring to the terms, conditions, and restrictions applicable to such award as the Board shall determine. The Board may, in its sole discretion, require that the stock certificates evidencing Restricted Shares be he ld in custody by the Company (or in trust by a trustee) until the restrictions thereon shall have lapsed. 5.Change in Control Provisions. 5.1 Impact of Event Upon a Change in Control, the transferability and forfeiture restrictions placed on any Restricted Shares by Section 4.2 shall lapse on the Change in Control Date and such Shares shall be deemed fully vested and owned by the Participant as of such date. 5.2 Definition of Change in Control For purposes of the Plan, a Change in Control means the happening of any of the following: (a) any "Person," as such term is used in Section 13(d) and 14(d) of the Exchange Act (other than the Company or any subsidiary in which the Company owns fifty percent (50%) or more of the total combined voting power, or any trustee or other fiduciary holding securities under an employee benefit plan of the Company or any such subsidiary) becoming the "beneficial owner" (as defined in Rule 13d-3 promulgated under the Exchange Act), directly or indirectly, of securities of the Company representing thirty percent (30%) or more of the combined voting power of the Company's then outstanding securities; (b) a majority of the members of the Board consisting of persons other than Continuing Directors; §14.409 PROXY STATEMENTS : STRATEGY & FORMS © 1996 Jefren Publishing Company, Inc. 14-189K (c) the stockholders of the Company approving a merger or consolidation of the Company with any other corporation, other than (i) a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) more than eighty percent (80%) of the combined voting power of the voting securities of the Company or such surviving entity outstanding immediately after such merger or consolidation or (ii) a merger or consolidation effected to implement a recapitalization of the Company (or similar transa ction) in which no Person acquires more than thirty percent (30%) of the combined voting power of the Company's then outstanding securities; or (d) the stockholders of the Company approving a plan of complete liquidation of the Company or an agreement for the sale or disposition by the Company of all or substantially all of the Company's assets or any transaction having a similar effect. 6. Miscellaneous. 6.1 Effective Date. The Plan shall become effective as of approval of the Plan by the Company's stockholders (the "Effective Date") and shall continue in effect until the tenth anniversary of such approval. 6.2 Amendment, Suspension or Termination of the Plan The Plan may be wholly or partially amended or otherwise modified, suspended or terminated at any time or from time to time by the Board; provided, however, that provisions of the Plan relating to the definition of persons eligible to participate in the Plan, the amount and price of securities to be awarded, and the timing of such awards shall not be amended more than once every six months other than to comport with changes in the Internal Revenue Code or the rules thereunder or the Employee Retirement Income Security Act of 1974, as amended, or the rules thereunder, and provided further, that, except as provided in Section 3.2, no amendment shall be effective unless approved by the affirmative vote of the stockholders of the Company owning a majority of the votes eligible to be cast at a meeting of stockholders of the Company held withi n twelve (12) months of the date of adoption of such amendment, where such amendment will: (a) increase the total number of Shares reserved for the purposes of the Plan; (b) change in any respect the class of persons who constitute Eligible Directors; DIRECTORS§14.409 June 1996 14-189L (c) extend the maximum period for granting awards as provided herein; or (d) otherwise materially increase the benefits accruing to Eligible Directors under the Plan. From and after the Effective Date, neither the amendment, suspension nor termination of the Plan shall, without the consent of the Participant, alter or impair any rights or obligations under any award theretofore granted. No awards may be granted during any period of suspension nor after termination or expiration of the Plan. 6.3 Regulations and Other Approvals (a) The obligation of the Company to deliver Shares with respect to any award granted under the Plan shall be subject to all applicabl e laws, rules and regulations, including all applicable federal and state securities l aws, and the obtaining of all such approvals by governmental agencies as may be deemed necessary or appropriate by the Board. (b) The Board may make such changes as may be necessary or appropriate to comply with the rules and regulations of any government authority. (c) Each award of Shares is subject to the requirement that, if at any time the Board determines, in its sole discretion, that the li sting, registration or qualification of Shares issuable pursuant to the Plan is required by any securities exchange or under any United States, state or federal law, or the consent or approval of any governmental regulatory body is necessary or desirable as a condition of, or in connection with, issuance of Shares, no Shares shall be issued, in whole or in part, unless listing, registration, qualification, consent or approval has been effected or obtained free of any conditions as acceptable to the Board. (d) In the event that the disposition of Shares acquired pursuant to the Plan is not covered by a then current registration statement under the Securities Act, and is not otherwise exempt from such registration, such Shares shall be restricted against transfer to the extent required by the Securitie s Act or regulations thereunder, and the Board may require any individual receiving Shares pursuant to the Plan, as a condition precedent to receipt of such Shares, to represent to the Company in writing that the Shares acquired by such individual are acquired for investment only and not with a view to distribution. The certificate for any Shares acquired pursuant to the Plan shall include any legend that the Board deems appropriate to reflect any restrictions on transfer. §14.409 PROXY STATEMENTS : STRATEGY & FORMS © 1996 Jefren Publishing Company, Inc. 14-189M [THE NEXT PAGE IS 14-190]