<PAGE>
As filed with the Securities and Exchange Commission on May 15, 2000
================================================================================
Securities And Exchange Commission
Washington, D.C. 20549
-----------------
FORM 10-Q
-----------------
(Mark One)
[X] Quarterly Report Pursuant To Section 13 Or 15(d) Of The Securities Exchange
Act Of 1934 For The Three-Month Period Ended March 31, 2000; Or
[_] Act Of 1934 For The Transition Period From ________ To _______
Commission File No. 0-24027
PINNACLE OIL INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)
Nevada 61-1126904
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Suite 750 Phoenix Place, 840-7th Avenue, S.W., Calgary, Alberta, Canada T2P 3G2
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (403) 264-7020
Indicate by check mark whether the registrant (1) has filed all Reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registration was
required to file such Reports), and (2) has been subject to such filing
requirements for the past 90 days: Yes [X] No [_]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date:
13,070,016 shares of common stock, par value $0.001 per share,
as of May 12, 2000
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<PAGE>
PINNACLE OIL INTERNATIONAL, INC.
QUARTERLY REPORT ON FORM 10--Q
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
PART I. FINANCIAL INFORMATION............................................ 1
ITEM 1. FINANCIAL STATEMENTS............................................. 1
Consolidated Balance sheets...................................... 1
Consolidated Statements Of Loss.................................. 2
Consolidated Statements Of Shareholders' Equity(Deficit)......... 3
Consolidated Statements Of Cash Flows............................ 5
Notes To Financial Statements.................................... 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS............................................ 16
General.......................................................... 16
Overview......................................................... 16
Capital Requirements............................................. 18
Results Of Operations............................................ 19
Liquidity And Capital Resources.................................. 21
Other Matters.................................................... 22
Uncertainties And Other Factors That May Affect Our Future
Results And Financial Condition.................................. 23
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK....... 34
Oil And Gas Price Fluctuations................................... 34
Currency Fluctuations............................................ 34
Interest Rate Fluctuations....................................... 35
ITEM II OTHER INFORMATION................................................ 35
ITEM 1. LEGAL PROCEEDINGS................................................ 35
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS........................ 35
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.................................. 35
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.............. 35
ITEM 5. OTHER INFORMATION................................................ 35
ITEM 6. EXHIBITS......................................................... 35
Exhibits......................................................... 35
Reports on Form 8--K............................................. 35
</TABLE>
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<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
PINNACLE OIL INTERNATIONAL, INC.
(A Development Stage Enterprise)
Consolidated Balance sheets
(Unaudited)
(Expressed in U.S. Dollars)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
At March 31,
-------------------------
Assets 2000 1999
----------- -----------
<S> <C> <C>
Current assets:
Cash and cash equivalents......................... $ 9,375,858 $ 4,410,835
Accounts receivable............................... 161,581 126,577
Due from officers and employees................... 176,611 --
Prepaid expenses and other........................ 60,440 116,041
----------- -----------
Total current assets............................. 9,774,490 4,653,453
Note receivable from officer [note 4].............. 33,709 34,507
Unproved oil and natural gas properties
[notes 2(g) and 5]................................ 1,106,687 --
Other property and equipment, net of
accumulated depreciation and amortization
of $365,959 and $133,357, respectively
[notes 2(h) and 6]............................... 692,676 600,280
----------- -----------
Total assets................................... $11,607,562 $ 5,288,240
=========== ===========
Liabilities And Shareholders' Equity
Current liabilities:
Trade payables.................................... $ 52,617 $ 97,151
Wages and employee benefits payable............... 105,844 23,767
Accrued oil and natural gas property costs........ 188,840 --
Other accrued liabilities......................... 116 18,904
----------- -----------
Total current liabilities........................ 347,417 139,822
Shareholders' equity:
Series "A" convertible preferred stock;
par value $0.001 per share, liquidation
preference $7.50 per share:
800,000 shares authorized; and 800,000
shares issued as of March 31, 2000 and
March 31, 1999 [note 8]........................ 800 800
Common stock, par value $0.001 per share:
50,000,000 shares authorized;
13,070,016 shares issued as of March 31, 2000;
12,431,983 shares issued as of March 31, 1999
[note 7]........................................ 13,070 12,432
Warrants [notes 8 and 9].......................... -- 1,132,000
Additional paid-in capital........................ 19,094,619 10,086,877
Deficit accumulated during the development stage.. (7,810,239) (6,083,691)
Accumulated other comprehensive loss.............. (38,105) --
----------- -----------
Total shareholders' equity....................... 11,260,145 5,148,418
----------- -----------
Total liabilities and shareholders' equity..... $11,607,562 $ 5,288,240
=========== ===========
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these consolidated balance sheets
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<PAGE>
PINNACLE OIL INTERNATIONAL, INC.
(A Development Stage Enterprise)
Consolidated Statements Of Loss
(Unaudited)
(Expressed in U.S. Dollars)
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<TABLE>
<CAPTION>
October 20,
1995
(inception) to
Three Months Ended March 31,
March 31, 2000
2000 1999 (cumulative)
----------- ----------- --------------
<S> <C> <C> <C>
Operating expenses:
Administrative.............................................. $ 327,684 $ 196,870 $ 3,590,046
Amortization and depreciation [note 2(h)]................... 74,021 45,426 368,015
Research and development [note 2(i)]........................ 64,641 49,114 599,042
Survey support [note 2(j)].................................. 84,049 44,589 686,028
Survey operations and data analysis, net of amounts
reimbursable by joint-venture partners of $20,278 and
$24,447, respectively [note 2(k)].......................... 53,333 19,865 113,713
Write-down of assets........................................ -- -- 17,662
----------- ----------- -----------
Total operating expenses.................................. (603,728) (355,864) (5,374,506)
Operating loss............................................... (603,728) (355,864) (5,374,506)
Other income (expense):
Interest cost on promissory notes........................... -- -- (124,299)
Interest income............................................. 112,830 50,856 736,260
Other income................................................ -- -- 19,231
Settlement of damages....................................... -- -- 157,500
----------- ----------- -----------
Total other income (expenses)............................. 112,830 50,856 788,692
Net loss for the period...................................... (490,898) (305,008) (4,585,814)
Other comprehensive income (loss):
Foreign currency translation adjustments.................... (8,702) 17,720 (38,105)
----------- ----------- -----------
Comprehensive loss for the period............................ $ (499,600) $ (287,288) $(4,623,919)
=========== =========== ===========
Basic and diluted loss per share [note 2(m)]................. $ (0.04) $ (0.02)
=========== ===========
Weighted average shares outstanding.......................... 12,863,050 12,430,761
=========== ===========
</TABLE>
The accompanying notes to consolidated financial statements are
an integral part of these consolidated statements of loss
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<PAGE>
PINNACLE OIL INTERNATIONAL, INC.
(A Development Stage Enterprise)
Consolidated Statements Of Shareholders' Equity(Deficit)
(Unaudited)
(Expressed in U.S. Dollars)
<TABLE>
<CAPTION>
Accumulated Series "A" Deficit
Other Convertible Common Stock Accumulated
Compre- Common Stock Preferred Stock Warrants Additional During the
hensive ------------------ --------------- ----------------- Paid-in Development
Income Shares Amount Shares Amount Number Amount Capital Stage
---------- ---------- ------- ------- ------ ------- --------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1995:
Issued at inception for cash
at $0.001 per share on
October 20, 1995................. $ -- 5,000,000 $ 5,000 -- $ -- -- $ -- $ -- $ --
Net loss for fiscal 1995.......... -- -- -- -- -- -- -- -- (53,696)
Net other comprehensive
loss for fiscal 1995............. -- -- -- -- -- -- -- -- --
---------- ---------- ------- ------- ------ ------- --------- ---------- ------------
Balance -- December 31, 1995... -- 5,000,000 5,000 -- -- -- -- -- (53,696)
1996:
Issued on reverse acquisition
on January 30, 1996.............. -- 5,968,281 5,968 -- -- -- -- (5,968) --
Issued for cash at $1 per share
on May 29, 1996.................. -- 975,000 975 -- -- -- -- 967,775 --
Net loss for fiscal 1996.......... -- -- -- -- -- -- -- -- (475,578)
Net other comprehensive loss for
fiscal 1996...................... -- -- -- -- -- -- -- -- --
---------- ---------- ------- ------- ------ ------- --------- ---------- ------------
Balance -- December 31, 1996... -- 11,943,281 11,943 -- -- -- -- 961,807 (529,274)
1997:
Issued for services at $2.31 1/2
per share on July 1, 1997........ -- 71,938 72 -- -- -- -- 166,469 --
Net loss for fiscal 1997.......... -- -- -- -- -- -- -- -- (913,321)
Net other comprehensive loss for
fiscal 1997...................... -- -- -- -- -- -- -- -- --
---------- ---------- ------- ------- ------ ------- --------- ---------- ------------
Balance -- December 31, 1997... -- 12,015,219 12,015 -- -- -- -- 1,128,276 (1,442,595)
1998:
Issued on conversion of
promissory notes at $2.72 per
share on February 1, 1998 (1),
net of issuance costs............ -- 411,764 412 -- -- -- -- 1,119,586 --
Issued for cash at $7.50 per
share on April 3, 1998........... -- -- -- 800,000 800 -- -- 7,792,167 (2,104,000)
Issued with series "A" preferred
stock on April 3, 1998........... -- -- -- -- -- 200,000 1,132,000 -- (1,132,000)
Net loss for fiscal 1998.......... -- -- -- -- -- -- -- -- (1,117,808)
Net other comprehensive loss
for fiscal 1998.................. -- -- -- -- -- -- -- -- --
---------- ---------- ------- ------- ------ ------- ---------- ----------- -----------
Balance -- December 31, 1998... $ -- 12,426,983 $12,427 800,000 $ 800 200,000 $1,132,000 $10,040,031 $(5,796,403)
</TABLE>
[continued on next page]
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<PAGE>
PINNACLE OIL INTERNATIONAL, INC.
(A Development Stage Enterprise)
Consolidated Statements Of Shareholders' Equity (Deficit)
(Unaudited)
(Expressed in U.S. Dollars)
<TABLE>
<CAPTION>
Accumulated Series "A" Deficit
Other Convertible Common Stock Accumulated
Compre- Common Stock Preferred Stock Warrants Additional During the
hensive ------------------ --------------- ----------------- Paid-in Development
Income Shares Amount Shares Amount Number Amount Capital Stage
---------- ---------- ------- ------- ------ ------- --------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1999:
Issued for cash at $15 per share
on May 17, 1999, net of
issuance costs................. $ -- 400,000 $ 400 -- $ -- -- $ -- 5,998,252 --
Options exercised for cash at
prices between $8.12 1/2 and
$9.50 per share during 1999..... -- 35,000 35 -- -- -- -- 303,979 --
Cancelled on October 14, 1999.... -- (5,167) (5) -- -- -- -- (11,570) 11,575
Net loss for fiscal 1999......... -- -- -- -- -- -- -- -- (1,534,513)
Net other comprehensive loss for
fiscal 1999..................... (29,403) -- -- -- -- -- -- --
---------- ---------- ------- ------- ------ ------- --------- ----------- -----------
Balance -- December 31, 1999..... (29,403) 12,856,816 12,857 800,000 800 200,000 1,132,000 16,330,692 (7,319,341)
2000:
Warrants exercised for cash at
$7.50 per share on March 31,
2000............................ -- 200,000 200 -- -- (200,000) (1,132,000) 2,631,800 --
Options exercised for cash at
prices between $8.25 and
$14.06 per share for the
three-months ended March 31,
2000............................ -- 13,200 13 -- -- -- -- 132,127 --
Net loss for the three-months
ended March 31, 2000............ -- -- -- -- -- -- -- -- (490,898)
Net other comprehensive loss for
the three-months ended
March 31, 2000.................. (8,702) -- -- -- -- -- -- -- --
---------- ---------- ------- ------- ------ ------- --------- ----------- -----------
Balance -- March 31, 2000..... $ (38,105) 13,070,016 $13,070 800,000 $ 800 -- -- $19,094,619 $(7,810,239)
========== ========== ======= ======= ====== ======= ========= =========== ===========
</TABLE>
The accompanying notes to consolidated financial statements are
an integral part of these consolidated statements of shareholders' equity
(deficit)
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<PAGE>
PINNACLE OIL INTERNATIONAL, INC.
(A Development Stage Enterprise)
Consolidated Statements Of Cash Flows
(Unaudited)
(Expressed in U.S. Dollars)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Three Months Ended October 20,
March 31, 1995
------------------------- (inception) to
March 31, 2000
2000 1999 (cumulative)
---------- ---------- --------------
<S> <C> <C> <C>
Operating activities:
Net loss for the period.............................................. $ (490,898) $ (305,008) $(4,585,814)
Adjustments to reconcile net loss to net cash provided by
operating activities:
Amortization of property and equipment.............................. 74,021 45,426 368,015
Write-down of property and equipment................................ -- -- 17,662
Amortization of deferred costs...................................... -- 93,014 154,287
Changes in non-cash working capital:
Accounts receivable................................................ (59,850) (6,477) (161,581)
Due from officers and employees.................................... (173,392) 1,335 (176,611)
Prepaid expenses................................................... 24,903 (88,710) (60,440)
Trade payables..................................................... 19,901 (44,275) 52,617
Wages and employee benefits........................................ (26,841) 6,477 105,844
Accrued oil and natural gas property costs......................... (193,546) -- 188,840
Accrued liabilities................................................ (54,418) 270 116
Deferred financing for insurance premium........................... -- -- 7,766
Consulting costs settled by issuance of common stock............... -- -- 166,541
Interest costs settled by issuance of common stock................. -- -- 120,000
---------- ---------- -----------
Net cash used in operating activities............................ (880,120) (297,948) (3,802,758)
Financing activities:
Funds borrowed from affiliates....................................... -- -- 1,100,000
Repayment of funds borrowed from affiliates.......................... -- -- (100,000)
Funds raised through the sale of common stock,
net of issuance costs............................................... -- -- 6,972,402
Funds raised through the sale of preferred stock and warrants, net
of issuance costs................................................... -- -- 5,688,967
Funds raised through the exercise of options,
net of issuance costs............................................... 132,140 46,851 436,119
Funds raised through the exercise of warrants,
net of issuance costs............................................... 1,500,000 -- 1,500,000
Repayment of deferred financing for insurance premium................ -- -- (146,520)
---------- ---------- -----------
Net cash generated by financing activities....................... 1,632,140 46,851 15,450,968
Investing activities:
Funds invested in property and equipment............................. (105,496) (70,516) (1,093,851)
Funds Invested in oil and natural gas properties..................... (331,528) -- (1,106,687)
Funds borrowed by an employee........................................ -- -- (35,760)
Repayment of funds borrowed by an employee........................... 841 906 2,051
---------- ---------- -----------
Net cash used in investing activities............................ (436,183) (69,610) (2,234,247)
Effect of net other comprehensive income (loss)....................... (8,702) 17,720 (38,105)
Net cash inflow (outflow)............................................. 307,135 (302,987) 9,375,858
Cash position, beginning of period.................................... 9,068,723 4,713,822 --
---------- ---------- -----------
Cash position, end of period.......................................... $9,375,858 $4,410,835 $ 9,375,858
========== ========== ===========
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these consolidated statements of cash flows
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<PAGE>
PINNACLE OIL INTERNATIONAL, INC.
(A Development Stage Enterprise)
Notes To Financial Statements
(Unaudited)
(Expressed in U.S. Dollars)
- --------------------------------------------------------------------------------
1. Organization And Operations
(a) Our Company
Pinnacle Oil International, Inc. ("we," "our company" or "Pinnacle"), a
development stage enterprise, was incorporated under the laws of the
State of Nevada on September 27, 1994, under the name "Auric Mining
Corporation," and subsequently changed its name to Pinnacle Oil
International, Inc. on February 23, 1996. We have two wholly owned
subsidiaries, Pinnacle Oil Inc. ("Pinnacle U.S."), which was incorporated
under the laws of the State of Nevada on October 20, 1995, and Pinnacle
Oil Canada, Inc. ("Pinnacle Canada"), which was incorporated under the
federal laws of Canada on April 1, 1997.
(b) Our Business
We are a technology-based reconnaissance exploration company which
utilizes our proprietary stress field detection or "SFD" remote-sensing
airborne survey technology, which we refer to as our "SFD Survey System,"
to quickly and inexpensively identify and high-grade oil and natural gas
prospects. We conduct our reconnaissance exploration activities, as well
as land acquisition, drilling, completion and production activities to
exploit prospects identified using our SFD technology, through our two
subsidiaries, Pinnacle U.S., which focuses on United States-based
exploration, and Pinnacle Canada, which focuses on Canadian-based
exploration. Pinnacle, in turn, focuses on research and development
efforts to improve the efficacy of our SFD Survey System.
Since we have not generated operating revenues to date, we should be
considered a development stage enterprise. Although we have sufficient
working capital as of March 31, 2000 to fund our current level of
operations for several years assuming we make minimal investments in
petroleum properties, our ability to continue as a going concern in the
longer term will nevertheless be dependent upon our ability, either
through our joint venture arrangements or for our own account, to
successfully identify hydrocarbon bearing prospects, and to finance,
develop, extract and market oil and natural gas from these prospects for
a profit. We anticipate that we will continue to incur further operating
losses until such time as we receive revenues from our joint venture
partners with respect to prospects currently in the development stage, or
through prospects we identify and exploit for our own account.
2. Significant Accounting Policies
(a) Basis of Presentation
We have prepared these consolidated financial statements in accordance
with accounting principles generally accepted in the United States for
interim financial reporting. While these financial statements reflect all
normal recurring adjustments which are, in the opinion of management,
necessary for fair presentation of the results of the interim period,
they do not include all of the information and notes required by
accounting principles generally accepted in the United States for
complete financial statements. For further information, refer to the
financial statements included in our annual report on Form 10-K for the
fiscal year ended December 31, 1999, as filed with the United States
Securities and Exchange Commission on April 17, 2000.
(b) Consolidation
We have consolidated the accounts of our wholly owned subsidiaries with
those of Pinnacle in the course of preparing these consolidated financial
statements. All significant intercompany balances and transactions
amongst Pinnacle and its subsidiaries have been eliminated as a
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<PAGE>
consequence of the consolidation process, and are therefore not reflected
in these consolidated financial statements.
(c) Reclassifications
We have changed the manner of presentation in these consolidated
financial statements and, as a consequence, have reclassified certain
accounts and amounts reflected in our prior annual consolidated financial
statements to conform to this change in presentation.
(d) Estimates and assumptions
The preparation of these consolidated financial statements in conformity
with generally accepted accounting principles in the United States
requires our management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of these consolidated financial
statements and the reported amount of revenues and expenses during the
reporting periods. Actual results may differ from those estimates.
(e) Cash and Cash Equivalents
For purposes of preparing the consolidated balance sheets and statements
of cash flows contained in these consolidated financial statements, we
consider all investments with original maturities of ninety days or less
to constitute "cash and cash equivalents."
(f) Fair Value of Financial Instruments
Our financial instruments consist of cash, accounts receivable, notes
receivable, accounts payable and accrued liabilities. The fair value of
these financial instruments approximates their carrying values on our
consolidated financial statements due to their short-term to maturity and
similarity to current market rates. It is the opinion of our management
that we are not exposed to significant interest, currency or credit risks
arising from these financial instruments.
(g) Oil and Natural Gas Properties
We follow the full cost method of accounting for oil and natural gas
properties and equipment whereby we capitalize all costs relating to our
acquisition of, exploration for and development of oil and natural gas
reserves. These capitalized costs include:
. land acquisition costs;
. geological and geophysical costs;
. costs of drilling both productive and non-productive wells,
production equipment and related facilities; and
. various costs associated with evaluating petroleum and natural gas
properties for potential acquisition.
Commencing upon production, these capitalized costs will also include SFD
survey support and SFD survey operations and data analysis costs. See
notes 2(j) and 2(k).
We only capitalize overhead that is directly identified with acquisition,
exploration or development activities. All costs related to production,
general corporate overhead and similar activities are expensed as
incurred.
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<PAGE>
Under the full cost method of accounting, capitalized costs are
accumulated into cost centers on a country-by-country basis. These
costs, plus a provision for future development costs (including estimated
dismantlement, restoration and abandonment costs) of proved undeveloped
reserves, are then depleted and depreciated using the unit-of-production
method, based on estimated proved oil and gas reserves as determined by
independent engineers where significant. For purposes of the depletion
and depreciation calculation, proved oil and gas reserves are converted
to a common unit of measure on the basis of their approximate relative
energy content.
In applying the full cost method of accounting, capital costs in each
cost center less accumulated depletion and depreciation and related
deferred income taxes are restricted from exceeding an amount equal to
the sum of the present value of their related estimated future net
revenues discounted at 10% less estimated future expenditures, and the
lower of cost or estimated fair value of unproved properties included in
the costs being amortized, net of related tax effects. Should this
comparison indicate an excess carrying value, a write-down would be
recorded.
The carrying values of unproved properties, which are excluded from the
depletion calculation, are assessed on a quarterly basis to ascertain
whether any impairment in value has occurred. This assessment typically
includes a determination of the anticipated future net cash flows based
upon reserve potential and independent appraisal where warranted.
Impairment is recorded if this assessment indicates the future potential
net cash flows are less than the capitalized costs.
All recoveries of costs through the sale or other disposition of oil and
gas properties and equipment are accounted for as adjustments to
capitalized costs, with no gain or loss recorded, unless the sale or
disposition involves a significant change in the relationship between
costs and the value of proved reserves or the underlying value of
unproved property, in which case the gain or loss is computed and
recognized.
Our company conducts oil and natural gas exploration, drilling,
development and production activities through our joint venture partners.
These consolidated financial statements reflect only our proportionate
interest in these activities.
(h) Other Property and Equipment
We carry our other capitalized property and equipment at cost. We
depreciate or amortize our other capitalized property and equipment over
their estimated service lives using the declining balance method as
follows:
Airplane.................................................... 15%
Computer equipment.......................................... 30%
Computer software........................................... 100%
Equipment................................................... 20%
Furniture and fixtures...................................... 20%
Leasehold improvements...................................... 20%
Tools....................................................... 20%
Vehicles.................................................... 30%
When we retire or otherwise dispose of our other capitalized property and
equipment, we remove their cost and related accumulated depreciation or
amortization from our accounts, and record any resulting gain or loss in
the results of operations for the period. Our management periodically
reviews the carrying value of our property and equipment to ensure that
any permanent impairment in value is recognized and reflected in our
results of operations.
-8-
<PAGE>
(i) Research And Development Expenditures
We expense all research and development expenditures we incur to develop,
improve and test our SFD Survey System and related components, including
allocable salaries.
(j) Survey Support Expenditures
We expense all survey support expenditures we incur, after netting costs
which are reimbursable by our joint venture partners. Survey support
expenditures consist primarily of the cost, including allocable salaries,
to:
. conduct field evaluations designed by our joint venture partners to
evaluate the SFD Survey System (after netting costs which are
reimbursable by our joint venture partners); and
. develop, organize, staff and train our survey and interpretation
operational functions.
Although we currently expense our survey support expenditures, we will,
in the future, commencing on the earliest date that any of our initial
exploration wells commence production, capitalize and amortize these
costs using the units of production method as a component of petroleum
properties in accordance with the full cost method of accounting for oil
and gas.
(k) Survey Operations And Data Analysis Expenditures
We expense all survey and data analysis costs we incur, after netting
costs which are reimbursable by our joint venture partners. Survey and
data analysis expenditures consist primarily of:
. aircraft operating costs, travel expenses and allocable salaries of
our personnel while on survey assignment (after netting costs which
are reimbursable by our joint venture partners); and
. allocable salaries of our personnel while interpreting SFD Data.
Although we currently expense our survey and data analysis costs, we
will, in the future, commencing on the earliest date that any of our
initial exploration wells commence production, capitalize and amortize
these costs using the units of production method as a component of
petroleum properties in accordance with the full cost method of
accounting for oil and gas.
(l) Foreign Currency Translation
We use the United States dollar as our reporting currency. With respect
to our subsidiaries whose functional currency is in Canadian dollars, we
use the following methodology to convert their Canadian dollar
denominated accounts and transactions into U.S. dollars for consolidation
purposes:
. all asset and liability accounts are translated into U.S. dollars at
the rate of exchange in effect as of the end of the applicable
fiscal period;
. all shareholders' equity accounts are translated into U.S. dollars
using historical exchange rates; and
. all revenue and expense accounts are translated into U.S. dollars at
the average rate of exchange for the applicable fiscal period.
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<PAGE>
We record the cumulative gain or loss arising from the conversion of the
noted Canadian dollar denominated accounts and transactions into U.S.
dollars as a foreign currency translation adjustment as a component of
accumulated other comprehensive income or loss for that period.
(m) Basic And Diluted Loss Per Common Share
Our basic loss per share is computed in accordance with Statement of
Financial Accounting Standards No. 128, "Earnings Per Share," ("SFAS No.
128"), by dividing the net loss for the period attributable to holders of
our common stock by the weighted average number of shares of our common
stock outstanding for the period. Our diluted loss per share is
computed, also in accordance with SFAS No. 128, by including the
potential dilution that could occur if holders of our dilutive securities
were to exercise or convert these securities into our common stock.
In calculating our diluted loss per share, we take into consideration
deemed distributions analogous to the declaration of a dividend
attributable to the beneficial conversion features affording a discount
or benefit to the holders of our securities. See note 8.
(n) Stock-based compensation
In accounting for our employee and director stock options, we have
elected to follow Accounting Principles Board No. 25, "Accounting for
Stock Issued to Employees," ("APB 25"), and related interpretations.
Pursuant to APB 25, we have not recorded any compensation expense for any
period in these consolidated financial statements insofar as the exercise
price for all options we have granted to date to our employees and
directors have equaled the market price of the underlying common shares
on the effective date of grant. See note 10.
(o) Recent pronouncements
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities," as subsequently amended by SFAS No.
137,which established accounting and reporting standards requiring that
every derivative instrument, including certain derivative instruments
embedded in other contracts, be recorded in the balance sheet as either
an asset or liability measured at its fair value for fiscal quarters of
fiscal years beginning after June 15, 2000. Our management has not had
the opportunity to evaluate the impact of SFAS Nos. 133 and 137 on our
consolidated financial position, results of operations or cash flows.
3. Reverse Acquisition
We acquired what is now our wholly-owned subsidiary, Pinnacle U.S., on
January 20, 1996, in a transaction accounted for as a "reverse acquisition."
This acquisition was effected through the issuance of 10,090,675 common
shares of our company (then known as Auric Mining Corporation), constituting
approximately 92% of its outstanding shares at that date, in exchange for all
of the outstanding shares of Pinnacle U.S. As a result of the application of
the noted accounting principles governing reverse acquisitions, Pinnacle U.S.
(and not Auric Mining Corporation) was treated as the "acquiring" or
"continuing" entity for financial accounting purposes.
We have accounted for the Pinnacle U.S. acquisition as an issuance of stock
by Pinnacle U.S. in exchange for the tangible net assets of Auric Mining
Corporation, valued at fair value, which approximate historical costs. As a
result, our consolidated statements of loss and shareholders' equity
(deficit) included in these consolidated financial statements are deemed to
be a continuation of Pinnacle U.S.'s financial statements, and therefore
reflect:
. Pinnacle U.S.'s operations from the date of its formation (October 20,
1995) through the effective date of the reverse acquisition (January 20,
1996); and
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<PAGE>
. our consolidated operations after the effective date of the reverse
acquisition (January 20, 1996).
4. Note Receivable From Officer
In September 1998, we loaned the sum of Cdn. $54,756 (U.S. $35,760 as of that
date) to one of our officers in connection with his relocation to Calgary,
Alberta. Pursuant to the terms of an underlying promissory note, the officer
is required to repay the loan on a monthly basis, with a balloon payment due
on October 3, 2003. The amount of the monthly payments is calculated on the
basis of a 300-month amortization rate, principal plus interest, using a
variable interest rate computed at our cost of funds, which we define as our
floating interest rate for liquid investments (presently 5 1/2%).
5. Oil And Natural Gas Properties
Summarized below are the oil and natural gas property costs we capitalized
for our three-month interim periods ended March 31, 2000 and March 31, 1999
and as of March 31, 2000:
<TABLE>
<CAPTION>
Three Months Ended
March 31, As of
------------------------ March 31,
2000 1999 2000
--------- --------- ----------
<S> <C> <C> <C>
Acquisition costs......... $ 6,263 $ -- $ 410,848
Exploration costs......... 325,265 -- 695,839
Development costs......... -- --
Capitalized interest...... -- --
-------- --------- ----------
$331,528 $ -- $1,106,687
======== ========= ==========
</TABLE>
Since all of our oil and gas properties as of March 31, 2000 were either not
yet producing or still in the drilling stage, we have classified all of these
properties as unproved properties. Consequently, we did not record any
depletion to date for these properties for the three-month interim period
ended March 31, 2000.
Following the close of our three-month interim period ended March 31, 2000,
our management performed a property assessment with respect to each of our
unproved properties as of March 31, 2000 to determine if any of these
properties had been subject to any impairment in value, and concluded that no
impairment had occurred. This assessment included a determination of the
future production potential based upon SFD data, seismic data and exploration
results. Our company is currently conducting active exploration and
development programs with respect to each of these unproved oil and gas
properties, and we anticipate that all of these properties will be evaluated
and the associated costs transferred into the amortization base or impaired
over the next five years.
6. Other Property And Equipment
Summarized below are our capitalized costs for other property and equipment
as of March 31, 2000 and March 31, 1999:
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<TABLE>
<CAPTION>
March 31,
-------------------------
2000 1999
----------- ---------
<S> <C> <C>
Airplane........................................ $ 269,724 $ 238,653
Computer equipment.............................. 200,158 91,981
Computer software............................... 85,366 14,695
Equipment....................................... 74,860 40,888
Furniture and fixtures.......................... 165,568 122,381
Leasehold improvements.......................... 103,048 105,376
SFD Survey System (including software).......... 95,721 54,710
Tools........................................... 1,696 2,459
Vehicle......................................... 62,494 62,494
----------- ---------
Property and equipment........................ 1,058,635 733,637
Less accumulated depreciation and amortization.. (365,959) (133,357)
----------- ---------
Net property and equipment.................... $ 692,676 $ 600,280
=========== =========
</TABLE>
7. Common Stock
On January 31, 1997, two of our executive officer-directors at that time each
loaned our company the sum of $500,000, for total loan proceeds of
$1,000,000. These loans were extended by these officer-directors pursuant to
unsecured, convertible promissory notes due January 31, 1998, together with
interest accrued at a rate of 12% per annum. Each promissory note contained
identical conversion provisions pursuant to which:
. each officer-director could elect to convert any or all of the
outstanding balance of his loan into common stock based upon a ratio of
one share per $4.07 in converted principal and interest at any time; and
. our company could convert any or all of the outstanding balance of
either loan into common stock based upon a ratio of one share per $2.72
in converted principal and interest should we be unable to repay that
amount by the January 31, 1998 due date.
We exercised our right to convert the notes into 411,764 shares of common
stock on February 1, 1998, in satisfaction of $1,200,000 in aggregate
principal and accrued interest which became due on January 31, 1998.
On May 17, 1999, we raised $6,000,000 in gross proceeds through a private
placement of 400,000 shares of our common stock at $15 per share. Net
proceeds to our company from this offering were $5,998,652, after deducting
$1,348 in offering expenses.
During 1999, we raised $303,979 in gross proceeds through our employees'
exercise of incentive stock options entitling them to purchase 35,000 shares
of our common stock at exercise prices between $8.12 1/2 and $9.50 per share.
On March 31, 2000, the holder of warrants to purchase 200,000 shares of our
common stock at an exercise price of $7.50 per share exercised these
warrants, resulting in gross proceeds to our company of $1,500,000. See note
8.
During the three-month interim period ended March 31, 2000, we raised
$138,740 in gross proceeds through our employees' exercise of incentive stock
options entitling them to purchase 13,200 shares of our common stock at
exercise prices between $8.25 and $14.06 per share.
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<PAGE>
8. Preferred Stock And Warrants
On April 3, 1998, we completed a series of transactions pursuant to which:
. Pinnacle U.S. entered into a joint venture agreement, and
. we concurrently raised $6,000,000 in gross proceeds from an affiliate of
the joint venture partner through the private placement to that party of
800,000 shares of our series "A" convertible preferred stock, and
warrants to purchase 200,000 shares of our common stock at an exercise
price of $7.50 per share.
The net proceeds of this private placement were $5,688,867, after deducting
$311,833 in offering expenses, including the cost of becoming a reporting
company with the Securities and Exchange Commission.
Each share of preferred stock is convertible into one common share at the
election of the holder, and carries a $7.50 liquidation preference should our
company wind-up and dissolve. We have reserved the right to redeem the
preferred stock at a price of $7.50 per share if it has not been converted
into common stock by April 3, 2000, and the holder forgoes a final
opportunity to exercise his conversion rights to avoid redemption. The
preferred shares are not entitled to payment of any dividends, although they
are entitled under certain circumstances to participate in dividends on the
same basis as if converted into common shares. Each warrant carried a $7.50
per share exercise price, and lapsed to the extent not exercised by April 3,
2000. All of the warrants were exercised on March 31, 2000. See note 7.
Insofar as the preferred shares and warrants contained beneficial conversion
features affording a discount or benefit to the purchaser of these
securities, we recorded a deemed distribution analogous to the declaration of
a dividend to that purchaser. This deemed distribution resulted in:
. An increase in additional paid-in capital in the amount of $2,104,000 to
record the intrinsic value of the beneficial conversion feature of the
preferred shares, i.e., the discount in the purchase price of these
securities relative to the public trading price as of the date of
issuance of the underlying common shares into which these preferred
shares could be converted, without adjustment for discounts or
restrictions.
. A newly created warrant capital account to record the fair value of the
warrants in the amount of $1,132,000, including the value of their
beneficial conversion feature, as determined by the Black-Scholes method
of valuation. This amount was subsequently reclassified to additional
paid-in capital upon the exercise of the warrants.
. A counterbalancing charge against our accumulated deficit capital
account in the amount of $3,236,000.
We also made appropriate adjustment for the deemed distribution in
calculating our basic loss per common share. See note 2(m).
9. Performance Warrants
On August 1, 1996, we granted a performance-based contractual right to be
granted warrants to the licensor of our SFD technology, Momentum Resources
Corporation, in connection with the amendment of our exclusive SFD technology
license with Momentum to use the SFD technology for hydrocarbon exploration.
The primary purpose of the amendment was to indefinitely extend the
termination date of the license. Pursuant to this contractual right, Momentum
is entitled to a separate grant of warrants entitling it to purchase 16,000
shares of our common stock at the then current trading price for each month
after December 31, 2000 in which production from SFD-identified prospects
during that month exceeds 20,000 barrels of hydrocarbons. Momentum has not
earned any warrants under the SFD technology license as of March 31, 2000.
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<PAGE>
10. Options
Through March 31, 2000, we have granted options to selected employees and
directors of our company pursuant to the following separate arrangements or
plans (the "Plans"):
. Separate free-standing directors options which we granted to selected
directors as compensation for serving on our Board of Directors;
. The 1997 Pinnacle Oil International, Inc. Stock Plan, pursuant to which
1,000,000 shares of our common stock were reserved for issuance to
employees, directors and consultants in the form of stock options or
outright stock grants;
. The 1999 Pinnacle Oil International, Inc. Executive Option Plan, pursuant
to which 1,000,000 shares of our common stock were reserved for issuance
to executive officers in the form of stock options; and
. The 2000 Pinnacle Oil International, Inc. Directors' Option Plan,
pursuant to which 400,000 shares of our common stock were reserved for
issuance to executive officers in the form of stock options.
During the three-month interim period ended March 31, 2000, 95,000 options
with an average weighted exercise price of $29.96 were granted under the
Plans, 13,200 previously-granted options under the Plans with an average
weighted exercise price of $10.01 were exercised, and 16,000 previously-
granted options under the Plans with an average weighted exercise price of
$14.06 lapsed.
We have summarized below all outstanding options under the Plans as of March
31, 2000:
<TABLE>
<CAPTION>
Grant Exercise March 31, 2000
--------------------------------
Type of Option Date Price Outstanding Vested
------------------------------- -------------- --------------- -------------- -------------
<S> <C> <C> <C> <C>
Director Non-qualified......... 5-12-97 $ 5.81 75,000 75,000
Director Non-qualified......... 5-20-97 5.25 90,000 90,000
Employee Incentive............. 11-24-97 9.50 37,500 7,500
Director Non-qualified......... 3-10-98 8.31 45,000 45,000
Employee Incentive............. 5-12-98 8.25 30,800 10,800
Employee Incentive............. 8-24-98 8.25 132,500 10,000
Employee Incentive............. 10-1-98 8.12 1/2 20,000 --
Employee Non-qualified......... 5-1-99 14.00 1,016,670 --
Employee Incentive............. 5-1-99 15.00 33,330 --
Employee Incentive............. 5-12-99 17.00 20,000 --
Employee Incentive............. 9-21-99 13.62 1/2 100,000 --
Employee Incentive............. 11-16-99 14.12 1/2 85,000 --
Director Non-qualified......... 2-15-00 28.75 75,000 --
Employee Incentive............. 3-20-00 34.50 20,000 --
-------------- -------------
1,780,800 238,300
============== =============
</TABLE>
The director options granted before December 31, 1999 that are outstanding as
of March 31, 2000 vest one-third on date of grant, and an additional one-third
each on the first anniversary and second anniversaries of the grant date,
respectively, based upon the continued provision of services as a director.
The director options granted after December 31, 1999 that are outstanding as
of March 31, 2000 vest one-third each on the first through third anniversaries
of the grant date, respectively, based upon the continued provision of
services as a director. The employee options outstanding as of March 31, 2000
vest over three to five years from the grant date, depending upon the
recipient, based upon the continued provision of services as an employee.
Both the director and employee options generally lapse, if unexercised, five
years from the date of vesting.
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<PAGE>
11. Commitments
At March 31, 2000, we had entered into joint venture agreements with two
separate oil and gas exploration companies. We are required under these
joint venture agreements to conduct SFD surveys to identify oil and natural
gas prospective prospects on selected exploration areas of up to 2,400
square miles, and our joint venture partners are required to drill each
SFD-identified prospect they accept under their respective agreement. We
may elect under each of these joint venture agreements to receive one of
the two following payment streams for each SFD-identified prospect accepted
and drilled by the joint venture partner:
. A capital investment and generally risk-free overriding royalty of 5% to
8% of oil or natural gas revenues received by the joint venture partner
with respect to the prospect; or
. A working interest of up to 45% of the joint venture partner's revenues
with respect to the prospect.
In any situation where we elect to participate on a working interest basis,
we must bear our share of mineral and drilling right acquisition (if
necessary), drilling, completion and production costs incurred with respect
to the prospect based upon our elected working interest percentage.
Although we will bear our share of these costs, our joint venture partner
will nevertheless remain responsible for conducting and managing all
drilling, production and marketing activities to exploit the prospect.
On November 25, 1997, we entered into a five-year non-cancelable operating
lease for our principal executive offices. This lease, which consists
13,325 rentable square feet as of March 31, 2000, expires on January 21,
2003. Our combined obligations for base lease payments and building
operating cost and other pass-through items as of March 31, 2000 was Cdn.
$21,418 per month, which translates into U.S. $14,777 per month based upon
the closing conversion rate as of March 31, 2000.
12. Subsequent Events
(a) Other Property and Equipment (see note 6)
On May 4, 2000, we completed our acquisition of a Piaggio P180 Avanti
aircraft for a purchase price of $2,790,000.
(b) Options (see note 10)
On April 17, 2000, we granted 30,000 non-qualified options under the
2000 Pinnacle Oil International, Inc. Directors' Stock Plan to each of
our five outside independent directors as additional compensation for
their services as members of our Board of Directors for the next three
years. The purchase price for these options were fixed at $26.25 per
share, reflecting the closing trading price of our common stock as of
the date of grant. These options vest in equal increments on the first
through third anniversary dates of the date of grant, respectively,
based upon continued provision of services as a director, and lapse,
if unexercised, five years after the vesting date, unless the
optionee's status as a director is terminated, in which case they
lapse two years from date of vesting.
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<PAGE>
Item 2. Management's Discussion And Analysis Of Financial Condition And
Results Of Operations
General
The following discussion of our consolidated financial condition and the results
of operations should be read in conjunction with our consolidated financial
statements and the notes to our consolidated financial statements included in
Part I, Item 1, of this report. The information set forth below in this report
is current as of the date of this report, May 12, 2000, unless an earlier or
later date is indicated. All references to "dollars" in this report refer to
United States, or U.S., dollars unless specific reference is made to Canadian,
or Cdn., dollars. For information relative to currency conversion, see note
2(l) to our consolidated financial statements. The rate of exchange of Canadian
dollars to United States dollars as of March 31, 2000, was Cdn. $1.4494 to U.S.
$1.
Overview
Pinnacle Oil International, Inc. ("we," "our company" or "Pinnacle") is a
technology-based reconnaissance exploration company which utilizes our
proprietary, quantum physics-based, stress field detection or "SFD" remote-
sensing airborne survey technology, which we refer to as our "SFD Survey
System," to quickly and inexpensively identify and high-grade oil and natural
gas prospects. We are a publicly traded company whose common stock trades over-
the-counter on the NASD Electronic Bulletin Board under the symbol "PSFD." Our
principal executive offices are located at Suite 750, Phoenix Place, 840 7th
Avenue S.W., Calgary, Alberta, Canada T2P 3G2, and our telephone number is (403)
264-7020.
We use our SFD technology to survey or reconnoiter large exploration areas from
our survey aircraft at speeds in excess of 150 mph to identify and "high-grade"
leads for further evaluation and potential drilling. Our SFD technology is a
recently developed technology which we adapted for airborne survey operations,
and field tested for independent geologists and our joint venture partners, in
1996 and 1997. We commenced SFD survey activities on a full commercial basis
for our joint venture partners in early 1998.
Our SFD technology affords us the relatively inexpensive ability to obtain near
real-time analysis and interpretation of potential hydrocarbon accumulations in
a matter of days or weeks, as compared to months and in some cases years in the
case of the seismic methods currently employed by the oil and gas exploration
industry for wide area exploration or reconnaissance. These cost and time
advantages will ultimately enable us to effectuate potentially significant
reductions in oil and gas exploration "finding costs." Finding costs include
the cumulative costs of acquiring seismic, purchasing mineral rights, and
drilling and completing exploration wells. The ability to reduce finding costs
is an extremely important financial factor in the oil and gas industry, insofar
as low finding costs represent a measure of an oil and gas company's ability to
effectively and efficiently find new reserves, as well as generate cash flow.
We conduct our reconnaissance exploration activities, as well as land
acquisition, drilling, completion and production activities to exploit prospects
identified using our SFD technology, through our two wholly-owned operating
subsidiaries. Our first subsidiary, Pinnacle U.S., focuses on United States-
based exploration. Our second subsidiary, Pinnacle Oil Canada, Inc., whom we
refer to as "Pinnacle Canada," focuses on Canadian-based exploration. Pinnacle,
in turn, concentrates on research and development efforts to improve the
efficacy of our SFD Survey System.
Our United States exploration efforts to date have been focused on the Greater
Green River Basin in Wyoming and the Williston Basin in North Dakota. These
exploration activities have been conducted under a joint exploration and
development agreement with CamWest Exploration LLC, a Colorado-based exploration
company. Under this agreement we conduct aerial surveys to identify prospects
in exploration areas in the United States selected by CamWest.
Our Canadian exploration efforts to date have been focused on southern Alberta,
northeastern British Columbia, southwestern Saskatchewan and Newfoundland. The
majority of these exploration activities
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<PAGE>
have been conducted under an exploration joint venture agreement with Encal
Energy Ltd., a Calgary-based exploration and production company. Under this
agreement we conduct aerial surveys to identify prospects in exploration areas
in Canada selected by Encal. We have also recently commenced conducting
exploration activities in western Canada for our own account. We anticipate
developing these prospects through a joint venture with either Encal or another
Canadian exploration company.
The joint venture agreements we have entered into with our joint venture
partners generally entitle us to elect to receive one of the two following
payment streams for each SFD-identified prospect accepted and drilled under the
applicable agreement:
. a capital investment and generally risk-free overriding royalty of 5% to 8%
of oil or natural gas revenues received by the joint venture partner with
respect to the prospect. In any situation where we elect to receive this
royalty, our joint venture partner will be responsible, at its own cost and
risk, to acquire the necessary drilling rights for the prospect if it has
not already done so, and to conduct all drilling, production and marketing
activities necessary to exploit the prospect.
. a working interest of up to 45% of the joint venture partner's revenues
with respect to the prospect. In any situation where we elect to
participate on a working interest basis, we must bear our share of the
mineral rights and drilling acquisition (if necessary), drilling and
production costs incurred with respect to the prospect based upon our
working interest percentage. Although we will bear our share of these
costs, our joint venture partner will nevertheless remain responsible for
conducting and managing all drilling, production and marketing activities
to exploit the prospect.
Our U.S. joint venture partner is also required under the terms of its joint
venture agreement to reimburse us for 100% of the expenses we incur in
conducting aerial surveys for that partner, while our Canadian joint venture
partner is required under the terms of its joint venture agreement to reimburse
us for 50% of the expenses we incur in conducting aerial surveys for that
partner.
Our recent practice with our joint venture partners has been to participate in
selected prospects on a combination working interest/overriding royalty interest
basis, typically a 22 1/2% working interest and a 4% overriding royalty.
The status of our current activities as of March 31, 2000 and the date of this
report is as follows:
. One exploration well spudded in September 1999 by at third-party operator
at our Leucite Hills South prospect in Wyoming, was drilled, cased and
completed in September 1999 as a natural gas discovery. This well will not
be placed into production by the operator, however, until a sufficient
number of additional wells are drilled on the exploratory block and can be
tied into a gathering system. Pinnacle U.S. elected a combination working
interest and overriding royalty interest with respect to this prospect.
Pinnacle U.S. anticipates that CamWest, as operator, will spud a step-out
exploratory well on this prospect by the end of June 2000.
. One exploration well spudded by CamWest in October 1999 at our Poblano
prospect in Wyoming, was drilled, cased and completed in January 2000 as a
natural gas discovery, and production will commence upon completion of a
twelve-mile pipeline that will tie the well into a sales system. CamWest
spudded a step-out exploratory well on this prospect in March 2000, which
is in the process of being logged in anticipation of completion activities
as of the date of this report. Pinnacle U.S. elected a combination working
interest and overriding royalty interest with respect to this prospect.
Pinnacle U.S. anticipates that CamWest will spud a second step-out
exploratory well on this prospect by the end of June 2000,
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<PAGE>
. One exploration well spudded by at third-party operator in October 1999 at
our Poblano South prospect in Wyoming, was drilled, cased and completed in
January 2000. This well has been shut-in by the operator pending further
evaluation of its completion program. Pinnacle U.S. elected a combination
working interest and overriding royalty interest with respect to this
prospect.
. One exploration well spudded in December 1999 in southern Alberta by Encal
at our Carbon prospect in southern Alberta, was drilled, cased and
completed in January 2000 as a natural gas discovery. This well is
currently suspended pending completion activities by the operator. Pinnacle
Canada elected an overriding royalty interest with respect to this
prospect.
. One exploration well spudded in March 2000 by Encal at our Monarch prospect
in southern Alberta. This well is cased and is in the process of being
completed. Pinnacle Canada elected a combination working interest and
overriding royalty interest with respect to this prospect.
In addition to the two wells scheduled for spudding note above, we anticipate
that at least one additional exploration well will be spudded on other prospects
by our joint venture partners or third-party operators by the end of June 30,
2000.
Our rights to use our SFD technology arises from an SFD technology license which
we acquired from the owner and licensor of that technology, Momentum Resources
Corporation, pursuant to which we received the exclusive world-wide right to use
the SFD technology for hydrocarbon exploration purposes. We are obligated under
the terms of that license to pay Momentum Resources Corporation a fee equal to
1% of any "prospect profits" (as that term is defined in the license) which we
may receive on or before December 31, 2000, and 5% of any prospect profits which
we may receive after December 31, 2000. Momentum is controlled and indirectly
owned by our two largest stockholders, Messrs. George Liszicasz and R. Dirk
Stinson. Each of these stockholders currently serve as our directors, and Mr.
Liszicasz currently serves as one of our executive officers.
Since we have not generated operating revenues to date, we should be considered
a development stage enterprise.
Capital Requirements
We have not generated operating revenues to date, although we have one completed
well at our Poblano Prospect which we anticipate will commence production as
soon as a twelve-mile pipeline is completed which will connect the prospect to a
sales system. We anticipate the pipeline will be laid upon completion of our
second step-out exploration well in our Poblano prospects. Assuming no
unforeseen delays or changes in production plans, we anticipate that production
will commence in our third quarter in fiscal 2000. We are also drilling several
additional exploratory wells in fiscal 2000, including the noted step-out
exploratory wells, which should add to any revenues we generate.
Absent revenues, our sole source of cash to fund our operational and capital
investment needs are monies we have raised through the private placement of our
securities and exercise of employee options. For further information regarding
these transactions, see "--Liquidity And Capital Resources--Sources Of Cash"
below.
We have budgeted the following level of expenditures over the twelve-month
period ended March 31, 2001:
. Approximately $2,500,000 for continuing operations including SFD research
and development activities; and
. Up to $3,000,000 in capital expenditures to invest in working interests
with our joint venture partners or acquire drilling interests for our own
account, although the overall amount of these capital
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<PAGE>
expenditures may be significantly reduced or increased depending upon the
success of drilling efforts over the next six to twelve months.
After taking into consideration the $9,427,073 in working capital we had
available as of March 31, 2000, we have sufficient working capital on hand to
fund our current level of operations, including research and development but
excluding capital investments in working interests beyond that amount budgeted
for the next twelve months as described above, through early--2002. Our ability
in the longer term to continue as a going concern will be dependent upon our
ability to either:
. raise additional capital through private or public placements of our
securities, or
. our receipt of meaningful amounts of revenues from our joint venture
partners or through our own exploration efforts, which, in either case,
will be dependent upon successful exploration and production activities.
We cannot give you any assurance that any SFD Prospect that is drilled will
ultimately produce commercially viable quantities of oil or gas. We also cannot
give you any assurance that our strategic partners will drill any planned
exploratory well on any accepted SFD Prospects at all or by projected drilling
dates due to the various factors that may affect the drilling process, including
the perceived economics of drilling at any time, the ability of the strategic
partner to obtain drilling rights (where necessary) on favorable terms or at
all, and the ability of the strategic partner to timely schedule a drilling rig
and other drilling services. See "Uncertainties And Other Factors That May
Affect Our Future Results And Financial Condition--Uncertainties And Risk
Factors Generally Relating To Our Company And Our Business," generally, and "--
We Are Reliant Upon Our Joint Venture Partners For Opportunities To Participate
In Exploration Projects" and "--Our Revenues And Cash Flow Will Be Principally
Dependent Upon The Success Of Drilling And Production From Prospects In Which We
Participate Through Agreements With Our Joint Venture Partners," particularly.
For additional and more detailed information relating to our company and our
business, please see our annual report on Form 10--K for our fiscal year ended
December 31, 1999.
Results Of Operations
Operating Revenues
We had no oil and gas working interest or royalty revenues for our three-month
interim fiscal periods ended March 31, 2000 and March 31, 1999.
Operating Loss
We incurred an operating loss of $603,728 for the first three months of fiscal
2000, as compared to $355,864 for the first three months of fiscal 1999,
representing a $247,864, or 69.7%, overall increase.
The 69.7% increase in our operating loss for the first three months of fiscal
2000 over the first three months of fiscal 1999 was primarily attributable to
the following changes in costs and expenses:
. a $130,814, or 66.5%, increase in administrative expense from $196,870 to
$327,684;
. a $39,460, or 88.5%, increase in survey support expense from $44,589 to
$84,049;
. a $33,468, or 168.5%, increase in survey operations and data analysis
expense from $19,865 to $53,333;.
. a $28,595, or 63.0%, increase in amortization and depreciation from $45,426
to $74,021; and
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<PAGE>
. a $15,527, or 31.6%, increase in research and development expense from
$49,114 to $64,641.
Relative Changes In Administrative Expense
The $130,814 increase in administrative expense for the first three months of
fiscal 2000 over the first three months of fiscal 1999 was primarily
attributable to across-the-board net increases in costs to support our increased
level of business activities for the first three months of fiscal 2000, the most
significant of which were increases of $73,773 in wages and benefits and
payments to consultants.
Relative Changes In Survey Support Expense
Survey support expense generally relates to the cost--including allocable
salaries--to:
. conduct field evaluations designed by our joint venture partners to
evaluate our SFD technology (after netting any costs which our joint
venture partners are required to reimburse us for); and
. develop, organize, staff and train our survey and interpretation
operational functions.
The $39,460 increase in survey support expense for the first three months of
fiscal 2000 over the first three months of fiscal 1999 was primarily
attributable to across-the-board net increases in costs to support our increased
level of survey operations and data analysis, the most significant of which were
$34,944 in increased salaries associated with additional support staffing,
partially offset by a decrease of $18,372 in additional aircraft improvement
expenses.
Relative Changes In Survey Operations And Data Analysis Expense
Survey and data analysis expenditures consist primarily of any costs we incur
conducting commercial SFD survey activities. These costs can be generally
broken down into the following two components:
. aircraft operating costs, travel expenses and allocable salaries of our
personnel while on survey assignment (after netting any costs our joint
venture partners are required to reimburse us for); and
. allocable salaries incurred by our personnel interpreting SFD Data.
Our total survey and data analysis expense, before taking any joint venture
partner reimbursement into account, was $73,611 for the first three months of
fiscal 2000, as compared to $44,312 for the first three months of fiscal 1999.
The increase in total survey and data analysis expense was primarily
attributable increased salaries associated with additional support staffing.
Our net survey and data analysis expense--after taking into consideration joint
venture partner reimbursements of $20,278 and $24,447 for the first three months
of fiscal 2000 and 1999, respectively--was $53,333 for the first three months of
fiscal 2000 as compared to $19,865 for the first three months of fiscal 1999.
Relative Changes In Amortization and Depreciation
The $28,595 increase in amortization and depreciation for the first three months
of fiscal 2000 over the first three months of fiscal 1999 was primarily
attributable to addition depreciation and amortization arising in connection
with our acquisition of additional computer equipment and software.
Relative Changes In Research and Development Expense
Research and development expense generally relates to the cost--including
allocable salaries--to develop, improve and test our SFD Survey System and
related components. The $15,527 increase in research and development expense
for the first three months of fiscal 2000 over the first three months of
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fiscal 1999 was principally attributable to salaries associated with additional
research and development staffing as we focused increased efforts to improve the
operation and efficacy of our SFD Survey System.
Expectations Relative To Future Expense Levels
We effectively doubled our company staff for the first three months of fiscal
2000 as compared to the first three months of fiscal 1999 through the hiring of
key professionals, including executive, geological, geophysical, scientific,
information technology and aviation personnel, and we anticipate that we will
continue to hire similar personnel over the pending fiscal year. We anticipate
that our total operating expenses will continue to significantly increase on a
quarterly basis through the end of fiscal 2000 as a result of the additional
wages and employee benefits to be paid to any additional personnel we may hire
as well as an increased level of operations which will be facilitated by recent
and anticipated hirings.
Other Income And Expense
. Interest Income
We earned $112,830 in interest income for the first three months of fiscal
2000, as compared to $50,856 for the first three months of fiscal 1999. The
increase in interest income for fiscal 2000 was attributable to higher cash
balances in our accounts as a result of a $6,000,000 private placement of
our common stock in May 1999.
Liquidity And Capital Resources
. Sources of Cash
Our cash flow requirements from our inception as Pinnacle U.S. (October 20,
1995) through March 31, 2000 were funded principally from:
o a private placement in May 1996 of 975,000 shares of our common stock
for total gross proceeds of $975,000,
o loans to our company by Messrs. Liszicasz and Stinson in the amount of
$1,000,000 in January 1997, and the subsequent conversion of the
outstanding balance of principal and accrued interest of these loans
in the amount of $1,120,000 into 411,764 shares of our common stock in
February 1998;
o a private placement in April 1998 of 800,000 shares of our convertible
series "A" preferred stock and 200,000 common stock purchase warrants
for total gross proceeds of $6,000,000;
o a private placement in May 1999 of 400,000 shares of our common stock
for total gross proceeds of $6,000,000;
o the exercise of employee stock options during fiscal 1999 and the
first three months of fiscal 2000, resulting in gross proceeds to our
company of $442,754; and
o the exercise on March 31, 2000 on warrants to purchase 200,000 shares
of our common stock at an exercise price of $7.50 per share, resulting
in gross proceeds to our company of $1,500,000.
. Cash Position and Sources And Uses Of Cash
Our cash position as of March 31, 2000 was $9,375,858, as compared to
$9,068,723 as of December 31, 1999. Our cash position as of March 31, 1999
was $4,410,835, as compared to
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$4,713,822 as of December 31, 1998. The bulk of our cash is maintained in a
United States government and government-backed securities money-market
account.
The $307,135 increase in our cash position as of March 31, 2000 as compared
to December 31, 1999 was attributable to $1,632,140 in cash raised through
financing activities, partially offset by $880,120 in cash used in
operating activities, $436,183 in cash used in investing activities, and a
$8,702 comprehensive loss due to the effect of exchange rate changes. The
$302,987 decrease in our cash position as of March 31, 1999 as compared to
December 31, 1998 was attributable to $297,948 in cash used in operating
activities and $69,610 in cash used in investing activities, partially
offset by $46,851 in cash raised through financing activities and a $17,720
comprehensive gain due to the effect of exchange rate changes.
Our operating activities required cash in the amount of $880,120 for the
first three months of fiscal 2000, as compared to cash requirements of
$297,948 for the first three months of fiscal 1999. The $880,120 in cash
used in operating activities for the first three months of fiscal 2000
reflected our net loss of $490,898 for that period, as decreased for non-
cash deductions and a net increase in non-cash working capital balances.
The $297,948 in cash used in operating activities for the first three
months of fiscal 1999 reflected our net loss of $305,008 for that period,
as decreased for non-cash deductions and a net increase in non-cash working
capital balances.
We raised $1,632,140 in cash from financing activities for the first three
months of fiscal 2000, as compared to $46,851 in cash raised from financing
activities for the first three months of fiscal 1999. The $1,632,140 in
cash raised through financing activities for the first three months of
fiscal 2000 was comprised of $1,500,000 in gross proceeds from the exercise
of warrants and $132,140 in gross proceeds from the exercise of employee
stock options. The $46,851 in cash raised through financing activities for
the first three months of fiscal 2000 consisted of the gross proceeds from
the exercise of employee stock options
We used cash in the amount of $436,183 for investing activities for the
first three months of fiscal 2000, as compared to $69,610 in cash used for
investing activities for the first three months of fiscal 1999. The
principal use of cash for the first three months of fiscal 2000 was to
acquire drilling rights in exploratory blocks pursuant to working interest
elections ($331,528) and to acquire property, equipment and computer
software ($105,496). The principal use of cash for the first three months
of fiscal 1999 was to acquire property, equipment and computer software
($70,516).
Other Matters
Foreign Exchange Fluctuations
We recorded a $8,702 foreign currency translation loss for the first three
months of fiscal 2000 as a comprehensive loss item on our statements of loss and
stockholders' equity (deficit) in consolidating our books for financial
reporting purposes as a result of the fluctuation in United States--Canadian
currency exchange rates during that period. We anticipate that our exposure to
significant foreign currency gains or losses on our books will increase as we
invest a greater portion of our United States-dollar denominated cash reserves
into our Canadian operations and properties through intercompany advancements.
We cannot give you any assurance that our future operating results will not be
similarly adversely affected by currency exchange rate fluctuations. See Part
I, Item 3, of this report captioned "Quantitative and Qualitative Disclosure
About Market Risk," for a description of other aspects of our company that may
be potentially affected by foreign exchange fluctuations.
Effect Of Inflation
We do not believe that our operating results were adversely affected during the
first three months of fiscal 2000 or fiscal 1999 by inflation or changing
prices.
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Year 2000 Compliance
During fiscal 1999 we reviewed our internal computer systems and software
products for Year 2000 problems, and found them to be generally Year 2000
compliant, and have had no Year 2000 complications as of the date of this
report.
Uncertainties And Other Factors That May Affect Our Future Results And Financial
Condition
Readers are urged to carefully review and consider the various uncertainties and
risks which, in addition to uncertainties and risks presented elsewhere in this
report, may affect our future results of operations or financial condition and
an investment in our securities. These uncertainties and risks should also be
considered in context with the various disclosures concerning our company and
our business and uncertainties and risks that may affect our future results of
operations or financial condition made in other reports we periodically file
with the Securities and Exchange Commission, including the following fillings
which we incorporate by reference into this report:
. our annual report on Form 10-K for the fiscal year ended December 31, 1999,
. any quarterly reports on Form 10-Q we may filed during the remainder of
fiscal 2000, and
. any current reports on Form 8-K we may file.
Uncertainties and Risk Factors Generally Relating To Our Company And Our
Business
. We Are A Development Stage Enterprise Which Has Accumulated Losses Since
Our Inception, And We Anticipate That We Will Continue To Incur Operating
Losses For The Near Future
We are a developmental stage enterprise since we have not received any oil
or gas revenues to date, and have, as a consequence of our lack of
revenues, incurred a cumulative net loss (before comprehensive losses) in
the amount of $4,585,814 from our inception in October 1995 through March
31, 2000. Our ability to generate revenues and profits will depend
primarily upon the successful implementation of our business plan, which is
dependent at this point in time upon one or more of our joint venture
partners successfully drilling and producing commercially viable quantities
of oil or natural gas from SFD Prospects we identify. We do not anticipate
that we will receive any oil or gas revenues until the third quarter of
fiscal 2000, at the earliest, assuming our current contemplated drilling
program is successful and there are no complications in drilling or
completing the wells or tying them into a sales or gathering system. We
anticipate that we will continue to incur significant losses on a month-to-
month basis for at least twelve to eighteen months going forward from the
date of this report, notwithstanding our receipt of oil and gas revenues
based upon our internal projections, due to our significant monthly
operating and research and development costs.
. Our Limited Operating History Could Adversely Affect Our Business
We are a recently organized development stage enterprise with an unproven
technology and a limited operating history. Our activities through the date
of this report have encompassed:
o developing our business plan;
o obtaining license rights to our SFD technologies;
o establishing administrative offices and laboratory facilities, and
engaging executive, administrative, scientific, geological,
geophysical, scientific, information technology and aviation
personnel;
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o developing our SFD technology to a commercial stage;
o acquiring joint venture partners;
o conducting commercial SFD surveys on behalf of our joint venture
partners; and
o successfully drilling oil and gas wells identified through our SFD
technology.
We are subject to all the risks and issues inherent in the establishment
and expansion of a new business enterprise including, among others,
problems of using new and unproven technologies, hiring and training
personnel, acquiring reliable facilities and equipment, and implementing
operational controls. In general, startup businesses are subject to risks
and or levels of risk that are often greater than those encountered by
companies with established operations and relationships. Startups often
require significant capital from sources other than operations. The
management and employees of startup business shoulder the burdens of the
business operations and a workload associated with company growth and
capitalization that is disproportionately greater than that for an
established business. Our limited operating history makes it difficult,
if not impossible, to predict future operating results. We cannot give
you any assurance that we will successfully address these risks. Our
failure to successfully address these risks could have a material,
adverse effect on our business, financial condition and operating
results.
. Our Future Success Is Dependent Upon Our Ability, Through Utilization Of
Our SFD Technology, To Locate Commercially Viable Hydrocarbon Accumulations
For Development By Our Joint Venture Partners.
Our future success is dependent upon our ability, through utilization of
our SFD technology, to locate commercially viable hydrocarbon accumulations
for development by our joint venture partners. Based on our business plan,
we will be dependent on:
o the efficacy of our SFD technology in locating SFD Prospects; and
o the cooperation of, and capital investment by, of our joint venture
partners in exploiting these prospects.
Although the results of our SFD technology as a geologic structural
identification tool have been satisfactorily tested by our joint venture
partners, we cannot give you any assurances that our SFD technology will be
able to consistently locate hydrocarbons or oil and gas prospects, or that
these prospects will be commercially exploitable. We also cannot give you
any assurances that we will be able to discover commercial quantities of
oil and gas, or that our joint venture partners will successfully acquire
and drill properties at low finding costs.
. We Are Reliant Upon Our Joint Venture Partners For Opportunities To
Participate In Exploration Prospects
We will be reliant, at least in the near-term, upon our joint venture
partners for opportunities to participate in exploration prospects, through
overriding royalties or equity participation on a working interest basis
from producing SFD Prospects. We exclusively focus on exploration and the
review and identification of viable prospects through our SFD technology,
and rely upon our joint venture partners to provide and complete all other
project operations and responsibilities, including land acquisition,
drilling, marketing and project administration. As a result, we have only a
limited ability to exercise control over the selection of prospects for
development, drilling or production operations, or the associated costs of
such operations. The success of each project will be dependent upon a
number of factors which are outside our control, or controlled by our joint
venture partners as the project operator, in accordance with the applicable
agreements between our company and the joint venture partners. These
factors include:
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o the selection and approval of prospects for lease/acquisition and
exploratory drilling;
o obtaining favorable leases and required permitting for projects;
o the availability of capital resources of the joint venture partner for
land acquisition and drilling expenditures;
o the timing of drilling activity, and the economic conditions at such
time, including then prevailing prices for oil and gas; and
o the timing and amount of distributions from the production.
Our reliance on our joint venture partners, and our limited ability to
directly control project operations, costs and distributions could have a
material adverse effect on the realization of return from our interest in
projects, and on our overall financial condition.
. Our Revenues And Cash Flow Will Be Principally Dependent Upon The Success
Of Drilling And Production From Prospects In Which We Participate Through
Agreements With Our Joint venture partners
Pursuant to our business plan, our revenues and cash flow will, at least in
the near-term, be principally dependent upon the success of drilling and
production from prospects in which we participate through agreements with
our joint venture partners in the form of an overriding royalty or a
working interest or other participation right. The success of these
prospects will be determined by the location, development and production of
commercial quantities of hydrocarbons. Exploratory drilling is subject to
numerous risks, including the risk that no commercially productive oil and
gas reservoirs will be encountered. The cost to our joint venture partners
to drill, complete and operate wells is often uncertain, and drilling
operations may be curtailed, delayed or canceled as a result of a variety
of factors including unexpected formation and drilling conditions, pressure
or other irregularities in formations, equipment failures or accidents, as
well as weather conditions, compliance with governmental requirements and
shortages or delays in the delivery of equipment. Our partners' inability
to successfully locate and drill wells that produce commercial quantities
of oil and gas would have a material adverse effect on our business,
financial position and results of operations.
. Our Future Operating Results May In The Future Fluctuate Significantly
Our operating results may in the future fluctuate significantly depending
upon a number of factors including industry conditions, prices of oil and
gas, rate of drilling success, rates of production from completed wells and
the timing of capital expenditures. This variability could have a material
adverse effect on our business, financial condition and results of
operations. In addition, any failure or delay in the realization of
expected cash flows from initial operating activities could limit our
future ability to continue exploration and to participate in economically
attractive projects.
. Volatility Of Oil And Natural Gas Prices Could Have A Material Adverse
Effect On Our Business
It is impossible to predict future oil and natural gas price movements with
any certainty, as they have historically been subject to wide fluctuations
in response to a variety of market conditions, including:
o relatively minor changes in the supply and demand for oil and natural
gas,
o economic, political and regulatory developments, and
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o competition from other sources of energy.
Any extended or substantial decline in oil and gas prices would have a
material adverse effect on:
o our ability to negotiate favorable joint ventures with viable industry
participants;
o the volume of oil and gas that could be economically produced by the
joint ventures in which we participate;
o our cash flow; and
o our access to capital.
We do not currently intend to engage in hedging activities, and may be more
adversely affected by fluctuations in oil and gas prices than other
industry participants that do engage in such activities. Our business,
results of operations and financial condition would be materially and
adversely affected by adverse changes in prevailing oil and gas prices. See
Part I, Item 3, of this report captioned "Quantitative And Qualitative
Disclosures About Market Risk," for additional discussion of market risks
relating to oil and gas price fluctuations.
. The Intense Competition That Is Prevalent In The Oil And Gas Industry Could
Have A Material Adverse Effect On Our Business
We compete directly with independent, technology-driven exploration and
service companies, and indirectly (through our joint venture partnerships)
with major and independent oil and gas companies in our exploration for and
development of commercial oil and gas properties. We will experience
competition from numerous oil and gas exploration competitors offering a
wide variety of geological and geophysical services. Many of these
competitors have substantially greater financial, technical, sales,
marketing and other resources than we do, and may be able to devote greater
resources to the development, promotion and sales of their services than
our company. We cannot give you any assurance that our competitors will not
develop exploration services that are superior to our SFD technology, or
that these technologies will not achieve greater market acceptance than our
SFD technology. Increased competition could impair our ability to attract
viable industry participants, and to negotiate favorable participations and
joint ventures with such parties, which could materially and adversely
affect our business, operating results and financial condition.
The oil and gas industry is highly competitive. Many companies and
individuals are engaged in the business of acquiring interests in and
developing oil and gas properties in the United States and Canada, and the
industry is not dominated by any single competitor or a small number of
competitors. Our joint venture partners will compete with numerous industry
participants for the acquisition of land and rights to prospects, and for
the equipment and labor required to operate and develop such prospects.
Many of these competitors have financial, technical and other resources
substantially in excess of those available to us or our joint venture
partners. These competitive disadvantages could adversely affect our or our
joint venture partners' ability to participate in projects with favorable
rates of return.
. There Is Limited Market Acceptance For Our SFD Technology, And It Must
Compete With Established Geological And Geophysical Technologies Which Have
Already Achieved Market Acceptance.
There is limited market acceptance for our SFD technology, and it must
compete with established geological and geophysical technologies which have
already achieved market acceptance. As is typical in the case of any new
technology, demand and market acceptance for our SFD technology is subject
to a high level of uncertainty and risk. Because the market for exploration
services using our SFD technology is new and evolving, it is difficult to
predict the future growth rate, and the size
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of the potential market. We cannot give you any assurance that a market for
our exploration services will develop, or be sustainable. If the market
fails to develop, or if our exploration services do not achieve or sustain
market acceptance, our business, results of operations and financial
condition would be materially and adversely affected.
. Technological Advancements In The Oil And Gas Industry Could Have A
Material Adverse Effect On Our Business
The oil and gas industry is characterized by rapid technological
advancements and the frequent introduction of new products, services and
technologies. As new technologies develop, we may be placed at a
competitive disadvantage, and competitive pressures may force us to improve
or complement our SFD technology, or to implement additional technologies
at substantial cost. In addition, other oil and gas exploration companies
may implement new technologies before us, and these companies may be able
to provide enhanced capabilities and superior quality. We cannot give you
any assurance that we will be able to respond to these competitive
pressures and implement or enhance our SFD technology on a timely basis, or
at an acceptable cost. In such case, our business, financial condition and
results of operations could be materially adversely affected.
. Our Inability To Retain Our Key Managerial, Geological and Geophysical, and
Research and Development Personnel Could Have A Material Adverse Effect On
Our Business
Our success depends to a significant extent on the continued efforts of our
senior management team, which currently is composed of a small number of
individuals, including Mr. George Liszicasz, the inventor of our SFD
technology who is our Chief Executive Officer and who is responsible for
the continuing development of our SFD technology and the interpretation of
SFD Data, and Messrs. Daniel C. Topolinsky and James R. Ehrets, our
President/Chief Operations Officer and our Executive Vice President of
Operations, respectively.
The loss of Mr. Liszicasz's services would be extremely difficult to
replace since he is the inventor of, and has intimate knowledge of, the
theoretical basis of the SFD technology, and has also developed the
methodologies used to interpret SFD Data, and the loss of his services
would likely have a material adverse effect on our business, results of
operations and financial condition. While we are presently training
personnel to operate our SFD technology and to interpret SFD Data, we
cannot give you any assurance that these personnel could fully replace Mr.
Liszicasz with respect to these functions, at least in the short-term.
Moreover, we do not know if we would be able to successfully replicate the
SFD technology in the event of the loss of Mr. Liszicasz.
The loss of Messrs. Topolinsky's and Ehret's services would also be
extremely difficult to replace due to their management skills and their
core knowledge of our SFD technology and business as a result of their
association with our company over the past several years, and their loss
would also likely have a material adverse effect on our business, results
of operations and financial condition.
While we have entered into employment agreements with our senior management
team, Mr. Liszicasz is not obligated--and as a result of his relationships
with Momentum Resources Corporation may in the future be unable--to devote
his entire undivided time and effort to or for our benefit. While we
currently carry a key person life insurance on Mr. Liszicasz, we do not
carry any key person life insurance policies any of our other executive
officers.
Our success also depends, to a lesser extent, on the continued efforts of
our geological interpretive and research and development teams, which are
composed of a small number of individuals. While there are professionals
who could replace these individuals, none of these professionals have any
theoretical or working knowledge of how to interpret SFD Data or how our
SFD technology operates, and it would take a significant period of time to
train any replacement personnel. Until such time as we have a fully trained
complement of geological interpretive and research and
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development and teams, the loss of any members of these teams could
adversely affect the pace at which we interpret SFD Data or effect
improvements to our SFD technology, which could adversely impact our
business and results of operations and financial condition.
. We May Be Unable To Attract The Qualified Managerial, Geological and
Geophysical, and Research and Development Personnel Required To Implement
Our Longer-Term Growth Strategies
Our ability to implement our longer-term growth strategies depends upon our
continuing ability to attract and retain highly qualified geological,
technical, scientific, information management and administrative personnel.
Competition for these types of personnel is intense and we cannot give you
any assurance that we will be able to retain our key managerial,
professional and/or technical employees, or that we will be able to attract
and retain additional highly qualified managerial, professional and/or
technical personnel in the future. Our inability to attract and retain the
necessary personnel could impede our growth.
. We May Be Unable To Effectively Manage Our Expected Growth
Our success will depend upon the rapid expansion of our business. Expansion
will place a significant strain on our financial, management and other
resources, and will require us, among other things, to:
o change, expand and improve our operating, managerial and financial
systems and controls; and
o improve coordination between our various corporate functions.
We cannot give you any assurance that we will be able to manage the
expansion of our business effectively. Our inability to effectively manage
our growth, including the failure of any new personnel we hire to achieve
anticipated performance levels, would have a material adverse effect on our
business, results of operations and financial position.
. Our Business May Be Adversely Affected By Currency Fluctuation, Regulatory,
Political And Other Risks Associated with International Transactions
We currently operate within the United States and Canada and anticipate we
will also operate outside of these countries in the foreseeable future.
These operations will subject us to several potential risks, including
risks associated with:
o fluctuating exchange rates,
o the regulation by the governments of the United States and Canada as
well as foreign governments of fund transfers and export and import
duties and tariffs; and
o political instability.
We cannot give you any assurance that any of these risks will not have a
material adverse effect upon our business. We do not currently engage in
activities to mitigate the effects of foreign currency fluctuations. If
earnings from international operations increase, our exposure to
fluctuations in foreign currencies may increase, and we may utilize forward
exchange rate contracts or engage in other efforts to mitigate foreign
currency risks. We can give no you assurance as to the effectiveness of
these efforts in limiting any adverse effects of foreign currency
fluctuations on our international operations and our overall results of
operations.
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. Impact Of Governmental and Environmental Regulation On Our Business
o SFD Survey Flight Operations
The operation of our business, namely, conducting aerial SFD surveys
and interpreting SFD Data, is not subject to material governmental or
environmental regulation with the exception of flight rules
promulgated by the Federal Aviation Administration and Transport
Canada governing the use of private aircraft, including rules relating
to low altitude flights.
o Oil And Gas Exploration And Development Projects
The oil and natural gas industry in general is subject to extensive
controls and regulations imposed by various levels of the federal and
state governments in the United States and federal and provincial
governments in Canada. In particular, oil and gas exploration and
production is subject to laws and regulations governing environmental
quality and pollution control, limits on allowable rates of production
by well or proration unit, and other similar regulations. Laws and
regulations generally are intended to prevent waste of oil and natural
gas; protect rights to produce oil and natural gas between owners in a
common reservoir, control the amount of oil and natural gas produced
by assigning allowable rates of production, and control contamination
of the environment. Environmental regulations affect our operations on
a daily basis. Public interest in the protection of the environment
has increased dramatically in recent years. Drilling in certain areas
has been opposed by environmental groups and, in certain areas, has
been restricted. We believe that the trend of more expansive and
stricter environmental legislation and regulations will continue.
We do not expect that any of these government controls or regulations
will affect projects in which we participate in a manner materially
different than they would affect project of similar size or scope of
operations. All current legislation is a matter of public record and
we are not able to accurately predict what additional legislation or
amendments may be enacted. Governmental regulations may be changed
from time to time in response to economic or political conditions. Any
laws enacted or other governmental action taken which prohibit or
restrict onshore and offshore drilling or impose environmental
protection requirements that result in increased costs to the oil and
gas industry in general would have a material adverse effect on our
business, results of operations and financial position.
. Impact Of Operating Hazards On Our Business
o SFD Survey Flight Operations
The operation of our SFD survey aircraft is subject to the usual
hazards incident to general and low level flight operations. These
hazards can cause personal injury and loss of life, as well as severe
damage to and destruction of property. While we maintain insurance
coverage against some, but not all, operating risks associated with
the operation of our aircraft, we cannot predict the continued
availability of insurance coverage or the availability of insurance at
premium levels that justify its purchase, nor can we give any
assurance that any claim would not exceed our policy limits. If we
were unable to procure insurance for our flight operations at an
acceptable cost, the occurrence of significant adverse aircraft
accident not fully insured or indemnified against could have a
material, adverse effect on our business, financial condition and
operating results. Similarly, a judgment or settlement in excess of
our policy limits could also have a material, adverse effect on our
business, financial condition and operating results.
o Oil And Gas Exploration And Development Projects
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The oil and gas exploration and development projects in which we
participate through our joint venture partners will also be subject to
the usual hazards incident to the drilling of oil and gas wells,
including the risk of fire, explosions, blow-out, pipe failure, casing
collapse, abnormally pressured formations and environmental hazards
such as oil spills, gas leaks, ruptures and discharges of toxic gases.
In addition to the foregoing, offshore operations are subject to the
additional hazards of marine operations, such as capsizing, collision
and adverse weather and sea conditions. These hazards can cause
personal or loss of life, severe damage to or destruction of property,
natural resources and equipment, pollution or other environmental
damage, clean-up responsibilities, regulatory investigation and
penalties and suspension of operations.
The project operator will, in accordance with prevailing industry
practice, maintain insurance against some, but not all, of these
risks. The insurance maintained by the project operator generally
would not cover claims relating to failure of title to oil and gas
leases, trespass during survey acquisition or surface damage
attributable to seismic operations, or business interruption, nor
would it protect against loss of revenues due to well failure. There
can be no assurance that any insurance obtained by the project
operating covering claims related to worker's compensation,
comprehensive general liability for bodily injury and property damage,
comprehensive automobile liability and pollution, cleanup, underground
blowout and evacuation will be adequate to cover any losses or
liabilities which may be incurred within projects in which we
participate. We also cannot predict the continued availability of
insurance coverage or the availability of insurance at premium levels
that justify its purchase.
Since we do not act as operator on any projects in which we may
participate, we are dependent upon our partners to conduct operations
in a manner so as to minimize these operating risks.
In cases where we have direct liability as a result of our
participation on a working interest basis, the failure or inability of
the project operator to procure insurance at an acceptable cost or the
occurrence of a significant adverse event not fully insured or
indemnified against could have an direct material, adverse effect on
our business, financial condition and operating condition. In these
cases our exposure will be commensurate with our participation
percentage.
While we would have no direct liability in cases where our
participation is limited to an overriding royalty interest, the
failure or inability of the project operator to procure insurance at
an acceptable cost or the occurrence of a significant adverse event
not fully insured or indemnified against could have an indirect
material, adverse effect on our business, financial condition and
operating results to the extent it adversely affects our joint venture
partner's ability to complete current projects or explore for and
develop additional projects.
Matters Relating To Our Common Stock
. There Is Only A Limited Public Market For Our Common Stock
There is only a limited public market for our common stock on the NASD OTC
Electronic Bulletin, and we cannot give you any assurance that a broader or
more active public trading market for our common stock will develop or be
sustained. We are under no obligation to take any action to improve the
public market for our securities including, without limitation, filing an
application to list our common stock on any stock exchange or any over any
other counter market.
. Our Stock Price Is Extremely Volatile
The market price for our common stock is extremely volatile and subject to
significant price and volume fluctuations in response to a variety of
external and internal factors. This is especially true
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with respect to emerging companies such as ours. Examples of external
factors, which can generally be described as factors that are unrelated to
the operating performance or financial condition of any particular company,
include changes in interest rates and worldwide economic and market
conditions, as well as changes in industry conditions, such as changes in
oil and gas prices, oil and gas inventory levels, regulatory and
environment rules, and announcements of technology innovations or new
products by other companies. Examples of internal factors, which can
generally be described as factors that are directly related to our
operating performance or financial condition, would include release of
reports by securities analysts and announcements we may make from time-to-
time relative to our operating performance, drilling results, advances in
technology or other business developments.
Because we are a development stage enterprise with a limited operating
history and no revenues or profits, the market price for our common stock
will be more volatile than that of a seasoned issuer. Changes in the market
price of our common stock may have no connection with our operating results
or prospects. No predictions or projections can be made as to what the
prevailing market price for our common stock will be at any time.
. You May Become Subject To The Penny Stock Rules If Our Stock Price Declines
To Less Than $5
Since our common stock is not listed on a national stock exchange or quoted
on the Nasdaq Market, it will become subject, in the event the market price
for these shares declines to less than $5 per share, to a number of
regulations known as the "penny stock rules." The penny stock rules require
a broker-dealer to deliver a standardized risk disclosure document prepared
by the Securities and Exchange Commission, to provide the customer with
additional information including current bid and offer quotations for the
penny stock, the compensation of the broker-dealer and its salesperson in
the transaction, monthly account statements showing the market value of
each penny stock held in the customer's account, and to make a special
written determination that the penny stock is a suitable investment for the
purchaser and receive the purchaser's written agreement to the transaction.
To the extent these requirements may be applicable they will reduce the
level of trading activity in the secondary market for our common stock and
may severely and adversely affect the ability of broker-dealers to sell our
common stock.
. Our Common Stockholders Should Not Expect To Receive A Liquidation
Distribution
If we were to wind-up or dissolve our company and liquidate and distribute
our assets, the holders of our common stock would share ratably in our
assets only after we satisfy any amounts we would owe to our creditors and
any amounts we would owe to our series "A" preferred stockholders as a
liquidation preference ($7.50 per share, or $6,000,000 in the aggregate).
If our liquidation or dissolution were attributable to our inability to
profitably operate our business, then it is likely that we would have
material liabilities at the time of liquidation or dissolution.
Accordingly, we cannot give you any assurance that sufficient assets will
remain available after the payment of our creditors and preferred
stockholders to enable you to receive any liquidation distribution with
respect to any shares of our common stock you may hold.
. Two Of Our Principal Stockholders Control Our Company
Messrs. George Liszicasz and R. Dirk Stinson, our two principal
stockholders and two of our directors, beneficially own over two-thirds of
our common stock, and will therefore have the power, as a group, to elect a
majority of our Board of Directors. Our Board, in turn, has the power to
appoint our officers and to determine, in accordance with their fiduciary
duties and the business judgment rule, our direction, objectives and
policies, such as:
o our business expansion or acquisition policies;
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<PAGE>
o whether we should raise additional capital through financing or equity
sources, and in what amounts;
o whether we should retain cash reserves for future product development,
or distribute them as a dividend, and in what amounts;
o whether we should sell all or a substantial portion of our assets, our
should merge or consolidate with another corporation; and
o transactions which may cause or prevent a change in control or the
winding up and dissolution of our company.
An investment in our common stock will entail entrusting these and similar
decisions to our present management subject, of course, to their fiduciary
duties and the business judgment rule.
. There Is An Inherent Conflict In Interest Arising As a Result Of the
Relationship Between Our Two Principal Stockholders And The Licensor Of Our
SFD Technology
Messrs. George Liszicasz and R. Dirk Stinson indirectly own and control
both our company and Momentum Resources Corporation, which has granted us
an exclusive license to identifying oil and natural gas prospects using the
SFD Data while reserving the exclusive right to use the SFD technology for
purposes other than oil and natural gas exploration. Although Mr. Liszicasz
has entered into an employment agreement with us he is not obligated, and
as a result of his relationships with Momentum may in the future not be
able, to devote his entire undivided time and effort to or for our benefit.
As a result of the foregoing relationships, certain conflicts of interests
between our company and one or more of Momentum and Messrs. Liszicasz and
Stinson may directly or indirectly arise, including the following:
o Mr. Liszicasz's potential inability to devote his undivided time and
attention to our affairs; and
o the proper exercise by Messrs. Liszicasz or Stinson of their fiduciary
duties on our behalf as directors and controlling stockholders of our
company in connection with any matters concerning Momentum such as, by
way of example and not limitation:
. disputes regarding the validity, scope or duration of the SFD
Technology License;
. the exploitation of corporate opportunities;
. rights to proprietary property and information;
. maintenance of confidential information as between entities; and
. potential competition between our company and Momentum.
While Messrs. Liszicasz and Stinson and our company have each executed
certain disclosures and consents relating to these conflicts, these
disclosures and consents will not remediate these conflicts, but will
merely release Messrs. Liszicasz and Stinson from liability as a result of
the conflicts so long as they use reasonable efforts to minimize the
conflicts. In the event any of these conflicts prove to be irreconcilable,
Messrs. Liszicasz may be forced to resign his positions with our company.
Our Statements About Anticipated Events Or Future Trends May Prove To Be
Inaccurate
In this report we have made a number of statements, which we refer to as
"forward-looking statements," generally relating to our expectations or
speculations as to future events and our observations as to trends
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and factors that may impact our future operating results. You can generally
identify any forward-looking statements contained in this report through words
such as "anticipate," "believe," "estimate," "expect," "budget" and "project"
and similar expressions. Forward-looking statements that contained in this
report, for example, include statements relating to:
. the amount and character of future oil and gas revenues we may receive, the
timing of receipt of revenues, and the timing of break-even, including, by
way of example and not limitation, those statements contained in that
section in Part I, Item 2 of this report captioned "Management's Discussion
And Analysis Of Financial Condition And Results Of Operations--Overview;"
and Part I, Item 2, of this report captioned "Management's Discussion And
Analysis Of Financial Condition And Results Of Operations--Capital
Requirements;"
. the amount and character of expenses we may incur, and the timing of these
expenditures including, by way of example and not limitation, those
statements contained in those sections in Part I, Item 2, of this report
captioned "Management's Discussion And Analysis Of Financial Condition And
Results Of Operations--Capital Requirements" and "Management's Discussion
And Analysis Of Financial Condition And Results Of Operations--Results Of
Consolidated Operations--Expectations Relative To Future Expense Levels;"
and
. the amount and composition of our capital expense budget, and the timing of
these capital outlays including, by way of example and not limitation,
those statements contained in those sections in Part I, Item 2, of this
report captioned "Management's Discussion And Analysis Of Financial
Condition And Results Of Operations--Capital Requirements" and
"Management's Discussion And Analysis Of Financial Condition And Results Of
Operations--Results Of Consolidated Operations--Expectations Relative To
Future Expense Levels."
Whenever you read any forward looking statement contained in this report, you
should be aware of and take into consideration that:
. the forward-looking statement merely reflects the current expectations and
speculation of our management as to anticipated events or observations
relating to future trends based, in part, upon currently available
information and our current business plan, and
. actual results from these future events may differ materially from the
results expected or speculated or trends observed as expressed in, or
implied by, the forward-looking statement, as a result of changes in
circumstances and events and other uncertainties and risks, including:
o changes in our business plan and corporate strategies or that of our
joint venture partners;
o delays in our ability to conduct and complete SFD surveys or interpret
SFD Data,
o delays on the part of our joint venture partners in planning SFD
survey activities, in conducting geologic and geophysical evaluations
of recommended anomalies, in acquiring drilling rights, in conducting
exploratory drilling activities and completing wells, and in
connecting producing wells to pipelines and other production
infrastructure; or
o the occurrence of the various types of uncertainties and risk factors
described above in this section as well as those described in Part I,
Item 3, of this report captioned "Quantitative and Qualitative
Disclosure About Market Risk;" and
. the forward-looking statement must, in any event, be considered in context
with the various disclosures concerning our company and our business made
in this report as well as other reports we periodically file with the
Securities and Exchange, including our annual report on Form 10-K for our
fiscal year ended December 31, 1999.
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<PAGE>
As a consequence of the forgoing factors, you are cautioned not to put undue
reliance on any forward-looking statement contained in this report.
We are not obligated to update or revise any forward looking statement contained
in this report to reflect new events or circumstances except to the extent
required by law. You are also cautioned that we intend for all forward-looking
statements contained in this report to be construed as "forward-looking
statements" within the meaning Section 21E of the United States Securities
Exchange Act of 1934, which establishes a safe-harbor from private actions for
forward-looking statements as defined by Section 21E.
Item 3. Quantitative And Qualitative Disclosures About Market Risk
Oil And Gas Price Fluctuations
Our primary market risks will be related to market changes in oil and gas prices
(See Item I, Item 2, captioned "Management's Discussion And Analysis Of
Financial Condition And Results Of Operations--Uncertainties And Other Factors
That May Affect Our Future Results And Financial Condition--Risks Relating To
The Company And Its Business--Volatility Of Oil And Natural Gas Prices"). Since
our prospective royalty revenues will be tied to the price at which our joint
venture partners sell oil and gas on the world market, any fluctuations in these
prices will directly and proportionately impact our royalty income base (i.e., a
1% increase or decrease in oil or gas prices would result in a corresponding 1%
increase or decrease in our oil or gas royalties). Should we elect a working
interest in lieu of a royalty interest, our working interest revenue base would
be similarly affected, except that this affect would not necessarily be
proportional since production and marketing costs would most likely remain the
same. For example, in the case of a decline in oil and gas prices where
production and marketing costs are unaffected, the decline in our working
interest revenues would most likely be greater, in percentage terms, than the
decline in oil and gas prices.
We do not anticipate that any decline in world oil and gas prices would
adversely affect our operations (i.e., force our company or our joint venture
partners to slow down or cut-back SFD survey or interpretation operations or our
staff) insofar as a primary benefit of the SFD technology is to reduce finding
costs, which benefit becomes more important as oil and gas prices decline. A
decline in oil and gas prices could, however, force our joint venture partners
to curtail exploration drilling operations since these operations are ordinarily
funded out of available cash flow which, in turn, is dependent upon oil and gas
prices. This eventuality would adversely affect our future cash flows since
these prospects would not be drilled until the joint venture partner obtained
sufficient capital. (Even if exploration activities are curtailed, however, a
decline in oil and gas prices raises opportunities to acquire and "bank" SFD-
qualified prospects at lower acquisition prices, which can then be drilled when
oil and gas prices increase).
A decline in oil and gas prices could also lead our joint venture partners to
"shut-in" an existing producing well (primarily "marginal producing wells") on
the basis that the decline in price no longer make the well economic to operate.
In such an event we would no longer receive royalty or working interest revenues
from the shut-in well.
Currency Fluctuations
An additional significant market risk relates to foreign currency fluctuations
between American and Canadian dollars. Since our royalty or working interest
revenues generated by our Canadian-based joint venture partners will be
denominated in Canadian currency, our financial position could be adversely
affected by American-Canadian currency fluctuations. We have not previously
engaged in activities to mitigate the effects of foreign currency fluctuations
due to the absence of Canadian revenues to date, and we anticipate that the
exchange rate between the American and Canadian dollar will remain fairly
stable.
If earnings from our Canadian operations increase, our exposure to fluctuations
in the American-Canadian exchange rate will increase, and we may utilize forward
exchange rate contracts or engage in other efforts to mitigate these foreign
currency risks. If entered into, there can be
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<PAGE>
We cannot give you any assurance that the use of exchange rate contracts or
other mitigation efforts would effectively limit any adverse effects of foreign
currency fluctuations on our Company's international operations and our overall
results of operations.
Interest Rate Fluctuations
We currently maintain the bulk of our available cash in money-market accounts
maintained in U.S. dollars. Our interest income from these short-term
investments could be adversely affected by any material changes in interest
rates within the United States.
ITEM II OTHER INFORMATION
Item 1. Legal Proceedings
As of the date of this report, there are no material legal proceedings pending
or, to the knowledge of our management, contemplated or threatened, to which to
our company or properties are or may become a party. As of the date of this
report, there are, to the knowledge of our management, no material proceedings
to which any director, officer of affiliate of our company is a party adverse to
our company or has a material interest adverse to our company.
Item 2. Changes In Securities And Use Of Proceeds
Not Applicable
Item 3. Defaults Upon Senior Securities
Not Applicable
Item 4. Submission Of Matters To A Vote Of Security Holders
Not Applicable
Item 5. Other Information
Not Applicable
Item 6. Exhibits
Exhibits
4.1 2000 Pinnacle Oil International, Inc.
Directors' Stock Plan
4.2 Form of Stock Option Certificate for grants to directors under the 2001
Pinnacle Oil International, Inc. Stock Plan
4.3 Lease Amending Agreement - Expansion of Premises dated May 11, 2000
between Pinnacle Oil International, Inc. and O & Y Properties, Inc.
4.4 Aircraft Purchase Agreement dated March 20, 2000 between Pinnacle Oil Inc.
and Winair Winkler
27 - Financial Data Table
Reports on Form 8--K
None
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<PAGE>
Signatures
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
Registrant has duly caused this Quarterly Report on Form 10--Q to be signed on
its behalf by the undersigned, thereunto duly authorized.
Dated at Calgary, Alberta, Canada, this 12th day of May, 2000.
Pinnacle Oil International, Inc.
By: /s/ George Liszicasz
---------------------------------------
George Liszicasz
Chief Executive Officer
(principal executive officer)
By: /s/ Daniel C. Topolinsky
---------------------------------------
Daniel C. Topolinsky
President and Chief Operating Officer
(principal executive officer)
By: /s/ John M. Woodbury, Jr.
---------------------------------------
John M. Woodbury, Jr.,
Chief Financial Officer
(principal accounting officer)
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EXHIBIT 4.1
-----------
2000 PINNACLE OIL INTERNATIONAL. INC.
DIRECTORS' STOCK PLAN
The Board of Directors of Pinnacle Oil International. Inc. (the "Company"), a
corporation organized under the laws of the State of Nevada, hereby adopts this
2000 Pinnacle Oil International. Inc. Directors' Stock Plan.
WHEREAS, the growth, development and financial success of the Company (and any
parents and/or any subsidiaries of the Company) is and will remain dependent, in
significant part, upon the judgment, initiative, efforts and/or services their
respective directors;
WHEREAS, the Company desires, in order to attract, compensate and motivate
selected directors for the Company (and any parent and/or any subsidiaries of
the Company), and to appropriately compensate them for their efforts, to create
a stock plan which will enable the Company, in its sole discretion and from
time-to-time, to offer to or provide such persons with incentives and/or
inducements in the form of capital stock of the Company, or rights in the form
of options to acquire capital stock of the Company, thereby affording such
persons with an opportunity to share in potential capital appreciation in the
capital stock of the Company and/or potential distributions made in connection
therewith;
WHEREAS, the Company further desires that the stock plan be structured to permit
it, in its sole discretion, to offer and issue capital stock or options to
acquire capital stock in reliance upon certain exemptions from registration or
qualification afforded under certain federal, state, territorial or provincial
securities laws to be selected by the Company as are or may become applicable;
and
WHEREAS, insofar as the Company's common stock is currently registered under
Section12(g) of the Securities and Exchange Act of 1934, the Company desires
that the stock plan be structured to comply with the Securities and Exchange Act
of 1934 for so long as the Company's common stock or any of its other equity
securities are registered under Sections 12(b) or 12(g) of the Securities and
Exchange Act of 1934.
ARTICLE I
DEFINITIONS
-----------
Set forth below are definitions of capitalized terms which are generally used
throughout the Plan, or references to provisions containing such definitions
(Capitalized terms used only in a specific section of the Plan are defined in
such section):
1.01 "Applicable Laws" means the requirements relating to the administration
of stock plans under:
A. applicable corporate laws of the United States and the State of
Nevada and, to the extent applicable, any foreign country or
jurisdiction where Awards are, or will be, granted under the Plan,
including Canada and the Province of Alberta;
B. applicable Securities Laws, including those of any foreign country
or jurisdiction where Awards are, or will be, granted under the
Plan, including Canada and the Province of Alberta; and
C. any stock exchange or quotation system on which the Common Stock is
listed or quoted.
<PAGE>
1.02 "Approved Corporate Transaction" shall mean any time the Board and/or, to
the extent required by law, the stockholders of the Company, approve
either:
A. a merger or consolidation or stock exchange or divisive
reorganization (i.e., spin-off, split-off or split-up) and/or other
reorganization with respect to the Company and/or its stockholders,
or
B. the sale, transfer, exchange or other disposition by the Company of
fifty percent (50%) or more of its assets in a single or series of
related transactions, is approved, provided, however, the term
Approved Corporate Transaction shall not include any transaction
wherein the stockholders of the Company immediately before such
transaction directly or indirectly own, immediately following such
transaction, a majority of the Total Combined Voting Power (as such
term is defined in section 1.07A below) of the outstanding Voting
-------------
Securities (as such term is defined in section 1.07A below) of the
-------------
surviving corporation (or other entity) resulting from such
transaction pursuant to clause A, or the acquiring corporation (or
--------
other entity) pursuant to clause B.
--------
1.03 "Award" "shall collectively and severally refer to any Options or Grant
Shares granted or awarded under the Plan.
1.04 "Award Agreement" shall collectively and severally refer to:
A. in the case of the grant or award of an Option, a Stock Option
Certificate in such form as prescribed by the Plan Administrator from
time-to-time;
B. in the case of the grant or award of Grant Shares, a Stock Grant
Agreement in such form as prescribed by the Plan Administrator from
time-to-time; and
C. in the case of the grant or award of SARs, a SAR Agreement in such
form as prescribed by the Plan Administrator from time-to-time;
provided, however, the Company may, in its sole discretion, (1) revise
any such form of Award Agreement to reflect or incorporate such changes
as the Company or its legal counsel may determine is appropriate and
consistent with the terms of the Plan, and/or (2) evidence or confirm the
grant of an Award in a written employment or consulting agreement in lieu
of the form of any of the foregoing Award Agreements.
1.05 "Blue Sky Laws" shall mean the securities laws of any state or territory
of the United States, including any regulations or rules promulgated
thereunder, which may apply to a transaction described in this Plan by
reason of, among other things, the Recipient's residing in such, state
and/or territory at the time of such transaction.
1.06 "Board" shall mean the Board of Directors of the Company, as such body
may be reconstituted from time to time.
1.07 "Change In Control" shall mean the occurrence of any "Control
Acquisition" or any "Significant Board Change" (as such terms are defined
below).
A. "Control Acquisition" shall mean any time an "Acquiring Person"
attains, by reason of and immediately after a transaction or series
of related transactions (other than a "Non-Control Transaction"),
"Beneficial Ownership" of fifty percent (50%) or more of the "Total
Combined Voting Power" of the Company's then outstanding "Voting
Securities" (all as defined below); unless the Board determines that
it is not in the best interests of the Company for such transaction
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<PAGE>
to be construed as a Control Acquisition; provided, however that at
the time of such approval of the Board there are then in office not
less than two Continuing Directors (as such term is defined below)
and such action or transaction or series of related actions or
transactions are approved by a majority of the Continuing Directors
then in office.
(1) "Acquiring Person" shall mean any "Person" (as defined below)
with the exception of:
(i) any employee benefit plan (or a trust forming a part
thereof) maintained by the Company, or by any corporation
or entity in which the Company holds fifty percent (50%)
or more of the Voting Securities (each, a "Controlled
Subsidiary");
(ii) the Company or any Controlled Subsidiary; or
(iii) any Person which acquires the threshold percentage of
Voting Securities through a Non-Control Transaction.
(2) "Non-Control Transaction" shall mean any transaction in which
the stockholders of the Company immediately before such
transaction directly or indirectly own, immediately following
such transaction, at least a majority of the Total Combined
Voting Power (as defined below) of the outstanding Voting
Securities (as defined below) of the surviving corporation (or
other entity) resulting from such transaction, in substantially
the same proportion as such stockholders' ownership of the
Company's Voting Securities immediately before such transaction.
(3) "Person," "Beneficial Ownership," "Total Combined Voting Power"
and "Voting Securities" shall have the meaning described to such
terms in Sections 13(d) and 14(d) of the Exchange Act and Rule
13d-3 promulgated thereunder.
(4) "Continuing Director" shall mean:
(i) any member of the Board, while such Person is a member of
the Board, who is not an Acquiring Person or an
"Affiliate" or "Associate" (as defined below) of an
Acquiring Person, or a representative of an Acquiring
Person or any such Affiliate or Associate, and was a
member of the Board prior to the date of this Plan, or
(ii) any Person who subsequently becomes a member of the Board,
while such Person is a member of the Board, who is not an
Acquiring Person or an Affiliate or Associate of an
Acquiring Person or a representative of an Acquiring
Person or any such Affiliate or Associate, if such
Person's nomination for election or election to the Board
is recommended or approved by a majority of the Continuing
Directors. The terms "Affiliate" and "Associates" shall
have the respective meanings ascribed to such terms in
Rule 12b-2 of the General Rules and Regulations under the
Exchange Act.
(5) Notwithstanding the foregoing, a Control Acquisition shall not
be deemed to have occurred solely because any Person acquires
Beneficial
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<PAGE>
Ownership of more than the threshold percentage of the
outstanding Voting Securities as a result of an acquisition of
Voting Securities by the Company (each, a "Redemption") which,
by reducing the number of Voting Securities outstanding,
increased the percentage of outstanding Voting Securities
Beneficially Owned by such Person; provided, however, that if
(i) a Control Acquisition would occur as a result of a
Redemption but for the operation of this sentence, and
(ii) after such Redemption, such Person becomes the Beneficial
Owner of any additional Voting Securities, which increase
the percentage of the then outstanding Voting Securities
Beneficially Owned by such Person over the percentage
owned as a result of the Redemption, then a Control
Acquisition shall occur.
B. "Significant Board Change" shall mean any time, during any period of
three (3) consecutive years after the date of this Agreement, wherein
the individuals who constituted the Board at the beginning of such
period (the "Incumbent Board") cease to constitute a majority of the
Board, for any reason other than:
(1) the voluntary resignation of one or more Board members;
(2) the refusal by one or more Board members to stand for election
to the Board; and/or
(3) the removal of one or more Board members for good cause;
provided, however,
(i) that if the nomination or election of any new director of the
Company was approved by a vote of at least a majority of the
Incumbent Board, such new director shall be deemed a member of
the Incumbent Board; and
(ii) that no individual shall be considered a member of the
Incumbent Board if such individual initially assumed office as
a result of either an actual or threatened "Election Contest"
(as described in Rule 14a-11 promulgated under the Exchange
Act), or as a result of a solicitation of proxies or consents
by or on behalf of an Acquiror, other than a member of the
Board (a "Proxy Contest"), or as a result of any agreement
intended to avoid or settle any Election Contest or Proxy
Contest.
1.08 "Code" shall mean the United States Internal Revenue Code of 1986, as
amended (references herein to sections of the Code are intended to refer
to sections of the Code as enacted at the time of the adoption of the
Plan by the Board and as subsequently amended, or to any substantially
similar successor provisions of the Code resulting from recodification,
renumbering or otherwise).
1.09 "Commission" shall mean the United States Securities and Exchange
Commission.
1.10 "Common Stock" shall mean the Company's common stock, par value $0.001.
1.11 "Company" shall mean Pinnacle Oil International. Inc., a Nevada
corporation, and its successors.
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<PAGE>
1.12 "Consent of Spouse" shall mean that Consent of Spouse in such form as
prescribed by the Plan Administrator from time-to-time.
1.13 "Director" shall mean any Person who is voted or appointed as a member of
the Board of Directors of the Company and/or of any Parent and/or of any
Subsidiary, whether such Person is so engaged at the time the Plan is
adopted or becomes so engaged subsequent to the adoption of the Plan.
1.14 "Disability" (or the related term "Disabled") shall be defined, without
limitation, as any of the following with respect to a Recipient who is a
Director:
A. the receipt of any disability insurance benefits by the Recipient;
B. a declaration by a court of competent jurisdiction that the Recipient
is legally incompetent;
C. the Recipient's material inability due to medically documented mental
or physical illness or disabilities to fully perform the Recipient's
regular obligations as a Director under such office, with reasonable
accommodation if then required by applicable federal, state,
territorial or provincial laws or regulations, for a three (3) month
continuous period, or for six (6) cumulative months within any one
(1) year continuous period, or the reasonable determination by the
Board that the Recipient will not be able to fully perform the
Recipient's regular obligations as a Director under such office, with
reasonable accommodation if then required by applicable federal,
state territorial or provincial laws or regulations, for a three (3)
month continuous period.
If the Board determines that the Recipient is Disabled under clause C
--------
above, and the Recipient disagrees with the conclusion of the Board, then
the Company shall engage a qualified independent physician reasonably
acceptable to the Recipient to examine the Recipient at the Company's
sole expense. The determination of such physician shall be provided in
writing to the parties and shall be final and binding upon the parties
for all purposes of this Agreement. The Recipient hereby consents to
examination in the manner set forth above, and waives any physician-
patient privilege arising from any such examination as it relates to the
determination of the purported disability.
1.15 "Eligible Director" shall mean any Person who, at the applicable time of
the grant or award of an Award under the Plan, is a Director.
Notwithstanding the foregoing, no Award hereunder may be granted to any
Person, even if otherwise an Eligible Director, with respect to:
A. any circumstances which would not be considered to be either a bonus
or reward for services provided, or compensation for goods or
services rendered; or
B. services rendered wholly or partially in connection with the offer
and sale of securities in a capital-raising transaction.
1.16 "Exchange Act" shall mean the Securities and Exchange Act of 1934, as
amended, including any regulations or rules promulgated by the Commission
thereunder (references herein to sections of the Exchange Act are
intended to refer to sections of the Exchange Act as enacted at the time
of the adoption of the Plan by the Board and as subsequently amended, or
to any substantially similar successor provisions of the Exchange Act
resulting from recodification, renumbering or otherwise).
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<PAGE>
1.17 "Fair Market Value" of a share of Common Stock as of a given valuation
date shall be determined as follows:
A. If the Common Stock is traded on a stock exchange, the Fair Market
Value will be equal to the closing price of Common Stock on the
principal exchange on which the Common Stock is then trading as
reported by such exchange (or as reported by any composite index
which includes such principal exchange) for the trading day previous
to the date of valuation, or if the Common Stock is not traded on
such date, on the next preceding trading day during which a trade
occurred;
B. If the Common Stock is traded over-the-counter on the Nasdaq National
Market on the date in question, the Fair Market Value will be equal
to the last transaction-price of the Common Stock as reported by
Nasdaq for the trading day previous to the date of valuation, or if
the Common Stock is not traded on such date, on the next preceding
trading day during which a trade occurred;
C. If the Common Stock is traded over-the-counter on the Nasdaq SmallCap
Market, the Fair Market Value will equal the mean between the last
reported closing representative bid and asked price for the Common
Stock as reported by Nasdaq for the trading day previous to the date
of valuation, or if the Common Stock is not traded on such date, on
the next preceding trading day during which a trade occurred; or
D. If the Common Stock is not publicly traded on an exchange and is not
traded over-the-counter on Nasdaq, the Fair Market Value shall be
determined by the Board acting in good faith on such basis as it
deems appropriate, including quotations by market makers if the
Common Stock is traded over-the-counter on the NASD Electronic
Bulletin Board or Pink Sheets on the date in question should the Plan
Administrator deem such quotations to be appropriate given the volume
and circumstances of trades.
The Fair Market Value as determined above shall be subject to such
discount as the Plan Administrator may, in its sole discretion and
without obligation to do so, determine to be appropriate to reflect any
such impairments to the value of the associated Option Shares and/or
Grant Shares to which the valuation relates such as, by way of example
and not limitation,
(1) the fact that such Option Shares and/or Grant Shares constitute
unregistered securities (whether or not considered "restricted stock"
within the meaning of Rule 144 of the Securities Act), and/or
(2) such Option Shares and/or Grant Shares are subject to conditions,
risk of forfeiture, or repurchase rights or rights of first refusal
which impair their value including, without limitation, those
forfeiture conditions more particularly described in Article VII.
-----------
1.18 "Forfeitable Grant Shares" shall mean Grant Shares that are subject to
restrictions set forth in Article VII.
-----------
1.19 "Grant Shares" shall mean Plan Shares granted or awarded in accordance
with Article VI.
----------
1.20 "Independent SAR" shall have the meaning ascribed to such term in section
-------
9.01.
----
-6-
<PAGE>
1.21 "Option" shall mean an option to purchase Plan Shares granted or awarded
pursuant to Article V.
---------
1.22 "Option Price" is defined in section 5.02 of the Plan.
------------
1.23 "Option Shares" shall mean any Plan Shares which an Option entitles the
holder thereof to purchase.
1.24 "Parent" shall mean any "parent" of the Company, as such term is defined
by, or interpreted under, Rule 405 of Regulation C promulgated under the
Securities Act, including any such parent which is a corporation,
partnership, limited partnership or limited liability company to the
extent permitted under Rule 405.
1.25 "Person" shall be defined, in its broadest sense, as any individual,
entity or fiduciary such as, by way of example and not limitation,
individual or natural persons, corporations, partnerships (limited or
general), joint-ventures, associations, limited liability
companies/partnerships or fiduciary arrangements (such as trusts and
custodial arrangements).
1.26 "Plan" shall mean this 2000 Pinnacle Oil International. Inc. Directors'
Stock Plan.
1.27 "Plan Administrator" shall refer to the Person or Persons who are
administering the Plan as described in Article III, to wit, the Board,
-----------
the Plan Committee, or any Director-Officers designated by the Board or
the Plan Committee.
1.28 "Plan Committee" shall mean that Committee comprised of members of the
Board that may be appointed by the Board to administer and interpret the
Plan as more particularly described in Article III of the Plan.
-----------
1.29 "Plan Shares" shall refer to shares of Common Stock issuable in
connection with Awards in accordance with section 4.01, including, Option
------------
Shares, Grant Shares and SAR Shares.
1.30 "Provincial Securities Laws" shall mean the securities laws of any
province of Canada, including any regulations or rules promulgated
thereunder, which may apply to a transaction described in this Plan by
reason of, among other things, the Company's principal executive offices
being located in such province or a Recipient residing in such province,
at the time of such transaction.
1.31 "Recipient" shall mean any Eligible Director who, at a particular time,
receives the grant of an Award.
1.32 "Recipient's Representative's Letter" shall mean that letter from an
independent investment advisor of a Recipient in such form as prescribed
by the Plan Administrator from time-to-time.
1.33 "Replacement Option" shall mean an Option specifically granted as a
Replacement Option under the Plan in accordance with the applicable
provisions of section 5.08.
------------
1.34 "Reporting Company" shall mean a corporation which registers its equity
securities pursuant to Sections 12(b) or 12(g) of the Exchange Act;
provided, however, any foreign corporation which registers its equity
securities as a "foreign private issuer" shall not be deemed a Reporting
Company for purposes of this Plan unless and until such time as it is
required or elects to register its equity securities as a foreign issuer
other than a foreign private issuer.
-7-
<PAGE>
1.35 "Stock Appreciation Rights" or "SARs" shall have the meaning ascribed to
such terms in section 9.01.
------------
1.36 "Securities Act" shall mean the Securities Act of 1933, as amended,
including all regulations or rules promulgated by the Commission
thereunder (references herein to sections of the Securities Act are
intended to refer to sections of the Securities Act as enacted at the
time of the adoption of the Plan by the Board and as subsequently
amended, or to any substantially similar successor provisions of the
Securities Act resulting from recodification, renumbering or otherwise).
1.37 "Securities Laws" shall collectively refer to the Securities Act, the
Exchange Act, the Blue Sky Laws and the Provincial Securities Laws.
1.38 "Subsidiary" shall mean any "majority-owned subsidiary" of the Company,
as such term is defined by, or interpreted under, Rule 405 of Regulation
C promulgated under the Securities Act, including any such subsidiary
which is a corporation, partnership, limited partnership or limited
liability company to the extent permitted under Rule 405. The term
Subsidiary shall specifically exclude any majority-owned subsidiaries
(other than the Company, if applicable) of any Parent.
1.39 "Tandem SAR" shall have the meaning ascribed to such term in section
-------
9.01.
----
1.40 "Termination Of Recipient" is defined as the time when the Recipient's
status as a Director ceases for any reason whatsoever, whether voluntary
or involuntary (including death or Disability), or with or without good
cause, but excluding cases where the Recipient remains a Director of the
Company (if such termination relates to the Recipient's status as a
Director of any Parent and/or any Subsidiary) and/or by any Parent and/or
any Subsidiary (if such termination relates to the Recipient's status as
a Director of the Company).
1.41 "Transfer" shall mean any transfer or alienation of an Award which would
directly or indirectly change the legal or beneficial ownership thereof,
whether voluntary or by operation of law, and regardless of payment or
provision of consideration, including, by way of example and not
limitation:
A. the sale, assignment, bequest or gift of the Award;
B. any transaction that creates or grants an option, warrant, or right
to obtain an interest in the Award;
C. any transaction that creates a form of joint ownership in the Award
between the Recipient and one or more other Persons;
D. any Transfer of the Award to a creditor of the Recipient, including
the hypothecation, encumbrance or pledge of the Award or any
interest therein, or the attachment or imposition of a lien by a
creditor of the Recipient on the Award or any interest therein which
is not released within thirty (30) days after the imposition
thereof;
E. any distribution by a Recipient which is an entity to its
stockholders, partners, co-venturers or members, as the case may be;
or
F. any distribution by a Recipient which is a fiduciary such as a
trustee or custodian to its settlors or beneficiaries.
-8-
<PAGE>
1.42 "Withholding Taxes" means any federal, state, territorial, provincial or
local employment taxes which the Company shall have the obligation to
withhold from a Recipient in connection with the grant of any Award and/or
exercise of any Option, as the case may be.
ARTICLE II
TERM OF PLAN
------------
2.01 Effective Date for Plan; Termination Date for Plan. The Plan shall be
--------------------------------------------------
effective as of such time and date as the Plan is adopted by the Board,
and the Plan shall terminate on the first business day prior to the ten
(10) year anniversary of the date the Plan became effective. No Awards
shall be granted or awarded under the Plan before the date the Plan
becomes effective or after the date the Plan terminates; provided,
however:
A. all Awards granted pursuant to the Plan prior to the effective date
of the Plan shall not be affected by the termination of the Plan; and
B. all other provisions of the Plan shall remain in effect until the
terms of all outstanding Awards have been satisfied or terminated in
accordance with the Plan and the terms of such Awards.
ARTICLE III
PLAN ADMINISTRATION
-------------------
3.01 General. The Plan shall be administered exclusively by the Board and/or,
-------
to the extent authorized pursuant to this Article III, the Plan Committee
-----------
or Director-Officers (collectively, the "Plan Administrator").
3.02 Delegation to Plan Committee. Subject to the authority granted to the
----------------------------
Board under the Articles of Incorporation and the Bylaws of the Company,
the Board may, in its sole discretion and at any time, establish a
committee comprised of two (2) or more members of the Board (the "Plan
Committee") to administer the Plan either in its entirety or to administer
such functions concerning the Plan as delegated to such Committee by the
Board. Members of the Plan Committee may resign at any time by delivering
written notice to the Board. Vacancies in the Plan Committee shall be
filled by the Board. The Plan Committee shall act by a majority of its
members in office. The Plan Committee may act either by vote at a meeting
or by a memorandum or other written instrument signed by a majority of the
Plan Committee.
3.03 Compliance with Rule 16b-3 of the Exchange Act. Anything in this Article
---------------------------------------------- -------
III to the contrary notwithstanding, so long as this Company continues as
---
a Reporting Company, or is otherwise required to register its equity
securities under Sections 12(b) or 12(g) of the Exchange Act, any matter
concerning a grant or award of an Award under the Plan to any Director
shall, to the extent desirable to qualify such Awards as exempt under Rule
16b-3(b)(3) promulgated under the Exchange Act, be made only by:
A. the Board;
B. the Plan Committee (provided it is comprised solely of "non-employee
directors" within the meaning of Rule 16b-3(b)(3)); or
C. a special committee of the Board, or subcommittee of the Plan
Committee, comprised solely of two (2) or more members of the Board
who are non-employee directors.
-9-
<PAGE>
3.04 Compliance with Section 162(m) of the Code. Anything in this Article III
------------------------------------------ -----------
to the contrary notwithstanding, in the event and commencing at such time
as any grant of an Award shall be subject to the deduction limitations
prescribed by Section 162(m) of the Code, and the Plan Administrator
determines it to be desirable to qualify Awards granted hereunder as
"performance-based compensation" within the meaning of Section 162(m), the
Plan Administrator shall (for purposes of making such grant) consist of a
special committee of the Board comprised solely of two or more "outside
directors" within the meaning of Section 162(m).
3.05 Delegation to Director-Officers. Subject to the authority granted to the
-------------------------------
Board under the Articles of Incorporation and the Bylaws of the Company,
the Board may, in its sole discretion and at any time, and subject to the
authority granted to it by the Board, the Plan Committee may, in its sole
discretion and at any time, delegate all or any portion of their authority
described below under section 3.06A through section 3.07 to one or more
------------- ------------
Directors who are also Director-Officers, provided that the Board or the
Plan Committee (as the case may be) ratifies such actions by such
designated Director-Officers. Notwithstanding the foregoing, so long as
this Company continues as a Reporting Company, no authority shall be
delegated to the aforesaid Director-Officers with respect to any matter
concerning a grant or award of an Award under the Plan to any Director.
3.06 Authority to Make Awards and to Determine Terms and Conditions of Awards.
------------------------------------------------------------------------
Subject to any limitations prescribed by the Articles of Incorporation and
Bylaws of the Company, and further subject to the express terms,
conditions, limitations and other provisions of the Plan, the Plan
Administrator shall have the full and final authority, in its sole
discretion at any time and from time-to-time, to do any of the following:
A. designate and/or identify the Persons or classes of Persons who are
considered Eligible Directors;
B. grant Awards to such selected Eligible Directors or classes of
Eligible Directors in such form and amount as the Plan Administrator
shall determine;
C. determine the number of Plan Shares to be covered by each Award;
D. approve forms of Award Agreements for use under the Plan;
E. impose such terms, limitations, restrictions and conditions upon any
Award as the Plan Administrator shall deem appropriate and necessary
including, without limitation:
(1) the date of grant of the Award;
(2) the time or times when Options or SARs may be exercised (which
may be based on performance criteria);
(3) any vesting and/or forfeiture conditions placed upon any Awards;
and
(4) and repurchase conditions placed upon grants or awards of Grant
Shares;
F. require as a condition of the grant of an Award that the Recipient
surrender for cancellation some or all of any unexercised Options
which have previously been granted to the Recipient under the Plan or
otherwise (an Award, the grant of which is conditioned upon such
surrender; may have a price or value lower (or
-10-
<PAGE>
higher) than the surrendered Option; may cover the same (or a lesser
or greater) number of shares of Common Stock as such surrendered
Option; may contain such other terms as the Plan Administrator deems
appropriate and necessary; and shall be exercisable in or granted in
accordance with its terms, without regard to the number of shares,
price, exercise period or any other term or condition of such
surrendered Option);
G. approve the reduction in the exercise price of any Option or SAR to
the then current Fair Market Value if the Fair Market Value of the
Common Stock covered by such Option or SAR shall have declined since
the date such Option or SAR was granted;
H. determine the type and value of consideration which the Company will
accept from Recipients in payment for the exercise of Options and/or
the award of Grant Shares;
I. determine the type and value of consideration which the Company will
pay in connection with the exercise of SARs;
J. adopt, amend and rescind rules and regulations relating to the Plan,
including rules and regulations relating to sub-plans established for
the purpose of qualifying for preferred tax treatment under foreign
tax laws, and make all other determinations and take all other action
necessary or advisable for the implementation and administration of
the Plan;
K. modify or amend each Award (subject to Article XVIII), including the
-------------
discretionary authority to extend the post-termination exercisability
period of Options or SARs longer than is otherwise provided for in
the Plan; and
L. agree to withhold Plan Shares in satisfaction of any applicable
Withholding Taxes.
In determining the recipient, form and amount of Awards, the Plan
Administrator shall consider any factors it may deem relevant such as, by
way of example and not limitation or obligation, the Recipient's
functions, responsibilities, value of services to the Company, and past
and potential contributions to the Company's profitability and sound
growth.
3.07 Authority to Interpret Plan; Binding Effect of All Determinations. The
-----------------------------------------------------------------
Plan Administrator shall, in its sole and absolute discretion, interpret
and determine the effect of all matters and questions relating to the Plan
including, without limitation, all questions relating to whether a
Termination Of Recipient has occurred. All interpretations and
determinations of the Plan Administrator under the Plan (including,
without limitation, determinations pertaining to the eligibility of
Persons to receive Awards, the form, amount and timing of Awards, the
methods of payment for Awards, the restrictions and conditions placed upon
Awards, and the other terms and provisions of Awards and the certificates
or agreements evidencing same) need not be uniform and may be made by the
Plan Administrator selectively among Persons who receive, or are eligible
to receive, Awards under the Plan, whether or not such Persons are
similarly situated.
All actions taken and all interpretations and determinations made under
the Plan in good faith by the Plan Administrator shall be final and
binding upon the Recipient, the Company, and all other interested Persons.
No member of the Plan Administrator shall be personally liable for any
action taken or decision made in good faith relating to the Plan, and all
Persons constituting the Plan Administrator shall be fully protected and
indemnified to the fullest extent permitted under applicable law by the
Company in
-11-
<PAGE>
respect to any such action, determination, or interpretation.
3.08 Compensation; Advisors. Members of the Plan Administrator shall receive
----------------------
such compensation for their services hereunder as may be determined by the
Board. All expenses and liabilities incurred by members of the Plan
Administrator in connection with the administration of the Plan shall be
borne by the Company. The Plan Administrator may, at the cost of the
Company, employ attorneys, consultants, advisors, accountants, appraisers,
brokers or other Persons to provide advice, opinions or valuations, and
the Plan Administrator shall be entitled to rely upon any such advice,
opinions or valuations.
ARTICLE IV
SHARES OF COMMON STOCK ISSUABLE UNDER PLAN
------------------------------------------
4.01 Maximum Number of Shares Authorized Under Plan. Plan Shares which may be
----------------------------------------------
issued or granted under the Plan shall be authorized and unissued or
treasury shares of Common Stock. The aggregate maximum number of Plan
Shares which may be issued, whether upon exercise of Options or as a grant
of Grant Shares, or in payment of SARs, shall not exceed four hundred
thousand (400,000) shares of Common Stock; provided, however, that such
number shall be increased by the following:
---------
A. Any shares of Common Stock tendered by a Recipient as payment for
Option Shares (in connection with the exercise of the associated
Option) or Grant Shares;
B. Any shares of Common Stock underlying any options, warrants or other
rights to purchase or acquire Common Stock which options, warrants or
rights are surrendered by a Recipient as payment for Option Shares (in
connection with the exercise of the associated Option) or Grant
Shares;
C. Any shares of Common Stock subject to an Option which, for any reason,
is terminated unexercised or expires;
D. Any Forfeitable Grant Shares which, for any reason, are forfeited by
the holder thereof or repurchased by the Company; and
E. Any SAR Shares subject to an Independent SAR which, for any reason, is
terminated unexercised or expires.
4.02 Calculation of Number of Shares Available for Awards. For purposes of
----------------------------------------------------
calculating the maximum number of Plan Shares which may be issued under
the Plan, the following rules shall apply:
A. When Options are exercised, and when cash is used as full payment for
Option Shares issuable upon exercise of such Options, all Option
---
Shares issued in connection with such exercise (including Option
Shares, if any, withheld in satisfaction of any applicable Withholding
Taxes) shall be counted;
B. When Options are exercised, and when shares of Common Stock are used
as full or partial payment for Option Shares issuable upon exercise of
such Options, the net Option Shares issued in connection with such
---
exercise (including Option Shares, if any, withheld in satisfaction of
any Applicable Withholding Tax Requirements) shall be counted;
-12-
<PAGE>
C. When Grant Shares are granted, and when shares of Common Stock are
used as full or partial payment therefore, the net Grant Shares issued
(including Grant Shares, if any, withheld in satisfaction of any
applicable Withholding Taxes) shall be counted;
D. When SARs are exercised, only the Plan Shares issued in payment
thereof (including Plan Shares, if any, withheld in satisfaction of
any applicable Withholding Taxes) shall be counted; and
E. If the exercise price of an Option or SAR is reduced, the transaction
will be treated as a cancellation of the Option or SAR, and the grant
of a new Option or SAR.
4.03 Date of Awards. The date an Award is granted shall mean the date selected
--------------
by the Plan Administrator as of which the Plan Administrator allots a
specific number of Plan Shares to a Recipient with respect to such Award
pursuant to the Plan.
ARTICLE V
OPTIONS (TO PURCHASE OPTION SHARES)
-----------------------------------
5.01 Grant. The Plan Administrator may from time to time, and subject to the
-----
provisions of the Plan and such other terms and conditions as the Plan
Administrator may prescribe, grant to any Eligible Director one or more
options ("Options") to purchase the number of Plan Shares allotted by the
Plan Administrator ("Option Shares"). The grant of an Option shall be
evidenced by a written Stock Option Certificate, executed by the Recipient
and an authorized officer of the Company, stating:
A. the number of Option Shares subject to the Option;
B. the Option Price (as such term is defined below) for the Option; and
C. all other material terms and conditions of such Option.
5.02 Option Price. The purchase price per Option Share deliverable upon the
------------
exercise of an Option (the "Option Price") shall be such price as may be
determined by the Plan Administrator.
5.03 Option Term; Expiration. The term of each Option shall commence at the
-----------------------
grant date for such Option as determined by the Plan Administrator, and
shall expire (unless an earlier expiration date is expressly provided in
the underlying Stock Option Certificate or another section of the Plan
including, without limitation, section 5.05), on the first business day
------------
prior to the ten (10) year anniversary of the date of grant thereof. The
Plan Administrator may extend the term of any outstanding Option should
the Plan Administrator, in its sole and absolute discretion, determine it
advisable or necessary to do so including, without limitation, in
connection with any Termination Of Recipient.
5.04 Exercise Date. Unless a later exercise date is expressly provided in
-------------
the underlying Stock Option Certificate or another section of the Plan,
each Option shall become exercisable on the later of:
-----
A. the date of its grant as determined by the Plan Administrator; or
-13-
<PAGE>
B. the date of delivery to the Recipient, and execution by the Company
and the Recipient, of the underlying Stock Option Certificate
evidencing the grant of the Option.
No Option shall be exercisable after the expiration of its applicable term
as set forth in section 5.03. Subject to the foregoing, each Option shall
------------
be exercisable in whole or in part during its applicable term unless
expressly provided otherwise in the underlying Stock Option Certificate.
5.05 Vesting Conditions. Subject to the limitations in Article X relating to
------------------ ---------
Termination Of Recipient, the Plan Administrator may subject any Options
granted to such vesting conditions as the Plan Administrator, in its sole
discretion, determines are appropriate and necessary, such as, by way of
example and not obligation:
A. the attainment of goals by the Recipient; or
B. the continued service by the Recipient as a Director to the Company
and/or to any Parent or Subsidiary.
If no vesting is expressly provided in the underlying Stock Option
Certificate, the Option Shares shall be deemed fully vested upon date of
grant. Where vesting conditions are based upon continued performance of
services to the Company, the special rules of Article X relating to
---------
Termination Of Recipient shall apply. No vesting conditions may be imposed
which are not permitted, or exceed those permitted, under the exemption
from registration or qualification to be relied upon under applicable
Securities Laws, as selected by the Company in its sole discretion. If no
vesting is expressly provided in the underlying Stock Option Certificate,
the Option Shares shall be deemed fully vested upon date of grant. The
Plan Administrator may waive the acceleration of any vesting and/or
expiration provision of any outstanding Option should the Plan
Administrator, in its sole and absolute discretion, determine it advisable
or necessary to do so including, without limitation, in connection with
any Termination Of Recipient.
5.06 Manner of Exercise. An exercisable Option, or any exercisable portion
------------------
thereof, may be exercised solely by delivery to the Secretary of the
Company at its principal executive offices prior to the time when such
Option (or such portion) becomes unexercisable under this Article V of
---------
each of the following:
A. a Notice of Exercise of Stock Option in the form attached to the
underlying Stock Option Certificate, duly signed by the Recipient or
other Person then entitled to exercise the Option or portion thereof,
stating the number of Option Shares to be purchased by exercise of the
associated Option;
B. subject to Article VIII relating to non-cash form of consideration,
------------
payment in full for the Option Shares to be purchased by exercise of
the underlying Option, together with payment in satisfaction of any
applicable Withholding Taxes (collectively, the "Gross Option Exercise
Price"), in immediately available funds, in U.S. dollars; provided,
however, the Plan Administrator may, in its sole discretion, permit a
delay in payment of the Gross Option Exercise Price for a period of up
to thirty (30) days;
C. a Consent of Spouse from the spouse of the Recipient, if any, duly
signed by such spouse;
-14-
<PAGE>
D. in the event that the Option or portion thereof shall be exercised by
any Person other than the Recipient, appropriate proof of the right of
such person or persons to exercise the Option or portion thereof; and
E. such documents, representations and undertakings as provided in the
Stock Option Certificate and/or which the Plan Administrator, in its
absolute discretion, deems necessary or advisable pursuant to section
-------
13.01.
-----
5.07 Net Conversion of Option. Notwithstanding section 5.06B, if and to the
------------------------ -------------
extent expressly permitted in the underlying Stock Option Certificate, or
if and to the extent otherwise consented to by the Plan Administrator in
writing, the Recipient may convert an Option, in whole or in part, into
such net number of Option Shares as shall be determined by dividing (x)
the difference between (I) the aggregate Fair Market Value of the total
number Option Shares to be exercised as of the conversion date, together
with payment in satisfaction of any applicable Withholding Taxes, and (II)
the aggregate Exercise Price of such total number of Option Shares, by (y)
the Fair Market Value of one Option Share as of the date of conversion.
The Recipient shall, in the event of such permitted conversion, deliver to
the Company all of the items described in section 5.06 with respect to the
------------
underlying Option (other than section 5.06B to the extent payment
-------------
therefore is not required by operation of this section 5.07).
------------
5.08 Grant of Replacement Options. In the event:
----------------------------
A. the Gross Option Exercise Price is paid in the form of shares of
Common Stock owned by the Recipient pursuant to section 8.01A; and
-------------
B. the exercising Recipient is then an Eligible Director,
then the Plan Administrator in its sole discretion may, or the Plan
Administrator (if and to the extent expressly required by the underlying
Stock Option Certificate) shall, grant to the exercising Recipient options
(the "Replacement Options") entitling the exercising Recipient to purchase
such number of Plan Shares as shall equal the number of shares of Common
Stock delivered to the Company in payment of the Gross Option Exercise
Price with respect to the underlying Stock Option Certificate.
Each Replacement Option shall:
(1) Be immediately exercisable upon its grant (without any vesting
conditions);
(2) have an Option Price for each Option Share which equals the Fair
Market Value of the Common Stock so paid as determined for purposes
of payment pursuant to section 8.01A;
-------------
(3) have an Option Term co-terminus with that of the underlying Option;
and
(4) contain such other terms and conditions as contained in the
underlying Stock Option Certificate.
Shares of Common Stock received by the Recipient in connection with the
grant of the Replacement Option may not be used as consideration in
connection with the exercise of the Replacement Option, unless such shares
of Common Stock have been held by the Recipient for a period of at least
one (1) year, and such form of payment is otherwise permitted pursuant to
the terms of Article VIII.
------------
-15-
<PAGE>
The grant of a Replacement Option shall be evidenced by a written Stock
Option Certificate, executed by the Recipient and an authorized officer of
the Company, stating:
(i) the number of Option Shares subject to the Option;
(ii) the Option Price (determined in the manner prescribed above in this
section) for the Option; and
(iii) all other material terms and conditions of such Option.
5.09 Conditions to Issuance of Option Shares. The Company shall not be
---------------------------------------
required to issue or deliver any certificate or certificates representing
the Option Shares purchased upon exercise of any Option or any portion
thereof prior to fulfillment of all of the following conditions:
A. the delivery of the documents described in section 5.06;
------------
B. the receipt by the Company of full payment for such Option Shares,
together with payment in satisfaction of any applicable Withholding
Taxes;
C. subject to Article XIII, the satisfaction of any requirements or
------------
conditions of the Applicable Laws; and
D. the lapse of such reasonable period of time following the exercise
of the Option as the Plan Administrator may establish from time-to-
time for administrative convenience.
ARTICLE VI
GRANT SHARES
------------
6.01 Grant. The Plan Administrator may from time to time, subject to the
-----
provision of the Plan and such other terms and conditions as the Plan
Administrator may prescribe, grant to any Eligible Director one or more
Plan Shares allotted by the Plan Administrator ("Grant Shares"). The grant
of Grant Shares or the grant of the right to receive Grant Shares shall be
evidenced by a written Stock Grant Agreement, executed by the Recipient
and an authorized officer of the Company on or before the time of the
grant of such Grant Shares, setting forth:
A. the number of Grant Shares granted;
B. the consideration (if any) for such Grant Shares; and
C. all other material terms and conditions of such grant.
6.02 Consideration (Purchase Price). The Plan Administrator, in its sole
------------------------------
discretion, may grant or award Grant Shares in any of the following
instances:
A. As Bonus/Reward. As a "bonus" or "reward" for services previously
---------------
rendered and otherwise fully compensated, in which case the
recipient of the Grant Shares shall not be required to pay any
consideration to the Company for such Grant Shares, and the value of
each Grant Shares shall be the Fair Market Value of a share of
Common Stock on the date of grant.
-16-
<PAGE>
B. As Compensation. As "compensation" for the previous performance or
---------------
future performance of services or attainment of goals, in which case
the recipient of the Grant Shares shall not be required to pay any
consideration to the Company for such Grant Shares (other than the
performance of the Recipient's services), and the value of each Grant
Share received (together with the value of such services or attainment
of goals attained by the Recipient), shall be the Fair Market Value of
a share of Common Stock on the date of grant.
C. As Purchase Price Consideration. In "consideration" for the payment
-------------------------------
of a purchase price to the Company for each of such Grant Shares (the
"Stock Grant Purchase Price") in an amount established by the Plan
Administrator, provided, however:
(1) The Stock Grant Purchase Price shall not be less than that
allowed under the exemption from registration under the
applicable Blue Sky Laws (as selected by the Company in its sole
discretion) of the state or territory in which the Recipient then
resides;
(2) If the Common Stock is traded on a stock exchange or over-the-
counter on Nasdaq, the purchase price shall not be less than the
minimum price per share permitted by such stock exchange or
Nasdaq; and
(3) Under no circumstances shall the Stock Grant Purchase Price per
Grant Share be less than the then current par value per share of
Common Stock.
6.03 Term; Expiration. The term in which a Recipient may purchase any Grant
----------------
Shares awarded for which the Recipient is required to pay consideration
shall commence at the grant date of the underlying Stock Grant Agreement
as determined by the Plan Administrator, and shall expire on the date
specified in the underlying Stock Grant.
6.04 Deliveries; Manner of Payment. The Grant Shares may be purchased solely
-----------------------------
by delivery to the Secretary of the Company at the principal executive
offices at the Company prior to the time the Grant Shares become
purchasable under this Article VI of each of the following:
----------
A. the Stock Grant Agreement for the Grant Shares, duly signed by the
Recipient;
B. a Consent of Spouse from the spouse of the Recipient, if any, duly
signed by such spouse;
C. subject to Article VIII relating to non-cash form of consideration,
------------
payment in full of the Stock Grant Purchase Price (where payment
thereof is required), together with payment in satisfaction of any
applicable Withholding Taxes (collectively, the "Gross Stock Grant
Purchase Price"), in immediately available funds, in U.S. dollars;
provided, however, the Plan Administrator may, in its sole discretion,
permit a delay in payment of the Gross Stock Grant Purchase Price for
a period of up to thirty (30) days; and
D. such documents, representations and undertakings as provided in the
Stock Grant Agreement and/or which the Plan Administrator, in its
absolute discretion, deems necessary or advisable pursuant to section
-------
13.01.
-----
6.05 Conditions to Issuance of Grant Shares. The Company shall not be
--------------------------------------
required to issue or deliver any certificate or certificates representing
the Grant Shares prior to fulfillment of all of the following conditions:
-17-
<PAGE>
A. the delivery of the documents described in section 6.04;
------------
B. the receipt by the Company of full payment (if applicable) for such
Grant Shares, together with payment in satisfaction of any applicable
Withholding Taxes;
C. subject to Article XIII, the satisfaction of any requirements or
------------
conditions of the Applicable Laws; and
D. the lapse of such reasonable period of time following the award of the
Grant Shares as the Plan Administrator may establish from time-to-time
for administrative convenience.
ARTICLE VII
FORFEITURE CONDITIONS PLACED UPON GRANT SHARES
----------------------------------------------
7.01 Vesting Conditions; Forfeiture of Unvested Grant Shares. Subject to the
-------------------------------------------------------
limitations in Article X relating to Termination Of Recipient, the Plan
---------
Administrator may subject or condition Grant Shares granted or awarded
(hereinafter referred to as "Forfeitable Grant Shares") to such vesting
conditions based upon continued provision of services or attainment of
goals subsequent to such grant of Forfeitable Grant Shares as the Plan
Administrator, in its sole discretion, may deem appropriate and necessary,
such as, by way of example and not obligation:
A. the attainment of goals by the Recipient; or
B. the continued service by such Recipient as a Director to the Company
and/or to any Parent or Subsidiary; subject to the provisions set
forth below.
Where vesting conditions are based upon continued performance of services
to the Company, the special rules of Article X relating to Termination Of
---------
Recipient shall apply. In the event the Recipient does not satisfy any
vesting conditions, the Company may require the Recipient, subject to the
repurchase payment terms of section 7.02, to forfeit such unvested
------------
Forfeitable Grant Shares to the Company. All vesting conditions imposed on
the grant of Forfeitable Grant Shares, including repurchase payment terms
complying with section 7.02, shall be set forth in a written Stock Grant
------------
Agreement, executed by the Company and the Recipient on or before the time
of the grant of such Forfeitable Grant Shares, stating the number of said
Forfeitable Grant Shares subject to such conditions, and further
specifying the vesting conditions.
If no vesting conditions are expressly provided in the underlying Stock
Grant Agreement, the Grant Shares shall not be deemed to be Forfeitable
Grant Shares, and will not be subject to forfeiture. The Plan
Administrator may waive the acceleration of any vesting conditions placed
upon any Forfeitable Grant Shares should the Plan Administrator, in its
sole and absolute discretion, determine it advisable or necessary to do so
including, without limitation, in connection with any Termination Of
Recipient.
7.02 Repurchase of Forfeitable Grant Shares Which Are Forfeited.
----------------------------------------------------------
A. Repurchase Rights and Price. In the event the Company does not waive
---------------------------
its right to require the Recipient to forfeit any or all of such
unvested Forfeitable Grant Shares, the Company shall be required to
--------
pay the Recipient, for each unvested Forfeitable Grant Share which the
Company requires the Recipient to forfeit, the amount per Forfeitable
Grant Share set forth in the Stock Grant Agreement, provided,
however:
-18-
<PAGE>
(1) The repurchase price per Forfeitable Grant Share in any event may
not be less that the "original cost" (as such term is defined
below) of such Forfeitable Grant Shares to be forfeited or, if
elected by the Plan Administrator in its sole discretion and
without any obligation to do so in the underlying Stock Grant
Agreement, the "book value" (as such term is defined below) of
such Forfeitable Grant Shares to be forfeited, if higher than the
original cost; and
(2) The "original cost" per Forfeitable Grant Share means the
aggregate amount originally paid to the Company by the Recipient
(or his, her or its predecessor) to purchase or acquire all of
the Grant Shares to be forfeited, divided by the total number of
such shares. The amount of consideration paid by any Recipient
(or his, her or its predecessor) who originally received the
Grant Shares as compensation for services or a bonus, or
otherwise without payment of consideration in cash or property,
shall be zero
The "book value" per Forfeitable Grant Share means the difference
between the Company's total assets and total liabilities as of the
close of business on the last day of the calendar month preceding the
date of forfeiture, divided by the total number of shares of Common
Stock then outstanding. The book value per Forfeitable Grant Share
shall be determined by the independent certified public accountant
regularly engaged by the Company. The determination shall be
conclusive and binding and made in accordance with generally accepted
accounting principles applied on a basis consistent with those
previously applied by the Company.
B. Form of Payment. The repurchase payments to be made by the Company
---------------
to a Recipient for forfeited Forfeitable Grant Shares shall be in the
form of cash or cancellation of purchase money indebtedness with
respect to the initial purchase of said Forfeitable Grant Shares by
the Recipient, if any, and must be paid no later than ninety (90)
days after the date of termination.
7.03 Restrictive Legend. Until such time as all conditions placed upon
------------------
Forfeitable Grant Shares lapse, the Plan Administrator may place a
restrictive legend on the share certificate representing such Forfeitable
Grant Shares which evidences said restrictions in such form, and subject
to such stop instructions, as the Plan Administrator shall deem
appropriate and necessary, including the following legend with respect to
vesting conditions based upon continued provision of services by the
Recipient:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO
FORFEITURE IN THE EVENT CERTAIN VESTING CONDITIONS BASED UPON THE
CONTINUED PROVISION OF SERVICES TO THE COMPANY BY THE HOLDER HEREOF
ARE NOT SATISFIED. THIS RISK OF FORFEITURE AND UNDERLYING VESTING
CONDITIONS ARE SET FORTH IN FULL IN THAT CERTAIN STOCK GRANT AGREEMENT
BETWEEN THE HOLDER OF THIS CERTIFICATE AND THE COMPANY DATED THE
_______DAY OF ___________, _____________, AND THAT CERTAIN 2000
PINNACLE OIL INTERNATIONAL. INC. DIRECTORS' STOCK pLAN DATED FEBRUARY
15, 2000, A COPY OF WHICH MAY BE INSPECTED BY AUTHORIZED PERSONS AT
THE PRINCIPAL OFFICE OF THE COMPANY AND ALL THE PROVISIONS OF WHICH
ARE INCORPORATED BY REFERENCE IN THIS CERTIFICATE.
The conditions shall similarly apply to any new, additional or different
securities the Recipient may become entitled to receive with respect to
such Forfeitable Grant Shares by
-19-
<PAGE>
virtue of a stock split or stock dividend or any other change in the
corporate or capital structure of the Company.
The Plan Administrator shall also have the right, should it elect to do
so, to require the Recipient to deposit the share certificate for the
Forfeitable Grant Shares with the Company or its agent, endorsed in blank
or accompanied by a duly executed irrevocable stock power or other
instrument of transfer, until such time as the conditions lapse. The
Company shall remove the legend with respect to any Forfeitable Grant
Shares which become vested, and remit to the Recipient a share certificate
evidencing such vested Grant Shares.
ARTICLE VIII
NON-CASH PURCHASE CONSIDERATION
-------------------------------
8.01 General. Notwithstanding section 5.06B or section 6.04, if and to the
------- ------------- ------------
extent expressly permitted in the underlying Stock Option Certificate or
Stock Grant Agreement (as the case may be), or if and to the extent
otherwise consented to by the Plan Administrator in writing, payment of
the Gross Option Exercise Price or the Gross Stock Grant Purchase Price
(as the case may be) may be made by one or more of the following non-cash
forms of payment in lieu of cash consideration:
A. Shares of Common Stock owned by the Recipient duly endorsed for
transfer to the Company, with a Fair Market Value on the date of
delivery equal:
(1) in the case of the exercise of an Option, to the aggregate Gross
Option Exercise Price of the Option Shares with respect to which
the Option or portion thereof is thereby exercised, or
(2) in the case of the purchase of Grant Shares, to the Gross Stock
Grant Purchase Price;
B. The surrender or relinquishment of options, warrants or other rights
to acquire Common Stock held by the Recipient, with a Fair Market
Value on the date of delivery (or date of grant if permitted by the
Plan Administrator) equal:
(1) in the case of the exercise of an Option, to the aggregate Gross
Option Exercise Price of the Option Shares with respect to which
the Option or portion thereof is thereby exercised, or
(2) in the case of the purchase of Grant Shares, to the Gross Stock
Grant Purchase Price;
C. A reduction in the amount of any Company liability to the Recipient,
including any liability attributable to the Recipient's participation
in any Company-sponsored deferred compensation program or arrangement;
D. A full recourse promissory note bearing interest at a rate as shall
then preclude the imputation of interest under the Code, and payable
upon such terms as may be prescribed by the Plan Administrator. The
Plan Administrator shall prescribe the form of such note and the
security to be given for such note. Notwithstanding the foregoing, no
Option may be exercised by delivery of a promissory note or by a loan
from the Company if such loan or other extension of credit is
prohibited by law at the time of exercise of this Option or does not
comply with the provisions of
-20-
<PAGE>
Regulation G promulgated by the Federal Reserve Board with respect to
"margin stock" if the Company and the Recipient are then subject to
such Regulation;
E. Any combination of the foregoing methods of payment; and/or
F. Such other good and valuable consideration and method of payment for
the issuance of Plan Shares to the extent permitted by Applicable
Laws.
ARTICLE IX
STOCK APPRECIATION RIGHTS
-------------------------
9.01 Grant. The Plan Administrator may from time to time, and subject to
-----
the provisions of the Plan and such other terms and conditions as the Plan
Administrator may prescribe, in its sole discretion, grant to any Eligible
Director the following Stock Appreciation Rights ("SARs"):
A. in connection with all or any part of an Option granted to such
Eligible Director, either concurrently with the grant of such
underlying Option or at any time thereafter during the term of such
underlying Option (a "Tandem SAR"); or
B. independently of the grant of any Option to such Eligible Director (an
"Independent SAR").
The grant of an SAR shall be evidenced by a written Stock Appreciation
Rights Agreement ("SAR Agreement"), executed by the Recipient and an
authorized officer of the Company, stating:
C. if the SAR is a Tandem SAR, the underlying Option to which the SAR
relates;
D. if the SAR is an Independent SAR, the number of Plan Shares covered by
the SAR (the "SAR Shares");
E. if the SAR is an Independent SAR, the term of the SAR; and
F. all other material terms and conditions of such SAR.
9.02 Tandem SARs. The following provisions apply to each grant of a Tandem
-----------
SAR:
A. The Tandem SAR shall entitle the Recipient to exercise such Tandem SAR
by surrendering to the Company unexercised a portion of the underlying
Option. The Recipient shall receive in exchange from the Company an
amount, payable pursuant to section 9.04, equal to the excess of (x)
------------
the aggregate Fair Market Value on the date of exercise of the Tandem
SAR of the Option Shares covered by the surrendered portion of the
underlying Option, over (y) the aggregate Option Price of the Option
Shares covered by the surrendered portion of the underlying Option.
Notwithstanding the foregoing, the Plan Administrator may place limits
on the amount that may be paid upon exercise of a Tandem SAR;
provided, however, that such limit shall not restrict the
exercisability of the underlying Option;
B. When a Tandem SAR is exercised, the underlying Option, to the extent
surrendered, shall no longer be exercisable;
-21-
<PAGE>
C. A Tandem SAR shall be exercisable only when and to the extent that the
underlying Option is exercisable, and shall expire no later than the
date on which such underlying Option expires; and
D. A Tandem SAR may only be exercised at a time when the Fair Market
Value of the Option Shares covered by the underlying Option exceeds
the exercise price of the Option Shares covered by the underlying
Option.
9.03 Independent SARs. The following provisions apply to each grant of an
----------------
Independent SAR:
A. The Independent SAR shall entitle the Recipient, by exercising the
Independent SAR, to receive from the Company an amount equal to the
excess of (x) the Fair Market Value of the SAR Shares covered by
exercised portion of the Independent SAR, as of the date of such
exercise, over (y) the Fair Market Value of the SAR Shares covered by
the exercised portion of the Independent SAR, as of the date on which
the Independent SAR was granted; provided, however, that the Plan
Administrator may place limits on the amount that may be paid upon
exercise of a Independent SAR; and
B. Independent SARs shall be exercisable, in whole or in part, at such
times as the Plan Administrator shall specify in the SAR Agreement.
9.04 Form of Payment. The Company's obligation arising upon the exercise of
---------------
A. Tandem SARs shall be paid in cash (either outright or pursuant to such
deferred payment arrangement as the Plan Administrator specifies in
the underlying SAR Agreement); and
B. Independent SARs shall be paid in cash (either outright or pursuant to
such deferred payment arrangement as the Plan Administrator specifies
in the underlying SAR Agreement) or SAR Shares, or in any combination
of cash and SAR Shares, as the Plan Administrator, in its sole
discretion, may determine;
provided, however, the Plan Administrator may, in the case of the exercise
of either Tandem SARs or Independent SARS, withhold such amount of cash
and, if applicable, SAR Shares, as the Plan Administrator deems necessary
to satisfy any applicable Withholding Taxes. SAR Shares issued upon the
exercise of an Independent SAR shall be valued at their Fair Market Value
as of the date of exercise.
9.05 SAR Term; Expiration. The term of each SAR shall commence at the grant
--------------------
date for such SAR as determined by the Plan Administrator, and shall
expire (unless, in the case of a Tandem SAR, an earlier expiration date is
expressly provided in the underlying SAR Agreement or another section of
the Plan including, without limitation, section 9.07), on the first
------------
business day prior to the ten (10) year anniversary of the date of grant
thereof. The Plan Administrator may extend the term of any outstanding SAR
should the Plan Administrator, in its sole and absolute discretion,
determine it advisable or necessary to do so including, without
limitation, in connection with any Termination Of Recipient.
9.06 Exercise Date. Unless a later exercise date is expressly provided in
-------------
the underlying SAR Agreement or another section of the Plan, each SAR
shall become exercisable on the later of:
-----
A. the date of its grant as determined by the Plan Administrator; or
-22-
<PAGE>
B. the date of delivery to the Recipient, and execution by the Company
and the Recipient, of the underlying SAR Agreement evidencing the
grant of the SAR.
No SAR shall be exercisable after the expiration of its applicable term as
set forth in section 9.05. Subject to the foregoing, each SAR shall be
------------
exercisable in whole or in part during its applicable term unless
expressly provided otherwise in the underlying SAR Agreement.
9.07 Vesting Conditions. Subject to the limitations in Article X relating to
------------------ ---------
Termination Of Recipient, the Plan Administrator may subject any SARs
granted to such vesting conditions (in addition, in the case of any Tandem
SARs, to such vesting conditions as are specified in the underlying
Option) as the Plan Administrator, in its sole discretion, determines are
appropriate and necessary, such as, by way of example and not obligation:
A. the attainment of goals by the Recipient; or
B. the continued service by the Recipient as a Director to the Company
and/or to any Parent or Subsidiary.
Where vesting conditions are based upon continued performance of services
to the Company, the special rules of Article X relating to Termination Of
---------
Recipient shall apply. If no vesting is expressly provided in the
underlying SAR Agreement, the SAR shall be deemed fully vested upon date
of grant (subject, in the case of any Tandem SAR, to such vesting
conditions as are specified under the underlying Option). The Plan
Administrator may waive the acceleration of any vesting and/or expiration
provision of any outstanding SAR should the Plan Administrator, in its
sole and absolute discretion, determine it advisable or necessary to do so
including, without limitation, in connection with any Termination Of
Recipient.
9.08 Manner of Exercise. An exercisable SAR, or any exercisable portion
------------------
thereof, may be exercised solely by delivery to the Secretary of the
Company at its principal executive offices prior to the time when such SAR
(or such portion) becomes unexercisable under this Article IX of each of
----------
the following:
A. a Notice of Exercise of the SAR in the form attached to the underlying
SAR Agreement, duly signed by the Recipient or other Person then
entitled to exercise the SAR or portion thereof, stating the number of
Option Shares (in the case of a Tandem SAR) or SAR Shares (in the case
of an Independent SAR) to be exercised;
B. a Consent of Spouse from the spouse of the Recipient, if any, duly
signed by such spouse;
C. in the event that the SAR or portion thereof shall be exercised by any
Person other than the Recipient, appropriate proof of the right of
such person or persons to exercise the SAR or portion thereof; and
D. such documents, representations and undertakings as provided in the
SAR Agreement and/or which the Plan Administrator, in its absolute
discretion, deems necessary or advisable pursuant to section 13.01.
-------------
9.09 Conditions to Issuance of SAR Shares. The Company shall not be required
------------------------------------
to issue or deliver any certificate or certificates representing the SAR
Shares purchased upon
-23-
<PAGE>
exercise of any Independent SAR or any portion thereof prior to
fulfillment of all of the following conditions:
A. the delivery of the documents described in section 9.08;
------------
B. the receipt by the Company of full payment in satisfaction of any
applicable Withholding Taxes;
C. subject to Article XIII, the satisfaction of any requirements or
------------
conditions of the Applicable Laws; and
D. the lapse of such reasonable period of time following the exercise of
the Independent SAR as the Plan Administrator may establish from time-
to-time for administrative convenience.
ARTICLE X
SPECIAL RULES FOR VESTING OR FORFEITURE
CONDITIONS BASED ON CONTINUED PERFORMANCE OF SERVICES
-----------------------------------------------------
10.01 Lapse of Unvested Options, Unvested SARs, and Forfeitable Grant Shares.
----------------------------------------------------------------------
Where vesting conditions are imposed upon Options or SARs, or forfeiture
conditions are imposed upon Forfeitable Grant Shares, and such conditions
are based upon continued performance of services to the Company, then, in
the event of Termination Of Recipient:
A. in the case of unvested Options, the prospective right to purchase
--------
unvested Option Shares shall immediately lapse upon such termination
--------
if not exercised prior thereto;
B. in the case of unvested SARs, the prospective right to exercise the
--------
unvested portion of such SARs shall immediately lapse upon such
termination if not exercised prior thereto; and
C. in the case of unvested Forfeitable Grant Shares, all such unvested
--------
Forfeitable Grant Shares shall be immediately forfeited upon such
termination unless such forfeiture is expressly waived in writing by
the Company;
provided, however, in each of the foregoing cases, the Plan Administrator
may, but without any obligation to do so, provide in the underlying Award
Agreement that such unvested Options, SARs or Forfeitable Grant Shares
shall immediately vest upon the occurrence of one or more events expressly
----------------
specified in the underlying Award Agreement.
10.02 Immediate Vesting of Unvested Options, Unvested SARs, and Forfeitable
---------------------------------------------------------------------
Grant Shares Upon Specified Events. The Plan Administrator may, but
----------------------------------
without any obligation to do so, provide in the underlying Award
Agreement that unvested Options, SARs or Forfeitable Grant Shares shall
immediately vest upon the occurrence of one or more of the following
----------------
events as selected by the Plan Administration in its sole and absolute
discretion:
A. in the event of a Change In Control; and/or
B. in the event of an Approved Corporate Transaction.
-24-
<PAGE>
10.03 Acceleration of Expiration Date - Vested Options and SARs. Where vesting
-------------------------------
conditions are imposed upon Options or SARs, and such conditions are based
upon continued performance of services to the Company, then, in the event
of Termination Of Recipient, unless otherwise expressly waived or extended
by the underlying Award Agreement, the following rules shall apply:
A. The expiration date for vested Options and vested SARs shall be
--------------- ------ ------
accelerated to thirty (30) days after the effective date of
Termination Of Recipient; provided, however, the Plan Administrator
may, but without any obligation to do so, provide in the underlying
Award Agreement that the expiration date for vested Options or vested
------ ------
SARs shall not be accelerated in any event, or be accelerated to a
date later than said thirty (30) days after the effective date of
Termination Of Recipient.
B. The expiration date for unvested Options and unvested SARs (insofar as
--------------- -------- --------
they do not become immediately vested pursuant to section 10.02))
-------------
shall be upon Termination Of Recipient if earlier than the expiration
date specified in section 5.03 in the case of an Option and section
------------ -------
9.05 in the case of an SAR.
----
ARTICLE XI
ASSIGNABILITY OF CERTAIN AWARDS
-------------------------------
11.01 Exercise of Options and SARs. Options and SARs (whether vested or
----------------------------
unvested) may be exercised only by the original Recipient thereof or, to
the extent a Transfer is permitted pursuant to section 11.02 and/or
-------------
section 11.03 below, by a permitted transferee of such Options or SARs.
-------------
11.02 Transfer of Options, SARs and Unvested Forfeitable Grant Shares. Except
---------------------------------------------------------------
as provided in section 11.03 below, neither Options and SARs (whether
-------------
vested or unvested), nor unvested Forfeitable Grant Shares, may be
--------
Transferred by a Recipient, including upon the Death of a Recipient
and/or pursuant to a Qualified Domestic Relations Order as defined by
Section 414(p) of the Code, unless (A) such Transfer is expressly
------
permitted in the underlying Award Agreement, or (B) the Plan
Administrator, in its sole and absolute discretion, otherwise consents to
such Transfer in writing; provided, however, anything in the preceding
sentence to the contrary notwithstanding, the following Options may not
in any circumstances be Transferred:
A. Options registered under the Securities Act with the Commission on
Form S-8; and/or
B. Options granted pursuant to any other exemption from registration or
qualification to be relied upon by the Company under applicable
Securities Laws which prohibits such assignment.
11.03 Death of Recipient. Upon the death of the Recipient (if the Recipient
------------------
is a natural Person, vested Options, vested SARs and unvested Forfeitable
------ ------ --------
Grant Shares may, if such Transfer is expressly permitted in the
underlying Award Agreement, or if the Plan Administrator, in its sole and
absolute discretion, otherwise consents to such Transfer in writing, be
Transferred to such Persons who are the deceased Recipient's successors
pursuant to will or the laws of descent or distribution by reason of the
death of the Recipient (the "Recipient's Successors") and, in the case of
vested Options, and vested SARs, may thereafter be exercised by the
------ ------
Recipient's Successors.
-25-
<PAGE>
Options, SARs and unvested Forfeitable Grant Shares so Transferred shall
--------
not be further Transferred by the Recipient's Successors except to the
extent the original Recipient of such Options, SARs and unvested
--------
Forfeitable Grant Shares would have been permitted to Transfer such
Options and SARs pursuant to section 11.02.
-------------
11.04 Effect of Prohibited Transfer or Exercise. Any Transfer or exercise of
-----------------------------------------
any Option or SAR or unvested Forfeitable Grant Share so Transferred in
--------
violation of this Article XI shall be null and void ab initio and of no
----------
further force and effect.
11.05 Application to Vested Grant Shares. Under no circumstances shall the
----------------------------------
prohibition against Transfer contained in this Article XI be construed to
----------
apply to vested Grant Shares.
------
ARTICLE XII
NO STOCKHOLDER RIGHTS FOR HOLDERS OF OPTIONS OR SARs
----------------------------------------------------
12.01 General. The Recipient of any Option or SAR (whether vested or unvested)
-------
shall not be, nor shall such Recipient have any of the rights or
privileges of, a stockholder of the Company with respect to the Option
Shares underlying the Option or SAR Shares underlying the SAR including,
by way of example and not limitation, the right to vote for the election
of directors or upon any matter submitted to stockholders at any meeting
thereof, or to give or withhold consent to any corporate action, or to
receive notice of meetings or other actions affecting stockholders, or to
receive dividends, distributions, subscription rights or otherwise, unless
and until all conditions for exercise of the Option or SARs shall be
satisfied, and the Option or SAR duly exercised and underlying Option
Shares or SAR Shares duly issued and delivered, at which time the
Recipient shall become a stockholder of the Company with respect to such
issued Option Shares or SAR Shares and, in such capacity, shall thereafter
be fully entitled to receive dividends (if any are declared and paid), to
vote, and to exercise all other rights of a stockholder with respect to
such issued Option Shares or SAR Shares.
ARTICLE XIII
COMPLIANCE WITH APPLICABLE SECURITIES LAWS
------------------------------------------
13.01 Registration or Exemption from Registration. Unless expressly
-------------------------------------------
stipulated in the underlying Award Agreement, in no event shall the
Company be required at any time to register any securities issued under or
derivative from the Plan, including any Option, Option Shares, Grant
Shares or SAR Shares awarded or granted hereunder (collectively, the "Plan
Securities"), under the Securities Act (including, without limitation, as
part of any primary or secondary offering, or pursuant to Form S-8) or to
register or qualify the Plan Securities under any applicable Securities
Laws. In the event the Company does not register or qualify the Plan
Securities, the Plan Securities shall be issued in reliance upon such
exemptions from registration or qualification under the applicable
Securities Laws that the Company and its legal counsel, in their sole
discretion, shall determine to be appropriate and necessary with respect
to any particular offer or sale of securities under the Plan.
13.02 Failure or Inability to Obtain Regulatory Consents or Approvals. In
---------------------------------------------------------------
the event the Company is unable to obtain, without undue burden or
expense, such consents or approvals that may be required from any
applicable regulatory authority (or may be deemed reasonably necessary or
advisable by legal counsel for the Company) with respect to the applicable
exemptions from registration or qualification under the applicable
Securities Laws which the Company is reasonably relying upon, the Company
-26-
<PAGE>
shall have no obligation under this Agreement to issue or sell the Plan
Securities until such time as such consents or approvals may be reasonably
obtained without undue burden or expense, and the Company shall be
relieved of all liability therefor; provided, however, the Company shall,
if requested by the Recipient, rescind the Recipient's investment
decisions and return all funds or payments made by the Recipient to the
Company should the Company fail to obtain such consents or approvals
within a reasonable time after the Recipient tenders such funds or
property to the Company.
13.03 Provision of Other Documents, Including Recipient's Representative's
--------------------------------------------------------------------
Letter. If requested by the Company, the Recipient shall provide such
------
further representations or documents as the Company or its legal counsel,
in their reasonable discretion, deem necessary or advisable in order to
effect compliance with the conditions of any and all of the aforesaid
exemptions from registration or qualification under the applicable
Securities Laws which the Company is relying upon, or with all applicable
rules and regulations of any applicable securities exchanges or Nasdaq.
If required by the Company, the Recipient shall provide a Recipient's
Representative's Letter from a purchaser representative with credentials
reasonably acceptable to the Company to the effect that such purchaser
representative has reviewed the Recipient's proposed investment in the
Plan Securities and has determined that an investment in the Plan
Securities:
A. is appropriate in light of the Recipient's financial circumstances,
B. that the purchaser representative and, if applicable, the Recipient,
have such knowledge and experience in financial and business matters
that such persons are capable of evaluating the merits and risks of an
investment in the Plan Securities, and
C. that the purchaser representative and, if applicable, the Recipient,
have such business or financial experience to be reasonably assumed to
have the capacity to protect the Recipient's interests in connection
with the purchase of the Plan Securities.
13.04 Legend on Plan Shares. In the event the Company delivers unregistered
---------------------
Plan Shares, the Company reserves the right to place the following legend
or such other legend as it deems necessary on the share certificate or
certificates to comply with the applicable Securities Laws being relied
upon by the Company.
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN (1)
REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED
(THE "SECURITIES ACT"), IN RELIANCE UPON AN EXEMPTION FROM
REGISTRATION AFFORDED BY SUCH ACT, OR (2) REGISTERED UNDER THE
SECURITIES LAWS OF ANY STATE OR TERRITORY OF THE UNITED STATES OR
PROVINCE OF CANADA WHICH MAY BE APPLICABLE, IN RELIANCE UPON AN
EXEMPTION FROM REGISTRATION AFFORDED BY SUCH STATE, TERRITORIAL AND/OR
PROVINCIAL SECURITIES LAWS. THESE SECURITIES HAVE BEEN ACQUIRED FOR
THE HOLDER'S OWN ACCOUNT FOR INVESTMENT PURPOSES AND NOT WITH A VIEW
FOR RESALE OR DISTRIBUTION. THESE SECURITIES MAY NOT BE SOLD OR
TRANSFERRED UNLESS (A) THEY HAVE BEEN REGISTERED UNDER THE SECURITIES
ACT AS WELL AS UNDER THE SECURITIES LAWS OF ANY STATE OR TERRITORY OF
THE UNITED STATES AS MAY THEN BE APPLICABLE, OR (B) THE TRANSFER AGENT
(OR THE COMPANY IF THEN ACTING AS ITS TRANSFER AGENT) IS PRESENTED
WITH EITHER A WRITTEN OPINION SATISFACTORY TO COUNSEL FOR THE COMPANY
OR A NO-ACTION OR INTERPRETIVE LETTER FROM
-27-
<PAGE>
THE UNITED STATES SECURITIES AND EXCHANGE COMMISSION AND ANY
APPLICABLE STATE, TERRITORIAL AND/OR PROVINCIAL SECURITIES REGULATORY
AGENCY TO THE EFFECT THAT SUCH REGISTRATION IS NOT REQUIRED UNDER THE
CIRCUMSTANCES OF SUCH SALE OR TRANSFER.
ARTICLE XIV
REPORTS TO RECIPIENTS OF AWARDS
-------------------------------
14.01 Financial Statements. The Company shall provide each Recipient with the
--------------------
Company's financial statements, in the form generally distributed to its
stockholders, at least annually.
ARTICLE XV
ADJUSTMENTS
-----------
15.01 Common Stock Recapitalization or Reclassification; Combination or Reverse
-------------------------------------------------------------------------
Stock Split; Forward Stock Split. If:
--------------------------------
A. (outstanding shares of Common Stock are subdivided into a greater
number of shares by reason of recapitalization or reclassification,
B. a dividend in Common Stock shall be paid or distributed in respect of
the Common Stock,
then the number of Plan Shares, if any, available for issuance under the
Plan, and the Option Price of any outstanding Options in effect
immediately prior to such subdivision or at the record date of such
dividend shall, simultaneously with the effectiveness of such subdivision
or immediately after the record date of such dividend, be proportionately
increased and reduced, respectively. If outstanding shares of Common Stock
are combined into a lesser number of shares by reason of combination or
reverse stock split, then the number of Plan Shares, if any, available for
issuance under the Plan, and the Option Price of any outstanding Option in
effect immediately prior to such combination shall, simultaneously with
the effectiveness of such combination, be proportionately reduced and
increased, respectively.
15.02 Consolidation or Merger; Exchange of Securities; Divisive Reorganization;
-------------------------------------------------------------------------
Other Reorganization or Reclassification. In case of
----------------------------------------
A. the consolidation, merger, combination or exchange of shares of
capital stock with another entity,
B. the divisive reorganization of the Company (i.e., split-up, spin-off
or split-off), or
C. any capital reorganization or any reclassification of Common Stock
(other than a recapitalization or reclassification described above in
section 15.01),
-------------
then the Recipient shall thereafter be entitled upon exercise of the
Option to purchase the kind and number of shares of capital stock or other
securities or property of the Company (or its successor{s}) receivable
upon such event by a Recipient of the number of Option Shares which such
Option entitles the Recipient to purchase from the Company immediately
prior to such event. In every such case, the Company may appropriately
adjust the number of Option Shares which may be issued under the Plan, the
number of Option Shares subject to Options theretofore granted under the
Plan, the Option Price of
-28-
<PAGE>
Options theretofore granted under the Plan, and any and all other matters
deemed appropriate by the Plan Administrator.
15.03 Adjustments Determined in Sole Discretion of Board. All adjustments to
--------------------------------------------------
be made pursuant to the foregoing subsections shall be made in such manner
as the Plan Administrator shall deem equitable and appropriate, the
determination of the Plan Administrator shall be final, binding and
conclusive.
15.04 No Other Rights to Recipient. Except as expressly provided in this
----------------------------
Article XV:
----------
A. the Recipient shall have no rights by reason of any subdivision or
consolidation of shares of capital stock of any class or the payment
of any stock dividend or any other increase or decrease in the number
of shares of stock of any class, and
B. the dissolution, liquidation, merger, consolidation or divisive
reorganization or sale of assets or stock to another corporation
(including any Approved Corporate Transactions), or any issue by the
Company of shares of capital stock of any class, or warrants or
options or rights to purchase securities (including securities
convertible into shares of capital stock of any class), shall not
affect, and no adjustment by reason thereof shall be made with respect
to, the number of, or the Option Price for, the Option Shares.
The grant of an Award pursuant to the Plan shall not in any way affect or
impede the right or power of the Company to make adjustments,
reclassifications, reorganizations or changes of its capital or business
structure or to merge, consolidate, dissolve or liquidate, or to sell or
transfer all or any part of its business or assets.
ARTICLE XVI
APPROVED CORPORATE TRANSACTIONS -- AFFECT ON OPTIONS
----------------------------------------------------
16.01 General. Notwithstanding Article XV above, in the event of the
------- ----------
occurrence of any Approved Corporate Transaction, or in the event of any
change in applicable laws, regulations or accounting principles, the Plan
Administrator in its discretion is hereby authorized to take any one or
more of the following actions whenever the Plan Administrator determines
that such action is appropriate in order to facilitate such Approved
Corporate Transactions or to give effect to changes in laws, regulations
or principles:
A. Purchase or Replacement of Option. In its sole and absolute
---------------------------------
discretion, and on such terms and conditions as it deems appropriate,
the Plan Administrator may provide, either by the terms of the
underlying Award Agreement or by action taken prior to the occurrence
of such transaction or event and either automatically or upon the
Recipient's request, for any one or combination of the following:
(1) the purchase of any such Option for an amount of cash equal to
the amount that could have been attained upon the exercise of
such Option, or realization of the Recipient's rights had such
Option been currently exercisable or payable or fully vested;
and/or
(2) the replacement of such Option with other rights or property
(which may or may not be securities) selected by the Plan
Administrator in its sole discretion.
-29-
<PAGE>
B. Acceleration of Vesting and Exercise. In its sole and absolute
------------------------------------
discretion, and on such terms and conditions as it deems appropriate,
the Plan Administrator may provide, either by the terms of the
underlying Award Agreement or by action taken prior to the occurrence
of such transaction or event, that such Option may not be exercised
after the occurrence of such event; provided, however, the Recipient
must be given the opportunity, for a specified period of time prior to
the consummation of such transaction, to exercise the Option as to all
Option Shares (i.e., both fully vested and unvested) covered thereby.
C. Assumption or Substitution. In its sole and absolute discretion,
--------------------------
and on such terms and conditions as it deems appropriate, the Plan
Administrator may provide, either by the terms of the underlying Award
Agreement or by action taken prior to the occurrence of such
transaction or event, that such Option be assumed by the successor or
survivor corporation, or a parent or subsidiary thereof, or shall be
substituted for by similar options covering the capital stock of the
successor or survivor corporation, or a parent or subsidiary thereof,
with appropriate adjustments as to the number and kind of shares and
prices.
ARTICLE XVII
CERTAIN TRANSACTIONS WITHOUT CHANGE IN
BENEFICIAL OWNERSHIP -- AFFECT ON OPTIONS
------------------------------------------
17.01 General. Notwithstanding Article XV above, in the event of a transaction
------- ----------
whose principal purpose is to change the State in which the Company is
incorporated, or to form a holding company, or to effect a similar
reorganization as to form of entity without change of beneficial
ownership, including, without limitation, through:
A. a merger or consolidation or stock exchange or divisive reorganization
(i.e., spin-off, split-off or split-up) or other reorganization with
respect to the Company and/or its stockholders, or
B. the sale, transfer, exchange or other disposition by the Company of
its assets in a single or series of related transactions,
then the Plan Administrator may provide, in its sole and absolute
discretion, and on such terms and conditions as it deems appropriate,
either by the terms of the underlying Award Agreement or by action taken
prior to the occurrence of such transaction or event, that such Option
shall be assumed by the successor or survivor corporation, or a parent or
subsidiary thereof, or shall be substituted for by similar options
covering the capital stock of the successor or survivor corporation, or a
parent or subsidiary thereof, with appropriate adjustments as to the
number and kind of shares and prices.
ARTICLE XVIII
DRAG-ALONG RIGHTS
-----------------
18.01 General. In the event the Board and, to the extent required by law, the
-------
stockholders of the Company, approve the sale, transfer, exchange or
other disposition of fifty percent (50%) or more of the capital stock of
the Company in a single or series of related transactions (an "Approved
Stock Sale Transaction"), the Company shall have the right (the "Drag-
Along Right") to require the Recipient and/or his, her or its permitted
successors, to sell, transfer, exchange or otherwise dispose of any Plan
Shares held by such Persons as part of such Approved Stock Sale
Transaction, notwithstanding that such Persons did not approve of such
Approved Stock Sale Transaction and/or did not otherwise consent to the
sale, transfer, exchange or other disposition of their Plan Shares
-30-
<PAGE>
in accordance with the terms of such Approved Stock Sale Transaction;
provided, however, in the event less than all of the shares of Common
Stock are to be sold, transferred, exchanged or otherwise disposed as part
of the Approved Stock Sale Transaction, the Recipient and/or his, her or
its permitted successors will not be required to sell, transfer, exchange
or otherwise dispose of a number of Plan Shares which exceeds the
aggregate number of Plan Shares held by such Person multiplied by a
fraction, the numerator of which is the number of Plan Shares held by such
Persons and the denominator of which is the total number of share of
Common Stock then issued and outstanding.
18.02 Legend on Shares. To facilitate compliance with the terms of this
----------------
Article XVIII, the Company shall have the right to place the following
-------------
legend on the certificates representing the Plan Shares:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN
DRAG-ALONG RIGHTS SET FORTH IN FULL IN THAT CERTAIN 2000 PINNACLE OIL
INTERNATIONAL. INC. DIRECTORS' STOCK PLAN DATED FEBRUARY 15, 2000, AS
IT MAY BE AMENDED OR RESTATED FROM TIME TO TIME, A COPY OF WHICH MAY
BE INSPECTED BY AUTHORIZED PERSONS AT THE PRINCIPAL OFFICE OF THE
COMPANY, AND ALL THE PROVISIONS OF WHICH ARE INCORPORATED BY REFERENCE
IN THIS CERTIFICATE."
18.03 Escrow; Irrevocable Power Of Attorney. For purposes of facilitating the
-------------------------------------
obligation to transfer set forth in this Article XVIII, the Company, in
-------------
its sole discretion, may require each Recipient and/or his, her or its
permitted successors, at the Company's cost, to deliver the share
certificate(s) representing the Plan Shares held by such Recipient and/or
his, her or its permitted successors (the "Stock Certificate") with a
stock power executed by such Recipient and/or his, her or its permitted
successors in blank, to the Secretary of the Company or the Company's
designee, to hold the Stock Certificate and stock power in escrow and to
take all such actions and to effectuate all such transfers or releases as
are in accordance with the terms of this Article XVIII. The Stock
-------------
Certificate may be held in escrow so long as the Plan Shares represented
by the Stock Certificate are subject to the terms of this Article XVIII.
-------------
The Recipient and/or his, her or its permitted successors each hereby
irrevocably constitutes and appoints the Secretary of the Company, with
full power of substitution, as the true and lawful attorney to act as
escrow holder for such Persons under this Article XVIII, and any
-------------
amendments to it. The power of attorney hereby granted is irrevocable and
shall be deemed to be coupled with an interest, and it shall survive
death, disability, dissolution or termination of the Recipient and/or his,
her or its permitted successors. The escrow holder will not be liable to
any party for any act or omission unless the escrow holder is grossly
negligent in performing such act or omission. The escrow holder may rely
upon any letter, notice or other document executed by any signature
purported to be genuine.
ARTICLE XIX
AMENDMENT AND DISCONTINUATION OF PLAN; MODIFICATION OF AWARDS
-------------------------------------------------------------
19.01 Amendment, Modification or Termination of Plan. The Board may amend or
----------------------------------------------
modify the Plan or suspend or discontinue the Plan at any time or from
time-to-time; provided, however, no such action may adversely alter or
impair any Award previously granted under the Plan without the consent of
each Recipient affected thereby.
19.02 Modification of Terms of Outstanding Options. Subject to the terms and
--------------------------------------------
conditions and within the limitations of the Plan, the Plan Administrator
may modify the terms and conditions of any outstanding Options granted
under the Plan, including extending the
-31-
<PAGE>
expiration date of such Options or renewing such Options or repricing such
options or modifying any vesting conditions, or accept the surrender of
outstanding Options (to the extent not theretofore exercised) and
authorize the granting of new Options in substitution therefor (to the
extent not theretofore exercised); provided, however, no modification of
any outstanding Option may, without the consent of the Recipient affected
thereby, adversely alter or impair such Recipients rights under such
Option.
19.03 Modification of Vesting Conditions Placed on Forfeitable Grant Shares.
---------------------------------------------------------------------
Subject to the terms and conditions and within the limitations of the
Plan, including vesting conditions, the Plan Administrator may modify the
terms and conditions placed upon the grant of any Forfeitable Grant
Shares; provided, however, no modification of any conditions placed upon
Forfeitable Grant Shares may, without the consent of the Recipient
thereof, adversely alter or impair such Recipient's rights with respect to
such Forfeitable Grant Shares.
19.04 Compliance with Laws. The Plan Administrator may, at any time or from
--------------------
time-to-time, without receiving further consideration from, or paying any
consideration to, any Person who may become entitled to receive or who has
received the grant of an Award hereunder, modify or amend Awards granted
under the Plan as required to:
A. comport with changes in securities, tax or other laws or rules,
regulations or regulatory interpretations thereof applicable to the
Plan or Awards thereunder or to comply with the rules or requirements
of any stock exchange or Nasdaq and/or
B. ensure that the Plan is and remains exempt from the application of any
participation, vesting, benefit accrual, funding, fiduciary,
reporting, disclosure, administration or enforcement requirement of
either the Employee Retirement Income Security Act of 1974, as amended
("ERISA"), or the corresponding provisions of the Internal Revenue
Code of 1986, as amended (Subchapter D of Title A, Chapter 1 of the
Code {encompassing Sections 400 to 420 of the Code}).
ARTICLE XX
MISCELLANEOUS
-------------
20.01 Performance on Business Day. In the event the date on which a party to
---------------------------
the Plan is required to take any action under the terms of the Plan is not
a business day, the action shall, unless otherwise provided herein, be
deemed to be required to be taken on the next succeeding business day.
20.02 Employment Status. In no event shall the granting of an Award be
-----------------
construed to:
A. grant a continued right of employment to a Recipient if such Person is
employed by the Company and/or by the Parent and/or any Subsidiary, or
B. affect, restrict or interfere with in any way any right the Company
and/or Parent and/or any Subsidiary may have to terminate or otherwise
discharge the employment and/or engagement of such Person, at any
time, with or without cause, except to the extent that such Person and
the Company and/or Parent and/or any Subsidiary may have otherwise
expressly agreed in writing.
20.03 Non-Liability For Debts; Restrictions Against Transfer. No Options or
------------------------------------------------------
unvested Forfeitable Grant Shares granted hereunder, or any part
--------
thereof, shall:
-32-
<PAGE>
A. be liable for the debts, contracts, or engagements of a Recipient, or
such Recipient's successors in interest as permitted under this Plan,
or
B. be subject to disposition by transfer, alienation, or any other means
whether such disposition be voluntary or involuntary or by operation
of law, by judgment, levy, attachment, garnishment, or any other legal
or equitable proceeding (including bankruptcy), and any attempted
disposition thereof shall be null and void ab initio and of no further
force and effect.
20.04 Relationship Of Plan To Other Options And Compensation Plans. The
------------------------------------------------------------
adoption of this Plan shall not affect any other compensation or incentive
plans in effect for the Company or any Parent or Subsidiary. Nothing in
this Plan shall be construed to limit the right of the Company to:
A. establish any other forms of incentives or compensation for Directors
of the Company and/or of any Parent and/or any Subsidiary; or
B. to grant options to purchase shares of Common Stock or to award shares
of Common Stock or grant any other securities or rights otherwise
under this Plan in connection with any proper corporate purpose
including but not by way of limitation, in connection with the
acquisition by purchase, lease, merger, consolidation or otherwise, of
the business, stock or assets of any corporation, partnership, firm or
association.
20.05 Severability. If any term or provision of this Plan or the application
------------
thereof to any person or circumstance shall, to any extent, be determined
to be invalid, illegal or unenforceable under present or future laws,
then, and in that event:
A. the performance of the offending term or provision (but only to the
extent its application is invalid, illegal or unenforceable) shall be
excused as if it had never been incorporated into this Plan, and, in
lieu of such excused provision, there shall be added a provision as
similar in terms and amount to such excused provision as may be
possible and be legal, valid and enforceable; and
B. the remaining part of this Plan (including the application of the
offending term or provision to persons or circumstances other than
those as to which it is held invalid, illegal or unenforceable) shall
not be affected thereby, and shall continue in full force and effect
to the fullest extent provided by law.
20.06 Headings; References; Incorporation; Gender; Statutory References.
-----------------------------------------------------------------
The headings used in this Plan are for convenience and reference purposes
only, and shall not be used in construing or interpreting the scope or
intent of this Plan or any provision hereof. References to this Plan shall
include all amendments or renewals thereof. All cross-references in this
Plan, unless specifically directed to another agreement or document, shall
be construed only to refer to provisions within this Plan, and shall not
be construed to be referenced to the overall transaction or to any other
agreement or document. Any Exhibit referenced in Plan shall be construed
to be incorporated in this Plan by such reference. As used in this Plan,
each gender shall be deemed to include the other gender, including neutral
genders appropriate for entities, if applicable, and the singular shall be
deemed to include the plural, and vice versa, as the context requires. Any
reference to statutes or laws will include all amendments, modifications,
or replacements of the specific sections and provisions concerned.
20.07 Applicable Law. This Plan and the rights and remedies of each party
--------------
arising out of or relating to this Plan (including, without limitation,
equitable remedies) shall (with the
-33-
<PAGE>
exception of the Securities Laws) be solely governed by, interpreted
under, and construed and enforced in accordance with the laws (without
regard to the conflicts of law principles) of the State of Nevada, as if
this Plan were made, and as if its obligations are to be performed, wholly
within the State of Nevada.
-34-
<PAGE>
Exhibit 4.2
-----------
================================================================================
STOCK OPTION CERTIFICATE
2000 PINNACLE OIL INTERNATIONAL, INC. DIRECTORS' STOCK PLAN
-----------------------------------------------------------
[To be prepared by the Company and signed by the Recipient]
<TABLE>
<CAPTION>
==========================================================================================================
<S> <C>
Name of Recipient......................
------------------------------------------------------------------
Capacity of Recipient.................. Director
Legal Address/Domicile of Recipient....
------------------------------------------------------------------
Citizenship of Recipient............... [_] United States [_] Canada
[_] Other:
-------------------------------------------------------
Number of Option Shares................
------------------------------------------------------------------
Option Price per Option Share.......... U.S. $
--------------
Classification of Option............... [_] Non-Qualified Option [_] Incentive Option
Vesting................................ [_] Fully Vested
[_] Continuous Service Vesting (see sections 2 through 4 below)
---------- -
Continuous Services Vesting Date:
Option Expiration Date................. (subject to section 4 below)
---------
Option Effective Date..................
------------------------------------------------------------------
U.S. Federal Exemption To Be Relied
Upon at the Time of Exercise........... Form S-8 of the United States Securities Act of 1933 (if filed);
otherwise Regulation D of the United States Securities Act
(Rule 505 or 506)
Blue Sky Exemption Relied Upon.........
------------------------------------------------------------------
==========================================================================================================
</TABLE>
THE SECURITIES OFFERED HEREBY HAVE NOT BEEN REGISTERED WITH, OR APPROVED OR
DISAPPROVED BY, THE UNITED STATES SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE, TERRITORIAL OR PROVINCIAL SECURITIES REGULATORY AGENCY, INCLUDING THE
ALBERTA SECURITIES COMMISSION, NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR
ANY STATE, TERRITORIAL OR PROVINCIAL SECURITIES REGULATORY AGENCY, INCLUDING THE
ALBERTA SECURITIES COMMISSION, REVIEWED OR PASSED UPON OR ENDORSED THE MERITS OF
THE OFFERING CONTEMPLATED BY THIS STOCK OPTION CERTIFICATE OR THE ACCURACY OR
ADEQUACY OF ANY OFFERING MATERIALS, INCLUDING THE 2000 PINNACLE OIL
INTERNATIONAL, INC. DIRECTORS' STOCK PLAN OR THE PLAN SUMMARY FOR SUCH
DIRECTORS' STOCK PLAN. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE. THESE SECURITIES ARE SPECULATIVE AND INVOLVE A HIGH DEGREE OF RISK AND
SUBSTANTIAL AND IMMEDIATE DILUTION. THERE IS A LIMITED PUBLIC MARKET FOR THE
SALE OF THESE SECURITIES BY THE RECIPIENT. THESE SECURITIES MAY NOT BE SOLD OR
TRANSFERRED UNLESS REGISTERED, OR THE RECIPIENT PROVIDES THE COMPANY AN OPINION
OF COUNSEL SATISFACTORY TO THE COMPANY, OR ITS LEGAL COUNSEL, THAT SUCH
REGISTRATION IS NOT REQUIRED BY REASON OF AN EXEMPTION OR OTHERWISE. AS A
RESULT, THESE SECURITIES ARE SUITABLE ONLY FOR CERTAIN SOPHISTICATED AND
QUALIFIED INVESTORS WHO CAN BEAR THE FINANCIAL RISK OF AN INVESTMENT IN THESE
SECURITIES FOR AN INDEFINITE PERIOD OF TIME.
================================================================================
<PAGE>
No.
----
================================================================================
THIS STOCK OPTION CERTIFICATE is entered into between Pinnacle Oil
International, Inc., a Nevada corporation (the "Company"), whose principal
executive office is located at 840 7th Avenue, Suite 750, Phoenix Place, S.W.,
Calgary, Alberta, Canada, T2P 3G2, and the Recipient identified on the first
page of this Stock Option Certificate (the "Recipient"), pursuant to that
certain 2000 Pinnacle Oil International, Inc. Directors' Stock Plan dated
February 15, 2000, as such Plan may be amended and/or restated from time to time
(the "Plan"). Subject to the terms of this Stock Option Certificate, the
Recipient's rights to purchase the Option Shares are governed by the Plan, the
terms of which are incorporated herein by this reference. Defined terms in this
Stock Option Certificate shall have the same meaning as defined terms in the
Plan.
1. GRANT OF OPTION
This Stock Option Certificate certifies that the Company has granted to the
Recipient, pursuant to the terms of the Plan, a stock option (the "Option")
to purchase, in whole or in part, the number of Option Shares designated on
the first page of this Stock Option Certificate (collectively and
severally, the "Option Shares"), representing shares of the common stock,
par value $0.001 (the "Common Stock") of the Company, at the exercise or
Option Price per Option Share designated on the first page of this Stock
Option Certificate (the "Option Price"), subject to the following terms and
conditions.
2. CONTINUOUS SERVICE VESTING
If the Option Shares are subject to vesting by reason of the Continuous
Service Vesting designation set forth on the first page of this Stock
Option Certificate, then, subject to section 5.05 of the Plan, the Option
------------
Shares are subject to vesting based upon continued performance of services
in the capacity set forth on the first page of this Stock Option
Certificate through the Continuous Service Vesting Date (as such date is
defined on the first page of this Stock Option Certificate), subject,
however, to the following:
(a) Death. In the event of the death of the Recipient, all unvested
----- --------
Options Shares which would have vested within the twelve (12) month
period following the date of death will vest effective as of the date
of death, and the prospective right to purchase the balance of the
remaining unvested Option Shares shall lapse.
--------
(b) Change Of Control. In the event of a Change in Control (as such term
-----------------
is defined in the Plan); then the prospective right to purchase
unvested Option Shares shall vest as of the effective date of
--------
termination.
3. CONTINUOUS SERVICE VESTING -- ACCELERATION OF VESTING IN THE EVENT OF
TERMINATION OF RECIPIENT
If the Option Shares are subject to vesting by reason of the Continuous
Service Vesting designation set forth on the first page of this Stock
Option Certificate, then the prospective right to purchase unvested Option
--------
Shares shall, subject to the vesting provisions of section 2 of this Stock
---------
Option Certificate, immediately lapse if such right does not vest prior to
Termination Of Recipient.
4. TERM OF OPTION
The right to exercise the Options granted by this Stock Option Certificate
shall commence on the Option Effective Date designated on the first page of
this Stock Option Certificate, and shall expire and be null and void ab
initio and of no further force or effect to the extent not exercised by
5:00 p.m. M.S.T., on the Option Expiration Date designated on the first
page of this Stock Option
-2-
<PAGE>
No.
----
================================================================================
Certificate (the "Option Expiration Date"); provided, however, if the
Option Shares are subject to the Continuous Service Vesting designation set
forth on the first page of this Stock Option Certificate, then, pursuant to
section 5.05 of the Plan but subject to the vesting provisions of section 2
------------ ---------
of this Stock Option Certificate, in the event of Termination Of Recipient,
the expiration date shall be accelerated to two (2) years after the
effective date of Termination Of Recipient (if earlier than the Option
Expiration Date).
5. DELIVERIES; MANNER OF EXERCISE AND PAYMENT
This Option shall be exercised by delivery of the following to the
Secretary of the Company at the Company's principal executive offices: (i)
this Stock Option Certificate, duly signed by the Recipient; (ii) full
payment for the Option Shares to be purchased in (1) immediately available
funds (in U.S. dollars); (2) if and to the extent consented to by the
Board, shares of Common Stock pursuant to section 8.01A of the Plan; (3)
-------------
if and to the extent consented to by the Board, surrender or relinquishment
of rights to acquire Common Stock pursuant to section 8.01B of the Plan;
-------------
(4) if and to the extent consented to by the Board, a promissory note
pursuant to section 8.01D of the Plan; and/or (5) if and to the extent
-------------
consented to by the Board, other property constituting good and valuable
consideration pursuant to section 8.01F of the Plan; and (iii) a Consent of
-------------
Spouse (as such consent is defined in the Plan) from the spouse of the
Recipient, if any, duly signed by such spouse.
6. EXERICISE AND TRANSFER OF OPTION
Options may only be exercised by the original Recipient hereof, and may not
be Transferred by such Recipient, except upon and following the Death of a
Recipient (if a natural person), but only to the Recipient's Successors as
provided in sections 11.02 and 11.03 of the Plan. Any Transfer or exercise
-------------- -----
of an Option so Transferred in violation of this Stock Option Certificate
shall be null and void ab initio and of no further force and effect.
7. MISCELLANEOUS
(a) Preparation of Stock Option Certificate; Costs and Expenses. This
-----------------------------------------------------------
Stock Option Certificate was prepared by the Company solely on behalf
of the Company. Each party acknowledges that: (i) he, she or it had
the advice of, or sufficient opportunity to obtain the advice of,
legal counsel separate and independent of legal counsel for any other
party hereto; (ii) the terms of the transaction contemplated by this
Stock Option Certificate are fair and reasonable to such party; and
(iii) such party has voluntarily entered into the transaction
contemplated by this Stock Option Certificate without duress or
coercion. Each party further acknowledges such party was not
represented by the legal counsel of any other party hereto in
connection with the transaction contemplated by this Stock Option
Certificate, nor was such party under any belief or understanding that
such legal counsel was representing his, her or its interests. Except
as expressly set forth in this Stock Option Certificate, each party
shall pay all legal and other costs and expenses incurred or to be
incurred by such party in negotiating and preparing this Stock Option
Certificate; in performing due diligence or retaining professional
advisors; in performing any transactions contemplated by this Stock
Option Certificate; or in complying with such party's covenants,
agreements and conditions contained herein. Each party agrees that no
conflict, omission or ambiguity in this Stock Option Certificate, the
Plan and/or the Plan Summary or the interpretation thereof, shall be
presumed, implied or otherwise construed against the Company or any
other party to this Stock Option Certificate on the basis that such
party was responsible for drafting this Stock Option Certificate.
(b) Cooperation. Each party agrees, without further consideration, to
-----------
cooperate and diligently perform any further acts, deeds and things,
and to execute and deliver any
-3-
<PAGE>
No.
----
================================================================================
documents that may be reasonably necessary or otherwise reasonably
required to consummate, evidence, confirm and/or carry out the intent
and provisions of this Stock Option Certificate, all without undue
delay or expense.
(c) Interpretation.
--------------
(i) Survival. All representations and warranties made by any party
--------
in connection with any transaction contemplated by this Stock
Option Certificate shall, irrespective of any investigation made
by or on behalf of any other party hereto, survive the execution
and delivery of this Stock Option Certificate and the
performance or consummation of any transaction described in this
Stock Option Certificate.
(ii) Entire Agreement/No Collateral Representations. Each party
----------------------------------------------
expressly acknowledges and agrees that this Stock Option
Certificate, together with and subject to the Plan and the Plan
Summary: (1) is the final, complete and exclusive statement of
the agreement of the parties with respect to the subject matter
hereof; (2) supersedes any prior or contemporaneous agreements,
proposals, commitments, guarantees, assurances, communications,
discussions, promises, representations, understandings, conduct,
acts, courses of dealing, warranties, interpretations or terms
of any kind, whether oral or written (collectively and
severally, the "prior agreements"), and that any such prior
agreements are of no force or effect except as expressly set
forth herein; and (3) may not be varied, supplemented or
contradicted by evidence of prior agreements, or by evidence of
subsequent oral agreements. No prior drafts of this Stock Option
Certificate, and no words or phrases from any prior drafts,
shall be admissible into evidence in any action or suit
involving this Stock Option Certificate.
(iii) Amendment; Waiver; Forbearance. Except as expressly provided
------------------------------
otherwise herein, neither this Stock Option Certificate nor any
of the terms, provisions, obligations or rights contained herein
may be amended, modified, supplemented, augmented, rescinded,
discharged or terminated (other than by performance), except as
provided in the Plan or by a written instrument or instruments
signed by all of the parties to this Stock Option Certificate.
No waiver of any breach of any term, provision or agreement
contained herein, or of the performance of any act or obligation
under this Stock Option Certificate, or of any extension of time
for performance of any such act or obligation, or of any right
granted under this Stock Option Certificate, shall be effective
and binding unless such waiver shall be in a written instrument
or instruments signed by each party claimed to have given or
consented to such waiver and each party affected by such waiver.
Except to the extent that the party or parties claimed to have
given or consented to a waiver may have otherwise agreed in
writing, no such waiver shall be deemed a waiver or
relinquishment of any other term, provision, agreement, act,
obligation or right granted under this Stock Option Certificate,
or any preceding or subsequent breach thereof. No forbearance by
a party to seek a remedy for any noncompliance or breach by
another party hereto shall be deemed to be a waiver by such
forbearing party of its rights and remedies with respect to such
noncompliance or breach, unless such waiver shall be in a
written instrument or instruments signed by the forbearing
party.
(iv) Remedies Cumulative. The remedies of each party under this
-------------------
Stock Option Certificate are cumulative and shall not exclude
any other remedies to which such party may be lawfully entitled,
at law or in equity.
-4-
<PAGE>
No.
----
================================================================================
(v) Severability. If any term or provision of this Stock Option
------------
Certificate or the application thereof to any person or
circumstance shall, to any extent, be determined to be invalid,
illegal or unenforceable under present or future laws, then,
and in that event: (1) the performance of the offending term or
provision (but only to the extent its application is invalid,
illegal or unenforceable) shall be excused as if it had never
been incorporated into this Stock Option Certificate, and, in
lieu of such excused provision, there shall be added a
provision as similar in terms and amount to such excused
provision as may be possible and be legal, valid and
enforceable; and (2) the remaining part of this Stock Option
Certificate (including the application of the offending term or
provision to persons or circumstances other than those as to
which it is held invalid, illegal or unenforceable) shall not
be affected thereby, and shall continue in full force and
effect to the fullest extent provided by law.
(vi) Parties in Interest. Notwithstanding anything else to the
-------------------
contrary herein, nothing in this Stock Option Certificate shall
confer any rights or remedies under or by reason of this Stock
Option Certificate on any persons other than the parties hereto
and their respective successors and assigns, if any, as may be
permitted under the Plan or hereunder, nor shall anything in
this Stock Option Certificate relieve or discharge the
obligation or liability of any third person to any party to
this Stock Option Certificate, nor shall any provision give any
third person any right of subrogation or action over or against
any party to this Stock Option Certificate.
(vii) No Reliance Upon Prior Representation. Each party
-------------------------------------
acknowledges that: (i) no other party has made any oral
representation or promise which would induce them prior to
executing this Stock Option Certificate to change their
position to their detriment, to partially perform, or to part
with value in reliance upon such representation or promise; and
(ii) such party has not so changed its position, performed or
parted with value prior to the time of the execution of this
Stock Option Certificate, or such party has taken such action
at its own risk.
(viii) Headings; References; Incorporation; "Person"; Gender;
------------------------------------------------------
Statutory References. The headings used in this Stock Option
--------------------
Certificate are for convenience and reference purposes only,
and shall not be used in construing or interpreting the scope
or intent of this Stock Option Certificate or any provision
hereof. References to this Stock Option Certificate shall
include all amendments or renewals thereof. All cross-
references in this Stock Option Certificate, unless
specifically directed to another agreement or document, shall
be construed only to refer to provisions within this Stock
Option Certificate, and shall not be construed to be referenced
to the overall transaction or to any other agreement or
document. Any Exhibit referenced in this Stock Option
Certificate shall be construed to be incorporated in this Stock
Option Certificate by such reference. As used in this Stock
Option Certificate, the term "person" is defined in its
broadest sense as any individual, entity or fiduciary who has
legal standing to enter into this Stock Option Certificate such
as, by way of example and not limitation, individual or natural
persons and trusts. As used in this Stock Option Certificate,
each gender shall be deemed to include the other gender,
including neutral genders appropriate for entities, if
applicable, and the singular shall be deemed to include the
plural, and vice versa, as the context requires. Any reference
to statutes or laws will include all amendments, modifications,
or replacements of the specific sections and provisions
concerned.
-5-
<PAGE>
No.
----
================================================================================
(d) Enforcement.
-----------
(i) Applicable Law. This Stock Option Certificate and the rights
--------------
and remedies of each party arising out of or relating to this
Stock Option Certificate (including, without limitation,
equitable remedies) shall (with the exception of the Securities
Act and the Blue Sky Laws) be solely governed by, interpreted
under, and construed and enforced in accordance with the laws
(without regard to the conflicts of law principles) of the
Province of Alberta, Canada, as if this Stock Option Certificate
were made, and as if its obligations are to be performed, wholly
within the Province of Alberta, Canada.
(ii) Consent to Jurisdiction; Service of Process. Any "action or
-------------------------------------------
proceeding" (as such term is defined below) arising out of or
relating to this Stock Option Certificate shall be filed in and
heard and litigated solely before the provincial courts of
Alberta, Canada, located within the City of Calgary, Alberta,
Canada. Each party generally and unconditionally accepts the
exclusive jurisdiction of such courts and venue therein;
consents to the service of process in any such action or
proceeding by certified or registered mailing of the summons and
complaint in accordance with the notice provisions of this Stock
Option Certificate; and waives any defense or right to object to
venue in said courts based upon the doctrine of "forum non
conveniens." The term "action or proceeding" is defined as any
and all claims, suits, actions, hearings, arbitrations or other
similar proceedings, including appeals and petitions therefrom,
whether formal or informal, governmental or non-governmental, or
civil or criminal.
(iii) Waiver of Right to Jury Trial. Each party hereby waives such
-----------------------------
party's respective right to a jury trial of any claim or cause
of action based upon or arising out of this Stock Option
Certificate. Each party acknowledges that this waiver is a
material inducement to each other party hereto to enter into the
transaction contemplated hereby; that each other party has
already relied upon this waiver in entering into this Stock
Option Certificate; and that each other party will continue to
rely on this waiver in their future dealings. Each party
warrants and represents that such party has reviewed this waiver
with such party's legal counsel, and that such party has
knowingly and voluntarily waived its jury trial rights following
consultation with such legal counsel.
(e) Successors and Assigns. All of the representations, warranties,
----------------------
covenants, conditions and provisions of this Stock Option Certificate
shall be binding upon and shall inure to the benefit of each party and
such party's respective successors and permitted assigns, spouses,
heirs, executors, administrators, and personal and legal
representatives.
(f) Notices. Except as otherwise specifically provided in this Stock
-------
Option Certificate, all notices, demands, requests, consents,
approvals or other communications (collectively and severally called
"notices") required or permitted to be given hereunder shall be given
in accordance with the notice provisions in the Plan.
(g) Counterparts. This Stock Option Certificate may be executed in
------------
counterparts, each of which shall be deemed an original, and all of
which together shall constitute one and the same instrument, binding
on all parties hereto. Any signature page of this Stock Option
Certificate may be detached from any counterpart of this Stock Option
Certificate and reattached to any other counterpart of this Stock
Option Certificate identical in form hereto by having attached to it
one or more additional signature pages.
-6-
<PAGE>
No.
----
================================================================================
WHEREFORE, the parties hereto have for purposes of this Stock Option Certificate
executed this Stock Option Certificate in Calgary, Alberta, Canada, effective as
of the Option Effective Date first set forth on the first page of this Stock
Option Certificate.
COMPANY:
Pinnacle Oil International, Inc.,
a Nevada corporation
By:
----------------------------------------
Daniel C. Topolinsky,
President and Chief Operating Officer
RECIPIENT:
- -------------------------------------------
-7-
<PAGE>
No.
----
================================================================================
Attachment to Stock Option Certificate
NOTICE OF EXERCISE OF STOCK OPTION
----------------------------------
[To be signed by the Recipient only upon exercise of Option]
TO: Secretary
Pinnacle Oil International, Inc.
840 7th Avenue, Suite 750, Phoenix Place, S.W.
Calgary, Alberta, Canada T2P 3G2
The undersigned, the holder of Options under that certain Stock Option
Certificate (the "Option Certificate") dated effective between Pinnacle
-------
Oil International, Inc., a Nevada corporation (the "Company") and the
undersigned (the "Recipient"), hereby irrevocably elects, in accordance with the
terms and conditions of that certain 2000 Pinnacle Oil International, Inc.
Directors' Stock Plan dated February 15, 2000, as it may be amended from time to
time (the "Plan"), under which the Stock Option Certificate was granted, to
exercise the undersigned's Option under the Plan to purchase
------------------
- -------------------------------------------------------------------------------
( )/(1)/ shares of the common stock, no par value ("Common Stock")
--------------
the Company (collectively and severally, the "Option Shares"), for the aggregate
purchase price of ($ )./(2)/.
--------------------------------------- --------------
/(1)/ Insert number of Option Shares as specified in the Stock Option
Certificate which are vested Option Shares (as defined by the Plan)
which the Recipient is exercising the Recipient's Option to purchase.
/(2)/ Number of Option Shares to be exercised as specified above multiplied
by the Option Price per share ($____ per share).
The Recipient hereby makes the following acknowledgments to the Company:
A. That the Company shall have the right, to the extent required by applicable
law, to withhold from the Recipient's compensation such amounts as may be
sufficient to satisfy any federal, state, territorial and/or provincial
withholding tax requirements incident to such exercise pursuant to section
-------
5.06B of the Plan, and the Recipient shall remit to the Company any
-----
additional amounts which may be required.
B. That the Company shall have the right (unless the Company in its sole
discretion, and without any obligation to do so) registers the Option
Shares under Form S-8 or any comparable registration statement) to place
the following legend (or any variation thereof determined appropriate by
the Company) on the share certificate or certificates for the Option Shares
to comply with applicable federal, state and territorial securities laws:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN (1)
REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED, IN
RELIANCE UPON AN EXEMPTION FROM REGISTRATION AFFORDED BY SUCH ACT, OR (2)
REGISTERED UNDER THE SECURITIES LAWS OF ANY STATE OR TERRITORY OF THE
UNITED STATES WHICH MAY BE APPLICABLE, IN RELIANCE UPON AN EXEMPTION FROM
REGISTRATION AFFORDED BY SUCH STATE OR TERRITORIAL SECURITIES LAWS. THESE
SECURITIES HAVE BEEN ACQUIRED FOR THE HOLDER'S OWN ACCOUNT FOR INVESTMENT
PURPOSES AND NOT WITH A VIEW FOR RESALE OR DISTRIBUTION.
-1-
<PAGE>
No.
----
================================================================================
THESE SECURITIES MAY NOT BE SOLD OR TRANSFERRED WITHIN THE UNITED STATES OR
ANY OF ITS TERRITORIES UNLESS (1) THEY HAVE BEEN REGISTERED UNDER THE
UNITED STATES SECURITIES ACT OF 1933 AS WELL AS UNDER THE SECURITIES LAWS
OF ANY STATE OR TERRITORY OF THE UNITED STATES AS MAY THEN BE APPLICABLE,
OR (2) THE TRANSFER AGENT (OR THE COMPANY IF THEN ACTING AS ITS TRANSFER
AGENT) IS PRESENTED WITH EITHER A WRITTEN OPINION SATISFACTORY TO COUNSEL
FOR THE COMPANY OR A NO-ACTION OR INTERPRETIVE LETTER FROM THE UNITED
STATES SECURITIES AND EXCHANGE COMMISSION AND ANY APPLICABLE STATE OR
TERRITORIAL SECURITIES REGULATORY AGENCY TO THE EFFECT THAT SUCH
REGISTRATION IS NOT REQUIRED UNDER THE CIRCUMSTANCES OF SUCH SALE OR
TRANSFER."
C. That the Company shall have the right (unless the Company in its sole
discretion, and without any obligation to do so) obtains a discretionary
order from any applicable provincial securities commission, to place the
following legend (or any variation thereof determined appropriate by the
Company) on the share certificate or certificates for the Option Shares to
comply with applicable provincial securities laws:
"RESIDENTS OF ALBERTA OR ANY OTHER PROVINCE OF CANADA ARE SUBJECT TO AN
INDEFINITE HOLD PERIOD, AND THE TRANSFER OF THESE SECURITIES BY A RESIDENT
OF THESE PROVINCES CAN ONLY BE EFFECTUATED PURSUANT TO AN EXEMPTION FROM
THE REGISTRATION AND PROSPECTUS REQUIREMENTS OF THE APPLICABLE SECURITIES
ACT OF SUCH PROVINCES OR PURSUANT A DISCRETIONARY ORDER OF THE APPLICABLE
SECURITIES COMMISSION."
D. That the Company shall have the right to place the following legend (or any
variation thereof determined appropriate by the Company) on the share
certificate or certificates for the Option Shares to comply with the Drag-
Along Rights granted to the Company pursuant to Article XVIII of the Plan:
-------------
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN
DRAG-ALONG RIGHTS SET FORTH IN FULL IN THAT CERTAIN 2000 PINNACLE OIL
INTERNATIONAL, INC. DIRECTORS' STOCK PLAN DATED FEBRUARY 15, 2000, AS IT
MAY BE AMENDED OR RESTATED FROM TIME TO TIME, A COPY OF WHICH MAY BE
INSPECTED BY AUTHORIZED PERSONS AT THE PRINCIPAL OFFICE OF THE COMPANY, AND
ALL THE PROVISIONS OF WHICH ARE INCORPORATED BY REFERENCE IN THIS
CERTIFICATE."
The Recipient hereby makes the following representations, warranties or
covenants to the Company, each of which is deemed to be a separate
representation, warranty and covenant:
A. The Recipient's permanent legal residence and domicile, if the Recipient is
an individual, or permanent legal executive offices and principal place of
business, if the Recipient is an Entity, is in the State, territory or
province specified below the Recipient's signature below on this Notice as
of the time of his, her or its exercise of the Stock Option Certificate.
B. The Recipient, if a natural person, is age eighteen (18) or over.
C. The Recipient has received a copy of the Plan as well as a copy of the 2000
Pinnacle Oil International, Inc. Directors' Stock Plan Summary (the "Plan
Summary"), which explains the administration and operation of the Plan,
risk factors concerning an investment in the Common Stock and the Company,
the tax consequences of grants of Options under the Plan, and certain other
relevant matters pertaining to the Plan, and has read and understood the
Plan and the Plan Summary.
-2-
<PAGE>
No.
----
================================================================================
D. The Recipient:
1. has taken the opportunity, prior to exercising the Option, to engage
such investment professionals and advisors including, without
limitation, accountants, appraisers, investment, tax and legal
advisors, each of whom are independent of the Company and its advisors
and agents, to:
(A) conduct such due diligence review as the Recipient and/or such
investment professionals and advisors deem necessary or
advisable; and
(B) to provide such opinions as to (i) the investment merits of a
proposed investment in the Option Shares, the tax consequences of
the grant and exercise of the Option, and the subsequent
disposition of the Option Shares, and (ii) the effect of same
upon the Recipient's personal financial circumstances, as the
Recipient and/or his, her or its investment professionals and
advisors have or may deem advisable; and
2. has received, to the extent he, she or it has availed himself, herself
or itself of these opportunities, satisfactory information and answers
from such investment professionals and advisors.
E. Without limiting the generality of the immediately preceding paragraph,
prior to exercising the Option:
1. the Recipient and his, her or its investment professionals and
advisors have taken the opportunity, to the extent the Recipient
and/or such investment professionals and advisors have determined it
to be necessary, to:
(A) be provided with financial and other written information (in
addition to that contained in the Plan and Plan Summary);
(B) ask questions and receive answers concerning the terms and
conditions of the Stock Option Certificate, an investment in the
Option Shares, and the business of the Company and its finances;
and
(C) review all documents, books and records of the Company; and
2. the Recipient and/or his, her or its investment professionals and
advisors have received, to the extent they have availed themselves of
these opportunities, satisfactory information and answers.
F. With the exception of written information given to the Recipient by the
principal executive officers of the Company, no person has provided any
information (other than the provision of the Plan and Plan Summary), or
made any representations to the Recipient, concerning the Company or its
past, present or future business; on which the Recipient has relied in
offering to purchase the Option Shares.
G. The Recipient has been informed and understands and agrees as follows:
1. Unless and to the extent the Company has registered the Option Shares
there are substantial restrictions on the transferability of the
Option Shares as set forth in the Plan and as are more particularly
described in the Plan Summary;
-3-
<PAGE>
No.
----
================================================================================
2. as a result of such restrictions,
(A) it may not be possible for the Recipient to sell or otherwise
liquidate the Option Shares in the case of emergency and/or other
need, and the Recipient must therefore be able to hold the Option
Shares until the lapse of said restrictions,
(B) the Recipient must have adequate means of providing for the
Recipient's current needs and personal contingencies, and
(C) the Recipient must have no need for liquidity in an investment in
the Option Shares; and
3. the Recipient has evaluated the Recipient's financial resources and
investment position in view of the foregoing, and the Recipient is
able to bear the economic risk of an investment in the Option Shares.
H. Unless and to the extent the Company has registered the Option Shares:
1. the Option Shares will be purchased by the Recipient as principal and
not by any other person, with the Recipient's own funds and not with
the funds of any other person, and for the account of the Recipient
and not as a nominee or agent and not for the account of any other
person;
2. the Recipient will purchase the Option Shares for investment purposes
only for an indefinite period, and not with a view to the sale or
distribution of any part or all thereof by public or private sale or
other disposition; and
3. no person other than the Recipient will have any interest, beneficial
or otherwise, in the Option Shares, and the Recipient is not obligated
(and will not be obligated at time of exercise) to transfer the Option
Shares to any other person, nor does the Recipient have any agreement
or understanding to do so.
I. The Recipient has complied with all applicable investment laws and
regulations in force relating to the legality of an investment in the
Option Shares by the Recipient in any jurisdiction in which he, she or it
purchases the Option Shares, and has obtained any consent, approval or
permission required of him, her or it for the purchase of the Option Shares
under the investment laws and regulations in force in any jurisdiction to
which he, she or it is subject, or in which he, she or it makes such
purchase, and the Company shall have no responsibility therefor.
J. With the exception of the provision of the Plan and the Plan Summary, the
Recipient has not seen, received, been presented with or been solicited by
any advertisement, article, notice, leaflet or other communication (whether
published in any newspaper, magazine, or similar media or broadcast over
television or radio or otherwise generally disseminated or distributed); or
through any public or promotional seminar or meeting to which the Recipient
was invited through any such advertisement, article, notice, leaflet or
other communication.
K. The Recipient has not retained any broker-dealer, placement agent or finder
to whom the Company will have any obligation to pay any commissions or
fees.
Each of the foregoing representations, warranties and covenants of the Recipient
shall be deemed made as of the date the Recipient exercises this Option, and
shall survive the date of closing with respect to the exercise of the last
Option hereunder.
-4-
<PAGE>
No.
----
================================================================================
Signature must conform in all respects to name of the Recipient as specified in
the Plan, unless the undersigned is the Recipient's Successor, in which case the
undersigned must submit appropriate proof of the right of the undersigned to
exercise the Option.
Signature:
-----------------------------------
Print Name:
-----------------------------------
Address:
-----------------------------------
-----------------------------------
Date:
-----------------------------------
-5-
<PAGE>
EXHIBIT 4.3
-----------
LEASE AMENDING AGREEMENT - EXPANSION OF PREMISES
------------------------------------------------
AGREEMENT made May 11, 2000
BETWEEN:
O&Y PROPERTIES INC.
hereinafter referred to as the "Landlord",
OF THE FIRST PART
- and -
PINNACLE OIL INTERNATIONAL INC.
hereinafter referred to as the "Tenant",
OF THE SECOND PART
WHEREAS by a Lease (the "Lease") dated November 25, 1997, Phoenix Place
Ltd. (the "Former Landlord"), leased to the Tenant certain premises consisting
of 6,237 square feet on the 7th Floor, (the "Demised Premises") in the building
known as Phoenix Place (the "Building") in the City of Calgary as therein
described;
AND WHEREAS by Assignment the Former Landlord assigned all of its title
right and interest in the Lease, the Premises and Building to the Landlord;
AND WHEREAS by Lease Amending Agreement dated September 15, 1999, the Lease
was amended to reflect the addition of 1,007 square feet on the 7th Floor of the
Building (the "First Expansion Premises")'
AND WHEREAS the parties hereto desire to amend the Lease in order to
include therein additional premises consisting of 6,081 square feet on the 7th
Floor (the "Second Expansion Premises'"), as shown outlined in green on Schedule
"A", with effect from and after June 1, 2000;
NOW THEREFORE THIS AGREEMENT WITNESSETH:
1. The above recitals are true.
2. That with effect from and after June 1, 2000, the Lease is amended as
follows:
(a) Subsection 1.01(g)(iii) to be deleted in its entirety and replaced as
follows:
"Demised Premises" means the premises in the Building containing
------------------
approximately 13,325 square feet of rentable area, being composed of 6,237
square feet of rentable area (the "Original
<PAGE>
Premises") shown outlined in blue on Schedule "B", 1,007 square feet of
rentable area (the "First Expansion Premises") shown outlined in red on
Schedule "B", and 6,081 square ,feet of rentable area (the "Second
Expansion Premises") shown outlined in green on Schedule "B" determined in
accordance with the BOMA Standard Method of Measuring Floor Area.
(b) Subsection 1.01(k) to be deleted in its entirety and replaced as follows:
"Minimum Rent" means the sum of $159,744.00 annually, payable in equal
-------------
consecutive monthly instalments of $13,312.00 each in advance on the first
day of each and every calendar month during the term of this lease,
without deduction, abatement, set-off or compensation whatsoever, except
as provided in this lease. The foregoing rent is calculated on the basis
of $11.00 per square foot for 6,237 square feet of leased space, $12.00
per square foot for 1,007 square feet of leased space and $13.00 per
square foot for 6,081 square feet of leased space.
(c) The following paragraph is to be added to Article 5.10 Use of Premises
---------------
Furthermore, the Tenant will be entitled to use no more than 350 square
feet of the Second Expansion Premises as a fabrication room, (the
"Fabrication Room"), provided that the Tenant does not use, cut or
manufacture any form of combustible material in such fabrication room and
further provided that, at all times, the Tenant shall comply with all
applicable municipal by-laws.
(d) The following paragraph is to be added to Article 7.02 Tenant's
--------
Improvements
------------
In addition to the Tenant's obligations as set out herein, the Tenant
agrees that, at the expiration or earlier termination of the Term, it will
remove all improvements which it has constructed in the Tenant's
Fabrication Room, including without limitation, the ventilation system, and
restore the Demised Premises to base building condition.
(e) Schedule "A" attached to replace Schedule "B" in the Lease.
(f) Schedule "B" attached, to replace Schedule "D" of the Lease (as revised in
Lease Amending Agreement dated September 15, 1999).
(g) Schedule "E" #3 of the Lease (as revised in Lease Amending Agreement dated
September 15, 1999) to be deleted and replaced as follows:
3. Leasehold Improvement Allowance
-------------------------------
Provided Tenant is Pinnacle Oil International Inc., and is itself in
-------------------------------
possession of and conducting its business from the whole of the
Second Expansion Premises in accordance with the Lease and if Tenant
is not in default and has not been in default during the Term, then
Landlord shall pay to Tenant a one time contribution towards the cost
of Tenant's initial leasehold improvements to a maximum amount of
$10.00 per square foot of the Rentable Area of the Second Expansion
------
Premises as they are constituted at the effective date of the Lease
Amending Agreement dated March 23, 2000, plus GST (the "Allowance").
The Allowance will be payable to Tenant within 30 days after the
following conditions have been met:
(a) Tenant has obtained Landlord's approval of Tenant's
architectural, structural, mechanical and electrical
plans and specifications;
2
<PAGE>
(b) the appropriate provincial lien period for construction,
mechanics' or builders' liens has elapsed since
completion of Tenant's work to the satisfaction of
Landlord in accordance with the approved plans and
specifications;
(c) Tenant has produced evidence satisfactory to Landlord
that all accounts relating to Tenant's work have been
paid and that no such lien has or may be claimed with
respect thereto;
(d) Tenant has delivered to Landlord, if requested by
Landlord, a clearance certificate issued under any
workers' compensation or similar workplace safety
legislation in force in the province in respect of each
contractor and sub-contractor which did work in
connection with Tenant's work in the Second Expansion
Premises;
(e) Landlord has received complete "as built" drawings
certified by Tenant's architect with respect to all work
done by Tenant in the Second Expansion Premises; and
(f) the Lease Amending Agreement dated March 23, 2000 has
been executed, the Effective Date has been reached and
Tenant has taken occupancy of the Second Expansion
Premises in accordance with the Lease.
Tenant will provide Notice to Landlord confirming that all
of these conditions have been met and advising Landlord of
Tenant's GST registration number. Landlord has the right to
apply all or any part of the Allowance against any amounts
owed to Landlord by Tenant. Tenant agrees that, if the
Lease is terminated as a result of any default of Tenant,
Tenant will repay to Landlord, as Additional Rent, an amount
equal to the full amount of the Allowance which Landlord has
advanced, multiplied by a fraction, the numerator of which
is the number of months left in the Term and the denominator
of which is the number of months in the Term.
(h) In addition to the parking set out in the Parking Agreement in the Lease,
the Landlord will provide the following additional parking, on the terms
and conditions as set out:
If Tenant is Pinnacle Oil International Inc., and is in occupation of
-------------------------------
the Second Expansion Premises throughout the Term in accordance with
the Lease and if Tenant is not and has not been in default during the
Term, then Landlord shall, throughout the Term of the Lease, provide
Tenant with 1 permit(s) for reserved parking and 3 permit(s) for
----------- -------- -----------
random parking in the Building's parking facility, at Landlord's
------
prevailing rates for parking from time to time. At this time, the
prevailing rate is $185.00 per permit per month for a permit in the
-------
random parking area and $210.00 per permit per month for a permit in
------ -------
the reserved parking area. Although Landlord will attempt to
--------
accommodate Tenant's request for a specific type of permit, Tenant
acknowledges that permits for some types of parking areas are subject
to availability. If Landlord cannot
3
<PAGE>
accommodate Tenant's request, Landlord will, in any event, provide
Tenant with its permit(s) in the 910 - 7th Avenue SW parking area.
-------------------
Tenant must accept from Landlord all the permits to which it is
entitled on the effective date of the Lease Amending Agreement dated
March 23, 2000, or forfeit the number it has not elected to take.
Tenant acknowledges and agrees that this is a contractual right only
and does not form part of the Premises demised to Tenant and no
landlord and tenant relationship exists with respect to this parking
right, but the obligations shall be binding upon successors and
assigns of Landlord's interest in the Building. Tenant agrees to sign,
on Landlord's request, Landlord's standard form of parking license
agreement for the Building's parking facility.
2. SAVE as aforesaid all the terms and conditions of the Lease remain
unchanged.
IN WITNESS WHEREOF the parties have executed this Agreement as of the
date first above written.
LANDLORD: O&Y PROPERTIES INC.
Per: /s/ Jan Sucharda
-------------------------------------------
Per: /s/ Celia Hitch
-------------------------------------------
I/We have the authority to bind the corporation
TENANT: PINNACLE OIL INTERNATIONAL INC.
Per: /s/ Daniel C. Topolinsky, President and COO
-------------------------------------------
Per: /s/ John M. Woodbury, Jr., CFO
-------------------------------------------
I/We have the authority to bind the corporation
4
<PAGE>
SCHEDULE "A"
------------
DEMISED PREMISES
----------------
[DIAGRAM]
---------
5
<PAGE>
SCHEDULE "B"
------------
LANDLORD'S WORK AND TENANT'S WORK
---------------------------------
1. Landlord's Work
---------------
The Second Expansion Premises will be provided on an "as is" basis except for
the following Landlord's Work, which shall be performed by Landlord at its cost
in the Second Expansion Premises, on a "once only" basis, prior to the date the
Tenant takes possession of the Second Expansion Premises:
(a) Provide Tenant's architect with a preliminary space plan of the
Second Expansion Premises to a maximum cost of $0.15 per square
foot of Rentable Area of the Second Expansion Premises;
(b) Demolish and remove all existing improvements within the Second
Expansion Premises Tenant does not wish to reuse;
2. Tenant's Work
-------------
Tenant will take possession of the Second Expansion Premises in its present "as
is" condition, except for the Landlord's Work as set out above. Tenant shall be
responsible at its own expense for any modifications or renovations within the
Demised Premises, subject to the prior approval of Landlord and in accordance
with the Lease.
Tenant shall supply and install a ventilation system for Tenant's Fabrication
Room at the Tenant's sole expense. Such ventilation system shall be installed
in accordance with Landlord's base building mechanical consultant's plans and
specifications. Landlord shall provide such plans and specifications to Tenant
within 15 days of full execution of Lease Amending Agreement dated March 23,
2000.
<PAGE>
EXHIBIT 4.4
-----------
March 20, 2000
Via Facsimile to 0 63 32-97 20-20
- ----------------------------------
Herr Fritz Winkler
Winair Winkler & Feyock Gmbh & Co. KG
Flugplatz, Gebaude 324
D-66482 Zweibrucken, Germany
Re: Acquisition of Piaggio Avanti P180
Dear Herr Winkler:
This letter evidences the interest of Pinnacle Oil Inc., a Nevada corporation
and a wholly-owned subsidiary of Pinnacle Oil International, Inc. ("Pinnacle")
to purchase a 1992 P180 Piaggio Avanti aircraft, Serial Number 1017, as more
particularly described in paragraph 1(a) of this letter (the "Aircraft"),
together with all documentation and technical publications and records relating
to the Aircraft as more particularly described in paragraph 1(b) of this letter
(the "Records"), from Winair Winkler & Feyock Gmbh & Co. KG ("Seller"). When
executed by you, this Agreement (the "Agreement") is intended as a binding
agreement for the sale of the Aircraft by Seller and the purchase of the
Aircraft by Pinnacle (the "Acquisition"). The following are the material terms
and conditions relating to the Acquisition:
1. Description of Aircraft and Records. For purposes of this Agreement, the
-----------------------------------
terms Aircraft and Records shall be deemed to include the following:
(a) Aircraft. The Aircraft shall consist of the aircraft body configured
--------
in accordance with the floorplan and specifications described in
Appendix A to this Agreement, together with all engines, equipment,
avionics and accessories described in Appendix A to this Agreement.
(b) Records. The Records shall include all logbooks, flight logs,
-------
technical records, maintenance manual and other technical records
relating to the Aircraft, including those described in Appendix B to
this Agreement.
2. Purchase Price. The total purchase price for the purchase of the Aircraft
--------------
(the "Purchase Price") is U.S. $2,790,000 (two million seven hundred ninety
thousand U.S. dollars).
3. Deposit; Escrow.
---------------
(a) Escrow. The parties agree that the consummation of the transaction
------
contemplated by this Agreement shall be facilitated through an escrow
account with Dixie Aire Title Service, Inc., Oklahoma City, USA (the
"Escrow Agent"). Following execution of this Agreement, the parties
shall each execute such standard escrow instructions as provided by
the Escrow Agent.
<PAGE>
Via Facsimile to 0 63 32-97 20-20
- ---------------------------------
Herr Fritz Winkler
c/o Winair Winkler & Feyock Gmbh & Co. KG
March 20, 2000
Page 2
(b) Initial Deposit Into Escrow. Pinnacle agrees to wire transfer the
---------------------------
sum of $30,000 (thirty thousand U.S. dollars) to the Escrow Agent
serve as a refundable deposit to be applied against the Purchase Price
(the "Deposit"). If the Deposit is not paid by March 23, 2000, 5:00
p.m. Canadian m.s.t., then Seller may terminate this Agreement without
further obligation. If the Deposit is made by Pinnacle, then it shall
be remitted to either Pinnacle or Seller under the following
conditions:
(i) If the closing of the Acquisition is consummated pursuant to the
terms of this Agreement, the Deposit shall be paid to Seller and
applied to the payment of the Purchase Price.
(ii) Subject to paragraph (iv), if the Agreement is terminated due to
Pinnacle's inability to timely procure financing pursuant to
paragraph 4 of this letter, then the Deposit shall be remitted
to Seller as liquidated damages for the termination of this
Agreement.
(iii) Subject to paragraph (iv), if the Agreement is terminated due to
Pinnacle's wrongful failure or inability to consummate the
Acquisition pursuant to the terms of this Agreement, then the
Deposit shall be remitted to Seller as liquidated damages for
the termination of this Agreement.
(iv) If the Agreement is terminated for any other reason, including
the Principals refusal to ratify this Agreement or deliver title
to the Aircraft to Seller or Seller's wrongful failure or
inability to perform its covenants or otherwise consummate the
Acquisition, then the Deposit shall be immediately returned to
Pinnacle upon its unilateral instructions, and no party hereto
shall have any further obligations under this Agreement except
as otherwise contained herein.
(c) Balance Of Purchase Price. Pinnacle agrees to remit the remaining
-------------------------
balance of the Purchase Price, including additional costs to be borne
by Pinnacle and paid by the Escrow Agent under this Agreement, to the
Escrow Agent by no later than one (1) day before the Closing, unless
this Agreement has been previously terminated.
4. Financing Contingency. Pinnacle shall use its best efforts to procure a
---------------------
commitment for financing the Purchase Price on terms acceptable to it by
April 14, 2000. If Pinnacle is unable to procure financing notwithstanding
its best efforts by the Closing, then Pinnacle will state its intentions to
continue efforts to procure financing or may terminate this transaction, in
which case the Deposit shall be remitted to Seller pursuant to paragraph
3(b)(ii), and no party hereto shall have any further obligations under this
Agreement except as otherwise contained herein.
<PAGE>
Via Facsimile to 0 63 32-97 20-20
- ---------------------------------
Herr Fritz Winkler
c/o Winair Winkler & Feyock Gmbh & Co. KG
March 20, 2000
Page 3
5. Closing. The closing of the Acquisition (the "Closing') shall be April
-------
21, 2000, or such earlier date as shall be mutually agreed to by the
parties, at which time (i) the Escrow Agent shall remit the Purchase Price
to Seller, (ii) Seller will tender possession of the Aircraft to Pinnacle
at Zweibrucken Airport, including keys and all Records, and Seller shall
transfer title to the Aircraft to Pinnacle for re-registry with the United
States Federal Aviation Administration ("FAA"). Pinnacle shall have the
right, at a reasonable time in advance of the Closing, without cost, to
conduct a final inspection flight of not more than one hour's duration,
with a flight crew designated by Seller, to confirm the proper functioning
of the Aircraft and its engines, and any items identified as not properly
function shall be corrected by Seller in accordance with a pre-purchase
check list either prior to the Closing or, if elected by Pinnacle, after
the Closing subject to the reservation of an appropriate retention by the
Escrow Agent for the cost of such repairs.
6. Covenants and Costs.
-------------------
(a) Each of the parties shall pay all costs and expenses incurred or to be
incurred by it in negotiating and preparing this Agreement.
(b) Seller shall, at its sole cost, perform all maintenance items
described in Appendix C to this Agreement prior to the Closing by no
later than April 13, 2000.
(c) Seller shall take all actions and shall pay all costs necessary to
obtain good title to the transfer of the Aircraft (including its
engines and other equipment and avionics), including taking all
actions and paying all costs to satisfy and to obtain releases of all
liens, charges, claims, options, encumbrances, security agreements or
interests or other liabilities, restrictions or covenants affecting
title thereto prior to the Closing.
(d) Seller shall also take all actions and shall pay all costs necessary
to de-register the Aircraft in Germany prior to or contemporaneously
with the Closing.
(e) Seller shall also take all actions and shall pay all costs necessary
to obtain a Export Certificate of Airworthiness necessary for the
import of the Aircraft into the United States and to qualify for a
Certificate of Airworthiness with the FAA, including taking all
actions and paying all costs to (i) validate the compliance of the
engines with Pratt and Whitney Type Approval Certificate No. E-21 and
to validate the compliance of the equipment and avionics with USA Type
Approval Certificate No. A-170 Issue 2, and (ii) to remove the current
"D" number identification from the aircraft and replacing it with a
new "N" number reserved by Pinnacle.
(f) With the exception of the matters described in subparagraphs (b) and
(d) above, Pinnacle shall pay all costs to register title to the
Aircraft in the United States, including costs for a title search,
title insurance, filing documents with the FAA (excluding lien
releases), procuring a Certificate of Registration from the FAA,
<PAGE>
Via Facsimile to 0 63 32-97 20-20
- ---------------------------------
Herr Fritz Winkler
c/o Winair Winkler & Feyock Gmbh & Co. KG
March 20, 2000
Page 4
obtaining certified copies of documents, and satisfying any conditions
imposed by any prospective lender.
(g) Seller shall pay all German export, sales, income, excise or other
transactional taxes, fees or duties imposed in connection with the
Acquisition or the export of the Aircraft from Germany shall be paid
by Seller, while all United States import, use, sales, excise or other
transactional taxes, fees or duties imposed in connection with the
Acquisition or the import of the Aircraft into the United States shall
be paid by Pinnacle.
(h) Pinnacle shall pay all escrow fees incurred by the Escrow Agent.
7. "As Is" Condition. Except for (i) the delivery of the Aircraft to
-----------------
Pinnacle at the Closing free of all maintenance discrepancies and with all
A/D's and Mandatory SB's up-to-date; (ii) any repairs or maintenance or
other matters relating to the condition of the Aircraft which Seller has
agreed to perform or remedy as a condition of this Agreement, and (iii) any
material adverse matters relating to the physical condition or operation of
the Aircraft not recorded in the flight logs for the Aircraft which Seller
or its agents had actual knowledge and failed to disclose to Pinnacle,
------
Pinnacle will take possession of the Aircraft at the location of the
Closing in "As Is" condition and shall be responsible for all further
repairs and maintenance.
8. Representations and Warranties by Seller to Pinnacle. Seller represents
----------------------------------------------------
and warrants to Pinnacle that:
(a) Seller is currently the authorized selling agent of T. & I. Lemp
(collectively, the "Principal"), who is the current owner of the
Aircraft, and that the Principal is legally bound to sell the Aircraft
to Seller for sale to Pinnacle in accordance with the terms of this
Agreement, although registered title will be conveyed by the Principal
to Seller for purposes of effectuating the transactions contemplated
by this Agreement.
(b) Title to the Aircraft shall be conveyed to Pinnacle free and clear of
all charges, claims, options, encumbrances, security agreements or
interests or other liabilities, restrictions or covenants affecting
title; and
(c) Seller has no actual knowledge of any material adverse matter relating
to the physical condition or operation of the Aircraft other than any
such adverse matter recorded in the flight logs of the Aircraft and
other support documents, manuals and maintenance releases provided to
Pinnacle as part of the Records.
9. Representations and Warranties by Pinnacle to Seller. Pinnacle represents
----------------------------------------------------
and warrants to Seller that it has already made application to several
reputable lenders to finance the
<PAGE>
Via Facsimile to 0 63 32-97 20-20
- ---------------------------------
Herr Fritz Winkler
c/o Winair Winkler & Feyock Gmbh & Co. KG
March 20, 2000
Page 5
transactions contemplated by this Agreement, and it has no reason to
believe that a loan commitment on terms satisfactory to Pinnacle will not
be timely extended.
10. Representations and Warranties by Parties to Each Other. Each of Seller
-------------------------------------------------------
and Pinnacle represent and warrant to the other that:
(a) Such party, if an entity, is duly organized, validly existing and in
good standing under the laws of its state, territory or province of
incorporation or organization, and has all requisite corporate or
other power and authority to enter into this Agreement;
(b) The execution and delivery of this Agreement by such party, and the
performance by such party of the transactions herein contemplated,
have, if such party is an entity, been duly authorized by its
governing organizational documents, and are not prohibited by its
governing organization documents, and no further corporate or other
action on the part of such party is necessary to authorize this
Agreement, or the performance of such transactions;
(c) This Agreement has been duly executed and delivered by such party and,
assuming due authorization, execution and delivery by all of the other
parties hereto, is valid and binding upon such party in accordance
with its terms;
(d) Such party has the full right, power and authority to consummate the
transactions contemplated by this Agreement in accordance with its
terms without obtaining the consent or approval of any other person or
governmental authority or agency; and
(e) Such party shall perform, execute and/or deliver or cause to be
performed, executed and/or delivered any and all further acts, deeds
and assurances as may, from time to time, be reasonably required to
consummate the transactions contemplated in this Agreement.
11. Conditions to Pinnacle's Performance. Satisfaction of the following by
------------------------------------
Seller shall be a condition precedent to Pinnacle's obligation to fully
perform hereunder:
(a) The accuracy of Seller's representations and warranties at the time of
at the Closing;
(b) The obtaining of the consent or approval, where required, of all
government agencies and administrative bodies and third parties; and
(c) That there shall not be in existence any proceeding or action or
threat of such proceeding or action seeking to restrain or enjoin the
transaction.
<PAGE>
Via Facsimile to 0 63 32-97 20-20
- ---------------------------------
Herr Fritz Winkler
c/o Winair Winkler & Feyock Gmbh & Co. KG
March 20, 2000
Page 6
12. Damage or Destruction. If the Aircraft is destroyed or materially damaged
---------------------
prior to the Closing, Pinnacle may elect to terminate this Agreement, in
which case all sums tendered by Pinnacle to the Escrow Agent shall be
returned to it; provided, however, in the event the prospective cost of
repair (labor and parts) is less than the sum of $50,000 (fifty thousand
U.S. dollars), and the repairs can be effectuated within thirty (30)
business days, then Seller shall have the right to effectuate such repairs
and the Acquisition shall close as soon as possible upon completion of the
repairs subject to the satisfaction of Pinnacle and its lender as to the
adequacy of the repairs.
13. Brokers' Fees. Neither Pinnacle (including its respective agents or
-------------
affiliates) or Seller (including its respective agents or affiliates) has
incurred any liability or obligation to pay any fees or commissions,
including to any broker, finder or any other third-party hired or
contracted by such party in connection with or arising out of the
transactions contemplated by this Agreement, for which any other party
could become liable or obligated.
14. Indemnification. Seller shall indemnify, defend and hold Pinnacle
---------------
harmless from any and all claims, losses, costs, expenses, damages,
injuries, recoveries, deficiencies and liabilities, including interest,
penalties and reasonable attorneys' fees, arising from or on account of (i)
any breach of Seller's covenants, (ii) in connection the ownership, control
and operation of the Aircraft before the Closing by Seller or the
Principal, and (iii) any claims by the Principal relative to Seller's
authority or actions in selling the Aircraft to Pinnacle pursuant to this
Agreement. Pinnacle shall indemnify, defend and hold Seller and the
Principal harmless from any and all such claims, losses, costs, expenses,
damages injuries, recoveries, deficiencies and liabilities, including
interest, penalties and reasonable attorneys' fees, arising from or in
connection with Pinnacle's ownership, control and operation of the Aircraft
after the Closing.
15. No Other Negotiations. Until such time as this Agreement no longer
---------------------
remains in effect, Seller agrees that it will not, and it further agrees
that it shall use its best efforts to ensure that none of its affiliates,
nor anyone acting on their behalf, will, solicit from or negotiate with any
other person or entity to purchase the Aircraft.
16. Attorneys' Fees. In the event of any litigation between the parties due
---------------
to breach of this Agreement, the unsuccessful party agrees to pay the
successful party all costs and expenses of litigation incurred by the
successful party including, but not limited to, reasonable attorneys' fees
for all legal counsel, depositions, witness fees and other expenses
incurred in connection with such litigation, and if the successful party
shall recover judgment in any action proceeding, the costs, expenses and
attorneys' fees shall be included as part of the judgment.
17. Time of the Essence. It is expressly understood that time of performance
-------------------
is of the essence to this Agreement.
<PAGE>
Via Facsimile to 0 63 32-97 20-20
- ---------------------------------
Herr Fritz Winkler
c/o Winair Winkler & Feyock Gmbh & Co. KG
March 20, 2000
Page 7
18. Binding Effect. This Agreement shall bind and inure to the benefit of the
--------------
parties hereto and their respective heirs, executors, administrators, legal
representatives, successors and assigns.
19. Counterparts; Facsimile Signatures. This Agreement may be executed in
----------------------------------
several counterparts, each of which shall be deemed an original, and all of
such counterparts together shall constitute one agreement, binding on all
parties hereto. If a copy or counterpart of this Agreement is originally
executed and such copy or counterpart is thereafter transmitted
electronically by facsimile or similar device, such facsimile document
shall for all purposes be treated as if manually signed by the party whose
facsimile signature appears.
20. Severability. If all or any portion of any of the provisions of this
------------
Agreement shall be invalid, illegal or unenforceable by laws applicable
thereto, then the performance of said offending provision or provisions
shall be excused by the parties hereto and such invalidity, illegibility,
or unenforceability shall not affect any other provision of this Agreement.
21. No Modifications Except in Writing. No modification hereof shall be
----------------------------------
binding unless set forth in writing and signed by the party or parties to
be bound by the modification.
22. Governing Law. This Agreement shall be governed by and construed in
-------------
accordance with the laws of the Federal Republic of Germany.
23. Interpretation. This Agreement is an agreement between financially
--------------
sophisticated and knowledgeable parties and is entered into by the parties
in reliance upon the economic and legal bargains contained herein and shall
be interpreted and construed in a fair and impartial manner without regard
to such factors as the party who prepared (or caused the preparation of)
this instrument or the relative bargaining power of the parties.
24. Further Assurances. In addition to the acts and deeds recited herein and
------------------
contemplated to be performed, executed and/or delivered by either Pinnacle
or Seller, such party shall perform, execute and/or deliver or cause to be
performed, executed and/or delivered at the Closing, or if necessary, after
the Closing, any and all further acts, deeds and assurances as may, from
time to time, be reasonably required to consummate the transactions
contemplated in this Agreement.
If the terms and conditions of this Agreement are satisfactory, then indicate
your approval by executing and dating this letter below and delivering it to the
undersigned by 5:00 p.m., Canadian m.s.t., on March 21, 2000. In the event the
terms and conditions described above are not satisfactory, or you have any
question or comments, then please refrain from signing this letter and call me
at your earliest convenience. Please note that this Agreement will terminate if
the undersigned does not receive delivery of (or a facsimile of) this Agreement
executed draft by the above-mentioned date.
<PAGE>
Via Facsimile to 0 63 32-97 20-20
- ---------------------------------
Herr Fritz Winkler
c/o Winair Winkler & Feyock Gmbh & Co. KG
March 20, 2000
Page 8
If you are in agreement with the foregoing, please execute and return to us one
copy of this Agreement.
Very truly yours,
/s/ Daniel C. Topolinsky
- -------------------------------
Daniel C. Topolinsky, President
By signature below in the space provided, the undersigned hereby evidence their
agreement with the terms of this Agreement as they pertain to them, and their
intention to be legally bound hereby.
Seller :
Winair Winkler & Feyock Gmbh & Co. KG
By: /s/ Fritz P. Winkler
----------------------------------
Title: Managing Director
-------------------------------
Date: March 20, 2000
--------------------------------
<PAGE>
APPENDIX A
Description of Aircraft
-----------------------
AIRFRAME & EQUIPMENT
Make:.............. Piaggio
Model:............. P180 Avanti
Serial Number:..... #1017
Year:.............. 1992
First Certificate
of Airworthiness:.. 1992
Total Time:........ 1600 hrs
Annual:............ 2000
Paint:............. White, Turquoise/Beige
Interior:.......... Taupe Leather, Teal Carpet (Option 1 Arrangement), Wood
Veneer, Stereo System, Cabin Display
Options:........... Freon Air Conditioning Propeller Synchrophaser Cockpit
Handles and Curtain Single Point Refueling New style
Windscreens Cabin Display Standby Gyro
Autopilot:......... Collins APS 65 System
EFIS 85 B 3-Tube
Avionics:.......... Collins Proline II Package
UNS 1 M FMS/GPS
Meets ICAO Annex 10 and B-RNAV
COMM'S 8,33 KHz spacing
Misc:.............. 350 hrs. SHSI, Prop OH 7/97
ENGINES
Make:.............. Pratt and Whitney
Model.............. Two (2) PT 6A-66
Horsepower:........ 2 X 850 shp
Serial Numbers:.... Left Engine: PC-E 104044
Right Engine: PC-E 104047
Engine Time:....... 1600 hrs
<PAGE>
APPENDIX B
Documentation and Technical Publications/Records
------------------------------------------------
(Include both USA and German documents as applicable)
1.) Certificate of Conformity
2.) Standard Democratic Republic of Germany Certificate of Airworthiness
3.) Aircraft Log with Discrepancies Records
4.) Pilot's Operating Handbook with Deviation Compass Card
5.) Maintenance Manual
6.) Parts Catalogue
7.) Wiring Manual
8.) Engine Log (RH)
9.) Export Certificate
10.) Engine Log (LH)
11.) Export Certificate
12.) Propeller Log (RH)
13.) Export Certificate
14.) Hartzell Assembly Report
15.) PIAGGIO Assembly Report
16.) Propeller Log (LH)
17.) Export Certificate
18.) Hartzell Assembly Report
19.) PIAGGIO Assembly Report
20.) Serialized Components List
21.) Warranty Certificate Application Forms for:
Avionics (COLLINS);
Propellers (HARTZELL);
Engines and miscellaneous
22.) List of Service Bulletins and Service Letters issued
23.) List of the warranties remaining lives from Avionics manufacturers
<PAGE>
APPENDIX C
Required Maintenance
--------------------
1.) Phase A (Due 71 Hrs)
2.) Phase B (Due 118 Hrs)
3.) 1 Year Inspection (Due 8 Months)
4.) 3 Year Inspection (Due 3 Months)
5.) 450 Flt. Hr. Inspection (Due 225 Hours)
6.) Cabin Blower Electro Mech. O/H (Due 426 Hours)
7.) Horizontal Tail Trim Actuator (Due 426 Hours)
8.) Refrigeration Pack Oil Change (Due 100 Hours)
9.) ELT Battery Replacement (Due 2 Months)
10.) Replace fuel Filter Cartridge (Due 150 Hours)
11.) Engine Oil Filter Replacement
Ser # 104044 (Due 138 Hours)
Ser # 104047 (Due 138 Hours)
12.) P3 Filter Replacement
Ser # 104044 (Due 239 Hours)
Ser # 104047 (Due 239 Hours)
13.) Fuel Nozzles - Clean/Inspect
Ser # 104044 (Due 250 Hours)
Ser # 104047 (Due 250 Hours)
14.) Lube Inboard Flap Jackscrew (Due 100 Hours)
15) Six months specials
16) Oxygen 3-position valve (Due July 2000)
17) Oxygen bottle hydro-static test (Due June 2000)
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM PINNACLE OIL
INTERNATIONAL INC.'S CONSOLIDATED BALANCE SHEET AT MARCH 31, 2000, AND PINNACLE
OIL INTERNATIONAL INC.'S CONSOLIDATED STATEMENT OF LOSS FOR THE THREE-MONTH
PERIOD ENDED MARCH 31, 2000, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 9,375,858
<SECURITIES> 0
<RECEIVABLES> 161,581
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 9,774,490
<PP&E> 1,799,363
<DEPRECIATION> 365,959
<TOTAL-ASSETS> 11,607,562
<CURRENT-LIABILITIES> 347,417
<BONDS> 0
0
800
<COMMON> 13,070
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 11,260,145
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> (603,728)
<OTHER-EXPENSES> 112,830
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (490,898)
<INCOME-TAX> 0
<INCOME-CONTINUING> (490,898)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (492,898)
<EPS-BASIC> (0.04)
<EPS-DILUTED> (0.04)
</TABLE>
