<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934 (Amendment No. )
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
BASIC EARTH SCIENCE SYSTEMS, INC.
---------------------------------
(Name of Registrant as Specified In Its Charter)
BASIC EARTH SCIENCE SYSTEMS, INC.
---------------------------------
(Name of Person(s) Filing Proxy Statement if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/X/ $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(a)(1), 14a-6(i)(2) or
Item 22(a)(2) of Schedule 14A.
/ / $500 per each party to the controversy pursuant to Exchange Act Rule 14a-
6(i)(3).
/ / Fee computed on table below per Exchange Act Rules 14a-6(a)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount previously paid:
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(2) Form, Schedule or Registration Statement No.:
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(4) Date Filed:
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<PAGE>
BASIC EARTH SCIENCE SYSTEMS, INC.
633 Seventeenth Street, Suite 1670
Denver, Colorado 80202
(303) 294-9525
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
To the Shareholders:
Notice is hereby given that the Annual Meeting of the Shareholders of Basic
Earth Science Systems, Inc., (the Company) a Delaware Corporation, will be held
at 633 Seventeenth Street, Suite 1670, Denver, Colorado 80202, on Friday,
October 6, 1995 at 3:00 p.m., local time to:
(1) Elect four members to the Board of Directors to serve until the next annual
meeting of shareholders or until their successors shall have been elected and
qualified;
(2) Vote on a proposal to amend the Certificate of Incorporation to reduce the
par value of the Company's capital stock from ten cents ($0.10) per share to
one-tenth of one cent ($0.001) per share;
(3) Vote on a proposal to approve the 1995 Incentive Stock Option Plan;
(4) Act upon any other matters which may properly come before the meeting or
any adjournment or postponements thereof.
Only shareholders of record at the close of business on August 15, 1995 will be
entitled to vote at the meeting. A list of shareholders shall be open for
examination by any shareholder for any purpose relevant to the meeting, during
ordinary business hours, for a period of at least ten days prior to the meeting,
at the above address and will be so available at and throughout the meeting.
All shareholders are cordially invited to attend the meeting. If you are unable
to attend the meeting in person, the Board of Directors respectfully requests
that you sign and date the enclosed proxy and return it promptly. A postage-
paid envelope is provided.
A copy of the Annual Report for the year ended March 31, 1995 accompanies the
enclosed proxy statement.
By Order of the Board of Directors,
By (Signature) /s/ David J. Flake
(Name and title) David J. Flake, Secretary
(Date) August 11, 1995
(City and state) Denver, Colorado
<PAGE>
BASIC EARTH SCIENCE SYSTEMS, INC.
633 Seventeenth Street, Suite 1670
Denver, Colorado 80202
(303) 294-9525
PROXY STATEMENT
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
To be held on October 6, 1995 at
633 Seventeenth Street, Suite 1670
Denver, Colorado 80202
3:00 p.m. - local time
SOLICITATION OF PROXY
This Proxy Statement is furnished in connection with the solicitation of proxies
by the Board of Directors of Basic Earth Science Systems, Inc. (Basic or the
Company) for the Annual Meeting of Shareholders to be held October 6, 1995 and
for any adjournment or postponements thereof.
Any shareholder giving such a proxy has the power to revoke it at any time
before it is voted. A proxy may be revoked by forwarding directly to the
Company Secretary written notice of such revocation, submitting a duly executed
proxy bearing a later date or by voting in person at the meeting.
If the enclosed proxy is properly executed and returned, the shares represented
thereby will be voted in accordance with the directions thereon. Any proxy on
which no direction is specified will be voted "FOR" the election of all nominees
set forth in this Proxy Statement, "FOR" the proposal to amend the Certificate
of Incorporation, "FOR" the proposal to approve the 1995 Incentive Stock Option
Plan, and in accordance with the judgment of the person or persons designated as
proxies as to other matters which may properly come before the meeting and upon
which a vote may properly be taken. The Board of Directors knows of no other
matter to be presented at the meeting.
The anticipated mailing date of this Proxy Statement is August 21, 1995.
Your vote is important. Accordingly, you are urged to sign and return the
accompanying proxy card whether or not you plan to attend the meeting. If you
do attend, you may vote by ballot at the meeting thereby cancelling any proxy
previously given.
VOTING SECURITIES
Only shareholders of the Company's $0.10 par value common stock as of the close
of business on August 15, 1995 are entitled to vote on matters to come before
the meeting. The transfer records of Basic will not be closed. On the record
date there were 16,580,487 shares of Basic's common stock issued and
outstanding. None of the Company's preferred stock has been issued. Each share
of common stock entitles the record owner thereof to one vote on each matter to
be voted upon at this meeting.
The presence, in person or by proxy, of the holders of a majority of the total
issued and outstanding shares which are entitled to be voted at the meeting is
necessary to constitute a quorum at this annual meeting. Cumulative voting is
not authorized under Basic's Amended Certificate of Incorporation.
Security Ownership Of Certain Beneficial Owners
And Management
Set forth below, as of July 17, 1995, is information concerning stock ownership
of all persons, or group of persons, known by the Company to own beneficially 5%
or more of the shares of Basic's common stock and all directors and executive
officers of the Company both individually and as a group who held such positions
in the fiscal year just ended. Basic has no knowledge of any other persons, or
group of persons, owning beneficially more than 5% of the outstanding common
stock of Basic as of July 17, 1995.
<TABLE>
<CAPTION>
Percent of
Outstanding
Shares
Name and Address Shares of Common Stock Beneficially
of Beneficial Owner Beneficially Owned Owned
----------------------------------------------------------------------
<S> <C> <C>
G. W. Breuer 3,887,670 23.4%
Denver, CO (1)
Basic's Employee Stock 1,898,214 11.4%
Ownership Plan (2)
David J. Flake 515,478 3.1%
Denver, CO (3)
Ray Singleton 424,842 2.6%
Englewood, CO (4)
Edgar J. Huffman 65,000 0.4%
Phoenix, AZ (5)
All officers and directors 4,892,990 29.5%
as a group (4 persons) (1),
(3), (4) and (5)
<FN>
(1) Includes 2,765,191 shares owned by Mr. Breuer directly and 1,122,479 shares
with indirect beneficial ownership.
(2) Represents shares held in the Company's and its subsidiary's individual
Employee Stock Ownership Plan (ESOP) accounts excluding shares held in the ESOP
accounts of the Company's officers listed separately in the table.
(3) Represents 505,478 shares owned by Mr. Flake and 10,000 shares with
indirect beneficial ownership.
(4) All 424,842 shares are in Mr. Singleton's ESOP account.
(5) Includes 25,000 shares owned by Mr. Huffman directly and 40,000 shares with
indirect beneficial ownership.
</FN>
</TABLE>
Company management knows of no arrangements which may result in a change in
control of Basic.
ELECTION OF DIRECTORS
In accordance with the Company's Bylaws, the Board of Directors consists of four
(4) members. All four (4) Directors to be elected at this Annual Meeting will be
elected to serve until the Company's next annual meeting, and until their
successors are duly elected and qualified. The vote of a majority of all votes
entitled to be cast at the Annual Meeting shall be sufficient to elect a
Director. The Board recommends that shareholders vote "FOR" each of the nominees
listed below. It is intended that proxies and voting instructions which are
executed without specification (other than broker non-votes) will be voted for
the election of the nominees listed below, all of whom are now Directors of the
Company:
G. W. BREUER, DAVID J. FLAKE, EDGAR J. HUFFMAN and
RAY SINGLETON
Directors
The following sets forth various information respecting each nominee and current
member of the Board of Directors including their respective principal
occupations or employment during the past five years and the period during which
each has served as a Director of the Company.
G. W. Breuer (76) was a co-founder of the Company and has been a member of the
Board of Directors since inception in 1969. Mr. Breuer also served as the
Company's Chief Executive Officer from 1969 through March 1993 and was its
President from February 1978 through March 1993. Mr. Breuer is a 1940 graduate
of Purdue University with a degree in petroleum engineering.
David J. Flake (40) has been a director of the Company since September 1987.
Mr. Flake began his career at Basic in November 1980 as tax accountant and was
appointed Controller in July 1983, a position he held until his resignation in
January 1993 to pursue other business opportunities. From September 1987
through January 1993 Mr. Flake also served as Secretary/Treasurer of the
Company. In April 1994, Mr. Flake was appointed Corporate Secretary following
the resignation of Ms. Judith C. Davis (aka Judith C. Burke). Mr. Flake
received his Bachelor of Science degree in Accounting/Business Administration
from Regis University in Denver, Colorado and received a Masters Degree in
Business Administration from Colorado State University's Executive MBA Program
in 1995.
Edgar J. Huffman (55) was elected to the Board of Directors in May 1993. For
the past five years Mr. Huffman has served continuously in the following
capacities. He is a director of Visa Industries, an oil and gas producer,
located in Phoenix, Arizona. Visa Industries is a public company traded on
NASDAQ. He also serves as Chairman of the Board and Director of Finance and
Planning for the Montessori Day Schools in Phoenix. Additionally, Mr. Huffman
is a director of FCS Laboratories, Inc. (FCS), a diagnostic laboratory and
pharmaceutical producer, as well as Chairman of the Finance Committee and Audit
Committee and a member of the Compensation Committee. FCS is a public company
traded on the OTC market. Mr. Huffman received a Bachelor of Science degree in
Business Administration from Indiana Central University and a Masters Degree in
Business Administration from Arizona State University. He also attended the
Finance Program at New York University's Graduate School of Business.
Ray Singleton (44) has been a director of Basic since July 1989. Mr. Singleton
joined the Company in June 1988 as Production Manager/Petroleum Engineer. In
October 1989 he was elected Vice President of Basic, and with the change in
management in March 1993, he was appointed President and Chief Executive
Officer. Upon the resignation of Mr. Flake, noted above, Mr. Singleton was
appointed Acting Treasurer. Mr. Singleton began his career with Amoco
Production Company in Texas and, as a petroleum engineer, was responsible for a
60,000 barrel-a-day field. He was subsequently a drilling, completion and
production engineer for the predecessor of Union Pacific Resources and in 1981
began his own engineering consulting firm, serving the needs of some 40 oil and
gas companies. In this capacity he was employed by Basic on various projects
from 1981 to 1987. Mr. Singleton received a degree in petroleum engineering
from Texas A&M University in 1973 and received a Masters Degree in Business
Administration from Colorado State University's Executive MBA Program in 1992.
Executive Officers
At this time, and during the past year, all executive officers are also board
members. Their names, ages, principal occupations or employments during the
past five years are set forth above. There are no family relationships between
or among the officers and Board of Directors.
Directors are elected by the Company's shareholders at each annual meeting or,
in the case of a vacancy, are appointed by the directors then in office, to
serve until the next annual meeting or until their successors are elected and
qualified. Officers are appointed by and serve at the discretion of the Board
of Directors.
Board Committees and Attendance
The Board of Directors of the Company held four meetings during the fiscal year
ended March 31, 1995. During the year ended March 31, 1994 the Board of
Directors met fourteen times. Each of the directors attended at least 75% of
all the meetings.
In May 1993, the Board acted to establish an Audit Committee consisting of
Messrs. Flake and Huffman, both outside directors. The Audit Committee is
authorized by the Board of Directors to review, with the Company's independent
accountants, the annual financial statements of the Company prior to publication
and to make annual recommendations to the Board for the appointment of
independent public accountants for the ensuing year. The Audit Committee will
also review the effectiveness of the financial and accounting functions,
operations and internal controls implemented by Basic's management.
In June 1993, the Board acted to form a Compensation Committee which currently
consists of Messrs. Huffman and Flake. This committee will review and recommend
to the Board of Directors the compensation and benefits of all officers of the
Company, and is empowered to review general policy matters, including
compensation and benefits, pertaining to the employees of the Company.
Basic does not have a Nominating Committee.
Compliance with Section 16(a) of the Securities Exchange Act
Section 16(a) of the Securities Exchange Act requires the Company's officers and
directors and shareholders of more than ten percent of the Company's common
stock to file reports of ownership and changes in ownership of the Company's
common stock with the Securities and Exchange Commission (SEC) and the National
Association of Securities Dealers. Officers, directors and greater than ten
percent shareholders are required by SEC regulations to furnish the Company with
copies of all Section 16(a) forms they file.
Based solely upon a review of copies of ownership reports submitted to Basic,
the Company believes that all forms required to be filed by its officers,
directors and ten percent shareholders have been filed as of July 17, 1995. FOR
THE FISCAL YEAR ENDED MARCH 31, 1995, ONE OF THE FOUR DIRECTORS FILED ONE LATE
REPORT.
Executive Compensation
Director Compensation
In the past, the directors have received no compensation for their services to
the Company as directors, but are reimbursed for expenses actually incurred in
attending board meetings. However, if the proposed 1995 Incentive Stock Option
referenced later in this proxy statement is approved, the directors will receive
stock options as compensation for their services.
Executive Officer Compensation
The following table sets forth the compensation paid or accrued by the Company
to its Chief Executive Officer for the fiscal years ended March 31, 1995, 1994
and 1993. No other director, officer or employee received annual compensation
which exceeded $100,000.
<TABLE>
<CAPTION>
Name and (1)Other (2)All
Principal Fiscal Annual Annual Annual Other
Position Year Salary Bonus Compensation Compensation
------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Ray Singleton 1995 $65,000 $---- $6,558 $257
President, 1994 65,000 2,500 2,982 ----
Chief 1993 65,000 ---- 8,539 1,117
Executive Officer
and Acting Treasurer
<FN>
(1) Mr. Singleton was appointed President and Chief Executive Officer on March
4, 1993. Other Annual Compensation includes $4,608, $1,357 and $1,048 paid
through the Oil and Gas Incentive Compensation Plan for fiscal 1995, 1994 and
1993, respectively. Other Annual Compensation also includes $1,950, $1,625 and
$7,491 which represents the market value of the Company's common stock
contributed to his ESOP account (see discussion below) for fiscal 1995, 1994 and
1993, respectively. The ESOP contributions are non-cash compensation.
(2) For 1995, All Other Compensation of $257 is the premium for a life
insurance policy for Mr. Singleton whereby Mr. Singleton designates the
beneficiary. For 1993, All Other Compensation includes a partial reimbursement
of $917 towards his Masters Degree from Colorado State University and a life
insurance policy premium of $200 whereby Mr. Singleton designates the
beneficiary.
</FN>
</TABLE>
The Company has no contract with any officer which would give rise to any cash
or non-cash compensation resulting from the resignation, retirement or any other
termination of such officer's employment with the Company or from a change in
control of the Company or a change in any officer's responsibilities following a
change in control.
In April 1976, the Company adopted an Employee Stock Ownership Plan (ESOP) which
covers substantially all full-time employees of Basic and its subsidiaries who
have worked for at least six months and are employed by Basic at March 31 of
each fiscal year. ESOP contributions are generally made by transferring
sufficient shares of the Company's common stock or treasury stock which, when
valued at fair market value, equal the annual contribution amount as determined
by the Company's Board of Directors. For the years ended March 31, 1995, 1994
and 1993, the ESOP contributions added to all participants' accounts totalled
$7,000, 6,000 and $32,000, respectively, which resulted in the issuance to the
ESOP, based on applicable market prices, of 140,940, 132,534 and 324,757 shares,
respectively, of the Company's common stock. As a result of contributions made
during these periods, Basic's ESOP either will receive or has received
approximately 0.85%,%, 0.81% and 1.88%, respectively, of the issued and
outstanding shares of the Company's common stock. While the additional stock
ownership received by Basic's ESOP is minimal in any given year, the cumulative
effect over several years of such additional stock ownership may be considered
substantial, i.e., an aggregate increase in stock ownership of approximately
3.54% over the last three (3) fiscal years. Effective April 1, 1995, the Board
of Directors voted to discontinue the ESOP and replace it with a 401-K plan.
As noted, the Company funded its ESOP contribution by issuing shares of its
common stock in sufficient number, when valued at fair market value, to satisfy
the contribution as determined by its Board of Directors. In making the ESOP
contribution in this manner, the market value of the Company's stock has been
less than its $0.10 par value for the contributions made for 1990, 1991 and
1992. This has resulted in a contingent liability in an amount equal to the
difference between the $0.10 par value and the applicable fair market value,
being in the aggregate amount of approximately $52,000. To the extent that it
is ultimately determined that this contingent liability is owed, compensation
will have been understated by this amount.
Basic's creditors have the sole right to seek payment of the underpaid stock
consideration. However, any such claim requires that the Company's assets be
insufficient to satisfy its creditor's claims and such claims must be brought
within six (6) years after the issuance of the subject shares. Since Basic has
a positive net asset balance which, it is anticipated, will continue for the
foreseeable future, and since the passage of time reduces the amount of the
contingent liability, it is currently unlikely that any liability will arise
with respect to the subject ESOP shares.
In 1993, the Board of Directors, expressed a desire to fund all or a substantial
portion of its ESOP contribution obligation with treasury stock rather than
issue additional common stock. The use of treasury shares for an ESOP
contribution avoided diluting the value of common stock held by shareholders and
further avoided the potential contingent liability issue if the fair market
value of the Company's stock was less than its $0.10 par value. It should be
noted, however, that even the use of treasury stock for an ESOP contribution
reduced the percentage of common stock held by public shareholders and increased
the percentage held by the Company's employees. As a result of the foregoing
new policy, all of the Company's ESOP contributions commencing in 1993 and
thereafter were funded with treasury stock.
Each employee's interest in the ESOP vests in incremental portions based upon
number of years of employment ranging from three years (20%) to seven years
(100%). At March 31, 1995, Mr. Singleton was 100% vested in the 424,842 shares
in his ESOP account. These shares are included in the Security Ownership table
on page 2. Currently, there are 2,323,056 shares in the ESOP, including the
424,842 shares in Mr. Singleton's account. All of the shares in the ESOP
represent approximately 14.0% of the total issued and outstanding shares. Of
the current directors, only Mr. Singleton is currently a participant in Basic's
ESOP.
Basic has an Oil and Gas Incentive Compensation Plan (the Plan) for key
employees. Through this plan, Basic pays to the participating employees a
portion of its net revenue after operating expenses on properties drilled in
which Basic has an interest, as designated by the Plan Management Committee.
Messrs. Breuer and Flake are members of the Plan Management Committee. The
portion of the net revenue contributed from any property shall not exceed 5% of
Basic's interest in that property. The participants in the Plan have no cash
outlay to participate; it is entirely non-contributory, and an interest is not
assignable, transferable, nor can it be pledged by the participant. Interest in
the Plan vests over a period ranging from four to eleven years; however, Basic
can sell or otherwise transfer its interest in properties designated for the
Plan. If Basic sells a property in the Plan, the participants shall receive
their respective percentages of the sales price. There are currently six
participants in the Plan including Messrs. Breuer, Flake and Singleton. During
the year ended March 31, 1995, Messrs. Breuer, Flake and Singleton received
$5,424, $3,644 and $4,608, respectively, through the Plan. And during the year
ended March 31, 1994, Messrs. Breuer, Flake and Singleton received $2,490, 1,073
and $1,357, respectively. Mr. Singleton's amounts are included in the Other
Annual Compensation column in the Executive Officer Compensation table above.
Mr. Breuer's amounts were withheld by the Company as partial payment of amounts
owed the Company (See Related Party Transactions, below).
Certain Relationships And Related Transactions
It is the policy of Basic that officers or directors may assign to or receive
assignments from Basic in oil and gas prospects only on the same terms and
conditions as accepted by independent third parties. It is also the policy of
Basic that officers or directors and Basic may participate together in oil and
gas prospects generated by independent third parties only on the same terms and
conditions as accepted by each other.
Subject to this policy, G. W. Breuer, former President and Chief Executive
Officer and a current director, has participated, since 1980, with Basic in
various drilling and development arrangements. Some of these properties are
still producing, but no longer generate net income consistently. In the past,
management's policy allowed for non-payment from certain individuals, including
Mr. Breuer, of a net loss, in the belief that net income from subsequent months
would cover the loss. In August 1993, with the concurrence of the Board of
Directors, management enacted new policies whereby the Company requested these
certain individuals, including Mr. Breuer, to bring any outstanding account
balances current, and to keep them current on an ongoing basis. At June 30,
1993, Mr. Breuer's debt was approximately $15,000. Despite these new policies
and its request to Mr. Breuer, this debt increased to approximately $30,000 by
March 31, 1994.
In 1994, Mr. Breuer verbally informed the Company that he did not owe the amount
in question since he felt he no longer owned an interest in the properties in
question. Pending receipt of documentation supporting his contention as to this
alleged change of ownership and/or the receipt of funds, the Company was forced
to established a bad debt allowance for this account which contributed $30,000
to the Company's net loss in fiscal 1994. By March 1995 the amount owed the
Company and related bad debt allowance had increased to approximately $56,000.
In March 1995, the Company sold its exploration rights underlying its West Cole
Unit in Webb County, Texas. Mr. Breuer owned an interest in these leases and
participated in the sale of these deep exploration rights. Because the amounts
owed to the Company were directly attributable to operating expenses incurred on
these specific leases, upon receipt of the sales proceeds, the Company netted
such proceeds against the amount owed to the Company. Following this
transaction, the balance owed to the Company by Mr. Breuer was approximately
$5,000.
In addition to this transaction, over the past three years the Company has
withheld from Mr. Breuer, other nominal amounts due him as partial payment of
this debt.
During the year ended March 31, 1995, Basic retained the services of Visa Stock
Transfer replacing Society National Bank as the Company's stock transfer agent.
Visa Stock Transfer is a wholly-owned subsidiary of Visa Industries, Inc., of
which Mr. Huffman is a director. The fees charged by Visa Stock Transfer are
lower than those charged by other stock transfer agents.
In the years ended March 31, 1995, 1994 and 1993, there were no other
significant related party transactions.
PROPOSAL TO AMEND THE CERTIFICATE OF INCORPORATION
On July 17, 1995, the Board of Directors of the Company approved an amendment to
the Company's Certificate of Incorporation which, upon approval by the Company's
shareholders, will reduce the par value of the Company's capital stock from ten
cents ($0.10) per share to one-tenth of one cent ($0.001) per share. A proposed
resolution will be submitted to the Annual Meeting of Shareholders to amend
ARTICLE II of the Certificate of Incorporation, as amended, so that following
such amendment this Article shall read as follows:
"FOURTH
The total number of shares of stock which the corporation is authorized to
issue is Thirty-five Million Shares (35,000,000) of a par value of $0.001
each, consisting of Three million Shares (3,000,000) of preferred stock and
Thirty-two Million Shares (32,000,000) of common stock and the Board of
Directors is authorized to issue such shares without further authorization
from the shareholders and, as to the preferred shares, the Board of
Directors is granted the authority to provide for the issuance of preferred
shares in series, the designation, voting powers, full, limited or no
voting powers, and such designations, preferences, conversion rights,
redemption rights, dividend rights, preemptive rights, participating
rights, optional rights, or other special rights, qualifications,
limitations, or restrictions."
As a result of the change in par value of the Company's capital stock if
approved by the shareholders, the stated capital of the Company shall be reduced
by the re-allocation of approximately $1,671,000 of capital from the stated
capital account to the capital surplus account.
Except for the reduction in par value and the resultant re-allocation of
capital, the amendment does not alter the presently-issued shares of the
Company's common stock. Accordingly, the amendment will not result in any
change in the number of shares of common stock or preferred stock which the
Company is authorized to issue and neither increases or decreases the number of
the Company's issued and outstanding shares of common stock. Furthermore,
shareholders will keep their existing stock certificates which will continue to
represent the same number of shares as at present.
The Board of Directors believes that the reduction in par value will reasonably
avoid any future occurrences whereby the market price of the Company's common
stock is less than the stated par value of the Company's common stock. When the
fair market value is less than the par value, the Company is precluded from
issuing any additional shares, including raising additional equity capital,
without incurring a potential liability for the underpaid stock consideration.
An affirmative vote by holders of a majority of the aggregate outstanding shares
of common stock is necessary for the adoption of the proposed amendment. If
adopted, the proposed amendment will be made effective by filing and recording,
as soon as practicable, a Certificated of Amendment as required by the laws of
the state of Delaware.
The Board of Directors recommends a vote "FOR" the proposed amendment to the
Certificate of Incorporation.
PROPOSAL TO APPROVE 1995 INCENTIVE STOCK OPTION PLAN
On July 27, 1995, the Board of Directors of the Company adopted the 1995
Incentive Stock Option Plan (the "Plan"). The Board of Directors believes that
it is appropriate for the Company to adopt a flexible and comprehensive stock
option and incentive plan which permits the granting of long-term incentive
awards to employees, including officers and directors employed by the Company or
its subsidiary, as a means of enhancing and strengthening the Company's ability
to attract and retain those individuals on whom the continued success of the
Company most depends.
The principal features of the Plan are summarized below. This summary does not
purport to be complete and is qualified in its entirety by reference to the text
of the Plan. A COPY OF THE PLAN HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE
COMMISSION. ANY SHAREHOLDER DESIRING A COPY OF THE PLAN MAY OBTAIN A COPY BY
WRITING TO BASIC EARTH SCIENCE SYSTEMS, INC., 633 SEVENTEENTH STREET, SUITE
1670, DENVER, COLORADO 80202, ATTENTION: CORPORATE SECRETARY, IN TIME TO BE
RECEIVED ON OR BEFORE SEPTEMBER 20, 1995.
Stock Subject to the Plan
The aggregate number of shares of the Company's common stock to be delivered
upon exercise of all options granted from time to time under the Plan may not
exceed 1,000,000 shares. The shares of common stock issuable upon exercise of
options granted under the Plan may be authorized and unissued shares or
reacquired shares. If an option shall expire or terminate for any reason
without having been exercised in full, the unpurchased shares covered thereby
shall be added to the shares otherwise available for options which may be
granted in accordance with the terms of the Plan.
Eligibility for Participation
All employees, including officers and directors who are employees, of the
Company and its subsidiaries (Eligible Employees) who are designated by the
Committee (as defined below under "Administration of the Plan") are eligible to
receive grants of options under the Plan.
In selecting those employees and directors to whom options shall be granted and
the number of shares to be covered by such options, the Committee shall take
into account the duties of the respective persons, their present and potential
contributions to the success of the Company, the extent and value of their
services to the Company, and such other factors as the Committee shall deem
relevant in connection with accomplishing the purposes of the Plan. No
determination has been made as to the designation of Eligible Employees or as to
any grants of options to Eligible Employees under the Plan. Therefore, it is not
possible to state the number of Eligible Employees who will receive such grants.
Furthermore, non-employee members of the Board of Directors of the Company or
its subsidiaries (NON-EMPLOYEE DIRECTORS) are eligible to receive grants of
certain options under the Plan. As of the close of business on the effective
date of the Plan (defined to be the date the Plan is approved by the Company's
shareholders) there will be three (3) NON-EMPLOYEE DIRECTORS who will be
entitled to receive grants of such options, based on the assumption that (i) the
Plan is approved by the shareholders at the Annual Meeting, and (ii) all
Director nominees are reelected.
Types of Options
Options granted under the Plan may be either incentive stock options (which
qualify for special tax treatment under Section 422 of the Internal Revenue Code
of 1986, as amended (the Code)) or nonqualified options. Eligible Employees
will be granted incentive stock options while NON-EMPLOYEE DIRECTORS will be
granted nonqualified options.
Terms and Conditions of Options
Option Price. The exercise price of any option granted under the Plan may not
be less than the fair market value of the stock underlying such option at the
date the option is granted. If an Eligible Employee owns 10% or more of the
common stock of the Company, then the exercise price shall not be less than 110%
of the fair market value of the stock underlying such option at the time the
option is granted.
Number of Shares to be Covered by Options. The number of shares of common stock
covered by an option granted to an Eligible Employee shall be determined, from
time to time, by the Committee. However, current statutory limits provide that
in no event shall the aggregate fair market value (determined at the time the
option is granted) of the stock for which an Eligible Employee is granted
options in any calendar year exceed the sum of $100,000.
Term of Options. The term of each option granted under the Plan shall be
determined by the Committee, but in no event shall an option granted under the
Plan be exercisable after the expiration of ten years from the date the option
is granted. In the case where an Eligible Employee owns 10% or more of the
common stock of the Company, an option granted to such Eligible Employee shall
not be exercisable after the expiration of five years from the date the option
is granted.
Exercise of Options. Each option shall be exercisable only by the person to
whom the option was granted. An option may not be transferred, assigned,
pledged or hypothecated by the person to whom the option is granted.
The exercise price of an option may be paid in cash, by check, or by an exchange
of property which may include shares of the Company's common stock. The Board
of Directors shall have sole discretion to determine the fair market value of
all such property.
Expiration of Options. If an optionee's employment terminates for any reason,
including retirement, death, or disability, to the extent that the optionee
would have been entitled to exercise the option immediately prior to his/her
termination, such option may be exercised within three months of the termination
date, but within the exercise period of the option. If an optionee's employment
terminates by reason of his/her disability, to the extent that the optionee
would have been entitled to exercise the option immediately prior to his/her
disability, such option may be exercised within one year after employment
terminates, but within the exercise period of the option. In the case of the
optionee's death, the option may be exercised by the optionee's executors or
administrators or by any person who acquires the option by devise or
inheritance.
Other Provisions. The option agreements authorized under the Plan shall contain
such other provisions, limitations and restrictions as the Board of Directors
shall deem advisable and necessary in order that AN OPTION REDEEMED BY AN
ELIGILBLE EMPLOYEE will be an "incentive stock option" as defined in Section 422
of the Code or to conform to any change in the law.
Administration of the Plan
The Plan shall be administered by the Compensation Committee or such other
committee of the Board which shall succeed to the functions and responsibilities
of the Compensation Committee. The Committee shall consist of at least two
members of the Board. No INCENTIVE STOCK option may be granted under the Plan
to any member of the Committee during his/her term of membership on the
Committee. No person shall be eligible to serve on the Committee unless such
person is then a "disinterested person" within the meaning of Rule 16b-3
promulgated under the Securities Exchange Act of 1934 (the Act).
The Committee shall have the authority (i) to establish and determine the option
price of the shares covered by each INCENTIVE STOCK option, the term of each
SUCH option, the ELIGIBLE EMPLOYEES to whom and the time or times in which
INCENTIVE STOCK options shall be granted, and the number of shares to be
represented by each INCENTIVE STOCK option; (ii) to interpret the Plan and all
options granted under the Plan; (iii) to prescribe, amend, and rescind such
rules and regulations as it deems necessary for the proper administration of the
Plan; AND (iv) to make all other determinations deemed necessary or advisable
for the proper administration of the Plan.
Amendment of the Plan
The Board of Directors may amend the Plan to conform to qualification as an
Incentive Stock Option Plan under Section 422 of the Code, to conform to the
requirements of Rule 16-b3 promulgated under the Act, or in any other respect
which it deems to be in the best interest of the Company, to the extent not
inconsistent with either Section 422 of the Code or Rule 16-b3 promulgated under
the Act.
Termination of the Plan
The Plan shall terminate ten years following the effective date of the Plan. No
option shall be granted under the Plan after the termination date, although the
exercise periods for previously granted options may extend beyond the
termination date.
Investment Representation
Any person who is issued shares underlying any option pursuant to this Plan will
be required to represent and acknowledge that the securities being purchased
thereby will be acquired for investment purposes and not with a view to dispose,
sell or transfer such shares unless a current registration statement is
effective for the underlying shares under the Securities Act of 1933, as
amended, or unless, in the opinion of counsel for the Company, such registration
statement is not required under the Act or any other applicable law.
Certain Federal Income Tax Consequences
Incentive Stock Options. Upon the grant of an incentive stock option, the
optionee will not recognize any taxable income and the Company will not be
entitled to a tax deduction. Upon the exercise thereof while the optionee is
employed by the Company or a subsidiary within 3 months after termination of
employment, the optionee will not recognize taxable income if certain holding
period requirements under the Code are met; however, under certain
circumstances, the excess of fair market value of the shares of Common Stock
acquired upon such exercise over the exercise price may be subject to the
alternative minimum tax.
If the shares of Common Stock acquired pursuant to the exercise of an incentive
stock option are held for at least 2 years from the date of grant and at least 1
year from the date of exercise, the optionee's gain or loss upon disposition of
such shares of Common Stock will be long-term capital gain or loss and the
Company will not be entitled to any tax deduction. If such shares are disposed
of prior to the expiration of these holding periods, the optionee will recognize
ordinary income on certain amounts in excess of the option price and the Company
will be entitled to a corresponding tax deduction.
Nonqualified Options. Upon the grant of a nonqualified option, the optionee
will not recognize any taxable income. Upon the exercise thereof, the optionee
will recognize taxable income in an amount equal to the difference between (i)
the fair market value of the shares of common stock acquired upon such exercise,
and (ii) the exercise price. At that time, the Company will be entitled to a
corresponding tax deduction.
Upon a subsequent disposition of shares of common stock acquired upon the
exercise of a nonqualified option, the optionee will recognize a long-term or
short-term capital gain or loss, depending on the holding period of such shares.
New Plan Benefits
As stated above, the Committee has the authority to determine the amounts, terms
and grant dates of options to be granted to Eligible Employees under the Plan.
To date, no such determinations have been made and, as a result, it is not
possible to state such information.
Nonqualified options to purchase 50,000 shares of Common Stock of the Company
will be granted to each NON-EMPLOYEE DIRECTOR who is ELIGIBLE as of the close of
business on the effective date of the Plan. Thereafter on a yearly basis,
nonqualified options to purchase 25,000 shares of Common Stock of the Company
will be granted to each person who is a NON-EMPLOYEE DIRECTOR on the date of
grant of such options. The table below sets forth the options that would be
received in 1995 by each NON-EMPLOYEE DIRECTOR and by all NON-EMPLOYEE DIRECTORS
as a group under the Plan. The dollar amount to be received by the Company in
the event the options are exercised, as noted below, is based on an assumed
average exercise price of $0.078 for the Company's two Directors owning less
than 10% of the Company's Common Stock and $0.086 for the Director owning more
than 10% of the Company's Common Stock.
<TABLE>
<CAPTION>
Number of Dollar
Name Options Amount
----------------------------------------------------------
<S> <C> <C>
Each NON-EMPLOYEE DIRECTOR
owning less than 10% 50,000 shares $3,900
NON-EMPLOYEE DIRECTORS
as group 150,000 shares $11,700
</TABLE>
The affirmative vote of a majority of the shares of Common Stock present in
person or by proxy at the Annual Meeting and entitled to vote on the proposal to
approve the 1995 Incentive Stock Option Plan is required to approve the Plan.
The Board of Directors recommends a vote "FOR" approval of the proposed 1995
Incentive Stock Option Plan.
INDEPENDENT PUBLIC ACCOUNTANTS
For the year ended March 31, 1995, Arthur Andersen & Co. audited the financial
statements of the Company. At this time, the Audit Committee has not proposed
or recommended to the Board of Directors any change in the independent public
accountants for the year end March 31, 1996. A representative from Arthur
Andersen & Co. is expected to be present at the shareholder meeting. They will
be given the opportunity to make a statement if they so desire and they will be
available to respond to appropriate questions from the shareholders.
GENERAL
Basic's Annual Report to the shareholders for the year ended March 31, 1995
accompanies this proxy solicitation. This Annual Report, however, is not deemed
part of the proxy soliciting material, and the audited financial statements in
the Annual Report are not incorporated by reference.
Basic will bear the cost of preparing, printing and mailing the proxy, proxy
statement and other material which will be sent to shareholders in connection
with this solicitation. In addition to solicitation by mail, proxies may be
solicited in person or by telephone, by directors, officers and regular
employees of Basic without additional compensation.
SHAREHOLDER PROPOSALS
The Annual Meeting of Shareholders for the fiscal year ending March 31, 1996 is
expected to be held in the fall of 1996. All proposals intended to be presented
at the Company's next Annual Meeting of Shareholders must be received at Basic's
executive offices no later than April 30, 1996, for inclusion in the Proxy
Statement related to that meeting.
By Order of the Board of Directors,
By (Signature) /s/ David J. Flake
(Name and title) David J. Flake, Secretary
(Date) August 11, 1995
(City and state) Denver, Colorado
<PAGE>
PROXY
BASIC EARTH SCIENCE SYSTEMS, INC.
ANNUAL MEETING OF SHAREHOLDERS, OCTOBER 6, 1995
This proxy is solicited by the Board of Directors.
The undersigned hereby appoints Ray Singleton as proxy to represent the
undersigned at the Annual Meeting of Shareholders of Basic Earth Science
Systems, Inc., to be held at 633 Seventeenth Street, Suite 1670, Denver,
Colorado, on October 6, 1995 at 3:00 p.m., local time, and at any adjournment
thereof, and to vote the shares of common stock the undersigned would be
entitled to vote if personally present, as indicated below.
1. Election of the directors proposed in the accompanying proxy statement.
/ / FOR all nominees listed below (except as marked to the contrary below)
/ / WITHHOLD AUTHORITY to vote for all nominees listed below
INSTRUCTION: To withhold authority to vote for any individual nominee,
strike a line through the nominee's name in the list below.
G.W. Breuer David J. Flake Edgar J. Huffman Ray Singleton
2. Vote on the proposal to Amend the Certificate of Incorporation to reduce
the par value of the Company's common stock from ten cents ($0.10) per
share to one-tenth of one cent ($0.001) per share.
/ / FOR / / AGAINST / / ABSTAIN
3. Vote on the proposal to Approve the 1995 Incentive Stock Option Plan;
/ / FOR / / AGAINST / / ABSTAIN
<PAGE>
The shares represented hereby will be voted in accordance with the direction
made. WHERE NO DIRECTION IS GIVEN, SAID PROXIES WILL VOTE "FOR" THE ELECTION OF
ALL DIRECTORS, "FOR" THE PROPOSAL TO AMEND THE CERTIFICATE OF INCORPORATION,
"FOR" THE PROPOSAL TO APPROVE THE INCENTIVE STOCK OPTION PLAN, AND IN THE
DISCRETION OF THE PROXY AS TO OTHER MATTERS WHICH MAY PROPERLY COME BEFORE THE
MEETING.
------------------------------
Signature
------------------------------
Signature if held jointly
------------------------------
Dated
Please sign exactly as name appears hereon; joint owners should each sign.
Attorneys in fact, executors, administrators, trustees, guardians or corporate
officers should give full title. Please note any changes in your address above.
PLEASE SIGN AND RETURN THIS PROXY IN THE ACCOMPANYING ADDRESSED ENVELOPE
AS SOON AS POSSIBLE, BUT NO LATER THAN SEPTEMBER 29, 1995.
1995 STOCK OPTION PLAN
OF
BASIC EARTH SCIENCE SYSTEMS, INC.
I. PLAN ESTABLISHMENT AND ADMINISTRATION.
1. Purposes of the Plan. Basic Earth Science Systems, Inc. (the
"Corporation") proposes to grant to selected employees (including officer and
directors who are employees) of the Corporation and its subsidiaries
(hereinafter referred to as "Eligible Employees") options to purchase shares of
its common stock pursuant to the terms of the plan set forth herein, which shall
be known as the 1995 Stock Option Plan (the "Plan"). The purpose of such grants
is to attract and retain the best available personal for positions of
substantial responsibility, to provide additional incentive to employees of the
Corporation and its subsidiaries and to promote the success of the business of
the Corporation.
The Corporation also proposes to grant to members of the Board of Directors
who are not officers or employees of the Corporation or its subsidiaries at the
time of grant (hereinafter referred to as "Non-Employee Directors") options to
purchase shares of its common stock pursuant to the Plan. The purpose of such
grants is to provide incentive for highly qualified individuals to stand for
election to the Board of Directors, provide maximum incentive to promote long-
term stockholder value and to promote greater identity of interest between Non-
Employee Directors and the Corporation's stockholders.
2. Definitions. In addition to any other definitions contained elsewhere
in this Plan, the following definitions shall apply:
(a) "Act" shall mean the provisions of the Securities Exchange Act of
1934, as amended.
(b) "Board" or "Board of Directors" shall mean the Board of directors
of the Corporation.
(c) "Code" shall mean the Internal Revenue Code of 1986.
(d) "Common Stock" shall mean the common stock of the Corporation.
(e) "Corporation" shall mean Basic Earth Science Systems, Inc., a
Delaware corporation.
(f) "Committee" or "Stock Option Committee" shall mean the
Compensation Committee appointed by the Board in accordance with Section 4(a),
Article I of this Plan or such other committee of the Board which shall succeed
to the functions and responsibilities of the Compensation Committee.
(g) "Option" shall mean a stock option granted pursuant to this Plan.
(h) "Optioned Stock" shall mean stock subject to an Option granted
pursuant to this Plan.
(i) "Parent" shall mean a "parent corporation," as defined in Section
424(e) and (g) of the Code.
(j) "Plan" shall mean the 1995 Stock Option Plan of the Corporation.
(k) "Subsidiary" shall mean a "subsidiary corporation," as defined in
Section 424(f) and (g) of the Code.
(l) "Ten Percent Shareholder" shall mean an Eligible Employee who at
the time an Option is granted pursuant to this Plan owns, as defined in Section
424(d) of the Code, more than ten percent (10%) of the total combined voting
power of all classes of stock of the Corporation or of its Parent or Subsidiary.
3. Shares Subject to the Plan. Subject to adjustment as provided in
Section 9 herein, there shall be reserved for issue upon the exercise of Options
to be granted from time to time under this Plan an aggregate of 1,000,000 shares
of the Common Stock of the Corporation. The shares of Common Stock issuable upon
exercise of Options granted under the Plan may be authorized but unissued shares
of the Common Stock or reacquired shares. If an Option shall expire or terminate
for any reason without having been exercised in full, the unpurchased shares
covered thereby shall (unless this Plan shall have terminated or have been
terminated) be added to the shares otherwise available for Options which may be
granted in accordance with the terms of this Plan. Shares issued pursuant to the
exercise of Options granted under the Plan shall be fully paid and
nonassessable.
4. Administration of the Plan.
(a) Procedural Rules.
(1) This Plan shall be administered by the Committee which shall
consist of at least two members of the Board. The Board shall have the power to
add or remove members of the Committee from time to time, to fill vacancies
thereon arising by resignation, death, removal, or otherwise, and may design a
chairman form among the members of the Committee, which chairman shall preside
at all meetings of the Committee. Meetings shall be held at such times and
places as shall be determined by the Committee. A majority of the members of the
Committee shall constitute a quorum, and the action of a majority of the members
present shall be deemed the action of the Committee. In addition, any decision
or determination reduced to writing and signed by all of the members of the
Committee shall be as fully effective as if it had been made by a majority vote
at a meeting duly called and held. The Committee may appoint a secretary to keep
minutes of its meetings and may make such rules and regulations for the conduct
of its business as it shall deem available. When appropriate, the Plan shall be
administered in order to qualify certain options granted hereunder as Incentive
Stock Options described in Section 422 of the Code.
(2) Other than options granted to Non-Employee Directors
pursuant to Article III, no Options may be granted under the Plan to any member
of the Committee during his term of membership on the Committee. No person shall
be eligible to serve on the Committee unless such person is then a
"disinterested person" within the meaning of Rule 16b-3 promulgated under the
Act.
(b) Powers of the Committee. Subject to the provisions of this Plan,
the Committee shall have the authority:
(1) To establish and determine the option price of the shares
covered by each Option (which Option price shall not be less than 100% of the
fair market value, or in the case of a Ten Percent Shareholder, 110% of the fair
market value at the time the Option is granted), the term of each Option (but in
no event shall an Option be exercisable after the expiration of ten years, or,
in the case of a Ten Percent Shareholder, five years from the date the Option is
granted), the Eligible Employees to whom and the time or times in which such
Options shall be granted, and the number of shares to be represented by each
Option to an Eligible Employee (but in no event shall the aggregate fair market
value, determined as of the time the Option is granted, of any stock for which
any Eligible Employee may be granted Options in any calendar year which exceeds
the sum of $100,000);
(2) To interpret the Plan and all Options granted under the
Plan;
(3) To prescribe, amend, and rescind such rules and regulations
as it deems necessary for the proper administration of the Plan;
(4) To propose to the Board (which need not accept any such
proposal) terms and provisions of each Options granted under this Plan (which
need not be identical); and
(5) To make all other determinations deemed necessary or
advisable for the administration of the Plan.
(c) Effect of Committee's Decision. All decisions, determinations,
and interpretations of the Committee shall be final and binding on all Optionees
and any other holders of any Options granted under this Plan. No member of the
Committee or Board shall be liable for any action or determination made in good
faith with respect to the Plan or any Option granted under it.
5. Granting of Options to Employees. The Committee shall have the
authority to grant, prior to the expiration date of the Plan, to Eligible
Employees options to purchase, on the terms and conditions set forth in Article
II below, authorized but unissued, or reacquired, shares of Common Stock;
provided such grants shall be made only to those Eligible Employees, in such
amounts and at such times as determined in the discretion of the Committee. The
Committee may consider any potential Eligible Employee's office or position,
degree of responsibility for, and contribution to, the growth and success of the
Corporation, length of service, promotions, potential and such other factors as
the Committee shall deem relevant in connection with accomplishing the purposes
of this Plan. An Eligible Employee may hold more than one Option, but only on
the terms and subject to the restrictions hereafter set forth.
Any and all options granted to Eligible Employees under Section II are
intended to constitute Incentive Stock Options, as described and provided for
under Section 422 of the Internal Revenue Code of 1986. Accordingly, Section II
and other applicable provisions of Plan shall be administered and construed in a
manner which is consistent with treatment of any options granted to Eligible
Employees as Incentive Stock Options.
6. Granting of Options to Non-Employee Directors. All options granted to
Non-Employee Directors shall be options to purchase, on the terms and conditions
set forth in Section III, authorized but unissued, or reacquired, shares of
Common Stock and shall be nonqualified options.
7. Option Agreements. Each option granted under the Plan shall be
evidenced by a written agreement between the Corporation and the applicable
optionee and shall contain such terms and conditions, and may be exercisable for
such periods, as may be approved by the Committee, which terms and conditions
need not be identical but which must be in compliance with the terms and
provisions hereof.
8. Effective Date. The Plan shall not become effective until approved by
the Shareholders of the Corporation. If the Plan is approved by the
Shareholders, the effective date of the Plan shall be the date the Board adopted
the Plan.
9. Rule 16b-3 Compliance. The Corporation intends that:
(a) the Plan meet the requirements of Rule 16b-3 promulgated under the Act;
(b) that participation by Non-Employee Directors under Article III will
not prohibit them from being "disinterested persons" within the meaning of Rule
16b-3 with respect to administration of the Plan or with respect to
administration of any other plan of the Company;
(c) that transactions of the type specified in the first paragraph of Rule
16b-3 by Non-Employee Directors pursuant to Article III will be exempt from the
operation of Section 16(b) of the Act; and
(d) that transaction of the type specified in the first paragraph of Rule
16b-3 by officers of the Corporation (whether or not they are directors)
pursuant to the Plan will be exempt from the operation of Section 16(b) of the
Act. In all cases, the terms, provisions, conditions and limitations of the Plan
shall be construed and interpreted consistent with the Company intent as stated
in this paragraph 8.
10. Adjustments Upon Changes in Capitalization.
(a) If all or any portion of an Option is exercised subsequent to any
stock dividend, split-up, recapitalization, combination, or exchange of shares,
merger, consolidation, separation, reorganization, or other similar change or
transaction of or by the Corporation, the number of shares of stock and the
class of shares of stock available pursuant to this Plan and the number and
class of shares of stock subject to any Option granted pursuant to this Plan,
and the option prices, may be adjusted by appropriate changes in this Plan. Any
such adjustment to the Plan or to such Options or option prices shall be made by
action of the Board, whose determination shall be conclusive; provided, however,
that each option granted to an Eligible Employee pursuant to Article II of this
Plan shall be so adjusted as to continue to qualify as an Incentive Stock Option
under Section 422 of the Code.
(b) In the event of any such change in the shares, the aggregate
number and class of shares remaining available under the Plan shall be equal to
the number and class of shares which a person, to whom an Option for all
remaining available shares had been granted on the date preceding such change,
would be entitled to receive as provided in this Section.
(c) Upon dissolution of liquidation of the Corporation, other than as
an incident to a merger, reorganization, or other adjustment as referred to
above, any Options granted pursuant to this Plan and remaining unexercised shall
be deemed canceled, notwithstanding anything to the contrary provide in this
Plan. In the event of a complete liquidation or dissolution of a subsidiary of
the Corporation, or in the event that such a subsidiary ceases to be a
subsidiary corporation, any outstanding Options granted to employees of such
subsidiary pursuant to this Plan and remaining unexercised shall be deemed
canceled unless the employee shall, at or before the time of liquidation or
dissolution or cessation of the subsidiary relationship, be or become employed
by the Corporation or by any other subsidiary of the Corporation.
(d) For purposes of this Section 9, an adjustment is appropriate only
where such adjustment merely reflects a change in capitalization or a
corporation transaction which does not constitute a modification, extension, or
renewal of the Option, and, if applicable, is not otherwise inconsistent with
Section 422 and the regulations promulgated thereunder.
11. Time of Grant of Option. The date of grant of an Option under the
Plan shall, unless otherwise provided herein, be the date on which the Committee
grants such Option. Notice of the determination shall be given to each Employee
to whom an Option is so granted within a reasonable time after the date of such
grant. All Options under this Plan must be granted within ten years from the
date of its adoption, or approval by the Corporation's stockholders, whichever
is earlier.
12. Termination and Amendment of this Plan. This Plan shall terminate ten
years after the effective date hereof, and an Option shall not be granted under
this Plan after that date. This Plan shall become effective upon its adoption by
the Board, or approval by the shareholders, whichever is earlier. This Plan may
be terminated by the Board at any time. The Board may at any time and from time
to time modify or amend this Plan (including such form of option agreement) to
conform to qualification as an Incentive Stock Option Plan under Section 422 of
the Code, and the regulations promulgated thereunder, to conform to the
requirements of Rule 16b-3 promulgated under the Act, or in any other respect
which it deems to be in the best interests of the Corporation, to the extent not
inconsistent with either Section 422 of the Code and the regulations thereunder
or Rule 16b-3 promulgated under the Act; provided, however, that no such
modification or amendment of the Board shall change the provisions hereof
relating to adjustments to be made upon changes in capitalizations.
13. Investment Representation. Any person who is issued Options of shares
underlying any Option pursuant to this Plan will be required to represent and
acknowledge that the securities being purchased thereby will be acquired for
investment purposes and not with a view to dispose, sell or transfer such shares
unless a current registration statement is effective for the underlying shares
under the Securities Act of 1933, as amended ("Registration Statement"), or
unless, in the opinion of counsel for the Corporation, such Registration is not
required under the Securities Act of 1933 or any other applicable law,
regulation for rule of governmental agency, state of federal. He will be further
required to acknowledge that he has been advised that the underlying shares,
which are to be issued upon exercise of the Option, have not been registered for
sale pursuant to the Securities Act of 1933, as amended. Any person issued stock
under this Plan will be further required to sign an investment representation to
the effect, and any stock issued pursuant to this Plan shall contain an
investment legend to that effect unless such shares are covered by a current
Registration Statement.
14. Reservation of Shares. The Corporation, during the term of this Plan,
will at all times reserve and keep available such number of shares as shall be
sufficient to satisfy the requirements of this Plan. The inability of the
Corporation to obtain from any regulatory body having jurisdiction authority
deemed by the Corporation's counsel to be necessary to the lawful issuance and
sale of any shares hereunder shall relieve the Corporation of any liability in
respect of the nonissuance or sale of such shares as to which such requisite
authority shall not have been obtained.
15. Indemnification of Committee. In addition to such other rights of
indemnification as they may have as directors or as members of the Committee,
the members of the Committee shall be indemnified by the Corporation against the
reasonable expenses, including attorney's fees actually and necessarily incurred
in connection with the defense of any action, suit or proceeding, or in
connection with any appeal therein, to which they or any of them may be a party
by reason of any action taken or failure to act under or in connection with the
Plan or any Option granted thereunder, and against all amounts paid by them in
settlement thereof (provided such settlement is approved by independent legal
counsel selected by the Corporation) or paid by them in satisfaction of a
judgment in any such action, suit or proceeding, except in relation to matters
as to which it shall be adjudged in such action, suit or proceeding that such
Committee member is liable for negligence or misconduct in the performance of
his duties' provided that within 60 days after institution of any such action,
suit or proceeding a Committee member shall in writing offer the Corporation the
opportunity at its own expense to handle and defend the same.
II. INCENTIVE STOCK OPTIONS.
1. Eligible Employees. All Eligible Employees shall be eligible to
receive incentive stock options under this Article II, whether or not the
Eligible Employee shall have received one or more Options hereunder in any
previous year.
2. Calculation of Exercise Price. The exercise price to be paid for each
share of Common Stock deliverable upon exercise of each incentive stock option
granted hereunder shall be equal to the fair market value per share of Common
Stock at the time of grant, as determined by the Committee, based on the mean of
the bid and asked prices of the Corporation's Common Stock on the date on which
the Option is granted. However, if the stock is listed upon an established stock
exchange(s), such fair market value shall be deemed to be the highest closing
price of the Capital Stock on such stock exchange(s) on the day the Option is
granted or if no sale of the Corporation's Common Stock shall have been made on
any stock exchange on that day, on the next preceding day on which there was a
sale of such stock. Finally, in the case of a Ten Percent Shareholder, the
exercise price per share shall be at least 110% of the fair market value of the
Common Stock at the time the Option is granted. Subject to the foregoing, the
Committee in fixing the option price shall have full authority and discretion
and shall be fully protected in doing so.
For purposes of this Plan, the fair market value of the Corporation's
Common Stock shall be determined without regard to any restriction other than a
restriction which, by its terms, will never lapse.
3. Terms and Conditions of Incentive Stock Options. Incentive Stock
Options shall be in such form as the Committee may, from time to time approve,
shall be subject to the following terms and conditions and may contain such
additional terms and conditions, not inconsistent with this Article II, as the
Committee shall deem desirable:
(a) Number of Shares to be Covered by Options Granted to Persons.
The number of shares of Common Stock covered by the Option that shall be granted
to any Eligible Employee shall be determined, from time to time, by the
Committee. Provided, however, that in no event shall the aggregate fair market
value (determined as of the time the Option is granted) of the stock for which
any Eligible Employee may be granted Incentive Stock Options in any calendar
year (under all such plans of the Corporation and its parent and subsidiary
corporation) exceed the sum of $100,000. Each Option shall state the number of
shares to which it pertains. All Options under this Plan must be granted within
ten years from the date the plan is adopted, or approved by the shareholders of
the Corporation, whichever is earlier.
(b) Term of Option. The term of each Option granted under this Plan
shall be determined by the Committee, but in no event shall an Option be
exercisable after the expiration of ten years from the date the Option is
granted. Where, however, an Incentive Stock Option is granted to an Eligible
Employee who, at the time said Option is granted, is a Ten Percent Shareholder,
said Option shall not by its terms be exercisable after the expiration of five
years from the date such Option is granted. The Options or option portion not so
exercised during the term of each Option shall be canceled on the books of the
Corporation, and the shares previously reserved for the exercise of such expired
Option or option portion shall thereupon become available for reservation for
the exercise of such other and additional Options as the Corporation may grant
pursuant to the terms of the Plan.
(c) Exercise of Option.
(1) Procedure for Exercise. Any Option granted pursuant to this
Article II shall be exercisable at such time and under such conditions as shall
be permissible under the terms of this Plan and of the Option granted to an
Eligible Employee. During the lifetime of the Eligible Employee, the Option
shall be exercisable only by him and shall not be assignable or transferable by
him; no other person shall acquire any rights therein. Each Option shall be
exercised in such amounts, on such conditions and at such times as determined by
the Committee. An Option may not be exercised for fractional shares of the
Common Stock of the Corporation. An Option shall be deemed to be exercised when
written notice of such exercise has been given to the Corporation in accordance
with the terms of the Option by the person entitled to exercise the Option.
Until stock certificates have been issued (as evidenced by an appropriate entry
on the books of the Corporation or of a duly authorized transfer agent of the
Corporation), each applicable Eligible Employee shall have no right to vote or
receive dividends or any other rights of a stockholder notwithstanding the
exercise of the Option. No adjustment will be made for a dividend or other
rights for which the record date is prior to the date the stock certificate are
issued except as provided in Section 9, Article I of this Plan.
(2) Medium and Time of Payment. The option price shall be due
and payable upon the Eligible Employee's exercise of an Option. The purchase
price may be paid in cash, by check, or by an exchange of property which may
include shares of the Corporation's common stock. The Committee shall have sole
discretion to determine the fair market value of all such property. In no event,
however, shall an Eligible Employee tender consideration for payment of the
option price which, if accepted by the Committee, would cause a violation of
Section 422(c)(5) of the Code.
(3) Exercise Following Termination of Employment, Death, or
Permanent Disability. If an Eligible Employee's employment terminates for any
reason, including retirement, death, or disability, to the extent that the
Eligible Employee would have been entitled to exercise the Option immediately
prior to his termination, such Option may be exercised during the period ending
on the day three (3) months after employment terminates, but within the exercise
period for the Option. If the Eligible Employee's employment terminates by
reason of his permanent disability, as defined in Section 22(e)(3) of the Code,
to the extent that the Eligible Employee would have been entitled to exercise
the Option immediately prior to his permanent disability, such Option may still
be exercised during a period ending on the day one (1) year after employment
terminates, but only within the exercise period for the Option. In the case of
the Eligible Employee's death, the Option may be exercised by the Eligible
Employee's executors or administrators or by any person who acquires the Option
by devise or inheritance; in all other cases, the Eligible Employee himself must
exercise the Option. An Eligible Employee whose employment by the Corporation is
terminated for any reason, shall, effective with the end of the period for such
exercise as specified above, forfeit his right to exercise any Option covering
shares of the Common Stock of the Corporation, or the unexpired portion of any
option previously granted to him. The Option or option portion not so exercised
shall be canceled on the books of the Corporation, and the shares reserved for
the exercise of such canceled Option or option portion shall become available
for reservation for the exercise of such other and additional Options as the
Corporation may grant under the terms of this Plan.
(d) Non-transferability of Options. An Option may not be
transferred, assigned, pledged or hypothecated by the Eligible Employee, or by
operation of law, other than by will of the laws of descent and distribution,
and an Option may be exercised only as provided in paragraph (c) herein. Any
attempt to transfer, assign, pledge, hypothecate or dispose of an Option, other
than as a result of the death of the Eligible Employee, may result, in the sole
discretion of the Corporation, in the Option becoming null and void.
(e) Granting Limitation. The aggregate fair market value of the
stock (determined at the date of the grant of the Option) for which any Eligible
Employee may be granted Options in any calendar year (under all Incentive Stock
Option Plans of the Corporation and its Parent or its Subsidiary) shall not
exceed the sum of $100,000.
(f) Restrictions. The Committee may establish such repurchase
restrictions on the shares of the Corporation's stock covered under this Plan as
are not inconsistent with the provisions of Section 422 of the Code and the
Regulations promulgated thereunder.
(g) Other Provisions. The option agreements authorized under the
Plan shall contain such other provisions as the Committee shall deem advisable,
including, without limitation, restrictions upon the exercise of the Option,
which are not inconsistent with the provisions of Section 422 of the code. Any
such option agreement shall contain such limitations and restrictions upon the
exercise of the Option as shall be necessary in order that such Option will be
an "incentive stock option" as defined in Section 422 of the Code or to conform
to any change in the law. Any terms set forth in this Plan or in any Option
issued pursuant to this Plan shall be defined so as to comply with Section 422
of the Code, and the regulations promulgated thereunder.
4. Amendment. The Committee may, with the consent of the person(s)
entitled to exercise any outstanding incentive stock option, amend such
incentive stock option; provided, however, that any such amendment shall be
subject to stockholder approval when and if required. Subject to paragraph 2()
of this Article II, in the case of any incentive stock option previously granted
hereunder which is not then immediately exercisable in full, accelerate the time
or times at which such incentive stock option may be exercised to any earlier
time or times.
5. Other Provisions.
(a) No incentive stock option shall be construed as limiting any
right which the Corporation or any subsidiary of the Corporation may have to
terminate at any time, with or without cause, the employment of any person to
whom such incentive stock option has been granted.
(b) Notwithstanding any provision of the Plan or the terms of any
incentive stock option, the Corporation shall not be required to issue any
shares hereunder if such issuance would, in the judgment of the Committee,
constitute a violation of any state or Federal law or of the rules or
regulations of any governmental regulatory body.
(c) The Committee may require any person who exercises an incentive
stock option to give prompt notice to the Corporation of any disposition of
shares of Common Stock acquired upon exercise of an incentive stock option
within one year after transfer of shares to such person.
III. NON-EMPLOYEE DIRECTOR OPTIONS
1. Eligible Persons. Non-Employee Directors shall be eligible to receive
options under, and solely under, this Article III and any such options shall be
nonqualified options.
2. Initial and Annual Granting of Nonqualified Options to Non-Employee
Directors. Subject to the limitation of the number of shares of Common Stock
set forth in paragraph 3, Article I and subject further to the limitation set
forth in paragraph 3, Article III below, the following nonqualified options
shall be granted to each Non-Employee Director:
(a) A nonqualified option to purchase 50,000 shares of Common Stock
will be granted to each Non-Employee Director who is a Non-Employee Director as
of the close of business on the Effective Date (which date shall be the date of
grant for purposes hereof); and
(b) A nonqualified option to purchase 25,000 shares of Common Stock
will be granted annually, effective as of the anniversary date of the Effective
Date in each year after the Effective Date until expiration of the Plan, to each
person who is a Non-Employee Director for each such anniversary date (which date
shall be the date of grant for purposes hereof).
3. Limitation on Grant. A Non-Employee Director shall not be entitled to
receive any grant of a nonqualified option as set forth in paragraph 2, Article
III, if such Non-Employee Director is indebted in any amount to the Corporation
as of the date of grant of such nonqualified option. Notwithstanding the
foregoing, if any such indebtedness is paid in full by or on behalf of the
affected Non-Employee Director within 45 days from the date of grant, the said
Non-Employee Director shall be entitled to receive the applicable grant of a
nonqualified option as if such indebtedness due to the Corporation had not
existed.
4. Calculation of Exercise Price. The exercise price to be paid for each
share of Common Stock deliverable upon exercise of each nonqualified option
granted under this Article III shall be equal to the fair market value per share
of Common Stock at the time of grant, as determined by the Committee, based on
the mean of the bid and asked prices of the Corporation's Common Stock on the
date on which the Option is granted. However, if the stock is listed upon an
established stock exchange(s), such fair market value shall be deemed to be the
highest closing price of the Capital Stock on such stock exchange(s) on the day
the Option is granted or if no sale of the Corporation's Common Stock shall have
been made on any stock exchange on that day, on the next preceding day on which
there was a sale of such stock. Subject to the foregoing, the Committee in
fixing the option price shall have full authority and discretion and shall be
fully protected in doing so.
For purposes of this Plan, the fair market value of the corporation's stock
shall be determined without regard to any restriction other than a restriction
which, by its terms, will never lapse.
5. Terms and Conditions of Nonqualified Options. Subject to the
provisions of this paragraph 4, nonqualified options granted under this Article
III shall be in such form as the Committee may from time to time approve.
Nonqualified options granted under this Article III shall be subject to the
following terms and conditions:
(a) Term of Option. Each nonqualified option granted under this
Article III shall be exercisable from time to time, in whole or in part, at any
time after six months from the date of grant and prior to the date determined by
the Committee upon the grant thereof (the "Option Expiration Date"), which shall
in no event be later than ten years after the date of grant. The Options or
option portion not so exercised during the term of each Option shall be canceled
on the books of the Corporation, and the shares previously reserved for the
exercise of such expired Option or option portion shall thereupon become
available for reservation for the exercise of such other and additional Options
as the Corporation may grant pursuant to the terms of the Plan.
(b) Exercise of Option.
(1) Procedure for Exercise. Any Option granted hereunder shall,
subject to any conditions set forth in paragraph (e) below, be exercisable at
such time and under such conditions as shall be permissible under the terms of
this Plan and of the Option granted to an Non-Employee Director. During the
lifetime of the Non-Employee Director, the Option shall be exercisable only by
him and shall not be assignable or transferable by him; no other person shall
acquire any rights therein. Each Option shall be exercised in such amounts, on
such conditions and at such times as determined by the Committee. An Option may
not be exercised for fractional shares of the Common Stock of the Corporation.
An Option shall be deemed to be exercised when written notice of such exercise
has been given to the Corporation in accordance with the terms of the Option by
the person entitled to exercise the Option. Until stock certificates have been
issued (as evidenced by an appropriate entry on the books of the Corporation or
of a duly authorized transfer agent of the Corporation), each applicable Non-
Employee Director shall have no right to vote or receive dividends or any other
rights of a stockholder notwithstanding the exercise of the Option. No
adjustment will be made for a dividend or other rights for which the record date
is prior to the date the stock certificate are issued except as provided in
Section 9, Article I of this Plan.
(2) Medium and Time of Payment. The option price shall be due
and payable upon Non-Employee Director's exercise of an Option granted under
this Article III. The purchase price may be paid in cash, by check, or by an
exchange of property which may include shares of the Corporation's common stock.
The Committee shall have sole discretion to determine the fair market value of
all such property.
(3) Exercise Following Termination of Employment, Death, or
Permanent Disability. If a Non-Employee Director's directorship terminates for
any reason, including retirement, death, or disability, to the extent that the
Non-Employee Director would have been entitled to exercise the Option
immediately prior to the termination of his directorship, such Option may be
exercised during the period ending on the day three (3) months after such
directorship terminates, but within the exercise period for the Option. If the
Non-Employee Director's directorship terminates by reason of his permanent
disability, as defined in Section 22(e)(3) of the Code, to the extent that the
Non-Employee Director would have been entitled to exercise the Option
immediately prior to his permanent disability, such Option may still be
exercised during a period ending on the day one (1) year after termination of
his directorship, but only within the exercise period for the Option. In the
case of the Non-Employee Director's death, the Option may be exercised by the
Non-Employee Director's executors or administrators or by any person who
acquires the Option by devise or inheritance; in all other cases, the Non-
Employee Director himself must exercise the Option. A Non-Employee Director
whose directorship is terminated for any reason shall, effective with the end of
the period for such exercise as specified above, forfeit his right to exercise
any Option covering shares of the Common Stock of the Corporation, or the
unexpired portion of any option previously granted to him. The Option or option
portion not so exercised shall be canceled on the books of the Corporation, and
the shares reserved for the exercise of such canceled Option or option portion
shall become available for reservation for the exercise of such other and
additional options as the Corporation may grant pursuant to the terms of this
Plan.
(c) Non-transferability of Options. An Option may not be
transferred, assigned, pledged or hypothecated by the Non-Employee Director, or
by operation of law, other than by will of the laws of descent and distribution,
and an Option may be exercised only as provided in paragraph (c) herein. Any
attempt to transfer, assign, pledge, hypothecate or dispose of an Option, other
than as a result of the death of the Non-Employee Director, may result, in the
sole discretion of the Corporation, in the Option becoming null and void.
(d) Restrictions. As a condition to the exercise of any nonqualified
option granted to a Non-Employee Director under this Article III, the Committee
shall require the payment in full of any and all amounts which a Non-Employee
Director may owe to the Corporation. In addition, a legend shall be placed on
any certificate evidencing shares of Common Stock which requires payment in full
of any and all amounts which a Non-Employee Director may owe to the Corporation
at the time of sale of any portion of said shares.
6. Other Provisions.
(a) No nonqualifed option granted under this Article III shall be
construed as limiting any right which either the stockholders of the Corporation
or the Board of Directors may have to remove at any time, with or without cause,
any Non-Employee Director to whom such nonqualified option has been granted from
the Board of Directors.
(b) Notwithstanding any provision of the Plan or the terms of any
nonqualified option granted under this Article III, the Corporation shall not be
required to issue any shares hereunder if such issuance would, in the judgment
of the Committee, constitute a violation of any state or Federal law or of the
rules or regulations of any governmental regulatory body.
(c) Notwithstanding any provision in the Plan, the Committee may not
exercise any discretion with respect to this Article III which would be
inconsistent with the intent that (i) the Plan meet the requirements of Rule
16b-3 and (ii) any Non-Employee Director who is eligible to receive a grant or
to whom a grant is made pursuant to this Article III will not for such reason
cease to be a "disinterested person" within the meaning of such Rule 16b-3 with
respect to the Plan and other stock related plans of the Corporation or any of
its affiliates. If any Plan provision is found not to be in compliance with Rule
16b-3 or if any Plan provision would disqualify any Non-Employee Director from
remaining a "disinterested person," that provision shall be deemed amended so
that the Plan does so comply and the Plan participants remain disinterested, to
the extent permitted by law and deemed advisable by the Committee, and in all
events the Plan shall be construed in favor of its meeting the requirements of
Rule 16b-3.
PRESIDENT'S LETTER
Two years ago we received a mandate from Basic's shareholders for Change. We
accepted that mandate: we have planned strategically; we have built efficient
information systems and an operating foundation; we have developed banking
relationships; and we have acquired properties. These Changes have increased
shareholder value and company profits. We believe you will be pleased!
Developing the strategy . . .
Following our strategic planning efforts, Basic has successfully pursued a
strategy of increasing reserves by acquiring and improving producing properties
While we recognize that many companies are moving away from an acquisition
strategy, we believe opportunities still exist to increase reserves by these
means. In fact, given the Company's size, its shortage of external funding and
its existing internal staff strengths, the strategic planning group believes
this may be the only strategy that the Company can pursue successfully. We
based this strategy largely on the exodus of major and large independent oil and
gas companies from the United States to overseas areas. Management believes
this exodus or divestiture of producing properties is particularly intense in
the Rocky Mountain Region. And, while large packages of producing properties
are selling at premium prices, smaller packages of distressed properties are
often sold at a discount. Based on these beliefs, we will continue looking for
acquisition opportunities to develop the Company's production base.
Building the foundation . . .
During fiscal '94, when devastatingly low oil prices precluded us from focusing
on growth, we used the time to restructure and refocus internally. We empowered
our employees to take greater responsibilities. We adjusted our accounting and
data systems to provide meaningful and timely information on our operations and
cost structure. We sold our office building and moved the corporate
headquarters to downtown Denver for increased exposure to acquisition and
drilling opportunities.
Efforts to establish a banking relationship were rewarded in August 1994. At
that time, Norwest Bank, Denver, N.A. extended to us a $500,000 term loan to be
used to develop our Antenna Federal prospect in Weld County, Colorado. Based on
the success of this venture, in March 1995, the Bank increased this loan to
$1,120,000. This allowed us to pursue acquisitions in the Williston basin of
Montana and North Dakota. This marks the first time since the early 80's that
the Company has been extended new bank credit and dramatically enhances our
ability to pursue our growth objectives.
We built a foundation primed for growth and we can now say that Basic is
favorably positioned to exploit marginal properties in today's highly
competitive acquisition market.
Redeploying the assets . . .
Having extinguished our mortgage debt through the sale of our office building
and with a new loan in place, we set out to redeploy assets from office
buildings and low-return cash equivalents to oil and gas properties. The
Company successfully drilled the two remaining J Sand development locations on
the Antenna Prospect in the Denver-Julesburg basin, northeast of Denver,
Colorado. In addition, we recompleted and commingled the Codell and Niobrara
formations with J Sand production on the two existing J Sand producers. Next,
in March 1995, we sold the deep exploration rights underlying our West Cole Unit
in Webb County, Texas and generated $186,000 in cash. With the help of this
cash and the expanded credit facility noted above, we acquired approximately 60
properties in the Williston Basin. The Company paid approximately $800,000 for
this package. We believe some wells in this package have the potential for
increased cash flow and exploitation opportunities that could yield additional
reserves.
Resulting in . . .
At March 31, 1995, the Company's discounted present value of its estimated
proved reserves was approximately $3,437,000, reflecting a 114 percent increase
over the previous year's reserves of $1,607,000. This increase was primarily
the result of the Williston Basin acquisition, the newly drilled and recompleted
wells on the Antenna Federal prospect, and an increase in the price of oil.
Oil and gas sales revenue increased $188,000 (15 percent) from 1994. Thirteen
percent of this was due to an increase in oil production and 34 percent was a
direct result of increased oil prices. In addition, $126,000 (67 percent) was
due to the increase in gas volumes and was partially offset by $26,000 (14
percent) reduction attributable to soft gas prices. It should be noted, revenue
was not affected by the Williston basin acquisition because it occurred at our
fiscal year end. The impact of this acquisition should be apparent in the
current fiscal year.
Finally, operations in fiscal year-end March 31, 1995, resulted in $90,000 of
net income compared to a net loss of $174,000 for fiscal year-end March 31,
1994. The 1994 loss was substantially attributable to devastatingly low oil
prices.
Visualizing the future . . .
We believe the recent Williston Basin acquisition gives us numerous
opportunities to increase cash flow and provide opportunities to exploit
additional reserves. In addition, two large independent companies and one major
company have recently divested all of their properties in the Williston Basin.
"Spin-off's" from these divestitures should create additional acquisition
opportunities in the coming year. We intend to pursue these opportunities in
the hopes of growing the Company's cash flow and reserves.
The Company will require additional capital to fund these pursuits.
Unfortunately, the Company's balance sheet has little capacity for additional
debt. As a result, management is acutely aware of the need for additional
equity financing to fund its desires for growth. While addressing the care and
concerns of existing shareholders, management is in the initial stages of
exploring methods of developing a stronger capital base.
If we are successful in securing capital to fund our exploitation and
acquisition efforts, we envision meeting NASDAQ's listing requirements. We
believe relisting the Company's stock should provide increased liquidity and
enhanced shareholder value.
Finally, over the past two years we have learned how costly it is to communicate
with you, our shareholders. With over 5,000, it is simply not possible for a
company of our size to communicate with you as often as we would like. We value
our relationship with you and encourage your ideas and input. Despite this lack
of communication, we hope you can see that we took your mandate for Change two
years ago seriously and it has resulted in many positive improvements. The
progress will continue as we Exploit, Acquire, Recapitalize and Relist. And,
in the process -- enhance shareholder value.
Very truly yours,
Ray Singleton
President and Chief Executive Officer
APPENDIX
On page 2 of the printed document is a bar chart that shows the Company's
estimated proved reserves in terms of barrels of oil equivalent for the past
three years.
Also on page 2 of the printed document is a bar chart that shows the Company's
oil and gas sales revenue for the past three years.
On page 3 of the printed document is a bar chart that shows the Company's net
income for the past three years.
