<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934
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
PENNACO ENERGY, INC.
- -------------------------------------------------------------------------------
(Name of Registrant as Specified Charter)
- -------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which
filing fee is calculated and state how it was determined):
------------------------------------------------------------------------
<PAGE>
(4) Proposed maximum aggregate value of transaction:
------------------------------------------------------------------------
(5) Total fee paid:
------------------------------------------------------------------------
[ ] 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:
------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
------------------------------------------------------------------------
(3) Filing Party:
------------------------------------------------------------------------
(4) Date Filed:
------------------------------------------------------------------------
<PAGE>
May 10, 1999
To Our Stockholders:
You are cordially invited to attend the 1999 Annual Meeting of
Stockholders of Pennaco Energy, Inc., to be held on Tuesday, June 15, 1999, at
9:00 a.m., Mountain Time, at the Hotel Monaco located at 1717 Champa Street,
Denver, Colorado. A notice of the meeting, proxy statement and form of proxy are
enclosed with this letter.
At the meeting, we will report on the progress of the Company, comment
on matters of interest and respond to your questions. A copy of the Company's
Annual Report to Stockholders for the 1998 fiscal year accompanies this mailing.
Stockholders can vote their shares by proxy by marking their votes on
the proxy/voting instructions card, or by attending the meeting in person.
IT IS IMPORTANT THAT YOUR SHARES BE REPRESENTED AT THE MEETING. EVEN IF
YOU PLAN TO ATTEND THE MEETING, WE HOPE THAT YOU WILL READ THE ENCLOSED PROXY
STATEMENT AND THE VOTING INSTRUCTIONS ON THE ENCLOSED PROXY CARD AND THEN VOTE
BY COMPLETING, SIGNING, DATING AND MAILING THE PROXY CARD IN THE ENCLOSED,
POSTAGE PRE-PAID ENVELOPE. You may vote your shares in person if you attend the
Annual Meeting thereby canceling any proxy previously given. If your shares are
not registered in your own name and you would like to attend the meeting, please
ask the broker, trust, bank or other nominee that holds the shares to provide
you with evidence of your share ownership.
We appreciate your interest in the Company.
Sincerely,
Gregory V. Gibson
Vice President, Legal and Secretary
<PAGE>
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD JUNE 15, 1999
TO THE STOCKHOLDERS OF PENNACO ENERGY, INC.:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of
Pennaco Energy, Inc. (the "Company") will be held at the Hotel Monaco located
at 1717 Champa Street, Denver, Colorado on Tuesday, June 15, 1999 at 9:00 a.m.
(Mountain Time) for the following purposes:
1. to elect five (5) directors until their successors are duly
elected and qualified;
2. to approve an amendment to the Articles of Incorporation to provide
for the classification of the Board of Directors into three classes of directors
with staggered terms of office;
3. to approve an amendment to the Articles of Incorporation which would
require that all stockholder action be taken at a stockholders' meeting;
4. to approve an amendment to the Articles of Incorporation and the
addition of a new article which would require a two-thirds vote of the Board
of Directors to amend or repeal the By-Laws of the Company and require a
two-thirds stockholder vote to amend or repeal the By-Laws or certain
provisions of the Articles of Incorporation, as described more fully herein;
5. to approve an amendment to the Articles of Incorporation to
authorize the Board of Directors to issue up to 10,000,000 shares of Preferred
Stock;
6. to ratify the appointment of KPMG LLP as independent certified
public accountants for the 1999 fiscal year; and
7. to transact such other business as may properly come before the
meeting or any postponements or adjournments thereof.
The Board of Directors has fixed the close of business on May 3, 1999
as the record date for determining the stockholders entitled to notice of, and
to vote at, the meeting and at any postponement or adjournment thereof. A list
of such stockholders will be available during normal business hours at the
offices of the Company for inspection at least ten days prior to the Annual
Meeting.
<PAGE>
You are cordially invited to attend this meeting.
By order of the Board of Directors,
GREGORY V. GIBSON
Vice President, Legal and Secretary
Denver, Colorado
May 10, 1999
<PAGE>
PENNACO ENERGY, INC.
1050 17TH STREET
SUITE 700
DENVER, COLORADO 80265
PROXY STATEMENT
FOR
ANNUAL MEETING OF STOCKHOLDERS
JUNE 15, 1999
GENERAL INFORMATION
This statement (the "Proxy Statement") is being furnished in connection
with the solicitation of proxies by the Board of Directors of Pennaco Energy,
Inc. ("Pennaco" or the "Company") for use at the Annual Meeting of Stockholders
of the Company to be held at the Hotel Monaco, 1717 Champa Street, Denver,
Colorado on Tuesday, June 15, 1999, at 9:00 a.m., Mountain Time, and at any
postponement or adjournment thereof (the "Annual Meeting"). The Annual
Meeting is being held for the purposes set forth in this Proxy Statement.
This Proxy Statement and the enclosed form of proxy (the "Proxy Card") are
first being mailed on or about May 10, 1999.
PROXY CARD
The shares represented by any Proxy Card which is properly executed and
received by the Company prior to or at the Annual Meeting (each, a "Conforming
Proxy") will be voted in accordance with the specifications made thereon.
Conforming Proxies that are properly signed and returned but on which no
specifications have been made by the stockholder will be voted in favor of the
proposals described in the Proxy Statement. The Board of Directors is not aware
of any matters that are expected to come before the Annual Meeting other than
those described in the Proxy Statement. However, if any other matters are
properly brought before the Annual Meeting, the persons named in the Proxy Card
will vote the shares represented by each Conforming Proxy on those matters as
instructed by the Board of Directors, or in the absence of express instructions
from the Board of Directors, in accordance with their own best judgment. A
stockholder who has executed and delivered a Conforming Proxy may revoke that
Conforming Proxy at any time before it is voted by:
- executing a new proxy with a later date and delivering the new
proxy to the Secretary of the Company;
- voting in person at the Annual Meeting; or
- giving record of written notice of the revocation to the
Secretary of the Company.
QUORUM AND OTHER MATTERS
The presence at the Annual Meeting, in person or by proxy, of the
holders of a majority of the issued and outstanding shares of common stock, par
value $.001 per share (the "Common Stock"), is necessary and sufficient to
constitute a quorum. Shares of Common Stock represented by Conforming Proxies
will be counted as present at the Annual Meeting for purposes of determining a
quorum, without regard to whether the proxy is marked as casting a vote or
abstaining. Shares of Common Stock held by nominees that are voted on at least
one matter coming before the Annual Meeting will also be counted as present for
purposes of determining a quorum, even if the beneficial owner's discretion has
been withheld (a "broker non-vote") for voting on some or all other matters.
Directors will be elected by a favorable vote of a plurality of the
shares of Common Stock present, in person or by proxy, at the Annual Meeting and
entitled to vote. Accordingly, abstentions and broker non-votes will not affect
the outcome of the election of directors.
All other matters to come before the Annual Meeting require the
approval of a majority of the shares of Common Stock present, in person or
<PAGE>
by proxy, at the Annual Meeting and entitled to vote. Therefore, abstentions
will have the same effect as votes against the proposals on such matters.
Broker non-votes, however, will be deemed shares not present to vote on such
matters, and therefore will not count as votes for or against the proposals,
and will not be included in calculating the number of votes necessary for
approval of such matters.
SOLICITATION OF PROXIES
This solicitation of proxies is being made by the Board of Directors of
the Company and all expenses of this solicitation will be borne by the Company.
The Company expects to reimburse brokerage houses, banks, and other fiduciaries
for reasonable expenses of forwarding proxy materials to beneficial owners.
VOTING SECURITIES AND SECURITY OWNERSHIP
OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The outstanding voting securities of the Company consist entirely of
shares of Common Stock. Each share of Common Stock entitles its owner to one
vote upon each matter to come before the Annual Meeting. Only stockholders of
record at the close of business on May 3, 1999 (the "Record Date") will be
entitled to vote at the Annual Meeting and at any postponement or adjournment
thereof. At the close of business on Record Date, the Company had outstanding
15,144,179 shares of Common Stock.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
To the Company's knowledge, the following persons are the only persons
who are beneficial owners of more than five percent of the Company's common
stock based on the number of shares outstanding on April 15, 1999:
<TABLE>
<CAPTION>
NAME AND ADDRESS NUMBER OF SHARES PERCENT OF CLASS (1)
---------------- ---------------- --------------------
<S> <C> <C>
R.I.S. Resources International Corp. 2,500,000 16.5%
609 West Hastings Street, 11th Floor
Vancouver, British Columbia V 6B 4W4,
Canada
State Street Research & Management 1,500,000(2) 9.9%
Company
One Financial Center, 30th Floor
Boston, MA 02111-2690
Joseph H. Reich 863,500(3) 5.7%
900 Third Ave. Suite 1801, New York,
New York 10022
Peter K. Seldin 863,500(4) 5.7%
900 Third Ave. Suite 1801, New York,
New York 10022
Centennial Energy Partners, L.L.C. 818,500(5) 5.5%
900 Third Ave., Suite 1801,
New York, New York 10022
</TABLE>
- ---------------------------
(1) For purposes of computing the percentage of outstanding shares held by
each person or group of persons named above, any security which such
person or persons has the right to acquire within 60 days after April
15, 1999 is deemed to be outstanding, but is not deemed to be
outstanding in computing the percentage ownership of any other person.
(2) Pursuant to a Schedule 13G dated March 9, 1999, State Street Research
and Management Company has sole voting and dispositive power with
respect to 1,500,000 shares of Common Stock.
(3) Pursuant to a Schedule 13G dated March 29, 1999, Mr. Reich: (i) as the
Managing Member of Centennial Management, L.L.C., has the power to vote
and dispose of the 20,000 shares of Common Stock it beneficially owns;
(ii) as the Managing Member of Centennial Energy Partners, L.L.C., has
the power to vote and dispose of the 818,500 shares of Common Stock it
beneficially owns; and (iii) as President of Joseph H. Reich & Co.,
Inc., has the power to vote and dispose of the 25,000 shares of Common
Stock it beneficially owns. Mr. Seldin has filed a Schedule 13G related
to these same shares.
(4) Pursuant to a Schedule 13G dated March 29, 1999, Mr. Seldin: (i) as a
non-managing member of Centennial Management, L.L.C., has been
delegated the authority to vote and dispose of the 20,000 shares of
Common Stock it beneficially owns; (ii) as a non-managing member of
Centennial Energy Partners, L.L.C., has been delegated the authority
to vote and dispose of the 818,500 shares of Common Stock it
beneficially owns; and (iii) as Vice President of Joseph H. Reich &
Co., Inc., has the power to vote dispose and dispose of the 25,000
shares it beneficially owns. Mr. Reich has filed a Schedule 13G
related to these same shares.
(5) Mr. Reich and Mr. Seldin have both filed a Schedule 13G related to
these same shares.
2
<PAGE>
SECURITY OWNERSHIP OF DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth the number of shares of Common Stock
of the Company beneficially owned as of April 15, 1999 by each of the
directors, each of the named executive officers, and by all directors and
executive officers as a group. Unless otherwise noted, each of the named
persons and members of the group has sole voting and investment power with
respect to the shares shown. Unless otherwise noted, each person's address is
c/o Pennaco Energy, Inc., 1050 17th Street, Suite 700, Denver, Colorado 80265.
<TABLE>
<CAPTION>
SHARES OF THE COMPANY'S PERCENT OF THE COMPANY'S
NAME OF BENEFICIAL OWNER (1) COMMON STOCK COMMON STOCK (2)
------------------------ ------------ ------------
<S> <C> <C>
Paul M. Rady 857,144(3) 5.7%
Jeffrey L. Taylor 543,375(4) 3.6%
Glen C. Warren, Jr. 262,500(5) 1.7%
Gregory V. Gibson 100,000(6) *
Mark A. Erickson 75,000(7) *
David W. Lanza 66,000(8) *
All officers and
directors as a group
(six persons) 1,904,019(9) 12.6%
</TABLE>
* Represents less than 1% of the Common Stock outstanding.
(1) A person is deemed to be the beneficial owner of securities that can be
acquired by such person within 60 days from April 15, 1999 upon the
exercise of warrants or options. Each beneficial owner's percentage
ownership is determined by assuming that options or warrants that are
held by such person (but not those held by any other person) and which
are exercisable within 60 days from April 15, 1999 have been exercised.
(2) Assumes 15,144,179 shares outstanding plus, for each individual, any
securities that specific person has the right to acquire upon exercise
of presently exercisable stock options. Options and warrants held by
persons other than the specific individual for whom an ownership
interest percentage is being calculated are not considered in
calculating that specific individual's ownership interest percentage.
(3) Includes 285,715 shares issuable upon the exercise of presently
exercisable stock purchase warrants, exercisable at a price of $1.75
per share.
(4) Includes 400,000 shares issuable upon the exercise of presently
exercisable stock options, exercisable at a price of $1.25 per
share. Mr. Taylor's address is 7220 Avenida Encinas, Suite 204,
Carlsbad, California 92009.
(5) Includes 87,500 shares issuable upon the exercise of presently
exercisable stock purchase warrants, exercisable at a price of
$1.75 per share.
3
<PAGE>
(6) Includes 100,000 shares issuable upon the exercise of presently
exercisable stock options, exercisable at a price of $1.25 per
share. Mr. Gibson's address is 2 Park Plaza, Suite 450, Irvine,
California 92614.
(7) Includes 50,000 shares issuable upon the exercise of presently
exercisable stock options, exercisable at a price of $1.25 per
share, 15,000 shares issuable upon the exercise of options which
will vest upon the termination of Mr. Erickson's term as Director
on June 15, 1999 at a price of $3.19 per share and 10,000 shares
currently owned.
(8) Includes 50,000 shares issuable upon the exercise of presently
exercisable stock options exercisable at a price of $1.25 per
share. Mr. Lanza's address is 2 Park Plaza, Suite 450, Irvine,
California 92614.
(9) Includes 600,000 shares issuable upon the exercise of currently vested
stock options, exercisable at a price of $1.25 per share, 15,000
shares issuable upon the exercise of options which will vest upon the
termination of Mr. Erickson's term as a Director, exercisable at $3.19
per share and 373,215 shares issuable upon the exercise of presently
exercisable stock purchase warrants, exercisable at a price of $1.75
per share.
PROPOSAL 1
ELECTION OF DIRECTORS
4
<PAGE>
Pursuant to the Company's Articles of Incorporation, the Board of
Directors has fixed the size of the Board at five (5) directors.
The Company's Articles of Incorporation currently dictate that each
director is elected to serve a one-year term. However, if Proposal 2, relating
to an amendment to the Articles of Incorporation to provide for a classified
Board of Directors, is approved by the stockholders there will become three
separate classes of directors pursuant to such provision. If the proposal is
approved by the stockholders, and the director nominees currently standing for
election are elected at this Annual Meeting, then the classes of the Board of
Directors would be as follows. The Class I director would be Jeffrey L. Taylor,
who will serve until the 2000 annual meeting or until his successor is duly
elected and qualified. The Class II directors would be Glen C. Warren, Jr. and
David W. Lanza, who will serve until the 2001 annual meeting or until their
successors are duly elected and qualified. The Class III directors would be Paul
M. Rady and Gregory V. Gibson, who will serve until the 2002 annual meeting or
until their successors are duly elected and qualified. At each annual meeting
following this initial classification and election, the successors to the class
of directors whose terms expire at that meeting would be elected for a term of
office to expire at the third succeeding annual meeting after their election or
until their successors have been duly elected and qualified.
If Proposal 2 is not approved by the stockholders and a classified
Board of Directors is not created, then each director elected at this Annual
Meeting shall serve until the 2000 annual meeting or until their successors are
duly elected and qualified.
Proxies representing shares of Common Stock held on the Record Date
that are returned duly executed will be voted, unless otherwise specified, in
favor of the five nominee directors named below. All nominees have consented to
serve if elected, but should any nominee be unavailable to serve (which event is
not anticipated) the persons named in the proxy intend to vote for such
substitute nominee as the Board of Directors may recommend.
DIRECTOR NOMINEES
PAUL M. RADY, CHIEF EXECUTIVE OFFICER, PRESIDENT, DIRECTOR
Mr. Rady joined the Company in June 1998 as its Chief Executive
Officer, President and Director. Mr. Rady was with Barrett Resources Corporation
("Barrett"), an oil and gas exploration and production company listed on the New
York Stock Exchange, for approximately eight years. During his tenure at
Barrett, Mr. Rady held various executive positions including his most recent
position as Chief Executive Officer, President and Director. Other positions
held by Mr. Rady were Chief Operating Officer, Executive Vice
President--Exploration, and Chief Geologist--Exploration Manager.
JEFFREY L. TAYLOR, CHAIRMAN OF THE BOARD
Currently Mr. Taylor is the President and Director of Foreign
Investments for the London Taylor Group. The London Taylor Group is a southern
California-based financial service provider acting as venture capitalist and
investment banker to private and small cap public companies. During the last
five years, Mr. Taylor has been a Member of the Board of Directors of various
public companies including, TransAmerica Industries, Yuma Gold Mines, and
Cornucopia Resources. He has also served during the last five years as Vice
President of Metalica Resources, Vice President of Goldbelt Resources, Vice
President of Arrowhead Minerals Corporation, and Executive Vice President of
Corporate Finance of Ultra Petroleum. Prior to founding the London Taylor Group,
Mr. Taylor was an analyst and financial service provider for Global Resource
Investments, Inc. of Carlsbad, California and the Chief Financial Officer for
International Art Commission of San Francisco, California.
GLEN C. WARREN, JR., CHIEF FINANCIAL OFFICER, EXECUTIVE VICE PRESIDENT,
DIRECTOR
Mr. Warren joined the Company in July 1998 as its Chief Financial
Officer, Executive Vice President and Director. Prior to assuming his duties as
the Company's Chief Financial Officer, Mr. Warren was an investment banker
5
<PAGE>
with Lehman Brothers Inc. Prior to Lehman Brothers, Mr. Warren was also an
investment banker with Dillon, Read & Co., Inc. and Kidder, Peabody & Co.
Incorporated and has a total of nine years of investment banking experience. Mr.
Warren also has six years of exploration and production experience with Amoco
Production Company in New Orleans.
GREGORY V. GIBSON, VICE PRESIDENT, LEGAL, SECRETARY, DIRECTOR
Mr. Gibson has been an attorney specializing in securities and
securities broker dealerships for over 15 years. Mr. Gibson is a southern
California-based practicing attorney with the law firm of Gibson, Haglund &
Johnson. Prior to his present affiliations, Mr. Gibson was corporate counsel for
three years to Global Resource Investment Limited, a southern California-based
broker-dealer specializing in resource and foreign publicly traded securities.
Prior to working at Global, Mr. Gibson was practicing securities and
international law with the law firm of Gibson & Haglund and Gibson, Ogden &
Johnson.
DAVID W. LANZA, DIRECTOR
Mr. Lanza has been a real estate developer, oil and gas real property
and lease developer, and business owner in California, Nevada, Colorado, Texas
and Wyoming for the past ten years. He is currently the President of Hust
Brothers, a commercial real estate and development company, Vice President and
principal of Hust Brothers Inc., a national automotive wholesale company, and
President and principal of Colusa Motor Sales.
REQUIRED VOTE
The nominees shall be elected by a plurality of the votes cast in the
election by the holders of the Common Stock represented and entitled to vote at
the Annual Meeting, assuming the existence of a quorum.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE ELECTION OF EACH
NOMINEE AS A DIRECTOR.
BOARD OF DIRECTORS AND BOARD COMMITTEES
During 1998, the Company's Board of Directors had six directors.
The Board of Directors has established an Audit Committee and a Compensation
Committee as its standing committees. The Board of Directors does not have a
nominating committee or any committees performing similar functions.
During fiscal 1998, the Board of Directors held 11 meetings and took
action by written consent on three occasions. During fiscal 1998, the Audit
Committee held no formal meetings and the Compensation Committee held no
formal meetings. Each director attended at least 75% of the total number of
Board of Directors meetings held during the fiscal year.
The Audit Committee consists of Mr. Taylor and Mr. Lanza and the
Compensation Committee consists of Mr. Taylor and Mr. Lanza. The Audit
Committee reviews the financial statements and independent auditors' report
including recommendations for the independent auditors regarding internal
controls and other matters. The Compensation Committee administers management
incentive compensation plans and makes recommendations to the Board with
respect to the compensation of directors and officers of the Company.
6
<PAGE>
EXECUTIVE OFFICERS AND OTHER SIGNIFICANT EMPLOYEES
The following sets forth certain information with respect to the
executive officers of the Company as of the date of this Proxy Statement. All
officers of the Company serve at the pleasure of the Company's Board of
Directors until their successors are elected and qualified.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Paul M. Rady 45 Chief Executive Officer, President, Director
Glen C. Warren, Jr. 43 Chief Financial Officer, Executive Vice President,
Director
Gregory V. Gibson 49 Vice President, Legal, Secretary, Director
Terrell A. Dobkins 46 Vice President - Production
Brian A. Kuhn 40 Vice President - Land
</TABLE>
Certain biographical information regarding Mr. Rady, Mr. Warren and Mr.
Gibson is set forth above under the caption "Director Nominees."
TERRELL A. DOBKINS, VICE PRESIDENT - PRODUCTION
Mr. Dobkins has over 20 years experience in the petroleum industry. Mr.
Dobkins started his career at Amoco Production Company where he had extensive
experience in Rocky Mountain Low Permeability Gas Reservoirs and worked in
operations, completions and reservoir engineering. Mr. Dobkins worked as a
Manager for three years at American Hunter Exploration where he was involved in
all U.S. operations and engineering. More recently, Mr. Dobkins served eight
years at Barrett Resources, most recently a Manager of Acquisitions, and was
involved in the development of several projects, including completions,
operations and reservoir engineering.
BRIAN A. KUHN, VICE PRESIDENT - LAND
Mr. Kuhn has 18 years experience in the oil and gas industry as a
landman. Mr. Kuhn worked as a landman for thirteen years at Amoco Production
Company from June 1980 to April 1993. While at Amoco, Mr. Kuhn spent three years
in the Powder River Basin and other basins of the Rocky Mountain region. Most
recently, Mr. Kuhn was employed as a Division Landman for five years at Barrett
Resources Corporation where he worked in the Rocky Mountain region and numerous
other basins. Mr. Kuhn has extensive experience in the acquisition of producing
properties, testifying as expert witness before state regulatory agencies,
management of lease acquisition and negotiation of both large and small
exploration transactions.
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth, for fiscal 1998, the compensation paid
to the Company's current Chief Executive Officer and its other four most highly
compensated executive officers with annual compensation in excess of $100,000
for the fiscal year 1998 (the "Named Officers"). The Company was not, prior
to November 1998, a reporting company pursuant to Section 13(a) or 15(d) of
the Securities Exchange Act of 1934.
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
-------------------------------------- --------------------
<S> <C>
</TABLE>
7
<PAGE>
<TABLE>
<CAPTION>
RESTRICTED SECURITIES
OTHER ANNUAL STOCK UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION(1) AWARDS OPTIONS (#) COMPENSATION
----------------------------- ------ --------- ------- --------------- ------------ ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Paul M. Rady........................ 1998 $ 65,077(2) -- 800,000 --
Chief Executive Officer and
President
Glen C. Warren, Jr.................. 1998 $ 49,680(3) -- 513,228 --
Chief Financial Officer and
Executive Vice President
Terrell A. Dobkins.................. 1998 $ 46,465(4) -- 250,000 --
Vice President - Production
Brian A. Kuhn....................... 1998 $ 41,548(5) -- 150,000 --
Vice President - Land
</TABLE>
(1) The Company recognized non-cash compensation expense relating to
restricted Common Stock and warrants purchased by Mr. Warren of $675,000,
and stock options issued to Mr. Dobkins of $556,250 and Mr. Kuhn of
$412,500, respectively, in the third quarter of 1998. This non-cash
expense was recognized in accordance with APB No. 25, "Accounting for
Stock Issued to Employees." Compensation expense was calculated based on
the difference between the closing price per share on the last trading day
prior to the date of purchase and the $1.75 unit price for restricted
shares and warrants purchased by Mr. Warren. Compensation expense for Mr.
Dobkins and Mr. Kuhn was calculated based on the difference between the
closing price per share on the last trading day prior to the date of
employment and the exercise price for options awarded. The restricted
securities were offered as incentive to attract a senior management
team to the Company. The Company believes that the offers made by
the Board of Directors in June 1999 were at market value due to the
restricted nature of the securities to be issued and the lack of a
liquid trading market for the Company's Common Stock at the time the
offers were made which was prior to the date that the Company's stock
was first quoted on the OTC Bulletin Board system. However, APB No.
25 requires the measurement of compensation expense at the date of
employment rather than at the offer date. Further, APB No. 25 requires
that compensation be measured based on the quoted market price of
the Company's stock once the stock is publicly traded. While the
Company was not an SEC registrant until September 8, 1998, the
Company's shares were quoted on the OTC Bulletin Board system beginning
July 1, 1998 (the Company's shares were listed on the American Stock
Exchange on April 19, 1999).
(2) Mr. Rady became an executive officer on June 16, 1998, compensated at an
annual salary of $120,000.
(3) Mr. Warren became an executive officer on July 2, 1998, compensated at
an annual salary of $100,000.
(4) Mr. Dobkins became an executive officer on July 6, 1998, compensated at
an annual salary of $95,000.
(5) Mr. Kuhn became an executive officer on July 9, 1998, compensated at an
annual salary of $87,000.
OPTION GRANTS IN LAST FISCAL YEAR
The following table provides information regarding stock options
granted to the Named Officers during fiscal 1998.
<TABLE>
<CAPTION>
PERCENT OF
TOTAL OPTIONS
GRANTED TO
NUMBER OF EMPLOYEES AS OF
SECURITIES THE PERIOD ENDED EXERCISE
UNDERLYING DECEMBER 31, PRICE PER
NAME OPTIONS GRANTED 1998 SHARE EXPIRATION DATE(S)
---- --------------- ---------------- ---------- ----------------------
<S> <C> <C> <C> <C>
Paul M. Rady....................... 400,000 13.5% $2.50 June 15, 2008
400,000 13.5% $5.00 June 15, 2008
Glen C. Warren, Jr................. 200,000 6.7% $2.50 July 1, 2008
100,000 3.4% $3.25 July 1, 2008
200,000 6.8% $5.00 July 1, 2008
13,228 0.4% $3.25 September 3, 2008
Terrell A. Dobkins................. 175,000 5.9% $3.25 July 6, 2004 through July 6, 2007(1)
75,000 2.5% $2.50 July 6, 2004 through July 6, 2007(1)
Brian A. Kuhn...................... 100,000 3.4% $3.25 July 9, 2004 through July 9, 2007(1)
50,000 1.7% $2.50 July 9, 2004 through July 9, 2007(1)
</TABLE>
(1) Option expiration date is five years subsequent to vesting which occurs
ratably over a four year period from the date of grant.
8
<PAGE>
AGGREGATED OPTION EXERCISES AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED IN THE
OPTIONS HELD AT MONEY OPTIONS HELD AT
DECEMBER 31 1998 DECEMBER 31, 1998 (1)
------------------------------------ -------------------------------
EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
------------- --------------- ------------- ---------------
<S> <C> <C> <C> <C>
Paul M. Rady................................. 800,000 $450,000
Glen C. Warren, Jr........................... 513,228 $267,460
Terrell A. Dobkins........................... 250,000 $150,000
Brian A. Kuhn................................ 150,000 $ 93,750
</TABLE>
(1) Options are "in-the-money" if the closing market price of the Company's
Common Stock exceeds the exercise price of the options. The exercise
price of the options granted to the Named Officers is $1.25 - 3.25 per
share. The value of unexercised options for each of the Named Officers
represents the difference between the exercise price of such options and
the closing price of the Company's Common Stock on December 31, 1998
($3.625 per share).
EMPLOYMENT AGREEMENTS
The Company has entered into four-year employment agreements with Paul
M. Rady, who was hired by the Company in June 1998, and Glen C. Warren, Jr., who
was hired in July 1998.
The employment agreement with Mr. Rady provides for a salary of
$120,000 per year, bonus compensation equal to 2% of the Company's net cash
flow, participation in the Company's standard insurance plans for its
executives, and participation in the Company's other incentive compensation
programs at the discretion of the Board of Directors. Mr. Rady was granted
400,000 stock options exercisable at $2.50 per share and 400,000 stock options
exercisable at $5.00 per share which vest ratably over a four-year period
commencing in June 1998. Mr. Rady's stock options are subject to accelerated
vesting in the event of his termination without cause or in the event of a
change of control of the Company. The stock options expire in 2008, subject to
earlier termination if the employment is terminated. If Mr. Rady's employment
with the Company is terminated without cause prior to June 1, 1999, Mr. Rady is
entitled to termination compensation of $2,000,000. If Mr. Rady's employment
with the Company is terminated without cause after June 1, 1999, Mr. Rady is
entitled to termination compensation of $3,000,000. Mr. Rady's employment
agreement automatically renews on each anniversary of the effective date after
June 1, 2001 for an additional two years unless the Company notifies Mr. Rady in
writing 90 days prior to such anniversary that it will not be renewing his
employment agreement.
The employment agreement with Mr. Warren provides for a salary of
$100,000 per year, bonus compensation of $150,000 for 1999 and equal to 1% of
the Company's net cash flow thereafter and, participation in the Company's
standard insurance plans for its executives, and participation in the
Company's other incentive compensation programs at the discretion of the
Board of Directors. Mr. Warren was granted 200,000 stock options exercisable
at $2.50 per share, 100,000 stock options exercisable at $3.25 per share, and
200,000 stock options exercisable at $5.00 per share which vest ratably over
a four-year period commencing in July 1998. The stock options expire in 2008.
Mr. Warren's stock options are subject to accelerated vesting in the event of
his termination without cause or in the event of a change of control of the
Company. If Mr. Warren's employment with the Company is terminated without
cause prior to July 1, 1999, Mr. Warren is entitled to termination
compensation of $400,000. If Mr. Warren's employment with the Company is
terminated without cause after July 1, 1999 but before July 1, 2000, Mr.
Warren is entitled to termination compensation of $750,000. If Mr. Warren's
employment with the Company is terminated without cause after July 1, 2000,
Mr. Warren is entitled to termination compensation of $1,250,000. Mr.
Warren's employment
9
<PAGE>
agreement automatically renews on each anniversary of the effective date after
June 1, 2002 for an additional year, unless the Company notifies Mr. Warren in
writing 90 days prior to such anniversary that it will not be renewing his
employment agreement.
COMPENSATION OF DIRECTORS
Directors who are employees of the Company are not paid any fees or
additional compensation for services rendered as members of the Board of
Directors or any committee thereof. Directors who are not employees of the
Company receive a fee of $20,000 annually.
COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee of the Board of Directors (the "Committee")
is composed of Mr. Taylor and Mr. Lanza, each of whom is a non-employee director
of the Company.
The Committee reviews and approves executive compensation, establishes
target profit goals, makes grants of long-term incentives, and determines the
compensation to be paid to the Chief Executive Officer and each of the other
officers of the Company. The goal of the executive compensation program is to
reward executives for their performance and enhancement of stockholder value.
The Company's executive compensation program is designed to attract and
retain executives who are key to the long-term success of the Company and align
compensation with the attainment of the Company's business goals and the
increase of share value. The Company uses the same philosophy as the Committee
in establishing compensation for employees other than officers.
Executive compensation consists of (i) salary, (ii) annual performance
incentives, and (iii) long-term incentives. The Committee reviews executive
compensation annually and makes appropriate adjustments based on (i) Company
performance, (ii) achievement of predetermined goals and (iii) changes in an
executive's duties and responsibilities.
SALARY. The Committee desires that overall compensation reflect the
performance of each individual executive over time. Base salaries are set at
levels subjectively determined by the Committee to adequately reward and retain
capable executives, including the President and Chief Executive Officer. The
Committee considers the importance of and skills required in a particular
executive position in establishing salary.
At the beginning of each fiscal year, the Committee reviews and
establishes the annual salary of each officer, including the Chief Executive
Officer. The Committee makes an independent, subjective determination of the
appropriate level of each officer's salary to determine such amount or if a
salary has been fixed by contract which limits decreases, to determine the
amount of the increase, if any. The Committee does not use any mechanical
formulations or weighting of any of the factors considered.
ANNUAL PERFORMANCE INCENTIVES. The Company has established an annual
bonus plan for certain executive officers that is based on net cash flows.
LONG TERM INCENTIVES. In an effort to properly align the long-term
interests of the Company's management and stockholders, the Committee may
make awards under the Company's 1998 Stock Option and Incentive Plan (the
"1998 Plan"), which was approved by the Company's full board on March 24,
1998. The aggregate number of shares which may be issued under the 1998 Plan
to all officers, directors and employees is 4,500,000. The Committee
10
<PAGE>
believes that the 1998 Plan enables the Company to attract and retain the
highest quality managers. Under the 1998 Plan, the Committee is responsible for
establishing who receives awards, the terms of the awards, requisite conditions
and the size of the awards. Awards to any recipient are made by a subjective
determination by the Committee, which considers the person's past performance
and current responsibilities, as well as the amount of awards previously made to
that person.
CEO COMPENSATION. Mr. Rady was elected President and Chief Executive
Officer in June of 1998 and his salary was established at $120,000 to reflect
his duties.
Section 162(m) of the Internal Revenue Code of 1986 places a limit of
$1,000,000 on the amount of compensation that may be deducted by the Company in
any one fiscal year with respect to the Chief Executive Officer and the other
four most highly compensated individuals who are executive officers as of the
end of the fiscal year. This deduction limitation, however, does not apply to
certain "performance based" compensation. The Committee intends to generally
design and implement compensation plans that qualify for full deductibility in
accordance with Section 162(m). The Company, however, may from time to time pay
other compensation to its executive officers that may not be deductible.
Respectfully Submitted,
Jeffrey L. Taylor
David W. Lanza
COMPENSATION COMMITTEE INTERLOCKS
AND INSIDER PARTICIPATION
During fiscal 1998, no executive officer of the Company served as (i) a
member of the compensation committee (or other board committee performing
equivalent functions or, in the absence of any such committee, the entire board
of directors) of another entity, one of whose executive officers served on the
Board of Directors of the Company, or (ii) a director of another entity, one of
whose executive officers served on the Board of Directors of the Company or its
subsidiaries.
During fiscal 1998, no member of the compensation committee (or board
committee performing equivalent functions) (i) was an officer or employee of the
Company, (ii) was formerly an officer of the Company or (iii) had any business
relationship or conducted any transactions with the Company.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended,
requires the Company's executive officers and directors, and persons who
beneficially own more than ten percent of the Company's Common Stock, to file
reports of their beneficial ownership (Forms 3, 4, and 5, and any amendment
thereto) with the Securities and Exchange Commission. Executive officers,
directors, and greater-than-ten percent holders are required to furnish the
Company with copies of the forms that they file.
Based solely on a review of the copies of such forms furnished to the
Company and written representations from the executive officers and directors,
the Company believes that all Section 16(a) filing requirements applicable to
its executive officers and directors were complied with during its fiscal year
1998 with the following exceptions:
- Mr. Taylor failed to file a timely initial report on Form 3, but
the required report has been subsequently filed;
- Mr. Rady failed to file a timely initial report on Form 3, but
the required report has been subsequently filed;
- Mr. Warren failed to file a timely initial report on Form 3, but
the required report has been subsequently filed;
- Mr. Gibson failed to file a timely initial report on Form 3, but
the required report has been subsequently filed;
- Mr. Erickson failed to file an initial report on Form 3;
- Mr. Lanza failed to file a timely initial report on Form 3, but
the required report has been subsequently filed;
- Mr. Dobkins failed to file a timely initial report on Form 3, but
the required report has been subsequently filed; and
- Mr. Kuhn failed to file a timely initial report on Form 3, but
the required report has been subsequently filed.
11
<PAGE>
STOCK PERFORMANCE GRAPH
The following performance graph compares the Company's cumulative total
stockholder return on its Common Stock with the cumulative total return on (i)
the American Stock Exchange Market Value Index and (ii) the S&P 600 Oil and Gas
(Exploration and Production) Index as a peer group stock index (the "Peer Group
Index") which consists of fifteen publicly traded companies in the same industry
or line-of-business as the Company. The cumulative total return computations set
forth in the Performance Graph assume the investment of $100 in the Company's
Common Stock, the American Stock Exchange Market Value Index and the Peer Group
Index on July 2, 1998. Prior to April 19, 1999, the Company's Common Stock
was quoted on the OTC Bulletin Board System. Since April 19, 1999, the
Company has been listed on the American Stock Exchange. The Company believes
that comparison for 1998 to the American Stock Exchange Market Value Index is
appropriate.
The Performance Graph and related description shall not be deemed
incorporated by reference by any general statement incorporating by reference
the Proxy Statement into any filing under the Securities Act of 1933 or under
the Securities Exchange Act of 1934, except to the extent that the Company
specifically incorporates this information by reference and shall
12
<PAGE>
not otherwise be deemed filed with the Securities and Exchange Commission.
[CHART]
<TABLE>
<CAPTION>
CUMULATIVE TOTAL RETURN
--------------------------------------------------------------
7/2/98 7/98 8/98 9/98 10/98 11/98 12/98
<S> <C> <C> <C> <C> <C> <C> <C>
PENNACO ENERGY, INC. 100 164 138 88 132 119 102
S&P SMALLCAP 600 OIL & GAS (EXPLORATION & 100 82 68 75 76 67 62
PRODUCTION)
AMEX MARKET VALUE 100 98 78 86 90 92 96
</TABLE>
13
<PAGE>
INTRODUCTION TO AMENDMENTS TO THE ARTICLES OF INCORPORATION
PROPOSALS 2, 3, 4 and 5
The Board of Directors has observed that certain tactics, including
proxy fights, hostile tender offers and "greenmail," have become relatively
common in modern takeover practice. The Board of Directors considers such
tactics to be highly disruptive to a corporation and often contrary to the
overall best interests of its stockholders. In particular, such tactics
frequently represent an attempt to acquire a corporation in the marketplace at
an unfairly low price. Proposals 2, 3, 4 and 5 (the "Amendments"), proposed
amendments to the Company's articles of incorporation (the "Articles of
Incorporation"), are being submitted for stockholder approval to better
position the Company to address such tactics.
The Amendments are intended to encourage persons seeking to acquire
control of the company to initiate such efforts through negotiations with the
Company's Board of Directors. The Board of Directors believes that the
Amendments will help give the Board of Directors the time necessary to evaluate
unsolicited offers, as well as appropriate alternatives, in a manner which
assures fair treatment of the Company's stockholders. The Amendments
14
<PAGE>
are also intended to increase the bargaining leverage of the Board of Directors,
on behalf of the Company's stockholders, in any negotiations concerning a
potential change of control of the Company. The Amendments will, however, make
more difficult or discourage a proxy contest or the assumption of control by a
substantial stockholder and thus could increase the likelihood that incumbent
directors will retain their positions. The Amendments, if they are adopted,
could also have the effect of discouraging a third party from making a tender
offer or otherwise attempting to obtain control of the Company even though such
attempt might be beneficial to the Company's stockholders.
EXISTING DEFENSES.
The Company's current Articles of Incorporation do not contain
provisions intended by the Company to have, or to the knowledge of the Board of
Directors having, an anti-takeover effect. However, the Articles of
Incorporation currently authorize the issuance of 50,000,000 shares of Common
Stock, not all of which have been issued or reserved. This authorized and
available Common Stock could (within the limits imposed by applicable law and
the rules of the American Stock Exchange) be issued by the Company and used to
discourage a change in control of the Company. For example, the Company could
privately place shares with purchasers who might side with the Board of
Directors in opposing a hostile takeover bid. In addition, shares of Common
Stock may be issued in the event that the rights issued in connection with the
Company's Stockholder Rights Plan are exercised. See "-Stockholders Rights
Plan." Shares of Common Stock could also be issued to a holder that would
thereafter have sufficient voting power to assure that any proposal to amend or
repeal the By-Laws or certain provisions of the Articles of Incorporation would
not receive the two-thirds vote required by Proposal 3. See "Proposal 3:
Supermajority Vote Required for Amendment or Repeal of the By-Laws or Certain
Provisions of the Articles of Incorporation."
BY-LAWS. The Board of Directors plans to adopt certain By-Law
amendments which may have anti-takeover potential. Those amendments (i)
eliminate the ability of the stockholders of the Company to call a special
stockholders' meeting, (ii) impose advance notice requirements for stockholder
nominations to the Board of Directors and stockholder proposals and (iii)
require that nominating stockholders give information comparable to that which
would be required of the Company under applicable federal securities laws. These
By-Law amendments could allow the Company to delay undesirable stockholder
actions in order to give the Company time and information with which to respond.
STOCKHOLDER RIGHTS PLAN. On February 24, 1999, the Board of Directors
adopted a stockholder rights plan (the "Stockholder Rights Plan") pursuant to
which the Company distributed a dividend of one right (a "Right") for each
outstanding share of Common Stock. The Rights have anti-takeover effects. The
Rights will cause substantial dilution to a person or group that attempts to
acquire the Company on terms not approved by the Board of Directors, except
pursuant to an offer conditioned on a substantial number of Rights being
acquired. Each Right entitles the registered holder to purchase from the Company
one half of a share of Common Stock at an exercise price of $20, subject to
adjustment. The description and terms of the Rights are set forth in a Rights
Agreement, dated as of February 24, 1999, between the Company and Harris Trust
and Savings Bank, as rights agent, a copy of which has been filed with the
Securities and Exchange Commission as an exhibit to a Registration Statement on
Form 8-A.
The rights are not exercisable until the earlier to occur of (1) the
tenth day after the Stock Acquisition Date (as defined in the Rights Agreement)
or (2) the tenth business day (or such later date as may be determined by action
of the Board of Directors of the Company prior to such time as any Person (as
defined in the Rights Agreement) becomes an Acquiring Person (as defined in the
Rights Agreement)) after the date of the Commencement (as defined in the Rights
Agreement) by any Person of, or of the first public announcement of the
intention of any Person to commence, a tender or exchange offer the consummation
of which would result in any Person becoming an Acquiring Person (including any
such date which is after the date of this Agreement and prior to the issuance of
the Rights; the earlier of such dates being herein referred to as the
"Distribution Date"). The Rights will expire on March 9, 2009 (the "Final
Expiration Date") unless earlier redeemed or exchanged by the Company as
described below.
In the event (a "Flip-In Event") that any person or group of related
persons becomes the beneficial owner of 15% or more of the outstanding Common
Stock (except pursuant to a tender offer or exchange offer for all outstanding
shares of Common Stock at a price and on terms determined prior to the date of
the first acceptance of payment for any
15
<PAGE>
of such shares to be in the best interest of the Company and its stockholders by
at least a majority of the directors of the Company who are not officers of the
Company and not affiliates or associates with such person or group), then each
holder of a Right, other than Rights that are or were owned beneficially by the
Acquiring Person (which will be void), will thereafter have the right to
receive, upon exercise thereof at the then current exercise price of the Right,
that number of shares of Common Stock (or, under certain circumstances,
economically equivalent securities of the Company) having a market value of two
times the exercise price of the Right.
In the event that, following a Flip-In Event, the Company is involved
in a merger or other business combination or 50% or more of the Company's assets
or earning power are sold, then each holder of a Right will thereafter have the
right to receive, upon the exercise thereof at the then current exercise price
of the Right, that number of shares of common stock (or, under certain
circumstances, an economically equivalent security or securities) of the
acquiring company which at the time of such transaction would have a market
value of two times the exercise price of the Right.
At any time after a Flip-In Event and prior to the acquisition by any
person or group of related persons of 50% or more of the outstanding Common
Stock, the Board of Directors may exchange the Rights (other than any Rights
which have become void), in whole or in part, at an exchange ratio of one share
of Common Stock per Right.
The Company may redeem the Rights in whole, but not in part, at a price
of $0.01 per Right (the "Redemption Price"), at any time prior to the close of
business on the later of (1) 5:00 pm on the 10th day after the Stock Acquisition
Date and (2) the expiration of the rights. Immediately upon any redemption of
the Rights, the right to exercise the Rights will terminate and the only right
of the holders of Rights will be to receive the Redemption Price.
As noted in "Stock Ownership of Directors and Officers," all directors
and officers of the Company as a group beneficially owned, as of May 3, 1999,
899,804 shares of Common Stock plus 988,215 shares issuable pursuant to options
and warrants exercisable within 60 days of the date hereof. These shares
represent 12.5% of the outstanding Common Stock of the Company. The officers and
directors are, therefore, unable to prevent any action requiring a two-thirds
stockholder vote under the Amendments from becoming effective. Similarly, no
existing stockholder of the Company currently holds sufficient shares alone to
prevent an action requiring such a two-thirds vote from becoming effective.
The Amendments are permitted by Nevada law and are consistent with the
rules of the American Stock Exchange on which the Company's Common Stock is
listed. The Amendments are not the result of any specific efforts of which the
Company is aware to obtain control of the Company. The Board of Directors does
not contemplate recommending the adoption of any further amendments to the
Articles of Incorporation or By-Laws of the Company that would affect the
ability of third parties to effect a change in control of the Company. However,
the Board of Directors may wish in the future to review the advisability of
adopting other measures that may affect takeovers in the context of applicable
law and judicial decisions.
DESCRIPTION OF THE PROPOSED AMENDMENTS
The Amendments described in Proposals 2, 3, 4 and 5 are contained
within the Amended and Restated Articles of Incorporation set forth in
Exhibit A to this Proxy Statement, in substantially the form in which they
will take effect if the Amendments are approved by the stockholders. The
following descriptions of the Amendments is qualified in its entirety by
reference to Exhibit A.
PROPOSAL 2
APPROVAL OF A CLASSIFIED BOARD OF DIRECTORS (ARTICLE IX)
The Company's Board of Directors unanimously recommends the approval of
a proposed amendment to Article IX to the Articles of Incorporation to provide
for the classification of the Board of Directors into three classes of directors
with staggered terms of office.
16
<PAGE>
The Company's By-Laws now provide that all directors are to be
elected annually for a term of one year. Nevada law permits provisions in a
company's articles of incorporation or by-laws approved by stockholders that
provide for a classified board of directors. The proposed classified board
amendment to the Articles of Incorporation and conforming amendments to the
By-Laws would provide that directors will be classified into three classes,
as nearly equal in number as possible. One class would hold office initially
for a term expiring at the 2000 annual meeting; another class would hold
office initially for a term expiring at the 2001 annual meeting; and another
class would hold office initially for a term expiring at the 2002 annual
meeting. At each annual meeting following this initial classification and
election, the successors to the class of directors whose terms expire at that
meeting would be elected for a term of office to expire at the third
succeeding Annual Meeting after their election and until their successors
have been duly elected and qualified. See "Election of Directors" as to the
composition of each class of directors if this proposal is adopted.
The proposed classified board amendment will significantly extend the
time required to effect a change in control of the Board of Directors and may
discourage hostile takeover bids for the Company. Currently, a change in control
of the Board of Directors can be made by stockholders holding a plurality of the
votes cast at a single annual meeting. If the Company implements a classified
board of directors, it will take at least two annual meetings for even a
majority of stockholders to make a change in control of the Board of Directors,
because only a minority of the directors will be elected at each meeting.
Under Nevada law, directors chosen to fill vacancies on a classified
board shall hold office until the next election of the class for which such
directors shall have been chosen, and until their successors are elected and
qualified. Nevada law also provides that, unless the articles of
incorporation provide otherwise, directors serving on a classified board of
directors may be removed only for cause. The Company's Articles of
Incorporation do not provide otherwise. Accordingly, if the classified board
proposal is approved by the stockholders, conforming By-Law provisions will
be implemented. Presently, all directors of the Company are elected annually
and all of the directors may be removed, with or without cause, by a majority
vote of the outstanding shares of the Common Stock. Cumulative voting is not
authorized by the Articles of Incorporation.
ADVANTAGES. The classified board proposal is designed to assure
continuity and stability in the Board of Directors' leadership and policies.
While management has not experienced any problems with such continuity in the
past, it wishes to ensure that this experience will continue. The Board of
Directors also believes that the classified board proposal will assist the Board
of Directors in protecting the interests of the Company's stockholders in the
event of an unsolicited offer for the Company.
DISADVANTAGES. Because of the additional time required to change
control of the Board of Directors, the classified board proposal will tend to
perpetuate present management. Without the ability to obtain immediate control
of the Board of Directors, a takeover bidder will not be able to take action to
remove other impediments to its acquisition of the Company, including, as
discussed above, the redemption of the Rights, the terms of which create
obstacles to an acquisition of the Company and empower the Board of Directors to
effect such a redemption. Because the classified board proposal will increase
the amount of time required for a takeover bidder to obtain control of the
Company without the cooperation of the Board of Directors, even if the takeover
bidder were to acquire a majority of the Company's outstanding stock, it will
tend to discourage certain tender offers, perhaps including some tender offers
that stockholders may feel would be in their best interests. The classified
board proposal will also make it more difficult for the stockholders to change
the composition of the Board of Directors even if the stockholders believe such
a change would be desirable.
REQUIRED VOTE
In order to be adopted, this proposal must receive the affirmative vote
of holders of a majority of the shares of stock eligible to vote at the Annual
Meeting.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR PROPOSAL 2.
17
<PAGE>
PROPOSAL 3
REQUIREMENT THAT STOCKHOLDER ACTION BE TAKEN AT A MEETING (ARTICLE VII)
The Company's Board of Directors unanimously recommends the approval of
the addition of a new Article, Article VII, to the Articles of Incorporation
which would require that all stockholder action be taken at a stockholders'
meeting.
Under Nevada law, unless a corporation's articles of incorporation
provide otherwise, any action required or permitted to be taken by stockholders
may be taken without a meeting and without a stockholder vote if a written
consent setting forth the action to be taken is signed by stockholders having
the requisite voting power necessary to authorize such action at a stockholders'
meeting. The Company's Articles of Incorporation currently do not provide
otherwise. Proposed Article VII of the Articles of Incorporation would require
all stockholder action be taken at an annual meeting or special meeting of the
stockholders, and would prohibit stockholder action by written consent. Under
the Company's By-Laws, a stockholders' meeting may be called only by the
Chairman of the Board of Directors, the Chief Executive Officer or a majority of
the Company's directors. Thus, this amendment would permit the Board of
Directors to delay, until the next annual stockholders' meeting, action favored
by the holders of a majority of the outstanding stock. However, in the case of a
publicly held corporation with numerous stockholders, such as the Company,
action without a stockholders' meeting would, as a practical matter, be
available to only a limited number of stockholders acting in concert, and not to
the Company's stockholders in general. The Board of Directors believes that a
publicly owned corporation should afford all of its stockholders an opportunity
to participate in a meeting where stockholder action is proposed to be taken.
ADVANTAGES. The provisions eliminating stockholder action by written
consent would give all of the Company's stockholders the opportunity to
participate in a proposed stockholder action. The Board of Directors also
believes that eliminating the written consent procedure would prevent sudden
stockholder action to remove the entire Board of Directors and would thereby
preserve the Board of Directors' ability to negotiate with a potential takeover
bidder on behalf of the Company's stockholders.
DISADVANTAGES. The provisions eliminating stockholder action by written
consent would preclude action by written consent of the stockholders even if a
majority of the stockholders believed such action to be in their best interests.
REQUIRED VOTE
In order to be adopted, this proposal must receive the affirmative vote
of holders of a majority of the shares of stock eligible to vote at the Annual
Meeting.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR PROPOSAL 3.
PROPOSAL 4
SUPERMAJORITY VOTE REQUIRED FOR AMENDMENT OR REPEAL OF THE
BY-LAWS OR CERTAIN PROVISIONS OF THE AMENDED AND RESTATED
ARTICLES OF INCORPORATION (ARTICLES XIII, XIV)
The Company's Board of directors unanimously recommends the approval of
a proposed amendment to Article XIII and the addition of a new Article XIV to
the Articles of Incorporation which would require a two-thirds vote of the
Board of Directors to amend or repeal the By-Laws of the Company and require
a two-thirds stockholder vote to amend or repeal the By-Laws or certain
provisions of the Articles of Incorporation, as described more fully below.
18
<PAGE>
Currently, the Articles of Incorporation may be amended or repealed by
the vote of stockholders holding a majority of the voting power of the Company.
As permitted by Nevada law, this proposal would require the affirmative vote of
the holders of at least two-thirds of the voting power of all of the
then-outstanding shares of stock entitled to vote generally for the election of
directors, voting together as a single class, for the amendment or repeal of any
of the provisions of the Articles of Incorporation implemented by Proposals 2,
3 and 4. The two-thirds supermajority vote requirement would also apply to any
amendment or repeal of Articles X and XI of the Articles of Incorporation.
Article X provides that, with certain exceptions, the directors of the Company
shall not be personally liable to the Company or its stockholders for monetary
damages for the breach of their fiduciary duty as directors. Article XI allows
for the indemnification by the Company of certain parties, including the
Company's directors and officers, to the fullest extent permitted by law.
Currently, the Company's By-Laws may be amended or repealed and new
By-Laws adopted by the Board of Directors or by a majority of the Company's
stockholders entitled to vote on such matters. This proposal would require
amendments to the Company's By-Laws to be approved by either the affirmative
vote of the holders of two-thirds of the voting power of all of the
then-outstanding shares of stock entitled to vote generally for the election of
directors or, if such amendments are to be made by the Board of Directors, by
the vote of not less than two-thirds of the Board of Directors.
ADVANTAGES. The requirements of this proposal will prevent a
stockholder with a majority of the voting power of the Company from avoiding the
requirements of the By-Laws or the protected provisions of the Articles of
Incorporation by simply repealing them or by causing a majority of the Board of
Directors to do so. The supermajority protection given to the indemnification
and director liability provisions of the Articles of Incorporation will help
ensure that the Company's agents are adequately protected against liability in
the event of a proposed takeover, thereby allowing them to focus on the best
interests of the Company and its stockholders.
DISADVANTAGES. These requirements could give stockholders holding a
significant minority of the Company's stock a veto power over changes to the
Company's By-Laws and certain changes to the Articles of Incorporation even if
the Board of Directors (in the case of amendments to the Articles of
Incorporation) or a majority of the stockholders favor such changes.
REQUIRED VOTE
In order to be adopted, this proposal must receive the affirmative vote
of holders of a majority of the shares of stock eligible to vote at the Annual
Meeting. As described above, if this proposal is approved, the affirmative vote
of the holders of at least two-thirds of the voting power of all of the
then-outstanding shares of stock entitled to vote generally for the election of
directors, voting as a single class, will be required to amend or repeal any of
the provisions described above.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR PROPOSAL 4.
PROPOSAL 5
AUTHORIZATION TO ISSUE PREFERRED STOCK
The Board of Directors unanimously recommends the approval of a
proposed amendment to Article VI of the Articles of Incorporation which would
authorize the issuance by the Board of Directors, without further action by the
stockholders, of up to 10,000,000 shares of preferred stock.
The proposed amendment will authorize the issuance of up to 10,000,000
shares of preferred stock, par value $0.001 per share (the "Preferred Stock").
The Company currently has no authorized stock other than common stock. Upon
adoption of the amendment, the Board of Directors will, without further action
by the stockholders, unless
19
<PAGE>
otherwise required by law or any applicable stock exchange or stock market
rules, be authorized to issue up to 10,000,000 shares of Preferred Stock at
such times, for such purposes and for such consideration as it may determine.
Although it has no present plans or commitments to issue any shares of
Preferred Stock, management believes that the availability of such a security
may prove useful in connection with financing the capital needs of the
corporation, possible future acquisitions and mergers or other purposes. The
authorization will enable the Company to act promptly if appropriate
circumstances arise which require the issuance of such shares.
The proposed amendment would authorize the Board of Directors to
provide for the issuance, from time to time, of Preferred Stock in one or more
series and to fix the terms of each series. Each series of Preferred Stock
could, as determined by the Board of Directors at the time of issuance, rank, in
respect of dividends and liquidation, senior to the Common Stock.
In establishing the terms of any series of Preferred Stock, the Board
of Directors would be authorized to set, among other things, the number of
shares, the dividend rate and preferences, the cumulative or non-cumulative
nature of dividends, the redemption provisions, the sinking fund provisions, the
conversion rights, the amounts payable, and preferences, in the event of the
voluntary of involuntary liquidation of the Company, and the voting rights in
addition to those required by law. Such terms could include provisions
prohibiting the payment of Common Stock dividends or purchases by the Company of
Common Stock in the event dividends or sinking fund payments on the Preferred
Stock were in arrears. In the event of liquidation, the holders of Preferred
Stock of each series might be entitled to receive an amount specified for such
series by the Board Directors before any payment could be made to the holders of
Common Stock.
ADVANTAGES. The ability of the Board of Directors to issue Preferred
Stock will enable the Company to broaden its capital sources, particularly
with respect to the issuance of convertible preferred stock, a common
security used to finance growth oriented companies. The ability of the Board
of Directors to issue Preferred Stock may also enable the Board to render
more difficult or to discourage an attempt to obtain control of the Company
by means of a tender offer, proxy contest, merger or otherwise, and thereby
to protect the continuity of the Company's management and stock ownership. As
stated above, the issuance of Preferred Stock may adversely affect the rights
of holders of Common Stock. Accordingly, the issuance of shares of Preferred
Stock as a defensive measure may discourage bids for the Common Stock at a
premium or may otherwise adversely affect the market price of the Common
Stock. This authority to issue Preferred Stock may give the Board of
Directors increased leverage to negotiate with a potential acquiror.
DISADVANTAGES. The authorization of new shares of Preferred Stock will
not, by itself, have any effect on the rights of the holders of shares of Common
Stock. Nonetheless, the issuance of one or more series of Preferred Stock could
affect the holders of shares of the Common Stock in a number of respects,
including the following: (a) if voting rights are granted to any newly issued
series of Preferred Stock, the voting power of the Common Stock will be diluted;
(b) the issuance of Preferred Stock may result in a dilution of earnings per
share of the Common Stock; (c) dividends payable on any newly issued series of
Preferred Stock will reduce the amounts of the funds available for payment of
dividends on the Common Stock; and (d) future amendments to the Articles of
Incorporation affecting the Preferred Stock may require the approval by the
separate vote of the holders of the Preferred Stock or in some cases the holders
of shares of one or more series of Preferred Stock (in addition to the approval
of the holders of shares of the Common Stock) before action can be taken by the
Company.
REQUIRED VOTE
In order to be adopted, this proposal must receive the affirmative vote
of holders of a majority of the shares of stock eligible to vote at the Annual
Meeting.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR PROPOSAL 5.
PROPOSAL 6
RATIFICATION OF INDEPENDENT AUDITORS
The Board of Directors has selected the firm of KPMG LLP, which
served (or its predecessors) as independent auditors during fiscal 1998, to
conduct an audit, in accordance with generally accepted auditing standards,
of the Company's financial statements for the year ending December 31, 1999.
The Company expects representatives of that firm to be present at the Annual
Meeting to respond to appropriate questions and to make a statement, if they
so desire. This selection is being submitted for ratification at the meeting.
The affirmative vote of the holders of a majority of the shares of
Common Stock present in person or represented by proxy at the meeting and
entitled to vote is required for such ratification. If not ratified, the Board
will reconsider the selection upon recommendation of the Audit Committee,
although the Board of Directors will not be required to select different
independent auditors for the Company.
REQUIRED VOTE
In order to be ratified, this proposal must receive the affirmative
vote of holders of a majority of the shares of stock eligible to vote at the
Annual Meeting.
20
<PAGE>
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE FOR RATIFICATION
OF KPMG LLP AS INDEPENDENT AUDITORS FOR THE COMPANY.
OTHER MATTERS
The Board of Directors is not presently aware of any matters to be
presented at the Annual Meeting other than the amendments to the Articles of
Incorporation, the election of directors and the ratification of KPMG LLP as
the Company's independent auditors. If, however, other matters are properly
brought before the Annual Meeting, the enclosed proxy gives discretionary
authority to the persons named therein to act in accordance with their best
judgment on such matters.
STOCKHOLDER PROPOSALS FOR 2000 ANNUAL MEETING
When the Board of Directors adopts the amendments to the Company's
By-Laws previously referenced herein, then stockholder proposals to be presented
at the fiscal year 2000 Annual Meeting of Stockholders of the Company must be
received by the Company by no later than 120 days before the date of the 2000
Annual Meeting of Stockholders. If such timely notice of a stockholder
proposal is not given, the proposal may not be brought before the 2000 Annual
Meeting of Stockholders. If such timely notice is given but is not
accompanied by a written statement to the extent required by applicable
securities laws, the Company may exercise discretionary voting authority over
proxies with respect to such proposal if presented at the Company's 2000
Annual Meeting.
Under applicable securities laws, stockholder proposals must be
received by the Company no later than 120 days prior to May 10, 2000 (the
anniversary date of this proxy statement) to be considered for inclusion in
the Company's proxy statement relating to the 2000 Annual Meeting or, if the
Company changes the date of the 2000 Annual Meeting by more than 30 days from
the date of the 1999 Annual Meeting, then stockholder proposals must be
received by the Company a reasonable time before the Company begins to print
and mail its proxy statement for the 2000 Annual Meeting.
Stockholder proposals must be mailed to Pennaco Energy, Inc., to the
attention of the Secretary, 1050 17th Street, Suite 700, Denver, Colorado 80265.
ANNUAL REPORT
The Company's Annual Report to Stockholders containing audited
financial statements for fiscal 1998, is being mailed with this Proxy Statement
to all stockholders of record.
By order of the Board of Directors,
GREGORY V. GIBSON
Vice President, Legal and Secretary
Denver, Colorado
May 10, 1999
21
<PAGE>
EXHIBIT A
AMENDED AND RESTATED ARTICLES OF INCORPORATION
OF
PENNACO ENERGY, INC.
ARTICLE I NAME: The exact name of this Corporation is:
PENNACO ENERGY, INC.
ARTICLE II RESIDENT AGENT: The Resident Agent of the Corporation is Bruce
Thompson, 128 Fortune Drive, Dayton, Nevada 89403.
ARTICLE III DURATION: The Corporation shall have perpetual existence.
ARTICLE IV PURPOSES: The purpose, object and nature of the business for
which this Corporation is organized are:
(a) To engage in any lawful activity;
(b) To carry on such business as may be necessary, convenient, or
desirable to accomplish the above purposes, and to do all other
things incidental thereto which are not forbidden by law or by
these Articles of Incorporation.
ARTICLE V POWERS: The powers of the Corporation shall be those powers
granted to corporations by Chapter 78 of the Nevada Revised Statutes under which
this corporation is formed. In addition, the Corporation shall have the
following specific powers:
(a) To elect or appoint officers and agents of the Corporation and to
fix their compensation;
(b) To act as an agent for any individual, association, partnership,
corporation or other legal entity;
(c) To receive, acquire, hold, exercise rights arising out of the
ownership or possession thereof, sell, or otherwise dispose of,
shares or other interests in, or
<PAGE>
obligations of, individuals, associations, partnerships,
corporations, or governments;
(d) To receive, acquire, hold, pledge, transfer, or otherwise dispose
of shares of the corporation, but such shares may only be
purchased, directly or indirectly, out of earned surplus;
(e) To make gifts or contributions for the public welfare or for
charitable, scientific or educational purposes, and in time of
war, to make donations in aid of war activities.
ARTICLE VI CAPITAL STOCK:
Section 1. AUTHORIZED SHARES. The total number of shares which this
Corporation is authorized to issue is sixty million (60,000,000) of
which fifty million (50,000,000) shares of the par value $.001 each
shall be common stock (the "Common Stock") and ten million (10,000,000)
shares of the par value $.001 each shall be preferred stock (the
"Preferred Stock").
Section 2. VOTING RIGHTS OF SHAREHOLDERS. Each holder of the Common
Stock shall be entitled to one vote for each share of stock standing in
his name on the books of the Corporation.
Section 3. CONSIDERATION FOR SHARES. The Common Stock shall be
issued for such consideration, as shall be fixed from time to time by
the Board of Directors. In the absence of fraud, the judgment of the
Directors as to the value of any property for shares shall be
conclusive. When shares are issued upon payment of the consideration
fixed by the Board of Directors, such shares shall be taken to be fully
paid stock and shall be non-assessable. The Articles shall not be
amended in this particular.
Section 4. PRE-EMPTIVE RIGHTS. Except as may otherwise be provided
by the Board of Directors, no holder of any shares of the stock of the
Corporation, shall have any preemptive right to purchase, subscribe for,
or otherwise acquire any shares or stock of the Corporation of any class
now or hereafter authorized, or any securities exchangeable for or
convertible into such shares, or any warrants or other instruments
evidencing rights or options to subscribe for, purchase, or otherwise
acquire such shares.
Section 5. STOCK RIGHTS AND OPTIONS. The Corporation shall have the
power to create and issue rights, warrants, or options entitling the
holders thereof to purchase from the corporation any shares of its
capital stock of any class or classes, upon such terms and conditions
and at such times and prices as the Board of Directors may provide,
which terms and conditions shall be incorporated in an instrument or
instruments evidencing such rights.
-2-
<PAGE>
In the absence of fraud, the judgment of the Directors as to the
adequacy of consideration for the issuance of such rights or options and
the sufficiency thereof shall be conclusive.
Section 6. PREFERRED STOCK. The Corporation shall have authority to
issue a total of ten million (10,000,000) shares of Preferred Stock.
The Preferred Stock may be issued from time to time as herein provided
in one or more series. The designations, relative rights, preferences
and limitations of the Preferred Stock, and particularly of the shares
of each series thereof, may, to the extent permitted by law, be similar
to or differ from those of any other series. The Board of Directors of
the Corporation or a duly authorized committee thereof is hereby
expressly granted authority, subject to the provisions of this Article
VI, to fix by resolution from time to time before issuance thereof the
number of shares in each series of such class and all designations,
preferences, relative participating, optional or other special rights
and qualifications, limitations and restrictions of the shares in each
such series, including, but without limiting the generality of the
foregoing, the following:
(a) the designation of the series and the number of shares to
constitute such series (which number may be increased or
decreased from time to time unless otherwise provided by
the Board of Directors);
(b) the dividend rate (or method of determining such rate),
any conditions on which and times at which dividends are
payable, the preference or relation which such dividends
shall bear to the dividends payable on any other class
or classes or of any other series of capital stock
including the Preferred Stock, and whether such dividends
shall be cumulative or noncumulative;
(c) whether the series will be redeemable (at the option of
the Corporation or the holders of such shares or both,
or upon the happening of a specified event) and, if so,
the redemption prices and the conditions and times upon
which redemption may take place and whether for cash,
property or rights, including securities of the company
or another corporation;
(d) the terms and amount of any sinking, retirement or
purchase fund;
(e) the conversion or exchange rights (at the option of the
Corporation or the holders of such shares or both, or
upon the happening of a specified event), if any,
including the conversion or exchange times, prices,
rates, adjustments and other terms of conversion or
exchange;
(f) the voting rights, if any (other than any voting rights
that the Preferred Stock may have as a matter of law);
(g) any restrictions on the issue or reissue or sale of
additional Preferred Stock;
-3-
<PAGE>
(h) the rights of the holders upon voluntary or involuntary
liquidation, dissolution or winding up of the affairs
of the Corporation (including preferences over the
Common Stock or other class or classes or series of
capital stock including the Preferred Stock);
(i) the preemptive rights, if any, to subscribe to additional
issues of stock or securities of the Corporation; and
(j) such other special rights and privileges, if any, for the
benefit of the holders of the Preferred Stock, as shall
not be inconsistent with the provisions of these Articles
of Incorporation, as amended, or applicable law.
All shares of Preferred Stock of the same series shall be
identical in all respects, except that shares of any one series issued
at different times may differ as to dates, if any, from which dividends
thereon may accumulate. All shares of Preferred Stock redeemed,
purchased or otherwise acquired by the Corporation (including shares
surrendered for conversion) shall be canceled and thereupon restored to
the status of authorized but unissued shares of Preferred Stock
undesignated as to series.
Except as otherwise may be required by law, and except as
otherwise may be provided in these Articles of Incorporation, as
amended, or in the resolution of the Board of Directors of the
Corporation creating any series of Preferred Stock, the Common Stock
shall have the exclusive right to vote for the election of directors and
for all other purposes, each holder of the Common Stock being entitled
to one vote for each share thereof held.
Except as may be stated and expressed in any resolution or
resolutions of the Board of Directors providing for the issue of any
series of Preferred Stock, (i) any amendment to these Articles of
Incorporation which shall increase or decrease the number of shares of
any class or classes of authorized capital stock of the Corporation (but
not below the number of shares thereof then outstanding) may be adopted
by the affirmative vote of the holders of a majority of the outstanding
shares of the voting stock of the Corporation and (ii) no holder of
capital stock shall be entitled as a matter of right to subscribe for or
purchase, or have any preemptive right with respect to, any part of any
new or additional issue of stock of any class whatsoever, or of
securities convertible into any stock of any class whatsoever, whether
now or hereafter authorized and whether issued for cash or other
consideration or by way of dividend.
ARTICLE VII NO STOCKHOLDER ACTION WITHOUT A MEETING. No action required or
permitted to be taken at any annual meeting or special meeting of the
stockholders may be taken without a meeting and the power of stockholders to
consent in writing, without a meeting, to the taking of any action is
specifically denied. Special meetings of the stockholders of the Corporation
may be called only by the Chairman of the Board or the President of the
Corporation or by resolution adopted by the affirmative vote of the Board of
Directors.
-4-
<PAGE>
ARTICLE VIII ASSESSMENT OF STOCK: The capital stock of this Corporation,
after the amount of the subscription price has been fully paid in, shall not be
assessable for any purpose, and no stock issued as fully paid up shall ever be
assessable or assessed. The holders of such stock shall not be individually
responsible for the debts, contracts, or liabilities of the Corporation and
shall not be liable for assessments to restore impairments in the capital of the
Corporation.
ARTICLE IX DIRECTORS: For the management of the business and for the
conduct of the affairs of the Corporation, and for the future definition,
limitation, and regulation of the powers of the Corporation and its directors
and shareholders, it is further provided:
Section 1. CLASSIFICATION OF BOARD. The Board of Directors shall be
divided into three classes, designated Class I, Class II and Class III,
as nearly equal in number as possible, and the term of office of
directors of one class shall expire at each annual meeting of
stockholders, and in all cases as to each director until his successor
shall be elected and shall qualify or until his earlier resignation,
removal from office, death or incapacity. Additional directorships
resulting from an increase in number of directors shall be apportioned
among the classes as equally as possible. The initial term of office of
directors of Class I shall expire at the annual meeting of stockholders
in 2000; that of Class II shall expire at the annual meeting in 2001;
and that of Class III shall expire at the annual meeting in 2002; and in
all cases as to each director until his successor shall be elected and
shall qualify or until his earlier resignation, removal from office,
death or incapacity. At each annual meeting of stockholders the number
of directors equal to the number of directors of the class whose term
expires at the time of such meeting (or, if less, the number of
directors properly nominated and qualified for election) shall be
elected to hold office until the third succeeding annual meeting of
stockholders after their election.
Section 2. SIZE OF BOARD. The members of the governing board of the
Corporation shall be styled directors. The number of directors of the
Corporation, their qualifications, manner of election, time and place of
meeting, and powers and duties shall be such as are prescribed by these
Articles of Incorporation, by statute and in the By-Laws of the
Corporation.
Section 3. POWERS OF BOARD. In furtherance and not in limitation of
the powers conferred by the laws of the State of Nevada, the Board of
Directors is expressly authorized and empowered:
(a) To make, alter, amend, and repeal the By-Laws subject to the
power of the shareholders to alter or repeal the By-Laws made by
the Board of Directors.
(b) Subject to the applicable provisions of the By-Laws then in
effect, to determine, from time to time, whether and to what
extent, and at what times and places, and under what conditions
and regulations, the accounts and books of the corporation, or
any of them, shall be open to shareholder inspection. No
shareholder shall have any right to inspect any of the accounts,
books or documents of the
-5-
<PAGE>
Corporation, except as permitted by law, unless and until
authorized to do so by resolution of the Board of Directors or of
the Shareholders of the Corporation;
(c) To issue stock of the Corporation for money, property, services
rendered, labor performed, cash advanced, acquisitions for other
corporations or for any other assets of value in accordance with
the action of the board of directors without vote or consent of
the shareholders and the judgment of the board of directors as to
value received and in return therefore shall be conclusive and
said stock, when issued, shall be fully-paid and non-assessable.
(d) To authorize and issue, without shareholder consent, obligations
of the Corporation, secured and unsecured, under such terms and
conditions as the Board, in its sole discretion, may determine,
and to pledge or mortgage, as security therefore, any real or
personal property of the Corporation, including after-acquired
property;
(e) To determine whether any and, if so, what part, of the earned
surplus of the Corporation shall be paid in dividends to the
shareholders, and to direct and determine other use and
disposition of any such earned surplus;
(f) To fix, from time to time, the amount of the profits of the
Corporation to be reserved as working capital or for any other
lawful purpose;
(g) To establish bonus, profit-sharing, stock option, or other types
of incentive compensation plans for the employees, including
officers and directors, of the Corporation, and to fix the amount
of profits to be shared or distributed, and to determine the
persons to participate in any such plans an the amount of their
respective participations.
(h) To designate, by resolution or resolutions passed by a majority
of the whole Board, one or more committees, which, to the extent
permitted by law and authorized by the resolution or the By-Laws,
shall have and may exercise the powers of the Board;
(i) To provide for the reasonable compensation of its own members by
By-Law, and to fix the terms and conditions upon which such
compensation will be paid;
(j) In addition to the powers and authority herein before, or by
statute, expressly conferred upon it, the Board of Directors may
exercise all such powers and do all such acts and things as may
be exercised or done by the Corporation, subject nevertheless, to
the provisions of the laws of the State of Nevada, of these
Articles of Incorporation, and of the By-Laws of the Corporation.
-6-
<PAGE>
Section 4. INTERESTED DIRECTORS. No contract or transaction between
this Corporation and any of its directors, or between this Corporation
and any other corporation, firm, association, or other legal entity
shall be invalidated by reason of the fact that the director of the
Corporation has a direct or indirect interest, pecuniary or otherwise,
in such corporation, firm, association, or legal entity, or because the
interested director was present at the meeting of the Board of Directors
which acted upon or in reference to such contract or transaction, or
because he participated in such action, provided that (1) the interest
of each such director shall have been disclosed to or known by the Board
and a disinterested majority of the Board shall have nonetheless
ratified and approved such contract or transaction (such interested
director or directors may be counted in determining whether a quorum is
present for the meeting at which such ratification or approval is
given); or (2) the conditions of Nevada Revised Statutes 78.140 are met.
ARTICLE X LIMITATION OF LIABILITY OF OFFICERS OR DIRECTORS: The personal
liability of a director or officer of the corporation to the corporation or the
Shareholders for damages for breach of fiduciary duty as a director or officer
shall be limited to acts or omissions which involve intentional misconduct,
fraud or knowing violation of law.
ARTICLE XI INDEMNIFICATION: Each director and each officer of the
Corporation may be indemnified by the Corporation as follows:
(a) The Corporation may indemnify any person who was or is a party,
or is threatened to be made a party, to any threatened, pending
or completed action, suit or proceeding, whether civil, criminal,
administrative or investigative (other than an action by or in
the right of the Corporation), by reason of the fact that he is
or was a director, officer, employee or agent of the Corporation,
or is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, against
expenses (including attorneys' fees), judgments, fines and
amounts paid in settlement, actually and reasonably incurred by
him in connection with the action, suit or proceeding, if he
acted in good faith and in a manner which he reasonably believed
to be in or not opposed to the best interests of the Corporation
and with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. The
termination of any action, suit or proceeding, by judgment,
order, settlement, conviction or upon a plea of nolo contendere
or its equivalent, does not of itself create a presumption that
the person did not act in good faith and in a manner which he
reasonably believed to be in or not opposed to the best interests
of the Corporation, and that, with respect to any criminal action
or proceeding, he had reasonable cause to believe that his
conduct was unlawful.
(b) The Corporation may indemnify any person who was or is a party,
or is threatened to be made a party, to any threatened, pending
or completed action or suit by or in the right of the
Corporation, to procure a judgment in its favor
-7-
<PAGE>
by reason of the fact that he is or was a director, officer,
employee or agent of the Corporation, or is or was serving at the
request of the Corporation as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust
or other enterprise against expenses including amounts paid in
settlement and attorneys' fees actually and reasonably incurred
by him in connection with the defense or settlement of the action
or suit, if he acted in good faith and in a manner which he
reasonably believed to be in or not opposed to the best interests
of the Corporation. Indemnification may not be made for any
claim, issue or matter as to which such a person has been
adjudged by a court of competent jurisdiction, after exhaustion
of all appeals therefrom, to be liable to the corporation or for
amounts paid in settlement to the Corporation, unless and only to
the extent that the court in which the action or suit was brought
or other court of competent jurisdiction determines upon
application that in view of all the circumstances of the case the
person is fairly and reasonably entitled to indemnity for such
expenses as the court deems proper.
(c) To the extent that a director, officer, employee or agent of a
corporation has been successful on the merits or otherwise in
defense of any action, suit or proceeding referred to in
subsections (a) and (b) of this Article, or in defense of any
claim, issue or matter therein, he must be indemnified by the
Corporation against expenses, including attorney's fees, actually
and reasonably incurred by him in connection with the defense.
(d) Any indemnification under subsections (a) and (b) unless ordered
by a court or advanced pursuant to subsection (e), must be made
by the Corporation only as authorized in the specific case upon a
determination that indemnification of the director, officer,
employee or agent is proper in the circumstances. The
determination must be made:
(i) By the stockholders;
(ii) By the Board of Directors by majority vote of a quorum
consisting of directors who were not parties to the act,
suit or proceeding;
(iii) If a majority vote of a quorum consisting of directors
who were not parties to the act, suit or proceeding so
orders, by independent legal counsel in a written
opinion; or
(iv) If a quorum consisting of directors who were not parties
to the act, suit or proceeding cannot be obtained, by
independent legal counsel in a written opinion.
-8-
<PAGE>
(e) Expenses of officers and directors incurred in defending a civil
or criminal action, suit or proceeding must be paid by the
Corporation as they are incurred and in advance of the final
disposition of the action, suit or proceeding, upon receipt of an
undertaking by or on behalf of the director or officer to repay
the amount if it is ultimately determined by a court of competent
jurisdiction that he is not entitled to be indemnified by the
corporation. The provisions of this subjection do not affect
any rights to advancement of expenses to which corporate
personnel other than directors or officers may be entitled under
any contract or otherwise by law.
(f) The indemnification and advancement of expenses authorized in or
ordered by a court pursuant to this section:
(i) Does not exclude any other rights to which a person
seeking indemnification or advancement of expenses may be
entitled under the certificate or articles of
incorporation or any bylaw, agreement, vote of
stockholders or disinterested directors or otherwise, for
either an action in his official capacity or an action in
another capacity while holding his office, except that
indemnification, unless ordered by a court pursuant to
subsection (b) or for the advancement of expenses made
pursuant to subjection (e) may not be made to or on
behalf of any director or officer if a final adjudication
establishes that his acts or omissions involved
intentional misconduct, fraud or a knowing violation of
the law and was material to the cause of action.
(ii) Continues for a person who has ceased to be a director,
officer, employee or agent and inures to the benefit of
the heirs, executors and administrators of such a person.
ARTICLE XII PLACE OF MEETING; CORPORATE BOOKS: Subject to the laws of the
State of Nevada, the shareholders and the Directors shall have power to hold
their meetings, and the directors shall have power to have an office or offices
and to maintain the books of the Corporation outside the State of Nevada, at
such place or places as may from time to time be designated in the By-Laws or by
appropriate resolution.
ARTICLE XIII AMENDMENT OF ARTICLES: Notwithstanding any other provision of
these Restated Articles of Incorporation, the affirmative vote of the holders of
at least sixty-six and two-thirds percent (66 2/3%) of the voting power of all
of the then outstanding shares of the stock of the Corporation entitled to vote
generally in the election of directors, voting together as a single class, shall
be required to amend in any respect or repeal this Article XIII, or Articles
VIII, IX, X, XIV and XV. All rights herein conferred on the directors, officers
and shareholders are granted subject to this reservation.
-9-
<PAGE>
ARTICLE XIV AMENDMENT OF BY-LAWS: The Board of Directors is expressly
empowered to adopt, amend or repeal By-Laws of the Corporation, provided,
however, that any adoption, amendment or repeal of By-Laws of the Corporation by
the Board of Directors shall require the approval of at least sixty-six and
two-thirds percent (66 2/3%) of the total number of authorized directors
(whether or not there exist any vacancies in previously authorized directorships
at the time any resolution providing for adoption, amendment or repeal is
presented to the Board). The stockholders shall also have power to adopt, amend
or repeal By-Laws of the Corporation, provided, however, that in addition to any
vote of the holders of any class or series of stock of this Corporation required
by these Restated Articles of Incorporation the affirmative vote of the holders
of at least sixty-six and two-thirds percent (66 2/3%) of the voting power of
all of the then outstanding shares of the stock of the Corporation entitled to
vote generally in the election of directors, voting together as a single class,
shall be required for such adoption, amendment or repeal by the stockholders of
any provisions of the By-Laws of the Corporation.
-10-
<PAGE>
PENNACO ENERGY, INC.
ANNUAL MEETING OF STOCKHOLDERS
SOLICITED BY THE BOARD OF DIRECTORS OF PENNACO ENERGY, INC.
The undersigned hereby appoints Glen C. Warren, Jr. and Gregory V. Gibson,
and each of them individually, as proxies with full power of substitution, to
vote all shares of Common Stock of Pennaco Energy, Inc. that the undersigned
is entitled to vote at the Annual Meeting of Stockholders thereof to be held
on June 15, 1999, or at any adjournment or postponement thereof, as follows:
Any executed proxy which does not designate a vote shall be deemed to
grant authority for any item not designated.
PROPOSAL 1: ELECTION OF DIRECTORS
<TABLE>
<S> <C> <C>
/ / FOR / / WITHHELD / / FOR ALL EXCEPT
</TABLE>
Nominees: Jeffrey L. Taylor, Glen C. Warren, Jr., David W. Lanza, Paul
M. Rady and Gregory V. Gibson to hold office until their successors are
elected and qualified.
INSTRUCTION: to withhold authority to vote for any individual nominee
or nominees, write the appropriate name or names in the space provided here.
- -----------------------------------------------------------------------------
PROPOSAL 2: AMENDMENT TO THE ARTICLES OF INCORPORATION TO PROVIDE
FOR THE CLASSIFICATION OF THE BOARD OF DIRECTORS INTO
THREE CLASSES OF DIRECTORS WITH STAGGERED TERMS
/ / FOR / / AGAINST / / ABSTAIN
PROPOSAL 3: AMENDMENT TO THE ARTICLES OF INCORPORATION TO REQUIRE
ALL STOCKHOLDER ACTION TO BE TAKEN AT A STOCKHOLDERS'
MEETING
/ / FOR / / AGAINST / / ABSTAIN
PROPOSAL 4: AMENDMENT TO THE ARTICLES OF INCORPORATION AND THE
ADDITION OF A NEW ARTICLE TO REQUIRE A TWO-THIRDS VOTE
OF THE BOARD OF DIRECTORS TO AMEND OR REPEAL THE
BY-LAWS AND TO REQUIRE A TWO-THIRDS STOCKHOLDER VOTE TO
AMEND OR REPEAL THE BY-LAWS OR CERTAIN PROVISIONS OF
THE ARTICLES OF INCORPORATION
/ / FOR / / AGAINST / / ABSTAIN
PROPOSAL 5: AMENDMENT TO THE ARTICLES OF INCORPORATION TO AUTHORIZE
THE BOARD OF DIRECTORS TO ISSUE UP TO 10,000,000 SHARES
OF PREFERRED STOCK
/ / FOR / / AGAINST / / ABSTAIN
- ----------------------------------------------------------------------------
<PAGE>
PROPOSAL 6: APPOINTMENT OF KPMG LLP AS INDEPENDENT CERTIFIED PUBLIC
ACCOUNTANTS FOR THE COMPANY
/ / FOR / / AGAINST / / ABSTAIN
Please check the following box if you plan to attend the Annual Meeting
of Stockholders in person. / /
ALL SHARES WILL BE VOTED AS DIRECTED HEREIN AND, UNLESS OTHERWISE DIRECTED,
WILL BE VOTED "FOR" PROPOSAL 1, "FOR" PROPOSAL 2, "FOR" PROPOSAL 3, "FOR"
PROPOSAL 4, "FOR" PROPOSAL 5 (ALL NOMINEES) AND "FOR" PROPOSAL 6 AND IN
ACCORDANCE WITH THE DISCRETION OF THE PERSON VOTING THE PROXY WITH RESPECT TO
ANY OTHER BUSINESS PROPERLY BROUGHT BEFORE THE MEETING.
YOU MAY REVOKE THIS PROXY AT ANY TIME PRIOR TO A VOTE THEREON.
Dated: , 1999
------------------------------
------------------------------------
Signature
Please sign exactly as name appears on this card.
Joint owners should each sign. Executors,
administrators, trustees, etc., should give their full
titles.
PLEASE VOTE, SIGN, DATE AND RETURN THIS PROXY FORM PROMPTLY
USING THE ENCLOSED ENVELOPE.
