SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
(Amendment No. )
Filed by the Registrant X
Filed by a Party other than the Registrant
Check the appropriate box:
Preliminary Proxy Statement
X Definitive Proxy Statement
Definitive Additional Materials
Soliciting Material Pursuant to 240.14a-11(c) or 240.14a-12
MIDCOAST ENERGY RESOURCES, INC.
(Name of Registrant as Specified In Its Charter)
MIDCOAST ENERGY RESOURCES, INC.
(Name of Person(s) Filing Proxy Statement)
Payment of Filing Fee (Check the appropriate box):
X $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), 14a-6(i)(2) or
Item 22(a)(2) of Schedule 14A.
$500 per each party to the controversy pursuant to Exchange Act
Rule 14a-6(i)(3).
Fee computed on table below per Exchange Act Rules 14a-6(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 0-11:1
4) Proposed maximum aggregate value of transaction:
Set forth the amount on which the filing fee is calculated and state how
it was determined.
Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the 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:
MIDCOAST ENERGY RESOURCES, INC.
1100 Louisiana, Suite 2950
Houston, Texas 77002
______________________________
NOTICE OF THE ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD JULY 1, 1996
Notice is hereby given that the Annual Meeting of Stockholders
(the "Annual Meeting") of Midcoast Energy Resources, Inc., a Nevada
corporation (the "Company"), will be held at the Company's
headquarters located at 1100 Louisiana, Suite 2950, Houston, Texas
on Monday, July 1, 1996, at 3:00 p.m., local time, for the
following purposes:
(1) To elect five directors to serve until the next Annual
Meeting or until their successors are duly elected and qualified;
(2) To consider and act upon a proposal to approve the 1996
Incentive Stock Plan; and
(3) To transact such other business as may properly come
before the meeting.
Stockholders of record at the close of business on May 3,
1996, and only those stockholders of record will be entitled to
vote at the Annual Meeting or any adjournment thereof. A complete
list of the stockholders entitled to vote at the Annual Meeting
will be available for examination by any stockholder at the
Company's executive offices, during ordinary business hours, for a
period of at least ten days prior to the Annual Meeting.
WHETHER OR NOT YOU EXPECT TO ATTEND THE ANNUAL MEETING, PLEASE
COMPLETE, DATE, SIGN AND PROMPTLY RETURN THE PROXY IN THE ENCLOSED
ENVELOPE. STOCKHOLDERS WHO ATTEND THE MEETING MAY REVOKE THEIR
PROXIES AND VOTE IN PERSON.
By Order of the Board of Directors
Duane S. Herbst
Secretary
Houston, Texas
June 10, 1996
<PAGE>
MIDCOAST ENERGY RESOURCES, INC.
1100 Louisiana, Suite 2950
Houston, Texas 77002
_______________________________
PROXY STATEMENT
ANNUAL MEETING OF STOCKHOLDERS
JULY 1, 1996
_______________________________
This proxy statement is furnished in connection with the
solicitation by the Board of Directors (the "Board") of Midcoast
Energy Resources, Inc., a Nevada corporation (the "Company"), of
proxies in the accompanying form to be voted at the Annual Meeting
of Stockholders (the "Annual Meeting") of the Company to be held on
Monday, July 1, 1996, at the time and place and for the purposes
set forth in the accompanying Notice of the Annual Meeting of
Stockholders.
The shares covered by a proxy in the accompanying form which
is properly signed, dated, returned and not revoked will be voted
in accordance with the instructions contained therein regarding the
election of directors, adoption of the 1996 Incentive Stock Option
Plan (the "Incentive Plan"), and with respect to any other matter
which may properly come before the Annual Meeting, in accordance
with the judgment of the persons designated as proxies. Where
specific instructions are not indicated, the proxy will be voted
FOR the election of the five directors as nominated (the
Nominees"), and FOR the approval of the Incentive Plan. Any
stockholder giving a proxy will have the right to revoke such proxy
at any time before it is voted at the Annual Meeting by giving
written notice of such revocation to the Secretary of the Company,
by submitting a duly executed proxy bearing a later date, or by
attending the Annual Meeting and withdrawing the proxy.
The Board has fixed the close of business on May 3, 1996, as
the record date for the determination of stockholders entitled to
vote at the Annual Meeting (the "Record Date"). As of the Record
Date, there were outstanding 335,388 shares of the Company's common
stock, par value $.01, each share of Common Stock having one vote
on all matters presented at the Annual Meeting. This proxy
statement and the accompanying form of proxy is being mailed on or
about June 10, 1996, to all stockholders entitled to vote at the
Annual Meeting.
Only holders of Common Stock as of the Record Date will be
entitled to vote in person or by proxy at the Annual Meeting. A
majority of the Company's issued and outstanding shares of Common
Stock, as of the Record Date, represented at the Annual Meeting in
person or by proxy, will constitute a quorum for the transaction of
business. Abstentions and broker non-votes will be counted for
purposes of determining the presence or absence of a quorum. Votes
withheld in connection with the election of one or more Nominees
will not be counted as votes cast for such individuals.
Abstentions and broker non-votes will have the same effect as a
vote against approval of adoption of the Incentive Plan. The
persons designated to vote shares covered by the Board's proxies
intend to exercise their judgment in voting such shares on the
other matters that may properly come before the Annual Meeting.
Management does not expect that any matters other than those
referred to in this proxy statement will be presented for action at
the Annual Meeting.
In May 1996, the Company filed a registration statement on
Form SB-2 under the 1933 Securities and Exchange Act, as amended
(the "Securities Act") pertaining to the public offering of
1,150,000 shares of the Company's Common Stock (the "Registration
Statement"). In connection with the public offering, the Board
approved a 4.460961-for-1 stock split in the Common Stock to occur
immediately prior to the effective date of the Registration
Statement. A record date for the purposes of calculating shares to
be issued pursuant to this stock split will be selected in the near
future, and the Company's stockholders will be advised of the
completion of this stock split at that time. The Company feels
that stock split will provide the Company with a capital structure
that will permit this public offering to be consummated. Unless
otherwise indicated, all information contained hereafter in this
proxy statement gives effect to the 4.46091-for-1 stock split.
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TABLE OF CONTENTS
Page
ELECTION OF DIRECTORS 1
Information Regarding the Nominees 1
Director Compensation and Board Committees 1
Vote Required for Election 3
APPROVAL OF THE INCENTIVE PLAN 3
Vote Required for Approval 10
PRINCIPAL STOCKHOLDERS 11
OTHER INFORMATION 12
Executive Officers of the Company 12
Executive Compensation 12
Certain Transactions 14
OTHER MATTERS 16
Auditors 16
Compliance with the Exchange Act 16
Miscellaneous Matters 17
ELECTION OF DIRECTORS
At the Annual Meeting, five directors are to be elected, each
director to hold office until the next annual meeting of
stockholders or until his successor is duly elected and qualified.
The persons named in the accompanying proxy have been designated by
the Board, and unless authority is withheld, they intend to vote
for the election of the Nominees named below to the Board. If any
Nominee should become unavailable for election, the proxy may be
voted for a substitute Nominee selected by the persons named in the
proxy or the Board may be reduced accordingly; however, the Board
is not aware of any circumstances likely to render any Nominee
unavailable.
Information Regarding the Nominees:
Director
Name Age Position Since
Dan C. Tutcher 47 Chairman of the Board, 1992
President and
Chief Executive Officer
Stevens G. Herbst 59 Executive Vice President, 1992
Director
Kenneth B. Holmes, Jr. 64 Director 1992
E.P. Marinos 53 Director 1996
Richard N. Richards 49 Director 1996
For certain information regarding the beneficial ownership of
the Common Stock by each of the Nominees, see "Principal
Stockholders."
Dan C. Tutcher has been Chairman of the Board, President and
Chief Executive Officer since the Company's incorporation in 1992
and Treasurer from 1995 to 1996. Since 1989 Mr. Tutcher has also
been President and Chief Executive Officer of Magic Gas Corp.
(f/k/a Midcoast Natural Gas, Inc.) ("Magic"). Prior to its merger
into the Company, in 1992, Mr. Tutcher served as a Director of
Nugget Oil Corporation ("Nugget") from 1990 to 1992. He also has
held various positions in companies which constructed pipelines and
marketed gas, such as Gulf Gas Utilities, Inc. and Wildhorn
Corporation, where he served as Vice President from 1987 through
1989 and as President from 1984 through 1993, respectively. Mr.
Tutcher holds a Bachelors of Business Administration degree in
General Business from Washburn University.
Stevens G. Herbst is an officer of the Company in a part-time
capacity. As such, he has been Executive Vice President since the
Company's incorporation in 1992. From 1989 to 1992 Mr. Herbst was
President of Midcoast Transmission Company ("Transmission"). Prior
to its merger into the Company, in 1992, Mr. Herbst served as a
Director of Nugget for the period from 1990 to 1992. In 1985, Mr.
Herbst formed Texline Gas Company ("Texline") with Mr. Holmes. Mr.
Herbst is currently President of Texline and has been President
since 1985. Mr. Herbst has also been President of Rainbow
Investments Company ("Rainbow") since 1977. He is a Professional
Engineer licensed in Texas and Louisiana and is a member of the
Natural Gas Association of Houston and the Natural Gas
Transportation Association. Mr. Herbst holds a Bachelors of
Science degree in Petroleum and Natural Gas Engineering from Texas
A&I University.
Kenneth B. Holmes, Jr. was Vice President of the Company in a
part-time capacity from 1992 until 1996 and Treasurer from 1992
until 1995. From 1989 to 1992 Mr. Holmes was Vice President of
Transmission. Prior to its merger into the Company, in 1992, Mr.
Holmes served as a Director of Nugget for the period from 1990 to
1992. In 1985, Mr. Holmes formed Texline jointly with Mr. Herbst
where he currently is Vice President. Mr. Holmes has also been
President of Promac Corporation since 1976. He holds a Bachelors
of Business Administration degree in General Business from Texas
A&M University.
E. P. Marinos has been a director since 1996. Mr. Marinos is
currently the President, Chief Executive Officer and Director of
Arrhythmia Research Technology, Inc., a publicly traded medical
device manufacturing company. From 1991 to 1995, Mr. Marinos was
President and Chief Executive Officer of AMT/EMP Associates, a
consulting company which provided strategic planning, mergers and
acquisition consulting and organizational restructuring consulting
services to its clients. Prior to 1991, he served as Senior Vice
President of Finance and Administration of Cornerstone Natural Gas,
Inc. (the successor to Endevco, Inc.), a publicly traded integrated
natural gas gathering, transmission and marketing pipeline company.
Mr. Marinos was also a partner in the accounting firm of Deloitte
& Touche LLP (formerly Touche Ross & Co.) from 1975 to 1982. He
holds a Bachelors of Science degree in Economics and Finance from
Wayne State University. Mr. Marinos is a certified public
accountant and is a member of the Texas Society of Certified
Public Accountants and the Michigan Society of Certified Public
Accountants. Mr. Marinos has provided consulting services to the
Company from time to time.
Richard N. Richards, Captain, U.S. Navy (retired), has been a
director since 1996. Mr. Richards has been with NASA since 1980.
Mr. Richards was an astronaut with NASA until 1995 and flew one
mission as pilot and commanded three missions of the space shuttles
Discovery and Columbia. Since 1995, Mr. Richards has been
designated as the Mission Director/Manager for the second Hubbel
Space Telescope Servicing Space Shuttle Mission and Mission Manager
for the second Tethered Satellite System Space Shuttle Mission. He
holds a Bachelors of Science degree in Chemical Engineering from
the University of Missouri and a Masters of Science in Aeronautical
Systems from the University of West Florida.
Director Compensation and Board Committees
During the year ended December 31, 1995, the Board met 14
times. Each director attended all Board meetings either in person
or by telephonic conference. In the past directors have not
received any compensation for serving as directors. However, in
May 1996, Messrs. Marinos and Richards were issued a stock grant,
in consideration for their future services, of 2,007 shares of the
Company's Common Stock. These stock grants vest ratably over a
three-year period. In May 1996, the Board approved a resolution to
pay non-employee directors for their services in the amount of $500
per full Board meeting, $300 per committee meeting attended and a
retainer of $500 per quarter.
Audit Committee. The Company's Board has established an Audit
Committee. The Committee's functions include reviewing internal
controls and recommending to the Board the engagement of the
Company's independent certified public accountants, reviewing with
such accountants a plan for and results of their examination of the
financial statements, and determining the independence of such
accountants. The Audit Committee consists of Messrs. Holmes,
Marinos and Richards.
Compensation Committee. The Company's Board has established
a Compensation Committee. The Compensation Committee will propose
and administer the Company's Incentive Plan. In this capacity, the
Compensation Committee will recommend all option grants or awards
to Company officers, executives, employees and consultants. The
Compensation Committee also recommends the establishment of
policies dealing with various compensation, including compensation
of executive officers, and pension and profit sharing plans,
although at this time no such plans have been created. The
Compensation Committee consists of Messrs. Holmes, Marinos and
Richards.
Executive Committee. The Company's Board has established an
Executive Committee. The Executive Committee is authorized to
exercise, to the extent permitted by law, the power of the full
Board when a meeting of the full Board is not practicable or
necessary. The Executive Committee consists of Messrs. Tutcher,
Herbst and Holmes.
Vote Required for Election
Provided that a quorum is present at the Annual Meeting, the
five Nominees who receive the greatest number of votes cast for
election by the stockholders entitled to vote therefore will be
elected directors. See "Other Matters - Required Vote."
The Board recommends a vote FOR the election of the Nominees.
APPROVAL OF THE INCENTIVE PLAN
On May 13, 1996, the Board adopted the Incentive Plan subject
to the approval of the Company's stockholders.
The purpose of the Incentive Plan is to (i) align the personal
financial incentives of the employees and consultants of the
Company ("Consultants") and its subsidiaries (collectively, the
"Participants") with the long-term growth of the Company and the
interests of the Company's stockholders through the ownership and
performance of the Company's Common Stock and (ii) enhance the
ability of the Company and its subsidiaries to attract and retain
employees and Consultants who share primary responsibility for the
Company's management and growth. All Participants, including
officers (whether or not directors) of the Company and its
subsidiaries are currently eligible to participate in the Incentive
Plan which approximates 14 full-time employees and one Consultant.
Persons who are not in an employment or consulting relationship
with the Company or any of its subsidiaries, including non-employee
directors, are not eligible to participate in the Incentive Plan.
A summary of the most significant features of the Incentive
Plan, together with the general federal income tax consequences to
the recipients is set forth below, which summary is qualified in
its entirety by reference to the full text of the Incentive Plan,
attached hereto as "Exhibit A."
Types of Incentive Awards and Annual Maximum Limitation. The
Incentive Plan provides for the grant of (i) stock options,
including incentive stock options and non-qualified stock options,
(ii) shares of restricted stock, (iii) performance awards payable
in cash or Common Stock, (iv) shares of phantom stock, (v) stock
bonuses, and (vi) cash bonuses (collectively, the "Incentive
Awards"). To date, no Incentive Awards have been granted under the
Incentive Plan. All options granted to Consultants shall be
non-qualified options.
The maximum number of shares of Common Stock subject to
Incentive Awards that may be granted under the Incentive Plan to
any one individual during any calendar year is 50,000. This
provision is intended to qualify non-qualified options granted to
certain executives of the Company (or incentive stock options
granted to such individuals in certain situations) for favorable
tax treatment under Section 162(m) of the Code (as defined). See
"Administration" below for a more detailed description of the tax
advantages of complying with Section 162(m) of the Code.
Shares Subject to the Incentive Plan. Under the Incentive
Plan, the Company may grant Incentive Awards with respect to a
number of shares of Common Stock of up to 200,000 shares. Shares
of Common Stock issued under the Incentive Plan may be either newly
issued or treasury shares. To the extent an Incentive Award
expires or is canceled, terminated or forfeited prior to the
issuance of shares of Common Stock subject to such awards, any
shares subject to such awards will again be available for grant
under the Incentive Plan. The Incentive Plan provides for
proportionate adjustments in the number of shares of Common Stock
available for grants thereunder, and the number of shares and
exercise prices of outstanding options for subdivisions or a
consolidations of, or stock dividends on, Common Stock effected by
the Company without the receipt of consideration.
Term. The Incentive Plan is effective May 13, 1996, subject
to stockholder approval, and will terminate on May 13, 2006, unless
earlier terminated by the Board. Incentive Awards may be granted
under the Incentive Plan prior to receipt of such stockholder
approval, provided that each grant is subject to such approval.
Termination of the Incentive Plan will not affect Incentive Awards
made prior to termination (other than termination due to failure to
obtain timely stockholder approval).
Administration. The Incentive Plan is intended to comply with
Rule 16b-3 under the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), so that the grant of options is exempt from
the short-swing profit liability provisions of Section 16 of the
Exchange Act. Accordingly, the Incentive Plan must be administered
by a committee of disinterested directors within the meaning of
rule 16b-3. The Incentive Plan also is intended to comply with
Section 162(m) of the Code so that the Company can exclude from the
$1,000,000 deduction limitation the compensation income
attributable to non-qualified stock options granted to its chief
executive officer and other four most highly compensated executives
(or to incentive options granted to such individuals in the case of
a disqualifying disposition). Accordingly, the Incentive Plan also
must be administered by outside directors within the meaning of
Section 162(m).
The Incentive Plan will be administered by the Compensation
Committee of the Board (the "Committee"), whose members currently
are Messrs. Holmes, Marinos and Richards. The Committee will
determine which Participants receive grants of Incentive Awards,
the type of Incentive Awards and bonuses granted and the number of
shares subject to each Incentive Award; provided, however, that the
maximum number of shares of Common Stock subject to Incentive
Awards that can be issues to any one individual during any calendar
year is 50,000 shares.
Subject to the terms of the Incentive Plan, the Committee will
also determine the prices, expiration dates and other material
features of the Incentive Awards granted under the Incentive Plan.
The Committee may, in its absolute discretion, (i) accelerate the
date on which an option granted under the Incentive Plan becomes
exercisable, (ii) accelerate the date on which a share of
restricted stock or phantom stock vests and waive any conditions
imposed by the Committee on the vesting of a share of restricted
stock and (iii) grant Incentive Awards to a Participant on the
condition that the Participant surrender to the Company for
cancellation such other Incentive Awards (including, without
limitation, Incentive Awards with higher exercise prices) as the
Committee specifies.
The Committee will have the authority to interpret and
construe any provision of the Incentive Plan and to adopt such
rules and regulations for administering the Incentive Plan as it
deems necessary. All decisions and determinations of the Committee
are final and binding on all parties. The Company will indemnify
each member of the Committee against any cost, expenses or
liability arising out of any action, omission or determination
relating to the Incentive Plan, unless such action, omission or
determination was taken or made in bad faith and without reasonable
belief that it was in the best interest of the Company.
Non-Qualified and Incentive Stock Options. The exercise price
of each stock option (singly, "Option" and collectively, "Options")
granted under the Incentive Plan is determined by the Committee,
but such price may not be less than the fair market value (as
defined) of a share of Common Stock of the Company on the date on
which such Option is granted. Each Option is exercisable for a
period not to exceed ten years and no Option is exercisable until
six months after the date of grant. For each Option, the Committee
will establish (i) the term of each Option and (ii) the time or
period of time in which the Option will vest. The exercise price
will be paid in cash or, subject to the approval of the Committee,
(i) in shares of Common Stock valued at their fair market value (as
defined) on the date of exercise, (ii) through a cashless exercise
(as defined), or (iii) in a combination of the foregoing.
Except in the event of the death or permanent and total
disability (as defined) of an optionee or the termination of the
employment of an optionee for cause (as defined), Options are
exercisable only while an optionee is employed by the Company or
within one month after such employment has terminated to the extent
that such Options were exercisable on the last day of employment
and had not expired by its terms. In the event of the death or
disability of an optionee, Options are exercisable within one year
after such death or permanent and total disability (as defined) to
the extent that such Options were exercisable on the last day of
employment and such Options had not expired by their terms. In the
event of the termination of the employment of an optionee for cause
(as defined), all Options held by such optionee terminate as of the
date of termination. Options are not transferable other than by
will or by the laws of descent and distribution.
Upon a change in control of the Company (a "Change in
Control"), all Options become immediately exercisable. The
Incentive Plan defines Change in Control to mean (i) a "change in
control" as that term is defined in the federal securities laws,
(ii) the acquisition by any person, after the effective date of the
Incentive Plan, of 20% or more of the shares of voting securities
of the Company, except to the extent the Board, as constituted
immediately prior to such acquisition, determines no Change in
Control has occurred, (iii) certain changes in the composition of
the Board as a result of a contested election for positions on the
Board or (iv) any other event which the Board determines to
constitute a change in control of the Company.
An optionee does not recognize any income for federal tax
purposes at the time a non-qualified option is granted, and the
Company is not then entitled to a deduction. When any part of a
non-qualified option is exercised, the optionee recognizes ordinary
income in an amount equal to the difference between the fair market
value (as defined) of the shares on the exercise date and the
exercise price of the non-qualified option, and the Company
generally recognizes a tax deduction at the same time and in the
same amount. An optionee generally recognizes capital gain or loss
on disposition of shares acquired by exercising a non-qualified
option. The optionee's tax basis in such shares equals the fair
market value (as defined) of the stock at exercise. If the stock
is sold at a loss, an optionee may be limited in the amount of loss
that is currently deductible.
If all or any part of the exercise of a non-qualified option
is paid by an optionee with shares of Common Stock (including
shares previously acquired on the exercise of any Options), no gain
or loss will be recognized on the shares surrendered on payment.
The number of shares received on such exercise of the non-qualified
option equal to the number of shares surrendered will have the same
basis and holding period, for purposes of determining whether
subsequent dispositions result in long-term or short-term capital
gain or loss, as the basis and holding period of the shares
surrendered. The balance of the shares received on such exercise
will be treated for federal income tax purposes as described in the
preceding paragraph as though issued on the exercise of the
non-qualified option for an exercise price equal to the
consideration, if any, paid by the optionee in cash. The
optionee's compensation, which is taxable as ordinary income on
such exercise, and the Company's deduction will not be affected by
whether the exercise price is paid in cash or in shares of Common
Stock. However, gain on the stock transferred to exercise the
non-qualified option is deferred.
An optionee does not recognize any income for federal tax
purposes when an incentive stock option is granted or upon its
qualified exercise. If an optionee does not dispose of the shares
acquired by exercising an incentive stock option within two years
after its grant and one year after its exercise, the exercise is
qualified and the gain or loss (if any) on a subsequent sale will
be a long-term capital gain or loss. Such gain or loss is the
difference between the sales proceeds and the exercise price of the
Option covering the stock sold. The Company is not entitled to a
tax deduction as the result of the grant or qualified exercise of
an incentive stock option.
If an optionee disposes of shares acquired upon exercise of an
incentive stock option within either two years after the date of
its grant or one year after its exercise, the disposition is a
disqualifying disposition and the optionee will recognize ordinary
income in the year of such disposition. The amount of ordinary
income recognized equals the excess of the fair market value (as
defined) of shares at the time the incentive stock option was
exercised over the exercise price, and the balance of the gain (if
any) will be long or short term capital gain depending on whether
the shares were disposed more than one year after exercise. If the
disqualifying disposition is at a price between the exercise price
and fair market value (as defined) at exercise, the ordinary income
is limited to the excess of the amount realized on the disposition
over the exercise price. If the disqualifying disposition is at a
price below the exercise price, the loss will be long or short term
capital loss depending on the optionee's holding period with
respect to the disposed shares. The Company generally is entitled
to a deduction in the year of the disqualifying disposition in an
amount equal to the ordinary income recognized by the optionee as
a result of such disposition.
If all or any part of the exercise of an incentive stock
option is paid by an optionee with shares of Common Stock
(including shares previously acquired on the exercise of any
Option), the optionee generally will not recognize any income, gain
or loss on the transfer of the surrendered shares. The tax basis
and the holding period for the acquired shares will be determined
in the same manner described above for non-qualified stock options
exercised with shares of Common Stock. However, if the shares of
Common Stock used to exercise the incentive stock options were
acquired on the exercise of an incentive stock option ("Tax
Deferred Option Stock"), then such use is a disqualifying
disposition as to such stock if the applicable holding periods
described in the preceding paragraph are not met. In such event,
the optionee would recognize gain or loss on such disqualifying
disposition of the Tax Deferred Option Stock as described in the
preceding paragraph.
The excess of the fair market value (as defined) of the shares
upon exercise of an incentive stock option over the exercise price
is a positive adjustment for alternative minimum tax ("AMT")
purposes. In addition, the basis of shares acquired through the
exercise of an incentive stock option for determining gain or loss
for AMT purposes is increased by the amount of the positive AMT
adjustment created due to the earlier exercise.
Restricted Stock. A grant of shares of restricted stock
represents the promise of the Company to issue shares of Common
Stock of the Company on a predetermined date (the "Issue Date") to
a Participant, provided the Participant is continuously employed by
the Company until the Issue Date. Vesting of the shares occurs on
a second predetermined date (the "Vesting Date"), if the
Participant has been continuously employed by the Company until
that date. Prior to the Vesting Date, the shares are not
transferable by the Participant and are subject to a substantial
risk of forfeiture. The Committee may, at the time shares of
restricted stock are granted, impose additional conditions to the
vesting of the shares, such as, for example, the achievement of
specified performance goals. Vesting of some portion, or all, of
the shares of restricted stock may occur on the termination of the
employment of a Participant, other than for cause (as defined),
prior to the Vesting Date. If vesting does not occur, shares of
restricted stock are forfeited.
If the employment of a Participant is terminated by the
Company for any reason other than cause (as defined), a portion of
the unvested shares of restricted stock (to the extent not
forfeited or canceled) as determined by the Committee at the date
of grant will vest on the date of such termination. In the event
the Participant's employment with the Company is terminated for
cause (as defined), all unvested shares of restricted stock will be
forfeited as of the date of such termination.
On the occurrence of a Change in Control, all shares of
restricted stock which have not vested or been forfeited will vest
automatically.
A Participant will not recognize any income for federal tax
purposes at the time shares of restricted stock are granted or
issued, nor will the Company be entitled to a tax deduction at that
time. However, when either the transfer restriction or the
forfeiture risk lapses, such as on the Vesting Date, the
Participant will recognize ordinary income in an amount equal to
the fair market value (as defined) of the shares of restricted
stock on the date on which they vest. Unless restricted by the
agreement relating to such grant, a Participant may file an
appropriate election under Section 83(b) of the Code with the
Internal Revenue Service within 30 days of the Issue Date of the
restricted stock (the "Election"), which results in the
Participant's receipt of deemed ordinary income in an amount equal
to the fair market value (as defined) of the shares of restricted
stock on the date on which they are issued. However, if a
Participant files an Election and the restricted stock is
subsequently forfeited, such Participant is not allowed a tax
deduction for the amount previously reported as ordinary income due
to the Election.
Gain or loss (if any) from a disposition of restricted stock
after the Participant recognizes any ordinary income (whether by
vesting or an Election) will generally constitute short- or
long-term capital gain or loss. The Company will generally be
entitled to a tax deduction at the time the Participant recognizes
ordinary income on the restricted stock, whether by vesting or an
Election.
Performance Awards. A performance award is an award granted
to a Participant contingent upon the future performance of the
Company or any subsidiary, division or department thereof over a
specified performance period. The Committee will establish the
relevant performance criteria, subject to adjustment to reflect
unforeseen events or changes. Each performance award will be
subject to a maximum value at the time of grant of such award. In
determining the amount of a performance award to be granted to a
particular Participant, the Committee will take into account such
factors as the Participant's responsibility level and growth
potential, the amount of other Incentive Awards granted to or
received by such Participant, and such other considerations as the
Committee deems appropriate. Payment of an Incentive Award may be
in cash, Common Stock, or a combination thereof, as determined by
the Committee
A performance award will terminate if the Participant does not
remain continuously employed by the Company at all times during the
applicable performance period, unless the Committee determines
otherwise.
On the occurrence of a Change in Control, the Committee (as
constituted immediately before such Change in Control) will
determine whether performance awards which have not theretofore
satisfied the requisite performance measure or for which the
performance period has not expired, will immediately be paid or
will remain outstanding according to their respective terms.
A Participant will recognize ordinary income for federal
income tax purposes in the amount equal to cash paid and/or the
fair market value (as defined) of the Common Stock at the time it
is received, with the Company generally entitled to a deduction in
the same amount.
Phantom Stock. A share of phantom stock represents the right
to receive the economic equivalent of a grant of restricted stock.
Shares of phantom stock are subject to the same vesting
requirements as are shares of restricted stock. On vesting of a
share of phantom stock, the holder is entitled to receive cash in
an amount equal to the sum of (i) the fair market value (as
defined) of a share of Common Stock as determined on the vesting
date and (ii) the aggregate amount of cash dividends paid in
respect of a share of Common Stock during the period commencing on
the date of grant and ending on the vesting date. The cash payment
for phantom stock is treated the same as a cash bonus for federal
income tax purposes and generally creates a deduction to the
Company when paid. In addition, the value of a share of phantom
stock (whether or not vested) is paid immediately on the occurrence
of a Change in Control of the Company. The Committee may not grant
any cash bonus in connection with the grant of shares of phantom
stock.
Stock and Cash Bonuses. Bonuses payable in stock may be
granted by the Committee and may be payable at such times and
subject to such conditions as the Committee determines. On the
receipt of a stock bonus, a Participant will recognize ordinary
income for federal tax purposes in an amount equal to the fair
market value (as defined) of the Common Stock at the time it is
received. The Committee may grant, in connection with a grant of
shares of restricted stock or shares of Common Stock granted as a
performance award or a stock bonus, a cash "tax" bonus, payable
when a Participant is required to recognize income for federal
income tax purposes with respect to such shares of Common Stock.
This tax bonus may not be greater than the value of the shares of
restricted stock and/or Common Stock at the time the income is
required to be recognized. Any such bonus will result in ordinary
income to the Participant and generally a deduction to the Company.
The grant of a cash bonus will not reduce the number of shares of
Common Stock with respect to which Options, shares of restricted
stock, shares of phantom stock or stock bonuses may be granted
pursuant to the Incentive Plan.
Mergers and Other Transactions. If the Company is the
surviving corporation in any merger or consolidation (except a
merger or consolidation as a result of which the holders of shares
of Common Stock receive securities of another corporation), each
outstanding Option will entitle the optionee to acquire on exercise
the securities which a holder of the number of shares of Common
Stock subject to such Option would have received in such merger or
consolidation. In the event of a dissolution or liquidation of the
Company, a sale of all or substantially all of the Company's
assets, a merger or consolidation involving the Company in which
the Company is not the surviving corporation or a merger or
consolidation involving the Company in which the Company is the
surviving corporation but the holders of shares of Common Stock
receive securities of another corporation and/or other property,
including cash, the Committee, in its absolute discretion, has the
power to either (i) cancel, effective immediately prior to the
occurrence of such event, each Option outstanding immediately prior
to such event (whether or not then exercisable), and, in full
consideration of such cancellation, pay to the optionee an amount
in cash, for each share of Common Stock subject to such Option,
equal to the excess of (A) the value of the property (including
cash) received by the holder of a share of Common Stock as a result
of such event over (B) the exercise price of such Option; or (ii)
provide for the exchange of each outstanding Option (whether or not
then exercisable) for an Option on some or all of the property for
which such Option is exchanged and, incident thereto, make an
equitable adjustment in the exercise price of the Option, or the
number of shares or amount of property subject to the Option or, if
appropriate, provide for a cash payment to the optionee in partial
consideration for the exchange of the Option.
Amendment and Termination. The Incentive Plan generally
terminates on the tenth anniversary of its adoption by the Board.
The Board may at any time suspend or discontinue the Incentive Plan
or revise or amend it in any respect whatsoever, provided, however,
that without approval of the holders of a majority of the Company's
outstanding securities present in person or by proxy and entitled
to vote at an annual or special meeting of stockholders (or such
greater percentage as may be required by applicable law or the
Company's articles of incorporation), no revision or amendment will
(i) increase the number of shares of Common Stock that may be
issued under the Incentive Plan (subject to adjustments for certain
recapitalizations of the Company), (ii) increase the maximum number
of shares of Common Stock that may be subject to an Incentive Award
granted to any Participant for any calendar year (subject to
adjustment for certain recapitalizations of the Company), (iii)
materially increase the benefits accruing to optionees, (iv)
materially modify the requirements as to eligibility for
participation in the Incentive Plan, (v) extend the term of the
Incentive Plan, or (vi) decrease any authority granted to the
Committee under the Incentive Plan in contravention of Rule 16b-3.
Certain Securities Law and Tax Matters. The Incentive Plan is
intended to comply with all applicable conditions of Rule 16b-3 or
any successor provision under the Exchange Act. To the extent any
provision of the Incentive Plan fails to so comply, such provision
will be construed and deemed amended to conform to Rule 16b-3 to
the extent permitted by applicable law and deemed advisable by the
Board. The Company intends to register under the Securities Act
(as defined), the Common Stock reserved for issuance under the
Incentive Plan on a registration statement on Form S-8. The
Company intends to file such Form S-8 with the Securities and
Exchange Commission ("SEC") after the Company's stockholders
approve the Incentive Plan's adoption, and before any Option first
becomes exercisable.
The Incentive Plan is intended to comply with all applicable
conditions of Section 162(m) of the Code, so that stock options
granted under the Incentive Plan with an exercise price of not less
than fair market value (as defined) of a share of Common Stock on
the date of grant will qualify as "qualified performance-based
compensation" and the favorable tax treatment associated therewith.
To the extent any provision of the Incentive Plan would disqualify
the Incentive Plan or would not otherwise permit the Incentive Plan
to comply with Section 162(m) as so intended, such provision will
be construed and amended to conform to the requirements or
provision of Section 162(m) to the extent permitted by applicable
law and deemed advisable by the Board; provided, however, that no
such construction or amendment will have an adverse economic effect
on any participant with respect to any Incentive Award previously
granted under the Incentive Plan.
The Incentive Plan provides that the Company may require the
Participant to remit to the Company cash in an amount sufficient to
satisfy certain federal, state and local income tax withholding
requirements by remitting cash to the Company. In addition, the
Company has the right to withhold from any cash payment required to
be made to a Participant with respect to an Incentive Award an
amount sufficient to satisfy the federal, state and local
withholding tax requirements.
Vote Required for Approval
The affirmative vote of the holders of a majority of Common
Stock outstanding on the Record Date entitled to vote and
represented at the Annual Meeting in person or by proxy will
constitute approval of the Incentive Plan's adoption.
The Board recommends a vote FOR the approval of the
adoption of the Incentive Plan.
PRINCIPAL STOCKHOLDERS
The following table sets forth information based upon the
records of the Company and filings with the Securities and Exchange
Commission (the "SEC") as of May 15, 1996, with respect to (i) each
person known to be the benefical owner of more than 5% of the
Company's Common Stock and of its 5% cumulative preferred stock,
$1.00 par value per share, (ii) each executive officer and each of
the Nominees named in "Election of Directors - Information
Regarding the Nominees," and (iii) all directors and executive
officers as a group.
Common Stock 5% Preferred Stock
Number Percentage Number Percentage
of of of of Total
Name and Address Shares Outstanding Shares Outstanding Voting
of Benefical Owned (1) Shares Owned (1) Shares Percentage
Magic Gas Corp.(2) 611,240 40.7 100,000 50.0 40.7
1100 Louisiana,
Suite 2950
Houston, Texas 77002
Dan C. Tutcher 611,240 40.7 100,000 50.0 40.7
1100 Louisiana,
Suite 2950
Houston, Texas 77002
Stevens G. Herbst (4) 285,902 19.1 50,000 25.0 19.1
710 Buffalo,
Suite 800
Corpus Christi,
Texas 78401
Kenneth B. Holmes,Jr. 283,195 18.9 50,000 25.0 18.9
719 Buffalo,
Sute 800
Corpus Christi,
Texas 78401
I.J. Berthelot,II(5)(6) 78,064 5.2 0 0 5.2
1100 Louisiana,
Suite 2950
Houston, Texas 77002
Richard R. Robert (7) 22,303 1.5 0 0 1.5
1100 Louisiana,
Suite 2950
Houston, Texas 77002
Duane S, Herbst (8) 11,151 * 0 0 *
710 Buffalo,
Suite 800
Corpus Christi, Texas
78401
E.P. Marinos (9) * 0 0 *
2901 Sargent Street
Seabrook, Texas 77586
Richard A. Richards (9) * 0 0 *
18610 Upper Bay RD.
Houston, Texas 77058
All Directors and 1,291,855 86.1 200,000 100.0 86.1
Executive Officers
as a group
(8 persons)
* Denotes less than 1%
(1) Except as otherwise noted, shares beneficially owned by each
person as of the record date were owned of record and each person
has sole voting and investment power with respect to all shares
beneficially held by such person.
(2) All of the outstanding stock of Magic is owned by Dan C.
Tutcher and Kimberly Tutcher as husband and wife.
(3) Includes 611,240 share of Common Stock held of record by Magic,
an affiliate of Mr. Tutcher.
(4) Includes 611,240 shares held of record by Rainbow which is
controlled by Stevens G. Herbst.
(5) Includes 50, 184 shares which are subject to certain vesting
requirements.
(6) Mr. Berthelot holds 1,338 shares as custodian for minor
children under the Uniform Gift to Minors Act.
(7) Includes 15,613 shares which are subject to certain vesting
requirements.
(8) Includes 4,014 shares which are subject to certain vesting
requirements.
(9) Messrs. Marinos and Richards were each issued a stock grant of 2,007
on May 28, 1996. Such shares are subject to certain vesting
requirements. See "Election of Directors - Directors Compensation
and Board Committees."
OTHER INFORMATION
Executive Officers of the Company
The Company currently has five executive officers: Dan C.
Tutcher, President and Chief Executive Officer, Stevens G. Herbst,
Executive Vice President, I. J. Berthelot II, Vice President of
Operations and Chief Engineer, Richard A. Robert, Chief Financial
Officer and Treasurer and Duane S. Herbst, Secretary. Biographical
information concerning Dan C. Tutcher and Stevens G. Herbst is
provided under the section entitled "Election of Directors "
Information regarding the Nominees."
Duane S. Herbst is an officer of the Company in a part-time
capacity. As such, he has been Secretary of the Company since its
incorporation in 1992. From April 1992 until its merger with the
Company in September 1992 he held the office of President of
Nugget. From 1989 to the date hereof he has been Vice President of
Rainbow. Mr. Herbst has also held the office of Secretary of
Texline since 1993. He holds a Masters of Business Administration
from the University of Texas and a Bachelors of Science degree in
Finance from Trinity University. He is the son of Stevens G.
Herbst.
I.J. "Chip" Berthelot, II is Vice President of Operations and
Chief Engineer and has been with the Company since the Company's
incorporation in 1992. Mr. Berthelot joined the Company as Chief
Engineer and became Vice President of Operations and Chief Engineer
in 1995. From 1991 to 1992 he was a gas contracts representative
with Mitchell Energy & Development Co., a publicly traded company.
Prior to 1991 Mr. Berthelot was with Texline as a gas contracts
representative and engineer for the period from 1990 to 1991. He
is a Professional Engineer, licensed in Texas and holds a Bachelors
of Science degree in Petroleum and Natural Gas Engineering from
Texas A&I University.
Richard A. Robert is Chief Financial Officer and Treasurer and
has been with the Company since 1992. Mr. Robert joined the
Company as Controller and became Chief Financial Officer and
Treasurer in 1996. From 1988 to 1992 Mr. Robert was an audit
associate in the energy audit division of Arthur Anderson and Co.
Mr. Robert is a certified public accountant and is a member of the
Texas Society of Certified Public Accountants. He holds a
Bachelors of Business Administration degree in Accounting from
Southwest Texas State University.
Executive Compensation
The following table reflects all forms of compensation for
services to the Company for the years ended December 31, 1995, 1994
and 1993 of the Chief Executive Officer of the Company. During
1993 and 1994 the only executive officer to receive a salary was
Mr. Tutcher. During 1995, 1994 and 1993 no other executive
officers received compensation, including bonuses, which exceeded
$100,000.
Name and Principal Annual Compensation
Position Year Salary
Dan C. Tutcher
(Chief Executive Officer) (1) 1995 $125,000
1994 $125,000
1993 $ 62,000
(1) The Company provides Mr. Tutcher certain personal benefits
including payments for a car allowance. Since the value of such
benefits did not exceed the lesser of $50,000 or 10% of annual
compensation, the amounts are omitted.
Additionally, the Company has not granted any options to any
officers or directors of the Company. Furthermore, the Company
does not propose to issue any such options in the foreseeable
future, other than those options that may be granted pursuant to
the Incentive Plan.
Pursuant to separate shareholder's agreements dated April 30,
1994 by and between the Company and I.J. Berthelot, II, Richard A.
Robert and Duane S. Herbst, each officer was respectively, issued
11,152, 11,152, and 6,691 shares, of the Company's Common Stock as
additional consideration for their services to the Company. Such
shares, reduced each year pursuant to a vesting schedule, are
subject to the Company's repurchase upon the termination of the
respective officer's employment, for any reason, after a 30-day
notice period.
Executive Employment Contracts. In January 1993, and as
subsequently amended in April 1993, Mr. Tutcher, the Chief
Executive Office and President of the Company, entered into a
five-year employment agreement with the Company pursuant to which
he is to receive an annual base salary of $125,000, beginning July
1, 1993, and may participate in any such executive level bonuses or
salary increases as the Board may approve. Mr. Tutcher is also
entitled to reimbursement for reasonable automobile expenses not to
exceed $500 each month and is eligible for participation in the
Company's group insurance plans. Mr. Tutcher is required to devote
his full business time and attention to the Company.
In April 1995, and subsequently amended in December 1995, I. J.
Berthelot, II, Vice President of Operations and Chief Engineer,
entered into a four-year employment agreement with the Company.
Pursuant to the employment agreement Mr. Berthelot is to receive an
annual base salary of $55,200, to be increased a minimum of 10%
annually, beginning on April 17, 1996. Mr. Berthelot was also
awarded 57,992 shares of the Company's Common Stock as
consideration for executing the agreement. Such shares, reduced
each year pursuant to a vesting schedule, are subject to the
Company's repurchase upon the termination of Mr. Berthelot's
employment with the Company for any reason. Mr. Berthelot is
required to devote his full business time and attention to the
Company.
In April 1994, and subsequently amended in April 1996, Richard
A. Robert, Chief Financial Officer and Treasurer, entered into a
three-year employment agreement with the Company. Pursuant to the
employment agreement, Mr. Robert is to receive an annual base
salary of $69,000, to be increased a minimum of 10% annually,
beginning on April 8, 1997. Mr. Robert was also awarded 8,921
shares of the Company's Common Stock as consideration for executing
the agreement. Such shares, reduced each year pursuant to a
vesting schedule, are subject to the Company's repurchase upon the
termination of Mr. Robert's employment with the Company for any
reason. Mr. Robert is required to devote his full business time
and attention to the Company.
In May 1996, Duane S. Herbst, Secretary, began receiving an
annual salary from the Company of $24,000 per year for his
part-time services as Secretary. Previously, the Company had a
month-to-month arrangement which provided a monthly payment of
$1,050 to compensate Rainbow for the Company's use of the time of
Mr. Herbst.
Certain Transactions
The Company has obtained financing from certain officers and
directors and affiliates regarding the acquisition and construction
of pipelines. This financing enabled the Company to take advantage
of pipeline acquisition opportunities that would have otherwise
been unavailable to the Company because no other source or no less
costly source of financing may have been available to the Company
at the time such opportunities arose. It is management's belief
that under such circumstances these transactions with affiliates
were fair and equitable to the Company. All indebtedness to
non-affiliated third parties has been personally guaranteed by Dan
C. Tutcher, Stevens G. Herbst, and Kenneth B. Holmes, Jr. Set
forth below are descriptions of such transactions:
Five Flags System. In December 1992, the Company acquired 100%
of the outstanding capital stock of Five Flags Pipe Line Company
("Five Flags") from Harbert Holdings No. One, Inc. for a cash
payment of $1,078,409. The principal assets of Five Flags
consisted of approximately 57 miles of natural gas pipelines
located in Escambia and Santa Rosa Counties, Florida. In
September 1993, all of the outstanding capital stock of Five Flags
was sold to Sunshine Interstate Pipeline Partners. In 1995, the
Company and Rainbow jointly re-acquired 100% of the outstanding
capital stock of Five Flags from Five Flags Holding Company. Total
cash consideration of $2,052,000 was paid for the stock, of which
the Company's share representing 91.25% interest in Five Flags
capital stock was acquired for $1,872,450. Rainbow's ownership
interest amounted to an 8.75% interest in the stock acquired for
$179,550. To finance this transaction, the Company borrowed funds
from Stevens G. Herbst, an officer and director of the Company (the
"Herbst Note"). The promissory note between the Company and Mr.
Herbst called for monthly payments of interest beginning April 1,
1996 through December 31, 1996 at which time both principal and all
accrued interest would be due in full. Interest on the Herbst Note
accrued at the prime rate plus 2%. Shortly after acquiring Five
Flags' stock the Company and Rainbow sold 100% of the capital stock
of Five Flags to Koch Gateway Pipeline Company for $4,664,865. A
portion of the proceeds from the sale were used to repay the Herbst
Note of $1,872,450 plus accrued interest and certain other notes
associated with the acquisition of Magnolia Pipeline Company
("Magnolia").
Project Refinancing. In December 1994, Texline loaned the
Company $275,000 pursuant to an unsecured promissory note between
Texline and the Company (as amended, the "Texline Note"). The
Texline Note provides for monthly payments of accrued interest at
Mercantile Bank, N.A. - Corpus Christi prime plus 1.5% (10.75% at
March 31, 1996). The Texline Note matures on April 1, 1997. Total
payments of principal and interest amounted to $75,000 and $30,057
in 1995 and 1996, respectively. The principal balance due to
Texline at March 31, 1996, was $200,000. The proceeds of such
indebtedness were used by the Company for general corporate
purposes, including the repayment of indebtedness associated with
project financings for the construction of certain pipeline systems
and for various pipeline system acquisitions.
Cook Inlet Pipeline Construction. In addition to the Texline
Note, Texline provided short-term loans to fund the Company's
investment in Alaska until the Company could obtain long-term bank
financing. During 1994, short-term loans were made by Texline for
such purpose, accruing at the prime rate plus 5%. A total of
$316,250 in principal was loaned to the Company which was
subsequently repaid to Texline in 1994, including interest in the
amount of $4,005.
Texline and Rainbow also provided approximately $1,000,000 in
certificates of deposit and U.S. Treasury Bills as security for
obtaining the initial long-term bank financing for the Company's
Alaska investment. In consideration for providing such security,
the Company assigned a 3% and a 2% net revenue interest to Texline
and Rainbow, respectively, on the net income derived from the
Company's investment in the Cook Inlet Systems. However, the net
revenue interests apply only after all costs associated with the
investment have been recouped by the Company. As a result, at the
date hereof, no amounts have been paid under either assignment of
the net revenue interests. The collateral was subsequently
released after approximately eight months when the Company obtained
new bank financing in December 1994.
Magnolia System Acquisition. In connection with the acquisition
of Magnolia in 1995, the Company borrowed $1,200,000 from Rainbow
(the "Rainbow Note") to finance the purchase price of the stock of
Magnolia. Funds from the Rainbow Note together with proceeds from
the sale of the Five Flags stock to Koch, were used to repay the
owner financing from The Williams Companies, for the purchase of
Magnolia. The Rainbow Note provided for interest at the prime rate
plus 5% and was due and payable monthly beginning April 1, 1996,
with a final maturity of January 31, 1997. As additional
consideration for extending the funds borrowed under the Rainbow
Note, the Company granted Rainbow a 5% net revenue interest in
Magnolia's earnings before interest, income taxes and depreciation,
to be paid on a monthly basis. The net revenue interest, as
amended in May 1996, applies only after all costs associated with
the acquisition have been recouped by the Company. The Company has
the right to repurchase this net revenue interest from Rainbow for
a cash payment of $25,000. However, the repurchase amount is
increased an additional $25,000 on November 1, 1995 and each
following month up to a maximum of $500,000. The Rainbow Note was
paid in full on December 20, 1995, including accrued interest in
the amount of $35,260. To date, no payments have been made towards
the net revenue interest.
Additional Project Refinancing. Rainbow also loaned the Company
a total of $660,000 in December 1995 for general corporate purposes
pursuant to an unsecured promissory note accruing interest at the
prime rate plus 5%. All amounts under this note were due and
payable on January 1, 1997. On January 12, 1996 the Company repaid
all principal amounts due under the note to Rainbow as well as
accrued interest in the amount of $4,039. The proceeds of such
indebtedness were used by the Company for general corporate
purposes including the repayment of indebtedness associated with
project financings for the construction of certain pipeline systems
and for various pipeline system acquisitions.
Seahawk Acquisition. In connection with the acquisition of
certain pipeline systems in March 1996, the Company borrowed
$100,000 from Rainbow for its equity contribution to Pan Grande
Pipeline L.L.C. ("PanGrande") pursuant to a promissory note between
the Company and Rainbow (as amended, the "Pan Grande Note"). The
Pan Grande Note bears interest at the prime rate plus 2.5%. The
Pan Grande Note is secured by the Company's interest in Pan Grande
and is payable in 59 monthly installments of $1,667 and accrued
interest and a final installment at March 15, 2001 in the amount of
the remaining principal plus accrued interest. All amounts
outstanding under the Pan Grande Note will be repaid with the net
proceeds of the public offering. Rainbow has committed to loan up
to an additional $75,000 in the event the Salt Creek System is
purchased. In consideration for the financing of the equity
contribution and the commitment for additional financing, the
Company issued Rainbow 4,460 shares of the Company's Common Stock.
Exxon Production Acquisition. In May 1995, Texline provided a
$173,822 loan to partially finance the acquisition of a working
interest in oil and gas production from two leases located in Starr
County, Texas from Exxon Corporation, a publicly traded company.
The loan, as amended in March 1996, matures on April 1, 1997. No
collateral was required to obtain this loan, although, as
additional consideration for obtaining the loan, Texline was
assigned a .5% working interest in the oil and gas properties.
Monthly note payments in the amount of 25% of the Company's net
revenue from the production from these properties are paid to
Texline. An additional .5% working interest in the properties will
be assigned to Texline if all principal and interest amounts due
under the loan are not paid by August 1, 1996. Total payments of
interest amounted to $3,346 and $7,477 in 1995 and through March
31, 1996, respectively.
Redemption of 5% Cumulative Preferred Stock. In May 1996, the
Board approved the redemption of the 5% cumulative preferred stock
for $118,367, which was 10% of the liquidation value, held by Magic
(Dan Tutcher is the beneficial owner of such shares), Stevens G.
Herbst and Kenneth B. Holmes, Jr. As a result of the redemption of
the 5% cumulative preferred stock by the Company, Magic, Mr. Herbst
and Mr. Holmes were paid $59,183, $29,592, and $29,592 for the
redemption of 100,000, 50,000 and 50,000 shares, respectively.
Subsequently, no shares of the Company's preferred stock remain
outstanding. Following the redemption of the Company's 5%
cumulative preferred stock, a majority of the stockholders approved
a resolution to amend the Articles of Incorporation to reflect only
one class of outstanding securities, the Company's Common Stock.
OTHER MATTERS
Auditors
Hein + Associates ("Hein"), certified public accountants, have
served as the independent auditors of the Company for a number of
years. It is not proposed that any formal action be taken at the
meeting with respect to the continued employment of Hein.
Representatives of Hein plan to attend the Meeting and will be
available to answer appropriate questions. These representatives
will also have an opportunity to make a statement at the meeting if
they so desire, although it is not expected that any statement will
be made.
Compliance with the Exchange Act
Section 16(a) of the Exchange Act requires the Company's
executive officers and directors and persons who own more than 10%
of registered class of the Company's equity securities, to file
reports of ownership and changes in ownership with the SEC as well
as to furnish the Company with a copy of each such report.
Additionally, SEC regulations require the Company to identify in
its proxy statement any individual for whom one of the above
referenced reports was not filed on a timely basis during the most
recent fiscal year or prior fiscal years.
To the Company's knowledge, based solely on review of the copies
of such reports furnished to the Company and written
representations that no other reports were required, during and
with respect to the fiscal year ended December 31, 1995, all
applicable Section 16 (a) filing requirements were complied with,
except that Richard A. Robert was late in filing a Form 3.
Miscellaneous Matters
The Company is including herewith a copy of its annual report on
Form 10-KSB, as amended, covering the fiscal year ended December
31, 1995, which has been filed with the SEC. Any stockholder who
wishes to submit a proposal for action to be included in the proxy
statement and form of proxy relating to the 1997 annual meeting of
stockholders is required to submit such proposals to the Company on
or before December 21, 1996. The cost of soliciting proxies in the
accompanying form will be borne by the Company, including the
reimbursement of banks, brokers and other custodians, Nominees and
fiduciaires for expenses in forwarding solicitation material to the
beneficial owners of the Company's Common Stock. In addition to
solicitations by mail, a number of regular employees of the Company
may, if necessary to assure the presence of a quorum, solicit
proxies in person or by telephone.
By Order of the Board of Directors
Duane S. Herbst
Secretary
Houston, Texas
June 10, 1996
MIDCOAST ENERGY RESOURCES, INC.
P THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS
FOR THE ANNUAL STOCKHOLDERS' MEETING TO BE HELD ON
R July 1, 1996
O The undersigned stockholder of Midcoast Energy
Resources, Inc. (the "Company") hereby appoints Dan
X C. Tutcher and Stevens G. Herbst or either of them,
attorneys and proxies of the undersigned, each with
Y full power of substitution, to vote on behalf of the
undersigned at the Annual Meeting of Stockholders of
the Company to be held at the Company's headquarters
at 1100 Louisiana, Suite 2950, Houston, Texas, on
July 1, 1996, at 3:00 p.m. Houston time, and at any
adjournments of said meeting, all of the shares of
common stock in the name of the undersigned or which
the undersigned may be entitled to vote.
(Change of Address)
______________________________________
______________________________________
______________________________________
______________________________________
(If you have written in the above space, please mark the
coresponding box on the reverse side of this card.)
The Proxies noted herein cannot vote your shares unles you sign and return
this card.
See Reverse Side
__X__ Please mark your
votes as in this example.
1. For the election (except as indicated below) of Dan C. Tutcher,
Stevens G. Herbst, Kenneth B. Holmes, Jr., E.P. Marinos and
Richard A. Richards as directors.
FOR WITHHELD WITHHOLD ALL
_____ _____ _____
Instruction: To withhold authority to vote for any
individual nominee, write that nominee's name on the
line provided below or to withhold authority to vote
for all nominees listed above. mark "Withhold All"
____________________________________________________
2. __ For __ Against __ Abstain Approval of the proposed 1996
Incentive Stock Option Plan.
3. __ For __ Against __ Abstain In their discretion, upon
such other matters as may
properly come before the Annual
Meeting; hereby revoking any
proxy or proxies heretofore given
by the undersigned.
______ Change of The board of directors recommends a vote
Address FOR the nominees and proposal above and if no
specification is made, the shares will be
voted FOR the election of the nominees named
herein and FOR the approval of Proposal 2.
The undersigned hereby acknowledges receipt
of the Notice of the Annual Meeting of
Stockholders, the Proxy Statement and the
Company's annual report on Form 10-KSB, as
amended.
SIGNATURE(S) __________________________________ DATE ________
SIGNATURE(S) __________________________________ DATE ________
NOTE: Stockholder's Signature Signature should agree with name printed
hereon. If Stock is held in the name of more than one person,
EACH joint owner should sign. Executors, administrators, trustees,
guardians, and attorneys should indicate the capacity in which they
sign. Attorneys should submit powers of attorney.
PLEASE SIGN AND RETURN IN THE ENVELOPE ENCLOSED
Exhibit A
MIDCOAST ENERGY RESOURCES, INC.
1996 INCENTIVE STOCK PLAN
1. Purpose of the Plan
This Midcoast Energy Resources, Inc. 1996 Incentive Stock Plan
is intended to provide a means through which the Company and its
Subsidiaries may attract able persons to enter into the employ of
the Company or its Subsidiaries, and to promote the interests of
the Company by providing the employees and consultants and
consultants of the Company or any Subsidiary corporation, who are
largely responsible for the management, growth and protection of
the business of the Company, with a proprietary interest in the
Company, thereby strengthening their concern for the welfare of the
Company and their desire to remain in its employ. A further purpose
of the Plan is to provide such persons with additional incentive
and reward opportunities to enhance the profitable growth of the
Company.
2. Definitions
As used in the Plan, the following definitions apply to the
terms indicated below:
(a) "Board of Directors" shall mean the Board of Directors of
Midcoast Energy Resources, Inc.
(b) "Cause," when used in connection with the termination of
a Participant' employment with the Company, shall mean the
termination of the Participant's employment by the Company by
reason of (i) the conviction of the Participant by a court of
competent jurisdiction as to which no further appeal can be taken
of a crime involving moral turpitude; (ii) the proven commission by
the Participant of an act of fraud upon the Company; (iii) the
willful and proven misappropriation of any funds or property of the
Company by the Participant; (iv) the willful, continued and
unreasonable failure by the Participant to perform duties assigned
to him and agreed to by him; (v) the knowing engagement by the
Participant in any direct, material conflict of interest with the
Company without compliance with the Company's conflict of interest
policy, if any, then in effect; (vi) the knowing engagement by the
Participant, without the written approval of the Board of Directors
of the Company, in any activity which competes with the business of
the Company or which would result in a material injury to the
Company; or (vii) the knowing engagement in any activity which
would constitute a material violation of the provisions of the
Company's Policies and Procedures Manual, if any, then in effect.
(c) "Cash Bonus" shall mean an award of a bonus payable in
cash pursuant to Section 11 hereof.
(d) "Change in Control" shall mean:
(i) a "change in control" of the Company, as that term
is contemplated in the federal securities laws; or
(ii) the occurrence of any of the following events:
(1) any Person becomes, after the effective date of
this Plan, the "beneficial owner" (as defined in Rule
13d-3 promulgated under the Exchange Act), directly or
indirectly, of securities of the Company representing 20%
or more of the combined voting power of the Company's
then outstanding securities; provided, that the Board of
Directors (as constituted immediately prior to such
person becoming such a beneficial owner) may determine,
in its sole discretion, that a Change in Control has not
occurred; and provided further, that the acquisition of
additional voting securities, after the effective date of
this Plan, by any Person who is, as of the effective date
of this Plan, the beneficial owner, directly or
indirectly, of 20% or more of the combined voting power
of the Company's then outstanding securities, shall not
constitute a "Change in Control" of the Company for
purposes of this Section 2(d).
(2) a majority of individuals who are nominated by
the Board of Directors for election to the Board of
Directors on any date, fail to be elected to the Board of
Directors as a direct or indirect result of any proxy
fight or contested election for positions on the Board of
Directors; or
(3) the Board of Directors determines in its sole
and absolute discretion that there has been a change in
control of the Company.
(d) "Code" shall mean the Internal Revenue Code of 1986, as
amended from time to time. Reference in the Plan to any Section of
the Code shall be deemed to include any amendments or successor
provisions to any Section and any treasury regulations thereunder.
(e) "Committee" shall mean the Compensation Committee of the
Board of Directors or such other committee as the Board of
Directors shall appoint from time to time to administer the Plan.
(f) "Common Stock" shall mean the Company's common stock, par
value $.01 per share.
(g) "Company" shall mean Midcoast Energy Resources, Inc., a
Nevada corporation, and each of its Subsidiaries, and its
successors.
(h) "Consultant" shall mean any person who is engaged by the
Company or any Subsidiary to render consulting services and is
compensated for such services.
(i) "Employee" shall mean any person who is an employee of
the Company or any Subsidiary within the meaning of Section 3401(c)
of the Code and the applicable interpretive authority thereunder.
(j) "Exchange Act" shall mean the Securities Exchange Act of
1934, as amended from time to time.
(k) the "Fair Market Value" of a share of Common Stock on any
date shall be (i) the closing sales price on the immediately
preceding business day of a share of Common Stock as reported on
the principal securities exchange on which shares of Common Stock
are then listed or admitted to trading or (ii) if not so reported,
the average of the closing bid and asked prices for a share of
Common Stock on the immediately preceding business day as quoted on
the National Association of Securities Dealers Automated Quotation
System ("NASDAQ") or (iii) if not quoted on NASDAQ, the average of
the closing bid and asked prices for a share of Common Stock as
quoted by the National Quotation Bureau's "Pink Sheets" or the
National Association of Securities Dealers' OTC Bulletin Board
System. If the price of a share of Common Stock shall not be so
reported, the Fair Market Value of a share of Common Stock shall be
determined by the Committee in its absolute discretion.
(l) "Incentive Award" shall mean an Option, a share of
Restricted Stock, a Performance Award, a share of Phantom Stock, a
Stock Bonus or Cash Bonus granted pursuant to the terms of the
Plan.
(m) "Incentive Stock Option" shall mean an Option which is an
"incentive stock option" within the meaning of Section 422 of the
Code and which is identified as an Incentive Stock Option in the
agreement by which it is evidenced.
(n) "Issue Date" shall mean the date established by the
Committee on which certificates representing shares of Restricted
Stock shall be issued by the Company pursuant to the terms of
Section 7(d) hereof.
(o) "Non-Qualified Stock Option" shall mean an Option which
is not an Incentive Stock Option and which is identified as a
Non-Qualified Stock Option in the agreement by which it is
evidenced.
(p) "Option" shall mean an option to purchase shares of
Common Stock of the Company granted pursuant to Section 6 hereof.
Each Option shall be identified as either an Incentive Stock Option
or a Non-Qualified Stock Option in the agreement by which it is
evidenced.
(q) "Parent" shall mean a "parent corporation" of the
Company, whether now or hereafter existing, as defined in Section
424(e) of the Code.
(r) "Participant" shall mean an Employee or Consultant who is
eligible to participate in the Plan and to whom an Incentive Award
is granted pursuant to the Plan, and, upon his death, his
successors, heirs, executors and administrators, as the case may
be, to the extent permitted hereby.
(s) "Performance Award" shall mean an award payable in cash
or Common Stock, which award is granted pursuant to Section 8
hereof and subject to the terms and conditions contained therein.
(t) "Person" shall mean a "person," as such term is used in
Sections 13(d) and 14(d) of the Exchange Act, and the rules and
regulations in effect from time to time thereunder.
(u) a share of "Phantom Stock" shall represent the right to
receive in cash the Fair Market Value of a share of Common Stock of
the Company, which right is granted pursuant to Section 9 hereof
and subject to the terms and conditions contained therein.
(v) "Plan" shall mean the Midcoast Energy Resources, Inc.
1996 Incentive Stock Plan, as it may be amended from time to time.
(w) a share of "Restricted Stock" shall mean a share of
Common Stock which is granted pursuant to the terms of Section 7
hereof and which is subject to the restrictions set forth in
Section 7(c) hereof for so long as such restrictions continue to
apply to such share.
(x) "Securities Act" shall mean the Securities Act of 1933,
as amended from time to time.
(y) "Stock Bonus" shall mean a grant of a bonus payable in
shares of Common Stock pursuant to Section 10 hereof.
(z) "Subsidiary" or "Subsidiaries" shall mean any and all
corporations in which at the pertinent time the Company owns,
directly or indirectly, stock vested with more than 50% of the
total combined voting power of all classes of stock of such
corporations within the meaning of Section 424(f) of the Code.
(aa) "Vesting Date" shall mean the date established by the
Committee on which a share of Restricted Stock or Phantom Stock may
vest.
3. Stock Subject to the Plan
Under the Plan, the Committee may grant to Participants: (i)
Options; (ii) shares of Restricted Stock; (iii) Performance Awards;
(iv) shares of Phantom Stock; (v) Stock Bonuses; and (vi) Cash
Bonuses.
The Committee may grant Options, shares of Restricted Stock,
Performance Awards, shares of Phantom Stock and Stock Bonuses under
the Plan with respect to a number of shares of Common Stock that in
the aggregate at any time does not exceed 200,000 shares of Common
Stock, subject to adjustment pursuant to Section 12 hereof. The
grant of a Cash Bonus shall not reduce the number of shares of
Common Stock with respect to which Options, shares of Restricted
Stock, Performance Awards, shares of Phantom Stock or Stock Bonuses
may be granted pursuant to the Plan. Notwithstanding any provision
in the Plan to the contrary, the maximum number of shares of Common
Stock that may be subject to Incentive Awards granted to any one
individual during any calendar year shall be 50,000 shares of
Common Stock, subject to adjustment under Section 12 hereof. The
limitation set forth in the preceding sentence shall be applied in
a manner which will permit compensation generated in connection
with the exercise of Options and the payment of Performance Awards
to constitute "qualified performance-based compensation" for
purposes of Section 162(m) of the Code, including, without
limitation, counting against such maximum number of shares, to the
extent required under Section 162(m) of the Code and applicable
interpretive authority thereunder, any shares subject to Options
that are canceled or repriced.
If any outstanding Option expires, terminates or is canceled
for any reason, the shares of Common Stock subject to the
unexercised portion of such Option shall again be available for
grant under the Plan. If any shares of Restricted Stock or Phantom
Stock, or any shares of Common Stock granted as a Performance Award
or a Stock Bonus are forfeited or canceled for any reason, such
shares shall again be available for grant under the Plan.
Shares of Common Stock issued under the Plan may be either
newly issued or treasury shares, at the discretion of the
Committee.
4. Administration of the Plan
The Plan shall be administered by a Committee of the Board of
Directors consisting of two or more persons, each of whom shall be
both (i) a "disinterested person" within the meaning of Rule
16b-3(c)(2)(i) promulgated under Section 16 of the Exchange Act and
(ii) an "outside director" within the meaning of Section 162(m) of
the Code and applicable interpretive authority thereunder. The
Committee shall from time to time designate the key Employees and
Consultants of the Company who shall be granted Incentive Awards
and the amount and type of such Incentive Awards.
The Committee shall have full authority to administer the
Plan, including authority to interpret and construe any provision
of the Plan and the terms of any Incentive Award issued under it
and to adopt such rules and regulations for administering the Plan
as it may deem necessary. Decisions of the Committee shall be
final and binding on all parties.
The Committee may, in its absolute discretion (i) accelerate
the date on which any Option granted under the Plan becomes
exercisable, (ii) extend the date on which any Option granted under
the Plan ceases to be exercisable, (iii) accelerate the Vesting
Date or Issue Date, or waive any condition imposed pursuant to
Section 7(b) hereof, with respect to any share of Restricted Stock
granted under the Plan and (iv) accelerate the Vesting Date or
waive any condition imposed pursuant to Section 9 hereof, with
respect to any share of Phantom Stock granted under the Plan.
In addition, the Committee may, in its absolute discretion,
grant Incentive Awards to Participants on the condition that such
Participants surrender to the Committee for cancellation such other
Incentive Awards (including, without limitation, Incentive Awards
with higher exercise prices) as the Committee specifies.
Notwithstanding Section 3 hereof, Incentive Awards granted on the
condition of surrender of outstanding Incentive Awards shall not
count against the limits set forth in such Section 3 until such
time as such Incentive Awards are surrendered.
Except as provided in Section 6(e)(4) hereof, whether an
authorized leave of absence, or absence in military or government
service, shall constitute termination of employment shall be
determined by the Committee in its absolute discretion.
No member of the Committee shall be liable for any action,
omission, or determination relating to the Plan, and the Company
shall indemnify and hold harmless each member of the Committee and
each other director or employee of the Company to whom any duty or
power relating to the administration or interpretation of the Plan
has been delegated from and against any cost or expense (including
attorneys' fees) or liability (including any sum paid in settlement
of a claim with the approval of the Committee) arising out of any
action, omission or determination relating to the Plan, unless, in
either case, such action, omission or determination was taken or
made by such member, director or employee in bad faith and without
reasonable belief that it was in the best interests of the Company.
5. Eligibility
The persons who shall be eligible to receive Incentive Awards
pursuant to the Plan shall be those Employees who are largely
responsible for the management, growth and protection of the
business of the Company or any Subsidiary (including officers of
the Company, whether or not they are directors of the Company) or
(ii) any Consultant, as the Committee, in its absolute discretion,
shall select from time to time; provided, however, Incentive Stock
Options may only be granted to Employees.
6. Options
The Committee may grant Options pursuant to the Plan, which
Options shall be evidenced by agreements in such form as the
Committee shall from time to time approve. Options shall comply
with and be subject to the following terms and conditions:
(a) Identification of Options
All Options granted under the Plan shall be clearly identified
in the agreement evidencing such Options as either Incentive Stock
Options or as Non-Qualified Stock Options.
(b) Exercise Price
The exercise price of any Option granted under the Plan shall
be such price as the Committee shall determine on the date on which
such Option is granted; provided, that such price shall be not less
than 100% of the Fair Market Value of a share of Common Stock on
the date on which such Option is granted, subject to (i) the
restrictions provided in Section 6(d) hereof and (ii) the
adjustments provided in Section 12 hereof.
(c) Term and Exercise of Options
(1) Each Option shall be exercisable on such date or
dates, during such period and for such number of shares of
Common Stock as shall be determined by the Committee on the
day on which such Option is granted and set forth in the
agreement evidencing the Option; provided, however, that (A)
subject to the restrictions provided in Section 6(d) hereof,
no Option shall be exercisable after the expiration of ten
years from the date such Option was granted and (B) no Option
shall be exercisable until six months after the date of grant;
and, provided, further, that each Option shall be subject to
earlier termination, expiration or cancellation as provided in
the Plan.
(2) Each Option shall be exercisable in whole or in part
with respect to whole shares of Common Stock. The partial
exercise of an Option shall not cause the expiration,
termination or cancellation of the remaining portion thereof.
Upon the partial exercise of an Option, the agreement
evidencing such Option shall be returned to the Participant
exercising such Option together with the delivery of the
certificates described in Section 6(c)(5) hereof.
(3) An Option shall be exercised by delivering notice to
the Company's principal office, to the attention of its
Secretary, no fewer than five business days in advance of the
effective date of the proposed exercise. Such notice shall be
accompanied by the agreement evidencing the Option, shall
specify the number of shares of Common Stock with respect to
which the Option is being exercised and the effective date of
the proposed exercise, and shall be signed by the Participant.
The Participant may withdraw such notice at any time prior to
the close of business on the business day immediately
preceding the effective date of the proposed exercise, in
which case such agreement shall be returned to the
Participant. Payment for shares of Common Stock purchased
upon the exercise of an Option shall be made on the effective
date of such exercise either (i) in cash, by certified check,
bank cashier's check or wire transfer, (ii) subject to the
approval of the Committee, in shares of Common Stock owned by
the Participant and valued at their Fair Market Value on the
effective date of such exercise, (iii) subject to the approval
of the Committee, in the form of a "cashless exercise" (as
described below) or (iv) subject to the approval of the
Committee, in any combination of the foregoing. Any payment
in shares of Common Stock shall be effected by the delivery of
such shares to the Secretary of the Company, duly endorsed in
blank or accompanied by stock powers duly executed in blank,
together with any other documents and evidences as the
Secretary of the Company shall require from time to time.
The cashless exercise of an Option shall be pursuant to
procedures whereby the Participant by written notice, directs
(i) an immediate market sale or margin loan respecting all or
a part of the shares of Common Stock to which he is entitled
upon exercise pursuant to an extension of credit by the
Company to the Participant of the exercise price, (ii) the
delivery of the shares of Common Stock directly from the
Company to a brokerage firm and (iii) delivery of the exercise
price from the sale or the margin loan proceeds from the
brokerage firm directly to the Company.
(4) Any Option granted under the Plan may be exercised
by a broker-dealer acting on behalf of a Participant if (i)
the broker-dealer has received from the Participant or the
Company a duly endorsed agreement evidencing such Option and
instructions signed by the Participant requesting the Company
to deliver the shares of Common Stock subject to such Option
to the broker-dealer on behalf of the Participant and
specifying the account into which such shares should be
deposited, (ii) adequate provision has been made with respect
to the payment of any withholding taxes due upon such exercise
and (iii) the broker-dealer and the Participant have otherwise
complied with Section 220.3(e)(4) of Regulation T, 12 CFR Part
220.
(5) Certificates for shares of Common Stock purchased
upon the exercise of an Option shall be issued in the name of
the Participant and delivered to the Participant as soon as
practicable following the effective date on which the Option
is exercised; provided, however, that such delivery shall be
effected for all purposes when a stock transfer agent of the
Company shall have deposited such certificates in the United
States mail, addressed to the Participant.
(6) During the lifetime of a Participant each Option
granted to him shall be exercisable only by him or a broker-
dealer acting on behalf of such Participant pursuant to
Section 6(c)(4) hereof. No Option shall be assignable or
transferable otherwise than by will or by the laws of descent
and distribution.
(d) Limitations on Grant of Incentive Stock Options
(1) The aggregate Fair Market Value of shares of Common
Stock with respect to which "incentive stock options" (within
the meaning of Section 422 without regard to Section 422(d) of
the Code) are exercisable for the first time by a Participant
during any calendar year under the Plan (and any other stock
option plan of the Company, or of its Parent or any
Subsidiary) shall not exceed $100,000. Such Fair Market Value
shall be determined as of the date on which each such
Incentive Stock Option is granted. If such aggregate Fair
Market Value of shares of Common Stock underlying such
Incentive Stock Options exceeds $100,000, then Incentive Stock
Options granted hereunder to such Participant shall, to the
extent and in the order required by regulations promulgated
under the Code (or any other authority having the force of
such regulations), automatically be deemed to be Non-Qualified
Stock Options, but all other terms and provisions of such
Incentive Stock Options shall remain unchanged. In the
absence of such regulations promulgated under the Code (and
authority), or if such regulations (or authority) require or
permit a designation of the options which shall cease to
constitute Incentive Stock Options, Incentive Stock Options
shall, to the extent of such excess and in the order in which
they were granted, automatically be deemed to be Non-Qualified
Stock Options, but all other terms and provisions of such
Incentive Stock Options shall remain unchanged.
(2) No Incentive Stock Option may be granted to an
individual if, at the time of the proposed grant, such
individual owns stock possessing more than ten percent of the
total combined voting power of all classes of stock of the
Company or of its Parent or any Subsidiary, unless (i) the
exercise price of such Incentive Stock Option is at least 110%
of the Fair Market Value of a share of Common Stock at the
time such Incentive Stock Option is granted and (ii) such
Incentive Stock Option is not exercisable after the expiration
of five years from the date such Incentive Stock Option is
granted.
(e) Effect of Termination of Employment
(1) If the employment of a Participant with the Company
shall terminate for any reason other than Cause, "permanent
and total disability" (within the meaning of Section 22(e)(3)
of the Code) or the death of the Participant (i) Options
granted to such Participant, to the extent that they were
exercisable at the time of such termination, shall remain
exercisable until the expiration of one month after such
termination, on which date they shall expire, and (ii) Options
granted to such Participant, to the extent that they were not
exercisable at the time of such termination, shall expire at
the close of business on the date of such termination;
provided, however, that no Option shall be exercisable after
the expiration of its term.
(2) If the employment of a Participant with the Company
shall terminate as a result of the "permanent and total
disability" (within the meaning of Section 22(e)(3) of the
Code) or the death of the Participant (i) Options granted to
such Participant, to the extent that they were exercisable at
the time of such termination, shall remain exercisable until
the expiration of one year after such termination, on which
date they shall expire, and (ii) Options granted to such
Participant, to the extent that they were not exercisable at
the time of such termination, shall expire at the close of
business on the date of such termination; provided, however,
that no Option shall be exercisable after the expiration of
its term.
(3) In the event of the termination of a Participant's
employment for Cause, all outstanding Options granted to such
Participant shall expire at the commencement of business on
the date of such termination.
(4) A Participant's employment with the Company shall be
deemed terminated if the Participant's leave of absence
(including military or such leave or other bona fide leave of
absence) extends for more than 90 days and the Participant's
continued employment with the Company is not guaranteed by
contract or statute.
(f) Acceleration of Exercise Date Upon Change in Control
Upon the occurrence of a Change in Control, each Option
granted under the Plan and outstanding at such time shall become
fully and immediately exercisable and shall remain exercisable
until its expiration, termination or cancellation pursuant to the
terms of the Plan.
7. Restricted Stock
The Committee may grant shares of Restricted Stock pursuant to
the Plan. Each grant of shares of Restricted Stock shall be
evidenced by an agreement in such form as the Committee shall from
time to time approve. Each grant of shares of Restricted Stock
shall comply with and be subject to the following terms and
conditions:
(a) Issue Date and Vesting Date
At the time of the grant of shares of Restricted Stock, the
Committee shall establish an Issue Date or Issue Dates and a
Vesting Date or Vesting Dates with respect to such shares. The
Committee may divide such shares into classes and assign a
different Issue Date and/or Vesting Date for each class. Except as
provided in Sections 7(c) and 7(f) hereof, upon the occurrence of
the Issue Date with respect to a share of Restricted Stock, a share
of Restricted Stock shall be issued in accordance with the
provisions of Section 7(d) hereof. Provided that all conditions to
the vesting of a share of Restricted Stock imposed pursuant to
Section 7(b) hereof are satisfied, and except as provided in
Sections 7(c) and 7(f) hereof, upon the occurrence of the Vesting
Date with respect to a share of Restricted Stock, such share shall
vest and the restrictions of Section 7(c) hereof shall cease to
apply to such share.
(b) Conditions to Vesting
At the time of the grant of shares of Restricted Stock, the
Committee may impose such restrictions or conditions, not
inconsistent with the provisions hereof, to the vesting of such
shares as it in its absolute discretion deems appropriate. By way
of example and not by way of limitation, the Committee may require,
as a condition to the vesting of any class or classes of shares of
Restricted Stock, that (i) the Participant or the Company achieve
certain performance criteria, such criteria to be specified by the
Committee at the time of the grant of such shares and (ii)
prohibiting an election by the Participant under Section 83(b) of
the Code.
(c) Restrictions on Transfer Prior to Vesting
Prior to the vesting of a share of Restricted Stock, no
transfer of a Participant's rights with respect to such share,
whether voluntary or involuntary, by operation of law or otherwise,
shall vest the transferee with any interest or right in or with
respect to such share, but immediately upon any attempt to transfer
such rights, such share, and all of the rights related thereto,
shall be forfeited by the Participant and the transfer shall be of
no force or effect.
(d) Issuance of Certificates
(1) Except as provided in Sections 7(c) or 7(f) hereof,
reasonably promptly after the Issue Date with respect to
shares of Restricted Stock, the Company shall cause to be
issued a stock certificate, registered in the name of the
Participant to whom such shares were granted, evidencing such
shares; provided, that the Company shall not cause to be
issued such a stock certificates unless it has received a
stock power duly endorsed in blank with respect to such
shares. Each such stock certificate shall bear the following
legend:
The transferability of this certificate and
the shares of stock represented hereby are
subject to the restrictions, terms and
conditions (including forfeiture and
restrictions against transfer) contained in
the Midcoast Energy Resources, Inc. 1996
Incentive Stock Plan and an Agreement entered
into between the registered owner of such
shares and Midcoast Energy Resources, Inc. A
copy of the Plan and Agreement is on file in
the office of the Secretary of Midcoast Energy
Resources, Inc., 1100 Louisiana, Suite 2950,
Houston, Texas 77002.
Such legend shall not be removed from the certificate
evidencing such shares until such shares vest pursuant to the
terms hereof.
(2) Each certificate issued pursuant to Paragraph
7(d)(1) hereof, together with the stock powers relating to the
shares of Restricted Stock evidenced by such certificate,
shall be held by the Company. The Company shall issue to the
Participant a receipt evidencing the certificates held by it
which are registered in the name of the Participant.
(e) Consequences Upon Vesting
Upon the vesting of a share of Restricted Stock pursuant to
the terms hereof, the restrictions of Section 7(c) hereof shall
cease to apply to such share. Reasonably promptly after a share of
Restricted Stock vests pursuant to the terms hereof, the Company
shall cause to be issued and delivered to the Participant to whom
such shares were granted, a certificate evidencing such share, free
of the legend set forth in Paragraph 7(d)(1) hereof, together with
any other property of the Participant held by Company pursuant to
Section 12(a) hereof; provided, however, that such delivery shall
be effected for all purposes when the Company shall have deposited
such certificate and other property in the United States mail,
addressed to the Participant.
(f) Effect of Termination of Employment
(1) If the employment of a Participant with the Company
shall terminate for any reason other than Cause prior to the
vesting of shares of Restricted Stock granted to such
Participant, a portion of such shares, to the extent not
forfeited or canceled on or prior to such termination pursuant
to any provision hereof, shall vest on the date of such
termination. The portion referred to in the preceding
sentence shall be determined by the Committee at the time of
the grant of such shares of Restricted Stock and may be based
on the achievement of any conditions imposed by the Committee
with respect to such shares pursuant to Section 7(b) hereof.
Such portion may equal zero.
(2) In the event of the termination of a Participant's
employment for Cause, all shares of Restricted Stock granted
to such Participant which have not vested as of the
commencement of business on the date of such termination shall
immediately be forfeited.
(g) Effect of Change in Control
Upon the occurrence of a Change in Control, all shares of
Restricted Stock which have not theretofore vested (including those
with respect to which the Issue Date has not yet occurred) shall
immediately vest.
8. Performance Awards
The Committee may grant Performance Awards pursuant to the
Plan. Each grant of Performance Awards shall be evidenced by an
agreement in such form as the Committee shall from time to time
approve. Each grant of Performance Awards shall comply with and be
subject to the following terms and conditions:
(a) Performance Period and Performance Award
(1) With respect to each grant of a Performance Award,
the Committee shall establish a performance period over which
the performance of the applicable Participant shall be
measured.
(2) In determining the amount of the Performance Award
to be granted to a particular Participant, the Committee may
take into account such factors as the Participant's
responsibility level and growth potential, the amount of other
Incentive Awards granted or received by such Participant, and
such other considerations as the Committee deems appropriate.
Each Performance Award shall be subject to a maximum value as
established by the Committee at the time of grant of such
award; provided, however, the maximum value that can be
granted as a Performance Award to any one individual during
any calendar year is $1,000,000.
(b) Performance Measures
A Performance Award shall be awarded to a Participant
contingent upon future performance of the Company (or any
Subsidiary, division or department thereof) by or in which the
Participant is employed or responsible during the performance
period. The Committee shall establish, in writing, the performance
measures applicable to such performance within 90 days after the
commencement of the performance period, to which such measures
relate, and at a time when the outcome of such performance measures
are substantially uncertain within the meaning of Section 162(m) of
the Code, subject to such later revisions as the Committee shall
deem appropriate to reflect significant unforeseen events or
changes.
(c) Payment
Upon the expiration of the performance period relating to a
Performance Award granted to a Participant, such Participant shall
be entitled to receive payment of an amount not exceeding the
maximum value of the Performance Award, based on the achievement of
the performance measures for such performance period, as determined
by the Committee. The Committee shall certify in writing prior to
the payment of a Performance Award that the applicable performance
measures and any other material terms of the grant have been
satisfied. Subject to Section 3 hereof, payment of a Performance
Award may be made in cash, Common Stock or a combination thereof,
as determined by the Committee. Payment shall be made in a lump
sum or in installments as prescribed by the Committee. Any payment
to be made in Common Stock shall be based on the Fair Market Value
of the Common Stock on the payment date.
(d) Effect of Termination of Employment
If the employment of a Participant shall terminate for any
reason prior to the expiration of the applicable performance
period, the Performance Awards relating to such performance period,
shall immediately be forfeited as of the commencement of business
on the date of such termination, except as may be determined by the
Committee in its sole and absolute discretion, or as may be
otherwise provided in the agreement evidencing such Performance
Award.
(e) Effect of Change in Control
Upon the occurrence of a Change in Control, the Committee (as
constituted immediately prior to such Change in Control) shall
determine, in its sole discretion, whether Performance Awards,
which have not theretofore satisfied the requisite performance
measure or for which the performance period has not expired, shall
immediately be paid or whether such Performance Awards shall remain
outstanding according to its respective terms.
9. Phantom Stock
The Committee may grant shares of Phantom Stock pursuant to
the Plan. Each grant of shares of Phantom Stock shall be evidenced
by an agreement in such form as the Committee shall from time to
time approve. Each grant of shares of Phantom Stock shall comply
with and be subject to the following terms and conditions:
(a) Vesting Date
At the time of the grant of shares of Phantom Stock, the
Committee shall establish a Vesting Date or Vesting Dates with
respect to such shares. The Committee may divide such shares into
classes and assign a different Vesting Date for each class.
Provided that all conditions to the vesting of a share of Phantom
Stock imposed pursuant to Section 9(c) hereof are satisfied, and
except as provided in Section 9(d) hereof, upon the occurrence of
the Vesting Date with respect to a share of Phantom Stock, such
share shall vest.
(b) Benefit Upon Vesting
Upon the vesting of a share of Phantom Stock, a Participant
shall be entitled to receive in cash, within 90 days of the date on
which such share vests, an amount in cash in a lump sum equal to
the sum of (i) the Fair Market Value of a share of Common Stock of
the Company on the date on which such share of Phantom Stock vests
and (ii) the aggregate amount of cash dividends paid with respect
to a share of Common Stock of the Company during the period
commencing on the date on which the share of Phantom Stock was
granted and terminating on the date on which such share vests.
(c) Conditions to Vesting
At the time of the grant of shares of Phantom Stock, the
Committee may impose such restrictions or conditions, not
inconsistent with the provisions hereof, to the vesting of such
shares as it, in its absolute discretion deems appropriate. By way
of example and not by way of limitation, the Committee may require,
as a condition to the vesting of any class or classes of shares of
Phantom Stock, that the Participant or the Company achieve certain
performance criteria, such criteria to be specified by the
Committee at the time of the grant of such shares.
(d) Effect of Termination of Employment
(1) If the employment of a Participant with the Company
shall terminate for any reason other than Cause prior to the
vesting of shares of Phantom Stock granted to such Participant
a portion of such shares, to the extent not forfeited or
canceled on or prior to such termination pursuant to any
provision hereof, shall vest on the date of such termination.
The portion referred to in the preceding sentence shall be
determined by the Committee at the time of the grant of such
shares of Phantom Stock and may be based on the achievement of
any conditions imposed by the Committee with respect to such
shares pursuant to Section 9(c) hereof. Such portion may
equal zero.
(2) In the event of the termination of a Participant's
employment for Cause, all shares of Phantom Stock granted to
such Participant which have not vested as of the date of such
termination shall immediately be forfeited.
(e) Effect of Change in Control
Upon the occurrence of a Change in Control, all shares of
Phantom Stock which have not theretofore vested shall immediately
vest.
10. Stock Bonuses
The Committee may, in its absolute discretion, grant Stock
Bonuses in such amounts as it shall determine from time to time.
A Stock Bonus shall be paid at such time and subject to such
conditions as the Committee shall determine at the time of the
grant of such Stock Bonus. Certificates for shares of Common Stock
granted as a Stock Bonus shall be issued in the name of the
Participant to whom such grant was made and delivered to such
Participant as soon as practicable after the date on which such
Stock Bonus is required to be paid.
11. Cash Bonuses
The Committee may, in its absolute discretion, grant in
connection with any grant of Restricted Stock or shares of Common
Stock granted as a Performance Award or Stock Bonus or at any time
thereafter, a cash bonus, payable promptly after the date on which
the Participant is required to recognize income for federal income
tax purposes in connection with such Restricted Stock, Performance
Award or Stock Bonus, in such amounts as the Committee shall
determine from time to time; provided, however, that in no event
shall the amount of a Cash Bonus exceed the Fair Market Value of
the related shares of Restricted Stock or shares of Common Stock
granted pursuant to a Performance Award or Stock Bonus on such
date. A Cash Bonus shall be subject to such conditions as the
Committee shall determine at the time of the grant of such Cash
Bonus.
12. Adjustment Upon Changes in Common Stock
(a) Outstanding Restricted Stock, Performance Awards, and
Phantom Stock
Unless the Committee in its absolute discretion otherwise
determines, if a Participant receives any securities or other
property (including dividends paid in cash) with respect to a
share of Restricted Stock, the Issue Date with respect to which
occurs prior to such event, but which has not vested as of the date
of such event, as a result of any dividend, stock split
recapitalization, merger, consolidation, combination, exchange of
shares or otherwise, such securities or other property will not
vest until such share of Restricted Stock vests, and shall be held
by the Company pursuant to Paragraph 7(d)(2) hereof as if such
securities or other property were unvested shares of Restricted
Stock.
The Committee may, in its absolute discretion, adjust any
grant of shares of Restricted Stock, the Issue Date with respect to
which has not occurred as of the date of the occurrence of any of
the following events, any shares of Common Stock upon the grant of
a Performance Award or any grant of shares of Phantom Stock, to
reflect any dividend, stock split, recapitalization, merger,
consolidation, combination, exchange of shares or similar corporate
change as the Committee may deem appropriate to prevent the
enlargement or dilution of rights of Participants under the grant.
(b) Stock Subject to Plan, Outstanding Options,
Increase or Decrease in Issued Shares Without
Consideration
Subject to any required action by the stockholders of the
Company, in the event of any increase or decrease in the number of
issued shares of Common Stock resulting from a subdivision or
consolidation of shares of Common Stock or the payment of a stock
dividend (but only on the shares of Common Stock), or any other
increase or decrease in the number of such shares effected without
receipt of consideration by the Company, the Committee shall
proportionally adjust (i) the number of shares of Common Stock for
which Incentive Awards may be granted under the Plan and (ii) the
number of shares and the exercise price per share of Common Stock
subject to each outstanding Option.
(c) Outstanding Options, Certain Mergers
Subject to any required action by the stockholders of the
Company, if the Company shall be the surviving corporation in any
merger or consolidation (except a merger or consolidation as a
result of which the holders of shares of Common Stock receive
securities of another corporation), each Option outstanding on the
date of such merger or consolidation shall entitle the Participant
to acquire upon exercise the securities which a holder of the
number of shares of Common Stock subject to such Option would have
received in such merger or consolidation.
(d) Outstanding Options, Certain Other Transactions
In the event of a dissolution or liquidation of the Company,
a sale of all or substantially all of the Company's assets, a
merger or consolidation involving the Company in which the Company
is not the surviving corporation or a merger or consolidation
involving the Company in which the Company is the surviving
corporation but the holders of shares of Common Stock receive
securities of another corporation and/or other property, including
cash, the Committee shall, in its absolute discretion, have the
power to:
(i) cancel, effective immediately prior to the
occurrence of such event, each Option outstanding immediately
prior to such event (whether or not then exercisable), and, in
full consideration of such cancellation, pay to the
Participant to whom such Option was granted an amount in cash,
for each share of Common Stock subject to such Option equal to
the excess of (A) the value, as determined by the Committee in
its absolute discretion, of the property (including cash)
received by the holder of a share of Common Stock as a result
of such event over (B) the exercise price of such Option; or
(ii) provide for the exchange of each Option outstanding
immediately prior to such event (whether or not then
exercisable) for an option on some or all of the property for
which such Option is exchanged and, incident thereto, make an
equitable adjustment as determined by the Committee in its
absolute discretion in the exercise price of the option, or
the number of shares or amount of property subject to the
option or, if appropriate, provide for a cash payment to the
Participant to whom such Option was granted in partial
consideration for the exchange of the Option.
(e) Outstanding Options, Other Changes
In the event of any change in the capitalization of the
Company or corporate change other than those specifically referred
to in Sections 12(b), (c) or (d) hereof, the Committee may, in its
absolute discretion, make such adjustments in the number and class
of shares subject to Options outstanding on the date on which such
change occurs and in the per share exercise price of each such
Option as the Committee may consider appropriate to prevent
dilution or enlargement of rights.
(f) No Other Rights
Except as expressly provided in the Plan, no Participant shall
have any rights by reason of any subdivision or consolidation of
shares of stock of any class, the payment of any dividend, any
increase or decrease in the number of shares of stock of any class
or any dissolution, liquidation, merger or consolidation of the
Company or any other corporation. Except as expressly provided in
the Plan, no issuance by the Company of shares of stock of any
class, or securities convertible into shares of stock of any class,
shall affect, and no adjustment by reason thereof shall be made
with respect to, the number of shares of Common Stock subject to an
Incentive Award or the exercise price of any Option.
13. Rights as a Stockholder
No person shall have any rights as a stockholder with respect
to any shares of Common Stock covered by or relating to any
Incentive Award granted pursuant to this Plan until the date of the
issuance of a stock certificate with respect to such shares.
Except as otherwise expressly provided in Section 12 hereof, no
adjustment to any Incentive Award shall be made for dividends or
other rights for which the record date occurs prior to the date
such stock certificate is issued.
14. No Special Employment Rights; No Right to Incentive Award
Nothing contained in the Plan or any Incentive Award shall
confer upon any Participant any right with respect to the
continuation of his employment by the Company or interfere in any
way with the right of the Company, subject to the terms of any
separate employment agreement to the contrary, at any time to
terminate such employment or to increase or decrease the
compensation of the Participant from the rate in existence at the
time of the grant of an Incentive Award.
No person shall have any claim or right to receive an
Incentive Award hereunder. The Committee's granting of an
Incentive Award to a Participant at any time shall neither require
the Committee to grant an Incentive Award to such Participant or
any other Participant or other person at any time nor preclude the
Committee from making subsequent grants to such Participant or any
other Participant or other person.
15. Securities Matters
(a) The Company shall be under no obligation to effect the
registration pursuant to the Securities Act of any shares of Common
Stock to be issued hereunder or to effect similar compliance under
any state laws. Notwithstanding anything herein to the contrary,
the Company shall not be obligated to cause to be issued or
delivered any certificates evidencing shares of Common Stock
pursuant to the Plan unless and until the Company is advised by its
counsel that the issuance and delivery of such certificates is in
compliance with all applicable laws, regulations of governmental
authority and the requirements of any securities exchange on which
shares of Common Stock are traded. The Committee may require, as
a condition of the issuance and delivery of certificates evidencing
shares of Common Stock pursuant to the terms hereof, that the
recipient of such shares make such covenants, agreements and
representations, and that such certificates bear such legends, as
the Committee, in its sole discretion, deems necessary or
desirable.
(b) The exercise of any Option granted hereunder shall only
be effective at such time as counsel to the Company shall have
determined that the issuance and delivery of shares of Common Stock
pursuant to such exercise is in compliance with all applicable
laws, regulations of governmental authorities and the requirements
of any securities exchange on which shares of Common Stock are
traded. The Company may, in its sole discretion, defer the
effectiveness of any exercise of an Option granted hereunder in
order to allow the issuance of shares of Common Stock pursuant
thereto to be made pursuant to registration or an exemption from
registration or other methods for compliance available under
federal or state securities laws. The Company shall inform the
Participant in writing of its decision to defer the effectiveness
of the exercise of an Option granted hereunder. During the period
that the effectiveness of the exercise of an Option has been
deferred, the Participant may, by written notice, withdraw such
exercise and obtain the refund of any amount paid with respect
thereto.
(c) It is intended that the Plan and any grant of an
Incentive Award made to a person subject to Section 16 of the
Exchange Act meet all of the requirements of Rule 16b-3 promulgated
thereunder. If any provision of the Plan or any such Incentive
Award would disqualify the Plan or such Incentive Award under, or
would otherwise not comply with, Rule 16b-3, such provision or
Incentive Award shall be construed or deemed amended to conform to
Rule 16b-3 to the extent permitted by applicable law and deemed
advisable by the Board of Directors.
16. Qualified Performance-Based Compensation
It is intended that the Plan comply fully with and meet all
the requirements of Section 162(m) of the Code so that Options
granted hereunder with an exercise price not less than Fair Market
Value of a share of Common Stock on the date of grant and (ii) the
payment of a Performance Award granted hereunder, shall constitute
"qualified performance based compensation" within the meaning of
such Section and the interpretive authority thereunder. If any
provision of the Plan would disqualify the Plan or would not
otherwise permit the Plan to comply with Section 162(m) as so
intended, such provision shall be construed or deemed amended to
conform to the requirements or provisions of Section 162(m) to the
extent permitted by applicable law and deemed advisable by the
Board of Directors; provided that no such construction or amendment
shall have an adverse effect on the economic value to a Participant
of any Incentive Award previously granted hereunder.
17. Withholding Taxes
Whenever shares of Common Stock are to be issued upon the
exercise of an Option, the occurrence of the Issue Date or Vesting
Date with respect to a share of Restricted Stock, the payment of a
Performance Award in shares of Common Stock or the payment of a
Stock Bonus, the Company shall have the right to require the
Participant to remit to the Company in cash an amount sufficient to
satisfy federal, state and local withholding tax requirements, if
any, attributable to such exercise, occurrence or payment prior to
the delivery of any certificate or certificates for such shares.
In addition, upon the grant of a Cash Bonus, the payment of a
Performance Award or the making of a payment with respect to a
share of Phantom Stock, the Company shall have the right to
withhold from any cash payment required to be made pursuant thereto
an amount sufficient to satisfy the federal, state and local
withholding tax requirements, if any, attributable to such exercise
or grant.
18. Amendment of the Plan
The Board of Directors may at any time suspend or discontinue
the Plan or revise or amend it in any respect whatsoever, provided,
however, that without approval of the stockholders no revision or
amendment shall (i) except as provided in Section 12 hereof,
increase the number of shares of Common Stock that may be issued
under the Plan, (ii) except as provided in Section 12 hereof,
increase the maximum number of shares of Common Stock that may be
subject to an Incentive Award granted to any one individual for any
calendar year, (iii) increase the maximum value that can be awarded
as a Performance Award, (iv) materially increase the benefits
accruing to individuals holding Incentive Awards granted pursuant
to the Plan, (v) materially modify the requirements as to
eligibility for participation in the Plan, (vi) extend the term of
the Plan or (vii) decrease any authority granted to the Committee
under the Plan in contravention of Rule 16b-3 under the Exchange
Act.
19. No Obligation to Exercise
The grant to a Participant of an Option shall impose no
obligation upon such Participant to exercise such Option.
20. Transfers Upon Death
Upon the death of a Participant, outstanding Incentive Awards
granted to such Participant may be exercised only by the executors
or administrators of the Participant's estate or by any person or
persons who shall have acquired such right to exercise by will or
by the laws of descent and distribution. No transfer by will or
the laws of descent and distribution of any Incentive Award, or the
right to exercise any Incentive Award, shall be effective to bind
the Company unless the Committee shall have been furnished with (a)
written notice thereof and with a copy of the will and/or such
evidence as the Committee may deem necessary to establish the
validity of the transfer and (b) an agreement by the transferee to
comply with all the terms and conditions of the Incentive Award
that are or would have been applicable to the Participant and to be
bound by the acknowledgments made by the Participant in connection
with the grant of the Incentive Award.
21. Expenses and Receipts
The expenses of the Plan shall be paid by the Company. Any
proceeds received by the Company in connection with any Incentive
Award will be used for general corporate purposes.
22. Failure to Comply
In addition to the remedies of the Company elsewhere provided
for herein, failure by a Participant to comply with any of the
terms and conditions of the Plan or the agreement executed by such
Participant evidencing an Incentive Award, unless such failure is
remedied by such Participant within ten days after having been
notified of such failure by the Committee, shall be grounds for the
cancellation and forfeiture of such Incentive Award, in whole or in
part as the Committee, in its absolute discretion, may determine.
23. Effective Date and Term of Plan
The Plan was adopted by the Board of Directors on May 13,
1996, subject to approval by the stockholders of the Company in
accordance with applicable law, the requirements of Sections 422
and 162(m) of the Code and the requirements of Rule 16b-3 under
Section 16(b) of the Exchange Act. No Incentive Award may be
granted under the Plan after May 12, 2006. Incentive Awards may be
granted under the Plan at any time prior to the receipt of such
stockholder approval; provided, however, that each such grant shall
be subject to such approval. Without limitation on the foregoing,
no Option may be exercised prior to the receipt of such approval,
no share certificate shall be issued pursuant to a grant of
Restricted Stock, Performance Award or Stock Bonus prior to the
receipt of such approval and no Cash Bonus or payment with respect
to a Performance Award or a share of Phantom Stock shall be paid
prior to the receipt of such approval. If the Plan is not so
approved prior to May 13, 1997, then the Plan and all Incentive
Awards then outstanding hereunder shall forthwith automatically
terminate and be of no force and effect.
