<PAGE>
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934.
For the quarterly period ended June 30, 1997.
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the transition period from _____________________ to ____________________.
Commission File Number 0-9147
FOUNTAIN OIL INCORPORATED
(Exact name of Registrant as Specified in its Charter)
DELAWARE 91-0881481
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
1400 BROADFIELD BLVD., SUITE 100
HOUSTON, TEXAS 77084
(Address of Principal Executive Offices)
Registrant's Telephone Number, Including Area Code: (281) 492-6992
- -------------------------------------------------------------------------------
(FORMER NAME, FORMER ADDRESS AND FORMER FISCAL YEAR,
IF CHANGED SINCE LAST REPORT)
Indicate by check whether the Registrant (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
--- ---
The number of shares outstanding of issuer's common stock on July 31, 1997 was
22,447,489.
1
<PAGE>
PART I - FINANCIAL INFORMATION
FOUNTAIN OIL INCORPORATED AND SUBSIDIARIES
ITEM 1. FINANCIAL STATEMENTS
CONDENSED CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
Unaudited
------------
JUNE 30, December 31,
1997 1996
------------ ------------
<S> <C> <C>
ASSETS
------
Current Assets:
Cash and cash equivalents $ 19,987,309 $ 31,424,064
Accounts receivable - affiliated entities 406,916 259,040
Other current assets 1,090,128 622,411
------------ ------------
Total current assets 21,484,353 32,305,515
Restricted cash 9,700,000 5,400,000
Notes receivable 190,186 190,186
Property and equipment, net 8,641,467 7,766,479
Oil and gas properties, net, full cost method
(including unevaluated amounts of $768,180
and $257,407, respectively) 1,273,376 259,338
Investment in and advances to
oil and gas ventures, net 10,877,045 8,567,563
Other assets 162,773 885,980
------------ ------------
TOTAL ASSETS $ 52,329,200 $ 55,375,061
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current Liabilities:
Accounts payable $ 520,684 $ 799,985
Accrued liabilities 645,781 1,124,425
------------ ------------
Total current liabilities 1,166,465 1,924,410
Minority interest in subsidiaries 125,936 205,380
Stockholders' Equity:
Preferred stock -- --
Common stock 2,244,749 2,216,849
Capital in excess of par value 82,040,156 80,851,120
Accumulated deficit since October 31, 1988 (33,248,106) (29,822,698)
------------ ------------
Total stockholders' equity 51,036,799 53,245,271
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 52,329,200 $ 55,375,061
============ ============
</TABLE>
See accompanying notes to unaudited condensed consolidated financial statements.
2
<PAGE>
PART I - FINANCIAL INFORMATION
FOUNTAIN OIL INCORPORATED AND SUBSIDIARIES
ITEM 1. FINANCIAL STATEMENTS
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Unaudited Unaudited
------------------------ ------------------------
Three Months Ended Six Months Ended
JUNE 30, May 31, JUNE 30, May 31,
1997 1996 1997 1996
------------------------ ------------------------
(restated) (restated)
<S> <C> <C> <C> <C>
Operating Revenues:
Consulting income $ -- $ -- $ -- $ 2,943
Oil and gas production 77,744 8,455 109,660 14,728
---------- ---------- ---------- ----------
77,744 8,455 109,660 17,671
---------- ---------- ---------- ----------
Operating Expenses:
Lease operating expense 54,070 1,295 68,050 7,491
Other direct project cost 221,556 348,493 393,853 612,217
General and administrative 763,752 541,447 2,147,379 1,630,409
Depreciation, depletion and
amortization 50,427 16,337 77,628 32,472
Impairment of oil and
gas properties -- 35,790 -- 268,790
Loss (gain) from investments
in unconsolidated
subsidiaries 715,994 (2,365) 1,364,782 (2,323)
---------- ---------- ---------- ----------
1,805,799 940,997 4,051,692 2,549,056
---------- ---------- ---------- ----------
OPERATING LOSS 1,728,055 932,542 3,942,032 2,531,385
---------- ---------- ---------- ----------
Other Income (Expense):
Interest, net 389,129 (638,214) 700,280 (934,014)
Other income (expense) (79,081) 18,564 (41,307) 30,877
Loss on disposition
of equipment (84,849) -- (221,793) --
---------- ---------- ---------- ----------
TOTAL OTHER INCOME (EXPENSE) 225,199 (619,650) 437,180 (903,137)
---------- ---------- ---------- ----------
Minority interest in loss of
consolidated subsidiary 38,618 -- 79,444 --
---------- ---------- ---------- ----------
NET LOSS $1,464,238 $1,552,192 $3,425,408 $3,434,522
========== ========== ========== ==========
Weighted average number of
common shares outstanding 22,428,500 11,185,164 22,378,146 11,039,731
---------- ---------- ---------- ----------
NET LOSS PER COMMON SHARE $ (0.07) $ (0.14) $ (0.15) $ (0.31)
========== ========== ========== ==========
</TABLE>
See accompanying notes to unaudited condensed consolidated financial statements.
3
<PAGE>
PART I - FINANCIAL INFORMATION
FOUNTAIN OIL INCORPORATED AND SUBSIDIARIES
ITEM 1. FINANCIAL STATEMENTS
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Unaudited
--------------------------------------
Six Months Ended
JUNE 30, 1997 May 31, 1996
--------------------------------------
(restated)
<S> <C> <C>
Operating activities:
Net loss $ (3,425,408) $(3,434,522)
Loss on disposition of equipment 221,793 --
Equity loss in unconsolidated subsidiaries 1,364,782 --
Minority interest in loss of consolidated subsidiary (79,444) --
Impairment of oil and gas properties -- 268,790
Depreciation, depletion and amortization 77,628 32,472
Amortization of debt issuance costs -- 833,157
Changes in assets and liabilities:
Accounts receivable (147,876) (44,828)
Other current assets (467,717) 292,289
Accounts payable (279,301) (782,076)
Accrued liabilities (478,644) 125,971
------------ -----------
NET CASH USED IN OPERATING ACTIVITIES (3,214,187) (2,708,747)
------------ -----------
Investing activities:
Restricted cash (4,300,000) --
Investments in oil and gas properties (773,610) --
Purchase of property and equipment (862,780) (233,058)
Proceeds from disposition of assets 171,150 --
Investments in and advances to oil and gas ventures (2,613,328) (1,645,426)
------------ -----------
NET CASH USED IN INVESTING ACTIVITIES (8,378,568) (1,878,484)
------------ -----------
Financing activities:
Proceeds from exercise of options 156,000 18,000
Cash provided from issuance of debentures, net -- 3,346,714
Principal payments on short term borrowings -- (92,998)
Proceeds from issuance of note payable -- 4,619,510
Proceeds from short term borrowings -- 148,551
------------ -----------
NET CASH PROVIDED BY FINANCING ACTIVITIES 156,000 8,039,777
------------ -----------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (11,436,755) 3,452,546
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 31,424,064 1,541,272
------------ -----------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 19,987,309 $ 4,993,818
============ ===========
Non cash investing and financing activities:
Issuance of common stock in connection with
investments in oil and gas ventures $ 1,060,937 $ --
============ ===========
</TABLE>
See accompanying notes to unaudited condensed consolidated financial statements.
4
<PAGE>
PART I - FINANCIAL INFORMATION
FOUNTAIN OIL INCORPORATED AND SUBSIDIARIES
ITEM 1. FINANCIAL STATEMENTS
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED JUNE 30, 1997 AND MAY 31, 1996 (UNAUDITED)
(1) General
-------
The condensed consolidated financial statements of the Company included
herein have been prepared by the Company. In the opinion of management,
the condensed consolidated financial statements include all adjustments
necessary for a fair statement of the financial position, results of
operations and cash flow for the interim period. The condensed
consolidated balance sheet as of December 31, 1996 was derived from audited
financial statements but does not include all disclosures required by
generally accepted accounting principles. Certain reclassifications were
made to the prior year periods' financial information to conform to the
current period presentation. These condensed consolidated financial
statements should be read in conjunction with the consolidated financial
statements and the notes thereto included in the Company's Report on Form
10-K for the four month transition period ended December 31, 1996 filed
with the Securities and Exchange Commission.
The Company has changed its fiscal year end from August 31 to December 31,
in order to conform to the calendar year accounting which is required for
most of the significant oil and gas projects in which the Company
participates. As the Company's fiscal year will continue to be December
31, the quarters of the current fiscal year do not coincide with the
quarters of the previous fiscal year. The Company is filing its quarterly
reports for the quarters of the current fiscal year without recasting data
for the prior fiscal year because recasting is not practicable and cannot
be cost justified. The results of operations for the three and six month
periods ended May 31, 1996 have been presented since these periods are the
most nearly comparable to the three and six month periods ended June 30,
1997 of the newly adopted fiscal year. There are no seasonal or other
factors that would affect the comparability of information or trends for
the three and six month periods ended June 30, 1997 when compared to the
three and six month periods ended May 31, 1996. The results of operations
for the three and six month periods ended June 30, 1997 are not necessarily
indicative of the results to be expected for the full fiscal year ending
December 31, 1997.
In accordance with Securities and Exchange Commission guidance published in
early 1997, the consolidated statement of operations for the fiscal year
ended August 31, 1996 was restated to reflect a $795,500 charge related to
the discount feature of the Company's 8% Convertible Subordinated
Debentures. The discount was amortized from the date of issuance to the
earliest conversion dates of such Debentures. The restatement in the three
and six month periods ended May 31, 1996 resulted in an increase to
interest expense of $528,398 and $766,468, respectively.
Participation in ventures having corporate characteristics in which the
Company's equity interest is 50% or less is accounted for using the equity
method. This applies to the Company's participation in its four present
ventures in Eastern Europe, including the Russian Federation, as well as
its participation in Focan Ltd. which holds an interest in the
5
<PAGE>
Inverness Unit in Canada.
The condensed consolidated financial statements of the Company do not give
effect to any impairment in the value of the Company's investment in,
including advances to, oil and gas properties and ventures or other
adjustments that would be necessary if financing cannot be arranged for the
development of such properties and ventures or if they are unable to
achieve profitable operations. The Company's condensed consolidated
financial statements have been prepared under the assumption of a going
concern. Failure to arrange such financing on reasonable terms or failure
of such properties and ventures to achieve profitability would have a
material adverse effect on the financial position, including realization of
assets, results of operations and cash flows of the Company and ultimately
its ability to continue as a going concern.
Oil and Gas Properties - The Company and the unconsolidated entities for
which it accounts using the equity method account for oil and gas
properties and interests under the full cost method. Under this accounting
method, costs, including a portion of internal costs associated with
property acquisition and exploration for and development of oil and gas
reserves, are capitalized within cost centers established on a country-by-
country basis. Capitalized costs within a cost center, as well as the
estimated future expenditures to develop proved reserves and estimated net
costs of dismantlement and abandonment, are amortized using the unit-of-
production method based on estimated proved oil and gas reserves. All
costs relating to production activities are charged to expense as incurred.
Capitalized oil and gas property costs, less accumulated depreciation,
depletion and amortization and related deferred income taxes, are limited
to an amount (the ceiling limitation) equal to (a) the present value
(discounted at 10%) of estimated future net revenues from the projected
production of proved oil and gas reserves, calculated at prices in effect
as of the balance sheet date (with consideration of price changes only to
the extent provided by fixed and determinable contractual arrangements),
plus (b) the lower of cost or estimated fair value of unproved and
unevaluated properties, less (c) income tax effects related to differences
in the book and tax basis of the oil and gas properties.
Recently Issued Pronouncements - In February 1997, the FASB issued
Statement of Financial Accounting Standards No. 128, Earnings Per Share
("SFAS 128") and Statement of Financial Accounting Standards No. 129,
Disclosure of Information about Capital Structure ("SFAS 129"). SFAS 128
specifies the computation of earnings per share, and SFAS 129 specifies the
presentation and disclosure requirements about an entity's capital
structure. Both SFAS 128 and SFAS 129 shall be adopted in the fourth
quarter of 1997 with restatement back to January 1, 1997. The initial
adoption of these standards is not expected to have a material effect on
the Company's earnings per share as disclosed.
(2) Other Current Assets
--------------------
Included within these figures is inventory of $192,000 and $232,000 at June
30, 1997 and December 31, 1996, respectively.
6
<PAGE>
(3) Restricted Cash
---------------
During the six month period ended June 30, 1997, the Company has pledged an
additional $4,300,000 to collateralize bank letters of credit, increasing
the restricted cash to $9,700,000 as of June 30, 1997. These letters of
credit have been used to assure repayment of borrowings under a line of
credit established by Kashtan Petroleum Ltd. ("Kashtan"), which operates
the Lelyaki Field project, under which $5,000,000 was outstanding at June
30, 1997. Kashtan utilizes such borrowings to pay Lelyaki Field project
operating costs, including repayment of costs previously paid by the
Company on behalf of Kashtan. An additional $2,350,000 has been utilized to
assure payment for drilling rig mobilization, contracting and other goods
and services, including interest, procured by Kashtan and by the joint
venture which operates the Gorisht-Kocul project. At June 30, 1997,
$2,350,000 remained available to secure future borrowings, including those
made to pay operating costs, and other obligations of oil and gas ventures
in which the Company has interests. If beneficiaries of such collateralized
bank letters of credit were to draw on the letters of credit as a result of
nonperformance by ventures of their obligations to the beneficiaries or
otherwise, the banks would, in turn, draw against the restricted cash to
reimburse themselves for amounts paid on the letters of credit. In such an
event, the amounts withdrawn from the restricted cash deposits would be
reclassified as advances to oil and gas ventures.
(4) Property and Equipment
----------------------
Property and equipment and the related accumulated depreciation at June 30,
1997 and December 31, 1996 included the following:
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1997 1996
---------- ------------
<S> <C> <C>
Equipment for electrically enhanced oil recovery $ 564,849 $ 564,849
Oilfield materials and equipment 1,077,718 --
Drilling rigs and related equipment 6,695,513 6,956,709
Office furniture, fixtures, equipment and other 973,390 850,031
---------- ----------
TOTAL PROPERTY AND EQUIPMENT 9,311,470 8,371,589
Accumulated depreciation (670,003) (605,110)
---------- ----------
NET PROPERTY AND EQUIPMENT $8,641,467 $7,766,479
========== ==========
</TABLE>
Drilling rigs and related equipment represents new or reconditioned
drilling rigs and related equipment which the Company expects to transfer
to Intergas JSC ("Intergas"), an entity in which the Company holds a 37%
interest, to use in the Maykop Field, Republic of Adygea, Russian
Federation. Such equipment is not being depreciated as the assets have not
yet been placed in service. Upon the Company's transfer of the equipment
to Intergas, the equipment would be reclassified as investments in and
advances to oil and gas ventures, with no effect on the Company's statement
of operations.
(5) Oil and Gas Properties and Investments
--------------------------------------
A summary of the Company's oil and gas properties as of June 30, 1997 and
December 31, 1996 are set out below:
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
OIL AND GAS PROPERTIES 1997 1996
- ---------------------- ----------- -----------
<S> <C> <C>
United States and Canada
Proved properties $ 1,545,947 $ 1,029,947
Unproved properties 768,180 257,407
Less: accumulated depreciation, depletion,
amortization and impairment (1,040,751) (1,028,016)
----------- -----------
TOTAL OIL AND GAS PROPERTIES, NET $ 1,273,376 $ 259,338
=========== ===========
</TABLE>
7
<PAGE>
During the first quarter of 1997, the Company purchased a 60% interest in
a heavy oil property in the Sylvan Lake area in Alberta, Canada for
approximately $1,009,000. It is anticipated that a new well will be
drilled in 1997 in which the Company's electrically enhanced oil recovery
equipment will be installed. Unevaluated properties and associated costs
included in oil and gas properties in the United States and Canada at June
30, 1997 and December 31, 1996, which are not currently being amortized,
were $768,180 and $257,407, respectively, substantially all of which relate
to the Sylvan Lake and Rocksprings Fields. The Rocksprings Field
represents $257,407 of such costs, which were incurred in fiscal 1995, and
will be evaluated on the basis of a review of production results and test
evaluations from a third party well expected to be drilled on adjoining
acreage during the second half of 1997. The Company believes that the
Rocksprings Field properties will be substantially evaluated and either
depletion will commence or the properties will be impaired at that time.
(6) Investment In and Advances to Oil and Gas Ventures
--------------------------------------------------
The amounts recorded at June 30, 1997 and December 31, 1996 as investments
in and advances to oil and gas ventures are as follows:
<TABLE>
<CAPTION>
INVESTMENTS IN AND ADVANCES TO JUNE 30, DECEMBER 31,
OIL AND GAS VENTURES 1997 1996
- -------------------------------------------------------------------------------
<S> <C> <C>
Ukraine - Lelyaki Field, Pryluki Region
through an effective 40.5% ownership of
Kashtan Petroleum Ltd. $ 2,406,071 $ 2,398,566
Adygea, Russian Federation-Maykop Field
through 37% ownership in Intergas JSC 5,466,609 4,439,213
Canada - Inverness Unit
through 50% ownership in Focan Ltd. 106,646 106,646
Albania - Gorisht-Kocul Field
through 50% ownership of joint venture 1,729,086 1,326,581
Ukraine - Stynawske Field, Boryslaw
Through 45% ownership of Boryslaw Oil Company 3,892,661 1,655,803
----------- -----------
TOTAL INVESTMENTS IN AND ADVANCES TO
OIL AND GAS VENTURES $13,601,073 $ 9,926,809
=========== ===========
EQUITY IN LOSS OF OIL AND GAS VENTURES
- --------------------------------------
Ukraine - Lelyaki Field, Pryluki Region $(1,128,676) $ (355,684)
Adygea, Russian Federation-Maykop Field (996,672) (601,366)
Canada - Inverness Unit (2,407) (2,407)
Albania - Gorisht-Kocul Field (596,273) (399,789)
Ukraine - Stynawske Field, Boryslaw -- --
----------- -----------
TOTAL EQUITY IN LOSS OF OIL AND GAS VENTURES (2,724,028) (1,359,246)
----------- -----------
TOTAL INVESTMENTS IN AND ADVANCES TO
OIL AND GAS VENTURES, NET OF EQUITY LOSS $10,877,045 $ 8,567,563
=========== ===========
</TABLE>
The investments in the table above for the Lelyaki, Maykop and Stynawske
Fields at June 30, 1997 include the market value of the Company's shares
issued in connection with the acquisition of ownership interests in the
related joint ventures of $684,375, $1,668,750 and $1,237,187,
respectively.
8
<PAGE>
The table above also includes cumulative advances that the Company has made
to its various oil and gas ventures totaling $3,886,248 at June 30, 1997
and $2,424,891 at December 31, 1996. The Company believes that such
advances will only be recoverable from future net revenue of the ventures
or credit facilities made available to the ventures through the support of
the Company.
None of the Company's oil and gas interests outside of the United States
and Canada are being amortized, pending evaluation of initial drilling
results.
(7) Stockholders' Equity
--------------------
During the six month period ended June 30, 1997, the Company issued 104,000
shares of Common Stock and received $156,000 of gross proceeds upon the
exercise of outstanding stock options entitling the holders thereof to
purchase shares of Common Stock at the exercise price of $1.50 per share.
In addition, during that period the Company issued 175,000 shares of Common
Stock valued at $1,060,937 in connection with the acquisition of its
interest in the Stynawske Field project.
(8) Commitments and Contingencies
-----------------------------
At June 30, 1997, the Company's unconditional monetary obligations
regarding the acquisition and development of its oil and gas properties and
ventures did not exceed $800,000. In addition, at that date, the Company
had contingent monetary obligations relating to the acquisition and
development of its oil and gas properties and ventures that did not exceed
$1,300,000, and the Company's contingent obligation to issue shares of its
Common Stock involved a maximum of 1,075,000 shares. The contingent
obligations are subject to the satisfaction of various conditions related
to, among other things, the achievement of specified project performance
standards.
As the Company develops current projects and undertakes additional
projects, significant additional obligations are expected to be incurred.
(9) Subsequent Event
----------------
In July 1997, the Company signed an agreement whereby the Company will
increase its interest in Focan Ltd. from 50% to 100% and in connection
therewith Focan Ltd. will relinquish its interest in the Inverness Unit in
Canada. The transaction will not have any significant effect on the
Company's financial position, results of operations and cash flow.
9
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Liquidity, Capital Resources, and Changes in Financial Condition
----------------------------------------------------------------
During the six month period ended June 30, 1997, cash and cash
equivalents decreased $11,437,000 from $31,424,000 at December 31, 1996 to
$19,987,000 on June 30, 1997. The principal elements of the decrease were (i)
$3,214,000 of net cash used in operating activities, mainly reflecting the net
loss for the period of $3,425,000, and (ii) net cash used in investing
activities of $8,379,000, including the deposit of an additional $4,300,000 in
restricted bank accounts, a net cash investment in oil and gas properties and in
property and equipment aggregating $1,465,000 (including a cash payment of
$738,000 for the acquisition of an interest in the Sylvan Lake heavy oil field),
and investments in and advances to oil and gas ventures amounting to $2,613,000.
Restricted cash, used to collateralize letter of credit facilities for
the benefit of oil and gas ventures in which the Company has interests, amounted
to $9,700,000 at the end of second quarter 1997. These letters of credit have
been used to assure repayment of borrowings under a line of credit established
by Kashtan Petroleum Ltd. ("Kashtan"), which operates the Lelyaki Field project,
under which $5,000,000 was outstanding as of June 30, 1997. Kashtan utilizes
such borrowings to pay Lelyaki Field project operating costs, including
repayment of costs previously paid by the Company on behalf of Kashtan. An
additional $2,350,000 has been utilized to assure payment for drilling rig
mobilization, contracting and other goods and services, including interest,
procured by Kashtan and by the joint venture which operates the Gorisht-Kocul
project. At June 30, 1997, $2,350,000 remained available to secure future
borrowings, including those made to pay operating costs, and other obligations
of such ventures. The ability of the Company to regain control of a portion of
the currently restricted cash and to return it to the status of a current asset
is dependent primarily upon the ability of the various ventures to pay their
obligations that are secured, directly or indirectly, by such restricted cash.
In the near term, the only source of funds for repayment by such ventures of
some or all of such obligations may be advances to such ventures by the Company
or credit facilities made available to the ventures through the support of the
Company. (The preceding sentence constitutes a forward looking statement
[hereinafter identified as "FLS"]. Each of the forward looking statements herein
is subject to various factors that could cause actual results to differ
materially from the results anticipated in such forward looking statement, as
more fully discussed under "Forward Looking Discussion".) If beneficiaries of
such collateralized bank letters of credit were to draw on the letters of credit
as a result of nonperformance by ventures of their obligations to the
beneficiaries or otherwise, the banks would, in turn, draw against the
restricted cash to reimburse themselves for amounts paid on the letters of
credit. In such an event, the amounts withdrawn from the restricted cash
deposits would be reclassified as advances to oil and gas ventures.(FLS)
Property and equipment, net, increased from $7,766,000 at December 31,
1996 to $8,641,000 at June 30, 1997, primarily as a result of the Company's
purchase of tubular goods and other oilfield equipment, acquired early in 1997
in anticipation of transferring such equipment to the relevant ventures for use
in the Maykop Field project in the Republic of Adygea, Russian Federation, and
the Gorisht-Kocul Field project in Albania. Neither project is yet in active
development. This increase was partially offset by sale of some oilfield related
equipment and depreciation charges during the period. At June 30, 1997,
$6,696,000 of the $8,641,000 of property and equipment, net, represented new or
reconditioned drilling rigs and related equipment which the Company expects to
transfer to Intergas JSC, the entity which will develop the Maykop Field and in
which the Company has a 37% interest, for use in the Maykop Field project. (FLS)
Upon transfer to such ventures, such property and equipment would be
reclassified as investments in and advances to oil and gas ventures. (FLS) Such
a transfer would have no effect on the Company's statement of operations. (FLS)
Oil and gas properties, net, increased by $1,014,000 during the six
month period
10
<PAGE>
ended June 30, 1997, principally as a result of the Company's purchase of a 60%
interest in a heavy oil property in the Sylvan Lake area in Alberta, Canada. It
is anticipated that a new well, to be financed by the Company, will be drilled
in 1997 and that the Company's electrically enhanced oil recovery equipment will
be installed in the well. (FLS)
Investments in and advances to oil and gas ventures were $3,674,000
during the six months ended June 30, 1997 as the Company continued to fund
projects in Eastern Europe, including the Russian Federation. Included in this
amount is $1,561,000 relating to the Company's acquisition of its 45% interest
in the Stynawske Field project, including $1,061,000 which relates to the
issuance of 175,000 shares of the Company's Common Stock in connection with this
acquisition. These investments and advances were partially offset by losses
during the six month period ended June 30, 1997 from investments in
unconsolidated ventures of $1,365,000.
Working capital decreased $10,063,000 from $30,381,000 at December 31,
1996 to $20,318,000 at June 30, 1997, primarily as a result of the decrease in
cash and cash equivalents during the quarter. Until the Company engages in its
next significant financing, the Company expects working capital to decrease as
it funds operations associated with its oil and gas properties and ventures and
incurs general and administrative expenses associated therewith.(FLS)
At June 30, 1997, the Company's unconditional monetary obligations
regarding the acquisition and development of oil and gas properties and ventures
did not exceed $800,000. In addition, at that date, the Company had contingent
monetary obligations relating to the acquisition and development of its oil and
gas properties and ventures that did not exceed $1,300,000, and the Company's
contingent obligation to issue shares of its Common Stock involved a maximum of
1,075,000 shares. As the Company undertakes additional projects and develops
current projects, significant additional obligations are expected to be
incurred. (FLS)
Developing the oil and gas properties and ventures in which the Company
has or expects to acquire an interest involves a multi-year effort. The Company
had working capital of $20,318,000 at June 30, 1997, and at that date $2,350,000
of credit facilities were available for unconsolidated entities resulting from
restricted cash of $9,700,000 pledged by the Company to collateralize letters of
credit to be utilized to support, directly or indirectly, developmental
expenditures by various oil and gas ventures. The Company believes that it has
the resources, including anticipated cash flows from production by some of the
oil and gas properties and ventures, to fund all planned development of oil and
gas properties and ventures during the six to nine months subsequent to June 30,
1997. (FLS) The Company also has some flexibility in postponing or reducing the
cash outlay by revising project programs or delaying specific activities. (FLS)
Further development would require substantial additional funds from external
sources. (FLS) Less than projected funding from external sources and cash flows
from production will result in a slower phasing of the development of some or
all of the properties and ventures, reducing the early investment requirements
but delaying the anticipated production build up. (FLS)
The Company generally has the principal responsibility for arranging
financing for the oil and gas properties and ventures in which it has an
interest. The Company believes that it will be able to access external sources
of funds to finance the net development costs of such
11
<PAGE>
properties and ventures through a combination of debt financing by the Company
or the joint ventures or other entities that are developing the oil and gas
properties, equity financing by the Company or otherwise. (FLS) Debt financing
will be sought from both international development agencies, such as the
European Bank for Reconstruction and Development, and conventional lenders.
(FLS) To the extent loans are taken in the entities through which oil and gas
ventures have been organized, it is likely that the Company will be required to
continue to guarantee or otherwise provide credit enhancements with respect to
all or a portion of such loans, at least until such ventures demonstrate
economic self-sufficiency. (FLS) There can be no assurance, however, that the
Company or any such entity will be able to arrange the financing necessary to
develop the projects being undertaken or to support the corporate and other
activities of the Company or that such equity or debt financing made available
will be on terms that are acceptable to the Company or such entities or are
deemed to be in the best interest of the Company and its stockholders or the
participants, including the Company, in such entities. (FLS)
Recovery of the carrying value of the Company's oil and gas properties
and investments in and advances to oil and gas ventures, amounting to
$12,150,000 as of June 30, 1997, and certain other assets including restricted
cash and property and equipment will require production of oil and gas in
sufficient quantities and marketing such oil and gas at sufficient prices to
provide positive cash flow to the Company and such ventures and depends upon,
among other factors, achieving significant increases in production from existing
levels, production of oil and gas at costs that provide acceptable margins,
reasonable levels of taxation from local authorities, and the ability to market
the oil and gas produced at or near world prices. (FLS) The Company has plans
for each of its Eastern European ventures to achieve levels of production and
profits sufficient to recover its costs. (FLS) However, if one or more of the
above factors, or other factors, are different than anticipated, these plans may
not be realized, and the Company may not recover its costs. (FLS) The Company
will be entitled to distributions from the various ventures in accordance with
the arrangements governing the respective ventures. (FLS)
As the oil and gas ventures in which the Company has interests approach
and pursue active operations, it is anticipated that the rate at which the
Company makes investments in and advances to or otherwise provides financial
support to such ventures will increase. (FLS)
Workover operations are underway for the re-completion of twelve wells
in the Lelyaki Field in Ukraine. As of July 31, 1997, Kashtan has re-completed
three wells with a fourth in process. The initial wells are tested at different
production rates to monitor reservoir response. Water control and improved
formation productivity are the key issues. None of the wells has yet been
produced at full capacity. Kashtan has signed an oil sales agreement with a
Ukrainian state owned trading company, for the sale of oil initially produced
from the Lelyaki Field at a minimum price of $16.70 per barrel including valued
added tax.
The Company has delayed shipping its drilling equipment into the Russian
Federation in connection with its arrangements for the Maykop Field pending
completion of corporate formalities and operating arrangements. The Company is
in the process of dealing with these matters and anticipates they will be
resolved during the second half of 1997. (FLS) In March 1997, the Company
considered the political unrest in Albania to be a force majeure and the
activities related to the development of the Gorisht-Kocul Field were suspended
as a result thereof. The suspension is expected to remain in effect until
conditions in Albania permit the safe and efficient transportation of equipment
and personnel to the Gorisht-Kocul Field and safe operating conditions prevail.
(FLS) The Company anticipates that operations could resume within a reasonable
period after civil order is restored in the operating region. (FLS) On June
10,
12
<PAGE>
1997, Boryslaw Oil Company, in which the Company holds a 45% interest, signed
the license agreement to develop and operate the Stynawske oilfield in Western
Ukraine. Ukrnafta, the Ukrainian national oil company, holds the remaining 55%
interest in Boryslaw Oil Company. Preparation for start-up of drilling
operations, anticipated during first half of 1998, is ongoing. (FLS)
The condensed consolidated financial statements of the Company do not
give effect to any impairment in the value of the Company's investment in,
including advances to, oil and gas properties and ventures or other adjustments
that would be necessary if financing cannot be arranged for the development of
such properties and ventures or if they are unable to achieve profitable
operations. (FLS) The Company's condensed consolidated financial statements have
been prepared under the assumption of a going concern. Failure to arrange such
financing on reasonable terms or failure of such properties and ventures to
achieve profitability would have a material adverse effect on the financial
position, including realization of assets, results of operations and cash flows
of the Company and ultimately its ability to continue as a going concern. (FLS)
In February 1997, the FASB issued Statement of Financial Accounting
Standards No. 128, Earnings Per Share ("SFAS 128") and Statement of Financial
Accounting Standards No. 129, Disclosure of Information about Capital Structure
("SFAS 129"). SFAS 128 specifies the computation of earnings per share, and SFAS
129 specifies the presentation and disclosure requirements about an entity's
capital structure. Both SFAS 128 and SFAS 129 shall be adopted in the fourth
quarter of 1997 with restatement back to January 1, 1997. The initial adoption
of these standards are not expected to have a material effect on the Company's
earnings per share as disclosed. (FLS)
Results of Operations
---------------------
Six month periods ended June 30, 1997 and May 31, 1996:
The Company recorded an operating loss of $3,942,000 during the six
month period ended June 30, 1997, compared with an operating loss of $2,531,000
for the six month period ended May 31, 1996. The increased loss is attributable
primarily to (i) the $1,365,000 loss in the 1997 period from investments in
unconsolidated subsidiaries which compared to a $2,000 profit from such
investments in the 1996 period and (ii) a $517,000 increase from the 1996 to
the 1997 period in general and administrative expense, partially offset by (a) a
1996 $269,000 impairment of oil and gas properties that had no equivalent in the
1997 period and (b) a $218,000 reduction in direct project costs from the 1996
to the 1997 period.
Direct project costs for the six month period ended June 30, 1997
amounted to $394,000, as compared with $612,000 for the six month period ended
May 31, 1996. Direct project costs represent costs incurred on projects in the
preliminary stages before agreements have been reached, as well as costs
incurred on active projects which the Company cannot charge to the ventures
developing the projects. The magnitude of direct project costs is expected to
vary from period to period depending upon the volume of these activities. (FLS)
General and administrative expenses for the six month period ended June
30, 1997 amounted to $2,147,000 as compared to $1,630,000 for the six month
period ended May 31, 1996. This increase is largely attributable to the build-up
of staff associated with increased activity relating to the projects in Eastern
Europe, partially offset by increased allocation to the
13
<PAGE>
various oil and gas ventures of personnel, travel and associated overhead
expenses attributable to the oil and gas projects being undertaken by such
ventures. As the Company's oil and gas activities increase, the Company expects
its organization to grow and its general and administrative expenses to
increase. (FLS) The Company will continue to allocate appropriate costs to the
various oil and gas ventures and, accordingly, does not expect growth in
personnel to be reflected fully in its general and administrative expenses.
(FLS)
The $1,365,000 loss from investments in unconsolidated subsidiaries
recognized during the six month period ended June 30, 1997 represents the
Company's proportionate share of the results of operations of unconsolidated
subsidiaries and entities. The losses generated from these operations was
largely a result of general and administrative expenses incurred by such
entities in preparing for the operations and actual operations. As these
ventures are still in the initial development stage, no operating revenues have
yet been received. The initial production phase has started at the Lelyaki
Field, and revenue is anticipated to be recorded by Kashtan during the quarter
ended September 30, 1997. (FLS) As the ventures complete the initial development
phase and place production on line, the Company expects the ventures to
recognize revenues that will eventually offset their respective cost of
operations. (FLS) During the six month period ended May 31, 1996, a $2,000
profit from unconsolidated subsidiaries related to Canadian operations was
recognized as the Company was still in the process of acquiring its interest in
the Eastern European oil and gas ventures.
The Company recorded operating revenue of $110,000 during the six month
period ended June 30, 1997, as compared with operating revenue of $18,000 for
the six month period ended May 31, 1996. The revenue in both periods is
attributable primarily to a modest amount of oil and gas production in Canada.
During the six month period ended June 30, 1997, the Company reported
net interest income of $700,000, compared to net interest expense of $934,000
during the six month period ended May 31, 1996. The net interest income for the
current period relates primarily to the relatively high average cash balances
reflecting the Company's equity financing activities subsequent to May 31, 1996.
The net interest expense for the prior year period related primarily to the
interest on and the amortization of financing costs and discount related to the
Company's 8% Convertible Subordinated Debentures.
The significant decrease in net loss per common share from the 1996 to
the 1997 six month period reflects primarily the issuance by the Company of a
substantial number of shares of its Common Stock in a June 1996 equity offering
and in subsequent exercises of stock purchase warrants during 1996.
Three month periods ended June 30, 1997 and May 31, 1996:
The Company recorded an operating loss of $1,728,000 for the three month
period ended June 30, 1997, compared to an operating loss of $933,000 for the
three month period ended May 31, 1996. The increased loss is attributable
primarily to (i) the $716,000 loss from investments in unconsolidated
subsidiaries for the three month period ended June 30, 1997 which compared to a
$2,000 profit from such investments in the 1996 period and (ii) a $222,000
increase in general and administrative expenses from the 1996 to 1997 three
month period, partially offset by (a) a 1996 $36,000 impairment of oil and gas
properties that had no equivalent in the 1997 quarter and (b) a $127,000
reduction in direct project costs from the 1996 to the 1997
14
<PAGE>
quarter.
Direct project costs for three month period ended June 30, 1997 amounted
to $222,000, as compared with $348,000 for the three month period ended May 31,
1996. Direct project costs represents costs incurred on projects in the
preliminary stages before agreements have been reached, as well as costs
incurred on active projects which the Company cannot charge to the ventures
developing the projects. The magnitude of direct project costs are expected to
vary from period to period depending upon the volume of these activities. (FLS)
General and administrative expenses for the three month period ended
June 30, 1997 amounted to $764,000 as compared to $541,000 for the three month
period ended May 31, 1996. This increase is largely attributable to the build-up
of staff associated with increased activity relating to the projects in Eastern
Europe, partially offset by increased allocation to the various oil and gas
ventures of personnel, travel and associated overhead expenses attributable to
the oil and gas projects being undertaken by such ventures. As the Company's oil
and gas activities increase, the Company expects its organization to grow and
its general and administrative expenses to increase. (FLS) The Company will
continue to allocate appropriate costs to the various oil and gas ventures and,
accordingly, does not expect growth in personnel to be reflected fully in its
general and administrative expenses. (FLS)
The $716,000 loss from investments in unconsolidated subsidiaries
recognized during the three month period ended June 30, 1997 represents the
Company's proportionate share of the results of operations of unconsolidated
subsidiaries and entities. The losses generated from these operations was
largely a result of general and administrative expenses incurred by such
entities in preparing for operations or actual operations. As these ventures are
still in the initial development stage, no operating revenues have yet been
received. Initial production has started at the Lelyaki Field, and revenues are
anticipated to be recorded by Kashtan during the quarter ended September 30,
1997. (FLS) As the ventures complete the initial development phase and place
production on line, the Company expects the ventures to recognize revenues that
will eventually offset the cost of operations. (FLS) During the six month period
ended May 31, 1996, a $2,000 profit from unconsolidated subsidiaries related to
Canadian operations was recognized as the Company was still in the process of
acquiring its interest in the Eastern European oil and gas ventures.
The Company recorded operating revenue of $78,000 during the three month
period ended June 30, 1997, as compared with operating revenue of $8,000 for the
three month period ended May 31, 1996. The revenue in both quarters is
attributable primarily to a modest amount of oil and gas production in Canada.
During the three month period ended June 30, 1997, the Company reported
net interest income of $389,000, compared to net interest expense of $638,000
during the three month period ended May 31, 1996. The net interest income for
the current period relates primarily to the relatively high average cash
balances reflecting the Company's equity financing activities subsequent to May
31, 1996. The net interest expense for the prior year period related primarily
to the interest on and the amortization of financing costs and discount related
to the Company's 8% Convertible Subordinated Debentures.
The significant decrease in net loss per common share from the 1996 to
the 1997 quarter reflects primarily the issuance by the Company of a substantial
number of shares of its
15
<PAGE>
Common Stock in a June 1996 equity offering and in subsequent exercises of stock
purchase warrants during 1996.
Other Matters
-------------
The Company may be exposed to the risk of foreign currency exchange
losses in connection with its foreign operations. (FLS) Such losses would be the
result of holding net monetary assets (cash and receivables in excess of
payables) denominated in foreign currencies during periods of a strengthening
U.S. dollar. The Company does not speculate in foreign currencies or presently
maintain significant foreign currency cash balances. (FLS) The Company expects
that operations conducted through certain oil and gas ventures in which the
Company has interests, including unconsolidated entities, will be based
principally on the local currencies in the countries in which operations are
conducted, including Albania, the Russian Federation and Ukraine. The Company
may receive dividends or distribution in such currencies, and there is no
assurance that the Company will be able to convert such currencies into U.S.
dollars or that exchange losses related to these operations will not occur.
(FLS)
Forward Looking Discussion
--------------------------
The forward looking discussion contained in this Item 2 are subject to
various risks, uncertainties and other factors that could cause actual results
to differ materially from the results anticipated in such forward looking
discussion. Included among the important risks, uncertainties and other factors
are those hereinafter discussed.
Few of such forward looking discussion deal with matters that are within
the unilateral control of the Company. Joint venture, acquisition, financing and
other agreements and arrangements must be negotiated with independent third
parties and, in some cases, must be approved by governmental agencies. Such
third parties generally have interests that do not coincide with those of the
Company and may conflict with the Company's interests. Unless the Company and
such third parties are able to compromise their respective objectives in a
mutually acceptable manner, agreements and arrangements will not be consummated.
Operating entities in various foreign jurisdictions must be registered by
governmental agencies, and production licenses for development of oil and gas
fields in various foreign jurisdictions must be granted by governmental
agencies. These governmental agencies generally have broad discretion in
determining whether to take or approve various actions and matters. In addition,
the policies and practices of governmental agencies may be affected or altered
by political, economic and other events occurring either within their own
countries or in a broader international context. It is anticipated that the
Company will not have a majority of the equity in the entity that would be the
licensed developer of any of the projects that the Company is presently pursuing
in Eastern Europe, even though the Company may be the designated operator of the
oil or gas field. Thus, the concurrence of co-venturers may be required for
various actions. Other parties influencing the timing of events may have
priorities that differ from those of the Company, even if they generally share
the Company's objectives. As a result of all of the foregoing, among other
matters, the forward looking discussion regarding the occurrence and timing of
future events may well anticipate results that will not be realized.
The availability of equity financing to the Company or debt financing to
the Company and the joint venture or other entities that are developing the
projects is affected by, among other things, world economic conditions,
international relations, the stability and policies
16
<PAGE>
of various governments, fluctuations in the price of oil and gas and the outlook
for the oil and gas industry, the competition for funds and an evaluation of
specific Company projects. Rising interest rates might affect the feasibility of
debt financing that is offered. Potential investors and lenders will be
influenced by their evaluations of the Company and its projects and comparisons
with alternative investment opportunities. The Company's ability to finance all
of its present oil and gas projects according to present plans is dependent upon
obtaining additional funding.
The development of oil and gas properties is subject to substantial
risks. Expectations regarding production, even if estimated by independent
petroleum engineers, may prove to be unrealized. There are many uncertainties
inherent in estimating production quantities and in projecting future production
rates and the timing and amount of future development expenditures. Estimates of
properties in full production are more reliable than production estimates for
new discoveries and other properties that are not fully productive. Accordingly,
estimates related to the Company's properties are subject to change as
additional information becomes available. Most of the Company's interests in oil
and gas ventures are located in Eastern European countries. Operations in those
countries are subject to certain additional risks relating to, among other
things, enforceability of contracts, currency convertibility and
transferability, unexpected changes in tax rates, availability of trained
personnel, availability of equipment and services and other factors that could
significantly change the economics of production. Production estimates are
subject to revision as prices and costs change. Production, even if present, may
not be recoverable in the amount and at the rate anticipated and may not be
recoverable in commercial quantities or on an economically feasible basis. World
and local prices for oil and gas can fluctuate significantly, and a reduction in
the revenue realizable from the sale of production can affect the economic
feasibility of an oil and gas project. World and local political, economic and
other conditions could affect the Company's ability to proceed with or to
effectively operate projects in various foreign countries.
Demands by or expectations of governments, co-venturers, customers and
others may affect the Company's strategy regarding the various projects. Failure
to meet such demands or expectations could adversely affect the Company's
participation in such projects or its ability to obtain or maintain necessary
licenses and other approvals, which could adversely affect the Company's
financial condition, results of operations and cash flows.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not yet effective.
17
<PAGE>
PART II - OTHER INFORMATION
FOUNTAIN OIL INCORPORATED AND SUBSIDIARIES
ITEM 3. LEGAL PROCEEDINGS
The Company is not a party to, nor is any of its property subject to,
any material legal proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
An Annual Meeting of Shareholders was held on June 3, 1997. Shareholders
voted (1) to elect six directors to serve until the next Annual Meeting of
Shareholders or until their successors are duly elected and qualified; and (2)
to ratify the selection of Coopers & Lybrand L.L.P. as independent public
accountants of the Company for the fiscal year ending December 31, 1997.
With respect to the election of the six directors, the tabulation of
votes was as follows:
<TABLE>
<CAPTION>
Nominee Votes For Withheld Broker Non-Votes
- -------------------------------------------------------------------------
<S> <C> <C> <C>
Einar Bandlien 4,640,095 408,327 14,888,230
Robert A. Halpin 4,617,498 408,362 14,910,792
Stanley D. Heckman 4,617,568 408,327 14,910,757
Eugene J. Meyers 4,630,890 401,462 14,904,292
Oistein Nyberg 5,031,868 401,427 14,503,357
Nils N. Trulsvik 5,031,968 401,427 14,503,257
</TABLE>
With respect to the ratification of the selection of Coopers & Lybrand
L.L.P. as the Company's independent public accountant, the tabulation of votes
was 5,030,980 shares voted in favor, 6,140 shares voted against, 12,802 shares
abstained and 14,886,730 shares as broker non-votes.
No other matters were submitted to a vote.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Management Contracts, Compensation Plans and Arrangements are
identified by an asterisk (*)
2(1) Agreement Relating to the Sale and Purchase of All the
Issued Share Capital of Gastron International Limited dated
August 10, 1995 by and among Ribalta Holdings, Inc. as
Vendor and Fountain Oil Incorporated as Purchaser, and John
Richard Tate as Warrantor (Incorporated herein by reference
from October 19, 1995 Form 8-K).
18
<PAGE>
2(2) Supplemental Agreement Relating to the Sale and Purchase of
All the Issued Share Capital of Gastron International
Limited dated November 3, 1995 by and among Ribalta
Holdings, Inc. as Vendor and Fountain Oil Incorporated as
Purchaser, and John Richard Tate as Warrantor (Incorporated
herein by reference from October 19, 1995 Form 8-K).
2(3) Supplemental Deed Relating to the Sale and Purchase of All
the Issued Share Capital of Gastron International Limited
dated May 29, 1996 by and among Ribalta Holdings, Inc. as
Vendor and Fountain Oil Incorporated as Purchaser, and John
Richard Tate as Warrantor.
3(1) Registrant's Certificate of Incorporation and amendments
thereto (Incorporated herein by reference from December 16,
1994 Form 8-K).
3(2) Registrant's Bylaws (Incorporated herein by reference from
December 31, 1996, Form 10-K).
4 Form of 8% Convertible Subordinated Debenture (Incorporated
herein by reference from February 29, 1996 Form 10-QSB).
10(1) License Agreement among IIT Research Institute, ORS
Corporation and Uentech Corporation dated October 27, 1986
(Incorporated herein by reference from October 31, 1986 Form
10-K, filed by Electromagnetic Oil Recovery, Inc., the
Company's predecessor).
10(2) Amendment to Revised Single Well Technology License
Agreement Dated October 27, 1986 (Incorporated herein by
reference from August 31, 1995 Form 10-KSB).
*10(3) Securities Compensation Plan (Incorporated herein by
reference from August 31, 1994 Form 10-KSB, filed by
Electromagnetic Oil Recovery, Inc., the Company's
predecessor).
*10(4) Form of Certificate for Common Stock Purchase Warrants
issued pursuant to the Securities Compensation Plan
(Incorporated herein by reference from Form S-8 Registration
Statement, File No. 33-82944 filed on August 17, 1994, filed
by Electromagnetic Oil Recovery, Inc., the Company's
predecessor).
*10(5) Form of Option Agreement for options granted to certain
persons, including Directors (Incorporated herein by
reference
19
<PAGE>
from August 31, 1994 Form 10-KSB, filed by Electromagnetic
Oil Recovery, Inc., the Company's predecessor).
*10(6) Form of Certificate for Common Stock Purchase Warrants
issued to certain investors in August 1994, including
Directors (Incorporated herein by reference from August 31,
1994 Form 10-KSB, filed by Electromagnetic Oil Recovery,
Inc., the Company's predecessor).
*10(7) Management Services Agreement between Fountain Oil
Incorporated and Oistein Nyberg.
*10(8) Employment Agreement between Fountain Oil Incorporated and
Nils N. Trulsvik (Incorporated herein by reference from
August 31, 1995 Form 10-KSB).
*10(9) Employment Agreement between Fountain Oil Incorporated and
Einar H. Bandlien (Incorporated herein by reference from
August 31, 1995 Form 10-KSB).
*10(10) Employment Agreement between Fountain Oil Incorporated and
Arnfin Haavik (Incorporated herein by reference from August
31, 1995 Form 10-KSB).
*10(11) Employment Agreement between Fountain Oil Incorporated and
Svein E. Johansen (Incorporated herein by reference from
August 31, 1995 Form 10-KSB).
*10(12) Employment Agreement between Fountain Oil Incorporated and
Arild Boe (Incorporated herein by reference from August 31,
1995 Form 10-KSB).
*10(15) Employment Agreement between Fountain Oil Incorporated and
Ravinder S. Sierra (Incorporated herein by reference from
August 31, 1995 Form 10-KSB).
*10(16) Employment Agreement between Fountain Oil Incorporated and
Susan E. Palmer (Incorporated herein by reference from
August 31, 1995 Form 10-KSB).
*10(17) Amended 1995 Long-Term Incentive Plan.
*10(19) Fee Agreement dated November 15, 1995 between Fountain Oil
Incorporated and Robert A. Halpin (Incorporated herein by
reference from August 31, 1996 Form 10-KSB).
*10(20) Fee Agreement between Fountain Oil Incorporated and Eugene
J. Meyers (Incorporated herein by reference from August 31,
1996 Form 10-KSB).
20
<PAGE>
*10(21) Amendment dated December 10, 1996 to Fee Agreement between
Fountain Oil Incorporated and Robert A. Halpin (Incorporated
herein by reference from December 31, 1996 Form 10-K).
*10(22) Employment Agreement between Fountain Oil Incorporated and
Whitfield Fitzpatrick.
*10(23) Management Services Agreement between Fountain Oil Services
Incorporated and Orest Senkiw.
*10(24) Employment Agreement between Fountain Oil Incorporated and
Alfred Kjemperud.
27 Financial Data Schedule (EDGAR filing only)
(b) Reports on Form 8-K
On May 30, 1997, the Company filed a Form 8-K dated May 19, 1997
reporting Item 9. Sale of Equity Securities Pursuant to Regulation S, regarding
the sale of securities pursuant to exercise of outstanding options.
21
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
FOUNTAIN OIL INCORPORATED
Date: August 12, 1997 By: /s/Arnfin Haavik
----------------------------
Arnfin Haavik
Executive Vice President and
Chief Financial Officer
22
<PAGE>
EXHIBIT INDEX
FILED WITH
EXHIBIT THIS
NUMBER EXHIBIT REPORT
- ------- ------- ----------
2(1) Agreement Relating to the Sale and Purchase of
All the Issued Share Capital of Gastron International
Limited dated August 10, 1995 by and among Ribalta
Holdings, Inc. as Vendor and Fountain Oil Incorporated
as Purchaser, and John Richard Tate as Warrantor
(Incorporated herein by reference from October 19, 1995
Form 8-K).
2(2) Supplemental Agreement Relating to the Sale and Purchase
of All the Issued Share Capital of Gastron International
Limited dated November 3, 1995 by and among Ribalta
Holdings, Inc. as Vendor and Fountain Oil Incorporated
as Purchaser, and John Richard Tate as Warrantor
(Incorporated herein by reference from October 19, 1995
Form 8-K).
2(3) Supplemental Deed Relating to the Sale and Purchase X
of All the Issued Share Capital of Gastron International
Limited dated May 29, 1996 by and among Ribalta Holdings,
Inc. as Vendor and Fountain Oil Incorporated as Purchaser,
and John Richard Tate as Warrantor.
3(1) Registrant's Certificate of Incorporation and amendments
thereto (Incorporated herein by reference from December 16,
1994 Form 8-K).
3(2) Registrant's Bylaws (Incorporated herein by reference
from December 31, 1996, Form 10-K).
4 Form of 8% Convertible Subordinated Debenture
(Incorporated herein by reference from
February 29, 1996 Form 10-QSB).
10(1) License Agreement among IIT Research Institute, ORS
Corporation and Uentech Corporation dated
October 27, 1986 (Incorporated herein by reference from
October 31, 1986 Form 10-K, filed by Electromagnetic
Oil Recovery, Inc., the Company's predecessor).
1
<PAGE>
10(2) Amendment to Revised Single Well Technology
License Agreement Dated October 27, 1986
(Incorporated herein by reference from
August 31, 1995 Form 1-KSB).
10(3) Securities Compensation Plan (Incorporated
herein by reference from August 31, 1994
Form 10-KSB, filed by Electromagnetic Oil
Recovery, Inc., the Company's predecessor).
10(4) Form of Certificate for Common Stock Purchase
Warrants issued pursuant to the Securities
Compensation Plan (Incorporated herein by reference
from Form S-8 Registration Statement, File No.
33-82944 filed on August 17, 1994, filed by
Electromagnetic Oil Recovery, Inc., the Company's
predecessor).
10(5) Form of Option Agreement for options granted to
certain persons, including Directors (Incorporated
herein by reference from August 31, 1994 Form 10-
KSB, filed by Electromagnetic Oil Recovery, Inc.,
the Company's predecessor).
10(6) Form of Certificate for Common Stock Purchase
Warrants issued to certain investors in August
1994, including Directors (Incorporated herein
by reference from August 31, 1994 Form 10-KSB,
filed by Electromagnetic Oil Recovery, Inc.,
the Company's predecessor).
10(7) Management Services Agreement between Fountain X
Oil Incorporated and Oistein Nyberg.
10(8) Employment Agreement between Fountain Oil
Incorporated and Nils N. Trulsvik (Incorporated
herein by reference from August 31, 1995 Form
10-KSB).
10(9) Employment Agreement between Fountain Oil
Incorporated and Einar H. Bandlien (Incorporated
herein by reference from August 31, 1995 Form
10-KSB).
10(10) Employment Agreement between Fountain Oil
Incorporated and Arnfin Haavik (Incorporated
herein by reference from August 31, 1995 Form
10-KSB).
2
<PAGE>
10(11) Employment Agreement between Fountain Oil
Incorporated and Svein E. Johansen (Incorporated
herein by reference from August 31, 1995 Form
10-KSB).
10(12) Employment Agreement between Fountain Oil
Incorporated and Arild Boe (Incorporated
herein by reference from August 31, 1995
Form 10-KSB).
10(15) Employment Agreement between Fountain Oil
Incorporated and Ravinder S. Sierra
(Incorporated herein by reference from
August 31, 1995 Form 10-KSB).
10(16) Employment Agreement between Fountain Oil
Incorporated and Susan E. Palmer (Incorporated
herein by reference from August 31, 1995 Form
10-KSB).
10(17) Amended 1995 Long-Term Incentive Plan. X
10(19) Fee Agreement dated November 15, 1995 between
Fountain Oil Incorporated and Robert A. Halpin
(Incorporated herein by reference from
August 31, 1996 Form 10-KSB).
10(20) Fee Agreement between Fountain Oil Incorporated
and Eugene J. Meyers (Incorporated herein by
reference from August 31, 1996 Form 10-KSB).
10(21) Amendment dated December 10, 1996 to Fee
Agreement between Fountain Oil Incorporated
and Robert A. Halpin (Incorporated herein by
reference from December 31, 1996 Form 10-K).
10(22) Employment Agreement between Fountain Oil
Incorporated and Whitfield Fitzpatrick
(Incorporated herein by reference from
March 31, 1997 Form 10-Q).
10(23) Management Services Agreement between Fountain
Oil Services Incorporated and Orest Senkiw
(Incorporated herein by reference from March 31,
1997 Form 10-Q).
10(24) Employment Agreement between Fountain Oil
Incorporated and Alfred Kjemperud (Incorporated
herein by reference from March 31, 1997 Form 10-Q).
27 Financial Data Schedule X
3
<PAGE>
Exhibit 2(3)
DATED 29 May 1996
-------------------
RIBALTA HOLDINGS, INC.
as Vendor
- and -
FOUNTAIN OIL, INCORPORATED
as Purchaser
- and -
JOHN RICHARD TAIT
as Warrantor
______________________________________________________
SUPPLEMENTAL DEED
relating to the sale and purchase of
all the issued share capital of
GASTRON INTERNATIONAL LIMITED
______________________________________________________
MARRIOTT HARRISON
12 Great James Street
London WC1N 3DR
1
<PAGE>
Tel: 0171 209 2000
Fax: 0171 209 2001
(Ref DJGI DJ60516C)
AGREEMENT dated the 29th day of May 1996
BETWEEN:-
(1) RIBALTA HOLDINGS, INC. of P.O. Box 438, Tropic Isle Building, Road Town,
Tortola, British Virgin Islands ("the Vendor");
(2) FOUNTAIN OIL, INCORPORATED, a corporation organized under the laws of the
state of Delaware USA of 1400 Broadfield, Suite 100, Houston, Texas 77084
United States of America ("the Purchaser"); and
(3) JOHN RICHARD TAIT of 934 Moyle Circle, Alpine UT-84004 Utah, United States
of America ("the Warrantor").
WHEREAS:-
(A) By an Agreement dated 10th August, 1995 made between the Vendor (1), the
Purchaser (2) and the Warrantor (3) ("Agreement") the Vendor agreed,
subject to certain conditions, to sell to the Purchaser the entire issued
share capital of Gastron International Limited ("the Company").
(B) By a Supplemental Agreement dated 3rd November, 1995 made between the
parties hereto ("Supplemental Agreement") the Agreement was amended in
certain regards.
(C) The parties hereto wish to enter into this Supplemental Deed to further
amend the terms of the Agreement and the Supplemental Agreement.
THIS DEED WITNESSETH as follows:-
1. AMENDMENTS
In consideration of the mutual promises set out herein, the parties hereto
hereby agree that the following amendments be made to the Agreement and to
the Supplemental Agreement:-
(a) the figure in Clause 5.1 of the Agreement be amended to US$300,000;
(b) the number of Consideration Shares set out in Clause 5.2 of the
Agreement be amended;
2
<PAGE>
in sub-clause (a) to 70,000
in sub-clause (b) to 210,000
in sub-clause (c) to 420,000
(c) the figure in the last line of Clause 1 of the Supplemental Agreement
be amended to US$300,000.
2. CONTINUATION OF AGREEMENT
The parties hereto hereby confirm that, save as set out in Clause 1 above,
the Agreement and the Supplemental Agreement shall continue in full force
and effect between them.
3. COSTS
Each party shall pay its own legal and other professional charges and
expenses incurred in connection with this Supplemental Deed.
4. PROPER LAW AND JURISDICTION
4.1 This Supplemental Deed shall be governed by and construed in accordance
with English Law.
4.2 Each of the parties agrees to submit to the non-exclusive jurisdiction of
the English Courts as regards any claim or matter-arising from, or in
connection with, this Supplemental Deed.
4.3 The Vendor and the Warrantor each hereby irrevocably appoints Integro
Finance (UK) Limited, Cannon Bridge, 25 Dowgate Hill, London, EC4R 2AT,
United Kingdom as its agent to accept service on its behalf in respect of
this Supplemental Deed.
IN WITNESS whereof this Deed has been duly executed and delivered the day and
year first above written.
3
<PAGE>
SIGNED as a Deed and delivered by )
MISS LINDA FOK PUI LING ) /s/Miss Linda Fok Pui Ling
REPRESENTING PADNALLS )
ENTERPRISES LIMITED )
duly authorized for and on behalf of )
RIBALTA HOLDINGS, INC. )
in the presence of:- )
/s/Florence Tang
Florence P.M. Tang
Rooms 12-14, 1st Floor
New Henry House
10 Ice House Street
Hong Kong
Assistant Manager
SIGNED as a Deed and delivered by )
MR. OISTEIN NYBERG ) /s/Oistein Nyberg
duly authorized for and on behalf of )
FOUNTAIN OIL, INCORPORATED )
in the presence of:- )
/s/TL Jerrett
Miss TL Jerrett
c/o Marriott Harrison
12 Great James Street
London WC1N 3DR
SIGNED as a Deed and delivered )
by the said JOHN RICHARD TAIT ) /s/John Richard Tait
in the presence of:- )
/s/TL Jerrett
Miss TL Jerrett
c/o Marriott Harrison
12 Great James Street
London WC1N 3DR
4
<PAGE>
Exhibit 10(7)
MANAGEMENT SERVICES AGREEMENT
This Management Services Agreement is made as of April 25 1997 by and between
FOUNTAIN OIL INCORPORATED, a corporation incorporated and existing under the
laws of the State of Delaware, United States of America ("the Company"), and
OISTEIN NYBERG, an individual residing in 7 Albert Gate Court, 124
Knightsbridge, London SW1X 7PE, England ("Employee").
RECITATIONS
A. The Company is engaged in the exploration, development, recovery, production,
marketing and sale of oil and gas (the "Business") throughtout the world.
B. Employee has substantial experience in the Business, and is available to
render general and specific services of a technical, administrative and/or
advisory nature with respect to the Business, and is prepared to provide such
services as and when needed by the Company.
C. The Company desires to obtain the services of Employee, and Employee desires
to provide certain services to the Company in the territory (as herein
defined).
NOW, THEREFORE, in consideration of the agreements contained herein and other
good and valuable consideration, the receipt of which is hereby acknowledged,
the parties hereto agree as follows:
AGREEMENT
SECTION 1. DEFINITIONS in this Agreement and the Exhibits attached hereto and
made a part here of, except where the context otherwise requires, the words and
expressions set forth below shall have the following meanings:
"Agreement" means this Management Services Agreement, as the same may be
amended, modified or extended from time to time.
"Appointment" means the appointment of the Employee by the Company pursuant to
this Agreement.
1
<PAGE>
"Business" has the meaning set forth in Recitation A.
"Code of Conduct" means that document appended to this Agreement as Exhibit 2.
"Exhibit" means an exhibit to this Agreement.
"Employee Domicile" has the meaning set forth in Section 5.
"Inventions" means all inventions, improvements, modifications, processes,
formulae, know-how, designs, models, prototypes, computer programs, sketches,
drawings, plans or other original matters which the Employee alone or with one
or more others may make in course of and as direct result in the course of the
Appointment and which pertain to the commercial or industrial activities of the
Company or the processes or machinery of the Company for providing the services
of producing or extracting the products of the Company or pertaining to or
resulting from or suggested by any direct work which the Employee has done or
may hereafter perform during the Appointment for the Company.
"Superior" means the individual or entity designated from time to time by the
Company as the individual and/or entity with the responsibility of supervising
Employee. In this case this will be the Company Chief Executive Officer ("CEO")
and/or the Company Board of Directors ("Board").
"Term" has the meaning set forth in Section 3.
"Territory" means specified geographic area agreed to be working in between the
parties hereto.
"Salary" has the meaning set forth in Section 6.
"Tax" or "Taxes" has the meaning set forth in Section 7.
"Section" refer to a section in this Agreement.
SECTION 2. APPOINTMENT
For and during the Term, and subject to the terms and conditions hereinafter set
forth, Employee hereby agrees to serve as a special task for manager delegated
by the Board and the CEO in Territories agreed upon between the parties hereto.
SECTION 3. TERM
The term of this Agreement shall commence upon its execution by both parties and
shall terminate upon the earlier of (i) the expiration of one year from the date
of execution of this Agreement by both parties, (ii) a majority decision of the
Board after the expiry of one year from the date of execution of this Agreement
by both parties, (iii) the mutual agreement in writing of the parties,
2
<PAGE>
(iv) the liquidation and dissolution of the Company. Termination subject to
items (i) and (ii) and (iv) above shall be subject to a notice period of at
least 6 months, such notice period to commence only upon the expiry of the one
year period referred to in such items.
SECTION 4. DUTIES
During the Term, the Employee will:
(a) perform to the best of his ability all the duties agreed within the
specified areas of duty defined in EXHIBIT ONE 1 for him to do by the Board
of Directors and the CEO in the Territory defined and agreed upon.
(b) comply promptly with all lawful directions and instructions given by or
with the authority of the Supervisor.
(c) Employee will maintain the Company registered presence in London by keeping
office space in his residence.
SECTION 5. VACATION/OVERTIME/SICKNESS/INJURY/RESIDENT BASE
LOCATION/SPECIAL TERMS
VACATION. In addition to Bank and other Public holidays the Employee shall be
entitled to 25 working days holiday in every calendar year to be taken at such
time or times as may be approved by the Company. If the full vacation is not
taken during calendar year, the vacation will accumulate thereafter. The
Employee will do everything in his power to take the full vacation each year.
ADDITIONAL COMPENSATION. Employee shall not be entitled to receive compensation
other than as set forth in Section 6. From time to time the CEO may expressly
request Employee to undertake certain tasks in addition to Employee's routine
tasks. In such case, Employee and CEO shall agree beforehand upon the amount of
additional compensation Employee shall be entitled to receive in connection with
the performance of such tasks.
SICKNESS/INJURY. The Company shall pay to the Employee Statutory Sick Pay
(hereinafter referred to as "SSP") in accordance with regulations prevailing in
the country of residence. These payments will be supplemented by the Company up
to full yearly. Remuneration for the first 12 months of absence from work due to
sickness or injury. From the 13th month the Employee shall be entitled to
disability payment as provided for under the Permanent Health Insurance package
as well as State support.
RESIDENCE AND POINT OF ORIGIN
3
<PAGE>
For the purpose of this Section 5, the Residence of Employee shall refer to
Employee's place of habitation and shall be located in London, England
("Residence") and the point of origin shall be Stavanger, Norway ("Point of
Origin").
The Company shall reimburse Employee the reasonable, out-of-pocket costs
associated with his move from his current habitation in England to the
Residence. The Residence shall be equipped with an office and shall be of
sufficient standing to enable Employee to entertain business relations in an
appropriate manner. The Company shall provide Employee with a housing allowance
in the amount of GBP 2500 per month. Employee may request additional amounts in
connection with the operation and support of the office in the Residence. Such
requests shall be submitted to the CEO and approved in advance. The Company will
be responsible for the lease/rent of the Residence during the period as agreed
upon with the CEO.
In the event during the term of this Agreement Employee moves from the Residence
to another place of habitation the Company shall reimburse Employee for all
reasonable, out-of-pocket expenses associated with such move. If the Employee is
asked to move in the middle of a lease period, the Company shall be liable for
any remaining lease period agreed upon and entered into by the Employee in
agreement with the Company. Any subsequent move by Employee that is requested by
the Company, or other reasons out of control of the Employee, shall be
reimbursed by the Company. Upon the termination of this Agreement, the Company
shall reimburse Employee for all reasonable, out-of-pocket costs associated with
his move from the Residence, or any successive residence without limitation, to
the Point of Origin.
The portion in the previous employment contract as per March 1, 1995 prefix 11.
(e) will be valid until the lease of present facilities in 7 Albert Gate Court,
124 Knightsbridge, London SW1X 7PE terminate 6th August 1997.
SPECIAL TERMS
(a) BONUS SCHEME. The Employee will be eligible to participate in any executive
bonus scheme and share option plan that is created by the Company during
the term of this Agreement.
(b) VISITS TO NORWAY. The Company will pay for (3) three return tickets per
calendar year from location of residence to Stavanger, Norway for the
Employee, wife and Son Mark Erik, until he is 19 year old. The trips should
be in connection with business if possible.
(c) TELEPHONE/FACSIMILE/E-MAIL. The company will pay for the residence
phone/facsimile/E-mail on behalf of the Employee.
(d) MEMBERSHIP IN PROFESSIONAL ORGANIZATION/CLUBS. The Company will pay for
membership fees on professional and social clubs that can and will improve
the business in relation to the Employee's work for the Company. Special
approval is needed if the membership exceeds $1000 annually.
4
<PAGE>
(e) EDUCATION. The Company will provide Mark Erik (son) with GBP 12,000 (Pound
sterling twelve thousand) per educational year, until and including part of
the educational year he is 19 years old.
(f) NEWSPAPER, MEDIA INFORMATION. The Company will pay for economical,
political and technical publications needed for the business, and two daily
publications sent to the Residence/office.
SECTION 6. REMUNERATION
The Company shall pay the following to the Employee for the Appointment:
(a) A salary to be paid in the United Kingdom ("UK") for work performed in the
UK in the amount of USD 105,000 per year to be paid in equal monthly
installments on or before the last day of each calendar month. The parties
may mutually agree in writing upon any adjustment to the amount mentioned
above.
(b) A salary to be paid in the UK for work performed outside of the UK in the
amount of USD 45, 000 per year payable in equal monthly installments on or
before the last day of each calendar month. The compensation set forth in
subsections (a) and (b) shall be referred to in the aggregate as "SALARY".
(c) The Company will pay for a pension and insurance package the premiums and
cost of which shall not in the aggregate exceed an amount equal to 12.5% of
Employee's Salary. Employee refer to the Company insurance policies that
would cover a minimum (a) life insurance with death and disability benefits
in the amount of USD 100,000 and disability benefits in the amount of USD
1500 per month, and with such amounts to be adjusted for inflation. In the
event that the coverage obtained above results in premiums less than the
12.5% cap referred to in the preceding paragraph, Employee may use the
difference for the purpose of obtaining additional insurance or pension
coverage.
The employee shall be entitled or benefits adopted by the Company under an
executive protection plan during the term of this Agreement. In the event
such new plans result in premiums above the 12.5% cap referred to above,
the additional expense shall be borne by the Company.
Adjustment of the remuneration package will be based on the Company's
Compensation Committee determination and on the same criteria as the Company's
executive team. The remuneration is denominated in United States dollars and
paid in local currency as applicable. Currency changes will effect local
currency paid. Adjustments will be made on quarterly averages.
SECTION 7. TAXES
5
<PAGE>
a) Compliance with Tax Laws. The Company will use its best efforts to comply
with all laws, rules and regulations pertaining to the reporting of the
compensation and reimbursable expenses attributable to Employee's Engagement
and to the withholding and remitting of any taxes including, without
limitation, taxes levied by any country, state, municipality, commune or
other governmental authority (collectively, a "Tax" or "Taxes") on such
compensation and reimbursable expenses.
b) Employee's taxes. The Employee is responsible for his own tax return. The
Company accountant will assist the Employee in the filing of the taxes.
For any assistance requiring local taxation outside the UK the tax equalization
policy for the Company will apply to the adjustment of remuneration to the
Employee. The Employee will not during the Term reduce his net pay based on his
remuneration if located other places than in the UK. The Company will adjust the
gross pay in accordance.
SECTION 8. CONFIDENTIALITY
During the Term of this Agreement and at all times thereafter, Employee shall
hold in strict confidence, and shall not disclose to any person or entity any
labeled Confidential Information of the Company. For the purposes of this
Section 8, the term "Confidential Information" shall include without limitation,
trade information relating to the Company research and development, engineering
data, seismic data, surveys, specifications, process formulations, production
operations or techniques, planning, purchasing, accounting, finance, selling,
marketing, market research, promotional plans, customers, suppliers, and other
information of a similar nature which may include design specifications and
know-how, in which the Company or its suppliers or distributors have proprietary
interests, and all other information pertaining to the business of the Company
that is not publicly available. Employee shall not use such labeled Confidential
Information except for the sole benefit of the Company.
SECTION 9. PROPERTY OF THE COMPANY
Promptly upon the termination of this Agreement, Employee shall surrender to the
Company all written materials (and all copies), all information stored in
computer memories or on microfiche, magnetic tape or diskette, that are at the
time in his direct or indirect possession or control and that pertain to the
business or affairs of the Company.
SECTION 10. INVENTIONS
a) The Employee will disclose and deliver to the Company for the exclusive use
and benefit of the Company any inventions as a direct result of the work
performed for the Company, promptly upon the making, devising or discovering
of the same, and will give all information and data in his possession as to
the exact mode of working, producing and using the same and also all
6
<PAGE>
such explanations and instructions to the Company as may in the view of the
Supervisor be necessary to enable the full and effectual working, production
or use of the same and will at the expense of the Company furnish it with
all necessary plans, drawings, formulae and models.
b) The Employee will at the expense of the Company execute and do all acts,
matters, documents and things necessary to enable the Company or its nominee
to apply for and obtain protection for the Inventions in any or all
countries and to vest title thereto in the Company or its nominee
absolutely.
c) During the Appointment and at all times thereafter the Employee will
(whether by omission or commission) do nothing to affect or imperil the
validity of the protection for the inventions obtained or applied for by the
Company or its nominee pursuant to section 10 (b). The Employee will at the
direction and expense of the Company render all assistance within his power
and capacity to obtain and maintain such protection or application or any
extension thereof.
d) Nothing in this Agreement shall oblige the Company to seek patent or other
protection for any invention nor to exploit any Invention. The Company has
to claim its wishes to seek the patent within 3 months of the presentation
of any possible patent application or invention presented by the Employee.
If the Company refrains to claim its interest, the Employee is free to
proceed to apply in his own interest the use of the invention for whatever
purposes he decides.
SECTION 11. COVENANTS AGAINST COMPETITION
a) During the Term, the Employee has a duty of loyalty to the Company. This
duty of loyalty requires that during the Term all of Employee's actions be
taken with a view toward and for the purpose of advancing the interest of
the Company. Employee agrees to act in accordance with Employees duty of
loyalty during the Term. In particular, Employee will take no action during
the Term to interfere with or adversely affect willingly and purposely the
Company's relationship with then existing or prospective customers, clients,
employees, suppliers, co-venturer, lenders, consultants, Employees and
professional advisors or otherwise to harm the interest of the Company.
It is understood by the Company that the Employee has been in the oil and
gas industry for 30 years, and during that period has formed partnership
within the industry either directly through family engagements or
indirectly.
The Employee will within his means use engagements and connections to the
benefit for the Company during the Term, that is if it is applicable and
accepted to do so by the Company and partnership.
b) During the Term, and for a period of two years following the date of
termination of this Agreement, Employee shall not directly or indirectly
induce any employee of the Company to
7
<PAGE>
terminate his or her employment, hire by direct approach any employee of the
Company, or in any way interfere with the relationship of the Company and
any employee, agent or representative;
c) For a period of two years following the date of termination of this
Agreement, Employee shall not directly or indirectly solicit or otherwise
divert or attempt to divert from the Company any Business or any related
business:
(i) which is being conducted by the Company pursuant to contract in
existence during the Term, or
(ii) which may be conducted by the Company pursuant to any extension or
renewal of a contract in existence during the Term, or
(iii) which was the subject of negotiations between the Company and a
potential customer or client during the Term in which negotiations
Employee participated or was in any way involved.
d) at no time, whether during the Term or at any time thereafter shall Employee
use the name "Fountain" or any name likely to cause confusion therewith in
the minds of members of the public for the purposes of a business similar to
or competing with any business carried on by the Company whether by using
such name as part of a corporate name otherwise.
SECTION 12. TERMINATION FOR EVENT OF DEFAULT
Notwithstanding the provisions above, the Company may terminate the Engagement
by notice with immediate effect for any of the following reasons (each an "Event
of Default"):
a) The Employee is proven guilty of dishonesty or of misconduct, including,
without limitation, a breach of Code of Conduct, or willful neglect of
duty, or Employee commits any breach of this Agreement, including, without
limitation, a breach of the Confidentiality Agreement, other than a breach
which is capable of remedy and is remedied forthwith by the Employee at the
Company's request; or
b) The Employee is convicted of a felony or other serious criminal offense.
SECTION 13. DISCIPLINARY RULES; GRIEVANCE PROCEDURES; HEALTH AND
SAFETY
a) Employee acknowledges by the execution of this Agreement that he has
received a copy of Company's Disciplinary Rules and Grievance Procedures
(only US is distributed), as well as the Company's Policy on Employee Safety
and Environmental Handbook and is familiar with the term of both documents.
8
<PAGE>
b) Employee shall at all times during the course of his Engagement conduct
himself in the conformity with the laws of the United States of America and
those other jurisdictions in which the Employee is engaged in activities on
behalf of the Company or which are directly affected by such activities and
shall otherwise perform his duties hereunder in a professional and
responsible manner. Without limiting the generality of the foregoing, as a
condition to Employee's Engagement, Employee shall execute the Code of
Conduct appended hereto as Exhibit 2 and shall be obligated to conduct
himself in accordance therewith.
SECTION 14. POST TERMINATION PROVISIONS
Any provision of this Agreement which contemplates or is proven capable of
operation after termination of the Engagement shall apply notwithstanding
termination of the Engagement for whatever reason.
SECTION 15. EMPLOYEE'S REPRESENTATION AND WARRANTIES
Employee represents and warrants to the Company (i) that this Agreement
constitutes a valid and binding obligation, enforceable against Employee in
accordance with its terms; (ii) that neither the execution or delivery of this
Agreement nor the performance by Employee of any covenants hereunder will
constitute a default under any contract, agreement or obligation to which
Employee is a party or by which Employee or any of Employee's properties is
bound; (iii) that there are no lawsuits, arbitration actions or other
proceedings (equitable, legal, administrative or otherwise) pending or (to the
best of employee's knowledge) threatened which could adversely affect the
validity or enforceability of this Agreement or Employee's obligation or ability
to perform his obligations hereunder; and (iv) that no consent, approval or
authorization of, or notification to, any governmental entity or any person or
entity is required in connection with the execution, delivery or performance of
this Agreement by Employee.
SECTION 16. NOTICE
Any notices or other communications required or permitted to be given hereunder
or otherwise in connection herewith shall be in writing and shall be sent to the
parties at the following addresses or at such other addresses as shall be
specified by the parties by like notice:
To the Company: Fountain Oil Incorporated
Skysstasjon 11 B, P.O. Box 87
1371 Asker, Norway
c/o Nils N. Trulsvik
Tel +47 66 78 69 00
Fax +47 66 78 69 10
9
<PAGE>
To the Employee: Oistein Nyberg
7 Albert Gate Court
124 Knightsbridge
London SW1X 7PE
Tel +44 171 581 2609
Fax +44 171 581 2436
Such notices or other communications shall be deemed to have been duly given and
received (i) on the day of sending if sent by personal delivery, or any way of
electronic transmission as telefax, e-Mail or telex, (ii) on the fifth calendar
day after the day of sending if sent by Federal Express or other agencies
delivery Service or (iii) on the 10th calendar day after the day of sending if
sent by registered mail (return receipt requested).
SECTION 17. AMENDMENTS
Any amendments to the provision of this Agreement shall be in writing and signed
by the parties hereto or their duly assigned representatives.
SECTION 18. SEVERABILITY
If any provision in the Agreement is held invalid or unforceable by any court of
competent jurisdiction, the other provisions of this Agreement will remain in
full force and effect. Any provision of this Agreement held invalid or
unenforceable only in part or degree will remain in full force and effect to the
extent not held invalid or unforceable.
SECTION 19. NO WAIVER
The failure to enforce at any time any of the provisions of this Agreement or to
require at any time performance by the other party hereto of any of the
provisions hereof shall in no way be construed to be a waiver of such provisions
or to affect the validity of this Agreement, or any part thereof, or the right
of either party thereafter to enforce each and every such provision in
accordance with the terms of this Agreement.
SECTION 20. ENTIRE AGREEMENT
This Agreement contains the entire agreement between the parties with respect to
the Engagement of Employee by the Company and supersedes any and all prior
understandings,
10
<PAGE>
agreements or correspondence between the parties. The Exhibits to this Agreement
form an integral part of this Agreement.
SECTION 21. GOVERNING LAW
This Agreement shall governed by, and interpreted in accordance with, the laws
of Norway.
SECTION 22. ARBITRATION
Any dispute, controversy or claim arising out of or relating to this Agreement,
or the breach, termination or invalidity thereof, which cannot be settled in an
amicable way shall be settled by arbitration in accordance with UNCITRAL Rules
as at present in force. The place of arbitration shall be Oslo, Norway. The
appointing authority shall be the Chamber of Commerce in Oslo. Judgment upon the
award rendered by the arbitrators, or at least a majority of them, may be
entered in any court having jurisdiction thereof. The arbitrator(s) shall be
selected under said rules. All arbitral proceedings shall be in English. Each
party hereto shall bear its own costs of such arbitration or litigation,
including reasonable attorney's fees.
SECTION 23. ASSIGNMENT
Neither this Agreement nor any right, remedy, obligation or liability arising
hereunder or by reason hereof may be assigned or delegated by Employee without
the prior written consent of the Company.
SECTION 24. INTERPRETATION
All references to Sections and Exhibits are to sections and exhibits in or to
this Agreement unless otherwise specified. The words "hereof" and "hereunder"
and words of similar import when used in this Agreement shall refer to this
Agreement as a whole and not to any particular provision of this Agreement.
Where the context permits, the singular includes the plural and vice verses and
one gender includes any gender.
SECTION 25. MONETARY TERMS
All amounts expressed in dollars "$" in this Agreement shall mean dollars of the
United States of America, and amounts expressed in pounds or "GBP" is sterling
pounds of Great Britain.
SECTION 26. COUNTERPARTS
11
<PAGE>
This Agreement may be executed in several counterparts, each of which shall be
deemed an original but all of which shall constitute one and the same
instrument.
EMPLOYEE FOUNTAIN OIL INCORPORATED
/s/Oistein Nyberg By: /s/Nils N. Trulsvik
- ----------------- ------------------------
Oistein Nyberg Nils N. Trulsvik, CEO
12
<PAGE>
EXHIBIT 1
---------
DUTIES
- ------
The Employee will, subject to direction of Company, have duties including, but
not limited to, the following:
* Participate in the Company Management meetings.
* Represent Fountain Oil Incorporated in various Joint Venture Boards as a
director.
* Specify Policy and Guidelines for Operations.
* Participate in Business Development.
* Participate in Strategic takeover, merger and partnering.
* Participate in Project Finance, and financing in general.
* Participate in Operational Support.
* Participate in Heavy Oil technology developments.
* Other Work, as Employee's Supervisor shall so specify from time to time.
The Employee will report to the Board and the CEO for specific tasks to be
performed.
13
<PAGE>
Exhibit 10(17)
FOUNTAIN OIL INCORPORATED
1995 LONG-TERM INCENTIVE PLAN
(EFFECTIVE NOVEMBER 14, 1995)
(AMENDED AND RESTATED AS OF MARCH 18, 1997)
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
1. PURPOSE 1
2. DEFINITIONS 1
(a) "Award" 1
(b) "Award Agreement" 1
(c) "Board" 1
(d) "Code" 1
(e) "Committee" 1
(f) "Common Stock" 1
(g) "Compensation Committee" 1
(h) "Corporation" 1
(i) "Director" 1
(j) "Employee" 1
(k) "Exchange Act" 2
(l) "Exercise Price" 2
(m) "Fair Market Value" 2
(n) "For Cause" 2
(o) "Incentive Stock Option" 3
(p) "Non-qualified Stock Option" 3
(q) "Option" 3
(r) "Participant" 3
(s) "Plan" 3
(t) "Purchase Price" 3
(u) "Pyramiding" 3
(v) "Reload" 3
(w) "Share" 3
(x) "Stock Appreciation Right" 4
(y) "Subsidiary" 4
(z) "Ten Percent Stockholder" 4
(aa) "Total and Permanent Disability" 4
(bb) "Vest" or "Vesting" 4
(cc) "Voting Power" 4
3. EFFECTIVE DATE 5
4. ADMINISTRATION 5
(a) Administration by the Board or the Committee 5
(b) Composition of the Committee 5
(c) The Committee 5
(d) Powers of the Committee 5
(e) Committee's Interpretation of the Plan 6
5. PARTICIPATION 6
(a) Eligibility for Participation 6
(b) Eligibility for Awards 7
6. SHARES OF STOCK OF THE CORPORATION 7
(a) Shares Subject to This Plan 7
(b) Adjustment of Shares 7
</TABLE>
<PAGE>
<TABLE>
TABLE OF CONTENTS
<S> <C>
(c) Awards Not to Exceed Shares Available 7
7. TERMS AND CONDITIONS OF OPTIONS 8
(a) Eligibility for Incentive Stock Options 8
(b) Award Agreements 8
(c) Number of Shares Covered by an Option 8
(d) Exercise of Options 8
(e) Vesting of Options 8
(f) Term and Expiration of Options 8
(g) Exercise Price 9
(h) Medium and Time of Payment of Purchase Price 9
(i) Nontransferability of Options 10
(j) Termination of Employee, Director, Independent Contractor or Consultant
Status for Any Reason Other Than Death, Total and Permanent Disability or For
Cause 10
(k) Death of Participant 11
(l) Total and Permanent Disability of Participant 11
(m) Termination For Cause 11
(n) Rights as a Stockholder 12
(o) Modification, Extension, and Renewal of Options 12
(p) Other Provisions 12
(q) No Disqualification of Incentive Stock Options 12
(r) Limitation on Incentive Stock Options 13
8. STOCK APPRECIATION RIGHTS 13
(a) Stock Appreciation Right Award Agreements 13
(b) Number of Shares Covered by a Stock Appreciation Right 13
(c) Stock Appreciation Rights Issued and Exercised Without Payment of 13
Consideration
(d) Exercise of Stock Appreciation Rights 13
(e) Vesting of Stock Appreciation Rights 13
(f) Term and Expiration of Stock Appreciation Rights 14
(g) Exercise and Settlement of a Stock Appreciation Right 14
(h) Nontransferability of Stock Appreciation Rights 14
(i) Termination of Employee, Director, Independent Contractor or Consultant
Status for any Reason Other Than Death, Total and Permanent Disability or For
Cause 15
(j) Death of Participant 15
(k) Total and Permanent Disability of Participant 16
(l) Termination For Cause 16
(m) Rights as a Stockholder 16
(n) Modification, Extension, and Renewal of Stock Appreciation Rights 16
(o) Other Provisions 16
9. TERM OF PLAN 17
10. RECAPITALIZATION, DISSOLUTION, AND CHANGE OF CONTROL 17
(a) Recapitalization 17
(b) Dissolution, Merger, Consolidation, or Sale or Lease of Assets 17
</TABLE>
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
(c) Determination by the Committee 18
(d) Limitation on Rights of Participants 18
(e) No Limitation on Rights of Corporation 18
11. SECURITIES LAW REQUIREMENTS 18
(a) Legality of Issuance 18
(b) Restrictions on Transfer; Representations of Participant; Legends 18
(c) Registration or Qualification of Securities 19
(d) Exchange of Certificates 19
12. EXERCISE OF UNVESTED OPTIONS 19
(a) Purpose of Section 12 19
(b) Exercise of Non-Vested Awards and Issuance of Restricted Stock 20
13. AMENDMENT OF THE PLAN 20
14. PAYMENT FOR SHARE PURCHASES 21
15. APPLICATION OF FUNDS 22
16. APPROVAL OF SHAREHOLDERS 22
17. WITHHOLDING OF TAXES 22
(a) General 22
(b) Stock Withholding 22
18. RIGHTS AS AN EMPLOYEE, DIRECTOR, INDEPENDENT CONTRACTOR OR CONSULTANT 23
19. INSPECTION OF RECORDS 23
</TABLE>
<PAGE>
FOUNTAIN OIL INCORPORATED
1995 LONG-TERM INCENTIVE PLAN
1. PURPOSE.
This Plan is intended to provide employees and directors of Fountain Oil
Incorporated ("Corporation") and advisors and consultants rendering services to
the Corporation (collectively "Participants") an opportunity to acquire an
equity interest in the Corporation. The Corporation intends to use the Plan to
attract and retain Participants' services, motivate Participants to increase the
Corporation's value, and have flexibility in compensating Participants.
The Plan allows the Corporation to reward Participants with (i) options to
purchase shares of common stock of the Corporation, and (ii) stock appreciation
rights with respect to shares of common stock of the Corporation. All awards
shall be subject to the terms and conditions provided in this Plan.
2. DEFINITIONS.
(a) "Award" shall mean any award granted under the Plan, including any
Option or Stock Appreciation Right.
(b) "Award Agreement" shall mean, with respect to each Award granted to a
Participant, the signed written agreement between the Corporation and the
Participant setting forth the terms and conditions of the Award.
(c) "Board" shall mean the Board of Directors of the Corporation.
(d) "Code" shall mean the Internal Revenue Code of 1986, as amended.
(e) "Committee" shall mean the committee appointed by the Board in
accordance with Section 4(a) to administer the Plan, or the Board, if it
administers the Plan as provided in Section 4(a).
(f) "Common Stock" shall mean the voting common stock of the Corporation.
(g) "Compensation Committee" shall mean the Compensation Committee
appointed by the Board.
(h) "Corporation" shall mean Fountain Oil Incorporated.
(i) "Director" shall mean a member of the Board.
(j) "Employee" shall mean any individual who is employed, within the
meaning of Section 3401 of the Code and the regulations thereunder, by the
Corporation or any Subsidiary.
1
<PAGE>
The Committee shall be responsible for determining when an Employee's period of
employment is deemed to be continued during an approved leave of absence.
(k) "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
(l) "Exercise Price" shall mean:
(i) With respect to an Option, the price per Share at which the Option
may be exercised, as determined by the Committee and as specified in the
Participant's Award Agreement; or
(ii) With respect to a Stock Appreciation Right, the price per Share
which is the base price for determining the future value of the Stock
Appreciation Right, as determined by the Committee and as specified in the
Participant's Award Agreement.
(m) "Fair Market Value" shall mean the value of each Share determined as of
any specified date as follows:
(i) If the Shares are traded on any recognized United States
securities exchange, the value per Share shall be the closing price of the
Common Stock on the business day immediately preceding such specified date (or,
if there are no sales on that day the last preceding day on which there was a
sale) on the principal exchange on which the Common Stock is traded;
(ii) If the Shares are not traded on any United States securities
exchange but are traded on any formal over-the-counter quotation system in
general use in the United States, the value per Share shall be the mean between
the closing bid and asked quotations of the Common Stock on the business day
immediately preceding such specified date (or, if there are no such quotations
on that day, the last preceding day on which there were such quotations) on the
principal system on which the Common Stock is traded; or
(iii) If neither Paragraph (i) nor (ii) applies, the value per Share
shall be determined by the Committee in good faith and based on uniform
principles consistently applied. Such determination shall be conclusive and
binding on all persons.
(n) "For Cause" shall mean the termination of a Participant's status with
the Corporation as an Employee, Director, advisor or consultant for any of the
following reasons, as determined by the Committee:
(i) The Participant commits a violation of any law, a breach of any
fiduciary duty or an act of dishonesty, fraud, misrepresentation or moral
turpitude which may have a material detrimental impact on the Corporation's
business or prevent the Participant from effectively performing his or her
duties as an Employee, Director, advisor or consultant for the Corporation; or
2
<PAGE>
(ii) The Participant, as determined in the sole discretion of the
Committee, willfully and habitually neglects to perform the duties which the
Participant is required to perform for the Corporation or performs such duties
other than in good faith and the Participant fails to correct such conduct
within ten (10) days following the Corporation's delivery to the Participant of
a written notice describing such conduct; or
(iii) The Committee determines that the reason for terminating the
Participant's status with the Corporation constitutes "for cause" under the
Corporation's policies or under any contract between the Participant and the
Corporation.
(o) "Incentive Stock Option" shall mean an Option of the type which is
described in Section 422(b) of the Code.
(p) "Non-qualified Stock Option" shall mean an Option which is not of the
type described in Section 422(b) or 423(b) of the Code.
(q) "Option" shall mean any Option which is granted pursuant to the Plan to
purchase Shares of Common Stock, whether granted as an Incentive Stock Option or
as a Non-qualified Stock Option.
(r) "Participant" shall mean any individual to whom an Award has been
granted under the Plan, and such term shall include where appropriate the duly
appointed conservator or other legal representative of a mentally incompetent
Participant and the allowable transferee of a deceased Participant as provided
Sections 7(i) and/or 8(h).
(s) "Plan" shall mean this Fountain Oil Incorporated 1995 Long-Term
Incentive Plan, as amended. The Plan is effective November 14, 1995.
(t) "Purchase Price" shall mean, at any specified time, the Exercise Price
of an Option to purchase one Share times the number of Shares subject to such
Option being exercised.
(u) "Pyramiding" shall mean, if the Committee in its sole discretion
permits, a Participant's payment, in whole or in part, of the Exercise Price of
an Option made by exchanging a Share or Share(s) of Common Stock that the
Participant had acquired pursuant to the exercise of another Option during the
preceding six months (under this Plan or any other plan or program of the
Corporation) or had otherwise acquired from the Corporation during the preceding
six months without paying full consideration for such Share(s).
(v) "Reload" shall mean the grant of new Options to a Participant who
exercises an Option with previously acquired Shares, with the number of new
Options being equal to the number of Shares the Participant submits to the
Corporation to pay for Options just exercised.
(w) "Share" shall mean one authorized share of Common Stock.
3
<PAGE>
(x) "Stock Appreciation Right" shall mean a right issued to a Participant
to receive all or any portion of the future appreciation in the Fair Market
Value of one Share of Common Stock over the Exercise Price of such right. A
Stock Appreciation Right may be settled in cash or Shares in accordance with the
terms and conditions set forth in Section 8.
(y) "Subsidiary" shall mean any corporation (other than the Corporation) in
an unbroken chain of corporations beginning with the Corporation if, at the time
of granting an Option, each of the corporations (other than the last corporation
in the unbroken chain) owns stock possessing 50% or more of the voting power in
one of the other corporations in such chain.
(z) "Ten Percent Stockholder" shall mean, for purposes of granting
Incentive Stock Options, any person who owns stock of the Corporation possessing
more than 10% of the combined voting power of all classes of outstanding stock
of the Corporation or any Subsidiary. For purposes of determining whether a
person is a Ten Percent Stockholder:
(i) A person shall be considered the owner of stock that is owned,
directly or indirectly, by or for his or her brothers or sisters, spouse,
ancestors, and lineal descendants;
(ii) Stock owned, directly or indirectly, by or for a corporation,
partnership, estate or trust shall be considered as being owned proportionally
by or for its shareholders, partners or beneficiaries, respectively; and
(iii) The term "outstanding stock" shall include all shares of stock
actually issued and outstanding, but shall not include any shares of stock
subject to stock options.
(aa) "Total and Permanent Disability" shall mean with respect to a
Participant who is either an Employee or Director:
(i) The mental or physical disability, either occupational or non-
occupational in cause, which satisfies the definition of "total disability" in
the disability policy or plan provided by the Corporation covering the
Participant; or
(ii) If no such policy or plan is then covering the Participant, the
mental or physical disability which, in the opinion of the Committee, on the
basis of medical evidence satisfactory to it, prevents the Participant from
indefinitely performing the principal duties of the position the Participant
performed when the disability commenced.
(bb) "Vest" or "Vesting" shall mean the date, event or act prior to which
an Award, in whole or in part, is not exercisable, and as a consequence of which
the Award, in whole or in part, becomes exercisable for the first time.
(cc) "Voting Power" shall mean the total combined rights to cast votes at
elections for members of the Corporation's Board of Directors.
4
<PAGE>
3. EFFECTIVE DATE.
The Plan was adopted by the Corporation effective November 14, 1995,
subject to the approval of the Corporation's shareholders in accordance with
Section 16.
4. ADMINISTRATION.
(a) Administration by the Board or the Committee.
The Board may appoint a Committee of not less than two Directors,
which may be the Compensation Committee or another Committee, to administer the
Plan. In the event the Board elects to administer the Plan, the Board shall
have the powers and authority otherwise delegated to the Committee in this Plan
and all acts to be performed by the Committee under this Plan shall be performed
by the Board.
(b) The Committee.
The Committee shall hold meetings at such times and places as it may
determine. For a Committee meeting, if the Committee has two members, both
members must be present to constitute a quorum, and if the Committee has three
or more members, a majority of the Committee shall constitute a quorum. Acts by
a majority of the members present at a meeting at which a quorum is present and
acts approved in writing by all the members of the Committee shall constitute
valid acts of the Committee.
(c) Powers of the Committee.
On behalf of the Corporation and subject to the provisions of the
Plan, the Committee shall have the authority and discretion to:
(i) Prescribe, amend and rescind rules and regulations relating to the
Plan;
(ii) Select Participants to receive Awards;
(iii) Determine the form and terms of Awards;
(iv) Determine the number of Shares or other consideration subject to
Awards;
(v) Determine whether Awards will be granted singly, in combination or
in tandem with, in replacement of, or as alternatives to, other Awards under the
Plan or any other incentive or compensation plan of the Corporation;
(vi) Construe and interpret the Plan, any Award Agreement and any
other agreement or document executed pursuant to the Plan;
5
<PAGE>
(vii) Correct any defect or omission, or reconcile any inconsistency
in the Plan, any Award or any Award Agreement;
(viii) Determine whether an Award has been earned and/or Vested;
(ix) Determine whether a Participant who is either an Employee or a
Director has incurred a Total and Permanent Disability;
(x) Accelerate or, with the consent of the Participant, defer the
Vesting of any Award and/or the exercise date of any Award;
(xi) Determine if a period of service performed by a consultant, an
advisor or a Director is "continuous" for purposes of the Plan;
(xii) Determine whether a Participant's status with the Corporation
as an Employee, Director, advisor, or consultant has been terminated For Cause;
(xiii) Authorize any person to execute on behalf of the Corporation
any instrument required to effectuate the grant of an Award as made by the
Committee;
(xiv) With the consent of the Participant, reprice, cancel and
reissue, or otherwise adjust the terms of an Award previously issued to the
Participant;
(xv) Determine, upon review of relevant information, the Fair Market
Value of the Common Stock ; and
(xvi) Make all other determinations deemed necessary or advisable for
the administration of the Plan.
(d) Committee's Interpretation of the Plan.
The Committee's interpretation and construction of any provision of
the Plan, of any Award granted under the Plan, or of any Award Agreement shall
be final and binding on all persons claiming an interest in an Award granted or
issued under the Plan. No member of the Committee nor any Director shall be
liable for any action or determination made in good faith with respect to the
Plan, and the Corporation shall indemnify and defend a member of the Committee
to the fullest extent provided by law.
5. PARTICIPATION
(a) Eligibility for Participation. Subject to the conditions of Section
5(b), all Employees, Directors, consultants, and advisors of the Corporation are
eligible to be selected as Participants by the Committee, in its discretion;
provided however, that any Director who is not also an Employee shall
participate only in the "Outside Directors Sub-Plan" which has been
6
<PAGE>
adopted under this Plan for such outside Directors, as such Sub-Plan may be
amended from time-to-time. The Committee's determination of an individual's
eligibility for participation shall be final.
(b) Eligibility for Awards. The Committee has the authority, in its
discretion, to grant Awards to Participants. A Participant may be granted more
than one Award under the Plan.
6. SHARES OF STOCK OF THE CORPORATION.
(a) Shares Subject to This Plan.
Awards which are granted or issued under this Plan shall be with
respect to the authorized but unissued or reacquired Shares of the Corporation's
Common Stock. The aggregate number of Shares which may be issued upon the
exercise of Options and/or which may be utilized with respect to Stock
Appreciation Rights settled in cash or in Shares under this Plan shall not
exceed one million five hundred thousand (1,500,000) Shares, subject to
adjustment under Section 10.
(b) Adjustment of Shares.
In the event of an adjustment described in Section 10, then (i) the
number of Shares reserved for issuance under the Plan, (ii) the Exercise Prices
of and number of Shares subject to outstanding Options, (iii) the Exercise Price
of and number of Shares with respect to which there are outstanding Stock
Appreciation Rights, and (iv) any other factor pertaining to outstanding Awards
shall be duly and proportionately adjusted, subject to any required action by
the Board or the shareholders of the Corporation and compliance with applicable
securities laws; provided, however, that fractions of a Share shall not be
issued but shall either be paid in cash at Fair Market Value or shall be rounded
up to the nearest Share, as determined by the Committee; and provided, further,
that the Exercise Price of any Option may not be decreased to below the par
value, if any, of the Shares.
(c) Awards Not to Exceed Shares Available.
The number of Shares subject to Awards which have been granted under
this Plan at any time during the Plan's term shall not, in the aggregate at any
time, exceed the number of Shares authorized for issuance under the Plan. The
number of Shares subject to a Stock Appreciation Right that is settled in cash
shall count as Shares issued under the Plan and shall not again be available for
grant or issuance under the Plan. The number of Shares subject to an Award
which expires, is canceled, is forfeited or is terminated for any reason, shall
again be available for issuance under the Plan.
7
<PAGE>
7. TERMS AND CONDITIONS OF OPTIONS.
(a) Eligibility for Incentive Stock Options.
(i) Subject to Section 7(a)(ii), Incentive Stock Options may be
granted only to Employees (irrespective of whether an Employee is also a
Director). Advisors, consultants and Directors who are not also Employees are
not eligible to be awarded Incentive Stock Options.
(ii) Any Employee who is a Ten Percent Stockholder is eligible to be
granted an Incentive Stock Option only if: (A) the Exercise Price of each Share
subject to such Incentive Stock Option, when granted, is equal to or exceeds
110% of the Fair Market Value of a Share; and (B) the term of the Incentive
Stock Option does not exceed five years.
(b) Stock Option Award Agreements.
Each Option shall be evidenced by a written Award Agreement which
shall set forth the terms and conditions pertaining to such Option, provided
that all such terms shall be subject to and consistent with this Plan.
(c) Number of Shares Covered by an Option.
Each Option Award Agreement shall state the number of Shares for which
the Option is exercisable, subject to adjustment of such Shares pursuant to
Section 10.
(d) Exercise of Options.
Only a Participant may exercise an Option, and the Participant may
exercise an Option only on or after the date on which the Option Vests, as
provided in Section 7(e) below, and only on or before the date on which the term
of the Option expires, as provided in Section 7(f) below.
(e) Vesting of Options.
Each Award Agreement shall include a Vesting schedule describing the
date, event or act upon which an Option shall Vest, in whole or in part, with
respect to all or a specified portion of the Shares covered by such Option. The
condition shall not impose upon the Corporation any obligation to retain the
Participant in its employ for any period.
(f) Term and Expiration of Options.
Subject to Section 7(q), except as otherwise specifically provided in
a Participant's Award Agreement, the term of an Option shall expire on the first
to occur of the following events:
8
<PAGE>
(i) The tenth anniversary of the date the Option was granted
(substituting "fifth anniversary" for "tenth anniversary" for an Incentive Stock
Option granted to a Ten Percent Stockholder);
(ii) The date determined under Section 7(j)(ii) for a Participant who
ceases to be an Employee, Director, advisor, or consultant of the Corporation
for any reason, other than by reason of death, Total and Permanent Disability or
For Cause;
(iii) The date determined under Section 7(k) for a Participant who
ceases to be an Employee, Director, advisor or consultant of the Corporation by
reason of the Participant's death;
(iv) The date determined under Section 7(l) for a Participant who
ceases to be an Employee or Director of the Corporation by reason of the
Participant's Total and Permanent Disability;
(v) The date determined under Section 7(m) for a Participant who
ceases to be an Employee, Director, advisor or consultant For Cause;
(vi) On the effective date of a transaction described in Section
10(b); or
(vii) The expiration date specified in the Award Agreement pertaining
to the Option.
(g) Exercise Price.
Each Award Agreement shall state the Exercise Price for the Shares to
which the Option pertains, subject to the following conditions:
(i) The Exercise Price of an Incentive Stock Option shall not be less
than 100% of the Fair Market Value of the Shares on the date the Option is
granted (substituting "110%" for "100%" for any Incentive Stock Option granted
to a Ten Percent Stockholder); and
(ii) Notwithstanding Section 7(g)(i) above, the Exercise Price of an
Option may not be below the par value, if any, of the Shares.
(h) Medium and Time of Payment of Purchase Price.
A Participant may exercise an Option by delivering notice to the
Corporation. A Participant exercising an Option shall pay the Purchase Price
for the Shares to which such exercise pertains in full in cash (in U.S. dollars)
as a condition of such exercise, unless the Committee in its discretion allows
the Participant to pay the Purchase Price in a manner allowed under Section 14,
so long as the sum of cash so paid and such other consideration equals the
Purchase Price. The sequential exercise of an Option through Pyramiding is
specifically allowable under the Plan, subject to the consent of the Committee,
in its discretion. The granting of Reload
9
<PAGE>
Options is also allowable under the Plan, subject to the consent of the
Committee, in its discretion.
(i) Nontransferability of Options.
An Option granted to a Participant shall, during the lifetime of the
Participant, be exercisable only by the Participant and shall not be assignable
or transferable. In the event of the Participant's death, an Option is
transferable by the Participant only by will or the laws of descent and
distribution.
(j) Termination of Employee, Director, Advisor or Consultant Status for Any
Reason Other Than Death, Total and Permanent Disability or For Cause.
(i) For purposes of this Section 7(j), Employee, Director, advisor or
consultant status will be treated as continuing intact while the Participant is
an Employee, Director, advisor or consultant or is on military leave, sick leave
or other bona fide leave of absence, as determined by the Committee, in its
discretion in accordance with Sections 2(j) or 4(c)(xi). The preceding sentence
notwithstanding, for determinations pertaining to Incentive Stock Options,
Employee status shall be deemed to terminate on the date that a Participant is
no longer eligible to receive an Incentive Stock Option pursuant to Section
7(a).
(ii) If a Participant ceases to be an Employee, Director, advisor or
consultant for any reason other than death, Total and Permanent Disability or
For Cause, then: (A) the Participant's Options which are not Vested at the time
that the Participant ceases to be an Employee, Director, advisor or consultant
shall be forfeited; and (B) the Participant's Options which are Vested at the
time the Participant ceases to be an Employee, Director, advisor or consultant
shall expire at 12:00 Midnight on the 30th day following the date that the
Participant ceases to be an Employee, Director, advisor or consultant (but not
beyond the date that the term of the Option would earlier have expired pursuant
to Section 7(f)), subject to the following:
(A) Pursuant to Section 4(c)(iii), the Committee may provide in a
Director's Award Agreement that a longer specified period may be substituted for
the thirty-day period described above;
(B) Pursuant to Section 7(o), the Committee may, in its sole
discretion, grant an extension of the thirty-day expiration period described
above in order to favor a Participant, provided that such extension shall be
made in writing and shall provide that all unexercised Options shall expire at
12:00 Midnight on the last day of such extension; and
(C) Any unexercised Incentive Stock Option shall in any event expire
at 12:00 Midnight on the three month anniversary of the date the Participant
ceases to be an Employee.
10
<PAGE>
(k) Death of Participant.
If a Participant dies while an Employee, Director, advisor or
consultant, any Option granted to the Participant may be exercised, to the
extent it was Vested on the date of the Participant's death or became Vested as
a result of the Participant's death, at any time within six (6) months after the
Participant's death (but not beyond the date that the term of the Option would
earlier have expired pursuant to Section 7(f) had the Participant's death not
occurred), subject to the following:
(i) Pursuant to Section 7(o), the Committee may, in its sole
discretion, grant an extension of the six-month expiration period described
above in order to favor a Participant, provided that such extension shall be
made in writing and shall provide that all unexercised Options shall expire at
12:00 Midnight on the last day of such extension; and
(ii) Any unexercised Incentive Stock Option shall in any event expire
at 12:00 Midnight on the one year anniversary of the Participant's death.
(l) Total and Permanent Disability of Participant.
If a Participant ceases to be an Employee or Director as a consequence
of Total and Permanent Disability, any Option granted to the Participant may be
exercised, to the extent it was Vested on the date that the Participant ceased
to be an Employee or Director or became Vested as a result of Participant's
Total and Permanent Disability, at any time within six (6) months after such
date (but not beyond the date that the term of the Option would earlier have
expired pursuant to 7(f) had the Participant's Total and Permanent Disability
not occurred), subject to the following:
(i) Pursuant to Section 7(o), the Committee may, in its sole
discretion, grant an extension of the six-month expiration period described
above in order to favor a Participant, provided that such extension shall be
made in writing and shall provide that any unexercised Option shall expire at
12:00 Midnight on the last day of such extension; and
(ii) Any unexercised Incentive Stock Option shall expire at 12:00
Midnight on the one year anniversary of the date the Participant ceases to be an
Employee by reason of Total and Permanent Disability.
(m) Termination For Cause.
If a Participant ceases to be an Employee, Director, advisor or
consultant For Cause, any Vested Option granted to the Participant may be
exercised no later than 12:00 Midnight on the date such termination For Cause
occurs.
11
<PAGE>
(n) Rights as a Stockholder.
A Participant shall have no rights as a stockholder of the Corporation
with respect to any Shares for which an Option is exercisable or has been
exercised until the date a stock certificate for such Shares is issued to the
Participant. No adjustment shall be made for dividends (ordinary or
extraordinary or whether in currency, securities, or other property),
distributions, or other rights for which the record date is prior to the date
such stock certificate is issued.
(o) Modification, Extension, and Renewal of Options.
Within the limitations of the Plan, the Committee may, in its
discretion, modify, extend or renew any outstanding Option or accept the
cancellation of outstanding Options for the granting of a new Option in
substitution therefore. Notwithstanding the preceding sentence, no modification
of an Option shall:
(i) Without the consent of the Participant, alter or impair any rights
or obligations under any Option previously granted or cause an Incentive Stock
Option previously granted to fail to satisfy all the conditions required to
qualify as an Incentive Stock Option; or
(ii) Exceed or otherwise violate any limitation set forth in this
Section 7.
(p) Other Provisions.
An Award Agreement may contain such other provisions as the Committee
in its discretion deems advisable which are not inconsistent with the terms of
the Plan, including but not limited to:
(i) Restrictions on the exercise of the Option;
(ii) Submission by the Participant of such forms and documents as the
Committee may require; and/or
(iii) Procedures to facilitate the payment of the Exercise Price of
an Option under any method allowable under Section 14.
(q) No Disqualification of Incentive Stock Options.
Notwithstanding any other provision of the Plan, the Plan shall not be
interpreted, amended or altered, nor shall any discretion or authority granted
under the Plan be exercised, so as to disqualify the Plan under Section 422 of
the Code or, without the consent of the Participant affected, disqualify any
Incentive Stock Option under Section 422 of the Code (except as provided in
Section 7(r)).
12
<PAGE>
(r) Limitation on Incentive Stock Options.
The aggregate Fair Market Value (determined with respect to each
Incentive Stock Option as of such Incentive Stock Option's date of grant) of all
Shares with respect to which a Participant's Incentive Stock Options become
Vested during any calendar year (under the Plan and under other incentive stock
option plans of the Corporation, if any) shall not exceed US$100,000. Any
purported Incentive Stock Options in excess of such limitation shall be
recharacterized as Non-qualified Stock Options.
8. STOCK APPRECIATION RIGHTS.
(a) Stock Appreciation Right Award Agreements.
Each Stock Appreciation Right shall be evidenced by a written Award
Agreement which shall set forth the terms and conditions pertaining to such
Stock Appreciation Right, provided that all such terms shall be subject to and
consistent with this Plan.
(b) Number of Shares Covered by a Stock Appreciation Right.
Each Stock Appreciation Right Award Agreement shall state the number
of Shares to which it pertains and the Exercise Price which is the basis for
determining future appreciation, subject to adjustment pursuant to Section 10.
(c) Stock Appreciation Rights Issued and Exercised Without Payment of
Consideration.
A Stock Appreciation Right shall be issued to and exercised by a
Participant without payment by the Participant of any consideration.
(d) Exercise of Stock Appreciation Rights.
Only a Participant may exercise a Stock Appreciation Right, and the
Participant may exercise a Stock Appreciation Right only on or after the date on
which the Stock Appreciation Right vests, as provided in Section 8(e), below,
and only on or before the date on which the Stock Appreciation Right expires, as
provided in Section 8(f) below.
(e) Vesting of Stock Appreciation Rights.
Each Award Agreement shall include a Vesting schedule describing the
date, event or act upon which the Stock Appreciation Right to which it pertains
Vests, in whole or in part. This condition shall not impose upon the
Corporation any obligation to retain the Participant in its employ for any
period.
13
<PAGE>
(f) Term and Expiration of Stock Appreciation Rights.
Except as otherwise specifically provided in a Participant's Award
Agreement, the term of a Stock Appreciation Right shall expire on the first to
occur of the following events:
(i) The tenth anniversary of the date the Right was granted;
(ii) The date determined under Section 8(i)(ii) for a Participant who
ceases to be an Employee, Director, advisor or consultant for any reason, other
than by reason of death, Total and Permanent Disability or For Cause;
(iii) The date determined under Section 8(j) for a Participant who
ceases to be an Employee, Director, advisor or consultant of the Corporation by
reason of the Participant's death;
(iv) The date determined under Section 8(k) for a Participant who
ceases to be an Employee or Director of the Corporation by reason of the
Participant's Total and Permanent Disability;
(v) The date determined under Section 8(l) for a Participant who
ceases to be an Employee, Director, advisor or consultant For Cause;
(vi) On the effective date of a transaction described in Section
10(b); or
(vii) The expiration date specified in the Award Agreement pertaining
to the Stock Appreciation Right.
(g) Exercise and Settlement of a Stock Appreciation Right.
A Participant may exercise a Vested Stock Appreciation Right by
delivering notice to the Corporation. The Stock Appreciation Right may be
settled in the form of cash (either in a lump sum payment or in installments),
whole Shares, or a combination thereof, as the Award Agreement prescribes.
(h) Nontransferability of Stock Appreciation Rights.
A Stock Appreciation Right granted to a Participant shall, during the
lifetime of the Participant, be exercisable only by the Participant and shall
not be assignable or transferable. In the event of the Participant's death, a
Stock Appreciation Right is transferable by the Participant only by will or the
laws of descent and distribution.
14
<PAGE>
(i) Termination of Employee, Director, Advisor or Consultant Status for any
Reason Other Than Death, Total and Permanent Disability or For Cause.
(i) For purposes if this Section 8(i)(i), Employee, Director, advisor
or consultant status will be treated as continuing intact while the Participant
is an Employee, Director, advisor or consultant or is on military leave, sick
leave or other bona fide leave of absence, as determined by the Committee, in
its discretion in accordance with Sections 2(j) or 4(c)(xi).
(ii) If a Participant ceases to be an Employee, Director, advisor or
consultant for any reason other than death, Total and Permanent Disability or
For Cause, then: (A) the Participant's Stock Appreciation Rights which are not
Vested at the time that the Participant ceases to be an Employee, Director,
advisor or consultant shall be forfeited; and (B) the Participant's Stock
Appreciation Rights which are Vested at the time the Participant ceases to be an
Employee, Director, advisor or consultant shall expire at 12:00 Midnight on the
30th day following the date that the Participant ceases to be an Employee,
Director, advisor or consultant (but not beyond the date that the term of the
Stock Appreciation Right would earlier have expired pursuant to Section 8(f),
subject to the following:
(A) Pursuant to Section 4(c)(iii), the Committee may provide in a
Director's Award Agreement that a longer specified period may be substituted for
the thirty-day period described above; and
(B) Pursuant to Section 8(n), the Committee may, in its sole
discretion, grant an extension of the thirty-day expiration period described
above in order to favor a Participant, provided that such extension shall be
made in writing and shall provide that all unexercised Stock Appreciation Rights
shall expire at 12:00 Midnight on the last day of such extension.
(j) Death of Participant.
If a Participant dies while an Employee, Director, advisor or
consultant, any Stock Appreciation Right granted to the Participant may be
exercised, to the extent it was Vested on the date of the Participant's death or
became Vested as a consequence of the Participant's death, at any time within
six (6) months after the Participant's death (but not beyond the date that the
term of the Stock Appreciation Right would earlier have expired pursuant to
Section 8(f) had the Participant's death not occurred), provided that pursuant
to Section 8(n), the Committee may, in its sole discretion, grant an extension
of the six-month expiration period described above in order to favor a
Participant, provided that such extension shall be made in writing and shall
provide that all unexercised Stock Appreciation Rights shall expire at 12:00
Midnight on the last day of such extension.
15
<PAGE>
(k) Total and Permanent Disability of Participant.
If a Participant ceases to be an Employee or Director as a consequence
of Total and Permanent Disability, any Stock Appreciation Right granted to the
Participant may be exercised, to the extent it was Vested on the date that the
Participant ceased to be an Employee or Director or became Vested as a
consequence of the Participant's Total and Permanent Disability, at any time
within six (6) months after such date (but not beyond the date that the term of
the Stock Appreciation Right would earlier have expired pursuant to 8(f) had the
Participant's Total and Permanent Disability not occurred), provided that
pursuant to Section 8(n), the Committee may, in its sole discretion, grant an
extension of the six-month expiration period described above in order to favor a
Participant, provided that such extension shall be made in writing and shall
provide that any unexercised Option shall expire at 12:00 Midnight on the last
day of such extension.
(l) Termination For Cause.
If a Participant ceases to be an Employee, Director, advisor or
consultant For Cause, any Vested Stock Appreciation Right granted to the
Participant may be exercised no later than 12:00 Midnight on the date such
termination For Cause occurs.
(m) Rights as a Stockholder.
A Participant shall have no rights as a shareholder of the Corporation
with respect to any Shares to which a Stock Appreciation Right pertains, except
for Stock Appreciation Rights settled in Shares and then not until the date a
stock certificate for such Shares is issued to the Participant. No adjustment
shall be made for dividends (ordinary or extraordinary or whether in currency,
securities, or other property), distributions, or other rights for which the
record date is prior to the date such stock certificate is issued.
(n) Modification, Extension, and Renewal of Stock Appreciation Rights.
Within the limitations of the Plan, the Committee may, in its
discretion, modify, extend or renew any outstanding Stock Appreciation Right or
accept the cancellation of an outstanding Stock Appreciation Right for the
granting of a new Stock Appreciation Right in substitution therefore.
Notwithstanding the preceding sentence, no modification of a Stock Appreciation
Right shall, without the consent of the Participant, alter or impair any rights
or obligations under any Stock Appreciation Right previously granted.
(o) Other Provisions.
An Award Agreement may contain such other provisions as the Committee
in its discretion deems advisable which are not inconsistent with the terms of
the Plan, including but not limited to:
(i) Restrictions on the exercise of the Stock Appreciation Right;
and/or
16
<PAGE>
(ii) Submission by the Participant of such forms and documents as the
Committee may require.
9. TERM OF PLAN.
Awards may be granted pursuant to the Plan through the period ending
on November 13, 2005. All Awards which are outstanding on such date shall
remain in effect until they are exercised or expire by their terms. The Plan
shall expire for all purposes on November 13, 2015. The Board is authorized to
extend the Plan for an additional term at any time; however, no Incentive Stock
Options may be granted under the Plan during a term resulting from such
extension unless the extension is approved by the stockholders of the
Corporation within one year of such extension.
10. RECAPITALIZATION, DISSOLUTION, AND CHANGE OF CONTROL.
(a) Recapitalization.
Notwithstanding any other provision of the Plan to the contrary, but
subject to any required action by the stockholders of the Corporation and
compliance with any applicable securities laws, the Committee shall make any
adjustments to the class and/or number of Shares covered by the Plan, the number
of Shares for which each outstanding Award pertains, the Exercise Price of an
Option, the Exercise Price of a Stock Appreciation Right, and/or any other
aspect of this Plan to prevent the dilution or enlargement of the rights of
Participants under this Plan in connection with any increase or decrease in the
number of issued Shares resulting from the payment of a Common Stock dividend,
stock split, reverse stock split, recapitalization, combination, or
reclassification or any other event which results in an increase or decrease in
the number of issued Shares without receipt of adequate consideration by the
Corporation (as determined by the Committee).
(b) Dissolution, Merger, Consolidation, or Sale or Lease of Assets.
Upon the (i) dissolution or liquidation of the Corporation, (ii)
merger of consolidation of the Corporation with another corporation or other
entity pursuant to which the Corporation is not the surviving entity, (iii) sale
or lease of all or substantially all the business assets of the Corporation, or
(iv) the sale of more than 80% of the outstanding Common Stock of the
Corporation, unless the surviving or acquiring corporation or entity agrees to
assume outstanding Awards, each Award granted hereunder shall expire as of the
effective date of such transaction; provided, however, that the Committee may,
in its discretion, give written notice of such event to any Participant who
shall then have the right to exercise his or her Vested Awards prior to the
effective date of such transaction, subject to earlier expiration pursuant to
Sections 7 or 8 (as applicable).
17
<PAGE>
(c) Determination by the Committee.
All adjustments described in this Section 10 shall be made by the
Committee in its discretion, and such determination shall be conclusive and
binding on all persons.
(d) Limitation on Rights of Participants.
Except as expressly provided in this Section 10, no Participant shall
have any rights by reason of any reorganization, dissolution, change of control,
merger or acquisition. Any issuance by the Corporation of Awards shall not
affect, and no adjustment by reason thereof shall be made with respect to, any
Awards previously issued under the Plan.
(e) No Limitation on Rights of Corporation.
The grant of an Award pursuant to the Plan shall not affect in any way
the right or power of the Corporation to make adjustments, reclassifications,
reorganizations, or changes of its capital or business structure, or to merge or
consolidate, or to dissolve, liquidate, sell or transfer all or any part of its
business or assets.
11. SECURITIES LAW REQUIREMENTS.
(a) Legality of Issuance.
No Share shall be issued upon the exercise of any Award unless and
until the Committee has determined that:
(i) The Corporation and the Participant have taken all actions
required to register the Shares under the Securities Act of 1933, as amended
(the "Act"), or to perfect an exemption from registration requirements of the
Act, or to determine that the registration requirements of the Act do not apply
to such exercise;
(ii) Any applicable listing requirement of any stock exchange on which
the Share is listed has been satisfied; and
(iii) Any other applicable provision of state, federal or foreign law
has been satisfied.
(b) Restrictions on Transfer; Representations of Participant; Legends.
Regardless of whether the offering and sale of Shares under the Plan
have been registered under the Act or have been registered or qualified under
the securities laws of any state, the Corporation may impose restrictions upon
the sale, pledge, or other transfer of such Shares (including the placement of
appropriate legends on stock certificates) if, in the judgment of the
Corporation and its counsel, such restrictions are necessary or desirable to
achieve compliance with the provisions of the Act, the securities laws of any
state, or any other law. If the offering
18
<PAGE>
and/or sale of Shares under the Plan is not registered under the Act and the
Corporation determines that the registration requirements of the Act apply but
an exemption is available which requires an investment representation or other
representation, the Participant shall be required, as a condition to acquiring
such Shares, to represent that such Shares are being acquired for investment,
and not with a view to the sale or distribution thereof, except in compliance
with the Act, and to make such other representations as are deemed necessary or
appropriate by the Corporation and its counsel. Stock certificates evidencing
Shares acquired pursuant to an unregistered transaction to which the Act applies
shall bear a restrictive legend substantially in the following form and such
other restrictive legends as are required or deemed advisable under the Plan or
the provisions of any applicable law:
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933
("ACT"). THEY MAY NOT BE TRANSFERRED, SOLD OR OFFERED FOR SALE UNLESS A
REGISTRATION STATEMENT UNDER THE ACT IS IN EFFECT AS TO SUCH TRANSFER OR IN
THE OPINION OF COUNSEL FOR THE ISSUER EITHER SUCH REGISTRATION IS
UNNECESSARY IN ORDER FOR SUCH TRANSFER TO COMPLY WITH THE ACT OR THE
REGISTRATION PROVISIONS OF THE ACT DO NOT APPLY TO SUCH PROPOSED TRANSFER.
Any determination by the Corporation and its counsel in connection with any of
the matters set forth in this Section 11 shall be conclusive and binding on all
persons.
(c) Registration or Qualification of Securities.
The Corporation may, but shall not be obligated to, register or
qualify the offering or sale of Shares under the Act or any other applicable
law.
(d) Exchange of Certificates.
If, in the opinion of the Corporation and its counsel, any legend
placed on a stock certificate representing Shares issued pursuant to the Plan is
no longer required, the Participant or the holder of such certificate shall be
entitled to exchange such certificate for a certificate representing the same
number of Shares but lacking such legend.
12. EXERCISE OF UNVESTED OPTIONS.
(a) Purpose of Section 12.
This Section 12 is intended to apply for the benefit of a Participant
prior to the time Shares held by the Participant are freely transferable under
applicable federal and state securities laws without the Participant holding the
Shares for a minimum period of time (such as the holding period requirement of
Rule 144 adopted by the Securities and Exchange Commission under the Act). It
provides that a Participant with a non-Vested Award may commence this holding
period for the Shares subject to the Award by exercising the non-Vested Award
and
19
<PAGE>
receiving Shares of restricted stock which will Vest on the same date as the
Award would have Vested. Any restricted stock issued under this Section 12 for
non-vested Awards which expire pursuant to Section 7 or Section 8, as
applicable, shall be reconveyed to the Corporation at the Exercise Price, if
any, paid by the Participant to the Corporation to acquire such Shares (in cash
and/or in Shares as paid by the Participant), subject, however, to complying
with any legal requirement relating to the Corporation's ability to repurchase
its own securities. In this way, the Participant is able to begin the holding
period for the Shares prior to the date the Award would have Vested.
(b) Exercise of Unvested Awards and Issuance of Restricted Stock.
The Committee, in its sole discretion may:
(i) Grant any Participant the right to exercise any Award prior to the
Vesting of such Award, provided that the Shares issued upon such exercise shall
remain subject to Vesting, as restricted stock, at the same rate as under the
Award so exercised; and/or
(ii) Require the Corporation and the Participant to establish an
escrow arrangement to facilitate the re-transfer to the Corporation of any
Shares of restricted stock which are not Vested and are to be reconveyed, on or
before the applicable date described in Section 7 or 8, as applicable, for
determining the expiration of the Award pursuant to which such Shares were
issued under this Section 12.
13. AMENDMENT OF THE PLAN.
The Committee may, from time to time, terminate, suspend or discontinue the
Plan, in whole or in part, or revise or amend it in any respect whatsoever
including, but not limited to, the adoption of any amendment deemed necessary or
advisable to qualify the Awards under rules and regulations promulgated by the
Securities and Exchange Commission with respect to Employees who are subject to
the provisions of Section 16 of the Exchange Act, or to correct any defect or
supply any omission or reconcile any inconsistency in the Plan or in any Award
granted under the Plan, with or without approval of the stockholders of the
Corporation, but if any such action is taken without the approval of the
Corporation's stockholders, no such revision or amendment shall:
(a) Increase the number of Shares subject to the Plan, other than any
increase pursuant to Section 10;
(b) Change the designation of the class of persons eligible to receive
Incentive Stock Options; or
(c) Amend this Section 13 to defeat its purpose.
No amendment, termination or modification of the Plan shall, without the consent
of a Participant, adversely affect the Participant with respect to any Award
previously granted to the Participant.
20
<PAGE>
14. PAYMENT FOR SHARE PURCHASES.
Payment of the Purchase Price for any Shares purchased pursuant to the Plan
may be made in cash (in U.S. dollars) or, where expressly approved for the
Participant by the Committee, in its discretion, and where permitted by law:
(a) By check;
(b) By cancellation of indebtedness of the Corporation to the Participant;
(c) By surrender of Shares that either: (A) have been owned by Participant
for more than six months (unless the Committee permits a Participant to exercise
an Option by Pyramiding, in which event the six months holding period shall not
apply) and have been "paid for" within the meaning of SEC Rule 144 (and, if such
shares were purchased from the Corporation by use of a promissory note, such
note has been fully paid with respect to such Shares); or (B) were obtained by
Participant in the public market;
(d) By tender of a full recourse promissory note having such terms as may
be approved by the Committee and bearing interest at a rate sufficient to avoid
imputation of income under Sections 483 and 1274 of the Code; provided, however,
that Participants who are not Employees shall not be entitled to purchase Shares
with a promissory note unless the note is adequately secured by collateral other
than the Shares; provided, further, that the portion of the Purchase Price equal
to the par value of the Shares, if any, must be paid in cash if required by
state law;
(e) By waiver of compensation due or accrued to Participant for services
rendered;
(f) With respect only to purchases upon exercise of an Option, and provided
that a public market for the Corporation's stock exists:
(i) Through a "same day sale" commitment from the Participant and a
broker-dealer that is a member of the National Association of Securities Dealers
(an "NASD Dealer") whereby the Participant irrevocably elects to exercise the
Option and to sell a portion of the Shares so purchased to pay for the Exercise
Price, and whereby the NASD Dealer irrevocably commits upon receipt of such
Shares to forward the Exercise Price directly to the Corporation; or
(ii) Through a "margin" commitment from the Participant and an NASD
Dealer whereby the Participant irrevocably elects to exercise the Option and to
pledge the Shares so purchased to the NASD Dealer in a margin account as
security for a loan from the NASD Dealer in the amount of the Exercise Price,
and whereby the NASD Dealer irrevocably commits upon receipt of such Shares to
forward the Exercise Price directly to the Corporation; or
(iii) By any combination of the foregoing.
21
<PAGE>
15. APPLICATION OF FUNDS.
The proceeds received by the Corporation from the sale of Common Stock
pursuant to the exercise of an Option shall be used for general corporate
purposes.
16. APPROVAL OF SHAREHOLDERS.
The Plan shall be subject to approval by the affirmative vote of the
holders of a majority of the outstanding shares present and entitled to vote at
the first annual meeting of shareholders of the Corporation following the
adoption of the Plan by the Board, and in no event later than November 13, 1996.
Prior to such approval, Options and/or Stock Appreciation Rights may be granted
but may not be exercised or settled. Pursuant to Section 13, certain amendments
shall also be subject to approval by the Corporation's shareholders.
17. WITHHOLDING OF TAXES.
(a) General.
Whenever Shares are to be issued under the Plan, the Corporation may
require the Participant to remit to the Corporation an amount sufficient to
satisfy foreign, federal, state and local withholding tax requirements prior to
the delivery of any certificate or certificates for such Shares. Whenever,
under the Plan, payments in satisfaction of Stock Appreciation Rights are to be
made in cash, such payment shall be net of an amount sufficient to satisfy
foreign, federal, state, and local withholding tax requirements.
(b) Stock Withholding.
When, under applicable tax laws, a Participant incurs tax liability in
connection with the exercise of any Option or the exercise of a Stock
Appreciation Right that is settled in Shares that is subject to tax withholding
and the Participant is obligated to pay the Corporation the amount required to
be withheld, the Committee may at its sole discretion allow the Participant to
satisfy the minimum withholding tax obligation by electing to have the
Corporation withhold from the Shares to be issued the specific number of Shares
having a Fair Market Value equal to the minimum amount required to be withheld,
determined on the date that the amount of tax to be withheld is to be determined
(the "Tax Date"). All elections by a Participant to have Shares withheld for
this purpose shall be made in writing in a form acceptable to the Committee and
shall be subject to the following restrictions:
(i) The election must be made on or prior to the applicable Tax Date;
(ii) Once made, then except as provided below, the election shall be
irrevocable as to the particular Shares as to which the election is made;
(iii) All elections shall be subject to the consent or disapproval of
the Committee; and
22
<PAGE>
(iv) In the event that the Tax Date is deferred until six months after
the delivery of Shares under Section 83(b) of the Code, the Participant shall
receive the full number of Shares with respect to which the exercise occurs, but
(A) such Participant shall be unconditionally obligated to tender back to the
Corporation the proper number of Shares on the Tax Date, and (B) the Committee
may require the Corporation and the Participant to establish an escrow
arrangement to facilitate the re-transfer of such re-tendered Shares to the
Corporation.
18. RIGHTS AS AN EMPLOYEE, DIRECTOR, ADVISOR OR CONSULTANT.
The Plan shall not be construed to give any individual the right to remain
in the employ of the Corporation (or a Subsidiary) or to affect the right of the
Corporation (or such Subsidiary) to terminate such individual's status as an
Employee, Director, advisor or consultant at any time, with or without cause.
The grant of an Award shall not entitle the Participant to, or disqualify the
Participant from, participation in the grant of any other Award under the Plan
or participation in any other plan maintained by the Corporation.
19. INSPECTION OF RECORDS.
Copies of the Plan, records reflecting each Participant's Awards and any
other documents and records which a Participant is entitled by law to inspect
shall be open to inspection by the Participant and his or her duly authorized
representative at the office of the Corporation at any reasonable business hour
upon reasonable advance notice from the Participant.
23
<PAGE>
FOUNTAIN OIL INCORPORATED
1995 LONG-TERM INCENTIVE PLAN
SUB-PLAN FOR UNITED KINGDOM PARTICIPANTS
(EFFECTIVE NOVEMBER 14, 1995)
24
<PAGE>
FOUNTAIN OIL INCORPORATED
1995 LONG-TERM INCENTIVE PLAN
SUB-PLAN FOR UNITED KINGDOM PARTICIPANTS
1. PURPOSE.
This Sub-Plan for United Kingdom Participants (the "United Kingdom Sub-
Plan") is established under the Fountain Oil Incorporated 1995 Long-Term
Incentive Plan (the "Plan"). This Sub-Plan sets forth special terms and
restrictions which apply to all Stock Options granted to a covered Participant
who, on the date the Award is granted, is a "United Kingdom Participant," as
defined as in Section 2(a) of this Sub-Plan. The Corporation has adopted this
Sub-Plan to provide United Kingdom Participants an opportunity to be granted
Stock Option(s) under the Plan which qualify for favorable tax treatment under
current Inland Revenue provisions.
All Stock Options granted pursuant to this Sub-Plan shall be subject to the
terms and conditions provided in the Plan and in this Sub-Plan; provided,
however that except as otherwise specifically provided or as the context
otherwise requires, the terms and conditions of this Sub-Plan shall govern in
the event of a conflict with the terms and conditions of the Plan.
2. DEFINITIONS.
Capitalized terms shall have the meanings set forth in Section 2 of the
Plan, and the following additional terms shall have the meanings specified
below:
(a) "United Kingdom Participant" shall mean a Participant who, on the date
a Stock Option is granted to the Participant, is domiciled in the United
Kingdom, is subject to taxation under Inland Revenue provisions as an "employee
resident" or an "ordinarily resident" individual, as such terms are defined for
Inland Revenue purposes, and elects to be covered by this Sub-Plan with respect
to such Stock Option.
(b) "United Kingdom Sub-Plan" shall mean this Sub-Plan covering Awards
granted to United Kingdom Participants.
3. EFFECTIVE DATE.
This United Kingdom Sub-Plan was adopted by the Board effective
November 14, 1995, as part of and subject to the terms of the Plan.
4. ADMINISTRATION.
This United Kingdom Sub-Plan shall be administered in accordance with
Section 4 of the Plan.
25
<PAGE>
5. COVERAGE OF THE UNITED KINGDOM SUB-PLAN.
The terms and conditions of this United Kingdom Sub-Plan shall apply only
to United Kingdom Participants who consent in writing to such coverage. A
United Kingdom Participant shall provide such written consent in the Award
Agreement issued with respect to the Award governed by this Sub-Plan, and such
consent shall be irrevocable with respect to such Award, except as specifically
authorized by the Committee in its discretion.
6. MAXIMUM TERM FOR STOCK OPTIONS.
All Stock Options which are granted to the United Kingdom Participants and
which are covered by this Sub-Plan shall have a maximum term which in no event
exceeds seven years from the date of the grant of such Stock Options. This
restriction shall be set forth in the Award Agreements issued with respect to
such Stock Options.
7. AMENDMENTS.
The Committee may amend the terms of this United Kingdom Sub-Plan at such
time or times as it deems advisable. If the Committee determines that any
amendment may be applied retroactively or prospectively to an outstanding Stock
Option subject to the terms of this Sub-Plan, the Committee shall first obtain
the written consent of a United Kingdom Participant prior to applying such
amendment to a Stock Option previously issued to such Participant.
26
<PAGE>
FOUNTAIN OIL INCORPORATED
1995 LONG-TERM INCENTIVE PLAN
AUTOMATIC GRANT SUB-PLAN FOR OUTSIDE DIRECTORS
(EFFECTIVE NOVEMBER 14, 1995)
(AMENDED AND RESTATED AS OF MARCH 18, 1997)
27
<PAGE>
FOUNTAIN OIL INCORPORATED
1995 LONG-TERM INCENTIVE PLAN
AUTOMATIC GRANT SUB-PLAN FOR OUTSIDE DIRECTORS
1. PURPOSE.
This Automatic Grant Sub-Plan for Outside Directors (the "Outside Directors
Sub-Plan") is established under the Fountain Oil Incorporated 1995 Long-Term
Incentive Plan (the "Plan") to provide each non-Employee Director of the
Corporation (an "Outside Director") an opportunity to be granted Non-qualified
Stock Options under the Plan. The Corporation has adopted this Sub-Plan to
attract and retain qualified Outside Directors and to motivate Outside Directors
to increase the Corporation's value.
All Non-qualified Stock Options granted pursuant to this Sub-Plan shall be
subject to the terms and conditions provided in the Plan and in this Sub-Plan;
provided, however, that except as otherwise specifically provided or as the
context otherwise requires, the terms and conditions of this Sub-Plan shall
govern in the event of a conflict with the terms and conditions of the Plan.
2. DEFINITIONS.
Capitalized terms shall have the meanings set forth in Section 2 of the
Plan, and the following additional terms shall have the meanings specified
below:
(a) "Outside Director" shall mean a Director who is not an Employee of the
Corporation or any Subsidiary.
(b) "Outside Directors Sub-Plan" shall mean this Automatic Grant Sub-Plan
for Outside Directors, as amended.
3. EFFECTIVE DATE.
The Outside Directors Sub-Plan was adopted by the Board effective
November 14, 1995.
4. ADMINISTRATION.
The Outside Directors Sub-Plan shall be administered by the Board in
accordance with Section 4 of the Plan.
28
<PAGE>
5. PARTICIPATION.
(a) Eligibility for Participation. Only Outside Directors shall
participate in this Sub-Plan. The Board's determination of an individual's
eligibility for participation shall be final and binding.
(b) Commencement of Participation. An Outside Director shall commence
participation in this Sub-Plan on the date elected or appointed as a Director
(or, for Outside Directors on the effective date of this Sub-Plan, the date re-
elected as a Director). A Director who is an Employee at election or appointment
and who thereafter ceases to be an Employee (thereby becoming an Outside
Director) shall commence participation in this Sub-Plan on the date the Director
is next reelected or reappointed as a Director.
(c) Termination of Participation. An Outside Director's participation in
this Sub-Plan shall terminate on the earlier of (i) the date the Outside
Director ceases to serve as a Director for any reason, or (ii) on the date the
Outside Director becomes an Employee.
6. AUTOMATIC GRANT OF NON-QUALIFIED STOCK OPTIONS TO OUTSIDE DIRECTORS.
(a) Automatic Grant of Non-qualified Stock Options.
Non-qualified Stock Options shall be granted to Outside Directors on
such date(s) and in such amounts as specified in Section 6(b), at an Exercise
Price determined pursuant to Section 6(c), and subject to such terms as set
forth in Section 6(d).
(b) Dates of Grant and Number of Options Granted.
(i) Seven thousand five hundred (7,500) Non-qualified Stock Options
shall be granted to each Outside Director on the date the Outside Director is
first elected or appointed to the Board (or the date re-elected to the Board
with respect to those Directors who are Outside Directors on the effective date
of this Sub-Plan);
(ii) Thereafter, seven thousand five hundred (7,500) Non-qualified
Stock Options shall be granted to each Outside Director on the date of each
meeting of the shareholders of the Corporation at which such Outside Director is
elected or re-elected, with such grant to be effective immediately following the
adjournment of such meeting; and
(iii) An additional seven thousand five hundred (7,500) Non-qualified
Stock Options shall be granted to an Outside Director on the day after the
annual meeting of shareholders (or special meeting in lieu of an annual meeting
at which all directors are elected) of the Corporation if on such date he or she
is (y) then serving as Chairman of the Board or (z) then serving as Vice
Chairman of the Board and the Chairman of the Board is an Employee.
29
<PAGE>
Provided, however, that no Outside Director shall receive more than one
grant pursuant to each of clause (ii) and (iii) in any fiscal year and, provided
further, that if in any fiscal year the Corporation does not hold a meeting of
shareholders which results in the grant of the Options provided for in clauses
(ii) and (iii), then the Options provided for by each of clause (ii) and (iii)
shall be granted on the last day of such fiscal year to the Outside Directors
then serving in the applicable capacities as of such date.
(c) Exercise Price.
The Exercise Price of each Non-qualified Stock Option granted pursuant
to this Sub-Plan shall be equal to 100% of the Fair Market Value of the Shares
on the date the Option is granted.
(d) Term and Vesting of the Non-qualified Stock Options.
Each Non-qualified Stock Option granted pursuant to this Sub-Plan
shall be governed by the following terms:
(i) The term of each Option shall expire on the first to occur of (A)
the third anniversary of the date the Option was granted, or (B) the first
anniversary of the date the Outside Director ceased to serve as a Director for
any reason;
(ii) Each Option shall become one hundred percent (100%) vested on the
six month anniversary of the date the Option was granted; and
(iii) An Outside Director may exercise a Vested Non-qualified Stock
Option at any time but not beyond the date that the term of the Option expires
as provided above.
30
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 19,987,309
<SECURITIES> 0
<RECEIVABLES> 407,760
<ALLOWANCES> 0
<INVENTORY> 192,000
<CURRENT-ASSETS> 21,484,353
<PP&E> 9,311,470
<DEPRECIATION> 670,003
<TOTAL-ASSETS> 52,329,200
<CURRENT-LIABILITIES> 1,166,465
<BONDS> 0
2,244,749
0
<COMMON> 0
<OTHER-SE> 48,792,050
<TOTAL-LIABILITY-AND-EQUITY> 52,329,200
<SALES> 0
<TOTAL-REVENUES> 109,660
<CGS> 0
<TOTAL-COSTS> 461,903
<OTHER-EXPENSES> 1,442,410
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 67,332
<INCOME-PRETAX> (3,425,408)
<INCOME-TAX> 0
<INCOME-CONTINUING> (3,425,408)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,425,408)
<EPS-PRIMARY> (0.15)
<EPS-DILUTED> 0
</TABLE>
