<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 MARCH 31, 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 SMALL BUSINESS ISSUER AS SPECIFIED IN ITS CHARTER)
Delaware 91-0881481
- ------------------------------------------------------------------------------
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
1400 Broadfield Blvd., Suite 100, Houston, Texas 77084-5163
- ------------------------------------------------------------------------------
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
281-492-6992
- ------------------------------------------------------------------------------
(ISSUER'S TELEPHONE NUMBER)
- ------------------------------------------------------------------------------
(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 April 30, 1997
was 22,411,489.
<PAGE>
PART I - FINANCIAL INFORMATION
FOUNTAIN OIL INCORPORATED AND SUBSIDIARIES
ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED CONDENSED BALANCE SHEET
<TABLE>
<CAPTION>
Unaudited
---------------------------------
MARCH 31, December 31,
1997 1996
-------------- -----------------
<S> <C> <C>
ASSETS
------
Current Assets:
Cash and cash equivalents $ 25,227,861 $ 31,424,064
Trade accounts receivable, net 841 849
Accounts receivable - affiliated
entities 564,078 259,040
Other current assets 965,510 621,562
--------------- -------------
Total current assets 26,758,290 32,305,515
Restricted cash 6,400,000 5,400,000
Notes receivable 190,186 190,186
Property and equipment, net 8,875,068 7,766,479
Oil and gas properties, net, full cost
method (including unevaluated amounts of
$750,160 and $257,407, respectively) 1,268,091 259,338
Investment in and advances to
oil and gas ventures, net 10,426,447 8,567,563
Other assets 155,315 885,980
--------------- -------------
TOTAL ASSETS $ 54,073,397 $ 55,375,061
=============== =============
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current Liabilities:
Accounts payable $ 899,878 $ 799,985
Accrued liabilities 561,927 1,124,425
---------------- -------------
Total current liabilities 1,461,805 1,924,410
Minority interest in subsidiaries 164,554 205,380
Stockholders' Equity:
Preferred stock --- ---
Common stock 2,241,149 2,216,849
Capital in excess of par value 81,989,757 80,851,120
Accumulated deficit since October 31,
1988 (31,783,868) (29,822,698)
---------------- -------------
Total stockholders' equity 52,447,038 53,245,271
---------------- -------------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $ 54,073,397 $ 55,375,061
================ =============
</TABLE>
See accompanying notes to unaudited consolidated condensed financial statements.
2
<PAGE>
PART I - FINANCIAL INFORMATION
FOUNTAIN OIL INCORPORATED AND SUBSIDIARIES
ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Unaudited
------------------------------------------
Three Months Ended
MARCH 31, February 29,
1997 1996
------------------------------------------
<S> <C> <C>
(Restated)
Operating Revenues:
Consulting income $ --- $ 2,943
Oil & gas production 31,916 41,142
------------------- --------------------
31,916 44,085
------------------- --------------------
Operating Expenses:
Lease operating expense 13,980 41,107
Direct project costs 172,297 263,724
General and administrative 1,383,627 1,088,962
Depreciation, depletion and
amortization 27,201 16,135
Impairment of oil and gas properties --- 233,000
Loss from investments in
unconsolidated subsidiaries 648,788 ---
------------------- --------------------
2,245,893 1,642,928
------------------- --------------------
OPERATING LOSS 2,213,977 1,598,843
------------------- --------------------
Other Income (Expense):
Interest, net 311,151 (295,800)
Other income 37,774 12,313
Loss on disposition of equipment (136,944) ---
------------------- --------------------
TOTAL OTHER INCOME (EXPENSE) 211,981 (283,487)
------------------- --------------------
Minority interest in loss of
consolidated subsidiary 40,826 ---
------------------- --------------------
NET LOSS $ (1,961,170) $ (1,882,330)
=================== ====================
Weighted average number of
common shares outstanding 22,327,233 10,837,755
------------------- --------------------
NET LOSS PER COMMON SHARE $ (.09) $ (0.17)
=================== ====================
</TABLE>
See accompanying notes to unaudited consolidated condensed financial statements.
3
<PAGE>
PART I - FINANCIAL INFORMATION
FOUNTAIN OIL INCORPORATED AND SUBSIDIARIES
ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Unaudited
----------------------------------
Three Months Ended
MARCH 31, February 29,
1997 1996
------------- -------------
(Restated)
<S> <C> <C>
Operating activities:
Net loss $ (1,961,170) $ (1,882,330)
Loss on disposition of equipment 136,944 ---
Equity loss in unconsolidated
subsidiaries 648,788 ---
Minority interest in loss of
consolidated subsidiary (40,826) ---
Impairment of oil and gas properties --- 233,000
Depreciation, depletion and
amortization 27,201 16,135
Amortization of debt issuance costs --- 268,434
Changes in assets and liabilities:
Accounts receivable (305,030) (49,207)
Other current assets (343,948) 235,951
Accounts payable 99,893 (993,975)
Accrued liabilities (562,498) (35,044)
------------- -------------
NET CASH USED IN OPERATING ACTIVITIES (2,300,646) (2,207,036)
------------- -------------
Investing activities:
Restricted cash (1,000,000) ---
Investments in oil and gas properties (750,012) ---
Purchase of property and equipment (843,561) (222,783)
Proceeds from disposition of assets 42,750 ---
Investments in and advances to oil
and gas ventures (1,446,734) (719,461)
------------- -------------
NET CASH USED IN INVESTING ACTIVITIES (3,997,557) (942,244)
------------- -------------
Financing activities:
Proceeds from exercise of options 102,000 18,000
Cash provided from issuance of
debentures, net --- 3,346,714
Principal payments on short term
borrowings --- (37,722)
Proceeds from issuance of note payable --- 5,312
------------- -------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 102,000 3,332,304
------------- -------------
NET (DECREASE) INCREASE IN CASH AND
CASH EQUIVALENTS (6,196,203) 183,024
CASH AND CASH EQUIVALENTS, BEGINNING OF
PERIOD 31,424,064 1,541,272
------------- -------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 25,227,861 $ 1,724,296
============= =============
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 consolidated condensed financial statements.
4
<PAGE>
PART I - FINANCIAL INFORMATION
FOUNTAIN OIL INCORPORATED AND SUBSIDIARIES
ITEM 1. FINANCIAL STATEMENTS
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 1997 AND FEBRUARY 29, 1996 (UNAUDITED)
(1) Nature of Operations
The principal activities of Fountain Oil Incorporated and its consolidated
subsidiaries (collectively the "Company") involve the acquisition of
interests in and development of oil and gas fields with a production
history that indicate the potential for increased production through
rehabilitation and utilization of modern production techniques and enhanced
oil recovery processes, including, if successfully commercialized, the
Company's proprietary method ("EEOR") for heating paraffinic and heavy oil
with electric current. The Company typically acquires its interests in oil
and gas properties through interests in joint ventures, partially owned
corporate and other entities, and joint operating arrangements. While it
normally seeks to be the operator of substantial oil and gas projects in
which it has an interest, the Company has acquired and expects to continue
to acquire interests representing 50% or less of the equity in various oil
and gas projects. Accordingly, certain of the activities in which the
Company has an interest will be conducted through unconsolidated entities.
The Company has acquired less than majority interests in entities
developing or seeking to develop oil and gas properties in Eastern Europe
including the Russian Federation. Following clarification of financial and
other characteristics of these entities, some or all of them may be
accounted for as unconsolidated subsidiaries.
The consolidated condensed financial statements of the Company included
herein have been prepared by the Company, without audit. In the opinion of
management, the consolidated condensed financial statements include all
adjustments, consisting of normal recurring adjustments, necessary for a
fair statement of the results for the interim period. The consolidated
condensed 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 to conform to the current period
presentation. These consolidated condensed 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 period ended December 31, 1996 filed with the Securities and Exchange
Commission.
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
quarter ended February 29, 1996 resulted in an increase to interest expense
of $238,070.
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. In accordance with the rules and
regulations of the Securities and Exchange Commission, 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 month period ended February 29, 1996 have been furnished as this
period is the most nearly comparable to the three month period ended March
31, 1997 of the newly
5
<PAGE>
adopted fiscal year. There are no seasonal or other factors that would
affect the comparability of information or trends of the period for the
three months ended March 31, 1997 when compared to the three months ended
February 29, 1996. The results of operations for the three month period
ended March 31, 1997 are not necessarily indicative of the results to be
expected for the full fiscal year ending December 31, 1997.
(2) Restricted Cash
As of December 31, 1996, the Company had pledged $5,400,000 to
collateralize two bank letters of credit to guarantee credit facilities.
In January 1997, the Company pledged an additional $1,000,000 to
collateralize another bank letter of credit increasing the restricted cash
to $6,400,000. These letters of credit have been used to arrange payment
of $2,200,000 in operating costs of oil and gas ventures in which the
Company has interests, including repayment of costs advanced by the Company
on behalf of certain of such oil and gas ventures, and $2,050,000 has been
utilized in arranging drilling rig mobilization, contracting and other
costs including interest.
(3) Accounts Receivable - Affiliated Entities
Of the $564,078 recorded as accounts receivable - affiliated entities at
March 31, 1997, approximately $527,000 represented project expenses paid by
the Company on behalf of and billed to Kashtan Petroleum Ltd. ("Kashtan"),
the entity which is developing the Lelyaky Field in Ukraine and in which
the Company has an effective 40.5% ownership interest.
(4) Property and Equipment
Property and equipment and the related accumulated depreciation at March
31, 1997 and December 31, 1996 included the following:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1997 1996
------------ -------------
<S> <C> <C>
EEOR equipment $ 564,849 $ 564,849
Oilfield materials and equipment 1,296,722 ---
Oil & gas related equipment 6,695,513 6,956,709
Office furniture, fixtures, equipment
and other 953,145 850,031
------------ -------------
TOTAL PROPERTY AND EQUIPMENT 9,510,229 8,371,589
Accumulated depreciation (635,161) (605,110)
------------ -------------
NET PROPERTY AND EQUIPMENT $ 8,875,068 $ 7,766,479
============ =============
</TABLE>
Oil and gas related equipment represents new or reconditioned drilling
rigs and related equipment which the Company expects to transfer to
Intergas JSC ("Intergas"), an entity
6
<PAGE>
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, and
the transfer would have no effect on the Company's statement of operations.
(5) Oil and Gas Properties and Investments
The Company has acquired interests in oil and gas properties through joint
ventures, partially-owned corporate and other entities, and joint operating
arrangements.
A summary of the Company's oil and gas properties as of March 31, 1997 and
December 31, 1996 are set out below:
<TABLE>
<CAPTION>
MARCH 31, 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 750,160 257,407
Less: accumulated depreciation,
depletion, amortization and impairment (1,028,016) (1,028,016)
------------ ------------
TOTAL OIL AND GAS PROPERTIES, NET $ 1,268,091 $ 259,338
============ ============
</TABLE>
During the three months ended March 31, 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 March
31, 1997 and December 31, 1996, which are not currently being amortized,
were $750,160 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 in the second quarter 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.
The Company capitalized certain costs associated with its proposed or
completed acquisition of interests in oil and gas properties through joint
ventures, corporations and other entities through which the development of
oil and gas projects will be implemented. The Company's policy is to
capitalize the direct costs of these acquisitions, including cash paid and
the fair market value of shares issued in connection with such
acquisitions, as well as the portion of management salaries, consulting
fees and other expenses relating directly to the acquisition of such
interests.
The Company has entered into agreements with various entities in which it
has an interest pursuant to which such entities are obligated to reimburse
the Company for advances made on behalf of such entities. Repayment of
advances is generally subject to revenue being generated by the entities,
and such reimbursable amounts are included within the
7
<PAGE>
Company's investments in and advances to oil and gas ventures, unless the
venture has demonstrated the ability to repay the advances within twelve
months in which case such amounts are recorded as accounts receivable-
affiliated entities. The amounts recorded at March 31, 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 MARCH 31, DECEMBER 31,
OIL AND GAS VENTURES 1997 1996
- -------------------------------------- ------------ -----------
<S> <C> <C>
Ukraine - Lelyaky 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 4,744,217 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 1,551,035 1,326,581
Ukraine - Stynawske Field, Boryslaw
through 45% ownership of Boryslaw
Oil Company 3,626,512 1,655,803
------------ -----------
TOTAL INVESTMENTS IN AND ADVANCES TO
OIL AND GAS VENTURES $ 12,434,481 $ 9,926,809
------------ -----------
EQUITY IN LOSS OF OIL AND GAS VENTURES
- ---------------------------------------
Ukraine - Lelyaky Field, Pryluki Region $ (763,952) $ (355,684)
Adygea, Russian Federation - Maykop Field (729,795) (601,366)
Canada - Inverness Unit (2,407) (2,407)
Albania - Gorisht-Kocul Field (511,880) (399,789)
Ukraine - Stynawske Field, Boryslaw --- ---
------------ -----------
TOTAL EQUITY IN LOSS OF OIL AND GAS
VENTURES (2,008,034) (1,359,246)
------------ -----------
TOTAL INVESTMENTS IN AND ADVANCES TO
OIL AND GAS VENTURES, NET OF EQUITY LOSS $ 10,426,447 $ 8,567,563
============ ===========
</TABLE>
The Company has made cumulative advances to its various oil and gas
ventures totaling $2,996,181 at March 31, 1997 and $2,424,891 at December
31, 1996. Such advances, which are included in investments in and advances
to oil and gas ventures above, are only recoverable from future revenue of
the ventures.
The Company's interests in Focan Ltd. is accounted for using the equity
method. Pending clarification of financial and other characteristics of
the entities through which the Lelyaky, Maykop, Gorisht-Kocul and Stynawske
Field ventures will operate, such ventures are being accounted for using
the equity method rather than proportionate consolidation.
The cost of investments in the Lelyaky Field, the Maykop Field and the
Stynawske Field ventures at March 31, 1997 include $684,375, $1,668,750 and
$1,237,187, respectively, representing the market value of shares issued in
connection with the acquisition of interests in Kashtan, Intergas and
Boryslaw Oil 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.
8
<PAGE>
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 1997. In March 1997, the Company declared 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. The Company anticipates that operations could
resume in a reasonable period after civil order is restored in the
operating region.
The consolidated condensed financial statements of the Company do not
give effect to any impairment in the value of the Company's investment in
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 consolidated condensed 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, cash flows and prospects of the Company and ultimately its
ability to continue as a going concern.
(6) Stockholders' Equity
During the quarter ended March 31, 1997, the Company issued 68,000 shares
of Common Stock and received $102,000 of gross proceeds upon the exercise
of outstanding stock purchase options entitling the holder thereof to
purchase shares of Common Stock at the exercise price of $1.50 per share.
In addition, 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, Ukraine.
(7) Net Loss Per Common Share
Net loss per common share for the periods presented is based on the
weighted average number of common shares outstanding.
(8) Commitments and Contingencies
The Company has obligations, absolute and contingent, and may incur
additional obligations, absolute and contingent, with respect to acquiring
and developing its oil and gas properties and ventures. At March 31,
1997, the Company's unconditional monetary obligations regarding the
acquisition and development of its oil and gas properties and ventures did
not exceed $5,800,000, of which $5,000,000 is being satisfied through the
collateralization of letters of credit (see Note 2 of Notes to Unaudited
Consolidated Condensed Financial Statements), and the Company's
unconditional obligation to issue shares of its Common Stock involved a
maximum of 250,000 shares. 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 1,825,000 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
<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 quarter ended March 31, 1997, cash and cash equivalents decreased
some $6,196,000 from $31,424,000 at December 31, 1996 to $25,228,000 on March
31, 1997. The principal elements of the decrease were (i) approximately
$2,301,000 of net cash used in operating activities, including cash items
associated with general and administrative expense and increases in accounts
receivable-affiliated entities which reflected primarily advances and payments
made to or for the benefit of or with the intention of ultimately benefiting oil
and gas ventures in which the Company has interests, and decreases in accrued
liabilities, (ii) investments in and advances to such oil and gas ventures
during the quarter amounting to approximately $1,447,00, (iii) the deposit of an
additional $1,000,000 in restricted bank accounts to collateralize letter of
credit facilities for the benefit of oil and gas ventures in which the Company
has interests, (iv) purchase of property and equipment of approximately
$844,000, and (v) the acquisition of an interest in the Sylvan Lake heavy oil
field involving cash payments during the quarter of $738,000.
Accounts receivable - affiliated entities increased approximately $305,000
during the quarter ended March 31,1997 as a result of the Company paying
project related expenses on behalf of Kashtan Petroleum, Ltd. ("Kashtan"), the
entity which operates the Lelyaky Field, Ukraine, and in which the Company has
an effective 40.5% ownership interest.
During the three months ended March 31, 1997, the Company placed an additional
$1,000,000 of cash in restricted deposit accounts with banks providing letters
of credit at the request of the Company. This increased the restricted cash to
$6,400,000, of which $4,400,000 collateralized a letter of credit that
guarantees a $4,000,000 credit facility granted by a bank in Ukraine to Kashtan.
The remainder collateralizes letters of credit guaranteeing obligations of oil
and gas ventures in which the Company has an interest. 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 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. (FLS) (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
Statements".)
Property and equipment, net, increased from $7,766,000 at December 31, 1996 to
$8,875,000 at March 31, 1997, primarily as a result of the Company's purchase
during the quarter of tubular goods and other oilfield equipment costing
approximately $1,297,000 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. (FLS) At
March 31, 1997, $6,696,000 of the $8,875,000 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. (FLS) Upon a transfer to such ventures, such property and equipment
would be reclassified as investments in and advances to oil and gas
10
<PAGE>
ventures. (FLS) Such a transfer would have no effect on the Company's statement
of operations. (FLS)
Oil and gas properties, net, increased by approximately $1,009,000 during the
quarter ended March 31, 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 approximately
$2,508,000 during the quarter ended March 31, 1997 as the Company continued to
fund projects in Eastern Europe, including the Russian Federation. Of this
amount, approximately $1,061,000 related to the issuance of 175,000 shares of
the Company's Common Stock in connection with the Company's acquisition of its
45% interest in the Stynawske Field project, Ukraine and an additional $500,000
reflects a cash payment also made during the quarter related to this
acquisition. These investments and advances were partially offset by losses
during the quarter from investments in these unconsolidated ventures of
approximately $649,000.
Other assets decreased approximately $700,000 during the three months ended
March 31, 1997, primarily reflecting application of cash deposits paid in 1996
to the purchase of equipment and the acquisition of a 60% interest in the Sylvan
Lake project.
Accrued liabilities decreased from approximately $1,124,000 at December 31,
1996 to approximately $561,000 at March 31, 1997, primarily due to payment of
approximately $677,000 of transportation charges incurred in December 1996
associated with shipping drilling rigs and related equipment intended for use in
the Maykop Field project.
Working capital decreased approximately $5,085,000 from $30,381,000 at December
31, 1996 to $25,296,000 at March 31, 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.
(FLS)
The Company has outstanding obligations with respect to the acquisition and
development of oil and gas properties and ventures in which it has interests
that require or may require the Company to expend funds and to issue shares of
its Common Stock. Some of these obligations are subject to the satisfaction of
various conditions related to, among other things, achievement of specified
project performance standards. During the quarter ended March 31, 1997, the
Company paid $500,000 and issued 175,000 shares of its Common Stock in
connection with the acquisition of the Stynawske Field, Ukraine, reflecting the
satisfaction of certain conditions. At March 31, 1997, the Company's
unconditional monetary obligations regarding the acquisition and development of
oil and gas properties and ventures did not exceed $5,800,000, of which
$5,000,000 is being satisfied through the collateralization of letters of
credit, and the Company's unconditional obligation to issue shares of its Common
Stock involved a maximum of 250,000 shares. 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 1,825,000 shares. As the Company undertakes
additional projects
11
<PAGE>
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 approximately $25,296,000 at March 31, 1997, and at that date
$2,150,000 of credit facilities were available for unconsolidated entities
resulting from restricted cash of $6,400,000 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 nine to
twelve months subsequent to March 31, 1997. 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 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, so that delays will not be experienced as a result of a
shortage of financial resources. (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 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 as is available will be on terms that are attractive or
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)
As of December 31, 1996, the Company had net investments in oil and gas
properties and ventures totaling approximately $8,827,000. Of this amount,
approximately $8,463,000 related to the ventures in Eastern Europe. As of March
31, 1997, the Company had net investments in oil and gas properties and ventures
totaling approximately $11,695,000, of which approximately $10,322,000 relates
to projects in Eastern Europe. Ultimate realization of the cost of the
Company's oil and gas properties and ventures 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, which is dependent 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. The Company has plans for
each of its Eastern European ventures to achieve levels of production and
profits sufficient to recover its costs.
12
<PAGE>
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 such ventures will increase. (FLS)
Workover operations are underway for the recompletion of twelve existing wells
in the Lelyaky Field in Ukraine. 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 1997. (FLS) In March 1997, the
Company declared 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 in a reasonable
period after civil order is restored in the operating region. (FLS) The
Company is negotiating the production license for the Stynawske Field in
Ukraine, and it is presently anticipated that a license will be granted during
1997. (FLS)
The consolidated condensed financial statements of the Company do not give
effect to any impairment in the value of the Company's investment in 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
consolidated condensed 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, cash flows and prospects of the Company and
ultimately its ability to continue as a going concern. (FLS)
Results of Operations
The Company recorded an operating loss of $2,213,977 during the three months
ended March 31, 1997 compared with $1,598,843 for the three months ended
February 29, 1996. The increased loss is attributable primarily to (i) the
$649,000 loss from investments in unconsolidated subsidiaries in the 1997
quarter and (ii) a $295,000 increase in general and administrative expense from
the 1996 to 1997 quarter, partially offset by (a) a 1996 $233,000 impairment of
oil and gas properties that had no counterpart in the 1997 quarter and (b) a
$91,000 reduction in direct project costs.
Direct project costs for the three month period ended March 31, 1997 amounted
to approximately $172,000 as compared with approximately $264,000 for the
quarter ended February 29, 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 activities. (FLS)
13
<PAGE>
General and administrative expense for the three month period ended March 31,
1997 amounted to approximately $1,384,000 as compared to approximately
$1,089,000 for the quarter ended February 29, 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
expense 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 $649,000 loss from investments in unconsolidated subsidiaries recognized
during the quarter ended March 31, 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
commencement of operations. As these ventures are still in the initial
development stage, no operating revenues have yet been received. 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 three month period ended
February 29, 1996, no equity loss from unconsolidated subsidiaries was
recognized since the Company was still in the process of acquiring its interest
in oil and gas ventures.
The Company recorded operating revenue of approximately $31,916 during the
quarter ended March 31, 1997, as compared with operating revenue of
approximately $44,085 for the quarter ended February 29, 1996. The revenue in
both quarters is attributable primarily to a modest amount of oil and gas
production in Canada.
During the quarter ended March 31, 1997, the Company reported net interest
income of approximately $311,000, compared to net interest expense of
approximately $296,000 during the three month period ended February 29, 1996.
The net interest income for the current period relates primarily to the
relatively high average cash balances reflecting the Company's financing
activities during calendar 1996. The net interest expense for the prior year
period related primarily to the amortization of financing costs, discount and
interest related to the Company's 8% Convertible Subordinated Debentures.
The net loss for the quarters ended March 31, 1997 and February 29, 1996 was
comparable, as the greater operating loss in the 1997 quarter was largely offset
by the shift from interest expense to interest income. 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
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
14
<PAGE>
currencies or presently maintain significant foreign currency cash balances. 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. (FLS) 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 Statements
The forward looking statements 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 statements.
Included among the important risks, uncertainties and other factors are those
hereinafter discussed.
Few of such forward looking statements 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 statements 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 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
15
<PAGE>
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.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not yet effective.
16
<PAGE>
PART II - OTHER INFORMATION
FOUNTAIN OIL INCORPORATED AND SUBSIDIARIES
<TABLE>
<CAPTION>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
<S> <C>
(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).
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).
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).
</TABLE>
17
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
*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) Employment Agreement between Fountain Oil
Incorporated and Oistein Nyberg (Incorporated
herein by reference from August 31, 1995 Form
10-KSB).
*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).
</TABLE>
18
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
*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).
*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)
</TABLE>
(b) Reports on Form 8-K
On January 21, 1997, the Company filed a Form 8-K dated January 7, 1997
reporting Item 9. Sale of Equity Securities Pursuant to Regulation S,
regarding the sale of securities pursuant to exercise of outstanding
options.
On April 25, 1997, the Company filed a Form 8-K dated February 11, 1997
reporting Item 9. Sale of Equity Securities Pursuant to Regulation S,
regarding the sale of securities pursuant to the issue of shares in
connection with the development of an oil and gas field.
19
<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: May 12, 1997 By: /s/Arnfin Haavik
--------------------------
Arnfin Haavik
Executive Vice President and
Chief Financial Officer
20
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
FILED WITH
EXHIBIT THIS
NUMBER EXHIBIT REPORT
- -------- -------- ----------
<S> <C> <C>
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).
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).
</TABLE>
21
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
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) Employment Agreement between Fountain Oil
Incorporated and Oistein Nyberg (Incorporated
herein by reference from August 31, 1995 Form
10-KSB).
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).
</TABLE>
22
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
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. X
10(23) Management Services Agreement between Fountain
Oil Services Incorporated and Orest Senkiw. X
10(24) Employment Agreement between Fountain Oil
Incorporated and Alfred Kjemperud. X
27 Financial Data Schedule X
</TABLE>
23
<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
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
i
<PAGE>
TABLE OF CONTENTS
(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, 10
Independent Contractor or Consultant Status for Any
Reason Other Than Death, Total and Permanent Disability
or For Cause
(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 13
Payment of 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 15
Contractor or Consultant Status for any Reason Other
Than Death, Total and Permanent Disability or For Cause
(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 16
Appreciation Rights
(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 17
of Assets
ii
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TABLE OF CONTENTS
(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 18
Participant; Legends
(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 20
Restricted Stock
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 23
CONTRACTOR OR CONSULTANT
19. INSPECTION OF RECORDS 23
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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.
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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
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(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.
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(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.
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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;
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(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
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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.
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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:
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(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
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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.
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(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.
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(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)).
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(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.
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(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.
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(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.
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(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
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(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).
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(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
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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
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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.
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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.
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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
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(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.
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FOUNTAIN OIL INCORPORATED
1995 LONG-TERM INCENTIVE PLAN
SUB-PLAN FOR UNITED KINGDOM PARTICIPANTS
(EFFECTIVE NOVEMBER 14, 1995)
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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.
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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.
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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)
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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.
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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 reelected to the Board for
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 date he or she is
(i) elected or re-elected Chairman of the Board or (ii) elected or re-elected
Vice Chairman of the Board at a time when the Director elected or acting as
Chairman of the Board is an Employee.
(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.
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(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.
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Exhibit 10(22)
FOUNTAIN OIL INCORPORATED
EMPLOYMENT AGREEMENT
This agreement ("Agreement") is made this 12th day of October 1996, between
FOUNTAIN OIL INCORPORATED, a Delaware, USA registered company (hereinafter
referred to as the COMPANY) on the one part, and WHITFIELD FITZPATRICK
(hereinafter referred to as the EMPLOYEE) on the other part, singly referred to
as "Party" and jointly referred to as "Parties."
The Parties have agreed as follows:
1. PERIOD/TERMINATION OF EMPLOYMENT.
This agreement commences on the day first above written for an indefinite
period; provided, however, that this Agreement can be terminated by either
of the Parties, by one Party giving the other Party six months' prior
written notice.
2. POWERS AND DUTIES.
The Company has employed the Employee to serve as General Counsel whose job
description is attached hereto as Schedule A. The Employee in this
position will be part of the executive team and report to the President &
CEO, unless otherwise agreed upon. The Employee shall exercise such powers
and perform such duties in relation to the business of the Company as may
from time to time be vested in or assigned to him by the Company, and he
shall comply with all reasonable direction from time to time given him by
the Company that is in compliance with the applicable law.
3. WORK LOCATION.
a) The Employee will initially be located at the Company's offices in
Asker, Norway. A later transfer to another location and/or position within
the Company and its branches and/or subsidiary companies could happen in
agreement between the two Parties. The Company will endeavor to
accommodate the Employee's wishes as far as it is practicable possible in
this respect. The Employee is relocated from Stavanger Norway.
b) Employee's Point of Origin is deemed to be Geneva, Switzerland.
c) In accordance with the Company travel policy at the time, the Employee
and his near family limited to dependent children under 19 years old shall
have the right, annually, to recover the return airfare cost and reasonable
out of pocket expenses for travel to Employee's Point of Origin.
d) In the even of relocation from one location to an other in accordance to
new assignments, the Company will be responsible for payment of the cost
for the Employee and his near family limited to include dependent children
under 19 years old, possessions to be move. Quotations from at least three
moving contractors shall be obtained by the Company.
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d) In the event of termination of this Agreement for whatever reason, the
Company shall be responsible for the cost of the Employee and his near
family limited to include dependent children under 19 years old, and all
reasonable possessions to be repatriated to the Employee's Point of Origin.
Quotations from at least three moving contractors shall be obtained by the
Company.
e) The Company will pay for housing for the Employee and his family at
Employee's place of relocation, at a rate agreed upon with management and
in accordance with set policy at all times.
4. CONFIDENTIAL INFORMATION.
The Employee shall not either during the continuance of his employment
hereunder or thereafter use to the detriment or prejudice of the Company or
(except in the proper course of his duties hereunder) divulge to any person
any trade secret or any other confidential information concerning the
business or affairs of the Company which may have come to his knowledge
during his employment hereunder.
5. COMPANY INFORMATION.
The Employee shall at all times promptly give to the Company all such
information and explanations as it may require in connection with matters
relating to his employment hereunder or relating to the business of the
Company.
6. PROPERTY OF THE COMPANY.
The Employee shall promptly whenever required by the Company (and in any
event upon the termination of his employment hereunder) deliver to the
Company all lists of clients or customers, correspondence and all other
documents, papers and records which may have been prepared by him or have
come into his possession in the course of his employment hereunder, and the
Employee shall not be entitled to and shall not retain any copy thereof.
Title and copyright thereto shall vest in the Company. Title, copyrights
or patents in relation thereto shall remain the property of the Company.
7. REMUNERATION.
The Employee shall be paid by way of remuneration for his services during
employment hereunder a basic salary at the rate of US$ 150,000 per annum.
Such salary shall be paid by equal monthly installments. This remuneration
shall be reviewed by the Company on a yearly basis commencing on the first
anniversary of the commencement day of this Agreement, or at the discretion
of the Company.
In addition the Company will, with effect from full time engagement
assuming responsibilities as per job description, compensate for a
Pension/Insurance package at the cost of 12.5% of basic salary. The local
management of each company and/or Branch will determine the Group policies
to be entered into bearing in mind the package should cover as a minimum
(a) Life Insurance with death and disability of US $100,000 and (b) Income
Protection with disability of US $1,500 per month index linked, starting
after 6 months. Within the above framework, the Employee is free to decide
how the remainder of the 12.5% allowance is to be used on (a) Pension (b)
Life Insurance (c) Income protection (permanent health insurance) (d)
Private Health Care and (e) Accident Insurance.
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The Company reserves the right to review the 12.5% contribution against a
Company Group package under development and as adopted policy at all times.
8. OBLIGATIONS.
a) TAXATION
The Employee will be responsible for his personal taxes. The Company will
assist in the filing of the taxes. The taxation will be in accordance to
the Employee's country of residence, work location, point of origin,
nationality and the Company's policy at all times.
b) EXPENSES
The Company shall reimburse the Employee all reasonable traveling, hotel,
entertainment and other out of pocket expenses that he may incur in the
execution of his duties hereunder in accordance with a budget or
extraordinary approved by the Company.
9. BENEFITS.
a) HOLIDAYS. 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.
b) 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 salary for the first 12 months of
absence from work due to sickness or injury. From 13 months the Employee
shall be entitled to disability payment as provided for under the Permanent
Health Insurance package plus eventual personal and State support.
Additional coverage from the one selected under the Company's 12.5% payment
umbrella for the Employee, is his personal responsibility.
10. SPECIAL TERMS.
(a) COMPANY SHARE ALLOCATION PLAN
The Employee is by signature of this Agreement eligible to participate in
the Company Share Option plan with allocations of options in accordance to
the at all times adopted management of such plan.
b) TELEPHONE/FACSIMILE. The Company will pay for home telephones, mobile
phone, and home facsimile on behalf of the Employee.
c) MEMBERSHIP IN PROFESSIONAL ORGANIZATION/CLUBS. The Company will pay
for membership fees in professional and social clubs that can and will
improve the business in relation to the employment. Special approvement is
needed if the membership exceeds $500 annually.
d) NEWSPAPERS, MEDIA INFORMATION. The Company will pay for economical and
technical publication needed for the business and two daily publications
sent to the home of the Employee.
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11. START UP DATE.
The Employee will provide services on an hourly basis being compensation
US$ 80 per hour until he is relieved from his present duties, which is estimated
to terminate within 3-4 months. The Parties will agree upon a permanent start-
up date within 3 months.
Signed, Signed,
Date and Place, Date and Place,
London, 12 October 1996 London, 12 October 1996
/s/Whitfield Fitzpatrick /s/Oistein Nyberg
Employee, Whitfield Fitzpatrick Company, Oistein Nyberg
President & CEO
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SCHEDULE "A"
JOB DESCRIPTION FOR GENERAL COUNSEL
1. GENERAL
Subject to the decisions, directors and guidelines given by the Board of
Directors and by the management of the Company, General Counsel shall be
responsible for the provision and supervision of general legal services and
ancillary business requirements of the Company in its business ventures
throughout the world. He shall be responsible for all Agreement formulations
and be involved in the negotiations of the Company with other parties, and will
report directly to the President & CEO.
In general his activities will be:
- Legal advice to management.
- Coordination and control of legal activity and contract negotiations.
- Agreement and contract policies and formulation.
- SEC and regulatory documentation review and formulation.
- Stock protection and takeover strategy.
2. PROFESSIONAL RESPONSIBILITIES AND DUTIES
a) Ensuring of corporate compliance with the laws of those jurisdictions in
which the Company operates.
b) Provision of legal and general counseling services to employees, managers,
executives and directors are required concerning the Company business.
c) Provision of solicitor services on contractual matters.
d) Involvement and direction of in general and significant litigation matters or
settlement thereof;
e) The development and maintenance of informal contracts within the
international legal community;
f) Liaison with outside counsel as required.
3. PROFESSIONAL JUDGMENT RECOMMENDATIONS AND DUTIES
a) Make recommendations in a wide range of types of law and litigation to
employees, executives, managers and directors;
b) Ongoing interaction with senior management and the board of directors of the
Company'
c) participation in task forces or in ongoing committees or special project
committees.
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4. ADMINISTRATIVE RESPONSIBILITIES
a) Involvement in fiscal budgetary preparation;
b) Participation in strategic planning for the Company.
c) Development of the Company tax and liability structure.
d) Monitoring and advice of legal expenditures.
e) Supervise and provide in coordination with the CFO legal secretarial services
for the Company corporate staff and directors as required.
f) Monitor Company's affiliates and subsidiaries and related minute books.
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WHITFIELD FITZPATRICK-EMPLOYMENT AGREEMENT
The employment agreement signed October 12, 1996, is hereby modified as follows:
(S) Point of hire is defined as Houston, Texas, USA.
- If employee is transferred for less than a permanent period to the
USA, employee shall receive the housing expense allowance and the annual
leave credit from point of location to Oslo. If possible, annual leave
should be taken in connection with business.
(S) Tax equalization/protection is not applicable for the position while
employee position is Oslo, Norway.
(S) The employee is entitled to NOK 15000.00 per month to cover housing
expenses, such figure will be adjusted annually and have a time limitation
according to policy defined by management. The tax related to the benefit is
the responsibility of the employee.
(S) The employee shall begin permanent work in February 1997, pending completion
of work permit procedures and completion of moving of housing and personal
effects.
The above addendum replaces the specific items in the employment agreement. The
remainder of the other items in the agreement are not changes and remain in
effect.
Date: Asker 9 January 1997
/s/Oistein Nyberg /s/Whitfield Fitzpatrick
Oistein Nyberg Whitfield Fitzpatrick
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Exhibit 10(23)
MANAGEMENT SERVICES AGREEMENT
THIS MANAGEMENT SERVICES AGREEMENT is made as of December 12, 1995 by
and between FOUNTAIN OIL SERVICES INCORPORATED, a corporation incorporated and
existing under the laws of Bermuda (the "Company"), and OREST SENKIW, an
individual residing in CANADA ("Contractor").
PRELIMINARY STATEMENTS
A. The Company is engaged in the exploration, development, recovery,
production, marketing and sale of oil and gas (the "Business") throughout the
world.
B. Contractor 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 Contractor, and
Contractor desires to provide certain services to the Company in the Territory
(as herein defined).
D. The Contractor satisfactorily passes a physical examination acceptable
to the Company with such physical being paid for by the Company.
AGREEMENT
NOW, THEREFORE, in consideration of the agreements contained herein and
other good and valuable consideration, the receipt and adequacy of which are
hereby acknowledged, the parties hereto agree as follows:
1. DEFINITIONS. In this Agreement and the Schedules hereto, 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 Contractor by the Company pursuant to
this Agreement.
"Business" has the meaning set forth in Recitation A.
"Event of Default" has the meaning set forth in Section 12.
"Inventions" means all inventions, improvements, modifications, processes,
formulae, know-how, designs, models, prototypes, computer programmes, sketches,
drawings, plans or other original matters (whether or not capable of protection
by patent, registered design, copyright, registered trade mark or
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other rights in the nature of intellectual property) which the Contractor alone
or with one or more others may make, or discover 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
or producing or extracting the products of the Company or pertaining to or
resulting from or suggested by any work which the Contractor has done or may
hereafter perform during the Appointment for the Company.
"Manager" means the individual or entity designated from time to time by the
Company as the individual or entity with the responsibility of supervising
Contractor.
"Term" has the meaning set forth in Section 3.
"Territory" means that geographic area located in UKRAINE
2. APPOINTMENT. For and during the Term, and subject to the terms and
conditions hereinafter set forth, Contractor hereby agrees to serve as General
Director of Kashtan Petroleum Ltd.
3. TERM. The term of this Agreement (the "Term") shall commence upon the
execution of this Agreement by each of Contractor and the Company and shall
terminate upon the earliest to occur of (i) three (3) years from the date
hereof, (ii) the mutual agreement of the parties hereto to terminate this
Agreement, (iii) six months notice from either party, (iv) the liquidation or
dissolution of the Company, or (v) the occurrence of an Event of Default.
4. DUTIES. During the Term, the Contractor will:
(a) perform to the best of his/her ability all the duties for KASHTAN
PETROLEUM LTD., including, without limitation, those duties specified in
Schedule 1 and such other functions (being not inconsistent with his
position as GENERAL DIRECTOR) as the Manager may require and, whenever
required so to do, promptly give an account to the Manager or a person duly
authorised by the Manager of all matters with which he is entrusted;
(b) comply promptly with all lawful directions and instructions given by
or with the authority of the Manager;
(c) whenever so required for the proper fulfilment of his duties, work
without further remuneration in excess of the normal hours of work of the
Company, and
(d) attend and work at any premises of the Company wheresoever situated,
and travel and work in the Territory and such other locations as may be
required for the proper fulfilment of his duties.
5. PRESENCE IN THE TERRITORY; VACATION.
(a) Contractor's services shall be rendered principally in Territory. In
furtherance of such services, Contractor shall be located in the Territory
for at least 12 days during, on average, each calendar month.
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(b) During each year of the Appointment, Contractor will be entitled to
reasonable vacations, holidays, and time off when ill, at full pay.
Vacations shall be at such time or times and for such periods, up to an
aggregate of 4 weeks in any such year, as selected by Contractor and
approved by the Manager.
6. REMUNERATION. The Company shall pay to the Contractor for the Appointment:
(a) a salary, in United States dollars, at the rate of $ 150,000 per
annum to accrue from day to day and be payable by equal monthly instalments
in arrears on or before the last day of each calendar month. Part of the
remuneration may be paid in the Territory as requested from the Contractor
with the amount paid deducted from the total monthly payment made to the
Contractor.
(b) The Company shall pay the Contractor the salary provided for in
Section 6(a), such payments to be made at the Company's local office at
Milner House, 18 Parliament Street, Hamilton, HM12, Bermuda.
7. COMPANY TAX POLICY.
7.1 COMPLIANCE WITH TAX LAWS. The Company will use its best efforts to
comply with all laws, rules and regulations (collectively, "Laws")
pertaining to the reporting of the compensation attributable to
Contractor's Appointment in the Territory ("Project Income") and amounts of
money constituting reimbursement of expenses incurred as a result of
Contractor's Appointment in the Territory ("Project Reimbursements") 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 Project Income
or Project Reimbursements. The maximum tax shall be mutually agreed
between the parties prior to the signature of the contract and will remain
unchanged for the contract period.
7.2 MAINTENANCE OF CASH FLOW. Should any withholding be determined to be
required with respect to Project Income in the Territory over that which
would have been required to be withheld by Contractor if Contractor had
continued to work in the country of his/her citizenship, as designated in
writing to the Company (the "Contractor's Domicile"), the Company will
increase the amount of, and the monthly payment of, Project Income to the
extent required in order for Contractor's net (after withholding) take-home
pay to not be reduced during the Appointment as a result of such additional
withholding in the Territory. To the extent the Contractor is refunded tax
following increased monthly payment as described above, this tax is to be
repaid to the Company.
7.3 TAX FILINGS. The Company will provide a summary of taxes withheld to
Contractor for use in filing the Contractor's annual tax return. The
filing of the annual tax return is the responsibility of the Contractor as
well as compliance with the tax law both in the territory and in the Base
Domicile Country.
8. EXPENSES. The Company shall reimburse to the Contractor (against receipts
or other appropriate evidence) all reasonable, ordinary and necessary
travelling, entertainment and other out-of-pocket expenses properly incurred in
the course of the Appointment.
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9. COVENANTS AGAINST COMPETITION; CONFIDENTIALITY.
10.1 NON-COMPETITION. During the Term and for a period of three (3) years
following the date of termination of this Agreement, Contractor shall not:
(a) directly or indirectly divert or attempt to divert from the Company
any Business or any related business in which the Company has been actively
engaged during the Term, nor interfere with the relationships of the
Company with its clients or customers;
(b) directly or indirectly own, manage, operate, control, be employed by,
participate in, or be connected in any manner with the ownership,
management, operation or control of, any business or enterprise engaged in
the Business or any related business in which the Company has been actively
engaged during the Term within the Territory or any other geographic area
where the Company does business;
(c) solicit any clients or customers of the Company for any purpose other
than the transacting of business with the Company;
(d) directly or indirectly induce any employee of the Company to terminate
his/her employment, hire any employee of the Company, or in any way
interfere with the relationship of the Company and any employee, agent or
representative; or
(e) at any time during or after the end of the Appointment use the name
Fountain or UK-RAN 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 or otherwise.
10.2 CONFIDENTIAL INFORMATION. During the Term of this Agreement and at
all times thereafter, Contractor shall hold in strict confidence, and shall
not disclose to any person or entity (other than partners, officers,
directors and designated employees of the Company), any confidential
information of the Company. For purposes of this Section 10.2, the term
"confidential information" shall include, without limitation, trade
information relating to the Company's research, development, engineering
data, seismic data, surveys, specifications, processes, 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
designs, 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.
Contractor shall not use such confidential information except for the sole
benefit of the Company.
10.3 PROPERTY OF THE COMPANY. Promptly upon the termination of this
Agreement, Contractor shall surrender to the Company all written materials
(and all copies thereof), and all information stored in computer memories
or on microfiche, magnetic tape or diskette, that are at the time in his
possession or control and that pertain to the business or affairs of the
Company.
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10.4 NOTICE TO THIRD PARTIES. After discussing the matter with
Contractor, the Company shall have the right, subject to applicable law, to
inform any other third party which is participating with Contractor or
receiving from the Contractor information or assistance in violation of
this Agreement, of the terms of this Agreement and of the rights of the
Company hereunder, and that participation by any such person with
Contractor in activities in violation of this Section 10 may give rise to
claims by the Company against such person.
10.5 ENFORCEMENT. In the event of a threatened or actual breach of this
Section 10 by Contractor, it is agreed and acknowledged that damages would
not be an adequate remedy to compensate the Company for the loss of
goodwill and other harm to the business of the Company, and, in such event,
to the extent allowed by applicable law, the Company shall be entitled to a
temporary restraining order, and to temporary and permanent injunctive
relief, to prevent or terminate such anticipated or actual breach
(provided, however, that nothing in this Agreement shall be construed to
limit the damages otherwise recoverable by the Company in any such event).
11. INVENTIONS.
(a) The Contractor will disclose and deliver to the Company for the
exclusive use and benefit of the Company any Inventions 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 such explanations and instructions to the
Company as may in the view of the Manager 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 Contractor will without charge to but 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 Contractor
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 11(b). The Contractor
will at the direction and expense of the Company render all assistance
within his/her power 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.
12. TERMINATION FOR BREACH.
Notwithstanding the provisions of Section 3, the Company may terminate the
Appointment by notice with immediate effect for any of the following
reasons (each an "Event of Default"),
(a) in the Company's reasonable opinion the Contractor fails to adequately
perform duties assigned to him, or
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(b) the Contractor is guilty of dishonesty or of misconduct or
incompetence or wilful neglect of duty or commits any breach of this
Agreement other than a breach which is capable of remedy and is remedied
forthwith by the Contractor at the Company's request; or
(c) the Contractor is convicted of an indictable criminal offense; or
(d) the Contractor becomes bankrupt, declares himself insolvent, applies
for, or has made against him, a receiving order, makes any composition with
his creditors or commits an act of bankruptcy (as defined under any law
with jurisdiction over the Contractor); or
(e) the Contractor is incapacitated for twenty (20) consecutive weeks or
for an aggregate of thirty (30) weeks in any fifty-two (52) consecutive
weeks from performing the duties of the Appointment; or
(f) the Contractor becomes of unsound mind or becomes a patient or is
otherwise admitted to a hospital in connection with any mental health laws
with jurisdiction over the Contractor.
13. DISCIPLINARY RULES, GRIEVANCE PROCEDURES AND HEALTH AND SAFETY. A copy of
the disciplinary rules and grievance procedures applying to the Contractor, and
of a document setting out the Company's policy on health and safety at work, has
been handed to Contractor on the signing hereof (and he hereby acknowledges
receipt thereof). A copy of the disciplinary rules and grievance procedures
applying to the Contractor and the document setting out the Company's policy on
health and safety at work may be examined by the Contractor during normal
working hours in the office of the Corporate Secretary of the Company.
14. POST-TERMINATION PROVISIONS. Any provision of this Agreement which
contemplates or is capable of operation after the termination of the Appointment
shall apply notwithstanding termination of the Appointment for whatever reason.
15. RELATIONSHIP OF PARTIES. The parties agree that Contractor is an
independent contractor. Nothing contained herein shall be deemed or construed
as creating a joint venture, franchise, partnership, agency, employment or
similar relationship between Contractor and the Company. Both parties agree
that, except as specifically provided herein, Contractor may not undertake any
obligation on behalf of the Company and may not legally bind the Company in any
manner.
16. CONTRACTOR'S RIGHT TO CONTRACT. Contractor represents and warrants to the
Company (i) that this Agreement constitutes his valid and binding obligation,
enforceable against him in accordance with its terms; (ii) that neither the
execution or delivery of this Agreement nor the performance by him of any of his
covenants hereunder will constitute a default under any contract, agreement or
obligation to which he is a party or by which he or any of his 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 his knowledge) threatened which could adversely affect the validity or
enforceability of this Agreement or his 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
him.
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17. 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
c/o Arild Boe
Bleikerveien 17,
1370 Asker, Norway
Telephone: +47 66 90 31 44
Facsimile: +47 66 90 19 44
With a copy to: Akin, Gump, Strauss, Hauer, Feld & Dassesse
c/o Richard M. Gittleman
Avenue Louise 65, bte. 7
1050 Brussels, Belgium
Telephone: (322) 535 2911
Facsimile: (322) 535 2900
To Contractor: Orest Senkiw
Suite 1500 727 - 7th Avenue
S.W. Calgary, Alberta T2P0Z5, Canada
Telephone: +1 403 277 1182
Facsimile: +1 403 277 1190
With a copy to:
McManus Thomson
c/o Morris Mcmanus
Suite 2150 - 530 - 8th Avenue S.W.
Calgary, Alberta, Canada T3B 3S8
Telephone: +1 403 571 8565
Facsimile: +1 403 571 8566
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, cable,
telegram, facsimile transmission or telex, (ii) on the third calendar day after
the day of sending if sent by Federal Express or other express delivery service
or (iii) on the fifth calendar day after the day of sending if sent by
registered or certified mail (return receipt requested).
18. AMENDMENTS. Any amendment to the provisions of this Agreement shall be in
writing and signed by the parties hereto or their duly authorised
representatives.
19. SEVERABILITY. Each provision hereof is severable from this Agreement, and
if one or more provisions hereof are declared invalid the remaining provisions
shall nevertheless remain in full force and effect. If any provision of this
Agreement is so broad, in scope or duration or otherwise as to be unenforceable,
such provision shall be interpreted to be only so broad as is enforceable.
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20. 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 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.
21. ENTIRE AGREEMENT. This Agreement contains the entire agreement between the
parties with respect to the appointment of Contractor by the Company and
supersedes any and all prior understandings, agreements or correspondence
between the parties.
22. GOVERNING LAW. This Agreement shall be governed by, and interpreted in
accordance with, the laws of the State of New York.
23. 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 the 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 pursuant to said
rules, with a preference for use of three arbitrators 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 attorneys'
fees.
24. ASSIGNMENT. Neither this Agreement nor any right, remedy, obligation or
liability arising hereunder or by reason hereof may be assigned or delegated by
Contractor without the prior written consent of the Company.
25. INTERPRETATION. All references to sections, schedules and exhibits are to
sections, schedules and exhibits in or to this Agreement unless otherwise
specified. The words "hereof", "herein" 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 versa and one gender includes any
gender. Words importing individuals shall be treated as importing corporations
and vice versa and words importing whole shall be treated as including a
reference to any part thereof.
26. MONETARY TERMS. All amounts expressed in dollars or "$" in this Agreement
shall mean dollars of the United States of America.
27. COUNTERPARTS. 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.
[SIGNATURE PAGES FOLLOW]
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IN WITNESS WHEREOF, this Agreement is executed effective as of the date first
set forth above.
COMPANY:
FOUNTAIN OIL SERVICES INCORPORATED
By: /s/Nils N. Trulsvik
Name: Nils N. Trulsvik
Title: Executive Vice President
CONTRACTOR:
By : /s/Orest Senkiw
Name: Orest Senkiw
9
<PAGE>
SCHEDULE 1
SPECIFIC DUTIES
Subject to the decisions, directions and guidelines given by the Board and/or
the Manager, the General Director has the responsibility for the overall
performance of Kashtan Petroleum Ltd. in carrying out its operations in a
profitable and environmental friendly manner. This overall responsibility
includes but is not limited to:
* Preparation of all documents for Board consideration, hereunder;
** Proposals related to Kashtan Petroleum Ltd.'s strategy, operational
plans, new business opportunities and annual budgets.
** Implement appropriate accounting standards and provide regular
progress report as required by the Board and/or the Manager
** Propose annual accounts and annual reports
** Prepare documents on other issues of major importance for Kashtan
Petroleum Ltd. or other issues as requested by the Board or the
Manager.
* Properly execute the decisions made by the Board and promptly comply with
all lawful directions and instructions given by the Manager, hereunder;
** Execution of plans and budgets approved by the Board in compliance
with the Administrative Procedures approved by the Board and/or the
Manager.
* Assuming the overall responsibility for the daily operation of Kashtan
Petroleum Ltd., hereunder;
** Daily supervision of the operational activities of Kashtan Petroleum
Ltd., and making sure that these activities are carried out in
accordance with decisions, guidelines or instructions given by the
Board and/or the Manager, applicable law, general industry practices
and international environmental standards
** Preparation of regular reports as requested by the Board and/or the
Manager and the authorities.
** Recruiting to and development of an appropriate operating organisation
in line with development plans approved by the Board
** Represent Kashtan Petroleum Ltd. towards 3rd. parties and the
authorities
** Other responsibilities as may be delegated to the General Director
from the Board and/or the Manager from time to time.
10
<PAGE>
Exhibit 10(24)
FOUNTAIN OIL INCORPORATED
EMPLOYMENT AGREEMENT
This agreement ("Agreement") is made this August 13, 1996, between FOUNTAIN OIL
INCORPORATED, a Delaware, USA registered company (hereinafter referred to as the
COMPANY) on the one part, and ALFRED KJEMPERUD (hereinafter referred to as the
EMPLOYEE) on the other part.
Whereas the parties have agreed as follows:
1. PERIOD/TERMINATION OF EMPLOYMENT. This agreement commences the day first
above written and can be terminated by either Party by giving to the other
Party three months notice in writing.
2. POWERS AND DUTIES. The Company has employed the Employee to serve as
Senior Vice President, Resource Management. The Employee in this position
will be part of the Corporate Management Team and will report to the
Executive Vice President, Asset Management. The Employee will exercise
such powers and perform such duties in relation to the business of the
Company as may from time to time be vested in or assigned to him by the
Company and he shall comply with all reasonable direction from time to time
given to him by the Company.
3. WORK LOCATION. The Employee will initially be located at the Company's
offices in Asker, Norway. A later transfer to another location and/or
position within the Company and its Branches and/or Subsidiary companies
could happen in agreement between the two Parties. The Company will
endeavor to accommodate the Employee's wishes as far as it is practicable
possible in this respect.
4. CONFIDENTIAL INFORMATION. The Employee shall not either during the
continuance of his employment hereunder or thereafter use to the detriment
or prejudice of the Company or (except in the proper course of his duties
hereunder) divulge to any person any trade secret or any other confidential
information concerning the business or affairs of the Company which may
have come to his knowledge during his employment hereunder.
5. COMPANY INFORMATION. The Employee shall at all times promptly give to the
Company all such information and explanations as it may require in
connection with matters relating to his employment hereunder or relating to
the business of the Company.
6. RETURN OF DOCUMENTS ETC. The Employee shall promptly whenever required by
the Company (and in any event upon the termination of his employment
hereunder) deliver to the Company all lists of clients or customers,
correspondence and all other documents, papers and records which may have
been prepared by him or have come into
1
<PAGE>
his possession in the course of his employment hereunder, and the Employee
shall not be entitled to and shall not retain any copy thereof. Title and
copyright thereto shall vest in the Company.
7. REMUNERATION. The Employee shall be paid by way of remuneration for his
services during employment hereunder a basic salary at the rate of 750.000
NOK per annum. Such salary shall be paid by equal monthly installments.
At the end of each fiscal year possible changes in the Employment
remuneration shall be discussed and decided by the Company.
In addition the Company will, with effect from full time engagement
assuming responsibilities as per job description, compensate for a
Pension/Insurance package at the cost of 12.5% of regular salary (excluding
overtime, bonus etc.). The local management of each company and/or Branch
will determine the Group policies to be entered into bearing in mind the
package should cover as a minimum (a) Life Insurance with death and
disability of US $100,000 and (b) Income Protection with disability of US
$1,500 per month index linked, starting after 6 months. Within the above
framework, the Employee is free to decide how the remainder of the 12.5%
allowance is to be used on (a) Pension (b) Life Insurance (c) Income
protection (permanent health insurance) (d) Private Health Care and (e)
Accident Insurance.
The Company reserves the right to review the 12.5% contribution over 3
years.
TAX POLICY
The Employee will be responsible for his personal taxes. The Company will
assist in the filing of the taxes.
8. EXPENSES. The Company shall reimburse the Employee all reasonable
traveling, hotel, entertainment and other out of pocket expenses that he
may incur in the execution of his duties hereunder in accordance with a
budget or extraordinary approved by the Company.
9. HOLIDAYS. In addition to Bank and other Public holidays the Employee shall
be entitled to 21 working days holiday in every calendar year to be taken
at such time or times as may be approved by the Company.
10. 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 salary for the first 12 months of absence from work due
to sickness or injury. From 13 months the Employee shall be entitled to
disability payment as provided for under the Permanent Health Insurance
package plus eventual personal and State support. Additional coverage from
the one selected under the Company's 12.5% payment umbrella for the
Employee, is his personal responsibility.
11. SPECIAL TERMS.
(a) COMPANY SHARE ALLOCATION/BONUS PLAN
2
<PAGE>
The employee will participate in the Company Share Option/bonus plan and
allocations.
(b) TELEPHONE/FACSIMILE. The Company will pay for home telephones, mobile
phone, and two credit cards on behalf of the Employee.
(c) MEMBERSHIP IN PROFESSIONAL ORGANIZATION/CLUBS. The Company will pay
for membership fees in professional and social clubs that can and will
improve the business in relation to the employment. Special approvement is
needed if the membership exceeds $500 annually.
d) NEWSPAPERS, MEDIA INFORMATION. The Company will pay for economical and
technical publication needed for the business and two daily publications
sent to the home of the Employee.
12. START UP DATE.
The start up date will be to be agreed upon.
Signed, Signed,
Date and Place, Date and Place,
Oslo, 13/8 1996 Oslo, 13/8 1996
/s/Alfred Kjemperud /s/Arild Boe
Employee, Alfred Kjemperud Company, Arild Boe
Executive Vice President
3
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<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 25,227,861
<SECURITIES> 0
<RECEIVABLES> 564,919
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 26,758,290
<PP&E> 9,510,229
<DEPRECIATION> 635,161
<TOTAL-ASSETS> 54,073,397
<CURRENT-LIABILITIES> 1,461,805
<BONDS> 0
0
0
<COMMON> 2,241,149
<OTHER-SE> 50,205,889
<TOTAL-LIABILITY-AND-EQUITY> 54,073,397
<SALES> 0
<TOTAL-REVENUES> 31,916
<CGS> 0
<TOTAL-COSTS> 186,277
<OTHER-EXPENSES> 675,989
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 22,278
<INCOME-PRETAX> (1,961,170)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,961,170)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,961,170)
<EPS-PRIMARY> (.09)
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