SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act
of 1934
(Amendment No. )
Filed by the Registrant[ ]
Filed by a Party other than the Registrant [X]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
KESTREL ENERGY, INC.
(Name of Registrant as Specified in Its Charter)
(Name of Person(s) Filing Proxy Statement if other than the Registrant):
Gorsuch Kirgis LLP
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-
11.
1) Title of each class of securities to which transaction applies:
2) Aggregate number of securities to which transaction applies:
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
4) Proposed maximum aggregate value of transaction:
5) Total fee paid:
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting
fee was paid previously. Identify the previous filing by
registration statement number, or the Form or Schedule and the date
of its filing.
1) Amount Previously Paid:
2) Form, Schedule or Registration Statement No.:
3) Filing Party:
4) Date Filed:
KESTREL ENERGY, INC.
999 18th Street, Suite 2490
Denver, Colorado 80202
(303) 295-0344
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
To Be Held March 31, 1998
10:00 a.m.
To Our Shareholders:
We strongly encourage your attendance and participation at the Annual
Meeting of Shareholders of Kestrel Energy, Inc., which will be held at
10:00 a.m. on Tuesday, March 31, 1998 in the Management Briefing Center at
First Interstate Bank of Denver, N.A., North Tower, 4th Floor, 633 17th
Street, Denver, Colorado for the following purposes:
1. To elect six directors to the Board;
2. To approve and ratify the selection of KPMG Peat Marwick LLP as
the Company's independent certified public accountants and auditors for
the fiscal year ending June 30, 1998;
3. To approve certain amendments to the Nonqualified Stock Option
Plan designed to conform with recent amendments to SEC Rule 16b-3, to
permit greater flexibility in the administration of the Plan, and to
increase the number of shares reserved under the Plan; and
4. To transact such other business as may properly come before the
meeting.
A Proxy Statement explaining the matters to be acted upon at the
meeting is enclosed.
The Board of Directors has designated February 20, 1998 as the record
date for determining shareholders entitled to notice of and to vote at the
Annual Meeting.
THE BOARD OF DIRECTORS WOULD LIKE TO EMPHASIZE THE IMPORTANCE OF
EXERCISING YOUR RIGHTS AS SHAREHOLDERS TO VOTE ON THE ISSUES DESCRIBED IN
THE ENCLOSED PROXY STATEMENT. THE BOARD OF DIRECTORS UNANIMOUSLY
RECOMMENDS THAT YOU VOTE FOR THE ELECTION OF DIRECTORS, APPROVE THE
SELECTION OF KPMG PEAT MARWICK LLP AND APPROVE THE AMENDMENTS TO THE
NONQUALIFIFED PLAN.
YOU ARE URGED TO COMPLETE, SIGN, DATE AND RETURN THE ENCLOSED PROXY
IN THE ENVELOPE PROVIDED AS PROMPTLY AS POSSIBLE.
March 4, 1998
Timothy L. Hoops
President
Mark A. Boatright
Secretary
KESTREL ENERGY, INC.
999 18th Street, Suite 2490
Denver, Colorado 80202
PROXY STATEMENT
Annual Meeting of Shareholders
To Be Held March 31, 1998
10:00 a.m.
The enclosed Proxy is solicited by the Board of Directors of Kestrel
Energy, Inc., a Colorado corporation (the "Company"), for use at the
Annual Meeting of Shareholders to be held in the Management Briefing
Center at First Interstate Bank of Denver, N.A., North Tower, 4th Floor,
633 17th Street, Denver, Colorado on Tuesday, March 31, 1998 at 10:00
a.m., Mountain Standard Time, and at any adjournment thereof. It is
anticipated that this Proxy Statement and the accompanying Proxy will be
mailed to the Company's shareholders on or about March 4, 1998.
The expense of the Board of Directors' Proxy solicitation will be
borne by the Company. In addition to solicitation of Proxies by use of
the mails, some of the Company's officers and directors may solicit
Proxies by telephone, telegraph or personal interview without any
additional compensation to them. The Company will reimburse brokers,
nominees, custodians and other fiduciaries for expenses in forwarding
Proxy materials to their principals.
Any shareholder giving a Proxy on the enclosed form may revoke it at
any time prior to the exercise thereof by advising the Secretary of the
Company in writing at the above address, by properly executing a later
dated Proxy or by appearing in person and voting at the Annual Meeting.
VOTING OF SHARES
Only holders of the Company's outstanding shares of common stock, no
par value ("Common Stock"), of record at the close of business on February
20, 1998, will be entitled to notice of, and to vote at, the Annual
Meeting and at any adjournment thereof. On that date, there were
4,419,634 shares of Common Stock outstanding.
Cumulative voting in the election of directors is allowed. Under
cumulative voting, each shareholder is entitled to cast a number of votes
in the election of directors equal to the number of directors to be
elected multiplied by the number of shares being voted. The shareholder
may cast his vote for one nominee or may distribute the votes among
nominees in any manner. Unless directed otherwise, the enclosed Proxy
gives discretionary authority to cumulate votes in the election of
directors. On all matters other than the election of directors, each
shareholder will be entitle to one vote per share. The election of
directors requires that the six candidates having the highest number of
votes cast in favor of their election are elected to the Board of
Directors. The approval of KPMG Peat Marwick LLP and the amendments to
the Nonqualified Stock Option Plan require an affirmative vote of a
majority of the shares of Common Stock represented in person or by Proxy
at the Annual Meeting. The Board of Directors urges each shareholder to
mark, sign and mail the enclosed Proxy card in the return envelope as
promptly as possible.
STOCK OWNERSHIP OF PRINCIPAL SHAREHOLDERS
AND MANAGEMENT
The following table sets forth, as far as is known to the Board of
Directors or the management of the Company, the only persons owning on
February 12, 1998 more than five percent of the outstanding shares of the
Company's Common Stock. For purposes of this disclosure, the amount of
the Company's Common Stock beneficially owned is the aggregate number of
shares of the Common Stock outstanding on such date plus an amount equal
to the aggregate amount of Common Stock which could be issued upon the
exercise of stock options within 60 days of such date.
<TABLE>
<CAPTION>
Number of Shares of Common Stock Beneficially Owned
Voting and Investment Power
Name and Address Direct Indirect Total Shares Percent
Owned
<S> <C> <C> <C> <C>
Victoria International
Petroleum N.L.
4th Flr., Griffin Centre
28 The Esplanade
Perth 6000
Western Australia 1,166,221 --- 1,166,221(1) 26.4%
Victoria Petroleum N.L.
4th Flr., Griffin Centre
28 The Esplanade
Perth 6000
Western Australia --- 1,166,221(2)1,166,221 26.4%
Timothy L. Hoops
P.O. Box 1079
Denver, CO 80201-1079 197,026(3) 1,166,221(4) 1,363,247 29.7%
Robert J. Pett
4th Flr., Griffin Centre
28 The Esplanade
Perth 6000
Western Australia 102,500(5) 1,166,221(6) 1,268,721 28.1%
John T. Kopcheff
4th Flr., Griffin Centre
28 The Esplanade
Perth 6000
Western Australia 164,000(7) 1,166,221(8) 1,330,221 29.0%
The Equitable Life
Assurance Society
City Place House
55 Basinghall St.
London England EC2V 5DR 840,000 --- 840,000 19.0%
</TABLE>
(1) Does not include unvested options to purchase 1,285,353 shares if
certain undeveloped properties are successfully developed into proved
producing properties. See CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
(2) Victoria International Petroleum N.L. ("VIP"), the record holder of
the shares, is a wholly owned subsidiary of Victoria Petroleum N.L.
("VP"), which is therefore deemed to be another beneficial owner of the
shares. Resolute Limited, a publicly held Australian mining and natural
resources company ("Resolute"), owns 28.45% of VP. Resolute disclaims
beneficial ownership of the shares.
(3) Includes vested options to purchase up to 175,116 shares
(4) Mr. Hoops is a director of VIP and of VP. As a result, all shares
held by VIP directly and VP indirectly are listed as indirectly held by
Mr. Hoops.
(5) Includes vested options to purchase up to 92,500 shares
(6) Mr. Pett is the Chairman and a director of VIP and a director of VP.
As a result, all shares held by VIP directly and VP indirectly are listed
as indirectly held by Mr. Pett.
(7) Includes vested options to purchase up to 160,000 shares
(8) Mr. Kopcheff is a director of VIP and VP. As a result, all shares
held by VIP directly and VP indirectly are listed as indirectly held by
Mr. Kopcheff.
The following table sets forth the number of shares beneficially
owned on February 12, 1998 by the Company's executive officers and
directors, and by all of the executive officers and directors as a group.
For purposes of this disclosure, the amount of the Company's Common Stock
beneficially owned is the aggregate number of shares of the Common Stock
outstanding on such date plus an amount equal to the aggregate amount of
Common Stock which could be issued upon the exercise of stock options
within 60 days of such date.
<TABLE>
<CAPTION>
Shares of
Common Stock
Position(s) Beneficially
With the Owned and Percent
Name and Address Company Options Granted Owned
- ---------------------------- -------------------- --------------- -------
<S> <C> <C> <C>
Timothy L. Hoops President, Chief
P.O. Box 1079 Executive Officer
Denver, CO 80201-1079 and Director 1,363,247(1)(2) 29.7%
Robert J. Pett Chairman of the 1,268,721(3)(4) 28.1%
4th Flr., Griffin Centre Board and Director
28 The Esplanade
Perth 6000
Western Australia
Mark A. Boatright Vice President - 38,500(5) *
1475 Lawrence St. Finance, Chief
Suite 310 Financial Officer
Denver, CO 80202 and Director
John T. Kopcheff Vice President -
4th Flr., Griffin Centre International and
28 The Esplanade Director 1,330,221(5)(6) 29.0%
Perth 6000
Australia
Kenneth W. Nickerson Director 23,000(5) *
10780 Hanson St.
Johannesburg, MI 49751
Mark A. E. Syropoulo Director 60,000(7) *
Lot 42 Gumboil Road
Looroy Queensland 4563
Australia
All Directors and Executive 1,751,247 35.5%
Officers as a Group
(6 persons)
</TABLE>
* Less than one percent (1.0%)
(1) Mr. Hoops is a director of Victoria International Petroleum N.L.
("VIP") and of Victoria Petroleum N.L. ("VP"). As a result, all shares
held by VIP directly and by VP indirectly are listed as held by Mr. Hoops.
(2) Includes vested options to purchase up to 175,116 shares.
(3) Mr. Pett is the Chairman and a director of VIP and a director of VP.
As a result, all shares held by VIP directly and VP indirectly are listed
as held by Mr. Pett.
(4) Includes vested options to purchase up to 92,500 shares.
(5) Includes vested options to purchase up to 34,500 shares, 160,000
shares and 23,000 shares granted to Messrs. Boatright, Kopcheff and
Nickerson, respectively.
(6) Mr. Kopcheff is a director of VIP and VP. As a result, all shares
held by VIP directly and VP indirectly are listed as indirectly held by
Mr. Kopcheff.
(7) Includes vested options to purchase up to 30,000 shares
ELECTION OF DIRECTORS
Six directors are to be elected to serve until the 1998 annual
meeting of shareholders and until each of their successors shall have been
elected and qualified. IT IS INTENDED THAT THE ENCLOSED PROXIES, UNLESS
DIRECTED OTHERWISE, WILL BE VOTED FOR THE FOLLOWING NOMINEES, ALL OF WHOM
ARE PRESENTLY DIRECTORS OF THE COMPANY AND HAVE BEEN NOMINATED FOR RE-
ELECTION BY THE BOARD OF DIRECTORS.
There is no arrangement or understanding between any of the nominees
and any other person or persons pursuant to which he was or is to be
selected as a director or nominee. The names of and certain information
with respect to the persons nominated for election as directors are as
follows:
TIMOTHY L. HOOPS, age 42, was appointed President, Chief Executive
Officer and Director on June 1, 1992. Mr. Hoops is a petroleum geologist
with 19 years experience in the continental USA and Australia. Mr. Hoops
has been Vice President and a Director of the Company's wholly owned
subsidiary, Victoria Exploration, Inc., an independent oil and gas
producer, since 1987. He has also been a Director of Victoria
International Petroleum N.L. and of Victoria Petroleum N.L. since 1987.
Mr. Hoops was Exploration Manager for Royal Resources Corporation, a
publicly held Denver based company engaged in the exploration and
development of oil and gas, from 1984 to 1987. Prior to 1984, Mr. Hoops
was employed by Amoco Production, Cities Service and Santa Fe Energy. Mr.
Hoops is a 1979 graduate of the Colorado School of Mines, with a degree in
geology. Mr. Hoops is the brother-in-law of Mr. Boatright.
ROBERT J. PETT, age 50, was appointed as a Director on June 1, 1992
and Chairman of the Board on January 16, 1995. Mr. Pett served as
Secretary from June 1, 1992 until December 16, 1992, as Vice President
from November 1, 1992 until January 16, 1995, and as Treasurer from
January 4, 1993 to January 16, 1995. Mr. Pett has been a director of
Victoria International Petroleum N.L. since 1986. Mr. Pett has been
Chairman of Victoria Petroleum N.L. for 13 years. He is currently
Chairman of Resolute Limited, an Australian mining and natural resources
company, which provides office facilities and administrative services to
Victoria Petroleum N.L. on a pro-rata reimbursement of expenses basis. He
is a Director of Sapphire Mines N.L., an Australian precious gem mining
company, and a Director of Victoria Exploration, Inc., an independent oil
and gas producer which is a wholly owned subsidiary of the Company. Mr.
Pett holds a Masters Degree in Economics (Queens University, Canada).
MARK A. BOATRIGHT, age 40, was appointed a Director on October 18,
1993, and as Vice President - Finance, Chief Financial Officer, Treasurer
and Secretary on January 16, 1995. Mr. Boatright is President of Boatright
and Associates, P.C., Certified Public Accountants. Mr. Boatright has
over 18 years experience in financial accounting and specializes in oil
and gas accounting and international taxation. Mr. Boatright currently
acts as a consultant in international taxation and accounting for various
oil and gas companies. He also is President of Regatta Financial
Services, a registered investment advisory firm. Prior to establishing
his own accounting practice, Mr. Boatright was the tax manager for
Bradley, Allen & Associates, P.C., Certified Public Accountants. Mr.
Boatright is a 1979 cum laude graduate of the University of Colorado with
a degree in finance. He has been providing accounting and financial
services to the Company since June, 1992. Mr. Boatright is the brother-in-
law of Mr. Hoops.
JOHN T. KOPCHEFF, age 50, was appointed as Vice President -
International and a Director of the Company on January 16, 1995. Mr.
Kopcheff is a geologist with 27 years experience in petroleum in
Australia, Southeast Asia, United States, South America and the North Sea,
both in field geological operations and management. Mr. Kopcheff has been
a Director and Secretary of Victoria Exploration, Inc. since 1986, a
Director of Victoria International Petroleum N.L. since 1986, and a
Director of Victoria Petroleum N.L. since 1984. Prior to his appointment,
he provided various services to the Company relating to the Company's
international exploration activities on a consulting basis. He received a
Bachelor of Science degree with honors from the University of Adelaide in
1970.
KENNETH W. NICKERSON, age 78, is an independent petroleum and mineral
geologist with over 49 years experience. He was appointed as a Director
of the Company on December 16, 1992. From 1981 until 1988, Mr. Nickerson
served as President, Director and Chief Operating Officer of Royal
Resources Corporation, a publicly held Denver based company engaged in the
exploration and development of oil and gas. Since then Mr. Nickerson has
worked as a consulting geologist for various energy companies. Mr.
Nickerson is a 1948 graduate of the Colorado School of Mines with a degree
in geological engineering.
MARK A.E. SYROPOULO, age 46, was appointed as a Director on January
14, 1998. Mr. Syropoulo has been an independent corporate consultant
since 1994 and has during this time provided services to various entities
in the natural resources, information technology and investment sectors,
principally in Australia. He also acted as a consultant to the Company
from May 1, 1997 until January 1998. Prior to 1994 he was managing
director from 1987 to 1993 of Anglo Pacific Resources Limited, a United
Kingdom mining and oil company associated with Anglovaal Holdings Limited,
a major South African mining house. Mr. Syropoulo is a graduate of
mathematics and economics and an honors graduate in economics.
In the event any one or more of the nominees shall be unable to serve
as a director, votes will be cast, pursuant to the authority granted in
the enclosed Proxy, for such person or persons as may be designated by the
Board of Directors. The Board of Directors at this time is not aware of
any nominee who is or will be unable to serve as director, if elected.
None of the nominees are directors of any other company having a
class of equity securities registered under the Securities Exchange Act of
1934, or any company registered under the Investment Company Act of 1940.
The Board of Directors held one meeting and acted three times by
unanimous written consent during the fiscal year ended June 30, 1997. The
Company has an Audit Committee which oversees the accounting controls for
the Company. In fiscal 1997, the Committee was comprised of Messrs.
Hoops, Nickerson and Boatright. The Committee acted one time by unanimous
written consent in fiscal 1997. On January 14, 1998, Mr. Hoops was
replaced by Messrs. Syropoulo and Pett as members of the Committee.
The Company also has a Compensation Committee, which committee makes
recommendations on executive compensation and selects those persons
eligible to receive grants of options under the Company's Nonqualified
Stock Option Plan and the Amended and Restated Incentive Stock Option
Plan. Members of the Committee in fiscal 1997 were Messrs. Nickerson and
Boatright. The Committee held one meeting and acted two times in fiscal
1997 by unanimous written consent. On January 14, 1998, Mr. Boatright was
replaced by Mr. Syropoulo as a member of the Committee.
The Company did not have an Executive Committee until January 14,
1998 at which time Messrs. Hoops, Boatright and Syropoulo were appointed
to that Committee. The Executive Committee has as its primary function
director-level review and approval of non-routine matters of significance
during the periods between scheduled meetings of the Board of Directors.
The Company does not have a nominating committee.
EXECUTIVE OFFICERS
Timothy L. Hoops is the President and Chief Executive Officer of the
Company. Mark A. Boatright is Vice President-Finance, Chief Financial and
Accounting Officer, Treasurer and Secretary and John T. Kopcheff is Vice
President-International. See ELECTION OF DIRECTORS. Robert J. Pett is
Chairman of the Board and Denis I. Rakich and Lynnette M. Carpenter are
Assistant Secretaries of the Company, but they are not executive officers
of the Company.
There is no arrangement or understanding between any of the executive
officers and any other persons pursuant to which he was or is to be
selected as an officer, nor is there any family relationship between or
among any executive officers, except that Mr. Boatright is the brother-in-
law of Mr. Hoops.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On December 31, 1993, the Board of Directors authorized the exchange
of 207,263 restricted shares of the Company's Common Stock for $466,343 in
indebtedness owed to Victoria Exploration, Inc. ("VicX") effective January
1, 1994. Because the shares received were issued in a private,
unregistered transaction, several years ago, they can be publicly resold
by VicX or its successors in interest only in accordance with the
provisions of Securities Act Rule 144, including the limitation on the
amount of shares which may be sold in any ninety (90) day period. The
exchange rate for the transaction was approximately $2.25 per share. As a
result of the transaction, VicX owned 380,913 shares, or 59% of the
outstanding Common Stock at that time. The remaining debt owed to VicX
after the transaction amounted to approximately $600,000.
On June 10, 1994, the Company transferred 709,108 shares of its
Common Stock and unvested options to acquire up to an additional 1,285,353
shares of that stock to Victoria International Petroleum N.L. ("VIP") in
exchange for all of the outstanding shares of VicX. The shares of VicX
were valued at $1,595,493, the aggregate value of the assets of VicX less
certain undeveloped properties. The value of the Company's Common Stock
in the exchange was an agreed upon value of $2.25 per share. At the time
of the exchange the Company's Common Stock was being traded at prices
between $1.75 and $2.00 per share. The options were given in
consideration for certain undeveloped properties owned by VicX which the
Company agreed to develop. It was agreed that these options would only
vest to VIP if the undeveloped properties were successfully developed into
proved producing properties by June 30, 1997. These options, and the
vesting determination date relating thereto, have been extended to
December 31, 1998 by agreement of the Company and VIP. The options were
granted on the formula of cash received by the Company from the
undeveloped properties less the cash used to develop those properties plus
60% of the reclassified present value discounted at 10%, divided by $3.00
per share. The properties will be evaluated annually by a qualified
independent evaluator to determine the number of options to be vested to
VIP. Because certain of the officers and directors of the Company have
similar positions with VicX and VIP, the Company's Board required as a
condition to the transaction, and obtained, a written opinion from an
independent firm experienced in oil and gas mergers and acquisitions that
the transaction was fair from a financial point of view to the
shareholders of the Company. All shares issued in this transaction were
unregistered. Prior to the transaction, VicX transferred all of its
holdings in the Company, 380,913 shares (59%) and its note receivable from
the Company, to VIP.
In conjunction with the foregoing acquisition of undeveloped oil and
gas properties from VicX, the Company issued a $1,000,000 note payable to
VicX, which bore interest at the Norwest Bank Denver, N.A. prime rate with
quarterly interest payments. In December 1992, the terms of a $58,500
unsecured short term note to VicX were conformed to the terms of the
$1,000,000 note payable and the notes were combined. The note was secured
by the oil and gas properties acquired from VicX. As noted above, the
note was reduced to approximately $600,000 by the exchange of 207,263
shares of Common Stock for $466,343 in indebtedness owed to VicX on
December 31, 1993. Also, as indicated above, VicX transferred the note to
VIP on June 10, 1994. On December 27, 1994, prior to the December 31,
1994 maturity date of the note, the Company agreed to assign an unproved
waterflood project (Rocky Butte) acquired in a June 1992 transaction to
VIP in exchange for the surrender of indebtedness to VIP in the amount of
approximately $600,000, thereby eliminating the note receivable from the
Company to VIP.
On November 8, 1994, VIP purchased 75,000 additional shares of Common
Stock for $2.50 per share as part of a private placement of 550,000 shares
by the Company, most of which was sold overseas. On June 26, 1995, VIP
purchased 50,000 additional shares in the open market. In August 1995,
VIP sold 48,800 shares. VIP's current shareholding interest in the
Company is 26.4% (23.6% diluted for currently vested options).
Mark A. Boatright has been providing accounting and financial
services to the Company since June, 1992. On November 15, 1994, the
Company entered into an agreement with Mr. Boatright whereby he would
provide services to the Company and VicX through his company, Boatright &
Associates, P.C., for $1,500 per month. The amount was increased to
$1,667 per month in fiscal 1997 and such fees were terminated at the end
of that fiscal year. The Board of Directors believes these fees were in
line with industry standards. Effective July 1, 1997, Mr. Boatright
became an employee of the Company in which capacity he has been paid a
salary of $48,000 per annum.
Mark A.E. Syropoulo provided corporate, investors relations,
consulting services to the Company from May of 1997 until January of 1998
for which he received a monthly retainer of $1,800 a month. In fiscal
1997, he received $3,600 and options to purchase 30,000 shares of Common
Stock at an exercise price of $2.00 per share, the fair market value on
the date of grant. The Board of Directors believes the fees paid to Mr.
Syropoulo were in line with industry standards.
As a result of the Company's close relationship with its majority
shareholder VIP, it has been afforded the opportunity to participate in
various international oil and gas drilling opportunities located by VIP.
In most cases, VIP has its own interest in the same drilling projects in
which the Company agrees to participate and in some cases the Company has
acquired its interest from VIP rather than directly from the operator or
lead promoter of the prospects.
To date, the Company has agreed to farm-in on several such
international drilling permits, including some in Papua New Guinea and in
Western Australia. The Company earns a right to participate by sharing in
the costs of data review, seismic and drilling. In addition to the
benefit, if any, to VIP's interest in these permits resulting from the
Company's agreement to share these costs, the Company has agreed to pay a
5% royalty to VIP on the Company's interest in any international permits
referred to the Company by VIP which produce net revenues for the Company.
The Company believes that this arrangement is fair and reasonable and that
the potential compensation to VIP is no greater than the Company would
have paid in an arms length transaction with an unrelated party who
provided comparable services.
EXECUTIVE COMPENSATION
The following sets forth in summary form the compensation received
during each of the Company's last three completed fiscal years by the
Chief Executive Officer of the Company. No other officers of the Company
received salary, bonus or other annual compensation in total from the
Company, in excess of $100,000.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Annual Compensation
-------------------
NAME AND Fiscal Salary(1) Bonus Options
PRINCIPAL POSITION Year ($) ($) (#)
- ------------------------ ------ --------- ----- -------
<S> <C> <C> <C> <C>
Timothy L. Hoops, 1997 $75,000 $35,000 18,000
President, 1996 $75,000 $0 80,000
Chief Executive 1995 $88,950 $0 40,000
Officer, and
Director
- ----------------------------
</TABLE>
(1) Until January of 1995, Mr. Hoops provided consulting services to the
Company via a retainer agreement between the Company and his
employer, Peak Resource Management, Inc. which fees are set forth
under the salary column above. Beginning January 1, 1995, Mr. Hoops
became an employee of the Company and, in that capacity, provides
services to the Company and the Company's wholly owned subsidiary,
Victoria Exploration, Inc. ("VicX").
Other than that noted above, Mr. Hoops did not receive additional
compensation from the Company which, in the aggregate, was greater than
$50,000 or greater than 10% of the total of annual salary, bonus and
consulting fees reported for him.
The Company reimburses its officers and directors for ordinary and
necessary business expenses incurred by them on behalf of the Company.
It is anticipated that, in fiscal 1998, Mr. Hoops will be paid a
salary of $144,000 for services rendered to the Company and VicX plus
retirement and health benefits. Payment for his services from July 1,
1994 through December 31, 1994 was made through his employer, Peak
Resource Management, Inc. Since January 1, 1995, Mr. Hoops has been paid
as an employee of the Company. In fiscal 1997, Mr. Hoops received
approximately $18,000 in consulting fees from Victoria Petroleum N.L.
("VP") and companies owned by VP for services provided to those companies
in fiscal 1997. Mr. Hoops will no longer receive those consulting fees in
fiscal 1998. In addition, Mr. Hoops received fees as a director of VP in
the amount of Australian $5,000 for fiscal 1997 and he expects to receive
the same amount in 1998. Resolute Limited, a publicly held Australian
mining and natural resources company, owns 28.45% of VP, which indirectly
owns 26.4% of the Company.
Option Grants for Fiscal Year Ended June 30, 1997
<TABLE>
<CAPTION>
% of Potential
Total Realizable
Options Value at Assumed
Number Granted Annual Rates of
of to Exercise Stock Price
Securities Employees or Appreciation
Underlying in Base for Option Term
Options Fiscal Price Expiration 5%($)(1)/
Name Granted Year ($/share) Date 10%($)(2)
- ---------------- ---------- --------- --------- ---------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Timothy L. Hoops 18,000(3) 44% $2.5625 6/16/07 $29,059 $73,339
President,
Chief Executive
Officer and
Director
Robert J. Pett 0 0% N/A N/A N/A N/A
Chairman of
the Board and
Director
Mark A. Boatright 5,000(4) 56% $1.25 9/30/06 $3,938 $9,938
Vice President-18,000(3) $2.5625 6/16/07 $29,059 $73,339
Finance, Chief
Financial
Officer
and Director
John T. Kopcheff 0 0% N/A N/A N/A N/A
Vice President-
International
and Director
Kenneth W. 5,000(4) N/A $1.25 9/30/06 $3,938 $9,938
Nickerson
Director
Denis I. Rakich 0 0% N/A N/A N/A N/A
Assistant
Secretary
Lynnette M. 0 0% N/A N/A N/A N/A
Carpenter
Assistant
Secretary
</TABLE>
(1) This column represents the potential realizable value of each grant
of options, based on the assumption that the market price of shares
of Common Stock underlying the options will appreciate in value from
the date of the grant to the end of the option term at the annual
rate of five percent.
(2) This column represents the potential realizable value of each grant
of options, based on the assumption that the market price of shares
of Common Stock underlying the options will appreciate in value from
the date of the grant to the end of the option term at the annual
rate of ten percent.
(3) Of this grant, all were incentive stock options.
(4) Of this grant, all were nonqualified stock options.
Aggregated Option Exercises For Fiscal Year Ended June 30, 1997
and Year End Option Values
<TABLE>
<CAPTION>
Number of
Securities Value of
Underlying Unexercised
Unexercised In-the-Money-
Shares Options at Options at
Exercised June 30, 1997 June 30, 1997
during Value (#) ($)(1)
fiscal year Realized Exercisable/ Exercisable/
Name to date(#) ($) Unexercisable Unexercisable
<S> <C> <C> <C> <C>
Timothy L. Hoops 0 0 173,000/30,000 $120,500/0
President, Chief
Executive
Officer,
and Director
Robert J. Pett 0 0 77,500/15,000 $56,875/0
Chairman of the
Board and
Director
Mark A. Boatright 0 0 23,000/11,500 $15,188/0
Vice President -
Finance, Chief
Financial and
Accounting
Officer
and Director
John T. Kopcheff 0 0 130,000/30,000 $73,125/0
Vice President -
International and
Director
Kenneth W. Nickerson 0 0 6,500/11,500 $10,875/0
Director
Denis I. Rakich 0 0 65,000/15,000 $43,594/0
Assistant
Secretary
Lynnette M. Carpenter 0 0 20,000/5,000 $11,162/0
Assistant Secretary
</TABLE>
(1) For all unexercised options held as of June 30, 1997, the aggregate
dollar value is the excess of the market value of the stock
underlying those options over the exercise price of those unexercised
options. The price used to calculate these figures is the closing
price as of June 30, 1997 on the Nasdaq SmallCap Market, which was
$2.9375 per share.
KESTREL ENERGY, INC.
COMPENSATION COMMITTEE REPORT
ON EXECUTIVE COMPENSATION
Compensation Policies Toward Executive Officers
The Compensation Committee's executive compensation polices are
designed to provide competitive levels of compensation through a
combination of base level compensation, incentive stock options and cash
bonus awards.
The Committee reviews the President's performance periodically and
reports to the Board of Directors on its evaluation of that performance.
The Committee does not believe that it is reasonable, necessary or
appropriate for such a small company to require or establish a direct or
fixed relationship between the Company's financial performance and the
Chief Executive Officer's compensation. The Committee instead considers a
number of factors in making a subjective determination as to the
compensation of the Chief Executive Officer, including determinations as
to the level of salary, options and benefits: quality of service
provided, amount of time devoted to the Company's business, level of
expertise, dedication to the Company and its best interests, general
management abilities and the Company's operational and financial
performance.
Mr. Hoops, the President of the Company received total cash
compensation from the Company of $110,000 in fiscal 1997, consisting of
$75,000 in base salary and a $35,000 bonus. He also received $18,000 in
consulting fees from Victoria Petroleum, N.L., the parent company of one
of the Company's largest shareholders. While this was an increase from
the $75,000 in total cash compensation paid to Mr. Hoops by the Company in
1996, the increase in compensation was intended to be only a restructuring
of Mr. Hoops' total compensation package from the Company, Victoria
Petroleum, and the Company's then newly acquired subsidiary, Victoria
Exploration, Inc., with the intent that the total compensation (cash and
benefits) in 1997 would be substantially equivalent to that in 1996.
Mr. Hoops' planned increase to $144,000 in fiscal 1998 is based on the
Company's expectation that Mr. Hoops will be required to devote
substantially all of his time and expend an even greater level of effort
on the Company's affairs than he did in 1997 as a result of the Company's
expansion of its domestic exploration efforts, largely as the result of
its acquisition of a 50% working interest in 9,000 net acres of petroleum
leases in the San Joaquin Basin in California and the Company's
appointment as operator of those properties. Because of the greater
burden of these additional responsibilities, Mr. Hoops will no longer be
able to supplement his income by providing consulting services to Victoria
Petroleum or other companies. Moreover, the Committee believes that the
Company's financial results for fiscal 1997, which include a substantial
amount of non-cash write downs, are not reflective of the dramatic
successes achieved by management in that year, including but not limited
to the successful placement of $5 million in common stock in private
overseas transactions and the purchase of the San Joaquin Basin properties
from Ampolex (USA), Inc.
In an effort to further strengthen the Company's management
capabilities, Mark Boatright, the Company's Vice President of Finance,
became an employee of the Company effective July 1, 1997 at an annual
salary of $48,000. The Committee believes that this change will permit
Mr. Boatright, who had previously provided services to the Company on a
contract basis through his accounting firm, Boatright & Associates, to
provide even greater support for the Company's financial and recordkeeping
functions.
In May of 1997, the Compensation Committee declared a cash bonus of
$25,000 for John T. Kopcheff, Vice President - International of the
Company, for his efforts in connection with the Company's international
exploration program. Mr. Kopcheff, who also serves on the Company's Board
of Directors, received no other cash remuneration from the Company in
fiscal 1997.
Stock options are granted to key personnel of the Company by the
Compensation Committee as a means of providing an equitable long term
incentive to the Company's personnel. The Compensation Committee believes
that stock options can be used in the best interest of the Company to
reward past efforts of the Company's executive officers, to encourage the
present and future performance by the Company's executive officers and to
align the interests of the Company's personnel with the interests of the
Company's shareholders.
During the 1997 fiscal year, each Compensation Committee member
received an automatic grant of options to purchase 5,000 shares pursuant
to the Nonqualified Stock Option Plan. On June 16, 1997, 18,000 options
were granted to each of the Company's President and Vice President-
Finance. The options were granted at the fair market value on the date of
grant. The award of these options was in accordance with the above stated
policy of the Compensation Committee and the terms of the Nonqualified
Stock Option and Incentive Stock Option Plans. In particular, the awards
to Messrs. Hoops and Boatright were made in recognition of their
substantial efforts during the year in effecting the acquisition of the
San Joaquin Basin properties from Ampolex (USA), Inc. and as an incentive
to help the Company and its shareholders fully realize the value of those
and other properties held by the Company.
October 8, 1997 Compensation Committee Of
The Board of Directors
Kenneth W. Nickerson
Mark A. Boatright
DIRECTORS' REMUNERATION
Directors who are not officers or employees of the Company are paid
$900 for attendance at meetings of the Board or Committees thereof. Any
director who serves on the Compensation Committee automatically receives
5,000 options each September 30 pursuant to the Company's Nonqualified
Stock Option Plan. Accordingly, on September 30, 1996, both Messrs.
Boatright and Nickerson, as members of the Compensation Committee,
received fully vested options to purchase 5,000 shares of Common Stock at
an exercise price of $1.25 per share, the fair market value on the date of
grant. The options are exercisable for ten years from the date of grant.
The only other option awarded to a member of the Compensation Committee
during fiscal 1997 was the grant to Mr. Boatright by the Board of
Directors (Mr. Boatright abstaining) on June 16, 1997 of fully vested
options to purchase 18,000 shares at an exercise price of $2.5625 per
share, the fair market value on the date of grant. In addition, on the
same date, Mr. Hoops, who is not a member of the Committee, received the
same number of shares at the same exercise price. These grants were made
from the Company's Incentive Stock Option Plan and are exercisable for ten
years from the date of grant.
PERFORMANCE GRAPH
The following line graph compares the yearly percentage change in the
cumulative total shareholder return for (i) the Company, (ii) the MG
Industry Group 353 - Oil and Natural Gas Exploration and (iii) the NASDAQ
Market Index. The MG Industry Group 353 consists of approximately 137
companies involved in the oil and gas industry, including the Company.
The line graph and table cover the five year period from July 1992 through
June 1997 and represent the total value of a $100 investment in each
security/market index on July 1, 1992. All dividends are assumed to be
reinvested
<TABLE>
<CAPTION>
1992 1993 1994 1995 1996 1997
<S> <C> <C> <C> <C> <C> <C>
Kestrel
Energy Inc. 100 440.00 240.00 110.00 290.00 235.00
MG Industry
Group 353 100 113.87 118.37 130.71 158.96 179.61
NASDAQ
Market Index 100 122.76 134.61 157.88 198.73 239.40
</TABLE>
The information contained in this graph was compiled by Media General
Financial Services of Richmond, Virginia. The Company will provide a list
of the companies included in the various indices upon the written request
of any shareholder.
* * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * *
RATIFICATION OF SELECTION OF
INDEPENDENT PUBLIC ACCOUNTANTS AND AUDITORS
KPMG Peat Marwick LLP was appointed by the Board of Directors as the
Company's independent certified public accountants and auditors on
December 4, 1987. The decision was based upon a comparison of the
services and fee arrangements offered by various accounting firms and an
evaluation by the Board of Directors.
Although ratification by shareholders of the selection of KPMG Peat
Marwick LLP is not required by the Colorado Business Corporation Act, or
by the Company's Articles of Incorporation, as amended, or Bylaws, the
Board of Directors believes that a decision of this nature should be
confirmed by the Company's shareholders. Accordingly, shareholders are
being asked to consider ratification of the selection of KPMG Peat Marwick
LLP for the fiscal year ending June 30, 1998. If a significant number of
shares are voted against the ratification of this selection, or if the
Board of Directors determines that the fees proposed to be charged by KPMG
Peat Marwick LLP are unreasonable for the Company under the circumstances,
the Board of Directors will reconsider the selection for the fiscal year
ending June 30, 1998.
It is expected that KPMG Peat Marwick LLP will have a representative
at the Annual Meeting who will be given the opportunity to make any
statement deemed necessary and will be available to answer questions.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE
"FOR" THE RATIFICATION OF THE SELECTION OF
KPMG PEAT MARWICK LLP AS THE INDEPENDENT
CERTIFIED PUBLIC ACCOUNTANTS AND AUDITORS FOR THE
FISCAL YEAR ENDING JUNE 30, 1998
* * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * *
PROPOSAL TO AMEND THE NONQUALIFIED STOCK OPTION PLAN
The 1993 Nonqualified Stock Option Plan (the "Plan") was adopted by
the Company in December of 1992. It was amended in March 1995 and
December 1995 and the amendments were approved by the shareholders of the
Company on December 12, 1995. On July 22, 1997, the Compensation
Committee (the "Committee) approved certain amendments to the Plan to
conform to recent changes in Rule 16b-3, 17 C.F.R. 240.16b-3 ("Rule 16b-
3"), under the Securities Exchange of 1934, as amended (the "Exchange
Act"), to permit greater flexibility in the administration of the Plan,
and to increase the number of shares reserved under the Plan. In sum, the
proposed amendments would (i) change the name of the Plan from the 1993
Nonqualified Stock Option Plan to the Stock Option Plan; (ii) eliminate
the requirement that members of the Committee administering the Plan be
disinterested persons as had been previously required by Rule 16b-3; (iii)
while the Committee is expected to continue to administer the Plan for the
foreseeable future, permit the Board of Directors to make grants of stock
options or otherwise administer the Plan if and to the extent such
administration would be consistent with applicable law; (iv) permit the
Board of Directors or the Committee administering the Plan to determine
the fair market value of the Company's Common Stock for purposes of the
Plan by averaging the price over a period of up to 90 days preceding the
grant of any option; (v) permit the Board of Directors or the Committee
administering the Plan to make grants of nonqualified stock options at not
less than 50% of the fair market value; (vi) permit, to the extent
consistent with applicable law, discretionary grants of options to members
of the Board of Directors or the Committee administering the Plan; (vii)
require shareholder approval of amendments to the Plan only if the
amendment would (A) increase the total number of shares available for
grants of options or (B) require shareholder approval under applicable
law; (viii) permit exercise of options in accordance with any other means
consistent with applicable law as determined by the Committee in its
discretion, including but not limited to permitting a participant to
effect a net exercise of an option without tendering shares of the
Company's stock as payment for the option or allowing a participant to
execute a cashless exercise through a securities brokerage firm; (ix)
increase the number of shares reserved under the Plan from 750,000 to
1,000,000; and (x) allow the Committee to grant Incentive Stock Options
(within the meaning of Internal Revenue Code Section 442) in addition to
the nonqualified stock options previously authorized by the Plan.
The Company's Board of Directors and its Compensation Committee
(presently consisting of Kenneth W. Nickerson and Mark A.E. Syropoulo,
both of whom are outside directors) believe that these changes are
important to permit the Company to attract and retain officers, directors,
key employees, advisors and consultants, to encourage stock ownership by
employees and management and to give the Committee flexibility in
administering the Plan to provide incentives and promote the financial
success and progress of the Company. In addition, an increase in the
number of options available for grant is important so that the Company can
continue to provide incentives to employees and others to promote the
financial success or progress of the Company, and the value of shares of
the Company's stock for all shareholders without using the Company's
limited cash or other liquid resources.
Description of the Plan
ADMINISTRATION
The Plan is administered by the Compensation Committee of the
Company's Board of Directors (the "Committee"). If the proposed
amendments are approved, the Plan could in the future be administered by
the Board of Directors if and to the extent such administration is
consistent with applicable law. Subject to the Plan, the Committee has
the authority to determine to whom stock options may be granted, the time
or times at which options are granted, the number of shares covered by
each such grant, and the duration of the options. In addition, the
Company will withhold or require the payment by Optionee of any state,
federal or local taxes resulting from the exercise of an option, provided
that, to the extent permitted by law, the Committee may, in its
discretion, permit some or all of such withholding obligation to be
satisfied by the delivery by the participant of, or the retention by the
Company of, shares of its Common Stock. All decisions and interpretations
made by the Committee are binding and conclusive on all participants in
the Plan.
Prior to the proposed amendments, all members of the Committee were
required to be "disinterested persons" as that term had been defined in
Rule 16b-3 under the Exchange Act. Insofar as Rule 16b-3 has been amended
to delete this requirement, the Plan is also proposed to be amended to
remove the requirement. In addition, the Plan is being amended to permit
the Board of Directors to administer the Plan if and to the extent that
such administration would be consistent with applicable law.
UNDERLYING SECURITIES
The securities underlying stock options under the Plan are shares of
the Company's no par value Common Stock. Pursuant to the Plan, as
amended, the maximum number of shares of Common Stock that may be issued
upon exercise or payment will not exceed 1,000,000 shares, an increase of
250,000 shares. If any options granted under the Plan are surrendered, or
for any other reason cease to be exercisable in whole or in part, the
shares as to which the option ceases to be exercisable are available for
options to be granted to the same or other participants under the Plan.
The market value of the total shares authorized as of February 20,
1998 was $484,375. The market value as of that date of the maximum number
of shares which would be added by the amendment to increase the number of
shares authorized was $328,125.
ELIGIBLE EMPLOYEES AND OTHERS
Officers, directors, and employees of the Company and advisors and
consultants to the Company are eligible to receive options; provided that
advisors and consultants are eligible for grants only if they provide bona
fide services not rendered in connection with the offer or sale of
securities or in a capital-raising transaction. The Committee's
discretion in granting options to its members is limited. See "Formula
Grants to Committee Members" below.
As of February 20, 1998, the Company had five employees and at least
four other persons eligible to receive grants under the Plan.
FORMULA GRANTS TO COMMITTEE MEMBERS
On September 30 of each year each member of the Committee receives an
automatic grant of ten year, fully vested, nonqualified stock options for
5,000 shares, exercisable at the fair market value of the stock determined
in accordance with the Plan (see "Option Price and Duration" below) based
on a valuation period of 30 days. Upon the approval of the proposed
amendments, the Board of Directors would have discretion in granting
options to members of the Committee only to the extent permitted by
applicable law. In the event that the Board of Directors fails to
exercise its discretion, the members of the Committee will continue to
receive automatic grants of 5,000 shares on September 30 of each year.
Prior to the proposed amendments, the fair market value on the date
of grant was determined by reference to a single quoted price on September
30 of each year and the Board of Directors had no discretion in granting
options to members of the Committee.
PLAN BENEFITS
Set forth below in tabular form are the benefits or amounts received
or to be received by or allocated to each of the named persons or groups
under the Plan during fiscal 1998. The Committee or the Board of
Directors determines the number of stock options which may be granted to
officers, directors, and employees of, and advisors and consultants to,
the Company (the "eligible persons") under the Plan. Because such number,
if any, is entirely in the discretion of the Committee or the Board of
Directors, except for the two outside Directors who are eligible to
receive stock options through the provisions for automatic grants to
Committee members (see "Formula Grants to Committee Members" above), the
future benefits or amounts to be received by or allocated to those persons
are not determinable.
<TABLE>
<CAPTION>
Stock Option Plan
Name and Position Dollar Value($)(1) Number of Shares
<S> <C> <C>
Timothy L. Hoops,
Chief Executive Officer $46,125 18,000
Executive Officer Group
(3 persons) $98,500 41,000
Non-Executive Officer Director
Group (3 persons) $6,250 5,000
Nominee for Director Group
(6 persons) $104,750 46,000
Associate of Director, Executive
Officer or Nominee Group
(0 persons) -0- -0-
5% or More Recipient Group
(3 persons) $104,750 46,000
Non-Executive Officer Employee
Group (3 persons) -0- -0-
</TABLE>
- --------------------
(1) The number of stock options is an estimate based on the stock options
actually granted to the persons described in fiscal 1997. While the
options were granted at the fair market value on the date of grant,
the value is shown as an amount equal to the exercise price times the
number of stock options granted.
OPTION PRICE AND DURATION
Pursuant to the proposed amendments, "fair market value" means (a) if
there is an established market for the Company's Common Stock on a stock
exchange, in an over-the-counter market or otherwise, the mean of the
highest and lowest quoted selling prices on the valuation date, or (b) if
there were no such sales on the valuation date, then in accordance with
Treas. Reg. Sec. 20.2031-2 or successor regulations. Unless otherwise
specified by the Committee at the time of grant or in the Plan (as in the
case of automatic grants to Committee members), the valuation date for
purposes of determining fair market value is the date of grant. The
Committee may, however, specify in any grant of an option that, instead of
the date of the grant, the valuation date shall be a valuation period of
up to ninety (90) days prior to the date of grant, and fair market value
for purposes of such grant shall be the average over the valuation period
of the mean of the highest and lowest quoted selling prices on each date
on which sales were made in the valuation period.
Prior to the proposed amendments, the exercise price per share of all
options granted under the Plan was always the fair market value of the
Common Stock determined by a single quoted price on the grant date.
Upon the approval of the proposed amendments, the option price for
nonqualified stock options may be less than the fair market value of the
stock on the valuation date or valuation period, but in no event will the
option price be less than 50% of the fair market value of the stock on the
valuation date or valuation period.
Unless otherwise prescribed by the Committee or the Plan, options
expire ten (10) years from the date of grant.
EXERCISE OF OPTIONS AND PAYMENT FOR STOCK
Options are exercisable in accordance with the terms and conditions
of the grant to the participant. The exercise price of options may be
paid in cash or, with the approval of the Committee, in shares of the
Company's Common Stock (valued at the fair market value of the shares on
the date of exercise) or by a combination thereof. If the proposed
amendments are approved, the Committee may elect to permit a participant
to effect a net exercise of an option without tendering shares of the
Company's stock as payment for the option or to effect a cashless
exercise. In the event of a net exercise, the participant would be deemed
to have paid for the exercise of the option with shares of the Company's
stock and would receive from the Company a number of shares equal to the
difference between the shares that would have been tendered and the number
of options exercised. In the event of a cashless exercise, the Company
will enter into an agreement with a securities brokerage firm whereby
participants can enter into binding commitments to immediately sell a
sufficient number of shares to pay the Option Price and any tax
withholding obligations or liabilities.
Prior to the proposed amendments, a participant who desired to use
shares of the Company's stock in payment of the exercise price for the
option being exercised was required to tender a stock certificate for the
appropriate number of shares of the Company's stock sufficient to pay the
exercise price and cashless exercises were not permitted.
INCENTIVE STOCK OPTIONS
The Plan allows the Committee to grant nonqualified stock options.
The proposed amendments will allow the Committee to grant either Incentive
Stock Options or nonqualified stock options. Incentive Stock Options must
have an exercise price of at least 100% of the fair market value of the
Company's Common Stock on the date of grant. The options must be issued
within 10 years of adoption of the plan and must be exercised within 10
years of the date of grant. In the case of an individual owning more than
10% of the total combined voting power of all classes of stock, the
Incentive Stock Options must have an exercise price of at least 110% of
the fair market value of the Company's Common Stock on the date of grant
and the option must be exercised within 5 years of the date of grant.
Incentive Stock Options may only be granted to employees of the Company or
its subsidiaries.
Incentive Stock Options provide greater tax benefits to the
recipients than nonqualified stock options. Therefore, the Board of
Directors and the Committee believe that the proposed amendments will
afford the Company greater flexibility is in its efforts to attract and
keep the most qualified key employees, officers and directors. The tax
effects of Incentive Stock Options are discussed in greater detail under
the heading "Current Federal Income Tax Consequences."
NONTRANSFERABILITY
During a participant's lifetime, an option may be exercisable only by
the participant and options granted under the Plan may not be transferred
except by will or the applicable laws of descent and distribution.
AMENDMENT, SUSPENSION AND TERMINATION
The Committee may at any time amend, suspend or terminate the Plan,
except that any such amendment cannot impair any rights or obligations
under any option previously granted under the Plan. Shareholder approval
is required for any amendment which (i) increases the number of shares
reserved to the Plan or (ii) effects any change in the Plan which is
required to be approved by shareholders under applicable law.
Prior to the proposed amendments, shareholder approval was also
required for any amendment which materially modified the benefits to
participants or the eligibility requirements for grants under the Plan.
In addition, the Plan previously included a limit on the number of
amendments to the Committee's formula grants which had been required under
Rule 16b-3.
CURRENT FEDERAL INCOME TAX CONSEQUENCES
The Company has been advised that under current law the principal
federal income tax consequences to participants and the Company of
nonqualified stock options granted under the Plan should generally be as
set forth in the following summary.
Nonqualified options are taxed in accordance with Section 83 of the
Internal Revenue Code and the related Treasury Regulations issued
thereunder. The following general rules are applicable to United States
holders of such options and to the Company for Federal income tax purposes
under existing law:
The Optionee does not realize any taxable income upon the grant of a
nonqualified option, and the Company is not allowed a business expense
deduction by reason of such grant. The Optionee will recognize ordinary
compensation income at the time of exercise of a nonqualified option in an
amount equal to the excess, if any, of the fair market value of the shares
on the date of exercise over the exercise price. The Company will require
employees to make appropriate arrangements for the withholding of taxes on
this amount.
When the Optionee sells the shares, the Optionee will recognize a
capital gain or loss in an amount equal to the difference between the
amount realized upon the sale of the shares and the Optionee's basis in
the shares (i.e., the exercise price plus the amount taxed to the Optionee
as compensation income). If the Optionee holds the shares for longer than
one year, this gain or loss will be a long-term capital gain or loss. In
general, the Company will be entitled to a tax deduction in the year in
which compensation income is recognized by the Optionee.
The Company has been advised that under current law, the principal
federal income tax consequences to participants and the Company of
Incentive Stock Options granted under the Plan should generally be as set
forth in the following summary.
The recipient of an Incentive Stock Options will not recognize income
either at the time of grant or at the time of exercise of the option. No
federal income tax deduction will be allowable to the Company upon the
grant or exercise of such Incentive Stock Options. If the Optionee sells
or otherwise disposes of the shares more than one year after the date of
receipt of the shares and more than two years after the date of grant of
the option, the Optionee will normally recognize a long-term capital gain
or loss equal to the difference, if any, between the sales price of the
shares and the exercise price. If the Optionee does not hold the shares
for this period, the Optionee will recognize ordinary compensation income
at the time of sale equal to the lesser of the difference, if any, between
(a) the fair market value of the shares on the date of exercise and the
exercise price, or (b) the sales price and the exercise price and the
Company will be entitled to a corresponding federal income tax deduction.
In addition, the Optionee will recognize capital gain or loss, short-term
or long-term, as the case may be, in an amount equal to the difference, if
any, between the amount recognized by the Optionee upon the sale of the
shares and the exercise price, decreased by the amount of ordinary income,
if any, recognized by the Optionee.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE
"FOR" THE AMENDMENTS TO THE STOCK OPTION PLAN.
* * * * * * * * * * * * * * * * * ** * * * * * * * * * * * * * * * * * * *
SECTION 16(a) REPORTING UNDER THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Exchange Act requires the Company's executive
officers and directors, and persons who own more than ten percent of the
common stock of the Company, to file reports of ownership and changes in
ownership with the Securities and Exchange Commission and the exchange on
which the common stock is listed for trading. Those persons are required
by regulations promulgated under the Exchange Act to furnish the Company
with copies of all reports filed pursuant to Section 16(a). One of the
Company's executive officers and directors, Timothy L. Hoops, failed to
make a timely filing of an ownership report required by Section 16(a) with
the Securities and Exchange Commission. Mr. Hoops failed to file timely a
report on Form 4 relating to his exercise of a stock option to purchase
27,884 shares of the Company's Common Stock in July 1997 with the delivery
of 10,544 shares of his Common Stock. The report was filed in late August
1997.
ANNUAL REPORT AND FINANCIAL STATEMENTS
The Company's annual report to the shareholders for the fiscal year
ended June 30, 1997, which contains audited financial statements of the
Company, accompanies this Proxy Statement. Copies of the Company's annual
report to the Securities and Exchange Commission on Form 10-K are
available from the Company upon written request of a shareholder to
Timothy L. Hoops, President, 999 18th Street, Suite 2490, Denver, Colorado
80202.
DEADLINE FOR RECEIPT OF SHAREHOLDER PROPOSALS
FOR THE 1998 ANNUAL MEETING OF SHAREHOLDERS
Any proposal by a shareholder intended to be presented at the
Company's 1998 annual meeting of shareholders must be received at the
offices of the Company, 999 18th Street, Suite 2490, Denver, Colorado
80202, not later than July 10, 1998.
OTHER MATTERS
The Board of Directors knows of no other matter to be brought before
the shareholders' meeting. If other matters properly come before the
meeting, holders of Proxies solicited and received hereunder will vote in
their best judgment.
Under Colorado law, unless otherwise provided in the Company's
Articles of Incorporation: (i) for the election of directors, of the
shares represented in person or by proxy at the meeting and entitled to
vote, that number of candidates equaling the number of directors to be
elected having the highest number of votes cast in favor of their
election, are elected to the board of directors; and (ii) for the
ratification of the independent certified public accountants and the
amendments to the Plan, of the shares represented in person or by proxy at
the meeting and entitled to vote, the votes cast favoring the ratification
or approving the amendments must exceed the votes opposing it.
Abstentions and broker non-votes will be counted for purposes of
establishing a quorum only. Only those votes cast for the election of
directors and the other proposals will be counted as votes in favor or
affirmative votes.
ATTACHMENT
PROXY
Kestrel Energy, Inc.
999 18th Street, Suite 2490
Denver, Colorado 80202
This proxy is solicited on behalf of the Board of Directors
The undersigned hereby appoints Timothy L. Hoops and Mark A. Boatright as
Proxies, each with the power to appoint his or her substitute, and hereby
authorizes them to represent and to vote, as designated below, all shares
of common stock of Kestrel Energy, Inc. held of record by the undersigned
on February 20, 1998 at the annual meeting of shareholders to be held on
March 31, 1998 or any adjournment thereof.
1. TO ELECT SIX DIRECTORS
[ ] FOR all nominees listed below
[ ] WITHHOLD AUTHORITY to vote for all nominees listed below
(INSTRUCTION: To withhold authority to vote for any individual nominee
strike a line through the nominee's name in the list below. To cumulate
votes for any individual nominee, write in the number of cumulative votes
to be cast opposite such nominee's name. For an explanation of cumulative
voting, see "VOTING OF SHARES" IN THE ENCLOSED PROXY STATEMENT.)
Nominee Cumulative Votes Nominee Cumulative Votes
-------- ------------------- -------- -------------------
Timothy L. Hoops ----------- Robert J. Pett -----------
Nominee Cumulative Votes Nominee Cumulative Votes
-------- ------------------- -------- -------------------
Kenneth W. Nickerson ------ Mark A. Boatright -----------
Nominee Cumulative Votes Nominee Cumulative Votes
-------- ------------------- -------- -------------------
John T. Kopcheff ----------- Mark A.E. Syropoulo -----------
2. TO APPROVE AND RATIFY THE SELECTION OF KPMG PEAT MARWICK AS THE
COMPANY'S INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS AND AUDITORS FOR
THE YEAR ENDING JUNE 30, 1998.
FOR ------ AGAINST ------ ABSTAIN ------
3. TO APPROVE CERTAIN AMENDMENTS TO THE NONQUALIFIED STOCK OPTION PLAN
DESIGNED TO CONFORM WITH RECENT AMENDMENTS TO SEC RULE 16B-3, TO
PERMIT GREATER FLEXIBILITY IN THE ADMINISTRATION OF THE PLAN, AND TO
INCREASE THE NUMBER OF SHARES RESERVED UNDER THE PLAN.
FOR ------ AGAINST ------ ABSTAIN ------
4. In their discretion, the Proxies are authorized to vote upon such
other business as may properly come before the meeting.
This proxy, when properly executed, will be voted in the manner
directed herein by the undersigned shareholder. If no direction is made,
this proxy will be voted FOR proposals 1,2 and 3 above.
Please sign exactly as your name appears below. When shares are held
by joint tenants, both should sign. When signing as attorney, executor,
administrator, trustee or guardian, please give full title as such. If a
corporation, please sign in full corporate name by president or other
authorized officer. If a partnership, please sign in partnership name by
authorized person.
Dated -------------, 1998 --------------------------------------
Signature
--------------------------------------
Signature if held jointly
PLEASE MARK, SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY USING THE
ENCLOSED ENVELOPE
ATTACHMENT
KESTREL ENERGY, INC.
STOCK OPTION PLAN
AS AMENDED MARCH 31, 1998
Section 1. PURPOSE. The purpose of the Kestrel Energy, Inc. (the
"Company") Stock Option Plan (the "Plan") is to provide incentives for
selected persons to promote the financial success and progress of the
Company by granting such persons options to purchase shares of stock of
the Company ("Option").
Section 2. GENERAL PROVISIONS OF THE PLAN.
A. ADMINISTRATION. The Plan shall be administered by a
committee comprised of two or more directors designated by the Board of
Directors of the Company (the "Committee"). Notwithstanding the
foregoing, if it would be consistent with all applicable laws, including
without limitation Rule 16b-3, 17 C.F.R. 240.16b-3 ("Rule 16b-3")
promulgated under the Securities Exchange Act of 1934 (the "Exchange
Act"), then the Plan may be administered by the Board of Directors, and,
if so administered, all subsequent references to the Committee shall refer
to the Board of Directors. Any action of the Committee shall be taken by
majority vote or by written consent of the Committee members.
B. AUTHORITY OF THE COMMITTEE. Subject to other provisions of
the Plan, and with a view towards furtherance of its purpose, the
Committee shall have sole authority and absolute discretion:
1. to construe and interpret the Plan;
2. to define the terms used herein;
3. to prescribe, amend and rescind rules and regulations
relating to the Plan;
4. to determine the persons to whom Options shall be
granted under the Plan;
5. to determine the time or times at which Options shall
be granted under the Plan;
6. to determine the number of shares subject to each
Option, the price and the duration of each Option;
7. to determine all of the other terms and conditions of
Options; and
8. to make all other determinations necessary or
advisable for the administration of the Plan and to do everything
necessary or appropriate to administer the Plan.
All decisions, determinations and interpretations made by the Committee
shall be binding and conclusive on all participants in the Plan and on
their legal representatives, heirs and beneficiaries.
C. NUMBER OF SHARES SUBJECT TO THE PLAN. The aggregate number
of shares of Common Stock subject to the Plan shall be 1,000,000, subject
to adjustment as provided in the Plan. If any Options granted under the
Plan expire or terminate for any reason before they have been exercised in
full, the unpurchased shares shall again be available for the purposes of
the Plan.
D. ELIGIBILITY AND PARTICIPATION. Subject to the terms of the
Plan, Options may be granted only to such employees, officers, directors,
consultants and advisors of the Company as the Committee shall select from
time to time in its sole discretion; provided, however, that consultants
and advisors shall be eligible only if they provide bona fide services
that are not rendered in connection with the offer or sale of securities
in a capital-raising transaction. A person may be granted more than one
Option under the Plan. Furthermore, notwithstanding any contrary
provision of the Plan, the Committee shall have no discretion to determine
the amount, price or timing of grants hereunder to Committee members,
except to the extent that the Committee's exercise of such authority is
consistent with all applicable laws, including, without limitation, Rule
16b-3. Grants to Committee members shall be made in accordance with
Section 6 hereof. Only employees of the Company shall be eligible to
receive Incentive Stock Options.
E. EFFECTIVE DATE OF PLAN. The Plan shall be submitted to the
shareholders of the Company for their approval and adoption at a meeting
to be held on or about December 16, 1992, or at any adjournment thereof.
The Plan shall be effective upon approval and adoption by the
shareholders. To the extent required by paragraph F, subsequent
amendments to the Plan shall be submitted to the Shareholders and such
amendments shall be effective upon such approval. All other amendments
shall be effective upon adoption by the Committee.
F. TERMINATION AND AMENDMENT OF PLAN. The Plan shall
terminate ten years after the date on which the shareholders approve the
Plan, unless sooner terminated by the Committee or the Board of Directors.
No Options shall be granted under the Plan after that date. Subject to
the limitation contained in paragraph E of this Section 2, the Committee
or the Board of Directors may at any time amend or revise the terms of the
Plan, including the form and substance of the Options to be used
hereunder, provided that no amendment or revision shall be made without
shareholders' approval which (i) increases the aggregate number of shares
that may be issued pursuant to Options granted under the Plan, except as
provided under paragraph G of this Section 2; or (ii) effects any change
to the Plan which is required to be approved by shareholders by law.
G. ADJUSTMENTS. If the outstanding shares of the Company's
Common Stock are increased, decreased, changed into or exchanged for a
different number or kind of shares or securities through merger,
consolidation, combination, exchange of shares, other reorganization,
recapitalization, reclassification, stock dividend, stock split or reverse
stock split, an appropriate and proportionate adjustment shall be made in
the aggregate number and kind of shares reserved to the Plan. A
corresponding adjustment changing the number or kind of shares allocated
to unexercised Options or portions thereof, which shall have been granted
prior to any such change, shall likewise be made. Any such adjustment in
outstanding Options shall be made without change in the aggregate purchase
price applicable to the unexercised portion of the Option, but with a
corresponding adjustment in the price for each share covered by the
Option.
H. PRIOR OPTIONS AND OBLIGATIONS. No amendment, suspension or
termination of the Plan shall, without the consent of the person who has
received an Option, alter or impair any of that person's Options or rights
or obligations under any Option granted under the Plan prior to that
amendment, suspension or termination.
I. PRIVILEGES OF STOCK OWNERSHIP. Notwithstanding the
exercise of any Option granted hereunder, no person shall have any of the
rights or privileges of a shareholder of the Company in respect of any
shares of stock issuable upon the exercise of his or her Option until
certificates representing the shares have been issued and delivered. No
shares shall be required to be issued and delivered upon exercise of any
Option until there has been full compliance with all of the requirements
of law and of all regulatory agencies having jurisdiction over the
issuance and delivery of the securities.
J. RESERVATION OF SHARES OF COMMON STOCK. During the term of
the Plan, the Company will at all times reserve and keep available for
issuance a sufficient number of shares of its Common Stock to satisfy the
requirements of the Plan. In addition, the Company will from time to
time, as is necessary to accomplish the purposes of the Plan, seek or
obtain from any regulatory agency having jurisdiction all requisite
authority necessary to issue shares of Common Stock hereunder. The
inability of the Company to obtain from any regulatory agency having
jurisdiction the authority deemed by the Company's counsel to be necessary
to the lawful issuance of any shares of its stock hereunder shall relieve
the Company of any liability in respect of the nonissuance of the stock as
to which the requisite authority shall not have been obtained.
K. TAX WITHHOLDING. The exercise of any Option is subject to
the condition that if at any time the Company shall determine, in its
discretion, that the satisfaction of withholding tax or other withholding
liabilities under any state or federal law is necessary or desirable as a
condition of, or in connection with, such exercise or the delivery or
purchase of shares pursuant thereto, then in such event, the exercise of
the Option shall not be effective unless such withholding shall have been
effected or obtained in a manner acceptable to the Company. The Committee
may, in its discretion, accept payment of such withholding taxes and
liabilities from an Optionee in the form of shares of the Company's Common
Stock or other property and may elect to deduct shares of Common Stock
that would have otherwise been delivered to an Optionee upon exercise to
satisfy all or a part of such taxes and liabilities.
L. FAIR MARKET VALUE. The "fair market value" of the Common
Stock on any given date means (a) if there is an established market for
the Company's Common Stock on a stock exchange, in an over-the-counter
market or otherwise, the mean between the highest and lowest reported sale
prices on the valuation date, or (b) if there were no such sales on the
valuation date, then in accordance with Treasury Regulation Section
20.2031-2 or successor regulations. With respect to the grant of Options,
unless otherwise specified by the Committee at the time of grant, the
valuation date shall be the date of grant. The Committee may specify in
any grant of an Option that, instead of the date of grant, the valuation
date shall be a valuation period of up to ninety (90) days preceding the
date of grant, and fair market value for purposes of such grant shall be
the average over the valuation period of the mean of the highest and
lowest quoted selling prices on each date on which sales were made in the
valuation period, provided, however, that if the Committee fails to
specify a valuation period and there were no sales on the date of grant
then fair market value shall be determined as if the Committee had
specified a thirty (30) day valuation period for such determination,
unless there is no established market for the Company's Common Stock in
which case determination of fair market value shall be in accordance with
clause (b) above.
Section 3. OPTION TERMS AND CONDITIONS. Options granted under
this plan may be Incentive Stock Options (within the meaning of Section
422 of the Internal Revenue Code (the "Code")) or nonqualified stock
options. The terms and conditions of Options granted under the Plan may
differ from one another as the Committee shall in its discretion determine
so long as all Options granted under the Plan satisfy the requirements of
the Plan; provided, however, that any Options designated as Incentive
Stock Options must comply with the provisions of the Plan specifically
relating to Incentive Stock Options and the Code.
Section 4. DURATION OF OPTIONS. Each Option granted hereunder
shall expire on the date fixed by the Committee, which shall be not later
than ten years after the date of grant; provided, however, that in the
case of Incentive Stock Options granted to a 10% shareholder, no option
shall be exercisable more than five years after the date of grant. In
addition, each Option shall be subject to early termination as provided in
the Plan.
Section 5. OPTION PRICE. The option price for shares acquired
pursuant to the exercise of any Option, in whole or in part, shall be
determined by the Committee at the time of grant. Such option price may
be less than the fair market value of the Company's Common Stock on the
valuation date or valuation period, but in no event shall the option price
be less than fifty percent (50%) of the fair market value of the shares on
the valuation date or valuation period; provided, however that the
exercise price of Incentive Stock Options shall be fixed by the Committee
at not less than 100% of the fair market value of the Common Stock on the
valuation date or valuation period; provided further, that in the case of
Incentive Stock Options granted to a 10% shareholder, the exercise price
of the option shall not be less than 110% of the fair market value of the
Common Stock on the valuation date or valuation period.
Section 6. GRANTS TO COMMITTEE MEMBERS. Except as provided in
paragraph D of Section 2 hereof, the Committee shall have no discretion to
determine the amount, price or timing of grants of Options to Committee
members. Grants of Options to Committee members shall be made at the
discretion of the Board of Directors (with members of the Committee
abstaining) or in accordance with a formula established by the Board of
Directors; provided, however, that if the Board of Directors fails to make
a discretionary grant of Options or otherwise establish a formula by which
Options are granted to Committee members in any fiscal year of the
Company, then automatic grants of Options to Committee members shall be
made on the following September 30th. Such automatic grants to Committee
members shall be nonqualified Options for 5,000 shares per Committee
member and the exercise price shall be 100% of the fair market value of
the Company's Common Stock based on a valuation period consisting of the
thirty (30) day period ending September 29 of such year.
Section 7. LIMITATIONS ON ACQUIRING VOTING STOCK. No Optionee
who is not an officer or director of the Company is eligible to receive or
exercise any Option which, if exercised, would result in that person
becoming the beneficial owner, as defined in the Exchange Act, of more
than 5% of the outstanding voting stock of the Company without the
unanimous consent of the Board of Directors.
Section 8. EXERCISE OF OPTIONS. Each Option shall be exercisable
in one or more installments during its term, and the right to exercise may
be cumulative, as determined by the Committee. No Option may be exercised
for a fraction of a share of Common Stock. The option price shall be paid
at the time of exercise of the Option (i) in cash; (ii) by certified or
cashier's check; (iii) if permitted by the Committee, with shares of the
Company's issued and outstanding Common Stock; or (iv) by any other means
permitted by the Committee in its discretion after determination that such
means are consistent with all applicable laws and regulations. If any
portion of the purchase price at the time of exercise is paid in shares of
the Company's Common Stock, those shares shall be tendered at their fair
market value on the date of exercise.
The Committee may also permit an Optionee to effect a net exercise of
an option without tendering any shares of the Company's stock as payment
for the Option. In such an event, the Optionee will be deemed to have
paid for the exercise of the Option with shares of the Company's stock and
shall receive from the Company a number of shares equal to the difference
between the shares that would have been tendered and the number of Options
exercised. Members of the Committee may effect a net exercise of their
Options only with the approval of the Board of Directors.
The Committee may also cause the Company to enter into arrangements
with one or more licensed stock brokerage firms whereby Optionees may
exercise options without payment therefor but with irrevocable orders to
such brokerage firm to immediately sell the number of shares necessary to
pay the exercise price for the option and the withholding taxes, if any,
and then to transmit that portion of the proceeds from such sales to the
Company to pay such obligations.
Section 9. ACCELERATION OF OPTIONS. Notwithstanding the first
sentence of Section 8 hereof, if the Company or its shareholders enter
into an agreement to dispose of all or substantially all of the assets or
stock of the Company by means of a sale, merger or other reorganization,
liquidation, or otherwise, any Option granted pursuant to the Plan shall
become immediately exercisable with respect to the full number of shares
subject to that Option during the period commencing as of the date of the
agreement to dispose of all or substantially all of the assets or stock of
the Company and ending when the disposition of assets or stock
contemplated by that agreement is consummated or the Option is otherwise
terminated in accordance with its provisions or the provisions of the
Plan, whichever occurs first; provided that no Option shall be immediately
exercisable under this Section on account of any agreement of merger or
other reorganization where the shareholders of the Company immediately
before the consummation of the transaction will own at least 50% of the
total combined voting power of all classes of stock entitled to vote of
the surviving entity (whether the Company or some other entity)
immediately after the consummation of the transaction. In the event the
transaction contemplated by the agreement referred to in this Section 9 is
not consummated, but rather is terminated, cancelled or expires, the
Options granted pursuant to the Plan shall thereafter be treated as if
that agreement had never been entered into.
Section 10. WRITTEN NOTICE REQUIRED. Any Option granted pursuant
to the Plan shall be exercised when written notice of that exercise has
been given to the Company at its principal office by the person entitled
to exercise the Option and payment for the shares with respect to which
the Option is exercised has been received by the Company in accordance
with Section 8 hereof.
Section 11. LIMITATION ON EXERCISE OF INCENTIVE STOCK OPTIONS. To
the extent required by the Code, the aggregate fair market value
(determined at the time the Option is granted) of Common Stock for which
Incentive Stock Options are exercisable for the first time by a
participant during any calendar year (including all plans of the Company
and its subsidiaries) shall not exceed $100,000.
Section 12. COMPLIANCE WITH SECURITIES LAWS. Shares shall not be
issued with respect to any Option granted under the Plan unless the
exercise of that Option and the issuance and delivery of the shares
pursuant thereto shall comply with all relevant provisions of state and
federal law, including without limitation the Securities Act of 1933, as
amended, the rules and regulations promulgated thereunder and the
requirements of any stock exchange upon which the shares may then be
listed, which compliance shall be determined by counsel for the Company.
Further, each Optionee shall consent to the imposition of a legend on the
certificate representing the shares of Common Stock issued upon the
exercise of the Option restricting their transferability if and to the
extent required by law, the terms of the Option or the Plan.
Section 13. EMPLOYMENT OF OPTIONEE. Each Optionee, if requested
by the Committee, must agree in writing as a condition of the granting of
an Option, to remain in the employ of the Company or to remain as a
consultant or advisor to the Company following the date of grant for a
period or periods specified by the Committee, which period(s) shall in no
event exceed an aggregate of four years. Nothing in the Plan or in any
Option granted hereunder shall confer upon any Optionee any right to
continued employment or retainer by the Company, or limit in any way the
right of the Company to terminate or alter the terms of that employment or
consulting arrangement at any time.
Section 14. OPTION RIGHTS UPON TERMINATION OF EMPLOYMENT,
DIRECTOR, CONSULTANT OR ADVISOR STATUS. If an Optionee ceases to be
employed by the Company or ceases to serve as a director, consultant or
advisor of the Company for any reason other than death, his or her Option
shall immediately terminate; provided, however, that the Committee may, in
its discretion, allow the Option to remain exercisable (to the extent
exercisable on the date of termination of employment or retainer) for up
to one additional year for each year of service to the Company by the
Optionee (up to a maximum of five years after the date of termination),
unless either the Option or the Plan otherwise provides for earlier
termination; and provided further that, for purposes of determining when a
director no longer serves the Company, the period during which post-
retirement or similar benefits, if any, are paid to the director by the
Company shall be deemed to be continued service.
Section 15. OPTION RIGHTS UPON DEATH OF OPTIONEE. Except as
otherwise limited by the Committee at the time of the grant of an Option,
if an Optionee dies while he or she is an employee, director, consultant
or advisor of the Company, his or her Option shall remain exercisable for
one year after the date of death, unless either the Option or the Plan
otherwise provides for earlier termination. During such exercise period
after death, the Option may be fully exercised, to the extent that it
remained unexercised on the date of death, by the person or persons to
whom the Optionee's rights under the Option shall pass by will or by laws
of descent and distribution.
Section 16. WAIVER OF VESTING RESTRICTIONS IN THE EVENT OF
RETIREMENT. Notwithstanding any provision of the Plan, in the event an
Optionee retires as an employee or director of the Company, the Committee
shall have the discretion to waive any vesting restrictions on the
retiree's Options.
Section 17. OPTIONS NOT TRANSFERABLE. Options granted pursuant to
the Plan may not be sold, pledged, assigned or transferred in any manner
other than by will or the laws of descent and distribution and may be
exercised during the lifetime of an Optionee only by that Optionee or by
his or her guardian or legal representative.
Section 18. REPORTS TO OPTIONEES. The Company shall furnish to
each Optionee a copy of the annual report sent to the Company's
shareholders. Upon written request, the Company shall furnish to each
Optionee a copy of its most recent Form 10-K Annual Report and each
quarterly report to shareholders issued since the end of the Company's
most recent fiscal year.
Adopted, as amended, by the shareholders of the Company on March 31, 1998.
