SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act
of 1934
(Amendment No. )
Filed by the Registrant[X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] 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):
N/A
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 February 24, 1999
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 Wednesday, February 24, 1999 in the Management Briefing
Center at Wells Fargo Bank, 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, 1999;
3. To approve an amendment to the Company's Stock Option Plan 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 January 20, 1999 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 AMENDMENT TO THE STOCK
OPTION PLAN.
YOU ARE URGED TO COMPLETE, SIGN, DATE AND RETURN THE ENCLOSED PROXY
IN THE ENVELOPE PROVIDED AS PROMPTLY AS POSSIBLE.
January 25, 1999
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 February 24, 1999
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 Wells Fargo Bank of Denver, N.A., North Tower, 4th Floor, 633
17th Street, Denver, Colorado on Wednesday, February 24, 1999 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 January 25, 1999.
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 January
20, 1999, will be entitled to notice of, and to vote at, the Annual
Meeting and at any adjournment thereof. On that date, there were
4,456,000 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 entitled 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 amendment to the
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
January 20, 1999 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
---------------------------
Total Percent
Name and Address Direct Indirect Shares Owned
- ---------------------------- ------------ ------------ --------- ------
<S> <C> <C> <C>
Victoria International
Petroleum N.L. 1,166,221 --- 1,166,221 26.2%
4th Flr., Griffin Centre
28 The Esplanade
Perth 6000
Western Australia
Victoria Petroleum N.L. --- 1,166,221(1) 1,166,221 26.2%
4th Flr., Griffin Centre
28 The Esplanade
Perth 6000
Western Australia
Timothy L. Hoops 164,490(2) 1,166,221(3) 1,330,711 29.0%
P.O. Box 1079
Denver, CO 80201-1079
Robert J. Pett 85,208(4) 1,166,221(5) 1,251,429 27.8%
4th Flr., Griffin Centre
28 The Esplanade
Perth 6000
Western Australia
John T. Kopcheff 129,416(6) 1,166,221(7) 1,295,637 28.3%
4th Flr., Griffin Centre
28 The Esplanade
Perth 6000
Western Australia
The Equitable Life Assurance
Society 840,000 --- 840,000 18.9%
City Place House
55 Basinghall St.
London England EC2V 5DR
</TABLE>
(1) 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 Samantha Limited, a publicly held Australian mining and
natural resources company ("Resolute"), owns 28.45% of VP. Resolute
disclaims beneficial ownership of the shares.
(2) Includes vested options to purchase up to 136,580 shares
(3) 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.
(4) Includes vested options to purchase up to 75,208 shares
(5) 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.
(6) Includes vested options to purchase up to 125,416 shares
(7) 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 January 20, 1999 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 1,330,711(1)(2) 29.0%
P.O. Box 1079 Executive Officer
Denver, CO 80201-1079 and Director
Robert J. Pett Chairman of the
4th Flr., Griffin Centre Board and Director 1,251,429(3)(4) 27.8%
28 The Esplanade
Perth 6000
Western Australia
Mark A. Boatright Vice President - 28,958(5) *
1475 Lawrence St. Finance, Chief
Suite 310 Financial Officer
Denver, CO 80202 and Director
John T. Kopcheff Vice President - 1,295,637(5)(6) 28.3%
4th Flr., Griffin Centre International
28 The Esplanade and Director
Perth 6000
Australia
Kenneth W. Nickerson Director 22,409(5) *
10780 Hanson St.
Johannesburg, MI 49751
Mark A.E. Syropoulo Director 73,000(7) 1.6%
Lot 42 Gumboil Road
Cooroy Queensland 4563
Australia
All Directors and 1,669,702 34.2%
Executive 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 136,580.
(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 75,208 shares.
(5) Includes vested options to purchase up to 24,958 shares, 125,416
shares and 22,409 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 35,000 shares and 13,000
shares owned by Syrops & Co. Pty. Ltd.
ELECTION OF DIRECTORS
Six directors are to be elected to serve until the 1999 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, and has been President and a Director of Kestrel
Energy California, Inc., another wholly owned subsidiary, since March
1997. 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 51, 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 14 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 he is a Director of Victoria Exploration, Inc. and Kestrel
Energy California, Inc., independent oil and gas producers which are a
wholly owned subsidiaries of the Company. Mr. Pett holds a Masters Degree
in Economics (Queens University, Canada).
MARK A. BOATRIGHT, age 41, was appointed a Director on October 18,
1993, and as Vice President - Finance, Chief Financial Officer, Treasurer
and Secretary on January 16, 1995. He has also held the same positions
since March 1997 for Kestrel Energy California, a wholly owned subsidiary
of the Company. Mr. Boatright is President of Boatright and Associates,
P.C., Certified Public Accountants. Mr. Boatright has over 19 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 51, was appointed as Vice President -
International and a Director of the Company on January 16, 1995. He has
also held the same positions since March 1997 for Kestrel Energy
California, a wholly owned subsidiary of the Company. Mr. Kopcheff is a
geologist with 28 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 79, is an independent petroleum and mineral
geologist with over 50 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 that 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 also serves as a
director of Environmental Reclamation, Inc. in Smelterville, Idaho, a
provider of environmental services to natural resources industries, and as
a director of Ballarat Goldfields, a gold exploration company in Ballarat,
Australia. Mr. Syropoulo is a graduate of mathematics and economics and
an honors graduate in economics of the University of Natal Durban, South
Africa.
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 acted three times by unanimous written consent
during the fiscal year ended June 30, 1998. The Company has an Audit
Committee which oversees the accounting controls for the Company. In
fiscal 1998, the Committee was comprised of Messrs. Hoops, Nickerson and
Boatright. The Committee acted one time by unanimous written consent in
fiscal 1998. On January 14, 1998, Messrs. Hoops and Nickerson were
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 Stock Option
Plan. Members of the Committee in fiscal 1998 were Messrs. Nickerson and
Boatright. The Committee acted two times in fiscal 1998 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, Richard L. Vine is Vice President-Engineering, and
Denis I. Rakich, Donna Roberts and Melissa Edwards 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 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. Because the undeveloped
properties were not successfully developed by that date, the options
terminated as of December 31, 1997 pursuant to the agreement.
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.
VIP's current shareholding interest in the Company is 26.2% (23.8%
diluted for currently vested options). As a result of the Company's close
relationship with 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. No royalties have ever been paid to VIP nor
are any royalties owed to VIP as of the date hereof.
Mark A.E. Syropoulo provided corporate, investor relations, and
consulting services to the Company from May of 1997 until January of 1998
when he became a Director of the Company. He received a monthly retainer
of $1,800 a month for an aggregate of $10,800 during that period. The
Board of Directors believes the fees paid to Mr. Syropoulo were in line
with industry standards.
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 $100,000.
<TABLE>
<CAPTION>
Summary Compensation Table
---------------------------
Annual Compensation
--------------------------
Fiscal Salary Bonus Options
NAME AND PRINCIPAL POSITION Year ($) ($) (#)
- ----------------------------- ------ -------- ------- -------
<S> <C> <C> <C> <C>
Timothy L. Hoops, President, 1998 $144,000 $0 0
Chief Executive Officer, 1997 $75,000 $35,000 18,000
and Director 1996 $75,000 $0 80,000
</TABLE>
Mr. Hoops did not receive additional compensation other than noted
above the aggregate amount of which was the lesser of either $50,000 or
10% of the total of annual salary, bonus and consulting fees reported for
the executive officer.
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 1999, Mr. Hoops will be paid a
salary of $144,000 for services rendered to the Company and Victoria
Exploration, Inc., plus retirement and health benefits. 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. In fiscal 1998 Mr. Hoops no longer
received those consulting fees. In addition, Mr. Hoops received fees as a
director of VP in the amount of Australian $5,000 for fiscal 1998 and he
expects to receive the same amount in 1999. Resolute Limited, a publicly
held Australian mining and natural resources company, owns 28.45% of VP,
which indirectly owns 26.2% of the Company.
<TABLE>
<CAPTION>
Option Grants for Fiscal Year Ended June 30, 1998
-------------------------------------------------
Potential
% of Realizable
Total Value at
Options Assumed
Number Granted Annual Rates
of to Exercise of Stock Price
Securities Employees or Appreciation
Underlying in Base for Option Term
Options Fiscal Price Expiration 5%($)(1)/
Name Granted Year ($/share) Date 10%($)(2)
- ---------------- ---------- --------- --------- ---------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Timothy L. Hoops 0 0% N/A N/A N/A N/A
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(3) 100% $2.2776 9/30/07 $7,174 $18,107
Vice President-
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(3) N/A $2.2776 9/30/07 $7,174 $18,107
Nickerson
Director
Mark A.E. Syropoulo
Director 0 N/A N/A N/A N/A N/A
Denis I. Rakich 0 0% N/A N/A N/A N/A
Assistant
Secretary
</TABLE>
(1) This column represents the potential realizable value of each grant
of options, based on the assumption that the market price of shares
of Common Stock underlying the options will appreciate in value from
the date of the grant to the end of the option term at the annual
rate of five percent.
(2) This column represents the potential realizable value of each grant
of options, based on the assumption that the market price of shares
of Common Stock underlying the options will appreciate in value from
the date of the grant to the end of the option term at the annual
rate of ten percent.
(3) Of this grant, all were nonqualified stock options.
<TABLE>
<CAPTION>
Aggregated Option Exercises For Fiscal Year Ended June 30, 1998
and Year End Option Values
----------------------------------------------------------------
Number of
Securities Value of
Underlying Unexercised
Unexercised In-the-Money-
Shares Options at Options at
Exercised June 30, 1998 June 30, 1998
during Value (#) ($)(1)
fiscal year Realized Exercisable/ Exercisable/
Name to date(#) ($) Unexercisable Unexercisable
- ------------------------ ----------- -------- ------------- -------------
<S> <C> <C> <C> <C>
Timothy L. Hoops 0 0 0/175,116 $0/0
President, Chief
Executive
Officer,
and Director
Robert J. Pett 0 0 0/92,500 $0/0
Chairman of the
Board and
Director
Mark A. Boatright 0 0 0/34,500 $0/0
Vice President -
Finance, Chief
Financial and
Accounting
Officer
and Director
John T. Kopcheff 0 0 0/160,000 $0/0
Vice President -
International and
Director
Kenneth W. Nickerson 0 0 0/23,000 $0/0
Director
Mark A.E. Syropoulo
Director 0 0 0/30,000 $0/0
Denis I. Rakich 0 0 0/80,000 $0/0
Assistant
Secretary
</TABLE>
(1) For all unexercised options held as of June 30, 1998, 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, 1998 on the Nasdaq SmallCap Market, which was
$0.75 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 a salary from the
Company of $144,000 in fiscal 1998. While this was an increase from the
$110,000 in total cash compensation paid to Mr. Hoops by the Company in
1997, the increase merely reflected the restructuring of Mr. Hoops' total
compensation package from the Company, Victoria Petroleum, N.L., the
parent company of one of the Company's largest shareholders, and the
Company's then newly acquired subsidiary, Victoria Exploration, Inc., that
began in 1997. For example, Mr. Hoops did not receive any consulting fees
from Victoria Petroleum in 1998 as he had in prior years. Mr. Hoops'
overall increase to $144,000 in fiscal 1998 (as compared to a total of
$128,000 in 1997 from Victoria Petroleum and the Company) was based on the
Committee's expectation last year that Mr. Hoops would 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. This expectation
proved to be accurate, as there was a significantly greater management
burden in 1998 stemming from the Company's acquisition of a 50% working
interest in 9,000 net acres of petroleum leases in the San Joaquin Basin
in California and serving as operator of those properties.
The Committee is, however, very cognizant of the Company's poor
financial results in fiscal 1998 and the downward slide in the market
price of the Company's common stock. The Committee believes that the most
significant causes of the poor 1998 financial results are the persistently
low oil prices over the past year and, more importantly, the lack of
success to date in the Company's exploratory drilling efforts. Similarly,
the Committee believes that much of the downturn in the Company's stock
price can be blamed on the general market malaise faced by most other
Nasdaq SmallCap companies over the past several months, and by other oil
companies of all sizes. On the other hand, the Committee has concluded
that the Company's negative financial results and low stock price still
preclude consideration of any bonus or stock option grants to the
executive officers by the Committee on account of fiscal 1998.
Mark Boatright, the Company's Vice President of Finance, who became
an employee of the Company during fiscal 1998 at an annual salary of
$48,000, was the only executive officer to receive a stock option grant by
the Committee in fiscal 1998. Mr. Boatright, who had previously provided
services to the Company on a contract basis through his accounting firm,
Boatright & Associates, received only an automatic grant of options in his
capacity as a director serving on the Compensation Committee.
During the 1998 fiscal year, each Compensation Committee member
received an automatic grant of options to purchase 5,000 shares pursuant
to the Nonqualified Stock Option Plan. 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 Plan.
September 21, 1998 Compensation Committee Of
The Board of Directors
Kenneth W. Nickerson
Mark A.E. Syropoulo
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 Stock Option
Plan. Accordingly, on September 30, 1997, 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
$2.2776 per share, the fair market value on the date of grant. The
options 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 130
companies involved in the oil and gas industry, including the Company.
The line graph and table cover the five year period from July 1993 through
June 1998 and represent the total value of a $100 investment in each
security/market index on July 1, 1993. All dividends are assumed to be
reinvested
<TABLE>
<CAPTION>
1993 1994 1995 1996 1997 1998
---- ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Kestrel Energy Inc. 100 54.44 25.00 65.91 53.41 13.64
MG Industry Group 353 100 103.95 114.78 139.60 157.73 160.36
Nasdaq Market Index 100 109.66 128.61 161.89 195.02 258.52
</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, 1999. 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, 1999.
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, 1999
* * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * *
PROPOSAL TO AMEND THE STOCK OPTION PLAN
The Stock Option Plan (the "Plan") was adopted by the Company in
December of 1992 in order to grant stock options to officers, directors,
key employees, advisors and consultants of the Company and its
subsidiaries. On December 17, 1998, the Compensation Committee (the
"Committee) approved an amendment to the Plan to increase the number of
shares reserved under 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 an
increase in the number of options available for grant is important to
provide flexibility to the Committee in its administration of the Plan, to
encourage stock ownership by employees and management, to permit the
Company to attract and retain officers, directors, key employees, advisors
and consultants, and to continue to provide incentives and promote the
financial success and progress of the Company. In addition, the grant of
stock options can be made without the expenditure of the Company's limited
cash or other liquid resources, which are being preserved for the
Company's expanded international oil exploration efforts and its planned
development in domestic oil and gas reserves. Accordingly, the
shareholders are being asked to increase the number of shares reserved
under the Plan from 1,000,000 to 1,200,000.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE
"FOR" THE AMENDMENT TO THE STOCK OPTION PLAN.
* * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * *
ANNUAL REPORT AND FINANCIAL STATEMENTS
The Company's annual report to the shareholders for the fiscal year
ended June 30, 1998, 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 (the "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. The Commission also maintains a site on the World
Wide Web at http://www.sec.gov/edgarhp.htm that contains the Form 10-K and
other information concerning the Company which have been electronically
filed by the Company with the Commission.
DEADLINE FOR RECEIPT OF SHAREHOLDER PROPOSALS
FOR THE 1999 ANNUAL MEETING OF SHAREHOLDERS
Any proposal by a shareholder intended to be presented at the
Company's 1999 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, 1999.
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, for the election of directors, subject to the
effect of cumulative voting, the ratification of the independent certified
public accountants and the amendment to the Plan, the vote or concurrence
of a majority of the outstanding shares entitled to vote thereon is
required. 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.
APPENDICES
PROXY CARD
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 January 20, 1999 at the annual meeting of shareholders to be held on
February 24, 1999 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
------- ----------------
Timothy L. Hoops ----------------
Nominee Cumulative Votes
------- ----------------
Robert J. Pett ----------------
Nominee Cumulative Votes
------- ----------------
Kenneth W. Nickerson ----------------
Nominee Cumulative Votes
------- ----------------
Mark A. Boatright ----------------
Nominee Cumulative Votes
------- ----------------
John T. Kopcheff ----------------
Nominee Cumulative Votes
------- ----------------
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, 1999
FOR ------------- AGAINST ------------- ABSTAIN ------------
3. TO APPROVE AN AMENDMENT TO THE COMPANY'S STOCK OPTION PLAN 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 -----------------------, 1999 ----------------------------------
Signature
----------------------------------
Signature if held jointly
PLEASE MARK, SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY USING THE
ENCLOSED ENVELOPE
APPENDICES
STOCK OPTION PLAN
KESTREL ENERGY, INC.
STOCK OPTION PLAN
as amended December 1, 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 1,200,000, 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. 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. 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. 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. 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. 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. 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.
As amended by the Board of Directors on December 1, 1998 and proposed to
be adopted, as amended, by the shareholders of the Company on February 24,
1999.
