SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
Annual Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the fiscal year ended June 30, 1997 File No. 0-09482
MYSTIQUE DEVELOPMENTS, INC.
(Name of Small Business Issuer as Specified in its Charter)
WYOMING 83-0246080
(State of other jurisdiction (I.R.S. Employer
of incorporation) Identification No.)
1820 South Elena Avenue, Suite B, Redondo Beach, California 90277
(Address of Principal Executive Office)
Issuer's telephone number including area code: (310) 546-5741
Securities registered under Section 12(b) of the Exchange Act: None.
Securities registered under Section 12(g) of the Exchange Act:
COMMON STOCK; $.01 PAR VALUE
Title of Class
Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
YES X NO
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained herein, and no disclosure will be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB. [ ]
State Issuer's revenues for its most recent fiscal year: $66,000
As of September 22, 1997, 1,595,076 shares of common stock $.01 par value were
outstanding. The aggregate market value of voting stock held by non-affiliates
of the Registrant was $2,055,000 based on the average bid and ask price of the
Company's Common Stock, as reported by the NASD on the OTC Bulletin Board System
on September 22, 1997.
The Company's Proxy Statement for the Annual Meeting of Shareholders to be held
on October 17, 1997 is incorporated by reference into Part III of this Form
10-KSB.
<PAGE>
PART I
ITEM 1. BUSINESS
(a) Business Development. Mystique Developments, Inc. (formerly Score
Exploration Corporation) ("Mystique" or the "Company"), with its mailing address
at 1820 South Elena Avenue, Suite B, Redondo Beach, California 90277, telephone
number (310)546-5741, was incorporated as a Wyoming corporation on November 7,
1979. Mystique was organized for the purpose of engaging in oil and gas
activities including exploration for and development and production of oil and
gas reserves.
(b) Business of Issuer
GENERAL
Mystique engages in the business of acquiring and developing proved, undeveloped
oil and gas reserves, acquiring and exploiting producing properties, and selling
its production of crude oil and natural gas in the United States. Management's
primary objective is the acquisition of interests in proved oil and gas
properties which it may further exploit through the use of 3-D seismic
technology. The Company attempts to acquire developed and proved undeveloped oil
and gas properties through the acquisition of direct mineral interests or, to a
lesser extent, through the acquisition of financially troubled companies.
EQUIPMENT, PRODUCTS AND RAW MATERIALS
Mystique owns no drilling rigs, and drilling, if any, is done by independent
contractors, typically on a footage or day rate basis, for which Mystique may
bear the risks of fire, blowout or other catastrophe to its property.
Mystique's principal products are crude oil and natural gas. Crude oil and
natural gas are sold to various purchasers including pipeline companies which
service the areas in which Mystique's producing wells are located. Mystique's
business is seasonal in nature, to the extent that weather conditions at certain
times of the year may affect its access to oil and gas properties and the demand
for natural gas.
The existence of commercial oil and gas reserves is essential to the ultimate
realization of value from properties, and thus may be considered a raw material
essential to Mystique's business. The acquisition, development, production and
sale of oil and gas is subject to many factors which are outside Mystique's
control. These factors include national and international economic conditions,
availability of drilling rigs, casing, pipe and other fuels, and the regulation
of prices, production, transportation, and marketing by federal and state
governmental authorities. Mystique acquires oil and gas properties from
landowners, other owners of interests in such properties, or governmental
entities. For information relating to specific properties of Mystique, see Item
2.
COMPETITION
The Company's success will be largely dependent on its ability to replace and
expand its oil and gas reserves through the acquisition of producing properties
and the development of oil and gas reserves, both of which involve substantial
risks. Successful acquisition of producing properties generally requires
accurate assessments of recoverable reserves, future oil and gas prices and
operating costs, potential environmental and other liabilities and other
factors. Such assessments are necessarily inexact and their accuracy inherently
uncertain. There can be no assurance that the Company's acquisition and
development activities will result in the successful replacement of, or
additions to, the Company's reserves.
There is significant competition for the acquisition of properties producing or
capable of producing oil and gas. The Company faces competition from a
substantial number of companies, most of which have greater financial and other
resources than does the Company. As a result of this competition, the Company
may be unable to acquire attractive oil and gas properties on terms it considers
acceptable. In addition, the Company faces competition for the sale of its oil
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<PAGE>
and gas from a substantial number of companies, many of which have greater
financial or other resources than the Company.
REGULATION
The availability of a ready market for oil and natural gas production depends
upon numerous factors beyond the Company's control. These factors include
regulation of natural gas and oil transportation, federal and state regulations
governing environmental quality and pollution control, state limits on allowable
rates of production by well or proration unit, the amount of natural gas and oil
available for sale, the availability of adequate pipeline and other
transportation and processing facilities and the marketing of competitive fuels.
State and federal regulations generally are intended to prevent waste of natural
gas and oil, protect rights to produce natural gas and oil between owners in a
common reservoir, control the amount of natural gas and oil produced by
assigning allowable rates of production and control contamination of the
environment.
Sales of crude oil, condensate and gas liquids by the Company are currently not
subject to federal regulation and are made at market prices. States in which the
Company conducts its activities regulate the production and sale of natural gas
and oil, including requirements for obtaining drilling permits, the method of
developing new fields, the spacing and operation of wells and the prevention of
waste of natural gas and other resources. In addition, many states may regulate
the rate of production and may establish maximum daily production allowables for
wells on a market demand or conservation basis. Such provisions may limit the
rate at which oil and gas could be produced from the Company's properties and
may restrict the number of wells that may be drilled on a particular lease or in
a particular field. Recent trends indicate increased state and local regulation
of oil and gas activities and pipeline operations which will impact the
Company's operations; however, these impacts are not expected to be significant.
ENVIRONMENTAL LAWS
The Company's operations are subject to numerous laws and regulations governing
the discharge of materials into the environment or otherwise relating to
environmental protection. These laws and regulations may require the acquisition
of a permit before drilling commences, restrict the types, quantities and
concentration of various substances that can be released into the environment in
connection with drilling and production activities, limit or prohibit drilling
activities on certain lands lying within wilderness, wetlands and other
protected areas, and impose substantial liabilities for pollution resulting from
the Company's operations. Moreover, the recent trend toward stricter standards
in environmental legislation and regulations is likely to continue. Existing, as
well as future legislation and regulations, could cause additional expense,
capital expenditures, restrictions and delays in the development of properties,
the extent of which cannot be predicted. Management believes that the Company is
in substantial compliance with current applicable environmental laws and
regulations and that continued compliance with existing requirements will not
have a material adverse impact on the Company. Since inception, the Company has
not made any material expenditures for environmental control facilities and does
not expect to make any material expenditures during the current and following
fiscal year.
EMPLOYEES
As of June 30, 1997, the Company had one part-time employee. The Company employs
consultants as needed.
ITEM 2. PROPERTIES
The Company's principal office is located at 1820 South Elena Avenue, Suite B,
Redondo Beach, California 90277.
Producing Wells and Acreage. The following table sets forth Mystique's total
gross and net productive oil and gas wells and developed acreage:
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<PAGE>
Productive Wells and Acreage
June 30, 1997
<TABLE>
<CAPTION>
Wells
-------------------------------------------------
Acreage Gross Net
--------------------- ------------------------- -------------------
Gross Net Oil Gas Oil Gas
--------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
California 40 1 0 1 0.00 0.01
Colorado 20 1 1 0 0.10 0.00
Mississippi 40 8 1 0 0.20 0.00
Montana 160 4 1 0 0.03 0.00
New Mexico 80 4 1 0 0.06 0.00
North Dakota 680 4 1 0 0.01 0.00
Oklahoma 1,940 148 4 0 0.44 0.00
Wyoming 10,080 300 4 0 0.88 0.00
--------------------- ------------------------- -------------------
Total 13,040 470 13 1 1.72 0.01
===================== ========================= ===================
</TABLE>
The Company does not own an interest in any undeveloped acreage.
Mystique's oil and gas properties are in the form of mineral leases. As is
customary in the oil and gas industry, a preliminary investigation of title is
made at the time of acquisition of undeveloped properties. Title investigations
are generally completed, however, before commencement of drilling operations.
Mystique believes that its methods of investigating are consistent with
practices customary in the industry and that it has generally satisfactory title
to the leases covering its proved reserves.
During fiscal 1997 and 1996:
o There have been no reserve estimates filed with any other United States
federal authority or agency.
o The Company was not a party to any long-term supply or similar agreements
with foreign governments or authorities in which Mystique acted as a
producer.
o The Company drilled no productive or dry exploratory or development wells.
o The Company was not (nor is it currently) obligated to provide a fixed and
determinable quantity of oil and gas pursuant to any contracts or
agreements.
<TABLE>
<CAPTION>
AVERAGE SALES PRICE AND PRODUCTION COST
- -------------------------------------------------------------------------------------------
1997 1996
------------- -------------
<S> <C> <C>
Average sales price per equivalent barrel of oil $ 19.77 $ 16.73
Average production (lifting) cost per equivalent $ 20.12 $ 13.20
barrel of oil (1)
</TABLE>
(1) Natural gas equivalents are determined using a ratio of six MCF of natural
gas to one BBL of crude oil.
ITEM 3. LEGAL PROCEEDINGS
None.
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<PAGE>
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the fiscal year covered by this Annual Report, no matter was submitted to
a vote of Mystique's security holders through the solicitation of proxies or
otherwise.
PART II
ITEM 5. MARKET FOR COMPANY'S COMMON STOCK AND RELATED SECURITY HOLDER MATTERS
PRICE RANGE OF COMMON STOCK
The Common Stock of Mystique has been traded on the OTC Bulletin Board System.
The following table sets forth the high and low bid prices of the Common Stock
as reported by the NASD in the over-the-counter market for the periods
indicated. The bid prices represent prices between dealers, without retail
markups, markdowns or commissions, and may not represent actual transactions.
Public trading in the Common Stock of Mystique is minimal.
For the quarter ended Low High
- ------------------------------------------------------------------------
September 30, 1995 No Bid No Bid
December 31, 1995 No Bid No Bid
March 31, 1996 No Bid No Bid
June 30, 1996 No Bid No Bid
September 30, 1996 No Bid No Bid
December 31, 1996 $ 0.75 $ 2.00
March 31, 1997 $ 2.00 $ 4.25
June 30, 1997 $ 3.00 $ 3.37
The number of record holders of Common Stock of Mystique as of September 22,
1997, was approximately 2,808. The closing price as of that date, as quoted by
the NASD OTC Bulletin Board under the symbol "MYSD", was $1.50.
Holders of Common Stock are entitled to receive dividends as may be declared by
the Board of Directors out of funds legally available therefor. No dividends
have been declared to date by Mystique, nor does Mystique anticipate declaring
and paying cash dividends in the foreseeable future.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
During the second quarter of its fiscal year the Company completed a private
placement of its common stock, realizing proceeds of approximately $974,000.
This, coupled with the absence of debt, positioned the Company to pursue its
strategy of identifying and acquiring Rocky Mountain producing properties.
However, relatively high natural gas prices in the Rocky Mountains together with
perceptions of a strong future pricing environment, created a situation that
precluded the Company from consummating a producing property purchase on terms
which would allow for an adequate return on the Company's capital.
Should industry conditions change and the price of existing producing properties
fall to what the Company perceives as more reasonable, it is possible that the
Company will purchase a producing property. However, given that no acquisitions
have been made to date, the Company is presently reevaluating its strategy.
No capital commitments exist at present and the Company's capital position is
adequate to fund its deficit cash flow from operations.
-5-
<PAGE>
OPERATIONS Increases in general and administrative expense during fiscal 1997
combined with reduced cash flows from oil and gas producing activities resulted
in a significant operating cash flow deficit. As discussed below, the Company is
currently evaluating the economic viability of its existing production.
INVESTING In conjunction with the private placement, a new management group
assumed responsibilities during fiscal 1997. Equipment additions during the year
were primarily computer related items used throughout the year by the new
management. While certain uneconomic properties were disposed of during the
fiscal year, no proceeds were realized on the dispositions. In fiscal 1996
similar dispositions resulted in minor cash proceeds.
FINANCING Mystique completed a private placement during fiscal 1997.
RESULTS OF OPERATIONS
OIL AND GAS OPERATIONS The following discussion is based on the Company's oil
production as gas production is relatively immaterial.
The oil price increased by 18 percent from fiscal 1996 to fiscal 1997 but oil
production declined by 40 percent. These changes in the components of oil
revenue were the primary reason for the 23 percent decrease in oil and gas
revenues from one year to the next. Although operating costs were down 11
percent in fiscal 1997 (primarily from the fact that there were fewer producing
properties) the Company still lost money on its oil and gas operations. As a
result, the Company is currently reviewing the economics of each of its
producing properties with the view to disposing of some or all of the properties
during fiscal 1998. All of the Company's properties are relatively old and, at
current prices, normal production declines have made many of them uneconomic and
the remainder marginally economic at best.
During the fourth quarter of fiscal 1997 the Company determined that the shut-in
Canadian gas property it owned could not be economically put on production in
the foreseeable future. The Company, therefore, recognized a $453,000 impairment
expense on such property, which it sold during the first quarter of fiscal 1998.
The remaining $136,000 impairment expense represents the writedown of various
other properties described in the preceding paragraph pursuant to the Company's
polices described in Financial Statement Note 1.
GENERAL AND ADMINISTRATIVE EXPENSE Prior to fiscal 1997 the Company's common
stock had not traded for a number of years. In addition to raising the private
equity capital, the Company's new management undertook to increase awareness of
the Company in the investment community, resulting in limited trading in the
Company's shares during the nine months ended June 30, 1997. The costs of
running a more active public company, together with the hiring of a President
who is paid on a full time basis, accounts for some of the increase in general
and administrative expense ("G&A") from 1996 to 1997.
EQUITY ISSUED AS COMPENSATION Included in 1997's Statement of Operations is a
charge for $287,000 made pursuant to Statement of Financial Accounting Standard
123, ACCOUNTING FOR STOCK-BASED COMPENSATION (see Financial Statement Note 8).
This charge, which represents the estimated cost of options issued to
nonemployees and a warrant issued to Mystique's management company, is a noncash
expense. An additional $58,000 of compensation expense (also noncash) was
recognized for stock issued as compensation.
OTHER Interest income derives from the investment of the proceeds of the fiscal
1997 private equity offering. Financial statements include forward looking
information as defined by the Private Securities Litigation Reform Act of 1995.
EFFECT OF CHANGES IN PRICES
The Company's results of operations and cash flow are affected by changing oil
and gas prices which are largely out of its control. Inflation has virtually no
effect on the Company and it is not possible to predict what, if any, future
effect inflation might have on the Company.
-6-
<PAGE>
RECENTLY ISSUED FINANCIAL ACCOUNTING STANDARDS
In March 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 128, EARNINGS PER
SHARE, which requires a dual presentation of basic and diluted earnings per
share. The Company plans to adopt SFAS No. 128 during the second quarter of
1998. The FASB issued SFAS No. 129, INFORMATION ABOUT CAPITAL STRUCTURE, in
February 1997. This statement, which is required to be adopted in fiscal year
1998, establishes standards for disclosing information about an entity's capital
structure. The FASB also issued SFAS No. 130, REPORTING COMPREHENSIVE INCOME, in
June 1997. This statement, which is also required to be adopted in fiscal year
1998, establishes standards for reporting of comprehensive income and its
components (such as revenues, expenses, gains and losses). The FASB also issued
SFAS No. 131, SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION, in June 1997.
This statement, which is required to be adopted in fiscal year 1998, establishes
standards for the way the public business enterprises report information about
operating segments in annual financial statements and requires that those
enterprises report selected information about operating segments in interim
financial reports issued to shareholders. The Company believes that these
statements will have no material effect on the Company's financial statements.
ITEM 7. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Included at Pages 8 through 20 hereof.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURES
Mystique has not had any reported or material disagreement with its accountants
on any matter of accounting principles, practices or financial statement
disclosure.
-7-
<PAGE>
INDEPENDENT ACCOUNTANT'S REPORT
Board of Directors
Mystique Developments, Inc.
Littleton, Colorado
We have audited the accompanying balance sheet of Mystique Developments,
Inc. as of June 30, 1997, and the related statements of operations,
stockholder's equity, and cash flows for the years ended June 30, 1997 and 1996.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly
in all material respects, the financial position of Mystique Developments, Inc.
as of June 30, 1997 and the results of its operations and cash flows for the
years ended June 30, 1997 and 1996, in conformity with generally accepted
accounting principles.
Coopers & Lybrand, L.L.P.
Denver, Colorado
September 29, 1997
-8-
<PAGE>
MYSTIQUE DEVELOPMENTS, INC.
BALANCE SHEET
JUNE 30, 1997
<TABLE>
<CAPTION>
Assets
<S> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 748,459
Receivables:
Trade 3,918
Related party 11,095
----------------
15,013
Assets held for sale (Note 7) 37,000
Prepaids 850
----------------
Total current assets 801,322
PROPERTY AND EQUIPMENT:
Proved oil and gas properties, net of accumulated impairments of $157,509 127,513
Other property and equipment 11,346
----------------
138,859
Less accumulated depreciation, depletion and amortization:
Proved properties (72,301)
Other property and equipment (2,421)
----------------
(74,722)
----------------
Net property and equipment 64,137
----------------
Total assets $ 865,459
================
Liabilities and Shareholders' Equity
CURRENT LIABILITIES:`
Payables:
Trade 11,815
Accrued payroll taxes 11,309
Accrued liabilities 25,250
----------------
48,374
EQUITY:
Common stock, $.01 par value: authorized - 75,000,000 shares; issued and
outstanding - 1,595,076 shares 15,951
Additional paid-in capital 3,175,545
Accumulated deficit (2,374,411)
----------------
817,085
----------------
$ 865,459
================
</TABLE>
The accompanying notes are an integral part of these financial statements.
-9-
<PAGE>
MYSTIQUE DEVELOPMENTS, INC.
STATEMENTS OF OPERATIONS
YEARS ENDED JUNE 30, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
---------------- ---------------
<S> <C> <C>
REVENUES:
Oil and gas sales $ 62,644 $ 81,865
Management and consulting fees -- 500,377
Other 3,150 4,200
---------------- ---------------
Total revenues 65,794 586,442
EXPENSES:
Operation of producing properties 63,743 71,803
Production taxes 3,679 4,868
Depreciation, depletion and amortization 20,108 16,442
Impairments of proved properties 588,998 16,244
Equity issued as compensation 345,000 --
General and administrative 271,962 47,094
---------------- ---------------
Total expenses 1,293,490 156,451
---------------- ---------------
Operating (loss) income (1,227,696) 429,991
OTHER INCOME (EXPENSE)
Interest income 15,539 494
(Loss) on sale of assets -- (15,548)
---------------- ---------------
15,539 (15,054)
---------------- ---------------
(Loss) income before income taxes (1,212,157) 414,937
---------------- ---------------
Provision for income taxes -- --
---------------- ---------------
Net (loss) income $ (1,212,157) $ 414,937
================ ===============
Net (loss) income per share $ (1.04) $ 0.75
================ ===============
Weighted average common shares outstanding 1,163,638 550,076
================ ===============
</TABLE>
The accompanying notes are an integral part of these financial statements.
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<PAGE>
MYSTIQUE DEVELOPMENTS, INC.
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
YEARS ENDED JUNE 30, 1997 AND 1996
<TABLE>
<CAPTION>
---COMMON STOCK---
ADDITIONAL
PAID-IN (ACCUMULATED
SHARES PAR VALUE CAPITAL DEFICIT) TOTAL
------------ ----------- ------------ --------------- -------------
<S> <C> <C> <C> <C> <C>
BALANCE, JUNE 30, 1995 550,076 $ 5,501 $ 1,866,867 $ (1,577,191) $ 295,177
Net income for the year ended
June 30, 1996 -- -- -- 414,937 414,937
------------ ----------- ------------ --------------- -------------
BALANCE, JUNE 30, 1996 550,076 5,501 1,866,867 (1,162,254) 710,114
Stock issued as compensation 60,000 600 344,400 -- 345,000
Sale of common stock 985,000 9,850 964,278 -- 974,128
Net (loss) for the year ended June 30
1997 , -- -- (1,212,157) (1,212,157)
------------ ----------- ------------ --------------- -------------
BALANCE, JUNE 30, 1997 1,595,076 $ 15,951 $ 3,175,545 $ (2,374,411) $ 817,085
============ =========== ============ =============== =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
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<PAGE>
MYSTIQUE DEVELOPMENTS, INC.
CASH FLOW STATEMENTS
YEARS ENDED JUNE 30, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
------------------ -----------------
<S> <C> <C>
Cash flows from operating activities:
Net (loss) income $ (1,212,157) $ 414,937
Adjustments to reconcile net income to net cash provided
by operating activities:
Depletion, depreciation and amortization 20,108 16,442
Gain on asset sale -- 15,548
Impairment expense 588,998 16,244
Equity issued as compensation 345,000 --
Other (1,653)
Changes in current assets and liabilities:
Receivables 1,606 (7,459)
Payables 18,852 20,534
Receivable extinguished for noncash asset -- (490,000)
Other (850) 523
------------------ -----------------
Net cash (used in) operating activities (240,096) (13,231)
Cash flows from investing activities:
Equipment purchases (10,544) --
Proceeds from asset sales -- 10,665
------------------ -----------------
Net cash (used in) provided by investing activities (10,544) 10,665
Cash flows from financing activities:
Sale of common stock 974,128 --
------------------ -----------------
Net increase (decrease) in cash and equivalents 723,488 (2,566)
Cash and equivalents at beginning of period 24,971 27,537
------------------ -----------------
Cash and equivalents at end of period $ 748,459 $ 24,971
================== =================
</TABLE>
The accompanying notes are an integral part of these financial statements.
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<PAGE>
MYSTIQUE DEVELOPMENTS, INC.
Statements of Cash Flows
Years Ended June 30, 1997 and 1996
Supplemental schedule of non-cash investing and financing activities:
FISCAL 1997
The Company issued 50,000 shares to a financial consulting company for services
rendered. An additional 10,000 shares were issued to a former officer in
satisfaction of an outstanding liability. In both instances, the shares issued
were valued at $1 per share, the market price at the date of issuance.
FISCAL 1996
The Company exchanged $490,000 in accounts receivable for producing properties
valued at $490,000.
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<PAGE>
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
GENERAL:
The Company operates principally in the exploration, development and
production of oil and gas properties and consulting in the oil and gas
industry.
RECLASSIFICATIONS:
Certain amounts in the 1996 financial statements have been reclassified to
correspond to the 1997 presentation.
CASH AND CASH EQUIVALENTS:
The Company considers all highly liquid investments purchased with an
initial maturity of three months or less to be cash equivalents. The
carrying value of cash and cash equivalents approximates fair value because
the instruments have maturity dates of three months or less.
CONCENTRATION OF CREDIT RISK:
Substantially all of the Company's receivables are within the oil and gas
industry, primarily from purchasers of oil and gas and joint venture
participants, and collectibility is dependent upon the general economic
conditions of the industry. The receivables are not collateralized and the
Company has had no bad debts during the past two years.
The Company generally invests its excess cash in money market funds having
minimal credit risk.
OIL AND GAS PRODUCING ACTIVITIES:
The Company follows the successful efforts method of accounting for its oil
and gas properties. Under this method of accounting, all property
acquisition costs and costs of exploratory and development wells are
capitalized when incurred, pending determination of whether the well has
found proved reserves. If an exploratory well has not found proved
reserves, the costs of drilling the well are charged to expense. The costs
of development wells are capitalized whether productive or nonproductive.
Geological and geophysical costs on exploratory prospects and the costs of
carrying and retaining unproved properties are expensed as incurred. An
impairment allowance is provided to the extent that capitalized costs of
unproved properties, on a property-by-property basis, are considered to be
not realizable. Depletion, depreciation and amortization ("DD&A") of
capitalized costs of proved oil and gas properties is provided on a
property-by-property basis using the units of production method based upon
proved reserves. The computation of DD&A takes into consideration
restoration, dismantlement and abandonment costs and the anticipated
proceeds from equipment salvage.
The Company tests for impairment of its producing properties by comparing
expected undiscounted future net revenues on a property-by-property basis
with the related net capitalized costs at the end of each period. When the
net capitalized costs exceed the undiscounted future net revenues, the cost
of the property is written down to "fair value," which is estimated using
discounted future net revenues from the producing property. Gains and
losses are recognized on sales of entire interests in proved and unproved
properties. Sales of partial interests are generally treated as recoveries
of costs. With regard to properties held for sale, the Company uses the
estimated net sales proceeds as its estimate of fair value.
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<PAGE>
INCOME TAXES:
Deferred income taxes are provided on the difference between the tax basis
of an asset or liability and its reported amount in the financial
statements. This difference will result in taxable income or deductions in
future years when the reported amount of the asset or liability is
recovered or settled, respectively.
NET INCOME (LOSS) PER SHARE:
Net income (loss) per share of common stock is calculated by dividing net
income (loss) by the weighted average of common shares outstanding during
each of the periods presented. The Company had no common equivalent shares
outstanding during fiscal 1996, the last year it reported earnings. During
fiscal 1997 common equivalent shares have been excluded from the (loss) per
share calculation since their effect is anti-dilutive.
RECENTLY ISSUED FINANCIAL ACCOUNTING STANDARDS
In March 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 128, EARNINGS PER
SHARE, which requires a dual presentation of basic and diluted earnings per
share. The Company plans to adopt SFAS No. 128 during the second quarter of
1998. The FASB issued SFAS No. 129, INFORMATION ABOUT CAPITAL STRUCTURE, in
February 1997. This statement, which is required to be adopted in fiscal
year 1998, establishes standards for disclosing information about an
entity's capital structure. The FASB also issued SFAS No. 130, REPORTING
COMPREHENSIVE INCOME, in June 1997. This statement, which is also required
to be adopted in fiscal year 1998, establishes standards for reporting of
comprehensive income and its components (such as revenues, expenses, gains
and losses). The FASB also issued SFAS No. 131, SEGMENTS OF AN ENTERPRISE
AND RELATED INFORMATION, in June 1997. This statement, which is required to
be adopted in fiscal year 1998, establishes standards for the way the
public business enterprises report information about operating segments in
annual financial statements and requires that those enterprises report
selected information about operating segments in interim financial reports
issued to shareholders. The Company believes that these statements will
have no material effect on the Company's financial statements.
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
2. INCOME TAXES
No provision for taxes was made during fiscal 1996 due to the utilization
of net operating losses generated in prior years. No benefit from fiscal
1997's loss was recognized due to the substantial uncertainty as to its
eventual utilization.
Effective tax rates differ from the Federal income tax rate as shown in the
following table.
PERCENT OF PRETAX (LOSS) INCOME
-----------------------------------------------
1997 1996
-----------------------------------------------
Federal statutory rate (34)% 34%
State income taxes (3)% 3%
Change in valuation allowance 27% (37)%
Expiration of prior year loss
carryforwards 10% 0%
-----------------------------------------------
Effective rate 0% 0%
===============================================
-15-
<PAGE>
Deferred income taxes reflect the impact of temporary differences between
amounts of assets and liabilities for financial reporting purposes and such
amounts as measured by tax laws. The tax effect of the temporary
differences and carryforwards giving rise to the Company's deferred tax
assets and liabilities at June 30, 1997 are as follows:
Deferred tax assets:
Oil and gas properties $ 226,000
Net operating loss and tax credit carryforwards 492,000
--------------
718,000
Valuation allowance (704,000)
--------------
Deferred tax assets 14,000
Deferred tax liabilities:
Depletion, depreciation and amortization of property and
equipment (14,000)
--------------
Net deferred tax assets $ 0
==============
SFAS No. 109 requires that a valuation allowance be provided if it is more
likely than not that some portion or all of a deferred tax asset will not
be realized. The Company's ability to realize the benefit of its tax assets
will depend on the generation of future taxable income through profitable
operations and expansion of the Company's oil and gas producing properties.
The market, capital, and environmental risks associated with that growth
requirement are considerable, resulting in the Company's conclusion that a
full valuation allowance be provided, except to the extent that the benefit
of operating loss carry forwards can be used to offset future reversals of
existing deferred tax liabilities. The Company increased its valuation
allowance by $348,000 during fiscal 1997.
At June 30, 1997, the Company had tax basis net operating loss carry
forwards available to offset future taxable income of $1.3 million, which
expires from 1998 to 2011. Of that amount, approximately $123,000 can never
be used by the Company and the usage of $460,000 is limited to certain
maximum yearly amounts over a 15-year period, as a result of the change in
control.
3. MAJOR CUSTOMERS
The following are considered major customers which account for ten percent
or more of total operating revenues in 1997 and 1996 (excluding related
party management and consulting fees).
1997 1996
--------------- -----------------
Conoco Oil Company 60% 13%
Penroc Oil Corporation 24% 25%
Texaco Oil Company 12% 26%
4. RELATED PARTIES
During the fiscal year ended June 30, 1996, the Company received property
valued at $490,000 in exchange for a receivable from a company of which a
former President of the Company was then an officer.
On March 15, 1997, the Company entered into an Agreement for Administrative
Services (the "Trinity Agreement") with Trinity Petroleum Management LLC, a
Colorado limited liability company ("Trinity"). Pursuant to the terms of
the Trinity Agreement, Trinity will perform certain management functions
for the Company for a fee of $2,000 per month and reimbursement of third
party expenses. The Trinity Agreement is for an initial term of six months,
continuing thereafter on a month-to-month basis, terminable upon 30 days
written notice by either party. The sole owner of Trinity, J. Samuel
Butler, serves as a member on the Board of Directors of the Company. The
Agreement was approved by the Board of Directors, with Mr. Butler
abstaining from the vote. Also in connection with the Agreement, the
Company's Board of Directors, with Mr. Butler abstaining, approved the
issuance of a warrant to Trinity for the purchase of up to 100,000 shares
of the Company's Common Stock at a price of $1.00 per share.
-16-
<PAGE>
At June 30, 1997, the Company had a receivable of $11,095 from its
President.
5. OPTIONS, WARRANTS AND RESERVED SHARES
On October 18, 1996 the Board of Directors of the Company adopted the
Incentive Stock Option Plan ("the ISO Plan"). On April 5, 1997 the Board
adopted the Equity Incentive Plan ("the Equity Plan"). Both plans were
adopted subject to stockholder approval at the Company's next annual
meeting.
The ISO Plan was established for the purpose of providing an option to
purchase the Company's common stock to one key employee of the Company,
while the Equity Plan allows option grants to various employees,
non-employees, directors, consultants and advisors.
Options under both the plans may have a term of up to ten years; the actual
term and any vesting requirements are set at the discretion of the Board of
Directors or a Committee thereof. The maximum number of shares authorized
for issuance under the ISO Plan is 500,000 shares; under the Equity Plan
the maximum is 2.5 million.
There were no options or warrants outstanding at June 30, 1996 and there
were no exercises or forfeitures of options or warrants during fiscal 1997.
During fiscal 1997, all 500,000 shares available under the ISO Plan were
granted to the Company President and options for the purchase of 775,000
common shares at $1 per share were issued pursuant to other director and
consulting agreements described in this note. The options were granted at a
price equal to the estimated fair market value of the underlying common
stock at the date of grant.
In March 1997, the Company issued a warrant (expiring in March 2002) to
purchase 100,000 shares of its common stock at $1 per share to Trinity (see
Note 4). The closing bid price for the stock on the date the stock traded
immediately preceding the warrant grant was $3.38.
There were no vesting requirements for any of the options granted or the
warrant issued during fiscal 1997. The weighted average remaining life of
options outstanding at June 30, 1997 was 8.6 years. A total of 1.375
million shares have been reserved for the options and warrant.
The weighted average fair value of the options and warrant granted during
the year was $.69.
In October 1995, the FASB issued SFAS No. 123, "Accounting for Stock-Based
Compensation." This Statement establishes a fair value method of accounting
for stock-based compensation plans either through recognition or
disclosure. The Company has elected to continue following Accounting
Principles Board Opinion No. 25 ("APB No. 25"), ACCOUNTING FOR STOCK ISSUED
TO EMPLOYEES, and has elected to adopt SFAS No. 123 through compliance with
the disclosure requirements set forth in the Statement. Because the
exercise price of the Company's stock options equals the market price of
the underlying stock on the date of grant, no compensation expense is
recognized under APB No. 25. Pro forma information regarding net income and
earnings per share is required by SFAS No.123 and has been determined as if
the Company had accounted for its employee stock options under the fair
value method of that Statement. The fair value of these options was
estimated at the date of grant using the Black-Scholes option pricing model
with the following weighted-average assumptions for 1996: risk-free
interest rates ranging from 5.9 percent to 6.5 percent; dividend yield of 0
percent; volatility factor of the expected market price of the Company's
common stock of 60.4 percent; and weighted-average expected life of the
options of four years.
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting
restrictions and are fully transferable. In addition, option valuation
models require the input of highly subjective assumptions including the
expected stock price volatility. Because the Company's employee stock
options have characteristics significantly different from those of traded
options, and because changes in the subjective input assumptions can
materially affect the fair value estimate, it is management's opinion that
the existing models do not necessarily provide a reliable single measure of
the fair value of its employee stock options.
-17-
<PAGE>
Had compensation cost been determined based on the fair value at grant
dates for stock options awards consistent with SFAS No. 123, the Company's
net loss and loss per share would have been increased to the pro forma
amounts indicated below:
Pro Forma for the Year Ended June 30, 1997
- -----------------------------------------------------------------------
Net loss As reported $ (1,212,157)
Pro forma $ (1,870,581)
Loss per share As reported $ (1.04)
Pro forma $ (1.61)
The effects of applying SFAS No. 123 in the pro forma disclosure are not
necessarily indicative of future amounts.
6. SUPPLEMENTAL OIL AND GAS INFORMATION (UNAUDITED)
Capitalized costs relating to oil and gas producing activities at June 30,
1997 and 1996 are as follows:
1997 1996
------------- ------------
Proved oil and gas properties $ 285,022 $ 804,373
Less accumulated depreciation, depletion and
accumulated impairment (229,810) (106,453)
------------- ------------
Net capitalized cost $ 55,212 $ 697,920
============= ============
Costs incurred in oil and gas property acquisition, exploration, and development
activities for the years ended June 30, 1997 and 1996 are as follows:
1997 1996
------------- ------------
Acquisition of proved properties $ 0 $ 490,000
Results of operations for oil and gas producing activities for the years
ended June 30, 1997 and 1996 are as follows:
1997 1996
------------- ------------
Revenues $ 62,644 $ 81,865
Production costs 67,422 76,671
Depreciation, depletion and impairments 607,361 32,686
------------- ------------
674,783 109,357
------------- ------------
Results of operations from producing activities
(excluding corporate overhead and interest
costs) $ (612,139) $ (27,492)
============= ============
The following information relates to the Company's estimates of proved
reserves of oil and gas, changes in proved reserves of oil and gas,
standardized measure of discounted future net cash flows and changes
therein relating to proved oil and gas reserves. All reserves are located
in the United States and Canada.
RESERVES:
The estimates of the Company's proved oil and gas reserves and the changes
in those reserves include only "proved developed" reserves. Proved
developed reserves are reserves which can be expected to be recovered from
existing wells using existing equipment and operating methods.
-18-
<PAGE>
The estimates of proved reserves for 1997 were determined by the Company's
management company while the estimates for 1996 were determined by an
outside engineer. Both estimates take into account the effect of past
performance and existing economic conditions. Reserve estimates vary from
year to year because they are based upon judgmental factors involved in
interpreting and analyzing production performance, geological and
engineering data and changes in prices, operating costs, and other
economic, regulatory and operating conditions. Changes in such factors can
have a significant impact on the estimated future recoverable reserves and
estimated future net revenue by changing the economic life of the
properties.
The Company considers these reserve estimates to be reasonable in light of
past operating results and other data available. However, there can be no
assurance that actual production in the future will not vary substantially
from such estimates.
The following table shows the Company's total proved reserves, all of which
are developed, at June 30, 1997 and 1996.
1997 1996
------------------------- ------------------------
Oil Gas Oil Gas
----------- ---------- ---------- ----------
31,308 6,881 54,600 1,366,100
Changes in net proved reserves of oil and gas for the years ending June 30,
1997 and 1996 are as follows:
<TABLE>
<CAPTION>
1997 1996
----------------------------- ---------------------------
Oil Gas Oil Gas
----------- ----------------- ------------ -------------
<S> <C> <C> <C> <C>
Beginning 54,600 1,366,100 64,100 21,800
Revision of previous estimate (18,720) (1,356,181) 9,500 200
Sale of reserves (2,011) 0 (14,700) 0
Purchase of reserves in place 0 0 0 1,347,500
Discoveries 0 0 0 0
Production (2,561) (3,038) (4,300) (3,400)
----------- ----------------- ------------ -------------
Ending 31,308 6,881 54,600 1,366,100
=========== ================= ============ =============
</TABLE>
As discussed in Note 7, the primary factor causing the downward revision in the
Company's gas reserves was a re-engineering of the Company's Canadian property.
STANDARDIZED MEASURE OF FUTURE NET CASH FLOWS
Statement of Financial Accounting Standards No. 69 prescribes guidelines for
computing a standardized measure of future net cash flows and changes therein
relating to estimated proved reserves. The Company has followed these guidelines
which are briefly discussed below.
Future cash inflows and future production and development costs are determined
by applying year-end process and costs to the estimated quantities of oil and
gas to be produced. Estimated future income taxes are computed using current
statutory income tax rates including consideration for estimated future
statutory depletion and investment tax credits. The resulting future net cash
flows are reduced to present value amounts by applying a 10% annual discount
factor.
The assumptions used to compute the standardized measure are those prescribed by
the Financial Accounting Standards Board and, as such, do not necessarily
reflect the present worth. The limitations inherent in the reserve quantity
estimation process, as discussed previously, are equally applicable to the
standardized measure computations since these estimates are the basis for the
valuation process.
-19-
<PAGE>
Standardized measure of discounted future net cash flows and changes therein
relating to proved oil and gas reserves at June 30, 1997 and 1996 are as
follows:
<TABLE>
<CAPTION>
1997 1996
------------- -----------------
<S> <C> <C>
Future cash inflows $ 561,000 $ 2,533,000
Future production costs (448,000) (1,367,000)
------------- -----------------
Future net cash flows 113,000 1,166,000
Less 10% annual discount for estimated timing of cash flows (47,000) (371,000)
------------- -----------------
Standardized measure of discounted future net cash flows $ 66,000 $ 795,000
============= =================
</TABLE>
No future income tax provision is made due to the company's tax loss
carryforward.
The following are principal sources of change in the standardized measure of
discounted future net cash flows during the years ending June 30, 1997 and 1996:
<TABLE>
<CAPTION>
1997 1996
------------- -------------
<S> <C> <C>
Beginning of year $ 795,000 $ 275,000
Sales of oil and gas produced, net of production cost 5,000 (5,000)
Net changes in prices (106,000) (19,000)
Extensions and discoveries less related costs 0 0
Revisions of previous quantity estimates (697,000) 37,000
Accretion of discount 79,000 28,000
Sale of reserves (10,000) (36,000)
Purchase of reserves in place 0 497,000
Other, primarily changes in production costs 0 18,000
------------- -------------
End of year $ 66,000 $ 795,000
============= =============
</TABLE>
7. SUBSEQUENT EVENT
During September 1997, the Company sold a Canadian property having a book
value of $37,000 (cost of $490,000 less an impairment allowance of
$453,000) for $37,000. The decision to dispose of the property was based
primarily on the fact that relatively low Canadian gas prices made it
unlikely that the property would be brought on production in the near
future. Additionally, the property was far removed from where the Company
plans to focus its operations, Colorado and Wyoming.
-20-
<PAGE>
PART III
ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information from the definitive proxy statement for the 1997 annual meeting
of stockholders is incorporated herein by reference.
ITEM 10. EXECUTIVE COMPENSATION
The information from the definitive proxy statement for the 1997 annual meeting
of stockholders is incorporated herein by reference.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information from the definitive proxy statement for the 1997 annual meeting
of stockholders is incorporated herein by reference.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information from the definitive proxy statement for the 1997 annual meeting
of stockholders is incorporated herein by reference.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
A list of the Exhibits required by Item 601 of Regulation S-B to be filed
as part of this report is set forth in the Index to Exhibits and is incorporated
herein by reference.
(b) Reports on Form 8-K
No reports were filed on Form 8-K during the quarter ended June 30, 1997.
(c) The following Financial Statements are filed as part of this Report:
PAGE
Independent Accountant's Report...................................8
Balance Sheet as of June 30, 1997.................................9
Statements of Operations for the years ended June 30, 1997 and
1996.............................................................10
Statements of Changes in Stockholders Equity for the years ended
June 30, 1997 and 1996...........................................11
Statements of Cash Flows for the years ended June 30, 1997
and 1996.........................................................12
Notes to Financial Statements....................................14
-21-
<PAGE>
All Financial Statement Schedules are omitted because they are not required, are
inapplicable or the information is included in the financial statements or notes
thereto.
-22-
<PAGE>
SIGNATURE PAGE
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this Report to be signed on its
behalf by the undersigned thereunto duly authorized.
MYSTIQUE DEVELOPMENTS, INC.
Dated: September 29, 1997 By /s/ Kim Fuerst
---------------------------- ------------------------------------
Kim Fuerst, President and Principal
Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this Report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the date indicated.
Dated: September 26, 1997 By /s/ Kim Fuerst
---------------------------- ------------------------------------
Kim Fuerst, President and Principal
Executive Officer
Dated: September 26, 1997 By /s/ Faisal Chaudhary
---------------------------- ------------------------------------
Faisal Chaudhary, Director
Dated: September 26, 1997 By /s/ J. Samuel Butler
---------------------------- ------------------------------------
J. Samuel Butler, Director
Dated: September 26, 1997 By /s/ David L. Milanesi
---------------------------- ------------------------------------
David L. Milanesi, Principal
Financial and Accounting Officer
-23-
<PAGE>
INDEX TO EXHIBITS
3.1 Articles of Incorporation (a)
3.2 Bylaws(a)
10.1 Employment Agreement between the Company and Kim M. Fuerst, dated October
1, 1996.
10.2 Incentive Stock Option Plan, dated October 18, 1996.
10.3 Incentive Stock Option Agreement between the Company and Kim M. Fuerst,
dated October 18, 1996.
10.4 The Company's Equity Incentive Plan.
10.5 Administrative Services Agreement between the Company and Trinity Petroleum
Management LLC, dated March 15, 1997. (b)
10.6 Warrant, dated March 31, 1997, from the Company to Trinity Petroleum
Management LLC (b)
10.7 Consulting Agreement between the Company and Sayed Consulting, Inc.,
effective October 1, 1996.
10.8 Option Agreement between the Company and Sayed Consulting, Inc., dated
November 15, 1996
27 Financial Data Schedule
(a) Incorporated by reference to the Company's Form 10-K for the fiscal year
ended May 31, 1983.
(b) Incorporated by reference to the Company's Form 10-QSB for the quarter
ended March 31, 1997.
-24-
EXHIBIT 10.1
EMPLOYMENT AGREEMENT
This EMPLOYMENT AGREEMENT, dated October 1, 1996, is by and between
Mystique Developments, Inc. (the "Company") and Kim Fuerst ("Employee").
The Company desires to employ the Employee on a full time basis and the
Employee desires to be so employed by the Company.
Therefore, in consideration of the mutual covenants contained herein, the
parties agree as follows:
ARTICLE I
EMPLOYMENT DUTIES AND BENEFITS
SECTION 1.1 EMPLOYMENT. The Company hereby agrees to employ the Employee in
an executive capacity, which initially shall be as President, and the Employee
agrees to be so employed, all subject to the terms and provisions of this
Agreement. Employee shall report for work on October 1, 1996, and salary shall
begin on that date.
SECTION 1.2 DUTIES AND RESPONSIBILITIES. The Employee is employed pursuant
to the terms of this Agreement. Employee shall devote his entire working time,
attention, and energies to the business of the Company. The Employee agrees to
serve in such office as he is appointed to by the Company's Board of Directors
and agrees to perform such responsibilities and duties as may be determined and
assigned to him by the Board of Directors of the Company.
SECTION 1.3 VACATIONS. The Employee shall be entitled each year to three
weeks vacation in accordance with the established practices of the Company now
or hereafter in effect for personnel in executive capacities during which time
the Employee's compensation shall be paid in full.
SECTION 1.4 COMPANY EXPENSES. The Employee is authorized to incur
reasonable expenses relating to his employment and which are for the benefit of
the Company. The Company will reimburse the Employee for all such expenses upon
the presentation by the Employee, from time to time, of an itemized account of
such expenditures. Any material expenditures, however, shall be subject at all
times to the prior approval of the Board of Directors.
SECTION 1.5 HEALTH INSURANCE. Premiums will be paid 100% by the Company, or
Employee may, at his expense, use COBRA.
<PAGE>
ARTICLE II
COMPENSATION
SECTION 2.1 BASIC SALARY. Except as otherwise provided herein, the Company
shall pay to the Employee an annual base salary during the term of this
Agreement equal to One Hundred Twenty Thousand Dollars ($120,000 ), payable in
the amount of Ten Thousand Dollars ($10,000) per month.
SECTION 2.2 OPTIONS. Employee shall be granted incentive stock options to
purchase up to 500,000 shares of Mystique Developments, Inc.'s common stock, at
an exercise price of $1.00 per share.
ARTICLE III
TERM OF EMPLOYMENT AND TERMINATION
SECTION 3.1 TERM. This Agreement shall be for a period of three (3) years
commencing the date hereof, subject, however, to termination at any time as
provided in this Article. This Agreement shall be renewed automatically for
succeeding periods of one year on the same terms and conditions as contained in
this Agreement unless Employee shall, at least thirty days prior to the
expiration of any employment period, give written notice of the intention to
terminate this Agreement. This Agreement shall continue to govern the rights and
duties of the parties during any extension period.
SECTION 3.2 TERMINATION. The Employee's employment hereunder may be
terminated without any breach of this Agreement under the following
circumstances:
(a) DEATH. The Employee's employment hereunder shall terminate upon
his death.
(b) DISABILITY. If, as a result of the Employee's incapacity due to
physical or mental illness, the Employee shall have been absent from his
duties hereunder on a full-time basis of the entire period of three
consecutive months, the Company may terminate the Employee's employment
hereunder.
(c) CAUSE. The Company may terminate the Employee's employment
hereunder, without prior notice, for Cause. For purposes of this Agreement,
the Company shall have "Cause" to terminate the Employee's employment
hereunder upon (i) the failure by the Employee to perform the duties
assigned to him by the Company's Board of Directors, or (ii) the engaging
by the
-2-
<PAGE>
Employee in misconduct which is materially injurious to the Company,
monetarily, or otherwise or (iii) the violation by the Employee of the
provisions of Article IV.
(d) TERMINATION BY THE EMPLOYEE. The Employee may terminate his
employment hereunder only upon ninety (90) days prior written notice.
SECTION 3.3 COMPENSATION UPON TERMINATION OR DURING DISABILITY.
(a) During the first thirty (30) day period that the Employee fails to
perform his duties hereunder as a result of incapacity due to physical or
mental illness ("disability period"), the Employee shall continue to
receive his full salary at the rate then in effect for such period,
provided that payments so made to the Employee during the disability period
shall be reduced by the sum of the amounts, if any, payable to the Employee
at or prior to the time of any such payment under disability benefit plans
of the Company and which were not previously applied to reduce any such
payment.
(b) If the Employee's employment is terminated by his death, the
Company shall pay to the Employee's spouse, or if he leaves no spouse, to
his estate, Employee's full salary and accrued bonuses through the date of
death.
(c) If the Employee's employment shall be terminated with or without
cause, the Company shall be obligated to pay the Employee his full salary
through the date of termination at the rate in effect at the time of
termination.
ARTICLE IV
CONFIDENTIALITY AND NON-COMPETE
SECTION 4.1 It is understood that Employee will acquire and be
informed of special and confidential business methods and processes used by
and belonging to the Company, including, methods, procedures, and software
and other computer related materials developed or used by the Company in
connection with its activities, as well as information relating to the
business of the Company, including information regarding acquisition
candidates, potential customers, customer lists, price lists and other
confidential information. Employee agrees that all such information
constitutes a valuable and unique asset of the Company and is in the nature
of trade secrets and is the sole property of the Company. Employee will
keep confidential, and will not use, reproduce, copy or disclose to any
other person or firm, any information relating to such methods and
processes, or the names and business of customers, or accounts, analyses,
systems, flow charts, programs, edit procedures, or any other matters
concerning any work done by the Company for its customers or done in an
effort to solicit or obtain customers; nor will Employee furnish to any
other person or firm any information, correspondence, records, programs,
systems, or other documents
-3-
<PAGE>
or processes used by the Company; nor will Employee advise, discuss or in
any way assist any other person or firm (including customers or former
customers of the Company) in obtaining or learning about any of the
foregoing in this Section. Employee agrees that upon termination of
employment under this Agreement, he shall surrender promptly to the Company
any and all trade secrets, business related telephone, address and business
card lists or data base, customer lists and any confidential information
which he may possess and that such trade secrets, lists and information
shall be and remain the sole property of the Company. All of the terms of
this Section shall remain in full force and effect both during the
continuation of employment of Employee by the Company and after the
termination of employment for any reason.
SECTION 4.2 Employee will devote substantially all his business time and
effort to and give undivided loyalty to the Company. Commencing on the date of
this Agreement, he will not engage in any way whatsoever, directly or
indirectly, in any business that is competitive with the Company, nor solicit or
in any other manner work for or assist any business which is competitive to the
Company.
SECTION 4.3 During the term of this Agreement, Employee will undertake no
planning for or organization of any business activity competitive with the work
he performs as an employee of the Company, and Employee will not combine or
discuss with other employees of the Company for the purposes of organization of
any such competitive business activity.
SECTION 4.4 Employee agrees to execute any and all documents and take any
and all other actions necessary or desirable for the assignment to the Company
of all of his interests in any patents or patentable ideas developed by him,
alone or in conjunction with others, in the course of his employment by the
Company. Employee agrees with the Company that any and all investments,
discoveries, improvements, designs, methods, systems, developments, "know-how,"
ideas, suggestions, devices, trade secrets, and processes (hereinafter
collectively referred to as "Discoveries"), whether patentable or not, which are
discovered, disclosed to or otherwise obtained by the Employee during his or her
term of employment is confidential, proprietary information and is the sole and
absolute property of the Company. Employee agrees to disclose promptly and
voluntarily to the Company all such discoveries. Any discoveries which Employee
discloses or offers to third parties, publishes or are implemented by Employee
or disclosed in a patent application filed by the Employee within one month
following termination of employment will be presumed, unless proven otherwise by
Employee, to have been originated or made during the period of Employee's
employment and thereby, are subject to the provisions of this Agreement.
SECTION 4.5 The parties hereto agree and acknowledge that many of the
rights conveyed by this Agreement are of a unique and special nature and that
the Company will not have an adequate remedy at law in the event of failure of
Employee to abide by its terms and conditions, nor will money damages adequately
compensate for such injury. It, therefore, is agreed between the parties that in
the event of breach by Employee of Employee's agreements contained in this
-4-
<PAGE>
Article IV, the Company shall have the right to arbitration. Employee agrees
that the terms of this Article shall be construed as independent of any other
agreements between the parties and shall survive the termination of his
employment for one month and Employee shall be bound by its terms at all items
subsequent to the termination of his employment for so long a period as the
Company continues to conduct the same business or businesses as it was
conducting during the period of this Agreement. The existence of any claim or
cause of action of Employee against the Company, whether predicated on this
Agreement or otherwise, shall not constitute a defense to the enforcement by the
Company of Employee's covenants in this Article. Nothing herein contained shall
in any way limit or exclude any and all other rights granted by law or equity to
the Company.
ARTICLE V
GENERAL MATTERS
SECTION 5.1 COLORADO LAW. This Agreement shall be governed by the laws of
the State of Colorado.
SECTION 5.2 NO WAIVER AND NOTIFICATION. No provision of this Agreement may
be waived except by an agreement in writing signed by the waiving party. A
waiver of any term or provision shall not be construed as a waiver of any other
term or provision.
SECTION 5.3 AMENDMENT. This Agreement may be amended, altered or revoked at
any time, in whole or in part, by filing with this Agreement a written
instrument setting forth such changes, signed by all of the parties.
SECTION 5.4 TEXT TO CONTROL. The headings of articles and sections are
included solely for convenience of reference. If any conflict between any
heading and the text of this Agreement exists, the text shall control.
SECTION 5.5 SEVERABILITY. If any provision of this Agreement is declared by
any court of competent jurisdiction to be invalid for any reason, such
invalidity shall not affect the remaining provisions. On the contrary, such
remaining provisions shall be fully severable, and this Agreement shall be
construed and enforced as if such invalid provisions never had been inserted in
the Agreement.
SECTION 5.6 ENTIRE AGREEMENT. This Agreement contains, and its terms
constitute, the entire agreement of the parties, and it may be amended only by a
written document signed by both parties to this Agreement.
SECTION 5.7 ATTORNEYS FEES. In the event either party hereto finds it
necessary to employ legal counsel or to bring an action at law or other
proceedings against the other party to enforce any
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of the terms, covenants, or conditions hereof, the party prevailing in any such
action or other proceedings shall be paid all reasonable attorneys' fees by the
other party as well as court costs.
SECTION 5.8 NOTICE. For the purposes of this Agreement, notices, demands
and all other communications provided for in the Agreement shall be in writing
and shall be deemed to have been duly given when delivered or (unless otherwise
specified) mailed by United States registered mail, return receipt requested,
postage prepaid, address as follows:
If to the Employee: Kim Fuerst
224 Paseo de Sonada
Redondo Beach, California 90277
If to the Company: Mystique Developments, Inc.
1820 South Elena Avenue, Suite B
Redondo Beach, California 90277
or to such other address as any party may have furnished to the others in
writing in accordance herewith, except the notices of change of address shall be
effective only upon receipt.
SECTION 5.9 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original but all of which
together with constitute one and the same instrument.
The parties have executed this Agreement on the date first written above.
MYSTIQUE DEVELOPMENTS, INC.
By: /s/ Kim M. Fuerst
----------------------------------
Kim M. Fuerst, President
EMPLOYEE:
/s/ Kim Fuerst
-------------------------------------
Kim Fuerst
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EXHIBIT 10.2
MYSTIQUE DEVELOPMENTS, INC.
INCENTIVE STOCK OPTION PLAN
SECTION 1.
INTRODUCTION
1.1 Establishment. Mystique Developments, Inc., a Wyoming corporation
(hereinafter referred to as the "Company" except where the context
otherwise requires), establishes the Mystique Developments, Inc. Incentive
Stock Option Plan (the "Plan") for a key employee as of the Effective Date.
1.2 Purposes. The purposes of the Plan are to provide the key employee with
added incentives to continue in the long-term service of the Company and to
create in the employee a more direct interest in the future success of the
operations of the Company by relating incentive compensation to increases
in stockholder value, so that the income of the key employee is more
closely aligned with the income of the Company's stockholders.
SECTION 2.
DEFINITIONS
2.1 Definitions. The following terms shall have the meanings set forth below:
(a) "Award" means a grant made under this Plan in the form of Incentive
Stock Options.
(b) "Board" means the Board of Directors of the Company.
(c) "Director" means a member of the Board.
(d) "Effective Date" means the effective date of the Plan, October 18,
1996.
(e) "Eligible Employee" means Kim M. Fuerst.
(f) "Fair Market Value" means the value of a Share determined by the Board
in good faith.
(g) "Incentive Stock Option" means any Option granted hereunder in
accordance with the requirements of Section 422 of the Internal
Revenue Code.
(h) "Internal Revenue Code" means the Internal Revenue Code of 1986, as it
may be amended from time to time.
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(i) "Option" means a right to purchase Stock at a stated price for a
specified period of time.
(j) "Option Price" means the price at which shares of Stock subject to an
Incentive Stock Option may be purchased.
(k) "Participant" means Kim M. Fuerst.
(l) "Plan Year" means each 12-month period beginning July 1 and ending the
following June 30, except that for the first year of the Plan it shall
begin on the Effective Date and extend to June 30 of the following
year.
(m) "Share" means a share of Stock.
(n) "Stock" means the common stock, $.01 par value, of the Company.
2.2 Gender and Number. Except when otherwise indicated by the context, the
masculine gender shall also include the feminine gender, and the definition
of any term herein in the singular shall also include the plural.
SECTION 3.
PLAN ADMINISTRATION
The Plan shall be administered by the Board. The Board shall determine the
form or forms of the agreements with the Participant which shall evidence the
particular provisions, terms, conditions, rights and duties of the Company and
the Participant with respect to the Awards granted pursuant to the Plan, which
provisions need not be identical except as may be provided herein. The Board may
from time to time adopt such rules and regulations for carrying out the purposes
of the Plan as it may deem proper and in the best interests of the Company. The
Board may correct any defect, supply any omission or reconcile any inconsistency
in the Plan or in any agreement entered into hereunder in the manner and to the
extent it shall deem expedient and it shall be the sole and final judge of such
expediency. No member of the Board shall be liable for any action or
determination made in good faith, and all members of the Board shall, be fully
protected by the Company with respect to any such action, determination or
interpretation. The determination, interpretations and other actions of the
Board pursuant to the provisions of the Plan shall be binding and conclusive for
all purposes and on all persons.
SECTION 4.
STOCK SUBJECT TO THE PLAN
4.1 Number of Shares. There are 500,000 Shares authorized for issuance under
the Plan in accordance with the provisions of the Plan. Incentive Stock
Option rights to all 500,000 shares shall be granted to the Participant.
4.2 Unused and Forfeited Stock. Any Shares that are subject to an Award under
this Plan which are not used because they are Shares that are subject to an
Incentive Stock Option which expires or is terminated for any reason, any
Shares which are
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used for full or partial payment of the purchase price of Shares with
respect to which an Option is exercised and any Shares retained by the
Company for withholding tax purposes shall no longer be available for use
under the Plan.
4.3 Adjustments for Stock Split, Stock Dividend, Etc. If the Company shall at
any time change in any way the rights and privileges of such the incentive
stock options by or through a stock split, subdivision, consolidation,
combination, reclassification or recapitalization involving the Stock, then
in relation to the Stock that is affected by one or more of the above
events, the numbers, rights and privileges of the incentive stock option
shall be increased, decreased or changed in like manner as if the Stock had
been issued and outstanding, fully paid and nonassessable at the time of
such occurrence.
4.4 Other Changes in Stock. In the event there shall be any change, other than
as specified in Sections 4.2 and 4.3, in the kind of outstanding shares of
Stock or of any stock or other securities into which the Stock shall be
changed or for which it shall have been exchanged, and if the Board shall
in its discretion determine that such change equitably requires an
adjustment in the number or kind of Shares subject to outstanding incentive
stock options, then such adjustments shall be made by the Board and shall
be effective for all purposes of the Plan.
4.5 General Adjustment Rules. In the case of any such substitution or
adjustment affecting an incentive stock option, the total Option Price for
the shares of Stock then subject to an incentive stock option shall remain
unchanged but the Option Price per share under each such incentive stock
option shall be equitably adjusted by the Board to reflect the greater or
lesser number of shares of Stock or other securities into which the Stock
subject to the incentive stock option may have been changed.
4.6 Determination by Board, Etc. Adjustments under this Section 4 shall be made
by the Board whose determinations with regard thereto shall be final and
binding upon all parties thereto.
SECTION 5.
REORGANIZATION OR LIQUIDATION
In the event that the Company is merged or consolidated with another
corporation (other than a merger or consolidation in which the Company is the
continuing corporation and which does not result in any reclassification or
change of outstanding Shares), or if all or substantially all of the assets or
more than 50% of the outstanding voting stock of the Company is acquired by any
other corporation, business entity or person (other than a sale or conveyance in
which the Company continues as a holding company of an entity or entities that
conduct the business or businesses formerly conducted by the Company), or in
case of a reorganization (other than a reorganization under the United States
Bankruptcy Code) or liquidation of the Company, and if the provisions of Section
10 do not apply, the Board or the board of directors of any corporation assuming
the obligations of the Company, shall have the power and discretion to prescribe
the terms and conditions for the exercise of, or modification of, any
outstanding Awards granted hereunder not inconsistent with the terms of this
Agreement and the stock option agreement then outstanding with
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the Participant. By way of illustration, and not by way of limitation, the Board
may provide for the complete or partial acceleration of the dates of exercise of
the incentive stock options. The provisions of this Section 5 shall not apply to
any transaction undertaken for the purpose of reincorporating the Company under
the laws of another jurisdiction, if such transaction does not materially affect
the beneficial ownership of the Company's capital stock.
SECTION 6.
GRANT OF INCENTIVE STOCK OPTIONS
6.1 Grant of Options. Coincident with the adoption of the Plan, the Participant
shall be granted all of the Incentive Stock Options.
6.2 Option Agreement. The Incentive Stock Options granted under the Plan shall
be evidenced by a written stock option agreement which shall be entered
into by the Company and the Participant, and which shall contain the
following terms and conditions, as well as such other terms and conditions
not inconsistent therewith, as the Board may consider appropriate in each
case.
(a) Number of Shares. Each stock option agreement shall state that it
covers a specified number of Shares. The aggregate Fair Market Value
of the Shares with respect to which Incentive Stock Options are
exercisable for the first time by an Participant in any calendar year,
under the Plan or otherwise, shall not exceed $100,000. For this
purpose, the Fair Market Value of the Shares shall be determined as of
the time an Option is granted.
(b) Option Price. The price at which each Share covered by an Incentive
Stock Option may be purchased shall be the fair market value of the
Share at the date of grant of the Incentive Stock Option. In addition,
the Option Price for each Share covered by an Incentive Stock Option
granted to the Participant when he then owns stock possessing more
than 10% of the total combined voting power of all classes of stock of
the Company or any parent or subsidiary corporation of the Company
must be at least 110% of the Fair Market Value of the Stock subject to
the Incentive Stock Option on the date the Option is granted.
(c) Duration of Options. Each stock option agreement shall state the
period of time, determined by the Board, within which the Option may
be exercised by the Participant (the "Option Period"). The Option
Period must expire, in all cases, not more than ten years from the
date an Option is granted; provided, however, that the Option Period
of an Option granted to the Participant when he then owns stock
possessing more than 10% of the total combined voting power of all
classes of stock of the Company or any parent or subsidiary
corporation of the Company must expire not more than five years from
the date such an Option is granted.
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(d) Termination of Employment, Death, Disability, Etc. Except as otherwise
determined by the Board, each stock option agreement shall provide as
follows with respect to the exercise of the Option upon termination of
the employment or the death of the Participant:
(i) If the Participant terminates his employment with the Company in
a manner determined by the Board, in its sole discretion, to
constitute retirement (which determination shall be communicated
to the Participant within 10 days of such termination), the
Option may be exercised by the Participant, or in the case of
death by the persons specified in subsection (iii) of this
subsection 7.3(d), within three months following his or her
retirement. In any such case, the Option may be exercised only as
to the Shares as to which the Option had become exercisable on or
before the date of the Participant's termination of employment.
(ii) If the Participant dies, or if the Participant becomes disabled
(within the meaning of Section 22(e) of the Internal Revenue
Code), during the Option Period while still employed, or within
the three-month period referred to in (iv) below, or within the
three or twelve-month period referred to in (ii) above, the
Option may be exercised by those entitled to do so under the
Participant's will or by the laws of descent and distribution
within twelve months following the Participant's death or
disability, but not thereafter. In any such case, the Option may
be exercised only as to the Shares as to which the Option had
become exercisable on or before the date of the Participant's
death or disability.
(iii) If the employment of the Participant by the Company is
terminated (which for this purpose means that the Participant is
no longer employed by the Company or by an Affiliated
Corporation) within the Option Period for any reason other than
cause, retirement as provided in (ii) above, disability or the
Participant's death, the Option may be exercised by the
Participant within three months following the date of such
termination (provided that such exercise must occur within the
Option Period), but not thereafter. In any such case, the Option
may be exercised only as to the Shares as to which the Option had
become exercisable on or before the date of termination of
employment.
(e) Transferability. Each stock option agreement shall provide that the
Option granted therein is not transferable by the Participant except
by will or pursuant to the laws of descent and distribution, and that
such Option is exercisable during the Participant's lifetime only by
him or her, or in the event of disability or incapacity, by his or her
guardian or legal representative.
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<PAGE>
(f) Exercise, Payments, Etc.
(i) Each stock option agreement shall provide that the method for
exercising the Option granted therein shall be by delivery to the
Corporate Secretary of the Company of written notice specifying
the number of Shares with respect to which such Option is
exercised (which must be in an amount evenly divisible by 100)
and payment of the Option Price. Such notice shall be in a form
satisfactory to the Board and shall specify the particular Option
(or portion thereof) which is being exercised and the number of
Shares with respect to which the Option is being exercised. The
exercise of the Option shall be deemed effective upon receipt of
such notice by the Corporate Secretary and payment to the
Company. The purchase of such Stock shall take place at the
principal offices of the Company upon delivery of such notice, at
which time the purchase price of the Stock shall be paid in full
by any of the methods or any combination of the methods set forth
in (ii) below. A properly executed certificate or certificates
representing the Stock shall be issued by the Company and
delivered to the Participant. If certificates representing Stock
are used to pay all or part of the Option Price, separate
certificates for the same number of shares of Stock shall be
issued by the Company and delivered to the Participant
representing each certificate used to pay the Option Price, and
an additional certificate shall be issued by the Company and
delivered to the Participant representing the additional shares,
in excess of the Option Price, to which the Participant is
entitled as a result of the exercise of the Option.
(ii) The exercise price shall be paid by any of the following methods
or any combination of the following methods:
(A) in cash;
(B) by cashier's check payable to the order of the Company;
(C) by delivery to the Company of certificates representing the
number of Shares then owned by the Participant, the Fair
Market Value of which equals the purchase price of the Stock
purchased pursuant to the Option, properly endorsed for
transfer to the Company; provided however, that Shares used
for this purpose must have been held by the Participant for
such minimum period of time as may be established from time
to time by the Board; for purposes of this Plan, the Fair
Market Value of any Shares delivered in payment of the
purchase price upon exercise of the Option shall be the Fair
Market Value as of the exercise date; the exercise date
shall be the day the delivery of the certificates for the
Stock used as payment of the Option Price; or
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(D) by delivery to the Company of a properly executed notice of
exercise together with irrevocable instructions to a broker
to deliver to the Company promptly the amount of the
proceeds of the sale of all or a portion of the Stock or of
a loan from the broker to the Participant necessary to pay
the exercise price.
(g) Date of Grant. An option shall be considered as having been granted on
the date specified in the grant resolution of the Board.
(h) Withholding. In the event that a Participant makes a disposition (as
defined in Section 424(c) of the Internal Revenue Code) of any Stock
acquired pursuant to the exercise of an incentive stock option prior
to the expiration of two years from the date on which the incentive
stock option was granted or prior to the expiration of one year from
the date on which the Option was exercised, the Participant shall send
written notice to the Company at its principal office (Attention:
Corporate Secretary) of the date of such disposition, the number of
shares disposed of, the amount of proceeds received from such
disposition, and any other information relating to such disposition as
the Company may reasonably request. The Participant shall, in the
event of such a disposition, make appropriate arrangements with the
Company to provide for the amount of additional withholding, if any,
required by applicable federal and state income tax laws.
6.3 Stockholder Privileges. No Participant shall have any rights as a
stockholder with respect to any Shares covered by an Option until the
Participant becomes the holder of record of such Stock, and no adjustments
shall be made for dividends or other distributions or other rights as to
which there is a record date preceding the date such Participant becomes
the holder of record of such Stock, except as provided in Section 4.
SECTION 7.
CHANGE IN CONTROL
7.1 Options, Restricted Stock. In the event of a change in control of the
Company, then the Board may, in its sole discretion, without obtaining
stockholder approval, take any or all of the following actions: (a)
accelerate the exercise dates of any outstanding Options or make all such
Options fully vested and exercisable; (b) grant a cash bonus award to any
Participant in an amount necessary to pay the Option Price of all or any
portion of the Options then held by such Participant; (c) pay cash to any
or all Participants in exchange for the cancellation of their outstanding
Options in an amount equal to the difference between the Option Price of
such Options and the greater of the tender offer price for the underlying
Stock or the Fair Market Value of the Stock on the date of the cancellation
of the Options; and (d) make any other adjustments or amendments to the
outstanding Options.
7.2 Definition. For purposes of the Plan, a "change in control" shall be deemed
to have occurred if (a) any "person" or "group" (within the meaning of
Sections 13(d) and
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14(d)(2) of the 1934 Act), other than a trustee or other fiduciary holding
securities under an employee benefit plan of the Company, is or becomes the
"beneficial owner" (as defined in Rule 13d-3 under the 1934 Act), directly
or indirectly, of more than 33-1/3 percent of the then outstanding voting
stock of the Company; or (b) at any time during any period of three
consecutive years (not including any period prior to the Effective Date),
individuals who at the beginning of such period constitute the Board (and
any new director whose election by the Board or whose nomination for
election by the Company's stockholders was approved by a vote of at least
two-thirds of the directors then still in office who either were directors
at the beginning of such period or whose election or nomination for
election was previously so approved) cease for any reason to constitute a
majority thereof; or (c) the stockholders of the Company approve a merger
or consolidation of the Company with any other corporation, other than a
merger or consolidation which would result in the voting securities of the
Company outstanding immediately prior thereto continuing to represent
(either by remaining outstanding or by being converted into voting
securities of the surviving entity) at least 80% of the combined voting
power of the voting securities of the Company or such surviving entity
outstanding immediately after such merger or consolidation, or the
stockholders approve a plan of complete liquidation of the Company or an
agreement for the sale or disposition by the Company of all or
substantially all of the Company's assets.
SECTION 8.
RIGHTS OF PARTICIPANT
8.1 Employment; Tenure. Nothing contained in the Plan or in any Award granted
under the Plan shall confer upon the Participant any right with respect to
the continuation of his employment by the Company or tenure as a Director
of the Company, or interfere in any way with the right of the Company,
subject to the terms of any separate employment agreement to the contrary,
at any time to terminate such employment or to increase or decrease the
compensation of the Participant from the rate in existence at the time of
the grant of an Award. Whether an authorized leave of absence, or absence
in military or government service, shall constitute a termination of
employment shall be determined by the Board at the time. Nothing in this
Plan shall interfere in any way with the right of the stockholders of the
Company to remove a Participant Director from the Board pursuant to law and
the Company's Certificate of Incorporation and Bylaws.
8.2 Nontransferability. No right or interest of the Participant in an Award
granted pursuant to the Plan shall be assignable or transferable during the
lifetime of the Participant, either voluntarily or involuntarily, or be
subjected to any lien, directly or indirectly, by operation of law, or
otherwise, including execution, levy, garnishment, attachment, pledge or
bankruptcy. In the event of the Participant's death, a Participant's rights
and interests in Options shall be transferable by testamentary will or the
laws of descent and distribution, and payment of any amounts due under the
Plan shall be made to, and exercise of any Options may be made by, the
Participant's legal representatives, heirs or legatees. If in the opinion
of the Board a person entitled to payments or to exercise rights with
respect to the
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Plan is disabled from caring for his affairs because of mental condition,
physical condition or age, payment due such person may be made to, and such
rights shall be exercised by, such person's guardian, conservator or other
legal personal representative upon furnishing the Board with evidence
satisfactory to the Board of such status.
SECTION 9.
GENERAL RESTRICTIONS
9.1 Investment Representations. The Company may require the Participant, as a
condition of exercising an Option, to give written assurances in substance
and form satisfactory to the Company and its counsel to the effect that
such person is acquiring the Stock subject to the Option for his own
account for investment and not with any present intention of selling or
otherwise distributing the same, and to such other effects as the Company
deems necessary or appropriate in order to comply with federal and
applicable state securities laws. Legends evidencing such restrictions may
be placed on the certificates evidencing the Stock.
9.2 Compliance with Securities Laws. Each Award shall be subject to the
requirement that, if at any time counsel to the Company shall determine
that the listing, registration or qualification of the Shares subject to
such Award upon any securities exchange or under any state or federal law,
or the consent or approval of any governmental or regulatory body, is
necessary as a condition of, or in connection with, the issuance or
purchase of Shares thereunder, such Award may not be accepted or exercised
in whole or in part unless such listing, registration, qualification,
consent or approval shall have been effected or obtained on conditions
acceptable to the Board. Nothing herein shall be deemed to require the
Company to apply for or to obtain such listing, registration or
qualification.
9.3 Stock Restriction Agreement. The Board may provide that shares of Stock
issuable upon the exercise of an Option shall, under certain conditions, be
subject to restrictions whereby the Company has a right of first refusal
with respect to such shares or a right or obligation to repurchase all or a
portion of such shares, which restrictions may survive a Participant's term
of employment with the Company. The acceleration of time or times at which
an Option becomes exercisable may be conditioned upon the Participant's
agreement to such restrictions.
SECTION 10.
OTHER EMPLOYEE BENEFITS
The amount of any compensation deemed to be received by a Participant as a
result of the exercise of an Option or the failure to meet holding period
requirements shall not constitute "earnings" with respect to which any other
employee benefits of such employee are determined, including without limitation,
benefits under any pension, profit sharing, life insurance or salary
continuation plan.
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SECTION 11.
PLAN AMENDMENT, MODIFICATION AND TERMINATION
The Board may at any time terminate, and from time-to-time may amend or
modify, the Plan provided, however, that no amendment or modification may become
effective without approval of the amendment or modification by the stockholders
if stockholder approval is required to enable the Plan to satisfy any applicable
statutory or regulatory requirements, or if the Company, on the advice of
counsel, determines that stockholder approval is otherwise necessary or
desirable.
No amendment, modification or termination of the Plan shall in any manner
adversely affect any Awards theretofore granted under the Plan, without the
consent of the Participant holding such Awards.
SECTION 12.
WITHHOLDING
12.1 Withholding Requirement. The Company's obligations to deliver Shares upon
the exercise of an Option shall be subject to the Participant's
satisfaction of all applicable federal, state and local income and other
tax withholding requirements.
12.2 Withholding With Stock. The Board may, in its sole discretion, grant the
Participant an election to pay all amounts of tax withholding, or any part
thereof, by electing to transfer to the Company, or to have the Company
withhold from Shares otherwise issuable to the Participant, Shares having a
value equal to the amount required to be withheld or such lesser amount as
may be elected by the Participant. All elections shall be subject to the
approval or disapproval of the Board. The value of Shares to be withheld
shall be based on the Fair Market Value of the Stock on the date that the
amount of tax to be withheld is to be determined (the "Tax Date"). Any such
elections by Participants to have Shares withheld for this purpose will be
subject to the following restrictions:
(a) All elections must be made prior to the Tax Date.
(b) All elections shall be irrevocable.
(c) If the Participant is an officer or director of the Company within the
meaning of Section 16 of the 1934 Act ("Section 16"), the Participant
must satisfy the requirements of such Section 16 and any applicable
rules thereunder with respect to the use of Stock to satisfy such tax
withholding obligation.
SECTION 13.
BROKERAGE ARRANGEMENTS
The Board, in its discretion, may enter into arrangements with one or more
banks, brokers or other financial institutions to facilitate the disposition of
shares acquired upon exercise of Options, including, without limitation,
arrangements for the simultaneous exercise of Options and sale of the Shares
acquired upon such exercise.
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SECTION 14.
NONEXCLUSIVITY OF THE PLAN
Neither the adoption of the Plan by the Board nor the submission of the
Plan to stockholders of the Company for approval shall be construed as creating
any limitations on the power or authority of the Board to adopt such other or
additional incentive or other compensation arrangements of whatever nature as
the Board may deem necessary or desirable or preclude or limit the continuation
of any other plan, practice or arrangement for the payment of compensation or
fringe benefits to employees generally, or to any class or group of employees,
which the Company or any Affiliated Corporation now has lawfully put into
effect, including, without limitation, any retirement, pension, savings and
stock purchase plan, insurance, death and disability benefits and executive
short-term incentive plans.
SECTION 15.
REQUIREMENTS OF LAW
15.1 Requirements of Law. The issuance of stock and the payment of cash pursuant
to the Plan shall be subject to all applicable laws, rules and regulations.
15.2 Federal Securities Law Requirements. If a Participant is an officer or
director of the Company within the meaning of Section 16 of the 1934 Act,
Awards granted hereunder shall be subject to all conditions required under
Rule 16b-3, or any successor rule promulgated under the 1934 Act, to
qualify the Award for any exception from the provisions of Section 16(b) of
the 1934 Act available under that Rule. Such conditions are hereby
incorporated herein by reference and shall be set forth in the agreement
with the Participant which describes the Award.
15.3 Governing Law. The Plan and all agreements hereunder shall be construed in
accordance with and governed by the laws of the State of Wyoming.
SECTION 16.
DURATION OF THE PLAN
The Plan shall terminate at such time as may be determined by the Board of
Directors, and no Award shall be granted after such termination. If not sooner
terminated under the preceding sentence, the Plan shall fully cease and expire
at midnight on October 17, 2006.
Adopted: October 18, 1996.
MYSTIQUE DEVELOPMENTS, INC.
A Wyoming Corporation
By /s/ Kim M. Fuerst
-------------------------------
Kim M. Fuerst
President
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EXHIBIT 10.3
INCENTIVE STOCK OPTION AGREEMENT
THIS AGREEMENT is effective as of the 18th day of October, 1996, by and
between Mystique Developments, Inc. (the "Company") and Kim M. Fuerst (the
"Optionee") (together, the "Parties").
RECITALS:
A. On October 18, 1996, the Board of Directors of the Company adopted an
Incentive Stock Option Plan (the "Plan") under which the Optionee would receive
incentive stock options to purchase Common Stock of the Company.
B. The Plan permits the granting of incentive stock options, which conform
to the requirements of Section 422 of the Internal Revenue Code of 1986, as
amended (the "Code").
C. The Optionee is desirous of obtaining the incentive stock option on the
terms and conditions herein contained.
D. On October 18, 1996, the Board of Directors of the Company adopted a
grant resolution for the grant of incentive stock options described herein.
AGREEMENT:
IT IS THEREFORE agreed by and between the Parties, for and in consideration
of the premises and the mutual covenants herein contained and for other good and
valuable consideration, as follows:
1. The Company hereby confirms and acknowledges that it has granted to the
Optionee an option to purchase 500,000 shares of Common Stock of the Company
(the "Option") upon the terms and conditions herein set forth and subject to the
terms and conditions of the Plan. The Option is granted as a matter of separate
agreement, and not in lieu of salary or any other regular or special
compensation for services.
2. The purchase price of the shares which may be purchased pursuant to the
Option is One Dollar ($1.00) per share, which is, in the good faith opinion of
the Company, not less than the fair market value of the shares on the date the
Option was granted.
3. The Option shall continue for ten years after the date of grant unless
sooner terminated or modified under the provisions of this Agreement, and shall
automatically expire at midnight on the tenth anniversary of such date.
4. The Option may be exercised by the Optionee to purchase the total number
of shares specified in paragraph 1 as of the effective date hereof.
<PAGE>
5. If the Optionee's employment with the Company or a participating
subsidiary of the Company shall terminate for any reason other than the
Optionee's disability, the Option, to the extent then exercisable as provided in
paragraph 4, shall remain exercisable after the termination of his employment
for a period of three months. If the Optionee's employment is terminated because
the Optionee is disabled within the meaning of Section 22(e)(3) of the Code, the
Option, to the extent then exercisable as provided in paragraph 4, shall remain
exercisable after the termination of his employment for a period of twelve
months. If the Option is not exercised during the applicable period, it shall be
deemed to have been forfeited and of no further force or effect.
6. The Option may not be exercised by anyone other than the Optionee during
his lifetime. In the event of the Optionee's death, the Option may be exercised
by the personal representative of the Optionee's estate or, if no personal
representative has been appointed, by the successor or successors in interest
determined under the Optionee's will or under the applicable laws of descent and
distribution. The Option may not be transferred, assigned, encumbered or
alienated in any way by the Optionee, and any attempt to do so shall render the
Option and any unexercised portion thereof, at the discretion of the Company,
null and void and unenforceable by the Optionee.
7. The Option may be exercised in whole or in part by delivering to the
Company written notice of exercise together with payment in full for the shares
being purchased upon such exercise.
8. The Company will, upon receipt of said notice and payment, issue or
cause to be issued to the Optionee (or to his personal representative or other
person entitled thereto) a stock certificate for the number of shares purchased
thereby.
9. The Company may, in its discretion, file and maintain effective with the
Securities and Exchange Commission a Registration Statement on Form S-8 under
the Securities Act of 1933, as amended (the "Act"), covering the sale of the
optioned shares to Optionee upon exercise of the Option. If, at the time of
exercise, the Company does not have an effective Registration Statement on file
covering the sale of the optioned shares, the Optionee represents and agrees
that: (i) the Option shall not be exercisable unless the purchase of optioned
shares upon the exercise of the Option is pursuant to an applicable effective
registration statement under the Act, or unless in the opinion of counsel for
the Company, the proposed purchase of such optioned shares would be exempt from
the registration requirements of the Act, and from the qualification
requirements of any state securities law; (ii) upon exercise of the Option, he
will acquire the optioned shares for his own account for investment and not with
any intent or view to any distribution, resale or other disposition of the
optioned shares; (iii) he will not sell or transfer the optioned shares, unless
they are registered under the Act, except in a transaction that is exempt from
registration under the Act, and each certificate issued to represent any of the
optioned shares shall bear a legend calling attention to the foregoing
restrictions and agreements. The Company may require, as a condition of the
exercise of the Option, that the Optionee sign such further representations and
agreements as it reasonably determines to be necessary or appropriate to assure
and to evidence compliance with the requirements of the Act.
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10. If the Company or its stockholders enter into an agreement to dispose
of all, or substantially all, of the assets or outstanding capital stock of the
Company by means of a sale or liquidation, or a merger or reorganization in
which the Company is not the surviving corporation, any unexercised portion of
the Option as of the day before the consummation of such sale, liquidation,
merger or reorganization shall for all purposes under this Agreement become
exercisable in full as of such date.
11. In consideration of the granting by the Company of the Option, the
Optionee hereby affirms that he has a present intention to remain in the employ
and service of the Company for the period that this Option continues. This
affirmation, however, shall confer no right on the Optionee to continue in the
employ of the Company, nor interfere in any way with the right of the Company to
discharge the Optionee at any time for any reason whatsoever, with or without
cause.
12. The Optionee shall have no rights as a stockholder with respect to the
shares of Common Stock which may be purchased pursuant to the Option until such
shares are issued to the Optionee.
13. This Agreement is entered into and shall be governed by, construed and
enforced in accordance with the laws of the State of Wyoming.
14. The terms and conditions contained in the Plan, as it may be amended
from time to time hereafter, are incorporated into and made a part of this
Agreement by reference, as if the same were set forth herein in full, and all
provisions of the Option are made subject to any and all terms of the Plan.
15. If the Optionee is an officer or director of the Company, or a person
who is directly or indirectly the beneficial owner of more than 10% of the
Company's Common Stock, and the Option or a portion thereof is exercisable
within six months after the date on which it was granted, the Optionee
acknowledges that he understands that any sale or other disposition of the
Common Stock issued upon the full or partial exercise of the Option occurring
within six months after the date on which the Option was granted may subject the
Optionee to liability pursuant to Section 16(b) of the Securities Exchange Act
of 1934.
IN WITNESS WHEREOF, the parties have hereunto affixed their signatures in
acknowledgment and acceptance of the above terms and conditions on the date
first above mentioned.
MYSTIQUE DEVELOPMENTS, INC.
By /s/ Kim M. Fuerst, President
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OPTIONEE
/s/ Kim M. Fuerst
----------------------------------------
Kim M. Fuerst
4
EXHIBIT 10.4
MYSTIQUE DEVELOPMENTS, INC.
EQUITY INCENTIVE PLAN
SECTION 1.
INTRODUCTION
1.1 Establishment. Mystique Developments, Inc., a Wyoming corporation
(hereinafter referred to, together with its Affiliated Corporations (as
defined in subsection 2.1(a)) as the "Company" except where the context
otherwise requires), hereby establishes the Mystique Developments, Inc.
Equity Incentive Plan (the "Plan") for certain key employees, directors and
consultants of the Company.
1.2 Purposes. The purposes of the Plan are to provide the key management
employees selected for participation in the Plan with added incentives to
continue in the long-term service of the Company and to create in such
employees a more direct interest in the future success of the operations of
the Company by relating incentive compensation to increases in stockholder
value, so that the income of the key management employees is more closely
aligned with the income of the Company's stockholders. The Plan is also
designed to attract key employees and directors and to retain and motivate
participating employees and directors by providing an opportunity for
investment in the Company.
SECTION 2.
DEFINITIONS
2.1 Definitions. The following terms shall have the meanings set forth below:
(a) "Affiliated Corporation" means any corporation or other entity
(including but not limited to a partnership) which is affiliated with
Mystique Developments, Inc. through stock ownership or otherwise and
is treated as a common employer under the provisions of Sections
414(b) and (c) of the Internal Revenue Code.
(b) "Award" means a grant made under this Plan in the form of Stock,
Options, Restricted Stock, Performance Shares, or Performance Units.
(c) "Board" means the Board of Directors of the Company.
(d) "Director" means an employee or non-employee member of the Board.
(e) "Effective Date" means the effective date of the Plan, April 5, 1997.
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(f) "Eligible Employees" means full-time or part-time key employees
(including, without limitation, officers and directors who are also
employees) of the Company or any Affiliated Corporation or any
division thereof, upon whose judgment, initiative and efforts the
Company is, or will be, important to the successful conduct of its
business. (g) "FAIR MARKET VALUE" MEANS THE OFFICIALLY QUOTED CLOSING
PRICE OF THE STOCK ON THE NASD OTC BULLETIN BOARD SYSTEM ON A
PARTICULAR DATE. IF THERE ARE NO STOCK TRANSACTIONS ON SUCH DATE, THE
FAIR MARKET VALUE SHALL BE DETERMINED ON THE BASIS OF THE WEIGHTED
AVERAGE OF THE OFFICIALLY QUOTED CLOSING PRICE ON THE THREE
IMMEDIATELY PRECEDING DATES ON WHICH STOCK TRANSACTIONS OCCURRED. IF
THE STOCK IS NOT PUBLICLY TRADED OR IF THE INCENTIVE PLAN COMMITTEE
BELIEVES IN GOOD FAITH THAT THE CALCULATIONS PROVIDED FOR HEREIN DO
NOT ACCURATELY REFLECT THE FAIR MARKET VALUE OF THE STOCK, THE FAIR
MARKET VALUE OF THE STOCK ON ANY DATE SHALL BE DETERMINED IN GOOD
FAITH BY THE INCENTIVE PLAN COMMITTEE AFTER SUCH CONSULTATION WITH
OUTSIDE LEGAL, ACCOUNTING AND OTHER EXPERTS AS THE INCENTIVE PLAN
COMMITTEE MAY DEEM ADVISABLE, AND THE COMMITTEE SHALL MAINTAIN A
WRITTEN RECORD OF ITS METHOD OF DETERMINING SUCH VALUE.
(h) "Incentive Plan Committee" means a committee consisting of at least
two "non-employee" and "outside" members of the Board who are
empowered hereunder to take actions in the administration of the Plan.
The Incentive Plan Committee shall be so constituted at all times as
to permit the Plan to comply with Rule 16b-3 or any successor rule
promulgated under the Securities Exchange Act of 1934 (the "1934 Act")
andss.162(m) of the Internal Revenue Code. Members of the Incentive
Plan Committee shall be appointed from time to time by the Board,
shall serve at the pleasure of the Board, and may resign at any time
upon written notice to the Board.
(i) "Incentive Stock Option" means any Option designated as such and
granted in accordance with the requirements of Section 422 of the
Internal Revenue Code.
(j) "Internal Revenue Code" means the Internal Revenue Code of 1986, as it
may be amended from time to time.
(k) "Non-Statutory Option" means any Option other than an Incentive Stock
Option.
(l) "Option" means a right to purchase Stock at a stated price for a
specified period of time.
(m) "Option Price" means the price at which shares of Stock subject to an
Option may be purchased, determined in accordance with subsection
7.2(b).
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(n) "Participant" means an Eligible Employee, Director or consultant to
the Company designated by the Incentive Plan Committee from time to
time during the term of the Plan to receive one or more Awards under
the Plan.
(o) "Performance Cycle" means the period of time as specified by the
Incentive Plan Committee over which Performance Share or Performance
Units are to be earned.
(p) "Performance Shares" means an Award made pursuant to Section 9 which
entitles a Participant to receive Shares, their cash equivalent or a
combination thereof based on the achievement of performance targets
during a Performance Cycle.
(q) "Performance Units" means an Award made pursuant to Section 9 which
entitles a Participant to receive cash, Stock or a combination thereof
based on the achievement of performance targets during a Performance
Cycle.
(r) "Plan Year" means each 12-month period beginning July 1 and ending the
following June 30, except that for the first year of the Plan it shall
begin on the Effective Date and extend to June 30 of the following
year.
(s) "Restricted Stock" Means Stock granted under Section 8 that is subject
to restrictions imposed pursuant to said Section.
(t) "Share" means a share of Stock.
(u) "Stock" means the common stock, $.01 par value, of the Company.
2.2 Gender and Number. Except when otherwise indicated by the context, the
masculine gender shall also include the feminine gender, and the definition
of any term herein in the singular shall also include the plural.
SECTION 3.
PLAN ADMINISTRATION
The Plan shall be administered by the Board or the Incentive Plan
Committee. If the Plan is administered by the Board all references herein to the
Incentive Plan Committee shall be deemed to refer to the Board. In accordance
with the provisions of the Plan, the Incentive Plan Committee shall, in its sole
discretion, and except as specifically set forth herein, select Participants
from among the Eligible Employees and Directors to whom Awards will be granted,
the form of each Award, the amount of each Award and any other terms and
conditions of each Award as the Incentive Plan Committee may deem necessary or
desirable and consistent with the terms of the Plan. The Incentive Plan
Committee shall determine the form or forms of the agreements with Participants
which shall evidence the particular provisions, terms, conditions, rights and
duties of the Company and the Participants with respect to Awards granted
pursuant to the Plan, which provisions need not be identical except as may be
provided herein. The Incentive Plan Committee may from time to time adopt such
rules and regulations for carrying out the purposes of the Plan as it may deem
proper
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and in the best interests of the Company. The Incentive Plan Committee may
correct any defect, supply any omission or reconcile any inconsistency in the
Plan or in any agreement entered into hereunder in the manner and to the extent
it shall deem expedient and it shall be the sole and final judge of such
expediency. No member of the Incentive Plan Committee shall be liable for any
action or determination made in good faith, and all members of the Committee
shall, in addition to their rights as directors, be fully protected by the
Company with respect to any such action, determination or interpretation. The
determination, interpretations and other actions of the Incentive Plan Committee
pursuant to the provisions of the Plan shall be binding and conclusive for all
purposes and on all persons.
SECTION 4.
STOCK SUBJECT TO THE PLAN
4.1 Number of Shares. Initially, 2,500,000 Shares are authorized for issuance
under the Plan in accordance with the provisions of the Plan and subject to
such restrictions or other provisions as the Incentive Plan Committee may
from time to time deem necessary. The Shares may be divided among the
various Plan components as the Incentive Plan Committee shall determine,
all of which shall be available for grant as Incentive Stock Options under
the Plan. Shares which may be issued upon the exercise of Options shall be
applied to reduce the maximum number of Shares remaining available for use
under the Plan. The Company shall at all times during the term of the Plan
and while any Options are outstanding retain as authorized and unissued
Stock, or as treasury Stock, at least the number of Shares from time to
time required under the provisions of the Plan, or otherwise assure itself
of its ability to perform its obligations hereunder.
4.2 Unused and Forfeited Stock. Any Shares that are subject to an Award under
this Plan which are not used because the terms and conditions of the Award
are not met, including any Shares that are subject to an Option which
expires or is terminated for any reason, any Shares which are used for full
or partial payment of the purchase price of Shares with respect to which an
Option is exercised and any Shares retained by the Company pursuant to
Section 15.2 shall automatically become available for use under the Plan.
4.3 Adjustments for Stock Split, Stock Dividend, Etc. If the Company shall at
any time increase or decrease the number of its outstanding Shares of Stock
or change in any way the rights and privileges of such Shares by means of
the payment of a stock dividend or any other distribution upon such Shares
payable in Stock, or through a stock split, subdivision, consolidation,
combination, reclassification or recapitalization involving the Stock, then
in relation to the Stock that is affected by one or more of the above
events, the numbers, rights and privileges of the following shall be
increased, decreased or changed in like manner as if they had been issued
and outstanding, fully paid and nonassessable at the time of such
occurrence: (i) the shares of Stock as to which Awards may be granted under
the Plan; and (ii) the Shares of Stock then included in each outstanding
Option, Performance Share or Performance Unit granted hereunder.
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4.4 Dividend Payable in Stock of Another Corporation, Etc. If the Company shall
at any time pay or make any dividend or other distribution upon the Stock
payable in securities of another corporation or other property (except
money or Stock), a proportionate part of such securities or other property
shall be set aside and delivered to any Participant then holding an Award
for the particular type of Stock for which the dividend or other
distribution was made, upon exercise thereof in the case of Options, and
the vesting thereof in the case of other Awards. Prior to the time that any
such securities or other property are delivered to a Participant in
accordance with the foregoing, the Company shall be the owner of such
securities or other property and shall have the right to vote the
securities, receive any dividends payable on such securities, and in all
other respects shall be treated as the owner. If securities or other
property which have been set aside by the Company in accordance with this
Section are not delivered to a Participant because an Award is not
exercised or otherwise vested, then such securities or other property shall
remain the property of the Company and shall be dealt with by the Company
as it shall determine in its sole discretion.
4.5 Other Changes in Stock. In the event there shall be any change, other than
as specified in Sections 4.3 and 4.4, in the number or kind of outstanding
shares of Stock or of any stock or other securities into which the Stock
shall be changed or for which it shall have been exchanged, and if the
Incentive Plan Committee shall in its discretion determine that such change
equitably requires an adjustment in the number or kind of Shares subject to
outstanding Awards or which have been reserved for issuance pursuant to the
Plan but are not then subject to an Award, then such adjustments shall be
made by the Incentive Plan Committee and shall be effective for all
purposes of the Plan and on each outstanding Award that involves the
particular type of stock for which a change was effected.
4.6 Rights to Subscribe. If the Company shall at any time grant to the holders
of its Stock rights to subscribe pro rata for additional shares thereof or
for any other securities of the Company or of any other corporation, there
shall be reserved with respect to the Shares then subject to an Award held
by any Participant of the particular class of Stock involved, the Stock or
other securities which the Participant would have been entitled to
subscribe for if immediately prior to such grant the Participant had
exercised his entire Option, or otherwise vested in his entire Award. If,
upon exercise of any such Option or the vesting of any other Award, the
Participant subscribes for the additional Stock or other securities, the
Participant shall pay to the Company the price that is payable by the
Participant for such Stock or other securities.
4.7 General Adjustment Rules. If any adjustment or substitution provided for in
this Section 4 shall result in the creation of a fractional Share under any
Award, the Company shall, in lieu of selling or otherwise issuing such
fractional Share, pay to the Participant a cash sum in an amount equal to
the product of such fraction multiplied by the Fair Market Value of a Share
on the date the fractional Share would otherwise have been issued. In the
case of any such substitution or adjustment affecting an Option, the total
Option Price for the shares of Stock then subject to an
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Option shall remain unchanged but the Option Price per share under each
such Option shall be equitably adjusted by the Incentive Plan Committee to
reflect the greater or lesser number of shares of Stock or other securities
into which the Stock subject to the Option may have been changed.
4.8 Determination by Incentive Plan Committee, Etc. Adjustments under this
Section 4 shall be made by the Incentive Plan Committee, whose
determinations with regard thereto shall be final and binding upon all
parties thereto.
SECTION 5.
REORGANIZATION OR LIQUIDATION
In the event that the Company is merged or consolidated with another
corporation (other than a merger or consolidation in which the Company is the
continuing corporation and which does not result in any reclassification or
change of outstanding Shares), or if all or substantially all of the assets or
more than 50% of the outstanding voting stock of the Company is acquired by any
other corporation, business entity or person (other than a sale or conveyance in
which the Company continues as a holding company of an entity or entities that
conduct the business or businesses formerly conducted by the Company), or in
case of a reorganization (other than a reorganization under the United States
Bankruptcy Code) or liquidation of the Company, and if the provisions of Section
10 do not apply, the Incentive Plan Committee, or the board of directors of any
corporation assuming the obligations of the Company, shall have the power and
discretion to prescribe the terms and conditions for the exercise of, or
modification of, any outstanding Awards granted hereunder. By way of
illustration, and not by way of limitation, the Incentive Plan Committee may
provide for the complete or partial acceleration of the dates of exercise of the
Options, or may provide that such Options will be exchanged or converted into
options to acquire securities of the surviving or acquiring corporation, or may
provide for a payment or distribution in respect of outstanding Options (or the
portion thereof that is currently exercisable) in cancellation thereof. The
Incentive Plan Committee may remove restrictions on Restricted Stock and may
modify the performance requirements for any other Awards. The Incentive Plan
Committee may provide that Stock or other Awards granted hereunder must be
exercised in connection with the closing of such transaction, and that if not so
exercised such Awards will expire. Any such determinations by the Incentive Plan
Committee may be made generally with respect to all Participants, or may be made
on a case-by-case basis with respect to particular Participants. The provisions
of this Section 5 shall not apply to any transaction undertaken for the purpose
of reincorporating the Company under the laws of another jurisdiction, if such
transaction does not materially affect the beneficial ownership of the Company's
capital stock. SECTION 6. PARTICIPATION
Participants in the Plan shall be those Eligible Employees, Directors or
consultants who, in the judgment of the Incentive Plan Committee, are
performing, or during the term of their incentive arrangement will perform,
important services in the management, operation and development of the Company,
and significantly contribute, or are expected to significantly contribute, to
the achievement of long-term corporate economic objectives. Participants may be
granted from time to
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time one or more Awards; provided, however, that the grant of each such Award
shall be separately approved by the Incentive Plan Committee, receipt of one
such Award shall not result in automatic receipt of any other Award, and written
notice shall be given to each such person, specifying the terms, conditions,
rights and duties related thereto; and further provided that Incentive Stock
Options shall not be granted to consultants or to Eligible Employees of any
partnership which is included within the definition of an Affiliated Corporation
but whose employees are not permitted to receive Incentive Stock Options under
the Internal Revenue Code. Each Participant shall enter into an agreement with
the Company, in such form as the Incentive Plan Committee shall determine and
which is consistent with the provisions of the Plan, specifying such terms,
conditions, rights and duties. Awards shall be deemed to be granted as of the
date specified in the grant resolution of the Incentive Plan Committee, which
date shall be the date of any related agreement with the Participant. In the
event of any inconsistency between the provisions of the Plan and any such
agreement entered into hereunder, the provisions of the Plan shall govern.
SECTION 7.
STOCK OPTIONS
7.1 Discretionary Grant of Options. Coincident with the following designation
for participation in the Plan, a Participant may be granted one or more
Options. The Incentive Plan Committee in its sole discretion shall
designate whether an Option is to be considered an Incentive Stock Option
or a Non-Statutory Option. The Incentive Plan Committee may grant both an
Incentive Stock Option and a Non- Statutory Option to the same Participant
at the same time or at different times. Incentive Stock Options and
Non-Statutory Options, whether granted at the same or different times,
shall be deemed to have been awarded in separate grants, shall be clearly
identified, and in no event shall the exercise of one Option affect the
right to exercise any other Option or affect the number of Shares for which
any other Option may be exercised.
7.2 Option Agreements. Each Option granted under the Plan shall be evidenced by
a written stock option agreement which shall be entered into by the Company
and the Participant to whom the Option is granted (the "Option Holder"),
and which shall contain the following terms and conditions, as well as such
other terms and conditions not inconsistent therewith, as the Incentive
Plan Committee may consider appropriate in each case.
(a) Number of Shares. Each stock option agreement shall state that it
covers a specified number of Shares, as determined by the Incentive
Plan Committee. Notwithstanding any other provision of the Plan, the
aggregate Fair Market Value of the Shares with respect to which
Incentive Stock Options are exercisable for the first time by an
Option Holder in any calendar year, under the Plan or otherwise, shall
not exceed $100,000. For this purpose, the Fair Market Value of the
Shares shall be determined as of the time an Option is granted.
(b) Price. The price at which each Share covered by an Option may be
purchased shall be determined in each case by the Incentive Plan
Committee
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and set forth in the stock option agreement, but in no event shall the
Option Price for each Share covered by an Incentive Stock Option be
less than the Fair Market Value of the Stock on the date the Option is
granted; provided that the Option Price for each Share covered by a
Non-Statutory Option may be granted at any price less than Fair Market
Value, in the sole discretion of the Incentive Plan Committee. In
addition, the Option Price for each Share covered by an Incentive
Stock Option granted to an Eligible Employee who then owns stock
possessing more than 10% of the total combined voting power of all
classes of stock of the Company or any parent or subsidiary
corporation of the Company must be at least 110% of the Fair Market
Value of the Stock subject to the Incentive Stock Option on the date
the Option is granted.
(c) Duration of Options. Each stock option agreement shall state the
period of time, determined by the Incentive Plan Committee, within
which the Option may be exercised by the Option Holder (the "Option
Period"). The Option Period must expire, in all cases, not more than
ten years from the date an Option is granted; provided, however, that
the Option Period of an Option granted to an Eligible Employee or
consultant who then owns stock possessing more than 10% of the total
combined voting power of all classes of stock of the Company or any
parent or subsidiary corporation of the Company must expire not more
than five years from the date such an Option is granted. Each stock
option agreement shall also state the periods of time, if any, as
determined by the Incentive Plan Committee, when incremental portions
of each Option shall vest. Except as provided in Sections 5 and 10, no
portion of any Option shall vest before six months after the date of
grant of the Option.
(d) Termination of Employment, Death, Disability, Etc. Except as otherwise
determined by the Incentive Plan Committee, each stock option
agreement shall provide as follows with respect to the exercise of the
Option upon termination of the employment or the death of the Option
Holder:
(i) If the employment of the Option Holder is terminated within the
Option Period for cause, as determined by the Company, the Option
shall thereafter be void for all purposes. As used in this
subsection 7.2(d), "cause" shall mean a gross violation, as
determined by the Company, of the Company's established policies
and procedures. The effect of this subsection 7.2(d)(i) shall be
limited to determining the consequences of a termination, and
nothing in this subsection 7.2(d)(i) shall restrict or otherwise
interfere with the Company's discretion with respect to the
termination of any employee.
(ii) If the Option Holder terminates his employment with the Company
in a manner determined by the Board, in its sole discretion, to
constitute retirement (which determination shall be communicated
to
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the Option Holder within 10 days of such termination), the Option
may be exercised by the Option Holder, or in the case of death by
the persons specified in subsection (iii) of this subsection
7.2(d), within three months following his or her retirement if
the Option is an Incentive Stock Option or within twelve months
following his or her retirement if the Option is a Non-Statutory
Stock Option (provided in each case that such exercise must occur
within the Option Period), but not thereafter. In any such case,
the Option may be exercised only as to the Shares as to which the
Option had become exercisable on or before the date of the Option
Holder's termination of employment.
(iii) If the Option Holder dies, or if the Option Holder becomes
disabled (within the meaning of Section 22(e) of the Internal
Revenue Code), during the Option Period while still employed, or
within the three- month period referred to in (iv) below, or
within the three or twelve- month period referred to in (ii)
above, the Option may be exercised by those entitled to do so
under the Option Holder's will or by the laws of descent and
distribution within twelve months following the Option Holder's
death or disability, but not thereafter. In any such case, the
Option may be exercised only as to the Shares as to which the
Option had become exercisable on or before the date of the Option
Holder's death or disability.
(iv) If the employment of the Option Holder by the Company is
terminated (which for this purpose means that the Option Holder
is no longer employed by the Company or by an Affiliated
Corporation) within the Option Period for any reason other than
cause, retirement as provided in (ii) above, disability or the
Option Holder's death, the Option may be exercised by the Option
Holder within three months following the date of such termination
(provided that such exercise must occur within the Option
Period), but not thereafter. In any such case, the Option may be
exercised only as to the Shares as to which the Option had become
exercisable on or before the date of termination of employment.
(e) Transferability. Each stock option agreement shall provide that the
Option granted therein is not transferable by the Option Holder except
by will or pursuant to the laws of descent and distribution, and that
such Option is exercisable during the Option Holder's lifetime only by
him or her, or in the event of disability or incapacity, by his or her
guardian or legal representative.
(f) Exercise, Payments, Etc.
(i) Each stock option agreement shall provide that the method for
exercising the Option granted therein shall be by delivery to the
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Corporate Secretary of the Company of written notice specifying
the number of Shares with respect to which such Option is
exercised (which must be in an amount evenly divisible by 100)
and payment of the Option Price. Such notice shall be in a form
satisfactory to the Incentive Plan Committee and shall specify
the particular Option (or portion thereof) which is being
exercised and the number of Shares with respect to which the
Option is being exercised. The exercise of the Option shall be
deemed effective upon receipt of such notice by the Corporate
Secretary and payment to the Company. The purchase of such Stock
shall take place at the principal offices of the Company upon
delivery of such notice, at which time the purchase price of the
Stock shall be paid in full by any of the methods or any
combination of the methods set forth in (ii) below. A properly
executed certificate or certificates representing the Stock shall
be issued by the Company and delivered to the Option Holder. If
certificates representing Stock are used to pay all or part of
the Option Price, separate certificates for the same number of
shares of Stock shall be issued by the Company and delivered to
the Option Holder representing each certificate used to pay the
Option Price, and an additional certificate shall be issued by
the Company and delivered to the Option Holder representing the
additional shares, in excess of the Option Price, to which the
Option Holder is entitled as a result of the exercise of the
Option.
(ii) The exercise price shall be paid by any of the following methods
or any combination of the following methods:
(A) in cash;
(B) by cashier's check payable to the order of the Company;
(C) by delivery to the Company of certificates representing the
number of Shares then owned by the Option Holder, the Fair
Market Value of which equals the purchase price of the Stock
purchased pursuant to the Option, properly endorsed for
transfer to the Company; provided however, that Shares used
for this purpose must have been held by the Option Holder
for such minimum period of time as may be established from
time to time by the Incentive Plan Committee; for purposes
of this Plan, the Fair Market Value of any Shares delivered
in payment of the purchase price upon exercise of the Option
shall be the Fair Market Value as of the exercise date; the
exercise date shall be the day the delivery of the
certificates for the Stock used as payment of the Option
Price; or
(D) by delivery to the Company of a properly executed notice of
exercise together with irrevocable instructions to a broker
to deliver to the Company promptly the amount of the
proceeds of
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the sale of all or a portion of the Stock or of a loan from
the broker to the Option Holder necessary to pay the
exercise price.
(iii) In the discretion of the Incentive Plan Committee, the Company
may guaranty a third-party loan obtained by a Participant to pay
part or all of the Option Price of the Shares provided that such
loan or the Company's guaranty is secured by the Shares.
(g) Date of Grant. An option shall be considered as having been granted on
the date specified in the grant resolution of the Incentive Plan
Committee.
(h) Withholding.
(A) Non-Statutory Options. Each stock option agreement covering
Non-Statutory Options shall provide that, upon exercise of
the Option, the Option Holder shall make appropriate
arrangements with the Company to provide for the amount of
additional withholding required by applicable federal and
state income tax laws, including payment of such taxes
through delivery of Stock or by withholding Stock to be
issued under the Option, as provided in Section 15.
(B) Incentive Options. In the event that a Participant makes a
disposition (as defined in Section 424(c) of the Internal
Revenue Code) of any Stock acquired pursuant to the exercise
of an Incentive Stock Option prior to the expiration of two
years from the date on which the Incentive Stock Option was
granted or prior to the expiration of one year from the date
on which the Option was exercised, the Participant shall
send written notice to the Company at its principal office
in Redondo Beach, CA (Attention: Corporate Secretary) of the
date of such disposition, the number of shares disposed of,
the amount of proceeds received from such disposition, and
any other information relating to such disposition as the
Company may reasonably request. The Participant shall, in
the event of such a disposition, make appropriate
arrangements with the Company to provide for the amount of
additional withholding, if any, required by applicable
federal and state income tax laws.
(i) Adjustment of Options. Subject to the limitations contained in
Sections 7 and 14, the Incentive Plan Committee may make any
adjustment in the Option Price, the number of shares subject to, or
the terms of, an outstanding Option and a subsequent granting of an
Option by amendment or by substitution of an outstanding Option. Such
amendment, substitution, or re-grant may result in terms and
conditions (including Option Price, number of shares covered, vesting
schedule or exercise period) that differ from the terms and conditions
of the original Option. The Incentive Plan Committee may not, however,
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adversely affect the rights of any Participant to previously granted
Options without the consent of such Participant. If such action is
affected by amendment, the effective date of such amendment shall be
the date of the original grant.
7.3 Stockholder Privileges. No Option Holder shall have any rights as a
stockholder with respect to any Shares covered by an Option until the
Option Holder becomes the holder of record of such Stock, and no
adjustments shall be made for dividends or other distributions or other
rights as to which there is a record date preceding the date such Option
Holder becomes the holder of record of such Stock, except as provided in
Section 4.
SECTION 8.
RESTRICTED STOCK AWARDS
8.1 Awards Granted by Incentive Plan Committee. Coincident with or following
designation for participation in the Plan, a Participant may be granted one
or more Restricted Stock Awards consisting of Shares. The number of Shares
granted as a Restricted Stock Award shall be determined by the Incentive
Plan Committee.
8.2 Restrictions. A Participant's right to retain a Restricted Stock Award
granted to him under Section 8.1 shall be subject to such restrictions,
including but not limited to his continuous employment by the Company for a
restriction period specified by the Incentive Plan Committee, or the
attainment of specified performance goals and objectives, as may be
established by the Incentive Plan Committee with respect to such award. The
Incentive Plan Committee may in its sole discretion require different
periods of employment or different performance goals and objectives with
respect to different Participants, to different Restricted Stock Awards or
to separate, designated portions of the Shares constituting a Restricted
Stock Award.
8.3 Privileges of a Stockholder, Transferability. A Participant shall have all
voting, dividend, liquidation and other rights with respect to Stock in
accordance with its terms received by him as a Restricted Stock Award under
this Section 8 upon his becoming the holder of record of such Stock;
provided, however, that the Participant's right to sell, encumber or
otherwise transfer such Stock shall be subject to the limitations of
Section 11.2 hereof.
8.4 Enforcement of Restrictions. The Incentive Plan Committee may in its sole
discretion require one or more of the following methods of enforcing the
restrictions referred to in Section 8.2 and 8.3:
(a) Placing a legend on the stock certificates referring to the
restrictions;
(b) Requiring the Participant to keep the stock certificates, duly
endorsed, in the custody of the Company while the restrictions remain
in effect; or
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(c) Requiring that the stock certificates, duly endorsed, be held in the
custody of a third party while the restrictions remain in effect.
8.5 Termination of Employment, Death, Disability, Etc. In the event of the
death or disability (within the meaning of Section 22(e) of the Internal
Revenue Code) of a Participant, or the retirement of a Participant as
provided in Section 7.2(d)(ii), all employment period and other
restrictions applicable to Restricted Stock Awards then held by him shall
lapse, and such awards shall become fully nonforfeitable. Subject to
Sections 5 and 10, in the event of a Participant's termination of
employment for any other reason, any Restricted Stock Awards as to which
the employment period or other restrictions have not been satisfied shall
be forfeited.
SECTION 9.
PERFORMANCE SHARES AND PERFORMANCE UNITS
9.1 Awards Granted by Incentive Plan Committee. Coincident with or following
designation for participation in the Plan, a Participant may be granted
Performance Shares or Performance Units.
9.2 Amount of Award. The Incentive Plan Committee shall establish a maximum
amount of a Participant's Award, which amount shall be denominated in
Shares in the case of Performance Shares or in dollars in the case of
Performance Units.
9.3 Communication of Award. Written notice of the maximum amount of a
Participant's Award and the Performance Cycle determined by the Incentive
Plan Committee shall be given to a Participant as soon as practicable after
approval of the Award by the Incentive Plan Committee.
9.4 Amount of Award Payable. The Incentive Plan Committee shall establish
maximum and minimum performance targets to be achieved during the
applicable Performance Cycle. Performance targets established by the
Incentive Plan Committee shall relate to corporate, group, unit or
individual performance and may be established in terms of earnings, growth
in earnings, ratios of earnings to equity or assets, or such other measures
or standards determined by the Incentive Plan Committee. Multiple
performance targets may be used and the components of multiple performance
targets may be given the same or different weighting in determining the
amount of an Award earned, and may relate to absolute performance or
relative performance measured against other groups, units, individuals or
entities. Achievement of the maximum performance target shall entitle the
Participant to payment (subject to Section 9.6) at the full or maximum
amount specified with respect to the Award; provided, however, that
notwithstanding any other provisions of this Plan, in the case of an Award
of Performance Shares the Incentive Plan Committee in its discretion may
establish an upper limit on the amount payable (whether in cash or Stock)
as a result of the achievement of the maximum performance target. The
Incentive Plan Committee may also establish that a portion of a full or
maximum amount of a Participant's Award will be paid (subject to Section
9.6) for performance which
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exceeds the minimum performance target but falls below the maximum
performance target applicable to such Award.
9.5 Adjustments. At any time prior to payment of a Performance Share or
Performance Unit Award, the Incentive Plan Committee may adjust previously
established performance targets or other terms and conditions to reflect
events such as changes in laws, regulations, or accounting practice, or
mergers, acquisitions or divestitures.
9.6 Payments of Awards. Following the conclusion of each Performance Cycle, the
Incentive Plan Committee shall determine the extent to which performance
targets have been attained, and the satisfaction of any other terms and
conditions with respect to an Award relating to such Performance Cycle. The
Incentive Plan Committee shall determine what, if any, payment is due with
respect to an Award and whether such payment shall be made in cash, Stock
or some combination thereof. Payment shall be made in a lump sum or
installments, as determined by the Incentive Plan Committee, commencing as
promptly as practicable following the end of the applicable Performance
Cycle, subject to such terms and conditions and in such form as may be
prescribed by the Incentive Plan Committee.
9.7 Termination of Employment. If a Participant ceases to be an Eligible
Employee before the end of a Performance Cycle by reason of his death,
permanent disability or retirement as provided in Section 7.2(d)(ii), the
Performance Cycle for such Participant for the purpose of determining the
amount of the Award payable shall end at the end of the calendar quarter
immediately preceding the date on which such Participant ceased to be an
Eligible Employee. The amount of an Award payable to a Participant to whom
the preceding sentence is applicable shall be paid at the end of the
Performance Cycle and shall be that fraction of the Award computed pursuant
to the preceding sentence the numerator of which is the number of calendar
quarters during the Performance Cycle during all of which said Participant
was an Employee and the denominator of which is the number of full calendar
quarters in the Performance Cycle. Upon any other termination of employment
of a Participant during a Performance Cycle, participation in the Plan
shall cease and all outstanding Awards of Performance Shares or Performance
Units to such Participant shall be canceled.
SECTION 10.
CHANGE IN CONTROL
10.1 Options, Restricted Stock. In the event of a change in control of the
Company as defined in Section 10.3, then the Incentive Plan Committee may,
in its sole discretion, without obtaining stockholder approval, to the
extent permitted in Section 14, take any or all of the following actions:
(a) accelerate the exercise dates of any outstanding Options or make all
such Options fully vested and exercisable; (b) grant a cash bonus award to
any Option Holder in an amount necessary to pay the Option Price of all or
any portion of the Options then held by such Option Holder; (c) pay cash to
any or all Option Holders in exchange for the cancellation of their
outstanding Options in an amount equal to the different between the Option
Price of
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<PAGE>
such Options and the greater of the tender offer price for the underlying
Stock or the Fair Market Value of the Stock on the date of the cancellation
of the Options; (d) make any other adjustments or amendments to the
outstanding Options and (e) eliminate all restrictions with respect to
Restricted Stock and deliver Shares free of restrictive legends to any
Participant.
10.2 Performance Shares and Performance Units. Under the circumstances described
in Section 10.1, the Incentive Plan Committee may, in its sole discretion,
and without obtaining stockholder approval, to the extent permitted in
Section 14, provide for payment of outstanding Performance Shares and
Performance Units at the maximum award level or any percentage thereof.
10.3 Definition. For purposes of the Plan, a "change in control" shall be deemed
to have occurred if (a) any "person" or "group" (within the meaning of
Sections 13(d) and 14(d)(2) of the 1934 Act), other than a trustee or other
fiduciary holding securities under an employee benefit plan of the Company,
is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the
1934 Act), directly or indirectly, of more than 33-1/3 percent of the then
outstanding voting stock of the Company; or (b) at any time during any
period of three consecutive years (not including any period prior to the
Effective Date), individuals who at the beginning of such period constitute
the Board (and any new director whose election by the Board or whose
nomination for election by the Company's stockholders was approved by a
vote of at least two-thirds of the directors then still in office who
either were directors at the beginning of such period or whose election or
nomination for election was previously so approved) cease for any reason to
constitute a majority thereof; or (c) the stockholders of the Company
approve a merger or consolidation of the Company with any other
corporation, other than a merger or consolidation which would result in the
voting securities of the Company outstanding immediately prior thereto
continuing to represent (either by remaining outstanding or by being
converted into voting securities of the surviving entity) at least 80% of
the combined voting power of the voting securities of the Company or such
surviving entity outstanding immediately after such merger or
consolidation, or the stockholders approve a plan of complete liquidation
of the Company or an agreement for the sale or disposition by the Company
of all or substantially all of the Company's assets.
SECTION 11.
RIGHTS OF EMPLOYEES; PARTICIPANTS
11.1 Employment; Tenure. Nothing contained in the Plan or in any Award granted
under the Plan shall confer upon any Participant any right with respect to
the continuation of his or her employment by the Company or tenure as a
Director of the Company, or interfere in any way with the right of the
Company, subject to the terms of any separate employment agreement to the
contrary, at any time to terminate such employment or to increase or
decrease the compensation of the Participant from the rate in existence at
the time of the grant of an Award. Whether an authorized leave of absence,
or absence in military or government service, shall constitute a
termination of employment shall be determined by the Incentive Plan
Committee at
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the time. Nothing in this Plan shall interfere in any way with the right of
the stockholders of the Company to remove a Participant Director from the
Board pursuant to the Delaware General Corporation Law and the Company's
Certificate of Incorporation and Bylaws.
11.2 Nontransferability. No right or interest of any Participant in an Award
granted pursuant to the Plan shall be assignable or transferable during the
lifetime of the Participant, either voluntarily or involuntarily, or be
subjected to any lien, directly or indirectly, by operation of law, or
otherwise, including execution, levy, garnishment, attachment, pledge or
bankruptcy. In the event or a Participant's death, a Participant's rights
and interests in Options shall, to the extent provided in Section 7, be
transferable by testamentary will or the laws of descent and distribution,
and payment of any amounts due under the Plan shall be made to, and
exercise of any Options may be made by, the Participant's legal
representatives, heirs or legatees. If in the opinion of the Incentive Plan
Committee a person entitled to payments or to exercise rights with respect
to the Plan is disabled from caring for his affairs because of mental
condition, physical condition or age, payment due such person may be made
to, and such rights shall be exercised by, such person's guardian,
conservator or other legal personal representative upon furnishing the
Incentive Plan Committee with evidence satisfactory to the Incentive Plan
Committee of such status.
SECTION 12.
GENERAL RESTRICTIONS
12.1 Investment Representations. The Company may require any person to whom an
Option or other Award is granted, as a condition of exercising such Option
or receiving Stock under the Award, to give written assurances in substance
and form satisfactory to the Company and its counsel to the effect that
such person is acquiring the Stock subject to the Option or the Award for
his own account for investment and not with any present intention of
selling or otherwise distributing the same, and to such other effects as
the Company deems necessary or appropriate in order to comply with federal
and applicable state securities laws. Legends evidencing such restrictions
may be placed on the certificates evidencing the Stock.
12.2 Compliance with Securities Laws. Each Award shall be subject to the
requirement that, if at any time counsel to the Company shall determine
that the listing, registration or qualification of the Shares subject to
such Award upon any securities exchange or under any state or federal law,
or the consent or approval of any governmental or regulatory body, is
necessary as a condition of, or in connection with, the issuance or
purchase of Shares thereunder, such Award may not be accepted or exercised
in whole or in part unless such listing, registration, qualification,
consent or approval shall have been effected or obtained on conditions
acceptable to the Incentive Plan Committee. Nothing herein shall be deemed
to require the Company to apply for or to obtain such listing, registration
or qualification.
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12.3 Stock Restriction Agreement. The Incentive Plan Committee may provide that
shares of Stock issuable upon the exercise of an Option shall, under
certain conditions, be subject to restrictions whereby the Company has a
right of first refusal with respect to such shares or a right or obligation
to repurchase all or a portion of such shares, which restrictions may
survive a Participant's term of employment with the Company. The
acceleration of time or times at which an Option becomes exercisable may be
conditioned upon the Participant's agreement to such restrictions.
SECTION 13.
OTHER EMPLOYEE BENEFITS
The amount of any compensation deemed to be received by a Participant as a
result of the exercise of an Option or the grant or vesting of any other Award
shall not constitute "earnings" with respect to which any other employee
benefits of such employee are determined, including without limitation benefits
under any pension, profit sharing, life insurance or salary continuation plan.
SECTION 14.
PLAN AMENDMENT, MODIFICATION AND TERMINATION
The Board may at any time terminate, and from time-to-time may amend or
modify, the Plan provided, however, that no amendment or modification may become
effective without approval of the amendment or modification by the stockholders
if stockholder approval is required to enable the Plan to satisfy any applicable
statutory or regulatory requirements, or if the Company, on the advice of
counsel, determines that stockholder approval is otherwise necessary or
desirable.
No amendment, modification or termination of the Plan shall in any manner
adversely affect any Awards theretofore granted under the Plan, without the
consent of the Participant holding such Awards.
SECTION 15.
WITHHOLDING
15.1 Withholding Requirement. The Company's obligations to deliver Shares upon
the exercise of an Option, or upon the vesting of any other Award, shall be
subject to the Participant's satisfaction of all applicable federal, state
and local income and other tax withholding requirements.
15.2 Withholding With Stock. At the time the Incentive Plan Committee grants an
Award, it may, in its sole discretion, grant the Participant an election to
pay all such amounts of tax withholding, or any part thereof, by electing
to transfer to the Company, or to have the Company withhold from Shares
otherwise issuable to the Participant, Shares having a value equal to the
amount required to be withheld or such lesser amount as may be elected by
the Participant. All elections shall be subject to the approval or
disapproval of the Incentive Plan Committee. The value of Shares to be
withheld shall be based on the Fair Market Value of the Stock on the date
that the amount of tax to be withheld is to be determined (the "Tax Date").
Any such
17
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elections by Participants to have Shares withheld for this purpose will be
subject to the following restrictions:
(a) All elections must be made prior to the Tax Date.
(b) All elections shall be irrevocable.
(c) If the Participant is an officer or director of the Company within the
meaning of Section 16 of the 1934 Act ("Section 16"), the Participant
must satisfy the requirements of such Section 16 and any applicable
rules thereunder with respect to the use of Stock to satisfy such tax
withholding obligation.
SECTION 16.
BROKERAGE ARRANGEMENTS
The Incentive Plan Committee, in its discretion, may enter into
arrangements with one or more banks, brokers or other financial institutions to
facilitate the disposition of shares acquired upon exercise of Stock Options,
including, without limitation, arrangements for the simultaneous exercise of
Stock Options and sale of the Shares acquired upon such exercise.
SECTION 17.
NONEXCLUSIVITY OF THE PLAN
Neither the adoption of the Plan by the Board nor the submission of the
Plan to stockholders of the Company for approval shall be construed as creating
any limitations on the power or authority of the Board to adopt such other or
additional incentive or other compensation arrangements of whatever nature as
the Board may deem necessary or desirable or preclude or limit the continuation
of any other plan, practice or arrangement for the payment of compensation or
fringe benefits to employees generally, or to any class or group of employees,
which the Company or any Affiliated Corporation now has lawfully put into
effect, including, without limitation, any retirement, pension, savings and
stock purchase plan, insurance, death and disability benefits and executive
short-term incentive plans.
SECTION 18.
REQUIREMENTS OF LAW
18.1 Requirements of Law. The issuance of stock and the payment of cash pursuant
to the Plan shall be subject to all applicable laws, rules and regulations.
18.2 Federal Securities Law Requirements. If a Participant is an officer or
director of the Company within the meaning of Section 16 of the 1934 Act,
Awards granted hereunder shall be subject to all conditions required under
Rule 16b-3, or any successor rule promulgated under the 1934 Act, to
qualify the Award for any exception from the provisions of Section 16(b) of
the 1934 Act available under that Rule. Such conditions are hereby
incorporated herein by reference and shall be set forth in the agreement
with the Participant which describes the Award.
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18.3 Governing Law. The Plan and all agreements hereunder shall be construed in
accordance with and governed by the laws of the State of Wyoming.
SECTION 19.
DURATION OF THE PLAN
The Plan shall terminate at such time as may be determined by the Board of
Directors, and no Award shall be granted after such termination. If not sooner
terminated under the preceding sentence, the Plan shall fully cease and expire
at midnight on April 4, 2007. Awards outstanding at the time of the Plan
termination may continue to be exercised or earned in accordance with their
terms.
Adopted: April 5, 1997.
MYSTIQUE DEVELOPMENTS, INC.
A Wyoming Corporation
By /s/ Kim M. Fuerst
--------------------------------
Kim M. Fuerst
19
Exhibit 10.7
SAYED CONSULTING, INC.
14726 RAMONA AVE., SUITE 410, CHINO, CA 91710 TEL: 909-393-4733
FAX: 909-393-4725
AGREEMENT FOR CONSULTING SERVICES
Sayed Consulting, Inc. a Nevada Corporation, ("SCI") agrees to provide Mystique
Developments, Inc. ("Company") with the following services commencing the 1st
day of October, 1996 through September 30, 1997:
1. SCI will review and analyze all aspects of the Company's investor relations
program and make recommendations.
2. SCI will review all of the available general information concerning the
Company, as well as all recent regulatory filings by the Company in order to
produce a "Corporate Profile" in brokerage style format to be approved by the
Company prior to circulation.
3. SCI will utilize its network: to identify firms and brokers interested in
participating; schedule and conduct the necessary due diligence; and, to obtain
the required approvals, necessary for those firms to participate. SCI will also
interview and evaluate any firms or brokers referred to SCI by the Company as
possible participants.
4. SCI will provide the Company feedback from the investment community and
formulate steps the Company may consider taking in view of such feedback.
5. SCI personnel will be available to the Company to field any calls from firms
and brokers inquiring about the Company.
6. SCI will mail "Corporate Profiles" to potential investors on its marketing
lists and any others provided by the Company.
7. SCI will track the prospect responses and make timely recommendations to the
Company as to the timing and contents of its future advertising projects.
PROGRAM GOALS:
1. SCI expects to heighten the public awareness of the existence and merits of
the Company.
2. Networking of the brokerage community with a public relations program to
produce ongoing and amplified results for the Company.
3. Initiate the use of the most effective methods available for disseminating
information about the Company to the investment public.
4. Protect the interests of the Company.
<PAGE>
5. Analyze and translate the program results to make recommendations for maximum
efficiency in the use of promotional expenditures.
COMPENSATION:
A. Company will pay to SCI $1,000 per month for its non-accountable expenses for
the duration of the contract payable by the tenth day of each month. SCI will be
reimbursed its third party out of pocket expenses on a monthly basis. SCI will
be responsible for its own expenses of performing services hereunder. SCI may
request Company to reimburse extra-ordinary expenses which may only be incurred
upon advance written approval by Company.
B. Subject to Board of Directors' approval, Company will grant SCI an option to
purchase up to 100,000 shares of its common stock at $1.00 per share. In the
event that SCI does not fulfill the terms of this Agreement non-vested options
will terminate upon Company's notice of non-performance to SCI. This option may
be exercised in whole or in part. This option shall expire on October 31, 1997.
C. Either party may terminate this Agreement with or without cause upon 30 days
written notice to the other party.
REGISTRATION:
Company will take all necessary steps and file all needed documents with the
appropriate authorities to give effect to the above option and shall be
responsible for all costs and expenses in this connection.
EXERCISE:
Company will deliver the shares underlying the option upon SCI's written request
for exercise together with payment of the option price.
Agreed and accepted by the parties as of the date first above written.
Mystique Developments, Inc. Sayed Consulting, Inc.
/s/ Kim Fuerst /s/ Waseem A. Sayed
- ----------------------------------- ------------------------------------
Kim Fuerst Waseem A. Sayed, Ph.D.
President President
Exhibit 10.8
OPTION AGREEMENT
(NON-STATUTORY STOCK OPTION)
THIS AGREEMENT is made effective as of November 15, 1996, by and between
MYSTIQUE DEVELOPMENTS, INC. (the "Company") whose address is 1820 South Elena
Avenue, Suite B, Redondo Beach, California 90277 and SAYED CONSULTING, INC. (the
"Optionee") whose address is 14726 Ramona Ave., Suite 410, Chino, California
91710.
RECITALS:
A. As of November 15, 1996, the board of directors of the Company approved
an agreement for consulting services between the Company and Sayed Consulting,
Inc., effective as of October 1, 1996 (the "Consulting Agreement") pursuant to
which Sayed Consulting, Inc. would be granted options to purchase Common Stock
of the Company.
B. The Optionee is desirous of obtaining a non-statutory stock option on
the terms and conditions herein contained.
IT IS THEREFORE agreed by and between the parties, for and in consideration
of the premises and the mutual covenants herein contained and for other good and
valuable consideration, as follows:
1. OPTION GRANTED PURSUANT TO CONSULTING AGREEMENT. The Company hereby
confirms and acknowledges that it has granted to the Optionee an option to
purchase Fifty Thousand (50,000) shares (the "Shares") of Common Stock of the
Company (the "Option") upon the terms and conditions herein set forth and
subject to the provisions of the Consulting Agreement. The Option is granted as
a matter of separate agreement. The date of grant is November 15, 1996.
2. PURCHASE PRICE. The Purchase Price of the Shares which may be purchased
pursuant to the Option is $1.00 per share.
3. OPTION TERM. The Option shall expire on October 31, 1997 unless sooner
terminated under the provisions of this Agreement or the Consulting Agreement.
4. NUMBER OF SHARES UNDER OPTION. The Option is immediately vested, and may
be exercised by the Optionee to purchase all or a portion of the total number of
Shares specified in paragraph 1 at any time prior to the expiration or
termination of the Option.
5. TERMINATION OF CONSULTING AGREEMENT. If the Optionee does not fulfill
the terms of the Consulting Agreement, the Option shall terminate upon the
Company's notice of non-performance to the Optionee.
<PAGE>
6. NOTICE OF EXERCISE. The Option may be exercised in whole or in part by
delivering to the Company written notice of exercise, together with payment in
full for the Shares being purchased upon such exercise.
7. ISSUANCE OF STOCK CERTIFICATES. The Company will, upon receipt of such
notice and payment, issue or cause to be issued to the Optionee a stock
certificate for the number of Shares purchased thereby.
8. TAXES. The Optionee hereby agrees that it is responsible for payment of
the appropriate amount of federal, state and local taxes attributable to the
Optionee's exercise of the Option.
9. SECURITIES LAWS. Neither this Option nor the Shares have been registered
under the Securities Act of 1933, as amended (the "Act"), or under any blue sky
or other state securities laws. Optionee therefore represents and agrees that:
(i) the Option shall not be exercisable unless the purchase of Shares upon the
exercise of the Option is pursuant to an applicable effective registration
statement under the Act, or unless in the opinion of counsel for the Company,
the proposed purchase of such Shares would be exempt from the registration
requirements of the Act, and from the qualification requirements of any state
securities law; (ii) upon exercise of the Option, the Optionee will acquire the
Shares for its own account for investment and not with any intent or view to any
distribution, resale or other disposition of the Shares; (iii) it will not sell
or transfer the Shares, unless they are registered under the Act, except in a
transaction that is exempt from registration under the Act, and each certificate
issued to represent any of the Shares shall bear a legend calling attention to
the foregoing restrictions and agreements. The Company may require, as a
condition of the exercise of the Option, that the Optionee sign such further
representations and agreements as it reasonably determines to be necessary or
appropriate to assure and to evidence compliance with the requirements of the
Act.
10. NO RIGHTS IN SHARES UNTIL ISSUED. The Optionee shall have no rights as
a stockholder with respect to the Shares which may be purchased pursuant to the
Option until such Shares are issued to the Optionee.
11. GOVERNING LAW. THIS AGREEMENT IS ENTERED INTO AND SHALL BE GOVERNED BY,
CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE OF COLORADO.
12. AMENDMENT. The terms and conditions contained in the Consulting
Agreement, and as it may be amended from time to time hereafter, are
incorporated into and made a part of this Agreement by reference, as if the same
were set forth herein in full, and all provisions of the Option are made subject
to any and all terms of the Consulting Agreement.
<PAGE>
IN WITNESS WHEREOF, the parties have hereunto affixed their signatures in
acknowledgment and acceptance of the above terms and conditions on the date
first above mentioned.
MYSTIQUE DEVELOPMENTS, INC.
By: /s/ Kim M. Fuerst
-----------------------------------
Title: President
--------------------------------
OPTIONEE
SAYED CONSULTING, INC.
By: /s/ Waseem Sayed
-----------------------------------
Title: President
--------------------------------
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S AUDITED FINANCIAL STATEMENTS FOR THE FISCAL YEAR ENDING JUNE 30,
1997, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-END> JUN-30-1997
<CASH> 748
<SECURITIES> 0
<RECEIVABLES> 15
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 801
<PP&E> 139
<DEPRECIATION> (75)
<TOTAL-ASSETS> 865
<CURRENT-LIABILITIES> 48
<BONDS> 0
0
0
<COMMON> 16
<OTHER-SE> 802
<TOTAL-LIABILITY-AND-EQUITY> 865
<SALES> 63
<TOTAL-REVENUES> 66
<CGS> 68
<TOTAL-COSTS> 1293
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (1212)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1212)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1212)
<EPS-PRIMARY> (1.04)
<EPS-DILUTED> 0
</TABLE>
