SCHEDULE 14A
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the registrant /x/
Filed by a party other than the registrant / /
Check the appropriate box:
/ /Preliminary proxy statement
/ /Confidential, for use of the Commission only (as permitted by
Rule 14a-b(e)(2)
/x/Definitive proxy statement
/ /Definitive additional materials
/ /Soliciting material pursuant to Rule 14a-11(c) or Rule 14a-12
FORTUNE PETROLEUM CORPORATION
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of filing fee (Check the appropriate box)
/x/ No fee required.
/ / $500 per each party to the controversy pursuant to
Exchange Act rule 14a-6(i)(3)
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(4)and 0-11.
(1) Title of each class of securities to which transaction applies:
- --------------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
- --------------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
- --------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
- --------------------------------------------------------------------------------
(5) Total fee paid:
- --------------------------------------------------------------------------------
/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act
rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previously filing by registration statement
number, or the form or schedule and the date of its filing.
(1) Amount previously paid:
- --------------------------------------------------------------------------------
(2) Form, schedule or registration statement no.:
- --------------------------------------------------------------------------------
(3) Filing party:
- --------------------------------------------------------------------------------
(4) Date filed:
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<PAGE>
[LOGO]
FORTUNE PETROLEUM CORPORATION
Doing business in Texas and Louisiana as
FORTUNE NATURAL RESOURCES CORPORATION
515 W. Greens Road, Suite 720
Houston, Texas 77067
-------------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
-------------------------
TO THE STOCKHOLDERS:
The Annual Meeting of the stockholders of Fortune Petroleum Corporation
(the "Company") will be held at 10:00 a.m. on Tuesday, July 1, 1997, at the
Wyndham Greenspoint Hotel, located at 12400 Greenspoint Drive, Houston, Texas.
The purposes of the meeting are:
1. To elect three members of the Board of Directors;
2. To approve an amendment to the Company's Certificate of Incorporation
changing the name of the Company to "Fortune Natural Resources
Corporation";
3. To approve an amendment to the Company's Certificate of Incorporation
to vest the Company's Board of Directors with the sole power to change
the number of authorized directors of the Company;
4. To approve an amendment to the Company's Certificate of Incorporation
to require that all actions taken by the stockholders must be taken at
an annual or special meeting and not by written consent;
5. To approve the adoption of the Company's 1998 Multi-Year Stock Option
Plan (the "Plan"), and to ratify the authority of the Board of
Directors, or its Compensation Committee, to grant, at its discretion,
stock options under the Plan;
6. To ratify the selection of KPMG Peat Marwick as independent auditors
for the fiscal year ending December 31, 1997; and
7. To transact such other business as may properly come before the
meeting or any adjournment thereof.
Stockholders of record as of May 12, 1997, will be entitled to receive
notice of, and to vote at, the meeting.
ALL STOCKHOLDERS ARE CORDIALLY INVITED TO ATTEND THE ANNUAL MEETING IN
PERSON. WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, YOU ARE URGED TO
COMPLETE, SIGN, AND DATE THE ACCOMPANYING PROXY CARD AND RETURN IT PROMPTLY IN
THE POSTPAID ENVELOPE PROVIDED. SHOULD YOU CHOOSE TO CAST YOUR VOTE IN PERSON,
YOUR PROXY VOTE WILL NOT BE COUNTED.
The Annual Report of Fortune Petroleum Corporation for the year ended
December 31, 1996, is being mailed to stockholders with this notice of meeting.
By order of the Board of Directors,
/s/ Dean W. Drulias
-------------------
Dean W. Drulias
Secretary
Houston, Texas
May 23, 1997
<PAGE>
FORTUNE PETROLEUM CORPORATION
Doing business in Texas and Louisiana as
FORTUNE NATURAL RESOURCES CORPORATION
515 W. Greens Road, Suite 720
Houston, Texas 77067
PROXY STATEMENT
Your proxy, in the form enclosed, is solicited by the Board of Directors of
Fortune Petroleum Corporation ("Fortune" or the "Company") for use in connection
with the Annual Meeting of Stockholders to be held on July 1, 1997. This proxy
statement and accompanying proxy card is being mailed to the stockholders of the
Company on or about May 23, 1997.
A stockholder giving a proxy retains the power to revoke it at any time
before it is exercised. A proxy may be revoked by filing a written notice of
revocation, or a duly executed proxy bearing a later date, with the Secretary of
the Company at the Company's principal executive offices. The powers of the
proxy holders will be suspended if the person executing the proxy is present at
the meeting and elects to vote in person. If the proxy is neither revoked nor
suspended, it will be voted by those therein named.
Only stockholders of record at the close of business on May 12, 1997, are
eligible to vote at the annual meeting in person or by proxy. The only class of
stock of the Company eligible to vote is the $0.01 par value Common Stock. As of
May 12, 1997, there were 40,000,000 shares authorized, of which 12,123,917
shares were issued and outstanding. Each share of Common Stock entitles the
holder to one vote.
ELECTION OF DIRECTORS
The Directors of the Company are divided into three classes. The Directors
in each class hold office for staggered terms of three years each. The By-Laws
of the Company provide for a Board of Directors, of not less than three members,
and also provide that the terms of the members of the Board shall be staggered
so that approximately one-third of its members shall be elected annually. The
number of directors comprising the Company's Board has been set at seven. The
two directors previously elected by the stockholders who are standing for
re-election in 1997, one director elected by the Board to fill a newly created
seat who is standing for stockholder confirmation in 1997, and the four
directors whose terms do not expire in 1997, are listed on the following pages.
Voting Rights
Each stockholder shall be entitled to one vote for each share held of
record on the record date on all matters being voted on at the 1997 annual
meeting. Stockholders will not be entitled to cumulative voting in the election
of directors at this meeting. Directors will be elected by a simple majority
vote of the shares present and voting at the meeting.
If the enclosed Proxy Card is duly executed and returned, it will be voted
in accordance with the instructions on the Proxy Card. If no instructions are
given, it will be voted in favor of the nominees listed in the following table.
The Board of Directors has been informed that all nominees are willing to serve
as Directors, but if any should decline or be unable to act as a Director, the
proxy agents will vote for the election of another person or persons as they, in
their discretion, may choose. The Board of Directors has no reason to believe
that any nominee will be unable or unwilling to serve. Certain information
regarding the nominees and the continuing directors is set forth in the
following table:
2
<PAGE>
<TABLE>
<CAPTION>
Principal Positions Director
Name Age with the Company Since
---- --- ---------------- -----
NOMINEES FOR DIRECTORS FOR TERMS TO EXPIRE IN 2000
<S> <C> <C> <C>
Tyrone J. Fairbanks...... 40 President, Chief Executive Officer
and Director 1991
Dean W. Drulias.......... 50 Executive Vice President, General
Counsel, Corporate Secretary
and Director 1990
NOMINEE FOR DIRECTOR FOR TERM TO EXPIRE IN 1998
Daniel R. Shaughnessy.... 46 Director 1997
CONTINUING DIRECTORS WHOSE TERMS EXPIRE IN 1998
William T. Walker, Jr.... 65 Director 1993
Graham S. Folsom......... 39 Director 1992
CONTINUING DIRECTORS WHOSE TERMS EXPIRE IN 1999
Gary Gelman.............. 31 Director 1995
Barry Feiner............. 62 Director 1995
</TABLE>
Mr. Fairbanks currently serves as President and Executive Officer of the
company, having previously served as Vice President and Chief Financial Officer
from January 1991 to June 1994. Prior to joining Fortune, Mr. Fairbanks served
as President, Chief Executive Officer and Director of Fairbanks & Haas, Inc.
from January 1990 to January 1991. Fairbanks & Haas, Inc. was an oil and gas
exploration, production, acquisition and operations company located in Ventura,
California, the assets of which were acquired by Fortune in 1991. Mr. Fairbanks
co-founded Fairbanks & Haas, Inc. and served in the capacity of Director and
Executive Vice President from February 1987 to January 1990.
Mr. Drulias joined the Company in October 1996 as Executive Vice President
and General Counsel. Prior to that time, he was a stockholder of and a
practicing attorney at the law firm of Burris, Drulias & Gartenberg, a
Professional Corporation, which served as counsel to the Company since 1987. He
practiced law in the Los Angeles area since 1977, specializing in the areas of
energy, environmental and real property law. During 1996, the Company paid
Burris, Drulias & Gartenberg $152,000 in legal fees and expenses. Mr. Drulias is
a member of the Compensation Committee.
Mr. Shaughnessy is a geologist and geophysicist, as well as the founder
and President of Interpretation3, a company specializing in the interpretation
of 2D and 3D seismic data. His firm provides consultation services to Fortune.
Prior to organizing Interpretation3, Mr. Shaughnessy served as a consultant with
Interactive Exploration Solutions, Inc. for approximately one year. For most of
the period from 1980 through 1993, he worked for Mobil Oil, most recently as
Exploration Supervisor in Louisiana. During 1996, the Company paid
Interpretation3 $45,000 for consulting services. Mr. Shaughnessy is a member of
the Company's Audit Committee.
Mr. Walker founded Walker & Associates, a corporate finance consulting
firm for investment banking, in 1985. Since its inception, he has participated
or been instrumental in completing over $250 million in public and private
offerings since its inception. Mr. Walker serves on the Company's Compensation
Committee. He also serves on the board of directors of Go Video, Inc. (AMEX) and
Aviation Distributors, Inc. (NASDAQ).
Mr. Folsom has served as the Chief Financial Officer of Klein Ventures,
Inc. ("KVI"), a diversified investment company, since April 1987. Mr. Folsom has
been active in the oil investments of KVI and its affiliates since 1987. Mr.
Folsom has been licensed as a Certified Public Accountant in the State of
California since 1982 and is responsible for all of the accounting and financial
affairs of KVI and its affiliates. Mr. Folsom is chairman of the Company's Audit
Committee.
Mr. Gelman has served as president of GAR-COR Holding Corporation, a real
estate management and brokerage firm, since 1989. Mr. Gelman is a principal of
and serves as a loan consultant to National Bank of New York City, and is a
member of the Audit Committee.
Mr. Feiner graduated from Columbia Law School and is a member of the Bar of
the State of New York. He has practiced law in the State of New York since 1965.
His practice concentrates on the areas of corporate and securities law. Prior to
beginning private practice, Mr. Feiner served on the staff of the Securities and
Exchange Commission. He is chairman of the Company's Compensation Committee.
3
<PAGE>
The Company is not aware of any family relationship between any Directors
or Executive Officers of the Company. The Board of Directors met 11 times during
1996. No director missed more than two meetings. The Compensation Committee of
the Board met twice in 1996; all members attended each meeting. The Audit
Committee did not meet in 1996.
PRINCIPAL STOCKHOLDERS
The following table contains information at May 12, 1997, as to all persons
who, to the knowledge of the Company, were beneficial owners of five percent
(5%) or more of the outstanding shares of the common stock of the Company and of
all officers and directors.
<TABLE>
<CAPTION>
Amount and Nature Percent
Name Of Beneficial Ownership Of Class
- ---- ----------------------- --------
<S> <C> <C>
Barry Blank
5353 N. 16th St., Phoenix, AZ(4) 911,313 7.1%
William D. Forster
237 Park Ave, New York, NY (1)(2) 715,000 5.7%
BSR Investments, Inc.
Paris, France(1)(3) 715,000 5.7%
Klein Ventures, Inc.
1307 E. Pine St., Lodi, CA(5) 640,017 5.2%
Tyrone J. Fairbanks (Director, President and CEO)
515 W. Greens Rd., Houston, TX(6) 429,503 3.4%
John L. Collins (Vice President)
515 W. Greens Rd., Houston TX(6) 273,449 2.2%
William T. Walker, Jr. (Director)
515 W. Greens Rd., Houston TX(6) 226,278 1.8%
Dean W. Drulias (Director, Executive Vice President,
General Counsel and Corporate Secretary)
515 W. Greens Rd., Houston, TX(6) 181,241 1.5%
J. Michael Urban (Vice President and CFO)
515 W. Greens Rd., Houston, TX(6) 170,000 1.4%
Graham S. Folsom (Director)
515 W. Greens Rd., Houston, TX(6)(7) 135,522 1.1%
Gary Gelman (Director)
515 W. Greens Rd., Houston, TX(6) 94,083 *
Barry Feiner (Director)
515 W. Greens Rd., Houston, TX(6)(8) 90,493 *
Daniel R. Shaughnessy (Director)
515 W. Greens Rd., Houston, TX(6) 20,000 *
All Officers and Directors
as a group of nine (9) persons 1,620,569 12%
========= ====
</TABLE>
- ----------
* indicates less than 1%.
(1) Mr. Forster and BSR are the record holders of these shares issued in
connection with the Company's acquisition of Lagniappe Exploration,
Inc. in 1995. Ensign Financial Group Limited claims a one-third
interest in such shares and the stock purchase warrants issued in the
acquisition, a claim which is being contested by Forster and BSR. In
light of this dispute, the Company is unable to state the beneficial
ownership of such shares and warrants. Ensign has filed suit in New
York state court; if its position is upheld and it is awarded one-third
of the securities issued in that acquisition, to the best of the
Company's knowledge, the ownership, including shares underlying the
stock purchase warrants and other securities noted in footnote (2) and
(3), would be as follows:
4
<PAGE>
<TABLE>
<CAPTION>
Amount and Nature of Percent
Beneficial Ownership of Class
-------------------- --------
<S> <C> <C>
Ensign Financial Group Limited, NY, NY 800,000 6.5%
William D. Forster, New York, NY 315,000 2.6%
BSR Investments, Inc., Paris, France 315,000 2.6%
</TABLE>
(2) Includes 515,000 shares of Common Stock underlying stock purchase
warrants exercisable at $4.75 per share and expiring April 2000.
(3) Includes 515,000 shares of Common Stock underlying stock purchase
warrants exercisable at $4.75 per share and expiring April 2000. Based
on information provided to the Company by BSR, voting and dispositive
power is exercised by Samyr Souki, the president of BSR.
(4) Includes 279,200 shares of Common Stock and an additional 432,113
shares of Common Stock which underlie 300,600 stock purchase warrants
held by Mr. Blank and exercisable at $3.75 per share and 200,000
shares of Common Stock underlying 200,000 stock purchase warrants,
exercisable at $2.40 per share, issued to the underwriters of the
Company's 1995 Equity Offering, which Mr. Blank acquired from Coleman
& Company Securities, Inc. Mr. Blank is a Vice President and
registered representative with Coleman & Company Securities, Inc.
(5) Klein Ventures, Inc. is owned by Mr. Bud Klein. The number of shares
shown includes 138,888 shares underlying stock purchase warrants
issued in a 1992 acquisition and 115,000 shares underlying 80,000
public stock purchase warrants acquired in the Company's 1993 public
equity offering exercisable at $3.75 per share. The number shown also
includes an aggregate of 88,629 shares of stock owned by Klein Bros.
Holdings, Ltd. Each record owner possesses sole voting and disposition
power over such shares, and Klein Ventures, Inc. and Mr. Bud Klein
disclaim beneficial ownership of shares owned by Klein Bros. Holdings,
Ltd. which is owned by Klein Ventures, Inc. and five of Mr. Klein's
children and relatives. However, Klein Ventures, Inc., Klein Bros.
Holdings, Ltd. and Bud Klein may be considered a "group" under
regulations of the Securities and Exchange Commission.
(6) Includes 406,999 shares issuable to Mr. Fairbanks upon the exercise
of stock options granted to him under the Company's various stock
option plans, exercisable at prices of $2.75 to $3.125 per share,
and 1,063 shares held by the trustees of the Company's 401(k) plan
for the benefit of Mr. Fairbanks; an aggregate of 799,700 shares
issuable upon exercise of stock options granted to other officers
and directors under the Company's various stock option plans,
exercisable at prices of $2.75 to $3.125 per share; 88,289 shares
issuable upon exercise of common stock purchase warrants (at $4.41
per warrant) and 22,264 shares issuable upon exercise of 3,600
warrants (at $11.14 each for 3.3097 shares of Common Stock and two
stock purchase warrants exercisable at $3.75 each for 1.4375 shares)
issued in connection with the Company's 1993 equity offering to
William T. Walker, Jr. prior to his becoming a director of the
Company; 25,000 shares issuable upon the exercise of common stock
purchase warrants (at $3.25 per share) issued to John L. Collins on
May 30, 1995, and 1,449 shares held by the trustees of the Company's
401(k) plan for the benefit of Mr. Collins; 35,000 shares issuable
upon the exercise of common stock purchase warrants (at $2.5625 per
share) issued to J. Michael Urban on March 11, 1996; and 20,000
shares issuable upon the exercise of common stock purchase warrants
(at $2.75 per share) issued to Dean W. Drulias on October 16, 1996.
(7) Includes 7,187 shares issuable upon exercise of 5,000 public
warrants (at $3.75 each) and 5,000 debentures convertible pursuant
to their terms into shares of Common Stock at a price of $6.32 per
share.
(7) Includes 7,187 shares issuable upon exercise of 5,000 public
warrants (at $3.75 each) and 5,000 debentures convertible pursuant
to their terms into shares of Common Stock at a price of $6.32 per
share.
(8) All shares shown are owned by Mrs. Barry Feiner, wife of Barry
Feiner; Mr. Feiner disclaims beneficial ownership of all such
shares. The number shown includes 14,375 shares issuable upon
exercise of 10,000 public warrants (at $3.75 each).
5
<PAGE>
EXECUTIVE COMPENSATION
The following table lists the total compensation paid by the Company to
persons who served in the capacity of chief executive officer during the periods
indicated and to the three other executive officers who received annual
compensation in excess of $100,000 (or at a rate in excess of $100,000):
<TABLE>
Summary Compensation Table
<CAPTION>
Long Term Compensation
-----------------------------------
Annual Compensation Awards Payouts
------------------------- ------------------------- -------
Restricted Securities
Stock Underlying LTIP All Other
Name and Principal Salary Bonus Other(1) Awards Options/Warrants Payouts Compensation
Position Year ($) ($) ($) ($) (#) ($) ($)
-------- ---- ------- ------ ------ ------- --- --- ---
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Tyrone J. Fairbanks 1996 150,000 - 20,934 - 80,000 - 3,000
President and CEO 1995 125,000 25,000 - - 105,599 - -
1994 102,500 15,000 - - 78,900 - -
Dean W. Drulias 1996 26,291 250 - - 56,000(2) - 1,972
Executive Vice President
J. Michael Urban 1996 97,308 - - - 55,000(3) - 4,750
Chief Financial Officer
John L. Collins 1996 96,000 2,000 - - 80,000 - 4,090
Vice President,
Investor Relations 1995 56,738 1,600 - - 25,000(4) - -
</TABLE>
(1) Amounts include automobile expenses and loan forgiveness, but are shown
only if such amounts exceed 10% of the total annual salary and bonus.
(2) The figure shown reflects the issuance to Mr. Drulias of 20,000 stock
purchase warrants exercisable at $2.75 per share (the market price of the
Common Stock on October 16, 1996, the date of issue) and expiring on
October 16, 2001.
(3) The figure shown reflects the issuance to Mr. Urban of 35,000 stock
purchase warrants exercisable at $2.5625 per share (the market price of the
Common Stock on March 11, 1996, the date of issue) and expiring on March
11, 2001.
(4) The figure shown reflects the issuance to Mr. Collins of 25,000 stock
purchase warrants exercisable at $3.25 per share (the market price of the
Common Stock on May 30, 1995, the date of issue) and expiring May 30, 2000.
In addition to the foregoing, Charles A. Champion served as Chief Executive
Officer from June 23, 1994 through January 5, 1995. During 1994, he received
compensation of $36,000 as Chief Executive Officer.
The following table lists the outstanding options held on December 31, 1996
by the Company's executive officers under Company's Stock Option Plans:
<TABLE>
Aggregate Option Exercise in Last Fiscal Year
and FY-end Option Values
<CAPTION>
Number of Value of Unexercised
Unexercised Options/ in-the-Money Options/
Warrants at FY-End Warrants at FY-End
Shares Acquired Exercisable/ Exercisable/
Name on Exercise Value Realized ($) Unexercisable(1) Unexercisable
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Tyrone J. Fairbanks - - 296,999 / 0 -
Dean W. Drulias 6,575 - 82,400 / 0 -
J. Michael Urban - - 55,000 / 0 -
John L. Collins - - 105,000 / 0 -
</TABLE>
- ----------
(1) Includes stock purchase warrants reflected in the preceding table.
6
<PAGE>
Employment Agreements
The Company has entered into an employment agreement with Tyrone J.
Fairbanks, its President and Chief Executive Officer. The agreement provides
that if employment is terminated for any reason other than for cause, death or
disability within two years following a change in control (which for purposes of
this Agreement means a change in the majority of the Board of Directors
following certain special events), Mr. Fairbanks is entitled to receive a single
payment equal to two year's compensation and all shares of Common Stock subject
to stock options then held by him without payment of the exercise price
therefor. Mr. Fairbanks' agreement also provides for two (2) years of consulting
services upon the completion of the primary term of his contract at forty
percent (40%) of the last compensation thereunder. Mr. Fairbanks' current
employment agreement provides for an annual salary of $150,000. The term of Mr.
Fairbanks' employment contract expires December 31, 1997. As part of the
relocation of the Company's headquarters to Houston, Texas, Fortune provided Mr.
Fairbanks with an incentive relocation package to facilitate his move. The
package consisted of a payment by the Company of Mr. Fairbanks' moving expenses,
a nonrecourse, unsecured loan in the amount of $80,000 bearing interest at the
rate of 6% per annum, with $20,000 of such loan forgiven in each of four
consecutive years beginning in 1996, provided Mr. Fairbanks is still employed by
the Company or has been terminated by the Company without cause, and a secured
recourse loan in the amount of $70,000 also bearing interest at the rate of 6%
per annum, payable interest only for two years with a $35,000 principal payment
due on each of the second and third anniversary dates of the loan. As of the
date of this proxy, the outstanding principal balance of the nonrecourse loan
was $40,000 and all payments on the recourse loan were current.
The Company has entered into an employment agreement with Dean W. Drulias,
its Executive Vice President and General Counsel. The agreement provides that if
employment is terminated for any reason other than for cause, death or
disability within two years following a change in control (which for purposes of
this Agreement means a change in the majority of the Board of Directors
following certain special events), Mr. Drulias is entitled to receive a single
payment equal to two year's compensation and all shares of Common Stock subject
to stock options then held by him without payment of the exercise price
therefor. Mr. Drulias' current employment agreement provides for an annual
salary of $125,000. The term of Mr. Drulias' employment contract expires
December 31, 1998.
Stock Options
Fortune has three Stock Option Plans, and is presenting a new plan to its
stockholders for approval at the 1997 annual meeting. The existing plans cover
all officers and employees of the Company; one also provides for options for
directors of the Company, as will the new plan described below (the "1998
Plan"). Awards are made by the Board of Directors upon recommendations of its
Compensation Committee. There is no performance formula or measure. Options
granted under the 1987 and 1988 plans must be exercised within ten years of the
date of grant or they are forfeited. Options granted under the 1993 plan must be
exercised within five years of the date of grant or they are forfeited.
All options available under the 1987 and 1988 plans have been granted,
and no shares remain under either of these plans on which options may be
granted. Options have been granted as follows: (1) under the 1987 plan, options
for 12,500 shares at a price of $2.60 per share; (2) under the 1988 plan,
options for 27,500 shares at $2.60 per share; and (3) under the 1993 plan,
options for 75,000 shares at $5.00 per share granted in 1993, options for
263,000 shares at $5.48 per share granted in 1994, options for 264,000 shares at
$6.03 per share granted in 1995, options for 450,000 shares at $3.125 per share
granted in 1996, and options for 585,000 shares at $3.00 per share granted in
1997. The exercise prices of all options granted in 1993, 1994 and 1995 were
reduced to $2.75 on January 12, 1995.
The 1998 Plan will be substantially identical to the 1993 plan.
7
<PAGE>
The following table shows the grants of stock options during 1996 to each
of the executives named in the Summary Compensation Table.
<TABLE>
Option/Warrant Grants in 1996
<CAPTION>
Individual Grants
-------------------------------------------------------------
Number of % of Total Potential Realizable Value At
Securities Options/Warrants Assumed Annual Rates Of
Underlying Granted to Stock Price Appreciation
Options/SAR's Employees in Exercise or Base Expiration For Option Term
---------------------------
Name Granted Fiscal Year Price ($/Sh) Date 5% 10%
---- ------- ----------- ------------ ---- -- ---
<S> <C> <C> <C> <C> <C> <C>
Tyrone J. Fairbanks 80,000 12.7 3.125 April 5, 2001 $69,072 $152,624
Dean W. Drulias 36,000 5.7 3.125 April 5, 2001 31,082 68,681
20,000(2) 3.2 2.75 October 16, 2001 15,180 33,578
J. Michael Urban 20,000 3.2 3.125 April 5, 2001 17,268 38,156
35,000(2) 5.6 2.5625 March 11, 2001 24,779 54,754
John L. Collins 80,000 12.7 3.125 April 5, 2001 69,072 152,624
- ----------
</TABLE>
(1) In addition, the following options were granted on February 14, 1997, at an
exercise price of $3.00 per share: Tyrone J. Fairbanks, 120,000; Dean W.
Drulias, 75,000; J. Michael Urban, 100,000; and John L. Collins, 92,000.
(2) Warrants granted in 1996 in connection with commencement of employment.
In the event of a change in control of the Company, the shares of Common
Stock subject to options granted to all option holders under the Company's stock
option plans will be issued to them without further action on their part or the
payment of the exercise price for such shares.
Retirement Plan
During 1996, the Company adopted the Fortune Petroleum Corporation 401(k)
Profit Sharing Plan for its eligible employees. Under the plan, all employees on
the Company's payroll as of November 1, 1996, and all employees hired after that
date who have attained age 21 and three months of service, are permitted to make
salary deferrals up to the lesser of 15% of their annual compensation or $9,500.
Salary deferrals will be matched 50% by the Company and are 100% vested after
two years of service with the Company. Salary deferrals are 100% vested at all
times. The Company does not make profit sharing contributions to the plan.
Messrs. Drulias and Urban are the trustees of the plan.
For 1996, the Company's matching contribution was $14,000, all of which
will be paid in shares of Common Stock. The amounts to be contributed to the
plan as matching contributions for executives of the Company are shown in the
Summary Compensation Table set forth above.
BOARD COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Company's Executive Compensation Program is administered by the
Compensation Committee of the Board of Directors. The committee is comprised of
two independent, nonemployee directors and one director who is an officer of the
Company. The committee strives to set an executive compensation program which
emphasizes both business performance and shareholder value. The committee
attempts to do this by attracting, rewarding, and retaining qualified and
productive individuals, tying compensation to both Company and individual
performance, ensuring competitive and equitable compensation levels, and
fostering executive stock ownership. The committee also relies on
recommendations from the Company's management regarding executive compensation
levels.
The committee reviews each management employee's salary annually. In
determining an appropriate salary level, the committee considers the level and
scope of responsibility, experience, individual performance, an evaluation of
the Company's performance, and pay practices among similar companies in the
industry. There are no specific performance or other criteria assigned to any of
these measurements.
8
<PAGE>
The Company does not currently implement any annual incentive
compensation plan. The Company's long term incentive philosophy is that
compensation should be related to an improvement in shareholder value, thereby
creating a mutuality of interest with the Company's stockholders. In furtherance
of this objective, the Company awards its executive officers stock options, the
objective being to provide a competitive total long term incentive opportunity.
The committee believes that the Company's stock option plan is
compatible with shareholder interest in that it encourages executives to
maintain a long term equity interest in the Company. The committee is currently
reviewing ways in which both the award of options and their exercise may be tied
more closely to the performance of the Company's stock.
Mr. Fairbank's salary as Chief Executive Officer was set at $150,000
shortly after he assumed that position in June 1994. There has been no
adjustment to his base salary since that time. Currently there are no annual
incentives which would serve to increase Mr. Fairbank's salary, nor are there
any performance-based criteria which may be relied upon to either increase or
diminish his annual salary. The sole incentive program affecting Mr. Fairbank's
long term compensation is his participation in the stock option plan referred to
above.
PERFORMANCE GRAPH
The following performance graph compares the performance of the Company's
Common Stock to the AMEX Market Value Index and the S&P Oil and Gas (Exploration
& Production) Index for the five years ended December 31, 1996. The graph
assumes that the value of the investment in the Company's Common Stock and each
index was $100 at December 31, 1991, and that all dividends were reinvested.
<TABLE>
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN*
AMONG FORTUNE PETROLEUM CORPORATION, THE AMEX MARKET VALUE INDEX
AND THE S & P OIL & GAS (EXPLORATION & PRODUCTION) INDEX
<CAPTION>
Cumulative Total Return**
--------------------------------
Symbol 12/31/91 1992 1993 1994 1995 1996
------ -------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Fortune Petroleum Corporation FPX $100 $100 $ 35 $ 31 $ 81 $ 43
AMEX Market Value Index IAMX 100 101 121 110 139 148
S & P Oil & Gas (Exploration & Production)
Index IOIX 100 107 104 83 97 129
</TABLE>
* $100 invested on December 31, 1991 in stock or index - including
reinvestment of dividends.
** Fiscal years ending December 31.
9
<PAGE>
AMENDMENT OF CHARTER FOR NAME CHANGE
The Board of Directors has adopted an amendment to the Company's
Certificate of Incorporation to change the name of the corporation to "Fortune
Natural Resources Corporation." Such amendment must be approved by the Company's
stockholders in order to be filed with the Delaware Secretary of State and
become effective.
The Company is unable to use the name "Fortune Petroleum Corporation" in
the States of Louisiana and Texas because that name is already in use by another
company. Accordingly, management has selected a name under which it is permitted
to conduct business in those states. Since 1996, Fortune has been doing business
in Louisiana and Texas under the business name which is now proposed to be
adopted as the official name of the corporation. Management believes that
adopting the new name as the formal name of the corporation will simplify
filings with governmental agencies and avoid any confusion in the principal
areas in which the Company conducts business.
In adopting the new name, the symbol for the Common Stock on the AMEX will
remain the same, FPX, to avoid any confusion in the marketplace. The persons
named in the accompanying proxy intend to vote such proxy in favor of the
amendment to the Company's Certificate of Incorporation unless a contrary choice
is set forth on a stockholder's proxy. The amendment requires the affirmative
vote of a majority of the outstanding shares of Common Stock in order to be
approved.
The Board of Directors urges the stockholders to vote FOR the amendment to
the Certificate of Incorporation to change the corporate name.
AMENDMENT OF CHARTER REGARDING SIZE OF BOARD OF DIRECTORS
The Board of Directors has adopted, subject to stockholder approval, an
amendment to the Company's Certificate of Incorporation to provide that only the
Board of Directors, and not the stockholders, may set the size of the Board of
Directors. A copy of the proposed amendment is attached to this Proxy Statement
as Exhibit A.
Under the Certificate of Incorporation as currently in effect, the
stockholders may establish the size of the Board of Directors of the Company.
Thus, under certain circumstances, one or more significant stockholders would be
in a position to dictate the number of directors serving on the Board and could
effectively establish control over the corporation by expanding the Board and
electing their own nominees to fill the resulting vacancies or by reducing the
number of directors to limit diversity on the Board.
Management believes that by giving the authority to establish the number of
directors to the Board of Directors, it will prevent a limited number of
stockholders from gaining control of the corporation by attempting to alter the
size or composition of the Board. Such a provision could have an anti-takeover
effect in that it may tend to discourage stockholder groups or potential
stockholders from acquiring stock in the Company, if such holders believe it
will reduce their ability to affect the Company's direction. The provision will
also have the effect of giving existing management a greater ability to retain
their positions on the Board of Directors and to dictate, to some degree, its
composition and membership. (For additional information regarding other items
which may have an anti-take-over effect, see "Amendment of Charter Regarding
Stockholder Meetings", below).
Nevertheless, the Board of Directors has unanimously approved the proposed
amendment, believing it to be in the long-term best interests of the
stockholders of the Company. The persons named in the accompanying proxy intend
to vote such proxy in favor of the amendment to the Company's Certificate of
Incorporation unless a contrary choice is set forth on a stockholder's proxy.
Approval of the amendment by the affirmative vote of a majority of the
outstanding shares of Common Stock is required for adoption of the amendment.
The Board of Directors urges the stockholders to vote FOR the amendment to
the Certificate of Incorporation regarding board size.
AMENDMENT OF CHARTER REGARDING STOCKHOLDER MEETINGS
The Board of Directors has adopted, subject to stockholder approval, an
amendment to the Company's Certificate of Incorporation to provide that no
action required to be taken by the stockholders at an annual or special meeting
may be taken by the stockholders without a meeting and to specifically prohibit
stockholders from taking any action by written consent, without the necessity of
calling a meeting. A copy of the proposed charter amendment is attached to this
Proxy Statement as Exhibit B.
10
<PAGE>
The Certificate of Incorporation currently provides that action to be taken
by the stockholders may be taken without prior notice and without a formal vote
under certain circumstances. This may occur if a consent in writing setting
forth the action so taken is signed by the holders of a majority of the Common
Stock which would have been entitled to vote on the action at a meeting. The
proposed amendment, which the Board of Directors unanimously approved, would
eliminate the ability of the stockholders to take action without the necessity
of giving notice of and holding a formal meeting.
Under Delaware law, when stockholders are to take action at a meeting, a
corporation must give written notice of the meeting to all stockholders entitled
to vote, even when one stockholder or a group of stockholders will have a
majority of the votes to be cast. This prior notice allows minority stockholders
to take action to protect their interests, including seeking to persuade the
majority holders to follow a specific course, selling their shares or
instituting litigation. If action is taken by majority holders by written
consent, no prior notice is necessary, and minority holders may not have an
opportunity to protect their interests.
The primary purpose of the amendment is to prevent stockholder action
without prior notice to all stockholders. Stockholders holding not less than 10%
of the outstanding Common Stock have the ability to call a special meeting, so
the proposed amendment will not prevent the stockholders from proposing action
and obtaining a full hearing of their views. However, the proposed amendment may
have the effect of discouraging potential purchasers from attempting to acquire
control of the Company or, in some cases, may discourage the accumulation of
large blocks of Common Stock. In addition to the anti-takeover effects which may
exist by virtue of the adoption of the proposed amendment to the Certificate,
certain other provisions of the Company's Certificate of Incorporation and
By-laws and other items may have anti-takeover effects.
For example, the By-laws provide that no action may be taken at a meeting
of stockholders on any proposal or nomination unless the proposal or nomination
is presented to the Company at least 60 days prior to the meeting at which it is
to be considered. This provision has an anti-takeover effect by limiting the
ability of stockholders to make proposals at a meeting or in a proxy contest
without giving management the opportunity to mount a concerted opposition to the
proposal. It also has the effect of preventing a group of stockholders from
obtaining support for a nominee to the Board of Directors outside of the
management proxy solicitation process.
Further, the stockholder rights plan recently adopted by the Company has
an anti-takeover effect in that it gives the current stockholders the right to
purchase a class of preferred stock which will have effective veto power over
actions proposed to be taken by the holders of Common Stock. Since the preferred
stock will not be issued until a takeover proposal is made and because the
preferred stock does not trade, the holders of a majority of the Common Stock
may be prevented from taking action to control the Company without the consent
of the preferred stockholders.
The Board of Directors has no knowledge of any current effort by any party
to accumulate Common Stock with a view to gaining control, and this amendment is
not being proposed in response to any such action. The Board of Directors
believes that it is important that stockholders be able to discuss matters which
may affect their rights, that the Board and the stockholders be able to give
advance consideration to any such action, and that it is therefore appropriate
for stockholders of a publicly-held corporation to take such action affecting
the corporation and its stockholders only at a meeting.
The persons named in the accompanying proxy intend to vote such proxy in
favor of the amendment to the Company's Certificate of Incorporation unless a
contrary choice is set forth on a stockholder's proxy. Approval of the amendment
by the affirmative vote of a majority of the outstanding shares of Common Stock
is required for adoption of the amendment.
The Board of Directors urges the stockholders to vote FOR the amendment to
the Certificate of Incorporation regarding stockholder meetings.
APPROVAL OF 1998 MULTI-YEAR STOCK OPTION PLAN
The Board of Directors has proposed the 1998 Multi-Year Stock Option Plan
(the "Plan") with a view to attracting, retaining and providing incentives to
officers, directors and employees by offering them an opportunity to acquire
shares of the Common Stock. The Plan provides for the grant of stock options to
selected employees, officers and outside directors. Stock options granted under
the Plan are intended, to the extent possible, to be eligible for the
potentially favorable treatment accorded incentive stock options ("ISOs") under
the Internal Revenue Code.
11
<PAGE>
The effective date of the Plan is January 1, 1998. The Board of Directors
may, in its sole discretion, terminate the Plan at any time. If not sooner
terminated, the Plan will expire on December 31, 2002.
Administration of Plan
The Plan will be administered by the Board of Directors, although the
Board is authorized to delegate its administrative responsibilities to the
Compensation Committee appointed by the Board to review the granting of options
and to determine the period over which each option will become exercisable. The
Board is also granted the authority to select the participants, to fix the
number of shares which each participant may purchase, to set the terms and
conditions of each option, and to determine all other matters relating to the
Plan. All questions of interpretation, implementation, eligibility, policy and
application of the Plan are determined by the Board. Such determinations shall
be final and binding. The Board of Directors retains the right to adopt, amend
and repeal rules and regulations for the administration of the Plan.
Eligibility for participation in the Plan is limited to qualified
employees, officers and outside directors of the Company. The selection of
recipients of option grants from among the eligible group is entirely within the
discretion of the Board, and there are no performance-based criteria for the
granting of options.
Option Grants
The Board may grant up to 2,000,000 options in 1998 and options for up to
10% of the outstanding Common Stock each year the Plan remains in effect
thereafter. The exercise price of any option granted under the Plan will be
based upon a formula set forth in the Plan but will not be less than the fair
market value of the stock on the date the option is granted. The exercise price
of any option granted must be paid in cash at the time the options are exercised
unless, at the discretion of the Board of Directors, another form of legal
consideration is deemed to be acceptable.
The Board of Directors or the Compensation Committee may impose such
additional terms and conditions upon any issuance of Common Stock under the
Plan, including without limitation, vesting provisions, repurchase or
reacquisition rights in favor of the Company or its assignees, rights of first
refusal in favor of the Company or the Company and its stockholders, and
restrictions on transfers, as the Board of Directors may from time to time
determine. The Board may also impose such additional terms and conditions as may
be required to comply with applicable securities laws.
Federal Income Tax Consequences
Incentive Stock Options. Option holders are not taxed upon receipt of ISOs
or at the time of exercise of the option. The option holder's tax basis in stock
purchased upon exercise of the option is the exercise price. If the stock is
held for a required holding period (the later of two years after grant of the
option or one year from exercise), upon sale of the stock, the option holder is
taxed on the difference between the basis in the stock and the sales price of
the stock. The taxable amount is treated as capital gain income and is taxed at
the same marginal tax rate as the individual's other income, subject to a
maximum of 28%.
If the stock is sold before satisfying the holding period requirement, the
option holder is deemed to have received compensation equal to the difference
between the option exercise price and the fair market vale of the stock on the
date of exercise. The latter amount is added to the basis of the stock for
computing any capital gain on the sale of the stock.
Non-Qualified Options. If an option granted under the Plan is not an ISO,
it is considered a non-qualified option. Option holders of non-qualified options
are also not taxed at the time of receipt of the option (since the options have
no discernible value) but, unlike ISOs, are taxed upon exercise on the
difference between the exercise price and the fair market value of the stock at
the time of exercise. This amount is treated as compensation and is taxable as
ordinary income. Further, at the time of sale of the stock, if the sales price
exceeds the fair market value at the time of exercise, the difference is treated
as capital gain income (short-term or long-term depending on how long the stock
has been held after exercise of the option).
Vote Required
In order for the Plan to become effective, it must be approved by the
affirmative vote of a majority of the Common Stock present at the meeting. . The
persons named in the accompanying proxy intend to vote such proxy in favor of
the amendment to the Company's Certificate of Incorporation unless a contrary
choice is set forth on a stockholder's proxy.
The Board of Directors urges the stockholders to vote FOR the amendment to
the Certificate of Incorporation regarding stockholder meetings.
12
<PAGE>
RATIFICATION OF SELECTION OF INDEPENDENT PUBLIC ACCOUNTANTS
The Board of Directors selected KPMG Peat Marwick as the Company's
independent public accountants for the fiscal year ending December 31, 1997, and
has further directed that management submit the selection of independent public
accountants for ratification by the stockholders at the Annual Meeting. KPMG
Peat Marwick has audited the Company's financial statements since 1992. Its
representatives are expected to be present at the meeting, will have an
opportunity to make a statement if they desire to do so, and will be available
to respond to appropriate questions.
Shareholder ratification of the selection of KPMG Peat Marwick as the
Company's independent public accountants is not required by the Company's
By-Laws or otherwise. The Board of Directors is submitting the selection of KPMG
Peat Marwick to the stockholders for ratification as a matter of good corporate
practice. In the event the stockholders fail to ratify the selection, the Board
of Directors will reconsider whether or not to retain that firm. Even if the
selection is ratified, the Board of Directors, in its discretion, may direct the
appointment of a different independent accounting firm at any time during the
year if the Board of Directors determines that such a change would be in the
best interest of the Company and its stockholders. The affirmative vote of the
holders of a majority of the shares represented and voting at the Annual Meeting
will be required to ratify the selection of KPMG Peat Marwick.
OTHER MATTERS
The total cost of this solicitation will be borne by the Company. In
addition to use of the mails, proxies may be solicited by officers, directors,
and employees of the Company by telephone or telegraph. Stockholder proposals
for the 1998 annual meeting of stockholders must be received no later than
January 23, 1998 at the Company's executive office, 515 West Greens Road, Suite
720, Houston, Texas 77067, attention Corporate Secretary.
Management knows of no other business to be presented at the meeting, but
if other matters do properly come before the meeting, it is intended that the
persons named in the proxy will vote on said matters in accordance with their
best judgment.
By order of the Board of Directors,
/s/ Dean W. Drulias
-------------------
Secretary
Houston, Texas
May 23, 1997
13
<PAGE>
PROXY
FORTUNE PETROLEUM CORPORATION
Annual Meeting of Stockholders -- July 1, 1997
The undersigned stockholder(s) of Fortune Petroleum Corporation
("Fortune") hereby nominates, constitutes and appoints Dean W. Drulias and
Tyrone J. Fairbanks, and each of them, the attorney, agent and proxy of the
undersigned, with full power of substitution, to vote all stock of Fortune
Petroleum Corporation which the undersigned is entitled to vote at the Annual
Meeting of Stockholders of Fortune to be held at 10:00 a.m. on Tuesday, July 1,
1997 at the Wyndham Greenspoint Hotel located at 12400 Greenspoint Road,
Houston, Texas and any and all adjournments thereof, as fully and with the same
force and effect as the undersigned might or could do if personally present
thereat, as follows:
1. To elect three members of the Board of Directors.
AUTHORITY GIVEN to vote for all nominees WITHHOLD AUTHORITY to vote
(except as marked to the contrary below) / / for all nominees / /
(INSTRUCTIONS: To withhold authority to vote for any individual nominee,
strike through the nominee's name in the list below).
Tyrone J. Fairbanks Dean W. Drulias Daniel R. Shaughnessy
2. To approve an amendment to the Company's Certificate of Incorporation
changing the name of the Company to "Fortune Natural Resources Corporation".
/ / FOR / / AGAINST / / ABSTAIN
3. To approve an amendment to the Company's Certificate of Incorporation to
vest the Company's Board of Directors with the sole power to change the number
of authorized directors of the Company;
/ / FOR / / AGAINST / / ABSTAIN
4. To approve an amendment to the Company's Certificate of Incorporation to
require that all actions taken by the stockholders must be taken at an annual or
special meeting and not by written consent;
/ / FOR / / AGAINST / / ABSTAIN
5. To approve the adoption of the Company's 1998 Multi-Year Stock Option
Plan (the "Plan"), and to ratify the authority of the Board of Directors, or its
Compensation Committee, to grant, at its discretion, stock options under the
Plan.
/ / FOR / / AGAINST / / ABSTAIN
6. To ratify the selection of KPMG Peat Marwick as independent auditors for
the fiscal year ending December 31, 1997.
/ / FOR / / AGAINST / / ABSTAIN
7. To transact such other business as may properly come before the meeting
or any adjournment thereof
-----------------------------
<PAGE>
THE BOARD OF DIRECTORS RECOMMENDS A VOTE OF "AUTHORITY GIVEN" FOR PROPOSAL 1 AND
A VOTE "FOR" PROPOSALS 2 THROUGH 6. THE PROXY CONFERS AUTHORITY TO VOTE, AND
SHALL BE VOTED, "AUTHORITY GIVEN" FOR PROPOSAL 1 AND "FOR" PROPOSALS 2 THROUGH
6, UNLESS "WITHHOLD AUTHORITY", "AGAINST", OR "ABSTAIN" IS INDICATED, IN WHICH
CASE THE PROXY SHALL BE VOTED IN ACCORDANCE WITH SUCH INSTRUCTIONS.
IF ANY OTHER BUSINESS IS PRESENTED AT THE MEETING, THIS PROXY SHALL BE VOTED IN
ACCORDANCE WITH THE RECOMMENDATIONS OF THE BOARD OF DIRECTORS.
Dated:
------------------------------------
------------------------------------
(Signature of Stockholder)
------------------------------------
(Please Print Name)
------------------------------------
(Signature of Stockholder)
------------------------------------
(Please Print Name)
I/We do expect to attend the meeting / /
I/We do NOT expect to attend the meeting / /
<PAGE>
EXHIBIT A
Amend Article V, Section 2 of the Certificate of Incorporation to add a new
sentence to the end thereof to read as follows:
"The Board of Directors is expressly, and exclusively, authorized to amend
the Bylaws of the Corporation to fix the number of directors of the
Corporation."
EXHIBIT B
Amend Article V of the Certificate of Incorporation to add a new Section 5
to read as follows:
"No action required to be taken or which may be taken at any annual or
special meeting of stockholders of the corporation may be taken by stockholders
without a meeting, and the power of stockholders to consent in writing, without
a meeting, to the taking of any action is specifically denied."
