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 NATURAL RESOURCES 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:
- --------------------------------------------------------------------------------
<PAGE>
{ FNRC LOGO HERE}
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 Natural Resources
Corporation will be held at 10:00 a.m. on Tuesday, April 28, 1998, at the Hotel
Sofitel, located at 425 North Sam Houston Parkway East, Houston, Texas. The
purposes of the meeting are:
1. To elect three members of the Board of Directors;
2. To ratify the selection of KPMG Peat Marwick LLP as independent
auditors for the fiscal year ending December 31, 1998; and
3. To transact such other business as may properly come before the meeting
or any adjournment thereof.
Stockholders of record as of March 10, 1998 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 Natural Resources Corporation for the year
ended December 31, 1997, is being mailed to stockholders with this notice of
meeting.
By order of the Board of Directors,
/s/ Dean W. Drulias
----------------------------------
Secretary
Houston, Texas
March 20, 1998
<PAGE>
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 Natural Resources Corporation ("Fortune" or the "Company") for use in
connection with the Annual Meeting of Stockholders to be held on April 28, 1998.
This proxy statement and accompanying proxy card is being mailed to the
stockholders of the Company on or about March 27, 1998.
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 March 10, 1998 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
March 10, 1998, there were 40,000,000 shares authorized, of which 12,129,167
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. Two
directors previously elected by the stockholders who are standing for
re-election in 1998, one director nominated by the Board to fill a seat vacated
by a director who is not standing for re-election in 1998, and the four
directors whose terms do not expire in 1998, 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 1998 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>
DIRECTOR
NAME AGE PRINCIPAL POSITIONS WITH THE COMPANY SINCE
- ----------------------------- --- ------------------------------------ -----
NOMINEES FOR DIRECTOR FOR TERMS TO EXPIRE IN 2001
<S> <C> <C> <C>
Graham S. Folsom............. 40 Director 1992
Daniel R. Shaughnessy........ 47 Director 1997
Dewey E. Stringer............ 55 - -
CONTINUING DIRECTORS WHOSE TERMS EXPIRE IN 1999
Barry Feiner................. 63 Director 1995
Gary Gelman.................. 32 Director 1995
CONTINUING DIRECTORS WHOSE TERMS EXPIRE IN 2000
Tyrone J. Fairbanks.......... 41 President, Chief Executive Officer
and Director 1991
Dean W. Drulias.............. 51 Executive Vice President, General
Counsel, Corporate Secretary
and Director 1990
</TABLE>
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. KVI is a principal stockholder of the
Company. There is no arrangement between KVI and the Company with respect to the
appointment or selection of members of the Board. Mr. Folsom is chairman of the
Company's Audit 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 1997, the Company paid
Interpretation3 $182,000 for consulting services. Mr. Shaughnessy is a member of
the Company's Audit Committee.
Mr. Stringer has been the president of Petro-Guard Company, Inc.
("Petro-Guard") since 1982. Petro-Guard specializes in acquiring operated and
non-operated oil and gas properties, exploration utilizing 3D seismic technology
and organizing large exploration projects. Petro-Guard currently operates the
Espiritu Santo bay project in which the Company is a participant. Mr. Stringer
received his B.S. degree from the University of Houston in 1966 and serves on
the board of directors of First Houston Financial Services, Inc.
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. Mr. Feiner also serves on the board of directors of Alfin,
Inc. (AMEX). He is chairman of the Company's Compensation 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. 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.
3
<PAGE>
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. Mr. Drulias is a member of the
Compensation Committee.
The Company is not aware of any family relationship between any Directors
or Executive Officers of the Company. The Board of Directors met nine times
during 1997. No director attended fewer than 75% of the meetings of the Board.
The Compensation Committee and the Audit Committee of the Board each met once in
1997; all members were in attendance at the meeting of their respective
committees.
Section 16 of the Securities Exchange Act of 1934, as amended, requires the
Company's officers and directors and persons who own more than ten percent of a
registered class of the Company's equity securities to file reports of ownership
and changes in ownership with the Securities and Exchange Commission and to
furnish the Company with copies of all such forms which they file. Based upon
the Company's review of the forms it has received, the Company believes that
Messrs. Feiner and William T. Walker, Jr., a director of the Company who is not
standing for re-election, each filed one late Form 4 in 1997.
PRINCIPAL STOCKHOLDERS
The following table contains information, as of March 10, 1998, relating to
the beneficial ownership of Common Stock and securities convertible into Common
Stock of the Company by each person known to the Company to be the beneficial
owner of more than five percent of the outstanding shares of such Common Stock
and securities, by each officer and director, and by all officers and directors
as a group.
<TABLE>
<CAPTION>
Amount and Nature Percent
Name Of Beneficial Ownership Of Class
- -------------------------------------------------- ----------------------- --------
<S> <C> <C>
Barry Blank
5353 N. 16th St., Phoenix, AZ(1) 1,132,604 8.6%
William D. Forster
237 Park Ave, New York, NY (2) 715,000 5.7%
BSR Investments, Inc.
Paris, France(2) 715,000 5.7%
Klein Ventures, Inc.
1307 E. Pine St., Lodi, CA(3) 640,017 5.2%
Tyrone J. Fairbanks (Director, President and CEO)
515 W. Greens Rd., Houston, TX(4) 531,521 4.2%
John L. Collins (Vice President)
515 W. Greens Rd., Houston TX(4) 388,467 3.1%
Dean W. Drulias (Director, Executive Vice President,
General Counsel and Corporate Secretary)
515 W. Greens Rd., Houston, TX(4) 333,841 2.7%
J. Michael Urban (Vice President and CFO)
515 W. Greens Rd., Houston, TX(4) 323,701 2.6%
William T. Walker, Jr. (Director)
515 W. Greens Rd., Houston TX(4) 264,778 2.1%
Graham S. Folsom (Director)
515 W. Greens Rd., Houston, TX(4) 172,251 1.4%
Gary Gelman (Director)
515 W. Greens Rd., Houston, TX(4) 131,583 1.1%
Barry Feiner (Director)
515 W. Greens Rd., Houston, TX(4)(5) 127,993 1.0%
Daniel R. Shaughnessy (Director)
515 W. Greens Rd., Houston, TX(4) 72,400 *
All Officers and Directors
as a group of nine (9) persons 2,346,535 16.5%
========= =====
</TABLE>
- ----------
* indicates less than 1%.
4
<PAGE>
(1) Includes 137,000 shares of Common Stock and 17,917 shares of Common Stock
which underlie an equal number of private stock purchase warrants,
exercisable at $3.60 per warrant, issued in connection with the Company's
1997 Convertible Note offering; 777,687 shares of Common Stock which
underlie 541,000 publicly-traded stock purchase warrants held by Mr. Blank
and exercisable at $3.75 per warrant; 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
managing director of J. Robbins Securities, LLC., the underwriter for the
Company's 1997 Convertible Note offering.
(2) Includes 515,000 shares of Common Stock underlying stock purchase warrants
exercisable at $4.75 per share and expiring April 2000.
(3) 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 warrant. 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.
(4) Includes 506,999 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 $1.56 to $3.13 per share, and 3,080 shares
held by the trustees of the Company's 401(k) Plan for the benefit of Mr.
Fairbanks; an aggregate of 1,387,200 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 $1.56 to $3.13 per share;
88,289 shares issuable upon the exercise of 64,015 Common Stock purchase
warrants (at $4.41 per warrant) and 22,264 shares issuable upon exercise of
3,600 units (at $11.14 per unit 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; 7,187 shares issuable
upon exercise of 5,000 public warrants (at $3.75 per warrant) held by
Graham S. Folsom; 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 3,467 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 $2.56 per share) issued to J. Michael
Urban on March 11, 1996 and 3,701 shares held by the trustees of the
Company's 401(k) Plan for the benefit of Mr. Urban; 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 and 2,600 shares held
by the trustees of the Company's 401(k) Plan for the benefit of Mr.
Drulias.
(5) All shares shown, except those which underlie stock purchase options
granted to Mr. Feiner by virtue of his service as a director, are owned by
Janet Portelly, wife of Barry Feiner; Mr. Feiner disclaims beneficial
ownership of all such shares owned by Mrs. Portelly. The number shown
includes 14,375 shares issuable upon exercise of 10,000 public warrants (at
$3.75 per warrant).
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 other executive officers who received annual compensation
in excess of $100,000 (or at a rate in excess of $100,000):
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Annual Compensation Long Term Compensation
------------------------------------- Securities Underlying All Other
Name and Principal Salary Bonus Other (1) Options/Warrants Compensation
Position Year ($) ($) ($) (#) ($)
- -------------------------------- ------- --------- --------- --------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
Tyrone J. Fairbanks 1997 155,833 17,500 35,309 120,000 4,748
President and CEO 1996 150,000 - 20,934 80,000 3,000
1995 125,000 25,000 - 105,599 -
Dean W. Drulias 1997 125,000 3,000 - 75,000 4,750
Executive Vice President 1996 26,291 250 - 56,000 (2) 1,972
J. Michael Urban 1997 120,000 5,000 - 100,000 4,750
Chief Financial Officer 1996 97,308 - - 55,000 (3) 4,750
</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 $2.5625 per share (the market price of the
Common Stock on March 11, 1996, the date of issue) and expiring on March
11, 2001.
The following table lists the outstanding options held on December 31, 1997
by the Company's executive officers under Company's Stock Option Plans:
AGGREGATE OPTION EXERCISE IN LAST FISCAL YEAR
AND FY-END OPTION VALUES
<TABLE>
<CAPTION>
Number of Value of Unexercised
Unexercised Options/ in-the-Money Options/
Warrants at FY-End Warrants at FY-End
Shares Acquired Exercisable/ Exercisable/
Name on Exercise Value Realized ($) Unexercisable(1) Unexercisable
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Tyrone J. Fairbanks - - 406,999 / 0 -
Dean W. Drulias 6,400 - 151,000 / 0 -
J. Michael Urban - - 155,000 / 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 more than one-third 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 $160,000 and additional
compensation, in an amount not to exceed his annual salary, based upon the
increase in the value of the Company's stock. The term of Mr. Fairbanks'
employment contract extends through the later of May 31, 2000 or six months
following notice that the contract will not be extended further. 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 extends through
December 31, 1998.
STOCK OPTIONS
Fortune has three Stock Option Plans. All existing plans cover officers and
employees of the Company; those effective in 1993 and 1998 also provide for
options for directors of the Company. 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 1988 plan must be exercised within
ten years of the date of grant or they are forfeited. Options granted under the
1993 and 1998 plans must be exercised within five years of the date of grant or
they are forfeited.
All options available under the 1988 plan have been granted, and no shares
remain on which options may be granted. Options have been granted as follows:
(1) under the 1988 plan, options for 27,500 shares at $2.60 per share and (2)
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 615,000 shares from $1.88 to
$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. Options for
727,500 shares at $1.56 per share have been granted to date under the 1998 plan.
7
<PAGE>
The following table shows the grants of stock options during 1997 to each
of the executives named in the Summary
Compensation Table.
OPTION GRANTS IN 1997
<TABLE>
<CAPTION>
Individual Grants
-----------------------------------------------------------------
Number of % of Total Potential Realizable Value At
Securities Options Assumed Annual Rates Of
Underlying Granted to Stock Price Appreciation
Options Employees in Exercise or Base Expiration For Option Term
Name Granted Fiscal Year Price ($/Sh) Date 5% 10%
- ------------------- --------- ------------ ---------------- ----------------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Tyrone J. Fairbanks 120,000 20.2 3.00 February 13, 2002 $ 99,461 $ 219,784
Dean W. Drulias 75,000 12.6 3.00 February 13, 2002 62,163 137,365
J. Michael Urban 100,000 16.8 3.00 February 13, 2002 82,884 183,153
</TABLE>
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 Natural Resources 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 the maximum allowable by law. Salary deferrals will be matched
50% by the Company; matching contributions 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 1997, the Company's matching contribution was $24,000, all of which was
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 but, as discussed below, has adopted incentives as a component of the
compensation of its Chief Executive Officer. 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 provisions of the plan are also
consistent with prevailing practices in the oil and gas industry. 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. His base salary was
increased to $160,000 in June 1997, at which time the Company incorporated an
incentive component into his employment agreement. This provides for an annual
bonus based upon the increase, if any, in the Company's stock price as
determined in May of each year. Such bonus cannot exceed the amount of Mr.
Fairbanks' annual salary. Currently there are no other performance-based
criteria which may be relied upon to either increase or diminish his annual
salary.
Messrs. Feiner, Drulias, and Walker serve on the Company's Compensation
Committee, and each have specifically concurred in the foregoing report.
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, 1997. The graph
assumes that the value of the investment in the Company's Common Stock and each
index was $100 at December 31, 1992, and that all dividends were reinvested.
COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURN*
AMONG FORTUNE NATURAL RESOURCES CORPORATION,
THE AMEX MARKET VALUE INDEX
AND THE S & P OIL & GAS (EXPLORATION & PRODUCTION) INDEX
<TABLE>
<CAPTION>
Cumulative Total Return*
--------------------------------
Symbol 12/31/92 1993 1994 1995 1996 1997
-------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Fortune Natural Resources Corporation FPX $ 100 $ 35 $ 31 $ 81 $ 43 $ 44
AMEX Market Value Index IAMX 100 120 109 137 146 177
S & P Oil & Gas (Exploration & Production) Index IOIX 100 97 77 91 120 110
</TABLE>
*$100 invested on 12/31/92 in stock or index - including reinvestment of
dividends. Fiscal year ending December 31.
9
<PAGE>
RATIFICATION OF SELECTION OF INDEPENDENT PUBLIC ACCOUNTANTS
The Board of Directors selected KPMG Peat Marwick LLP as the Company's
independent public accountants for the fiscal year ending December 31, 1998, 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 LLP 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 LLP 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 LLP 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 LLP.
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, telegraph, or facsimile. Stockholder
proposals for the 1999 annual meeting of stockholders must be received no later
than November 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
March 20, 1998
10
<PAGE>
PROXY CARD
PROXY
FORTUNE NATURAL RESOURCES CORPORATION
ANNUAL MEETING OF STOCKHOLDERS -- APRIL 28, 1998
The undersigned stockholder(s) of Fortune Natural Resources 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
Natural Resources 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,
April 28, 1998 at the Hotel Sofitel located at 425 North Sam Houston Parkway
East, 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).
DANIEL R. SHAUGHNESSY GRAHAM S. FOLSOM DEWEY E. STRINGER
2. To ratify the selection of KPMG Peat Marwick LLP as independent
auditors for the fiscal year ending December 31, 1998.
/ / FOR / / AGAINST / / ABSTAIN
3. 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" PROPOSAL 2. THE PROXY CONFERS AUTHORITY TO VOTE, AND SHALL BE
VOTED, "AUTHORITY GIVEN" FOR PROPOSAL 1 AND "FOR" PROPOSAL 2, 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 / /
