SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934
Filed by the Registrant [X]
FILED BY THE PARTY OTHER THAN THE REGISTRANT [ ]
Check the appropriate box:
[X] Preliminary Proxy Statement
[ ] Confidential for use of the Commission Only
(as permitted by Rule 14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
PEASE OIL AND GAS COMPANY
(Name of Registrant as Specified in its Charter)
PEASE OIL AND GAS COMPANY
(Name of Person(s) Filing Proxy Statement)
Payment of Filing Fee (Check the appropriate box):
[X] $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-6(i)(2) or
Item 22(a)(2) of Schedule 14A.
[ ] $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 the transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the filing fee
is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
<PAGE>
COMMON STOCK
PROXY
PEASE OIL AND GAS COMPANY
PROXY SOLICITED BY THE BOARD OF DIRECTORS
FOR THE ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD JUNE 8, 1996
The undersigned hereby constitute(s) and appoint(s) Willard H. Pease, Jr.
and Patrick J. Duncan, and each of them the true and lawful attorneys and
proxies ("Proxies") of the undersigned with full power of substitution and
appointment, for and in the name, place and stead of the undersigned, to act for
and to vote all of the undersigned's shares of common stock of Pease Oil and Gas
Company (the "Company") at the Annual Meeting of Stockholders to be held at the
Ramada Inn, 2790 Crossroads Boulevard, Grand Junction, Colorado, 81506, on
Saturday, June 8, 1996, at 10:00 a.m., Mountain Daylight Time, and at any and
all adjournments thereof, for the following purposes:
(1) ELECTION OF DIRECTORS
[ ] FOR all Class C director nominees listed below (except as marked to
the contrary below)
[ ] WITHHOLD AUTHORITY to vote for all nominees listed below
INSTRUCTIONS: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL
NOMINEE STRIKE A LINE THROUGH THE NOMINEE'S NAME IN THE LIST
BELOW.
WILLARD H. PEASE, JR.
WILLIAM F. WARNICK
(2) To amend Section 6.1 Automatic Conversion, of the Company's Certificate
of Designation of Series A Cumulative Convertible Preferred Stock to read as
follows:
"6.1 Automatic Conversion. If at any time after the issuance of
the Series A Preferred Stock, the last reported sales price for
the Company's $.10 par value Common Stock as reported on the
NASDAQ System (or the closing price as reported on any national
securities exchange on which the Common Stock is then listed),
shall, for a period of five (5) consecutive trading days, equals
or exceeds $2.50 per share, then, effective as of the close of
business on the fifth such trading day, all shares of Series A
Preferred Stock then outstanding and all accrued and undeclared
dividends thereon shall immediately and automatically without
further notice be converted into shares of Common Stock and
Warrants to purchase Common Stock ("Warrants") at the rate of
four shares of Common Stock and Warrants to purchase four shares
<PAGE>
of Common Stock for each share of Preferred Stock. In all
other respects the conversion shall have the same effect and the
same result as if an optional conversion occurred as described in
this Section 6."
[ ] FOR [ ] AGAINST [ ] ABSTAIN
(3) To amend the Company's Certificate of Designation of Series A
Cumulative Convertible Preferred Stock to delete Section 4.2 Election of
Directors, in the event that no persons are nominated for election at this
Meeting by the holders of the Company's Series A Cumulative Convertible
Preferred Stock to serve on the Company's Board of Directors.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
(4) Approval of the Company's 1996 Stock Option Plan.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
(5) In their discretion, the Proxies are authorized to vote upon such other
business as may lawfully come before the meeting, hereby revoking any Proxies as
to said shares heretofore given by the undersigned and ratifying and confirming
all that said attorneys and proxies may lawfully do by virtue hereof.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED
HEREIN BY THE UNDERSIGNED STOCKHOLDER(S). UNLESS OTHERWISE INSTRUCTED ABOVE, THE
SHARES REPRESENTED BY THIS PROXY WILL BE VOTED AT THE MEETING FOR ELECTION OF
THE NOMINEES FOR DIRECTOR AS SELECTED BY THE BOARD OF DIRECTORS, AND IN FAVOR OF
PROPOSALS (2), (3) AND (4).
It is understood that this Proxy confers discretionary authority in respect
of matters not known or determined at the time of the mailing of the Notice of
Annual Meeting of Stockholders to the undersigned.
The undersigned hereby acknowledges receipt of the Notice of Annual Meeting
of Stockholders and the Proxy Statement furnished therewith.
Dated and Signed:
___________________________________, 1996
-----------------------------------------
-----------------------------------------
Signature(s) of Stockholder(s)
<PAGE>
Signature(s) should agree with the name(s) stenciled hereon. Executors,
administrators, trustees, guardians and attorneys should so indicate when
signing. Attorneys should submit powers of attorney.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS. PLEASE SIGN AND
RETURN THIS PROXY TO AMERICAN SECURITIES TRANSFER, INC., P.O. BOX 1596, DENVER,
COLORADO 80201-9975. THE GIVING OF A PROXY WILL NOT AFFECT YOUR RIGHT TO VOTE IN
PERSON IF YOU ATTEND THE MEETING.
<PAGE>
SERIES A CUMULATIVE CONVERTIBLE PREFERRED STOCK
PROXY
PEASE OIL AND GAS COMPANY
PROXY SOLICITED BY THE BOARD OF DIRECTORS
FOR THE ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD JUNE 8, 1996
The undersigned hereby constitute(s) and appoint(s) Willard H. Pease, Jr.
and Patrick J. Duncan, and each of them the true and lawful attorneys and
proxies ("Proxies") of the undersigned with full power of substitution and
appointment, for and in the name, place and stead of the undersigned, to act for
and to vote all of the undersigned's shares of Series A Cumulative Convertible
Preferred Stock of Pease Oil and Gas Company (the "Company") at the Annual
Meeting of Stockholders to be held at the Ramada Inn, 2790 Crossroads Boulevard,
Grand Junction, Colorado, 81506, on Saturday, June 8, 1996, at 10:00 a.m.,
Mountain Daylight Time, and at any and all adjournments thereof, for the
following purposes:
(1) ELECTION OF DIRECTORS
[ ] FOR all Series A Preferred director nominees listed below (except as
marked to the contrary below)
[ ] WITHHOLD AUTHORITY to vote for all nominees listed below
INSTRUCTIONS: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE STRIKE A
LINE THROUGH THE NOMINEE'S NAME IN THE LIST BELOW.
-------------------------------------
-------------------------------------
(2) To amend the Company's Certificate of Designation of Series A
Cumulative Convertible Preferred Stock to delete Section 4.2 Election of
Directors, in the event that no persons are nominated for election at this
Meeting by the holders of the Company's Series A Cumulative Convertible
Preferred Stock to serve on the Company's Board of Directors.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
(3) To amend Section 6.1 Automatic Conversion, of the Company's Capital
Certificate of Designation of Series A Cumulative Convertible Preferred Stock to
read as follows:
"6.1 Automatic Conversion. If at any time after the issuance of
the Series A Preferred Stock, the last reported sales price for
the Company's $.10 par value Common Stock as reported on the
<PAGE>
NASDAQ System (or the closing price as reported on any national
securities exchange on which the Common Stock is then listed),
shall, for a period of five (5) consecutive trading days, equals
or exceeds $2.50 per share, then, effective as of the close of
business on the fifth such trading day, all shares of Series A
Preferred Stock then outstanding and all accrued and undeclared
dividends thereon shall immediately and automatically without
further notice be converted into shares of Common Stock and
Warrants to purchase Common Stock ("Warrants") at the rate of
four shares of Common Stock and Warrants to purchase four shares
of Common Stock for each share of Preferred Stock. In all other
respects the conversion shall have the same effect and the same
result as if an optional conversion occurred as described in this
Section 6.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
(4) In their discretion, the Proxies are authorized to vote upon such other
business as may lawfully come before the meeting, hereby revoking any Proxies as
to said shares heretofore given by the undersigned and ratifying and confirming
all that said attorneys and proxies may lawfully do by virtue hereof.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED
HEREIN BY THE UNDERSIGNED STOCKHOLDER(S). UNLESS OTHERWISE INSTRUCTED ABOVE, THE
SHARES REPRESENTED BY THIS PROXY WILL BE VOTED AT THE MEETING FOR ELECTION OF
THE NOMINEES FOR DIRECTOR AS SELECTED BY THE BOARD OF DIRECTORS, AND IN FAVOR OF
PROPOSALS (2) AND (3).
It is understood that this Proxy confers discretionary authority in respect
to matters not known or determined at the time of the mailing of the Notice of
Annual Meeting of Stockholders to the undersigned.
The undersigned hereby acknowledges receipt of the Notice of Annual Meeting
of Stockholders and the Proxy Statement furnished therewith.
Dated and Signed:
___________________________________, 1996
-----------------------------------------
-----------------------------------------
Signature(s) of Stockholder(s)
Signature(s) should agree with the name(s) stenciled hereon. Executors,
administrators, trustees, guardians and attorneys should so indicate when
signing. Attorneys should submit powers of attorney.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS. PLEASE SIGN AND
RETURN THIS PROXY TO AMERICAN SECURITIES TRANSFER, INC., P.O. BOX 1596, DENVER,
COLORADO 80201-9975. THE GIVING OF A PROXY WILL NOT AFFECT YOUR RIGHT TO VOTE IN
PERSON IF YOU ATTEND THE MEETING.
<PAGE>
PEASE OIL AND GAS COMPANY
751 Horizon Court, Suite 203
Grand Junction, Colorado 81506
------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To Be Held on June 8, 1996
------------------
To Our Stockholders:
The Annual Meeting of Stockholders of Pease Oil and Gas Company, a Nevada
corporation ("Company"), will be held at the Ramada Inn, 2790 Crossroads
Boulevard, Grand Junction, Colorado 81506, on Saturday, June 8, 1996, at 10:00
a.m., Mountain Daylight Time, for the following purposes:
MATTERS TO BE VOTED UPON BY HOLDERS OF COMMON STOCK
(1) The election of two Class C directors to serve on the Company's Board
of Directors totalling nine directors.
(2) A proposal to amend Section 6.1, Automatic Conversion, of the
Company's Certificate of Designation of Series A Cumulative
Convertible Preferred Stock ("Preferred Stock") to change the
automatic conversion rate of the Preferred Stock into shares of Common
Stock, as described below.
(3) A proposal to amend the Company's Certificate of Designation of Series
A Cumulative Convertible Preferred Stock to delete Section 4.2
Election of Directors, in the event that no persons are nominated for
election at this Meeting by the holders of the Company's Series A
Cumulative Convertible Preferred Stock to serve on the Company's Board
of Directors.
(4) A proposal to approve the Company's 1996 Stock Option Plan.
(5) Such other matters as may properly come before the meeting or any
adjourn- ment thereof.
MATTERS TO BE VOTED UPON BY HOLDERS OF PREFERRED STOCK
(1) The election of two directors to represent the holders of Preferred
Stock on the Company's Board of Directors totalling nine directors.
(2) A proposal to amend the Company's Certificate of Designation of Series
A Cumulative Convertible Preferred Stock to delete Section 4.2
Election of Directors, in the event that no persons are nominated for
election at this Meeting by the holders of the Company's Series A
Cumulative Convertible Preferred Stock to serve on the Company's Board
of Directors.
<PAGE>
(3) A proposal to amend Section 6.1, Automatic Conversion, of the
Company's Certificate of Designation of Series A Cumulative
Convertible Preferred Stock to change the automatic conversion rate of
the Preferred Stock into shares of Common Stock, as described below.
(4) Such other matters as may properly come before the meeting or any
adjourn- ment thereof and which may properly be voted upon by the
holders of Preferred Stock.
Only stockholders of record at the close of business on May 8, 1996, are
entitled to notice of and to vote at the meeting.
BY ORDER OF THE BOARD OF DIRECTORS
PATRICK J. DUNCAN
Corporate Secretary
Grand Junction, Colorado
May 8, 1996
- --------------------------------------------------------------------------------
THE FORM OF PROXY IS ENCLOSED. TO ASSURE THAT YOUR SHARES WILL BE VOTED AT THE
MEETING, PLEASE COMPLETE AND SIGN THE ENCLOSED WHITE PROXY FOR HOLDERS OF COMMON
STOCK OR THE BLUE PROXY FOR HOLDERS OF PREFERRED STOCK AND RETURN IT PROMPTLY IN
THE ENCLOSED, POSTAGE PREPAID, ADDRESSED ENVELOPE. IF YOU ARE A HOLDER OF SHARES
OF BOTH COMMON STOCK AND PREFERRED STOCK, PLEASE COMPLETE AND RETURN BOTH CARDS.
NO ADDITIONAL POSTAGE IS REQUIRED IF MAILED IN THE UNITED STATES. THE GIVING OF
A PROXY WILL NOT AFFECT YOUR RIGHT TO VOTE IN PERSON IF YOU ATTEND THE MEETING.
<PAGE>
PEASE OIL AND GAS COMPANY
751 Horizon Court, Suite 203
Grand Junction, Colorado 81506
PROXY STATEMENT
ANNUAL MEETING OF STOCKHOLDERS
To Be Held June 8, 1996
The enclosed Proxy is solicited by and on behalf of the Board of Directors
of Pease Oil and Gas Company ("Company") for use at the Company's Annual Meeting
of Stockholders to be held at 10:00 a.m. Mountain Daylight Time, at the Ramada
Inn, 2790 Crossroads Boulevard, Grand Junction, Colorado 81506, on Saturday,
June 8, 1996, and at any adjournment thereof. It is planned that this Proxy
Statement and the accompanying Proxy will be mailed to the Company's
stockholders on or about May 9, 1996.
Any person signing and mailing the enclosed Proxy may revoke it at any time
before it is voted by (i) giving written notice of the revocation to the
Company's corporate secretary; (ii) voting in person at the Meeting; or (iii)
voting again by submitting a new proxy card. Only the latest dated proxy card,
including one which a person may vote in person at the Meeting, will count. If
you are a stockholder of both Common Stock and Preferred Stock, you should
receive with the Proxy Statement both a White Proxy and a Blue Proxy. You may
vote on all matters described herein.
VOTING SECURITIES AND PRINCIPAL STOCKHOLDERS
AND SECURITY OWNERSHIP OF MANAGEMENT
All voting rights, except the special voting rights granted to the holders
of Series A Cumulative Convertible Preferred Stock ("Preferred Stock"), are
vested exclusively in the holders of the Company's $0.10 par value common stock
("Common Stock") with each share entitled to one vote. Holders of Common Stock
are entitled to vote at the Meeting for the election of two Class C directors to
the Company's Board of Directors, on a proposal to amend the Certificate of
Designation of the Series A Cumulative Convertible Preferred Stock
("Designation") to change the automatic conversion rate of Preferred Stock into
Common Stock and on a proposal to approve the Company's 1996 Stock Option Plan.
Holders of the Company's outstanding Preferred Stock are entitled to vote at the
meeting to elect two directors to represent them on the Company's Board of
Directors pursuant to the terms of the Designation, on a proposal to amend the
Designation to eliminate Section 4.2 which provides certain rights to holders of
Preferred Stock to elect Directors, and a proposal to amend the
- 1 -
<PAGE>
Designation to change the conversion rate of the Preferred Stock. Cumulative
voting in the election of directors is not permitted. Only stockholders of
record at the close of business on May 8, 1996, are entitled to notice of and to
vote at the meeting or any adjournments thereof. On May 9, 1996, the Company had
_____________ shares of Common Stock and ______ shares of Preferred Stock
outstanding.
The following table sets forth certain information regarding the beneficial
ownership of the Company's Common Stock, by (i) each person who is known to the
Company to own beneficially more than 5% of the outstanding Common Stock with
the address of each such person, (ii) each of the Company's directors and
officers, and (iii) all officers and directors as a group:
<TABLE>
<CAPTION>
Name and Address of Amount and Nature of
Beneficial Owner Beneficial Ownership(1) Percent of Class
- ------------------- ---------------------- ----------------
<S> <C> <C>
Willard H. Pease, Jr ................... 702,139 Shares (2) 9.4%
P.O. Box 1874
Grand Junction, CO 81502
James C. Ruane ......................... 235,644 Shares (3) 3.2%
5010 Market St
San Diego, CA 92102
Patrick J. Duncan ...................... 134,531 Shares (4) 1.8%
P.O. Box 1874
Grand Junction, CO 81502
James N. Burkhalter .................... 130,709 Shares (5) 1.8%
P.O. Box 1874
Loveland, CO 80537
William F. Warnick ..................... 47,508 Shares (6) 0.7%
2022 Broadway
Lubbock, TX 79401
Robert V. Timlin ....................... 37,095 Shares (7) 0.5%
1989 South Balsam
Lakewood, CO 80277
Homer C. Osborne ....................... 22,342 Shares (8) 0.3%
1200 Preston Road #900
Dallas, TX 75230
All Officers and Directors ........... 1,309,968 Shares (9) 16.6%
as a group (seven persons)
Chester LF Paulson & ................... 523,750 Shares(10) 7.1%
Jacqueline M. Paulson JTWROS
811 SW Front Avenue
Suite 200
Portland, OR 97204-3376
Beta Capital Group, Inc. ............... 1,000,000 Shares(11) 12.2%
901 Dove Drive, Suite 230
Newport Beach, CA 92660
- 2 -
</TABLE>
<PAGE>
- 2 -
- -----------------------
(1) Beneficial owners listed have sole voting and investment power with respect
to the shares unless otherwise indicated.
(2) Includes 61,173 shares that are owned directly by Mr. Pease, over which
shares Mr. Pease has sole voting and investment power, 364,966 shares are
owned by entities affiliated with Mr. Pease over which shares Mr. Pease has
sole voting and investment power, 148,500 shares underlying presently
exercisable options owned by Mr. Pease, 101,500 shares underlying presently
exercisable warrants owned by Mr. Pease, and 26,000 shares underlying a
convertible promissory note owned by Mr. Pease.
(3) Includes 4,560 shares held by Mr. Ruane as trustee for two trusts, over
which shares Mr. Ruane may be deemed to have shared voting and investment
power, 11,250 shares underlying convertible preferred stock, 44,584 shares
underlying presently exercisable warrants to purchase common stock and
56,675 shares underlying presently exercisable options.
(4) Includes 3,281 shares underlying presently exercisable warrants and 105,000
shares underlying presently exercisable options.
(5) Includes 115,000 shares underlying presently exercisable options.
(6) Includes 32,675 shares underlying presently exercisable options.
(7) Includes 32,675 shares underlying presently exercisable options.
(8) Includes 17,975 shares underlying presently exercisable options.
(9) Includes 508,500 shares underlying presently exercisable options, 149,365
shares underlying presently exercisable warrants, 11,250 shares underlying
convertible preferred stock, and 26,000 shares underlying a convertible
note.
(10) Includes 178,480 shares underlying presently exercisable warrants.
(11) Represents 1,000,000 shares underlying presently exercisable warrants.
The following table sets forth certain information regarding the ownership
of the Company's Preferred Stock by (i) each person who is known to the Company
- 3 -
<PAGE>
to own beneficially more than five percent (5%) of the outstanding Preferred
Stock with the address of each such person, (ii) each of the Company's officers
and directors, and (iii) all officers and directors as a group.
<TABLE>
<CAPTION>
Name and Address of Amount and Nature of Percent
Beneficial Owner Beneficial Ownership of Class
- ------------------- -------------------- --------
<S> <C> <C>
James C. Ruane ...................................... 4,000 1.9%
5010 Market Street
San Diego, CA 92102
All Officers and Directors as a group ............... 4,000 1.9%
(seven persons)
</TABLE>
ACTIONS TO BE TAKEN AT MEETING
The meeting is called by the Board of Directors to consider and act upon
the following matters:
Action To Be Taken By The Holders of Common Stock
(1) The election of two Class C directors to serve on the Board of
Directors;
(2) A proposal to amend the Certificate of Designation of the Series A
Cumulative Convertible Preferred Stock to change the automatic
conversion rate of Preferred Stock into Common Stock;
(3) A proposal to amend the Company's Certificate of Designation of Series
A Cumulative Convertible Preferred Stock to delete Section 4.2
Election of Directors, in the event that no persons are nominated for
election at this Meeting by the holders of the Company's Series A
Cumulative Convertible Preferred Stock to serve on the Company's Board
of Directors.
(4) Approval of the Company's 1996 Stock Option Plan; and
(5) Such other matters as may properly come before the meeting or any
adjournment thereof.
To vote on these matters, please mark, sign and date the WHITE Proxy and
return it in the enclosed envelope.
Action To Be Taken By The Holders of Preferred Stock
- 4 -
<PAGE>
(1) The election of two additional directors to represent the holders of
Preferred Stock of the Company on the Company's Board of Directors;
(2) A proposal to amend the Company's Certificate of Designation of Series
A Cumulative Convertible Preferred Stock to delete Section 4.2
Election of Directors, in the event that no persons are nominated for
election at this Meeting by the holders of the Company's Series A
Cumulative Convertible Preferred Stock to serve on the Company's Board
of Directors.
(3) A proposal to amend the Certificate of Designation of the Series A
Cumulative Convertible Preferred Stock to change the automatic
conversion rate of Preferred Stock into Common Stock; and
(4) Such other matters as may properly come before the meeting or any
adjournment thereof and which may properly be voted on by the holders
of Preferred Stock.
To vote on these matters, please mark, sign and date the BLUE Proxy and
return it in the enclosed envelope.
The holders of a majority of the outstanding shares of the Company,
including both Common Stock and Preferred Stock taken together, present at the
meeting in person or represented by proxy, shall constitute a quorum. Directors
shall be elected by a plurality of the vote with respect to each class of stock
voting, i.e., the candidates for each class of stock receiving the highest
number of votes cast in favor of their election will be elected to the Board of
Directors. Where brokers have not received any instruction from their clients on
how to vote on a particular proposal, brokers are permitted to vote on routine
proposals but not on non- routine matters. The absence of votes on non-routine
matters are "broker non-votes". Abstentions and broker non-votes will be counted
as present for purposes of establishing a quorum, but will have no effect on the
election of directors. There are no dissenters' rights applicable to the
election of directors. Abstentions and broker non-votes on proposals other than
the election of directors will be counted as present for purposes of the
proposal and will have the effect of a vote against the proposals.
Matters to be voted on by holders of Common Stock are set forth first and
matters to be voted on by holders of Preferred Stock follow.
Matters to Be Voted on by Holders of Common Stock
PROPOSAL ONE
ELECTION OF DIRECTORS
The number of directors on the Company's Board of Directors has been
established by the Bylaws of the Company and by resolution of the Board of
- 5 -
<PAGE>
Directors as seven directors in three classes. (However, because certain Company
events have triggered the right of the holders of Preferred Stock to elect two
directors, the number of directors on the Board will be nine following the
Meeting.) The terms of the Class A directors expire in 1998, the terms of the
Class B directors expire in 1998 and the terms of the Class C directors expire
at this meeting. Each director is elected for a term of three years, with the
result that each year the stockholders will elect one class of directors.
The persons named on the WHITE enclosed form of Proxy will vote the shares
represented by such Proxy for the election of the two nominees for directors
named below. If, at the time of the meeting, either of these nominees shall
become unavailable for any reason, which event is not expected to occur, the
persons entitled to vote the Proxy will vote for such substitute nominee or
nominees, if any, as they determine in their sole discretion. If elected, the
Class C directors will hold office until the annual meeting of stockholders to
be held in 1999. The nominees for directors, each of whom has consented to serve
if elected, are as follows:
<TABLE>
<CAPTION>
Director
Name of Nominee Since Age Principal Occupation for Last Five Years
- --------------- -------- --- ----------------------------------------
<S> <C> <C> <C>
Willard H. Pease, Jr. ....... 1988 36 Chairman of the Board, President and Chief Exec-
(Class C Director) utive Officer of the Company since August 1990.
From 1983 to 1990, Mr. Pease was executive Vice President
and Chief Operating Officer of the Company. Mr. Pease is
responsible for corporate finance for the Company, manages
the day-to-day operations of the Company and is principally
responsible for the Company's oil and gas exploration and
production activities. He has worked in the oil field
business for over 16 years and has received a B.A. degree in
Management with additional educational focus in geology from
Mesa State College in 1983.
William F. Warnick .......... 1988 49 Mr. Warnick is an attorney practicing in Lubbock, Texas. He
(Class C Director) received his B.A. degree in finance from Texas Tech Univer-
sity and his J.D. degree from the University of Texas in
1971. Mr. Warnick serves as the Texas Attorney General's
appointee to the Texas School Board Land Commission and is a
member of the American, Texas and Lubbock Bar Associations.
He is an oil and gas investor and has served in various
management positions of private independent oil and gas
companies.
</TABLE>
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<PAGE>
THE BOARD OF DIRECTORS RECOMMENDS A VOTE IN FAVOR OF ELECTION OF THE TWO
(2) NOMINEES LISTED ABOVE.
Information concerning the other directors of the Company whose terms
extend beyond this Meeting is as follows.
<TABLE>
<CAPTION>
Director Principal Occupation
Name of Nominee Since Age for Last Five Years
- ---------------- -------- --- ---------------------
<S> <C> <C> <C>
Robert V. Timlin ............ 1981 65 Mr. Timlin is self-employed as a consulting petroleum
(Class A Director) engineer. He has been involved in the oil and gas industry
for over 30 years and has served in a managerial capacity
with several companies, including HMT Management, Inc., and
oil and gas management firm, from 1983 to 1988; T&M Casing
Service, Inc. from 1975 until 1983; Dowell, Studer, Inc.,
and Husky Oil Com- pany. Mr. Timlin received his B.S. degree
from the University of Wyoming in 1957.
James N. Burkhalter ......... 1993 60 Mr. Burkhalter became Vice President of Engineering and Pro-
(Class A Director) uction for the Company in August 1993. Prior to joining the
Company, he was the owner and President of Burkhalter
Engineering, which he formed in 1975. Mr. Burkhalter is
responsible for the Company's engineering, production,
environmental compliance and gas plant operations. He has
been Chairman of the Colorado Board of Registration for
Professional Engineers and Surveyors, serving eight years.
From 1959 to 1975 Mr. Burkhalter worked for Amoco and Rocky
Mountain Natural Gas as a Petroleum Engineer. He received a
B.S. degree in petroleum engineering from Colorado School of
Mines in 1959.
- 7 -
<PAGE>
<CAPTION>
Director Principal Occupation
Name of Nominee Since Age for Last Five Years
- ---------------- -------- --- ---------------------
<S> <C> <C> <C>
Patrick J. Duncan ........... 1995 33 Mr. Duncan has been the Company's Chief Financial
(Class A Director) Officer since September 1994, the Company's Corporate
Secretary since April 1995, and the Company's Treasurer
since March 1996. Mr. Duncan is responsible for all the
financial, accounting and administrative reporting and
compliance obligations of the Company. Mr. Duncan was an
Audit Manager with HEIN + ASSOCIATES, LLP Certified Public
Accountants, from 1991 until joining the Company as the
Company's Controller in April 1994. From 1988 until 1991,
Mr. Duncan was an Audit Su- pervisor with Coopers & Lybrand,
LLP Certified Public Accountants.
James C. Ruane .............. 1980 62 Mr. Ruane has been an oil and gas investor for over 20
(Class B Director) years. He has served continually as a member of the Board of
Directors for over 10 years. Since 1958 Mr. Ruane has owned
and operated Goodall's Charter Bus Service, Inc., a bus
chartering business representing Grey Line in San Diego,
California.
Homer C. Osborne ............ 1994 67 In September 1967, Mr. Osborne co-founded Garrett Computing
(Class B Director) Systems, Inc., a petroleum engineering and computing firm.
He was an officer and director of Garrett Computing until
March 1976, at which time he organized Osborne Oil Company
as a wholly-owned subsidiary of Garrett Computing. Mr.
Osborne has operated Osborne Oil Company as a separate
entity since April 1976. He was appointed by the Company's
Board of Directors effective April 1, 1994, to serve as a
Class B director.
</TABLE>
The Company's Board of Directors held 11 meetings during 1995. Five
meetings consisted of consent minutes signed by all directors and six were
actual meetings at which all directors were present except Messrs. Fitch and
Warnick who were not present at one meeting each.
The Company has an audit committee, consisting of Patrick J. Duncan and
Willard H. Pease, Jr., which did not meet in 1995. The functions of the audit
committee are to review financial statements, meet with the Company's
independent auditors and address accounting matters or questions raised by the
auditors.
- 8 -
<PAGE>
The Company has a compensation committee consisting of James C. Ruane,
Homer C. Osborne and William F. Warnick, which met once in 1995 at which meeting
all members were present. The functions of the compensation committee are to
review compensation of officers and employees and administer and award options
under all stock option plans of the Company.
EXECUTIVE OFFICERS
The executive officers of the Company are elected annually at the first
meeting of the Company's Board of Directors held after each annual meeting of
stockholders. Each executive officer of the Company holds office until his
successor is duly elected and qualified, his death or resignation or his removal
in the manner provided by the Company's Bylaws.
There are no family relationships between any of the directors and
executive officers.
There was no arrangement or understanding between any executive officer and
any other person pursuant to which any person was selected as an executive
officer.
COMPLIANCE WITH SECTION 16(a) OF THE
SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
officers and directors, and persons who own more than ten percent of the
Company's Common Stock, to file reports of ownership and changes in ownership
with the Securities and Exchange Commission ("SEC"). Officers, directors and
greater than ten percent stockholders are required by SEC regulations to furnish
the Company with copies of all Section 16(a) forms which they file.
The following disclosure is based solely upon a review of the Forms 3 and 4
and any amendments thereto furnished to the Company during the Company's fiscal
year ended December 31, 1995, and Forms 5 and amendments thereto furnished to
the Company with respect to such fiscal year, or written representations that no
Forms 5 were required to be filed by such persons. Based on this review the
following persons who were directors, officers and beneficial owners of more
than 10% of the Company's outstanding Common Stock during such fiscal year filed
late reports on Forms 3 and 4.
James N. Burkhalter filed two late reports on Form 4 reporting a total of
four transactions. Patrick J. Duncan filed three late reports on Form 4
reporting a total of six transactions. Homer C. Osborne filed one late report on
Form 4 reporting two transactions. Willard H. Pease, Jr., filed four late
reports on Form 4 reporting a total of 17 transactions. James C. Ruane filed one
late report on Form 4 reporting two transactions. Robert V. Timlin filed one
late report on Form 4 reporting five transactions. William F. Warnick filed one
late report on Form 4 reporting six transactions.
EXECUTIVE COMPENSATION
Summary Compensation Table
The Summary Compensation Table shows certain compensation information for
services rendered in all capacities during each of the last three fiscal years
by the Chief Executive Officer. No executive officer's salary and bonus for
fiscal year 1995 exceeded $100,000. The following information for the Chief
Executive Officer includes the dollar value of base salary, bonus awards, the
number of stock options granted and certain other compensation, if any, whether
paid or deferred.
- 9 -
<PAGE>
<TABLE>
<CAPTION>
Summary Compensation Table
Long Term
Compensation
Annual Compensation Awards
-------------------------------------------- -------------
Other Annual Number of All Other
Name and Principal Salary Bonus Compensation Options Compensation
Position at 12/31/94 Year ($) ($) ($) Granted ($)
- -------------------- ---- -------- --------- ------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Willard H. Pease, Jr. .........1995 ......... 75,000 0 0 139,600 0
President and Chief 1994 ......... 75,000 0 0 -- 0
Executive Officer 1993 ......... 75,000 0 0 62,000 0
- -----------------------
</TABLE>
(1) No bonuses have been paid to Mr. Pease. In addition, no amounts have
been shown as Other Annual Compensation because the aggregate
incremental cost to the Company of personal benefits provided to Mr.
Pease did not exceed the lesser of $50,000 or 10% of their annual
salary and bonus in any given year.
Option Grants in the Last Fiscal Year
Set forth below is information relating to grants of stock options to the
Chief Executive Officer pursuant to the Company's Stock Option Plans during the
fiscal year ended December 31, 1995.
<TABLE>
<CAPTION>
Individual Grants
--------------------------------------------------------------------------
% of Total
Options SARs
Granted to
Options/ Employees Exercise or Base Expiration
Name SARs Granted (#) Fiscal Year Price ($/Sh)(3) Date
- ---- --------------- ------------ ---------------- -----------
<S> <C> <C> <C> <C>
Willard H. Pease, Jr ............................ 99,600 22.9% $ 0.83 05/15/00
President and Chief 40,000 9.2% $ 0.70 06/15/00
Executive Officer
- -------------------
</TABLE>
(1) These options became exercisable on November 16, 1995.
(2) These options became exercisable on December 16, 1995.
(3) The exercise price for all options listed above was 100% of the market
price of the Common Stock on the date of grant of the options.
- 10 -
<PAGE>
Aggregated Option Exercises in Last Fiscal Year and Fiscal
Year-End Option Values
Set forth below is information with respect to the unexercised options to
purchase the Company's Common Stock held by Mr. Pease at December 31, 1995. No
options were exercised during fiscal 1995.
<TABLE>
<CAPTION>
Value of Unexercised
Number of Unexercised In-the-Money Options
Options at FY-End (#) at FY-End ($)(1)(2)
----------------------------------- ----------------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
- ---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Willard H. Pease, Jr. ............... 139,600 -0- -0- -0-
- -----------------
</TABLE>
(1) Mr. Pease did not exercise any options during 1995.
(2) None of the exercisable options held by Mr. Pease were in-the-money at
December 31, 1995.
Compensation of Directors
Directors who are employees do not receive additional compensation for
service as directors. Other directors each receive $350 per meeting attended and
$50 per meeting conducted via telephone conference. Directors may elect to
receive the compensation either in cash or stock.
Employment Contract with a Director
The Company has entered into an employment agreement with Willard H. Pease,
Jr., the Company's President, Chief Executive Officer and Chairman of the Board
of Directors. The employment agreement may be terminated by the Company without
cause on 30 days notice provided that the Company continues to pay the salary of
Mr. Pease for 36 months. The salary must be paid in a lump sum if the
termination occurs after a change in control of the Company as defined in the
employment agreement. Mr. Pease may terminate the employment agreement on 90
days written notice. The base salary of Mr. Pease under the employment agreement
is $75,000 per year.
PROPOSAL TWO
PROPOSAL TO AMEND THE CERTIFICATE OF DESIGNATION OF THE
SERIES A CUMULATIVE CONVERTIBLE PREFERRED STOCK
TO CHANGE THE AUTOMATIC CONVERSION RATE OF
THE PREFERRED STOCK
The Board of Directors of the Company has adopted a resolution recommending
that stockholders approve the following amendment to the Certificate of
Designation of the Series A Cumulative Convertible Preferred Stock of the
Company which would change the rate at which the outstanding shares of Preferred
Stock are automatically convertible into shares of Common Stock of the Company.
- 11 -
<PAGE>
The Certificate would be amended to read as follows:
"6.1 Automatic Conversion. If at any time after the issuance of
the Series A Preferred Stock, the last reported sales price for
the Company's $.10 par value Common Stock as reported on the
NASDAQ System (or the closing price as reported on any national
securities exchange on which the Common Stock is then listed),
shall, for a period of five (5) consecutive trading days, equals
or exceeds $2.50 per share, then, effective as of the close of
business on the fifth such trading day, all shares of Series A
Preferred Stock then outstanding and all accrued and undeclared
dividends thereon shall immediately and automatically without
further notice be converted into shares of Common Stock and
Warrants to purchase Common Stock ("Warrants") at the rate of
four shares of Common Stock and Warrants to purchase four shares
of Common Stock for each share of Preferred Stock. In all other
respects the conversion shall have the same effect and the same
result as if an optional conversion occurred as described in this
Section 6."
In light of the 955,092 shares of Preferred Stock converted as of May 8,
1996, the Company's equity structure has substantially changed, and the
Preferred Stock has become a minority interest in the Company's capitalization.
With only 202,688 shares of Preferred Stock outstanding as of April 7, 1996,
there is very little trading activity in the market and the Company cannot
ascertain that a market for the Preferred Stock will continue or that the
Preferred Stock will continue to be listed or traded on a national exchange, or
over-the-counter on the National Association of Securities Dealers Automated
Quotation System ("NASDAQ") or otherwise. In addition, the Company has suspended
indefinitely the payment of dividends on the Preferred Stock and at this time is
uncertain when, if ever, the payment of dividends will be reinstated. There has
been, however, greater market activity for the Common Stock. Although there can
be no assurance that such market will continue, the Company believes that the
market for the Company's Common Stock may provide an opportunity for greater
liquidity of the investment of the Preferred Stockholders if their Preferred
Stock converts to Common Stock.
Accordingly, the Board of Directors of the Company is proposing this change
in the conversion terms in order to provide the holders of the Preferred Stock
the opportunity to realize the par value ($10.00) of the Preferred Stock in the
event that the Company's Common Stock reaches a trading level of $2.50 per
share, of which there is no assurance. As of May 8, 1996, the closing price of
the Company's Common Stock as quoted on NASDAQ was _____.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE IN FAVOR OF APPROVAL OF THE
AMENDMENT. EACH MEMBER OF THE BOARD OF DIRECTORS INTENDS TO VOTE HIS SHARES IN
FAVOR OF THE APPROVAL OF THE AMENDMENT. In order to be approved, the amendment
to the Certificate must receive the affirmative vote of a majority of the
outstanding shares of both the Company's Common Stock and Preferred Stock voting
separately. Abstentions and broker non-votes will have the effect of a negative
vote against the Amendment.
- 12 -
<PAGE>
PROPOSAL THREE
PROPOSAL TO AMEND THE CERTIFICATE OF DESIGNATION OF THE
SERIES A CUMULATIVE CONVERTIBLE PREFERRED STOCK
TO DELETE SECTION 4.2 ELIMINATING THE RIGHT OF
HOLDERS OF PREFERRED STOCK TO ELECT DIRECTORS
IN CERTAIN CIRCUMSTANCES
The Board of Directors of the Company has adopted a resolution recommending
that stockholders approve an amendment to the Certificate of Designation of the
Series A Cumulative Convertible Preferred Stock of the Company deleting Section
4.2 Election of Directors, eliminating the right of the holders of the Company's
Preferred Stock to elect directors whenever the Company has failed to pay at
least six quarterly dividends on the Preferred Stock. Because the Company has
not paid the last six quarterly dividends on the Preferred Stock, the holders of
Preferred Stock have the right to elect two directors to the Company's Board of
Directors at this Meeting. Section 4.2 currently provides that if no persons are
nominated, as described in Section 4.2, by the holders of the Preferred Stock to
serve on the Board of Directors, the Board of Directors shall appoint two
persons to the Board. A copy of Section 4.2 is attached to this Proxy Statement
as Appendix A. In the event that no persons are nominated for election at this
Meeting, the Board of Directors proposes that the Company's stockholders approve
the proposed amendment eliminating Section 4.2 and thereby cancelling the right
of the holders of Preferred Stock to elect directors. If Section 4.2 is
eliminated, holders of Preferred Stock would not be able to participate in the
election of directors of the Company unless they convert their Preferred Stock
to Common Stock.
The Board of Directors believes that if the holders of the Preferred Stock
do not nominate directors, it would indicate that the stockholders believe that
further representation on the Board is unnecessary. Moreover, the Board of
Directors believes that it would be time consuming and costly to seek additional
board members, and no assurance could be given that the Company would be able to
obtain qualified persons to serve on the Board who are willing to assume the
responsibilities and risks of liability of serving on the board of directors of
a publicly-held company. To conserve the resources of the Company, the Board of
Directors believes that Section 4.2 should be eliminated if there are no
nominations.
Holders of Preferred Stock may nominate individuals to serve on the Board
as late as during the Meeting. Consequently, it will not be known until the
election of directors is undertaken at the Meeting whether there will be
nominees proposed by the holders of Preferred Stock. Accordingly, this Proposal
Three will only be voted upon, and your vote counted, if there are no nominees.
Although there may be no vote on this matter, please mark your ballot indicating
your vote on this matter. If your proxy is returned without voting instructions,
the proxies will vote your shares in favor of the Amendment.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE IN FAVOR OF APPROVAL OF THE
AMENDMENT. EACH MEMBER OF THE BOARD OF DIRECTORS WHO IS A STOCKHOLDER INTENDS TO
- 13 -
<PAGE>
VOTE HIS SHARES IN FAVOR OF THE APPROVAL OF THE AMENDMENT. In order to be
approved, the amendment to the Certificate must receive the affirmative vote of
a majority of the outstanding shares of both the Company's Common Stock and
Preferred Stock voting separately. Abstentions and broker non-votes will have
the effect of a negative vote against the Amendment.
PROPOSAL FOUR
PROPOSAL TO ADOPT THE 1996 EMPLOYEE STOCK OPTION PLAN
Purpose. Effective March 9, 1996, the Board of Directors of the Company
adopted the Company's 1996 Employee Stock Option Plan (hereafter the "Plan").
The purpose of the Plan as amended is to secure and retain employees responsible
for the success of the Company, to motivate such persons to exert their best
efforts on behalf of the Company, to encourage stock ownership and to provide
such persons with proprietary interests in, and a greater concern for, the
welfare of, and an incentive to continue service with, the Company. By
encouraging the employees of the Company to become owners of shares, the Company
is seeking to motivate, retain and attract employees whose efforts and loyalty
have contributed and will contribute to the growth and profitability of the
Company. Both incentive and nonstatutory stock options may be granted under the
Plan. The following summary of the Plan is qualified in its entirety by
reference to the Plan, copies of which may be obtained from the Company and
which will also be available for inspection at the Meeting.
Administration. Under the terms of the Plan, the Company may grant options
to purchase up to 350,000 shares of the Company's Common Stock to eligible
employees. The Plan provides that it shall be administered by an Option
Committee chosen by the Board of Directors of the Company (the "Committee"). The
Committee will be the Compensation Committee of the Board of Directors,
appointed by the Board of Directors, and will consist of at least two persons
who are not, and have not been, during the preceding twelve (12) months,
employees of the Company.
Eligibility. Key employees of the Company and its subsidiaries, including
officers of the Company and its subsidiaries who are also employees, who are
from time to time responsible for the management, growth or success of the
business of the Company, shall be eligible to receive grants of stock options
under the Plan. The persons who may receive options under the Plan will be
selected by the Committee. As of the date hereof, there are approximately 10
persons eligible for participation in the Plan.
Adjustments and Other Provisions. The Plan provides for an adjustment in
the number of shares reserved and in the exercise prices if there is a stock
dividend, split up, subdivision or combination of shares, recapitalization,
merger, consolidation or other corporate reorganization in which the Company is
a surviving corporation. In the event of dissolution or liquidation of the
Company, or a merger, consolidation, sale of all or substantially all of its
- 14 -
<PAGE>
assets, corporate reorganization or similar occurrence, in which the Company is
not a surviving corporation and the holders of Common Stock receive securities
of another corporation, the options terminate as of the effective date of such
event and after notice and an opportunity to exercise any unexpired option in
whole or in part, then any unexercised option will terminate.
Stock Option Terms. The Committee will determine the time or times when any
option granted becomes exercisable, the period within which it becomes
exercisable and the price per share at which the option is exercisable,
provided, however, that no option may be exercised for six (6) months following
the date of grant, no option will be exercisable for more than 10 years after it
is granted and the exercise price must be at least 100% of the fair market value
of the Company's Common Stock on the date of the grant. As of May 8, 1996, the
closing sale price of the Company's Common Stock as quoted on NASDAQ was $_____.
If an optionee owns shares possessing more than 10% of the voting power of
all classes of the Company's outstanding stock, the Committee may grant an
option to such employee only if the exercise price of the option is at least
110% of the fair market value of the Common Stock on the day of the grant. The
Plan provides that the fair market value shall be the closing price of the
Common Stock as reported by the Wall Street Journal on the day the fair market
value is to be determined, or if no such price is reported for such day, then
the determination of such closing price shall be as of the last immediately
preceding day on which the closing price is so reported; or if the Common Stock
is not so listed or admitted to unlisted trading privileges or so quoted, the
fair market value shall be the average of the last reported highest bid and the
lowest asked prices quoted on the National Association of Securities Dealers,
Inc. Automated Quotations System or, if not so quoted, then by the National
Quotation Bureau, Inc. on the day the fair market value is determined. If no
market exists, the Committee shall determine the fair market value. An option
granted to any employee owning shares possessing more than 10% of the voting
power of all classes of the Company's outstanding stock may not be exercised for
longer than five years from the date of the grant. Any number of options may be
granted to an employee so long as the fair market value of the shares on the
date of grant which vest for the first time during any one calendar year does
not exceed $100,000.
Payment for shares purchased upon exercise of any option must be in full
and in cash at the time the option is exercised unless the Committee authorizes
payment by exchange of the Company's shares owned by the optionee by promissory
note in conformance with applicable regulations if permitted by governing law.
No option may be transferred except by will or by the laws of descent and
distribution and if, during the optionee's lifetime, the person holding the
option is terminated for any reason other than death, retirement or disability,
the option will be terminated three months after the date the optionee's
employment terminates. Options held by employees who die or are disabled may be
exercised within one year following death or disability and options held by
employees who retire may be exercised within three months after retirement, in
all cases provided the options were otherwise exercisable on the date of death,
disability or retirement.
- 15 -
<PAGE>
Amendments and Discontinuance. The Board of Directors may amend, alter or
discontinue the Plan in any respect provided the action does not impair the
rights of any optionee under any options previously granted, without consent of
the optionee, and, provided stockholder approval is obtained, to (i) increase
the number of shares reserved under the Plan (except for certain adjustments
described above), (ii) reduce the minimum option price, and (iii) alter the
class of eligible persons or terms of eligibility.
Tax Effects. Under ss.ss.421(a) and 422 of the Internal Revenue Code of
1986 ("Code"), as amended, the grant or exercise of incentive options under the
Plan will not result in income taxable to the optionee or in a business expense
deductible by the Company. Upon a later sale of the shares received on exercise
of an incentive option, the optionee will realize capital gain or loss, so long
as the optionee satisfies the minimum holding period requirements under the Plan
and the Code.
If an optionee disposes of shares acquired from the exercise of an option
under the Plan prior to the expiration of the statutory holding period
("disqualifying disposition") or if the option is a nonstatutory option, such
optionee will be required to recognize as compensation taxable as ordinary
income the difference between the exercise price and the fair market value on
the date of exercise as well as the amount realized on any disposition of the
shares in excess of the option exercise price paid by the optionee. The Company
will be entitled to a deduction equal to the amount that the optionee is
required to include in income in the Company's taxable year which falls within
the end of the participating employee's taxable year when the disqualifying
disposition occurs.
The current maximum rate for long-term capital gains realized by
noncorporate taxpayers is less than the current maximum rate on ordinary income.
The amount by which the fair market value of the Company's Common Stock
exceeds the exercise price of an incentive option on the date of exercise will
be considered a tax preference item for the optionee and may be subject to the
alternative minimum tax under ss.55 of the Code in the year the option is
exercised.
The above summary of the tax effects of options granted or exercised under
the Plan is based on an interpretation of the laws and regulations currently in
effect. Changes in these laws and regulations or their construction may modify
the projected tax effects of options granted or exercised under the Plan.
Persons exercising options granted under the Plan will not be able to sell
or otherwise distribute the shares issued upon exercise except pursuant to an
effective registration statement under the Securities Act of 1933, as amended
(the "Act"), or pursuant to an exemption from the registration requirements of
the Act. Certificates evidencing shares purchased pursuant to the Plan will bear
a restrictive legend until registered under the Act. The Company intends to
register all shares underlying the option authorized under the Plan if the Plan
is approved by the stockholders.
- 16 -
<PAGE>
Nontransferability. Options granted under the Plan are nontransferable
other than by will or by the laws of descent and distribution.
Indemnification. The Board of Directors and the members of the Committee
are entitled to indemnification by the Company against reasonable expenses,
including attorneys' fees, actually incurred in connection with the defense of
any action, suit or proceeding by reason of any action taken or failure to act
under or in connection with the Plan or any option granted under the Plan or
shares purchased pursuant to the exercise of options under the Plan, so long as
a member of the Committee or Board of Directors is not determined in any action,
suit or proceeding to be liable for gross negligence, fraud or willful
misconduct in the performance of his duties.
The Board of Directors has not determined any benefits or amounts that will
be received by or allocated to officers of the Company should the Plan be
approved by the stockholders.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE APPROVAL OF THE PLAN AND
EACH MEMBER OF THE BOARD OF DIRECTORS INTENDS TO VOTE HIS SHARE IN FAVOR OF
APPROVAL OF THE PLAN. The affirmative vote of the holders of at least a majority
of all the shares of Common Stock in attendance at the Annual Meeting of
Stockholders, either in person or by proxy, is required to approve the Plan.
Abstentions and broker non-votes will have the effect of a negative vote on the
proposal.
Matters to Be Voted on By Holders of Preferred Stock
PROPOSAL ONE
ELECTION OF DIRECTORS
The shares of Preferred Stock normally have no voting rights except those
required by law or as set forth in the Certificate filed by the Company with
respect to the rights and preferences of the Preferred Stock.
Section 4.2 of the Certificate provides that whenever dividends from the
Preferred Stock have not been paid in an amount equal to at least six quarterly
dividends, the holders of the Preferred Stock shall have the right to elect two
additional directors to the Company's Board of Directors. Because the Company
has not paid the last six quarterly dividends on the Preferred Stock, the
holders of Preferred Stock have the right to elect two directors to the
Company's Board of Directors.
The nominees for directors to be elected by the holders of Preferred Stock,
each of whom has consented to serve if elected, are as follows. Only two
directors will be elected from the following persons.
- 17 -
<PAGE>
Principal Occupation For
Name of Nominee Age The Last Five Years
- --------------- --- ------------------------
THE BOARD OF DIRECTORS MAKES NO RECOMMENDATION IN FAVOR OR AGAINST THE ELECTION
OF THE NOMINEES LISTED ABOVE. PLEASE MARK, SIGN, DATE AND RETURN THE ENCLOSED
BLUE PROXY TO VOTE FOR YOUR CHOICE OF NOMINEES. VOTE FOR NO MORE THAN TWO
NOMINEES. ONLY YOUR LATEST DATED PROXY COUNTS.
The persons named in the enclosed form of Proxy will vote the shares
represented by such Proxy for election of two directors from the nominees named
above. If, at the time of the Meeting, any of these nominees shall become
unavailable for any reason and there are less then two nominees, which event is
not expected to occur, the persons entitled to vote the Proxy will vote any
proxies so marked for the remaining nominee. The Certificate provides that the
Board of Directors may then appoint a second director. The directors elected
from the nominees above or appointed will hold office until all past dividends
have been paid, or until re-elected or replaced at the next annual meeting of
the Company's stockholders, and at each annual meeting thereafter, until their
successors have been elected and qualified or the dividends on the Preferred
Stock have been paid. See PROPOSAL TWO - PROPOSAL TO AMEND THE CERTIFICATE OF
DESIGNATION OF THE SERIES A CUMULATIVE CONVERTIBLE PREFERRED STOCK TO DELETE
SECTION 4.2 ELIMINATING THE RIGHT OF HOLDERS OF PREFERRED STOCK TO ELECT
DIRECTORS below in the event that no persons are nominated by the holders of the
Preferred Stock.
PROPOSAL TWO
PROPOSAL TO AMEND THE CERTIFICATE OF DESIGNATION OF THE
SERIES A CUMULATIVE CONVERTIBLE PREFERRED STOCK
TO DELETE SECTION 4.2 ELIMINATING THE RIGHT OF
HOLDERS OF PREFERRED STOCK TO ELECT DIRECTORS
The Board of Directors of the Company has adopted a resolution recommending
that stockholders approve an amendment to the Certificate of Designation of the
Series A Cumulative Convertible Preferred Stock of the Company deleting Section
4.2 Election of Directors, eliminating the right of the holders of the Company's
Preferred Stock to elect directors whenever the Company has failed to pay at
least six quarterly dividends on the Preferred Stock. Because the Company has
not paid the last six quarterly dividends on the Preferred Stock, the holders of
Preferred Stock have the right to elect two directors to the Company's Board of
Directors at this Meeting. Section 4.2 currently provides that if no persons are
nominated, as described in Section 4.2, by the holders of the Preferred Stock to
- 18 -
<PAGE>
serve on the Board of Directors, the Board of Directors shall appoint two
persons to the Board. A copy of Section 4.2 is attached to this Proxy Statement
as Appendix A. In the event that no persons are nominated for election at this
Meeting, the Board of Directors proposes that the Company's stockholders approve
the proposed amendment eliminating Section 4.2 and thereby cancelling the right
of the holders of Preferred Stock to elect directors. If Section 4.2 is
eliminated, holders of Preferred Stock would not be able to participate in the
election of directors of the Company unless they convert their Preferred Stock
to Common Stock.
The Board of Directors believes that if the holders of the Preferred Stock
do not nominate directors, it would indicate that the stockholders believe that
further representation on the Board is unnecessary. Moreover, the Board of
Directors believes that it would be time consuming and costly to seek additional
board members, and no assurance could be given that the Company would be able to
obtain qualified persons to serve on the Board who are willing to assume the
responsibilities and risks of liability of serving on the board of directors of
a publicly-held company. To conserve the resources of the Company, the Board of
Directors believes that Section 4.2 should be eliminated if there are no
nominations.
Holders of Preferred Stock may nominate individuals to serve on the Board
as late as during the Meeting. Consequently, it will not be known until the
election of directors is undertaken at the Meeting whether there will be
nominees proposed by the holders of Preferred Stock. Accordingly, this Proposal
Two will only be voted upon, and your vote counted, if there are no nominees.
Although there may be no vote on this matter, please mark your ballot indicating
your vote on this matter. If your proxy is returned without voting instructions,
the proxies will vote your shares in favor of the Amendment.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE IN FAVOR OF APPROVAL OF THE
AMENDMENT. In order to be approved, the amendment to the Certificate must
receive the affirmative vote of a majority of the outstanding shares of both the
Company's Common Stock and Preferred Stock voting separately. Abstentions and
broker non-votes will have the effect of a negative vote against the Amendment.
PROPOSAL THREE
PROPOSAL TO AMEND THE CERTIFICATE OF DESIGNATION OF THE
SERIES A CUMULATIVE CONVERTIBLE PREFERRED STOCK
TO CHANGE THE AUTOMATIC CONVERSION RATE OF
THE PREFERRED STOCK
The Board of Directors of the Company has adopted a resolution recommending
that stockholders approve the following amendment to the Certificate of
Designation of the Series A Cumulative Convertible Preferred Stock of the
Company which would change the rate at which the outstanding shares of Preferred
Stock are automatically convertible into shares of Common Stock of the Company.
- 19 -
<PAGE>
The Certificate would be amended to read as follows:
"6.1 Automatic Conversion. If at any time after the issuance of
the Series A Preferred Stock, the last reported sales price for
the Company's $.10 par value Common Stock as reported on the
NASDAQ System (or the closing price as reported on any national
securities exchange on which the Common Stock is then listed),
shall, for a period of five (5) consecutive trading days, equals
or exceeds $2.50 per share, then, effective as of the close of
business on the fifth such trading day, all shares of Series A
Preferred Stock then outstanding and all accrued and undeclared
dividends thereon shall immediately and automatically without
further notice be converted into shares of Common Stock and
Warrants to purchase Common Stock ("Warrants") at the rate of
four shares of Common Stock and Warrants to purchase four shares
of Common Stock for each share of Preferred Stock. In all other
respects the conversion shall have the same effect and the same
result as if an optional conversion occurred as described in this
Section 6."
In light of the 955,092 share of Preferred Stock converted as of May 8,
1996, the Company's equity structure has substantially changed, and the
Preferred Stock has become a minority interest in the Company's capitalization.
With only 202,688 shares of Preferred Stock outstanding as of April 7, 1996,
there is very little trading activity in the market and the Company cannot
ascertain that a market for the Preferred Stock will continue or that the
Preferred Stock will continue to be listed or traded on a national exchange, or
over-the-counter on the National Association of Securities Dealers Automated
Quotation System ("NASDAQ") or otherwise. In addition, the Company has suspended
indefinitely the payment of dividends on the Preferred Stock and at this time is
uncertain when, if ever, the payment of dividends will be reinstated. There has
been, however, greater market activity for the Common Stock. Although there can
be no assurance that such market will continue, the Company believes that the
market for the Company's Common Stock may provide an opportunity for greater
liquidity of the investment of the Preferred Stockholders if their Preferred
Stock converts to Common Stock.
Accordingly, the Board of Directors of the Company is proposing this change
in the conversion terms in order to provide the holders of the Preferred Stock
the opportunity to realize the par value ($10.00) of the Preferred Stock in the
event that the Company's Common Stock reaches a trading level of $2.50 per
share, of which there is no assurance. As of May 8, 1996, the closing price of
the Company's Common Stock as quoted on NASDAQ was _____.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE IN FAVOR OF APPROVAL OF THE
AMENDMENT. In order to be approved, the amendment to the Certificate must
receive the affirmative vote of a majority of the outstanding shares of both the
Company's Common Stock and Preferred Stock voting separately. Abstentions and
broker non-votes will have the effect of a negative vote against the Amendment.
CERTAIN TRANSACTIONS
From time to time in the past, various officers and directors of the
Company and their affiliates have participated in the drilling of oil and gas
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wells, drilled and operated by the Company. All such persons and entities have
taken working interests in the wells and have paid the drilling, completion and
related costs of the wells on the same basis as the Company and all other
working interest owners. On the occasions of such participation the Company
retained the maximum interest in the wells that it could justify, given its cash
availability and the risk involved.
In May 1995, James C. Ruane, a director of the Company, purchased 66,667
shares of Common Stock and 33,334 warrants to purchase shares of Common Stock
for $50,000 on the same terms as other nonaffiliated purchasers.
At December 31, 1995, the Company owed certain affiliates of Willard H.
Pease, Jr. $116,717 plus $26,539 in accrued interest for oil and gas revenue
attributable to interests in wells operated by the Company that are owned by the
individuals and related entities. Of such amount $2,877 was incurred in 1994,
$4,603 was incurred in 1993, $20,992 was incurred in 1992, $85,518 was incurred
in 1991 and $2,728 was incurred in 1990. At December 31, 1995, the Company also
owed $60,000 to Willard H. Pease, Jr. This loan is unsecured, bears interest at
8% per annum and is due January 1997.
Until June 1993, Willard H. Pease, Jr. owned an oil well servicing
business, Grand Junction Well Services, Inc. ("GJWS"), which operated a workover
and completion rig. In June 1993, the Company acquired GJWS from Mr. Pease by
merging GJWS into a newly-formed subsidiary corporation, Rocky Mountain Well
Services, Inc. In the merger, the Company issued 46,667 shares of its Common
Stock and the Company's 6% secured convertible promissory note in the principal
amount of $175,000 to Mr. Pease for a total value of $350,000, the estimated
fair market value of GJWS assets and business. The note is payable in three
annual principal installments of $45,000 on October 1, 1994, $65,000 on April 1,
1995 and $65,000 on April 1, 1996. The October 1, 1994 principal payment of
$45,000 has been paid and the remaining installments have been extended to
October 1, 1997 and October 1, 1998, respectively. The unpaid principal portion
of $130,000 is convertible at the election of Mr. Pease into Common Stock at
$5.00 per share. The transaction was approved unanimously by the disinterested
directors of the Company. Mr. Pease remained a guarantor of GJWS debt owed to a
bank, which totalled $37,000 on the date of acquisition. As a result of the
transaction, the obligation of the Company to GJWS, totaling approximately
$188,000 at March 31, 1993, was eliminated, reducing the Company's obligation to
Mr. Pease and affiliates by approximately $13,000.
In August 1994, Willard H. Pease, Jr. and entities affiliated with Mr.
Pease, exchanged promissory notes with an aggregate principal balance of
$150,000 for $150,000 principal amount of 12% Convertible Unsecured Promissory
Notes ("Notes"). The Notes were automatically converted by their terms into
93,750 shares of the Company's Common Stock on September 30, 1994. The Notes and
the conversion thereof were on the same terms as the Company's 12% Convertible
Unsecured Promissory Notes ("Private Notes") that the Company sold in a private
offering during August and September, 1994. An entity affiliated with Mr. Pease
also purchased on the same terms as other unaffiliated purchasers $50,000
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<PAGE>
principal amount of the Private Notes. These Private Notes were automatically
converted by their terms into 31,250 shares of the Company's Common Stock on
September 30, 1994.
In August 1994, Patrick J. Duncan, the Chief Financial Officer and
Corporate Secretary of the Company, purchased $25,000 of the Private Notes on
the same terms as other nonaffiliated purchasers. Mr. Duncan's Private Notes
were automatically converted by their terms into 15,625 shares of the Company's
Common Stock on September 30, 1994.
All existing loans or similar advances to, and transactions with, officers
and their affiliates were approved or ratified by the independent and
disinterested directors. Any future material transactions with officers,
directors and owners of 5% or more of the Company's outstanding Common Stock or
any affiliate of any such person shall be on terms no less favorable to the
Company than could be obtained from independent unaffiliated third parties and
must be approved by a majority of the independent and disinterested directors.
1995 ANNUAL REPORT ON FORM 10-KSB
STOCKHOLDERS WHO WISH TO OBTAIN, WITHOUT CHARGE, A COPY OF THE COMPANY'S
1994 ANNUAL REPORT ON FORM 10-KSB AS FILED WITH THE SECURITIES AND EXCHANGE
COMMISSION ("SEC") SHOULD ADDRESS A WRITTEN REQUEST TO PATRICK J. DUNCAN,
CORPORATE SECRETARY, AT THE COMPANY'S ADDRESS SPECIFIED AT THE BEGINNING OF THIS
PROXY STATEMENT.
STOCKHOLDER PROPOSALS
Stockholder proposals for inclusion in the Company's proxy materials
relating to the next annual meeting of stockholders must be received by the
Company on or before January __, 1997.
SOLICITATION OF PROXIES
The cost of soliciting proxies, including the cost of preparing, assembling
and mailing this proxy material to stockholders, will be borne by the Company.
Solicitations will be made only by use of the mails, except that if necessary to
obtain a quorum, officers and regular employees of the Company may make
solicitations of proxies by telephone or electronic facsimile or by personal
calls. Brokerage houses, custodians, nominees and fiduciaries will be requested
to forward the proxy soliciting material to the beneficial owners of the
Company's shares held of record by such persons and the Company will reimburse
them for their charges and expenses in this connection.
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<PAGE>
OTHER BUSINESS
The Company's Board of Directors does not know of any matters to be
presented at the meeting other than the matters set forth herein. If any other
business should come before the meeting, the persons named in the enclosed form
of Proxy will vote such Proxy according to their judgment on such matters.
PATRICK J. DUNCAN
Corporate Secretary
Grand Junction, Colorado
_________, 1996
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APPENDIX A
CERTIFICATE OF DESIGNATION
OF SERIES A CUMULATIVE CONVERTIBLE PREFERRED STOCK
4.2 ELECTION OF DIRECTORS. Whenever dividends on the Series A Preferred
Stock or any outstanding shares of Parity Stock have not been paid in an
aggregate amount equal to at least six quarterly dividends on such shares
(whether or not consecutive), the Company shall cause the number of directors of
the Company to be increased by two, and shall call a meeting of the holders of
the Series A Preferred Stock for the purpose of electing two additional
directors. The Company shall use reasonable efforts to cause the meeting to
occur on the earliest practicable date. In connection with the meeting, the
Company shall cause to be nominated as a candidate for director any person that,
at least twenty five calendar days prior to the meeting (i) is designated in
writing by a holder of Series A Preferred Stock, (ii) who agrees in writing to
serve if elected, and (iii) who provides the Company with a reasonable
description of his/her personal and business background and qualifications to
serve as a director of the Company; provided, however, that, (i) the Company may
refuse to cause any person to be so nominated if, based on a review of such
person's qualifications, the Board of Directors reasonably and objectively
concludes that such person is unfit to serve as a director of the Company, and
(ii) if more than ten such persons are nominated, the Company shall nominate the
ten persons designated by the holders of the greatest number of shares of Series
A Preferred Stock. If no persons are nominated as described above, (i) the
meeting may be cancelled, and (ii) the Board of Directors shall, as soon as
practicable, appoint as directors two persons who are not affiliates of and have
no material business dealings with the Company or any member of the Board of
Directors. From and after such appointment, and until all dividends deemed past
due have been paid (i) such directors shall serve until the next annual meeting
of the shareholders of the Company and until their successors have been elected
and qualified, and (ii) at each annual meeting of the shareholders of the
Company, the Series A Preferred Stock, voting as a single class, shall be
entitled to elect two directors of the Company. Any vacancy on the Board of
Directors caused by the death or resignation of a director so elected or
appointed shall be filled at the next annual meeting of the shareholders of the
Company, provided, however, that the Board of Directors shall promptly appoint
to fill such vacancy any qualified person designated in writing by the holders
of more than 50% of the then outstanding Series A Preferred Stock. The term of
office of all directors so designated by the holders of the Series A Preferred
Stock will terminate immediately upon payment or setting apart for payment of
all past due dividends.
PRELIMINARY COPIES
APPENDIX B
PEASE OIL AND GAS COMPANY
1996 STOCK OPTION PLAN
1. Purpose of Plan. The purpose of this 1994 Employee Stock Option Plan
("Plan") is to secure and retain employees responsible for the success of Pease
Oil and Gas Company ("Company"), to motivate such persons to exert their best
efforts on behalf of the Company, to encourage stock ownership and to provide
such persons with proprietary interests in, and a greater concern for, the
welfare of, and an incentive to continue service with, the Company.
For purposes of this Plan, the term "Company" shall include where
appropriate in the context used any "parent corporation" or "subsidiary
corporation" of the Company, as those terms are defined in Sections 424(e) and
(f) of the Code, whether in existence on the date of adoption of the Plan or
formed after the adoption of this Plan.
Options issued pursuant to this Plan will constitute incentive stock
options within the meaning of ss. 422 of the Internal Revenue Code of 1986, as
amended ("Code"), at the time of grant ("Incentive Stock Options"), or other
options ("Nonstatutory Stock Options"). Incentive Stock Options and Nonstatutory
Stock Options may both be granted hereunder and any option granted which for any
reason does not qualify as an Incentive Stock Option shall be a Nonstatutory
Stock Option; provided, however, that in no event shall an Incentive Stock
Option and a Nonstatutory Stock Option granted to any Optionee under a single
stock option agreement be subject to a "tandem" exercise arrangement such that
the exercise of one such Option affects the Optionees's right to exercise the
other Option granted under such stock option agreement.
Unless the context requires otherwise, the term "Option" in this Plan
refers to both Incentive Stock Options and Nonstatutory Stock Options.
2. Stock Subject to the Plan. The number of shares of the Company's $.10
par value common stock ("Common Stock") which may be optioned under this Plan is
350,000 shares. Such shares may consist, in whole or in part, of unissued shares
or treasury shares. The maximum number of shares issuable pursuant to this Plan,
including shares subject to outstanding options, shall be subject to adjustment
as provided in Section 6 of this Plan. The aggregate fair market value of the
shares subject to Incentive Stock Options granted to any Optionee which become
exercisable in a particular calendar year shall not exceed $100,000. For
purposes of such limitation, the fair market value of Common Stock shall be
determined as of the date of grant and the limitations shall be applied by
taking into account Incentive Stock Options in the order granted. For purposes
of this Plan, market value of shares subject to an option shall be determined as
follows:
(i) If the Common Stock is listed on the New York Stock Exchange,
the American Stock Exchange or such other securities exchange
<PAGE>
designated by the Committee, or admitted to unlisted trading
privileges on any such exchange, or if the Common Stock is quoted on a
National Association of Securities Dealers, Inc. system that reports
closing prices, the fair market value shall be the closing price of
the Common Stock as reported by the Wall Street Journal on the day the
fair market value is to be determined, or if no such price is reported
for such day, then the determination of such closing price shall be as
of the last immediately preceding day on which the closing price is so
reported; or
(ii) If the Common Stock is not so listed or admitted to unlisted
trading privileges or so quoted, the fair market value shall be the
average of the last reported highest bid and the lowest asked prices
quoted on the National Association of Securities Dealers, Inc.
Automated Quotations System or, if not so quoted, then by the National
Quotation Bureau, Inc. on the day the fair market value is determined;
or
(iii) If the Common Stock is not so listed or admitted to
unlisted trading privileges or so quoted, and bid and asked prices are
not reported, the fair market value shall be determined in such
reasonable manner as may be prescribed by the Committee.
If any outstanding Option under this Plan for any reason expires or is
terminated, the shares of Common Stock allocable to the unexercised portion of
such Option may again be optioned under this Plan subject to the limitations,
terms and conditions of this Plan. The Board of Directors, and the proper
officers of the Company, shall from time to time take appropriate action
required for delivery of Common Stock, in accordance with any exercise of
Options under this Plan.
3. Administration. Administration of the Plan shall be administered by the
Compensation Committee of the Board of Directors of the Company, hereinafter
referred to as the "Committee." The Committee shall consist of at least two
members of the Board of Directors having full authority to act in the matter,
none of whom during the one year prior to such appointment or while serving on
the Committee, is granted an Option under this Plan or is granted or awarded
equity securities pursuant to any other plan of the Company or any of its
affiliates, except as permitted by Rule 16b-3 under the Securities Exchange Act
of 1934, as amended (the "1934 Act"). If the Committee thus established shall
consist of fewer than two members at the time of any action by the Committee,
then the directors shall select enough other shareholders to serve on the
Committee to have two members and to meet any requirements of ss. 422 of the
Code and regulations adopted thereunder and regulations adopted under the 1934
Act.
Once appointed, the Committee shall continue to serve until otherwise
directed by the Board. From time to time, the Board may increase the size of the
Committee and appoint additional members thereof, remove members (with or
without cause) and appoint new members in substitution therefor, fill vacancies
however caused, or remove all members of the Committee and thereafter directly
administer the Plan.
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<PAGE>
With respect to persons subject to Section 16 of the 1934 Act, transactions
under this Plan are intended to comply with all applicable conditions of Rule
16b-3 or its successors under the 1934 Act. To the extent any provision of the
Plan or action by the Committee fails to so comply, it shall be deemed null and
void, to the extent permitted by law and deemed advisable by the Committee.
Subject to compliance with Section 16 of the 1934 Act, members of the Board
who are either eligible for Options or who have been granted Options may vote on
any matters affecting the administration of the Plan or the grant of any Options
pursuant to the Plan, except that no such member shall act upon the granting of
an Option to himself, but any such member may be counted in determining the
existence of a quorum at any meeting of the Board during which action is taken
with respect to the granting of Options to such member.
The decision of a majority of those present at any meeting of the Committee
where a quorum consisting of a majority of the Committee is present shall
constitute the decision of the Committee.
The Committee is authorized and empowered to administer the Plan insofar as
it relates to Options and, consistent with the terms of the Plan, to (a) select
the employees to whom Options are to be granted and to fix the number of shares
and other terms and conditions of the Options to be granted; (b) determine the
date upon which Options shall be granted and the terms and conditions of the
granted Options in a manner consistent with the Plan, which terms need not be
identical as between Options or Optionees; (c) interpret the Plan and the
Options granted under the Plan; (d) adopt, amend and rescind rules and
regulations for the administration of the Plan insofar as it relates to Options;
and (e) direct the Company to execute Stock Option agreements pursuant to the
Plan.
All such actions of the Committee shall be binding upon all participants in
the Plan.
4. Eligibility. The employees of the Company who shall be eligible to
receive grants of Options under this Plan shall be those key employees,
including officers or directors of the Company who are also employees, who are
from time to time responsible for the management, growth or success of the
business of the Company and who shall have been selected by the Committee. The
Company may also grant Options to Consultants and Directors who are not
employees of the Company; provided, however, that Consultants and Directors who
are not employees are eligible to receive only Nonstatutory Options.
The persons to receive Options under the Plan shall be selected from time
to time by the Committee, in its sole discretion, and the Committee shall
determine, in its sole discretion, the number of shares to be covered by the
Options granted to each person selected. [Subject to the exception under Section
5(b), no person may be granted an Option if such person, at the time the Option
is granted, owns shares of Common Stock possessing more than 10% of the total
combined voting power of all classes of stock of the Company. For purposes of
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<PAGE>
calculating such stock ownership, the attribution rules of stock ownership set
forth in Section 424(d) of the Code shall apply. Accordingly, an Optionee, with
respect to whom such 10% limitation is being determined, shall be considered as
owning Common Stock owned directly or indirectly by or for the Optionee's
brothers and sisters (whether by the whole or half-blood), spouse, ancestors and
lineal descendants; and any Common Stock owned directly or indirectly by or for
a corporation, partnership, estate or trust, shall be considered as being owned
proportionately by or for its shareholders, partners or beneficiaries.]
5. Terms and Conditions. The Plan shall become effective upon the approval
of a majority of the holders of the Company's Common Stock present, or
represented, and entitled to vote, at a meeting at which a quorum of
stockholders of the Company is present or represented. Such approval must occur
within 12 months after the date this Plan is adopted by the Board of Directors.
It shall continue in effect for a period of ten years from the date of its
effectiveness.
All Options granted under this Plan shall be subject to the terms and
conditions of this Plan, including all of the following:
(a) Option Price. Subject to the provisions of Section 5(b),
the Option price per share shall be determined by the Committee but
shall not be less than 100% of the fair market value of such shares at
the time the Option is granted.
(b) More than 10% Shareholder. If an employee owns more than
10% of the total combined voting power of all classes of stock of the
Company as determined under Section 4, at the time an Incentive Stock
Option is granted under this Plan, the Committee may issue an Incentive
Stock Option to such person at 110% of the fair market value of the
Common Stock. Any Incentive Stock Option granted to any such employee
shall not be exercisable after the expiration of five years from the
date such Incentive Stock Option is granted.
(c) Limitations on Grant of Options. Subject to the
limitations under Section 5(b) of this Plan, no Option shall be granted
which may be exercised more than ten years after the date it was
granted.
(d) Limitations on Exercise of Option. No Optionee granted an
Option under this Plan may exercise such Option for six months
following the date of grant of the Option and unless at all times
during the period beginning on the date of the granting of the Option
and ending on the day three months before the date of such exercise
such Optionee was employed by the Company or a corporation or
subsidiary thereof issuing or assuming the Option in a transaction set
forth under Section 6 of this Plan.
(e) Payment for Shares. Payment in full, in cash, shall be
made for all shares issued pursuant to the exercise of an Incentive
Stock Option, provided that the Committee may permit payment to be made
with shares of the Company's
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<PAGE>
Common Stock owned by the Optionee to be valued at the fair market
value at the date of exercise. All Options shall be exercised for 100
shares, or a multiple thereof, or for the full number of shares for
which the Option is then exercisable. No Optionee shall have the right
to dividends or other rights of a stockholder with respect to shares
subject to an Option until the Optionee has given written notice of
exercise of the Optionee's Incentive Stock Option and paid in full for
such shares.
(f) Manner of Exercise. Any Option granted pursuant to this
Plan may be exercised at such time or times as set forth in the Option,
by the delivery of written notice to any officer of the Company, other
than the Optionee, together with payment in full, for the number of
shares to be purchased pursuant to such exercise. Such notice (i) shall
state the election to exercise the Option, (ii) shall state the number
of shares in respect of which the Option is being exercised, (iii)
shall state the Optionee's address, (iv) shall state the Optionee's
social security number, (v) shall contain such representations and
agreements concerning Optionee's investment intent with respect to such
shares of Common Stock as shall be satisfactory to the Company's
counsel, (vi) shall state that the certificate evidencing the shares
may be stamped with a restrictive legend and the shares evidenced by
such certificate will constitute "restricted securities" as defined in
Rule 144 promulgated under the Securities Act of 1933, as amended (the
"Act") (unless the shares to be acquired are registered under the Act)
and (vii) shall be signed and dated by Optionee.
(g) Conditions of Issuance of Shares. Shares shall not be
issued pursuant to the exercise of an Option unless the exercise of
such Option and the issuance and delivery of such Shares pursuant
thereto shall comply with all relevant provisions of law, including,
without limitation,the Act, the 11934 Act, the rules and regulations
promulgated thereunder, applicable state securities law, and the
requirements of any stock exchange or automated quotation system upon
which the Share may be listed or quoted, and shall be subject to the
approval of legal counsel for the Company with respect to such
compliance.
(h) Limitation on Transfer of Shares. Unless shares issued
upon exercise are at the time of exercise registered under the Act, all
shares of Common Stock acquired by an Optionee upon exercise of an
Option granted under this Plan shall be deemed to be "restricted
securities" as defined in Rule 144 promulgated under the Act and the
certificate evidencing such shares shall contain a legend as follows:
"The securities represented by this certificate may not be
offered for sale, sold or otherwise transferred except
pursuant to an effective registration statement under the
Securities Act of 1933 (the `Act') or pursuant to an exemption
from registration under the Act, the availability of which is
to be established to the satisfaction of the Company."
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<PAGE>
(i) Other Representations or Warranties. As a further
condition to the exercise of any Option granted under this Plan, the
Company may require each Optionee to make any representation and
warranty to the Company as may be required by any applicable law or
regulation.
(j) Holding Period of Shares. No shares of Common Stock
acquired upon exercise of an Incentive Stock Option granted under this
Plan shall be sold or otherwise disposed of, within the meaning of
Section 424(c) of the Code, at any time before the sooner of two years
from the date of the grant of an Incentive Stock Option under this Plan
or one year after the date of exercise of the Incentive Stock Option.
However, an Optionee who has acquired shares of Common Stock upon
exercise of a stock option granted under this Plan, who transfers such
shares to a trustee, receiver, or other similar fiduciary in any
proceeding under Title 11 of the United States Bankruptcy Law or any
other similar insolvency proceeding at a time when such Optionee is
insolvent shall not have been deemed to have made a transfer or
disposition for purposes of this subsection, nor shall one who acquires
the shares from the Company with another person in joint tenancy be
deemed to have made a transfer or disposition. Shares of Common Stock
acquired by exercise of a Nonstatutory Stock Option under the Plan
shall not be sold or otherwise disposed of at any time before one year
from the date of the grant of the Nonstatutory Stock Option.
(k) Death of Optionee. If an Optionee dies, any Option
previously granted to the Optionee shall be exercisable by the personal
representative or administrator of the deceased Optionee's estate, or
by any trustee, heir, legatee or beneficiary (collectively referred to
for convenience as the "legal representative") who shall have acquired
the Option directly from the Optionee by will or by the laws of descent
and distribution at any time within one year after his death, but not
more than ten years [five years if Section 5(b) is applicable] after
the date of granting of the Option, provided the deceased Optionee was
entitled to exercise such Option at the time of his death. Prior to the
exercise of any such Option, the legal representative of the deceased
Optionee shall furnish to the Company written notice of such exercise,
together with a certified copy of letters testamentary or other proof
deemed sufficient by the Committee of the right of the legal
representative to exercise such Option in accordance with the
provisions of this Plan.
(l) Retirement. If an Optionee's employment with the Company
terminates by reason of retirement, any Option previously granted to
him shall be exercisable as determined in the sole discretion of the
Committee at any time within three months after the date of such
termination, but not more than ten years [five years if Section 5(b) is
applicable] after the date of granting of the Option, and then only to
the extent to which it was exercisable at the time of such termination
by retirement; provided, however, that if the Optionee dies within
three months after termination by retirement, any unexercised Option,
to the extent to which it was exercisable at the time of his death,
shall thereafter be exercisable for one year after
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<PAGE>
the date of his death, but not more than ten years [five years if
Section 5(b) is applicable] after the date of granting of the Option.
(m) Disability. If an Optionee becomes disabled within the
meaning of Section 22(e)(3) of the Code, and at the time of such
disability the Optionee is entitled to exercise an Option, the Optionee
shall have the right to exercise such Option within one year after such
disability provided that the Optionee exercises within ten years after
the date of grant thereof [or five years if Section 5(b) is
applicable], and then only to the extent to which it was exercisable at
the time of such disability.
(n) Optionee's Termination. If an Optionee ceases to serve an
Employee, Consultant or Director, as the case may be, for any reason
other than death, retirement or disability, any Option previously
granted to the Optionee which was exercisable at the time of
termination shall terminate three months after the date of such
termination or at such earlier time as provided in the terms of the
Option granted to the Optionee. To the extent that an Option is not
exercised within the time specified herein, the Option shall terminate.
(o) Leave of Absence. For the purposes of this Plan (i) a
leave of absence, duly authorized in writing by the Company for
military service or sickness, or for any other purpose approved by the
Company, if the period of such leave does not exceed 90 days and (ii) a
leave of absence in excess of 90 days, duly authorized in writing by
the Company provided the Optionee's right to re-employment is
guaranteed either by statute or by contract, shall not be deemed a
termination of employment.
(p) Nontransferability of Options. No Option granted under
this Plan will be transferable by the Optionee other than by will or
the laws of descent and distribution. During the lifetime of the
Optionee, the Option will be exercisable only by Optionee.
(q) Exercisability of Options. No Optionee granted an Option
under this Plan shall be entitled to exercise such Option at any time
after the expiration of such Option as specified in the option
certificate evidencing such Option.
6. Adjustments Upon Recapitalization, Merger, Etc. If the outstanding
shares of $.10 par value Common Stock of the Company shall at any time be
changed or exchanged by declaration of a stock dividend, split-up, subdivision
or combination of shares, recapitalization, merger, consolidation or other
corporate reorganization in which the Company (including a merger or similar
reorganization which effects a reincorporation of the Company in a different
county or province) is the surviving corporation, the number and kind of shares
subject to this Plan or subject to any Options previously granted, and the
Option prices, shall be appropriately and equitably adjusted, so as to maintain
the proportionate number of shares without changing the aggregate Option price.
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<PAGE>
In the event of a dissolution or liquidation of the Company, or a merger,
consolidation, sale of all or substantially all of its assets, or other
corporate reorganization in which the Company is not the surviving corporation
and the holder of Common Stock receives securities of another corporation, then
any outstanding Options hereunder shall terminate as of the effective date of
such event; provided that immediately prior to such event each Optionee shall
have the right to exercise any unexpired Option in whole or in part whether or
not the Option would otherwise be exercisable. The Company shall afford each
person who holds an Incentive Stock Option under this Plan with at least 30 days
advance written notice of such event. The existence of this Plan, or of any
Options hereunder, shall not in any way prevent any transaction described in
this section, nor shall anything contained in this Plan prevent the substitution
of a new Option by a surviving corporation.
7. Use of Proceeds. Proceeds from the sale of stock pursuant to Options
granted under this Plan shall constitute general funds of the Company may be
used for such general corporate purposes as the Company's Board of Directors
shall determine.
8. Reservation of Issuance of Shares. The Company shall at all times during
the duration of this Plan reserve and keep available such number of shares of
Common Stock as will be sufficient to satisfy the requirements of all Options
granted pursuant to this Plan, and shall pay all original issue and transfer
taxes with respect to the issuance of shares pursuant to the exercise of such
Options, and shall pay all of the fees and expenses necessarily incurred in
connection with the exercise of such Options and the issuance of such shares.
9. Amendments. The Board of Directors may amend, alter, or discontinue this
Plan, but no amendment, alteration or discontinuation shall be made which would
impair the rights of any Optionee under any Options previously granted, without
the Optionee's consent, or which, without the approval of the stockholders,
would:
(i) except as is provided in Section 6 of this Plan, increase the
total number of shares reserved for the purposes of this Plan;
(ii) decrease the Option price to less than 100% of the fair
market value or 110% if Section 5(b) is applicable on the date of the
granting of the Option;
(iii) change the persons (or class of persons) eligible to
receive Options under this Plan; or
(iv) so long as the Company has a class of equity security
registered under Section 12 of the 1934 Act, make any material
amendment to the Plan.
Any such amendment or termination of the Plan shall not affect Options
already granted and such Options shall remain in full force and effect as if the
Plan had not been amended or terminated, unless mutually agreed otherwise
between the Optionee and the Board in a writing signed by both parties.
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<PAGE>
10. Indemnification. In addition to such other rights of indemnification as
they may have as directors, the members of the Committee and the Board of
Directors shall be indemnified by the Company against reasonable expenses,
including attorneys' fees actually incurred in connection with the defense of
any action, suit or proceeding, or in connection with any appeal therefrom, to
which they or any of them may be a party by reason of any action taken or
failure to act under or in connection with this Plan or any Option granted
hereunder, or shares purchased pursuant to the exercise of Options under this
Plan, and against all amounts paid by them in settlement thereof (provided such
settlement is approved by independent legal counsel selected by the Company) or
paid by them in satisfaction of judgment in any action, suit or proceeding,
except in relation to matters as to which it shall be adjudged in such action,
suit or proceeding, that such member of the Board of Directors is liable for
gross negligence, fraud or willful misconduct in the performance of the
director's duties so long as within 60 days after institution of any such
action, suit or proceeding, the director shall in writing offer the Company the
opportunity, at its own expense, to handle and defend such action, suit or
proceeding.
11. Miscellaneous. Unless the context requires otherwise, words denoting
the singular may be construed as denoting the plural, and words denoting the
plural may be construed as denoting the singular, and words of one gender may be
construed as denoting such other gender as is appropriate. Paragraph headings
are not to be considered part of this Plan and are included solely for
convenience and are not intended to be full or accurate descriptions of the
contents thereof.
Adopted by Directors:
Adopted by Shareholders:
PEASE OIL AND GAS COMPANY
organized under the laws of Nevada
ATTEST:
By /s/ Willard H. Pease, Jr.
---------------------------------
Willard H. Pease, Jr. , Chairman
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Patrick J. Duncan, Secretary
S E A L
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