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):
[ ] $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:
[X] 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 JULY _, 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
_______, July _, 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, and Section 6.2, Optional
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, equal
or exceed $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") with the same
effect and the same result as if an optional conversion occurred
as described in this Section 6."
"6.2 Optional Conversion. Each share of Series A Preferred
Stock and all accrued and undeclared dividends thereon shall be
convertible at any time after the initial issuance of the Series
A Preferred Stock and prior to the Redemption Date into the
number of shares of Common Stock calculated using a price of
<PAGE>
$2.50 per share (the "Common Stock Price") based upon the
following formula:
(Issue price [$10.00] plus accumulated undeclared
dividends plus undeclared dividends which would
otherwise become due at the next Dividend Due Date)
divided by the Common Stock Price equals Number of
Shares Received Upon Conversion ("Conversion Price")
In addition, if such conversion occurs prior to the close of
business five years from August 13, 1993, the Effective Date of
the Public Offering, the Company shall issue to each holder of
Series A Preferred Stock the same number of Warrants to purchase
Common Stock upon conversion, without any further payment. Each
Warrant will be exercisable to purchase one share of Common Stock
at a price, subject to adjustments described therein (hereafter
the "Exercise Price") of $5.00 per share through December 31,
1996 and $6.00 per share thereafter for the life of the Warrant,
August 13, 1998. If the Preferred Stock has been called for
redemption, the conversion right shall terminate at the close of
business on the last business day prior to the date fixed for
redemption (unless the Company defaults in the payment of the
redemption price). The Warrants shall be exercisable and shall
have such other terms and conditions as shall be described in a
Warrant Agency Agreement relative to the Warrants, between the
Company and the Warrant Agent designated therein. The Warrants
and the Warrant Agency Agreement shall be substantially in the
form filed as an exhibit to the Registration Statement except as
may be amended to conform to the terms hereof."
[ ] FOR [ ] AGAINST [ ] ABSTAIN
(3) Approval of the Company's 1996 Stock Option Plan.
[ ] 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
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 JULY _, 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 ______, July _, 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.
DAVID W. WRIGHT
JACK A. ALEXANDER
(2) To amend Section 6.1, Automatic Conversion, and Section 6.2, Optional
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, equal
or exceed $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") with the same
effect and the same result as if an optional conversion occurred
as described in this Section 6."
"6.2 Optional Conversion. Each share of Series A Preferred
Stock and all accrued and undeclared dividends thereon shall be
convertible at any time after the initial issuance of the Series
A Preferred Stock and prior to the Redemption Date into the
number of shares of Common Stock calculated using a price of
$2.50 per share (the "Common Stock Price") based upon the
following formula:
<PAGE>
(Issue price [$10.00] plus accumulated undeclared
dividends plus undeclared dividends which would
otherwise become due at the next Dividend Due Date)
divided by the Common Stock Price equals Number of
Shares Received Upon Conversion ("Conversion Price")
In addition, if such conversion occurs prior to the close of
business five years from August 13, 1993, the Effective Date of
the Public Offering, the Company shall issue to each holder of
Series A Preferred Stock the same number of Warrants to purchase
Common Stock upon conversion, without any further payment. Each
Warrant will be exercisable to purchase one share of Common Stock
at a price, subject to adjustments described therein (hereafter
the "Exercise Price") of $5.00 per share through December 31,
1996 and $6.00 per share thereafter for the life of the Warrant,
August 13, 1998. If the Preferred Stock has been called for
redemption, the conversion right shall terminate at the close of
business on the last business day prior to the date fixed for
redemption (unless the Company defaults in the payment of the
redemption price). The Warrants shall be exercisable and shall
have such other terms and conditions as shall be described in a
Warrant Agency Agreement relative to the Warrants, between the
Company and the Warrant Agent designated therein. The Warrants
and the Warrant Agency Agreement shall be substantially in the
form filed as an exhibit to the Registration Statement except as
may be amended to conform to the terms hereof."
[ ] FOR [ ] AGAINST [ ] ABSTAIN
(3) 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 NOMINATED BY THE HOLDERS OF PREFERRED STOCK, AND IN
FAVOR OF PROPOSAL (2).
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 July _, 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 ________, July _, 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 the Certificate of Designation of Series A
Cumulative Convertible Preferred Stock to change the event which
triggers automatic conversion of the Preferred Stock into Common
Stock, to lower the price for converting Preferred Stock into Common
Stock and Warrants, and to state the exercise price of the Warrants.
(3) A proposal to approve the Company's 1996 Stock Option Plan.
(4) Such other matters as may properly come before the meeting or any
adjournment 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.
<PAGE>
(2) A proposal to amend the Certificate of Designation of Series A
Cumulative Convertible Preferred Stock to change the event which
triggers automatic conversion of the Preferred Stock into Common
Stock, to lower the price for converting Preferred Stock into Common
Stock and Warrants, and to state the exercise price of the Warrants.
(3) Such other matters as may properly come before the meeting or any
adjournment 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
_______, 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 July _, 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 ________,
July _, 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 _____, 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 event which triggers the automatic conversion of
Preferred Stock into Common Stock and Warrants, to lower the price for
converting the Preferred Stock into Common Stock and Warrants, and to state the
exercise price of the Warrants; on a proposal to approve the Company's 1996
Stock Option Plan; and on other matters which may properly come before the
Meeting. 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; a proposal to amend
the Designation to change the event which triggers the automatic conversion of
Preferred Stock into Common Stock and Warrants, to lower the price for
converting the Preferred Stock into Common Stock and Warrants, and to state the
exercise price of the Warrants, and any other matters which may properly come
before the Meeting upon which the holders of Preferred Stock may vote.
Cumulative voting in the election of directors is not permitted. Each share of
Preferred Stock is entitled to one vote. 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 7,218,854
shares of Common Stock and 202,688 shares of Preferred Stock outstanding.
- 1 -
<PAGE>
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 ................... 762,139 Shares (2) 10.1%
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 ........... 1,369,968 Shares (9) 17.1%
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>
- -----------------------
(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 and 60,000 shares,
respectively, underlying two convertible promissory notes 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 86,000 shares underlying convertible
notes.
(10) Includes 178,480 shares underlying presently exercisable warrants.
(11) Represents 1,000,000 shares underlying presently exercisable warrants.
Currently, Lisa Antry, a 50% owner of Beta Capital Group, Inc., exercises
sole voting and dispositive power with respect to the 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)
Bob Gilman .......................................... 15,000 7.3%
505 Tadmore Court
Schaumburg, IL 60194
</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 Series A
Cumulative Convertible Preferred Stock to change the event which
triggers automatic conversion of the Preferred Stock into Common
Stock, to lower the price for converting Preferred Stock into Common
Stock and Warrants and to state the exercise price of the Warrants;
(3) Approval of the Company's 1996 Stock Option Plan; and
(4) 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 Certificate of Designation of Series A
Cumulative Convertible Preferred Stock to change the event which
triggers automatic conversion of the Preferred Stock into Common
Stock, to lower the price for converting Preferred Stock into Common
Stock and Warrants, and to state the exercise price of the Warrants;
and
(3) 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. If you hold both Common and Preferred Stock,
please return BOTH proxies in the enclosed envelopes.
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. The proposal to amend the Certificate of Designation requires the
approval of the majority of the outstanding shares of Common Stock AND
two-thirds of the outstanding shares of Preferred Stock. The proposal to adopt
the Company's 1996 Stock Option Plan requires the approval of a majority of the
shares of Common Stock present or represented by proxy at the Meeting. The
holders of Preferred Stock do not have the right to vote on the Stock Option
Plan. 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. Accordingly, brokers will not vote on
the proposals to amend the Certificate of Designation or the Stock Option Plan.
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 establishing a quorum AND will have the
effect of a vote against the proposals.
Matters to be voted on by stockholders are set forth below. EACH PROPOSAL
IS MARKED TO INDICATE WHICH OR BOTH CLASSES OF STOCKHOLDERS ARE ENTITLED TO VOTE
ON THE PROPOSAL. PLEASE REVIEW EACH PROPOSAL CAREFULLY TO DETERMINE WHICH
PROPOSALS REQUIRE THE VOTE OF THE HOLDERS OF COMMON STOCK AND WHICH PROPOSALS
REQUIRE THE VOTE OF THE HOLDERS OF PREFERRED STOCK.
PROPOSAL ONE
ELECTION OF DIRECTORS
COMMON STOCK AND PREFERRED STOCK BOTH VOTE
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 which have been elected by the
holders of Common Stock. 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. Accordingly,
holders of both Common and Preferred Stock will elect directors at this Meeting.
The terms of the Class A directors expire in 1998, the terms of the Class B
directors expire in 1999 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 holders of Common Stock will elect one class of directors.
There currently are no directors representing the Preferred Stock on the Board.
Directors elected by the holders of Preferred Stock will serve a term as set
forth below. See "Directors--Preferred Stock."
DIRECTORS--COMMON STOCK
The persons named on the WHITE enclosed form of Proxy will vote the shares
of Common Stock represented by such Proxy FOR the election of the two nominees
for directors named below. The holders of the shares of Preferred Stock will NOT
vote on the following two nominees. 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>
- 6 -
<PAGE>
THE BOARD OF DIRECTORS RECOMMENDS A VOTE IN FAVOR OF ELECTION OF THE TWO
(2) NOMINEES LISTED ABOVE. PLEASE MARK, SIGN, DATE AND RETURN THE ENCLOSED WHITE
PROXY TO VOTE FOR YOUR CHOICE OF NOMINEES. ONLY YOUR LATEST DATED PROXY COUNTS.
Directors--Preferred Stock
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. The holders of shares of
Common Stock will NOT vote on the following two nominees.
Principal Occupation For
Name of Nominee Age The Last Five Years
- --------------- --- ------------------------
David D. Wright 38 Mr. Wright has had over seventeen (17) years
experience in the securities, investment
and banking industries. Since February 1995,
Mr. Wright has been a vice president of
Morris Investment Management Company, where
he is responsible for management of Warwick
Investors, L.P., a private investment
partnership. From April 1989 to January
1995, Mr. Wright was a vice president with
Folger Nolan Fleming Douglas, an NYSE-member
firm, where he managed the Trading
Department, including maintaining trading
markets and service as supervisory analyst.
Prior to 1989, he was associated with
various banking and brokerage firms. Mr.
Wright has served on the board of directors
of the Big Brother/Big Sister Association of
Philadelphia, the OTC/Bulletin Board
Committee of the National Association of
Securities Dealers, Inc. ("NASD") and
various committees of the Securities Traders
Association (National). Mr. Wright also
holds Series 7, 16, 62 and 63 licenses from
the NASD. Mr. Wright owns 9,100 shares of
the Company's Preferred Stock (less than
five percent of the outstanding shares of
Preferred Stock).
Jack A. Alexander 63 Mr. Alexander has been associated with the
securities and investment industry since
1959. He founded in 1974 and served as
President and Chief Executive Officer of
First Affiliated Securities of San Diego
which was acquired by American First
Corporation, a publicly-held company, in
1982. After the acquisition, Mr. Alexander
became Senior Vice President of the
financial services group and a member of the
board of directors until 1986. Since 1986,
Mr. Alexander has served as general partner
of 27 oil and gas limited partnerships and
has owned and served as President of United
Investment Bankers, Inc., a management
consulting firm which specializes in
corporate finance and investment banking
services to owners and managers of large and
small businesses. He was a director of
Paulson Investments Company, Inc. from
December 1991 to November 1995. He has been
a director of Argent Securities, a
publicly-held company, since November 1995.
Mr. Alexander attended the University of
Texas School of Business from 1949 to 1951
and graduated from the New York Institute of
Finance in 1960. He is the beneficial owner
of 6,000 shares of the Company's Preferred
Stock (less than five percent of the
outstanding shares of Preferred Stock).
- 7 -
<PAGE>
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. 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 than 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 until the past due dividends on
the Preferred Stock have been paid.
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.
- 8 -
<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 Mr. William D. Fitch,
a former officer and director, and Mr. 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.
- 9 -
<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 $100,000. The following information for the Chief
Executive Officer includes the dollar value of base salary, bonus awards, the
number of stock options granted and certain other compensation, if any, whether
paid or deferred.
- 10 -
<PAGE>
<TABLE>
<CAPTION>
Summary Compensation Table
Long Term
Compensation
Annual Compensation Awards
-------------------------------------------- -------------
Other Annual Number of All Other
Name and Principal Salary Bonus Compensation Options Compensation
Position at 12/31/94 Year ($) ($)(1) ($) Granted ($)(1)
- -------------------- ---- -------- --------- ------------- ------------ ------------
<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(1) 22.9% $ 0.83 05/15/00
President and Chief 40,000(2) 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.
In May 1995, the Board of Directors cancelled certain incentive options for
224,000 shares of Common Stock which had been issued between 1990 and 1993.
Options for 99,600 shares had been issued to Mr. Pease. The exercise price of
the options ranged from $2.94 to $7.90 which represented the market price of the
Common Stock on the date of grant. However, since 1993, the Company's equity
capitalization changed significantly. Following a 1-for-5 reverse stock split in
1993, the Company had 994,248 shares of Common Stock outstanding at December 31,
1993. The Company also sold 1,170,000 shares of Preferred Stock in 1993, of
which 933,492 shares were converted to 4,200,716 shares of Common Stock and
warrants to purchase 2,450,416 shares of Common Stock. By June 30, 1995, there
were 7,018,131 shares of Common Stock outstanding. The Company's Common Stock
traded between a low of $0.625 and a high of $0.96875 during the second fiscal
quarter of 1995. Accordingly, the Board of Directors cancelled and reissued the
options at a lower price because the directors believed that the old options no
longer constituted an incentive to the optionees and the new options better
reflected the capitalization of the Company and the then-current market
conditions. Concurrently, with the cancellations, the Company granted Mr. Pease
options to purchase 99,600 shares of Common Stock at an exercise price of $0.83
per share. On the date of grant of the new options in 1995, the price of the
Common Stock was $0.83 per share.
- 11 -
<PAGE>
Aggregated Option Exercises in Last Fiscal Year and Fiscal
Year-End Option Values
Set forth below is information with respect to the unexercised options to
purchase the Company's Common Stock held by Mr. Pease at December 31, 1995. No
options were exercised during fiscal 1995.
<TABLE>
<CAPTION>
Value of Unexercised
Number of Unexercised In-the-Money Options
Options at FY-End (#) at FY-End ($)(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 EVENT WHICH TRIGGERS AUTOMATIC CONVERSION OF THE PREFERRED
STOCK, TO LOWER THE CONVERSION RATE FOR CONVERSION
OF PREFERRED STOCK AND TO STATE THE ACTUAL EXERCISE
PRICE OF THE WARRANTS INSTEAD OF A FORMULA
COMMON STOCK AND PREFERRED STOCK BOTH VOTE
The Board of Directors of the Company has adopted a resolution recommending
that stockholders approve amendments to the Certificate of Designation of the
Series A Cumulative Convertible Preferred Stock of the Company which would
change the event which triggers the automatic conversion of Preferred Stock,
lower the price per share for conversion of Preferred Stock from $4.00 to $2.50,
with the result that the holders of Preferred Stock will receive a greater
number of shares of Common Stock upon any conversion of Preferred Stock than
they would have received without adoption of the proposed amendment, and state
the exercise price of the Warrants instead of a formula which determined the
price.
Sections 6.1 and 6.2 of 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, equal
or exceed $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") with the same
effect and the same result as if an optional conversion occurred
as described in this Section 6."
- 12 -
<PAGE>
"6.2 Optional Conversion. Each share of Series A Preferred
Stock and all accrued and undeclared dividends thereon shall be
convertible at any time after the initial issuance of the Series
A Preferred Stock and prior to the Redemption Date into the
number of shares of Common Stock calculated using a price of
$2.50 per share (the "Common Stock Price") based upon the
following formula:
(Issue price [$10.00] plus accumulated undeclared
dividends plus undeclared dividends which would
otherwise become due at the next Dividend Due Date)
divided by the Common Stock Price equals Number of
Shares Received Upon Conversion ("Conversion Price")
In addition, if such conversion occurs prior to the close of
business five years from August 13, 1993, the Effective Date of
the Public Offering, the Company shall issue to each holder of
Series A Preferred Stock the same number of Warrants to purchase
Common Stock upon conversion, without any further payment. Each
Warrant will be exercisable to purchase one share of Common Stock
at a price, subject to adjustments described therein (hereafter
the "Exercise Price") of $5.00 per share of Common Stock through
December 31, 1996 and $6.00 per share thereafter for the life of
the Warrant, August 13, 1998. If the Preferred Stock has been
called for redemption, the conversion right shall terminate at
the close of business on the last business day prior to the date
fixed for redemption (unless the Company defaults in the payment
of the redemption price). The Warrants shall be exercisable and
shall have such other terms and conditions as shall be described
in a Warrant Agency Agreement relative to the Warrants, between
the Company and the Warrant Agent designated therein. The
Warrants and the Warrant Agency Agreement shall be substantially
in the form filed as an exhibit to the Registration Statement
except as amended to conform to the terms hereof."
The amendment of Sections 6.1 and 6.2 of the Designation will affect the
rights and preferences of the Preferred Stock in a number of ways, as is more
fully described below. The Company believes that the new conversion provisions
will be a benefit to the holders of Preferred Stock. Under the amendments,
holders of Preferred Stock would receive more shares of Common Stock and
warrants than under present conversion rights, because, upon conversion, they
would receive four shares of Common Stock for each share of Preferred Stock
(liquidation preference of $10.00) instead of two and one-half shares. Upon
conversion, they will continue to receive all accrued and unpaid dividends, in
cash or Common Stock, through the date of conversion. Following conversion,
however, former holders of Preferred Stock will no longer have the right to
receive dividends or a liquidation preference. AS OF MAY 25, 1996, THE MARKET
PRICE OF THE COMMON STOCK WAS $1.50. IF THE AMENDMENTS ARE APPROVED, NO
AUTOMATIC CONVERSION WILL OCCUR UNTIL SUCH TIME, IF AT ALL, THAT THE MARKET
PRICE OF THE COMMON STOCK EQUALS OR EXCEEDS $2.50 PER SHARE. THE COMPANY IS
UNABLE TO GIVE ANY ASSURANCE WHETHER THE PRICE OF THE COMMON STOCK WILL EVER
EQUAL OR EXCEED $2.50 PER SHARE. Holders of Preferred Stock should carefully
consider the following factors before making a voting decision.
(i) Effect on Automatic Conversion. The amendment to Section 6.1 of
the Designation provides that the reported market price of Common Stock, rather
then Preferred Stock, will determine when the Preferred Stock is to be
automatically converted to Common Stock and reduces both the price (from $13.00
per share of Preferred Stock to $2.50 per share of Common Stock) and the number
of days (from 10 to 5) for which the Company's Common Stock must trade at the
- 13 -
<PAGE>
price before the Preferred Stock will be automatically converted. The effect is
to make it more likely that Preferred Stock will be automatically converted
because the trigger would be linked to a class of stock with larger market
volume, lower price and a greater likelihood of reaching and maintaining the
triggering conversion price. No automatic conversion will occur upon the
approval of amendments because the Company's Common Stock, as of the date of
this Proxy Statement, is less than $2.50 per share. Automatic conversion will
not occur unless and until the price of the Common Stock equals or exceeds $2.50
per share, if ever.
(ii) Effect on Conversion Ratio. As of the date of this Proxy
Statement, prior to the amendments, each share of Preferred Stock, plus all
unpaid dividends accrued and declared through the end of the quarter in which
the conversion occurs, is convertible into Common Stock and Warrants, whether
automatically or at the option of the stockholder, at the rate of 2.9375 shares
of Common Stock and Warrants for each share of Preferred Stock. The number of
shares and Warrants is determined by dividing the total of the liquidation
preference ($10.00 per share of Preferred Stock), plus unpaid accrued and
declared dividends (currently $1.75 per share) by $4.00, the price presently set
forth in Section 6.2 of the Certificate, as follows:
$11.75 divided by $4.00 equals 2.9375 shares of Common Stock and
Warrants for a total of 595,396 shares of Common Stock and
Warrants
Upon approval of the amendments, holders of Preferred Stock would receive
more shares of Common Stock upon conversion, because each share of Preferred
Stock would be convertible into 4.7 shares of Common Stock and Warrants, again
determined by dividing the total of the liquidation preference ($10.00 per share
of Preferred Stock) plus unpaid accrued and declared dividends (currently $1.75
per share) by the price of $2.50 proposed to be included in Section 6.2, as
follows:
$1.75 divided by $2.50 equals 4.7 shares of Common Stock and
Warrants for a total of 952,633 shares of Common Stock and
Warrants
As of the date of this Proxy Statement, there were six quarters of unpaid
dividends totaling $1.50 per share, plus dividends of $0.25 per share which
accrue through the end of the current quarter ending June 30, 1996. If the
amendments are approved, until conversion, dividends will continue to accumulate
at the rate of $1.00 annually ($0.25 per quarter) per share. If automatic or
optional conversion occurs prior to close of business on August 13, 1998, each
holder will receive, in addition to shares of Common Stock, Warrants to purchase
an equal number of shares of Common Stock. This does not represent any change
from current conversion rights.
(iii) Effect on Liquidation Rights. Holders of Preferred Stock whose
shares of Preferred Stock are converted into Common Stock will lose their
liquidation preference of $10.00 per share of Preferred Stock, plus future
accrued and unpaid dividends, in the event of dissolution, liquidation or
winding up of the Company. Holders of Common Stock are not entitled to any
preferential payments upon such event, but may participate in any other
distributions of assets by the Company following preferential payments to
holders of Preferred Stock. This does not represent any change from current
rights. However, approval of the amendments may cause the Preferred Stock to
automatically convert into Common Stock sooner than it would have under the
current provisions of Section 6.1.
(iv) Effect on Payment of Dividends. Following conversion of Preferred
Stock into Common Stock, holders of Preferred Stock will no longer be entitled
to receive or have accrued any preferential dividends but shall only be entitled
to participate in dividends, if any, declared by the Board of Directors on the
Company's shares of Common Stock. To date, the Company has not declared any
dividends on its Common Stock, and is prohibited by its agreement with its bank
lender to pay any such dividends without the consent of the lender. Holders of
Preferred Stock will continue to accrue dividends until such time as the
Preferred Stock is converted or redeemed. However, automatic conversion may
truncate, or shorten, the period of time over which Preferred Stock would accrue
dividends because automatic conversion would most likely occur, if at all,
sooner under the terms of the amendments than under the present terms.
- 14 -
<PAGE>
(v) Voting Rights. Currently, the holders of Preferred Stock have no
voting rights except as specially prescribed in the Designation or as otherwise
required by law. Currently, the holders of Preferred Stock have the right to
elect two directors of the Company because dividends on the Preferred Stock have
not been paid for at least six quarters. See "Election of Directors." At such
time, if ever, that the Preferred Stock is converted into Common Stock, or, if
not converted, the Company has otherwise paid all outstanding accrued and unpaid
dividends, the right to elect directors shall be terminated immediately.
Concurrently, the terms of any directors elected by the holders of Preferred
Stock will terminate. The amendments to the Designation do not affect the voting
rights of the holders of Preferred Stock except that the holders of Preferred
Stock will no longer have such rights if Preferred Stock is converted into
Ccommon Stock.
(vi) Effect on Antidilution Protections. The amendments will have no
effect on the antidilution protections of the Designation. The Conversion Price
will continue to be adjustable for certain events, including stock splits and
subdivisions, combination or consolidations of Common Stock, mergers,
reorganizations and dividends and distributions on the Common Stock.
Upon adoption of the amendments to the Designation, each share of Preferred
Stock would convert into one and one-half more shares of Common Stock and
Warrants than they would have converted currently. Dividends which are accrued
and unpaid on the date of conversion would also be converted into Common Stock
and Warrants, as is currently provided. There are currently 202,688 shares of
Preferred Stock issued and outstanding. As of the date of this Proxy Statement,
before amending the Designation, the Preferred Shares are convertible into
595,396 shares of Common Stock and Warrants to purchase an equal number of
shares of Common Stock (including accrued and unpaid dividends). Following the
approval of the amendments, the shares of Preferred Stock would be convertible
into 952,633 shares of Common Stock and Warrants, as of the date of this Proxy
Statement (including accrued and unpaid dividends). Each Warrant would be
exercisable for one share of Common Stock at $5.00 per share through December
31, 1996 and at $6.00 per share through August 13, 1996.
Comparison of Recent Prices For Common Stock. Section 6.1 of the
Designation currently provides that the Preferred Stock is automatically
convertible when the last reported sales price for the Company's Preferred Stock
as reported on the NASDAQ System equals or exceeds, for a period of 10
consecutive trading days, $13.00 per share. The proposed amendment will revise
Section 6.1 so that it is the trading price of the Common Stock which triggers
the automatic conversion, and that the price will be $2.50 per share, a lower
equivalent price than is presently in effect. As a result it is more likely that
the Preferred Stock would automatically convert into Common Stock. The following
table shows the range of high and low bid quotations for Common Stock each
quarterly period ended since January 1, 1994 as reported by the National
Association of Securities Dealers, Inc. Automated Quotation System. Such
quotations represent prices between dealers and do not include retail markups,
markdowns, or commissions and do not necessarily represent actual transactions.
- 15 -
<PAGE>
<TABLE>
<CAPTION>
Bid Prices
------------------------------------
Common Stock Preferred Stock
----------------- ----------------
Quarter Ended High Low High Low
- ------------- ---- ----- ---- -----
<S> <C> <C> <C> <C>
March 31 - May 25, 1996 ............ 1 1/2 1 5/64 6 3/8 4 1/4
March 31, 1996 ..................... 1 3/8 19/32 5 3 1/2
December 31, 1995 .................. 9/16 13/32 4 5/8 3/7/8
September 30, 1995 ................. 7/8 1/2 4 5/8 4 5/8
June 30, 1995 ...................... 31/32 5/8 5 7/8 4 3/4
March 31, 1995 ..................... 1 3/4 23/32 5 7/8 3 5/8
December 31, 1994 .................. 3 5/8 1 5/8 8 1/2 4 3/4
September 30, 1994 ................. 3 1 3/4 8 1/2 6 7/8
June 30, 1994 ...................... 2 3/8 2 8 3/8 7
March 31, 1994 ..................... 2 3/8 1 7/8 8 1/2 7 1/2
</TABLE>
In December 1994, the Company's Board of Directors voted not to declare the
quarterly cash dividend to holders of the Preferred Stock and in March 1995, the
Board voted to suspend the payment of any future Preferred Stock dividends
indefinitely. Further, in January 1995, the Company extended a tender offer to
the holders of Preferred Stock to convert their shares. On February 28, 1995,
the Company completed the tender offer whereby holders of the Company's
Preferred Stock converted 930,492 shares of the Preferred Stock into 4,200,716
shares of the Company's Common Stock and Warrants to purchase 2,450,417 shares
of Common Stock. The Company's Common Stock price has not traded above $1.75
since the first quarter of the 1995 fiscal year and has not traded at or above
$2.50 since the last quarter of the 1994 fiscal year. As of May 25, 1996, the
closing price of the Company's Common Stock was $1.50. The Company is unable to
predict when or if the trading price of the Common Stock will equal or exceed
$2.50 and accordingly is unable to anticipate when, if ever, the automatic
conversion provisions of Section 6.1 would be triggered.
In view of the 955,092 shares of Preferred Stock converted as of May 8,
1996, the Company's equity structure has substantially changed. The Preferred
Stock has become a minority interest in the Company's capitalization
representing only approximately a 22% interest in the Company's net assets
through the value of the liquidation preference, and holders of Preferred Stock
have no further right to participate in any distribution of assets after payment
of the liquidation preference. With only 202,688 shares of Preferred Stock
outstanding as of May 8, 1996, the record date, 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. As of May 25, 1995, the amount of
unpaid accrued dividends is $1.50 per share, or $304,032. Through June 30, 1996,
the amount will be $354,704, or $1.75 per share.
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.
- 16 -
<PAGE>
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 liquidation 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 25, 1996, the closing price
of the Common Stock was $1.50. The Preferred Stock was issued in 1993 at $10.00
per share, and has not traded at greater than $8.50 per share since the first
quarter of fiscal 1994. As of May 25, 1996, the closing bid price of the
Preferred Stock was $6.375. By amending the Certificate to link the automatic
conversion to the trading price of the Common Stock instead of the Preferred
Stock, the Company believes that it will entitle the stockholders to convert
their Preferred Stock into a number of shares of Common Stock which would then
have a market value approximating the liquidation value of the Preferred Stock.
Currently, the Preferred Stock is eligible for redemption by the Company at the
Company's option at a sum equal to the issue price (liquidation value) of $10.00
plus all accumulated dividends. Until redeemed or converted, the Preferred Stock
will continue to accumulate dividends at the rate of $1.00 annually ($.25 per
quarter). The liquidation preference of the Preferred Stock of $10.00 plus
accrued unpaid dividends will continue to exist until the Preferred Stock is
redeemed or converted. Because there is no mandatory redemption date, the
Company is unable to predict when, if ever, it would redeem the Preferred Stock.
Consequently, the Preferred Stock could continue to accrue dividends for an
indefinite period of time at the rate of $1.00 per share per year. The Company
believes that the increased likelihood of automatic conversion after the
effectiveness of the proposed amendment would permit the holders of Preferred
Stock to realize the economic benefits of their investment sooner than they
would by accumulating dividends at the current rate.
Section 6.2 has also been amended to reflect the actual exercise price of
the Warrants and to insert the issue price of the Preferred Stock and certain
dates, which were determined definitively when the registration statement for
the Preferred Stock was declared effective in August 1993 by the Securities and
Exchange Commission. Such changes do not constitute a substantive change in the
rights or privileges of the Preferred Stock.
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 the Company's Common Stock and two-thirds of the
outstanding shares of the Company's Preferred Stock. Abstentions and broker
non-votes will have the effect of a negative vote against the Amendment.
PROPOSAL THREE
PROPOSAL TO ADOPT THE 1996 EMPLOYEE STOCK OPTION PLAN
TO BE VOTED ON ONLY BY HOLDERS OF COMMON STOCK
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 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.
- 17 -
<PAGE>
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
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 $1.25.
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.
- 18 -
<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.
- 19 -
<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 Plan is intended to conform with Rule 16b-3
promulgated under the Securities Exchange Act of 1934, as amended ("1934 Act"),
which among other things, requires shareholder approval of the Plan. A plan
which complies with Rule 16b-3 permits officers and directors to participate in
employer benefit plans without violating the "short-swing profit" provisions
which prohibit purchases and sales within any six month period of each other."
Rule 16b-3 accomplishes this by exempting from the definition of purchases and
sales a transaction by an officer or director made in compliance with the Rule.
Grants of options under the Plan will be exempt if the Plan is approved by the
stockholders. If the Plan is not approved, the Company may issue options under
the Plan but they will not be exempt transactions. Consequently, it would be
more difficult for option holders to exercise the options and sell the stock
received upon exercise.
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.
- 20 -
<PAGE>
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
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
- 21 -
<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.
DOCUMENTS INCORPORATED BY REFERENCE
The following documents previously filed by the Company with the Securities
and Exchange Commission are incorporated herein by reference: (i) the Company's
Annual Report on Form 10-KSB for the year ended December 31, 1995 and (ii) the
Company's Quarterly Report on Form 10-QSB for the quarter ended March 31, 1996.
All documents filed by the Company pursuant to section 13(a) or 15(d) of the
Securities Exchange Act of 1934 after the date of this Proxy Statement and prior
to the Annual Meeting (or any adjournments or postponements thereof) shall be
deemed to be incorporated into this Proxy Statement by reference and to be a
part hereof from the date of filing of such documents.
This Proxy Statement is accompanied by copies of the Company's Annual
Report on Form 10-KSB for the fiscal year ended December 31, 1995. The Company
will provide without charge to each person to whom a copy of this Proxy
Statement has been delivered, on the written or oral request of such person, by
first class mail or equally prompt means,copies of the other reports of the
Company that have been incorporated herein by reference. A request for such
copies should be directed to Patrick J. Duncan, Corporate Secretary, at the
Company's address specified at the beginning of this Proxy Statement, or by
telephone at (970) 245-5917.
Representatives of HEIN + ASSOCIATES LLP, the Company's principal
accountants, are expected to be available at the Meeting either in person or via
electronic or telephone conference facilities and will have an opportunity to
make a statement if they desire and are expected to be available to respond to
appropriate questions.
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 February __, 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.
- 22 -
<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
- 23 -
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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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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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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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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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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