SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE
SECURITIES EXCHANGE ACT OF 1934
(AMENDMENT NO. )
------
FILED BY THE REGISTRANT [ X ]
FILED BY A PARTY OTHER THAN THE REGISTRANT [ ]
CHECK THE APPROPRIATE BOX:
[ X ] PRELIMINARY PROXY STATEMENT
[ ] DEFINITIVE PROXY STATEMENT
[ ] DEFINITIVE ADDITIONAL MATERIALS
[ ] SOLICITING MATERIAL PURSUANT TO SECTION 240.14A-11(C) OR SECTION
240.14A-12
<PAGE>
FORELAND CORPORATION
(Name of Registrant as Specified In Its Charter)
FORELAND CORPORATION
(Name of Person(s) Filling Proxy Statement)
Payment of Filing Fee (Check the appropriate box):
[ x ] $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), or
14a-6(j)(2).
[ ] $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1) Title of each class of securities to which transaction applies:
2) Aggregate number of securities to which transaction applies:
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11:1
4) Proposed maximum aggregate value of transaction:
1Set forth the amount on which the filing fee is calculated and state how
it was determined.
[ ] 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:
<PAGE>
FORELAND CORPORATION
12596 WEST BAYAUD, SUITE 300
LAKEWOOD, COLORADO 80228-2019
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD JUNE 26, 1997
TO THE STOCKHOLDERS OF FORELAND CORPORATION:
The 1997 annual meeting of the stockholders (the "Annual Meeting") of
Foreland Corporation (the "Company") will be held at the , Ely, Nevada,
-------
Nevada, on June 26, 1997. The Annual Meeting will convene at 12:00 p.m., local
time, to consider and take action on the following proposals:
1. To elect four directors to serve until the expiration of their
respective terms and until respective successors are elected and
qualified;
2. To approve the Company's 1997 Stock Option and Award Plan;
3. To approve the grant of options to the directors of the Company;
4. To approve proposed amendments to the Company's articles of
incorporation that would make certain general modernizing changes and
put in place certain anti-takeover provisions, including provisions
that would:
a) Make general modernizing changes;
b) Classify the board of directors into three classes, with each
class serving staggered three-year terms;
c) Change the Company's authorized capitalization to include
50,000,000 shares of common stock and 10,000,000 shares of
preferred stock;
d) Eliminate the personal liability of directors in certain
circumstances;
e) Cause the Company to specifically opt out of certain anti-
takeover statutes in Nevada;
f) Provide that a special meeting of the stockholders may be called
only by the board of directors;
g) Require advance notice of nominees for election to the board of
directors;
h) Grant cumulative voting on the election of directors if a person
or group of related persons owning in excess of 30% of the Common
Stock opposes management of the Company in a separate proxy
solicitation or in an election contest;
i) Require advance notice regarding business to be conducted at
stockholders' meetings;
j) Deny action by the written consent of the holders of a majority
of the voting shares;
k) Prohibit the Company from paying a premium upon the redemption of
stock in excess of the fair market value of such stock from a
stockholder that has acquired 10% or more of the Company's common
stock; and
l) Require an affirmative vote of stockholders holding at least
two-thirds of the Company's common stock to approve a business
combination with a person or group of related persons owning in
excess of 10% of the Company's common stock, unless such business
combination requires the payment of a fair price for the
Company's stock;
5. To transact such other business as may properly come before the Annual
Meeting or any adjournment(s) thereof.
ONLY OWNERS OF RECORD OF THE 7,302,087 SHARES OF THE COMPANY'S COMMON
STOCK, EACH ENTITLED TO CAST ONE VOTE, AND THE 818,470 SHARES OF VOTING
PREFERRED STOCK, ENTITLED TO CAST AN AGGREGATE OF 272,824 VOTES, ISSUED AND
OUTSTANDING AS OF THE CLOSE OF BUSINESS ON MAY 12, 1997 (THE "RECORD DATE"),
WILL BE ENTITLED TO NOTICE OF AND TO VOTE AT THE ANNUAL MEETING. EACH SHARE OF
COMMON STOCK IS ENTITLED TO ONE VOTE.
HOLDERS OF AT LEAST ONE-THIRD OF THE SHARES OF COMMON STOCK OUTSTANDING ON
THE RECORD DATE MUST BE REPRESENTED AT THE MEETING TO CONSTITUTE A QUORUM FOR
CONDUCTING BUSINESS.
THE ATTENDANCE AT AND/OR VOTE OF EACH STOCKHOLDER AT THE ANNUAL MEETING IS
IMPORTANT, AND EACH STOCKHOLDER IS ENCOURAGED TO ATTEND.
FORELAND CORPORATION
BY ORDER OF THE BOARD OF DIRECTORS
Bruce C. Decker, Assistant Secretary
Lakewood, Colorado
DATED: June 1, 1997
IMPORTANT
REGARDLESS OF WHETHER YOU PLAN TO ATTEND THE MEETING IN PERSON, PLEASE FILL IN,
SIGN, DATE, AND RETURN THE ENCLOSED PROXY PROMPTLY IN THE SELF-ADDRESSED,
STAMPED ENVELOPE PROVIDED. NO POSTAGE IS REQUIRED IF MAILED IN THE UNITED
STATES.
SPECIAL REQUEST
IF YOUR SHARES ARE HELD IN THE NAME OF A BROKERAGE FIRM, NOMINEE, OR OTHER
INSTITUTION, ONLY IT CAN VOTE YOUR SHARES. PLEASE CONTACT PROMPTLY THE PERSON
RESPONSIBLE FOR YOUR ACCOUNT AND GIVE INSTRUCTIONS FOR YOUR SHARES TO BE VOTED.
<PAGE>
FORELAND CORPORATION
12596 WEST BAYAUD, SUITE 300
LAKEWOOD, COLORADO 80228-2019
PROXY STATEMENT
This Proxy Statement is furnished in connection with the solicitation of
proxies on behalf of the management of Foreland Corporation (the "Company"), to
be voted at the annual meeting of stockholders to be held at the , Ely,
-------
Nevada, Nevada, on June 26, 1997, at 12:00 p.m., local time, or at any
adjournment thereof (the "Annual Meeting"). The enclosed proxy, when properly
executed and returned in a timely manner, will be voted at the Annual Meeting in
accordance with the directions set forth thereon. If no instructions are
indicated on the enclosed proxy, at the Annual Meeting the proxy will be voted:
1. FOR the election of four directors to serve until the expiration of
their respective terms and until respective successors are elected and
qualified;
2. FOR approval of the Company's 1997 Stock Option and Award Plan;
3. FOR approval of the grant of options to executive officers and
directors of the Company;
4. FOR approval of proposed amendments to the Company's articles of
incorporation that would make certain general modernizing changes and
put in place certain anti-takeover provisions, including provisions
that would:
a) Make general modernizing changes;
b) Classify the board of directors into three classes, with each
class serving staggered three-year terms;
c) Change the Company's authorized capitalization to include
50,000,000 shares of common stock and 10,000,000 shares of
preferred stock;
d) Eliminate the personal liability of directors in certain
circumstances;
e) Cause the Company to specifically opt out of certain anti-
takeover statutes in Nevada;
f) Provide that a special meeting of the stockholders may be called
only by the board of directors;
g) Require advance notice of nominees for election to the board of
directors;
h) Grant cumulative voting on the election of directors if a person
or group of related persons owning in excess of 30% of the Common
Stock opposes management of the Company in a separate proxy
solicitation or in an election contest;
i) Require advance notice regarding business to be conducted at
stockholders' meetings;
j) Deny action by the written consent of the holders of a majority
of the voting shares;
k) Prohibit the Company from paying a premium upon the redemption of
stock in excess of the fair market value of such stock from a
stockholder that has acquired 10% or more of the Company's common
stock; and
l) Require an affirmative vote of stockholders holding at least
two-thirds of the Company's common stock to approve a business
combination with a person or group of related persons owning in
excess of 10% of the Company's common stock, unless such business
combination requires the payment of a fair price for the
Company's stock;
5. IN accordance with the best judgment of the persons acting under the
proxies on the transaction of such other business as may properly come
before the Annual Meeting or any adjournment(s) thereof.
The enclosed proxy, even though executed and returned to the Company, may
be revoked at any time before it is voted, either by giving a written notice,
mailed or delivered to the secretary of the Company, by submitting a new proxy
bearing a later date, or by voting in person at the Annual Meeting. If the
proxy is returned to the Company without specific direction, the proxy will be
voted in accordance with the board of directors' recommendations as set forth
above.
The entire expense of this proxy solicitation will be borne by the Company.
In addition to this solicitation, officers, directors, and regular employees of
the Company, who will receive no extra compensation for such services, may
solicit proxies by mail, by telephone, or in person. This statement and form of
proxy were first mailed to stockholders on or about <mailing date>, 1997.
Only holders of the Company's 7,302,087 shares of common stock, par value
$0.001 (the "Common Stock"), and the 818,470 share of voting preferred stock,
consisting of 40,000 shares of 1991 Series Convertible Preferred Stock, 165,141
shares of 1994 Series Convertible Preferred Stock, and 613,329 shares of 1995
Series Preferred Stock, issued and outstanding as of the close of business on
May 12, 1997 (the "Record Date"), will be entitled to vote at the Annual
Meeting. The holders of the Common Stock, the 1991 Series Convertible Preferred
Stock, the 1994 Series Convertible Preferred Stock and the 1995 Series Preferred
Stock vote together as a single class (collectively referred to herein as
"Shares"). Each share of Common Stock is entitled to one vote. Each series of
voting preferred stock is convertible into Common Stock at the rate of one share
of Common Stock for each three shares of Preferred Stock, for an aggregate of
272,824 shares of Common Stock issuable on conversion. Holders of voting
preferred stock are entitled to one vote for each share of Common Stock that
would be received on conversion. Holders of Shares having at least one-third of
the 7,574,911 votes entitled to be cast at the Annual Meeting and outstanding on
the Record Date must be represented either in person or by proxy at the Annual
Meeting to constitute a quorum for conducting business.
All properly executed and returned proxies, as well as Shares represented
in person at the meeting will be counted for purposes of determining if a quorum
is present whether the proxies are instructed to abstain from voting or consist
of broker non-votes. Under Nevada corporate law and the Company's articles of
incorporation and bylaws, the election of directors requires a vote by a
plurality of the Shares present either in person or by represented by proxy at
the Annual Meeting, and amendment of the articles of incorporation requires
approval by a majority of the issued and outstanding Shares entitled to vote.
All other matters except certain specified extraordinary matters are considered
approved by the stockholders if approved by at least a majority of the Shares
present at a meeting of the stockholders at which a quorum is present.
Therefore, abstentions and broker non-votes will have the same legal effect as a
vote against matters other than the election of directors. Abstentions and
broker non-votes will not be counted for the election of directors.
Officers and directors holding an aggregate of 377,467 shares of Common
Stock, or approximately 5.0% of the issued and outstanding Shares entitled to
vote, have indicated their intent to vote in favor of all proposals.
- ----------------------------------------------------------------------------
1. ELECTION OF DIRECTORS
- ----------------------------------------------------------------------------
GENERAL
The Company's articles of incorporation provide that the board of directors
shall be elected at the annual meeting of the stockholders of the Company. The
board of directors has nominated Grant Steele, N. Thomas Steele, Kenneth L.
Ransom, and Bruce C. Decker for election as directors. Under the Company's
current articles of incorporation, directors are elected to serve for a one-year
term expiring at the next succeeding annual meeting and thereafter until their
respective successors shall have been elected and qualified. The Company is
proposing an amendment to its articles of incorporation that would provide that
the board of directors would be divided into three classes as nearly equal in
size as possible. The term of office of each director would be three years and
until each director's successor is elected and qualified. If the proposal to
classify the board of directors is approved, the board of directors will
designate the directors to serve in each class as indicated below. (See "4.
Amendments to the Articles of Incorporation.")
It is intended that votes will be cast, pursuant to authority granted by
the enclosed proxy, for the election of the nominees named below as directors of
the Company, except as otherwise specified in the proxy. In the event that any
one or more of such nominees shall be unable to serve, votes will be cast,
pursuant to authority granted by the enclosed proxy, for such person or persons
as may be designated by the board of directors. Biographical information
follows for each person nominated. The officers of the Corporation are elected
at the annual meeting of the board of directors to hold office at the pleasure
of the board of directors. The information concerning the nominees and
directors and their security holdings has been furnished by them to the Company.
(See "Principal Stockholders" below.")
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth the name, age, year first elected, and
principal business experience of each director and executive officer of the
Company.
DIRECTOR BUSINESS EXPERIENCE DURING PAST
NAME AGE SINCE FIVE YEARS AND OTHER INFORMATION
Grant Steele 72 1985 Co-founder and chairman. Executive
officer and chairman of the Company since
organization in 1985. Employed by Gulf
Oil Corporation from 1953 to 1983. From
1973 to 1980, Chief Geologist/U.S. for
Gulf Oil. Graduated from the University
of Utah, Salt Lake City, Utah, in 1949
with bachelor of science degree. Earned
his doctorate in geology from the
University of Washington in 1959.
Certified professional geologist and an
active member of the American Association
of Petroleum Geologists (awarded a
distinguished service award in 1984), the
Houston Geological Society, and the
Society of Economic Paleontologists and
Mineralogists.
N. Thomas 52 1985 Co-founder and president. Officer and
Steele director of the Company since organization
in 1985. Elected president in May 1996.
Prior to joining the Company in 1985,
president of Magnum Resources, Inc.,
Ogden, Utah, a company engaged in mineral
exploration in Nevada and Utah.
Kenneth L. 39 1985 Vice-president of exploration and a
Ransom director since the Company's organization
in 1985. Senior geologist under Dr.
Steele at Gulf Oil from 1981 to 1985,
involved principally in its Nevada area
study. Earned bachelor of science degree
in geological engineering from the
Colorado School of Mines in 1979 and
master's degree in geological sciences
from Brown University in 1981. Member of
the American Association of Petroleum
Geologists and the Geological Society of
America. Published numerous papers on
Nevada exploration and geology.
Bruce Decker 45 1994 Officer and director of the Company since
1994. Officer of Krutex Energy
Corporation from 1983 through acquisition
by the Company in 1989. Received
bachelor's degree in finance and
management from the University of Utah in
1973.
Grant Steele is the uncle of N. Thomas Steele.
SIGNIFICANT EMPLOYEES
Jerry Hansen. Mr. Hansen, who joined the Company in 1986, is senior
structural geologist for the Company with primary responsibility for generating
and developing exploration proposals and drilling prospects. He has 12 years of
oil and gas experience focused on prospect generation and evaluation in the
Powder River Basin, Gulf Coast, and primarily, in Nevada. He graduated with
degrees in geology from the University of Colorado in 1973 and the University of
Arizona in 1982. As senior structural geologist, Mr. Hansen's primary
responsibility is in the generation and development of drillable prospects, from
inception to actual wellsite operations.
Carl Schaftenaar. Mr. Schaftenaar, who joined the Company in 1993, has
been a geophysicist and geologist in the oil industry for 12 years. He holds a
bachelor's degree in geology from Hope College, Holland, Michigan, and a master
of science degree in geophysics from Texas A&M University. Mr. Schaftenaar
worked for Chevron USA on exploration and development projects in Nevada and the
Rocky Mountain area from 1982 to 1992. As senior geophysicist, Mr. Schaftenaar
is responsible for the acquisition and analysis of proprietary two- and
three-dimension seismic programs for the Company.
David T. Greene. David T. Greene, who joined the Company in 1995, is a
petroleum engineer with 17 years oil and gas experience. He holds a bachelor's
degree in earth science from the University of California at Santa Cruz and a
masters degree in petroleum engineering from Stanford University. Mr. Greene has
worked at Amoco Production Co. as Staff Petroleum Engineer, for Pacific
Enterprises Oil Company. as Division Engineering Manager, and for Plains
Petroleum Operating Co. as Senior Exploitation Engineer. Mr. Greene has
experience in the Rocky Mountain, Mid-Continent, Gulf Coast, and Offshore Gulf
of Mexico areas, especially in evaluation, design, and implementation of
secondary and tertiary recovery projects, especially relating to heavy oil and
tight reservoirs. Mr. Greene is responsible for providing engineering and field
supervision support of the Company's Eagle Springs Field drilling and
development program and for overall Nevada exploitation.
BOARD MEETINGS AND COMMITTEES
The board of directors had six formal meetings during 1996. The directors
also discussed the business and affairs of the Company informally on several
occasions throughout the year and took several actions through unanimous written
consents in lieu of meetings. The Company has no audit or compensation
committees.
VOTE REQUIRED
Directors are elected by the affirmative vote of the holders of a plurality
of the Shares voted at the Annual Meeting. Abstentions and broker non-votes
will not be counted in the election of directors.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE ELECTION OF THE NOMINEES
OF MANAGEMENT SET FORTH HEREIN AS DIRECTORS OF THE COMPANY, TO SERVE IN SUCH
CAPACITIES UNTIL THE EXPIRATION OF THEIR TERM AND UNTIL THEIR SUCCESSORS ARE
ELECTED AND QUALIFIED.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Based solely upon a review of forms 3, 4, and 5, and amendments thereto,
furnished to the Company during or respecting its last fiscal year, no director,
officer, beneficial owner of more than 10% of any class of equity securities of
the Company or any other person known to be subject to Section 16 of the
Exchange Act, failed to file on a timely basis reports required by Section 16(a)
of the Exchange Act for the last fiscal year, except that two reports respecting
three transactions were filed late by Bruce Decker, one report respecting three
transactions was filed late by Grant Steele, and one report respecting two
transactions was filed late by Don W. Treece.
EXECUTIVE COMPENSATION
Summary Compensation
The following table sets forth for each of the last three fiscal years the
annual and long term compensation earned by, awarded to, or paid to the chief
executive officer of the Company during the last fiscal year. No other
executive officer received total annual salary and bonuses in excess of $100,000
for all services rendered in all capacities to the Company and its subsidiaries.
<TABLE>
<CAPTION>
LONG TERM COMPENSATION
----------------------------------
ANNUAL COMPENSATION AWARDS PAYOUTS
----------------------- ----------------------------------
(A) (B) (C) (D) (E) (F) (G) (H) (I)
OTHER SECURITIES
ANNUAL RESTRICTED UNDERLYING ALL OTHER
YEAR COMPEN- STOCK OPTIONS/ AWARD COMPEN-
NAME AND ENDED SALARY BONUS SATION AWARD(S) SARS PLAN SATION
PRINCIPAL DEC. 31 ($) ($) ($) ($) (#) PAYOUTS ($)
POSITION ($)
- ----------- -------- ------- -------- --------- ---------- ------------- -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
N. Thomas 1996 104,320 -- 10,000 -- 200,000/-- -- 37,500
Steele
President 1995 80,400 -- -- -- --/-- -- --
(CEO)
1994 99,046 -- -- -- 200,000/-- -- 84,200(1)
</TABLE>
(1) During 1994, the Company incurred a loss of $84,200 on its guarantee of a
minimum sales price of $375,000 on Mr. Steele's former residence in
connection with his move to Denver, Colorado, to become president and chief
executive officer of the Company. (See "ITEM 13. CERTAIN RELATIONSHIPS AND
RELATED TRANSACTIONS: Relocation Agreement.")
Option/SAR Grants in Last Fiscal Year
The following table sets forth information respecting all individual grants
of options and stock appreciation rights ("SARs") made during the last completed
fiscal year to the chief executive officer of the Company.
<TABLE>
<CAPTION>
POTENTIAL REALIZED VALUE
AT ASSUMED ANNUAL RATES OF
INDIVIDUAL GRANTS STOCK APPRECIATION FOR
OPTION TERM
- ---------------------------------------------------------------- --------------------------
(A) (B) (C) (D) (E) (F) (G) (H)
% OF
NUMBER OF TOTAL
SECURITIES OPTIONS/ EXERCISE
UNDERLYING SARS OR BASE
OPTIONS/SARS GRANTED PRICE EXPIRA-
NAME GRANTED (#) TO ($/SHARE) TION DATE 0%($) 5%($) 10%($)
EMPLOYEES
DURING
FISCAL
YEAR
- ------------- --------------- ---------- --------- --------- -------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
N. Thomas 200,000(1)/-- 24.9% 5.00 9/1/2007 37,500 573,052 1,345,786
Steele,
President (CEO)
</TABLE>
(1) These options were granted effective September 1, 1996, in connection with
the chief executive officer's employment agreement. They were immediately
exercisable to purchase 50,000 shares of Common Stock and vest to purchase
an additional 50,000 shares at the next three anniversaries of the date of
grant. The options expire in increments seven years from the date of
vesting. On a change in control of the Company, the optionee is entitled
to payment in an amount equal to the unexercised options times the fair
market value of the options.
Aggregate Option/SAR Exercises in Last Fiscal Year and FY-End Option/SAR
Values
The following table sets forth information respecting the exercise of
options and SARs during the last completed fiscal year by the chief executive
officer of the Company and the fiscal year end values of unexercised options and
SARs.
(A) (B) (C) (D) (E)
NUMBER OF
SECURITIES VALUE OF
UNDERLYING UNEXERCISED
UNEXERCISED IN-THE-MONEY
SHARES OPTIONS/SARS OPTIONS/SARS
ACQUIRED AT FY END (#) AT FY END ($)
ON VALUE
NAME EXERCISE REALIZED EXERCISABLE/ EXERCISABLE/
(#) ($) UNEXERCISABLE UNEXERCISABLE
- ----------- ---------- --------- ------------- --------------
N. Thomas -- -- 190,667/150,000 $24,833/--
Steele,
President
(CEO)
EMPLOYMENT AGREEMENTS
In September 1996, the Company entered into executive employment agreements
with Grant Steele, N. Thomas Steele, Kenneth L. Ransom, and Bruce C. Decker at
annual salaries of $18,000, $125,000, $119,000, and $119,000, respectively, with
increases to be determined by the board of directors, provided that on each
anniversary the amount is increased by the percentage increase, if any, in the
Consumer Price Index of all Urban Consumers for the year end preceding such
anniversary date. Such agreements provide for a $48,000 increase in each
executive officer's annual salary ($18,000 in the case of Grant Steele) at such
time as the Company achieves sustained net oil production of at least 1,000
barrels per day for any calendar month. Each such employment agreement is for a
36-month term and is automatically renewed each month for a new 36-month term.
The employment agreements contain covenants not to compete for two years after
termination of employment, restrictions on the disclosure of confidential
information, provisions for reimbursement of expenses and payment of major
medical insurance coverage, and an agreement of the Company to register
securities of the Company held by such persons at the request of the employees.
These agreements provide for the grant of options to purchase 200,000
shares of Common Stock at an exercise price of $5.00 per share. The options
were exercisable effective September 1, 1996, to purchase 50,000 shares of
Common Stock and vest on the next three successive anniversary dates of such
options to purchase an additional 50,000 shares. In the event of termination of
employment resulting from a change in control not approved by the board of
directors, each executive will receive payment, in cash or Common Stock, in an
amount equal to the executive's base salary for the remaining term of his
respective employment agreement plus any incentive compensation previously
earned. In addition, all options held by the executive shall immediately become
vested and exercisable and the executive shall receive payment equal to the fair
market value of the options granted under the employment agreement times the
number of unexercised options in consideration of the cancellation of such
options.
DIRECTORS' COMPENSATION
The board has also approved the payment of $2,000 per month to each of the
Company's directors, whether or not such director is also then an employee of
the Company.
OPTIONS TO PURCHASE COMMON STOCK
In addition to the options granted pursuant to the employment agreements
discussed above, in July 1996, the Company granted to each of Grant Steele, N.
Thomas Steele, Kenneth L. Ransom, and Bruce C. Decker five-year options
("Executive Options") to purchase 100,000 shares of Common Stock at an exercise
price of $4.00 per share. These options are subject to approval by the
Company's stockholders, as discussed below under "3. APPROVAL OF STOCK
OPTIONS."
LIMITATION OF LIABILITY AND INDEMNIFICATION
The articles of incorporation of the Company limit or eliminate the
personal liability of directors for damages for breaches of their fiduciary
duty, unless the director has engaged in intentional misconduct, fraud, or a
knowing violation of law, or paid a dividend in violation of the Nevada Revised
Statutes.
The Company's articles of incorporation and bylaws further provide for the
indemnification of officers and directors for certain civil liabilities,
including liabilities arising under the Securities Act, unless such person is
adjudged in any action, suit, or proceeding to be liable for his own negligence
or misconduct in the performance of his duty. In the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Securities Act and is, therefore, unenforceable.
PRINCIPAL STOCKHOLDERS
The following table sets forth, as of <record date>, 1997, the outstanding
Common Stock of the Company owned of record or beneficially by each person who
owned of record, or was known by the Company to own beneficially, more than 5%
of the Company's shares of Common Stock issued and outstanding, and the name and
share holdings of each director and all of the executive officers and directors
as a group:
NUMBER OF PERCENTAGE OF
NAME OF BENEFICIAL NATURE OF COMMON OWNERSHIP(2)
OWNER OWNERSHIP SHARES
OWNED(1)
- --------------------- -------------- -------------- -------------
DIRECTORS AND
PRINCIPAL STOCKHOLDERS
Grant Steele Common Stock 141,191(3) 1.9%
Options 300,000(4)(9) 3.9%
---------
Total 441,191 5.8%
N. Thomas Steele Common Stock 92,580(5) 1.3%
Options 340,667(6)(9) 4.5%
---------
Total 433,247 5.7%
Kenneth L. Ransom Common Stock 125,204 1.7%
Options 300,001(7)(9) 3.9%
---------
Total 425,205 5.6%
Bruce C. Decker Common Stock 18,492 0.3%
Options 208,333(8)(9) 2.8%
---------
Total 226,625 3.0%
ALL EXECUTIVE OFFICERS
AND DIRECTORS AS A Common Stock 377,467 5.2%
GROUP (4 PERSONS)
Options 1,149,001 13.6%
---------
Total 1,526,468 18.1%
=========
(1) Except as otherwise noted, shares are owned beneficially and of record, and
such record stockholder has sole voting, investment, and dispositive power.
The address of all such persons for purposes of this table is deemed to be
the address of the Company.
(2) Calculations of total percentages of shares outstanding for each individual
assumes the exercise of options held by that individual to which the
percentage relates. Percentages calculated for totals of all executive
officers and directors as a group assume the exercise of all options held
by the indicated group.
(3) Represents 33,333 shares owned by Dr. Steele's wife's estate and 26,667
shares held by his Individual Retirement Account, over which Dr. Steele
exercises sole investment, voting, and dispositive power.
(4) Consists of options to acquire 33,333 shares of Common Stock at an exercise
price of $4.50 per share at any time prior to December 31, 1997, options to
acquire 66,667 shares at an exercise price of $6.375 per share at any time
prior to September 16, 1999, and options vesting to acquire an aggregate of
200,000 shares at $5.00 per share expiring incrementally through September
1, 2006. The options to acquire 33,333 shares at $4.50 per share contain a
provision that, on exercise, the holder is granted a new option covering
the number of shares for which the prior option was exercised, with the
exercise price of the new option fixed at the then fair market value of the
Common Stock.
(5) Includes 2,333 shares of Common Stock and 2,083 shares of Common Stock
issuable on conversion of outstanding preferred stock, such shares of
common and preferred stock held by Mr. Steele's wife.
(6) Consists of options to acquire 38,889 shares of Common Stock at an
exercise price of $4.50 per share at any time prior to December 31, 1997,
options to acquire 11,111 shares at an exercise price of $3.93 per share at
any time prior to December 31, 1997, options to acquire 24,000 shares at
$450 per share at any time prior to May 19, 1998, options to acquire 66,667
shares at an exercise price of $6.375 per share at any time prior to
September 16, 1999, and options vesting to acquire an aggregate an
aggregate of 200,000 shares at an exercise price of $5.00 per share
expiring incrementally through September 1, 2006. The options to acquire
38,889 shares at $4.50 per share contain a provision that, on exercise, the
holder is granted a new option covering the number of shares for which the
prior option was exercised, with the exercise price of the new option fixed
at the then fair market value of the Common Stock.
(7) Consists of options to acquire 21,778 shares of Common Stock at an
exercise price of $4.50 per share at any time prior to December 31, 1997,
options to acquire 11,556 shares at $3.93 per share at any time prior to
December 31, 1997, options to acquire 66,667 shares at $6.375 per share at
any time prior to September 16, 1999, and options vesting to acquire an
aggregate of 200,000 shares at $5.00 per share expiring incrementally
through September 1, 2006. The options to acquire 21,778 at $4.50 per
share contain a provision that, on exercise, the holder is granted a new
option covering the number of shares for which the prior option was
exercised, with the exercise price of the new option fixed at the then fair
market value of the Common Stock.
(8) Consists of options to acquire 8,333 shares of Common Stock at $6.375
per share expiring September 16, 1999, and options vesting to acquire an
aggregate of 200,000 shares at $5.00 per share expiring incrementally
through September 1, 2006.
(9) Does not include options to purchase 100,000 shares of Common Stock at
an exercise price of $4.00 per share at any time through July 18, 2001,
granted to each of N. Thomas Steele, Kenneth L. Ransom, and Bruce C.
Decker. Such options are subject to stockholder approval.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Unless otherwise indicated, the terms of the following transactions between
related parties were not determined as a result of arm's length negotiations.
Salary Deferrals and Waivers; Officer and Director Notes Payable
In June 1991, the Company loaned an officer and director, and a former
officer and director, an aggregate of $123,421, repayable with interest at the
prime rate and collateralized by a pledge of the obligation of the Company to
such persons for accrued but unpaid back salaries of approximately $156,720. A
portion of the proceeds from these loans was used to purchase $100,000 in
preferred stock and warrants. The notes were originally due in June 1992, but
the Company has agreed not to seek payment of $247,470 (including additional
advances and accrued interest) of the notes until back salaries owed these
individuals (totaling $285,721 at December 31, 1996) are paid. In addition,
pursuant to the terms of options exercised in 1994, certain officers and
directors executed promissory notes for approximately $1,016,000. These notes
are collateralized by the certificates representing the shares of Common Stock,
which are being held by the Company pending payment of the notes. At December
31, 1996, all of the notes receivable and related accrued interest (which are
included as a reduction of stockholders' equity in the Company's financial
statements) consist of $987,371 due from officers and directors, including
former officers and directors.
As of December 31, 1995, the Company owed $392,462 in salaries and interest
to its officers and directors (including a former officer and director). During
1996, the Company paid $147,476 of such amount to its officers and directors
(including $47,895 in interest). Of the amount paid by the Company, $25,250
(including $13,515 in interest) was returned to the Company from one officer and
director as payment on a note payable to the Company.
Pursuant to recently executed employment agreements, the second and third
installments due under promissory notes delivered to the Company by Grant
Steele, N. Thomas Steele, Kenneth L. Ransom (each in the amount of $300,000) and
Bruce C. Decker (in the amount of $56,250) in September 1994 in connection with
the exercise of stock purchase options were each deferred for one year to
September 1997 and September 1998.
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2. APPROVAL OF 1995 STOCK OPTION AND AWARD PLAN
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GENERAL
Effective April 12, 1997, the board of directors of the Company approved
the terms of the 1997 Stock Option and Award Plan (the "Award Plan"). In order
for certain of the Award Plan's provisions to be effective, it must be approved
by the stockholders of the Company and is being submitted for such approval
pursuant to this Proxy Statement.
In the following paragraphs a summary of the terms of the Award Plan is
provided. The following summary is qualified in its entirety by the provisions
of the Award Plan, the form of which is attached hereto at Appendix "A".
AWARD PLAN SUMMARY
The board of directors of the Company believes that it is important that
employees and other individuals who contribute to the success of the Company
have a stake in the enterprise as stockholders. Consistent with this belief,
the award of stock options has been and will continue to be an important element
of the Company's compensation program.
The Award Plan is intended to (a) attract competent directors, executive
personnel, and other employees, (b) ensure the retention of the services of
existing directors, executive personnel, and employees, and (c) provide
incentives to all of such personnel to devote the utmost effort and skill to the
advancement and betterment of the appropriate corporation by permitting them to
participate in ownership and thereby permitting them to share in increases in
the value which they help produce.
The Award Plan is to be administered either by the board of directors or by
a committee (the "Committee") to be appointed from time to time by such board of
directors. Awards granted under the Award Plan may be incentive stock options
("ISOs") as defined in the Internal Revenue Code of 1986, as amended (the
"Code"), appreciation rights, options which do not qualify as ISOs, or stock
bonus awards which are awarded to employees, including officers and directors,
who, in the opinion of the board or the Committee, have contributed, or are
expected to contribute, materially to the success of the Company. In addition,
at the discretion of the board of directors or the Committee, options or bonus
stock may be granted to individuals who are not employees but contribute to the
success of the Company.
The exercise price of options granted under the Award Plan will be based on
the fair market value of the underlying Common Stock at the time of grant and,
in the case of ISOs, may not be less than 100% of the fair market value of such
capital stock on the date the option is granted (110% of the fair market value
in the case of 10% stockholders). Options granted under the Award Plan shall
expire no later than ten years after the date of grant (five years in the case
of ISOs granted to 10% stockholders). The option price may be paid by cash or,
at the discretion of the board of directors or Committee, by delivery of shares
of Common Stock of the Company already owned by the optionee (valued at their
fair market value at the date of exercise), or a combination thereof.
All of the employees, officers, and directors of the Company are eligible
to participate under the Award Plan. A maximum of 500,000 shares are available
for grant under the Award Plan. The identification of individuals entitled to
receive awards, the terms of the awards, and the number of shares subject to
individual awards, are determined by the board of directors or the Committee, in
their sole discretion; provided, however, that in no event may the aggregate
fair market value of shares for which an ISO is first exercisable in any
calendar year by any eligible employee exceed $100,000.
The aggregate number of shares with respect to which options or stock
awards may be granted under the Award Plan, the number of shares covered by each
outstanding option, and the purchase price per share, shall be adjusted for, any
increase or decrease in the number of issued shares resulting from a
recapitalization, reorganization, merger, consolidation, exchange of shares,
stock dividend, stock split, reverse stock split, or other subdivision or
consolidation of shares.
The board of directors or the Committee may from time to time alter, amend,
suspend, or discontinue the Award Plan with respect to any shares as to which
options or stock awards have not been granted. However, no such alternation or
amendment (unless approved by the stockholders) shall (a) increase (except
adjustment for an event of dilution) the maximum number of shares for which
options or stock awards may be granted under the Award Plan either in the
aggregate or to any eligible employee; (b) reduce (except adjustment for an
event of dilution) the minimum option prices which may be established under the
Award Plan; (c) extend the period or periods during which options may be granted
or exercised; (d) materially modify the requirements as to eligibility for
participation in the Award Plan; (e) change the provisions relating to events of
dilution; or (f) materially increase the benefits accruing to the eligible
participants under the Award Plan.
CERTAIN TAX MATTERS
A participant to whom a nonqualified option is granted will not realize
income at the time of the grant. Upon exercise of the option, the excess of the
fair market value of the stock on the date of exercise over the exercise price
will be taxable to the optionee as ordinary income. The tax basis to the
optionee for the stock acquired is the exercise price plus the amount recognized
as income. The Company will be entitled to a deduction equal to the amount of
the ordinary income realized by the optionee in the taxable year which includes
the end of the optionee's taxable year in which he realizes the ordinary income.
When shares acquired pursuant to the exercise of the option are disposed of, the
holder will realize additional capital gain or loss equal to the difference
between the sales proceeds and his or her tax basis in the stock.
If a participant to whom an option is granted exercises such option by
payment of the exercise price in whole or in part with previously owned shares,
the optionee will not realize income with respect to the number of shares
received on exercise which equals the number of shares delivered by the
optionee. The optionee's basis for the delivered shares will carry over to the
option shares received. With regard to the number of nonqualified option shares
received which exceeds the number of shares delivered, the optionee will realize
ordinary income at the time of exercise; the optionee's tax basis in these
additional option shares will equal the amount of ordinary income realized plus
the amount of any cash paid.
Recipients of ISOs will not be required to recognize income at the time of
the grant of the options or at the time of exercise of the options as long as
the stock received on exercise is held for at least two years from the date of
the grant of the ISOs or one year from the date of exercise (although the
difference between the fair market value of the stock and the exercise price
paid at the time of exercise must be taken into account for alternative minimum
tax purposes). If the stock received upon exercise of an ISO is disposed of
prior to the expiration of either of such time periods, the optionee will be
required to recognize as ordinary income the amount by which the fair market
value of the stock received at the time of exercise exceeds the exercise price
of the ISOs.
Under the Award Plan, stock appreciation rights ("SARs") can be granted at
the time an option is granted with respect to all or a portion of the shares
subject to the related option. SARs can only be exercised to the extent the
related option is exercisable and cannot be exercised for the six month period
following the date of grant, except in the event of death or disability of the
optionee. The exercise of any portion of either the related option or the
tandem SARs will cause a corresponding reduction in the number of shares
remaining subject to the option or the tandem SARs, thus maintaining a balance
between outstanding options and SARs. SARs permit the holder to receive an
amount (in cash, shares, or a combination of cash and shares, as determined by
the board of directors at the time of grant) equal to the number of SARs
exercised multiplied by the excess of the fair market value of the shares on the
exercise date over the exercise price of the related options.
Under the terms of the Award Plan, the board of directors or the Committee
may also grant stock awards which may, at the discretion of the board of
directors or Committee, be subject to forfeiture under certain conditions.
Recipients of stock awards will realize ordinary income at the time of the lapse
of any forfeiture provisions equal to the fair market value of the shares less
any amount paid in connection with the issuance (the board of directors or the
Committee can require the payment of par value at the time of the grant). The
appropriate corporation will realize a corresponding compensation deduction.
The holder will have a basis in the shares acquired equal to any amount paid on
exercise plus the amount of any ordinary income recognized by the holder. On
sale of the shares, the holder will have a capital gain or loss equal to the
sale proceeds minus his or her basis in the shares.
VOTE REQUIRED
Adoption the Award Plan requires the approval of a majority of the Shares
present, in person or represented by proxy, and entitled to vote at the Annual
Meeting. Abstentions and broker non-votes will have the same legal effect as a
vote against the approval of the Award Plan.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE APPROVAL OF THE AWARD
PLAN. IT IS INTENDED THAT, IN THE ABSENCE OF CONTRARY SPECIFICATIONS, VOTES
WILL BE CAST PURSUANT TO THE ENCLOSED PROXIES FOR THE APPROVAL OF THE AWARD
PLAN.
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3. APPROVAL OF EXECUTIVE OPTIONS
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As discussed above, the board of directors believes that it is important
that the Company continue its policy of providing that employees have the
opportunity to acquire and equity interest in the Company in order that they may
benefit from their effort on behalf of the Company. At present, the executive
officers and directors of the Company hold only 377,467 shares of Common Stock,
or 5.2% of the outstanding Common Stock.
In July 1996, in recognition of the completion of certain funding, the
Company granted to each of Grant Steele, N. Thomas Steele, Kenneth L. Ransom,
and Bruce C. Decker five-year options to purchase 100,000 shares of Common
Stock ("Executive Options"), subject to approval by the Company's stockholders
at the Annual Meeting. The options are exercisable at an exercise price of
$4.00 per share, the approximate market price of the Common Stock on the date
of grant by delivering cash, a promissory note, or shares of Common Stock
already owned. These options provide that, in the event of termination of
employment resulting from a change in control not approved by the board of
directors, each executive will receive payment equal to the fair market
value of the options times the number of unexercised options in consideration of
the cancellation of such options. None of such options has been exercised. If
not approved by the stockholders, such options will be void.
FEDERAL TAX CONSEQUENCES
The options are nonqualified. The optionees will not realize income at the
time of the grant. Upon exercise of the option, the excess of the fair market
value of the Common Stock on the date of exercise over the exercise price of
$4.00 will be taxable to the optionee as ordinary income. The tax basis to the
optionee for the stock acquired will be the exercise price plus the amount
recognized as income. The Company will be entitled to a deduction equal to the
amount of the ordinary income realized by the optionee in the taxable year which
includes the end of the optionee's taxable year in which he realizes the
ordinary income. When shares acquired pursuant to the exercise of the option
are disposed of, the holder will realize additional capital gain or loss equal
to the difference between the sales proceeds and his or her tax basis in the
stock.
If an optionee exercises such option by payment of the exercise price in
whole or in part with previously owned shares, the optionee will not realize
income with respect to the number of shares received on exercise which equals
the number of shares delivered by the optionee. The optionee's basis for the
delivered shares will carry over to the option shares received. With regard to
the number of nonqualified option shares received which exceeds the number of
shares delivered, the optionee will realize ordinary income at the time of
exercise; the optionee's tax basis in these additional option shares will equal
the amount of ordinary income realized plus the amount of any cash paid.
VOTE REQUIRED
Approval of the Executive Options requires the approval of a majority of
the Shares present, in person or represented by proxy, and entitled to vote at
the Annual Meeting. Abstentions and broker non-votes will have the same legal
effect as a vote against the approval of the Award Plan.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE APPROVAL OF THE
EXECUTIVE OPTIONS. IT IS INTENDED THAT, IN THE ABSENCE OF CONTRARY
SPECIFICATIONS, VOTES WILL BE CAST PURSUANT TO THE ENCLOSED PROXIES FOR THE
APPROVAL OF THE OPTIONS.
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4. AMENDMENTS TO THE ARTICLES OF INCORPORATION
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GENERAL
The board of directors of the Company has unanimously approved the adoption
of amended and restated articles of incorporation (the "Restated Articles") to
update the governing charter of the Company, and to add certain measures
designed to assist the Company in maximizing stockholder value in the event of a
proposed corporate takeover. Since the Company adopted its current articles in
1985, the state of Nevada has adopted an extensively revised corporate statute.
The Restated Articles update the articles to be consistent with the Nevada
revised statutes (the "NRS") that were adopted in 1995 to govern corporations
formed under the laws of the state of Nevada. The Restated Articles also contain
a number of provisions designed to provide the stockholders the opportunity for
careful, collective deliberation of any proposed corporate takeover.
In connection with the adoption of the Restated Articles, certain changes
in the instruments governing the Company will be made as summarized below. The
following summary of the terms and provisions of the Restated Articles does not
purport to be complete and is qualified in its entirety by the provisions of the
Restated Articles that are attached to this Proxy Statement as Appendix "B." A
copy of the current articles of incorporation may be obtained by a written
request addressed to the Company.
Some of the changes of the proposed Restated Articles of the Company are
purely procedural in nature. Some changes, however, will be substantive in
nature. Set forth below is a discussion of the effects of the adoption of the
Restated Articles that management deems to be material.
In order for the amendments to be approved and effected, they must be
approved by a majority of the shares of Common Stock of the Company issued and
outstanding as of the Record Date.
BACKGROUND
Prompted by the desire to conform the Company's charter documents with the
NRS, a number of factors led the board of directors to an overall review of the
Company's articles of incorporation and bylaws and the proposal of a number of
measures designed to enhance the Company's position in the event of an
acquisition attempt.
During the past several years there have been a significant number of
corporate acquisitions or takeovers of all sizes in all industries, structured
and funded through a number of techniques, with varying results for acquired
companies' stockholders. Frequently, when proposed takeovers were opposed by a
target corporation's board of directors and certain stockholders, the bidder
nevertheless persisted, and the takeover attempt became hotly contested or
"hostile." Many times these hostile takeover attempts involved costly
litigation, proxy fights involving multiple rounds of proxy solicitations,
tender offers with terms and conditions adverse to stockholders, and/or the use
of other techniques that forced stockholders to make decisions individually
without the opportunity for careful, collective deliberation. Sometimes
stockholders felt coerced because of the concern that if they did not accept an
early "first tier" tender offer bid they risked subsequently being forced, in a
"second tier" merger after the acquirer had obtained control, to take securities
of the bidder or other consideration having less value. When takeovers were
completed, in some circumstances the acquired company was left with a
substantial debt burden or was broken up and significant components sold to fund
the takeover so that the acquired company ultimately bore the principal
financial risk of the bidder's purchase. In these takeover efforts, the bidder
is seeking its own profit, of course, with interests potentially in conflict
with those of the target company's existing stockholders.
Through the experience gained in this takeover environment, companies have
developed a number of measures to discourage disruptive practices and the use of
takeover techniques that do not provide all stockholders with the opportunity to
sell their stock at a fair price and to encourage bidders to initiate
negotiations with the board of directors, which has an obligation to act in the
best interests of all stockholders.
Such measures, sometimes referred to as "anti-takeover" measures, have the
effect of entrenching incumbent directors and executive management proposing the
adoption of such measures. There is a general concern that, in the face of a
proposed takeover, incumbent directors may be motivated to preserve their own
positions while being obligated to act in the best interests of stockholders.
Entrenchment of directors and senior management may diminish incentive and
contribute to insulation from responsibility and accountability for inadequate
Company performance. Therefore, the existence of anti-takeover measures may
have undesirable consequences in themselves.
During the last two years, oil prices have been at generally higher levels
than in previous years, which has contributed to renewed activity and growth in
the industry. As the oil industry experiences such growth, successful firms may
be attractive acquisition targets. The Company believes that it has made
significant progress in its activities during the last year, including the
discovery of the Ghost Ranch field and the development of sustained production
from the Eagle Springs field. Management believes the foregoing has resulted in
overall growth in stockholder value. As the Company advances its operations,
the board of directors believes that the Company's achievements may not be
reflected at all times in the trading prices for the Common Stock due to general
uncertainties among investors respecting the Company's operations in Nevada and
the oil industry generally. In addition, it may be difficult to evaluate the
results of exploration because of the preliminary and inconclusive results of
specific drilling or other exploration activity. In view of all of the
foregoing, the board of directors concluded that it would be in the best
interests of the stockholders if measures were in place to encourage bidders to
initiate negotiations with the board of directors, which has an obligation to
all stockholders, and to discourage bidders from placing stockholders in a
position in which they would be forced to make decisions individually without
the opportunity for collective deliberation. In considering the Company's
position and strategic alternatives in the event of an acquisition effort, the
board of directors undertook a broad review of the Company's articles and
bylaws. This review coincided with the application and consideration of a
number of other corporate policies and procedures, consistent with management's
desire to plan and be prepared in advance for a broad range of business
exigencies and to manage continued growth. Based on these considerations, the
Company's board of directors believes that adoption of the proposed amendments
to the Company's articles of incorporation is warranted and recommends their
adoption to assure that the value to all stockholders is maximized in the event
of an unwanted takeover. The Company has no knowledge of any proposal or intent
by any party to acquire or seek a change in control of the Company or to
accumulate stock in the Company.
GENERAL MODERNIZING CHANGES
As noted above, since adoption of the Company's current articles of
incorporation in 1985, the governing Nevada corporate statute has been revised
substantially. As a result of these revisions, provisions that were permitted,
required, and/or customary in articles of incorporation when the Company's
articles were adopted are no longer permitted, required and/or customary. The
continuation of provisions that are inconsistent with or not permitted by law
may lead to confusion of a reader unfamiliar with the NRS. Provisions that are
no longer required unnecessarily complicate the articles of incorporation.
Provisions that are no longer customary merely reflect a change in drafting
style and usage, but are not substantive. The Restated Articles incorporate a
number of changes to those provisions that are no longer permitted, required,
and/or customary, including the following:
. Current Article II of the articles of incorporation states that the
Company shall have a perpetual existence. Section 78.060 of the NRS
provides that corporations have perpetual duration unless otherwise
provided. Thus, the provision in the current articles for perpetual
existence has been eliminated in the Restated Articles.
. Current Article III contains a specific recitation of the purpose of the
Company to engage in certain aspects of the oil and gas exploration,
development, and production business, together with a general purpose of
conducting any lawful business for which a corporation may be organized
under the NRS. Consistent with contemporary terminology and the NRS,
the purpose clause of the Restated Articles is modernized to permit the
Company to engage in any lawful act or activity for which corporations
can be organized under the NRS.
. Current Article X, which sets forth the name and address of the
Company's registered agent, is restated in the Restated Articles as
Article XIII.
. Current Articles XI and XII name the initial director and incorporator
of the Company, which is now no longer relevant and can be deleted.
Article XVI has been added to the Restated Articles to list the names
and addresses of the current directors of the Company.
. Current Article V specifically denies preemptive rights to acquire
shares of stock in the Company to existing stockholders of the Company.
The NRS provide that no stockholder of a Nevada corporation is entitled
to preemptive rights unless its articles of incorporation otherwise
provide. Therefore, the provisions of current Article V have been
deleted from the Restated Articles.
. Current Article VI states that the Company would not commence business
until at least $1,000 was received for consideration of the issuance of
shares. The NRS does not require such a statements in a Corporation's
articles. Therefore, the provisions of current Article VI have been
deleted from the Restated Articles.
. The current articles of incorporation do not contain provisions
providing for the removal of directors. Subparagraph (d) of Article IV
of the Restated Articles adopts a provision that is parallel with the
applicable provisions of the NRS. This provision requires that
directors may be removed at a duly held special meeting of stockholders
called expressly for that purpose on the affirmative vote of two-thirds
of the voting shares of the Company. In the event cumulative voting for
directors is permitted, as discussed below, no director may be removed
except upon the vote of stockholders owning sufficient shares to have
prevented such director's election to office.
In addition to the foregoing provisions, there are certain other features
of the Restated Articles and related bylaws that will be different than the
present corresponding similar provisions.
If the foregoing general modernizing proposals are not adopted, the current
articles, as heretofore amended, will be retained and modified to the extent
required to implement any of the other proposals submitted to the stockholders
for their consideration that are adopted.
AUTHORIZED CAPITALIZATION
Current Article IV of the articles of incorporation of the Company
authorizes the issuance of 5,000,000 shares of preferred stock, $0.001 par value
("Preferred Stock"), and 50,000,000 shares of Common Stock, $0.001 par value.
The Common Stock has full voting and liquidation rights. The Company currently
has 7,302,087 shares of Common Stock issued and outstanding and approximately
1.7 million shares reserved for issuance on exercise of outstanding options and
warrants. The Company also currently has 818,731.5 shares of Preferred Stock
issued and outstanding, convertible into an aggregate of 660,722 shares of
Common Stock, subject to adjustment in certain circumstances based on the market
price of the Common Stock at the time of conversion. The Restated Articles
increase the authorized number of shares of Preferred Stock to 10,000,000 shares
but, as discussed below, do not significantly alter the powers or procedures of
the board of directors respecting the designation of Preferred Stock or the
issuance of the Common and Preferred Stock of the Company.
Under current article IV, the authorized and unissued Preferred and Common
Stock can be issued from time to time by the board of directors without further
stockholder action. The Restated Articles, as do the current articles, grant the
board of directors broad authority, without seeking stockholder approval, to
establish different series of Preferred Stock at the time of issuance, and to
designate the preferences, limitations, and relative rights of any such series.
Such broad authorization enables the board of directors to authorize the
issuance of Preferred Stock with voting, dividend, liquidation, and other rights
superior to the rights of the holders of Common Stock. The issuance of stock
with such superior rights might have the effect of impeding or thwarting an
effort to acquire or take control of the Company that was not endorsed by the
board of directors. The Restated Articles do contain stylistic changes to the
language of current Article IV, which is restated as Article III of the Restated
Articles, to restate such provisions to be consistent with contemporary
terminology.
Although the Company presently has only 818,731.5 shares of Preferred Stock
in various series outstanding, the board of directors has previously designated
for issuance an aggregate of 4,668,000 shares of Preferred Stock for issuance
in prior offerings (not including such series that were designated but later
canceled at such time as there were no shares of the particular series
outstanding and the shares to be designated pursuant to the Rights Plan,
discussed below). Although much of this Preferred Stock has already been issued
and converted into Common Stock, the designations of the various series of
Preferred Stock are still in effect and cannot be withdrawn while shares of the
designated series are still outstanding. For example, in 1991, the board of
directors designated a series of Preferred Stock as the 1991 Series Preferred
Stock, consisting of an aggregate of 2,000,000 shares. Shares of 1991 Preferred
Stock were then sold and issued. As of the date of this Proxy Statement, all
but 40,000 shares of the 1991 Preferred Stock have been converted into Common
Stock. Although there are only 40,000 shares of 1991 Preferred Stock
outstanding, and the Company has no intention of issuing additional shares of
1991 Preferred Stock, the designation authorizing 2,000,000 shares of such stock
is still in effect, removing this aggregate number of shares available for
issuance from the 5,000,000 authorized under the articles of incorporation.
Given the foregoing, there are only 332,000 shares of Preferred Stock that
are not designated as being part of a specific series. Therefore, the board's
flexibility in designating shares of Preferred Stock for issuance in
transactions, including transaction that would impede or thwart an unwanted
acquisition or takeover, is severely limited. Consequently, the board of
directors believes that the authorized capitalization of the Company should be
increased to authorize an aggregate of 10,000,000 shares of Preferred Stock in
order to permit the Company to designate and issue series of Preferred Stock in
transactions, including offerings or issuances in transactions that may have the
effect of preventing an unwanted takeover. No such offering or issuances are
presently contemplated.
The board of directors may from time to time also issue shares of Common
Stock without seeking stockholder approval. Therefore, the possibility that the
board of directors might issue a substantial amount of Common Stock to persons
opposed to a change in control of the Company would discourage other persons
from acquiring shares of Common Stock with a view toward acquiring control.
DIRECTOR'S CONFLICTING INTEREST TRANSACTION
Article VIII of the current articles permits transactions between the
Company and its directors or officers or any affiliate of a director or officer
in certain circumstances. Section 78.140 of the NRS provides that no contract
between a Nevada corporation and one or more of its directors or officers, or
between such a corporation and any entity in which its directors or officers are
directors or officers or are financially interested shall not be void or
voidable for such reason if any of the following circumstances exist: (i) the
fact of the common directorship, office, or financial interest is disclosed or
known to the board of directors or a committee thereof and noted in the minutes,
and the members of the board or the committee authorizes, approves, or ratifies
the contract or transaction in good faith by vote sufficient for the purpose of
approving the contract or transaction, without counting the vote or votes of the
interested directors; (ii) the fact of the common directorship, office, or
financial interest is disclosed or known to the stockholders, and they approve
or ratify the contract or transaction in good faith by a majority vote or
written consent of stockholders holding a majority of the shares entitled to
vote, including any shares held by interested director or officer; (iii) the
fact of the common directorship, office, or financial interest is not disclosed
or known to the interested director or officer at the time that the transaction
is brought before the board of directors of the corporation for action; or (iv)
the contract or transaction is fair as to the corporation at the time it is
authorized or approved. The board of directors has determined that the
provisions of the NRS are broader than those of current Article VIII and that
the current article may be inconsistent with such broader provisions. Because
of the above detailed, broad provisions of the governing statute, current
Article V containing more general language is eliminated in the Restated
Articles.
APPLICATION OF CERTAIN ANTI-TAKEOVER STATUTES
Nevada has adopted certain statutory provisions that are intended to deny
voting rights to shares acquired in a takeover effort unless the
stockholders-at-large, excluding the interested shares and shares held by
management, approve voting rights for the shares being accumulated by the
acquiring person. An individual or entity that becomes an "acquiring person"
under the NRS is disenfranchised of voting rights with respect to the shares
held and must deliver to the Company an offeror's statement containing
information respecting the acquiring person and the number of shares acquired or
to be acquired. In such a statement, the acquiring person may request that the
board of directors call a special meeting of the stockholders to determine the
voting rights of the acquired shares. In order to restore voting rights to the
acquired shares, approval must be received from a majority of the issued and
outstanding voting shares of the Company, excluding the acquiring person's
shares. In addition, if the acquisition by the acquiring person will result in
an amendment to the Company's articles of incorporation, a separate vote must be
taken and shares held by directors, officers, and employees, as well as the
acquired persons shares, may not be counted in such vote. Nevada corporations
may elect not to be governed by these statutes by adopting a provision to that
effect in their articles of incorporation.
The board of directors has reviewed these provisions of the NRS and has
concluded that, although intended to have an anti-takeover effect, they are very
difficult to apply and may, in some circumstances, be detrimental to the
stockholders of the Company because they may disenfranchise management from
voting on whether to grant voting rights to the stock being acquired by the
acquiring person, leaving the decision to stockholders who may be less informed
and may have no long-term involvement with or commitment to the Company. Such
stockholders may approve voting rights for the acquiring person's shares after
considering only the short-term profit potential of the proposed transaction and
may ignore the longer-term, potentially more profitable activities of the
Company. Therefore, the board of directors has concluded that the Company
should elect not to be subject to these provisions of the NRS. Article X of the
Restated Articles contains a provision that limits applicability of provisions
of the NRS described in the preceding paragraph.
LIMITATION ON LIABILITY OF DIRECTORS
The NRS provides that the articles of incorporation of a Nevada corporation
may limit the liability of directors or officers for monetary damages in certain
circumstances. In accordance with the NRS, proposed Article V of the Restated
Articles provides that, to the fullest extent permitted by the NRS or any other
successor law, a director or officer of the Corporation shall have no personal
liability to the Corporation or its stockholders for damages for breach of
fiduciary duty as a director or officer, except for damages resulting from (a)
acts or omissions which involve intentional misconduct, fraud, or a knowing
violation of law, or (b) the payment of dividends in violation of the provisions
of section 78.300 of the NRS, as then in effect, or any succeeding statute. No
officer or director of the Company has been involved in any litigation that
would have been affected by a provision such as the one proposed. However, the
proposed provision is clearly in the interest of the directors as it would limit
their personal liability in certain circumstances at the potential expense of
the Company and its officers and stockholders.
The Restated Articles, in conformity with the NRS, would eliminate each
director's personal liability to the Company or its stockholders under certain
circumstances for monetary damages arising out of the director's breach of his
fiduciary duty of care. The duty of care refers to the fiduciary duty of
directors to be sufficiently diligent and careful in considering a transaction,
or taking or refusing to take some corporate action. A breach of the duty of
care by a director would give rise to liability for monetary damages caused to
the Company, or stockholders of the Company, in the absence of a limiting
provision. The provision in the Restated Articles, like the identical provision
of the current articles of incorporation, does not eliminate the duty of care;
it only eliminates monetary damage awards occasioned by a breach of that duty.
Thus, a breach of the duty of care would remain a valid basis for a suit seeking
injunctive relief or rescission.
The provision does not limit or eliminate liability based on other claims,
such as a knowing violation of federal or state securities laws or grossly
negligent business decisions. In addition, it would not eliminate director
liability for (a) the amount of a financial benefit received by a director to
which he is not entitled; (b) an intentional infliction of harm on the Company
or its stockholders; (c) a violation of the law relating to the unlawful
distribution of dividends or other amounts to its stockholders; or (d) an
intentional violation of criminal law. Thus, liability for monetary damages
still exists under the provision if liability is based on one of the foregoing
grounds.
The Company is not aware of any pending or threatened claims that would be
covered by Article V of the Restated Articles. It should be noted that the
provision does limit the remedies available to a stockholder dissatisfied with a
board decision that is protected by the provision. An aggrieved stockholder's
only remedy in such a circumstance may be to sue to stop the completion of the
board's action. In many situations, this remedy may not be effective.
Stockholders, for example, may not be aware of a transaction or an event until
it is too late to prevent it. In such instance, the stockholders and the Company
could be injured by a careless board decision and yet have no effective remedy.
The board of directors believes that provisions limiting the liability of
directors or officers for monetary damages are in the best interests of the
stockholders and the Company. These provisions enhance the Company's ability to
attract and retain qualified individuals to serve as directors or officers of
the Company by assuring directors or officers (and potential directors or
officers) that their good faith decisions will not be second-guessed by a court
evaluating decisions with the benefit of hindsight.
The board of directors believes that the diligence exercised by directors
or officers stems primarily from their desire to act in the best interests of
the Company and not from a fear of monetary damage awards. Consequently, the
board believes that the level of scrutiny and care exercised by directors or
officers is not lessened by this provision in the Restated Articles and current
articles of incorporation.
INDEMNIFICATION OF DIRECTORS AND OTHERS
The current articles provide that the Company shall indemnify each officer
and director against all liabilities and expenses reasonably incurred in
connection with any action, suit, or proceeding to which such person was made a
party by reason of the fact that he or she was a director or officer.
Article VI of the Restated Articles provides that the Company shall
indemnify directors to the fullest extent permitted by the NRS and that the
Company may indemnify officers, employees, or agents as authorized by the bylaws
and the board of directors. The bylaws permit the board of directors to
authorize the indemnification of officers, employees, and others to the same
extent as directors. In any event, the NRS require indemnification for any
costs incurred by a individual in a proceeding in which that individual
prevails. The board of directors believes that mandatory indemnification for
directors, as provided in the Restated Articles, is important to enable the
Company to attract and retain competent directors. The board of directors
believes that permissive indemnification for others, as determined by the board
of directors, is important because it permits indemnification in appropriate
circumstances.
The indemnification provisions in the Restated Articles may require the
Company to indemnify individuals against expenses, including attorney's fees,
judgments, fines, and amounts paid in settlement, that may arise by reason of
their status or service as directors, officers, or agents (other than
liabilities arising from willful misconduct of a culpable nature) and to advance
expenses incurred as a result of any proceeding against them as to which they
could be indemnified. As a result of such indemnification limitations, any
large damage awards that are not compensated by insurance will come directly
from the Company's treasury. The Company is not aware of any pending or
threatened litigation or proceeding involving a director, officer, or employee,
or other person in which indemnification would be required or permitted.
The directors have a conflict of interest on recommending the Restated
Articles that contain these indemnification provisions, which may operate to the
detriment of unaffiliated stockholders.
ANTI-TAKEOVER PROVISIONS
General
During the last several years, there has been a growing trend toward the
accumulation of substantial positions in public companies by third parties as a
prelude to proposing a takeover, restructuring, or sale of all or part of the
company or other similar extraordinary corporate action. Such actions are often
undertaken by a third party without advance notice to or consultation with the
company's board of directors. In many cases, such third party seeks
representation on the company's board of directors in order to increase the
likelihood that its proposals will be implemented by the company. If the company
resists its efforts to obtain board representation, the purchaser may commence a
hostile proxy contest to have its nominees elected to the board in place of
certain directors or the entire board. In some cases, the purchaser may not be
interested in taking over the company, but uses the threat of a proxy fight
and/or bid to take over the company as a means of pressuring the company to
repurchase its equity position at a substantial premium over market price. In
such a "greenmail" threat, the company faces the risk that, if it does not do
so, its business and management will be disrupted, perhaps irreparably. In such
circumstances, the third party is advancing its own business interests and is
not concerned with the interests of the stockholders generally.
The board of directors has approved and recommends that the stockholders
adopt the Restated Articles, which contain several related provisions
(collectively, the "Anti-Takeover Provisions") that would create certain
procedures and impose certain requirements and restrictions that may have an
anti-takeover effect. The Anti-Takeover Provisions would also require the vote
of two-thirds of the issued and outstanding shares of Common Stock of the
Company in order to amend each of these provisions.
Advantages and Disadvantages
The Anti-Takeover Provisions have both advantages and disadvantages to the
stockholders. THE ANTI-TAKEOVER PROVISIONS CANNOT, AND ARE NOT INTENDED TO,
PREVENT A PURCHASE OF ALL OR A MAJORITY OF THE EQUITY SECURITIES OF THE COMPANY
NOR ARE THEY INTENDED TO DETER BIDS OR OTHER EFFORTS TO ACQUIRE SUCH SECURITIES.
Rather, the board of directors believes that the Anti-Takeover Provisions will
discourage disruptive tactics and takeovers at unfair prices or on terms that do
not provide all stockholders with the opportunity to sell their stock at a fair
price. Further, the provisions will encourage third parties who may seek to
acquire control of the Company to initiate such an acquisition through
negotiations directly with the board of directors. Therefore, the board of
directors believes that it will be in a better position to protect the interests
of all of the stockholders. In addition, the stockholders of the Company will
have a more meaningful opportunity to evaluate such action.
The Anti-Takeover Provisions are intended to encourage persons seeking to
acquire control of the Company to initiate such an acquisition through arm's
length negotiations with the board of directors. However, the overall effect of
these Anti-Takeover Provisions may be to discourage a third party from making a
tender offer for a portion or all of the Company's securities, hostile or
otherwise (including an offer at a substantial premium over the then prevailing
market value of the Company's equity securities), or otherwise attempting to
obtain a substantial position in the equity securities of the Company in order
to commence a proxy contest or engage in other takeover-related action.
Additionally, a majority of the Company's stockholders might believe such
actions to be beneficial.
To the extent that any third party potential acquirers are deterred by the
Anti-Takeover Provisions, such provisions may have the effect of preserving the
incumbent management in office. The proposed provisions may also serve to
benefit incumbent management by making it more difficult to remove the current
directors, even when the only reason for the proposed change of control or the
stockholder action may be the unsatisfactory performance of the present
directors. In addition, since the Anti-Takeover Provisions are in part designed
to discourage accumulating large blocks of the Company's voting securities by
purchasers whose objective is to have such voting shares repurchased by the
Company at a premium, their adoption could tend to reduce the temporary
fluctuation in the market price of such voting shares that frequently result
from such accumulations or attempted accumulations. Accordingly, stockholders
could be deprived of certain opportunities to sell their shares at a higher
market price.
Takeovers or changes in the board of directors of a company that are
proposed and effected without prior consultation and negotiation with the
Company are not necessarily detrimental to the Company and its stockholders.
However, the board of directors feels that the benefits of seeking to protect
the ability of the Company to negotiate effectively through directors who have
previously been elected by the stockholders as a whole and who are familiar with
the Company outweigh any disadvantage of discouraging such unsolicited proxies.
Miscellaneous
Upon adoption of the Anti-Takeover Provisions and the Restated Articles by
the stockholders, the board of directors will amend the bylaws to conform to the
Anti-Takeover Provisions. Except for the previous adoption of the Rights
Agreement, as discussed below under "Stockholder Rights Plan", the board of
directors does not currently contemplate recommending the adoption of any
further amendments to the articles of incorporation, or bylaws, or any other
action designed to affect the ability of third parties to take over or change
control of the Company. The Anti-Takeover Provisions are permitted under the NRS
and are consistent with applicable securities laws. Further, such provisions are
not in response to any specific efforts of which the Company is aware to
accumulate shares of Common Stock or to obtain control of the Company.
The Company's articles of incorporation currently provide authority to
issue 5,000,000 shares of Preferred Stock and 50,000,000 shares of Common Stock,
which shall be increased to include 10,000,000 shares of Preferred Stock if the
applicable provisions of the Restated Articles are adopted by the stockholders.
The board of directors may from time to time determine the terms of the
Preferred Stock and may issue shares of Common Stock and Preferred Stock without
seeking stockholder approval. Therefore, the possibility that the board of
directors might issue Preferred Stock having preferential voting, dividend,
conversion or liquidation rights or a substantial amount of Common Stock to
persons opposed to a change in control of the Company would discourage other
persons from acquiring shares of Common Stock with a view toward acquiring
control. The Anti-Takeover Provisions may allow the board of directors more time
to issue such stock.
Before voting on the Anti-Takeover Provisions, stockholders are urged to
read carefully the following, which describes more fully the specific changes
contemplated by the Anti-Takeover Provisions and discusses further the
advantages and disadvantages of their adoption. Appendix "B" sets forth the full
text of the Restated Articles. The description of the Restated Articles is
qualified in its entirety by reference to such appendix.
Description of Proposed Amendments
The Anti-Takeover Provisions would in general: (a) classify the board of
directors into three classes, with each class serving staggered three-year
terms; (b) provide that a special meeting of the stockholders may be called only
by the board of directors; (c) require advance notice of nominations of
directors by the stockholders in accordance with the bylaws; (d) grant
cumulative voting in the election of directors if a person or group of related
persons owning in excess of 30% of the Common Stock opposes management of the
Company in a separate proxy solicitation or in an election contest; (e) require
advance notice regarding business to be conducted at stockholders' meetings; (f)
deny action by the written consent of the holders of a majority of the voting
shares; (g) prohibit the Company from paying a premium upon the redemption of
stock in excess of the fair market value of such stock from a stockholder that
has acquired 10% or more of the Common Stock; and (h) require an affirmative
vote of stockholders holding at least two-thirds of the Common Stock to approve
a business combination with a person or group of related persons owning in
excess of 10% of the Common Stock unless such business combination requires the
payment of a fair price for the Company's stock, prohibits the Company from
entering into certain transactions or taking certain actions with related
parties, and requires prior notice to have been provided to the stockholders or,
alternatively, the business combination is approved by two-thirds of the
directors that were not elected by or at the request of the interested person or
persons. As a corollary to the above substantive provisions, the Anti-Takeover
Provisions would increase the stockholder vote required to amend and repeal, or
to adopt any provision inconsistent with, any of the Anti-Takeover Provisions
from more votes cast for than against such proposal, to two-thirds of the votes
entitled to be cast.
The effects of the Anti-Takeover Provisions, described in part above, are
further described below.
Classification of the board of directors. The current articles of
incorporation provide that all directors are to be elected to the board of
directors annually. The board of directors has approved, in conformity with the
NRS, Restated Articles that contain a provision dividing the directors into
three classes, with each class to be as nearly equal in number of directors as
possible, and to make certain necessary conforming changes to the Company's
bylaws. If adopted, such provision will be in the form of subparagraph (b) of
Article IV of the Restated Articles set forth in Appendix "B." If such proposal
is adopted by the stockholders, the board of directors will designate the three
classes of directors. One class will consist of one director and will serve
initially for a one-year term, until the next annual meeting of stockholders,
and thereafter be elected for a three-year term. A second class of directors,
consisting of one director, will serve initially for a two-year term, until the
1999 annual meeting of stockholders, and thereafter be elected for a three-year
term. The third class of directors, consisting of two directors, would
immediately commence service for a three-year term and serve until the 2000
annual meeting of stockholders (in each case until their respective successors
are duly elected and qualified). If management's nominees are elected to the
board of directors at the Annual Meeting, the board of directors intends to
designate Grant Steele as a class I director, to serve for an initial term
ending as of the 1998 annual meeting of stockholders; Kenneth L. Ransom as a
class II director, to serve for a term ending as of the 1999 annual meeting of
stockholders; and N. Thomas Steele and Bruce C. Decker as class III directors,
to serve for a term ending as of the 2000 annual meeting of stockholders.
Information concerning the current nominees for election as directors at the
Annual Meeting is set forth above. (See "1. ELECTION OF DIRECTORS.") If the
proposal for the classification of the board of directors is not adopted, all
directors elected by the stockholders at the Annual Meeting will serve until the
1998 annual meeting and until their successors are elected and qualified.
If at any time the size of the board of directors is changed, the increase
or decrease in the number of directors would be apportioned among the three
classes to make all classes as nearly equal as possible. The Company has a long
term goal of increasing the size and diversity of its board of directors by
adding outside directors, but the board of directors has no present arrangement,
commitment, or understanding with respect to increasing or decreasing the size
of the board of directors or of any class of directors.
The board of directors believes that a classified board will promote
continuity and stability of the Company's management and policies since a
majority of the Company's directors at any given time will have prior experience
as Company directors. The Company has not experienced any problems with such
continuity and stability in the past. The classification of directors has the
effect of making it more difficult to change the composition of the board of
directors. At least two stockholder meetings, instead of one, would be required
to effect a change in the majority control of the board of directors, except in
the event of vacancies resulting from removal of a director or expansion of the
size of the board (in which case the remaining directors would appoint new
directors to fill the vacancies so created). It should be noted that the
classification provision applies to every election of directors, whether or not
a change in the board of directors would be beneficial to the Company and its
stockholders and whether or not a majority of the stockholders believes that
such a change would be desirable.
Special Meetings of the Stockholders. Article VIII of the Restated
Articles provides that a special meeting of the stockholders can be called only
by a majority of the board of directors. The proposed provision of the Restated
Articles is intended to ensure that the board of directors has sufficient time
to evaluate any stockholder proposal before bringing it before the stockholders
at large. The provision would also prevent a majority stockholder from causing
a special meeting to be held and business to be transacted without giving the
stockholders or the board of directors sufficient time to evaluate the matter
and determine whether or not the business is truly in the best interests of the
stockholders.
The adoption of this provision would eliminate the ability of the Company's
stockholders to provide notice of a special meeting and get a matter approved
without giving the stockholders sufficient time to consider the matter. It is
intended to prevent the taking of an action at a special meeting without giving
all of the Company's stockholders entitled to vote on the proposed action an
adequate opportunity to evaluate the matter at a meeting where such action is
considered. The proposed provision may prevent a takeover bidder holding or
controlling a large block of the Company's voting stock from providing the
minimum amount of notice required to hold a special meeting without allowing for
the necessary time for the board of directors or other stockholders to
investigate and evaluate the matter. This provision will ensure that all
stockholders will have sufficient advance notice of any attempted major
corporate action by stockholders and that all stockholders will have an equal
opportunity to investigate the proposed action, to formulate a conclusion, and
to participate at the meeting of stockholders where such action is being
considered. It will enable the Company to set a record date for any stockholder
voting and should reduce the possibility of disputes or confusion regarding the
validity of purported stockholder action. The provisions could provide some
encouragement to a potential acquirer to negotiate directly with the board of
directors.
The proposed provision will make more difficult or discourage the
assumption of control by a holder of a substantial block of Common Stock, a
proxy context, or the removal of the incumbent board of directors by limiting
the opportunity for such actions to the regular annual meeting or to a meeting
called by management or the incumbent board of directors. Although it could
increase the likelihood that incumbent directors and management will retain
their positions, the provision does not take away the stockholders' right to
take any of these actions. However, the provision requires that it be done at a
meeting called by the Company, at which management, the board of directors, and
the proponent will have the opportunity to present their views before a vote is
taken. Even without the approval of this provision by the stockholders,
stockholders who wish to call a special meeting will have to comply with the
notice provisions of the NRS and the Company. The proposed provision is
intended to encourage persons seeking to acquire control of the Company to
initiate such an acquisition through arm's length negotiations with the
Company's management and the board of directors. The board of directors
believes approval of this proposal is in the best interest of the stockholders.
Advance Notice of Nominations of Directors. Subparagraph (c) of Article IV
of the Restated Articles require that advance notice of nominations by
stockholders for the election of directors must be given to the Company in the
manner provided in the bylaws. The board of directors intends to adopt bylaws
setting forth the procedures discussed below, subject to any future alteration,
amendment, or repeal of such bylaws by the directors or the stockholders. The
effect of the proposed provision is to expressly delegate in the Restated
Articles authority to the directors to adopt such bylaws instead of relying on
the present implied authority of the directors to so act.
The Restated Articles provide that advance written notice of proposed
stockholder nominations for the election of directors must be provided in the
manner set forth in the Company's bylaws at least 30 days prior to the date of
the meeting at which directors are to be elected. Under the bylaws to be
adopted by the board of directors, to be timely, such written notice of the
stockholder's nominations must be delivered or mailed by the stockholder to the
principal executive offices of the Company not less than 30 days prior to the
annual meeting at which the election is to be held (or if less than 40 days'
notice of the date of the annual meeting is given or made to stockholders, not
later than the tenth day following the date on which the notice of the date of
the annual meeting was mailed).
The notice to the Company from a stockholder who intends to nominate a
person at the annual meeting for election as a director must contain certain
information about the nominating stockholder and each nominee, including, among
other things, the name and address of the stockholder as it appears on the
Company's records; the class and number of shares held by the nominating
stockholder; and such other information as would be required to be included in a
proxy statement that solicits proxies for the election of the proposed nominee
which includes information respecting all arrangements or understandings between
the stockholder and nominee. The notice must also be accompanied by the written
consent of each nominee to serve as a director if so elected.
The imposition of advance notice and substantive nominee information
requirements may be disadvantageous to the stockholders because of making it
more difficult to remove or replace directors, even if such removal or
replacement would be beneficial to stockholders generally.
The proposed provision to be included in the Restated Articles may
discourage or make more difficult the assumption of control of the Company by a
purchaser of a significant block of the Company's shares through the removal of
incumbent directors. Thus, the provision may increase the likelihood that
incumbent directors would retain their positions. The elimination of
unanticipated nominations for directors from the floor at an annual meeting will
serve to prevent a sudden change in the membership of the board of directors.
The board of directors believes it is prudent and in the best interests of the
Company and its stockholders to adopt the proposed provision to the Restated
Articles in order to inform the stockholders of the qualifications of nominees
and to provide the stockholders with a meaningful opportunity to consider such
qualifications of nominees prior to a vote on such nominees.
Cumulative Voting Only in Certain Circumstances. The NRS provide that
stockholders are not entitled to cumulative voting unless otherwise provided in
the articles of incorporation. Accordingly, unless specifically provided in a
corporation's articles, stockholders of a Nevada corporation are not entitled to
multiply the total number of shares they own by the total number of directors to
be elected and then distribute the total number of votes among any number or all
of the candidates.
Subparagraph (f) of proposed Article IV of the Restated Articles provides
for cumulative voting rights in certain circumstances. Unless such
circumstances occur, pursuant to the NRS, cumulative votes would not be allowed
and a plurality of all votes cast in any election would elect directors.
Therefore, a majority of the outstanding shares entitled to vote would be able
to elect all of the directors to be elected at any annual meeting. Under
proposed Article IV, cumulative voting rights in the election of directors would
exist upon the occurrence of both of the following events:
(1) There has been a public announcement (including a report filed
pursuant to section 13(d) of the Exchange Act) that a person or group of
affiliated or associated persons has acquired or obtained the right to
acquire, beneficial ownership of 30% or more of the outstanding shares of
the Company's voting stock; and
(2) Such person or group makes, or in any way participates in,
directly or indirectly, any solicitation of proxies or becomes a
participant in any election contest with respect to the Company, seeks to
advise or influence any person with respect to the voting of any securities
of the Company, or executes any written consent in lieu of a meeting of
holders of the voting stock of the Company.
The term "voting stock" means Common Stock and any other securities of the
Company entitled to vote generally for the election of directors or any security
convertible into or exchangeable or exercisable for the purchase of Common Stock
or other securities of the Company entitled to vote generally for the election
of directors.
The provision granting cumulative voting in specified circumstances is
designed to provide a measure of assurance that the other stockholders of the
Company will be able to elect one or more directors of the Company, in addition
to those which can be nominated and elected by a person or group of affiliated
or associated persons owning 30% or more of the voting stock. Depending on the
number of shares of voting stock owned by the person or group owning 30% of the
voting stock and the number of other shares of voting stock cumulatively voted
by the other stockholders in any election of directors, this amendment may make
it significantly more difficult for such a person or group to effect a change in
the board of directors. Such a provision would also make it more difficult for
a director to be removed in those circumstances where cumulative voting is
permitted by the Restated Articles. The NRS provide that, whenever cumulative
voting is allowed by the articles, a director may not be removed from office
except upon the vote of stockholders owning sufficient shares to have prevented
the election in the first place.
If this Anti-Takeover Provision is not approved by the stockholders at the
Annual Meeting, cumulative voting will be denied to stockholders in all events.
The board of directors believes approval of this proposal is in the best
interest of the stockholders.
Written Consent by Stockholders. The NRS permit stockholder action by a
written consent signed by holders of not less than the minimum number of shares
that would be required to approve the action at a meeting of stockholders where
all of the shares entitled to vote are present, unless otherwise provided in the
articles of incorporation or bylaws. Proposed Article VII of the Restated
Articles expressly prohibits action by the stockholders without a meeting.
The adoption of this provision would eliminate the ability of the Company's
stockholders to act by written consent in lieu of a meeting. It is intended to
prevent solicitation of consents by stockholders seeking to cause the Company to
take action without giving all of the Company's stockholders entitled to vote on
the proposed action an adequate opportunity to participate at a meeting where
such proposed action is considered. The proposed provision would prevent a
takeover bidder holding or controlling a large block of the Company's voting
stock from using the written consent procedure to take stockholder action
unilaterally. This provision will ensure that all stockholders will have advance
notice of any attempted major corporate action by stockholders and that all
stockholders will have an equal opportunity to participate at the meeting of
stockholders where such action is being considered. It will enable the Company
to set a record date for any stockholder voting and should reduce the
possibility of disputes or confusion regarding the validity of purported
stockholder action. The provisions could provide some encouragement to a
potential acquirer to negotiate directly with the board of directors.
The proposed provision will make more difficult or discourage the
assumption of control by a holder of a substantial block of Common Stock, a
proxy context, or the removal of the incumbent board of directors by limiting
the opportunity for such actions to the regular annual meeting or to a meeting
called by management or the incumbent board of directors. Although it could
increase the likelihood that incumbent directors and management will retain
their positions, the provision does not take away the stockholders' right to
take any of these actions. However, the provision requires that it be done at a
meeting called by the Company, at which management, the board of directors, and
the proponent will have the opportunity to present their views before a vote is
taken. Even without the approval of this provision by the stockholders,
stockholders will not be able to take action without a duly held meeting or a
written consent of the stockholders holding not less than the minimum number of
shares than would be required to approve such action at a meeting of the
stockholders. The proposed provision is intended to encourage persons seeking to
acquire control of the Company to initiate such an acquisition through arm's
length negotiations with the Company's management and the board of directors.
The board of directors believes approval of this proposal is in the best
interest of the stockholders.
Advance Notice Regarding Business to be Conducted as Stockholders' Meeting.
Proposed Article IX of the Restated Articles provides that the only business
that may be conducted at an annual meeting of the stockholders is business that
has been brought before the annual meeting by, or at the direction of, a
majority of the directors, or by any stockholder of the Company who provides 30-
days' advance written notice of the proposed business in accordance with the
Company's bylaws. The provision expressly delegates authority to the directors
to adopt such a bylaw provision instead of relying on the present implied
authority of the directors to so act, subject to amendment of such bylaw or any
bylaw adopted and approved by stockholders.
The advance notice provision in the bylaws to be adopted by the board of
directors will provide that, to be timely, a stockholders' notice must be
received at the principal executive offices of the Company not less than 30
calendar days prior to the annual meeting date (or if less than 40 days' notice
of the date of the annual meeting is given to stockholders, not later than the
tenth day following the date on which the notice of the date of the annual
meeting was mailed).
The stockholders' notice to the Company must set forth in writing, as to
each matter the stockholder proposes to bring before the annual meeting, a brief
description of the matter and the reasons for conducting such business at the
annual meeting. Additionally, the written notification must include the name
and address, as they appear on the Company's records, of the stockholder of
record proposing such business; the class and number of shares of the Company's
capital stock that are beneficially owned by such stockholder; and any material
interest of the stockholder in such proposal. The determination as to whether
the notice provisions have been met will be made by the presiding officer at the
annual meeting. This provision applies only to new business and not to other
business or reports of officers, directors, or committees of the board of
directors.
The proposed provision of the Restated Articles provides an orderly
procedure for the notification of the business that is to be presented at
stockholders' meetings. This will enable the board of directors to plan such
meetings and also, to the extent it deems it necessary or desirable, to inform
the stockholders, prior to the meeting, of any new business that will be
presented at the annual meeting. The board of directors will also be able to
make a recommendation or statement of its position to enable the stockholders to
better determine whether they desire to attend the annual meeting or grant a
proxy to the board of directors as to the disposition of any such business. The
proposed provision does not give the board of directors any power to approve or
disapprove the business that stockholders desire to be conducted at the annual
meeting, but it does provide for a more orderly procedure for conducting the
annual meeting.
The proposed procedure may limit to some degree the ability of stockholders
to initiate discussion at a stockholders' meeting. It will also preclude the
conducting of business at a particular meeting if the proper notice procedures
have not been followed. Further, this provision will discourage belated attempts
by third-parties to begin ill-considered, disruptive discussions at a
stockholders' meeting. Nothing in the proposed procedure precludes discussion by
any stockholder of any business properly brought before the annual meeting.
Anti-Greenmail Provision. The term "greenmail" is used to describe a
negotiated stock repurchase by a corporation at a premium above the then current
market price, in exchange for an agreement by the seller not to proceed with an
acquisition attempt. If the real purpose of a takeover bid were to force the
Company to repurchase an accumulated stock interest at a premium price,
management would face the risk that if it did not repurchase the seller's stock
interest, the Company's business and management would be disrupted, perhaps
irreparably. In addition, receipt of greenmail may confer a benefit on one
stockholder not available to the stockholders generally and result in unequal
treatment of stockholders. Prohibiting the payment of greenmail would eliminate
the opportunity for such disruption or dissimilar treatment.
Article XI of the Restated Articles would prevent the repurchase by the
Company of a substantial block of the Company's stock at a premium price from
any person who has owned 10% or more of the outstanding shares for less than
three years, without the prior approval of the holders of two-thirds of the
outstanding voting shares of the Company, excluding the subject shares held by
such person. The provision also contains terms designed to distinguish
transactions that present the risk of greenmail, from repurchase transactions
that either serve valid corporate purposes, or that do not otherwise present the
risk of greenmail. For example, proposed Article XI would not apply to a tender
or exchange offer by the Company made on the same terms to all holders of its
shares or to an open market stock purchase program approved by the board of
directors.
The proposed anti-greenmail provision prevents a short-term (less than
three years) investor holding 10% or more of the Company's stock from receiving
different treatment from other stockholders by having its stock bought back by
the Company at a premium above the market price, unless approved by holders of
two-thirds of the outstanding voting shares of the Company, excluding the
subject shares held by such investor. The provision also discourages the
accumulation of a block of stock by a person who does not have the resources or
the intent to make a bona fide acquisition proposal to the Company. The
disruption of the Company's operations that such an accumulation and
accompanying threats would cause would be eliminated. Prohibiting greenmail
would also have the effect of restricting the ability of management to seek to
retain its position by buying off at a premium price the serious potential
acquisition offer at a price that would be beneficial to the stockholders.
Since the provision is designed to discourage the accumulations of large
blocks of the Company's stock by purchasers whose objective is to have such
stock repurchased by the Company at a premium, adoption of the provision could
tend to reduce any temporary fluctuations in the market price of the Company's
stock which may be caused by accumulations of large blocks of the Company's
stock. Accordingly, stockholders could be deprived of certain opportunities to
sell their stock at a higher market price.
In some instances, greenmail may have the effect of increasing the price of
the Company's stock by serving as a credible signal to potential alternative
bidders that an opportunity is available that warrants attention, thereby
resulting in a takeover of the Company at a favorable price to the stockholders
in general. The proposal, by eliminating greenmail payments, will have the
effect of eliminating this signaling function. The board of directors believes,
however, that even-handed treatment of stockholders is a more important concern
and that benefits to the stockholders from the provision more than offset this
possible disadvantage.
The board of directors considers that a 10% holding for stockholders of
public companies is an appropriate threshold to define an interested
stockholder. The restrictions of the proposed provision do not apply to persons
who have demonstrated an intent to invest on the same terms as other
stockholders by holding their voting stock for more than three years. At the
present, the Company is not aware of the existence of any stockholder or group
of stockholders, other than executive officers and directors identified under
the caption "PRINCIPAL STOCKHOLDERS," who own more than 5% of the Company's
outstanding stock or who has indicated to the Company an interest in engaging in
any of the transactions described in the proposed provision.
Fair Price Provision. In recent years, tactics have been used in
connection with actual and threatened unsolicited takeovers of corporate control
which discriminate against certain stockholders of the target corporation.
These tactics include "two tiered," "front-end loaded" cash tender offers for a
portion of the target corporation's outstanding shares of voting stock, followed
by "clean-up" or "squeeze out" mergers or similar transactions that involve the
elimination of the then remaining public stockholders of the target company
(i.e., those who did not tender their shares to, or have their tenders accepted
by, the acquirer in the initial partial cash tender offer) for cash or other
consideration having a lower value than the amounts paid to the stockholders
participating in the initial partial cash tender offer. The board of directors
has approved proposed new Article XII of the Restated Articles for the purpose
of giving greater assurance to the holders of the Company's capital stock that
they will receive fair and equitable treatment in the event of certain business
combination transactions between the Company or its subsidiaries and any
interested stockholder or certain related persons. Under the proposed article,
any business combination transaction between the Company or a subsidiary of the
Company, and an interested stockholder (i.e., any person that directly or
indirectly owns more than 10% of the aggregate voting power of the voting stock
of the Company) or its affiliates or associates, would require approval by the
affirmative vote of the holders of at least two-thirds of the outstanding shares
of voting stock of the Company, excluding any shares of voting stock held by
such interested stockholder, unless certain minimum price and procedural
conditions are satisfied or the transaction is approved by a majority of the
continuing directors of the Company.
Pursuant to the NRS, a business combination must generally be approved by
the directors and a majority of the voting stock of a corporation, unless a
class of stock is entitled to vote separately as a class, in which case the
business combination must also be approved by a majority of each class.
Regardless of whether the stockholders approve proposed Article XII, a business
combination must still be approved in accordance with applicable provisions of
the NRS.
Under proposed Article XII, the special two-thirds vote of stockholders
other than the interested stockholder would not be required if either (a) the
proposed business combination has been approved by a majority of the continuing
directors, or (b) the business combination involves the payment of consideration
to the Company's stockholders satisfying all of the minimum price and procedural
requirements summarized below. If, on the other hand, the two-thirds
stockholder vote is obtained in connection with a particular business
combination, the approval of a majority of the continuing directors would not be
required, and such minimum price and procedural conditions would not have to be
satisfied.
A continuing director is any director of the Company who was a director
prior to the time the interested stockholder became such, and any other director
whose election as a director was recommended or approved by a majority of the
continuing directors.
The consideration to be paid to the Company's stockholders in the business
combination must be either cash or the same type of consideration used by the
interested stockholder to acquire the largest portion of its voting stock. The
amount of such consideration to be paid per share of the Company's capital stock
must satisfy each of the following:
(a) The per share price received by the stockholders of the Company
must not be less than the market price of Common Stock on the date of the
announcement of the business combination and must bear the same or a
greater percentage relationship to the market price of the Company's stock
immediately prior to the announcement of the business combination as the
highest per share price that the interested stockholder has paid for any of
its shares of the Company's stock already owned by it bears to the market
price of Common Stock of the Company immediately prior to the commencement
of acquisition of the Company's capital stock by the interested
stockholder;
(b) The per share price to be received by the stockholders of the
Company in such business combination must not be less than the highest per
share price paid by the interested stockholder in acquiring any of its
holdings of the Company's capital stock and not less than the earnings per
share of the Company's capital stock for the four full consecutive fiscal
quarters or the last fiscal year reported, whichever is higher, immediately
preceding the record date for solicitation of votes on such business
combination, multiplied by the then price/earnings multiple of the
interested stockholder as customarily computed and reported in the
financial community; and
(c) The per share price to be received by the stockholders must
include an additional premium over the value determined in accordance with
(a) and (b) above that is equal to the greater of
(i) the per share equivalent of the value of the Company's oil
reserves classified as "possible" under the then current criteria of
the Society of Petroleum Engineers of the American Institute of Mining
Engineers, as of a reasonably practicable date not more than 180 days
prior to the record date for solicitation of votes on such business
combination, as evaluated by a reputable and qualified petroleum
engineer as determined by the Company's continuing directors; or
(ii) the per share equivalent of 20% of the highest consolidated
balance of domestic and foreign cash, cash equivalents, and marketable
securities held by the Company at any time during the period
commencing on the date the interested stockholder first acquired any
shares of the Company's capital stock and terminating on the 15th day
prior to the date on which a proxy statement is scheduled to be mailed
to the public stockholders of the Company in respect of such business
combination.
In addition to the other requirements of the fair price provision, prior to
the consummation of any business combination and prior to any vote of the
Company's stockholders, a proxy statement or information statement complying
with the requirements of the Exchange Act must be mailed to all stockholders of
the Company for the purpose of informing the Company's stockholders about the
proposed business combination and, if their approval is required, for the
purpose of soliciting stockholder approval. The proxy statement or information
statement must contain at the beginning of the document in a prominent place a
statement by the continuing directors of their position on the advisability (or
inadvisability) of the proposed business combination and may include a fairness
opinion of a reputable investment banking firm from the view of the remaining
stockholders of the Company.
Further, after the interested stockholder has become such, and prior to the
consummation of the business combination, each of the following must be complied
with:
(a) The interested stockholder must have taken steps to ensure that
the Corporation's board of directors will include at all times
representation by continuing directors proportionate to the shareholdings
of the Company's public stockholders not affiliated with the interested
stockholder;
(b) There shall have been no change in the amount per share payable
or paid as dividends on the Company's capital stock, except as may have
been approved by unanimous vote of the directors;
(c) The interested stockholder shall not have acquired any newly
issued shares of stock, directly or indirectly from the Company;
(d) The interested stockholder shall not have acquired any additional
shares of the Company's outstanding capital stock, except as a part of the
transaction which results in the interested stockholder acquiring its 10%
interest;
(e) The interested stockholder shall not have received the benefit,
directly or indirectly (except proportionately as a stockholder), of any
loans, advances, guarantees, pledges, or other financial assistance or tax
credits provided by the Company; or
(f) No major change in the Company's business or equity capital
structure shall have been made without the unanimous approval of the
directors.
These procedural requirements are designed to prevent an interested
stockholder from: (a) attempting to depress the market price of the Company's
capital stock prior to proposing a business combination, thereby possibly
reducing the consideration required to be paid to the Company's other
stockholders pursuant to the minimum price provisions discussed above; (b)
purchasing additional shares of the Company's capital stock at prices that are
lower than those set by such minimum price provisions, and (c) self-dealing or
otherwise taking advantage of its equity position in the Company by using the
Company's resources for its own purposes in a manner not proportionately
available to all stockholders. The requirements also ensure that all of the
Company's stockholders will be fully informed of the terms and conditions of the
proposed business combination prior to its completion, even if the interested
stockholders were not otherwise legally required to disclose such information to
such stockholders.
The purpose of the proposed provision is to provide greater assurance that
the Company's stockholders will receive fair treatment in a business combination
involving an interested stockholder or its affiliates or associates. The board
of directors of the Company believes that the adoption of the proposal is
desirable notwithstanding certain provisions of Nevada law that provide that
stockholders who object to a merger, consolidation, sale of assets, or certain
other corporate acts may, under certain circumstances, have the statutory right
to dissent, have their shares "appraised", and receive the "fair value" of their
shares in cash.
The proposed provision should encourage persons interested in acquiring the
Company to negotiate in advance with the board of directors, since the higher
stockholder voting requirements imposed would not be invoked if such person
obtains the approval of a majority of the continuing directors for the proposed
business combination transaction. In the event of a proposed acquisition of the
Company, the board of directors believes that the interest of the Company's
stockholders will best be served by a transaction that results from negotiations
based upon careful consideration of the proposed terms, such as the price to be
paid to minority stockholders, the form of consideration paid, and tax effects
of the transaction.
Increased Stockholder Vote for Amendment or Repeal of Proposed Amendments
Under the NRS, amendments to the articles of incorporation require the
approval of stockholders, which is ordinarily given if the number of votes cast
in favor comprises a majority of the shares entitled to vote thereon and, in
certain cases, of a majority of the outstanding shares of each class entitled to
vote thereon as a class. The NRS also permits provisions in a corporation's
articles of incorporation that require a greater proportion than the vote
otherwise required by law for any corporate action. Each of the Anti-Takeover
Provisions recommended by the board of directors for adoption, require the
concurrence of the holders of at least two-thirds of the voting power of the
Company's voting stock, voting together as a single class, for the amendment or
repeal of, or the adoption of any provisions inconsistent with, any of such
Anti-Takeover Provisions.
The requirement of an increased stockholder vote for amendment of the
provisions contained in the Anti-Takeover Provisions is designed to prevent a
stockholder with a majority of the Company's stock from avoiding the
requirements of such provisions by simply amending all of these provisions
again.
This increased stockholder vote requirement may preclude stockholders
otherwise holding the requisite majority of voting power from repealing or
amending a provision, even though it may be in the best interest of stockholders
to do so.
Interrelationship of Proposals and Existing Protections
The proposed provisions sought to be approved in this proposal are intended
to complement one another and to work together with the protections provided by
the Stockholder Rights Plan recently adopted by the board of directors. (See
"Stockholder Rights Plan.") The Anti-Takeover Provisions are intended to make
it more difficult to bring about a rapid change in the composition of the board
of directors and thus, make it more difficult for a third party to acquire the
Company (or a substantial block of its Common Stock) without first negotiating
with the board of directors. For example (and as described above), a third
party would be unable to acquire only a majority of the Common Stock and take
immediate control of the board of directors due to the existence of the
classified board and that party's inability of removing directors (and filling
vacancies) or increasing the size of the board of directors without a two-thirds
stockholder approval. All of the proposed provisions act to encourage third
parties to negotiate directly with the board of directors with respect to the
acquisition of all or a portion of the Common Stock. The board of directors has
determined that the protections provided by all of the Anti-Takeover Provisions
are in the best interests of the Company, notwithstanding the fact that such
proposals may have some adverse effects on interests of stockholders generally
in certain circumstances.
CERTAIN MATERIAL CONTINUING PROVISIONS
The Restated Articles will not affect the applicability of certain
provisions of Nevada law that may be provided in or permitted by the articles of
incorporation of the Company.
CHANGE IN BYLAWS
In connection with the adoption of the Restated Articles, the board of
directors has authorized the adoption of new bylaws to govern the corporate
affairs of the Company. The material differences between the newly adopted
bylaws of the Company, the former bylaws of the Company, and other specific
provisions are discussed below. The summary of the provisions of the newly
adopted bylaws and the changes from the current bylaws of the Company is
qualified in its entirety by reference to the exact provisions of the newly
adopted bylaws. Copies of the current bylaws of the Company as well as the
former bylaws of the Company may be obtained by written request addressed to the
Company.
Number and Term of Office of Directors
The current bylaws of the Company provide that the number of Directors
constituting the Board of Directors shall be at least three, as determined from
time to time by the Directors and that each Director is to be elected at the
annual meeting. The newly adopted bylaws of the Company provide the Board of
Directors will determine the number of Directors, divided into three classes,
with staggered three-year terms, consistent with the provisions of the Restated
Articles.
Special Meetings of Stockholders
The current bylaws provide that special meetings will be called by the
directors upon the written request of a majority of the stockholders. This
provision will be amended to be consistent with the provisions of the Restated
Articles.
Advance Notice of Nominations of Directors. As discussed above, the board
of directors intends to adopt bylaws setting forth the procedures for advance
notice of nominations of directors, subject to any future alteration, amendment,
or repeal of such bylaws by the directors or the stockholders. It is intended
that this bylaw will be adopted pursuant to the express authority of the
Restated Articles, if adopted. The proposed bylaws will provide that, to be
timely, written notice of a stockholder's nominations must be delivered or
mailed by the stockholder to the principal executive offices of the Company not
less than 30 days prior to the annual meeting at which the election is to be
held (or if less than 40 days' notice of the date of the annual meeting is given
or made to stockholders, not later than the tenth day following the date on
which the notice of the date of the annual meeting was mailed). The notice must
contain certain information about the nominating stockholder and each nominee,
including, among other things, the name and address of the stockholder as it
appears on the Company's records; the class and number of shares held by the
nominating stockholder; and such other information as would be required to be
included in a proxy statement that solicits proxies for the election of the
proposed nominee which includes information respecting all arrangements or
understandings between the stockholder and nominee. The notice must also be
accompanied by the written consent of each nominee to serve as a director if so
elected.
Advance Notice Regarding Business to be Conducted as Stockholders' Meeting.
As discussed above, in connection with proposed Article IX of the Restated
Articles, the board of directors intends to adopt bylaws providing that the only
business that provide procedures that are required to bring business before an
annual meeting of the stockholders, subject to any future alteration, amendment,
or repeal of such bylaws by the directors of the stockholders. It is intended
that this bylaw will be adopted pursuant to the express authority of the
Restated Articles, if adopted. The bylaws to be adopted by the board of
directors will provide that, to be timely, a stockholders' notice must be
received at the principal executive offices of the Company not less than 30
calendar days prior to the annual meeting date (or if less than 40 days' notice
of the date of the annual meeting is given to stockholders, not later than the
tenth day following the date on which the notice of the date of the annual
meeting was mailed). The stockholders' notice to the Company must set forth in
writing, as to each matter the stockholder proposes to bring before the annual
meeting, a brief description of the matter and the reasons for conducting such
business at the annual meeting. Additionally, the written notification must
include the name and address, as they appear on the Company's records, of the
stockholder of record proposing such business; the class and number of shares of
the Company's capital stock that are beneficially owned by such stockholder; and
any material interest of the stockholder in such proposal.
STOCKHOLDER RIGHTS PLAN
Background
In addition to the provisions being submitted to the stockholders for
consideration at the Annual Meeting to assist the Company in maximizing
stockholder value in the event of a proposed corporate takeover, the board of
directors has unanimously adopted a Rights Agreement (the "Rights Agreement").
Under the Rights Agreement, Preferred Stock purchase rights ("Rights") will be
distributed, as a dividend, to stockholders of record as of May 26, 1997 (the
"Rights Record Date"), as soon as practicable after such date, at a rate of one
Right for each share of Common Stock held on the Rights Record Date. The Rights
Agreement was approved and adopted unanimously by the board of directors
effective May 12, 1997, and is not being submitted to the stockholders for their
consideration.
The Rights are designed to deal with the very serious problem of a raider
using what the board of directors perceives to be coercive tactics to deprive
the Company's board of directors and stockholders of any real opportunity to
determine the destiny of the Company. The Rights may be redeemed by the Company
at a redemption price of $0.01 per Right, subject to adjustment, prior to the
public announcement that 20% or more of Common Stock has been accumulated by a
single acquirer or group. Thus the Rights should not interfere with any merger
or other business combination approved by the board of directors nor affect any
prospective offeror willing to negotiate in good faith with the board of
directors. The Rights Agreement does not inhibit any stockholder from utilizing
the proxy mechanism to promote a change in the management or direction of the
Company. However, as discussed above, the proposed classified board would
inhibit any stockholder from utilizing the proxy mechanism to promote an
immediate change in the management or direction of the Company.
The board of directors has viewed with concern the possibility of abusive
tactics in attempts to take over public companies. While the board of directors
is not aware of any effort to acquire control of the Company, it believes that
the Rights Agreement represents a sound and reasonable means of safeguarding the
investment of stockholders in the Company in addition to the safeguards provided
by the Anti-Takeover Provisions.
Distribution of the Rights will not in any way alter the financial strength
of the Company or interfere with its business plans. The distribution of the
Rights is not dilutive, does not affect reported earnings per share, is not
taxable either to the recipient or to the Company, and will not change the way
in which stockholders can currently trade shares of Common Stock. However,
under certain circumstances, more specifically described below, particularly
where the Rights are "triggered" as the result of certain potentially abusive
tactics (that is, tactics that are perceived by the board of directors to be
either coercive, unfair, or discriminatory), exercise of the Rights may be
dilutive or affect reported earnings per share. The Right's discriminatory
feature exposes an acquirer to a substantial penalty for proceeding without the
board of directors' approval. If the Rights not attached to the acquirer's
shares are triggered, they may be exercised by someone even if an initial holder
cannot pay the exercise price, since they detach from the underlying shares and
become separately tradable no later than the Flip-In Event. A "Flip-In Event"
occurs if any person, including affiliates and associates, or group acting in
concert, without the board of director's prior approval, acquires beneficial
ownership or 20% or more of the Company's voting stock). If a significant
number of rights were exercised, both the economic value and the voting power of
the acquiring person's shares would be immediately and substantially diluted by
the issuance of new shares to exercising holders. Further, as to any rights
left outstanding after their flip-in exercise period, the acquirer must contend
with the Flip-Over Event. A "Flip-Over Event" occurs if, following a Flip-In
Event, the Company consummates any business combination in which its stock is
changed or exchanged with, or any substantial asset sold to, any person. The
acquirer must deal with the Flip Over Event if it wants to acquire the entire
equity interest in the target since a non-board-approved "squeeze-out" merger
cannot eliminate, and will trigger, the detached Rights.
Summary of the Rights Agreement
A dividend of one Right for each outstanding share of Common Stock of the
Company is payable to holders of Common Stock as of the Rights Record Date.
Each Right entitles the registered holder thereof to purchase from the Company
one one-hundredth (1/100) of a share of Series A Preferred Stock (the "Series A
Preferred Stock") at an exercise price of $100 (the "Exercise Price"). The
terms and conditions of the Rights are contained in the Rights Agreement between
the Company and Atlas Stock Transfer Corporation, as rights agent (the "Rights
Agent"); and the summary contained herein is qualified in its entirety by the
terms of the Rights Agreement.
Initially, the Rights will not be exercisable, certificates for the Rights
will not be issued, and the Rights will automatically trade with the Common
Stock.
Until the close of business on the Separation Date, which will occur on the
earliest of (i) the tenth day after the public announcement that a person or
group of affiliated or associated persons ("Acquiring Person") has acquired, or
obtained the right to acquire, beneficial ownership of 20% or more of the
outstanding Voting Shares (as defined in the Rights Agreement) of the Company
(the "Stock Acquisition Date") or (ii) the tenth day after the date of the
commencement of, or first public announcement of, the intent of any person to
commence a tender or exchange offer or take-over bid to acquire beneficial
ownership of 20% or more of the outstanding Voting Shares of the Company or
(iii) such later date as may be fixed by the board of directors from time to
time by notice to the Rights Agent and publicly announced by the Company, the
Rights will be represented by and transferred only with the Common Stock. Until
the Separation Date, new certificates issued for Common Stock after the Rights
Record Date will contain a legend incorporating the Rights Agreement by
reference, and the surrender for transfer of any of the Common Stock
certificates will also constitute the transfer of the Rights associated with the
Common Stock represented by those certificates. Promptly following the
Separation Date, separate certificates representing the Rights will be mailed to
holders of record of Common Stock at the close of business on the Separation
Date, and thereafter the certificates representing the Rights alone will
evidence the Rights. The Rights are not exercisable until the Separation Date.
The Exercise Price payable and the number of shares of Series A Preferred
Stock or other securities or property issuable upon exercise of the Rights are
subject to adjustment from time to time to prevent dilution (i) in the event of
a stock dividend on, or a subdivision, combination, or reclassification of, the
Common Stock, (ii) upon the grant to holders of Common Stock of certain rights
or warrants to subscribe for Common Stock or convertible securities at less than
the Market Price (as defined in the Rights Agreement) of the Common Stock, or
(iii) upon the distribution to holders of Common Stock of evidences of
indebtedness or assets (excluding regular cash dividends and dividends payable
in Common Stock) or of subscription rights or warrants.
If any Person becomes an Acquiring Person, other than pursuant to a tender
or exchange offer for all outstanding Common Stock of the Company, and the board
of directors, taking into account the long-term value of the Company and all
other factors that the board of directors considers relevant (such as, for
example, the adequacy of the price offered, the fairness of the offer to the
Company and its stockholders, the nature and timing of the offer, the impact on
constituencies other than stockholders, the probability of consummation, the
quality of any securities being offered in the exchange, as well as the basic
stockholder interests at stake, including stockholder interests in long-term as
compared to short-term values and in making independent, uncoerced investment
decisions), determines the offer to be at a price and on terms that are fair to
holders of Common Stock of the Company (a "Flip-in Event"), each holder of a
Right, other than the Acquiring Person, will have the right to receive, upon
payment of one-half (1/2) the Exercise Price, in lieu of Series A Preferred
Stock, a number of shares of Common Stock of the Company having an aggregate
Market Price equal to the Exercise Price.
For example, at the Exercise Price of $100 per Right, if any person becomes
the beneficial owner of 20% or more of the outstanding Common Stock of the
Company, each Right (other than Rights owned by such 20% beneficial owner or any
of its affiliates or associates, which will have become void) would entitle its
holder to purchase $200 worth of Common Stock for $100. Assuming that the
Common Stock had a per share value of $10 at such time, each Right would
effectively entitle its holder to purchase 20 shares of Common Stock for $100.
After a Flip-in Event, Rights that are (or, under certain circumstances,
Rights that were) beneficially owned by an Acquiring Person will be null and
void.
Unless the Rights are redeemed earlier, if, after the Stock Acquisition
Date, the Company is acquired in a merger or other business combination (in
which any of the Common Stock is changed into or exchanged for other securities
or assets) or more than 50% of the assets or operating income or cash flow of
the Company and its subsidiaries (taken as a whole) are sold or transferred in
one or a series of related transactions (a "Flip-over Transaction or Event"),
the Rights Agreement provides that proper provision shall be made so that each
holder of record of Rights will, from and after that time, have the right to
receive, upon payment of the Exercise Price, that number of shares of Common
Stock of the acquiring company (or, in certain circumstances, the direct or
indirect corporate parent of the acquiring company) which has a Market Price at
the time of such Flip-over Transaction or Event equal to twice the Exercise
Price. The right to purchase shares of an acquiring company would not apply to
a transaction with a person that became an Acquiring Person pursuant to a tender
or exchange offer approved by the Company's board of directors if the price paid
to holders of Common Stock in the transaction was not less than the price paid
in such tender or exchange offer.
Fractions of Series A Preferred Stock (other than fractions that are
integral multiples of one one-hundredth of a share) may, at the election of the
Company, be evidenced by depository receipts. The Company may also issue cash
in lieu of fractional shares of Series A Preferred Stock that are not integral
multiples of one one-hundredth of a share of Series A Preferred Stock.
At any time prior to the earlier of (i) the Expiration Date (defined as the
close of business on the tenth-year anniversary of the Rights Agreement) or (ii)
the close of business on the tenth day after the Stock Acquisition Date (subject
to extension by the board of directors), the board of directors may, at its
option, cause the Company to redeem the rights in whole, but not in part, at a
price of $0.01 per Right (the "Redemption Price"), subject to adjustment.
Immediately upon the action of the board of directors authorizing redemption of
the Rights, the right to exercise the rights will terminate, and the holders of
Rights will only be entitled to receive the Redemption Price without interest.
Decisions respecting redemption of the Rights can only be effected by the board
of directors.
As long as the Rights are redeemable, the board of directors, without
further stockholder approval, may, except with respect to the Exercise Price or
Expiration Date of the Rights, amend the Rights Agreement in any manner that, in
the board of directors' opinion, does not materially adversely affect the
interests of holders of the Rights as such.
Until a Right is exercised, the holder, as such, will have no rights as a
stockholder of the Company, including, without limitation, the right to vote or
to receive dividends.
The Series A Preferred Stock
The following description of the Series A Preferred Stock is qualified in
its entirety by the Designation of Rights, Privileges, and Preferences of such
Preferred Stock.
The Series A Preferred Stock is non-redeemable and subordinate to any other
series of the Company's Preferred Stock which may at any time be issued. The
Series A Preferred Stock may not be issued, except upon exercise of Rights (each
Right to be distributed to holders of Common Stock entitles such holder to
purchase one one-hundredth of a share of Series A Preferred Stock). Each share
of Series A Preferred Stock is entitled to receive, when, as, and if declared, a
dividend in an amount equal to one hundred times the cash dividend declared on
each share of Common Stock. In addition, each share of Series A Preferred Stock
is entitled to receive one hundred times any non-cash dividends declared with
respect to each share of Common Stock, in like kind, other than a dividend
payable in shares of Common Stock. In the event of liquidation, the holder of
each share of Series A Preferred Stock shall be entitled to receive a
liquidation payment in an amount equal to one hundred times the liquidation
payment made per Common Share of the Company. Each share of Series A Preferred
Stock has one hundred votes, voting together with the Common Stock and not as a
separate class, unless otherwise required by law or the Company's articles of
incorporation. In the event of any merger, consolidation, or other transaction
in which shares of Common Stock of the Company are exchanged, each share of
Series A Preferred Stock is entitled to receive one hundred times the amount
received per share of Common Stock of the Company.
Reserved Shares
The Rights Agreement contemplates that the Company will reserve a
sufficient number of authorized but unissued shares of Common Stock to permit
the exercise in full of the Rights should the Rights become exercisable. If the
amendment to the articles of incorporation to increase the authorized
capitalization of the Company is not approved by the stockholders as discussed
above, the number of authorized but unissued and non-reserved shares of Common
Stock would not be sufficient for issuance upon the Rights becoming exercisable
based on the initial terms of the Rights before the effect of any future anti-
dilution adjustment for such events as a share dividend or stock split or
consolidation and before the effect of any future adjustment resulting from a
Flip-In Event. However, pursuant to provisions of the NRS, the board of
directors could effect a stock consolidation without submitting the matter to
the stockholders for their consideration. The board of directors may do so in
the event of a possible Flip-in Event if the proposed amendment to the articles
of incorporation to increase the authorized number of shares of Common Stock is
not approved by the stockholders. Depending upon the then current market price
of the Common Stock and the Exercise Price, the number of shares of Common Stock
presently authorized or to be authorized if the additional shares are authorized
may be insufficient to permit exercise in full of the Rights upon the occurrence
of a Flip-in Event. Consequently, the effectiveness of the Rights Agreement may
be impaired if an insufficient number of shares is authorized and reserved for
issuance upon the exercise of Rights.
Amendment of the Rights Agreement.
At any time prior to the Exercisability Date, the board of directors may
amend any provision of the Rights Agreement in any manner, including to change
the Exercise Price, without the approval of the holders of the Common Stock.
Thereafter, subject to certain limitations, the board of directors may amend the
Rights Agreement without the approval of the holders of the Common Stock so long
as the interests of the holders of the Rights are not adversely affected,
including generally (i) to shorten or lengthen any time period under the Rights
Agreement or (ii) in any manner that the Board deems necessary or desirable, so
long as such amendment is consistent with and for the purpose of fulfilling the
objectives of the board of directors in originally adopting the Rights
Agreement.
VOTE REQUIRED
Each of the above several proposals relating to the Restated Articles will
be included in the Restated Articles if the number of votes cast for such
specific proposal constitutes at least a majority of the issued and outstanding
Shares of the Company. As indicated on the enclosed form of proxy, the above
proposals will be voted on separately as follows:
To approve proposed amendments to the Company's Articles of Incorporation
and bylaws that would make certain general modernizing changes and put in
place certain measures designed to assist the Company in maximizing
stockholder value in the event of a proposed corporate acquisition,
including provisions that would:
a) Make general modernizing changes;
b) Classify the board of directors into three classes, with each
class serving staggered three-year terms;
c) Change the Company's authorized capitalization to include
50,000,000 shares of common stock and 10,000,000 shares of
preferred stock;
d) Eliminate the personal liability of directors in certain
circumstances;
e) Cause the Company to specifically opt out of certain anti-
takeover statutes in Nevada;
f) Provide that a special meeting of the stockholders may be called
only by the board of directors;
g) Require advance notice of nominees for election to the board of
directors;
h) Grant cumulative voting on the election of directors if a person
or group of related persons owning in excess of 30% of the Common
Stock opposes management of the Company in a separate proxy
solicitation or in an election contest;
i) Require advance notice regarding business to be conducted at
stockholders' meetings;
j) Deny action by the written consent of the holders of a majority
of the voting shares;
k) Prohibit the Company from paying a premium upon the redemption of
stock in excess of the fair market value of such stock from a
stockholder that has acquired 10% or more of the Company's common
stock; and
l) Require an affirmative vote of stockholders holding at least
two-thirds of the Company's common stock to approve a business
combination with a person or group of related persons owning in
excess of 10% of the Company's common stock unless such business
combination requires the payment of a fair price for the
Company's stock,
In each case, each Anti-Takeover Provision of the Restated Articles has a
provision that, if such Anti-Takeover Provision is adopted, the concurrence of
the holders of at least two-thirds of the voting power of the Company's voting
stock, voting together as a single class, would be required for the amendment or
repeal of, or the adoption of any provisions inconsistent with, any of such
provisions.
Abstentions and broker non-votes will have the same legal effect as a vote
against a specific proposal.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE ADOPTION OF EACH OF THE
PROPOSED AMENDMENTS TO THE ARTICLES OF INCORPORATION. IT IS INTENDED THAT, IN
THE ABSENCE OF CONTRARY SPECIFICATIONS, VOTES WILL BE CAST PURSUANT TO THE
ENCLOSED PROXIES FOR THE ADOPTION OF THE EACH PROPOSED PROVISION.
INDEPENDENT PUBLIC ACCOUNTANTS
The selection of the Company's auditors will not be submitted to the
stockholders for their approval in the absence of a requirement to do so. It is
anticipated that representatives of Hein + Associates LLP will be present at the
Annual Meeting and will be provided the opportunity to make a statement, if they
desire to do so, and be available to respond to appropriate questions.
STOCKHOLDER PROPOSALS
No proposals have been submitted by stockholders of the Company for
consideration at the Annual Meeting. It is anticipated that the next annual
meeting of stockholders will be held during May 1998. Stockholders may present
proposals for inclusion in the proxy statement to be mailed in connection with
the 1998 annual meeting of stockholders of the Company, provided such proposals
are received by the Company no later than March 26, 1998, and are otherwise in
compliance with applicable laws and regulations and the governing provisions of
the articles of incorporation and bylaws of the Company.
OTHER MATTERS
Management does not know of any business other than that referred to in the
Notice which may be considered at the Annual Meeting. If any other matters
should properly come before the Annual Meeting, it is the intention of the
persons named in the accompanying form of proxy to vote the proxies held by them
in accordance with their best judgment.
In order to assure the presence of the necessary quorum and to vote on the
matters to come before the Annual Meeting, please indicate your choices on the
enclosed proxy and date, sign, and return it promptly in the envelope provided.
The signing of a proxy by no means prevents your attending the meeting.
By Order of the board of directors
FORELAND CORPORATION
Bruce C. Decker, Assistant Secretary
Lakewood, Colorado
June 1, 1997
<PAGE>
PROXY
FORELAND CORPORATION
ANNUAL MEETING OF THE SHAREHOLDERS OF (THIS PROXY IS SOLICITED ON BEHALF
FORELAND CORPORATION ON JUNE 26, 1997 OF THE BOARD OF DIRECTORS)
The undersigned hereby appoints N. Thomas Steele and Kenneth L. Ransom
proxies, with full power of substitution, to vote the voting shares of FORELAND
CORPORATION (the "Company"), which the undersigned is entitled to vote at the
Annual Meeting of shareholders of the Company ("Annual Meeting") to be held at
, Ely, Nevada, on June 26, 1997, at 12:00 p.m., local time, or any
- -------
adjournment(s) thereof, such proxies being directed to vote as specified below.
IF NO INSTRUCTIONS ARE SPECIFIED, SUCH PROXY WILL BE VOTED "FOR" EACH PROPOSAL.
To vote in accordance with the Board of Directors' recommendations, sign
below. The "FOR" boxes may, but need not, be checked. To vote against any of
the recommendations, check the appropriate box marked "AGAINST" below. To
withhold authority for the proxies to vote for any of the recommendations, check
the appropriate box(es) marked "WITHHOLD AUTHORITY" below.
The Board of Directors recommends votes "FOR" the following proposals, each
of which has been proposed by the Board of Directors:
1. To elect each of the following nominees to serve as a director
for a term expiring at the next Annual Meeting of the shareholders of
the Company or the Annual Meeting for the year indicated next to the
nominee's name in the event the proposal to classify the board of
directors is approved at the 1997 Annual Meeting and, in each case,
until a successor is elected and qualified. To withhold your vote for
any individual nominee, strike a line through such nominee's name;
Grant Steele (1998) Kenneth L. Ransom (1999)
Bruce C. Decker (2000) N. Thomas Steele (2000)
2. To approve the Company's 1997 Stock Option and Award Plan
FOR----- AGAINST ----- WITHHOLD AUTHORITY -----
3. To approve the grant of options to the directors of the Company
FOR----- AGAINST ----- WITHHOLD AUTHORITY -----
4. To approve proposed amendments to the Company's Articles of
Incorporation and bylaws that would make certain general modernizing
changes and put in place certain measures designed to assist the
Company in maximizing stockholder value in the event of a proposed
corporate acquisition, including provisions that would:
a) Make general modernizing changes;
FOR----- AGAINST ----- WITHHOLD AUTHORITY -----
b) Classify the board of directors into three classes, with each
class serving staggered three-year terms;
FOR----- AGAINST ----- WITHHOLD AUTHORITY -----
c) Change the Company's authorized capitalization to include
50,000,000 shares of common stock and 10,000,000 shares of
preferred stock;
FOR----- AGAINST ----- WITHHOLD AUTHORITY -----
d) Eliminate the personal liability of directors in certain
circumstances;
FOR----- AGAINST ----- WITHHOLD AUTHORITY -----
e) Cause the Company to specifically opt out of certain anti-
takeover statutes in Nevada;
FOR----- AGAINST ----- WITHHOLD AUTHORITY -----
f) Provide that a special meeting of the stockholders may be called
only by the board of directors;
FOR----- AGAINST ----- WITHHOLD AUTHORITY -----
g) Require advance notice of nominees for election to the board of
directors;
FOR----- AGAINST ----- WITHHOLD AUTHORITY -----
h) Grant cumulative voting on the election of directors if a person
or group of related persons owning in excess of 30% of the Common
Stock opposes management of the Company in a separate proxy
solicitation or in an election contest;
FOR----- AGAINST ----- WITHHOLD AUTHORITY -----
i) Require advance notice regarding business to be conducted at
shareholders' meetings;
FOR----- AGAINST ----- WITHHOLD AUTHORITY -----
j) Deny action by the written consent of the holders of a majority
of the voting shares;
FOR----- AGAINST ----- WITHHOLD AUTHORITY -----
k) Prohibit the Company from paying a premium upon the redemption of
stock in excess of the fair market value of such stock from a
shareholder that has acquired 10% or more of the Company's common
stock; and
FOR----- AGAINST ----- WITHHOLD AUTHORITY -----
l) Require an affirmative vote of shareholders holding at least
two-thirds of the Company's common stock to approve a business
combination with a person or group of related persons owning in
excess of 10% of the Company's common stock, unless such business
combination requires the payment of a fair price for the
Company's stock;
FOR----- AGAINST ----- WITHHOLD AUTHORITY -----
5. To transact such other business as may properly come before the Annual
Meeting.
FOR----- AGAINST ----- WITHHOLD AUTHORITY -----
PLEASE PRINT YOUR NAME AND SIGN EXACTLY AS YOUR NAME APPEARS IN THE RECORDS OF
THE COMPANY. WHEN SHARES ARE HELD BY JOINT TENANTS, BOTH SHOULD SIGN. IF YOUR
SHARES ARE HELD AT A BROKERAGE HOUSE, PLEASE INDICATE IN THE SPACE PROVIDED THE
NAME OF THE BROKERAGE HOUSE AND THE NUMBER OF SHARES HELD.
Dated:------------------- Number of Shares Held of Record
- ------------------------- -----------------------------------
Number of Shares Held at a Name of Brokerage or Clearing House
Brokerage or Clearing House
- -------------------------- -----------------------------------
- -------------------------- -----------------------------------
Signature Signature (if held jointly)
- -------------------------- -----------------------------------
Print Name Print Name
PLEASE MARK, SIGN, DATE, AND
RETURN THIS PROXY TO: FORELAND CORPORATION
12596 WEST BAYAUD, SUITE 300
LAKEWOOD, COLORADO 80228-2019
<PAGE>
FORELAND CORPORATION
1997 STOCK OPTION AND AWARD PLAN
FORELAND CORPORATION, a Nevada corporation (the "Company"), hereby adopts
this "Foreland Corporation, 1997 Stock Option and Award Plan" (the "Plan"),
effective as of the 12th day of May, 1997, under which options to acquire stock
of the Company or bonus stock may be granted from time to time to employees,
including officers and directors, of the Company or its subsidiaries. In
addition, at the discretion of the Board of Directors or other administrator of
this Plan, options to acquire stock of the Company or bonus stock may from time
to time be granted under this Plan to other individuals who contribute to the
success of the Company or its subsidiaries but who are not employees of the
Company, all on the terms and conditions set forth herein.
1. Purpose of the Plan. The Plan is intended to aid the Company in
maintaining and developing a management team, attracting qualified officers and
employees capable of assisting in the future success of the Company, and
rewarding those individuals who have contributed to the success of the Company.
It is designed to aid the Company in retaining the services of executives and
employees and in attracting new personnel when needed for future operations and
growth and to provide such personnel with an incentive to remain employees of
the Company, to use their best efforts to promote the success of the Company's
business, and to provide them with an opportunity to obtain or increase a
proprietary interest in the Company. It is also designed to permit the Company
to reward those individuals who are not employees of the Company but who are
perceived by management as having contributed to the success of the Company or
who are important to the continued business and operations of the Company. The
above aims will be effectuated through the granting of options ("Options") to
purchase shares of common stock of the Company, par value $0.001 per share (the
"Stock"), or the granting of awards of bonus stock ("Stock Awards"), all subject
to the terms and conditions of this Plan. It is intended that the Options
issued pursuant to this Plan include, when designated as such at the time of
grant, options which qualify as Incentive Stock Options ("Incentive Options")
within the meaning of section 422 of the Internal Revenue Code of 1986, as
amended (the "Code"), or any amendment or successor provision of like tenor. If
the Company has a class of securities registered under the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), it is intended that Options or
Stock Awards granted pursuant to this Plan qualify for the exemption provided
for in Rule 16b-3 ("Rule 16b-3") promulgated under the Exchange Act or any
amendment or successor rule of like tenor when granted in accordance with the
provisions of such rule.
2. Shareholder Approval. The Plan shall become effective immediately on
adoption by the Board of Directors of the Company (the "Board") and awards under
the Plan can be made at that time or at any subsequent time. The Plan shall be
submitted to the Company's shareholders in the manner set forth below:
(a) Within twelve months after the Plan has been adopted by the
Board, the Plan shall be submitted for approval by those shareholders of
the Company who are entitled to vote on such matters at a duly held
shareholders' meeting or approved by the unanimous written consent of the
holders of the issued and outstanding Stock of the Company. If the Plan is
presented at a shareholders' meeting, it shall be approved by the
affirmative vote of the holders of a majority of the issued and outstanding
Stock in attendance, in person or by proxy, at such meeting.
Notwithstanding the foregoing, the Plan may be approved by the shareholders
in any other manner not inconsistent with the Company's articles of
incorporation and bylaws, the applicable provisions of state corporate
laws, and the applicable provisions of the Code and regulations adopted
thereunder.
(b) In the event the Plan is so approved, the secretary of the
Company shall, as soon as practicable following the date of final approval,
prepare and attach to this Plan certified copies of all relevant
resolutions adopted by the shareholders and the Board.
(c) Failure to obtain shareholder approval on or before the date that
is twelve months subsequent to the adoption of this Plan by the Board shall
not affect awards previously granted under the Plan; provided that, none of
the Options issued under this Plan will qualify as Incentive Options.
3. Administration of the Plan. Administration of the Plan shall be
determined by the Board. Subject to compliance with applicable provisions of
the governing law, the Board may delegate administration of the Plan or specific
administrative duties with respect to the Plan, on such terms and to such
committees of the Board as it deems proper. Any Option or Stock Award approved
by the Board shall be approved by a majority vote of those members of the Board
in attendance at a meeting at which a quorum is present. Any Option or Stock
Award approved by a committee designated by the Board shall be approved as
specified by the Board at the time of delegation. The interpretation and
construction of the terms of the Plan by the Board or a duly authorized
committee shall be final and binding on all participants in the Plan absent a
showing of demonstrable error. No member of the Board or duly authorized
committee shall be liable for any action taken or determination made in good
faith with respect to the Plan.
The Board's or duly authorized committee's determination under the Plan
(including without limitation determinations of the persons to receive Options
or Stock Awards, the form, amount, and timing of such Options or Stock Awards,
the terms and provisions of such Options or Stock Awards, and the agreements
evidencing same) need not be uniform and may be made by the Board or duly
authorized committee selectively among persons who receive, or are eligible to
receive, Options or Stock Awards under the Plan, whether or not such persons are
similarly situated.
4. Shares of Stock Subject to the Plan. A total of 500,000 shares of
Stock may be subject to, or issued pursuant to, Options or Stock Awards granted
under the terms of this Plan. Any shares subject to an Option or Stock Award
under the Plan, which Option or Stock Award for any reason expires or is
forfeited, terminated, or surrendered unexercised as to such shares, shall be
added back to the total number of shares reserved for issuance under the terms
of this Plan. If any right to acquire Stock granted under the Plan is exercised
by the delivery of shares of Stock or the relinquishment of rights to shares of
Stock, only the net shares of Stock issued (the shares of Stock issued less the
shares of Stock surrendered) shall count against the total number of shares
reserved for issuance under the terms of this Plan.
5. Reservation of Stock on Granting of Option. At the time of granting
any Option under the terms of this Plan, there will be reserved for issuance on
the exercise of the Option the number of shares of Stock of the Company subject
to such Option. The Company may reserve either authorized but unissued shares
or issued shares that have been reacquired by the Company.
6. Eligibility. Options or Stock Awards under the Plan may be granted to
employees, including officers and directors, of the Company or its subsidiaries,
as may be existing from time to time, and to other individuals who are not
employees of the Company as may be deemed in the best interest of the Company by
the Board or a duly authorized committee. Such Options or Stock Awards shall be
in the amounts, and shall have the rights and be subject to the restrictions, as
may be determined by the Board or a duly authorized committee at the time of
grant, all as may be within the general provisions of this Plan.
7. Term of Options and Certain Limitations on Right to Exercise.
(a) Each Option shall have the term established by the Board or duly
authorized committee at the time the Option is granted but in no event may
an Option have a term in excess of ten years.
(b) The term of the Option, once it is granted, may be reduced only
as provided for in this Plan or under the written provisions of the Option.
(c) Unless otherwise specifically provided by the written provisions
of the Option, no holder or his or her legal representative, legatee, or
distributee will be, or shall be deemed to be, a holder of any shares
subject to an Option unless and until the holder exercises his or her right
to acquire all or a portion of the Stock subject to the Option and delivers
the required consideration to the Company in accordance with the terms of
this Plan and the Option and then only to the extent of the number of
shares of Stock acquired. Except as specifically provided in this Plan or
as otherwise specifically provided by the written provisions of the Option,
no adjustment to the exercise price or the number of shares of Stock
subject to the Option shall be made for dividends or other rights for which
the record date is prior to the date the Stock subject to the Option is
acquired by the holder.
(d) Options under the Plan shall vest and become exercisable at such
time or times and on such terms as the Board or a duly authorized committee
may determine at the time of the grant of the Option.
(e) Options granted under the Plan shall contain such other
provisions, including, without limitation, further restrictions on the
vesting and exercise of the Option, as the Board or a duly authorized
committee shall deem advisable.
(f) In no event may an Option be exercised after the expiration of
its term.
(g) Unless otherwise specifically provided by the written provisions
of an Option granted pursuant to this Plan, upon receipt of (i) any request
that the exercise of the Option or the resale of any shares of Stock issued
or to be issued on exercise of such Option will be registered under the
Securities Act; or (ii) any notice of exercise the Option pursuant to its
terms, in lieu of any obligation to effect any registration with respect to
the Options or shares of Common Stock issuable on such Option or in lieu of
delivering shares of Common Stock on the exercise of the Option, the
Company may, within five business days of receipt of such request to
register or notice of exercise, purchase, in whole or in part, such Options
from the Optionee at an amount in cash equal to the difference between (a)
the then current fair market value (as defined below) of the Common Stock
on the day of such repurchase and (b) the exercise price in effect on such
day. In order to exercise such right, the Company must provide written
notice to the optionee at least five days prior to the date that the
Company proposes to repurchase such Options. For purposes of this section,
the fair market value of the Common Stock shall be determined by the Board
or a duly authorized committee based on the closing price for the Stock as
quoted on a registered national securities exchange or, if not listed on a
national exchange, the Nasdaq Stock Market ("Nasdaq"), on the trading day
immediately preceding the date that the Company's provides notice of its
intent to repurchase the Options, or, if not listed on such an exchange or
included on Nasdaq, the closing price for the Stock as determined by the
Board or a duly authorized committee through any other reliable means of
determination available on the close of business on the trading day last
preceding the date of providing the notice.
8. Exercise Price. The exercise price of each Option issued under the
Plan shall be determined by the Board or a duly authorized committee on the date
of grant.
9. Payment of Exercise Price. The exercise of any Option shall be
contingent on receipt by the Company of cash, certified bank check to its order,
or other consideration acceptable to the Company; provided that, at the
discretion of the Board or a duly authorized committee, the written provisions
of the Option may provide that payment can be made in whole or in part in shares
of Stock of the Company that have been owned by the optionee for more than six
months or by the surrender of Options to acquire Stock from the Company that
have been held for more than six months, which Stock or Options shall be valued
at their then fair market value as determined by the Board or a duly authorized
committee. Any consideration approved by the Board or a duly authorized
committee that calls for the payment of the exercise price over a period of more
than one year shall provide for interest, which shall not be included as part of
the exercise price, that is equal to or exceeds the imputed interest provided
for in section 483 of the Code or any amendment or successor section of like
tenor.
10. Withholding. If the grant of a Stock Award or the grant or exercise
of an Option pursuant to this Plan, or any other event in connection with any
such grant or exercise, creates an obligation to withhold income and employment
taxes pursuant to the Code or applicable state or local laws, such obligation
may, at the discretion of the Board or a duly authorized committee at the time
of the grant of the Option or Stock Award and to the extent permitted by the
terms of the Option or Stock Award and the then governing provisions of the Code
and the Exchange Act, be satisfied (i) by the holder of the Option or Stock
Award delivering to the Company an amount of cash equal to such withholding
obligation; (ii) by the Company withholding from any compensation or other
amount owing to the holder of the Option or Stock Award the amount (in cash,
Stock, or other property as the Company may determine) of the withholding
obligation; (iii) by the Company withholding shares of Stock subject to the
Option or Stock Award with a fair market value equal to such obligation; or (iv)
by the holder of the Option or Stock Award either delivering shares of Stock
that have been owned by the holder for more than six months or canceling Options
or other rights to acquire Stock from the Company that have been held for more
than six months with a fair market value equal to such requirements. In all
events, delivery of shares of Stock issuable on exercise of the Option or on
grant of the Stock Award shall be conditioned upon and subject to the
satisfaction or making provision for the satisfaction of the withholding
obligation of the Company resulting from the grant or exercise of the Option,
grant of the Stock Award, or any other event. The Company shall be further
authorized to take such other action as may be necessary, in the opinion of the
Company, to satisfy all obligations for the payment of such taxes.
11. Incentive Options--Additional Provisions. In addition to the other
restrictions and provisions of this Plan, any Option granted hereunder that is
intended to be an Incentive Option shall meet the following further
requirements:
(a) The exercise price of an Incentive Option shall not be less than
the fair market value of the Stock on the date of grant of the Incentive
Option as determined by the Board or a duly authorized committee based on
the closing price for the Stock as quoted on a registered national
securities exchange or, if not listed on a national exchange, the Nasdaq
Stock Market ("Nasdaq"), over the five-day trading period immediately prior
to the date of grant of such Incentive Option, or, if not listed on such an
exchange or included on Nasdaq, the closing price for the Stock as
determined by the Board or a duly authorized committee through any other
reliable means of determination available on the close of business on the
trading day last preceding the date of grant of such Incentive Option and
permitted by the applicable provisions of the Code.
(b) No Incentive Option may be granted under the Plan to any
individual that owns (either of record or beneficially) Stock possessing
more than 10% of the combined voting power of the Company or any parent or
subsidiary corporation unless both the exercise price is at least 110% of
the fair market value of the Stock on the date the Option is granted and
the Incentive Option by its terms is not exercisable more than five years
after the date it is granted.
(c) Incentive Options may be granted only to employees of the Company
or its subsidiaries and only in connection with that employee's employment
by the Company or the subsidiary. Notwithstanding the above, directors and
other individuals who have contributed to the success of the Company or its
subsidiaries may be granted Incentive Options under the Plan, subject to,
and to the extent permitted by, applicable provisions of the Code and
regulations promulgated thereunder, as they may be amended from time to
time.
(d) The aggregate fair market value (determined as of the date the
Incentive Option is granted) of the shares of Stock with respect to which
Incentive Options are exercisable for the first time by any individual
during any calendar year under the Plan (and all other plans of the Company
and its subsidiaries) may not exceed $100,000.
(e) No Incentive Option shall be transferable other than by will or
the laws of descent and distribution and shall be exercisable, during the
lifetime of the optionee, only by the optionee to whom the Incentive Option
is granted.
(f) No individual acquiring shares of Stock pursuant to any Incentive
Option granted under this Plan shall sell, transfer, or otherwise convey
the Stock until after the date that is both two years after the date the
Incentive Option was granted and one year after the date the Stock was
acquired pursuant to the exercise of the Incentive Option. If any
individual makes a disqualifying disposition, he or she shall notify the
Company within 30 days of such transaction.
(g) No Incentive Option may be exercised unless the holder was,
within three months of such exercise, and had been since the date the
Incentive Option was granted, an eligible employee of the Company as
specified in the applicable provisions of the Code, unless the employment
was terminated as a result of the death or disability (as defined in the
Code and the regulations promulgated thereunder as they may be amended from
time to time) of the employee or the employee dies within three months of
the termination. In the event of termination as a result of disability,
the holder shall have a one year period following termination in which to
exercise the Incentive Option. In the event of death of the holder, the
Incentive Option must be exercised within six months after the issuance of
letters testamentary or administration or the appointment of an
administrator, executor, or personal representative, but not later than one
year after the date of termination of employment. An authorized absence or
leave approved by the Board or a duly authorized committee for a period of
90 days or less shall not be considered an interruption of employment for
any purpose under the Plan.
(h) All Incentive Options shall be deemed to contain such other
limitations and restrictions as are necessary to conform the Incentive
Option to the requirements for "incentive stock options" as defined in
section 422 of the Code, or any amendment or successor statute of like
tenor.
All of the foregoing restrictions and limitations are based on the governing
provisions of the Code as of the date of adoption of this Plan. If at any time
the Code is amended to permit the qualification of an Option as an incentive
stock option without one or more of the foregoing restrictions or limitations or
the terms of such restrictions or limitations are modified, the Board or a duly
authorized committee may grant Incentive Options, and may modify outstanding
Incentive Options in accordance with such changes, all to the extent that such
action by the Board or duly authorized committee does not disqualify the Options
from treatment as incentive stock options under the provisions of the Code as
may be amended from time to time.
12. Awards to Directors and Officers. To the extent the Company has a
class of securities registered under the Exchange Act, Options or Stock Awards
granted under the Plan to directors and officers (as used in Rule 16b-3
promulgated under the Exchange Act or any amendment or successor rule of like
tenor) intended to qualify for the exemption from section 16(b) of the Exchange
Act provided in Rule 16b-3 shall, in addition to being subject to the other
restrictions and limitations set forth in this Plan, be made as follows:
(a) A transaction whereby there is a grant of an Option or Stock
Award pursuant to this Plan must satisfy one of the following:
(i) The transaction must be approved by the Board or a duly
authorized committee composed solely of two or more non-employee
directors of the Company (as defined in Rule 16b-3);
(ii) The transaction must be approved or ratified, in compliance
with section 14 of the Exchange Act, by either: the affirmative vote
of the holders of a majority of the securities of the Company present
or represented and entitled to vote at a meeting of the shareholders
of the Company held in accordance with the applicable laws of the
state of incorporation of the Company; or, if allowed by applicable
state law, the written consent of the holders of a majority, or such
greater percentage as may be required by applicable laws of the state
of incorporation of the Company, of the securities of the Company
entitled to vote. If the transaction is ratified by the shareholders,
such ratification must occur no later than the date of the next annual
meeting of shareholders; or
(iii) The Stock acquired must be held by the officer or
director for a period of six months subsequent to the date of the
grant; provided that, if the transaction involves a derivative
security (as defined in section 16 of the Exchange Act), this
condition shall be satisfied if at least six months elapse from the
date of acquisition of the derivative security to the date of
disposition of the derivative security (other than on exercise or
conversion) or its underlying equity security.
(b) Any transaction involving the disposition to the Company of its
securities in connection with Options or Stock Awards granted pursuant to
this Plan shall:
(i) be approved by the Board or a duly authorized committee
composed solely of two or more non-employee directors; or
(ii) be approved or ratified, in compliance with section 14 of
the Exchange Act, by either: the affirmative vote of the holders of a
majority of the securities of the Company present, or represented, and
entitled to vote at a meeting duly held in accordance with the
applicable laws of the state of incorporation of the Company or, if
allowed by applicable state law, the written consent of the holders of
a majority, or such greater percentage as may be required by
applicable laws of the state of incorporation of the Company, of the
securities of the Company entitled to vote; provided that, such
ratification occurs no later than the date of the next annual meeting
of shareholders.
All of the foregoing restrictions and limitations are based on the governing
provisions of the Exchange Act and the rules and regulations promulgated
thereunder as of the date of adoption of this Plan. If at any time the
governing provisions are amended to permit an Option to be granted or exercised
or Stock Award to be granted pursuant to Rule 16b-3 or any amendment or
successor rule of like tenor without one or more of the foregoing restrictions
or limitations, or the terms of such restrictions or limitations are modified,
the Board or a duly authorized committee may award Options or Stock Awards to
directors and officers, and may modify outstanding Options or Stock Awards, in
accordance with such changes, all to the extent that such action by the Board or
a duly authorized committee does not disqualify the Options or Stock Awards from
exemption under the provisions of Rule 16b-3 or any amendment or successor rule
of similar tenor.
13. Stock Appreciation Rights and Other Tandem Rights. The Board or a
duly authorized committee, at the time of granting any award under the terms of
this Plan, shall have the authority to grant stock appreciation rights or other
tandem rights with respect to all or some of the shares of Stock covered by such
award pursuant to which the holder shall have the right to surrender all or part
of such award and thereby exercise the tandem rights; provided, however, that
the holder shall not have such right to surrender and obtain payment during the
first six months of the term of the award, except in the event of death or
disability of the holder during such six-month period. Any payment under the
terms of the tandem rights may be made by the Company, at the discretion of the
Board or a duly authorized committee as set forth in the written award, in Stock
(at its fair market value on the date of the notice of exercise, as determined
by the Board or committee) or in cash, or partly in Stock and partly in cash, as
the Company may determine. Any stock appreciation rights or other tandem rights
granted under the terms of this section may be exercised only when, and only to
the extent that, the holder is entitled to exercise all or a portion of the
underlying award. The terms of any stock appreciation or other rights granted
shall, within the provisions of this Plan, be established by the Board or
committee at the time of grant, and any rights created thereby can only be
transferred in connection with the transfer of the underlying award. Stock
appreciation rights may only be exercised at a time when the fair market value
of the Stock subject to the award exceeds the exercise price of the award.
14. Stock Awards. The Board or a duly authorized committee may grant
Stock Awards to individuals eligible to participate in this Plan, in the amount,
and subject to the provisions determined by the Board or a duly authorized
committee. The Board or a duly authorized committee shall notify in writing
each person selected to receive a Stock Award hereunder as soon as practicable
after he or she has been so selected and shall inform such person of the number
of shares he or she is entitled to receive, the approximate date on which such
shares will be issued, and the Forfeiture Restrictions applicable to such
shares. (For purposes hereof, the term "Forfeiture Restrictions" shall mean any
prohibitions against sale or other transfer of shares of Stock granted under the
Plan and the obligation of the holder to forfeit his or her ownership of or
right to such shares and to surrender such shares to the Company on the
occurrence of certain conditions.) The Board or a duly authorized committee
may, at its discretion, require the payment in cash to the Company by the award
recipient of the par value of the Stock. The shares of Stock issued pursuant to
a Stock Award shall not be sold, exchanged, transferred, pledged, hypothecated,
or otherwise disposed of during such period or periods of time which the Board
or a duly authorized committee shall establish at the time of the grant of the
Stock Award. If a Stock Award is made to an employee of the Company or its
subsidiaries, the employee shall be obligated, for no consideration other than
the amount, if any, of the par value paid in cash for such shares, to forfeit
and surrender such shares as he or shall have received under the Plan which are
then subject to Forfeiture Restrictions to the Company if he or she is no longer
an employee of the Company or its subsidiaries for any reason; provided that, in
the event of termination of the employee's employment by reason of death or
total and permanent disability, the Board or duly authorized committee, in its
sole discretion, may cancel the Forfeiture Restrictions. Certificates
representing shares subject to Forfeiture Restrictions shall be appropriately
legended as determined by the Board or a duly authorized committee to reflect
the Forfeiture Restrictions, and the Forfeiture Restrictions shall be binding on
any transferee of the shares.
15. Assignment. At the time of grant of an Option or Stock Award, the
Board or duly authorized Committee, in its sole discretion, may impose
restrictions on the transferability of such Option or Stock Award and provide
that such Option shall not be transferable other than by will or the laws of
descent and distribution or pursuant to a qualified domestic relations order as
defined in the Code and that, except as permitted by the foregoing, such Options
or Stock Awards, granted under the Plan and the rights and privileges thereby
conferred shall not be transferred, assigned, pledged, or hypothecated in any
way (whether by operation of law or otherwise), and shall not be subject to
execution, attachment, or similar process. On any attempt to transfer, assign,
pledge, hypothecate, or otherwise dispose of the Option or Stock Award, or of
any right or privilege conferred thereby, contrary to the provisions thereof, or
on the levy of any attachment or similar process on such rights and privileges,
the Option or Stock Award and such rights and privileges shall immediately
become null and void.
16. Additional Terms and Provisions of Awards. The Board or duly
authorized committee shall have the right to impose additional limitations on
individual awards under the Plan. For example, and without limiting the
authority of the Board or a duly authorized committee, an individual award may
be conditioned on continued employment for a specified period or may be voided
based on the award holder's gross negligence in the performance of his or her
duties, substantial failure to meet written standards established by the Company
for the performance of his or her duties, criminal misconduct, or willful or
gross misconduct in the performance of his or her duties. In addition, the
Board or a duly authorized committee may establish additional rights in the
holders of individual awards at the time of grant. For example, and without
limiting the authority of the Board or a duly authorized committee, an
individual award may include the right to immediate payment of the value
inherent in the award on the occurrence of certain events such as a change in
control of the Company, all on the terms and conditions set forth in the award
at the time of grant. The Board or a duly authorized committee may, at the time
of the grant of the Option or Stock Award, establish any other terms,
restrictions, or provisions on the exercise of an Option or the holding of Stock
subject to the Stock Award as it deems appropriate. All such terms,
restrictions, and provisions must be set forth in writing at the time of grant
in order to be effective.
17. Dilution or Other Adjustment. In the event that the number of shares
of Stock of the Company from time to time issued and outstanding is increased
pursuant to a stock split or a stock dividend, the number of shares of Stock
then covered by each outstanding Option granted hereunder shall be increased
proportionately, with no increase in the total purchase price of the shares then
so covered, and the number of shares of Stock subject to the Plan shall be
increased by the same proportion. Shares awarded under the terms of a Stock
Award shall be entitled to the same rights as other issued and outstanding
shares of Stock, whether or not then subject to Forfeiture Restrictions,
although any additional shares of Stock issued to the holder of a Stock Award
shall be subject to the same Forfeiture Restrictions as the Stock Award. In the
event that the number of shares of Stock of the Company from time to time issued
and outstanding is reduced by a combination or consolidation of shares, the
number of shares of Stock then covered by each outstanding Option granted
hereunder shall be reduced proportionately, with no reduction in the total
purchase price of the shares then so covered, and the number of shares of Stock
subject to the Plan shall be reduced by the same proportion. Shares awarded
under a Stock Award shall be treated as other issued and outstanding shares of
Stock, whether or not then subject to Forfeiture Restrictions. In the event
that the Company should transfer assets to another corporation and distribute
the stock of such other corporation without the surrender of Stock of the
Company, and if such distribution is not taxable as a dividend and no gain or
loss is recognized by reason of section 355 of the Code or any amendment or
successor statute of like tenor, then the total purchase price of the Stock then
covered by each outstanding Option shall be reduced by an amount that bears the
same ratio to the total purchase price then in effect as the market value of the
stock distributed in respect of a share of the Stock of the Company, immediately
following the distribution, bears to the aggregate of the market value at such
time of a share of the Stock of the Company plus the stock distributed in
respect thereof. Shares issued under a Stock Award shall be treated as issued
and outstanding whether or not subject to Forfeiture Restrictions, although any
stock of the other corporation to be distributed with respect to the shares
awarded under the Stock Award shall be subject to the Forfeiture Restrictions
then applicable to such shares and may be held by the Company or otherwise
subject to restrictions on transfer until the expiration of the Forfeiture
Restrictions. In the event that the Company distributes the stock of a
subsidiary to its shareholders, makes a distribution of a major portion of its
assets, or otherwise distributes a significant portion of the value of its
issued and outstanding Stock to its shareholders, the number of shares then
subject to each outstanding Option and the Plan, or the exercise price of each
outstanding Option, may be adjusted in the reasonable discretion of the Board or
a duly authorized committee. Shares awarded under a Stock Award shall be treated
as issued and outstanding, whether or not subject to Forfeiture Restrictions,
although any Stock, assets, or other rights distributed shall be subject to the
Forfeiture Restrictions governing the shares awarded under the Stock Award and,
at the discretion of the Board or a duly authorized committee, may be held by
the Company or otherwise subject to restrictions on transfer by the Company
until the expiration of such Forfeiture Restrictions. All such adjustments
shall be made by the Board or duly authorized committee, whose determination
upon the same, absent demonstrable error, shall be final and binding on all
participants under the Plan. No fractional shares shall be issued, and any
fractional shares resulting from the computations pursuant to this section shall
be eliminated from the respective Option or Stock Award. No adjustment shall be
made for cash dividends, for the issuance of additional shares of Stock for
consideration approved by the Board, or for the issuance to stockholders of
rights to subscribe for additional Stock or other securities.
18. Options or Stock Awards to Foreign Nationals. The Board or a duly
authorized committee may, in order to fulfill the purposes of this Plan and
without amending the Plan, grant Options or Stock Awards to foreign nationals or
individuals residing in foreign countries that contain provisions, restrictions,
and limitations different from those set forth in this Plan and the Options or
Stock Awards made to United States residents in order to recognize differences
among the countries in law, tax policy, and custom. Such grants shall be made
in an attempt to provide such individuals with essentially the same benefits as
contemplated by a grant to United States residents under the terms of this Plan.
19. Listing and Registration of Shares. Unless otherwise expressly
provided on the granting of an award under this Plan, the Company shall have no
obligation to register any securities issued pursuant to this Plan or issuable
on the exercise of Options granted hereunder. Each award shall be subject to
the requirement that if at any time the Board or a duly authorized committee
shall determine, in its sole discretion, that it is necessary or desirable to
list, register, or qualify the shares covered thereby on any securities exchange
or under any state or federal law, or obtain the consent or approval of any
governmental agency or regulatory body as a condition of, or in connection with,
the granting of such award or the issuance or purchase of shares thereunder,
such award may not be made or exercised in whole or in part unless and until
such listing, registration, consent, or approval shall have been effected or
obtained free of any conditions not acceptable to the Board or a duly authorized
committee.
20. Expiration and Termination of the Plan. The Plan may be abandoned or
terminated at any time by the Board or a duly authorized committee except with
respect to any Options or Stock Awards then outstanding under the Plan. The
Plan shall otherwise terminate on the earlier of the date that is: (i) ten
years after the date the Plan is adopted by the Board; or (ii) ten years after
the date the Plan is approved by the shareholders of the Company.
21. Form of Awards. Awards granted under the Plan shall be represented by
a written agreement which shall be executed by the Company and which shall
contain such terms and conditions as may be determined by the Board or a duly
authorized committee and permitted under the terms of this Plan. Option
agreements evidencing Incentive Options shall contain such terms and conditions,
among others, as may be necessary in the opinion of the Board or a duly
authorized committee to qualify them as incentive stock options under section
422 of the Code or any amendment or successor statute of like tenor.
22. No Right of Employment. Nothing contained in this Plan or any Option
or Stock Award shall be construed as conferring on a director, officer, or
employee any right to continue or remain as a director, officer, or employee of
the Company or its subsidiaries.
23. Leaves of Absence. The Board or duly authorized committee shall be
entitled to make such rules, regulations, and determinations as the Board or
duly authorized committee deems appropriate under the Plan in respect of any
leave of absence taken by the recipient of any Option or Stock Award. Without
limiting the generality of the foregoing, the Board or duly authorized committee
shall be entitled to determine (a) whether or not any such leave of absence
shall constitute a termination of employment within the meaning of the Plan, and
(b) the impact, if any, of any such leave of absence on any Option or Stock
Award under the Plan theretofore made to any recipient who takes such leave of
absence.
24. Amendment of the Plan. The Board or a duly authorized committee may
modify and amend the Plan in any respect; provided, however, that to the extent
such amendment or modification would cause the Plan to no longer comply with the
applicable provisions of the Code with respect to Incentive Options, such
amendment or modification shall also be approved by the shareholders of the
Company. Subject to the foregoing and, if the Company is subject to the
provisions of 16(b) of the Exchange Act, the limitations of Rule 16b-3
promulgated under the Exchange Act or any amendment or successor rule of like
tenor, the Plan shall be deemed to be automatically amended as is necessary (i)
with respect to the issuance of Incentive Options, to maintain the Plan in
compliance with the provisions of section 422 of the Code, and regulations
promulgated thereunder from time to time, or any amendment or successor statute
thereto, and (ii) with respect to Options or Stock Awards granted to officers
and directors of the Company, to maintain the awards made under the Plan in
compliance with the provisions of Rule 16b-3 promulgated under the Exchange Act
or any amendment or successor rule of like tenor.
ATTEST:
Bruce C. Decker, Assistant Secretary
SECRETARY'S CERTIFICATE
The undersigned, the duly constituted and elected secretary of Foreland
Corporation, hereby certifies that a duly constituted meeting of the
shareholders held on , 1997, pursuant to notice and at which a quorum was
present in accordance with the requirements of law and the Company's articles of
incorporation and bylaws, the foregoing Foreland Corporation 1997 Stock Option
and Award Plan was approved by the affirmative vote of the holders of a majority
of the shares of Common Stock in attendance, in person or by proxy, at such
meeting.
DATED this day of , 1997.
Bruce C. Decker, Assistant Secretary
<PAGE>
ARTICLES OF RESTATEMENT
OF THE
ARTICLES OF INCORPORATION
OF
FORELAND CORPORATION
The undersigned, pursuant to the Nevada Revised Statutes, hereby adopt the
following restated articles of incorporation of Foreland Corporation (referred
to herein as the "Corporation"), which articles of incorporation were originally
filed with the state of Nevada on June 12, 1985.
1. The name of the Corporation is: Foreland Corporation.
2. The text of the restated articles of incorporation is as follows:
ARTICLE I
NAME
The name of the Corporation shall be: Foreland Corporation.
ARTICLE II
PURPOSE
The Corporation is organized to engage in any lawful act or activity for
which a corporation may be organized under the Nevada Revised Statutes.
ARTICLE III
AUTHORIZED SHARES
The Corporation shall have the authority to issue 60,000,000 shares, of
which 50,000,000 shares shall be common stock, $0.001 par value ("Common
Stock"), and 10,000,000 shares shall be preferred stock $0.001 par value
("Preferred Stock"). Shares of any class of stock may be issued, without
stockholder action, from time to time in one or more series as may from time to
time be determined by the Board of Directors. The Board of Directors of this
Corporation is hereby expressly granted authority, without stockholder action,
and within the limits set forth in the Nevada Revised Statutes, to:
(a) designate in whole or in part, the voting powers, preferences,
limitations, restrictions, and relative rights, of any class of shares
before the issuance of any shares of that class;
(b) create one or more series within a class of shares, fix the
number of shares of each such series, and designate, in whole or part, the
voting powers, preferences, limitations, restrictions, and relative rights
of the series, all before the issuance of any shares of that series; or
(c) alter or revoke the preferences, limitations, and relative rights
granted to or imposed upon any wholly unissued class of shares or any
wholly unissued series of any class of shares.
The allocation between the classes, or among the series of each class, of
unlimited voting rights and the right to receive the net assets of the
Corporation upon dissolution, shall be as designated by the Board of Directors.
All rights accruing to the outstanding shares of the Corporation not expressly
provided for to the contrary herein or in the Corporation's bylaws or in any
amendment hereto or thereto shall be vested in the Common Stock. Accordingly,
unless and until otherwise designated by the Board of Directors of the
Corporation, and subject to any superior rights as so designated, the Common
Stock shall have unlimited voting rights and be entitled to receive the net
assets of the Corporation upon dissolution.
ARTICLE IV
BOARD OF DIRECTORS
Subject to such limitations as provided by the Nevada Revised Statutes or
these articles, the Board of Directors has full control over the affairs of the
Corporation. The Board of Directors may exercise all such powers of the
Corporation and do all such lawful acts and things as are not by law or by these
Articles of Incorporation directed or required to be exercised or done by the
stockholders of the Corporation.
(a) Number. The number of directors constituting the entire Board of
Directors shall be not less than three nor more than nine. The specific
number of directors constituting the entire Board of Directors shall be
authorized from time to time exclusively by the affirmative vote of a
majority of the entire Board of Directors. No decrease in the number of
directors shall shorten the term of any incumbent director. As used in
these articles of incorporation, the term "entire Board of Directors" means
the total authorized number of directors that the corporation would have if
there were no vacancies.
Notwithstanding the provisions of the foregoing paragraph, whenever
the holders of any class or series of Preferred Stock shall have the right,
voting as a class or series or otherwise, to elect directors, the then
authorized number of directors of the Corporation shall be increased by the
number of the additional directors so to be elected, and the holders of
such Preferred Stock shall be entitled, as a class or series or otherwise,
to elect such additional directors. Any directors so elected shall hold
office until their rights to hold such office terminate pursuant to the
provisions of such Preferred Stock. The provisions of this paragraph shall
apply notwithstanding the maximum number of directors hereinabove set
forth.
(b) Classified Board; Tenure. The directors shall be divided into
three classes: class A, class B, and class C. The term of office of
directors shall be three years, staggered by class so that one class is
elected each year. Such classes shall be as nearly equal in number as
possible. Directors chosen to succeed those who have been removed or whose
terms have expired shall be identified as being of the same class as the
directors they succeed and shall be elected for a term expiring at the
expiration date of such class or thereafter when their respective
successors are elected and have been qualified. If the number of directors
is changed, any increase or decrease in directors shall be apportioned
among the classes so as to maintain all classes as nearly equal in number
as possible, and any individual director elected to any class shall hold
office for a term which shall coincide with the term of such class. In no
case will a decrease in the number of directors shorten the term of any
incumbent director.
(c) Nominations. Advance written notice of nominations for the
election of directors, other than by the Board of Directors or a committee
thereof, shall be given at least 30 days prior to the date of the meeting
at which directors are to be elected in the manner provided in the bylaws
of the Corporation.
(d) Removal of Directors. Subject to the rights of the holders of
any Preferred Stock then outstanding, the stockholders may remove one or
more directors at a meeting of stockholders called expressly for the
purpose of removing directors, as stated in the notice of meeting, with or
without cause, on the affirmative vote of two-thirds of the Common Stock or
other securities of the Corporation entitled to vote generally for the
election of directors. In the event that cumulative voting for directors
is permitted pursuant to these articles of incorporation, then no director
may be removed except upon the vote of stockholders owning sufficient
shares to have prevented such director's election to office in the first
instance.
(e) Vacancies. Subject to the rights of the holders of any Preferred
Stock then outstanding, any vacancies in the Board of Directors for any
reason, including by reason of any increase in the number of directors or
any removal of an incumbent director, shall, if occurring prior to the
expiration of the term of office of the class in which such vacancy occurs,
be filled only by the Board of Directors, acting by the affirmative vote of
a majority of the remaining directors, whether or not constituting a
quorum. A director elected to fill a vacancy shall be elected for the
unexpired term of such director's predecessor in office and until his or
her successor is elected and qualified or, if such vacancy is the result of
an increase in the number of directors, until the next meeting of
stockholders at which directors are elected. If there are no directors in
office, then an election of directors may be held in the manner provided by
law.
(f) Cumulative Voting for Election of Directors in Certain
Circumstances.
(i) Except as and to the extent otherwise provided in this
paragraph (g), stockholders of the Corporation shall not be entitled
to cumulative voting rights in any election of directors of the
Corporation.
(ii) There shall be cumulative voting in any election of
directors of the Corporation on or after the occurrence of both of the
following events:
(A) the public announcement (which, for purposes of this
definition, shall include, without limitation, a report filed
pursuant to section 13(d) under the Securities Exchange Act of
1934, as amended (the "Exchange Act")) by the Corporation or any
Person (which in these articles shall mean any individual, firm,
corporation, or other entity, and shall include any successor, by
merger or otherwise, of such entity) who or which, together with
all Affiliates and Associates (as such terms are defined in rule
12b-2 of the General Rules and Regulations under the Exchange Act
as in effect on the date of the adoption of these provisions by
the stockholders of the Corporation) of such Person, shall be the
Beneficial Owner (as defined in rule 13d-3 and rule 13d-5 of the
General Rules and Regulations under the Exchange Act as in effect
on the date of the adoption of these provisions by the
stockholders of the Corporation) of 30% or more of the Common
Stock and any other securities of the Corporation entitled to
vote generally for the election of directors (the "Voting
Stock"), including any security convertible into or exchangeable
for or exercisable for the purchase of Voting Stock (any such
person referred to herein as a "30% Stockholder") that such
Person has become a 30% Stockholder; and
(B) such 30% Stockholder makes, or in any way participates
in, directly or indirectly, any "solicitation" of "proxies" (as
such terms are defined or used in regulation 14A under the
Exchange Act) or becomes a "participant" in any "election
contest" (as such terms are defined or used in rule 14a-11 of the
Exchange Act) with respect to the Corporation; seeks to advise or
influence any person (within the meaning of section 13(d)(3) of
the Exchange Act) with respect to the voting of any securities of
the Corporation; or executes any written consent in lieu of a
meeting of holders of the Voting Stock, provided, however, that
such written consents are then permitted under these articles.
(iii) Notwithstanding the foregoing, no Person shall become a
"30% Stockholder" as the result of an acquisition of Common Stock by
the Corporation which, by reducing the number of shares outstanding,
increases the proportionate number of shares beneficially owned by
such Person to 30% or more of the Voting Stock; provided, however,
that if a Person who would otherwise be a 30% Stockholder but for the
provisions of this sentence shall, after such share purchases by the
Corporation, become the Beneficial Owner of any additional Voting
Stock, then such Person shall be deemed to be a "30% Stockholder."
Further, the term "30% Stockholder" shall not include (A) the
Corporation, (B) any wholly-owned subsidiary of the Corporation, (C)
any employee benefit plan of the Corporation or of any corporation or
other entity of which a majority of the voting power of the voting
equity securities or equity interests is owned, directly or
indirectly, by the Corporation (a "Subsidiary"), or (D) any Person
holding securities of the Corporation for or pursuant to the terms of
any such plan.
(g) Amendment or Repeal. Notwithstanding anything to the contrary
contained in these articles, no amendment or repeal of the provisions of
this Article or related provision in the bylaws of the Corporation shall be
adopted unless it is approved by the vote of two-thirds of the Common
Stock or other securities of the Corporation entitled to vote generally for
the election of directors.
ARTICLE V
LIMITATION ON LIABILITY
OF DIRECTORS AND OFFICERS
To the fullest extent permitted by the Nevada Revised Statutes or any other
applicable law as now in effect or as it may hereafter be amended, a director or
officer of the Corporation shall have no personal liability to the Corporation
or its stockholders for damages for breach of fiduciary duty as a director or
officer, except for damages resulting from (a) acts or omissions which involve
intentional misconduct, fraud, or a knowing violation of law, or (b) the payment
of dividends in violation of the provisions of section 78.300 of the Nevada
Revised Statutes, as it may be amended from time to time, or any successor
statute thereto.
ARTICLE VI
INDEMNIFICATION OF OFFICERS, DIRECTORS, AND OTHERS
To the fullest extent permitted by the Nevada Revised Statutes or any other
applicable law as now in effect or as it may hereafter be amended, the
Corporation shall indemnify directors and may indemnify officers, employees, or
agents of the Corporation to the extent authorized by the Board of Directors and
in the manner set forth in the bylaws of the Corporation. Notwithstanding
anything to the contrary contained in these articles, no amendment or repeal of
the provisions of this Article or related provisions in the bylaws of the
Corporation shall be adopted unless it is approved by the vote of two-thirds of
the Common Stock or other securities of the Corporation entitled to vote
generally for the election of directors.
ARTICLE VII
STOCKHOLDER ACTION
Any action which may be taken at any annual or special meeting of
stockholders may be taken only upon the vote of the stockholders at an annual or
special meeting duly called and may not be taken without a meeting and without
prior notice by written consent of the stockholders. Notwithstanding anything to
the contrary contained in these articles, no amendment or repeal of the
provisions of this Article or related provisions in the bylaws of the
Corporation shall be adopted unless it is approved by the vote of holders of
two-thirds of the Common Stock or other securities of the Corporation entitled
to vote generally for the election of directors.
ARTICLE VIII
MEETINGS OF STOCKHOLDERS
Subject to the rights of the holders of any series of Preferred Stock,
special meetings of stockholders of the Corporation may be called only by the
Board of Directors pursuant to a resolution duly adopted by a majority of the
total number of directors which the Corporation would have if there were no
vacancies.
ARTICLE IX
BUSINESS AT ANNUAL MEETING
At an annual meeting of stockholders, only such business shall be
conducted, and only such proposals shall be acted upon, as shall have been
brought before the annual meeting (a) by, or at the direction of, a majority of
the directors, or (b) by any stockholder of the Corporation who provides at
least 30 days advance written notice in compliance with the notice procedures
set forth in the bylaws of the Corporation. Notwithstanding anything to the
contrary contained in these articles, no amendment or repeal of the provisions
of this Article or related provisions in the bylaws of the Corporation shall be
adopted unless it is approved by the vote of two-thirds of the Common Stock or
other securities of the Corporation entitled to vote generally for the election
of directors .
ARTICLE X
ACQUISITION OF CONTROLLING INTEREST
The provisions of the Nevada Revised Statutes pertaining to the acquisition
of a controlling interest of the issued and outstanding shares of the
Corporation, section 78.378 et. seq., of the Nevada Revised Statutes, shall not
be applicable to the acquisition of a controlling interest of the securities of
the Corporation. This election is made in accordance with the provisions of
section 78.378 of the Nevada Revised Statutes.
ARTICLE XI
STOCK REPURCHASES FROM INTERESTED STOCKHOLDERS
(a) Vote Required for Certain Acquisitions of Securities. Except as
set forth in paragraph (b) of this Article, in addition to any affirmative
vote of stockholders required by any provision of law, the articles of
incorporation, or bylaws of the Corporation, or any policy adopted by the
Board of Directors, neither the Corporation nor any Subsidiary (as defined
above) shall knowingly effect any direct or indirect purchase or other
acquisition of any equity security of a class of securities which is
registered pursuant to section 12 of the Exchange Act issued by the
Corporation at a price which is in excess of the Market Price (as defined
below) of such equity security on the date that the understanding to effect
such transaction is entered into by the Corporation (whether or not such
transaction is concluded or a written agreement relating to such
transaction is executed on such date, and such date to be conclusively
established by determination of the Board of Directors), from any
Interested Stockholder (as defined below) who has beneficially owned such
securities for less than three years prior to the date of such purchase,
without the affirmative vote of the holders of the Voting Stock which
represent at least two-thirds of the outstanding Common Stock and any other
securities of the Corporation entitled to vote generally for the election
of directors ("Voting Stock"), excluding Voting Stock beneficially owned by
such Interested Stockholder. Such affirmative vote shall be required
notwithstanding the fact that no vote may be required, or that a lesser
percentage may be specified, by law or any agreement with any national
securities exchange, or otherwise.
(b) When a Vote is Not Required. The provisions of paragraph (a) of
this Article shall not be applicable with respect to:
(i) any purchase, acquisition, redemption, or exchange of such
equity securities, the purchase, acquisition, redemption, or exchange
of which is provided for in the Corporation's articles of
incorporation;
(ii) any purchase or other acquisition of equity securities made
as part of a tender or exchange offer by the Corporation to purchase
securities of the same class made on the same terms to all holders of
such securities and complying with the applicable requirements of the
Exchange Act and the rules and regulations thereunder (or any
successor provisions to such Act, rules, or regulations);
(iii) an open market stock purchase program approved by a
majority of those members of the Board of Directors who were duly
elected and acting members of the Board of Directors prior to the time
such Interested Stockholder became such; or
(iv) any purchase, acquisition, redemption, or exchange of such
equity securities, the purchase, acquisition, redemption, or exchange
of which is provided by an executive compensation plan, including any
employment agreement or stock option agreement, approved by the Board
of Directors or a committee of non-employee directors.
(c) Certain Definitions. For purposes of this Article, the following
terms shall have the following meanings:
(i) "Interested Stockholder" shall mean any Person (other than
the Corporation or any Subsidiary) that is the direct or indirect
Beneficial Owner (as defined in rule 13d-3 and rule 13d-5 of the
General Rules and Regulations under the Exchange Act as in effect on
the date of the adoption of these provisions by the stockholders of
the Corporation) of more than 10% of the aggregate Voting Stock, and
any Affiliate or Associate (as such terms are defined in rule 12b-2 of
the General Rules and Regulations under the Exchange Act as in effect
on the date of the adoption of these provisions by the stockholders of
the Corporation) of any such Person. For the purpose of determining
whether a Person is an Interested Stockholder, the outstanding Voting
Stock shall include unissued shares of voting stock of the corporation
of which the Interested Stockholder is the Beneficial Owner, but shall
not include any other shares of Voting Stock of the Corporation which
may be issuable pursuant to any agreement, arrangement, or
understanding, or upon exercise of conversion rights, warrants, or
options, or otherwise, to any Person who is not the Interested
Stockholder.
(ii) "Market Price" of shares of a class of an equity security of
the Corporation on any day shall mean the highest closing sale price
(regular way) of shares of such class of such equity security during
the 30 day period immediately preceding such day, on the largest
principal national securities exchange on which such class of stock is
then listed or admitted to trading, or if not listed or admitted to
trading on any national securities exchange, then the highest reported
closing sale price for such shares in the over-the-counter market as
reported on the Nasdaq Stock Market, or if such sale prices shall not
be reported thereon, the highest closing bid price so reported, or, if
such price shall not be reported thereon, as the same shall be
reported by the National Quotation Bureau Incorporated, or if the
price is not determinable as set forth above, as determined in good
faith by the Board of Directors.
(d) Amendment or Repeal. Notwithstanding anything to the contrary
contained in these articles, no amendment or repeal of the provisions of
this Article or related provisions in the bylaws of the Corporation shall
be adopted unless it is approved by the vote of two-thirds of the Common
Stock or other securities of the Corporation entitled to vote generally for
the election of directors.
ARTICLE XII
FAIR PRICE ON BUSINESS COMBINATIONS
(a) Vote Required. No Business Combination (as defined below) shall
be consummated or effected unless such Business Combination shall have been
approved by the affirmative vote of the holders of not less than two-thirds
of the total voting power of all outstanding shares of Common Stock or
other securities of the Corporation entitled to vote generally for the
election of directors . Such vote shall be required notwithstanding the
fact that no vote for such a transaction may be required by law or that
approval by some other percentage of stockholders may be specified by law
or in any agreement with any national securities exchange or otherwise.
This Article shall not be deemed to affect the provisions of any such law
or agreement requiring any vote or approval by the stockholders or
directors respecting a proposed Business Combination.
(b) Vote Not Required. The vote required pursuant to paragraph (a)
above shall not be required if either of the following conditions is
satisfied, or if, in the case of a Business Combination not involving the
receipt of consideration by the holders of the Corporation's outstanding
capital stock, the condition specified in subparagraph (i) is met:
(i) The Continuing Directors (as defined below) shall have
expressly approved such Business Combination by a two-thirds vote
either in advance of or subsequent to the acquisition of outstanding
shares of capital stock of the Corporation that caused the Interested
Stockholder involved to become an Interested Stockholder. In
determining whether or not to approve any such Business Combination,
the Continuing Directors may give due consideration to all factors
they consider relevant, including without limitation, those identified
in these articles; or
(ii) All of the following conditions shall have been met:
(A) The cash, or fair market value of other consideration,
to be received per share by the stockholders of the Corporation
in such Business Combination bears the same or a greater
percentage relationship to the Market Price of the Corporation's
capital stock immediately prior to the announcement of such
Business Combination as the highest per share price (including
brokerage commissions and/or soliciting dealers' fees) which the
Interested Stockholder has theretofore paid for any of the shares
of the Corporation's capital stock already owned by it bears to
the Market Price of the Common Stock of the Corporation
immediately prior to the commencement of acquisition of the
Corporation's capital stock by the Interested Stockholder; and
(B) The cash, or fair market value of other consideration,
to be received per share by the stockholders of the Corporation
in such Business Combination (1) is not less than the highest per
share price (including brokerage commissions and/or soliciting
dealers' fees) paid by the Interested Stockholder in acquiring
any of its holdings of the Corporation's capital stock, (2) is
not less than the per share Market Price (defined below) of the
Common Stock on the date of the announcement of the Combination,
and (3) is not less than the earnings per share of capital stock
of the Corporation for the four full consecutive fiscal quarters,
or the last fiscal year reported, whichever is higher,
immediately preceding the record date for solicitation of votes
on such Business Combination, multiplied by the higher of either
the highest price/earnings multiple of the Corporation during the
two years prior to the announcement of such Business Combination
or the then price/earnings multiple (if any) of the Interested
Stockholder as customarily computed and reported in the financial
community; and
(C) The per share price to be received by the stockholders
must include an additional premium over the value determined in
accordance with (a) and (b) above that is equal to the total of
(i) the per share equivalent of the value of the
Corporation's oil reserves classified as "possible" under
the then current criteria of the Society of Petroleum
Engineers of the American Institute of Mining Engineers, as
of a reasonably practicable date not more than 180 days
prior to the record date for solicitation of votes on such
Business Combination, as evaluated by a reputable and
qualified petroleum engineer as determined by the Company's
continuing directors; and
(ii) the per share equivalent of 20% of the highest
consolidated balance of domestic and foreign cash, cash
equivalents, and marketable securities held by the Company
at any time during the period commencing on the date the
Interested Stockholder first acquired any shares of the
Company's capital stock and terminating on the 15th day
prior to the date on which the proxy statement referred to
in (E) below is scheduled to be mailed to the public
stockholders of the Corporation; and
(D) After the Interested Stockholder has acquired a 10%
interest and prior to the consummation of such Business
Combination: (1) the Interested Stockholder shall have taken
steps to ensure that the Corporation's Board of Directors
includes at all times representation by Continuing Directors
proportionate to the shareholdings of the Corporation's public
stockholders not affiliated with the Interested Stockholder (with
a Continuing Director to occupy any resulting fractional board
position); (2) there shall have been no change in the amount per
share payable or paid as dividends on the Corporation's capital
stock, except as may have been approved by a unanimous vote of
the directors; (3) the Interested Stockholder shall not have
acquired any newly issued shares of stock, directly or
indirectly, from the Corporation (except upon conversion of
convertible securities acquired by it prior to obtaining a 10%
interest or as a result of a pro rata stock dividend or stock
split); and (4) the Interested Stockholder shall not have
acquired any additional shares of the Corporation's outstanding
capital stock or securities convertible into capital stock,
except as a part of the transaction which results in the
Interested Stockholder acquiring its 10% interest; and
(E) The Interested Stockholder shall not have (1) received
the benefit, directly or indirectly (except proportionately as a
stockholder), of any loans, advances, guarantees, pledges, or
other financial assistance or tax credits provided by the
Corporation, or (2) made any major change in the Corporation's
business or equity capital structure without the unanimous
approval of the directors, in either case prior to the
consummation of such Business Combination; and
(F) Prior to the consummation of any Business Combination
and prior to any vote of the Corporation's stockholders under
paragraph (a) of this Article, a proxy statement or information
statement complying with the requirements of the Exchange Act
shall have been mailed to all stockholders of the Corporation for
the purpose of informing the Corporation's stockholders about
such proposed Business Combination and, if their approval is
required by paragraph (a) of this Article, for the purpose of
soliciting stockholder approval of such Business Combination.
Such proxy statement or information statement shall contain at
the front thereof, in a prominent place, a statement by the
Continuing Directors of their position on the advisability (or
inadvisability) of the proposed Business Combination and, if
deemed advisable by a majority of the Continuing Directors, an
opinion of a reputable investment banking firm as to the fairness
(or not) of the terms of such Business Combination, from the
point of view of the remaining stockholders of the Corporation
(such investment banking firm to be selected by a majority of the
Continuing Directors and to be paid a reasonable fee for their
services by the Corporation).
(c) Certain Definitions. For purposes of this Article, the following
terms shall have the following meanings:
(i) The term "Continuing Director" shall mean any director of
the Corporation who was a director prior to the time the Interested
Stockholder became such, and any other director whose election as a
director was recommended or approved by a majority of Continuing
Directors. Any action required to be taken by vote of the Continuing
Directors shall be effective only if taken at a meeting at which two-
thirds of the Continuing Directors capable of exercising the powers
conferred upon them under the provisions of these articles of
incorporation or the bylaws of the Corporation or by law are present.
(ii) "Interested Stockholder" shall mean any Person (other than
the Corporation or any Subsidiary) that is the direct or indirect
Beneficial Owner (as defined in rule 13d-3 and rule 13d-5 of the
General Rules and Regulations under the Exchange Act as in effect on
the date of the adoption of these provisions by the stockholders of
the Corporation) of more than 10% of the aggregate voting power of the
Common Stock or other securities of the Corporation entitled to vote
generally for the election of directors ("Voting Stock"), and any
Affiliate or Associate (as such terms are defined in rule 12b-2 of the
General Rules and Regulations under the Exchange Act as in effect on
the date of the adoption of these provisions by the stockholders of
the Corporation) of any such Person. For the purpose of determining
whether a Person is an Interested Stockholder, the outstanding Voting
Stock shall include unissued shares of voting stock of the corporation
of which the Interested Stockholder is the Beneficial Owner, but shall
not include any other shares of Voting Stock of the Corporation which
may be issuable pursuant to any agreement, arrangement, or
understanding, or upon exercise of conversion rights, warrants, or
options, or otherwise, to any Person who is not the Interested
Stockholder.
An Interested Stockholder shall be deemed to have acquired a
share of the capital stock of the Corporation at the time when such
Interested Stockholder became the Beneficial Owner thereof. With
respect to shares owned by Affiliates or Associates of an Interested
Stockholder or other person whose ownership is attributed to an
Interested Stockholder, for purposes of subparagraph (ii) of this
paragraph (c), such Interested Stockholder shall be deemed to have
purchased such shares at the higher of (A) the price paid upon the
acquisition thereof by the Affiliate, Associate, or other person who
owns such shares, or (B) the Market Price of the shares in question at
the time when the Interested Stockholder became the Beneficial Owner
thereof.
(iii) "Business Combination" shall mean (A) any merger,
consolidation, or share exchange of the Corporation or any of its
Subsidiaries within or into an Interested Stockholder, in each case
irrespective of which corporation or company is to be the surviving
entity; (B) any sale, lease, exchange, mortgage, pledge, transfer, or
other disposition to or with an Interested Stockholder (in a single
transaction or a series of related transactions) of all or a
substantial part of the assets of the Corporation (including, without
limitation, any securities of a Subsidiary of the Corporation) or all
or a substantial part of the assets of any of its Subsidiaries; (C)
any sale, lease, exchange, mortgage, or pledge, transfer, or other
disposition to or with the Corporation, or to or with any of its
Subsidiaries (in a single transaction or series of related
transactions) of all or a substantial part of the assets of an
Interested Stockholder; (D) the issuance or transfer by the
Corporation or any of its Subsidiaries of any securities of the
Corporation or any of its Subsidiaries to an Interested Stockholder
(other than an issuance or transfer of securities which is effected on
a pro rata basis to all stockholders of the Corporation); (E) any
acquisition by the Corporation or any of its Subsidiaries of any
securities issued by an Interested Stockholder; (F) any
recapitalization or reclassification of shares of any class of voting
stock of the Corporation or any merger or consolidation of the
Corporation with any of its Subsidiaries which would have the effect,
directly or indirectly, of increasing the proportionate share of the
outstanding shares of any class of capital stock of the Corporation
(or any securities convertible into any class of such capital stock)
owned by any Interested Stockholder; (G) any merger or consolidation
of the Corporation with any of its Subsidiaries after which the
provisions of this Article shall not appear in the articles of
incorporation (or the equivalent charter documents) of the surviving
entity; (H) any plan or proposal for the liquidation or dissolution of
the Corporation; and (I) any agreement, contract or other arrangement
providing for any of the transactions described in this definition of
Business Combination. Whether or not any proposed sale, lease,
exchange, mortgage, pledge, transfer, or other disposition of part of
the assets of any entity involves a "substantial part" of the assets
of such entity shall be conclusively determined by a two-thirds vote
of the Board of Directors; provided, however, that assets involved in
any single transaction or series of related transactions having an
aggregate fair market value, as determined by the Board of Directors,
of more than 15% of the total consolidated assets of an entity and its
subsidiaries as at the end of such entity's last full fiscal year
prior to such determination shall always be deemed to constitute a
"substantial part."
(iv) "Market Price" of shares of a class of an equity
security of the Corporation on any day shall mean the highest closing
sale price (regular way) of shares of such class of such equity
security during the 30 day period immediately preceding such day, on
the largest principal national securities exchange on which such class
of stock is then listed or admitted to trading, or if not listed or
admitted to trading on any national securities exchange, then the
highest reported closing sale price for such shares in the over-the-
counter market as reported on the Nasdaq Stock Market, or if such sale
prices shall not be reported thereon, the highest closing bid price so
reported, or, if such price shall not be reported thereon, as the same
shall be reported by the National Quotation Bureau Incorporated, or if
the price is not determinable as set forth above, as determined in
good faith by the Board of Directors.
(d) No proposal to amend or repeal this Article may be authorized and
approved except by the affirmative vote of the holders of voting stock
entitling them to exercise two-thirds of the voting power of the
Corporation voting together as a class, unless required to vote separately
by law or by other provisions of these articles of incorporation or by the
terms of the stock entitling them to vote and, if a proposal upon which
holders of shares of a particular class or classes are so required to vote
separately, then by the affirmative vote of the holders of shares entitling
them to exercise two-thirds of the voting power of each such class or
classes; provided, however, that the provisions of this paragraph (d) shall
not apply to any such amendment or repeal of this Article that has been
favorably recommended to the stockholders by resolution of the Board of
Directors adopted by a two-thirds vote of the Continuing Directors, in
which case any such amendment or repeal of this Article may be authorized
and approved by the affirmative vote of such number of the holders of
voting stock as may be required by law.
(e) Amendment or Repeal. Notwithstanding anything to the contrary
contained in these articles, no amendment or repeal of the provisions of
this Article or related provisions in the bylaws of the Corporation shall
be adopted unless it is approved by the vote of two-thirds of the Common
Stock or other securities of the Corporation entitled to vote generally for
the election of directors (the "Voting Stock").
ARTICLE XIII
REGISTERED OFFICE AND REGISTERED AGENT
The address of the Corporation's registered office and the name of the
registered agent at that address in the state of Nevada is:
The Corporation Trust Company of Nevada
One East First Street
Reno, Nevada 89501
Either the registered office or the registered agent may be changed in the
manner provided for by law.
ARTICLE XIV
AMENDMENTS
The Corporation reserves the right to amend, alter, change, or repeal all
or any portion of the provisions contained in these articles of incorporation
from time to time in accordance with the laws of the state of Nevada, and all
rights conferred on stockholders herein are granted subject to this reservation.
ARTICLE XV
ADOPTION OR AMENDMENT OF BYLAWS
The bylaws of the Corporation shall be adopted by the Board of Directors.
The power to alter, amend, or repeal the bylaws or adopt new bylaws shall be
vested in the Board of Directors, but the stockholders of the Corporation may
also alter, amend, or repeal the bylaws or adopt new bylaws. The bylaws may
contain any provisions for the regulation or management of the affairs of the
Corporation not inconsistent with the laws of the state of Nevada now or
hereafter existing.
ARTICLE XVI
CURRENT DIRECTORS
The name and address of each person who currently serves as a director of
the Corporation, to each serve until the expiration of his or her respective
term and until his or her successor is elected and shall qualify, is as follows:
Name Address
N. Thomas Steele 12596 West Bayaud, Suite 300
Lakewood, Colorado 80228-2019
Grant Steele 12596 West Bayaud, Suite 300
Lakewood, Colorado 80228-2019
Kenneth L. Ransom 12596 West Bayaud, Suite 300
Lakewood, Colorado 80228-2019
Bruce C. Decker 2561 South 1560 West, Suite 200
Woods Cross, Utah 84087
3. The amendments set forth in paragraph 2. were adopted on June , 1997.
--
4. On June , 1997, the Corporation had shares of issued and
--- ---------
outstanding Common Stock, each share entitled to cast one vote, and shares
-----
of voting Preferred Stock, entitled to cast an aggregate of votes, of
-------
which:
[To be completed with number of shares voted for, against, and abstaining
with
respect to each proposal ]
The undersigned affirms and acknowledges, under penalties of perjury, that
the foregoing instrument is my act and deed and that the facts stated herein are
true.
DATED this day of June, 1997.
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FORELAND CORPORATION
By:
N. Thomas Steele, President
