May 5, 1997
To Our Shareholders:
You are cordially invited to attend our Annual Meeting of
Shareholders, which will be held at the Top of the Rockies
(Denver Petroleum Club), 555 17th Street, Denver, Colorado, at
9:00 a.m., on Friday, June 6, 1997.
The matters to be acted upon at the Meeting will include the
election of directors and the adoption of the Company's 1997
Equity Participation Plan. In addition, reports concerning the
Company's operations and other matters of interest will be made
at the Meeting, and Shareholders will have an opportunity to ask
questions of general interest.
In addition to inviting you to attend the Meeting, let me take
this opportunity to directly solicit your favorable vote on the
adoption of the Company's 1997 Equity Participation. As more
fully described in the attached Proxy Statement, the purpose of
the Plan is to provide incentives to our employees to continue in
the service of the Company, give them more direct interests in
the future success of the Company, and, most importantly, align
their interests with those of our shareholders. I believe that
in today's competitive environment an effective Equity
Participation Plan is crucial to our success.
You will note that the 1997 Equity Participation Plan provides
that a number of shares of the Company's Common Stock equal to
11% of the outstanding shares may be issued. I am aware that
this percentage of shares is somewhat higher than the number of
shares covered by individual equity plans at other companies.
But those companies typically have multiple plans, each covering
from 5% to 6%, and the cumulative number of shares covered by
their plans is, in fact, an average of 11.9% of their shares.
So, the total number of shares covered by our proposed Plan will
still be less than the industry average. Accordingly, I suggest
that the Company's 1997 Equity Participation Plan is appropriate,
and warrants your favorable vote.
Please complete and sign the enclosed proxy card and return it
promptly in the accompanying envelope. This will ensure that
your shares are represented at the Meeting, even if you cannot
attend. Returning your proxy card will not prevent you from
voting in person at the Meeting if you are present and wish to do
so.
I hope to see you in Denver.
Very truly yours,
George O. Mallon, Jr.
Chairman
Mallon Resources Corporation
999 18th Street, Suite 1700
Denver, Colorado 80202
Notice of Annual Meeting of Shareholders
Notice is hereby given that the Annual Meeting of
Shareholders (the "Meeting") of Mallon Resources Corporation (the
"Company") will be held at the Top of the Rockies (Denver
Petroleum Club), 555 17th Street, Denver, Colorado, at 9:00 a.m.
local time, on Friday, June 6, 1997, for the following purposes:
(I) To elect Directors of the Company;
(II) To ratify adoption of the Company's 1997 Equity
Participation Plan; and
(III) To transact such other business as may properly
come before the Meeting.
Only holders of common stock of record at the close of
business on April 15, 1997 are entitled to notice of and to vote
at the Meeting.
By Order of the Board of Directors,
CAROLENA F. CHAPMAN
Corporate Secretary
Denver, Colorado
May 5, 1997
ALL SHAREHOLDERS ARE CORDIALLY INVITED TO ATTEND THE
MEETING. ALL SHAREHOLDERS, WHETHER OR NOT THEY EXPECT TO
ATTEND THE MEETING IN PERSON, ARE REQUESTED TO COMPLETE,
DATE, SIGN AND RETURN THE ENCLOSED PROXY CARD IN THE
ENCLOSED ENVELOPE. SHOULD YOU ATTEND THE MEETING, YOU MAY,
IF YOU CHOOSE TO, VOTE IN PERSON, EVEN THOUGH YOU MAY HAVE
PREVIOUSLY SUBMITTED A PROXY CARD.
Mallon Resources Corporation
999 18th Street, Suite 1700
Denver, Colorado 80202
Proxy Statement
for
Annual Meeting of Shareholders
To Be Held
Friday, June 6, 1997
General Information
This statement is furnished in connection with the
solicitation of proxies by the Board of Directors of Mallon
Resources Corporation (the "Company") to be used at its Annual
Meeting of Shareholders (the "Meeting") to be held at the Top of
the Rockies (Denver Petroleum Club), 555 17th Street, Denver,
Colorado, on Friday, June 6, 1997, at 9:00 a.m., for the purposes
set forth in the accompanying Notice of Annual Meeting of
Shareholders. This statement was sent to shareholders on or
about May 5, 1997.
The shares covered by the enclosed Proxy, if such is
properly executed and received by the Board of Directors prior to
the Meeting, will be voted in favor of the proposals to be
considered at the Meeting, unless such Proxy specifies otherwise
or the authority to vote on the election of directors has been
withheld. A Proxy may be revoked at any time before it is
exercised by giving written notice to the Secretary of the
Company or by executing a Proxy bearing a later date.
Shareholders may vote their shares in person if they attend the
meeting, even if they have previously executed and returned a
Proxy.
The matters planned to be brought before the Meeting are the
election of directors to serve for the ensuing year, and the
ratification of the adoption of the Company's 1997 Equity
Participation Plan.
Only shareholders of record at the close of business on
April 15, 1997, will be entitled to vote at the Meeting. On that
date, there were issued and outstanding 4,468,309 shares of the
Company's $0.01 par value common stock ("Common Stock"), entitled
to one vote per share. Cumulative voting is not allowed in the
election of directors or for any other purpose. One-third of the
outstanding Common Stock will constitute a quorum for the
transaction of business at the Meeting. The vote of a majority
of a quorum is needed to pass a proposal.
At the Meeting, members of senior management will speak, and
there will be a general discussion period during which
shareholders will have an opportunity to ask questions about the
business of the Company. Management knows of no other matters to
be brought before the Meeting. If other matters properly come
before the Meeting, it is the intention of the persons named in
the solicited Proxy to vote such Proxy in accordance with their
judgment. No compensation will be paid to any person in
connection with solicitation of Proxies. Brokers and others will
be reimbursed for out-of-pocket and reasonable clerical expenses
incurred in forwarding solicitation materials to beneficial
owners of the Common Stock. Special solicitation of Proxies may
in certain instances be made personally or by telephone by
officers and employees of the Company and by regular employees of
certain banking and brokerage houses. All expenses in connection
with this solicitation will be borne by the Company.
Proposal I: Election of Directors
General
The Company's Bylaws provide that the size of the Board of
Directors can be as few as three or as many as fifteen. The
number of directors may be changed from time to time by
resolution of the Board of Directors or the shareholders. The
size of the Board of Directors is presently seven members,
although James A. McGowen, a long time member of the Board, has
determined not to run for re-election. Accordingly, the Board of
Directors will reduce in size from seven to six members as of the
Meeting, and management will nominate six persons for election to
the Board. Directors are elected annually for one-year terms.
The Company has no nominating or similar committee of its Board
of Directors.
It is the recommendation of management that the six nominees
named below be elected to the Board of Directors for the coming
year, and until their successors have been duly elected and
qualified. Unless authority is withheld, the shares represented
by your Proxy will be voted for their election. No Proxy will be
voted for more than six nominees. Unless your Proxy withholds
authority to do so, if any nominee elects not to serve or is
unable to serve for any reason, your Proxy will be voted for an
alternative nominee to be designated by management to replace
such nominee. The Board of Directors has no reason to expect
that any nominee will be unable to serve. There is no
arrangement between any of the nominees or officers and any other
person or persons pursuant to which he was or is to be selected
as a director, nominee or officer, nor is there any family
relationship between or among any nominees or officers. To the
best knowledge of the Company, none of the nominees have been
involved in any material legal proceedings during the past five
years.
Nominees
Nominees for the Board of Directors are:
<TABLE>
<CAPTION>
Period of Service
Name Age Title(s) as Director
<S> <C> <C> <C>
George O. Mallon, Jr. 52 Director, Since 1988
Chairman of the Board,
President and Chief Executive
Officer of the Company
Kevin M. Fitzgerald 42 Director, Since 1988
Executive Vice President and
Chief Operating Officer
of the Company
Roy K. Ross 46 Director, Since 1992
Executive Vice President and
General Counsel of the Company
Frank Douglass 62 Director Since 1988
Roger R. Mitchell 63 Director Since 1990
Francis J. Reinhardt, Jr. 66 Director Since 1994
</TABLE>
Principal Occupations
A brief description of the business experience of each
nominee for election or re-election as a director is set forth
below:
George O. Mallon, Jr., has served as President, Chairman,
and Chief Executive Officer of the Company since its formation in
December 1988. Mr. Mallon earned a B.S. degree in Business from
the University of Alabama in 1965, and a M.B.A. degree from the
University of Colorado in 1977.
Kevin M. Fitzgerald has served as Executive Vice President
and Chief Operating Officer of the Company since its formation in
December 1988. Mr. Fitzgerald earned a B.S. degree in Petroleum
Engineering from the University of Oklahoma in 1978.
Roy K. Ross joined the Company as Executive Vice President
and General Counsel in October 1992. From June 1976 through
September 1992, Mr. Ross was an attorney in private practice with
the Denver-based law firm of Holme Roberts & Owen. He earned his
B.A. degree in Economics from Michigan State University in 1973,
and his J.D. degree from Brigham Young University in 1976.
Frank Douglass is an attorney with the Texas law firm of
Scott, Douglass, Luton & McConnico, LLP, where he has been a
partner since 1976. Mr. Douglass earned a B.B.A. degree from
Southwestern University in 1953 and a L.L.B. degree from the
University of Texas School of Law in 1958.
Roger R. Mitchell joined the Company in January 1989 as a
Vice President with responsibility for investor relations. In
August 1991, Mr. Mitchell left the employ of the Company to start
First Federated Telepartners, a private telecommunications
business. In December 1992, Mr. Mitchell sold his interest in
First Federated Telepartners, and retired. He earned a B.S.
degree in Business from Indiana University in 1954 and a M.B.A.
degree from Indiana University in 1956.
Francis J. Reinhardt, Jr. is with the New York investment
banking firm of Carl H. Pforzheimer & Co., where he has been a
partner since 1966. Mr. Reinhardt holds a B.S. degree from Seton
Hall University, and an M.B.A. from New York University. He is a
member and past president of the National Association of
Petroleum Investment Analysts. Mr. Reinhardt is also a director
of The Exploration Company of Louisiana, a public company engaged
in the oil and gas business.
Meetings and Committees of the Board
The business and affairs of the Company are managed under
the direction of the Board of Directors. For the period April
1996 through March 1997, the Board of Directors held six formal
meetings, and acted by written consent on numerous occasions.
Each director who is standing for re-election attended all of the
meetings, either in person or by means of a telephone conference
connection, and all directors participated in all of the written
consents. Directors who are not also members of management are
paid $1,000 for each meeting they attend, but in no event less
that $4,000 per year. The compensation is paid in shares of the
Company's Common Stock, pursuant to the terms of the Company's
Compensation Plan for Outside Directors. Board members are also
reimbursed for reasonable out-of-pocket expenses incurred in
connection with attending meetings of the Board.
The Company's Board of Directors has two committees, the
Audit Committee and the Compensation Committee. The Board has
assigned certain advisory authority to each committee, but the
decision-making and management responsibilities of the Company
remain with the full Board. The Audit Committee of the Board,
which held two meetings during the last year, is comprised of
Messrs. Douglass, Mitchell and Reinhardt. The Audit Committee's
purpose is to oversee the Company's accounting and financial
reporting policies and practices and to assist the Board of
Directors in fulfilling its fiduciary and corporate
accountability responsibilities. The Company's independent
auditors periodically meet with the Audit Committee, and have
unrestricted access directly to the Audit Committee members. The
Compensation Committee of the Board, which held one formal
meeting and acted by unanimous written consent on several
occasions during the last year, is currently comprised of Messrs.
Douglass and Reinhardt. The Compensation Committee has submitted
the report that appears below.
Compensation Committee Report
The Company's Board of Directors established the
Compensation Committee (the "Committee") to propose, subject to
Board ratification, equity and cash compensation of executive
officers and equity compensation for all employees. The
Committee's philosophy is that employee compensation (including
salary, bonus and equity-based compensation) should be near the
mid-point of industry standards and that, so long as the Company
is able, employees who consistently perform exceptionally should
be compensated at a rate higher than the mid-point of industry
standards. The Committee believes that equity compensation -- in
the form of stock options -- is an excellent incentive for all
employees, including executive officers, and serves to align the
interests of the employees, executive officers and shareholders.
In 1997, the Company engaged the services of Towers Perrin, an
expert in the area of industry compensation matters, to conduct a
survey of compensation practices in the oil and gas industry and
to advise the Company with respect thereto.
Cash Compensation. The Committee's cash compensation
objectives are to: (a) establish an equitable pay scale for
employees, (b) facilitate recruiting, and (c) reward employees
for their loyalty and efforts. The executive officers of the
Company are considered in this planning in the same manner as all
other employees. Each year, all employees, including the
executive officers, are evaluated by their managers (or in the
case of the Chief Executive Officer, by the Committee) and may
receive salary adjustments based upon their performance.
Equity Compensation. Historically, the Company has not used
equity compensation as a component of employee compensation
packages as widely as is common in the industry. If the
Company's 1997 Equity Participation Plan (the "Plan") is ratified
by the shareholders, the Committee intends to begin making equity
compensation awards a more regular part of its compensation
decisions. The Committee will approve all awards made under the
Plan. All employees will be eligible for awards under the Plan.
The Plan was designed to provide: (a) a method to both attract
and retain high caliber talent over the long term, (b) an
opportunity for all employees to share in the long term success
of the Company, (c) an ownership interest in the Company's
success, (d) recognition of individual contributions; and (e)
motivation for continued efforts and accomplishments. Until
adoption of the Plan is ratified by the shareholders, no awards
under the Plan will be made.
Bonus Compensation. The Company maintains what it
informally calls its "Royalty Pool." This pool is an amount of
cash measured by the Company's sales of production. Quarterly,
the money accumulated in the pool is paid out as cash bonuses to
the employees of the Company. The Chief Executive Officer
proposes the amounts to be paid to each employee, including
himself, based upon his judgment of their relative contributions
to the success of the Company over the quarter for which the
bonus is being paid. His determinations are subject to review by
the Committee.
Chief Executive Officer. For years, at his election, Mr.
Mallon's compensation from the Company was substantially below
the compensation levels of chief executive officers of other,
comparable companies. During this time, Mr. Mallon also made
himself ineligible to participate in the Company's Equity
Participation Plan and other benefit plans. In late 1995, the
Committee reworked Mr. Mallon's compensation arrangements with
the Company to bring his compensation package closer to industry
standards. An employment contract covering these matters was
entered into in April 1997. That contract is for a three year
period, which, until 2000, will be automatically extended each
year for an additional year, unless the Company earlier elects
not to extend the contract. The contract establishes Mr.
Mallon's annual base salary at $175,000. In connection with the
signing of the contract, Mr. Mallon was awarded 10,000 shares of
Common Stock, which vest in increments over the next three years.
Mr. Mallon's performance as Chief Executive Officer and President
is subject to review by the Committee annually, which review may
result in adjustments to his compensation package.
Respectfully submitted,
The Compensation Committee
Frank Douglass
Francis J. Reinhardt, Jr.
* The report of the Compensation Committee shall not be deemed
incorporated by reference by any general statement incorporating
by reference this proxy statement into any filing under the
Securities Act of 1933 or under the Securities Act of 1934,
except to the extent that the Company specifically incorporates
this report by reference.
Executive Compensation
The following table summarizes certain information regarding
compensation paid by the Company for services rendered for the
year ended December 31, 1996 to the Company's chief executive
officer and each other executive officer whose total annual
salary and bonus, or annual salary and deferred compensation,
exceeded $100,000 for such year.
SUMMARY COMPENSATION TABLE
Year ended December 31, 1996
<TABLE>
<CAPTION>
Long Term Compensation
______________________
Annual Compensation Awards Payouts
(a) (b) (c) (d) (e) (f) (g) (h) (i)
Other Restricted Securities
Name and Annual Stock Underlying LTIP All Other
Principal Compen- Awards Options/ Payouts Compen-
Position Year Salary($) Bonus($) sation($) $ SARs(#) ($) sation($)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
G.O. Mallon
CEO 1996 141,000 12,000 34,000
1995 106,403 8,150 -0-
1994 106,635 10,440 -0-
K.M. Fitzgerald
E.V.P. 1996 111,000 10,400 34,000
R.K. Ross
E.V.P. 1996 106,000 9,400 34,000
</TABLE>
1988 Equity Participation Plan. Under the Mallon Resources
Corporation 1988 Equity Participation Plan (the "1988 Equity
Plan"), shares of Common Stock were reserved for issuance for
various compensation purposes. The 1988 Equity Plan is
administered by a committee, currently comprised of Messrs.
Reinhardt and Douglass, neither of whom is eligible to
participate in the 1988 Equity Plan. The terms of any awards
made under the Equity Plan are within the broad discretion of the
committee. Through December 31, 1996, options covering a total
of 106,194 shares of common stock had been awarded under the 1988
Equity Plan. Of these, options covering 24,785 shares have been
exercised, and options covering 11,833 shares have expired. At
December 31, 1996, the following options to purchase shares of
the Company's Common Stock were issued and outstanding under the
Equity Plan:
<TABLE>
<CAPTION>
Number of Per Share Currently
Shares Exercise Price Exercisable
<S> <C> <C>
45,326 $0.04 yes (1)
4,750 $0.04 no(1)
19,500 $0.04 no (2)
</TABLE>
(1) These options were issued at various times to various of the
Company's employees and consultants.
(2) These options were issued in 1990 to various of the
Company's employees; they do not vest until the Common Stock has
traded at not less than certain benchmark prices ($32.00, $40.00,
and $48.00) for at least 120 consecutive trading days.
Employee Profit Sharing and Thrift Plan. The Company
established the Mallon Resources Corporation 401(k) Profit
Sharing Plan (the "401(k) Plan") effective January 1, 1989. The
Company and its affiliates will match an employee's contribution
to the 401(k) Plan in an amount up to 25% of his or her eligible
monthly contributions. The Company may also contribute
additional amounts at the discretion of the Compensation
Committee of the Board of Directors, contingent upon realization
of earnings by the Company which, in the sole discretion of the
Board of Directors, are adequate to justify a corporate
contribution. The 401(k) Plan is open to all full time employees
of the Company and have attained age 21. Matching contributions
made to the 401(k) Plan by the Company become fully vested upon
an employee (1) earning at least six years of vested service, (2)
acquiring a disability, or (3) death.
Certain Relationships and Related Transactions
The Company serves as operator of certain oil and gas
properties in which some of the officers and directors of the
Company have working interests. Such individuals pay their pro-
rata share of all costs relating to the properties, on the same
basis as other unaffiliated interest owners.
During the year ended December 31, 1996, the Company paid
$2,000 of legal fees to the law firm of Scott, Douglass, Luton &
McConnico, LLP, of which Mr. Douglass is a senior partner.
During the year ended December 31, 1996, the Company paid
consulting and other fees to the investment banking firm of Carl
H. Pforzheimer & Co., of which Mr. Reinhardt is a partner, in the
amount of $191,000.
Proposal II: Ratification of 1997 Equity Participation Plan
In March 1997, the Board of Directors adopted the Company's
1997 Equity Participation Plan (the "1997 Plan"), subject to the
restriction that the 1997 Plan is not effective until it has been
ratified by the shareholders. The purpose of the 1997 Plan is to
provide participants in the 1997 Plan with incentives to continue
in the service of the Company and to create in such individuals a
more direct interest in the future success of the Company by
relating incentive compensation to the achievement of corporate
economic objectives. The 1997 Plan is also designed to attract
key employees and consultants and to retain and motivate
participating individuals by providing an opportunity for
investment in the Company.
The 1997 Plan provides that a number of shares of the
Company's Common Stock equal to 11% of the Company's outstanding
Common Stock, from time to time, may be issued under the 1997
Plan. This number of shares is somewhat higher than the number
of shares covered by individual equity participation plans at
other companies. However, for the following reasons, management
believes that the number of shares that may be issued under the
1997 Plan are appropriate for the Company, at this time:
- - The Company has not put in place an equity participation
plan since its 1988 Equity Participation Plan (the "1988 Plan"),
and thus has not regularly made equity participation a part of
its employees' compensation arrangements for the past five years.
As a result, no member of management holds as much as 1% of the
Company's shares, except Mr. Mallon whose share ownership derives
from his status as a founder of the Company.
- - Of the shares originally allocated for issuance under the
1988 Plan, an amount that represents less than 1% of the
Company's currently outstanding shares were actually issued to
employees.
- - The Company believes it is in the Company's best interests
to provide key employees with substantial long-term incentives -
incentives that will vest over a number of years - to continue in
the service of the Company and to more clearly align the economic
interests of such individuals with the economic interests of
shareholders, generally.
- - Even once all of the shares provided for under the 1997
Plan are issued, the total amount of such shares held by the
Company's employees will be less than the percentage of equity
compensation shares held by management at most of the Company's
competitors, where such shares average approximately 11.9%.
A summary of the features of the 1997 Plan appears below, which
is qualified in its entirety by reference to the terms of the
1997 Plan, a copy of which is attached as Exhibit A to this Proxy
Statement.
Administration. The 1997 Plan is administered by the
Compensation Committee of the Board of Directors (the
"Committee") which consists entirely of outside directors. The
Committee has the authority to select participants, determine
awards to be made, including the terms and conditions of such
awards, and make such other decisions and interpretations as are
necessary under the 1997 Plan.
Participation. Participants in the 1997 Plan are those
employees who, in the judgment of the Committee, make significant
contributions to the achievement of long-term corporate economic
objectives. The selection of participants is a discretionary
decision of the Committee and is difficult to quantify.
Approximately 20 persons are eligible to participate in the 1997
Plan.
Awards. The 1997 Plan provides for the granting of: (1)
stock options, including incentive stock options meeting the
requirements of Section 422 of the Internal Revenue Code and
options that do not meet the requirements of Section 422 of the
Internal Revenue Code (non-qualified stock options); (2)
restricted stock; (3) stock purchase rights; (4) stock
appreciation rights; and (5) other Common Stock grants. Options
granted under the Plan may be purchased by the participant at a
price determined by the Committee. The Committee also determines
the term of the option and any vesting requirements at the time
the option is granted.
Amendment. The Committee may amend the Plan without
shareholder approval where it is not required to satisfy any
statutory or regulatory requirements.
Change of Control. In the event of a change of control, as
defined under the Plan, all stock options shall become
immediately exercisable in full, all restrictions with respect to
outstanding restricted stock awards shall lapse, and all stock
units shall become immediately payable.
Federal Income Tax Consequences. The grant of a non-
qualified stock option is not taxable to the participant. If the
option is exercised, the participant will generally recognize
compensation income equal to the difference between the fair
market value of the shares at the time of exercise and the
exercise price of the shares. At the time of exercise, the
Company receives a deduction for an amount equal to the income
recognized by the participant. Upon the grant and exercise of an
incentive stock option, no taxable income is recognized by the
participant and the Company does not receive a deduction. In
order to receive this favorable tax treatment, the participant
must hold the shares for at least two years after the incentive
stock option was granted and for at least one year after the
option is exercised. In addition, the participant must generally
treat the excess of the fair market value of the shares, on the
date of exercise, over the exercise price as an item of tax
preference for purposes of the alternative minimum tax. The
participant will recognize capital gain income at the time the
shares are sold in an amount equal to the difference between the
sale price and the participant's basis in the shares, which is
generally the exercise price. If the holding period requirements
are not met, the difference between the exercise price and the
fair market value of the stock at the time of exercise (limited
to the gain on sale) is compensation income to the participant
and the Company will be allowed a deduction equal to this taxable
income amount. Any gain in excess of such amount will be long
term or short term capital gain, depending on the participant's
holding period.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE PROPOSAL TO
RATIFY THE ADOPTION OF THE 1997 EQUITY PARTICIPATION PLAN.
Additional Information
At the Meeting, members of senior management will speak, and
there will be a general discussion period during which
shareholders will have an opportunity to ask questions about the
business of the Company. Management knows of no other matters to
be brought before the Meeting. If other matters properly come
before the Meeting, it is the intention of the persons named in
the solicited Proxy to vote such Proxy in accordance with their
judgment. No compensation will be paid to any person in
connection with solicitation of Proxies. Brokers and others will
be reimbursed for out-of-pocket and reasonable clerical expenses
incurred in forwarding solicitation materials to beneficial
owners of the Common Stock. Special solicitation of Proxies may
in certain instances be made personally or by telephone by
officers and employees of the Company and by regular employees of
certain banking and brokerage houses. All expenses in connection
with this solicitation will be borne by the Company.
Stock Ownership
The following table sets forth information concerning the
beneficial ownership of the Company's Common Stock as of
April 15, 1997, by (i) each shareholder known by the Company to
own of record or beneficially more than 5% of the Company's
outstanding Common Stock; (ii) the Company's chief executive
officer (Mr. Mallon); (iii) each of the Company's Directors and
nominees, and (iv) all Directors and Officers as a group.
<TABLE>
<CAPTION>
Number of Percent
Name and Address (1) Shares Owned
<S> <C> <C> <C>
George O. Mallon, Jr. 319,349 (2) 7.1%
Kevin M. Fitzgerald 35,778 (3) *
Roy K. Ross 9,396 (4) *
Frank Douglass 8,361 *
Roger R. Mitchell 48,232 1.1%
Francis J. Reinhardt, Jr. 34,442 *
Cambridge Investments Limited 470,800 10.5%
Robert J. Monroe 240,306 (5) 5.3%
All Officers and Directors as a Group
(8 persons) 455,558 (6) 10.1%
</TABLE>
* Less than 1%.
(1) The address of Messrs. Mallon, Fitzgerald and Ross is 999
18th Street, Suite 1700, Denver, Colorado 80202. The address of
Mr. Douglass is 4350 Beltway Drive, Dallas, Texas 75244-8266.
The address of Mr. Mitchell is 5436 Lake Edge Drive, Holly
Springs, North Carolina 27540. The address of Mr. Reinhardt is
650 Madison Ave., 23rd Floor, New York, New York 10022. The
address of Cambridge Investments Limited is 600 Montgomery
Street, 27th Floor, San Francisco, California 94111. The address
of Mr. Monroe is 228 St. Charles Avenue, New Orleans, Louisiana
70130.
(2) Includes 2,166 shares owned by Mr. Mallon's wife, 7,278
shares that could be acquired by Mr. Mallon upon the exercise of
immediately exercisable stock options that he holds, and 10,000
restricted stock award shares that have not yet vested. A trust
created for the benefit of Mr. Mallon's children owns shares that
are not included, as Mr. Mallon has no voting or other control
over the shares in the trust.
(3) Includes 17,028 shares that could be acquired by Mr.
Fitzgerald upon the exercise of immediately exercisable stock
options that he holds, and 10,000 restricted stock award shares
that have not yet vested..
(4) Includes 2,637 shares that could be acquired by Mr. Ross
upon the exercise of immediately exercisable stock options that
he holds, and 5,000 restricted stock award shares that have not
yet vested..
(5) Includes 56,847 shares that could be acquired upon the
exercise of immediately exercisable warrants and 44,209 shares
issuable upon the conversion of Series B Preferred Stock owned by
a foundation of which Mr. Monroe is president and a director, an
estate of which Mr. Monroe is the executor, and a company of
which the estate is the sole shareholder.
(6) Includes 26,943 shares that could be acquired upon the
exercise of immediately exercisable stock options and 25,000
restricted stock award shares that have not yet vested.
Annual Report and Financial Statements
You are referred to the Company's Annual Report to
Shareholders for the year ended December 31, 1996, enclosed
herewith for your information. The Annual Report is not
incorporated in the Proxy Statement and is not to be considered
part of the soliciting material.
Submission of Shareholder Proposals
Proposals intended for inclusion in next year's Proxy
Statement should be sent to the Secretary of the Company at 999
18th Street, Suite 1700, Denver, Colorado 80202, and must be
received by March 1, 1998.
Compliance with Securities Transaction Reporting Requirements
Pursuant to Section 16(a) of the Securities Exchange Act
1934, certain individuals and entities are required to
periodically file reports with the Securities and Exchange
Commission in which they disclose information concerning their
transactions involving the Company's securities. To the
Company's knowledge, based solely on review of copies of such
reports submitted to the Company, during the year ended December
31, 1996, no individual or entity known to the Company to be
subject to the reporting requirements of Section 16(a) failed to
satisfy those requirements in a timely fashion.
Comparative Performance Graph
The following line graph reflects the performance of (i) the
Company's Common Stock, (ii) the NASDAQ Stock Market Total Return
Index (U.S. Companies), and (iii) the Standard Industrial
Classification ("SIC") Index for SIC Code 131 (which includes
crude petroleum and natural gas companies). The graph assumes
$100 was invested on December 31, 1991 in the Company's Common
Stock and in each of the other indices. The graph also assumes
the reinvestment of all dividends. Stock price performance shown
on the graph is not necessarily indicative of future price
performance.
<TABLE>
<CAPTION>
Comparison of 5-Year Cumulative Total Return
Amount Mallon Resources Corp.,
Nasdaq Market Index and SIC Code Index
FISCAL YEAR ENDING
COMPANY 1991 1992 1993 1994 1995 1996
<S> <C> <C> <C> <C> <C> <C>
MALLON RESOURCES CORP. 100 366.67 266.67 133.33 100.00 150.00
INDUSTRY INDEX 100 94.95 113.13 118.56 130.39 173.38
BROAD MARKET 100 100.98 121.13 127.17 164.96 204.98
</TABLE>
By Order of the Board of Directors,
CAROLENA F. CHAPMAN
Corporate Secretary
Dated: May 5, 1997
- - 19 -
PROXY Mallon Resources Corporation PROXY
999 18th Street, Suite 1700
Denver, Colorado 80202
PROXY CARD
Annual Meeting of Shareholders - June 6, 1997
The undersigned shareholder of Mallon Resources Corporation (the
"Company") acknowledges receipt of notice of the Company's Annual
Meeting of Shareholders to be held in Denver, Colorado, on
Friday, June 6, 1997, and hereby appoints George O. Mallon, III
and Carol Naranjo, or either of them, with the power of
substitution, as attorneys and proxies to represent and vote, as
designated below, all the shares of the Company's Common Stock
held of record by the undersigned on April 15, 1997, at the
Annual Meeting, or any adjournment thereof, as follows:
I. ELECTION OF DIRECTORS:
[ ] FOR ALL NOMINEES LISTED BELOW
(Except as marked to the contrary below)
[ ] WITHHOLD AUTHORITY to vote for all nominees below
George O. Mallon, Jr. Kevin M. Fitzgerald Roy K. Ross
Roger R. Mitchell Frank Douglass
Frances J. Reinhardt, Jr.
(INSTRUCTIONS: To withhold authority to vote for any individual
nominee, draw a line through that nominee's name).
II. Proposal to ratify adoption of the Company's 1997 Equity
Participation Plan.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
III. In their discretion, the Proxies are authorized to vote
upon such other business as may properly come before the meeting.
This Proxy when properly executed and delivered will be voted in
the manner directed herein by the undersigned shareholder. If no
direction is given, this proxy will be voted FOR all proposals.
Dated __________________, 1997
Please sign below exactly as your name appears on the stock
certificate(s). When shares are held as joint tenants, both
should sign. When signing as attorney, executor, administrator,
trustee or guardian, please give full title as such. If a
corporation, please sign in full corporate name by president or
other authorized officer. If a partnership, please sign in
partnership name by authorized person.
_________________________________
Signature
_________________________________
Signature (if held jointly)
_________________________________
Printed name, as it appears on stock certificate(s)
_________________________________
Printed name of joint tenant, as it appears on stock
certificate(s)
PLEASE MARK, SIGN, DATE, AND RETURN THIS PROXY CARD PROMPTLY,
USING THE ENCLOSED ENVELOPE
MALLON RESOURCES CORPORATION
1997 EQUITY PARTICIPATION PLAN
Section 1: Introduction
1.1 Recitals. Effective as of March 13, 1997, and
subject to shareholder approval, MALLON RESOURCES CORPORATION, a
Colorado corporation (the "Company"), hereby establishes the
Mallon Resources Corporation 1997 Equity Participation Plan (the
"1997 Plan").
1.2 Purpose. The purpose of the 1997 Plan is to provide
participants in the 1997 Plan with incentives to continue in the
service of the Company and to create in such individuals a more
direct interest in the future success of the Company by relating
incentive compensation to the achievement of corporate economic
objectives. The 1997 Plan is also designed to attract key
employees and consultants and to retain and motivate
participating individuals by providing an opportunity for
investment in the Company.
Section 2: Definitions
2.1 Definitions. The following terms shall have the
meanings set forth below:
a. "Affiliated Corporation" means any corporation
which is either a parent corporation with respect to the Company
or a subsidiary corporation with respect to the Company, within
the meaning of Section 424 of the Internal Revenue Code.
b. "Board" means the Board of Directors of the
Company.
c. "Committee" means a committee consisting of at
least two individuals, who may be members of the Board, who are
empowered hereunder to take actions in the administration of the
1997 Plan. Members of the Committee shall be appointed from time
to time by the Board, shall serve at the pleasure of the Board
and may resign upon written notice to the Board. Efforts shall
be made to select as members of the Committee individuals who are
"independent" within the meaning of Section 162(m) of the
Internal Revenue Code, but the failure of any member of the
Committee to be "independent" within the meaning of that section
shall not invalidate any actions taken by the Committee.
d. "Common Stock" means the Company's $0.01 par
value common stock.
e. "Consultant" means a business consultant engaged
to perform consulting or other services for the Company or any of
the Affiliated Corporations.
f. "Effective Date" means the effective date of the
1997 Plan, as set forth in Section 21 hereof.
g. "Eligible Person" means (i) Consultants, (ii)
non-employee directors of the Company, and (iii) those employees
(including, without limitation, officers and directors who are
also employees) of the Company or any Affiliated Corporation upon
whose judgment, initiative and efforts the Company or the
Affiliated Corporations rely for the successful conduct of their
business. For all purposes of the 1997 Plan and any benefit
granted hereunder, "employee" and "employment" shall be defined
in accordance with the provisions the Internal Revenue Code
h. "Fair Market Value" means with respect to Common
Stock, as of any date, the composite closing price of a share of
Common Stock on the New York or American Stock Exchange as
reported by the Wall Street Journal for that date, provided, that
if there are no Common Stock transactions reported for such date,
the determination of such closing price shall be made as of the
last immediately preceding date on which Common Stock
transactions were reported on the New York or American Stock
Exchange. If no such prices are reported on the New York or
American Stock Exchange, then Fair Market value as of any date
shall mean the closing price for the Common Stock as reported by
Nasdaq for that date, provided, that if there are no Common Stock
transactions reported for such date, the determination of such
closing price shall be made as of the last immediately preceding
date on which Common Stock transactions were reported by Nasdaq.
If no such prices are reported on Nasdaq, the Fair Market Value
shall be determined in accordance with information reported on a
quotation system of general circulation to brokers and dealer.
If no such information is available, then Fair Market Value shall
be as determined by the Board.
i. "Incentive Stock Option" means the right to
purchase Common Stock granted to a Participant pursuant to
Sections 6 and 7, which constitutes an incentive stock option
within the meaning of the Internal Revenue Code, and which may or
may not be issued with related Stock Appreciation Rights.
j. "Internal Revenue Code" means the Internal
Revenue Code of 1986, as it may be amended from time to time.
k. "MBO Payment" means a payment to a Participant
pursuant to the Company's MBO Plan, which payment may be made
either in shares of Common Stock or in cash, or partly in Common
Stock and partly in cash, as determined in accordance with the
provisions of Section 12.
l. "MBO Plan" means a "Management By Objectives
Plan," as be may established by the Board or the Committee from
time to time, pursuant to which MBO Payments are made from time
to time in the manner and under the conditions established by the
Board or the Committee.
m. "Non-Qualified Option" means a right to
purchase Common Stock granted to a Participant pursuant to
Sections 6 and 8, which shall not qualify as an Incentive Stock
Option, and which may or may not be issued with related Stock
Appreciation Rights.
n. "Participant" means an Eligible Person
designated by the Committee from time to time during the term of
the 1997 Plan to receive one or more of the stock based
compensation incentives provided under the 1997 Plan.
o. "Restricted Stock Award" means an award of
Common Stock granted to a Participant pursuant to Section 10 that
is subject to certain restrictions imposed in accordance with the
provisions of such section.
p. "Stock Appreciation Right" means a right granted
to a Participant pursuant to Section 9 to receive a payment from
the Company equal to the difference between the Fair Market Value
of one or more shares of Common Stock subject to a Non-Qualified
Option or an Incentive Stock Option and the exercise price of
such shares under the terms of such Stock Option.
q. "Stock Option" means an Incentive Stock Option
or a Non-Qualified Option.
2.2 Gender and Number. Except when otherwise indicated
by the context, the masculine gender shall also include the
feminine gender, and the definition of any term herein in the
singular shall also include the plural.
Section 3: Plan Administration
The 1997 Plan shall be administered by the Committee. In
accordance with the provisions of the 1997 Plan, the Committee
shall, in its sole discretion, select the Participants from
Eligible Persons, determine the number of shares of Common Stock
to be subject to incentive Stock Options, Non-Qualified Options,
Stock Appreciation Rights, and Restricted Stock Awards granted
pursuant to the 1997 Plan, determine the number of shares of
Common Stock to be issued as MBO Payments, determine the time at
which such options, rights, awards and payments are to be
granted, fix the exercise price, period and the manner in which a
Stock Option becomes exercisable, establish the duration and
nature of Restricted Stock Award restrictions, and establish such
other terms and requirements of the various compensation
incentives under the 1997 Plan as the Committee may deem
necessary or desirable and consistent with the terms of the 1997
Plan. The Committee shall determine the form or forms of the
agreements with Participants which shall evidence the particular
provisions, terms, conditions, rights and duties of the Company
and the Participants with respect to Incentive Stock Options,
Non-Qualified Options, Stock Appreciation Rights and Restricted
Stock Awards granted pursuant to the 1997 Plan, which provisions
need not be identical except as may be provided herein. The
Committee may from time to time adopt such rules and regulations
for carrying out the purposes of the 1997 Plan as it may deem
proper and in the best interests of the Company. The Committee
may correct any defect or supply any omission or reconcile any
inconsistency in the 1997 Plan or in any agreement entered into
hereunder in the manner and to the extent it shall deem expedient
to carry the 1997 Plan into effect and it shall be the sole and
final judge of such expediency. No member of the Committee shall
be liable for any action or determination made in good faith.
The determinations, interpretations and other actions of the
Committee pursuant to the purposes and on all persons, subject
only to the review and control of the Board on all Plan matters
except selection of Participants.
Section 4: Stock Subject to the 1997 Plan.
4.1 Number of Shares. The aggregate number of shares of
Common Stock that may (but need not) be issued under the 1997
Plan in accordance with the provisions of the 1997 Plan and
subject to such restrictions or other provisions as the Committee
may from time to time deem necessary shall be equal to 11% of the
number of outstanding shares of Common Stock from time to time.
This authorization may be increased from time to time by approval
of the Board, and, if in the opinion of counsel such action is
required, by the ratification of the shareholders of the Company.
Notwithstanding the foregoing, Incentive Stock Options for not
more than 300,000 shares may be issued under the 1997 Plan.
4.2 Unused and Forfeited Stock. Any shares of Common
Stock that are subject to an Incentive Stock Option or a
Non-Qualified Option issued under the 1997 Plan which expires or
for any reason is terminated unexercised, and with respect to
which no Stock Appreciation Right has been exercised, and any
shares of Common Stock that are subject to a Restricted Stock
Award issued under the 1997 Plan and which are forfeited, and any
shares of Common Stock that for any other reason are not issued
to an Eligible Person, or are forfeited, shall automatically
become available for re-use under the 1997 Plan.
4.3 Capital Adjustments.
a. Recapitalizations and Other Changes to Capital.
If the outstanding shares of Common Stock of the Company are
changed into or exchanged for a different number or kind of
shares or other securities of the Company by reason of any
recapitalization, reclassification, stock split, stock dividend,
combination, or subdivision, appropriate adjustments, as
determined in the sole discretion of the Committee, shall be made
in the number and kind of shares available under the 1997 Plan
and any Stock Options and Stock Appreciation Rights granted and
outstanding under the 1997 Plan, so as to reflect the effect of
any such transaction on the 1997 Plan and the Common Stock
covered thereby. Such adjustment to outstanding Stock Options
shall be made without change in the total price applicable to the
unexercised portion of such options, and a corresponding
adjustment in the applicable option price per share shall be
made. No such adjustment shall be made to any Incentive Stock
Option which would, within the meaning of any applicable
provisions of the Internal Revenue Code, constitute a
modification, extension or renewal of any option or grant of
additional benefits to the holder of any option.
b. Reorganization. If the Company is merged or
consolidated with another corporation and the Company is not the
surviving corporation, or if all or substantially all of the
assets or more than 50% of the outstanding voting stock of the
Company is acquired by any other corporation or other business
entity, or in case of a reorganization (other than a
reorganization under the United States Bankruptcy Code) or
liquidation of the Company, the Committee, or the board of
directors of any corporation assuming the obligations of the
Company, shall, as to outstanding Stock Options, Stock
Appreciation Rights and Restricted Stock Awards, either (i) make
appropriate provision for the protection of any such outstanding
Stock Options, Stock Appreciation Rights and Restricted Stock
Awards by the substitution on an equitable basis of appropriate
stock of the Company or of the merged, consolidated or otherwise
reorganized corporation which will be issuable with respect to
the Common Stock, or (b) upon written notice to the Participants,
provide that all unexercised Stock Options and any associated
Stock Appreciation Rights, must be exercised within a specified
number of not less than 60 days of the date of such notice or
they will be terminated. In any such case, the Committee may, in
its discretion., accelerate the vesting or exercise dates of
outstanding Stock Options and Stock Appreciation Rights and
accelerate the restriction period and modify the performance
requirements for any outstanding Restricted Stock Awards.
Section 5: Participation
Participants in the 1997 Plan shall be those Eligible Persons
who, in the judgment of the Committee, are performing or will
perform vital services in the management, operation and
development of the Company or an Affiliated Corporation, and
contribute or are expected to contribute to the achievement of
corporate economic objectives. Participants may be granted from
time to time one or more Incentive Stock Options (with or without
Stock Appreciation Rights), one or more Non-Qualified Options
(with or without Stock Appreciation Rights), one or more
Restricted Stock Awards, one or more MBO payments in shares of
Common Stock, and one or more other Common Stock awards pursuant
to Section 14; provided, however, that the grant of each such
option, right, award or payment shall be separately approved by
the Committee, and receipt of one such option, right, award or
payment shall not result in automatic receipt of any other
option, right, award or payment. Upon determination by the
Committee that a Stock Option, Stock Appreciation Right,
Restricted Stock Award, MBO Payment or other Common Stock award
is to be granted to a Participant, written notice shall be given
such person, specifying the terms, conditions, rights and duties
related thereto. Each Participant shall, if required by the
Committee, enter into an agreement with the Company, in such form
as the Committee shall determine and as is consistent with the
provisions of the 1997 Plan, specifying such terms, conditions,
rights and duties. Stock Options, Stock Appreciation Rights,
Restricted Stock Awards, MBO Payments and other Common Stock
awards shall be deemed to be granted as of the date specified in
the grant resolution of the Committee, which date shall be the
date of any related agreement with the Participant in the event
of any inconsistency between the provisions of the 1997 Plan and
any such agreement entered into hereunder, the provisions of the
1997 Plan shall govern.
Section 6: Stock Options
6.1 Grant of Stock Options. Coincident with or
following designation for participation in the 1997 Plan, a
Participant may be granted one or more Stock Options. The
Committee in its sole discretion may designate whether a Stock
Option is to be considered an Incentive Stock Option or a Non-
Qualified Option. The Committee may grant both an Incentive
Stock Option and a Non-Qualified Option to the same Participant
at the same time or at different times. Incentive Stock Options
and Non-Qualified Options, whether granted at the same or
different times, shall be deemed to have been awarded in separate
grants, shall be clearly identified, and in no event will the
exercise of one Stock Option affect the right to exercise any
other Stock Option or affect the number of shares of Common Stock
for which any other Stock Option may be exercised.
Notwithstanding the foregoing, Consultants shall not be eligible
to receive Incentive Stock Options.
6.2 Manner of Stock Option Exercise. A Stock Option may
be exercised by a Participant in whole or in part from time to
time subject to the conditions contained herein, by delivery, in
person or through certified or registered mail, of written notice
of exercise to the Company at its principal office in Denver,
Colorado (Attention: Corporate Secretary), and by paying in full,
with the written notice of exercise or at such other times as the
Committee may establish, the total exercise price under the Stock
Option for the shares purchased. Such notice shall be in a form
satisfactory to the Committee and shall specific the particular
Stock Option (or portion thereof) which is being exercised and
the number of shares with respect to which the Stock Option is
being exercised. The exercise of the Stock Option shall be
deemed effective upon receipt of such notice by the Corporate
Secretary and payment to the Company. As soon as practicable
after the effective exercise of the Stock Option, and upon
satisfaction of all applicable withholding requirements pursuant
to Section 19, the Participant shall be recorded on the stock
transfer books of the Company as the owner of the shares
purchased and the Company shall deliver to the Participant one or
more duly issued and executed stock certificates evidencing such
ownership.
6.3 Payment of Stock Option Exercise Price. At the time
of the exercise of a Stock Option, a Participant may determine
whether the payment of the total Stock Option exercise price for
the shares to be purchased shall be made solely in cash or by
transfer from the Participant to the Company of shares of Common
Stock (other than shares of Common Stock which the Committee
determines by rule may not be used to exercise Stock Options)
with a then current aggregate Fair Market Value equal to the
total Stock Option exercise price, or by a combination of cash
and such shares of Common Stock. The Committee shall have the
discretion to reject a Participant's election to pay all or a
part of the total Stock Option exercise price with shares of
Common Stock and may require such Stock Option exercise price to
be paid entirely in cash.
6.4 Shareholder Privileges. No Participant shall have
any rights as a shareholder with respect to any shares of Common
Stock covered by a Stock Option until the Participant becomes the
holder of record of such Common Stock, and no adjustments shall
be made for dividends or other distributions or other rights as
to which there is a record date preceding the date such
participant becomes the holder of record of such Common Stock.
Section 7: Incentive Stock Options
7.1 Incentive Stock Option Exercise Price. The per
share price to be paid by a Participant at the time an Incentive
Stock Option is exercised shall be determined by the Committee at
the time in Incentive Stock Option is granted, but in no event
shall such exercise price be less than:
a. 100% of the Fair Market Value on the date the
Stock Option is granted; or
b. 110% of the Fair Market Value on the date the
Stock is granted if, at the time the Stock Option is granted, the
Participant owns, directly or indirectly (as determined pursuant
to Section 424(d) of the Internal Revenue Code), 10% or more of
the total combined voting power of all classes of stock of the
Company or of an Affiliated Corporation.
7.2 Number of Option Shares. The number of shares of
Common Stock subject to an Incentive Stock Option shall be
designated by the Committee at the time the Committee decides to
grant an Incentive Stock Option.
7.3 Aggregate Limitation of Stock Exerciseable Under
Options. Notwithstanding any other provision of the 1997 Plan,
the aggregate Fair Market Value, determined as of the time an
Incentive Stock Option is granted, of the shares of Common Stock
with respect to which Incentive Stock Options are exerciseable
for the first time by an Option Holder in any calendar year under
the 1997 Plan or otherwise, granted by the Company and Affiliated
Corporations, shall not exceed $100,000.
7.4 Duration of Incentive Stock Options. The period
during which an Incentive Stock Option may be exercised shall be
fixed by the Committee, but in no event shall such period be more
than 10 years from the date the Stock Option is granted, or, in
the case of Participants described in Section 7.1(b), five years
from the date the Stock Option is granted. Upon the expiration
of such exercise period, the Incentive Stock Option, to the
extent not then exercised, shall terminate. Except as otherwise
provided in Section 11, all Incentive Stock Options granted to a
Participant hereunder shall terminate and may no longer be
exercised if the Participant ceases to be an employee of the
Company and all Affiliated Corporations.
7.5 Restrictions on Exercise of Incentive Stock Options.
Incentive Stock options may be granted subject to such
restrictions as to the timing of exercise of all or various
portions thereof as the Committee may determine at the time it
grants Incentive Stock Options to Participants.
7.6 Disposition of Stock Acquired Pursuant to the
Exercise of Incentive Stock Options -- Withholding. If a
Participant makes a disposition (as defined in Section 425(c) of
the Internal Revenue Code) of any Common Stock acquired pursuant
to the exercise of an Incentive Stock Option prior to the
expiration of two years from the date on which the Incentive
Stock Option was granted or prior to the expiration of one year
from the date on which the Stock Option was exercised, the
Participant shall send written notice to the Company at its
principal office in Denver, Colorado (Attention: Corporate
Secretary) of the date of such disposition, the number of shares
disposed of, the amount of proceeds received from such
disposition and any other information relating to such
disposition as the Company may reasonably request. The
Participant shall, upon such a disposition, make appropriate
arrangements with the Company to provide for the amount of
additional withholding, if any, required by federal, state and
local income and other tax laws.
Section 8. Non-Qualified Options
8.1 Option Exercise Price. The per share price to be
paid by the Participant at the time a Non-Qualified Option is
exercised shall be determined by the Committee at the time the
Option is granted, but in no event shall such exercise price per
share be less than the par value of one share of Common Stock on
the date the Stock Option is granted.
8.2 Number of Option Shares. The number of shares of
Common Stock subject to a Non-Qualified Option shall be
designated by the Committee at the time the Committee decides to
grant a Non-Qualified Option.
8.3 Duration of Non-Qualified Options; Restrictions on
Exercise. The period during which a Non-Qualified Option may be
exercised, and the restrictions on option exercise during such
period, if any, shall be fixed by the Committee, but in no event
shall such period be more than 10 years from the date the Stock
Option is granted. Upon the expiration of such exercise period,
the Non-Qualified Option, to the extent not then exercised, shall
terminate. Except as otherwise provided in Section 11, all Non-
Qualified Options granted to a Participant hereunder shall
terminate and may no longer be exercised if the Participant
ceases to be an Eligible Person.
Section 9: Stock Appreciation Rights
9.1 Grant of Rights. A Stock Appreciation Right may be
granted to a Participant in conjunction with any Incentive Stock
Option or Non-Qualified Option granted to such Participant, as
determined by the Committee, either at the time of the grant of
such Stock Option in the case of any Incentive Stock Option or at
the time of grant, or at any subsequent time during the term of
the Stock Option, in the case of a Non-Qualified Option. Once
granted, the terms of a Stock Appreciation Right shall be equal
to the term of its related Stock Option. Upon exercise of a
Stock Appreciation Right by a Participant for a share of Common
Stock, the related Stock Option shall be terminated with respect
to such share. Incentive Stock Options and Non-Qualified Options
shall not be exerciseable with respect to shares of Common Stock
for which Stock Appreciation Rights have been exercised. Upon
such Stock Appreciation Right exercise, the Participant shall be
entitled to receive the economic value of such Stock Appreciation
Right determined in the manner prescribed in Section 9.2.
9.2 Exercise of Stock Appreciation Rights. Stock
Appreciation Rights shall be subject to such terms and conditions
consistent with other provisions of the 1997 Plan as may be
determined from time to time by the Committee and shall include
the following:
a. A Stock Appreciation Right shall be
exerciseable, in whole or in part, at such time or times and only
to the extent that the Stock Option to which it relates shall be
exerciseable. A Stock Appreciation Right shall be exercised by
the giving of notice in the same manner as the Stock Option to
which it relates may be exercised.
b. Upon the exercise of a Stock Appreciation Right,
a Participant shall be entitled to receive the economic value
thereof, which shall be equal to (i) the excess of the then Fair
Market Value of one share of Common Stock over the exercise price
per share specified in the related Option, multiplied by (ii) the
number of shares in respect of which the Stock Appreciation Right
is being exercised.
c. The Committee shall have the sole discretion
either to determine the form in which payment of the economic
value of exercised Stock Appreciation Rights will be made to the
Participant (i.e., cash, Common Stock, or any combination
thereof) or to consent to or disapprove the election of the
Participant to receive cash in full or partial payment of such
economic value.
9.3 Shareholder Privileges. No Participant shall have
any rights as a shareholder with respect to any shares of Common
Stock covered by a Stock Appreciation Right until the Participant
becomes the holder of record of such Common Stock, and no
adjustments shall be made for dividends or other distributions or
other rights as to which there is a record date preceding the
date such Participant becomes the holder of record of such Common
Stock.
Section 10: Restricted Stock Awards
10.1 Awards Granted by Committee. Coincident with or
following designation for participation in the 1997 Plan, a
Participant may be granted one or more Restricted Stock Awards
consisting of shares of Common Stock. The number of shares
granted as a Restricted Stock Award shall be determined by the
Committee.
10.2 Restrictions. A Participant's right to retain a
Restricted Stock Award granted to him under Section 10.1 shall be
subject to such restrictions, including but not limited to his
continuous employment by the Company or an Affiliated Corporation
for a restriction period specified by the Committee, or the
attainment of specified performance goals and objectives, as may
be established by the Committee with respect to such award. The
Committee may in its sole discretion require different periods of
employment or different performance goals and objectives with
respect to different Participants, to different Restricted Stock
Awards or to separate, designated, portions of the Common Stock
shares constituting a Restricted Stock Award. Subject to the
provisions of Sections 11 and 13, if a Participant's status an
Eligible Person terminates prior to the end of such restriction
period or the attainment of such goals and objectives as may be
specified by the Committee, the Restricted Stock Award shall be
forfeited and all shares of Common Stock related thereto shall be
immediately returned to the Company.
10.3 Privileges of a Shareholder, Transferability. A
Participant shall have all voting, dividend, liquidation and
other rights with respect to Common Stock in accordance with its
terms received by him as a Restricted Stock Award under this
Section 10 upon his becoming the holder of record of such Common
Stock; provided, however, that the Participant's right to sell,
encumber, or otherwise transfer such Common Stock shall be
subject to the limitations of Section 15.2 hereof.
10.4 Enforcement of Restrictions. The Committee may in
its sole discretion require one or more of the following methods
of enforcing the restrictions referred to in Sections 10.2 and
10.3:
a. Placing a legend on the stock certificates
referring to the restrictions;
b. Requiring the Participant to keep the stock
certificates, duly endorsed, in the custody of the Company while
the restrictions remain in effect; or
c. Requiring that the stock certificates, duly
endorsed, be held in the custody of a third party while the
restrictions remain in effect.
Section 11: Effect of Termination
11.1 Effect of Termination on Stock Options and Stock
Appreciation Rights. No Stock Option or Stock Appreciation Right
may be exercised unless, at the time of such exercise, the
Participant is, and has been continuously since the date of grant
of such Stock Option or Stock Appreciation Right, an Eligible
Person, except that if and to the extent the Stock Option or
Stock Appreciation Right agreement or instrument so provides:
a. The Stock Option or Stock Appreciation Right, to
the extent vested, may be exercised within the period of three
years after the date the Participant ceases to be an Eligible
Person (or within such lesser period as may be specified in the
agreement or instrument);
b. If the Participant dies while an Eligible
Person, the Stock Option or Stock Appreciation Right, to the
extent vested, may be exercised by the person to whom it is
transferred by will or the laws of descent and distribution
within the period of one year after the date of death (or within
such lesser period as may be specified in the agreement or
instrument); and
c. If the Participant becomes disabled (within the
meaning of Section 105(d)(4) of the Internal Revenue Code) while
an Eligible Person, the Stock Option or Stock Appreciation Right,
to the extent vested, may be exercised within the period of one
year after the date the Participant ceases to be an Eligible
Person because of such disability (or within such lesser period
as may be specified in the agreement or instrument); provided,
however, that in no event may any Stock Option or Stock
Appreciation Right be exercised after the expiration date
thereof.
11.2 Effect of Termination on Restricted Stock. Upon the
death or disability (as defined in Section 11.1(c)) of a
Participant, or the retirement of a Participant in accordance
with the Company's established retirement policy, all employment
period and other restrictions applicable to Restricted Stock
Awards then held by him shall lapse, and such awards shall become
fully nonforfeitable. Upon a Participant's termination of
employment for any other reasons, any Restricted Stock Awards as
to which the employment period or other restrictions have not
been satisfied shall be forfeited.
Section 12: MBO Payments
12.1 Participant Election As to MBO Payment. At such
time as the Committee shall notify a Participant that the
Participant has become eligible to receive an MBO Payment, the
Participant shall have 10 business days to request to receive all
or any portion of the MBO Payment in shares of Common Stock.
12.2 Determination of Number of Shares. The number of
shares of Common Stock that shall be issued as an MBO Payment
shall be determined by dividing the dollar value of the portion
of the MBO Payment that is to be paid in shares of Common Stock
(whether as elected above or as adjusted by the Committee
pursuant to Section 12.3) by the Fair Market Value of the Common
Stock on the date the Participant delivers his request with
respect to such Payment to the Committee. No fractional shares
of Common stock shall be issued as a part of an MBO Payment and
the value of any such fractional share that would otherwise be
issued pursuant to the Participant's election shall be paid in
cash.
12.3 Decision of Committee. The Committee shall have
the sole discretion to either accept the Participant's request
with respect to the payment of an MBO Payment, in whole or in
part, in shares of Common Stock or to determine that a lesser
portion, or none, of the MBO Payment will be made in shares of
Common Stock and the Committee's determination in this regard
shall be final and binding on the Participant.
Section 13: Changes in Control
13.1 In General. Upon a change in control of the
Company as defined in Section 13.2, (a) all Stock Options that
have been granted and any related Stock Appreciation Rights shall
become immediately exercisable in full during the remaining term
thereof, whether or not the Participants to whom such options and
rights have been granted remain employees of the Company or an
Affiliated Corporation, and (b) all restrictions with respect to
outstanding Restricted Stock Awards shall immediately lapse.
13.2 Definition. For the purposes of the 1997 Plan, "a
change in control" shall mean any of the following:
a. The acquisition or ownership of 50% or more of
the Common Stock then issued and outstanding by any person or
entity, or group of persons or entities, not affiliated with the
Company as of the effective date of the 1997 Plan, without the
express approval of a majority of the members of Board who are
members of the Board as of the effective date of the 1997 Plan or
are members of the Board who, after the effective date of the
1997 Plan, were recommended to the shareholders for election to
the Board by management of the Company, or
b. The election of individuals constituting a
majority of the members of the Board who were not either (i)
members of the Board as of the effective date of the 1997 Plan,
or (ii) recommended to the shareholders by management of the
Company, or
c. A legally binding vote of the shareholders of
the Company in favor of selling all or substantially all of the
assets of the Company.
Section 14: Rights of Employees; Participants
14.1 Employment. Nothing contained in the 1997 Plan or
in any Stock Option, Stock Appreciation Right, Restricted Stock
Award or other Common Stock award granted under the 1997 Plan
shall confer upon any Participant any right with respect to the
continuation of his or her employment by the Company or any
Affiliated Corporation, or interfere in any way with the right of
the Company or any Affiliated Corporation, subject to the terms
of any separate employment agreement to the contrary, at any time
to terminate such employment or to increase or decrease the
compensation of the Participant from the rate in existence at the
time of the grant of a Stock Option, Stock Appreciation Right,
Restricted Stock Award or other Common Stock award. Whether an
authorized leave of absence, or absence in military or
governmental service, shall constitute termination of employment
shall be determined by the Committee at the time.
14.2 Nontransferability. No right or interest of any
Participant in a Stock Option, a Stock Appreciation Right, a
Restricted Stock Award prior to the completion of the restriction
period applicable thereto, or other Common Stock award, granted
pursuant to the 1997 Plan shall be assignable or transferable
during the lifetime of the Participant, either voluntarily or
involuntarily, or subjected to any lien, directly or indirectly,
by operation of law, or otherwise, including execution, levy,
garnishment, attachment, pledge, or bankruptcy. Upon a
Participant's death, a Participant's rights and interest in Stock
Options, Stock Appreciation Rights, Restricted Stock Awards and
other Common Stock awards shall be transferable by testamentary
will or the laws of descent and distribution, and payment of any
amounts due under the 1997 Plan shall he made to, and exercise of
any Stock Options or Stock Appreciation Rights may be made by,
the Participant's legal representatives, heirs or legatees. If
in the opinion of the Committee a person entitled to payments or
to exercise rights with respect to the 1997 Plan is disabled from
caring for his affairs because mental condition, physical
condition, or age, payment due such person may be made to, and
such rights shall be exercised such persons guardian,
conservator, or other legal personal representative upon
furnishing the Committee with evidence satisfactory to the
Committee of such status.
Section 15: General Restrictions
15.1 Investment Representations. The Company may
require any person to whom a Stock- Option, Stock Appreciation
Right, Restricted Stock Award, MBO Payment or other Common Stock
award is granted, as a condition of exercising such Stock Option
or Stock Appreciation Right, or receiving such Restricted Stock
Award MBO Payment, or other Common Stock award, to give written
assurances in substance and form satisfactory to the Company and
counsel to the effect that such person is acquiring the Common
Stock subject to the Stock Option, Stock Appreciation Right,
Restricted Stock Award, MBO Payment or Common Stock award for his
own account for investment and not with any present intention of
selling or otherwise distributing the same, and to such other
effects as the Company deems necessary or appropriate in order to
comply with federal and applicable state securities laws.
15.2 Compliance with Securities Laws. Each Stock Option
and Stock Appreciation Right shall be subject to the requirement
that, if at any time counsel to the Company shall determine that
the listing, registration or qualification of the shares subject
to such Stock Option or Stock Appreciation Right upon any
securities exchange or under any state or federal law, or the
consent or approval of any governmental or regulatory body, is
necessary as a condition of, or in connection with, the issuance
or purchase of shares thereunder, such Stock Option or Stock
Appreciation Right may not be accepted or exercised in whole or
in part unless such listing, registration, qualification, consent
or approval shall have been effected or obtained on conditions
acceptable to the Committee. Nothing herein shall be deemed to
require the Company to apply for or to obtain such listing,
registration or qualification.
15.3 Changes in Accounting Rules. Notwithstanding any
other provision of the 1997 Plan to the contrary, if, during the
term of the 1997 Plan, any changes in the financial or tax
accounting rules applicable to Stock Options, Stock Appreciation
Rights, Restricted Stock Awards, MBO Payments or other Common
Stock awards shall occur which, in the sole judgment of the
Committee, may have a material adverse effect on the reported
earnings, assets or liabilities of the Company, the Committee
shall have, upon making fair and equitable alternative
arrangements for the benefit of the affected Participant, the
right and power to modify as necessary, or cancel, any then
outstanding and unexercised Stock Options, Stock Appreciation
Rights, any then outstanding Restricted Stock Awards as to which
the applicable employment restrictions has not been satisfied and
any other Common Stock awards.
Section 16: Other Employee Benefits
The amount of any compensation deemed to be received by an
employee as a result of the exercise of a Stock Option or a Stock
Appreciation Right or the sale of shares received upon such
exercise or the vesting of any Restricted Stock Awards or the
receipt of any other Common Stock award will not constitute
"earnings" with respect to which any other employee benefits of
such employee are determined, including without limitation
benefits under any pension, profit sharing, life insurance or
salary continuation plan.
Section 17: Plan Amendment, Modification and Termination
The Board, upon recommendation of the Committee or at its own
initiative, at any time may terminate and at any time and from
time to time and in any respect, may amend or modify the 1997
Plan; provided, however, that no such action shall be effective
without approval of the shareholders of the Company, unless, in
the opinion of counsel to the Company, such approval is not
required.
Section 18: Withholding
18.1 Withholding Requirement. The Company's obligations
to deliver shares of Common Stock upon the exercise of any Stock
Option or Stock Appreciation Right granted under the 1997 Plan or
upon any MBO Payment under the 1997 Plan or pursuant to any other
Common Stock award, shall be subject to the Participant's
satisfaction of all applicable federal, state and local income
and other tax withholding requirements.
18.2 Withholding With Common Stock. The Committee may,
in its sole discretion, grant Participants an election to pay all
such amounts of tax withholding, or any part thereof, by electing
to transfer to the Company, or to have the Company withhold from
shares otherwise issuable to the Participant, shares of Common
Stock having a value equal to the amount required to be withheld
or such lesser amount as may be elected by the Participant. All
elections shall be subject to the approval or disapproval of the
Committee. The value of shares of Common Stock to be withheld
shall be based on the Fair Market Value of the Common Stock on
the date that the amount of tax to be withheld is to be
determined (the "Tax Date"). Any such elections by Participants
to have shares of Common Stock withheld for this purpose will be
subject to the following restrictions:
a. All elections must be made prior to the Tax
Date.
b. All elections shall be irrevocable.
Section 19: Requirements of Law
19.1 Requirements of Law. The issuance of stock and the
payment of cash pursuant to the 1997 Plan shall be subject to all
applicable laws, rules and regulations.
19.2 Governing Law. The 1997 Plan and all agreements
hereunder shall be construed in accordance with and governed by
the laws of the State of Colorado.
Section 20: Effective Date of the 1997 Plan
20.1 Effective Date. The 1997 Plan shall be effective
as of March 13, 1997, subject to the approval of the shareholders
of the Company prior to December 31, 1997. Stock Options, Stock
Appreciation Rights, Restricted Stock Awards and other Common
Stock awards may be granted prior to shareholder approval if made
subject to shareholder approval.
20.2 Duration of the 1997 Plan. The 1997 Plan shall
terminate at midnight on February 28, 2007, and may be terminated
prior thereto by Board action, and no Stock Option, Stock
Appreciation Right, Restricted Stock Award or other Common Stock
award shall be granted after such termination. Stock Options,
Stock Appreciation Rights, Restricted Stock Awards and other
Common Stock awards outstanding at the time of the 1997 Plan
termination may continue to be exercised, or become free of
restrictions, in accordance with their terms.
Exhibit A
1997 Plan, page 20