Schedule 14A Information
Proxy Statement Pursuant to Section 14(a)
of the Securities Exchange Act of 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional
Materials
[ ] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
GREKA Energy Corporation
(Name of Registrant as Specified In Its Charter)
N/A
(Name of Person(s) Filing Proxy Statement if other than the Registrant)
Payment of Filing Fee (check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
1) Title of each class of securities to which transaction applies:
2) Aggregate number of securities to which transaction applies:
3) Per unit price or other underlying value of
transaction computed pursuant to Exchange Act Rule
0-11 (Set forth the amount on which the filing fee is
calculated and state how it was determined):
4) Proposed maximum aggregate value of transaction:
5) Total fee paid:
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting
fee was paid previously. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
2) Form, Schedule or Registration Statement No.:
3) Filing Party:
4) Date Filed:
<PAGE>
[GREKA Energy logo]
GREKA Energy Corporation
630 Fifth Avenue, Suite 1501
New York, NY 10111
November 19, 1999
Dear GREKA Energy shareholder:
I am pleased to invite you to GREKA Energy's 1999 annual meeting of
shareholders. The meeting will be at 10:30 a.m. on Wednesday, December 22, 1999
at 630 Fifth Avenue, Suite 1501, New York New York.
At the meeting, you and the other shareholders will elect two Class C
directors to serve for a three-year term ending in 2002 and vote on the adoption
of the 1999 Stock Option Plan. You also will have the opportunity to hear about
the recent significant development in our business.
To date this year, management of GREKA Energy has concluded the
following material transactions which conform to its strategy to capitalize on
its asset base and enhance shareholder value:
o Effective March 24, 1999, GREKA Energy Corporation acquired Saba
Petroleum Company.
o Non-core assets in Colombia were sold, reducing GREKA Energy's debt by
$10.0 million while maintaining upside potential that should be
realized in the second quarter of 2000,
o On May 1, 1999, GREKA Energy assumed full operation of its asphalt
refinery in California which has significantly increased, and is
expected to continue to increase, operating cash flows,
o In May 1999, GREKA Energy secured financing with a new bank, BNY
Financial Corporation, of up to $11.0 million which was increased to up
to $12.0 million in September 1999,
o In May 1999, GREKA Energy paid $6.0 million to Bank One, Texas to
reduce existing debt owed by Saba,
o In July 1999, GREKA Energy wholly acquired Beaver Lake Resources
Corporation and thus privatized it into a subsidiary,
o In September 1999, GREKA Energy negotiated terms and conditions with
a financial institution for funds up to $35.0 million, providing for
refinancing to reduce the current liabilities, and
o GREKA Energy entered into a term sheet providing for restructure of
Saba's 9% senior subordinated debentures.
For your reference, please find enclosed a brief overview of GREKA Energy.
We hope you can join us on December 22. Your vote is important. To vote
at the meeting please either attend the meeting or complete, sign and date the
enclosed proxy card and return it in the accompanying postage-paid envelope.
Thank you for your continued support.
Very truly yours,
/s/Randeep S. Grewal
Randeep S. Grewal
Chairman of the Board
Chief Executive Officer and President
<PAGE>
GREKA Energy Corporation
Notice of Annual Meeting of Shareholders
Date:
Wednesday, December 22, 1999
Time:
10:30 a.m., local time
Place:
630 Fifth Avenue, Suite 1501
New York, New York
Purpose:
To vote on the following matters:
1. To elect two Class C directors to serve for a three-year
term ending in 2002.
2. To approve the adoption of GREKA Energy's 1999 Stock Option
Plan.
3. To transact such other business as may properly come before
the meeting.
Further information about the meeting is contained in the accompanying
proxy statement. All shareholders of record on November 5, 1999 may vote at this
meeting.
Your vote is important. If you do not plan to attend the meeting,
please sign, date and promptly return the enclosed proxy. A postage-paid reply
envelope is enclosed for your convenience. A shareholder who submits a proxy may
revoke it at any time before the vote is taken at the meeting.
By Order of the Board of Directors
/s/Susan M. Whalen
Susan M. Whalen
Secretary
November 19, 1999
<PAGE>
GREKA Energy Corporation
630 Fifth Avenue, Suite 1501
New York, NY 10111
(212) 218-4680
PROXY STATEMENT
Annual Meeting of Shareholders
To Be Held December 22, 1999
This proxy statement is furnished in connection with the solicitation
of proxies by the board of directors of GREKA Energy Corporation, a Colorado
corporation, for use at the annual meeting of shareholders to be held at 630
Fifth Avenue, Suite 1501, New York New York at 10:30 a.m. local time on December
22, 1999 or at any reconvened meeting after any adjournment or postponement
thereof. GREKA Energy anticipates that this proxy statement will be first mailed
or given to all GREKA Energy shareholders on or about November 19, 1999.
The shares represented by properly executed proxies that are received
by GREKA Energy before the meeting will be voted at the meeting in accordance
with the instructions specified in each proxy. If no directions are specified in
the proxy, the subject shares will be voted "For" the nominees for director and
approval of the 1999 Stock Option Plan.
Any shareholder giving a proxy may revoke it at any time before it is
exercised by delivering written notice of such revocation to GREKA Energy, by
substituting a new proxy executed at a later date, or by requesting, in person,
at the annual meeting that the proxy be returned.
All of the expenses involved in preparing, assembling and mailing this
proxy statement and the materials enclosed herewith and all costs of soliciting
proxies will be paid by GREKA Energy. In addition to the solicitation by mail,
proxies may be solicited by officers and regular employees of GREKA Energy by
telephone or personal interview. Those persons will receive no compensation for
their services other than their regular salaries. Arrangements will also be made
with brokerage houses and other custodians, nominees and fiduciaries to forward
solicitation materials to the beneficial owners of the shares held on the record
date, and GREKA Energy may reimburse such persons for reasonable out-of-pocket
expenses incurred by them in so doing.
A copy of GREKA Energy's Annual Report on Form 10-KSB/A2 for the year
ended December 31, 1998 is enclosed with this proxy statement. Upon written
request, GREKA Energy will provide copies of the exhibits to this report for a
charge limited to GREKA Energy's reasonable expenses in furnishing the exhibits.
Requests for exhibits should be directed to GREKA Energy Corporation, 630 Fifth
Avenue, Suite 1501, New York, NY 10111, Attention: Susan M. Whalen, Secretary.
1
<PAGE>
The board of directors has fixed the close of business on November 5,
1999 as the record date for the determination of shareholders entitled to notice
of and to vote at the annual meeting. At such date, there were outstanding
approximately 4,311,603 shares of common stock, each of which entitles the
holder thereof to one vote per share on each matter which may come before the
meeting. GREKA Energy has no other class of voting securities outstanding.
The presence in person or by proxy of one-third of the outstanding
shares of common stock is necessary to constitute a quorum at the meeting. If a
quorum is not present, the meeting may be adjourned until a quorum is obtained.
If a quorum is present, the approval of each matter on the agenda requires that
the number of votes cast in favor of the matter exceeds the number of votes cast
against the matter. Both abstentions and broker non-votes will be treated as
non-votes.
1. ELECTION OF DIRECTORS
Nominees for Election
The shareholders are asked to vote for Dai Vaughan and Susan M. Whalen
as the two nominees to serve as Class C directors for a three-year term ending
in 2002. Mr. Vaughan currently serves as Class C director whose term expires at
this annual meeting. Ms. Whalen currently serves as GREKA Energy's Vice
President-Legal and Corporate Affairs and Corporate Secretary. Mr. Van Keulen
will step down as a director after this annual meeting.
Under GREKA Energy's articles of incorporation the directors are
divided into three classes: Class A, Class B, and Class C. Each director serves
for three years and the class up for election rotates at each annual meeting. At
this annual meeting, two Class C directors are to be elected to serve for a
three-year term. The other directors listed below will continue to serve for the
remainder of their terms. The Class B directors serve until the next annual
meeting The Class A director serves until the second annual meeting from this
meeting.
Directors will be elected by a plurality of the votes cast. Only votes
cast for a nominee will be counted, except that a properly executed proxy will
be voted for the two nominees if there are no contrary instructions specified.
Abstentions, broker non-votes, and instructions on a properly executed proxy to
withhold authority to vote for any of the nominees will result in that nominee
receiving fewer votes. However, the number of votes received for that nominee
will not be reduced by that action.
The nominees have indicated their willingness to serve as directors of
GREKA Energy. However, if any nominee declines or is unable to serve, it is the
intention of the person designated as the proxy to vote for a substitute who
will be designated by the board of directors.
The board of directors recommends that the
shareholders vote "For" the nominees.
2
<PAGE>
The directors of GREKA Energy are as follows:
Director
Name Age Positions Since
- ------------------ --- --------------------------------------- --------------
Randeep S. Grewal 34 Chairman of the Board, Chief Executive September 1997
Officer and President, Class A Director
Dr. Jan F. Holtrop 64 Class B Director September 1997
George G. Andrews 74 Class B Director July 1998
Dirk Van Keulen 40 Class C Director September 1997
Dai Vaughan 60 Class C Director March 1999
A brief summary of the recent business and professional experience of
each nominee and director continuing in office is presented below:
Randeep S. Grewal. Mr. Grewal most recently served since April 1997 as
Chairman and Chief Executive Officer for Horizontal Ventures, Inc., an oil and
gas horizontal drilling technology company which became a subsidiary of GREKA
Energy in September 1997. At that time Mr. Grewal assumed responsibility as
Chairman of the Board, Chief Executive Officer and President of GREKA Energy and
has since established GREKA Energy's strategies and business plan resulting in
consistent growth year after year. He has been involved in various joint
ventures, acquisitions, mergers and reorganizations since 1986 in the United
States, Europe and the Far East within diversified businesses. Mr. Grewal has a
Bachelor of Science degree in Mechanical Engineering from Northrop University.
Dr. Jan Fokke Holtrop. Dr. Holtrop has been a senior Production
Technology professor at the Delft University of Technology within the Faculty of
Petroleum Engineering and Mining in The Hague, Netherlands since 1989. Prior to
the Delft University, he served in various positions within the Shell Oil
Company where he started his career in 1962. Dr. Holtrop has almost forty
(40)years of experience within the oil and gas exploration, drilling and
production industry with a global hands-on background. Dr. Holtrop has a Ph.D.
and a MSC in Mining Engineering from the Delft University of Technology.
George G. Andrews. Mr. Andrews has been a consultant and private
investor since his retirement from the oil and gas industry in 1987. From 1982
until 1987 he was employed as Corporate Vice President of Intercontinental
Energy Corporation of Englewood, Colorado and directed the company's land
acquisition, lease and management operations. Between June 1981 and November
1982 Mr. Andrews was Vice President of Shelter Hydrocarbons, Inc. of Denver,
Colorado where he directed all land management and operation procedures
including contract systems and negotiations of acquisition agreements. From 1979
to June of 1981 Mr. Andrews was Senior Landman for the National Cooperative
Refinery Association in Denver, Colorado where he was responsible for
negotiation and acquisition of oil and gas leases, certifying title requirements
and ongoing daily operations in his office. Mr. Andrews obtained his B.S. degree
in 1947 from the University of Tulsa, where he majored in Economics.
3
<PAGE>
Dirk Van Keulen. Mr. Van Keulen has served since January 1996 as
Director of Horizontal Ventures, Inc., which was one of the first licensees of a
short radius horizontal drilling technology patented by Amoco which is utilized
by GREKA Energy to penetrate new niche markets. He served as a tax official in
the Dutch Ministry of Finance from 1979 through 1987 and then as a tax
consultant with Koolman & Co., until 1989. Since 1984 Mr. Van Keulen has been
actively involved in various investment activities. His higher education is in
fiscal law and studies accounting under the Dutch Ministry of Finance. Mr. Van
Keulen will step down as a director after this annual meeting.
Dai Vaughan. A director since March 1999, Mr. Vaughan has been an
independent management consultant since he left Continental Airlines in 1984.
His last position with Continental Airlines was Manager of Aircraft Acquisition.
Mr. Vaughan has served in numerous positions in his 44 year career in the
airline industry with British Airlines, Eastern Airlines and finally Continental
Airlines, including Systems Engineering, Aircraft Maintenance and Aircraft
Acquisition. Mr. Vaughan received a HNC degree (B.S. equivalent) in Electrical
Engineering at an El Al sponsored program.
Susan M. Whalen [Nominee]. Ms. Whalen served as Associate Legal Counsel
since November 1997 until her appointment as General Counsel in July 1998 and as
Corporate Secretary since August 1998 for Saba Petroleum Company, an oil and gas
exploration and development company that traded on the American Stock Exchange
and became a subsidiary of GREKA Energy in March 1999. At that time Ms. Whalen
assumed responsibility as Vice President-Legal and Corporate Affairs and
Corporate Secretary of GREKA Energy and has since executed the legal and
corporate aspects of GREKA Energy's strategies and business plan. Ms. Whalen
obtained a Juris Doctor degree from Western State University - College of Law in
1987. From 1987 through 1997, Ms. Whalen was involved in various niche-market,
product developments within the retail industry in California.
During 1998, the board of directors met four times. No director
attended less than 75% of the meetings.
There are no family relationships among the directors. There are no
arrangements or understandings between any director and any other person
pursuant to which that director was elected.
Committees of the Board of Directors
GREKA Energy does not currently have a standing nominating committee.
The audit committee is made up of Messrs. Grewal, Vaughan and Holtrop and the
compensation committee is made up of Messrs. Grewal, Vaughan and Andrews. The
board of directors selects director nominees and will consider suggestions by
stockholders for names of possible future nominees delivered in writing to the
Secretary of GREKA Energy on or before November 30 in any year.
4
<PAGE>
Director Compensation
Each director who is not an employee of GREKA Energy is reimbursed for
expenses incurred in attending meetings of the board of directors and related
committees. As of the date of this proxy statement, GREKA Energy has four
outside directors. No compensation was paid to any outside director during
fiscal 1998 and is none is planned for the immediate future.
On October 14, 1998 in accordance with the terms of GREKA Energy's 1997
Non-Qualified Stock Option Plan, Mr. Andrews, Mr. Van Keulen and Mr. Holtrop
were each granted an option to acquire 30,000, 20,000 and 20,000 shares
respectively of common stock at an exercise price of $8.25 per share for their
services as members of the board of directors. On March 17, 1999 when Mr.
Vaughan became a director, he was granted an option for 14,000 shares of common
stock at an exercise price of $7.75. These options have all now vested.
GREKA Energy has no knowledge of any arrangement or understanding in
existence between any executive officer named above and any other person
pursuant to which any such executive officer was or is to be elected to such
office or offices. All officers of GREKA Energy serve at the pleasure of the
board of directors. No family relationship exists among the directors or
executive officers of GREKA Energy. There is no person who is not a designated
officer who is expected to make any significant contribution to the business of
GREKA Energy. Any officer or agent elected or appointed by the board of
directors may be removed by the board whenever in its judgment the best
interests of GREKA Energy will be served thereby without prejudice, however, to
any contractual rights of the person so removed.
Security Ownership of Certain Beneficial Owners and Management
The following table presents as of November 5, 1999 the common stock
ownership of each person known by GREKA Energy to be the beneficial owner of
five percent or more of GREKA Energy's common stock, all directors and officers
individually, and all directors and officers of GREKA Energy as a group. Except
as noted, each person has sole voting and investment power with respect to the
shares shown. GREKA Energy is not aware of any contractual arrangements or
pledges of GREKA Energy's securities which may at a subsequent date result in a
change of control of GREKA Energy. As of November 5, 1999, there were 4,311,603
shares of GREKA Energy common stock issued and outstanding.
5
<PAGE>
Amount of Beneficial
Ownership
Name and Address Common Percent of
of Beneficial Owner Stock(1) Class
Capco Resources Ltd (2) 1,340,000 31.1%
P.O. Box 20029
Bow Valley Postal Outlet
Calgary, Alberta T2P 4H3
CANADA
International Publishing 416,979 9.4%
Holding s.a. (3)
Postbus 84019
2508 AA The Hague
The Netherlands
Randeep S. Grewal 1,700,000(4) 37.2%
Chairman of the Board,
Chief Executive Officer,
and a Director
10815 Briar Forest Drive
Houston, TX 77042/
630 Fifth Avenue, Suite 1501
New York, NY 10111
Dr. Jan F. Holtrop 26,108(5) <1%
Director
Van Alkemadelaan
2596 AS The Hague
The Netherlands
Dirk Van Keulen 20,000(5) <1%
Director
Heemraadslag 14
2805 DP Gauda
The Netherlands
George G. Andrews 30,000(6) <1%
Director
7899 West Frost Drive
Littleton, CO 80123
6
<PAGE>
Dai Vaughan 14,000(7) <1%
900 Powers Ferry Road #101
Marietta, GA 30067
All directors and officers 1,790,108(8) 38.0%
as a group (5 persons)
(1) Rule 13d-3 under the Securities Exchange Act of 1934 involving the
determination of beneficial owners of securities, includes as beneficial owners
of securities any person who directly or indirectly, through any contract,
arrangement, understanding, relationship or otherwise has, or shares, voting
power and/or investment power with respect to such securities, and any person
who has the right to acquire beneficial ownership of such security within sixty
days, including through the exercise of any option, warrant or conversion of a
security.
(2) Capco Resources Ltd. is controlled by Ilyas Chaudhary, a former executive
officer, director and principal shareholder of Saba Petroleum Company, which was
acquired by GREKA Energy in March 1999. Under a Stock Exchange Agreement dated
November 23, 1998 and amended December 18, 1999 among GREKA Energy, Capco
Resources and other former shareholders of Saba Petroleum, Capco Resources has
delivered a proxy to Randeep S. Grewal which confers on Mr. Grewal until
December 31, 1999 voting power with respect to the GREKA Energy common stock
owned by Capco. Pursuant to the amendment to the Stock Exchange Agreement
entered into on December 18, 1998 GREKA Energy agreed to acquire the 2,971,766
shares of Saba common stock held by Saba Acquisub, Inc. in exchange for the
issuance by GREKA Energy of 1,340,000 shares of GREKA Energy common stock to the
shareholder of Saba Acquisub. Even though GREKA Energy, in accordance with the
terms of the amendment and in good faith, issued the 1,340,000 shares of GREKA
Energy common stock, GREKA Energy had actually received only 2,006,566 shares of
Saba common stock held by Saba Acquisub, Inc. in return.
(3) Includes 140,886 shares of GREKA Energy common stock that International
Publishing Holding may be issued within the next 60 days upon the effectiveness
of a registration statement covering the resale of those shares.
(4) Includes options presently exercisable to acquire 260,000 shares of GREKA
Energy common stock, 100,000 shares of GREKA Energy common stock held
individually by Mr. Grewal and 1,340,000 shares of GREKA Energy as to which Mr.
Grewal has voting power until December 31, 1999 under a proxy from Capco
Resources.
(5) Includes option presently exercisable to acquire 20,000 shares of GREKA
Energy common stock.
(6) Includes option presently exercisable to acquire 30,000 shares of GREKA
Energy common stock.
(7) Includes option presently exercisable to acquire 14,000 shares of GREKA
Energy common stock.
(8) Includes option presently exercisable to acquire 344,000 shares of GREKA
Energy common stock held by directors and an executive officer of GREKA Energy.
7
<PAGE>
Section 16(a) Beneficial Ownership Reporting Compliance
Based solely on a review of reports filed with GREKA Energy, all
directors, executive officers and beneficial owners of more than ten percent of
GREKA Energy common stock timely filed all reports regarding transactions in
GREKA Energy's securities required to be filed during the last fiscal year by
Section 16(a) of the Securities Exchange Act of 1934 except that, due to an
administrative oversight, the Chairman and CEO inadvertently omitted one option
grant from his Form 3. This grant was subsequently reported. .
Executive Compensation
Summary Compensation Table
<TABLE>
<CAPTION>
Annual Compensation Long Term Compensation
- -------------------------------------------------------------- ----------------------------------------------
Restricted Securities
Name and principal stock awards underlying All other
position Year Salary ($) Bonus ($)(1) ($) options/SARS compensation
- ------------------- ---- --------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Randeep S. Grewal, 1998 $120,000 -- $367,500 (2) 110,000 $4,200(4)
Chairman and Chief 1997 $120,000 -- $ 80,000 (3) 150,000 --
Executive Officer
</TABLE>
(1) GREKA Energy did not pay its executive officers any bonuses during the three
fiscal years ended December 31, 1998.
(2) Awarded pursuant to the First Amendment to Employment Agreement dated
October 14, 1998 and valued at the fair market value on such date
(3) Awarded pursuant to the Agreement and Plan of Acquisition between Petro
Union, Inc. and Horizontal Ventures, Inc. dated June 13, 1997 and valued at
the fair market value on such date
(4) Auto expense allowance.
No other form of compensation was paid during 1997 or 1998. No other
officer, director or employee of GREKA Energy or its subsidiaries received total
compensation in excess of $100,000 during the last three fiscal years.
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<PAGE>
Option/SAR Grants in Last Fiscal Year
(Individual Grants)
Number of Percent of total
Securities options/SARS
Underlying granted to Exercise or
Options/SARS employees in base price Expiration
Name granted(#) fiscal year ($/Sh) date
- ----------------- ------------ ---------------- ----------- ----------
Randeep S. Grewal 110,000 52.4% $8.25 9/16/07
Aggregated Option/SAR Exercises in Last Fiscal Year
and FY-End Option/SAR Values
<TABLE>
<CAPTION>
Number of unexercised
options SARS at Value of unexercised
FY-end (#) in-the-money options/SARS
Shares acquired Value realized exercisable/ at FY-end ($) exercisable/
Name on exercise (#) ($) unexercisable unexercisable
--------------- --------------- -------------- --------------------- --------------------------
<S> <C> <C> <C> <C>
Randeep S. Grewal --- --- 150,000/110,000 $581,250/$68,200
</TABLE>
Employment Contracts and Termination Agreements
On September 9, 1997, GREKA Energy entered into a five-year employment
agreement with Randeep S. Grewal. This agreement was amended on October 14,
1998, and on November 3, 1999 the Board of Directors adopted an amended and
restated employment agreement for Mr. Grewal (the "Restated Agreement"). Under
the terms of the Restated Agreement, Mr. Grewal's annual salary is $287,500
subject to an annual increase effective on the anniversary date. Mr. Grewal
participates in GREKA Energy's benefit plans and is entitled to bonuses and
incentive compensation as determined by the board of directors of GREKA Energy.
The Restated Agreement also allows Mr. Grewal to receive an assignment of a 2%
overriding royalty of all oil and gas production revenues received by GREKA
Energy and to receive fringe benefits which include an automobile allowance of
$1,000 per month. Under the original agreement, 30,000 shares of GREKA Energy
common stock were issued to Mr. Grewal.
The term of the Restated Agreement is through the fifth anniversary of
December 31, 1999; however, it automatically rolls over so that it is a minimum
of three years unless sixty days prior to any anniversary date the Company
notifies Mr. Grewal that the change of control period shall not be extended. A
change of control termination clause was added which is intended to deter
hostile changes of control by providing a substantial termination payment should
Mr. Grewal terminate his employment or be terminated as a result of a change of
control. The Restated Agreement is terminable for cause or by the death or
disability of Mr. Grewal. In addition, the Restated Agreement may be terminated
by Mr. Grewal in the event of any diminution by GREKA Energy in Mr. Grewal's
position, authority, duties or responsibilities. Upon termination of the
Restated Agreement by GREKA Energy for any reason other than for cause, death or
disability, or upon termination of the Restated Agreement by Mr. Grewal in the
event of any diminution by GREKA Energy in Mr. Grewal's position, authority,
duties or responsibilities, GREKA Energy is obligated to pay within 30 days
after the date of termination: (a) Mr. Grewal's base salary through the date of
the severance period, (b) Mr. Grewal's base salary for the balance of the term
of the agreement if the date of termination is within the first five years of
the employment agreement (base salary is the salary rate in effect at the date
of termination), (c) the annual bonus paid to Mr. Grewal for the last full
fiscal year during the employment period, and (d) all amounts of deferred
compensation, if any.
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<PAGE>
On March 12, 1998, GREKA Energy entered into a Confidential Termination
and Settlement Agreement and Complete Release with Mr. Wedel relating to his
resignation as an executive of GREKA Energy and as a member of the board of
directors. Mr. Wedel received a $50,000 one-time severance payment.
Additionally, GREKA Energy agreed to loan to Mr. Wedel $100,000 with interest
payable at the prime rate as published by the Wall Street Journal secured by a
stock pledge agreement and 10,000 shares of GREKA Energy's common stock. Mr.
Wedel did not take the loan. GREKA Energy agreed to maintain Mr. Wedel's medical
insurance coverage as then in effect through July 31, 1998. In exchange for the
above consideration, Mr. Wedel agreed not to compete with GREKA Energy and
specifically with GREKA Energy's Amoco technology-based horizontal drilling
business for a period of three years after his date of termination. Mr. Wedel
also agreed not to disclose any confidential information of GREKA Energy which
he acquired as a result of his employment. GREKA Energy and Mr. Wedel agreed to
mutually release the other from any claim or action arising from Mr. Wedel's
Executive Employment Agreement with GREKA Energy.
Future Transactions
All transactions between GREKA Energy and an officer, director,
principal stockholder or affiliate of GREKA Energy will be approved by a
majority of the uninterested directors, only if they have determined that the
transaction is fair to GREKA Energy and its shareholders and that the terms of
such transaction are no less favorable to GREKA Energy than could be obtained
from unaffiliated parties.
2. PROPOSAL TO APPROVE THE ADOPTION OF THE
1999 OMNIBUS STOCK OPTION PLAN
Effective November 3, 1999, the Board of Directors adopted the 1999
Omnibus Stock Option Plan (the "1999 Stock Option Plan"). The 1999 Stock Option
Plan allows for the granting of (i) nonstatutory stock options ("NSOs"), which
can be granted to employees of GREKA Energy or any subsidiary of GREKA Energy
and non-employees (such as consultants and outside directors) and (ii)
tax-qualified incentive stock options ("ISOs"), which can be granted only to
employees of GREKA Energy or any subsidiary of GREKA Energy. The purpose of the
1999 Stock Option Plan is to enhance shareholder value by attracting, retaining
and motivating key employees, consultants and members of the Board of Directors
of GREKA Energy and of any subsidiary of GREKA Energy by providing them with a
means to acquire a proprietary interest in GREKA Energy's success. GREKA
Energy's 1997 Stock Option Plan provided for 400,000 options of which 361,000
have been granted as of December 31, 1998. All current employees, consultants
and members of the Board of Directors of GREKA Energy, and of any subsidiary of
GREKA Energy are eligible to participate in the 1999 Stock Option Plan.
10
<PAGE>
The aggregate number of shares of GREKA Energy's Common Stock that may
be granted under the 1999 Stock Option Plan upon the exercise of either an NSO
or ISO is 1,000,000. At the discretion of the Board the 1999 Stock Option Plan
may be administered by a committee of two or more non-employee Directors
appointed by the Board. Optionees under the 1999 Stock Option Plan shall be
selected at the discretion of the Board or such committee from among those
eligible participants who, in the opinion of the Board or such committee, are or
were in a position to contribute materially to GREKA Energy's continued growth
and development and to its long-term success. Subject to the provisions of the
1999 Stock Option Plan, the Board or such committee shall have complete
discretion in determining the terms and conditions and number of options granted
under the 1999 Stock Option Plan.
Options granted under the 1999 Stock Option Plan may not have an
exercise price that is less than the market price of GREKA Energy's Common Stock
on the date of grant, and are to have a term not to exceed ten years (five years
in the case of ISOs granted to persons who beneficially own more than ten
percent of GREKA Energy's Common Stock). Unexercised options will terminate upon
the earliest to occur of (i) the date set forth in the written option
agreement,(ii) upon termination of the optionee's employment with GREKA Energy
for cause or (iii) in the case of ISOs, ninety days following the termination of
the optionee's employment with GREKA Energy other than for cause (unless
termination of employment is a result of the optionee's death or disability, in
which event the option will terminate if not exercised within one year of the
optionee's termination of employment with GREKA Energy). Nothing contained in
the 1999 Stock Option Plan shall be construed to give any employee or consultant
any right to continued employment or association with GREKA Energy.
Each option under the 1999 Stock Option Plan shall be evidenced by a
written option agreement that specifies the exercise price, the duration of the
option, the number of shares of stock to which the option applies, and such
vesting or exercisability restrictions and other terms and conditions which the
Board or Committee may impose.
Unless earlier terminated by the Board, the 1999 Stock Option Plan
shall terminate on the date ten years subsequent to the date of the adoption of
the 1999 Stock Option Plan by the Board, after which date no options may be
granted under the 1999 Stock Option Plan. The Board may at any time terminate
the 1999 Stock Option Plan and from time to time may amend or modify the 1999
Stock Option Plan, provided, however, that no such action of the Board, without
approval of the shareholders, may: (i) increase the total amount of Common Stock
that may be purchased through options granted under the 1999 Stock Option Plan;
(ii) change the class of employees, consultants or members of the Board eligible
to receive options under the 1999 Stock Option Plan or (iii) otherwise amend or
modify the 1999 Stock Option Plan where approval of the shareholders is required
by any law or regulation governing GREKA Energy.
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The principal federal income tax consequences of the grant and exercise
of options under the 1999 Stock Option Plan are, in general, as follows:
NSOs
1. Upon the issuance of an NSO, the optionee will have no taxable
income and GREKA Energy will have no tax deduction.
2. Upon the exercise of an NSO, the optionee will realize ordinary
taxable income in an amount equal to the excess of the fair market value of the
underlying shares of stock at the time the option is exercised over the exercise
price of the option for such shares.
3. The amount of income recognized by the optionee will be deductible
by GREKA Energy as compensation in the year in which ordinary income is
recognized by the optionee by reason of exercise of the NSO, provided applicable
withholding requirements are satisfied.
4. An optionee's basis for the shares of stock acquired pursuant to the
exercise of an NSO will be the option exercise price plus any amount recognized
as ordinary income by reason of the exercise of the NSO.
5. Upon the sale of the stock acquired pursuant to the exercise of an
NSO, capital gain or loss will be realized by the optionee in the amount by
which the sales price is greater or less than the basis of such stock. Currently
such gain or loss will be long-term or short-term depending on whether the
shares were held for more than eighteen months after the option was exercised.
ISOs
1. Upon the issuance of an ISO, the optionee will have no taxable
income and GREKA Energy will have no tax deduction.
2. The tax consequences upon the exercise of an ISO and later
disposition of the shares of stock acquired thereby depend upon whether the
optionee satisfies the holding period rule whereby the optionee must hold the
shares for more than one year after exercise and two years after the date of
issuance of the option.
3. If the optionee satisfies the holding period rule, the optionee will
not realize income upon exercise of the ISO (although the excess of the fair
market value of the shares on the date of exercise over the option price must be
included as an adjustment in computing alternative minimum taxable income) and
GREKA Energy will not be allowed an income tax deduction at any time. The
difference between the option price and the amount realized upon disposition of
the shares by the optionee will constitute a long-term capital gain or loss, as
the case may be.
4. If the optionee fails to observe the holding period rule, the
portion of any gain realized upon such disqualifying disposition of the shares
which does not exceed the excess of the fair market value at the date of
exercise over the option price will be treated as ordinary income to the
optionee, the balance of any gain or any loss will be treated as capital gain or
loss (long-term or short-term depending on whether the shares were held for more
than eighteen months after the option was exercised), and GREKA Energy will be
entitled to a deduction equal to the amount of ordinary income upon which the
optionee is taxed.
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At the time of this Proxy Statement no grants have been made pursuant
to this 1999 Stock Option Plan.
INDEPENDENT PUBLIC ACCOUNTANTS
On February 18, 1999, GREKA Energy engaged Arthur Andersen LLP to
replace Bateman & Co., Inc., P.C. as GREKA Energy's independent accountant to
audit its financial statements for the year ended December 31, 1998. Bateman &
Co., Inc., P.C. was dismissed as GREKA Energy's independent accountant on the
same date. The board of directors approved this change in its independent
accountant. The board of directors also has selected Arthur Andersen as the
independent certified public accountants to audit GREKA Energy's financial
statements for the year ending December 31, 1999.
Representatives of Arthur Andersen are expected to be present at the
annual meeting and be available to respond to appropriate questions. They will
have the opportunity to make a statement if they desire to do so.
The independent auditor's report of Bateman & Co., Inc., P.C. for GREKA
Energy's financial statements for the year ended December 31, 1997 did not
contain an adverse opinion or a disclaimer of opinion, and was not modified as
to uncertainty, audit scope, or accounting principles.
During GREKA Energy's two most recent fiscal years and through the date
of the dismissal of Bateman & Co., Inc., P.C., GREKA Energy did not have any
disagreements with Bateman & Co., Inc., P.C. on any matter of accounting
principles or practices, financial statement disclosure, or auditing scope or
procedure.
OTHER MATTERS
The board of directors does not know of any other matters to be brought
before the annual meeting. If any other matters not mentioned in this proxy
statement are properly brought before the annual meeting, the individual named
in the enclosed proxy intends to vote such proxy in accordance with his best
judgment on such matters.
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Future Shareholder Proposals
Any GREKA Energy shareholder proposal for the annual meeting of
shareholders presently scheduled to be held in May 2000 must be received by
GREKA Energy by December 15, 1999 for the proposal to be included in the GREKA
Energy proxy statement and form of proxy for that meeting.
By Order of the Board of Directors
/s/Randeep S. Grewal
------------------------------------------
Randeep S. Grewal, Chairman of the Board,
Chief Executive Officer and President
November 19, 1999
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GREKA Energy Corporation
630 Fifth Avenue, Suite 1501
New York, New York 10111
PROXY
This Proxy is Solicited by the Board of Directors
For the Annual Meeting of Shareholders on December 22, 1999
The undersigned hereby appoints Randeep S. Grewal, Chairman of the
Board, Chief Executive Officer and President of GREKA Energy Corporation, with
full power of substitution, the proxy of the undersigned to represent and vote,
as designated below, all shares of GREKA Energy common stock standing in the
name of the undersigned with the powers the undersigned would posses if
personally present at the annual meeting of the shareholders of GREKA Energy
Corporation to be held on December 22, 1999 at 10:30 a.m. local time at 630
Fifth Avenue, Suite 1501, New York, New York, and at any reconvened meeting
after any adjournment or postponement thereof.
1. To elect the following nominees as Class C directors to serve for a
three-year term ending in 2002:
Dai Vaughan [ ] FOR [ ] WITHHOLD
Susan M. Whalen [ ] FOR [ ] WITHHOLD
2. To approve the adoption of GREKA Energy's 1999 Omnibus Stock Option
Plan:
[ ] FOR [ ] AGAINST [ ] ABSTAIN
The GREKA Energy board of directors recommends that you vote "For" both of the
above nominees and the above 1999 Omnibus Stock Option Plan proposal.
3. On any and all other matters that may properly come before the
meeting.
This proxy when properly executed will be voted in the manner directed
herein by the undersigned shareholder.
If no specific directions are given, this Proxy will be voted "For"
both of the above Class C director nominees and the above 1999 Omnibus Stock
Option Plan proposal.
This proxy also confers discretionary authority to the proxy to vote on
any other matters that may properly be presented at the meeting. As of the date
of the accompanying proxy statement, GREKA Energy management did not know of any
other matters to be presented at the meeting. If any other matters are properly
presented at the meeting, this proxy will be voted in accordance with the
recommendations of GREKA Energy management.
<PAGE>
Please sign exactly as name appears on the certificate or certificates
representing shares to be voted by this proxy. When signing as executor,
administrator, attorney, trustee or guardian, please give full titles 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 persons.
---------------------------- ----------------------------
Print Name Signature of Shareholder
---------------------------- ----------------------------
Number of Shares Signature if Held Jointly
----------------------------
Date
ANNEX A
GREKA ENERGY CORPORATION.
1999 OMNIBUS STOCK OPTION PLAN
1. PURPOSES.
(a) The purpose of the 1999 Omnibus Stock Option Plan (the "1999 Plan")
of GREKA Energy Corporation, a Colorado corporation (the "Company"), is to
provide a means by which key Employees and Directors of, and Consultants to, the
Company and its Affiliates may be given an opportunity to purchase Common Stock
of the Company.
(b) The Company, by means of the 1999 Plan, seeks to retain the
services of persons who are now Employees or Directors of or Consultants to the
Company or its Affiliates, to secure and retain the services of new Employees,
Directors and Consultants, and to provide incentives for such persons to exert
maximum efforts for the success of the Company and its Affiliates.
(c) The Company intends that the Options issued under the 1999 Plan
shall, in the discretion of the Board or any Committee to which responsibility
for administration of the 1999 Plan has been delegated pursuant to subsection
3(c), be either Incentive Stock Options or Nonstatutory Stock Options. All
Options shall be separately designated Incentive Stock Options or Nonstatutory
Stock Options at the time of grant, and in such form as issued pursuant to
Section 6 hereof, and a separate certificate or certificates will be issued for
shares purchased on exercise of each type of Option.
2. DEFINITIONS.
(a) "Affiliate" means any subsidiary corporation, whether now or
hereafter existing, as those terms are defined in Sections 424(e) and (f)
respectively, of the Code.
(b) "Board" means the Board of Directors of the Company.
(c) "Code" means the Internal Revenue Code of 1986, as amended.
(d) "Committee" means a Committee appointed by the Board in accordance
with subsection 3(c) of the 1999 Plan.
(e) "Common Stock" means the common stock, no par value, of the
Company.
(f) "Company" means GREKA Energy Corporation, a Colorado corporation.
(g) "Consultant" means any person, including an advisor, engaged by the
Company or an Affiliate to render consulting services and who is compensated for
such services.
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(h) "Continuous Status as an Employee, Director or Consultant" means
the employment or relationship as a Director or Consultant is not interrupted or
terminated. The Board, in its sole discretion, may determine whether Continuous
Status as an Employee, Director or Consultant shall be considered interrupted in
the case of: (i) any leave of absence approved by the Board, including sick
leave, military leave or any other personal leave; or (ii) transfers between
locations of the Company or among the Company, Affiliates and their successors.
(i) "Director" means a member of the Board.
(j) "Employee" means any person, including Officers and Directors,
employed by the Company or any Affiliate of the Company. Neither service as a
Director nor payment of a director's fee by the Company shall be sufficient to
constitute "employment" by the Company.
(k) "Exchange Act" means the Securities Exchange Act of 1934, as
amended.
(l) "Fair Market Value" means the value of the Common Stock of the
Company as determined in good faith by the Board.
(m) "Incentive Stock Option" means an Option intended to qualify as an
incentive stock option within the meaning of Section 422 of the Code and the
regulations promulgated thereunder.
(n) "Nonstatutory Stock Option" means an Option not intended to qualify
as an Incentive Stock Option.
(o) "Officer" means a person who is an officer of the Company within
the meaning of Section 16 of the Exchange Act and the rules and regulations
promulgated thereunder.
(p) "Option" means a stock option granted pursuant to the 1999 Plan.
(q) "Option Agreement" means a written agreement between the Company
and an Optionee evidencing the terms and conditions of an individual Option
grant. Each Option Agreement shall be subject to the terms and conditions of the
1999 Plan.
(r) "Optionee" means an Employee, Director or Consultant who holds an
outstanding Option.
(s) "1999 Plan" means this 1999 Omnibus Stock Option Plan.
(t) "Rule 16b-3" means Rule 16b-3 of the Exchange Act or any successor
to Rule 16b-3, as in effect when discretion is being exercised with respect to
the 1999 Plan.
3. ADMINISTRATION.
(a) The 1999 Plan shall be administered by the Board unless and until
the Board delegates administration to a Committee, as provided in subsection
3(c).
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(b) The Board shall have the power, subject to and within the
limitations of, the express provisions of the 1999 Plan:
(i) To determine from time to time which of the persons
eligible under the 1999 Plan shall be granted Options; when and how each Option
shall be granted; whether an Option will be an Incentive Stock Option or a
Nonstatutory Stock Option; the provisions of each Option granted (which need not
be identical), including the exercise price of such Option and time or times
such Option may be exercised in whole or in part; and the number of shares for
which an Option shall be granted to each such person.
(ii) To construe and interpret the 1999 Plan and Options
granted under it, and to establish, amend and revoke rules and regulations for
its administration. The Board, in the exercise of this power, may correct any
defect, omission or inconsistency in the 1999 Plan or in any Option Agreement,
in a manner and to the extent it shall deem necessary or expedient to make the
1999 Plan fully effective.
(iii) To amend the 1999 Plan or an Option as provided in
Section 11.
(iv) Generally, to exercise such powers and to perform such
acts as the Board deems necessary or expedient to promote the best interests of
the Company.
(c) The Board may delegate administration of the 1999 Plan to the
Committee composed of not fewer than two members of the Board. If administration
is delegated to a Committee, the Committee shall have, in connection with the
administration of the 1999 Plan, the powers theretofore possessed by the Board
(and references in this 1999 Plan to the Board shall thereafter be to the
Committee), subject, however, to such resolutions, not inconsistent with the
provisions of the 1999 Plan, as may be adopted from time to time by the Board.
The Board may abolish the Committee at any time and revest in the Board the
administration of the 1999 Plan.
4. SHARES SUBJECT TO THE 1999 PLAN.
(a) Subject to the provisions of Section 10 relating to adjustments
upon changes in stock, the stock that may be sold pursuant to Options shall be
Common Stock of the Company and shall not exceed in the aggregate 1,000,000
shares of Common Stock of the Company. If any Option shall for any reason expire
or otherwise terminate, in whole or in part, without having been exercised in
full, the Common Stock not purchased under such Option shall revert to and again
become available for issuance under the 1999 Plan.
(b) The Common Stock subject to the 1999 Plan may be unissued shares or
reacquired shares purchased on the market or otherwise.
5. ELIGIBILITY.
(a) Incentive Stock Options may be granted only to Employees.
Nonstatutory Stock Options may be granted to Employees, Directors and
Consultants.
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(b) No person shall be eligible for the grant of an Incentive Stock
Option if, at the time of grant, such person owns (or is deemed to own pursuant
to Section 424(d) of the Code) stock possessing more than ten percent of the
total combined voting power of all classes of stock of the Company or of any of
its Affiliates unless the exercise price of such Option is at least one hundred
ten percent of the Fair Market Value of such stock at the date of grant and the
Option is not exercisable after the expiration of five years from the date of
grant.
6. OPTION PROVISIONS.
Each Option shall be in such form and shall contain such terms and
conditions as the Board shall deem appropriate. The provisions of separate
Options need not be identical, but each Option shall include (through
incorporation of provisions hereof by reference in the Option or otherwise) the
substance of each of the following provisions:
(a) Term. No Option shall be exercisable after the expiration of ten
years from the date it was granted.
(b) Price. The exercise price of each Incentive Stock Option shall be
not less than one hundred percent of the Fair Market Value of the Common Stock
subject to the Option on the date the Option is granted. The exercise price of
each Nonstatutory Stock Option shall be as determined in the discretion of the
Board.
(c) Consideration. The purchase price of Common Stock acquired pursuant
to an Option shall be paid, to the extent permitted by applicable statutes and
regulations, either (i) in cash at the time the Option is exercised, or (ii) at
the discretion of the Board or the Committee, at the time of either the grant or
the exercise of the Option, (A) by delivery to the Company of other Common Stock
of the Company, (B) according to a deferred payment or other arrangement (which
may include, without limiting the generality of the foregoing, the use of other
Common Stock of the Company) with the person to whom the Option is granted or to
whom the Option is transferred pursuant to subsection 6(d), or (C) in any other
form of legal consideration that may be acceptable to the Board.
In the case of any deferred payment arrangement, interest shall be payable at
least annually and shall be charged at the minimum rate of interest necessary to
avoid the treatment as interest under any applicable provisions of the Code of
any amounts other than amounts stated to be interest under the deferred payment
arrangement.
(d) Transferability. An Incentive Stock Option shall not be
transferable except by will or by the laws of descent and distribution, and
shall be exercisable during the lifetime of the person to whom the Incentive
Stock Option is granted only by such person. A Nonstatutory Stock Option shall
not be transferable except by will or by the laws of descent and distribution or
pursuant to a qualified domestic relations order satisfying the requirements of
Rule 16b-3 under the Exchange Act and the rules thereunder (a "QDRO"), and shall
be exercisable during the lifetime of the person to whom the Option is granted
only by such person or any transferee pursuant to a QDRO. The person to whom the
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Option is granted may, by delivering written notice to the Company, in a form
satisfactory to the Company, designate a third party who, in the event of the
death of the Optionee, shall thereafter be entitled to exercise the Option.
(e) Vesting. The total number of shares of Common Stock subject to an
Option may, but need not, be allotted in periodic installments (which may, but
need not, be equal). The Option Agreement may provide that from time to time
during each of such installment periods the Option may become exercisable
("vest") with respect to some or all of the shares allotted to that period, and
may be exercised with respect to some or all of the shares allotted to such
period and/or any prior period as to which the Option became vested but was not
fully exercised. The Option may be subject to such other terms and conditions on
the time or times when it may be exercised (which may be based on performance or
other criteria) as the Board may deem appropriate. The provisions of this
subsection 6(e) are subject to any Option provisions governing the minimum
number of shares as to which an Option may be exercised.
(f) Securities Law Compliance. The Company may require any Optionee, or
any person to whom an Option is transferred under subsection 6(d), as a
condition of exercising any such Option, (1) to give written assurances
satisfactory to the Company as to the Optionee's knowledge and experience in
financial and business matters and/or to employ a purchaser representative
reasonably satisfactory to the Company who is knowledgeable and experienced in
financial and business matters, and that he or she is capable of evaluating,
alone or together with the purchaser representative, the merits and risks of
exercising the Option; and (2) to give written assurances satisfactory to the
Company stating that such person is acquiring the Common Stock subject to the
Option for such person's own account and not with any present intention of
selling or otherwise distributing the Common Stock. The foregoing requirements,
and any assurances given pursuant to such requirements, shall be inoperative if
(i) the issuance of the shares upon the exercise of the Option has been
registered under a then currently effective registration statement under the
Securities Act of 1933, as amended (the "Securities Act"), or (ii) as to any
particular requirement, a determination is made by counsel for the Company that
such requirement need not be met in the circumstances under the then applicable
securities laws. The Company may, upon advice of counsel to the Company, place
legends on Common Stock certificates issued under the 1999 Plan as such counsel
deems necessary or appropriate in order to comply with applicable securities
laws, including, but not limited to, legends restricting the transfer of the
Common Stock.
(g) Termination of Employment or Relationship as a Director or
Consultant. In the event an Optionee's Continuous Status as an Employee,
Director or Consultant terminates (other than upon the Optionee's death or
disability), the Optionee may exercise his or her Option (to the extent that the
Optionee was entitled to exercise it at the date of termination) but only within
such period of time ending on the earlier of (i) the date three months after the
termination of the Optionee's Continuous Status as an Employee, Director or
Consultant, or such longer or shorter period specified in the Option Agreement,
or (ii) the expiration of the term of the Option as set forth in the Option
Agreement. If, after termination, the Optionee does not exercise his or her
Option within the time specified in the Option Agreement, the Option shall
terminate, and the Common Stock covered by such Option shall revert to and again
become available for issuance under the 1999 Plan.
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(h) Disability of Optionee. In the event an Optionee's Continuous
Status as an Employee, Director or Consultant terminates as a result of the
Optionee's disability, the Optionee may exercise his or her Option (to the
extent that the Optionee was entitled to exercise it at the date of
termination), but only within such period of time ending on the earlier of (i)
the date twelve months following such termination (or such longer or shorter
period specified in the Option Agreement), or (ii) the expiration of the term of
the Option as set forth in the Option Agreement. If, at the date of termination,
the Optionee is not entitled to exercise his or her entire Option, the Common
Stock covered by the unexercisable portion of the Option shall revert to and
again become available for issuance under the 1999Plan. If, after termination,
the Optionee does not exercise his or her Option within the time specified
herein, the Option shall terminate, and the Common Stock covered by such Option
shall revert to and again become available for issuance under the 1999 Plan.
(i) Death of Optionee. In the event of the death of an Optionee during,
or within a period specified in the Option Agreement after the termination of,
the Optionee's Continuous Status as an Employee, Director or Consultant, the
Option may be exercised (to the extent the Optionee was entitled to exercise the
Option at the date of death) by the Optionee's estate, by a person who acquired
the right to exercise the Option by bequest or inheritance or by a person
designated to exercise the option upon the Optionee's death pursuant to
subsection 6(d), but only within the period ending on the earlier of (i) the
date eighteen months following the date of death (or such longer or shorter
period specified in the Option Agreement), or (ii) the expiration of the term of
such Option as set forth in the Option Agreement. If, at the time of death, the
Optionee was not entitled to exercise his or her entire Option, the Common Stock
covered by the unexercisable portion of the Option shall revert to and again
become available for issuance under the 1999 Plan. If, after death, the Option
is not exercised within the time specified herein, the Option shall terminate,
and the Common Stock covered by such Option shall revert to and again become
available for issuance under the 1999 Plan.
(j) Early Exercise. The Option may, but need not, include a provision
whereby the Optionee may elect at any time while an Employee, Director or
Consultant to exercise the Option as to any part or all of the Common Stock
subject to the Option prior to the full vesting of the Option. Any unvested
Common Stock so purchased may be subject to a repurchase right in favor of the
Company or to any other restriction the Board determines to be appropriate.
(k) Withholding. To the extent provided by the terms of an Option
Agreement, the Optionee may satisfy any federal, state or local tax withholding
obligation relating to the exercise of such Option by any of the following means
or by a combination of such means: (1) tendering a cash payment; (2) authorizing
the Company to withhold shares from the shares of the Common Stock of the
Company otherwise issuable to the participant as a result of the exercise of the
option; or (3) delivering to the Company owned and unencumbered shares of the
Common Stock of the Company.
7. COVENANTS OF THE COMPANY.
(a) During the terms of the Options, the Company shall keep available
at all times the number of Common Stock required to satisfy such Options.
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(b) The Company shall seek to obtain from each regulatory commission or
agency having jurisdiction over the 1999 Plan such authority as may be required
to issue and sell shares of Common Stock upon exercise of the Options; provided
however, that this undertaking shall not require the Company to register under
the Securities Act either the 1999 Plan, any Option or any Common Stock issued
or issuable pursuant to any such Option. If, after reasonable efforts, the
Company is unable to obtain from any such regulatory commission or agency the
authority which counsel for the Company deems necessary for the lawful issuance
and sale of Common Stock under the 1999Plan, the Company shall be relieved from
any liability for failure to issue and sell Common Stock upon exercise of such
Options unless and until such authority is obtained.
8. USE OF PROCEEDS FROM STOCK.
Proceeds from the sale of Common Stock pursuant to Options shall
constitute general funds of the Company.
9. MISCELLANEOUS.
(a) The Board shall have the power to accelerate the time at which an
Option may first be exercised or the time during which an Option or any part
thereof will vest pursuant to subsection 6(e), notwithstanding the provisions in
the Option stating the time at which it may first be exercised or the time
during which it will vest.
(b) Neither an Optionee nor any person to whom an Option is transferred
under subsection 6(d) shall be deemed to be the holder of, or to have any of the
rights of a holder with respect to, any shares of Common Stock subject to such
Option unless and until such person has satisfied all requirements for exercise
of the Option pursuant to its terms.
(c) Nothing in the 1999 Plan or any instrument executed or Option
granted pursuant thereto shall confer upon any Employee, Director, Consultant or
Optionee any right to continue in the employ of the Company or any Affiliate (or
to continue acting as a Director or Consultant) or shall affect the right of the
Company or any Affiliate to terminate the employment or relationship as a
Director or Consultant of any Employee, Director, Consultant or Optionee with or
without cause.
(d) To the extent that the aggregate Fair Market Value (determined at
the time of grant) of stock with respect to which Incentive Stock Options are
exercisable for the first time by any Optionee during any calendar year under
all 1999 Plans of the Company and its Affiliates exceeds $100,000, the Options
or portions thereof which exceed such limit (according to the order in which
they were granted) shall be treated as Nonstatutory Stock Options.
(e) The Board or the Committee shall have the authority to effect, at
any time and from time to time (i) the repricing of any outstanding Options
under the 1999 Plan to reduce the exercise price of such Options and/or (ii)
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with the consent of the affected holders of Options, the cancellation of any
outstanding Options and the grant in substitution therefor of new Options under
the 1999 Plan covering the same or different numbers of shares of Common Stock,
but having an exercise price per share not less than one hundred percent of the
Fair Market Value in the case of an Incentive Stock Option or, in the case of a
ten percent stockholder (as discussed in subsection 5(b)), not less than one
hundred ten percent of the Fair Market Value per share of Common Stock on the
new grant date.
10. ADJUSTMENTS UPON CHANGES IN STOCK.
(a) If any change is made in the Common Stock subject to the 1999 Plan,
or subject to any Option (through merger, consolidation, reorganization,
recapitalization, stock dividend, dividend in property other than cash, stock
split, liquidating dividend, combination of shares, exchange of shares, change
in corporate structure or otherwise), the 1999 Plan will be appropriately
adjusted in the class(es) and maximum number of Common Stock shares subject to
the 1999 Plan pursuant to subsection 4(a) and the outstanding Options will be
appropriately adjusted in the class(es) and number of shares and price per share
of Common Stock subject to such outstanding Options.
(b) In the event of: (1) a sale of substantially all of the assets of
the Company; (2) a merger or consolidation in which the Company is not the
surviving corporation; (3) a reverse merger in which the Company is the
surviving corporation but the shares of the Company's Common Stock outstanding
immediately preceding the merger are converted by virtue of the merger into
other property, whether in the form of securities, cash or otherwise, or (4) any
other capital reorganization in which the Company's shareholders receive less
than fifty percent of the outstanding voting shares of the new or surviving
corporation, then the time during which such Options may be exercised shall be
accelerated to permit the optionee to exercise all such Options in full prior to
such event, and the Options shall terminate if not exercised prior to such
event. In the event that any such accelerated option vesting received or to be
received by an optionee pursuant to this subsection 10(b) (the "Benefit") would
(i) constitute a "parachute payment" within the meaning of Section 280G of the
Code and (ii) but for this subsection 10(b), be subject to the excise tax
imposed by Section 419999 of the Code (the "Excise Tax"), then such Benefit
shall be reduced to the extent necessary so that no portion of the Benefit will
be subject to the Excise Tax, as determined in good faith by the Company;
provided, however, that if, in the absence of any such reduction (or after such
reduction), the optionee believes that the Benefit or any portion thereof (as
reduced, if applicable) would be subject to the Excise Tax, the Benefit shall be
reduced (or further reduced) to the extent determined by the optionee in his or
her discretion so that the Excise Tax would not apply. If, notwithstanding any
such reduction (or in the absence of such reduction), the Internal Revenue
Service ("IRS") determines that the optionee is liable for the Excise Tax as a
result of the Benefit, then the optionee shall be obligated to return to the
Company, within thirty days of such determination by the IRS, a portion of the
Benefit sufficient such that none of the Benefit retained by the optionee
constitutes a "parachute payment" within the meaning of Code Section 280G that
is subject to the Excise Tax.
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11. AMENDMENT OF THE 1999 PLAN AND OPTIONS.
(a) The Board at any time, and from time to time, may amend the 1999
Plan. However, except as provided in Section 10 relating to adjustments upon
changes in stock, no amendment shall be effective unless approved by the
stockholders of the Company within twelve months before or after the adoption of
the amendment, where the amendment will:
(i) Increase the number of shares of Common Stock reserved
for Options under the 1999 Plan;
(ii) Modify the requirements as to eligibility for
participation in the 1999 Plan (to the extent such modification requires
stockholder approval in order for the 1999 Plan to satisfy the requirements of
Section 422 of the Code); or
(iii) Modify the 1999 Plan in any other way if such
modification requires stockholder approval in order for the 1999 Plan to satisfy
the requirements of Section 422 of the Code or to comply with the requirements
of Rule 16b-3.
(b) The Board may in its sole discretion submit any other amendment to
the 1999 Plan for stockholder approval, including, but not limited to,
amendments to the 1999 Plan intended to satisfy the requirements of Section
162(m) of the Code and the regulations promulgated thereunder regarding the
exclusion of performance-based compensation from the limit on corporate
deductibility of compensation paid to certain executive officers.
(c) It is expressly contemplated that the Board may amend the 1999 Plan
in any respect the Board deems necessary or advisable to provide Optionees with
the maximum benefits provided or to be provided under the provisions of the Code
and the regulations promulgated thereunder relating to Incentive Stock Options
and/or to bring the 1999 Plan and/or Incentive Stock Options granted under it
into compliance therewith.
(d) Rights and obligations under any Option granted before amendment of
the 1999 Plan shall not be altered or impaired by any amendment of the 1999 Plan
unless (i) the Company requests the consent of the person to whom the Option was
granted and (ii) such person consents in writing.
(e) The Board at any time, and from time to time, may amend the terms
of any one or more Options; provided however, that the rights and obligations
under any Option shall not be altered or impaired by any such amendment unless
(i) the Company requests the consent of the person to whom the Option was
granted and (ii) such person consents in writing.
12. TERMINATION OR SUSPENSION OF THE 1999 PLAN.
(a) The Board may suspend or terminate the 1999 Plan at any time.
Unless sooner terminated, the 1999 Plan shall terminate on the ten year
anniversary of the date the 1999 Plan is adopted by the Board or approved by the
stockholders of the Company, whichever is earlier. No Options may be granted
under the 1999 Plan while the 1999 Plan is suspended or after it is terminated.
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(b) Rights and obligations under any Option granted while the 1999 Plan
is in effect shall not be altered or impaired by suspension or termination of
the 1999 Plan, except with the consent of the person to whom the Option was
granted.
13. EFFECTIVE DATE OF 1999 PLAN.
The 1999 Plan shall become effective as determined by the Board, but no Options
granted under the 1999 Plan shall be exercised unless and until the 1999 Plan
has been approved by the stockholders of the Company, which approval shall be
within twelve months before or after the date the 1999 Plan is adopted by the
Board.
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