<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
Filed by the Registrant /X/
Filed by a party other than the Registrant / /
Check the appropriate box:
/ / 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-12
Esenjay Exploration, Inc.
--------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
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(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.:
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(3) Filing Party:
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(4) Date Filed:
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1
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ESENJAY EXPLORATION, INC.
500 N. WATER STREET
SUITE 1100
CORPUS CHRISTI, TEXAS 78471
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD SEPTEMBER 28, 2000
To Our Shareholders:
Our 2000 annual meeting of shareholders will be held at 500 Dallas Street,
Suite 2920, Houston, Texas, on September 28, 2000, at 10:00 a.m., local time,
for the following purposes:
1. To elect three directors for terms expiring in 2003;
2. To approve our Long-Term Incentive Plan; and
3. To transact such other business as may properly come before the meeting
or any adjournment of the meeting.
Shareholders of record at the close of business on August 24, 2000 are
entitled to notice of and to vote at the meeting. A complete list of the
shareholders entitled to vote at the meeting will be available for examination
by any shareholder at our executive offices, during ordinary business hours, for
a period of at least ten days before the meeting.
The accompanying proxy statement contains information regarding the matters
to be considered at the meeting. For reasons outlined in the proxy statement,
the board of directors recommends a vote "for" the matters being voted upon.
Your proxy is important to assure a quorum at the meeting. Whether or not
you expect to attend the meeting, please be sure that the enclosed proxy is
properly completed, dated, signed and returned without delay in the enclosed
envelope. It requires no postage if mailed in the United States.
By Order of the Board of Directors,
David B Christofferson
David B Christofferson,
CORPORATE SECRETARY
September 6, 2000
<PAGE>
ESENJAY EXPLORATION, INC.
-------------------
PROXY STATEMENT
-------------------
ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON SEPTEMBER 28, 2000
GENERAL INFORMATION
This proxy statement is being furnished to our shareholders in connection
with the solicitation of proxies by our board of directors for use at our annual
meeting of shareholders to be held on the date, at the time and place and for
the purposes set forth in the accompanying notice of annual meeting of
shareholders, and any adjournment of the meeting.
This proxy statement and accompanying form of proxy, along with our annual
report for our fiscal year ended December 31, 1999, are first being mailed to
holders of our common stock on or about September 6, 2000.
The board of directors has established August 24, 2000 as the record date
to determine shareholders entitled to notice of and to vote at the meeting. At
the close of business on the record date, 18,885,169 shares of common stock were
outstanding. Each share is entitled to one vote. The holders of a majority of
the outstanding common stock, present in person or by proxy, will constitute a
quorum for the transaction of business at the meeting.
Each proxy that is properly signed, dated and returned to us in time for
the meeting, and not revoked, will be voted in accordance with instructions
contained in the proxy. If no contrary instructions are given, proxies will be
voted "for" each item to be voted upon. Proxies may be revoked at any time
before their being exercised by delivering a written notice of revocation or a
later dated proxy to our corporate secretary. In addition, a shareholder present
at the meeting may revoke his or her proxy and vote in person.
Election of the director nominees will be by plurality vote. Approval of
the Long-Term Incentive Plan and any other matters that come before the meeting
requires the affirmative vote of at least a majority of votes cast at the
meeting on such matters. Our corporate secretary will appoint an inspector of
election to tabulate all votes and to certify the results of all matters voted
upon at the meeting. Our policy is:
- to count abstentions and broker non-votes for purposes of
determining the presence of a quorum at the meeting;
- to treat abstentions as shares represented at the meeting and voting
against a proposal and to disregard broker non-votes in determining
results on proposals requiring a majority vote; and
- to consider neither abstentions nor broker non-votes in determining
results of plurality votes.
We will pay all of the expenses of soliciting proxies from shareholders,
including the reimbursement of brokerage firms and others for their expenses in
forwarding proxies and proxy statements to the beneficial owners of our common
stock.
<PAGE>
ELECTION OF DIRECTORS
Pursuant to our certificate of incorporation and bylaws, the board of
directors has fixed the number of directors at eight, plus one director
representing preferred shareholders. The preferred shares are to be redeemed
effective September 22, 2000, and the number of directors as set by the board
of directors shall then total eight. Our certificate of incorporation and
bylaws provide for three classes of directors serving staggered three-year
terms, with each class to be as nearly equal in number as possible. At the
meeting the board will consist of eight directors, three of whom have terms
that expire at the meeting, two of whom have terms that expire in 2001 and
three of whom have terms that expire in 2002.
The terms of Alex M. Cranberg, Michael E. Johnson and Jack P. Randall
expire as of the meeting. The board of directors has nominated Mr. Cranberg, Mr.
Johnson and Mr. Randall to continue as directors until the 2003 annual meeting
of shareholders and until their successors are duly elected and qualified.
INFORMATION REGARDING NOMINEES AND DIRECTORS
The following information is furnished for each person who is nominated for
election as a director or who is continuing to serve as a director after the
meeting.
<TABLE>
<CAPTION>
COMMON STOCK
BENEFICIALLY OWNED(1)
------------------------------
DIRECTOR PERCENT
NAME AGE POSITION SINCE SHARES OF CLASS(2)(3)
-------------- --- ------------ -------- --------- --------------
<S> <C> <C> <C> <C> <C>
David W. Berry(4)(9) 50 Chairman of the board 1988 686,832 3.64%
Alex M. Cranberg(4)(5)(7) 45 Vice chairman of the board 1998 4,751,968 25.16%
Michael E. Johnson(4)(7) 51 Director, president and chief 1998 5,439,846 28.80%
executive officer
Alex B. Campbell(6)(9) 42 Director 1998 36,658 *
William D. Dodge, III(5)(8) 47 Director 1998 36,000 *
Jack P. Randall(4)(6)(7) 50 Director 1998 36,000 *
Hobart A. Smith(5)(6)(8) 63 Director 1998 37,667 *
Jeffrey B. Pollicoff(9) 47 Director 1999 26,000 *
</TABLE>
---------------------
* Less than 1%
(1) Includes all shares of common stock with respect to which each director
directly, through any contract, arrangement, understanding, relationship or
otherwise, has or shares the power to vote or direct voting of such shares
or to dispose or direct the disposition of such shares. Includes shares
that may be purchased under stock options within 60 days.
(2) Based on 18,885,169 shares of common stock outstanding on August 24, 2000,
plus, for each director, those numbers of shares underlying exercisable
options held by the director.
(3) Percent of class for any director is calculated without regard to shares of
common stock issuable to others upon exercise of outstanding stock options
or warrants. Any shares a director is deemed to own by having the right to
acquire by exercise of a stock option or warrant is considered to be
outstanding solely for the purpose of calculating that director's ownership
percentage.
(4) Member of the executive committee.
(5) Member of the audit committee.
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(6) Member of the compensation committee.
(7) Director whose term expires in 2000; nominee for term expiring in 2003.
(8) Director whose term expires in 2001
(9) Director whose term expires in 2002
NOMINEES FOR RE-ELECTION AS DIRECTORS FOR TERMS EXPIRING IN 2003
ALEX M. CRANBERG has been a director since May 14, 1998. He has been
president of Aspect Management Corporation, the manager of Aspect, since its
inception in 1993. He joined Houston Oil and Minerals Corp. in 1977, where he
served in various engineering and financial roles. He has managed the oil and
gas portfolio of General Atlantic Partners, a private investment firm, since
1981. He is on the board of directors of Brigham Exploration, Inc., a public
company, and Westport Oil and Gas, Inc., a private exploration and production
company. He received a BS in petroleum engineering from the University of
Texas and an MBA from Stanford University.
MICHAEL E. JOHNSON has been a director, president and chief executive
officer since May 14, 1998. He was president of Esenjay Petroleum Corporation
from 1978 until joining us. Mr. Johnson was an operations engineer for Atlantic
Richfield Co. from 1971 to 1976 and worked for Tana Oil and Gas before
co-founding Esenjay Petroleum Corporation, where he has managed all exploration
activities, coordinated outside technical support and raised capital from
industry partners. He received a BS in mechanical engineering from the
University of Southwestern Louisiana.
JACK P. RANDALL has been a director since May 14, 1998. He is co-founder
and president of Houston-based Randall & Dewey, Inc., a full-service
transaction advisory firm focusing solely on upstream oil and gas mergers,
acquisitions, divestments, trades and alliances. Before co-founding Randall &
Dewey, Mr. Randall was with Amoco Production Company for 15 years. He held
his last position, manager of acquisitions and divestments, for seven years.
He is a member of the board of directors of Cross Timbers Oil Company. He
serves on the engineering foundation advisory committee at the University of
Texas and serves as chairman of the Petroleum Engineering Visiting Committee.
Mr. Randall is also on the board of directors of the Sam Houston Council of
the Boy Scouts of America and is district chairman of the Rising Star
District. He is on the M.D. Anderson Cancer Center Board of Visitors as well
as a member of the SPE, API and IPAA. Mr. Randall is a graduate of The
University of Texas (Austin) with a BS in Engineering and an MS in
Engineering.
DIRECTORS WHOSE TERMS EXPIRE IN 2002
DAVID W. BERRY served as our president from the incorporation of
its predecessor in August 1988 until May 14, 1998, and has served as chairman
of the board of directors since 1991. In 1978, he formed Berry Petroleum
Corporation, which was a regional natural gas and oil exploration company. In
1976 he co-founded Vulcan Energy Corporation, a Tulsa, Oklahoma based
exploration and production company. Mr. Berry has served as the state finance
chairman of the Oklahoma State Republican Party, as a trustee for the
Oklahoma Museum of Art and on the United States Senatorial Trust Committee.
Mr. Berry is a member of the Independent Petroleum Association of America.
ALEX B. CAMPBELL has been a director since May 14, 1998. He has been vice
president of Aspect Management Corporation since August 1996 and is responsible
for land and corporate development and legal issues. He served as landman for
Grynberg Petroleum and TXO Production Corp. from 1980 to 1984, then as division
landman for Lario Oil & Gas Company from 1984 to 1996, where he was responsible
for administration, prospect marketing, contract lease negotiation, exploration
permitting, surface owner negotiations, property acquisition negotiation and
due diligence. He has a BA in business/pre-law from Colorado State University,
and an MBA from Colorado State University.
JEFFREY B. POLLICOFF has been a director since November 10, 1999. Mr.
Pollicoff has been the managing partner of Pollicoff, Smith & Remels, L.L.P.
since 1991, and has been with that firm since 1982. From 1981 to 1982, Mr.
Pollicoff served as executive vice president of Norris Petroleum Company and
Care Drilling Company. From 1979 to 1981, Mr. Pollicoff served as vice president
and energy loan officer for Texas Commerce Bank. From 1974 to 1979, he held
several engineering positions at Atlantic Richfield Corporation. Mr. Pollicoff
is a member of the
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American Bar Association, State Bar of Texas, Houston Bar Association and
College of the State Bar of Texas. He received a BS in electrical engineering
from Texas A&M University and a J.D. from the University of Houston Law
School.
DIRECTORS WHOSE TERMS EXPIRE IN 2001
WILLIAM D. DODGE, III has been a director since May 14, 1998. He has been
regional president of Pacific Southwest Bank, Corpus Christi, Texas since 1995.
He has been active in banking since 1977, including serving as president of The
Bank of Robstown, Texas from 1982 until 1995. He also serves in several civic
roles, including as chairman of the Port of Corpus Christi Authority, and
serving on the board of directors of Columbia Northwest Hospital. Mr. Dodge is a
member of the editorial review board SAM Advanced Management Journal at the
Texas A&M University-Corpus Christi College of Business. He received a BA degree
from the University of Texas and attended the Southwestern Graduate School of
Banking, Southern Methodist University.
HOBART A. SMITH has been a director since May 14, 1998. He has served as a
director of Harken Energy Corporation since 1997 and a consultant to Smith
International, Inc. since 1991. From 1987 to 1991, Mr. Smith was vice president
of customer relations for Smith International, Inc. From 1965 to 1987, he held
numerous positions, including many executive offices with Smith Tool, Inc., a
subsidiary of Smith International, Inc. Mr. Smith has more than 30 years of
experience in the oil services industry. Mr. Smith received a BA from Claremont
McKenna College.
COMMITTEES
To facilitate the various functions of the board of directors, the board
has created standing executive, compensation and audit committees.
The executive committee may take such actions as the board delegates to it.
The audit committee meets with our independent auditors to review financial
results, internal financial controls and procedures, and audit plans and
recommendations. It also recommends the selection, retention or termination of
our independent public accountants, approves services provided by the
independent public accountants before providing those services and evaluates the
possible effect the performance of the services will have on their independence.
The compensation committee recommends to the board the compensation of executive
officers and directors and the adoption of stock grants and stock option plans.
During the year ended December 31, 1999, the board of directors held six
formal meetings and acted through unanimous written consent on two occasions.
The executive committee held three formal meetings. The compensation committee
held two meetings. The audit committee held two meetings. Each director attended
at least 75% of the meetings of the board of directors, and at least 75% of
meetings of all committees of the board of directors on which the director
served.
DIRECTORS' COMPENSATION
The board of directors has adopted a standard compensation policy for each
of its directors under which each director is paid a quarterly fee of $5,625.
There are currently no additional amounts paid for committee participation or
special assignments.
The board of directors has also instituted a standardized compensation
arrangement for each director who began service on the board of directors on
May 15, 1998. This includes all directors other than Mr. Pollicoff and
Mr. Ennis. In this regard, in April of 2000 each such director was issued:
- an option to purchase 12,000 shares of common stock at an exercise
price of $1.83 per share exercisable through May 15, 2008; and
- an option to purchase an additional 12,000 shares of common stock at a
price of $2.10 per share exercisable through May 15, 2009; and
- provided that the director still serves on the board of directors on
May 15, 2001, an option to purchase an additional 12,000 shares of
common stock at a price of $2.38 per share exercisable through May 15,
2010.
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In conjunction therewith, each such director has purchased, and in April of
2000 was issued, 12,000 shares of common stock at a price of $1.83 per share
payable one-third upon subscription, one-third on or before May 15, 2000, and
one-third on or before May 15, 2001.
Mr. Pollicoff has been granted a similar compensation package. In this
regard he has been issued in May 2000:
- an option to purchase 12,000 shares of common stock at an exercise
price of $1.83 per share, exercisable through May 15, 2008; and
- provided that he still serves on the board of directors on May 15,
2001, an option to purchase 12,000 shares of common stock at an
exercise price of $2.10 per share, exercisable through May 15, 2009;
and
- provided that he still serves on the board of directors on May 15,
2002, an option to purchase 12,000 shares of common stock at an
exercise price of $2.38 per share through May 15, 2010.
In conjunction therewith, Mr. Pollicoff also purchased 12,000 shares of
common stock at a price of $1.83 per share payable one-third upon subscription,
one-third one year thereafter, and the balance two years after purchase.
Mr. C. Eugene Ennis has served on the board of directors since September
23, 1999 as a representative of our preferred stockholders. His term is
scheduled to expire upon redemption of the preferred stock scheduled for
September 22, 2000. Mr. Ennis has been paid $500 plus expenses for each board
meeting attended.
BENEFICIAL OWNERSHIP OF COMMON STOCK
The following table sets forth certain information, as of the record date,
with respect to the common stock owned by (i) each person known by management to
own beneficially more than 5% of our outstanding common stock; (ii) each of our
directors and each executive officers who received compensation in 1999 in
excess of $100,000; and (iii) all directors and executive officers as a group.
Unless otherwise noted, the persons named below have sole voting and investment
power with respect to their shares.
<TABLE>
<CAPTION>
NUMBER OF PERCENT OF
NAME OF BENEFICIAL OWNER SHARES (1) CLASS (2) (3)
-------------------------------------- ----------------- ----------------
<S> <C> <C>
Esenjay Petroleum Corporation(4)..... 4,908,915 (5) 25.99%
Aspect Resources LLC(6).............. 4,661,856 (7) 24.69%
David W. Berry(8).................... 686,832 (9) 3.64%
Alex M. Cranberg(6).................. 4,751,968 (10)(11) 25.16%
Michael E. Johnson(4)................ 5,439,846 (12)(13) 28.80%
Charles J. Smith(4).................. 4,994,915 (13) 26.45%
Alex B. Campbell(6).................. 36,658 (10) *
William D. Dodge, III(8)............. 36,000 (10) *
Jack P. Randall(8)................... 36,000 (10) *
Hobart A. Smith(8)................... 37,667 (10) *
Jeffrey B. Pollicoff(8).............. 26,000 (14) *
William L. Jackson(4)................ 65,735 (15) *
David B. Christofferson(8)........... 174,387 (16) *
5
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All executive officers and directors as a group (10 persons) 1,666,210 (17) 8.82%
</TABLE>
----------------------
* Less than 1%
(1) Includes all shares of common stock with respect to which each person,
executive officer or director who directly, through any contract,
arrangement, understanding, relationship or otherwise, has or shares
the power to vote or to direct voting of such shares or to dispose or
to direct the disposition of such shares. Includes shares that may be
purchased under stock options exercisable within 60 days.
(2) Based on 18,885,169 shares of common stock outstanding at August 24,
2000, plus, for each beneficial owner, those number of shares
underlying exercisable options held by each executive officer or
director.
(3) Percent of class for any shareholder listed is calculated without
regard to shares of common stock issuable to others upon exercise of
outstanding stock options or warrants. Any shares a shareholder is
deemed to own by having the right to acquire by exercise of a stock
option or warrant are considered to be outstanding solely for the
purpose of calculating that shareholder's ownership percentage.
(4) Address: c/o Esenjay Exploration, Inc., 500 North Water Street,
Suite 1100 South, Corpus Christi, Texas 78471.
(5) Includes 12,500 shares of common stock issuable upon the exercise of
warrants.
(6) Address: 511 16th Street, Suite 300, Denver, Colorado 80202.
(7) Includes 18,750 shares of common stock issuable upon the exercise of
warrants.
(8) Address: c/o Esenjay Exploration, Inc., 500 Dallas, Suite 2920,
Houston, Texas 77002
(9) Includes 456,000 shares of common stock issuable upon the exercise of
currently exercisable options.
(10) Includes 24,000 shares of common stock issuable upon the exercise of
currently exercisable options.
(11) Includes (i) 54,112 shares of common stock owned by the spouse of Mr.
Cranberg, and (ii) 4,661,856 shares of common stock owned by Aspect,
which includes 18,750 shares issuable upon the exercise of warrants, as
to which Mr. Cranberg disclaims beneficial ownership.
(12) Includes 424,000 shares of common stock issuable upon the exercise of
currently exercisable options.
(13) Includes 4,896,415 shares of common stock owned by Esenjay Petroleum
Corporation, and 12,500 shares of common stock issuable upon exercise
of currently exercisable warrants held by Esenjay Petroleum
Corporation, as to which Messrs. Johnson and Smith disclaim beneficial
ownership.
(14) Includes 12,000 shares of common stock issuable upon the exercise of
currently exercisable options.
(15) Includes 50,000 shares of common stock issuable upon the exercise of
currently exercisable options, and 1,753 shares of common stock owned
by the spouse of Mr. Jackson.
(16) Includes 158,667 shares of common stock issuable upon the exercise of
currently exercisable options.
(17) Includes 1,220,667 shares issuable pursuant to currently exercisable
options. Does not include any shares of common stock as to which
beneficial ownership is disclaimed.
REQUIRED VOTE AND RECOMMENDATION
The board of directors recommends a vote "for" the nominees for election
to the board of directors. Directors are elected by plurality vote. All duly
submitted and unrevoked proxies in the form accompanying this proxy statement
will be voted for the nominees selected by the board of directors, except where
authorization to vote is withheld.
The persons named in the enclosed form of proxy intend to vote their
proxies for the election of the nominees. The board of directors expects that
the nominees will be available for election but, if any nominee is not so
available, proxies received will be voted for a substitute nominee to be
designated by the board of directors or, if no such designation is made by the
board, proxies will be voted for a lesser number of nominees.
PROPOSAL TO ADOPT THE ESENJAY EXPLORATION, INC. LONG-TERM INCENTIVE PLAN
GENERAL
The description set forth below summarizes the principal terms and
conditions of the Esenjay Exploration, Inc. Long-Term Incentive Plan. The
summary does not purport to be a complete description of the plan and is
qualified in its entirety by reference to the plan, a copy of which is attached
to this proxy statement as Exhibit A.
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The plan authorizes the issuance of a number of shares of common stock
not to exceed 15% of the total number of shares of common stock outstanding.
As of the date of this proxy statement, we have issued options to purchase
2,250,366 shares of common stock under the plan and 582,409 additional shares
of common stock are authorized for issuance under the plan.
The plan is intended to foster and promote our financial success and to
increase shareholder value by:
- encouraging the long-term commitment of selected employees and
non-employee board members;
- motivating superior performance of selected employees and
non-employee board members by means of long-term performance
related incentives;
- encouraging and providing selected employees and non-employee
board members with a formal program for obtaining an ownership
interest in us;
- attracting and retaining outside selected employees and
non-employee board members by providing incentive compensation
opportunities competitive with other major companies; and
- enabling participation by selected employees and non-employee
board members in our long-term growth and financial success.
Under the plan, we may grant the following awards to key employees and
outside directors:
- incentive stock options as defined in Section 422 of the Internal
Revenue Code of 1986, as amended;
- qualified stock options;
- stock appreciation rights;
- shares of restricted stock;
- performance shares and performance units; and
- supplemental tax bonuses.
Any shares of common stock that are issued and are forfeited or are
subject to incentive awards under the plan that expire or terminate for any
reason will remain available for issuance during the term of the plan, except as
may otherwise be provided by applicable law. Shares of common stock issued under
the plan may be either newly issued or treasury shares, including shares of
common stock that we receive in connection with the exercise of an incentive
award. The number and kind of securities that may be issued under the plan and
pursuant to then outstanding incentive awards are subject to adjustments to
prevent enlargement or dilution of rights resulting from stock dividends, stock
splits, recapitalizations, reorganizations or similar transactions.
Any employee or non-employee board member who, in the opinion of the
compensation committee, performs significant services for our benefit is
eligible for the grant of an incentive award under the plan; PROVIDED, a
non-employee board member is only eligible for nonqualified stock options.
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<PAGE>
No participant has any rights as a shareholder with respect to shares
relating to an incentive award until the date of issuance of a stock certificate
or certificates representing the shares. Nothing contained in the plan or an
incentive award confers any right with respect to continuation of employment or
adjustment of compensation to a participant. Furthermore, no person has a right
to claim an incentive award under the plan.
ADMINISTRATION
The board may grant incentive awards under the plan which administered
by the compensation committee of the board of directors, which committee must
consist of three or more members.
Subject to the express provisions of the plan, the compensation committee
is authorized to, among other things:
- designate the grantees under the plan;
- designate the incentive awards to be granted to grantees;
- subject to certain conditions, determine the common stock
(or securities convertible into common stock) to be covered by
incentive awards;
- designate the terms and conditions of any incentive award;
- designate whether, to what extent and under what circumstances
incentive awards may be settled or exercised in cash, common stock
or other securities, or other property, or canceled, substituted,
forfeited or suspended, and the method or methods by which
incentive awards may be settled, exercised, canceled, substituted,
forfeited or suspended;
- interpret and administer the plan and any agreement relating to
incentive awards made under the plan;
- establish rules and guidelines for administration of the plan;
- appoint agents the compensation committee deems appropriate for
administration of the plan; and
- make any other determination and take any other action that the
compensation committee deems necessary for administration of the
plan.
Regardless of any administrative authority granted to the committee
pursuant to the plan, no actual grant of an incentive award may be made to
any individual or person until such grant has been approved by the board. The
plan does not prescribe any factors to be considered by the compensation
committee in determining the individual participants and types of incentive
awards to be designated for grant.
We will indemnify members of the compensation committee against any
costs, expenses or liabilities arising out of any action, omission or
determination relating to the plan.
Subject to certain matters requiring shareholder approval and the
requirement of board approval of the actual grant, the compensation committee
may, in its discretion, waive any conditions or rights with respect to, or
amend, alter, suspend, discontinue or terminate any unexercised incentive
award that has been granted prospectively or, with the consent of the
relevant grantee, retroactively.
GENERAL TERMS AND TAX INFORMATION RELATING TO INCENTIVE AWARDS
The material terms of each incentive award are reflected in an
incentive agreement between the participant and us. A summary of the most
significant features of the incentive awards and their tax consequences to
participants who are United States persons and to us is set forth below.
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<PAGE>
INCENTIVE AND NONSTATUTORY STOCK OPTIONS. Except in limited cases
involving certain 10% stockholders or where the terms of the grant specify
otherwise, ISOs and NSOs must be exercised within ten years of the grant
date. ISOs may only be granted to employees, and the exercise price of each
ISO granted may not be less than 100% (110% in the case of certain 10%
stockholders) of the fair market value of a share of common stock on the date
of grant. The compensation committee has the discretion to designate, subject
to board approval, the exercise price of each NSO granted under the plan;
however, an NSO that is intended to qualify as performance based compensation
to a covered employee subject to section 162(m) of the Internal Revenue Code
must be granted with an exercise price equal to 100% of the fair market value
of a share of common stock on the grant date. To the extent that the
aggregate fair market value of shares of common stock with respect to which
ISOs are exercisable for the first time by any employee during calendar year
exceeds $100,000, the options must be treated as NSOs to the extent of the
excess.
The exercise price of each option is payable in cash upon the exercise
of the option or, in the discretion of the compensation committee and upon
such terms and conditions as it may deem appropriate, through the delivery of
shares of common stock owned by the option holder and valued at their fair
market value, by withholding shares that would otherwise be acquired on the
exercise of the option and having an aggregate fair market value equal to the
total exercise price, or in a combination of the foregoing.
If a participant's employment or other service with us is terminated
other than for death, disability, retirement or for cause, an incentive award
may be exercised as determined in the compensation committee's sole
discretion and as provided in the incentive agreement. The plan provides the
following general guidelines:
- upon retirement of an employee, any non-vested portion of any
outstanding incentive award may continue to vest after retirement;
- upon retirement, any vested incentive award will expire on the
earlier of:
- the expiration date set forth in the incentive agreement;
- the expiration of six months after the date of retirement
(three months in the case of an ISO); or
- within 10 days of the date when incentive award vests;
- upon termination of an employee as a result of disability or
death;
- any non-vested portion of an outstanding incentive award may
continue to vest after disability or death; and
- any vested incentive award will expire upon the earlier of:
- the expiration date set forth in the incentive agreement;
- the first anniversary of the termination of employment as
a result of disability or death or six months after the
incentive award vests.
No option is exercisable after the expiration of its term. If a
participant's employment or other service with us is terminated for cause, all
outstanding options, whether vested or otherwise, expire at the commencement
of business on the date of the termination. The compensation committee, in its
discretion, may prescribe time periods different than those set out in the
foregoing provisions of this paragraph for the exercise of options following a
participant's termination of employment or other service. These rights will be
reflected in the incentive agreement evidencing the participant's incentive
award.
Upon a change in control, all outstanding options become immediately
vested and exercisable. A change in control generally means:
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<PAGE>
- any person (other than a qualified benefit or retirement plan
maintained by us) becomes directly or indirectly the beneficial
owner of securities representing 50% or more of the combined
voting power of our then outstanding voting securities;
- during any period of two consecutive years or less, individuals
who at the beginning of the period constituted our board cease for
any reason to constitute at least a majority of the board, unless
the election or nomination for election of each new board member
was approved by a vote of at least two-thirds of the members of
the board then still in office who were members of the board at
the beginning of the period;
- our equity holders approve any merger or consolidation, as a
result of which persons who are equity holders immediately before
the effective date of the merger or consolidation, have beneficial
ownership of less than 50% of the combined voting power for the
election of board members of the surviving entity following the
effective date of the merger or consolidation;
- our equity holders approve any merger or consolidation as a result
of which our equity interests are changed, converted or exchanged,
or any liquidation of us or any sale or other disposition of 50%
or more of our assets or earning power.
The board of directors has the authority to deem an event not to
constitute a change of control even if the event otherwise meets the
definition set forth above. In addition, the definition of a change of control
can be modified in an incentive agreement.
A plan participant will not recognize any income at the time an ISO is
granted, nor on the qualified exercise of an ISO. If a participant does not
dispose of the shares acquired by exercise of an ISO within two years after
the grant date of the ISO and one year after the exercise of the ISO, the
exercise is qualified and the gain or loss (if any) on a subsequent sale will
be a long-term capital gain or loss. The gain or loss equals the difference
between the sum of the sales proceeds and the exercise price of the common
stock sold. We are not entitled to a tax deduction as a result of the grant or
qualified exercise of an ISO. However, if the shares acquired upon the
exercise of an ISO are disposed of at a gain before the one-year and two-year
holding periods and the fair market value of the shares at the time of
exercise exceeds the exercise price, the exercise is not qualified, and
special rules apply that require the participant to recognize ordinary income
(at least in part) at the time of the disposition. We generally are entitled
to a tax deduction at the same time and in the same amount as the ordinary
income recognized by the participant from the disposition.
Although the qualified exercise of an ISO will not produce ordinary
taxable income to the participant, it will produce an increase in the
participant's alternative taxable income and may result in an alternative
minimum tax liability.
An optionee will not recognize any income for federal income tax
purposes at the time an NSO is granted, nor will we be entitled to a deduction
at that time. However, when any part of an NSO is exercised, the optionee will
recognize ordinary income in an amount equal to the difference between the
fair market value of the shares received and the exercise price of the NSO,
and we generally will recognize a corresponding tax deduction in the same
amount at the same time.
STOCK APPRECIATION RIGHTS. Upon exercise of an SAR, the holder will
receive a number of shares of common stock or cash, or a combination of stock
and cash, the aggregate value of which equals the amount by which the fair
market value per share of the common stock on the date of exercise exceeds
the exercise price of the SAR, multiplied by the number of shares underlying
the exercised portion of the SAR. An SAR may be granted in tandem with an
option or granted independently of an option. The grant price per share of
any SAR will be established by the compensation committee, and approval by
the board, but must equal at least 100% of the fair market value of a share
of common stock on the date the SAR is granted. The term of each SAR will be
fixed by the compensation committee, but not extending beyond ten years from
the date of grant. SARs will be subject to such terms and conditions and will
be exercisable at such times as determined by the compensation committee. The
value of an SAR may be paid in cash, in shares of common stock, or in some
combination, as determined by the compensation committee. The compensation
committee, in its discretion, will establish a participant's right to
exercise an SAR if the participant's employment is
10
<PAGE>
terminated, such rights to be reflected in the participant's incentive
agreement. Upon a change in control, all outstanding SARs that have not vested
will fully vest automatically.
The exercise of an SAR will result in the recognition of ordinary
income by the participant on the date of exercise in the amount of cash, and
the fair market value on that date of the shares of common stock acquired
pursuant to the exercise. We generally will be entitled to a tax deduction at
the same time and in the same amount as the ordinary income recognized by the
participant upon exercise of the SAR. The tax treatment of an SAR is the same
whether the SAR is exercised in conjunction with an ISO or an NSO.
RESTRICTED STOCK. A restricted stock award consists of a grant of
common stock to a participant that is subject to substantial risk of
forfeiture, and the transfer of which is subject to restrictions that lapse
upon the passage of time, the achievement of performance goals or upon the
occurrence of other events as determined by the compensation committee. This
period of restriction is established by the compensation committee at the time
of grant. Unless otherwise designated by the compensation committee, during
the period of restriction a holder of restricted stock will have all other
rights of a stockholder, including the right to vote the shares; however, the
incentive agreement relating to a restricted stock award may limit the
grantee's dividend rights during the restriction period. If for any reason the
restrictions imposed on the restricted stock under the incentive agreement are
not satisfied at the end of the restriction period, any restricted stock
remaining subject to the restrictions is forfeited by the grantee and
reacquired by us. In addition, if vesting does not occur, shares of restricted
stock are forfeited. Upon a change in control, all shares of restricted stock
that have not vested or been forfeited will vest automatically.
A participant will not recognize any income for federal tax purposes at
the time shares of restricted stock are granted or issued, nor will we be
entitled to a tax deduction at that time. However, when either the transfer
restriction or the forfeiture risk lapses, such as on vesting, the participant
will recognize ordinary income in an amount equal to the fair market value of
the shares of restricted stock on the date on which they vest. A participant
may file with the Internal Revenue Service an appropriate election under
section 83(b) of the Internal Revenue Code within 30 days of the issue date of
the restricted stock, which results in the participant's receipt of deemed
ordinary income in an amount equal to the fair market value of the shares of
restricted stock on the date on which they are issued. However, if a
participant files the 83(b) election and the restricted stock subsequently is
forfeited, the participant is not allowed a tax deduction for the amount
previously reported as ordinary income due to the election. Gain or loss (if
any) from a disposition of restricted stock after the participant recognizes
any ordinary income (whether by vesting or an 83(b) election) generally will
constitute short- or long-term capital gain or loss. We generally will be
entitled to a corresponding tax deduction at the time the participant
recognizes ordinary income on the restricted stock, whether by vesting or an
83(b) election, in the same amount as the ordinary income recognized by the
participant.
PERFORMANCE UNITS AND PERFORMANCE SHARES. Performance units and
performance shares may be granted to eligible individuals at any time as
designated by the compensation committee and approval by the board. The
compensation committee will have discretion to designate the initial number
and value of the units and shares, the performance period, and the other
material terms of the units or shares as reflected in the participant's
incentive agreement. More than one performance period may exist concurrently.
At the beginning of each performance period, the compensation committee shall:
- establish for the performance period specific financial or
non-financial performance objectives;
- designate the value of a performance unit or the number of shares
under a performance share grant relative to performance
objectives; and
- notify each grantee in writing of the establishment of performance
objectives and minimum target and maximum performance unit or
share values for the performance period.
If the compensation committee determines that performance measures or
objectives are no longer suitable to our objectives because of a change in our
operations or other conditions the compensation committee deems to be
appropriate, the compensation committee may modify the performance measures
and objectives as it considers appropriate.
11
<PAGE>
Where an award to a covered employee is intended to meet the
requirements for the performance-based exception to the deductibility limit
imposed by section 162(m) of the Internal Revenue Code, the performance goals
will be based on the performance measures prescribed in regulations issued
under section 162(m).
Upon a change of control, all performance shares and performance units
become immediately vested without regard to payment schedules notwithstanding
that the applicable performance cycle has not been completed.
There are no tax consequences to us or the participant upon the grant
of performance shares or units. Upon payout of the shares or units, the
participant will recognize taxable ordinary income in the amount of the payout
and we will receive a corresponding tax deduction in the same amount and at
the same time.
SUPPLEMENTAL TAX PAYMENTS. The compensation committee may designate,
in connection with a grant of an incentive award, a supplemental tax bonus,
payable when the participant is required to recognize income for federal
income tax purposes with respect to the incentive award. Receipt of any tax
bonus will result in ordinary income to the participant and generally a
corresponding tax deduction to us at the same time and for the same amount.
OTHER TAX CONSIDERATIONS. Upon accelerated exercisability of options
and accelerated lapsing of restrictions upon restricted stock or other
incentive awards in connection with a change in control, certain amounts
associated with the incentive awards could, depending upon the individual
circumstances of the participant, constitute "excess parachute payments" under
the golden parachute provisions of section 280G of the Internal Revenue Code.
Pursuant to these provisions, a participant will be subject to a 20% excise
tax on any "excess parachute payment" (as defined in section 280G of the
Internal Revenue Code) and we will be denied any deduction with respect to the
excess parachute payment. The limit on the deductibility of compensation under
section 162(m) of the Internal Revenue Code also is reduced by the amount of
any excess parachute payments. Whether amounts constitute excess parachute
payments depends upon, among other things, the value of the incentive awards
accelerated and the past compensation of the participant.
Taxable compensation earned by covered employees subject to Section
162(m) of the Internal Revenue Code in respect of options, restricted stock,
performance shares or units, or other applicable incentive awards is intended
to constitute qualified "performance-based compensation". We should,
therefore, be entitled to a tax deduction for compensation paid in the same
amount as the ordinary income recognized by the covered employees without any
reduction under the limitations of Section 162(m) on deductible compensation
paid to those employees. However, the compensation committee may determine to
grant incentive awards that do not qualify as performance based compensation.
Under Section 162(m), we are denied a deduction for annual compensation paid
to employees in excess of $1.0 million.
The foregoing federal income tax information is a summary only and does
not purport to be a complete statement of the relevant provisions of the
Internal Revenue Code. The effect of any foreign, state, local or estate taxes
is not addressed.
TRANSFER AND RESALE RESTRICTIONS
No incentive award, and no right under the plan, other than (i)
restricted stock as to which restrictions have lapsed, or (ii) a nonqualified
stock option for which the incentive award agreement specifically provides to
the contrary will be:
- assignable;
- saleable, or otherwise transferable by a grantee, except by will
or by the laws of dissent and distribution; or
- subject to any encumbrances, pledge or charge of any nature.
Except as provided above, only a grantee or his guardian (if the grantee is
disabled), or in the event of a grantee's death, his legal representative or
beneficiary, may exercise options or SARs or receive cash payments and
deliveries of shares or otherwise exercise rights under the plan.
12
<PAGE>
Shares we issue upon exercise of options are being registered under
the Securities Act. Therefore, at all times a registration statement upon
which the shares of common stock issuable under the plan becomes or remains
effective under the Securities Act, the common stock issued under the plan
will be freely tradeable, without restriction, in the public securities
markets. Any shares of common stock issued upon the exercise of options
before the registration statement is declared effective under the Securities
Act, or issued at any time effectiveness has been suspended or terminated for
any reason, will be "restricted securities" subject to the provisions of Rule
144 under the Securities Act. Rule 144 defines restricted securities
generally to mean securities that are acquired directly or indirectly from an
issuer or from an affiliate of an issuer in a transaction or chain of
transactions not involving a public offering. Under Rule 144, restricted
securities may not be resold without registration under the Securities Act
until the holder has held the securities for one year. After the expiration
of the one year holding period, a holder of restricted securities may resell
the securities without registration under the Securities Act, subject to Rule
144's volume limitation, aggregation, broker transaction and notice-filing
requirements, and requirements concerning publicly-available information
about us. After the expiration of two years from the date of acquisition of
restricted securities, a holder of the securities who is not an affiliate of
us may resell the restricted securities without regard to the resale
restrictions.
Participants in the plan may be subject to the short-swing profit
liability provisions of Section 16(b) of the Exchange Act. Section 16(b) makes
any profit realized from any sale and purchase or purchase and sale of common
stock within six months recoverable by us. For purposes of Section 16(b), the
grant of an option under the plan is deemed a purchase of common stock.
Generally, however, under Exchange Act Rules 16b-3 and 16b-6, if the option
grant is approved by the board, the compensation committee or stockholders, or
a plan participant subject to Section 16(b) does not dispose of the common
stock issued upon exercise of an option granted under the plan until at least
six months after the date on which the option was granted, the participant's
acquisition and disposition of the common stock will be exempt from the
operation of Section 16(b). The plan is intended to comply with the
requirements of Rule 16b-3, and the plan will be construed in a manner to
effect that intent. Given the complexity of Section 16(b) and related rules,
affected plan participants should consult qualified securities counsel
regarding the acquisition and disposition of common stock or derivative
securities such as options.
PLAN AMENDMENT AND TERMINATION
The plan may be amended or terminated at any time by the board by the
affirmative vote of a majority of the board members in office. Subject to
certain exceptions, however, the plan may not be amended without the prior
written consent of each affected grantee if the amendment or termination of
the plan would adversely affect vested benefits or rights of a grantee.
ERISA AND TAX QUALIFICATION
We are not aware of any material provision of the Employee Retirement
Income Security Act of 1974 to which the plan is subject. The plan is not
qualified as a pension or profit-sharing plan under section 401(a) of the
Internal Revenue Code. Therefore, plan participants who acquire shares of
common stock pursuant to the plan are not entitled to tax treatment available
to participants in plans qualified under that section of the Internal Revenue
Code.
REQUIRED VOTE AND RECOMMENDATION
The affirmative vote of a majority of the shares present or represented
at the meeting is required for approval of the plan.
The board of directors recommends that the shareholders vote for
approval of the plan.
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<PAGE>
OTHER INFORMATION
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE. The following table sets forth the total
remuneration paid during 1999, 1998 and 1997 to the individuals who served as
our chief executive officer during 1999 and our other most highly compensated
officers who received compensation in excess of $100,000 during 1999.
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
----------------------------------
ANNUAL COMPENSATION(1) AWARDS PAYOUTS
---------------------------- ----------------------- --------
NAME OTHER SECURITIES ALL
AND ANNUAL RESTRICTED UNDERLYING OTHER
PRINCIPAL COMPEN- STOCK OPTIONS/ LTIP COMPEN-
POSITION YEAR SALARY($) BONUS($) SATION($) AWARD(S) SARS(#)(2) PAYOUTS SATION($)
-------- ---- --------- -------- --------- -------- ------- ------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Michael E. Johnson(3)....... 1999 $200,000 ------ ------ ------ ------ ------ (9)
president and 1998 $125,000 ------ ------ ------ ------ ------ ------
chief executive officer
David W. Berry(4)........... 1999 $155,000 ------ ------ ------ ------ ------ (9)
chairman of the board 1998 $147,079 ------ ------ ------ ------ ------ $264,000(5)
1997 $134,400 ------ ------ ------ 32,000(6) $44,965(7) ------
David B Christofferson...... 1999 $130,000 ------ ------ ------ ------ ------ (9)
senior vice president and 1998 $121,606 ------ ------ ------ ------ ------ $224,000(5)
principal financial officer 1997 $112,000 ------ ------ ------ 58,667(6) $47,888(8) ------
William L. Jackson.......... 1999 $114,700 ------ ------ ------ ------ ------
senior vice president -
operations 1998 $ 71,688 ------ ------ ------ ------ ------ ------
</TABLE>
------------------
(1) Does not include perquisites and other personal benefits which are the
lesser of either $50,000 or 10% of the total of annual salary and
bonus.
(2) Represents the number of shares of common stock issuable pursuant to
vested and non-vested stock options as of December 31, 1999.
(3) Mr. Johnson became the chief executive officer on May 14, 1998.
(4) Mr. Berry served as chief executive officer through May 14, 1998.
(5) Upon the closing of our acquisition of certain exploration projects,
previously existing incentive agreements and contract settlement
agreements with both Mr. Berry and Mr. Christofferson required total
payments of $264,000 to Mr. Berry and $224,000 to Mr. Christofferson.
These amounts were paid 50% in cash and 50% pursuant to promissory
notes due in January of 1999 to each individual.
(6) In 1997, all stock options previously granted to Mr. Berry and Mr.
Christofferson were canceled and new stock options were granted to them
pursuant to an employee option plan. Amounts stated for 1997 include
regrants of the canceled options.
(7) In 1997, we settled our deferred compensation liability to Mr. Berry
for a payment of $80,537. Of this amount, a total of $56,063 was
reported as earned compensation in the years 1993-96, and the balance
of $24,474 is reported as earned in 1997.
(8) In 1997, we settled our deferred compensation liability to Mr.
Christofferson for a payment of $95,170. Of this amount, a total of
$72,694 was reported as earned compensation in the years 1993-96,
and the balance of $22,476 is reported as earned in 1997.
(9) We have instituted a bonus plan that is significantly based
upon dollars expended during a given year on drilling and completion
costs and the present value return in the form of net revenue received
and projected to be received as determined by engineering evaluation of
such drilled projects. This will result in bonus compensation
reportable for the year 2000 equal to approximately 48% of the salary
of each individual named in this Summary Compensation Table.
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<PAGE>
OPTION GRANTS OR REPRICINGS
There were no option grants or repricings made in 1999 to the individuals
named in the Summary Compensation Table above.
OPTION EXERCISE AND YEAR-END VALUES
The following table sets forth certain information as of December 31,
1999 with respect to the unexercised options to purchase common stock to the
individuals named in the Summary Compensation Table above. None of such
individuals exercised any stock options during 1999.
<TABLE>
<CAPTION>
NUMBER OF VALUE OF
SECURITIES UNEXERCISED
UNDERLYING IN-THE-MONEY
UNEXERCISED OPTIONS/SARS
OPTIONS/SARS AT AT DECEMBER 31,
DECEMBER 31, 1999 1999
SHARES
ACQUIRED VALUE EXERCISABLE/ EXERCISABLE/
NAME ON EXERCISE (#) REALIZED ($) UNEXERCISEABLE (1) UNEXERCISEABLE (2)
---------- ---------------- ---------------- ------------------ ------------------
<S> <C> <C> <C> <C>
David W. Berry...................... ------ ------ 32,000/0 0/0
David B. Christofferson............. ------ ------ 58,667/0 0/0
</TABLE>
-----------------
(1) Our Employee Option Plan - 1997 authorizes the issuance of 90,667 options to
purchase one share of common stock. Options to purchase 90,667 shares of
common stock are currently outstanding at an exercise price of $3.78 per
share. Options for the executive officers noted are included in this plan.
Options expire the earlier of 90 days after employment has ended or November
2007.
(2) Based on the last sale price of the common stock on the Nasdaq Small-Cap
Market on December 31, 1999 of $1.875.
EMPLOYMENT CONTRACTS
There were no employment contracts in effect with any named executive
officer in 1999.
CERTAIN TRANSACTIONS
We and Aspect Management Corporation, the manager of Aspect, entered into
a Geotechnical Services Consulting Agreement on May 14, 1998, pursuant to
which Aspect Management may perform geotechnical services for us. To the
extent that Aspect Management pays or advances costs or expenses associated
with certain assets on our behalf, and to the extent Aspect Management hires
independent contractors, the costs and expenses will be billed to us. Under
the Geotechnical Services Consulting Agreement, Aspect Management must obtain
our approval to enter into any related contract or agreement that has a cost
exceeding $50,000 net to us. We must pay Aspect Management for services
rendered in an amount equal to Aspect's employee costs, overhead costs and
general and administrative costs associated with the services rendered
thereunder. The agreement terminates on May 14, 2002, unless terminated by
either party with 90 days' written notice to the other party. No services
were provided in 1999 under this agreement.
We and Aspect Management also entered into a Land Service Consulting
Agreement on May 14, 1998, pursuant to which Aspect Management could provide
certain land related services to us in connection with certain oil and gas
properties to which both parties share an ownership interest. This agreement
contained terms and provisions similar to the Geotechnical Services Consulting
Agreement. No services were provided pursuant to this Land Service Consulting
Agreement in 1999 and the parties agreed to terminate the agreement.
Aspect received warrants in 1998 to purchase 9,375 shares of our common
stock at an exercise price of $3.00 per share in connection with providing
financing under a credit facility, and also received warrants in 1998 to
15
<PAGE>
purchase an additional 9,375 shares of our common stock at an exercise price
of $3.00 per share in connection with guaranteeing a portion of the
indebtedness under another credit facility. In addition, Esenjay Petroleum
Corporation received warrants in 1998 to purchase an aggregate of 12,500
shares of our common stock at an exercise price of $3.00 per share in
connection with guaranteeing a portion of the indebtedness under these credit
facilities.
In the second quarter of 1999, we closed an agreement pursuant to
which we sold to Aspect a 12.5% (of 100%) interest in the Caney Creek Project
and a 12% (of 100%) interest in our undeveloped property interests in the
West Beaumont project area for $2,610,000. Proceeds from the sale were used
to help settle amounts due Aspect. Since Aspect is a related party, closing
was subject to receipt of an independent fairness opinion, which was obtained.
We operate certain wells in which Aspect and Esenjay Petroleum
Corporation own interests. Under joint operating agreements that include the
same terms that apply to unrelated third parties, Aspect and Esenjay
Petroleum Corporation pay normal operating costs associated with these wells.
Conversely, Aspect operates certain wells in which we own interests. Pursuant
to joint operating agreements that include the same terms that apply to
unrelated third parties, we pay normal operating costs associated with those
wells.
In 1999 we retained the firm of Randall and Dewey, Inc. to assist in the
marketing and sale of interests in our Raymondville Project in Willacy
County, Texas. Jack P. Randall, a director, is president and a substantial
shareholder of Randall and Dewey. Pursuant to the agreement with Randall and
Dewey, we reimbursed Randall and Dewey for $30,715 in costs incurred in 1999.
In addition, upon closing of a sale of interests in the Raymondville Project
in March of 2000, we paid Randall and Dewey a transaction fee of $382,192.
This fee included a base transaction fee of $250,000 plus 0.75% of the total
selling price. Our share of the fee was approximately 80.88% with third
parties who also sold interests in the Raymondville Project, including
Esenjay Petroleum Corporation, reimbursing us for their 19.12% pro rata share
of the total fee. We believe the fee charged was the normal fee, that would
be charged to third parties for comparable services.
Each of Messrs. Berry and Christofferson entered into an incentive
agreement and a contract settlement agreement, and their employment
agreements with us were terminated upon the closing of the acquisitions of
certain exploration projects from Aspect and Esenjay Petroleum. Pursuant to
the incentive agreements and contract settlement agreements, we agreed that
if we closed a significant corporate transaction, and the relevant employee
did not resign as an executive officer before that time, we would pay an
incentive payment of $134,000 to Mr. Berry and $112,000 to Mr.
Christofferson, as well as a contract settlement payment of $134,000 to Mr.
Berry and $112,000 to Mr. Christofferson, at which time Mr. Berry and Mr.
Christofferson would be released from all further obligations to us other
than contractual confidentiality obligations. Each of the incentive payments
and the contract settlement payments were in the form of promissory notes
bearing interest at the rate of 10% per year, with the principal amount being
paid at a minimum of $5,000 per month, beginning the first day of the third
month after the closing of the significant corporate transaction, and all
principal and accrued interest being due and payable upon the earlier of
September 30, 1998, or the completion of a public sale of any of our equity
or debt securities, whichever is earlier. Each of the employees, at their
discretion, had the option to defer payment of up to 50% of the principal
amount due until January 15, 1999. The contract settlement payments were
intended to satisfy the employees' employment contracts. Incentive payments
were intended to compensate the employees for their services in soliciting,
negotiating and closing a significant corporate transaction and not in
satisfaction of any prior obligations to us. The incentive payments were in
addition to any other obligations or payments due to the employees, including
the settlement of their previously existing employment contracts. In
addition, as an inducement to the employees to continue to solicit and close
a change of control transaction, and regardless of whether such a transaction
occurred, all of the stock options previously granted to the employees were
canceled, and we issued to each of the employees new stock options.
The acquisition of exploration projects from Aspect and Esenjay
Petroleum Corporation constituted a significant corporate transaction pursuant
to which the incentive payments and contract settlement payments were payable
to Mr. Berry and Mr. Christofferson. Under the incentive agreements and
contract settlement agreements we have paid Mr. Berry and Mr. Christofferson
the above described note payments. Mr. Berry and Mr. Christofferson have no
further contractual obligations to us other than confidentiality obligations
and any contractual arrangements they may negotiate with us in the future.
16
<PAGE>
Our outstanding advances to employees and affiliates at December 31,
1999 and 1998 was $472,827 and $963,700, respectively. The December 31, 1999
and 1998 receivables include approximately $47,787 from an affiliated
partnership for which we serve as the managing general partner. In addition,
the December 31, 1999 balance includes a $190,923 receivable from Esenjay
Petroleum Corporation primarily related to joint interest billings to us. We
had a $2,083,913 account payable to Aspect at December 31, 1999.
Any future transaction between us and any of our directors, officers or
owners of five percent or more of our then outstanding common stock will be on
terms no less favorable than would reasonably be expected from an independent
third party, and will be approved by a majority of the directors who do not have
an interest in the proposed transaction and who have had access to our outside
legal counsel with respect to such transaction.
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
Section 16(a) of the Exchange Act requires our directors, executive
officers and persons who own more than 10% of a registered class of our
equity securities, to file reports of ownership on Form 3 and changes in
ownership on Form 4 or 5 with the Securities and Exchange Commission. Our
officers, directors and 10% shareholders also are required by SEC rules to
furnish us copies of all Section 16(a) reports they file. Based solely on our
review of the copies of the forms we received, or written representations
from certain reporting persons that they were not required to file a Form 5,
we believe that, during the fiscal year ended December 31, 1999, our
officers, directors and 10% shareholders complied with all Section 16(a)
filing requirements other than Esenjay Petroleum Corporation, Michael E.
Johnson and Charles J. Smith, who each filed one late report covering the
same two transactions, David W. Berry, who filed one late report covering
three transactions, Alex B. Campbell, who filed one late report covering 658
shares of common stock, and Jeffrey B. Pollicoff, who filed one late report
covering 2,000 shares of common stock he held before becoming a director.
INDEPENDENT ACCOUNTANTS
The board of directors selected Deloitte & Touche LLP as independent
auditors for the year ended December 31, 1999. Representatives of Deloitte &
Touche are expected to attend the meeting. They will have an opportunity to make
a statement if they desire to do so, and will be available to respond to
shareholders' questions.
SHAREHOLDER PROPOSALS
In order for shareholder proposals to be included in our proxy statement and
proxy relating to our 2001 annual meeting of shareholders, such proposals must
be received by us in our principal executive offices not later than May 11,
2001.
OTHER MATTERS
Management does not know of any matters to be presented at the meeting other
than those set forth in the notice of annual meeting of shareholders. However,
if any other matters properly come before the meeting, the persons named in the
enclosed proxy intend to vote the shares to which the proxy relates on such
matters in accordance with their best judgment unless otherwise specified in the
proxy.
By Order of the Board of Directors,
David B. Christofferson
-------------------------------------
David B. Christofferson, SECRETARY
Houston, Texas
September 6, 2000
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ESENJAY EXPLORATION, INC.
LONG-TERM INCENTIVE PLAN
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TABLE OF CONTENTS
PAGE
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SECTION 1. GENERAL PROVISION RELATING TO PLAN
GOVERNANCE, COVERAGE AND BENEFITS
1.1 Purpose 1
1.2 Definitions 1
1.3 Administration 4
1.4 Shares of Common Stock Subject to the Plan 5
1.5 Participation 6
1.6 Incentive Awards 6
SECTION 2. STOCK OPTIONS AND STOCK APPRECIATION RIGHTS
2.1 Grant of Options 6
2.2 Option Terms 6
2.3 Option Exercises 7
2.4 Stock Appreciation Rights in Tandem with Options 8
2.5 Supplemental Payment in Exercise of Non-Qualified
Stock Options or Stock Appreciation Rights 8
SECTION 3. RESTRICTED STOCK
3.1 Award of Restricted Stock 9
3.2 Restrictions 9
3.3 Restriction Period 10
3.4 Delivery of Shares of Common Stock 10
3.5 Supplemental Payment on Vesting of Restricted Stock 10
SECTION 4. PERFORMANCE UNITS AND PERFORMANCE SHARES
4.1 Performance Based Awards 10
4.2 Supplemental Payment on Vesting of Performance Units
or Performance Shares 11
SECTION 5. PROVISIONS RELATING TO PLAN PARTICIPATION
5.1 Plan Conditions 11
5.2 Transferability 12
5.3 Rights as a Stockholder 12
5.4 Listing and Registration of Shares of Common Stock 13
5.5 Change in Stock and Adjustments 13
5.6 Termination of Employment, Death, Disability and Retirement 14
5.7 Changes in Control 14
5.8 Amendments to Incentive Awards 16
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5.9 Exchange of Incentive Awards 16
5.10 Financing 16
SECTION 6. MISCELLANEOUS
6.1 Effective Date and Grant Period 17
6.2 Funding 17
6.3 Withholding Taxes 17
6.4 Conflicts with Plan 17
6.5 No guarantee of Tax Consequences 17
6.6 Severability; Headings 18
6.7 Gender, Tense and Headings 18
6.8 Amendment and Termination 18
6.9 Governing Law and Venue 18
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ESENJAY EXPLORATION, INC.
LONG-TERM INCENTIVE PLAN
SECTION 1. GENERAL PROVISIONS RELATING
TO PLAN GOVERNANCE, COVERAGE AND BENEFITS
1.1 PURPOSE. The purpose of the Esenjay Exploration, Inc. Long-Term
Incentive Plan (the "Plan") is to foster and promote the long-term financial
success of Esenjay Exploration, Inc. (the "Company" or "ESNJ") and materially
increase the value of the equity interests in the Company by: (a) encouraging
the long-term commitment of selected employees (defined in SECTION 1.2(i) below)
and non-employee members of the Board, (b) motivating superior performance of
selected employees and non-employee members of the Board by means of long-term
performance related incentives, (c) encouraging and providing selected employees
and non-employee members of the Board with a formal program for obtaining an
ownership interest in the equity interests in the Company, (d) attracting and
retaining outstanding selected employees and non-employee members of the Board
by providing incentive compensation opportunities competitive with other
companies and (e) enabling participation by selected employees and non-employee
members of the Board in the long-term growth and financial success of the
Company. The Plan provides for payment of various forms of incentive
compensation and, accordingly, is not intended to be a plan that is subject to
the Employee Retirement Income Security Act of 1974, as amended, and shall be
administered accordingly.
1.2 DEFINITIONS. The following terms shall have the meanings set forth
below:
(a) APPRECIATION. The difference between the option exercise price per
share of the Option to which a Tandem SAR relates and the Fair Market Value of a
share of Common Stock on the date of exercise of the Tandem SAR.
(b) BOARD. The Board of Directors of the Company.
(c) CHANGE IN CONTROL. Any of the events described in and subject to
SECTION 5.7.
(d) CODE. The Internal Revenue Code of 1986, as amended.
(e) COMPENSATION COMMITTEE OR COMMITTEE. The Committee, which shall be
comprised of three or more members who shall be appointed by the Board of ESNJ
to administer the Plan, which Board shall have the power to fill vacancies on
the Committee arising by resignation, death, removal or otherwise.
(f) COMMON STOCK. ESNJ Class A Common Stock, which the Company is
authorized to issue or may in the future be authorized to issue.
(g) COMPANY. Esenjay Exploration, Inc. and any successor corporation.
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(h) DISABILITY. Any complete and permanent disability as defined in
Section 22(e)(3) of the Code.
(i) EMPLOYEE. Any common-law employee of the Company or Subsidiary, who,
in the opinion of the Committee, is an executive officer, other officer or other
selected personnel of the Company or Subsidiary who is in a position to
contribute to the continued growth and development and to the continued
financial success of the Company or Subsidiary, including executive officers and
officers who are members of the Board.
(j) EXCHANGE ACT. The Securities Exchange Act of 1934, as amended.
(k) FAIR MARKET VALUE. The closing sales price of Common Stock as
reported on the NASDAQ market or if the Common Stock is listed on a national
securities exchange, the closing sales price as reported by such exchange on any
relevant date for valuation, or, if there is no such sale on such date, the
applicable prices as so reported on the nearest preceding date upon which such
sale took place. In the event the shares of Common Stock are not listed on a
national securities exchange, the Fair Market Value of such shares shall be
determined by the Committee in its sole discretion. In the event any Options are
issued which at the time of issuance are Options to purchase unregistered shares
of Common Stock, the Fair Market Value of the unregistered Common Stock which is
so optioned shall be determined by the Committee in its sole discretion after
consideration of all factors, including the closing sales prices of registered
shares of Common Stock.
(l) GRANTEE. Any employee or non-employee member of the Board who in the
opinion of the Committee performs significant services for the benefit of the
company and who is granted an Incentive Award under the Plan; provided, however,
a non-employee member of the Board shall only be eligible for a Non-Qualified
Stock Option.
(m) INCENTIVE AWARD. Any incentive award, individually or collectively,
as the case may be, including any Stock Option, Stock Appreciation Right,
Restricted Stock Award, Performance Unit, or Performance Share, as well as any
Supplemental Payment, granted under the Plan.
(n) INCENTIVE AWARD AGREEMENT. The written agreement entered into
between the Company and the Grantee pursuant to which an Incentive Award shall
be made under the Plan.
(o) INCENTIVE STOCK OPTION. A stock option which is intended to qualify
as an Incentive Stock Option under Section 422 of the Code and which shall be
granted by the Committee to a Grantee under the Plan. All Options granted under
the Plan, which Options otherwise qualify as an Incentive Stock Option under
Section 422 of the Code, shall be deemed Options which are intended to be an
Incentive Stock Option under Section 422 of the Code to the maximum extent to
which paid Options so qualifies.
(p) NON-QUALIFIED STOCK OPTION. A stock option granted by the Committee
to a Grantee under the Plan, which shall not qualify as an Incentive Stock
Option.
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(q) OPTION. A Non-Qualified Stock Option or Incentive Stock Option
granted by the Committee to a Grantee under the Plan.
(r) PERFORMANCE PERIOD. A period of time determined by the Committee
over which performance is measured for the purpose of determining a Grantee's
right to and the payment value of any Performance Units or Performance Shares.
(s) PERFORMANCE SHARE OR PERFORMANCE UNIT. An Incentive Award
representing a continuing right to receive cash or shares of Common Stock (which
may be Restricted Stock) at the end of a Performance Period and which, in the
case of Performance Shares, is denominated in Common Stock, and, in the case of
Performance Units, is denominated in cash values.
(t) PLAN. Esenjay Exploration, Inc. Long-Term Incentive Plan, as
hereinafter amended from time to time.
(u) RESTRICTED STOCK. Shares of Common Stock issued or transferred to a
Grantee subject to the Restrictions set forth in SECTION 3.2 hereof.
(v) RESTRICTED STOCK AWARD. An authorization by the Committee to issue
or transfer Restricted Stock to a Grantee.
(w) RESTRICTION PERIOD. The period of time determined by the Committee
as set forth in SECTION 3.3.
(x) RETIREMENT. The termination of employment by Company or Subsidiary
constituting retirement as determined by the Committee.
(y) STOCK APPRECIATION RIGHT. A Tandem SAR.
(z) SUBSIDIARY. Any corporation (whether now or hereafter existing)
which constitutes a "subsidiary" of the company, as defined in Section 424(f) of
the Code.
(aa) SUPPLEMENTAL PAYMENT. Any amounts described in SECTIONS 1.6, 2.5,
3.5 and/or 4.2 dedicated to payment of any federal income taxes that are payable
on an Incentive Award as determined by the Committee.
(bb) TANDEM SAR. A Stock Appreciation Right described in SECTION 2.4.
(cc) TEN-PERCENT STOCKHOLDER. A Ten-Percent Stockholder is a Grantee,
who at the time the Option is granted, owns stock possessing more than ten
percent (10%) of the total combined voting power of all classes of stock of the
Company or of any of its Subsidiaries.
(dd) TERM. The Term of each Incentive Award shall be fixed by the
Committee and shall not be more than ten (10) years from the date of grant. In
the event no Term is fixed, such Term shall be ten (10) years from the date of
grant. The Term shall be five (5) years in the case of an Incentive Stock Option
granted to a Ten-Percent Stockholder.
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(ee) TERMINATED FOR CAUSE. An Employee shall be deemed Terminated for
Cause if he or she is terminated (i) pursuant to the terms of his or her written
employment agreement, in the event of a written employment agreement, or if the
Committee determines that such Employee is being terminated as a result of
misconduct, dishonesty, disloyalty, disobedience or action that might reasonably
injure the Company or any of its Subsidiaries or their business interests or
reputation, or (ii) if the Grantee is not employed pursuant to a written
employment agreement if the Committee determines that such Employee is being
terminated as a result of (A) the willful and continued failure by Grantee to
follow the reasonable instructions of his or her direct supervisor, (B) Employee
is being terminated as a result of misconduct, dishonesty, disloyalty,
disobedience or action that might reasonably injure the Company or any of its
Subsidiaries or their business interests or reputation, (C) the intentional
wrongful disclosure of confidential information of the Company, (D) the
intentional, wrongful engagement in any competitive activity, or (E) gross
neglect of his or her duties to the Company or any of its Subsidiaries.
(ff) TERMINATION FOR GOOD REASON. The resignation of an Employee shall
be deemed to be a Termination for "Good Reason" if Employee's resignation is
within two years of a Change in Control as defined in SECTION 5.7, caused by and
within ninety (90) days of the following: (i) without the express written
consent of the Employee, any duties that are assigned which are materially
inconsistent with Employee's position, duties and status with the Company at the
time of the Change in Control; (ii) any action by the Company which results in a
material diminution in the position, duties or status of Employee with the
Company at the time of the Change in Control or any transfer or proposed
transfer of Employee for any extended period to a location outside his principal
place of employment a the time of the Change in Control without his consent,
except for a transfer or proposed transfer for strategic reallocations of the
personnel reporting to Employee; (iii) the base annual salary of Employee, as
the same may hereafter be increased from time to time, is reduced; or (iv)
without limiting the generality or effect of the foregoing, the company fails to
comply with any of its material obligations hereunder.
(gg) ESNJ COMMON STOCK. The common stock of $0.01 par value, per share
of Esenjay Exploration, Inc.
1.3 ADMINISTRATION.
(a) COMMITTEE POWERS. The Plan shall be administered by the Committee
which shall have power and authority to: (i) designate Grantees; (ii) designate
the Incentive Awards to be granted to Grantees; (iii) subject to SECTION 4 of
the Plan, designate the Common Stock (or securities convertible into Common
Stock) to be covered by Incentive Awards and in connection therewith, to reserve
shares of Common Stock as needed in order to cover grants of Incentive Awards;
(iv) designate the terms and conditions of any Incentive Award; (v) determine
whether, to what extent, and under what circumstances Incentive Awards may be
settled or exercised in cash, Common Stock, other securities, or other property,
or canceled, substituted, forfeited or suspended, and the method or methods by
which Incentive Awards may be settled, exercised, canceled, substituted,
forfeited or suspended; (vi) interpret and administer the Plan and any
instrument or agreement relating to, or Incentive Award made under, the Plan;
(vii) establish, amend, suspend or waive such rules and guidelines as the
Committee shall deem necessary or
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appropriate for administration of the Plan; (viii) appoint such agents as it
shall deem appropriate for the administration of the Plan; provided, however,
that the Committee shall not delegate any of the power or authority set forth
in (i) through (vii) above; and (ix) make any other determination and take
any other action that it deems necessary or desirable for such
administration. No members of the Committee shall vote or act upon any matter
relating solely to himself.
(b) NO LIABILITY. No member of the Committee shall be liable for any
action or determination made in good faith by the Committee with respect to this
Plan or any Incentive Award under this Plan, and to the fullest extent permitted
by the Company's Bylaws, the Company shall indemnify each member of the
Committee.
(c) MEETINGS. The Committee shall designate a chairman from among its
members, who shall preside at all of its meetings, and shall designate a
secretary, without regard to whether that person is a member of the Committee,
who shall keep the minutes of the proceedings and all records, documents, and
data pertaining to its administration of the Plan. Meetings shall be held at
such times and places as shall be determined by the Committee. The Committee may
take any action otherwise proper under the Plan by the affirmative vote, taken
with or without a meeting, of a majority of its members.
(d) BOARD APPROVAL. Regardless of any other provisions hereof, all
actual grants of an Incentive Award pursuant to this Plan shall be subject to
the approval of the Board of the Company.
1.4 SHARES OF COMMON STOCK SUBJECT TO THE PLAN.
(a) COMMON STOCK AUTHORIZED. Subject to adjustment under SECTION 5.5,
the aggregate number of shares of Common Stock available for granting Incentive
Awards under the Plan shall be equal to fifteen percent (15%) of the total
number of shares of ESNJ Common Stock outstanding. As such shares outstanding
increase (which limit shall be determined without considering as outstanding any
shares that are the subject of any unexercised Options under the Plan or any
other option plan of the Company or any shares owned by the Company or any of
its Subsidiaries) such shares of Common Stock available for granting Incentive
Awards shall increase proportionately. If any Incentive Award shall expire or
terminate for any reason, without being exercised or paid, shares of Common
Stock subject to such Incentive Award shall again be available for grant in
connection with grants of subsequent Incentive Awards.
(b) COMMON STOCK AVAILABLE. The ESNJ Common Stock available for
issuance or transfer under the Plan shall be made available from such shares
reserved under Esenjay Exploration, Inc. Long-Term Incentive Plan, from such
shares now or hereafter held by the Company or from such shares to be
purchased or acquired by the Company. No fractional shares shall be issued
under the Plan; payment for fractional shares shall be made in cash.
(c) INCENTIVE AWARD ADJUSTMENTS. Subject to the limitations set forth
in SECTIONS 5.8 and 6.8, the Committee may make any adjustment in the
exercise price or the number of shares subject to any Incentive Award, or any
other terms of any Incentive Award. Such adjustment shall be made by
amending, substituting or canceling and re-granting such Incentive Award with
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the inclusion of terms and conditions that may differ from the terms and
conditions of the original Incentive Award. If such action is effected by
amendment, the effective date of such amendment shall be the date of the
original grant. Any reduction in the exercise price of shares subject to an
incentive award shall be subject to Board approval.
1.5 PARTICIPATION.
(a) ELIGIBILITY. Participation in the Plan shall include the officers
and Employees and non-employee members of the Board selected by the
Committee, which can include all employees at the discretion of the
Committee. The Committee shall from time to time designate those Employees
and non-employee members of the Board, if any, to be granted Incentive Awards
under the Plan, the type of awards granted, the number of shares, options,
rights or units, as the case may be, which shall be granted to each such
Employee and any other terms or conditions relating to the awards as it may
deem appropriate, consistent with the provisions of the Plan. An Employee and
non-employee member of the Board who has been granted an Incentive Award may,
if otherwise eligible, be granted additional Incentive Awards at any time.
(b) LIMITED NON-EMPLOYEE BOARD PARTICIPATION. In no event may any
member of the Board who is not an ESNJ Employee be granted an Incentive Award
under the Plan, other than a Non-Qualified Stock Option.
1.6 INCENTIVE AWARDS. The forms of Incentive Awards under this Plan
are Stock Options, Stock Appreciation Rights and Supplemental Payments as
described in SECTION 2, Restricted Stock Award and Supplemental Payments as
described in SECTION 3, and Performance Units or Performance Shares and
Supplemental Payments as described in SECTION 4.
SECTION 2. STOCK OPTIONS AND STOCK APPRECIATION RIGHTS
2.1 GRANT OF OPTIONS. The Committee is authorized to grant Non-Qualified
Stock Options or Incentive Stock Options to Employees and Non-Qualified Stock
Options to non-employee members of the Board in accordance with the terms and
conditions required pursuant to this Plan and with such additional terms and
conditions, not inconsistent with the provisions of the Plan, as the Committee
shall determine.
2.2 OPTION TERMS.
(a) EXERCISE PRICE. The exercise price per share of Common Stock under
each Option shall be determined by the Committee; provided, however, that such
exercise price shall not be less than eighty-five percent (85%) in the case of
an Non-qualified Stock Option or one hundred percent (100%) in the case of an
Incentive Stock Option of the Fair Market Value per share of such stock on the
date the Option is granted (one hundred ten percent (110%) in the case of an
Incentive Stock Option granted to a Ten-Percent Stockholder).
(b) TERM. The Committee shall fix the Term of each Option which shall be
not more than ten (10) years from the date of grant. In the event no Term is
fixed, such Term shall be ten (10) years from the date of grant. The Term shall
be five (5) years in the case of an Incentive Stock Option granted to a
Ten-Percent Stockholder.
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(c) EXERCISE. The Committee shall determine the time or times at which
an Option may be exercised in whole or in part. The Committee may accelerate
the exercisability of any Option or portion thereof at any time.
Notwithstanding the foregoing, the Committee may, in its sole discretion,
provide that all or part of the Common Stock received by a Grantee upon the
exercise of a Non-Qualified Stock Option shall be Restricted Stock subject to
any or all of the restrictions or conditions set forth in SECTION 3.2.
(d) VESTING. The Committee may, in its discretion, set forth a time
frame during which such Options may be exercised. This time frame can include
any dates from the date the Option is issued through a date no more than ten
(10) years from the date of issuance of the Option.
2.3 OPTION EXERCISES
(a) METHOD OF EXERCISE. To purchase shares under any Option granted
under the Plan, Grantees must give notice in writing to the Company of their
intention to purchase and specify the number of shares of ESNJ Common Stock as
to which they intend to exercise their Option. Upon the date or dates
specified for the completion of the purchase of the shares, the purchase price
will be payable in full. The purchase price may be paid in cash or an
equivalent acceptable to the Committee. At the discretion of the Committee,
the exercise price for ESNJ Common Stock may be paid by the assignment and
delivery to the Company of shares of ESNJ Common Stock owned by the Grantee or
a combination of cash and such shares equal in value to the exercise price.
Any shares so assigned and delivered to the Company in payment or partial
payment of the purchase price shall be valued at the Fair Market Value on the
exercise date. At the discretion of the Committee, the exercise price to the
Company may be paid in the form of assignment and delivery of additional
unexercised Options, the attributed value of which shall be the difference
between the Fair Market Value on the exercise date of the Common Stock less
the purchase price as set forth in the Options so tendered. In addition, at
the request of the Grantee and to the extent permitted by applicable law, the
Company in its discretion may selectively approve a "cashless exercise"
arrangement with a brokerage firm under which such brokerage firm, on behalf
of the Grantee, shall pay to the Company the exercise price of the Options
being exercised, and the Company, pursuant to an irrevocable notice from the
Grantee, shall promptly deliver the shares being purchased to such firm.
(b) In the case of Incentive Stock Options, the terms and conditions
of such grants shall be subject to and comply with Section 422 of the Code and
any rules or regulations promulgated thereunder, including the requirement
that the aggregate Fair Market Value (determined as of the later of the date
of grant or the date when such Option can first be exercised) of the Common
Stock with respect to which Incentive Stock Options granted under this Plan
and all other option plans of the Company and Subsidiary become exercisable by
a Grantee during any calendar year shall not exceed One Hundred Thousand
Dollars ($100,000). To the extent that the limitation set forth in the
preceding sentence is exceeded for any reason (including the acceleration of
the time for exercise of an Option), the Options with respect to such excess
amount shall be treated as Non-Qualified Stock Options.
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(c) PROCEEDS. The proceeds received by the Company from the sale of
shares of Common Stock pursuant to Options exercised under the Plan will be
used for general purposes of the Company.
2.4 STOCK APPRECIATION RIGHTS IN TANDEM WITH OPTIONS.
(a) GENERAL PROVISIONS. The Committee may, at the time of grant of an
Option, grant Stock Appreciation Rights with respect to all or any portion of
the shares of Common Stock covered by such Option. The exercise price per
share of Common Stock of a Tandem SAR shall be fixed in the Incentive Award
Agreement and shall not be less than one hundred percent (100%) of the Fair
Market Value of a share of Common Stock on the date of the grant of the Option
to which it relates. A Tandem SAR may be exercised at any time the Option to
which it relates is then exercisable, but only to the extent the Option to
which it relates is exercisable, and shall be subject to the conditions
applicable to such Option. When a Tandem SAR is exercised, the Option to which
it relates shall terminate to the extent of the number of shares with respect
to which the Tandem SAR is exercised. Similarly, when an Option is exercised,
the Tandem SARs relating to the shares covered by such Option exercise shall
terminate. Any Tandem SAR which is outstanding on the last day of the Term of
the related Option shall be automatically exercised on such date for cash
without any action by the Grantee.
(b) EXERCISE. Upon exercise of an Tandem SAR, the holder shall
receive, for each share with respect to which the Tandem SAR is exercised, an
amount equal to the Appreciation. The Appreciation shall be payable in cash,
Common Stock, or a combination of both, at the option of the Committee, and
shall be paid within thirty (30) calendar days of the exercise of the Tandem
SAR.
2.5 SUPPLEMENTAL PAYMENT ON EXERCISE OF NON-QUALIFIED STOCK OPTIONS OR
STOCK APPRECIATION RIGHTS. The Committee, either at the time of grant or at
the time of exercise of any Non-Qualified Stock Option or Stock Appreciation
Right, may provide for a Supplemental Payment by the Company to the Grantee
with respect to the exercise of any Non-Qualified Stock Option or Stock
Appreciation Right. The Supplemental Payment shall be in the amount specified
by the Committee, which shall not exceed the amount necessary to pay the
federal income tax payable with respect to both the exercise of the
Non-Qualified Stock Option and Stock Appreciation Right and the receipt of the
Supplemental Payment, assuming the holder is taxed at the maximum effective
federal income tax rate applicable thereto. The Committee shall have the
discretion to grant Supplemental Payments that are payable solely in cash or
Supplemental Payments that are payable in cash, Common Stock, or a combination
of both, as determined by the Committee at the time of payment. The
Supplemental Payment, if awarded by the Committee, shall be paid within thirty
(30) calendar days of the date of exercise of a Non-Qualified Stock Option or
Stock Appreciation Right (or, if later, within 30 calendar days of the date on
which income is recognized for federal income tax purposes with respect to
such exercise).
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SECTION 3. RESTRICTED STOCK
3.1 AWARD OF RESTRICTED STOCK.
(a) GRANT. In consideration of the performance of services by the
Grantee, shares of Restricted Stock may be awarded under this Plan by the
Committee on such terms and conditions and with such restrictions as the
Committee may from time to time approve, all of which may differ with respect
to each Grantee. Such Restricted Stock shall be awarded for no additional
consideration or such additional consideration as the Committee shall
determine.
(b) IMMEDIATE TRANSFER WITHOUT IMMEDIATE DELIVERY OF RESTRICTED STOCK.
Each Restricted Stock Award will constitute an immediate transfer of the
record and beneficial ownership of the shares of Restricted Stock to the
Grantee in consideration of the performance of services, entitling such
Grantee to all voting and other ownership rights, but subject to the
restrictions hereinafter referred to. Each Restricted Stock Award may limit
the Grantee's dividend rights during the Restriction Period in which the
shares of Restricted Stock are subject to a substantial risk of forfeiture and
restrictions on transfer. Shares of Common Stock awarded pursuant to a grant
of Restricted Stock will be held by the company, or in trust or in escrow
pursuant to an agreement satisfactory to the Committee, as determined by the
Committee, until such time as the restrictions on transfer have expired. Any
such trust or escrow shall not be insulated from the claims of the general
creditors of the Company in the event of bankruptcy or insolvency of the
Company.
3.2 RESTRICTIONS.
(a) RESTRICTIVE CONDITIONS. Restricted Stock awarded to a Grantee
shall be subject to the following restrictions until the expiration of the
restriction Period: (i) the shares of Common Stock of the Company included in
the Restricted Stock Award shall be subject to one or more restrictions,
including without limitation, a restriction that constitutes a "substantial
risk of forfeiture" within the meaning of Section 83 of the Code and
regulations promulgated thereunder, and to the restrictions on transferability
set forth in SECTION 5.2; (ii) unless otherwise approved by the Committee, the
shares of Common Stock included in the Restricted Stock Award that are subject
to restrictions which are not satisfied at such time as the Grantee ceases to
be employed by the Company shall be forfeited and all rights of the Grantee to
such shares shall terminate without further obligation on the part of the
Company when the Grantee leaves the employ of the Company; and (iii) any other
restrictions that the Committee may determine in advance are necessary or
appropriate.
(b) FORFEITURE OF RESTRICTED STOCK. If for any reason, the
restrictions imposed by the Committee upon Restricted Stock are not satisfied
at the end of the Restriction Period, any Restricted Stock remaining subject
to such restrictions shall thereupon be forfeited by the Grantee and
re-acquired by the Company.
(c) REMOVAL OF RESTRICTIONS. The Committee shall have the authority to
remove any or all of the restrictions on the Restricted Stock, including the
restrictions under the Restriction Period, whenever it may determine that, by
reason of changes in applicable laws or other
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changes in circumstances arising after the date of the Restricted Stock Award,
such action is appropriate.
3.3 RESTRICTION PERIOD. The Restriction Period or Term of Restricted
Stock shall commence on the date of grant and shall be determined in the sole
discretion of the Committee and described in the Incentive Award Agreement
setting forth the terms of the award of Restricted Stock.
3.4 DELIVERY OF SHARES OF COMMON STOCK. Subject to SECTION 6.3, at the
expiration of the Restriction Period, a stock certificate evidencing the
Restricted Stock (to the nearest full share) with respect to which the
Restriction Period has expired with all restrictions thereon having been
satisfied shall be delivered without charge to the Grantee, or his personal
representative, free of all restrictions under the Plan.
3.5 SUPPLEMENTAL PAYMENT ON VESTING OF RESTRICTED STOCK. The
Committee, either at the time of grant or at the time of vesting of Restricted
Stock, may provide for a Supplemental Payment by the Company to the holder in
an amount specified by the Committee which shall not exceed the amount
necessary to pay the federal income tax payable with respect to both the
vesting of the Restricted Stock and receipt of the Supplemental Payment,
assuming the Grantee is taxed at the maximum effective federal income tax rate
applicable thereto. The Supplemental Payment, if awarded by the Committee,
shall be paid within 30 calendar days of each date that Restricted Stock
vests. The Committee shall have the discretion to grant Supplemental Payments
that are payable solely in cash or Supplemental Payments that are payable in
cash, Common Stock, or a combination of both, as determined by the Committee
at the time of payment.
SECTION 4. PERFORMANCE UNITS AND PERFORMANCE SHARES
4.1 PERFORMANCE BASED AWARDS.
(a) GRANT. The Committee is authorized to grant Performance Units and
Performance Shares to Grantees. The Committee may make grants of Performance
Units or Performance Shares in such a manner that more than one Performance
Period is in progress concurrently. For each Performance Period, the Committee
shall establish the number of Performance Units or Performance Shares and the
contingent value of any Performance Units or Performance Shares, which may
vary depending on the degree to which performance objectives established by
the Committee are met.
(b) PERFORMANCE CRITERIA. At the beginning of each Performance Period,
the Committee shall (i) establish for such Performance Period specific
financial or nonfinancial performance objectives as the Committee believes are
relevant to the Company's overall business objectives; (ii) determine the
value of a Performance Unit or the number of shares under a Performance Share
grant relative to performance objectives; and (iii) notify each Grantee in
writing of the established performance objectives and minimum, target, and
maximum Performance Unit or Share value for such Performance Period.
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<PAGE>
(c) MODIFICATION. If the Committee determines in its sole discretion
that the established performance measures or objectives are no longer suitable
to Company objectives because of a change in the Company's business
operations, corporate structure, capital structure, or other conditions the
Committee deems to be appropriate, the committee may modify the performance
measures and objectives as considered appropriate.
(d) PAYMENT. The basis for payment of Performance Units or Performance
Shares for a given Performance Period shall be the achievement of those
financial and nonfinancial performance objectives determined by the Committee
at the beginning of the Performance Period. If minimum performance is not
achieved for a Performance Period, no payment shall be made and all contingent
rights shall cease. If minimum performance is achieved or exceeded, the value
of a Performance Unit of Performance Share shall be based on the degree to
which actual performance exceeded the pre-established minimum performance
standards, as determined by the Committee and as set forth in the Incentive
Award Agreement. Payments shall be made, in the discretion of the Committee,
solely in cash or Common Stock, or a combination of cash and Common Stock,
following the close of the applicable Performance Period.
4.2 SUPPLEMENTAL PAYMENT ON VESTING OF PERFORMANCE UNITS OR
PERFORMANCE SHARES. The Committee, either at the time of grant or at the time
of vesting of Performance Units or Performance Shares (other than Restricted
Stock), may provide for a Supplemental Payment by the Company to the holder in
an amount specified by the Committee which shall not exceed the amount
necessary to pay the federal income tax payable with respect to both the
vesting of such Performance Units or Performance Shares and receipt of the
Supplemental Payment, assuming the Grantee is taxed at the maximum effective
federal income tax rate applicable thereto. The Supplemental Payment, if
awarded by the Committee, shall be paid within thirty (30) days of each date
that such Performance Units or Performance Shares vest. The Committee shall
have the discretion to grant Supplemental Payments that are payable in cash,
Common Stock, or a combination of both, as determined by the Committee at the
time of grant or at the time of payment.
SECTION 5. PROVISIONS RELATING TO PLAN PARTICIPATION
5.1 PLAN CONDITIONS.
(a) INCENTIVE AWARD AGREEMENT. Each Grantee to whom an Incentive Award
is granted under the Plan shall be required to enter into an Incentive Award
Agreement with the Company in a form provided by the Committee, which shall
contain certain specific terms, as determined by the Committee, with respect
to the Incentive Award. An Incentive Award may include a noncompetition
agreement with respect to the Grantee and/or such other terms and conditions,
including, without limitation, rights of repurchase or first refusal, not
inconsistent with the Plan, as shall be determined from time to time by the
Committee.
(b) NO RIGHT TO EMPLOYMENT. Nothing in the Plan's Incentive Award
Agreement or any instrument executed pursuant to the Plan shall create any
employment rights (including, without limitation, rights to continued
employment) in any Grantee or affect the right of the Company to terminate the
employment of any Grantee at any time for any reason whether before
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<PAGE>
the exercise date of any Option or Tandem SAR or during the Restriction Period
of any Restricted Stock or during the Performance Period of any Performance
Unit or Performance Share.
(c) SECURITIES REQUIREMENTS. No shares of Common Stock will be issued
or transferred pursuant to an Incentive Award unless and until all
then-applicable requirements imposed by federal and state securities and other
laws, rules and regulations and by any regulatory agencies having jurisdiction
and by any stock market or exchange upon which the Common Stock may be listed,
have been fully met. As a condition precedent to the issuance of shares
pursuant to the grant or exercise of an Incentive Award, the company may
require the Grantee to take any reasonable action to meet such securities
related requirements. The Company shall not be obligated to take any
affirmative action in order to cause the issuance or transfer of shares
pursuant to an Incentive Award to comply with any law or regulation described
in the second preceding sentence.
5.2 TRANSFERABILITY.
(a) NON-TRANSFERABLE AWARD. No Incentive Award and no right under the
Plan, contingent or otherwise, other than (i) Restricted Stock as to which
restrictions have lapsed, or (ii) a Non-Qualified Stock Option for which the
Incentive Award Agreement specifically provides to the contrary, will be (i)
assignable, saleable, or otherwise transferable by a Grantee except by will or
by the laws of descent and distribution, or (ii) subject to any encumbrance,
pledge or charge of any nature. No transfer by will or by the laws of descent
and distribution shall be effective to bind the Company unless the Committee
shall have been furnished with a copy of the deceased Grantee's will or such
other evidence as the Committee may deem necessary to establish the validity
of the transfer. Any attempted transfer in violation of this SECTION 5.2 shall
be void and ineffective for all purposes.
(b) ABILITY TO EXERCISE RIGHTS. Except as specifically provided in
SECTION 5.2(a) with respect to certain Restricted Stock and Non-Qualified
Stock Options, only the Grantee or his guardian (if the Grantee becomes
Disabled), or in the event of his death, his legal representative or
beneficiary, may exercise Options, Tandem SARs, receive cash payments and
deliveries of shares, or otherwise exercise rights under the Plan. The
executor or administrator of the Grantee's estate, or the person or persons to
whom the Grantee's rights under any Incentive Award will pass by will or the
laws of the descent and distribution, shall be deemed to be the Grantee's
beneficiary or beneficiaries of the rights of the Grantee hereunder and shall
be entitled to exercise such rights as are provided hereunder. The Company may
act in reliance upon a Court Order admitting an instrument to probate as the
Grantee's last Will or an Order finding that the Grantee died intestate.
Unless within six (6) months after the Grantee's death the Company has actual
notice of the existence of proceedings to probate a Will of the Grantee, the
Company may assume that the Grantee died intestate. The foregoing provisions
are intended to expedite the prompt and efficient administration of the Plan
and to protect the Company from any action taken in accordance with these
provisions.
5.3 RIGHTS AS A STOCKHOLDER. Except as otherwise provided in any
Incentive Award Agreement, a Grantee of an Incentive Award or a transferee of
such Grantee shall have no rights
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<PAGE>
as a stockholder with respect to any shares of Common Stock until such person
becomes a holder of record of such Common Stock. Except as otherwise provided
in SECTION 5.5, no adjustment shall be made for dividends (ordinary or
extraordinary, whether in cash, securities, other property) or distributions
or other rights for which the record date is prior to the date such stock
certificate is issued.
5.4 LISTING AND REGISTRATION OF SHARES OF COMMON STOCK. Prior to
issuance and/or delivery of shares of Common Stock, the Grantee shall consult
with representatives of the Company as appropriate, regarding compliance with
laws, rules and regulations that apply to such shares. If the Company
determines that such action is desirable, the Company shall postpone the
issuance and/or delivery of the affected shares of Common Stock upon any
exercise of an Incentive Award until completion of such stock exchange
listing, registration, or other qualification of such shares under any state
and/or federal law, rule or regulation as the Company may consider
appropriate, and may require any Grantee to make such representations and
furnish such information as it may consider appropriate in connection with the
issuance or delivery of the shares in compliance with applicable laws, rules
and regulations. The Company shall not be obligated to take any affirmative
action in order to cause the issuance or transfer of shares pursuant to an
Incentive Award to comply with any law, rule or regulation described in the
immediately preceding sentence.
5.5 CHANGE IN STOCK AND ADJUSTMENTS.
(a) CHANGES IN CAPITALIZATION. Subject to SECTION 5.5(b), and unless
the Committee in its discretion issues an Incentive Award with more
restrictive provisions, in the event the outstanding shares of the Common
Stock, as constituted form time to time, shall be changed as a result of a
change in capitalization of ESNJ or a combination, merger, or reorganization
of ESNJ into or with any other corporation or any other transaction with
similar effects, then for all purposes, references herein to Common Stock or
Restricted Stock shall mean and include all securities or other property
(other than cash) that holders of Common Stock are entitled to receive in
respect of Common Stock by reason of each successive aforementioned event,
which securities or other property (other than cash) shall be treated in the
same manner and shall be subject to the same restrictions as the underlying
Common Stock or Restricted Stock.
(b) CHANGES IN LAW OR CIRCUMSTANCES. In the event of any change in
applicable laws or any change in circumstances which results in or would
result in any dilution of the rights granted under the Plan, or which
otherwise warrants equitable adjustment because it interferes with the
intended operation of the Plan, then if the Committee shall, in its sole
discretion, determine that such change equitably requires an adjustment in the
number of kind of shares of stock or other securities or property theretofore
subject, or which may become subject, to issuance or transfer under the Plan
or in the terms and conditions of outstanding Incentive Awards, such
adjustment shall be made in accordance with such determination. Such
adjustments may include without limitation changes with respect to (i) the
aggregate number of shares that may be issued under the Plan, (ii) the number
of shares subject to Incentive Awards and (iii) the price per share for
outstanding Incentive Awards. The Committee shall give notice to each Grantee,
and upon notice such adjustment shall be effective and binding for all
purposes of the Plan.
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5.6 TERMINATION OF EMPLOYMENT, DEATH, DISABILITY AND RETIREMENT.
(a) TERMINATION OF EMPLOYMENT. Subject to SECTION 3.2, if an
Employee's employment by the Company or Subsidiary is Terminated for Cause or
voluntarily terminates, such Employee's right to exercise the vested portion
of his or her Incentive Award shall terminate as of the date of termination of
employment. In the event of termination for death, termination without cause,
Disability, Retirement, or Termination for Good Reason, an Incentive Award may
only be exercised as determined in the sole discretion of the Committee and
provided in the Incentive Award Agreement. However, the following may be used
as a general guideline.
(b) RETIREMENT. Subject to SECTION 3.2, unless otherwise approved
by the Committee, upon the retirement of an Employee:
(i) any nonvested portion of any outstanding Incentive Award may
continue to vest after Retirement; and
(ii) any vested Incentive Award shall expire on the earlier of
(A) the expiration date set forth in the Incentive Award Agreement with
respect to such Incentive Awards; (B) the expiration of six (6) months
after the date of Retirement, three (3) months in the case of an
Incentive Stock Option; or (C) within ten (10) days of the date when
Incentive Award vests under (i) above.
(c) DISABILITY OR DEATH. Subject to SECTION 3.2, unless otherwise
approved by the Committee, upon termination of employment from the Company and
any Subsidiary as a result of Disability or Death:
(i) any nonvested portion of any outstanding Incentive Award may
continue to vest after Disability or Death; and
(ii) any vested Incentive Award shall expire upon the earlier of
(A) the expiration date set forth in the Incentive Award Agreement with
respect to such Incentive Awards or (B) the first anniversary of such
termination of such employment as a result of Disability or Death or six
(6) months after Incentive Award vests under (i) above.
(d) CONTINUATION. Subject to the express provisions of the Plan
and the terms of any applicable Incentive Award Agreement, the Committee, in
its discretion, may provide for the continuation of any Incentive Award for
such period and upon such terms and conditions as are determined by the
Committee in the event that a Grantee ceases to be an employee.
5.7 CHANGES IN CONTROL.
(a) CHANGES IN CONTROL. In the event of a Change in Control:
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<PAGE>
(i) all Options and Stock Appreciation Rights then outstanding
shall become vested and immediately and fully exercisable,
notwithstanding any provision therein for the exercise in installments;
(ii) all restrictions and conditions of all Restricted Stock
then outstanding shall be deemed satisfied, and the Restriction Period
with respect thereto shall be deemed to have expired, as of the date of
the Change in Control; and
(iii) all Performance Shares and Performance Units shall become
vested, deemed earned in full and promptly paid to the Grantees without
regard to payment schedules and notwithstanding that the applicable
performance cycle or retention cycle shall not have been completed.
For the purpose of this SECTION 5.7, a "Change in Control" shall be
deemed to have occurred at such time as:
(i) any "person" (as that term is used in Section 13(d) and
14(d)(2) of the Exchange Act) (other than a qualified benefit or
retirement plan of ESNJ or its Subsidiaries) becomes, directly or
indirectly, the "beneficial owner" (as defined in Rule 13d-3 under the
Exchange Act as in effect on the date hereof) of securities representing
a fifty percent (50%) or more of the combined voting power of the then
outstanding voting securities of the Company or any successor of the
Company (unless such person is already such a beneficial owner on the
date of the grant of an Incentive Award); or
(ii) during any period of two (2) consecutive years or less,
individuals who at the beginning of such period constituted the Board of
the Company cease, for any reason, to constitute at least a majority of
the Board, unless the election or nomination for election of each new
member of the Board was approved by a vote of at least two-thirds of the
members of the Board then still in office who were members of the Board
at the beginning of the period; or
(iii) the equity holders of the Company approve any combination,
merger or consolidation to which the Company is a party as a result of
which the persons who were equity holders of the Company immediately
prior to the effective date of the merger or consolidation (and
excluding, however, any shares held by any party to such merger or
consolidation and their affiliates) shall have beneficial ownership of
less than fifty percent (50%) of the combined voting power for election
of members of the Board (or equivalent) of the surviving entity
following the effective date of such merger or consolidation; or
(iv) the equity holders of the Company approve any merger or
consolidation as a result of which the equity interests in the Company
shall be changed, converted or exchanged (other than a merger with a
wholly-owned subsidiary of the Company) or any liquidation of the
Company or any sale or other disposition of fifty percent (50%) or more
of the assets or earnings power of the Company;
15
<PAGE>
provided, however, that no Change in Control shall be deemed to have occurred
if, prior to such time as a Change in Control would otherwise be deemed to
have occurred, the Board determines otherwise, or as otherwise set forth in
the Incentive Award Agreement.
(b) RIGHT OF CASH-OUT. If approved by the Board prior to or within
thirty (30) days after such time as a Change in Control shall be deemed to
have occurred, the Board shall have the right for a forty-five (45) day period
immediately following the date that the Change in Control is deemed to have
occurred to require all, but not less than all, Grantees to transfer and
deliver to the Company all Incentive Awards previously granted to Grantees in
exchange for an amount equal to the "cash value" (defined below) of the
Incentive Awards. Such right shall be exercised by written notice to all
Grantees. For purposes of this SECTION 5.7(b), the cash value of an Incentive
Award shall equal the sum of (i) all cash to which the Grantee would be
entitled upon settlement or exercise of such Incentive Award and (ii) the
excess of the "market value" (defined below) (A) per share over the Option
exercise price, if any, multiplied by the number of shares subject to such
Incentive Award, (B) of each share of Restricted Stock awarded under the
Incentive Award, (C) each Performance Unit and/or Performance Shares awarded
under the Incentive Award. Notwithstanding anything herein to the contrary and
solely for purposes of the preceding sentence, "market value" per share shall
mean the higher of (i) the average of the Fair Market Value per share on each
of the five trading days immediately following the date a Change in Control is
deemed to have occurred or (ii) the highest price, if any, offered in
connection with the Change in Control.
(c) The amount payable to each Grantee by the Company pursuant to
this SECTION 5.7 shall be in cash or by certified check and shall be reduced
by any taxes required to be withheld.
5.8 AMENDMENTS TO INCENTIVE AWARDS. Subject to SECTIONS 5.5 and
5.7, the Committee may waive any conditions or rights with respect to, or
amend, alter, suspend, discontinue, or terminate, any unexercised Incentive
Award theretofore granted, prospectively or retroactively, with the consent of
any relevant Grantee.
5.9 EXCHANGE OF INCENTIVE AWARDS. The Committee may, in its
discretion, permit Grantees under the Plan to surrender outstanding Incentive
Awards in order to exercise or realize the rights under other Incentive
Awards, or in exchange for the grant of new Incentive Awards or require
holders of Incentive Awards to surrender outstanding Incentive Awards as a
condition precedent to the grant of new Incentive Awards.
5.10 FINANCING. The Company may extend and maintain, or arrange for
the extension and maintenance of, financing to any Grantee (including a
Grantee who is a director of the Company) to purchase shares pursuant to
exercise of an Incentive Award on such terms as may be approved by the
Committee in its sole discretion. In considering the terms for extension or
maintenance of credit by the Company, the Committee shall, among other
factors, consider the cost to the company of any financing extended by the
Company.
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SECTION 6. MISCELLANEOUS
6.1 EFFECTIVE DATE AND GRANT PERIOD.
(a) This Plan shall become effective as of the effective date of
Board approval (the "Effective Date"). Unless sooner terminated by the Board,
the Plan shall terminate ten (10) years from the Effective Date. After the
termination of the Plan, no Incentive Awards may be granted under the Plan,
but previously granted awards shall remain outstanding in accordance with
their applicable terms and conditions.
(b) Grants of any Incentive Stock Option shall be subject to
approval of the Plan by the holders of a majority of the outstanding voting
shares of the Company within twelve (12) months after the date of the Plan's
adoption by said Board. In the event of the failure to obtain such shareholder
approval, the Plan and any Awards granted thereunder, shall be deemed
Non-Qualified Stock Options.
6.2 FUNDING. Except as provided under SECTION 3, no provision of
the Plan shall require the Company, for the purpose of satisfying any
obligations under the Plan, to purchase assets or place any assets in a trust
or other entity to which contributions are made or otherwise to segregate any
assets in a manner that would provide any Grantee any rights that are greater
than those of a general creditor of the Company, nor shall the Company be
required to maintain separate bank accounts, books, records or other evidence
of the existence of a segregated or separately maintained or administered fund
if such action would provide any Grantee with any rights that are greater than
those of a general creditor of the Company. Grantees shall have no rights
under the Plan other than as unsecured general creditors of the Company except
that insofar as they may have come entitled to payment of additional
compensation by performance of services, they shall have the same rights as
other employees under applicable law.
6.3 WITHHOLDING TAXES. The Company shall have the right to (i)
make deductions from any settlement of an Incentive Award made under the Plan,
including the delivery of shares, or require shares or cash or both be
withheld from any Incentive Award, in each case in an amount sufficient to
satisfy withholding of any federal, state or local taxes required by law, or
(ii) take such other action as may be necessary or appropriate to satisfy any
such withholding obligations. The Committee may determine the manner in which
such tax withholding may be satisfied, and may permit shares of Common Stock
(rounded up to the next whole number) to be used to satisfy required tax
withholding based on the Fair Market Value of any such shares of Common Stock,
as of the delivery of shares or payment of cash in satisfaction of the
applicable Incentive Award.
6.4 CONFLICTS WITH PLAN. In the event of any inconsistency or
conflict between the terms of the Plan and an Incentive Award Agreement, the
terms of the Plan shall govern.
6.5 NO GUARANTEE OF TAX CONSEQUENCES. Neither the Company nor the
Committee makes any commitment or guarantee that any federal, state or local
tax treatment will apply or be available to any person participating or
eligible to participate hereunder.
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6.6 SEVERABILITY: HEADINGS. If any portion of this Plan is held
invalid or inoperative, the other portions of this Plan shall be deemed valid
and operative and, so far as is reasonable and possible, effect shall be given
to the intent manifested by the portion held invalid or inoperative. The
Section headings herein are for reference purposes only and are not intended
in any way to describe, interpret, define or limit the extent or intent of the
Plan or of any part hereof.
6.7 GENDER, TENSE AND HEADINGS. Whenever the context requires
such, words of the masculine gender used herein shall include the feminine and
neuter, and words used in the singular shall include the plural. Section
headings as used herein are inserted solely for convenience and reference and
constitute no part of the Plan.
6.8 AMENDMENT AND TERMINATION. The Plan may be amended or
terminated at any time by the Board by the affirmative vote of a majority of
the members in office. Except as provided in SECTION 5.5 and 5.7, the Plan,
however, shall not be amended, without prior written consent of each affected
Grantee if such amendment or termination of the Plan would adversely affect
vested benefits or rights of such person.
6.9 GOVERNING LAW AND VENUE. The Plan shall be construed in
accordance with the laws of the State of Texas without giving effect to any
principle of conflict of laws that would require the application of any other
jurisdiction, except as superseded by federal law, and in accordance with
applicable provisions of the Code and regulations or other authority issued
thereunder by the appropriate governmental authority. Venue for any dispute
shall lie exclusively in Houston, Harris County, Texas.
IN WITNESS WHEREOF, this Plan has been executed effective this 1st
day of November 1999.
ESENJAY EXPLORATION, INC.
By:
---------------------------
Michael E. Johnson
President
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PROXY
ESENJAY EXPLORATION, INC.
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
FOR USE BY HOLDERS OF COMMON STOCK
The undersigned stockholder of Esenjay Exploration, Inc., a Delaware
corporation (the "Company"), hereby appoints Michael Johnson and David
B Christofferson ("Proxies"), and each of them, with full power of substitution,
as proxies, to vote all shares of Common Stock of the Company that the
undersigned is entitled to vote at the Annual Meeting of Stockholders to be held
on September 28, 2000 at 10:00 a.m. at the Houston Offices of the Company and at
any and all adjournments thereof (the "Annual Meeting"), as follows:
<TABLE>
<S><C> <C> <C> <C>
1. Election of Directors: / / For Nominees Listed Below / / Withhold Authority to Vote for all / / Abstain
(Except as marked to the Nominees Listed Below
contrary below)
</TABLE>
INSTRUCTION: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE, STRIKE
THROUGH THE NOMINEE'S NAME BELOW.
Alex M. Cranberg Michael E. Johnson Jack P. Randall
The Board of Directors recommends a vote "For" the election of the
above-named directors.
<TABLE>
<S><C> <C> <C> <C>
2. Approval of the Long-Term / / For / / Against / / Abstain
Incentive Plan.
</TABLE>
The Board of Directors recommends a vote "For" the adoption of the Long-Term
Incentive Plan.
<TABLE>
<S> <C>
3. In their discretion, the Proxies are authorized to vote upon such other business as may properly come before the meeting.
</TABLE>
CONTINUED ON THE OTHER SIDE
<PAGE>
CONTINUED FROM THE OTHER SIDE
THE PERSONS NAMED ABOVE WILL VOTE THE SHARES OF COMMON STOCK REPRESENTED BY
THIS PROXY CARD IN ACCORDANCE WITH THE SPECIFICATIONS MADE IN EACH ITEM. IF THE
UNDERSIGNED MAKES NO SPECIFICATION, THE PERSONS NAMED ABOVE WILL VOTE THE SHARES
"FOR" ALL ITEMS.
Please sign exactly as your name appears below, date and return this Proxy
Card promptly, using the self-addressed, prepaid envelope enclosed for your
convenience. Please correct your address, if pertinent, before returning this
Proxy Card. Persons signing in a fiduciary capacity should indicate that fact
and give their full title. If a corporation, please sign in the full corporate
name by the president or other authorized officer. If a partnership, please sign
the partnership name by an authorized person. If joint tenants, both persons
should sign.
___________________________________
Name of Stockholder (Please print)
___________________________________
New Address (Street, City, State)
___________________________________
Signature and Title
___________________________________
Signature and Title
___________________________________
Date
