U. S. SECURITIES AND EXCHANGE COMMISSION
Washington, D. C.
FORM 10-QSB
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1997
Commission File No. 0-25386
FX ENERGY, INC.
(Exact name of small business issuer as specified in its charter)
NEVADA 87-0504461
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
3006 Highland Drive, Suite 206
Salt Lake City, Utah 84106
(Address of principal executive offices)
(801) 486-5555
(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes X No
State the number of shares outstanding of each of the issuer's class of common
equity, as of the latest practicable date: 12,589,381 shares of $.001 par value
common stock outstanding as of August 7, 1997.
Transitional Small Business Disclosure Format: Yes No X
FX ENERGY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
AS OF JUNE 30, 1997
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 9,584,818
Investment in marketable debt securities 2,587,589
Accounts receivable:
Accrued oil sales 228,678
Due from joint interest owners and others 458,967
Interest Receivable 46,037
Inventory 20,155
Other current assets 24,157
-----------
Total current assets 12,950,401
-----------
Property and equipment, at cost:
Oil and gas properties (successful efforts method):
Proved 7,217,186
Unproved 923,859
Other property and equipment 2,102,392
-----------
10,243,437
Less accumulated depreciation, depletion and
amortization (1,695,131)
-----------
Net property and equipment 8,548,306
-----------
Other assets:
Certificates of deposit 381,500
Other 11,866
-----------
Total other assets 393,366
-----------
TOTAL ASSETS $21,892,073
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 512,051
Advances from non-operators 239,941
-----------
Total current liabilities 751,992
-----------
Long-term debt: 65,520
-----------
Total liabilities 817,512
-----------
Commitments -
Stockholders' Equity:
Preferred Stock, $.001 par value; 5,000,000 shares
issued, none issued and outstanding
Common stock, $.001 par value; 30,000,000 shares
authorized, 12,584,381 issued and outstanding 12,592
Additional paid-in capital 30,216,572
Accumulated deficit (9,154,603)
-----------
Total stockholders' equity $21,074,561
-----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $21,892,073
===========
<TABLE>
<CAPTION>
FX ENERGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
For the three months For the six months
ended June 30, ended June 30,
--------------------- -----------------------
1997 1996 1997 1996
-------- -------- --------- ---------
<S> <C> <C> <C> <C>
Revenues:
Oil sales $ 499,737 $ 572,175 $1,078,714 $1,077,108
Drilling Revenue 72,166 7,250 72,466 7,725
---------- ---------- ---------- ----------
Total revenues 571,903 579,425 1,151,180 1,084,833
---------- ---------- ---------- ----------
Operating costs and expenses:
Operating costs 197,804 255,253 551,321 548,496
Production taxes 40,652 43,025 77,991 74,973
Exploration costs 863,499 205,509 2,196,232 394,369
Drilling costs 118,235 1,766 133,733 26,036
Depreciation, depletion
and amortization 163,695 137,206 308,517 275,492
General and administrative 605,104 360,003 1,248,781 725,862
---------- ---------- ---------- ----------
Total operating costs and
expenses 1,988,989 1,002,762 4,516,575 2,045,228
---------- ---------- ---------- ----------
Operating loss (1,417,086) (423,337) (3,365,395) (960,395)
---------- ---------- ---------- ----------
Other income (expense):
Interest and other income 189,072 21,179 391,903 56,819
Interest expense (49,506) (89,554) (82,739) (171,073)
---------- ---------- ---------- ----------
Total other income
or (expense) 139,566 (68,375) 309,164 (114,254)
---------- ---------- ---------- ----------
Net loss before extraordinary
item (1,277,520) (491,712) (3,056,231) (1,074,649)
---------- ---------- ---------- ----------
Extraordinary gain:
Baltic concession (Note 5) 3,061,059 - 3,061,059 -
---------- ---------- ---------- ----------
Net income or (loss) $1,783,539 $ (491,712) $ 4,828 $(1,074,649)
========== ========== ========== ===========
Net income or loss per common share
Net loss before
extraordinary gain (0.10) (0.06) (0.24) (0.13)
Extraordinary gain 0.24 - 0.24 -
---------- ---------- ---------- ----------
Net income or (loss)
per common share $ 0.14 $ (0.06) $ - $ (0.13)
========== ========== ========== ==========
Weighted average number
Of common shares outstanding 12,552,261 8,613,177 12,568,410 8,353,524
========== ========== ========== ==========
</TABLE>
FX ENERGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
For six months ended
June 30,
------------------------
1997 1996
-------- --------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income or (loss) $ 4,828 $(1,074,649)
Adjustments to reconcile net income or (loss)
to net cash provided for or (used) in
operating activities:
Extraordinary gain (3,061,059) -
Depreciation, depletion and amortization 308,517 275,492
Dry hole costs 210,000
Leasehold impairments 435 -
Common stock and options issued for services - 147,750
Increase (decrease) from changes in:
Accounts receivable (214,912) (347,780)
Inventory 61 (2,290)
Other current assets 43,326 (75,277)
Advances from non-operators 239,941
Accounts payable and accrued liabilities (74,145) (118,070)
----------- ----------
Net cash used in operating activities (2,543,008) (1,194,824)
----------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to oil and gas properties (653,704) (300,074)
Additions to other property and equipment (242,935) (154,655)
Additions to other assets (11,866) -
Proceeds from sale of interest in unproved
properties - 350,000
Proceeds from sale of equipment 13,051 9,700
Purchase of marketable debt securities (2,587,589) -
Proceeds from marketable debt securities 5,476,574 -
Purchase of certificate of deposit - (300,000)
----------- ----------
Net cash provided by or (used) in investing
activities 1,993,531 (395,029)
----------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of long term debt - (91,992)
Proceeds from long term debt 1,626,329 -
Deferred offering costs - (69,142)
Proceeds from issuance of common stock and
Exercise of warrants, net of offering costs 162,052 1,898,770
----------- ----------
Net cash provided by financing activities 1,788,381 1,737,636
----------- ----------
INCREASE OR (DECREASE) IN CASH AND CASH
EQUIVALENTS 1,238,904 147,783
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 8,345,914 743,721
----------- -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 9,584,818 $ 891,504
=========== ===========
The accompanying notes are an integral part
of these consolidated financial statements
FX ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1: BASIS OF PRESENTATION
The interim financial data are unaudited; however, in the opinion of the
management of FX Energy, Inc. and Subsidiaries ("FX Energy" or the "Company"),
the interim data includes all adjustments, consisting only of normal recurring
adjustments, necessary for a fair statement of the results for the interim
periods. The financial statements should be read in conjunction with FX
Energy's annual report on Form 10-KSB for the year ended December 31, 1996 and
the quarterly report on Form 10-QSB for the three months ended March 31, 1997.
The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiaries. All significant inter-company accounts and
transactions have been eliminated in consolidation. At June 30, 1997, the
Company owned 100% of the voting stock of its subsidiaries, including FX
Producing Company, Inc. ("FX Producing").
NOTE 2: INVESTMENT IN MARKETABLE DEBT SECURITIES
The Company had $5,477,000 invested in short term bonds at December 31,
1996. The entire bond portfolio matured during the first quarter of 1997 and
the Company subsequently reinvested $2,588,000 of the proceeds into additional
short term bonds in the second quarter of 1997.
NOTE 3: INCOME TAXES
The Company recognized no income tax expense for the first six months of
1997 because the net income generated was fully offset by net operating losses
carried forward from prior periods.
NOTE 4: COMMON STOCK
During the six months ended June 30, 1997 warrants for 12,500 shares and
options for 79,334 shares were exercised. This resulted in net proceeds of
$14,000 for the warrants and $148,000 for the options respectively to the
Company.
In connection with the purchase of the Company's producing oil properties
and well servicing equipment in 1994, the Company agreed to issue to the former
owners up to 400,000 shares of Company common stock in semi-annual increments of
50,000 shares each beginning October 1, 1994 on the attainment of certain levels
of oil production from the properties acquired. Production levels as of April
1, 1997 had not been reached. Accordingly, the number of shares that may be
issued in the future has been reduced to 100,000 shares.
NOTE 5: EXTRAORDINARY GAIN - BALTIC CONCESSION
On May 3, 1996, the Company entered into an agreement with RWE-DEA
Aktiengesellschaft fur Mineraloel und Chemie, Hamburg, Germany ("RWE-DEA"),
which provided for joint operations on the Company's approximately 2.4 million
acre on-shore Baltic Platform Concession area in northern Poland. The agreement
granted RWE-DEA the right to earn a fifty percent interest in the concession
area by paying the Company $250,000 in cash, paying up to $1,100,000 for a
seismic survey, $1,000,000 of cost relating to the initial exploratory well to
be drilled at a location to be designated by RWE-DEA and fifty percent of the
cost of the second exploratory well to be drilled at a location designated by
the Company. The Orneta #1, the initial exploratory well in the Baltic
Concession, was spudded in February 1997 and subsequently determined to be a dry
hole in April 1997.
On June 30, 1997 RWE-DEA elected not to fund its fifty percent share of
costs relating to the second exploratory well in the Baltic Concession. As a
result, RWE-DEA forfeited its right to earn a fifty percent interest in the
Baltic Concession. The Company was not obligated to reimburse RWE-DEA for any
of the funds it had previously advanced to the Company relating to the Baltic
Concession. RWE-DEA had advanced the Company $1,500,000 as of December 31, 1996
plus an additional amount of $1,561,000 during the first six months of 1997, for
a total amount of $3,061,000. Accordingly, the Company recognized its long term
note payable amount of $3,061,000 associated with RWE-DEA as income and
reflected it as an extraordinary gain for the quarter ended June 30, 1997.
The Gladysze #1-A, the second exploratory well in the Baltic Concession,
was spudded by the Company on July 14, 1997 without RWE-DEA as an interest
owner.
NOTE 6: NET INCOME OR (LOSS) PER SHARE
Net income or (loss) per share of common stock is computed based on the
weighted average number of common and common equivalent shares outstanding
during the period. Options, warrants, and convertible preferred stock are
excluded from the calculation when their effect would be antidilutive.
NOTE 7: SUBSEQUENT EVENTS
As a result of the Company's efforts to expand its original eight Lublin,
Poland area concession blocks ("Original Eight Blocks"), containing
approximately 2 million acres, on July 18, 1997, the Company was awarded sixteen
additional adjacent concession blocks (the "Additional 16 Blocks") covering
approximately 3.5 million acres. The Additional 16 Blocks require a minimum
work commitment of drilling five wells, the shooting of 1,150 kilometers of
seismic and other fees and costs totaling approximately $500,000 during a three
year exploration period.
On August 1, 1997, the Company's April 16, 1997, agreement with Apache
Corporation ("Apache") relating to the Original Eight Blocks was expanded and
modified to include the Additional 16 Blocks. The terms of the original
agreement were modified to include an additional cash payment of $300,000 by
Apache and a commitment by Apache to pay the costs of drilling five additional
exploratory wells, all additional concession costs, all additional usufruct
costs, and costs of shooting approximately 1,150 kilometers of additional
seismic during a three year exploration period.
Final discussions are underway to enable the Polish Oil & Gas Company
("POGC") to participate in the Additional 16 Blocks by granting POGC the right,
on a block by block basis, to earn up to a one third interest by paying its
proportionate share of the drilling cost of the first exploratory well on each
block. Should POGC make such an election in the Additional 16 Blocks, Apache's
and the Company's interest would be reduced proportionately. The ongoing
discussions also include allowing POGC to have an option to earn up to a twenty
five percent interest in the Original Eight Blocks by paying for one fourth of
the cost, on a block-by-block basis, of the initial exploratory well on each
block. Should POGC make such an election on the Original Eight Lublin Blocks,
Apache has agreed to pay the Company $40,000 for each percentage point reduction
in the Company's interest as a result of POGC's election.
- -------------------------------------------------------------------------------
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR
PLAN OF OPERATIONS
- -------------------------------------------------------------------------------
Forward-Looking Information May Prove Inaccurate
This report contains certain forward-looking statements and information
relating to the Company that are based on the beliefs of management as well as
assumptions made by and information currently available to management. When
used in this document, the words "anticipate," "believe," "estimate," "expect,"
and "intend" and similar expressions, as they relate to the Company or its
management, are intended to identify forward-looking statements. Such
statements reflect the current view of the Company respecting future events and
are subject to certain risks, uncertainties, and assumptions, including the
risks and uncertainties noted. Should one or more of these risks or
uncertainties materialize, or should underlying assumptions prove incorrect,
actual results may vary materially from those described herein as anticipated,
believed, estimated, expected, or intended.
FINANCIAL CONDITION
Working Capital
The Company had working capital of $12,198,000 at June 30, 1997 as
compared to $13,843,000 at December 31, 1996. The decrease of $1,645,000 in
working capital is primarily attributable to $2,543,000 used in operating
activities and asset additions of $699,000 which were partially offset by
$162,000 received from the exercise of stock options and warrants and $1,561,000
relating to funds received from RWE-DEA during the first six months of 1997.
In May 1997 the Company revised its credit facility with Bank One whereby a
borrowing base of $3,000,000 was established by using assets owned by FX
Producing, a wholly owned subsidiary, as collateral. The borrowing base amount
of $3,000,000 will be reduced by $25,000 per month effective June 1, 1997. The
Company also agreed to a revolving commitment amount of $100,000. Due to the
Company's current favorable working capital position there are no immediate
plans to utilize Bank One's credit facility.
Operating Activities
The net cash used in operating activities during the six months ended June
30, 1997 was $2,543,000, an increase of $1,348,000 over the first six months of
the 1996 amount of $1,195,000. The increase in net cash used in operating
activities was primarily attributed to increased exploration efforts in the
Company's Poland Concessions in which the Company drilled a dry hole costing
$1,805,000 on the Company's Baltic Concession.
Investing Activities
During the first six months ended June 30, 1997 the Company expended a net
amount of $444,000 on additions to oil & gas properties, as compared to $300,000
during the same period of 1996. In May 1997 the Company drilled and completed
a successful exploration well, the State #31-8, on its Rattler's Butte prospect
in central Montana which is currently producing approximately 200 barrels of oil
per day and is operated by another company. The well cost $20,000, net to the
Company's 6.25% working interest. In existing producing fields, primarily the
Cut Bank field in Montana, the Company spent $236,000 in upgrading its
production facilities. The Company incurred a reduction of $210,000 in oil and
gas properties related to the Orneta #1, which was carried as work in progress
as of December 31, 1996 and subsequently determined to be a dry hole on April
14, 1997. The Company increased its domestic undeveloped leasehold inventory in
1997 by spending $76,000 in Nevada, $170,000 in the Williston Basin of North
Dakota, and $42,000 in central Montana, a total of $288,000. In Poland the
Company spent $110,000 in concession acquisition costs. The Company currently
has capitalized undeveloped leasehold costs of $420,000 domestically and
$504,000 relating to Poland. In accordance with generally accepted accounting
principles, should the Company determine that prospects' capitalized costs are
not recoverable following unsuccessful exploration drilling or otherwise, the
Company will record an impairment charge which may materially and adversely
affect the Company's results of operations for the period during which such
impairment is recognized.
Additions to other property and equipment totaled $243,000 during the first
six months of 1997, an increase of $88,000 as compared to $155,000 for the same
period of 1996. In 1997 the Company spent $74,000 in upgrading its computer
software and office equipment and had capital additions of $127,000 relating to
its drilling rig and well servicing equipment. The Company also enhanced its
fleet of pickups used in its drilling and producing operations by trading in two
pickups for $13,000 and purchasing two new pickups for $42,000.
The Company had $5,477,000 invested in bonds as of December 31, 1996, all
of which matured during the six months ended June 30, 1997. Proceeds of
$2,588,000 were reinvested into short term bonds, with the remainder of the
proceeds being used primarily to fund the net cash used by operations of
$2,543,000 during the six months ended June 30, 1997.
Financing Activities
During the first six months of 1997 warrants and options for 91,834 shares
were exercised resulting in net proceeds of $162,000 net to the Company.
Baltic Concession. On June 30, 1997 RWE-DEA elected not to fund its fifty
percent share of the second exploratory well in the Baltic Concession, which
resulted in the termination of RWE-DEA's right to earn a fifty percent interest
in the Baltic Concession. RWE-DEA had advanced the Company $3,061,000 prior to
its election, including $1,500,000 as of December 31, 1996 plus an additional
$1,561,000 during the first six months of 1997. The Company is not obligated to
reimburse RWE-DEA for any funds received from RWE-DEA prior to the termination
of its right to earn a fifty percent interest in the Baltic Concession. The
Company had initially recorded all funds received from RWE-DEA as long term debt
pending official approval by the Polish government of RWE-DEA as a partner in
the Baltic Concession and the completion of other formalities. Upon termination
of RWE-DEA's right to earn a fifty percent interest in the Baltic Concession,
the Company eliminated its long term notes payable relating to RWE-DEA and
recognized an extraordinary gain of $3,061,000.
Lublin Concessions. On April 16, 1997 the Company entered into an initial
agreement with Apache whereby it will earn a 50% interest in the Company's
Original Eight Blocks containing approximately 2.0 million acres by paying the
Company $150,000 in cash, shooting 500 kilometers (approximately 300 miles) of
2D seismic, and drilling two exploratory wells prior to June 30, 1998 at its own
expense. On August 1, 1997 the agreement was expanded and modified to include
the adjacent Additional 16 Blocks containing approximately 3.5 million acres
that were awarded to the Company on July 18, 1997 by the Polish government.
The terms of the original agreement were modified to include an additional cash
payment of $300,000 by Apache and a commitment by Apache to incur at its own
expense, the costs of drilling five additional exploratory wells, all additional
concession costs, all additional usufruct costs, and costs of shooting an
additional amount of approximately 1,150 kilometers of seismic during a three
year exploration period.
Final discussions are underway to enable POGC to participate in the
Additional 16 Blocks by granting POGC the right, on a block by block basis, to
earn up to a one third interest by paying its proportionate share of the
drilling cost of the first exploratory well on each block. Should POGC make
such an election in the Additional 16 Blocks, Apache's and the Company's
interest would be reduced proportionately. The ongoing discussions also include
allowing POGC to have an option to earn up to a twenty five percent interest in
the Original Eight Blocks by paying for one fourth of the cost, on a block by
block basis, of the initial exploratory well on each block. Should POGC make
such an election on the Original Eight Blocks, Apache has agreed to pay the
Company $40,000 for each percentage point reduction in the Company's interest as
a result of POGC's election.
In summary, in order to earn a fifty percent interest in the Company's
total of 24 Lublin area concession blocks containing approximately 5.5 million
acres, Apache has committed approximately $15,000,000 to pay: (1) the Company
$450,000 in cash, (2) the cost of drilling seven exploratory wells (two in the
Original Eight blocks and five in the Additional 16 Blocks), (3) the cost of
shooting approximately 1,650 kilometers of seismic (approximately 500 kilometers
in the Original 8 Blocks and 1,150 in the Additional 16 Blocks), (4) all
concession costs, and (5) all usufruct costs during the first three year
exploration period. The Company and Apache are in the process of determining how
to best effect their fifty-fifty joint venture with the Polish government's
approval. All funds received from Apache by the Company prior to the Polish
government's approval will be recorded as long term debt. As of June 30, 1997
the Company had received $65,000 from Apache relating the Lublin area concession
agreements.
Sudety Concessions. On June 13, 1997 the Company signed a letter of intent with
Homestake Mining Company ("Homestake") to jointly explore for gold on the
Company's Sudety Concession in Poland. Homestake has the right to earn at
least a seventy five percent interest in the Sudety Concession. Upon reaching a
final agreement Homestake has agreed to spend at least $500,000 per year with a
minimum commitment of $1,100,000 over a two year period, to reimburse the
Company for past expenditures, and cover all future exploration costs. The
Company and Homestake are in the process of determining how to best effect the
ownership of the Sudety Concession with the Polish government's approval. All
funds received from Homestake by the Company prior to the Polish government's
approval will be recorded as long term debt. As of June 30, 1997 the Company
had received $1,000 from Homestake.
Capital Expenditures. The Company estimates that a total of approximately
$15,100,000 will be spent for planned exploration and other activities on the
Company's prospects through 1998, of which approximately $12,550,000 will be
provided by industry partners and $4,350,000 will be provided by the Company.
Approximately $1,800,000 is budgeted to drill the Gladysze #1-A well now
underway and to acquire additional seismic data in the Baltic Concession through
late 1997. Further activities in the Baltic Concession will depend on the
results of ongoing exploration and the Company's future plans respecting
recruiting a new industry participant. The Company estimates that approximately
$10,000,000 will be spent to drill four wells and acquire additional seismic
data in the Lublin area concessions through 1998, of which all but approximately
$500,000 will be provided by Apache. The approximately $2,500,000 budgeted for
the review and evaluation of available geological and geophysical data and the
potential initiation of exploratory activities in the Carpathian joint study
area through 1998 will be borne approximately equally be POGC and the Company.
Through 1998, the Company expects to spend approximately $800,000 for
exploration activities in the western United States.
The allocation of the Company's capital among the categories of anticipated
expenditures is discretionary and will depend upon future events that cannot be
predicted. Such events include the actual results and costs of future
exploration and development drilling activities. Consistent with previous
practice, the Company may obtain partial funding for its exploration and
potential development activities through strategic arrangements with industry or
financial partners.
In view of the continuing expansion of activities and opportunities in
Poland as discussed above, the Company is currently deferring the commitment of
capital for additional in-fill development drilling in the Cut Bank Field in
Montana.
RESULTS OF OPERATIONS
Comparison of the second quarter 1997 to the second quarter 1996
Oil sales for the three months ended June 30, 1997 were $500,000 as
compared to $572,000 in the same period of 1996, a decrease of $72,000 or 11.50
percent. The decrease was attributable to the combination of lower average oil
prices ($15.78 for the second quarter of 1997 as compared to $17.59 for the
second quarter of 1996, a decrease of 14.40 percent) and declining production
volumes (31,670 bbls produced during the second quarter of 1997 as compared to
32,520 bbls produced in the second quarter of 1996, a decrease of 2.69 percent).
Drilling revenues for the three months ended June 30, 1997 were $72,000 as
compared to $7,000 in the same period of 1996, an increase of $65,000. The
Company drilled the State #31-8 well on its Rattler Butte prospect in central
Montana during the second quarter of 1997 utilizing its rig #5. The Company did
not drill any wells during the same period of 1996. Future drilling revenue
will vary with the timing of wells being drilled, costs of the wells and the
Company's working interest.
Production and operating costs for the three months ended June 30, 1997
were $198,000 as compared to $255,000 in the same period of 1996, a decrease of
$57,000. The decrease was primarily attributable to switching company employees
normally employed in routine producing activities to drilling and completion
operations. The Company's rig #5 crew normally performs routine work on the
Company's producing properties. However, in the second quarter of 1997 the crew
was pulled off the Company's producing properties to drill and complete the
State #31-8 well in central Montana utilizing the Company's rig #5. This
resulted in less labor expense being associated with Company's producing
operations.
Production taxes for the three months ended June 30, 1997 were $41,000 as
compared to $43,000 in the same period of 1996, a decrease of $2,000. The
decrease in production taxes is associated with decreased production volumes
(31,670 bbls produced during the second quarter of 1997 as compared to 32,520
bbls produced in the second quarter of 1996).
Exploration costs for the three months ended June 30, 1997 were $863,000 as
compared to $206,000 in the same period of 1996, an increase of $657,000. The
increase is principally due to the Orneta #1, a dry hole drilled on the
Company's Baltic concession in Poland during the first six months of 1997 at a
cost of $1,805,000, of which $700,000 was recorded as an expense during the
three months ended June 30, 1997.
Drilling costs for the three months ended June 30, 1997 were $118,000 as
compared to $2,000 in the same period of 1996, an increase of $116,000. As
discussed above, the State #31-8 well was drilled and completed utilizing the
Company's drilling rig #5 during the second quarter of 1997. The Company's
drilling rig was not utilized in drilling operations during second quarter of
1996.
Depreciation, depletion and amortization ("DD&A") expense for the three
months ended June 30, 1997 was $164,000 as compared to $137,000 in the same
period of 1996, an increase of $27,000. The increase in DD&A was primarily due
to the depreciation of computer software, office furniture and other equipment
additions purchased after the second quarter of 1996. DD&A related to oil and
gas properties was essentially the same due to relatively flat production
volumes.
General and administrative expenses for the three months ended June 30,
1997 were $605,000 as compared to $360,000 in the same period of 1996, an
increase of $245,000. The increase was primarily due to the additional general
and administrative expenses associated with the Company's Polish operations.
The Company's expanded Polish activity includes four separate Polish exploration
subsidiaries as of June 30,1997 as compared to only the Baltic Concession as of
June 30, 1996.
Interest and other income for the three months ended June 30, 1997 was
$189,000 as compared to $21,000 in the same period of 1996, an increase of
$168,000. The increase is principally due to an increase in the interest earned
on liquid investments. The Company's liquid investment position was $12,148,000
at June 30, 1997 as compared to $1,192,000 at June 30, 1996.
Interest expense for the three months ended June 30, 1997 was $50,000
(relating to RWE-DEA) as compared to $90,000 in the same period of 1996, a
decrease of $40,000. The decrease is primarily due a lower average amount of
outstanding long term debt in 1997. The Company's long term debt of $3,583,000
at June 30, 1996 was paid off in August 1996 using net proceeds from a public
offering of common stock. The Company had long term debt associated with RWE-
DEA of $1,500,000 as of December 31, 1996 and received $1,561,00 in additional
funding from RWE-DEA during the six months ended June 30, 1997. However, upon
RWE-DEA's election to not earn its concession rights on June 30, 1997, the
Company eliminated its long term debt associated with RWE-DEA and recognized an
extraordinary gain of $3,061,000.
RESULTS OF OPERATIONS
Comparison of the first six months of 1997 to the first six months of 1996
Oil sales of $1,079,000 for the first six months of 1997 were essentially
flat as compared to oil sales of $1,077,000 for same period of 1996. Lower
production (62,791 barrels produced for the six months ended June 30, 1997
versus 64,116 barrels in the same period of 1996, a decrease of 2.11 percent)
was offset by higher oil prices ($17.18 for the six months ended June 30, 1997
versus $16.80 in the same period of 1996, an increase of 2.30 percent).
Drilling revenues were $72,000 for the six months ended June 30, 1997,
$64,000 higher than the total drilling revenues of $8,000 for the same period of
1996. During the first six months of 1997 the Company utilized its drilling rig
#5 to drill the State #31-8 well on its Rattler Butte prospect in central
Montana. The Company did not drill any wells during the same period of 1996.
Future drilling revenue will vary with the timing of wells being drilled, costs
of the wells and the Company's working interest.
Production and operating costs of $551,000 for the first six months of 1997
were essentially flat as compared to $549,000 for the same period of 1996.
During the first quarter of 1997 production and operating costs were $354,000,
an abnormally high amount due to severe weather in northern Montana. However,
production and operating costs decreased to $198,000 in the second quarter of
1997 due to improved weather conditions and the shifting of the rig #5 crew from
normal operational activities to drilling and completing the State #31-8 in
central Montana. Production and operating costs during the same period of 1996
were historically higher than prior periods primarily due the beginning of
concerted efforts to perform increased maintenance during 1996 on the Southwest
Cut Bank Sand Unit in conjunction with the Company's ongoing program to enhance
the overall production of the field.
Production taxes were $78,000 for the six months ended June 30, 1997,
$3,000 higher than the total production taxes of $75,000 for the same period of
1996. Production taxes for the first six months of 1996 contained production
tax adjustments from prior periods.
Exploration costs were $2,196,000 for the six months ended June 30, 1997,
$1,802,000 higher than the total exploration costs of $394,000 for the same
period of 1996. The increase is principally due to the Orneta #1, a dry hole
drilled on the Company's Baltic concession during the first six months of 1997
in Poland at a cost of $1,805,000.
Drilling costs were $134,000 for the six months ended June 30, 1997,
$108,000 higher than the total drilling costs of $26,000 for the same period of
1996. The increase is directly associated with the downtime costs and the
drilling of the State #31-8 well during the first six months of 1997. The
Company's drilling rig #5 was not utilized for exploratory drilling wells with
third party owners in the same period of 1996.
Depreciation, depletion and amortization ("DD&A") expense was $309,000 for
the six months ended June 30, 1997, $34,000 higher than the total DD&A expense
amount of $275,000 for the same period of 1996. The increase in DD&A was
primarily due to computer software, office furniture, and other equipment
additions totaling $160,000 acquired after June 30, 1996. DD&A relating to oil
and gas properties was essentially the same due to flat production volumes.
General and administrative expenses were $1,249,000 for the six months
ended June 30, 1997, an increase of $523,000 over the total general and
administrative expense amount of $726,000 for the same period of 1996. The
increase was primarily due to the additional general and administrative expenses
associated with the Company's Polish operations. The Company's expanded Polish
activity includes four separate Polish exploration subsidiaries as of June 30,
1997 as compared to only the Baltic Concession as of June 30, 1996.
Interest and other income for the six months ended June 30, 1997 was
$392,000, an increase of $335,000, as compared to the interest and other income
amount of $57,000 for the same period of 1996. The increase was principally due
to an increase in the interest earned on liquid investments. The Company's
liquid investment position was $12,148,000 at June 30, 1997 as compared to
$1,192,000 at June 30, 1996.
Interest expense was $83,000 for the six months ended June 30, 1997, a
decrease of $88,000 over the same period of 1996. The decrease is primarily due
a lower average outstanding amount of long term debt in 1997. The Company's long
term debt of $3,583,000 at June 30, 1996 was paid off in August 1996 using net
proceeds from a public stock offering. The Company had long term debt
associated with RWE-DEA of $1,500,000 as of December 31, 1996 and received
$1,561,000 in additional funding from RWE-DEA during the six months ended June
30, 1997. However, upon RWE-DEA's election to not earn its concession rights on
June 30, 1997, the Company eliminated its long term debt associated with RWE-DEA
and recognized an extraordinary gain of $3,061,000.
OTHER MATTERS
In March 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128, Earnings Per Share. This statement
establishes standards for computing and presenting earnings per share ("EPS")
and applies to entities with publicly-held common stock or potential common
stock. This statement simplifies the standards for computing EPS and makes them
comparable to international EPS standards. This statement is effective for
financial statements for both interim and annual periods ending after December
15, 1997. The Company is currently evaluating the impact of the recently issued
statement and will adopt the requirements for the year ending December 31, 1997.
The Company has reviewed all other recently issued, but not yet adopted,
accounting standards in order to determine their effects, if any, on the results
of operations or financial position of the Company. Based on that review, the
Company believes that none of these pronouncements will have a significant
effect on current or future earnings or operations.
PART II. OTHER INFORMATION
- -------------------------------------------------------------------------------
ITEM 2. CHANGES IN SECURITIES
- -------------------------------------------------------------------------------
At the annual meeting of stockholders held June 24, 1997, the stockholders
approved several proposals that are reflected in restated articles of
incorporation attached hereto as an exhibit. The proposals effected by such
restated articles of incorporation amended the articles of incorporation to do
the following:
1. Make general modernizing changes;
2. Cause the Company to specifically opt out of certain anti-takeover
statutes in Nevada while remaining subject to similar statutes in other states;
3. Increase the Company's authorized capitalization to 30,000,000 shares
of common stock, retaining the 5,000,000 shares of preferred stock currently
authorized;
4. Make certain modernizing changes to article provisions providing for
the indemnification of officers, Directors, and others;
5. Require advance notice for the nomination of Directors;
6. Grant cumulative voting on the election of Directors if a person or
group of related persons owning in excess of 30% of the Common Stock opposes
management of the Company in a separate Proxy solicitation or in an election
contest;
7. Require advance notice regarding business to be conducted at
stockholders' meetings;
8. Deny action by the written consent of the holders of a majority of the
voting shares;
9. Prohibit the Company from paying a premium upon the redemption of
stock in excess of the fair market value of such stock from a stockholder that
has acquired 10% or more of the Common Stock;
10. Authorize the Board of Directors to consider all relevant factors in
evaluating a proposed tender offer or other attempted takeover;
11. Require an affirmative vote of stockholders holding at least
two-thirds of the Common Stock to approve a business combination with a person
or group of related persons owning in excess of 10% of the Common Stock unless
such business combination requires the payment of a fair price for the Company's
stock, prohibits the Company from entering into certain transactions or taking
certain actions with related parties and requires prior notice to have been
provided to the stockholders or, alternatively, the business combination is
approved by two-thirds of the Directors that were not elected by or at the
request of the interested person or persons; and
12 Provide that the Rights granted to the stockholders pursuant to the
Stockholder Rights Plan may only be redeemed by the Rights Redemption Committee
consisting of at least three continuing Directors, at least a majority of whom
are not employees of the Company;
On April 4, 1997, the board of directors adopted a Rights Agreement under
which Preferred Stock purchase rights were distributed, as a dividend, to
stockholders of record as of April 21, 1997, at a rate of one Right for each
share of the Company's Common Stock held on such record date. For a complete
description of the Rights Agreement, see the Company's current report on Form 8-
K dated April 4, 1997.
- -------------------------------------------------------------------------------
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- -------------------------------------------------------------------------------
On June 24, 1997, at the annual meeting of the Company's shareholders, the
shareholders approved the following matters submitted to them for consideration:
(1) Elected Andrew W. Pierce, Jay W. Decker, and Jerzy B. Maciolek as directors
of the Company as follows:
Andrew W. Pierce For: 11,647,551
Jay W. Decker For: 11,647,551
Jerzy B. Maciolek For: 11,647,551
(2) Approved amendments of the Company's Articles of Incorporation to:
(a)Make general modernizing changes;
For 8,209,359 Against 51,700 Abstain 9,305
(b)Cause the Company to specifically opt out of certain anti-takeover
statutes in Nevada while remaining subject to similar statutes in other
states;
For 8,093,739 Against 140,495 Abstain 36,130
32
(c)Increase the Company's authorized capitalization to 30,000,000 shares
of common stock, retaining the 5,000,000 shares of preferred stock
currently authorized;
For 8,107,264 Against 147,770 Abstain 15,330
(d)Make certain modernizing changes to article provisions providing for
the indemnification of officers, Directors, and others;
For 11,574,736 Against 161,085 Abstain 6,430
(e)Require advance notice for the nomination of Directors;
For 7,528,784 Against 735,850 Abstain 5,730
(f)Grant cumulative voting on the election of Directors if a person or
group of related persons owning in excess of 30% of the Common Stock
opposes management of the Company in a separate Proxy solicitation or
in an election contest;
For 7,432,929 Against 819,905 Abstain 17,530
(g)Require advance notice regarding business to be conducted at
stockholders' meetings;
For 7,492,784 Against 771,650 Abstain 5,930
(h)Deny action by the written consent of the holders of a majority of the
voting shares;
For 6,362,159 Against 1,886,975 Abstain 21,230
(i)Prohibit the Company from paying a premium upon the redemption of stock
in excess of the fair market value of such stock from a stockholder
that has acquired 10% or more of the Common Stock;
For 8,190,334 Against 69,300 Abstain 10,730
(j)Authorize the Board of Directors to consider all relevant factors in
evaluating a proposed tender offer or other attempted takeover;
For 6,499,734 Against 1,764,900 Abstain 5,730
(k)Require an affirmative vote of stockholders holding at least two-thirds
of the Common Stock to approve a business combination with a person or
group of related persons owning in excess of 10% of the Common Stock
unless such business combination requires the payment of a fair price
for the Company's stock, prohibits the Company from entering into
certain transactions or taking certain actions with related parties and
requires prior notice to have been provided to the stockholders or,
alternatively, the business combination is approved by two-thirds of
the Directors that were not elected by or at the request of the
interested person or persons; and
For 6,574,134 Against 1,687,500 Abstain 8,730
(l)Provide that the Rights granted to the stockholders pursuant to the
Stockholder Rights Plan may only be redeemed by the Rights Redemption
Committee consisting of at least three continuing Directors, at least a
majority of whom are not employees of the Company.
For 6,356,954 Against 1,886,680 Abstain 26,730
(3) Approved the Frontier Oil Exploration Company 1996 Stock Option and Award
Plan:
For 11,238,641 Against 484,180 Abstain 19,430
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
The following exhibits are included as part of this report:
SEC
Exhibit Reference
Number Number Title of Document Location
- ------- --------- --------------------------------------- ------------
Item 3 Articles of Incorporation
- --------------------------------------------
3.01 3 Restated Articles of Incorporation of FX This Filing
Energy, Inc.
Item 4 Instruments Defining the Rights of Security
Holders
- --------------------------------------------
4.01 4 Form of Amendment To Articles Of Incorporated by
Incorporation Designating Rights. Reference(1)
Privileges, And Preferences Of Series "A"
Preferred Stock
4.02 4 Form of Rights Agreement dated as of April Incorporated by
4, 1997, between FX Energy, Inc., and Reference(1)
Fidelity Transfer Corp.
(1) Incorporated by reference from the current report on Form 8-K dated April 4,
1997
(b) REPORTS ON FORM 8-K
During the quarter ended June 30, 1997, the Company filed the following
reports on Form 8-K:
Date of Event Reported Item(s) Reported
- ---------------------- -----------------------------
April 1, 1997 Item 5. Other Events
April 4, 1997 Item 5. Other Events
Item 7. Financial Statements and
Exhibits
April 14, 1997 Item 5. Other Events
April 18, 1997 Item 5. Other Events
- -------------------------------------------------------------------------------
SIGNATURES
- -------------------------------------------------------------------------------
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
FX ENERGY, INC.
(Registrant)
Date: August 14, 1997 By David N. Pierce
Chief Executive Officer, President, Chief
Financial and Accounting Officer, and
Director
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE
SHEET AS OF JUNE 30, 1997, AND STATEMENTS OF OPERATIONS FOR THE QUARTER ENDED
JUNE 30, 1997, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 9,584,818
<SECURITIES> 2,587,589
<RECEIVABLES> 733,682
<ALLOWANCES> 0
<INVENTORY> 20,155
<CURRENT-ASSETS> 12,950,401
<PP&E> 8,548,306
<DEPRECIATION> 1,695,131
<TOTAL-ASSETS> 21,892,073
<CURRENT-LIABILITIES> 751,992
<BONDS> 0
<COMMON> 12,592
0
0
<OTHER-SE> 21,061,969
<TOTAL-LIABILITY-AND-EQUITY> 21,892,073
<SALES> 1,068,456
<TOTAL-REVENUES> 1,151,180
<CGS> 0
<TOTAL-COSTS> 4,516,575
<OTHER-EXPENSES> 35,941
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 82,739
<INCOME-PRETAX> (3,056,231)
<INCOME-TAX> 0
<INCOME-CONTINUING> (3,056,231)
<DISCONTINUED> 0
<EXTRAORDINARY> 3,061,059
<CHANGES> 0
<NET-INCOME> 4,828
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
RESTATED
ARTICLES OF INCORPORATION
OF
FX ENERGY, INC.
The undersigned, pursuant to the Nevada Revised Statutes, hereby adopt the
following restated articles of incorporation of FX Energy, Inc. (referred to
herein as the "Corporation"), which articles of incorporation were originally
filed with the state of Nevada on January 24, 1989, were restated by filing
restated and amended articles of incorporation on April 5, 1993, and were
amended by filing articles of amendment on July 23, 1996, and by the further
amendments contained herein.
1. The name of the Corporation is: FX Energy, Inc.
2. The text of the restated articles of incorporation is as follows:
ARTICLE I
NAME
The name of the Corporation shall be: FX Energy, Inc.
ARTICLE II
PURPOSE
The Corporation is organized to engage in any lawful act or activity for
which a corporation may be organized under the Nevada Revised Statutes.
ARTICLE III
AUTHORIZED SHARES
The Corporation shall have the authority to issue 35,000,000 shares,
of which 30,000,000 shares shall be common stock, $0.001 par value ("Common
Stock"), and 5,000,000 shares shall be preferred stock $0.001 par value
("Preferred Stock"). Shares of any class of stock may be issued, without
stockholder action, from time to time in one or more series as may from time to
time be determined by the Board of Directors. The Board of Directors of this
Corporation is hereby expressly granted authority, without stockholder action,
and within the limits set forth in the Nevada Revised Statutes, to:
(a) designate in whole or in part, the voting powers, preferences,
limitations, restrictions, and relative rights, of any class of shares
before the issuance of any shares of that class;
(b) create one or more series within a class of shares, fix the
number of shares of each such series, and designate, in whole or part, the
voting powers, preferences, limitations, restrictions, and relative rights
of the series, all before the issuance of any shares of that series; or
(c) alter or revoke the preferences, limitations, and relative rights
granted to or imposed upon any wholly unissued class of shares or any
wholly unissued series of any class of shares.
The allocation between the classes, or among the series of each class, of
unlimited voting rights and the right to receive the net assets of the
Corporation upon dissolution, shall be as designated by the Board of Directors.
All rights accruing to the outstanding shares of the Corporation not expressly
provided for to the contrary herein or in the Corporation's bylaws or in any
amendment hereto or thereto shall be vested in the Common Stock. Accordingly,
unless and until otherwise designated by the Board of Directors of the
Corporation, and subject to any superior rights as so designated, the Common
Stock shall have unlimited voting rights and be entitled to receive the net
assets of the Corporation upon dissolution.
ARTICLE IV
BOARD OF DIRECTORS
Subject to such limitations as provided by the Nevada Revised Statutes or
these articles, the Board of Directors has full control over the affairs of the
Corporation. The Board of Directors may exercise all such powers of the
Corporation and do all such lawful acts and things as are not by law or by these
Articles of Incorporation directed or required to be exercised or done by the
stockholders of the Corporation.
(a) Number. The number of directors constituting the entire Board of
Directors shall be not less than three nor more than nine. The specific
number of directors constituting the entire Board of Directors shall be
authorized from time to time exclusively by the affirmative vote of a
majority of the entire Board of Directors. No decrease in the number of
directors shall shorten the term of any incumbent director. As used in
these articles of incorporation, the term "entire Board of Directors" means
the total authorized number of directors that the corporation would have if
there were no vacancies.
Notwithstanding the provisions of the foregoing paragraph, whenever
the holders of any class or series of Preferred Stock shall have the right,
voting as a class or series or otherwise, to elect directors, the then
authorized number of directors of the Corporation shall be increased by the
number of the additional directors so to be elected, and the holders of
such Preferred Stock shall be entitled, as a class or series or otherwise,
to elect such additional directors. Any directors so elected shall hold
office until their rights to hold such office terminate pursuant to the
provisions of such Preferred Stock. The provisions of this paragraph shall
apply notwithstanding the maximum number of directors hereinabove set
forth.
(b) Qualifications. The Board of Directors may, by the vote of a
majority of the entire board, prescribe qualifications of candidates for
the office of director of the Corporation, but no director then in office
shall be disqualified from office as a result of the adoption of such
qualifications.
(c) Classified Board; Tenure. The directors shall be divided into
three classes: class A, class B, and class C. The term of office of
directors shall be three years, staggered by class so that one class is
elected each year. Such classes shall be as nearly equal in number as
possible. Directors chosen to succeed those who have been removed or whose
terms have expired shall be identified as being of the same class as the
directors they succeed and shall be elected for a term expiring at the
expiration date of such class or thereafter when their respective
successors are elected and have been qualified. If the number of directors
is changed, any increase or decrease in directors shall be apportioned
among the classes so as to maintain all classes as nearly equal in number
as possible, and any individual director elected to any class shall hold
office for a term which shall coincide with the term of such class. In no
case will a decrease in the number of directors shorten the term of any
incumbent director.
(d) Nominations. Advance written notice of nominations for the
election of directors, other than by the Board of Directors or a committee
thereof, shall be given at least 30 days prior to the date of the meeting
at which directors are to be elected in the manner provided in the bylaws
of the Corporation.
(e) Removal of Directors. Subject to the rights of the holders of
any Preferred Stock then outstanding, the stockholders may remove one or
more directors at a meeting of stockholders called expressly for the
purpose of removing directors, as stated in the notice of meeting, with or
without cause, on the affirmative vote of two-thirds of the Common Stock or
other securities of the Corporation entitled to vote generally for the
election of directors. In the event that cumulative voting for directors
is permitted pursuant to these articles of incorporation, then no director
may be removed except upon the vote of stockholders owning sufficient
shares to have prevented such director's election to office in the first
instance.
(f) Vacancies. Subject to the rights of the holders of any Preferred
Stock then outstanding, any vacancies in the Board of Directors for any
reason, including by reason of any increase in the number of directors or
any removal of an incumbent director, shall, if occurring prior to the
expiration of the term of office of the class in which such vacancy occurs,
be filled only by the Board of Directors, acting by the affirmative vote of
a majority of the remaining directors, whether or not constituting a
quorum. A director elected to fill a vacancy shall be elected for the
unexpired term of such director's predecessor in office and until his or
her successor is elected and qualified or, if such vacancy is the result of
an increase in the number of directors, until the next meeting of
stockholders at which directors are elected. If there are no directors in
office, then an election of directors may be held in the manner provided by
law.
(g) Cumulative Voting for Election of Directors in Certain
Circumstances.
(i) Except as and to the extent otherwise provided in this
paragraph (g), stockholders of the Corporation shall not be entitled
to cumulative voting rights in any election of directors of the
Corporation.
(ii) There shall be cumulative voting in any election of
directors of the Corporation on or after the occurrence of both of the
following events:
(A) the public announcement (which, for purposes of this
definition, shall include, without limitation, a report filed
pursuant to section 13(d) under the Securities Exchange Act of
1934, as amended (the "Exchange Act")) by the Corporation or any
Person (which in these articles shall mean any individual, firm,
corporation, or other entity, and shall include any successor, by
merger or otherwise, of such entity) who or which, together with
all Affiliates and Associates (as such terms are defined in rule
12b-2 of the General Rules and Regulations under the Exchange Act
as in effect on the date of the adoption of these provisions by
the stockholders of the Corporation) of such Person, shall be the
Beneficial Owner (as defined in rule 13d-3 and rule 13d-5 of the
General Rules and Regulations under the Exchange Act as in effect
on the date of the adoption of these provisions by the
stockholders of the Corporation) of 30% or more of the Common
Stock and any other securities of the Corporation entitled to
vote generally for the election of directors (the "Voting
Stock"), including any security convertible into or exchangeable
for or exercisable for the purchase of Voting Stock (any such
person referred to herein as a "30% Stockholder") that such
Person has become a 30% Stockholder; and
(B) such 30% Stockholder makes, or in any way participates
in, directly or indirectly, any "solicitation" of
"proxies" (as such terms are defined or used in regulation 14A
under the Exchange Act) or becomes a "participant" in any
"election contest" (as such terms are defined or used in rule
14a-11 of the Exchange Act) with respect to the Corporation;
seeks to advise or influence any person (within the meaning of
section 13(d)(3) of the Exchange Act) with respect to the voting
of any securities of the Corporation; or executes any written
consent in lieu of a meeting of holders of the Voting Stock,
provided, however, that such written consents are then permitted
under these articles.
(iii) Notwithstanding the foregoing, no Person shall become a
"30% Stockholder" as the result of an acquisition of Common Stock by
the Corporation which, by reducing the number of shares outstanding,
increases the proportionate number of shares beneficially owned by
such Person to 30% or more of the Voting Stock; provided, however,
that if a Person who would otherwise be a 30% Stockholder but for the
provisions of this sentence shall, after such share purchases by the
Corporation, become the Beneficial Owner of any additional Voting
Stock, then such Person shall be deemed to be a "30% Stockholder."
Further, the term "30% Stockholder" shall not include (A) the
Corporation, (B) any wholly-owned subsidiary of the Corporation, (C)
any employee benefit plan of the Corporation or of any corporation or
other entity of which a majority of the voting power of the voting
equity securities or equity interests is owned, directly or
indirectly, by the Corporation (a "Subsidiary"), or (D) any Person
holding securities of the Corporation for or pursuant to the terms of
any such plan.
(h) Amendment or Repeal. Notwithstanding anything to the contrary
contained in these articles, no amendment or repeal of the provisions of
this Article or related provision in the bylaws of the Corporation shall be
adopted unless it is approved by the vote of two-thirds of the Common
Stock or other securities of the Corporation entitled to vote generally for
the election of directors.
ARTICLE V
LIMITATION ON LIABILITY
OF DIRECTORS AND OFFICERS
To the fullest extent permitted by the Nevada Revised Statutes or any other
applicable law as now in effect or as it may hereafter be amended, a director or
officer of the Corporation shall have no personal liability to the Corporation
or its stockholders for damages for breach of fiduciary duty as a director or
officer, except for damages resulting from (a) acts or omissions which involve
intentional misconduct, fraud, or a knowing violation of law, or (b) the payment
of dividends in violation of the provisions of section 78.300 of the Nevada
Revised Statutes, as it may be amended from time to time, or any successor
statute thereto.
ARTICLE VI
INDEMNIFICATION OF OFFICERS, DIRECTORS, AND OTHERS
To the fullest extent permitted by the Nevada Revised Statutes or any other
applicable law as now in effect or as it may hereafter be amended, the
Corporation shall indemnify directors and may indemnify officers, employees, or
agents of the Corporation to the extent authorized by the Board of Directors and
in the manner set forth in the bylaws of the Corporation. Notwithstanding
anything to the contrary contained in these articles, no amendment or repeal of
the provisions of this Article or related provisions in the bylaws of the
Corporation shall be adopted unless it is approved by the vote of two-thirds of
the Common Stock or other securities of the Corporation entitled to vote
generally for the election of directors.
ARTICLE VII
STOCKHOLDER ACTION
Any action which may be taken at any annual or special meeting of
stockholders may be taken only upon the vote of the stockholders at an annual or
special meeting duly called and may not be taken without a meeting and without
prior notice by written consent of the stockholders. Notwithstanding anything to
the contrary contained in these articles, no amendment or repeal of the
provisions of this Article or related provisions in the bylaws of the
Corporation shall be adopted unless it is approved by the vote of holders of
two-thirds of the Common Stock or other securities of the Corporation entitled
to vote generally for the election of directors.
ARTICLE VIII
MEETINGS OF STOCKHOLDERS
Subject to the rights of the holders of any series of Preferred Stock,
special meetings of stockholders of the Corporation may be called only by the
Board of Directors pursuant to a resolution duly adopted by a majority of the
total number of directors which the Corporation would have if there were no
vacancies.
ARTICLE IX
BUSINESS AT ANNUAL MEETING
At an annual meeting of stockholders, only such business shall be
conducted, and only such proposals shall be acted upon, as shall have been
brought before the annual meeting (a) by, or at the direction of, a majority of
the directors, or (b) by any stockholder of the Corporation who provides at
least 30 days advance written notice in compliance with the notice procedures
set forth in the bylaws of the Corporation. Notwithstanding anything
to the contrary contained in these articles, no amendment or repeal of the
provisions of this Article or related provisions in the bylaws of the
Corporation shall be adopted unless it is approved by the vote of two-thirds of
the Common Stock or other securities of the Corporation entitled to vote
generally for the election of directors .
ARTICLE X
ACQUISITION OF CONTROLLING INTEREST
The provisions of the Nevada Revised Statutes pertaining to the acquisition
of a controlling interest of the issued and outstanding shares of the
Corporation, section 78.378 et. seq., of the Nevada Revised Statutes, shall not
be applicable to the acquisition of a controlling interest of the securities of
the Corporation. This election is made in accordance with the provisions of
section 78.378 of the Nevada Revised Statutes.
ARTICLE XI
STOCK REPURCHASES FROM INTERESTED STOCKHOLDERS
(a) Vote Required for Certain Acquisitions of Securities. Except as
set forth in paragraph (b) of this Article, in addition to any affirmative
vote of stockholders required by any provision of law, the articles of
incorporation, or bylaws of the Corporation, or any policy adopted by the
Board of Directors, neither the Corporation nor any Subsidiary (as defined
above) shall knowingly effect any direct or indirect purchase or other
acquisition of any equity security of a class of securities which is
registered pursuant to section 12 of the Exchange Act issued by the
Corporation at a price which is in excess of the Market Price (as defined
below) of such equity security on the date that the understanding to effect
such transaction is entered into by the Corporation (whether or not such
transaction is concluded or a written agreement relating to such
transaction is executed on such date, and such date to be conclusively
established by determination of the Board of Directors), from any
Interested Stockholder (as defined below) who has beneficially owned such
securities for less than three years prior to the date of such purchase,
without the affirmative vote of the holders of the Voting Stock which
represent at least two-thirds of the outstanding Common Stock and any other
securities of the Corporation entitled to vote generally for the election
of directors ("Voting Stock"), excluding Voting Stock beneficially owned by
such Interested Stockholder. Such affirmative vote shall be required
notwithstanding the fact that no vote may be required, or that a lesser
percentage may be specified, by law or any agreement with any national
securities exchange, or otherwise.
(b) When a Vote is Not Required. The provisions of paragraph (a) of
this Article shall not be applicable with respect to:
(i) any purchase, acquisition, redemption, or exchange of such
equity securities, the purchase, acquisition, redemption, or exchange
of which is provided for in the Corporation's articles of
incorporation;
(ii) any purchase or other acquisition of equity securities made
as part of a tender or exchange offer by the Corporation to purchase
securities of the same class made on the same terms to all holders of
such securities and complying with the applicable requirements of the
Exchange Act and the rules and regulations thereunder (or any
successor provisions to such Act, rules, or regulations);
(iii) an open market stock purchase program approved by a
majority of those members of the Board of Directors who were duly
elected and acting members of the Board of Directors prior to the time
such Interested Stockholder became such; or
(iv) any purchase, acquisition, redemption, or exchange of such
equity securities, the purchase, acquisition, redemption, or exchange
of which is provided by an executive compensation plan, including any
employment agreement or stock option agreement, approved by the Board
of Directors or a committee of non-employee directors.
(c) Certain Definitions. For purposes of this Article, the following
terms shall have the following meanings:
(i) "Interested Stockholder" shall mean any Person (other than
the Corporation or any Subsidiary) that is the direct or indirect
Beneficial Owner (as defined in rule 13d-3 and rule 13d-5 of the
General Rules and Regulations under the Exchange Act as in effect on
the date of the adoption of these provisions by the stockholders of
the Corporation) of more than 10% of the aggregate Voting Stock, and
any Affiliate or Associate (as such terms are defined in rule 12b-2 of
the General Rules and Regulations under the Exchange Act as in effect
on the date of the adoption of these provisions by the stockholders of
the Corporation) of any such Person. For the purpose of determining
whether a Person is an Interested Stockholder, the outstanding Voting
Stock shall include unissued shares of voting stock of the corporation
of which the Interested Stockholder is the Beneficial Owner, but shall
not include any other shares of Voting Stock of the Corporation which
may be issuable pursuant to any agreement, arrangement, or
understanding, or upon exercise of conversion rights, warrants, or
options, or otherwise, to any Person who is not the Interested
Stockholder.
(ii) "Market Price" of shares of a class of an equity security of
the Corporation on any day shall mean the highest closing sale price
(regular way) of shares of such class of such equity security during
the 30 day period immediately preceding such day, on the largest
principal national securities exchange on which such class of stock is
then listed or admitted to trading, or if not listed or admitted to
trading on any national securities exchange, then the highest reported
closing sale price for such shares in the over-the-counter market as
reported on the Nasdaq Stock Market, or if such sale prices shall not
be reported thereon, the highest closing bid price so reported, or, if
such price shall not be reported thereon, as the same shall be
reported by the National Quotation Bureau Incorporated, or if the
price is not determinable as set forth above, as determined in good
faith by the Board of Directors.
(d) Amendment or Repeal. Notwithstanding anything to the contrary
contained in these articles, no amendment or repeal of the provisions of
this Article or related provisions in the bylaws of the Corporation shall
be adopted unless it is approved by the vote of two-thirds of the Common
Stock or other securities of the Corporation entitled to vote generally for
the election of directors.
ARTICLE XII
POWER OF BOARD TO OPPOSE CERTAIN TRANSACTIONS
(a) Factors to Consider. The Board of Directors may oppose a tender
or other offer for the Corporation's securities, whether the offer is in
cash or in the securities of a corporation or otherwise, or any other
Business Combination (as defined below) if the directors, by a majority
vote of a quorum, determine that the offer or Business Combination is
opposed to or not in the best interests of the Corporation. When
considering whether to oppose an offer or Business Combination, the
Board of Directors may, but is not legally obligated to, consider any
relevant factors, including those factors specifically enumerated under
section 78.138 of the Nevada Revised Statutes. By way of illustration, but
not limitation, the Board of Directors may, but shall not be legally
obligated to, consider any and all of the following: (i) whether the offer
price is acceptable based on the historical and present operating results
or financial condition of the Corporation, or based on the current value of
the Corporation in a freely negotiated transaction; whether a more
favorable price could be obtained for the Corporation's securities in the
future; (ii) the social, legal and economic impact which an acquisition of
the Corporation would have on the employees, suppliers, creditors, and
customers of the Corporation and any Subsidiary (as defined above) and on
the community or communities in which the Corporation and its Subsidiaries
do business; (iii) the economy of the states and of the nations in which
the Company and its Subsidiaries do business; (iv) the reputation,
character, integrity, business philosophy, financial status and business
practices of the offeror and its management and affiliates and as they
would affect the employees, suppliers, creditors, and customers of the
Corporation and its Subsidiaries and the future value of the Corporation's
stock; (v) the value of the securities, if any, which the offeror is
offering in exchange for the Corporation's securities, based on an analysis
of the worth of the Corporation as compared to the corporation or other
entity whose securities are being offered; (vi) any antitrust or other
legal and regulatory issues that are raised by the offer; (vii) the
possibility that the interests of the Corporation's stockholders may be
best served by the continued independence of the Corporation; (viii) the
possible effects of the Business Combination on the Corporation's then
existing relationships with any foreign government or nation in which the
Corporation and its Subsidiaries do business or hold property interests and
rights; (ix) whether the amount or nature of indebtedness or other
obligations to which the Corporation may become subject in connection with
the Business Combination provides reasonable grounds to believe that
within a reasonable time: (A) the assets of the Corporation or any
successor would be or become less than its liabilities, (B) the Corporation
or any successor would be or become insolvent; or (C) any voluntary or
involuntary proceeding under the federal bankruptcy laws concerning the
Corporation or any successor corporation would be commenced by any person;
and (x) any other relevant factors, including the long-term as well as the
short-term interests of the Corporation and its stockholders, whether or
not such other factors are monetary or non-monetary in nature, or are
stockholder or non-stockholder considerations.
(b) Permitted Action. If the Board of Directors determines that an
offer should be rejected, it may take any lawful action to accomplish its
purpose, including, but not limited to, any or all of the following:
advising stockholders not to accept the offer; litigation against the
offeror; filing complaints with all governmental and regulatory
authorities; acquiring the Corporation's securities; selling or otherwise
issuing authorized but unissued securities or treasury stock or granting
options with respect thereto including, without limitation, creating a so-
called "poison pill" defense (including both put and call poison pills),
"rights plan" or any other anti-takeover defense permitted under the
articles of incorporation and under state law; refusing to redeem any
outstanding "poison pill" right or option or refusing to remove any other
barriers to the offer; acquiring a company to create an antitrust or other
regulatory problem for the offeror; establishing employee stock ownership
plans; and obtaining a more favorable offer from another individual or
entity.
(c) Certain Definitions. For purposes of this Article, the following
terms shall have the following meanings:
(i) "Interested Stockholder" shall mean any Person
(other than the Corporation or any Subsidiary) that is the direct or
indirect Beneficial Owner (as defined in rule 13d-3 and rule 13d-5 of
the General Rules and Regulations under the Exchange Act as in effect
on the date of the adoption of these provisions by the stockholders of
the Corporation) of more than 10% of the aggregate voting power of the
Common Stock or other securities of the Corporation entitled to vote
generally for the election of directors ("Voting Stock"), and any
Affiliate or Associate (as such terms are defined in rule 12b-2 of the
General Rules and Regulations under the Exchange Act as in effect on
the date of the adoption of these provisions by the stockholders of
the Corporation) of any such Person. For the purpose of determining
whether a Person is an Interested Stockholder, the outstanding Voting
Stock shall include unissued shares of Voting Stock of the Corporation
of which the Interested Stockholder is the Beneficial Owner, but shall
not include any other shares of Voting Stock of the Corporation which
may be issuable pursuant to any agreement, arrangement, or
understanding, or upon exercise of conversion rights, warrants, or
options, or otherwise, to any Person who is not the Interested
Stockholder.
(ii) "Business Combination" shall mean (A) any merger,
consolidation, or share exchange of the Corporation or any of its
Subsidiaries within or into an Interested Stockholder, in each case
irrespective of which corporation or company is to be the surviving
entity; (B) any sale, lease, exchange, mortgage, pledge, transfer, or
other disposition to or with an Interested Stockholder (in a single
transaction or a series of related transactions) of all or a
substantial part of the assets of the Corporation (including, without
limitation, any securities of a Subsidiary of the Corporation) or all
or a substantial part of the assets of any of its Subsidiaries; (C)
any sale, lease, exchange, mortgage or pledge, transfer, or other
disposition to or with the Corporation, or to or with any of its
Subsidiaries (in a single transaction or series of related
transactions) of all or a substantial part of the assets of an
Interested Stockholder; (D) the issuance or transfer by the
Corporation or any of its Subsidiaries of any securities of the
Corporation or any of its Subsidiaries to an Interested Stockholder
(other than an issuance or transfer of securities which is effected on
a pro rata basis to all stockholders of the Corporation); (E) any
acquisition by the Corporation or any of its Subsidiaries of any
securities issued by an Interested Stockholder; (F) any
recapitalization or reclassification of shares of any class of voting
stock of the Corporation or any merger or consolidation of the
Corporation with any of its Subsidiaries which would have the effect,
directly or indirectly, of increasing the proportionate share of the
outstanding shares of any class of capital stock of the Corporation
(or any securities convertible into any class of such capital stock)
owned by any Interested Stockholder; (G) any merger or consolidation
of the Corporation with any of its Subsidiaries after which the
provisions of this Article shall not appear in the articles of
incorporation (or the equivalent charter documents) of the surviving
entity; (H) any plan or proposal for the liquidation or dissolution of
the Corporation; and (I) any agreement, contract or other arrangement
providing for any of the transactions described in this definition of
Business Combination. Whether or not any proposed sale, lease,
exchange, mortgage, pledge, transfer, or other disposition of part of
the assets of any entity involves a "substantial part" of the assets
of such entity shall be conclusively determined by a two-thirds vote
of the Board of Directors; provided, however, that assets involved in
any single transaction or series of related transactions having an
aggregate fair market value, as determined by the Board of Directors,
of more than 15% of the total consolidated assets of an entity and its
subsidiaries as at the end of such entity's last full fiscal year
prior to such determination shall always be deemed to constitute a
"substantial part."
(d) Effect on Directors' Power and Liability. Nothing contained
herein shall be deemed to limit or restrict the powers of the Board of
Directors, or to enlarge the duties of the Board of Directors, as provided
in Nevada law, or to create director liability for taking any action
authorized hereunder.
(e) Amendment or Repeal. Notwithstanding anything to the contrary
contained in these articles, no amendment or repeal of the provisions of
this Article or related provisions in the bylaws of the Corporation shall
be adopted unless it is approved by the vote of two-thirds of the Common
Stock or other securities of the Corporation entitled to vote generally for
the election of directors.
ARTICLE XIII
FAIR PRICE ON BUSINESS COMBINATIONS
(a) Vote Required. No Business Combination (as defined below) shall
be consummated or effected unless such Business Combination shall have been
approved by the affirmative vote of the holders of not less than two-thirds
of the total voting power of all outstanding shares of Common Stock or
other securities of the Corporation entitled to vote generally for the
election of directors . Such vote shall be required notwithstanding the
fact that no vote for such a transaction may be required by law or that
approval by some other percentage of stockholders may be specified by law
or in any agreement with any national securities exchange or otherwise.
This Article shall not be deemed to affect the provisions of any such law
or agreement requiring any vote or approval by the stockholders or
directors respecting a proposed Business Combination.
(b) Vote Not Required. The vote required pursuant to paragraph (a)
above shall not be required if either of the following conditions is
satisfied, or if, in the case of a Business Combination not involving the
receipt of consideration by the holders of the Corporation's outstanding
capital stock, the condition specified in subparagraph (i) is met:
(i) The Continuing Directors (as defined below) shall have
expressly approved such Business Combination by a two-thirds vote
either in advance of or subsequent to the acquisition of outstanding
shares of capital stock of the Corporation that caused the Interested
Stockholder involved to become an Interested Stockholder. In
determining whether or not to approve any such Business Combination,
the Continuing Directors may give due consideration to all factors
they consider relevant, including without limitation, those identified
in these articles; or
(ii) All of the following conditions shall have been met:
(A) The cash, or fair market value of other consideration,
to be received per share by the stockholders of the Corporation
in such Business Combination bears the same or a greater
percentage relationship to the Market Price of the Corporation's
capital stock immediately prior to the announcement of such
Business Combination as the highest per share price (including
brokerage commissions and/or soliciting dealers' fees) which the
Interested Stockholder has theretofore paid for any of the shares
of the Corporation's capital stock already owned by it bears to
the Market Price of the Common Stock of the Corporation
immediately prior to the commencement of acquisition of the
Corporation's capital stock by the Interested Stockholder; and
(B) The cash, or fair market value of other consideration,
to be received per share by the stockholders of the Corporation
in such Business Combination (1) is not less than the highest per
share price (including brokerage commissions and/or soliciting
dealers' fees) paid by the Interested Stockholder in acquiring
any of its holdings of the Corporation's capital stock, (2) is
not less than the per share Market Price (defined below) of the
Common Stock on the date of the announcement of the Combination,
and (3) is not less than the earnings per share of capital stock
of the Corporation for the four full consecutive fiscal quarters,
or the last fiscal year reported, whichever is higher,
immediately preceding the record date for solicitation of votes
on such Business Combination, multiplied by the higher of either
the highest price/earnings multiple of the Corporation during the
two years prior to the announcement of such Business Combination
or the then price/earnings multiple (if any) of the Interested
Stockholder as customarily computed and reported in the financial
community; and
(C) The per share price to be received by the stockholders
must include an additional premium over the value determined in
accordance with (a) and (b) above that is equal to the total of
(i) the per share equivalent of the value of the
Corporation's oil reserves classified as "possible" under
the then current criteria of the Society of Petroleum
Engineers of the American Institute of Mining Engineers, as
of a reasonably practicable date not more than 180 days
prior to the record date for solicitation of votes on such
Business Combination, as evaluated by a reputable and
qualified petroleum engineer as determined by the Company's
continuing directors; and
(ii) the per share equivalent of 20% of the highest
consolidated balance of domestic and foreign cash, cash
equivalents, and marketable securities held by the Company
at any time during the period commencing on the date the
Interested Stockholder first acquired any shares of the
Company's capital stock and terminating on the 15th day
prior to the date on which the proxy statement referred to
in (E) below is scheduled to be mailed to the public
stockholders of the Corporation; and
(D) After the Interested Stockholder has acquired a 10%
interest and prior to the consummation of such Business
Combination: (1) the Interested Stockholder shall have taken
steps to ensure that the Corporation's Board of Directors
includes at all times representation by Continuing Directors
proportionate to the shareholdings of the Corporation's public
stockholders not affiliated with the Interested Stockholder (with
a Continuing Director to occupy any resulting fractional board
position); (2) there shall have been no change in the amount per
share payable or paid as dividends on the Corporation's capital
stock, except as may have been approved by a unanimous vote of
the directors; (3) the Interested Stockholder shall not have
acquired any newly issued shares of stock, directly or
indirectly, from the Corporation (except upon conversion of
convertible securities acquired by it prior to obtaining a 10%
interest or as a result of a pro rata stock dividend or stock
split); and (4) the Interested Stockholder shall not have
acquired any additional shares of the Corporation's outstanding
capital stock or securities convertible into capital stock,
except as a part of the transaction which results in the
Interested Stockholder acquiring its 10% interest; and
(E) The Interested Stockholder shall not have (1) received
the benefit, directly or indirectly (except proportionately as a
stockholder), of any loans, advances, guarantees, pledges, or
other financial assistance or tax credits provided by the
Corporation, or (2) made any major change in the Corporation's
business or equity capital structure without the unanimous
approval of the directors, in either case prior to the
consummation of such Business Combination; and
(F) Prior to the consummation of any Business Combination
and prior to any vote of the Corporation's stockholders under
paragraph (a) of this Article, a proxy statement or information
statement complying with the requirements of the Exchange Act
shall have been mailed to all stockholders of the Corporation for
the purpose of informing the Corporation's stockholders about
such proposed Business Combination and, if their approval is
required by paragraph (a) of this Article, for the purpose of
soliciting stockholder approval of such Business Combination.
Such proxy statement or information statement shall contain at
the front thereof, in a prominent place, a statement by the
Continuing Directors of their position on the advisability (or
inadvisability) of the proposed Business Combination and, if
deemed advisable by a majority of the Continuing Directors, an
opinion of a reputable investment banking firm as to the fairness
(or not) of the terms of such Business Combination, from the
point of view of the remaining stockholders of the Corporation
(such investment banking firm to be selected by a majority of the
Continuing Directors and to be paid a reasonable fee for their
services by the Corporation).
(c) Certain Definitions. For purposes of this Article, the following
terms shall have the following meanings:
(i) The term "Continuing Director" shall mean any director of
the Corporation who was a director prior to the time the Interested
Stockholder became such, and any other director whose election as a
director was recommended or approved by a majority of Continuing
Directors. Any action required to be taken by vote of the Continuing
Directors shall be effective only if taken at a meeting at which two-
thirds of the Continuing Directors capable of exercising the powers
conferred upon them under the provisions of these articles of
incorporation or the bylaws of the Corporation or by law are present.
(ii) "Interested Stockholder" shall mean any Person (other than
the Corporation or any Subsidiary) that is the direct or indirect
Beneficial Owner (as defined in rule 13d-3 and rule 13d-5 of the
General Rules and Regulations under the Exchange Act as in effect on
the date of the adoption of these provisions by the stockholders of
the Corporation) of more than 10% of the aggregate voting power of the
Common Stock or other securities of the Corporation entitled to vote
generally for the election of directors ("Voting Stock"), and any
Affiliate or Associate (as such terms are defined in rule 12b-2 of the
General Rules and Regulations under the Exchange Act as in effect on
the date of the adoption of these provisions by the stockholders of
the Corporation) of any such Person. For the purpose of determining
whether a Person is an Interested Stockholder, the outstanding Voting
Stock shall include unissued shares of voting stock of the corporation
of which the Interested Stockholder is the Beneficial Owner, but shall
not include any other shares of Voting Stock of the Corporation which
may be issuable pursuant to any agreement, arrangement, or
understanding, or upon exercise of conversion rights, warrants, or
options, or otherwise, to any Person who is not the Interested
Stockholder.
An Interested Stockholder shall be deemed to have acquired a
share of the capital stock of the Corporation at the time when such
Interested Stockholder became the Beneficial Owner thereof. With
respect to shares owned by Affiliates or Associates of an Interested
Stockholder or other person whose ownership is attributed to an
Interested Stockholder, for purposes of subparagraph (ii) of this
paragraph (c), such Interested Stockholder shall be deemed to have
purchased such shares at the higher of (A) the price paid upon the
acquisition thereof by the Affiliate, Associate, or other person who
owns such shares, or (B) the Market Price of the shares in question at
the time when the Interested Stockholder became the Beneficial Owner
thereof.
(iii) "Business Combination" shall mean (A) any merger,
consolidation, or share exchange of the Corporation or any of its
Subsidiaries within or into an Interested Stockholder, in each case
irrespective of which corporation or company is to be the surviving
entity; (B) any sale, lease, exchange, mortgage, pledge, transfer, or
other disposition to or with an Interested Stockholder (in a single
transaction or a series of related transactions) of all or a
substantial part of the assets of the Corporation (including, without
limitation, any securities of a Subsidiary of the Corporation) or all
or a substantial part of the assets of any of its Subsidiaries; (C)
any sale, lease, exchange, mortgage, or pledge, transfer, or other
disposition to or with the Corporation, or to or with any of its
Subsidiaries (in a single transaction or series of related
transactions) of all or a substantial part of the assets of an
Interested Stockholder; (D) the issuance or transfer by the
Corporation or any of its Subsidiaries of any securities of the
Corporation or any of its Subsidiaries to an Interested Stockholder
(other than an issuance or transfer of securities which is effected on
a pro rata basis to all stockholders of the Corporation); (E) any
acquisition by the Corporation or any of its Subsidiaries of any
securities issued by an Interested Stockholder; (F) any
recapitalization or reclassification of shares of any class of voting
stock of the Corporation or any merger or consolidation of the
Corporation with any of its Subsidiaries which would have the effect,
directly or indirectly, of increasing the proportionate share of the
outstanding shares of any class of capital stock of the Corporation
(or any securities convertible into any class of such capital stock)
owned by any Interested Stockholder; (G) any merger or consolidation
of the Corporation with any of its Subsidiaries after which the
provisions of this Article shall not appear in the articles of
incorporation (or the equivalent charter documents) of the surviving
entity; (H) any plan or proposal for the liquidation or dissolution of
the Corporation; and (I) any agreement, contract or other arrangement
providing for any of the transactions described in this definition of
Business Combination. Whether or not any proposed sale, lease,
exchange, mortgage, pledge, transfer, or other disposition of part of
the assets of any entity involves a "substantial part" of the assets
of such entity shall be conclusively determined by a two-thirds vote
of the Board of Directors; provided, however, that assets involved in
any single transaction or series of related transactions having an
aggregate fair market value, as determined by the Board of Directors,
of more than 15% of the total consolidated assets of an entity and its
subsidiaries as at the end of such entity's last full fiscal year
prior to such determination shall always be deemed to constitute a
"substantial part."
(iv) "Market Price" of shares of a class of an equity
security of the Corporation on any day shall mean the highest
closing sale price (regular way) of shares of such class of such
equity security during the 30 day period immediately preceding such
day, on the largest principal national securities exchange on which
such class of stock is then listed or admitted to trading, or if not
listed or admitted to trading on any national securities exchange,
then the highest reported closing sale price for such shares in the
over-the-counter market as reported on the Nasdaq Stock Market, or if
such sale prices shall not be reported thereon, the highest closing
bid price so reported, or, if such price shall not be reported
thereon, as the same shall be reported by the National Quotation
Bureau Incorporated, or if the price is not determinable as set forth
above, as determined in good faith by the Board of Directors.
(d) No proposal to amend or repeal this Article may be authorized and
approved except by the affirmative vote of the holders of voting stock
entitling them to exercise two-thirds of the voting power of the
Corporation voting together as a class, unless required to vote separately
by law or by other provisions of these articles of incorporation or by the
terms of the stock entitling them to vote and, if a proposal upon which
holders of shares of a particular class or classes are so required to vote
separately, then by the affirmative vote of the holders of shares entitling
them to exercise two-thirds of the voting power of each such class or
classes; provided, however, that the provisions of this paragraph (d) shall
not apply to any such amendment or repeal of this Article that has been
favorably recommended to the stockholders by resolution of the Board of
Directors adopted by a two-thirds vote of the Continuing Directors, in
which case any such amendment or repeal of this Article may be authorized
and approved by the affirmative vote of such number of the holders of
voting stock as may be required by law.
(e) Amendment or Repeal. Notwithstanding anything to the contrary
contained in these articles, no amendment or repeal of the provisions of
this Article or related provisions in the bylaws of the Corporation shall
be adopted unless it is approved by the vote of two-thirds of the Common
Stock or other securities of the Corporation entitled to vote generally for
the election of directors (the "Voting Stock").
ARTICLE XIV
REGISTERED OFFICE AND REGISTERED AGENT
The address of the Corporation's registered office and the name of the
registered agent at that address in the state of Nevada is:
The Corporation Trust Company of Nevada
One East First Street
Reno, Nevada 89501
Either the registered office or the registered agent may be changed in the
manner provided for by law.
ARTICLE XV
AMENDMENTS
The Corporation reserves the right to amend, alter, change, or repeal all
or any portion of the provisions contained in these articles of incorporation
from time to time in accordance with the laws of the state of Nevada, and all
rights conferred on stockholders herein are granted subject to this reservation.
ARTICLE XVI
ADOPTION OR AMENDMENT OF BYLAWS
The bylaws of the Corporation shall be adopted by the Board of Directors.
The power to alter, amend, or repeal the bylaws or adopt new bylaws shall be
vested in the Board of Directors, but the stockholders of the Corporation may
also alter, amend, or repeal the bylaws or adopt new bylaws. The bylaws may
contain any provisions for the regulation or management of the affairs of the
Corporation not inconsistent with the laws of the state of Nevada now or
hereafter existing.
ARTICLE XVII
REDEMPTION OF SHAREHOLDER RIGHTS
Rights issued pursuant to any shareholders' rights plan(s) may only be
redeemed by the Board of Directors' Rights Redemption Committee, a subcommittee
of the Board of Directors that is appointed by the Board of Directors and is
constituted entirely of at least three Continuing Directors, at least a majority
of whom are not employees of the Corporation. For purposes of this Article, the
term "Continuing Director" means any duly constituted director of the
Corporation who was a director prior to the time the Interested Stockholder
became such, and any other director whose election or appointment as a director
was recommended for approval by a majority of Continuing Directors. For the
purposes of this definition, the term "employee" means any person who is
currently or who has been during the preceding 12 months a full-time employee of
the Company. In the event of the failure or refusal of the Board of Directors
to duly appoint a Rights Redemption Committee, then the persons constituting the
Audit Committee of the Board of Directors shall also constitute the Rights
Redemption Committee. Any action required to be taken by vote of the Continuing
Directors shall be effective only if taken at a meeting at which two-thirds of
the Continuing Directors capable of exercising the powers conferred upon them
under the provisions of these articles of incorporation or the bylaws of the
Corporation or by law are present.
Any bylaw subsequently adopted by the shareholders requiring the Board of
Directors, or a subcommittee thereof, to redeem rights issued pursuant to any
shareholders' rights plans then outstanding must be adopted by the vote
of stockholders representing not less than two-thirds of the Common Stock or
other securities of the Corporation entitled to vote generally for the election
of directors.
Notwithstanding anything to the contrary contained in these articles, no
amendment or repeal of the provisions of this Article or related provisions in
the bylaws of the Corporation shall be adopted unless it is approved by the vote
of two-thirds of the Common Stock or other securities of the Corporation
entitled to vote generally for the election of directors.
ARTICLE XVIII
CURRENT DIRECTORS
The name and address of each person who currently serves as a director of
the Corporation, to each serve until the expiration of his or her respective
term and until his or her successor is elected and shall qualify, is as follows:
Name Address
David N. Pierce 3006 Highland Drive, Suite 206
Salt Lake City, Utah 84106
Andrew W. Pierce 3006 Highland Drive, Suite 206
Salt Lake City, Utah 84106
Scott J. Duncan 3006 Highland Drive, Suite 206
Salt Lake City, Utah 84106
Thomas B. Lovejoy 48 Burying Hill Road
Greenwich, Connecticut 06831
Peter L. Raven 12 Old Stone Hill Road
Poundridge, New York 10576
Jay W. Decker 7640 South Polo Ridge Drive
Littleton, CO 80123
Jerzy B. Maciolek 1834 Mayweather
Houston, TX 77469
The foregoing Restated Articles of Incorporation were adopted by the
shareholders of the Corporation on June 24, 1997, pursuant to section 78.380
et.seq. of the Nevada Revised Statutes. The Corporation has only one class of
shares issued and outstanding, that being Common Stock. The number of shares of
Common Stock issued and outstanding and entitled to vote on May 9, 1997, the
record date for consideration of the restated articles was 12,584,381. The
shareholders voted by provisions summarized as set forth below and as described
in detail in the Proxy Statement for the 1997 Annual Stockholders' Meeting of
the Company. Set forth below is the number of shares voted in favor of adoption
of the provisions of the Restated Articles of Incorporation to:
(a) Make general modernizing changes (Article II, III, VIII, X, XIII, XIV
and XVIII);
For 8,209,359 Against 51,700
(b) Cause the Company to specifically opt out of certain anti-takeover
statutes in Nevada while remaining subject to similar statutes in
other states (Article IX);
For 8,093,739 Against 140,495
(c) Increase the Company's authorized capitalization to 30,000,000 shares
of common stock, retaining the 5,000,000 shares of preferred stock
currently authorized (Article IV);
For 8,107,264 Against 147,770
(d) Make certain modernizing changes to article provisions providing for
the indemnification of officers, Directors, and others (Article VI);
For 11,574,736 Against 161,085
(e) Require advance notice for the nomination of Directors (Article IV);
For 7,528,784 Against 735,850
(f) Grant cumulative voting on the election of Directors if a person or
group of related persons owning in excess of 30% of the Common Stock
opposes management of the Company in a separate Proxy solicitation or
in an election contest (Article IV);
For 7,432,929 Against 819,905
(g) Require advance notice regarding business to be conducted at
stockholders' meetings (Article IX);
For 7,492,784 Against 771,650
(h) Deny action by the written consent of the holders of a majority of the
voting shares (Article VII);
For 6,362,159 Against 1,886,975
(i) Prohibit the Company from paying a premium upon the redemption of
stock in excess of the fair market value of such stock from a
stockholder that has acquired 10% or more of the Common Stock (Article
VIII);
For 8,190,334 Against 69,300
(j) Authorize the Board of Directors to consider all relevant factors in
evaluating a proposed tender offer or other attempted takeover
(Article XII);
For 6,499,734 Against 1,764,900
(k) Require an affirmative vote of stockholders holding at least
two-thirds of the Common Stock to approve a business combination with
a person or group of related persons owning in excess of 10% of the
Common Stock unless such business combination requires the payment of
a fair price for the Company's stock, prohibits the Company from
entering into certain transactions or taking certain actions with
related parties and requires prior notice to have been provided to the
stockholders or, alternatively, the business combination is approved
by two-thirds of the Directors that were not elected by or at the
request of the interested person or persons (Article XI); and
For 6,574,134 Against 1,687,500
(l) Provide that the Rights granted to the stockholders pursuant to the
Stockholder Rights Plan may only be redeemed by the Rights Redemption
Committee consisting of at least three continuing Directors, at least
a majority of whom are not employees of the Company (Article XVIII).
For 6,356,954 Against 1,886,680
By executing these Restated Articles of Incorporation the president and the
secretary do hereby certify that on June 24, 1997, the foregoing amendments were
authorized and approved pursuant to section 78.390 of the Nevada Revised
Statutes. The undersigned affirms and acknowledges, under penalties of perjury,
that the foregoing instrument is my act and deed and that the facts stated
herein are true.
DATED this 27th day of June, 1997.
FX ENERGY, INC.
By: /s/ David N. Pierce /s/ Andrew W. Pierce
President Secretary
STATE OF UTAH )
:SS
COUNTY OF SALT LAKE )
On this 27th day of June 1997, personally appeared before me, the
undersigned, a notary public, David N. Pierce and Andrew W. Pierce, who being
first duly sworn, declared they are the president and secretary, respectively,
of FX Energy, Inc., acknowledged that they signed the forgoing Restated Articles
of Incorporation, and verified that the statements contained therein are true.
IN WITNESS WHEREOF I have hereunto set my hand and official seal.
/s/
Notary Public
