SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES EXCHANGE ACT OF 1934
(AMENDMENT NO. )
Filed by the Registrant [ X ]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by rule 14a-
6(e)(2))
[X ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to S240.14a-11(c) or S240.14a-12
FX ENERGY, INC.
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filling Proxy Statement if other than the
Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), 14a-6(i)(2), or
Item 22(a)(2) of Schedule 14A.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1) Title of each class of securities to which transaction applies:
2) Aggregate number of securities to which transaction applies:
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined).
4) Proposed maximum aggregate value of transaction:
5) Total fee paid:
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
<PAGE>
FX ENERGY, INC.
March 30, 1999
Dear FX Energy Stockholder:
Our 1998 Annual Report and our Proxy Statement for the 1999 Annual
Stockholders' Meeting of FX Energy, Inc. (the "Company"), are enclosed. At this
meeting, we will seek your support for the election of directors and for the
approval of our 1998 Stock Option Plan.
These are important considerations for all Stockholders. Therefore, the
Board urges you to review each of these proposals carefully. The enclosed Proxy
Statement discusses the intended benefits as well as possible disadvantages of
these proposals.
Your Board of Directors believes that the adoption of all of the proposals
is in the best interests of all Stockholders.
Sincerely,
FX ENERGY, INC.
FX ENERGY, INC.
March 30, 1999
/s/ David N. Pierce
President
<PAGE>
FX ENERGY, INC.
3006 SOUTH HIGHLAND DRIVE, SUITE 206
SALT LAKE CITY, UTAH 84106
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 4, 1999
TO THE STOCKHOLDERS OF FX ENERGY, INC.:
The 1999 Annual Meeting of the Stockholders (the "Annual Meeting") of FX
Energy, Inc. (the "Company"), will be held in the Casper Room, Little America
Hotel, 500 South Main Street, Salt Lake City, Utah, on May 4, 1999. The Annual
Meeting will convene at 10:00 a.m., local time, to consider and take action on
the following proposals:
(1) To elect two directors to serve until the expiration of their respective
terms and until their respective successors are elected and qualified;
(2) To approve the FX Energy, Inc., 1998 Stock Option and Award Plan; and
(3) To transact such other business as may properly come before the Annual
Meeting or any adjournment(s) thereof.
ONLY OWNERS OF RECORD OF THE 13,504,503 SHARES OF THE COMPANY'S COMMON
STOCK ISSUED AND OUTSTANDING AS OF THE CLOSE OF BUSINESS ON MARCH 10, 1999 (THE
"RECORD DATE"), WILL BE ENTITLED TO NOTICE OF AND TO VOTE AT THE ANNUAL MEETING.
EACH SHARE OF COMMON STOCK IS ENTITLED TO ONE VOTE.
HOLDERS OF AT LEAST A MAJORITY OF THE SHARES OF COMMON STOCK OUTSTANDING ON
THE RECORD DATE MUST BE REPRESENTED AT THE MEETING TO CONSTITUTE A QUORUM FOR
CONDUCTING BUSINESS.
THE ATTENDANCE AT AND/OR VOTE OF EACH STOCKHOLDER AT THE ANNUAL MEETING IS
IMPORTANT, AND EACH STOCKHOLDER IS ENCOURAGED TO ATTEND.
FX ENERGY, INC.
By Order of the Board Of Directors
/s/ Scott J. Duncan, Secretary
Salt Lake City, Utah
March 30, 1999
IMPORTANT
REGARDLESS OF WHETHER YOU PLAN TO ATTEND THE MEETING IN PERSON, PLEASE FILL IN,
SIGN, DATE, AND RETURN THE ENCLOSED PROXY PROMPTLY IN THE SELF-ADDRESSED,
STAMPED ENVELOPE PROVIDED. NO POSTAGE IS REQUIRED IF MAILED IN THEUNITED
STATES.
SPECIAL REQUEST
IF YOUR SHARES ARE HELD IN THE NAME OF A BROKERAGE FIRM, NOMINEE, OR OTHER
INSTITUTION, ONLY IT CAN VOTE YOUR SHARES. PLEASE CONTACT PROMPTLY THE PERSON
RESPONSIBLE FOR YOUR ACCOUNT AND GIVE INSTRUCTIONS FOR YOUR SHARES TO BE VOTED.
<PAGE>
FX ENERGY, INC.
3006 SOUTH HIGHLAND DRIVE, SUITE 206
SALT LAKE CITY, UTAH 84106
PROXY STATEMENT
This Proxy Statement is furnished in connection with the solicitation of
proxies on behalf of the management of FX Energy, Inc. (the "Company"), to be
voted at the Annual Meeting of Stockholders to be held in the Casper Room,
Little America Hotel, 500 South Main Street, Salt Lake City, Utah, on May 4,
1999, at 10 a.m., local time, or at any adjournment thereof (the "Annual
Meeting"). The enclosed Proxy, when properly executed and returned in a timely
manner, will be voted at the Annual Meeting in accordance with the directions
set forth thereon. If no instructions are indicated on the enclosed Proxy, the
Proxy will be voted at the Annual Meeting:
(1) FOR the election of two nominees of management set forth herein as
directors of the Company to serve as directors until the expiration of
their respective terms and until their successors are elected and
qualified;
(2) FOR approval of the FX Energy, Inc., 1998 Stock Option and Award Plan (the
"Plan"); and
(3) IN accordance with the best judgment of the persons acting as proxies on
other matters presented for a vote.
The enclosed Proxy, even though executed and returned to the Company, may
be revoked at any time before it is voted, either by giving a written notice,
mailed or delivered to the Secretary of the Company, by submitting a new Proxy
bearing a later date, or by voting in person at the Annual Meeting. If the
Proxy is returned to the Company without specific direction, the Proxy will be
voted in accordance with the Board of Directors' recommendations as set forth
above.
The entire expense of this Proxy solicitation will be borne by the
Company. In addition to this solicitation, officers, directors, and regular
employees of the Company, who will receive no extra compensation for such
services, may solicit proxies by mail, by telephone, or in person. This
statement and form of Proxy were first mailed to Stockholders on or about March
30, 1999.
Only holders of the Company's 13,504,503 shares of Common Stock, par value
$0.001 (the "Common Stock"), issued and outstanding as of the close of business
on March 10, 1999 (the "Record Date"), will be entitled to vote at the Annual
Meeting. Each share of Common Stock is entitled to one vote. Holders of at
least a majority of the 13,504,503 shares of Common Stock outstanding on the
Record Date must be represented at the Annual Meeting to constitute a quorum for
conducting business.
All properly executed and returned proxies as well as shares represented in
person at the meeting will be counted for purposes of determining if a quorum is
present, whether the proxies are instructed to abstain from voting or consist of
broker non-votes. Under Nevada corporate law and the Company's Articles of
Incorporation and Bylaws, the election of directors requires the vote of a
plurality of the shares present at the Annual Meeting. All other matters except
certain specified extraordinary matters are considered approved by the
Stockholders if approved by at least a majority of the shares present at a
meeting of the Stockholders at which a quorum is present. Therefore,
abstentions and broker non-votes will have the same legal effect as a vote
against matters other than the election of directors; abstentions and broker
non-votes will not be counted for the election of directors.
Officers and directors holding an aggregate of 1,095,360 shares of Common
Stock, or approximately 8.4% of the issued and outstanding shares, have
indicated their intent to vote in favor of all proposals.
PROPOSAL 1: ELECTION OF DIRECTORS
GENERAL
The Company's Articles of Incorporation provide that the Board of
Directors shall be divided into three classes, with each class as equal in
number as practicable. One class is to be elected each year for a three-year
term. At the Annual Meeting, two directors will be elected to serve three-year
terms.
Votes will be cast, pursuant to authority granted by the enclosed Proxy
when properly executed and returned to the Company, for the election of the
nominees named below as directors of the Company, except as otherwise specified
in the Proxy. In the event a nominee shall be unable to serve, votes will be
cast, pursuant to authority granted by the enclosed Proxy, for such person as
may be designated by the Board of Directors. Biographical information follows
for each person nominated and for each director whose term of office will
continue after the Annual Meeting. The officers of the Company are elected at
the Annual Meeting of the Board of Directors to hold office until their
respective successors are elected and qualified. The information concerning the
nominees and directors and their security holdings has been furnished by them to
the Company. (See "Principal Stockholders" below.)
EXECUTIVE OFFICERS, DIRECTORS, AND NOMINEES
The Board of Directors' nominees for election as directors of the Company
at the Annual Meeting are David N. Pierce and Peter L. Raven. The following
table sets forth the name, age, term of directorship, and principal business
experience of each executive officer and director of the Company who has served
in such position since the Company's last fiscal year:
<TABLE>
<S> <C> <C> <C> <C>
DIRECTOR TERM BUSINESS EXPERIENCE DURING PAST
NAME AGE SINCE EXPIRES FIVE YEARS AND OTHER INFORMATION
- --------------- --- ------ ------- ---------------------------------------------
David N. Pierce 52 1992 1999 President, Director and Chairman of the Company
since 1992. For over three years prior to 1992,
Vice-President and Director of the Company's
predecessor, Frontier Exploration Company, co-
founded with his brother, Andrew W. Pierce in
January 1989. Executive capacities with privately
held oil and gas companies since 1979. Graduate of
Princeton University and Stanford Law School.
Andrew W. Pierce 51 1992 2000 Vice-President and Director of the Company since
1992. For over three years prior to 1992,
President and Director of the Company's
predecessor, Frontier Exploration Company, co-
founded with his brother, David N. Pierce, in
January 1989, which was acquired by the Company in
1992.
Thomas B. 62 1995 2001 Vice-chairman of the Board of Directors. Engaged in
Lovejoy(1) financial advisory and investment banking
activities since 1961. In 1992, formed Lovejoy
Associates, Inc., Greenwich, Connecticut, to
provide financial strategic advice respecting
private placements, mergers and acquisitions.
1989-1992, managing director of natural resource,
utility, and mining groups for Prudential
Securities, Inc., New York City. 1980 to 1988,
managing director of the energy, and natural
resources group of Paine Webber, Inc. Since 1993,
Director of Scaltech, Inc., Houston, Texas, a
processor of petroleum refinery oil waste. B.S.
from the Massachusetts Institute of Technology and
M.B.A. from Harvard Business School.
Peter L. 60 1996 1999 Retired, President of American Ultramar. From 1957
Raven(1) through 1985, various positions with Ultramar, PLC,
London, England, a fully integrated oil and gas
company, and its U.K. and American held
subsidiaries, including chief financial officer of
Ultramar PLC. From 1985 through 1988, Executive
Vice-President, and from 1988 through 1992,
President of American Ultramar. Graduate of the
Downside School in England, the Institute of
Chartered Accountants in 1962, and the Harvard
Business School Advanced Management Program in
1987.
Scott J. Duncan 50 1993 2001 Vice-President Investor Relations, Secretary and
Director of the Company. Financial consultant to
the Company from its inception through April 1993,
when he became the Company's Treasurer until
December 1998. Graduate of the University of Utah
School of Business.
Jay W. Decker(1) 47 1996 2000 President of Patina Oil & Gas Corporation, an
independent oil company, Denver, Colorado, since
March 1998 and Director since May 1996. From
September 1995 through March 1998, Executive Vice-
President and Director of Hugoton Energy
Corporation, an independent oil company. From 1989
until its merger into Hugoton, President and Chief
Executive Officer of Consolidated Oil & Gas, Inc.,
Denver, Colorado. Prior to 1989, Vice-President of
Operations for General Atlantic Energy Company and
in various capacities for Peppermill Oil Company,
Wainoco Oil & Gas, and Shell Oil Company. B.S.
degree from the University of Wyoming.
Jerzy B. 48 1996 2000 Vice-President of International Exploration and
Maciolek Director of the Company. Employed by the Company
since September 1995. Instrumental in the
Company's exploration efforts in Poland. Member of
the Advisory Board of the Polish Oil and Gas
Company. Prior to becoming a Company employee, a
private consultant for over five years, including
consulting on hydrocarbon potential of Poland and
Kazakhstan, translating and interpreting geological
and geophysical information for several integrated
hydrocarbon potential reports on Poland and
Kazakhstan and developing applied integrated
geophysical interpretations over gold mines in
Nevada, California, and Mexico. Since 1992,
provided consulting services to the Company
regarding exploration projects in the western
United States and Poland. M.S. in exploration
geophysics from the Mining and Metallurgy Academy
in Krakow, Poland.
Dennis L. Tatum 37 N/A N/A Vice President and Treasurer of the Company.
Joined the Company in March 1997 as Controller
prior to becoming Treasurer in December 1998. From
1989-1997, employed by Zilkha Energy, a private oil
and gas firm with interests in the Gulf of Mexico,
where he was instrumental in overseeing joint
ventures. From 1987-1989, employed by Global
Natural Resources, a public oil and gas firm with
domestic and international holdings, where he was
responsible for acquisition accounting. From 1983-
1987, employed by for Roosth & Genecov, a private
real estate and oil and gas firm in Tyler, Texas.
B.B.A. in Accounting from University of Texas at
Tyler in 1983, CPA certificate from the state of
Texas in 1984.
</TABLE>
(1) Member of the Compensation and Audit Committees of the Board of Directors
of the Company.
BOARD MEETINGS AND COMMITTEES
The Board of Directors had four formal meetings during 1998 and one meeting
to date in 1999. The directors also discussed the business and affairs of the
Company informally on numerous occasions throughout the year and took several
actions through unanimous written consents in lieu of meetings. Jerzy B.
Maciolek, a Director and Vice President of International Exploration of the
Company who is responsible for the Company's day to day activities in Poland,
consulted with the members of the Board of Directors informally from time to
time during 1998, but did not attend any formal meeting.
The Audit Committee met twice during 1998 and has met once to date in 1999
to review the results of the audit of the 1998 financial statements of the
Company by its auditor. The Audit Committee recommends the selection of
independent auditors, approves the scope of audit and related fees, and reviews
financial reports, audit results, internal accounting procedures, related party
transactions, where appropriate, and programs to comply with applicable
requirements relating to financial accountability. The Audit Committee's
responsibilities also include compliance responsibilities to develop policies
and procedures for compliance by the Company and its officers and directors with
applicable laws and regulations.
The Compensation Committee met twice during 1998 to review and approve
stock option grants and bonus payments for the 1998 year. The Compensation
Committee has met once to date in 1999. The Compensation Committee has the
responsibility of reviewing performance of senior management, recommending
compensation, and developing compensation strategies and alternatives throughout
the Company.
In connection with the adoption of a Stockholder Rights Plan, the Board of
Directors has also previously formed a Rights Redemption Committee to perform
certain functions in accordance with such plan and appointed Messrs. David N.
and Andrew W. Pierce, Lovejoy, Raven, and Decker to such committee. The Rights
Redemption Committee has not met.
VOTE REQUIRED
Directors are elected by the affirmative vote of the holders of a plurality
of the shares of Common Stock voted at the Annual Meeting. Abstentions and
broker non-votes will not be counted in the election of directors.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE ELECTION OF THE
NOMINEES OF MANAGEMENT, DAVID N. PIERCE AND PETER L. RAVEN, AS DIRECTORS OF THE
COMPANY, TO SERVE IN SUCH CAPACITIES UNTIL THE EXPIRATION OF THEIR TERM AND
UNTIL THEIR SUCCESSORS ARE ELECTED AND QUALIFIED.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Unless otherwise indicated, the terms of the following transactions
between related parties were not determined as a result of arm's length
negotiations.
Consulting Agreement
Pursuant to a consulting agreement with the Company, Lovejoy Associates,
Inc., a company owned by Thomas B. Lovejoy, advised the Company respecting
future financing alternatives, identification of possible sources of debt and
equity financing and the Company's relationship with the investment community,
at a fee of $10,000 per month commencing October 15, 1995, through December
31, 1997. The agreement was extended during 1998 at a rate of $15,000 per month
for January and February 1998 and a subsequent rate of $17,000 per month
thereafter through December 31, 1998. The agreement has been extended through
1999 at the same rate of $17,000 per month with payments deferred until such
time the Company secures additional financing.
Option Exercises and Loans
The Company advanced to David N. Pierce $150,000 during 1997 and $50,000
during 1998. The advances were originally evidenced by a note payable to the
Company with interest at 7.7% payable on or before December 31, 1998.
On February 17, 1998, David N. and Andrew W. Pierce, executive officers and
directors, exercised options that were to expire on May 6, 1998, to purchase
150,000 shares each of the Company's common stock at a price of $1.50 per share.
The executives paid the option exercise price by applying a $100,000 bonus
awarded to each of the officers in 1997 and signing a full recourse note payable
to the Company for $125,000 each originally due, with interest at 7.7%, by
December 31, 1998. The closing price of the Company's common stock was $7.375
per share on February 17, 1998. The foregoing option exercises, which the
Company's Compensation Committee endorsed consistent with its objective that
management should increase its equity stake in the Company, resulted in taxable
income at ordinary rates to each executive of $881,250, the amount by which the
market price of the stock as of the date of exercise exceeded the exercise price
for the 150,000 shares purchased, notwithstanding the fact that the transaction
generated no cash with which the executives could pay such taxes. In order to
assist such executives in meeting these income tax and other obligations so that
they would not be required to raise funds through the premature sale of the
Company's common stock in the trading market before the opportunity for the
Company to realize results from currently planned exploration drilling, the
disinterested directors unanimously approved interim loans to such individuals
to assist them in meeting their short-term obligations.
In consideration of the agreement of David N. Pierce and Andrew W. Pierce
to not sell shares of Common Stock in market transactions, the Company agreed to
aggregate advances through April 15, 1999 of $950,954 to David N. Pierce,
including amounts previously advanced, and $769,924 to Andrew W. Pierce. The
total advance commitment to such executives by the Company under the new
agreement, including prior loan amounts, is $1,720,000. All amounts due from
such officers, including amounts for the exercise of options and prior advances
discussed above, are now repayable, with interest at 7.7% from the date of the
separate advances, in cash or by the delivery of the Company's common stock, by
December 31, 1999. The loans are evidenced by limited recourse promissory
notes. The repayment of $125,000 under each loan, the portion of the note
related to the exercise price of the options, is a full recourse obligation
under each note. To the extent of all amounts in excess of $125,000 in
principal and interest, the notes are non-recourse and are collateralized by
shares of the Company's common stock valued at $7.375 per share, the market
price of the shares on the date of exercise, equal to the amount advanced. Both
of the officers agreed to not sell any of the Common Stock until the later of
the announcement of the results of the first two Apache exploratory wells in
Poland or the first commercially successful well in Poland or December 31, 1998.
Thereafter, the Company may demand payment of the obligations on 45 days'
written notice, in which case the officers may elect to repay the obligation by
paying cash or tendering the shares of the Common Stock pledged as security or
other shares with a current market value equal to the amount due. The loans may
be prepaid by the executives at any time, with any payments applied first
against the full recourse obligations of the loan. As of December 31, 1998,
notes receivable from officers, including interest, was $1,304,527.
PRINCIPAL STOCKHOLDERS
The following table sets forth, as of the Record Date, the name, address
and shareholdings of each person who owns of record, or was known by the Company
to own beneficially, 5% or more of the Common Stock currently issued and
outstanding; the name and shareholdings of each director; and the shareholdings
of all executive officers and directors as a group. Unless otherwise indicated,
all shares consist of Common Stock, and all such shares are owned beneficially
and of record by the named person or group. Options include only vested
amounts; unvested options are excluded.
PERCENTAGE
NATURE OF OF
NAME OF BENEFICIAL OWNER OWNERSHIP AMOUNT(1) OWNERSHIP(2)
- ------------------------- ---------- ----------- --------------
DIRECTORS AND PRINCIPAL STOCKHOLDERS
David N. Pierce Common Stock 198,493(3) 1.5%
Options 568,334(6) 4.2
------- ----
Total 766,827 5.6
Andrew W. Pierce Common Stock 214,000 1.6
Options 530,000(6) 3.9
------- ----
Total 744,000 5.5
Thomas B. Lovejoy Common Stock 464,867(4) 3.6
Options 420,000(6) 3.1
------- ----
Total 884,867 6.6
Scott J. Duncan Common Stock 175,500(5) 1.3
Options 120,000(6) 0.9
------- ----
Total 295,500 2.2
Peter L. Raven Common Stock 40,000 0.3
Options 6,000(6) 0.1
------- ----
Total 46,000 0.4
Jay W. Decker Options 8,000(6) 0.1
Jerzy B. Maciolek Options 280,001(6) 2.1
Dennis L. Tatum Common Stock 2,500 0.0
Options 15,068(6) 0.1
------- ----
Total 17,568 0.1
ALL EXECUTIVE OFFICERS Common Stock 1,095,360 8.4
AND DIRECTORS AS A GROUP Options 1,947,403 13.0
(8 SONS) --------- ----
Total 3,042,763 20.3%
========= ====
(1) Except as otherwise noted, shares are owned beneficially and of record, and
such record stockholder has sole voting, investment, and dispositive power.
(2) Calculations of total percentages of ownership outstanding for each
individual assumes the exercise of currently vested options held by that
individual to which the percentage relates. Percentages calculated for
totals of all executive officers and directors as a group assume the
exercise of all vested options held by the indicated group.
(3) Includes 44,000 shares held by Mr. Pierce as custodian for minor children.
Mr. Pierce is deemed to hold or share voting and dispositive power over all
of such shares. Excludes 19,000 shares held by Mr. Pierce's wife, Mary
Phillips, and 23,000 held by Mary Phillips as custodian for a minor child,
of which Mr. Pierce disclaims beneficial ownership. Mr. Pierce's address
is in care of the Company.
(4) Includes 41,000 shares held in trust for the benefit of Mr. Lovejoy's
children, 49,500 shares held in Mr. Lovejoy's IRA account, 10,000 shares
held by Mr. Lovejoy's spouse's IRA account, and 210,000 shares held by
Lovejoy Associates, Inc., (of which Mr. Lovejoy is sole owner). Mr.
Lovejoy is deemed to hold dispositive power over all of such shares. Mr.
Lovejoy's address is 48 Burying Hill Road, Greenwich CT 06831.
(5) Includes 123,000 shares held by Mr. Duncan jointly with his wife, Cathy H.
Duncan; 7,000 shares held solely by Cathy H. Duncan; and 48,000 shares held
by Cathy Duncan as custodian for minor children. Mr. Duncan is deemed to
hold or share voting and dispositive power over all of such shares.
(6) These vested options give the holders the right to acquire shares of Common
Stock at prices ranging from $1.50 to $10.25 per share with various
expiration dates ranging from August 2000 to December 2005.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
the Company's directors and executive officers, and persons who own more than
10% of a registered class of the Company's equity securities, to file with the
Securities and Exchange Commission initial reports of ownership and reports of
changes in ownership of equity securities of the Company. Officers, directors,
and greater than 10% stockholders are required to furnish the Company with
copies of all section 16(a) forms they file.
Based solely upon a review of Forms 3, 4, and 5, and amendments thereto,
furnished to the Company during or respecting its last fiscal year ended
December 31, 1997, no person who, at any time during the most recent fiscal
year, was a director, officer, beneficial owner of more than 10% of any class of
equity securities of the Company or any other person known to be subject to
Section 16 of the Exchange Act failed to file, on a timely basis, reports
required by Section 16(a) of the Exchange Act.
EXECUTIVE COMPENSATION
Summary Compensation
The following table sets forth, for the last three fiscal years of the
Company, the annual and long term compensation earned by, awarded to, or paid to
the person who was Chief Executive Officer of the Company and each other
Executive Officer of the Company as of the end of the last fiscal year (the
"Named Executive Officers").
[CAPTION]
<TABLE>
LONG TERM COMPENSATION
--------------------------
ANNUAL COMPENSATION AWARDS PAYOUTS
<S> <C> <C> <C> <C> <C> <C> <C> <C>
(A) (B) (C) (D) (F) (G) (H) (I)
OTHER SECURITIES ALL
YEAR ANNUAL RESTRICTED UNDERLYING OTHER
NAME AND ENDED COMPEN- STOCK OPTIONS/ LTIP COMPEN-
PRINCIPAL DEC. SALARY BONUS SATION AWARD(S) SARS PAYOUTS SATION
POSITION 31, ($) ($)(1) (E) ($) (NO.) ($) ($)
- ------------- ----- ------ ------ ------- ------- -------- ------ -------
David N. 1998 $185,600 $185,760 $100,000(2) -- 60,000 -- --
Pierce
President 1997 153,456 185,760 -- -- 55,000 -- --
(CEO)
1996 129,000 80,000 -- -- 75,000 -- --
Andrew W. 1998 $134,400 $115,200 $100,000(2) -- 50,000 -- --
Pierce
Vice- 1997 114,267 115,200 -- -- 45,000 -- --
President
(COO) 1996 111,753 80,000 -- -- 65,000 -- --
Scott J. 1998 $105,000 $90,000 -- -- 50,000 -- --
Duncan
Vice 1997 88,750 90,000 -- -- 45,000 -- --
President
Secretary 1996 67,500 50,000 -- -- 55,000 -- --
Jerzy B. 1998 $134,400 $115,200 $100,000(3) -- 50,000 -- --
Maciolek
Vice-President 1997 113,600 115,200 -- -- 45,000 -- --
Exploration 1996 87,000 80,000 -- -- 65,000 -- --
Dennis L. 1998 $88,000 $60,000 -- -- 50,000 -- --
Tatum
Vice-President 1997 60,615 34,000 -- -- 45,200 -- --
Treasurer 1996 -- -- -- -- -- -- --
</TABLE>
(1) All 1998 bonuses were approved by the Company's Board of Directors and
accrued, but will not be paid in cash until the Company raises a
significant amount of additional capital.
(2) During 1998, David N. Pierce and Andrew W. Pierce applied a $100,000 bonus,
which was awarded to them during 1997 against stock options. (See "Certain
Relationships and Related Transactions.")
(3) During 1998, Jerzy B. Maciolek was awarded a $100,000 bonus to be used
against future stock option exercises or payable in cash in the event his
employment with the Company is terminated. At the end of 1998, Mr.
Maciolek had not used the $100,000 bonus.
Option/SAR Grants in Last Fiscal Year
The following table sets forth information respecting all individual
grants of options and stock appreciation rights ("SARs") made during the last
completed fiscal year to the Named Executive Officers of the Company.
[CAPTION]
<TABLE>
<S> <C> <C> <C> <C> <C>
(A) (B) (C) (D) (E)
% OF TOTAL POTENTIAL REALIZABLE
OPTIONS/SARS VALUE AT ASSUMED RATES
NUMBER OF GRANTED TO OF SHARE PRICE
SECURITIES EMPLOYEES APPRECIATION FOR OPTION TERM ($)
OPTIONS/SARS DURING FISCAL BASE PRICE EXPIRATION --------------------
NAME GRANTED (NO.) YEAR ($/SHARE) DATE 5% 10%
- ---------------- ------------- -------- ----------- ---------- -------- ---------
David N. Pierce 60,000 12.5% $8.625 11/10/05 $210,869 $491,488
Andrew W. Pierce 50,000 10.4 8.625 11/10/05 175,724 409,573
Scott J. Duncan 50,000 10.4 8.625 11/10/05 175,724 409,573
Jerzy B. 50,000 10.4 8.625 11/10/05 175,724 409,573
Maciolek
Dennis L. Tatum 50,000 10.4 8.625 11/10/05 175,724 409,573
</TABLE>
See the following for a discussion of the terms of the options granted to
executive officers.
Aggregate Option/SAR Exercises in Last Fiscal Year and Year End Option/SAR
Values
The following table sets forth information respecting the exercise of
options and SARs during the last completed fiscal year by the Named Executive
Officers and the fiscal year end values of unexercised options and SARs.
[CAPTION]
<TABLE>
<S> <C> <C> <C> <C>
(A) (B) (C) (D) (E)
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
OPTIONS/SARS AT FY END OPTIONS/SARS AT FY END
SHARES ACQUIRED VALUE (NO.) ($)
ON EXERCISE REALIZED EXERCISABLE/ EXERCISABLE/
NAME (NO.) ($) UNEXERCISABLE UNEXERCISABLE(1)
- ---------------- --------------- --------- -------------------- ---------------------
David N. Pierce 150,000 $1,143,750 568,334 / 196,666 (2) $3,689,170 / $930,830
Andrew W. Pierce 150,000 1,143,750 530,000 / 180,000 (3) 3,340,000 / 892,500
Scott J. Duncan -- -- 120,000 / 80,000 (4) 477,500 / 180,000
Jerzy B. Maciolek -- -- 280,001 / 179,999 (5) 1,554,583 / 434,167
Dennis L. Tatum -- -- 15,068 / 80,132 (6) 50,650 / 176,300
</TABLE>
(1) Based on the closing sales price for the Common Stock of $10.125 on
December 31, 1998.
(2) Consists of options to purchase 500,000 shares of Common Stock becoming
exercisable in installments of 100,000 shares per year commencing June 1,
1995, at an exercise price of $3.00 per share expiring June 9, 2004;
100,000 shares of Common Stock at an exercise price of $3.00 per share
expiring October 5, 2000; 50,000 shares of Common Stock at an exercise
price of $8.875 per share expiring November 4, 2001; 55,000 shares of
Common Stock becoming exercisable in installments of 18,333 shares per
year commencing December 1, 1998, at an exercise price of $6.625 per share,
expiring November 30, 2004; and 60,000 shares of Common Stock becoming
exercisable in installments of 20,000 shares per year commencing November
10, 1999, at an exercise price of $8.625 per share, expiring November 10,
2005.
(3) Consists of options to purchase 500,000 shares of Common Stock becoming
exercisable in installments of 100,000 shares per year commencing June 1,
1995, at an exercise price of $3.00 per share expiring June 9, 2004; 50,000
shares of Common Stock at an exercise price of $3.00 per share expiring
October 5, 2000; 65,000 shares of Common Stock at an exercise price of
$8.875 per share expiring November 4, 2001; 45,000 shares of Common Stock
becoming exercisable in installments of 15,000 shares per year commencing
on December 1, 1998, at an exercise price of $6.625 per share, expiring
November 30, 2004; and 50,000 shares of Common Stock becoming exercisable
in installments of 16,667 shares per year commencing on November 10, 1999,
at an exercise price of $8.625 per share, expiring November 10, 2005.
(4) Includes options to purchase 50,000 shares of Common Stock at an exercise
price of $3.00 expiring October 5, 2000; 55,000 shares of Common Stock at
an exercise price of $8.875 per share expiring November 4, 2001; 45,000
shares of Common Stock becoming exercisable in installments of 15,000
shares per year commencing December 1, 1998, at an exercise price of $6.625
per share, expiring November 30, 2004; and 50,000 shares of Common Stock
becoming exercisable in installments of 16,667 shares per year commencing
on November 10, 1999, at an exercise price of $8.625 per share, expiring
November 10, 2005.
(5) Includes options to purchase 150,000 shares of Common Stock at any time
through August 30, 2000, at an exercise price of $1.50; 65,000 shares of
Common Stock at an exercise price of $8.875 per share through November 4,
2001; 50,000 shares of Common Stock becoming exercisable in installments of
16,667 shares per year commencing on May 12, 1998, at an exercise price of
$8.25 per share, expiring May 11, 2004; 100,000 shares of Common Stock
becoming exercisable in installments of 33,333 shares per year commencing
on July 18, 1998, at an exercise price of $7.25 per share, expiring July
17, 2004; 45,000 shares of Common Stock becoming exercisable in
installments of 15,000 shares per year commencing December 1, 1998, at an
exercise price of $6.625 per share, expiring November 30, 2004; and 50,000
shares of Common Stock becoming exercisable in installments of 16,667 per
year commencing on November 10, 1999, at an exercise price of $8.625 per
share, expiring November 10, 2005.
(6) Includes options to purchase 10,000 shares of Common Stock exercisable in
installments of 3,333 shares per year commencing on September 12, 1998, at
$7.25 per share, expiring September 12, 2004; 35,200 shares of Common Stock
exercisable in installments of 11,733 shares per year commencing on
December 1, 1998, at an exercise of $6.625 per share expiring December 1,
2004; and 50,0000 shares of Common Stock exercisable in installments of
16,667 per year commencing on November 10, 1999, at an exercise price of
$8.625 per share, expiring November 10, 2005.
Directors' Compensation
The Company reimburses its directors for costs incurred by them in
attending meetings of the Board of Directors and its committees. The Company
does not pay any separate compensation to employees who serve on the Board of
Directors.
The Company paid Thomas B. Lovejoy's company, Lovejoy Associates, Inc.,
$15,000 per month during January and February 1998 and $17,000 per month
thereafter through December 31, 1998. The agreement was extended for 1999 at
the same rate of $17,000 per month with payments deferred until such time as the
Company secures additional funding. During 1998, Thomas B. Lovejoy was granted
seven-year options to purchase 50,000 shares of Common Stock at $8.625; Peter L.
Raven received a cash fee of $18,000 and was granted seven-year options to
purchase 6,000 shares of Common Stock at $8.625; and Jay W. Decker received a
cash fee of $18,000 and was granted seven-year options to purchase 6,000 shares
of Common Stock at $8.625. The exercise price of the foregoing options is equal
to the market price of the Common Stock as of the date of grant.
Employment Agreements, Termination of Employment, and Change in Control
The Company has entered into executive employment agreements with each of
the Named Executive Officers. Each employment agreement is for a three-year
term and is automatically extended for an additional year on the anniversary
date of such agreement. The agreements provided for annual salaries during 1998
of David N. Pierce, $185,600; Andrew W. Pierce, $134,400; Scott J. Duncan,
$105,000; Jerzy B. Maciolek, $134,400; and Dennis L. Tatum, $88,000. In
addition, the Named Executive Officers may receive such bonuses or incentive
compensation as the Board of Directors or Compensation Committee may deem
appropriate. Each agreement provides that the Board of Directors or
Compensation Committee may increase the base salary under the agreements at the
beginning of each year, with such increases to be at least 7.5% for Messrs. D.N.
and A.W. Pierce and S.J. Duncan. Each Named Executive Officer is entitled under
his respective employment agreement to certain continuation of compensation in
the event the agreement is terminated upon death or disability or the Company
terminates the agreement other than for cause.
In addition to the foregoing terms, Mr. Maciolek's employment agreement
provides for annual bonuses of $100,000, payable in cash, stock, or options, as
may be determined by the Board of Directors or the Compensation Committee, based
on the progress of projects on which Mr. Maciolek is primarily engaged. On each
of May 12, 1999 and 2000, Mr. Maciolek is entitled to receive a bonus in the
form of a $100,000 credit that may be applied against the exercise of his
options to purchase Common Stock.
Each executive employment agreement provides that, on the occurrence of a
change of control event, the employee may terminate the agreement. In the event
of such termination, the employee is entitled to a termination payment equal to
150% of his annual salary (100% in the case of Messrs. Tatum and Maciolek), and
the value of previously granted employee benefits. Additionally, the Company is
required to maintain certain benefits and, in the case of Messrs. D.N. and A.W.
Pierce and S.J. Duncan, repurchase outstanding options. Options held by Messrs.
Maciolek and Tatum will immediately vest on such termination. For purposes of
the foregoing, a change of control shall exist on any of the following events:
(i) the sale by the Company of all or substantially all of its assets; (ii) a
transaction or series of transactions resulting in a single person or group of
persons under common control owning 25% of the outstanding Common Stock; (iii) a
change in the composition of the Board of Directors so that more than 50% of the
directors are persons neither nominated nor elected by the Board of Directors or
any authorized committee; (iv) the decision by the Company to terminate its
business and liquidate its assets; or (v) a merger or consolidation of the
Company in which the Company's existing shareholders own less than 50% of the
outstanding voting shares of the surviving entity.
Options Granted to Officers, Directors, Employees, and Consultants
The Company currently has outstanding options to purchase an aggregate of
3,413,667 shares that have been granted to officers, directors, employees, and
consultants of the Company. Of such options, 2,329,012 contain vesting
limitations contingent on continuing association with the Company. These
options are exercisable at prices ranging between $1.50 and $10.25 per share.
Options issued to executive officers and directors contain terms providing that
in the event of a change in control of the Company and at the election of the
optionee, the unexercised options will be canceled, and the Company will pay to
the optionee an amount equal to the number of unexercised options multiplied by
the amount by which the fair market value of the Common Stock as of the date
preceding the change of control event exceeds the option exercise price. The
grants of options to officers and directors were not the result of arm's length
negotiations.
REPORT OF THE COMPENSATION COMMITTEE
General
Under the supervision of the Compensation Committee, the Company has
developed and implemented compensation policies, plans, and programs that seek
to enhance the Company's ability to recruit and retain qualified executive and
other personnel, including stock option and award programs that create long-term
incentive for executive management and key employees by enabling them to acquire
an equity stake in the Company.
The Company's basic compensation practices consist of salary, bonus, and
stock options. In developing and implementing compensation policies and
procedures, the Compensation Committee's objectives are to provide rewards for
the long-term value of individual contribution and performance to the Company;
provide rewards that are both recurring and non-recurring and both financial and
non-financial; provide for fairness and consistency; pay competitively; conduct
an effective performance review process; and meet all legal requirements
The functions of the Compensation Committee are to:
- Review and recommend to the Board of Directors the amount and manner of
compensation of the chief executive officer for final determination by
the Board of Directors.
- Consider the recommendations of the chief executive officer respecting
the amount and manner of compensation of the other executive officers
and recommend to the Board of Directors the amount and manner of
compensation for such executive officers for final determination by the
Board of Directors.
- Consult with the chief executive officer respecting the amount and
manner of compensation for other executive level personnel.
- Counsel with the chief executive officer in personnel matters,
management organization, long range management successive planning.
- Support an employment environment of equal opportunity without regard to
discrimination on the basis of age, race, religion, sex, or national
origin.
- Prepare for inclusion in the Company's proxy or information statement
for its annual shareholders' meeting disclosure of the compensation
committee's compensation policies applicable to executive officers,
including the specific relationship of corporate performance to
executive compensation.
- Develop and administer the Company's stock option and stock award plans
for executive officers and other employees.
1999 Compensation Review
Utilizing the criteria and objectives set forth above, in November 1998,
the Compensation Committee met to review 1998 year-end employee bonus and option
awards. Initially, the Committee reviewed the budget prepared by management for
the balance of 1998 through 1999 and early 2000 and discussed in detail the
Company's capital requirements, discretionary expenditures, and alternative
sources of capital. The material prepared by management included a proposal for
cash bonuses and stock awards to be granted prior to the end of the year.
In reviewing the performance of the Company's employees as a whole, the
Compensation Committee specifically reviewed the individual objective criteria
that had been established at the beginning of 1998 as a measure of performance
for the chief executive officer and other executives of the Company. The
Compensation Committee discussed those objectives that had been met or exceeded
as well as those objectives that had not been met, reviewing the extent to which
the failure to meet specific objectives was reasonably within the control or
responsibility of the Company 's management. Other management accomplishments
not included in the objective criteria were also discussed.
In reviewing the cash resources and required and optional expenditures, the
Compensation Committee considered alternative non-cash methods of compensation
for the Company 's executives that would enable the Company to conserve its
short-term cash requirements. This included a discussion of the possible effect
of significant cash expenditures for executive and other employee bonuses.
Based upon such discussions and the ongoing activities of the Company, the
Compensation Committee determined to grant cash bonuses equal to the bonuses
paid in the preceding year based on the Company's progress in acquiring
additional exploration rights in Poland, expanding the Company's strategic
alliances and, in general, in advancing the Company's exploration program in
Poland, without ascribing any specific relative significance of the individual
criteria. Because of the possible future development opportunities which may
require additional capital, the Compensation Committee elected to defer payment
of such bonuses until the Company obtains significant additional capital.
Management proposed, and the Compensation Committee approved, stock option
awards for executives approximately 5,000 shares higher than those granted in
1997. After discussion, it was agreed management would use its discretion as to
the timing and appropriateness of options for the Company's Montana and other
non-executive personnel.
Based on the recommendation of management, the Compensation Committee
agreed to continue salaries at current levels until the Company obtains
significant additional funding.
It was also agreed that the $17,000 monthly fee payable to Lovejoy
Associates, Inc. would continue for the 12 months of 1999, and that the fee will
accrue but not be paid until completion of additional financing.
The Compensation Committee and Board of Directors ordinarily awards
employee options each year at its regularly scheduled board meeting at the end
of the year. In November 1998, on recommendation of the Compensation Committee,
the Board of Directors approved grants to thirty-five individuals, including
thirty employees, two consultants and three directors, to purchase a total of
480,000 shares at a price of $8.625 per share. Included in this number are
options to purchase 260,000 shares granted to executive officers, as described
above. All options granted will vest in three equal increments, commencing on
the first anniversary of grant, with a seven year exercise period.
1998 Chief Executive Officer Compensation Review
The Compensation Committee and Board of Directors had previously
established the base salary of the chief executive officer by reference to an
informal overview of similar companies, adjusted as the Compensation Committee
deemed appropriate for variations in geographic location, size, emphasis on
exploration as compared to the level of production and reserves, and
profitability. Because of the foregoing variations, the group of similar firms
reviewed by the Compensation Committee did not include all of the firms included
in the peer group whose stock performance is reflected in the performance graph
presented below. As noted above, the Compensation Committee recommended that
salaries for executive officers not be increased at the present time.
The annual bonus for the chief executive officer was awarded on the same
basis as applied to other executives. Non-financial goals included continuing
the development of the Company's relationships with the government of Poland and
the Company's strategic partners, furthering the Company's exploration acreage
and potential in Poland, negotiating and developing exploration schedules with
strategic partners, efforts to obtain additional funding, conceiving and
implementing programs to achieve growth, maintaining compliance with regulatory
requirements, achieving a high regard of shareholders and the broad business
community in the integrity of the Company and its management, and minimizing
factors that represent significant business risks, without any specific weight
assigned to any specific factors. The Committee believes that these
accomplishments outweighed the delays in having two exploration tests completed
in Poland by the end of 1998 and documenting the proposed joint participation of
the Company, Apache Corporation, and the Polish Oil and Gas Company in the
Lachowice area, which the Committee deemed to be largely due to factors outside
the chief executive officer's ability to control. Because of the nature of the
Company's activities, the Committee did not establish significant specific
financial goals of performance for the chief executive officer for 1998, except
for the general goal of maintaining the financial well-being of the Company and
managing its financial resources.
The Committee intends that stock options serve as a significant component
of the CEO's total compensation package in order to retain his efforts on behalf
of the Company and to focus his efforts on enhancing shareholder value. In
1998, upon the recommendation of the Compensation Committee, the Board of
Directors awarded Mr. Pierce stock options to purchase 60,000 shares of Common
Stock.
The foregoing report has been furnished by: Thomas B. Lovejoy
Jay W. Decker
Peter L. Raven
COMPENSATION AND OPTION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The members of the Compensation Committee are Thomas B. Lovejoy, Jay W.
Decker, and Peter L. Raven. No member of such committee is a present or former
officer of the Company or any subsidiary. There are no other interlocks. No
member of such Committee, his family, or his affiliate was a party to any
material transactions with the Company or any subsidiary since the beginning of
the last completed fiscal year, except for the engagement of Lovejoy Associates,
Inc., as a financial consultant (see "Certain Relationships and Related
Transactions"). No executive officer of the Company serves as an executive
officer, director, or member of a compensation committee of any other entity, an
executive officer or director of which is a member of the Compensation Committee
of the Company.
FIVE YEAR PERFORMANCE COMPARISON
The graph on the following page provides an indicator of cumulative total
shareholder returns for the Company as compared with the Total Returns Index for
the Nasdaq Stock Market (US companies) and industry group. The industry peer
group selected by the Company is comprised of US companies whose stock is
traded on Nasdaq and which are included in Standard Industrial Code 131 entitled
"Crude Petroleum and Natural Gas." For the five year period shown on the
graph, the total number of Peer Group distinct issues is 181. The total active
issues on 12/31/98 was 57. The Peer Group comprised of firms in Standard
Industrial Classification Code 131 is different than the group of firms similar
to the Company considered in determining executive compensation. The
Compensation Committee selected firms from the Standard Industrial
Classification Code 131 that were similar to the Company in terms of geographic
location, size, and emphasis on exploration as compared to the level of
production and reserves, and profitability. However, the Company believes that
is appropriate to provide cumulative total shareholder returns data based on the
broader Industrial Classification Code group involving a larger number of firms.
Comparison of Five-Year Cumulative Total Returns
Performance Graph for
the Company
Performance Graph appears here. Detailed below are the plot points:
<TABLE>
<S> <C> <C> <C>
Nasdaq Stocks (SIC 1310-1319
Nasdaq Stock Market US Companies) Crude
The Company (US Companies) Petroleum & Natural Gas
----------- ------------------- ------------------------
01/1995 100.00 100.00 100.00
02/1995 96.224 105.290 99.707
03/1995 98.187 108.411 105.190
04/1995 94.411 111.827 106.034
05/1995 92.447 114.714 107.744
06/1995 71.752 124.010 107.591
07/1995 45.317 133.126 107.703
08/1995 52.870 135.827 106.140
09/1995 71.752 138.950 108.952
10/1995 84.985 138.148 103.276
11/1995 84.018 141.394 105.111
12/1995 60.423 140.641 112.514
01/1996 124.622 141.333 116.498
02/1996 107.644 146.713 119.318
03/1996 90.634 147.195 116.667
04/1996 168.066 159.405 126.868
05/1996 253.021 164.995 133.826
06/1996 249.245 159.951 141.605
07/1996 211.480 145.011 132.830
08/1996 251.148 153.135 133.191
09/1996 294.562 164.848 145.537
10/1996 287.009 163.026 152.272
11/1996 271.903 173.106 158.564
12/1996 279.456 172.949 162.626
01/1997 373.867 185.241 165.365
02/1997 317.221 174.995 139.053
03/1997 320.997 163.569 141.874
04/1997 207.704 168.682 134.202
05/1997 256.798 187.871 147.352
06/1997 245.468 193.626 157.188
07/1997 230.363 214.049 157.172
08/1997 275.680 213.794 169.417
09/1997 197.311 226.407 193.579
10/1997 200.151 214.648 190.929
11/1997 200.151 215.811 172.246
12/1997 196.375 212.117 154.994
01/1998 217.160 218.857 147.103
02/1998 251.133 239.437 146.716
03/1998 294.562 248.221 157.399
04/1998 362.538 252.320 148.652
05/1998 315.347 238.290 157.562
06/1998 271.903 254.991 139.104
07/1998 237.915 251.954 120.688
08/1998 181.269 202.219 93.495
09/1998 241.692 230.344 103.085
10/1998 271.903 240.288 100.881
11/1998 226.586 264.605 86.861
12/1998 305.891 298.885 75.190
</TABLE>
NOTES:
A.The lines represent monthly index levels derived from compounded daily
returns that include all dividends.
B.The indexes are reweighted daily, using the market capitalization of the
previous trading day.
C.If the monthly interval, based on the fiscal year end, is not a trading
day, the preceding trading day is used.
D.The index level for each series was set to $100 on January 31, 1995, the
date on which the Company registered its Common Stock under Section 12 of
the Exchange Act. (The graph indicates the value over time of a $100
investment in the Company made on January 31, 1995 compared to a $100
investment in each of the other two categories made on the same date.)
E.The Company began trading on the Nasdaq market in June 1996; from January
1995 until June 1996 the Company traded on the Electronic Bulletin Board
under the symbol FOEX.
PROPOSAL 2: APPROVAL OF 1998 STOCK OPTION AND AWARD PLAN
GENERAL
On November 10, 1998, the Board of Directors of the Company approved the
terms of the 1998 Stock Option and Award Plan (the "1998 Plan"). In order for
certain 1998 Plan provisions relating to incentive stock options to be
effective, it must be approved by the Stockholders of the Company and is being
submitted for such approval pursuant to this Proxy Statement.
In the following paragraphs a summary of the terms of the 1998 Plan is
provided. The following summary is qualified in its entirety by the provisions
of the 1998 Plan, a copy of which is attached hereto as Appendix "A".
PLAN SUMMARY
The Board of Directors of the Company believes that it is important that
senior management as well as other employees and individuals who contribute to
the success of the Company have a stake in the enterprise as Stockholders.
Consistent with this belief, the award of stock options has been and will
continue to be an important element of their compensation program. The Board of
Directors and the Stockholders previously approved and adopted the 1995 Stock
Option and Award Plan, the 1996 Stock Option and Award Plan, and the 1997 Stock
Option and Award Plan. Through December 31, 1998, options to purchase an
aggregate of 1,385,667 shares had been granted under such plans, leaving 114,333
shares available under such plans. As the award of stock options is an
important element of the Company's compensation program, the Board of Directors
believes that another plan should be adopted.
The 1998 Plan is intended to (a) attract competent directors, executive
personnel, and other employees, (b) ensure the retention of the services of
existing directors, executive personnel and employees, and (c) provide
incentives to all of such personnel to devote the utmost effort and skill to the
advancement and betterment of the Company by permitting them to participate in
ownership and thereby permitting them to share in increases in the value which
they help produce.
The 1998 Plan is to be administered either by the Board of Directors or by
the appropriate committee (the "Committee") to be appointed from time to time by
such Board of Directors. Currently the Compensation Committee recommends to the
Board of Directors actions respecting the 1998 Plan. Awards granted under the
1998 Plan may be incentive stock options ("ISOs") as defined in the Internal
Revenue Code (the "Code"), appreciation rights, options which do not qualify as
ISOs, or stock bonus awards which are awarded to employees, including officers
and directors, who, in the opinion of the Board or the Committee, have
contributed, or are expected to contribute, materially to the success of the
Company. In addition, at the discretion of the Board of Directors or the
Committee, options or bonus stock may be granted to individuals who are not
employees but contribute to the success of the Company.
The exercise price of options granted under the 1998 Plan is to be based on
the fair market value of the underlying Common Stock at the time of grant and,
in the case of ISOs, may not be less than 100% of the fair market value of such
capital stock on the date the option is granted (110% of the fair market value
in the case of 10% Stockholders). Options granted under the 1998 Plan shall
expire not later than ten years after the date of grant (five years in the case
of ISOs granted to 10% Stockholders). The option price may be paid by cash or,
at the discretion of the Company's Board of Directors or Committee, by delivery
of shares of Common Stock of the Company already owned by the optionee (valued
at their fair market value at the date of exercise), or a combination thereof.
All of the employees, officers, and directors of the Company are eligible
to participate under the 1998 Plan. A maximum of 500,000 shares are available
for grant under the 1998 Plan. The identification of individuals entitled to
receive awards, the terms of the awards, and the number of shares subject to
individual awards are determined by the Board of Directors or the Committee, in
their sole discretion; provided, however, that in no event may the aggregate
fair market value of shares for which an ISO is first exercisable in any
calendar year by any eligible employee exceed $100,000.
The aggregate number of shares with respect to which options or stock
awards may be granted under the 1998 Plan, the number of shares covered by each
outstanding option, and the purchase price per share, shall be adjusted for any
increase or decrease in the number of issued shares resulting from a
recapitalization, reorganization, merger, consolidation, exchange of shares,
stock dividend, stock split, reverse stock split, or other subdivision or
consolidation of shares. In the case of an ISO, the ratio of the option price
immediately after the change to the fair market value of the stock subject to
the option immediately after the corporation transaction must not be more
favorable to the optionee on a share by share basis than the ratio of the old
option price to the fair market value of the stock subject to the option
immediately before such transaction. All such adjustments shall be made by the
Board or the Committee, whose good faith determination shall be binding absent
manifest error.
The Board of Directors or the Committee may from time to time alter, amend,
suspend, or discontinue the 1998 Plan with respect to any shares as to which
options or stock awards have not been granted. However, no such alteration or
amendment (unless approved by the Stockholders) shall (a) increase (except
adjustment for an event of dilution) the maximum number of shares for which
options or stock awards may be granted under the 1998 Plan either in the
aggregate or to any eligible employee; (b) reduce (except adjustment for an
event of dilution) the minimum option prices which may be established under the
1998 Plan; (c) extend the period or periods during which options may be granted
or exercised; (d) materially modify the requirements as to eligibility for
participation in the 1998 Plan; (e) change the provisions relating to events of
dilution; or (f) materially increase the benefits accruing to the eligible
participants under the 1998 Plan.
CERTAIN TAX MATTERS
A participant to whom a nonqualified option is granted will not realize
income at the time of the grant. Upon exercise of the option, the excess of the
fair market value of the stock on the date of exercise over the exercise price
will be taxable to the optionee as ordinary income. The tax basis to the
optionee for the stock acquired is the exercise price plus the amount recognized
as income. The Company will be entitled to a deduction equal to the amount of
the ordinary income realized by the optionee in the taxable year which includes
the end of the optionee's taxable year in which he realizes the ordinary income.
When shares acquired pursuant to the exercise of the option are disposed of, the
holder will realize additional capital gain or loss equal to the difference
between the sales proceeds and his or her tax basis in the stock.
If a participant to whom an option is granted exercises such option by
payment of the exercise price in whole or in part with previously owned shares,
the optionee will not realize income with respect to the number of shares
received on exercise which equals the number of shares delivered by the
optionee. The optionee's basis for the delivered shares will carry over to the
option shares received. With regard to the number of nonqualified option shares
received which exceed the number of shares delivered, the optionee will realize
ordinary income at the time of exercise; the optionee's tax basis in these
additional option shares will equal the amount of ordinary income realized plus
the amount of any cash paid.
Recipients of ISOs will not be required to recognize income at the time of
the grant of the options or at the time of exercise of the options as long as
the stock received on exercise is held for at least two years from the date of
the grant of the ISOs or one year from the date of exercise (although the
difference between the fair market value of the stock and the exercise price
paid at the time of exercise must be taken into account for alternative minimum
tax purposes). If the stock received upon exercise of an ISO is disposed of
prior to the expiration of either of such time periods, the optionee will be
required to recognize as ordinary income the amount by which the fair market
value of the stock received at the time of exercise exceeds the exercise price
of the ISOs.
Under the 1998 Plan, stock appreciation rights ("SARs") can be granted at
the time an option is granted with respect to all or a portion of the shares
subject to the related option. SARs can only be exercised to the extent the
related option is exercisable and cannot be exercised for the six month period
following the date of grant, except in the event of death or disability of the
optionee. The exercise of any portion of either the related option or the
tandem SARs will cause a corresponding reduction in the number of shares
remaining subject to the option or the tandem SARs, thus maintaining a balance
between outstanding options and SARs. SARs permit the holder to receive an
amount (in cash, shares, or a combination of cash and shares, as determined by
the Board of Directors at the time of grant) equal to the number of SARs
exercised multiplied by the excess of the fair market value of the shares on the
exercise date over the exercise price of the related options.
Under the terms of the 1998 Plan, the Board of Directors or the Committee
may also grant stock awards which may, at the discretion of such Board of
Directors or Committee, be subject to forfeiture under certain conditions.
Recipients of stock awards will realize ordinary income at the time of the lapse
of any forfeiture provisions equal to the fair market value of the shares less
any amount paid in connection with the issuance (the Board of Directors or the
Committee can require the payment of par value at the time of the grant). The
Company will realize a corresponding compensation deduction. The holder will
have a basis in the shares acquired equal to any amount paid on exercise plus
the amount of any ordinary income recognized by the holder. On sale of the
shares, the holder will have a capital gain or loss equal to the sale proceeds
minus his or her basis in the shares.
ISSUANCE OF OPTIONS PURSUANT TO THE 1998 PLAN
At the time of adoption of the 1998 Plan, the Board of Directors also
approved the grant of options to purchase an aggregate of 158,000 shares of
Common Stock at an exercise price of $8.625 per share under the 1998 Plan. Each
option annually vests, commencing on the first anniversary of the date of grant,
to become exercisable to purchase 1/3 of the Common Stock covered by such
option. If the 1998 Plan is approved by the Stockholders at the Annual Meeting,
an aggregate of 158,000 of the 500,000 options approved by the Board of
Directors will qualify as ISOs and be subject to the treatment described above.
VOTE REQUIRED
Adoption of the 1998 Plan requires the approval of a majority of the shares
present, in person or represented by Proxy, and entitled to vote at the Annual
Meeting. Abstentions and broker non-votes will have the same legal effect as a
vote against the approval of the 1998 Plan.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE APPROVAL OF THE 1998
PLAN. IT IS INTENDED THAT, IN THE ABSENCE OF CONTRARY SPECIFICATIONS, VOTES
WILL BE CAST PURSUANT TO THE ENCLOSED PROXIES FOR THE APPROVAL OF THE 1998 PLAN.
INDEPENDENT PUBLIC ACCOUNTANTS
The selection of the Company's auditors will not be submitted to the
Stockholders for their approval in the absence of a requirement to do so. It is
anticipated that representatives of PricewaterhouseCoopers LLP will be present
at the Annual Meeting and will be provided the opportunity to make a statement,
if they desire to do so, and be available to respond to appropriate questions.
STOCKHOLDER PROPOSALS
No proposals have been submitted by Stockholders of the Company for
consideration at the Annual Meeting. It is anticipated that the next Annual
Meeting of Stockholders will be held during May 2000. Stockholders may present
proposals for inclusion in the Proxy Statement to be mailed in connection with
the 2000 Annual Meeting of Stockholders of the Company, provided such proposals
are received by the Company no later than November 15, 1999, and are otherwise
in compliance with applicable laws and regulations and the governing provisions
of the Articles of Incorporation and Bylaws of the Company.
OTHER MATTERS
Management does not know of any business other than that referred to herein
which may be considered at the Annual Meeting. If any other matters should
properly come before the Annual Meeting, it is the intention of the persons
named in the accompanying form of Proxy to vote the proxies held by them in
accordance with their best judgment.
In order to assure the presence of the necessary quorum and to vote on the
matters to come before the Annual Meeting, please indicate your choices on the
enclosed Proxy and date, sign, and return it promptly in the envelope provided.
The signing of a Proxy by no means prevents your attending the meeting.
By Order of the Board of Directors
FX ENERGY, INC.
/s/ Scott J. Duncan, Secretary
Salt Lake City, Utah
March 30, 1999
<PAGE>
PROXY
FX ENERGY, INC.
ANNUAL MEETING OF THE SHAREHOLDERS OF (THIS PROXY IS SOLICITED ON BEHALF
FX ENERGY, INC. ON MAY 4, 1999 OF THE BOARD OF DIRECTORS)
The undersigned hereby appoints David N. Pierce and Scott J. Duncan
proxies, with full power of substitution, to vote the shares of common stock of
FX ENERGY, INC. (the "Company"), which the undersigned is entitled to vote at
the Annual Meeting of Shareholders of the Company ("Annual Meeting") to be held
at Little America Hotel, 500 South Main, Salt Lake City, Utah, on May 4, 1999,
at 10:00 a.m., local time, or any adjournment(s) thereof, such proxies being
directed to vote as specified below. IF NO INSTRUCTIONS ARE SPECIFIED, SUCH
PROXY WILL BE VOTED "FOR" EACH PROPOSAL.
To vote in accordance with the Board of Directors' recommendations, sign
below. The "FOR" boxes may, but need not, be checked. To vote against any of
the recommendations, check the appropriate box marked "AGAINST" below. To
withhold authority for the proxies to vote for any of the recommendations, check
the appropriate box(es) marked "WITHHOLD AUTHORITY" below.
The Board of Directors recommends votes "FOR" the following proposals,
each of which has been proposed by the Board of Directors:
1. To elect each of the following nominees to serve as a director for a
term expiring at the 2002 Annual Meeting of the Shareholders of the
Company and until a successor is elected and qualified. To withhold
your vote for any individual nominee, strike a line through such
nominee's name.
David N. Pierce Peter L. Raven
2. To approve the FX Energy, Inc. 1998 Stock Option and Award Plan.
FOR [--] AGAINST [--] WITHHOLD AUTHORITY [--]
3. To transact such other business as may properly come before the Annual
Meeting or any adjournment (s) thereof.
FOR [--] AGAINST [--] WITHHOLD AUTHORITY [--]
PLEASE PRINT YOUR NAME AND SIGN EXACTLY AS YOUR NAME APPEARS IN THE RECORDS OF
THE COMPANY. WHEN SHARES ARE HELD BY JOINT TENANTS, BOTH SHOULD SIGN. IF YOUR
SHARES ARE HELD AT A BROKERAGE HOUSE, PLEASE INDICATE IN THE SPACE PROVIDED THE
NAME OF THE BROKERAGE HOUSE AND THE NUMBER OF SHARES HELD.
Dated: --------------------- Number of Shares Held of Record
- ---------------------------- ----------------------------------
Number of Shares Held at a Name of Brokerage or Clearing House
Brokerage or Clearing House
- ---------------------------- ----------------------------------
Signature Signature (if held jointly)
- ---------------------------- ----------------------------------
Print Name Print Name
PLEASE MARK, SIGN, DATE, AND
RETURN THIS PROXY TO: FX ENERGY, INC.
3006 SOUTH HIGHLAND DRIVE, SUITE 206
SALT LAKE CITY, UTAH 84106
<PAGE>
FX ENERGY, INC.
1998 STOCK OPTION AND AWARD PLAN
FX ENERGY, INC., a Nevada corporation (the "Company"), hereby adopts this
"FX Energy, Inc., 1998 Stock Option and Award Plan" (the "Plan"), effective as
of the 10th day of November, 1998, under which options to acquire stock of the
Company or bonus stock may be granted from time to time to employees, officers,
and directors, of the Company or its subsidiaries. In addition, at the
discretion of the Board of Directors or other administrator of this Plan,
options to acquire stock of the Company or bonus stock may from time to time be
granted under this Plan to other individuals who contribute to the success of
the Company or its subsidiaries but who are not employees, officers, or
directors of the Company, all on the terms and conditions set forth herein.
1. Purpose of the Plan. The Plan is intended to aid the Company in
maintaining and developing a management team, attracting qualified executives
and employees capable of assisting in the future success of the Company, and
rewarding those individuals who have contributed to the success of the Company.
It is designed to aid the Company in retaining the services of executives and
employees and in attracting new personnel when needed for future operations and
growth and to provide such personnel with an incentive to remain employees of
the Company, to use their best efforts to promote the success of the Company's
business, and to provide them with an opportunity to obtain or increase a
proprietary interest in the Company. It is also designed to permit the Company
to reward those individuals who are not employees of the Company but who are
perceived by management as having contributed to the success of the Company or
who are important to the continued business and operations of the Company. The
above aims will be effectuated through the granting of options ("Options") to
purchase shares of common stock of the Company, par value $0.001 per share (the
"Stock"), or the granting of awards of bonus stock ("Stock Awards"), all subject
to the terms and conditions of this Plan. It is intended that the Options
issued pursuant to this Plan include, when designated as such at the time of
grant, options which qualify as Incentive Stock Options ("Incentive Options")
within the meaning of section 422 of the Internal Revenue Code of 1986, as
amended (the "Code"), or any amendment or successor provision of like tenor. If
the Company has a class of securities registered under the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), it is intended that Options or
Stock Awards granted pursuant to this Plan qualify for the exemption provided
for in Rule 16b-3 promulgated under the Exchange Act ("Rule 16b-3") or any
amendment or successor rule of like tenor when granted in accordance with the
provisions of such rule.
2. Shareholder Approval. The Plan shall become effective immediately on
adoption by the Board of Directors of the Company (the "Board") and awards under
the Plan can be made at that time or at any subsequent time. The Plan shall be
submitted to the Company's shareholders in the manner set forth below:
(a) Within 12 months after the Plan has been adopted by the Board,
the Plan shall be submitted for approval by those shareholders of the
Company who are entitled to vote on such matters at a duly held
shareholders' meeting or approved by the unanimous written consent of the
holders of the issued and outstanding Stock of the Company. If the Plan is
presented at a shareholders' meeting, it shall be approved by the
affirmative vote of the holders of a majority of the issued and outstanding
Stock in attendance, in person or by proxy, at such meeting.
Notwithstanding the foregoing, the Plan may be approved by the shareholders
in any other manner not inconsistent with the Company's articles of
incorporation and bylaws, the applicable provisions of state corporate
laws, and the applicable provisions of the Code and regulations adopted
thereunder.
(b) In the event the Plan is so approved, the secretary of the
Company shall, as soon as practicable following the date of final approval,
prepare and attach to this Plan certified copies of all relevant
resolutions adopted by the shareholders and the Board.
(c) Failure to obtain shareholder approval on or before the date that
is twelve months subsequent to the adoption of this Plan by the Board shall
not invalidate this Plan or affect awards previously granted under the
Plan; provided that none of the Options issued under this Plan will qualify
as Incentive Options.
3. Administration of the Plan. Administration of the Plan shall be
determined by the Board. Subject to compliance with applicable provisions of
the governing law, the Board may delegate administration of the Plan or specific
administrative duties with respect to the Plan, on such terms and to such
committees of the Board as it deems proper. Any Option or Stock Award approved
by the Board shall be approved by a majority vote of those members of the Board
in attendance at a meeting at which a quorum is present. Any Option or Stock
Award approved by a committee designated by the Board shall be approved as
specified by the Board at the time of delegation. The interpretation and
construction of the terms of the Plan by the Board or duly authorized committee
shall be final and binding on all participants in the Plan absent a showing of
demonstrable error. No member of the Board or duly authorized committee shall
be liable for any action taken or determination made in good faith with respect
to the Plan.
The Board's or duly authorized committee's determination under the Plan
(including without limitation determinations of the persons to receive Options
or Stock Awards, the form, amount, and timing of such Options or Stock Awards,
the terms and provisions of such Options or Stock Awards, and the agreements
evidencing same) need not be uniform and may be made by the Board or duly
authorized committee selectively among persons who receive, or are eligible to
receive, Options or Stock Awards under the Plan, whether or not such persons are
similarly situated.
4. Shares of Stock Subject to the Plan. A total of 500,000 shares of
Stock may be subject to, or issued pursuant to, Options or Stock Awards granted
under the terms of this Plan. Any shares subject to an Option or Stock Award
under the Plan, which Option or Stock Award for any reason expires or is
forfeited, terminated, or surrendered unexercised as to such shares, shall be
added back to the total number of shares reserved for issuance under the terms
of this Plan. If any right to acquire Stock granted under the Plan is exercised
by the delivery of shares of Stock or the relinquishment of rights to shares of
Stock, only the net shares of Stock issued (the shares of Stock issued less the
shares of Stock surrendered) shall count against the total number of shares
reserved for issuance under the terms of this Plan.
5. Reservation of Stock on Granting of Option. At the time of granting
any Option under the terms of this Plan, there will be reserved for issuance on
the exercise of the Option the number of shares of Stock of the Company subject
to such Option. The Company may reserve either authorized but unissued shares
or issued shares that have been reacquired by the Company.
6. Eligibility. Options or Stock Awards under the Plan may be granted to
employees, including officers and directors, of the Company or its subsidiaries,
as may be existing from time to time, and to other individuals who are not
employees of the Company as may be deemed in the best interest of the Company by
the Board or duly authorized committee. Such Options or Stock Awards shall be
in the amounts, and shall have the rights and be subject to the restrictions, as
may be determined by the Board or duly authorized committee at the time of
grant, all as may be within the general provisions of this Plan.
7. Term of Options and Certain Limitations on Right to Exercise.
(a) Each Option shall have the term established by the Board or duly
authorized committee at the time the Option is granted but in no event may
an Option have a term in excess of ten years.
(b) The term of the Option, once it is granted, may be reduced only
as provided for in this Plan or under the written provisions of the Option.
(c) Unless otherwise specifically provided by the written provisions
of the Option, no holder or his or her legal representative, legatee, or
distributee will be, or shall be deemed to be, a holder of any shares
subject to an Option unless and until the holder exercises his or her right
to acquire all or a portion of the Stock subject to the Option and delivers
the required consideration to the Company in accordance with the terms of
this Plan and the Option and then only to the extent of the number of
shares of Stock acquired. Except as specifically provided in this Plan or
as otherwise specifically provided by the written provisions of the Option,
no adjustment to the exercise price or the number of shares of Stock
subject to the Option shall be made for dividends or other rights for which
the record date is prior to the date the Stock subject to the Option is
acquired by the holder.
(d) Options under the Plan shall vest and become exercisable at such
time or times and on such terms as the Board or duly authorized committee
may determine at the time of the grant of the Option.
(e) Options granted under the Plan shall contain such other
provisions, including, without limitation, further restrictions on the
vesting and exercise of the Option, as the Board or duly authorized
committee shall deem advisable.
(f) In no event may an Option be exercised after the expiration of
its term.
(g) Unless otherwise specifically provided by the written provisions
of an Option granted pursuant to this Plan, upon receipt of (i) any request
that the exercise of the Option or the resale of any shares of Stock issued
or to be issued on exercise of such Option will be registered under the
Securities Act; or (ii) any notice of exercise of the Option pursuant to
its terms, in lieu of any obligation to effect any registration with
respect to the Options or shares of Stock issuable on such Option or in
lieu of delivering shares of Stock on the exercise of the Option, the
Company may, within five business days of receipt of such request to
register or notice of exercise, purchase, in whole or in part, such Options
from the Optionee at an amount in cash equal to the difference between (a)
the then current fair market value (as defined below) of the Stock on the
day of such repurchase and (b) the exercise price in effect on such day.
In order to exercise such right, the Company must provide written notice to
the optionee at least five days prior to the date that the Company proposes
to repurchase such Options. For purposes of this section, the fair market
value of the Stock shall be determined by the Board or duly authorized
committee based on the closing price for the Stock as quoted on a
registered national securities exchange or, if not listed on a national
exchange, the Nasdaq Stock Market ("Nasdaq"), on the trading day
immediately preceding the date that the Company provides notice of its
intent to repurchase the Options, or, if not listed on such an exchange or
included on Nasdaq, the closing price for the Stock as determined by the
Board or duly authorized committee through any other reliable means of
determination available on the close of business on the trading day last
preceding the date of providing the notice.
8. Exercise Price. The exercise price of each Option issued under the
Plan shall be determined by the Board or duly authorized committee on the date
of grant.
9. Payment of Exercise Price. The exercise of any Option shall be
contingent on receipt by the Company of cash, certified bank check to its order,
or other consideration acceptable to the Company; provided that, at the
discretion of the Board or duly authorized committee, the written provisions of
the Option may provide that payment can be made in whole or in part in shares of
Stock of the Company that have been owned by the optionee for more than six
months or by the surrender of Options to acquire Stock from the Company that
have been held for more than six months, which Stock or Options shall be valued
at their then fair market value as determined by the Board or duly authorized
committee. Any consideration approved by the Board or duly authorized committee
that calls for the payment of the exercise price over a period of more than one
year shall provide for interest, which shall not be included as part of the
exercise price, that is equal to or exceeds the imputed interest provided for in
section 483 of the Code or any amendment or successor section of like tenor.
10. Withholding. If the grant of a Stock Award or the grant or exercise
of an Option pursuant to this Plan, or any other event in connection with any
such grant or exercise, creates an obligation to withhold income and employment
taxes pursuant to the Code or applicable state or local laws, such obligation
may, at the discretion of the Board or duly authorized committee at the time of
the grant of the Option or Stock Award and to the extent permitted by the terms
of the Option or Stock Award and the then governing provisions of the Code and
the Exchange Act, be satisfied (i) by the holder of the Option or Stock Award
delivering to the Company an amount of cash equal to such withholding
obligation; (ii) by the Company withholding from any compensation or other
amount owing to the holder of the Option or Stock Award the amount (in cash,
Stock, or other property as the Company may determine) of the withholding
obligation; (iii) by the Company withholding shares of Stock subject to the
Option or Stock Award with a fair market value equal to such obligation; or (iv)
by the holder of the Option or Stock Award either delivering shares of Stock
that have been owned by the holder for more than six months or canceling Options
or other rights to acquire Stock from the Company that have been held for more
than six months with a fair market value equal to such requirements. In all
events, delivery of shares of Stock issuable on exercise of the Option or on
grant of the Stock Award shall be conditioned upon and subject to the
satisfaction or making provision for the satisfaction of the withholding
obligation of the Company resulting from the grant or exercise of the Option,
grant of the Stock Award, or any other event. The Company shall be further
authorized to take such other action as may be necessary, in the opinion of the
Company, to satisfy all obligations for the payment of such taxes.
11. Incentive Options--Additional Provisions. In addition to the other
restrictions and provisions of this Plan, any Option granted hereunder that is
intended to be an Incentive Option shall meet the following further
requirements:
(a) The exercise price of an Incentive Option shall not be less than
the fair market value of the Stock on the date of grant of the Incentive
Option as determined by the Board or duly authorized committee based on the
closing price for the Stock as quoted on a registered national securities
exchange or, if not listed on a national exchange, the Nasdaq Stock Market
("Nasdaq"), over the five-day trading period immediately prior to the date
of grant of such Incentive Option, or, if not listed on such an exchange or
included on Nasdaq, the closing price for the Stock as determined by the
Board or duly authorized committee through any other reliable means of
determination available on the close of business on the trading day last
preceding the date of grant of such Incentive Option and permitted by the
applicable provisions of the Code.
(b) No Incentive Option may be granted under the Plan to any
individual that owns (either of record or beneficially) Stock possessing
more than 10% of the combined voting power of the Company or any parent or
subsidiary corporation unless both the exercise price is at least 110% of
the fair market value of the Stock on the date the Option is granted and
the Incentive Option by its terms is not exercisable more than five years
after the date it is granted.
(c) Incentive Options may be granted only to employees of the Company
or its subsidiaries and only in connection with that employee's employment
by the Company or a subsidiary. Notwithstanding the above, directors and
other individuals who have contributed to the success of the Company or its
subsidiaries may be granted Incentive Options under the Plan, subject to,
and to the extent permitted by, applicable provisions of the Code and
regulations promulgated thereunder, as they may be amended from time to
time.
(d) The aggregate fair market value (determined as of the date the
Incentive Option is granted) of the shares of Stock with respect to which
Incentive Options are exercisable for the first time by any individual
during any calendar year under the Plan (and all other plans of the Company
and its subsidiaries) may not exceed $100,000.
(e) No Incentive Option shall be transferable other than by will or
the laws of descent and distribution and shall be exercisable, during the
lifetime of the optionee, only by the optionee to whom the Incentive Option
is granted.
(f) No individual acquiring shares of Stock pursuant to any Incentive
Option granted under this Plan shall sell, transfer, or otherwise convey
the Stock until after the date that is both two years after the date the
Incentive Option was granted and one year after the date the Stock was
acquired pursuant to the exercise of the Incentive Option. If any
individual makes a disqualifying disposition, he or she shall notify the
Company within 30 days of such transaction.
(g) No Incentive Option may be exercised unless the holder was,
within three months of such exercise, and had been since the date the
Incentive Option was granted, an eligible employee of the Company as
specified in the applicable provisions of the Code, unless the employment
was terminated as a result of the death or disability (as defined in the
Code and the regulations promulgated thereunder as they may be amended from
time to time) of the employee or the employee dies within three months of
the termination. In the event of termination as a result of disability,
the holder shall have a one year period following termination in which to
exercise the Incentive Option. In the event of death of the holder, the
Incentive Option must be exercised within six months after the issuance of
letters testamentary or administration or the appointment of an
administrator, executor, or personal representative, but not later than one
year after the date of termination of employment. An authorized absence or
leave approved by the Board or duly authorized committee for a period of 90
days or less shall not be considered an interruption of employment for any
purpose under the Plan.
(h) All Incentive Options shall be deemed to contain such other
limitations and restrictions as are necessary to conform the Incentive
Option to the requirements for "incentive stock options" as defined in
section 422 of the Code, or any amendment or successor statute of like
tenor.
All of the foregoing restrictions and limitations are based on the governing
provisions of the Code as of the date of adoption of this Plan. If at any time
the Code is amended to permit the qualification of an Option as an incentive
stock option without one or more of the foregoing restrictions or limitations or
the terms of such restrictions or limitations are modified, the Board or duly
authorized committee may grant Incentive Options, and may modify outstanding
Incentive Options in accordance with such changes, all to the extent that such
action by the Board or duly authorized committee does not disqualify the Options
from treatment as incentive stock options under the provisions of the Code as
may be amended from time to time.
12. Awards to Directors and Officers. To the extent the Company has a
class of securities registered under the Exchange Act, Options or Stock Awards
granted under the Plan to directors and officers (as used in Rule 16b-3
promulgated under the Exchange Act or any amendment or successor rule of like
tenor) intended to qualify for the exemption from section 16(b) of the Exchange
Act provided in Rule 16b-3 shall, in addition to being subject to the other
restrictions and limitations set forth in this Plan, be made as follows:
(a) A transaction whereby there is a grant of an Option or Stock
Award pursuant to this Plan must satisfy one of the following:
(i) The transaction must be approved by the Board or duly
authorized committee composed solely of two or more non-employee
directors of the Company (as defined in Rule 16b-3);
(ii) The transaction must be approved or ratified, in compliance
with section 14 of the Exchange Act, by either: the affirmative vote
of the holders of a majority of the securities of the Company present
or represented and entitled to vote at a meeting of the shareholders
of the Company held in accordance with the applicable laws of the
state of incorporation of the Company; or, if allowed by applicable
state law, the written consent of the holders of a majority, or such
greater percentage as may be required by applicable laws of the state
of incorporation of the Company, of the securities of the Company
entitled to vote. If the transaction is ratified by the shareholders,
such ratification must occur no later than the date of the next annual
meeting of shareholders; or
(iii) The Stock acquired must be held by the officer or
director for a period of six months subsequent to the date of the
grant; provided that if the transaction involves a derivative security
(as defined in section 16 of the Exchange Act), this condition shall
be satisfied if at least six months elapse from the date of
acquisition of the derivative security to the date of disposition of
the derivative security (other than on exercise or conversion) or its
underlying equity security.
(b) Any transaction involving the disposition by the Company of its
securities in connection with Options or Stock Awards granted pursuant to
this Plan shall:
(i) be approved by the Board or duly authorized committee
composed solely of two or more non-employee directors (as defined in
Rule 16b-3); or
(ii) be approved or ratified, in compliance with section 14 of
the Exchange Act, by either: the affirmative vote of the holders of a
majority of the securities of the Company present, or represented, and
entitled to vote at a meeting duly held in accordance with the
applicable laws of the state of incorporation of the Company or, if
allowed by applicable state law, the written consent of the holders of
a majority, or such greater percentage as may be required by
applicable laws of the state of incorporation of the Company, of the
securities of the Company entitled to vote; provided that such
ratification occurs no later than the date of the next annual meeting
of shareholders.
All of the foregoing restrictions and limitations are based on the governing
provisions of the Exchange Act and the rules and regulations promulgated
thereunder as of the date of adoption of this Plan. If at any time the
governing provisions are amended to permit an Option to be granted or exercised
or Stock Award to be granted pursuant to Rule 16b-3 or any amendment or
successor rule of like tenor without one or more of the foregoing restrictions
or limitations, or the terms of such restrictions or limitations are modified,
the Board or duly authorized committee may award Options or Stock Awards to
directors and officers, and may modify outstanding Options or Stock Awards, in
accordance with such changes, all to the extent that such action by the Board or
duly authorized committee does not disqualify the Options or Stock Awards from
exemption under the provisions of Rule 16b-3 or any amendment or successor rule
of similar tenor.
13. Stock Appreciation Rights and Other Tandem Rights. The Board or duly
authorized committee, at the time of granting any award under the terms of this
Plan, shall have the authority to grant stock appreciation rights or other
tandem rights with respect to all or some of the shares of Stock covered by such
award pursuant to which the holder shall have the right to surrender all or part
of such award and thereby exercise the tandem rights; provided, however, that
the holder shall not have such right to surrender and obtain payment during the
first six months of the term of the award, except in the event of death or
disability of the holder during such six-month period. Any payment under the
terms of the tandem rights may be made by the Company, at the discretion of the
Board or duly authorized committee as set forth in the written award, in Stock
(at its fair market value on the date of the notice of exercise, as determined
by the Board or committee) or in cash, or partly in Stock and partly in cash, as
the Company may determine. Any stock appreciation rights or other tandem rights
granted under the terms of this section may be exercised only when, and only to
the extent that, the holder is entitled to exercise all or a portion of the
underlying award. The terms of any stock appreciation or other rights granted
shall, within the provisions of this Plan, be established by the Board or
committee at the time of grant, and any rights created thereby can only be
transferred in connection with the transfer of the underlying award. Stock
appreciation rights may only be exercised at a time when the fair market value
of the Stock subject to the award exceeds the exercise price of the award.
14. Stock Awards. The Board or duly authorized committee may grant Stock
Awards to individuals eligible to participate in this Plan, in the amount, and
subject to the provisions determined by the Board or duly authorized committee.
The Board or duly authorized committee shall notify in writing each person
selected to receive a Stock Award hereunder as soon as practicable after he or
she has been so selected and shall inform such person of the number of shares he
or she is entitled to receive, the approximate date on which such shares will be
issued, and the Forfeiture Restrictions applicable to such shares. (For
purposes hereof, the term "Forfeiture Restrictions" shall mean any prohibitions
against sale or other transfer of shares of Stock granted under the Plan and the
obligation of the holder to forfeit his or her ownership of or right to such
shares and to surrender such shares to the Company on the occurrence of certain
conditions.) The Board or duly authorized committee may, at its discretion,
require the payment in cash to the Company by the award recipient of the par
value of the Stock. The shares of Stock issued pursuant to a Stock Award shall
not be sold, exchanged, transferred, pledged, hypothecated, or otherwise
disposed of during such period or periods of time which the Board or duly
authorized committee shall establish at the time of the grant of the Stock
Award. If a Stock Award is made to an employee of the Company or its
subsidiaries, the employee shall be obligated, for no consideration other than
the amount, if any, of the par value paid in cash for such shares, to forfeit
and surrender such shares as he or shall have received under the Plan which are
then subject to Forfeiture Restrictions to the Company if he or she is no longer
an employee of the Company or its subsidiaries for any reason; provided that in
the event of termination of the employee's employment by reason of death or
total and permanent disability, the Board or duly authorized committee, in its
sole discretion, may cancel the Forfeiture Restrictions. Certificates
representing shares subject to Forfeiture Restrictions shall be appropriately
legended as determined by the Board or duly authorized committee to reflect the
Forfeiture Restrictions, and the Forfeiture Restrictions shall be binding on any
transferee of the shares.
15. Assignment. At the time of grant of an Option or Stock Award, the
Board or duly authorized Committee, in its sole discretion, may impose
restrictions on the transferability of such Option or Stock Award and provide
that such Option shall not be transferable other than by will or the laws of
descent and distribution or pursuant to a qualified domestic relations order as
defined in the Code and that, except as permitted by the foregoing, such Options
or Stock Awards, granted under the Plan and the rights and privileges thereby
conferred shall not be transferred, assigned, pledged, or hypothecated in any
way (whether by operation of law or otherwise), and shall not be subject to
execution, attachment, or similar process. On any attempt to transfer, assign,
pledge, hypothecate, or otherwise dispose of the Option or Stock Award, or of
any right or privilege conferred thereby, contrary to the provisions thereof, or
on the levy of any attachment or similar process on such rights and privileges,
the Option or Stock Award and such rights and privileges shall immediately
become null and void.
16. Additional Terms and Provisions of Awards. The Board or duly
authorized committee shall have the right to impose additional limitations on
individual awards under the Plan. For example, and without limiting the
authority of the Board or duly authorized committee, an individual award may be
conditioned on continued employment for a specified period or may be voided
based on the award holder's gross negligence in the performance of his or her
duties, substantial failure to meet written standards established by the Company
for the performance of his or her duties, criminal misconduct, or willful or
gross misconduct in the performance of his or her duties. In addition, the
Board or duly authorized committee may establish additional rights in the
holders of individual awards at the time of grant. For example, and without
limiting the authority of the Board or duly authorized committee, an individual
award may include the right to immediate payment of the value inherent in the
award on the occurrence of certain events such as a change in control of the
Company, all on the terms and conditions set forth in the award at the time of
grant. The Board or duly authorized committee may, at the time of the grant of
the Option or Stock Award, establish any other terms, restrictions, or
provisions on the exercise of an Option or the holding of Stock subject to the
Stock Award as it deems appropriate. All such terms, restrictions, and
provisions must be set forth in writing at the time of grant in order to be
effective.
17. Dilution or Other Adjustments. Unless otherwise specifically provided
by the written provisions of an Option granted pursuant to this Plan, in order
to prevent dilution of the rights under any Option granted pursuant to this
Plan, the Plan and any Options and Stock Awards shall be subject to appropriate
adjustment as follows:
(a) In the event the Company shall declare a dividend or make any
other distribution on any capital stock of the Company payable in Stock,
rights to purchase Stock, or securities convertible into Stock or shall
subdivide its outstanding shares of Stock into a greater number of shares
or combine such outstanding Stock into a smaller number of shares, then in
each such event, the aggregate number of shares of Stock then subject to
the Plan shall be increased or decreased by the same proportion and the
number of shares of Stock then covered by each outstanding Option granted
hereunder shall be adjusted so that each such Option shall be exercisable
to purchase the kind and number of shares of Stock or other securities of
the Company which the holder would have owned or have been entitled to
receive after the happening of any of the events described above, had such
Option been exercised immediately prior to the happening of such event or
any record date with respect thereto. Whenever the number of shares of
Stock purchasable on the exercise of Options granted hereunder are adjusted
pursuant to this subparagraph, the exercise price of each such Option shall
be adjusted by multiplying the exercise price per share immediately prior
to such adjustment by a fraction (calculated to four decimal places), the
numerator of which shall be the number of shares purchasable on the
exercise of such Option immediately prior to such adjustment and the
denominator of which shall be the number of shares so purchasable
immediately thereafter. Shares awarded under the terms of a Stock Award,
whether or not then subject to Forfeiture Restrictions, shall be entitled
to the same rights as other issued and outstanding shares of Stock,
including distributions pursuant to a stock split or dividend or reduction
pursuant to a combination or consolidation, although any additional shares
of Stock issued to the holder of a Stock Award shall be subject to the same
Forfeiture Restrictions as the Stock Award.
(b) In the event the Company shall declare a dividend or make any
other distribution to the holders of its Stock, payable in evidence of its
indebtedness or assets or capital stock (excluding cash dividends or
distributions made out of current or retained earnings) or rights or
warrants to subscribe for securities, other than as referred to above, then
in each such case the exercise price per share of each Option granted
hereunder shall be adjusted to be equal to the exercise price theretofore
applicable prior to any such adjustment multiplied by a fraction
(calculated to four decimal places), the numerator of which shall be the
current market price per share of Stock on the record date for such
distribution less the then fair market value (as reasonably determined by
the Board) of the evidence of its indebtedness or assets or capital stock
so distributed applicable to one share of Stock and the denominator of
which shall be the current market price per share of Stock. Shares issued
under a Stock Award, whether or not subject to Forfeiture Restrictions,
shall be treated as issued and outstanding although any distributions with
respect to the shares awarded under the Stock Award shall be subject to the
Forfeiture Restrictions then applicable to such shares and may be held by
the Company or otherwise subject to restrictions on transfer until the
expiration of the Forfeiture Restrictions.
(c) In the event that any capital reorganization or reclassification
of the capital stock of the Company, consolidation or merger of the Company
with another entity, or sale of all or substantially all of the Company's
assets to another entity shall be effected in such a way that holders of
Stock shall be entitled to receive stock or securities of any other entity
or other assets with respect to or in exchange for Stock, other than as
referred to above, then, as a condition of any such reorganization,
reclassification, consolidation, merger, or sale, lawful adequate
provisions shall be made whereby the holders of any Option granted
hereunder shall thereafter have the right to acquire and receive on
exercise of such Option such shares of stock, securities, or other assets
as would have been issuable or payable (as part of the reorganization,
reclassification, consolidation, merger, or sale) with respect to or in
exchange for such number of outstanding shares of Stock as would have been
received on exercise of such Option immediately before such event. In any
such case, appropriate provision shall be made with respect to the rights
and interests of the holders of each Option to the end that the provisions
thereof (including without limitations provisions for adjustments of the
exercise price and for the number of shares issuable on exercise of the
Option) shall thereafter be applicable in relation to any shares of stock,
securities, or assets thereafter deliverable on the exercise of the Option.
In order to effect the foregoing, the Company may require, as a condition
to such transaction, that the holder of any Option granted hereunder be
granted an option of substantially like tenor to purchase equity securities
of such other entity so that the optionee shall be entitled to purchase the
kind and number of shares of common stock or other securities of such
entity which it would have been entitled to receive after the happening of
any of the events described above, had the Option been exercised
immediately prior to the happening of such event or any record date with
respect thereto. In the event that the exercise price of any Option granted
hereunder is adjusted pursuant to subparagraph (b) of this section, the
aggregate exercise price of any new option granted pursuant to this
subparagraph (c) shall be equal to the difference between the aggregate
exercise price of such Option immediately prior to adjustment pursuant to
subparagraph (b) of this section and the aggregate adjusted exercise price
immediately following such adjustment. Shares awarded under a Stock Award
shall be treated as issued and outstanding, whether or not subject to
Forfeiture Restrictions, although any Stock, assets, or other rights
distributed shall be subject to the Forfeiture Restrictions governing the
shares awarded under the Stock Award and, at the discretion of the Board or
duly authorized committee, may be held by the Company or otherwise subject
to restrictions on transfer by the Company until the expiration of such
Forfeiture Restrictions. The Company will not effect any such
consolidation, merger, or sale unless prior to the consummation thereof the
successor corporation resulting from such consolidation or merger or the
corporation purchasing such assets shall assume, by written instrument
mailed or delivered to the holders of each Option granted hereunder at the
last address of the holder appearing on the books of the Company, the
obligation to deliver to each such holder such shares of stock, securities,
or assets as, in accordance with the foregoing provisions, that such holder
may be entitled to acquire on exercise of such Option. Shares awarded
under a Stock Award shall be treated as issued and outstanding, whether or
not subject to Forfeiture Restrictions.
(d) In the event of a merger or consolidation of the Company with or
into another corporation or the sale of all or substantially all of their
assets as a result of which a number of shares of common stock of the
surviving or purchasing corporation greater or lesser than the number of
shares of Stock outstanding immediately prior to such merger,
consolidation, or purchase are issuable to holders of Stock, then the
exercise price and number of shares issuable on exercise of each Option
granted hereunder shall be adjusted in the same manner as though there was
a subdivision or combination of the outstanding shares of Stock.
(e) Adjustments pursuant to this provision shall be made whenever any
event described herein occurs and shall become effective on the date of the
triggering event retroactive to the record date for the determination of
shareholders entitled to receive any distribution. Whenever the number of
shares of Stock purchasable on the exercise of any Option granted hereunder
or the exercise price of any Option are adjusted, the Company shall cause
to be promptly mailed by first class mail, postage prepaid, to the holders
of each Option notice of such adjustment or adjustments and shall deliver a
resolution of the Board setting forth the number of shares purchasable on
exercise of the Option and the exercise price thereof after such
adjustment, setting forth a brief statement of the facts requiring such
adjustment, together with the computation by which such adjustment was
made. Such resolution, in the absence of manifest error, shall be
conclusive evidence of the correctness of adjustment.
(f) All adjustments pursuant to this section shall be made by the
Board, which shall be binding on each optionee in the absence of
demonstrable error. In the event the Board determines that the adjustment
provided for above is unduly difficult or expensive to effect because of
difficulties of valuation, the Board may, at its option and as an
alternative to the adjustment, cause the Company to distribute and place in
escrow for the optionee that portion of such dividend or distribution which
the optionee would have received had it exercised the Option before the
declaration of the dividend or the making of the distribution. Upon
exercise of an Option, the optionee shall receive its portions of the
dividend, distribution, or rights.
(g) No adjustments shall be made to the Exercise Price or the number
of shares of Stock issuable on exercise of any Option granted hereunder:
(i) in connection with the issuance of any shares of Stock,
securities, or other assets on the exercise of any such Option;
(ii) in connection with the issuance of any shares of Stock,
securities or other assets on the exercise or conversion of any
rights, options, warrants, or other right or convertible securities
containing the right to purchase or acquire Stock;
(iii) in connection with the issuance of additional shares of
Stock, securities, or other assets on account of the anti-dilution
provisions contained in or relating to any Option granted hereunder or
any other option, warrant, or right to acquire Stock;
(iv) in connection with the purchase or other acquisition by the
Company of any shares of Stock, evidences of its indebtedness or
assets, or rights, options, warrants, or convertible securities
containing the right to subscribe for or purchase Common Stock;
(v) the sale or issuance by the Company of any shares of Stock,
evidences of its indebtedness or assets, or rights, options, warrants,
or convertible securities containing the right to subscribe for or
purchase Stock or other securities pursuant to options, warrants, or
other rights to acquire Stock or other securities; or
(vi) if such adjustment would require a change of less than 1% in
the number of shares purchasable on the exercise of such Option;
provided, however, that any adjustments that would otherwise be
required to be made but for this subsection shall be carried forward
and taken into account in any subsequent adjustment.
18. Options or Stock Awards to Foreign Nationals. The Board or duly
authorized committee may, in order to fulfill the purposes of this Plan and
without amending the Plan, grant Options or Stock Awards to foreign nationals or
individuals residing in foreign countries that contain provisions, restrictions,
and limitations different from those set forth in this Plan and the Options or
Stock Awards made to United States residents in order to recognize differences
among the countries in law, tax policy, and custom. Such grants shall be made
in an attempt to provide such individuals with essentially the same benefits as
contemplated by a grant to United States residents under the terms of this Plan.
19. Listing and Registration of Shares. Unless otherwise expressly
provided on the granting of an award under this Plan, the Company shall have no
obligation to register any securities issued pursuant to this Plan or issuable
on the exercise of Options granted hereunder. Each award shall be subject to
the requirement that if at any time the Board or duly authorized committee shall
determine, in its sole discretion, that it is necessary or desirable to list,
register, or qualify the shares covered thereby on any securities exchange or
under any state or federal law, or obtain the consent or approval of any
governmental agency or regulatory body as a condition of, or in connection with,
the granting of such award or the issuance or purchase of shares thereunder,
such award may not be made or exercised in whole or in part unless and until
such listing, registration, consent, or approval shall have been effected or
obtained free of any conditions not acceptable to the Board or duly authorized
committee.
20. Expiration and Termination of the Plan. The Plan may be abandoned or
terminated at any time by the Board or duly authorized committee except with
respect to any Options or Stock Awards then outstanding under the Plan. The
Plan shall otherwise terminate on the earlier of the date that is: (i) ten
years after the date the Plan is adopted by the Board; or (ii) ten years after
the date the Plan is approved by the shareholders of the Company.
21. Form of Awards. Awards granted under the Plan shall be represented by
a written agreement which shall be executed by the Company and which shall
contain such terms and conditions as may be determined by the Board or duly
authorized committee and permitted under the terms of this Plan. Option
agreements evidencing Incentive Options shall contain such terms and conditions,
among others, as may be necessary in the opinion of the Board or duly authorized
committee to qualify them as incentive stock options under section 422 of the
Code or any amendment or successor statute of like tenor.
22. No Right of Employment. Nothing contained in this Plan or any Option
or Stock Award shall be construed as conferring on a director, officer, or
employee any right to continue or remain as a director, officer, or employee of
the Company or its subsidiaries.
23. Leaves of Absence. The Board or duly authorized committee shall be
entitled to make such rules, regulations, and determinations as the Board or
duly authorized committee deems appropriate under the Plan in respect of any
leave of absence taken by the recipient of any Option or Stock Award. Without
limiting the generality of the foregoing, the Board or duly authorized committee
shall be entitled to determine (a) whether or not any such leave of absence
shall constitute a termination of employment within the meaning of the Plan, and
(b) the impact, if any, of any such leave of absence on any Option or Stock
Award under the Plan theretofore made to any recipient who takes such leave of
absence.
24. Amendment of the Plan. The Board or duly authorized committee may
modify and amend the Plan in any respect; provided, however, that to the extent
such amendment or modification would cause the Plan to no longer comply with the
applicable provisions of the Code with respect to Incentive Options, such
amendment or modification shall also be approved by the shareholders of the
Company. Subject to the foregoing and, if the Company is subject to the
provisions of 16(b) of the Exchange Act, the limitations of Rule 16b-3
promulgated under the Exchange Act or any amendment or successor rule of like
tenor, the Plan shall be deemed to be automatically amended as is necessary (i)
with respect to the issuance of Incentive Options, to maintain the Plan in
compliance with the provisions of section 422 of the Code, and regulations
promulgated thereunder from time to time, or any amendment or successor statute
thereto, and (ii) with respect to Options or Stock Awards granted to officers
and directors of the Company, to maintain the awards made under the Plan in
compliance with the provisions of Rule 16b-3 promulgated under the Exchange Act
or any amendment or successor rule of like tenor.
ATTEST:
Scott Duncan, Secretary
SECRETARY'S CERTIFICATE
The undersigned, the duly constituted and elected secretary of FX Energy,
Inc., hereby certifies that a duly constituted meeting of the shareholders held
on , 1999, pursuant to notice and at which a quorum was present in
accordance with the requirements of law and the Company's articles of
incorporation and bylaws, the foregoing FX Energy, Inc. 1998 Stock Option and
Award Plan was approved by the affirmative vote of the holders of a majority of
the shares of Common Stock in attendance, in person or by proxy, at such
meeting.
DATED this day of , 1999.
Scott Duncan, Secretary
