<PAGE>
SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
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 Rule 14a-11(c) or Rule 14a-12
KFx Inc.
------------------------------------------------
(Name of Registrant as Specified in Its Charter)
------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if
other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
1) Title of each class of securities to which transaction
applies:___________________________________________________________
2) Aggregate number of securities to which transaction
applies:___________________________________________________________
3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11 (Set forth the amount
on which the filing fee is calculated and state how it was
determined):_______________________________________________________
4) Proposed maximum aggregate value of transaction:___________________
5) Total fee paid:____________________________________________________
[ ] Fee paid previously with preliminary materials:________________________
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the form or schedule and the date of its filing.
1) Amount Previously Paid:____________________________________________
2) Form, Schedule or Registration Statement No.:______________________
3) Filing Party:______________________________________________________
4) Date Filed:________________________________________________________
<PAGE>
[LOGO OF KFX APPEARS HERE]
KFx Inc.
1999 Broadway, Suite 3200
Denver, Colorado 80202
April 30, 1999
Dear Stockholder:
You are cordially invited to attend the 1999 Annual Meeting of Stockholders of
KFx Inc., which will be held at 10:00 a.m. local time on Thursday, June 17, 1999
at the executive offices of KFx Inc., 1999 Broadway, Suite 3200, Denver,
Colorado 80202.
The Notice of Annual Meeting and the Proxy Statement that follow describe the
business to be conducted at the Meeting. This year, in addition to the election
of directors and the ratification of independent auditors, we are seeking
stockholder approval of the Company's 1999 Stock Incentive Plan. We will also
report on matters of current interest to our stockholders.
The Annual Report for the year ended December 31, 1998 is enclosed, and I hope
you will read it carefully. Feel free to forward to us any questions you may
have if you are unable to be present at the Meeting. Our World Wide Web
homepage on the Internet is a convenient way to communicate with us. Our
homepage is located at http://www.kfx.com.
Also enclosed is a Proxy authorizing two officers of KFx Inc. to vote your
shares for you if you do not attend the Meeting. Whether or not you are able to
attend the Meeting, I urge you to complete your Proxy and return it to our
transfer agent, InterWest Transfer Company, in the enclosed addressed, postage-
paid envelope, as a quorum of the stockholders must be present at the Meeting,
either in person or by Proxy, for the conduct of business.
Sincerely,
Theodore Venners
Chairman of the Board of Directors
President and Chief Executive Officer
<PAGE>
[LOGO OF KFX APPEARS HERE]
KFx Inc.
1999 Broadway, Suite 3200
Denver, Colorado 80202
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To Be Held June 17, 1999
April 30, 1999
To the Stockholders of KFx Inc:
The 1999 Annual Meeting of the Stockholders (the "Meeting") of KFx Inc. (the
"Company") will be held on Thursday, June 17, 1999 at 10:00 a.m. local time at
the executive offices of the Company, 1999 Broadway, Suite 3200, Denver,
Colorado 80202. The purpose of the Meeting is to consider and take action upon
the following matters:
1. Election of two Directors.
2. Ratification and approval of the Company's 1999 Stock Incentive Plan.
3. Approval of PricewaterhouseCoopers LLP as the Company's independent
accountants for the year ending December 31, 1999.
4. Such other business as may properly be brought before the Meeting and any
postponements, continuations or adjournments thereof.
Only stockholders of record at the close of business on April 30, 1999 are
entitled to notice of and to vote at the Meeting or at any postponements,
continuations or adjournments thereof.
The By-laws require that the holders of a majority of the stock issued and
outstanding and entitled to vote be present or represented at the Meeting in
order to constitute a quorum for the transaction of business. It is important
that your stock be represented at the Meeting regardless of the number of shares
you hold. Whether or not you are able to be present in person, please sign and
return promptly the enclosed Proxy in the accompanying envelope, which requires
no postage if mailed in the United States.
THE ENCLOSED PROXY IS BEING SOLICITED BY THE BOARD OF DIRECTORS OF THE
COMPANY. THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE IN FAVOR OF THE
PROPOSED ITEMS. YOUR VOTE IS IMPORTANT.
This Notice, the Proxy and Proxy Statement enclosed herewith are sent to you
by order of the Board of Directors.
Rudolph G. Swenson
Secretary
<PAGE>
PROXY STATEMENT
The enclosed Proxy is solicited by the Board of Directors (the "Board") of
KFx Inc. (the "Company") for use at the 1999 Annual Meeting of the Stockholders
(the "Meeting") to be held on Thursday, June 17, 1999 at 10:00 a.m. local time
at the executive offices of the Company, 1999 Broadway, Suite 3200, Denver,
Colorado 80202, and all postponements, continuations or adjournments thereof.
This Proxy Statement and the enclosed Proxy were first furnished to stockholders
of the Company on or about April 30, 1999.
VOTING PROCEDURES
The presence in person or by Proxy of a majority of the outstanding shares
of common stock of the Company, $.001 par value ("Common Stock"), entitled to
vote at the Meeting is necessary to provide a quorum for the transaction of
business at the Meeting. Shares can only be voted if the stockholder is present
in person or is represented by returning a properly signed Proxy. Each
stockholder's vote is very important. Whether or not you plan to attend the
Meeting in person, please sign and promptly return the enclosed Proxy card,
which requires no postage if mailed in the United States. All signed and
returned Proxies will be counted towards establishing a quorum for the Meeting,
regardless of how the shares are voted.
Shares represented by Proxy will be voted in accordance with your
instructions. You may specify your choice by marking the appropriate box on the
Proxy card. If your Proxy card is signed and returned without specifying
choices, your shares will be voted FOR the nominees for director, FOR the
ratification and approval of the Company's 1999 Stock Incentive Plan, FOR the
ratification of the selection of PricewaterhouseCoopers LLP as the Company's
independent accountants for the year ending December 31, 1999, and as the
individuals named as Proxy holders on the Proxy deem advisable on all matters as
may properly come before the Meeting. Any Proxy may be revoked at any time
prior to the exercise thereof by submitting another Proxy bearing a later date,
by giving written notice of revocation to the Company at the Company's address
indicated above or by voting in person at the Meeting. Any notice of revocation
sent to the Company must include the stockholder's name and must be received
prior to the Meeting to be effective.
The election of each director nominee requires the affirmative vote of a
plurality of the shares cast in the election of directors. An affirmative vote
of a majority of the votes cast at the Meeting is required for the ratification
and approval of the Company's 1999 Stock Incentive Plan, for approval of
PricewaterhouseCoopers LLP as the Company's independent accountants for the year
ending December 31, 1999 and all other matters that may be submitted to the
Company's stockholders for consideration.
Those shares present, in person or by Proxy, including shares as to which
authority to vote on any proposal is withheld, shares abstaining as to any
proposal, and broker non-votes (where a broker submits a Proxy but does not have
authority to vote a customer's shares on one or more matters) on any proposal,
will be considered present at the Meeting for purposes of establishing a quorum.
Each will be tabulated separately.
Under the rules of the American Stock Exchange, brokers who hold shares in
street name for customers have the authority to vote on certain items when they
have not received instructions from beneficial owners. Brokers that do not
receive instructions are entitled to vote on the proposals contained in this
Proxy other than the ratification and approval of the 1999 Stock Incentive Plan.
Abstentions are counted in tabulations of the votes cast on proposals
presented to the stockholders, while broker non-votes are not counted for
purposes of determining whether a proposal has been approved. Votes cast by
Proxy will be tabulated by an automated system administered by InterWest
Transfer Company, Inc., the Company's transfer agent. Votes cast by Proxy or in
person at the Meeting will be counted by the persons appointed by the Company to
act as election inspectors for the Meeting.
1
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The outstanding shares of the Company entitled to vote as of April 30, 1999
(the record date) consisted of 23,951,740 shares of Common Stock. Only
stockholders of record at the close of business on April 30, 1999 are entitled
to vote at the Meeting. Each share is entitled to one vote.
PROPOSAL NO. 1
ELECTION OF DIRECTORS
---------------------
The Company's Certificate of Incorporation provides for a board of
directors consisting of three classes. The members of each class serve three-
year staggered terms with one class to be elected at each annual meeting. As
provided in the Company's By-laws, the Board has currently set the total number
of directors at seven, with two directors in Class I, three directors in Class
II and two directors in Class III. The current terms of the Class II and Class
III directors expire at the Company's annual meeting of stockholders in 2000 and
2001, respectively. The current term of the Class I directors expires at the
Meeting.
The Board has nominated Jack C. Pester and Theodore Venners for election as
Class I directors to serve a three-year term expiring at the 2002 annual meeting
of stockholders and until their successors are elected and qualified.
It is intended that shares represented by properly executed Proxies will be
voted to elect the director nominees, unless authority to so vote is withheld.
The nominees are currently members of the Board and have indicated a willingness
to serve as directors if re-elected. The Board has no reason to believe that
either director nominee will be unable to serve as a director or become
unavailable for any reason. If, at the time of the Meeting, either director
nominee becomes unavailable for any reason, the persons entitled to vote the
Proxy will vote, as such persons determine in their discretion, for such
substituted nominee, if any, nominated by the Board.
THE BOARD RECOMMENDS THAT THE STOCKHOLDERS VOTE "FOR" PROPOSAL NO. 1
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<PAGE>
Directors
The following table sets forth certain information with respect to the
director nominees and the directors who will continue in office after the
Meeting including the name and age of each director and nominee, his principal
occupation and business experience during the past five years, and the
commencement of his term as a director of the Company.
Nominees for Election
<TABLE>
<CAPTION>
Principal Occupation or Employment During the Past Director
Name and Age Five Years; Other Directorships Since
- ---------------------------- ------------------------------------------------------------ ---------------
<S> <C> <C>
Jack C. Pester (64) Mr. Pester began serving as a consultant to the Company in 1994
April 1999. Mr. Pester retired in April 1999 from his
position as Senior Vice President in charge of
international refining and marketing for The Coastal
Corporation, a diversified energy company, which position
he held since 1987. Mr. Pester is a past president of the
Independent Refiners Association of America and the
Petroleum Marketers Association of America. Mr. Pester is
a director of AmerUs Life Insurance Company (formerly
American Mutual Life Insurance Company) of Des Moines.
Theodore Venners (51) Chairman of the Board since July 1993, and President and 1992
Chief Executive Officer of the Company since October 1995.
Mr. Venners also served as President of the Company since
its inception to September 1993. He is a founding partner
of K-Fuel Limited Partnership and its predecessor, K-Fuel
Partnership, and served as managing partner of those
entities from 1984 until their merger with the Company in
December 1992. Mr. Venners is a director of Northwestern
Engineering Company.
</TABLE>
Directors Whose Term of Office will Continue after the Meeting
<TABLE>
<CAPTION>
Principal Occupation or Employment During the Past Director
Name and Age Five Years; Other Directorships Since
- ---------------------------- ------------------------------------------------------------ ---------------
<S> <C> <C>
Stanford M. Adelstein (67) Chairman of the Board and President of Northwestern 1998
Engineering Company, a holding company whose subsidiaries
are engaged in real estate management, highway and street
construction, quarrying and manufacturing ready-mix
concrete, since 1966.
Vincent N. Cook (64) A founding stockholder of the Company. Mr. Cook has been 1996
President and Chief Executive Officer of Visions
Incorporated International Partners and Associates since
1989. Mr. Cook has served as a consultant to and a
director of Science Applications International Corporation
since 1992.
</TABLE>
3
<PAGE>
<TABLE>
<S> <C> <C>
Brian D. Holt (50) Mr. Holt has been the President and Chief Executive Officer 1995
of Thermo Ecotek Corporation ("TCK"), since February 1994.
From January 1989 to February 1994, Mr. Holt was President
and Chief Executive Officer of Pacific Generation Company,
an owner and operator of independent power facilities and
subsidiary of NRG Energy, Inc. Mr. Holt also serves as a
director of TCK and Thermo TerraTech Corporation.
Peter G. Martin (50) An independent investment banker and venture capitalist 1995
since 1990. Mr. Martin is a director of MacroChem
Corporation and DermaRx Corporation.
Stanley G. Tate (71) A founding stockholder of the Company. Mr. Tate has been 1997
the principal stockholder and President of Tate
Enterprises, a holding company whose entities are involved
in real estate development, construction, investments and
consulting and receivership activities, since 1987.
</TABLE>
Mr. Holt is nominated as a director pursuant to a Stockholders' Voting and
Co-Sale Agreement among the Company, TCK and Mr. Theodore Venners. See "Certain
Relationships and Related Transactions." Mr. Martin is nominated as a director
pursuant to a Stock Purchase Agreement between the Company and David H. Russell.
Board Meetings
During 1998 the Board met five times. The Board also took action four times
by unanimous written consent. During 1998, no director attended fewer than 75%
of the aggregate of (i) the total number of meetings of the Board during 1998
and (ii) the total number of meetings held by all committees of the Board on
which he served in 1998.
Committees of the Board
Audit Committee. The Board has an Audit Committee and during 1998 its
members were Vincent N. Cook, Peter G. Martin, Jack C. Pester (from January to
October) and Stanford M. Adelstein (from October to December). The Audit
Committee makes recommendations concerning the engagement of independent public
accountants, reviews with the independent public accountants the plans and
results of the audit engagement, considers the range of audit and non-audit fees
and reviews with the independent accountants the adequacy of the Company's
internal accounting controls. The Audit Committee met one time in 1998.
Compensation Committee. The Board has a Compensation Committee and during
1998 its members were Brian D. Holt, Jack C. Pester and Stanley G. Tate. The
Compensation Committee, among other things, advises the Board on all matters
pertaining to compensation programs and policies, establishes guidelines for
employee incentive and benefit programs, makes specific recommendations to the
Board relating to salaries of officers and all incentive awards, and
administers the Company's stock option plans. The Compensation Committee met
one time in 1998 and also took action one time by unanimous written consent.
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Compensation of Directors
Cash Compensation. Directors who are not employees of the Company receive
an annual retainer of $4,000 and a fee of $500 for attending each regular
meeting of the Board and $300 for participating in each meeting of the Board
held by means of telephone conference call and for participating in certain
meetings of committees of the Board. Mr. Venners is an employee of the Company
and does not receive any cash compensation from the Company for his service as a
director. Directors are also reimbursed for out-of-pocket travel and other
expenses incurred in attending such meetings.
1996 Stock Option and Incentive Plan. Effective in 1996, directors who are
not employees of the Company receive an annual grant of options to purchase
10,000 shares of Common Stock under the Company's 1996 Stock Option and
Incentive Plan (the "1996 Plan"). Under the terms of the 1996 Plan, the grant
of nonqualified stock options to non-employee directors is automatic on the
third business day after the annual meeting of stockholders and are immediately
vested on the date of grant. Shares of Common Stock acquired upon exercise of
the stock options are subject to repurchase by the Company at the exercise price
if a non-employee director ceases to serve as a director for any reason other
than death before the first anniversary of the date of grant. The exercise
price may not be less than the average daily market price for the five
consecutive trading days immediately preceding the grant date. In 1998, options
for 50,000 shares were granted to non-employee directors, comprised of 10,000
each to Mssrs. Cook, Holt, Martin, Pester and Tate, each at an exercise price of
$3.75 per share.
1998 Directors Nonqualified Stock Option Plan. In August 1998, the Company
adopted the 1998 Directors Nonqualified Stock Option Plan (the "1998 Plan") and
reserved 200,000 shares of Common Stock for issuance upon exercise of options
granted under the 1998 Plan. Under the 1998 Plan, nonqualified stock options
may be granted to directors in such number, at such price not less than the
greater of (i) $3.75 per share or (ii) the fair market value of the Common Stock
on the date of grant, and with such other terms as the plan administrator may
determine. Shares of Common Stock acquired upon exercise of the stock options
are subject to repurchase by the Company at the exercise price if a director
ceases to serve as a director for any reason other than death before the first
anniversary of the date of grant. In addition, options granted under the 1998
Plan will not be exercisable by a director if the plan administrator determines
that the director has committed certain specified acts of misconduct or made
unauthorized disclosures of trade secret or confidential information of the
Company.
PROPOSAL NO. 2
RATIFICATION AND APPROVAL OF THE COMPANY'S
1999 STOCK INCENTIVE PLAN
General
The Company's stockholders are being asked to ratify and approve the action
of the Board of Directors adopting the Company's 1999 Stock Incentive Plan (the
"1999 Plan"). The number of shares of Common Stock reserved for issuance under
the 1999 Plan is 2,000,000. In the following discussion of the 1999 Plan
capitalized terms have the same meanings as defined in the 1999 Plan, unless
otherwise noted.
Ratification and approval of the proposal require the affirmative vote of a
majority of the shares of Common Stock voting on the proposal in person or by
proxy.
The 1999 Plan is intended to enable the Company and its Related Entities to
enhance their ability to provide employees with meaningful awards and incentives
commensurate with their contributions and competitive with those offered by
other employers, and to increase stockholder value by further aligning the
interests of employees, directors and consultants with the interests of the
Company's stockholders by providing an opportunity to benefit from stock price
appreciation that generally accompanies improved financial performance. The
Board of Directors believes that the Company's long term success is dependent
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upon the ability of the Company and its Related Entities to attract and retain
superior individuals who, by virtue of their ability and qualifications, make
important contributions to the Company and its Related Entities. Participation
in the 1999 Plan is open to employees, directors and consultants and the Company
selects participants based on performance and contribution. The number of
shares reserved for issuance under the 1999 Plan is intended to support the
Company's requirements for current and future employees, directors and
consultants and to allow a broad distribution of options for employees.
As of the date of this Proxy Statement, no employee, director or consultant
has been granted any options under the 1999 Plan. The benefits to be received
pursuant to the 1999 Plan by the Company's directors, executive officers and
employees are not determinable at this time.
THE BOARD RECOMMENDS THAT THE STOCKHOLDERS
VOTE "FOR" PROPOSAL NO. 2
A general description of the principal terms of the 1999 Plan as proposed
is set forth below. This description is qualified in its entirety by the terms
of the 1999 Plan, a copy of which is attached as Annex A.
General Description
The 1999 Plan was adopted by the Board of Directors in April 1999. The
1999 Plan provides for the grant of options, SARs, dividend equivalent rights,
restricted stock and awards which may be earned in whole or in part upon
attainment of performance criteria established by the 1999 Plan administrator.
The 1999 Plan is administered, with respect to grants to directors,
officers, consultants, and other employees, by the plan administrator (the
"Administrator"), defined as the Board or one or more committees designated by
the Board. With respect to grants to officers and directors, the committee shall
be constituted in such a manner as to satisfy applicable laws, including Rule
16b-3 promulgated under the Exchange Act. The Board may authorize one or more
officers to grant awards, subject to certain limitations, to employees or
consultants who are neither directors nor officers of the Company.
The Board may at any time amend, suspend or terminate the 1999 Plan. To the
extent necessary to comply with applicable provisions of federal securities
laws, state corporate and securities laws, the Internal Revenue Code of 1986, as
amended (the "Code"), the rules of any applicable stock exchange or national
market system, and the rules of any foreign jurisdiction applicable to awards
granted to residents therein, the Company must obtain stockholder approval of
any amendment to the 1999 Plan in such a manner and to such a degree as
required.
Stock options granted under the 1999 Plan may be either incentive stock
options ("ISOs") under the provisions of Section 422 of the Code, or
nonqualified stock options. ISOs may be granted only to employees of the Company
or any parent or subsidiary corporation of the Company. Awards other than ISOs
may be granted to employees, directors and consultants. Under the 1999 Plan,
awards may be granted to such employees, directors or consultants who are
residing in foreign jurisdictions as the Administrator may determine from time
to time.
Under the 1999 Plan, ISOs may not be sold, pledged, assigned, hypothecated,
transferred or disposed of in any manner other than by will or by the laws of
descent or distribution and may be exercised during the lifetime of the grantee
only by the grantee. However, the 1999 Plan permits the designation of
beneficiaries by holders of ISOs. Other awards will be transferable to the
extent provided in the award agreement.
The 1999 Plan authorizes the Administrator to select the employees,
directors and consultants of the Company to whom awards may be granted and to
determine the terms and conditions of any award; however, the term of an
incentive stock option may not be for more than 10 years (or 5 years in the case
of ISOs granted to any grantee who owns stock representing more than 10% of the
combined voting power of
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the Company or any parent or subsidiary corporation of the Company). The 1999
Plan authorizes the Administrator to grant awards at an exercise price
determined by the Administrator. In the case of ISOs, such price cannot be less
than 100% (or 110%, in the case of ISOs granted to any grantee who owns stock
representing more than 10% of the combined voting power of the Company or any
parent or subsidiary corporation of the Company) of the fair market value of the
Common Stock on the date the option is granted. In the case of nonqualified
stock options, such price cannot be less than 85% of the fair market value of
the Common Stock on the date the option is granted. The closing price of the
Common Stock as of April 27, 1999 was $1.1875. The exercise price is generally
payable in cash, check, or, in certain circumstances, with a promissory note,
with such documentation as the Administrator and the broker, if applicable,
shall require to effect an exercise of an award and delivery to the Company of
the sale or loan proceeds required to pay the exercise price, or with shares of
Common Stock. The aggregate fair market value of the Common Stock with respect
to any ISOs that are exercisable for the first time by an eligible employee in
any calendar year may not exceed $100,000.
The awards may be granted subject to vesting schedules and restrictions on
transfer and repurchase or forfeiture rights in favor of the Company as
specified in the agreements to be issued under the 1999 Plan. Except as provided
in an award agreement, the vesting schedule will be accelerated and all awards
will become fully vested, exercisable, and released from any restrictions on
transfer and repurchase or forfeiture rights in the event of a Corporate
Transaction or a Related Entity Disposition unless the awards are assumed by the
successor corporation or replaced with comparable awards or a comparable cash
incentive program. If a grantee's Continuous Service is terminated without Cause
within 12 months after a Corporate Transaction or Related Entity Disposition,
however, the grantee's awards will become fully vested, exercisable, and
released from any restrictions on transfer and repurchase or forfeiture rights.
In the event of a Change in Control that is not a Corporate Transaction, if a
grantee's Continuous Service is terminated without Cause within 12 months after
such Change in Control, the grantee's awards will immediately become fully
vested, exercisable, and released from any restrictions on transfer and
repurchase or forfeiture rights. Notwithstanding the foregoing, the
Administrator, in its discretion, may accelerate the vesting and release from
any restrictions on transfer and repurchase or forfeiture rights of any
outstanding award, or prevent such acceleration or release, with respect to any
Corporate Transaction, Change in Control or Related Entity Disposition.
Effective upon the consummation of a Corporate Transaction, all outstanding
awards under the 1999 Plan will terminate unless assumed by the successor
company or its parent. The 1999 Plan also permits the Administrator to include a
provision whereby the grantee may elect at any time while an employee, director
or consultant to exercise any part or all of the award prior to full vesting of
the award.
The Administrator may establish one or more programs under the 1999 Plan to
permit selected grantees the opportunity to elect to defer receipt of
consideration payable under an award. The Administrator also may establish under
the 1999 Plan separate programs for the grant of particular forms of awards to
one or more classes of grantees.
Certain Federal Tax Consequences
The following summarizes only the federal income tax consequences of stock
options and shares of restricted stock granted under the 1999 Plan. State and
local tax consequences may differ.
The grant of a nonqualified stock option under the 1999 Plan will not
result in any federal income tax consequences to the optionee or to the Company.
Upon exercise of a nonqualified stock option, the optionee is subject to income
taxes at the rate applicable to ordinary compensation income on the difference
between the option price and the fair market value of the shares on the date of
exercise. This income is subject to withholding for federal income and
employment tax purposes. Subject to the requirements of reasonableness and
satisfaction of any withholding obligation, the Company is entitled to an income
tax deduction in the amount of the income recognized by the optionee. Any gain
or loss on the optionee's subsequent disposition of the shares of Common Stock
will receive long or short-term capital gain or loss treatment, depending on
whether the shares are held for more than one year following exercise. The
Company does not receive a tax deduction for any such gain. The maximum marginal
rate at which
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<PAGE>
ordinary income is taxed to individuals is currently 39.6% and the maximum rate
at which long-term capital gains are taxed for most types of property is 20%.
The grant of an incentive stock option under the 1999 Plan will not result
in any federal income tax consequences to the optionee or to the Company. An
optionee recognizes no federal taxable income upon exercising an ISO (subject to
the alternative minimum tax rules discussed below), and the Company receives no
deduction at the time of exercise. In the event of a disposition of stock
acquired upon exercise of an ISO, the tax consequences depend upon how long the
optionee has held the shares of Common Stock. If the optionee does not dispose
of the shares within neither two years after the ISO was granted, nor within one
year after the ISO was exercised and shares were purchased, the optionee will
recognize a long-term capital gain (or loss) equal to the difference between the
sale price of the shares and the exercise price. The Company is not entitled to
any deduction under these circumstances.
If the optionee fails to satisfy either of the foregoing holding periods,
he or she must recognize ordinary income in the year of the disposition
(referred to as a "disqualifying disposition"). The amount of such ordinary
income generally is the lesser of (i) the difference between the amount realized
on the disposition and the exercise price, or (ii) the difference between the
fair market value of the stock on the exercise date and the exercise price. Any
gain in excess of the amount taxed as ordinary income will be treated as a long
or short-term capital gain, depending on whether the stock was held for more
than one year. The Company, in the year of the disqualifying disposition, is
entitled to a deduction equal to the amount of ordinary income recognized by the
optionee (subject to the requirements of reasonableness and perhaps, in the
future, the satisfaction of a withholding obligation).
The "spread" under an ISO -- i.e., the difference between the fair market
value of the shares at exercise and the exercise price -- is classified as an
item of adjustment in the year of exercise for purposes of the alternative
minimum tax.
The grant of restricted stock will subject the recipient to ordinary
compensation income on the difference between the amount paid for such stock and
the fair market value of the shares on the date that the restrictions lapse.
This income is subject to withholding for federal income and employment tax
purposes. Subject to the requirements of reasonableness and satisfaction of any
withholding obligation, the Company is entitled to an income tax deduction in
the amount of the income recognized by the recipient. Any gain or loss on the
recipient's subsequent disposition of the shares will receive long or short-term
capital gain or loss treatment depending on whether the shares are held for more
than one year and depending on how long the stock has been held since the
restrictions lapsed. The Company does not receive a tax deduction for any such
gain. Recipients of restricted stock may make an election under Internal Revenue
Code Section 83(b) to recognize as ordinary compensation income in the year that
such restricted stock is granted the amount equal to the spread between the
amount paid for such stock and the fair market value on date of the issuance of
the stock. If such an election is made, the recipient recognizes no further
amounts of compensation income upon the lapse of any restrictions and any gain
or loss on subsequent disposition will be long or short-term capital gain. The
Section 83(b) election must be made within thirty days from the time the
restricted stock is issued to the recipient.
8
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EXECUTIVE OFFICERS
------------------
Set forth below is certain information regarding the executive officers of the
Company, including age, principal occupation during the last five years and the
date each first became an executive officer of the Company.
<TABLE>
<CAPTION>
Executive Officer
of the Company
Name / (Age) Present Executive Office Since
- -------------------------- ----------------------------------------------------------- --------------------
<S> <C> <C>
Theodore Venners (51) Chairman of the Board, President and Chief Executive 1992
Officer. More detailed information regarding Mr. Venners'
business experience is set forth under "Directors."
Daniel J. Ellis (58) President and Chief Executive Officer of NPS since 1998
September 1998. Mr. Ellis served as a sales and marketing
consultant from February to September 1998, as Vice
President, Field Operations, of CADIS, Inc., a parts
management software company, from December 1995 to
February 1998 and as President of KaPRE Software, an open
client server financial applications software provider,
from March 1992 to November 1995. From October 1986 to
February 1992, Mr. Ellis served in various management
positions, including President, for JD Edwards, an
enterprise resource planning software company.
Seth L. Patterson (46) Executive Vice President and Chief Financial Officer since 1998
September 1998. Mr. Patterson served as a consultant to
the Company from June to August 1998, as Vice President
and Chief Financial Officer of and in related capacities
for United Water Services, Inc., a provider of operations
and maintenance services to water and waste water
facilities, from July 1996 to December 1997, Vice
President and Chief Financial Officer of Phelps-Tointon,
Inc., a closely-held company involved in various
construction related business, from November 1995 to April
1996 and as Vice President, Finance/Administration of
Power Resources, Inc., a uranium producer, from July 1992
to March 1995. Mr. Patterson is the Secretary of the
Rocky Mountain Chapter of the Financial Executives
Institute and is a past Board Chair of the Food Bank of
the Rockies.
Rudolph G. Swenson (61) Secretary and Treasurer since 1992 and Vice President of 1992
Contracts and Patents since June 1996. From January 1994
to June 1996, Mr. Swenson served the Company as Chief
Financial Officer. Mr. Swenson serves as President and
Chairman of the Board of Directors of the Black Hills
Regional Eye Institute.
</TABLE>
9
<PAGE>
EXECUTIVE COMPENSATION
----------------------
Summary Compensation Table
The following table sets forth certain information for each of the last
three fiscal years concerning compensation paid by the Company to the Chief
Executive Officer ("CEO"), no other executive officer earned a total annual
salary and bonus that exceeded $100,000 for 1998.
<TABLE>
<CAPTION>
Annual Compensation Long-Term Compensation
------------------- ----------------------
Securities
Name and Underlying
Principal Positions Year Salary Bonus Options (#)(3)
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Theodore Venners (1) 1998 $120,000 $65,000 150,000
Chairman of the Board 1997 142,500 -- 200,000
President and CEO 1996 164,583 18,750(2) 600,000
</TABLE>
_______________
(1) President and Chief Executive Officer since October 1995.
(2) Bonus compensation in 1996 was for 1996 services but was not paid until
January 1997.
(3) It has not been the Company's policy in the past to grant stock
appreciation rights ("SARs"), and no such rights are outstanding.
The forgoing compensation table does not include certain fringe benefits
made available on a nondiscriminatory basis to all Company employees such as
group health insurance, paid parking, certain educational and training programs,
vacation and sick leave. In addition, the Company makes available certain non-
monetary benefits to its executive officers with a view to acquiring and
retaining qualified personnel and facilitating job performance. The Company
considers such benefits to be ordinary and incidental business costs and
expenses. The aggregate value of such benefits in the case of each executive
officer listed in the above table, which cannot be precisely ascertained but
which is less than $50,000 and less than ten percent of the annual salary of
each such executive officer, is not included in such table.
Compensation Pursuant to Plans
1992 Plan
In 1993, the Company's stockholders approved and adopted the Amended and
Restated Stock Option Plan (the "1992 Plan"). The Company has reserved
1,000,000 shares of Common Stock for issuance under the 1992 Plan. As of April
30, 1999, stock options for 852,000 shares had been granted, leaving stock
options for 148,000 shares available for grant under the 1992 Plan.
1996 Plan
In 1996, the Company's stockholders approved and adopted the 1996 Plan. The
Company has reserved 1,500,000 shares of Common Stock for issuance under the
1996 Plan. As of April 30, 1999, stock options for 1,415,000 shares had been
granted, leaving stock options for 85,000 shares available for grant under the
1996 Plan.
Restricted Stock Plan - Directors and Selected Officers
In December 1993, the Company's stockholders approved and adopted the
Restricted Stock Plan for Directors and Selected Officers ("the Directors
Plan"). A total of 500,000 shares have been reserved for
10
<PAGE>
issuance pursuant to the Directors Plan. The Directors Plan provided that
commencing as of the effective date of the Directors Plan, any and all fees
payable to directors for their service on the Board, and the salary payable to
selected officers after the date that they became participants in the Directors
Plan, were paid entirely and solely in shares of restricted stock. Although the
Directors Plan is still in existence, the Company changed the compensation
policy of directors beginning in 1996 (see "Compensation of Directors" discussed
previously) and does not currently foresee any additional issuance of shares
under the Directors Plan.
Stock Options Granted During 1998
The following table sets forth information concerning individual grants of
stock options by the Company for the year ended December 31, 1998 to the CEO.
It has not been the Company's policy in the past to grant stock appreciation
rights, and no such rights were granted during 1998.
Option Grants in 1998
<TABLE>
<CAPTION>
Percent of
Number of Total Potential Realizable
Securities Options Value at Assumed
Underlying Granted to Exercise Annual Rates of
Options Employees Price Per Expiration Stock Appreciation
Name Granted in 1998 Share Date For Option Term (2)
- -------------------------------------------------------------------------------------------------------------------
5 Percent 10 Percent
--------- ----------
<S> <C> <C> <C> <C> <C> <C>
Theodore Venners 150,000 (1) 20.8% $3.75 9/28/08 $0 $288,572
</TABLE>
_______________
(1) Options granted under the 1992 Plan, which vest 20 percent per year
beginning on the first anniversary date of the grant.
(2) The amounts shown on this table represent hypothetical gains that could be
achieved for the respective options if exercised at the end of the option
term. These gains are based on assumed rates of stock appreciation of 5
percent and 10 percent, compounded annually from the date the respective
options were granted to their expiration date. The gains are net of the
option exercise price, but do not include deductions for taxes or other
expenses associated with the exercise. Actual gains, if any, on stock option
exercises will depend on the future performance of the Common Stock, the
optionee's continued employment through the end of the option period, and
the date on which the options are exercised.
Stock Options Exercised During 1998 and Year-End Values
The following table reports certain information regarding stock option
exercises during the year ended December 31, 1998 and outstanding stock options
held at December 31, 1998 by the CEO. No stock appreciation rights were
exercised or were outstanding during 1998.
Aggregated Option Exercises in 1998 and 1998 Year-End Option Values
<TABLE>
<CAPTION>
Value of
Number Unexercised
of Unexercised In-the-Money
Shares Options at 12/31/98 Options at 12/31/98
Acquired on Value (Exercisable / (Exercisable /
Name Exercise Realized Unexercisable) Unexercisable) (1)
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Theodore Venners - - 540,000 / 460,000 $0 / 0
</TABLE>
- ------------
11
<PAGE>
(1) Based on the closing price of $1.50 of the Common Stock on the American
Stock Exchange on December 31, 1998.
Compensation Committee Interlocks and Insider Participation
Mr. Theodore Venners, Chairman of the Board, Chief Executive Officer and
President of the Company, serves as a director of Northwestern Engineering
Company, the Chairman of the Board and the President of which, Mr. Stanford
Adelstein, serves as a director of the Company.
Committee Report on Executive Compensation
Executive Compensation
All decisions on compensation for the Company's executive officers are made
by the Compensation Committee of the Board (the "Committee"). The executive
compensation program presently consists of annual base salary, short-term
incentives in the form of annual cash bonuses, and long-term incentives in the
form of stock options.
The Committee believes that the compensation of executive officers should
reflect the scope of their responsibilities, the success of the Company, and the
contributions of each executive to that success. In addition, the Committee
believes that base salaries should approximate the mid-point of competitive
salaries derived from market surveys and that short-term and long-term incentive
compensation should reflect the performance of the Company and the contributions
of each executive.
External competitiveness is an important element of the Committee's
compensation policy. The competitiveness of the Company's compensation for its
executives is assessed by comparing it to market data provided by a compensation
consultant and comparing the Company's compensation levels to those published by
Mountain States Employers Council, of which the Company was a member.
The process of determining each of the elements of compensation for the
Company's executive officers is outlined below.
Base Salary
Base salaries are intended to approximate the mid-point of competitive
salaries for similar organizations of comparable size, market capitalizations
and complexity to the Company. Executive salaries are adjusted gradually over
time and only as necessary to meet this objective. Increases in base salary may
be moderated by other considerations, such as geographical or regional market
data, industry trends and internal fairness within the Company. It is the
Committee's intention that over time the base salaries for the CEO and the other
executive officers will approach the mid-point of competitive data.
Cash Bonus
The Committee establishes a median potential bonus for each executive
officer by using the market data on total cash compensation from the same
executive compensation surveys as used to determine salaries. The Committee's
determination with respect to bonuses is based on a subjective evaluation of the
contributions of each executive that are not captured by operating measures but
are considered important in the creation of long-term stockholder value. The
Company paid bonuses of $10,000 each to Messrs. Patterson and Swenson and
$65,000 to Mr. Venners in 1999 for their contributions to the Company in 1998.
12
<PAGE>
Stock Option Program
The primary goal of the Company is to excel in the creation of long-term
value for the Company's stockholders. The principal incentive tool used to
achieve this goal is the periodic award to key employees of options to purchase
Common Stock of the Company.
The Committee and management believe that awards of stock options to
purchase the shares of the Company accomplish many objectives. The grant of
options to key employees encourages equity ownership in the Company, and closely
aligns management's interest to the interests of all the stockholders. The
emphasis on stock options also results in management's compensation being
closely linked to stock performance. In addition, because they are subject to
vesting periods of varying durations and to forfeiture if the employee leaves
the Company prematurely, stock options are an incentive for key employees to
remain with the Company long-term.
Awards are not made annually in conjunction with the annual review of cash
compensation, but are made periodically. The Committee considers total
compensation of executives, actual and anticipated contributions of each
executive (which includes a subjective assessment by the Committee of the value
of the executive's future potential within the organization), as well as the
value of previously awarded options as described above, in determining option
awards.
Policy on Deductibility of Compensation
The Committee has also considered the application of Section 162(m) of the
Internal Revenue Code to the Company's compensation practices. Section 162(m)
limits the tax deduction available to public companies for annual compensation
paid to senior executives in excess of $1 million unless the compensation
qualifies as "performance based." The annual cash compensation paid to
individual executives of the Company do not approach the $1 million threshold,
and it is believed that the stock incentive plans of the Company qualify as
"performance based." Therefore, the Committee does not believe any further
action is necessary in order to comply with Section 162(m). From time to time,
the Committee will re-examine the Company's compensation practices and the
effect of Section 162(m).
1998 CEO Compensation
Cash compensation for Mr. Theodore Venners is reviewed by both the
Committee and the full Board. The Committee and the Board evaluates Mr. Venners'
performance and compensation using a process similar to that used for the other
executive officers of the Company.
Awards to Mr. Venners of options to purchase shares of the Common Stock are
reviewed and determined periodically by the Committee using criteria similar to
that used for the other executive officers of the Company. Mr. Venners was
awarded options to purchase 150,000 shares of the Common Stock in 1998.
Mr. Brian D. Holt (Chairman)
Mr. Jack C. Pester
Mr. Stanley G. Tate
Comparative Performance Graph
The Securities and Exchange Commission requires that the Company include in
this Proxy Statement a line-graph presentation comparing cumulative, five-year
stockholder returns (assuming reinvestment of dividends) for the Common Stock
with a broad-based market index and either a nationally recognized industry
standard or an index of peer companies selected by the Company. The Common
Stock has been publicly traded only since July 21, 1994, and, as a result, the
following graph assumes $100 invested on July 21, 1994 in the Common Stock, the
Russell 2000 Index, and the Energy - Other industry
13
<PAGE>
group ("EO") as published by The Investors Business Daily. The stock price
----------------------------
performance shown on the graph below is not necessarily indicative of future
price performance.
Comparison of Total Return Among KFx Inc.,
the Russell 2000 Index,
and The Investors Business Daily Energy - Other industry group
----------------------------
from July 21, 1994 to December 31, 1998
[PERFORMANCE GRAPH APPEARS HERE]
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
7/21/94 12/30/94 12/29/95 12/31/96 12/31/97 12/31/98
----------------------------------------------------------------------------------
KFX 100 91 86 102 60 28
Russell 2000 100 104 131 153 187 182
EO 100 107 116 188 264 262
</TABLE>
In addition to the Company, the EO is comprised of the following companies:
AES Corporation; Arch Coal Inc; Besicorp Group Inc; Calenergy Inc; Calpine
Corporation; Cogeneration Corporation of America; Energy Research Corporation;
Environmental Power Corporation; Golden Genesis Company; High Plains
Corporation; Huaneng Power International Inc; KTI Inc; Penn Virginia
Corporation; Pittston Minerals Group Inc; Rentech Inc; Thermo Ecotek
Corporation; Thermo Power Corporation; Trigen Energy Corporation; U.S. Energy
Systems Inc; and York Research Corporation. All companies in the EO industry
group are listed on U.S. stock exchanges or the Nasdaq system.
The Company is excluded from the EO industry group for purposes of the
comparative performance graph.
From July 21, 1994 to January 29, 1996, the Company's Common Stock was
traded on the Nasdaq SmallCap Market under the trading symbol "KFXI." Beginning
January 30, 1996, the Company's Common Stock was traded on the American Stock
Exchange under the trading symbol "KFX."
14
<PAGE>
STOCK OWNERSHIP
---------------
The following table sets forth certain information, as of April 30, 1999,
with respect to the holdings of (1) each person who is the beneficial owner of
more than five percent of the Common Stock of the Company, (2) each director of
the Company, (3) the CEO and each Named Executive Officer, and (4) by all
directors and executive officers of the Company as a group.
<TABLE>
<CAPTION>
Shares Beneficially
Name and Address Owned Percentage of Class
- ---------------------------------------------------- ---------------------- -------------------------
<S> <C> <C>
Vincent N. Cook 510,000 (1) 2.1%
P.O. Box 4390
Avon, Colorado 81620
Cristobal Energy Co., Inc. 3,172,640 13.3%
1270 Stone Canyon Road
Los Angeles, California 90077
Stanford M. Adelstein 200,000 (2) *
1309 W. Main Street
P.O. Box 8006
Rapid City, South Dakota 57709
Brian D. Holt 32,113 (3) *
245 Winter Street, Suite 300
Waltham, Massachusetts 02154
Peter G. Martin 118,113 (4) *
48 Ogden Place
Dobbs Ferry, New York 10522
Jack C. Pester 97,126 (5) *
3751 Arnold
Houston, Texas 77005
Stanley G. Tate 517,550 (6) 2.2%
1175 N.E. 125th Street, Suite 102
North Miami Beach, Florida 33161
Thermo Ecotek Corporation 4,262,300 (7) 17.8%
245 Winter Street, Suite 300
Waltham, Massachusetts 02154
Theodore Venners 4,310,367 (8) 17.7%
1999 Broadway, Suite 3200
Denver, Colorado 80202
All directors and executive officers 6,050,369 (9) 24.3%
as a group (10 persons)
</TABLE>
_______________
* Less than 1 percent.
(1) Includes 300,000 shares owned by an investment partnership controlled by Mr.
Cook and 20,000 shares which Mr. Cook has the right to acquire within 60
days of April 30, 1999 pursuant to the exercise of
15
<PAGE>
options. Mr. Cook disclaims beneficial ownership of the 300,000 shares owned
by the investment partnership.
(2) Represents shares owned by Northwestern Engineering Company, of which Mr.
Adelstein is Chairman of the Board and controls 95% of the outstanding
voting shares of capital stock.
(3) Includes 30,000 shares which Mr. Holt has the right to acquire within 60
days of April 30, 1999 pursuant to the exercise of options.
(4) Includes 30,000 and 75,000 shares which Mr. Martin has the right to acquire
within 60 days of April 30, 1999 pursuant to the exercise of options and
warrants, respectively.
(5) Includes 80,000 shares which Mr. Pester has the right to acquire within 60
days of April 30, 1999 pursuant to the exercise of options.
(6) Includes 20,000 shares which Mr. Tate has the right to acquire within 60
days of April 30, 1999 pursuant to the exercise of options and 14,000 shares
owned by the Stanley Tate Revocable Trust for which Mr. Tate serves as
trustee.
(7) Includes 11,300 shares owned by Thermo Electron Corporation, a majority
stockholder of TCK.
(8) Includes 450,000 shares which Mr. Venners has the right to acquire within 60
days of April 30, 1999 pursuant to the exercise of options.
(9) Includes an aggregate of 905,000 shares which directors and executive
officers as a group have the right to acquire within 60 days of April 30,
1999 pursuant to the exercise of options or warrants. Includes 300,000
shares of which Mr. Cook disclaims beneficial ownership and 7,500 shares
owned by the mother of Mr. Seth L. Patterson, the Company's Executive Vice
President and Chief Financial Officer, of which Mr. Patterson disclaims
beneficial ownership.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16 (a) of the Exchange Act requires the Company's directors and
executive officers and persons who own more than ten percent (10%) of a
registered class of Company's equity securities ("10% Stockholders") to file
with the Securities and Exchange Commission and the American Stock Exchange
reports of ownership and changes in ownership of equity securities of the
Company and to furnish the Company with copies of all Section 16(a) forms they
file.
Based solely upon a review of the copies of such 16(a) reports furnished to
the Company and written representations that no other reports were required, the
Company believes that, during 1998, all Section 16(a) filing requirements
applicable to the Company's directors, executive officers and 10% Stockholders
were complied with, except Mr. Adelstein filed a Form 3 late, Mr. Martin and Mr.
Venners each failed to file two Form 4s to report stock purchases, which were
reported on their Form 5s, and Mr. Tate failed to file three Form 4s to report
stock purchases, which were reported on his Form 5.
Change in Control Arrangements
See "Certain Relationships and Related Transactions - Thermo Ecotek
Corporation" for a description of the Company's agreements with TCK that give
TCK the right to acquire up to a 51% ownership interest in the Company.
16
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
----------------------------------------------
Thermo Ecotek Corporation
On August 18, 1995, the Company entered into several agreements (described
below) with TCK, a stockholder of the Company which owns approximately 17.8% of
the Company's Common Stock, whereby, over a six-year period, TCK has the right,
at its option, to acquire up to a 51% ownership interest in the Company through
stock purchases and the exercise of warrants.
1. The Company and TCK entered into a Stock Purchase Agreement dated
August 18, 1995 which generally provides for the issuance and sale of
up to 4,250,000 shares of the Common Stock as follows: (a) the first,
second and third purchases under the Stock Purchase Agreement occurred
on August 29, 1995; December 28, 1995; and January 28, 1997,
respectively, wherein TCK purchased 1,500,000 shares on the first and
second such date at a price of $2.00 per share, and 1,250,000 shares
on the third such date at a price of $2.00 per share.
2. On August 18, 1995, the Company issued two warrants to TCK ("Warrant
A" and Warrant B"). Warrant A grants to TCK the right to purchase
7,750,000 shares at an exercise price of $3.65 per share, subject to
adjustment. Warrant A is exercisable in whole or in part, commencing
on January 1, 2000 and ending July 1, 2001. Warrant B grants to TCK
the right to purchase that number of shares sufficient to give TCK
ownership of 51 percent of the Company's outstanding shares on the
date of exercise, at a price per share equal to the average of the
daily closing price of the shares for the 40 trading days immediately
preceding the exercise date. Warrant B may be exercised in whole or in
part commencing on January 1, 2000 and ending July 1, 2001, if Warrant
A has previously been exercised in full.
3. A Stockholders' Voting and Co-Sale Agreement (the "Voting Agreement")
was also entered into on August 18, 1995 by and among the Company, TCK
and Mr. Theodore Venners, Chairman, President and Chief Executive
Officer of the Company. Pursuant to the terms of the Voting Agreement,
the Company agreed to increase its number of directors by one director
and the parties agreed to use their best efforts to elect one member
designated by TCK to the Board. Accordingly, Mr. Brian Holt was
elected to the Board in October 1995. After such time as TCK has
exercised Warrant A, in full, the parties agree to use their best
efforts to elect to the Board the number of directors designated by
TCK sufficient to equal at least one-third of all Board members; and
following TCK's exercise of Warrant B, in full, the parties agree to
support the election of directors designated by TCK to the Board
sufficient to provide TCK with a majority of all Board members.
4. A Registration Rights Agreement, dated August 18, 1995, was entered
into between the Company and TCK whereby the Company agreed to provide
for the registration under the Securities Act of 1933, as amended, of
the shares purchased under the Stock Purchase Agreement and upon
exercise of Warrant A or Warrant B.
Estate of Edward Koppelman
The Company is a party to a Royalty Agreement with Edward Koppelman,
whereby Mr. Koppelman is entitled to receive a royalty equal to 25 percent of
the Company's worldwide royalty and license fee revenue, computed after the
payment of a royalty to the State of Wyoming. The royalty to Mr. Koppelman will
cease when the cumulative payments to him reach the sum of approximately $75.2
million. Mr. Koppelman passed away in October 1997 and all his rights and
obligations as discussed above are held by his estate. In his will, Mr.
Koppelman bequeathed 50 percent of the royalty stream to Theodore Venners, the
Chairman of the Board, Chief Executive Officer and President of the Company.
17
<PAGE>
Other
The Company has a consulting agreement (the "Consulting Agreement") with
Venners & Company, Ltd. for investor and public relations and governmental
affairs services. Venners & Company, Ltd. is controlled by John P. Venners, the
brother of Theodore Venners. During 1998, Venners & Company, Ltd. was paid
$266,666 for consulting fees and reimbursed expenses relating to the business of
the Company. The Company also provides office space for Mr. John Venners in
Arlington, Virginia. The Consulting Agreement provides for a two-year term
which began January 1, 1994 and is automatically renewable for successive one-
year periods, unless either party terminates the Consulting Agreement. Also,
the Company is obligated to include Venners & Company, Ltd. in any cash-based
employee benefit programs of the Company. During 1998, the Company paid medical
insurance premiums of approximately $3,854 for an employee of Venners & Company,
Ltd.
In August 1998 the Company extended the expiration date of 50,000 warrants
issued to Mr. Peter Martin, a director of the Company, in June 1997 and 25,000
warrants issued to Mr. Martin in August 1995 in connection with consulting and
financing services he provided to the Company. The expiration date was extended
from August 2, 1998 to August 2, 2001.
In September 1998 the Company granted 100,000 options to Mr. Vincent Cook,
a director of the Company, in connection with consulting services he provided to
the Company. The options have an exercise price of $3.75, were vested on the
date of grant and expire five years after the date of the grant.
The Company has a stock purchase agreement with Mr. Theodore Venners,
Chairman of the Board, Chief Executive Officer and President of the Company,
which gives the Company the option to purchase up to $5 million of the Company's
Common Stock held by Mr. Venners at fair market value upon Mr. Venner's death.
PROPOSAL NO. 3
RATIFICATION OF SELECTION OF INDEPENDENT ACCOUNTANTS
----------------------------------------------------
The Board, upon the recommendation of the Audit Committee, has selected
PricewaterhouseCoopers LLP ("PricewaterhouseCoopers") to serve as independent
accountants of the Company and its subsidiaries for the fiscal year ending
December 31, 1999. PricewaterhouseCoopers has served as the Company's
independent accountants since the fiscal year ended December 31, 1992.
Representatives of PricewaterhouseCoopers will be present at the Meeting and
will have the opportunity to make a statement if they desire and will be
available to respond to appropriate questions from stockholders.
Although it is not required to do so, the Board is submitting its selection
of the Company's independent accountants for ratification by the stockholders at
the Meeting in order to ascertain the views of stockholders regarding such
selection. Whether the proposal is approved or defeated, the Board may
reconsider its selection.
THE BOARD RECOMMENDS THAT THE STOCKHOLDERS VOTE "FOR" PROPOSAL NO. 3
18
<PAGE>
SOLICITATION OF PROXIES
-----------------------
This solicitation is being made by mail on behalf of the Board, but may
also be made without additional remuneration by officers or employees of the
Company by telephone, telegraph, facsimile transmission, electronic means or
personal interview. The expense of the preparation, printing and mailing of this
Proxy Statement and the enclosed form of Proxy and Notice of Annual Meeting, and
any additional material relating to the Meeting which may be furnished to
stockholders by the Board subsequent to the furnishing of this Proxy Statement,
has been or will be borne by the Company. The Company will reimburse banks and
brokers who hold shares in their name or custody, or in the name of nominees for
others, for their out-of-pocket expenses incurred in forwarding copies of the
proxy materials to those persons for whom they hold such shares. To obtain the
necessary representation of stockholders at the Meeting, supplementary
solicitations may be made by mail, telephone or interview by officers of the
Company or selected securities dealers. It is anticipated that the cost of such
supplementary solicitations, if any, will not be material. In addition, the
Company has retained its transfer agent, InterWest Transfer Company, Inc.
("InterWest"), to solicit proxies from stockholders by mail, in person and by
telephone. The Company will pay InterWest a fee of $500 for its services, plus
reimbursement of reasonable out-of-pocket expenses incurred in connection with
the proxy solicitation.
ANNUAL REPORT
-------------
The Annual Report on Form 10-K of the Company for the fiscal year ended
December 31, 1998, together with a letter from Mr. Theodore Venners, Chairman of
the Board of Directors and Chief Executive Officer, has been mailed to
stockholders along with this Proxy Statement. The Company will, upon written
request and without charge, provide to any person solicited hereunder additional
copies of the Company's Annual Report on Form 10-K for the year ended December
31, 1998, as filed with the Securities and Exchange Commission. Requests should
be addressed to the Investor Relations Department, 1999 Broadway, Suite 3200,
Denver, Colorado 80202. Also, such report may be obtained from the Company's
Internet homepage at http://www.kfx.com.
OTHER MATTERS
-------------
The Company is not aware of any business to be presented for consideration
at the Meeting, other than that specified in the Notice of Annual Meeting. If
any other matters are properly presented at the Meeting, it is the intention of
the persons named in the enclosed Proxy to vote in accordance with their best
judgment.
STOCKHOLDER PROPOSALS FOR 2000 ANNUAL MEETING
---------------------------------------------
Any stockholder who intends to submit a proposal at the 2000 Annual Meeting
of Stockholders and who wishes to have the proposal considered for inclusion in
the proxy statement and form of proxy for that meeting must, in addition to
complying with the applicable laws and regulations governing submission of such
proposals, deliver the proposal to the Company for consideration no later than
December 1, 1999. Proxies for the 2000 Annual Meeting of Stockholders will
confer discretionary authority to vote with respect to all stockholder proposals
of which the Company does not receive notice before March 16, 2000. Such
proposals should be sent to Rudolph G. Swenson, the Secretary of the Company, at
1999 Broadway, Suite 3200, Denver, Colorado 80202.
19
<PAGE>
NOTICE TO BANKS, BROKER-DEALERS
AND VOTING TRUSTEES AND THEIR NOMINEES
--------------------------------------
Please advise the Company whether other persons are the beneficial owners
of the shares for which proxies are being solicited from you, and, if so, the
number of copies of this Proxy Statement and other soliciting materials you wish
to receive in order to supply copies to the beneficial owners of the shares.
IT IS IMPORTANT THAT PROXIES BE RETURNED PROMPTLY. STOCKHOLDERS, WHETHER OR
NOT THEY EXPECT TO ATTEND THE ANNUAL MEETING IN PERSON, ARE REQUESTED TO
COMPLETE, DATE AND SIGN THE ENCLOSED FORM OF PROXY AND RETURN IT PROMPTLY IN THE
ENVELOPE PROVIDED FOR THAT PURPOSE. BY RETURNING YOUR PROXY PROMPTLY YOU CAN
HELP THE COMPANY AVOID THE EXPENSE OF FOLLOW-UP MAILINGS TO ENSURE A QUORUM SO
THAT THE MEETING CAN BE HELD. STOCKHOLDERS WHO ATTEND THE MEETING MAY REVOKE A
PRIOR PROXY AND VOTE THEIR PROXY IN PERSON AS SET FORTH IN THIS PROXY STATEMENT.
By Order of the Board of Directors
Rudolph G. Swenson
Secretary
Denver, Colorado
April 30, 1999
20
<PAGE>
ANNEX A-1
KFX INC.
1999 STOCK INCENTIVE PLAN
1. Purposes of the Plan. The purposes of this Stock Incentive Plan are to
--------------------
attract and retain the best available personnel, to provide additional incentive
to Employees, Directors and Consultants and to promote the success of the
Company's business.
2. Definitions. As used herein, the following definitions shall apply:
-----------
(a) "Administrator" means the Board or any of the Committees appointed to
-------------
administer the Plan.
(b) "Affiliate" and "Associate" shall have the respective meanings ascribed
--------- ---------
to such terms in Rule 12b-2 promulgated under the Exchange Act.
(c) "Applicable Laws" means the legal requirements relating to the
---------------
administration of stock incentive plans, if any, under applicable provisions of
federal securities laws, state corporate and securities laws, the Code, the
rules of any applicable stock exchange or national market system, and the rules
of any foreign jurisdiction applicable to Awards granted to residents therein.
(d) "Award" means the grant of an Option, SAR, Dividend Equivalent Right,
-----
Restricted Stock, Performance Unit, Performance Share, or other right or
benefit under the Plan.
(e) "Award Agreement" means the written agreement evidencing the grant of
---------------
an Award executed by the Company and the Grantee, including any amendments
thereto.
(f) "Board" means the Board of Directors of the Company.
-----
(g) "Cause" means, with respect to the termination by the Company or a
-----
Related Entity of the Grantee's Continuous Service, that such termination is for
"Cause" as such term is expressly defined in a then-effective written agreement
between the Grantee and the Company or such Related Entity, or in the absence of
such then-effective written agreement and definition, is based on, in the
determination of the Administrator, the Grantee's: (i) refusal or failure to act
in accordance with any specific, lawful direction or order of the Company or a
Related Entity; (ii) performance of any act or failure to perform any act in bad
faith and to the detriment of the Company or a Related Entity; (iii) dishonesty,
intentional misconduct or material breach of any agreement with the Company or a
Related Entity; or (iv) commission of a crime involving dishonesty, breach of
trust, or physical or emotional harm to any person. At least 30 days prior to
the termination of the Grantee's Continuous Service pursuant to (i) above, the
Administrator shall provide the Grantee with notice of the Company's or such
Related Entity's intent to terminate, the reason therefor, and an opportunity
for the Grantee to cure such defects in his or her service to the Company's or
such Related Entity's satisfaction. During this 30 day (or longer) period, no
Award issued to the Grantee under the Plan may be exercised or purchased.
(h) "Change in Control" means a change in ownership or control of the
-----------------
Company effected through either of the following transactions:
(i) the direct or indirect acquisition by any person or related group
of persons (other than an acquisition from or by the Company or by a Company-
sponsored employee benefit plan or by a person that directly or indirectly
controls, is controlled by, or is under common control with,
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<PAGE>
the Company) of beneficial ownership (within the meaning of Rule 13d-3 of
the Exchange Act) of securities possessing more than fifty percent (50%) of
the total combined voting power of the Company's outstanding securities
pursuant to a tender or exchange offer made directly to the Company's
stockholders which a majority of the Continuing Directors who are not
Affiliates or Associates of the offeror do not recommend such stockholders
accept, or
(ii) a change in the composition of the Board over a period of thirty-
six (36) months or less such that a majority of the Board members (rounded up to
the next whole number) ceases, by reason of one or more contested elections for
Board membership, to be comprised of individuals who are Continuing Directors.
(i) "Code" means the Internal Revenue Code of 1986, as amended.
----
(j) "Committee" means any committee appointed by the Board to administer
---------
the Plan.
(k) "Common Stock" means the common stock of the Company.
------------
(l) "Company" means KFx Inc., a Delaware corporation.
-------
(m) "Consultant" means any person (other than an Employee or a Director,
----------
solely with respect to rendering services in such person's capacity as a
Director) who is engaged by the Company or any Related Entity to render
consulting or advisory services to the Company or such Related Entity.
(n) "Continuing Directors" means members of the Board who either (i) have
--------------------
been Board members continuously for a period of at least thirty-six (36) months
or (ii) have been Board members for less than thirty-six (36) months and were
elected or nominated for election as Board members by at least a majority of the
Board members described in clause (i) who were still in office at the time such
election or nomination was approved by the Board.
(o) "Continuous Service" means that the provision of services to the
------------------
Company or a Related Entity in any capacity of Employee, Director or Consultant,
is not interrupted or terminated. Continuous Service shall not be considered
interrupted in the case of (i) any approved leave of absence, (ii) transfers
between locations of the Company or among the Company, any Related Entity, or
any successor, in any capacity of Employee, Director or Consultant, or (iii) any
change in status as long as the individual remains in the service of the Company
or a Related Entity in any capacity of Employee, Director or Consultant (except
as otherwise provided in the Award Agreement). An approved leave of absence
shall include sick leave, military leave, or any other authorized personal
leave. For purposes of Incentive Stock Options, no such leave may exceed ninety
(90) days, unless reemployment upon expiration of such leave is guaranteed by
statute or contract.
(p) "Corporate Transaction" means any of the following transactions:
---------------------
(i) a merger or consolidation in which the Company is not the
surviving entity, except for a transaction the principal purpose of which is to
change the state in which the Company is incorporated;
(ii) the sale, transfer or other disposition of all or substantially
all of the assets of the Company (including the capital stock of the Company's
subsidiary corporations) in connection with the complete liquidation or
dissolution of the Company;
(iii) any reverse merger in which the Company is the surviving entity
but in which securities possessing more than fifty percent (50%) of the total
combined voting power of the Company's outstanding securities are transferred to
a person or persons different from those who held such securities immediately
prior to such merger; or
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<PAGE>
(iv) acquisition by any person or related group of persons (other than
the Company or by a Company-sponsored employee benefit plan) of beneficial
ownership (within the meaning of Rule 13d-3 of the Exchange Act) of securities
possessing more than fifty percent (50%) of the total combined voting power of
the Company's outstanding securities (whether or not in a transaction also
constituting a Change in Control), but excluding any such transaction that the
Administrator determines shall not be a Corporate Transaction.
(q) "Covered Employee" means an Employee who is a "covered employee" under
----------------
Section 162(m)(3) of the Code.
(r) "Director" means a member of the Board or the board of directors of any
--------
Related Entity.
(s) "Disability" means that a Grantee is permanently unable to carry out
the responsibilities and functions of the position held by the Grantee by reason
of any medically determinable physical or mental impairment. A Grantee will not
be considered to have incurred a Disability unless he or she furnishes proof of
such impairment sufficient to satisfy the Administrator in its discretion.
(t) "Dividend Equivalent Right" means a right entitling the Grantee to
-------------------------
compensation measured by dividends paid with respect to Common Stock.
(u) "Employee" means any person, including an Officer or Director, who is
--------
an employee of the Company or any Related Entity. The payment of a director's
fee by the Company or a Related Entity shall not be sufficient to constitute
"employment" by the Company.
(v) "Exchange Act" means the Securities Exchange Act of 1934, as amended.
------------
(w) "Fair Market Value" means, as of any date, the value of Common Stock
-----------------
determined as follows:
(i) Where there exists a public market for the Common Stock, the Fair
Market Value shall be (A) the closing price for a Share for the last market
trading day prior to the time of the determination (or, if no closing price was
reported on that date, on the last trading date on which a closing price was
reported) on the stock exchange determined by the Administrator to be the
primary market for the Common Stock or the Nasdaq National Market, whichever is
applicable or (B) if the Common Stock is not traded on any such exchange or
national market system, the average of the closing bid and asked prices of a
Share on the Nasdaq Small Cap Market for the day prior to the time of the
determination (or, if no such prices were reported on that date, on the last
date on which such prices were reported), in each case, as reported in The Wall
Street Journal or such other source as the Administrator deems reliable; or
(ii) In the absence of an established market for the Common Stock of
the type described in (i), above, the Fair Market Value thereof shall be
determined by the Administrator in good faith.
(x) "Grantee" means an Employee, Director or Consultant who receives an
-------
Award pursuant to an Award Agreement under the Plan.
(y) "Incentive Stock Option" means an Option intended to qualify as an
----------------------
incentive stock option within the meaning of Section 422 of the Code.
(z) "Non-Qualified Stock Option" means an Option not intended to qualify as
--------------------------
an Incentive Stock Option.
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<PAGE>
(aa) "Officer" means a person who is an officer of the Company or a Related
-------
Entity within the meaning of Section 16 of the Exchange Act and the rules
and regulations promulgated thereunder.
(bb) "Option" means an option to purchase Shares pursuant to an Award
------
Agreement granted under the Plan.
(cc) "Parent" means a "parent corporation," whether now or hereafter
------
existing, as defined in Section 424(e) of the Code.
(dd) "Performance - Based Compensation" means compensation qualifying as
--------------------------------
"performance-based compensation" under Section 162(m) of the Code.
(ee) "Performance Shares" means Shares or an Award denominated in Shares
------------------
which may be earned in whole or in part upon attainment of performance criteria
established by the Administrator.
(ff) "Performance Units" means an Award which may be earned in whole or in
-----------------
part upon attainment of performance criteria established by the Administrator
and which may be settled for cash, Shares or other securities or a combination
of cash, Shares or other securities as established by the Administrator.
(gg) "Plan" means this 1999 Stock Incentive Plan.
----
(hh) "Related Entity" means any Parent, Subsidiary and any business,
--------------
corporation, partnership, limited liability company or other entity in
which the Company, a Parent or a Subsidiary holds a substantial ownership
interest, directly or indirectly.
(ii) "Related Entity Disposition" means the sale, distribution or other
--------------------------
disposition by the Company, a Parent or a Subsidiary of all or substantially all
of the interests of the Company, a Parent or a Subsidiary in any Related Entity
effected by a sale, merger or consolidation or other transaction involving that
Related Entity or the sale of all or substantially all of the assets of that
Related Entity, other than any Related Entity Disposition to the Company, a
Parent or a Subsidiary.
(jj) "Restricted Stock" means Shares issued under the Plan to the Grantee
----------------
for such consideration, if any, and subject to such restrictions on transfer,
rights of first refusal, repurchase provisions, forfeiture provisions, and other
terms and conditions as established by the Administrator.
(kk) "Rule 16b-3" means Rule 16b-3 promulgated under the Exchange Act or any
----------
successor thereto.
(ll) "SAR" means a stock appreciation right entitling the Grantee to Shares
---
or cash compensation, as established by the Administrator, measured by
appreciation in the value of Common Stock.
(mm) "Share" means a share of the Common Stock.
-----
(nn) "Subsidiary" means a "subsidiary corporation," whether now or hereafter
----------
existing, as defined in Section 424(f) of the Code.
3. Stock Subject to the Plan.
-------------------------
(a) Subject to the provisions of Section 10, below, the maximum aggregate
number of Shares which may be issued pursuant to all Awards (including Incentive
Stock Options) is 2,000,000 Shares. The Shares to be issued pursuant to Awards
may be authorized, but unissued, or reacquired Common Stock.
A-4
<PAGE>
(b) Any Shares covered by an Award (or portion of an Award) which is
forfeited or canceled, expires or is settled in cash, shall be deemed not to
have been issued for purposes of determining the maximum aggregate number of
Shares which may be issued under the Plan. If any unissued Shares are retained
by the Company upon exercise of an Award in order to satisfy the exercise price
for such Award or any withholding taxes due with respect to such Award, such
retained Shares subject to such Award shall become available for future issuance
under the Plan (unless the Plan has terminated). Shares that actually have been
issued under the Plan pursuant to an Award shall not be returned to the Plan and
shall not become available for future issuance under the Plan, except that if
unvested Shares are forfeited, or repurchased by the Company at their original
purchase price, such Shares shall become available for future grant under the
Plan.
4. Administration of the Plan.
--------------------------
(a) Plan Administrator.
------------------
(i) Administration with Respect to Directors and Officers. With
-----------------------------------------------------
respect to grants of Awards to Directors or Employees who are also Officers or
Directors of the Company, the Plan shall be administered by (A) the Board or (B)
a Committee designated by the Board, which Committee shall be constituted in
such a manner as to satisfy the Applicable Laws and to permit such grants and
related transactions under the Plan to be exempt from Section 16(b) of the
Exchange Act in accordance with Rule 16b-3. Once appointed, such Committee shall
continue to serve in its designated capacity until otherwise directed by the
Board.
(ii) Administration With Respect to Consultants and Other Employees.
--------------------------------------------------------------
With respect to grants of Awards to Employees or Consultants who are neither
Directors nor Officers of the Company, the Plan shall be administered by (A) the
Board or (B) a Committee designated by the Board, which Committee shall be
constituted in such a manner as to satisfy the Applicable Laws. Once appointed,
such Committee shall continue to serve in its designated capacity until
otherwise directed by the Board. The Board may authorize one or more Officers to
grant such Awards and may limit such authority as the Board determines from time
to time.
(iii) Administration With Respect to Covered Employees.
------------------------------------------------
Notwithstanding the foregoing, grants of Awards to any Covered Employee intended
to qualify as Performance-Based Compensation shall be made only by a Committee
(or subcommittee of a Committee) which is comprised solely of two or more
Directors eligible to serve on a committee making Awards qualifying as
Performance-Based Compensation. In the case of such Awards granted to Covered
Employees, references to the "Administrator" or to a "Committee" shall be deemed
to be references to such Committee or subcommittee.
(iv) Administration Errors. If an Award is granted in a manner
---------------------
inconsistent with the provisions of this subsection (a), such Award shall be
presumptively valid as of its grant date to the extent permitted by the
Applicable Laws.
(b) Powers of the Administrator. Subject to Applicable Laws and the
---------------------------
provisions of the Plan (including any other powers given to the Administrator
hereunder), and except as otherwise provided by the Board, the Administrator
shall have the authority, in its discretion:
(i) to select the Employees, Directors and Consultants to whom
Awards may be granted from time to time hereunder;
(ii) to determine whether and to what extent Awards are granted
hereunder;
(iii) to determine the number of Shares or the amount of other
consideration to be covered by each Award granted hereunder;
A-5
<PAGE>
(iv) to approve forms of Award Agreements for use under the Plan;
(v) to determine the terms and conditions of any Award granted
hereunder;
(vi) to amend the terms of any outstanding Award granted under the
Plan, provided that any amendment that would adversely affect the Grantee's
rights under an outstanding Award shall not be made without the Grantee's
written consent;
(vii) to construe and interpret the terms of the Plan and Awards
granted pursuant to the Plan, including without limitation, any notice of Award
or Award Agreement, granted pursuant to the Plan;
(viii) to establish additional terms, conditions, rules or procedures
to accommodate the rules or laws of applicable foreign jurisdictions and to
afford Grantees favorable treatment under such laws; provided, however, that no
Award shall be granted under any such additional terms, conditions, rules or
procedures with terms or conditions which are inconsistent with the provisions
of the Plan; and
(ix) to take such other action, not inconsistent with the terms of
the Plan, as the Administrator deems appropriate.
(c) Effect of Administrator's Decision. All decisions, determinations and
----------------------------------
interpretations of the Administrator shall be conclusive and binding on all
persons.
5. Eligibility. Awards other than Incentive Stock Options may be granted to
-----------
Employees, Directors and Consultants. Incentive Stock Options may be granted
only to Employees of the Company, a Parent or a Subsidiary. An Employee,
Director or Consultant who has been granted an Award may, if otherwise eligible,
be granted additional Awards. Awards may be granted to such Employees,
Directors or Consultants who are residing in foreign jurisdictions as the
Administrator may determine from time to time.
6. Terms and Conditions of Awards.
------------------------------
(a) Type of Awards. The Administrator is authorized under the Plan to award
--------------
any type of arrangement to an Employee, Director or Consultant that is not
inconsistent with the provisions of the Plan and that by its terms involves or
might involve the issuance of (i) Shares, (ii) an Option, a SAR or similar right
with a fixed or variable price related to the Fair Market Value of the Shares
and with an exercise or conversion privilege related to the passage of time, the
occurrence of one or more events, or the satisfaction of performance criteria or
other conditions, or (iii) any other security with the value derived from the
value of the Shares. Such awards include, without limitation, Options, SARs,
sales or bonuses of Restricted Stock, Dividend Equivalent Rights, Performance
Units or Performance Shares, and an Award may consist of one such security or
benefit, or two (2) or more of them in any combination or alternative.
(b) Designation of Award. Each Award shall be designated in the Award
--------------------
Agreement. In the case of an Option, the Option shall be designated as either an
Incentive Stock Option or a Non-Qualified Stock Option. However, notwithstanding
such designation, to the extent that the aggregate Fair Market Value of Shares
subject to Options designated as Incentive Stock Options which become
exercisable for the first time by a Grantee during any calendar year (under all
plans of the Company or any Parent or Subsidiary) exceeds $100,000, such excess
Options, to the extent of the Shares covered thereby in excess of the foregoing
limitation, shall be treated as Non-Qualified Stock Options. For this purpose,
Incentive Stock Options shall be taken into account in the order in which they
were granted, and the Fair Market Value of the Shares shall be determined as of
the date the Option with respect to such Shares is granted.
(c) Conditions of Award. Subject to the terms of the Plan, the
-------------------
Administrator shall determine the provisions, terms, and conditions of each
Award including, but not limited to, the Award
A-6
<PAGE>
vesting schedule, repurchase provisions, rights of first refusal, forfeiture
provisions, form of payment (cash, Shares, or other consideration) upon
settlement of the Award, payment contingencies, and satisfaction of any
performance criteria. The performance criteria established by the Administrator
may be based on any one of, or combination of, increase in share price, earnings
per share, total stockholder return, return on equity, return on assets, return
on investment, net operating income, cash flow, revenue, economic value added,
personal management objectives, or other measure of performance selected by the
Administrator. Partial achievement of the specified criteria may result in a
payment or vesting corresponding to the degree of achievement as specified in
the Award Agreement.
(d) Acquisitions and Other Transactions. The Administrator may issue Awards
-----------------------------------
under the Plan in settlement, assumption or substitution for, outstanding awards
or obligations to grant future awards in connection with the Company or a
Related Entity acquiring another entity, an interest in another entity or an
additional interest in a Related Entity whether by merger, stock purchase, asset
purchase or other form of transaction.
(e) Deferral of Award Payment. The Administrator may establish one or more
-------------------------
programs under the Plan to permit selected Grantees the opportunity to elect to
defer receipt of consideration upon exercise of an Award, satisfaction of
performance criteria, or other event that absent the election would entitle the
Grantee to payment or receipt of Shares or other consideration under an Award.
The Administrator may establish the election procedures, the timing of such
elections, the mechanisms for payments of, and accrual of interest or other
earnings, if any, on amounts, Shares or other consideration so deferred, and
such other terms, conditions, rules and procedures that the Administrator deems
advisable for the administration of any such deferral program.
(f) Award Exchange Programs. The Administrator may establish one or more
-----------------------
programs under the Plan to permit selected Grantees to exchange an Award under
the Plan for one or more other types of Awards under the Plan on such terms and
conditions as determined by the Administrator from time to time.
(g) Separate Programs. The Administrator may establish one or more separate
-----------------
programs under the Plan for the purpose of issuing particular forms of Awards to
one or more classes of Grantees on such terms and conditions as determined by
the Administrator from time to time.
(h) Early Exercise. The Award Agreement may, but need not, include a
--------------
provision whereby the Grantee may elect at any time while an Employee, Director
or Consultant to exercise any part or all of the Award prior to full vesting of
the Award. Any unvested Shares received pursuant to such exercise may be subject
to a repurchase right in favor of the Company or a Related Entity or to any
other restriction the Administrator determines to be appropriate.
(i) Term of Award. The term of each Award shall be the term stated in the
-------------
Award Agreement, provided, however, that the term of an Incentive Stock Option
shall be no more than ten (10) years from the date of grant thereof. However, in
the case of an Incentive Stock Option granted to a Grantee who, at the time the
Option is granted, owns stock representing more than ten percent (10%) of the
voting power of all classes of stock of the Company or any Parent or Subsidiary,
the term of the Incentive Stock Option shall be five (5) years from the date of
grant thereof or such shorter term as may be provided in the Award Agreement.
(j) Transferability of Awards. Incentive Stock Options may not be sold,
-------------------------
pledged, assigned, hypothecated, transferred, or disposed of in any manner other
than by will or by the laws of descent or distribution and may be exercised,
during the lifetime of the Grantee, only by the Grantee; provided, however, that
the Grantee may designate a beneficiary of the Grantee's Incentive Stock Option
in the event of the Grantee's death on a beneficiary designation form provided
by the Administrator. Other Awards shall be transferable to the extent provided
in the Award Agreement.
(k) Time of Granting Awards. The date of grant of an Award shall for all
-----------------------
purposes be the date on which the Administrator makes the determination to
grant such Award, or such other date as
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<PAGE>
is determined by the Administrator. Notice of the grant determination shall be
given to each Employee, Director or Consultant to whom an Award is so granted
within a reasonable time after the date of such grant.
7. Award Exercise or Purchase Price, Consideration, Taxes and Reload Options.
-------------------------------------------------------------------------
(a) Exercise or Purchase Price. The exercise or purchase price, if any, for
--------------------------
an Award shall be as follows:
(i) In the case of an Incentive Stock Option:
(A) granted to an Employee who, at the time of the grant of such
Incentive Stock Option owns stock representing more than ten percent (10%) of
the voting power of all classes of stock of the Company or any Parent or
Subsidiary, the per Share exercise price shall be not less than one hundred ten
percent (110%) of the Fair Market Value per Share on the date of grant; or
(B) granted to any Employee other than an Employee described in
the preceding paragraph, the per Share exercise price shall be not less than one
hundred percent (100%) of the Fair Market Value per Share on the date of grant.
(ii) In the case of a Non-Qualified Stock Option, the per Share
exercise price shall be not less than eighty-five percent (85%) of the Fair
Market Value per Share on the date of grant unless otherwise determined by the
Administrator.
(iii) In the case of other Awards, such price as is determined by the
Administrator.
(iv) Notwithstanding the foregoing provisions of this Section 7(a), in
the case of an Award issued pursuant to Section 6(d), above, the exercise or
purchase price for the Award shall be determined in accordance with the
principles of Section 424(a) of the Code.
(b) Consideration. Subject to Applicable Laws, the consideration to be paid
-------------
for the Shares to be issued upon exercise or purchase of an Award including the
method of payment, shall be determined by the Administrator (and, in the case of
an Incentive Stock Option, shall be determined at the time of grant). In
addition to any other types of consideration the Administrator may determine,
the Administrator is authorized to accept as consideration for Shares issued
under the Plan the following, provided that the portion of the consideration
equal to the par value of the Shares must be paid in cash or other legal
consideration permitted by the Delaware General Corporation Law:
(i) cash;
(ii) check;
(iii) delivery of Grantee's promissory note with such recourse,
interest, security, and redemption provisions as the Administrator determines as
appropriate;
(iv) surrender of Shares or delivery of a properly executed form of
attestation of ownership of Shares as the Administrator may require (including
withholding of Shares otherwise deliverable upon exercise of the Award) which
have a Fair Market Value on the date of surrender or attestation equal to the
aggregate exercise price of the Shares as to which said Award shall be exercised
(but only to the extent that such exercise of the Award would not result in an
accounting compensation charge with respect to the Shares used to pay the
exercise price unless otherwise determined by the Administrator);
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<PAGE>
(v) with respect to Options, payment through a broker-dealer sale and
remittance procedure pursuant to which the Grantee (A) shall provide written
instructions to a Company designated brokerage firm to effect the immediate sale
of some or all of the purchased Shares and remit to the Company, out of the sale
proceeds available on the settlement date, sufficient funds to cover the
aggregate exercise price payable for the purchased Shares and (B) shall provide
written directives to the Company to deliver the certificates for the purchased
Shares directly to such brokerage firm in order to complete the sale
transaction; or
(vi) any combination of the foregoing methods of payment.
(c) Taxes. No Shares shall be delivered under the Plan to any Grantee or
-----
other person until such Grantee or other person has made arrangements acceptable
to the Administrator for the satisfaction of any foreign, federal, state, or
local income and employment tax withholding obligations, including, without
limitation, obligations incident to the receipt of Shares or the disqualifying
disposition of Shares received on exercise of an Incentive Stock Option. Upon
exercise of an Award, the Company shall withhold or collect from Grantee an
amount sufficient to satisfy such tax obligations.
(d) Reload Options. In the event the exercise price or tax withholding of
--------------
an Option is satisfied by the Company or the Grantee's employer withholding
Shares otherwise deliverable to the Grantee, the Administrator may issue the
Grantee an additional Option, with terms identical to the Award Agreement under
which the Option was exercised, but at an exercise price as determined by the
Administrator in accordance with the Plan.
8. Exercise of Award.
-----------------
(a) Procedure for Exercise; Rights as a Stockholder.
-----------------------------------------------
(i) Any Award granted hereunder shall be exercisable at such times and
under such conditions as determined by the Administrator under the terms of the
Plan and specified in the Award Agreement.
(ii) An Award shall be deemed to be exercised when written notice of
such exercise has been given to the Company in accordance with the terms of the
Award by the person entitled to exercise the Award and full payment for the
Shares with respect to which the Award is exercised, including, to the extent
selected, use of the broker-dealer sale and remittance procedure to pay the
purchase price as provided in Section 7(b)(v). Until the issuance (as evidenced
by the appropriate entry on the books of the Company or of a duly authorized
transfer agent of the Company) of the stock certificate evidencing such Shares,
no right to vote or receive dividends or any other rights as a stockholder shall
exist with respect to Shares subject to an Award, notwithstanding the exercise
of an Option or other Award. The Company shall issue (or cause to be issued)
such stock certificate promptly upon exercise of the Award. No adjustment will
be made for a dividend or other right for which the record date is prior to the
date the stock certificate is issued, except as provided in the Award Agreement
or Section 10 below.
(b) Exercise of Award Following Termination of Continuous Service.
-------------------------------------------------------------
(i) An Award may not be exercised after the termination date of such
Award set forth in the Award Agreement and may be exercised following the
termination of a Grantee's Continuous Service only to the extent provided in the
Award Agreement.
(ii) Where the Award Agreement permits a Grantee to exercise an Award
following the termination of the Grantee's Continuous Service for a specified
period, the Award shall terminate to the extent not exercised on the last day of
the specified period or the last day of the original term of the Award,
whichever occurs first.
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<PAGE>
(iii) Any Award designated as an Incentive Stock Option to the extent
not exercised within the time permitted by law for the exercise of Incentive
Stock Options following the termination of a Grantee's Continuous Service shall
convert automatically to a Non-Qualified Stock Option and thereafter shall be
exercisable as such to the extent exercisable by its terms for the period
specified in the Award Agreement.
(c) Buyout Provisions. The Administrator may at any time offer to buy out
-----------------
for a payment in cash or Shares, an Award previously granted, based on such
terms and conditions as the Administrator shall establish and communicate to the
Grantee at the time that such offer is made.
9. Conditions Upon Issuance of Shares.
----------------------------------
(a) Shares shall not be issued pursuant to the exercise of an Award unless
the exercise of such Award and the issuance and delivery of such Shares pursuant
thereto shall comply with all Applicable Laws, and shall be further subject to
the approval of counsel for the Company with respect to such compliance.
(b) As a condition to the exercise of an Award, the Company may require the
person exercising such Award to represent and warrant at the time of any such
exercise that the Shares are being purchased only for investment and without any
present intention to sell or distribute such Shares if, in the opinion of
counsel for the Company, such a representation is required by any Applicable
Laws.
10. Adjustments Upon Changes in Capitalization. Subject to any required action
------------------------------------------
by the stockholders of the Company, the number of Shares covered by each
outstanding Award, and the number of Shares which have been authorized for
issuance under the Plan but as to which no Awards have yet been granted or which
have been returned to the Plan, the exercise or purchase price of each such
outstanding Award, as well as any other terms that the Administrator determines
require adjustment shall be proportionately adjusted for (i) any increase or
decrease in the number of issued Shares resulting from a stock split, reverse
stock split, stock dividend, combination or reclassification of the Shares, or
similar transaction affecting the Shares, (ii) any other increase or decrease in
the number of issued Shares effected without receipt of consideration by the
Company, or (iii) as the Administrator may determine in its discretion, any
other transaction with respect to Common Stock to which Section 424(a) of the
Code applies or a similar transaction; provided, however that conversion of any
convertible securities of the Company shall not be deemed to have been "effected
without receipt of consideration." Such adjustment shall be made by the
Administrator and its determination shall be final, binding and conclusive.
Except as the Administrator determines, no issuance by the Company of shares of
stock of any class, or securities convertible into shares of stock of any class,
shall affect, and no adjustment by reason hereof shall be made with respect to,
the number or price of Shares subject to an Award.
11. Corporate Transactions/Changes in Control/Related Entity
--------------------------------------------------------
Dispositions/Buyout. Except as may be provided in an Award Agreement :
- -------------------
(a) In the event of any Corporate Transaction, each Award which is at the
time outstanding under the Plan automatically shall become fully vested and
exercisable and be released from any restrictions on transfer (other than
transfer restrictions applicable to Incentive Stock Options) and repurchase or
forfeiture rights, immediately prior to the specified effective date of such
Corporate Transaction, for all of the Shares at the time represented by such
Award. Effective upon the consummation of the Corporate Transaction, all
outstanding Awards under the Plan shall terminate. However, all such Awards
shall not terminate if the Awards are, in connection with the Corporate
Transaction, assumed by the successor corporation or Parent thereof. In
addition, an outstanding Award under the Plan shall not so fully vest and be
exercisable and released from such limitations if and to the extent: (i) such
Award is, in connection with the Corporate Transaction, either assumed by the
successor corporation or Parent thereof or replaced with a comparable Award with
respect to shares of the capital stock of the successor corporation or Parent
thereof or (ii) such Award is to be replaced with a cash incentive program of
the successor corporation which preserves the compensation element of such Award
existing at the time of the Corporate Transaction and provides for subsequent
payout in accordance with the same vesting schedule
A-10
<PAGE>
applicable to such Award; provided, however, that such Award (if assumed), the
replacement Award (if replaced), or the cash incentive program automatically
shall become fully vested, exercisable and payable and be released from any
restrictions on transfer (other than transfer restrictions applicable to
Incentive Stock Options) and repurchase or forfeiture rights immediately upon
termination of the Grantee's Continuous Service (substituting the successor
employer corporation for "Company or Related Entity" for the definition of
"Continuous Service") if such Continuous Service is terminated by the successor
company without Cause within twelve (12) months of the Corporate Transaction.
The determination of Award comparability above shall be made by the
Administrator, and its determination shall be final, binding and conclusive.
(b) Following a Change in Control (other than a Change in Control
which also is a Corporate Transaction) and upon the termination of the
Continuous Service of a Grantee if such Continuous Service is terminated by the
Company or Related Entity without Cause within twelve (12) months of a Change in
Control, each Award of such Grantee which is at the time outstanding under the
Plan automatically shall become fully vested and exercisable and be released
from any restrictions on transfer (other than transfer restrictions applicable
to Incentive Stock Options) and repurchase or forfeiture rights, immediately
upon the termination of such Continuous Service.
(c) Effective upon the consummation of a Related Entity Disposition,
for purposes of the Plan and all Awards, the Continuous Service of each Grantee
who is at the time engaged primarily in service to the Related Entity involved
in such Related Entity Disposition shall be deemed to terminate and each Award
of such Grantee which is at the time outstanding under the Plan automatically
shall become fully vested and exercisable and be released from any restrictions
on transfer (other than transfer restrictions applicable to Incentive Stock
Options) and repurchase or forfeiture rights for all of the Shares at the time
represented by such Award and be exercisable in accordance with the terms of the
Award Agreement evidencing such Award. However, such Continuous Service shall
be not be deemed to terminate if such Award is, in connection with the Related
Entity Disposition, assumed by the successor entity or its Parent. In addition,
such Continuous Service shall not be deemed to terminate and an outstanding
Award under the Plan shall not so fully vest and be exercisable and released
from such limitations if and to the extent: (i) such Award is, in connection
with the Related Entity Disposition, either to be assumed by the successor
entity or its parent or to be replaced with a comparable Award with respect to
interests in the successor entity or its parent or (ii) such Award is to be
replaced with a cash incentive program of the successor entity which preserves
the compensation element of such Award existing at the time of the Related
Entity Disposition and provides for subsequent payout in accordance with the
same vesting schedule applicable to such Award; provided, however, that such
Award (if assumed), the replacement Award (if replaced), or the cash incentive
program automatically shall become fully vested, exercisable and payable and be
released from any restrictions on transfer (other than transfer restrictions
applicable to Incentive Stock Options) and repurchase or forfeiture rights
immediately upon termination of the Grantee's Continuous Service (substituting
the successor employer entity for "Company or Related Entity" for the definition
of "Continuous Service") if such Continuous Service is terminated by the
successor entity without Cause within twelve (12) months of the Related Entity
Disposition. The determination of Award comparability above shall be made by
the Administrator, and its determination shall be final, binding and conclusive.
(d) Notwithstanding the foregoing, the Administrator, in its
discretion, may accelerate the vesting and release from any restrictions on
transfer and repurchase or forfeiture rights of any outstanding award, or
prevent such acceleration and release, with respect to any Corporate
Transaction, Change in Control or Related Entity Disposition.
(e) The portion of any Incentive Stock Option accelerated under this
Section 11 in connection with a Corporate Transaction, Change in Control or
Related Entity Disposition shall remain exercisable as an Incentive Stock Option
under the Code only to the extent the $100,000 dollar limitation of Section
422(d) of the Code is not exceeded. To the extent such dollar limitation is
exceeded, the accelerated excess portion of such Option shall be exercisable as
a Non-Qualified Stock Option.
A-11
<PAGE>
12. Effective Date and Term of Plan. The Plan shall become effective upon the
-------------------------------
earlier to occur of its adoption by the Board or its approval by the
stockholders of the Company. It shall continue in effect for a term of ten (10)
years unless sooner terminated. Subject to Section 17, below, and Applicable
Laws, Awards may be granted under the Plan upon its becoming effective.
13. Amendment, Suspension or Termination of the Plan.
------------------------------------------------
(a) The Board may at any time amend, suspend or terminate the Plan. To the
extent necessary to comply with Applicable Laws, the Company shall obtain
stockholder approval of any Plan amendment in such a manner and to such a degree
as required.
(b) No Award may be granted during any suspension of the Plan or after
termination of the Plan.
(c) Any amendment, suspension or termination of the Plan (including
termination of the Plan under Section 12, above) shall not affect Awards already
granted, and such Awards shall remain in full force and effect as if the Plan
had not been amended, suspended or terminated, unless mutually agreed otherwise
between the Grantee and the Administrator, which agreement must be in writing
and signed by the Grantee and the Company.
14. Reservation of Shares.
---------------------
(a) The Company, during the term of the Plan, will at all times reserve
and keep available such number of Shares as shall be sufficient to satisfy the
requirements of the Plan.
(b) The inability of the Company to obtain authority from any regulatory
body having jurisdiction, which authority is deemed by the Company's counsel to
be necessary to the lawful issuance and sale of any Shares hereunder, shall
relieve the Company of any liability in respect of the failure to issue or sell
such Shares as to which such requisite authority shall not have been obtained.
15. No Effect on Terms of Employment/Consulting Relationship. The Plan shall
--------------------------------------------------------
not confer upon any Grantee any right with respect to the Grantee's Continuous
Service, nor shall it interfere in any way with his or her right or the
Company's right to terminate the Grantee's Continuous Service at any time, with
or without cause.
16. No Effect on Retirement and Other Benefit Plans. Except as specifically
-----------------------------------------------
provided in a retirement or other benefit plan of the Company or a Related
Entity, Awards shall not be deemed compensation for purposes of computing
benefits or contributions under any retirement plan of the Company or a Related
Entity, and shall not affect any benefits under any other benefit plan of any
kind or any benefit plan subsequently instituted under which the availability or
amount of benefits is related to level of compensation. The Plan is not a
"Retirement Plan" or "Welfare Plan" under the Employee Retirement Income
Security Act of 1974, as amended.
17. Stockholder Approval. The grant of Incentive Stock Options under the Plan
--------------------
shall be subject to approval by the stockholders of the Company within twelve
(12) months before or after the date the Plan is adopted excluding Incentive
Stock Options issued in substitution for outstanding Incentive Stock Options
pursuant to Section 424(a) of the Code. Such stockholder approval shall be
obtained in the degree and manner required under Applicable Laws. The
Administrator may grant Incentive Stock Options under the Plan prior to approval
by the stockholders, but until such approval is obtained, no such Incentive
Stock Option shall be exercisable. In the event that stockholder approval is
not obtained within the twelve (12) month period provided above, all Incentive
Stock Options previously granted under the Plan shall be exercisable as Non-
Qualified Stock Options.
A-12
<PAGE>
[FRONT OF PROXY VOTING CARD]
PROXY
KFX INC.
1999 BROADWAY, SUITE 3200, DENVER, COLORADO 80202
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned stockholder of KFx Inc. (the "Company") hereby appoints Seth L.
Patterson and Rudolph G. Swenson as the attorney and proxy of the undersigned,
with the powers the undersigned would possess if personally present, and with
full power of substitution, to vote all shares of Common Stock of the Company at
the annual meeting of stockholders of the Company to be held on Thursday, June
17, 1999 at 10:00 a.m. local time at the executive offices of the Company, 1999
Broadway, Suite 3200, Denver, Colorado 80202, and any postponements,
continuations or adjournments thereof, upon all subjects that may properly come
before the meeting, including the matters described in the proxy statement
furnished herewith, subject to any directions indicated below.
PROPOSAL NO. 1 - ELECTION OF DIRECTORS
[ ] FOR the nominees listed below.
[ ] WITHHOLD AUTHORITY to vote for the nominees for director listed below.
[ ] FOR the nominees for director listed below, EXCEPT WITHHOLD AUTHORITY TO
VOTE FOR THE NOMINEE(S) WHOSE NAME(S) IS (ARE) LINED THROUGH.
Nominees:
Jack C. Pester
Theodore Venners
PROPOSAL No. 2 - APPROVAL AND RATIFICATION OF 1999 STOCK INCENTIVE PLAN
[ ] FOR [ ] AGAINST [ ] ABSTAIN
PROPOSAL No. 3 - RATIFICATION OF SELECTION OF INDEPENDENT ACCOUNTANTS
[ ] FOR [ ] AGAINST [ ] ABSTAIN
Proposal No. 4 - To transact such other business as may properly be brought
before the meeting and any postponements, continuations or adjournments thereof.
[BACK OF PROXY VOTING CARD]
This proxy when properly executed will be voted in the manner directed herein
by the undersigned stockholder(s). If no direction is made, this Proxy will be
voted "FOR" the nominee of the Board of Directors in the election of directors,
"FOR" the approval and ratification of the 1999 Stock Incentive Plan and "FOR"
the ratification of the selection of PricewaterhouseCoopers LLP as the Company's
independent accountants for the year ending December 31, 1999. This proxy also
delegates discretionary authority to vote with respect to any other business
which may properly come before the meeting or any postponements, continuations
or adjournments thereof.
THE UNDERSIGNED HEREBY ACKNOWLEDGES RECEIPT OF THE NOTICE OF ANNUAL MEETING
AND PROXY STATEMENT FURNISHED IN CONNECTION HEREWITH, AND HEREBY RATIFIES ALL
THAT THE SAID ATTORNEYS AND PROXIES MAY DO BY VIRTUE HEREOF.
Dated: _______________, 1999
(Label) ___________________________
(Stockholder's Signature)
___________________________
(Stockholder's Signature)
<PAGE>
Note: Please mark, date and sign this proxy card and return it in the enclosed
envelope. Please sign as your name appears below. If shares are registered in
more than one name, all owners should sign. If signing in a fiduciary or
representative capacity, please give full title and attach evidence of
authority. Corporations please sign with corporate name by a duly authorized
officer and affix corporate seal.
