PRELIMINARY COPY
Dear Delta Shareholders:
On behalf of the Board of Directors, it is a pleasure to invite you to
attend the Annual Meeting of Shareholders to be held at 10:00 a.m. on March
22, 2002 in Denver, Colorado at Delta's corporate offices located at 555
Seventeenth Street, Suite 3310, Denver, Colorado 80202.
Business matters expected to be acted upon at the meeting are described
in detail in the accompanying Notice of the Annual Meeting and Proxy
Statement. Members of management will report on our operations, followed by a
period for questions and discussion.
We hope you can attend the meeting. Regardless of the number of shares
you own, your vote is very important. Please ensure that your shares will be
represented at the meeting by signing and returning your proxy now, even if
you plan to attend the meeting.
Thank you for your continued support.
Sincerely,
Aleron H. Larson, Jr.
Chairman of the Board
PRELIMINARY COPY
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
March 22, 2002
TO THE SHAREHOLDERS OF DELTA PETROLEUM CORPORATION:
As a shareholder of Delta Petroleum Corporation, a Colorado corporation
("Delta" or the "Company"), you are invited to be present in person or to be
represented by proxy at the Annual Meeting of Shareholders, to be held at
Delta's corporate offices, 555 17th Street, Suite 3310, Denver, Colorado
80202, on Friday, March 22, 2002, at 10:00 a.m. (local time) for the following
purposes:
1) To elect four directors;
2) To consider and vote upon the approval of Delta's 2002 Incentive
Plan;
3) To consider and vote upon the approval of the proposed issuance
of shares and warrants pursuant to an Investment Agreement with
Swartz Private Equity, LLC;
4) To consider and vote upon the ratification of the appointment of
KPMG LLP as independent auditors for Delta for the fiscal year
ending June 30, 2002;
5) To consider and vote on an amendment to Delta's Articles of
Incorporation to reduce the quorum and voting requirements for
meetings of shareholders; and
6) To transact such other business as may be properly brought before
the meeting and any adjournments thereof.
Shareholders of Delta of record at the close of business on January 16,
2002 are entitled to vote at the meeting and all adjournments thereof.
A majority of the outstanding shares of Common Stock of Delta must be
represented at the meeting to constitute a quorum. Therefore, all
shareholders are urged either to attend the meeting or to be represented by
proxy. If a quorum is not present at the meeting, a vote for adjournment will
be taken among the shareholders present or represented by proxy. If a
majority of the shareholders present or represented by proxy vote for
adjournment, it is Delta's intention to adjourn the meeting until a later date
and to vote proxies received at such adjourned meeting(s).
If you do not expect to attend the meeting in person, please complete,
sign, date and return the accompanying proxy card in the enclosed business
reply envelope. If you later find that you can be present or for any other
reason desire to revoke your proxy, you may do so at any time before the
voting.
By Order of the Board of Directors
Aleron H. Larson, Jr.
Chairman\Secretary
January 16, 2002
PRELIMINARY COPY
PROXY STATEMENT
OF
DELTA PETROLEUM CORPORATION
ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON MARCH 22, 2002
This Proxy Statement is furnished in connection with the solicitation by
the Board of Directors (our "Board" or our "Board of Directors") of Delta
Petroleum Corporation ("us," "our," "we" or "Delta") of proxies to be voted
at our Annual Meeting of Shareholders (the "Annual Meeting" or the "Meeting")
to be held on March 22, 2002 at our corporate offices, 555 17th Street, Suite
3310, Denver, Colorado 80202, at 10:00 a.m., and at any adjournment thereof.
Each shareholder of record at the close of business on January 16, 2002 of
shares of our Common Stock, par value $0.01 per share (the "Common Stock"),
will be entitled to one vote for each share so held. As of January 16, 2002
there were 11,164,826 shares of Common Stock issued and outstanding.
Shares represented by properly executed proxy cards received by us at or
prior to the Annual Meeting will be voted according to the instructions
indicated on the proxy card. Unless contrary instructions are given, the
persons named on the proxy card intend to vote the shares so represented FOR
(i) the election of the nominees for directors; (ii) the adoption of Delta's
2002 Incentive Plan; (iii) the approval of the proposed issuance of shares and
warrants pursuant to the Investment Agreement with Swartz Private Equity LLC;
(iv) the ratification of the appointment of KPMG LLP as our independent
auditors for the fiscal year ending June 30, 2002; and (v) the approval of an
amendment to Delta's Articles of Incorporation to reduce the quorum and voting
requirements for meetings of shareholders.
As to any other business which may properly come before the Meeting, the
persons named on the proxy card will vote according to their judgement. The
enclosed proxy may be revoked prior to the Meeting by written notice to our
Secretary at 555 17th Street, Suite 3310, Denver, Colorado 80202, or by
written or oral notice to the Secretary at the Annual Meeting prior to being
voted. This Proxy Statement and the enclosed proxy card are expected to be
first sent to our shareholders on or about January 22, 2002.
Votes cast in favor of and against proposed actions (whether in person
or by proxy) will be counted for us by our Secretary at the Meeting, but this
count may be at least partially based upon information tabulated for us by our
transfer agent or others. Abstentions and broker non-votes represented at the
Meeting will be counted as being present for the purpose of determining
whether or not a quorum is present, but will not be counted as votes for or
against particular agenda items.
If a quorum is not present at the Meeting, a vote for adjournment will
be taken among the shareholders present or represented by proxy. If a
majority of the shareholders present or represented by proxy vote for
adjournment, it is our intention to adjourn the Meeting until a later date and
to vote proxies received at such adjourned meeting(s).
ELECTION OF DIRECTORS
(Proposal 1 of the Proxy)
Our Directors are elected annually by the shareholders to serve until
the next Annual Meeting of Shareholders and until their respective successors
are duly elected. Our bylaws provide that the number of directors comprising
the whole Board shall from time to time be fixed and determined by resolution
adopted by our Board of Directors. Our Board has established the size of the
Board for the ensuing year at four directors. Accordingly, our Board is
recommending that our four current directors be re-elected. If any nominee
becomes unavailable for any reason, a substitute nominee may be proposed by
our Board and the shares represented by proxy will be voted for any substitute
nominee, unless the Board reduces the number of directors. We have no reason
to expect that any nominee will become unavailable. Assuming the presence of
a quorum, the affirmative vote of the holders of a majority of the outstanding
shares of Common Stock represented in person or by proxy at the Annual Meeting
is required for the election of directors.
At the Annual Meeting, the shares of Common Stock represented by proxies
will be voted in favor of the election of the nominees named below unless
otherwise directed.
We recommend a vote for these nominees.
NOMINEES FOR ELECTION AS DIRECTORS TO SERVE
UNTIL NEXT ANNUAL MEETING
The following information with respect to Directors and Executive
Officers is furnished pursuant to Item 401(a) of Regulation S-B.
Name Age Positions Period of Service
Aleron H. Larson, Jr.* 56 Chairman of the Board, May 1987 to Present
Secretary, and a Director
Roger A. Parker* 40 President, Chief May 1987 to Present
Executive Officer and
a Director
Jerrie F. Eckelberger* 57 Director September 1996
to Present
James B. Wallace* 72 Director November 2001 to
Present
Kevin K. Nanke 36 Treasurer and Chief December 1999
Financial Officer to Present
* nominees for re-election as directors
The following is additional biographical information as to the business
experience of each of our current officers and directors.
ALERON H. LARSON, JR., age 56, has operated as an independent in the oil
and gas industry individually and through public and private ventures since
1978. From July of 1990 through March 31, 1993, Mr. Larson served as the
Chairman, Secretary, CEO and a Director of Chippewa Resources Corporation (now
called "Underwriters Financial Group, Inc."), a public company then listed on
the American Stock Exchange which was previously our parent ("UFG").
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Subsequent to a change of control, Mr. Larson resigned from all positions with
UFG effective March 31, 1993. Mr. Larson serves as Chairman, CEO, Secretary,
Treasurer and Director of Amber Resources Company ("Amber"), a public oil and
gas company which is our majority-owned subsidiary. He has also served, since
1983, as the President and Board Chairman of Western Petroleum Corporation, a
public Colorado oil and gas company which is now inactive. Mr. Larson
practiced law in Breckenridge, Colorado from 1971 until 1974. During this
time he was a member of a law firm, Larson & Batchellor, engaged primarily in
real estate law, land use litigation, land planning and municipal law. In
1974, he formed Larson & Larson, P.C., and was engaged primarily in areas of
law relating to securities, real estate, and oil and gas until 1978. Mr.
Larson received a Bachelor of Arts degree in Business Administration from the
University of Texas at El Paso in 1967 and a Juris Doctor degree from the
University of Colorado in 1970.
ROGER A. PARKER, age 40, served as the President, a Director and Chief
Operating Officer of Chippewa Resources Corporation (now called "Underwriters
Financial Group, Inc.") from July of 1990 through March 31, 1993. Mr. Parker
resigned from all positions with UFG effective March 31, 1993. Mr. Parker
also serves as President, Chief Operating Officer and Director of Amber. He
also serves as a Director and Executive Vice President of P & G Exploration,
Inc., a private oil and gas company (formerly Texco Exploration, Inc.). Mr.
Parker has also been the President, a Director and sole shareholder of Apex
Operating Company, Inc. since its inception in 1987. He has operated as an
independent in the oil and gas industry individually and through public and
private ventures since 1982. He was at various times, from 1982 to 1989, a
Director, Executive Vice President, President and shareholder of Ampet, Inc.
He received a Bachelor of Science in Mineral Land Management from the
University of Colorado in 1983. He is a member of the Rocky Mountain Oil and
Gas Association and the Independent Producers Association of the Mountain
States (IPAMS).
JERRIE F. ECKELBERGER, age 57, is an investor, real estate developer and
attorney who has practiced law in the State of Colorado since 1971. He
graduated from Northwestern University with a Bachelor of Arts degree in 1966
and received his Juris Doctor degree in 1971 from the University of Colorado
School of Law. From 1972 to 1975, Mr. Eckelberger was a staff attorney with
the eighteenth Judicial District Attorney's Office in Colorado. From 1982 to
1992 Mr. Eckelberger was the senior partner of Eckelberger & Feldman, a law
firm with offices in Englewood, Colorado. In 1992, Mr. Eckelberger founded
Eckelberger & Associates of which he is still the principal member. Mr.
Eckelberger previously served as an officer, director and corporate counsel
for Roxborough Development Corporation. Since March 1996, Mr. Eckelberger
has acted as President and Chief Executive Officer of 1998, Ltd., a Colorado
corporation actively engaged in the development of real estate in Colorado.
He is the Managing Member of The Francis Companies, L.L.C., a Colorado limited
liability company, which actively invests in real estate and has been since
June, 1996. Additionally, since November, 1997, Mr. Eckelberger has served as
the Managing Member of the Woods at Pole Creek, a Colorado limited liability
company, specializing in real estate development.
JAMES B. WALLACE, age 72, has been involved in the oil and gas business
for over 40 years and has been a partner of Brownlie, Wallace, Armstrong and
Bander Exploration in Denver, Colorado since 1992. From 1980 to 1992 he was
Chairman of the Board and Chief Executive Officer of BWAB Incorporated. Mr.
Wallace currently serves as Chairman of the Board of Directors of Tom Brown,
Inc., an oil and gas exploration company listed on the Nasdaq National Market
System. He received a B.S. Degree in Business Administration from the
University of Southern California in 1951.
3
KEVIN K. NANKE, age 36, Chief Financial Officer, joined Delta in April
1995. Since 1989, he has been involved in public and private accounting with
the oil and gas industry. Mr. Nanke received a Bachelor of Arts in Accounting
from the University of Northern Iowa in 1989. Prior to working with Delta, he
was employed by KPMG LLP. He is a member of the Colorado Society of CPA's and
the Council of Petroleum Accounting Society. Mr. Nanke is not a nominee for
election as a director.
There is no family relationship among or between any of our Officers
and/or Directors.
Messrs. Eckelberger and Wallace currently serve as the audit committee
and as the compensation committee. Messrs. Eckelberger and Wallace currently
also constitute our Incentive Plan Committee for the Delta 1993 Incentive
Plan.
All directors will hold office until the next annual meeting of
shareholders.
All of our officers will hold office until the next annual directors'
meeting. There is no arrangement or understanding among or between any such
officers or any persons pursuant to which such officer is to be selected as
one of our officers.
BOARD OF DIRECTORS AND COMMITTEES
During fiscal year 2001 our Board of Directors met on 15 occasions
either in person or by phone or in lieu thereof acted by consent. Our Board
has appointed three committees: the Audit, Compensation and Incentive Plan
Committees. The non-employee directors, Messrs. Eckelberger and Wallace,
currently serve on all three committees and both are necessary to constitute a
quorum. During fiscal year 2001 our Compensation Committee met on seven
occasions, our Audit Committee on one occasion, and our Incentive Plan
Committee on eight occasions, either in person or by phone or, in lieu
thereof, acted by consent. Each Director attended at least 75% of the
aggregate number of meetings held by the Board of Directors and its committees
held in person or by phone during the time each such Director was a member of
the Board or of any committee of the Board.
Our Compensation Committee makes recommendations to our Board in the
area of executive compensation. Our Audit Committee is appointed for the
purpose of overseeing and monitoring our independent audit process. It is
also charged with the responsibility for reviewing all related party
transactions for potential conflicts of interest. The Incentive Plan
Committee is charged with the responsibility for selecting individual
employees to be issued options and other grants under our 2001 Incentive Plan.
Members of the Incentive Plan Committee, as non-employee directors, are
automatically awarded options on an annual basis under a fixed formula under
our 2001 Incentive Plan. (See "Compensation of Directors").
COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE
ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934, as amended,
requires our executive officers, directors and persons who beneficially own
more than ten percent (10%) of a registered class of our equity securities, to
file initial reports of securities ownership of Delta and reports of changes
in ownership of equity securities of Delta with the Securities and Exchange
4
Commission ("SEC"). Such persons also are required by SEC regulation to
furnish us with copies of all Section 16(a) forms they file.
To our knowledge, during the fiscal year ended June 30, 2001, our
officers and directors complied with all applicable Section 16(a) filing
requirements. These statements are based solely on a review of the copies of
such reports furnished to us by our officers and directors and their written
representations that such reports accurately reflect all reportable
transactions.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
SHAREHOLDERS AND MANAGEMENT
(a) Security Ownership of Certain Beneficial Owners:
The following table presents information concerning persons known by
us to own beneficially 5% or more of our issued and outstanding voting
securities at November 29, 2001:
Name and Address Amount and Nature
of Beneficial of Beneficial Percent
Title of Class (1) Owner Ownership of Class(2)
Common stock Aleron H. Larson, Jr. 1,468,157 shares(3) 11.64%
(includes options 555 17th St., #3310
for common stock) Denver, CO 80202
Common stock Roger A. Parker 1,375,557 shares(4) 11.28%
(includes options 555 17th St., #3310
for common stock) Denver, CO 80202
Common stock GlobeMedia AG 805,846 shares(5) 6.85%
(includes options Immanuel Hohlbauch
for common stock) Strasse 41
Goppingen/Germany
Common stock Burdette A. Ogle 761,891 shares(6) 6.76%
(includes options 1224 Coast Village Rd, #24
for common stock) Santa Barbara, CA 93108
Common stock BWAB Limited Liability 702,930 shares(7) 6.30%
Company
475 17th Street
Suite 1390
Denver, CO 80202
Common stock Bank Leu AG 692,721 shares(8) 6.20%
Bahnhofstrasse 32
8022 Switzerland
Common stock Evergreen Resources, Inc. 643,061 shares 5.76%
1401 17th Street
Suite 1200
Denver, CO 80202
Common stock Kevin K. Nanke 589,175 shares(9) 5.02%
(includes options 555 17th St., #3310
for common stock) Denver, CO 80202
- ------------------------------
(1) We have an authorized capital of 300,000,000 shares of $.01 par value
common stock of which 11,164,826 shares were issued and outstanding as of
5
November 29, 2001. We also have an authorized capital of 3,000,000 shares of
$.10 par value preferred stock of which no shares are outstanding.
(2) The percentage set forth after the shares listed for each beneficial
owner is based upon total shares of common stock outstanding at November 29,
2001 of 11,164,826. The percentage set forth after each beneficial owner is
calculated as if any warrants and/or options owned had been exercised by such
beneficial owner and as if no other warrants and/or options owned by any other
beneficial owner had been exercised. Warrants and options are aggregated
without regard to the class of warrant or option.
(3) Includes 12,467 shares owned by Mr. Larson's wife and 4,000 shares owned
by his children; and 426,690 options to purchase 426,690 shares of common
stock at $0.05 per share until September 21, 2008 for 151,690 of the options,
until September 1, 2008 for 175,000 of the options and until December 10, 2008
for 100,000 of the options. Also includes options to purchase 100,000 shares
of common stock at $1.75 per share until November 5, 2009; options to purchase
300,000 shares of common stock at $3.75 per share until July 14, 2010; options
to purchase 250,000 shares of common stock at $5.00 per share until October 9,
2010; options to purchase 200,000 shares of common stock at $3.29 per share
until January 8, 2011; and options to purchase 175,000 shares of common stock
at $2.38 per share until October 5, 2011.
(4) Includes 354,557 shares owned by Mr. Parker directly. Also includes
options to purchase 100,000 shares of common stock at $1.75 until November 5,
2009; options to purchase 300,000 shares of common stock at $3.75 per share
until July 14, 2010; options to purchase 250,000 shares of common stock at
$5.00 per share until October 9, 2010; options to purchase 200,000 shares of
common stock at $3.29 per share until January 8, 2011; and options to purchase
175,000 shares of common stock at $2.38 per share until October 5, 2011.
(5) Consists of 90,692 shares owned directly by GlobeMedia AG; 54,000 shares
owned by its president, Karl Spoddig; 10,000 shares owned by GlobeMedia Gmbh;
46,154 shares owned by Quadrafin AG; options to purchase 5,000 shares of
common stock at $2.50 per share until April 10, 2002; options to purchase
200,000 shares of common stock at $4.5625 per share for a period of one year
beginning with the effective date of a registration statement covering the
shares underlying the options; options in the name of Pegasus Finance Limited,
an affiliate of GlobeMedia AG, to purchase common stock for periods beginning
with the effective date of a registration statement covering the common shares
underlying the options as follows: 100,000 shares at $2.50 per share for one
year; 100,000 shares at $3.00 per share for one year; 100,000 shares at $6.00
per share for one year; and options, also in the name of Pegasus Finance
Limited, to purchase 100,000 shares of common stock at $3.125 per share until
January 9, 2004.
(6) Includes 635,264 shares owned by Mr. Ogle directly, 26,627 shares owned
beneficially by Sunnyside Production Company, and warrants to purchase 100,000
shares of common stock at $3.00 per share until August 31, 2004, with a call
provision that allows us to repurchase any unexercised warrants for an
aggregate sum of $1,000 after our stock has traded for $6.00 per share or
greater for 30 consecutive trading days.
(7) Includes 672,680 shares owned directly and 30,250 shares owned by an
affiliate, Franklin Energy, LLC.
6
(8) Shares are held by Bank Leu AG as nominee for various beneficial owners,
none of which owns beneficially greater than 5% of our stock. Bank Leu AG
holds record title only and does not have voting or investment power for the
shares.
(9) Consists of 25,000 shares of common stock owned directly by Mr. Nanke;
options to purchase 39,175 shares of common stock at $1.125 per share until
September 1, 2008; options to purchase 25,000 shares of common stock at
$1.5625 per share until December 12, 2008; options to purchase 100,000 shares
of common stock at $1.75 per share until May 12, 2009; options to purchase
75,000 shares of common stock at $1.75 per share until November 5, 2009;
options to purchase 125,000 shares of common stock at $3.75 per share until
July 14, 2010; options to purchase 100,000 shares of common stock at $3.29
until January 9, 2011; and options to purchase 100,000 shares of common stock
at $2.38 per share until October 5, 2011.
(b) Security Ownership of Management:
Name and Address Amount and Nature
of Beneficial of Beneficial Percent
Title of Class (1) Owner Ownership of Class(2)
Common stock Aleron H. Larson, Jr. 1,468,157 shares(3) 11.64%
Common stock Roger A. Parker 1,375,557 shares(4) 11.28%
Common stock Kevin K. Nanke 589,175 shares(5) 5.02%
Common stock Jerrie F. Eckelberger 20,725 shares(6) 0.19%
Common stock James B. Wallace 30,000 shares 0.29%
Common stock Officers and Directors 3,483,614 shares(7) 24.44%
as a Group (5 persons)
- ------------------------------
(1) See Note (1) to preceding table; includes options.
(2) See Note (2) to preceding table.
(3) See Note (3) to preceding table.
(4) See Note (4) to preceding table.
(5) See Note (9) to preceding table.
(6) Includes 725 options to purchase shares of common stock at $2.98 per
share until December 31, 2006 and options to purchase 20,000 shares of common
stock at $1.95 until September 10, 2011
(7) Includes all warrants, options and shares referenced in footnotes (3),
(4), (5), and (6) above as if all warrants and options were exercised and as
if all resulting shares were voted as a group.
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EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION
Long-Term
Compensation
Annual ------------
Compensation Awards
-------------------- ------------
Securities
Underlying
Name and Options/ All Other
Principal Position Period Salary(1) Bonus SARs(#) Compensation($)
- ------------------------ ---------- --------- -------- ----------- ---------------
Roger A. Parker
President, Chief Executive Year Ended
Officer and Director 6/30/01 $198,000 $ 91,000 750,000(2) -0-
Year Ended
6/30/00 198,000 75,000 100,000(3) -0-
Year Ended
6/30/99 198,000 105,000 510,663(4) -0-
Aleron H. Larson, Jr.
Chairman, Secretary Year Ended
and Director 6/30/01 $198,000 $ 91,000 750,000(2) -0-
Year Ended
6/30/00 198,000 75,000 100,000(3) -0-
Year Ended
6/30/99 198,000 105,000 559,500(5) -0-
Kevin K. Nanke Year Ended
Chief Financial Officer 6/30/01 $120,000 55,000 225,000(6) -0-
and Treasurer Year Ended
6/30/00 105,000 15,000 100,000(7) -0-
- ------------------------
(1) Includes reimbursement of certain expenses.
(2) Includes options to purchase 300,000 shares of common stock at $3.75 per
share until July 14, 2010; options purchase 250,000 shares of common stock at
$5.00 per share until October 9, 2010; and options to purchase 200,000 shares
of common stock at $3.29 per share until January 8, 2011.
(3) Option to purchase 100,000 shares of common stock at $1.75 per share
until November 5, 2009.
(4) Represents all options held by individual at June 30, 2000. Includes
320,977 previously granted options and 100,000 options granted during fiscal
1999 for which the exercise price was repriced during fiscal 1999 to $0.05 per
share and the expiration date extended to 9/01/08 for 320,977 options and to
12/01/08 for 100,000 options. Also includes a grant of options to purchase
89,686 shares of common stock at $0.05 per share until 5/20/09.
(5) Represents all options held by individual at June 30, 2000. Includes
459,500 previously granted options and 100,000 options granted during fiscal
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1999 for which the exercise price was repriced during fiscal 1999 to $0.05 per
share and the expiration date extended to 9/01/08 for 459,500 options and to
12/01/08 for 100,000 options.
(6) Includes options to purchase 125,000 shares of common stock at $3.75 per
share until July 14, 2010; and options to purchase 100,000 shares of common
stock at $3.29 per share until January 8, 2011.
(7) Represents options to purchase 75,000 shares of common stock at $1.75 per
share until November 5, 2009 and options to purchase 25,000 shares of common
stock at $.01 per share until December 31, 2009.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
INDIVIDUAL GRANTS
Percent
Number of of Total
Securities Options/SAR's Exercise Market
Underlying Granted to or Base Price on
Options/SAR's Employees in Price Date of Expiration
Name Granted Fiscal Year ($/Sh) Grant($/sh) Date
- --------------------- ------------- ------------- -------- ----------- ----------
Roger A. Parker 300,000 15.94% $3.75 $3.75 07/14/10
250,000 13.28% 5.00 5.00 10/09/10
200,000 10.62% 3.29 3.29 01/08/11
Aleron H. Larson, Jr. 300,000 15.94% $3.75 $3.75 07/14/10
250,000 13.28% 5.00 5.00 10/09/10
200,000 10.62% 3.29 3.29 01/08/11
Kevin K. Nanke 125,000 6.64% $3.75 $3.75 07/14/10
100,000 5.31% 3.29 3.29 10/01/10
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AGGREGATED OPTIONS/EXERCISES IN LAST FISCAL YEAR
AND FY-END OPTION/VALUES
Number of
Securities Value of
Underlying Unexercised
Unexercised in-the-Money
Options Options
Shares at at
Acquired June 30, 2000 (#) June 30, 2000 ($)
on Realized Exercisable/ Exercisable/
Name Exercise (#) $ Unexercisable Unexercisable
- --------------------- ------------ ----------- ---------------- ------------------
Roger A. Parker 250,236 $1,048,000 850,000/0 $ 802,000/0
President, Chief Executive
Officer and Director
Aleron H. Larson, Jr. 92,810 $ 406,000 1,276,690/0 $2,743,000/0
Chairman, Secretary
and Director
Kevin K. Nanke 59,725 $ 194,000 464,175/0 $ 946,000/0
Chief Financial
Officer and Treasurer
Compensation of Directors
As a result of elections made by non-employee directors under the
formulas provided in our 2001 Incentive Plan, as amended, we granted options
to non-employee directors after the fiscal year end as follows:
Number Exercise Expiration
Director of Options Price Date
Terry D. Enright 20,000 $1.95/sh 9/10/2011
Jerrie F. Eckelberger 20,000 1.95/sh 9/10/2011
In addition, the outside non-employee directors are each paid $500 per
month. Jerrie F. Eckelberger and Terry D. Enright were each paid $6,000
during the year ended June 30, 2001. Mr. Enright resigned as a Director on
November 15, 2001. In connection with his resignation, Mr. Enright received
2,500 shares of our restricted Common Stock and is also entitled to receive
his compensation for the portion of the calendar year 2001 served (January 1,
2001 through November 15, 2001) in the form of either Common Stock or options,
at his election, under our 2001 Incentive Plan.
Employment Contracts and Termination of Employment and Change-in-Control
Agreement
On November 1, 2001, our Compensation Committee authorized us to enter
into employment agreements with our Chairman, President and Chief Financial
Officer, which employment agreements replaced and superseded the prior
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employment agreements with these persons. Under the new employment agreements
our Chairman and President each receive a salary of $240,000 per year and our
Chief Financial Officer receives a salary of $140,000 per year. Their
employment agreements have three-year terms and include provisions for cars,
parking and health insurance. Terms of their employment agreements also
provide that the employees may be terminated for cause but that in the event
of termination without cause or in the event we have a change in control, as
defined in our 2001 Incentive Plan, then the employees will continue to
receive the compensation provided for in the employment agreements for the
remaining terms of the employment agreements. Also in the event of a change
of control and irrespective of any resulting termination, we will immediately
cause all of each employee's then outstanding unexercised options to be
exercised by us on behalf of the employee and we will pay the employee's
federal, state and local taxes applicable to the exercise of the options and
warrants.
Retirement Savings Plan
During 1997 we began sponsoring a qualified tax deferred savings plan in
the form of a Savings Incentive Match Plan for Employees ("SIMPLE") IRA plan
available to companies with fewer than 100 employees. Under the SIMPLE IRA
plan, our employees may make annual salary reduction contributions of up to
three percent (3%) of an employee's base salary up to a maximum of $6,000
(adjusted for inflation) on a pre-tax basis. We will make matching
contributions on behalf of employees who meet certain eligibility
requirements. During the fiscal year ended June 30, 2001, we contributed
$18,000 under the plan.
REPORT OF THE COMPENSATION AND INCENTIVE PLAN COMMITTEES
REGARDING COMPENSATION ISSUES
The objective of our Compensation Committee is to design our executive
compensation program to enable us to attract, retain and motivate executive
personnel deemed necessary to maximize return to shareholders. The
fundamental concept of the program is to align the amount of an executive's
total compensation with his contribution to our success in creating
shareholder value.
In furtherance of this objective, the Compensation Committee has
determined that the program should have the following components:
BASE SALARIES: Our Committee believes that we should offer competitive
base salaries to enable us to attract, motivate and retain capable executives.
Our Committee has in the past determined levels of the base compensation using
published compensation surveys and other information for energy and similar
sized companies. Our Committee may or may not use such surveys or other
information to determine levels of base compensation in the future.
LONG-TERM INCENTIVES: Our Committee believes that long-term
compensation should comprise a substantial portion of each executive officer's
total compensation. Long-term compensation provides incentives that encourage
our executive officers to own and hold our stock and tie their long-term
economic interests directly to those of our shareholders. Long-term
compensation can be provided in the form of restricted stock or stock options
or other grants under our 2001 Incentive Plan, as amended.
With specific reference to our officers, our Committee attempts to
exercise great latitude in setting salary and bonus levels and granting stock
options. Philosophically, our Committee attempts to relate executive
11
compensation to those variables over which the individual executive generally
has control. These officers have the primary responsibility for improving
shareholder value for us.
Our Committee believes that its objective of linking executive
compensation to corporate performance results in alignment of compensation
with corporate goals and shareholder interest. When performance goals are met
or exceeded, shareholder value is increased and executives are rewarded
commensurately. Corporate performance includes circumstances that will result
in long-term increases in shareholder value notwithstanding that such
circumstances may not be reflected in the immediate increase in our profits or
share price. It is our Committee's objective to emphasize and promote
long-term growth of shareholder value over short-term, quarter to quarter
performance whenever these two concepts are in conflict. Our Committee
believes that compensation levels during 2001 adequately reflect our
compensation goals and policies.
In 1993, the Internal Revenue Code was amended to add section 162(m),
which generally disallows a tax deduction for compensation paid to senior
executive officers in excess of $1 million per person in any year. Excluded
from the $1 million limitation is compensation which meets pre-established
performance criteria or results from the exercise of stock options which meet
certain criteria. While we generally intend to qualify payment of
compensation under section 162(m), we reserve the right to pay compensation to
our executives from time to time that may not be tax deductible.
REPORT OF THE AUDIT COMMITTEE
Delta has a standing Audit Committee of the Board of Directors (the
"Audit Committee"). The Audit Committee consists of Messrs. Wallace and
Eckelberger, who are independent (as defined in the Nasdaq listing standards).
The Audit Committee operates pursuant to a charter (the "Audit Committee
Charter") approved and adopted by the Board. A copy of the Audit Committee
Charter was attached to the Proxy Statement for the Annual Meeting held in
August 2001. The Audit Committee held one (1) meeting in fiscal 2001. The
Audit Committee, on behalf of the Board, oversees Delta's financial reporting
process. In fulfilling its oversight responsibilities, the Audit Committee
reviewed and discussed the audited financial statements and footnotes thereto
in Delta's fiscal 2001 Annual Report to Shareholders with management.
The Audit Committee has discussed with Delta's independent public
accountants the matters required to be discussed by Statement on Auditing
Standards No. 61.
The Audit Committee has discussed with Delta's independent public
accountants their independence from management and Delta, and received from
them the written disclosures and the letter concerning the independent public
accountants' independence required by the Independence Standards Board
Standard No. 1.
Based on the Audit Committee's review of the foregoing and discussions
with management and Delta's independent public accountants, the Audit
Committee recommended to the Board of Directors that the audited financial
statements be included in Delta's Annual Report on Form 10-KSB for the last
fiscal year for filing with the SEC.
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MEMBERS OF THE AUDIT COMMITTEE:
Jerrie F. Eckelberger
James B. Wallace
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The following is a list of certain relationships and related party
transactions that occurred during our past fiscal year and the two previous
fiscal years, as well as transactions that occurred since the beginning of our
last fiscal year or are currently proposed:
(a) Effective October 28, 1992, we entered into a five year consulting
agreement with Burdette A. Ogle and Ronald Heck which provides for an
aggregate fee to the two of them of $10,000 per month. We agreed to extend
this agreement for one year during the 1998 fiscal year and, subsequent to
June 30, 1998, agreed to extend it through December 1, 1999. Subsequent to
December 1, 1999 we have retained Messrs. Ogle and Heck on a month to month
basis at the same monthly rate. At January 17, 2001, Messrs. Ogle and Heck
owned beneficially 6.87% and 2.28%, respectively, of our outstanding Common
Stock. To our best knowledge and belief, the consulting fee paid to Messrs.
Ogle and Heck is comparable to those fees charged by Messrs. Ogle and Heck to
other companies owning interests in properties offshore California for
consulting services rendered to those other companies with respect to their
own offshore California interests. It is our understanding that, in the
aggregate, Mr. Ogle represents, as a consultant, a significant percentage of
all of the ownership interests in the various properties that are located in
the same general vicinity of our offshore California properties. Mr. Ogle
also consults with and advises us relative to properties in areas other than
offshore California, relative to potential property acquisitions and with
respect to our general oil and gas business. It is our opinion that the fees
paid to Messrs. Ogle and Heck for the services rendered are comparable to fees
that would be charged by similarly qualified non-affiliated persons for
similar services.
(b) Effective February 24, 1994, at the time Ogle was the owner of
21.44% of our stock, he granted us an option to acquire working interests in
three undeveloped offshore Santa Barbara, California, federal oil and gas
units. In August 1994, we issued a warrant to Ogle to purchase 100,000 shares
of our Common Stock for five years at a price of $8 per share in consideration
of the agreement by Ogle to extend the expiration date of the option to
January 3, 1995. On January 3, 1995, we exercised the option from Ogle to
acquire the working interests in three proved undeveloped offshore Santa
Barbara, California federal oil and gas units. The purchase price of
$8,000,000 is represented by a production payment reserved in the documents of
Assignment and Conveyance and will be paid out of three percent (3%) of the
oil and gas production from the working interests with a requirement for
minimum annual payments. We paid Ogle $1,550,000 through fiscal 1999 and are
to continue to pay a minimum of $350,000 annually until the earlier of: 1)
when the production payments accumulate to the $8,000,000 purchase price; 2)
when 80% of the ultimate reserves of any lease have been produced; or 3) 30
years from the date of the conveyance. Under the terms of the agreement, we
may reassign the working interests to Ogle upon notice of not more than 14
months nor less than 12 months, thereby releasing us from any further
obligations to Ogle after the reassignment.
On December 17, 1998, we amended our Purchase and Sale Agreement with
Ogle dated January 3, 1995. As a result of this amended agreement, at the
time of each minimum annual payment we will be assigned an interest in the
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three undeveloped offshore Santa Barbara, California federal oil and gas units
proportionate to the total $8,000,000 production payment. Accordingly, the
annual $350,000 minimum payment is recorded as an addition to undeveloped
offshore California properties. In addition, pursuant to this agreement, we
extended and repriced the previously issued warrant to purchase 100,000 shares
of our Common Stock. Prior to fiscal 1999, the minimum royalty payment was
expensed in accordance with the purchase and sale agreement with Ogle dated
January 3, 1995. As of September 30, 2001, we had paid a total of $2,250,000
in minimum royalty payments. On December 3, 2001, we entered into a letter
agreement that may amend certain provisions of this agreement. The letter
agreement provides that if Delta does not pay a $350,000 payment due on or
before January 3, 2002, Delta will pay Ogle $87,500 and execute a promissory
note for $262,500 payable in installments through October 3, 2002, with
interest at 10% per annum. Delta would also be required to enter into an
amendment effective January 3, 2002 that would require additional payments to
Ogle upon receipt of certain compensation by Delta. Such payments would be
equal to the lesser of 6% of the compensation or the remaining balance of the
production payment. If the final payment of the promissory note occurs on or
after February 15, 2002, the percentage amount would be changed to an amount
ranging from 7.33% to 10%, depending on the date of payment.
The terms of the original transaction and the amendment with Mr. Ogle
were arrived at through arms-length negotiations initiated by our management.
We are of the opinion that the transaction is on terms no less favorable to us
than those which could have been obtained from non-affiliated parties. No
independent determination of the fairness and reasonableness of the terms of
the transaction was made by any outside person.
(c) Our Board of Directors has granted our officers the right to
participate on a non-promoted basis in up to a five percent (5%) working
interest in any well drilled, re-entered, completed or recompleted by us on
our acreage (provided that any well to be re-entered or recompleted is not
then producing economic quantities of hydrocarbons). Messrs. Larson and
Parker are required to pay us the unpromoted cost thereof.
(d) On November 1, 2001, our Compensation Committee authorized us to
enter into employment agreements with our Chairman, President and Chief
Financial Officer, which employment agreements replaced and superseded the
prior employment agreements with such persons. The employment agreements have
five year terms and include provisions for cars, parking and health insurance.
Terms of the employment agreements also provide that the employees may be
terminated for cause but that in the event of termination without cause or in
the event we have a change in control, as defined in our 2001 Incentive Plan,
as amended, then the employees will continue to receive the compensation
provided for in the employment agreements for the remaining terms of the
employment agreements. Also in the event of a change of control and
irrespective of any resulting termination, we will immediately cause all of
each employee's then outstanding unexercised options to be exercised by us on
behalf of the employee with us paying the employee's federal, state and local
taxes applicable to the exercise of the options and warrants.
(e) On January 6, 1999, we and our Compensation Committee authorized
our officers to purchase shares of the common stock of another company, Bion
Environmental Technologies, Inc. ("Bion"), which were held by us as
"securities available for sale," at the market closing price on that date not
to exceed $105,000 per officer. Our Chairman, Aleron H. Larson, Jr.,
purchased 29,900 shares of Bion from us for $89,000.
14
(f) On January 3, 2000, we and our Compensation Committee authorized
our officers to purchase shares of Bion which were held by us as "securities
available for sale" at the market closing price on that day. Our officers
purchased 47,250 shares for $238,000.
(g) Our officers, Aleron H. Larson, Jr., our current Chairman and
Secretary, and Roger A. Parker, our current President and CEO, loaned us
$1,000,000 to make our June 8, 1999 payment to Whiting Petroleum Corporation
("Whiting") required under our agreement with Whiting, also dated June 8,
1999, to acquire Whiting's interests in the Point Arguello Unit and the
adjacent Rocky Point Unit. In connection with this loan, Mr. Parker was
issued options under our 1993 Incentive Plan, as amended, to purchase 89,868
shares at $.05 per share and the exercise prices of the existing options of
Messrs. Parker and Larson were reduced to $.05 per share. (See Form 8-K/A
dated June 9, 1999.)
(h) On July 30, 1999, we borrowed $2,000,000 from an unrelated entity
which was personally guaranteed by Aleron H. Larson, Jr., our current Chairman
and Secretary, and Roger A. Parker, our current President and CEO. The
proceeds were applied to the acquisition of Whiting's interests in the Point
Arguello Unit and adjacent Rocky Point Unit. As consideration for the
guarantee of our indebtedness we agreed to assign a 1% overriding royalty
interest to each officer in the properties acquired with the proceeds of the
loan (proportionately reduced to the interest we acquired in each property).
(See Form 8-K dated August 25, 1999.)
(i) On November 1, 1999 we borrowed approximately $2,800,000 from an
unrelated entity which was personally guaranteed by Aleron H. Larson, Jr., our
current Chairman and Secretary, and Roger A. Parker, our current President and
CEO. The loan proceeds were used to purchase eleven producing wells and
associated acreage in New Mexico and Texas. As consideration for the
guarantee of our indebtedness we agreed to assign a 1% overriding royalty
interest to each officer in the properties acquired with the proceeds of the
loan (proportionately reduced to the interest we acquired in each property).
(See Form 8-K dated November 1, 1999.)
(j) On December 1, 1999, our Incentive Plan Committee granted Kevin K.
Nanke, our Chief Financial Officer, 25,000 options to purchase our Common
Stock at $.01 per share.
(k) We operate wells in which our officers or employees or companies
affiliated with one of them own working interests. At June 30, 2001 we had
$272,000 of net receivables from these related parties (including affiliated
companies) primarily for drilling costs and lease operating expenses on wells
operated by us.
(l) On July 10, 2000, we borrowed $3,795,000 from an unrelated entity
which was personally guaranteed by Aleron H. Larson, Jr., our current Chairman
and Secretary, and Roger A. Parker, our current President and CEO. The loan
proceeds were used by us to purchase interests in producing wells and acreage
in the Eland and Stadium fields in Stark County, North Dakota. As
consideration for the guarantee of our indebtedness we agreed to issue 300,000
options to each of Messrs. Larson and Parker to purchase our Common Stock for
$3.75 per share until July 14, 2010.
(m) During the two years ended September 30, 2001 we issued options to
GlobeMedia AG and its affiliate, Pegasus Finance, Ltd., as consideration for
services relating to raising capital for us in Europe as follows: November
23, 1999, options to purchase 250,000 shares of Common Stock at $2.50 per
15
share; July 5, 2000, options to purchase 100,000 shares of Common Stock at
$2.50 per share; July 5, 2000, options to purchase 100,000 shares at $3.00 per
share; and January 8, 2001, options to purchase 100,000 shares of Common Stock
at $3.125 per share. During the same period we issued options to GlobeMedia
AG for services relating to shareholder and public relations in Europe as
follows: November 23, 1999, options to purchase 250,000 shares of Common
Stock at $2.50 per share; February 17, 2000, options to purchase 200,000
shares of Common Stock at $2.50 per share; July 5, 2000, options to purchase
100,000 shares of Common Stock at $6.00 per share; and March 21, 2001, and
options to purchase 200,000 shares of Common Stock at $4.5625 per share. In
addition, during this period we sold 30,692 shares of restricted Common Stock
to GlobeMedia AG on October 11, 2000 at $3.25 per share and we sold 46,154
shares of restricted Common Stock to Quadrafin AG, an affiliate of GlobeMedia
AG, on October 11, 2000 at $3.25 per share. During the past two years we have
paid GlobeMedia approximately $105,000 for services and expenses relating to
shareholder and public relations in Europe and approximately $285,000 in
commissions for raising additional capital.
(n) On January 4, 2000 we sold 175,000 shares of restricted Common
Stock at a price of $2.00 per share and on January 3, 2001 we sold 116,667
shares of restricted Common Stock at a price of $3.00 per share to Evergreen
Resources, Inc. In connection with these purchases we gave Evergreen
Resources, Inc. an option to acquire an interest in some of our undeveloped
properties until September 30, 2001. The option has expired.
(o) During the past two years ended September 30, 2001 we issued
315,000 shares of restricted Common Stock to BWAB Limited Liability Company
("BWAB") in exchange for services related to the acquisition of properties.
On September 26, 2000 we exchanged 127,430 shares of restricted Common Stock
and paid $382,000 to BWAB in exchange for producing properties in Louisiana.
On January 8, 2001 we issued 200,000 shares of restricted Common Stock to BWAB
as a result of the conversion of a promissory note in the amount of $500,000.
(p) On September 29, 2000 we acquired the West Delta Block 52 Unit from
Castle Offshore LLC and BWAB Limited Liability Company as described in our
Form 8-K dated September 29, 2000, by paying $1,529,000 and issuing 509,719
shares of our restricted Common Stock at $3.00 per share. We borrowed
$1,464,000 of the cash portion of the purchase price from an unrelated entity.
To induce this lender to make the loan to us, two of our officers, Aleron H.
Larson, Jr., Chairman and Secretary, and Roger A. Parker, President and CEO,
agreed to personally guarantee the loan. As consideration for the guarantees
of our indebtedness we permitted each of these two officers to purchase up to
5% of the working interest acquired by us in the West Delta Block 52 Unit by
delivering shares of our Common Stock at $3.00 per share equal to up to 5% of
the purchase price paid by us. We also permitted our Chief Financial Officer
and Treasurer, Kevin Nanke, to purchase up to 2-1/2% of the working interest
upon the same terms. Messrs. Larson and Parker each delivered 58,333 shares
of Common Stock and Mr. Nanke delivered 29,167 shares of Common Stock,
thereby purchasing the maximum permitted to each. These shares have been
retired.
(q) On February 12, 2001, we permitted our officers, Aleron H. Larson,
Jr., Chairman and Secretary, Roger A. Parker, President and CEP, and Kevin K.
Nanke, Chief Financial Officer and Treasurer, to purchase interests owned by
us in the Cedar State gas property in Eddy County, New Mexico, with its
existing gas well, and in our Ponderosa Prospect with its approximately 52,000
gross exploratory leasehold acres in Harding and Butte Counties, South Dakota,
based upon our purchase price in each property. We permitted these officers
to purchase their interests by exchanging their shares of our Common Stock at
16
the market closing price on February 12, 2001 of $5.125 per share. Messrs.
Larson and Parker each exchanged 31,310 shares for a 5% interest in each
property and Mr. Nanke exchanged 15,655 shares for a 2-1/2% interest in each
property. On the same date we permitted our officers to participate in the
drilling of our Austin State #1 well in Eddy County, New Mexico, by
immediately making a commitment to participate in the well (prior to any bore
hole knowledge or information relating to the objective zone or zones) and pay
their share of our working interest costs of drilling and completing or
abandoning the well. The costs may be paid in either cash or our Common Stock
at the February 12, 2001 closing price of $5.125 per share. Messrs. Larson
and Parker each committed to pay the costs associated with a 5% working
interest in the well and Mr. Nanke likewise committed to a 2-1/2% working
interest in the well.
Directors and officers were issued options and warrants as disclosed in
"Executive Compensation" above.
All past and future and ongoing transactions with affiliates are and will
be on terms which our management believes are no less favorable than could be
obtained from non-affiliated parties. All future and ongoing loans to our
affiliates, officials and shareholders will be approved by the majority vote
of disinterested directors.
2002 INCENTIVE PLAN
(Proposal 2 of the Proxy)
The Board of Directors adopted the 2002 Incentive Plan (the "2002 Plan")
on October 25, 2001, subject to approval by the shareholders of Delta at the
Annual Meeting.
PURPOSE OF THE 2002 PLAN
The purpose of the 2002 Plan is to enable Delta to attract officers and
other key employees and consultants and to provide them with appropriate
incentives and rewards for superior performance. The 2002 Plan affords Delta
the ability to respond to changes in the competitive and legal environments by
providing Delta with flexibility in key employee and executive compensation.
This plan is designed to be an omnibus plan allowing Delta to grant a wide
range of compensatory awards including stock options, stock appreciation
rights, phantom stock, restricted stock, stock bonuses and cash bonuses. The
2002 Plan is intended to encourage stock ownership by recipients by providing
for or increasing their proprietary interests in Delta, thereby encouraging
them to remain in Delta's employment.
DESCRIPTION OF THE 2002 PLAN
GENERAL. The following general description of certain features of the
2002 Plan is qualified in its entirety by reference to the 2002 Plan, which is
attached as Appendix A. Subject to adjustment as provided in the 2002 Plan,
the number of shares of Common Stock that may be issued or transferred, plus
the amount of shares of Common Stock covered by outstanding awards granted
under the 2002 Plan, shall not in the aggregate exceed 2,000,000.
ELIGIBILITY. Officers, including officers who are members of the Board
of Directors, and other key employees of and consultants and advisors to Delta
may be selected by the Committee (as defined below) to receive benefits under
the 2002 Plan. Non-employee Directors will only participate under special
provisions set forth in the 2002 Plan.
17
TERMS OF OPTIONS AND OTHER POSSIBLE AWARDS. The 2002 Plan authorizes
the granting of options to purchase shares of Common Stock, stock appreciation
rights ("SARs"), limited subscription rights ("LSARs"), phantom stock,
restricted shares, stock bonuses and cash bonuses. The terms applicable to
these various types of awards, including those terms that may be established
by the Board of Directors when making or administering particular awards, are
set forth in detail in the 2002 Plan.
TRANSFERABILITY OF AWARDS. Except as may be limited by the Committee at
the time of grant, and except for Restricted Stock, awards granted under the
2002 Plan may be transferred or assigned to others. The transfer of options
and other awards could have the effect of reducing the incentive effect of the
award to the extent that after a transfer the holder may not have any direct
relationship with us.
OPTIONS. The Committee may grant Options that entitle the optionee to
purchase shares of Common Stock at a price less than, equal to or greater than
market value on the date of grant. The option price is payable at the time of
exercise (i) in cash or cash equivalent, or (ii) by the transfer to Delta of
shares of Common Stock that are already owned by the optionee and have a value
at the time of exercise equal to the option price. In addition, at the time
of grant the Committee may provide that an Option may be exercised in a
"cashless" transaction in which the holder may surrender all or a portion of
the Option and receive the number of shares of Common Stock equal in value to
the Fair Market Value per share at the date of surrender less than the
exercise price per share of the Option, multiplied by the number of shares
which may be purchased under the Option, or portion thereof, being
surrendered.
Options granted under the 2002 Plan may be Options that are intended to
qualify as incentive stock options ("ISOs") within the meaning of Section 422
of the Internal Revenue Code of 1986 ("Code") or Options that are not intended
to so qualify. The 2002 Plan permits the granting of incentive stock options
or nonqualified stock options at the discretion of the Committee. The
exercise price for nonqualified stock options granted may not be less than the
fair market value per share of Common Stock on the date of grant. The exercise
price for ISOs may not be less than the fair market value per share of Common
Stock on the date of grant, and ISOs granted to persons owning more than 10%
of Delta's voting stock must have an exercise price of not less than 110% of
the fair market value per share of Common Stock on the date of grant. All
ISOs granted must be exercised within ten years of grant, except that ISOs
granted to 10% or more shareholders must be exercised within five years of
grant. The aggregate market value (as determined as of the date of grant) of
the Common Stock for which any optionee may be awarded ISOs which are first
exercisable by such optionee during any calendar year may not exceed $100,000.
The Committee may specify the conditions, including as and to the extent
determined by the Committee, the period or periods of continuous employment of
the optionee by Delta or any subsidiary that are necessary before the Options
will become exercisable. The 2002 Plan also provides that in the event of a
change in control of Delta or other similar transaction or event, each Option
granted under the 2002 Plan shall become fully and immediately exercisable.
STOCK APPRECIATION RIGHTS. Stock Appreciation Rights ("SARs")granted
under the 2002 Plan may be either freestanding or granted in tandem with an
Option. Limited Stock Appreciation Rights ("LSARs") may only be granted in
connection with the grant of an Option and may only be exercisable in the
event of a change in control in lieu of exercising the Option. SARs and LSARs
represent the right to receive from Delta the difference ("Spread"), or a
18
percentage thereof not in excess of 100 percent, between the base price per
share of Common Stock in the case of a free-standing SAR, or the option price
of the related Options in the case of a tandem SAR or LSAR, and the market
value of the Common Stock on the date of exercise of the SAR or LSAR. Tandem
SARs may only be exercised at a time when the related Option Right is
exercisable, and the exercise of a tandem SAR requires the surrender of the
related Option Right for cancellation. A free-standing SAR must specify the
conditions that must be met before the SAR becomes exercisable and may not be
exercised more than 10 years from the date of grant.
PHANTOM STOCK. The Committee may grant shares of Phantom Stock under
the 2002 Plan pursuant to an agreement approved by the Committee which
provides for vesting conditions it deems appropriate. Upon vesting of a share
of Phantom Stock the participant will receive in cash a sum equal to the fair
market value of a share of Common Stock on the date of vesting plus an amount
of cash equal to the aggregate amount of cash dividends paid on each share of
Delta's Common Stock commencing on the date of grant of the Phantom Stock. In
the event of a change in control, all shares of unvested Phantom Stock
outstanding shall become immediately vested.
RESTRICTED SHARES. An award of Restricted Shares involves the immediate
transfer by Delta to a participant of ownership of a specific number of shares
of Common Stock in consideration of the performance of services or, as and to
the extent determined by the Committee, the achievement of certain performance
criteria. The participant is entitled immediately to voting, dividend and
other ownership rights in the shares. The transfer may be made without
additional consideration from the participant or in consideration of a payment
by the participant that is less than the market value of the shares on the
date of grant, as the Board of Directors may determine. In the event of a
change in control, unvested Restricted Stock shall become immediately vested.
STOCK BONUSES. The Committee may grant Stock Bonuses under the 2002
Plan in such amounts as it shall determine from time to time. Stock Bonuses
shall be paid at such times and subject to the conditions the Committee
determines at the time of the grant.
CASH BONUSES. Subject to the provisions of the Plan, the Committee may
grant, in connection with any grant of Restricted Stock or Stock Bonus or at
any time thereafter, a cash bonus, payable after the date on which a
Participant is required to recognize income for federal income tax purposes in
connection with such Restricted Stock or Stock Bonus, in such amounts as the
Committee shall determine. However, in no event shall the amount of a Cash
Bonus exceed 50% of the fair market value of the related shares of Restricted
Stock or Stock Bonus.
INCENTIVE AWARDS TO NONEMPLOYEE DIRECTORS. The Plan will be
administered as to Nonemployee Directors by the Board of Directors. No
Nonemployee Director will be eligible for an Incentive Award if, at the time
of the Award, the Nonemployee Director (i) is directly or indirectly the
beneficial owner of five percent or more of any class of equity security of
Delta which is registered pursuant to Section 12 of the Exchange Act or of any
security convertible into or exercisable for such class of equity security
(excluding shares covered by the 2002 Plan); or (ii) is an officer, director,
10% or greater shareholder, employee or agent of a person or entity which is
directly or indirectly the beneficial owner of more than five percent of any
class of equity security of Delta which is registered pursuant to Section 12
of the Exchange Act or of any security convertible into or exercisable for
such class of equity security (excluding shares covered by the 2002 Plan).
19
Incentive Award grants, if any, to any non-eligible Nonemployee Directors
shall be determined by the Board.
Unless the Board of Directors otherwise directs, Options or Common Stock
will automatically be granted to Nonemployee Directors in each calendar year
during the term of the 2002 Plan as of December 31. Annually each eligible
Nonemployee Director will be granted either: (1) an option for 20,000 shares
of Common Stock, or, if a director for less than the prior 12 months, a pro
rata portion of 20,000 shares of Common Stock based upon the number of months
such Participant was a Nonemployee Director of Delta; or (2) at the election
of the participating Nonemployee Director, in lieu of an option, 10,000 shares
of Common Stock.
The exercise price of Options granted to Nonemployee Directors pursuant
to the 2002 Plan will be 50% of the market price as determined at the date of
grant. Each Option will be exercisable for a ten year period commencing on
the date of grant.
ADJUSTMENTS. The maximum number of shares of Common Stock that may be
issued or transferred under the 2002 Plan, the number of shares covered by
outstanding awards and the option prices or base prices per share applicable
thereto, are subject to adjustment in the event of stock dividends, stock
splits, combinations of shares, recapitalizations, mergers, consolidations,
spin-offs, reorganizations, liquidations, issuances of rights or warrants, and
similar transactions or events.
ADMINISTRATION AND AMENDMENTS. The 2002 Plan is administered by the
Committee designated by the Board of Directors. In connection with its
administration of the 2002 Plan, the Committee is authorized to interpret the
2002 Plan and related agreements and other documents. The Committee may make
grants to participants under any or a combination of all of the various
categories of awards that are authorized under the 2002 Plan. The Committee
may, with the concurrence of the affected participant, cancel any agreement
evidencing an award granted under the 2002 Plan. In the event of any such
cancellation, the Committee may authorize the granting of a new award under
the 2002 Plan in such manner, at such price and subject to such other terms,
conditions and discretion as would have been applicable under the 2002 Plan
had the canceled award not been granted.
The 2002 Plan may generally be amended from time to time by the Board of
Directors, but without further approval by the shareholders of Delta, except
that no such amendment (unless expressly allowed pursuant to the adjustment
provisions described above) may increase the aggregate number of shares that
may be issued under the 2002 Plan.
TAX CONSEQUENCES TO DELTA. To the extent that a participant recognizes
ordinary income in the circumstance described above, Delta will be entitled to
a corresponding deduction provided that, among other things, (i) the income
meets the test of reasonableness, is an ordinary and necessary business
expense, is not subject to the annual compensation limitation set forth in
Section 162(m) of the Code and is not an "excess parachute payment" within the
meaning of Section 280G of the Code, and (ii) any applicable withholding
obligations are satisfied.
20
NEW PLAN BENEFITS
No options or awards have been granted under the 2002 Plan. The future
benefits or amounts that would be received under the 2002 Plan by executive
officers and the non-executive officer employees are discretionary and are
therefore not determinable at this time.
Had the 2002 Plan been applicable for the calendar year 2001 and the
non-employee directors elected to receive the shares of Common Stock, the
grants would have been as follows:
2002 Plan
---------
Dollar Number of
Name and Position Value ($)(1) Shares
Jerrie F. Eckelberger $______ 10,000
Non-employee Director
James B. Wallace $______ 1,250 (2)
Non-employee Director
Non-Employee Director $______ 11,250
Group
(1) Based on the closing price on December 31, 2001, on the Nasdaq Small-Cap
Market of $____ per share.
(2) Represents the pro rata number of shares he would have received.
Had the 2002 Plan been applicable for the calendar year 2001 and the
non-employee directors elected to receive the options to purchase shares of
Common Stock, the grants would have been as follows:
2002 Plan
---------
Number
Exercise of Ten Year
Name and Position Price(3) Options
Jerrie F. Eckelberger $____ 20,000
Non-employee Director
James B. Wallace $____ 2,500 (4)
Non-employee Director
Non-Employee Director $____ 22,500
Group
(3) Based on 50% of the average trading price over the previous 12-month
period, as quoted on the Nasdaq Small-Cap Market.
(4) Represents the pro rata number of options he would have received.
21
VOTE REQUIRED FOR APPROVAL; BOARD RECOMMENDATION
The affirmative vote of a majority of the shares outstanding, in person
or by proxy, will be required to approve the 2002 Plan.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THIS PROPOSAL.
ISSUANCE OF SHARES AND WARRANTS
PURSUANT TO THE INVESTMENT AGREEMENT WITH
SWARTZ PRIVATE EQUITY, LLC
(Proposal 3 of the Proxy)
On April 4, 2001, we entered into an amended and restated investment
agreement (the "Investment Agreement") with Swartz Private Equity, LLC. The
Investment Agreement entitles us to issue and sell up to $20 million of our
Common Stock to Swartz, subject to a formula based on our stock price and
trading volume, from time to time over a three year period following the
effective date of the registration statement that we filed on May 1, 2001.
Nasdaq rules require us to obtain the approval of our shareholders prior
to the issuance of securities in connection with a transaction other than a
public offering involving the sale or issuance by us of our Common Stock and
securities exercisable for Common Stock at a price less than the greater of
book or market value which (together with any sales by officers, directors or
substantial shareholders of the company) equals 20% or more of Common Stock or
20% or more of the voting power outstanding before the issuance.
Shareholder approval is also required by the Investment Agreement if the
number of shares sold to Swartz, together with any shares previously sold to
Swartz, would equal 20% of the shares of our Common Stock that would be
outstanding prior to the sale.
As of November 5, 2001, we had 11,165,000 shares issued and outstanding.
Pursuant to the terms of the Investment Agreement with Swartz, we will
register an aggregate of 6,000,000 shares for sale, including the 500,000
shares underlying a commitment warrant already issued to Swartz. The resale
of the shares underlying the commitment warrant is subject to a dribble out
provision which is discussed in more detail later. A registration statement
to register these shares was filed on May 1, 2001, and has not yet become
effective.
If we were to sell all 6,000,000 shares to Swartz and if Swartz exercised
all of its warrant and did not resell any of the shares, Swartz would own
approximately 55% of our outstanding Common Stock based on the number of
shares that we currently have issued and outstanding. It is expected, however,
that Swartz will not beneficially own more than 9.9% of our outstanding stock
at any one time. Pursuant to the terms of the Investment Agreement with
Swartz, we are not obligated to sell any of the shares to Swartz nor do we
intend to sell shares to Swartz unless it is beneficial to us.
Swartz is engaged in the business of investing in publicly-traded equity
securities for its own use. Other than the 500,000 shares underlying the
warrant we issued to Swartz in connection with the closing of the Investment
Agreement, Swartz does not currently beneficially own any of our Common Stock
or any of our other securities. Other than its obligations to purchase Common
Stock under the Investment Agreement and the warrant, it has no other
commitments or arrangements to purchase or sell any of our securities.
22
Swartz will also be considered an "underwriter" within the meaning of the
Securities Act of 1933, as amended, in connection with the sale of these
shares. Swartz has not had any relationship with us, any predecessor or
affiliate within the past three years.
THE DELTA-SWARTZ INVESTMENT AGREEMENT
On July 21, 2000, we entered into an Investment Agreement with Swartz
Private Equity, LLC (the "Investment Agreement"). The Investment Agreement was
amended and restated on April 4, 2001. As amended and restated, the
Investment Agreement entitles us to issue and sell up to $20 million of our
Common Stock to Swartz, subject to a formula based on our stock price and
trading volume, from time to time over a three year period following the
effective date of the registration statement filed May 1, 2001. We refer to
each election by us to sell stock to Swartz as a "Put."
As partial consideration for executing the Letter of Agreement, Swartz
was issued a warrant to purchase 500,000 shares of Common Stock exercisable at
$3.00 per share until May 31, 2005, which is referred to as the commitment
warrant. The commitment warrant contains an anti-dilution provision, which
provides, if we complete a "reverse stock split" at a time when our
shareholders' equity is less than $1 million, Swartz shall be issued
additional warrants in an amount so that the sum of its warrants equals at
least 6.2% of our fully diluted shares. At March 31, 2001 our shareholders'
equity was $18,034,335. Any unexercised portion of the commitment warrant
will be canceled and returned to us, if both (1) we are not in default of any
provision of our agreements with Swartz, and (2) Swartz fails to pay for any
Puts after one month of being notified in writing by us that such amount is
past due.
The commitment warrant was amended to include a dribble-out provision
that prevents Swartz from exercising the warrant in excess of a number of
shares equal to fifteen percent (15%) of the aggregate trading volume of our
Common Stock, on the primary exchange or market upon which our Common Stock is
then listed for trading, during the twenty (20) trading days preceding the
date of such exercise. The dribble-out provision does not apply if the
average closing price of our Common Stock for the five (5) trading days
immediately preceding the date of exercise is greater than or equal to eight
dollars ($8.00) per share or if we are acquired by another entity.
- PUT RIGHTS
We may begin exercising Puts on the date of effectiveness of the
registration statement that was filed on May 1, 2001, and continue for a
three-year period. We currently do not intend to issue any shares to Swartz
under the Investment Agreement until we obtain shareholder approval. To
exercise a Put, we must have an effective registration statement on file with
the Securities and Exchange Commission covering the resale to the public by
Swartz of any shares that it acquires under the Investment Agreement. Also, we
must give Swartz at least 10, but not more than 20, business days advance
notice of the date on which we intend to exercise a particular Put right. The
notice must indicate the date we intend to exercise the Put and the maximum
number of shares of Common Stock we intend to sell to Swartz. At our option,
we may also specify a maximum dollar amount (not to exceed $2 million) of
Common Stock that we will sell under the Put. We may also specify a minimum
purchase price per share at which we will sell shares to Swartz. The minimum
purchase price cannot exceed 80% of the closing bid price of our Common Stock
on the date we give Swartz notice of the Put.
23
The number of common shares we sell to Swartz may not exceed 15% of the
aggregate daily reported trading volume of our common shares during the 20
business days before and 20 days after the date we exercise a Put. Further, we
cannot issue additional shares to Swartz that, when added to the shares Swartz
previously acquired under the Investment Agreement during the 31 days before
the date we exercise the Put, will result in Swartz holding over 9.99% of our
outstanding shares upon completion of the Put.
Swartz will pay us a percentage of the market price for each share of
Common Stock under the Put. The market price of the shares of Common Stock
during the 20 business days immediately following the date we exercise a Put
is used to determine the purchase price Swartz will pay and the number of
shares we will issue in return. This 20 day period is the pricing period. For
each share of Common Stock, Swartz will pay us the lesser of:
- the market price for each share, minus $.25; or
- 91% of the market price for each share.
The Investment Agreement defines market price as the lowest closing bid
price for our Common Stock during the 20 business day pricing period. However,
Swartz must pay at least the designated minimum per share price, if any, that
we specify in our notice. If the price of our Common Stock is below the
greater of the designated minimum per share price plus $.25, or the designated
minimum per share price divided by .91 during any of the 20 days during the
pricing period, that day is excluded from the 15% volume limitation described
above. Therefore, the amount of cash that we can receive for that Put may be
reduced if we elect a minimum price per share and our stock price declines.
We must wait a minimum of five business days after the end of the 20
business day pricing period for a prior Put before exercising a subsequent
Put. We may, however, give advance notice of our subsequent Put during the
pricing period for the prior Put. We can only exercise one Put during each
pricing period.
- LIMITATIONS AND CONDITIONS TO OUR PUT RIGHTS
Our ability to Put shares of our Common Stock, and Swartz's obligation to
purchase the shares, is subject to the satisfaction of certain conditions.
These conditions include:
- we have satisfied all obligations under the agreements entered
into between us and Swartz in connection with the investment
agreement;
- our Common Stock is listed and traded on Nasdaq or an exchange,
or quoted on the O.T.C. Bulletin Board;
- our representations and warranties in the Investment Agreement
are accurate as of the date of each Put;
- we have reserved for issuance a sufficient number of shares of
our Common Stock to satisfy our obligations to issue shares
under any Put and upon exercise of warrants;
- the registration statement for the shares we will be issuing
to Swartz must remain effective as of the Put date and no stop
order with respect to the registration statement is in effect;
24
- shareholder approval is required by Nasdaq rules in connection
with a transaction other than a public offering involving the
sale by the issuer of Common Stock at a price less than the
greater of book or market value which, together with sales by
officers, directors or substantial shareholders of the issuer,
equals 20% or more of Common Stock outstanding before the
issuance; and
- shareholder approval is required by the Investment Agreement if
the number of shares Put to Swartz, together with any shares
previously Put to Swartz, would equal 20% of all shares of our
Common Stock that would be outstanding upon completion of the
Put.
Swartz is not required to acquire and pay for any additional shares of
our Common Stock once it has acquired $20 million worth of Put Shares.
Additionally, Swartz is not required to acquire and pay for any shares of
Common Stock with respect to any particular Put for which, between the date we
give advance notice of an intended Put and the date the particular Put closes:
- we announced or implemented a stock split or combination of
our Common Stock;
- we paid a dividend on our Common Stock;
- we made a distribution of all or any portion of our assets or
evidences of indebtedness to the holders of our Common Stock; or
- we consummated a major transaction, such as a sale of all or
substantially all of our assets or a merger or tender or
exchange offer that results in a change in control.
We may not require Swartz to purchase any subsequent Put shares if:
- we, or any of our directors or executive officers, have
engaged in a transaction or conduct related to us that
resulted in:
- a Securities and Exchange Commission enforcement action,
administrative proceeding or civil lawsuit; or
- a civil judgment or criminal conviction or for any other
offense that, if prosecuted criminally, would constitute
a felony under applicable law;
- the aggregate number of days which this registration statement
is not effective or our Common Stock is not listed and traded
on Nasdaq or an exchange or quoted on the O.T.C. Bulletin Board
exceeds 120 days;
- we file for bankruptcy or any other proceeding for the relief
of debtors; or
- we breach covenants contained in the Investment Agreement.
- COMMITMENT AND TERMINATION FEES
If we do not Put at least $2,000,000 worth of Common Stock to Swartz
during each one year period following the effective date of the Investment
25
Agreement, we must pay Swartz an annual non-usage fee. This fee equals the
difference between $200,000 and 10% of the value of the shares of Common Stock
we Put to Swartz during the one year period. The fee is due and payable on the
last business day of each one year period. Each annual non-usage fee is
payable to Swartz, in cash, within five (5) business days of the date it
accrued. We are not required to pay the annual non-usage fee to Swartz in
years we have met the Put requirements. We are also not required to deliver
the non-usage fee payment until Swartz has paid us for all Puts that are due.
If the Investment Agreement is terminated, we must pay Swartz the greater
of (i) the non-usage fee described above, or (ii) the difference between
$200,000 and 10% of the value of the shares of Common Stock Put to Swartz
during all Puts to date.
- SHORT SALES
The Investment Agreement prohibits Swartz and its affiliates from
engaging in short sales of our Common Stock unless Swartz has received a Put
notice and the amount of shares involved in the short sale does not exceed the
number of shares we specify in the Put notice. In addition, in accordance
with Section 5(b)(2) of the Securities Act of 1933, Swartz must deliver a
Prospectus when they enter into a short position.
- CANCELLATION OF PUTS
We must cancel a particular Put if:
- we discover an undisclosed material fact relevant to Swartz's
investment decision;
- the registration statement registering resales of the common
shares becomes ineffective; or
- our shares of Common Stock are delisted from Nasdaq, the
O.T.C. Bulletin Board or an exchange.
If we cancel a Put, it will continue to be effective, but the pricing period
for the Put will terminate on the date we notify Swartz that we are canceling
the Put. Because the pricing period will be shortened, the number of shares
Swartz will be required to purchase in the canceled Put may be smaller than it
would have been had we not canceled the Put.
- TERMINATION OF INVESTMENT AGREEMENT
We may terminate our right to initiate further Puts or terminate the
Investment Agreement at any time by providing Swartz with written notice of
our intention to terminate. However, any termination will not affect any other
rights or obligations we have concerning the Investment Agreement or any
related agreement.
- CAPITAL RAISING LIMITATIONS
During the term of the Investment Agreement and for a period of ninety
(90) days after the termination of the Investment Agreement, we are prohibited
from entering into any private equity line agreements similar to the Swartz
Investment Agreement without obtaining Swartz's prior written approval. We
have agreed to give Swartz a Right of First Offer during this same period, the
term of the Investment Agreement plus ninety (90) days. If we commence or
plan to commence negotiations with another investor, during this time period,
26
for a private capital raising transaction, we will first notify and negotiate
in good faith with Swartz regarding the potential financing transaction. If
Swartz is more than five (5) business days late in paying for the Put shares,
then it is not entitled to the benefits of these restrictions until the date
amounts due are paid.
Neither of the above restrictions applies to the following items and we
may engage in and issue securities in the following transactions without
notifying or obtaining approval from Swartz;
- in connection with a merger, consolidation, acquisition, or
sale of assets;
- in connection with a strategic partnership or joint venture,
the primary purpose of which is not simply to raise money;
- in connection with our disposition or acquisition of a
business, product or license;
- upon exercise of options by employees, consultants or
directors;
- in an underwritten public offering of our Common Stock;
- upon conversion or exercise of currently outstanding options,
warrants or other convertible securities;
- under any option or restricted stock plan for the benefit of
employees, directors or consultants; or
- upon the issuance of debt securities with no equity feature for
working capital purposes.
- SWARTZ'S RIGHT OF INDEMNIFICATION
We have agreed to indemnify Swartz, including its owners, employees,
investors and agents, from all liability and losses resulting from any
misrepresentations or breaches we make in connection with the Investment
Agreement, the registration rights agreement, other related agreements, or the
registration statement. We have also agreed to indemnify these persons for any
claims based on violation of Section 5 of the Securities Act caused by the
integration of the private sale of our Common Stock to Swartz and the public
offering under the registration statement.
- EFFECT ON OUTSTANDING COMMON STOCK
The issuance of Common Stock under the Investment Agreement will not
affect the rights or privileges of existing holders of Common Stock except
that the issuance of shares will dilute the economic and voting interests of
each shareholder.
As noted above, we cannot determine the exact number of shares of our
Common Stock issuable under the Investment Agreement and the resulting
dilution to our existing shareholders, which will vary with the extent to
which we utilize the Investment Agreement, the market price of our Common
Stock, and exercise of the related warrants. The potential effects of any
dilution on our existing shareholders include the significant dilution of the
current shareholders' economic and voting interests in us.
27
The Investment Agreement provides that we cannot issue shares of Common
Stock that would exceed 20% of the outstanding stock on the date of a Put
unless and until we obtain shareholder approval of the issuance of Common
Stock.
REASONS FOR PROPOSAL, BOARD OF DIRECTORS
RECOMMENDATION AND VOTE REQUIRED
We believe that the Delta-Swartz Investment Agreement will provide us a
means of accessing additional capital when we need it. We presently do not
intend to sell all of the shares covered by the Agreement. We expect the
proceeds from sales to Swartz will be used for working capital, capital
expenditures and general corporate purposes. We currently have no plans,
understandings or arrangements to make any material acquisitions or other
material capital expenditures.
Approval of the Delta-Swartz Investment Agreement will require the
affirmative vote of a majority of the shares outstanding, in person or by
proxy, at the Annual Meeting of Shareholders.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THIS PROPOSAL.
APPOINTMENT OF INDEPENDENT AUDITORS
(Proposal 4 of the Proxy)
Subject to ratification by our shareholders, the Board has designated
the firm of KPMG LLP, Suite 2300, 707 17th Street, Denver, Colorado 80202, as
independent auditors to examine and audit our financial statements for the
fiscal year 2002. This firm has audited our financial statements for five
years and is considered to be well qualified. The designation of such firm as
auditors is being submitted for ratification or rejection at the Annual
Meeting. Action by shareholders is not required under the law for the
appointment of independent auditors, but the ratification of their appointment
is submitted by the Board in order to give our shareholders the final choice
in the designation of auditors. The Board will be governed by the decision of
a majority of the votes entitled to be cast. A majority of the votes
represented at the Annual Meeting by shares of Common Stock entitled to vote
is required to ratify the appointment of KPMG LLP.
Audit Fees. The fees billed for professional services rendered by the
independent auditors for the audit of Delta's financial statements for the
year ended June 30, 2001, and for the reviews of the financial statements
included in Delta's Forms 10-QSB during the last fiscal year, amounted to
$85,000.
Financial Information Systems Design and Implementation Fees. The
independent auditors did not provide professional services during fiscal 2001
relating to financial information systems design and implementation.
All Other Fees. The fees billed by the independent auditors during the
fiscal year ended June 30, 2001 for non-audit services rendered amounted to
$42,000. These fees were related to research, quarterly reviews and other
Securities and Exchange Commission filings. The Audit Committee has
considered the other fees paid to KPMG LLP and concluded that they do not
impair the independence of KPMG LLP.
28
A representative of KPMG LLP will be present at the Annual Meeting with
the opportunity to make a statement if he desires to do so and will also be
available to respond to appropriate questions.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THIS PROPOSAL.
AMENDMENT TO ARTICLES OF INCORPORATION TO REDUCE QUORUM
AND VOTING REQUIREMENTS FOR MEETINGS OF SHAREHOLDERS
(Proposal 5 of the Proxy)
The Board of Directors has adopted a proposal to amend our Articles of
Incorporation to reduce the number of shares required to be present for a
quorum at meetings of Delta's shareholders and to reduce the voting
requirement for matters approved by the shareholders and is now presenting
this proposal for consideration and adoption by the shareholders. The
Articles of Incorporation currently require that with respect to any action
taken by the shareholders a vote or concurrence of the holders of a majority
of the outstanding shares entitled to vote is required. The proposed
amendment would reduce the voting requirement to a majority of the shares
present at the meeting.
The Articles of Incorporation currently do not contain any provisions
that address the quorum requirement, and so, under the Colorado Business
Corporation Act, the presence of at least a majority of the shares
outstanding is required to establish a quorum at meetings of Delta's
shareholders. The proposed amendment would reduce the requirement for a
quorum to one-third of the outstanding shares.
The proposed amendment to Delta's Articles of Incorporation would
replace the current Article XII with a new Article XII that reads as follows:
"ARTICLE XII
QUORUM FOR SHAREHOLDERS' MEETINGS
AND ACTS OF SHAREHOLDERS
Thirty-three and one-third percent (33-1/3%) of the shares
entitled to vote, represented in person or by proxy, shall constitute a
quorum at meetings of shareholders.
At all meetings of shareholders the affirmative vote of a majority
of the shares represented at the meeting and entitled to vote on the
subject matter shall be the act of the shareholders."
The Board of Directors has determined that the adoption of the proposed
amendment is in the best interests of Delta and its shareholders because
lowering the number of shares required for a quorum and shareholder vote will
reduce the risk of incurring additional expenses and delays in connection with
postponing a shareholders' meeting and the business to be acted on for lack of
a quorum or adequate vote. At our last annual meeting of shareholders, we
achieved a quorum by only a small margin.
We believe that if the voting results in connection with shareholders'
meetings continue to be low, the Company may be forced to postpone an annual
or special meeting and incur significant additional expenses in connection
with the organization and shareholder communications which would be necessary
in order to reschedule such a meeting. Further, the inability to produce a
quorum or adequate vote could result in delays in taking shareholder action
29
with respect to important matters. In some cases, such delays could result in
additional costs or an adverse effect on ongoing business matters.
The proposed change to the voting requirement would make Delta's
Articles of Incorporation consistent with most Colorado companies and most
public companies. Currently, Delta has a higher voting requirement for
actions of the shareholders. In most instances, the Colorado Business
Corporation Act only requires that the affirmative vote of a majority of the
shares present, in person or by proxy, at a meeting at which a quorum has been
established to approve matters submitted, unless the Articles of Incorporation
provide for a greater voting requirement. The proposed amendment will not
reduce the vote required to approve mergers, the sale of substantially all of
Delta's assets and similar transactions, which will remain at a majority of
the shares outstanding.
Reducing the number of shares necessary for a quorum to one-third of the
outstanding shares would not result in reducing the requirement that a
majority of the shares present must vote in favor of an action taken at a
meeting. It would reduce the actual number of shares required to take
shareholder action. Under Delta's current requirement, more than 50% of the
shares entitled to vote must be present at a shareholders' meeting, either in
person or by proxy, in order to obtain a quorum. Assuming the minimum number
of shares required for a quorum are present, the affirmative vote of more than
25% of all shares entitled to vote would be necessary in order to take
shareholder action. If the proposed amendment is approved, assuming the
minimum number of shares required is present, the affirmative vote of
approximately 17% of all the shares entitled to vote would be necessary in
order to take shareholder action.
VOTE REQUIRED FOR APPROVAL; BOARD RECOMMENDATION
The affirmative vote of a majority of the shares outstanding, in person
or by proxy, will be required to approve the amendment to the Articles of
Incorporation.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THIS PROPOSAL.
SHAREHOLDER PROPOSALS
Any shareholder proposals to be included in the Board of Directors'
solicitation of proxies for the 2002 Annual Meeting of Shareholders must be
received by Aleron H. Larson, Jr., Secretary, at 555 17th Street, Suite 3310,
Denver, Colorado 80202, a reasonable amount of time prior to the mailing of
the proxy materials for that meeting.
GENERAL AND OTHER MATTERS
The Board of Directors knows of no matter, other than those referred to
in this Proxy Statement, which will be represented at the Annual Meeting.
However, if any other matters are properly brought before the Meeting or any
of its adjournments, the person or persons voting the proxies will vote them
in accordance with their judgment on such matters.
The cost of preparing, assembling, and mailing this Proxy Statement, the
enclosed proxy card and the Notice of the Annual Meeting will be paid by us.
Additional solicitation by mail, telephone, telegraph or personal solicitation
may be done by our directors, officers and regular employees. Such persons
will receive no additional compensation for such services. Brokerage houses,
30
banks and other nominees, fiduciaries and custodians nominally holding shares
of Common Stock of record will be requested to forward proxy soliciting
material to the beneficial owners of such shares, and will be reimbursed by us
for their reasonable expenses.
AVAILABLE INFORMATION. Upon request of any shareholder, our Annual
Report for the year ended June 30, 2001 filed with the SEC on Form 10-KSB,
including financial statements, will be sent to the shareholder without charge
by first class mail within one business day of receipt of such request. All
requests should be addressed to our Secretary at 555 17th Street, Suite 3310,
Denver, Colorado 80202 or by telephone (303) 293-9133.
You are urged to complete, sign, date and return your proxy promptly.
You may revoke your proxy at any time before it is voted. If you attend the
Annual Meeting, as we hope you will, you may vote your shares in person.
By Order of the Board of Directors
Aleron H. Larson, Jr.
Chairman/Secretary
January 16, 2002
31
EXHIBIT A
DELTA PETROLEUM CORPORATION
2002 INCENTIVE PLAN
1. Purpose of the Plan
The purpose of this Delta Petroleum Corporation 2002 Incentive Plan
("Plan") is to create shareholder value. To do so, the Plan provides
incentives to selected employees and directors of the Company and its
Subsidiaries, and selected non-employee consultants and advisors to the
Company and its Subsidiaries, who contribute, and are expected to contribute,
materially to its success. The Plan also provides a means of rewarding
outstanding performance and enhances the interest of such persons in the
Company's success and development by providing them a proprietary interest in
the Company. Further, the Plan is designed to enhance the Company's ability to
maintain a competitive position in attracting and retaining qualified
personnel necessary for the success and development of the Company.
2. Definitions
As used in the Plan, the following definitions apply to the terms
indicated below:
(a) "Board of Directors" shall mean the Board of Directors of Delta
Petroleum Corporation.
(b) "Cause," when used in connection with the termination of a
Participant's employment with the Company, for purposes of the
Plan, shall mean the termination of the Participant's employment
by the Company on account of (i) the willful and continued failure
by the Participant substantially to perform his duties and
obligations (other than any such failure resulting from his
incapacity due to physical or mental illness) or (ii) the willful
engaging by the Participant in an act or acts which could
reasonably be expected to cause injury to the Company. For
purposes of this Section 2(b), no act, or failure to act, on a
Participant's part shall be considered "willful" unless done, or
omitted to be done, by the Participant in bad faith and without
reasonable belief that his action or omission was in the best
interests of the Company.
(c) "Cash Bonus" shall mean an award of a bonus payable in cash
pursuant to Section 13 hereof.
(d) "Change in Control" shall mean:
(i) the acquisition at any time by a"person" or "group" (as that
term is used in Sections 13(d)and 14(d)(2) of the Exchange
Act) (excluding, for this purpose, the Company or any
Subsidiary or any employee benefit plan of the Company or
any Subsidiary) of beneficial ownership (as defined in Rule
13d-3 under the Exchange Act) directly or indirectly, of
securities representing 20% or more of the combined voting
power in the election of directors of the then-outstanding
securities of the Company or any successor of the Company;
(ii) the termination of service as directors, for any reason
other than death, disability or retirement from the Board of
Directors, during any period of two consecutive years or
less, of individuals who at the beginning of such period
constituted a majority of the Board of Directors, unless the
election of or nomination for election of each new director
during such period was approved by a vote of at least
two-thirds of the directors still in office who were
directors at the beginning of the period;
(iii) approval by the shareholders of the Company of any merger or
consolidation or statutory share exchange as a result of
which the Common Shares shall be changed, converted or
exchanged (other than a merger or share exchange with a
wholly-owned Subsidiary of the Company), or liquidation of
the Company, or any sale or disposition of 50% or more of
the assets or earning power of the Company;
(iv) approval by the shareholders of the Company of any merger,
consolidation or statutory share exchange to which the
Company is a party as a result of which the persons who were
shareholders of the Company immediately prior to the
effective date of the merger, consolidation or statutory
share exchange shall have beneficial ownership of less than
50% of the combined voting power in the election of
directors of the surviving corporation following the
effective date of such merger, consolidation or statutory
share exchange; or
(v) a determination by the Board of Directors, in its sole and
absolute discretion, that a change in control has occurred.
(e) "Code" shall mean the Internal Revenue Code of 1986, as amended
from time to time.
(f) "Committee" shall mean the committee appointed by the Board of
Directors from time to time to administer the Plan.
(g) "Common Shares" shall mean Delta Petroleum Corporation common
shares, no par value per share.
(h) "Company" shall mean Delta Petroleum Corporation, a Colorado
corporation, and each of its Subsidiaries.
(i) "Disability" shall mean a Participant's inability to engage in any
substantial gainful activity by reason of any medically
determinable physical or mental impairment which can be expected
to result in death or which has lasted or can be expected to last
for a continuous period of not less than twelve (12) months.
(j) "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
(k) The "Fair Market Value" of Common Shares with respect to any day
shall be (i) the closing sales price on the immediately preceding
business day of Common Shares as reported on the principal
securities exchange on which Common Shares are then listed or
admitted to trading, or (ii) if not so reported, the average of
the closing bid and ask prices on the immediately preceding
business day as reported on the National Association of Securities
Dealers Automated Quotation System, or (iii) if not so reported,
as furnished by any member of the National Association of
Securities Dealers, Inc. selected by the Committee. In the event
that the price of Common Shares shall not be so reported, the Fair
Market Value of Common Shares shall be determined by the Committee
in its absolute discretion.
(l) "Incentive Award" shall mean an Option, LSAR, Tandem SAR,
Stand-Alone SAR, share of Phantom Stock, Stock Bonus or Cash Bonus
granted pursuant to the terms of the Plan.
(m) "Incentive Stock Option" shall mean an Option which is an
"incentive stock option" within the meaning of Section 422 of the
Code and which is identified as an Incentive Stock Option in the
agreement by which it is evidenced.
(n) "Issue Date" shall mean the date established by the Committee on
which certificates representing shares of Restricted Stock shall
be issued by Delta Petroleum Corporation pursuant to the terms of
Section 10(d) hereof.
(o) "LSAR" shall mean a limited stock appreciation right which is
granted pursuant to the provisions of Section 7 hereof and which
relates to an Option. Each LSAR shall be exercisable only upon the
occurrence of a Change in Control and only in the alternative to
the exercise of its related Option.
(p) "Non-Employee Participant" shall mean a Participant who is not an
employee of the Company.
(q) "Non-Qualified Stock Option" shall mean an Option which is not an
Incentive Stock Option and which is identified as a Non-Qualified
Stock Option in the agreement by which it is evidenced.
(r) "Option" shall mean an option to purchase Common Shares of Delta
Petroleum Corporation granted pursuant to Section 6 hereof. Each
Option shall be identified as either an Incentive Stock Option or
a Non-Qualified Stock Option in the agreement by which it is
evidenced.
(s) "Participant" shall mean a person who is eligible to participate
in the Plan and to whom an Incentive Award is granted pursuant to
the Plan, and, upon his death, his successors, heirs, executors
and administrators, as the case may be.
(t) "Person" shall mean a "person," as such term is used in Sections
13(d) and 14(d) of the Exchange Act.
(u) "Phantom Stock" shall mean the right to receive in cash the Fair
Market Value of Common Shares of Delta Petroleum Corporation,
which right is granted pursuant to Section 11 hereof and subject
to the terms and conditions contained therein.
(v) "Plan" shall mean the Delta Petroleum Corporation 2002 Incentive
Plan, as it may be amended from time to time.
(w) "Restricted Stock" shall mean a Common Share which is granted
pursuant to the terms of Section 10 hereof and which is subject to
the restrictions set forth in Section 10(c) hereof for so long as
such restrictions continue to apply to such share.
(x) "Securities Act" shall mean the Securities Act of 1933, as
amended.
(y) "Stand-Alone SAR" shall mean a stock appreciation right granted
pursuant to Section 9 hereof which is not related to any Option.
(z) "Stock Bonus" shall mean a grant of a bonus payable in Common
Shares pursuant to Section 12 hereof.
(aa) "Subsidiary" shall mean any corporation in which at the time of
reference Delta Petroleum Corporation owns, directly or
indirectly, stock comprising more than fifty percent of the total
combined voting power of all classes of stock of such corporation.
(bb) "Tandem SAR" shall mean a stock appreciation right granted
pursuant to Section 8 hereof which is related to an Option. Each
Tandem SAR shall be exercisable only to the extent its related
Option is exercisable and only in the alternative to the exercise
of its related Option.
(cc) "Vesting Date" shall mean the date established by the Committee on
which a share of Restricted Stock or Phantom Stock may vest.
(dd) "Delta Petroleum Corporation" shall mean Delta Petroleum
Corporation, a Colorado corporation, and its successors.
3. Stock Subject to the Plan
Under the Plan, the Committee may grant to Participants (i) Options,
(ii) LSARs, (iii) Tandem SARs, (iv) Stand-Alone SARs, (v) shares of Restricted
Stock, (vi) shares of Phantom Stock, (vii) Stock Bonuses and (viii) Cash
Bonuses; provided, however, that grants under the Plan to non-employee
directors of the Company shall be made by the Board of Directors. When
referring to grants under the Plan to non-employee directors of the Company,
any reference in this Plan to the Committee shall be deemed to refer to the
Board of Directors.
Subject to adjustment as provided in Section 14 hereof, the Committee
may grant Options, Stand-Alone SARs, shares of Restricted Stock, shares of
Phantom Stock and Stock Bonuses under the Plan with respect to a number of
Common Shares that in the aggregate does not exceed 2,000,000 shares. The
grant of an LSAR, Tandem SAR or Cash Bonus shall not reduce the number of
Common Shares with respect to which Options, Stand-Alone SARs, shares of
Restricted Stock, shares of Phantom Stock or Stock Bonuses may be granted
pursuant to the Plan.
In the event that any outstanding Option or Stand-Alone SAR expires,
terminates or is canceled for any reason (other than pursuant to Paragraphs
7(b)(2) or 8(b)(3) hereof), the Common Shares subject to the unexercised
portion of such Option or Stand-Alone SAR shall again be available for grants
under the Plan. In the event that an outstanding Option is canceled pursuant
to Paragraphs 7(b)(2) or 8(b)(3) hereof by reason of the exercise of an LSAR
or a Tandem SAR, the Common Shares subject to the canceled portion of such
Option shall not again be available for grants under the Plan. In the event
that any shares of Restricted Stock or Phantom Stock, or any Common Shares
granted in a Stock Bonus are forfeited or canceled for any reason, such shares
shall again be available for grants under the Plan.
Common Shares issued under the Plan may be either newly issued shares or
treasury shares, at the discretion of the Committee, and Delta Petroleum
Corporation hereby reserves 2,000,000 Common Shares for issuance pursuant to
the Plan.
4. Administration of the Plan
The Plan shall be administered by a Committee of the Board of Directors
consisting of two or more persons, each of whom shall be a "non-employee
director" within the meaning of Rule 16b-3(b)(3) promulgated under Section 16
of the Exchange Act. The Committee shall from time to time designate the
persons who shall be granted Incentive Awards and the amount and type of such
Incentive Awards, provided, however that any Incentive Awards granted to
non-employee directors of the Company shall be granted by the Board and not by
the Committee. When referring to grants under the Plan to non-employee
directors of the Company, any reference in this Plan to the Committee shall be
deemed to refer to the Board of Directors.
The Committee shall have full authority to administer the Plan,
including authority to interpret and construe any provision of the Plan and
the terms of any Incentive Award issued under it and to adopt such rules and
regulations for administering the Plan as it may deem necessary. Decisions of
the Committee shall be final and binding on all parties.
The Committee may, in its absolute discretion (i) accelerate the date on
which any Option or Stand-Alone SAR granted under the Plan becomes
exercisable, (ii) accelerate the Vesting Date or Issue Date, or waive any
condition imposed pursuant to Section 10(b) hereof, with respect to any share
of Restricted Stock granted under the Plan and (iii) accelerate the Vesting
Date or waive any condition imposed pursuant to Section 11 hereof, with
respect to any share of Phantom Stock granted under the Plan.
In addition, the Committee may, in its absolute discretion, grant
Incentive Awards to Participants on the condition that such Participants
surrender to the Committee for cancellation such other Incentive Awards
(including, without limitation, Incentive Awards with higher exercise prices)
as the Committee specifies. Notwithstanding Section 3 herein, prior to the
surrender of such other Incentive Awards, Incentive Awards granted pursuant to
the preceding sentence of this Section 4 shall not count against the limits
set forth in such Section 3.
Whether an authorized leave of absence, or absence in military or
government service, shall constitute termination of employment shall be
determined by the Committee.
No member of the Committee shall be liable for any action, omission, or
determination relating to the Plan, and Delta Petroleum Corporation shall
indemnify and hold harmless each member of the Committee and each other
director or employee of the Company to whom any duty or power relating to the
administration or interpretation of the Plan has been delegated against any
cost or expense (including counsel fees) or liability (including any sum paid
in settlement of a claim with the approval of the Committee) arising out of
any action, omission or determination relating to the Plan, unless, in either
case, such action, omission or determination was taken or made by such member,
director or employee in bad faith and without reasonable belief that it was in
the best interests of the Company.
5. Eligibility
The persons who shall be eligible to receive Incentive Awards pursuant
to the Plan shall be such persons, including employees, officers, and
directors of the Company and non-employee consultants and advisors to the
Company, as the Committee shall select from time to time. Non-employee
Directors of the Company may only participate in the Plan pursuant to
Paragraph 25 hereof.
6. Options
Subject to the provisions of the Plan, the Committee may grant Options,
which Options shall be evidenced by agreements in such form as the Committee
shall from time to time approve. Options shall comply with and be subject to
the following terms and conditions:
(a) Identification of Options
All Options granted under the Plan that are Incentive Stock
Options shall be clearly identified in the agreement evidencing
such Options as Incentive Stock Options. Any Options not so
identified shall be deemed to be Non-Qualified Stock Options.
(b) Exercise Price
The exercise price of any Non-Qualified Stock Option granted under
the Plan shall be such price as the Committee shall determine on
the date on which such Non-Qualified Stock Option is granted;
provided, that such price may not be less than the minimum price
required by applicable law. The exercise price of any Incentive
Stock Option granted under the Plan shall be not less than 100% of
the Fair Market Value of Common Shares on the date on which such
Incentive Stock Option is granted.
(c) Term and Exercise of Option
(1) Each Option shall be exercisable on such date or dates,
during such period and for such number of Common Shares as
shall be determined by the Committee on the day on which
such Option is granted and set forth in the Option agreement
with respect to such Option; provided, however, that no
Option shall be exercisable after the expiration of ten
years from the date such Option was granted; and, provided,
further, that each Option shall be subject to earlier
termination, expiration or cancellation as provided in the
Plan.
(2) Each Option shall be exercisable in whole or in part;
provided, that no partial exercise of an Option shall be for
an aggregate exercise price of less than $1,000, unless such
partial exercise is for the last remaining unexercised
portion of such Option. The partial exercise of an Option
shall not cause the expiration, termination or cancellation
of the remaining portion thereof. Upon the partial exercise
of an Option, the agreements evidencing such Option and any
related LSARs and Tandem SARs shall be returned to the
Participant exercising such Option together with the
delivery of the certificates described in Section 6(c)(5)
hereof.
(3) An Option shall be exercised by delivering notice to Delta
Petroleum Corporation's principal office, to the attention
of its Secretary, no less than one business day in advance
of the effective date of the proposed exercise. Such notice
shall be accompanied by the agreements evidencing the Option
and any related LSARs and Tandem SARs, shall specify the
number of Common Shares with respect to which the Option is
being exercised and the effective date of the proposed
exercise and shall be signed by the Participant. The
Participant may withdraw such notice at any time prior to
the close of business on the business day immediately
preceding the effective date of the proposed exercise, in
which case such agreements shall be returned to him. Payment
for Common Shares purchased upon the exercise of an Option
shall be made on the effective date of such exercise either
(i) in cash, by certified check, bank cashier's check or
wire transfer or (ii) subject to the approval of the
Committee, in Common Shares owned by the Participant and
valued at their Fair Market Value on the effective date of
such exercise, or partly in Common Shares with the balance
in cash, by certified check, bank cashier's check or wire
transfer. Any payment in Common Shares shall be effected by
the delivery of such shares to the Secretary of Delta
Petroleum Corporation, duly endorsed in blank or accompanied
by stock powers duly executed in blank, together with any
other documents and evidences as the Secretary of Delta
Petroleum Corporation shall require from time to time. In
addition, at the time of grant the Committee may provide
that an Option may be exercised in a "cashless" transaction
in which the holder may surrender all or a portion of the
Option and receive the number of shares of Common Shares
equal in value to the Fair Market Value per share at the
date of surrender less the exercise price per share of the
Option, multiplied by the number of shares which may be
purchased under the Option, or portion thereof, being
surrendered.
(4) Any Option granted under the Plan may be exercised by a
broker-dealer acting on behalf of a Participant if (i) the
broker-dealer has received from the Participant or the
Company a fully-and-duly-endorsed agreement evidencing such
Option and instructions signed by the Participant requesting
Delta Petroleum Corporation to deliver the Common Shares
subject to such Option to the broker-dealer on behalf of the
Participant and specifying the account into which such
shares should be deposited, (ii) adequate provision has been
made with respect to the payment of any withholding taxes
due upon such exercise and (iii) the broker-dealer and the
Participant have otherwise complied with Section 220.3(e)(4)
of Regulation T, 12 CFR Part 220.
(5) Certificates for Common Shares purchased upon the exercise
of an Option shall be issued in the name of the Participant,
or such Participant's written designee, and delivered to
the Participant or designee as soon as practicable following
the effective date on which the Option is exercised.
(6) Except as specifically set forth in the agreement evidencing
Options granted under the Plan, Options shall be assignable
and transferable provided, however, that the Company shall
not be under an obligation as provided in Paragraph 6(c)(7)
below to include the shares underlying such transferred or
assigned options in any registration statement except upon
death or pursuant to a qualified domestic relations order.
(7) The Company, at the Company's expense, shall file and
maintain a registration statement on the appropriate form
with the Securities and Exchange Commission covering shares
underlying all options granted hereunder except as set forth
in Paragraph 6(c)(6) above. The expiration date of any
option expiring prior to 90 days before the effective date
of a registration statement covering said option shall be
extended until a date ninety (90) days following the
effective date of said registration statement.
(d) Limitations on Grant of Incentive Stock Options
(1) The aggregate Fair Market Value of Common Shares with
respect to which "incentive stock options" (within the
meaning of Section 422 of the Code) are exercisable for the
first time by a Participant during any calendar year under
the Plan and any other stock option plan of the Company (or
any "subsidiary" of Delta Petroleum Corporation as such term
is defined in Section 425 of the Code) shall not exceed
$100,000. Such Fair Market Value shall be determined as of
the date on which each such incentive stock option is
granted. In the event that the aggregate Fair Market Value
of Common Shares with respect to such incentive stock
options exceeds $100,000, then Incentive Stock Options
granted hereunder to such Participant shall, to the extent
and in the order required by Regulations promulgated under
the Code (or any other authority having the force of
Regulations), automatically be deemed to be Non-Qualified
Stock Options, but all other terms and provisions of such
Incentive Stock Options shall remain unchanged. In the
absence of such Regulations (and authority), or in the event
such Regulations (or authority) require or permit a
designation of the options which shall cease to constitute
incentive stock options, Incentive Stock Options shall, to
the extent of such excess and in the order in which they
were granted, automatically be deemed to be Non-Qualified
Stock Options, but all other terms and provisions of such
Incentive Stock Options shall remain unchanged.
(2) No Incentive Stock Option may be granted to an individual
if, at the time of the proposed grant, such individual owns
stock possessing more than ten percent of the total combined
voting power of all classes of stock of Delta Petroleum
Corporation or any of its "subsidiaries" (within the meaning
of Section 425 of the Code), unless (i) the exercise price
of such Incentive Stock Option is at least one hundred and
ten percent of the Fair Market Value of a Common Share at
the time such Incentive Stock Option is granted and (ii)
such Incentive Stock Option is not exercisable after the
expiration of five years from the date such Incentive Stock
Option is granted.
(e) Effect of Termination of Employment
(1) Except as may be specifically set forth in the agreement
evidencing an Option, in the event that the employment of a
Participant with the Company shall terminate for any reason
Options granted to such Participant, to the extent that they
were exercisable at the time of such termination, shall
remain exercisable in accordance with their terms.
(2) In the event that a Non-Employee Participant ceases to
provide services to the Company, all Options granted to such
Non-Employee Participant shall remain exercisable in
accordance with their terms.
(f) Acceleration of Exercise Date Upon Change in Control
Upon the occurrence of a Change in Control, each Option granted
under the Plan and outstanding at such time shall become fully and
immediately exercisable and shall remain exercisable until its
expiration, termination or cancellation pursuant to the terms of
the Plan.
7. Limited Stock Appreciation Rights
The Committee may grant in connection with any Option granted hereunder
one or more LSARs relating to a number of Common Shares equal to or less than
the number of Common Shares subject to the related Option. An LSAR may be
granted at the same time as, or subsequent to the time that, its related
Option is granted. Each LSAR shall be evidenced by an agreement in such form
as the Committee shall from time to time approve. Each LSAR granted hereunder
shall be subject to the following terms and conditions:
(a) Benefit Upon Exercise
(1) The exercise of an LSAR relating to a Non-Qualified Stock
Option with respect to any number of Common Shares shall
entitle the Participant to a cash payment, for each such
share, equal to the excess of (i) the greater of (A) the
highest price per Common Share paid in the Change in Control
in connection with which such LSAR became exercisable and
(B) the Fair Market Value of a Common Share on the date of
such Change in Control over (ii) the exercise price of the
related Option. Such payment shall be paid as soon as
practical, but in no event later than the expiration of five
business days, after the effective date of such exercise.
(2) The exercise of an LSAR relating to an Incentive Stock
Option with respect to any number of Common Shares shall
entitle the Participant to a cash payment, for each such
share, equal to the excess of (i) the Fair Market Value of a
Common Share on the effective date of such exercise over
(ii) the exercise price of the related Option. Such payment
shall be paid as soon as practical, but in no event later
than the expiration of five business days, after the
effective date of such exercise.
(b) Term and Exercise of LSARs
(1) An LSAR shall be exercisable only during the period
commencing on the first day following the occurrence of a
Change in Control and terminating on the expiration of sixty
days after such date. Notwithstanding the preceding sentence
of this Section 7(b), in the event that an LSAR held by any
Participant who is or may be subject to the provisions of
Section 16(b) of the Exchange Act becomes exercisable prior
to the expiration of six months following the date on which
it is granted, then the LSAR shall also be exercisable
during the period commencing on the first day immediately
following the expiration of such six month period and
terminating on the expiration of sixty days following such
date. Notwithstanding anything else herein, an LSAR relating
to an Incentive Stock Option may be exercised with respect
to a Common Share only if the Fair Market Value of such
share on the effective date of such exercise exceeds the
exercise price relating to such share. Notwithstanding
anything else herein, an LSAR may be exercised only if and
to the extent that the Option to which it relates is
exercisable.
(2) The exercise of an LSAR with respect to a number of Common
Shares shall cause the immediate and automatic cancellation
of the Option to which it relates with respect to an equal
number of shares. The exercise of an Option, or the
cancellation, termination or expiration of an Option (other
than pursuant to this Paragraph (2)), with respect to a
number of Common Shares, shall cause the cancellation of the
LSAR related to it with respect to an equal number of
shares.
(3) Each LSAR shall be exercisable in whole or in part;
provided, that no partial exercise of an LSAR shall be for
an aggregate exercise price of less than $1,000, unless such
partial exercise is for the last remaining unexercised
portion of such LSAR. The partial exercise of an LSAR shall
not cause the expiration, termination or cancellation of the
remaining portion thereof. Upon the partial exercise of an
LSAR, the agreements evidencing the LSAR, the related Option
and any Tandem SARs related to such Option shall be returned
to the Participant exercising such LSAR together with the
payment described in Paragraph 7(a)(1) or (2) hereof, as
applicable.
(4) Except as specifically set forth in the agreements relating
thereto, each LSAR and any related Options shall be
assignable and transferable.
(5) An LSAR shall be exercised by delivering notice to Delta
Petroleum Corporation's principal office, to the attention
of its Secretary, no less than one business day in advance
of the effective date of the proposed exercise. Such notice
shall be accompanied by the applicable agreements evidencing
the LSAR, the related Option and any Tandem SARs relating to
such Option, shall specify the number of Common Shares with
respect to which the LSAR is being exercised and the
effective date of the proposed exercise and shall be signed
by the Participant. The Participant may withdraw such notice
at any time prior to the close of business on the business
day immediately preceding the effective date of the proposed
exercise, in which case such agreements shall be returned to
him.
8. Tandem Stock Appreciation Rights
The Committee may grant in connection with any Option granted hereunder
one or more Tandem SARs relating to a number of Common Shares equal to or less
than the number of Common Shares subject to the related Option. A Tandem SAR
may be granted at the same time as, or subsequent to the time that, its
related Option is granted. Each Tandem SAR shall be evidenced by an agreement
in such form as the Committee shall from time to time approve. Tandem SARs
shall comply with and be subject to the following terms and conditions:
(a) Benefit Upon Exercise
The exercise of a Tandem SAR with respect to any number of Common
Shares shall entitle a Participant to a cash payment, for each
such share, equal to the excess of (i) the Fair Market Value of a
Common Share on the effective date of such exercise over (ii) the
exercise price of the related Option. Such payment shall be paid
as soon as practical, but in no event later than the expiration of
five business days, after the effective date of such exercise.
(b) Term and Exercise of Tandem SAR
(1) A Tandem SAR shall be exercisable at the same time and to
the same extent (on a proportional basis, with any
fractional amount being rounded down to the immediately
preceding whole number) as its related Option.
Notwithstanding the first sentence of this Paragraph
8(b)(1), (i) a Tandem SAR shall not be exercisable at any
time that an LSAR related to the Option to which the Tandem
SAR is related is exercisable and (ii) a Tandem SAR relating
to an Incentive Stock Option may be exercised with respect
to a Common Share only if the Fair Market Value of such
share on the effective date of such exercise exceeds the
exercise price relating to such share.
(2) Notwithstanding the first sentence of Paragraph 8(b)(1)
hereof, the Committee may, in its absolute discretion, grant
one or more Tandem SARs which shall not become exercisable
unless and until the Participant to whom such Tandem SAR is
granted is, in the determination of the Committee, subject
to Section 16(b) of the Exchange Act and which shall cease
to be exercisable if and at the time that the Participant
ceases, in the determination of the Committee, to be subject
to such Section 16(b).
(3) The exercise of a Tandem SAR with respect to a number of
Common Shares shall cause the immediate and automatic
cancellation of its related Option with respect to an equal
number of shares. The exercise of an Option, or the
cancellation, termination or expiration of an Option (other
than pursuant to this Paragraph (3)), with respect to a
number of Common Shares shall cause the automatic and
immediate cancellation of its related Tandem SARs to the
extent that the number of Common Shares subject to such
Option after such exercise, cancellation, termination or
expiration is less than the number of shares subject to such
Tandem SARs. Such Tandem SARs shall be canceled in the order
in which they became exercisable.
(4) Each Tandem SAR shall be exercisable in whole or in part;
provided, that no partial exercise of a Tandem SAR shall be
for an aggregate exercise price of less than $1,000, unless
such partial exercise is for the last remaining unexercised
portion of such Tandem SAR. The partial exercise of a Tandem
SAR shall not cause the expiration, termination or
cancellation of the remaining portion thereof. Upon the
partial exercise of a Tandem SAR, the agreements evidencing
such Tandem SAR, its related Option and LSARs relating to
such Option shall be returned to the Participant exercising
such Tandem SAR together with the payment described in
Section 8(a) hereof.
(5) Except as specifically set forth in the agreements relating
thereto, each Tandem SAR and the related Option shall be
assignable and transferable.
(6) A Tandem SAR shall be exercised by delivering notice to
Delta Petroleum Corporation's principal office, to the
attention of its Secretary, no less than one business day in
advance of the effective date of the proposed exercise. Such
notice shall be accompanied by the applicable agreements
evidencing the Tandem SAR, its related Option and any LSARs
related to such Option, shall specify the number of Common
Shares with respect to which the Tandem SAR is being
exercised and the effective date of the proposed exercise
and shall be signed by the Participant. The Participant may
withdraw such notice at any time prior to the close of
business on the business day immediately preceding the
effective date of the proposed exercise, in which case such
agreements shall be returned to him.
9. Stand-Alone Stock Appreciation Rights
Subject to the provisions of the Plan, the Committee may grant
Stand-Alone SARs, which Stand-Alone SARs shall be evidenced by agreements in
such form as the Committee shall from time to time approve. Stand-Alone SARs
shall comply with and be subject to the following terms and conditions:
(a) Exercise Price
The exercise price of any Stand-Alone SAR granted under the Plan
shall be determined by the Committee at the time of the grant of
such Stand-Alone SAR.
(b) Benefit Upon Exercise
The exercise of a Stand-Alone SAR with respect to any number of
Common Shares prior to the occurrence of a Change in Control shall
entitle a Participant to a cash payment, for each such share,
equal to the excess of (i) the Fair Market Value of a Common Share
on the exercise date over (ii) the exercise price of the
Stand-Alone SAR. The exercise of a Stand-Alone SAR with respect to
any number of Common Shares upon or after the occurrence of a
Change in Control shall entitle a Participant to a cash payment,
for each such share, equal to the excess of (i) the greater of (A)
the highest price per Common Share paid in connection with such
Change in Control and (B) the Fair Market Value of a Common Share
on the date of such Change in Control over (ii) the exercise price
of the Stand-Alone SAR. Such payments shall be paid as soon as
practical, but in no event later than five business days, after
the effective date of the exercise.
(c) Term and Exercise of Stand-Alone SARs
(1) Each Stand-Alone SAR shall be exercisable on such date or
dates, during such period and for such number of Common
Shares as shall be determined by the Committee and set forth
in the Stand-Alone SAR agreement with respect to such
Stand-Alone SAR; provided, however, that no Stand-Alone SAR
shall be exercisable after the expiration of ten years from
the date such Stand-Alone SAR was granted; and, provided,
further, that each Stand-Alone SAR shall be subject to
earlier termination, expiration or cancellation as provided
in the Plan.
(2) Each Stand-Alone SAR may be exercised in whole or in part;
provided, that no partial exercise of a Stand-Alone SAR
shall be for an aggregate exercise price of less than
$1,000, unless such partial exercise is for the last
remaining unexercised portion of such Stand-Alone SAR. The
partial exercise of a Stand-Alone SAR shall not cause the
expiration, termination or cancellation of the remaining
portion thereof. Upon the partial exercise of a Stand-Alone
SAR, the agreement evidencing such Stand-Alone SAR shall be
returned to the Participant exercising such Stand-Alone SAR
together with the payment described in Section 9(b) hereof.
(3) A Stand-Alone SAR shall be exercised by delivering notice to
Delta Petroleum Corporation's principal office, to the
attention of its Secretary, no less than one business day in
advance of the effective date of the proposed exercise. Such
notice shall be accompanied by the applicable agreement
evidencing the Stand-Alone SAR, shall specify the number of
Common Shares with respect to which the Stand-Alone SAR is
being exercised and the effective date of the proposed
exercise and shall be signed by the Participant. The
Participant may withdraw such notice at any time prior to
the close of business on the business day immediately
preceding the effective date of the proposed exercise, in
which case the agreement evidencing the Stand-Alone SAR
shall be returned to him.
(4) Except as specifically set forth in the agreements relating
thereto, each Stand-Alone SAR shall be assignable and
transferable.
(d) Effect of Termination of Employment
(1) In the event that the employment of a Participant with the
Company shall terminate for any reason Stand-Alone SARs
granted to such Participant, to the extent that they were
exercisable at the time of such termination, shall remain
exercisable in accordance with their terms.
(2) In the event that a Non-Employee Participant ceases to
provide services to the Company, all Stand-Alone SARs
granted to such Non-Employee Participant shall remain
exercisable in accordance with their terms.
(e) Acceleration of Exercise Date Upon Change in Control
Upon the occurrence of a Change in Control, each Stand-Alone SAR
granted under the Plan and outstanding at such time shall become
fully and immediately exercisable and shall remain exercisable
until its expiration, termination or cancellation pursuant to the
terms of the Plan.
10. Restricted Stock
Subject to the provisions of the Plan, the Committee may grant shares of
Restricted Stock. Each grant of shares of Restricted Stock shall be evidenced
by an agreement in such form as the Committee shall from time to time approve.
Each grant of shares of Restricted Stock shall comply with and be subject to
the following terms and conditions:
(a) Issue Date and Vesting Date
At the time of the grant of shares of Restricted Stock, the
Committee shall establish an Issue Date or Issue Dates and a
Vesting Date or Vesting Dates with respect to such shares. The
Committee may divide such shares into classes and assign a
different Issue Date and/or Vesting Date for each class. Except as
provided in Sections 10(c) and 10(f) hereof, upon the occurrence
of the Issue Date with respect to a share of Restricted Stock, a
share of Restricted Stock shall be issued in accordance with the
provisions of Section 10(d) hereof. Provided that all conditions
to the vesting of a share of Restricted Stock imposed pursuant to
Section 10(b) hereof are satisfied, and except as provided in
Sections 10(c) and 10(f) hereof, upon the occurrence of the
Vesting Date with respect to a share of Restricted Stock, such
share shall vest and the restrictions of Section 10(c) hereof
shall cease to apply to such share.
(b) Conditions to Vesting
At the time of the grant of shares of Restricted Stock, the
Committee may impose such restrictions or conditions, not
inconsistent with the provisions hereof, to the vesting of such
shares as it, in its absolute discretion, deems appropriate. By
way of example and not by way of limitation, the Committee may
require, as a condition to the vesting of any class or classes of
shares of Restricted Stock, that the Participant or the Company
achieve certain performance criteria, such criteria to be
specified by the Committee at the time of the grant of such
shares.
(c) Restrictions on Transfer Prior to Vesting
Prior to the vesting of a share of Restricted Stock, no transfer
of a Participant's rights with respect to such shares, whether
voluntary or involuntary, by operation of law or otherwise, shall
vest the transferee with any interest or right in or with respect
to such share, but immediately upon any attempt to transfer such
rights, such share, and all of the rights related thereto, shall
be forfeited by the Participant and the transfer shall be of no
force or effect.
(d) Issuance of Certificates
(1) Except as provided in Sections 10(c) or 10(f) hereof,
reasonably promptly after the Issue Date with respect to
shares of Restricted Stock, Delta Petroleum Corporation
shall cause to be issued a stock certificate, registered in
the name of the Participant to whom such shares were
granted, evidencing such shares; provided, that Delta
Petroleum Corporation shall not cause to be issued such a
stock certificate unless it has received a stock power duly
endorsed in blank with respect to such shares. Each such
stock certificate shall bear the following legend:
"The transferability of this certificate and the shares of
stock represented hereby is subject to the restrictions,
terms and conditions (including forfeiture and restrictions
against transfer) contained in the Delta Petroleum
Corporation 2002 Incentive Plan and an Agreement entered
into between the registered owner of such shares and Delta
Petroleum Corporation. A copy of the Plan and Agreement is
on file in the office of the Secretary of Delta Petroleum
Corporation Such legend shall not be removed from the
certificate evidencing such shares until such shares vest
pursuant to the terms hereof."
(2) Each certificate issued pursuant to Paragraph 10(d)(1)
hereof, together with the stock powers relating to the
shares of Restricted Stock evidenced by such certificate,
shall be deposited by the Company with a custodian
designated by the Company. The Company shall cause such
custodian to issue to the Participant a receipt evidencing
the certificates held by it which are registered in the name
of the Participant.
(e) Consequences Upon Vesting
Upon the vesting of a share of Restricted Stock pursuant to the
terms hereof, the restrictions of Section 10(c) hereof shall cease
to apply to such share. Reasonably promptly after a share of
Restricted Stock vests pursuant to the terms hereof, Delta
Petroleum Corporation shall cause to be issued and delivered to
the Participant to whom such shares were granted, a certificate
evidencing such share, free of the legend set forth in Paragraph
10(d)(1) hereof, together with any other property of the
Participant held by the custodian pursuant to Section 14(b)
hereof.
(f) Effect of Termination of Employment
(1) In the event that the employment of a Participant with the
Company shall terminate for any reason other than Cause
prior to the vesting of shares of Restricted Stock granted
to such Participant, a proportion of such shares (up to
100%), to the extent not forfeited or canceled on or prior
to such termination pursuant to any provision hereof, shall
vest on the date of such termination. The proportion
referred to in the preceding sentence shall be determined by
the Committee at the time of the grant of such shares of
Restricted Stock and may be based on the achievement of any
conditions imposed by the Committee with respect to such
shares pursuant to Section 10(b). Such proportion may be
equal to zero.
(2) In the event of the termination of a Participant's
employment for Cause, all shares of Restricted Stock granted
to such Participant which have not vested as of the date of
such termination shall immediately be forfeited.
(3) In the event that a Non-Employee Participant ceases to
provide services to the Company, all shares of Restricted
Stock granted to such Non-Employee Participant shall vest in
accordance with the terms of the grant.
(g) Effect of Change in Control
Upon the occurrence of a Change in Control, all shares of
Restricted Stock which have not theretofore vested (including
those with respect to which the Issue Date has not yet occurred),
or been canceled or forfeited pursuant to any provision hereof,
shall immediately vest.
(h) Registration of Restricted Stock
The Company, at the Company's expense, shall file and maintain a
registration statement on the appropriate form with the Securities
and Exchange Commission covering the restricted stock granted
hereunder after it has vested.
11. Phantom Stock
Subject to the provisions of the Plan, the Committee may grant shares of
Phantom Stock. Each grant of shares of Phantom Stock shall be evidenced by an
agreement in such form as the Committee shall from time to time approve. Each
grant of shares of Phantom Stock shall comply with and be subject to the
following terms and conditions:
(a) Vesting Date
At the time of the grant of shares of Phantom Stock, the Committee
shall establish a Vesting Date or Vesting Dates with respect to
such shares. The Committee may divide such shares into classes and
assign a different Vesting Date for each class. Provided that all
conditions to the vesting of a share of Phantom Stock imposed
pursuant to Section 11(c) hereof are satisfied, and except as
provided in Section 11(d) hereof, upon the occurrence of the
Vesting Date with respect to a share of Phantom Stock, such share
shall vest.
(b) Benefit Upon Vesting
Upon the vesting of a share of Phantom Stock, a Participant shall
be entitled to receive in cash, within 30 days of the date on
which such share vests, an amount in cash in a lump sum equal to
the sum of (i) the Fair Market Value of a Common Share of the
Company on the date on which such share of Phantom Stock vests and
(ii) the aggregate amount of cash dividends paid with respect to a
Common Share of the Company during the period commencing on the
date on which the share of Phantom Stock was granted and
terminating on the date on which such share vests.
(c) Conditions to Vesting
At the time of the grant of shares of Phantom Stock, the Committee
may impose such restrictions or conditions, not inconsistent with
the provisions hereof, to the vesting of such shares as it, in its
absolute discretion, deems appropriate. By way of example and not
by way of limitation, the Committee may require, as a condition to
the vesting of any class or classes of shares of Phantom Stock,
that the Participant or the Company achieve certain performance
criteria, such criteria to be specified by the Committee at the
time of the grant of such shares.
(d) Effect of Termination of Employment
(1) In the event that the employment of a Participant with the
Company shall terminate for any reason other than Cause
prior to the vesting of shares of Phantom Stock granted to
such Participant, a proportion of such shares (up to 100%),
to the extent not forfeited or canceled on or prior to such
termination pursuant to any provision hereof, shall vest on
the date of such termination. The proportion referred to in
the preceding sentence shall be determined by the Committee
at the time of the grant of such shares of Phantom Stock and
may be based on the achievement of any conditions imposed by
the Committee with respect to such shares pursuant to
Section 11(c). Such proportion may be equal to zero.
(2) In the event of the termination of a Participant's
employment for Cause, all shares of Phantom Stock granted to
such Participant which have not vested as of the date of
such termination shall immediately be forfeited.
(3) In the event that a Non-Employee Participant ceases to
provide services to the Company, all shares of Phantom Stock
granted to such Non-Employee Participant shall vest in
accordance with the terms of the grant.
(e) Effect of Change in Control
Upon the occurrence of a Change in Control, all shares of Phantom
Stock which have not theretofore vested, or been canceled or
forfeited pursuant to any provision hereof, shall immediately
vest.
12. Stock Bonuses
Subject to the provisions of the Plan, the Committee may grant Stock
Bonuses in such amounts as it shall determine from time to time. A Stock Bonus
shall be paid at such time and subject to such conditions as the Committee
shall determine at the time of the grant of such Stock Bonus. Certificates for
Common Shares granted as a Stock Bonus shall be issued in the name of the
Participant to whom such grant was made and delivered to such Participant as
soon as practicable after the date on which such Stock Bonus is required to be
paid.
13. Cash Bonuses
Subject to the provisions of the Plan, the Committee may grant, in
connection with any grant of Restricted Stock or Stock Bonus or at any time
thereafter, a cash bonus, payable promptly after the date on which the
Participant is required to recognize income for federal income tax purposes in
connection with such Restricted Stock or Stock Bonus, in such amounts as the
Committee shall determine from time to time; provided however, that in no
event shall the amount of a Cash Bonus exceed 50% of the Fair Market Value of
the related shares of Restricted Stock or Stock Bonus on such date. A Cash
Bonus shall be subject to such conditions as the Committee shall determine at
the time of the grant of such Cash Bonus.
14. Adjustment Upon Changes in Common Shares
(a) Shares Available for Grants
In the event of any change in the number of Common Shares
outstanding by reason of any stock dividend or split,
recapitalization, merger, consolidation, combination or exchange
of shares or similar corporate change, the maximum aggregate
number of Common Shares with respect to which the Committee may
grant Options, Stand-Alone SARs, shares of Restricted Stock,
shares of Phantom Stock and Stock Bonuses shall be appropriately
adjusted by the Committee. In the event of any change in the
number of Common Shares outstanding by reason of any other event
or transaction, the Committee may, but need not, make such
adjustments in the number and class of Common Shares with respect
to which Options, Stand-Alone SARs, shares of Restricted Stock,
shares of Phantom Stock and Stock Bonuses may be granted as the
Committee may deem appropriate.
(b) Outstanding Restricted Stock and Phantom Stock
Unless the Committee in its absolute discretion otherwise
determines, any securities or other property (including dividends
paid in cash) received by a Participant with respect to a share of
Restricted Stock, the Issue Date with respect to which occurs
prior to such event, but which has not vested as of the date of
such event, as the result of any dividend, stock split,
recapitalization, merger, consolidation, combination, exchange of
shares or otherwise, will not vest until such share of Restricted
Stock vests, and shall be promptly deposited with the custodian
designated pursuant to Paragraph 10(d)(2) hereof.
The Committee may, in its absolute discretion, adjust any grant of
shares of Restricted Stock, the Issue Date with respect to which
has not occurred as of the date of the occurrence of any of the
following events, or any grant of shares of Phantom Stock, to
reflect any dividend, stock split, recapitalization, merger,
consolidation, combination, exchange of shares or similar
corporate change as the Committee may deem appropriate to prevent
the enlargement or dilution of rights of Participants under the
grant.
(c) Outstanding Options, LSARs, Tandem SARs and Stand-Alone
SARs--Certain Increases or Decreases in Issued Shares Without
Consideration
Subject to any required action by the shareholders of Delta
Petroleum Corporation, in the event of any increase or decrease in
the number of issued Common Shares resulting from a subdivision or
consolidation of Common Shares or the payment of a stock dividend
(but only on the Common Shares), the Committee shall
proportionally adjust the number of Common Shares subject to each
outstanding Option, LSAR, Tandem SAR and Stand-Alone SAR, and the
exercise price per Common Share of each such Option, LSAR, Tandem
SAR and Stand-Alone SAR.
(d) Outstanding Options, LSARs, Tandem SARs and Stand-Alone
SARs--Certain Mergers
Subject to any required action by the shareholders of Delta
Petroleum Corporation, in the event that Delta Petroleum
Corporation shall be the surviving corporation in any merger or
consolidation (except a merger or consolidation as a result of
which the holders of Common Shares receive securities of another
corporation), each Option, LSAR, Tandem SAR and Stand-Alone SAR
outstanding on the date of such merger or consolidation shall
pertain to and apply to the securities which a holder of the
number of Common Shares subject to such Option, LSAR, Tandem SAR
or Stand-Alone SAR would have received in such merger or
consolidation.
(e) Outstanding Options, LSARs, Tandem SARs and Stand-Alone
SARs--Certain Other Transactions
Delta Petroleum Corporation shall not, at any time while there are
issued and outstanding pursuant to this Plan any unexpired options
(including any related LSARs or Tandem SARs), Stand-Alone SARs or
other rights to acquire securities of Delta Petroleum Corporation
(whether or not then exercisable), effect a merger, consolidation,
exchange of shares, recapitalization, reorganization, or other
similar event, as a result of which shares of Common Stock of
Delta Petroleum Corporation shall be changed into the same or a
different number of shares of the same or another class or classes
of stock or securities or other assets of Delta Petroleum
Corporation or another entity, or enter into any agreement to
effect a sale of all or substantially all of Delta Petroleum
Corporation=s assets (a ACorporate Change@), unless the resulting
successor or acquiring entity (the AResulting Entity@) assumes by
written instrument all of Delta Petroleum Corporation=s
obligations pursuant to any options then outstanding under this
Plan (including any related LSARs or Tandem SARs), Stand-Alone
SARs or other rights under this Plan to acquire securities of
Delta Petroleum Corporation (whether or not then exercisable),
which shall include, but not limited be to, an agreement in such
written instrument that any and all options then outstanding under
this Plan (including any related LSARs or Tandem SARs),
Stand-Alone SARs or other rights to acquire securities of Delta
Petroleum Corporation (whether or not then exercisable) or other
rights shall be exercisable into such class, amount and type of
securities or other assets (or stock appreciation rights with
respect to, as appropriate) of the Resulting Entity as the holder
would have received had the holder exercised its options
(including any related LSARs or Tandem SARs), Stand-Alone SARs or
other rights to acquire securities of Delta Petroleum Corporation
(whether or not then exercisable) issued pursuant to this Plan
immediately prior to such Corporate Change, and the Exercise Price
of such options or other rights shall be proportionately increased
(if such options or other rights shall be changed into or become
exchangeable for an option, warrant or other right to purchase a
smaller number of shares of Common Stock of the Resulting Entity)
or shall be proportionately decreased (if such options or other
rights shall be changed or become exchangeable for an option,
warrant or other right to purchase a larger number of shares of
Common Stock of the Resulting Entity); provided, however, that
Delta Petroleum Corporation shall not affect any Corporate Change
unless it first shall have given thirty (30) days notice of any
Corporate Change to each holder of issued and outstanding
unexpired options or other rights to acquire securities of Delta
Petroleum Corporation pursuant to this Plan at such holder's last
known address as reflected on the books and records of Delta
Petroleum Corporation.
(f) Outstanding Options, LSARs, Tandem SARs and Stand-Alone
SARs--Other Changes
In the event of any change in the capitalization of Delta
Petroleum Corporation or corporate change other than those
specifically referred to in Section 14(c), (d) or (e) hereof, the
Committee shall make such adjustments in the number and class of
shares subject to Options, LSARs, Tandem SARs or Stand-Alone SARs
outstanding on the date on which such change occurs and in the per
share exercise price of each such Option, LSAR, Tandem SAR and
Stand-Alone SAR to prevent dilution or enlargement of rights.
(g) No Other Rights
Except as expressly provided in the Plan, no Participant shall
have any rights by reason of any subdivision or consolidation of
shares of stock of any class, the payment of any dividend, any
increase or decrease in the number of shares of stock of any class
or any dissolution, liquidation, merger or consolidation of Delta
Petroleum Corporation or any other corporation. Except as
expressly provided in the Plan, no issuance by Delta Petroleum
Corporation of shares of stock of any class, or securities
convertible into shares of stock of any class, shall affect, and
no adjustment by reason thereof shall be made with respect to the
number of Common Shares subject to an Incentive Award or the
exercise price of any Option, LSAR, Tandem SAR or Stand-Alone SAR.
15. Rights as a Shareholder
No person shall have any rights as a shareholder with respect to any
Common Shares covered by or relating to any Incentive Award granted pursuant
to this Plan until the date of the issuance of a stock certificate with
respect to such shares. Except as otherwise expressly provided in Section 14
hereof, no adjustment to any Incentive Award shall be made for dividends or
other rights for which the record date occurs prior to the date such stock
certificate is issued.
16. No Special Employment Rights; No Right to Incentive Award
Nothing contained in the Plan or any Incentive Award shall confer upon
any Participant any right with respect to the continuation of his employment
by the Company or interfere in any way with the right of the Company, subject
to the terms of any separate employment agreement to the contrary, at any time
to terminate such employment or to increase or decrease the compensation of
the Participant from the rate in existence at the time of the grant of an
Incentive Award.
No person shall have any claim or right to receive an Incentive Award
hereunder. The Committee's granting of an Incentive Award to a Participant at
any time shall neither require the Committee to grant an Incentive Award to
such Participant or any other Participant or other person at any time nor
preclude the Committee from making subsequent grants to such Participant or
any other Participant or other person.
17. Securities Matters
(a) Notwithstanding anything herein to the contrary, the Company shall
not be obligated to cause to be issued or delivered any
certificates evidencing Common Shares pursuant to the Plan unless
and until the Company is advised by its counsel that the issuance
and delivery of such certificates is in compliance with all
applicable laws, regulations of governmental authority and the
requirements of any securities exchange on which Common Shares are
traded. The Committee may require, as a condition of the issuance
and delivery of certificates evidencing Common Shares pursuant to
the terms hereof, that the recipient of such shares make such
covenants, agreements and representations, and that such
certificates bear such legends, as the Committee, in its sole
discretion, deems necessary or desirable.
(b) The exercise of any Option granted hereunder shall only be
effective at such time as counsel to the Company shall have
determined that the issuance and delivery of Common Shares
pursuant to such exercise is in compliance with all applicable
laws, regulations of governmental authority and the requirements
of any securities exchange on which Common Shares are traded. The
Company may, in its sole discretion, defer the effectiveness of
any exercise of an Option granted hereunder in order to allow the
issuance of shares of Common Stock pursuant thereto to be made
pursuant to registration or an exemption from the registration or
other methods for compliance available under federal or state
securities laws. The Company shall inform the Participant in
writing of its decision to defer the effectiveness of the exercise
of an Option granted hereunder. During the period that the
effectiveness of the exercise of an Option has been deferred, the
Participant may, by written notice, withdraw such exercise and
obtain the refund of any amount paid with respect thereto.
(c) With respect to persons subject to Section 16 of the Securities
Exchange Act of 1934, transactions under this Plan are intended to
comply with all applicable conditions of Rule 16b-3 or its
successors under the Exchange Act. To the extent any provision of
the Plan, the grant of an Incentive Award, or action by the
Committee fails to so comply, it shall be deemed null and void, to
the extent permitted by law and deemed advisable by the Committee.
18. Withholding Taxes
(a) Cash Remittance
Whenever Common Shares are to be issued upon the exercise of an
Option, the occurrence of the Issue Date or Vesting Date with
respect to a share of Restricted Stock or the payment of a Stock
Bonus, the Company shall have the right to require the Participant
to remit to the Company in cash an amount sufficient to satisfy
federal, state and local withholding tax requirements, if any,
attributable to such exercise, occurrence or payment prior to the
delivery of any certificate or certificates for such shares. In
addition, upon the exercise of an LSAR, Tandem SAR or Stand-Alone
SAR, the grant of a Cash Bonus or the making of a payment with
respect to a share of Phantom Stock, the Company shall have the
right to withhold from any cash payment required to be made
pursuant thereto an amount sufficient to satisfy the federal,
state and local withholding tax requirements.
(b) Stock Remittance
At the election of the Participant, subject to the approval of the
Committee, when Common Shares are to be issued upon the exercise
of an Option, the occurrence of the Issue Date or the Vesting Date
with respect to a share of Restricted Stock or the grant of a
Stock Bonus, in lieu of the remittance required by Section 18(a)
hereof, the Participant may tender to the Company a number of
Common Shares determined by such Participant, the Fair Market
Value of which at the tender date the Committee determines to be
sufficient to satisfy the federal, state and local withholding tax
requirements, if any, attributable to such exercise, occurrence or
grant and not greater than the Participant's estimated total
federal, state and local tax obligations associated with such
exercise, occurrence or grant.
(c) Stock Withholding
At the election of the Participant, subject to the approval of the
Committee, when Common Shares are to be issued upon the exercise
of an Option, the occurrence of the Issue Date or the Vesting Date
with respect to a share of Restricted Stock or the grant of a
Stock Bonus, in lieu of the remittance required by Section 18(a)
hereof, the Company shall withhold a number of such shares
determined by such Participant, the Fair Market Value of which at
the exercise date the Committee determines to be sufficient to
satisfy the federal, state and local withholding tax requirements,
if any, attributable to such exercise, occurrence or grant and is
not greater than the Participant's estimated total federal, state
and local tax obligations associated with such exercise,
occurrence or grant.
19. Amendment of the Plan
The Plan will have no fixed termination date, but may be terminated at
any time by the Board of Directors. Incentive Awards outstanding as of the
date of any such termination will not be affected or impaired by the
termination of the Plan. The Board of Directors may amend, alter, or
discontinue the Plan, but no amendment, alteration or discontinuation shall be
made which would (i) impair the rights of a Participant without the
Participant's consent, except such an amendment which is necessary to cause
any Incentive Award or transaction under the Plan to qualify, or to continue
to qualify, for the exemption provided by Rule 16b-3, or (ii) disqualify any
Incentive Award or transaction under the Plan from the exemption provided by
Rule 16b-3. In addition, no such amendment may be made without the approval of
the Company's shareholders to the extent such approval is required by law or
agreement.
20. No Obligation to Exercise
The grant to a Participant of an Option, LSAR, Tandem SAR or Stand-Alone
SAR shall impose no obligation upon such Participant to exercise such Option,
LSAR, Tandem SAR or Stand-Alone SAR.
21. Expenses and Receipts
The expenses of the Plan shall be paid by the Company. Any proceeds
received by the Company in connection with any Incentive Award will be used
for general corporate purposes.
22. Suspension or Termination of Incentive Award
In addition to the remedies of the Company elsewhere provided for
herein, failure by a Participant to comply with any of the terms and
conditions of the Plan or the agreement executed by such Participant
evidencing an Incentive Award, unless such failure is remedied by such
Participant within ten days after having been notified of such failure by the
Committee, shall be grounds for the cancellation and forfeiture of such
Incentive Award, in whole or in part, as the Committee may determine.
23. Code Section 162(m).
The Committee, in its sole discretion, may require that one or more
Incentive Awards contain provisions which provide that, in the event Section
162(m) of the Code, or any successor provision relating to excessive employee
remuneration, would operate to disallow a deduction by the Company for all or
part of any Incentive Award under the Plan, a Participant's receipt of the
portion of such Incentive Award that would not be deductible by the Company
shall be deferred until the next succeeding year or years in which the
Participant's remuneration does not exceed the limit set forth in such
provision of the Code.
24. Effective Date of Plan
The Plan shall be effective as of November 1, 2001, subject to approval
by the Company's Shareholders at their next Annual or Special Meeting.
25. Participation in the Plan by Nonemployee Directors
(a) The Plan will be administered as to Nonemployee Directors by the
Board of Directors.
(b) All Nonemployee Directors shall participate in the Plan, subject
to the conditions and limitations of the Plan, so long as they
remain eligible to participate in the Plan.
(c) No Nonemployee Director shall be eligible for an Incentive Award
if, at the time said Incentive Award would otherwise be granted,
such Nonemployee Director (i) is directly or indirectly the
beneficial owner of five percent or more of any class of equity
security of the Company which is registered pursuant to Section 12
of the Exchange Act or of any security convertible into or
exercisable for such class of equity security (excluding shares
covered by the Plan); or (ii) is an officer, director, 10% or
greater shareholder, employee or agent of a person or entity which
is directly or indirectly the beneficial owner of more than five
percent of any class of equity security of the Company which is
registered pursuant to Section 12 of the Exchange Act or of any
security convertible into or exercisable for such class of equity
security (excluding shares covered by the Plan). Incentive Award
grants, if any, to any such non-eligible Nonemployee Directors
shall be determined by the Board.
(d) Unless the Board of Directors shall otherwise direct, Options or
Restricted Common Stock shall automatically be granted to
Nonemployee Directors according to the following formula:
(i) Stock and Options shall be determined for all eligible
Nonemployee Directors of the Company in each calendar year
during the term of the Plan as of December 31. No Stock or
Option may be changed after it has been so determined,
except pursuant to the Plan. No Nonemployee Director shall
be entitled to receive more than one grant of Stock or
Options per year pursuant to the Plan even if such
Nonemployee Director serves as a director for more than one
Participating Company. The Stock or Options shall be
granted to each Participant by the Company or, if the
Participant is not a Nonemployee Director of the Company, by
the Participating Company for which a Nonemployee Director
serves as a director.
(ii) Stock or Options shall be granted pursuant to the Plan to
eligible Participant as follows:
Annually each Participant who has served for any position of
the year shall be granted either: (1) an option for 20,000
shares of Common Stock, or (2) at the election of the
participating Nonemployee Director, shall be granted, in
lieu of an option, 10,000 shares of Restricted Common Stock.
The exercise price of the Stock Options to be granted to
Nonemployee Directors pursuant to the Plan shall be 50% of
the Market Price as determined at the date of grant. The
"Market Price" of a share of Common Stock under the Plan
shall be the average of the "Fair Market Value" of the
Common Stock for all trading days during the twelve months
preceding the date on which the stock option is determined.
The "Fair Market Value" of a share of Common Stock with
respect to any day shall be (i) the closing sales price of a
share of Common Stock as reported on the principal
securities exchange on which shares of Common Stock are then
listed or admitted to trading; or (ii) if not so reported,
the last sales price as reported by the NASDAQ Stock Market;
or (iii) if not so reported, the average of the closing bid
and ask prices as reported on the NASDAQ Stock Market; or
(iv) if not so reported, as furnished by any member of the
National Association of Securities Dealers, Inc. selected by
the Committee. Each Stock Option shall be exercisable for a
ten year period commencing on the date of grant and shall
expire ten years after the date of grant. Certificates
evidencing the Stock Options shall be registered in the
respective names of the Participants and shall be issued to
each Participant as soon as practicable following the date
of grant.
PRELIMINARY COPY
DELTA PETROLEUM CORPORATION
PROXY
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS
The undersigned hereby constitutes and appoints Aleron H. Larson, Jr. and
Roger A. Parker, or each of them, lawful attorneys and proxies of the
undersigned, with full power of substitution, for and in the name, place and
stead of the undersigned, to attend the Annual Meeting of Shareholders of
Delta Petroleum Corporation, to be held in the corporate offices of the
Company at 555 17th Street, Suite 3310, Denver, Colorado 80202 on Friday,
March 22, 2002, at 10:00 a.m. (local time), and any adjournment(s) thereof,
with all powers the undersigned would possess if personally present and to
vote thereat, as provided below, the number of shares the undersigned would be
entitled to vote if personally present.
(Check One)
For Against Abstain
Proposal 1: To approve the four nominees to the
Board of Directors:
Aleron H. Larson, Jr. [ ] [ ] [ ]
Roger A. Parker [ ] [ ] [ ]
Jerrie F. Eckelberger [ ] [ ] [ ]
James B. Wallace [ ] [ ] [ ]
Proposal 2: To approve Delta's 2002 [ ] [ ] [ ]
Incentive Plan
Proposal 3: To approve the proposed
issuance of shares and warrants
pursuant to an Investment Agreement
with Swartz Private Equity, LLC [ ] [ ] [ ]
Proposal 4: To ratify the appointment of [ ] [ ] [ ]
KPMG LLP as independent auditors
Proposal 5: To approve an amendment to Delta's
Articles of Incorporation to reduce
the quorum and voting requirements
for meetings of shareholders [ ] [ ] [ ]
In accordance with their discretion, said attorneys and proxies are authorized
to vote upon such other business as may properly come before the meeting or
any adjournment(s) thereof. Every properly signed proxy will be voted in
accordance with the specifications made thereon. IF NOT OTHERWISE SPECIFIED,
THIS PROXY WILL BE VOTED FOR PROPOSALS 1, 2,3, 4 AND 5. All prior proxies are
revoked. This proxy will also be voted in accordance with the discretion of
the proxy or proxies on any other business. Receipt is hereby acknowledged of
the Notice of Annual Meeting and Proxy Statement.
__________________________________________________________________________
Signature Signature (if jointly held)
_________________________________ ____________________________________
Print Name Print Name
_________________________________ ____________________________________
Dated Dated
(Please sign exactly as name appears hereon. When signing as attorney,
executor, administrator, trustee, guardian, etc., give full title as such.
For joint accounts, each joint owner should sign.)
PLEASE MARK, DATE, SIGN AND RETURN THE PROXY FORM PROMPTLY USING THE
ENCLOSED ENVELOPE.