SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
|X| Filed by Registrant.
|_| Filed by Party other than the Registrant
Check the appropriate box:
|_| Preliminary Proxy Statement
|_| Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
|X| Definitive Proxy Statement
|_| Definitive Additional Materials
|_| Soliciting Material Pursuant to ss.240.14a-11(c) or ss.240.14a-12
AMERICAN NATURAL ENERGY CORPORATION
(Name of Registrant as Specified in Its Charter)
NOT APPLICABLE
(Name of Person(s) Filing Proxy Statement if other than Registrant)
Payment of Filing Fee (check the appropriate box):
|X| No fee required.
|_| Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and
0-11.
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pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
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|_| Fee paid previously with preliminary materials.
|_| Check box if any part of the Fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its filing.
1) Amount Previously Paid: ___________________________________________
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4) Date Filed: _______________________________________________________
AMERICAN NATURAL ENERGY CORPORATION
7030 SOUTH YALE - SUITE 404
TULSA, OKLAHOMA 74136
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
JULY 12, 2004
Notice is hereby given that the Annual Meeting of Shareholders of
American Natural Energy Corporation (the "Company") will be held at the offices
of the Company at 7030 South Yale - Suite 404, Tulsa, Oklahoma, on Monday, July
12, 2004, at 10:00AM, local time, for the following purposes:
1. To elect five (5) directors of the Company to hold office until the
next Annual Meeting of Shareholders in 2005 and until their respective
successors are elected and qualified;
2. To adopt amendments to the Company's 2001 Stock Incentive Plan to
conform with the requirements of the TSX Venture Exchange;
3. To transact such other business as may properly come before the
meeting, or any adjournments thereof.
Information with respect to the above is set forth in the Proxy
Statement which accompanies this Notice. Only holders of shares of the Company's
Common Stock of record at the close of business on June 9, 2004 (the "Record
Date") are entitled to notice of and to vote at the Meeting.
We hope that all of our shareholders who can conveniently do so will
attend the Meeting. Shareholders who do not expect to be able to attend the
Meeting are requested to mark, date and sign the enclosed proxy and return the
same in the enclosed addressed envelope which is intended for your convenience.
Steven P. Ensz, Secretary
Dated: June 14, 2004
2
AMERICAN NATURAL ENERGY CORPORATION
PROXY STATEMENT
ANNUAL MEETING OF SHAREHOLDERS
The enclosed proxy is solicited by the Board of Directors of American
Natural Energy Corporation, an Oklahoma corporation (the "Company"), from the
holders of shares of Common Stock, $0.01 par value ("Common Stock") to be voted
at the Annual Meeting of Shareholders (the "Meeting") to be held at the offices
of the Company at 7030 South Yale - Suite 404, Tulsa, Oklahoma, on Monday, July
12, 2004, at 10:00AM, local time, and at any adjournments thereof.
The only business which the Board of Directors intends to present or
knows that others will present at the Meeting is (i) the election of five (5)
Directors of the Company to hold office until the next Annual Meeting of
Shareholders in 2005 and until their successors have been elected and qualified,
and (ii) to consider and act on a proposal to adopt amendments to the Company's
2001 Stock Incentive Plan to conform with the requirements of the TSX Venture
Exchange. Management does not know of any other business to be brought before
the Meeting but it is intended that as to any other business, a vote may be cast
pursuant to the proxy in accordance with the judgment of the person or persons
acting thereunder. If proxies in the enclosed form are properly executed and
returned, the Common Stock represented thereby will be voted at the Meeting in
accordance with the shareholder's direction. Unless otherwise specified, proxies
in the enclosed form will be voted for the election of the five (5) Directors
named as nominees and in favor of the amendments to the Company's 2001 Stock
Incentive Plan. Any shareholder giving a proxy has the power to revoke it at any
time before the proxy is voted by revoking it in writing, by executing a later
dated proxy or appearing at the Meeting and voting in person. Any writing
revoking a proxy should be addressed to Steven P. Ensz, Secretary of the
Company, at the address set forth below.
The Directors to be elected at the Meeting will be elected by a
plurality of the votes cast by the holders of Common Stock present in person or
by proxy and entitled to vote. Votes may be cast for or withheld from each
nominee. Votes that are withheld will have no effect on the outcome of the
election because Directors will be elected by a plurality of votes cast. The
proposal to approve the amendments to the 2001 Stock Incentive Plan requires the
affirmative votes of a majority of the shares present in person or represented
by a proxy at the meeting and entitled to vote.
Under the rules of the New York Stock Exchange, brokers who hold shares
in street name have the authority to vote on certain routine matters on which
they have not received instructions from beneficial owners. Brokers holding
shares of the Company's Common Stock in street name who do not receive
instructions are entitled to vote on the election of Directors. Where authority
to vote for the election of Directors is withheld by a stockholder, such shares
will not be counted in determining the outcome of such vote. Therefore, broker
non-votes with respect to the election of Directors and stockholders who mark
their proxies to withhold authority to vote their shares will have no effect on
the outcome of such proposal, although broker non-votes and proxies submitted
where the vote for the election of Directors is withheld are counted in
determining the existence of a quorum.
Only holders of record of Common Stock as of the close of business on
June 9, 2004 are entitled to vote at the Meeting or any adjournments thereof. On
such date, the Company had outstanding voting securities consisting of
26,465,657 shares of Common Stock, each of which shares is entitled to one (1)
vote on all proposals submitted to a vote of shareholders at the Meeting.
The Company's principal executive office address is 7030 South Yale -
Suite 404, Tulsa, Oklahoma, and its telephone number is (918) 481-1440. This
Proxy Statement and the enclosed Form of Proxy will be mailed to the Company's
shareholders on or about June 14, 2004.
1. ELECTION OF DIRECTORS
At the Meeting, it is proposed to elect five (5) Directors to hold
office until the next Annual Meeting of Shareholders in 2005 and until their
respective successors are elected and qualified. It is intended that, unless
otherwise indicated, the shares of Common Stock represented by proxies solicited
by the Board of Directors will be voted for the election as Directors of the
five nominees hereinafter named. If, for any reason, any of said nominees shall
become unavailable for election, which is not now anticipated, the proxies will
be voted for the other nominees and may be voted for a substitute nominee
designated by the Board of Directors. Each nominee has indicated that he is
willing and able to serve as a Director if elected, and, accordingly, the Board
of Directors does not have in mind any substitute.
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The nominees as Director and their age are as follows:
Name Age
---- ---
Michael K. Paulk 55
Steven P. Ensz 52
Brian E. Bayley 51
John K. Campbell 69
Jules Poscente 75
MICHAEL K. PAULK: Mr. Paulk was elected President and Director of the
Company in July 2001. From October 1994 to January 2001, when it was sold to
Chesapeake Energy Corporation, he was the President and a Director of Gothic
Energy Corporation ("GEC"). GEC is neither a predecessor nor affiliate of either
ANEC or its wholly-owned subsidiary, Gothic Resources Inc. ("Gothic"), and there
was no affiliation between Gothic and GEC prior to January 2001. GEC was
engaged, until its acquisition by Chesapeake Energy Corporation in January 2001,
in the acquisition, development, exploration and production of natural gas and
oil. Mr. Paulk has been engaged in the oil and gas industry for more than
fifteen years.
STEVEN P. ENSZ: Mr. Ensz has been Vice-President, Finance and Chief
Financial Officer of the Company since July 2001 and is responsible for its
financial activities. From March 1998 to January 2001, he held a similar
position with GEC. From July 1991 to February 1998, he was Vice-President,
Finance of Anglo-Suisse, Inc., an oil and natural gas exploration and producing
company. He has held various positions within the energy industry, including
President of Waterford Energy, an independent oil and gas producer, for more
than the past 18 years. He is a certified public accountant. Mr. Ensz is also
Secretary of the Company.
BRIAN E. BAYLEY: Mr. Bayley was elected a Director of the Company in
June 2001. Since June 30, 2003, Mr. Bayley has been President and Chief
Executive Officer of Quest Capital Corp. and has been employed by predecessors
or affiliates of Quest Capital Corp. for more than the past five years. Quest
Capital Corp. trades on the Toronto Stock Exchange under the symbols QC.A and
QC.B. Quest Capital Corp. is a merchant bank that provides financial services to
small and mid-cap companies operating primarily in North America. Mr. Bayley is
currently President and Director of Quest Management Corp., a management company
that is wholly-owned by Quest Capital Corp., a position he has held since
December 1996. Quest Management Corp. provides various consulting,
administrative, management and related services to publicly traded companies.
From time to time, such services are provided to the Company.
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Mr. Bayley currently serves as a Director or officer of numerous other public
companies, none of which is a reporting issuer under U.S. securities laws. None
of the other companies Mr. Bayley is affiliated with are affiliates of the
Company. Mr. Bayley is a Director of TransAtlantic Petroleum (USA) Corp., which
also provided financing to the Company in March 2003 and purchased $3.0 million
principal amount of the Company's 8% Convertible Secured Debentures in October
2003. If all its Debentures are converted, TransAtlantic holds beneficially
6,842,795 shares of the Company's Common Stock representing 26.2% of the
Company's shares outstanding.
JOHN K. CAMPBELL. Mr. Campbell has been a Director of the Company since
April 2000 and was President of Gothic from April 2000 to July 2001. Mr.
Campbell has been the President and Director of TransAmerica Industries Ltd.
since 1986.
JULES POSCENTE. Mr. Poscente was elected a Director of the Company in
October 2003. Mr. Poscente has been the Chairman, President and Chief Executive
Officer of Eurogas Corporation since prior to 1995. It is engaged in oil and gas
exploration and development. Mr. Poscente was elected a Director pursuant to the
terms of the transaction in which our $12.0 million principal amount of 8%
Convertible Secured Debentures (the "Debentures") were issued in October 2003.
EXECUTIVE OFFICERS
The current executive officers of the Company are the following:
NAME AGE POSITION
---- --- --------
Michael K. Paulk 55 President and Director
Steven P. Ensz 52 Vice President, Finance and
Chief Financial Officer
The employment background of Messrs. Paulk and Ensz is described above.
DIRECTOR AND OFFICER SECURITIES REPORTS
The Federal securities laws require the Company's Directors
and executive officers, and persons who own more than ten percent (10%) of a
registered class of the Company's equity securities to file with the Securities
and Exchange Commission initial reports of ownership and reports of changes in
ownership of any of its equity securities. Copies of such
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reports are required to be furnished to the Company. To the Company's knowledge,
based solely on a review of the copies of such reports and other information
furnished to it, all persons subject to these reporting requirements filed the
required reports on a timely basis with respect to the year ended December 31,
2003.
EXECUTIVE COMPENSATION
The following table sets forth the compensation paid or awarded during
the three years ended December 31, 2003 to the Company's chief executive officer
and all other executive officers who received compensation exceeding $100,000
during 2003 for all services rendered to the Company.
SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION
COMPENSATION
----------------------------------
OTHER LONG-TERM ALL OTHER
NAME AND ANNUAL ANNUAL AWARDS/OPTION COMP.
PRINCIPAL POSITION YEAR SALARY BONUS COMP. (#)
- ------------------------------------------------------------------------------------------------------------------------
Michael K. Paulk 2003 $120,000(1) -0- -0- -0- -0-
2002 $90,000(2) -0- -0- -0- -0-
2001 -0- -0- -0- 325,000 $35,000(3)
Steven P. Ensz 2003 $120,000(1) -0- -0- -0- -0-
2002 $90,000(2) -0- -0- -0- -0-
2001 -0- -0- -0- 325,000 $35,000(3)
- ------------------------
(1) Of this amount, $40,000 was unpaid at December 31, 2003 and is included in
accrued liabilities.
(2) Of this amount, $45,000 was unpaid at December 31, 2002 and 2003 and was
included in accrued liabilities.
(3) This sum represents amounts paid for services prior to the January 2002
corporate reorganization resulting in American Natural Energy Corporation
becoming the Company's parent corporation.
STOCK OPTION EXERCISES DURING THE YEAR ENDED DECEMBER 31, 2003 AND HOLDINGS AT
DECEMBER 31, 2003.
The following table provides information with respect to the above named
executive officers regarding options held at December 31, 2003. No options were
granted to such persons during the year ended December 31, 2003.
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NUMBER OF UNEXERCISED OPTIONS VALUE OF UNEXERCISED IN-THE-MONEY
AT DECEMBER 31, 2003 OPTIONS AT DECEMBER 31, 2003(1)
NAME SHARES ACQUIRED ON VALUE EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
EXERCISE REALIZED
- ----------------------------------------------------------------------------------------------------------------------------
Michael K. Paulk -0- -0- 325,000 -0- $256,750 -0-
Steven P. Ensz -0- -0- 325,000 -0- $256,750 -0-
- ----------------------
(1) Based on the closing bid price on December 31, 2003 of $1.11 per share.
MEETINGS OF THE BOARD OF DIRECTORS, COMMITTEES AND RIGHTS OF REPRESENTATION ON
THE BOARD OF DIRECTORS
Board of Directors. The Company's Board of Directors held four meetings
during the year ended December 31, 2003. Each of the Company's Directors
participated in all of the meetings of the Board and of each committee of the
board of which he is a member. In the opinion of the Company's Board of
Directors, Messrs. Campbell and Poscente are independent directors as defined
under the rules relating to the NASDAQ Stock Market.
Under the terms of the Indenture under which the Company's Debentures
were issued in October 2003, Mr. Poscente and one other person, who has since
died, were elected Directors of the Company in October 2003. The Indenture
further provides that if either of such persons, or any replacement Director for
either of them, ceases at any time to be two of the Company's Directors and any
of the following occurs:
o such Director has so ceased to be a Director as a result of a
resolution passed or an election of Directors approved by the
Company's shareholders; or
o the Company fails to give notice to the Trustee under the Indenture
and the holders of the Debentures that one or more of such
Directors has ceased to be a Director of the Company within five
days after the date such person ceased to be such a director; or
o the Company fails to appoint or elect an individual, who has been
approved as a replacement Director by resolution of the
Debentureholders and who has consented to act as such, to fill a
vacancy in such two Directors' positions within five days of such
resolution being passed by the Debentureholders and the Company
receives notice thereof;
then a default has occurred under the Indenture which gives to the Trustee and
the holders of the Debentures the right to accelerate the due date on the
indebtedness. Under such circumstances, the Trustee, on behalf of the holders of
the Debentures, may enforce its rights to foreclose on the collateral for the
Debentures which include substantially all of the Company's oil and gas
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properties and other assets. It is expected that another person to be selected
by the holders of the Debentures will be elected to our Board of Directors;
however, no such person has been selected as of the Record Date.
Audit Committee. As of January 31, 2004, the Company's Audit Committee
consists of Messrs. Brian E. Bailey (Chairman) and John K. Campbell The Audit
Committee, among other things, meets with the Company's independent accountants
to review the Company's accounting policies, internal controls and other
accounting and auditing matters; approves the engagement of the Company's
independent accountants to render audit and non-audit services; and reviews the
letter of engagement and statement of fees relating to the scope of the annual
audit and special audit work which may be recommended or required by the
independent accountants. The Audit Committee met four times during the year
ended December 31, 2003.
The Company's Audit Committee Charter, as adopted on April 22, 2004, is
attached as Annex A to this Proxy Statement. The Charter describes the nature
and scope of the duties and responsibilities of the Audit Committee.
The Company's Board of Directors has determined that the Board does not
have an Audit Committee Financial Expert serving on its Audit Committee. The
Company does not have an Audit Committee Financial Expert serving on its Audit
Committee because at this time the limited magnitude of the Company's revenues
and operations does not, in the view of the Board of Directors, justify or
require that the Company obtain the services of a person having the attributes
required to be an Audit Committee Financial Expert on the Company's Board of
Directors and Audit Committee. The Company's Board of Directors may in the
future determine that a member elected to the Board in the future has the
attributes to be determined to be an Audit Committee Financial Expert.
Nominating Committee. The Company does not have a standing nominating
committee. Under the rules of the TSX Venture Exchange on which the Company's
shares of Common Stock are listed, the Company is not required to have such a
committee. The Company's Board of Directors is of the view that because of the
limited magnitude of the Company's revenues and operations at this time, it is
appropriate for the Company not to have a nominating committee. Each Director of
the Company has the opportunity to participate in the consideration of nominees
for election as Directors. The Board of Directors has not adopted a charter for
a nominating committee.
As is described above, the holders of the Company's outstanding
Debentures have certain rights if persons approved by the holders of the
Debentures fail to be elected or re-elected as Directors of the Company. Except
for the foregoing, the Company has not adopted a policy with regard to the
consideration of candidates for nomination for election as Directors. Because of
the limited magnitude of the Company's revenues and operations at this time, the
Company's Board of Directors believes it is appropriate for the Company not to
have such a policy.
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Compensation Committee. The Company's Board of Directors has not
appointed a compensation committee.
The Company's full Board of Directors acts on matters involving the
compensation of the Company's executive officers and employees and the grant of
options under the Company's option plan. Executive officers who are Directors
whose compensation is being considered do not participate in board or committee
actions regarding their compensation. The Board of Directors seeks to assure
that the Company's executive officers are adequately and fairly compensated and
that their compensation is competitive with other similar-sized companies in the
oil and gas exploration and production industry and, at the same time,
reflecting their individual performance and responsibilities within the Company.
To date, the Board has compensated executive officers primarily through the
payment of salaries. The Company does not have any employment agreements with
its executive officers.
DIRECTORS' COMPENSATION
The Directors of the Company do not receive any cash compensation for
serving in that capacity; however, they are reimbursed for their out-of-pocket
expenses in attending meetings. Pursuant to the terms of the Company's 2001
Stock Incentive Plan, each non-employee Director who is first elected or
appointed after February 1, 2002 automatically receives an option grant for
50,000 shares on the date such person joins the Board. In addition, on the date
of each annual stockholder meeting, provided such person has served as a
non-employee Director for at least six months, each non-employee Board member
who is to continue to serve as a non-employee Board member will automatically be
granted an option to purchase 5,000 shares. As in effect on the Record Date,
each such option has a term of ten years, subject to earlier termination
following such person's cessation of Board service, and is subject to certain
vesting provisions. As proposed to be amended at the Meeting, the term of
options hereafter granted will have a term of five years.
COMMUNICATING WITH THE BOARD OF DIRECTORS
Stockholders or other interested parties may communicate with the
entire Board of Directors, specified individual Directors, or certain Directors
as a group by writing to the secretary of the Company at 7030 South Yale - Suite
404, Tulsa, OK 74136. All such correspondence will be forwarded to the specified
Director or group of Directors.
The Company urges but does not require Board members to attend annual
meetings of stockholders. Four of the Company's Directors attended the Company's
annual meeting of
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stockholders held on September 24, 2003 in Tulsa, Oklahoma, including two who
attended by telephone.
2. AMENDMENT TO 2001 STOCK INCENTIVE PLAN
At the Meeting, it is proposed to seek stockholder approval of certain
amendments to the Company's 2001 Stock Option Plan. The Company's shares are
listed on the TSX Venture Exchange and these amendments are proposed so that, if
the amendments are adopted, the 2001 Plan will comply with the TSX Venture
Exchange requirements, and this proposal is submitted to stockholders for
approval for that reason. The 2001 Plan was adopted by the Board of Directors of
the Company in December 2001 and approved by the vote of the disinterested
stockholders of the Company's predecessor, Gothic Resources Inc., at a meeting
held on January 18, 2002.
MANAGEMENT RECOMMENDS A VOTE IN FAVOR OF THIS PROPOSAL
Under the 2001 Plan, as presently constituted before the proposed
amendments, 5,000,000 shares of Common Stock have been reserved for issuance on
exercise of options that may be granted under the 2001 Plan. The proposed
amendments, if adopted, will not change the number of shares reserved for
issuance. The proposed amendments will change, among other things, certain
vesting provisions, impose certain limitations on the number of shares that can
be the subject of options, provisions relating to the expiration of options upon
a cessation of service by an optionee, and change certain of the optionee's
rights upon a change of control of the Company.
Description of the 2001 Plan. The 2001 Plan is divided into five
separate components: (i) the Discretionary Option Grant Program under which
eligible individuals in the Company's employ or service (including officers and
consultants) may, at the discretion of the 2001 Plan Administrator, be granted
options to purchase shares of Common Stock at an exercise price equal to not
less than the fair market value of the Common Stock on the date of grant, (ii)
the Stock Issuance Program under which such individuals may, in the 2001 Plan
Administrator's discretion, be issued shares of Common Stock directly, through
the purchase of such shares at a price not less than their fair market value at
the time of issuance or as a bonus tied to the performance of services, (iii)
the Salary Investment Option Grant Program which may, in the 2001 Plan
Administrator's sole discretion, be activated for one or more calendar years
and, if so activated, allows executive officers and other highly compensated
employees the opportunity to apply a portion of their base salary to the
acquisition of special below-market stock option grants, (iv) the Automatic
Option Grant Program under which option grants are automatically made at
periodic intervals to eligible, non-employee members of the Board of Directors
to purchase shares of Common Stock at an exercise price equal to their fair
market value on the grant date and (v) the Director Fee Option Grant Program
which may, in the 2001 Plan Administrator's sole discretion,
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be activated for one or more calendar years and, if so activated, allows
non-employee Board members the opportunity to apply a portion of any annual
retainer fee otherwise payable to them in cash each year to the acquisition of
special below-market option grants. These five separate components of the 2001
Plan will continue to exist if the proposed amendments are adopted; however,
certain provisions of those components will be changed.
The Discretionary Option Grant Program and the Stock Issuance Program
are administered by the Board of Directors. The Board of Directors, as 2001 Plan
Administrator, has the discretion to determine which eligible individuals are to
receive option grants or stock issuances under those programs, the time or times
when such option grants or stock issuances are to be made, the number of shares
subject to each such grant or issuance, the status of any granted option as
either an incentive stock option or a non-statutory stock option under the U.S.
federal tax laws, the vesting schedule to be in effect for the option grant or
stock issuance and the maximum term for which any granted option is to remain
outstanding. The Board of Directors also has the authority to select the
executive officers and other highly compensated employees who may participate in
the Salary Investment Option Grant Program in the event that program is
activated for one or more calendar years, but the Board of Directors does not
exercise any administrative discretion with respect to option grants made under
the Salary Investment Option Grant Program or under the Automatic Option Grant
Program or Director Fee Option Grant Program for the non-employee Board members.
All grants under those three latter programs are made in strict compliance with
the express provisions of each such program.
The exercise price for the shares of Common Stock subject to option
grants made under the 2001 Plan may be paid in cash or in shares of Common Stock
valued at fair market value on the exercise date. The option may also be
exercised through a same-day sale program without any cash outlay by the
optionee. In addition, the 2001 Plan Administrator may provide financial
assistance to one or more optionees in the exercise of their outstanding options
or the purchase of their unvested shares by allowing such individuals to deliver
a full-recourse, interest-bearing promissory note in payment of the exercise
price and any associated withholding taxes incurred in connection with such
exercise or purchase.
Stock appreciation rights are authorized for issuance under the
Discretionary Option Grant Program which provide the holders with the election
to surrender their outstanding options for an appreciation distribution from the
Company equal to the excess of (i) the fair market value of the vested shares of
Common Stock subject to the surrendered option over (ii) the aggregate exercise
price payable for such shares. Such appreciation distribution may be made in
cash or in shares of Common Stock.
In the event that the Company is acquired by merger or sale of
substantially all of its assets or securities possessing more than 50% of the
total combined voting power of the Company's outstanding securities, unless
otherwise provided in the option, each outstanding option under the
Discretionary Option Grant Program which is not to be assumed by the
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successor corporation or otherwise continued in effect will automatically
accelerate in full, and all unvested shares under the Discretionary Option Grant
and Stock Issuance Programs will immediately vest, except to the extent the
Company's repurchase rights with respect to those shares are assigned to the
successor corporation or otherwise continued in effect. The 2001 Plan
Administrator has complete discretion to grant one or more options under the
Discretionary Option Grant Program which, unless otherwise provided in the
option, will become exercisable on an accelerated basis for all of the option
shares upon (i) an acquisition or other change in control of the Company,
whether or not those options are assumed or continued in effect, or (ii) the
termination of the optionee's service within a designated period (not to exceed
18 months) following an acquisition or other change in control in which those
options are assumed or continued in effect. The vesting of outstanding shares
under the Stock Issuance Program may be accelerated upon similar terms and
conditions. The 2001 Plan Administrator is also authorized under the
Discretionary Option Grant and Stock Issuance Programs to grant options and to
structure repurchase rights so that the shares subject to those options or
repurchase rights will immediately vest in connection with a change in the
majority of the Board of Directors of the Company by reason of one or more
contested elections for Board membership, with such vesting to occur either at
the time of such change in control or upon the subsequent termination of the
individual's service within a designated period following such change in
control.
In the event the 2001 Plan Administrator elects to activate the Salary
Investment Option Grant Program for one or more calendar years, each executive
officer and other highly compensated employees of the Company selected for
participation may elect, prior to the start of the calendar year, to reduce his
or her base salary for that calendar year by a specified dollar amount not less
than $12,000 nor more than $60,000. If such election is approved by the 2001
Plan Administrator, the individual will automatically be granted, on the first
trading day in January of the calendar year for which that salary reduction is
to be in effect, a non-statutory option to purchase that number of shares of
Common Stock determined by dividing the salary reduction amount by two-thirds of
the fair market value per share of Common Stock on the grant date. The option
will be exercisable at a price per share equal to one-third of the fair market
value of the option shares on the grant date. As a result, the total spread on
the option shares at the time of grant (the fair market value of the option
shares on the grant date less the aggregate exercise price payable for those
shares) will be equal to the amount of salary invested in that option. The
option will become exercisable for the option shares in a series of 12 equal
monthly installments over the calendar year for which the salary reduction is to
be in effect and will be subject to full and immediate vesting upon certain
changes in the ownership or control of the Company.
Under the Automatic Option Grant Program, each individual who is a
non-employee Board member on February 1, 2002 or who first becomes a
non-employee Board member at any time thereafter, whether by appointment by the
Board of Directors or election of the stockholders, will automatically receive
an option grant for 50,000 shares as of the date such individual joins the
Board, provided such individual has not been in the prior employ of the Company.
In addition, on the date of each Annual Stockholders Meeting of the Company held
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after the 2001 Plan Effective Date, each non-employee Board member who is to
continue to serve as a non-employee Board member is automatically granted an
option to purchase 5,000 shares of Common Stock, provided, commencing January 1,
2003, such individual has served on the Board for at least six months. Each
automatic grant for the non-employee Board members has a term of 10 years,
subject to earlier termination following the optionee's cessation of Board
service. Each automatic option is immediately exercisable for all of the option
shares; however, any unvested shares purchased under the option are subject to
repurchase by the Company, at the exercise price paid per share, should the
optionee cease Board service prior to vesting in those shares. The shares
subject to each initial 50,000-share automatic option grant vest over a
three-year period in successive equal annual installments upon the individual's
completion of each year of Board service measured from the option grant date.
Each 5,000-share automatic option grant will vest upon the individual's
completion of one year of Board service measured from the option grant date.
However, the shares subject to each automatic grant immediately vest in full
upon certain changes in control or ownership of the Company or upon the
optionee's death or disability while a Board member.
Should the Director Fee Option Grant Program be activated, each
non-employee Board member has the opportunity to apply all or a portion of any
annual retainer fee otherwise payable in cash to the acquisition of a
below-market option grant. The option grant is automatically made on the first
trading day in January in the year for which the retainer fee would otherwise be
payable in cash. The option has an exercise price per share equal to one-third
of the fair market value of the option shares on the grant date, and the number
of shares subject to the option will be determined by dividing the amount of the
retainer fee applied to the program by two-thirds of the fair market value per
share of Common Stock on the grant date. As a result, the total spread on the
option (the fair market value of the option shares on the grant date less the
aggregate exercise price payable for those shares) will be equal to the portion
of the retainer fee invested in that option. The option will become exercisable
for the option shares in a series of 12 equal monthly installments over the
calendar year for which the election is to be in effect. However, the option
will become immediately exercisable for all the option shares upon (i) certain
changes in the ownership or control of the Company or (ii) the death or
disability of the optionee while serving as a Board member.
The shares subject to each option under the Salary Investment Option
Grant and Automatic Option Grant and Director Fee Option Grant Programs
immediately vest upon (i) an acquisition of the Company by merger or asset sale,
(ii) the successful completion of a tender offer for more than 50% of the
Company's outstanding voting stock or (iii) a change in the majority of the
Board effected through one or more contested elections for Board membership.
Limited stock appreciation rights are automatically be included as part of each
grant made under the Automatic Option Grant, Salary Investment Option Grant and
Director Fee Option Grant Programs and may be granted to one or more officers of
the Company as part of their option grants under the Discretionary Option Grant
Program. Options with such a limited stock appreciation right may be surrendered
to the Company upon the successful completion of a
-12-
hostile tender offer for more than 50% of the Company's outstanding voting
stock. In return for the surrendered option, the optionee will be entitled to a
cash distribution from the Company in an amount per surrendered option share
equal to the excess of (i) the highest price per share of Common Stock paid in
connection with the tender offer over (ii) the exercise price payable for such
share.
The Board of Directors of the Company may amend or modify the 2001 Plan
at any time, subject to any required stockholder approval. The 2001 Plan will
terminate on the earliest of (i) 10 years after the 2001 Plan Effective Date,
(ii) the date on which all shares available for issuance under the 2001 Plan
have been issued as fully-vested shares or (iii) the termination of all
outstanding options in connection with certain changes in control or ownership
of the Company.
Options granted under the 2001 Plan could have the effect of
discouraging, delaying or preventing a merger or acquisition of the Company that
a stockholder may consider favorable.
Description of Proposed Material Amendments. The material amendments to
the 2001 Plan include the following:
o Limitations will be placed on the amount of shares that can be the
subject of options granted under the 2001 Plan within a one-year
period so that the number of shares that can be issuable under the
2001 Plan and all other share compensation plans established by the
Company:
- to any one optionee cannot exceed 5% of the total number of
the Company's issued and outstanding shares on the date of
grant,
- to Insiders (as defined under the rules and policies of the
TSX Venture Exchange) cannot exceed 10% of the total number
of the Company's issued and outstanding shares on the date
of grant,
- to all consultants and independent advisors who provide
ongoing investor relations activities cannot exceed 2% in
the aggregate of the total number of the Company's issued
and outstanding shares on the date of grant. These
limitations did not exist in the 2001 Plan as adopted.
o A limitation will be placed on the amount of shares that can be the
subject of options granted under the 2001 Plan and all other share
compensation plans established by the Company so that the amount
cannot exceed 10% of the total number of the Company's issued and
outstanding shares. This limitation did not exist in the 2001 Plan
as adopted.
o Unvested shares repurchased by the Company pursuant to its
re-purchase rights will not be available thereafter for re-issuance
on exercise of options
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granted under the 2001 Plan. As originally adopted, these shares
would be thereafter available for the issuance of options.
o Vesting of options must be in accordance with the policies of the
TSX Venture Exchange which currently provide that the minimum
vesting requirements are 25% of the number of shares under option
on the date the option is granted and 12-1/2% every quarter
thereafter, which is the vesting period adopted by the Company's
Board of Directors. This vesting schedule did not exist in the 2001
Plan as adopted.
o Under the Discretionary Option Grant Program,
- The exercise price for an option no longer may be paid by
delivery of shares of the Company's Common Stock. Under the
2001 Plan as adopted, shares could be used for this purpose.
- No option can have a term exceeding five years from the
grant date. Under the 2001 Plan as adopted, the term could
be up to ten years.
- Upon a cessation of service, the option shall remain
exercisable for no more than 90 days following the cessation
of service and if the person is a consultant providing
ongoing investor relation activities, such period is 30
days. Under the 2001 Plan as adopted, any limitations were
established by the terms of the grant and could exceed these
periods.
- The Company will no longer have the right to re-purchase
unvested shares held upon a cessation of service at their
exercise price paid per share.
- Options are not assignable or transferable. Under the 2001
Plan as adopted, such options could be transferred as
permitted by the Canadian Venture Exchange Inc.
- Upon a change in control of the Company, rights to
re-purchase shares will no longer automatically terminate
and the shares subject to those rights will not
automatically vest.
- Stock appreciation rights will no longer be able to be
granted.
o Under the Salary Investment Option Grant Program
- The exercise price of the shares must equal the fair market
value of the shares on the date of grant.
- Each option will have a maximum term of five years. Under
the 2001 Plan as adopted, the term was ten years.
o Under the Automatic Option Grant Program
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- Each option is to have a term of five years from the option
grant date. Under the 2001 Plan as adopted, the term was ten
years.
- Shares purchased on exercise of an option will no longer be
re-purchasable by the Company on cessation of Board service
prior to the vesting of the shares.
- Upon a change of control, the Company's right to re-purchase
shares will no longer terminate.
- Upon a cessation of service as a Director, if service
terminates for any reason other than death or disability,
the option will remain exercisable for 90 days and in the
event the reason is death or disability, the option will
remain exercisable for one year. Under the 2001 Plan as
adopted, any limitations were established by the terms of
the grant and could exceed these periods.
o Under the Director Fee Option Grant Program
- The exercise price of the shares will equal the fair market
value of the shares on the date of grant.
- Each option will have a maximum term of five years. Under
the 2001 Plan as adopted, the term was ten years.
o The option exercise price for shares issued on exercise of options
granted under the Discretionary Option Grant Program or the Stock
Issuance Program will not be able to be paid by delivery of a
promissory note.
o The Company will be unable to grant options to purchase shares in
excess of the number of shares reserved under the 2001 Plan. Under
the 2001 Plan as adopted, this limit could be exceeded provided
stockholder approval for the excess was obtained within one year.
ADOPTION OF THE PROPOSAL REQUIRES THE AFFIRMATIVE VOTE OF THE HOLDERS
OF A MAJORITY OF THE VOTES CAST AT THE MEETING.
CERTAIN TRANSACTIONS
The Company was organized as an Oklahoma corporation on
January 19, 2001. At that time, the following persons subscribed to an aggregate
of 100,000 shares of the
-15-
Company's common stock. Messrs. Paulk and Ensz may be deemed to be the
Company's founders.
NAME NO. OF SHARES
---- -------------
Michael K. Paulk 42,500
Steven P. Ensz 42,500
Bennett G. Shelton 5,000
Robert G. Snead 5,000
Richard Mulford 5,000
-------
Total 100,000
By agreement dated July 11, 2001, the above five stockholders sold
their shares to Gothic Resources Inc., the Company's predecessor corporation, in
exchange for an aggregate of 1,000,000 shares of Gothic, or ten Gothic shares
for each one share of the Company's shares. The Company thereby became a
wholly-owned subsidiary of Gothic.
In July, 2001, the Company issued in a private sale of its securities
to a limited number of sophisticated investors an aggregate of 10,000,000 shares
of common stock for a subscription price of $0.33 per share. The Company's
officers and Directors purchased the following numbers of shares in the
transaction:
NAME NO. OF SHARES
---- -------------
Michael K. Paulk 650,000
Steven P. Ensz 1,000,000
Brian E. Bayley 650,000
---------
Total 2,300,000
On June 6, 2001, each of Michael K. Paulk and Steven P. Ensz loaned the
Company $100,000 evidenced by its promissory note bearing interest at 6% per
annum and due on May 31, 2002. These notes have been repaid with all accrued
interest.
During the year 2001, the Company paid consulting, management and other
reimbursable expenses aggregating approximately $19,750 to Quest Management
Corp. of which Mr. Bayley, one of the Company's Directors, is President. Payment
of expenses in 2002 aggregated $20,329. No payments were made to Quest
Management Corp. in 2003. These expenses primarily relate to compliance with
regulatory filing requirements with the securities commissions of the Provinces
of Canada where the Company's securities are able to be traded and such expenses
are expected to continue so long as the Company's securities continue to be
traded in Canada.
In September 2002, Mr. Paulk loaned to the Company $40,000. The loan
was due on demand and accrued interest at the Bank One prime rate (4% per annum
as of August 8, 2003), a
-16-
rate equal to the interest rate Mr. Paulk paid on the funds borrowed by him. The
loan was not collateralized. The proceeds of the loan were used by the Company
for working capital. The loan was repaid in November 2003.
In March 2003, the Company completed a $2.5 million borrowing from
Quest Investment Corporation (a wholly-owned subsidiary of Quest Capital Corp.),
as principal and agent, for working capital and repayment of secured debt. The
$2.5 million was due to be repaid on October 31, 2003 and bore interest at 12%
per annum (effective rate 22.0%). The loan was secured by all the Company's oil
and gas properties and undeveloped leaseholds. This loan was repaid in October
2003. The lenders received 688,000 shares of the Company's common stock as
compensation for making the loan. Mr. Brian Bayley, one of the Company's
Directors, is a Director and the Chief Executive Officer of Quest Capital Corp.
In March 2003, the Company entered into a funding arrangement with
TransAtlantic Petroleum (USA) Corp. whereby TransAtlantic agreed to advance to
the Company up to $2.0 million, of which up to $1.8 million was used to fund the
Company's share of the drilling and completion costs for the four initial wells
the Company drilled in St. Charles Parish. In exchange, TransAtlantic received a
$2.0 million production payment payable out of 75% of the net revenues from the
wells drilled with the funds advanced. In addition, also in exchange for the
availability of the funds for drilling and completion and an additional $200,000
of funding, TransAtlantic received a 10% interest in the Company's Bayou Couba
Lease and its lease with the State of Louisiana. Under the agreements,
TransAtlantic has the right to acquire a 10% participation in any additional
leasehold interests the Company acquires in its approximately 23.138 square mile
Bayou Couba salt dome development area. The Company's obligations to
TransAtlantic were collateralized by a lien against its interest in the four
initial wells and their hydrocarbon production. At September 30, 2003, the
entire $1.8 million and $200,000 fundings had been advanced and $327,350 of the
production payment had been paid to TransAtlantic. The remaining outstanding
balance on the production payment was paid in October 2003. Because the
transaction involved the sale of a production payment to TransAtlantic, there
was no stated interest rate on the advances. The Company imputed interest in the
amount of $461,544 on the $2,000,000 in its financial statements. Mr. Brian
Bayley, a Director of the Company, is also a Director of TransAtlantic.
In October 2003, the Company completed the private sale of $12.0
million principal amount of 8% Convertible Secured Debentures (the "Debentures")
due September 30, 2005. The Debentures bear interest payable quarterly
commencing December 31, 2003 at 8% per annum. The outstanding principal of the
Debentures is convertible into shares of the Company's Common Stock at any time
prior to maturity at a conversion price of $0.45 per share, subject to
anti-dilution adjustment, and the Debentures are redeemable by the Company at
any time after October 1, 2004 if the average weighted price per share on the
TSX Venture Exchange for a 20 consecutive trading day period prior to the date
notice of redemption is given has exceeded 166-2/3% of the conversion price. The
Debentures are collateralized by substantially all of the
-17-
Company's assets. A finder's fee in the amount of $360,000 was paid in
connection with the financing. The Company used approximately $5.9 million of
the proceeds of the financing for the repayment of secured debt. The secured
indebtedness repaid included $2.5 million to Quest Capital Corp., which bore
interest at 12% per annum, was due October 31, 2003, and was collateralized by a
first lien on substantially all the Company's assets. In addition, the Company
paid out of the proceeds the remaining balance of $1.7 million on a production
payment owing to TransAtlantic Petroleum (USA) Corp. TransAtlantic retained its
10% participation right in the Company's area of mutual interest with ExxonMobil
Corp. which was granted as partial consideration for the $2.0 million financing
entered into in March 2003 described above.
In connection with and as conditions to the Debenture financing, Mr.
Jules Poscente, currently one of the Company's Directors and one other person
were elected to the Company's Board of Directors. See "1. Election of Directors
- - Meetings of the Board of Directors, Committees and Rights of Representation On
the Board of Directors" above for a description of the terms of the Debentures
relating to these rights.
Purchasers of the Debentures included TransAtlantic Petroleum Corp., in
the amount of $3.0 million principal amounts, Quest Capital Corp., in the amount
of $500,000 principal amount. Mr. Fleming was formerly the Chairman of
TransAtlantic. Mr. Brian Bayley, who has been a Director of the Company since
June 2001, is also President and Chief Executive Officer of Quest Capital Corp.
and a Director of TransAtlantic. In addition, Bonanza Energy Ltd., a corporation
of which Mr. Fleming was the sole shareholder, purchased $500,000 principal
amount of Debentures. Out of the proceeds of the sale of the Debentures,
TransAtlantic was paid $1.7 million in payment in full of a production payment
owing to it and Quest Capital Corp. was paid $2.5 million in repayment of a
loan.
INDEPENDENT ACCOUNTANTS
The Board of Directors has selected PricewaterhouseCoopers L.L.P. as
the Company's independent registered public accounting firm for 2004. The
Company expects a representative of PricewaterhouseCoopers L.L.P. to be present
at the Meeting and to be available to respond to appropriate questions or make a
statement if they desire to do so.
On February 12, 2002, PricewaterhouseCoopers, LLP, Vancouver, Canada,
was engaged to audit Gothic's consolidated financial statements for the year
ended December 31, 2001 and 2000. The decision to engage PricewaterhouseCoopers
LLP was approved by Gothic's Board of Directors.
The firm of KPMG LLP, Vancouver, Canada, audited the financial
statements of Gothic for the years ended December 31, 2000 and 1999. On February
12, 2002, KPMG LLP's appointment as principal accountants was terminated. The
audit report of KPMG LLP for the
-18-
two years ended December 31, 2000 did not contain any adverse opinion or
disclaimer of opinion or modification as to uncertainty, audit scope or
accounting principles.
During the two years ended December 31, 2000 and through February 12,
2002, neither the Company nor anyone on its behalf consulted with
PricewaterhouseCoopers, LLP regarding the matters referred to in Item 304(a)(2)
of Regulation S-B under the Securities Exchange Act of 1934, as amended. During
the two fiscal years ended December 31, 2000 and through February 12, 2002,
Gothic did not have any disagreements with KPMG LLP on any matter of accounting
principles or practices, financial statement disclosure or auditing scope or
procedures which disagreements, if not resolved to their satisfaction, would
have caused them to make reference in connection with their opinion to the
subject matter of the disagreement.
2003 AND 2002 AUDIT AND RELATED FEES
The following sets forth fees incurred by the Company during the year
ended December 31, 2002 for services provided by PricewaterhouseCoopers, LLP.,
the Company's independent public accountant:
Audit Fees Audit Related Fees Tax Fees All Other Fees
- -------------------------- -------------------- -----------------------------
2003 $266,500 $-0- $-0- $-0-
2002 $356,937 $-0- $-0- $-0-
The Company's Board of Directors believes that the provisions of the
services during the two years ended December 31, 2003 is compatible with
maintaining the independence of PricewaterhouseCoopers L.L.P. The Company's
Audit Committee approves before the engagement the rendering of all audit and
non-audit services provided to the Company by its independent auditor.
Engagements to render services are not entered into pursuant to any pre-approval
policies and procedures adopted by the Audit Committee.
COMMON STOCK OWNERSHIP
OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
As of the Record Date, the Company had issued and outstanding
26,465,657 shares of its Common Stock. The following table sets forth, as of the
Record Date, certain information regarding beneficial ownership of the Common
Stock by (i) those persons beneficially holding more than five percent of the
Company's Common Stock, (ii) the Company's directors who beneficially own shares
of the Common Stock and (iii) all of the Company's directors and officers as a
group.
-19-
PERCENTAGE OF
NUMBER OF SHARES OUTSTANDING
NAME AND ADDRESS (1)(2) OWNED SHARES(3)
---------------------------------------------------------------------------------------
Mike K. Paulk 1,400,000(4) 5.7%
Steven P. Ensz 1,750,000(5) 6.5%
Brian E. Bayley 916,500(6) 3.6%
Quest Management Corp.
Suite 300 - 570 Granville Street
Vancouver, BC V6C 3P1
John K. Campbell 225,000(7) 0.9%
750 West Pender Street - Suite 710
Vancouver, BC V6C 2T7
Bonanza Energy Ltd. 1,311,111(8) 5.0%
#1550, 340 12th Avenue, SW
Calgary, Alberta T2R 1L5
Jules Poscente 220,000(9) 0.8%
440, 333 Fifth Avenue, SW
Calgary, Alberta T2P 3B6
Commonwealth Canadian Balanced Fund(10) 1,666,667(11) 6.4%
40 King Street, West
55th Floor
Toronto, Ontario M5H 4A9
TransAtlantic Petroleum Corp(12) 6,842,795(13) 26.2%
1550, 340 - 12th Avenue, SW
Calgary, Alberta T2R 1L5
All Directors and officers as a group (5 4,511,500 17.2.%
persons)
- ---------------------------
(1) This tabular information is intended to conform with Rule 13d-3
promulgated under the Securities Exchange Act of 1934 relating to the
determination of beneficial ownership of securities. The tabular
information gives effect to the exercise of warrants or options
exercisable within 60 days of the Record Date owned in each case by the
person or group whose percentage ownership is set forth opposite the
respective percentage and is based on the assumption that no other
person or group exercise their option.
(2) Unless otherwise indicated, the address for each of the above is c/o
American Natural Energy Corporation, 7030 South Yale, Suite 404, Tulsa,
Oklahoma 74136.
(3) The percentage of outstanding shares calculation is based upon
26,154,546 shares outstanding as of the Record Date, except as
otherwise noted.
-20-
(4) Includes 325,000 shares issuable at an exercise price of $0.32 on
exercise of an option. Of Mr. Paulk's shares, 141,667 shares are held
subject to a Pooling Agreement described below.
(5) Includes 325,000 shares issuable at an exercise price of $0.32 on
exercise of an option. Of Mr. Ensz's shares, 141,667 shares are held
subject to a Pooling Agreement described below.
(6) Includes 200,000 shares issuable at an exercise price of $0.32 on
exercise of an option. Excludes 60,000 shares held by Mr. Bayley's wife
and 50,000 shares held by a trust for the benefit of Mr. Bayley's minor
children, as to all of which Mr. Bayley disclaims a beneficial
interest. Also excludes 181,632 issued and outstanding shares and
1,111,111 shares issuable on conversion of Debentures held by Quest, as
to which shares and Debentures Mr. Bayley disclaims a beneficial
interest.
(7) Includes 25,000 shares held by Mr. Campbell, 150,000 shares issuable at
an exercise price of $0.47 on exercise of an option and 50,000 shares
issuable at an exercise price of $0.68 on exercise of an option.
(8) The shares are issuable on conversion of $500,000 principal amount of
the Company's Debentures at a conversion price of $0.45 per share,
subject to adjustment. The Debentures are held by Bonanza Energy Ltd.
which is wholly owned by the estate of Mr. John Fleming. Also includes
200,000 shares issuable on exercise of options held by Mr. Fleming's
estate exercisable at $0.68 per share.
(9) Includes 20,000 shares held jointly by Mr. Poscente and his wife and
200,000 shares issuable on exercise of options at an exercise price of
$0.68 per share.
(10) Commonwealth Canadian Balanced Fund is an open-ended mutual fund trust
created under the laws of Canada and regulated under the laws of the
Province of Ontario, Canada. It is managed by Goodman and Company
Investment Counsel, Ltd. which may be deemed to be the beneficial owner
of the shares as defined in Rule 13d-3. However, Goodman and Company
Investment Counsel, Ltd. disclaims a beneficial interest in the shares.
(11) Shares issuable on conversion of $750,000 principal amount of our
Debentures.
(12) As reported on the Schedule 13D filed by TransAtlantic Petroleum Corp.,
TransAtlantic Petroleum Corp. is a corporation whose shares are
publicly traded on the Toronto Stock Exchange under the symbol TNP.U.
Its Directors are George Plewes, Brian Bayley and Alan C. Moon.
(13) Includes 176,129 shares held by TransAtlantic and 6,666,666 shares
issuable on conversion of $3.0 million principal amount of our
Debentures. Mr. Bayley, one of our Directors, is also a Director of
TransAtlantic and also disclaims a beneficial interest in the
Debentures and shares.
Pooling Agreement. Of the shares held by each of Messrs. Paulk and
Ensz, 425,000 of such shares, as well as 50,000 shares held by each of Robert G.
Snead, Bennett G. Shelton and Richard Mulford, employees of the Company, are
held pursuant to the terms of an agreement that provides that one-third of such
shares are released from escrow and the restrictions of the agreement on each of
July 17, 2002, July 17, 2003, and July 17, 2004. Under the terms of the escrow
agreement, the stockholders are prohibited from selling, dealing in, assigning
or transferring the shares during the restricted period. The agreement
terminates with respect to all the shares on July 17, 2004. In the event of a
change of control of the Company, evidenced by a change of a majority of the
Board of Directors, the shares are then released from the restrictions of the
agreement. The stockholders retain the right to vote the shares and to receive
dividends during the term of the agreement. The Company is not a party to this
agreement, however, the terms of this agreement could affect the number of
shares of its common stock available for sale from time to time.
GENERAL
SUBMISSION OF SHAREHOLDERS' PROPOSALS FOR 2005 ANNUAL MEETING
Any proposals which shareholders intend to present for a vote of
shareholders at the Company's 2005 Annual Meeting and which such shareholders
desire to have included in the Company's proxy statement and form of proxy
relating to that meeting must be sent to the Company's executive office and
received by the Company not later than February 14, 2005.
-21-
OTHER MATTERS
The cost of soliciting proxies will be borne by the Company. In
addition to solicitation by use of the mails, certain officers and regular
employees may solicit proxies personally and by telephone and the Company will
request banks, brokerage houses and nominees and fiduciaries to forward
soliciting material to their principals and will reimburse them for their
reasonable out-of-pocket expenses.
The Company's Annual Report on Form 10-KSB for the year ended December
31, 2003, including financial statements, is being mailed to shareholders
herewith. However, that report is not part of the proxy soliciting information.
By Order of the Board of Directors
Steven P. Ensz, Secretary
Dated: June 14, 2004
-22-
ANNEX A
AUDIT COMMITTEE CHARTER
I. PURPOSE OF AUDIT COMMITTEE
The purpose of the Audit Committee, which is part of the Board, shall
be (a) to assist the Board's oversight of (i) the integrity of the Company's
financial statements, (ii) the Company's independent auditors' qualifications
and independence, (iii) the performance of the Company's independent auditors
and the Company's internal audit function and (iv) the Company's compliance with
legal and regulatory requirements, and (b) in accordance with applicable law,
regulation and listing standards, prepare a report for inclusion in the
Company's annual proxy statement,.
II. COMPOSITION OF AUDIT COMMITTEE
The Audit Committee shall consist of not less than three members. Each
member of the Audit Committee shall be appointed by the Board or upon the
recommendation of the Nominating Committee, if such a committee has been
appointed, and shall satisfy the independence and expertise requirements the
Sarbanes-Oxley Act of 2002 (the "Act"), and including the rules and regulations
promulgated by the Securities and Exchange Commission thereunder, and
requirements of any National Securities Exchange or Automated Quotation System
on which the Company's securities may be traded or quoted as appropriate.
Vacancies on the Audit Committee shall be filled by majority vote of
the Board at the next meeting of the Board following the occurrence of the
vacancy. The members of the Audit Committee may be removed by a majority vote of
the Board.
III. AUTHORITY AND RESPONSIBILITIES OF AUDIT COMMITTEE
The following are the responsibilities of the Audit Committee:
A. Independent Auditor
o Appoint, compensate and oversee the work performed by the independent
auditor for the purpose of preparing or issuing an audit report.
o Adopt and ensure compliance with a pre-approval policy with respect
to services provided by the independent auditor.
o The independent auditor shall report directly to the Audit Committee
and the Audit Committee shall oversee the resolution of disagreements
between management and the independent auditors in the event that they
arise.
o Review and, in its sole discretion, approve in advance the services
and terms of all audit and, as provided in the Act, all permitted
non-audit services and relationships between the Company and the
independent auditor. Approval of audit and permitted non-audit services
may also be made by one or more members of the Audit Committee as shall
be designated by the Audit Committee and the person(s) granting such
approval shall report such approval to the Audit Committee not later
than at the next scheduled meeting.
o At least annually, obtain and review a report by the independent
auditor describing all relationships between the independent auditor
and the Company consistent with Independence Standards Board Standard
No. 1, any required peer review, any inquiry or investigation of the
firm by governmental or professional authorities, and the internal
quality-control report of the independent auditor.
o Discuss the foregoing report by the independent auditor to the extent
it discloses any material issues, relationships or services that may
impact the performance, objectivity or independence of the outside
auditor, including the matters required to be discussed by Statement on
Auditing Standards No. 61, and
-23-
take, or recommend that the full board take, appropriate actions to
oversee the independence of the outside auditor.
o Evaluate with the assistance of the Company's management, the
qualifications, performance and independence of the independent
auditor, including the lead partner of the independent auditor and, if
so determined by the Audit Committee, terminate the Company's
engagement of the independent auditor.
The Audit Committee should present its conclusions with respect to the
above matters, as well as its review of the lead partner of the independent
auditor to the Board.
B. Financial Reporting and Accounting Policies
o Review the annual audited and quarterly financial statements with the
Company's management, its Disclosure Committee, if any, and the
independent auditor, including the Company's disclosures under
"Management's Discussion and Analysis of Financial Condition and
Results of Operations." Review other relevant reports or financial
information submitted by the Company to any governmental body, or the
public, including management certification as required by the Act.
o Review any significant reporting issues and judgments made in
connection with the Company's financial statements.
o Review major issues regarding the Company's significant accounting
principles, financial statement presentations and any changes thereto
and the adequacy of the Company's internal controls and any special
audit steps adopted in light of material control deficiencies. Consider
the impact of acceptable alternative accounting principles that are
communicated by the independent auditor, internal auditors or the
Company's management.
o Review the effect of regulatory and accounting initiatives, as well
as off-balance sheet structures, on the financial statements of the
Company.
o Make a recommendation to the Board as to the inclusion of the
Company's audited financial statements in the Company's Annual Report
on Form 10-K.
C. Audit Process of the Independent Auditor
o Meet with the independent auditor prior to their commencing the audit
to review the scope (i.e. nature of work performed by entity), planning
and staffing of the audit.
o Discuss with the independent auditor their required disclosure
outlined by Generally Accepted Auditing Standards relating to the
conduct of the audit, including consideration of the quality of the
Company's accounting principles as applied in its financial reporting.
o Review with the independent auditor any problems or difficulties and
management's response; review the independent auditor's attestation and
report on management's internal control report, from the time that such
reports are prepared; and hold timely discussions with the independent
auditors regarding the following:
o All critical accounting policies and practices;
o All alternative treatments of financial information within
generally accepted accounting principles that have been
discussed with management, ramifications of the use of such
alternative disclosures and treatments, and the treatment
preferred by the independent auditor; and
o Other material written communications between the independent
auditor and management including, but not limited to, the
management letter and schedule of unadjusted differences.
D. Evaluation
o On an annual basis, the Audit Committee shall evaluate its
performance relative to the Audit Committee's purpose, duties and
responsibilities, as described by this Charter. A discussion of these
findings shall take place at least annually at the first meeting of the
Audit Committee.
o The Audit Committee shall review and assess the adequacy of this
Charter at least annually and recommend any proposed changes to the
Board for approval.
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E. Other Matters
o Establish clear hiring policies, compliant with governing laws or
regulations for employees or former employees of the independent
auditor.
o Discuss the Company's earnings press releases, including review of
"pro-forma" or "adjusted" non-GAAP information, as well as financial
information and earnings guidance provided by the Company to analysts
and rating agencies. This review may be done generally through a
discussion of the types of information to be disclosed and type of
presentations to be made, and the Audit Committee need not discuss in
advance each earnings release or each instance in which the Company may
provide earnings guidance.
o Discuss the Company's policies with respect to risk assessment and
risk management, including the Company's major financial accounting and
risk exposures and the steps management has undertaken to control them.
o Submit, when required, the Audit Committee report required by the
rules of the Securities and Exchange Commission to be included in the
Company's annual proxy statement.
o Establish and maintain procedures for the receipt, retention and
treatment of complaints received by the Company regarding accounting,
internal accounting controls or auditing matters.
o Establish and maintain procedures for the confidential, anonymous
submission by employees of the Company of concerns regarding
questionable accounting or auditing matters.
IV. MEETINGS OF THE AUDIT COMMITTEE
The Audit Committee shall meet at least four times per year, or more
frequently as circumstances require.
The Audit Committee shall report regularly to the Board regarding the
execution of its duties and responsibilities, at a minimum, after each scheduled
meeting of the Audit Committee, and shall keep written minutes of its meetings,
which minutes shall be maintained with the books and records of the Board of
Directors of the Company.
The members of the Audit Committee shall select a chair who will
preside at each meeting of the Audit Committee and, in consultation with the
other members of the Audit Committee, shall set the frequency and length of each
meeting and the agenda of items to be addressed at each upcoming meeting. A
majority of the members of the Audit Committee present in person or by means of
a conference telephone or other communications equipment by means of which all
persons participating in the meeting can hear each other shall constitute a
quorum.
Periodically, the Audit Committee shall meet with the Company's
management, members of the Company's internal Corporate Audit Staff, if any, and
with the independent auditor in separate sessions.
V. RESOURCES OF THE AUDIT COMMITTEE
The Audit Committee shall have the authority, following notice to the
Chairman of the Board or President to retain and compensate legal, accounting or
other advisors to advise the Audit Committee and assist it in fulfilling its
duties and responsibilities. The Audit Committee may request any officer or
employee of the Company, or the Company's outside counsel or independent
auditor, to attend a meeting of the Audit Committee or to meet with any members
of, or advisors to, the Audit Committee.
VI. OTHER
While the Audit Committee has the responsibilities and powers set forth
in this Charter, it is not the duty of the Audit Committee to plan or conduct
audits, or to determine that the Company's financial statements are complete,
accurate and in accordance with generally accepted accounting principles. This
is the responsibility of the Company's management and the independent auditor.
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FORM OF PROXY
AMERICAN NATURAL ENERGY CORPORATION
7030 South Yale - Suite 404
Tulsa, Oklahoma 74136
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Michael K. Paulk and Steven P. Ensz,
and each of them, as proxies, each with the power to appoint his substitute, and
hereby authorizes them to represent and vote, as designated below, all the
shares of common stock of American Natural Energy Corporation held of record by
the undersigned on June 9, 2004 at the Annual Meeting of Shareholders to be held
on July 12, 2004 or any adjournment thereof.
1. Election of Directors
|_| For all nominees listed below (except as marked to contrary below)
|_| Withhold Authority to vote for all nominees listed below
INSTRUCTION: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE, STRIKE A
LINE THROUGH THE NOMINEE'S NAME IN THE LIST BELOW.
Michael K. Paulk
Steven P. Ensz
Brian E. Bayley
John K. Campbell
Jules Poscente
2. In favor of [ ] Against [ ] Abstain [ ]
A proposal to adopt amendments to the Company's 2001 Stock Incentive Plan.
3. In their discretion, the Proxies are authorized to vote upon such other
business as may properly come before the meeting.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED BY
THE UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED
FOR EACH OF THE DIRECTORS AND IN FAVOR OF THE PROPOSAL TO AMEND THE 2001 STOCK
INCENTIVE PLAN.
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PLEASE SIGN EXACTLY AS NAME APPEARS BELOW. PLEASE MARK, SIGN, DATE AND
RETURN THE PROXY CARD PROMPTLY USING THE ENCLOSED ENVELOPE.
WHEN SHARES ARE HELD BY JOINT TENANTS, BOTH SHOULD SIGN. WHEN SIGNING AS
ATTORNEY, AS EXECUTOR, ADMINISTRATOR, TRUSTEE, OR GUARDIAN, PLEASE GIVE FULL
TITLE AS SUCH. IF A CORPORATION, PLEASE SIGN IN FULL CORPORATE NAME BY PRESIDENT
OR OTHER AUTHORIZED OFFICER. IF A PARTNERSHIP, PLEASE SIGN IN PARTNERSHIP NAME
BY AUTHORIZED PERSON.
Dated: _______________, 2004
-------------------------------------
Signature
Title (if required)
-----------------------------------
Signature (if held jointly)
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