NATHANIEL ENERGY CORPORATION
8001 South InterPort Blvd.
Englewood, Colorado 80112
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INFORMATION STATEMENT
February 25, 2004
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We Are Not Asking You for a Proxy and You Are
Requested Not To Send Us a Proxy
This Information Statement is furnished by the Board of Directors of
Nathaniel Energy Corporation, a Delaware corporation ("Nathaniel," "our," and
"us"), to the record holders of our shares of common stock, par value $.001 per
share, at the close of business on March 18, 2004 ("Record Date") that were not
solicited by Nathaniel, pursuant to Rule 14c-2 promulgated under the Securities
Exchange Act of 1934 ("Exchange Act").
Nathaniel's Board of Directors has unanimously approved the following
actions:
- A proposal to amend our Certificate of Incorporation to provide for
the authority to issue shares of preferred stock;
- A proposal to amend our Certificate of Incorporation to give effect to
a one-for-ten reverse stock split of the issued and outstanding shares
of our common stock; and
- A proposal to adopt the Nathaniel 2003 Equity Participation Plan.
Stockholders of record at the close of business on March 18, 2004 shall be
entitled to receive this information statement
We have received the consent of a majority, or approximately 52.5% of the
issued and outstanding shares of our common stock for the actions described
above. A Certificate of Amendment to our Certificate of Incorporation, which
will effect the actions described above, will not be filed with the Secretary of
State of Delaware until a date which is at least 20 days after the earliest date
that this Information Statement is sent to our stockholders.
This Information Statement will be sent on or about March 18, 2004 to
Nathaniel's stockholders of record who have not been solicited for their consent
of this corporate action.
This is not a notice of a meeting of stockholders and no
stockholders meeting will be held to consider any matter
described in this information statement.
Forward-Looking Statements
Certain information contained in this information statement may include
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995, and is subject to the safe harbor created by that
act. We caution readers that certain important factors may affect our actual
results and could cause such results to differ materially from any
forward-looking statements which may be deemed to have been made in this
information statement or which are otherwise made by or on behalf of us. For
this purpose, any statements contained in this information statement that are
not statements of historical fact may be deemed to be forward-looking
statements. Without limiting the generality of the foregoing, words such as
"may", "will", "expect", "believe", "explore", "consider", "anticipate",
"intend", "could", "estimate", "plan", or "continue" or the negative variations
of those words or comparable terminology are intended to identify
forward-looking statements. Factors that may affect our results include, but are
not limited to, the risks and uncertainties associated with:
- our ability to raise capital necessary to implement our business plan,
- our ability to implement our business plan,
- our ability to meet the initial listing requirements for inclusion in
the Nasdaq SmallCap Market,
- the possibility that we may not be accepted for inclusion in the
Nasdaq SmallCap Market even if we meet the initial criteria for
inclusion,
- our ability to employ and retain qualified management and employees,
- changes in government regulations that are applicable to our business,
- changes in the demand for our products and services,
- the degree and nature of our competition,
- our ability to generate sufficient cash to pay our creditors, and
- disruption in the economic and financial conditions primarily from the
impact of past terrorist attacks in the United States, threats of
future attacks, police and military activities overseas and other
disruptive worldwide political events.
We are also subject to other risks detailed from time to time in our Securities
and Exchange Commission filings. Any one or more of these uncertainties, risks
and other influences could materially affect our results of operations and
whether forward-looking statements made by us ultimately prove to be accurate.
Our actual results, performance and achievements could differ materially from
those expressed or implied in these forward-looking statements. We undertake no
obligation to publicly update or revise any forward-looking statements, whether
from new information, future events or otherwise.
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Voting Securities
The record date of stockholders entitled to receive notice of this
corporate action by Nathaniel is the close of business on March 18, 2004. On
this date, Nathaniel had 69,719,414 shares of common stock issued and
outstanding. Each share is entitled to one vote on any matter which may properly
come before the stockholders and there is no cumulative voting right on any
shares. Pursuant to applicable Delaware law, and our Certificate of
Incorporation and By-Laws, there are no dissenter's or appraisal rights relating
to the matters set forth above.
All matters to be voted on require an affirmative vote of a majority of the
issued and outstanding shares of our common stock. As discussed above, we have
solicited and received the written consent from the holders of a majority of the
issued and outstanding shares of Nathaniel's common stock.
Change in Control
Effective as of October 3, 2003, a change in control of Nathaniel occurred
as a result of the closing of a Conversion Agreement between Nathaniel and
Richard Strain. Pursuant to the Conversion Agreement, $10,000,000 of
indebtedness of the Company to Mr. Strain converted into an aggregate of
50,000,000 shares of Nathaniel's common stock, issuable to NEC Energy, LLC
("NEC"), a designee of Mr. Strain.
Nathaniel currently has 75,000,000 shares of common stock authorized for
issuance. Prior to the conversion transaction, Nathaniel had 38,262,664 shares
of common stock issued and outstanding. Accordingly, Nathaniel did not have a
sufficient number of shares of common stock authorized for issuance to issue all
of the shares of common stock in the conversion. The Conversion Agreement
provided that to the extent that Nathaniel did not have sufficient shares of
common stock authorized to issue all of the shares in the conversion, NEC, had
the irrevocable right to the shares that could not be issued. Nathaniel has
issued 30,000,000 shares of common stock to NEC, and NEC has the irrevocable
right to an additional 20,000,000 shares of common stock. In the Conversion
Agreement, Nathaniel agreed to take all required corporate action to seek the
shareholders' approval to increase the number of authorized shares to a number
which is at least sufficient for the Company to deliver all of the shares of
common stock issuable to NEC pursuant to the Conversion Agreement. As a result
of the 1-for-10 reverse stock split described under the heading "Amendment To
Our Certificate Of Incorporation To Give Effect To A One-for-Ten Reverse Stock
Split Of Our Issued And Outstanding Common Stock" on page 6, Nathaniel will have
sufficient shares authorized to be able to issue the remaining shares, which
giving effect to the reverse stock split will be 2,000,000 shares.
Giving effect to the issuance of all of the shares of common stock under
the Conversion Agreement, NEC owns 55.7% of the issued and outstanding shares of
common stock of Nathaniel.
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In connection with the conversion, NEC received the right to demand
registration of the resale of the shares at any time after January 3, 2004.
Additionally, NEC was granted piggyback registration rights relating to certain
registration statements which Nathaniel files after January 3, 2004, if any.
Security Ownership of Certain Beneficial Owners and Management
The following table sets forth certain information as of February 20, 2004
regarding the beneficial ownership of Nathaniel's common stock by
- each person who we believe to be the beneficial owner of more than 5%
of our outstanding shares of common stock,
- our current directors,
- our current executive officers, and
- our current executive officers and directors as a group.
Name and Address
of Beneficial Owner Number of Shares Percentage of Class(1)
- ------------------- ---------------- -------------------
NEC Energy, LLC2
73 Deer Park Avenue, Suite 4
Babylon Village, New York 11702 50,000,000(3) 55.7%
Richard Strain
329 Manchester Road
Poughkeepsie, New York 12603 6,585,000(4) 9.4%
Stanley Abrams(5) 2,596,000 3.7%
Russell "Gene" Bailey(5) 411,764(6) *
George Cretecos(5) None -
All Directors and
Executive Officers
as a group (3 persons)(5) 3,007,764(6) 4.3%
* Less than one percent
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1 Percentages give effect to the issuance of all 50,000,000 shares to
NEC Energy, LLC in conversion of $10,000,000 indebtedness of the
Company to Richard Strain, effective as of
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October 3, 2003, which is described in more detail under the heading
"Change in Control" above.
2 NEC Energy, LLC is 50% owned by Richard Strain and 50% owned by Como
Group, LLC, which is an affiliate of Corey Morrison.
3 Excludes 6,585,000 shares owned by Richard Strain. Includes 30,000,000
shares, and the irrevocable right to receive 20,000,000 shares at the
time that number of shares is authorized and available for issuance.
The 30,000,000 currently issued shares to NEC Energy equates to 43%
of our issued and outstanding shares of common stock.
4 Excludes 30,000,000 shares owned by NEC Energy, LLC and 20,000,000
shares for which NEC Energy, LLC has the irrevocable right, which
shall be issued at the time that number of shares is authorized and
available to issuance.
5 The address of this person is 8001 South InterPort Blvd., Englewood,
Colorado 80112.
6 Includes 205,882 shares and 205,882 shares underlying unexercised
warrants which are exercisable at a price of $.17 per share, held by
Mr. Bailey's wife.
Amendment To Our Certificate of Incorporation
To Provide For Authority To Issue Preferred Stock
Our Board of Directors and stockholders owning a majority of our issued and
outstanding shares of common stock have approved an amendment to our Certificate
of Incorporation to authorize our Board of Directors to determine the
designations, rights and preferences of shares of preferred stock, including
voting powers, dividend rights, liquidation preferences, redemption rights and
conversion privileges, which Nathaniel may issue. We currently have two million
shares of preferred stock authorized for issuance, none of which are issued and
outstanding.
When our directors are authorized to determine the designations, rights and
preferences of our preferred stock, we may be able to use our preferred stock
for various corporate purposes such as consideration in connection with future
corporate acquisitions, if any, and to raise additional capital, among other
things. Our Board believes it is desirable to have our authorized capital
sufficiently flexible so that future business needs and corporate opportunities
may be dealt with by our Board of Directors without undue delay or the necessity
of holding a special stockholders' meeting. We have no specific plans at this
time to issue shares of preferred stock. We have not determined and cannot
predict when, if ever, we will issue shares of preferred stock in the future,
how many shares we will issue, or what the terms and preferences of any shares
of preferred stock may be. The preferred stock may be issued from time to time
as our Board of Directors may determine without further action of our
stockholders. Although our Board has no current plans to utilize such shares to
entrench present management, it may, in the future, be able to use the
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shares as a defensive tactic against hostile takeover attempts. The
authorization of such shares will have no current anti-takeover effect. No
hostile takeover attempts are, to our management's knowledge, currently
threatened. There are no provisions in our Certificate of Incorporation or
By-Laws or other material agreements to which we are a party that would, in our
management's judgment, have an anti-takeover effect.
The issuance of preferred stock could dilute the ownership interest of our
existing stockholders. In addition, because of its broad discretion with respect
to the creation and issuance of preferred stock without stockholder approval,
our Board of Directors could adversely affect the voting power of the holders of
common stock by granting supervoting powers to the holders of shares of
preferred stock. Also, our Board could issue preferred stock that have a
preferential right to the holders of common stock with respect to dividends and
upon liquidation. Further, conversion and redemption rights granted to the
holders of preferred shares could adversely affect the holders of common stock.
The authority to be given to our Board of Directors pursuant to the
proposed amendment to our Certificate of Incorporation is attached as Appendix A
to this information statement.
The adoption of the Amendment to our Certificate of Incorporation described
above requires the affirmative vote of at least a majority of the votes entitled
to be cast by all shares of voting stock issued, outstanding and entitled to
vote on this matter, on the Record Date. As discussed above, stockholders owning
a majority of our voting stock have approved this amendment.
Amendment To Our Certificate Of Incorporation To Give Effect
To A One-for-Ten Reverse Stock Split Of
Our Issued And Outstanding Common Stock
Our Board of Directors and stockholders owning a majority of Nathaniel's
issued and outstanding shares of common stock have approved an amendment to our
Certificate of Incorporation to give effect to a one-for-ten reverse stock split
of the issued and outstanding shares of our common stock. Our shares of common
stock have traded infrequently and at low prices for some time. The Board of
Directors has authorized the reverse stock split to reduce the number of
outstanding shares with the expectation that each share will trade at a higher
price which is above the $4.00 bid price required to meet the initial listing
bid price criterion under the Nasdaq SmallCap Market rules and to strategically
situate Nathaniel as we seek to develop our business.
Stockholders should recognize that if the reverse stock split is
effectuated, they will own ten percent of the number of shares of common stock
they presently own and that there can be no assurance that the market price of
the common stock will, in fact, correspondingly increase by ten times following
the consummation of the reverse stock split or, even if the price does increase
by ten times, that the post reverse stock split market price will be sustained.
Also, the possibility does exist that liquidity could be materially and
adversely affected by the reduced number of
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shares that would be outstanding after the reverse stock split. Consequently,
there can be no assurance that the reverse stock split will achieve the desired
results that have been outlined above.
Except as a result of the receipt by some stockholders of additional shares
as a result of rounding up fractional shares as described below, the reverse
stock split, in itself, will not affect any stockholder's percentage holdings in
Nathaniel.
The authorized capital stock of Nathaniel consists of 75,000,000 shares of
common stock and 2,000,000 shares of Preferred Stock. The number of shares of
authorized capital stock will not be effected by the reverse stock split. As of
March 18, 2004, Nathaniel had 69,719,414 shares issued and outstanding. The
reverse stock split will reduce this number to 6,971,942 shares. Additionally,
Nathaniel is required to issue NEC Energy 20,000,000 pre-reverse split shares
under a Conversion Agreement, which is described under the "Change in Control"
heading above. After the reverse split, Nathaniel will issue NEC Energy
2,000,000 shares and we will have 8,971,942 shares issued and outstanding.
As a result of the reverse stock split, and giving effect to the issuance
of 2,000,000 shares to NEC Energy, the number of shares of common stock
authorized and available for issuance will increase from 5,280,586 shares to
66,028,058 shares.
The increase in the number of shares of common stock authorized and
available for issuance resulting from the reverse split could be used for any
corporate purpose, including, among other things, future financing,
acquisitions, stock options, stock grants and other equity benefits under
employee benefit plans, or as compensation to employees or consultants. All of
the above could result in significant dilution to the stockholder's ownership
interest in Nathaniel.
The reverse stock split will become effective at 6:00 p.m. on the effective
date stated in the amended Certificate of Incorporation (the "Effective Time")
and the stockholders who held shares of our common stock as of the close of
business on the Record Date will be notified as soon as practicable after the
Effective Time that the reverse stock split has been effected. Our transfer
agent will act as its exchange agent to act for the holder of record of our
shares of common stock in implementing the exchange of their certificates. The
substance of the amendment to our Certificate of Incorporation which will effect
the reverse stock split is attached to this information statement as Appendix B.
As soon as practicable after the Effective Time, record holders will be
notified and requested to surrender their certificates representing shares of
pre-split common stock ("Old Common Stock") to the exchange agent in exchange
for certificates representing post-split common stock ("New Common Stock"). One
share of New Common Stock will be issued in exchange for each ten shares of Old
Common Stock. Any fractional shares resulting from the reverse stock split will
be rounded up to the nearest whole number. For record holders of multiple
certificates, we will aggregate the shares and divide them by the split ratio.
In the case of street name holders, the Nathaniel's transfer agent will convert
the certificates in accordance
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with instructions from the street name holders. Any certificates for shares of
Old Common Stock not so surrendered shall be deemed to represent one share of
New Common Stock for each ten shares of Old Common Stock previously represented
by such certificate.
The number of shares which will result in fractional interests cannot be
precisely predicted as we cannot determine in advance the number of stockholders
whose total holdings are not evenly divisible by ten. It is not anticipated that
a substantial number of shares will be required to be issued to round up
fractional interests.
The adoption of the Amendment to our Certificate of Incorporation described
above requires the affirmative vote of at least a majority of the votes entitled
to be cast by all shares of capital stock issued, outstanding and entitled to
vote on the Record Date. As discussed above, stockholders owning a majority of
our voting stock have approved this amendment.
Adoption of our 2003 Equity Participation Plan
The Board of Directors has adopted the 2003 Equity Participation Plan and
has reserved up to 75,000,000 shares of common stock for issuance upon the
exercise of stock options or as restricted stock grants. Stockholders owning a
majority of our issued and outstanding shares of common stock have adopted
resolutions approving and ratifying our 2003 Equity Participation Plan. The
following statements include summaries of certain provisions of the plan.
The statements do not purport to be complete and are qualified in their
entirety by reference to the provisions of the plan, a copy of which is attached
as Appendix C to this information statement and is available at our offices.
General Information
The plan provides for the granting of restricted stock and options to
purchase up to a maximum of 75,000,000 shares of Nathaniel. If the 1-for-10
reverse split described above is implemented, the plan will provide for the
granting of restricted stock and options to purchase up to a maximum of
7,500,000 shares, which would equate to 10% of the shares of common stock
authorized for issuance. The plan provides that no shares of common stock may be
issued unless there are a sufficient number of shares of common stock authorized
and reserved for such issuance. We anticipate that we will have a sufficient
number of shares available for issuance under the plan as a result of the
proposed 1-for-10 reverse stock split, or as a result of other actions which we
could take. The plan was adopted by our Board of Directors on November 20, 2003.
The plan is not subject to any of the provisions of the Employee Retirement
Income Security Act of 1974, nor is it a "qualified" plan under Section 401(a)
of the Internal Revenue Code of 1986, as amended (the "Code"). The plan provides
for appropriate adjustments in the number of reserved shares in the event of
stock dividends, stock splits, recapitalizations and other
8
changes in our capital structure. The plan also provides for reload options
(which are described below under the heading "Reload Feature") and alternate
stock appreciation rights.
Purpose
The purpose of the plan is to advance the interests of Nathaniel by
inducing individuals or entities of outstanding ability and potential to join
and remain with, or provide consulting or advisory services to, us and our
subsidiaries, by encouraging and enabling eligible employees, non-employee
directors, consultants and advisors, and non-employees to whom an offer of
employment has been extended, to acquire proprietary interests in Nathaniel, and
by providing such employees, non-employee directors, consultants, advisors, and
non-employees with an additional incentive to promote the success of Nathaniel.
Administration
The plan provides for its administration by the Board or by a committee
consisting of at least two individuals chosen by the Board. The Board or the
committee has authority (subject to the provisions of the plan) to select from
the group of eligible employees, non-employees to whom an offer of employment
has been extended, non-employee directors, consultants and advisors the
individuals or entities to whom restricted stock or options will be granted, and
to determine the times at which and the exercise price for which options will be
granted. The Board or the committee is authorized to interpret the plan and the
interpretation and construction by the Board or the committee of any provision
of the plan or of any option granted thereunder shall be final and conclusive.
The receipt of options or restricted stock by directors or any members of the
committee shall not preclude their vote on any matters in connection with the
administration or interpretation of the plan. We currently do not have a
committee to administer the plan. Accordingly the Board administers the plan at
this time.
Eligibility - Generally
Subject to certain limitations and conditions in the plan, restricted stock
and options to purchase shares may be granted to persons who, in the case of
incentive stock options, are employees of, either Nathaniel or any parent or
subsidiary of Nathaniel including directors and officers of Nathaniel and
non-employees to whom an offer of employment has been extended, or in the case
of nonstatutory stock options and restricted stock grants, are employees
including directors and officers or non-employee directors or certain
consultants or advisors to, either Nathaniel or any parent or subsidiary of
Nathaniel and non-employees to whom an offer of employment has been extended. At
March 12, 2004 _______ employees, non-employee directors and consultants, were
eligible to receive options or restricted stock grants under the plan.
9
Stock Options
Nature of Options
The Board or the committee may grant options under the plan which are
intended to meet the requirements of Section 422 of the Code relating to
"incentive stock options." The Board or committee may also grant option under
the plan that do not so qualify which we refer to as "nonstatutory stock
options". The federal income tax consequences of the grant and exercise of
incentive stock options and nonstatutory stock options are described below under
"Federal Income Tax Consequences."
Reload Feature
The Board or the committee may grant options with a reload feature subject
to the terms of the plan, applicable only when options being exercised by a
holder are paid by delivery of shares of common stock or by having Nathaniel
reduce the number of shares otherwise issuable to a holder ("Net Exercise"). The
reload stock option allows the holder to exercise an option (the "First Option")
and to receive another option (the "Reload Option") for
- the number of shares of common stock used to pay for the First Option
(or not issued in the case of Net Exercise), and
- with respect to Nonstatutory Stock Options, the number of shares of
common stock used to satisfy any tax withholding requirement incident
to the exercise of those Nonstatutory Stock Option.
A Reload Option may also have a reload feature. The reload feature must be
included in the stock option agreement entered into by Nathaniel and the holder
of the option. The term of the Reload Option shall be equal to the remaining
option term of the First Option.
Option Price
The option price of the shares underlying an incentive stock option may not
be less than the fair market value (as such term is defined in the plan) of the
shares of common stock on the date upon which the option is granted. In
addition, in the case of a recipient of an incentive stock option who, at the
time the option is granted, owns more than 10% of the total combined voting
power of all classes of stock of Nathaniel or of a parent or subsidiary
corporation of Nathaniel (a "10% Stockholder"), the option price of the shares
subject to that option must be at least 110% of the fair market value of the
shares of common stock on the date upon which that option was granted.
The option price of shares of common stock underlying nonstatutory stock
options will be determined by the Board or the committee, in its discretion, at
the time of grant and need not be equal to or greater than the fair market value
for shares of our common stock.
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On ____________ , 2004, the closing price for our common stock, as on the
over-the-counter bulletin board, was $______ per share, as reported by Nasdaq.
Exercise of Options
Option holders may exercise options granted under the plan by delivering a
written notice to Nathaniel indicating of the number of shares of common stock
with respect to which the option is being exercised. The notice shall be
accompanied, or followed within 10 days, by payment of the full option price for
the shares of common stock which shall be made by the holder's delivery of
- a check payable to the order of Nathaniel in such amount, or
- previously acquired shares of common stock, the fair market value of
which shall be determined as of the date of exercise, or
- if provided for in the stock option agreement, a check in an amount at
least equal to the par value of the common stock being acquired,
together with a promissory note, in the form and upon such terms as
are acceptable to the Board or the committee, in an amount equal to
the balance of the exercise price, or
- a combination of any of the above methods.
Duration of Options
No incentive stock option granted under the plan shall be exercisable after
the expiration of ten years from the date of its grant. However, if an incentive
stock option is granted to a 10% Stockholder, that option shall not be
exercisable after the expiration of five years from the date of its grant.
Nonstatutory stock options granted under the Plan may be of a duration that
the Board or the committee determines.
Non-Transferability
Options granted under the plan are not transferable otherwise than by will
or the laws of descent and distribution and generally, those options are
exercisable, during an optionee's lifetime, only by the optionee. A nonstatutory
stock option may be transferred, upon the approval of the Board or the
committee, in whole or in part during a holder's lifetime, to a holder's family
members, through a gift or domestic relations order, subject to the terms and
conditions of the plan.
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Death, Disability or Termination of Employment
Subject to the terms of the stock option agreement pursuant to which
options are granted, if the employment of an employee or the services of a
non-employee director, consultant or advisor to, Nathaniel or a parent or
subsidiary corporation of Nathaniel shall be terminated for cause, or such
employment or services shall be terminated voluntarily by the employee,
non-employee director, consultant or advisor, or a non-employee to whom an offer
of employment was extended declines the offer, or Nathaniel withdraws the offer
of employment to that non-employee to whom an offer of employment has been
extended, any options held by those persons or entities shall expire
immediately. If such employment or services shall terminate other than by reason
of death or disability, voluntarily by the employee, non-employee director,
consultant or advisor, or for cause, then, subject to the terms of the stock
option agreement pursuant to which options are granted, such option may be
exercised at any time within three months after such termination, but in no
event after the expiration of the option. For purposes of the plan, the
retirement of an individual either pursuant to a pension or retirement plan
adopted by Nathaniel or at the normal retirement date prescribed from time to
time by Nathaniel is deemed to be a termination of such individual's employment
other than voluntarily by the employee or for cause.
Subject to the terms of the stock option agreement pursuant to which
options are granted, if an option holder under the plan
- dies while employed by Nathaniel or a parent or subsidiary corporation
of Nathaniel or while serving as a non-employee director of, or
consultant or advisor to, Nathaniel or a parent or its subsidiary
corporation of Nathaniel, or
- dies within three months after the termination of his employment or
services other than voluntarily or for cause,
then such option may be exercised by the estate of the employee, non-employee
director, consultant or advisor, or by a person who acquired such option by
bequest or inheritance from the deceased option holder, at any time within one
year after his death.
Subject to the terms of the stock option agreement pursuant to which
options are granted, if the holder of an option under the plan ceases employment
or services because of permanent and total disability (within the meaning of
Section 22(e)(3) of the Code) while employed by, or while serving as a
non-employee director of, or consultant or advisor to, Nathaniel, or a parent or
subsidiary corporation of Nathaniel, then that option may be exercised at any
time within one year after his termination of employment, termination of
directorship, or termination of consulting or advisory arrangement or agreement
due to the disability.
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Restricted Stock Grants
Nature of Restricted Stock Grants
The Board or the committee may authorize restricted stock grants under the
plan. Restricted stock grants may be made either alone or in addition to stock
options granted under the plan.
Vesting
The Board or the committee may specify the vesting periods of the
restricted stock grant and other terms and conditions which the Board or
committee deems appropriate.
In determining vesting requirements of restricted stock grants, the Board
or committee may impose restrictions which it may deem advisable including among
other things, length of service of the grantee, corporate performance and
attainment of individual or group performance objectives.
Ownership
During the period while the restricted stock grants are subject to
restriction or have not vested, the grantee will be the record owner of the
shares of common stock underlying the restricted stock grant. Accordingly, the
holder is entitled to vote those shares. However, any dividends or other
distributions on those shares of common stock will be held by Nathaniel or a
third party subject to the same restrictions as the restricted stock grant.
Forfeiture
Unless the Board of committee determines otherwise at the time of the
restricted stock grant, generally, a grantee will forfeit all shares of common
stock underlying restricted stock grants which have not previously vested, if
the grantee is no longer employed or engaged by, or serves as a director of,
Nathaniel or its parent or its subsidiary. All forfeited shares of common stock
shall be returned to Nathaniel, along with any dividends or other distributions
on those shares, if any. However, if the Board approves a plan of liquidation,
or merger or consolidation in which more than 50% of the continued voting power
of Nathaniel or the entity surviving in the transaction is no longer represented
by voting securities in Nathaniel, the restricted stock grant will automatically
vest.
Non-Transferability
Shares of common stock underlying restricted stock grants are not
transferable until those shares vest.
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Amendment and Termination
The plan (but not options or restricted stock granted under the plan) shall
terminate on November 19, 2003, ten years from the date that it was adopted by
the Board. Subject to certain limitations, the plan may be amended or modified
from time to time or terminated at an earlier date by the Board or by the
stockholders.
Plan Benefits
At March 12, 2004 there were no grants of options to purchase shares of our
common stock or stock grants under the Plan.
Federal Income Tax Consequences
Nonstatutory Stock Options
Under the Code and the Treasury Department Regulations (the "Regulations"),
a nonstatutory stock option does not ordinarily have a "readily ascertainable
fair market value" when it is granted. This rule will apply to Nathaniel's grant
of non-statutory stock options. Consequently, the grant of a nonstatutory stock
option to an optionee will result in neither income to him nor a deduction to
us. Instead, the optionee will recognize compensation income at the time he
exercises the nonstatutory stock option in an amount equal to the excess, if
any, of the then fair market value of the shares transferred to him over the
option price. Subject to the applicable provisions of the Code and the
Regulations regarding withholding of tax, a deduction will be allowable to us in
the year of exercise in the same amount as is includable in the optionee's
income.
For purposes of determining the optionee's gain or loss on the sale or
other disposition of the shares transferred to him upon exercise of a
nonstatutory stock option, the optionee's basis in those shares will be the sum
of his option price plus the amount of compensation income recognized by him on
exercise. That gain or loss will be capital gain or loss and will be long-term
if the common stock were held for more than twelve months, or short term if the
common stock were held for twelve months or less. No part of any such gain will
be an "item of tax preference" for purposes of the "alternative minimum tax."
Incentive Stock Options
Options granted under the plan which qualify as incentive stock options
under Section 422 of the Code will be treated as follows:
Except to the extent that the alternative minimum tax rule described below
applies, no tax consequences will result to the optionee or us from the grant of
an incentive stock option to, or the exercise of an incentive stock option by,
the optionee. Instead, the optionee will recognize gain or loss when he sells or
disposes the shares transferred to him upon exercise of the incentive
14
stock option. For purposes of determining such gain or loss, the optionee's
basis in such shares will be his option price. If the date of sale or
disposition of such shares is at least two years after the date of the grant of
the incentive stock option, and at least one year after the transfer of the
shares to him upon exercise of the incentive stock option, the optionee will
realize long-term capital gain treatment upon their sale or disposition.
Generally, we will not be allowed a deduction with respect to an incentive
stock option. However, if an optionee fails to meet the foregoing holding period
requirements (a so called disqualifying disposition), any gain recognized by the
optionee upon the sale or disposition of the shares transferred to him upon
exercise of an incentive stock option will be treated in the year of such sale
or disposition as ordinary income, rather than capital gain, to the extent of
the excess, if any, of the fair market value of the shares at the time of
exercise (or, if less, in certain cases the amount realized on such sale or
disposition) over their option price, and in that case we will be allowed a
corresponding deduction.
For purposes of the alternative minimum tax, the amount, if any, by which
the fair market value of the shares transferred to the optionee upon such
exercise exceeds the option price will be included in determining the optionee's
alternative minimum taxable income. In addition, for purposes of such tax, the
basis of such shares will include such excess.
To the extent that the aggregate fair market value (determined at the time
the option is granted) of the shares of common stock with respect to which
incentive stock options are exercisable for the first time by the optionee
during any calendar year exceeds $100,000, those options will not be incentive
stock options. In this regard, upon the exercise of an option which is deemed,
under the rule described in the preceding sentence, to be in part an incentive
stock option and in part a nonstatutory stock option, under existing Internal
Revenue Service guidelines, we may designate which shares issued upon exercise
of such options are incentive stock options and which shares are nonstatutory
stock options. In the absence of such designation, a pro rata portion of each
share issued is to be treated as issued pursuant to the exercise of an incentive
stock option and the balance of each share treated as issued pursuant to the
exercise of a nonstatutory stock option.
The ratification of the adoption of our 2003 Equity Participation Plan
described above requires the affirmative vote of at least a majority of the
votes entitled to be cast by all shares of capital stock issued, outstanding and
entitled to vote on the Record Date. As discussed above, stockholders owning a
majority of our voting stock have ratified the adoption of this plan.
By Order of the Board of Directors:
Stanley Abrams, Chief Executive Officer
15
APPENDIX A
The Board of Directors hereby is vested with the authority to provide for
the issuance of the Preferred Stock, at any time and from time to time, in one
or more series, each of such series to have such voting powers, designations,
preferences and relative participating, optional, conversion and other rights,
and such qualifications, limitations or restrictions thereon as expressly
provided in the resolution or resolutions duly adopted by the Board of Directors
providing for the issuance of such shares or series thereof. The authority which
hereby is vested in the Board of Directors shall include, but not be limited to,
the authority to provide for the following matters relating to each series of
the Preferred Stock:
(i) The designation of any series.
(ii) The number of shares initially constituting any such series.
(iii) The increase, and the decrease to a number not less than the number
of the outstanding shares of any such series, of the number of shares
constituting such series theretofore fixed.
(iv) The rate or rates and the times at which dividends on the shares of
Preferred Stock or any series thereof shall be paid, and whether or not such
dividends shall be cumulative, and, if such dividends shall be cumulative, the
date or dates from and after which they shall accumulate.
(v) Whether or not the shares of Preferred Stock or series thereof shall be
redeemable, and, if such shares shall be redeemable, the terms and conditions of
such redemption, including, but not limited to, the date or dates upon or after
which such shares shall be redeemable and the amount per share which shall be
payable upon such redemption, which amount may vary under different conditions
and at different redemption dates.
(vi) The amount payable on the shares of Preferred Stock or series thereof
in the event of the voluntary or involuntary liquidation, dissolution or winding
up of the corporation; provided, however, that the holders of shares ranking
senior to other shares shall be entitled to be paid, or to have set apart for
payment, not less than the liquidation value of such shares before the holders
of shares of the Common Stock or the holders of any other series of Preferred
Stock ranking junior to such shares.
(vii) Whether or not the shares of Preferred Stock or series thereof shall
have voting rights, in addition to the voting rights provided by law, and, if
such shares shall have such voting rights, the terms and conditions thereof,
including but not limited to the right of the holders of such shares to vote as
a separate class either alone or with the holders of shares of one or more other
class or series of Preferred Stock and the right to have more than one vote per
share.
(viii) Whether or not a sinking fund shall be provided for the redemption
of
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the shares of Preferred Stock or series thereof, and, if such a sinking fund
shall be provided, the terms and conditions thereof.
(ix) Whether or not a purchase fund shall be provided for the shares of
Preferred Stock or series thereof, and, if such a purchase fund shall be
provided, the terms and conditions thereof.
(x) Whether or not the shares of Preferred Stock or series thereof shall
have conversion privileges, and, if such shares shall have conversion
privileges, the terms and conditions of conversion, including but not limited to
any provision for the adjustment of the conversion rate or the conversion price.
(xi) Any other relative rights, preferences, qualifications, limitations
and restrictions.
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APPENDIX B
Each ten (10) shares of Common Stock (the "Old Common Stock") issued and
outstanding or held in treasury as of 6:00 p.m. eastern time on
___________________, 2004 (the "Effective Time") shall be reclassified as, and
changed into, one (1) share of Common Stock, $.001 par value per share (the "New
Common Stock"), without any action by the holder thereof. Stockholders who, at
the Effective Time, would own a fraction of a share of New Common Stock shall,
in respect of such fractional interest, shall be entitled to receive from the
corporation one (1) share of New Common Stock. Stockholders who hold multiple
certificates will have their certificates aggregated and divided by the split
ratio. Each certificate that theretofore represented shares of Old Common Stock
shall thereafter represent that number of shares of New Common Stock into which
the shares of Old Common Stock represented by such certificate shall have been
reclassified; provided, however, that each person holding of record a stock
certificate or certificates that represented shares of Old Common Stock shall
receive, upon surrender of such certificate or certificates, a new certificate
or certificates evidencing and representing the number of shares of New Common
Stock to which such person is entitled.
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APPENDIX C
Nathaniel Energy Corporation
2003 Equity Participation Plan
1. Purpose of the Plan. The Nathaniel Energy Corporation 2003 Equity
-------------------
Participation Plan (the "Plan") is intended to advance the interests of
Nathaniel Energy Corporation (the "Company") by inducing individuals or entities
of outstanding ability and potential to join and remain with, or provide
consulting or advisory services to, the Company, by encouraging and enabling
eligible employees, non-employee Directors, consultants and advisors to acquire
proprietary interests in the Company, and by providing the participating
employees, non-employee Directors, consultants and advisors with an additional
incentive to promote the success of the Company. This is accomplished by
providing for the granting of "Options," which term as used herein includes both
"Incentive Stock Options" and "Nonstatutory Stock Options, as later defined, and
"Restricted Stock," to employees, non-employee Directors, consultants and
advisors.
2. Administration. The Plan shall be administered by the Board of
--------------
Directors of the Company (the "Board" or "Board of Directors") or by a committee
(the "Committee") consisting of at least two (2) persons chosen by the Board of
Directors. Except as herein specifically provided, the interpretation and
construction by the Board of Directors or the Committee of any provision of the
Plan or of any Option, or with respect to any Restricted Stock, granted under it
shall be final and conclusive. The receipt of Options or Restricted Stock by
Directors, or any members of the
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Committee, shall not preclude their vote on any matters in connection with the
administration or interpretation of the Plan.
3. Shares Subject to the Plan. The shares subject to Options granted
---------------------------
under the Plan, and shares granted as Restricted Stock under the Plan, shall be
shares of the Company's common stock, par value $.001 per share (the "Common
Stock"), whether authorized but unissued or held in the Company's treasury, or
shares purchased from stockholders expressly for use under the Plan. The maximum
number of shares of Common Stock which may be issued pursuant to Options or as
Restricted Stock granted under the Plan shall not exceed in the aggregate
seventy-five million (75,000,000) shares. No shares of Common Stock may be
issued unless there are a sufficient number of shares of Common Stock authorized
and reserved for such issuance. Subject to the foregoing sentence, the Company
shall at all times while the Plan is in force reserve such number of shares of
Common Stock as will be sufficient to satisfy the requirements of all
outstanding Options granted under the Plan. In the event any Option granted
under the Plan shall expire or terminate for any reason without having been
exercised in full or shall cease for any reason to be exercisable in whole or in
part, the unpurchased shares subject thereto shall again be available for
Options and grants of Restricted Stock under the Plan. In the event any shares
of Restricted Stock are forfeited for any reason, the shares forfeited shall
again be available for Options and grants of Restricted Stock under the Plan. In
the event shares of Common Stock are delivered to, or withheld by, the Company
pursuant to Sections 13(b) or 27 hereof, only the net number of shares issued,
i.e., net of the shares so delivered or withheld, shall be considered to have
been issued pursuant to the Plan.
4. Participation. The class of individuals that shall be eligible to
-------------
receive Options ("Optionees") and Restricted Stock ("Grantees") under the Plan
shall be (a) with respect to
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Incentive Stock Options described in Section 6 hereof, all employees of either
the Company or any parent or subsidiary corporation of the Company, and (b) with
respect to Nonstatutory Stock Options described in Section 7 hereof and
Restricted Stock described in Section 17 hereof, all employees, and non-employee
Directors of, or consultants and advisors to, either the Company or any parent
or subsidiary corporation of the Company; provided, however, neither
Nonstatutory Stock Options nor Restricted Stock shall be granted to any such
consultant or advisor unless (i) the consultant or advisor is a natural person
(or an entity wholly-owned by the consultant or advisor), (ii) bona fide
services have been or are to be rendered by such consultant or advisor and (iii)
such services are not in connection with the offer or sale of securities in a
capital raising transaction and do not directly or indirectly promote or
maintain a market for the Company's securities. The Board of Directors or the
Committee, in its sole discretion, but subject to the provisions of the Plan,
shall determine the employees and non-employee Directors of, and the consultants
and advisors to, the Company and its parent and subsidiary corporations to whom
Options and Restricted Stock shall be granted, and the number of shares to be
covered by each Option and each Restricted Stock grant, taking into account the
nature of the employment or services rendered by the individuals or entities
being considered, their annual compensation, their present and potential
contributions to the success of the Company, and such other factors as the Board
of Directors or the Committee may deem relevant. For purposes hereof, a
non-employee to whom an offer of employment has been extended shall be
considered an employee, provided that the Options granted to such individual
shall not be exercisable, and the Restricted Stock granted shall not vest, in
whole or in part, for a period of at least one year from the date of grant and
in the event the individual does not commence employment with the Company, the
Options and/or Restricted Stock granted shall be considered null and void.
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5. Stock Option Agreement. Each Option granted under the Plan shall be
-----------------------
authorized by the Board of Directors or the Committee, and shall be evidenced by
a Stock Option Agreement which shall be executed by the Company and by the
individual or entity to whom such Option is granted. The Stock Option Agreement
shall specify the number of shares of Common Stock as to which any Option is
granted, the period during which the Option is exercisable, and the option price
per share thereof, and such other terms and provisions as the Board of Directors
or the Committee may deem necessary or appropriate.
6. Incentive Stock Options. The Board of Directors or the Committee may
-------------------------
grant Options under the Plan which are intended to meet the requirements of
Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"), with
respect to "incentive stock options," and which are subject to the following
terms and conditions and any other terms and conditions as may at any time be
required by Section 422 of the Code (referred to herein as an "Incentive Stock
Option"):
(a) No Incentive Stock Option shall be granted to individuals other than
employees of the Company or of a parent or subsidiary corporation of the
Company.
(b) Each Incentive Stock Option under the Plan must be granted prior to
February 23, 2013, which is within ten (10) years from the date the Plan was
adopted by the Board of Directors.
(c) The option price of the shares subject to any Incentive Stock Option
shall not be less than the fair market value (as defined in subsection (f) of
this Section 6) of the Common Stock at the time such Incentive Stock Option is
granted; provided, however, if an Incentive Stock Option is granted to an
individual who owns, at the time the Incentive Stock Option
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is granted, more than ten percent (10%) of the total combined voting power of
all classes of stock of the Company or of a parent or subsidiary corporation of
the Company (a "10% Stockholder"), the option price of the shares subject to the
Incentive Stock Option shall be at least one hundred ten percent (110%) of the
fair market value of the Common Stock at the time such Incentive Stock Option is
granted.
(d) No Incentive Stock Option granted under the Plan shall be exercisable
after the expiration of ten (10) years from the date of its grant. However, if
an Incentive Stock Option is granted to a 10% Stockholder, such Incentive Stock
Option shall not be exercisable after the expiration of five (5) years from the
date of its grant. Every Incentive Stock Option granted under the Plan shall be
subject to earlier termination as expressly provided in Section 12 hereof.
(e) For purposes of determining stock ownership under this Section 6, the
attribution rules of Section 424(d) of the Code shall apply.
(f) For purposes of the Plan, fair market value shall be determined by the
Board of Directors or the Committee. If the Common Stock is listed on a national
securities exchange or The Nasdaq Stock Market ("Nasdaq") or traded on the
Over-the-Counter market, fair market value shall be the closing selling price
or, if not available, the closing bid price or, if not available, the high bid
price of the Common Stock quoted on such exchange or Nasdaq, or on the
Over-the-Counter market, as reported by the exchange, Nasdaq or the National
Association of Securities Dealers OTC Electronic Bulletin Board, or if the
Common Stock is not so reported, then by the Pink Sheets, LLC, as the case may
be, on the day immediately preceding the day on which the Option is granted (or,
if granted after the close of business for trading, then on the day on which the
Option is granted), or, if there is no selling or bid price on that day, the
closing selling price, closing
C-5
bid price or high bid price, as the case may be, on the most recent day which
precedes that day and for which such prices are available. If there is no
selling or bid price for the ninety (90) day period preceding the date of grant
of an Option hereunder, fair market value shall be determined in good faith by
the Board of Directors or the Committee.
7. Nonstatutory Stock Options. The Board of Directors or the Committee may
--------------------------
grant Options under the Plan which are not intended to meet the requirements of
Section 422 of the Code, as well as Options which are intended to meet the
requirements of Section 422 of the Code but the terms of which provide that they
will not be treated as Incentive Stock Options (referred to herein as a
"Nonstatutory Stock Option"). Nonstatutory Stock Options shall be subject to the
following terms and conditions:
(a) A Nonstatutory Stock Option may be granted to any individual or entity
eligible to receive an Option under the Plan pursuant to clause (b) of Section 4
hereof.
(b) The option price of the shares subject to a Nonstatutory Stock Option
shall be determined by the Board of Directors or the Committee, in its sole
discretion, at the time of the grant of the Nonstatutory Stock Option.
(c) A Nonstatutory Stock Option granted under the Plan may be of such
duration as shall be determined by the Board of Directors or the Committee
(subject to earlier termination as expressly provided in Section 12 hereof).
8. Reload Options. The Board of Directors or the Committee may grant
---------------
Options with a reload feature. A reload feature shall only apply when the option
price is paid by delivery of Common Stock (as set forth in Section 13(b)(ii)) or
by having the Company reduce the number of shares otherwise issuable to an
Optionee (as provided for in the last sentence of Section 13(b)) (a
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"Net Exercise"). The Stock Option Agreement for the Options containing the
reload feature shall provide that the Option holder shall receive,
contemporaneously with the payment of the option price in shares of Common Stock
or in the event of a Net Exercise, a reload stock option (the "Reload Option")
to purchase that number of shares of Common Stock equal to the sum of (i) the
number of shares of Common Stock used to exercise the Option (or not issued in
the case of a Net Exercise), and (ii) with respect to Nonstatutory Stock
Options, the number of shares of Common Stock used to satisfy any tax
withholding requirement incident to the exercise of such Nonstatutory Stock
Option. The terms of the Plan applicable to the Option shall be equally
applicable to the Reload Option with the following exceptions: (i) the option
price per share of Common Stock deliverable upon the exercise of the Reload
Option, (A) in the case of a Reload Option which is an Incentive Stock Option
being granted to a 10% Stockholder, shall be one hundred ten percent (110%) of
the fair market value of a share of Common Stock on the date of grant of the
Reload Option and (B) in the case of a Reload Option which is an Incentive Stock
Option being granted to a person other than a 10% Stockholder or is a
Nonstatutory Stock Option, shall be the fair market value of a share of Common
Stock on the date of grant of the Reload Option; and (ii) the term of the Reload
Option shall be equal to the remaining option term of the Option (including a
Reload Option) which gave rise to the Reload Option. The Reload Option shall be
evidenced by an appropriate amendment to the Stock Option Agreement for the
Option which gave rise to the Reload Option. In the event the exercise price of
an Option containing a reload feature is paid by check and not in shares of
Common Stock, the reload feature shall have no application with respect to such
exercise.
9. Rights of Option Holders. The holder of an Option granted under the Plan
------------------------
shall have none of the rights of a stockholder with respect to the stock covered
by his Option until
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such stock shall be transferred to him upon the exercise of his Option.
10. Alternate Stock Appreciation Rights.
----------------------------------------
(a)Concurrently with, or subsequent to, the award of any Option to purchase
one or more shares of Common Stock, the Board of Directors or the Committee may,
in its sole discretion, subject to the provisions of the Plan and such other
terms and conditions as the Board of Directors or the Committee may prescribe,
award to the Optionee with respect to each share of Common Stock covered by an
Option ("Related Option"), a related alternate stock appreciation right ("SAR"),
permitting the Optionee to be paid the appreciation on the Related Option in
lieu of exercising the Related Option. An SAR granted with respect to an
Incentive Stock Option must be granted together with the Related Option. An SAR
granted with respect to a Nonstatutory Stock Option may be granted together
with, or subsequent to, the grant of such Related Option.
(b) Each SAR granted under the Plan shall be authorized by the Board of
Directors or the Committee, and shall be evidenced by an SAR Agreement which
shall be executed by the Company and by the individual or entity to whom such
SAR is granted. The SAR Agreement shall specify the period during which the SAR
is exercisable, and such other terms and provisions not inconsistent with the
Plan.
(c) An SAR may be exercised only if and to the extent that its Related
Option is eligible to be exercised on the date of exercise of the SAR. To the
extent that a holder of an SAR has a current right to exercise, the SAR may be
exercised from time to time by delivery by the holder thereof to the Company at
its principal office (attention: Secretary) of a written notice of the number of
shares with respect to which it is being exercised. Such notice shall be
accompanied by the agreements evidencing the SAR and the Related Option. In the
event the SAR shall not be exercised
C-8
in full, the Secretary of the Company shall endorse or cause to be endorsed on
the SAR Agreement and the Related Option Agreement the number of shares which
have been exercised thereunder and the number of shares that remain exercisable
under the SAR and the Related Option and return such SAR and Related Option to
the holder thereof.
(d) The amount of payment to which an Optionee shall be entitled upon the
exercise of each SAR shall be equal to one hundred percent (100%) of the amount,
if any, by which the fair market value of a share of Common Stock on the
exercise date exceeds the exercise price per share of the Related Option;
provided, however, the Company may, in its sole discretion, withhold from any
such cash payment any amount necessary to satisfy the Company's obligation for
withholding taxes with respect to such payment.
(e) The amount payable by the Company to an Optionee upon exercise of a SAR
may, in the sole determination of the Company, be paid in shares of Common
Stock, cash or a combination thereof, as set forth in the SAR Agreement. In the
case of a payment in shares, the number of shares of Common Stock to be paid to
an Optionee upon such Optionee's exercise of an SAR shall be determined by
dividing the amount of payment determined pursuant to Section 10(d) hereof by
the fair market value of a share of Common Stock on the exercise date of such
SAR. For purposes of the Plan, the exercise date of an SAR shall be the date the
Company receives written notification from the Optionee of the exercise of the
SAR in accordance with the provisions of Section 10(c) hereof. As soon as
practicable after exercise, the Company shall either deliver to the Optionee the
amount of cash due such Optionee or a certificate or certificates for such
shares of Common Stock. All such shares shall be issued with the rights and
restrictions specified herein.
(f) SARs shall terminate or expire upon the same conditions and in the same
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manner as the Related Options, and as set forth in Section 12 hereof.
(g) The exercise of any SAR shall cancel and terminate the right to
purchase an equal number of shares covered by the Related Option.
(h) Upon the exercise or termination of any Related Option, the SAR with
respect to such Related Option shall terminate to the extent of the number of
shares of Common Stock as to which the Related Option was exercised or
terminated.
(i) An SAR granted pursuant to the Plan shall be transferable to the same
extent as the Related Option.
(j) All references in this Plan to "Options" shall be deemed to include
"SARs" where applicable.
11. Transferability of Options.
--------------------------
(a) No Optiongranted under the Plan shall be transferable by the individual
or entity to whom it was granted other than by will or the laws of descent and
distribution, and, during the lifetime of an individual, shall not be
exercisable by any other person, but only by him.
(b) Notwithstanding Section 11(a) above, a Nonstatutory Stock Option
granted under the Plan may be transferred in whole or in part during an
Optionee's lifetime, upon the approval of the Board of Directors or the
Committee, to an Optionee's "family members" (as such term is defined in Rule
701(c)(3) of the Securities Act of 1933, as amended, and General Instruction
A(1)(a)(5) to Form S-8) through a gift or domestic relations order. The
transferred portion of a Nonstatutory Stock Option may only be exercised by the
person or entity who acquires a proprietary interest in such option pursuant to
the transfer. The terms applicable to the transferred portion shall
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be the same as those in effect for the Option immediately prior to such transfer
and shall be set forth in such documents issued to the transferee as the Board
of Directors or the Committee may deem appropriate. As used in this Plan the
terms "Optionee" and "holder of an Option" shall refer to the grantee of the
Option and not any transferee thereof.
12. Effect of Termination of Employment or Death on Options.
-------------------------------------------------------
(a) Unless otherwise provided in the Stock Option Agreement, if the
employment of an employee by, or the services of a non-employee Director for, or
consultant or advisor to, the Company or a parent or subsidiary corporation of
the Company shall be terminated for Cause (as hereinafter defined) or
voluntarily by the employee, non-employee Director, consultant or advisor, then
his Option shall expire forthwith. Unless otherwise provided in the Stock Option
Agreement, and except as provided in subsections (b) and (c) of this Section 12,
if such employment or services shall terminate for any other reason, then such
Option may be exercised at any time within three (3) months after such
termination, subject to the provisions of subsection (d) of this Section 12. For
purposes hereof, "Cause" shall include, without limitation, (i) conviction of,
or a plea of nolo contendere to, a felony or other serious crime; (ii)
commission of any act involving moral turpitude; (iii) commission of any act of
dishonesty involving the Company or the performance of the Optionee's duties;
(iv) breach of any fiduciary duty to the Company; (v) any alcohol or substance
abuse on the part of the Optionee; (vi) the Optionee's commission of any illegal
business practices in connection with the Company's business; (vii) any
embezzlement or misappropriation of assets; (viii) any excessive unexcused
absences from employment or service; (ix) continued and habitual neglect to
perform material stated duties; (x) material breach of any provision of any
employment, consulting or advisory agreement between the Optionee and the
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Company; (xi) engagement in any other misconduct that is materially injurious to
the Company; or(xii) if the Employee is party to an agreement with the Company,
anything which constitutes "Cause" thereunder as it relates to termination of
employment or services. All references in the above definition of "Cause" to the
Company shall be deemed to include any parent or subsidiary thereof. For
purposes of the Plan, the retirement of an individual either pursuant to a
pension or retirement plan adopted by the Company or at the normal retirement
date prescribed from time to time by the Company shall be deemed to be
termination of such individual's employment other than voluntarily or for cause.
For purposes of this subsection (a), an employee, non-employee Director,
consultant or advisor who leaves the employ or services of the Company to become
an employee or non-employee Director of, or a consultant or advisor to, a parent
or subsidiary corporation of the Company or a corporation (or subsidiary or
parent corporation of the corporation) which has assumed the Option of the
Company as a result of a corporate reorganization or like event shall not be
considered to have terminated his employment or services.
(b) Unless otherwise provided in the Stock Option Agreement, if the holder
of an Option under the Plan dies (i) while employed by, or while serving as a
non-employee Director for or a consultant or advisor to, the Company or a parent
or subsidiary corporation of the Company, or (ii) within three (3) months after
the termination of his employment or services other than voluntarily or for
Cause, then such Option may, subject to the provisions of subsection (d) of this
Section 12, be exercised by the estate of the employee or non-employee Director,
consultant or advisor, or by a person who acquired the right to exercise such
Option by bequest or inheritance or by reason of the death of such employee or
non-employee Director, consultant or advisor, at any time within one (1) year
after such death.
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(c) Unless otherwise provided in the Stock Option Agreement, if the holder
of an Option under the Plan ceases employment or services because of permanent
and total disability (within the meaning of Section 22(e)(3) of the Code)
("Permanent Disability") while employed by, or while serving as a non-employee
Director for or consultant or advisor to, the Company or a parent or subsidiary
corporation of the Company, then such Option may, subject to the provisions of
subsection (d) of this Section 12, be exercised at any time within one (1) year
after his termination of employment, termination of Directorship or termination
of consulting or advisory services, as the case may be, due to the disability.
(d) An Option may not be exercised pursuant to this Section 12 except to
the extent that the holder was entitled to exercise the Option at the time of
termination of employment, termination of Directorship, termination of
consulting or advisory services, or death, and in any event may not be exercised
after the expiration of the Option.
(e) For purposes of this Section 12, the employment relationship of an
employee of the Company or of a parent or subsidiary corporation of the Company
will be treated as continuing intact while he is on military or sick leave or
other bona fide leave of absence (such as temporary employment by the
Government) if such leave does not exceed ninety (90) days, or, if longer, so
long as his right to reemployment is guaranteed either by statute or by
contract.
13. Exercise of Options.
-------------------
(a) Unless otherwise provided in the Stock Option Agreement, any Option
granted under the Plan shall be exercisable in whole at any time, or in part
from time to time, prior to expiration. The Board of Directors or the Committee,
in its absolute discretion, may provide in any Stock Option Agreement that the
exercise of any Options granted under the Plan shall be subject (i)
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to such condition or conditions as it may impose, including, but not limited to,
a condition that the holder thereof remain in the employ or service of, or
continue to provide consulting or advisory services to, the Company or a parent
or subsidiary corporation of the Company for such period or periods from the
date of grant of the Option as the Board of Directors or the Committee, in its
absolute discretion, shall determine; and (ii) to such limitations as it may
impose, including, but not limited to, a limitation that the aggregate fair
market value (determined at the time the Option is granted) of the Common Stock
with respect to which Incentive Stock Options are exercisable for the first time
by any employee during any calendar year (under all plans of the Company and its
parent and subsidiary corporations) shall not exceed one hundred thousand
dollars ($100,000). In addition, in the event that under any Stock Option
Agreement the aggregate fair market value (determined at the time the Option is
granted) of the Common Stock with respect to which Incentive Stock Options are
exercisable for the first time by any employee during any calendar year (under
all plans of the Company and its parent and subsidiary corporations) exceeds one
hundred thousand dollars ($100,000), the Board of Directors or the Committee
may, when shares are transferred upon exercise of such Options, designate those
shares which shall be treated as transferred upon exercise of an Incentive Stock
Option and those shares which shall be treated as transferred upon exercise of a
Nonstatutory Stock Option.
(b) An Option granted under the Plan shall be exercised by the delivery by
the holder thereof to the Company at its principal office (attention of the
Secretary) of written notice of the number of shares with respect to which the
Option is being exercised. Such notice shall be accompanied, or followed within
ten (10) days of delivery thereof, by payment of the full option price of such
shares, and payment of such option price shall be made by the holder's delivery
of (i)
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his check payable to the order of the Company, or (ii) previously acquired
Common Stock, the fair market value of which shall be determined as of the date
of exercise (provided that the shares delivered pursuant hereto are acceptable
to the Board of Directors or the Committee in its sole discretion) or (iii) if
provided for in the Stock Option Agreement, his check payable to the order of
the Company in an amount at least equal to the par value of the Common Stock
being acquired, together with a promissory note, in form and upon such terms as
are acceptable to the Board or the Committee, made payable to the order of the
Company in an amount equal to the balance of the exercise price, or (iv) by the
holder's delivery of any combination of the foregoing (i), (ii) and (iii).
Alternatively, if provided for in the Stock Option Agreement, the holder may
elect to have the Company reduce the number of shares otherwise issuable by a
number of shares having a fair market value equal to the exercise price of the
Option being exercised.
14. Adjustment Upon Change in Capitalization.
-----------------------------------------
(a) In the event that the outstanding Common Stock is hereafter changed by
reason of reorganization, merger, consolidation, recapitalization,
reclassification, stock split-up, combination of shares, reverse split, stock
dividend or the like, an appropriate adjustment shall be made by the Board of
Directors or the Committee in the aggregate number of shares available under the
Plan, in the number of shares and option price per share subject to outstanding
Options, and in any limitation on exerciseability referred to in Section
13(a)(ii) hereof which is set forth in outstanding Incentive Stock Options. If
the Company shall be reorganized, consolidated, or merged with another
corporation, subject to the provisions of Section 19 hereof, the holder of an
Option shall be entitled to receive upon the exercise of his Option the same
number and kind of shares of stock or the same amount of property, cash or
securities as he would have been entitled to receive upon the
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happening of any such corporate event as if he had been, immediately prior to
such event, the holder of the number of shares covered by his Option; provided,
however, that in such event the Board of Directors or the Committee shall have
the discretionary power to take any action necessary or appropriate to prevent
any Incentive Stock Option granted hereunder which is intended to be an
"incentive stock option" from being disqualified as such under the then existing
provisions of the Code or any law amendatory thereof or supplemental thereto;
and provided, further, however, that in such event the Board of Directors or the
Committee shall have the discretionary power to take any action necessary or
appropriate to prevent such adjustment from being deemed or considered as the
adoption of a new plan requiring shareholder approval under Section 422 of the
Code and the regulations promulgated thereunder.
(b) Any adjustment in the number of shares shall apply proportionately to
only the unexercised portion of the Option granted hereunder. If fractions of a
share would result from any such adjustment, the adjustment shall be revised to
the next lower whole number of shares.
15. Further Conditions of Exercise of Options.
------------------------------------------
(a) Unless prior to the exercise of the Option the shares issuable upon
such exercise have been registered with the Securities and Exchange Commission
pursuant to the Securities Act of 1933, as amended, the notice of exercise shall
be accompanied by a representation or agreement of the person or estate
exercising the Option to the Company to the effect that such shares are being
acquired for investment purposes and not with a view to the distribution
thereof, and such other documentation as may be required by the Company, unless
in the opinion of counsel to the Company such representation, agreement or
documentation is not necessary to comply with such Act.
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(b) If the Common Stock is listed on any securities exchange, including,
without limitation, Nasdaq, the Company shall not be obligated to deliver any
Common Stock pursuant to this Plan until it has been listed on each such
exchange. In addition, the Company shall not be obligated to deliver any Common
Stock pursuant to this Plan until there has been qualification under or
compliance with such federal or state laws, rules or regulations as the Company
may deem applicable. The Company shall use reasonable efforts to obtain such
listing, qualification and compliance.
16. Restricted Stock Grant Agreement. Each Restricted Stock grant under the
--------------------------------
Plan shall be authorized by the Board of Directors or the Committee, and shall
be evidenced by a Restricted Stock Grant Agreement which shall be executed by
the Company and by the individual or entity to whom such Restricted Stock is
granted. The Restricted Stock Grant Agreement shall specify the number of shares
of Restricted Stock granted, the vesting periods and such other terms and
provisions as the Board of Directors or the Committee may deem necessary or
appropriate.
17. Restricted Stock Grants.
-------------------------
(a) The Board of Directors or the Committee may grant Restricted Stock
under the Plan to any individual or entity eligible to receive Restricted Stock
pursuant to clause (b) of Section 4 hereof.
(b) In addition to any other applicable provisions hereof and except as may
otherwise be specifically provided in a Restricted Stock Grant Agreement, the
following restrictions in this Section 17(b) shall apply to grants of Restricted
Stock made by the Board or the Committee:
(i) No shares granted pursuant to a grant of Restricted Stock may be
sold,transferred, pledged, assigned or otherwise alienated or hypothecated
until, and to the extent
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that, such shares are vested.
(ii) Shares granted pursuant to a grant of Restricted Stock shall vest
as determined by the Board or the Committee, as provided for in the Restricted
Stock Grant Agreement. The foregoing notwithstanding (but subject to the
provisions of (iii) hereof and subject to the discretion of the Board or the
Committee), a Grantee shall forfeit all shares not previously vested, if any, at
such time as the Grantee is no longer employed by, or serving as a Director of,
or rendering consulting or advisory services to, the Company or a parent or
subsidiary corporation of the Company. All forfeited shares shall be returned to
the Company.
(iii) Notwithstanding the provisions of (ii) hereof, non-vested
Restricted Stock shall automatically vest as provided for in Section 19 hereof.
(c) In determining the vesting requirements with respect to a grant of
Restricted Stock, the Board or the Committee may impose such restrictions on any
shares granted as it may deem advisable including, without limitation,
restrictions relating to length of service, corporate performance, attainment of
individual or group performance objectives, and federal or state securities
laws, and may legend the certificates representing Restricted Stock to give
appropriate notice of such restrictions. Any such restrictions shall be
specifically set forth in the Restricted Stock Grant Agreement.
(d) Certificates representing shares granted that are subject to
restrictions shall be held by the Company or, if the Board or the Committee so
specifies, deposited with a third-party custodian or trustee until lapse of all
restrictions on the shares. After such lapse, certificates for such shares (or
the vested percentage of such shares) shall be delivered by the Company to the
Grantee; provided, however, that the Company need not issue fractional shares.
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(e) During any applicable period of restriction, the Grantee shall be the
record owner of the Restricted Stock and shall be entitled to vote such shares
and receive all dividends and other distributions paid with respect to such
shares while they are so restricted. However, if any such dividends or
distributions are paid in shares of Company stock or cash or other property
during an applicable period of restriction, the shares, cash and/or other
property deliverable shall be held by the Company or third party custodian or
trustee and be subject to the same restrictions as the shares with respect to
which they were issued. Moreover, the Board or the Committee may provide in each
grant such other restrictions, terms and conditions as it may deem advisable
with respect to the treatment and holding of any stock, cash or property that is
received in exchange for Restricted Stock granted pursuant to the Plan.
(f) Each Grantee making an election pursuant to Section 83(b) of the Code
shall, upon making such election, promptly provide a copy thereof to the
Company.
(g) If the Company shall be reorganized, consolidated, or merged with
another corporation or entity, subject to the provisions of Section 19 hereof,
the shares of stock or the property, cash or securities which the holder of
Restricted Stock shall be entitled to receive upon the happening of any such
corporate event in respect of his Restricted Stock, shall be subject to the same
restrictions to which such Restricted Stock was subject pursuant to the terms of
the Restricted Stock Grant Agreement relating to such Restricted Stock, and in
such event the Board of Directors or the Committee shall have the discretionary
power to take any action necessary or appropriate to preserve the "restricted
stock" nature of the Restricted Stock so converted or exchanged, or to prevent
such Restricted Stock so converted or exchanged from being disqualified as such
under the then existing provisions of the Code or any law amendatory thereof or
supplemental thereto.
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(h) If fractions of a share of Restricted Stock would result from any such
adjustment, the adjustment shall be treated in the same manner as Common Stock
in such corporate event.
18. Restrictions Upon Shares; Right of First Refusal.
------------------------------------------------
(a) No Optionee or Grantee (collectively, "Participant") shall, for value
or otherwise, sell, assign, transfer or otherwise dispose of all or any part of
the shares issued pursuant to the exercise of an Option or received as
Restricted Stock (collectively, the "Shares"), or of any beneficial interest
therein (collectively a "Disposition"), except as permitted by and in accordance
with the provisions of the Plan. The Company shall not recognize as valid or
give effect to any Disposition of any Shares or interest therein upon the books
of the Company unless and until the Participant desiring to make such
Disposition shall have complied with the provisions of the Plan.
(b) No Participant shall, without the written consent of the Company,
pledge, encumber, create a security interest in or lien on, or in any way
attempt to otherwise impose or suffer to exist any lien, attachment, levy,
execution or encumbrance on the Shares.
(c) If, at any time, a Participant desires to make a Disposition of any of
the Shares (the "Offered Shares") to any third-party individual or entity
pursuant to a bona fide offer (the "Offer"), he shall give written notice of his
intention to do so ("Notice of Intent to Sell") to the Company, which notice
shall specify the name(s) of the offeror(s) (the "Proposed Offeror(s)"), the
price per share offered for the Offered Shares and all other terms and
conditions of the proposed transaction. Thereupon, the Company shall have the
option to purchase from the Participant all, but not less than all, the Offered
Shares upon the same terms and conditions as set forth in the Offer.
(d) If the Company desires to purchase all of the Offered Shares, it must
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send a written notice to such effect to the Participant within thirty (30) days
following receipt of the Notice of Intent to Sell.
(e) The closing of any purchase and sale of the Offered Shares shall take
place sixty (60) days following receipt by the Company of the Notice of Intent
to Sell.
(f) If the Company does not elect to purchase all of the Offered Shares
within the period set forth in paragraph (d) hereof, no Shares may be purchased
by the Company, and the Participant shall thereupon be free to dispose of such
Shares to the Proposed Offeror(s) strictly in accordance with the terms of the
Offer. If the Offered Shares are not disposed of strictly in accordance with the
terms of the Offer within a period of one hundred twenty (120) days after the
Participant gives a Notice of Intent to Sell, such Shares may not thereafter be
sold without compliance with the provisions hereof.
(g) All certificates representing the Shares shall bear on the face or
reverse side thereof the following legend:
"The shares represented by this certificate are subject
to the provisions of the Nathaniel Energy Corporation 2003
Equity Participation Plan, a copy of which is on file at the
offices of the Company."
(h) The provisions of this Section 18 shall terminate and be of no further
force or effect at such time, if ever, that the Company becomes subject to the
reporting requirements of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), pursuant to Section 13 or 15(d) thereof.
19. Liquidation, Merger or Consolidation. Notwithstanding Section 14(a)
--------------------------------------
hereof, if the Board of Directors approves a plan of complete liquidation or a
merger or consolidation
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(other than a merger or consolidation that would result in the voting securities
of the Company outstanding immediately prior thereto continuing to represent
(either by remaining outstanding or by being converted into voting securities of
the surviving entity), at least fifty percent (50%) of the combined voting power
of the voting securities of the Company (or such surviving entity) outstanding
immediately after such merger or consolidation), the Board of Directors or the
Committee may, in its sole discretion, upon written notice to the holder of an
Option, provide that the Option must be exercised within twenty (20) days
following the date of such notice or it will be terminated. In the event such
notice is given, the Option shall become immediately exercisable in full.
20. Effectiveness of the Plan. The Plan was adopted by the Board of
--------------------------
Directors on November 20, 2003. The Plan shall be subject to approval on or
before November 19, 2004, which is within one (1) year of adoption of the Plan
by the Board of Directors, by the affirmative vote of the holders of a majority
of the votes of the outstanding shares of capital stock of the Company present
in person or represented by proxy at a meeting of stockholders and entitled to
vote thereon (or in the case of action by written consent in lieu of a meeting
of stockholders, the number of votes required by applicable law to act in lieu
of a meeting) ("Stockholder Approval"). In the event such Stockholder Approval
is withheld or otherwise not received on or before the latter date, the Plan
and, unless otherwise provided in the Stock Option Agreement and/or the
Restricted Stock Grant Agreement, all Options and Restricted Stock that may have
been granted hereunder shall become null and void.
21. Termination, Modification and Amendment.
----------------------------------------
(a) The Plan (but not Options previously granted under the Plan) shall
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terminate on November 19, 2013, which is within ten (10) years from the date of
its adoption by the Board of Directors, or sooner as hereinafter provided, and
no Option or Restricted Stock shall be granted after termination of the Plan.
The foregoing shall not be deemed to limit the vesting period for Restricted
Stock granted pursuant to the Plan.
(b) The Plan may from time to time be terminated, modified, or amended if
Stockholder Approval of the termination, modification or amendment is obtained.
(c) The Board of Directors may at any time, on or before the termination
date referred to in Section 21(a) hereof, without Stockholder Approval,
terminate the Plan, or from time to time make such modifications or amendments
to the Plan as it may deem advisable; provided, however, that the Board of
Directors shall not, without Stockholder Approval, (i) increase (except as
otherwise provided by Section 14 hereof) the maximum number of shares as to
which Incentive Stock Options may be granted hereunder, change the designation
of the employees or class of employees eligible to receive Incentive Stock
Options, or make any other change which would prevent any Incentive Stock Option
granted hereunder which is intended to be an "incentive stock option" from
qualifying as such under the then existing provisions of the Code or any law
amendatory thereof or supplemental thereto or (ii) make any other modifications
or amendments that require Stockholder Approval pursuant to applicable law,
regulation or exchange requirements. In the event Stockholder Approval is not
received within one (1) year of adoption by the Board of Directors of the change
provided for in (i) or (ii) above, then, unless otherwise provided in the Stock
Option Agreement and/or Restricted Stock Grant Agreement (but subject to
applicable law), the change and all Options, SARs and Restricted Stock that may
have been granted pursuant thereto shall be null and void.
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(d) No termination, modification, or amendment of the Plan may, without the
consent of the individual or entity to whom any Option or Restricted Stock shall
have been granted, adversely affect the rights conferred by such Option or
Restricted Stock grant.
22. Not a Contract of Employment. Nothing contained in the Plan or in
----------------------------
any Stock Option Agreement or Restricted Stock Grant Agreement executed pursuant
hereto shall be deemed to confer upon any individual or entity to whom an Option
or Restricted Stock is or may be granted hereunder any right to remain in the
employ or service of the Company or a parent or subsidiary corporation of the
Company or any entitlement to any remuneration or other benefit pursuant to any
consulting or advisory arrangement.
23. Use of Proceeds. The proceeds from the sale of shares pursuant to
---------------
Options or Restricted Stock granted under the Plan shall constitute general
funds of the Company.
24. Indemnification of Board of Directors or Committee. In addition
----------------------------------------------------
to such other rights of indemnification as they may have, the members of the
Board of Directors or the Committee, as the case may be, shall be indemnified by
the Company to the extent permitted under applicable law against all costs and
expenses reasonably incurred by them in connection with any action, suit, or
proceeding to which they or any of them may be a party by reason of any action
taken or failure to act under or in connection with the Plan or any rights
granted thereunder and against all amounts paid by them in settlement thereof or
paid by them in satisfaction of a judgment of any such action, suit or
proceeding, except a judgment based upon a finding of bad faith. Upon the
institution of any such action, suit, or proceeding, the member or members of
the Board of Directors or the Committee, as the case may be, shall notify the
Company in writing, giving the Company an opportunity at its own cost to defend
the same before such member or members undertake to defend
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the same on his or their own behalf.
25. Captions. The use of captions in the Plan is for convenience. The
--------
captions are not intended to provide substantive rights.
26. Disqualifying Dispositions. If Common Stock acquired upon exercise of
---------------------------
an Incentive Stock Option granted under the Plan is disposed of within two years
following the date of grant of the Incentive Stock Option or one year following
the issuance of the Common Stock to the Optionee, or is otherwise disposed of in
a manner that results in the Optionee being required to recognize ordinary
income, rather than capital gain, from the disposition (a "Disqualifying
Disposition"), the holder of the Common Stock shall, immediately prior to such
Disqualifying Disposition, notify the Company in writing of the date and terms
of such Disqualifying Disposition and provide such other information regarding
the Disqualifying Disposition as the Company may reasonably require.
27. Withholding Taxes.
-----------------
(a) Whenever under the Plan shares of Common Stock are to be delivered to
an Optionee upon exercise of a Nonstatutory Stock Option or to a Grantee of
Restricted Stock, the Company shall be entitled to require as a condition of
delivery that the Optionee or Grantee remit or, at the discretion of the Board
or the Committee, agree to remit when due, an amount sufficient to satisfy all
current or estimated future Federal, state and local income tax withholding
requirements, including, without limitation, the employee's portion of any
employment tax requirements relating thereto. At the time of a Disqualifying
Disposition, the Optionee shall remit to the Company in cash the amount of any
applicable Federal, state and local income tax withholding and the employee's
portion of any employment taxes.
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(b) The Board of Directors or the Committee may, in its discretion, provide
any or all holders of Nonstatutory Stock Options or Grantees of Restricted
Stockwith the right to use shares of Common Stock in satisfaction of all or part
of the withholding taxes to which such holders may become subject in connection
with the exercise of their Options or their receipt of Restricted Stock. Such
right may be provided to any such holder in either or both of the following
formats:
(i) The election to have the Company withhold, from the shares of
Common Stock otherwise issuable upon the exercise of such Nonstatutory Stock
Option or otherwise deliverable as a result of the vesting of Restricted Stock,
a portion of those shares with an aggregate fair market value equal to the
percentage of the withholding taxes (not to exceed one hundred percent (100%))
designated by the holder.
(ii) The election to deliver to the Company, at the time the
Nonstatutory Stock Option is exercised or Restricted Stock is granted or vested,
one or more shares of Common Stock previously acquired by such holder (other
than in connection with the option exercise or Restricted Stock grant triggering
the withholding taxes) with an aggregate fair market value equal to the
percentage of the withholding taxes (not to exceed one hundred percent (100%))
designated by the holder.
28. Other Provisions. Each Option granted, and each Restricted Stock
----------------
grant, under the Plan may contain such other terms and conditions not
inconsistent with the Plan as may be determined by the Board or the Committee,
in its sole discretion. Notwithstanding the foregoing, each Incentive Stock
Option granted under the Plan shall include those terms and conditions which are
necessary to qualify the Incentive Stock Option as an "incentive stock option"
within the
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meaning of Section 422 of the Code and the regulations thereunder and shall not
include any terms and conditions which are inconsistent therewith.
29. Definitions. For purposes of the Plan, the terms "parent
-----------
corporation" and"subsidiary corporation" shall have the meanings set forth in
Sections 424(e) and 424(f) of the Code, respectively, and the masculine shall
include the feminine and the neuter as the context requires.
30. Governing Law. The Plan shall be governed by, and all questions
-------------
arising hereunder shall be determined in accordance with, the laws of the State
of Delaware, excluding choice of law principles thereof.
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