PENNACO ENERGY, INC.
1998 STOCK OPTION AND INCENTIVE PLAN
PENNACO ENERGY, INC.
1998 STOCK OPTION AND INCENTIVE PLAN
PAGE
I. PURPOSE........................................................ 1
II. DEFINITIONS.................................................... 1
III. EFFECTIVE DATE................................................. 3
IV. ADMINISTRATION................................................. 3
V. PARTICIPATION.................................................. 4
5.1 Eligibility............................................ 4
5.2 Ten Percent Shareholders............................... 4
5.3 Stock Ownership........................................ 4
5.4 Outstanding Stock...................................... 4
VI. STOCK SUBJECT TO THE PLAN...................................... 5
VII. OPTIONS........................................................ 5
7.1 Stock Option Agreements................................ 5
7.2 Number of Shares....................................... 5
7.3 Exercise Price......................................... 5
7.4 Medium and Time of Payment............................. 5
7.5 Term and Transferability of Options.................... 5
7.6 Modification, Extension, and Renewal of Options........ 6
7.7 Limitation on Grant of Incentive Stock Options......... 6
7.8 Other Provisions....................................... 6
7.9 Specific Awards Approved by the Shareholders........... 6
XIII. RIGHTS OF ELIGIBLE EMPLOYEES, PARTICIPANTS
AND BENEFICIARIES.............................................. 6
8.1 Employee Status........................................ 6
8.2 No Employment Contract................................. 6
8.3 No Transferability..................................... 6
8.4 Plan Not Funded........................................ 7
8.5 Adjustments upon Recapitalizations and Corporate Changes 7
8.6 Termination of Employment.............................. 7
8.7 Death of Participant................................... 8
8.8 Disability of Participant.............................. 8
8.9 Retirement of Participant.............................. 8
8.10 Rights as a Stockholder................................ 8
8.11 Deferral of Payments................................... 8
8.12 Acceleration of Awards................................. 8
IX. MISCELLANEOUS.................................................. 9
i
9.1 Termination, Suspension and Amendment.................. 9
9.2 No Fractional Shares................................... 9
9.3 Tax Withholding........................................ 9
9.4 Restrictions of Elections Made by Participants......... 9
9.5 Limitations on the Corporation's Obligations........... 10
9.6 Compliance with Laws................................... 10
9.7 Governing Law.......................................... 10
9.8 Securities Law Requirements............................ 10
9.9 Execution.............................................. 11
ii
PENNACO ENERGY, INC.
1998 STOCK OPTION AND INCENTIVE PLAN
I. PURPOSE
The Plan is intended to provide incentive to key employees and directors
of, and key consultants, vendors, customers, and others expected to provide
significant services to, the Corporation, to encourage proprietary interest in
the Corporation, to encourage such key employees to remain in the employ of the
Corporation and its Subsidiaries, to attract new employees with outstanding
qualifications, and to afford additional incentive to consultants, vendors,
customers, and others to increase their efforts in providing significant
services to the Corporation.
II. DEFINITIONS.
2.1 "Award" shall mean an Option, which may be designated an Incentive
Stock Option or a Nonstatutory Stock Option, in each case as granted pursuant to
the Plan.
2.2 "Award Agreement" shall mean any written agreement, contract, or other
instrument or document evidencing an Award.
2.3 "Beneficiary" shall mean the person, persons, trust or trusts
entitled by will or the laws of descent and distribution to receive the benefits
specified under the Plan in the event of a Participant's death.
2.4 "Board" shall mean the Board of Directors of the Corporation.
2.5 "Code" shall mean the Internal Revenue Code of 1986, as amended.
2.6 "Committee" shall mean the committee, if any, appointed by the Board
in accordance with Section 4 of the Plan, or the Board if no Committee has been
appointed.
2.7 "Common Stock" shall mean the Common Stock, $.001 par value, of the
Corporation.
2.8 "Corporation" shall mean Pennaco Energy, Inc., a Nevada corporation,
and its Subsidiaries.
2.9 "Disability" shall mean the condition of a Participant who is unable
to perform his or her substantial and material job duties due to injury or
sickness or such other condition as the Board or Committee may determine in its
sole discretion and/or engage in any substantial gainful activity by reason of
any medically determinable physical or mental impairment which can be expected
to result in death or which has lasted or can be expected to last for a
continuous period of not less than 12 months.
2.10 "Effective Date" shall mean the date that the Plan was adopted by the
shareholders of the Company.
2.11 "Eligible Employee" shall mean an individual who is employed (within
the meaning of Code Section 3401 and the regulations thereunder) by the
Corporation. Additionally for purposes of this Plan, a Participant who is a
director or a consultant, vendor, customer, or other provider of significant
services to the Corporation or a Subsidiary shall be deemed to be an Eligible
Employee, and service as a director, consultant, vendor, customer, or other
provider of significant services to the Corporation or a Subsidiary shall be
deemed to be employment, except that no Incentive Stock Option may be granted to
a non-employee director or non-employee consultant, vendor, customer, or other
provider of significant services to the Corporation or a Subsidiary.
2.12 "Event" shall mean any of the following:
(a) Any person or entity (or group of affiliated persons or entities)
acquires in one or more transactions, whether before or after the effective date
of the Plan, ownership of more than 50% of the outstanding shares of stock
entitled to vote in the election of directors of the Corporation; or
(b) The dissolution or liquidation of the Corporation or a
reorganization, merger or consolidation of the Corporation with one or more
entities, as a result of which the Corporation is not the surviving entity, or a
sale of all or substantially all of the assets of the Corporation as an entirety
to another entity.
1
For purposes of this definition, ownership does not include ownership
(i) by a person owning such shares merely of record (such as a member of a
securities exchange, a nominee or a securities depository system), (ii) by a
person as a bona fide pledgee of shares prior to a default and determination
to exercise powers as an owner of the shares, (iii) by a person who is not
required to file statements on Schedule 13D by virtue of Rule 13d-1(b, or
(iv) by a person who owns or holds shares as an underwriter acquired in
connection with an underwritten offering pending and for purposes of resale.
2.13 "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended from time to time.
2.14 "Exercise Price" shall mean the price per Share of Common Stock,
determined by the Board or the Committee, at which an Award may be exercised.
2.15 "Fair Market Value" shall mean the value of one Share of Common
Stock, determined as follows:
(i) If the Shares are traded on an exchange, the price at which
Shares traded at the close of business on the date of valuation; or
(ii) If the Shares are traded over-the-counter on the NASDAQ
System, the closing price if one is available, or the mean between the bid and
asked prices on said System at the close of business on the date of valuation;
or
(iii) If neither (i) nor (ii) above applies, the fair market
value as determined by the Board or the Committee in good faith. Such
determination shall be conclusive and binding on all persons.
2.16 "Incentive Stock Option" shall mean an option described in Section
422A(b) of the Code.
2.17 "Nonstatutory Stock Option" shall mean an option not described in
Section 422(b), 422A(b), 423(b) or 424(b) of the Code.
2.18 "Option" shall mean either an Incentive Stock Option or a Nonstatutory
Stock Option granted pursuant to the Plan.
2.19 "Participant" shall mean Eligible Employee who has received an Award
under the Plan.
2.20 "Plan" shall mean the Pennaco Energy, Inc. 1998 Stock Option and
Incentive Plan, as it may be amended from time to time.
2.21 "Purchase Price" shall mean the Exercise Price times the number of
Shares with respect to which an Award is exercised.
2.22 "Restricted Stock Awards" shall mean any Award of shares of Common
Stock that may be subject to certain restrictions and to a risk of forfeiture.
2.23 "Retirement" shall mean the voluntary termination of employment by an
Employee upon the attainment of age 65 and the completion of not less than 20
years of service with the Corporation or a Subsidiary.
2.24 "Rule 16b" shall mean Rule 16b of the Securities and Exchange Act of
1934.
2.25 "Share" shall mean one share of Common Stock, adjusted in accordance
with Section 8.5 of the Plan (if applicable).
2.26 "Securities Act" shall mean the Securities Act of 1933, as amended
from time to time.
2.27 "Stock Appreciation Right" shall mean the right granted to a
Participant to be paid an amount measured by the appreciation in the Fair Market
Value of the Common Stock from the date of grant to the date of exercise of the
right, with payment to be made in cash, Common Stock, or property as specified
in the Award or determined by the Board or the Committee.
2.28 "Stock Option Agreements" shall mean an Award Agreement granting
Options under the Plan.
2.29 "Stock Purchase Agreement" shall mean an agreement to exercise Options
under the Plan.
2.30 "Subsidiary" shall mean any corporation at least 50% of the total
combined voting power of which is owned by the Corporation or by another
Subsidiary.
2
2.31 "Tax Date" shall have the meaning set forth in Section 9.3 hereof.
III. EFFECTIVE DATE
The Plan was adopted by the Board on March 24, 1998, subject to the approval by
the Corporation's shareholders. The Plan is being submitted for shareholder
approval pursuant to a shareholder's action without a meeting in which holders
of a majority of the shares of Common Stock must approve of the adoption of the
Plan pursuant to the Corporations Bylaws and Nevada Corporate Law. The
effective date of the Plan shall be March 24, 1998 (the "Effective Date"),
provided that the Plan receives shareholder approval.
IV. ADMINISTRATION
The Plan shall be administered by the Board in compliance with Rule 16b-3,
or by a Committee appointed by the Board, which Committee shall be constituted
to permit the Plan to comply with Rule 16b-3, and which shall consist of not
less than two members. The Board shall appoint one of the members of the
Committee, if there be one, as Chairman of the Committee. If a Committee has
been appointed, the Committee shall hold meetings at such times and places as it
may determine. Acts of a majority of the Committee at which a quorum is
present, or acts reduced to or approved in writing by a majority of the members
of the Committee, shall be the valid acts of the Committee. The Board, or the
Committee if there be one, shall from time to time at its discretion select the
Eligible Employees and consultants who are to be granted Awards, determine the
number of Shares to be applicable to such Award, and designate any Options as
Incentive Stock Options or Nonstatutory Stock Options, except that no Incentive
Stock Option may be granted to a non-employee director or a non-employee
consultant. A member of the Board or a Committee member shall in no event
participate in any determination relating to Awards held by or to be granted to
such Board or Committee member; however, a member of the Board or a Committee
member shall be entitled to receive Awards which are duly approved in accordance
with the provisions of Rule 16b-3. The interpretation and construction by the
Board, or by the Committee if there be one, of any provision of the Plan or of
any Award granted thereunder shall be final. No member of the Board or of the
Committee shall be liable for any action or determination made in good faith
with respect to the Plan or any Award granted thereunder. In addition to any
right of indemnification provided by the Articles of Incorporation or Bylaws of
the Corporation, such person shall be indemnified and held harmless by the
Corporation from any loss, cost, liability or expense that may be imposed upon
or reasonably incurred by him in connection with any claim, suit, action or
proceeding to which he may be a party by reason of any action or omission under
the Plan.
V. PARTICIPATION
5.1 Eligibility. Subject to the terms and conditions of Section 5.2
below, the Participants shall be such persons as the shareholders may approve or
as the Board or the Committee may select from among the following classes of
persons: (i) Employees of the Corporation or of a Subsidiary (who may be
officers, whether or not they are directors); and (ii) Consultants, vendors,
customers, and others expected to provide significant services to the
Corporation or a Subsidiary.
For purposes of this Plan, a Participant who is a director or a consultant,
vendor, customer, or other provider of significant services to the Corporation
or a Subsidiary shall be deemed to be an Eligible Employee, and service as a
director, consultant, vendor, customer, or other provider of significant
services to the Corporation or a Subsidiary shall be deemed to be employment,
except that no Incentive Stock Option may be granted to a non-employee director
or non-employee consultant, vendor, customer, or other provider of significant
services to the Corporation or a Subsidiary, and except that no Nonstatutory
Stock Option may be granted to a non-employee director or non-employee
consultant, vendor, customer, or other provider of significant services to the
Corporation or a Subsidiary other than upon a vote of a majority of
disinterested directors finding that the value of the services rendered or to be
rendered to the Corporation or a Subsidiary by such non-employee director or
non-employee consultant, vendor, customer, or other provider of services is at
least equal to the value of the Awards granted.
5.2 Ten-Percent Shareholders. An Eligible Employee who owns more than 10%
of the total combined voting power of all classes of outstanding stock of the
Corporation, its parent or any of its Subsidiaries shall not be eligible to
receive an Award for an Incentive Stock Option unless (i) the Exercise Price of
the Shares subject to such Award is at least 110% of the Fair Market Value of
such Shares on the date of grant; and (ii) such Award by its terms is not
exercisable after the expiration of 5 years from the date of grant.
5.3 Stock Ownership. For purposes of Section 5.2 above, in determining
stock ownership an Eligible Employee shall be considered as owning the stock
owned, directly or indirectly, by or for his brothers, sisters, spouses,
ancestors, and lineal descendants. Stock owned, directly or indirectly, by or
for a corporation, partnership, estate, or trust shall be considered as being
owned proportionately by or for its shareholders, partners, or beneficiaries.
Stock with respect to which such Eligible Employee holds an Award shall not be
counted.
3
5.4 Outstanding Stock. For purposes of Section 5.2 above, "outstanding
stock" shall include all stock actually issued and outstanding immediately after
the grant of the Award to the Participant. "Outstanding stock" shall not
include shares authorized for issue under outstanding Options or Purchase Rights
held by the Participant or by any other person.
VI. STOCK SUBJECT TO THE PLAN
The stock subject to Awards granted under the Plan shall be Shares of the
Corporation's authorized but unissued or reacquired Common Stock. The
aggregate number of Shares which may be issued as Awards or upon exercise of
Awards under the Plan shall not exceed 2,500,000 shares. The number of Shares
subject to unexercised Options (plus the number of Shares previously issued
under the Plan) shall not at any time exceed the number of Shares available for
issuance under the Plan. In the event that any unexercised Option, or any
portion thereof, for any reason expires or is terminated, the unexercised or
unvested Shares allocable to such Option may again be made subject to any Award.
Any Shares withheld by the Corporation pursuant to Section 9.3 shall not be
deemed to be issued. The number of withheld Shares shall be deducted from the
applicable Award and shall not entitle the Participant to receive additional
Shares. The limitations established by this Article VI shall be subject to
adjustment in the manner provided in Section 8.5 hereof upon the occurrence of
an event specified therein.
VII. OPTIONS
7.1 Stock Option Agreements. Options shall be evidenced by written Stock
Option Agreements in such form as the Board or the Committee shall from time to
time determine. Such agreements shall comply with and be subject to the terms
and conditions set forth below.
7.2 Type and Number of Shares. Each Option shall state the type of Award
and the number of Shares to which it pertains and shall provide for the
adjustment thereof in accordance with the provisions of Section 8.5 hereof.
7.3 Exercise Price. Each Option shall state the Exercise Price thereof.
The Exercise Price in the case of any Incentive Stock Option shall not be less
than the Fair Market Value on the date of grant and, in the case of any Option
granted to an Optionee described in Section 5.2 hereof, shall not be less than
110% of the Fair Market Value on the date of grant. The Exercise Price in the
case of any Nonstatutory Stock Option shall not be less than 85% of the Fair
Market Value on the date of grant.
7.4 Medium and Time of Payment. The Purchase Price shall be payable in
full in United States dollars upon the exercise of the Option; provided,
however, that if the applicable Stock Option Agreement so provides the Purchase
Price may be paid (i) by the surrender of Shares in good form for transfer,
owned by the Participant and having a Fair Market Value on the date of exercise
equal to the Purchase Price, or in any combination of cash and Shares, as long
as the sum of the cash so paid and the Fair Market Value of the Shares so
surrendered equal the Purchase Price, (ii) by cancellation of indebtedness owed
by the Corporation to the Participant, (iii) with a full recourse promissory
note executed by the Participant, or (iv) any combination of the foregoing. The
interest rate and other terms and conditions of such note shall be determined by
the Board of Directors. The Board of Directors may require that the Participant
pledge his or her Shares to the Corporation for the purpose of securing the
payment of such note. In no event shall the stock certificate(s) representing
such Shares be released to the Participant until such note is paid in full.
7.5 Term and Nontransferability of Options. Each Option shall state the
time or times which all or part thereof becomes exercisable. No Option shall be
exercisable after the expiration of 10 years from the date it was granted, and
no Option granted to a Participant described in Section 5.2 hereof shall be
exercisable after the expiration of five years from the date it was granted.
During the lifetime of the Participant, the Option shall be exercisable only by
the Participant and shall not be assignable or transferable. In the event of
the Participant's death, the Option shall not be transferable by the Participant
other than by will or the laws of descent and distribution.
7.6 Modification, Extension, and Renewal of Option. Within the
limitations of the Plan, the Board of Directors may modify, extend or renew
outstanding Options or accept the cancellation of outstanding Options (to the
extent not previously exercised) for the granting of new Options in substitution
therefor. The foregoing notwithstanding, no modification of an Option shall,
without the consent of the Participant, alter or impair any rights or
obligations under any Option previously granted.
7.7 Limitation on Grant of Incentive Stock Options. In the case of
Incentive Stock Options granted hereunder, the aggregate Fair Market Value
(determined as of the date of the grant thereof) of the Shares with respect to
which Incentive Stock Options become exercisable by any Participant for the
first time during any calendar year (under this Plan and all other Plans
maintained by the Corporation, its parent, or its Subsidiaries) shall not exceed
$100,000. The Board or Committee may, however, with the Participant's consent
authorize an amendment to the Incentive Stock Option which renders it a
Nonstatutory Stock Option.
7.8 Other Provisions. The Stock Option Agreements authorized under the
Plan may contain such other provisions not inconsistent with the terms of the
Plan (including, without limitation, restrictions upon the exercise of the
Option) as the Board of Directors shall deem advisable.
4
7.9 Specific Awards Approved by the Shareholders. Subject to shareholder
approval and pursuant to the Board of Director's approval on March 24, 1998, the
individuals whose names are set forth in Exhibit "A," a copy of which is
attached hereto and incorporated herein by this reference, shall be deemed
granted Nonstatutory Stock Options as of the Effective Date, in the amounts and
for the exercise price specified by the Board of Directors, all in accordance
with the provisions set forth in this Article VII of the Plan. The provisions
of this Section 7.9 shall not be amended more than once every six months, other
than to comply with changes in the Internal Revenue Code, the Employee
Retirement Income Security Act, or the rules thereunder, and are intended to be
construed in accordance with the provisions pertaining to "formula awards" under
Paragraph (c)(2)(ii) of Rule 16b-3.
XIII. RIGHTS OF ELIGIBLE EMPLOYEES, PARTICIPANTS, AND BENEFICIARIES
8.1 Employee Status. Status as an Eligible Employee shall not be
construed as a commitment that any Award will be made under the Plan to an
Eligible Employee or to Eligible Employees generally.
8.2 No Employment Contract. Nothing contained in the Plan (or in the
Award Agreements or in any other documents related to the Plan or to Awards)
shall confer upon any Eligible Employee or any Participant any right to continue
in the employ of the Corporation or constitute any contract or agreement of
employment, or interfere in any way with the right of the Corporation to reduce
such person's compensation or to terminate the employment of such Eligible
Employee or Participant, with or without cause, but nothing contained in the
Plan or any document related thereto shall affect any other contractual right
of any Eligible Employee or Participant. Nothing contained in the Plan (or in
the Award Agreements or in any other documents related to the Plan or the
Awards) shall confer upon any director of the Corporation any right to continue
as a director of the Corporation.
8.3 No Transferability. Awards may be exercised only by, and amounts
payable or shares issuable pursuant to an Award shall be paid only to or
registered only in the name of, the Participant or, in the event of the
Participant's death, to the Participant's Beneficiary or, in the event of the
Participant's Disability, to the Participant's Personal Representative or, if
there is none, to the Participant. Other than by will or the laws of descent
and distribution, no right or benefit under the Plan or any Award, including,
without limitation, any Option or share of Restricted Stock that has not
vested, shall be subject in any manner to anticipation, alienation, sale,
transfer, assignment, pledge, encumbrance, or charge and any such attempted
action shall be void and no such right or benefit shall be, in any manner,
liable for, or subject to, debts, contract, liabilities, engagements, or
torts of any Eligible Employee, Participant, or Beneficiary, in any case
except as may otherwise be expressly required by applicable law. The Board
or the Committee shall disregard any attempt at transfer, assignment, or
other alienation prohibited by the preceding sentence and shall pay or
deliver such cash or shares of Common Stock in accordance with the provisions
of the Plan. Notwithstanding the foregoing, the Board or the Committee may
authorize exercise by or transfers or payments to a third party in a specific
case or more generally; provided, however, with respect to any option or
similar right (including any Stock Appreciation Right), such discretion may
only be exercised to the extent that applicable rules under Section 16 of the
Exchange Act would so permit without disqualifying the Plan from certain
benefits thereunder.
8.4 Plan Not Funded. No Participant, Beneficiary, or other person
shall have any right, title, or interest in any fund or in any specific asset
(including shares of Common Stock) of the Corporation by reason of any Award
granted hereunder. There shall be no funding of any benefits which may
become payable hereunder. Neither the provisions of the Plan (or of any
documents related hereto), nor the creation or adoption of the Plan, nor any
action taken pursuant to the provisions of the Plan shall create, or be
construed to create, a trust of any kind or a fiduciary relationship between
the Corporation and any Participant, Beneficiary, or other person. To the
extent that a Participant, a Beneficiary, or other person acquires a right to
receive an Award hereunder, such right shall be no greater than the right of
any unsecured general creditor of the Corporation. Awards payable under the
Plan shall be paid in shares of Common Stock or from the general assets of
the Corporation, and no special or separate fund or deposit shall be
established and no segregation of assets or shares shall be made to assure
payment of such Awards.
8.5 Adjustment Upon Recapitalizations and Corporate Changes. If the
outstanding shares of Common Stock are changed into or exchanged for cash or
a different number or kind of shares or securities of the Corporation, or if
the outstanding shares of the Common Stock are increased, decreased,
exchanged for, or otherwise changed, or if additional shares or new or
different shares or securities are distributed with respect to the
outstanding shares of the Common Stock, through a reorganization or merger in
which the Corporation is the surviving entity or through a combination,
consolidation, recapitalization, reclassification, stock split, stock
dividend, reverse stock split, stock consolidation, or other capital change
or adjustment, an appropriate adjustment shall be made in the number and kind
of shares of other consideration that is subject to or may be delivered under
the Plan and pursuant to outstanding Awards. A corresponding adjustment to
the consideration payable with respect to Awards granted prior to any such
change and to the price, if any, to be paid in connection with Restricted
Stock Awards shall also be made as appropriate. Corresponding adjustments
shall be made with respect to Stock Appreciation Rights related to Options to
which they are related. In addition, the Board or the Committee may grant
such additional rights in the foregoing circumstances as the Board or the
Committee deems to be in the best interest of any Participant and the
Corporation in order to preserve for the Participant the benefits of an Award.
8.6 Termination of Employment, Except by Death, Disability, or
Retirement. If a Participant ceases to be an Employee for any reason other
than his or her death, Disability or Retirement, such Participant shall have
the right, subject to the restrictions of Section 8.3 above, to exercise any
Award at any time within three months after termination of employment, but
only to the extent that, at the date of termination of employment, the
Participant's right to exercise such
5
Award had accrued pursuant to the terms of the applicable agreement and had
not previously been exercised; provided, however, that if the Participant was
terminated for cause (as defined in the applicable agreement), any Award not
exercised in full prior to such termination shall be canceled. For this
purpose, the employment relationship shall be treated as continuing intact
while the Participant is on military leave, sick leave, or other bona fide
leave of absence (to be determined in the sole discretion of the Board or the
Committee). The foregoing notwithstanding, in the case of an Incentive Stock
Option, employment shall not be deemed to continue beyond the 90th day after
the Participant's reemployment rights are guaranteed by statute or by
contract.
8.7 Death of Participant. If a Participant dies while an Employee, or
after ceasing to be an Employee but during the period while he or she could have
exercised the Award under this Section 8.7, and has not fully exercised the
Award, then the Award may be exercised in full at any time within 12 months
after the Participant's death (but not later than the date of termination fixed
in the applicable agreement), by the executors or administrators of his or her
estate or by any person or persons who have acquired the Award directly from the
Participant by bequest or inheritance, but only to the extent that, at the date
of death, the Participant's right to exercise such Award had accrued and had not
been forfeited pursuant to the terms of the applicable agreement and had not
previously been exercised.
8.8 Disability of Participant. If a Participant ceases to be an Employee
by reason of Disability, such Participant shall have the right to exercise the
Award at any time within 12 months after termination of employment (but not
later than the termination date fixed in the applicable Agreement), but only to
the extent that, at the date of termination of employment, the Participant's
right to exercise such Award had accrued pursuant to the terms of the applicable
Award Agreement and had not previously been exercised.
8.9 Retirement of Participant. If a Participant ceases to be an Employee
by reason of Retirement, such Participant shall have the right to exercise the
Award at any time within three months after termination of employment (but not
later than the termination date fixed in the applicable Award Agreement), but
only to the extent that, at the date of termination of employment, the
Participant's right to exercise such Award had accrued pursuant to the terms of
the applicable Award Agreement and had not previously been exercised.
8.10 Rights as a Stockholder. A Participant, or a transferee of a
Participant, shall have no rights as a stockholder with respect to any Shares
covered by his or her Award until the date of the issuance of a stock
certificate for such Shares. No adjustment shall be made for dividends
(ordinary or extraordinary, whether in cash, securities, or other property),
distributions or other rights for which the record date is prior to the date
such stock certificate is issued, except as provided in Section 8.5 hereof.
8.11 Deferral of Payments. The Board or the Committee may approve the
deferral of any payments that may become due under the Plan. Such deferrals
shall be subject to any conditions, restrictions, or requirements as the Board
or the Committee may determine.
8.12 Acceleration of Awards. Immediately prior to the occurrence of an
Event, (i) each Option and Stock Appreciation Right under the Plan shall
become exercisable in full; (ii) Restricted Stock delivered under the Plan
shall immediately vest free of restrictions; and (iii) each other Award
outstanding under the Plan shall be fully vested or exercisable, unless,
prior to the Event, the Board or the Committee otherwise determines that
there shall be no such acceleration or vesting of an Award or otherwise
determines those Awards which shall be accelerated or vested and to the
extent to which they shall be accelerated or vested, or that an Award shall
terminate, or unless in connection with such Event the Board provides (A) for
the assumption of such Awards theretofore granted; or (B) for the
substitution for such Awards of new awards covering securities or obligations
(or any combination thereof) of a successor corporation, or a parent or
subsidiary thereof, with appropriate adjustments as to number and kind of
shares and prices; or (C) for the payment of the fair market value of the
then outstanding Awards. In addition, the Board or the Committee may grant
such additional rights in the foregoing circumstances as the Board or the
Committee deems to be in the best interest of the Participant and the
Corporation in order to preserve for the Participant the benefits of an
Award. For purposes of this Section 8.12 only, Board shall mean the Board of
Directors of the Corporation as constituted immediately prior to the Event.
In addition, the Board may in its sole discretion accelerate the
exercisability or vesting of any or all Awards outstanding under the Plan in
circumstances under which the Board or the Committee determines such
acceleration appropriate.
IX. MISCELLANEOUS
9.1 Termination, Suspension, and Amendment. The Board or the Committee
may, at any time, suspend, amend, modify, or terminate the Plan (or any part
thereof) and may, with the consent of a Participant, authorize such
modifications of the terms and conditions of such Participant's Award as it
shall deem advisable; provided that, except as permitted under the provisions of
Section 8.5 hereof, no amendment or modification of the Plan may be adopted
without approval by a majority of the outstanding shares of Common Stock
pursuant to a shareholder's action taken without a meeting or by a majority of
the shares of the Common Stock represented (in person or by proxy) at a meeting
of stockholders at which a quorum is present and entitled to vote thereat, if
such amendment or modification would:
6
(i) materially increase the benefits accruing to Participants
under the Plan or materially increase the aggregate number of shares which may
be delivered pursuant to Awards granted under the Plan if such action would
require of the Company's shareholders pursuant to Rule 16b-3 under the Exchange
Act or any successor provision; or
(ii) materially modify the requirements of eligibility for
participation in the Plan.
Neither adoption of the Plan nor the provisions hereof shall limit the authority
of the Board to adopt other Plans or to authorize other payments of compensation
and benefits under applicable law. No Awards under the Plan may be granted or
amended during any suspension of the Plan or after its termination. The
amendment, suspension or termination of the Plan shall not, without the consent
of the Participant, alter or impair any rights or obligations pertaining to any
Awards granted under the Plan prior to such amendment, suspension, or
termination.
9.2 No Fractional Shares. No Award or installment thereof shall be
exercisable except in respect of whole shares, and fractional share interests
shall be disregarded.
9.3 Tax Withholding. As required by law, federal, state, or local
taxes that are subject to the withholding of tax at the source shall be
withheld by the Corporation as necessary to satisfy such requirements. The
Corporation is entitled to require deduction from other compensation payable
to each Participant or, in the alternative: (i) the Corporation may require
the Participant to advance such sums; or (ii) if a Participant elects, the
Corporation may withhold (or require the return of) Shares having the Fair
Market Value equal to the sums required to be withheld. If the Participant
elects to advance such sums directly, written notice of that election shall
be delivered prior to such exercise and, whether pursuant to such election or
pursuant to a requirement imposed by the Corporation, payment in cash or by
check of such sums for taxes shall be delivered within 10 days after the
exercise date. If the Participant elects to have the Corporation withhold
Shares (or be entitled to the return of Shares) having a Fair Market Value
equal to the sums required to be withheld, the value of the Shares to be
withheld (or returned) will be equal to the Fair Market Value on the date the
amount of tax to be withheld (or subject to return) is to be determined (the
"Tax Date").
9.4 Restrictions on Elections Made by Participants. Elections by
Participants to have Shares withheld (or subject to return) for this purpose
will be subject to the following restrictions: (i) the election must be made
prior to the Tax Date; (ii) the election must be irrevocable; (iii) the
election will be subject to the Board's disapproval; and (iv) if the
Participant is an "officer" within the meaning of Section 16 of the Exchange
Act, the election shall be subject to such additional restrictions as the
Board or the Committee may impose in an effort to secure the benefits of any
regulations thereunder.
9.5 Limitations on the Corporation's Obligations. The Corporation
shall not be obligated to issue shares and/or distribute cash to the
Participant upon any Award exercise until such payment has been received or
Shares have been withheld, unless withholding (or offset against a cash
payment) as of or prior to the exercise date is sufficient to cover all such
sums due or which may be due with respect to such exercise. In addition, the
Board or the Committee may grant to a Participant a cash bonus in any amount
required by federal, state, or local tax law to be withheld with respect to
an Award.
9.6 Compliance with Laws. The Plan, the granting of Awards under the
Plan, the Stock Option Agreements and Stock Purchase Agreements and the
delivery of Options, Shares, and Awards (and/or the payment of money or
Common Stock) pursuant thereto and the extension of any loans hereunder are
subject to such additional requirements as the Board or the Committee may
impose to assure or facilitate compliance with all applicable federal and
state laws, rules and regulations (including, without limitation, securities
laws and margin requirements) and to such approvals by any regulatory or
governmental agency which may be necessary or advisable in connection
therewith. In connection with the administration of the Plan or the grant of
any Award, the Board or the Committee may impose such further limitations or
conditions as in its opinion may be required or advisable to satisfy, or
secure the benefits of, applicable regulatory requirements (including those
rules promulgated under Section 16 of the Exchange Act or those rules that
facilitate exemption from or compliance with the Securities Act or the
Exchange Act), the requirements of any stock exchange upon which such shares
or shares of the same class are then listed, and any blue sky or other
securities laws applicable to such shares.
9.7 Governing Laws. The Plan and all Awards granted under the
Plan and the documents evidencing Awards shall be governed by, and construed
in accordance with, the laws of the State of Nevada as the Corporation's
principle place of business.
9.8 Securities Law Requirements.
(a) Legality of Issuance. The issuance of any Shares upon the
exercise of any Option and the grant of any Option shall be contingent upon the
following:
(i) the Corporation and the Participant shall have taken all
actions required to register the Shares under the Securities Act of 1933, as
amended (the "Securities Act"), and to qualify the Option and the Shares under
any and all applicable state securities or "blue sky" laws or regulations, or to
perfect an exemption from the respective registration and qualification
requirements thereof;
7
(ii) any applicable listing requirement of any stock exchange on
which the Common Stock is listed shall have been satisfied; and
(iii) any other applicable provision of state or Federal law
shall have been satisfied.
(b) Restrictions on Transfer. Regardless of whether the offering and
sale of Shares under the Plan has been registered under the Securities Act or
has been registered or qualified under the securities laws of any state, the
Corporation may impose restrictions on the sale, pledge, or other transfer of
such Shares (including the placement of appropriate legends on stock
certificates) if, in the judgment of the Corporation and its counsel, such
restrictions are necessary or desirable in order to achieve compliance with the
provisions of the Securities Act, the securities laws of any state, or any other
law. In the event that the sale of Shares under the Plan is not registered under
the Securities Act but an exemption is available which required an investment
representation or other representation, each Participant shall be required to
represent that such Shares are being acquired for investment, and not with a
view to the sale or distribution thereof, and to make such other representations
as are deemed necessary or appropriate by the Corporation and its counsel. Any
determination by the Corporation and its counsel in connection with any of the
matters set forth in this Section 9.6(b) shall be conclusive and binding on all
persons. Stock certificates evidencing Shares acquired under the Plan pursuant
to an unregistered transaction shall bear the following restrictive legend and
such other restrictive legends as are required or deemed advisable under the
provisions of any applicable law:
THESE SHARES OF COMMON STOCK REPRESENTED HEREBY HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1993, AS AMENDED (THE "ACT"),
OR APPLICABLE STATE SECURITIES LAWS AND HAVE BEEN ISSUED IN RELIANCE
UPON EXEMPTIONS FROM SUCH REGISTRATION REQUIREMENTS. THESE SHARES OR
ANY INTEREST HEREIN MAY NOT, BE OFFERED, SOLD OR TRANSFERRED UNLESS
REGISTERED UNDER THE ACT AND APPLICABLE STATE SECURITIES LAWS OR AN
EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE ACT AND APPLICABLE
STATE SECURITIES LAWS IS AVAILABLE.
(c) Registration or Qualification of Securities. The Corporation
may, but shall not be obligated to register or qualify the issuance of Awards
and/or the sale of Shares under the Securities Act or any other applicable law.
The Corporation shall not be obligated to take any affirmative action in order
to cause the issuance of Awards or the sale of Shares under the Plan to comply
with any law.
(d) Exchange of Certificates. If, in the opinion of the Corporation
and its counsel, any legend placed on a stock certificate representing shares
issued under the Plan is no longer required, the holder of such certificate
shall be entitled to exchange such certificate for a certificate representing
the same number of Shares but lacking such legend.
9.9 Execution. To record the adoption of the Plan in the form set forth
above by the Board effective as of March 24, 1998, the Corporation has caused
this Plan to be executed in the name and on behalf of the Corporation where
provided below by an officer of the Corporation thereunto duly authorized.
PENNACO ENERGY, INC.
By:
------------------------------------
Jeffrey L. Taylor, President
ATTEST:
- ----------------------------------
Gregory V. Gibson, Vice President
8
EXHIBIT "A"
PENNACO ENERGY, INC.
1998 STOCK OPTION AND INCENTIVE PLAN
SCHEDULE OF NONSTATUTORY STOCK OPTION AWARDS
NAME POSITION WITH THE NUMBER OF SHARES EXERCISE PRICE
COMPANY
Jeffrey L. Taylor President and 400,000 $1.25
Chairman of the
Board
Mark A. Erickson Senior Vice 250,000 $1.25
President,
Hydrocarbon
Development &
Engineering,
Director
Brian Hughes Vice President, 200,000 $1.25
Exploration
Gregory V. Gibson Vice President 100,000 $1.25
Legal, Secretary,
Director
David W. Lanza Director 50,000 $1.25
All Nonstatutory Stock Options granted as set forth in the above schedule
vest on the effective date of grant unless further restricted as summarized
below:
OPTIONEE
BRIAN HUGHES
OPTION PERIOD NUMBER OF EXERCISABLE OPTION SHARES
------------- -----------------------------------
1. Exerciseable after the Company drills 50,000
125 net producing wells excluding any
stratigraphic test wells so long as
Hughes is employed by the Company
through the Terminal Date
2. Exerciseable after the Company drills 50,000
250 net producing wells excluding any
stratigraphic test wells so long as
Hughes is employed by the Company
through the Terminal Date
3. Exerciseable after the Company drills 50,000
375 net producing wells excluding any
stratigraphic test wells so long as
Hughes is employed by the Company
through the Terminal Date
4. Exerciseable after the Company drills 50,000
500 net producing wells excluding any
stratigraphic test wells so long as
Hughes is employed by the Company
through the Terminal Date
OPTIONEE
MARK A. ERICKSON
OPTION PERIOD NUMBER OF EXERCISABLE OPTION SHARES
- ------------- -----------------------------------
1. Exerciseable only after annual gross
production revenues net of royalties
and overides (net revenue interest)
(calculated during any previous four 50,000
quarter period) in the amount of
$5,000,000 are received by the Company,
so long as Erickson is in the
employment of the Company, through
the Terminal Date
2. Exerciseable only after annual gross
production revenues net of royalties and
overides (net revenue interest)
(calculated during any next four
quarter period and could include any of 75,000
the previous 3 quarters) in the amount
of $10,000,000 are received by the
Company, so long as Erickson is in the
employment of the Company, through the
Terminal Date
3. Exerciseable only after annual gross
production revenues net of royalties and
overides (net revenue interest)
(calculated during any next four
quarter period and could include any of 125,000
the previous 3 quarters) in the amount
of $20,000,000 are received by the
Company, so long as Erickson is in the
employment of the Company, through the
Terminal Date
WRITTEN CONSENT OF THE SHAREHOLDERS OF
PENNACO ENERGY, INC.
The undersigned, being the holders of in excess of the majority of the
outstanding shares of common stock of PENNACO ENERGY, INC., a Nevada corporation
(the "Company"), by this writing do hereby approve and adopt the following
resolutions and consent to this shareholders' action without a shareholders
meeting, pursuant to the Bylaws of the Company and Section 78.320 of the Nevada
Revised Statutes as of June 29, 1998:
RESOLVED, that the 1998 STOCK OPTION AND INCENTIVE PLAN (the "Plan")
be amended as follows:
Article VI shall be amended in its entirety to read as follows:
VI. STOCK SUBJECT TO THE PLAN The stock subject to Awards
granted under the Plan shall be Shares of the Corporation's
authorized but unissued or reacquired Common Stock. The
aggregate number of Shares which may be issued as Awards or
upon exercise of Awards under the Plan shall not exceed
4,500,000 shares. The number of Shares subject to
unexercised Options (plus the number of Shares previously
issued under the Plan) shall not at any time exceed the
number of Shares available for issuance under the Plan. In
the event that any unexercised Option, or any portion
thereof, for any reason expires or is terminated, the
unexercised or unvested Shares allocable to such Option may
again be made subject to any Award. Any Shares withheld by
the Corporation pursuant to Section 9.3 shall not be deemed
to be issued. The number of withheld Shares shall be
deducted from the applicable Award and shall not entitle the
Participant to receive additional Shares. The limitations
established by this Article VI shall be subject to
adjustment in the manner provided in Section 8.5 hereof upon
the occurrence of an event specified therein.
Article VII Section 7.9 shall be amended in its entirety to read as
follows:
7.9 Specific Awards Approved by the Shareholders. Subject
to shareholder approval and pursuant to the Board of
Directors approval, the individuals whose names are set
forth in Exhibit "A," a copy of which is attached hereto and
incorporated herein by this reference, shall be deemed
granted Nonstatutory Stock Options as of the Effective Date,
in the amounts and for the exercise price specified by the
Board of Directors, and subject to shareholder approval, the
individuals whose names are set forth in Exhibit "A-1," a
copy of which is attached hereto and incorporated herein by
this reference, shall be deemed granted Nonstatutory Stock
Options, in the amounts, effective date, and for the
exercise price specified by the Board of Directors, all in
accordance with the provisions set forth in this Article VII
of the Plan. The provisions of this Section 7.9 with
respect to the grant of "formula awards" shall not be
amended more than once every six months, other than to
comply with changes in the Internal Revenue Code, the
Employee Retirement Income Security Act, or the rules
thereunder, and are intended to be construed in accordance
with the provisions pertaining to "formula awards" under
Paragraph (c)(2)(ii) of Rule 16b-3.
RESOLVED FURTHER, that the foregoing amendments to the Plan be and
they hereby are approved, adopted, and ratified in all respects;
FURTHER RESOLVED, that the specific awards, as set forth in all
exhibits attached to and incorporated by reference into the Plan and
attached hereto, made apart hereof, and designated as Exhibit "X," be
and they hereby are approved, adopted, and ratified in all respects;
and
FURTHER RESOLVED, that all the actions taken by the Board of Directors
and the officers of the Company with respect to awarding options and
the signing of individual option agreements pursuant to the Plan be
and they hereby are approved, adopted, and ratified in all respects.
APPROVED:
- ------------------------------
Signature
- ------------------------------
Printed Name
- ------------------------------
Number of Shares