SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES EXCHANGE ACT OF 1934
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[ ] Soliciting Material Pursuant to sec. 240.14a-11(c) or sec. 240.14a-12
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NOVA OIL, INC.
(Name of Registrant as Specified in its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
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NOVA OIL, INC.
PHONE: (509) 466-0576
FAX: (509) 466-6931
17922 NORTH HATCH ROAD
COLBERT, WASHINGTON 99005-9377
NOVA OIL, INC.
17922 NORTH HATCH ROAD
COLBERT, WASHINGTON 99005-9377
(509) 466-0576
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD OCTOBER 19, 2005
To the shareholders of NOVA OIL, INC.:
The Annual Meeting of Stockholders of Nova Oil, Inc. (the "Company"), a Nevada
Corporation, will be held at Washington Mutual Financial Center, Room A (lower
level), 601 W. Main Avenue, Spokane, Washington on Wednesday, October 19, 2005
at 10:30 a.m. Pacific time for the following purposes:
1. To elect members of the Board of Directors;
2. To ratify the selection of DeCoria, Maichel & Teague, P.S., as the
Company's independent registered public accountants for the year ending
December 31, 2005;
3. To ratify the 2005 Nova Oil Stock Incentive Plan;
4. To consider and vote upon a proposed amendment to the Company's
Articles of Incorporation to increase the authorized common stock from
100,000,000, $0.001 par value shares to 500,000,000, $0.001 par value
shares; and
5. To ratify the sale of oil wells.
6. To transact such other business as may properly come before the meeting
and any postponement(s) or adjournment(s) thereof.
Only Stockholders of record at the close of business on September 16, 2005 are
entitled to notice of, to attend and to vote at the meeting.
By order of the Board of Directors, NOVA OIL, INC.
/s/ PAUL E. FREDERICKS
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Paul E. Fredericks, President & Principal Executive Officer
September 27, 2005 / Approximate Date of mailing to Stockholders
IMPORTANT: Whether or not you plan to attend the meeting, please execute and
return the enclosed proxy. A return envelope is enclosed for your convenience.
Prompt return of the proxy will assure a quorum and save the Company unnecessary
expense. A complete and certified record of the stockholders of the Company
entitled to vote at such meeting, or any adjournment thereof, is enclosed for
your inspection and shall be produced and kept open at the time and place of the
meeting. During the meeting referred to above, the list of stockholders of
record shall be subject to the inspection of any shareholder for the purposes of
the meeting.
NOVA OIL, INC.
17922 NORTH HATCH ROAD
COLBERT, WASHINGTON 99005-9377
(509) 466-0576
PROXY STATEMENT
RELATING TO
ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON WEDNESDAY, OCTOBER 19, 2005
INTRODUCTION
This Proxy Statement is being furnished by the Board of Directors of Nova Oil,
Inc. a Nevada corporation (the "Company"), to holders of shares of the Company's
Common Stock ("Common Stock") in connection with the solicitation by the Board
of Directors of proxies to be voted at the Annual Meeting of Shareholders of the
Company to be held on Wednesday, October 19, 2005 and any adjournment or
adjournments thereof (the "Annual Meeting") for the purposes set forth in the
accompanying Notice of the Annual Meeting. This Proxy Statement is first being
mailed to shareholders on or about September 27, 2005. The Annual Report of the
Company for the year ending December 31, 2004 was mailed to stockholders prior
to the mailing of this Proxy Statement. Such Annual Report does not form any
part of the material for solicitation of proxies.
PURPOSES OF ANNUAL MEETING
ELECTION OF DIRECTORS
At the Annual Meeting, shareholders entitled to vote (see "Voting at Annual
Meeting") will be asked to consider and take action on the election of directors
to the Company's Board of Directors to serve for a term ending on the annual
meeting following the annual meeting at which such director was elected. See
"Election of Directors."
RATIFICATION OF AUDITOR
At the Annual Meeting, shareholders will be asked to ratify the selection of
DeCoria, Maichel & Teague, P.S. as the Company's independent registered
accountants for the year ending December 31, 2005. See "Selection of Independent
Registered Public Accountants."
RATIFICATION OF NOVA OIL STOCK INCENTIVE PLAN
At the Annual Meeting, shareholders will be asked to ratify the Nova Oil Stock
Incentive Plan (the "Plan") for management, officers, directors, employees,
originators, advisors and consultants of the Company.
RATIFICATION OF INCREASE TO AUTHORIZED CAPITAL COMMON SHARES
At the Annual Meeting, shareholders will be asked to ratify an increase to the
number of authorized capital shares of the Company from 100,000,000 common
shares to 500,000,000 common shares.
RATIFICATION OF THE SALE OF THE COMPANY'S TWO OIL WELLS
At the Annual Meeting, shareholders will be asked to ratify the sale of the
Company's interest in the Smith Boswell #1 and Steinback Unit #1 wells.
OTHER BUSINESS
To transact other matters as may properly come before the annual meeting,
postponement(s) or any adjournment(s) thereof. See "Other Matters".
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VOTING AT ANNUAL MEETING
GENERAL
The close of business on the Record Date of September 16, 2005 has been fixed as
the record date for determination of the shareholders entitled to notice of, and
to vote at, the Annual Meeting (the "Record Date"). As of the Record Date, there
were issued and outstanding 5,865,000 shares of Common Stock entitled to vote. A
majority of such shares will constitute a quorum for the transaction of business
at the Annual Meeting. The holders of record on the Record Date of the shares
entitled to be voted at the Annual Meeting are entitled to cast one vote per
share on each matter submitted to a vote at the Annual Meeting. The following
actions proposed herein may be taken upon a favorable vote of the holders of a
majority of such shares of Common Stock outstanding at the Annual Meeting
provided a quorum is present at the meeting in person or by proxy: (3) FOR the
ratification of Nova Oil Stock Incentive Plan; (4) FOR the proposed amendment to
the Company's Articles of Incorporation to increase the authorized common stock
from 100,000,000 shares, $0.001 par value, to 500,000,000 shares, $0.001 par
value; (5) FOR the ratification of the sale of the Company's oil wells. The
following actions proposed herein may be taken upon a favorable vote of the
holders of a majority of such shares of Common Stock present at the Annual
Meeting provided a quorum is present at the meeting in person or by proxy: (1)
FOR election of Paul E. Fredericks, Arthur P. Dammarell, Jr. and Bruce E. Cox to
the Company's Board of Directors, (2) FOR the ratification of the selection of
DeCoria, Maichel & Teague, P.S., as independent registered public accountants
for the year ending December 31, 2005.
PROXIES
Shares of Common Stock which are entitled to be voted at the Annual Meeting and
which are represented by properly executed proxies will be voted in accordance
with the instructions indicated in such proxies. If no instructions are
indicated, such shares will be voted: (1) FOR election of Paul E. Fredericks,
Arthur P. Dammarell, Jr. and Bruce E. Cox to the Company's Board of Directors,
(2) FOR the ratification of the selection of DeCoria, Maichel & Teague, P.S., as
independent registered public accountants for the year ending December 31, 2005;
(3) FOR the ratification of Nova Oil Stock Incentive Plan; (4) FOR a proposed
amendment to the Company's Articles of Incorporation to increase the authorized
common stock from 100,000,000 shares, $0.001 par value, to 500,000,000 shares,
$0.001 par value; (5) FOR the ratification of the sale of the Company's oil
wells; and, (6) AT the discretion of the proxy holder, any other matters which
may properly come before the Annual Meeting. A shareholder who has executed and
returned a proxy may revoke it at any time before it is voted at the Annual
Meeting by executing and returning a proxy bearing a later date, by giving
written notice of revocation to the Secretary of the Company, or by attending
the Annual Meeting and voting in person or delivering instruction to the Company
via email and with written confirmation. A proxy is not revoked by the death or
incompetence of the maker unless, before the authority granted thereunder is
exercised, written notice of such death or incompetence is received by the
Company from the executor or administrator of the estate or from a fiduciary
having control of the shares represented by such proxy.
The indication of an abstention on a proxy or the failure to vote either by
proxy or in person will be treated as neither a vote "for" nor "against" the
election of any director. Each of the other matters must be approved by the
affirmative vote of a majority of shares present in person or represented by
proxy at the meeting and entitled to vote. Abstention from voting will have the
practical effect of voting against these matters since it is one less vote for
approval. Broker non-votes, shares held by brokers or nominees for the accounts
of others as to which voting instructions have not been given, will be treated
as shares that are present for determining a quorum, but will not be counted for
purposes of determining the number of votes cast with respect to a proposal.
Brokers and nominees, under applicable law, may vote shares for which no
instructions have been given in their discretion in the election of directors.
The Company will bear all the costs and expenses relating to the solicitation of
proxies, including the costs of preparing, printing and mailing this Proxy
Statement and accompanying material to shareholders. In addition to the
solicitation of proxies by use of the mails, the directors, officers, and
employees of the Company, without additional compensation, may solicit proxies
personally or by telephone or telegram.
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1. ELECTION OF DIRECTORS
It is intended that the proxies solicited hereby will be voted for election of
the nominees for directors listed below, unless authority to do so has been
withheld. The Board of Directors knows of no reason why its nominees will be
unable to accept election. However, if a nominee becomes unable to accept
election, the Board will either reduce the number of directors to be elected or
select a substitute nominee. If a substitute nominee is selected, proxies will
be voted in favor of such nominee.
Each director shall serve for a term ending on the annual meeting following the
annual meeting at which such director was elected. The foregoing
notwithstanding, each director shall serve until his successor shall have been
duly elected and qualified, unless he shall resign, become disqualified or
disabled, or shall be otherwise removed.
The Company has not solicited any recommendations nor received any
recommendations for director candidates from security holders. The Company has
no policy regarding recommendations for director candidates from security
holders.
The Company has not paid fees to any third party or parties to identify or
evaluate or assist in identifying or evaluating potential director nominees.
MANAGEMENT RECOMMENDS THAT THE STOCKHOLDERS VOTE "FOR" THE ELECTION OF PAUL E.
FREDERICKS, BRUCE E. COX, AND ARTHUR P. DAMMARELL, JR.
NOMINEES
Nominee Name, Position with the Company, Principal Occupation(s), Other
Directorships, Age, and Ownership:
Paul E. Fredericks. Mr. Fredericks is currently the President, Director and
Principal Executive Officer of the Company. He has been President since
September, 2002, and was Vice-President prior to that date. Mr. Fredericks is a
member of the Company's Audit Committee. From January 1985 to the present, he
has owned and operated his own business, Mineral Logic. His Company is involved
in compiling data on mines and prospects in Montana and Idaho and doing data
compilation and GIS development for mineral exploration and mining companies
throughout the western hemisphere. From March 1988 to January 1991, he was
Senior Geologist and a computer specialist for Western Gold Exploration and
Mining Company, located in Missoula, Montana. Mr. Fredericks attended Humboldt
State University where he received a Bachelor Of Science Degree in geology in
1977. He also attended the University of Texas, at Austin where he received a
Master's degree in geology in 1980. Mr. Fredericks resides in Missoula, Montana.
Mr. Fredericks does not serve as a director for any other Corporation registered
under the Securities and Exchange Act.
Age: 50
Shares Beneficially Owned: 700,000
Percent of Class: 11.94%
A Director Since: 2000
Bruce E. Cox. Mr. Cox is the Secretary and a Director of the Company. Mr. Cox is
a member of the Audit Committee. From 1973 to the present, he has been a
professional geologist and consultant. Mr. Cox is currently employed by
Stillwater Mining Company. He also continues to serve as a consultant on mining
projects and is involved in two industrial mineral ventures. Mr. Cox attended
Western Carolina University where he received a Bachelor of Science Degree in
geology in 1971. He also attended the University of Montana, where he received a
Master's degree in geology in 1973. Mr. Cox resides in Missoula, Montana. Mr.
Cox does not serve as a director for any other Corporation registered under the
Securities and Exchange Act.
Age: 55
Shares Beneficially Owned: 520,000*
Percent of Class: 10.99%
A Director Since: 2000
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* Shares beneficially owned do not include 140,000 shares subject to options
granted on November 25, 2002.
Arthur P. Dammarell, Jr. Mr. Dammarell is Treasurer, Director and Principal
Financial Officer of the Company. He became self-employed as a business
development consultant in April 1999, and currently serves in such capacity.
From 1980 to 1999 he held various positions in Virginia City Gold Mines, Inc.,
including director, president and CEO. From 1993 to 1996, Mr. Dammarell was
operations manager and co-owner of Direct Realty Service in Spokane, Washington.
He has twenty-seven years of management experience in the public and private
sector. Mr. Dammarell attended Eastern Washington University, where he received
his bachelor-of-arts degree in 1977. Mr. Dammarell resides in Colbert,
Washington. Mr. Dammarell does not serve as a director for any other Corporation
registered under the Securities and Exchange Act.
Age: 61
Shares Beneficially Owned: 700,000
Percent of Class: 11.94%
A Director Since: 2000
The affirmative vote of the holders of a majority of the shares present in
person or by proxy and entitled to vote at the Annual Meeting is required to
elect the Company's directors.
2. RATIFICATION OF SELECTION OF INDEPENDENT REGISTERED PUBLIC ACCOUNTANTS
DeCoria, Maichel & Teague, P.S., independent registered public accountants, have
been recommended by the Company's Audit Committee, and therefore selected by
Company's Board of Directors, as the independent auditor and tax service
provider for the Company for the year ending December 31, 2005, subject to
approval by the shareholders. DeCoria, Maichel & Teague, P.S. has served as the
independent auditor and tax service provider for the Company since the fiscal
year ended December 31, 2000. This firm is experienced in the field of
accounting and is well qualified to act in the capacity of auditor and tax
service provider. DeCoria, Maichel & Teague, P.S., will not be represented at
the annual meeting, but questions from shareholders will be presented to the
auditors for response.
Stockholder ratification of the selection of DeCoria, Maichel & Teague, P.S. as
the Company's independent registered public accountants is not required by the
Bylaws or otherwise. However, the Audit Committee is submitting the selection of
DeCoria, Maichel & Teague, P.S. to the stockholders for ratification as a matter
of corporate practice. If the stockholders fail to ratify the selection, the
Audit Committee will reconsider whether or not to retain that firm. Even if the
selection if ratified, the Audit Committee in its discretion may direct the
appointment of a different independent accounting firm at any time during the
year if the Audit Committee determines that such a change would be in the best
interests of the Company and its stockholders.
The affirmative vote of the holders of a majority of the shares present in
person or by proxy and entitled to vote at the Annual Meeting is required to
ratify the selection of DeCoria, Maichel & Teague, P.S..
MANAGEMENT RECOMMENDS THAT THE STOCKHOLDERS VOTE "FOR" ITEM 2.
3. RATIFICATION OF THE 2005 NOVA OIL STOCK INCENTIVE PLAN
On May 20, 2003, the Board of Directors approved a Stock Incentive Plan. Section
17 of the Plan required approval of the shareholders within one year of adoption
of the Plan. At that time nor within one year, the Plan was never submitted to
stockholders of the Company. No options or shares underlying the options were
ever issued under the 2003 Plan. The 2003 Plan therefore terminated.
On May 5, 2005, the Board of Directors approved a 2005 Nova Oil Stock Incentive
Plan. The Board also approved the allocation of 900,000 shares of Common Stock
for the plan as part of the resolution. The adoption of such stock option plan
is contingent on approval of the Shareholders of Nova Oil. Shares available
under the 2005 Nova Oil Stock Incentive Plan (the "NOI Stock Incentive Plan")
represent 15.3% of current shares outstanding.
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The text of the proposed Nova Oil, Inc.'s Stock Incentive Plan is attached as
Appendix 2.
The total number of shares of Common Stock, $0.001 par value ("Common Stock"),
reserved and available for distribution under the NOI Stock Incentive Plan will
be 900,000 shares of common stock.
If the Nova Oil Stock Incentive Plan is ratified by the shareholders, the shares
are proposed to be distributed as follows:
Arthur P. Dammarell, Jr. (PFO and Director) 405,000 shares (45.0% of plan)
Paul E. Fredericks (PEO and Director) 275,000 shares (30.6% of plan)
Bruce E. Cox (Secretary and Director) 110,000 shares (12.2% of plan)
Terrance J. Dunne (advisor) 110,000 shares (12.2% of plan).
No options or shares underlying the options have been issued under the
NOI Stock Incentive Plan
DESCRIPTION OF THE NOI STOCK INCENTIVE PLAN.
General. The NOI Stock Incentive Plan is a non qualified deferred
compensation plan under Section 401(a) of the Internal Revenue Code of 1986, as
amended (the "Code"), and is not subject to the Employee Retirement Income
Security Act of 1974, as amended.
Purpose. The purpose of the NOI Stock Incentive Plan is to provide an
incentive to eligible management, directors, employees, consultants and advisors
of the Company whose present and potential contributions are important to the
continued success of the Company, to afford these individuals the opportunity to
acquire a proprietary interest in the Company; and to enable the Company to
enlist and retain the best available talent for the conduct of its business.
Eligibility. Under the NOI Stock Incentive Plan eligible individuals
affiliated with the Company include: any employees, President, Vice-President,
Secretary, Treasurer, Chief Executive Officer, Chief Financial Officer and/or
Principal Financial Officer, Directors, and advisors.
Administration. The NOI Stock Incentive Plan will be administered by
the Compensation Committee, or if no Compensation Committee has been appointed
then the Board of Directors will administer the NOI Stock Incentive Plan. The
Compensation Committee will have the authority to select, from among eligible
persons, the individuals to whom awards will be granted, the number of shares of
stock subject to each award, the dates on which the awards will be granted, the
pricing and vesting of any awards, to make any combination of awards to any
participant and to determine the specific terms of each award. The
interpretation and construction of any provision of the NOI Stock Incentive Plan
by the administrators shall be final and conclusive.
Reserved Shares. The total number of shares of Common Stock, $0.001 par
value ("Common Stock"), reserved and available for distribution under the NOI
Stock Incentive Plan will be 900,000 shares of common stock.
Vesting and Forfeitability. Under the NOI Stock Incentive Plan, the
vesting of any award is determined by the Compensation Committee or if there is
none, then the Board of Directors.
Pricing. Under the NOI Stock Incentive Plan, exercise of a particular
option shall be such price, will be fixed by the Committee.
Stock Options. The NOI Stock Incentive Plan permits the granting of
non-transferable stock options that either qualify as incentive stock options
under Section 422 of the Code ("Incentive Stock Options" or "ISOs") or do not so
qualify ("Nonstatutory Stock Options" or "NSOs"). The term of each option will
be fixed by the administrators but may not exceed ten years from the date of
grant in the case of ISOs. The administrators will determine the time or times
each option may be exercised. Options may be made exercisable in installments,
exercisability may be suspended during certain leaves of absence or reductions
in work hours and the
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exercisability of options may be accelerated by the administrators. The option
exercise price for each share covered by an ISO will not be less than 100% of
the fair market value of a share of Common Stock on the date of grant of such
option. The option exercise price for each share covered by an NSO will be
determined by the administrators.
The consideration to be paid for shares issued upon exercise of options
granted under the NOI Stock Incentive Plan, including the method of payment,
shall be determined by the administrators and may consist entirely of (i) cash
or check, (ii) other shares of Common Stock, (iii) the delivery of a properly
executed notice together with such other documentation as the administrators and
the broker, if applicable, shall require to effect an exercise of the option and
delivery to the Company of the sale or loan proceeds required to pay the
exercise price, (iv) any combination of the foregoing methods, or (vi) such
other consideration and methods as are permitted by applicable laws.
All options granted under the NOI Stock Incentive Plan shall be
evidenced by a stock option agreement between the Company and the optionee to
whom such option is granted. Options granted to persons subject to Section 16 of
the Exchange Act may impose additional restrictions necessary to comply with
Rule 16b-3.
Nontransferability. Options granted pursuant to the NOI Stock Incentive
Plan are nontransferable by the participant, other than by will or by the laws
of descent and distribution or a Qualified Domestic Relations Order, and may be
exercised, during the lifetime of the participant, only by the participant.
Stock Appreciation Rights ("SAR's"). A stock appreciation right (SAR)
is a contractual right to receive, either in cash or employer stock, the
appreciation in the value of the employer's stock over a certain period of time.
SAR's involve actual stock ownership by the Employee, unless stock is issued in
payment of the SAR. If cash is issued in payment for the SAR, there will be no
dilution of Company stock ownership. In addition, the Employee does not receive
dividend rights, nor does the Employee have voting rights. A SAR gives an
eligible employee the right to obtain the future appreciation in stock without
any investment risk. In addition, a SAR used in conjunction with a stock option
enables eligible individuals to exercise options without a cash outlay. Eligible
employees generally do not make any out-of-pocket payments to acquire their
rights with respect to a SAR. The Company will be required to make a cash outlay
in the amount of the SAR payments, if such amounts are to be paid in cash.
Normally, eligible individuals determine when to exercise the SAR and the
Company cannot control the timing of the required cash outlay. For financial
accounting purposes, the Company is required to accrue a charge against earnings
for the amount of its liabilities under outstanding SAR's. The amount generally
is accrued quarterly in the amount of the quarterly increase in value of the
Company's stock (for SAR's).
Common Stock. The Plan also permits an outright grant of stock, usually
at nominal or no cost. The difference is that a restricted stock plan usually
has vesting restrictions, which affords some tax deferral as well as encouraging
employee retention. Typically an award of restricted stock will not vest until
the employee has completed a specified period of service with the employer.
During the restricted period, however, participants are considered the owners of
the stock and will, therefore, be entitled to receive the dividends and to vote
the shares during the restricted period.
Since no stock or cash is needed by an employee to acquire restricted
stock, there is significant value inherent in the award at the time of the
grant. Employee taxability is deferred until full vesting occurs. During the
restricted period, however, participants are considered the owners of the stock
and will, therefore, be entitled to receive the dividends and to vote the shares
during the restricted period.
Adjustment Upon Changes in Capitalization. Subject to any required
action by the shareholders of the Company, in the event any change, such as a
stock split or dividend, is made in the Company's capitalization which results
in an increase or decrease in the number of issued shares of Common Stock
without receipt of consideration by the Company, an appropriate adjustment shall
be made in the number of shares that have been reserved for issuance under the
NOI Stock Incentive Plan (including shares subject to an option or right) and
the price per share covered by each outstanding Stock Option. In the event of
the proposed dissolution or liquidation of the Company, all outstanding Stock
Options will terminate immediately prior to the consummation of such proposed
action.
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However, the Board of Directors may, in its discretion, make provision for
accelerating the exercisability of shares subject to Stock Options under the
Plan in such event.
Amendment and Termination. The Board may amend, alter, suspend or
discontinue the NOI Stock Incentive Plan at any time, but such amendment,
alteration, suspension or discontinuation shall not adversely affect any Stock
Option then outstanding in the NOI Stock Incentive Plan, without the written
consent of the participant. To the extent necessary and desirable to comply with
Section 422 of the Internal Revenue Code (or any other applicable law or
regulation), the Company shall obtain shareholder approval of any amendment to
the NOI Stock Incentive Plan in such a manner and to such a degree as required.
Subject to applicable laws and the specific terms of the NOI Stock Incentive
Plan, the administrators may accelerate any option, right or award or waive any
condition or restriction pertaining to such option at any time. The
administrators may also substitute new options, rights or awards for previously
granted options, including previously granted options having higher option
prices and may reduce the exercise price of any option.
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The following is a brief summary of the federal income tax consequences
of transactions under the NOI Stock Incentive Plan based on federal securities
and income tax laws in effect on April 1, 2005. This summary is not intended to
be exhaustive and does not discuss the tax consequences of a participant's death
or provisions of the income tax laws of any municipality, state or foreign
country in which an optionee may reside.
Options granted under the NOI Stock Incentive Plan.
Nonstatutory Stock Options. Except as noted below, with respect to
Nonstatutory Stock Options, (i) no income is recognized by the optionee at the
time the option is granted; (ii) generally, at exercise, ordinary income is
recognized by the optionee in an amount equal to the difference between the
option exercise price paid for the shares and the fair market value of the
shares on the date of exercise, and the Company is entitled to a tax deduction
in the same amount; and (iii) at disposition, any gain or loss is treated as
capital gain or loss. In the case of an optionee who is also an employee, any
income recognized upon exercise of a Nonstatutory Stock Option will constitute
wages for which withholding will be required. However, different rules may apply
if restricted stock is purchased or if shares are purchased by an optionee who
is also an officer, director or more than 10% shareholder. See discussion below
of "Special Rules Applicable to Corporate Insiders and Restricted Stock
Purchasers."
Special Rules Applicable to Corporate Insiders and Restricted Stock
Purchasers. Generally, individuals subject to Section 16(b) of the Exchange Act
("Insiders") and individuals who purchase stock may have their recognition of
compensation income and the beginning of their capital gains holding period
deferred for up to six months after option exercise (for Insiders), or until the
restrictions lapse (for restricted stock purchasers) (the "Deferral Date"), with
the excess of the fair market value of the stock determined as of the Deferral
Date over the purchase price being taxed as ordinary income, and the tax holding
period for any subsequent gain or loss beginning on the Deferral Date. However,
an Insider or restricted stock purchaser who so elects under Code Section 83(b)
on a timely basis may instead be taxed on the difference between the excess of
the fair market value on the date of transfer over the purchase price, with the
tax holding period beginning on such date. Similar rules apply for alternative
minimum tax purposes with respect to the exercise of an Incentive Stock Option
by an Insider.
Capital Gains. Generally, under law in effect as of July 1, 2003, net
capital gain (net long-term capital gain minus net short-term capital loss) is
taxed at a maximum rate of 15%. Capital losses are allowed in full against
capital gains plus up to $3,000 of other income.
Payment for Option Exercise Price. Payment of the option exercise price
may be in cash or, to the extent permitted by the Committee, by delivery of
previously owned Company stock having a fair market value equal to the option
price or a combination of cash and stock. The Committee may also permit certain
"cashless" option exercises by allowing optionees to surrender portions of their
options in payment for the stock to be received.
Stock Appreciation Rights ("SAR's"). The payment made to an eligible
individual from an SAR, whether
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paid in cash, stock or some other form of consideration, is taxable to the
eligible individual as ordinary income at the time received. There is no
preferential tax treatment, nor is there any deferral of the tax beyond the time
of payment.
Tax Deduction-Company. The Company receives a tax deduction for the
amount of the SAR at the time the payment amount is required to be included in
the eligible individual's income and taxed to the eligible individual. The
amount of the tax deduction is equal to the amount of the payment.
Withholding. The Company is required to withhold for federal income tax
purposes and FICA, FUTA and Medicare purposes on SARs granted to eligible
individuals. If the amount of the SAR is paid by the Company in cash, the
required amount to be withheld generally would be taken from the cash payment.
Depending upon when in the tax year the SAR amount is paid, FICA and FUTA may or
may not be required to be withheld. If the payment or exercise occurs later in
the year, the eligible individual may be over the required wage base amount for
FICA and FUTA taxes. However, the Medicare withholding tax is not subject to a
wage base limit and will apply, regardless of the timing of the payment or
exercise.
Corporate Charges Against Earnings. For financial accounting purposes,
the Company is required to accrue a charge against earnings for the amount of
its liabilities under outstanding SARs. The amount generally is accrued
quarterly in the amount of the quarterly increase in value of the Company's
stock for SARs.
Common Stock. The Common Stock of the Company is considered as
restricted, meaning there is no ability to freely resell the Company's stock due
to State and Federal Securities laws. The tax disadvantages of a stock award
program to the Company also include (i) taxation for the eligible individual;
(ii) payroll tax withholding requirements; and, (iii) need for accurate
valuation of the shares being awarded. Since no stock or cash is needed by an
eligible individual to acquire restricted stock, there is significant value
inherent in the award at the time of the grant. Eligible individual taxability
is deferred until full vesting occurs. In addition, the tax deduction afforded
to the Company will equal the price or value of the stock at the time the
restrictions lapse. There is a charge to the Company's earnings for accounting
purposes generally based on the price of the stock at the time of grant, and, if
the restrictions are service based, no additional charge to earnings is required
if the stock appreciates in value. As a result, if the stock price increases,
the tax deduction accruing to the Company at the time the restrictions lapse may
actually exceed the accounting charge. Furthermore, the initial accounting
charge is typically spread over the entire restricted period.
A copy of the agreements are attached to the 2005 Nova Oil Stock Incentive Plan
is attached as Appendix 2.
The affirmative vote of the holders of record of a majority of shares
outstanding as of the record date is necessary to adopt the resolution.
MANAGEMENT RECOMMENDS THAT THE STOCKHOLDERS VOTE "FOR" ITEM 3.
4. TO AMEND THE ARTICLES OF INCORPORATION INCREASING THE AUTHORIZED COMMON
STOCK FROM 100,000,000, $0.001 PAR VALUE SHARES TO 500,000,000, $0.001
PAR VALUE SHARES
On April 19, 2005, the Board of Directors of the Company adopted amendments to
the Company's Articles of Incorporation whereby, the Company's authorized Common
Stock would be changed from 100,000,000 shares of stock, $0.001 par value per
share, to 500,000,000 shares of stock, $0.001 par value per share.
The Company is considering future issuances of debt and/or equity securities
(which may include shares of common stock or securities convertible into or
exercisable for shares of common stock) in order to make a public or private
offering of stock, increase the Company's available cash, to retire debt and to
improve the Company's financial condition. Such securities would be sold or
issued by the Company upon such terms and conditions as the Board of Directors
may subsequently determine. The Company has no present commitments, agreements,
or intent to issue additional shares of Common Stock, other than with respect to
currently reserved shares, in connection with transactions in the ordinary
course of the Company's business.
10
In the considered unanimous opinion of the Board of Directors, the proposed plan
will place the Company in a more favorable position to attract and properly
structure the terms of additional financing, if needed. If approved by the
stockholders, such additional authorized shares would be available for issuance
(subject to applicable federal and state securities laws and state corporate
law) to take advantage of future opportunities for equity financing to improve
the Company's capital structure, and for other corporate purposes.
On March 25, 2005, the shareholders' list for the Company's common shares showed
forty-seven registered shareholders and 5,865,000 shares outstanding.
The Board of Directors has adopted resolutions proposing that the Articles of
Incorporation be amended to increase the number of shares of common stock which
the Company is authorized to issue from 100,000,000 $0.001 par value, to
500,000,000 $0.001 par value.
If approved by the stockholders, such additional authorized shares would be
available for issuance at the discretion of the Board of Directors without
further stockholder approval (subject to applicable Federal and State Securities
Laws and by law) to provide the Company with adequate flexibility in the future,
to take advantage of future opportunities for equity financing to improve the
Company's capital structure, and for other corporate purposes, without the delay
and expense incident to the holding of a special meeting of stockholders to
consider the specific issuances. The holders of Common Stock of the Company are
not entitled to preemptive rights or cumulative voting, Accordingly, the
issuance of additional shares of Common Stock might dilute, under certain
circumstances, the ownership and voting rights of Shareholders.
The Board of Directors of the Company believes it will benefit the shareholders
to have additional unreserved shares available for issuance in order that
adequate shares may be available for the possible issuance of Common Stock,
convertible preferred stock or convertible debt securities in connection with a
possible financing of the Company's business or an acquisition. The Company has
no plans, arrangements, understandings or commitments at this time with respect
to the issuance of any such shares.
The amendment is intended to qualify as a tax-free reorganization within the
meaning of Section 386(a)(1) of the Internal Revenue Code of 1986, as amended.
It is the opinion of the outside auditors that there will be no tax effect on
the Company or its shareholders as a result of the increase in the authorized
capital.
PROPOSED TEXT OF AMENDMENT TO ARTICLES OF INCORPORATION
It is proposed that an amended section 1 of Article 4 replace the existing
section 1 of Article 4 to the Articles of Incorporation regarding capitalization
as follows:
ARTICLE IV
CAPITALIZATION
Section 1: Aggregate Number of Shares
--------- --------------------------
The total number of shares which the Corporation shall have authority
---------------------------------------------------------------------
to issue is 505,000,000 of which (a) 5,000,000 shares shall be
--------------------------------------------------------------
Preferred Stock of par value $0.0001 per share, (b) 500,000,000 shares
----------------------------------------------------------------------
shall be Common Stock of the par value of $0.001 per share.
-----------------------------------------------------------
A copy of the proposed amendment, with Section 1 underlined, is attached as
Appendix 3.
The Amendment to the Articles of Incorporation requires the affirmative vote of
the holders of a majority of the outstanding voting stock of the Company, voting
as a single class.
MANAGEMENT RECOMMENDS THAT THE STOCKHOLDERS VOTE "FOR" ITEM 4.
11
5. TO RATIFY THE SALE OF COMPANY OIL WELLS
Due to the Company's ongoing liquidity needs and potential capital expenditures,
in June 2005, Management decided it was appropriate to sell our working
interests in two oil wells located in Bastrop County, Texas. The Company had
originally purchased those interests in December 2000. From December 2000
through May 31, 2005 the Company's share of the wells has generated
approximately $71,706 through the sale of crude oil, while incurring operating
expenses of approximately $71,002 for a net gain of approximately $704. The
total operating expenses include approximately $35,264 in ordinary expenses, and
$32,738 in extraordinary repair costs. In early 2004, Management analyzed the
repair history of the wells for the period from late 2000 through October 31,
2004, and realized that major breakdowns and accompanying extraordinary
expenditures occur every 10 months on average. The last major repairs took place
in the Fall of 2004. Management believes that the wells are likely to experience
another breakdown in mid-to-late 2005.
Management evaluated two alternatives: one in which the Company continues to
hold its current working interests while seeking other crude oil and natural gas
properties; and one in which we sell our current interests and begin the search
to acquire replacement properties.
a. If Nova Oil retained interest in the Smith-Boswell and
Steinbach Unit wells, the Company would be in a position to
reap the benefit of historically high prices for petroleum.
This is reflected in unaudited data that shows $13,356 in
production revenues for the first five months of 2005, as
compared to $16,169 for all of 2004, $14,761 for all of 2003,
$10,758 for all of 2002, and $16,659 for 2001 (including
December of 2000). The exceptional revenue realized from
production so far in 2005 has to be weighed against a possible
major breakdown of one or both wells. A single breakdown of
both wells in late 2002 cost the Company more than $9,000. The
upside to this alternative scenario would be that the Company
could still be generating oil revenue while we searched for
additional properties. The downside to this approach is that a
major breakdown could halt production for an extended period
of time and place unnecessary strain on the Company's
available cash. A major breakdown and the related repair
expenses could bankrupt the Company by the end of 2005.
b. If Nova Oil sold its working interests in the Smith-Boswell
and Steinbach Unit wells, the Company would avoid the expenses
related to a future breakdown. The Company would also receive
cash from the sale of its working interests. The Company will
still be searching for other property replacement
opportunities, but would have the benefit of predictable
expenditures and a significantly larger cash balance to
operate into 2006.
Believing that a major breakdown is a probable near-term event, the Board of
Directors and Management decided to sell its working interests in the
Smith-Boswell and Steinbach Unit wells effective June 30, 2005. An agreement to
purchase our working interests was reached with D-MIL Production, Inc. of
Argyle, Texas, the majority owner and operator of the two wells.
Copies of the agreements are attached to these Proxy Solicitation materials as
Appendix 4.
MANAGEMENT RECOMMENDS THAT THE STOCKHOLDERS VOTE "FOR" ITEM 5.
6. OTHER BUSINESS
As of the date of this Proxy Statement, the Board of Directors is not aware of
any matters that will be presented for action at the Annual Meeting other than
those described above. Should other business properly be brought before the
Annual Meeting, it is intended that the accompanying Proxy will be voted thereon
in the discretion of the persons named as proxies.
12
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The following table sets forth, as of March 25, 2005 (audited), and June 30,
2005 (unaudited), the amount and percentage of the Common Stock of the Company,
which according to information supplied by the Company, is beneficially owned by
each person who, to the best knowledge of the Company, is the beneficial owner
(as defined below) of more than five (5%) of the outstanding common stock.
- ------------------------- --------------------------------------------- --------------------------------- ------------------------
TITLE OF CLASS NAME AND ADDRESS OF BENEFICIAL OWNER AMOUNT AND NATURE OF BENEFICIAL PERCENT OF CLASS[8]
[4] [9] OWNERSHIP [2]
- ------------------------- --------------------------------------------- --------------------------------- ------------------------
Common Stock Carol A. Dunne 660,000 11.25%
- ------------------------- --------------------------------------------- --------------------------------- ------------------------
Common Stock Charles A. Cleveland [6] [7] 770,000 12.55%
- ------------------------- --------------------------------------------- --------------------------------- ------------------------
Common Stock Arthur P. Dammarell, Jr. [1] 700,000 11.94%
- ------------------------- --------------------------------------------- --------------------------------- ------------------------
Common Stock Bruce E. Cox [1] [5] 660,000 10.99%
- ------------------------- --------------------------------------------- --------------------------------- ------------------------
Common Stock Paul E. Fredericks [1] 700,000 11.94%
- ------------------------- --------------------------------------------- --------------------------------- ------------------------
Common Stock Daniel W. Schneider [3] and Deborah H. 700,000 11.94%
Schneider 2000 Revocable Trust
- ------------------------- --------------------------------------------- --------------------------------- ------------------------
[1] A Director and Executive Officer.
[2] All of these shares are restricted pursuant to Rule 144.
[3] Former Director and Executive Officer up until his death in September 2002.
[4] For purposes of the table, a person is considered to "beneficially own" any
shares with respect to which he/she directly or indirectly has or shares
voting or investment power or of which he or she has the right to acquire
the beneficial ownership within 60 days. Unless otherwise indicated and
subject to applicable community property law, voting power and investment
power are exercised solely by the person named above or shared with members
of his or her household.
[5] Total unexercised options held by Mr. Cox are 140,000. Such options contain
anti-dilution provisions.
[6] Total unexercised options held by Mr. Cleveland are 160,000. Such options
contain anti-dilution provisions.
[7] In January 2005, Mr. Cleveland was issued 110,000 shares of common stock,
as part of legal fees for work done in 2004.
[8] Based on 5,865,000 shares of Common Stock outstanding at March 25, 2005
(audited), and June 30, 2005 (unaudited).
[9] Address for beneficial owners: 17922 N. Hatch Rd., Colbert, WA 99005.
SECURITY OWNERSHIP OF MANAGEMENT
The following table sets forth, as of March 25, 2005 (audited), and June 30,
2005 (unaudited), amount and percentage of the Common Stock of the Company,
which according to information supplied by the Company, is beneficially owned by
Management, including officers and directors of the Company.
- ------------------------------- ------------------------------ ----------------------------- -------------------------
TITLE OF CLASS NAME OF BENEFICIAL OWNER AMOUNT & NATURE OF PERCENT OF CLASS
BENEFICIAL OWNERSHIP
- ------------------------------- ------------------------------ ----------------------------- -------------------------
Common Paul E. Fredericks 700,000 11.94%
(Officer & Director)
- ------------------------------- ------------------------------ ----------------------------- -------------------------
Common Arthur P. Dammarell, Jr. 700,000 11.94%
(Officer & Director)
- ------------------------------- ------------------------------ ----------------------------- -------------------------
Common Bruce E. Cox [1] 660,000 10.99%
(Officer & Director)
- ------------------------------- ------------------------------ ----------------------------- -------------------------
[1] Total unexercised options held by Mr. Cox are 140,000. Such options contain
anti-dilution provisions.
13
EXECUTIVE COMPENSATION
No compensation has been paid or accrued by us for the three years ended
December 31, 2004 for any of our executive officers.
OPTION GRANTS IN LAST FISCAL YEAR
The information specified concerning the stock options of the named executive
officers during the fiscal year ended December 31, 2004 is provided in the
following Option/SAR Grants in the Last Fiscal Year Table:
===============================================================================================================================
OPTION/SAR GRANTS IN LAST FISCAL YEAR
Individual Grants (1)
(a) (b) (c) (d) (e)
Number of Securities % of Total
Name Underlying Options/SARs Granted Exercise or base price Expiration Date
Options/SARs to Employees in Fiscal ($/Share)
Granted # Year
Paul E. Fredericks -0- -0- -0- -0-
Arthur P. Dammarell, Jr. -0- -0- -0- -0-
Bruce E. Cox -0- -0- -0- -0-
============================== ======================== ======================== ======================== =====================
(1) This table does not include Stock Options granted previously.
The information specified concerning the stock options of the named executive
officers during the fiscal year ended December 31, 2004 is provided in the
following Aggregated Option/SAR Exercises in Last Fiscal Year and Fiscal
Year-End Options/SAR Values Table:
=================================================================================================================================
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR END OPTION/SAR VALUES
(a) (b) (c) (d) (e)
Value of
Number of Securities Unexercised
Underlying In-the-money
Number of Shares Unexercised Options/SARs
Name Acquired on Exercise Value Realized ($) Options/SARs at At FY-End ($)
FY-End (#) Exercisable/
Exercisable/ Unexercisable
Unexercisable
Paul E. Fredericks 160,000 -0- -0- -0-
Arthur P. Dammarell, Jr. 160,000 -0- -0- -0-
Bruce E. Cox 20,000 -0- 140,000 -0-
============================= ========================= ======================= ========================== ======================
We do not currently have a Long-Term Incentive Plan ("LTIP").
Compensation to our directors is limited to reimbursement of out-of-pocket
expenses that are incurred in connection with the directors duties associated
with our business, other than a Stock Incentive Plan. There is currently no
other compensation arrangements for our directors.
We currently do not hold any Employment Contracts or Change of Control
Arrangements with any parties.
CERTAIN INFORMATION REGARDING THE BOARD OF DIRECTORS
During the fiscal year ended December 31, 2004, the Board of Directors held six
(6) meetings. Directors attended the meetings either physically or via
teleconference. The Audit Committee met three (3) times during 2004.
14
COMMITTEES
There is no Nominating Committee. The Company does not have a standing
nominating committee, and as a result, the Board of Directors functions as a
nominating committee. No formal nominating committee has been formed since the
Board of Directors believes that: (i) at its current stage of development the
attraction of other individuals to serve without insurance and other benefits;
and (ii) the Company is still in it's formative stage, and therefore relies on
the vision and leadership of it's originators to develop the Company. The
Company is not subject to any listing requirements of Nasdaq Stock Market
("Nasdaq") or the New York Stock Exchange requiring corporate governance
policies, such as a lead independent director, minimum qualification or skill
requirements. All Directors participate in the consideration of Director
nominees.
The Board has established a Compensation Committee and an Audit Committee. The
sole purpose of the Compensation Committee is to research and make
recommendations to the Board of Directors regarding issuance of Stock pursuant
to the Company's Stock Incentive Plan. The Board of Directors of Nova Oil, Inc.
acts as the Compensation Committee.
The Audit Committee consists of the following members: Bruce E. Cox, Chairman,
Paul E. Fredericks, member, and Terrence J. Dunne, member. The Audit Committee's
purpose is to assist the Board of Directors in fulfilling its fiduciary
responsibilities as pertaining to the accounting policies and reporting
practices of Nova Oil, Inc., pursuant to the Committee's charter. Mr. Cox is
considered to be a non-independent member of the Audit Committee, however his
serving as the Chairman of the Committee was deemed by the Board to be in the
best interest of the Company due to Mr. Cox's experience and familiarity with
the Company. The Audit Committee's report for the Financial Statements for the
year ended December 31, 2004 is attached to this proxy statement as Appendix 1.
During the past year, the Sarbanes-Oxley Act of 2002 added a number of
provisions to Federal law to strengthen the authority of, and increase the
responsibility of, corporate audit committees. In accordance with the
Sarbanes-Oxley Act, the Audit Committee has ultimate authority and
responsibility to select, compensate, evaluate and, when appropriate, replace
the Company's independent auditors. The Audit Committee members are not
professional accountants or auditors and their functions are not intended to
duplicate or to certify the activities of Management and the independent
auditors, nor can the Audit Committee certify that the independent auditors are
"independent" under applicable rules. The Audit Committee serves as a
board-level oversight, in which it provides advice, counsel and direction to
Management and the independent auditors on the basis of the information it
receives, discussion with Management and the independent auditors, and the
experience of the Audit Committee's members in business and financial matters.
RELATED PARTY TRANSACTIONS
There were no related party transactions during the fiscal year ended December
31, 2004.
COMPENSATION OF DIRECTORS
Director compensation is limited to reimbursement of out-of-pocket expenses that
are incurred in connection with the directors duties associated with the
Company's business.
AUDIT FEES
The Company's Audit Committee reviews and approves audit and permissible
non-audit services performed by DeCoria, Maichel & Teague P.S., as well as the
fees charged by DeCoria, Maichel & Teague P.S. for such services. In its review
of non-audit service fees and its appointment of DeCoria, Maichel & Teague P.S.
as the Company's independent accountants, the Board of Directors considered
whether the provision of such services is compatible with maintaining DeCoria,
Maichel and Teague P.S. independence. All of the services provided and fees
charged by DeCoria, Maichel & Teague P.S. in 2004 were pre-approved by the Audit
Committee.
15
Audit Fees
- ----------
The aggregate fees billed by DeCoria, Maichel & Teague P.S. for professional
services for the audit of the annual financial statements of the Company and the
reviews of the financial statements included in the Company's quarterly report
on Form 10-QSB for 2004 and 2003 were $12,928 and $10,835, respectively, net of
expenses.
Audit-Related Fees
- ------------------
There were no other fees billed by DeCoria, Maichel & Teague P.S. during the
last two fiscal years for assurance and related services that were reasonably
related to the performance of the audit or review of the Company's financial
statements and not reported under "Audit Fees", above.
Tax Fees
- --------
The aggregate fees billed by DeCoria, Maichel & Teague P.S. during the last two
fiscal years for professional services rendered by DeCoria, Maichel & Teague
P.S. for tax compliance for 2004 and 2003 were $428 and $426, respectively.
All Other Fees
- --------------
There were no fees billed by DeCoria, Maichel & Teague P.S. during 2004 and 2003
for any other products and services provided by DeCoria, Maichel & Teague P.S.
SECTION 16(A) BENEFICIAL REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act requires that the Company's
directors, executive officers, and the holders of 10% or more of the Company's
common stock, to file reports of ownership and changes in ownership with the
Securities and Exchange Commission. Officers, directors, and stockholders
holding more than 10% of the Company's common stock are required by the
Regulation to furnish the Company with copies of all Section 16(a) forms they
have filed.
Based solely upon information provided to the Company from Reporting Persons,
during the two years ended December 31, 2004, Mr. Cox filed one report late for
one transaction. Other than the foregoing, the Company is not aware of any
failure on the part of any Reporting Persons to timely file reports required
pursuant to Section 16(a).
There are six individuals each holding more than 10% of the Company's stock.
FORM 10-KSB
Any shareholder of record may obtain a copy of the Company's Annual Report on
Form 10-KSB for the fiscal year ended December 31, 2004 (the "Form 10-KSB"),
without cost, upon written request to the Secretary of the Company. The Form
10-KSB is not part of the proxy solicitation material for the Annual Meeting.
Additionally, the Securities and Exchange Commission maintains a web site that
contains reports and other information at the following address
http://www.sec.gov.
By Order of the Board of Directors
/s/ PAUL E. FREDERICKS
- ----------------------
Paul E. Fredericks, President & Principal Executive Officer
September 15, 2005
16
APPENDIX 1 - AUDIT COMMITTEE REPORT
REPORT OF THE AUDIT COMMITTEE
March 29, 2005
Board of Directors
Nova Oil, Inc.
The Audit Committee has conducted oversight activities for Nova Oil, Inc. in
accordance with the duties and responsibilities outlined in the Audit Committee
charter.
Management is responsible for the Company's internal controls and the financial
reporting process. The independent auditors are responsible for performing and
independent audit of the Company's financial statements in accordance with
auditing standards generally accepted in the United States and expressing an
opinion on the conformity of those audited financial statements in accordance
with accounting principles generally accepted in the United States. The Audit
Committee's responsibility is to monitor and oversee these processes. The Audit
Committee also recommends to the Board of Directors the selection of the
Company's independent accountants.
The Audit Committee, with the assistance of the Company's Principal Financial
Officer and Management, has fulfilled its objectives and responsibilities as
specified by the Audit Committee charter, and has provided adequate and
appropriate independent oversight and monitoring of Nova Oil's systems of
internal control for the year ended December 31, 2004.
These activities included, but were not limited to, the following
accomplishments for the year ended December 31, 2004:
o Reviewed and discussed the audited financial statements for the year ended
December 31, 2004 with the Company's Principal Financial Officer and
Management.
o Discussed with DeCoria, Maichel & Teague, P.S. matters requiring discussion
by Statement of Auditing Standards (SAS) No. 61.
o Discussed with, and received written disclosures and a letter from DeCoria,
Maichel & Teague, P.S. relating to their independence, as required by
Independence Standards Board Standard No. 1.
Based on the above, the Audit Committee recommends the audited financial
statements for the year ended December 31, 2004, be included in Nova Oil's
Annual Report on Form 10-KSB to be filed with the Securities and Exchange
Commission.
Respectfully submitted,
Nova Oil, Inc. Audit Committee
/s/ Bruce E. Cox, Chairman
/s/ Paul E. Fredericks, Member
/s/ Terrence J. Dunne, Member
17
APPENDIX 2
NOVA OIL, INC.
2005 STOCK INCENTIVE PLAN
MAY 5, 2005
1. PURPOSE. The purpose of this Plan is to promote to the interests of the
Company and its stockholders by attracting, retaining, and stimulating
the performance of selected employees and advisors, including officers
and directors, and giving such employees, management, directors, and
advisors the opportunity to acquire a proprietary interest in the
Company's business and an increased personal interest in this continued
success and progress as well as increasing the productivity of those
individuals whom the Committee deem to have the potential to contribute
to the success of the Company.
2. DEFINITIONS. Unless otherwise indicated, the following words when used
herein shall have the following meanings:
a. "Board of Directors" shall mean the Board of Directors of the
Company.
b. "Code" shall mean the Internal Revenue Code of 1986, as amended
from time to time.
c. "Common Stock" shall mean the Company's Common Stock ($0.001 par
value) and any share or shares of the Company's stock hereafter
issued or issued in substitution for such shares.
d. "Company" means Nova Oil, Inc., a Nevada corporation and shall
include any entity that is directly or indirectly controlled by
the Company or any entity, including an acquired entity, in which
the Company has a significant equity interest, as determined by
the Committee.
e. "Committee" means the body appointed by the Board of Directors,
which shall be comprised in such a manner as to comply with the
requirements, if any, of Rule 16b-3 (or any successor rule) under
the Exchange Act and of Section 162 of the Code.
f. "Director" shall mean a member of the Board of Directors.
g. "Key Employee" shall mean any person(s), who is/are employed by
the Company and who act in the capacity of President,
Vice-President, Secretary, Treasurer, Chief Executive Officer,
Chief Financial Officer and/or Principal Financial Officer,
Directors, and advisors.
h. "Incentive Stock Option" shall mean any option granted to an
eligible key employee under the Plan, which the Company intends at
the time the option is granted to be an Incentive Stock Option
within the meaning of Section 422 of the Code.
i. "Nonqualified Stock Option" shall mean any option granted to an
eligible key employee under the Plan which is not an Incentive
Stock Option.
j. "Option" shall mean and refer collectively to Incentive Stock
Options and Nonqualified Stock Options.
k. "Optionee" shall mean any key employee who is granted an Option
under the Plan. "Optionee" shall also mean the personal
18
representative of an Optionee and any other person who acquires
the right to exercise an Option by bequest or inheritance or
pursuant to a QDRO.
l. "Stock Appreciation Right" shall mean a right to surrender to the
Company all or a portion of an Option, to the extent the Option is
then exercisable, and to receive in exchange a payment as provided
in Section 6.
m. "Subsidiary" shall mean a subsidiary corporation of the Company as
defined in Section 425(f) of the Code.
3. ADMINISTRATION.
a. This Plan shall be administered by the Compensation Committee of
the Board of Directors (the "Committee"). Except for the terms and
conditions explicitly set forth in this Plan, the Committee shall
have the authority, in its discretion, to determine all matters
relating to the award and issuance of common stock or the grant of
options to be granted under this Plan, including selection of the
individuals to be granted options, the number of shares to be
subject to each grant, the date of grant, the termination of the
options, the option term, vesting schedules, and all other terms
and conditions thereof. Such authority shall also include the
authority in the event of a spin-off or other corporate
transaction to permit substitution of an Award granted under the
Plan with an award from another company or an award denominated in
other than shares of Common Stock. Grants under this Plan to Key
Employees, Directors, Officers, or advisors, need not be identical
in any respect, even when made simultaneously. The Committee will
also determine and approve the granting of Stock Appreciation
Rights to selected eligible individuals and determine whether the
grant of options will consist of an Incentive Stock Option as
described in Section 422 of the Internal Revenue Code of 1986, as
amended (hereinafter referred to as the "Code"), or a
Non-Qualified Stock Option, which shall consist of any option
granted under this Plan other than an Incentive Stock Option.
b. Options and Stock Appreciation Rights shall be evidenced by
written Agreements ("Award Agreements") which shall contain such
terms and conditions as may be determined by the Committee. Each
agreement shall be signed on behalf of the Company by an officer
or officers delegated such authority by the Committee using either
manual or facsimile signature.
c. All decisions made by the Committee pursuant to the provisions of
this Plan and all determinations and selections made by the
Committee pursuant to such provisions and related orders or
resolutions of the Board of Directors shall be final and
conclusive. The Committee shall not have the right to cancel
outstanding stock options or stock appreciation rights for the
purpose of replacing or regranting such options or rights with a
purchase price that is less than the purchase price of the
original option or right.
d. Limitation of Liability. No member of the Committee shall be
liable for any action, failure to act, determination or
interpretation made in good faith with respect to this Plan or any
transaction hereunder, except for liability arising from his or
her own willful misfeasance, gross negligence or reckless
disregard of his or her duties. The Company shall indemnify each
member of the Committee for all costs and expenses and, to the
extent permitted by applicable law, any liability incurred in
connection with defending against, responding to, negotiation for
the settlement of or otherwise
19
dealing with any claim, cause of action or dispute of any kind
arising in connection with any actions in administering this Plan
or in authorizing or denying authorization to any transaction
hereunder.
e. All or part of any Award shall be subject to conditions and
restrictions established by the Committee and set forth in the
Award Agreement, which may include, but not be limited to,
achievement of Goals over a specified Period, such as earnings or
earnings growth; return on equity, assets or investment; revenues;
expense control; total shareholder return; cash flow; or assets.
The Committee may select one criterion or multiple criteria for
measuring performance and the measurement may be based on total
Company or business unit performance or based on comparative
performance with other companies.
f. The Committee also may require or permit participants to elect to
defer the delivery of stock options or the settlement of Awards in
cash under such rules and procedures as it may establish under the
Plan. It also may provide that deferred settlements include the
payment or crediting of interest on the deferral amounts, or the
payment or crediting of dividend equivalents where the deferral
amounts are denominated in share equivalents. In addition, the
Committee may stipulate in an Award Agreement, either at the time
of grant or by subsequent amendment, that a payment or portion of
a payment of an Award be delayed in the event that Section 162(m)
of the Code (or any successor or similar provision of the Code
affecting tax deductibility) would operate to disallow a tax
deduction by the Company for all or a portion of such payment. The
period of any such delay in payment shall be until the payment or
portion thereof, is tax deductible, or such earlier date as the
Committee shall determine.
4. ELIGIBILITY AND PARTICIPATION. The group of individuals eligible to
receive stock or options and Stock Appreciation Rights shall consist only
of those employees who act in the capacity of Key Employees.
5. SHARES SUBJECT TO THIS PLAN.
a. The stock to be offered under the Plan shall be shares of the
Company's authorized Common Stock and may be unissued shares or
shares now held or subsequently acquired by the Company as
treasury shares, as the Board of Directors may from time to time
determine. Subject to adjustment as provided in Section 14 hereof,
the aggregate number of shares to be delivered under this Plan
shall not exceed 900,000 (nine hundred thousand) shares.
If an option expires, is surrendered in exchange for another
option, or terminates for any reason during the term of this Plan
prior to its exercise in full, the shares subject to but not
delivered under such option shall be available for options
thereafter granted and for replacement options which may be
granted in exchange for such surrendered or terminated options.
The shares under a related option which are surrendered upon the
exercise of a Stock Appreciation Right shall be charged against
the aggregate number of shares available which may be delivered
under the Plan.
b. Any shares of common stock delivered upon exercise of a Stock
Appreciation Right may be unissued shares or treasury shares, as
the Board of Directors may from time to time determine, and shall
be charged against the aggregate number of shares of stock
available for purposes of this Plan.
20
6. STOCK APPRECIATION RIGHTS. The Committee may grant Stock Appreciation
Rights to eligible individuals who have been or are granted options under
this Plan. In exchange for the surrender in whole or in part of the
privilege of exercising the related option to purchase shares of the
Company's common stock, the granted Stock Appreciation Right shall
entitle eligible individuals to payment of an amount equal to the
appreciation in value of the surrendered options (the excess of the fair
market value of such options at the time of surrender over their
aggregate option price). Such payment may be made in cash, check, or in
shares of common stock valued at the fair market value as of the date of
the surrender, or partly in cash (or check) and partly in shares of
common stock, as determined by the Committee in its sole discretion. The
Committee may establish a maximum appreciation value which would be
payable under granted rights.
The Board may establish an arrangement, to be administered by the
committee, under which eligible individuals may defer such payment to a
future date or dates (including the accrual of interest on deferred
amounts), provided that a eligible individual's deferral election under
any such arrangement shall be made (a) on or before the date of grant of
the Stock Appreciation Rights being surrendered, or (b) subject to
approval by the Committee, before the date on which the eligible
individuals becomes vested in the Stock Appreciation Rights being
surrendered.
7. INCENTIVE STOCK OPTIONS.
a. An option designated by the Committee as an "Incentive Stock
Option" is intended to qualify as an "Incentive Stock Option"
within the meaning of Subsection (b) of Section 422 of the Code.
b. To the extent that the aggregate fair market value (determined at
the time the option is granted) of the stock with respect to which
Incentive Stock Options (determined without regard to this
paragraph b.) are exercisable for the first time by the grantee
during any calendar year (under this Plan and all other Incentive
Stock Option Plans of the Company and its subsidiaries) exceed
$100,000, such options shall be treated as Non-Qualified Options
and not qualify as incentive Stock Options.
c. Should Section 422 of the Code, or regulations or pronouncements
thereunder, be modified during the term of this Plan, this Plan
and any outstanding options may be amended to conform to such
modification, if approved by the Board of Directors, upon
recommendation by the Committee.
d. For purposes of this Plan, fair market value shall be determined
under the applicable method provided by Regulations under Section
2031 of the Code.
e. In the case of an ISO: (a) granted to a key employee who at the
time of the grant of such ISO owns stock representing more than
10% of the voting power of all classes of stock of the Company or
any Parent or Subsidiary, the per share exercise price shall be no
less than 110% of the fair market value per Share on the date of
grant; (b) granted to any other key employee, the per share
exercise price shall be no less that 100% of the Fair Market Value
per share on the date of grant.
f. In the case of an ISO granted to a key employee who at the time of
the grant of such ISO owns stock representing more than 10% of the
voting power of all classes of stock of the Company or any Parent
or
21
Subsidiary, such ISO may not be exercised after the expiration of
five (5) years from the date the ISO is granted.
g. Disqualifying Disposition. If stock acquired upon exercise of an
Incentive Stock Option is disposed of by an optionee prior to the
expiration of either two years from the date of grant of such
option, one year from the transfer of shares to the optionee
pursuant to the exercise of such option or in any other
disqualifying disposition, within the meaning of Section 422 of
the code, such optionee shall notify the Corporation in writing of
the date and terms of such disposition. A disqualifying
disposition by an optionee shall not affect the status of any
other incentive stock option granted under the Plan.
8. TERM OF OPTION PERIOD. The term during which options and Stock Appreciation
Rights may be granted under this Plan shall expire as set in the discretion of
the Committee, and the option period during which each option and Stock
Appreciation Right may be exercised shall, subject to the provisions of Section
13 hereof, be such period as determined by the Committee, expiring not later
than the tenth anniversary of the grant date for an Incentive Stock Option, and
no later than the expiration date of the related option for any Stock
Appreciation Right, as may be determined by the Committee.
9. COMMON STOCK AWARDS
9.1 Grant of Awards. Subject to the provisions of the Plan, the Committee
shall have full and complete authority, in its discretion, but subject to
the express provisions of this Plan, to (i) grant Awards pursuant to the
Plan, (ii) determine the number of shares of Common Stock subject to each
Award ("Award Shares"), (iii) determine the terms and conditions (which
need not be identical) of each Award, including the consideration (if
any) to be paid for such Common Stock; (iv) establish and modify
performance criteria for Awards, and (v) make all of the determinations
necessary or advisable with respect to Awards under the Plan. Each award
under the Plan shall consist of a grant of shares of Common Stock subject
to a restriction period (after which the restrictions shall lapse), which
shall be a period commencing on the date the award is granted and ending
on such date as the Board or Committee shall determine ("Restriction
Period"). The Board or Committee may provide for the lapse of
restrictions in installments, for acceleration of the lapse of
restrictions upon the satisfaction of such performance, or other criteria
or upon the occurrence of such events as the Board or Committee shall
determine, and for the early expiration of the Restriction Period upon a
Participant's death, Disability or Retirement, or following a Change of
Control,.
9.2 Incentive Agreements. Each Award granted under the Plan shall be
evidenced by a written agreement (an "Incentive Agreement") in a form
approved by the Board or Committee and executed by the Company and the
Participant to whom the Award is granted. Each Incentive Agreement shall
be subject to the terms and conditions of the Plan and other such terms
and conditions as the Board or Committee may specify.
9.3 Waiver of Restrictions. The Board or Committee may modify or amend
any Award under the Plan or waive any restrictions or conditions
applicable to such Awards; provided, however, that the Board or Committee
may not undertake any such modifications, amendments or waivers if the
effect thereof adversely affects the rights of any Employee without his
or her consent.
9.4 Terms and Conditions of Awards.
22
9.4.1 Upon receipt of an Award of shares of Common Stock under the
Plan, even during a Restriction Period, a Participant shall
be the holder of record of the shares and shall have all the
rights of a shareholder with respect to such shares, subject
to the terms and conditions of the Plan and the Award.
9.4.2 Except as otherwise provided in this paragraph 9.4, no
shares of Common Stock received pursuant to the Plan shall
be sold, exchanged, transferred, pledged, hypothecated or
otherwise disposed of during the Restriction Period
applicable to such shares. Any purported disposition of such
Common Stock in violation of this paragraph 9.4.2 shall be
null and void.
10. OPTION PRICE. Except as set forth in section 7 herein, the price at which
shares may be purchased upon exercise of a particular option shall be
such price, as may be fixed by the Committee. Notwithstanding any
provision to the contrary, no stock options shall be issued for an
exercise price of less than eighty-five percent of the average closing
bid price for the Common Stock on either the Over-the-Counter Bulletin
Board ("OTCBB") for the twenty (20) days prior to five business days
prior to the grant of the stock options.
11. STOCK AS FORM OF EXERCISE PAYMENT; CASHLESS EXERCISE.
a. An eligible individuals who owns shares of Company common stock
may use the previously acquired shares, value to be determined as
the fair market value, as a form of payment to exercise stock
options under this Plan. However, the Committee, in its
discretion, may restrict or rescind this right upon notification
to the key employee-participants in this Plan. An option may be
exercised with stock only by delivering whole shares of Company
stock having a fair market value equal to or less than the
exercise price. If an option is exercised by delivery of stock
having a fair market value less then the exercise price, the
shortfall must be made up in cash.
b. Payment may also be made by surrendering to the Company a portion
of a particular grant and receiving from the Company in whole
shares the difference between the total shares of the option grant
and the number of whole option shares surrendered. The number of
whole option shares required to be surrendered by an optionee
shall be the number of whole option shares that is equal to or
less then the result of dividing the total exercise price of the
options being exercised by the fair market value of one share of
common stock. If the whole number of option shares surrendered is
less than the total exercise price of the grant, the shortfall
must be made up in cash.
c. The delivery of a properly executed notice together with such
other documentation as the Committee and the broker, if
applicable, shall require to effect an exercise of an option and
delivery to the Company of the sale or loan proceeds required to
pay the exercise price.
d. Any combination of the foregoing methods.
e. Such other consideration and methods as are permitted by
applicable laws.
If the Fair Market Value of the number of whole shares transferred
or the number of whole option shares surrendered is less than the
total exercise price of the option, the shortfall must be made up
in cash.
12. VESTING; EXERCISE OF OPTIONS AND RIGHTS.
23
a. Subject to the provisions of paragraph g. herein, an option shall
vest and become nonforfeitable and exercisable, immediately.
b. Each option and Stock Appreciation Right granted shall be
exercisable in whole or in part at any time or from time to time
during the option period as the Committee may determine, provided
that the election to exercise an option or Stock Appreciation
Right shall be made in accordance with applicable Federal laws and
regulations, and further provided that each option shall contain a
provision that will prevent exercise of the option unless the
optionee remains in the employ of the Company or its subsidiary at
least one year after the granting of the option. However, the
Committee may in its discretion accelerate the vesting schedule of
any option at any time.
c. No option may at any time be exercised with respect to a
fractional share. In the event that shares are issued pursuant to
the exercise of a Stock Appreciation Right, no fractional shares
shall be issued; however, a fractional Stock Appreciation Right
may be exercised for cash.
d. As a condition to the exercise of a Non-Qualified Stock Option or
Stock Appreciation Right, grantees shall make such arrangements as
the Committee may require for the satisfaction of any federal,
state, or local withholding tax obligations that my arise in
connection with such exercise.
e. No shares shall be delivered pursuant to the exercise of any
option or Stock Appreciation Right, in whole or in part, until
qualified for delivery under such securities laws and regulations
as may be deemed by the Committee to be applicable thereto and
until, in the case of the exercise of an option, payment in full
of the option price thereof or stock as a form of payment as
provided in Section 10 hereof is received by the Company in cash
(or check) or stock. No holder of an option or Stock Appreciation
Right, or his/her legal representative, legatee, or distributee,
shall be or be deemed to be a holder of any shares subject to such
option or Stock Appreciation Right unless and until he/she has
received a certificate or certificates therefore.
f. Notwithstanding any vesting requirements contained in any Option,
all outstanding Options shall become immediately exercisable (1)
following the first purchase of Common Stock pursuant to a tender
offer or exchange offer (other than an offer made by the Company)
for all or part of the Common Stock, (2) at such time as a third
person, including a "group" as defined in Section 13(d) of the
Securities Exchange Act of 1934, becomes the beneficial owner of
shares of the Company having 25% or more of the total number of
votes that may be cast for the election of Directors of the
Company, (3) on the date on which the shareholders of the Company
approve (i) any agreement for a merger or consolidation in which
the Company will not survive as an independent, publicly owned
corporation or (ii) any sale, exchange or other disposition of all
or substantially all of the Company's assets. The Committee's
reasonable determination as to whether such an event has occurred
shall be final and conclusive.
g. Notwithstanding any other provisions of this Agreement to the
contrary, the right of any Key Employee to receive any benefits
hereunder shall terminate and shall be forever forfeited if such
Key Employee's employment with Nova Oil, Inc. is terminated
because of his/her fraud, embezzlement, dishonesty, or breach of
fiduciary
24
duty. In such an event, all unexercised options shall be deemed
null and void. This Section shall be inapplicable to any such
termination of employment or status as an advisor or consultant
occurring after the Plan has been terminated.
13. TRANSFERABILITY OF OPTIONS AND STOCK APPRECIATION RIGHTS. The right of
any optionee to exercise an option or Stock Appreciation Right granted
under the Plan shall, during the lifetime of such optionee, be
exercisable only by such optionee or pursuant to a qualified domestic
relations order as defined by the Internal Revenue Code of 1986, as
amended, or Title I of the Employee Retirement Income Security Act, or
the rules thereunder (a "QDRO") and shall not be assignable or
transferable by such optionee other than by will or the laws of descent
and distribution or a QDRO.
14. TERMINATION OF RELATIONSHIP. The terms and conditions under which an
option or Stock Appreciation Right may be exercised after the termination
of relationship with the Company shall be determined by the Committee.
15. CHANGES IN COMMON STOCK. The aggregate number and class of shares on
which options and Stock Appreciation Rights may be granted under this
Plan, the number and class of shares covered by each outstanding option,
and the exercise price per share thereof (but not the total price), of
each such option, shall all be proportionately adjusted for any increase
or decrease in the number of issued shares of common stock of the Company
resulting from a split-up or consolidation of shares, or any spin-off,
spin-out, split-up, or other distribution of assets to shareholders, or
any like capital adjustment or the payment of any such stock dividend, or
any other increase or decrease in the number of shares of common stock of
the Company without the receipt of consideration by the Company, or
assumption and conversion of outstanding grants due to an acquisition.
16. AMENDMENT AND DISCONTINUANCE. The Board of Directors may amend, suspend,
or discontinue this Plan, but may not, without the approval of the
holders of the Company's common stock, make any amendment thereof which
operates: (a) to increase the total number of shares which may be granted
under this Plan, (b) to extend the terms of this Plan or the maximum
option period provided in Section 8 hereof, (c) to decrease the minimum
option price provided in Section 9 hereof, (d) to materially modify the
requirements as to eligibility for participation in this Plan, or (e) to
materially increase the benefits accruing to participants under this
Plan. No amendment to this Plan shall, except with the consent of the
Optionee, adversely affect rights under an option previously granted.
17. TERM OF PLAN. This Plan shall become effective May 5, 2005, subject to
the approval by the holders of the Company's common stock at a meeting to
be held within one year of the date of adoption of this Plan.
18. INVESTMENT REPRESENTATION. Upon demand by the Company, the Optionee shall
deliver to the Company a representation in writing that the purchase of
all shares with respect to which notice of exercise of the Option or
Stock Appreciation Right has been given by Optionee is being made for
investment only and not for resale or with a view to distribution and
containing such other representations and provisions with respect thereto
as the Company may require. Upon such demand, delivery of such
representation promptly and prior to the transfer or delivery of any such
shares and prior to the expiration of the option period, shall be a
condition precedent to the right to purchase such shares.
19. RIGHTS AS SHAREHOLDER AND EMPLOYEE. An Optionee shall have no rights as a
shareholder of the Company with respect to any shares of Common Stock
covered by an Option until the date of the issuance of the stock
certificate for such shares. Neither the Plan, nor the granting of an
25
option or other rights herein, nor any other action taken pursuant to the
Plan shall constitute or be evidence of any agreement or understanding,
express or implied, that a key employee has a right to continue as an
Employee for any period of time or at any particular rate of
compensation.
20. GOVERNING LAW. Options granted under this Plan shall be construed and
shall take effect in accordance with the laws of the State of Washington.
21. LIMITATIONS ON SALE OF STOCK PURCHASED UNDER THE PLAN. The Plan is
intended to provide common stock for investment and not for resale. The
Company does not, however, intend to restrict or influence any
Participant in the conduct of his own affairs. A Participant, therefore,
may sell stock purchased under the Plan at any time he chooses, subject
to compliance with any applicable Federal or state securities laws. THE
PARTICIPANT ASSUMES THE RISK OF ANY MARKET FLUCTUATIONS IN THE PRICE OF
THE STOCK.
22. GOVERNMENTAL REGULATION. The Company's obligation to sell and deliver
shares of the Company's common stock under this Plan is subject to the
approval of any governmental authority required in connection with the
authorization, issuance, or sale of such shares.
23. OTHER BENEFIT AND COMPENSATION PROGRAMS. Unless otherwise specifically
determined by the Committee, settlements of Awards received by
Participants under the Plan shall not be deemed a part of a Participant's
regular, recurring compensation for purposes of calculating payments or
benefits from any Company benefit plan or severance program. Further, the
Company may adopt other compensation programs, plans or arrangements as
it deems appropriate or necessary.
24. UNFUNDED PLAN. Unless otherwise determined by the Board, the Plan shall
be unfunded and shall not create (or be construed to create) a trust or a
separate fund or funds. The Plan shall not establish any fiduciary
relationship between the Company and any Participant or other person. To
the extent any person holds any rights by virtue of an Award granted
under the Plan, such rights shall constitute, general unsecured
liabilities of the Company and shall not confer upon any Participant any
right, title or interest in any assets of the Company.
25. ARBITRATION. Any controversy arising out of, connected to, or relating to
any matters herein of the transactions between a eligible individual and
Corporation (including for purposes of arbitration, officers, directors,
employees, controlling persons, affiliates, professional advisors,
agents, or promoters of Corporation, Participant), on behalf of the
undersigned, or this Agreement, or the breach thereof, including, but not
limited to any claims of violations of Federal and/or State Securities
Acts, Banking Statutes, Consumer Protection Statutes, Federal and/or
State Anti-Racketeering (e.g. RICO) claims as well as any common law
claims and any State Law claims of fraud, negligence, negligent
misrepresentations, unjust termination, breach of contract, and/or
conversion shall be settled by arbitration; and in accordance with this
paragraph and judgment on the Arbitrator's award may be entered in any
court having jurisdiction thereof in accordance with the provisions of
Washington law. In the event of such a dispute, each party to the
conflict shall select an arbitrator, which shall constitute the three
person arbitration board. The decision of a majority of the board of
arbitrators, who shall render their decision within thirty (30) days of
appointment of the final arbitrator, shall be binding upon the parties.
26
APPENDIX 3
PROPOSED
AMENDED AND RESTATED
ARTICLES OF INCORPORATION
OF
NOVA OIL, INC.
Pursuant to the provision of the Nevada Business Corporation Act,
ss.78.010, et. seq. the undersigned corporation hereby adopts the following
Articles of Amendment to its Articles of Incorporation and Restates its Articles
of Incorporation as follows:
1. The name of the corporation is NOVA OIL, INC.
2. The text of the amended and restated articles adopted are as follows:
AMENDED AND RESTATED
ARTICLES OF INCORPORATION
OF
NOVA OIL, INC.
Pursuant to the provision of the Nevada Business Corporation Act,
ss.78.010, et. seq. the undersigned corporation hereby adopts the following
Articles of Incorporation as follows:
ARTlCLE I
NAME
The name of this corporation is NOVA OIL, INC.
ARTICLE II
DURATION
This corporation has perpetual existence.
ARTICLE III
CORPORATION PURPOSES
The purpose or purposes for which the Corporation is organized are all things
necessary or convenient to carry out any lawful business, including the natural
resources industry, as well as those itemized under Chapter 78 of Nevada Revised
Statutes, including any amendments thereto or successor statute that may
hereinafter be enacted.
ARTICLE IV
CAPITALIZATION
Section 1: Aggregate Number of Shares
- --------- --------------------------
The total number of shares which the Corporation shall have authority to issue
- ------------------------------------------------------------------------------
is 505,000,000 of which (a) 5,000,000 shares shall be Preferred Stock of par
- ----------------------------------------------------------------------------
value $0.0001 per share, (b) 500,000,000 shares shall be Common Stock of the par
- --------------------------------------------------------------------------------
value of $0.001 per share.
- --------------------------
Section 2: Rights of Preferred Stock
The Preferred Stock may be issued from time to time in one or more series and
with such designation for each such series as shall be stated and expressed in
the resolution or resolutions providing for the issue of each such series
adopted
27
by the Board of Directors. The Board of Directors in any such resolution or
resolutions is expressly authorized to state and express for each such series:
(i) The voting powers, if any, of the holders of stock of such
series;
(ii) The rate per annum and the times at and conditions upon which
the holders of stock of such series shall be entitled to
receive dividends, and whether such dividends shall be
cumulative or noncumulative and if cumulative the terms upon
which such dividends shall be cumulative;
(iii) The price or prices and the time or times at and the manner in
which the stock of such series shall be redeemable and the
terms and amount of any sinking fund provided for the purchase
or redemption of shares;
(iv) The rights to which the holders of the shares of stock of such
series shall be entitled upon any voluntary or involuntary
liquidation, dissolution or winding up of the Corporation;
(v) The terms, if any, upon which shares of stock of such series
shall be convertible into, or exchangeable for, shares of
stock of any other class or classes or of any other series of
the same or any other class or classes, including the price or
prices or the rate or rates of conversion or exchange and the
terms of adjustment, if any; and
(vi) Any other designations, preferences, and relative
participating, optimal or other special rights, and
qualifications, limitations or restrictions thereof so far as
they are not inconsistent with the provisions of the Articles
of Incorporation, as amended, and to the full extent now or
hereafter permitted by the laws of Nevada.
Section 3: Rights of Common Stock
The Common Stock may be issued from time to time in one or more Classes and with
such designation for each such Classes as shall be stated and expressed in the
resolution or resolutions providing for the issue of each such Classes adopted
by the Board of Directors. The Board of Directors in any such resolution or
resolutions is expressly authorized to state and express for each such Class:
(i) The voting powers, if any, of the holders of stock of such
Class;
(ii) The rate per annum and the times at and conditions upon which
the holders of stock of such Class shall be entitled to
receive dividends, and whether such dividends shall be
cumulative or noncumulative and if cumulative the terms upon
which such dividends shall be cumulative;
(iii) The terms, if any, upon which shares of stock of such series
shall be convertible into, or exchangeable for, shares of
stock of any other class or classes or of any other series of
the same or any other class or classes, including the price or
prices or the rate or rates of conversion or exchange and the
terms of adjustment, if any; and
(iv) Any other designations, preferences, and relative
participating, optimal or other special rights, and
qualifications, limitations or restrictions thereof so far as
they are not inconsistent with the provisions of the Articles
of Incorporation, as amended, and to the full extent now or
hereafter permitted by the laws of Nevada.
28
ARTICLE V
NO PREEMPTIVE RIGHTS
Except as may otherwise be provided by the Board of Directors, no preemptive
rights shall exist with respect to shares of stock or securities convertible
into shares of stock of this corporation.
ARTICLE VI
NO CUMULATIVE VOTING
Each shareholder entitled to vote at any election for Directors shall have the
right to vote, in person or by proxy, one vote for each share of stock owned by
such shareholder for as many persons as there are Directors to be elected and
for whose election such shareholder has a right to vote, and no shareholder
shall be entitled to cumulate their votes.
ARTICLE VII
BYLAWS
The Board of Directors shall have the power to adopt, amend or repeal the Bylaws
or adopt new Bylaws. Nothing herein shall deny the concurrent power of the
shareholders to adopt, alter, amend or repeal the Bylaws.
ARTICLE VIII
REGISTERED OFFICE AND ADDRESS
The address of the registered office of the Corporation is: 2533 North Carson
Street, Carson City, Nevada 89706 and the name of its initial registered agent
at such address is Laughlin Associates, Inc.
ARTICLE IX
DIRECTORS' LIABILITY
To the full extent from time to time permitted by law, no director of the
corporation shall be personally liable to the corporation or its shareholders
for damages for conduct as a director. Neither the amendment or repeal of this
Article, nor the adoption of any provision of the Articles of Incorporation
inconsistent with this Article, shall eliminate or reduce the protection
afforded by this Article to a director of the corporation with respect to any
matter which occurred, or any cause of action, suit or claim which but for this
Article would have accrued or arisen, prior to such amendment, repeal or
adoption.
ARTICLE X
LIMITATION ON RIGHT TO CALL SPECIAL SHAREHOLDERS' MEETING
Special meetings of stockholders of the Corporation may be called only by the
Board of Directors pursuant to a resolution approved by a majority of the entire
Board of Directors, upon not less than 30 nor more than 50 days' written notice
to the stockholders of the Corporation.
ARTICLE XI
AMENDMENT TO ARTICLES OF INCORPORATION
This corporation reserves the right to amend or repeal any provisions contained
in these Articles of Incorporation, in any manner now or hereafter permitted by
law, and all rights and powers conferred herein on the shareholders and
directors of this corporation are subject to this reserved power.
ARTICLE XII
BOARD OF DIRECTORS
The qualifications, terms, of office, manner of election, time and place of
meetings, and powers and duties of the Directors shall be prescribed in the
Bylaws, but the number of first Directors shall be three and shall serve until
the
29
first annual meeting of shareholders or until his successor is elected and
qualified; the names and post office addresses of the first Directors are as
follows:
Name Address
- ---- -------
Paul E. Fredericks 1839 Frey Lane
Missoula, Montana 59802
Bruce E. Cox 737 South 5th Street West
Missoula, Montana 59801
Arthur P. Dammarell, Jr. 17922 North Hatch Road
Colbert, Washington 99005
ARTICLE XIII
LIMITATION OF LIABILITY
No director or officer of the Corporation shall be personally liable to
the cooperation or any of its stockholders for damages for breach of fiduciary
duty as a director or officer involving any act or omission of any such director
or officer. However, the foregoing provision shall not eliminate or limit the
liability of a director or officer for (i) acts or omissions which involve
intentional misconduct, fraud or a knowing violation of law; or (ii) the payment
of dividends in violation of Section 78.300 of the Nevada Revised Statutes. Any
repeal or modification of this Article by the shareholders of the Corporation
shall be prospective only and shall not adversely affect any limitation on the
personal liability of a director or officer of the Corporation for acts or
omissions prior to such repeal or modification.
ARTICLE XIV
STATUTES NOT APPLICABLE
The provisions of Nevada Revised Statutes, 78.378 through 78.379, inclusive,
regarding the voting of a controlling interest in stock of a Nevada corporation
and sections 78.411 through 78.444, inclusive, regarding combinations with
interested stockholders, shall not be applicable to this Corporation .
3. The Amendments do provide for an exchange, reclassification, or
cancellation of issued shares and such provisions for implementing such
amendments are contained within the text of such amendments.
4. The amendments to the Articles of Incorporation were adopted on the 5th
day of May, 2005.
5. The amendments were adopted by the shareholders in accordance with the
provisions of Nevada Law.
Dated this 19th day of October, 2005.
NOVA OIL, INC.
By /s/ PAUL E. FREDERICKS
----------------------
Paul E. Fredericks
President and Director
By /s/ BRUCE E. COX.
------------------
Bruce E. Cox
Secretary and Director
30
APPENDIX 4
ASSIGNMENT OF WORKING INTEREST
THIS ASSIGNMENT made and entered into this 30th day of June, 2005, by
and between Nova Oil, Inc., 17922 North Hatch Road, Colbert, WA, 99005, as
Assignor and D-MIL Production, Inc., P.O. Box 49 Argyle, TX 76226, as Assignee.
W I T N E S S E T H:
That, for and in consideration of the sum of Ten Dollars ($10.00) and
other good and valuable consideration, the receipt of which is hereby
acknowledged, the Assignor does hereby BARGAIN, SELL, TRANSER and CONVEY,
without representation of warranty of any kind, either expressed or implied, and
without recourse to the Assignor, unto the Assignee an undivided 49.5% working
interest, being a net revenue interest of 38.61%, in and to the oil and gas
which may be produced, saved and marketed from the Smith Boswell #1. The legal
description being:
Smith-Boswell #1 - 43.7342 Acre Unit in the Ruth Mackey Survey,
Abstract 47 Bastrop County Texas, RRC #19600
The working interest herein assigned to be subject to all costs of
drilling, mining, completing and producing operations as well as all other
costs, and to be subject to its proportionate part of all ad valorem,
production, severance and other similar taxes.
EXECUTED This 19th day of July, 2005.
By: /s/ ARTHUR P. DAMMARELL, JR.
Nova Oil, Inc.
State of Washington*
County of Spokane *
The foregoing instrument was acknowledged before me this 19th day of July, 2005,
by Arthur Dammarell, Treasurer of Nova Oil, Inc.
WITNESS my hand and seal. (SEAL)
My Commission Expires:
12-10-2006 /s/JEFF S. MCKEE
----------------
Notary Public, State of Washington
Jeff S. McKee
Printed Name
.................................................................................
31
ASSIGNMENT OF WORKING INTEREST
THIS ASSIGNMENT made and entered into this 30th day of June, 2005, by
and between Nova Oil, Inc., 17922 North Hatch Road, Colbert, WA, 99005, as
Assignor and D-MIL Production, Inc., P.O. Box 49 Argyle, TX 76226, as Assignee.
W I T N E S S E T H:
That, for and in consideration of the sum of Ten Dollars ($10.00) and
other good and valuable consideration, the receipt of which is hereby
acknowledged, the Assignor does hereby BARGAIN, SELL, TRANSER and CONVEY,
without representation of warranty of any kind, either expressed or implied, and
without recourse to the Assignor, unto the Assignee an undivided 49.5% working
interest, being a net revenue interest of 38.61%, in and to the oil and gas
which may be produced, saved and marketed from the Smith Boswell #1. The legal
description being:
Steinbach Unit #1 - 40.32 Acre Unit in the Ruth Mackey Survey, Abstract
47 Bastrop County Texas, RRC #19848
The working interest herein assigned to be subject to all costs of
drilling, mining, completing and producing operations as well as all other
costs, and to be subject to its proportionate part of all ad valorem,
production, severance and other similar taxes.
EXECUTED This 19th day of July, 2005.
By: /s/ ARTHUR P. DAMMARELL, JR.
Nova Oil, Inc.
State of Washington*
County of Spokane *
The foregoing instrument was acknowledged before me this 19th day of July, 2005,
by Arthur Dammarell, Treasurer of Nova Oil, Inc.
WITNESS my hand and seal. (SEAL)
My Commission Expires:
12-10-2006 /s/ JEFF S. MCKEE
-----------------
Notary Public, State of Washington
Jeff S. McKee
Printed Name
.................................................................................
32
(FORM OF PROXY CARD)
(FRONT OF PROXY CARD)
NOVA OIL, INC.
(509) 466-0576 - 17922 NORTH HATCH ROAD, COLBERT, WASHINGTON 99005
(PROXY GRAPHIC)
================================================================== =================================================================
The undersigned hereby revokes all previous proxies for his 3. To ratify the 2005 Nova Oil Stock Incentive Plan.
or her stock and appoints Paul E. Fredericks, with power of --------------------- --------------------- ---------------------
substitution, to represent and to vote on behalf of the For [ ] Against [ ] Abstain [ ]
undersigned all of the shares of Nova Oil, Inc. which the ===================== ===================== =====================
undersigned is entitled to vote at the Annual Meeting of the 4. To amend the Articles of Incorporation increasing the
shareholders to be held at Washington Mutual Financial authorized common stock from 100,000,000, $0.001 par value shares
Center, Room A (lower level), 601 W. Main Ave., Spokane, to 500,000,000, $0.001 par value shares
Washington on October 19, 2005 at 10:30 a.m. Pacific --------------------- --------------------- ---------------------
time, including any adjournments thereof. For [ ] Against [ ] Abstain [ ]
================================================================== ===================== ===================== =====================
================================================================== =================================================================
1.Election of Directors 5. To ratify the June 30, 2005 sale of the Smith-Boswell #1 and
- --------------------------- --------- ------------- -------------- Steinback Unit #1 wells.
Paul E. Fredericks For [ ] Against [ ] Abstain [ ]
- --------------------------- --------- ------------- -------------- --------------------- --------------------- ---------------------
Bruce E. Cox For [ ] Against [ ] Abstain [ ]
- --------------------------- --------- ------------- -------------- --------------------- --------------------- ---------------------
Arthur P. Dammarell, Jr. For [ ] Against [ ] Abstain [ ] For [ ] Against [ ] Abstain [ ]
- --------------------------- --------- ------------- -------------- ===================== ===================== =====================
TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE, WRITE 6. In his discretion the proxy is hereby authorized to vote upon
THAT NOMINEE'S NAME IN THE SPACE PROVIDED BELOW. such other matters as may properly come before the meeting.
- ------------------------------------------------------------------ --------------------- --------------------- ---------------------
For [ ] Against [ ] Abstain [ ]
================================================================== ===================== ===================== =====================
2. To ratify the selection of DeCoria Maichel & Teague, P.S. as
the Company's independent registered accountants for the year (To be signed on the other side)
ending December 31, 2005.
- ----------------------- -------------------- ---------------------
For [ ] Against [ ] Abstain [ ]
======================= ==================== ===================== =================================================================
(BACK OF PROXY CARD)
================================================================== =================================================================
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS. Please sign exactly as your name appears on the proxy. When
WHEN PROPERLY EXECUTED, THIS PROXY WILL BE VOTED IN THE MANNER shares are held by joint tenants, both should sign. When signing
DIRECTED BY THE UNDERSIGNED SHAREHOLDER. IF NO DIRECTION IS as attorney, as executor, administrator, trustee, or guardian,
MADE, THIS PROXY WILL BE VOTED FOR PROPOSALS 1, 2, 3, 4, 5 AND 6. please give title as such. If a corporation, please sign in
corporate name by President or other authorized officer. If a
partnership, please sign in partnership name by authorized
person.
================================================================== =================================================================
Signature
=================================================================
Signature if held jointly
=================================================================
Date:
=================================================================
Please return this proxy in the envelope provided.
=================================================================
I will____or will not________ attend the meeting.
=================================================================
(over)
================================================================== =================================================================
33