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PART III.
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth information concerning the Company's executive
officers and directors.
Year First
Name Age Position(s) Became a Director
--------------- --- ----------- -----------------
George N. Faris 57 Chairman of the Board and 1981
Chief Executive Officer
William R. Smart 77 Director 1987
Daniel Y. Kim 73 Director 1987
Donald G. Rynne 75 Director 1992
-----------------------Biographical Information
Dr. George N. Faris has been Chairman of the Board of Directors and Chief
Executive Officer of the Company since 1981. Dr. Faris was the founder of ICAT,
an international engineering and construction company, and served as its
President from ICAT's inception in 1972 until October 1985. Prior to 1972, Dr.
Faris was the President and Chairman of the Board of Directors of Donbar
Development Corporation, a company engaged in the patent development of rotary
heat exchangers, devices which exchange heat from medium to medium and on which
Dr. Faris was granted a number of patents. Dr. Faris received a Ph.D. in
Mechanical Engineering from Purdue University in 1968.
Mr. William R. Smart has served as a member of the Company's Board of Directors
since June 1987. Since November 1, 1983, Mr. Smart has been Senior Vice
President of Cambridge Strategic Management Group, a management consulting firm.
Mr. Smart was Chairman of the Board of Directors of Electronic Associates, Inc.,
a manufacturer of electronic equipment, from May 1984 until May 1992. He has
served on the Board of Directors of Apollo Computer Company and Executone
Information Systems, Inc. Mr. Smart is presently a director of National
Datacomputer Company and Hollingsworth and Voss Company. Mr. Smart received a
B.S. degree in Electrical Engineering from Princeton University in 1941.
Dr. Daniel Y. Kim has served as a member of the Company's Board of Directors
since July 1987. Dr. Kim is a Registered Professional Geophysicist in California
and Colorado. From 1981 until 1984, Dr. Kim was President and Chief Executive
Officer of Kim Tech, Inc., a research and development company. In 1984, Kim
Tech, Inc. was merged into Bolt Industries, a public company engaged in the
manufacture of air guns and auxiliary equipment used to generate shock waves in
seismic exploration for oil, gas and minerals. Dr. Kim has been a director of
Bolt Industries since 1984. From 1977 to 1980, Dr. Kim was Chief Consulting
Geophysicist for Standard Oil Company of Indiana. Dr. Kim received a B.S. degree
in Geophysics and a Ph.D. degree in Geophysics from the University of Utah in
1951 and 1955, respectively.
Mr. Donald G. Rynne has served as a member of the Company's Board of Directors
since September 1992. Mr. Rynne has been Chairman of the Board of Directors of
Donald G. Rynne & Co., Inc., a privately owned company engaged in international
consulting and trading, since founding that company in 1956. Mr. Rynne is
involved in international maritime trading and consulting, dealing primarily in
the Middle East in hydrocarbon products and capital equipment. Mr. Rynne
received a B.A. degree from Columbia University in 1949.
The business background of each executive officer of the Company, to the extent
not set forth above, is described below.
Mr. Denis J. Fitzpatrick, 53, joined the Company in August 1994 as Vice
President, Secretary and Chief Financial Officer. During the previous five
years, Mr. Fitzpatrick was the Chief Financial Officer of Nahama & Weagant
Energy Company, a publicly traded independent exploration and production
company. Mr. Fitzpatrick has held various accounting and financial management
positions during his 24 years in the oil and gas industry. He has also served as
a Director or Officer of the Council of Petroleum Accountants Society; served on
the Tax Committee of the American Petroleum Institute and as
21
a member of the American Management Association. Mr. Fitzpatrick received a B.S.
degree in Accounting from the University of Southern California in 1974.
Mr. William L. Tracy, 50, has been employed by the Company since February 1992
and has been Treasurer and Controller of the Company since August 1993. From May
1989 until February 1992, Mr. Tracy was self-employed as an energy consultant
with the Commonwealth of Kentucky. From June 1985 until May 1989, Mr. Tracy
served as President of City Gas and Transmission Corp., a public oil and gas
production and refining company. He received his BBA from Bellarmine College in
Louisville, Kentucky in 1974.
The Company's executive officers are appointed annually by the Board to serve
until their successors are duly elected and qualified.
Item 11. EXECUTIVE COMPENSATION
The following table discloses compensation for services rendered by the
Company's Chief Executive Officer and all other executive officers of the
Company whose compensation exceeded $100,000 in 1997, 1996, and 1995.
Annual Compensation Long Term Compensation
------------------------------------------------------ ----------------------------------------------------
Name and Principal Other Annual All Other
Position Year Salary Bonus Compensation 0ptions(#) Compensation
----------- ---- ------ ----- ------------ ---------- ------------
George N. Faris 1997 $ 312,000 $257,000 $ 7,200(3) 750,000 $193,000(1)
Chairman of the 1996 292,000 15,000 9,600(3) 1,202,500(4) 422,000(5)
Board and Chief 1995 240,000 - 45,000(2) 202,500 -
Executive Officer
Denis J. Fitzpatrick 1997 $ 118,000 $102,000 $ - 125,000 $ 25,000(8)
Secretary, Vice 1996 105,000 5,000 15,000(6) 120,000(4) -
President and Chief 1995 105,000 - 18,000(6)(7) 20,000 -
Financial Officer
William L. Tracy 1997 $ 88,000 $ 62,000 75,000 $ 23,000(8)
Treasurer and 1996 (9) - - - -
Controller 1995 (9) - - - -
Kenneth N. Durham 1997 (10) - - - -
President and Chief 1996 (10) - - - -
Operating Officer 1995 $145,000(10) - - - -
(1) Includes deferred salary payment of $109,000 and income tax reimbursement
of $84,000.
(2) $35,500 of this amount constituted forgiveness of interest on a debt owed
to the Company, the principal of which was repaid to the Company; the
remaining $9,600 was paid as a vehicle allowance.(3) Vehicle allowance.
(4) The number of options shown for 1995 was issued in substitution for
previously outstanding options and re-issued in 1996. The exercise price
is now $.50 per share. See Ten Year Option Repricings table below.
(5) On October 13, 1995, the Company and Dr. Faris executed an amendment to
Dr. Faris' employment agreement, pursuant to which Dr. Faris relinquished
certain rights in exchange for 900,000 shares of Common Stock. See
"Employment Contract" below.
(6) Mr. Fitzpatrick is reimbursed up to $15,000 per year in living expenses
incurred while working in the New York office.
22
(7) Mr. Fitzpatrick was awarded 5,000 restricted shares of Common Stock as a
signing bonus, which shares were issued in 1995.
(8) Deferred salary payment.
(9) Mr. Tracy's compensation was less than $100,000 in each of 1996 and 1995.
(10) Mr. Durham resigned from employment with the Company effective on November
3, 1995.Stock Option Plans
The Company has established a 1995 Stock Option Plan (the "1995 Plan"). The 1995
Plan was approved by the Board of Directors on November 8, 1995 and by the
Company's shareholders on July 11, 1996. The 1995 Plan is administered by the
Board of Directors of the Company or a Committee designated by them. Under the
1995 Plan employees, including officers and managerial or supervising personnel,
are eligible to receive Incentive Stock Options ("ISO's") or ISO's in tandem
with stock appreciation rights ("SAR's"), and employees, Directors, contractors
and consultants are eligible to receive non-qualified stock options ("NQSO's")
or NQSO's in tandem with SAR's. Options may be granted under the 1995 Plan to
purchase an aggregate of 3,500,000 shares of Common Stock. If an option granted
under the 1995 Plan terminates or expires without having been exercised in full,
the unexercised shares subject to that option will be available for a further
grant of options under the 1995 Plan. Options may not be transferred other than
by will or the laws of descent and distribution and, during the lifetime of the
optionee, may be exercised only by the optionee.
Options may not be granted under the 1995 Plan after November 7, 2005. The
exercise price of the options granted under the 1995 Plan cannot be less than
the fair market value of the shares of Common Stock on the date the option is
granted. ISO's granted to shareholders owning 10% or more of the outstanding
voting power of the Company must be exercised at a price equal to at least 110%
of the fair market value of the shares of Common Stock on the date of grant. The
aggregate fair market value of Common Stock, as determined at the time of the
grant with respect to which ISO's are exercisable for the first time by any
employee during any calendar year, shall not exceed $100,000. Any additional
Common Stock as to which options become exercisable for the first time during
any such year are treated as NQSO's. The total number of options granted under
the 1995 Plan, as of March 31, 1998 was 3,333,750, which included 302,500
repriced options granted in substitution for options previously held.
Option Grants in Last Fiscal Year
The table below includes the number of stock options granted to certain
executive officers during the year ended December 31, 1997, exercise information
and potential realizable value.
Individual Grants
----------------- Potential Realizable
Number of Percent of Value at Assumed
Securities Total Options Annual Rates of Stock
Underlying Granted to Price Appreciation
Options Employees in Exercise Expiration for Option Term
Name Granted(#) Fiscal Year Price($/sh) Date 5%($) 10%($)
---- ---------- ----------- ----------- ---------- --------- ------
George Faris 750,000 45% $1.05 12/31/02 $ -0- $ -0-
Denis Fitzpatrick 125,000 8% $1.05 12/31/02 $ -0- $ -0-
William L. Tracy 75,000 5% $1.05 12/31/02 $ -0- $ -0-
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Aggregate Option Exercises in 1997 and Option Values at December 31, 1997
The table below includes the number of shares covered by both exercisable and
non-exercisable stock options owned by certain executive officers as of December
31, 1997. Also reported are the values for "in-the-money" options which
represent the positive spread between exercise price of any such existing stock
options and the year-end price. Shares
------
Acquired or Value Number of Unexercised Value of Unexercised
Name Exercised Realized Options at Year End In-the-money Options
---- ------------- -------- --------------------------- -------------------------
Exercisable Unexercisable Exercisable Unexercisable
----------- ------------- ----------- -------------
George N. Faris -- -- 1,764,000 187,500 $4,771,495 $436,875
Denis J. Fitzpatrick -- -- 202,500 42,500 $537,825 $99,025
William L. Tracy -- -- 101,000 25,000 $263,380 $59,415
Employment Contract
Effective May 1, 1989, the Company entered into an employment agreement with
George N. Faris at an annual salary of $200,000, which agreement is renewed
annually. In 1992, the Board increased Dr. Faris' salary to $300,000 per year.
In April 1994, Dr. Faris voluntarily reduced his salary to $240,000 per year. In
February 1996, Dr. Faris' salary was reinstated to $300,000 per year.
Compensation Committee Interlocks and Insider Participation
No member of the Compensation Committee was an officer or employee of the
Company or of any of its subsidiaries during the prior year or was formerly an
officer of the Company or any of its subsidiaries. During the last fiscal year,
none of the executive officers of the Company has served on the Board or
Compensation Committee of any other entity whose officers served either on the
Board of Directors of the Company or on the Compensation Committee of the
Company.Item 12. SECURITIES OWNERSHIP OF MANAGEMENT AND PRINCIPAL SHAREHOLDERS
The following table sets forth certain information, as of the Record Date,
regarding the beneficial ownership of Common Stock of (i) each person known by
the Company to be the beneficial owner of more than 5% of the Common Stock; (ii)
each Director; (iii) each executive officer named in the Summary Compensation
Table below; and (iv) all Directors and executive officers as a group.
Name and Address Amount and Nature of Percent
of Beneficial Holder(1) Beneficial Ownership of Class
----------------------- -------------------- ---------
George N. Faris 3,370,000(2) 6.6%
Daniel Y. Kim 163,500(3) *
Donald G. Rynne 756,122(4) 1.5%
William R. Smart 302,594(5) *
Denis J. Fitzpatrick 202,500(6) *
William L. Tracy 121,240(7) *
All officers and Directorsas a group (consisting of
6 persons) 4,915,956(8) 9.1%
Infinity Investors Ltd. 3,006,987 5.9%
* Less than 1% of class
(1) All officers and Directors have an address c/o the Company, 444 Madison
Avenue, Suite 3203, New York, NY 10022.
24
(2) Includes 1,764,500 shares of common stock issuable upon the exercise of
stock options owned by Dr. Faris. Excludes 187,500 unexercisable options.
(3) Includes 155,500 shares of common stock issuable upon the exercise of
stock options owned by Dr. Kim. Excludes 50,000 unexercisable options.
(4) Includes 160,000 shares of common stock issuable upon the exercise of
stock options and warrants to purchase 89,260 shares of common stock owned
by Mr. Rynne. Excludes 50,000 unexercisable options.
(5) Includes 192,000 shares of common stock issuable upon the exercise of
stock options and warrants to purchase 19,986 shares of common stock owned
by Mr. Smart. Excludes 50,000 unexercisable options.
(6) Includes 202,500 shares of common stock issuable upon the exercise of
stock options owned by Mr. Fitzpatrick. Excludes 42,500 unexercisable
options.
(7) Includes 101,000 shares of common stock issuable upon the exercise of
stock options owned by Mr. Tracy. Excludes 25,000 unexercisable options.
(8) Includes all of the shares of common stock issuable upon the exercise
of options and warrants described in Notes (2) through (7) above.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
officers and Directors, and persons who own more than 10 percent of a registered
class of the Company's equity securities, to file reports of ownership and
changes in ownership with the Securities and Exchange Commission. Such reporting
persons are required by regulation to furnish the Company with copies of all
Section 16(a) reports that they file.
Based solely on its review of the copies of such reports received by it, or
written representations from certain reporting persons that no Form 5 was
required for those persons, the Company believes that, during the period from
January 1, 1997 through December 31, 1997, all filing requirements applicable to
its officers, Directors and greater than 10 percent beneficial owners were
complied with, except that
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In April 1997, Dr. George Faris and Mr. Donald Rynne purchased certain
convertible debentures (the "Debentures") of the Company, originally issued in
August 1996, for their face values of $225,000 and $75,000, respectively, from a
foreign investor and subsequently converted the Debentures, pursuant to the
original terms thereof, for 895,349 shares and 298,342 shares of Common Stock,
respectively, which shares are still held by Dr. Faris and Mr. Rynne.
In July 1997, the Company's Chairman and CEO, Dr. George Faris, loaned the
Company $500,000 on an interest-free basis, which loan was repaid in full by the
Company in August 1997.
In April 1997, the Company issued as a bonus, 25,000 shares of Common Stock to
each of Dr. Faris, Mr. Fitzpatrick, Mr. Tracy, and Mr. Lorrie Olivier, a Vice
President of the Company. Such issuance is subject to ratification by the
Shareholders at the Company's Annual Meeting. Absent such ratification, 75% of
such shares will be returned to the Company. |
