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Quest Resource DEF 14A 2008 UNITED STATES
SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. ) Filed by the Registrant þ
Filed by a Party other than the Registrant o Check the appropriate box:
Quest Resource Corporation
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
QUEST
RESOURCE CORPORATION
210 Park Avenue, Suite 2750 Oklahoma City, Oklahoma 73102 (405) 600-7704
To Our Stockholders:
You are cordially invited to attend the 2008 Annual Meeting of
Stockholders of Quest Resource Corporation (the
“Company”) to be held on June 19, 2008, at
11:00 a.m., Central Time, at the Company’s corporate
headquarters, located at 210 Park Avenue, Suite 2750,
Oklahoma City, OK, to consider and vote upon the following
proposals:
1. To elect two Class II Directors to serve a
three-year term ending at the 2011 Annual Meeting of
Stockholders or until their successors have been duly elected
and qualified;
2. To consider and vote upon a proposal to amend the
Company’s 2005 Omnibus Stock Award Plan;
3. To consider and vote upon a proposal to amend and
restate the Company’s Management Annual Incentive
Plan; and
4. To consider and transact such other business that may
properly come before the Annual Meeting or any adjournment
thereof.
The Board of Directors has fixed the close of business on
May 7, 2008 as the record date for the determination of
stockholders entitled to receive notice of and to vote at the
Annual Meeting and adjournments thereof.
Please complete, date, sign and return the enclosed proxy as
promptly as possible in order to ensure your representation at
the Annual Meeting and to ensure the presence of a quorum at the
Annual Meeting. A self-addressed envelope is enclosed for these
purposes. Alternatively, you may vote by telephone or internet.
If you attend the meeting, you may vote personally on all
matters, and in that event, the proxy will not be voted.
This Notice and the Proxy Statement will first be distributed to
stockholders on or about May 20, 2008.
By Order of the Board of Directors
David E. Grose
Corporate Secretary
May 20, 2008
PROXY
STATEMENT
FOR ANNUAL MEETING OF STOCKHOLDERS to be held June 19, 2008
This Proxy Statement is being furnished to the stockholders of
Quest Resource Corporation, a Nevada corporation (the
“Company,” “we” or “us”), in
connection with the solicitation of proxies by our Board of
Directors for use at the Annual Meeting of Stockholders to be
held at the Company’s corporate headquarters, located at
210 Park Avenue, Suite 2750, Oklahoma City, OK, on
June 19, 2008, commencing at 11:00 a.m. Central
Time and at any adjournment of the Annual Meeting. This Proxy
Statement and the accompanying form of proxy will be first
mailed or given to the stockholders on or about May 20,
2008.
The enclosed proxy may be revoked at any time before it is voted
by (a) filing or transmitting an instrument or transmission
revoking it to the Corporate Secretary of the Company or another
person appointed to count stockholder votes, (b) executing
a proxy with a later date and delivering such later proxy to the
Corporate Secretary of the Company or to another person
appointed to count stockholder votes prior to the Annual Meeting
or (c) attending the Annual Meeting and voting in person.
Unless the proxy is revoked or is received in a form that
renders it invalid, the shares represented by it will be voted
in accordance with the instructions contained therein.
Our Board of Directors is soliciting proxies in order to provide
every stockholder with an opportunity to vote on all matters
scheduled to come before the Annual Meeting and to be able to
transact business at the meeting. Whether or not you are able to
attend the Annual Meeting, you are urged to sign, date and
return the proxy in the enclosed envelope. You may also vote by
telephone or internet by following the instructions on the
enclosed proxy card. Upon execution and return of the enclosed
proxy, the shares represented by it will be voted by the persons
designated therein as proxies in accordance with the
stockholder’s directions. With respect to the proposals
described in this Proxy Statement, the enclosed proxy card, if
executed and returned, will be voted as directed on the proxy
or, in the absence of such direction, FOR the proposals.
If any other matters properly come before the meeting, the
enclosed proxy will be voted by the proxy holders in accordance
with their best judgment.
On May 7, 2008, the record date for determining
stockholders entitled to vote at the Annual Meeting and any
adjournments thereof, we had approximately
23,522,859 shares of common stock, par value $0.001 per
share (the “Common Stock”), outstanding and entitled
to vote. No shares of preferred stock are outstanding.
One-third of the outstanding shares of Common Stock entitled to
vote, represented in person or by proxy, is necessary to
constitute a quorum at the Annual Meeting. In deciding all
questions, a holder of common stock is entitled to one vote, in
person or by proxy, for each share held in his or her name on
the record date. There are no cumulative voting rights. With
respect to the proposal to elect directors, directors are
elected by a plurality of the votes cast by stockholders, and
the two nominees who receive the highest number of affirmative
votes by the holders of shares entitled to vote will be elected.
With respect to the proposals to amend the 2005 Omnibus Stock
Award Plan and the Management Annual Incentive Plan and all
other matters voted on at the Annual Meeting, such actions will
be approved if the number of votes cast in favor of the action
exceeds the number of votes cast in opposition to the action.
For the purpose of determining whether the stockholders have
approved a proposal or any other matter voted on at the Annual
Meeting, abstaining will have no effect on the outcome since an
abstention is not a vote cast. For shares which are held of
record by a broker for the beneficial owner (typically referred
to as being held in “street name”), absent voting
instructions from the beneficial owner of such shares, brokers
generally have the discretion to vote such shares on routine
matters. Routine matters include the election of directors
(Proposal No. 1). In non-routine instances where
brokers are prohibited from exercising discretionary authority,
brokers will not vote the
shares of beneficial owners who fail to provide instructions
(so-called “broker non-votes”). These uninstructed
shares are not included in the vote totals and therefore, have
no effect on the vote. At the 2008 Annual Meeting, we believe
brokers will be prohibited from exercising discretionary
authority with respect to approving the amendments to the 2005
Omnibus Stock Award Plan (Proposal No. 2) and the
amendments to the Management Annual Incentive Plan
(Proposal No. 3). If a quorum is not present, in
person or by proxy, the meeting may adjourn from time to time
until a quorum is obtained; provided, however, that the board of
directors must fix a new record date if the meeting is adjourned
to a date more than 60 days later than the original meeting
date.
We will solicit proxies and will bear the cost of the
solicitation of proxies, which will be principally conducted by
mail. In addition, we may solicit proxies personally, by
telephone, internet or facsimile. We do not expect to pay
compensation to any party other than employees (and then only
their regular salaries plus expenses) for the solicitation of
proxies, but may reimburse brokers, custodians, nominees and
fiduciaries for reasonable out-of-pocket expenses in forwarding
solicitation material and proxies to the beneficial owners.
Two or more stockholders of record sharing the same address will
each receive a complete set of the proxy voting materials
(Annual Report, Annual Report on
Form 10-K,
Proxy Card, and Proxy Statement). Services that deliver our
proxy voting materials to stockholders that hold our stock
through a bank, broker or other beneficial holder of record may
deliver to multiple stockholders sharing the same address only
one set of our Annual Report, Annual Report on
Form 10-K,
and Proxy Statement, but separate proxy cards for each
stockholder. Upon written or oral request to the address listed
below, we will promptly deliver a separate copy of the Annual
Report, Annual Report on
Form 10-K,
and/or Proxy
Statement to any stockholder at a shared address to which a
single copy was delivered. If stockholders receive multiple
copies of the proxy voting materials and would like to receive
combined mailings in the future, they should write or call the
Company at the address listed below. Stockholders who hold their
shares in street name should contact their brokers regarding
combined mailings.
Corporate Secretary
Quest Resource Corporation 210 Park Avenue, Suite 2750 Oklahoma City, Oklahoma 73102 (405) 600-7704
PROPOSAL NO. 1 —
ELECTION OF DIRECTORS
Our nominees for Class II Directors are listed below. On
May 7, 2008, Class II Director N. Malone Mitchell,
3rd resigned from the Board of Directors. Upon the
recommendation of the Nominating Committee, the Board of
Directors appointed Bob G. Alexander to replace
Mr. Mitchell. In recommending Mr. Alexander, the Board
of Directors, based upon the recommendation of the Nominating
Committee, believed it was appropriate to nominate
Mr. Alexander, although he is more than 74 years of
age, because of his years of experience in the industry and the
benefits he could bring to us and our stockholders. In
accordance with our Corporate Governance Guidelines, the Board
of Directors believes that 75 is an appropriate retirement age
for outside directors, although the full Board may nominate
candidates over 72 years old for special circumstances, as
is the case with Mr. Alexander.
Our Directors who will continue in office are as follows:
We currently have six Directors divided among three classes as
follows:
Class I — John C. Garrison and Jon H. Rateau;
Class II — Bob G. Alexander and William H. Damon
III; and
Class III — Jerry D. Cash and James B.
Kite, Jr.
Mr. Cash is a management Director. The Board has determined
that the five remaining Directors are independent Directors as
defined in the applicable rules and regulations of The NASDAQ
Global Market, including Rule 4200(a)(15) of the
Marketplace Rules of The NASDAQ Stock Market LLC. The term of
each class of directors expires at each Annual Meeting of
Stockholders, with the terms of Messrs. Alexander and Damon
expiring in 2008, the terms of Messrs. Cash and Kite
expiring in 2009 and the terms of Messrs. Garrison and
Rateau expiring in 2010.
Two Class II Directors are to be elected at the Annual
Meeting for three-year terms ending at the Annual Meeting of
Stockholders in 2011.
Unless otherwise instructed, each signed and returned proxy will
be voted for Bob G. Alexander and William H. Damon III.
Messrs. Alexander and Damon have consented to serve as
Directors of the Company. If either Messrs. Alexander or
Damon is unable or subsequently declines to serve as a Director
at the time of the Annual Meeting, the proxies will be voted for
any alternative nominee who shall be designated by the present
Board to fill the vacancy. We are not aware of any reason why
Messrs. Alexander or Damon will be unable or will decline
to serve as a Director.
Our Executive Officers are as follows:
Business
Experience of Directors and Executive Officers
Mr. Cash has been active in the oil and gas
exploration and development business for over 25 years.
Mr. Cash has been the Chairman of the Board since November
2002, when Quest acquired STP Cherokee, Inc. Mr. Cash has
been Chief Executive Officer since September 2004. From November
2002 until September 2004, he was Co-Chief Executive Officer and
from November 2002 until June 2004, he was Chief Financial
Officer. In 1987, Mr. Cash formed STP, Inc. and as
President directed that company in the identification and
realization of numerous oil, gas and CBM exploration projects.
In November 2002, Mr. Cash transferred substantially all of
the assets of STP, Inc. to STP Cherokee and sold STP Cherokee to
Quest. From 1980 to 1986, Mr. Cash worked for
Bodard & Hale Drilling Company while pursuing a
petroleum engineering degree at Oklahoma State University and
the University of Oklahoma. During this period, Mr. Cash
drilled several hundred wells throughout Oklahoma. A long-time
resident of Oklahoma, Mr. Cash maintains an active role in
several charitable organizations.
Mr. Kite is the Chief Executive Officer of Boothbay
Royalty Company, an independent investment company with its
primary concentration in the field of oil and gas exploration
and production based in Oklahoma City, Oklahoma, which he
founded in 1977. He has served as its Chief Executive Officer,
President and Treasurer since its inception. Mr. Kite spent
several years in the commercial banking industry with an
emphasis in credit and loan review prior to his involvement in
the oil and gas industry. Mr. Kite presently is a director
of The All Souls’ Anglican Foundation and the St. Anthony
Hospital Foundation. Mr. Kite earned a bachelor’s of
business administration in finance from the University of
Oklahoma.
Mr. Damon has over 30 years of professional
experience specializing in engineering design and development of
power generation and projects. Since January 2008, he has served
as Senior Vice President and National Director of Power
Consulting for HDR, Inc., which recently purchased the
engineering-consulting firm, Cummins & Barnard, Inc.,
which was focused on power generation development and
engineering projects for electric utilities, independent power
producers, large industrial and institutional clients throughout
the United States. Mr. Damon served as the Chief Executive
Officer of Cummins & Barnard and had been its
principal and co-owner from 1990 to January 2008. He currently
leads HDR’s project development and strategic consulting
business for coal, natural gas and renewable fired power
projects. He previously worked for Consumers Power Company,
Gilbert-Commonwealth, Inc. and Alternative Energy Ventures. He
also held board seats on a minerals and wind turbine company,
MKBY, and a
start-up
construction company that was sold to Aker Kvaerner Songer in
which he was also a founding member. Mr. Damon graduated
from Michigan State University with a B.S. in Mechanical
Engineering and continued graduate studies at both Michigan
State University and the University of Michigan.
Mr. Garrison brings expertise in public company
activities and issues. Mr. Garrison served as our Treasurer
from 1998 to September 2001. Mr. Garrison has been a
self-employed Certified Public Accountant in public practice
providing financial management and accounting services to a
variety of businesses for over thirty years. From August 2007 to
March 2008, he served as the Chief Financial Officer of Empire
Energy Corporation International. He is presently a director of
Empire Energy and has been since 1999. From July 2004 to June
2007, Mr. Garrison was the Chief Financial Officer of ICOP
Digital, Inc. Mr. Garrison holds a bachelor’s degree
in Accounting from Kansas State University.
Mr. Rateau is currently the Vice President of New
Energy, Global Primary Products Growth, Alcoa, Inc., where he is
responsible for developing and acquiring energy positions/assets
worldwide in support of Alcoa’s smelting and refining
activities, and has been at Alcoa, Inc. since 1996.
Mr. Rateau has served in his present capacity at Alcoa
since September 2007. Prior to that, he was Vice President of
Business Development, Primary Metals from March 2001 to
September 2007 and Vice President of Energy
Management & Services, Primary Metals from November
1997 to March 2001. Before joining Alcoa, Mr. Rateau held a
number of managerial positions with National Steel Corporation
from 1981 to 1996. He brings expertise in business acquisitions
and divestitures, capital budgets and project management, energy
contracting, and applied research of complex technology and
processes. Mr. Rateau holds an M.B.A. from Michigan State
University and received a B.S. in Industrial Engineering from
West Virginia University.
Mr. Alexander has been the President and Chief
Executive Officer of National Energy Group, Inc. since 1998, and
he has been a director of National Energy Group since 1996 when
Alexander Energy Corporation merged with National Energy Group.
Mr. Alexander was a founder of Alexander Energy Corporation
and from 1980 until 1996, he served as Chairman of the Board,
President and Chief Executive Officer of Alexander Energy
Corporation. From
1976 to 1980, he served as Vice President and General Manager of
the Northern Division of Reserve Oil, Inc. and President of
Basin Drilling Corp., subsidiaries of Reserve Oil and Gas
Company. Mr. Alexander attended the University of Oklahoma
and graduated with a Bachelor of Science degree in Geological
Engineering.
Mr. Grose has been Chief Financial Officer since
June 2004. Mr. Grose has 25 years of financial
experience, primarily in the exploration, production, and
drilling sectors of the oil and gas industry. Mr. Grose
also has significant knowledge and expertise in capital
development and in the acquisition of oil and gas companies.
From January 2004 to June 2004, Mr. Grose was Chief
Financial Officer for Avalon Corrections, Inc., a corrections
company. From June 2002 until December 2003, he was Chief
Financial Officer for Oxley Petroleum Company. From April 1999
to December 2001, he was Chief Financial Officer for a
telecommunications company. From July 1997 to April 1999,
Mr. Grose was Chief Financial Officer for Bayard Drilling
Technologies, Inc. Prior to that, from March 1980 to February
1997, Mr. Grose was employed by Alexander Energy
Corporation in various positions, including as Chief Financial
Officer. Mr. Grose earned a B.A. in Political Science from
Oklahoma State University in 1974 and an MBA from the University
of Central Oklahoma in 1977.
Mr. Lawler has served as Chief Operating Officer
since May 2007. He has worked in the oil and gas industry for
more than 16 years in various management and engineering
positions including production, drilling, project management and
facilities. Prior to joining us, Mr. Lawler was employed by
Shell Exploration & Production Company from May 1997
to May 2007 and in his most recent assignment, served as
Engineering and Operations Manager for multiple assets along the
U.S. Gulf Coast from January 2005 to May 2007. These assets
included Shell’s prolific gas producing assets located in
South Texas as well as offshore sour gas production facilities
near Mobile Bay, Alabama and the Yellowhammer Sulfur Recovery
Plan located in Coden, Alabama. Prior to his role as Operations
Manager, Mr. Lawler progressed through technical and
leadership assignments at Shell, including Executive
Support/Staff Business Analyst (March 2003 to December
2004) and drilling engineering team leader (May 1997 to
February 2003). Prior to joining Shell, Mr. Lawler was
employed by Conoco, Inc. and Burlington Resources in various
domestic engineering and operations positions. Mr. Lawler
graduated from the Colorado School of Mines in 1990 with a
bachelor’s of science degree in petroleum engineering and
earned his Masters in Business Administration from Tulane
University in 2003.
Mr. Muncrief serves as the President and Chief
Operating Officer of Quest Midstream GP, LLC. He has served in
this role since September 2007 and has over 27 years of oil
and gas experience. Prior to joining us, he held numerous
technical, operational and leadership positions with Burlington
Resources, recently acquired by Conoco Phillips. Most recently,
from March 2006 to May 2007, he served as the Operations Manager
for Conoco Phillips, San Juan Basin, including upstream and
mid-stream operations which represented 10% of Conoco Phillips
worldwide production, and from April 2000 to March 2006,
Mr. Muncrief served as the General Manager of
Operations — San Juan for Burlington Resources.
Mr. Muncrief earned his Bachelor of Science degree from
Oklahoma State University in 1980 and is a member of the
American Petroleum Institute and the Society of Petroleum
Engineers.
Mr. Marlin has served as Executive Vice
President — Engineering since September 2004. He also
was our Chief Operations Officer from February 2005 through July
2006. He was our engineering manager from November 2002 to
September 2004. Prior to that, he was the engineering manager
for STP from 1999 until STP’s acquisition by Quest in
November 2002. Prior to that, he was employed by Parker and
Parsley Petroleum as the Mid-Continent Operations Manager for
12 years. Mr. Marlin has more than 32 years
industry experience involving all phases of drilling and
production in more than 14 states. His experience also
involved primary and secondary operations along with the design
and oversight of gathering systems that move as much as
175 MMcf/d.
He is a registered Professional Engineer holding licenses in
Oklahoma and Colorado. Mr. Marlin earned a B.S. in
Industrial Engineering and Management from Oklahoma State
University in 1974. Mr. Marlin was a Director of the
Mid-Continent Coal Bed Methane Forum.
Mr. Bolton has served as Executive Vice
President — Land since May 2006. Prior to that, he was
a Land Manager for Continental Land Resources, LLC, an Oklahoma
based oil and gas lease broker from May 2004 to May 2006. Prior
to that, Mr. Bolton was a landman for Continental Land
Resources from April 2001 to May 2004. He was an independent
landman from 1995 to April 2001. Mr. Bolton is a Certified
Professional Landman with over 17 years of experience in
various aspects of the oil and gas industry, and has worked
extensively throughout
Oklahoma, Texas, and Kansas. Mr. Bolton holds a Bachelor of
Liberal Studies degree from the University of Oklahoma, attended
the Oklahoma City University School of Law, and is a member of
American Association of Petroleum Landmen, Oklahoma City
Association of Petroleum Landmen, the American Bar Association,
and the Energy Bar Association.
Mr. Hochstein joined us in January of 2006 as
Manager of New Ventures. He then served as Executive Vice
President — Exploration/A&D from March 2007 to
December 2007 and has served as Executive Vice
President — Exploration and Resource Development since
December 2007. While serving as Manager of New Ventures,
Mr. Hochstein led resource assessment efforts for several
acquisition projects and was responsible for generating two new
resource plays for us. In his new role, Mr. Hochstein will
continue to develop new opportunities for us and oversee all
geologic and reservoir engineering functions. Before joining us,
Mr. Hochstein served for two years as a partner in Rockport
Energy, a small E&P company. Prior to that he worked for
El Paso Corporation in its coalbed methane division,
serving as technical manager (January 2001 to August 2001),
Director of Coalbed Methane (August 2001 to February
2003) and Vice President of CBM/Mid Continent and Rockies
(February 2003 to April 2004). Prior to that, Mr. Hochstein
worked for Sonat Exploration Co. from August 1981 to January
2001 in various positions, most recently as Manager of
Geoscience. Mr. Hochstein has more than 25 years of
industry experience and more than 10 years of
unconventional resource experience. Mr. Hochstein holds a
Bachelor of Science in Geologic Sciences from the University of
Texas, Austin, and is a member of the American Association of
Petroleum Geologists.
Mr. Simmons joined us in January 2006 as New
Ventures Manager and assumed his new position as Executive Vice
President — Acquisitions & Divestitures
(A&D) in December 2007. In this role, Mr. Simmons
leads our A&D efforts. Prior to joining us,
Mr. Simmons was a partner in a private E&P company
developing properties in south Texas and south Louisiana from
January 2003 to December 2005. Prior to that, Mr. Simmons
spent 22 years with Sonat Exploration and El Paso
Corporation in various and executive positions, most recently as
Vice President of the Rocky Mountain Division and Vice President
and Chief Engineer. Mr. Simmons holds a Bachelor of Science
Degree in Structural Engineering from Texas A&M University
and is a member of the Society of Petroleum Engineers.
Mr. Collins has served as Executive Vice
President — Investor Relations since December 2007.
Mr. Collins has more than 11 years of experience
providing analysis and advice to oil and gas industry investors.
Prior to joining us, he worked for A.G. Edwards &
Sons, Inc., a national, full-service brokerage firm, from 1999
to 2007 in various positions, most recently as a Securities
Analyst, where he was responsible for initiating the firm’s
coverage of the high yield U.S. energy stock sector
(E&P partnerships and U.S. royalty trusts). As an
Associate Analyst (2001 to 2005) and Research Associate
(1999 to 2001) at A.G. Edwards, he assisted senior analysts
in coverage of the independent E&P and oilfield service
sectors of the energy industry. Mr. Collins holds a
Bachelors degree in Economics with a Business Emphasis from the
University of Colorado at Boulder.
The Directors are elected by a plurality of the shares voted by
the Stockholders. The two candidates for election as Directors
who receive the highest number of affirmative votes by the
holders of shares present and entitled to be voted at the Annual
Meeting will be elected.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE “FOR”
THE ELECTION OF MESSRS. ALEXANDER AND DAMON AS CLASS II
DIRECTORS. UNLESS MARKED TO THE CONTRARY, PROXIES RECEIVED BY
THE COMPANY WILL BE VOTED FOR THE ELECTION OF THE TWO NOMINEES
AS CLASS II DIRECTORS.
PROPOSAL NO. 2 —
APPROVAL OF AMENDMENTS TO THE
COMPANY’S 2005 OMNIBUS STOCK AWARD PLAN
Our stockholders will be asked at the Annual Meeting to approve
amendments to our 2005 Omnibus Stock Award Plan (the
“Omnibus Plan”). The Omnibus Plan, as amended and
restated by our Board of Directors in February 2008, authorizes
2,200,000 shares of our Common Stock issuable under the
Omnibus Plan and limits the number of share awards to any
individual to 500,000 shares in any five-year period. On
May 19, 2008, our Board of Directors approved amendments to
the Omnibus Plan increasing the number of shares of Common Stock
that may be issued under the Omnibus Plan from 2,200,000 to
2,700,000 shares and increasing the maximum number of share
awards that may be granted to our Chief Executive Officer from
500,000 to 1,500,000 in any five-year period (the 500,000
limitation within any five-year period remains the same for all
other individuals). The proposed amendments also would generally
prohibit the Compensation Committee of our Board of Directors
(the “Committee”) from repricing outstanding stock
appreciation rights unless such repricing is approved by our
stockholders. The proposed amendments to the Omnibus Plan are
attached to this Proxy Statement as
Appendix A.
As of May 14, 2008, we had available 687,108 shares of
our Common Stock remaining for award under the Omnibus Plan. As
of that date, we had 110,000 stock options outstanding, with a
weighted average exercise price of $10.01 per share and a
weighted average remaining term of 6.9 years, and
924,361 shares of restricted stock and bonus shares that
were unvested. The increase in the number of shares of Common
Stock authorized for issuance under the Omnibus Plan would
enable us, without further stockholder approval, to make
additional equity-based grants from time to time as may be
required for proper business purposes. The increase in shares
available for issuance under the Omnibus Plan will assist us to
continue to attract and retain key personnel and to strengthen
the identity of such personnel’s interest with those of our
stockholders. The increase in the five-year limit for our Chief
Executive Officer is to accommodate potential grants that our
Chief Executive Officer may become entitled to receive under a
new performance compensation program our Board of Directors has
adopted as part of our Management Annual Incentive Plan (see
“Proposal No. 3 — Approval of an
Amendment and Restatement of the Company’s Management
Annual Incentive Plan” below). Our Board of Directors
believes it is in the best interests of us and our stockholders
to adopt the proposed amendments to the Omnibus Plan.
The complete text of the Omnibus Plan is attached to this Proxy
Statement as Appendix B. The following
description of the material features of the Omnibus Plan is
qualified in its entirety by reference to the provisions of the
Omnibus Plan set forth in Appendix B.
Any of our employees or any employee of our majority owned
subsidiaries and our non-employee directors are eligible to
receive awards under the Omnibus Plan. Such eligible employees
include our officers or officers of any majority owned
subsidiary. As of May 14, 2008, there were nine executive
officers, approximately 300 employees other than executive
officers and five non-employee directors who are eligible to
receive awards.
The Omnibus Plan places limits on the maximum amount of awards
that may be granted to any employee in any five-year period.
Under the current Omnibus Plan, no employee may receive awards
of stock options, stock appreciation rights, restricted stock,
bonus shares, performance units, performance shares or deferred
shares that cover in the aggregate more than 500,000 shares
in any five-year period. If approved by our stockholders, this
limit will be increased to 1,500,000 during any five-year period
for only our Chief Executive Officer.
Non-employee directors may not be granted awards that are
incentive stock options (“ISOs”).
The Omnibus Plan is administered by the Board of Directors or
the Committee. The Board of Directors or the Committee selects
the eligible employees and non-employee directors to whom awards
will be granted and sets the terms of such awards, including any
performance goals applicable to annual and long-term incentive
awards. The Board of Directors or the Committee has the
authority to permit or require the deferral of payment of awards.
The Board of Directors or the Committee may delegate some of its
authority under the Omnibus Plan to our officers, subject to
applicable state law and guidelines prescribed by the Board of
Directors or the Committee. However, the Board of Directors may
not delegate its authority with respect to the grant of awards
to our officers who are subject to Section 16 of the
Securities Exchange Act of 1934, as amended (the “Exchange
Act”), or Section 162(m) of the Internal Revenue Code
of 1986, as amended (the “Code”).
The Omnibus Plan currently provides for up to
2,200,000 shares of Common Stock to be used for awards. If
approved by our stockholders, this limit will be increased to
2,700,000. The shares may be newly issued shares and to the
extent that any award under the Omnibus Plan is exercised,
cashed out, terminates, expires or is forfeited without payment
being made in the form of Common Stock, the shares subject to
such award that were not so paid will again be available for
distribution under the Omnibus Plan. However, any shares
withheld for the purpose of satisfying any tax withholding
obligation will be counted against the authorized limit and not
be available for distributions. If a stock appreciation right
award or a similar award based on the spread value of common
stock is exercised, only the number of shares of Common Stock
issued, if any, will be considered delivered for the purpose of
determining availability of shares for delivery under the
Omnibus Plan. Unless otherwise determined by the Committee,
stock options may be exercised by payment in cash or tendering
shares of Common Stock to us in full or partial payment of the
exercise price.
The number of shares of Common Stock authorized for awards is
subject to adjustment for changes in capitalization,
reorganizations, mergers, stock splits, and other corporate
transactions necessary to require an equitable adjustment. The
Omnibus Plan will remain in effect until all the shares
available have been used to pay awards, subject to the right of
the Board of Directors to amend or terminate the Omnibus Plan at
any time.
The Board of Directors or the Committee selects the grantees and
sets the term of each award, which may not be more than ten
years. The Board of Directors or the Committee has the power to
determine the terms of the awards granted, including the number
of shares subject to each award, the form of consideration
payable upon exercise, the period in which the award may be
exercised after termination of employment, and all other
matters. The exercise price of an option and the strike price of
a stock appreciation right must be at least the fair market
value of a share of Common Stock as of the grant date, unless
the award is replacing an award granted by an entity that is
acquired by us or one of our subsidiaries.
The Board of Directors or the Committee also sets the vesting
conditions of the award, except that vesting will be accelerated
if, within one year after we undergo a “change of
control,” a grantee’s employment or services is
terminated by us or one of our majority owned subsidiaries other
than for “cause” or the grantee terminates employment
for a “good reason” (e.g., a material diminution in
compensation or status or a required move of over 50 miles).
Awards granted under the Omnibus Plan are not generally
transferable by the grantee except in the event of the
employee’s death or unless otherwise required by law or
provided in an award agreement. An award agreement may provide
for the transfer of an award in limited circumstances to certain
members of the grantee’s family or a trust or trusts
established for the benefit of such a family member. Any such
transfer, if permitted under the award agreement, cannot be for
consideration, other than nominal consideration. Other terms and
conditions of each award will be set forth in award agreements,
which can be amended by the Board of Directors or the Committee.
Performance unit and performance share awards may be granted
under the Omnibus Plan. Such awards will be earned only if
corporate, business unit or individual performance objectives
over performance cycles, established by or under the direction
of the Board of Directors or the Committee, are met. The
performance objectives may vary from participant to participant,
group to group and period to period, and may be based on
internal or external requirements, and will be based on
satisfaction of performance objectives for one or more of the
following: earnings per share, net income, return on equity, pro
forma net income, return on designated assets, return on
revenues, fair
market value (i.e., market price) per share, book value per
share, debt reduction or such other criteria approved by the
Board of Directors or the Committee and the stockholders. Awards
may be paid in the form of cash, Common Stock or any combination
thereof, as determined by the Board of Directors or the
Committee.
Restricted shares of Common Stock may also be awarded. The
restricted shares will vest and become transferable upon the
satisfaction of conditions set forth in the respective
restricted share award agreement. Restricted share awards may be
forfeited if, for example, the recipient’s employment
terminates before the award vests.
The Board of Directors or the Committee may grant shares of
Common Stock to participants from time-to-time as a bonus. Such
shares may be paid on a current basis or may be deferred and
paid in the future. The Board of Directors or the Committee may
impose such conditions or restrictions on any such deferred
shares as it may deem advisable including time-vesting
restrictions and deferred payment features.
The Omnibus Plan permits the grant of ISOs, which qualify for
special tax treatment, to eligible employees, and nonqualified
stock options to eligible employees and non-employee directors.
The exercise price for any stock option will not be less than
the fair market value of a share of Common Stock on the date of
grant. No stock option may be exercised more than ten years
after the date of grant. Generally, the Omnibus Plan prohibits
the Committee from repricing outstanding options unless such
repricing is approved by our stockholders.
Stock Appreciation Rights (“SARs”) may be granted
either singly (freestanding SARs) or in combination with
underlying stock options (tandem SARs). SARs entitle the holder
upon exercise to receive an amount in common stock equal in
value to the excess of the fair market value of the shares
covered by such right over the grant price. The grant price for
SARs will not be less than the fair market value of the Common
Stock on the SARs’ date of grant. The payment upon a SAR
exercise may be settled in whole shares of equivalent value,
cash or a combination thereof. Fractional shares will be paid in
cash. As amended, the Omnibus Plan will generally prohibit the
Committee from repricing outstanding SARs unless such repricing
is approved by our stockholders.
The Omnibus Plan provides that, if, within the one-year period
beginning on the date of a Change of Control (as defined in the
Omnibus Plan) an employee separates from service with us or a
majority owned subsidiary other than due to us terminating the
employee’s employment for cause or the employee resigning
for good reason (e.g., a material diminution in compensation or
status or a required move of over 50 miles), then, all
stock options and SARs will become fully vested and immediately
exercisable, the restrictions applicable to outstanding
restricted stock, deferred shares, and other stock-based awards
will lapse, and, unless otherwise determined by the Board of
Directors or the Committee, all deferred shares will be settled,
and outstanding performance awards will be vested and paid out
on a prorated basis, based on the maximum award opportunity of
such awards and the number of months elapsed compared with the
total number of months in the performance cycle. The Board of
Directors or the Committee may also make certain adjustments and
substitutions in connection with a Change of Control or similar
transactions or events as described under
“— Shares Reserved for Awards.”
Based on current provisions of the Code and the existing
regulations thereunder, the anticipated U.S. federal income
tax consequences of awards eligible to be granted under the
Omnibus Plan are as described below. The
following discussion is not intended to be a complete discussion
of applicable law and is based on the U.S. federal income
tax laws as in effect on the date hereof:
Non-Qualified Stock Options. An
employee receiving a non-qualified option does not recognize
taxable income on the date of grant of the non-qualified option,
provided that the non-qualified option does not have a readily
ascertainable fair market value at the time it is granted. In
general, the employee must recognize ordinary income at the time
of exercise of the non-qualified option in the amount of the
difference between the fair market value of the shares of Common
Stock on the date of exercise and the option price. The ordinary
income recognized will constitute compensation for which tax
withholding generally will be required. The amount of ordinary
income recognized by an employee will be deductible by us in the
year that the employee recognizes the income if we comply with
the applicable withholding requirement.
Shares of Common Stock acquired upon the exercise of a
non-qualified option will have a tax basis equal to their fair
market value on the exercise date or other relevant date on
which ordinary income is recognized, and the holding period for
the Common Stock generally will begin on the date of exercise or
such other relevant date. Upon subsequent disposition of the
Common Stock, the employee will recognize long-term capital gain
or loss if the employee has held the Common Stock for the
applicable long-term capital gain holding period, or short-term
capital gain or loss if the employee has held the Common Stock
for less than the applicable long-term capital gain holding
period.
If an employee pays the exercise price, in whole or in part,
with previously acquired Common Stock, the employee will
recognize ordinary income in the amount by which the fair market
value of the shares of Common Stock received exceeds the
exercise price. The employee will not recognize gain or loss
upon delivering the previously acquired Common Stock to us.
Common Stock received by an employee, equal in number to the
previously acquired shares of Common Stock exchanged therefore,
will have the same basis and holding period for long-term
capital gain purposes as the previously acquired Common Stock.
Common Stock received by an employee in excess of the number of
such previously acquired shares of Common Stock will have a
basis equal to the fair market value of the additional shares of
Common Stock as of the date ordinary income is recognized. The
holding period for the additional Common Stock will commence as
of the date of exercise or such other relevant date.
Incentive Stock Options. ISOs are
defined by Section 422 of the Code. An employee who is
granted an ISO does not recognize taxable income either on the
date of grant or on the date of exercise. Upon the exercise of
an ISO, the difference between the fair market value of the
Common Stock received and the option price is, however, a tax
preference item potentially subject to the alternative minimum
tax.
Upon disposition of shares of Common Stock acquired from the
exercise of an ISO, long-term capital gain or loss is generally
recognized in an amount equal to the difference between the
amount realized on the sale or disposition and the exercise
price. However, if the employee disposes of the Common Stock
within two years of the date of grant or within one year of the
date of the transfer of the shares of Common Stock to the
employee (a “Disqualifying Disposition”), then the
employee will recognize ordinary income, as opposed to capital
gain, at the time of disposition. In general, the amount of
ordinary income recognized will be equal to the lesser of
(a) the amount of gain realized on the disposition, or
(b) the difference between the fair market value of the
Common Stock received on the date of exercise and the exercise
price. Any remaining gain or loss is treated as a short-term or
long-term capital gain or loss, depending on the period of time
the Common Stock has been held. We are not entitled to a tax
deduction upon either the exercise of an ISO or the disposition
of Common Stock acquired pursuant to the exercise of an ISO,
except to the extent that the employee recognizes ordinary
income in a Disqualifying Disposition. For alternative minimum
taxable income purposes, on the later sale or other disposition
of the Common Stock, generally only the difference between the
fair market value of the Common Stock on the exercise date and
the amount realized on the sale or disposition is includable in
alternative minimum taxable income.
If an employee pays the exercise price, in whole or in part,
with previously acquired Common Stock, the exchange should not
affect the ISO tax treatment of the exercise. Upon the exchange,
and except as otherwise described herein, no gain or loss is
recognized by the employee upon delivering previously acquired
shares of Common Stock to us as payment of the exercise price.
The shares of Common Stock received by the employee,
equal in number to the previously acquired Common Stock
exchanged therefore, will have the same basis and holding period
for long-term capital gain purposes as the previously acquired
Common Stock. The employee, however, will not be able to utilize
the prior holding period for the purpose of satisfying the ISO
statutory holding period requirements. Common Stock received by
the employee in excess of the number of previously acquired
Common Stock will have a basis of zero and a holding period
which commences as of the date the Common Stock are transferred
to the employee upon exercise of the ISO. If the exercise of any
ISO is effected using Common Stock previously acquired through
the exercise of an ISO, the exchange of the previously acquired
Common Stock will be considered a disposition of the Common
Stock for the purpose of determining whether a Disqualifying
Disposition has occurred.
Stock Appreciation Rights. To the
extent that the requirements of the Code are met, there are no
immediate tax consequences to an employee when a SAR is granted.
When an employee exercises the right to the appreciation in fair
market value of shares represented by a SAR, payments made in
shares of Common Stock are normally includable in the
employee’s gross income for regular income tax purposes. We
will be entitled to deduct the same amount as a business expense
in the same year. The includable amount and corresponding
deduction each equal the fair market value of the Common Stock
payable on the date of exercise.
Restricted Stock. The recognition of
income from an award of restricted stock for federal income tax
purposes depends on the restrictions imposed on the shares.
Generally, taxation will be deferred until the first taxable
year the common shares are no longer subject to substantial risk
of forfeiture or the common shares are freely transferable. At
the time the restrictions lapse, the grantee will recognize
ordinary income equal to the then fair market value of the
shares. The grantee may, however, make an election to include
the value of the shares in gross income in the year such
restricted shares are granted despite such restrictions.
Generally, we will be entitled to deduct the fair market value
of the shares transferred to the grantee as a business expense
in the year the grantee includes the compensation in income.
Deferred Shares. Generally, the grantee
will not recognize ordinary income until common shares become
payable under the deferred share award, even if the award vests
in an earlier year. We will generally be entitled to deduct the
amount the grantee includes in income as a business expense in
the year of payment.
Other Stock-Based Performance
Awards. Any cash payments or the fair market
value of any common shares or other property the grantee
receives in connection with other stock-based awards, incentive
awards, or as unrestricted payments equivalent to dividends on
unfunded awards or on restricted stock are includable in income
in the year received or made available to the grantee without
substantial limitations or restrictions. Generally, we will be
entitled to deduct the amount the grantee includes in income as
a business expense in the year of payment.
Deferred Compensation. Any deferrals
made under the Omnibus Plan, including awards granted under the
plan that are considered to be deferred compensation, must
satisfy the requirements of Section 409A of the Code to
avoid adverse tax consequences to participating employees. These
requirements include limitations on election timing,
acceleration of payments, and distributions. We intend to
structure any deferrals and awards under the Omnibus Plan to
meet the applicable tax law requirements.
Other Tax Consequences. State tax
consequences may in some cases differ from those described
above. Awards under the Omnibus Plan will in some instances be
made to employees who are subject to tax in jurisdictions other
than the United States and may result in tax consequences
differing from those described above.
The Omnibus Plan was initially effective October 14, 2005,
and will remain in effect, subject to the right of the Board of
Directors to amend or terminate the Omnibus Plan (subject to
certain limitations set forth in the Omnibus Plan), at any time
until all shares subject to it shall have been purchased or
acquired according to the Omnibus Plan’s provisions. Any
awards granted before the Omnibus Plan is terminated may extend
beyond the expiration date.
The Board of Directors may at any time alter, amend, suspend or
terminate the Omnibus Plan in whole or in part without the
approval of the stockholders, except to the extent the Board of
Directors determines it is desirable (i) to obtain approval
of the stockholders, (ii) to retain eligibility for
exemption from the limitations of Section 162(m) of the
Code, (iii) to have the available the ability for stock
options to qualify as ISOs, (iv) to comply with the
requirements for listing on any exchange where our shares are
listed, or (v) for any other purpose the Board of Directors
deems appropriate. No termination, amendment or modification of
the Omnibus Plan may adversely affect in any material way any
award previously granted under the Omnibus Plan, without the
written consent of the grantee of such award.
In May 2008, the Committee adopted a burn-rate policy, which
provides that for the years ended December 31, 2008, 2009
and 2010, our prospective three-year average burn rate with
respect to our equity awards will not exceed the mean and one
standard deviation of our Global Industry Classification
Standards Peer Group (1010 — Energy) of 4.43%. For
purposes of calculating the three-year average burn rate under
this burn-rate policy, each restricted stock (unit), bonus share
or stock award or any forms of full-value awards granted under
our equity plans will be counted as 1.5 award shares and will be
calculated as (i) the number of equity awards granted in
each fiscal year by the Committee to employees and directors,
excluding awards granted to replace securities assumed in
connection with a business combination transaction, divided by
(ii) the weighted average basic shares outstanding.
Awards to be received by individual participants are not
determinable because the Committee determines the amount and
nature of any award under the Omnibus Plan in its sole
discretion at the time of grant. As a result, the benefits that
might be received by participants awarded discretionary grants
under the Omnibus Plan are not determinable.
In order to approve this proposal, a majority of affirmative
votes by the holders of shares present, in person or by proxy,
and entitled to be voted at the Annual Meeting must be received
in favor of this proposal.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE “FOR”
THE APPROVAL OF AMENDMENTS TO THE COMPANY’S 2005 OMNIBUS
STOCK AWARD PLAN. UNLESS MARKED TO THE CONTRARY, PROXIES
RECEIVED BY THE COMPANY WILL BE VOTED FOR THE AMENDMENTS TO THE
PLAN.
PROPOSAL NO. 3 —
APPROVAL OF AN AMENDMENT AND RESTATEMENT OF THE
COMPANY’S MANAGEMENT ANNUAL INCENTIVE PLAN
Our stockholders will be asked at the Annual Meeting to approve
an amendment and restatement of our Management Annual Incentive
Plan (the “Incentive Plan”), which was initially
adopted by our Board of Directors on March 21, 2006 and
approved by our stockholders at the 2006 Annual Meeting on
May 31, 2006. The Incentive Plan is designed to qualify
bonuses paid under the Incentive Plan as “qualified
performance-based compensation” for purposes of
Section 162(m) of the Code. This enables us to exclude
compensation payable under the Incentive Plan from the deduction
limitations of Section 162(m), which generally precludes a
deduction for compensation paid to a public company’s chief
executive officer and certain other executive officers employed
with the public company to the extent compensation for a taxable
year to any such individual exceeds $1 million. The
purposes of the Incentive Plan are to promote our success; to
provide designated executive officers with an opportunity to
receive incentive compensation dependent upon that success; to
attract, retain and motivate such individuals; and to provide
awards that are “qualified performance-based”
compensation under Section 162(m).
The Incentive Plan currently limits the bonus award payable to
any eligible participant for any plan year to the lesser of 200%
of the participant’s base annual salary or $1 million.
On May 19, 2008, our Board of Directors approved an
amendment of the Incentive Plan increasing the bonus award
limitation with respect to awards payable
to the Chief Executive Officer to $3 million, and modifying
the bonus award payable to any other eligible participant to the
lesser of three times the participant’s annual base salary
or $1 million. The increase and modifications in the
limitation of an individual’s bonus award for any year will
allow the Directors to tie more compensation to the achievement
of performance goals while also continuing to attract and retain
key personnel. Our Board of Directors also approved an amendment
to the Incentive Plan to expand upon the business criteria upon
which incentive goals are based in order to give the Directors
additional flexibility (1) to focus performance targets
with greater specificity and (2) to reward a broader range
of performance goals, in line with business strategy and our
overall compensation philosophy. Our Board of Directors believes
it is in the best interests of us and our stockholders to adopt
the proposed amendment and restatement of the Incentive Plan.
The following general description of material features of the
Incentive Plan, as amended and restated, is qualified in its
entirety by reference to the provisions of the Incentive Plan
set forth in Appendix C.
Only our executive officers and key employees who are selected
by the Compensation Committee (the “Committee”) of our
Board of Directors are eligible to participate in the Incentive
Plan. Prior to or at the time performance objectives are
established for the performance period (the “Incentive
Period”), which is generally a fiscal year, the Committee
will designate in writing which executive officers and key
employees will be eligible participants for each Incentive
Period. For 2008, all of our executive officers and
management-level employees (approximately 17 persons as of
May 16, 2008) are eligible to participate.
The Board of Directors reserves the right to amend or terminate
the Incentive Plan in whole or in part at any time. However,
unless otherwise prohibited by applicable law, any amendment
required to conform the Incentive Plan to the requirements of
Section 162(m) of the Code and the applicable Treasury
regulations thereunder may be made by the Committee. No
amendment may increase the maximum award payable under the
Incentive Plan without stockholder approval or otherwise be
effective without stockholder approval if such approval is
necessary so that awards will be “qualified
performance-based compensation” under Section 162(m)
of the Code.
Awards granted under the Incentive Plan must be made by a
committee or subcommittee of our Board of Directors designated
by it that consists of not less than two directors, each of whom
is intended to be an “outside director” within the
meaning of Section 162(m) of the Code. The Committee has
full power and authority to administer and interpret the
provisions of the Incentive Plan and to adopt such rules,
regulations, agreements, guidelines and instruments for the
administration of the Incentive Plan. Except with respect to
matters which under Section 162(m) of the Code are required
to be determined in the sole and absolute discretion of the
Committee, the Committee can delegate to our officers and
employees the authority to administer and interpret the
procedural aspects of the Incentive Plan. The Committee may also
rely on opinions, reports or statements of our officers or
employees and of our counsel, public accountants and other
professional or expert persons. The Incentive Plan is
administered by our Chief Financial Officer and Human Resource
Manager, subject to the control and supervision of the Chief
Executive Officer and the Board of Directors.
Section 162(m) of the Code provides that a publicly-traded
company will not be able to deduct for federal income tax
purposes any compensation in excess of $1 million paid by
it in any one year to any “covered employee” of the
company, subject to certain exemptions. At this time,
“covered employees” are essentially the individuals
who were, at the end of the fiscal year, our Chief Executive
Officer and our three other most highly compensated executive
officers (excluding our Chief Financial Officer). The annual
compensation that is counted under Section 162(m) for
purposes of the $1 million limit includes, among other
things, base salary and cash bonuses. However, various forms of
compensation are exempt from Section 162(m)’s general
limitation on deductible
compensation, including performance-based compensation paid
under stockholder-approved plans that meet certain criteria. The
Incentive Plan meets these criteria.
Generally, within the first 90 days of each Incentive
Period, the Committee will establish one or more performance
goals, a specific target objective or objectives with respect to
such performance goals and an objective formula, or method for
computing the amount of bonus compensation payable to each
participant under the Incentive Plan if the performance goals
are attained. Such goals, objectives and compensation formulae
or methods must be established such that the outcome of the goal
or objective is substantially uncertain at the time the
Committee actually establishes the goal or objective.
Under the current Incentive Plan, the incentive goals are based
upon one or more of the following business criteria for us as a
whole or any of our subsidiaries, operating divisions or other
operating units: total stockholder return, earnings before
interest, taxes, depreciation and amortization, pre-tax
operating income, earnings per share, return on equity, return
on invested capital or assets, cost reductions and savings,
return on sales, lease operating expense, pipeline operating
expense, production, reserve replacement, finding and
development costs or productivity improvements. If approved by
our stockholders, the incentive goals will be based on the
attainment of one or any combination of the following metrics,
and which may be established on an absolute or relative basis
for (1) our corporation as a whole, (2) on an
individual or aggregate basis, any of our current subsidiaries
(including Quest Midstream Partners, L.P. or Quest Energy
Partners, L.P.), operating divisions or other operating units or
(3) any future subsidiaries, operating divisions or
operating units that may be acquired or formed by us in
connection with a merger or acquisition:
To the extent consistent with the goal of providing for
deductibility under Section 162(m) of the Code, performance
goals (i) also include any performance goals which are set
forth in a Company bonus or incentive plan, if any, which has
been approved by our stockholders, which are incorporated herein
by reference and (ii) may be based upon a
participant’s attainment of personal objectives with
respect to any of the foregoing performance goals: negotiating
transactions and sales, business unit/department performance,
profit margins, reduction of certain accounts receivable or
achievement of subsidiary or departmental budgets or developing
long-term business goals. Such performance goals shall be set by
the Committee within the time period prescribed by, and shall
otherwise comply with the requirements of Section 162(m) of
the Code.
As soon as practicable after the end of each Incentive Period,
the Committee will calculate the amount of each
participant’s bonus for such Incentive Period based upon
the achievement of performance goals or specific target
objectives. The Committee will have no discretion to increase
the amount of any participant’s bonus as so determined, but
may reduce the amount or totally eliminate such bonus if it
determines, in its absolute and sole discretion, that such a
reduction or elimination is appropriate in order to reflect the
participant’s performance or unanticipated factors. Under
the current Incentive Plan, no participant’s bonus will
exceed the lesser of 200% of the participant’s base annual
salary or $1,000,000. If approved by our stockholders, the bonus
award payable to the Chief Executive Officer will be subject to
a $3 million annual limit, while the bonus award payable to
any other eligible participant will be limited to the lesser of
three times the participant’s annual base salary or
$1 million.
Approved bonus awards will be payable by us in cash or in shares
of our Common Stock pursuant to the Omnibus Plan to each
participant, or to his estate in the event of his death, as soon
as practicable after the end of each Incentive Period. To the
extent shares of Common Stock are issued under the Omnibus Plan,
such issued shares will be subject to both the annual award
limitation set forth in “— Determination of Bonus
Awards” above and any share limitation(s) in the Omnibus
Plan.
A bonus award that would otherwise be payable to a participant
who is not employed by us or one of our subsidiaries on the last
day of an Incentive Period will be prorated, or not paid, in
accordance with rules and regulations adopted by the Committee
for the administration of the Incentive Plan.
The Incentive Plan will be submitted to the stockholders for
reapproval if the business criteria stated above in
“— Incentive Objectives” are materially
changed (as evidenced by this
Proposal No. 3) and, in any event, will be
submitted to be reapproved by stockholders after five years
since the last time stockholder approval was received.
No person shall have any legal claim to be granted an award
under the Incentive Plan and the Committee shall have no
obligation to treat participants uniformly. Bonuses awarded
under the Incentive Plan shall be payable from our general
assets and no participant shall have any claim with respect to
any of our specific assets.
Neither the Incentive Plan nor any action taken under the
Incentive Plan will be construed as giving any employee the
right to be retained in our employ or any subsidiary or to
maintain any participant’s compensation at any level.
Our Board of Directors currently has two separate compensation
arrangements or programs under the Incentive Plan: the
productivity gain sharing program and the annual performance
goal bonus program, both of which are described below under
“Compensation Discussion and Analysis — Elements
of Executive Compensation Program”
Our Board of Directors has also approved a third long-term
management compensation program under the Incentive Plan that
began in May 2008. Under this new long-term management
compensation program, the Chief Executive Officer will receive
awards of restricted stock under the Omnibus Plan if the
adjusted average share price for a calendar year exceeds both
the initial and adjusted average share price for each prior year
the long-term compensation program is effective. Adjusted
average share price means the adjusted average of the fair
market values for each trading day during a calendar year,
taking into account the trading volume of our shares on each
day. Restricted stock awards granted to our Chief Executive
Officer under the long-term program will vest ratably over a
three-year period and will be subject to other terms in the
Omnibus Plan. The long-term compensation program also provides
awards of restricted stock to other participants based upon
(1) a pool of three percent of our consolidated income
before depreciation, depletion, amortization and taxes and
ignoring changes in income attributable to non-cash changes in
derivative fair value and (2) the stock price as of the day
awards are made in the Omnibus Plan. Any restricted stock awards
that could be earned under the long-term program will vest over
a two-year period and will be subject to other terms in the
Omnibus Plan.
The following table lists the estimated benefits and amounts
that could be payable under the Incentive Plan in 2008.
In order to approve this proposal, a majority of affirmative
votes by the holders of shares present, in person or by proxy,
and entitled to be voted at the Annual Meeting must be received
in favor of this proposal.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE “FOR”
THE APPROVAL OF AMENDMENT AND RESTATEMENT OF THE COMPANY’S
MANAGEMENT ANNUAL INCENTIVE PLAN. UNLESS MARKED TO THE CONTRARY,
PROXIES RECEIVED BY THE COMPANY WILL BE VOTED FOR THE AMENDMENT
AND RESTATEMENT OF THE PLAN.
The Board of Directors held 15 meetings during 2007 and acted by
unanimous consent 10 times. Our policy for director attendance
at Board of Directors meetings is that directors are expected to
regularly attend meetings of the Board of Directors and of those
committees on which a director may sit, with the understanding
that on occasion a director may be unable to attend a meeting.
Each director is required to attend the annual meeting of the
Board of Directors and is encouraged to attend the Annual
Meeting of the stockholders. Three directors attended the 2007
Annual Meeting of the stockholders. Each director attended at
least 75% of the total number of meetings held by the Board of
Directors (during the period for which he was a director) and
all of the total number of meetings held by all board committees
on which he served (during the periods for which he was a
member). The Board of Directors has established an Audit
Committee, Nominating Committee and Compensation Committee.
The Board of Directors has established a separately designated
standing Audit Committee. The Audit Committee met six times in
2007. The purposes of the Audit Committee are to oversee and
review (i) the integrity of all financial information
provided to any governmental body or the public and
(ii) the integrity and adequacy of our auditing, accounting
and financial reporting processes and systems of internal
controls for financial reporting and disclosure controls and
procedures.
The following three directors are members of the Audit
Committee: John Garrison, Chair, Bob Alexander and Jon Rateau.
Mr. Alexander joined the Audit Committee on May 12,
2008 and did not participate in the review and approval of the
2007 financial statements. Malone Mitchell resigned from the
Audit Committee on May 7, 2008. The Board of Directors has
determined that each of the Audit Committee members are
independent, as that term is defined under the enhanced
independence standards for audit committee members in the
Exchange Act and rules thereunder, as amended, as incorporated
into the listing standards of The Nasdaq Global Market. The
Board of Directors has determined that Mr. Garrison is an
“audit committee financial expert”, as that term is
defined in the rules promulgated by the Securities and Exchange
Commission (the “SEC”) pursuant to the Sarbanes-Oxley
Act of 2002.
The Audit Committee performs its functions and responsibilities
pursuant to a written charter adopted by our Board of Directors,
which is published on our Internet website at www.qrcp.net under
the heading Corporate Governance.
The Compensation Committee held four meetings in 2007. In
addition, the members of the Compensation Committee informally
conferred with each other throughout the year. The purpose of
the Compensation Committee is to make determinations and
recommendations to the Board of Directors with respect to
salaries, bonuses, stock options and other benefits payable to
our Chief Executive Officer and other executive officers.
Messrs. Rateau, Chair, Kite and Damon are the current
members of the Compensation Committee, each of whom meets:
(i) the independence requirements of the listing standards
of The Nasdaq Global Market, (ii) the definition of
non-employee director under
Rule 16b-3
promulgated under Section 16 of the Exchange Act, and
(iii) the definition of outside director under the
regulations promulgated under Section 162(m) of the Code.
The Compensation Committee performs its functions and
responsibilities pursuant to a written charter adopted by our
Board of Directors, which is published on our Internet website
at www.qrcp.net under the heading Corporate Governance. A
discussion of the process and procedures for the consideration
and determination of executive compensation, including the
Compensation Committee’s authority and role in such
process, its delegation of certain of such authority to others,
and the roles of the Company’s executive officers and
outside executive compensation consultants in making decisions
or recommendations as to executive compensation, are contained
in “Compensation Discussion and Analysis” below.
The Nominating Committee met two times in
2007. Messrs. Alexander, Kite and Garrison are the
current members of the Nominating Committee. Mr. Alexander
joined the Nominating Committee on May 12, 2008 and did not
participate in the nominating process for this Annual Meeting.
Malone Mitchell resigned from the Nominating Committee on
May 7, 2008. Our Nominating Committee’s charter
describes the Nominating Committee’s responsibilities,
including developing corporate governance guidelines and
seeking, screening and recommending director candidates for
nomination by the Board of Directors. Our Corporate Governance
Guidelines contain information regarding the selection,
qualification and criteria for director nominees and the
composition of the Board. Both documents are published on our
internet website at www.qrcp.net under the heading Corporate
Governance. The Nominating Committee evaluates all director
candidates in accordance with the director qualification
standards described in the Corporate Governance Guidelines.
The Nominating Committee considers candidates for Board
membership suggested by its members and other Board members, as
well as management and stockholders. A stockholder who wishes to
recommend a prospective nominee for the Board should notify our
Secretary in writing with whatever supporting material the
stockholder considers appropriate or that is required by our
bylaws relating to stockholder nominations as described below.
The notice should be sent to Quest Resource Corporation, 210
Park Avenue, Suite 2750, Oklahoma City, OK 73102,
attention: Corporate Secretary. Our Secretary will forward the
information to the members of the Nominating Committee, who will
consider whether to nominate any person nominated by a
stockholder pursuant to the provisions of the proxy rules, our
bylaws, our Nominating Committee Charter, our Corporate
Governance Guidelines and the director selection procedures
established by the Nominating Committee. We recommend that any
recommendations for nominees be submitted to the Corporate
Secretary at least 90 days prior to the date on which last
year’s annual meeting was held, in order to give the
Nominating Committee sufficient time to evaluate the recommended
nominee.
Once the Nominating Committee has identified a prospective
nominee candidate, the Committee makes an initial determination
as to whether to conduct a full evaluation of the candidate.
This initial determination is based on the information provided
to the Nominating Committee with the recommendation of the
prospective candidate, as well as the Nominating
Committee’s own knowledge of the candidate. This
information may be supplemented by inquiries to the person
making the recommendation or others. The preliminary
determination is based primarily on the need for additional
Board members to fill vacancies or expand the size of the Board
and the likelihood that the prospective nominee can satisfy the
criteria and qualifications described below. If the Nominating
Committee determines, in consultation with the Chairman of the
Board and other Board members as appropriate, that additional
consideration is warranted, the Nominating Committee then
evaluates the prospective nominees against the criteria and
qualifications set out in the Nominating Committee’s
Charter. Such criteria and qualifications include:
However, as determining the specific qualifications or criteria
against which to evaluate the fitness or eligibility of
potential director candidates is necessarily dynamic and an
evolving process, the Board believes that it is not always in
the best interests of us or our stockholders to attempt to
create an exhaustive list of such qualifications or criteria.
Appropriate flexibility is needed to evaluate all relevant facts
and circumstances in context of the needs of the Board and the
Company at a particular point in time.
The Nominating Committee also considers such other relevant
factors as it deems appropriate, including the current
composition of the Board, the balance of management and
independent directors, the need for Audit Committee expertise
and the evaluations of other prospective nominees. In
determining whether to recommend a director for re-election, the
Nominating Committee also considers the director’s past
attendance at meetings and participation in and contributions to
the activities of the Board. In connection with this evaluation,
the Nominating Committee determines whether to interview the
prospective nominee, and if warranted, one or more members of
the Nominating Committee, and others as appropriate, interview
prospective nominees in person or by telephone. After completing
this evaluation and interview, the Nominating Committee makes a
recommendation to the full Board as to the persons who should be
nominated by the Board, and the Board determines the nominees
after considering the recommendation and report of the
Nominating Committee.
In addition, nominees and new directors who serve as a member of
our Audit Committee are not permitted to serve on the audit
committee of more than two other boards of public companies.
The Board values the contributions of directors whose years of
service have given them insight into us and our operations and
believes term limits are not necessary. Directors shall not be
nominated for election to the Board after their
72nd birthday, although the full Board may nominate
candidates over the age of 72 for special circumstances.
In addition to the ability of stockholders to recommend nominees
to the Board of Directors discussed above, in accordance with
our Restated Articles of Incorporation and Bylaws, any
stockholder of record entitled to vote for the election of
directors at the applicable meeting of stockholders may at such
meeting nominate persons for election to the Board of Directors
if such stockholder complies with the notice procedures set
forth in our Restated Articles of Incorporation and Bylaws and
summarized below. In order for a stockholder to nominate a
candidate for Director at an annual meeting, notice of the
nomination must be received by our Secretary not less than
14 days nor
more than 50 days prior to the meeting date; provided,
however, that if less than 21 days prior notice or public
disclosure of the date of the meeting is given or made to
stockholders, the notice must be received no later than the
close of business on the 7th day following the day on which
the notice of the meeting was mailed or public disclosure was
made, whichever occurs first. The stockholder’s notice must
set forth as to each person whom the stockholder proposes to
nominate for election or reelection as a Director:
The stockholder’s notice must also set forth the following
information about the stockholder giving the notice:
The stockholder’s notice must also include the consent of
each nominee to serve as a Director. We may require any proposed
nominee to furnish such other information as may reasonably be
required by us to determine the eligibility of the proposed
nominee to serve as a Director.
Stockholders may contact an individual Director, including the
Chairman of the Board of Directors and the chairman of any
committee of the Board of Directors, the Board of Directors as a
group or a specified committee or group, including the
independent directors as a group, by sending a letter to the
attention of the appropriate person, which may be marked as
confidential, addressed to our Corporate Secretary at 210 Park
Avenue, Suite 2750, Oklahoma City, Oklahoma 73102. All
communications received by the Corporate Secretary will be
forwarded promptly to the appropriate person(s).
COMPENSATION
DISCUSSION AND ANALYSIS
Our compensation philosophy is to manage Named Executive Officer
(defined below) total compensation at the median level
(50th percentile) relative to companies with which we
compete for talent (which are primarily peer group companies).
The Compensation Committee of our Board of Directors (the
“Committee”) compares compensation levels with a
selected cross-industry group of other natural gas and oil
exploration and production companies of similar size to
establish a competitive compensation package.
The Committee is responsible for reviewing and approving all
aspects of compensation for the “Named Executive
Officers” listed on page 28 (the “Named Executive
Officers”). In meeting this responsibility, the
Committee’s policy is to ensure that Named Executive
Officer compensation complies with all applicable rules and
regulations and is designed to achieve three primary objectives:
The Committee retained the independent compensation consulting
firm of Towers Perrin (“T-P”) in February 2007 to:
(i) assist the Committee in formulating our compensation
policies for 2007 and future years; (ii) provide advice to
the Committee concerning specific compensation packages and
appropriate levels of Named Executive Officers’ and Board
members’ compensation; (iii) provide advice about
competitive levels of compensation and marketplace trends in the
oil and gas industry; and (iv) review and recommend changes
in our compensation system and programs. As described below, T-P
compiled competitive salary data for thirteen peer group
companies and assisted the Committee in its benchmarking
efforts, among other things. T-P met with members of our
management and had a conference call with the Committee in order
to gather information about us and our business.
Each year the Committee asks our Chief Executive Officer and
Chief Financial Officer to present a proposed compensation plan
for the fiscal year beginning January 1 and ending December 31
(each, a “Plan Year”), along with supporting and
competitive market data. For 2007, T-P assisted our management
in providing this competitive market data, primarily through
published salary surveys. The compensation amounts presented to
the Committee for the 2007 Plan Year were determined based upon
the Chief Executive Officer’s negotiations with the Named
Executive Officers (taking into account the T-P competitive
data). The Committee then met with the Chief Executive Officer
to review the proposal and establish the compensation plan, with
members of T-P participating by telephone.
The Committee monitors the performance of our Named Executive
Officers throughout the Plan Year against the targets set for
each performance measure. At the end of the Plan Year, the
Committee meets with the Chief Executive Officer and Chief
Financial Officer to review the final results compared to the
established performance goals before determining the Named
Executive Officers’ compensation levels for the Plan Year.
During this meeting, the Committee also establishes the Named
Executive Officer compensation plan for the upcoming Plan Year,
based on the Chief Executive Officer’s recommendations. In
general, the plan must be established within the first
90 days of a Plan Year. However, during 2007, the Committee
established a new management incentive plan for Quest Midstream
GP, LLC employees, which was not finalized until the fourth
quarter of 2007.
In addition, during 2007, we hired a number of new executive
officers, including David Lawler who was one of the Named
Executive Officers for 2007. The compensation packages for these
new executive officers were negotiated between the Chief
Executive Officer and the executive officers (taking into
account the T-P competitive data). The Committee then met with
the Chief Executive Officer to review and approve the proposed
compensation packages.
In 2007, the Committee retained T-P as its independent
compensation consultant to advise the Committee on matters
related to the Named Executive Officers’ compensation
program. To assist the Committee in its benchmarking efforts,
T-P provided a compensation analysis and survey data for a peer
group of companies that are similar in scale and scope to us.
With the assistance of T-P, the Committee selected a peer group
consisting of the following thirteen publicly traded
U.S. exploration and production companies: ATP
Oil & Gas Corp., Brigham Exploration, Carrizo
Oil & Gas Inc., Edge Petroleum, Gastar Exploration,
GMX Resources, Goodrich Petroleum, Linn Energy, McMoRan
Exploration, Parallel Petroleum, Toreador Resources Corp., and
Warren Resources. In general, peer group companies were
U.S. energy companies in the exploration and production
sector which had annual revenues ranging from $30 million
to $175 million.
Elements
of Executive Compensation Program
Our 2007 compensation program for Named Executive Officers
consisted of the following components:
Base Salary: Base salaries for all Named
Executive Officers are established based on their scope of
responsibilities, taking into account competitive market
compensation paid by other companies in our peer group. The
Committee considers the median salary range for each Named
Executive Officer’s counterpart, but makes adjustments to
reflect differences in job descriptions and scope of
responsibilities for each Named Executive Officer and to reflect
the Committee’s philosophy that each Named Executive
Officer’s total
compensation should be at the median level
(50th percentile) relative to our peer group. The Committee
annually reviews base salaries for Named Executive Officers and
makes adjustments from time to time to realign their salaries,
after taking into account individual performance,
responsibilities, experience, autonomy, strategic perspectives
and marketability, as well as the recommendations of the Chief
Executive Officer.
As part of the Committee’s review of our compensation
policies during the first quarter of 2007, the Committee
determined, in consultation with T-P, that the base salaries for
our Named Executive Officers were below the median levels for
our peer group. As a result, the base salaries of the Named
Executive Officers were significantly increased.
Management Annual Incentive Plans: In 2006,
the Committee established the Incentive Plan, which we refer to
here in this section as the “QRC Bonus Plan”. In
December 2006, we formed Quest Midstream Partners, L.P.
(“Quest Midstream”) to own and operate our natural gas
gathering pipeline network. In connection with the formation of
Quest Midstream, the decision was made to have the executive
officers and employees that primarily work on our midstream
operations be employed by Quest Midstream GP, LLC, our
subsidiary that is the general partner of Quest Midstream. In
addition, beginning in 2007, the executive officers and
employees of Quest Midstream GP no longer participated in the
QRC Bonus Plan. Instead, the Committee established the Quest
Midstream Partners, L.P. Annual Incentive Plan, which we refer
to as the “QMP Bonus Plan”. We refer to the QMP Bonus
Plan and the QRC Bonus Plan together as the “Bonus
Plans”. The QRC Bonus Plan is intended to recognize value
creation by providing competitive incentives for meeting and
exceeding annual financial and operating performance measurement
targets related to our exploration and production operations and
the QMP Bonus Plan is intended to recognize value creation by
providing competitive incentives for meeting and exceeding
annual financial and operating performance measurement targets
related to our midstream operations. See
“Proposal No. 3 — Approval of
Amendments to the Company’s Management Annual Incentive
Plan” above for a further description of the QRC Bonus Plan.
Management level executive officers and employees that primarily
work in our midstream operations participate in the QMP Bonus
Plan and all of our other management level executive officers
and employees participate in the QRC Bonus Plan. For 2007,
Mr. Hoover was the only Named Executive Officer that
participated in the QMP Bonus Plan.
By providing market-competitive bonus awards, the Committee
believes the Bonus Plans support the attraction and retention of
Named Executive Officer talent critical to achieving our
strategic business objectives. The Bonus Plans put a significant
portion of total compensation at risk by linking potential
annual compensation to our achievement of specific performance
goals during the year, which creates a direct connection between
the executive’s pay and our financial performance.
The awards under the QRC Bonus Plan were paid in a combination
of stock and cash for 2006. For 2007, awards under the Bonus
Plans were payable solely in cash. The Committee anticipates
that future annual bonus awards will also be paid only in the
form of cash awards. The Committee made this change because of
the roll out of the long-term equity incentive plan described
below.
Each year the Committee will establish goals during the first
quarter of the calendar year. However, since 2007 was the first
year for the QMP Bonus Plan, the performance goals were not
finalized until the fourth quarter of 2007. The 2007 performance
goals for each Bonus Plan are described below. The amount of the
bonus payable to each participant varies based on the percentage
of the performance goals achieved and the employee’s
position with the respective company. More senior ranking
management personnel are entitled to bonuses that are
potentially a higher percentage of their base salaries,
reflecting the Committee’s philosophy that higher ranking
employees should have a greater percentage of their overall
compensation at risk.
Each executive officer and key employee that participates in the
Bonus Plans has a target bonus percentage expressed as a
percentage of base salary based on his or her level of
responsibility. The performance criteria for 2007 includes
minimum performance thresholds required to earn any incentive
compensation, as well as maximum payouts geared toward rewarding
extraordinary performance, thus, actual awards can range from 0%
(if performance is below 60% of target) to 100% of base salary
for our most senior executives (if performance is 150% of
target). For 2007, the potential bonus amounts for each of
Messrs. Cash, Grose, Lawler and Hoover were
as follows: If we achieved an average of our financial goals of
60%, their incentive awards would be 22% of base salary. If we
achieved an average of our financial goals of 100%, their
incentive awards would be 42% of base salary. If we achieved an
average of our financial goals of 150%, their incentive awards
would be 99% of base salary. For 2007, the potential bonus
amounts for each of the other Named Executive Officers were as
follows: If we achieved an average of our financial goals of
60%, their incentive awards would be 7% of base salary. If we
achieved an average of our financial goals of 100%, their
incentive awards would be 27% of base salary. If we
achieved an average of our financial goals of 150%, their
incentive awards would be 73.5% of base salary.
After the end of the Plan Year, the Committee determines to what
extent we and the participants have achieved the performance
measurement goals. The Committee calculates and certifies in
writing the amount of each participant’s bonus based upon
the actual achievements and computation formulae set forth in
the applicable Bonus Plan. The Committee has no discretion to
increase the amount of any Named Executive Officer’s bonus
as so determined, but may reduce the amount of or totally
eliminate such bonus, if it determines, in its absolute and sole
discretion that such reduction or elimination is appropriate in
order to reflect the Named Executive Officer’s performance
or unanticipated factors. The performance period
(“Incentive Period”) with respect to which target
awards and bonuses may be payable under the Bonus Plans will
generally be the fiscal year beginning on January 1 and ending
on December 31, but the Committee has the authority to
designate different Incentive Periods.
QRC Bonus Plan 2007 Performance
Goals. The Committee increased the 2007
performance targets for the QRC Bonus Plan from the 2006 levels.
The Committee eliminated “pipeline operating expense”
as a performance measure in 2007, because the midstream pipeline
operations were dropped into Quest Midstream in December 2006.
The Committee established the 2007 performance targets and
percentages of goals achieved for each of the five corporate
financial goals described below:
Each of the five corporate financial goals were equally
weighted. The amount of the incentive bonus varies depending
upon the average percentage of the financial goals achieved. For
amounts between 50% and 100% and between 100% and 150%, linear
interpolation is used to determine the “Percentage of Goal
Achieved”. For amounts below 50%, the “Percentage of
Goal Achieved” is determined using the same scale as
between 50% and 100%. For amounts in excess of 150%, the
“Percentage of Goal Achieved” is determined using the
same scale as between 100% and 150%. For 2007, no incentive
awards were payable under the QRC Bonus Plan if the average
percentage of the financial goals achieved was less than 60%.
Additionally, no additional incentive awards were payable if the
average percentage of the financial goals achieved exceeds 150%.
For 2007, the average percentage of the financial goals achieved
under the QRC Bonus Plan was 100%.
Mr. Lawler commenced employment as our chief operating
officer in April 2007, and Mr. Lawler received a pro rata
portion equal to approximately 73% of the bonus for 2007.
QMP Bonus Plan 2007 Performance
Goals. During the fourth quarter of 2007, the
Committee established the 2007 performance targets and
percentages of goals achieved for each of the five partnership
financial goals described below:
The goals of EBITDA and return on invested capital were each
weighted at 30%, the goal of distributable cash flow/unit was
weighted at 20%, and the goals of pipeline operating expense and
distributable cash flow/common unit were each weighted at 10%.
For 2007, no incentive awards were payable under the QMP Bonus
Plan if the average percentage of the financial goals achieved
was less than 60%. Additionally, no additional incentive awards
were payable if the average percentage of the financial goals
achieved exceeded 105%. For 2007, the average percentage of the
financial goals achieved for the QMP Bonus Plan was
approximately 70%.
Richard A. Hoover served as President of Quest Midstream
GP until September 2007. Richard E. Muncrief replaced
Mr. Hoover in that position in September 2007.
Mr. Hoover received 75% of the incentive bonus amount
payable for 2007, and Mr. Muncrief received a pro rata
portion equal to approximately 28% of the incentive bonus
payable for 2007.
Productivity Gain Sharing Payments: A one-time
cash payment equal to 10% of an individual’s monthly base
salary is earned during each month that our CBM production rate
increases by 1,000 Mcf/day over the prior record. All of
our employees are eligible to receive productivity gain sharing
payments. The purpose of these payments is to incentivize all
employees, including Named Executive Officers, to continually
and immediately focus on production. The Named Executive
Officers received payments equal to approximately 1.6 additional
months of base salary as a result of this plan, as follows:
Jerry Cash — $69,167; David Grose — $46,458;
David Lawler — $26,583; David Bolton —
$31,875; Richard Marlin — $35,113; and Richard
Hoover — $37,104. Our management believes this
incentive plan is unique to us and is not used by the peer group
companies. As a result, the Committee believes these
productivity payments help us attract and retain talented and
highly motivated Named Executive Officers.
Discretionary Bonus Plan: At the discretion of
the Committee, cash bonuses or deferred compensation plan
contributions may be paid to an executive officer. The purposes
of such bonuses are to recognize a unique circumstance or
performance beyond a contemplated level. The Committee evaluates
such awards within the context of our overall performance. The
determination of the type and amount of each discretionary bonus
is based upon the recommendation of the Chief Executive Officer,
as well as the individual performance and contribution of the
executive officer to our performance.
The Committee believes that the long-term performance of our
executive officers is achieved through ownership of stock-based
awards, such as stock options, which expose executive officers
to the risks of downside stock prices and provide an incentive
for executive officers to build shareholder value.
Omnibus Stock Award Plan. Our Omnibus Plan
provides for grants of non-qualified stock options, restricted
shares, bonus shares, deferred shares, stock appreciation
rights, performance units and performance shares. The Omnibus
Plan also permits the grant of ISOs. The objectives of the
Omnibus Plan are to strengthen key employees’ and
non-employee directors’ commitment to our success, to
stimulate key employees’ and non-employee directors’
efforts on our behalf and to help us attract new employees with
the education, skills and experience we need and retain existing
key employees. All of our equity awards consisting of our Common
Stock are issued under the
Omnibus Plan. As explained in
“Proposal No. 2 — Approval of
Amendments to the Company’s 2005 Omnibus Stock Award
Plan” above, on May 19, 2008, our Board of Directors
approved an amendment to the Omnibus Plan to increase the total
number of shares that may be issued under the Omnibus Plan from
2,200,000 to 2,700,000, subject to stockholder approval. A
summary description of the Omnibus Plan is presented in that
section.
Long-Term Incentive Plan. For 2007, the
Committee added a new long-term incentive plan for our executive
officers under the Omnibus Plan. The new plan is intended to
encourage participants to focus on our long-term performance and
provide an opportunity for our executive officers to increase
their stake in us through grants of restricted stock pursuant to
the terms of the Omnibus Plan. The Committee designed the
long-term incentive plan to:
The Committee determined the level of awards based on market
data provided by T-P and the recommendations of the Chief
Executive Officer (which in some cases were based on
negotiations with executive officers). Award levels vary among
participants based on their position within the Company. The
awards are subject to the terms of an Award Agreement which
outlines a vesting schedule (at the conclusion of each year of
service, one-third of the award amount vests with the entire
award vested at the end of three years) which is expected to
help retain executive officers as any unvested awards are
forfeited if that individual terminates his employment without
good reason. There are no additional performance criteria that
must be met in order for the award to be earned. The vesting
schedule for the awards accelerates if an executive officer is
terminated without cause by us or for good reason by the
executive officer.
Quest Midstream Equity Awards. During 2007,
the Committee also made selected grants of bonus common units to
certain of our executive officers and key employees that perform
services primarily for Quest Midstream. The grants were intended
to encourage participants to focus on Quest Midstream’s
long-term performance and provide an opportunity for the
participating employees to have an ownership stake in Quest
Midstream through grants of bonus common units. The Committee
granted the awards to:
The Committee determined the level of awards based on market
data provided by T-P and the recommendations of the Chief
Executive Officer (which in some cases were based on
negotiations with executive officers). Award levels vary among
participants based on their position within Quest Midstream. The
awards are subject to the terms of an Award Agreement which
outlines a vesting schedule which is expected to help retain
executive officers as any unvested awards are forfeited if that
individual terminates his employment without good reason. There
are no additional performance criteria that must be met in order
for the award to be earned. The vesting schedule for the awards
accelerates if an executive officer is terminated without cause
by us or for good reason by the executive officer. Executive
officers are entitled to distribution equivalents on the bonus
common units prior to vesting. During 2007, Mr. Hoover was
the only Named Executive Officer to receive a grant of Quest
Midstream bonus common units.
Quest Energy Partners Long-Term Incentive
Plan. In July 2007, we formed Quest Energy
Partners, L.P. (“Quest Energy”) to own and operate our
Cherokee Basin assets and to acquire, exploit and develop oil
and natural gas properties in the Cherokee Basin. On
November 14, 2007, Quest Energy’s general partner,
Quest Energy GP, LLC, adopted the Quest Energy Partners, L.P.
Long-Term Incentive Plan for employees, consultants and
directors of Quest Energy GP and any of its affiliates who
perform services for Quest Energy. The long-term incentive plan
consists of the following securities of Quest Energy: options,
restricted units, phantom units, unit appreciation rights,
distribution equivalent rights, other unit-based awards and unit
awards. The purpose of awards under the long-term incentive plan
is to provide additional incentive compensation to employees
providing services to Quest Energy, and to align the economic
interests of such employees with the interests of Quest
Energy’s unitholders. The total number of common units
available to be awarded under the long-term incentive plan is
2,115,950. Common
units cancelled, forfeited or withheld to satisfy exercise
prices or tax withholding obligations will be available for
delivery pursuant to other awards. The plan is administered by
the Committee, provided that administration may be delegated to
such other committee as appointed by Quest Energy GP’s
board of directors. To date, no awards have been made under this
plan other than to the independent directors of Quest Energy GP.
Our employees, including the Named Executive Officers, who meet
minimum service requirements are entitled to receive medical,
dental, life and long-term disability insurance benefits for
themselves (and beginning the first of the following month after
90 days of employment, 50% coverage for their dependents).
Our Named Executive Officers also participate along with other
employees in our 401(k) plan and other standard benefits. Our
401(k) plan provides for matching contributions by us and
permits discretionary contributions by us of up to 10% of a
participant’s eligible compensation. Such benefits are
provided equally to all employees, other than where benefits are
provided pro rata based on the respective Named Executive
Officer’s salary (such as the level of disability insurance
coverage).
We believe our executive compensation program described above is
generally sufficient for attracting talented executives and that
providing large perquisites is neither necessary nor in the
stockholders’ best interests. However, certain types of
perquisites intended to provide job satisfaction, enhance
productivity and provide a competitive compensation package are
granted to certain officers. For example, we provide an
automobile for Mr. Cash and Mr. Marlin and provided an
automobile for Mr. Hoover to use when visiting our
headquarters in Oklahoma City. On occasion family members and
acquaintances have accompanied Mr. Cash on business trips
made on private charter flights. The Named Executive Officers
also are eligible to receive gym club memberships.
Mr. Lawler received reimbursement of certain relocation
expenses in connection with his move to Oklahoma City.
Our Board of Directors, upon the Committee’s
recommendation, has adopted a Stock Ownership Policy for our
corporate officers and directors (“Guideline Owners”)
to ensure that they have a meaningful economic stake in us. The
guidelines are designed to satisfy an individual Guideline
Owner’s need for portfolio diversification, while
maintaining management stock ownership at levels high enough to
assure our stockholders of management’s commitment to value
creation.
The Committee will annually review each Guideline Owner’s
compensation and stock ownership levels to confirm if
appropriate or make adjustments. The Committee requires that the
Guideline Owners have direct ownership of our Common Stock in at
least the follow amounts:
A corporate officer has five years to comply with the ownership
requirement from the later of: (a) February 1, 2007 or
(b) the date the individual was appointed to a position
noted above. A director has five years to comply with the
ownership requirement from the later of:
(a) January 1, 2008 or (b) the date the
individual was appointed to be a director. If a corporate
officer is promoted to a position with a higher stock ownership
salary multiple, the corporate officer will have five years from
the date of the change in position to reach the higher expected
stock ownership salary multiple, but still must meet the prior
expected stock ownership salary multiple within the original
five years of the date first appointed to such prior position or
February 1, 2007, whichever is later.
Until a Guideline Owner achieves the applicable stock ownership
salary multiple, the following applies:
Notwithstanding the foregoing, corporate officers are not
required to hold bonus shares that were originally granted prior
to January 1, 2007 or any bonus shares awarded pursuant to
the 2006 management annual incentive plan. In addition,
Mr. Grose is not required to hold the 70,000 unrestricted
shares awarded to him in connection with the execution of his
employment agreement on April 9, 2007.
Required Ownership Shares. Upon reaching the
required stock ownership salary multiple, the Guideline Owner
must certify to the Corporate Secretary that the ownership
requirements have been met and the Corporate Secretary must
confirm such representation and record the number of shares
required to be held by the Guideline Owner based on the closing
price of the shares and the corporate officer’s current
salary level or the director’s current compensation level
on the day prior to certification by the Guideline Owner (the
“Required Ownership Shares”).
The Guideline Owner will not be required to accumulate any
shares in excess of the Required Ownership Shares so long as the
Required Ownership Shares are held by the Guideline Owner,
regardless of changes in the price of the shares. However, the
Guideline Owner may only sell shares held prior to certification
if, after the sale of shares, the Guideline Owner will
(a) still own a number of shares equal to at least the
Required Ownership Shares or (b) still be in compliance
with the stock ownership salary multiple as of the day the
shares are sold based on current share price and salary level.
Annual Review. The Committee will review all
Required Ownership Shares levels of the Guideline Owners covered
by the Policy on an annual basis. Deviations from the Stock
Ownership Policy can only be approved the Committee and then
only because of a “personal hardship”.
The Board of Directors, upon the Committee’s
recommendation, adopted a policy that prohibits Named Executive
Officers from speculating in our stock, which includes, but is
not limited to, the following: short selling (profiting if the
market price of the stock decreases); buying or selling publicly
traded options, including writing covered calls; taking out
margin loans against stock options; and hedging or any other
type of derivative arrangement that has a similar economic
effect without the full risk or benefit of ownership.
The Board maintains a policy that it will evaluate in
appropriate circumstances whether to seek the reimbursement of
certain compensation awards paid to a Named Executive Officer if
such person(s) engage in misconduct that caused or partially
caused a restatement of financial results, in accordance with
section 304 of the Sarbanes-Oxley Act of 2002. If
circumstances warrant, we will seek to claw back appropriate
portions of the Named Executive Officers’ compensation for
the relevant period, as provided by law.
U.S. federal tax laws (Section 162(m) of the Code)
impose a limitation on our U.S. income tax deductibility of
Named Executive Officer compensation, unless it is
“performance-based” under the tax rules. The Committee
is concerned about the tax aspects of restricted stock and bonus
share grants because they are not currently performance-based
awards. The Committee will evaluate and consider possible
performance elements for future
awards. The Committee, however, does not believe the failure of
Named Executive Officers equity awards to qualify as performance
based awards to have a material impact on the Company at this
time.
The table below sets forth information concerning the annual and
long-term compensation paid to or earned by the Chief Executive
Officer, the Chief Financial Officer, the three other most
highly compensated executive officers who were serving as
executive officers as of December 31, 2007 and Richard
Hoover, who was one or our most highly compensated executive
officers for 2007, but was not serving as an executive officer
as of December 31, 2007 (the “Named Executive
Officers”).
Summary
Compensation Table
No stock options were granted to any of our Named Executive
Officers during the year ended December 31, 2007.
This table discloses the actual number of restricted stock
awards granted during the last fiscal year and the grant date
fair value of these awards and the estimated payouts under
non-equity incentive plan awards.
The following table shows unvested stock awards outstanding for
the Named Executive Officers as of December 31, 2007.
Market value is based on the closing market price of our Common
Stock on December 31, 2007 ($7.17 a share).
The following table sets forth certain information regarding
stock awards vested during 2007 for the Named Executive Officers.
For purposes of the above table, the amount realized upon
vesting is determined by multiplying the number of shares of
stock or units by the market value of the shares or units on the
date the shares were issued to the Named Executive Officer.
The following table discloses the cash, equity awards and other
compensation earned, paid or awarded, as the case may be, to
each of our directors during the fiscal year ended 2007.
In addition to the option awards described above, all of our
non-employee directors received the following cash compensation
for the fiscal year ended 2007:
Beginning January 1, 2008, each of our non-employee
directors will receive an annual director fee of $50,000, but
will not receive any separate fees for attending meetings of the
Board of Directors. The chairman of the Audit Committee will
receive an additional $7,500 and the chairmen of the
Compensation and Nominating Committees will each receive an
additional $5,000. Additionally, our non-employee directors will
be awarded a grant of 10,000 shares of our common stock
immediately following each annual meeting of our stockholders;
provided, however, that if a director has been awarded a prior
grant of restricted shares that vests over time, the number of
restricted shares vesting in that calendar year will be
subtracted from the 10,000 shares granted after the annual
meeting of our stockholders.
In March 2008, the Board of Directors approved the exchange of
each unvested stock option for one-half of a share of restricted
common stock of the Company, with the same vesting schedule as
their unvested options. The directors made the decision to
exchange the stock options for shares of restricted stock in
order to more closely align the interests of the directors with
those of the stockholders. The directors also believed that the
recent trend in director compensation was to grant awards of
restricted stock rather than stock options. The exchange ratio
was determined based on market data provided by T-P. As a result
of the exchange, Messrs. Kite, Rateau and Garrison each
received 10,000 shares of our restricted common stock and
Messrs. Damon and Mitchell each received 20,000 shares
of our restricted common stock. 5,000 of these shares vest each
year over the next two years for Messrs. Kite, Rateau and
Garrison and over the next four years for Messrs. Damon and
Mitchell.
Each of the Named Executive Officers has an employment
agreement. Except as described below, the employment agreements
for each of the Named Executive Officers are substantially
similar and were entered into with us (or in the case of
Mr. Hoover, our subsidiary Quest Midstream GP,
LLC) during 2007. The employment agreements for
Messrs. Cash and Grose replaced their existing employment
agreements. In connection with the termination of
Mr. Hoover’s employment in September 2007,
Mr. Hoover’s employment agreement was terminated and
we entered into a settlement agreement with him, which is
described below. Accordingly, the following description of the
employment agreements of the Named Executive Officers omits
Mr. Hoover’s former employment agreement.
Each of these agreements has an initial term of three years (the
“Initial Term”). Upon expiration of the Initial Term,
each agreement will automatically continue for successive
one-year terms, unless earlier terminated in accordance with the
terms of the agreement. The positions, base salary and number of
restricted shares of our common stock granted under each of the
employment agreements is as follows:
One-third of the restricted shares vest on each of the first
three anniversary dates of each employment agreement. In
addition, Mr. Grose and Mr. Lawler received 70,000 and
15,000 unrestricted shares, respectively, of our common stock in
connection with the execution of their employment agreements.
Each executive is eligible to participate in all of our
incentive bonus plans that are established for our executive
officers. If we terminate an executive’s employment without
“cause” (as defined below) or if an executive
terminates his employment agreement for “Good Reason”
(as defined below), in each case after notice and cure
periods —
Under each of the employment agreements, Good Reason means:
For purposes of the employment agreements, “cause”
includes the following:
The following summarizes potential maximum payments that an
executive could receive upon a termination of employment without
cause or for Good Reason, actual amounts are likely to be less.
In general, base salary payments will be paid to the executive
in equal installments on our regular payroll dates, with the
installments commencing six months after the executive’s
termination of employment (at which time the executive will
receive a lump sum amount equal to the monthly payments that
would have been paid during such six month period). However, the
payments may be commenced immediately if an exemption under
Internal Revenue Code § 409A is available. If the
executive’s employment is terminated without cause within
two years after a change in control (as defined below), then the
base salary payments will be paid in a lump sum six months after
termination of employment.
Under the employment agreements, a “change in control”
is generally defined as:
The pro rata portion of any annual bonus or other compensation
to which the executive would have been entitled for the year
during which the termination occurred will be paid at the time
bonuses are paid to all
employees, or if later, six months after the executive’s
termination of employment (unless an exception to Internal
Revenue Code § 409A applies).
If the executive is unable to render services as a result of
physical or mental disability, we may terminate his employment,
and he will receive a lump-sum payment equal to one year’s
base salary and all compensation and benefits that were accrued
and vested as of the date of termination. If necessary to comply
with Internal Revenue Code § 409A, the payment may be
deferred for six months.
Each of the employment agreements also provides for one-year
restrictive covenants of non-solicitation in the event the
executive terminates his own employment or is terminated by us
for cause. Our obligation to make severance payments is
conditioned upon the executive not competing with us during the
term that severance payments are being made.
On September 19, 2007, Quest Midstream GP terminated the
employment agreement with Richard Hoover, the president of Quest
Midstream GP, and accordingly, terminated Mr. Hoover’s
employment with Quest Midstream GP. On November 8, 2007, we
and Quest Midstream GP entered into a Settlement and Release
Agreement with Mr. Hoover to resolve any disputes between
us and Mr. Hoover related to:
(i) Mr. Hoover’s employment agreement,
(ii) Mr. Hoover’s employment with Quest Midstream
GP or (iii) the termination of Mr. Hoover’s
employment with Quest Midstream GP. According to the terms of
the Settlement and Release Agreement, Mr. Hoover is
entitled to a pro rata portion in the amount of 75% of any
incentive bonus payable for 2007. One half of his base salary
under the employment agreement will be paid out in equal
installments over the remaining term of his employment agreement
in accordance with the provisions of the agreement. Quest
Midstream GP also agreed to reimburse Mr. Hoover his health
insurance premium payments for the longer of one year or until
he becomes eligible for health insurance with a different
employer.
In addition, Mr. Hoover became vested in 5,000 shares
of our common stock and 37,500 Quest Midstream common units. The
Quest Midstream common units are to be delivered to
Mr. Hoover in two tranches of 18,750 units. The first
tranche of Quest Midstream common units is to be delivered upon
the later of a liquidity event or April 1, 2008, and the
second tranche is to be delivered upon the later of a liquidity
event or April 1, 2009. For these purposes, a
“liquidity event” means an initial public offering of
the Quest Midstream common units or a sale in a single
transaction of all or substantially all of the assets of Quest
Midstream or the partnership interests in Quest Midstream.
Quest Midstream also agreed to pay distribution equivalents to
Mr. Hoover on 75,000 Quest Midstream common units for the
third quarter of 2007 and on the 37,500 Quest Midstream common
units, mentioned above, for the fourth quarter of 2007 and for
each quarter thereafter until those common units are issued and
delivered to Mr. Hoover. Mr. Hoover will be subject to
a one-year non-compete restriction limited to the Cherokee Basin
region.
The Compensation Committee has reviewed and discussed the
Compensation Discussion and Analysis set forth above with
management, and based on such review and discussions, the
Compensation Committee has recommended to the Board of Directors
of the Company that such Compensation Discussion and Analysis be
included in the Company’s Annual Report on
Form 10-K
and this Proxy Statement.
Jon H. Rateau, Chairman
William H. Damon III James B. Kite, Jr.
The Audit Committee of the Board is responsible for providing
independent objective oversight of our accounting functions and
internal controls. The Audit Committee is composed of three
independent directors and acts under a written charter adopted
and approved by the Board of Directors on December 29,
2005, as amended on March 5, 2008. The members of the Audit
Committee are independent as defined by The NASDAQ Global Market
listing standards and as required by the Sarbanes-Oxley Act of
2002 (“Act”). After a full review and analysis, the
Board of Directors determined that the members of the Audit
Committee are independent within the meaning of
Rules 4200(a)(15) and 4350(d) of The NASAQ Global Market
listing standards and the rules and regulations of the SEC, as
such requirements are defined as of the mailing date of this
Proxy Statement. The Board of Directors has also determined that
Mr. Garrison is an “audit committee financial
expert” (as defined by SEC rules and regulations). For an
overview of Mr. Garrison’s qualifications, see the
section entitled “Proposal No. 1 —
Election of Directors” above.
As set forth in the Audit Committee Charter, the Audit Committee
is appointed by the Board of Directors to perform, among others,
the following duties and responsibilities:
The Audit Committee reviewed and discussed our audited financial
statements with management. The Audit Committee also discussed
with the independent accountants the matters required to be
discussed by Statement on Auditing Standards No. 61
(Communications with Audit Committees). Our independent
registered public accounting firm also provided to the Audit
Committee the written disclosures and the letter required by
Independence Standards Board Standard No. 1 (Independence
Discussions with Audit Committees), and the Audit Committee
discussed with the independent registered public accounting firm
that firm’s independence.
The members of the Audit Committee rely without independent
verification on the information provided to them and on the
representations made by management and the independent
registered public accounting firm. Accordingly, the Audit
Committee’s oversight does not provide an independent basis
to determine that management has maintained appropriate
accounting and financial reporting principles or appropriate
internal controls and procedures designed to assure compliance
with accounting standards and applicable laws and regulations.
Furthermore, the Audit Committee’s considerations and
discussions referred to above do not assure that the audit of
our financial statements have been carried out in accordance
with the Standards of the Public Company Accounting Oversight
Board (United States), that the financial statements are
presented in accordance with generally accepted accounting
principles, or that our independent registered public accounting
firm is in fact “independent”.
Based on the reports and discussions described in this report,
and subject to the limitations on the role and responsibilities
of the Audit Committee referred to above and in the Charter, the
Audit Committee recommended to the Board of Directors that the
audited financial statements be included in our Annual Report on
Form 10-K
for the year ended December 31, 2007 filed with the SEC.
John C. Garrison
Jon H. Rateau Bob G. Alexander1 N. Malone Mitchell, 3rd1
1 The
foregoing Audit Committee Report was approved prior to
Mr. Alexander’s appointment to the Audit Committee on
May 12, 2008. At the time of approval, the Audit Committee
consisted of Messrs. Garrison, Rateau and Mitchell.
Mr. Mitchell subsequently resigned as a Director effective
May 7, 2008.
The independent registered public accounting firm of Murrell,
Hall, McIntosh & Co., PLLP performed the audit for the
fiscal year ending December 31, 2007.
The Audit Committee has determined to continue the services of
Murrell, Hall, McIntosh & Co., PLLP for the current
fiscal year ending December 31, 2008. Such services will
include the audit of our financial statements for the fiscal
year ending on such date and other appropriate accounting
services.
A member of Murrell, Hall, McIntosh & Co., PLLP is
expected to attend the Annual Meeting and will have the
opportunity to make a statement if desired. It is also expected
that such member will be available to respond to appropriate
questions from the stockholders.
The following table lists fees paid to Murrell, Hall,
McIntosh & Co., PPLP, for services rendered for the
years ended December 31, 2006 and 2007.
1. Audit Fees include fees billed and expected to be billed
for services performed to comply with Generally Accepted
Auditing Standards (GAAS), including the recurring audit of the
Company’s consolidated financial statements for such period
included in the Annual Report on
Form 10-K
and for the reviews of the consolidated quarterly financial
statements included in the Quarterly Reports on
Form 10-Q
filed with the SEC. This category also includes fees for audits
provided in connection with statutory filings or procedures
related to audit of income tax provisions and related reserves,
consents and assistance with and review of documents filed with
the SEC.
2. Audit-Related Fees include fees for services associated
with assurance and reasonably related to the performance of the
audit or review of the Company’s financial statements. This
category includes fees related to assistance in financial due
diligence related to mergers and acquisitions, consultations
regarding Generally Accepted Accounting Principles, reviews and
evaluations of the impact of new regulatory pronouncements,
general assistance with implementation of Sarbanes-Oxley Act of
2002 requirements and audit services not required by statute or
regulation. This category also includes audits of pension and
other employee benefit plans, as well as the review of
information systems and general internal controls unrelated to
the audit of the financial statements.
3. Tax fees consist of fees related to the preparation and
review of the Company’s federal and state income tax
returns and tax consulting services.
The Audit Committee has concluded the provision of the non-audit
services listed above as “Audit-Related Fees” and
“Tax Fees” is compatible with maintaining the
auditors’ independence.
All services to be performed by the independent public
accountants must be pre-approved by the Audit Committee, which
has chosen not to adopt any pre-approval policies for enumerated
services and situations, but instead has retained the sole
authority for such approvals.
None of the persons who served on our Compensation Committee
during the last completed fiscal year (Jon H. Rateau,
John C. Garrison, James B. Kite, Jr., William H. Damon III)
(i) was an officer or employee of the Company during the
last fiscal year or (ii) had any relationship requiring
disclosure under Item 404 of
Regulation S-K.
Except for Mr. Garrison, who previously served as our
Treasurer from 1998 to 2001, none of the persons
who served on our Compensation Committee during the last
completed fiscal year was formerly an officer of the Company.
None of our executive officers, during the last completed fiscal
year, served as a (i) member of the compensation committee
of another entity, one of whose executive officers served on our
Compensation Committee; (ii) director of another entity,
one of whose executive officers served on our Compensation
Committee; or (iii) member of the compensation committee of
another entity, one of whose executive officers served as our
director.
TRANSACTIONS
WITH RELATED PERSONS
No director, executive officer or stockholder who is known to us
to own of record or beneficially more than five percent of our
common stock, or any member of the immediate family of such
director, executive officer or stockholder, has a direct or
indirect material interest in any transaction since the
beginning of fiscal year ended December 31, 2007, or any
currently proposed transaction, in which we or one of our
subsidiaries is a party and the amount involved exceeds $120,000.
We solicit information annually from our directors and executive
officers in connection with the preparation of disclosures in
our Proxy Statement. These questionnaires specifically seek
information pertaining to any related person transaction.
We do not have a formal, written policy for the review, approval
or ratification of transactions between us and any director or
executive officer, nominee for director, 5% stockholder or
member of the immediate family of any such person that are
required to be disclosed under Item 404(a) of
Regulation S-K.
However, our policy is that any activities, investments or
associations of a director or officer that create, or would
appear to create, a conflict between the personal interests of
such person and our interests must be assessed by our Chief
Financial Officer or the Audit Committee.
We have adopted a Code of Business Conduct and Ethics for
Directors, Officers and Employees (“Code of Business
Conduct”), which addresses conflicts of interests, that is
applicable to our principal executive officer, principal
financial officer and principal accounting officer. The Code of
Business Conduct describes the types of transactions that may be
subject to the review, approval or ratification of the Audit
Committee or the chief compliance officer. Any waiver of any
provision of our Code of Business Conduct for a member of our
Board of Directors, an executive officer, or a senior financial
or accounting officer must be approved by our Audit Committee,
and any such waiver will be promptly disclosed as required by
law or NASDAQ rule.
A copy of our Code of Business Conduct is available on our
internet website at www.qrcp.net under Corporate Governance. We
will also provide a copy of the Code of Business Conduct,
without charge, to any stockholder who requests it. Requests
should be addressed in writing to: Corporate Secretary at Quest
Resource Corporation, 210 Park Avenue, Suite 2750,
Oklahoma City, OK 73102. We intend to post any amendment or
waiver from the Code of Business Conduct that applies to
executive officers or directors on our website.
Section 16(a) of the Exchange Act requires our directors
and executive officers, and persons who own more than 10% of a
registered class of our equity securities, to file with the SEC
initial reports of ownership and reports of changes in ownership
of our equity securities. Directors, executive officers and
greater than 10% stockholders are required by SEC regulations to
furnish us with copies of all Section 16(a) forms they file.
To our knowledge, based solely on a review of Forms 3, 4, 5
and amendments thereto furnished to us and written
representations that no other reports were required, during and
for the fiscal year ended December 31, 2007, all
Section 16(a) filing requirements applicable to our
directors, executive officers and greater than 10% beneficial
owners were complied with in a timely manner, except for the
following:
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
Security
Ownership of Certain Beneficial Owners and Management
The following table sets forth information as of May 15,
2008 concerning the shares of our common stock beneficially
owned by (i) each person known by us, solely by reason of
our examination of Schedule 13D and 13G filings made with
the SEC and by information voluntarily provided to us by certain
stockholders, to be the beneficial owner of 5% or more of our
outstanding common stock, (ii) each of our directors and
director nominees, (iii) each of the executive officers
named in the summary compensation table, and (iv) all
current directors and executive officers as a group. Except for
Mr. Hoover, none of our directors or executive officers own
any common units of Quest Midstream or Quest Energy, which
ownership is disclosed in the footnotes to this table. If a
person or entity listed in the following table is the beneficial
owner of less than one percent of the securities outstanding,
this fact is indicated by an asterisk in the table.
The table below sets forth the information concerning
compensation plans under which equity securities are authorized
for issuance as of the fiscal year ended December 31, 2007.
The Board of Directors knows of no other business which may come
before the Annual Meeting. If, however, any other matters are
properly presented to the Annual Meeting, it is the intention of
the persons named in the accompanying proxy to vote, or
otherwise act, in accordance with their judgment on such matters.
The 2007 Annual Report on
Form 10-K
of the Company, which includes audited financial statements for
the fiscal year ended December 31, 2007, accompanies this
Proxy Statement; however, that report is not part of the proxy
soliciting information.
To the extent that this Proxy Statement is incorporated by
reference into any other filing by Quest Resource Corporation
under the Securities Act of 1933, as amended, or the Exchange
Act, the sections of this Proxy Statement entitled
“Compensation Committee Report,” and “Audit
Committee Report” (to the extent permitted by the rules of
the SEC) will not be deemed incorporated unless specifically
provided otherwise in such filing. Information contained on or
connected to our website is not incorporated by reference into
this Proxy Statement and should not be considered part of this
Proxy Statement or any other filing that we make with the SEC.
STOCKHOLDER
PROPOSALS FOR THE 2009 ANNUAL MEETING
Proposals of stockholders intended to be presented at the 2009
Annual Meeting must be received by our Corporate Secretary at
Quest Resource Corporation, 210 Park Avenue, Suite 2750,
Oklahoma City, OK 73102 by January 21, 2009 for inclusion
in our Proxy Statement and proxy relating to that meeting. Upon
receipt of any such proposal, we will determine whether or not
to include such proposal in the Proxy Statement and proxy in
accordance with SEC regulations governing the solicitation of
proxies.
A stockholder who wishes to recommend a prospective nominee for
the Board of Directors for the 2009 Annual Meeting of the
stockholders should provide notice as described under
“Meetings and Committees of the Board of
Directors — Nominating Committee.”
A stockholder proposal may be considered at our 2009 Annual
Meeting of stockholders only if it meets the requirements set
forth in Section 5 of Article II of our Third Amended
and Restated Bylaws. In particular, the stockholder must deliver
notice of such proposal to our principal executive offices not
less than 50 days nor more than 75 days prior to the
meeting; provided, however, that in the event that less than
65 days’ notice or prior public disclosure of the date
of the meeting is given or made to stockholders, notice by the
stockholder must be so received no later than the close of
business on the 15th day following the day on which such
notice of the date of the meeting was mailed or such public
disclosure was made, whichever first occurs.
The notice also must contain the following information:
(a) as to each matter the stockholder proposes to bring
before the meeting, a brief description of the business desired
to be brought before the meeting and the reasons for conducting
such business at the meeting, and (b) as to the stockholder
giving the notice (i) the name and record address of the
stockholder, (ii) the number of shares of Common Stock
which are beneficially owned by the stockholder and
(iii) any material interest of the stockholder in such
business.
By Order of the Board of Directors
DAVID E. GROSE
Corporate Secretary
IN THE ENCLOSED ENVELOPE.
APPENDIX A
Sections 4.1 and 6.3(b) of the Quest Resource Corporation
2005 Omnibus Stock Award Plan, as amended and restated, shall be
deleted in their entirety and replaced with the following in
lieu thereof:
4.1. Number of Shares
Available.
(a) Plan Limit. Subject to adjustment as provided in
Section 4.2, the number of Shares hereby reserved for
delivery under the Plan is 2,700,000 Shares. If any Shares
subject to an Award granted hereunder are forfeited or an Award
or any portion thereof otherwise terminates or is settled
without the issuance of Shares, or in the case of SARs and
Performance Units, without the payment of cash, the Shares
subject to such Award, to the extent of any such forfeiture,
termination or settlement, shall again be available for grant
under the Plan. The Board may from time to time determine the
appropriate methodology for calculating the number of Shares
issued pursuant to the Plan.
(b) Individual Limits. The Chief Executive Officer of the
Company may not be granted Options, SARs, Restricted Shares,
Bonus Shares or Deferred Shares, Performance Units or
Performance Shares in Shares, or in any combination thereof,
relating to an aggregate number of Shares under the Plan that
exceeds 1,500,000 shares in any
5-year
period. A Grantee other than the Chief Executive Officer of the
Company may not be granted Options, SARs, Restricted Shares,
Bonus Shares or Deferred Shares, Performance Units or
Performance Shares in Shares, or in any combination thereof,
relating to an aggregate number of Shares under the Plan that
exceeds 500,000 shares in any
5-year
period. If a previously granted Option, SAR, Performance Unit,
or Performance Share is forfeited, canceled or repriced, such
forfeited, canceled or repriced Option, SAR, Performance Unit,
or Performance Share as the case may be, shall continue to be
counted against the maximum number of Shares, SARs, Performance
Units or Performance Shares that may be delivered to any Grantee
over the life of the Plan.
6.3 Option Price.
(b) Subject to the limitations set forth below and those
contained in Sections 6 and 13, the Committee may make any
adjustment in the Option Price, the number of Shares subject to,
or the terms of, an outstanding Option and a subsequent granting
of an Option by amendment or by substitution of an outstanding
Option. Such amendment, substitution, or re-grant may result in
terms and conditions (including Option Price, number of Shares
covered, vesting schedule or exercise period) that differ from
the terms and conditions of the original Option; provided,
however, except in connection with a corporate transaction
involving the Company (including, without limitation, any stock
dividend, stock split, extraordinary cash dividend,
recapitalization, reorganization, merger, consolidation,
split-up,
spin-off, combination, or exchange of shares), the terms of
outstanding Awards may not be amended to reduce the exercise
price of outstanding Options or SARs or cancel outstanding
Options or SARS in exchange for cash, other Awards or Options or
SARs with an exercise price that is less than the exercise price
of the original Options or SARs without stockholder approval.
The Committee also may not adversely affect the rights of any
Eligible Person to previously granted Options without the
consent of such Eligible Person. If such action is affected by
the amendment, the effective date of such amendment shall be the
date of the original grant. Any adjustment, modification,
extension or renewal of an Option shall be effected such that
the Option is either exempt from, or is compliant with, Code
section 409A.
APPENDIX B
Quest
Resource Corporation
2005
Omnibus Stock Award Plan
(As
Amended and Restated)
B-ii
QUEST
RESOURCE CORPORATION
2005 Omnibus Stock Award Plan (As Amended and Restated)
1.1. Establishment of the
Plan. Quest Resource Corporation, a Nevada
corporation (the “Company”) and the Board of Directors
of the Company (the “Board”) established this Quest
Resource 2005 Omnibus Stock Award Plan (the “Plan”)
effective as of October 14, 2005 (the “Effective
Date”). The Plan is hereby amended and restated effective
as of January 1, 2008.
1.2. Objectives of the
Plan. The Plan is intended to allow employees
and Non-Employee Directors of the Company and its Subsidiaries
to acquire or increase equity ownership in the Company, or to be
compensated under the Plan based on growth in the Company’s
equity value, thereby strengthening their commitment to the
success of the Company and stimulating their efforts on behalf
of the Company, and to assist the Company and its Subsidiaries
in attracting new employees and retaining existing employees.
The Plan is also intended to optimize the profitability and
growth of the Company through incentives which are consistent
with the Company’s goals; to provide incentives for
excellence in individual performance; and to promote teamwork.
1.3. Duration of the
Plan. The Plan shall commence on the
Effective Date and shall remain in effect, subject to
Section 1.4 and the right of the Board to amend or
terminate the Plan at any time pursuant to Article 13
hereof, until all Shares subject to it shall have been purchased
or acquired according to the Plan’s provisions.
1.4. Shareholder Approval and Effect
Thereof. The Company will submit the Plan to
the shareholders of the Company for approval within twelve
months of the Effective Date. If the Company’s shareholders
do not approve the Plan (i) no Awards shall be granted
subsequent to such vote, and (ii) all Awards granted
hereunder other than the Initial Awards shall be forfeited by
each Grantee and become null and void; the Initial Awards,
however, shall survive according to the terms and conditions of
such Awards and the Plan.
Whenever used in the Plan, the following terms shall have the
meanings set forth below:
2.1. “Article” means an
Article of the Plan.
2.2. “Award” means Options,
Restricted Shares, Bonus Shares, Deferred Shares, SARs,
Performance Units or Performance Shares granted under the Plan.
2.3. “Award Agreement” means
a written agreement by which an Award is evidenced.
2.4. “Beneficial Owner” has
the meaning specified in
Rule 13d-3
of the SEC under the Exchange Act.
2.5. “Board” has the meaning
set forth in Section 1.1.
2.6. “Bonus Shares” means
Shares that are awarded to a Grantee without cost and without
restrictions in recognition of past performance (whether
determined by reference to another employee benefit plan of the
Company or otherwise) or as an incentive to become an employee
of the Company or a Subsidiary.
2.7. “Cause” means, unless
otherwise defined in an Award Agreement,
(a) a Grantee’s conviction of, plea of guilty to, or
plea of nolo contendere to a felony or other crime that involves
fraud or dishonesty,
(b) any willful action or omission by a Grantee which would
constitute grounds for immediate dismissal under the employment
policies of the Company or the Subsidiary by which Grantee is
employed, including but not limited to intoxication with alcohol
or illegal drugs while on the premises of the Company or any
Subsidiary, or violation of sexual harassment laws or the
internal sexual harassment policy of the Company or the
Subsidiary by which Grantee is employed,
(c) a Grantee’s habitual neglect of duties, including
but not limited to repeated absences from work without
reasonable excuse, or
(d) a Grantee’s willful and intentional material
misconduct in the performance of his duties that results in
financial detriment to the Company or any Subsidiary;
provided, however, that for purposes of clauses (b),
(c) and (d), Cause shall not include any one or more of the
following: bad judgment, negligence or any act or omission
believed by the Grantee in good faith to have been in or not
opposed to the interest of the Company (without intent of the
Grantee to gain, directly or indirectly, a profit to which the
Grantee was not legally entitled). A Grantee who agrees to
resign from his affiliation with the Company or a Subsidiary in
lieu of being terminated for Cause may be deemed to have been
terminated for Cause for purposes of this Plan.
2.8. “Change of Control”
means, unless otherwise defined in an Award Agreement, any one
or more of the following:
(a) any Person other than (i) a Subsidiary,
(ii) any employee benefit plan (or any related trust) of
the Company or any of its Subsidiaries or (iii) any
Excluded Person, becomes the Beneficial Owner of 35% or more of
the common shares of the Company or of Voting Securities
representing 35% or more of the combined voting power of the
Company (such a person or group, a “35%
Owner”), except that (i) no Change of Control
shall be deemed to have occurred solely by reason of such
beneficial ownership by a corporation with respect to which both
more than 60% of the common shares of such corporation and
Voting Securities representing more than 60% of the aggregate
voting power of such corporation are then owned, directly or
indirectly, by the persons who were the direct or indirect
owners of the common shares and Voting Securities of the Company
immediately before such acquisition in substantially the same
proportions as their ownership, immediately before such
acquisition, of the common shares and Voting Securities of the
Company, as the case may be and (ii) such corporation shall
not be deemed a 35% Owner; or
(b) the Incumbent Directors (determined using the Effective
Date as the baseline date) cease for any reason to constitute at
least a majority of the directors of the Company then
serving; or
(c) the consummation by the Company (whether directly
involving the Company or indirectly involving the Company
through one or more intermediaries) of a merger, reorganization,
consolidation, or similar transaction, or the sale or other
disposition of all or substantially all (at least 40%) of the
consolidated assets of the Company or a plan of liquidation of
the Company (any of the foregoing transactions, a
“Reorganization Transaction”) which is not an
Exempt Reorganization Transaction.
The definition of “Change of Control” may be amended
at any time prior to the occurrence of a Change of Control, and
such amended definition shall be applied to all Awards granted
under the Plan whether or not outstanding at the time such
definition is amended, without requiring the consent of any
Grantee. Notwithstanding the occurrence of any of the foregoing
events, (a) a Change of Control shall be deemed not to have
occurred with respect to any Section 16 Person if such
Section 16 Person is, by agreement (written or
otherwise), a participant on such
Section 16 Person’s own behalf in a transaction
which causes the Change of Control to occur and (b) a
Change of Control shall not occur with respect to a Grantee if,
in advance of such event, the Grantee agrees in writing that
such event shall not constitute a Change of Control.
2.9. “Change of Control
Period” has the meaning set forth in
Section 5.6(c).
2.10. “Change of Control
Value” means the Fair Market Value of a Share on
the date of a Change of Control.
2.11. “Code” means the
Internal Revenue Code of 1986, as amended from time to time, and
regulations and rulings thereunder. References to a particular
section of the Code include references to successor provisions
of the Code or any successor statute.
2.12. “Company” has the
meaning set forth in Section 1.1.
2.13. “Deferred Shares” means
Shares that are awarded to a Grantee on a deferred basis
pursuant to Section 10.2
2.14. “Disabled” or
“Disability” means an individual
(i) is unable to engage in any substantial gainful activity
by reason of any medically determinable physical or mental
impairment which can be expected to result in death or can be
expected to last for a continuous period of not less than twelve
(12) months or (ii) is, by reason of any medically
determinable physical or mental impairment which can be expected
to result in death or can be expected to last for a continuous
period of not less than twelve (12) months, receiving
income replacement benefits for a period of not less than
3 months under a Company-sponsored accident and health
plan. Notwithstanding the foregoing, with respect to an
Incentive Stock Option, “Disability” means a permanent
and total disability, within the meaning of Code
Section 22(e)(3), as determined by the Board in good faith,
upon receipt of medical advice from one or more individuals,
selected by the Board, who are qualified to give professional
medical advice.
2.15. “Effective Date” has
the meaning set forth in Section 1.1.
2.16. “Eligible Person” means any
employee (including any officer) of the Company or any
Subsidiary, including any such employee who is on an approved
leave of absence or has been subject to a disability which does
not qualify as a Disability and any Non-Employee Director.
2.17. “Exchange Act” means
the Securities Exchange Act of 1934, as amended. References to a
particular section of the Exchange Act include references to
successor provisions.
2.18. “Excluded Person” means
any Person who, along with such Person’s Affiliates and
Associates (as such terms are defined in
Rule 12b-2
of the General Rules and Regulations under the Exchange Act) is
the Beneficial Owner of 15% or more of the Shares outstanding as
of the Effective Date.
2.19. “Exempt Reorganization
Transaction” means a Reorganization Transaction
which (i) results in the Persons who were the direct or
indirect owners of the outstanding common shares and Voting
Securities of the Company immediately before such Reorganization
Transaction becoming, immediately after the consummation of such
Reorganization Transaction, the direct or indirect owners of
both more than 60% of the then-outstanding common shares of the
Surviving Corporation and Voting Securities representing more
than 60% of the aggregate voting power of the Surviving
Corporation, in substantially the same respective proportions as
such Persons’ ownership of the common shares and Voting
Securities of the Company immediately before such Reorganization
Transaction, or (ii) after such transaction, more than 50%
of the members of the board of directors of the Surviving
Corporation were Incumbent Directors at the time of the
Board’s approval of the agreement providing for the
Reorganization Transaction or other action of the Board
approving the transaction (or whose election or nomination was
approved by a vote of at least two-thirds of the members who
were members of the Board at that time).
2.20. “Fair Market Value”
means (A) with respect to any property other than Shares,
the fair market value of such property determined by such
methods or procedures as shall be established from time to time
by the Board, and (B) with respect to Shares that are
readily tradable on an established securities market (within the
meaning of Treasury Regulations § 1.897-1(m)) the
closing price for a Share on the Grant Date and if there is no
closing price on such date, the closing price for a Share on the
last trading day before the Grant Date and (C) with respect
to Shares not readily tradable on an established securities
market, the value determined by the reasonable application of a
reasonable valuation method applying those factors and
principles set forth in Treasury Regulations
1.409A-1(b)(5)(iv)(B).
2.21. “Freestanding SAR”
means any SAR that is granted independently of any Option.
2.22. “Good Reason” means any
action by the Company or the Subsidiary employing a Grantee
which results in any of the following without the Grantee’s
consent: (a) a material diminution or other material
adverse change in the Grantee’s position, authority or
duties, (b) requiring the Grantee to be based at any office
or location more than 50 miles from the location where he
or she was previously based; (c) a material diminution in
the Grantee’s compensation in the aggregate, other than a
diminution applicable to all similarly situated employees. A
Grantee shall not have Good Reason to terminate his or her
position unless, (1) within 60 days following the
event or circumstance set forth above in (a), (b) or (c),
the Grantee notifies the Company of such event or circumstance,
(2) the Grantee gives the Company 30 days to correct
the event or circumstance, and (3) the Company does not
correct, in all material respects, such event or circumstance.
2.23. “Grant Date” has the
meaning set forth in Section 5.2.
2.24. “Grantee” means an
individual who has been granted an Award.
2.25. “Including” or
“includes” mean “including, without
limitation,” or “includes, without limitation”,
respectively.
2.26. “Incumbent Directors”
means, as of any specified baseline date, individuals then
serving as members of the Board who were members of the Board as
of the date immediately preceding such baseline date;
provided that any subsequently-appointed or elected
member of the Board whose election, or nomination for election
by shareholders of the Company or the Surviving Corporation, as
applicable, was approved by a vote or written consent of a
majority of the directors then comprising the Incumbent
Directors shall also thereafter be considered an Incumbent
Director, unless the initial assumption of office of such
subsequently-elected or appointed director was in connection
with (i) an actual or threatened election contest,
including a consent solicitation, relating to the election or
removal of one or more members of the Board, (ii) a
“tender offer” (as such term is used in
Section 14(d) of the Exchange Act), or (iii) a
proposed Reorganization Transaction.
2.27. “Initial Awards” means
those Awards set forth on Schedule 2.27 to this Plan.
2.28. “Non-Employee Director”
means a director of the Company who is not an officer or
employee of the Company or any of its affiliates. A
“Non-Employee Director” includes any director of the
Company who serves as a consultant to the Company or any of its
affiliates.
2.29. “Option” means an
option granted under Article 6 of the Plan, including an
incentive stock option.
2.30. “Option Price” means
the price at which a Share may be purchased by a Grantee
pursuant to an Option.
2.31. “Option Term” means the
period beginning on the Grant Date of an Option and ending on
the expiration date of such Option, as specified in the Award
Agreement for such Option and as may, consistent with the
provisions of the Plan and Code section 409A, be extended
from time to time by the Board prior to the expiration date of
such Option then in effect.
2.32. “Performance Period”
has the meaning set forth in Section 9.2.
2.33. “Performance Share” or
“Performance Unit” has the meaning set
forth in Article 9.
2.34. “Period of Restriction” means the
period during which the transfer of Restricted Shares is limited
in some way (based on the passage of time, the achievement of
performance goals, or upon the occurrence of other events as
determined by the Board) or the Share are subject to a
substantial risk of forfeiture, as provided in Article 8.
2.35. “Person” shall have the
meaning ascribed to such term in Section 3(a)(9) of the
Exchange Act and used in Sections 13(d) and 14(d) thereof,
including a “group” as defined in Section 13(d)
thereof.
2.36. “Plan” has the meaning
set forth in Section 1.1.
2.37. “Plan Committee” has
the meaning set forth in Article 3.
2.38. “Reorganization
Transaction” has the meaning set forth in
Section 2.8(c).
2.39. “Restricted Shares”
means Shares that are subject to transfer restrictions and are
subject to forfeiture if conditions specified in the Award
Agreement applicable to such Shares are not satisfied.
2.40. “Rule 16b-3”
means
Rule 16b-3
promulgated by the SEC under the Exchange Act, together with any
successor rule, as in effect from time to time.
2.41. “SAR” means a stock
appreciation right and includes both Tandem SARs and
Freestanding SARs.
2.42. “SAR Term” means the
period beginning on the Grant Date of a SAR and ending on the
expiration date of such SAR, as specified in the Award Agreement
for such SAR and as may, consistent with the provisions of the
Plan, be extended from time to time by the Board prior to the
expiration date of such SAR then in effect.
2.43. “SEC” means the United
States Securities and Exchange Commission, or any successor
thereto.
2.44. “Section” means, unless
the context otherwise requires, a Section of the Plan.
2.45. “Section 16 Person”
means a person who is subject to obligations under
Section 16 of the Exchange Act with respect to transactions
involving equity securities of the Company.
2.46. “Share” means a common
share, $.001 par value, of the Company.
2.47. “Subsidiary” means with
respect to any Person (a) any corporation of which more
than 50% of the Voting Securities are at the time, directly or
indirectly, owned by such Person, and (b) any partnership
or limited liability company in which such Person has a direct
or indirect interest (whether in the form of voting power or
participation in profits or capital contribution) of more than
50%. Solely with respect to a grant of an incentive stock option
under the requirements of Section 422 of the Code,
“Subsidiary” means a “subsidiary
corporation” as defined in Section 424(f) of the Code.
2.48. “Substitute Option” has
the meaning set forth in Section 6.3.
2.49. “Surviving Corporation”
means the corporation resulting from a Reorganization
Transaction or, if Voting Securities representing at least 50%
of the aggregate voting power of such resulting corporation are
directly or indirectly owned by another corporation, such other
corporation.
2.50. “Tandem SAR” means a
SAR that is granted in connection with, or related to, an
Option, and which requires forfeiture of the right to purchase
an equal number of Shares under the related Option upon the
exercise of such SAR; or alternatively, which requires the
cancellation of an equal amount of SARs upon the purchase of the
Shares subject to the Option.
2.51. “Tax Withholding” has
the meaning set forth in Section 14.1(a).
2.52. “Termination of
Affiliation” occurs on the first day on which an
individual is for any reason (a) no longer providing
services to the Company or any Subsidiary in the capacity of an
employee, (b) with respect to an individual who is an
employee of a Subsidiary, the first day on which such Subsidiary
ceases to be a Subsidiary, or (c) with respect to a
Non-Employee Director, no longer serving as a director of the
Company. A Termination of Affiliation shall have the same
meaning as a “separation from service” under Code
section 409A(2)(A)(i) and the regulations issued thereunder.
2.53. “Voting Securities” of
a corporation means securities of such corporation that are
entitled to vote generally in the election of directors, but not
including any other class of securities of such corporation that
may have voting power by reason of the occurrence of a
contingency.
3.1. Board and
Committee. Subject to Article 13, and to
Section 3.2, the Plan shall be administered by the Board,
or a committee of the Board appointed by the Board to administer
the Plan (“Plan Committee”). To the extent the Board
considers it desirable for transactions relating to Awards to be
eligible to qualify for an exemption under
Rule 16b-3,
the Plan Committee shall consist of two or more directors of the
Company, all of whom qualify as “non-employee directors
within the meaning of
Rule 16b-3.
To the extent the Board considers it desirable for compensation
delivered pursuant to Awards to be eligible to qualify for an
exemption from the limit on tax deductibility of compensation
under Section 162(m) of the Code, the Plan Committee shall
consist of two or more directors of the Company, all of whom
shall qualify as “outside directors” within the
meaning of Code Section 162(m). The number of members of
the Plan Committee shall from time to time be increased or
decreased, and shall be subject to such conditions, including,
but not limited to having exclusive authority to make certain
grants of Awards or to perform such other acts, in each case as
the Board deems appropriate to permit transactions in Shares
pursuant to the Plan to satisfy such conditions of
Rule 16b-3
or Code Section 162(m) as then in effect.
Any references herein to “Board” are, except as the
context requires otherwise, references to the Board or the Plan
Committee, as applicable.
3.2. Powers of the
Board. Subject to the express provisions of
the Plan, the Board has full and final authority and sole
discretion as follows:
(a) taking into consideration the reasonable
recommendations of management, to determine when, to whom and in
what types and amounts Awards should be granted and the terms
and conditions applicable to
each Award, including the Option Price, the Option Term, the
benefit payable under any SAR, Performance Unit or Performance
Share and whether or not specific Awards shall be granted in
connection with other specific Awards, and if so whether they
shall be exercisable cumulatively with, or alternatively to,
such other specific Awards;
(b) to determine the amount, if any, that a Grantee shall
pay for Restricted Shares, whether and on what terms to permit
or require the payment of cash dividends thereon to be deferred,
when Restricted Shares (including Restricted Shares acquired
upon the exercise of an Option) shall be forfeited and whether
such shares shall be held in escrow;
(c) to construe and interpret the Plan and to make all
determinations necessary or advisable for the administration of
the Plan;
(d) to make, amend, and rescind rules relating to the Plan,
including rules with respect to the exercisability and
nonforfeitability of Awards upon the Termination of Affiliation
of a Grantee;
(e) to determine the terms and conditions of all Award
Agreements (which need not be identical) and, with the consent
of the Grantee, to amend any such Award Agreement at any time,
among other things, to permit transfers of such Awards to the
extent permitted by the Plan; provided that the consent
of the Grantee shall not be required for any amendment which
(A) does not adversely affect the rights of the Grantee, or
(B) is necessary or advisable (as determined by the Board)
to carry out the purpose of the Award as a result of any new or
change in existing applicable law;
(f) to cancel, with the consent of the Grantee, outstanding
Awards and to grant new Awards in substitution therefor;
(g) to accelerate the exercisability (including
exercisability within a period of less than six months after the
Grant Date) of, and to accelerate or waive any or all of the
terms and conditions applicable to, any Award or any group of
Awards for any reason and at any time, including in connection
with a Termination of Affiliation;
(h) subject to Section 5.3, to extend the time during
which any Award or group of Awards may be exercised;
(i) to delegate to any member of the Board or committee of
Board members such of its powers as it deems appropriate,
including the power to subdelegate, except that only a member of
the Board of Directors of the Company (or a committee thereof)
may grant Awards from time to time to specified categories of
Eligible Persons in amounts and on terms to be specified by the
Board; provided that no such grants shall be made other than by
the Board of Directors of the Company or the Plan Committee to
individuals who are then Section 16 Persons or other
than by the Plan Committee to individuals who are then or are
deemed likely to become a “covered employee” within
the meaning of Code Section 162(m);
(j) to delegate to officers, employees or independent
contractors of the Company matters involving the routine
administration of the Plan and which are not specifically
required by any provision of this Plan of to be performed by the
Board of Directors of the Company;
(k) to delegate its duties and responsibilities under the
Plan with respect to foreign Subsidiary plans, except its duties
and responsibilities with respect to
Section 16 Persons, and (A) the acts of such
delegates shall be treated hereunder as acts of the Board and
(B) such delegates shall report to the Board regarding the
delegated duties and responsibilities;
(l) to impose such additional terms and conditions upon the
grant, exercise or retention of Awards as the Board may, before
or concurrently with the grant thereof, deem appropriate,
including limiting the percentage of Awards which may from time
to time be exercised by a Grantee; and
(m) to take any other action with respect to any matters
relating to the Plan for which it is responsible.
All determinations on any matter relating to the Plan or any
Award Agreement may be made in the sole and absolute discretion
of the Board, and all such determinations of the Board shall be
final, conclusive and binding on
all Persons. No member of the Board shall be liable for any
action or determination made with respect to the Plan or any
Award.
4.1. Number of Shares
Available.
(a) Plan Limit. Subject to adjustment as
provided in Section 4.2, the number of Shares hereby
reserved for delivery under the Plan is 2,200,000 Shares.
If any Shares subject to an Award granted hereunder are
forfeited or an Award or any portion thereof otherwise
terminates or is settled without the issuance of Shares, or in
the case of SARs and Performance Units, without the payment of
cash, the Shares subject to such Award, to the extent of any
such forfeiture, termination or settlement, shall again be
available for grant under the Plan. The Board may from time to
time determine the appropriate methodology for calculating the
number of Shares issued pursuant to the Plan.
(b) Individual Limit. No Grantee may be
granted Options, SARs, Restricted Shares, Bonus Shares or
Deferred Shares, Performance Units or Performance Shares in
Shares, or in any combination thereof, relating to an aggregate
number of Shares under the Plan that exceeds 500,000 shares
in any
5-year
period. If a previously granted Option, SAR, Performance Unit,
or Performance Share is forfeited, canceled or repriced, such
forfeited, canceled or repriced Option, SAR, Performance Unit,
or Performance Share as the case may be, shall continue to be
counted against the maximum number of Shares, SARs, Performance
Units or Performance Shares that may be delivered to any Grantee
over the life of the Plan.
4.2. Adjustments in Authorized
Shares. In the event that the Board
determines that any dividend or other distribution (whether in
the form of cash, Shares, other securities, or other property),
recapitalization, share split, reverse share split, subdivision,
consolidation or reduction of capital, reorganization, merger,
scheme of arrangement,
split-up,
spin-off or combination involving the Company or repurchase or
exchange of Shares or other rights to purchase Shares or other
securities of the Company, or other similar corporate
transaction or event affects the Shares such that any adjustment
is necessary in order to prevent dilution or enlargement of the
benefits or potential benefits intended to be made available
under the Plan, then the Board shall, in such manner as it may
deem equitable, adjust any or all of (i) the number and
type of Shares (or other securities or property of the Company
or any Person that is a party to a Reorganization Transaction
with the Company) with respect to which Awards may be granted,
(ii) the number and type of Shares (or other securities or
property of the Company or any Person that is a party to a
Reorganization Transaction with the Company) subject to
outstanding Awards, and (iii) the grant or exercise price
with respect to any Award or, if deemed appropriate, make
provision for a cash payment to the holder of an outstanding
Award or the substitution of other property for Shares subject
to an outstanding Award; provided, that the number of Shares
subject to any Award denominated in Shares shall always be a
whole number. In the case of any substitution or adjustment
affecting an Option (including a “nonqualified stock
option”) such substitution or adjustments shall be made in
a manner that is in accordance with the substitution and
assumption rules set forth in Treasury Regulations 1.424.1 and
the applicable guidance relating to Code section 409A.
4.3. Available
Shares. Shares delivered in connection with
Awards may be newly issued Shares, Shares purchased by the
Company on the open market, or Shares issued from treasury.
5.1. Eligibility. The Board
may grant Awards to any Eligible Person, whether or not he or
she has previously received an Award; provided, however, that an
Eligible Person who is a Non-Employee Director may only be
granted an Award that is an Option (excluding an incentive stock
option, Restricted Shares, Bonus Shares or Deferred Shares.
5.2. Grant Date. The Grant
Date of an Award shall be the date on which the Board grants the
Award or such later date as specified by the Board (i) in
the Board’s resolutions or minutes addressing the Award
grants or (ii) in the Award Agreement.
5.3. Maximum Term. Subject
to the following proviso, the Option Term or other period during
which an Award may be outstanding shall not extend more than
10 years after the Grant Date, and shall be subject to
earlier
termination as herein specified. After an Award has been
granted, the maximum term may only be extended in a manner which
complies with Code section 409A.
5.4. Award Agreement. To the
extent not set forth in the Plan, the terms and conditions of
each Award (which need not be the same for each grant or for
each Grantee) shall be set forth in an Award Agreement.
5.5. Restrictions on Share
Transferability. The Board may include in the
Award Agreement such restrictions on any Shares acquired
pursuant to the exercise or vesting of an Award as it may deem
advisable, including restrictions under applicable federal
securities laws.
5.6. Termination of
Affiliation. Except as otherwise provided in
an Award Agreement (including an Award Agreement as amended by
the Board pursuant to Section 3.2), and subject to the
provisions of Section 13.1, the extent to which the Grantee
shall have the right to exercise, vest in, or receive payment in
respect of an Award following Termination of Affiliation shall
be determined in accordance with the following provisions of
this Section 5.6.
(a) For Cause. If a Grantee
has a Termination of Affiliation for Cause:
(i) the Grantee’s Restricted Shares and Deferred
Shares that are forfeitable immediately before such Termination
of Affiliation shall automatically be forfeited on such date,
subject in the case of Restricted Shares to the provisions of
Section 8.4 regarding repayment of certain amounts to the
Grantee;
(ii) the Grantee’s Deferred Shares that were vested
immediately before such Termination of Affiliation shall
promptly be settled by delivery to such Grantee of a number of
unrestricted Shares equal to the aggregate number of such vested
Deferred Shares, and
(iii) any unexercised Option or SAR, and any Performance
Share or Performance Unit with respect to which the Performance
Period has not ended immediately before such Termination of
Affiliation, shall terminate effective immediately upon such
Termination of Affiliation.
(b) On Account of Death or
Disability. If a Grantee has a Termination of
Affiliation on account of death or Disability:
(i) the Grantee’s Restricted Shares that were
forfeitable immediately before such Termination of Affiliation
shall thereupon become nonforfeitable;
(ii) the Grantee’s Deferred Shares that were
forfeitable immediately before such Termination of Affiliation
shall thereupon become nonforfeitable and the Company shall,
unless otherwise provided in an Award Agreement, promptly settle
all Deferred Shares, whether or not forfeitable, by delivery to
the Grantee (or, after his or her death, to his or her personal
representative or beneficiary designated in accordance with
Article 11) of a number of unrestricted Shares equal
to the aggregate number of the Grantee’s Deferred Shares;
(iii) any unexercised Option or SAR, whether or not
exercisable immediately before such Termination of Affiliation,
shall be fully exercisable and may be exercised, in whole or in
part, at any time up to one year after such Termination of
Affiliation (but only during the Option Term or SAR Term,
respectively) by the Grantee or, after his or her death, by
(A) his or her personal representative or the person to
whom the Option or SAR, as applicable, is transferred by will or
the applicable laws of descent and distribution, or (B) the
Grantee’s beneficiary designated in accordance with
Article 11; and
(iv) the benefit payable with respect to any Performance
Share or Performance Unit with respect to which the Performance
Period has not ended immediately before such Termination of
Affiliation on account of death or Disability shall be equal to
the product of the Fair Market Value of a Share as of the date
of such Termination of Affiliation or the value of the
Performance Unit specified in the Award Agreement (determined as
of the date of such Termination of Affiliation), as applicable,
multiplied successively by each of the following:
(A) a fraction, the numerator of which is the number of
months (including as a whole month any partial month) that have
elapsed since the beginning of such Performance Period until the
date of such Termination of Affiliation and the denominator of
which is the number of months (including as a whole month any
partial month) in the Performance Period; and
(B) a percentage determined by the Plan Committee that
would be earned under the terms of the applicable Award
Agreement assuming that the rate at which the performance goals
have been achieved as of the date of such Termination of
Affiliation would continue until the end of the Performance
Period, or, if the Board elects to compute the benefit after the
end of the Performance Period, the Performance percentage, as
determined by the Board, attained during the Performance Period.
(c) Change of Control
Period. If a Grantee has a Termination of
Affiliation during the period (“Change of Control
Period”) commencing on a Change of Control and ending on
the first anniversary of the Change of Control, which
Termination of Affiliation is initiated by the Company or a
Subsidiary other than for Cause, or initiated by the Grantee for
Good Reason, then
(i) the Grantee’s Restricted Shares that were
forfeitable shall thereupon become nonforfeitable;
(ii) the Grantee’s Deferred Shares that were
forfeitable shall thereupon become nonforfeitable and the
Company shall immediately settle all Deferred Shares, whether or
not previously forfeitable, by delivery to such Grantee of a
number of unrestricted Shares equal to the aggregate number of
the Grantee’s Deferred Shares;
(iii) any unexercised Option or SAR, whether or not
exercisable on the date of such Termination of Affiliation,
shall thereupon be fully exercisable and may be exercised, in
whole or in part for ninety (90) days following such
Termination of Affiliation (but only during the Option Term or
SAR Term, respectively); and
(iv) the Company shall immediately pay to the Grantee, with
respect to any Performance Share or Performance Unit with
respect to which the Performance Period has not ended as of the
date of such Termination of Affiliation, a cash payment equal to
the product of (A) in the case of a Performance Share, the
Change of Control Value or (B) in the case of a Performance
Unit, the value of the Performance Unit specified in the Award
Agreement, as applicable, multiplied successively by each of the
following:
(A) a fraction, the numerator of which is the number of
whole and partial months that have elapsed between the beginning
of such Performance Period and the date of such Termination of
Affiliation and the denominator of which is the number of whole
and partial months in the Performance Period; and
(B) a percentage equal to a greater of (x) the target
percentage, if any, specified in the applicable Award Agreement
or (y) the maximum percentage, if any, that would be earned
under the terms of the applicable Award Agreement assuming that
the rate at which the performance goals have been achieved as of
the date of such Termination of Affiliation would continue until
the end of the Performance Period.
(d) Any Other Reason. If a
Grantee has a Termination of Affiliation for any reason other
than for Cause, death or Disability, and other than under the
circumstances described in Section 5.6(c), then:
(i) the Grantee’s Restricted Shares and Deferred
Shares, to the extent forfeitable immediately before such
Termination of Affiliation, shall thereupon automatically be
forfeited, subject in the case of Restricted Shares to the
provisions of Section 8.4 regarding repayment of certain
amounts to the Grantee;
(ii) the Grantee’s Deferred Shares that were not
forfeitable immediately before such Termination of Affiliation
shall promptly be settled by delivery to the Grantee of a number
of unrestricted Shares equal to the aggregate number of the
Grantee’s vested Deferred Shares;
(iii) any unexercised Option or SAR, to the extent
exercisable immediately before such Termination of Affiliation,
shall remain exercisable in whole or in part for ninety
(90) days after such Termination of Affiliation (but only
during the Option Term or SAR Term, respectively) by the Grantee
or, after his or her death, by (A) his or her personal
representative or the person to whom the Option or SAR, as
applicable, is transferred by will or the applicable laws of
descent and distribution, or (B) the Grantee’s
beneficiary designated in accordance with
Article 11; and
(iv) any Performance Shares or Performance Units with
respect to which the Performance Period has not ended as of the
date of such Termination of Affiliation shall terminate
immediately upon such Termination of Affiliation.
5.7. Nontransferability of
Awards.
(a) Except as provided in Section 5.7(c) below, each
Award, and each right under any Award, shall be exercisable only
by the Grantee during the Grantee’s lifetime, or, if
permissible under applicable law, by the Grantee’s guardian
or legal representative.
(b) Except as provided in Section 5.7(c) below, no
Award (prior to the time, if applicable, Shares are issued in
respect of such Award), and no right under any Award, may be
assigned, alienated, pledged, attached, sold or otherwise
transferred or encumbered by a Grantee otherwise than by will or
by the laws of descent and distribution and any such purported
assignment, alienation, pledge, attachment, sale, transfer or
encumbrance shall be void and unenforceable against the Company
or any Subsidiary; provided, that the designation of a
beneficiary shall not constitute an assignment, alienation,
pledge, attachment, sale, transfer or encumbrance.
(c) To the extent and in the manner permitted by the Board,
and subject to such terms and conditions as may be prescribed by
the Board, a Grantee may transfer an Award to (a) a child,
stepchild, grandchild, parent, stepparent, grandparent, spouse,
former spouse, sibling, niece, nephew,
mother-in-law,
father-in-law,
son-in-law,
daughter-in-law,
brother-in-law,
or
sister-in-law
of the Grantee, (including adoptive relationships), (b) any
person sharing the Grantee’s household (other than a tenant
or employee), (c) a trust in which persons described in
(a) or (b) have more than 50% of the beneficial
interest, (d) a foundation in which persons described in
(a) or (b) or the Grantee own more than 50% of the
voting interests; provided such transfer is not for value. The
following shall not be considered transfers for value:
(i) a transfer under a domestic relations order in
settlement of marital property rights; and (ii) a transfer
to an entity in which more than 50% of the voting interests are
owned by persons described in (a) or (b) above or the
Grantee, in exchange for an interest in that entity.
6.1. Grant of
Options. Subject to the terms and provisions
of the Plan, Options may be granted to any Eligible Person in
such number, and upon such terms, and at any time and from time
to time as shall be determined by the Board. Without limiting
the generality of the foregoing, the Board may grant to any
Eligible Person, or permit any Eligible Person to elect to
receive, an Option in lieu of or in substitution for any other
compensation (whether payable currently or on a deferred basis,
and whether payable under this Plan or otherwise) which such
Eligible Person may be eligible to receive from the Company or a
Subsidiary, which Option may have a value (as determined by the
Board under Black-Scholes or any other option valuation method)
that is equal to or greater than the amount of such other
compensation.
6.2. Award Agreement. Each
Option grant shall be evidenced by an Award Agreement that shall
specify the Option Price, the Option Term, the number of shares
to which the Option pertains, the time or times at which such
Option shall be exercisable and such other provisions as the
Board shall determine.
6.3. Option Price.
(a) The Option Price of an Option under this Plan shall be
determined by the Board, and shall be no less than 100% of the
Fair Market Value of a Share on the Grant Date; provided,
however, that any Option (“Substitute Option”)
that is (x) granted to a Grantee in connection with the
acquisition (“Acquisition”), however effected, by the
Company of another corporation or entity (“Acquired
Entity”) or the assets thereof, (y) associated with an
option to purchase shares of stock or other equity interest of
the Acquired Entity or an affiliate thereof (“Acquired
Entity Option”) held by such Grantee immediately prior to
such Acquisition, and (z) intended to preserve for the
Grantee the economic value of all or a portion of such Acquired
Entity Option, shall be granted such that such option
substitution is completed in conformity with the rules set forth
in Section 424(a) of the Code.
(b) Subject to the limitations set forth below and those
contained in Sections 6 and 13, the Committee may make any
adjustment in the Option Price, the number of Shares subject to,
or the terms of, an outstanding Option and a subsequent granting
of an Option by amendment or by substitution of an outstanding
Option. Such amendment, substitution, or re-grant may result in
terms and conditions (including Option Price, number of Shares
covered, vesting schedule or exercise period) that differ from
the terms and conditions of the original Option; provided,
however, the Committee may not, without stockholder approval
(i) amend an Option to reduce its Option Price,
(ii) cancel an Option and regrant an Option with a lower
Option Price than the original Option Price of the
cancelled Option, or (iii) take any other action (whether
in the form of an amendment, cancellation or replacement grant)
that has the effect of “repricing” an Option, as
defined under applicable NYSE rules or the rules of the
established stock exchange or quotation system on which the
Company Stock is then listed or traded if such Exchange’s
or quotation system’s rules define what constitutes a
repricing. The Committee also may not adversely affect the
rights of any Eligible Person to previously granted Options
without the consent of such Eligible Person. If such action is
affected by the amendment, the effective date of such amendment
shall be the date of the original grant. Any adjustment,
modification, extension or renewal of an Option shall be
effected such that the Option is either exempt from, or is
compliant with, Code section 409A.
6.4. Grant of Incentive Stock
Options.
(a) At the time of the grant of any Option to an Eligible
Person who is an employee of the Company or a Subsidiary, the
Board may designate that such option shall be made subject to
additional restrictions to permit it to qualify as an
“incentive stock option” under the requirements of
Section 422 of the Code. The maximum number of shares that
may be issued pursuant to the grants of incentive stock options
shall be the same maximum limit on shares that may be issued
under the Plan for all awards as set forth in
Section 4.1(a). Any option designated as an incentive stock
option:
(i) shall not be granted to a person who owns shares
(including shares treated as owned under Section 424(d) of
the Code) possessing more than 10% of the total combined voting
power of all classes of shares of the Company;
(ii) shall be for a term of not more than 10 years
from the Grant Date, and shall be subject to earlier termination
as provided herein or in the applicable Award Agreement;
(iii) shall not have an aggregate Fair Market Value
(determined for each incentive stock option at its Grant Date)
of Shares with respect to which incentive stock options are
exercisable for the first time by such Grantee during any
calendar year (under the Plan and any other employee stock
option plan of the Grantee’s employer or any parent or
Subsidiary thereof (“Other Plans”)), determined in
accordance with the provisions of Section 422 of the Code, which
exceeds $100,000 (the “$100,000 Limit”);
(iv) shall, if the aggregate Fair Market Value of a Share
(determined on the Grant Date) with respect to the portion of
such grant which is exercisable for the first time during any
calendar year (“Current Grant”) and all incentive
stock options previously granted under the Plan and any Other
Plans which are exercisable for the first time during a calendar
year (“Prior Grants”) would exceed the $100,000 Limit,
be exercisable as follows:
(A) the portion of the Current Grant which would, when
added to any Prior Grants, be exercisable with respect to Shares
which would have an aggregate Fair Market Value (determined as
of the respective Grant Date for such options) in excess of the
$100,000 Limit shall, notwithstanding the terms of the Current
Grant, be exercisable for the first time by the Grantee in the
first subsequent calendar year or years in which it could be
exercisable for the first time by the Grantee when added to all
Prior Grants without exceeding the $100,000 Limit; and
(B) if, viewed as of the date of the Current Grant, any
portion of a Current Grant could not be exercised under the
preceding provisions of this Subsection (iv) during any
calendar year commencing with the calendar year in which it is
first exercisable through and including the last calendar year
in which it may by its terms be exercised, such portion of the
Current Grant shall not be an incentive stock option, but shall
be exercisable as a separate Option at such date or dates as are
provided in the Current Grant;
(v) shall be granted within 10 years from the earlier
of the date the Plan is adopted or the date the Plan is approved
by the shareholders of the Company;
(vi) shall require the Grantee to notify the Board of any
disposition of any Shares issued pursuant to the exercise of the
incentive stock option under the circumstances described in
Section 421(b) of the Code (relating to certain
disqualifying dispositions), within 10 days of such
disposition; and
(vii) shall by its terms not be assignable or transferable
other than by will or the laws of descent and distribution and
may be exercised, during the Grantee’s lifetime, only by
the Grantee; provided, however, that
the Grantee may, to the extent provided in the Plan in any
manner specified by the Board, designate in writing a
beneficiary to exercise such incentive stock option after the
Grantee’s death.
Notwithstanding the foregoing, the Board may, without the
consent of the Grantee, at any time before the exercise of an
option (whether or not an incentive stock option), take any
action necessary to prevent such option from being treated as an
incentive stock option.
6.5. Exercise of
Options. Options shall be exercised by the
delivery of a written notice of exercise to the Company or its
designee, setting forth the number of Shares with respect to
which the Option is to be exercised, accompanied by full payment
for the Shares made by cash, personal check or wire transfer or,
subject to the approval of the Board pursuant to procedures
approved by the Board,
(a) through the sale of the Shares acquired on exercise of
the Option through a broker-dealer to whom the Grantee has
submitted an irrevocable notice of exercise and irrevocable
instructions to deliver promptly to the Company the amount of
sale or loan proceeds sufficient to pay for such Shares,
together with, if requested by the Company, the amount of
federal, state, local or foreign withholding taxes payable by
Grantee by reason of such exercise,
(b) through simultaneous sale through a broker of Shares
acquired on exercise, as permitted under Regulation T of
the Federal Reserve Board, or
(c) by delivery to the Company of certificates representing
the number of Shares then owned by the Grantee, the Fair Market
Value of which equals the purchase price of the Shares purchased
in connection with the Option exercise, properly endorsed for
transfer to the Company; provided however, that Shares used for
this purpose must have been held by the Grantee for such minimum
period of time as may be established from time to time by the
Board; and provided further that the Fair Market Value of any
Shares delivered in payment of the purchase price upon exercise
of the Options shall be the Fair Market Value as of the exercise
date, which shall be the date of delivery of the certificates
for the Stock used as payment of the exercise price. For
purposes of this Section 6.5(c), in lieu of actually
surrendering to the Company the stock certificates representing
the number of Shares then owned by the Grantee, the Board may,
in its discretion permit the Grantee to submit to the Company a
statement affirming ownership by the Grantee of such number of
Shares and request that such Shares, although not actually
surrendered, be deemed to have been surrendered by the Grantee
as payment of the exercise price.
7.1. Grant of SARs. Subject
to the terms and conditions of this Plan, SARs may be granted to
any Eligible Person at any time and from time to time as shall
be determined by the Board in its sole discretion. The Board may
grant Freestanding SARs or Tandem SARs, or any combination
thereof.
(a) Number of Shares. The
Board shall have complete discretion to determine the number of
SARs granted to any Grantee, subject to the limitations imposed
in this Plan and by applicable law.
(b) Exercise Price and Other
Terms. All SARs shall be granted with an
exercise price no less than the Fair Market Value of the
underlying Shares of Stock on the SARs’ Grant Date. The
Board, subject to the provisions of this Plan, shall have
complete discretion to determine the terms and conditions of
SARs granted under this Plan. The exercise price per Share of
Tandem SARs shall equal the exercise price per Share of the
related Option.
7.2. SAR Award
Agreement. Each SAR granted under the Plan
shall be evidenced by a written SAR Award Agreement which shall
be entered into by the Company and the Grantee to whom the SAR
is granted and which shall specify the exercise price per share,
the SAR Term, the conditions of exercise, and such other terms
and conditions as the Board in its sole discretion shall
determine.
7.3. Exercise of SARs. SARs
shall be exercised by the delivery of a written notice of
exercise to the Company or its designee, setting forth the
number of Shares over which the SAR is to be exercised. Tandem
SARs (a) may be exercised with respect to all or part of
the Shares subject to the related Option upon the surrender of
the right to exercise the equivalent portion of the related
Option; (b) may be exercised only with respect to the
Shares for which its related Option is then exercisable; and
(c) may be exercised only when the Fair Market Value of the
Shares subject to the Option exceeds the Option Price of the
Option. The value of the payment with respect to the Tandem
SAR may be no more than 100% of the difference between the
Option Price of the underlying Option and the Fair Market Value
of the Shares subject to the underlying Option at the time the
Tandem SAR is exercised.
7.4. Expiration of SARs. A
SAR granted under this Plan shall expire on the date set forth
in the SAR Award Agreement, which date shall be determined by
the Board in its sole discretion. Unless otherwise specifically
provided for in the SAR Award agreement, a Tandem SAR granted
under this Plan shall be exercisable at such time or times and
only to the extent that the related Option is exercisable. The
Tandem SAR shall terminate and no longer be exercisable upon the
termination or exercise of the related Options, except that
Tandem SARs granted with respect to less than the full number of
shares covered by a related Option shall not be reduced until
the exercise or termination of the related Option exceeds the
number of Shares not covered by the SARs.
7.5. Payment of SAR
Amount. Upon exercise of a SAR, a Grantee
shall be entitled to receive payment from the Company in an
amount determined by multiplying (i) the positive
difference between the Fair Market Value of a Share on the date
of exercise over the exercise price per Share by (ii) the
number of Shares with respect to which the SAR is exercised. The
payment upon a SAR exercise shall, at the Committee’s
discretion, be paid (i) in whole Shares of equivalent
value, (ii) in cash, or (iii) some combination
thereof. Any value attributable to a fractional Share shall be
paid in cash.
8.1. Grant of Restricted
Shares. Subject to the terms and provisions
of the Plan, the Board, at any time and from time to time, may
grant Restricted Shares to any Eligible Person in such amounts
as the Board shall determine.
8.2. Award Agreement. Each
grant of Restricted Shares shall be evidenced by an Award
Agreement, which shall specify the Period(s) of Restriction, the
number of Restricted Shares granted, and such other provisions
as the Board shall determine. The Board may impose such
conditions or restrictions on any Restricted Shares as it may
deem advisable, including restrictions based upon the
achievement of specific performance goals (Company-wide,
divisional, Subsidiary or individual), time-based restrictions
on vesting or restrictions under applicable securities laws.
8.3. Consideration. The
Board shall determine the amount, if any, that a Grantee shall
pay for Restricted Shares. Such payment shall be made in full by
the Grantee before the delivery of the shares and in any event
no later than 10 business days after the Grant Date for such
shares.
8.4. Effect of
Forfeiture. If Restricted Shares are
forfeited, and if the Grantee was required to pay for such
shares or acquired such Restricted Shares upon the exercise of
an Option, the Grantee shall be deemed to have resold such
Restricted Shares to the Company at a price equal to the lesser
of (x) the amount paid by the Grantee for such Restricted
Shares, or (y) the Fair Market Value of a Share on the date
of such forfeiture. The Company shall pay to the Grantee the
required amount as soon as is administratively practical. Such
Restricted Shares shall cease to be outstanding, and shall no
longer confer on the Grantee thereof any rights as a shareholder
of the Company, from and after the date of the event causing the
forfeiture, whether or not the Grantee accepts the
Company’s tender of payment for such Restricted Shares.
8.5. Escrow; Legends. The
Board may provide that the certificates for any Restricted
Shares (x) shall be held (together with a stock power
executed in blank by the Grantee) in escrow by the Secretary of
the Company until such Restricted Shares become nonforfeitable
or are forfeited or (y) shall bear an appropriate legend
restricting the transfer of such Restricted Shares. If any
Restricted Shares become nonforfeitable, the Company shall cause
certificates for such shares to be issued without such legend.
9.1. Grant of Performance Units and Performance
Shares. Subject to the terms of the Plan,
Performance Units or Performance Shares may be granted to any
Eligible Person in such amounts and upon such terms, and at any
time and from time to time, as the Board shall determine. Each
grant of Performance Units or Performance Shares shall be
evidenced by an Award Agreement which shall specify the terms
and conditions applicable to the Performance Units or
Performance Shares, as the Board determines.
9.2. Value/Performance
Goals. Each Performance Unit shall have an
initial value that is established by the Board at the time of
grant, that is equal to the Fair Market Value of a Share on the
Grant Date. The Board shall set performance goals which,
depending on the extent to which they are met, will determine
the number or value of Performance Units or Performance Shares
that will be paid to the Grantee. For purposes of this
Article 9, the time period during which the performance
goals must be met shall be called a “Performance
Period.” The Board shall have complete discretion to
establish the performance goals. Without limitation, the
performance goals may provide for a targeted level or levels of
achievement using one or more of the following measures:
(a) earnings per share, (b) net income,
(c) return on equity, (d) pro forma net income,
(e) return on designated assets, (f) return on
revenues, (g) Fair Market Value per share, (i) book
value per share, (j) debt reduction, or (k) any
combination of the above, in the conjunctive or disjunctive, at
the discretion of the Board. Objective and measurable goals set
by a “management by objectives” process, and approved
by the Board may also be considered. Such goals may relate to
the satisfaction of external or internal requirements.
9.3. Payment of Performance Units and
Performance Shares. Subject to the terms of
this Plan, after the applicable Performance Period has ended,
the holder of Performance Units or Performance Shares shall be
entitled to receive a payment based on the number and value of
Performance Units or Performance Shares earned by the Grantee
over the Performance Period, determined as a function of the
extent to which the corresponding performance goals have been
achieved.
If a Grantee is promoted, demoted or transferred to a different
business unit of the Company during a Performance Period, then,
to the extent the Board determines appropriate, the Board may
adjust, change or eliminate the performance goals or the
applicable Performance Period as it deems appropriate in order
to make them appropriate and comparable to the initial
performance goals or Performance Period.
9.4. Form and Timing of Payment of Performance
Units and Performance Shares. Payment of
earned Performance Units or Performance Shares shall be made in
a lump sum following the close of the applicable Performance
Period. The Board may cause earned Performance Units or
Performance Shares to be paid in cash or in Shares (or in a
combination thereof) which have an aggregate Fair Market Value
equal to the value of the earned Performance Units or
Performance Shares at the close of the applicable Performance
Period. Such Shares may be granted subject to any restrictions
deemed appropriate by the Board. The form of payout of such
Awards shall be set forth in the Award Agreement pertaining to
the grant of the Award.
As determined by the Board, a Grantee may be entitled to receive
any dividends declared with respect to Shares which have been
earned in connection with grants of Performance Units or
Performance Shares but not yet distributed to the Grantee. In
addition, a Grantee may, as determined by the Board, be entitled
to exercise his or her voting rights with respect to such Shares.
10.1. Bonus Shares. Subject
to the terms of the Plan, the Board may grant Bonus Shares to
any Eligible Person, in such amount and upon such terms and at
any time and from time to time as shall be determined by the
Board.
10.2. Deferred
Shares. Subject to the terms and provisions
of the Plan, Deferred Shares may be granted to any Eligible
Person in such amounts and upon such terms, and at any time and
from time to time, as shall be determined by the Board. The
Board may impose such conditions or restrictions on any Deferred
Shares as it may deem advisable, including time-vesting
restrictions and deferred payment features. The Board may cause
the Company to establish a grantor trust to hold Shares subject
to Deferred Share Awards. Without limiting the generality of the
foregoing, the Board may grant to any Eligible Person, or permit
any Eligible Person to elect to receive, Deferred Shares in lieu
of or in substitution for any other compensation (whether
payable currently or on a deferred basis, and whether payable
under this Plan or otherwise) which such Eligible Person may be
eligible to receive from the Company or a Subsidiary. Any grant
of Deferred Shares shall comply with section 409A of the
Code.
Each Grantee under the Plan may, from time to time, name any
beneficiary or beneficiaries (who may be named contingently or
successively) to whom any benefit under the Plan is to be paid
in case of the Grantee’s death before he or she receives
any or all of such benefit. Each such designation shall revoke
all prior designations by the same Grantee, shall be in a form
prescribed by the Company, and will be effective only when filed
by the Grantee in writing with the Company during the
Grantee’s lifetime. In the absence of any such designation,
benefits remaining unpaid at the Grantee’s death shall be
paid to the Grantee’s estate.
12.1. Employment. Nothing in
the Plan shall interfere with or limit in any way the right of
the Company to terminate any Grantee’s employment at any
time, nor confer upon any Grantee the right to continue in the
employ of the Company.
12.2. Participation. No
employee shall have the right to be selected to receive an
Award, or, having been so selected, to be selected to receive a
future Award.
13.1. Amendment, Modification, and
Termination. Subject to the terms of the
Plan, the Board of Directors of the Company may at any time and
from time to time, alter, amend, suspend or terminate the Plan
in whole or in part without the approval of the Company’s
shareholders, except to the extent the Board of Directors of the
Company determines it is desirable to obtain approval of the
Company’s shareholders, to retain eligibility for exemption
from the limitations of Code Section 162(m), to have
available the ability for Options to qualify as ISOs, to comply
with the requirements for listing on any exchange where the
Company’s Shares are listed, or for any other purpose the
Board of Directors of the Company deems appropriate.
13.2. Adjustments Upon Certain Unusual or
Nonrecurring Events. The Board may make
adjustments in the terms and conditions of Awards in recognition
of unusual or nonrecurring events (including the events
described in Section 4.2) affecting the Company or the
financial statements of the Company or of changes in applicable
laws, regulations, or accounting principles, whenever the Board
determines that such adjustments are appropriate in order to
prevent dilution or enlargement of the benefits or potential
benefits intended to be made available under the Plan.
13.3. Awards Previously
Granted. Notwithstanding any other provision
of the Plan to the contrary (but subject to Section 2.7 and
Section 13.2), no termination, amendment or modification of
the Plan shall adversely affect in any material way any Award
previously granted under the Plan, without the written consent
of the Grantee of such Award.
14.1. Mandatory Tax
Withholding.
(a) Whenever under the Plan, Shares are to be delivered
upon exercise or payment of an Award, or upon Restricted Shares
becoming nonforfeitable, or any other event with respect to
rights and benefits hereunder, the Company shall be entitled to
require and may accommodate the Grantee’s request if so
requested, (x) that the Grantee remit an amount in cash
sufficient to satisfy the minimum federal, state, local and
foreign tax withholding requirements related thereto (“Tax
Withholding”), (y) the withholding of such Tax
Withholding from compensation otherwise due to the Grantee or
from any Shares or other payment due to the Grantee under the
Plan or (z) any combination of the foregoing.
(b) Any Grantee who makes a disqualifying disposition of an
incentive stock option (if incentive stock options are eligible
to be granted hereunder granted under the Plan or who makes an
election under Section 83(b) of the Code shall remit to the
Company an amount sufficient to satisfy all resulting Tax
Withholding; provided that, in lieu of or in addition to
the foregoing, the Company shall have the right to withhold such
Tax Withholding from compensation otherwise due to the Grantee
or from any Shares or other payment due to the Grantee under the
Plan.
14.2. Notification under Code
Section 83(b). If the Grantee, in
connection with the exercise of any Option, or the grant of
Restricted Shares, makes the election permitted under
Section 83(b) of the Code to include in such Grantee’s
gross income in the year of transfer the amounts specified in
Section 83(b) of the Code, then such Grantee shall notify
the Company of such election within 10 days of filing the
notice of the election with the Internal Revenue Service, in
addition to any filing and notification required pursuant to
regulations issued under Section 83(b) of the Code. The
Board may, in connection with the grant of an Award or at any
time thereafter prior to such an election being made, prohibit a
Grantee from making the election described above.
15.1. Successors. All
obligations of the Company under the Plan with respect to Awards
granted hereunder shall be binding on any successor to the
Company, whether the existence of such successor is the result
of a direct or indirect purchase, merger, consolidation, or
otherwise of all or substantially all of the business or assets
of the Company.
15.2. Gender and
Number. Except where otherwise indicated by
the context, any masculine term used herein also shall include
the feminine; the plural shall include the singular and the
singular shall include the plural.
15.3. Severability. If any
part of the Plan is declared by any court or governmental
authority to be unlawful or invalid, such unlawfulness or
invalidity shall not invalidate any other part of the Plan. Any
Section or part of a Section so declared to be unlawful or
invalid shall, if possible, be construed in a manner which will
give effect to the terms of such Section or part of a Section to
the fullest extent possible while remaining lawful and valid.
15.4. Requirements of
Law. The granting of Awards and the issuance
of Shares under the Plan shall be subject to all applicable
laws, rules, and regulations, and to such approvals by any
governmental agencies or stock exchanges as may be required.
Notwithstanding any provision of the Plan or any Award, Grantees
shall not be entitled to exercise, or receive benefits under,
any Award, and the Company shall not be obligated to deliver any
Shares or other benefits to a Grantee, if such exercise or
delivery would constitute a violation by the Grantee or the
Company of any applicable law or regulation.
15.5. Securities Law
Compliance.
(a) If the Board deems it necessary to comply with any
applicable securities law, or the requirements of any stock
exchange upon which Shares may be listed, the Board may impose
any restriction on Shares acquired pursuant to Awards under the
Plan as it may deem advisable. All certificates for Shares
delivered under the Plan pursuant to any Award or the exercise
thereof shall be subject to such stop transfer orders and other
restrictions as the Board may deem advisable under the rules,
regulations and other requirements of the SEC, any stock
exchange upon which Shares are then listed, any applicable
securities law, and the Board may cause a legend or legends to
be placed on any such certificates to refer to such
restrictions. If so requested by the Company, the Grantee shall
represent to the Company in writing that he or she will not sell
or offer to sell any Shares unless a registration statement
shall be in effect with respect to such Shares under the
Securities Act of 1933 or unless he or she shall have furnished
to the Company evidence satisfactory to the Company that such
registration is not required.
(b) If the Board determines that the exercise of, or
delivery of benefits pursuant to, any Award would violate any
applicable provision of securities laws or the listing
requirements of any stock exchange upon which any of the
Company’s equity securities are then listed, then the Board
may postpone any such exercise or delivery, as applicable, but
the Company shall use all reasonable efforts to cause such
exercise or delivery to comply with all such provisions at the
earliest practicable date.
15.6. No Rights as a
Shareholder. A Grantee shall not have any
rights as a shareholder with respect to the Shares (other than
Restricted Shares) which may be deliverable upon exercise or
payment of such Award until such shares have been delivered to
him or her. Restricted Shares, whether held by a Grantee or in
escrow by the Secretary of the Company, shall confer on the
Grantee all rights of a shareholder of the Company, except as
otherwise provided in the Plan or Award Agreement. Unless
otherwise determined by the Board at the time of a grant of
Restricted Shares, any cash dividends that become payable on
Restricted Shares shall be deferred and, if the Board so
determines, reinvested in additional Restricted Shares. Except
as otherwise provided in an Award Agreement,
any share dividends and deferred cash dividends issued with
respect to Restricted Shares shall be subject to the same
restrictions and other terms as apply to the Restricted Shares
with respect to which such dividends are issued. The Board may
provide for payment of interest on deferred cash dividends.
15.7. Nature of
Payments. Awards shall be special incentive
payments to the Grantee and shall not be taken into account in
computing the amount of salary or compensation of the Grantee
for purposes of determining any pension, retirement, death or
other benefit under (a) any pension, retirement,
profit-sharing, bonus, insurance or other employee benefit plan
of the Company or any Subsidiary or (b) any agreement
between (i) the Company or any Subsidiary and (ii) the
Grantee, except as such plan or agreement shall otherwise
expressly provide.
15.8. Governing Law. The
Plan and the rights of any Grantee receiving an Award thereunder
shall be construed and interpreted in accordance with and
governed by the laws of the State of Nevada without giving
effect to the principles of the conflict of laws to the contrary.
ALL NUMBERS HAVE BEEN ADJUSTED TO GIVE EFFECT TO THE 2.5:1
REVERSE STOCK SPLIT EFFECTIVE OCTOBER 31, 2005
B-19
APPENDIX C
QUEST
RESOURCE CORPORATION
MANAGEMENT ANNUAL INCENTIVE PLAN (May 1, 2008)
The Quest Resource Corporation Management Annual Incentive Plan
(the “Incentive Plan”) is designed to reward value
creation by providing competitive incentives for the achievement
of annual financial performance goals. By providing
market-competitive target awards, the Plan supports the
attraction and retention of senior executive talent critical to
achieving the strategic business objectives of Quest Resource
Corporation (the “Corporation”). The Incentive Plan is
also intended to secure the full deductibility of bonus
compensation payable to the Corporation’s Chief Executive
Officer and the four highest compensated executive officers
(collectively the “Covered Employees”) whose
compensation is required to be reported in the
Corporation’s proxy statement and all compensation payable
hereunder to such persons is intended to qualify as
“performance-based compensation” as described in
Section 162(m)(4)(C) of the Internal Revenue Code of 1986,
as amended (the “Code”).
Only those executive officers and key employees of the
Corporation who are selected by the Compensation Committee (the
“Committee”) of the Corporation’s Board of
Directors (the “Board”) shall be eligible to
participate in the Incentive Plan. Prior to or at the time
performance objectives are established for an “Incentive
Period”, as defined below, the Committee will designate in
writing which executive officers and key employees among those
who may be eligible to participate in the Incentive Plan shall
in fact be participants for such Incentive Period.
The fiscal year of the Incentive Plan (the “Plan
Year”) shall be the fiscal year beginning on January 1 and
ending on December 31. The performance period (the
“Incentive Period”) with respect to which target
awards and bonuses may be payable under the Incentive Plan shall
generally be the Plan Year, provided that the Committee shall
have the authority to designate different Incentive Periods
under the Incentive Plan.
Within the first ninety (90) days of each Incentive Period
the Committee shall establish in writing, with respect to such
Incentive Period, one or more performance goals, a specific
target objective or objectives with respect to such performance
goals and an objective formula or method for computing the
amount of bonus compensation payable to each participant under
the Incentive Plan if the performance goals are attained. Target
award levels are approved by the Committee and may be a
percentage of the participant’s compensation (including
base salary only) or a fixed dollar amount. The percentages or
dollar amounts may vary based on organizational responsibilities
and market compilation bonus levels based on industry data.
Notwithstanding the first sentence of this paragraph, for any
Incentive Period, such goals, objectives and compensation
formulae or methods must be (i) established within that
number of days, beginning on the first day of such Incentive
Period, which is no more than twenty-five percent (25%) of the
total number of days in such Incentive Period and
(ii) established such that the outcome of the goal or
objective is substantially uncertain at the time the Committee
actually establishes the goal or objective.
Incentive goals shall be based upon one or more of the following
business criteria established by the Committee, which shall be
based on the attainment of one or any combination of the
following metrics, and which may be established on an absolute
or relative basis for (1) the Corporation as a whole,
(2) on an individual or aggregate basis, any of its current
subsidiaries (including Quest Midstream Partners, L.P. or Quest
Energy Partners, L.P.), operating divisions or other operating
units or (3) any future subsidiaries, operating divisions
or operating units that may be acquired or formed by the
Corporation in connection with a merger or acquisition:
(a) Earnings (either in the aggregate or on a per-Share
basis);
(b) Growth or rate of growth in earnings (either in the
aggregate or on a per-Share basis);
(c) Earnings before interest, taxes, depreciation
(including or excluding depletion) and amortization
(“EBITDA”);
(d) Earnings before taxes, depreciation (including or
excluding depletion) and amortization (“EBTDA”);
(e) Lease operating expense;
(f) Pipeline operating expense;
(g) Finding and development costs;
(h) Production, reserve replacement and productivity
improvement measures;
(i) Cash flow provided by operations, either in the
aggregate or on a per-Share basis;
(j) Growth or rate of growth in cash flow (either in the
aggregate or on a per-Share basis);
(k) Reductions in expense levels and savings, determined
either on a Company-wide basis or in respect of any one or more
business units;
(l) Operating and maintenance cost management and employee
productivity;
(m) Shareholder returns (including return on assets,
investments, equity, gross sales or total shareholder return);
(n) Return measures (including return on assets, equity, or
sales);
(o) Growth or rate of growth in return measures (including
return on assets, equity, or sales);
(p) Share price (including attainment of a specified
per-Share price during the Incentive Period; growth measures and
total shareholder return or attainment by the Shares of a
specified price for a specified period of time);
(q) Strategic business criteria, consisting of one or more
objectives based on meeting specified revenue, market share,
market penetration, geographic business expansion goals,
objectively identified project milestones, production volume
levels, cost targets, and goals relating to acquisitions or
divestitures; and/or
(r) Achievement of business or operational goals such as
market share, business development
and/or
health and safety improvement measures;
provided that applicable performance goals may be applied on a
pre- or post-tax basis; and provided further that the Committee
may, when the applicable performance goals are established,
provide that the formula for such goals may include or exclude
items to measure specific objectives, such as losses from
discontinued operations, extraordinary gains or losses,
transaction related costs required to be recognized under
FAS 123R, the effect of non-cash derivative fair value
gains or losses, the cumulative effect of accounting changes,
acquisitions or divestitures, foreign exchange impacts and any
unusual, nonrecurring gain or loss. Performance goals
(i) also include any performance goals which are set forth
in a Company bonus or incentive plan, if any, which has been
approved by the Company’s shareholders, which are
incorporated herein by reference and (ii) may be based upon
a participant’s attainment of personal objectives with
respect to any of the foregoing performance goals: negotiating
transactions and sales, business unit/department performance,
profit margins, reduction of certain accounts receivable or
achievement of subsidiary or departmental budgets or developing
long-term business goals. Such performance goals shall be set by
the Committee within the time period prescribed by, and shall
otherwise comply with the requirements of, Code
Section 162(m).
Measurements of the Corporation’s or a participant’s
performance against the performance goals established by the
Committee shall be objectively determinable and, to the extent
they are expressed in standard accounting terms, they shall be
determined according to generally accepted accounting principals
(“GAAP”) as in existence on the date on which the
performance goals are established and without regard to any
changes in such principles after such date. Individual incentive
awards reflect a mix of the Corporation’s and business
unit/department performance along with individual discretionary
factors; the current actual mix for each participant will be
determined based upon
his/her role
and contribution to the organization.
Due to the possibility that the specific targets related to a
specific performance goal or objective may be confidential
commercial or business information, and the release of which to
the public may have an adverse affect on the Corporation, such
information has been intentionally omitted from the Plan as
confidential information.
As soon as practicable after the end of each Incentive Period,
the Committee shall certify in writing to what extent the
Corporation and the participants have achieved the performance
goals or goals for such Incentive Period, including the specific
target objective or objectives and the satisfaction of any other
material terms of the bonus award and the Committee shall
calculate the amount of each participant’s bonus for such
Incentive Period based upon the performance goals, objectives
and computation formulae or methods for such Incentive Period.
The Committee shall have no discretion to increase the amount of
any participant’s bonus as so determined, but may reduce
the amount of or totally eliminate such bonus, if it determines,
in its absolute and sole discretion, that such a reduction or
elimination is appropriate in order to reflect the
participant’s performance or unanticipated factors.
The maximum bonus amount that the Corporation may pay to the
Chief Executive Officer under this Plan in a Plan year is
limited to $3,000,000.
The maximum bonus amount that the Corporation may pay to any
individual other than the Corporation’s Chief Executive
Officer under this Plan in a Plan Year is limited to the lesser
of three (3) times the individual’s base annual salary
for the year, or $1,000,000.
To the extend any performance bonus is paid in the form of
property, the amount of such payment shall be determined for
purposes of this maximum annual limitation as of the date the
payment is made based on the fair market value of such property
on such date.
Approved bonus awards shall be payable by the Corporation in
cash or in shares of the Corporation’s common stock
pursuant to the Corporation’s Omnibus Stock Award Plan to
each participant, or to his estate in the event of his death, as
soon as practicable after the end of each Incentive Period and
after the Committee has certified in writing that the relevant
performance goals were achieved. To the extent shares of the
Corporation’s common stock are issued under the
Corporation’s Omnibus Stock Award Plan, such issued shares
shall be subject to both the annual award limitation set forth
above in Section 5 of this Plan and any share limitation(s)
in such Omnibus Stock Award Plan.
A bonus award that would otherwise be payable to a participant
who is not employed by the Corporation or one of its
subsidiaries on the last day of a Incentive Period shall be
prorated, or not paid, in accordance with rules and regulations
adopted by the Committee for the administration of the Incentive
Plan.
Unless otherwise permitted under Section 162(m) of the
Code, no bonus awards shall be paid under the Incentive Plan
unless and until the material terms (within the meaning of
Section 162(m)(4)(C) of the Code) of the Incentive Plan,
including the business criteria described above in
Section 3 of the Incentive Plan, are disclosed to the
Corporation’s stockholders and are approved by the
stockholders by a majority of votes cast in person or by proxy
(including abstentions to the extent abstentions are counted as
voting under applicable state law). The Incentive Plan will
submitted to the stockholders for reapproval if the business
criteria stated above in Section 3 are materially changed
and, in any event, will be submitted to be reapproved by
stockholders after five years since the last time stockholder
approval was received.
No person shall have any legal claim to be granted an award
under the Incentive Plan and the Committee shall have no
obligation to treat participants uniformly. Except as may be
otherwise required by law, bonus awards under the Incentive Plan
shall not be subject in any manner to anticipation, alienation,
sale, transfer, assignment, pledge, encumbrance, charge,
garnishment, execution, or levy of any kind, either voluntary or
involuntary. Bonuses
awarded under the Incentive Plan shall be payable from the
general assets of the Corporation and no participant shall have
any claim with respect to any specific assets of the Corporation.
Neither the Incentive Plan nor any action taken under the
Incentive Plan shall be construed as giving any employee the
right to be retained in the employ of the Corporation or any
subsidiary or to maintain any participant’s compensation at
any level.
The Corporation or any of its subsidiaries may deduct from any
award any applicable withholding taxes or any amounts owed by
the executive of the Corporation or any of its subsidiaries.
All members of the Committee shall be persons who qualify as
“outside directors” as defined under
Section 162(m) of the Code. Until changed by the Board, the
Committee of the Board shall constitute the Committee hereunder.
The Committee shall have full power and authority to administer
and interpret the provisions of the Incentive Plan and to adopt
such rules, regulations, agreements, guidelines and instruments
for the administration of the Incentive Plan and for the conduct
of its business as the Committee deems necessary or advisable.
Except with respect to matters which under
Section 162(m)(4)(C) of the Code are required to be
determined in the sole and absolute discretion of the Committee,
the Committee shall have full power to delegate to any officer
or employee of the Corporation the authority to administer and
interpret the procedural aspects of the Incentive Plan, subject
to the Incentive Plan’s terms, including adopting and
enforcing rules to decide procedural and administrative issues.
The Committee may rely on opinions, reports or statements of
officers or employees of the Corporation or any subsidiary
thereof and of company counsel (inside or retained counsel),
public accountants and other professional or expert persons.
The Board reserves the right to amend or terminate the Incentive
Plan in whole or in part at any time. Unless otherwise
prohibited by applicable law, any amendment required to conform
the Incentive Plan to the requirements of Section 162(m) of
the Code may be made by the Committee. No amendment may be made
to the class of individuals who are eligible to participate in
the Incentive Plan, the performance criteria specified in
Section 3 or the maximum bonus payable to any participant
without stockholder approval unless stockholder approval is not
required in order for bonuses paid to Covered Employees to
constitute qualified performance-based compensation under
Section 162(m) of the Code.
No member of the Committee shall be liable for any action taken
or omitted to be taken or for any determination made by him or
her in good faith with respect to the Incentive Plan, and the
Corporation shall indemnify and hold harmless each member of the
Committee against any cost or expense (including counsel fees)
or liability (including any sum paid in settlement of a claim
with the approval of the Committee) arising out of any fact or
omission in connection with the administration or interpretation
of the Incentive Plan, unless arising out of such person’s
own fraud or bad faith.
The place of administration of the Incentive Plan shall be in
the State of Oklahoma and the validity, construction,
interpretation, administration and effect of the Incentive Plan
and the rules, regulations and rights relating to the Incentive
Plan, shall be determined solely in accordance with the laws of
the State of Oklahoma.
FORM OF PROXY
Cut or tear along perforated edge.
QUEST RESOURCE CORPORATION
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints JERRY D. CASH and DAVID E. GROSE, in the order named, as proxies
(each with the power to act alone and with power of substitution) to vote, as directed below, all
shares of common stock of QUEST RESOURCE CORPORATION (the “Company”) which the undersigned would be
entitled to vote if personally present at the Annual Meeting of Stockholders to be held on June 19,
2008, at 11:00 a.m., Central time, at the Company’s corporate headquarters, located at 210 Park
Avenue, Suite 2750, Oklahoma City, OK, or any adjournment thereof, as follows:
(Continued and to be signed and dated on reverse side.)
When properly executed, this proxy will be voted in the manner directed by the undersigned
Stockholder. If no direction is made, this proxy will be voted FOR all directors in Proposal 1 and
FOR Proposals 2 and 3 and in accordance with discretion of the proxies upon such other matters as
may properly come before the meeting and any adjournment thereof.
The Board of Directors recommends a vote FOR all directors in Proposal 1 and FOR Proposals 2
and 3. The proposals are not related to or conditioned on the approval of other matters, and have
been proposed by the Company.
Please sign exactly as name appears below.
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