<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[ X ] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended MARCH 31, 1997
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from.............. to .............
Commission file number 0-22149
EDGE PETROLEUM CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 76-0511037
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Texaco Heritage Plaza
1111 Bagby, Suite 2100
Houston, Texas 77002
(Address of principal executive offices)
(713) 654-8960
(Registrant's telephone number, including area code)
Indicate by checkmark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes No X*
--- ---
*The registrant became subject to the reporting requirements of Section 13 of
the Securities Exchange Act of 1934 on February 25, 1997.
Indicate the number of shares outstanding of each of the issuer's
classes of common equity, as of the latest practicable date.
Class Outstanding at May 8, 1997
- -------------------------- --------------------------
Common Stock 7,711,947
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
EDGE PETROLEUM CORPORATION
CONSOLIDATED BALANCE SHEETS
- ---------------------------------------------------------------------
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1997 1996
-----------------------------
<S> <C> <C>
ASSETS (UNAUDITED)
CURRENT ASSETS:
Cash and cash equivalents $27,639,970 $ 1,543,228
Accounts receivable, trade 2,172,865 2,038,889
Accounts receivable, joint interest 3,180,702 1,378,453
owners, net
Receivable from related parties 222,135 186,562
Other current assets 439,527 114,456
----------- -----------
Total current assets 33,655,199 5,261,588
PROPERTY AND EQUIPMENT, Net - full cost 13,482,975 11,989,241
method of accounting for oil and gas
property
DEFERRED OFFERING COSTS 1,006,379
OTHER ASSETS 8,938 18,320
----------- -----------
TOTAL ASSETS $47,147,112 $18,275,528
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable, trade $ 1,724,431 $ 1,695,366
Accounts payable to related party 40,000 1,372,450
Accrued interest payable 74,354
Accrued liabilities 525,591 1,128,967
Current portion of notes payable 25,601 300,058
----------- -----------
Total current
liabilities 2,315,623 4,571,195
----------- -----------
NOTES PAYABLE 6,893 11,561,844
DEFERRED INCOME TAXES 473,247 248,673
MINORITY INTEREST 2,267,185
----------- -----------
Total liabilities 2,795,763 18,648,897
----------- -----------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred stock, $.01par value;
5,000,000 shares authorized; none
outstanding
Common stock, $.01par value;
25,000,000 shares authorized;
7,711,947 shares issued and
outstanding 77,120
Additional paid-in capital 47,429,309
Retained earnings 931,351
Unearned compensation - restricted
stock (4,086,431)
Equity (deficit) of predecessor
entities (373,369)
----------- -----------
Total stockholders'
equity 44,351,349 (373,369)
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' $47,147,112 $18,275,528
EQUITY =========== ===========
</TABLE>
See notes to consolidated financial statements.
2
<PAGE>
EDGE PETROLEUM CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
- --------------------------------------------------------------------------
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
------------------------
1997 1996
<S> <C> <C>
(UNAUDITED)
OIL AND NATURAL GAS REVENUES $3,441,001 $1,277,101
OPERATING EXPENSES:
Oil and natural gas operating
expenses 628,413 348,337
Depreciation, depletion and
amortization 615,764 309,222
General and administrative expenses 968,818 879,726
---------- ----------
Total operating expenses 2,212,995 1,537,285
---------- ----------
OPERATING INCOME (LOSS) 1,228,006 (260,184)
OTHER INCOME AND EXPENSE:
Interest expense (180,307) (153,840)
Interest income 108,226
---------- ----------
NET INCOME (LOSS) BEFORE INCOME TAXES
AND MINORITY INTEREST 1,155,925 (414,024)
INCOME TAX (EXPENSE) BENEFIT (224,574) 112,535
MINORITY INTEREST 208,993
---------- ----------
NET INCOME (LOSS) $ 931,351 $ (92,496)
========== ==========
PRO FORMA EARNINGS (LOSS) PER SHARE $ 0.16 $ (0.02)
========== ==========
PRO FORMA WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 5,872,144 4,701,361
========== ==========
</TABLE>
See notes to consolidated financial statements.
3
<PAGE>
EDGE PETROLEUM CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
EQUITY UNEARNED
COMMON STOCK ADDITIONAL (DEFICIT) OF COMPENSATION - TOTAL
------------------------ PAID-IN RETAINED PREDECESSOR RESTRICTED STOCKHOLDERS'
SHARES AMOUNT CAPITAL EARNINGS ENTITIES STOCK EQUITY
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE,
DECEMBER 31, 1996 $(373,369) $ (373,369)
Combination (unaudited) 4,701,361 $47,014 $ 3,179,252 373,369 3,599,635
Public stock offering, net of
offering costs of $2.2
million (unaudited) 2,760,000 27,600 40,117,894 40,145,494
Issuance of restricted
common stock (unaudited) 250,586 2,506 4,132,163 $(4,134,669) -
Compensation expense
(unaudited) 48,238 48,238
Net income (unaudited) $931,351 931,351
------------ -------- ------------ --------- ------------ -------------- ------------
BALANCE,
MARCH 31, 1997
(unaudited) 7,711,947 $77,120 $47,429,309 $931,351 $ - $(4,086,431) $44,351,349
============ ======== ============ ========= ============ ============== ============
</TABLE>
See notes to consolidated financial statements.
4
<PAGE>
EDGE PETROLEUM CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
- --------------------------------------------------------------------------
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
---------------------------
1997 1996
(UNAUDITED)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 931,351 $ (92,496)
Adjustments to reconcile net income
(loss) to net cash provided (used)
by operating activities:
Depreciation, depletion and amortization 615,764 309,222
Deferred income taxes 224,574 (112,535)
Compensation expense 48,238
Minority interest (208,993)
Changes in assets and liabilities:
Accounts receivable, trade (133,976) (531,168)
Accounts receivable, joint
interest owners, net (1,802,249) (140,493)
Receivable from related parties (35,573) (47,437)
Other current assets (325,071) 8,140
Other assets 9,382 23,930
Accounts payable, trade 29,065 296,675
Accounts payable to related party 120,873
Accrued interest payable (74,354) 6,720
Accrued liabilities (603,376) 432,551
Long-term liability (11,899)
------------ -----------
Net cash provided
(used) by operating
activities (1,116,225) 53,090
------------ -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Oil and gas property and equipment
purchases (2,109,498) (2,179,114)
Proceeds from the sale of oil and 483,594
gas properties ------------ -----------
Net cash used in
investing activities (2,109,498) (1,695,520)
------------ -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from notes payable 867,350 2,450,000
Payment on notes payable (11,017,348)
Payment on long-term notes payable (379,410) (44,498)
Payment on related party subordinated loans (1,300,000)
Net proceeds from issuance of common stock 41,151,873
------------ -----------
Net cash provided by
financing activities 29,322,465 2,405,502
------------ -----------
NET INCREASE IN CASH AND CASH EQUIVALENTS 26,096,742 763,072
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 1,543,228 200,831
------------ -----------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 27,639,970 $ 963,903
============ ===========
SUPPLEMENTAL CASH FLOW DISCLOSURES -
Cash paid for interest $ 254,661 $ 158,738
NON-CASH TRANSACTIONS:
Combination transactions $ 3,599,635
Deferred offering costs at December
31, 1996 capitalized to equity $ 1,006,379
</TABLE>
See notes to consolidated financial statements.
5
<PAGE>
EDGE PETROLEUM CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The financial statements included herein have been prepared by Edge Petroleum
Corporation, a Delaware corporation (the "Company"), without audit pursuant
to the rules and regulations of the Securities and Exchange Commission, and
reflect all adjustments which are, in the opinion of management, necessary to
present a fair statement of the results for the interim periods on a basis
consistent with the annual audited Supplementally Combined Financial
Statements. All such adjustments are of a normal recurring nature. The
results of operations for the interim period are not necessarily indicative
of the results to be expected for an entire year. Certain information,
accounting policies and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been omitted pursuant to such rules and regulations, although
the Company believes that the disclosures are adequate to make the
information presented not misleading. Certain prior year amounts have been
reclassified to conform to the current year presentation. Such
reclassifications do not affect net earnings. These Financial Statements
should be read in conjunction with the Company's Supplementally Combined
Financial Statements and notes thereto included in its Registration Statement
on Form S-1, as amended (Registration No. 333-17267) (the "Registration
Statement").
2. ORGANIZATION AND PRINCIPLES OF COMBINATION
In March 1997, the Company completed its initial public offering (the
"Offering') of 2,760,000 shares of its common stock at a public offering
price of $16.50 per share. The Offering provided the Company with proceeds
of approximately $40.1 million, net of expenses.
The Company was organized as a Delaware corporation in August 1996 in
connection with the Offering and the related combination of certain entities
that held interests in Edge Joint Venture II (the "Joint Venture") and the
acquisition of direct interests in the Joint Venture and in certain oil and
natural gas properties also owned by the Joint Venture. In a series of
transactions (the "Combination"), the Company acquired directly or indirectly
100% of the interests in the Joint Venture by completing (i) a merger of Edge
Petroleum Corporation, a Texas corporation ("Old Edge"), with and into a
wholly owned subsidiary of the Company in which shareholders of Old Edge
received shares of common stock and Old Edge became a wholly owned subsidiary
of the Company; (ii) an exchange of shares of the Company's common stock for
the general and limited partner interests in Edge Group II Limited
Partnership and the limited partner interests in Gulfedge Limited
Partnership; (iii) an acquisition of interests in certain oil and natural gas
properties held by Mr. James C. Calaway (the "Calaway Interests") in exchange
for shares of the Company's common stock; and (iv) a purchase of Edge Group
Partnership's interest in the Joint Venture in exchange for shares of the
Company's common stock. The Company issued an aggregate of 4,701,361 shares
of common stock in the Combination.
The Combination was accounted for as a reorganization in accordance with
Staff Accounting Bulletin No. 47 because of the high degree of common
ownership among the combining entities. Accordingly, the net assets acquired
in the Combination have been recorded at the historical cost basis of the
affiliated predecessor owners. The consolidated financial statements
presented herein represent the consolidated financial statements of Edge
Petroleum Corporation (a Delaware corporation) as of and for the three months
ending March 31, 1997 and the Supplementally Combined Financial Statements of
Old
6
<PAGE>
Edge and the Joint Venture, with Joint Venture interests not owned by Old
Edge shown as minority interest, as of December 31, 1996 and for the three
months ending March 31, 1996. Such statements will herein collectively be
referred to as the consolidated financial statements of the Company.
3. PRO FORMA EARNINGS PER SHARE
Pro forma earnings per share is based on the weighted average number of
shares of common stock outstanding during the period. The computation
assumes that the Company was incorporated during the periods presented and
presents the shares issued in connection with the Combination as outstanding
for all periods. The effects of common stock equivalent shares (stock
options) were not material and not dilutive for the three months ended March
31, 1997.
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128 ("SFAS No. 128") "Earnings per
Share." SFAS No. 128 establishes standards for computing and presenting
earnings per share ("EPS") and applies to entities with publicly held common
stock or potential common stock. This statement simplifies the standards for
computing EPS previously found in Accounting Principles Board ("APB") Opinion
No. 15, "Earnings per Share," and makes them comparable to international EPS
standards. This statement is effective for financial statements issued for
periods ending after December 15, 1997, including interim periods; earlier
application is not permitted. This statement requires restatement of all
prior-period EPS data presented. Considering the guidelines as prescribed by
SFAS No. 128; management believes that the adoption of this statement will
not have a material effect on EPS and pro forma EPS for the adoption of this
standard, as suggested for all interim and annual periods prior to required
adoption, has been omitted due to immateriality.
4. INCOME TAXES
The following pro forma income tax amounts have been presented for disclosure
purposes only. Prior to the Combination, the owners of the interests in the
Joint Venture (or, in the case of such owners that were not taxable as
entities, the owners of interests in such entities) were liable for federal
income taxes on the taxable earnings of the Joint Venture. Old Edge was a
tax-paying entity and, accordingly, paid taxes on the earnings of the Joint
Venture allocated to it.
Under the liability method specified by Statement of Financial Accounting
Standards ("SFAS") No. 109, deferred taxes are recognized based on the
estimated future tax effect of differences between the financial statement
basis and tax basis of assets and liabilities given the provisions of enacted
tax laws. The related tax basis amounts at March 31, 1997 have been
estimated. Such amounts will be adjusted once the respective March 3, 1997
income tax returns are finalized. Each former owner of interests in the
Joint Venture (or, in the case of such owners that were not taxable as
entities, the owners of interests in such entities) and the former owner of
the Calaway Interests will be required under existing federal income tax
rules and regulations to include in its taxable income, for all periods
ending on the date of or prior to the completion of the Combination (March 3,
1997), its allocable portion of the taxable income of the Joint Venture and
the Calaway Interests and will be entitled to all tax benefits related to
such taxable income through the completion of such Combination.
The ultimate tax basis and related difference from financial statement basis
are not determinable with certainty until completion of the final March 3,
1997 tax returns and may be materially different from the estimated amounts
depending upon the level and nature of operations and the amount of taxable
income and deductions allocated to the individual owners, limited partners
and interests of the affiliated entities. The ultimate difference in the
book and tax basis of assets and liabilities from what has been previously
7
<PAGE>
recorded will result in an adjustment to the Company's tax provision and will
be recorded within the consolidated statement of operations.
The differences between the statutory federal income taxes and the Company's
effective taxes are summarized as follows (in thousands):
<TABLE>
<CAPTION>
MARCH 31,
----------------------
1997 1996
---------- ----------
<S> <C> <C>
Statutory federal income tax expense (benefit)....... $ 404,574 $(144,908)
Taxes prior to the combination not payable by the
Company............................................. (180,000) 32,373
--------- ---------
Provision for income taxes........................... $ 224,574 $(112,535)
========= =========
</TABLE>
The pro forma provision for income taxes for the three-month periods ended
March 31, 1997 and 1996 have been presented to reflect the Company's income
taxes that would have been reported had the Company owned all of the
interests in the Joint Venture since its inception (April 8, 1991).
Pro forma provision for taxes:
<TABLE>
<CAPTION>
MARCH 31,
------------------------
1997 1996
---------- -----------
<S> <C> <C>
Net income (loss) before income taxes........ $1,155,925 $ (414,024)
Pro forma income tax (expense) benefit....... (404,574) 144,908
---------- ----------
Pro forma net income (loss).................. $ 751,351 $ (269,116)
========== ==========
Pro forma earnings (loss) per share.......... $ 0.13 $ (0.06)
========== ==========
Pro forma weighted average number of common
shares outstanding........................ 5,872,144 4,701,361
========== ==========
</TABLE>
5. COMMODITY PRICE RISK MANAGEMENT ACTIVITIES
The Company periodically uses derivative financial instruments to manage
price risks related to natural gas sales and not for speculation. Gains and
losses related to qualifying hedges of the Company are recognized as a
component of oil and natural gas sales when the hedged transaction occurs.
Reference is made to the Supplementally Combined Financial Statements of the
Company included in the Registration Statement for a more thorough discussion
of the Company's commodity hedging activities. Total natural gas purchased
and sold under swap arrangements during the three month period ended March
31, 1996 was 182 MMcf resulting in a gain of $5,270. The Company had no
hedging activity and there were no open hedging positions as of and for the
three month period ended March 31, 1997.
6. STOCK INCENTIVE PLAN
In January 1997, the Company adopted its Incentive Plan of Edge Petroleum
Corporation (the "Incentive Plan") and reserved for issuance pursuant to such
plan 1,000,000 shares of common stock. During the quarter ended March 31,
1997, 634,696 stock options were granted to participants in the plan with an
exercise price equal to the fair market value on the date of grant (the
$16.50 public offering price in the Offering). In October 1995, the
Financial Accounting Standards Board issued SFAS No. 123 "Accounting for
Stock-Based Compensation." SFAS No. 123 establishes a fair value method of
8
<PAGE>
accounting for awards granted in fiscal years that begin after December 15,
1994 under stock compensation plans. SFAS No. 123 encourages, but does not
require, companies to adopt the fair value method of accounting in place of
the intrinsic value method prescribed by APB Opinion No. 25, "Accounting for
Stock Issued to Employees." The Company has elected to continue using the
provisions of APB Opinion No. 25, and, accordingly, stock options granted at
fair market value on the date of grant will have no effect on the Company's
results of operations.
On March 3, 1997, the Company also issued 250,586 shares of restricted stock
to employees, without payment to the Company, under the Incentive Plan. The
restrictions on disposition on 125,293 of these shares lapse 20% each year.
The restrictions on disposition of the other 125,293 shares lapse on the
earlier of ten years from the date of grant or the achievement of certain
performance goals. Nonvested shares must be forfeited in the event
employment ceases. The value of the restricted stock on the date of grant,
totaling approximately $4.1 million based on the public offering price in the
Offering, has been recorded as an equity issuance and unearned compensation
(presented as a reduction of equity). The unearned compensation will be
charged to earnings over the vesting period.
9
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following is management's discussion and analysis of certain
significant factors that have affected certain aspects of the Company's
financial position and operating results during the periods included in the
accompanying unaudited condensed consolidated financial statements. This
discussion should be read in conjunction with the discussion under "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the annual Supplementally Combined Financial Statements included in the
Company's Registration Statement on Form S-1, as amended (Registration No. 333-
17267) (the "Registration Statement"), relating to the Company's initial public
offering (the "Offering") and the accompanying unaudited condensed consolidated
financial statements. Unless otherwise indicated by the context, references
herein to the "Company" mean Edge Petroleum Corporation, a Delaware corporation
that is the registrant, and its corporate and partnership subsidiaries and
predecessors.
THE COMBINATION TRANSACTIONS AND INITIAL PUBLIC OFFERING
The Company was organized as a Delaware corporation in August 1996 in
connection with the Offering and the related combination of certain entities
that held interests in Edge Joint Venture II (the "Joint Venture") and the
acquisition of direct interests in the Joint Venture and in certain oil and
natural gas properties also owned by the Joint Venture. In a series of
transactions (the "Combination"), the Company acquired directly or indirectly
100% of the interests in the Joint Venture by completing (i) a merger of Edge
Petroleum Corporation, a Texas corporation ("Old Edge"), with and into a wholly
owned subsidiary of the Company in which shareholders of Old Edge received
shares of common stock and Old Edge became a wholly owned subsidiary of the
Company; (ii) an exchange of shares of the Company's common stock for the
general and limited partner interests in Edge Group II Limited Partnership and
the limited partner interests in Gulfedge Limited Partnership; (iii) an
acquisition of interests in certain oil and natural gas properties held by Mr.
James C. Calaway (the "Calaway Interests") in exchange for shares of the
Company's common stock; and (iv) a purchase of Edge Group Partnership's interest
in the Joint Venture in exchange for shares of the Company's common stock. The
Company issued an aggregate of 4,701,361 shares of common stock in the
Combination.
From inception through March 2, 1997, except for Old Edge, the owners of
interests in the Joint Venture were not required to pay federal income taxes due
to their status as "pass-through" entities that are not subject to federal
income taxation; instead, taxes relating to the taxable income of the Joint
Venture for such periods were required to be paid by the owners of such
entities. Although the effective date of the Combination is March 3, 1997, each
owner of interests in the Joint Venture (or holders of interests in such owners
that are "pass through" entities) will be required to include in its taxable
income, for all periods ending on the date of or prior to the completion of the
Combination, its allocable portion of the taxable income attributable to the
Joint Venture and will be entitled to all tax benefits attributable to the Joint
Venture through completion of the Combination.
The Company uses the full-cost method of accounting for its oil and natural
gas properties. Under this method, all acquisition, exploration and development
costs that are directly attributable to the Company's acquisition, exploration
and development activities, are capitalized in a "full-cost pool" as incurred.
The Company records depletion of its full-cost pool using the unit of production
method. To the extent that such capitalized costs in the full cost pool (net of
depreciation, depletion and amortization and related deferred taxes) exceed the
present value (using a 10% discount rate) of estimated future net after-tax cash
flows from proved oil and natural gas reserves, such excess costs are charged to
operations. Once incurred, a write-down of oil and natural gas properties is
not reversible at a later date.
10
<PAGE>
The Company periodically uses derivative financial instruments to manage
price risks related to natural gas sales and not for speculative purposes. For
book purposes, gains and losses related to hedging of anticipated transactions
are recognized as a component of oil and natural gas sales when the hedged
transaction occurs. The Company's hedging arrangements apply to only a portion
of its production, provide only partial price protection against declines in
prices, limit potential gains from future increases in prices and may expose the
Company to risk of financial loss in certain circumstances. Total natural gas
purchased and sold under swap arrangements during the three month period ended
March 31, 1996 was 182 MMcf resulting in a gain of $5,270. The Company had no
hedging activity and there were no open hedging positions as of and for the
three month period ended March 31, 1997.
The Company's revenue, profitability and future rate of growth and ability
to borrow funds or obtain additional capital, and the carrying value of its
properties, are substantially dependent upon prevailing prices for natural gas,
oil and condensate. These prices are dependent upon numerous factors beyond the
Company's control, such as economic, political and regulatory developments and
competition from other sources of energy. The energy markets have historically
been very volatile, and there can be no assurance that oil and natural gas
prices will not be subject to wide fluctuations in the future. A substantial or
extended decline in oil and natural gas prices could have a material adverse
effect on the Company's financial condition, results of operation and access to
capital, as well as the quantities of oil and natural gas reserves that the
Company may economically produce. The Company periodically enters into fixed
price material gas contracts on a month to month basis for production from
certain fields.
RESULTS OF OPERATIONS
THE THREE MONTHS ENDED MARCH 31, 1997 COMPARED TO THE THREE MONTHS ENDED MARCH
31, 1996
Oil and natural gas revenues for the three months ended March 31, 1997
increased 169% from $1.3 million to $3.4 million as compared to the same period
in 1996. Production volumes for oil and condensate increased 4% from 28 MBbls
in the first three months of 1996 to 29 MBbls in the same period in 1997. The
increase in oil and condensate production increased revenues by $7,000 (based on
prior year prices), and a 33% increase in average oil sales price further
increased revenue by $164,000 (based on current year production). Production
volumes for natural gas increased 178% from 367 MMcfs in the first three months
of 1996 to 1,022 MMcfs in the same period in 1997. The increase in natural gas
production increased revenues by $1.4 million, and a 26% increase in average
natural gas sales price further increased revenues by $593,000. This increase
in oil and natural gas production was due to 45 gross (13.49 net) new
exploratory and development wells being successfully drilled and completed since
March 31, 1996 resulting from the Company's active drilling programs partially
offset by normal production declines from existing wells. During the three
months ended March 31, 1997, the Company marketed its natural gas produced from
a certain gas field under the terms of a fixed price natural gas contract, which
expired March 31, 1997. The terms of the contract required no minimum volume
commitment and provided incremental pricing based on certain levels of
production. Total volume sold by the Company under this contract for the three
month period ended March 31, 1997 was approximately 334 MMcfs receiving an
overall average natural gas price comparable to the average spot market price.
No such contract existed during the three month period ended March 31, 1996.
Increases in average oil and natural gas prices were directly attributable to
the generally improved conditions experienced in the overall oil and natural gas
market during the quarter ended March 31, 1997 compared to the same period in
1996.
11
<PAGE>
The following table sets forth certain operational data of the Company for
the periods presented:
<TABLE>
<CAPTION>
Three Months Ended 1997 Period Compared
March 31, to 1996 Period
------------------ ---------------------
1997 1996 Increase % Increase
-------- -------- -------- -----------
<S> <C> <C> <C> <C>
Production volumes:
Oil and condensate (MBbls) 29 28 1 4%
Natural gas (MMcf) 1,022 367 655 178%
Average sales prices:
Oil and condensate ($ per Bbl) $22.59 $16.93 $ 5.66 33%
Natural gas ($ per Mcf) 2.73 2.16 0.57 26%
Operating revenues:
Oil and condensate (in thousands) $ 655 $ 484 $ 171 35%
Natural gas (in thousands) 2,786 793 1,993 251%
------ ------ ------ ---
Total (in thousands) $3,441 $1,277 $2,164 169%
====== ====== ====== ===
</TABLE>
Oil and natural gas operating expenses for the three months ended March 31,
1997 increased 80% from $348,000 to $628,000 as compared to the same period in
1996 due to increased production. Oil and natural gas operating expenses were
$0.53 per Mcfe and $0.65 Mcfe for the three month periods ended March 31, 1997
and 1996, respectively.
Depreciation, depletion and amortization expense ("DD&A") for the three
months ended March 31, 1997 increased 99% from $309,000 to $616,000 as compared
to the same period in 1996. This increase was primarily due to the increase in
oil and natural gas production which increased DD&A by $292,000, offset by a 1%
decrease in the overall depletion rate that decreased DD&A by $8,000. The
remaining increase in DD&A is due primarily to depreciation of new computer
hardware and software purchased since March 31, 1996.
General and administrative expenses for the three months ended March 31,
1997 increased 10% from $880,000 to $969,000, compared to the same period in
1996. This increase was attributable to additional staffing and the hiring of
additional employees to support the Company's increased level of drilling
activities and 3-D project generation. General and administrative expenses were
further increased during the three months ended March 31, 1997 by $161,000
resulting from expenses incurred as a result of being a public company.
Included within general and administrative expenses for the three months ended
March 31, 1997 and 1996, is approximately $235,000 and $61,000, respectively, of
overhead reimbursements and management fees received from various management,
operating and seismic agreements. General and administrative expenses are
expected to continue to increase as the Company drills more wells and the number
of wells that it operates increases. General and administrative expenses on a
unit of production basis for the three month periods ended March 31, 1997 and
1996 were $.81 per Mcfe and $1.26 per Mcfe, respectively. The Company expects
general and administrative expenses on a per unit of production basis to
continue to decline.
Interest expense for the three months ended March 31, 1997 increased 17%
from $154,000 to $180,000 as compared to the same period in 1996. The weighted
average debt was $8.1 million for the three month period ended March 31, 1997,
as compared to $6.3 million for the same period in 1996. Total indebtedness of
$12.7 million was repaid on March 3, 1997 with proceeds of the Offering (as
described below), and the Company had no significant debt at March 31, 1997.
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Interest income for the three months ended March 31, 1997 increased to
$108,000 due to earnings from money market investments purchased with excess
proceeds from the Offering. There was no material interest income earned during
the same period in 1996.
Income tax expense (benefit) for the three month period ended March 31,
1997 increased from a tax benefit of $113,000 to a tax expense of $225,000 as
compared to the same period in 1996. The increase was due to improved results of
operations during 1997 offset by the tax effect of operations attributable to
the predecessor entities ownership interests in the Joint Venture for such
periods required to be paid by the owners of such interests.
Minority interest for the three months ended March 31, 1997 was eliminated
as result of the completion of the Combination on March 3, 1997 in which the
Company acquired from the predecessor entities 100% of their ownership interests
in the Joint Venture.
For the three months ended March 31, 1997, the Company had operating income
of $1.2 million, as compared to an operating loss of $260,000 for the same
period in 1996, reflecting increased oil and natural gas production and stronger
overall market conditions than those prevailing in the same period in 1996. Net
income was $931,000 for the three months ended March 31, 1997, as compared to a
net loss of $92,000 for the same period in 1996.
LIQUIDITY AND CAPITAL RESOURCES
In March 1997, the Company completed the Offering of 2,760,000 shares of
common stock at a public offering price of $16.50 per share. The Offering
provided the Company with proceeds of approximately $40.1 million, net of
expenses. The Company used approximately $12.7 million to repay its long-term
outstanding indebtedness incurred under its revolving credit facility (the
"Credit Facility"), subordinated loans and equipment loans. The remaining
proceeds from the Offering, together with cash flows from operations, will be
used to fund planned capital expenditures, commitments, other working capital
requirements and for general corporate purposes.
The Company had cash and cash equivalents at March 31, 1997 of $27.6
million, consisting primarily of short-term money market investments of $26.6
million, as compared to $1.5 million at December 31, 1996. Working capital was
$31.3 million at March 31, 1997, as compared to $690,000 at December 31, 1996.
Operating cash flow (pre-tax) before changes in working capital increased
substantially to approximately $1.8 million for the first quarter of 1997 from
$(105,000) for the same period in 1996. The increase was the result of increases
in production from new well additions, reflecting rapidly expanding operations,
and higher prices realized for production. Operating cash flow (pre-tax), a
measure of performance for exploration and production companies, represents cash
flows from operating activities prior to changes in assets and liabilities.
Operating cash flow should not be considered in isolation or as a substitute for
net income, operating income, cash flows from operating activities or any other
measure of financial performance presented in accordance with generally accepted
accounting principles or as a measure of profitability or liquidity.
During the three months ended March 31, 1997, the Company continued to
reinvest a substantial portion of its cash flows to increase its 3-D project
portfolio, improve its 3-D seismic interpretation technology and fund its
drilling program. The Company expects to continue to reinvest a substantial
portion of its cash flows for these purposes, and expects capital expenditures
in 1997 to be at least $20 million. Capital expenditures during the three
months ended March 31, 1997 were $2.1 million as compared to $2.2 million during
the same period in 1996. The Company's drilling efforts resulted in the
successful completion of 13 gross (3.94 net) wells in the first quarter of 1997,
with one additional well successfully logged but awaiting side track operations
due to a mechanical failure, as compared to 12 gross (6.27 net) wells during the
same period in 1996. In comparing the total wells drilled during the three
month period ended March 31, 1997 to the same period in 1996, the lower net
wells drilled during 1997 is due to
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the Company retaining smaller (before payout) average working interests. The
decreased net wells for the three month period ended March 31, 1997 is not an
indication of a trend but is the result of specific risk management decisions by
the Company. The Company intends to fund its planned capital expenditures,
commitments and working capital requirements through cash flows from operations,
proceeds of the Offering and, to the extent necessary, borrowings under the
Credit Facility or other financing activities. The Company believes it will have
sufficient capital resources and liquidity to fund its capital expenditures and
meet its financial obligations as they come due.
REVOLVING CREDIT FACILITY
In July 1995, the Company entered into the two-year secured Credit Facility
with Compass Bank-Houston ("Compass") which provides a maximum loan amount of
$20 million, subject to borrowing base limitations. The Credit Facility allows
Compass to make, in its sole discretion, the borrowing base determination based
upon the Company's proved oil and natural gas reserves. During early 1997 the
maturity of the Credit Facility was extended to July 1998. The interest rate
for borrowings is either the Base Rate plus 0.5% or LIBOR plus 2.5%. The Base
Rate is the higher of (i) the Federal Funds Rate plus 0.5% or (ii) the prime
rate. The Credit Facility also provides for the payment of certain commitment
and other fees. The Company is subject to certain covenants under the terms of
the Credit Facility, including requirements to maintain specified tangible
capital and a ratio of cash flow to debt service coverage of at least 1.25 to
1.00. The Credit Facility also places restriction on dividends, additional
indebtedness, liens, sales of properties and other matters.
During March 1997, the outstanding balance under the Credit Facility of
$11.0 million was repaid with proceeds from the Offering. The Credit Facility
remains available for future borrowings, but the borrowing base has been reduced
at the Company's request to $1 million so as to limit expenses. However, the
Company has the ability to restore availability at any time subject to the
provisions of the Credit Facility.
SUBORDINATED LOAN
In December 1994, the Joint Venture entered into an agreement providing for
a subordinated loan. Such agreement provided for a $1 million term loan and a
$1 million line of credit. The Company borrowed $1 million under the provisions
of the term loan and $300,000 under the line of credit. During March 1997, the
outstanding balance of $1.3 million was repaid with proceeds from the Offering
and the subordinated loan agreement was canceled.
EQUIPMENT LOANS
Prior to the Offering, the Company was a party to various equipment loans
with lenders to acquire computer and related office equipment. These loans had
various terms and maturities. During March 1997, all but $32,000 of the
outstanding balance of $412,000 was repaid with proceeds from the Offering.
ACCOUNTING STANDARDS
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128 ("SFAS No. 128") "Earnings per Share."
SFAS No. 128 establishes standards for computing and presenting earnings per
share ("EPS") and applies to entities with publicly held common stock or
potential common stock. This statement simplifies the standards for computing
EPS previously found in Accounting Principles Board Opinion No. 15, "Earnings
per Share," and makes them comparable to international EPS standards. This
statement is effective for financial statements issued for periods ending after
December 15, 1997, including interim periods; earlier application is not
permitted.
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This statement requires restatement of all prior-period EPS data presented.
Considering the guidelines as prescribed by SFAS No. 128; management believes
that the adoption of this statement will not have a material effect on EPS; and
pro forma EPS, as suggested for all interim and annual periods prior to required
adoption, has been omitted due to immateriality.
FORWARD LOOKING STATEMENT
The statements contained in all parts of this document, including, but not
limited to, those relating to the Company's drilling plans, its 3-D project
portfolio, capital expenditures, use of Offering proceeds, general and
administrative expenses on a per unit of production basis, the ability of
expected sources of liquidity to support working capital and capital expenditure
requirements and any other statements regarding future operations, financial
results, business plans and cash needs and other statements that are not
historical facts are forward looking statements. When used in this document,
the words "anticipate," "estimate," "expect," "may," "project," "believe" and
similar expressions are intended to be among the statements that identify
forward looking statements. Such statements involve risks and uncertainties,
including, but not limited to, those relating to the Company's dependence on its
exploratory drilling activities, the volatility of oil and natural gas prices,
the need to replace reserves depleted by production, operating risks of oil and
natural gas operations, the Company's dependence on its key personnel, the
Company's reliance on technological development and possible obsolescence of the
technology currently used by the Company, significant capital requirements of
the Company's exploration and development and technology development programs,
the potential impact of government regulations, litigation and environmental
matters, the Company's ability to manage its growth and achieve its business
strategy, competition, the uncertainty of reserve information and future net
revenue estimates, property acquisition risks and other factors detailed in the
Registration Statement and the Company's other filings with the Securities and
Exchange Commission. Should one or more of these risks or uncertainties
materialize, or should underlying assumptions prove incorrect, actual outcomes
may vary materially from those indicated.
15
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PART II - OTHER INFORMATION
Item 1 - Legal Proceedings............................ None
Item 2 - Changes in Securities -
In connection with the Combination, the Company issued 42,896 shares of its
common stock to Mr. James C. Calaway in exchange for the Calaway Interests
pursuant to a Purchase Agreement between the Company and Mr. Calaway dated as of
December 2, 1996. Such transaction was exempt from the registration
requirements of the Securities Act of 1933, as amended (the "Securities Act"),
by virtue of Section 4(2) thereof as a transaction not involving a public
offering.
In connection with the Combination, options to purchase an aggregate of
4,386 shares of common stock of Old Edge granted under the Stock Option Plan of
Old Edge to Mr. Richard Dale and Mr. James D. Calaway on November 4, 1994 were
converted into options to purchase 97,844 shares of the Company's common stock.
Such transaction was exempt from the registration requirements of the Securities
Act by virtue of Rule 701 thereunder and as not involving a sale under Section
2(3) thereof.
Item 3 - Defaults Upon Senior Securities.............. None
Item 4 - Submission of Matters to a Vote of Security Holders -
On February 22, 1997, prior to the closing of the Offering, the Company
held its 1997 Annual Meeting of Stockholders at which the sole stockholder of
the Company approved the appointment of Stanley S. Raphael, Vincent Andrews,
David B. Benedict, Nils Peterson, John Sfondrini, James D. Calaway and John E.
Calaway as directors. On January 24, 1997, the sole stockholder of the Company
approved the Company's restated certificate of incorporation, the Company's
Incentive Plan and Indemnification Agreements between the Company and each of
its directors. On January 29, 1997, the sole stockholder of the Company
approved an amendment to the Company's restated certificate of incorporation.
The Company's first Annual Meeting of Stockholders as a public company will be
held during 1998.
Item 5 - Other Information............................ None
Item 6 - Exhibits and Reports On Form 8-K
(A) EXHIBITS. The following exhibits are filed as part of this report:
INDEX TO EXHIBITS
Exhibit No.
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*2.1 Amended and Restated Combination Agreement by and among (i) Edge
Group II Limited Partnership, (ii) Gulfedge Limited Partnership, (iii)
Edge Group Partnership, (iv) Edge Petroleum Corporation of Texas, (v)
Edge Mergco, Inc. and (vi) the Company, dated as of January 13, 1997
(Incorporated by reference to Exhibit 2.1 to the Registration
Statement on Form S-4 (Registration No. 333-17269) filed by the
Company).
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*3.1 Restated Certificate of Incorporation of the Company, as amended
(Incorporated by reference to Exhibit 3.1 to Registration Statement on
Form S-4 (Registration No. 333 -17269) filed by the Company).
*3.2 Bylaws of the Company (Incorporated by Reference to Exhibit 3.2 to
the Registration Statement on Form S-4 (Registration No. 333-17269)
filed by the Company).
*10.1. Registration Rights Agreement between Edge Holding Company Limited
Partnership and the Company (Incorporated by reference to Exhibit 10.6
to the Registration Statement on Form S-4 (Registration No. 333-17269)
filed by the Company).
*10.2. Form of Indemnification Agreement between the Company and each of
its directors (Incorporated by reference to Exhibit 10.7 to the
Registration Statement on Form S-4 (Registration No. 333-17269) filed
by the Company).
10.3 Incentive Plan of Edge Petroleum Corporation.
10.4 Employment Agreement dated February 25, 1997 between the Company and
John E. Calaway.
10.5 Employment Agreement dated February 25, 1997 between the Company and
James D. Calaway.
*10.6. Employment Agreement between the Company and Michael G. Long
(Incorporated by reference to Exhibit 10.10 to the Registration
Statement on Form S-4 (Registration No. 333-17269) filed by the
Company).
*10.7. Purchase Agreement between the Company and James C. Calaway dated
as of December 2, 1996 (Incorporated by reference to Exhibit 10.11 to
the Registration Statement on Form S-4 (Registration No. 333-17269)
filed by the Company).
11.1 Computation of Earnings Per Share
27.1 Financial Data Schedule
*Incorporated by reference as indicated
(B) Reports on Form 8-K.......................... None
17
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
EDGE PETROLEUM CORPORATION,
A DELAWARE CORPORATION
(REGISTRANT)
Date 5/12/97 /s/ JOHN E. CALAWAY
------------------------------ ----------------------------------
John E. Calaway,
Chief Executive Officer and
Chairman of the Board
Date 5/12/97 /s/ JAMES D. CALAWAY
------------------------------ ----------------------------------
James D. Calaway,
President and Director
Date 5/12/97 /s/ MICHAEL G. LONG
------------------------------ ----------------------------------
Michael G. Long,
Chief Financial Officer
Date 5/12/97 /s/ RICHARD S. DALE
------------------------------ ----------------------------------
Richard S. Dale,
Controller and Treasurer
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EXHIBIT 10.3
CONFORMED COPY
INCLUDING CORRECTIONS
INCENTIVE PLAN
OF
EDGE PETROLEUM CORPORATION
1. Plan. This Incentive Plan of Edge Petroleum Corporation (the
"Plan") was adopted by Edge Petroleum Corporation to reward certain corporate
officers and key employees of Edge Petroleum Corporation and certain independent
consultants by enabling them to acquire shares of common stock of Edge Petroleum
Corporation.
2. Objectives. This Plan is designed to attract and retain key
employees of the Company and its Subsidiaries (as hereinafter defined), to
attract and retain qualified directors of the Company, to attract and retain
consultants and other independent contractors, to encourage the sense of
proprietorship of such employees, directors and independent contractors and to
stimulate the active interest of such persons in the development and financial
success of the Company and its Sub sidiaries. These objectives are to be
accomplished by making Awards (as hereinafter defined) under this Plan and
thereby providing Participants (as hereinafter defined) with a proprietary
interest in the growth and performance of the Company and its Subsidiaries.
3. Definitions. As used herein, the terms set forth below shall have
the following respective meanings:
"Annual Director Award Date" means, for each year beginning on or
after the IPO Closing Date, the first business day of the month next succeeding
the date upon which the annual meeting of stockholders of the Company is held in
such year.
"Authorized Officer" means the Chairman of the Board or the Chief
Executive Officer of the Company (or any other senior officer of the Company to
whom either of them shall delegate the authority to execute any Award
Agreement).
"Award" means an Employee Award, a Director Award or an Independent
Contractor Award.
"Award Agreement" means any Employee Award Agreement, Director Award
Agreement or Independent Contractor Award Agreement.
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"Board" means the Board of Directors of the Company.
"Cash Award" means an award denominated in cash.
"Code" means the Internal Revenue Code of 1986, as amended from time
to time.
"Committee" means the Compensation Committee of the Board or such
other committee of the Board as is designated by the Board to administer the
Plan.
"Common Stock" means the Common Stock, par value $.01 per share, of
the Company.
"Company" means Edge Petroleum Corporation, a Delaware corporation.
"Director" means an individual serving as a member of the Board.
"Director Award" means the grant of a Director Option or Director
Restricted Stock.
"Director Award Agreement" means a written agreement between the
Company and a Participant who is a Nonemployee Director setting forth the terms,
conditions and limitations applicable to a Director Award.
"Director Restricted Stock" means Common Stock granted to Nonemployee
Directors pursuant to the applicable terms, conditions and limitations specified
in paragraph 9(b) hereof.
"Disability" means, with respect to a Nonemployee Director, the
inability to perform the duties of a Director for a continuous period of more
than three months by reason of any medically determinable physical or mental
impairment.
"Dividend Equivalents" means, with respect to shares of Restricted
Stock that are to be issued at the end of the Restriction Period, an amount
equal to all dividends and other distributions (or the economic equivalent
thereof) that are payable to stockholders of record during the Restriction
Period on a like number of shares of Common Stock.
"Employee" means an employee of the Company or any of its Subsidiaries
and an individual who has agreed to become an Employee of the Company or any of
its Subsidiaries and actually becomes such an Employee within the following six
months.
"Employee Award" means the grant of any Option, SAR, Stock Award, Cash
Award or Performance Award, whether granted singly, in combination or in tandem,
to a Participant who is an Employee pursuant to such applicable terms,
conditions and limitations as the Committee may establish in order to fulfill
the objectives of the Plan.
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"Employee Award Agreement" means a written agreement between the
Company and a Participant who is an Employee setting forth the terms, conditions
and limitations applicable to an Employee Award.
"Exchange Act" means the Securities Exchange Act of 1934, as amended
from time to time.
"Fair Market Value" of a share of Common Stock means, as of a
particular date, (i) if shares of Common Stock are listed on a national
securities exchange, the mean between the highest and lowest sales price per
share of Common Stock on the consolidated transaction reporting system for the
principal national securities exchange on which shares of Common Stock are
listed on that date, or, if there shall have been no such sale so reported on
that date, on the last preceding date on which such a sale was so reported, (ii)
if shares of Common Stock are not so listed but are quoted on the Nasdaq
National Market, the mean between the highest and lowest sales price per share
of Common Stock reported by the Nasdaq National Market on that date, or, if
there shall have been no such sale so reported on that date, on the last
preceding date on which such a sale was so reported, (iii) if the Common Stock
is not so listed or quoted, the mean between the closing bid and asked price on
that date, or, if there are no quotations available for such date, on the last
preceding date on which such quotations shall be available, as reported by the
Nasdaq Stock Market, or, if not reported by the Nasdaq Stock Market, by the
National Quotation Bureau Incorporated or (iv) if shares of Common Stock are not
publicly traded, the most recent value determined by an independent appraiser
appointed by the Company for such purpose; provided that, notwithstanding the
foregoing, "Fair Market Value" in the case of any Award made in connection with
the IPO, means the price per share to the public of the Common Stock in the IPO,
as set forth in the final prospectus relating to the IPO.
"Incentive Option" means an Option that is intended to comply with the
requirements set forth in Section 422 of the Code.
"Independent Contractor" means a person providing services to the
Company or any of its Subsidiaries except an Employee or Nonemployee Director.
"Independent Contractor Award" means the grant of any Nonqualified
Stock Option, SAR, Stock Award, Cash Award or Performance Award, whether granted
singly, in combination or in tandem, to a Participant who is an Independent
Contractor pursuant to such applicable terms, conditions and limitations as the
Committee may establish in order to fulfill the objectives of the Plan.
"Independent Contractor Award Agreement" means a written agreement
between the Company and a Participant who is an Independent Contractor setting
forth the terms, conditions and limitations applicable to an Independent
Contractor Award.
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<PAGE>
"IPO" means the first time a registration statement filed under the
Securities Act of 1933 and respecting an underwritten primary offering by the
Company of shares of Common Stock is declared effective under that Act and the
shares registered by that registration statement are issued and sold by the
Company (otherwise than pursuant to the exercise of any overallotment option).
"IPO Closing Date" means the date on which the Company first receives
payment for the shares of Common Stock it sells in the IPO.
"Nonemployee Director" has the meaning set forth in paragraph 4(b)
hereof.
"Nonqualified Stock Option" means an Option that is not an Incentive
Option.
"Option" means a right to purchase a specified number of shares of
Common Stock at a specified price.
"Participant" means an Employee, Director or Independent Contractor to
whom an Award has been made under this Plan.
"Performance Award" means an award made pursuant to this Plan to a
Participant who is an Employee or Independent Contractor who is subject to the
attainment of one or more Performance Goals.
"Performance Goal" means a standard established by the Committee, to
determine in whole or in part whether a Performance Award shall be earned.
"Restricted Stock" means any Common Stock that is restricted or
subject to forfeiture provisions.
"Restriction Period" means a period of time beginning as of the date
upon which an Award of Restricted Stock is made pursuant to this Plan and ending
as of the date upon which the Common Stock subject to such Award is no longer
restricted or subject to forfeiture provisions.
"Rule 16b-3" means Rule 16b-3 promulgated under the Exchange Act, or
any successor rule.
"SAR" means a right to receive a payment, in cash or Common Stock,
equal to the excess of the Fair Market Value or other specified valuation of a
specified number of shares of Common Stock on the date the right is exercised
over a specified strike price, in each case, as determined by the Committee.
"Stock Award" means an award in the form of shares of Common Stock or
units denominated in shares of Common Stock.
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"Subsidiary" means (i) in the case of a corporation, any corporation
of which the Company directly or indirectly owns shares representing more than
50% of the combined voting power of the shares of all classes or series of
capital stock of such corporation which have the right to vote generally on
matters submitted to a vote of the stockholders of such corporation and (ii) in
the case of a partnership or other business entity not organized as a
corporation, any such business entity of which the Company directly or
indirectly owns more than 50% of the voting, capital or profits interests
(whether in the form of partnership interests, membership interests or
otherwise).
4. Eligibility.
(a) Employees. Key Employees eligible for Employee Awards under this Plan
are those who hold positions of responsibility and whose performance, in the
judgment of the Committee, can have a significant effect on the success of the
Company and its Subsidiaries, including those individuals who are expected to
become Employees within six months.
(b) Directors. Directors eligible for Director Awards under this Plan are
those who are not employees of the Company or any of its Subsidiaries
("Nonemployee Directors").
(c) Independent Contractors. Independent Contractors eligible for
Independent Contractor Awards under this Plan are those Independent Contractors
providing services to, or who will provide services to, the Company or any of
its Subsidiaries.
5. Common Stock Available for Awards. Subject to the provisions of
paragraph 15 hereof, there shall be available for Awards under this Plan granted
wholly or partly in Common Stock (including rights or options that may be
exercised for or settled in Common Stock) an aggregate of 1,000,000 shares of
Common Stock, all of which shall be available for Incentive Options. The number
of shares of Common Stock that are the subject of Awards under this Plan, that
are forfeited or terminated, expire unexercised, are settled in cash in lieu of
Common Stock or in a manner such that all or some of the shares covered by an
Award are not issued to a Participant or are exchanged for Awards that do not
involve Common Stock, shall again immediately become available for Awards
hereunder. The Committee may from time to time adopt and observe such
procedures concerning the counting of shares against the Plan maximum as it may
deem appropriate. The Board and the appropriate officers of the Company shall
from time to time take whatever actions are necessary to file any required
documents with governmental authorities, stock exchanges and transaction
reporting systems to ensure that shares of Common Stock are available for
issuance pursuant to Awards.
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<PAGE>
6. Administration.
(a) This Plan, as it applies to Participants who are Employees or
Independent Contractors but not with respect to Participants who are Nonemployee
Directors, shall be administered by the Committee. To the extent required in
order for Employee Awards to be exempt from Section 16 of the Exchange Act by
virtue of the provisions of Rule 16b-3, the Committee shall consist of at least
two members of the Board who meet the requirements of the definition of "non-
employee director" set forth in Rule 16b-3(b)(3)(i) promulgated under the
Exchange Act.
(b) Subject to the provisions hereof, insofar as this Plan relates to the
Employee Awards or Independent Contractor Awards, the Committee shall have full
and exclusive power and authority to administer this Plan and to take all
actions that are specifically contemplated hereby or are necessary or
appropriate in connection with the administration hereof. Insofar as this Plan
relates to Employee Awards or Independent Contractor Awards, the Committee shall
also have full and exclusive power to interpret this Plan and to adopt such
rules, regulations and guidelines for carrying out this Plan as it may deem
necessary or proper, all of which powers shall be exercised in the best
interests of the Company and in keeping with the objectives of this Plan. The
Committee may, in its discretion, provide for the extension of the
exercisability of an Employee Award or Independent Contractor Award, accelerate
the vesting or exercisability of an Employee Award or Independent Contractor
Award, eliminate or make less restrictive any restrictions contained in an
Employee Award or Independent Contractor Award, waive any restriction or other
provision of this Plan (insofar as such provision relates to Employee Awards or
to Independent Contractor Awards) or an Employee Award or Independent Contractor
Award or otherwise amend or modify an Employee Award or Independent Contractor
Award in any manner that is either (i) not adverse to the Participant to whom
such Employee Award or Independent Contractor Award was granted or (ii)
consented to by such Participant. The Committee may make an award to an
individual who it expects to become an Employee of the Company or any of its
Subsidiaries within the next six months, with such award being subject to the
individual's actually becoming an Employee within such time period, and subject
to such other terms and conditions as may be established by the Committee. The
Committee may correct any defect or supply any omission or reconcile any
inconsistency in this Plan or in any Employee Award or Independent Contractor
Award in the manner and to the extent the Committee deems necessary or desirable
to further the Plan purposes. Any decision of the Committee in the
interpretation and administration of this Plan shall lie within its sole and
absolute discretion and shall be final, conclusive and binding on all parties
concerned.
(c) No member of the Committee or officer of the Company to whom the
Committee has delegated authority in accordance with the provisions of paragraph
7 of this Plan shall be liable for anything done or omitted to be done by him or
her, by any member of the Committee or by any officer of the Company in
connection with the performance of
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any duties under this Plan, except for his or her own willful misconduct or as
expressly provided by statute.
7. Delegation of Authority. The Committee may delegate to the Chief
Executive Officer and to other senior officers of the Company its duties under
this Plan pursuant to such conditions or limitations as the Committee may
establish, except that the Committee may not delegate to any person the
authority to grant Awards to, or take other action with respect to, Participants
who are subject to Section 16 of the Exchange Act.
8. Employee and Independent Contractor Awards.
(a) The Committee shall determine the type or types of Employee Awards to
be made under this Plan and shall designate from time to time the Employees who
are to be the recipients of such Awards. Each Employee Award may be embodied in
an Employee Award Agreement, which shall contain such terms, conditions and
limitations as shall be determined by the Committee in its sole discretion and
shall be signed by the Participant to whom the Employee Award is made and by an
Authorized Officer for and on behalf of the Company. Employee Awards may
consist of those listed in this paragraph 8(a) hereof and may be granted singly,
in combination or in tandem. Employee Awards may also be made in combination or
in tandem with, in replacement of, or as alternatives to, grants or rights under
this Plan or any other employee plan of the Company or any of its Subsidiaries,
including the plan of any acquired entity. An Employee Award may provide for the
grant or issuance of additional, replacement or alternative Employee Awards upon
the occurrence of specified events, including the exercise of the original
Employee Award granted to a Participant. All or part of an Employee Award may
be subject to conditions established by the Committee, which may include, but
are not limited to, continuous service with the Company and its Subsidiaries,
achievement of specific business objectives, increases in specified indices,
attainment of specified growth rates and other comparable measurements of
performance. Upon the termination of employment by a Participant who is an
Employee, any unexercised, deferred, unvested or unpaid Employee Awards shall be
treated as set forth in the applicable Employee Award Agreement.
(i) Stock Option. An Employee Award may be in the form of an Option. An
Option awarded pursuant to this Plan may consist of an Incentive Option or a
Nonqualified Option. The price at which shares of Common Stock may be purchased
upon the exercise of an Incentive Option shall be not less than the Fair Market
Value of the Common Stock on the date of grant. The price at which shares of
Common Stock may be purchased upon the exercise of a Nonqualified Option shall
be not less than the Fair Market Value of the Common Stock on the date of grant.
Subject to the foregoing provisions, the terms, conditions and limitations
applicable to any Options awarded pursuant to this Plan, including the term of
any Options and the date or dates upon which they become exercisable, shall be
determined by the Committee.
-7-
<PAGE>
(ii) Stock Appreciation Right. An Employee Award may be in the form of an
SAR. The terms, conditions and limitations applicable to any SARs awarded
pursuant to this Plan, including the term of any SARs and the date or dates upon
which they become exercisable, shall be determined by the Committee.
(iii) Stock Award. An Employee Award may be in the form of a Stock Award.
The terms, conditions and limitations applicable to any Stock Awards granted
pursuant to this Plan shall be determined by the Committee.
(iv) Cash Award. An Employee Award may be in the form of a Cash Award. The
terms, conditions and limitations applicable to any Cash Awards granted pursuant
to this Plan shall be determined by the Committee.
(v) Performance Award. Without limiting the type or number of Employee
Awards that may be made under the other provisions of this Plan, an Employee
Award may be in the form of a Performance Award. A Performance Award shall be
paid, vested or otherwise deliverable solely on account of the attainment of one
or more pre-established, objective Performance Goals established by the
Committee prior to the earlier to occur of (x) 90 days after the commencement of
the period of service to which the Performance Goal relates and (y) the lapse of
25% of the period of service (as scheduled in good faith at the time the goal is
established), and in any event while the outcome is substantially uncertain. A
Performance Goal is objective if a third party having knowledge of the relevant
facts could determine whether the goal is met. Such a Performance Goal may be
based on one or more business criteria that apply to the individual, one or more
business units of the Company, or the Company as a whole, and may include one or
more of the following: increased revenue, net income, stock price, market share,
earnings per share, return on equity, return on assets or decrease in costs.
Unless otherwise stated, such a Performance Goal need not be based upon an
increase or positive result under a particular business criterion and could
include, for example, maintaining the status quo or limiting economic losses
(measured, in each case, by reference to specific business criteria). In
interpreting Plan provisions applicable to Performance Goals and Performance
Awards, it is the intent of the Plan to conform with the standards of Section
162(m) of the Code and Treasury Regulation (S) 1.162-27(e)(2)(i), and the
Committee in establishing such goals and interpreting the Plan shall be guided
by such provisions. Prior to the payment of any compensation based on the
achievement of Performance Goals, the Committee must certify in writing that
applicable Performance Goals and any of the material terms thereof were, in
fact, satisfied. Subject to the foregoing provisions, the terms, conditions and
limitations applicable to any Performance Awards made pursuant to this Plan
shall be determined by the Committee.
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<PAGE>
(b) Notwithstanding anything to the contrary contained in this Plan, the
following limitations shall apply to any Employee Awards made hereunder:
(i) no Participant may be granted, during any one-year period, Employee
Awards consisting of Options or SARs that are exercisable for more than 135,000
shares of Common Stock;
(ii) no Participant may be granted, during any one-year period, Stock
Awards covering or relating to more than 135,000 shares of Common Stock (the
limitation set forth in this clause (ii), together with the limitation set forth
in clause (i) above, being hereinafter collectively referred to as the "Stock
Based Awards Limitations"); and
(iii) no Participant may be granted Employee Awards consisting of cash or
in any other form permitted under this Plan (other than Employee Awards
consisting of Options or SARs or otherwise consisting of shares of Common Stock
or units denominated in such shares) in respect of any one-year period having a
value determined on the date of grant in excess of $500,000.
(c) The Committee shall have the sole responsibility and authority to
determine the type or types of Independent Contractor Awards to be made under
this Plan and may make any such Awards as could be made to an Employee, other
than Incentive Options; provided that the limitations described in paragraph
8(b) shall be inapplicable to Independent Contractor Awards.
9. Director Awards. Each Nonemployee Director of the Company shall
be granted Director Awards in accordance with this paragraph 9 and subject to
the applicable terms, conditions and limitations set forth in this Plan and the
applicable Director Award Agreement. Notwithstanding anything to the contrary
contained herein, Director Awards shall not be made in any year in which a
sufficient number of shares of Common Stock are not available to make such
Awards under this Plan.
(a) Director Options. On the IPO Closing Date, each Nonemployee Director
shall be automatically awarded a Director Option number of shares of Common
Stock determined in the following table:
-9-
<PAGE>
<TABLE>
<CAPTION>
Years of Service With the Number of Shares
Company or its Predecessors Subject to Option
--------------------------- -----------------
<S> <C>
4 years or greater 8,000
3 to 4 years 6,000
2 to 3 years 4,000
2 years or less 2,000
</TABLE>
Effective upon the IPO Closing Date, on the date of his or her first appointment
or election to the Board of Directors, a Nonemployee Director shall
automatically be granted a Director Option that provides for the purchase of
5,000 shares of Common Stock. In addition, on each Annual Director Award Date,
each Nonemployee Director shall automatically be granted a Director Option that
provides for the purchase of 3,000 shares of Common Stock. Each Director Option
shall have a term of ten years from the date of grant, notwithstanding any
earlier termination of the status of the holder as a Nonemployee Director. The
purchase price of each share of Common Stock subject to a Director Option shall
be equal to the Fair Market Value of the Common Stock on the date of grant. All
Director Options shall vest and become exercisable in increments of one-third of
the total number of shares of Common Stock that are subject thereto (rounded up
to the nearest whole number) on the first and second anniversaries of the date
of grant and of all remaining shares of Common Stock that are subject thereto on
the third anniversary of the date of grant. All unvested Director Options
shall be forfeited if the Nonemployee Director resigns as a Director without the
consent of a majority of the other Directors.
Any Award of Director Options shall be embodied in a Director Award
Agreement, which shall contain the terms, conditions and limitations set forth
above and shall be signed by the Participant to whom the Director Options are
granted and by an Authorized Officer for and on behalf of the Company.
(b) Director Restricted Stock. On the Annual Director Award Date, each
Nonemployee Director who was serving as such on the date immediately preceding
the most recent annual meeting of stockholders, shall automatically be awarded a
number of shares of Restricted Stock, in lieu of one-half of the annual retainer
to be paid to the Nonemployee Director for the preceding twelve months in cash.
A number of shares of Director Restricted Stock (rounded up to the nearest whole
number) having a Fair Market Value equal to 50% of the annual retainer otherwise
to be paid to the Nonemployee Director for the preceding twelve months shall be
awarded.
Any Award of Director Restricted Stock shall be embodied in a Director
Award Agreement, which shall contain the terms, conditions and limitations set
forth above and shall be signed by the Participant to whom the Director
Restricted Stock is granted and by an Authorized Officer for and on behalf of
the Company.
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<PAGE>
10. Payment of Awards.
(a) General. Payment of Employee Awards or Independent Contractor Awards
may be made in the form of cash or Common Stock, or a combination thereof, and
may include such restrictions as the Committee shall determine, including, in
the case of Common Stock, restrictions on transfer and forfeiture provisions.
If payment of an Employee Award or Independent Contractor Award is made in the
form of Restricted Stock, the applicable Award Agreement relating to such shares
shall specify whether they are to be issued at the beginning or end of the
Restriction Period. In the event that shares of Restricted Stock are to be
issued at the beginning of the Restriction Period, the certificates evidencing
such shares (to the extent that such shares are so evidenced) shall contain
appropriate legends and restrictions that describe the terms and conditions of
the restrictions applicable thereto. In the event that shares of Restricted
Stock are to be issued at the end of the Restricted Period, the right to receive
such shares shall be evidenced by book entry registration or in such other
manner as the Committee may determine.
(b) Deferral. With the approval of the Committee, amounts payable in
respect of Employee Awards or Independent Contractor Awards may be deferred and
paid either in the form of installments or as a lump-sum payment. The Committee
may permit selected Participants to elect to defer payments of some or all types
of Employee Awards or Independent Contractor Awards in accordance with
procedures established by the Committee. Any deferred payment of an Employee
Award or Independent Contractor Award, whether elected by the Participant or
specified by the Award Agreement or by the Committee, may be forfeited if and to
the extent that the Award Agreement so provides.
(c) Dividends and Interest. Rights to dividends or Dividend Equivalents
may be extended to and made part of any Employee Award or Independent Contractor
Award consisting of shares of Common Stock or units denominated in shares of
Common Stock, subject to such terms, conditions and restrictions as the
Committee may establish. The Committee may also establish rules and procedures
for the crediting of interest on deferred cash payments and Dividend Equivalents
for Employee Awards or Independent Contractor Awards consisting of shares of
Common Stock or units denominated in shares of Common Stock.
(d) Substitution of Awards. At the discretion of the Committee, a
Participant who is an Employee or Independent Contractor may be offered an
election to substitute an Employee Award or Independent Contractor Award for
another Employee Award or Independent Contractor Award or Employee Awards or
Independent Contractor Awards of the same or different type.
-11-
<PAGE>
11. Stock Option Exercise. The price at which shares of Common
Stock may be purchased under an Option shall be paid in full at the time of
exercise in cash or, if elected by the optionee, the optionee may purchase such
shares by means of tendering Common Stock or surrendering another Award,
including Restricted Stock or Director Restricted Stock, valued at Fair Market
Value on the date of exercise, or any combination thereof. The Committee shall
determine acceptable methods for Participants who are Employees or Independent
Contractors to tender Common Stock or other Employee Awards or Independent
Contractor Awards; provided that any Common Stock that is or was the subject of
an Employee Award or Independent Contractor Award may be so tendered only if it
has been held by the Participant for six months. The Committee may provide for
procedures to permit the exercise or purchase of such Awards by use of the
proceeds to be received from the sale of Common Stock issuable pursuant to an
Employee Award or Independent Contractor Award. Unless otherwise provided in
the applicable Award Agreement, in the event shares of Restricted Stock are
tendered as consideration for the exercise of an Option, a number of the shares
issued upon the exercise of the Option, equal to the number of shares of
Restricted Stock or Director Restricted Stock used as consideration therefor,
shall be subject to the same restrictions as the Restricted Stock or Director
Restricted Stock so submitted as well as any additional restrictions that may be
imposed by the Committee.
12. Taxes. The Company shall have the right to deduct applicable
taxes from any Employee Award payment and withhold, at the time of delivery or
vesting of cash or shares of Common Stock under this Plan, an appropriate amount
of cash or number of shares of Common Stock or a combination thereof for payment
of taxes required by law or to take such other action as may be necessary in the
opinion of the Company to satisfy all obligations for withholding of such taxes.
The Committee may also permit withholding to be satisfied by the transfer to the
Company of shares of Common Stock theretofore owned by the holder of the
Employee Award with respect to which withholding is required. If shares of
Common Stock are used to satisfy tax withholding, such shares shall be valued
based on the Fair Market Value when the tax withholding is required to be made.
The Committee may provide for loans, on either a short term or demand basis,
from the Company to a Participant who is an Employee or Independent Contractor
to permit the payment of taxes required by law.
13. Amendment, Modification, Suspension or Termination. The Board
may amend, modify, suspend or terminate this Plan for the purpose of meeting or
addressing any changes in legal requirements or for any other purpose permitted
by law, except that (i) no amendment or alteration that would adversely affect
the rights of any Participant under any Award previously granted to such
Participant shall be made without the consent of such Participant and (ii) no
amendment or alteration shall be effective prior to its approval by the
stockholders of the Company to the extent such approval is then required
pursuant to Rule 16b-3 in order to preserve the applicability of any exemption
provided by such rule to any Award then outstanding (unless the holder of such
Award consents) or to the extent stockholder approval is otherwise required by
applicable legal requirements.
-12-
<PAGE>
14. Assignability. Unless otherwise determined by the Committee and
provided in the Award Agreement, no Award or any other benefit under this Plan
constituting a derivative security within the meaning of Rule 16a-1(c) under the
Exchange Act shall be assignable or otherwise transferable except by will or the
laws of descent and distribution or pursuant to a qualified domestic relations
order as defined by the Code or Title I of the Employee Retirement Income
Security Act, or the rules thereunder. The Committee may prescribe and include
in applicable Award Agreements other restrictions on transfer. Any attempted
assignment of an Award or any other benefit under this Plan in violation of this
paragraph 14 shall be null and void.
15. Adjustments.
(a) The existence of outstanding Awards shall not affect in any manner the
right or power of the Company or its stockholders to make or authorize any or
all adjustments, recapitalizations, reorganizations or other changes in the
capital stock of the Company or its business or any merger or consolidation of
the Company, or any issue of bonds, debentures, preferred or prior preference
stock (whether or not such issue is prior to, on a parity with or junior to the
Common Stock) or the dissolution or liquidation of the Company, or any sale or
transfer of all or any part of its assets or business, or any other corporate
act or proceeding of any kind, whether or not of a character similar to that of
the acts or proceedings enumerated above.
(b) In the event of any subdivision or consolidation of outstanding shares
of Common Stock, declaration of a dividend payable in shares of Common Stock or
other stock split, then, except with respect to the Existing Options, (i) the
number of shares of Common Stock reserved under this Plan, (ii) the number of
shares of Common Stock covered by outstanding Awards in the form of Common Stock
or units denominated in Common Stock, (iii) the exercise or other price in
respect of such Awards, (iv) the appropriate Fair Market Value and other price
determinations for such Awards, (v) the number of shares of Common Stock
covered by Director Options automatically granted pursuant to paragraph 9(a)
hereof and (vi) the Stock Based Awards Limitations shall each be proportionately
adjusted by the Board to reflect such transaction. In the event of any other
recapitalization or capital reorganization of the Company, any consolidation or
merger of the Company with another corporation or entity, the adoption by the
Company of any plan of exchange affecting the Common Stock or any distribution
to holders of Common Stock of securities or property (other than normal cash
dividends or dividends payable in Common Stock), the Board shall make
appropriate adjustments to (i) the number of shares of Common Stock covered by
Awards in the form of Common Stock or units denominated in Common Stock, (ii)
the exercise or other price in respect of such Awards, (iii) the appropriate
Fair Market Value and other price determinations for such Awards, (iv) the
number of shares of Common Stock covered by Director Options automatically
granted pursuant to paragraph 9(a) hereof and (v) the Stock Based Awards
Limitations to give effect to such transaction shall each be proportionately
adjusted by the Board to reflect such transaction; provided that such
-13-
<PAGE>
adjustments shall only be such as are necessary to maintain the proportionate
interest of the holders of the Awards and preserve, without exceeding, the value
of such Awards. In the event of a corporate merger, consolidation, acquisition
of property or stock, separation, reorganization or liquidation, the Board shall
be authorized to issue or assume Awards by means of substitution of new Awards,
as appropriate, for previously issued Awards or to assume previously issued
Awards as part of such adjustment.
16. Restrictions. No Common Stock or other form of payment shall be
issued with respect to any Award unless the Company shall be satisfied based on
the advice of its counsel that such issuance will be in compliance with
applicable federal and state securities laws. It is the intent of the Company
that grants of Awards under this Plan comply with Rule 16b-3 with respect to
persons subject to Section 16 of the Exchange Act unless otherwise provided
herein or in an Award Agreement, that any ambiguities or inconsistencies in the
construction of such an Award or this Plan be interpreted to give effect to such
intention. Certificates evidencing shares of Common Stock delivered under this
Plan (to the extent that such shares are so evidenced) may be subject to such
stop transfer orders and other restrictions as the Committee may deem advisable
under the rules, regulations and other requirements of the Securities and
Exchange Commission, any securities exchange or transaction reporting system
upon which the Common Stock is then listed or to which it is admitted for
quotation and any applicable federal or state securities law. The Committee may
cause a legend or legends to be placed upon such certificates (if any) to make
appropriate reference to such restrictions.
17. Unfunded Plan. Insofar as it provides for Awards of cash, Common
Stock or rights thereto, this Plan shall be unfunded. Although bookkeeping
accounts may be established with respect to Participants who are entitled to
cash, Common Stock or rights thereto under this Plan, any such accounts shall be
used merely as a bookkeeping convenience. The Company shall not be required to
segregate any assets that may at any time be represented by cash, Common Stock
or rights thereto, nor shall this Plan be construed as providing for such
segregation, nor shall the Company, the Board or the Committee be deemed to be a
trustee of any cash, Common Stock or rights thereto to be granted under this
Plan. Any liability or obligation of the Company to any Participant with
respect to an Award of cash, Common Stock or rights thereto under this Plan
shall be based solely upon any contractual obligations that may be created by
this Plan and any Award Agreement, and no such liability or obligation of the
Company shall be deemed to be secured by any pledge or other encumbrance on any
property of the Company. Neither the Company nor the Board nor the Committee
shall be required to give any security or bond for the performance of any
obligation that may be created by this Plan.
18. Governing Law. This Plan and all determinations made and actions
taken pur suant hereto, to the extent not otherwise governed by mandatory
provisions of the Code or the securities laws of the United States, shall be
governed by and construed in accordance with the laws of the State of Delaware.
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<PAGE>
19. Effectiveness. The Plan shall be effective as set forth herein
as of the IPO Closing Date (the "Amendment Effective Date").
-15-
<PAGE>
EXHIBIT 10.4
EMPLOYMENT AGREEMENT
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
1. Employment Period................................................................ 1
2. Terms of Employment.............................................................. 1
(a) Position and Duties......................................................... 1
(b) Compensation................................................................ 2
(i) Base Salary............................................................. 2
(ii) Annual Bonus........................................................... 2
(iii) Incentive, Savings and Retirement Plans............................... 3
(iv) Welfare Benefit Plans.................................................. 3
(v) Expenses................................................................ 3
(vi) Fringe Benefits and Perquisites........................................ 3
(vii) Office and Support Staff.............................................. 3
(viii) Vacation............................................................. 4
(ix) Stock Option Grants.................................................... 4
(x) Restricted Stock and Other Equity-Based Grants.......................... 4
(xi) Life Insurance......................................................... 4
3. Termination of Employment........................................................ 5
(a) Death or Disability......................................................... 5
(b) Cause....................................................................... 5
(c) Good Reason; Window Period.................................................. 6
(d) Notice of Termination....................................................... 7
(e) Date of Termination......................................................... 7
4. Obligations of the Company upon Termination...................................... 7
(a) Disability, Good Reason or During a Window Period; Other than for Cause..... 7
(b) Death (except during a Window Period)....................................... 10
(c) Cause; Other than for Disability, Good Reason or During a Window Period..... 10
5. Non-exclusivity of Rights........................................................ 11
6. Full Settlement; Resolution of Disputes.......................................... 11
7. Certain Additional Payments by the Company....................................... 12
8. Confidential Information......................................................... 15
9. Change of Control................................................................ 15
10. Covenant Not to Compete.......................................................... 19
11. Successors....................................................................... 20
12. Miscellaneous.................................................................... 21
</TABLE>
-i-
<PAGE>
EMPLOYMENT AGREEMENT
This AGREEMENT (the "Agreement") by and between Edge Petroleum
Corporation, a Delaware corporation (the "Company"), and John E. Calaway (the
"Executive"), dated as of the 25th day of February, 1997 and to be effective as
of the Agreement Effective Date (as defined in Section 12(h) hereof).
In entering into this Agreement, the Board of Directors of the Company
(the "Board") desires to provide the Executive with substantial incentives to
serve the Company as one of its senior executives performing at the highest
level of leadership and stewardship, without distraction or concern over minimum
compensation, benefits or tenure, to manage the Company's future growth and
development, and maximize the returns to the Company's stockholders.
NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS:
1. Employment Period. As of the Agreement Effective Date (hereinafter
defined), the Company hereby agrees to employ the Executive and the Executive
hereby agrees to accept employment with the Company, in accordance with, and
subject to, the terms and provisions of this Agreement, for the period (the
"Employment Period") commencing on the Agreement Effective Date and ending on
the fifth anniversary of the Agreement Effective Date; provided, on the second
anniversary of the Agreement Effective Date and each anniversary of the
Agreement Effective Date thereafter, the Employment Period shall automatically
renew for an additional one year without any further action by either the
Company or the Executive, it being the intention of the parties that there shall
be continuously a remaining term of not less than three years' duration of the
Employment Period until an event has occurred as described in, or one of the
parties shall have made an appropriate election pursuant to, the provisions of
Section 3.
2. Terms of Employment.
(a) Position and Duties.
(i) During the Employment Period, (A) the Executive's position (including
status, offices, titles and reporting requirements), authority, duties and
responsibilities shall be at least commensurate in all material respects with
the most significant of those held, exercised and assigned on the Agreement
Effective Date, which shall in any event include status as Chairman of the Board
and Chief Executive Officer of the Company, and (B) the Executive's services
shall be performed within the Houston, Texas metropolitan area.
(ii) During the Employment Period, and excluding any periods of vacation
and sick leave to which the Executive is entitled, the Executive agrees to
devote full attention and time during normal business hours to the business and
affairs of the Company and, to the extent necessary to discharge the
responsibilities assigned to the Executive hereunder, to use
1
<PAGE>
the Executive's reasonable best efforts to perform faithfully and efficiently
such responsibilities. During the Employment Period, it shall not be a
violation of this Agreement for the Executive to (A) serve on corporate, civic
or charitable boards or committees, (B) deliver lectures, fulfill speaking
engagements or teach at educational institutions and (C) manage personal
investments, so long as such activities do not interfere with the performance of
the Executive's responsibilities as an employee of the Company in accordance
with this Agreement. It is expressly understood and agreed that to the extent
that any such activities have been conducted by the Executive prior to the
Agreement Effective Date, the continued conduct of such activities (or the
conduct of activities similar in nature and scope thereto) subsequent to the
Agreement Effective Date shall not thereafter be deemed to interfere with the
performance of the Executive's responsibilities to the Company.
(b) Compensation.
------------
(i) Base Salary. During the Employment Period, the Executive shall receive
an annual base salary equal to the base salary in effect immediately prior to
the Agreement Effective Date ("Annual Base Salary"), which shall be paid on a
semimonthly basis. During the Employment Period, the Annual Base Salary shall
be reviewed at least annually and shall be increased at any time and from time
to time as shall be substantially consistent with increases in base salary
generally awarded in the ordinary course of business to executives of the
Company and its affiliated companies. Any increase in Annual Base Salary shall
not serve to limit or reduce any other obligation to the Executive under this
Agreement. Annual Base Salary shall not be reduced after any such increase and
the term "Annual Base Salary," as utilized in this Agreement, shall refer to
Annual Base Salary as so increased. As used in this Agreement, the term
"affiliated companies" shall include, when used with reference to the Company,
any company controlled by, controlling or under common control with the Company.
(ii) Annual Bonus. In addition to Annual Base Salary, the Executive shall
be awarded, for each fiscal year or portion thereof during the Employment
Period, an Annual Bonus (the "Annual Bonus"), in cash equal to the amount
determined in the following table based on the Company's audited annual net cash
flow increase relative to the audited net cash flow of the Company for the prior
calendar year:
<TABLE>
<CAPTION>
Percent of Increase
In Audited Net Cash Flow Bonus Amount
- ------------------------ ------------
<S> <C>
Less than 15%....................... 0
Greater than 15% and less than 25%.. 50,000
Greater than 25%.................... 105,000
</TABLE>
(iii) Incentive, Savings and Retirement Plans. During the Employment
Period, the Executive shall be entitled to participate in all incentive, savings
and retirement plans that
2
<PAGE>
are tax-qualified under Section 401(a) of the Internal Revenue Code of 1986, as
amended ("Code"), and all plans that are supplemental to any such tax-qualified
plans, in each case to the extent that such plans are applicable generally to
other executives of the Company and its affiliated companies, but in no event
shall such plans provide the Executive with incentive opportunities (measured
with respect to both regular and special incentive opportunities, to the extent,
if any, that such distinction is applicable), savings opportunities and
retirement benefit opportunities that are, in each case, less favorable to the
Executive, in the aggregate, than the most favorable plans of the Company and
its affiliated companies. As used in this Agreement, the term "most favorable"
shall, when used with reference to any plans, practices, policies or programs of
the Company and its affiliated companies, be deemed to refer to the plans,
practices, policies or programs of the Company and its affiliated companies, as
in effect at any time during the Employment Period and provided generally to
other executives of the Company or its affiliated companies, which are most
favorable to the Executive.
(iv) Welfare Benefit Plans. During the Employment Period, the Executive
and/or the Executive's family, as the case may be, shall be eligible for
participation in and shall receive all benefits under welfare benefit plans,
practices, policies and programs provided by the Company or its affiliated
companies (including, without limitation, medical, prescription, dental,
vision, disability, salary continuance, group life and supplemental group life,
accidental death and travel accident insurance plans and programs) to the extent
applicable generally to other executives of the Company or its affiliated
companies, but in no event shall such plans, practices, policies and programs
provide the Executive with benefits that are less favorable, in the aggregate,
than the most favorable such plans, practices, policies and programs of the
Company and its affiliated companies.
(v) Expenses. During the Employment Period, the Executive shall be
entitled to receive prompt reimbursement for all reasonable expenses incurred by
the Executive in accordance with the most favorable policies, practices and
procedures of the Company and its affiliated companies.
(vi) Fringe Benefits and Perquisites. During the Employment Period, the
Executive shall be entitled to fringe benefits and perquisites in accordance
with the most favorable plans, practices, programs and policies of the Company
and its affiliated companies applicable to similarly situated executives.
(vii) Office and Support Staff. During the Employment Period, the
Executive shall be entitled to an office or offices of a size and with
furnishings and other appointments, and to secretarial and other assistance to
the extent needed to fulfill his corporate responsibilities, at least equal to
the most favorable of the foregoing provided to the Executive by the Company and
its affiliated companies at any time during the Employment Period.
3
<PAGE>
(viii) Vacation. During the Employment Period, the Executive shall be
entitled to paid vacation in accordance with the most favorable plans, policies,
programs and practices of the Company and its affiliated companies.
(ix) Stock Option Grants. Prior to or contemporaneously with the execution
of this Agreement, Executive has been granted stock options on 133,645 shares of
Company common stock, par value $.01 per share ("Common Stock"), at an exercise
price equal to the IPO Price ("Initial Stock Option"). The Initial Stock Option
has a term of 10 years and is exercisable in cumulative annual increments of
one-fifth of the total number of shares subject to the option, beginning on the
first anniversary of the Date of Grant. "IPO" shall mean the initial public
offering of Common Stock pursuant to which the Company receives payment in cash
for shares of its Common Stock that it sells pursuant to a registration
statement on Form S-1 filed and declared effective under the Securities Act of
1933. "IPO Price" shall mean the per share price to the public for the Common
Stock sold in the IPO, as set forth on the cover page of the final prospectus
for the IPO.
(x) Restricted Stock and Other Equity-Based Grants. Prior to or
contemporaneously with the execution of this Agreement, Executive has been
granted a restricted stock award of 66,823 shares of Company Common Stock that
will vest ratably over five years, beginning with the first anniversary of the
date of grant, and an additional 66,823 shares of Company Common Stock that will
vest on the earlier to occur of 10 years from the date of grant or the
achievement of certain performance goals ("Initial Restricted Stock Grant").
The tranche of Initial Restricted Stock Grant subject to performance goals will
vest earlier than 10 years only if the average closing price per share of Common
Stock for the month of December of any year, as compared with the month of
January for the same year (the "Annual Growth"), has increased by 25% or more,
then only 20% of the tranche will vest. If the Annual Growth for a particular
year is not at least 25% and as a result none of the tranche vests for such a
year (a "Nonachieving Year"), then a deficit equal to 25% less the Nonachieving
Year Annual Growth shall exist. In the year subsequent to a Nonachieving Year,
an additional 20% of the performance share tranche will vest if the Annual
Growth for such subsequent year is at least 25% plus the deficit for the
Nonachieving Year.
(xi) Life Insurance. Within 60 days of the Agreement Effective Date,
Executive shall be provided term life insurance coverage in an amount not less
than $2,000,000 during the succeeding portion of the Employment Period; provided
that such coverage can be purchased at standard rates within such 60 days of the
Agreement Effective Date.
3. Termination of Employment.
--------------------------
(a) Death or Disability. The Executive's employment shall terminate
automatically upon the Executive's death during the Employment Period. If the
Company determines in good faith that the Disability of the Executive has
occurred during the Employment Period (pursuant to the definition of Disability
set forth below), it may give to the Executive written
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notice in accordance with Section 11(d) of this Agreement of its intention to
terminate the Executive's employment. In such event, the Executive's employment
with the Company shall terminate effective on the 30th day after receipt of such
notice by the Executive (the "Disability Effective Date"), provided that, within
the 30 days after such receipt, the Executive shall not have returned to full-
time performance of the Executive's duties. For purposes of this Agreement,
"Disability" shall mean the absence of the Executive from the Executive's duties
with the Company on a full-time basis for either (i) 180 consecutive business
days or (ii) in any two-year period 270 nonconsecutive business days as a result
of incapacity due to mental or physical illness which is determined to be total
and permanent by a physician selected by the Company or its insurers and
acceptable to the Executive or the Executive's legal representative (such
agreement as to acceptability not to be withheld unreasonably).
(b) Cause. The Company may terminate the Executive's employment
during the Employment Period for Cause. For purposes of this Agreement, "Cause"
shall mean for the Company's termination of the Executive's employment: (i) the
Executive's final conviction of a felony crime that enriched the Executive at
the expense of the Company; provided, however, that after indictment, the
Company may suspend Executive from the rendition of services, but without
limiting or modifying in any other way the Company's obligations under this
Agreement; (ii) a material breach by Executive of a material fiduciary duty owed
to the Company; (iii) a material breach by Executive of any of the covenants
made by him in Sections 8 and 10 hereof; (iv) the willful and gross neglect by
Executive of the material duties specifically and expressly required by this
Agreement; or (v) the Executive's continuing failure to substantially perform
his duties and responsibilities hereunder (except by reason of the Executive's
incapacity due to physical or mental illness or injury) for a period of 45 days
after the Required Board Majority, as defined herein, has delivered to the
Executive a written demand for substantial performance hereunder which
specifically identifies the bases for the Required Board Majority's
determination that the Executive has not substantially performed his duties and
responsibilities hereunder (that period being the "Grace Period"); provided,
that for purposes of this clause (v), the Company shall not have Cause to
terminate the Executive's employment unless (A) at a meeting of the Board called
and held following the Grace Period in the city in which the Company's principal
executive offices are located, of which the Executive was given not less than 10
days' prior written notice and at which the Executive was afforded the
opportunity to be represented by counsel, appear and be heard, the Required
Board Majority shall adopt a written resolution which (1) sets forth the
Required Board Majority's determination that the failure of the Executive to
substantially perform his duties and responsibilities hereunder has (except by
reason of his incapacity due to physical or mental illness or injury) continued
past the Grace Period and (2) specifically identifies the bases for that
determination, and (B) the Company, at the written direction of the Required
Board Majority, shall deliver to the Executive a Notice of Termination for Cause
to which a copy of that resolution, certified as being true and correct by the
secretary or any assistant secretary of the Company, is attached. "Required
Board Majority" means at any time a majority of the members of the Board at that
time which includes at least a majority of the Directors, each of whom has not
been an employee of the Company or any subsidiary of the Company.
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(c) Good Reason; Window Period. The Executive's employment may be
terminated during the Employment Period by the Executive for Good Reason, or
during a Window Period by the Executive without any reason. For purposes of
this Agreement, "Window Period" shall mean the 60-day period immediately
following elapse of one year after any Change of Control as defined in Section 9
of this Agreement. For purposes of this Agreement, "Good Reason" shall mean:
(i) the assignment to the Executive of any duties materially
inconsistent in any respect with the Executive's position (including status,
offices, titles and reporting requirements), authority, duties or
responsibilities as contemplated by Section 2 of this Agreement, or any other
action by the Company which results in a diminution in such position, authority,
duties or responsibilities, excluding for this purpose an isolated,
insubstantial and inadvertent action not taken in bad faith and which is
remedied by the Company promptly after receipt of notice thereof given by the
Executive;
(ii) any material failure by the Company to comply with any of the
provisions of this Agreement, other than an isolated, insubstantial and
inadvertent failure not occurring in bad faith and which is remedied by the
Company promptly after receipt of notice thereof given by the Executive;
(iii) the Company's requiring the Executive to be based at any office
outside the Houston metropolitan area;
(iv) any purported termination by the Company of the Executive's
employment otherwise than as expressly permitted by this Agreement;
(v) any failure by the Company to comply with and satisfy the
requirements of Section 11 of this Agreement, provided that (A) the successor
described in Section 11(c) has received, at least 10 days prior to the Date of
Termination (as defined in subparagraph (e) below), written notice from the
Company or the Executive of the requirements of such provision and (B) such
failure to be in compliance and satisfy the requirements of Section 11 shall
continue as of the Date of Termination; or
(vi) any failure to reelect Executive as a member of the Board and
Chairman of the Board.
(d) Notice of Termination. Any termination by the Company for Cause,
or by the Executive for Good Reason or without any reason during a Window
Period, shall be communicated by Notice of Termination to the other party hereto
given in accordance with Section 12(d) of this Agreement. The failure by the
Executive or the Company to set forth in the Notice of Termination any fact or
circumstance which contributes to a showing of Good Reason or Cause shall not
waive any right of the Executive or the Company hereunder or preclude the
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Executive or the Company from asserting such fact or circumstance in enforcing
the Executive's or the Company's rights hereunder.
(e) Date of Termination. For purposes of this Agreement, the term
"Date of Termination" means (i) if the Executive's employment is terminated by
the Company for Cause, or by the Executive during a Window Period or for Good
Reason, the date of receipt of the Notice of Termination or any later date
specified therein, as the case may be, (ii) if the Executive's employment is
terminated by the Company other than for Cause or Disability, the Date of
Termination shall be the date on which the Company notifies the Executive of
such termination and (iii) if the Executive's employment is terminated by reason
of death or Disability, the Date of Termination shall be the date of death of
the Executive or the Disability Effective Date, as the case may be.
4. Obligations of the Company upon Termination.
--------------------------------------------
(a) Disability, Good Reason or During a Window Period; Other than for
Cause or Death (except during a Window Period). If, during the Employment
Period, the Company shall terminate the Executive's employment other than for
Cause, including a termination by reason of Disability (but not by reason of
death), or the Executive shall terminate employment for Good Reason or his
employment shall be terminated during a Window Period by the Company for Cause,
by the Executive without any reason, or by reason of death:
(i) the Company shall pay or provide to or in respect of the Executive the
following amounts and benefits:
A. in a lump sum in cash, within 10 days after the Date of Termination, an
amount equal to the sum of (1) the Executive's Annual Base Salary through the
Date of Termination, (2) any deferred compensation previously awarded to or
earned by the Executive (together with any accrued interest or earnings thereon)
and (3) any compensation for unused vacation time for which the Executive is
eligible in accordance with the most favorable plans, policies, programs and
practices of the Company and its affiliated companies, in each case to the
extent not theretofore paid (the sum of the amounts described in clauses (1),
(2) and (3) shall be hereinafter referred to as the "Accrued Obligation");
B. in a lump sum in cash, discounted at 6%, within 10 days after the Date
of Termination, an amount equal to 125% of Annual Base Salary that would have
been paid to the Executive pursuant to this Agreement for the period (the
"Remaining Employment Period") beginning on the Date of Termination and ending
on the latest possible date of termination of the Employment Period in
accordance with the provisions of Section 1 hereof (the "Final Expiration Date")
if the Executive's employment had not been terminated;
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C. continuation for the Remaining Employment Period of life insurance and
medical benefits coverages, but with the Company's medical benefits coverages
being secondary to any coverages provided by another employer;
D. effective as of the Date of Termination, (1) immediate vesting and
exercisability of, and termination of any restrictions on sale or transfer
(other than any such restriction arising by operation of law) with respect to,
each and every stock option, restricted stock award, restricted stock unit award
and other equity-based award and performance award (each, a "Compensatory
Award") that is outstanding as of a time immediately prior to the Date of
Termination except that the portion of any restricted stock award described in
Section 2(b)(x) that would vest only by reason of a achievement of performance
goals and not solely by reason of continued employment shall vest only if
termination is by the Company without Cause or by Employee for Good Reason or in
a Window Period and either (w) termination occurs in the first year of the
Employment Period in which event the unvested portion shall be 100% vested, (x)
termination occurs in the second year of the Employment Period in which event
80% of the unvested portion shall be vested, (y) termination occurs in the third
year of the Employment Period in which event 60% of the unvested portion shall
be vested or (z) termination occurs after the third year of the Employment
Period and the performance goals have been met in each of the first three years
of the Employment Period in which event all unvested shares shall be vested, (2)
the extension of the term during which each and every Compensatory Award may be
exercised by the Executive until the earlier of (x) the first anniversary of the
Date of Termination or (y) the date upon which the right to exercise any
Compensatory Award would have expired if the Executive had continued to be
employed by the Company under the terms of this Agreement until the Final
Expiration Date and (3) at the sole election of Executive, in exchange for any
or all Compensatory Awards that are either denominated in or payable in Common
Stock, an amount in cash equal to the excess of (x) the Highest Price Per Share
(as defined below) over (y) the exercise or purchase price, if any, of such
Compensatory Awards. As used herein, the term "Highest Price Per Share" shall
mean the highest price per share that can be determined to have been paid or
agreed to be paid for any share of Common Stock by a Covered Person (as defined
below) at any time during the Employment Period or the six-month period
immediately preceding the Agreement Effective Date. As used herein, the term
"Covered Person" shall mean any Person other than an Exempt Person (in each case
as defined in Section 9 hereof) who (I) is the Beneficial Owner (as defined in
Section 9 hereof) of 10% or more of the outstanding shares of Common Stock or
10% or more of the combined voting power of the outstanding Voting Stock (as
defined in Section 9 hereof) of the Company at any time during the Employment
Period, (II) is a Person who has any material involvement in proposing or
effectuating the Change of Control (as defined in Section 9 hereof) or (III) is
an assignee of or has otherwise succeeded to any shares of Common Stock or
Voting Stock of the Company which were at any time during
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the Employment Period "beneficially owned" (as defined in Section 9 hereof) by
any Person identified in clause (I) or (II) of this definition, if such
assignment or succession shall have occurred in the course of a privately
negotiated transaction rather than an open market transaction. For purposes of
determining whether a Person is a Covered Person, the number of shares of Common
Stock or Voting Stock of the Company deemed to be outstanding shall include
shares of which the Person is deemed the Beneficial Owner, but shall not include
any other shares which may be issuable pursuant to any agreement, arrangement or
understanding, or upon exercise of conversion rights, warrants or options. In
determining the Highest Price Per Share, the price paid or agreed to be paid by
a Covered Person will be appropriately adjusted to take into account (W)
distributions paid or payable in stock, (X) subdivisions of outstanding stock,
(Y) combinations of shares of stock into a smaller number of shares and (Z)
similar events; and
E. as soon as practicable following the calendar year of the date of
termination, an amount equal to the product of (x) the Annual Bonus that would
have been paid to Executive with respect to the year of termination had the Date
of Termination not occurred and (y) a fraction, the numerator of which is the
number of days in the fiscal year through the Date of Termination and the
denominator of which is 365;
(ii) for the Remaining Employment Period, or such longer period as any
plan, program, practice or policy may provide, the Company shall continue
benefits to the Executive and/or the Executive's family at least equal to those
which would have been provided to them in accordance with the plans, programs,
practices and policies described in Sections 2(b)(iv) of this Agreement if the
Executive's employment had not been terminated in accordance with the most
favorable plans, practices, programs or policies of the Company and its
affiliated companies (such continuation of such benefits for the applicable
period herein set forth shall be hereinafter referred to as "Welfare Benefit
Continuation"). For purposes of determining eligibility of the Executive for
retiree benefits pursuant to such plans, practices, programs and policies, the
Executive shall be considered to have remained employed until the Final
Expiration Date and to have retired on such date.
(b) Death (except during a Window Period). If the Executive's
employment is terminated by reason of the Executive's death during the
Employment Period and other than during a Window Period in which event the
provisions of Section 4(a) shall govern, this Agreement shall terminate without
further obligations to the Executive's legal representatives under this
Agreement, other than (i) the payment of Accrued Obligations (which shall be
paid to the Executive's estate or beneficiary, as applicable, in a lump sum in
cash within 30 days of the Date of Termination), (ii) the payment of an amount
equal to the Annual Salary that would have been paid to the Executive pursuant
to this Agreement for the period beginning on the Date of Termination and ending
on the first anniversary thereof if the Executive's employment had not
terminated by reason of death (which shall be paid to the Executive's estate or
beneficiary, as applicable, in a lump sum in cash within 30
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days of the Date of Termination), (iii) during the period beginning on the Date
of Termination and ending on the first anniversary thereof medical benefits
coverage determined as if Executive's employment had not terminated by reason of
death, (iv) as soon as practicable following the fiscal year in which death
occurs, payment of an amount equal to the product of (x) the Annual Bonus that
would have been paid to Executive with respect to the year of termination had
the Date of Termination not occurred and (y) a fraction, the numerator of which
is the number of days in the fiscal year through the Date of Termination and the
denominator of which is 365 and (v) effective as of the Date of Termination, (A)
immediate vesting and exercisability of, and termination of any restrictions on
sale or transfer (other than any such restriction arising by operation of law)
with respect to, each and every Compensatory Award outstanding as of a time
immediately prior to the Date of Termination except the portion of any
restricted stock award described in Section 2(b)(x) that would vest only by
reason of achievement of performance goals and not by solely by reason of
continued employment shall vest only if either (w) death occurs in the first
year of the Employment Period in which event the unvested portion shall be 100%
vested, (x) death occurs in the second year of the Employment Period in which
event 80% of the unvested portion shall be vested, (y) death occurs in the third
year of the Employment Period in which event 60% of the unvested portion shall
be vested or (z) death occurs after the third year of the Employment Period and
the performance goals have been met in each of the first three years of the
Employment Period in which event all unvested shares shall be vested, (B) the
extension of the term during which each and every Compensatory Award may be
exercised or purchased by the Executive until the earlier of (1) the first
anniversary of the Date of Termination or (2) the date upon which the right to
exercise or purchase any Compensatory Award would have expired if the Executive
had continued to be employed by the Company under the terms of this Agreement
until the Final Expiration Date and (C) at the sole election of the Executive's
legal representative, in exchange for any Compensatory Award that is either
denominated in or payable in Common Stock, an amount in cash equal to the excess
of (1) the Highest Price Per Share over (2) the exercise or purchase price, if
any, of such Compensatory Award.
(c) Cause; Other than for Disability, Good Reason or During a Window
Period. If the Executive's employment shall be terminated for Cause during the
Employment Period and other than during a Window Period, in which event the
provisions of Section 4(a) shall govern, this Agreement shall terminate without
further obligations to the Executive other than for Accrued Obligations. If the
Executive terminates employment during the Employment Period, excluding a
termination for any of Disability, Good Reason or without any reason during a
Window Period, in which event the provisions of Section 4(a) shall govern, this
Agreement shall terminate without further obligations to the Executive, other
than for the payment of Accrued Obligations. In such case, all Accrued
Obligations shall be paid to the Executive in a lump sum in cash within 30 days
of the Date of Termination.
5. Non-exclusivity of Rights. Except as provided in Section 4 of
this Agreement, nothing in this Agreement shall prevent or limit the Executive's
continuing or future participation in any plan, program, policy or practice
provided by the Company or any of its affiliated companies and for which the
Executive may qualify, nor shall anything herein limit or
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otherwise affect such rights as the Executive may have under any contract or
agreement with the Company or any of its affiliated companies. Amounts which are
vested benefits or which the Executive is otherwise entitled to receive under
any plan, policy, practice or program of or any contract or agreement with the
Company or any of its affiliated companies at or subsequent to the Date of
Termination shall be payable in accordance with such plan, policy, practice or
program or contract or agreement except as such plan, policy, practice or
program is superseded by this Agreement.
6. Full Settlement; Resolution of Disputes.
----------------------------------------
(a) The Company's obligation to make payments provided for in this
Agreement and otherwise to perform its obligations hereunder shall not be
affected by any setoff, counterclaim, recoupment, defense, mitigation or other
claim, right or action which the Company may have against the Executive or
others. The Company agrees to pay promptly as incurred, to the full extent
permitted by law, all legal fees and expenses which the Executive may reasonably
incur as a result of any contest (regardless of the outcome thereof) by the
Company, the Executive or others of the validity or enforceability of, or
liability under, any provision of this Agreement or any guarantee of performance
thereof (including as a result of any contest by the Executive about the amount
of any such payment pursuant to this Agreement), plus in each case interest on
any delayed payment at the annual percentage rate which is three percentage
points above the interest rate shown as the Prime Rate in the Money Rates column
in the then most recently published edition of The Wall Street Journal
(Southwest Edition), or, if such rate is not then so published on at least a
weekly basis, the interest rate announced by Chase Manhattan Bank (or its
successor), from time to time, as its Base Rate (or prime lending rate), from
the date those amounts were required to have been paid or reimbursed to the
Employee until those amounts are finally and fully paid or reimbursed; provided,
however, that in no event shall the amount of interest contracted for, charged
or received hereunder exceed the maximum non-usurious amount of interest allowed
by applicable law; provided, further, that if the Executive is not the
prevailing party in any such contest, then he shall, upon the conclusion
thereof, repay to the Company any amounts that were previously advanced pursuant
to this sentence by the Company as payment of legal fees and expenses.
(b) If there shall be any dispute between the Company and the
Executive concerning (i) in the event of any termination of the Executive's
employment by the Company, whether such termination was for Cause or Disability,
or (ii) in the event of any termination of employment by the Executive, whether
Good Reason existed or whether such termination occurred during a Window Period,
then, unless and until there is a final, nonappealable judgment by a court of
competent jurisdiction declaring that such termination was for Cause or
Disability or that the determination by the Executive of the existence of Good
Reason was not made in good faith or that the termination by the Executive did
not occur during a Window Period, the Company shall pay all amounts, and provide
all benefits, to the Executive and/or the Executive's family or other
beneficiaries, as the case may be, that the Company would be required to pay or
provide pursuant to Section 4(a) hereof as though such termination were by the
Company without Cause or by the Executive with Good Reason or during a Window
Period; provided, however, that the Company
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shall not be required to pay any disputed amounts pursuant to this paragraph
except upon receipt of an undertaking by or on behalf of the Executive to repay
all such amounts to which the Executive is ultimately adjudged by such court not
to be entitled.
7. Certain Additional Payments by the Company.
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(a) Anything in this Agreement to the contrary notwithstanding, in the
event it shall be determined that any payment or distribution to or for the
benefit of the Executive (whether paid or payable or distributed or
distributable pursuant to the terms of this Agreement or otherwise, but
determined without regard to any additional payments required under this Section
7 (a "Payment") would be subject to the excise tax imposed by Section 4999 of
the Code or any interest or penalties are incurred by the Executive with respect
to such excise tax (such excise tax, together with any such interest and
penalties, are hereinafter collectively referred to as the "Excise Tax"), then
the Executive shall be entitled to receive an additional payment (a "Gross-Up
Payment") in an amount such that after payment by the Executive of all taxes
(including any interest or penalties imposed with respect to such taxes),
including, without limitation, any income taxes (and any interest and penalties
imposed with respect thereto) and Excise Tax imposed upon the Gross-Up Payment,
the Executive retains an amount of the Gross-Up Payment equal to the Excise Tax
imposed upon the Payments.
(b) Subject to the provisions of Section 7(c), all determinations
required to be made under this Section 7, including whether and when Gross-Up
Payment is required and the amount of such Gross-Up Payment and the assumptions
to be utilized in arriving at such determination, shall be made by Deloitte &
Touche LLP (the "Accounting Firm"); provided, however, that the Accounting Firm
shall not determine that no Excise Tax is payable by the Executive unless it
delivers to the Executive a written opinion (the "Accounting Opinion") that
failure to report the Excise Tax on the Executive's applicable federal income
tax return would not result in the imposition of a negligence or similar
penalty. In the event that by Deloitte & Touche LLP has served, at any time
during the two years immediately preceding a Change in Control Date, as
accountant or auditor for the individual, entity or group that is involved in
effecting or has any material interest in the Change in Control, the Executive
shall appoint another nationally recognized accounting firm to make the
determinations and perform the other functions specified in this Section 7
(which accounting firm shall then be referred to as the Accounting Firm
hereunder). All fees and expenses of the Accounting Firm shall be borne solely
by the Company. Within 15 business days of the receipt of notice from the
Executive that there has been a Payment, or such earlier time as is requested by
the Company, the Accounting Firm shall make all determinations required under
this Section 7, shall provide to the Company and the Executive a written report
setting forth such determinations, together with detailed supporting
calculations, and, if the Accounting Firm determines that no Excise Tax is
payable, shall deliver the Accounting Opinion to the Executive. Any Gross-Up
Payment, as determined pursuant to this Section 7, shall be paid by the Company
to the Executive within five days of the receipt of the Accounting Firm's
determination. Subject to the remainder of this Section 7, any determination by
the Accounting Firm shall be binding upon the Company and the Executive. As a
result of the uncertainty in the application of Section 4999 of the
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Code at the time of the initial determination by the Accounting Firm hereunder,
it is possible that Gross-Up Payments which will not have been made by the
Company should have been made ("Underpayment"), consistent with the calculations
required to be made hereunder. In the event that it is ultimately determined in
accordance with the procedures set forth in Section 7(c) that the Executive is
required to make a payment of any Excise Tax, the Accounting Firm shall
determine the amount of the Underpayment that has occurred and any such
Underpayment shall be promptly paid by the Company to or for the benefit of the
Executive.
(c) The Executive shall notify the Company in writing of any claims by
the Internal Revenue Service that, if successful, would require the payment by
the Company of the Gross-Up Payment. Such notification shall be given as soon
as practicable but no later than 30 days after the Executive actually receives
notice in writing of such claim and shall apprise the Company of the nature of
such claim and the date on which such claim is requested to be paid; provided,
however, that the failure of the Executive to notify the Company of such claim
(or to provide any required information with respect thereto) shall not affect
any rights granted to the Executive under this Section 7 except to the extent
that the Company is materially prejudiced in the defense of such claim as a
direct result of such failure. The Executive shall not pay such claim prior to
the expiration of the 30-day period following the date on which he gives such
notice to the Company (or such shorter period ending on the date that any
payment of taxes with respect to such claim is due). If the Company notifies
the Executive in writing prior to the expiration of such period that it desires
to contest such claim, the Executive shall:
(i) give the Company any information reasonably requested by the Company
relating to such claim;
(ii) take such action in connection with contesting such claim as the
Company shall reasonably request in writing from time to time, including,
without limitation, accepting legal representation with respect to such claim by
an attorney selected by the Company and reasonably acceptable to the Executive;
(iii) cooperate with the Company in good faith in order effectively to
contest such claim; and
(iv) if the Company elects not to assume and control the defense of such
claim, permit the Company to participate in any proceedings relating to such
claim;
provided, however, that the Company shall bear and pay directly all costs and
expenses (including additional interest and penalties) incurred in connection
with such contest and shall indemnify and hold the Executive harmless, on an
after-tax basis, for any Excise Tax or income tax (including interest and
penalties with respect thereto) imposed as a result of such representation and
payment of costs and expenses. Without limitation on the foregoing provisions
of this Section 7(c), the Company shall have the right, at its sole option, to
assume the defense of and control all proceedings in connection with such
contest, in which case it may pursue or forego any and all administrative
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appeals, proceedings, hearings and conferences with the taxing authority in
respect of such claim, and may either direct the Executive to pay the tax
claimed and sue for a refund or contest the claim in any permissible manner, and
the Executive agrees to prosecute such contest to a determination before any
administrative tribunal, in a court of initial jurisdiction and in one or more
appellate courts, as the Company shall determine; provided, however, that if the
Company directs the Executive to pay such claim and sue for a refund, the
Company shall advance the amount of such payment to the Executive, on an
interest-free basis, and shall indemnify and hold the Executive harmless, on an
after-tax basis, from any Excise Tax or income tax (including interest or
penalties with respect thereto) imposed with respect to such advance or with
respect to any imputed income with respect to such advance; and further
provided, that any extension of the statute of limitations relating to payment
of taxes for the taxable year of the Executive with respect to which such
contested amount is claimed to be due is limited solely to such contested
amount. Furthermore, the Company's right to assume the defense of and control
the contest shall be limited to issues with respect to which a Gross-Up Payment
would be payable hereunder and the Executive shall be entitled to settle or
contest, as the case may be, any other issue raised by the Internal Revenue
Service or any other taxing authority.
(d) If, after the receipt by the Executive of an amount advanced by
the Company pursuant to Section 7(c) the Executive becomes entitled to receive
any refund with respect to such claim, the Executive shall (subject to the
Company's complying with the requirements of Section 7(c)) promptly pay to the
Company the amount of such refund (together with any interest paid or credited
thereon after taxes applicable thereto). If, after the receipt by the Executive
of an amount advanced by the Company pursuant to Section 7(c) a determination is
made that the Executive shall not be entitled to any refund with respect to such
claim, and the Company does not notify the Executive in writing of its intent to
contest such denial of refund prior to the expiration of 30 days after such
determination, then such advance shall be forgiven and shall not be required to
be repaid and the amount of such advance shall offset, to the extent thereof,
the amount of Gross-Up Payment required to be paid.
8. Confidential Information. The Executive shall hold in a fiduciary
capacity for the benefit of the Company all secret or confidential information,
knowledge or data relating to the Company or any of its affiliated companies,
and their respective businesses, which shall have been obtained by the Executive
during the Executive's employment by the Company or any of its affiliated
companies and which shall not be or become public knowledge (other than by acts
by the Executive or representatives of the Executive in violation of this
Agreement) (referred to herein as "Confidential Information"). After
termination of the Executive's employment with the Company, the Executive shall
not, without the prior written consent of the Company or as may otherwise be
required by law or legal process, communicate or divulge any such information,
knowledge or data to anyone other than the Company and those designated by it.
In no event shall an asserted violation of the provisions of this Section 8
constitute a basis for deferring or withholding any amounts otherwise payable to
the Executive under this Agreement. Also, within 10 days of the termination of
Executive's employment for any reason, Executive shall return to Company all
documents and
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other tangible items of or containing Company information which are in
Executive's possession, custody or control.
9. Change of Control.
------------------
As used in this Agreement, the terms set forth below shall have the
following respective meanings:
"Affiliate" shall have the meaning ascribed to such term in Rule 12b-2
of the General Rules and Regulations under the Exchange Act, as in effect on the
date of this Agreement.
"Associate" shall mean, with reference to any Person, (a) any
corporation, firm, partnership, association, unincorporated organization or
other entity (other than the Company or a subsidiary of the Company) of which
such Person is an officer or general partner (or officer or general partner of a
general partner) or is, directly or indirectly, the Beneficial Owner of 10% or
more of any class of equity securities, (b) any trust or other estate in which
such Person has a substantial beneficial interest or as to which such Person
serves as trustee or in a similar fiduciary capacity and (c) any relative or
spouse of such Person, or any relative of such spouse, who has the same home as
such Person.
"Beneficial Owner" shall mean, with reference to any securities, any
Person if:
(a) such Person or any of such Person's Affiliates and Associates, directly
or indirectly, is the "beneficial owner" of (as determined pursuant to Rule 13d-
3 of the General Rules and Regulations under the Exchange Act, as in effect on
the date of this Agreement) such securities or otherwise has the right to vote
or dispose of such securities, including pursuant to any agreement, arrangement
or understanding (whether or not in writing); provided, however, that a Person
shall not be deemed the "Beneficial Owner" of, or to "beneficially own," any
security under this subsection (a) as a result of an agreement, arrangement or
understanding to vote such security if such agreement, arrangement or
understanding: (i) arises solely from a revocable proxy or consent given in
response to a public (i.e., not including a solicitation exempted by Rule 14a-
2(b)(2) of the General Rules and Regulations under the Exchange Act) proxy or
consent solicitation made pursuant to, and in accordance with, the applicable
provisions of the General Rules and Regulations under the Exchange Act and (ii)
is not then reportable by such Person on Schedule 13D under the Exchange Act (or
any comparable or successor report);
(b) such Person or any of such Person's Affiliates and Associates, directly
or indirectly, has the right or obligation to acquire such securities (whether
such right or obligation is exercisable or effective immediately or only after
the passage of time or the occurrence of an event) pursuant to any agreement,
arrangement or understanding (whether or not in writing) or upon the exercise of
conversion rights, exchange rights, other rights, warrants or options, or
otherwise; provided, however, that a Person shall not be deemed the
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Beneficial Owner of, or to "beneficially own," (i) securities tendered pursuant
to a tender or exchange offer made by such Person or any of such Person's
Affiliates or Associates until such tendered securities are accepted for
purchase or exchange or (ii) securities issuable upon exercise of Exempt Rights;
or
(c) such Person or any of such Person's Affiliates or Associates (i) has
any agreement, arrangement or understanding (whether or not in writing) with any
other Person (or any Affiliate or Associate thereof) that beneficially owns such
securities for the purpose of acquiring, holding, voting (except as set forth in
the proviso to subsection (a) of this definition) or disposing of such
securities or (ii) is a member of a group (as that term is used in Rule 13d-5(b)
of the General Rules and Regulations under the Exchange Act) that includes any
other Person that beneficially owns such securities;
provided, however, that nothing in this definition shall cause a Person engaged
in business as an underwriter of securities to be the Beneficial Owner of, or to
"beneficially own," any securities acquired through such Person's participation
in good faith in a firm commitment underwriting until the expiration of 40 days
after the date of such acquisition. For purposes hereof, "voting" a security
shall include voting, granting a proxy, consenting or making a request or demand
relating to corporate action (including, without limitation, a demand for a
stockholder list, to call a stockholder meeting or to inspect corporate books
and records) or otherwise giving an authorization (within the meaning of Section
14(a) of the Exchange Act) in respect of such security.
The terms "beneficially own" and "beneficially owning" shall have
meanings that are correlative to this definition of the term "Beneficial Owner."
"Change of Control" shall mean any of the following occurring on or
after the Agreement Effective Date except that the transactions contemplated by
the Combination Agreement dated as of December 3, 1996, by and among the
Company, Edge Petroleum Corporation, a Texas corporation, Edge Mergeco, Inc.,
Gulfedge Limited Partnership, Edge Group II Limited Partnership and Edge Group
Partnership shall not constitute a Change of Control:
(a) any Person (other than an Exempt Person) shall become the Beneficial
Owner of 40% or more of the shares of Common Stock then outstanding or 40% or
more of the combined voting power of the Voting Stock of the Company then
outstanding; provided, however, that no Change of Control shall be deemed to
occur for purposes of this subsection (a) if such Person shall become a
Beneficial Owner of 40% or more of the shares of Common Stock or 40% or more of
the combined voting power of the Voting Stock of the Company solely as a result
of (i) an Exempt Transaction or (ii) an acquisition by a Person pursuant to a
reorganization, merger or consolidation, if, following such reorganization,
merger or consolidation, the conditions described in clauses (i), (ii) and (iii)
of subsection (c) of this definition are satisfied;
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(b) individuals who, as of the Agreement Effective Date, constitute the
Board (the "Incumbent Board") cease for any reason to constitute at least a
majority of the Board; provided, however, that any individual becoming a
director subsequent to the Agreement Effective Date whose election, or
nomination for election by the Company's shareholders, was approved by a vote of
at least a majority of the directors then comprising the Incumbent Board shall
be considered as though such individual were a member of the Incumbent Board;
provided, further, that there shall be excluded, for this purpose, any such
individual whose initial assumption of office occurs as a result of any actual
or threatened election contest that is subject to the provisions of Rule 14a-11
under the Exchange Act;
(c) approval by the shareholders of the Company of a reorganization, merger
or consolidation, in each case, unless, following such reorganization, merger or
consolidation, (i) more than 85% of the then outstanding shares of common stock
of the corporation resulting from such reorganization, merger or consolidation
and the combined voting power of the then outstanding Voting Stock of such
corporation beneficially owned, directly or indirectly, by all or substantially
all of the Persons who were the Beneficial Owners of the outstanding Common
Stock immediately prior to such reorganization, merger or consolidation in
substantially the same proportions as their ownership, immediately prior to such
reorganization, merger or consolidation, of the outstanding Common Stock, (ii)
no Person (excluding any Exempt Person or any Person beneficially owning,
immediately prior to such reorganization, merger or consolidation, directly or
indirectly, 40% or more of the Common Stock then outstanding or 40% or more of
the combined voting power of the Voting Stock of the Company then outstanding)
beneficially owns, directly or indirectly, 40% or more of the then outstanding
shares of common stock of the corporation resulting from such reorganization,
merger or consolidation or the combined voting power of the then outstanding
Voting Stock of such corporation and (iii) at least a majority of the members of
the board of directors of the corporation resulting from such reorganization,
merger or consolidation were members of the Incumbent Board at the time of the
execution of the initial agreement or initial action by the Board providing for
such reorganization, merger or consolidation; or
(d) approval by the shareholders of the Company of (i) a complete
liquidation or dissolution of the Company unless such liquidation or dissolution
is approved as part of a plan of liquidation and dissolution involving a sale or
disposition of all or substantially all of the assets of the Company to a
corporation with respect to which, following such sale or other disposition, all
of the requirements of clauses (ii)(A), (B) and (C) of this subsection (d) are
satisfied, or (ii) the sale or other disposition of all or substantially all of
the assets of the Company, other than to a corporation, with respect to which,
following such sale or other disposition, (A) more than 85% of the then
outstanding shares of common stock of such corporation and the combined voting
power of the Voting Stock of such corporation is then beneficially owned,
directly or indirectly, by all or substantially all of the Persons who were the
Beneficial Owners of the outstanding Common Stock immediately prior to such sale
or other disposition in substantially the same proportion as their ownership,
immediately prior to such sale or other disposition, of the outstanding Common
Stock, (B) no Person (excluding any Exempt Person and any Person beneficially
owning, immediately prior
17
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to such sale or other disposition, directly or indirectly, 40% or more of the
Common Stock then outstanding or 40% or more of the combined voting power of the
Voting Stock of the Company then outstanding) beneficially owns, directly or
indirectly, 40% or more of the then outstanding shares of common stock of such
corporation and the combined voting power of the then outstanding Voting Stock
of such corporation and (C) at least a majority of the members of the board of
directors of such corporation were members of the Incumbent Board at the time of
the execution of the initial agreement or initial action of the Board providing
for such sale or other disposition of assets of the Company.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
"Exempt Person" shall mean the Company, any subsidiary of the Company,
any employee benefit plan of the Company or any subsidiary of the Company, and
any Person organized, appointed or established by the Company for or pursuant to
the terms of any such plan.
"Exempt Rights" shall mean any rights to purchase shares of Common
Stock or other Voting Stock of the Company if at the time of the issuance
thereof such rights are not separable from such Common Stock or other Voting
Stock (i.e., are not transferable otherwise than in connection with a transfer
of the underlying Common Stock or other Voting Stock) except upon the occurrence
of a contingency, whether such rights exist as of the Agreement Effective Date
or are thereafter issued by the Company as a dividend on shares of Common Stock
or other Voting Securities or otherwise.
"Exempt Transaction" shall mean an increase in the percentage of the
outstanding shares of Common Stock or the percentage of the combined voting
power of the outstanding Voting Stock of the Company beneficially owned by any
Person solely as a result of a reduction in the number of shares of Common Stock
then outstanding due to the repurchase of Common Stock or Voting Stock by the
Company, unless and until such time as (a) such Person or any Affiliate or
Associate of such Person shall purchase or otherwise become the Beneficial Owner
of additional shares of Common Stock constituting 1% or more of the then
outstanding shares of Common Stock or additional Voting Stock representing 1% or
more of the combined voting power of the then outstanding Voting Stock, or (b)
any other Person (or Persons) who is (or collectively are) the Beneficial Owner
of shares of Common Stock constituting 1% or more of the then outstanding shares
of Common Stock or Voting Stock representing 1% or more of the combined voting
power of the then outstanding Voting Stock shall become an Affiliate or
Associate of such Person.
"Person" shall mean any individual, firm, corporation, partnership,
association, trust, unincorporated organization or other entity.
"Voting Stock" shall mean, with respect to a corporation, all
securities of such corporation of any class or series that are entitled to vote
generally in the election of directors of such
18
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corporation (excluding any class or series that would be entitled so to vote by
reason of the occurrence of any contingency, so long as such continency has not
occurred).
10. Covenant Not to Compete.
------------------------
(a) Executive recognizes that in each of the highly competitive
businesses in which the Company is engaged, personal contact is of primary
importance in securing new customers and in retaining the accounts and goodwill
of present customers and protecting the business of the Company. The Executive,
therefore, agrees that during the Employment Period and, if the Date of
Termination occurs by reason of the Executive terminating his employment for
reasons other than Disability or Good Reason and other than during a Window
Period, for a period of two years after the Date of Termination, he will not,
either within 100 miles of any geographic location with respect to which he has
devoted substantial attention to the material business interests of the Company
(other than the Company's home office) or any of its affiliated companies or
with respect to any immediate geologic trends in which the Company or any of its
affiliated companies is active as of the Date of Termination without regard, in
either case, to whether the Executive has worked at such location (the "Relevant
Geographic Area"), with respect to only the Relevant Geographic Area, (i) accept
employment or render service to any person that is engaged in a business
directly competitive with the business then engaged in by the Company or any of
its affiliated companies or (ii) enter into or take part in or lend his name,
counsel or assistance to any business, either as proprietor, principal,
investor, partner, director, officer, executive, consultant, advisor, agent,
independent contractor, or in any other capacity whatsoever, for any purpose
that would be competitive with the business of the Company or any of its
affiliated companies (all of the foregoing activities are collectively referred
to as the "Prohibited Activity").
(b) In addition to all other remedies at law or in equity which the
Company may have for breach of a provision of this Section 10 by the Executive,
it is agreed that in the event of any breach or attempted or threatened breach
of any such provision, the Company shall be entitled, upon application to any
court of proper jurisdiction, to a temporary restraining order or preliminary
injunction (without the necessity of (i) proving irreparable harm, (ii)
establishing that monetary damages are inadequate or (iii) posting any bond with
respect thereto) against the Executive prohibiting such breach or attempted or
threatened breach by proving only the existence of such breach or attempted or
threatened breach. If the provisions of this Section 10 should ever be deemed
to exceed the time, geographic or occupational limitations permitted by the
applicable law, the Executive and the Company agree that such provisions shall
be and are hereby reformed to the maximum time, geographic or occupational
limitations permitted by the applicable law.
(c) The covenants of the Executive set forth in this Section 10 are
independent of and severable from every other provision of this Agreement; and
the breach of any other provision of this Agreement by the Company or the breach
by the Company of any other agreement between the Company and the Executive
shall not affect the validity of the provisions of this Section 10 or constitute
a defense of the Executive in any suit or action brought by the Company to
enforce any of the provisions of this Section 10 or seek any relief for the
breach thereof by Executive.
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(d) The Executive acknowledges, agrees and stipulates that: (i) the
terms and provisions of this Agreement are reasonable and constitute an
otherwise enforceable agreement to which the terms and provisions of this
Section 10 are ancillary or a part of as contemplated by Tex. Bus. & Com. Code
Ann. (S)(S) 15.50-15.52; (ii) the consideration provided by the Company under
this Agreement is not illusory; and (iii) the consideration given by the Company
under this Agreement, including, without limitation, the provision by the
Company of Confidential Information to the Executive as contemplated by Section
8, gives rise to the Company's interest in restraining and prohibiting the
Executive from engaging in the Prohibited Activity within the Relevant
Geographic Area as provided under this Section 10, and the Executive's covenant
not to engage in the Prohibited Activity within the Relevant Geographic Area
pursuant to this Section 10 is designed to enforce the Executive's consideration
(or return promises), including, without limitation, the Executive's promise to
not disclose Confidential Information under this Agreement.
11. Successors.
----------
(a) This Agreement is personal to the Executive and without the prior
written consent of the Company shall not be assignable by the Executive
otherwise than by will or the laws of descent and distribution. This Agreement
shall inure to the benefit of and be enforceable by the Executive's heirs,
executors and other legal representatives.
(b) This Agreement shall inure to the benefit of and be binding upon
the Company and may only be assigned to a successor described in Section 11(c).
(c) The Company will require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company to assume
expressly and agree to perform this Agreement in the same manner and to the same
extent that the Company would be required to perform it if no such succession
had taken place. As used in this Agreement, "Company" shall mean the Company as
hereinbefore defined and any successor to its business and/or assets as
aforesaid which assumes and agrees to perform this Agreement by operation of
law, or otherwise.
12. Miscellaneous.
-------------
(a) This Agreement shall be governed by and construed in accordance
with the laws of the State of Texas, without reference to principles of conflict
of laws that would require the application of the laws of any other state or
jurisdiction.
(b) The captions of this Agreement are not part of the provisions
hereof and shall have no force or effect.
(c) This Agreement may not be amended or modified otherwise than by a
written agreement executed by the parties hereto or their respective successors
and heirs, executors and other legal representatives.
20
<PAGE>
(d) All notices and other communications hereunder shall be in writing
and shall be given, if by the Executive to the Company, by telecopy or facsimile
transmission at the telecommunications number set forth below and, if by either
the Company or the Executive, either by hand delivery to the other party or by
registered or certified mail, return receipt requested, postage prepaid,
addressed as follows:
If to the Executive:
-------------------
John E. Calaway
Texaco Heritage Plaza
1111 Bagby, Suite 2100
Houston, Texas 77002
If to the Company:
-----------------
Edge Petroleum Corporation
Texaco Heritage Plaza
1111 Bagby, Suite 2100
Houston, Texas 77002
Telecommunications Number: (713) 654-8960
Attention: Corporate Secretary
or to such other address as either party shall have furnished to the other in
writing in accordance herewith. Notice and communications shall be effective
when actually received by the addressee.
(e) The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of any other provision
of this Agreement.
(f) The Company may withhold from any amounts payable under this
Agreement such federal, state or local taxes as shall be required to be withheld
pursuant to any applicable law or regulation.
(g) The Executive's or the Company's failure to insist upon strict
compliance with any provision hereof or any other provision of this Agreement or
the failure to assert any right the Executive or the Company may have hereunder,
including, without limitation, the right of the Executive to terminate
employment for Good Reason or during a Window Period pursuant to Section 3(c) of
this Agreement, shall not be deemed to be a waiver of such provision or right or
any other provision or right of this Agreement.
(h) This agreement contains the complete and total understanding of
the parties concerning the subject matter hereof and expressly supersedes any
previous agreement between the parties relating to the subject matter hereof as
well as any agreement between Executive and Edge Petroleum Corporation, a Texas
corporation.
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(i) This Agreement shall become effective as of the date on which the
Company first receives payment for shares of its Common Stock that it sells
pursuant to a registration statement filed under the Securities Act of 1933 (the
"Agreement Effective Date").
IN WITNESS WHEREOF, the Executive has hereunto set his hand and,
pursuant to the authorization from its Board of Directors, the Company has
caused these presents to be executed in its name on its behalf, all as of the
day and year first above written.
EDGE PETROLEUM CORPORATION
/s/ JAMES D. CALAWAY
By:____________________________
James D. Calaway
/s/ JOHN E. CALAWAY
By:____________________________
John E. Calaway
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EXHIBIT 10.5
EMPLOYMENT AGREEMENT
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
1. Employment Period...................................................................... 1
2. Terms of Employment.................................................................... 1
(a) Position and Duties................................................................ 1
(b) Compensation....................................................................... 2
(i) Base Salary.................................................................. 2
(ii) Annual Bonus................................................................ 2
(iii) Incentive, Savings and Retirement Plans.................................... 2
(iv) Welfare Benefit Plans....................................................... 3
(v) Expenses..................................................................... 3
(vi) Fringe Benefits and Perquisites............................................. 3
(vii) Office and Support Staff................................................... 3
(viii) Vacation.................................................................. 3
(ix) Stock Option Grants......................................................... 4
(x) Restricted Stock and Other Equity-Based Grants............................... 4
(xi) Life Insurance.............................................................. 4
3. Termination of Employment.............................................................. 4
(a) Death or Disability................................................................ 4
(b) Cause.............................................................................. 5
(c) Good Reason; Window Period......................................................... 5
(d) Notice of Termination.............................................................. 6
(e) Date of Termination................................................................ 7
4. Obligations of the Company upon Termination............................................ 7
(a) Disability, Good Reason or During a Window Period; Other than for Cause............ 7
(b) Death (except during a Window Period).............................................. 9
(c) Cause; Other than for Disability, Good Reason or During a Window Period............ 10
5. Non-exclusivity of Rights.............................................................. 11
6. Full Settlement; Resolution of Disputes................................................ 11
7. Certain Additional Payments by the Company............................................. 12
8. Confidential Information............................................................... 14
9. Change of Control...................................................................... 15
10. Covenant Not to Compete................................................................ 19
11. Successors............................................................................. 20
12. Miscellaneous.......................................................................... 21
</TABLE>
i
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EMPLOYMENT AGREEMENT
This AGREEMENT (the "Agreement") by and between Edge Petroleum
Corporation, a Delaware corporation (the "Company"), and James D. Calaway (the
"Executive"), dated as of the 25th day of February, 1997 and to be effective as
of the Agreement Effective Date (as defined in Section 12(h) hereof).
In entering into this Agreement, the Board of Directors of the Company
(the "Board") desires to provide the Executive with substantial incentives to
serve the Company as one of its senior executives performing at the highest
level of leadership and stewardship, without distraction or concern over minimum
compensation, benefits or tenure, to manage the Company's future growth and
development, and maximize the returns to the Company's stockholders.
NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS:
1. Employment Period. As of the Agreement Effective Date
(hereinafter defined), the Company hereby agrees to employ the Executive and the
Executive hereby agrees to accept employment with the Company, in accordance
with, and subject to, the terms and provisions of this Agreement, for the period
(the "Employment Period") commencing on the Agreement Effective Date and ending
on the fifth anniversary of the Agreement Effective Date; provided, on the
second anniversary of the Agreement Effective Date and each anniversary of the
Agreement Effective Date thereafter, the Employment Period shall automatically
renew for an additional one year without any further action by either the
Company or the Executive, it being the intention of the parties that there shall
be continuously a remaining term of not less than three years' duration of the
Employment Period until an event has occurred as described in, or one of the
parties shall have made an appropriate election pursuant to, the provisions of
Section 3.
2. Terms of Employment.
(a) Position and Duties.
(i) During the Employment Period, (A) the Executive's position (including
status, offices, titles and reporting requirements), authority, duties and
responsibilities shall be at least commensurate in all material respects with
the most significant of those held, exercised and assigned on the Agreement
Effective Date, which shall in any event include status as President and member
of the Board of Directors of the Company, and (B) the Executive's services shall
be performed within the Houston, Texas metropolitan area.
(ii) During the Employment Period, and excluding any periods of vacation
and sick leave to which the Executive is entitled, the Executive agrees to
devote full attention and time during normal business hours to the business and
affairs of the Company and, to the extent necessary to discharge the
responsibilities assigned to the Executive hereunder, to use
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the Executive's reasonable best efforts to perform faithfully and efficiently
such responsibilities. During the Employment Period, it shall not be a
violation of this Agreement for the Executive to (A) serve on corporate, civic
or charitable boards or committees, (B) deliver lectures, fulfill speaking
engagements or teach at educational institutions and (C) manage personal
investments, so long as such activities do not interfere with the performance of
the Executive's responsibilities as an employee of the Company in accordance
with this Agreement. It is expressly understood and agreed that to the extent
that any such activities have been conducted by the Executive prior to the
Agreement Effective Date, the continued conduct of such activities (or the
conduct of activities similar in nature and scope thereto) subsequent to the
Agreement Effective Date shall not thereafter be deemed to interfere with the
performance of the Executive's responsibilities to the Company.
(b) Compensation.
------------
(i) Base Salary. During the Employment Period, the Executive shall receive
an annual base salary equal to the base salary in effect immediately prior to
the Agreement Effective Date ("Annual Base Salary"), which shall be paid on a
semimonthly basis. During the Employment Period, the Annual Base Salary shall
be reviewed at least annually and shall be increased at any time and from time
to time as shall be substantially consistent with increases in base salary
generally awarded in the ordinary course of business to executives of the
Company and its affiliated companies. Any increase in Annual Base Salary shall
not serve to limit or reduce any other obligation to the Executive under this
Agreement. Annual Base Salary shall not be reduced after any such increase and
the term "Annual Base Salary," as utilized in this Agreement, shall refer to
Annual Base Salary as so increased. As used in this Agreement, the term
"affiliated companies" shall include, when used with reference to the Company,
any company controlled by, controlling or under common control with the Company.
(ii) Annual Bonus. In addition to Annual Base Salary, the Executive may be
awarded, for each fiscal year or portion thereof during the Employment Period,
an Annual Bonus (the "Annual Bonus"), in an amount comparable to the Annual
Bonus Award to other Company executives, taking into account Executive's
position and responsibilities with the Company, prorated for any period
consisting of less than 12 full months.
(iii) Incentive, Savings and Retirement Plans. During the Employment
Period, the Executive shall be entitled to participate in all incentive, savings
and retirement plans that are tax-qualified under Section 401(a) of the Internal
Revenue Code of 1986, as amended ("Code"), and all plans that are supplemental
to any such tax-qualified plans, in each case to the extent that such plans are
applicable generally to other executives of the Company and its affiliated
companies, but in no event shall such plans provide the Executive with incentive
opportunities (measured with respect to both regular and special incentive
opportunities, to the extent, if any, that such distinction is applicable),
savings opportunities and retirement benefit opportunities that are, in each
case, less favorable to the Executive, in the aggregate,
2
<PAGE>
than the most favorable plans of the Company and its affiliated companies. As
used in this Agreement, the term "most favorable" shall, when used with
reference to any plans, practices, policies or programs of the Company and its
affiliated companies, be deemed to refer to the plans, practices, policies or
programs of the Company and its affiliated companies, as in effect at any time
during the Employment Period and provided generally to other executives of the
Company or its affiliated companies, which are most favorable to the Executive.
(iv) Welfare Benefit Plans. During the Employment Period, the Executive
and/or the Executive's family, as the case may be, shall be eligible for
participation in and shall receive all benefits under welfare benefit plans,
practices, policies and programs provided by the Company or its affiliated
companies (including, without limitation, medical, prescription, dental,
vision, disability, salary continuance, group life and supplemental group life,
accidental death and travel accident insurance plans and programs) to the extent
applicable generally to other executives of the Company or its affiliated
companies, but in no event shall such plans, practices, policies and programs
provide the Executive with benefits that are less favorable, in the aggregate,
than the most favorable such plans, practices, policies and programs of the
Company and its affiliated companies.
(v) Expenses. During the Employment Period, the Executive shall be
entitled to receive prompt reimbursement for all reasonable expenses incurred by
the Executive in accordance with the most favorable policies, practices and
procedures of the Company and its affiliated companies.
(vi) Fringe Benefits and Perquisites. During the Employment Period, the
Executive shall be entitled to fringe benefits and perquisites in accordance
with the most favorable plans, practices, programs and policies of the Company
and its affiliated companies applicable to similarly situated executives.
(vii) Office and Support Staff. During the Employment Period, the
Executive shall be entitled to an office or offices of a size and with
furnishings and other appointments, and to secretarial and other assistance to
the extent needed to fulfill his corporate responsibilities, at least equal to
the most favorable of the foregoing provided to the Executive by the Company and
its affiliated companies at any time during the Employment Period.
(viii) Vacation. During the Employment Period, the Executive shall be
entitled to paid vacation in accordance with the most favorable plans, policies,
programs and practices of the Company and its affiliated companies.
(ix) Stock Option Grants. Prior to or contemporaneously with the execution
of this Agreement, Executive has been granted stock options on 116,940 shares of
Company common stock, par value $.01 per share ("Common Stock"), at an exercise
price equal to the IPO Price ("Initial Stock Option"). The Initial Stock Option
has a term of 10 years and is
3
<PAGE>
exercisable in cumulative annual increments of one-fifth of the total number of
shares subject to the option, beginning on the first anniversary of the Date of
Grant. "IPO" shall mean the initial public offering of Common Stock pursuant to
which the Company receives payment in cash for shares of its Common Stock that
it sells pursuant to a registration statement on Form S-1 filed and declared
effective under the Securities Act of 1933. "IPO Price" shall mean the per
share price to the public for the Common Stock sold in the IPO, as set forth on
the cover page of the final prospectus for the IPO.
(x) Restricted Stock and Other Equity-Based Grants. Prior to or
contemporaneously with the execution of this Agreement, Executive has been
granted a restricted stock award of 58,470 shares of Company Common Stock that
will vest ratably over five years, beginning with the first anniversary of the
date of grant, and an additional 58,470 shares of Company Common Stock that will
vest on the earlier to occur of 10 years from the date of grant or the
achievement of certain performance goals ("Initial Restricted Stock Grant").
The tranche of Initial Restricted Stock Grant subject to performance goals will
vest earlier than 10 years only if the average closing price per share of Common
Stock for the month of December of any year, as compared with the month of
January for the same year (the "Annual Growth"), has increased by 25% or more,
then only 20% of the tranche will vest. If the Annual Growth for a particular
year is not at least 25% and as a result none of the tranche vests for such a
year (a "Nonachieving Year"), then a deficit equal to 25% less the Nonachieving
Year Annual Growth shall exist. In the year subsequent to a Nonachieving Year,
an additional 20% of the performance share tranche will vest if the Annual
Growth for such subsequent year is at least 25% plus the deficit for the
Nonachieving Year.
(xi) Life Insurance. Within 60 days of the Agreement Effective Date,
Executive shall be provided term life insurance coverage in an amount not less
than $2,000,000 during the succeeding portion of the Employment Period; provided
that such coverage can be purchased at standard rates within such 60 days of the
Agreement Effective Date.
3. Termination of Employment.
--------------------------
(a) Death or Disability. The Executive's employment shall terminate
automatically upon the Executive's death during the Employment Period. If the
Company determines in good faith that the Disability of the Executive has
occurred during the Employment Period (pursuant to the definition of Disability
set forth below), it may give to the Executive written notice in accordance with
Section 11(d) of this Agreement of its intention to terminate the Executive's
employment. In such event, the Executive's employment with the Company shall
terminate effective on the 30th day after receipt of such notice by the
Executive (the "Disability Effective Date"), provided that, within the 30 days
after such receipt, the Executive shall not have returned to full-time
performance of the Executive's duties. For purposes of this Agreement,
"Disability" shall mean the absence of the Executive from the Executive's duties
with the Company on a full-time basis for either (i) 180 consecutive business
days or (ii) in any two-year period 270 nonconsecutive business days as a result
of incapacity due to mental or physical illness which is
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determined to be total and permanent by a physician selected by the Company or
its insurers and acceptable to the Executive or the Executive's legal
representative (such agreement as to acceptability not to be withheld
unreasonably).
(b) Cause. The Company may terminate the Executive's employment
during the Employment Period for Cause. For purposes of this Agreement, "Cause"
shall mean for the Company's termination of the Executive's employment: (i) the
Executive's final conviction of a felony crime that enriched the Executive at
the expense of the Company; provided, however, that after indictment, the
Company may suspend Executive from the rendition of services, but without
limiting or modifying in any other way the Company's obligations under this
Agreement; (ii) a material breach by Executive of a material fiduciary duty owed
to the Company; (iii) a material breach by Executive of any of the covenants
made by him in Sections 8 and 10 hereof; (iv) the willful and gross neglect by
Executive of the material duties specifically and expressly required by this
Agreement; or (v) the Executive's continuing failure to substantially perform
his duties and responsibilities hereunder (except by reason of the Executive's
incapacity due to physical or mental illness or injury) for a period of 45 days
after the Required Board Majority, as defined herein, has delivered to the
Executive a written demand for substantial performance hereunder which
specifically identifies the bases for the Required Board Majority's
determination that the Executive has not substantially performed his duties and
responsibilities hereunder (that period being the "Grace Period"); provided,
that for purposes of this clause (v), the Company shall not have Cause to
terminate the Executive's employment unless (A) at a meeting of the Board called
and held following the Grace Period in the city in which the Company's principal
executive offices are located, of which the Executive was given not less than 10
days' prior written notice and at which the Executive was afforded the
opportunity to be represented by counsel, appear and be heard, the Required
Board Majority shall adopt a written resolution which (1) sets forth the
Required Board Majority's determination that the failure of the Executive to
substantially perform his duties and responsibilities hereunder has (except by
reason of his incapacity due to physical or mental illness or injury) continued
past the Grace Period and (2) specifically identifies the bases for that
determination, and (B) the Company, at the written direction of the Required
Board Majority, shall deliver to the Executive a Notice of Termination for Cause
to which a copy of that resolution, certified as being true and correct by the
secretary or any assistant secretary of the Company, is attached. "Required
Board Majority" means at any time a majority of the members of the Board at that
time which includes at least a majority of the Directors, each of whom has not
been an employee of the Company or any subsidiary of the Company.
(c) Good Reason; Window Period. The Executive's employment may be
terminated during the Employment Period by the Executive for Good Reason, or
during a Window Period by the Executive without any reason. For purposes of
this Agreement, "Window Period" shall mean the 60-day period immediately
following elapse of one year after any Change of Control as defined in Section 9
of this Agreement. For purposes of this Agreement, "Good Reason" shall mean:
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(i) the assignment to the Executive of any duties materially
inconsistent in any respect with the Executive's position (including status,
offices, titles and reporting requirements), authority, duties or
responsibilities as contemplated by Section 2 of this Agreement, or any other
action by the Company which results in a diminution in such position, authority,
duties or responsibilities, excluding for this purpose an isolated,
insubstantial and inadvertent action not taken in bad faith and which is
remedied by the Company promptly after receipt of notice thereof given by the
Executive;
(ii) any material failure by the Company to comply with any of the
provisions of this Agreement, other than an isolated, insubstantial and
inadvertent failure not occurring in bad faith and which is remedied by the
Company promptly after receipt of notice thereof given by the Executive;
(iii) the Company's requiring the Executive to be based at any office
outside the Houston metropolitan area;
(iv) any purported termination by the Company of the Executive's
employment otherwise than as expressly permitted by this Agreement;
(v) any failure by the Company to comply with and satisfy the
requirements of Section 11 of this Agreement, provided that (A) the successor
described in Section 11(c) has received, at least 10 days prior to the Date of
Termination (as defined in subparagraph (e) below), written notice from the
Company or the Executive of the requirements of such provision and (B) such
failure to be in compliance and satisfy the requirements of Section 11 shall
continue as of the Date of Termination; or
(vi) any failure to reelect Executive as a member of the Board.
(d) Notice of Termination. Any termination by the Company for Cause,
or by the Executive for Good Reason or without any reason during a Window
Period, shall be communicated by Notice of Termination to the other party hereto
given in accordance with Section 12(d) of this Agreement. The failure by the
Executive or the Company to set forth in the Notice of Termination any fact or
circumstance which contributes to a showing of Good Reason or Cause shall not
waive any right of the Executive or the Company hereunder or preclude the
Executive or the Company from asserting such fact or circumstance in enforcing
the Executive's or the Company's rights hereunder.
(e) Date of Termination. For purposes of this Agreement, the term
"Date of Termination" means (i) if the Executive's employment is terminated by
the Company for Cause, or by the Executive during a Window Period or for Good
Reason, the date of receipt of the Notice of Termination or any later date
specified therein, as the case may be, (ii) if the Executive's employment is
terminated by the Company other than for Cause or Disability, the Date of
Termination shall be the date on which the Company notifies the Executive of
such termination and
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(iii) if the Executive's employment is terminated by reason of death or
Disability, the Date of Termination shall be the date of death of the Executive
or the Disability Effective Date, as the case may be.
4. Obligations of the Company upon Termination.
--------------------------------------------
(a) Disability, Good Reason or During a Window Period; Other than for
Cause or Death (except during a Window Period). If, during the Employment
Period, the Company shall terminate the Executive's employment other than for
Cause, including a termination by reason of Disability (but not by reason of
death), or the Executive shall terminate employment for Good Reason or his
employment shall be terminated during a Window Period by the Company for Cause,
by the Executive without any reason, or by reason of death:
(i) the Company shall pay or provide to or in respect of the Executive the
following amounts and benefits:
A. in a lump sum in cash, within 10 days after the Date of Termination, an
amount equal to the sum of (1) the Executive's Annual Base Salary through the
Date of Termination, (2) any deferred compensation previously awarded to or
earned by the Executive (together with any accrued interest or earnings thereon)
and (3) any compensation for unused vacation time for which the Executive is
eligible in accordance with the most favorable plans, policies, programs and
practices of the Company and its affiliated companies, in each case to the
extent not theretofore paid (the sum of the amounts described in clauses (1),
(2) and (3) shall be hereinafter referred to as the "Accrued Obligation");
B. in a lump sum in cash, discounted at 6%, within 10 days after the Date
of Termination, an amount equal to 125% of Annual Base Salary that would have
been paid to the Executive pursuant to this Agreement for the period (the
"Remaining Employment Period") beginning on the Date of Termination and ending
on the latest possible date of termination of the Employment Period in
accordance with the provisions of Section 1 hereof (the "Final Expiration Date")
if the Executive's employment had not been terminated;
C. continuation for the Remaining Employment Period of life insurance and
medical benefits coverages, but with the Company's medical benefits coverages
being secondary to any coverages provided by another employer;
D. effective as of the Date of Termination, (1) immediate vesting and
exercisability of, and termination of any restrictions on sale or transfer
(other than any such restriction arising by operation of law) with respect to,
each and every stock option, restricted stock award, restricted stock unit award
and other equity-based award and performance award (each, a "Compensatory
Award") that is outstanding
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as of a time immediately prior to the Date of Termination except that the
portion of any restricted stock award described in Section 2(b)(x) that would
vest only by reason of a achievement of performance goals and not solely by
reason of continued employment shall vest only if termination is by the Company
without Cause or by Employee for Good Reason or in a Window Period and either
(w) termination occurs in the first year of the Employment Period in which event
the unvested portion shall be 100% vested, (x) termination occurs in the second
year of the Employment Period in which event 80% of the unvested portion shall
be vested, (y) termination occurs in the third year of the Employment Period in
which event 60% of the unvested portion shall be vested or (z) termination
occurs after the third year of the Employment Period and the performance goals
have been met in each of the first three years of the Employment Period in which
event all unvested shares shall be vested, (2) the extension of the term during
which each and every Compensatory Award may be exercised by the Executive until
the earlier of (x) the first anniversary of the Date of Termination or (y) the
date upon which the right to exercise any Compensatory Award would have expired
if the Executive had continued to be employed by the Company under the terms of
this Agreement until the Final Expiration Date and (3) at the sole election of
Executive, in exchange for any or all Compensatory Awards that are either
denominated in or payable in Common Stock, an amount in cash equal to the excess
of (x) the Highest Price Per Share (as defined below) over (y) the exercise or
purchase price, if any, of such Compensatory Awards. As used herein, the term
"Highest Price Per Share" shall mean the highest price per share that can be
determined to have been paid or agreed to be paid for any share of Common Stock
by a Covered Person (as defined below) at any time during the Employment Period
or the six-month period immediately preceding the Agreement Effective Date. As
used herein, the term "Covered Person" shall mean any Person other than an
Exempt Person (in each case as defined in Section 9 hereof) who (I) is the
Beneficial Owner (as defined in Section 9 hereof) of 10% or more of the
outstanding shares of Common Stock or 10% or more of the combined voting power
of the outstanding Voting Stock (as defined in Section 9 hereof) of the Company
at any time during the Employment Period, (II) is a Person who has any material
involvement in proposing or effectuating the Change of Control (as defined in
Section 9 hereof) or (III) is an assignee of or has otherwise succeeded to any
shares of Common Stock or Voting Stock of the Company which were at any time
during the Employment Period "beneficially owned" (as defined in Section 9
hereof) by any Person identified in clause (I) or (II) of this definition, if
such assignment or succession shall have occurred in the course of a privately
negotiated transaction rather than an open market transaction. For purposes of
determining whether a Person is a Covered Person, the number of shares of Common
Stock or Voting Stock of the Company deemed to be outstanding shall include
shares of which the Person is deemed the Beneficial Owner, but shall not include
any other shares which may be issuable pursuant to any agreement, arrangement or
understanding, or upon exercise of conversion rights, warrants or options. In
determining the Highest Price
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Per Share, the price paid or agreed to be paid by a Covered Person will be
appropriately adjusted to take into account (W) distributions paid or payable in
stock, (X) subdivisions of outstanding stock, (Y) combinations of shares of
stock into a smaller number of shares and (Z) similar events; and
E. as soon as practicable following the calendar year of the date of
termination, an amount equal to the product of (x) the Annual Bonus that would
have been paid to Executive with respect to the year of termination had the Date
of Termination not occurred and (y) a fraction, the numerator of which is the
number of days in the fiscal year through the Date of Termination and the
denominator of which is 365;
(ii) for the Remaining Employment Period, or such longer period as any
plan, program, practice or policy may provide, the Company shall continue
benefits to the Executive and/or the Executive's family at least equal to those
which would have been provided to them in accordance with the plans, programs,
practices and policies described in Sections 2(b)(iv) of this Agreement if the
Executive's employment had not been terminated in accordance with the most
favorable plans, practices, programs or policies of the Company and its
affiliated companies (such continuation of such benefits for the applicable
period herein set forth shall be hereinafter referred to as "Welfare Benefit
Continuation"). For purposes of determining eligibility of the Executive for
retiree benefits pursuant to such plans, practices, programs and policies, the
Executive shall be considered to have remained employed until the Final
Expiration Date and to have retired on such date.
(b) Death (except during a Window Period). If the Executive's
employment is terminated by reason of the Executive's death during the
Employment Period and other than during a Window Period in which event the
provisions of Section 4(a) shall govern, this Agreement shall terminate without
further obligations to the Executive's legal representatives under this
Agreement, other than (i) the payment of Accrued Obligations (which shall be
paid to the Executive's estate or beneficiary, as applicable, in a lump sum in
cash within 30 days of the Date of Termination), (ii) the payment of an amount
equal to the Annual Salary that would have been paid to the Executive pursuant
to this Agreement for the period beginning on the Date of Termination and ending
on the first anniversary thereof if the Executive's employment had not
terminated by reason of death (which shall be paid to the Executive's estate or
beneficiary, as applicable, in a lump sum in cash within 30 days of the Date of
Termination), (iii) during the period beginning on the Date of Termination and
ending on the first anniversary thereof medical benefits coverage determined as
if Executive's employment had not terminated by reason of death, (iv) as soon as
practicable following the fiscal year in which death occurs, payment of an
amount equal to the product of (x) the Annual Bonus that would have been paid to
Executive with respect to the year of termination had the Date of Termination
not occurred and (y) a fraction, the numerator of which is the number of days in
the fiscal year through the Date of Termination and the denominator of which is
365 and (v) effective as of the Date of Termination, (A) immediate vesting and
exercisability of, and termination of any restrictions on sale or transfer
(other than any such restriction arising by operation of law) with
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respect to, each and every Compensatory Award outstanding as of a time
immediately prior to the Date of Termination, except the portion of any
restricted stock award described in Section 2(b)(x) that would vest only by
reason of achievement of performance goals and not by solely by reason of
continued employment shall vest only if either (w) death occurs in the first
year of the Employment Period in which event the unvested portion shall be 100%
vested, (x) death occurs in the second year of the Employment Period in which
event 80% of the unvested portion shall be vested, (y) death occurs in the third
year of the Employment Period in which event 60% of the unvested portion shall
be vested or (z) death occurs after the third year of the Employment Period and
the performance goals have been met in each of the first three years of the
Employment Period in which event all unvested shares shall be vested, (B) the
extension of the term during which each and every Compensatory Award may be
exercised or purchased by the Executive until the earlier of (1) the first
anniversary of the Date of Termination or (2) the date upon which the right to
exercise or purchase any Compensatory Award would have expired if the Executive
had continued to be employed by the Company under the terms of this Agreement
until the Final Expiration Date and (C) at the sole election of the Executive's
legal representative, in exchange for any Compensatory Award that is either
denominated in or payable in Common Stock, an amount in cash equal to the excess
of (1) the Highest Price Per Share over (2) the exercise or purchase price, if
any, of such Compensatory Award.
(c) Cause; Other than for Disability, Good Reason or During a Window
Period. If the Executive's employment shall be terminated for Cause during the
Employment Period and other than during a Window Period, in which event the
provisions of Section 4(a) shall govern, this Agreement shall terminate without
further obligations to the Executive other than for Accrued Obligations. If the
Executive terminates employment during the Employment Period, excluding a
termination for any of Disability, Good Reason or without any reason during a
Window Period, in which event the provisions of Section 4(a) shall govern, this
Agreement shall terminate without further obligations to the Executive, other
than for the payment of Accrued Obligations. In such case, all Accrued
Obligations shall be paid to the Executive in a lump sum in cash within 30 days
of the Date of Termination.
5. Non-exclusivity of Rights. Except as provided in Section 4 of
this Agreement, nothing in this Agreement shall prevent or limit the Executive's
continuing or future participation in any plan, program, policy or practice
provided by the Company or any of its affiliated companies and for which the
Executive may qualify, nor shall anything herein limit or otherwise affect such
rights as the Executive may have under any contract or agreement with the
Company or any of its affiliated companies. Amounts which are vested benefits
or which the Executive is otherwise entitled to receive under any plan, policy,
practice or program of or any contract or agreement with the Company or any of
its affiliated companies at or subsequent to the Date of Termination shall be
payable in accordance with such plan, policy, practice or program or contract or
agreement except as such plan, policy, practice or program is superseded by this
Agreement.
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6. Full Settlement; Resolution of Disputes.
----------------------------------------
(a) The Company's obligation to make payments provided for in this
Agreement and otherwise to perform its obligations hereunder shall not be
affected by any setoff, counterclaim, recoupment, defense, mitigation or other
claim, right or action which the Company may have against the Executive or
others. The Company agrees to pay promptly as incurred, to the full extent
permitted by law, all legal fees and expenses which the Executive may reasonably
incur as a result of any contest (regardless of the outcome thereof) by the
Company, the Executive or others of the validity or enforceability of, or
liability under, any provision of this Agreement or any guarantee of performance
thereof (including as a result of any contest by the Executive about the amount
of any such payment pursuant to this Agreement), plus in each case interest on
any delayed payment at the annual percentage rate which is three percentage
points above the interest rate shown as the Prime Rate in the Money Rates column
in the then most recently published edition of The Wall Street Journal
(Southwest Edition), or, if such rate is not then so published on at least a
weekly basis, the interest rate announced by Chase Manhattan Bank (or its
successor), from time to time, as its Base Rate (or prime lending rate), from
the date those amounts were required to have been paid or reimbursed to the
Employee until those amounts are finally and fully paid or reimbursed; provided,
however, that in no event shall the amount of interest contracted for, charged
or received hereunder exceed the maximum non-usurious amount of interest allowed
by applicable law ; provided, further, that if the Executive is not the
prevailing party in any such contest, then he shall, upon the conclusion
thereof, repay to the Company any amounts that were previously advanced pursuant
to this sentence by the Company as payment of legal fees and expenses.
(b) If there shall be any dispute between the Company and the
Executive concerning (i) in the event of any termination of the Executive's
employment by the Company, whether such termination was for Cause or Disability,
or (ii) in the event of any termination of employment by the Executive, whether
Good Reason existed or whether such termination occurred during a Window Period,
then, unless and until there is a final, nonappealable judgment by a court of
competent jurisdiction declaring that such termination was for Cause or
Disability or that the determination by the Executive of the existence of Good
Reason was not made in good faith or that the termination by the Executive did
not occur during a Window Period, the Company shall pay all amounts, and provide
all benefits, to the Executive and/or the Executive's family or other
beneficiaries, as the case may be, that the Company would be required to pay or
provide pursuant to Section 4(a) hereof as though such termination were by the
Company without Cause or by the Executive with Good Reason or during a Window
Period; provided, however, that the Company shall not be required to pay any
disputed amounts pursuant to this paragraph except upon receipt of an
undertaking by or on behalf of the Executive to repay all such amounts to which
the Executive is ultimately adjudged by such court not to be entitled.
7. Certain Additional Payments by the Company.
-------------------------------------------
(a) Anything in this Agreement to the contrary notwithstanding, in the
event it shall be determined that any payment or distribution to or for the
benefit of the Executive (whether
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paid or payable or distributed or distributable pursuant to the terms of this
Agreement or otherwise, but determined without regard to any additional payments
required under this Section 7 (a "Payment") would be subject to the excise tax
imposed by Section 4999 of the Code or any interest or penalties are incurred by
the Executive with respect to such excise tax (such excise tax, together with
any such interest and penalties, are hereinafter collectively referred to as the
"Excise Tax"), then the Executive shall be entitled to receive an additional
payment (a "Gross-Up Payment") in an amount such that after payment by the
Executive of all taxes (including any interest or penalties imposed with respect
to such taxes), including, without limitation, any income taxes (and any
interest and penalties imposed with respect thereto) and Excise Tax imposed upon
the Gross-Up Payment, the Executive retains an amount of the Gross-Up Payment
equal to the Excise Tax imposed upon the Payments.
(b) Subject to the provisions of Section 7(c), all determinations
required to be made under this Section 7, including whether and when Gross-Up
Payment is required and the amount of such Gross-Up Payment and the assumptions
to be utilized in arriving at such determination, shall be made by Deloitte &
Touche LLP (the "Accounting Firm"); provided, however, that the Accounting Firm
shall not determine that no Excise Tax is payable by the Executive unless it
delivers to the Executive a written opinion (the "Accounting Opinion") that
failure to report the Excise Tax on the Executive's applicable federal income
tax return would not result in the imposition of a negligence or similar
penalty. In the event that by Deloitte & Touche LLP has served, at any time
during the two years immediately preceding a Change in Control Date, as
accountant or auditor for the individual, entity or group that is involved in
effecting or has any material interest in the Change in Control, the Executive
shall appoint another nationally recognized accounting firm to make the
determinations and perform the other functions specified in this Section 7
(which accounting firm shall then be referred to as the Accounting Firm
hereunder). All fees and expenses of the Accounting Firm shall be borne solely
by the Company. Within 15 business days of the receipt of notice from the
Executive that there has been a Payment, or such earlier time as is requested by
the Company, the Accounting Firm shall make all determinations required under
this Section 7, shall provide to the Company and the Executive a written report
setting forth such determinations, together with detailed supporting
calculations, and, if the Accounting Firm determines that no Excise Tax is
payable, shall deliver the Accounting Opinion to the Executive. Any Gross-Up
Payment, as determined pursuant to this Section 7, shall be paid by the Company
to the Executive within five days of the receipt of the Accounting Firm's
determination. Subject to the remainder of this Section 7, any determination by
the Accounting Firm shall be binding upon the Company and the Executive. As a
result of the uncertainty in the application of Section 4999 of the Code at the
time of the initial determination by the Accounting Firm hereunder, it is
possible that Gross-Up Payments which will not have been made by the Company
should have been made ("Underpayment"), consistent with the calculations
required to be made hereunder. In the event that it is ultimately determined in
accordance with the procedures set forth in Section 7(c) that the Executive is
required to make a payment of any Excise Tax, the Accounting Firm shall
determine the amount of the Underpayment that has occurred and any such
Underpayment shall be promptly paid by the Company to or for the benefit of the
Executive.
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(c) The Executive shall notify the Company in writing of any claims by
the Internal Revenue Service that, if successful, would require the payment by
the Company of the Gross-Up Payment. Such notification shall be given as soon
as practicable but no later than 30 days after the Executive actually receives
notice in writing of such claim and shall apprise the Company of the nature of
such claim and the date on which such claim is requested to be paid; provided,
however, that the failure of the Executive to notify the Company of such claim
(or to provide any required information with respect thereto) shall not affect
any rights granted to the Executive under this Section 7 except to the extent
that the Company is materially prejudiced in the defense of such claim as a
direct result of such failure. The Executive shall not pay such claim prior to
the expiration of the 30-day period following the date on which he gives such
notice to the Company (or such shorter period ending on the date that any
payment of taxes with respect to such claim is due). If the Company notifies the
Executive in writing prior to the expiration of such period that it desires to
contest such claim, the Executive shall:
(i) give the Company any information reasonably requested by the Company
relating to such claim;
(ii) take such action in connection with contesting such claim as the
Company shall reasonably request in writing from time to time, including,
without limitation, accepting legal representation with respect to such claim by
an attorney selected by the Company and reasonably acceptable to the Executive;
(iii) cooperate with the Company in good faith in order effectively to
contest such claim; and
(iv) if the Company elects not to assume and control the defense of such
claim, permit the Company to participate in any proceedings relating to such
claim;
provided, however, that the Company shall bear and pay directly all costs and
expenses (including additional interest and penalties) incurred in connection
with such contest and shall indemnify and hold the Executive harmless, on an
after-tax basis, for any Excise Tax or income tax (including interest and
penalties with respect thereto) imposed as a result of such representation and
payment of costs and expenses. Without limitation on the foregoing provisions
of this Section 7(c), the Company shall have the right, at its sole option, to
assume the defense of and control all proceedings in connection with such
contest, in which case it may pursue or forego any and all administrative
appeals, proceedings, hearings and conferences with the taxing authority in
respect of such claim, and may either direct the Executive to pay the tax
claimed and sue for a refund or contest the claim in any permissible manner, and
the Executive agrees to prosecute such contest to a determination before any
administrative tribunal, in a court of initial jurisdiction and in one or more
appellate courts, as the Company shall determine; provided, however, that if the
Company directs the Executive to pay such claim and sue for a refund, the
Company shall advance the amount of such payment to the Executive, on an
interest-free basis, and shall indemnify and hold the Executive harmless, on an
after-tax basis, from any Excise Tax or income tax (including interest or
penalties
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with respect thereto) imposed with respect to such advance or with respect to
any imputed income with respect to such advance; and further provided, that any
extension of the statute of limitations relating to payment of taxes for the
taxable year of the Executive with respect to which such contested amount is
claimed to be due is limited solely to such contested amount. Furthermore, the
Company's right to assume the defense of and control the contest shall be
limited to issues with respect to which a Gross-Up Payment would be payable
hereunder and the Executive shall be entitled to settle or contest, as the case
may be, any other issue raised by the Internal Revenue Service or any other
taxing authority.
(d) If, after the receipt by the Executive of an amount advanced by
the Company pursuant to Section 7(c) the Executive becomes entitled to receive
any refund with respect to such claim, the Executive shall (subject to the
Company's complying with the requirements of Section 7(c)) promptly pay to the
Company the amount of such refund (together with any interest paid or credited
thereon after taxes applicable thereto). If, after the receipt by the Executive
of an amount advanced by the Company pursuant to Section 7(c) a determination is
made that the Executive shall not be entitled to any refund with respect to such
claim, and the Company does not notify the Executive in writing of its intent to
contest such denial of refund prior to the expiration of 30 days after such
determination, then such advance shall be forgiven and shall not be required to
be repaid and the amount of such advance shall offset, to the extent thereof,
the amount of Gross-Up Payment required to be paid.
8. Confidential Information. The Executive shall hold in a fiduciary
capacity for the benefit of the Company all secret or confidential information,
knowledge or data relating to the Company or any of its affiliated companies,
and their respective businesses, which shall have been obtained by the Executive
during the Executive's employment by the Company or any of its affiliated
companies and which shall not be or become public knowledge (other than by acts
by the Executive or representatives of the Executive in violation of this
Agreement) (referred to herein as "Confidential Information"). After
termination of the Executive's employment with the Company, the Executive shall
not, without the prior written consent of the Company or as may otherwise be
required by law or legal process, communicate or divulge any such information,
knowledge or data to anyone other than the Company and those designated by it.
In no event shall an asserted violation of the provisions of this Section 8
constitute a basis for deferring or withholding any amounts otherwise payable to
the Executive under this Agreement. Also, within 14 days of the termination of
Executive's employment for any reason, Executive shall return to Company all
documents and other tangible items of or containing Company information which
are in Executive's possession, custody or control.
9. Change of Control.
------------------
As used in this Agreement, the terms set forth below shall have the
following respective meanings:
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"Affiliate" shall have the meaning ascribed to such term in Rule 12b-2
of the General Rules and Regulations under the Exchange Act, as in effect on the
date of this Agreement.
"Associate" shall mean, with reference to any Person, (a) any
corporation, firm, partnership, association, unincorporated organization or
other entity (other than the Company or a subsidiary of the Company) of which
such Person is an officer or general partner (or officer or general partner of a
general partner) or is, directly or indirectly, the Beneficial Owner of 10% or
more of any class of equity securities, (b) any trust or other estate in which
such Person has a substantial beneficial interest or as to which such Person
serves as trustee or in a similar fiduciary capacity and (c) any relative or
spouse of such Person, or any relative of such spouse, who has the same home as
such Person.
"Beneficial Owner" shall mean, with reference to any securities, any
Person if:
(a) such Person or any of such Person's Affiliates and Associates, directly
or indirectly, is the "beneficial owner" of (as determined pursuant to Rule 13d-
3 of the General Rules and Regulations under the Exchange Act, as in effect on
the date of this Agreement) such securities or otherwise has the right to vote
or dispose of such securities, including pursuant to any agreement, arrangement
or understanding (whether or not in writing); provided, however, that a Person
shall not be deemed the "Beneficial Owner" of, or to "beneficially own," any
security under this subsection (a) as a result of an agreement, arrangement or
understanding to vote such security if such agreement, arrangement or
understanding: (i) arises solely from a revocable proxy or consent given in
response to a public (i.e., not including a solicitation exempted by Rule 14a-
2(b)(2) of the General Rules and Regulations under the Exchange Act) proxy or
consent solicitation made pursuant to, and in accordance with, the applicable
provisions of the General Rules and Regulations under the Exchange Act and (ii)
is not then reportable by such Person on Schedule 13D under the Exchange Act (or
any comparable or successor report);
(b) such Person or any of such Person's Affiliates and Associates, directly
or indirectly, has the right or obligation to acquire such securities (whether
such right or obligation is exercisable or effective immediately or only after
the passage of time or the occurrence of an event) pursuant to any agreement,
arrangement or understanding (whether or not in writing) or upon the exercise of
conversion rights, exchange rights, other rights, warrants or options, or
otherwise; provided, however, that a Person shall not be deemed the Beneficial
Owner of, or to "beneficially own," (i) securities tendered pursuant to a tender
or exchange offer made by such Person or any of such Person's Affiliates or
Associates until such tendered securities are accepted for purchase or exchange
or (ii) securities issuable upon exercise of Exempt Rights; or
(c) such Person or any of such Person's Affiliates or Associates (i) has
any agreement, arrangement or understanding (whether or not in writing) with any
other Person (or any Affiliate or Associate thereof) that beneficially owns such
securities for the purpose
15
<PAGE>
of acquiring, holding, voting (except as set forth in the proviso to subsection
(a) of this definition) or disposing of such securities or (ii) is a member of a
group (as that term is used in Rule 13d-5(b) of the General Rules and
Regulations under the Exchange Act) that includes any other Person that
beneficially owns such securities; provided, however, that nothing in this
definition shall cause a Person engaged in business as an underwriter of
securities to be the Beneficial Owner of, or to "beneficially own," any
securities acquired through such Person's participation in good faith in a firm
commitment underwriting until the expiration of 40 days after the date of such
acquisition. For purposes hereof, "voting" a security shall include voting,
granting a proxy, consenting or making a request or demand relating to corporate
action (including, without limitation, a demand for a stockholder list, to call
a stockholder meeting or to inspect corporate books and records) or otherwise
giving an authorization (within the meaning of Section 14(a) of the Exchange
Act) in respect of such security.
The terms "beneficially own" and "beneficially owning" shall have
meanings that are correlative to this definition of the term "Beneficial Owner."
"Change of Control" shall mean any of the following occurring on or
after the Agreement Effective Date except that the transactions contemplated by
the Combination Agreement dated as of December 3, 1996, by and among the
Company, Edge Petroleum Corporation, a Texas corporation, Edge Mergeco, Inc.,
Gulfedge Limited Partnership, Edge Group II Limited Partnership and Edge Group
Partnership shall not constitute a Change of Control:
(a) any Person (other than an Exempt Person) shall become the Beneficial
Owner of 40% or more of the shares of Common Stock then outstanding or 40% or
more of the combined voting power of the Voting Stock of the Company then
outstanding; provided, however, that no Change of Control shall be deemed to
occur for purposes of this subsection (a) if such Person shall become a
Beneficial Owner of 40% or more of the shares of Common Stock or 40% or more of
the combined voting power of the Voting Stock of the Company solely as a result
of (i) an Exempt Transaction or (ii) an acquisition by a Person pursuant to a
reorganization, merger or consolidation, if, following such reorganization,
merger or consolidation, the conditions described in clauses (i), (ii) and (iii)
of subsection (c) of this definition are satisfied;
(b) individuals who, as of the Agreement Effective Date, constitute the
Board (the "Incumbent Board") cease for any reason to constitute at least a
majority of the Board; provided, however, that any individual becoming a
director subsequent to the Agreement Effective Date whose election, or
nomination for election by the Company's shareholders, was approved by a vote of
at least a majority of the directors then comprising the Incumbent Board shall
be considered as though such individual were a member of the Incumbent Board;
provided, further, that there shall be excluded, for this purpose, any such
individual whose initial assumption of office occurs as a result of any actual
or threatened election contest that is subject to the provisions of Rule 14a-11
under the Exchange Act;
16
<PAGE>
(c) approval by the shareholders of the Company of a reorganization, merger
or consolidation, in each case, unless, following such reorganization, merger or
consolidation, (i) more than 85% of the then outstanding shares of common stock
of the corporation resulting from such reorganization, merger or consolidation
and the combined voting power of the then outstanding Voting Stock of such
corporation beneficially owned, directly or indirectly, by all or substantially
all of the Persons who were the Beneficial Owners of the outstanding Common
Stock immediately prior to such reorganization, merger or consolidation in
substantially the same proportions as their ownership, immediately prior to such
reorganization, merger or consolidation, of the outstanding Common Stock, (ii)
no Person (excluding any Exempt Person or any Person beneficially owning,
immediately prior to such reorganization, merger or consolidation, directly or
indirectly, 40% or more of the Common Stock then outstanding or 40% or more of
the combined voting power of the Voting Stock of the Company then outstanding)
beneficially owns, directly or indirectly, 40% or more of the then outstanding
shares of common stock of the corporation resulting from such reorganization,
merger or consolidation or the combined voting power of the then outstanding
Voting Stock of such corporation and (iii) at least a majority of the members of
the board of directors of the corporation resulting from such reorganization,
merger or consolidation were members of the Incumbent Board at the time of the
execution of the initial agreement or initial action by the Board providing for
such reorganization, merger or consolidation; or
(d) approval by the shareholders of the Company of (i) a complete
liquidation or dissolution of the Company unless such liquidation or dissolution
is approved as part of a plan of liquidation and dissolution involving a sale or
disposition of all or substantially all of the assets of the Company to a
corporation with respect to which, following such sale or other disposition, all
of the requirements of clauses (ii)(A), (B) and (C) of this subsection (d) are
satisfied, or (ii) the sale or other disposition of all or substantially all of
the assets of the Company, other than to a corporation, with respect to which,
following such sale or other disposition, (A) more than 85% of the then
outstanding shares of common stock of such corporation and the combined voting
power of the Voting Stock of such corporation is then beneficially owned,
directly or indirectly, by all or substantially all of the Persons who were the
Beneficial Owners of the outstanding Common Stock immediately prior to such sale
or other disposition in substantially the same proportion as their ownership,
immediately prior to such sale or other disposition, of the outstanding Common
Stock, (B) no Person (excluding any Exempt Person and any Person beneficially
owning, immediately prior to such sale or other disposition, directly or
indirectly, 40% or more of the Common Stock then outstanding or 40% or more of
the combined voting power of the Voting Stock of the Company then outstanding)
beneficially owns, directly or indirectly, 40% or more of the then outstanding
shares of common stock of such corporation and the combined voting power of the
then outstanding Voting Stock of such corporation and (C) at least a majority of
the members of the board of directors of such corporation were members of the
Incumbent Board at the time of the execution of the initial agreement or initial
action of the Board providing for such sale or other disposition of assets of
the Company.
17
<PAGE>
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
"Exempt Person" shall mean the Company, any subsidiary of the Company,
any employee benefit plan of the Company or any subsidiary of the Company, and
any Person organized, appointed or established by the Company for or pursuant to
the terms of any such plan.
"Exempt Rights" shall mean any rights to purchase shares of Common
Stock or other Voting Stock of the Company if at the time of the issuance
thereof such rights are not separable from such Common Stock or other Voting
Stock (i.e., are not transferable otherwise than in connection with a transfer
of the underlying Common Stock or other Voting Stock) except upon the occurrence
of a contingency, whether such rights exist as of the Agreement Effective Date
or are thereafter issued by the Company as a dividend on shares of Common Stock
or other Voting Securities or otherwise.
"Exempt Transaction" shall mean an increase in the percentage of the
outstanding shares of Common Stock or the percentage of the combined voting
power of the outstanding Voting Stock of the Company beneficially owned by any
Person solely as a result of a reduction in the number of shares of Common Stock
then outstanding due to the repurchase of Common Stock or Voting Stock by the
Company, unless and until such time as (a) such Person or any Affiliate or
Associate of such Person shall purchase or otherwise become the Beneficial Owner
of additional shares of Common Stock constituting 1% or more of the then
outstanding shares of Common Stock or additional Voting Stock representing 1% or
more of the combined voting power of the then outstanding Voting Stock, or (b)
any other Person (or Persons) who is (or collectively are) the Beneficial Owner
of shares of Common Stock constituting 1% or more of the then outstanding shares
of Common Stock or Voting Stock representing 1% or more of the combined voting
power of the then outstanding Voting Stock shall become an Affiliate or
Associate of such Person.
"Person" shall mean any individual, firm, corporation, partnership,
association, trust, unincorporated organization or other entity.
"Voting Stock" shall mean, with respect to a corporation, all
securities of such corporation of any class or series that are entitled to vote
generally in the election of directors of such corporation (excluding any class
or series that would be entitled so to vote by reason of the occurrence of any
contingency, so long as such continency has not occurred).
10. Covenant Not to Compete.
------------------------
(a) Executive recognizes that in each of the highly competitive
businesses in which the Company is engaged, personal contact is of primary
importance in securing new customers and in retaining the accounts and goodwill
of present customers and protecting the business of the Company. The Executive,
therefore, agrees that during the Employment Period and, if the Date of
Termination occurs by reason of the Executive terminating his employment for
reasons other than Disability or Good Reason and other than during a Window
Period, for a period of two
18
<PAGE>
years after the Date of Termination, he will not, either within 100 miles of any
geographic location with respect to which he has devoted substantial attention
to the material business interests of the Company (other than the Company's home
office) or any of its affiliated companies or with respect to any immediate
geologic trends in which the Company or any of its affiliated companies is
active as of the Date of Termination without regard, in either case, to whether
the Executive has worked at such location (the "Relevant Geographic Area"), with
respect to only the Relevant Geographic Area, (i) accept employment or render
service to any person that is engaged in a business directly competitive with
the business then engaged in by the Company or any of its affiliated companies
or (ii) enter into or take part in or lend his name, counsel or assistance to
any business, either as proprietor, principal, investor, partner, director,
officer, executive, consultant, advisor, agent, independent contractor, or in
any other capacity whatsoever, for any purpose that would be competitive with
the business of the Company or any of its affiliated companies (all of the
foregoing activities are collectively referred to as the "Prohibited Activity").
(b) In addition to all other remedies at law or in equity which the
Company may have for breach of a provision of this Section 10 by the Executive,
it is agreed that in the event of any breach or attempted or threatened breach
of any such provision, the Company shall be entitled, upon application to any
court of proper jurisdiction, to a temporary restraining order or preliminary
injunction (without the necessity of (i) proving irreparable harm, (ii)
establishing that monetary damages are inadequate or (iii) posting any bond with
respect thereto) against the Executive prohibiting such breach or attempted or
threatened breach by proving only the existence of such breach or attempted or
threatened breach. If the provisions of this Section 10 should ever be deemed
to exceed the time, geographic or occupational limitations permitted by the
applicable law, the Executive and the Company agree that such provisions shall
be and are hereby reformed to the maximum time, geographic or occupational
limitations permitted by the applicable law.
(c) The covenants of the Executive set forth in this Section 10 are
independent of and severable from every other provision of this Agreement; and
the breach of any other provision of this Agreement by the Company or the breach
by the Company of any other agreement between the Company and the Executive
shall not affect the validity of the provisions of this Section 10 or constitute
a defense of the Executive in any suit or action brought by the Company to
enforce any of the provisions of this Section 10 or seek any relief for the
breach thereof by Executive.
(d) The Executive acknowledges, agrees and stipulates that: (i) the
terms and provisions of this Agreement are reasonable and constitute an
otherwise enforceable agreement to which the terms and provisions of this
Section 10 are ancillary or a part of as contemplated by Tex. Bus. & Com. Code
Ann. (S)(S) 15.50-15.52; (ii) the consideration provided by the Company under
this Agreement is not illusory; and (iii) the consideration given by the Company
under this Agreement, including, without limitation, the provision by the
Company of Confidential Information to the Executive as contemplated by Section
8, gives rise to the Company's interest in restraining and prohibiting the
Executive from engaging in the Prohibited Activity within the Relevant
Geographic Area as provided under this Section 10, and the Executive's covenant
not to engage in the Prohibited Activity within the Relevant Geographic Area
pursuant to this Section 10 is designed to enforce the
19
<PAGE>
Executive's consideration (or return promises), including, without limitation,
the Executive's promise to not disclose Confidential Information under this
Agreement.
11. Successors.
-----------
(a) This Agreement is personal to the Executive and without the prior
written consent of the Company shall not be assignable by the Executive
otherwise than by will or the laws of descent and distribution. This Agreement
shall inure to the benefit of and be enforceable by the Executive's heirs,
executors and other legal representatives.
(b) This Agreement shall inure to the benefit of and be binding upon
the Company and may only be assigned to a successor described in Section 11(c).
(c) The Company will require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company to assume
expressly and agree to perform this Agreement in the same manner and to the same
extent that the Company would be required to perform it if no such succession
had taken place. As used in this Agreement, "Company" shall mean the Company as
hereinbefore defined and any successor to its business and/or assets as
aforesaid which assumes and agrees to perform this Agreement by operation of
law, or otherwise.
12. Miscellaneous.
-------------
(a) This Agreement shall be governed by and construed in accordance
with the laws of the State of Texas, without reference to principles of conflict
of laws that would require the application of the laws of any other state or
jurisdiction.
(b) The captions of this Agreement are not part of the provisions
hereof and shall have no force or effect.
(c) This Agreement may not be amended or modified otherwise than by a
written agreement executed by the parties hereto or their respective successors
and heirs, executors and other legal representatives.
(d) All notices and other communications hereunder shall be in writing
and shall be given, if by the Executive to the Company, by telecopy or facsimile
transmission at the telecommunications number set forth below and, if by either
the Company or the Executive, either by hand delivery to the other party or by
registered or certified mail, return receipt requested, postage prepaid,
addressed as follows:
20
<PAGE>
If to the Executive:
-------------------
James D. Calaway
Texaco Heritage Plaza
1111 Bagby, Suite 2100
Houston, Texas 77002
If to the Company:
-----------------
Edge Petroleum Corporation
Texaco Heritage Plaza
1111 Bagby, Suite 2000
Houston, Texas 77002
Telecommunications Number: (713) 654-8960
Attention: Corporate Secretary
or to such other address as either party shall have furnished to the other in
writing in accordance herewith. Notice and communications shall be effective
when actually received by the addressee.
(e) The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of any other provision
of this Agreement.
(f) The Company may withhold from any amounts payable under this
Agreement such federal, state or local taxes as shall be required to be withheld
pursuant to any applicable law or regulation.
(g) The Executive's or the Company's failure to insist upon strict
compliance with any provision hereof or any other provision of this Agreement or
the failure to assert any right the Executive or the Company may have hereunder,
including, without limitation, the right of the Executive to terminate
employment for Good Reason or during a Window Period pursuant to Section 3(c) of
this Agreement, shall not be deemed to be a waiver of such provision or right or
any other provision or right of this Agreement.
(h) This agreement contains the complete and total understanding of
the parties concerning the subject matter hereof and expressly supersedes any
previous agreement between the parties relating to the subject matter hereof as
well as any agreement between Executive and Edge Petroleum Corporation, a Texas
corporation.
(i) This Agreement shall become effective as of the date on which the
Company first receives payment for shares of its Common Stock that it sells
pursuant to a registration statement filed under the Securities Act of 1933 (the
"Agreement Effective Date").
21
<PAGE>
IN WITNESS WHEREOF, the Executive has hereunto set his hand and,
pursuant to the authorization from its Board of Directors, the Company has
caused these presents to be executed in its name on its behalf, all as of the
day and year first above written.
EDGE PETROLEUM CORPORATION
/s/ JOHN E. CALAWAY
By:________________________
John E. Calaway
/s/ JAMES E. CALAWAY
By:________________________
James E. Calaway
22
<PAGE>
EXHIBIT - 11.1
EDGE PETROLEUM CORPORATION
COMPUTATION OF EARNINGS PER SHARE
(IN THOUSANDS, EXCEPT PER SHARE DATA)
- ----------------------------------------------------------------------------
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
--------------------------
1997 1996
<S> <C> <C>
Primary Calculation:
Shares issued in connection with the
combination and assumed outstanding
for all periods 4,701,361 4,701,361
Weighted average shares and equivalent
shares outstanding:
Issued in connection with the public
offering 1,073,333
Restricted stock 97,450
---------- ----------
Weighted average common and common
equivalent shares outstanding 5,872,144 4,701,361
========== ==========
Net Income (Loss) $ 931,351 $ (92,496)
========== ==========
Primary Earnings (Loss) Per Share $0.16 $ (0.02)
========== ==========
</TABLE>
The difference between primary and fully diluted earnings per share is not
significant.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1997
<CASH> 27,639,970
<SECURITIES> 0
<RECEIVABLES> 5,353,567
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 33,655,199
<PP&E> 17,854,527
<DEPRECIATION> 4,371,552
<TOTAL-ASSETS> 47,147,112
<CURRENT-LIABILITIES> 2,315,623
<BONDS> 32,494
0
0
<COMMON> 77,120
<OTHER-SE> 47,274,229
<TOTAL-LIABILITY-AND-EQUITY> 47,147,122
<SALES> 3,441,001
<TOTAL-REVENUES> 3,441,001
<CGS> 0
<TOTAL-COSTS> 2,212,995
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 72,081
<INCOME-PRETAX> 1,155,925
<INCOME-TAX> 224,574
<INCOME-CONTINUING> 931,351
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 931,351
<EPS-PRIMARY> 0.16
<EPS-DILUTED> 0.16
</TABLE>
