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 September 30, 1998
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 X No
--- ---
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 November 12, 1998
------------ --------------------------------
Common Stock 7,772,280
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
EDGE PETROLEUM CORPORATION
CONSOLIDATED BALANCE SHEETS (Unaudited)
<TABLE>
- - -----------------------------------------------------------------------------------------------------------------------
September 30, December 31,
1998 1997
--------------- --------------
ASSETS
CURRENT ASSETS:
<S> <C> <C>
Cash and cash equivalents $ 707,648 $ 3,777,950
Accounts receivable, trade 2,612,838 2,394,497
Accounts receivable, joint interest owners, net 3,682,697 6,547,619
Accounts receivable, related parties 235,292 385,192
Other current assets 471,280 352,571
------------ ------------
Total current assets 7,709,755 13,457,829
PROPERTY AND EQUIPMENT, Net - full cost method of accounting
for oil and natural gas properties 60,790,274 36,662,521
INVESTMENT IN FRONTERA 3,628,264 3,628,264
OTHER ASSETS 7,789 17,232
------------ ------------
TOTAL ASSETS $ 72,136,082 $ 53,765,846
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable, trade $ 4,956,911 $ 4,794,037
Accounts payable to related party 40,000
Accrued liabilities 1,683,440 1,020,645
------------ ------------
Total current liabilities 6,640,351 5,854,682
NOTES PAYABLE 13,850,000
DEFERRED INCOME TAXES 1,159,883
------------ ------------
Total liabilities 21,650,234 5,854,682
------------ ------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value; 5,000,000 shares authorized; none outstanding
Common stock, $.01 par value; 25,000,000 shares authorized; 7,772,280 and
7,760,869 shares issued and outstanding at September 30, 1998 and December 31, 1997,
respectively 77,723 77,609
Additional paid-in capital 47,769,739 47,629,822
Retained earnings 5,903,037 3,825,009
Unearned compensation - restricted stock (3,264,651) (3,621,276)
------------ ------------
Total stockholders' equity 50,485,848 47,911,164
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 72,136,082 $ 53,765,846
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
2
<PAGE>
EDGE PETROLEUM CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
<TABLE>
- - ---------------------------------------------------------------------------------------------------------------------------
Three Months Ended Nine Months Ended
September 30, September 30,
--------------------------- ----------------------------
1998 1997 1998 1997
<S> <C> <C> <C> <C>
OIL AND NATURAL GAS REVENUES $ 3,981,256 $ 3,200,768 $ 11,615,967 $ 9,657,854
OPERATING EXPENSES:
Oil and natural gas operating expenses 916,098 542,964 2,458,629 1,842,202
Depletion, depreciation and amortization 2,383,371 643,663 5,283,394 1,822,257
General and administrative expenses 1,072,924 1,109,454 2,989,751 3,166,283
Unearned compensation expense 165,148 155,052 496,656 358,341
----------- ----------- ----------- -----------
Total operating expenses 4,537,541 2,451,133 11,228,430 7,189,083
----------- ----------- ----------- -----------
OPERATING INCOME (LOSS) (556,285) 749,635 387,537 2,468,771
OTHER INCOME AND EXPENSE:
Interest expense (25,193) (673) (37,810) (182,597)
Interest income 22,124 266,647 124,383 766,324
----------- ----------- ----------- -----------
NET INCOME (LOSS) BEFORE INCOME TAX (EXPENSE) BENEFIT AND
CUMULATIVE EFFECT OF ACCOUNTING CHANGE (559,354) 1,015,609 474,110 3,052,498
INCOME TAX (EXPENSE) BENEFIT 190,945 (176,917)
----------- ----------- ----------- -----------
CUMULATIVE EFFECT OF ACCOUNTING CHANGE 1,780,835
NET INCOME (LOSS) $ (368,409) $ 1,015,609 $ 2,078,028 $ 3,052,498
=========== =========== =========== ===========
BASIC EARNINGS (LOSS) PER SHARE:
Net income (loss) before cumulative effect of accounting change $ (0.05) $ 0.13 $ 0.04 $ 0.43
Cumulative effect of accounting change 0.23
-------- -------- -------- --------
Basic earnings (loss) per share $ (0.05) $ 0.13 $ 0.27 $ 0.43
======== ======== ======== ========
DILUTED EARNINGS (LOSS) PER SHARE:
Net income (loss) before cumulative effect of accounting change $ (0.05) $ 0.13 $ 0.04 $ 0.43
Cumulative effect of accounting change 0.23
-------- -------- -------- --------
Diluted earnings (loss) per share $ (0.05) $ 0.13 $ 0.27 $ 0.43
======== ======== ======== ========
BASIC WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 7,772,580 7,727,774 7,771,903 7,110,752
DILUTED WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 7,772,580 7,783,462 7,802,701 7,175,340
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
EDGE PETROLEUM CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (Unaudited)
<TABLE>
- - ----------------------------------------------------------------------------------------------------------------------------
Unearned
Common Stock Additional Compensation - Total
-------------------------- Paid-in Retained Restricted Stockholders'
Shares Amount Capital Earnings Stock Equity
---------- ------- ------------ ----------- ------------ --------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE,
JANUARY 1, 1998 7,760,869 $ 77,609 $ 47,629,822 $ 3,825,009 $ (3,621,276) $ 47,911,164
Issuance of restricted common stock 11,733 117 143,900 (144,017)
Forfeited nonvested restricted common stock (322) (3) $ (3,983) 3,986
Unearned compensation expense 496,656 496,656
Net income 2,078,028 2,078,028
BALANCE, --------- --------- ------------ ----------- ------------ ------------
SEPTEMBER 30, 1998 7,772,280 $ 77,723 $ 47,769,739 $ 5,903,037 $ (3,264,651) $ 50,485,848
========== ========= ============ =========== ============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
EDGE PETROLEUM CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
<TABLE>
- - -------------------------------------------------------------------------------------------------------------------------
Nine Months Ended
September 30,
------------------------------
1998 1997
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 2,078,028 $ 3,052,498
Adjustments to reconcile net income to net cash provided by operating activities:
Cumulative effect of accouning change (1,780,835)
Depletion, depreciation and amortization 5,283,394 1,822,257
Deferred income taxes 176,917
Unearned compensation expense 496,656 358,341
Changes in assets and liabilities:
Accounts receivable, trade (218,341) (1,250,336)
Accounts receivable, joint interest owners, net 2,864,922 (3,283,815)
Accounts receivable, related parties 149,900 (68,107)
Other current assets (65,160) (265,303)
Other assets 9,443 1,088
Accounts payable, trade 162,872 2,571,394
Accounts payable, related party (40,000)
Accrued interest payable 233,184 (74,354)
Accrued liabilities 453,667 (627,487)
----------- -----------
Net cash provided by operating activities 9,804,647 2,236,176
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Oil and gas property and equipment purchases (29,734,069) (17,196,668)
Proceeds from the sale of oil and gas properties 3,009,120 473,750
Investment in Frontera (3,628,264)
----------- -----------
Net cash used in investing activities (26,724,949) (20,351,182)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from notes payable 13,850,000 867,350
Payment on notes payable (11,017,348)
Payment on long-term notes payable (393,893)
Payment on related party subordinated loans (1,300,000)
Net proceeds from issuance of common stock 41,028,258
Net proceeds from exercise of stock options 100,000
----------- -----------
Net cash provided by financing activities 13,850,000 29,284,367
----------- -----------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (3,070,302) 11,169,361
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 3,777,950 1,543,228
----------- ------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 707,648 $ 12,712,589
=========== ============
SUPPLEMENTAL CASH FLOW DISCLOSURES - Cash paid for interest, net of amounts capitalized $ 5,682 $ 256,951
NON-CASH TRANSACTIONS:
Combination transactions $ 3,599,635
Deferred offering costs at December 31, 1996 capitalized to equity $ 1,006,379
Issuance of restricted common stock $ 144,017 $ 4,134,669
Forfeited nonvested restricted common stock $ 3,986
Tax benefit of exercise of stock options $ 224,617
</TABLE>
See accompanying 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 consolidated financial statements. All such adjustments are of a
normal recurring nature. The results of operations for the interim
periods 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 income. These financial statements
should be read in conjunction with the Company's audited consolidated
financial statements included in the Company's Annual Report on Form 10-K
for the year ended December 31, 1997.
Accounting Change - 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. In the
second quarter of 1998 and effective January 1, 1998, the Company changed
its method of accounting for direct internal geological and geophysical
("G&G") costs to one of capitalization of such costs, which are directly
attributable to acquisition, exploration and development activities, to
oil and natural gas properties. Prior to the change the Company expensed
these costs as incurred. The Company believes the accounting change
provides for a better matching of revenues and expenses and enhances the
comparability of it's financial statements with those of other companies
that follow the full-cost method of accounting. The $1,780,835 cumulative
effect of the change in prior years (after reduction for income taxes of
$958,910) is included in income for the nine months ended September 30,
1998. The effect of the accounting change on the three months ended
September 30, 1998 was to decrease the net loss by $294,736 ($0.04 basic
and diluted loss per share); the effect of the accounting change on the
nine months ended September 30, 1998 was to increase net income before
cumulative effect of accounting change by $911,936 ($0.12 basic and
diluted earnings per share) and net income by $2,692,771 ($0.35 basic and
diluted earnings per share).
The following pro forma amounts reflect the effect of retroactive
application of the accounting change on general and administrative
expenses, depletion and related income taxes.
<TABLE>
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------------- ----------------------------
1998 1997 1998 1997
<S> <C> <C> <C> <C>
Net income (loss) $ (368,409) $ 1,170,130 $ 297,193 $ 3,582,444
=========== =========== =========== ===========
Basic earnings (loss) per share $ (0.05) $ 0.15 $ 0.04 $ 0.50
=========== =========== =========== ===========
Diluted earnings (loss) per share $ (0.05) $ 0.15 $ 0.04 $ 0.50
=========== =========== =========== ===========
Basic weighted average number of
common shares outstanding 7,772,580 7,727,774 7,771,903 7,110,752
=========== =========== =========== ===========
Diluted weighted average number of
common shares outstanding 7,772,580 7,783,462 7,802,701 7,175,340
=========== =========== =========== ===========
</TABLE>
6
<PAGE>
2. LONG TERM DEBT
During July 1995, the Company entered into a revolving credit
facility (the "Revolving Credit Facility") with a bank to finance
temporary working capital requirements. The Revolving Credit Facility
provided up to $20,000,000 in borrowings limited by a borrowing base, as
defined by the Revolving Credit Facility. The Revolving Credit Facility
provided for interest at the lender's prime rate plus 0.75%. The
borrowing base was subject to review by the bank on a quarterly basis and
could be adjusted subject to the provisions of the Revolving Credit
Facility. On March 3, 1997, the Company repaid the outstanding balance of
$11,017,348 plus accrued interest with proceeds from its initial public
offering. Effective April 1, 1998, the Company amended and restated its
Revolving Credit Facility to provide a revolving line of credit of up to
$100 million bearing interest at a rate equal to prime or LIBOR plus 1.5%
- 2% depending on the level of borrowing base utilization. The Company's
initial borrowing base authorized by the banks was approximately $15
million. Beginning September 1, 1998, the borrowing base will be
redetermined semi-annually by unanimous consent of the banks and from
time to time at the Company's or the banks' request. Beginning May 1,
1998 and on the first day of each month thereafter, the borrowing base is
required to be reduced by $525,000.
Effective September 29, 1998, the Company had its borrowing base
redetermined and amended its Revolving Credit Facility with a bank. The
initial borrowing base authorized by the bank was approximately $15
million. Beginning October 1, 1998, and on the first day of each month
thereafter, the borrowing base is required to be reduced by $550,000. The
borrowing base will be redetermined semi-annually by consent of the bank
and from time to time at the Company's or the bank's request.
At September 30, 1998, borrowings under this Revolving Credit
Facility totaled $13.85 million with approximately $1.15 million
available for future borrowings. The weighted average debt and interest
rate during the nine months ended September 30, 1998 were approximately
$5.1 million and 7.2%, respectively. There were no borrowings under the
Revolving Credit Facility during the first quarter of 1998. Subsequent to
September 30, 1998, the Company repaid approximately $3 million of its
prior borrowings with proceeds from the sales of an interest in a
prospect and a promoted interest in a 3-D seismic survey, both in South
Louisiana.
The Revolving Credit Facility provides for certain restrictions,
including but not limited to, limitations on additional borrowings and
issues of capital stock, sales of its oil and natural gas properties or
other collateral, engaging in merger or consolidation transactions and
prohibitions of dividends and certain distributions of cash or properties
and certain liens. The Revolving Credit Facility also contains the
following financial covenants: (i) tangible net worth (total assets
exclusive of certain intangibles minus liabilities) must be at least $43
million plus 50% of positive net income and 100% of equity raised for all
quarterly periods subsequent to December 31, 1997; (ii) the ratio at the
end of any quarter of cash flow (net income plus proceeds of certain
project sales, depletion, depreciation, amortization and other non-cash
expenses less non-cash net income for such quarter) to debt service must
be at least 1.25 to 1.00; and (iii) the ratio at the end of any quarter
of EBIT (net income plus interest expense and taxes, excluding non-cash,
extraordinary expenses and income) to interest expense for the proceeding
12-month period must be at least 4.5 to 1.00. The Revolving Credit
Facility is secured by substantially all the assets of the Company.
3. EARNINGS PER SHARE
During 1997, the Company implemented Statement of Financial
Accounting Standard No. 128 - "Earnings per Share," ("SFAS No. 128") which
establishes the requirements for presenting earnings per share ("EPS").
SFAS No. 128 requires the presentation of "basic" and "diluted" EPS on the
face of the income statement. Basic earnings per common share amounts are
calculated using the average number of common shares outstanding during
each period. Diluted earnings per share assumes the exercise of all stock
options having exercise prices less than the average market price of the
common stock using the treasury stock method. The earnings per share data
for prior years has been restated following the standards in SFAS No.
128.
7
<PAGE>
The following is presented as a reconciliation of the numerators and
denominators of basic and diluted earnings per share computations, in
accordance with SFAS No. 128.
<TABLE>
Three Months Ended September 30, 1998 Three Months Ended September 30, 1997
------------------------------------- -------------------------------------
Income Shares Per-Share Income Shares Per-Share
(Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
----------- ------------- --------- ----------- ------------- ---------
Basic EPS
Income available to common
<S> <C> <C> <C> <C> <C> <C>
stockholders $ (368,409) 7,772,580 $(0.05) $ 1,015,609 7,727,774 $ 0.13
Effect of Dilutive Securities
Common stock options 55,688
----------- --------- ------- ----------- --------- -------
Diluted EPS
Income available to common
stockholders $ (368,409) 7,772,580 $(0.05) $ 1,015,609 7,783,462 $ 0.13
=========== ========= ======= =========== ========= =======
Nine Months Ended September 30, 1998 Nine Months Ended September 30, 1997
------------------------------------- -------------------------------------
Income Shares Per-Share Income Shares Per-Share
(Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
----------- ------------- --------- ----------- ------------- ---------
Basic EPS
Income available to common
stockholders $ 2,078,028 7,771,903 $ 0.27 $ 3,052,498 7,110,752 $ 0.43
Effect of Dilutive Securities
Common stock options 30,798 64,588
----------- --------- ------- ----------- --------- -------
Diluted EPS
Income available to common
stockholders $ 2,078,028 7,802,701 $ 0.27 $ 3,052,498 7,175,340 $ 0.43
=========== ========= ======= =========== ========= =======
</TABLE>
The Company was organized through an initial public offering and a
series of combination transactions (the "Combination") which were accounted for
as a reorganization of entities under common control. Accordingly, for the nine
months ended September 30, 1997, the number of shares outstanding has been
computed assuming that 4,701,361 shares of common stock originally issued in
connection with the Combination, effective February 25, 1997, were outstanding
from the beginning of the period.
8
<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 accompanying unaudited
condensed consolidated financial statements included elsewhere in this Form 10-Q
and with the Company's audited consolidated financial statements included in the
Company's annual report on Form 10-K for the year ended December 31, 1997.
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.
Overview
Edge Petroleum Corporation is an independent energy company engaged in
the exploration, development and production of oil and natural gas. Edge
conducts its operations primarily along the onshore Gulf Coast with its primary
emphasis in South Texas and South Louisiana where it currently controls
interests in excess of 262,000 gross acres under lease and option. The Company
explores for oil and natural gas by emphasizing an integrated application of
highly advanced data visualization techniques and computerized 3-D seismic data
analysis to identify potential hydrocarbon accumulations. The Company believes
its approach to processing and analyzing geophysical data differentiates it from
other independent exploration and production companies and is more effective
than conventional 3-D seismic data interpretation methods. The Company also
believes it maintains one of the largest databases of onshore South Texas Gulf
Coast 3-D seismic data of any independent oil and natural gas company, and is
continuously acquiring additional data within this core region.
The Company acquires 3-D seismic data by organizing and designing
regional data acquisition surveys for its proprietary use, as well as through
selective participation in regional non-proprietary 3-D surveys. The Company
negotiates seismic options for a majority of the areas encompassed by its
proprietary surveys, thereby allowing it to secure identified prospect leasehold
interests on a non-competitive, pre-arranged basis. In the Company's
non-proprietary 3-D survey areas, the Company's technical capabilities allow it
to rapidly and comprehensively evaluate large volumes of regional 3-D seismic
data, facilitating its ability to identify attractive prospects within a
surveyed region and to secure the corresponding leasehold interests ahead of
other industry participants.
The Company's extensive technical expertise has enabled it to
internally generate substantially all of its 3-D prospects drilled to date and
to assemble a large portfolio of 3-D based prospects for future drilling. The
Company pursues drilling opportunities that include a blend of shallower,
normally pressured reservoirs that generally involve moderate costs and risks as
well as deeper, over-pressured reservoirs that generally involve greater costs
and risks, but have higher economic potential. During the past year, the Company
has expanded its relative focus to increase its exposure to exploration
opportunities in the deeper geological section. The Company mitigates its
exposure to exploration costs and risk by conducting its operations with
industry partners, including major oil companies and large independents, that
generally pay a disproportionately greater share of seismic acquisition and, in
many instances, leasing and drilling costs than the Company. The Company may
seek to participate in an increased number of externally generated prospects,
including those in which the Company pays a disproportionate share of the cost,
depending upon the quality, size, price and other factors relating to such
prospects.
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 including certain payroll and other
internal costs 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 depletion,
depreciation 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. As of September 30, 1998 no write down of oil and
natural gas properties was deemed necessary.
9
<PAGE>
Due to the instability of oil and natural gas prices, the Company has
entered into, from time to time, price risk management transactions for a
portion of its natural gas production to achieve a more predictable cash flow,
as well as to reduce exposure from price fluctuations. While the use of these
arrangements limits the benefit to the Company of increases in the price of
natural gas it also limits the downside risk of adverse price movements. The
Company's hedging arrangements apply to only a portion of its production and
provide only partial price protection against declines in natural gas prices and
limits potential gains from future increases in prices. The Company accounts for
these transactions as hedging activities and, accordingly, gains and losses are
included in oil and natural gas revenues during the period the hedged
transactions occur. During the nine months ended September 30, 1998, the Company
had in place several natural gas commodity collars with a financial institution.
These collars covered 5,000 - 10,000 MMbtu per day, or approximately 62% of the
Company's daily production, with floating floor and ceiling prices ranging
between $2.15 and $3.15 per MMbtu, (delivered price basis, Houston Ship
Channel), with settlement for each calendar month occurring five business days
following the publishing of the Inside F.E.R.C. Gas Marketing Report. Total
natural gas production marketed under these arrangements was 1.1 BMbtu and 2.7
BMbtu, respectively, for the three-month and nine-month periods ended September
30, 1998. Included within natural gas revenues for the three and nine month
periods ended September 30, 1998 was $304,100 and $370,800, respectively,
representing net gains from current collar activity. Additionally, during the
three months ended September 30, 1998, the Company entered into four collar
arrangements with a financial institution that begin and expire on October 1,
1998 and December 31, 1998, respectively. These collar arrangements cover 20,000
MMbtus per day with floating floor and ceiling prices ranging between $2.00 and
$2.65 per MMbtu. There was no material hedging activity during the three and
nine-month periods ended September 30, 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 oil and
natural gas. 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. Oil prices have declined significantly
during the past year and more recently natural gas prices have shown similar
declines. 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.
RESULTS OF OPERATIONS
Three Months Ended September 30, 1998 Compared to the Three Months Ended
September 30, 1997
Revenue and Production
Oil and natural gas revenues for the three months ended September 30, 1998
increased 24% from $3.2 million to $4 million, as compared to the three months
ended September 30, 1997. Production volumes for oil and condensate for the
three months ended September 30, 1998 increased 8% from 31 MBbls to 34 MBbls, as
compared to the three months ended September 30, 1997. The increase in oil and
condensate production during the three months ended September 30, 1998 increased
revenues by $41,559 (based on 1997 comparable quarter average prices), offset by
a 36% decrease in the average oil and condensate sales price which decreased
revenues by $212,309 (based on current quarter production). Production volumes
for natural gas for the three months ended September 30, 1998 increased 54% from
1,041 MMcfs to 1,599 MMcfs, as compared to the three months ended September 30,
1997. The increase in natural gas production during the three months ended
September 30, 1998 increased revenues by $1.4 million, offset by a 11% decrease
in the average natural gas sales price which decreased revenues by $472,435. The
increase in oil and natural gas production was primarily due to 73 gross (31.17
net) new successful exploratory and development wells being drilled and
completed since September 30, 1997 offset by normal production declines from
existing wells. During the three months ended September 30, 1998 and 1997 the
Company marketed its natural gas produced from a certain gas field under the
terms of various fixed price natural gas contracts. The terms of the contracts
require no minimum volume commitment and provided incremental pricing based on
certain levels of production. Prices received for production marketed under
these agreements averaged $1.92 and $2.25 for the three months ended September
30, 1998 and 1997, respectively. Total production, (net to the Company's
10
<PAGE>
interest) marketed under these agreements for the three-month periods ended
September 30, 1998 and September 30, 1997 was approximately 358,000 Mcf and
355,000 Mcf, respectively, representing approximately 20% and 29%, respectively,
of total production, on a Mcfe basis. As described above, included within
natural gas revenues for the three months ended September 30, 1998 was $304,100
representing gains from current collar activity. The collar settlements
increased the effective natural gas sales price by approximately $0.19 per Mcf,
or 9%, for the three-months ended September 30, 1998. There was no material
hedging activity during the three months ended September 30, 1997.
The following table sets forth certain operational data of the Company
for the periods presented:
<TABLE>
Three Months Ended 1998 Period Compared
September 30, to 1997 Period
------------------------ ------------------------------
Increase % Increase
1998 1997 (Decrease) (Decrease)
<S> <C> <C> <C> <C>
Production volumes:
Oil and condensate (Bbls) 33,607 31,220 2,387 8 %
Natural gas (Mcf) 1,598,529 1,040,860 557,669 54 %
Natural gas equivalents (Mcfe) 1,800,171 1,228,180 571,991 47 %
Average sales prices:
Oil and condensate ($ per Bbl) $ 11.09 $ 17.41 $ (6.32) (36)%
Natural gas ($ per Mcf) $ 2.26 $ 2.55 $ (0.29) (11)%
Operating revenues:
Oil and condensate $ 372,806 $ 543,556 $ (170,750) (31)%
Natural gas 3,608,450 2,657,212 951,238 36 %
----------- ----------- -----------
Total $ 3,981,256 $ 3,200,768 $ 780,488 24 %
=========== =========== ===========
</TABLE>
Costs and Operating Expenses
Oil and natural gas operating expenses for the three months ended
September 30, 1998 increased 69% from $542,964 to $916,098 as compared to the
three months ended September 30, 1997, due primarily to increased oil and
natural gas production. Oil and natural gas operating expenses were $0.51 per
Mcfe and $0.44 per Mcfe for the three-month periods ended September 30, 1998 and
1997, respectively.
Depletion, depreciation and amortization expense ("DD&A") for the three
months ended September 30, 1998 increased 270% from $643,663 to $2.4 million, as
compared to the three months ended September 30, 1997. Included within DD&A for
the three-month periods ended September 30, 1998 and 1997 was $2.2 million and
$553,641, respectively, representing depletion expense of oil and natural gas
property, which increased by 294%. Increased oil and natural gas production
increased depletion expense by $257,393 and a 169% increase in the overall
depletion rate further increased depletion expense by $1.4 million. The increase
in the depletion rate was primarily attributable to downward revisions to oil
and natural gas reserve estimates used in computing depletion expense during
1998 and for the year ended 1997. The downward revision in oil and natural gas
reserve estimates used to compute 1998 depletion expense was partially due to
the drilling of an unsuccessful well on a proved undeveloped prospect during the
second quarter of 1998 and a negative adjustment to a producing well that was
drilled in 1997 that did not maintain initial production volumes. Increased
finding costs since September 30, 1997 also contributed to the increase in the
depletion rate. Additionally, depletion expense was further increased by
approximately $144,000 during the three months ended September 30, 1998 due to
the change in accounting method (See note 1). Depletion expense on a unit of
production basis for the three-month periods ended September 30, 1998 and 1997
was $1.21 per Mcfe and $0.45 per Mcfe, respectively. The remaining increase in
DD&A is due primarily to depreciation of new computer hardware, software and
office improvements purchased since September 30, 1997 and the amortization of
deferred loan cost on the Credit Facility.
General and administrative expenses ("G&A") for the three months ended
September 30, 1998 decreased 3% from $1,109,454 to $1,072,924, as compared to
the three months ended September 30, 1997. The decrease in G&A is due to the
change in accounting method, which decreased G&A by $597,454 (See note 1).
Excluding the effects of the change in accounting method, G&A increased by
$560,924 which was primarily attributable to the hiring of additional employees
to support the Company's increased level of exploration activities and 3-D
project generation and costs associated with being a public company and general
office overhead. Included within general and administrative expenses for the
three months ended September 30, 1998 and 1997, is approximately $250,000 and
11
<PAGE>
$171,000, respectively, of overhead reimbursements and management fees received
from various management, operating and seismic agreements. General and
administrative expenses on a unit of production basis for the three-month
periods ended September 30, 1998 and 1997 were $0.60 per Mcfe and $0.90 per
Mcfe, respectively.
Unearned compensation expense for the three months ended September 30,
1998 increased from $155,052 to $165,148, as compared to the three months ended
September 30, 1997. The increase is due to the amortization of additional
restricted common stock granted to the Board of Directors of the Company during
the three months ended June 30, 1998 and to employees during the fourth quarter
of 1997.
Interest expense for the three months ended September 30, 1998 was
$25,193 net of amounts capitalized of $173,772, as compared to interest expense
of $673 for the three months ended September 30, 1997. The increase in interest
expense is due to increased borrowings under the Company's Credit Facility
during 1998. The weighted average debt was $10.8 million for the three months
ended September 30, 1998. There was no significant debt outstanding during the
three-month period ended September 30, 1997.
Interest income for the three months ended September 30, 1998 decreased
from $266,647 to $22,124, as compared to the three months ended September 30,
1997. The decrease in interest income is due to the overall reduction in
invested funds.
Income tax benefit for the three months ended September 30, 1998 was
$190,945. Prior to December 31, 1997, the Company's available deferred tax
assets and net operating loss carry forwards completely offset the effects of
any current or deferred tax expense. The Company began providing federal income
taxes at the statutory rate, which approximates the effective rate, during the
first quarter of 1998.
For the three months ended September 30, 1998, the Company had an
operating loss of $556,285 compared to operating income of $749,635 for the
three month period ended September 30, 1997, primarily reflecting increased oil
and natural gas production offset by lower natural gas and oil and condensate
prices, increased operating expenses and increased DD&A expense. Net loss was
$368,409 for the three months ended September 30, 1998, or $0.05 basic and
diluted loss per share, as compared to net income of $1 million for the
three-month period ended September 30, 1997, or $0.13 basic and diluted earnings
per share.
Nine Months Ended September 30, 1998 Compared to the Nine Months Ended
September 30, 1997
Revenue and Production
Oil and natural gas revenues for the nine months ended September 30, 1998
increased 20% from $9.7 million to $11.6 million, as compared to the nine months
ended September 30, 1997. Production volumes for oil and condensate for the nine
months ended September 30, 1998 increased 19% from 97 MBbls to 115 MBbls, as
compared to the nine months ended September 30, 1997. The increase in oil and
condensate production increased revenues by $354,201 (based on 1997 comparable
period average prices), and a 37% decrease in average oil and condensate sales
price decreased revenue by $815,653 (based on current year production).
Production volumes for natural gas increased 36% from 3,276 MMcfs to 4,442
MMcfs, as compared to the nine months ended September 30, 1997. The increase in
natural gas production increased revenues by $2.8 million, offset by a 3%
decrease in average natural gas sales price which decreased revenues by
$354,201. This increase in oil and natural gas production was due to 73 gross
(31.17 net) new successful exploratory and development wells being drilled and
completed since September 30, 1997 offset by normal production declines from
existing wells. During the nine months ended September 30, 1998 and 1997 the
Company marketed its natural gas produced from a certain gas field under the
terms of various fixed price natural gas contracts. The terms of the contracts
require no minimum volume commitment and provided incremental pricing based on
certain levels of production. Prices received for production marketed under
these agreements averaged $2.07 per Mcf and $2.20 per Mcf for the nine months
ended September 30, 1998 and 1997, respectively. Total volume sold by the
Company under these contracts for the nine month period ended September 30, 1998
and 1997 was approximately 1.1 Bcf and 1 Bcf, respectively, representing
approximately 21% and 26%, respectively, of total production, on a Mcfe basis.
As described above, included within natural gas revenues for the nine months
ended September 30, 1998 was $370,800 representing gains from current collar
activity. The collar settlements increased the effective natural gas sales price
by approximately $0.09 per Mcf, or 4%, for the nine months ended September 30,
12
<PAGE>
1998. There was no material hedging activity during the nine months ended
September 30, 1997.
The following table sets forth certain operational data of the Company for
the periods presented:
<TABLE>
Nine Months Ended 1998 Period Compared
September 30, to 1997 Period
------------------------- ---------------------------
Increase % Increase
1998 1997 (Decrease) (Decrease)
<S> <C> <C> <C> <C>
Production volumes:
Oil and condensate (Bbls) 115,098 96,791 18,307 19 %
Natural gas (Mcf) 4,441,921 3,275,526 1,166,395 36 %
Natural gas equivalents (Mcfe) 5,132,509 3,856,272 1,276,237 33 %
Average sales prices:
Oil and condensate ($ per Bbl) $ 12.26 $ 19.35 $ (7.09) (37)%
Natural gas ($ per Mcf) $ 2.30 $ 2.38 $ (0.08) (3)%
Operating revenues:
Oil and condensate $ 1,411,248 $ 1,872,699 (461,451) (25)%
Natural gas 10,204,719 7,785,155 2,419,564 31 %
----------- ----------- -----------
Total $11,615,967 $ 9,657,854 $ 1,958,113 20 %
=========== =========== ===========
</TABLE>
Costs and Operating Expenses
Oil and natural gas operating expenses for the nine months ended September
30, 1998 increased 33% from $1.8 million to $2.5 million, as compared to the
nine months ended September 30, 1997, due primarily to increased oil and natural
gas production. Oil and natural gas operating expenses on a unit of production
basis were $0.48 per Mcfe for both nine-month periods ended September 30, 1998
and 1997, respectively.
Depletion, depreciation and amortization expense ("DD&A") for the nine
months ended September 30, 1998 increased 190% from $1.8 million to $5.3
million, as compared to the nine months ended September 30, 1997. Included
within DD&A for the nine-month periods ended September 30, 1998 and 1997 was
$4.7 million and $1.6 million, respectively, representing depletion expense of
oil and natural gas property, which increased by 194%. Increased oil and natural
gas production increased depletion expense by $523,256 and a 124% increase in
the overall depletion rate further increased depletion expense by $2.6 million.
The increase in the depletion rate was primarily attributable to downward
revisions to oil and natural gas reserve estimates used in computing depletion
expense during 1998 and for the year ended 1997. These downward revisions in oil
and natural gas reserve estimates were primarily due to the drilling of an
unsuccessful well on a proved undeveloped prospect during the second quarter of
1998 and a negative adjustment to a producing well that was drilled in 1997 that
did not maintain initial production volumes. Increased finding cost since
September 30, 1997 also contributed to the increase in the depletion rate.
Additionally, depletion expense was further increased by approximately $389,000
during the nine months ended September 30, 1998 due to the change in accounting
method (See note 1). Depletion expense on a unit of production basis for the
nine-month periods ended September 30, 1998 and 1997 was $0.92 per Mcfe and
$0.41 per Mcfe, respectively. The remaining increase in DD&A is due primarily to
depreciation of new computer hardware, software and office improvements
purchased since September 30, 1997 and the amortization of deferred loan cost on
the Credit Facility.
General and administrative expenses for the nine months ended September
30, 1998 decreased 6% from $3.2 million to $3 million, as compared to the nine
months ended September 30, 1997. The decrease in G&A is due to the change in
accounting method, which decreased G&A by $1.8 million (See note 1). Excluding
the effects of the change in accounting method, G&A increased by $1.6 million
which was primarily attributable to the hiring of additional employees to
support the Company's increased level of exploration activities and 3-D project
generation and costs associated with being a public company and general office
overhead. Included within general and administrative expenses for the nine
months ended September 30, 1998 and 1997, is approximately $674,000 and
$566,000, respectively, of overhead reimbursements and management fees received
13
<PAGE>
from various management, operating and seismic agreements. General and
administrative expenses on a unit of production basis for the nine-month periods
ended September 30, 1998 and 1997 were $0.58 per Mcfe and $0.82 per Mcfe,
respectively.
Unearned compensation expense for the nine months ended September 30,
1998 increased from $358,341 to $496,656, as compared to the nine months ended
September 30, 1997. The increase is due to the amortization of additional
restricted common stock granted to employees and the Board of Directors of the
Company during the nine months ended September 30, 1998 and due to restricted
stock grants being issued to executive management upon completion of the initial
public offering during March 1997.
Interest expense for the nine months ended September 30, 1998 was $37,810,
net of interest capitalized to oil and natural gas properties of $242,158, as
compared to interest expense of $182,597 for the nine months ended September 30,
1997. The weighted average debt was $5.1 million for the nine months ended
September 30, 1998 compared to $2.7 million for the nine months ended September
30, 1997.
Interest income for the nine months ended September 30, 1998 was $124,383
compared to $766,324 for the nine months ended September 30, 1997. The decrease
in interest income is due to the overall reduction in invested funds.
Income tax expense for the nine months ended September 30, 1998 was
$176,917. Prior to December 31, 1997, the Company's available deferred tax
assets and net operating loss carry forwards completely offset the effects of
any current or deferred tax expense. The Company began providing federal income
taxes at the statutory rate, which approximates the effective rate, during the
first quarter of 1998.
For the nine months ended September 30, 1998, the Company had operating
income of $387,537 compared to operating income of $2.5 million for the nine
months ended September 30, 1997, primarily reflecting increased oil and natural
gas production offset by lower natural gas and oil and condensate prices,
increased operating expenses and increased DD&A expense. Net income was $2.1
million, $297,193 before cumulative effect of accounting change, for the nine
months ended September 30, 1998, or $0.27 ($0.04 before cumulative effect of
accounting change) per basic and diluted earnings per share, as compared to net
income of $3.1 million for the nine months ended September 30, 1997, or $0.43
per basic and diluted earnings per share.
LIQUIDITY AND CAPITAL RESOURCES
In March 1997, the Company completed its initial public offering (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 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 " Revolving Credit Facility"), subordinated loans
and equipment loans. The remaining proceeds from the Offering, together with
cash flows from operations, were used to fund planned capital expenditures,
commitments, other working capital requirements and for general corporate
purposes.
The Company had cash and cash equivalents at September 30, 1998 of
$707,648 consisting primarily of short-term money market investments, as
compared to $3.8 million at December 31, 1997. Working capital was $1.1 million
at September 30, 1998, as compared to $7.6 million at December 31, 1997.
Operating cash flow was approximately $6.2 million and $5.2 million for
the nine-month periods ended September 30, 1998 and 1997, respectively.
Operating cash flow, a measure of performance for exploration and production
companies, represents cash flows from operating activities prior to charges 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 nine months ended September 30, 1998, 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. Capital expenditures during the nine months ended September
14
<PAGE>
30, 1998 were $29.7 million as compared to $17.2 million during the same period
in 1997. The Company's drilling efforts resulted in the drilling of 79 gross
(33.23 net) wells during the nine months ended September 30, 1998 as compared to
72 gross (28.69 net) wells during the same period in 1997. Additionally during
1997, the Company purchased shares of Preferred Stock of Frontera at a price of
$3.6 million which are convertible into approximately 10% of the common stock of
Frontera. The Company expects capital expenditures in 1998 to be about $34
million. A substantial portion of capital expenditures in 1998 will be invested
in the Company's portfolio of 3-D projects to fund drilling activities in an
effort to expand its reserve base. In addition, the Company expects to continue
to expand and improve its technological and 3-D seismic interpretation
capabilities.
Due to the Company's active exploration and development and technology
enhancement programs, the Company has experienced and expects to continue to
experience substantial working capital requirements. The Company intends to fund
its 1998 capital expenditures, commitments and working capital requirements
through cash flows from operations, borrowings and, to the extent necessary,
other financing activities. The Company believes it will have sufficient capital
resources and liquidity to fund its capital expenditures and meet such financial
obligations as they come due. In the event such capital resources are not
available to the Company, its drilling and other activities may be curtailed.
Revolving Credit Facility
During July 1995, the Company entered into a revolving credit facility
(the "Revolving Credit Facility") with a bank to finance temporary working
capital requirements. The Revolving Credit Facility provided up to $20,000,000
in borrowings limited by a borrowing base, as defined by the Revolving Credit
Facility. The Revolving Credit Facility provided for interest at the lender's
prime rate plus 0.75%. The borrowing base was subject to review by the bank on a
quarterly basis and could be adjusted subject to the provisions of the Revolving
Credit Facility. On March 3, 1997, the Company repaid the outstanding balance of
$11,017,348 plus accrued interest with proceeds from its initial public
offering. Effective April 1, 1998, the Company amended and restated its
Revolving Credit Facility to provide a revolving line of credit of up to $100
million bearing interest at a rate equal to prime or LIBOR plus 1.5% - 2%
depending on the level of borrowing base utilization. The Company's initial
borrowing base authorized by the banks was approximately $15 million. Beginning
September 1, 1998, the borrowing base will be redetermined semi-annually by
unanimous consent of the banks and from time to time at the Company's or the
banks' request. Beginning May 1, 1998 and on the first day of each month
thereafter, the borrowing base is required to be reduced by $525,000.
Effective September 29, 1998, the Company had its borrowing base
redetermined and amended its Revolving Credit Facility with a bank. The initial
borrowing base authorized by the bank was approximately $15 million. Beginning
October 1, 1998 and on the first day of each month thereafter, the borrowing
base is required to be reduced by $550,000. The borrowing base will be
redetermined semi-annually by consent of the bank and from time to time at the
Company's or the bank's request.
At September 30, 1998, borrowings under this facility totaled $13.85
million with approximately $1.15 million available for future borrowings. The
weighted average debt and interest rate during the nine months ended September
30, 1998 were approximately $5.1 million and 7.2%, respectively. There were no
borrowings under the Revolving Credit Facility during the first quarter of 1998.
Subsequent to September 30, 1998, the Company repaid approximately $3 million of
its prior borrowings from proceeds from the sales of an interest in a prospect
and a promoted interest in a 3-D seismic survey, both in South Louisiana.
The Revolving Credit Facility provides for certain restrictions,
including but not limited to, limitations on additional borrowings and issues of
capital stock, sales of its oil and natural gas properties or other collateral,
engaging in merger or consolidation transactions and prohibitions of dividends
and certain distributions of cash or properties and certain liens. The Revolving
Credit Facility also contains the following financial covenants: (i) tangible
net worth (total assets exclusive of certain intangibles minus liabilities) must
be at least $43 million plus 50% of positive net income and 100% of equity
raised for all quarterly periods subsequent to December 31, 1997; (ii) the ratio
at the end of any quarter of cash flow (net income plus proceeds of certain
project sales, depletion, depreciation, amortization and other non-cash expenses
less non-cash net income for such quarter) to debt service must be at least 1.25
to 1.00; and (iii) the ratio at the end of any quarter of EBIT (net income plus
15
<PAGE>
interest expense and taxes, excluding non-cash, extraordinary expenses and
income) to interest expense for the proceeding 12-month period must be at least
4.5 to 1.00. The Revolving Credit Facility is secured by substantially all the
assets of the Company.
Year 2000
The Company has completed its assessment of the year 2000 processing
issues of its internal technolgy systems, considering current financial and
accounting, production, land and geological computer systems and software
utilized by the Company. Due to the need for improved management reporting, the
Company is in the process of replacing its existing financial and accounting,
production and land applications with new software which is year 2000 compliant.
Implementation is expected to be completed on or before December 31, 1998 at a
total cost of approximately $200,000. As of September 30, 1998, the Company has
incurred approximately $180,000 converting to its new financial and accounting
system and software with a majority of the remaining cost to be incurred prior
to December 31, 1998. Production and land applications will be operational on or
before March 31, 1999. These costs have been funded from cash flows from
operations and a majority of these costs have been capitalized. Based on
assertions made by vendors, the Company believes its geological systems and
software are year 2000 compliant.
The Company is also in the process of evaluating the risk presented by
potential Year 2000 non-compliance by third parties. Because such risks very
substantially, companies are being contacted based on the estimated magnitude of
risk posed to the Company by their year 2000 non-compliance. The Company
anticipates that these efforts will continue through 1999 and will not result in
significant costs to the Company.
The Company's assessment of its Year 2000 issues involves many
assumptions. There can be no assurance that the Company's assumptions will prove
accurate, and actual results could differ significantly from the assumptions. In
conducting its Year 2000 compliance efforts, the Company has relied primarily on
vendor representations with respect to internal computerized systems and
representations from third parties with which the Company has business
relationships and has not independently verified representations. There can be
no assurance that these representations will prove accurate. A Year 2000 failure
could result in a business interruption that adversely effects the Company's
business, financial condition or results of operations. Although it is not
currently aware of any likely business disruptions, the Company is developing a
contingency plans to address and assessing the readiness of its material
suppliers, customers and other entities as it relates to year 2000 processing
issues and expects this work to be completed on or before December 31, 1998.
ACCOUNTING CHANGE
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. In the second quarter of 1998 and effective January 1, 1998, the
Company changed its method of accounting for direct internal geological and
geophysical ("G&G") costs to one of capitalization of such costs, which are
directly attributable to acquisition, exploration and development activities, to
oil and natural gas property. Prior to the change the Company expensed these
costs as incurred. The Company believes the accounting change provides for a
better matching of revenues and expenses and enhances the comparability of its
results of operations with those of other oil and natural gas companies that
follow the full cost method of accounting (See note 1).
FORWARD LOOKING STATEMENTS
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, future capabiliites,
the sufficiency of capital resources and liquidity to support working capital
and capital expenditure requirements, reinvestment of cash flows and any other
statements regarding future operations, financial results, business plans,
sources of liquidity 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,
16
<PAGE>
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
Company's Form 10-K and 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.
17
<PAGE>
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings............................................... None
Item 2 - Changes in Securities and Use of Proceeds...................... None
Item 3 - Defaults Upon Senior Securities................................. None
Item 4 - Submission of Matters to a Vote of Security Holders - .......... None
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.
- - --------------
*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).
*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).
4.1 First Amendment dated September 29, 1998 to the Amended
and Restated Credit Agreement, dated as of April 1, 1998, by
and between Edge Petroleum Corporation and Edge Petroleum
Exploration Company (collectively the "Borrower") and The
First National Bank of Chicago as agent and a Lender thereto
(Incorporated by Reference to 4.1 to the Company's Quarterly
Report on Form 10-Q for the quarterly period ended March 31,
1998).
10.1 Employment agreement dated as of December 19, 1996 by and
between the Company and Michael G. Long
11.1 Computation of Earnings Per Share.
27.1 Financial Data Schedule.
*Incorporated by reference as indicated
(B) Reports on Form 8-K.................................... None
18
<PAGE>
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 11/12/98 /S/ John E. Calaway
- - ------------------------------- -------------------------------
John E. Calaway
Chief Executive Officer and
Chairman of the Board
Date 11/12/98 /S/ James D. Calaway
- - ------------------------------- -------------------------------
James D. Calaway
President and Director
Date 11/12/98 /S/ Michael G. Long
- - ------------------------------- -------------------------------
Michael G. Long
Chief Financial Officer
Date 11/12/98 /S/ Brian C. Baumler
- - ------------------------------- -------------------------------
Brian C. Baumler
Controller and Treasurer
19
EXHIBIT 4.1
FIRST AMENDMENT TO AMENDED AND
RESTATED CREDIT AGREEMENT
between
EDGE PETROLEUM CORPORATION
AND
EDGE PETROLEUM EXPLORATION COMPANY
and
THE FIRST NATIONAL BANK OF CHICAGO,
AS AGENT AND A LENDER
Effective as of
September 29, 1998
<PAGE>
TABLE OF CONTENTS
PAGE
ARTICLE I.
DEFINITIONS....................................................................1
1.01 Terms Defined Above......................................................1
1.02 Terms Defined in Agreement...............................................1
1.03 References...............................................................1
1.04 Articles and Sections....................................................2
1.05 Number and Gender........................................................2
ARTICLE II.
AMENDMENTS.....................................................................2
2.01 Amendment of Section 1.2.................................................2
2.02 Amendment of Section 2.9(a)..............................................2
2.03 Deletion of Compass Bank from Agreement..................................2
ARTICLE III.
CONDITIONS.....................................................................3
3.01 Receipt of Documents.....................................................3
3.02 Accuracy of Representations and Warranties...............................3
3.03 Matters Satisfactory to the Agent and the Lender.........................3
ARTICLE IV.
REPRESENTATIONS AND WARRANTIES.................................................3
ARTICLE V.
RATIFICATION...................................................................3
ARTICLE VI.
MISCELLANEOUS..................................................................4
6.01 Scope of Amendment.......................................................4
6.02 Agreement as Amended.....................................................4
6.03 Parties in Interest......................................................4
6.04 Rights of Third Parties..................................................4
6.05 ENTIRE AGREEMENT.........................................................4
6.06 GOVERNING LAW............................................................5
6.07 JURISDICTION AND VENUE...................................................5
2
<PAGE>
FIRST AMENDMENT TO AMENDED AND
RESTATED CREDIT AGREEMENT
This FIRST AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT
(this "Amendment") is made and entered into effective as of September 29, 1998,
between EDGE PETROLEUM CORPORATION, a Delaware corporation and EDGE PETROLEUM
EXPLORATION COMPANY, a Delaware corporation (collectively, the "Borrower"), and
THE FIRST NATIONAL BANK OF CHICAGO, a national banking association individually
as a (the "Lender") and as agent for the Lender or Lenders pursuant to the terms
of the Agreement and this Agreement (the "Agent").
W I T N E S S E T H:
WHEREAS, the above named parties did execute and exchange
counterparts of that certain Amended and Restated Credit Agreement dated April
1, 1998, (the "Agreement"), to which reference is here made for all purposes;
WHEREAS, the parties subject to and bound by the Agreement
are desirous of amending the Agreement in the particulars hereinafter set forth;
NOW, THEREFORE, in consideration of the mutual covenants and
agreements of the parties to the Agreement, as set forth therein, and the mutual
covenants and agreements of the parties hereto, as set forth in this Amendment,
the parties hereto agree as follows:
ARTICLE I.
DEFINITIONS
1.01 - Terms Defined Above. As used herein, each of the terms "Agent"
"Agreement," "Borrower," "Amendment," and "Lender" shall have the meaning
assigned to such term hereinabove.
1.02 - Terms Defined in Agreemnt. As used herein, each term defined in the
Agreement shall have the meaning assigned thereto in the Agreement, unless
expressly provided herein to the contrary.
1.03 - References. References in this Amendment to Article or Section
numbers shall be to Articles and Sections of this Amendment, unless expressly
stated herein to the contrary. References in this Amendment to "hereby,"
"herein," "hereinafter," "hereinabove," "hereinbelow," "hereof," and "hereunder"
shall be to this Amendment in its entirety and not only to the particular
Article or Section in which such reference appears.
1.04 - Articles and Sections. This Amendment, for convenience only, has
been divided into Articles and Sections and it is understood that the rights,
powers, privileges, duties, and other legal relations of the parties hereto
shall be determined from this Amendment as an entirety and without regard to
such division into Articles and Sections and without regard to headings prefixed
to such Articles and Sections.
1.05 - Number and Gender. Whenever the context requires, reference herein
made to the single number shall be understood to include the plural and likewise
the plural shall be understood to include the singular. Words denoting sex shall
beconstrued to include the masculine, feminine, and neuter, when such
construction is appropriate, and specific enumeration shall not exclude the
general, but shall be construed as cumulative. Definitions of terms defined in
the singular and plural shall be equally applicable to the plural or singular,
as the case may be.
ARTICLE II.
AMENDMENTS
The Borrower and the Agent and the Lender hereby amend the
Agreement in the following particulars:
2.01 Amendment of Section 1.2. Section 1.2 of the Agreement is
hereby amended as follows:
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The following definitions are added or amended to read as
follows:
"Commitment Amount" shall mean $15,000,000 as of the
effective date of the First Amendment to Amended and Restated
Credit Agreement."
2.02 Amendement to Section 2.9(a). Section 2.9(a) is amended
to read as follows:
"2.9 Borrowing Base Determination (a) The Borrowing Base as of
September 29, 1998 is acknowledged by the Borrower and the
Lender to be $15,000,000. Commencing on October 1, 1998, and
continuing thereafter on the first day of each calendar month
until the earlier of the date such amount is redetermined or
the Commitment Termination Date, the Scheduled Reduction
Amount shall be $550,000.
2.03 Defenition of Compass Bank Agreement. Compass Bank is
hereby deleted from the Agreement and First Chicago is the Agent.
ARTICLE III.
CONDITIONS
The obligation of the Agent and the Lender to amend the
Agreement as provided herein is subject to the fulfillment of the following
conditions precedent:
3.01 Receipt of Documents. The Lender shall have received, reviewed,
and approved the following documents and other items, appropriately executed
when necessary and in form and substance satisfactory to the Agent:
(a) multiple counterparts of this Amendment as requested by
the Lender;
(b) multiple counterparts of Assignment of Note, Liens,
Security Interests and other Rights, together with multiple
counterparts of Assignment of UCC Financing Statements.
(c) such other agreements, documents, items, instruments,
opinions, certificates, waivers, consents, and evidence as the
Lender may reasonably request.
3.02 Accuracy of Representations and Warranties. The representations
and warranties contained in Article IV of the Agreement and this Amendment
shall be true and correct.
3.03 Matters Satisfactory to the Agent and the Lender . All matters
incident to the consummation of the transactions contemplated hereby shall be
satisfactory to the Agent and the Lender.
ARTICLE IV.
REPRESENTATIONS AND WARRANTIES
The Borrower hereby expressly re-makes, in favor of the Agent
and/or the Lender, all of the representations and warranties set forth in
Article IV of the Agreement, and represents and warrants that all such
representations and warranties remain true and unbreached.
ARTICLE V.
RATIFICATION
Each of the parties hereto does hereby adopt, ratify, and
confirm the Agreement and the other Loan Documents, in all things in accordance
with the terms and provisions thereof, as amended by this Amendment.
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ARTICLE VI.
MISCELLANEOUS
6.01. Scope of Agreement. The scope of this Amendment is expressly
limited to the matters addressed herein and this Amendment shall not operate as
a waiver of any past, present, or future breach, Default, or Event of Default
under the Agreement, except to the extent, if any, that any such breach,
Default, or Event of Default is remedied by the effect of this Amendment.
6.02 Agreement as Amended. All references to the Agreement in any
document heretofore or hereafter executed in connection with the transactions
contemplated in the Agreement shall be deemed to refer to the Agreement as
amended by this Amendment.
6.03 Parties in Interest. All provisions of this Amendment shall be
binding upon and shall inure to the benefit of the Borrower, the Lender and
their respective successors and assigns.
6.04 Rights of Third Parties. All provisions herein are imposed solely
and exclusively for the benefit of the Lender and the Borrower, and no other
Person shall have standing to require satisfaction of such provisions in
accordance with their terms and any or all of such provisions may be freely
waived in whole or in part by the Lender at any time if in its sole discretion
it deems it advisable to do so.
6.05 ENTIRE AGREEMENT. THIS AMENDMENT CONSTITUTES THE ENTIRE AGREEMENT
BETWEEN THE PARTIES HERETO WITH RESPECT TO THE SUBJECT HEREOF AN0 SUPERSEDES ANY
PRIOR AGREEMENT, WHETHER WRITTEN OR ORAL, BETWEEN SUCH PARTIES REGARDING THE
SUBJECT HEREOF. FURTHERMORE IN THIS REGARD, THIS AMENDMENT, THE AGREEMENT, THE
NOTE, THE SECURITY INSTRUMENTS, AND THE OTHER WRITTEN DOCUMENTS REFERRED TO IN
THE AGREEMENT OR EXECUTED IN CONNECTION WITH OR AS SECURITY FOR THE NOTE
REPRESENT, COLLECTIVELY, THE FINAL AGREEMENT AMONG THE PARTIES THERETO AND MAY
NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL
AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS AMONG THE
PARTIES.
6.06 GOVERNING LAW. THIS AMENDMENT, THE AGREEMENT AND THE NOTE SHALL
BE DEEMED TO BE CONTRACTS MADE UNDER AND SHALL BE CONSTRUED IN ACCORDANCE WITH
AND GOVERNED BY THE LAWS OF THE STATE OF TEXAS. THE PARTIES ACKNOWLEDGE AND
AGREE THAT THIS AGREEMENT AND THE NOTE AND THE TRANSACTIONS CONTEMPLATED HEREBY
BEAR A NORMAL, REASONABLE, AND SUBSTANTIAL RELATIONSHIP TO THE STATE OF TEXAS.
6.07 JURISDICTION NAD VENUE. ALL ACTIONS OR PROCEEDINGS WITH RESPECT
TO, ARISING DIRECTLY OR INDIRECTLY IN CONNECTION WITH, OUT OF, RELATED TO, OR
FROM THIS AMENDMENT, THE AGREEMENT OR ANY OTHER LOAN DOCUMENT MAY BE LITIGATED
IN COURTS HAVING SITUS IN HARRIS COUNTY, TEXAS. EACH OF THE BORROWER AND THE
LENDER HEREBY SUBMITS TO THE JURISDICTION OF ANY LOCAL, STATE, OR FEDERAL COURT
LOCATED IN HARRIS COUNTY, TEXAS, AND HEREBY WAIVES ANY RIGHTS IT MAY HAVE TO
TRANSFER OR CHANGE THE JURISDICTION OR VENUE OF ANY LITIGATION BROUGHT AGAINST
IT BY THE BORROWER OR THE LENDER IN ACCORDANCE WITH THIS SECTION.
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IN WITNESS WHEREOF, this Amendment to Credit Agreement is
executed effective the date first herein above written.
BORROWER:
EDGE PETROLEUM CORPORATION
By: /S/ Michael G. Long
------------------------------------
Michael G. Long
Chief Financial Officer
EDGE PETROLEUM EXPLORATION COMPANY
By: /S/ Michael G. Long
------------------------------------
Michael G. Long
Chief Financial Officer
LENDER AND AGENT:
THE FIRST NATIONAL BANK OF CHICAGO
By: /S/ Wendy Hrock Conwell
-------------------------------------
Printed name: /S/ Wendy Hrock Conwell
-------------------------------------
Title: Corporate Banking Officer
EXHIBIT 10.1
EMPLOYMENT AGREEMENT
Table of Contents
Page
1. 1. Employment Period .....................................................1
2. 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...................................................2
(v) Expenses.................................................................3
(vi) Vacation................................................................3
(vii) Stock Option Grants....................................................3
1. 3.Termination of Employment...............................................3
(a) Death or Disability......................................................3
(b) Cause....................................................................4
(c) Good Reason..............................................................4
(d) Notice of Termination....................................................4
(e) Date of Termination......................................................5
1. 4. Obligations of the Company upon Termination........................... 5
(a) Disability or Good Reason; Other than for Cause or Death.................5
(b) Death....................................................................6
(c) Cause; Other than for Disability or Good Reason..........................6
1. 5. Non-exclusivity of Rights............................................. 6
2. 6. Full Settlement....................................................... 6
3. 7. Confidential Information...............................................6
4. 8. Change of Control; Potential Change of Control.........................7
5. 9. Covenant Not to Compete...............................................11
6. 10. Successors...........................................................13
7. 11.Miscellaneous.........................................................13
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EMPLOYMENT AGREEMENT
This AGREEMENT (the "Agreement") by and between Edge Petroleum
Corporation, a Delaware corporation (the "Company"), and Michael G. Long (the
"Executive"), dated as of the 19th day of December, 1996 and to be effective as
of the Agreement Effective Date (as defined in Section 11(h) hereof).
In entering into this Agreement, the Board of Directors of the
Company (the "Board") desires to provide the Executive with incentives to serve
the Company as one of its executives.
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 an 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 second anniversary of the Agreement Effective Date; provided, on the
second anniversary of the Agreement Effective Date and each second anniversary
of the Agreement Effective Date thereafter, the Employment Period shall
automatically renew for an additional two years without any further action by
either the Company or the Executive.
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 as the Company's chief
financial officer and (B) the Executive's services shall be performed
in the county where the Executive was employed on the Agreement
Effective Date.
(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 his 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 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 civic or charitable boards or committees,
(B) deliver lectures or fulfill speaking engagements 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.
(b) Compensation
(i) Base Salary. During the Employment Period, the Executive
shall receive an annual base salary equal to $125,000 ("Annual Base
Salary"), which shall be paid on a semimonthly basis. During the
Employment Period, the Annual Base Salary shall be reviewed on June 30,
1997 and in December 1998 and thereafter annually. Executive's salary
shall be increased to $150,000 as of July 1, 1997 if (i) the IPO is
successfully implemented,(ii) an investor relations system has been
established and is operational, (iii) there has been designed and
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implemented the first version of a financial reporting system and
reports, (iv) a price/risk management policy has been developed and
adopted by the Company and a comprehensive employee benefits plan has
been implemented, including a Section 401(k) Plan. 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 and stock determined based on the Company's growth in each of the
Company's reserves per share and audited annual net cash flow per share
relative to Company's reserves and the audited net cash flow of the
Company for the prior calendar year with the maximum Annual Bonus to be
for the period up to and including December 31, 1997 and for calendar
years thereafter to be up to 50% of Annual Base Salary (for the period
ending December 31, 1997 to be calculated on the basis of $137,500
total Base Salary for such period), with a maximum payable if the
Company achieves the top 25% of the range of its annual performance
goals established at the outset of the year, and in each case any
Annual Bonus shall be paid approximately 25% in cash and 75% in shares
of Company Common Stock.
(iii) Incentives, 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.
(iv) Welfare and 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.
(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) Vacaiton. During the Employment Period, the Executive
shall be entitled to paid vacation of two weeks per year beginning in
1997 and each period of December 24 to January 2.
(vii) Stock Option Grants. Upon consumation of the IPO,
Executive shall be granted stock options on .5 of 1% (one-half of one
percent), determined on a fully diluted basis (excluding any
overallotment option to the extent not exercised at the initial closing
date of the IPO, restricted stock or stock options granted in
connection with the IPO), shares of Company common stock, par value
$.01 per share ("Common Stock"), at an exercise price equal to the IPO
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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.
3. Termination of Employment
(a) Death and 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 afte 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 120 consecutive 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 means: (i) the
Executive's final conviction of a felony crime that enriched the Executive at
the expense of the Company; or (ii) 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 Company has delivered to the Executive
a written demand for substantial performance hereunder ; or (iii) the
Executive's serious or willful misconduct or a serious or willful neglect of
duties which, in either case, has resulted, or in all probability is likely to
result, in material economic damage to the Company.
(c) Good Reaseon. The Executive's employment may be terminated during
the Employment Period by the Executive for Good Reason. For purposes of this
Agreement, "Good Reason" shall mean the occurrence of one of the following but
only after the occurrence of a Change of Control.
(i) any material failure by the Company to
substantially comply with any of the provisions of this Agreement,
other than a failure which is remedied by the Company promptly after
receipt of notice thereof given by the Executive;
(ii) the Company's requiring the Executive to be
based at any location other than that described in Section 2(a)(i)(B)
hereof;
(iii) any purported termination by the Company of the
Executive's employment otherwise than as expressly permitted by this
Agreement;
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(iv) any failure by the Company to comply with and
satisfy the requirements of Section 10 of this Agreement, provided that
(A) the successor described in Section 10(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 10 shall continue as of the
Date of Termination; or
(d) Notice of Termination. Any termination by the Company for Cause, or
by the Executive for Good Reason, shall be communicated by Notice of Termination
to the other party hereto given in accordance with Section 11(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.
<PAGE>
(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 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 or Good reason; Other than for Casue or Death. 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 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 earned and vested
by the Executive (together with any accrued interest or
earnings thereon) and (3) any compensation for accrued, earned
and unused vacation time for which the Executive is eligible
in accordance with the practices of the Company, 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, undiscounted, within 10
days after the Date of Termination, an amount equal to the
Annual Base Salary;
C. effective as of the Date of Termination, immediate
vesting and exercisability of, and termination of any
restrictions on sale or transfer (other than any such
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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;
(b) Death. If the Executive's employment is terminated by reason
of the Executive's death during the Employment Period, 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), and (ii) the payment of
an amount equal to one-half of his Annual Salary in a cash lump sum within 30
days of the Date of Termination.
(c) Cause; Other than for Disability or Good Reason. If the
Executive's employment shall be terminated for Cause during the Employment
Period, 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 or Good Reason, 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.
6. Full Settlement. 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.
7. 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,
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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 7
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' 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.
8. Change of Control; Potential 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
Beneficial Owner of, or to "beneficially own," (i) securities tendered
pursuant to a tender or exchange offer made by such Person or any of
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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;
(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;
8
<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.
9
<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.
"Potential 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 Potential Change of Control:
(a) the commencement of a tender or exchange offer for the
Company's Common Stock that, if consummated, would result in a Change
of Control; or
(b) the Company enters into an agreement which, if
consummated, would constitute a Change of control; or
(c) the commencement of a contested election contest subject
to the provisions of Rule 14a-11 under the Exchange Act; or
(d) the occurrence of any other event that the Company's Board
determines could result in a Change of Control.
10
<PAGE>
"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).
9. 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, for a period of one year after the
Date of Termination, he will not, either within 75 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
Executive has worked at such location (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 9 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
9 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 9
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 9 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 9 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 9 are ancillary or a part of as contemplated by Tex. Bus. & Com. Code
Ann. ss.ss. 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
11
<PAGE>
under this Agreement, including, without limitation, the provision by the
Company of Confidential Information to the Executive as contemplated by Section
7, 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 9, and the Executive's covenant
not to engage in the Prohibited Activity within the Relevant Geographic Area
pursuant to this Section 9 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.
10. 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 10(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.
11. 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:
If to the Executive:
--------------------
Michael G. Long
6728 Brompton Road
Houston, Texas 77005
Telecommunications Number: (713) 664-6537
12
<PAGE>
If to the Company:
------------------
Edge Petroleum Corporation
Attention: John Calaway
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 shall become effective as of the date on
which both the Company and the Executive have executed the Agreement (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.
Date: 12/19/96 /S/ John E. Calaway
- - -------------------------- ---------------------
John Calaway
Chief Executive Officer
Date: 12/19/98 /S/ Michael G. Long
- - -------------------------- ---------------------
Michael G. Long
13
<TABLE>
EXHIBIT - 11.1
EDGE PETROLEUM CORPORATION
COMPUTATION OF EARNINGS PER SHARE
- - ------------------------------------------------------------------------------------------------------------------------------------
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------------ ---------------------------
1998 1997 1998 1997
<S> <C> <C> <C> <C>
Basic common and common equivalent shares outstanding,
beginning of period 7,510,283 4,701,361 7,510,283 4,701,361
Weighted average shares and equivalent shares outstanding:
Issued in connection with the public offering 2,760,000 2,203,956
Restricted stock 262,297 250,586 261,620 200,102
Exercise of common stock options 15,827 5,333
Basic weighted average common and common equivalent --------- --------- --------- ---------
shares outstanding, end of period 7,772,580 7,727,774 7,771,903 7,110,752
Dilutive common stock options 55,688 30,798 65,588
--------- --------- --------- ---------
Diluted weighted average common and common equivalent
shares outstanding 7,772,580 7,783,462 7,802,701 7,176,340
========= ========= ========= =========
Net income (loss) before cumulative effect of accounting change $ (368,409) $ 1,015,609 $ 297,193 $ 3,052,498
Cumulative effect of accounting change 1,780,835
----------- ----------- ----------- -----------
Net income (loss) $ (368,409) $ 1,015,609 $ 2,078,028 $ 3,052,498
=========== =========== =========== ===========
BASIC EARNINGS (LOSS) PER SHARE:
Net income (loss) before cumulative effect of accounting change $ (0.05) $ 0.13 $ 0.04 $ 0.43
Cumulative effect of accounting change 0.23
----------- ----------- ----------- -----------
Basic earnings (loss) per share $ (0.05) $ 0.13 $ 0.27 $ 0.43
=========== =========== =========== ===========
DILUTED EARNINGS (LOSS) PER SHARE:
Net income (loss) before cumulative effect of accounting change $ (0.05) $ 0.13 $ 0.04 $ 0.43
Cumulative effect of accounting change 0.23
----------- ----------- ----------- -----------
Diluted earnings (loss) per share $ (0.05) $ 0.13 $ 0.27 $ 0.43
=========== =========== =========== ===========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-Mos
<FISCAL-YEAR-END> Dec-31-1998
<PERIOD-START> Jan-01-1998
<PERIOD-END> Sep-30-1998
<CASH> 707,648
<SECURITIES> 0
<RECEIVABLES> 6,530,827
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 7,709,755
<PP&E> 73,602,057
<DEPRECIATION> 12,811,783
<TOTAL-ASSETS> 72,136,082
<CURRENT-LIABILITIES> 6,640,351
<BONDS> 13,850,000
0
0
<COMMON> 77,723
<OTHER-SE> 50,408,125
<TOTAL-LIABILITY-AND-EQUITY> 72,136,082
<SALES> 11,615,967
<TOTAL-REVENUES> 11,615,967
<CGS> 0
<TOTAL-COSTS> 11,228,430
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 37,180
<INCOME-PRETAX> 474,110
<INCOME-TAX> 176,917
<INCOME-CONTINUING> 297,193
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 1,780,835
<NET-INCOME> 2,078,028
<EPS-PRIMARY> 0.27
<EPS-DILUTED> 0.27
</TABLE>
