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, 1999
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 11, 1999
----- --------------------------------
Common Stock 9,163,151
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
<TABLE>
EDGE PETROLEUM CORPORATION
CONSOLIDATED BALANCE SHEETS
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
September 30, December 31,
1999 1998
--------------- ---------------
ASSETS (Unaudited)
CURRENT ASSETS:
Cash and cash equivalents $ 982,315 $ 272,428
Accounts receivable, trade 2,004,620 2,237,113
Accounts receivable, joint interest owners, net 659,645 2,215,096
Accounts receivable, related parties 206,069 228,922
Other current assets 208,765 313,631
------------ ------------
Total current assets 4,061,414 5,267,190
PROPERTY AND EQUIPMENT, Net - full cost method of accounting
for oil and natural gas properties 45,977,364 47,258,993
INVESTMENT IN FRONTERA 3,867,232 3,744,935
OTHER ASSETS 7,789 7,789
------------ ------------
TOTAL ASSETS $ 53,913,799 $ 56,278,907
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable, trade $ 1,750,759 $ 2,948,791
Accrued liabilities 2,490,018 3,779,881
Accrued interest payable 41,162 93,880
Current portion of long-term debt 2,750,000 6,700,000
------------ -----------
Total current liabilities 7,031,939 13,522,552
LONG-TERM DEBT 2,700,000 5,800,000
------------ -----------
Total liabilities 9,731,939 19,322,552
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred stock, $.01par value; 5,000,000 shares authorized;
none outstanding
Common stock, $.01par value; 25,000,000 shares authorized;
9,163,151 and 7,758,667 shares issued and outstanding at
September 30, 1999 and December 31, 1998, respectively 91,631 77,586
Additional paid-in capital 55,163,019 47,769,159
Accumulated deficit (9,848,150) (9,398,410)
Unearned compensation - restricted stock (1,224,640) (1,491,980)
------------ ------------
Total stockholders' equity 44,181,860 36,956,355
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 53,913,799 $ 56,278,907
============ ============
See accompanying notes to consolidated financial statements.
</TABLE>
2
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<TABLE>
EDGE PETROLEUM CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------------ --------------------------------
1999 1998 1999 1998
OIL AND NATURAL GAS REVENUES $ 3,055,912 $ 3,981,256 $ 10,787,549 $ 11,615,967
OPERATING EXPENSES:
Lifting costs 396,254 615,017 1,362,624 1,543,830
Severance and ad valorem taxes 300,652 301,081 987,871 914,799
Depletion, depreciation and amortization 1,161,910 2,383,371 5,475,213 5,283,394
General and administrative expenses 976,612 1,072,924 3,076,371 2,989,751
Unearned compensation expense 124,842 165,148 292,795 496,656
----------- ----------- ------------ ------------
Total operating expenses 2,960,270 4,537,541 11,194,874 11,228,430
----------- ----------- ------------ ------------
OPERATING INCOME (LOSS) 95,642 (556,285) (407,325) 387,537
OTHER INCOME AND EXPENSE:
Interest income 18,106 22,124 43,817 124,383
Interest expense (18,046) (25,193) (86,232) (37,810)
----------- ----------- ------------ ------------
NET INCOME (LOSS) BEFORE INCOME TAX EXPENSE AND
CUMULATIVE EFFECT OF ACCOUNTING CHANGE 95,702 (559,354) (449,740) 474,110
INCOME TAX BENEFIT (EXPENSE) 190,945 (176,917)
----------- ----------- ------------ ------------
OF ACCOUNTING CHANGE 95,702 (368,409) (449,740) 297,193
CUMULATIVE EFFECT OF ACCOUNTING CHANGE 1,780,835
----------- ----------- ------------- ------------
NET INCOME (LOSS) $ 95,702 $ (368,409) $ (449,740) $ 2,078,028
=========== =========== ============ ============
BASIC EARNINGS (LOSS) PER SHARE:
Net income (loss) before cumulative effect of accounting change $ 0.01 $ (0.05) $ (0.05) $ 0.04
Cumulative effect of accounting change 0.23
------- ------- ------- -------
Basic earnings (loss) per share $ 0.01 $ (0.05) $ (0.05) $ 0.27
======= ======= ======= =======
DILUTED EARNINGS (LOSS) PER SHARE:
Net income (loss) before cumulative effect of accounting change $ 0.01 $ (0.05) $ (0.05) $ 0.04
Cumulative effect of accounting change 0.23
------- ------- ------- -------
Diluted earnings (loss) per share $ 0.01 $ (0.05) $ (0.05) $ 0.27
======= ======= ======= =======
BASIC WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 9,163,151 7,772,580 8,514,561 7,771,903
========== ========== ========== =========
DILUTED WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 9,234,311 7,772,580 8,514,561 7,802,701
========== ========== ========== =========
See accompanying notes to consolidated financial statements.
</TABLE>
3
<PAGE>
<TABLE>
EDGE PETROLEUM CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (Unaudited)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Unearned
Common Stock Additional Compensation - Total
-------------------------- Paid-in Accumulated Restricted Stockholders'
Shares Amount Capital Deficit Stock Equity
------------ ----------- ------------ ------------ -------------- -------------
BALANCE,
JANUARY 1, 1999 7,758,667 $ 77,586 $ 47,769,159 $ (9,398,410) $ (1,491,980) $ 36,956,355
Forfeiture of restricted common stock (325) (3) (4,021) 4,024
Issuance of restricted common stock 4,809 48 29,431 (29,479)
Private common stock offering,
net of offering costs of $230,050 1,400,000 14,000 7,368,450 7,382,450
Unearned compensation expense 292,795 292,795
Net loss (449,740) (449,740)
--------- --------- ----------- ------------ ------------ ------------
BALANCE,
SEPTEMBER 30, 1999 9,163,151 $ 91,631 $ 55,163,019 $ (9,848,150) $ (1,224,640) $ 44,181,860
========= ========= ============ ============ ============= ============
See accompanying notes to consolidated financial statements.
</TABLE>
4
<PAGE>
<TABLE>
EDGE PETROLEUM CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
- -----------------------------------------------------------------------------------------------------------
<S> .......................... <C> <C>
Nine Months Ended
September 30,
----------------------------
1999 1998
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (449,740) $ 2,078,028
Adjustments to reconcile net income (loss) to net cash provided
by operating activities:
Cumulative effect of accounting change (1,780,835)
Depletion, depreciation and amortization 5,475,213 5,283,394
Deferred income taxes 176,917
Unearned compensation expense 292,795 496,656
Changes in assets and liabilities:
Accounts receivable, trade 232,493 (218,341)
Accounts receivable, joint interest owners, net 1,555,451 2,864,922
Accounts receivable, related parties 22,853 149,900
Other current assets 104,866 (65,160)
Other assets 9,443
Accounts payable, trade (1,198,032) 162,872
Accounts payable, related party (40,000)
Accrued liabilities (1,289,863) 453,667
Accrued interest payable (52,718) 233,184
----------- ----------
Net cash provided by operating activities 4,693,318 9,804,647
----------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Oil and natural gas property and equipment purchases (11,269,850) (29,734,069)
Proceeds from the sale of oil and natural gas properties and prospects 7,076,266 3,009,120
Investment in Frontera (122,297)
----------- -----------
Net cash used in investing activities (4,315,881) (26,724,949)
------------ -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from private offering, net of offering cost 7,382,450
Proceeds (payments) on notes payable (7,050,000) 13,850,000
------------ -----------
Net cash provided by financing activities 332,450 13,850,000
----------- -----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 709,887 (3,070,302)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 272,428 3,777,950
----------- -----------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 982,315 $ 707,648
=========== ===========
SUPPLEMENTAL CASH FLOW DISCLOSURES:
Cash paid for interest, net of amounts capitalized $ 95,225 $ 5,682
Issuance of restricted stock $ 29,479 $ 144,017
Forfeiture nonvested restricted common stock $ 4,024 $ 3,986
See accompanying notes to consolidated financial statements.
</TABLE>
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 (loss). 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, 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 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 (or $0.23 basic and
diluted earnings per share) 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.
Accounting Pronouncements
Derivatives - In June 1998, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS No. 133"). SFAS No. 133 establishes
accounting and reporting standards for derivative instruments and hedging
activities that require an entity to recognize all derivatives as an asset or
liability measured at fair value. Depending on the intended use of the
derivatives, changes in its fair value will be reported in the period of change
as either a component of earnings or a component of other comprehensive income.
In June 1999, the Financial Accounting Standards Board issued SFAS No. 137,
"Accounting for Derivative Instruments and Hedging Activities - Deferral of the
Effective Date of FASB Statement No. 133" ("SFAS 137"). SFAS 137 delays the
effective date for implementation of SFAS No. 133 for one year making SFAS No.
133 effective for all fiscal quarters of all fiscal years beginning after June
15, 2000. Retroactive application to periods prior to adoption is not allowed.
The Company has not quantified the impact of adoption on its financial
statements or the date it intends to adopt. Earlier application of SFAS No. 133
is encouraged, but not prior to the beginning of any fiscal quarter that begins
after issuance of SFAS No. 137.
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 million 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. Effective April 1,
6
<PAGE>
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. The Revolving Credit Facility is secured by
substantially all the assets of the Company.
Effective September 29, 1998, the Company had its borrowing base
redetermined. The initial borrowing base authorized by the bank was $15 million.
Beginning October 1, 1998, and on the first day of each month thereafter, the
borrowing base was required to be reduced by $550,000.
Effective March 1, 1999, the Company and the Bank amended the Revolving
Credit Facility to include the following terms: 1) the initial borrowing base
was $12 million comprised of a two tranche financing of a $9 million Revolving
Credit Facility and a $3 million term facility; 2) Beginning May 1, 1999, and on
the first day of each month thereafter, the Revolving Credit Facility borrowing
base was required to be reduced by $400,000; and 3) 75% of prospect sales
proceeds were to be used to pay down the term facility with the remaining unpaid
term facility balance maturing on August 31, 1999. On May 8, 1999, from proceeds
generated by the Private Offering (see Note 5), the Company repaid the $3
million term loan in addition to $1.9 million of the Revolving Credit Facility.
Effective July 1, 1999, the Company had its borrowing base redetermined. The
initial borrowing base authorized by the bank is was $8.8 million. Beginning
August 1, 1999, and on the first day of each month thereafter, the borrowing
base was required to be reduced by $400,000. Total borrowing available under
the Revolving Credit Facility was approximately $1.65 million at October 1,
1999. Total outstanding long-term debt (including current portion) as of
September 30, 1999 was $5.45 million.
Effective November 1, 1999, the Company had its borrowing base redetermined.
The initial borrowing base authorized by the bank is $9 million. Beginning
December 1, 1999, and on the first day of each month thereafter, the borrowing
base is required to be reduced by $450,000.
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 certain financial covenants. The Tangible Net
Worth Covenant requires that at the end of each quarter the Company's Tangible
Net Worth be at least 90% of the Company's actual tangible net worth as reported
at December 31, 1998 (or $33,260,720) plus 50% of positive net income and 100%
of other increases in equity for all fiscal quarters ending subsequent to
December 31, 1998. The Fixed Charge Covenant requires that at the end of each
quarter beginning June 30, 1999, the ratio of annualized EBITDA (as defined) to
the sum of annualized interest expense plus 50% of the quarter end loans
outstanding must be at least 1.25 to 1.00. Interest will accrue at a rate of
LIBOR plus 1.75% - 2.75% depending on the borrowing base utilization. At
September 30, 1999 the Company was in compliance with the above mentioned
covenants.
3. EARNINGS PER SHARE
The Company accounts for earnings per share in accordance with Statement of
Financial Accounting Standards 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 and
warrants, having exercise prices less than the average market price of the
common stock during the periods, using the treasury stock method.
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>
<S> .......................... <C> <C> <C> <C> <C> <C>
Three Months Ended September 30, 1999 Three Months Ended September 30, 1998
----------------------------------------- -----------------------------------------
Income Shares Per-Share Income (Loss) Shares Per-Share
(Numerator (Denominator) Amount (Numerator) (Denominator) Amount
----------- ------------- --------- ------------- ------------- ----------
Basic EPS
Income (loss) available to
common stockholders $ 95,702 9,163,151 $ 0.01 $ (368,409) 7,772,580 $ (0.05)
Effect of Dilutive Securities
Common stock options 71,160
--------- --------- ------ ---------- --------- -------
Diluted EPS
Income (loss) available to
common stockholders $ 95,702 9,234,311 $ 0.01 $ (368,409) 7,772,580 $ (0.05)
========= ========== ====== ========== ========== =======
</TABLE>
<TABLE>
<S> .......................... <C> <C> <C> <C> <C> <C>
Nine Months Ended September 30, 1999 Nine Months Ended September 30, 1998
----------------------------------------- -----------------------------------------
Income Shares Per-Share Income (Loss) Shares Per-Share
(Numerator (Denominator) Amount (Numerator) (Denominator) Amount
----------- ------------- --------- ------------- ------------- ----------
Basic EPS
Income (loss) available to
common stockholders $(449,740) 8,514,561 $(0.05) $2,078,028 7,771,903 $ 0.27
Effect of Dilutive Securities
Common stock options 30,798
---------- --------- ------ ---------- --------- -------
Income (loss) available to
common stockholders $(449,740) 8,514,561 $(0.05) $2,078,028 7,802,701 $ 0.27
========== ========= ====== ========== ========= =======
</TABLE>
4. INCOME TAXES
The Company accounts for income taxes under the provisions of Statement of
Financial Accounting Standards No. 109 "Accounting for Income Taxes," ("SFAS No.
109") which provides for an asset and liability approach in accounting for
income taxes. Under this approach, deferred tax assets and liabilities are
recognized based on anticipated future tax consequences, using currently enacted
tax laws, attributable to differences between financial statement carrying
amounts of assets and liabilities and their respective tax bases. Due to the
Company having significant deferred tax assets, no tax benefit (expense) was
recorded at September 30, 1999. Due to the uncertainty of the Company's ability
to become profitable in the future, an allowance has been provided to offset the
tax benefits of certain tax assets. Should the Company have net income in future
periods, income tax expense will be recorded upon utilization of available
deferred tax assets.
5. EQUITY
On May 7, 1999, the Company completed a "Private Offering" of 1,400,000
shares of common stock at a price of $5.40 per common share. The Company also
issued warrants, which were purchased for $0.125 per warrant, to acquire an
additional 420,000 shares of common stock at $5.35 per share and are exercisable
through May 6, 2004. At the election of the Company, the warrants may be called
at a redemption price of $0.01 per warrant at any time after any date at which
the average daily per share closing bid price for the immediately proceeding 20
consecutive
8
<PAGE>
trading days exceeds $10.70. No warrants have been exercised as of September 30,
1999. Total proceeds, net of offering costs, were approximately $7.4 million of
which $4.9 million was used to repay debt under the Revolving Credit Facility
with the remainder being utilized to satisfy working capital requirements and to
fund a portion of the Company's exploration program.
Effective May 21, 1999, the Company amended and restated it's Nonqualified
Stock Option Plan. In conjunction with the amendment of the plan, the Company
exchanged, on a voluntary basis, 594,733 outstanding Nonqualified Stock options
of certain employees and Directors of the Company for 326,700 new common stock
options in replacement of those options. The grant price of the replacement
options was $7.0625, which represents the fair market value on the date of
grant. The reissued options have a ten-year term with 50% of the options vesting
immediately on the date of grant with the remaining 50% vesting on May 21, 2000.
On May 21, 1999, the Company also elected to issue 114,000 new ten-year common
stock options to employees, which vest 100% on May 21, 2001. The grant price of
the new options was $7.0625, which represents the fair market value on the date
of grant. On June 1, 1999 the Company issued 21,000 ten-year common stock
options to non-employee directors with an exercise price of $7.28 per share
vesting 100% on June 1, 2001.
The Company accounts for Stock Based Compensation in accordance with
Financial Accounting Standards Board Statement No. 123 "Accounting for Stock
Based Compensation," ("SFAS No. 123"). Under SFAS No. 123, the Company is
permitted to either record expenses for stock options and other employee
compensation plans based on their fair value at the date of grant or to continue
to apply its current accounting policy under Accounting Principles Board Opinion
No. 25 ("APB No.25") and recognize compensation expense, if any, based on the
intrinsic value of the equity instrument at the measurement date. The Company
elected to continue following APB No. 25.
6. PROPERTY DISPOSITION
During August 1999, the Company completed a transaction in which it sold,
effective July 1, 1999, its working interests in proved producing and
undeveloped properties within it's BTA and Spartan Extension 3-D project areas
in Goliad and Victoria Counties, Texas. Proceeds from the sale were
approximately $4 million and associated net proved reserves were approximately
1.3 Bcfe or 6% of the Company's total proved reserves. The Company uses the
full-cost method of accounting for its oil and natural gas properties. Under
this method a sale of oil and natural gas properties, whether or not being
amortized currently, shall be accounted for as an adjustment of capitalized
costs, with no gain or loss recognized unless such adjustment would
significantly alter the relationship between capitalized costs and proved
reserves. The proceeds from the sale of these proved producing properties were
credited directly to the full cost pool.
7. HEDGING ACTIVITIES
Due to the instability of oil and natural gas prices, the Company has
entered into, from time to time, price risk management transactions (e.g., swaps
and collars) for a portion of it's natural gas production in order 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 typically
apply to only a portion of its production, providing only partial price
protection against declines in natural gas prices and limiting 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 production occurs.
9
<PAGE>
The impact on oil and natural gas revenues from hedging activities for the
three and nine-month periods ended September 30, 1999 and 1998 was as follows:
<TABLE>
<S> .......<C> <C> <C> <C> <C> <C> <C>
Gain (Loss)
Mcf ---------------------------------------------
Hedge Effective Dates Price Per Volumes Three Months Ended Nine Months Ended
Type Beginning Ending MMbtu Per Day September 30, September 30,
- -------- -------------------- ------------- --------- -------------------- -----------------------
1999 1998 1999 1998
Collar 10/1/97 1/31/98 $2.50 - $3.15 5,000
Collar 2/1/98 4/30/98 $2.25 - $2.75 5,000 $ 36,700
Collar 4/1/98 6/30/98 $2.15 - $2.37 10,000 30,000
Collar 7/1/98 9/30/98 $2.25 - $2.88 10,000 $304,100 304,100
Swap 3/1/99 10/31/99 $ 1.957 13,000 $(773,057) $ (861,631)
Swap 4/1/99 9/15/99 $ 2.145 3,000 (126,510) (154,124)
--------- -------- --------- -------
Total $(899,567) $304,100 $(1,015,755) $370,800
========== ======== ============ ========
</TABLE>
The Company's hedging activities are entered into on a 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.
During August 1999, the Company entered into two hedge transactions; (i) a
fixed price swap for $3.00 per MMbtu and (ii) a collar with a floor and ceiling
price of $3.00 per MMbtu and $3.30 per MMbtu, respectively, both of which cover
3,000 Mcf per day for November and December 1999 production. During September
1999, the $3.00 MMbtu swap was exchanged for the $2.145 MMbtu swap, resulting in
no gain or (loss) being recorded. During October 1999, the Company entered into
a fixed price swap for $3.00 per MMbtu covering 3,000 Mcf per day. This swap
also covers November and December 1999 production. At September 30, 1999 the
fair value of all hedges was approximately $(207,000). There were no hedges in
place at September 30, 1998.
10
<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, 1998.
Unless otherwise indicated by the context, references herein to the "Company"
mean Edge Petroleum Corporation, a Delaware corporation that is the registrant,
and its subsidiaries.
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 164,000 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. In recent years, 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, including certain general and administrative costs that are directly
attributable to the Company's acquisition, exploration and development
activities, are capitalized in a "full-cost pool" as incurred. The Company
capitalizes internal Geological and Geophysical ("G&G") costs that are directly
attributable to acquisition, exploration and development activities to oil and
natural gas properties. Total internal G&G costs capitalized during the three
months ended September 30, 1999 and 1998 were $475,926 and $748,454,
respectively, and during the nine months ended September 30, 1999 and 1998 were
$1,544,666 and $1,943,196, respectively. The Company records depletion of its
full-cost pool using the unit of production method. Investments in
11
<PAGE>
unproved properties are not subject to amortization until the proved reserves
associated with the projects can be determined or until impaired. To the extent
that capitalized costs subject to amortization 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, an impairment of oil and natural gas properties is
not reversible at a later date. Impairment of oil and natural gas properties is
assessed on a quarterly basis in conjunction with the Company's quarterly
filings with the Securities and Exchange Commission. At September 30, 1999, no
full cost ceiling test write down of oil and natural gas properties was
necessary.
Due to the instability of oil and natural gas prices, the Company has
entered into, from time to time, price risk management transactions (e.g., swaps
and collars) 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 typically apply to
only a portion of its production, providing only partial price protection
against declines in natural gas prices and limiting 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 production occurs. At September 30,
1999 the fair value of all hedges was approximately $(207,000). There were no
hedges in place at September 30, 1998. (See Note 7).
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. Even though oil and natural gas
commodity prices have shown signs of recent recovery, 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, 1999 Compared to the Three Months Ended
September 30, 1998
Revenue and Production
Oil and natural gas revenues for the three months ended September 30, 1999
decreased 23% from $3,981,256 to $3,055,912, as compared to the three months
ended September 30, 1998. Production volumes for oil, condensate and NGLs for
the three months ended September 30, 1999 increased 50% from 34 MBbls to 50
MBbls, as compared to the three months ended September 30, 1998. The increase in
oil, condensate and NGL production during the three months ended September 30,
1999 increased revenues by $184,245 (based on 1998 comparable quarter average
prices), further increased by a 44% increase in the average oil, condensate and
NGL sales price which increased revenues by $244,996 (based on current quarter
production). Production volumes for natural gas for the three months ended
September 30, 1999 decreased 24% from 1,599 MMcf to 1,217 MMcf, as compared to
the three months ended September 30, 1998. The decrease in natural gas
production during the three months ended September 30, 1999 decreased revenues
by $860,958, further decreased by an 18% decrease in the average natural gas
sales price which decreased revenues by $493,627. The decrease in production
volumes was primarily attributable to the disposition of proved producing
properties effective July 1, 1999 (see Note 6), further reduced by normal
production declines from existing wells offset by 11 gross (3.96 net) new
successful exploratory and development wells being drilled and completed since
September 30, 1998. Included within natural gas revenues for the three months
ended September 30, 1999 and 1998 was ($899,567) and $304,100, respectively,
representing (losses) and gains from hedging activities (see Note 7). Hedging
activities decreased the effective natural gas sales price by approximately
$0.74 per Mcf (or 29%) and increased the effective natural gas price by
approximately $0.19 per Mcf (or 9%) for the three-months ended September 30,
1999 and 1998, respectively.
12
<PAGE>
The following table sets forth certain operational data of the Company
for the periods presented:
<TABLE>
<S> .......................... <C> <C> <C> <C>
Three Months Ended 1999 Period Compared
September 30, to 1998 Period
-------------------------- -------------------------
Increase % Increase
1999 1998 (Decrease) (Decrease)
---- ---- ---------- ----------
Production volumes:
Oil, condensate and NGLs (Bbls) 50,274 33,607 16,667 50 %
Natural gas (Mcf) 1,217,128 1,598,529 (381,401) (24)%
Natural gas equivalents (Mcfe) 1,518,772 1,800,171 (281,399) (16)%
Average sales prices:
Oil, condensate and NGLs ($ per Bbl) $ 15.95 $ 11.09 $ 4.86 44 %
Natural gas ($ per Mcf) 1.85 2.26 (0.41) (18)%
Natural gas equivalent ($ per Mcfe) 2.01 2.21 (0.20) (9)%
Operating revenues:
Oil, condensate and NGLs $ 802,047 $ 372,806 $ 429,241 115 %
Natural gas 2,253,865 3,608,450 (1,354,585) (38)%
---------- ---------- -----------
Total $3,055,912 $3,981,256 $ (925,344) (23)%
============ ============ ============
</TABLE>
Costs and Operating Expenses
Lifting costs for the three months ended September 30, 1999 decreased 36%
from $615,017 to $396,254 as compared to the three months ended September 30,
1998 due primarily to the disposition of proved producing properties effective
July 1, 1999 (see Note 6), and due to a corporate focus to improve the operating
structure in the field. Lifting costs were $0.26 per Mcfe and $0.34 per Mcfe for
the three-month periods ended September 30, 1999 and 1998, respectively.
Depletion, depreciation and amortization expense ("DD&A") for the three
months ended September 30, 1999 decreased 51% from $2,383,371 to $1,161,910, as
compared to the three months ended September 30, 1998. Included within DD&A for
the three-month periods ended September 30, 1999 and 1998 was $993,659 and
$2,181,380, respectively, representing depletion expense of oil and natural gas
property, which decreased by 55%. Decreased oil and natural gas production
decreased depletion expense by $341,410 and a 46% decrease in the overall
depletion rate further decreased depletion expense by $846,311. The decrease in
the depletion rate was primarily attributable to the disposition of proved
producing properties effective July 1, 1999 (see Note 6), offset by abandonments
of certain projects, prospects and wells and dry holes drilled since September
30, 1998. Depletion expense on a unit of production basis for the three-month
periods ended September 30, 1999 and 1998 was $0.65 per Mcfe and $1.21 per Mcfe,
respectively. The remaining decrease in DD&A is due primarily to the
amortization of deferred loan cost on the Revolving Credit Facility of which
amortization began April 1, 1998 and was fully amortized at March 31, 1999.
General and administrative expenses ("G&A") for the three months ended
September 30, 1999 decreased 9% from $1,072,924 to $976,612, as compared to the
three months ended September 30, 1998. The decrease in G&A was primarily
attributable to a decrease in professional service fees and international travel
expenses incurred pursuing new business opportunities. This decrease in G&A was
partially offset by a reduction of overhead reimbursement fees received from
various management, operating and seismic agreements during the three months
ended September 30, 1999. Overhead reimbursement fees are recorded as a
reduction of G&A and were approximately $65,000 and $251,000 for the three
months ended September 30, 1999 and 1998, respectively. General and
administrative expenses on a unit of production basis for the three-month
periods ended September 30, 1999 and 1998 were $0.64 per Mcfe and $0.60 per
Mcfe, respectively.
Unearned compensation expense for the three months ended September 30, 1999
decreased from $165,148 to $124,842, as compared to the three months ended
September 30, 1998. The decrease is due to the resignation of the
13
<PAGE>
former CEO and Chairman of the Board during November of 1998 whereby he vested
in his remaining restricted stock grant. The Company charged to expense his
unamortized unearned compensation upon his resignation.
Interest expense for the three months ended September 30, 1999 was $18,046
as compared to $25,193 for the three months ended September 30, 1998. The total
amount of interest capitalized to oil and natural gas properties during the
three-month periods ended September 30, 1999 and 1998 was $103,246 and $166,491,
respectively. The decrease in interest expense is due to the decrease in the
weighted average long-term debt balance outstanding during the three months
ended September 30, 1999 compared to the three month period ended September 30,
1998. Weighted average debt was $6.5 million for the three months ended
September 30, 1999 compared to $10.8 million for the three months ended
September 30, 1998.
Interest income for the three months ended September 30, 1999 decreased
from $22,124 to $18,106, as compared to the three months ended September 30,
1998. The decrease in interest income is due to the overall reduction in
invested funds.
Due to the Company having significant deferred tax assets, no tax benefit
(expense) was recorded for the three months ended September 30, 1999. Due to the
uncertainty of the Company's ability to become profitable in the future, an
allowance has been provided to offset the tax benefits of certain tax assets.
Should the Company have net income in future periods, income tax expense will be
recorded upon utilization of available tax assets. Income tax benefit for the
three-months ended September 30, 1998 was $190,945.
For the three months ended September 30, 1999, the Company had operating
income of $95,642 compared to an operating loss of $(556,285) for the three
month period ended September 30, 1998, primarily reflecting decreased DD&A
partially offset by a decrease in natural gas revenues resulting from lower
natural gas production and hedging activities. Net income was $95,702 for the
three months ended September 30, 1999 as compared to a net loss of $(368,409)
for the three-month period ended September 30, 1998.
Nine Months Ended September 30, 1999 Compared to the Nine Months Ended September
30, 1998
Revenue and Production
Oil and natural gas revenues for the nine months ended September 30, 1999
decreased 7% from $11,615,967 to $10,787,549, as compared to the nine months
ended September 30, 1998. Production volumes for oil, condensate and NGLs for
the nine months ended September 30, 1999 increased 28% from 115 MBbls to 147
MBbls, as compared to the nine months ended September 30, 1998. The increase in
oil, condensate and NGL production increased revenues by $395,144 (based on 1998
comparable period average prices) and an 8% increase in average oil, condensate
and NGL sales price further increased revenue by $139,076 (based on current year
production). Production volumes for natural gas increased 2% from 4,442 MMcf to
4,546 MMcf, as compared to the nine months ended September 30, 1998. The
increase in natural gas production increased revenues by $238,671, offset by a
15% decrease in average natural gas sales price which decreased revenues by
$1,601,309. The increase in production volumes was due to 11 gross (3.96 net)
new successful exploratory and development wells being drilled and completed
since September 30, 1998 offset by the lost production due to the disposition of
proved producing properties effective July 1, 1999 (see Note 6), further reduced
by normal production declines from existing wells. Included within natural gas
revenues for the nine months ended September 30, 1999 and 1998 was $(1,015,755)
and $370,800, respectively, representing (losses) and gains from hedging
activities (see Note 7). Hedging activities decreased the effective natural gas
sales price by approximately $0.22 per Mcf (or 10%) and increased the effective
natural gas price by approximately $0.08 per Mcf (or 4%) for the nine months
ended September 30, 1999 and 1998, respectively.
14
<PAGE>
The following table sets forth-certain operational data of the Company for
the periods presented:
<TABLE>
<S> .......................... <C> <C> <C> <C>
Nine Months Ended 1999 Period Compared
September 30, to 1998 Period
-------------------------- -------------------------
Increase % Increase
1999 1998 (Decrease) (Decrease)
---- ---- ---------- ----------
Production volumes:
Oil, condensate and NGLs (Bbls) 147,325 115,098 32,227 28 %
Natural gas (Mcf) 4,545,810 4,441,921 103,889 2 %
Natural gas equivalents (Mcfe) 5,429,760 5,132,509 297,251 6 %
Average sales prices:
Oil, condensate and NGLs ($ per Bbl) $ 13.21 $ 12.26 $ 0.95 8 %
Natural gas ($ per Mcf) 1.95 2.30 (0.35) (15)%
Natural gas equivalent ($ per Mcfe) 1.99 2.26 (0.28) (12)%
Operating revenues:
Oil, condensate and NGLs $ 1,945,468 $ 1,411,248 $ 534,220 38 %
Natural gas 8,842,081 10,204,719 (1,362,638) (13)%
---------- ---------- -----------
Total $10,787,549 $11,615,967 $ (828,418) (7)%
============ ============ ============
</TABLE>
Costs and Operating Expenses
Lifting costs for the nine months ended September 30, 1999 decreased 12%
from $1,543,830 to $1,362,624 as compared to the nine months ended September 30,
1998, due primarily to the disposition of proved producing properties effective
July 1, 1999 (see Note 6), and due to a corporate focus to improve the operating
structure in the field. Lifting costs on a unit of production basis were $0.25
per Mcfe and $0.30 per Mcfe for the nine-month periods ended September 30, 1999
and 1998, respectively.
Depletion, depreciation and amortization expense ("DD&A") for the nine
months ended September 30, 1999 increased 4% from $5,283,394 to $5,475,213, as
compared to the nine months ended September 30, 1998. Included within DD&A for
the nine-month periods ended September 30, 1999 and 1998 was $4,944,974 and
$4,733,974, respectively, representing depletion expense of oil and natural gas
property, which increased by 4%. Increased oil and natural gas production
increased depletion expense by $274,170, offset by a 1% decrease in the overall
depletion rate which decreased depletion expense by $63,170. The decrease in the
depletion rate was primarily attributable to the disposition of proved producing
properties effective July 1, 1999 (see Note 6), offset by abandonments of
certain projects, prospects and wells and dry holes drilled since September 30,
1998. Depletion expense on a unit of production basis for the nine-month periods
ended September 30, 1999 and 1998 was $0.91 per Mcfe and $0.92 per Mcfe,
respectively.
G&A for the nine months ended September 30, 1999 increased 3% from
$2,989,751 to $3,076,371, as compared to the nine months ended September 30,
1998. Total overhead reimbursement fees are recorded as a reduction of G&A and
were approximately $240,000 and $674,000, respectively, for the nine-month
periods ended September 30, 1999 and 1998. G&A on a unit of production basis for
the nine-month periods ended September 30, 1999 and 1998 was $0.57 per Mcfe and
$0.58 per Mcfe, respectively.
Unearned compensation expense for the nine months ended September 30, 1999
decreased from $496,656 to $292,795, as compared to the nine months ended
September 30, 1998. The decrease is primarily due to the resignation of the
former CEO and Chairman of the Board during November of 1998 whereby he vested
in his remaining restricted stock grant. The Company charged to expense his
unamortized unearned compensation upon his resignation.
Interest expense for the nine months ended September 30, 1999 was $86,232
compared to $37,810 for the nine months ended September 30, 1998. The total
amount of interest capitalized to oil and natural gas properties was $461,351
and $433,245 for the nine months ended September 30, 1999 and 1998,
respectively. The increase in interest
15
<PAGE>
expense is due to the increase in the weighted average long-term debt balance
outstanding during the nine months ended September 30, 1999 compared to the nine
month period ended September 30, 1998. Weighted average debt was $9.6 million
for the nine months ended September 30, 1999 compared to $4.7 million for the
nine months ended September 30, 1998.
Interest income for the nine months ended September 30, 1999 was $43,817
compared to $124,383 for the nine months ended September 30, 1998. The decrease
in interest income is due to the overall reduction in invested funds.
Due to the Company incurring a net loss for the nine months ended September
30, 1999 and due to the Company having significant deferred tax assets, no tax
benefit (expense) was recorded. Due to the uncertainty of the Company's ability
to become profitable in the future, an allowance has been provided to offset the
tax benefits of certain tax assets. Should the Company have net income in future
periods income tax expense will be recorded upon the utilization of available
tax assets. Tax expense for the nine months ended September 30, 1998 was
$176,917.
For the nine months ended September 30, 1999, the Company had an operating
loss of $(407,325) compared to operating income of $387,537 for the nine months
ended September 30, 1998, primarily reflecting a decrease in natural gas
revenues resulting from a decrease in the average prices received for natural
gas. The net loss was $(449,740) for the nine months ended September 30, 1999
compared to net income of $2,078,028, $297,193 before cumulative effect of
accounting change, for the nine months ended September 30, 1998.
LIQUIDITY AND CAPITAL RESOURCES
On May 7, 1999, the Company completed a "Private Offering" of 1,400,000
shares of common stock at a price of $5.40 per common share. The Company also
issued warrants, which were purchased for $0.125 per warrant, to acquire an
additional 420,000 shares of common stock at $5.35 per share and are exercisable
through May 6, 2004. At the election of the Company, the warrants may be called
at a redemption price of $0.01 per warrant at any time after any date at which
the average daily per share closing bid price for the immediately proceeding 20
consecutive trading days exceeds $10.70. No warrants have been exercised as of
June 30, 1999. Total proceeds, net of offering costs, were approximately $7.4
million of which $4.9 million was used to repay debt under the Revolving Credit
Facility with the remainder being utilized to satisfy working capital
requirements and to fund a portion of the Company's exploration program.
The Company had cash and cash equivalents at September 30, 1999 of $982,315
consisting primarily of short-term money market investments, as compared to
$272,428 at December 31, 1998. Working capital (deficit) was $(2,970,525) at
September 30, 1999, as compared to $(8,255,362) at December 31, 1998.
Operating cash flow was approximately $5,318,268 and $6,254,160 for the
nine-month periods ended September 30, 1999 and 1998, respectively. Operating
cash flow, a measure of performance for exploration and production companies,
represents cash flows from operating activities prior to changes in assets and
liabilities. Operating cash flow should not be considered in isolation or as a
substitute for net income, operating income, cash flows from operating
activities or any other measure of financial performance presented in accordance
with generally accepted accounting principles or as a measure of profitability
or liquidity.
During the nine months ended September 30, 1999, 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
30, 1999 were approximately $11.3 million as compared to $29.7 million during
the same period in 1998. The Company expended $4.7 million in its drilling
operations resulting in the drilling of 11 gross (3.62 net) wells during the
nine months ended September 30, 1999 as compared to 79 gross (33.23 net) wells
during the same period in 1998. Three wells, spud prior to September 30, 1999,
are currently drilling or in the process of being completed, the Broussard #1
(formerly the Varn #2) located in South Louisiana and the CNG #1 and the Neblett
#1 located in South Texas. Land and data acquisition expenditures were $4.6
million and were largely attributable to the Nodosaria Embayment 3-D Project
Area in South Louisiana. The remaining cost capitalized to oil and natural gas
properties was capitalized internal G&G and interest of approximately $2
million. Total capital expenditures for 1999 are expected to be approximately
$15 million.
16
<PAGE>
On October 25, 1999 the Company logged the Broussard #1 and it was
determined to be a dryhole. The total cost of this well including leasehold was
approximately $2.2 million has been abandoned.
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 1999 capital expenditures, commitments and working capital requirements
through cash flows from operations, available borrowings under its existing
Revolving Credit Facility, and to the extent necessary other financing
activities. To provide additional working capital the Company continues to
market a portion of its interest in various Company generated drill ready
prospects. Additionally, the Company is currently evaluating various financing
and refinancing options as well as divestitures of certain non-core and under
performing assets. The Company believes it will be able to generate capital
resources and liquidity sufficient 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 million 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. 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. The
Revolving Credit Facility is secured by substantially all the assets of the
Company.
Effective September 29, 1998, the Company had its borrowing base
redetermined. The initial borrowing base authorized by the bank was $15 million.
Beginning October 1, 1998, and on the first day of each month thereafter, the
borrowing base was required to be reduced by $550,000.
Effective March 1, 1999, the Company and the Bank amended the Revolving
Credit Facility to include the following terms: 1) the initial borrowing base
was $12 million comprised of a two tranche financing of a $9 million Revolving
Credit Facility and a $3 million term facility; 2) Beginning May 1, 1999, and on
the first day of each month thereafter, the Revolving Credit Facility borrowing
base was required to be reduced by $400,000; and 3) 75% of prospect sales
proceeds were to be used to pay down the term facility with the remaining unpaid
term facility balance maturing on August 31, 1999. On May 8, 1999, from proceeds
generated by the Private Offering (see Note 5), the Company repaid the $3
million term loan in addition to $1.9 million of the Revolving Credit Facility.
Effective July 1, 1999, the Company had its borrowing base redetermined.
The initial borrowing base authorized by the bank is was $8.8 million. Beginning
August 1, 1999, and on the first day of each month thereafter, the borrowing
base was required to be reduced by $400,000. Total borrowing available under
the Revolving Credit Facility was approximately $1.65 million at October 1,
1999. Total outstanding long-term debt (including current portion) as of
September 30, 1999 was $5.45 million.
Effective November 1, 1999, the Company had its borrowing base
redetermined. The initial borrowing base authorized by the bank is $9 million.
Beginning December 1, 1999, and on the first day of each month thereafter, the
borrowing base is required to be reduced by $450,000.
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 certain financial covenants. The Tangible Net
Worth Covenant requires that at the end of each quarter the Company's Tangible
Net Worth be at least 90% of the
17
<PAGE>
Company's actual tangible net worth as reported at December 31, 1998 (or
$33,260,720) plus 50% of positive net income and 100% of other increases in
equity for all fiscal quarters ending subsequent to December 31, 1998. The Fixed
Charge Covenant requires that at the end of each quarter beginning June 30,
1999, the ratio of annualized EBITDA (as defined) to the sum of annualized
interest expense plus 50% of the quarter end loans outstanding must be at least
1.25 to 1.00. Interest will accrue at a rate of LIBOR plus 1.75% - 2.75%
depending on the borrowing base utilization. At September 30, 1999 the Company
was in compliance with the above mentioned covenants.
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 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 (or $0.23 basic and diluted earnings per share)
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.
Year 2000
The Company has completed its assessment of the Year 2000 processing issues
of its internal technology systems, including the 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 has
replaced its existing finance and accounting and production applications with
new software which is year 2000 compliant. The company is in the process of
replacing its land software application with software which is Year 2000
compliant. Final conversion of the land application is expected to be completed
by November 30, 1999. As of September 30, 1999, the Company has incurred
approximately $206,000 converting to its new finance, accounting, production and
land system software with a majority of the remaining cost to replace the land
software to be incurred prior to November 30, 1999. These costs have been funded
from cash flows from operations and the cost of the new software and necessary
hardware upgrades have been capitalized. Future costs to address the Year 2000
issue are also expected to be funded from cash flows from operations, and the
future costs of new software and hardware upgrades are expected to be
capitalized. Based on assertions made by vendors and systems and software
testing performed internally, the Company believes its geological systems and
software are Year 2000 compliant. The Company has not identified any
non-information technology systems that have embedded technology on which it
relies and which it believes is likely to have a Year 2000 problem.
The Company is also in the process of evaluating the risk presented by
potential Year 2000 non-compliance by third parties. Because such risks vary
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 the end of 1999. Although
it is not currently aware of any other reasonably likely business disruptions,
the Company is developing a contingency plan to address and assess the Year 2000
readiness of its material suppliers, customers and other entities and expects
this work to be completed on or before November 30, 1999.
The Company believes that its most likely worst-case Year 2000 scenarios
are as follows: (i) shutdown of a portion of its purchaser pipelines which could
adversely impact the timing of production and associated cash flow; (ii)
unanticipated Year 2000 failures in information systems, which could
significantly reduce efficiencies in the performance of normal business
activities; and (iii) slow-downs or disruptions in third party vendors that
provide supplies and services, which could result in operational delays and
reduce efficiencies in the performance in normal business activities.
Contingency plans contemplated include: (i) the Company transporting its natural
gas through pipelines of other purchasers that are Year 2000 compliant or
shutting in production volumes until adequate
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transportation is arranged. The Company has identified alternative transporters
and marketers of its production in each of its core operating areas; (ii) the
use of manual procedures to process and account for normal daily business
activities; and (iii) the use of alternative hardware and software vendors and
customers as appropriate in the event that a key vendor or customer is burdened
with a Year 2000 compliance related failure. Should any of these Year 2000
failures occur, there can be no assurance at this time that the consequences of
such a failure will not have a material impact on the Company's results of
operations, liquidity or financial condition.
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 these 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 affects the Company's
business, financial condition or results of operations. The Company is not
insured for this type of a loss should a loss occur.
Accounting Pronouncements
Derivatives - In June 1998, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS No. 133"). SFAS No. 133 establishes
accounting and reporting standards for derivative instruments and hedging
activities that require an entity to recognize all derivatives as an asset or
liability measured at fair value. Depending on the intended use of the
derivatives, changes in its fair value will be reported in the period of change
as either a component of earnings or a component of other comprehensive income.
In June 1999, the Financial Accounting Standards Board issued SFAS No. 137,
"Accounting for Derivative Instruments and Hedging Activities - Deferral of the
Effective Date of FASB Statement No. 133" ("SFAS 137"). SFAS 137 delays the
effective date for implementation of SFAS No. 133 for one year making SFAS No.
133 effective for all fiscal quarters of all fiscal years beginning after June
15, 2000. Retroactive application to periods prior to adoption is not allowed.
The Company has not quantified the impact of adoption on its financial
statements or the date it intends to adopt. Earlier application of SFAS No. 133
is encouraged, but not prior to the beginning of any fiscal quarter that begins
after issuance of SFAS No. 137.
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 capabilities,
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,
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.
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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, (v) Edge Mergeco, Inc. and (vi) the Company, dated
as of January 13, 1997 (Incorporated by reference from exhibit
2.1 to the Company's Registration Statement on Form S-4
(Registration No. 333-17269))
+3.1 -- Restated Certificate of Incorporation of the Company, as
amended (Incorporated by reference from exhibit 3.1 to the
Company's Registration Statement on Form S-4 (Registration No.
333-17269)).
3.2 -- First Amendment to Bylaws of the Company on September 28,
1999
3.3 -- Bylaws of the Company
10.1 -- Incentive Plan of Edge Petroleum Corporation as Amended and
Restated Effective as of July 27, 1999.
10.2 -- Edge Petroleum Corporation Incentive Plan "Standard
Non-Qualified Stock Option Agreement" by and between Edge
Petroleum Corporation and the Officers named therein.
10.3 -- Edge Petroleum Corporation Incentive Plan "Director
Non-Qualified Stock Option Agreement" by and between Edge
Petroleum Corporation and the Directors named therein.
10.4 -- Severance Agreements by and between Edge Petroleum Corporation
and the Officers of the Company named therein.
11.1 -- Computation of Earnings Per Share.
27.1 -- Financial Data Schedule.
+ Incorporated by reference as indicated.
(B) Reports on Form 8-K......................................... None
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
EDGE PETROLEUM CORPORATION,
A DELAWARE CORPORATION
(REGISTRANT)
Date 11/15/99 /S/ John W. Elias
- -------------------------- --------------------------------------
John W. Elias
Chief Executive Officer and
Chairman of the Board
Date 11/15/99 /S/ James D. Calaway
- -------------------------- --------------------------------------
James D. Calaway
President and Chief Operations Officer
and Director
Date 11/15/99 /S/ Michael G. Long
- -------------------------- --------------------------------------
Michael G. Long
Senior Vice President and
Chief Financial Officer
Date 11/15/99 /S/ Brian C. Baumler
- -------------------------- --------------------------------------
Brian C. Baumler
Controller and Treasurer
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Exhibit 3.2
FIRST AMENDMENT TO
BYLAWS
OF
EDGE PETROLEUM CORPORATION
The following amendment to the Bylaws was adopted by the Board
of Directors of Edge Petroleum Corporation (the "Corporation") on September 28,
1999:
Section 3.1 of the Bylaws of the Corporation is hereby amended
to add the following paragraph (d) thereto:
(d) No person shall be eligible for nomination for election as
a director of the Corporation if such person is 70 years of age or
older or will become 70 years of age or older on or prior to the date
of the annual meeting of stockholders of the Corporation at which such
person would be considered for election to the Board of Directors. A
director who becomes 70 years of age during the term of his or her
directorship may complete his or her term. Notwithstanding the
foregoing, any director who is also an employee of the Corporation
shall be deemed to resign from the Board of Directors on such
director's 65th birthday and may not thereafter be nominated for
election as a director of the Corporation. The Board of Directors may
waive the provisions of this Section 3.1(d) only by a vote of a
majority of the members of the whole Board of Directors (including the
director who would otherwise be deemed to resign or be ineligible for
nomination as a director) if the Board of Directors in its judgment
determines that such waiver would be in the best interests of the
Corporation.
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Exhibit 3.3
BYLAWS
OF
EDGE PETROLEUM CORPORATION
ARTICLE I
OFFICES
1.1 Registered Office. The registered office of Edge Petroleum Corporation
(the "Corporation") required by the General Corporation Law of the
State of Delaware or any successor statute (the "DGCL"), to be
maintained in the State of Delaware, shall be the registered office
named in the Certificate of Incorporation of the Corporation, as it may
be amended or restated in accordance with the DGCL from time to time
(the "Certificate of Incorporation"), or such other office as may be
designated from time to time by the Board of Directors of the
Corporation (the "Board of Directors") in the manner provided by law.
Should the Corporation maintain a principal office within the State of
Delaware such registered office need not be identical to such principal
office of the Corporation.
1.2 Other Offices. The Corporation may also have offices at such other
places both within and without the State of Delaware as the Board of
Directors may determine from time to time or as the business of the
Corporation may require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
2.1 Place of Meetings. Meetings of stockholders shall be held at such place
within or without the State of Delaware as may be designated by the
Board of Directors or the officer calling the meeting.
2.2 Annual Meeting. An annual meeting of the stockholders, for the election
of directors to succeed those whose terms expire and for the
transaction of such other business as may properly come before the
meeting, shall be held at such place, within or without the State of
Delaware, on such date, and at such time as the Board of Directors
shall fix and set forth in the notice of the meeting, which date shall
be within thirteen months subsequent to the last annual meeting of
stockholders. At the annual meeting of the stockholders, only such
business shall be conducted as shall have been properly brought before
the annual meeting as set forth in Section 2.8 hereof. Failure to hold
the annual meeting at the designated time shall not work a dissolution
of the Corporation.
2.3 Special Meetings. Special meetings of the stockholders may be called at
any time by the Chairman of the Board, the Chief Executive Officer, the
President or the Board of Directors pursuant to a resolution approved
by the affirmative vote of a majority of the entire Board of Directors.
Upon written request of any person or persons who have duly called a
special meeting, it shall be the duty of the Secretary of the
Corporation to fix the date of the meeting to be held not less than ten
nor more than 60 days after the receipt of the request and to give due
notice thereof. If the Secretary shall neglect or refuse to fix the
date of the meeting and give notice thereof, the person or persons
calling the meeting may do so. Every special meeting of the
stockholders shall be held at such place within or without the State of
Delaware as the Board of Directors may designate, or, in the absence of
such designation, at the registered office of the Corporation in the
State of Delaware.
2.4 Notice of Meeting. Written or printed notice of all meetings stating
the place, day and hour of the meeting and, in the case of a special
meeting, the purpose or purposes for which the meeting is called, shall
be delivered not less than ten nor more than 60 days before the date of
the meeting, either personally or by mail, by or at the direction of
the Chairman of the Board, Chief Executive Officer, President or
Secretary of the Corporation, to each stockholder entitled to vote at
such meeting. If mailed, such notice shall be deemed to be delivered to
a stockholder when deposited in the United States mail addressed to
such
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stockholder at such stockholder's address as it appears on the stock
transfer records of the Corporation, with postage thereon prepaid.
2.5 Registered Holders of Shares; Closing of Share Transfer Records; and
Record Date.
(a) Registered Holders as Owners. Unless otherwise provided
under Delaware law, the Corporation may regard the person in
whose name any shares issued by the Corporation are
registered in the stock transfer records of the Corporation
at any particular time (including, without limitation, as of
a record date fixed pursuant to paragraph (b) of this
Section 2.5) as the owner of those shares at that time for
purposes of voting those shares, receiving distributions
thereon or notices in respect thereof, transferring those
shares, exercising rights of dissent with respect to those
shares, entering into agreements with respect to those
shares, or giving proxies with respect to those shares; and
neither the Corporation nor any of its officers, directors,
employees or agents shall be liable for regarding that
person as the owner of those shares at that time for those
purposes, regardless of whether that person possesses a
certificate for those shares.
(b) Record Date. For the purpose of determining stockholders
entitled to notice of or to vote at any meeting of
stockholders or any adjournment thereof, or entitled to
receive a distribution by the Corporation (other than a
distribution involving a purchase or redemption by the
Corporation of any of its own shares) or a share dividend,
or in order to make a determination of stockholders for any
other proper purpose, the Board of Directors may fix in
advance a date as the record date for any such determination
of stockholders, such date in any case to be not more than
60 days and, in the case of a meeting of stockholders, not
less than ten days, prior to the date on which the
particular action requiring such determination of
stockholders is to be taken. The Board of Directors shall
not close the books of the Corporation against transfers of
shares during the whole or any part of such period.
If the Board of Directors does not fix a record date for any meeting of
the stockholders, the record date for determining stockholders entitled
to notice of or to vote at such meeting shall be at the close of
business on the day next preceding the day on which notice is given,
or, if in accordance with Section 7.3 of these Bylaws notice is waived,
at the close of business on the day next preceding the day on which the
meeting is held.
2.6 Quorum of Stockholders; Adjournment. Unless otherwise provided in the
Certificate of Incorporation, a majority of the outstanding shares of
capital stock of the Corporation entitled to vote, present in person or
represented by proxy, shall constitute a quorum at any meeting of the
stockholders, and the stockholders present at any duly convened meeting
may continue to do business until adjournment notwithstanding any
withdrawal from the meeting of holders of shares counted in determining
the existence of a quorum. Unless otherwise provided in the Certificate
of Incorporation or these Bylaws, any meeting of the stockholders may
be adjourned from time to time by the chairman of the meeting or the
holders of a majority of the issued and outstanding stock, present in
person or represented by proxy, whether or not a quorum is present,
without notice other than by announcement at the meeting at which such
adjournment is taken, and at any such adjourned meeting at which a
quorum shall be present any action may be taken that could have been
taken at the meeting originally called; provided that if the
adjournment is for more than 30 days, or if after the adjournment a new
record date is fixed for the adjourned meeting, a notice of the
adjourned meeting shall be given to each stockholder of record entitled
to vote at the adjourned meeting.
2.7 Voting by Stockholders.
(a) Voting on Matters Other than the Election of Directors. With
respect to any matters as to which no other voting requirement
is specified by the DGCL, the Certificate of Incorporation or
these Bylaws, the affirmative vote required for stockholder
action shall be that of a majority of the shares present in
person or represented by proxy at the meeting (as counted for
purposes of determining the existence of a quorum at the
meeting). In the case of a matter submitted for a vote of the
stockholders as to which a stockholder approval requirement is
applicable under the stockholder approval policy of any stock
exchange or quotation system on which the capital stock
2
<PAGE>
of the Corporation is traded or quoted, the requirements of
Rule 16b-3 under the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), or any provision of the Internal
Revenue Code, in each case for which no higher voting
requirement is specified by the DGCL, the Certificate of
Incorporation or these Bylaws, the vote required for approval
shall be the requisite vote specified in such stockholder
approval policy, Rule 16b-3 or Internal Revenue Code
provision, as the case may be (or the highest such requirement
if more than one is applicable). For the approval of the
appointment of independent public accountants (if submitted
for a vote of the stockholders), the vote required for
approval shall be a majority of the votes cast on the matter.
(b) Voting in the Election of Directors. Unless otherwise provided
in the Certificate of Incorporation or these Bylaws in
accordance with the DGCL, directors shall be elected by a
plurality of the votes cast by the holders of outstanding
shares of capital stock of the Corporation entitled to vote in
the election of directors at a meeting of stockholders at
which a quorum is present.
2.8 Business to be Conducted.
(a) At an annual meeting of stockholders, only such business shall
be conducted, and only such proposals shall be acted upon, as
shall have been brought before the annual meeting (i) by or at
the direction of the Board of Directors or (ii) by any
stockholder of the Corporation who is a stockholder of record
at the time of the giving of such stockholder's notice
provided for in this Section 2.8, who shall be entitled to
vote at such meeting and who complies with the requirements of
this Section 2.8 and as shall otherwise be proper subjects for
stockholder action and shall be properly introduced at the
meeting. For a proposal to be properly brought before an
annual meeting by a stockholder, in addition to any other
applicable requirements, the stockholder must have given
timely advance notice thereof in writing to the Secretary of
the Corporation. To be timely, a stockholder's notice must be
delivered to, or mailed and received at, the principal
executive offices of the Corporation not later than the close
of business on the 45th day prior to the first anniversary of
the preceding year's annual meeting; provided, however, that
in the event that the date of the annual meeting is more than
30 days before or more than 60 days after such anniversary
date, notice by the stockholder to be timely must be so
delivered not later than the close of business on the later of
the 45th day prior to such annual meeting or the 10th day
following the day on which public announcement of the date of
such meeting is first made by the Corporation. Any such
stockholder's notice to the Secretary of the Corporation shall
set forth as to each matter the stockholder proposes to bring
before the annual meeting (i) a description of the proposal
desired to be brought before the annual meeting and the
reasons for conducting such business at the annual meeting,
(ii) the name and address, as they appear on the Corporation's
books, of the stockholder proposing such business and any
other stockholders known by such stockholder to be supporting
such proposal, (iii) the class and number of shares of the
Corporation's stock that are beneficially owned by the
stockholder on the date of such notice, (iv) any financial
interest of the stockholder in such proposal and (v) a
representation that the stockholder intends to appear in
person or by proxy at the meeting to bring the proposed
business before the annual meeting. The presiding officer of
the annual meeting shall determine whether the requirements of
this paragraph (a) have been met with respect to any
stockholder proposal. If the presiding officer determines that
a stockholder proposal was not made in accordance with the
terms of this paragraph (a), he shall so declare at the
meeting and any such proposal shall not be acted upon at the
meeting. At a special meeting of stockholders, only such
business shall be acted upon as shall have been set forth in
the notice relating to the meeting required by Section 2.4
hereof or as shall constitute matters incident to the conduct
of the meeting as the presiding officer of the meeting shall
determine to be appropriate.
(b) Notwithstanding the foregoing provisions of this Section 2.8,
a stockholder shall also comply with all applicable
requirements of the Exchange Act and the rules and regulations
thereunder with respect to the matters set forth in this
Section 2.8.
2.9 Proxies. Each stockholder entitled to vote at a meeting of stockholders
may authorize another person or persons to act for him by proxy.
Proxies for use at any meeting of stockholders shall be filed with the
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<PAGE>
Secretary, or such other officer as the Board of Directors may from
time to time determine by resolution, before or at the time of the
meeting. All proxies shall be received and taken charge of and all
ballots shall be received and canvassed by the secretary of the meeting
who shall decide all questions relating to the qualification of voters,
the validity of the proxies, and the acceptance or rejection of votes,
unless an inspector or inspectors shall have been appointed by the
chairman of the meeting, in which event such inspector or inspectors
shall decide all such questions.
2.10 Approval or Ratification of Acts or Contracts by Stockholders. The
Board of Directors in its discretion may submit any act or contract for
approval or ratification at any annual meeting of the stockholders, or
at any special meeting of the stockholders called for the purpose of
considering any such act or contract, and any act or contract that
shall be approved or be ratified by the vote of the stockholders
holding a majority of the issued and outstanding shares of stock of the
Corporation entitled to vote and present in person or by proxy at such
meeting (provided that a quorum is present), shall be as valid and as
binding upon the Corporation and upon all the stockholders as if it has
been approved or ratified by every stockholder of the Corporation.
ARTICLE III
DIRECTORS
3.1 Number, Classification and Tenure and Composition.
(a) The powers of the Corporation shall be exercised by or under
the authority of, and the business and affairs of the
Corporation shall be managed under the direction of, the Board
of Directors. The Board of Directors shall be divided into
three classes as provided in the Certificate of Incorporation.
Each director shall hold office for the full term for which
such director is elected and until such director's successor
shall have been duly elected and qualified or until his
earlier death or resignation or removal in accordance with the
Certificate of Incorporation or these Bylaws.
(b) Within the limits specified in the Certificate of
Incorporation, the number of directors that shall constitute
the whole Board of Directors shall be fixed by, and may be
increased or decreased from time to time by, the affirmative
vote of a majority of the members at any time constituting the
Board of Directors. Except as provided in the Certificate of
Incorporation, newly created directorships resulting from any
increase in the number of directors and any vacancies on the
Board of Directors resulting from death, resignation,
disqualification, removal or other cause shall be filled by
the affirmative vote of a majority of the remaining directors
then in office, even though less than a quorum of the Board of
Directors. Any director elected in accordance with the
preceding sentence shall hold office for the remainder of the
full term of the class of directors in which the new
directorship was created or the vacancy occurred and until
such director's successor shall have been elected and
qualified or until his earlier death, resignation or removal.
No decrease in the number of directors constituting the Board
of Directors shall shorten the term of any incumbent director.
(c) At least a majority of the members of the Board of Directors
shall be persons who are not employees of the Corporation or a
subsidiary thereof (each a "Nonemployee Director"). If for any
reason such a majority ceases to exist, then, in order to
achieve such a majority, the Board of Directors shall appoint
Nonemployee Directors to fill such number of then existing
vacancies on the Board of Directors as is necessary to achieve
such a majority, and if such majority continues not to exist
after all then existing vacancies on the Board of Directors
have been filled and subject to the limits specified in the
Certificate of Incorporation and this Section 3.1, the Board
of Directors shall increase the number of directors and
appoint Nonemployee Directors to fill such number of newly
created positions as is necessary to achieve such majority.
3.2 Qualifications. Directors need not be residents of the State of
Delaware or stockholders of the Corporation.
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3.3 Nomination of Directors. Subject to such rights of the holders of one
or more outstanding series of Preferred Stock of the Corporation to
elect one or more directors in case of arrearages in the payment of
dividends or other defaults as shall be prescribed in the Certificate
of Incorporation or in the resolutions of the Board of Directors
providing for the establishment of any such series, only persons who
are nominated in accordance with the procedures set forth in this
Section 3.3 shall be eligible for election as, and to serve as,
directors. Nominations of persons for election to the Board of
Directors may be made at a meeting of the stockholders at which
Directors are to be elected (i) by or at the direction of the Board of
Directors or (ii) by any stockholder of the Corporation who is a
stockholder of record at the time of the giving of such stockholder's
notice provided for in this Section 3.3, who shall be entitled to vote
at such meeting in the election of directors and who complies with the
requirements of this Section 3.3. Such nominations, other than those
made by or at the direction of the Board of Directors, shall be
preceded by timely advance notice in writing to the Secretary of the
Corporation. To be timely, a stockholder's notice shall be delivered
to, or mailed and received at, the principal executive offices of the
Corporation (i) with respect to an election to be held at the annual
meeting of the stockholders of the Corporation, not later than the
close of business on the 45th day prior to the first anniversary of the
preceding year's annual meeting; provided, however, that in the event
that the date of the annual meeting is more than 30 days before or more
than 60 days after such anniversary date, notice by the stockholder to
be timely must be so delivered not later than the close of business on
the later of the 45th day prior to such annual meeting or the 10th day
following the day on which public announcement of the date of such
meeting is first made by the Corporation; and (ii) with respect to an
election to be held at a special meeting of stockholders of the
Corporation for the election of directors not later than the close of
business on the tenth day following the day on which notice of the date
of the special meeting was mailed to stockholders of the Corporation as
provided in Section 2.4 hereof or public disclosure of the date of the
special meeting was made, whichever first occurs. Any such
stockholder's notice to the Secretary of the Corporation shall set
forth (x) as to each person whom the stockholder proposes to nominate
for election or re-election as a director, (i) the name, age, business
address and residence address of such person, (ii) the principal
occupation or employment of such person, (iii) the number of shares of
each class of capital stock of the Corporation beneficially owned by
such person, (iv) the written consent of such person to having such
person's name placed in nomination at the meeting and to serve as a
director if elected and (v) any other information relating to such
person that is required to be disclosed in solicitations of proxies for
election of directors, or is otherwise required, pursuant to Regulation
14A under the Exchange Act, and (y) as to the stockholder giving the
notice, (i) the name and address, as they appear on the Corporation's
books, of such stockholder and (ii) the number of shares of each class
of voting stock of the Corporation that are then beneficially owned by
such stockholder. The presiding officer of the meeting of stockholders
shall determine whether the requirements of this Section 3.3 have been
met with respect to any nomination or intended nomination. If the
presiding officer determines that any nomination was not made in
accordance with the requirements of this Section 3.3, he shall so
declare at the meeting and the defective nomination shall be
disregarded. Notwithstanding the foregoing provisions of this Section
3.3, a stockholder shall also comply with all applicable requirements
of the Exchange Act and the rules and regulations thereunder with
respect to the matters set forth in this Section 3.3.
3.4 Place of Meeting; Order of Business. Except as otherwise provided by
law, meetings of the Board of Directors, regular or special, may be
held either within or without the State of Delaware, at whatever place
is specified by the person or persons calling the meeting. In the
absence of specific designation, the meetings shall be held at the
principal office of the Corporation. At all meetings of the Board of
Directors, business shall be transacted in such order as shall from
time to time be determined by the Chairman of the Board (if any), or in
his absence by the Chief Executive Officer, or in his absence by the
President, or by resolution of the Board of Directors.
3.5 Regular Meetings. At least one regular meeting of the Board of
Directors shall be held during each quarter of the Corporation's fiscal
year. Regular meetings of the Board of Directors shall be held at such
place or places within or without the State of Delaware, at such hour
and on such day as may be fixed by resolution of the Board of
Directors, without further notice of such meetings. The time or place
of holding regular meetings of the Board of Directors may be changed by
the Chairman of the Board, the Chief Executive Officer or the President
by giving written notice thereof as provided in Section 3.7 hereof.
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3.6 Special Meetings. Special meetings of the Board of Directors shall be
held, whenever called by the Chairman of the Board, the Chief Executive
Officer, the President or by a written notice signed by a majority of
the members of the Board of Directors, at such place or places within
or without the State of Delaware as may be stated in the notice of the
meeting.
3.7 Attendance at and Notice of Meetings. Written notice of the time and
place of, and general nature of the business to be transacted at, all
special meetings of the Board of Directors, and written notice of any
change in the time or place of holding the regular meetings of the
Board of Directors, shall be given to each director and may be given by
any of the following methods: (a) by mail or telegram sent to the last
known business address of such director at least four days before the
meeting, (b) by facsimile to the business facsimile number of such
director transmitted at least one day before the meeting or (c) orally
at least one day before the meeting. For purposes of the foregoing
sentence, notice shall be deemed given (i) by mail, when deposited in
the U.S. mail, postage prepaid, or by telegram, when the telegram is
delivered to the telegraph company for transmittal, (ii) by facsimile,
when transmittal is confirmed by the sending facsimile machine and
(iii) orally, when communicated in person or by telephone to the
director or to a person at the business telephone number of the
director who may reasonably be expected to communicate it to the
director. In calculating the number of days notice received by a
director, the date the notice is given by any of the foregoing methods
shall be counted, but the date of the meeting to which the notice
relates shall not be counted. Notice of the time, place and purpose of
a meeting may be waived in writing before or after such meeting, and
shall be equivalent to the giving of notice. Participation in a meeting
of the Board of Directors shall constitute presence in person at such
meeting, except when a person participates in the meeting for the
express purpose of objecting to the transaction of any business on the
ground that the meeting is not lawfully called or convened. Except as
otherwise herein provided, neither the business to be transacted at,
not the purpose of, any regular or special meeting of the Board of
Directors need be specified in the notice or waiver of notice of such
meeting.
3.8 Quorum of and Action by Directors. A majority of the directors in
office shall constitute a quorum of the Board of Directors for the
transaction of business; but a lesser number may adjourn from day to
day until a quorum is present. Except as otherwise provided by law or
in these Bylaws, all questions shall be decided by the vote of a
majority of the directors present.
3.9 Board and Committee Action Without a Meeting. Unless otherwise
restricted by the Certificate of Incorporation or these Bylaws, any
action required or permitted to be taken at a meeting of the Board of
Directors or any committee thereof may be taken without a meeting if a
consent in writing, setting forth the action so taken, is signed by all
the members of the Board of Directors or such committee, as the case
may be, and shall be filed with the Secretary of the Corporation.
3.10 Board and Committee Telephone Meetings. Subject to the provisions
required or permitted by the DGCL for notice of meetings, unless
otherwise restricted by the Certificate of Incorporation or these
Bylaws, members of the Board of Directors, or members of any committee
designated by the Board of Directors, may participate in and hold a
meeting of such Board of Directors or committee by means of conference
telephone or similar communications equipment by means of which all
persons participating in the meeting can hear each other, and
participation in a meeting pursuant to this Section 3.10 shall
constitute presence in person at such meeting, except when a person
participates in the meeting for the express purpose of objecting to the
transaction of any business on the ground that the meeting is not
lawfully called or convened.
3.11 Compensation. Directors shall receive such compensation for their
services as shall be determined by the Board of Directors.
3.12 Removal. No director of the Corporation shall be removed from office as
a director by vote or other action of the stockholders or otherwise
except for cause, and then only by the affirmative vote of the holders
of at least a majority of the voting power of all outstanding shares of
capital stock of the Corporation generally entitled to vote in the
election of directors, voting together as a single class. Cause for
removal of a director shall be as provided by law or in the Certificate
of Incorporation. Any proposal by a stockholder to remove
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a director of the Corporation, in order to be validly acted upon at any
meeting, shall comply with paragraph (a) of Section 2.8 hereof.
Notwithstanding the first paragraph of this Section 3.12,
whenever holders of outstanding shares of one or more series of
Preferred Stock are entitled to elect members of the Board of Directors
pursuant to the provisions applicable in the case of arrearages in the
payment of dividends or other defaults contained in the resolution or
resolutions of the Board of Directors providing for the establishment
of any such series, any such director of the Corporation so elected may
be removed in accordance with the provision of such resolution or
resolutions.
3.13 Committees of the Board of Directors.
(a) The Board of Directors shall appoint and maintain a
Compensation Committee of the Board of Directors, with such
powers and limitations of authority as may be determined from
time to time by resolution adopted by the Board of Directors,
whose members shall consist only of Nonemployee Directors. The
Board of Directors shall appoint and maintain an Audit
Committee of the Board of Directors, with such powers and
limitations of authority as may be determined from time to
time by resolution adopted by the Board of Directors, at least
a majority of whose members shall be Nonemployee Directors.
The Board of Directors shall appoint and maintain a Nominating
Committee of the Board of Directors, at least a majority of
whose members shall be Nonemployee Directors. The Nominating
Committee shall make nonbinding recommendations to the Board
of Directors concerning the nominees to be included in the
slate of candidates for election to the Board of Directors
with respect to which proxies are to be solicited from
stockholders by and on behalf of the Board of Directors, and
with such other powers and limitations of authority as may be
determined from time to time by resolution adopted by the
Board of Directors.
(b) The Board of Directors, by resolution adopted by the Board of
Directors, may designate from among its members one or more
additional committees, each of which shall be comprised of one
or more of its members, and may designate one or more of its
members as alternate members of any committee, who may,
subject to any limitations by the Board of Directors, replace
absent or disqualified members at any meeting of that
committee.
(c) To the extent provided in these Bylaws, by resolution adopted
by the Board of Directors or in the Certificate of
Incorporation, any committee designated pursuant to (a) or (b)
above shall have and may exercise all of the authority of the
Board of Directors to the extent permitted by the DGCL,
including, without limitation, the power and authority to
declare a dividend, to authorize the issuance of stock or to
adopt a certificate of ownership and merger pursuant to
Section 253 of the DGCL. Any such committee may authorize the
seal of the Corporation to be affixed to all papers that may
require it. In addition to the above, such committee or
committees shall have such other powers and limitations of
authority as may be determined from time to time by resolution
adopted by the Board of Directors.
(d) The Board of Directors shall have the power at any time to
change the membership of any such committee and to fill
vacancies in it. A majority of the number of members of any
such committee shall constitute a quorum for the transaction
of business unless a greater number is required by a
resolution adopted by the Board of Directors. The act of the
majority of the members of a committee present at any meeting
at which a quorum is present shall be the act of such
committee, unless the act of a greater number is required by a
resolution adopted by the Board of Directors. Each such
committee may elect a chairman and appoint such subcommittees
and assistants as it may deem necessary. Except as otherwise
provided by the Board of Directors, meetings of any committee
shall be conducted in accordance with Sections 3.5, 3.6, 3.7,
3.8, 3.9, 3.10 and 7.3 hereof. Any member of any such
committee elected or appointed by the Board of Directors may
be removed by the Board of Directors whenever in its judgment
the best interests of the Corporation will be served thereby,
but such removal shall be without prejudice to the contract
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rights, if any, of the person so removed. Election or
appointment of a member of a committee shall not of itself
create contract rights.
(e) Any action taken by any committee of the Board of Directors
shall promptly be recorded in the minutes and filed with the
Secretary of the Corporation.
ARTICLE IV
OFFICERS
4.1 Designation. The officers of the Corporation shall consist of a
Chairman of the Board, Chief Executive Officer, President, Secretary,
Treasurer and such Executive, Senior or other Vice Presidents,
Assistant Secretaries and other officers as may be elected or appointed
by the Board of Directors. Any number of offices may be held by the
same person.
.2 Powers and Duties. The officers of the Corporation shall have such
powers and duties as generally pertain to their offices, except as
modified herein or by the Board of Directors, as well as such powers
and duties as from time to time may be conferred by the Board of
Directors. The Chairman of the Board shall have such duties as may be
assigned to him by the Board of Directors and shall preside at meetings
of the Board of Directors and at meetings of the stockholders. The
Chief Executive Officer of the Corporation shall have general
supervision over the business, affairs and property of the Corporation.
The President shall be the next ranking officer of the Corporation and
shall act under the direction of the Board of Directors and the Chief
Executive Officer.
4.3 Vacancies. Whenever any vacancies shall occur in any office by death,
resignation, increase in the number of offices of the Corporation, or
otherwise, the same shall be filled by the Board of Directors, and the
officer so elected shall hold office until such officer's successor is
elected or appointed or until his earlier death, resignation or
removal.
4.4 Removal. Any officer or agent elected or appointed by the Board of
Directors may be removed by the Board of Directors whenever in its
judgment the best interests of the Corporation will be served thereby,
but such removal shall be without prejudice to the contract rights, if
any, of the person so removed. Election or appointment of an officer or
agent shall not of itself create contract rights.
4.5 Action with Respect to Securities of Other Corporations. Unless
otherwise directed by the Board of Directors, the Chairman of the
Board, the Chief Executive Officer, the President, any Vice President
and the Treasurer of the Corporation shall each have power to vote and
otherwise act on behalf of the Corporation, in person or by proxy, at
any meeting of security holders of or with respect to any action of
security holders of any other corporation in which this Corporation may
hold securities and otherwise to exercise any and all rights and powers
that this Corporation may possess by reason of its ownership of
securities in such other corporation.
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ARTICLE V
CAPITAL STOCK
5.1 Certificates for Shares. The certificates for shares of the capital
stock of the Corporation shall be in such form as may be approved by
the Board of Directors or any duly authorized committee thereof or may
be uncertificated shares. In the case of certificated shares, the
Corporation shall deliver certificates representing shares to which
stockholders are entitled. Certificates representing such certificated
shares shall be signed by the Chairman of the Board, the Chief
Executive Officer, the President or a Vice President and either the
Secretary or an Assistant Secretary of the Corporation, and may bear
the seal of the Corporation or a facsimile thereof. The signatures of
such officers upon a certificate may be facsimiles. The stock record
books and the blank stock certificate books shall be kept by the
Secretary of the Corporation, or at the office of such transfer agent
or transfer agents as the Board of Directors may from time to time by
resolution determine. In case any officer who has signed or whose
facsimile signature has been placed upon such certificate shall have
ceased to be such officer before such certificate is issued, it may be
issued by the Corporation with the same effect as if such person were
such officer at the date of its issuance.
5.2 Transfer of Shares. The shares of stock of the Corporation shall be
transferable only on the books of the Corporation by the holders
thereof in person or by their duly authorized attorneys or legal
representatives upon surrender and cancellation of certificates for a
like number of shares.
5.3 Ownership of Shares. The Corporation shall be entitled to treat the
holder of record of any share or shares of capital stock of the
Corporation as the holder in fact thereof and, accordingly, shall not
be bound to recognize any equitable or other claim to or interest in
such share or shares on the part of any other person, whether or not it
shall have express or other notice thereof, except as otherwise
provided by the laws of the State of Delaware.
5.4 Regulations Regarding Certificates. The Board of Directors shall have
the power and authority to make all such rules and regulations as they
may deem expedient concerning the issue, transfer and registration or
the replacement of certificates for shares of capital stock of the
Corporation.
5.5 Lost or Destroyed Certificates. The Board of Directors may determine
the conditions upon which a new certificate of stock may be issued in
place of a certificate that is alleged to have been lost, stolen or
destroyed; and may, in its discretion, require the owner of such
certificate or his legal representative to give bond, with sufficient
surety, to indemnify the Corporation and each transfer agent and
registrar against any and all losses or claims that may arise by reason
of the issue of a new certificate in the place of the one so lost,
stolen or destroyed.
5.6 Restrictions on Transfer of Combination Common Stock.
a) Reference is made to (i) the Combination Agreement (the "Combination
Agreement"), dated as of December 3, 1996, by and among Edge Group II
Limited Partnership, a Connecticut limited partnership, Gulfedge
Limited Partnership, a Texas limited partnership, Edge Group
Partnership, a Connecticut general partnership, Edge Petroleum
Corporation, a Texas corporation, Edge Mergeco, Inc., a Texas
corporation and the Corporation, as it may from time to time be amended
and (ii) the Purchase and Sale Agreement (the "Purchase Agreement"),
dated as of December 2, 1996 between Mr. James C. Calaway and the
Corporation, as it may from time to time be amended. A stockholder that
receives shares of the Corporation's common stock pursuant to either of
(a) the Combination Agreement and the Combination Agreement
Transactions (as defined in the Combination Agreement) or (b) the
Purchase Agreement is referred to herein as a "Combination Stockholder"
and such shares of common stock are referred to herein as "Combination
Common Stock."
(b) No Combination Stockholder may offer, sell, contract to sell, grant any
option to purchase or otherwise dispose of any Combination Common Stock
or any securities convertible into or exercisable or exchangeable for
such Combination Common Stock for a period of 180 days after the date
of the final
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prospectus for the Corporation's IPO (as defined in Section 6.16)
without the prior written consent of the Corporation.
(c) No Combination Stockholder may offer, sell, contract to sell, grant any
option to purchase or otherwise dispose of any Combination Common Stock
or any securities convertible into or exercisable or exchangeable for
such Combination Common Stock for a period of 180 days after the date
of the final prospectus for the Corporation's IPO without the prior
written consent of the lead managing underwriter for the Corporation's
IPO.
(d) Anything to the contrary contained herein notwithstanding, the
following transactions shall be exempt from the provisions of this
Section 5.6:
(1) A Combination Stockholder's transfer of any or all shares of
Combination Common Stock held either during such stockholder's
lifetime or on death by will or intestacy to such
stockholder's immediate family or to any custodian or trustee
for the account of such stockholder or such stockholder's
immediate family. "Immediate family" as used herein shall
means spouse, lineal descendant, father, mother, brother or
sister of the stockholder making such transfer.
(2) A Combination Stockholder's bona fide pledge or mortgage of
any shares of Combination Common Stock with a commercial
lending institution, provided that any subsequent transfer of
said shares by said institution shall be conducted in the
manner set forth in this Section 5.6.
(3) A transfer by a Combination Stockholder which is a corporation
of any or all of its shares of Combination Common Stock to any
or all of its stockholders.
(4) A transfer by a Combination Stockholder which is a limited or
general partnership of any or all of its shares of Combination
Common Stock to any or all of its partners or former partners.
In any such case, the transferee, assignee or other recipient shall
receive and hold such stock subject to the provisions of this Section
5.6, and there shall be no further transfer of such stock except in
accord with this Section 5.6.
(e) The provisions of this Section 5.6 (other than 5.6(c)) may be waived
with respect to any transfer either by the Corporation, by its Board of
Directors or by action of the Chairman of the Board or the President
and the provisions of Section 5.6(c) may be waived by any duly
authorized representative of the lead managing underwriter for the
Corporation's IPO.
(f) Any sale or transfer, or purported sale or transfer, of Combination
Common Stock shall be null and void unless the terms, conditions and
provisions of this Section 5.6 are strictly observed and followed.
(g) The certificates representing Combination Common Stock shall bear on
their face the following legend so long as the restrictions on transfer
set forth in Sections 5.6(b) and (c) remain in effect:
"The shares represented by this certificate are subject to a
restriction on transfer by the holder thereof and/or its
assignee(s), as provided in the bylaws of the Corporation."
(h) If any provision or provisions of this Section 5.6 shall be held to be
invalid, illegal or unenforceable for any reason whatsoever, the
validity, legality and enforceability of the remaining provisions shall
not in any way be affected or impaired thereby; and, to the fullest
extent possible, the provisions of this Section 5.6 shall be construed
so as to give effect to the intent manifested by the provision held
invalid, illegal or unenforceable.
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ARTICLE VI
INDEMNIFICATION
6.1 General. The Corporation shall, to the fullest extent permitted by
applicable law in effect on the date of effectiveness of these Bylaws, and to
such greater extent as applicable law may thereafter permit, indemnify and hold
Indemnitee harmless from and against any and all losses, liabilities, claims,
damages and, subject to Section 6.2, Expenses (as this and all other capitalized
words used in this Article VI not previously defined in these Bylaws are defined
in Section 6.16 hereof), whatsoever arising out of any event or occurrence
related to the fact that Indemnitee is or was a director or officer of the
Corporation or is or was serving in another Corporate Status.
6.2 Expenses. If Indemnitee is, by reason of his Corporate Status, a party
to and is successful, on the merits or otherwise, in any Proceeding, he
shall be indemnified against all Expenses actually and reasonably
incurred by him or on his behalf in connection therewith. If Indemnitee
is not wholly successful in such Proceeding but is successful, on the
merits or otherwise, as to any Matter in such Proceeding, the
Corporation shall indemnify Indemnitee against all Expenses actually
and reasonably incurred by him or on his behalf relating to such
Matter. The termination of any Matter in such a Proceeding by
dismissal, with or without prejudice, shall be deemed to be a
successful result as to such Matter. To the extent that the Indemnitee
is, by reason of his Corporate Status, a witness in any Proceeding, he
shall be indemnified against all Expenses actually and reasonably
incurred by him or on his behalf in connection therewith.
6.3 Advances. In the event of any threatened or pending action, suit or
proceeding in which Indemnitee is a party or is involved and that may
give rise to a right of indemnification under this Article VI,
following written request to the Corporation by Indemnitee, the
Corporation shall promptly pay to Indemnitee amounts to cover expenses
reasonably incurred by Indemnitee in such proceeding in advance of its
final disposition upon the receipt by the Corporation of (i) a written
undertaking executed by or on behalf of Indemnitee providing that
Indemnitee will repay the advance if it shall ultimately be determined
that Indemnitee is not entitled to be indemnified by the Corporation as
provided in this Agreement and (ii) satisfactory evidence as to the
amount of such expenses.
6.4 Repayment of Advances or Other Expenses. Indemnitee agrees that
Indemnitee shall reimburse the Corporation for all expenses paid by the
Corporation in defending any civil, criminal, administrative or
investigative action, suit or proceeding against Indemnitee in the
event and only to the extent that it shall be determined pursuant to
the provisions of this Article VI or by final judgment or other final
adjudication under the provisions of any applicable law that Indemnitee
is not entitled to be indemnified by the Company for such expenses.
6.5 Request for Indemnification. To obtain indemnification, Indemnitee
shall submit to the Secretary of the Corporation a written claim or
request. Such written claim or request shall contain sufficient
information to reasonably inform the Corporation about the nature and
extent of the indemnification or advance sought by Indemnitee. The
Secretary of the Corporation shall promptly advise the Board of
Directors of such request.
6.6 Determination of Entitlement; No Change of Control. If there has been
no Change of Control at the time the request for indemnification is
submitted, Indemnitee's entitlement to indemnification shall be
determined in accordance with Section 145(d) of the DGCL. If
entitlement to indemnification is to be determined by Independent
Counsel, the Corporation shall furnish notice to Indemnitee within 10
days after receipt of the request for indemnification, specifying the
identity and address of Independent Counsel. The Indemnitee may, within
14 days after receipt of such written notice of selection, deliver to
the Corporation a written objection to such selection. Such objection
may be asserted only on the ground that the Independent Counsel so
selected does not meet the requirements of Independent Counsel and the
objection shall set forth with particularity the factual basis for such
assertion. If there is an objection to the selection of Independent
Counsel, either the Corporation or Indemnitee may petition the Court
for a determination that the objection is without a reasonable basis
and/or for the appointment of Independent Counsel selected by the
Court.
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6.7 Determination of Entitlement; Change of Control. If there has been a
Change of Control at the time the request for indemnification is
submitted, Indemnitee's entitlement to indemnification shall be
determined in a written opinion by Independent Counsel selected by
Indemnitee. Indemnitee shall give the Corporation written notice
advising of the identity and address of the Independent Counsel so
selected. The Corporation may, within seven days after receipt of such
written notice of selection, deliver to the Indemnitee a written
objection to such selection. Indemnitee may, within five days after the
receipt of such objection from the Corporation, submit the name of
another Independent Counsel and the Corporation may, within seven days
after receipt of such written notice of selection, deliver to the
Indemnitee a written objection to such selection. Any objections
referred to in this Section 6.7 may be asserted only on the ground that
the Independent Counsel so selected does not meet the requirements of
Independent Counsel and such objection shall set forth with
particularity the factual basis for such assertion. Indemnitee may
petition the Court for a determination that the Corporation's objection
to the first and/or second selection of Independent Counsel is without
a reasonable basis and/or for the appointment as Independent Counsel of
a person selected by the Court.
6.8 Procedures of Independent Counsel. If a Change of Control shall have
occurred before the request for indemnification is sent by Indemnitee,
Indemnitee shall be presumed (except as otherwise expressly provided in
this Article VI) to be entitled to indemnification upon submission of a
request for indemnification in accordance with Section 6.5 hereof, and
thereafter the Corporation shall have the burden of proof to overcome
the presumption in reaching a determination contrary to the
presumption. The presumption shall be used by Independent Counsel as a
basis for a determination of entitlement to indemnification unless the
Corporation provides information sufficient to overcome such
presumption by clear and convincing evidence or the investigation,
review and analysis of Independent Counsel convinces him by clear and
convincing evidence that the presumption should not apply.
Except in the event that the determination of entitlement to
indemnification is to be made by Independent Counsel, if the person or
persons empowered under Section 6.6 or 6.7 hereof to determine
entitlement to indemnification shall not have made and furnished to
Indemnitee in writing a determination within 60 days after receipt by
the Corporation of the request therefor, the requisite determination of
entitlement to indemnification shall be deemed to have been made and
Indemnitee shall be entitled to such indemnification unless Indemnitee
knowingly misrepresented a material fact in connection with the request
for indemnification or such indemnification is prohibited by applicable
law. The termination of any Proceeding or of any Matter therein, by
judgment, order, settlement or conviction, or upon a plea of nolo
contendere or its equivalent, shall not (except as otherwise expressly
provided in this Article VI) of itself adversely affect the right of
Indemnitee to indemnification or create a presumption that Indemnitee
did not act in good faith and in a manner that he reasonably believed
to be in or not opposed to the best interests of the Corporation, or
with respect to any criminal Proceeding, that Indemnitee had reasonable
cause to believe that his conduct was unlawful. A person who acted in
good faith and in a manner he reasonably believed to be in the interest
of the participants and beneficiaries of an employee benefit plan of
the Corporation shall be deemed to have acted in a manner not opposed
to the best interests of the Corporation.
For purposes of any determination hereunder, a person shall be
deemed to have acted in good faith and in a manner he reasonably
believed to be in or not opposed to the best interests of the
Corporation, or, with respect to any criminal action or Proceeding, to
have had no reasonable cause to believe his conduct was unlawful, if
his action is based on the records or books of account of the
Corporation or another enterprise or on information supplied to him by
the officers of the Corporation or another enterprise in the course of
their duties or on the advice of legal counsel for the Corporation or
another enterprise or on information or records given or reports made
to the Corporation or another enterprise by an independent certified
public accountant or by an appraiser or other expert selected with
reasonable care by the Corporation or another enterprise. The term
"another enterprise" as used in this Section shall mean any other
corporation or any partnership, limited liability company, association,
joint venture, trust, employee benefit plan or other enterprise of
which such person is or was serving at the request of the Corporation
as a director, officer, employee or agent. The provisions of this
paragraph shall not be deemed to be exclusive or to limit in any way
the circumstances in which an Indemnitee may be deemed to have met the
applicable standards of conduct for determining entitlement to rights
under this Article.
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6.9 Independent Counsel Expenses. The Corporation shall pay any and all
reasonable fees and expenses of Independent Counsel incurred acting
pursuant to this Article VI and in any proceeding to which it is a
party or witness in respect of its investigation and written report and
shall pay all reasonable fees and expenses incident to the procedures
in which such Independent Counsel was selected or appointed. No
Independent Counsel may serve if a timely objection has been made to
his selection until a court has determined that such objection is
without a reasonable basis.
6.10 Adjudication. In the event that (i) a determination is made pursuant to
Section 6.6 or 6.7 hereof that Indemnitee is not entitled to
indemnification under this Article VI; (ii) advancement of Expenses is
not timely made pursuant to Section 6.3 hereof; (iii) Independent
Counsel has not made and delivered a written opinion determining the
request for indemnification (a) within 90 days after being appointed by
the Court, (b) within 90 days after objections to his selection have
been overruled by the Court or (c) within 90 days after the time for
the Corporation or Indemnitee to object to his selection; or (iv)
payment of indemnification is not made within five days after a
determination of entitlement to indemnification has been made or deemed
to have been made pursuant to Section 6.6, 6.7 or 6.8 hereof,
Indemnitee shall be entitled to an adjudication in an appropriate court
of the State of Delaware, or in any other court of competent
jurisdiction, of his entitlement to such indemnification or advancement
of Expenses. In the event that a determination shall have been made
that Indemnitee is not entitled to indemnification, any judicial
proceeding or arbitration commenced pursuant to this Section 6.10 shall
be conducted in all respects as a de novo trial on the merits and
Indemnitee shall not be prejudiced by reason of that adverse
determination. If a Change of Control shall have occurred, in any
judicial proceeding commenced pursuant to this Section 6.10, the
Corporation shall have the burden of proving that Indemnitee is not
entitled to indemnification or advancement of Expenses, as the case may
be. If a determination shall have been made or deemed to have been made
that Indemnitee is entitled to indemnification, the Corporation shall
be bound by such determination in any judicial proceeding commenced
pursuant to this Section 6.10, or otherwise, unless Indemnitee
knowingly misrepresented a material fact in connection with the request
for indemnification, or such indemnification is prohibited by law.
The Corporation shall be precluded from asserting in any
judicial proceeding commenced pursuant to this Section 6.10 that the
procedures and presumptions of this Article VI are not valid, binding
and enforceable and shall stipulate in any such proceeding that the
Corporation is bound by all provisions of this Article VI. In the event
that Indemnitee, pursuant to this Section 6.10, seeks a judicial
adjudication to enforce his rights under, or to recover damages for
breach of, this Article VI, Indemnitee shall be entitled to recover
from the Corporation, and shall be indemnified by the Corporation
against, any and all Expenses actually and reasonably incurred by him
in such judicial adjudication, but only if he prevails therein. If it
shall be determined in such judicial adjudication that Indemnitee is
entitled to receive part but not all of the indemnification or
advancement of Expenses sought, the Expenses incurred by Indemnitee in
connection with such judicial adjudication or arbitration shall be
appropriately prorated.
6.11 Participation by the Corporation. With respect to any such claim,
action, suit, proceeding or investigation as to which Indemnitee
notifies the Corporation of the commencement thereof: (a) the
Corporation will be entitled to participate therein at its own expense;
(b) except as otherwise provided below, to the extent that it may wish,
the Corporation (jointly with any other indemnifying party similarly
notified) will be entitled to assume the defense thereof, with counsel
reasonably satisfactory to Indemnitee. After receipt of notice from the
Corporation to Indemnitee of the Corporation's election so to assume
the defense thereof, the Corporation will not be liable to Indemnitee
under this Article VI for any legal or other expenses subsequently
incurred by Indemnitee in connection with the defense thereof other
than reasonable costs of investigation or as otherwise provided below.
Indemnitee shall have the right to employ his own counsel in such
action, suit, proceeding or investigation but the fees and expenses of
such counsel incurred after notice from the Corporation of its
assumption of the defense thereof shall be at the expense of Indemnitee
unless (i) the employment of counsel by Indemnitee has been authorized
by the Corporation, (ii) Indemnitee shall have reasonably concluded
that there is a conflict of interest between the Corporation and
Indemnitee in the conduct of the defense of such action or (iii) the
Corporation shall not in fact have employed counsel to assume the
defense of such action, in each of which cases the fees and expenses of
counsel employed by Indemnitee shall be subject to indemnification
pursuant to the terms of this Article VI. The Corporation shall not be
entitled to assume the defense of any action, suit, proceeding or
investigation brought in the
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name of or on behalf of the Corporation or as to which Indemnitee shall
have made the conclusion provided for in (ii) above; and (c) the
Corporation shall not be liable to indemnify Indemnitee under this
Article VI for any amounts paid in settlement of any action or claim
effected without its written consent, which consent shall not be
unreasonably withheld. The Corporation shall not settle any action or
claim in any manner that would impose any limitation or unindemnified
penalty on Indemnitee without Indemnitee's written consent, which
consent shall not be unreasonably withheld.
6.12 Nonexclusivity of Rights. The rights of indemnification and advancement
of Expenses as provided by this Article VI shall not be deemed
exclusive of any other rights to which Indemnitee may at any time be
entitled to under applicable law, the Certificate of Incorporation, the
Bylaws, any agreement, a vote of stockholders or a resolution of
directors, or otherwise. No amendment, alteration or repeal of this
Article VI or any provision hereof shall be effective as to any
Indemnitee for acts, events and circumstances that occurred, in whole
or in part, before such amendment, alteration or repeal. The provisions
of this Article VI shall continue as to an Indemnitee whose Corporate
Status has ceased for any reason and shall inure to the benefit of his
heirs, executors and administrators. Neither the provisions of this
Article VI or those of any agreement to which the Corporation is a
party shall be deemed to preclude the indemnification of any person who
is not specified in this Article VI as having the right to receive
indemnification or is not a party to any such agreement, but whom the
Corporation has the power or obligation to indemnify under the
provisions of the DGCL.
6.13 Insurance and Subrogation. The Corporation shall not be liable under
this Article VI to make any payment of amounts otherwise indemnifiable
hereunder if, but only to the extent that, Indemnitee has otherwise
actually received such payment under any insurance policy, contract,
agreement or otherwise.
In the event of any payment hereunder, the Corporation shall
be subrogated to the extent of such payment to all the rights of
recovery of Indemnitee, who shall execute all papers required and take
all action reasonably requested by the Corporation to secure such
rights, including execution of such documents as are necessary to
enable the Corporation to bring suit to enforce such rights.
6.14 Severability. If any provision or provisions of this Article VI shall
be held to be invalid, illegal or unenforceable for any reason
whatsoever, the validity, legality and enforceability of the remaining
provisions shall not in any way be affected or impaired thereby; and,
to the fullest extent possible, the provisions of this Article VI shall
be construed so as to give effect to the intent manifested by the
provision held invalid, illegal or unenforceable.
6.15 Certain Actions For Which Indemnification Is Not Provided.
Notwithstanding any other provision of this Article VI, no person shall
be entitled to indemnification or advancement of Expenses under this
Article VI with respect to any Proceeding, or any Matter therein,
brought or made by such person against the Corporation.
6.16 Definitions. For purposes of this Article VI:
"Change of Control" means a change in control of the Corporation after
both the date of the closing of the initial public offering (the "IPO")
of the Corporation's Common Stock to the public for cash that has been
registered on a registration statement that has been filed with and
declared effective by the Securities and Exchange Commission and after
the date Indemnitee acquired his Corporate Status, which shall be
deemed to have occurred in any one of the following circumstances
occurring after such date: (i) there shall have occurred an event
required to be reported with respect to the Corporation in response to
Item 6(e) of Schedule 14A of Regulation 14A (or in response to any
similar item on any similar schedule or form) promulgated under the
Exchange Act, whether or not the Corporation is then subject to such
reporting requirement; (ii) any "person" (as such term is used in
Sections 13(d) and 14(d) of the Exchange Act) shall have become the
"beneficial owner" (as defined in Rule 13d-3 under the Exchange Act),
directly or indirectly, of securities of the Corporation representing
40% or more of the combined voting power of the Corporation's then
outstanding voting securities without prior approval of at least
two-thirds of the members of the Board of Directors in office
immediately prior to such person attaining such percentage interest;
(iii) the Corporation is a party to a merger, consolidation, sale of
assets or other reorganization, or
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a proxy contest, as a consequence of which members of the Board of
Directors in office immediately prior to such transaction or event
constitute less than a majority of the Board of Directors thereafter;
or (iv) during any period of two consecutive years, individuals who at
the beginning of such period constituted the Board of Directors
(including, for this purpose, any new director whose election or
nomination for election by the Corporation's stockholders was approved
by a vote of at least two-thirds of the directors then still in office
who were directors at the beginning of such period) cease for any
reason to constitute at least a majority of the Board of Directors.
"Corporate Status" describes the status of Indemnitee as a director,
officer, employee, agent or fiduciary of the Corporation or of any
other corporation, partnership, limited liability company, association,
joint venture, trust, employee benefit plan or other enterprise that
Indemnitee is or was serving at the request of the Corporation.
"Court" means the Court of Chancery of the State of Delaware or any
other court of competent jurisdiction.
"Expenses" shall include all reasonable attorneys' fees, retainers,
court costs, transcript costs, fees of experts, witness fees, travel
expenses, duplicating costs, printing and binding costs, telephone
charges, postage, delivery service fees, and all other disbursements or
expenses of the types customarily incurred in connection with
prosecuting, defending, preparing to prosecute or defend,
investigating, or being or preparing to be a witness in a Proceeding.
"Indemnitee" includes any officer or director of the Corporation who
is, or is threatened to be made, a witness in or a party to any
Proceeding as described in Section 6.1 or 6.2 hereof by reason of his
Corporate Status.
"Independent Counsel" means a law firm, or a member of a law firm, that
is experienced in matters of corporation law and neither presently is,
nor in the five years previous to his selection or appointment has
been, retained to represent: (i) the Corporation or Indemnitee in any
matter material to either such party or (ii) any other party to the
Proceeding giving rise to a claim for indemnification hereunder.
"Matter" is a claim, a material issue or a substantial request for
relief.
"Proceeding" includes any action, suit, arbitration, alternate dispute
resolution mechanism, investigation, administrative hearing or any
other proceeding, whether civil, criminal, administrative or
investigative, except one initiated by an Indemnitee pursuant to
Section 6.10 hereof to enforce his rights under this Article VI.
6.17 Notices. Promptly after receipt by Indemnitee of notice of the
commencement of any action, suit or proceeding, Indemnitee shall, if he
anticipates or contemplates making a claim for expenses or an advance
pursuant to the terms of this Article VI, notify the Corporation of the
commencement of such action, suit or proceeding; provided, however,
that any delay in so notifying the Corporation shall not constitute a
waiver or release by Indemnitee of rights hereunder and that any
omission by Indemnitee to so notify the Corporation shall not relieve
the Corporation from any liability that it may have to Indemnitee
otherwise than under this Article VI. Any communication required or
permitted to the Corporation shall be addressed to the Secretary of the
Corporation and any such communication to Indemnitee shall be addressed
to Indemnitee's address as shown on the Corporation's records unless he
specifies otherwise and shall be personally delivered or delivered by
overnight mail delivery. Any such notice shall be effective upon
receipt.
6.18 Contractual Rights. The right to be indemnified or to the advancement
or reimbursement of Expenses (i) is a contract right based upon good
and valuable consideration, pursuant to which Indemnitee may sue as if
these provisions were set forth in a separate written contract between
Indemnitee and the Corporation, (ii) is and is intended to be
retroactive and shall be available as to events occurring prior to the
adoption of these provisions and (iii) shall continue after any
rescission or restrictive modification of such provisions as to events
occurring prior thereto.
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6.19 Indemnification of Employees, Agents and Fiduciaries. The Corporation,
by adoption of a resolution of the Board of Directors, may indemnify
and advance expenses to a person who is an employee, agent or fiduciary
of the Corporation including any such person who is or was serving at
the request of the Corporation as a director, officer, employee, agent
or fiduciary of any other corporation, partnership, joint venture,
limited liability company, trust, employee benefit plan or other
enterprise to the same extent and subject to the same conditions (or to
such lesser extent and/or with such other conditions as the Board of
Directors may determine) under which it may indemnify and advance
expenses to an Indemnitee under this Article VI.
ARTICLE VII
MISCELLANEOUS PROVISIONS
7.1 Bylaw Amendments. The Board of Directors shall have the power to adopt,
amend and repeal from time to time the Bylaws of the Corporation,
subject to the right of stockholders entitled to vote with respect
thereto to amend or repeal such Bylaws as adopted or amended by the
Board of Directors. Bylaws of the Corporation may be adopted, amended
or repealed by the affirmative vote of the holders of at least
two-thirds of the combined voting power of the outstanding shares of
all classes of stock of the Corporation entitled to vote generally in
the election of directors, voting together as a single class, at any
annual meeting, or at any special meeting if notice of the proposed
amendment be contained in the notice of said special meeting, or by the
Board of Directors as specified in the preceding sentence.
7.2 Books and Records. The Corporation shall keep books and records of
account and shall keep minutes of the proceedings of its stockholders,
its Board of Directors and each committee of its Board of Directors.
7.3 Waiver of Notice. Whenever any notice is required to be given to any
stockholder, director or committee member under the provisions of the
DGCL or under the Certificate of Incorporation, as amended, or these
Bylaws, said notice shall be deemed to be sufficient if given (i) by
telegraphic, facsimile, cable or wireless transmission or (ii) by
deposit of the same in a post office box in a sealed prepaid wrapper
addressed to the person entitled thereto at his post office address, as
it appears on the records of the Corporation, and such notice shall be
deemed to have been given on the day of such transmission or mailing,
as the case may be.
Whenever any notice is required to be given to any
stockholder, director or committee member under the provisions of the
DGCL or under the Certificate of Incorporation, as amended, or these
Bylaws, a waiver thereof in writing signed by the person or persons
entitled to such notice, whether before or after the time stated
therein, shall be equivalent to the giving of such notice. Attendance
of a person at a meeting shall constitute a waiver of notice of such
meeting, except when the person attends a meeting for the express
purpose of objecting, at the beginning of the meeting, to the
transaction of any business because the meeting is not lawfully called
or convened. Neither the business to be transacted at, nor the purpose
of, any regular or special meeting of the stockholders, directors, or
members of a committee of directors need be specified in any written
waiver of notice unless so required by the Certificate of Incorporation
or these Bylaws.
7.4 Resignations. Any director or officer may resign at any time. Such
resignations shall be made in writing and shall take effect at the time
specified therein, or, if no time be specified, at the time of its
receipt by the Chairman of the Board, the Chief Executive Officer, the
President or the Secretary of the Corporation. The acceptance of a
resignation shall not be necessary to make it effective, unless
expressly so provided in the resignation.
7.5 Seal. The seal of the Corporation shall be in such form as the Board of
Directors may adopt.
7.6 Fiscal Year. The fiscal year of the Corporation shall end on the 31st
day of December of each year or as otherwise provided by a resolution
adopted by the Board of Directors.
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7.7 Facsimile Signatures. In addition to the provisions for the use of
facsimile signatures elsewhere specifically authorized in these Bylaws,
facsimile signatures of any officer or officers of the Corporation may
be used whenever and as authorized by the Board of Directors.
7.8 Reliance upon Books, Reports and Records. Each director and each member
of any committee designated by the Board of Directors shall, in the
performance of his duties, be fully protected in relying in good faith
upon the books of account or reports made to the Corporation by any of
its officers, or by an independent certified public accountant, or by
an appraiser selected with reasonable care by the Board of Directors or
by any such committee, or in relying in good faith upon other records
of the Corporation.
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Exhibit 10.1
INCENTIVE PLAN OF
EDGE PETROLEUM CORPORATION
(As Amended and Restated Effective as of July 27, 1999)
1. Plan. This Incentive Plan of Edge Petroleum Corporation
(the "Plan") was adopted by Edge Petroleum Corporation to reward certain
corporate officers and key employees of Edge Petroleum Corporation and certain
independent consultants by enabling them to acquire shares of common stock of
Edge Petroleum Corporation.
2. Objectives. This Plan is designed to attract and retain key
employees of the Company and its Subsidiaries (as hereinafter defined), to
attract and retain qualified directors of the Company, to attract and retain
consultants and other independent contractors, to encourage the sense of
proprietorship of such employees, directors and independent contractors and to
stimulate the active interest of such persons in the development and financial
success of the Company and its Subsidiaries. These objectives are to be
accomplished by making Awards (as hereinafter defined) under this Plan and
thereby providing Participants (as hereinafter defined) with a proprietary
interest in the growth and performance of the Company and its Subsidiaries.
3. Definitions. As used herein, the terms set forth below
shall have the following respective meanings:
"Annual Director Award Date" means, for each year beginning on
or after the IPO Closing Date, the first business day of the month next
succeeding the date upon which the annual meeting of stockholders of the Company
is held in such year.
"Authorized Officer" means the Chairman of the Board or the
Chief Executive Officer of the Company (or any other senior officer of the
Company to whom either of them shall delegate the authority to execute any Award
Agreement).
"Award" means an Employee Award, a Director Award or an
Independent Contractor Award.
"Award Agreement" means any Employee Award Agreement, Director
Award Agreement or Independent Contractor Award Agreement.
"Board" means the Board of Directors of the Company.
"Cash Award" means an award denominated in cash.
"Code" means the Internal Revenue Code of 1986, as amended
from time to time.
"Committee" means the Compensation Committee of the Board or
such other committee of the Board as is designated by the Board to administer
the Plan.
"Common Stock" means the Common Stock, par value $.01 per
share, of the Company.
"Company" means Edge Petroleum Corporation, a Delaware
corporation.
"Director" means an individual serving as a member of the
Board.
"Director Award" means the grant of a Director Option or a
Director Stock Award.
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"Director Award Agreement" means a written agreement between
the Company and a Participant who is a Nonemployee Director setting forth the
terms, conditions and limitations applicable to a Director Award.
"Director Stock Award" means a Stock Award granted to a
Nonemployee Director pursuant to the applicable terms, conditions and
limitations specified in paragraph 9(b) hereof.
"Disability" means, with respect to a Nonemployee Director,
the inability to perform the duties of a Director for a continuous period of
more than three months by reason of any medically determinable physical or
mental impairment.
"Dividend Equivalents" means, with respect to shares of
Restricted Stock that are to be issued at the end of the Restriction Period, an
amount equal to all dividends and other distributions (or the economic
equivalent thereof) that are payable to stockholders of record during the
Restriction Period on a like number of shares of Common Stock.
"Employee" means an employee of the Company or any of its
Subsidiaries and an individual who has agreed to become an Employee of the
Company or any of its Subsidiaries and actually becomes such an Employee within
the following six months.
"Employee Award" means the grant of any Option, SAR, Stock
Award, Cash Award or Performance Award, whether granted singly, in combination
or in tandem, to a Participant who is an Employee pursuant to such applicable
terms, conditions and limitations as the Committee may establish in order to
fulfill the objectives of the Plan.
"Employee Award Agreement" means a written agreement between
the Company and a Participant who is an Employee setting forth the terms,
conditions and limitations applicable to an Employee Award.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended from time to time.
"Fair Market Value" of a share of Common Stock means, as of a
particular date, (i) if shares of Common Stock are listed on a national
securities exchange, the mean between the highest and lowest sales price per
share of Common Stock on the consolidated transaction reporting system for the
principal national securities exchange on which shares of Common Stock are
listed on that date, or, if there shall have been no such sale so reported on
that date, on the last preceding date on which such a sale was so reported, (ii)
if shares of Common Stock are not so listed but are quoted on the Nasdaq
National Market, the mean between the highest and lowest sales price per share
of Common Stock reported by the Nasdaq National Market on that date, or, if
there shall have been no such sale so reported on that date, on the last
pre-ceding date on which such a sale was so reported, (iii) if the Common Stock
is not so listed or quoted, the mean between the closing bid and asked price on
that date, or, if there are no quotations available for such date, on the last
preceding date on which such quotations shall be available, as reported by the
Nasdaq Stock Market, or, if not reported by the Nasdaq Stock Market, by the
National Quotation Bureau Incorporated or (iv) if shares of Common Stock are not
publicly traded, the most recent value determined by an independent appraiser
appointed by the Company for such purpose; provided that, notwithstanding the
foregoing, "Fair Market Value" in the case of any Award made in connection with
the IPO, means the price per share to the public of the Common Stock in the IPO,
as set forth in the final prospectus relating to the IPO.
"Incentive Option" means an Option that is intended to comply
with the requirements set forth in Section 422 of the Code.
"Independent Contractor" means a person providing services to
the Company or any of its Subsidiaries except an Employee or Nonemployee
Director.
"Independent Contractor Award" means the grant of any
Nonqualified Stock Option, SAR, Stock Award, Cash Award or Performance Award,
whether granted singly, in combination or in tandem, to a Participant
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who is an Independent Contractor pursuant to such applicable terms, conditions
and limitations as the Committee may establish in order to fulfill the
objectives of the Plan.
"Independent Contractor Award Agreement" means a written
agreement between the Company and a Participantwho is an Independent Contractor
setting forth the terms, conditions and limitations applicable to an Independent
Contractor Award.
"IPO" means the first time a registration statement filed
under the Securities Act of 1933 and respecting an underwritten primary offering
by the Company of shares of Common Stock is declared effective under that Act
and the shares registered by that registration statement are issued and sold by
the Company (otherwise than pursuant to the exercise of any overallotment
option).
"IPO Closing Date" means the date on which the Company first
receives payment for the shares of Common Stock it sells in the IPO.
"Nonemployee Director" has the meaning set forth in paragraph
4(b) hereof.
"Nonqualified Stock Option" means an Option that is not an
Incentive Option.
"Option" means a right to purchase a specified number of
shares of Common Stock at a specified price.
"Participant" means an Employee, Director or Independent
Contractor to whom an Award has been made under this Plan.
"Performance Award" means an award made pursuant to this Plan
to a Participant who is an Employee or Independent Contractor who is subject to
the attainment of one or more Performance Goals.
"Performance Goal" means a standard established by the
Committee, to determine in whole or in part whether a Performance Award shall be
earned.
"Restricted Stock" means any Common Stock that is restricted
or subject to forfeiture provisions.
"Restriction Period" means a period of time beginning as of
the date upon which an Award of Restricted Stock is made pursuant to this Plan
and ending as of the date upon which the Common Stock subject to such Award is
no longer restricted or subject to forfeiture provisions.
"Rule 16b-3" means Rule 16b-3 promulgated under the Exchange
Act, or any successor rule.
"SAR" means a right to receive a payment, in cash or Common
Stock, equal to the excess of the Fair Market Value or other specified valuation
of a specified number of shares of Common Stock on the date the right is
exercised over a specified strike price, in each case, as determined by the
Committee.
"Stock Award" means an award in the form of shares of Common
Stock or units denominated in shares of Common Stock.
"Subsidiary" means (i) in the case of a corporation, any
corporation of which the Company directly or indirectly owns shares representing
more than 50% of the combined voting power of the shares of all classes or
series of capital stock of such corporation which have the right to vote
generally on matters submitted to a vote of the stockholders of such corporation
and (ii) in the case of a partnership or other business entity not organized as
a corporation, any such business entity of which the Company directly or
indirectly owns more than 50% of the voting, capital or profits interests
(whether in the form of partnership interests, membership interests or
otherwise).
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4. Eligibility.
(a) Employees. Key Employees eligible for Employee Awards
under this Plan are those who hold positions of responsibility and
whose performance, in the judgment of the Committee, can have a
significant effect on the success of the Company and its Subsidiaries,
including those individuals who are expected to become Employees within
six months.
(b) Directors. Directors eligible for Director Awards under
this Plan are those who are not employees of the Company or any of its
Subsidiaries ("Nonemployee Directors").
(c) Independent Contractors. Independent Contractors eligible
for Independent Contractor Awards under this Plan are those Independent
Contractors providing services to, or who will provide services to, the
Company or any of its Subsidiaries.
5. Common Stock Available for Awards. Subject to the
provisions of paragraph 15 hereof, there shall be available for Awards under
this Plan granted wholly or partly in Common Stock (including rights or options
that may be exercised for or settled in Common Stock) an aggregate of 1,200,000
shares of Common Stock, all of which shall be available for Incentive Options.
The number of shares of Common Stock that are the subject of Awards under this
Plan, that are forfeited or terminated, expire unexercised, are settled in cash
in lieu of Common Stock or in a manner such that all or some of the shares
covered by an Award are not issued to a Participant or are exchanged for Awards
that do not involve Common Stock, shall again immediately become available for
Awards hereunder. The Committee may from time to time adopt and observe such
procedures concerning the counting of shares against the Plan maximum as it may
deem appropriate. The Board and the appropriate officers of the Company shall
from time to time take whatever actions are necessary to file any required
documents with governmental authorities, stock exchanges and transaction
reporting systems to ensure that shares of Common Stock are available for
issuance pursuant to Awards.
6. Administration.
(a) This Plan, as it applies to Participants who are Employees
or Independent Contractors but not with respect to Participants who are
Nonemployee Directors, shall be administered by the Committee. To the
extent required in order for Employee Awards to be exempt from Section
16 of the Exchange Act by virtue of the provisions of Rule 16b-3, the
Committee shall consist of at least two members of the Board who meet
the requirements of the definition of "non-employee director" set forth
in Rule 16b-3(b)(3)(i) promulgated under the Exchange Act.
(b) Subject to the provisions hereof, insofar as this Plan
relates to the Employee Awards or Independent Contractor Awards, the
Committee shall have full and exclusive power and authority to
administer this Plan and to take all actions that are specifically
contemplated hereby or are necessary or appropriate in connection with
the administration hereof. Insofar as this Plan relates to Employee
Awards or Independent Contractor Awards, the Committee shall also have
full and exclusive power to interpret this Plan and to adopt such
rules, regulations and guidelines for carrying out this Plan as it may
deem necessary or proper, all of which powers shall be exercised in the
best interests of the Company and in keeping with the objectives of
this Plan. The Committee may, in its discretion, provide for the
extension of the exercisability of an Employee Award or Independent
Contractor Award, accelerate the vesting or exercisability of an
Employee Award or Independent Contractor Award, eliminate or make less
restrictive any restrictions contained in an Employee Award or
Independent Contractor Award, waive any restriction or other provision
of this Plan (insofar as such provision relates to Employee Awards or
to Independent Contractor Awards) or an Employee Award or Independent
Contractor Award or otherwise amend or modify an Employee Award or
Independent Contractor Award in any manner that is either (i) not
adverse to the Participant to whom such Employee Award or Independent
Contractor Award was granted or (ii) consented to by such Participant.
The Committee may make an award to an individual who it expects to
become an Employee of the Company or any of its Subsidiaries within the
next six months, with such award being subject to the individuals
actually becoming an Employee within such time period, and subject to
such other terms and conditions as may be established by the Committee.
The Committee may correct
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<PAGE>
any defect or supply any omission or reconcile any inconsistency in
this Plan or in any Employee Award or Independent Contractor Award in
the manner and to the extent the Committee deems necessary or desirable
to further the Plan purposes. Any decision of the Committee in the
interpretation and administration of this Plan shall lie within its
sole and absolute discretion and shall be final, conclusive and binding
on all parties concerned.
(c) No member of the Committee or officer of the Company to
whom the Committee has delegated authority in accordance with the
provisions of paragraph 7 of this Plan shall be liable for anything
done or omitted to be done by him or her, by any member of the
Committee or by any officer of the Company in connection with the
performance of any duties under this Plan, except for his or her own
willful misconduct or as expressly provided by statute.
7. Delegation of Authority. The Committee may delegate to the
Chief Executive Officer and to other senior officers of the Company its duties
under this Plan pursuant to such conditions or limitations as the Committee may
establish, except that the Committee may not delegate to any person the
authority to grant Awards to, or take other action with respect to, Participants
who are subject to Section 16 of the Exchange Act.
8. Employee and Independent Contractor Awards.
(a) The Committee shall determine the type or types of
Employee Awards to be made under this Plan and shall designate from time to time
the Employees who are to be the recipients of such Awards. Each Employee Award
may be embodied in an Employee Award Agreement, which shall contain such terms,
conditions and limitations as shall be determined by the Committee in its sole
discretion and shall be signed by the Participant to whom the Employee Award is
made and by an Authorized Officer for and on behalf of the Company. Employee
Awards may consist of those listed in this paragraph 8(a) hereof and may be
granted singly, in combination or in tandem. Employee Awards may also be made in
combination or in tandem with, in replacement of, or as alternatives to, grants
or rights under this Plan or any other employee plan of the Company or any of
its Subsidiaries, including the plan of any acquired entity. An Employee Award
may provide for the grant or issuance of additional, replacement or alternative
Employee Awards upon the occurrence of specified events, including the exercise
of the original Employee Award granted to a Participant. All or part of an
Employee Award may be subject to conditions established by the Committee, which
may include, but are not limited to, continuous service with the Company and its
Subsidiaries, achievement of specific business objectives, increases in
specified indices, attainment of specified growth rates and other comparable
measurements of performance. Upon the termination of employment by a Participant
who is an Employee, any unexercised, deferred, unvested or unpaid Employee
Awards shall be treated as set forth in the applicable Employee Award Agreement.
(i) Stock Option. An Employee Award may be in the
form of an Option. An Option awarded pursuant to this Plan may
consist of an Incentive Option or a Nonqualified Option. The
price at which shares of Common Stock may be purchased upon
the exercise of an Incentive Option shall be not less than the
Fair Market Value of the Common Stock on the date of grant.
The price at which shares of Common Stock may be purchased
upon the exercise of a Nonqualified Option shall be not less
than the Fair Market Value of the Common Stock on the date of
grant. Subject to the foregoing provisions, the terms,
conditions and limitations applicable to any Options awarded
pursuant to this Plan, including the term of any Options and
the date or dates upon which they become exercisable, shall be
determined by the Committee.
(ii) Stock Appreciation Right. An Employee Award may
be in the form of an SAR. The terms, conditions and
limitations applicable to any SARs awarded pursuant to this
Plan, including the term of any SARs and the date or dates
upon which they become exercisable, shall be determined by the
Committee.
(iii) Stock Award. An Employee Award may be in the
form of a Stock Award. The terms, conditions and limitations
applicable to any Stock Awards granted pursuant to this Plan
shall be determined by the Committee.
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(iv) Cash Award. An Employee Award may be in the form
of a Cash Award. The terms, conditions and limitations
applicable to any Cash Awards granted pursuant to this Plan
shall be determined by the Committee.
(v) Performance Award. Without limiting the type or
number of Employee Awards that may be made under the other
provisions of this Plan, an Employee Award may be in the form
of a Performance Award. A Performance Award shall be paid,
vested or otherwise deliverable solely on account of the
attainment of one or more pre-established, objective
Performance Goals established by the Committee prior to the
earlier to occur of (x) 90 days after the commencement of the
period of service to which the Performance Goal relates and
(y) the lapse of 25% of the period of service (as scheduled in
good faith at the time the goal is established), and in any
event while the outcome is substantially uncertain. A
Performance Goal is objective if a third party having
knowledge of the relevant facts could determine whether the
goal is met. Such a Performance Goal may be based on one or
more business criteria that apply to the individual, one or
more business units of the Company, or the Company as a whole,
and may include one or more of the following: increased
revenue, net income, stock price, market share, earnings per
share, return on equity, return on assets or decrease in
costs. Unless otherwise stated, such a Performance Goal need
not be based upon an increase or positive result under a
particular business criterion and could include, for example,
maintaining the status quo or limiting economic losses
(measured, in each case, by reference to specific business
criteria). In interpreting Plan provisions applicable to
Performance Goals and Performance Awards, it is the intent of
the Plan to conform with the standards of Section 162(m) of
the Code and Treasury Regulation ss.1.16227(e)(2)(i), and the
Committee in establishing such goals and interpreting the Plan
shall be guided by such provisions. Prior to the payment of
any compensation based on the achievement of Performance
Goals, the Committee must certify in writing that applicable
Performance Goals and any of the material terms thereof were,
in fact, satisfied. Subject to the foregoing provisions, the
terms, conditions and limitations applicable to any
Performance Awards made pursuant to this Plan shall be
determined by the Committee.
(b) Notwithstanding anything to the contrary contained in this
Plan, the following limitations shall apply to any Employee Awards made
hereunder:
(i) no Participant may be granted, during any
one-year period, Employee Awards consisting of Options or SARs
that are exercisable for more than 135,000 shares of Common
Stock;
(ii) no Participant may be granted, during any
one-year period, Stock Awards covering or relating to more
than 135,000 shares of Common Stock (the limitation set forth
in this clause (ii), together with the limitation set forth in
clause (i) above, being hereinafter collectively referred to
as the "Stock Based Awards Limitations"); and
(iii) no Participant may be granted Employee Awards
consisting of cash or in any other form permitted under this
Plan (other than Employee Awards consisting of Options or SARs
or otherwise consisting of shares of Common Stock or units
denominated in such shares) in respect of any one-year period
having a value determined on the date of grant in excess of
$500,000.
(c) The Committee shall have the sole responsibility and
authority to determine the type or types of Independent Contractor
Awards to be made under this Plan and may make any such Awards as could
be made to an Employee, other than Incentive Options; provided that the
limitations described in paragraph 8(b) shall be inapplicable to
Independent Contractor Awards.
9. Director Awards. Each Nonemployee Director of the Company
shall be granted Director Awards in accordance with this paragraph 9 and subject
to the applicable terms, conditions and limitations set forth in this Plan and
the applicable Director Award Agreement. Notwithstanding anything to the
contrary contained
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herein, Director Awards shall not be made in any year in which a sufficient
number of shares of Common Stock are not available to make such Awards under
this Plan.
(a) Director Options. On the IPO Closing Date, each
Nonemployee Director shall be automatically awarded a Director Option
number of shares of Common Stock determined in the following table:
Years of Service With the Number of Shares
Company or its Predecessors Subject to Option
--------------------------- -----------------
4 years or greater 8,000
3 to 4 years 6,000
2 to 3 years 4,000
2 years or less 2,000
Effective upon the IPO Closing Date, on the date of his or her first appointment
or election to the Board of Directors, a Nonemployee Director shall
automatically be granted a Director Option that provides for the purchase of
5,000 shares of Common Stock. In addition, on each Annual Director Award Date,
each Nonemployee Director shall automatically be granted a Director Option that
provides for the purchase of 3,000 shares of Common Stock. Each Director Option
shall have a term of ten years from the date of grant, notwithstanding any
earlier termination of the status of the holder as a Nonemployee Director. The
purchase price of each share of Common Stock subject to a Director Option shall
be equal to the Fair Market Value of the Common Stock on the date of grant. All
Director Options granted after July 27, 1999 shall vest and become exercisable
on the second anniversary of the date of grant. All unvested Director Options
shall be forfeited if the Nonemployee Director resigns as a Director without the
consent of a majority of the other Directors.
Any Award of Director Options shall be embodied in a Director
Award Agreement, which shall contain the terms, conditions and limitations set
forth above and shall be signed by the Participant to whom the Director Options
are granted and by an Authorized Officer for and on behalf of the Company.
(b) Director Stock Award. On each Annual Director Award Date
after July 27, 1999, each Nonemployee Director who was serving as such
on the date immediately preceding the most recent annual meeting of
stockholders, shall automatically be awarded a number of shares of
Common Stock, in lieu of one-half of the annual retainer to be paid to
the Nonemployee Director for the preceding twelve months in cash. A
number of shares of Common Stock (rounded up to the nearest whole
number) having a Fair Market Value equal to 50% of the annual retainer
otherwise to be paid to the Nonemployee Director for the preceding
twelve months shall be awarded.
10. Payment of Awards.
(a) General. Payment of Employee Awards or Independent
Contractor Awards may be made in the form of cash or Common Stock, or a
combination thereof, and may include such restrictions as the Committee
shall determine, including, in the case of Common Stock, restrictions
on transfer and forfeiture provisions. If payment of an Employee Award
or Independent Contractor Award is made in the form of Restricted
Stock, the applicable Award Agreement relating to such shares shall
specify whether they are to be issued at the beginning or end of the
Restriction Period. In the event that shares of Restricted Stock are to
be issued at the beginning of the Restriction Period, the certificates
evidencing such shares (to the extent that such shares are so
evidenced) shall contain appropriate legends and restrictions that
describe the terms and conditions of the restrictions applicable
thereto. In the event that shares of Restricted Stock are to be issued
at the end of the Restricted Period, the right to receive such shares
shall be evidenced by book entry registration or in such other manner
as the Committee may determine.
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(b) Deferral. With the approval of the Committee, amounts
payable in respect of Employee Awards or Independent Contractor Awards
may be deferred and paid either in the form of installments or as a
lump sum payment. The Committee may permit selected Participants to
elect to defer payments of some or all types of Employee Awards or
Independent Contractor Awards in accordance with procedures established
by the Committee. Any deferred payment of an Employee Award or
Independent Contractor Award, whether elected by the Participant or
specified by the Award Agreement or by the Committee, may be forfeited
if and to the extent that the Award Agreement so provides.
c) Dividends and Interest. Rights to dividends or Dividend
Equivalents may be extended to and made part of any Employee Award or
Independent Contractor Award consisting of shares of Common Stock or
units denominated in shares of Common Stock, subject to such terms,
conditions and restrictions as the Committee may establish. The
Committee may also establish rules and procedures for the crediting of
interest on deferred cash payments and Dividend Equivalents for
Employee Awards or Independent Contractor Awards consisting of shares
of Common Stock or units denominated in shares of Common Stock.
(d) Substitution of Awards. At the discretion of the
Committee, a Participant who is an Employee or Independent Contractor
may be offered an election to substitute an Employee Award or
Independent Contractor Award for another Employee Award or Independent
Contractor Award or Employee Awards or Independent Contractor Awards of
the same or different type.
11. Stock Option Exercise. The price at which shares of Common
Stock may be purchased under an Option shall be paid in full at the time of
exercise in cash or, if elected by the optionee, the optionee may purchase such
shares by means of tendering Common Stock or surrendering another Award,
including Restricted Stock or Director Restricted Stock, valued at Fair Market
Value on the date of exercise, or any combination thereof. The Committee shall
determine acceptable methods for Participants who are Employees or Independent
Contractors to tender- Common Stock or other Employee Awards or Independent
Contractor Awards; provided that any Common Stock that is or was the subject of
an Employee Award or Independent Contractor Award may be so tendered only if it
has been held by the Participant for six months. The Committee may provide for
procedures to permit the exercise or purchase of such Awards by use of the
proceeds to be received from the sale of Common Stock issuable pursuant to an
Employee Award or Independent Contractor Award. Unless otherwise provided in the
applicable Award Agreement, in the event shares of Restricted Stock are tendered
as consideration for the exercise of an Option, a number of the shares issued
upon the exercise of the Option, equal to the number of shares of Restricted
Stock or Director Restricted Stock used as consideration therefor, shall be
subject to the same restrictions as the Restricted Stock or Director Restricted
Stock so submitted as well as any additional restrictions that may be imposed by
the Committee.
12. Taxes. The Company shall have the right to deduct
applicable taxes from any Employee Award payment and withhold, at the time of
delivery or vesting of cash or shares of Common Stock under this Plan, an
appropriate amount of cash or number of shares of Common Stock or a combination
thereof for payment of taxes required by law or to take such other action as may
be necessary in the opinion of the Company to satisfy all obligations for
withholding of such taxes. The Committee may also permit withholding to be
satisfied by the transfer to the Company of shares of Common Stock theretofore
owned by the holder of the Employee Award with respect to which withholding is
required. If shares of Common Stock are used to satisfy tax withholding, such
shares shall be valued based on the Fair Market Value when the tax withholding
is required to be made. The Committee may provide for loans, on either a short
term or demand basis, from the Company to a Participant who is an Employee or
Independent Contractor to permit the payment of taxes required by law.
13. Amendment, Modification, Suspension or Termination. The
Board may amend, modify, suspend or terminate this Plan for the purpose of
meeting or addressing any changes in legal requirements or for any other purpose
permitted by law, except that (i) no amendment or alteration that would
adversely affect the rights of any Participant under any Award previously
granted to such Participant shall be made without the consent of such
Participant and (ii) no amendment or alteration shall be effective prior to its
approval by the stockholders of the Company to the extent such approval is then
required pursuant to Rule 16b-3 in order to preserve the applicability of
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any exemption provided by such rule to any Award then outstanding (unless the
holder of such Award consents) or to the extent stockholder approval is
otherwise required by applicable legal requirements.
14. Assignability. Unless otherwise determined by the
Committee and provided in the Award Agreement, no Award or any other benefit
under this Plan constituting a derivative security within the meaning of Rule
16a-1(c) under the Exchange Act shall be assignable or otherwise transferable
except by will or the laws of descent and distribution or pursuant to a
qualified domestic relations order as defined by the Code or Title I of the
Employee Retirement Income Security Act, or the rules thereunder. The Committee
may prescribe and include in applicable Award Agreements other restrictions on
transfer. Any attempted assignment of an Award or any other benefit under this
Plan in violation of this paragraph 14 shall be null and void.
15. Adjustments.
(a) The existence of outstanding Awards shall not affect in
any manner the right or power of the Company or its stockholders to
make or authorize any or all adjustments, recapitalizations,
reorganizations or other changes in the capital stock of the Company or
its business or any merger or consolidation of the Company, or any
issue of bonds, debentures, preferred or prior preference stock
(whether or not such issue is prior to, on a parity with or junior to
the Common Stock) or the dissolution or liquidation of the Company, or
any sale or transfer of all or any part of its assets or business, or
any other corporate act or proceeding of any kind, whether or not of a
character similar to that of the acts or proceedings enumerated above.
(b) In the event of any subdivision or consolidation of
outstanding shares of Common Stock, declaration of a dividend payable
in shares of Common Stock or other stock split, then, except with
respect to the Existing Options, (i) the number of shares of Common
Stock reserved under this Plan, (ii) the number of shares of Common
Stock covered by outstanding Awards in the form of Common Stock or
units denominated in Common Stock, (iii) the exercise or other price in
respect of such Awards, (iv) the appropriate Fair Market Value and
other price determinations for such Awards, (v) the number of shares of
Common Stock covered by Director Options automatically granted pursuant
to paragraph 9(a) hereof and (vi) the Stock Based Awards Limitations
shall each be proportionately adjusted by the Board to reflect such
transaction. In the event of any other recapitalization or capital
reorganization of the Company, any consolidation or merger of the
Company with another corporation or entity, the adoption by the Company
of any plan of exchange affecting the Common Stock or any distribution
to holders of Common Stock of securities or property (other than normal
cash dividends or dividends payable in Common Stock), the Board shall
make appropriate adjustments to (i) the number of shares of Common
Stock covered by Awards in the form of Common Stock or units
denominated in Common Stock, (ii) the exercise or other price in
respect of such Awards, (iii) the appropriate Fair Market Value and
other price determinations for such Awards, (iv) the number of shares
of Common Stock covered by Director Options automatically granted
pursuant to paragraph 9(a) hereof and (v) the Stock Based Awards
Limitations to give effect to such transaction shall each be
proportionately adjusted by the Board to reflect such transaction;
provided that such adjustments shall only be such as are necessary to
maintain the proportionate interest of the holders of the Awards and
preserve, without exceeding, the value of such Awards. In the event of
a corporate merger, consolidation, acquisition of property or stock,
separation, reorganization or liquidation, the Board shall be
authorized to issue or assume Awards by means of substitution of new
Awards, as appropriate, for previously issued Awards or to assume
previously issued Awards as part of such adjustment.
(c) In the event of a corporate merger, consolidation,
acquisition of property or stock, separation, reorganization or
liquidation, the Board may make such adjustments to outstanding Awards
or other provisions for the disposition of outstanding Awards as it
deems equitable, and shall be authorized, in its discretion, (i) to
provide for the substitution of a new Award or other arrangement
(which, if applicable, may be exercisable for such property or stock as
the Board determines) for an outstanding Award or the assumption of an
outstanding Award, regardless of whether in a transaction to which
Section 424(a) of the Code applies, (ii) to provide, prior to the
transaction, for the acceleration of the vesting and exercisability of,
or lapse of restrictions with respect to, the outstanding Award and, if
the transaction is a cash merger, to
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provide for the termination of any portion of the Award that remains
unexercised at the time of such transaction or (iii) to provide for the
acceleration of the vesting and exercisability of an outstanding Award
and the cancellation thereof in exchange for such payment as shall be
mutually agreeable to the Participant and the Board.
16. Restrictions. No Common Stock or other form of payment
shall be issued with respect to any Award unless the Company shall be satisfied
based on the advice of its counsel that such issuance will be in compliance with
applicable federal and state securities laws. It is the intent of the Company
that grants of Awards under this Plan comply with Rule 16b-3 with respect to
persons subject to Section 16 of the Exchange Act unless otherwise provided
herein or in an Award Agreement, that any ambiguities or inconsistencies in the
construction of such an Award or this Plan be interpreted to give effect to such
intention. Certificates evidencing shares of Common Stock delivered under this
Plan (to the extent that such shares are so evidenced) may be subject to such
stop transfer orders and other restrictions as the Committee may deem advisable
under the rules, regulations and other requirements of the Securities and
Exchange Commission, any securities exchange or transaction reporting system
upon which the Common Stock is then listed or to which it is admitted for
quotation and any applicable federal or state securities law. The Committee may
cause a legend or legends to be placed upon such certificates (if any) to make
appropriate reference to such restrictions.
17. Unfunded Plan. Insofar as it provides for Awards of cash,
Common Stock or rights thereto, this Plan shall be unfunded. Although
bookkeeping accounts may be established with respect to Participants who are
entitled to cash, Common Stock or rights thereto under this Plan, any such
accounts shall be used merely as a bookkeeping convenience. The Company shall
not be required to segregate any assets that may at any time be represented by
cash, Common Stock or rights thereto, nor shall this Plan be construed as
providing for such segregation, nor shall the Company, the Board or the
Committee be deemed to be a trustee of any cash, Common Stock or rights thereto
to be granted under this Plan. Any liability or obligation of the Company to any
Participant with respect to an Award of cash, Common Stock or rights thereto
under this Plan shall be based solely upon any contractual obligations that may
be created by this Plan and any Award Agreement, and no such liability or
obligation of the Company shall be deemed to be secured by any pledge or other
encumbrance on any property of the Company. Neither the Company nor the Board
nor the Committee shall be required to give any security or bond for the
performance of any obligation that may be created by this Plan.
18. Governing Law. This Plan and all determinations made and
actions taken pursuant hereto, to the extent not otherwise governed by mandatory
provisions of the Code or the securities laws of the United States, shall be
governed by and construed in accordance with the laws of the State of Delaware.
19. Effectiveness. The Plan as hereby amended and restated
shall be effective as of July 27, 1999.
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Exhibit 10.2
EDGE PETROLEUM CORPORATION
1997 INCENTIVE PLAN
STANDARD
NON-QUALIFIED STOCK OPTION AGREEMENT
THIS AGREEMENT ("Agreement") is made as of the 21st day of
May, 1999 (the "Grant Date"), by and between Edge Petroleum Corporation, a
Delaware corporation (the "Company"), and _____________________ (the "Grantee").
The Company has adopted the Edge Petroleum Corporation 1997
Incentive Plan (the "Plan"), a copy of which is appended to this Agreement as
Exhibit A and by this reference made a part hereof, for the benefit of eligible
employees, directors and independent contractors of the Company and its
Subsidiaries. Capitalized terms used and not otherwise defined herein shall have
the meaning ascribed thereto in the Plan.
Pursuant to the Plan, the Committee, which has generally been
assigned responsibility for administering the Plan, has determined that it would
be in the interest of the Company and its stockholders to grant the options
provided herein in order to provide Grantee with additional remuneration for
services rendered, to encourage Grantee to remain in the employ of the Company
or its Subsidiaries and to increase Grantee's personal interest in the continued
success and progress of the Company.
The Committee has further determined that it would be in the
best interests of the Company and the Grantee to recall, surrender and terminate
those certain options heretofore granted to Grantee covering __________ shares
of Company common stock ("Common Stock") as described in a Standard
Non-Qualified Stock Option Agreement between the Company and Grantee dated
____________________ 199___ and __________ shares of Common Stock as described
in a standard Non-Qualified Stock Option Agreement between the Company and
Grantee dated ____________________ 199___ (collectively the "Prior Stock
Options").
The Company and Grantee therefore agree as follows:
1. Surrender and Termination of Prior Options. Subject to the
conditions herein, Grantee hereby surrenders, relinquishes and re-assigns to the
Company the Prior Stock Options, and the Company and Grantee declare such Prior
Stock Options to be terminated.
2. Grant of Option. Subject to the terms and conditions
herein, the Company grants to the Grantee an option to purchase __________
shares of Common Stock of the Company ("Common Stock") at a price equal to
$7.0625 per share (the "Option Price") exercisable during the period commencing
on May 21, 1999 and expiring at 5 p.m. Houston, Texas time ("Close of Business")
on May 21, 2009 (the "Option Term"), subject to earlier termination pursuant to
paragraph 7 below, (the "Option Shares"). The Option Price and Option Shares are
subject to adjustment pursuant to paragraph 10 below. This Option is a
"Nonqualified Stock Option" and is hereinafter referred to as the "Option." The
Option shall be deemed to be issued in replacement of the Prior Stock Options.
3. Conditions of Exercise. The Option is exercisable only in
accordance with the conditions stated in this paragraph.
(a) Except as otherwise provided in this subparagraph (a), the
Option may only be exercised to the extent the Option Shares have
become available for purchase in accordance with the following
schedule:
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Percentage of Option
Date Shares Available for Purchase
---- -----------------------------
May 21, 1999 50%
May 21, 2000 50%
[Options vest 50% on grant date and 50% on first anniversary
of grant date.]
Notwithstanding the foregoing, subject to the provisions of any
applicable written employment agreement between the Grantee and the
Company or any Subsidiary, no additional Option Shares shall become
available for purchase if Grantee has not remained in the continuous
employment of the Company and its Subsidiaries through the applicable
date; provided, however, that any Option Shares that would otherwise
become available for purchase pursuant to the foregoing schedule during
the 12-month period ending on the first anniversary of the date of
Grantee's termination of employment shall become available for purchase
on the specified date during such period if the Grantee's employment
was terminated for any reason other than (i) by the Company or any
Subsidiary for Cause (as defined in Section 7 below) or (ii)
voluntarily by the Grantee without Good Reason (as defined in Section 7
below). A change of employment is continuous employment within the
meaning of this paragraph 3 provided that, after giving effect to such
change, the Grantee continues to be an employee of the Company or any
Subsidiary.
(b) To the extent the Option becomes exercisable, such Option
may be exercised in whole or in part (at any time or from time to time,
except as otherwise provided herein) until expiration of the Option
Term or earlier termination thereof.
4. Manner of Exercise. The Option shall be considered exercised (as to
the number of Option Shares specified in the notice referred to in subparagraph
(a) below) on the latest of (i) the date of exercise designated in the written
notice referred to in subparagraph (a) below, (ii) if the date so designated is
not a business day, the first business day following such date or (iii) the
earliest business day by which the Company has received all of the following:
(a) Written notice, in such form as the Committee may require,
designating, among other things, the date of exercise and the number of
Option Shares to be purchased;
(b) If the Option is to be exercised, payment of the Option
Price for each Option Share to be purchased in cash, Common Stock or in
such other form (or combination of forms) of payment contemplated by
Section 11 of the Plan as the Committee or the provisions of Section 11
of the Plan may permit; provided, however, that any shares of Common
Stock delivered in payment of the Option Price that are or were the
subject of an Employee Award must be shares that the Grantee has owned
for a period of at least six months prior to the date of exercise; and
(c) Any other documentation that the Committee may reasonably
require.
5. Mandatory Withholding for Taxes. Grantee acknowledges and agrees
that the Company shall deduct from the cash and/or shares of Common Stock
otherwise payable or deliverable upon exercise of the Option an amount of cash
and/or number of shares of Common Stock (valued at their Fair Market Value on
the date of exercise) that is equal to the amount of all federal, state and
local taxes required to be withheld by the Company upon such exercise, as
determined by the Committee.
6. Delivery by the Company. As soon as practicable after receipt of all
items referred to in paragraph 4, and subject to the withholding referred to in
paragraph 5, the Company shall deliver to the Grantee certificates issued in
Grantee's name for the number of Option Shares purchased by exercise of the
Option. If delivery is by mail, delivery of shares of Common Stock shall be
deemed effected for all purposes when a stock transfer agent of the Company
shall have deposited the certificates in the United States mail, addressed to
the Grantee, and any cash payment shall be deemed effected when a Company check,
payable to Grantee and in an
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amount equal to the amount of the cash payment, shall have been deposited in the
United States mail, addressed to the Grantee.
7. Termination of Employment. Unless otherwise determined by the
Committee in its sole discretion, the Option shall terminate, prior to the
expiration of the Option Term, at the time specified below:
(a) If Grantee terminates employment with the Company and its
Subsidiaries voluntarily without Good Reason (as defined below), then
the Option shall terminate at the Close of Business on the first
business day following the expiration of the 90-day period which began
on the date of termination of Grantee's employment; or
(b) If Grantee's employment with the Company and its
Subsidiaries is terminated by the Company or a Subsidiary for Cause (as
defined below), then the Option shall terminate immediately upon such
termination of Grantee's employment.
In any event in which the Option remains exercisable for a
period of time following the date of termination of Grantee's employment, the
Option may be exercised during such period of time only to the extent it is or
becomes exercisable as provided in paragraph 3. Notwithstanding any period of
time referenced in this paragraph 7 or any other provision of this paragraph
that may be construed to the contrary, the Option shall in any event terminate
upon the expiration of the Option Term.
"Cause" for purposes of the Agreement shall mean cause as
defined in any written employment agreement between the Grantee and the Company
or a Subsidiary in effect at the time of the Grantee's termination of employment
or, in the absence of any such employment agreement, any of the following: (a)
conviction of the Grantee by a court of competent jurisdiction of any felony or
a crime involving moral turpitude; (b) the Grantee=s knowing failure or refusal
to follow reasonable instructions of the Board or reasonable policies, standards
and regulations of the Company or its Subsidiaries; (c) the Grantee=s continued
failure or refusal to faithfully and diligently perform the usual, customary
duties of his employment with the Company or a Subsidiary; (d) the Grantee
continuously conducting himself in an unprofessional, unethical, immoral or
fraudulent manner; or (e) the Grantee=s conduct discredits the Company or a
Subsidiary or is detrimental to the reputation, character and standing of the
Company or a Subsidiary.
"Good Reason" for purposes of the Agreement shall mean good
reason as defined in any written employment agreement between the Grantee and
the Company or a Subsidiary in effect at the time of the Grantee=s termination
of employment or, in the absence of any such employment agreement, shall be
deemed to have occurred upon the happening of any of the following:
(i) any reduction in Grantee's annual rate of salary;
(ii) either (x) a failure of the Company to continue in effect
any employee benefit plan in which Grantee was participating or (y) the
taking of any action by the Company that would adversely affect
Grantee's participation in, or materially reduce Grantee's benefits
under, any such employee benefit plan, unless such failure or such
taking of any action adversely affects the senior members of the
corporate management of the Company generally;
(iii) the assignment to Grantee of duties and responsibilities
that are materially more oppressive or onerous than those attendant to
Grantee's position immediately after the date hereof;
(iv) the relocation of the office location as assigned to
Grantee by the Company to a location more than 20 miles from Grantee's
current location without Grantee's consent; or
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(v) the failure of the Company to obtain, prior to the time of
any reorganization, merger, consolidation, disposition of all or
substantially all of the assets of the Company or similar transaction
effective after the date hereof, in which the Company is not the
surviving person, the unconditional assumption in writing or by
operation of law of the Company's obligations to Grantee under this
Agreement by each direct successor to the Company in any such
transaction.
8. Nontransferability of Option. During Grantee's lifetime, the Option
is not transferable (voluntarily or involuntarily) other than pursuant to a
domestic relations order and, except as otherwise required pursuant to a
domestic relations order, is exercisable only by the Grantee or Grantee's court
appointed legal representative. The Grantee may designate a beneficiary or
beneficiaries to whom the Option shall pass upon Grantee's death and may change
such designation from time to time by filing a written designation of
beneficiary or beneficiaries with the Committee on the form annexed hereto as
Exhibit B or such other form as may be prescribed by the Committee, provided
that no such designation shall be effective unless so filed prior to the death
of Grantee. If no such designation is made or if the designated beneficiary does
not survive the Grantee's death, the Option shall pass by will or the laws of
descent and distribution. Following Grantee's death, the Option, if otherwise
exercisable, may be exercised by the person to whom such option passes
accordingly to the foregoing and such person shall be deemed the Grantee for
purposes of any applicable provisions of this Agreement.
9. No Stockholder Rights. The Grantee shall not be deemed for any
purpose to be, or to have any of the rights of, a stockholder of the Company
with respect to any shares of Common Stock as to which this Agreement relates
until such shares shall have been issued to Grantee by the Company. Furthermore,
the existence of this Agreement shall not affect in any way the right or power
of the Company or its stockholders to accomplish any corporate act, including,
without limitation, the acts referred to in Section 15 of the Plan.
10. Adjustments. As provided in Section 15 of the Plan, certain
adjustments may be made to the Option upon the occurrence of events or
circumstances described in Section 15 of the Plan.
11. Restrictions Imposed by Law. Without limiting the generality of
Section 16 of the Plan, the Grantee agrees that Grantee will not exercise the
Option and that the Company will not be obligated to deliver any shares of
Common Stock, if counsel to the Company determines that such exercise, or
delivery would violate any applicable law or any rule or regulation of any
governmental authority or any rule or regulation of, or agreement of the Company
with, any securities exchange or association upon which the Common Stock is
listed or quoted. The Company shall in no event be obligated to take any
affirmative action in order to cause the exercise of the Option or the resulting
delivery of shares of Common Stock to comply with any such law, rule, regulation
or agreement.
12. Notice. Unless the Company notifies the Grantee in writing of a
different procedure, any notice or other communication to the Company with
respect to this Agreement shall be in writing and shall be (a) delivered
personally to the following address:
Edge Petroleum Corporation
Texaco Heritage Plaza
1111 Bagby, Suite 2100
Houston, Texas 77002
or (b) sent by first class mail, postage prepaid and addressed as follows:
Edge Petroleum Corporation c/o Corporate
Secretary Texaco Heritage Plaza 1111 Bagby,
Suite 2100 Houston, Texas 77002.
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Any notice or other communication to the Grantee with respect to this Agreement
shall be in writing and shall be delivered personally, or shall be sent by first
class mail, postage prepaid, to Grantee's address as listed in the records of
the Company on the Grant Date, unless the Company has received written
notification from the Grantee of a change of address.
13. Amendment. Notwithstanding any other provisions hereof, this
Agreement may be supplemented or amended from time to time as approved by the
Committee as contemplated by Section 6 of the Plan. Without limiting the
generality of the foregoing, without the consent of the Grantee,
(a) this Agreement may be amended or supplemented (i) to cure
any ambiguity or to correct or supplement any provision herein which
may be defective or inconsistent with any other provision herein, or
(ii) to add to the covenants and agreements of the Company for the
benefit of Grantee or surrender any right or power reserved to or
conferred upon the Company in this Agreement, subject, however, to any
required approval of the Company's stockholders and, provided, in each
case, that such changes or corrections shall not adversely affect the
rights of Grantee with respect to the Award evidenced hereby without
the Grantee=s consent, or (iii) to make such other changes as the
Company, upon advice of counsel, determines are necessary or advisable
because of the adoption or promulgation of, or change in or of the
interpretation of, any law or governmental rule or regulation,
including any applicable federal or state securities laws; and
(b) subject to Section 6 of the Plan and any required approval
of the Company's stockholders, the Award evidenced by this Agreement
may be canceled by the Committee and a new Award made in substitution
therefor, provided that the Award so substituted shall satisfy all of
the requirements of the Plan as of the date such new Award is made and
no such action shall adversely affect the Option to the extent then
exercisable without the Grantee=s consent.
14. Grantee Employment. Nothing contained in this Agreement, and no
action of the Company or the Committee with respect hereto, shall confer or be
construed to confer on the Grantee any right to continue in the employ of the
Company or any of its Subsidiaries or interfere in any way with the right of the
Company or any employing Subsidiary to terminate the Grantee's employment at any
time, with or without cause; subject, however, to the provisions of any
employment agreement between the Grantee and the Company or any Subsidiary.
15. Governing Law. This Agreement shall be governed by, and construed
in accordance with, the internal laws of the State of Delaware.
16. Construction. References in this Agreement to "this Agreement" and
the words "herein," "hereof," "hereunder" and similar terms include all Exhibits
and Schedules appended hereto, including the Plan. This Agreement is entered
into, and the Award evidenced hereby is granted, pursuant to the Plan and shall
be governed by and construed in accordance with the Plan and the administrative
interpretations adopted by the Committee thereunder. All decisions of the
Committee upon questions regarding the Plan or this Agreement shall be
conclusive. Unless otherwise expressly stated herein, in the event of any
inconsistency between the terms of the Plan and this Agreement, the terms of the
Plan shall control. The headings of the paragraphs of this Agreement have been
included for convenience of reference only, are not to be considered a part
hereof and shall in no way modify or restrict any of the terms or provisions
hereof.
17. Duplicate Originals. The Company and the Grantee may sign any
number of copies of this Agreement. Each signed copy shall be an original, but
all of them together represent the same agreement.
18. Rules by Committee. The rights of the Grantee and obligations of
the Company hereunder shall be subject to such reasonable rules and regulations
as the Committee may adopt from time to time hereafter.
19. Entire Agreement. Subject to the provisions of any applicable
written employment agreement between the Grantee and the Company or any
Subsidiary, Grantee and the Company hereby declare and represent that no promise
or agreement not herein expressed has been made and that this Agreement contains
the entire
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agreement between the parties hereto with respect to the Option and replaces and
makes null and void any prior agreements, oral or written, between Grantee and
the Company regarding the Option.
20. Grantee Acceptance. Grantee shall signify acceptance of the terms
and conditions of this Agreement by signing in the space provided at the end
hereof and returning a signed copy to the Company.
ATTEST: EDGE PETROLEUM CORPORATION
By:________________________
Secretary_____________________ Name: John W. Elias
Title: Chairman & CEO
ACCEPTED:
___________________________
Name:
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<PAGE>
Agreements identical to the forgoing were entered into by and between Edge
Petroleum Corporation and Officers of the Company and differences are listed
within the following schedule:
Schedule
--------
Surrendered Reissued New
Name Options Options Options
- ---- ----------- -------- -------
James D. Calaway 116,940 70,200 14,800
Michael G. Long 35,507 21,300 8,700
Brian C. Baumler 7,500 4,000 2,500
<PAGE>
Exhibit 10.3
EDGE PETROLEUM CORPORATION
1997 INCENTIVE PLAN
DIRECTOR
NON-QUALIFIED STOCK OPTION AGREEMENT
THIS AGREEMENT ("Agreement") is made as of the 21st day of
May, 1999 (the "Grant Date"), by and between EDGE PETROLEUM CORPORATION, a
Delaware corporation (the "Company"), and _______________ (the "Grantee").
The Company has adopted the Edge Petroleum Corporation 1997
Incentive Plan (the "Plan"), a copy of which is appended to this Agreement as
Exhibit A and by this reference made a part hereof, for the benefit of eligible
employees, directors and independent contractors of the Company and its
Subsidiaries. Capitalized terms used and not otherwise defined herein shall have
the meaning ascribed thereto in the Plan.
The Company hereby documents the automatic grant, pursuant to
the Plan, of the option described herein in order to provide Grantee with
additional remuneration for services rendered, to encourage Grantee to remain a
director of the Company or its Subsidiaries and to increase Grantee's personal
interest in the continued success and progress of the Company.
The Company has further determined that it would be in the
best interests of the Company and the Grantee to recall, surrender and terminate
those certain options heretofore granted to Grantee covering _______ shares of
Company common stock ("Common Stock") as described in a Standard Non-Qualified
Stock Option Agreement between the Company and Grantee dated March 3, 1997, and
________ shares of Company Common Stock as described in a Standard Non-Qualified
Stock Option Agreement between the Company and Grantee dated June 1, 1998
(collectively, the "Prior Stock Options").
The Company and Grantee therefore agree as follows:
1. Termination of Prior Stock Options and Grant of New Option. Grantee
hereby surrenders, relinquishes and re-assigns to the Company the Prior Stock
Options, and the Company and Grantee declare such Prior Stock Options to be
terminated. Subject to the terms and conditions herein, the Company grants to
the Grantee during the period commencing on May 21, 1999 and expiring at 5 p.m.
Houston, Texas time ("Close of Business") on May 21, 2009 (the "Option Term"),
an option to purchase from the Company, at a price equal to $7.0625 per share
(the "Option Price"), _______ shares of Common Stock (the "Option Shares"). The
Option Price and Option Shares are subject to adjustment pursuant to paragraph 7
below. This option is as a "Nonqualified Stock Option" and is hereinafter
referred to as the "Option."
2. Conditions of Exercise. The Option is exercisable only in accordance
with the conditions stated in this paragraph.
(a) Except as otherwise provided in this subparagraph (a), the
Option may only be exercised to the extent the Option Shares have
become available for purchase in accordance with the following
schedule:
Fraction of Option
Date Shares Available for Purchase
---- -----------------------------
May 21, 1999 50%
May 21, 2000 50%
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Notwithstanding the foregoing, no additional Option Shares shall become
available for purchase if Grantee has previously resigned from the
Board without the consent of a majority of the other directors;
provided, however that the Grantee's Option may be exercised during the
remaining Option Term to the extent it was exercisable on the
resignation date.
(b) To the extent the Option becomes exercisable, such Option
may be exercised in whole or in part (at any time or from time to time,
except as otherwise provided herein) until expiration of the Option
Term.
3. Manner of Exercise. The Option shall be considered exercised (as to
the number of Option Shares specified in the notice referred to in subparagraph
(a) below) on the latest of (i) the date of exercise designated in the written
notice referred to in subparagraph (a) below, (ii) if the date so designated is
not a business day, the first business day following such date or (iii) the
earliest business day by which the Company has received all of the following:
(a) Written notice, in such form as the Company, designating,
among other things, the date of exercise and the number of Option
Shares to be purchased;
(b) If the Option is to be exercised, payment of the Option
Price for each Option Share to be purchased in cash, Common Stock or in
such other form (or combination of forms) of payment contemplated by
Section 11 of the Plan as the provisions of Section 11 of the Plan may
permit; provided, however, that any shares of Common Stock delivered in
payment of the Option Price that are or were the subject of a Director
Award must be shares that the Grantee has owned for a period of at
least six months prior to the date of exercise; and
(c) Any other documentation that the Company may reasonably
require.
4. Delivery by the Company. As soon as practicable after receipt of all
items referred to in paragraph 3, the Company shall deliver to the Grantee
certificates issued in Grantee's name for the number of Option Shares purchased
by exercise of the Option. If delivery is by mail, delivery of shares of Common
Stock shall be deemed effected for all purposes when a stock transfer agent of
the Company shall have deposited the certificates in the United States mail,
addressed to the Grantee, and any cash payment shall be deemed effected when a
Company check, payable to Grantee and in an amount equal to the amount of the
cash payment, shall have been deposited in the United States mail, addressed to
the Grantee.
5. Nontransferability of Option. During Grantee's lifetime, the Option
is not transferable (voluntarily or involuntarily) other than pursuant to a
domestic relations order and, except as otherwise required pursuant to a
domestic relations order, is exercisable only by the Grantee or Grantee's court
appointed legal representative. The Grantee may designate a beneficiary or
beneficiaries to whom the Option shall pass upon Grantee's death and may change
such designation from time to time by filing a written designation of
beneficiary or beneficiaries with the Committee on the form annexed hereto as
Exhibit B or such other form as may be prescribed by the Committee, provided
that no such designation shall be effective unless so filed prior to the death
of Grantee. If no such designation is made or if the designated beneficiary does
not survive the Grantee's death, the Option shall pass by will or the laws of
descent and distribution. Following Grantee's death, the Option, if otherwise
exercisable, may be exercised by the person to whom such option passes
accordingly to the foregoing and such person shall be deemed the Grantee for
purposes of any applicable provisions of this Agreement.
6. No Stockholder Rights. The Grantee shall not be deemed for any
purpose to be, or to have any of the rights of, a stockholder of the Company
with respect to any shares of Common Stock as to which this Agreement relates
until such shares shall have been issued to Grantee by the Company. Furthermore,
the existence of this Agreement shall not affect in any way the right or power
of the Company or its stockholders to accomplish any corporate act, including,
without limitation, the acts referred to in Section 15 of the Plan.
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<PAGE>
7. Adjustments. As provided in Section 15 of the Plan, certain
adjustments may be made to the Option upon the occurrence of events or
circumstances described in Section 15 of the Plan.
8. Restrictions Imposed by Law. Without limiting the generality of
Section 16 of the Plan, the Grantee agrees that Grantee will not exercise the
Option and that the Company will not be obligated to deliver any shares of
Common Stock, if counsel to the Company determines that such exercise, or
delivery would violate any applicable law or any rule or regulation of any
governmental authority or any rule or regulation of, or agreement of the Company
with, any securities exchange or association upon which the Common Stock is
listed or quoted. The Company shall in no event be obligated to take any
affirmative action in order to cause the exercise of the Option or the resulting
delivery of shares of Common Stock to comply with any such law, rule, regulation
or agreement.
9. Notice. Unless the Company notifies the Grantee in writing of a
different procedure, any notice or other communication to the Company with
respect to this Agreement shall be in writing and shall be (a) delivered
personally to the following address:
Edge Petroleum Corporation
Texaco Heritage Plaza
1111 Bagby, Suite 2100
Houston, Texas 77002
or (b) sent by first class mail, postage prepaid and addressed as follows:
Edge Petroleum Corporation c/o Corporate
Secretary Texaco Heritage Plaza 1111 Bagby,
Suite 2100 Houston, Texas 77002.
Any notice or other communication to the Grantee with respect to this Agreement
shall be in writing and shall be delivered personally, or shall be sent by first
class mail, postage prepaid, to Grantee's address as listed in the records of
the Company on the Grant Date, unless the Company has received written
notification from the Grantee of a change of address.
10. Governing Law. This Agreement shall be governed by, and construed
in accordance with, the internal laws of the State of Delaware.
11. Construction. References in this Agreement to "this Agreement" and
the words "herein," "hereof," "hereunder" and similar terms include all Exhibits
and Schedules appended hereto, including the Plan. This Agreement is entered
into, and the Award evidenced hereby is granted, pursuant to the Plan and shall
be governed by and construed in accordance with the Plan. Unless otherwise
expressly stated herein, in the event of any inconsistency between the terms of
the Plan and this Agreement, the terms of the Plan shall control. The headings
of the paragraphs of this Agreement have been included for convenience of
reference only, are not to be considered a part hereof and shall in no way
modify or restrict any of the terms or provisions hereof.
12. Duplicate Originals. The Company and the Grantee may sign any
number of copies of this Agreement. Each signed copy shall be an original, but
all of them together represent the same agreement.
13. Entire Agreement. Grantee and the Company hereby declare and
represent that no promise or agreement not herein expressed has been made and
that this Agreement contains the entire agreement between the parties hereto
with respect to the Option and replaces and makes null and void any prior
agreements, oral or written, between Grantee and the Company regarding the
Option.
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<PAGE>
14. Grantee Acceptance. Grantee shall signify acceptance of the terms
and conditions of this Agreement by signing in the space provided at the end
hereof and returning a signed copy to the Company.
ATTEST: EDGE PETROLEUM CORPORATION
By:____________________________
Secretary_____________________ John W. Elias
Chairman & CEO
ACCEPTED:
_______________________________
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<PAGE>
Exhibit B to Non-Qualified Stock Option Agreement dated as of May 21, 1999
Edge Petroleum Corporation 1997 Incentive Plan
Designation of Beneficiary
I,____________________________(the "Grantee"), hereby declare that upon
my death_________________________________________________ (the "Beneficiary") of
Name
- -------------------------------------------------------------------------------,
Street Address City State Zip Code
who is my____________________________________________ , shall be entitled to the
Relationship to Grantee
Option and all other rights accorded the Grantee by the above-referenced
agreement (the "Agreement").
It is understood that this Designation of Beneficiary is made pursuant
to the Agreement and is subject to the conditions stated herein, including the
Beneficiary's survival of the Grantee's death. If any such condition is not
satisfied, such rights shall devolve according to the Grantee's will or the laws
of descent and distribution.
It is further understood that all prior designations of beneficiary
under the Agreement are hereby revoked and that this Designation of Beneficiary
may only be revoked in writing, signed by the Grantee, and filed with the
Company prior to the Grantee's death.
---------------------------- ------------------------------
Date Grantee
5
<PAGE>
Agreements identical to the forgoing were entered into by and between Edge
Petroleum Corporation and Directors of the Company and differences are listed
within the following schedule:
Schedule
--------
Surrendered Reissued New
Name Options Options Options
- ---- ----------- -------- -------
Vincent S. Andrews 8,000 6,300 3,000
David B. Benedict 2,000 2,700 3,000
Nils P. Peterson 2,000 2,700 3,000
Stanley S. Raphael 8,000 6,300 3,000
Robert W. Shower 5,000 4,500 3,000
John Sfondrini 8,000 6,300 3,000
William H. White 5,000 2,500 3,000
6
<PAGE>
Exhibit 10.4
SEVERANCE AGREEMENT
-------------------
Agreement between Edge Petroleum Corporation, a Delaware Corporation (the
"Company"), and ___________________.
WITNESSETH:
-----------
WHEREAS, the Company desires to retain certain key employee personnel and,
accordingly, the Board of Directors of the Company (the "Board") has approved
the Company entering into a severance agreement with Executive in order to
encourage his continued service to the Company; and
WHEREAS, Executive is prepared to commit such services in return for specific
arrangements with respect to severance compensation and other benefits;
NOW THEREFORE, in consideration of the foregoing and for other good and valuable
consideration, the Company and Executive agree as follows:
1. Definitions
-----------
(a) "Change in Duties" shall mean the occurrence, within two years
after the date upon which a Change of Control occurs, of any one
or more of the following:
(i) A significant reduction in the duties of Executive from
those applicable to him immediately prior to the date on
which a Change of Control occurs,
(ii) A reduction in Executive's annual salary or target
opportunity under any applicable bonus or incentive
compensation plan from that provided to him immediately
prior to the date on which a Change of Control occurs;
(iii) Receipt of employee benefits (including, but not limited
to medical, dental, life insurance, accidental death, and
dismemberment, and long-term disability plans) and
perquisites by Executive that are materially inconsistent
with the employee benefits and perquisites provided by the
Company to executives with comparable duties;
(iv) A change in the location of Executive's principal place of
employment by the Company by more than 50 miles from the
location where he was principally employed immediately
prior to the date on which a Change of Control occurs, or
(v) A change encompassed by paragraph 2.3 (i)(c) of the
Employment Agreement dated November 16, 1998, between
Executive and the Company.
(b) "Change of Control" means the occurrence of either of
the following events:
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<PAGE>
(i) The Company (A) shall not be the surviving entity in any
merger, consolidation or other reorganization (or survives
only as a subsidiary of an entity other than a previously
wholly-owned subsidiary of the Company) or (B) is to be
dissolved and liquidated, and as a result of or in
connection with such transaction, the persons who were
directors of the Company before such transaction shall
cease to constitute a majority of the Board;
(ii) Any person or entity, including a "group" as contemplated
by Section 13(d)(3) of the Securities Exchange Act of
1934, as amended, acquires or gains ownership or control
(including, without limitation, power to vote) of 20% or
more of the outstanding shares of the Company's voting
stock (based upon voting power), and as a result of or in
connection with such transaction, the persons who were
directors of the Company before such transaction shall
cease to constitute a majority of the Board; or
(iii) The Company sells all or substantially all of the assets
of the Company to any other person or entity (other than a
wholly-owned subsidiary of the Company) in a transaction
that requires shareholder approval pursuant to the Texas
Business Corporation Act.
(c) "Code" shall mean the Internal Revenue Code of 1986,
as amended.
(d) "Compensation" shall mean the greater of:
(i) Executive's annual salary plus his Targeted Incentive
Award immediately prior to the date on which a Change of
Control occurs, or
(ii) Executive's annual salary plus his Targeted Incentive Award
at the time of his Involuntary Termination.
(e) "Incentive Award" shall mean the amount of any award issued
pursuant to the Edge Petroleum Corporation Incentive Award Plan
or any plan or program successor thereto.
(f) "Involuntary Termination" shall mean any termination of
Executive's employment with the Company which:
(i) does not result from a resignation by Executive (other
than a resignation pursuant to Clause (ii) of this
paragraph (f)) or a resignation at the request of the
Company; or
(ii) results from a resignation by Executive on or before the
date which is sixty days after the date upon which
Executive receives notice of a Change in Duties; provided,
however, the term "Involuntary Termination" shall not
include a Termination for Cause or any termination as a
result of death, disability under circumstances entitling
him to benefits under the Company's long-term disability
plan, or Retirement.
(g) "Retirement" shall mean Executive's voluntary resignation on
or after December 31, 2006 (other than a resignation within
sixty days after the date Executive receives notice of a
change in Duties or a resignation at the request of the
Company).
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<PAGE>
(h) "Severance Amount" shall mean an amount equal to _______ times
Executive's Compensation, reduced by the present value of any
salary continuation payments payable to Executive under the
Employment Agreement between the Company and the Executive
effective as of November 16, 1998 or any successor thereto.
Such present value shall be determined using the rate of
interest referred to in Paragraph 4 hereof as of the last day
of Executive's employment with the Company.
(i) "Targeted Incentive Award" shall mean Executive's Incentive
Target, if any, as set forth under the Incentive Award Plan
effective for the year with respect to which such award is
being determined, if any, or for the last preceding year in
which an Incentive Award was in effect, expressed as a dollar
amount based on such Executive's annual salary for such year.
(j) "Termination for Cause" shall mean termination of Executive's
employment by the Company (or its subsidiaries) by reason of
Executive's gross negligence, gross neglect or willful
misconduct in the performance of his duties or Executive's
final conviction of a felony or of a misdemeanor involving
moral turpitude, excluding misdemeanor convictions relating to
the operation of a motor vehicle.
(k) "Welfare Benefit Coverages" shall mean the medical, dental,
life, insurance, accidental death and dismemberment and
long-term disability coverages provided by the Company to its
active employees.
2. Services. Executive agrees that he will render services to the
Company (as well as any subsidiary thereof or successor thereto)
during the period of his employment to the best of his ability and in
a prudent and businesslike manner.
3. Severance Benefits. If Executive's employment by the Company or any
subsidiary thereof or successor thereto shall be subject to an
Involuntary Termination which occurs within two years after the date
upon which a Change of Control occurs, then Executive shall be
entitled to receive, as additional compensation for services rendered
to the Company (including its subsidiaries), the following severance
benefits:
(a) A lump sum cash payment in an amount equal to Executive's
Severance Amount.
(b) A lump sum cash payment in an amount equal to the remaining
portion of any award to Executive under any prior years'
Incentive Award. Further, if Executive's Involuntary
Termination occurs on or after the date an award has been
earned under the Incentive Award Plan, but prior to the date
such award is paid, Executive shall receive an additional lump
sum cash payment in an amount equal to his Target Incentive
Award.
(c) Executive shall be entitled to continue the Welfare Benefit
Coverages for himself and, where applicable, his eligible
dependents following his Involuntary Termination for up to
thirty-six months, as long as Executive continues either to
pay the premiums paid by active employees of the Company for
such coverages or to pay the actual (nonsubsidized) cost of
such coverages for which the Company does not subsidize for
active employees. Such benefit rights shall apply only to
those Welfare Benefit Coverages which the Company has in
effect from time to time for active employees, and the
applicable payments shall adjust as premiums for active
employees of the Company or actual costs, whichever is
applicable, change.
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<PAGE>
Welfare Benefit Coverage(s) shall immediately end upon
Executive's obtainment of new employment and eligibility for
similar Welfare Benefit coverage(s) (with Executive being
obligated hereunder to promptly report such eligibility to
the Company). Nothing herein shall be deemed to adversely
affect in any way the additional rights, after consideration
of this extension period, of Executive and his eligible
dependents to health care continuation coverage as required
pursuant to Part 6 of Title I of the Employment Retirement
Income Security Act of 1974, as amended.
(d) Executive shall be entitled to receive out-placement services
in connection with obtaining new employment up to a maximum
cost of $6,000, if Executive is seeking new employment.
(e) The severance benefits payable under this agreement shall be
paid to the Executive on or before the fifth day after the
last day of Executive's employment with the Company. Any
severance benefits paid pursuant to this paragraph will be
deemed to be a severance payment and not compensation for the
purposes of determining benefits under the Company's qualified
plans and shall be subject to any required tax withholding.
4. Interest on Late Benefit Payments. If any payment provided for in
Paragraph 3(a) or 3(b) hereof is not made when due, the Company shall
pay to Executive interest on the amount payable from the date that such
payment should have been made under such paragraph until such payment is
made, which interest shall be calculated at a rate equal to two
percentage points over the prime or base rate of interest announced by
Chase Bank of Texas, N.A. for successor thereto) at its principal office
in Houston, Texas and shall change when and as such change in such prime
base rate shall be announced by such bank.
5. Certain Additional Payments by the Company. Notwithstanding anything to
the contrary in this Agreement, in the event that any payment or
distribution by the Company to or for the benefit of Executive, whether
paid or distributed or distributable pursuant to the terms of this
Agreement or otherwise (a "Payment"), would be subject to the excise tax
imposed by Section 4999 of the Code or any interest or penalties with
respect to such excise tax (such excise tax, together with any such
interest or penalties, are hereinafter collectively referred to as the
"Excise Tax"), the Company shall pay to Executive an additional payment
(a "Gross-up Payment") in an amount such that after payment by Executive
of all taxes (including an interest or penalties imposed with respect to
such taxes), including any Excise Tax imposed on any Gross-up Payment,
Executive retains an amount of the Gross-up Payment equal to the Excise
Tax imposed upon the payment. The Company and Executive shall make an
initial determination as to whether a Gross-up Payment is required and
the amount of any such Gross-up Payment. Executive shall notify the
Company in writing of any claim by the Internal Revenue Service which,
if successful, would require the Company to make a Gross-up Payment (or
a Gross-up Payment in excess of that, if any, initially determined by
the Company and Executive) within ten days of the receipt of such claim.
The Company shall notify Executive in writing at least ten days prior to
the due date of any response required with respect to such claim if it
plans to contest the claim. If the Company decides to contest such
claim, Executive shall cooperate fully with the Company in such action;
provided, however, the Company shall bear and pay directly or indirectly
all cost and expenses (including additional interest and penalties)
incurred in connection with such action and shall indemnify and hold
Executive harmless, on an after-tax basis, for any Excise Tax or income
tax, including interest and penalties with respect thereto, imposed as a
result of the Company's
4
<PAGE>
action. If, as a result of the Company's action with respect to a claim,
Executive receives a refund of any amount paid by the Company with
respect to such claim, Executive shall promptly pay such refund to the
Company. If the Company fails to timely notify Executive whether it will
contest such claim or the Company determines not to contest such claim,
then the Company shall immediately pay to Executive the portion of such
claim, if any, which it has not previously paid to Executive.
6. General.
(a) Term. The effective date of this Agreement is _______________.
The initial term of this Agreement shall be the period beginning
on said effective date and ending on the two-year anniversary of
said effective date. Within sixty days after the expiration of
this Agreement and within sixty days after each successive
two-year period of time thereafter that this Agreement is in
effect, the Company shall have the right to review this
Agreement, and in its sole discretion either continue and extend
this Agreement, terminate this Agreement, and/or offer Executive
a different agreement. The Board (excluding any member of the
Board who is covered by this Agreement or by a similar agreement
with the Company) will vote on whether to so extend, terminate,
and/or offer Executive a different agreement and will notify
Executive of such action before the end of said sixty-day time
period mentioned above. This Agreement shall remain in effect
until so terminated and/or modified by the Company. Failure of
the Board to take any action within said sixty-day time period
shall be considered as an extension of this Agreement for an
additional two-year period of time. Notwithstanding anything to
the contrary contained in this "sunset provision," it is agreed
that if a Change of Control occurs while this Agreement is in
effect, then this Agreement shall not be subject to termination
or modification under this "sunset provision," and shall remain
in force for a period of two years after such Change of Control,
and if within said two years the contingency factors occur which
would entitle Executive to the benefits as provided herein, this
Agreement shall remain in effect in accordance with its terms.
If, within such two years after a Change of Control, the
contingency factors that would entitle Executive to said
benefits do not occur, thereupon this two-year "sunset
provision" shall again be applicable with the sixty-day time
period for Board action shall thereafter commence at the
expiration of said two years after such Change of Control and on
each two-year anniversary date thereafter.
(b) Indemnification. If Executive shall obtain any money judgment or
otherwise prevail with respect to any litigation brought by
Executive or the Company to enforce or interpret any provision
contained herein, the Company, to the fullest extent permitted
by applicable law, hereby indemnifies Executive for his
reasonable attorneys' fees and disbursements incurred in such
litigation and hereby agrees (i) to pay in full all such fees
and disbursements and (ii) to pay prejudgment interest on any
money judgment obtained by Executive from the earliest date that
payment to him should have been made under this Agreement until
such judgment shall have been paid in full, which interest shall
be calculated at a rate equal to two percentage points over the
prime or base rate of interest announced by Chase Bank of Texas,
N.A. (or any successor thereto) at its principal office in
Houston, Texas, and shall change when and as any such change in
such prime or base rate shall be announced by such bank.
(c) Payment Obligations Absolute. The Company's obligation to pay or
cause one of its subsidiaries to pay) Executive the amounts and
to make the arrangement provided herein shall be absolute and
unconditional and shall not be affected by any
5
<PAGE>
circumstances, including, without limitation, any set-off,
counterclaim, recoupment, defense or other right which the
Company (including its subsidiaries) may have against him or
anyone else. All amounts payable by the Company (including its
subsidiaries hereunder) shall be paid without notice or demand.
Executive shall not be obligated to seek other employment in
mitigation of the amounts payable or arrangements made under any
provision of this Agreement, and, except as provided in
Paragraph 3 (c) hereof, the obtaining of any such other
employment shall in no event effect any reduction of the
Company's obligations to make (or cause to be made) the payments
and arrangements required to be made under this Agreement.
(d) Successors. This Agreement shall be binding upon and inure to the
benefit of the Company and any successor of the Company, by
merger, combination, asset sale or otherwise. This Agreement
shall also be binding upon and inure to the benefit of Executive
and his estate. If Executive shall die prior to full payment of
amounts due pursuant to this Agreement, such amounts shall be
payable pursuant to the terms of this Agreement to his estate.
(e) Severability. Any provision in this Agreement which is prohibited
or unenforceable in any jurisdiction by reason of applicable law
shall, as to such jurisdiction, be ineffective only to the extent
of such prohibition or unenforceability without invalidating or
affecting the remaining provisions hereof, and any such
prohibition or unenforceability in any jurisdiction shall not
invalidate or render unenforceable such provision in any other
jurisdiction.
(f) Non-Alienation. Executive shall not have any right to pledge,
hypothecate, anticipate or assign this Agreement or the rights
hereunder, except by will or the laws of descent and
distribution.
(g) Notices. Any notices or other communications provided for in this
Agreement shall be sufficient if in writing. In the case of
Executive, such notices or communications shall be effectively
delivered if hand delivered to Executive at his principal place
of employment or if sent by registered or certified mail to
Executive at the last address he has filed with the Company. In
the case of the Company, such notices or communications shall be
effectively delivered if sent by registered or certified mail to
the Company at its principal executive offices.
(h) Controlling Law. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of Texas.
Further, Executive agrees that any legal proceeding to enforce
the provisions of this Agreement shall be brought in Houston,
Harris County, Texas, and hereby waives his right to any pleas
regarding subject matter or personal jurisdiction and venue.
(i) Release. As a condition to the receipt of any benefit under
paragraph 3 hereof, Executive shall first execute a release, in
the form established by the Company, releasing the Company, its
shareholders, partners, officers, directors, employees and agents
from any and all claims and from any and all causes of action of
any kind or character (except claims arising under this
Agreement), including but not limited to all claims or causes of
action arising out of Executive's employment with the Company or,
with the exception of rights provided in any other written
agreement between the Company and Executive, the termination of
such employment.
6
<PAGE>
(j) Full Settlement. If Executive is entitled to and receives the
benefits provided hereunder, performance of the obligations of
the Company hereunder will constitute full settlement of all
claims that executive might otherwise assert against the Company
on account of this termination of employment, except such claims
as may be asserted pursuant to any other agreement between the
Company and Executive.
(k) Unfunded Obligation. The obligation to pay amounts under this
Agreement is an unfunded obligation of the Company (including its
subsidiaries), and no such obligation shall create a trust or be
deemed to be secured by any pledge or encumbrance on any property
of the Company (including its subsidiaries).
(l) Not a Contract of Employment. This Agreement shall not be deemed
to constitute a contract of employment, nor shall any provision
hereof affect (i) the right of the Company (or its subsidiaries)
to discharge Executive at will, subject to the terms of any other
agreement between the Company (or its subsidiaries) and
Executive, or (ii) the terms and conditions of any other
agreement between the Company and Executive except as provided
herein.
(m) Number and Gender. Wherever appropriate herein, words used in the
singular shall include the plural and the plural shall include
the singular. The masculine gender where appearing herein shall
be deemed to include the feminine gender.
(n) Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original,
but all of which together will constitute one and the same
Agreement.
(o) Headings. The headings in this Agreement are for convenience only
and shall be disregarded in construing this Agreement.
IN WITNESS WHEREOF, THE PARTIES HERETO HAVE EXECUTED THIS AGREEMENT ON THE
_________ DAY OF ___________________, 19_____.
"Executive"
--------------------------------
John W. Elias
"Company"
Edge Petroleum Corporation
By: ______________________________
Name: Vincent S. Andrews
Title: Chairman, Compensation Committee
of Board of Directors
7
<PAGE>
Agreements identical to the forgoing were entered into by and between Edge
Petroleum Corporation and Officers of the Company and differences are listed
within the following schedule:
Schedule
--------
Severance
Name Amount (per Sec. 1.h)
- ---- ---------------------
John W. Elias 2.99
Michael G. Long 2.00
Brian C. Baumler 1.25
<PAGE>
<TABLE>
EDGE PETROLEUM CORPORATION
COMPUTATION OF EARNINGS PER SHARE
- ----------------------------------------------------------------------------------------------------------------------
<S> .......................... <C> <C> <C> <C>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------- -----------------------
1999 1998 1999 1998
Basic weighted average common and common equivalent
shares outstanding 9,163,151 7,772,580 8,514,561 7,771,903
Dilutive common stock options 71,160 30,798
---------- ---------- --------- ---------
shares outstanding 9,234,311 7,772,580 8,514,561 7,802,701
========== ========== ========== =========
Net income (loss) before cumulative effect of accounting change $ 95,702 $ (368,409) $ (449,740) $ 297,193
Cumulative effect of accounting change 1,780,835
--------- ---------- ---------- ----------
Net income (loss) $ 95,702 $ (368,409) $ (449,740) $2,078,028
========= ========== ========== ==========
BASIC EARNINGS (LOSS) PER SHARE:
Net income (loss) before cumulative effect of accounting change $ 0.01 $ (0.05) $ (0.05) $ 0.04
Cumulative effect of accounting change 0.23
------- ------- ------- -------
Basic earnings (loss) per share $ 0.01 $ (0.05) $ (0.05) $ 0.27
======= ======= ======= =======
DILUTED EARNINGS (LOSS) PER SHARE:
Net income (loss) before cumulative effect of accounting change $ 0.01 $ (0.05) (0.05) $ 0.04
Cumulative effect of accounting change 0.23
------- ------- ------- -------
Diluted earnings (loss) per share $ 0.01 $ (0.05) $ (0.05) $ 0.27
======= ======= ======= -======
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
(Replace this text with the legend)
</LEGEND>
<CIK> 0001021010
<NAME> Edge Petroleum Corporation
<MULTIPLIER> 1
<CURRENCY> U.S.Dollars
<S> <C>
<PERIOD-TYPE> 9-Mos
<FISCAL-YEAR-END> Dec-31-1999
<PERIOD-START> Jan-01-1999
<PERIOD-END> Sep-30-1999
<EXCHANGE-RATE> 1
<CASH> 982,315
<SECURITIES> 0
<RECEIVABLES> 3,120,334
<ALLOWANCES> 250,000
<INVENTORY> 0
<CURRENT-ASSETS> 4,061,414
<PP&E> 78,945,941
<DEPRECIATION> 32,968,577
<TOTAL-ASSETS> 53,913,799
<CURRENT-LIABILITIES> 7,031,939
<BONDS> 5,450,000
0
0
<COMMON> 91,631
<OTHER-SE> 44,090,229
<TOTAL-LIABILITY-AND-EQUITY> 53,913,799
<SALES> 10,787,549
<TOTAL-REVENUES> 10,787,549
<CGS> 0
<TOTAL-COSTS> 11,194,874
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 18,046
<INCOME-PRETAX> (449,740)
<INCOME-TAX> 0
<INCOME-CONTINUING> (449,740)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (449,740)
<EPS-BASIC> (0.05)
<EPS-DILUTED> (0.05)
</TABLE>
