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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the fiscal year ended December 31, 1998
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from to
Commission File Number: 019020
PETROQUEST ENERGY, INC.
(Exact name of registrant as specified in its charter)
State of incorporation: Delaware I.R.S. Employer Identification No. 98-0115468
625 E. Kaliste Saloom Road
Lafayette, Louisiana 70508
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (318) 232-7028
Securities registered pursuant to Section 12(b) of the Act:
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NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
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Common Stock, Par Value $.001 Per Share The Nasdaq Stock Market
Toronto Stock Exchange
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Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark 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.
[X] Yes [ ] No
Indicate by check mark if disclosure of delinquent filers pursuant
to Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of the registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. [X]
The aggregate market value of the voting stock held by
non-affiliates of the registrant was approximately $8,916,198 as of March 22,
1999 (based on the last reported sale price of such stock on the NASDAQ National
Market System).
As of March 22, 1999, the registrant had outstanding 18,537,347
shares of Common Stock, par value $.001 per share.
Document incorporated by reference: Proxy Statement of
PetroQuest Energy, Inc. relating to the Annual Meeting of Stockholders to be
held on May 25, 1999, which is incorporated into Part III of this Form 10-K.
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TABLE OF CONTENTS
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Page No.
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PART I
Item 1. Business ............................................................ 1
Item 2. Properties .......................................................... 9
Item 3. Legal Proceedings ................................................... 12
Item 4. Submission of Matters to a Vote of Security Holders ................. 12
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters 13
Item 6. Selected Financial Data ............................................. 13
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations ............................................. 14
Item 7A. Disclosure About Market Risks ...................................... 18
Item 8. Financial Statements and Supplementary Data ......................... 18
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure .............................................. 19
PART III
Item 10. Directors and Executive Officers of the Registrant ................. 19
Item 11. Executive Compensation ............................................. 19
Item 12. Security Ownership of Certain Beneficial Owners and Management ..... 19
Item 13. Certain Relationships and Related Transactions ..................... 19
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K .... 19
Index to Financial Statements ....................................... F-1
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This report includes "forward looking statements" within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"). All statements
other than statements of historical facts included in this Form 10-K, including
without limitation statements under "Item 1. Business", "Item 2. Properties" and
"Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations" regarding budgeted capital expenditures, increases in oil and gas
production, the Company's financial position, oil and gas reserve estimates,
business strategy and other plans and objectives for future operations, and
"Item 7A. Disclosure About Market Risks" regarding the impact of changes in
prices and projected annual sales volumes, are forward-looking statements.
Although the Company believes that the expectations reflected in such
forward-looking statements are reasonable, it can give no assurance that such
expectations will prove to have been correct. There are numerous uncertainties
inherent in estimating quantities of proved oil and natural gas reserves and in
projecting future rates of production and timing of development expenditures,
including many factors beyond the control of the Company. Reserve engineering is
a subjective process of estimating underground accumulations of oil and natural
gas that cannot be measured in an exact way, and the accuracy of any reserve
estimate is a function of the quality of available data and of engineering and
geological interpretation and judgment. As a result, estimates made by different
engineers often vary from one another. In addition, results of drilling, testing
and production subsequent to the date of an estimate may justify revisions of
such estimates and such revisions, if significant, would change the schedule of
any further production and development drilling. Accordingly, reserve estimates
are generally different from the quantities of oil and natural gas that are
ultimately recovered. Additional important factors that could cause actual
results to differ materially from the Company's expectations are disclosed under
"Risk Factors" and elsewhere in this Form 10-K. Should one or more of these
risks or uncertainties occur, or should underlying assumptions prove incorrect,
the Company's actual results and plans for 1999 and beyond could differ
materially from those expressed in forward-looking statements. All subsequent
written and oral forward-looking statements attributable to the Company or
persons acting on its behalf are expressly qualified in their entirety by such
factors.
PART I
ITEM 1. BUSINESS
OVERVIEW
PetroQuest Energy, Inc. ("PetroQuest" or the "Company") is an independent
oil and gas company engaged in the generation, exploration, development,
acquisition and operation of oil and gas properties onshore and offshore in the
Gulf Coast Region. The Company and its predecessors have been active in this
area since 1986. The Company's business strategy is to increase production, cash
flow and reserves through generation, exploration, development and acquisition
of properties located in the Gulf Coast Region.
The Company was incorporated under the name "Lathwell Resources Ltd.", by
registration of Articles and Memorandum pursuant to the laws of the province of
British Columbia, Canada on April 11, 1983. On February 5, 1988, consolidating
its common stock on a 1 for 5 basis, the Company changed its name to "Optima
Energy Corporation". On July 9, 1992, the Company changed its name to "Optima
Petroleum Corporation ("Optima") concurrently with a 1 for 2.5 consolidation of
its common stock. It was continued under the Canada Business Corporation Act on
May 23, 1995.
On September 1, 1998, the Company, formerly Optima Petroleum Corporation,
consummated a merger by and among the Company, Optima Energy (U.S.) Corporation,
a wholly owned subsidiary of the Company, and Goodson Exploration Company
("Goodson"), NAB Financial, L.L.C. ("NAB") and Dexco Energy, Inc. ("Dexco"),
pursuant to which the Company acquired 100% of the ownership interests of
American Explorer L.L.C. ("American") (the "Merger") all which were owned by
Goodson, NAB and Dexco. Following the Merger, the Company was continued and
domesticated from a Canadian corporation to a Delaware corporation (the
"Continuation"), changing its name to "PetroQuest Energy, Inc.", and adopting a
new certificate of incorporation. In addition, Optima Energy (U.S.) Corporation
changed its name to PetroQuest Energy, Inc. and became a Louisiana Corporation
and American Explorer, L.L.C. changed its name to PetroQuest Energy One, L.L.C.
The Canadian officers were closed and the Company's headquarters moved to 625 E.
Kaliste Saloom Rd., Suite 400, Lafayette, Louisiana 70508 (318/232-7028).
PetroQuest maintains an offshore exploration office in Houston, Texas.
In connection with the Merger, the Company issued to the owners of
Goodson, NAB and Dexco 7,335,001 shares of Company common stock, par value $.001
per share (the Common Stock), and 1,667,001 Contingent Stock Issue Rights (the
"CSIR"). The CSIRs entitle the holders to receive an additional 1,667,001 shares
of Company Common Stock at such time as
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the trading price for the Company's Common Stock is $5.00 or higher for 20
consecutive trading days. The shares of Common Stock and CSIRs issued in the
Merger were issued to the following persons, each of whom is an officer and
director of the company upon completion of the Merger:
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SHARES OF COMMON STOCK CSIRs
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Charles T. Goodson 2,567,250 583,450
Alfred J. Thomas II (1) 1,309,298 297,560
Ralph J. Daigle 2,200,500 500,000
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(1) Does not include 487,778 shares and 110,856 CSIRs issued to Mr.
Thomas' spouse and an aggregate of 770,175 shares and 175,035 CSIRs
issued to Mr. Thomas' adult children.
As part of the Merger, the following individuals were elected by the
shareholders as additional directors of the Company and also serve as the
executive officers of the Company as set forth below. William C. Leuschner and
Robert L. Hodgkinson continued to serve as directors of the Company after the
Merger.
Charles T. Goodson -- President, Chief Executive Officer and Director
Alfred J. Thomas, II -- Chief Operating Officer and Director
Ralph J. Daigle -- Senior Vice President-Exploration and Director
Robert R. Brooksher -- Chief Financial Officer, Secretary and Director
Daniel G. Fournerat -- Director
EXPLORATION AND DEVELOPMENT ACTIVITIES
PetroQuest currently conducts its exploration and development onshore and
offshore in the Gulf Coast Region. Through the Merger with American, the Company
has an inventory of projects and prospects that are in varying stages of
readiness for drilling. In the near term, exploration and development will be
focused on three areas, the Turtle Bayou Field, the Valentine Field and High
Island Block 494 in Federal OCS waters of the Gulf of Mexico.
TURTLE BAYOU FIELD. The Turtle Bayou Field, located in Terrebonne Parish,
Louisiana (approximately 75 miles southwest of New Orleans) is located in the
western portion of the Houma Embayment, a large structural down-warping of the
continental shelf where a thick sequence of sand and shale was deposited during
middle Miocene time. Within the Houma Embayment are ten significant fields that
today have produced total reserves in excess of six trillion cubic feet of gas
equivalent. All of these fields have seen recent 3-D seismic activity, resulting
in renewed drilling and increased production.
The Company has significant interest in this field and to date has
produced in excess of forty billion cubic feet of gas equivalent. The previous
exploration and development was based on existing 2-D and a 3-D seismic survey
acquired in 1993. A new 3-D survey that was shot by Gecko-Prakla/Schlumberger in
1998 indicated numerous untested fault blocks and up-dip reserves. The Company
expects to drill three wells in this field in 1999, the first of which will
begin in May. The Company drilled its first well after the new 3-D was evaluated
in late 1998. It was completed as a gas well with first production in December,
1998, producing at a rate of 3.4 MMcf per day. Wells drilled in the Turtle
Bayson Field historically have very high flow rates although there can be no
assurance that this will continue.
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VALENTINE FIELD. The Valentine Field, also located in Houma Embayment,
approximately 30 miles east of Turtle Bayou Field and approximately 45 miles
south of New Orleans, Louisiana, has to date produced in excess of one trillion
cubic feet of gas equivalent. The Company and its predecessors, American and
Optima, began this project in 1993. Due to various landowner and partner
problems, only three 2-D seismic lines were ever shot over this significant
south Louisiana salt dome structure and thus virtually no deep exploration ever
occurred. The Company and its partner, a major oil and gas company, acquired an
86 square mile 3-D survey that was delivered on November 1, 1998. Both have
assigned teams to work this project and plan to begin drilling in June, 1999.
Three wells are planned to be drilled in this field in 1999. PetroQuest
anticipates additional exploration in this field as additional financing or cash
flow from success become available. The Company currently has a 35% to 50%
working interest in these prospects.
HIGH ISLAND BLOCK 494. PetroQuest (through American) acquired a 1/3 interest in
this property in 1996. During the later part of 1998, the remaining 2/3 interest
was acquired. The Company sold approximately 58% of this prospect and drilled
the C-1 well in December, 1998 - January, 1999. It was drilled to a total
vertical depth of 8,800 feet and encountered 207 feet of gross hydrocarbon
column with 80 feet of natural gas pay in the objective Cris. S. Sand. The well
tested at 20.3 million cubic feet of natural gas per day. PetroQuest is the
operator and is currently readying facilities for production which is expected
to begin in June, 1999. The Company's year-end reserve report did not include
reserves for this discovery since it was logged and tested after December 31,
1998.
MARKETS
PetroQuest's ability to market oil and gas from the Company's wells
depends upon numerous factors beyond the Company's control, including the extent
of domestic production and imports of oil and gas, the proximity of the gas
production to gas pipelines, the availability of capacity in such pipelines, the
demand for oil and gas by utilities and other end users, the availability of
alternative fuel sources, the effects of inclement weather, and state and
federal regulation of oil and gas production and federal regulation of gas sold
or transported in interstate commerce. No assurance can be given that PetroQuest
will be able to market all of the oil or gas produced by the Company or that
favorable prices can be obtained for the oil and gas PetroQuest produces.
In view of the many uncertainties affecting the supply and demand for oil,
gas and refined petroleum products, the Company is unable to predict future oil
and gas prices and demand or the overall effect such prices and demand will have
on the Company. For the year ended December 31, 1998, Creole Gas Co., El Paso
Energy Marketing Co., and The Meridian Resource & Exploration Co., purchased
18%, 17% and 16%, respectively of the Company's production. PetroQuest does not
believe that the loss of any of the Company's oil purchasers would have a
material adverse effect on the Company's operations. Additionally, since all of
the Company's gas sales are on the spot market, the loss of one or more gas
purchasers should not materially and adversely affect the Company's financial
condition. The marketing of oil and gas by PetroQuest can be affected by a
number of factors which are beyond the Company's control, the exact effects of
which cannot be accurately predicted.
EMPLOYEES
The Company had 25 employees as of December 31, 1998. PetroQuest believes
that its relationships with its employees are satisfactory. None of the
Company's employees are covered by a collective bargaining agreement. From time
to time, the Company utilizes the services of independent contractors to perform
certain services.
FEDERAL REGULATIONS
SALES OF NATURAL GAS. Effective January 1, 1993, the Natural Gas Wellhead
Decontrol Act deregulated prices for all "first sales" of natural gas. Thus, all
sales of gas by the Company may be made at market prices, subject to applicable
contract provisions.
TRANSPORTATION OF NATURAL GAS. The rates, terms and conditions applicable to the
interstate transportation of natural gas by pipelines are regulated by the
Federal Energy Regulatory Commission ("FERC") under the Natural Gas Act ("NGA"),
as well as under section 311 of the Natural Gas Policy Act ("NGPA"). Since 1985,
the FERC has implemented regulations intended to make natural gas transportation
more accessible to gas buyers and sellers on an open-access, non-discriminatory
basis.
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Most recently, in Order No. 636, et seq., the FERC promulgated an
extensive set of new regulations requiring all interstate pipelines to
"restructure" their services. The most significant provisions of Order No. 636
(i) require that interstate pipelines provide firm and interruptible
transportation solely on an "unbundled" basis, separate from their sales
service, and convert each pipeline's bundled firm city-gate sales service into
unbundled firm transportation service; (ii) issue blanket certificates to
pipelines to provide unbundled sales service; (iii) require that pipelines
provide firm and interruptible transportation service on a basis that is equal
in quality for all natural gas supplies, whether purchased from the pipeline or
elsewhere; (iv) require that pipelines provide a new non-discriminatory
"no-notice" transportation service; (v) establish two new, generic programs for
the reallocation of firm pipeline capacity; (vi) require that all pipelines
offer access to their storage facilities on a firm and interruptible, open
access, contract basis; (vii) provide pregranted abandonment of unbundled sales
and interruptible and short-term firm transportation service and conditional
pregranted abandonment of long-term transportation service; (viii) modify
transportation rate design by requiring all fixed costs related to
transportation to be recovered through the reservation charge under the straight
fixed variable ("SFV") method. The order also recognized that the elimination of
city-gate sales service and the implementation of unbundled transportation
service would result in considerable costs being incurred by the pipelines.
Therefore, Order No. 636 provided mechanisms for the recovery by pipelines from
present, former and future customers of certain types of "transition" costs
likely to occur due to these new regulations.
In subsequent orders, the FERC substantially upheld the requirements
imposed by Order No. 636. Pursuant to Order No. 636, pipelines and their
customers engaged in extensive negotiations in order to develop and implement
new service relationships under Order No. 636. Tariffs instituting these new
restructured services were placed into effect on all pipelines on or before
November 1, 1993. Numerous petitions for judicial review of Order No. 636
have been filed and consolidated for review in the United States Court of
Appeals for the D.C. Circuit. In addition, numerous parties have sought
review of separate FERC orders implementing Order No. 636 on individual
pipeline systems. Since the restructuring requirements that emerge from this
lengthy administrative and judicial review process may be materially
different from those of Order No. 636 as originally adopted, it is not
possible to predict what effect, if any, the final rule resulting from Order
No. 636 will have on the Company.
SALES AND TRANSPORTATION OF CRUDE OIL. Sales of crude oil and condensate can be
made by the Company at market prices not subject at this time to price controls.
The price that the Company receives from the sale of these products will be
affected by the cost of transporting the products to market. As required by the
Energy Policy Act of 1992, the FERC has revised its regulations governing the
rates that may be charged by oil pipelines. The new rules, which were effective
January 1, 1995, provide a simplified, generally applicable method of regulating
such rates by use of an index for setting rate ceilings. In certain
circumstances, the new rules permit oil pipelines to establish rates using
traditional cost of service and other methods of ratemaking. The effect that
these new rules may have on moving the Company's products to market cannot yet
be determined. In addition, at the same time as it issued the new rules, the
FERC also issued notices of inquiry regarding market-based pricing for oil
pipeline rates and the information required to be filed for ratemaking and
reporting purposes. It is not possible to predict what rules, if any, the FERC
will ultimately adopt as a result of these inquiry proceedings or the effect
that any rules that are adopted might have on the cost of moving the Company's
products to market.
LEGISLATIVE PROPOSALS. In the past, Congress has been very active in the area of
natural gas regulation. There are legislative proposals pending in various state
legislatures which, if enacted, could significantly affect the petroleum
industry. At the present time it is impossible to predict what proposals, if
any, might actually be enacted by Congress or the various state legislatures and
what effect, if any, such proposals might have on the Company's operations.
FEDERAL, STATE OR AMERICAN INDIAN LEASES. In the event the Company conducts
operations on federal, state or Indian oil and gas leases, such operations must
comply with numerous regulatory restrictions, including various
nondiscrimination statutes, and certain of such operations must be conducted
pursuant to certain on-site security regulations and other appropriate permits
issued by the Bureau of Land Management ("BLM") or Minerals Management Service
or other appropriate federal or state agencies.
The Mineral Leasing Act of 1920 ("Mineral Act") prohibits direct or
indirect ownership of any interest in federal onshore oil and gas leases by a
foreign citizen of a country that denies "similar or like privileges" to
citizens of the United States. Such restrictions on citizens of a
"non-reciprocal" country include ownership or holding or controlling stock in a
corporation that holds a federal onshore oil and gas lease. If this restriction
is violated, the corporation's lease can be cancelled in a proceeding instituted
by the United States Attorney General. Although the regulations of the BLM
(which administers the Mineral Act) provide for agency designations of
non-reciprocal countries, there are presently no such
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designations in effect. The Company owns interests in numerous federal onshore
oil and gas leases. It is possible that holders of equity interests in the
Company may be citizens of foreign countries, which at some time in the future
might be determined to be non-reciprocal under the Mineral Act.
STATE REGULATIONS
Most states regulate the production and sale of oil and natural gas,
including requirements for obtaining drilling permits, the method of developing
new fields, the spacing and operation of wells and the prevention of waste of
oil and gas resources. The rate of production may be regulated and the maximum
daily production allowable from both oil and gas wells may be established on a
market demand or conservation basis or both.
PetroQuest may enter into agreements relating to the construction or
operation of a pipeline system for the transportation of natural gas. To the
extent that such gas is produced, transported and consumed wholly within one
state, such operations may, in certain instances, be subject to the jurisdiction
of such state's administrative authority charged with the responsibility of
regulating intrastate pipelines. In such event, the rates which the Company
could charge for gas, the transportation of gas, and the construction and
operation of such pipeline would be subject to the rules and regulations
governing such matters, if any, of such administrative authority.
ENVIRONMENTAL REGULATIONS
GENERAL. The Company's activities are subject to existing federal, state and
local laws and regulations governing environmental quality and pollution
control. Although no assurances can be made, the Company believes that, absent
the occurrence of an extraordinary event, compliance with existing federal,
state and local laws, regulations and rules regulating the release of materials
in the environment or otherwise relating to the protection of the environment
will not have a material effect upon the capital expenditures, earnings or the
competitive position of the Company with respect to its existing assets and
operations. The Company cannot predict what effect additional regulation or
legislation, enforcement policies thereunder, and claims for damages to
property, employees, other persons and the environment resulting from the
Company's operations could have on its activities.
Activities of PetroQuest with respect to natural gas facilities, including
the operation and construction of pipelines, plants and other facilities for
transporting, processing, treating or storing natural gas and other products,
are subject to stringent environmental regulation by state and federal
authorities including the United States Environmental Protection Agency ("EPA").
Such regulation can increase the cost of planning, designing, installation and
operation of such facilities. In most instances, the regulatory requirements
relate to water and air pollution control measures. Although the Company
believes that compliance with environmental regulations will not have a material
adverse effect on it, risks of substantial costs and liabilities are inherent in
oil and gas production operations, and there can be no assurance that
significant costs and liabilities will not be incurred. Moreover, it is possible
that other developments, such as stricter environmental laws and regulations,
and claims for damages to property or persons resulting from oil and gas
production, would result in substantial costs and liabilities to the Company.
SOLID AND HAZARDOUS WASTE. The Company owns or leases numerous properties that
have been used for production of oil and gas for many years. Although the
Company has utilized operating and disposal practices standard in the industry
at the time, hydrocarbons or other solid wastes may have been disposed or
released on or under these properties. In addition, many of these properties
have been operated by third parties. The Company had no control over such
entities' treatment of hydrocarbons or other solid wastes and the manner in
which such substances may have been disposed or released. State and federal laws
applicable to oil and gas wastes and properties have gradually become stricter
over time. Under these new laws, the Company could be required to remove or
remediate previously disposed wastes (including wastes disposed or released by
prior owners or operators) or property contamination (including groundwater
contamination by prior owners or operators) or to perform remedial plugging
operations to prevent future contamination.
The Company generates wastes, including hazardous wastes, that are subject
to the Federal Resource Conservation and Recovery Act ("RCRA") and comparable
state statutes. The EPA has limited the disposal options for certain hazardous
wastes and is considering the adoption of stricter disposal standards for
nonhazardous wastes. Furthermore, it is possible that certain wastes currently
exempt from treatment as "hazardous wastes" generated by the Company's oil and
gas operations may in the future be designated as "hazardous wastes" under RCRA
or other applicable statutes, and therefore be subject to more rigorous and
costly disposal requirements.
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SUPERFUND. The Comprehensive Environmental Response, Compensation and Liability
Act ("CERCLA"), also known as the "Superfund" law, imposes liability, without
regard to fault or the legality of the original conduct, on certain classes of
persons with respect to the release of a "hazardous substance" into the
environment. These persons include the owner and operator of a site and persons
that disposed or arranged for the disposal of the hazardous substances found at
a site. CERCLA also authorizes the EPA and, in some cases, third parties to take
actions in response to threats to the public health or the environment and to
seek to recover from the responsible classes of persons the costs of such
action. Neither the Company nor its predecessors have been designated as a
potentially responsible party by the EPA under CERCLA with respect to any such
site.
OIL POLLUTION ACT. The Oil Pollution Act of 1990 (the "OPA") and regulations
thereunder impose a variety of regulations on "responsible parties" related to
the prevention of oil spills and liability for damages resulting from such
spills in United States waters. A "responsible party" includes the owner or
operator of a facility or vessel, or the lessee or permittee of the area in
which an offshore facility is located. The OPA assigns liability to each
responsible party for oil removal costs and a variety of public and private
damages. While liability limits apply in some circumstances, a party cannot take
advantage of liability limits if the spill was caused by gross negligence or
willful misconduct or resulted from violation of a federal safety, construction
or operating regulation. If the party fails to report a spill or to cooperate
fully in the cleanup, liability limits likewise do not apply. Few defenses exist
to the liability imposed by the OPA.
The OPA also imposes ongoing requirements on a responsible party,
including proof of financial responsibility to cover at least some costs in a
potential spill. On August 25, 1993, an advance notice of intention to adopt a
rule under the OPA was published that would require owners and operators of
offshore oil and gas facilities to establish $150 million in financial
responsibility. Under the proposed rule, financial responsibility could be
established through insurance, guaranty, indemnity, surety bond, letter of
credit, qualification as a self-insurer or a combination thereof. It is unlikely
that insurance companies or underwriters will be willing to provide coverage
under the OPA because the statute provides for direct lawsuits against insurers
who provide financial responsibility coverage, and most insurers have strongly
protested this requirement. The financial tests or other criteria that will be
used to judge self-insurance are also uncertain. A number of bills are pending
in the United States Congress to amend or modify the financial responsibility
requirements under OPA. The Company cannot predict the final form of the
financial responsibility rule that will be adopted. If the original requirements
under OPA are not amended, regulations promulgated thereunder may have the
potential to result in the imposition of substantial additional annual costs on
the Company or otherwise materially adversely affect the Company. The impact of
the rule should not be any more adverse to the Company than it will be to other
similarly or less capitalized owners or operators in the Gulf of Mexico. Pending
adoption of final regulations the Company has not taken any steps to establish
financial responsibility under the OPA.
AIR EMISSIONS. The operations of the Company are subject to local, state and
federal regulations for the control of emissions from sources of air pollution.
Administrative enforcement actions for failure to comply strictly with air
regulations or permits are generally resolved by payment of monetary fines and
correction of any identified deficiencies. Alternatively, regulatory agencies
could require the Company to forego construction or operation of certain air
emission sources, although the Company believes that in such case it would have
enough permitted or permittable capacity to continue its operations without a
material adverse effect on any particular producing field.
OSHA. The Company is subject to the requirements of the Federal Occupational
Safety and Health Act ("OSHA") and comparable state statutes. The OSHA hazard
communication standard, the EPA community right-to-know regulations under Title
III of the Federal Superfund Amendment and Reauthorization Act and similar state
statutes require the Company to organize and/or disclose information about
hazardous materials used or produced in its operations. Certain of this
information must be provided to employees, state and local governmental
authorities and local citizens.
Management believes that the Company is in substantial compliance with
current applicable environmental laws and regulations and that continued
compliance with existing requirements will not have a material adverse impact on
the Company.
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RISK FACTORS
VOLATILITY OF OIL AND GAS PRICES; MARKETABILITY OF PRODUCTION. The Company's
revenues, profitability and future growth and the carrying value of its oil and
gas properties are substantially dependent on prevailing prices of oil and gas.
The Company's ability to maintain or increase its borrowing capacity and to
obtain additional capital on attractive terms is also substantially dependent
upon oil and gas prices. Prices for oil and gas are subject to large
fluctuations in response to relatively minor changes in the supply of and demand
for oil and gas, market uncertainty and a variety of additional factors beyond
the control of the Company. These factors include weather conditions in the
United States, the condition of the United States economy, the action of the
Organization of Petroleum Exporting Countries, governmental regulation,
political stability in the Middle East and elsewhere, the foreign supply of oil
and gas, the price of foreign imports and the availability of alternate fuel
sources. Any substantial and extended decline in the price of oil or gas would
have an adverse effect on the Company's carrying value of its proved reserves,
borrowing capacity, revenues, profitability and cash flows from operations.
In addition, the marketability of the Company's production depends upon
the availability and capacity of gas gathering systems, pipelines and processing
facilities. Federal and state regulation of oil and gas production and
transportation, general economic conditions and changes in supply and demand all
could adversely affect the Company's ability to produce and market its oil and
natural gas. If market factors were to change dramatically, the financial impact
on the Company could be substantial. The availability of markets and the
volatility of product prices are beyond the control of the Company and represent
a significant risk.
OPERATING HAZARDS, OFFSHORE OPERATIONS AND UNINSURED RISKS. PetroQuest's
operations are subject to risks inherent in the oil and gas industry, such as
blowouts, cratering, explosions, uncontrollable flows of oil, gas or well
fluids, fires, pollution and other environmental risks. These risks could result
in substantial losses to the Company due to injury and loss of life, severe
damage to and destruction of property and equipment, pollution and other
environmental damage and suspension of operations. Moreover, a portion of the
Company's operations are offshore and therefore are subject to a variety of
operating risks peculiar to the marine environment, such as hurricanes or other
adverse weather conditions, to more extensive governmental regulation, including
regulations that may, in certain circumstances, impose strict liability for
pollution damage, and to interruption or termination of operations by
governmental authorities based on environmental or other considerations.
The Company maintains insurance of various types to cover its operations,
including maritime employer's liability and comprehensive general liability.
Amounts in excess of base coverages are provided by primary and excess umbrella
liability policies with maximum limits of $35 million. In addition, the Company
maintains operator's extra expense coverage, which provides coverage for the
control of wells drilled and/or producing and redrilling expenses and pollution
coverage for wells out of control.
No assurances can be given that PetroQuest will be able to maintain
adequate insurance in the future at rates the Company considers reasonable. The
occurrence of a significant event not fully insured or indemnified against could
materially and adversely affect the Company's financial condition and results of
operations.
ESTIMATES OF OIL AND GAS RESERVES. This Form 10-K contains estimates of oil and
gas reserves, and the future net cash flows attributable to those reserves,
prepared by the Ryder Scott Company, independent petroleum and geological
engineers ("Ryder Scott"). There are numerous uncertainties inherent in
estimating quantities of proved reserves and cash flows attributable to such
reserves, including factors beyond the control of the Company and Ryder Scott.
Reserve engineering is a subjective process of estimating underground
accumulations of oil and gas that cannot be measured in an exact manner. The
accuracy of an estimate of quantities of reserves, or of cash flows attributable
to such reserves, is a function of the available data, assumptions regarding
future oil and gas prices and expenditures for future development and
exploitation activities, and of engineering and geological interpretation and
judgment. Additionally, reserves and future cash flows may be subject to
material downward or upward revisions, based upon production history,
development and exploitation activities and prices of oil and gas. Actual future
production, revenue, taxes, development expenditures, operating expenses,
quantities of recoverable reserves and the value of cash flows from such
reserves may vary significantly from the assumptions and estimates set forth
herein. In addition, reserve engineers may make different estimates of reserves
and cash flows based on the same available data. In calculating reserves on a
Mcfe basis, oil was converted to gas equivalent at the ratio of six Mcf of gas
to one Bbl of oil. While this ratio approximates the energy equivalency of gas
to oil on a Btu basis, it may not represent the relative prices received by the
Company on the sale of its oil and gas production.
7
<PAGE> 10
The estimated quantities of proved reserves and the discounted present
value of future net cash flows attributable to estimated proved reserves set
forth in this Form 10-K were prepared by Ryder Scott in accordance with the
rules of the Securities and Exchange Commission (the "Commission"), and are not
intended to represent the fair market value of such reserves.
ABILITY TO REPLACE RESERVES. The Company's future success depends upon its
ability to find, develop and acquire additional oil and gas reserves that are
economically recoverable. As is generally the case in the Gulf Coast region,
many of the Company's producing properties are characterized by a high initial
production rate, followed by a steep decline in production. As a result, the
Company must locate and develop or acquire new oil and gas reserves to replace
those being depleted by production. Without successful exploration or
acquisition activities, the Company's reserves and revenues will decline
rapidly. No assurances can be given that the Company will be able to find and
develop or acquire additional reserves at an acceptable cost.
SUBSTANTIAL CAPITAL REQUIREMENTS. PetroQuest makes, and will continue to make,
substantial capital expenditures for the exploitation, exploration, acquisition
and production of oil and gas reserves. Historically, the Company has financed
these expenditures primarily with cash generated by operations and proceeds from
bank borrowings. If revenues or the Company's borrowing base decrease as a
result of lower oil and gas prices, operating difficulties or declines in
reserves, the Company may have limited ability to expend the capital necessary
to undertake or complete future drilling programs. There can be no assurance
that additional debt or equity financing or cash generated by operations will be
available to meet these requirements.
CONTROL BY MANAGEMENT. Executive officers and directors of the Company
beneficially own approximately 44% of the outstanding Common Stock of the
Company (the "Common Stock"). This percentage ownership is based on the number
of shares of Common Stock outstanding at March 22, 1999 and the beneficial
ownership of such persons at such date. As a result, these persons may be in a
position to control the Company through their ability to determine the outcome
of elections of the Company's directors and certain other matters requiring the
vote or consent of the Company's stockholders.
COMPETITION. The Company operates in the highly competitive areas of oil and gas
exploration, development and production. The availability of funds and
information relating to a property, the standards established by the Company for
the minimum projected return on investment, the availability of alternate fuel
sources and the intermediate transportation of gas are factors which affect the
Company's ability to compete in the marketplace. The Company's competitors
include major integrated oil companies, substantial independent energy
companies, affiliates of major interstate and intrastate pipelines and national
and local gas gatherers, many of which possess greater financial and other
resources than the Company.
ENVIRONMENTAL AND OTHER REGULATIONS. PetroQuest's operations are subject to
numerous laws and regulations governing the discharge of materials into the
environment or otherwise relating to environmental protection. These laws and
regulations may require the acquisition of a permit before drilling commences,
restrict the types, quantities and concentration of various substances that can
be released into the environment in connection with drilling and production
activities, limit or prohibit drilling activities on certain lands lying within
wilderness, wetlands and other protected areas, require remedial measures to
mitigate pollution from former operations, such as plugging abandoned wells, and
impose substantial liabilities for pollution resulting from the Company's
operations. Moreover, the recent trend toward stricter standards in
environmental legislation and regulation is likely to continue. The enactment of
stricter legislation or the adoption of stricter regulation could have a
significant impact on the operating costs of the Company, as well as on the oil
and gas industry in general.
The Company's operations could result in liability for personal injuries,
property damage, oil spills, discharge of hazardous materials, remediation and
clean-up costs and other environmental damages. Moreover, the Company could be
liable for environmental damages caused by previous property owners. As a
result, substantial liabilities to third parties or governmental entities may be
incurred; the payment of which could have a material adverse effect on the
Company's financial condition and results of operations. The Company maintains
insurance coverage for its operations, including limited coverage for sudden and
accidental environmental damages, but does not believe that insurance coverage
for environmental damages that occur over time is available at a reasonable
cost. Moreover, the Company does not believe that insurance coverage for the
full potential liability that could be caused by sudden and accidental
environmental damages is available at a reasonable cost. Accordingly, the
Company may be subject to liability or may lose the privilege to continue
exploration or production activities upon substantial portions of its properties
in the event of certain environmental damages.
8
<PAGE> 11
The Oil Pollution Act of 1990 imposes a variety of regulations on
"responsible parties" related to the prevention of oil spills. The
implementation of new, or the modification of existing, environmental laws or
regulations, including regulations promulgated pursuant to the Oil Pollution Act
of 1990, could have a material adverse impact on the Company.
ITEM 2. PROPERTIES
The Company is engaged in the development, exploration, acquisition and
operation of oil and gas properties onshore and offshore in the Gulf Coast
Region. As of December 31, 1998, the Company's estimated proved reserves totaled
504 thousand barrels of oil and 10.6 billion cubic feet of natural gas, with
pre-tax present value discounted at 10%, of the estimated future net revenues
based on constant prices in effect at year-end ("Discounted Cash Flow") of $11.7
million. Gas constituted approximately 78% of the Company's total estimated
proved reserves and approximately 69% of the Company's reserves are proved
developed reserves. The Company operates 18 wells representing approximately 56%
of the total Discounted Cash Flow attributable to estimated proved reserves.
SIGNIFICANT PROPERTIES
VALENTINE FIELD, LAFOURCHE PARISH, LA.
PetroQuest, for the account of all working interest owners, negotiated a
Joint 3-D Seismic Program with a major oil and gas company ("Program Partner").
The salient points of the contract are as follows:
1. PetroQuest and its partners will reserve all existing production and existing
well bores. PetroQuest has an 87.5% working interest. Production currently
averages 56 Bbl per day and 670 Mcf per day from 8 wells.
2. PetroQuest and partners will assign to Program Partner 50% of their leasehold
interest within a 100 square mile area, approximately 10,576 gross acres.
This results in a working interest for the Company of 43.75%.
3. The Program Partner, at its cost, has optioned jointly approved unleased
prospective acreage, totaling approximately 14,989 acres and has permitted
the remaining acreage necessary to acquire the 3-D survey. Acreage currently
under option and lease totals 27,064 gross acres.
4. Program Partner designed and acquired an approximate 100 square mile 3-D
survey and delivered one complete data set to PetroQuest in the fourth
quarter of 1998.
5. All further cost to reprocess, interpret, exercise lease options, lease
additional acreage and drill and develop the Valentine area will be on an
actual cost basis borne by all working interest owners.
PetroQuest will be the operator of the exploration, development and
operations of the Valentine prospect. Program Partner has acted as operator of
the 3-D survey design and acquisition.
The Company is in the preliminary stage of its evaluation of the 3-D data
and has thus far identified four prospects. The first well is scheduled to be
drilled in June, 1999, with multiple objectives. PetroQuest is expected to have
a 36.6% working interest and 27.5% net revenue interest in this well.
Scheduled drilling of the other three prospects has not yet been
determined. Similar interests are anticipated for these prospects with the same
multi-pay objectives. Further evaluation of the 3-D data is an ongoing process.
TURTLE BAYOU FIELD, TERREBONNE PARISH, LA.
PetroQuest has participated in the drilling of 10 wells in Turtle Bayou
Field. Currently, there are 5 producing wells in the field in which the Company
holds a working interest. Collectively, the 5 producing wells averaged 7400 Mcf
of natural gas and 100 barrels of condensate per day for the month of December,
1998. PetroQuest's working interest varies between 46.19% and 16.98% with a
weighted average working interest of 38.34%.
9
<PAGE> 12
A 3-D regional seismic survey has recently been shot and acquired by the
Company which incorporates the Turtle Bayou Field. Thus far, three prospects
with multiple objectives have been identified. The first well is expected to
begin drilling in May, 1999.
BULLY CAMP FIELD, LAFOURCHE PARISH, LA.
PetroQuest through a predecessor company acquired a 100% working interest
in this property in 1993. In December, 1998, 6 wells in this field were
producing at a combined rate of 2700 MMcf of gas per day.
MERIDIAN RESOURCES JOINT VENTURE, LA.
Pursuant to the master participation agreement with Meridian Resource
Corporation dated October 1, 1993, PetroQuest has evaluated ten prospect areas
of which five have been drilled, four rejected pursuant to the geological and
geophysical review and one prospect at Stella is to be drilled at a later date
to be determined. Drilling has resulted in 7 currently producing wells at a
combined rate of 1800 barrels of oil per day and 5500 Mcf of gas per day.
PetroQuest's working interest averages 8% in these wells.
BRAZOS BLOCK 446, TEXAS OFFSHORE STATE WATERS
PetroQuest, through a predecessor company, acquired a 44% working interest
in this property in early 1997. During 1998, the platform was refurbished, a
compressor installed and a well acidized increasing production by 1000 Mcf of
gas per day. Current production is approximately 4200 Mcf of gas per day from
three wells.
GALVESTON BLOCK 303, FEDERAL OCS WATERS
PetroQuest, through a predecessor, generated and drilled the discovery
well on this property in 1996. The Company has a 21.875% working interest in
this field. In addition to drilling and completing 3 wells, one well and a
production platform were acquired. The initial phase of exploration and
development of this field has been completed. Current production is 7200 Mcf per
day from four wells.
HIGH ISLAND BLOCK 494, FEDERAL OCS WATERS
PetroQuest, through a predecessor, and its partners acquired a 1/3
interest in this property in 1996. During the later part of 1998, the remaining
2/3 interest was acquired. The Company sold approximately 58% of this prospect
and drilled the C-1 well in December, 1998 - January, 1999. The well encountered
207 feet of gross hydrocarbon column with 80 feet of net natural gas pay. The
well tested at 20.3 Mcf of natural gas per day. Since the well was logged and
tested subsequent to year end, it has not been included in the Company's
December 31, 1998 reserve report. Production to the sales line is expected by
early June, 1999.
OIL AND GAS RESERVES
The following table sets forth certain information about the estimated
proved reserves of the Company as of December 31, 1998 (See Item 1. Business
- - Estimates of Oil and Gas Reserves).
<TABLE>
<CAPTION>
Oil (MBbls) Gas (MMcfs)
<S> <C> <C> <C>
Proved developed: 275 7,722
Proved undeveloped: 229 2,839
Total proved: 504 10,561
Estimated pre-tax future net cash flows (000's) $14,750
Discounted pre-tax future net cash flows (000's) $11,676
</TABLE>
10
<PAGE> 13
The Company's independent reserve engineers (Ryder Scott Company) prepared
the estimates of proved reserves and future net cash flows (and present value
thereof) attributable to such proved reserves for 1998. Reserves were estimated
using oil and gas prices and production and development costs in effect at
December 31, 1998 without escalation, and were otherwise prepared in accordance
with Securities and Exchange Commission regulations regarding disclosure of oil
and gas reserve information. The average product prices used in developing the
above estimates were $9.84 per Bbl of oil and $2.00 per MMBtu of gas. Because of
the high btu content of the Company's Gulf Coast gas, this equates to an average
price realized of approximately $2.25 per Mcf.
The Company has not filed any reports with other federal agencies which
contain an estimate of total proved net oil and gas reserves.
OIL AND GAS DRILLING ACTIVITY
The following table sets forth the wells drilled and completed by the
Company during the periods indicated. All such wells in 1997 and 1998 were
drilled in the continental United States. Wells drilled in 1996 include both the
United States and Canada.
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------
1998 1997 1996
---- ---- ----
Gross Net Gross Net Gross Net
----- --- ----- --- ----- ---
<S> <C> <C> <C> <C> <C> <C>
Exploration:
Productive 2 .74 4 .72 5 .60
Non-Productive -- -- 2 .33 6 1.28
-- ---- -- ---- -- ----
Total 2 .74 6 1.05 11 1.88
== ==== == ==== == ====
Development:
Productive -- -- 2 .33 2 .23
Non-Productive -- -- -- -- -- --
-- ---- -- ---- -- ----
Total -- -- 2 .33 2 .23
== ==== == ==== == ====
</TABLE>
The Company owned working interests in 36 gross (15.3 net) producing oil
and gas wells at December 31, 1998. At December 31, 1998, the Company had one
exploratory well in progress, which has subsequently been logged and tested and
completion procedures begun.
LEASEHOLD ACREAGE
The following table shows the approximate developed and undeveloped (gross
and net) leasehold acreage of the Company as of December 31, 1998.
<TABLE>
<CAPTION>
Leasehold Acreage
-----------------
Developed Undeveloped
--------- -----------
Gross Net Gross Net
----- --- ----- ---
<S> <C> <C> <C> <C>
Mississippi (onshore) -- -- 10,123 6,750
New Mexico (onshore) -- -- 537 134
Louisiana (onshore) 8,251 2,198 21,953 7,069
Texas (offshore) 1,440 660 -- --
Federal Waters 11,520 3,679 14,995 11,245
------ ------ ------ ------
Total 21,211 6,537 47,608 25,198
====== ====== ====== ======
</TABLE>
In addition, PetroQuest has 14,989 gross acres and 6,558 net acres under
option in Louisiana and 809 gross acres and 539 net acres under option in
Mississippi.
11
<PAGE> 14
TITLE TO PROPERTIES
The Company believes that the title to its oil and gas properties is good
and defensible in accordance with standards generally accepted in the oil and
gas industry, subject to such exceptions which, in the opinion of the Company,
are not so material as to detract substantially from the use or value of such
properties. The Company's properties are typically subject, in one degree or
another, to one or more of the following: royalties and other burdens and
obligations, express or implied, under oil and gas leases; overriding royalties
and other burdens created by the Company or its predecessors in title; a variety
of contractual obligations (including, in some cases, development obligations)
arising under operating agreements, farmout agreements, production sales
contracts and other agreements that may affect the properties or their titles;
back-ins and reversionary interests existing under purchase agreements and
leasehold assignments; liens that arise in the normal course of operations, such
as those for unpaid taxes, statutory liens securing obligations to unpaid
suppliers and contractors and contractual liens under operating agreements;
pooling, unitization and communitization agreements, declarations and orders;
and easements, restrictions, rights-of-way and other matters that commonly
affect property. To the extent that such burdens and obligations affect the
Company's rights to production revenues, they have been taken into account in
calculating the Company's net revenue interests and in estimating the size and
value of the Company's reserves. The Company believes that the burdens and
obligations affecting its properties are conventional in the industry for
properties of the kind owned by the Company.
ITEM 3. LEGAL PROCEEDINGS
There are no legal proceedings to which the Company or its subsidiaries is
a party or by which any of its property is subject, other than ordinary and
routine litigation due to the business of producing and exploring for oil and
natural gas, except as follows:
S.W. HOLMWOOD
An appeal is currently pending before the United States Court of Appeals
for the Fifth Circuit from the decision of the United States District Court for
the Western District of Louisiana (Lake Charles Division) in the matter Amoco
Production Company v. The Meridian Resource & Exploration Company, No. 98-30724,
United States Court of Appeal for the Fifth Circuit which involves the Company's
Southwest Holmwood Prospect, Cameron Parish, Louisiana. The Company holds a
beneficial four percent (4%) working interest in the prospect by virtue of a
participation agreement with the defendant. Proceeding in the trial court
(instituted on July 11, 1996), resulted in judgment against the defendant
dissolving the oil and gas lease and the associated joint exploration agreement.
The trial judge further terminated the defendant's interest in two wells
effective July 26, 1996 and awarded post-termination production revenues to the
plaintiff. The claims of the plaintiff and the litigation are being actively and
aggressively defended by the defendant in the United States Court of Appeal.
Since the outcome of the litigation is indeterminable, the Company has recorded
100% of the cumulative net operating income to date aggregating to $700,000 in
other liabilities in its consolidated financial statements.
WILDHAY
The Company is party to court proceedings in the Court of Queen's Bench of
the Province of Alberta commenced by a drilling contractor, (on May 13, 1996),
Artisian Corporation, relative to the drilling of a well on behalf of the
Company and a joint venture partner. The Company has defended the proceedings
and filed a counter claim for breach of contract against Artisan Corporation and
claims of negligence against Artisan Corporation and Tuboscope Vetco Canada Inc.
for an amount which exceeds the claim of the drilling contractor. The Company's
claim includes thrown away costs and expenses for loss of the well and damages.
The well costs were included in Oil and Gas Properties at December 31, 1998.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of security holders during the
fourth quarter of 1998.
12
<PAGE> 15
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock trades on The Nasdaq Stock Market under the
symbol "PQUE" and on the Toronto Stock Exchange under the symbol "PQU". The
following table lists high and low sales prices per share for the periods
indicated.
<TABLE>
<CAPTION>
The Nasdaq Stock Market Toronto Stock Exchange
----------------------- ----------------------
Quarter Ended High Low High Low
- ------------- ---- --- ---- ---
(U.S.$) (U.S.$) (Cdn.$) (Cdn.$)
<S> <C> <C> <C> <C>
1997
1st Quarter 3.06 2.13 4.10 2.95
2nd Quarter 2.56 2.00 3.50 2.75
3rd Quarter 2.13 1.38 3.25 2.00
4th Quarter 2.31 1.50 3.85 1.50
1998
1st Quarter 1.69 1.00 2.50 1.41
2nd Quarter 1.69 .88 2.25 1.35
3rd Quarter 1.25 .63 1.50 1.50
4th Quarter 1.13 .56 1.55 1.00
</TABLE>
As of March 22, 1999, there were approximately 947 common stockholders of
record.
The Company has not paid dividends on the Common Stock and intends to
retain its cash flow from operations for the future operation and development of
its business. In addition, the Company's credit facility restricts payments of
dividends on its common stock.
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth, as of the dates and for the periods
indicated, selected financial information for the Company. The financial
information for each of the five years in the period ended December 31, 1998
have been derived from the audited Consolidated Financial Statements of the
Company for such periods. The information should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Consolidated Financial Statements and notes thereto. The
following information is not necessarily indicative of future results of the
Company. All amounts are stated in U.S. dollars unless otherwise indicated.
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------
1998 1997 1996 1995 1994
------- ------- ------- ------- -------
(000's omitted except per share data)
<S> <C> <C> <C> <C> <C>
Revenues $ 3,377 $ 4,145 $ 7,982 $ 3,888 $ 2,448
Net Income (Loss) ($16,240) ($ 2,914) $ 169 ($ 2,002) ($ 3,157)
Earnings (Loss) per share ($ 1.20) ($ 0.26) $ 0.01 ($ 0.22) ($ 0.41)
Oil and Gas Properties, net $ 17,423 $ 12,862 $24,909 $ 23,396 $ 15,880
Total Assets $ 20,066 $ 20,163 $29,641 $ 27,558 $ 17,687
Long-term Debt $ 1,300 $ 100 $ 4,488 $ 5,418 $ 1,319
Stockholder's Equity $ 13,336 $ 18,740 $22,314 $ 20,360 $ 14,865
</TABLE>
13
<PAGE> 16
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
GENERAL -
PetroQuest Energy, Inc. is an independent oil and gas company engaged in
the development, exploration, acquisition and operation of oil and gas
properties onshore and offshore in the Gulf Coast Region. The Company and its
predecessors have been active in this area since 1986, which gives the Company
extensive geophysical, technical and operational expertise in this area. The
Company's business strategy is to increase production, cash flow and reserves
through exploration, development and acquisition of properties located in the
Gulf Coast Region.
MERGER OF OPTIMA ENERGY (U.S.) CORPORATION -
On September 1, 1998, the Company completed its transaction to merge its
wholly owned subsidiary Optima Energy (U.S.) Corporation with American Explorer,
L.L.C. (American). Concurrent with the transaction, the Company became a
Delaware corporation and converted each share of no par value common stock into
one share of the Company's $.001 par value common stock and changed its name
from Optima Petroleum Corporation to PetroQuest Energy, Inc. American conducted
oil and natural gas exploration activities in the Gulf Coast Region.
Under the terms of the transaction, American merged with the Company in
exchange for 7,335,001 shares of the Company's common stock, issued primarily to
the three former members of American, representing about 40% of the post
acquisition shares outstanding. Additionally, the Company issued to members of
American and certain current officers of the Company 1,667,001 contingent stock
rights exchangeable for common shares should the market share price of the
Company's common stock exceed $5 per share for 20 consecutive trading days
during the three year term of the rights. The rights terminate on September 1,
2001. Should these rights become exchangeable, the Company would be required to
issue 1,667,001 shares, representing 8.30% of undiluted shares outstanding
(after conversion of the rights) at December 31, 1998, for no net proceeds.
The transaction was treated as a purchase for accounting purposes. No
value was assigned to the contingent stock rights. The purchase price of
approximately $10.6 million was allocated to the assets and liabilities based on
estimated fair value. Net assets acquired in the transaction were as follows:
<TABLE>
<S> <C>
Oil and gas properties $16,178
Working capital (1,890)
Due to Optima (2,150)
Note payable (2,440)
Escrow funds and other 903
-------
$10,601
=======
</TABLE>
The purchase price in excess of the net book value of the net assets
acquired of $7.9 million was allocated to the Company's oil and gas properties.
The operating results of American have been consolidated in the Company's
statement of operations since September 1, 1998.
NEW ACCOUNTING STANDARDS -
In June 1997, the Financial Accounting Standards Board (the FASB) issued
Standard Financial Accounting Standards (SFAS) No. 130, "Reporting Comprehensive
Income" and SFAS No. 131, "Disclosures About Segments of an Enterprise and
Related Information." SFAS No. 130 establishes standards for reporting and
display of comprehensive income in the financial statements. Comprehensive
income is the total of net income and all other non-owner changes in equity.
SFAS No. 131 requires that companies disclose segment data based on how
management makes decisions about allocating resources to segments and measuring
their performance. SFAS Nos. 130 and 131 are effective for 1998. The Company
adopted these standards in 1998 with no effect on the Company's financial
statements, financial position or results of operations.
14
<PAGE> 17
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." The Statement establishes accounting and
reporting standards that require every derivative instrument (including certain
derivative instruments embedded in other contracts) to be recorded in the
balance sheet as either an asset or liability measured at its fair value. The
statement requires that changes in the derivative's fair value be recognized
currently in earnings unless specific hedge accounting criteria are met. Special
accounting for qualifying hedges allows a derivative's gains and losses to
offset related results on the hedged item in the income statement, and requires
that a company must formally document, designate, and assess the effectiveness
of transactions that receive hedge accounting.
SFAS No. 133 is effective for fiscal years beginning after June 15, 1999
and must be applied to (a) derivative instruments and (b) certain derivative
instruments embedded in hybrid contracts that were issued, acquired, or
substantively modified after December 31, 1997 (and, at the company's election,
before January 1, 1998).
Because the Company does not currently use derivative instruments, the
adoption of SFAS No. 133 will not impact the Company's financial statements.
RESULTS OF OPERATIONS -
The following table sets forth certain operating information with respect
to the oil and gas operations of the Company for the years ended December 31,
1998, 1997 and 1996.
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Production:
Oil (Bbls) 83,637 105,562 125,756
Gas (Mcf) 1,049,247 677,300 2,991,219
Total Production (Mcfe) 1,551,063 1,310,672 3,745,755
Sales:
Total oil sales $1,069,570 $2,116,193 $2,720,643
Total gas sales 2,173,620 1,848,069 5,243,085
Average sales prices:
Oil (per Bbl) $ 12.79 $ 20.04 $ 21.63
Gas (per Mcf) 2.07 2.73 1.75
Per Mcfe 2.09 3.02 2.13
</TABLE>
COMPARISON OF RESULTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 1998 AND
1997 -
Oil and Gas Revenues
Oil and gas revenue decreased from $3,964,000 in 1997 to $3,263,000 in
1998 or a decrease of 18%. This decrease was the result of both a decrease in
oil production volumes and product prices for both oil and gas. Oil production
volumes decreased as a result of normal depletion of the Company's oil
properties partially offset by the additions of the American properties. Gas
production increased due to the addition of American. Product prices declined
30% on an Mcfe basis from 1997 to 1998, reflecting decreased product prices for
both oil and gas.
Lease Operating Expenses
Lease operating expenses increased from $735,000 in 1997 to $1,349,000 in
1998. This is due to the addition of the American properties at September 1,
1998 and several large workovers performed during 1998. This was partially
offset by a decrease in the number of producing properties in 1998.
15
<PAGE> 18
Depreciation, Depletion and Amortization
Depreciation, depletion and amortization (DD&A), before the full cost
ceiling write-downs in each year, did not change significantly from $3,133,000
in 1997 to $2,801,000 in 1998. On a Mcfe basis, the DD&A rate for 1998 was $1.81
per Mcfe compared to $2.39 per Mcfe for 1997.
Full Cost Ceiling Write-Down
The full cost ceiling write-down in 1998 of $13,431,000 was primarily
attributable to cost in excess of net book value recorded in the Merger with
American and significant declines in oil and gas prices in 1998.
General and Administrative Expenses
General and administrative expenses increased from $1,222,000 in 1997 to
$1,779,000 in 1998. The increase is primarily related to non-recurring costs of
$450,000 associated with closing the Company's Vancouver office and termination
of Canadian consultants and employees.
Interest Expense
Interest expense decreased due to a lower outstanding debt during 1998
compared to 1997.
COMPARISON OF THE RESULTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 1997
AND 1996 -
The Company reported a loss for 1997 of $2,914,000 as compared to earnings
of $169,000 in 1996. The decline of $3,083,000 is due to a combination of
production volume declines, a $1,820,000 full cost ceiling test write-down of
U.S. oil and gas properties and a $740,000 provision for revenue dispute. The
79% reduction in natural gas volume from 2,991,000 mcf in 1996 to 677,000 mcf
was primarily due to the sale of Canadian petroleum and natural gas assets
effective January 1, 1997. Canadian operations represented between 55% to 60%
total entity production over the previous 12 to 18 months. Although oil
production was also impacted by the Canadian asset sale, new production at Back
Ridge, Louisiana resulted in only a 16% decline in oil production volume. Oil
prices declined in 1997 by 7% whereas natural gas prices were 56% higher than
1996.
Operating Expense
Oil and natural gas operating expenses decreased from $1,209,000 in 1996
to $735,000 in 1997. On a Mcfe basis, operating expenses increased to $0.56 as
compared to $0.32 in 1996. The increase is due to workovers at Valentine and
declining gas productivity at Lake Boeuf.
Interest Expense
Proceeds from the sale of Canadian assets were utilized to pay off the
Canadian bank loan. Additionally, the Company reduced its U.S. bank loan to
$100,000 in 1997. As a result, the interest and bank charges fell to $136,000 in
1997 as compared to $502,000 a year earlier.
Depletion, Depreciation and Amortization
Depletion and depreciation decreased to $3,133,000 in 1997 from $4,202,000
in 1996 or 25%. On a Mcfe basis in 1997, the expense was $2.39 per Mcfe versus
$1.12 per Mcfe in 1996.
General and Administrative Expense
General and administrative expense did not change significantly from 1996
to 1997.
16
<PAGE> 19
Full Cost Ceiling Write-Down
Pursuant to the full cost method of accounting, the Company is required to
meet certain ceiling tests in respect of the carrying value of petroleum and
natural gas interests on the balance sheet as of December 31, 1997. A ceiling
test write-down of $1,820,000 of petroleum and natural gas interests was
reflected in the Consolidated Statements of Operations.
LIQUIDITY AND CAPITAL RESOURCES -
Working Capital and Cash Flow
Working capital (before considering debt) decreased from $5.5 million in
1997 to a working capital deficit of $0.1 million in 1998. This was caused
primarily by funds expended for unevaluated oil and gas properties, costs
associated with the Merger, exploration costs and declining oil and gas prices.
In September, 1998, the Company and its lender amended American's reducing
revolving line of credit to provide a new borrowing base ($4,300,000 at
September 1, 1998). This line is fully funded at December 31, 1998 and reduces
$200,000 per month plus interest at prime plus -1/2% with semi-annual
redeterminations. It is secured by substantially all of the Company's oil and
gas properties.
The Company has obtained a commitment for a non-recourse bank loan in 1999
to fund completion of its High Island Block 494 property. Interest is payable at
12% and the bank receives a 2 -1/2% overriding royalty interest in the property
which is security for the loan. Substantially all of the initial cash flows from
production at this property will be dedicated to payment of this loan.
Net cash flow from operations before working capital changes declined from
$1,087,000 in 1997 to negative $8,000 in 1998. Included in the 1998 amounts are
approximately $450,000 of non-recurring costs associated with closing the
Company's Vancouver office and termination of Canadian consultants and
employees.
The Company's liquidity has been adversely affected by declines in prices
received for sales of oil and gas production. These declines may result in a
reduction in the Company's borrowing base under its line of credit. In order to
fund its cash requirements for continued oil and gas exploration activities,
operations and debt service, the Company plans to raise private capital and to
fund a substantial portion of its anticipated capital expenditures through
drilling ventures with industry partners; however, there is no assurance that
such plans will be successful. Private capital may involve the sale of equity
which will dilute current stockholders. If the Company is unable to obtain
additional financing, it could be forced to delay or even abandon some of its
exploration and development opportunities. Furthermore, the Company may be
required to sell some of its producing properties in order to provide needed
liquidity.
The Company has received notice from the Nasdaq Stock Market, Inc.
("Nasdaq") that it does not meet the $1.00 per share closing bid standard for
continued listing on The Nasdaq National Market System (the "Nasdaq NMS"). The
Company is currently discussing with Nasdaq various solutions for complying with
this requirement, which may include a reverse split of its common stock. No
assurance can be given at this time that the Company will be successful in
resolving this issue, with the result being that the common stock may be
delisted for trading on the Nasdaq NMS. In this event, the Company intends to
apply for trading in the over-the-counter market on an electronic bulletin board
established for securities that do not meet the Nasdaq listing requirements or
in what are commonly referred to as the "pink sheets."
YEAR 2000 COMPLIANCE -
During 1998, the Company's executive management and Board of Directors
implemented a program to identify, evaluate and address the Company's Year 2000
("Y2K") risks to ensure that all its Information Technology ("IT") Systems and
Non-IT Systems will be able to process dates from and after January 1, 2000
without critical systems failure. In addition to evaluating its own systems, the
Company will also assess the Y2K risks associated with its significant customers
and suppliers.
The Company is currently evaluating its IT Systems for Y2K compliance. As
part of this evaluation, the Company has contracted third-party consultants to
assist in the identification and replacement of non-compliant IT Systems. During
17
<PAGE> 20
1998, the Company began modification of IT Systems for Y2K compliance. The
modifications are planned to be completed in the second quarter of 1999.
The Non-IT Systems are currently being assessed to determine which systems
would be affected by Y2K issues. Once assessment is completed, any necessary
replacements or modifications will be performed. Management believes that any
Non-IT issues will be minor and should be corrected by first quarter of 1999.
The assessment of third parties has the primary purpose of determining any
disruptions in operations due to non-compliance by an outside organization. This
will be determined by contacting the Company's suppliers and customers to
determine their level of Y2K compliance and the steps they are taking towards
compliance. These assessments and corrective measures are scheduled for
completion during the second quarter of 1999.
Total costs incurred to-date and estimated remaining costs for
consultants, software and hardware application for Y2K compliance is
approximately $30,000. The Company does not separately account for the internal
costs incurred for its Y2K Compliance efforts. The costs of these projects and
the dates on which the Company plans to complete modifications and replacements
are based on managements' best estimates, the estimates of third-party
specialists assisting the Company, the modification plans of third-parties and
other factors. There can be no guarantee that these estimates will be achieved
and actual results could differ materially from those plans.
Based on preliminary risk assessments, the Company believes the most
likely Y2K related failure would be a temporary disruption in certain materials
and services provided by third-parties, which would not be expected to have a
material adverse effect on the Company's financial condition or results of
operations. If during its assessment it is determined that Y2K related failure
would have a material adverse effect on the Company, contingency plans will be
developed. There can be no assurance that the Company will not be materially
adversely affected by Y2K problems
FULL COST CEILING WRITE-DOWN -
The Company uses the full cost method of accounting for its investment in
oil and natural gas properties. Under the full cost method of accounting, all
costs of acquisition, exploration and development of oil and natural gas
reserves are capitalized into a "full cost pool" (the pool) as incurred, and
properties in the pool are depleted and charged to operations using the units of
production method based on the ratio of current production to total proved
future production. Additionally, the cost in excess of the net book value of
assets and liabilities acquired in the Merger with American of $7.9 million,
discussed above, is recorded in the pool at December 31, 1998, and is subject to
depletion or write-down. To the extent that costs capitalized in the pool (net
of accumulated depreciation, depletion and amortization) exceed the present
value (using a 10% discount rate) of estimated future net cash flow from proved
oil and natural gas reserves, and the lower of cost and fair value of unproved
properties, excess costs are charged to operations. Once incurred, a write-down
of oil and natural gas properties is not reversible at a later date even if oil
or natural gas prices increase. The Company was required to write-down its asset
base in 1998 due primarily to the cost in excess of net book value recorded in
the Merger with American and significant declines in oil prices during 1998.
ITEM 7A. DISCLOSURE ABOUT MARKET RISKS
The Company's indebtedness under its line of credit is variable rate
financing. The Company believes that its exposure to market risk relating to
interest rate risk is not material. The Company believes that its business
operations are not exposed to market risks relating to foreign currency exchange
risk or equity price risk.
Price Risk
The Company's revenues are derived from the sale of its crude oil and
natural gas production. Based on projected annual sales volumes for 1999, a 10%
decline in the prices the Company receives for its crude oil and natural gas
production would have an approximate $800,000 impact on the Company's revenues.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Information concerning this Item begins on F-1.
18
<PAGE> 21
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
On December 16, 1998, the board of directors of the Company replaced KPMG
as its principal accountant with Arthur Andersen LLP ("Arthur Andersen"). Arthur
Andersen was the principal accountant for American Explorer, L.L.C., which was
acquired by the Company on September 1, 1998.
KPMG's report on the Company's financial statements for each of the last
two fiscal years did not contain an adverse opinion or a disclaimer of opinion,
nor was it qualified or modified to uncertainty, audit scope, or accounting
principles. During the Company's two most recent fiscal years and subsequent
interim periods preceding the replacement of KPMG, there were no disagreements
with KPMG on any matters of accounting principles or practices, financial
statement disclosure or auditing scope or procedure. The Company has authorized
KPMG to respond fully to any inquiries by Arthur Andersen.
PART III
ITEMS 10, 11, 12 & 13
For information concerning Item 10. Directors and Executive Officers of
the Registrant, Item 11. Executive Compensation, Item 12. Security Ownership
of Certain Beneficial Owners and Management and Item 13. Certain
Relationships and Related Transactions, see the definitive Proxy Statement of
PetroQuest Energy, Inc. relating to the Annual Meeting of Stockholders to be
held May 25, 1999, which will be filed with the Securities and Exchange
Commission and is incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) 1. FINANCIAL STATEMENTS
The following financial statements of the Company and the Reports of the
Company's Independent Public Accountants thereon are included on pages F-1
through F-18 of this Form 10-K.
Reports of Independent Public Accountants
Consolidated Balance Sheets as of December 31, 1998 and 1997
Consolidated Statements of Operations for the three years ended
December 31, 1998
Consolidated Statement of Cash Flows for the three years ended
December 31, 1998
Consolidated Statements of Stockholder's Equity for the three years
ended December 31, 1998
Notes to Consolidated Financial Statements
2. FINANCIAL STATEMENT SCHEDULES:
All schedules are omitted because the required information is inapplicable
or the information is presented in the Financial Statements or the notes
thereto.
3. EXHIBITS:
2.1 Plan and Agreement of Merger by and among Optima Petroleum
Corporation, Optima Energy (U.S. Corporation its wholly-owned
subsidiary and Goodson Exploration Company, NAB Financial
L.L.C., Dexco Energy, inc., American Explorer, L.L.C.
(incorporated herein by reference to Appendix G of the Proxy
Statement on Schedule 14A filed July 22, 1998).
3.1 Certificate of Incorporation of the Company (incorporated
herein by reference to Exhibit 4.1 to Form 8-K dated September
16, 1998).
19
<PAGE> 22
3.2 Bylaws of the Company (incorporated herein by reference to
Exhibit 4.2 to Form 8-K dated September 16, 1998).
3.3 Certificate of Domestication of Optima Petroleum Corporation
(incorporated herein by reference to Exhibit 4.4 to Form 8-K
dated September 16, 1998).
4.1 Registration Rights Agreement dated as of September 1, 1998
among Optima Petroleum Corporation, Charles T. Goodson, Alfred
J. Thomas, II, Ralph J. Daigle, Janell B. Thomas, Alfred J.
Thomas, III, Blaine A. Thomas, and Natalie A. Thomas
(incorporated herein by reference to Exhibit 99.1 to Form 8-K
dated September 16, 1998).
4.2 Form of Certificate of Contingent Stock Issue Right
(incorporated herein by reference to Exhibit 4.3 to Form 8-K
dated September 16, 1998).
10.1 1998 Stock Option Plan (incorporated herein by reference to
Exhibit 10.2 to Form 8-K dated September 16, 1998).
10.2 Employment Agreement dated September 1, 1998, between
PetroQuest Energy, Inc. and Alfred J. Thomas, II (incorporated
herein by reference to Exhibit 10.3 to Form 8-K dated
September 16, 1998).
10.3 Employment Agreement dated September 1, 1998, between
PetroQuest Energy, Inc. and Charles T. Goodson (incorporated
herein by reference to Exhibit 10.2 to Form 8-K dated
September 16, 1998).
10.4 Employment Agreement dated September 1, 1998, between
PetroQuest Energy, Inc. and Ralph J. Daigle (incorporated
herein by reference to Exhibit 10.4 to Form 8-K dated
September 16, 1998).
10.5 Employment Agreement dated September 1, 1998, between
PetroQuest Energy, Inc. and Robert R. Brooksher (incorporated
herein by reference to Exhibit 10.5 to Form 8-K dated
September 16, 1998).
10.6 Credit Agreement dated September 24, 1998, among PetroQuest
Energy, Inc. (a Louisiana corporation), PetroQuest Energy One,
L.L.C. (a Louisiana limited liability company), PetroQuest
Energy, Inc. (a Delaware corporation) and Compass Bank)
10.7 Termination Agreement dated December 16, 1998, between
PetroQuest Energy, Inc. and Charles T. Goodson
10.8 Termination Agreement dated December 16, 1998, between
PetroQuest Energy, Inc. and Alfred J. Thomas, II
10.9 Termination Agreement dated December 16, 1998, between
PetroQuest Energy, Inc. and Ralph J. Daigle
10.10 Termination Agreement dated December 16, 1998, between
PetroQuest Energy, Inc. and Robert R. Brooksher
10.11 Indemnification Agreement dated December 16, 1998, between
PetroQuest Energy, Inc. and Charles T. Goodson
10.12 Indemnification Agreement dated December 16, 1998, between
PetroQuest Energy, Inc. and Alfred J. Thomas, II
10.13 Indemnification Agreement dated December 16, 1998, between
PetroQuest Energy, Inc. and Ralph J. Daigle
10.14 Indemnification Agreement dated December 16, 1998, between
PetroQuest Energy, Inc. and Robert R. Brooksher
10.15 Indemnification Agreement dated December 16, 1998, between
PetroQuest Energy, Inc. and Daniel G. Fournerat
10.16 Indemnification Agreement dated December 16, 1998, between
PetroQuest Energy, Inc. and William C. Leuschner
10.17 Indemnification Agreement dated December 16, 1998, between
PetroQuest Energy, Inc. and Robert L. Hodgkinson
16.1 Letter from KPMG dated December 18, 1998 (incorporated herein
by reference to Exhibit 16.1 to Form 8-K dated December 21,
1998)
21.1 Subsidiaries of the Company (incorporated herein by reference
to Exhibit 21.1 to the Registration Statement No. 333-55745
filed June 2, 1998)
20
<PAGE> 23
23.1 Consent of KPMG
23.2 Consent of Arthur Andersen L.L.P.
27.1 Financial data schedule
(b) REPORTS ON FORM 8-K
A current report on Form 8-K was filed with the Securities and Exchange
Commission on December 21, 1998 announcing the Company had replaced KPMG as its
principal accountant with Arthur Andersen LLP. Arthur Andersen LLP was the
principal accountant for American Explorer, L.L.C., which was combined into the
Company on September 1, 1998.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, the Registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized, on the
29th day of March, 1999.
PETROQUEST ENERGY, INC.
By:/s/ Charles T. Goodson
------------------------------------
CHARLES T. GOODSON
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons in the capacities indicated on
March 29, 1999.
<TABLE>
<S> <C>
By:/s/ Charles T. Goodson President, Chief Executive Officer and
---------------------------------- Director (Principal Executive Officer)
CHARLES T. GOODSON
By:/s/ Alfred J. Thomas, II Chief Operating Office and Director
----------------------------------
ALFRED J. THOMAS, II
By:/s/ Ralph J. Daigle Senior Vice President - Exploration
---------------------------------- and Director
RALPH J. DAIGLE
By:/s/ Robert R. Brooksher Chief Financial Officer, Secretary and
---------------------------------- Director (Principal Financial and
ROBERT R. BROOKSHER Accounting Officer)
By:/s/ William C. Leuschner Chairman of the Board
----------------------------------
WILLIAM C. LEUSCHNER
By:/s/ Robert L. Hodgkinson Director
----------------------------------
ROBERT L. HODGKINSON
By:/s/ Daniel G. Fournerat Director
----------------------------------
DANIEL G. FOURNERAT
</TABLE>
21
<PAGE> 24
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of Independent Public Accountants ................................. F-2
Auditors' Report to the Shareholders ..................................... F-3
Consolidated Balance Sheets of PetroQuest Energy, Inc. as of
December 31, 1998 and 1997 ............................................. F-4
Consolidated Statements of Operations of PetroQuest Energy, Inc.
for the years ended December 31, 1998, 1997, and 1996 .................. F-5
Consolidated Statements of Stockholders' Equity of PetroQuest Energy, Inc.
for the years ended December 31, 1998, 1997, and 1996 .................. F-6
Consolidated Statements of Cash Flows of PetroQuest Energy, Inc.
for the years ended December 31, 1998, 1997, 1996 ...................... F-7
Notes to Consolidated Financial Statements ............................... F-8
</TABLE>
F-1
<PAGE> 25
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders of
PetroQuest Energy, Inc.:
We have audited the accompanying consolidated balance sheet of PetroQuest
Energy, Inc. (a Delaware corporation, formerly Optima Petroleum Corporation) and
subsidiaries as of December 31, 1998, and the related consolidated statements of
operations, changes in stockholders' equity and cash flows for the year ended
December 31, 1998. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of PetroQuest Energy, Inc. and
subsidiaries as of December 31, 1998, and the results of their operations and
their cash flows for the year ended December 31, 1998, in conformity with
generally accepted accounting principles.
ARTHUR ANDERSEN LLP
New Orleans, Louisiana
March 12, 1999
F-2
<PAGE> 26
AUDITORS' REPORT TO THE SHAREHOLDERS
We have audited the consolidated balance sheets of Optima Petroleum Corporation
as at December 31, 1997 and the consolidated statements of operations,
stockholders' equity and cash flows for the years ended December 31, 1997 and
1996. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform an audit to obtain
reasonable assurance whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
accessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
In our opinion, these consolidated financial statements present fairly, in all
material respects, the financial position of the Company as at December 31, 1997
and the results of its operations and their cash flows for the years ended
December 31, 1997 and 1996 in accordance with generally accepted accounting
principles.
KPMG LLP
Chartered Accountants
Vancouver, Canada
March 13, 1998 (except for Note 1, for which the date is March 12, 1999)
F-3
<PAGE> 27
PETROQUEST ENERGY, INC.
Consolidated Balance Sheets
(amounts in thousands)
<TABLE>
<CAPTION>
December 31, December 31,
ASSETS 1998 1997
------ ------- -------
<S> <C> <C>
Current Assets:
Cash $ 1,081 $ 4,455
Accounts Receivable 1,016 1,643
Other Current Assets 177 --
------- -------
Total Current Assets 2,274 6,098
------- -------
Oil and Gas Properties
Oil and Gas Properties, Full Cost Method 42,755 25,722
Unevaluated Oil and Gas Properties 5,747 2,189
Accumulated Depreciation,
Depletion and Amortization (31,079) (15,049)
------- -------
Oil and Gas Properties, Net 17,423 12,862
Plugging and Abandonment Escrow 221 492
Other Assets 148 711
------- -------
$20,066 $20,163
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts Payable and Accrued Liabilities $ 2,330 $ 607
Current portion of Long-term Debt 2,400 --
------- -------
Total Current Liabilities 4,730 607
------- -------
Commitments and Contingencies (Note 11) -- --
Long-term Debt 1,300 100
Other Liabilities 700 716
Stockholders' Equity
Common Stock 19 32,450
Paid-in capital 43,795 528
Accumulated Deficit (30,478) (14,238)
------- -------
Total Stockholders' Equity 13,336 18,740
------- -------
$20,066 $20,163
======= =======
</TABLE>
The accompanying notes are an integral part of these statements.
F-4
<PAGE> 28
PETROQUEST ENERGY, INC.
Consolidated Statements of Operations
(amounts in thousands, except per share amounts)
<TABLE>
<CAPTION>
Twelve Months Ended
December 31,
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Revenues:
Oil and Gas Sales $ 3,263 $ 3,964 $ 7,963
Interest Income 114 181 19
-------- -------- --------
3,377 4,145 7,982
-------- -------- --------
Expenses:
Lease Operating Expenses 1,349 735 1,209
Production Taxes 219 303 647
Depreciation, Depletion and Amortization 2,801 3,133 4,202
Full Cost Ceiling Write-Down 13,431 1,820 --
General and Administrative Expenses 1,779 1,222 1,220
Provision for Revenue Dispute -- 740 --
Interest Expense 116 136 502
Foreign Exchange Gain (99) (187) (2)
Gain on Sale of Canadian Properties -- (952) --
Other Income (52) -- --
-------- -------- --------
Net Income (Loss) Before Income Taxes (16,167) (2,805) 204
Income Tax Expense - Current 73 109 35
Net Income (Loss) ($16,240) ($ 2,914) $ 169
======== ======== ========
Earnings (Loss) Per Common Share
Basic ($ 1.20) ($ 0.26) $ 0.01
======== ======== ========
Diluted ($ 1.20) ($ 0.26) $ 0.01
======== ======== ========
Average shares outstanding 13,528 11,160 10,946
======== ======== ========
Average shares outstanding assuming dilution 13,528 11,160 11,114
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
F-5
<PAGE> 29
PETROQUEST ENERGY, INC.
Consolidated Statements of Stockholders' Equity
(amounts in thousands)
<TABLE>
<CAPTION>
Total
Common Paid-In Retained Stockholders'
Stock Capital Deficit Equity
-------- -------- -------- --------
<S> <C> <C> <C> <C>
December 31, 1995 $ 31,325 $ 528 ($11,493) $ 20,360
Exercises of options and warrants 1,827 2 -- 1,829
Issued to directors and consultants 29 -- -- 29
Sale of common stock 3 -- -- 3
Net Income -- -- 169 169
Treasury Stock Repurchases (75) (1) -- (76)
-------- -------- -------- --------
December 31, 1996 $ 33,109 $ 529 ($11,324) $ 22,314
Issued to directors and consultants 17 -- -- 17
Net Loss -- -- (2,914) (2,914)
Treasury stock repurchases (676) (1) -- (677)
-------- -------- -------- --------
December 31, 1997 $ 32,450 $ 528 ($14,238) $ 18,740
Conversion of Common Shares (Note 3):
Optima no par Shares Surrendered (32,450) (528) -- (32,978)
PetroQuest Energy, Inc. $.001 par value
Shares Issued 11 32,967 -- 32,978
American Merger Issuance of Shares (Note 3) 8 10,828 -- 10,836
Net Loss -- -- (16,240) (16,240)
-------- -------- -------- --------
December 31, 1998 $ 19 $ 43,795 ($30,478) $ 13,336
======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
F-6
<PAGE> 30
PETROQUEST ENERGY, INC.
Consolidated Statements of Cash Flows
(amounts in thousands)
<TABLE>
<CAPTION>
Twelve Months Ended
December 31,
------------------------------------------
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) ($16,240) ($ 2,914) $ 169
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation, depletion and amortization and full
cost ceiling write-down 16,232 4,953 4,202
Gain on sale of Canadian oil and gas properties -- (952) --
Changes in working capital accounts:
Accounts receivable 1,174 159 611
Other current assets (6) -- (365)
Accounts payable and accrued liabilities (229) (1,288) (386)
Provision for revenue dispute -- 740 --
Plugging and abandonment escrow (284) (132) (483)
Net working capital of Canadian oil and gas
properties sold -- (318) --
Other 231 71 --
-------- -------- --------
Net provided by operating activities 878 319 3,748
-------- -------- --------
Cash flows from investing activities:
Investment in oil and gas properties (3,612) (3,746) (5,804)
Sale of Canadian properties -- 11,865 859
Debentures receivable -- -- 360
Cash cost of American merger transaction,
net of cash received (Note 3) (1,800) -- --
-------- -------- --------
Net cash provided by (used in) investing activities (5,412) 8,119 (4,585)
-------- -------- --------
Cash flows from financing activities:
Proceeds from borrowings 1,600 -- 211
Repayment of debt (440) (4,845) (605)
Repurchase of common stock -- (645) 1,989
-------- -------- --------
Net cash provided by financing activities 1,160 (5,490) 1,595
-------- -------- --------
Net increase (decrease) in cash (3,374) 2,948 758
Cash balance beginning of period 4,455 1,507 749
-------- -------- --------
Cash balance end of period $ 1,081 $ 4,455 $ 1,507
-------- -------- --------
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 83 $ 109 $ 503
-------- -------- --------
Income taxes $ 120 $ 136 $ 35
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
F-7
<PAGE> 31
PETROQUEST ENERGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - ORGANIZATION -
PetroQuest Energy, Inc. ("PetroQuest" or the "Company") is an independent
oil and gas company headquartered in Lafayette, Louisiana with an exploration
office in Houston, Texas. It is engaged in the exploration, development,
acquisition and operation of oil and gas properties onshore and offshore in the
Gulf Coast Region. PetroQuest and its predecessors have been active in this area
since 1986. The financial statements reflect the results of the Company and its
predecessor entity, Optima Petroleum Corporation ("Optima"), for all periods
presented.
The financial statements of Optima for the years ended December 31, 1997
and 1996 and previously issued to shareholders were prepared in Canadian dollars
and in accordance with Canadian generally accepted accounting principles with a
reconciliation to United States generally accepted accounting principles
included in the notes to the financial statements. In conjunction with the
relocation of the Company to the United States, the Company changed its
reporting currency to the U.S. dollar and changed its generally accepted
accounting principles from Canada to the United States. Consequently, the
comparative financial statements presented for the years ended December 31, 1997
and 1996 have been prepared in the U.S. dollars and in accordance with United
States generally accepted accounting principles.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -
Principals of Consolidation
The Consolidated Financial Statements include the accounts of the Company
and its subsidiary, PetroQuest Energy, Inc., a Louisiana corporation (PetroQuest
(LA)). Additionally, PetroQuest (LA) owns 100% of the membership interests of
PetroQuest Energy One, L.L.C. All intercompany accounts and transactions have
been eliminated.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Oil and Gas Properties
The Company utilizes the full-cost method of accounting, which involves
capitalizing all acquisition, exploration and development costs incurred for the
purpose of finding oil and gas reserves, including the costs of drilling and
equipping productive wells, dry hole costs, lease acquisition costs and delay
rentals. The Company also capitalizes the portion of general and administrative
costs which can be directly identified with acquisition, exploration or
development of oil and gas properties. Costs associated with unevaluated
properties are excluded from amortization. Unevaluated property costs are
transferred to evaluated property costs at such time as wells are completed on
the properties, the properties are sold, or management determines these costs to
have been impaired. Cost of properties, including future development, site
restoration, dismantlement and abandonment costs, which have proved reserves and
those which have been determined to be worthless, are depleted on the units of
production method based on proved reserves. Additionally, the capitalized costs
of oil and gas properties cannot exceed the present value of the estimated net
cash flow from its proved reserves, together with the lower of cost or estimated
fair value of its undeveloped properties (the full cost ceiling). Transactions
involving sales of reserves in place, unless extraordinarily large portions of
reserves are involved, are recorded as adjustments to accumulated depreciation,
depletion and amortization.
Upon the acquisition or discovery of oil and gas properties, management
estimates the future net costs to be incurred to dismantle, abandon and restore
the property using geological, engineering and regulatory data available. Such
cost estimates are periodically updated for changes in conditions and
requirements. Such estimated amounts are considered as part of the full cost
pool for purposes of amortization upon acquisition or discovery. Such costs are
capitalized as oil and gas properties as the actual restoration, dismantlement
and abandonment activities take place.
F-8
<PAGE> 32
Other Assets
Other Assets consist primarily of loan costs which are amortized over the
life of the related loan.
Cash and Cash Equivalents
The Company considers all highly liquid investments in overnight
securities made through its commercial bank accounts, which result in available
funds the next business day, to be cash and cash equivalents. The Company holds
a minimal amount of cash denominated in Canadian dollars for settlement of
Canadian obligations incurred prior to the Merger (Note 3). The impact of
exchange rate changes on these amounts is insignificant and is included in
results of operations for all periods shown.
Income Taxes
The Company accounts for income taxes in accordance with SFAS No. 109.
Provisions for income taxes include deferred taxes resulting primarily from
temporary differences due to different reporting methods for oil and gas
properties for financial reporting purposes and income tax purposes. For
financial reporting purposes, all exploratory and development expenditures are
capitalized and depreciated, depleted and amortized on the future gross revenue
method. For income tax purposes, only the equipment and leasehold costs relative
to successful wells are capitalized and recovered through depreciation or
depletion. Generally, most other exploratory and development costs are charged
to expense as incurred; however, the Company may use certain provisions of the
Internal Revenue Code which allow capitalization of intangible drilling costs
where management deems appropriate. Other financial and income tax reporting
differences occur as a result of statutory depletion.
Natural Gas Imbalances
The Company follows an entitlement method of accounting for its
proportionate share of gas production on a well by well basis, recording a
receivable to the extent that a well is in an "undertake" position and
conversely recording a liability to the extent that a well is in an "overtake"
position.
At December 31, 1998, the Company had a net overtake position representing
8,341 Mcfs. There were no gas imbalances at December 31, 1997.
Certain Concentrations
During 1998 and 1997, 51% and 100% respectively, of the Company's oil and
gas production was sold to three customers. Based on the current demand for oil
and gas, the Company does not believe the loss of any of these customers would
have a significant financially disruptive effect on its business or financial
condition.
Foreign Currency Accounting
The Company's functional currency is the U.S. dollar. During 1998 and
1997, substantially all of the Company's operations were domestic and recorded
in the Company's primary accounting records in U.S. dollars. The operations of
Canadian oil and gas properties prior to 1997 were translated into U.S. dollars
at the exchange rates in effect at the time of the related transactions. The
translation of Canadian dollar denominated monetary assets and liabilities as of
December 31, 1998 and 1997, are adjusted to reflect the exchange rates at the
balance sheet date. Exchange gains and losses arising from the translation of
Canadian dollar denominated assets and liabilities are included in the results
of operations for each period shown. The net Canadian dollar denominated
monetary assets included in the balance sheet at December 31, 1998, are
insignificant. Prior to the Merger (Note 3), Optima's reporting and functional
currency was the Canadian dollar.
Fair Value of Financial Instruments
The fair value of accounts receivable and accounts payable approximate
book value at December 31, 1998 and 1997 due to the short-term nature of these
accounts. The fair value of the note payable approximates book value due to the
variable rate of interest charged.
F-9
<PAGE> 33
New Accounting Standards
In June 1997, the Financial Accounting Standards Board (the FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 130, "Reporting
Comprehensive Income" and SFAS No. 131, "Disclosures About Segments of an
Enterprise and Related Information." SFAS No. 130 establishes standards for
reporting and display of comprehensive income in the financial statements.
Comprehensive income is the total of net income and all other non-owner changes
in equity. SFAS No. 131 requires that companies disclose segment data based on
how management makes decisions about allocating resources to segments and
measuring their performance. SFAS Nos. 130 and 131 are effective for 1998. The
Company adopted these standards in 1998 with no effect on the Company's
financial statements, financial position or results of operations.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." The Statement establishes accounting and
reporting standards that require every derivative instrument (including certain
derivative instruments embedded in other contracts) to be recorded in the
balance sheet as either an asset or liability measured at its fair value. The
statement requires that changes in the derivative's fair value be recognized
currently in earnings unless specific hedge accounting criteria are met. Special
accounting for qualifying hedges allows a derivative's gains and losses to
offset related results on the hedged item in the income statement, and requires
that a company must formally document, designate, and assess the effectiveness
of transactions that receive hedge accounting.
SFAS No. 133 is effective for fiscal years beginning after June 15, 1999
and must be applied to (a) derivative instruments and (b) certain derivative
instruments embedded in hybrid contracts that were issued, acquired, or
substantively modified after December 31, 1997 (and, at the company's election,
before January 1, 1998).
Because the Company does not currently use derivative instruments, the
adoption of SFAS No. 133 will not impact the Company's financial statements.
Earnings per Common Share Amounts
In February 1997, the Financial Accounting Standards Board issued
Statement No. 128 ("SFAS 128"), Earnings per Share, which generally simplified
the manner in which earnings per share are determined. The Company adopted SFAS
128 effective December 15, 1997. All per share amounts for each period presented
were restated to reflect SFAS 128.
Basic earnings or loss per common share were computed by dividing net
income or loss by the weighted average number of shares of common stock
outstanding during the year. Diluted earnings or loss per common share for 1996
was determined on a weighted average basis using common shares issued and
outstanding adjusted for the effect of stock options considered common stock
equivalents computed using the treasury stock method. The number of shares
excluded from calculation for 1996 because the exercise price exceeded the
average stock price for the period was insignificant. In 1998 and 1997, all
options were excluded from the computation of diluted loss per share because
they were antidilutive. The contingent stock rights assigned in connection with
the Merger are excluded from the calculation of diluted earnings per share.
NOTE 3 - MERGER OF OPTIMA ENERGY (U.S.) CORPORATION -
On September 1, 1998, the Company completed its previously announced
transaction to merge its wholly owned subsidiary Optima Energy (U.S.)
Corporation with American Explorer, L.L.C. (American). Concurrent with the
transaction, the Company became a Delaware corporation and converted each share
of Optima no par value common stock into one share of the Company's $.001 par
value common stock and changed its name from Optima Petroleum Corporation to
PetroQuest Energy, Inc. American conducted oil and natural gas exploration
activities in the Gulf Coast Region.
Under the terms of the transaction, American merged with the Company in
exchange for 7,335,001 shares of the Company's common stock, issued primarily to
the three former members of American, representing about 40% of the post
acquisition shares outstanding. Additionally, the Company issued to the members
of American and certain current officers of the Company 1,667,001 contingent
stock rights exchangeable for common shares should the market share price of the
Company's common stock exceed $5 per share for 20 consecutive trading days
during the three year term of the rights. The rights terminate on September 1,
2001. Should these rights become exchangeable, the Company would be required to
issue 1,667,001 shares, representing 8.30% of undiluted shares outstanding
(after conversion of the rights) at December 31, 1998, for no net proceeds.
F-10
<PAGE> 34
The transaction was treated as a purchase for accounting purposes. No
value was assigned to the contingent stock rights. The purchase price of
approximately $10.6 million was allocated to the assets and liabilities based on
estimated fair value. Net assets acquired in the transaction were as follows:
<TABLE>
<S> <C>
Oil and gas properties $ 16,178
Working Capital (1,890)
Due to Optima (2,150)
Note Payable (2,440)
Escrow funds and other 903
--------
$ 10,601
========
</TABLE>
The purchase price in excess of the net book value of the net assets
acquired of $7.9 million was allocated to the Company's oil and gas properties.
The operating results of American have been consolidated in the Company's
statement of operations since September 1, 1998. The following summarized
unaudited proforma income statement data reflects the impact the transaction
would have had on the Company's results of operations for the years ended
December 31, 1998 and 1997 had the transaction occurred January 1, 1997. These
unaudited proforma results have been prepared for comparative purposes only and
do not purport to be indicative of the amounts which actually would have
resulted had the transaction occurred on January 1, 1997, or which may result in
the future.
<TABLE>
<CAPTION>
Proforma Results for the
Years Ended December 31,
------------------------
1998 1997
---- ----
<S> <C> <C>
Revenues $ 7,469 $ 10,872
=========== ===========
Net Loss ($ 8,357) ($ 2,554)
=========== ===========
Earnings per common share:
Basic ($ 0.45) ($ 0.13)
=========== ===========
Diluted ($ 0.45) ($ 0.13)
=========== ===========
</TABLE>
Subsequent to the Merger, Optima Energy (U.S.) Corporation changed its
name to PetroQuest Energy, Inc. (a Louisiana corporation) and American
Explorer, L.L.C. changed its name to PetroQuest Energy One, L.L.C.
NOTE 4 - LIQUIDITY -
The Company's liquidity has been adversely affected by declines in prices
received for sales of oil and gas production. In order to fund its cash
requirements for operations and debt service, the Company plans to raise private
capital and to fund a substantial portion of its anticipated capital
expenditures through drilling ventures with industry partners; however, there is
no assurance that such plans will meet with success.
If the Company is unable to obtain additional financing, it could be
forced to delay or even abandon some of its exploration and development
opportunities. Furthermore, the Company may be required to sell some of its
producing properties in order to provide needed liquidity.
The Company obtained a non-recourse bank loan in 1999 to fund completion
of its High Island Block 494 property. Substantially all of the initial cash
flows from production at this property will be dedicated to payment of the bank
loan obtained to fund its completion.
NOTE 5 - LONG-TERM DEBT -
In connection with the Merger described in Note 3, the Company and its
lender amended American's reducing revolving line of credit to provide for
borrowings of up to $25 million, subject to a cap calculated on the Company's
borrowing base, as defined. At December 31, 1998, the borrowing base was $3.7
million and was fully funded. Each month
F-11
<PAGE> 35
the borrowing base is reduced by $200,000. The borrowing base amount and the
amount by which it will be reduced, is established by the lender and is based on
their evaluation of the Company's oil and gas properties. The borrowing base is
redetermined semi-annually on February 1 and August 1 of each year. The result
of the February 1, 1999 borrowing base review has not yet been determined.
Interest under the loan is payable monthly at prime plus -1/2% (9 -1/4% at
December 31, 1998). It is secured by substantially all of the Company's oil and
gas properties. A commitment fee of .5% per annum on the unused available
borrowing base is payable quarterly. The line of credit agreement contains
various covenants including restrictions on additional indebtedness and
dividends as well as maintenance of certain financial ratios. The Company was
not in compliance with one of these covenant tests for the quarter ended
December 31, 1998. The Company has obtained an appropriate waiver of this
violation from the bank.
Maturity of the credit facility over the next five years and thereafter is
as follows (in thousands):
<TABLE>
<S> <C> <C>
1999 $2,400
2000 1,300
2001 --
2002 --
2003 and thereafter --
-------
$3,700
======
</TABLE>
NOTE 6 - RELATED PARTY TRANSACTIONS -
In conjunction with the Merger discussed at Note 3, the employees and
consultants of Optima were terminated. American had no employees. It was managed
and its properties (and certain of Optima's properties) were operated by
American Explorer, Inc. (AEI), a corporation owned by two officers of the
Company and former members of American. From September 1, 1998 through December
31, 1998, the Company's properties were operated by AEI and certain management
functions were performed by AEI. The officers of AEI are also the officers of
the Company. AEI charges the Company a management and overhead reimbursement fee
to cover its costs of services for the Company ($600,000 for the four months
ended December, 1998). Of this amount $365,000 was capitalized as part of the
acquisition, exploration and development effort (See Note 2). The remainder is
included in general and administrative expense. Accounts payable at December 31,
1998 includes $1,052,905 owed AEI. Accounts receivable at December 31, 1998
includes $798,800 due from AEI representing primarily accrued production
revenue. After the transition period, which was September 1, 1998 through
December 31, 1998, the Company will assume the operating and management
functions of AEI, whose employees will become employees of the Company.
Three of the officers of the Company contributed their interests in a
lease at the Turtle Bayou Field to the Company in return for a 30% interest
after payout of 100% of the related well cost. The Company promoted this
interest to industry partners thereby reducing its cost in the well. A producing
well was drilled and completed on the lease. No cost was recorded for the
contribution of this lease in the accompanying financial statements because it
was treated as an ordinary farmout agreement.
Certain officers and directors and their affiliates are working interest
owners in properties operated by the Company and are billed for and pay their
proportionate share of drilling and operating costs in the normal course of
business.
During 1998 and 1997, the Company was charged consulting expenses of
$124,500 and $301,700 respectively by companies owned by former directors.
Office expense includes $51,500 and $85,000 for 1998 and 1997 respectively paid
to a company owned by a former director.
NOTE 7 - SEGMENT INFORMATION -
Effective January 1, 1997, the Company sold substantially all of its
Canadian oil and gas interests for cash proceeds of approximately $12.3 million;
thus, material United States and Canada segment revenues and operating expenses
are included only in the 1996 results of operations as follows:
F-12
<PAGE> 36
<TABLE>
<CAPTION>
Canada United States Total
------ ------------- -----
<S> <C> <C> <C>
Oil and Gas Sales $2,016 $5,947 $7,963
Production Taxes 148 499 647
Lease Operating Expenses 538 669 1,207
------ ------ ------
Operating Income 1,330 4,779 6,109
Depreciation and Depletion 1,070 3,132 4,202
------ ------ ------
Unallocated costs: 260 1,647 1,907
General and Administrative 1,220
Interest Expense, net 483
Income Tax Expense 35
------
Net Income $ 169
======
</TABLE>
NOTE 8 - COMMON STOCK -
Prior to the September 1, 1998, Merger of Optima Energy (U.S.)
Corporation, the Company had authorized 100,000,000 no par common shares. There
were 11,002,346 common shares issued and outstanding at December 31, 1997. In
connection with the Merger, all no par common shares of the Company were
surrendered, and replaced by newly authorized and issued shares of $.001 par
value common shares of the Company. There were 75,000,000 shares authorized and
18,537,347 shares issued and outstanding at December 31, 1998.
NOTE 9 - INVESTMENT IN OIL AND GAS PROPERTIES
The following table discloses certain financial data relative to the
Company's evaluated oil and gas producing activities, which are located onshore
and offshore the continental United States: (amounts in thousands)
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Costs incurred during year:
Capitalized
Purchases of producing properties $ 12,302
Exploration costs 104
Development costs 2,832
Plugging and abandonment costs 1,357
Capitalized G & A Cost 438
-------- -------- --------
$ 17,033 $ 2,739 $ 5,804
======== ======== ========
Oil and gas properties
Balance, beginning of period $ 25,722 $ 34,692 $ 29,747
Additions 17,033 2,739 5,804
Sales -- (11,709) (859)
-------- -------- --------
Balance, end of year $ 42,755 $ 25,722 $ 34,692
-------- -------- --------
Accumulated depreciation, depletion and
amortization
Balance beginning of period $ 15,049 $ 12,166 $ 7,964
Provision for depreciation, depletion and
amortization 2,599 3,133 4,202
Provision for ceiling write-down 13,431 1,820 --
Sales -- (2,070) --
-------- -------- --------
Balance, end of year 31,079 15,049 12,166
-------- -------- --------
Net capitalized costs $ 11,676 $ 10,673 $ 22,526
======== ======== ========
DD&A per Mcfe (including provision for ceiling write-down) $ 10.33 $ 2.68 $ 0.99
</TABLE>
F-13
<PAGE> 37
At December 31, 1998 and 1997, unevaluated oil and gas properties with
capitalized costs of $5,747,000 and $2,189,000, respectively, were not subject
to depletion. Management expects that these properties will be evaluated over
the next one to three years.
The Company uses the full cost method of accounting for its investment in
oil and natural gas properties. Under the full cost method of accounting, all
costs of acquisition, exploration and development of oil and natural gas
reserves are capitalized into a "full cost pool" (the pool) as incurred, and
properties in the pool are depleted and charged to operations using the units of
production method based on the ratio of current production to total proved
future production. Additionally, the cost in excess of the net book value of
assets and liabilities acquired in the Merger with American of $7.9 million,
discussed above, is recorded in the pool at December 31, 1998, and is subject to
depletion or write-down. To the extent that costs capitalized in the pool (net
of accumulated depreciation, depletion and amortization) exceed the present
value (using a 10% discount rate) of estimated future net cash flow from proved
oil and natural gas reserves, and the lower of cost and fair value of unproved
properties, excess costs are charged to operations. Once incurred, a write-down
of oil and natural gas properties is not reversible at a later date even if oil
or natural gas prices increase. The Company was required to write-down its asset
base in 1998 due primarily to the cost in excess of net book value recorded in
the Merger with American and significant declines in oil prices during 1998.
NOTE 10 - INCOME TAXES:
The Company follows the provisions of SFAS No. 109, "Accounting For Income
Taxes," which provides for recognition of a deferred tax asset for deductible
temporary timing differences, operating loss carryforwards, statutory depletion
carryforwards and tax credit carryforwards net of a "valuation allowance." An
analysis of the Company's deferred taxes follows:
<TABLE>
<CAPTION>
December 31,
-----------------------
1998 1997
------- -------
<S> <C> <C>
Net operating loss carryforwards $ 4,094 $ 3,590
Statutory depletion carryforward 195 --
Alternative minimum tax credit 4 --
Temporary differences:
Oil and gas properties -- full cost (1,563) (30)
------- -------
2,730 3,560
Valuation allowance (2,730) (3,560)
------- -------
-- --
======= =======
</TABLE>
For tax reporting purposes, the Company had operating loss carryforwards
of $11,106 at December 31, 1998. If not utilized, such carryforwards would begin
expiring in 2001 and would completely expire by the year 2007. The Company had
available for tax reporting purposes $533 in statutory depletion deductions that
may be carried forward indefinitely. A valuation allowance is provided for that
portion of the tax asset for which it is deemed more likely than not that it
will not be realized. Due to the Company's recent losses, management has
provided a valuation allowance for the entire deferred tax asset.
The Company's effective tax rate differs from the statutory rate each year
because the Company was not able to recognize the tax benefit related to losses
under the SFAS No. 109 criteria. The Company's statutory rates used in
calculating tax attributes for 1998, 1997 and 1996 were 37%, 40% and 40%,
respectively. The change in the statutory rate for 1998 is due to the conversion
of the Company to a domestic tax paying entity (Note 3). Current income tax
expense relates to certain Canadian and domestic liabilities for which offsets
related to the Company's tax preference items is not available.
NOTE 11 - COMMITMENTS AND CONTINGENCIES -
S.W. HOLMWOOD
An appeal is currently pending before the United States Court of Appeals
for the Fifth Circuit from the decision of the United States District Court for
the Western District of Louisiana (Lake Charles Division) in the matter Amoco
Production Company v. The Meridian Resource & Exploration Company, No. 98-30724,
United States Court of Appeal for the Fifth Circuit which involves the Company's
Southwest Holmwood Prospect, Cameron Parish, Louisiana. The Company
F-14
<PAGE> 38
holds a beneficial four percent (4%) working interest in the prospect by virtue
of a participation agreement with the defendant. Proceeding in the trial court
(instituted on July 11, 1996), resulted in judgment against the defendant
dissolving the oil and gas lease and the associated joint exploration agreement.
The trial judge further terminated the defendant's interest in two wells
effective July 26, 1996 and awarded post-termination production revenues to the
plaintiff. The claims of the plaintiff and the litigation are being actively and
aggressively defended by the defendant in the United States Court of Appeal.
Since the outcome of the litigation is indeterminable, the Company has recorded
100% of the cumulative net operating income to date aggregating to $700,000 in
other liabilities in its consolidated financial statements.
WILDHAY
The Company is party to court proceedings in the Court of Queen's Bench of
the Province of Alberta commenced by a drilling contractor (on May 13, 1996),
Artisan Corporation, relative to the drilling of a well on behalf of the Company
and a joint venture partner. The Company has defended the proceedings and filed
a counter claim for breach of contract against Artisan Corporation and claims of
negligence against Artisan Corporation and Tuboscope Vetco Canada Inc. for an
amount which exceeds the claim of the drilling contractor. The Company's claim
includes thrown away costs and expenses for loss of the well and damages. The
well costs were included in Oil and Gas Properties at December 31, 1998.
ABANDONMENT
The Company maintains abandonment escrows that have been established for
future abandonment obligations of certain oil and gas properties of the Company.
The management of the Company believes the escrows will be sufficient to offset
those future abandonment liabilities; however, the Company is responsible for
any abandonment expenses in excess of the escrow balances. As of December 31,
1998, total estimated site restoration, dismantlement and abandonment costs were
approximately $4,195,000, net of expected salvage value.
NOTE 12 - EMPLOYEE BENEFIT PLANS -
Prior to the Merger, under the Company's stock option plan (the 1996
Plan), 750,000 common shares were reserved for issuance and outstanding options
exercisable into 730,000 common shares of the Company under the 1996 Plan as
well as outstanding options under the Company's previous plan (the 1995 Plan)
exercisable into 52,500 common shares of Optima. After the Merger, these options
(the Amended Options) under the 1995 and 1996 Plans became subject to the new
stock option plan described below. The new exercise price of the Amended Options
is the higher of the weighted average trading price of the common shares of
Optima for the 5 business days immediately prior to the amendment and the
closing price of the common shares of the closing price of the common shares of
Optima on the business day immediately prior to the amendment. The Amended
Options expire three years from the amendment but in no event greater than 10
years from the date of the original grant. All other options outstanding under
the 1995 and 1996 Plans were cancelled.. The amendment and cancellation of the
options occurred on the closing date of the Merger.
In March, 1998, Management of the Company, in conjunction with the
proposed Merger, adopted a new stock option plan (the "New Plan") which was
effective upon the closing of the Merger in order to attract new management and
retain key employees. Key employees, including officers (whether or not they are
directors), and consultants of the Company and outside directors are eligible to
participate in the New Plan. Under TSE policies, a new plan was required to be
adopted in order to grant options in excess of those reserved under the 1996 and
1995 plans. The Company's stock option plans reserved 1,950,000 common shares
for issuance. Prior to the Merger, 787,000 common shares had been issued
pursuant to the exercise of options granted under the 1995 and 1996 Plans and
options exercisable into 782,500 shares were outstanding, leaving 380,500
options available for issuance. Under the New Plan, 1,800,000 common shares had
been allotted and reserved for future issuance.
On the closing of the Merger, options to purchase a total of 1,012,300
shares of Common Stock were outstanding. Of these options, 500,000 vested
immediately on grant, and 512,300 vest one third on each of December 31, 1998,
1999 and 2000. Options exercisable into 787,700 shares are available for future
grants.
Generally, options must be exercised within 10 years of the grant date and
may be granted only to employees, directors and consultants. The exercise price
of each option may not be less than 100% of the fair market value of a share of
Common Stock on the date of grant.
Upon a Change in Control of the Company, all outstanding options become
immediate exercisable.
F-15
<PAGE> 39
In October 1995, the FASB issued SFAS No. 123, "Accounting for Stock-Based
Compensation," which became effective with respect to the Company in 1996. Under
SFAS No. 123, companies can either record expense based on the fair value of
stock-based compensation upon issuance or elect to remain under the current
Accounting Principles Board Opinion No. 25 ("APB 25") method whereby no
compensation cost is recognized upon grant if certain requirements are met. The
Company is continuing to account for its stock-based compensation under APB 25.
However, pro forma disclosures as if the Company adopted the cost recognition
requirements under SFAS No. 123 are presented below.
If the compensation cost for the Company's 1998, 1997 and 1996 grants for
stock-based compensation plans had been determined consistent with SFAS No. 123,
the Company's 1998, 1997 and 1996 net income and basic and diluted earnings per
common share would have approximated the pro forma amounts below (in thousands,
except per share amounts):
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------------------------------------------------------
1998 1997 1996
--------------------------- -------------------------- -----------------------
As Pro As Pro As Pro
Reported Forma Reported Forma Reported Forma
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Net income (loss) ($ 16,240) ($ 17,182) ($ 2,914) ($ 3,467) $ 169 ($ 384)
Earnings (loss) per common share:
Basic ($ 1.20) ($ 1.27) ($ 0.26) ($ 0.31) $ 0.01 ($ 0.04)
Diluted ($ 1.20) ($ 1.27) ($ 0.26) ($ 0.31) $ 0.01 ($ 0.04)
</TABLE>
The effects of applying SFAS No. 123 in this pro forma disclosure are not
indicative of future amounts. SFAS No. 123 does not apply to grants prior to
1995, and additional awards in the future are anticipated. The contingent stock
rights assigned in connection with the Merger are excluded from the calculation
of pro forma net loss and loss per share.
A summary of the Company's stock options as of December 31, 1998, 1997 and
1996 and changes during the years ended on those dates is presented below.
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------------------------------------------------
1998 1997 1996
------------------------- ------------------------ -------------------------
Wgtd. Wgtd. Wgtd.
Number Avg. Number Avg. Number Avg.
of Exer. of Exer. of Exer.
Options Price Options Price Options Price
------- ----- ------- ----- ------- -----
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of year 1,163,000 $2.73 1,163,000 $2.87 942,500 $2.59
Granted 1,012,300 0.84 -- -- 750,000 3.03
Expired/cancelled (1,163,00) 2.73 -- -- (15,000) 3.85
Exercised -- -- -- -- (514,500) 2.60
----------- ---------- ---------
Outstanding at end of year 1,012,300 0.84 1,163,000 2.73 1,163,000 2.87
Options exerciseable at year-end 694,100 0.84 1,163,000 2.73 1,163,000 2.87
Options available for future grant 787,700 -- --
Weighted average fair value of
options granted during the year $ 0.58 -- $ 2.21
</TABLE>
The fair value of each option granted during the periods presented is
estimated on the date of grant using the Black-Scholes option-pricing model with
the following assumptions: (a) divided yield of 0% (b) expected volatility of
55.6%, (c) risk-free interest rate of 5.30% and 6.50% in 1998 and 1996,
respectively, and (d) expected life of 10 years for 1998 grants and 3 years for
1996 grants.
F-16
<PAGE> 40
The following table summarizes information regarding stock options
outstanding at December 31, 1998:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
---------------------------------------------- ------------------------------------
Range of Options Wgtd. Avg. Wgtd. Avg. Options Wgtd. Avg.
Exercise Outstanding Remaining Exercise Exercisable Exercise
Prices at 12/31/98 Contractual Life Price at 12/31/98 Price
------ ----------- ---------------- ----- ----------- -----
<S> <C> <C> <C> <C> <C>
$0.84 1,012,300 6.5 Years $0.84 694,100 $0.84
</TABLE>
NOTE 13 - OIL AND GAS RESERVE INFORMATION - UNAUDITED
A majority of the Company's net proved oil and gas reserves at December
31, 1998 have been estimated by independent petroleum consultants in accordance
with guidelines established by the Securities and Exchange commission ("SEC").
Accordingly, the following reserve estimates are based upon existing economic
and operating conditions at the respective dates.
There are numerous uncertainties inherent in estimating quantities of
proved reserves and in providing the future rates of production and timing of
development expenditures. The following reserve data represents estimates only
and should not be construed as being exact. In addition, the present values
should not be construed as the current market value of the Company's oil and gas
properties or the cost that would be incurred to obtain equivalent reserves.
The following table sets forth an analysis of the Company's estimated
quantities of net proved and proved developed oil (including condensate) and
gas, all located onshore and offshore the continental United States:
<TABLE>
<CAPTION>
Oil Natural
in Gas
MBbls in MMcf
----- -------
<S> <C> <C>
Proved reserves as of December 31, 1995 748 32,954
Revisions of previous estimates (77) (12,538)
Extensions, discoveries and other additions 745 4,088
Purchase of producing properties 200 1,178
Sale of reserves (12) (1,976)
Production (154) (3,309)
------ -------
Proved reserves as of December 31, 1996 1,450 20,397
Revisions of previous estimates (345) (2,065)
Extensions, discoveries and other additions -- 371
Purchase of producing properties -- --
Sale of reserves (311) (15,254)
Production (140) (1,002)
------ -------
Proved reserves as of December 31, 1997 654 2,447
Revisions of previous estimates (134) (602)
Extensions, discoveries and other additions 5 874
Purchase of producing properties 63 8,891
Production (84) (1,049)
------ -------
Proved reserves as of December 31, 1998 504 10,561
====== =======
Proved developed reserves:
as of December 31, 1996 996 19,258
====== =======
as of December 31, 1997 554 2,333
====== =======
as of December 31, 1998 275 7,722
====== =======
</TABLE>
F-17
<PAGE> 41
The following tables present the standardized measure of future net
cash flows related to proved oil and gas reserves together with changes therein,
as defined by the FASB. The oil, condensate and gas price structure utilized to
project future net cash flows reflects current prices at each year end and has
been escalated only where known and determinable price changes are provided by
contracts and law. Future production and development costs are based on current
costs with no escalations. No future income taxes were included in the
computation of standardized measure in 1998 and 1997 because the Company's tax
basis in oil and gas properties, along with its other tax preference attributes,
net, exceeded pretax estimated discounted future net cash flows. Estimated
future cash flows have been discounted to their present values based on a 10%
annual discount rate.
<TABLE>
<CAPTION>
Standardized Measure
December 31,
------------------------------------------
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Future cash flows $ 28,958 $ 16,235 $ 58,855
Future production and development costs (14,208) (3,389) (12,827)
Future income taxes -- -- (1,079)
-------- -------- --------
Future net cash flows $ 14,750 $ 12,846 $ 44,949
10% annual discount (3,074) (3,789) (14,644)
-------- -------- --------
Standardized measure of discounted
future net cash flows $ 11,676 $ 9,057 $ 30,305
======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
Changes in Standardized Measure
Year Ended December 31,
------------------------------------------
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Standardized measure at beginning of year $ 9,057 $ 30,305 $ 21,607
Sales and transfers of oil and gas produced,
net of production costs (1,752) (2,926) (6,107)
Changes in price, net of future production
costs (3,350) (5,050) 16,147
Extensions and discoveries, net of future
production and development costs 850 480 13,404
Changes in estimated future development costs,
net of development costs incurred during this period 237 199 (1,826)
Revisions of quantity estimates (1,592) (4,401) (16,821)
Accretion of discount 906 3,107 2,161
Net change in income taxes -- 1,068 (1,085)
Purchase of reserves in place 7,566 -- 2,346
Sale of reserves in place -- (10,007) (1,198)
Changes in production rates (timing) and other (246) (3,718) 1,677
-------- -------- --------
Standardized measure at end of year $ 11,676 $ 9,057 $ 30,305
======== ======== ========
</TABLE>
F-18
<PAGE> 42
3. EXHIBITS:
2.1 Plan and Agreement of Merger by and among Optima Petroleum
Corporation, Optima Energy (U.S. Corporation its wholly-owned
subsidiary and Goodson Exploration Company, NAB Financial
L.L.C., Dexco Energy, inc., American Explorer, L.L.C.
(incorporated herein by reference to Appendix G of the Proxy
Statement on Schedule 14A filed July 22, 1998).
3.1 Certificate of Incorporation of the Company (incorporated
herein by reference to Exhibit 4.1 to Form 8-K dated September
16, 1998).
<PAGE> 43
3.2 Bylaws of the Company (incorporated herein by reference to
Exhibit 4.2 to Form 8-K dated September 16, 1998).
3.3 Certificate of Domestication of Optima Petroleum Corporation
(incorporated herein by reference to Exhibit 4.4 to Form 8-K
dated September 16, 1998).
4.1 Registration Rights Agreement dated as of September 1, 1998
among Optima Petroleum Corporation, Charles T. Goodson, Alfred
J. Thomas, II, Ralph J. Daigle, Janell B. Thomas, Alfred J.
Thomas, III, Blaine A. Thomas, and Natalie A. Thomas
(incorporated herein by reference to Exhibit 99.1 to Form 8-K
dated September 16, 1998).
4.2 Form of Certificate of Contingent Stock Issue Right
(incorporated herein by reference to Exhibit 4.3 to Form 8-K
dated September 16, 1998).
10.1 1998 Stock Option Plan (incorporated herein by reference to
Exhibit 10.2 to Form 8-K dated September 16, 1998).
10.2 Employment Agreement dated September 1, 1998, between
PetroQuest Energy, Inc. and Alfred J. Thomas, II (incorporated
herein by reference to Exhibit 10.3 to Form 8-K dated
September 16, 1998).
10.3 Employment Agreement dated September 1, 1998, between
PetroQuest Energy, Inc. and Charles T. Goodson (incorporated
herein by reference to Exhibit 10.2 to Form 8-K dated
September 16, 1998).
10.4 Employment Agreement dated September 1, 1998, between
PetroQuest Energy, Inc. and Ralph J. Daigle (incorporated
herein by reference to Exhibit 10.4 to Form 8-K dated
September 16, 1998).
10.5 Employment Agreement dated September 1, 1998, between
PetroQuest Energy, Inc. and Robert R. Brooksher (incorporated
herein by reference to Exhibit 10.5 to Form 8-K dated
September 16, 1998).
10.6 Credit Agreement dated September 24, 1998, among PetroQuest
Energy, Inc. (a Louisiana corporation), PetroQuest Energy One,
L.L.C. (a Louisiana limited liability company), PetroQuest
Energy, Inc. (a Delaware corporation) and Compass Bank)
10.7 Termination Agreement dated December 16, 1998, between
PetroQuest Energy, Inc. and Charles T. Goodson
10.8 Termination Agreement dated December 16, 1998, between
PetroQuest Energy, Inc. and Alfred J. Thomas, II
10.9 Termination Agreement dated December 16, 1998, between
PetroQuest Energy, Inc. and Ralph J. Daigle
10.10 Termination Agreement dated December 16, 1998, between
PetroQuest Energy, Inc. and Robert R. Brooksher
10.11 Indemnification Agreement dated December 16, 1998, between
PetroQuest Energy, Inc. and Charles T. Goodson
10.12 Indemnification Agreement dated December 16, 1998, between
PetroQuest Energy, Inc. and Alfred J. Thomas, II
10.13 Indemnification Agreement dated December 16, 1998, between
PetroQuest Energy, Inc. and Ralph J. Daigle
10.14 Indemnification Agreement dated December 16, 1998, between
PetroQuest Energy, Inc. and Robert R. Brooksher
10.15 Indemnification Agreement dated December 16, 1998, between
PetroQuest Energy, Inc. and Daniel G. Fournerat
10.16 Indemnification Agreement dated December 16, 1998, between
PetroQuest Energy, Inc. and William C. Leuschner
10.17 Indemnification Agreement dated December 16, 1998, between
PetroQuest Energy, Inc. and Robert L. Hodgkinson
16.1 Letter from KPMG dated December 18, 1998 (incorporated herein
by reference to Exhibit 16.1 to Form 8-K dated December 21,
1998)
21.1 Subsidiaries of the Company (incorporated herein by reference
to Exhibit 21.1 to the Registration Statement No. 333-55745
filed June 2, 1998)
<PAGE> 44
23.1 Consent of KPMG
23.2 Consent of Arthur Andersen L.L.P.
27.1 Financial data schedule
<PAGE> 1
- -------------------------------------------------------------------------------
CREDIT AGREEMENT
AMONG
PETROQUEST ENERGY, INC.
(a Louisiana corporation)
("Borrower")
PETROQUEST ENERGY ONE, L.L.C.
(a Louisiana limited liability company)
("Borrower")
PETROQUEST ENERGY, INC.
(a Delaware corporation)
("Guarantor")
AND
COMPASS BANK
("Lender")
September 24, 1998
---------
REDUCING REVOLVING LINE OF CREDIT OF UP TO $25,000,000
---------
- -------------------------------------------------------------------------------
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C> <C>
ARTICLE I DEFINITIONS AND INTERPRETATION
1.1 Terms Defined Above.........................................................................1
1.2 Additional Defined Terms....................................................................2
1.3 Undefined Financial Accounting Terms.......................................................13
1.4 References.................................................................................13
1.5 Articles and Sections......................................................................13
1.6 Number and Gender..........................................................................13
1.7 Incorporation of Exhibits..................................................................13
ARTICLE II TERMS OF FACILITY
2.1 Revolving Line of Credit...................................................................14
2.2 Letter of Credit Facility..................................................................14
2.3 Use of Loan Proceeds and Letters of Credit.................................................14
2.4 Interest...................................................................................15
2.5 Repayment of Loans and Interest............................................................15
2.6 Outstanding Amounts........................................................................15
2.7 Time, Place, and Method of Payments........................................................15
2.8 Borrowing Base Determinations..............................................................16
2.9 Mandatory Prepayments......................................................................16
2.10 Voluntary Prepayments of Loans.............................................................17
2.11 Commitment Fee.............................................................................17
2.12 Engineering Fee............................................................................17
2.13 Facility Fee...............................................................................17
2.14 Letter of Credit Fee.......................................................................17
2.15 Loans to Satisfy Obligations of Borrower...................................................18
2.16 Security Interest in Accounts; Right of Offset.............................................18
2.17 General Provisions Relating to Interest....................................................18
2.18 Letters in Lieu of Transfer Orders.........................................................19
2.19 Limited Power of Attorney..................................................................19
ARTICLE III CONDITIONS
3.1 Receipt of Loan Documents and Other Items..................................................20
3.2 Each Loan and Letter of Credit. ..........................................................23
ARTICLE IV REPRESENTATIONS AND WARRANTIES
4.1 Due Authorization..........................................................................25
4.2 Existence..................................................................................25
4.3 Valid and Binding Obligations..............................................................25
4.4 Security Instruments.......................................................................25
</TABLE>
V-i
<PAGE> 3
<TABLE>
<S> <C> <C>
4.5 Title to Assets............................................................................26
4.6 Scope and Accuracy of Financial Statements.................................................26
4.7 No Material Misstatements..................................................................26
4.8 Liabilities, Litigation, and Restrictions..................................................26
4.9 Authorizations; Consents...................................................................26
4.10 Compliance with Laws.......................................................................26
4.11 ERISA......................................................................................27
4.12 Environmental Laws.........................................................................27
4.13 Compliance with Federal Reserve Regulations................................................27
4.14 Investment Company Act Compliance..........................................................27
4.15 Public Utility Holding Company Act Compliance..............................................27
4.16 Proper Filing of Tax Returns; Payment of Taxes Due.........................................27
4.17 Refunds....................................................................................28
4.18 Gas Contracts..............................................................................28
4.19 Intellectual Property......................................................................28
4.20 Casualties or Taking of Property...........................................................28
4.21 Locations of Guarantor and Borrower........................................................28
4.22 Subsidiaries...............................................................................29
ARTICLE V AFFIRMATIVE COVENANTS
5.1 Maintenance and Access to Records..........................................................29
5.2 Quarterly Financial Statements; Compliance Certificates....................................29
5.3 Annual Financial Statements................................................................29
5.4 Oil and Gas Reserve Reports................................................................29
5.5 Title Opinions; Title Defects..............................................................30
5.6 Notices of Certain Events..................................................................30
5.7 Letters in Lieu of Transfer Orders; Division Orders........................................32
5.8 Additional Information.....................................................................32
5.9 Compliance with Laws.......................................................................32
5.10 Payment of Assessments and Charges.........................................................32
5.11 Maintenance of Limited Liability Company Existence and Good Standing.......................32
5.12 Payment of Note; Performance of Obligations................................................33
5.13 Further Assurances.........................................................................33
5.14 Initial Fees and Expenses of Counsel to Lender.............................................33
5.15 Subsequent Fees and Expenses of Lender.....................................................33
5.16 Operation of Oil and Gas Properties........................................................34
5.17 Maintenance and Inspection of Properties...................................................34
5.18 Maintenance of Insurance...................................................................34
5.19 INDEMNIFICATION............................................................................34
ARTICLE VI NEGATIVE COVENANTS
6.1 Indebtedness...............................................................................35
6.2 Contingent Obligations.....................................................................36
</TABLE>
V-ii
<PAGE> 4
<TABLE>
<S> <C> <C>
6.3 Liens......................................................................................36
6.4 Sales of Assets............................................................................36
6.5 Leasebacks.................................................................................36
6.6 Loans or Advances..........................................................................36
6.7 Investments................................................................................37
6.8 Dividends, Distributions and Redemptions...................................................37
6.9 Changes in Structure.......................................................................37
6.10 Transactions with Affiliates Structure.....................................................37
6.11 Lines of Business..........................................................................38
6.12 Plan Obligations...........................................................................38
6.13 Cash Flow Coverage.........................................................................38
6.14 Tangible Net Worth.........................................................................38
ARTICLE VII EVENTS OF DEFAULT
7.1 Enumeration of Events of Default...........................................................38
7.2 Remedies...................................................................................40
ARTICLE VIII MISCELLANEOUS
8.1 Transfers; Participations..................................................................41
8.2 Survival of Representations, Warranties, and Covenants.....................................41
8.3 Notices and Other Communications...........................................................41
8.4 Parties in Interest........................................................................42
8.5 Rights of Third Parties....................................................................42
8.6 Renewals; Extensions.......................................................................43
8.7 No Waiver; Rights Cumulative...............................................................43
8.8 Survival Upon Unenforceability.............................................................43
8.9 Amendments; Waivers........................................................................43
8.10 Controlling Agreement......................................................................43
8.11 Disposition of Collateral..................................................................43
8.12 GOVERNING LAW..............................................................................43
8.13 JURISDICTION AND VENUE.....................................................................44
8.14 WAIVER OF RIGHTS TO JURY TRIAL.............................................................44
8.15 ENTIRE AGREEMENT...........................................................................44
8.16 Counterparts...............................................................................45
</TABLE>
V-iii
<PAGE> 5
LIST OF EXHIBITS
Exhibit I - Form of Note
Exhibit II - Form of Borrowing Request
Exhibit III - Form of Compliance Certificate
Exhibit IV - Form of Opinion of Counsel
Exhibit V - Disclosures
V-iv
<PAGE> 6
EXHIBIT 10.6
EXHIBIT 10.6
AMENDED AND RESTATED CREDIT AGREEMENT
This AMENDED AND RESTATED CREDIT AGREEMENT is made and
entered into this 24th day of September, 1998, by and among PETROQUEST ENERGY,
INC., a Louisiana corporation (the "Borrower"), successor to Optima Energy
(U.S.) Corporation, a Nevada corporation ("Optima Energy"), by way of merger,
and PETROQUEST ENERGY ONE, L.L.C., a Louisiana limited liability company (the
"Borrower") successor to American Explorer L.L.C., a Louisiana limited
liability company ("American Explorer"), PETROQUEST ENERGY, INC., a Delaware
corporation (the "Guarantor"), successor to Optima Petroleum Corporation, a
Canadian corporation ("Optima Petroleum"), by way of merger, and COMPASS BANK,
a Texas state chartered banking institution (the "Lender"). PetroQuest Energy
Inc., and PetroQuest Energy One, L.L.C., shall be collectively referred to as
("Borrower").
W I T N E S S E T H:
WHEREAS, American Explorer and the Lender entered into that
certain Credit Agreement dated October 16, 1997 (the "American Explorer Credit
Agreement");
WHEREAS, Optima Energy and Comerica Bank-Texas, a Texas state
chartered banking institution ("Comerica"), entered into that certain Letter
Loan Agreement dated as of June 1, 1995, as amended to the date hereof (as so
amended, the "Optima Energy Loan Agreement" and the American Explorer Credit
Agreement and the Optima Energy Loan Agreement being, collectively, the
"Existing Credit Agreements");
WHEREAS, American Explorer has changed its name to PetroQuest
Energy One, L.L.C., and Optima Energy has merged with and into PetroQuest
Energy, Inc., (a Louisiana corporation).
NOW, THEREFORE, in consideration of the mutual covenants and
agreements herein contained, the Borrower, the Guarantor and the Lender hereby
agree as follows, amending and restating in its entirety each of the Existing
Credit Agreements:
ARTICLE I
DEFINITIONS AND INTERPRETATION
I.1 Terms Defined Above. As used in this Amended and Restated
Credit Agreement, each of the terms "American Explorer," "American Explorer
Credit Agreement," "Borrower," "Comerica," "Existing Credit Agreements,"
"Guarantor," "Lender," "Optima Energy,"
<PAGE> 7
"Optima Energy Loan Agreement," and "Optima Petroleum" shall have the meaning
assigned to such term hereinabove.
I.2 Additional Defined Terms. As used in this Amended and
Restated Credit Agreement, each of the following terms shall have the meaning
assigned thereto in this Section, unless the context otherwise requires:
"Affiliate" shall mean any Person directly or indirectly
controlling, or under common control with, the Borrower and includes
any Subsidiary of the Borrower and any "affiliate" of the Borrower
within the meaning of Reg. ss.240.12b-2 of the Securities Exchange Act
of 1934, as amended, with "control," as used in this definition,
meaning possession, directly or indirectly, of the power to direct or
cause the direction of management, policies or action through
ownership of voting securities, contract, voting trust, or membership
in management or in the group appointing or electing management or
otherwise through formal or informal arrangements or business
relationships.
"Agreement" shall mean this Amended and Restated Credit
Agreement, as it may be amended, supplemented, or restated from time
to time.
"Available Commitment" shall mean, at any time, an amount
equal to the remainder, if any, of (a) the Borrowing Base in effect at
such time minus (b) the sum of the Loan Balance at such time plus the
L/C Exposure at such time.
"Borrowing Base" shall mean, at any time, the amount
determined by the Lender in accordance with Section 2.8 and then in
effect.
"Borrowing Request" shall mean each written request, in
substantially the form attached hereto as Exhibit II, by the Borrower
to the Lender for a borrowing pursuant to Section 2.1, each of which
shall:
(a) be signed by a Responsible Officer of the
Borrower;
(b) specify the amount of the Loan requested and the
date of the borrowing (which shall be a Business Day); and
(c) be delivered to the Lender no later than 11:00
a.m., Central Standard or Daylight Savings Time, as the case
may be, on the Business Day of the requested borrowing.
"Business Day" shall mean a day other than a Saturday,
Sunday, legal holiday for commercial banks under the laws of the State
of Texas, or any other day when banking is suspended in the State of
Texas.
2
<PAGE> 8
"Cash Flow" shall mean for any fiscal quarter, Net Income
from continuing operations of Guarantor for such quarter, on a
consolidated basis with its Consolidated Subsidiaries, (a) plus (i)
depreciation, depletion, and amortization, (ii) intangible drilling
costs and oil and gas exploration costs, (iii) accrued plugging and
abandonment expenses, and (iv) losses on the sale of assets and other
non-cash expenses of the Guarantor, on a consolidated basis with its
Consolidated Subsidiaries, (b) less (i) income attributable to
Subsidiaries which have incurred non-recourse debt, (ii) gains on the
sale of assets, (iii) cash payments made in association with plugging
and abandonment liabilities (iv) any other non-cash income of the
Guarantor, on a consolidated basis with its Consolidated Subsidiaries.
"Closing Date" shall mean the effective date of this
Agreement.
"Collateral" shall mean the Mortgaged Properties, the issued
and outstanding capital stock of the Borrower and any other Property
now or at any time used or intended as security for the payment or
performance of all or any portion of the Obligations.
"Commitment" shall mean the obligation of the Lender, subject
to applicable provisions of this Agreement, to make Loans to or for
the benefit of the Borrower pursuant to Section 2.1 and to issue
Letters of Credit for the account of the Borrower pursuant to Section
2.2.
"Commitment Fee" shall mean each fee payable to the Lender by
the Borrower pursuant to Section 2.11.
"Commitment Period" shall mean the period from and including
the Closing Date to, but not including, the Commitment Termination
Date.
"Commitment Termination Date" shall mean June 1, 2000.
"Commonly Controlled Entity" shall mean any Person which is
under common control with the Guarantor or any of its Subsidiaries
(including the Borrower) within the meaning of Section 4001 of ERISA.
"Compliance Certificate" shall mean each certificate, in
substantially the form attached hereto as Exhibit III, executed by a
Responsible Officer of the Guarantor and furnished to the Lender from
time to time in accordance with Section 5.2.
"Consolidated Subsidiaries" shall mean, as to any Person,
those Subsidiaries of such Person which are consolidated with such
Person for financial accounting purposes in accordance with GAAP.
3
<PAGE> 9
"Contingent Obligation" shall mean, as to any Person, any
obligation of such Person guaranteeing or in effect guaranteeing any
Indebtedness, leases, dividends, or other obligations of any other
Person (for purposes of this definition, a "primary obligation") in
any manner, whether directly or indirectly, including, without
limitation, any obligation of such Person, regardless of whether such
obligation is contingent, (a) to purchase any primary obligation or
any Property constituting direct or indirect security therefor, (b) to
advance or supply funds (i) for the purchase or payment of any primary
obligation, or (ii) to maintain working or equity capital of any other
Person in respect of any primary obligation, or otherwise to maintain
the net worth or solvency of any other Person, (c) to purchase
Property, securities or services primarily for the purpose of assuring
the owner of any primary obligation of the ability of the Person
primarily liable for such primary obligation to make payment thereof,
or (d) otherwise to assure or hold harmless the owner of any such
primary obligation against loss in respect thereof, with the amount of
any Contingent Obligation being deemed to be equal to the stated or
determinable amount of the primary obligation in respect of which such
Contingent Obligation is made or, if not stated or determinable, the
maximum reasonably anticipated liability in respect thereof as
determined by such Person in good faith.
"Debt Service" shall mean, for any fiscal quarter, an amount
equal to (i) actual principal amounts paid during the relevant fiscal
quarter on Indebtedness of the Guarantor, on a consolidated basis with
its Consolidated Subsidiaries, other than the Obligations and any
Indebtedness of Subsidiaries of the Guarantor which is fully
non-recourse to the Guarantor and the Borrower and is secured, if at
all, only by Property purchased with proceeds of the borrowing giving
rise to such Indebtedness, plus (ii) required principal payments made
on the Obligations during such fiscal quarter.
"Default" shall mean any event or occurrence which with the
lapse of time or the giving of notice or both would become an Event of
Default.
"Default Rate" shall mean a per annum interest rate equal to
the Index Rate plus five percent (5%), but in no event exceeding the
Highest Lawful Rate.
"Dollars" and "$" shall mean dollars in lawful currency of
the United States of America.
"Engineering Fee" shall mean each fee payable to the Lender
by the Borrower pursuant to Section 2.12.
"Environmental Complaint" shall mean any written or oral
complaint, order, directive, claim, citation, notice of environmental
report or investigation, or other
4
<PAGE> 10
notice by any Governmental Authority or any other Person with respect
to (a) air emissions, (b) spills, releases, or discharges to soils,
any improvements located thereon, surface water, groundwater, or the
sewer, septic, waste treatment, storage, or disposal systems servicing
any Property of the Guarantor or the Borrower or any Property of
another Person adjacent to any Property of the Guarantor or the
Borrower, (c) solid or liquid waste disposal, (d) the use, generation,
storage, transportation, or disposal of any Hazardous Substance, or
(e) other environmental, health, or safety matters affecting any
Property of the Guarantor or the Borrower or any Property of another
Person adjacent to any Property of the Guarantor or the Borrower or
the business conducted thereon.
"Environmental Laws" shall mean (a) the following federal
laws as they may be cited, referenced, and amended from time to time:
the Clean Air Act, the Clean Water Act, the Safe Drinking Water Act,
the Comprehensive Environmental Response, Compensation and Liability
Act, the Endangered Species Act, the Resource Conservation and
Recovery Act, the Occupational Safety and Health Act, the Hazardous
Materials Transportation Act, the Superfund Amendments and
Reauthorization Act, and the Toxic Substances Control Act; (b) any and
all equivalent environmental statutes of any state in which Property
of the Guarantor or the Borrower is situated, as they may be cited,
referenced and amended from time to time; (c) any rules or regulations
promulgated under or adopted pursuant to the above federal and state
laws; and (d) any other equivalent federal, state, or local statute or
any requirement, rule, regulation, code, ordinance, or order adopted
pursuant thereto, including, without limitation, those relating to the
generation, transportation, treatment, storage, recycling, disposal,
handling, or release of Hazardous Substances.
"ERISA" shall mean the Employee Retirement Income Security
Act of 1974, as amended from time to time, and the regulations
thereunder and interpretations thereof.
"Event of Default" shall mean any of the events specified in
Section 7.1.
"Existing Notes" shall mean, collectively, the promissory
notes issued by American Explorer or Optima Energy, as the case may
be, and outstanding under the American Explorer Credit Agreement or
the Optima Energy Loan Agreement, as the case may be.
"Facility Fee" shall mean the fee payable to the Lender by
the Borrower pursuant to Section 2.13.
"Final Maturity" shall mean June 1, 2000.
5
<PAGE> 11
"Financial Statements" shall mean statements of the financial
condition of the Guarantor or the Borrower as at the point in time and
for the period indicated and consisting of at least a balance sheet
and related statements of operations, shareholders equity, and cash
flows and, when required by applicable provisions of this Agreement to
be audited, accompanied by the unqualified certification of a
nationally-recognized firm of independent certified public accountants
or other independent certified public accountants acceptable to the
Lender and footnotes to any of the foregoing, all of which shall be
prepared in accordance with GAAP, consistently applied and in
comparative form with respect to the corresponding period of the
preceding fiscal period.
"Floating Rate" shall mean an interest rate per annum equal
to the Index Rate from time to time in effect plus one-half of one
percent (1/2%), but in no event exceeding the Highest Lawful Rate.
"GAAP" shall mean generally accepted accounting principles
established by the Financial Accounting Standards Board or the
American Institute of Certified Public Accountants and in effect in
the United States from time to time.
"Governmental Authority" shall mean any nation, country,
commonwealth, territory, government, state, county, parish,
municipality, or other political subdivision and any entity having
jurisdiction and exercising proper and legally authorized executive,
legislative, judicial, regulatory, or administrative functions of or
pertaining to government.
"Guaranty" shall mean an unconditional guarantee by the
Guarantor of payment of the Obligations in form and substance
acceptable to the Lender.
"Hazardous Substances" shall mean flammables, explosives,
radioactive materials, hazardous wastes, asbestos, or any material
containing asbestos, polychlorinated biphenyls (PCBs), toxic
substances or related materials, petroleum, petroleum products,
associated oil or natural gas exploration, production, and development
wastes, or any substances defined as "hazardous substances,"
"hazardous materials," "hazardous wastes," or "toxic substances" under
the Comprehensive Environmental Response, Compensation and Liability
Act, as amended, the Superfund Amendments and Reauthorization Act, as
amended, the Hazardous Materials Transportation Act, as amended, the
Resource Conservation and Recovery Act, as amended, the Toxic
Substances Control Act, as amended, or any other law or regulation now
or hereafter enacted or promulgated by any Governmental Authority.
"Highest Lawful Rate" shall mean the maximum non-usurious
interest rate, if any (or, if the context so requires, an amount
calculated at such rate), that at any
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time or from time to time may be contracted for, taken, reserved,
charged, or received under applicable laws of the State of Texas or
the United States of America, whichever authorizes the greater rate,
as such laws are presently in effect or, to the extent allowed by
applicable law, as such laws may hereafter be in effect and which
allow a higher maximum non-usurious interest rate than such laws now
allow.
"Indebtedness" shall mean, as to any Person, without
duplication, (a) all liabilities (excluding reserves for deferred
income taxes, deferred compensation liabilities, and other deferred
liabilities and credits) which in accordance with GAAP would be
included in determining total liabilities as shown on the liability
side of a balance sheet, (b) all obligations of such Person evidenced
by bonds, debentures, promissory notes, or similar evidences of
indebtedness, (c) all other indebtedness of such Person for borrowed
money, and (d) all obligations of others, to the extent any such
obligation is secured by a Lien on the assets of such Person (whether
or not such Person has assumed or become liable for the obligation
secured by such Lien).
"Index Rate" shall mean the prime rate established in The
Wall Street Journal's "Money Rates" or similar table. If multiple
prime rates are quoted in the table, then the highest prime rate will
be the Index Rate. In the event that the prime rate is no longer
published by The Wall Street Journal in the "Money Rates" or similar
table, then Lender may select an alternative published index based
upon comparable information as a substitute Index Rate. Upon the
selection of a substitute Index Rate, the applicable interest rate
shall thereafter vary in relation to the substitute index. Such
substitute index shall be the same index that is generally used as a
substitute by Lender on all Index Rate loans.
"Insolvency Proceeding" shall mean application (whether
voluntary or instituted by another Person) for or the consent to the
appointment of a receiver, trustee, conservator, custodian, or
liquidator of any Person or of all or a substantial part of the
Property of such Person, or the filing of a petition (whether
voluntary or instituted by another Person) commencing a case under
Title 11 of the United States Code, seeking liquidation,
reorganization, or rearrangement or taking advantage of any
bankruptcy, insolvency, debtor's relief, or other similar law of the
United States, the State of Texas, or any other jurisdiction.
"Intellectual Property" shall mean patents, patent
applications, trademarks, tradenames, and copyrights, together with
all proprietary technology, know-how, and other proprietary processes.
"Investment" in any Person shall mean any stock, bond, note,
or other evidence of Indebtedness, or any other security (other than
current trade and customer accounts) of, investment or partnership
interest in or loan to, such Person.
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"L/C Exposure" shall mean, at any time, the aggregate maximum
amount available to be drawn under outstanding Letters of Credit at
such time.
"Letter of Credit" shall mean any standby letter of credit
issued by the Lender for the account of the Borrower pursuant to
Section 2.2.
"Letter of Credit Application" shall mean the standard letter
of credit application employed by the Lender from time to time in
connection with letters of credit.
"Letter of Credit Fee" shall mean each fee payable to the
Lender by the Borrower pursuant to Section 2.14 upon or in connection
with the issuance of a Letter of Credit.
"Lien" shall mean any interest in Property securing an
obligation owed to, or a claim by, a Person other than the owner of
such Property, whether such interest is based on common law, statute,
or contract, and including, but not limited to, the lien or security
interest arising from a mortgage, ship mortgage, encumbrance, pledge,
security agreement, conditional sale or trust receipt, or a lease,
consignment, or bailment for security purposes (other than true leases
or true consignments), liens of mechanics, materialmen, and artisans,
maritime liens and reservations, exceptions, encroachments, easements,
rights of way, covenants, conditions, restrictions, leases, and other
title exceptions and encumbrances affecting Property which secure an
obligation owed to, or a claim by, a Person other than the owner of
such Property (for the purpose of this Agreement, the Guarantor or the
Borrower, as the case may be, shall be deemed to be the owner of any
Property which it has acquired or holds subject to a conditional sale
agreement, financing lease, or other arrangement pursuant to which
title to the Property has been retained by or vested in some other
Person for security purposes), and the filing or recording of any
financing statement or other security instrument in any public office.
"Limitation Period" shall mean any period while any amount
remains owing on the Note and interest on such amount, calculated at
the applicable interest rate, plus any fees or other sums payable
under any Loan Document and deemed to be interest under applicable
law, would exceed the amount of interest which would accrue at the
Highest Lawful Rate.
"Loan" shall mean any loan made by the Lender to or for the
benefit of the Borrower pursuant to this Agreement.
"Loan Balance" shall mean, at any time, the outstanding
principal balance of the Note at such time and any payment made by the
Lender under a Letter of Credit.
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"Loan Documents" shall mean this Agreement, the Note, the
Letter of Credit Applications, the Letters of Credit, the Security
Instruments, the Guaranty, and all other documents and instruments now
or hereafter delivered pursuant to the terms of or in connection with
this Agreement, the Note, the Letter of Credit Applications, the
Letters of Credit, the Security Instruments or the Guaranty, and all
renewals and extensions of, amendments and supplements to, and
restatements of, any or all of the foregoing from time to time in
effect.
"Material Adverse Effect" shall mean (a) any adverse effect
on the business, operations, properties, condition (financial or
otherwise), or prospects of the Guarantor or the Borrower, which
increases the risk that any of the Obligations will not be repaid as
and when due, or (b) any adverse effect upon the Collateral.
"Mortgaged Properties" shall mean all Oil and Gas Properties
of the Borrower subject to a perfected first-priority Lien in favor of
the Lender, subject only to Permitted Liens, as security for the
Obligations.
"Net Income" shall mean, as to any Person and for any period,
the net income of such Person for such period, determined in
accordance with GAAP.
"Note" shall mean the promissory note of the Borrower in the
form attached hereto as Exhibit I, together with all renewals,
extensions for any period, increases, and rearrangements thereof.
"Obligations" shall mean, without duplication, (a) all
Indebtedness evidenced by the Note, (b) the Reimbursement Obligations,
(c) the undrawn, unexpired amount of all outstanding Letters of
Credit, (d) the obligation of the Borrower for the payment of
Commitment Fees, Letter of Credit Fees, Facility Fees and Engineering
Fees, and (e) all other obligations and liabilities of the Borrower to
the Lender, now existing or hereafter incurred, under, arising out of
or in connection with any Loan Document, and to the extent that any of
the foregoing includes or refers to the payment of amounts deemed or
constituting interest, only so much thereof as shall have accrued,
been earned and which remains unpaid at each relevant time of
determination.
"Oil and Gas Properties" shall mean fee, leasehold, or other
interests in or under mineral estates or oil, gas, and other liquid or
gaseous hydrocarbon leases with respect to Properties situated in the
United States or offshore from any State of the United States,
including, without limitation, overriding royalty and royalty
interests, leasehold estate interests, net profits interests,
production payment interests, and mineral fee interests, together with
contracts executed in connection therewith and all tenements,
hereditaments, appurtenances and Properties appertaining, belonging,
affixed, or incidental thereto.
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"Permitted Indebtedness" shall mean the plugging and
abandonment liability of the Borrower associated with wells in
Lafourche Parish, Louisiana, and Indebtedness of any Subsidiary of the
Guarantor which is fully non-recourse to the Guarantor and the
Borrower and is secured, if at all, only by Property purchased by such
Subsidiary with proceeds of the borrowing giving rise to such
Indebtedness.
"Permitted Liens" shall mean (a) Liens for taxes,
assessments, or other governmental charges or levies not yet due or
which (if foreclosure, distraint, sale, or other similar proceedings
shall not have been initiated) are being contested in good faith by
appropriate proceedings, and such reserve as may be required by GAAP
shall have been made therefor, (b) Liens in connection with workers'
compensation, unemployment insurance or other social security (other
than Liens created by Section 4068 of ERISA), old-age pension, or
public liability obligations which are not yet due or which are being
contested in good faith by appropriate proceedings, if such reserve as
may be required by GAAP shall have been made therefor, (c) Liens in
favor of vendors, carriers, warehousemen, repairmen, mechanics,
workmen, materialmen, construction, or similar Liens arising by
operation of law in the ordinary course of business in respect of
obligations which are not yet due or which are being contested in good
faith by appropriate proceedings, if such reserve as may be required
by GAAP shall have been made therefor, (d) Liens in favor of operators
and non-operators under joint operating agreements or similar
contractual arrangements arising in the ordinary course of the
business of the Guarantor or the Borrower to secure amounts owing,
which amounts are not yet due or are being contested in good faith by
appropriate proceedings, if such reserve as may be required by GAAP
shall have been made therefor, (e) Liens under production sales
agreements, division orders, operating agreements, and other
agreements customary in the oil and gas business for processing,
producing, and selling hydrocarbons securing obligations not
constituting Indebtedness and provided that such Liens do not secure
obligations to deliver hydrocarbons at some future date without
receiving full payment therefor within 90 days of delivery, (f)
easements, rights of way, restrictions, and other similar
encumbrances, and minor defects in the chain of title which are
customarily accepted in the oil and gas financing industry, none of
which interfere with the ordinary conduct of the business of the
Guarantor or the Borrower or materially detract from the value or use
of the Property to which they apply, (g) Liens granted by any
Subsidiary of the Guarantor against Property of such Subsidiary to
secure Indebtedness of such Subsidiary incurred to acquire the
relevant assets, so long as such Indebtedness is fully non-recourse to
the Guarantor and the Borrower.
"Person" shall mean an individual, corporation, limited
liability company, partnership, trust, unincorporated organization,
government, any agency or political subdivision of any government, or
any other form of entity.
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"Plan" shall mean, at any time, any employee benefit plan
which is covered by ERISA and in respect of which the Guarantor, the
Borrower, or any Commonly Controlled Entity is (or, if such plan were
terminated at such time, would under Section 4069 of ERISA be deemed
to be) an "employer" as defined in Section 3(5) of ERISA.
"Principal Office" shall mean the principal office of the
Lender in Houston, Texas, presently located at 24 Greenway Plaza, 14th
Floor, Houston, Texas 77046.
"Property" shall mean any interest in any kind of property or
asset, whether real, personal or mixed, tangible or intangible.
"Regulatory Change" shall mean the passage, adoption,
institution, or amendment of any federal, state, local, or foreign
Requirement of Law, or any interpretation, directive, or request
(whether or not having the force of law) of any Governmental Authority
or monetary authority charged with the enforcement, interpretation, or
administration thereof, occurring after the Closing Date and applying
to a class of banks including the Lender.
"Reimbursement Obligation" shall mean the obligation of the
Borrower to provide to the Lender or reimburse the Lender for any
amounts payable, paid, or incurred by the Lender with respect to
Letters of Credit.
"Release of Hazardous Substances" shall mean any emission,
spill, release, disposal, or discharge, except in accordance with a
valid permit, license, certificate, or approval of the relevant
Governmental Authority, of any Hazardous Substance into or upon (a)
the air, (b) soils or any improvements located thereon, (c) surface
water or groundwater, or (d) the sewer or septic system, or the waste
treatment, storage, or disposal system servicing any Property of the
Guarantor or the Borrower or any Property of another Person adjacent
to any Property of the Guarantor or the Borrower.
"Requirement of Law" shall mean, as to any Person, the
certificate or articles of incorporation and by-laws, certificate or
articles of organization and regulations or other organizational or
governing documents of such Person, and any applicable law, treaty,
ordinance, order, judgment, rule, decree, regulation, or determination
of an arbitrator, court, or other Governmental Authority, including,
without limitation, rules, regulations, orders, and requirements for
permits, licenses, registrations, approvals, or authorizations, in
each case as such now exist or may be hereafter amended and are
applicable to or binding upon such Person or any of its Property or to
which such Person or any of its Property is subject.
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"Reserve Report" shall mean each report delivered to the
Lender pursuant to Section 5.4.
"Responsible Officer" shall mean, as to any Person, its
President, Chief Executive Officer or Chief Financial Officer.
"Security Instruments" shall mean the security instruments
executed and delivered in satisfaction of the condition set forth in
Section 3.1(h), and all other documents and instruments at any time
executed as security for all or any portion of the Obligations, as
such instruments may be amended, restated, or supplemented from time
to time.
"Subsidiary" shall mean, as to any Person, a corporation,
limited liability company or partnership of which shares of stock or
other evidence of ownership having ordinary voting power (other than
stock having such power only by reason of the happening of a
contingency) to elect a majority of the board of directors or other
managers of such corporation are at the time owned, or the management
of which is otherwise controlled, directly or indirectly through one
or more intermediaries, or both, by such Person.
"Superfund Site" shall mean those sites listed on the
Environmental Protection Agency National Priority List and eligible
for remedial action or any comparable state registries or list in any
state of the United States.
"Tangible Net Worth" shall mean (a) total assets, as would be
reflected on a balance sheet of the Guarantor prepared on a
consolidated basis with its Consolidated Subsidiaries and in
accordance with GAAP, exclusive of (i) loans or advances from
shareholders and/or other related Persons, which Persons are not
consolidated with the Guarantor and its Consolidated Subsidiaries for
financial accounting purposes, (ii) the book value of any Investment
in or loans or advances to a Subsidiary of the Guarantor formed for
the purpose of acquiring Oil and Gas Properties in part with financing
which is non-recourse to the Guarantor and the Borrower and is
secured, if at all, solely by Liens existing against the Oil and Gas
Property so acquired, (iii) Intellectual Property, experimental or
organization expenses, franchises, licenses, permits, and other
intangible assets, (iv) treasury stock, (v) unamortized underwriters'
debt discount and expenses, and (vi) goodwill minus (b) total
liabilities, as would be reflected on a balance sheet of the Guarantor
prepared on a consolidated basis with its Consolidated Subsidiaries
and in accordance with GAAP.
"Transferee" shall mean any Person to which the Lender has
sold, assigned, transferred, or granted a participation in any of the
Obligations, as authorized pursuant to Section 8.1, and any Person
acquiring, by purchase, assignment, transfer,
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or participation, from any such purchaser, assignee, transferee, or
participant, any part of such Obligations.
"UCC" shall mean the Uniform Commercial Code as from time to
time in effect in the State of Texas.
I.3 Undefined Financial Accounting Terms. Undefined financial
accounting terms used in this Agreement shall be defined according to GAAP, at
the time in effect.
I.4 References. References in this Agreement to Exhibit,
Article, or Section numbers shall be to Exhibits, Articles, or Sections of this
Agreement, unless expressly stated to the contrary. References in this
Agreement to "hereby," "herein," "hereinafter," "hereinabove," "hereinbelow,"
"hereof," "hereunder" and words of similar import shall be to this Agreement in
its entirety and not only to the particular Exhibit, Article, or Section in
which such reference appears.
I.5 Articles and Sections. This Agreement, for convenience
only, has been divided into Articles and Sections; and it is understood that
the rights and other legal relations of the parties hereto shall be determined
from this instrument as an entirety and without regard to the aforesaid
division into Articles and Sections and without regard to headings prefixed to
such Articles or Sections.
I.6 Number and Gender. Whenever the context requires,
reference herein made to the single number shall be understood to include the
plural; and likewise, the plural shall be understood to include the singular.
Definitions of terms defined in the singular or plural shall be equally
applicable to the plural or singular, as the case may be, unless otherwise
indicated. Words denoting gender shall be construed to include the masculine,
feminine and neuter, when such construction is appropriate; and specific
enumeration shall not exclude the general but shall be construed as cumulative.
I.7 Incorporation of Exhibits. The Exhibits attached to this
Agreement are incorporated herein and shall be considered a part of this
Agreement for all purposes.
ARTICLE II
TERMS OF FACILITY
II.1 Revolving Line of Credit. (a) Upon the terms and
conditions (including, without limitation, the right of the Lender to decline
to make any Loan so long as any Default or Event of Default exists) and relying
on the representations and warranties contained in this Agreement, the Lender
agrees, during the Commitment Period, to make Loans, in immediately available
funds at the Principal Office, to or for the benefit of the Borrower, from time
to time on
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any Business Day designated by the Borrower following receipt by the Lender of
a Borrowing Request; provided, however, no Loan shall exceed the then existing
Available Commitment.
(b) Subject to the terms of this Agreement, during the
Commitment Period, the Borrower may borrow, repay, and reborrow such funds.
Except for prepayments made pursuant to Section 2.9, each borrowing and
prepayment of principal of Loans shall be in an amount at least equal to
$100,000. Each borrowing or prepayment shall be deemed a separate borrowing or
prepayment for purposes of the foregoing.
(c) The Loans shall be made and maintained at the Principal
Office and shall be evidenced by the Note.
II.2 Letter of Credit Facility. (a) Upon the terms and
conditions (including, without limitation, the right of the Lender to decline
to issue any Letter of Credit so long as any Default or Event of Default
exists) and relying on the representations and warranties contained in this
Agreement, the Lender agrees, during the Commitment Period, to issue Letters of
Credit following the receipt not less than three Business Days prior to the
requested date for issuance of the relevant Letter of Credit, of a Letter of
Credit Application executed by the Borrower; provided, however, (a) no Letter
of Credit shall have an expiration date which is more than 360 days after the
issuance thereof or subsequent to the Commitment Termination Date, and (b) the
Lender shall not be obligated to issue any Letter of Credit if (i) the face
amount thereof would exceed the Available Commitment, or (ii) after giving
effect to the issuance thereof, (A) the L/C Exposure, when added to the Loan
Balance then outstanding, would exceed the Borrowing Base then in effect, or
(B) the L/C Exposure would exceed $1,000,000.
(b) Should the Lender be called upon by the beneficiary of
any Letter of Credit to honor all or any portion of the commitment thereunder,
whether upon the presentation of drafts or otherwise, such payment by the
Lender on account of such Letter of Credit shall be treated, for all purposes,
as a Loan and an advance against the Note.
II.3 Use of Loan Proceeds and Letters of Credit. (a) The
initial Loan hereunder shall be in the amount necessary to purchase from
Comerica the Existing Notes and to thereupon renew, but not as a novation or
discharge of the Indebtedness of the Borrower evidenced by, the Existing Notes.
The Borrower shall use proceeds of additional Loans for hydrocarbon reserve
acquisitions, development drilling and other general company purposes.
(b) Letters of Credit shall be used for general corporate
purposes of the Borrower; provided, however, no Letter of Credit may be used in
lieu or in support of stay or appeal bonds.
II.4 Interest. Subject to the terms of this Agreement
(including, without limitation, Section 2.17), interest on the Loans shall
accrue and be payable at a rate per annum equal to the Floating Rate. Interest
on all Loans shall be computed on the basis of a year of 365 or 366 days, as
the case may be, and actual days elapsed (including the first day but excluding
the last day) during the period for which payable. Interest provided for herein
shall be calculated on unpaid sums
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actually advanced and outstanding pursuant to the terms of this Agreement and
only for the period from the date or dates of such advances until repayment.
Notwithstanding the foregoing, interest on past-due principal and, to the
extent permitted by applicable law, past-due interest, shall accrue at the
Default Rate, computed on the basis of a year of 365 or 366 days, as the case
may be, and actual days elapsed (including the first day but excluding the last
day) during the period for which payable, and shall be payable upon demand by
the Lender at any time as to all or any portion of such interest.
II.5 Repayment of Loans and Interest. Accrued and unpaid
interest on the aggregate outstanding Loan Balance shall be due and payable
monthly commencing on the first day of October, 1998, and continuing on the
first day of each calendar month thereafter while any amount of the Loan
Balance remains outstanding, the payment in each instance to be the amount of
interest which has accrued and remains unpaid in respect of the Loan Balance.
The Loan Balance, together with all accrued and unpaid interest thereon, shall
be due and payable on the Commitment Termination Date.
II.6 Outstanding Amounts. The outstanding principal balance
of the Note reflected by the notations by the Lender on its records shall be
deemed rebuttably presumptive evidence of the principal amount owing on the
Note. The liability for payment of principal and interest evidenced by the Note
shall be limited to principal amounts actually advanced and outstanding
pursuant to this Agreement and interest on such amounts calculated in
accordance with this Agreement.
II.7 Time, Place, and Method of Payments. All payments
required pursuant to this Agreement or the Note shall be made in lawful money
of the United States of America and in immediately available funds, shall be
deemed received by the Lender on the next Business Day following receipt if
such receipt is after 2:00 p.m., Central Standard or Daylight Savings Time, as
the case may be, on any Business Day, and shall be made at the Principal
Office. Except as provided to the contrary herein, if the due date of any
payment hereunder or under the Note would otherwise fall on a day which is not
a Business Day, such date shall be extended to the next succeeding Business
Day, and interest shall be payable for any principal so extended for the period
of such extension.
II.8 Borrowing Base Determinations. (a) The Borrowing Base as
of the Closing Date is acknowledged by the Borrower and the Lender to be
$4,300,000. Commencing on October 1, 1998, and continuing thereafter on the
first day of each calendar month through the Commitment Termination Date, the
amount of the Borrowing Base shall be reduced by $200,000.
(b) The Borrowing Base and the amount by which the Borrowing
Base shall be reduced each calendar month shall be redetermined no less
frequently than semi-annually beginning February 1, 1999, on the basis of
information supplied by the Borrower in compliance with the provisions of this
Agreement, including, without limitation, Reserve Reports, and all other
information available to the Lender. Notwithstanding the foregoing, the Lender
may at its discretion
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<PAGE> 21
redetermine the Borrowing Base and the amount by which the Borrowing Base shall
be reduced each calendar month as set forth in Section 2.8 (a) at any time and
from time to time. In addition, the Lender shall, in the normal course of
business following a request of the Borrower, redetermine the Borrowing Base
and the amount by which the Borrowing Base is to be reduced each calendar
month, provided, however, that Lender shall not be obligated to respond to more
than four requests during any calendar year, and in no event shall the Lender
be required to comply with such request to redetermine the Borrowing Base and
the amount by which the Borrowing Base is to be reduced each calendar month,
more than once in any three-month period, including, without limitation, each
scheduled semi-annual redetermination provided for above.
(c) Upon each determination of the Borrowing Base by the
Lender, the Lender shall notify the Borrower orally (confirming such notice
promptly in writing) of such determination, and the Borrowing Base and the
amount by which the Borrowing Base shall be reduced so communicated to the
Borrower shall become effective upon written notification and shall remain in
effect until the next subsequent determination of the Borrowing Base and the
amount by which the Borrowing Base shall be reduced.
(d) The Borrowing Base shall represent the determination by
the Lender, in accordance with the applicable definitions and provisions herein
contained and its customary lending practices for loans of this nature, of the
value, for loan purposes, of the Mortgaged Properties, subject, in the case of
any increase in the Borrowing Base, to the credit approval process of the
Lender. Furthermore, the Borrower acknowledges that the determination of the
Borrowing Base contains an equity cushion (market value in excess of loan
value), which is acknowledged by the Borrower to be essential for the adequate
protection of the Lender.
II.9 Mandatory Prepayments. If at any time the sum of the
Loan Balance and the L/C Exposure exceeds the Borrowing Base then in effect,
the Borrower shall, within 30 days of notice from the Lender of such
occurrence, (a) prepay, or make arrangements acceptable to the Lender for the
prepayment of, the amount of such excess for application on the Loan Balance,
(b) provide additional collateral, of character and value satisfactory to the
Lender in its sole discretion, to secure the Obligations by the execution and
delivery to the Lender of security instruments in form and substance
satisfactory to the Lender, or (c) effect any combination of the alternatives
described in clauses (a) and (b) of this Section and acceptable to the Lender
in its sole discretion.
II.10 Voluntary Prepayments of Loans. Subject to applicable
provisions of this Agreement, the Borrower shall have the right at any time or
from time to time to prepay Loans without prepayment penalty provided, however,
(a) the Borrower shall pay all accrued and unpaid interest on the amounts
prepaid, and (b) no such prepayment shall serve to postpone the repayment when
due of any Obligation.
II.11 Commitment Fee. In addition to interest on the Note as
provided herein and the Engineering Fees and Facility Fees payable hereunder
and to compensate the Lender for maintaining funds available, the Borrower
shall pay to the Lender, in immediately available funds,
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<PAGE> 22
on the first day of October, 1998, and on the first day of each third calendar
month thereafter during the Commitment Period, and on the Commitment
Termination Date, a fee in the amount of one-half percent (1/2%) per annum,
calculated on the basis of a year of 365 or 366 days, as the case may be, and
actual days elapsed (including the first day but excluding the last day), on
the average daily amount of the Available Commitment during the preceding
quarterly period. The Commitment Fee due on October 1, 1998, shall be
calculated for the period beginning on the Closing Date through September 30,
1998, and the Commitment Fee due on the Commitment Termination Date shall be
calculated from the due date of the immediately preceding Commitment Fee
payment through the Commitment Termination Date.
II.12 Engineering Fee. In addition to interest on the Note as
provided herein and the Commitment Fees and Facility Fees payable hereunder and
to compensate the Lender for the costs of evaluating the Mortgaged Properties
and reviewing the Reserve Reports, the Borrower shall pay to the Lender, in
immediately available funds, on the date of each semi-annual redetermination of
the Borrowing Base and any redetermination of the Borrowing Base at the request
of the Borrower, an engineering fee in the amount of $3,500.
II.13 Facility Fee. In addition to interest on the Note as
provided herein and Commitment Fees and Engineering Fees payable hereunder and
to compensate the Lender for the costs of the extension of credit hereunder,
the Borrower shall pay to the Lender, upon each increase in the Borrowing Base
subsequent to the Closing Date, a fee in an amount equal to one-half percent
(1/2%) of the amount of the relevant increase in the Borrowing Base.
II.14 Letter of Credit Fee. In addition to interest on the
Note as provided herein and Commitment Fees, Engineering Fees and Facility Fees
payable hereunder, the Borrower agrees to pay to the Lender, on the date of
issuance of each Letter of Credit, a fee equal to one and one-half percent (1-
1/2%) per annum, calculated on the basis of a year of 365 or 366 days, as the
case may be, and actual days elapsed (including the first day but excluding the
last day), on the face amount of such Letter of Credit for the period for which
such Letter of Credit is issued, provided however, the fee with respect to any
Letter of Credit shall never be less than $500; further provided, however, in
the event any such Letter of Credit is canceled prior to its original expiry
date or a payment is made by the Lender with respect to such Letter of Credit,
the Lender shall, within 30 days after such cancellation or the making of such
payment, rebate to the Borrower the unearned portion of any Letter of Credit
Fee. The Borrower also agrees to pay to the Lender on demand its customary
letter of credit transactional fees, including, without limitation, amendment
fees, payable with respect to each Letter of Credit.
II.15 Loans to Satisfy Obligations of Borrower. The Lender
may, but shall not be obligated to, make Loans for the benefit of the Borrower
and apply proceeds thereof to the satisfaction of any condition, warranty,
representation, or covenant of the Borrower contained in this Agreement or any
other Loan Document to which the Borrower is a party. Any such Loan shall be
evidenced by the Note.
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II.16 Security Interest in Accounts; Right of Offset. As
security for the payment and performance of the Obligations, the Borrower
hereby transfers, assigns, and pledges to the Lender and grants to the Lender a
security interest in all funds of the Borrower now or hereafter or from time to
time on deposit with the Lender, with such interest of the Lender to be
retransferred, reassigned, and/or released by the Lender, as the case may be,
at the expense of the Borrower upon payment in full and complete performance by
the Borrower of all Obligations. All remedies as secured party or assignee of
such funds shall be exercisable by the Lender upon the occurrence of any Event
of Default, regardless of whether the exercise of any such remedy would result
in any penalty or loss of interest or profit with respect to any withdrawal of
funds deposited in a time deposit account prior to the maturity thereof.
Furthermore, the Borrower hereby grants to the Lender the right, exercisable at
such time as any Obligation shall mature, whether by acceleration of maturity
or otherwise, of offset or banker's lien against all funds of the Borrower now
or hereafter or from time to time on deposit with the Lender, regardless of
whether the exercise of any such remedy would result in any penalty or loss of
interest or profit with respect to any withdrawal of funds deposited in a time
deposit account prior to the maturity thereof.
II.17 General Provisions Relating to Interest. (a) It is the
intention of the parties hereto to comply strictly with the usury laws of the
State of Texas and the United States of America. In this connection, there
shall never be collected, charged, or received on the sums advanced hereunder
interest in excess of that which would accrue at the Highest Lawful Rate. The
Borrower agrees that, to the extent the Highest Lawful Rate is determined with
reference to the laws of the State of Texas, the Highest Lawful Rate shall be
the "weekly" rate as defined in Chapter 1D of Subtitle 1 of Title 79, Texas
Revised Civil Statutes, provided that the Lender may, at its election,
substitute for the "weekly" rate ceiling the "amount" or "quarterly" ceiling,
as such terms are defined in the aforesaid statute, upon the giving of notices
provided in such statute and effective upon the giving of such notices. The
Lender may also rely, to the extent permitted by applicable laws of the State
of Texas or the United States of America, on alternative maximum rates of
interest under other laws of the State of Texas or the United States of America
applicable to the Lender, if greater.
(b) Notwithstanding anything herein or in the Note to the
contrary, during any Limitation Period, the interest rate to be charged on
amounts evidenced by the Note shall be the Highest Lawful Rate, and the
obligation, if any, of the Borrower for the payment of fees or other charges
deemed to be interest under applicable law shall be suspended. During any
period or periods of time following a Limitation Period, to the extent
permitted by applicable laws of the State of Texas or the United States of
America, the interest rate to be charged hereunder shall remain at the Highest
Lawful Rate until such time as there has been paid to the Lender (i) the amount
of interest in excess of that accruing at the Highest Lawful Rate that the
Lender would have received during the Limitation Period had the interest rate
remained at the otherwise applicable rate, and (ii) all interest and fees
otherwise payable to the Lender but for the effect of such Limitation Period.
(c) If, under any circumstances, the aggregate amounts paid
on the Note or under this Agreement or any other Loan Document include amounts
which by law are deemed interest and which would exceed the amount permitted if
the Highest Lawful Rate were in effect, the Borrower
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stipulates that such payment and collection will have been and will be deemed
to have been, to the extent permitted by applicable laws of the State of Texas
or the United States of America, the result of mathematical error on the part
of the Borrower and the Lender; and the Lender shall promptly refund the amount
of such excess (to the extent only of such interest payments in excess of that
which would have accrued and been payable on the basis of the Highest Lawful
Rate) upon discovery of such error by the Lender or notice thereof from the
Borrower. In the event that the maturity of any Obligation is accelerated, by
reason of an election by the Lender or otherwise, or in the event of any
required or permitted prepayment, then the consideration constituting interest
under applicable laws may never exceed the Highest Lawful Rate; and excess
amounts paid which by law are deemed interest, if any, shall be credited by the
Lender on the principal amount of the Obligations, or if the principal amount
of the Obligations shall have been paid in full, refunded to the Borrower.
(d) All sums paid, or agreed to be paid, to the Lender for
the use, forbearance and detention of the proceeds of any advance hereunder
shall, to the extent permitted by applicable law, be amortized, prorated,
allocated, and spread throughout the full term hereof until paid in full so
that the actual rate of interest is uniform but does not exceed the Highest
Lawful Rate throughout the full term hereof.
II.18 Letters in Lieu of Transfer Orders. The Lender agrees
that none of the letters in lieu of transfer or division orders provided by the
Borrower pursuant to Section 3.1(h)(iii) or Section 5.7 will be sent to the
addressees thereof prior to the occurrence of an Event of Default, at which
time the Lender may, at its option and in addition to the exercise of any of
its other rights and remedies, send any or all of such letters.
II.19 Limited Power of Attorney. The Borrower hereby
designates the Lender as its agent and attorney-in-fact, to act in its name,
place, and stead for the limited purposes of completing and, upon the
occurrence of an Event of Default, delivering any and all of the letters in
lieu of transfer orders delivered by the Borrower to the Lender pursuant to
Section 3.1(h)(iii) or Section 5.7, including, without limitation, completing
any blanks contained in such letters and attaching exhibits thereto describing
the relevant Collateral. The Borrower hereby ratifies and confirms all that the
Lender shall lawfully do or cause to be done by virtue of this power of
attorney and the rights granted with respect to this power of attorney. This
limited power of attorney is coupled with the interests of the Lender in the
Collateral, shall commence and be in full force and effect as of the Closing
Date and shall remain in full force and effect and shall be irrevocable so long
as any Obligation remains outstanding or unpaid or any Commitment exists. The
limited powers conferred on the Lender by this appointment are solely to
protect the interests of the Lender under the Loan Documents and shall not
impose any duty upon the Lender to exercise any such powers. The Lender shall
be accountable only for amounts that it actually receives as a result of the
exercise of such powers and shall not be responsible to the Borrower or any
other Person for any act or failure to act with respect to such powers, except
for gross negligence or willful misconduct.
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ARTICLE III
CONDITIONS
The obligations of the Lender to enter into this Agreement
and to make Loans and issue Letters of Credit are subject to the satisfaction
of the following conditions precedent:
III.1 Receipt of Loan Documents and Other Items. The Lender
shall have no obligation under this Agreement unless and until all matters
incident to the consummation of the transactions contemplated herein,
including, without limitation, the review by the Lender or its counsel of the
title of the Borrower to its Oil and Gas Properties, shall be satisfactory to
the Lender, and the Lender shall have received, reviewed, and approved the
following documents and other items, appropriately executed when necessary and,
where applicable, acknowledged by one or more authorized officers of the
Borrower or the Guarantor, as the case may be, all in form and substance
satisfactory to the Lender and dated, where applicable, of even date herewith
or a date prior thereto and acceptable to the Lender:
(a) multiple counterparts of this Agreement, as requested by
the Lender;
(b) the Note;
(c) copies of the Certificate of Incorporation or Articles of
Incorporation, as the case may be, and the Bylaws and all amendments
to any of the foregoing of the Guarantor and the Borrower, accompanied
by a certificate issued by the secretary or an assistant secretary of
the relevant party, to the effect that each such copy is correct and
complete;
(d) certificates of incumbency and specimen signatures of all
officers of the Guarantor and the Borrower who are authorized to
execute Loan Documents on behalf of the relevant entity, each such
certificate being executed by the secretary or an assistant secretary
of the relevant entity;
(e) copies of resolutions of the directors approving the Loan
Documents to be executed by the relevant entity and authorizing the
transactions contemplated herein and therein, duly adopted by the
Guarantor and the Borrower, accompanied by certificates of the
secretary or an assistant secretary of the relevant entity, to the
effect that such copies are true and correct copies of resolutions
duly adopted at a meeting or by unanimous consent of the directors of
the relevant entity and that such resolutions constitute all the
resolutions adopted with respect to such transactions, have not been
amended, modified, or revoked in any respect, and are in full force
and effect as of the date of such certificate;
(f) copy of the Certificate of Domestication evidencing the
continuation of Optima Petroleum into the State of Delaware under
Canadian law and the
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Domestication of Optima Petroleum under Delaware law certified by the
Secretary of State of the State of Delaware as being a true and
correct copy of such document as filed in the office of such Secretary
of State;
(g) copies of the Articles of Merger evidencing the merger of
American Optima Energy into PetroQuest Energy, Inc., a Louisiana
corporation the Borrower certified in each case by the Secretary of
State of the State of Louisiana as being a true and correct copy of
the relevant documents filed in the office of such Secretary of State;
(h) the following documents establishing Liens in favor of
the Lender in and to the Collateral;
(i) Ratification and Amendment of the existing mortgage
documents in the name of American Explorer;
(j) Assignment of (i) all promissory notes executed by Optima
Energy and Optima Petroleum in favor of Comerica Bank and (ii) all
Liens against any Property of Optima Energy and Optima Petroleum in
favor of Comerica Bank.
(k) Ratification and Amendment of Mortgage documents in the
name of Optima Energy;
(l) The following documents establishing liens in favor of
the Lender in and to the Collateral: (i) Mortgage, Pledge, Assignment
of Production and Security Agreement from the Borrower covering those
of its Oil and Gas Properties situated in or offshore the State of
Louisiana designated by the Lender and all improvements, personal
property, fixtures, contracts and accounts related to such Oil and Gas
Properties and Deed of Trust, Security Agreement, Financing Statement
and Assignment of Production from the Borrower covering those of its
Oil and Gas Properties situated in or offshore the State of Texas
designated by the Lender and all improvements, personal property,
fixtures, contracts and accounts related to such Oil and Gas
Properties;
(ii) Financing Statements from the Borrower, as
debtor, constituent to the instruments described in clause
(i) above;
(iii) undated letters, in form and substance
satisfactory to the Lender, from the Borrower to each
purchaser of production and disburser of the proceeds of
production from or attributable to the Mortgaged Properties,
together with additional letters with the addressees left
blank, authorizing and directing the addressees to make
future payments attributable to production from the Mortgaged
Properties directly to the Lender;
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(m) Security Agreement (Pledge) by the Guarantor covering the
issued and outstanding capital stock of the Borrower;
(n) compiled pro-forma balance sheet of Optima Petroleum,
prepared as of March 31, 1998, and the compiled pro-forma combined
statements of operations of Optima Petroleum and American Explorer,
for the three months ended March 31, 1998, and for the year ended
December 31, 1997 (such pro-forma financial statements included in the
Proxy Statement/Information Circular/Prospectus filed with the SEC by
Optima Petroleum on or about July 20, 1998).
(o) certificates dated as of a recent date from the Secretary
of State or other appropriate Governmental Authority evidencing the
existence or qualification and good standing of each of the Guarantor
and the Borrower in its jurisdiction of incorporation and, as to the
Borrower, in the State of Texas;
(p) results of searches of the UCC Records of the Secretary
of State of the State of Louisiana and the Secretary of State of the
State of Texas from a source acceptable to the Lender and reflecting
no Liens, other than Permitted Liens, against any of the Collateral as
to which perfection of a Lien is accomplished by the filing of a
financing statement;
(q) copies of all operating, lease, sublease, royalty, sales,
exchange, processing, farmout, bidding, pooling, unitization,
communitization, and other agreements relating to the Mortgaged
Properties as reasonably requested by the Lender;
(r) the opinion of Onebane, Bernard, Torian, Diaz, McNamara &
Abel, counsel to the Guarantor and the Borrower, in substantially the
form attached hereto as Exhibit IV, with such changes to such form as
may be approved by the Lender;
(s) engineering reports covering the Oil and Gas Properties
of the Borrower;
(t) certificates evidencing the insurance coverage required
pursuant to Section 5.18; and
(u) such other agreements, documents, instruments, opinions,
certificates, waivers, consents, and evidence as the Lender may
reasonably request.
III.2 Each Loan and Letter of Credit. In addition to the
conditions precedent stated elsewhere herein, the Lender shall not be obligated
to make any Loan or issue any Letter of Credit unless:
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(a) the Borrower shall have delivered to the Lender (i) a
Borrowing Request at least the requisite time prior to the requested
date for the relevant Loan or (ii) a Letter of Credit Application at
least three Business Days prior to the requested issuance date for the
relevant Letter of Credit, as the case may be, and each statement or
certification made in such Borrowing Request or Letter of Credit
Application, as the case may be, shall be true and correct in all
material respects on the requested date for such Loan or the issuance
date of such Letter of Credit;
(b) no Event of Default or Default shall exist or will occur
as a result of the making of the requested Loan or the issuance of the
requested Letter of Credit;
(c) if requested by the Lender, Borrower shall have delivered
evidence satisfactory to the Lender substantiating any of the matters
contained in this Agreement which are necessary to enable the Borrower
to qualify for such Loan or the issuance of such Letter of Credit;
(d) the Lender shall have received, reviewed, and approved
such additional documents and items as described in Section 3.1 as may
be requested by the Lender with respect to such Loan or Letter of
Credit;
(e) no event shall have occurred which, in the reasonable
opinion of the Lender, could have a Material Adverse Effect;
(f) each of the representations and warranties contained in
this Agreement shall be true and correct and shall be deemed to be
repeated by the Guarantor and the Borrower as if made on the requested
date for such Loan or the issuance date of such Letter of Credit;
(g) all of the Security Instruments shall be in full force
and effect and provide to the Lender the security intended thereby;
(h) neither the consummation of the transactions contemplated
hereby nor the making of such Loan nor the issuance of such Letter of
Credit shall contravene, violate, or conflict with any Requirement of
Law;
(i) the Guarantor or the Borrower, as the case may be, shall
hold full legal title to the Collateral provided by it and be the sole
beneficial owner thereof;
(j) the Lender shall have received the payment of all
Commitment Fees, Engineering Fees, Facility Fees, Letter of Credit
Fees and other fees payable to the Lender hereunder and the Lender
shall have received reimbursement from the Borrower, or special legal
counsel for the Lender shall have received payment from the Borrower,
for (i) all reasonable fees and expenses of counsel to the Lender for
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which the Borrower is responsible pursuant to applicable provisions of
this Agreement and for which invoices have been presented as of or
prior to the date of the relevant Loan or Letter of Credit
Application, and (ii) estimated fees charged by filing officers and
other public officials incurred or to be incurred in connection with
the filing and recordation of any Security Instruments, for which
invoices have been presented as of or prior to the date of the
requested Loan or Letter of Credit Application; and
(k) all matters incident to the consummation of the
transactions hereby contemplated shall be reasonably satisfactory to
the Lender.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
To induce the Lender to enter into this Agreement and to make
the Loans and issue Letters of Credit, the Guarantor and the Borrower represent
and warrant to the Lender (which representations and warranties shall survive
the delivery of the Note) that:
IV.1 Due Authorization. The execution and delivery by the
Borrower of this Agreement and the borrowings hereunder, the execution and
delivery by the Borrower of the Note, the payment by the Borrower of the Note
and interest and fees provided for in the Note and this Agreement, the
execution and delivery of the Security Instruments by the Borrower or the
Guarantor, as the case may be, and the performance of all obligations of the
Borrower or the Guarantor, as the case may be, under the Loan Documents are
within the power of the Borrower or the Guarantor, as the case may be, have
been duly authorized by all necessary corporate company action by the Borrower
or the Guarantor, as the case may be, and do not and will not (a) require the
consent of any Governmental Authority, (b) contravene or conflict with any
Requirement of Law, (c) contravene or conflict with any indenture, instrument,
or other agreement to which the Borrower or the Guarantor, as the case may be,
is a party or by which any Property of the Borrower or the Guarantor, as the
case may be, may be presently bound or encumbered, or (d) result in or require
the creation or imposition of any Lien in, upon or of any Property of the
Borrower or the Guarantor, as the case may be, under any such indenture,
instrument, or other agreement, other than the Loan Documents.
IV.2 Existence. Each of the Guarantor and the Borrower is a
corporation duly organized, legally existing, and in good standing under the
laws of its state of incorporation and is duly qualified as a foreign
corporation and is in good standing in all jurisdictions wherein the ownership
of Property or the operation of its business necessitates such qualification,
other than those jurisdictions wherein the failure to so qualify will not have
a Material Adverse Effect.
IV.3 Valid and Binding Obligations. All Loan Documents to
which it is a party, when duly executed and delivered by it, will be the legal,
valid, and binding obligations of the
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Borrower or the Guarantor, as the case may be, enforceable against such entity
in accordance with their respective terms.
IV.4 Security Instruments. The provisions of each Security
Instrument are effective to create, in favor or for the benefit of the Lender,
a legal, valid, and enforceable Lien in all right, title, and interest of the
Borrower or the Guarantor, as the case may be, in the Collateral described
therein, which Liens, assuming the accomplishment of recording and filing in
accordance with applicable laws prior to the intervention of rights of other
Persons, shall constitute fully perfected first-priority Liens.
IV.5 Title to Assets. Each of the Borrower and the Guarantor
has good and marketable title to all of its Properties, free and clear of all
Liens except Permitted Liens.
IV.6 Scope and Accuracy of Financial Statements. The
unaudited pro-forma Financial Statements referred to in clause (n) of Section
3.1 present fairly the financial position and results of operations of the
Guarantor, on a consolidated basis with its Consolidated Subsidiaries and in
accordance with GAAP, as at the relevant point in time or for the period
indicated, as applicable. No event or circumstance has occurred since July 2,
1998, which could reasonably be expected to have a Material Adverse Effect.
IV.7 No Material Misstatements. No information, exhibit,
statement, or report furnished to the Lender by or at the direction of the
Guarantor or the Borrower in connection with this Agreement contains any
material misstatement of fact or omits to state a material fact or any fact
necessary to make the statements contained therein not misleading as of the
date made or deemed made.
IV.8 Liabilities, Litigation, and Restrictions. Other than as
listed under the heading "Liabilities" on Exhibit V attached hereto, neither
the Guarantor nor the Borrower has any liabilities, direct, or contingent,
which may materially and adversely affect its business or operations or its
ownership of any Collateral. Except as set forth under the heading "Litigation"
on Exhibit V hereto, no litigation or other action of any nature affecting the
Guarantor or the Borrower is pending before any Governmental Authority or, to
the best knowledge of the Guarantor or the Borrower, as the case may be,
threatened against or affecting the Guarantor or the Borrower. No unusual or
unduly burdensome restriction, restraint or hazard exists by contract,
Requirement of Law, or otherwise relative to the business or operations of the
Guarantor or the Borrower or the ownership and operation of the Collateral
other than such as relate generally to Persons engaged in business activities
similar to those conducted by the Guarantor or the Borrower.
IV.9 Authorizations; Consents. Except as expressly
contemplated by this Agreement, no authorization, consent, approval, exemption,
franchise, permit, or license of, or filing with, any Governmental Authority or
any other Person is required to authorize or is otherwise required in
connection with the valid execution and delivery by the Guarantor or the
Borrower of those of the Loan Documents or any instrument contemplated hereby
to which it is a party, the
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payment by the Borrower of the Note and interest and fees provided in the Note
and this Agreement, or the performance by the Borrower of the other
Obligations.
IV.10 Compliance with Laws. Each of the Guarantor and the
Borrower and its Property, including, without limitation, the Mortgaged
Property, are in compliance with all applicable Requirements of Law, including,
without limitation, Environmental Laws, the Natural Gas Policy Act of 1978, as
amended, and ERISA, except to the extent non-compliance with any such
Requirements of Law could not reasonably be expected to have a Material Adverse
Effect.
IV.11 ERISA. Neither the Guarantor nor the Borrower maintains
or has maintained any Plan or currently contributes to or has any obligation to
contribute to or otherwise has any liability with respect to any Plan.
IV.12 Environmental Laws. To the best knowledge and belief of
the Guarantor and the Borrower, except as would not have a Material Adverse
Effect, or as described on Exhibit V under the heading "Environmental Matters:"
(a) no Property of either the Guarantor or the Borrower is
currently on or has ever been on, or is adjacent to any Property which
is on or has ever been on, any federal or state list of Superfund
Sites;
(b) no Hazardous Substances have been generated, transported,
and/or disposed of by the Guarantor or the Borrower at a site which
was, at the time of such generation, transportation, and/or disposal,
or has since become, a Superfund Site;
(c) except in accordance with applicable Requirements of Law
or the terms of a valid permit, license, certificate, or approval of
the relevant Governmental Authority, no Release of Hazardous
Substances by the Guarantor or the Borrower or from, affecting, or
related to any Property of the Guarantor or the Borrower or adjacent
to any Property of the Guarantor or the Borrower has occurred; and
(d) no Environmental Complaint has been received by the
Guarantor or the Borrower.
IV.13 Compliance with Federal Reserve Regulations. No
transaction contemplated by the Loan Documents is in violation of any
regulations promulgated by the Board of Governors of the Federal Reserve
System, including, without limitation, Regulations G, T, U, or X.
IV.14 Investment Company Act Compliance. Neither the
Guarantor nor the Borrower is directly or indirectly controlled by or acting on
behalf of any Person which is, an "investment company" or an "affiliated
person" of an "investment company" within the meaning of the Investment Company
Act of 1940, as amended.
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IV.15 Public Utility Holding Company Act Compliance. Neither
of the Guarantor nor the Borrower is a "holding company," or an "affiliate" of
a "holding company" or of a "subsidiary company" of a "holding company," within
the meaning of the Public Utility Holding Company Act of 1935, as amended.
IV.16 Proper Filing of Tax Returns; Payment of Taxes Due.
Each of the Guarantor and the Borrower has duly and properly filed all United
States income tax return and all other tax returns which are required to be
filed by it and has paid all taxes due except such as are being contested in
good faith and as to which adequate provisions and disclosures have been made.
The respective charges and reserves on the books of each such entity with
respect to taxes and other governmental charges are adequate.
IV.17 Refunds. No orders of, proceedings pending before, or
other requirements of, the Federal Energy Regulatory Commission, the Texas
Railroad Commission, or any other Governmental Authority exist which could
result in the Borrower being required to refund any material portion of the
proceeds received or to be received from the sale of hydrocarbons constituting
part of the Mortgaged Property.
IV.18 Gas Contracts. Except as described on Exhibit V under
the heading "Gas Contracts," the Borrower (a) is not obligated in any material
respect by virtue of any prepayment made under any contract containing a
"take-or-pay" or "prepayment" provision or under any similar agreement to
deliver hydrocarbons produced from or allocated to any of the Mortgaged
Properties at some future date without receiving full payment therefor within
90 days of delivery, and (b) has not produced gas, in any material amount,
subject to, and neither the Borrower nor any of the Mortgaged Properties is
subject to, balancing rights of third parties or subject to balancing duties
under governmental requirements, except as to such matters for which the
Borrower has established monetary reserves adequate in amount to satisfy such
obligations and has segregated such reserves from other accounts.
IV.19 Intellectual Property. Each of the Guarantor and the
Borrower owns or is licensed to use all Intellectual Property necessary to
conduct all business material to its condition (financial or otherwise),
business, or operations as such business is currently conducted. No claim has
been asserted or is pending by any Person with respect to the use of any such
Intellectual Property or challenging or questioning the validity or
effectiveness of any such Intellectual Property; and neither the Guarantor nor
the Borrower knows of any valid basis for any such claim. The use of such
Intellectual Property by the Guarantor or the Borrower does not infringe on the
rights of any Person, except for such claims and infringements as do not, in
the aggregate, give rise to any material liability on the part of the Guarantor
or the Borrower.
IV.20 Casualties or Taking of Property. Except as disclosed
on Exhibit V under the heading "Casualties," since July 2, 1998, neither the
business nor any Property of either the Guarantor or the Borrower has been
materially adversely affected as a result of any fire, explosion, earthquake,
flood, drought, windstorm, accident, strike or other labor disturbance,
embargo,
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requisition or taking of Property, or cancellation of contracts, permits, or
concessions by any Governmental Authority, riot, activities of armed forces, or
acts of God.
IV.21 Locations of Guarantor and Borrower. The principal
place of business and chief executive office of each of the Guarantor and the
Borrower is located at the address of such entity set forth in Section 8.3 or
at such other location as such entity may have, by proper written notice
hereunder, advised the Lender, provided that such other location is within a
state in which appropriate financing statements from such entity in favor of
the Lender have been filed.
IV.22 Subsidiaries. Except for the Borrower, which are
Subsidiaries of the Guarantor, neither the Guarantor nor the Borrower has any
Subsidiaries.
ARTICLE V
AFFIRMATIVE COVENANTS
So long as any Obligation remains outstanding or unpaid or
any Commitment exists:
V.1 Maintenance and Access to Records. Each of the Guarantor
and the Borrower shall keep adequate records, in accordance with GAAP, of all
its transactions so that at any time, and from time to time, its true and
complete financial condition may be readily determined, and promptly following
the reasonable request of the Lender, make such records available for
inspection by the Lender and, at the reasonable expense of the Borrower, allow
the Lender to make and take away copies thereof; provided, however, if there is
no Default or Event of Default, such reasonable expenses payable by the
Borrower hereunder shall be limited to reasonable copying charges, and shall
not include fees payable to outside accountants or other professional service
providers.
V.2 Quarterly Financial Statements; Compliance Certificates.
The Guarantor shall deliver to the Lender, (a) on or before the 45th day after
the close of each quarterly period of each fiscal year of the Guarantor, a copy
of the unaudited Financial Statements of the Guarantor, on a consolidated basis
with its Consolidated Subsidiaries, as at the close of such quarterly period
and from the beginning of such fiscal year to the end of such period, and the
beginning of such quarterly period to the end of such period as appropriate,
such Financial Statements to be certified by a Responsible Officer of the
Guarantor as having been prepared in accordance with GAAP consistently applied
and as a fair representation of the condition of the Guarantor and its
Consolidated Subsidiaries, subject to changes resulting from normal year-end
audit adjustments, and (b) on or before the 45th day after the close of each
such quarterly period and 120 days from fiscal year end, a Compliance
Certificate, together with a work sheet which supports such certificate.
V.3 Annual Financial Statements. The Guarantor shall deliver
to the Lender, on or before the 120th day after the close of each fiscal year
of the Guarantor, a copy of the annual audited (by an accounting firm
acceptable to the Lender) Financial Statements of the Guarantor, on a
consolidated basis with its Consolidated Subsidiaries.
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V.4 Oil and Gas Reserve Reports. (a) The Borrower shall
deliver to the Lender no later than April 1 of each year during the term of
this Agreement, engineering reports in form and substance satisfactory to the
Lender, certified by any nationally or regionally-recognized independent
consulting petroleum engineers acceptable to the Lender, as fairly and
accurately setting forth (i) the proved and producing, shut-in, behind-pipe,
and undeveloped oil and gas reserves (separately classified as such)
attributable to the Oil and Gas Properties as of January 1 of the year for
which such reserve reports are furnished, (ii) the aggregate present value of
the future net income with respect to such Oil and Gas Properties, discounted
at a stated per annum discount rate of proved and producing reserves, (iii)
projections of the annual rate of production, gross income, and net income with
respect to such proved and producing reserves, and (iv) information with
respect to the "take-or-pay," "prepayment," and gas-balancing liabilities of
the Borrower.
(b) The Borrower shall deliver to the Lender no later than
October 1 of each year during the term of this Agreement, engineering reports
in form and substance satisfactory to the Lender prepared by or under the
supervision of either the chief petroleum engineer of the Borrower or an
independent petroleum engineer evaluating the Oil and Gas Properties as of July
1 of the year for which such reserve reports are furnished and updating the
information provided in the reports submitted pursuant to Section 5.4(a).
(c) The Borrower shall also deliver to the Lender no later
than April 1 and October 1 of each year, additional data with respect to the
Oil and Gas Properties concerning pricing, quantities of production, volumes of
production sold, purchasers of production, gross revenues, expenses, and such
other information and engineering and geological data with respect thereto as
the Lender may reasonably request.
V.5 Title Opinions; Title Defects. Promptly upon the request
of the Lender, the Borrower shall furnish to the Lender title opinions, in form
and substance and by counsel satisfactory to the Lender, or other confirmation
of title acceptable to the Lender, covering Oil and Gas Properties constituting
a percentage of value acceptable to the Lender and such value, determined by
the Lender in its sole discretion, of the Mortgaged Properties; and promptly,
but in any event within 60 days after notice by the Lender of any defect,
material in value in the opinion of the Lender, in the title of the Borrower to
any of its Oil and Gas Properties, clear such title defect, and, in the event
any such title defect is not cured in a timely manner, pay all related costs
and fees incurred by the Lender to do so.
V.6 Notices of Certain Events. Each of the Guarantor and the
Borrower shall deliver to the Lender, immediately upon having knowledge of the
occurrence of any of the following events or circumstances, a written statement
with respect thereto, signed by a Responsible Officer of the relevant entity
and setting forth the relevant event or circumstance and the steps being taken
by the relevant entity with respect to such event or circumstance:
(a) any Default or Event of Default;
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(b) any default or event of default under any contractual
obligation of the Guarantor or the Borrower, or any litigation,
investigation, or proceeding between the Guarantor or the Borrower and
any Governmental Authority which, in either case, if not cured or if
adversely determined, as the case may be, could reasonably be expected
to have a Material Adverse Effect;
(c) any litigation or proceeding involving the Guarantor or
the Borrower as a defendant or in which any Property of the Guarantor
or the Borrower is subject to a claim and in which the amount involved
is $50,000 or more and which is not covered by insurance or in which
injunctive or similar relief is sought;
(d) the receipt by the Guarantor or the Borrower of any
Environmental Complaint;
(e) any actual, proposed, or threatened testing or other
investigation by any Governmental Authority or other Person of which
the Guarantor or the Borrower has actual knowledge concerning the
environmental condition of, or relating to, any Property of the
Guarantor or the Borrower or any Property of another Person adjacent
to any Property of the Guarantor or the Borrower following any
allegation of a violation of any Requirement of Law;
(f) any Release of Hazardous Substances of which the
Guarantor or the Borrower has actual knowledge from, affecting, or
related to any Property of the Guarantor or the Borrower or any
Property of another Person adjacent to any Property of the Guarantor
or the Borrower except in accordance with applicable Requirements of
Law or the terms of a valid permit, license, certificate, or approval
of the relevant Governmental Authority, or the violation of any
Environmental Law, or the revocation, suspension, or forfeiture of or
failure to renew, any permit, license, registration, approval, or
authorization which could reasonably be expected to have a Material
Adverse Effect;
(g) the change in identity or address of any Person remitting
to the Borrower proceeds from the sale of hydrocarbon production from
or attributable to any Mortgaged Property;
(h) any change in the senior management of the Guarantor or
the Borrower; and
(i) any other event or condition which could reasonably be
expected to have a Material Adverse Effect.
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V.7 Letters in Lieu of Transfer Orders; Division Orders.
Promptly upon request by the Lender at any time and from time to time, and
without limitation on the rights of the Lender pursuant to Sections 2.18 and
2.19, the Borrower shall execute such letters in lieu of transfer orders, in
addition to the letters signed by the Borrower and delivered to the Lender in
satisfaction of the condition set forth in Section 3.1(h)(iii) and/or division
and/or transfer orders as are necessary or appropriate to transfer and deliver
to the Lender proceeds from or attributable to any Mortgaged Property.
V.8 Additional Information. Each of the Guarantor and the
Borrower shall furnish to the Lender, promptly upon the reasonable request of
the Lender, such additional financial or other information concerning the
assets, liabilities, operations, and transactions of the Guarantor or the
Borrower as the Lender may from time to time request; and notify the Lender not
less than ten Business Days prior to the occurrence of any condition or event
that may change the proper location for the filing of any financing statement
or other public notice or recording for the purpose of perfecting a Lien in any
Collateral, including, without limitation, any change in its name or the
location of its principal place of business or chief executive office; and upon
the reasonable request of the Lender, execute such additional Security
Instruments as may be necessary or appropriate in connection therewith.
V.9 Compliance with Laws. Except to the extent the failure to
comply or to cause compliance would not have a Material Adverse Effect, each of
the Guarantor and the Borrower shall comply with all applicable Requirements of
Law, including, without limitation, (a) the Natural Gas Policy Act of 1978, as
amended, (b) ERISA, (c) Environmental Laws, and (d) all permits, licenses,
registrations, approvals, and authorizations (i) related to any natural or
environmental resource or media located on, above, within, in the vicinity of,
related to or affected by any Property of the Guarantor or the Borrower, (ii)
required for the performance of the operations of the Guarantor or the
Borrower, or (iii) applicable to the use, generation, handling, storage,
treatment, transport, or disposal of any Hazardous Substances; and, on a best
efforts basis, the Guarantor and the Borrower shall cause all employees, crew
members, agents, contractors, subcontractors, and future lessees (pursuant to
appropriate lease provisions) of the Guarantor or the Borrower, while such
Persons are acting within the scope of their relationship with the Guarantor or
the Borrower, to comply with all such Requirements of Law as may be necessary
or appropriate to enable the Guarantor or the Borrower to so comply.
V.10 Payment of Assessments and Charges. Each of the
Guarantor and the Borrower shall pay all taxes, assessments, governmental
charges, rent, and other Indebtedness which, if unpaid, might become a Lien
against the Property of the Guarantor or the Borrower, except any of the
foregoing being contested in good faith and as to which adequate reserve in
accordance with GAAP has been established or unless failure to pay would not
have a Material Adverse Effect.
V.11 Maintenance of Corporate and Limited Liability Company
Existence and Good Standing. Each of the Guarantor and the Borrower shall
maintain its corporate or limited liability company existence or qualification
and good standing in its jurisdiction of organization and
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in all jurisdictions wherein the Property now owned or hereafter acquired by it
or the business now or hereafter conducted by it necessitates such
qualification, unless the failure to do so would not have a Material Adverse
Effect.
V.12 Payment of Note; Performance of Obligations. The
Borrower shall pay the Note according to the reading, tenor, and effect
thereof, as modified hereby, and do and perform every act and discharge all of
the other Obligations.
V.13 Further Assurances. Each of the Guarantor and the
Borrower shall promptly cure any defects in the execution and delivery of any
of the Loan Documents to which it is a party and all agreements contemplated
thereby, and execute, acknowledge, and deliver such other assurances and
instruments as shall, in the opinion of the Lender, be necessary to fulfill the
terms of the Loan Documents to which it is a party.
V.14 Initial Fees and Expenses of Counsel to Lender. Upon
request by the Lender, the Borrower shall reimburse the Lender promptly for all
reasonable fees and expenses of Jackson Walker L.L.P., special counsel to the
Lender, in connection with the preparation of this Agreement and all
documentation contemplated hereby, the satisfaction of the conditions precedent
set forth herein, the filing and recordation of Security Instruments, and the
consummation of the transactions contemplated in this Agreement.
V.15 Subsequent Fees and Expenses of Lender. Upon request by
the Lender, the Borrower shall reimburse the Lender promptly (to the fullest
extent permitted by law) for all amounts reasonably expended, advanced, or
incurred by or on behalf of the Lender to satisfy any obligation of the
Guarantor or the Borrower under any of the Loan Documents; to collect the
Obligations; to ratify, amend, restate, or prepare additional Loan Documents,
as the case may be; for the filing and recordation of Security Instruments; to
enforce the rights of the Lender under any of the Loan Documents; and to
protect the Properties or business of the Guarantor or the Borrower, including,
without limitation, the Collateral, which amounts shall be deemed compensatory
in nature and liquidated as to amount upon notice to the Borrower by the Lender
and which amounts shall include, but not be limited to (a) all court costs, (b)
reasonable attorneys' fees, (c) reasonable fees and expenses of auditors and
accountants incurred to protect the interests of the Lender, (d) fees and
expenses incurred in connection with the participation by the Lender as a
member of the creditors' committee in a case commenced under any Insolvency
Proceeding, (e) fees and expenses incurred in connection with lifting the
automatic stay prescribed in ss.362 Title 11 of the United States Code, and (f)
fees and expenses incurred in connection with any action pursuant to ss.1129
Title 11 of the United States Code all reasonably incurred by the Lender in
connection with the collection of any sums due under the Loan Documents,
together with interest at the per annum interest rate equal to the Floating
Rate, calculated on a basis of a calendar year of 365 or 366 days, as the case
may be,, counting the actual number of days elapsed, on each such amount from
the date of notification that the same was expended, advanced, or incurred by
the Lender until the date it is repaid to the Lender, with the obligations
under this Section surviving the non-assumption of this Agreement in a case
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commenced under any Insolvency Proceeding and being binding upon the Borrower
and/or a trustee, receiver, custodian, or liquidator of the Borrower appointed
in any such case.
V.16 Operation of Oil and Gas Properties. The Borrower shall
develop, maintain, and operate its Oil and Gas Properties in a prudent and
workmanlike manner in accordance with industry standards.
V.17 Maintenance and Inspection of Properties. Each of the
Guarantor and the Borrower shall maintain all of its tangible Properties in
good repair and condition, ordinary wear and tear excepted; make all necessary
replacements thereof and operate such Properties in a good and workmanlike
manner; and permit any authorized representative of the Lender, at their sole
risk, to visit and inspect, at the reasonable expense of the Borrower, any
tangible Property of the Guarantor or the Borrower.
V.18 Maintenance of Insurance. Each of the Guarantor and the
Borrower shall maintain insurance with respect to its Properties and businesses
against such liabilities, casualties, risks, and contingencies as is customary
in the relevant industry and sufficient to prevent a Material Adverse Effect,
all such insurance to be in amounts and from insurers acceptable to the Lender
and, within 60 days of the Closing Date for property damage insurance covering
Collateral and business interruption insurance, if any, maintained by the
Borrower, and, upon any renewal of any such insurance and at other times upon
request by the Lender, furnish to the Lender evidence, satisfactory to the
Lender, of the maintenance of such insurance naming the Lender as loss payee.
The Lender shall have the right to collect, and the Borrower hereby assigns to
the Lender, any and all monies that may become payable under any policies of
insurance relating to business interruption or by reason of damage, loss, or
destruction of any of the Collateral. In the event of any damage, loss, or
destruction for which insurance proceeds relating to business interruption or
Collateral exceed $25,000, the Lender may, at its option, apply all such sums
or any part thereof received by it toward the payment of the Obligations,
whether matured or unmatured, application to be made first to interest and then
to principal, and shall deliver to the Borrower the balance, if any, after such
application has been made. In the event of any such damage, loss, or
destruction for which insurance proceeds are $25,000 or less, provided that no
Default or Event of Default has occurred and is continuing, the Lender shall
deliver any such proceeds received by it to the Borrower. In the event the
Lender receives insurance proceeds from any insurance maintained by the
Borrower but not attributable to any Collateral or business interruption, the
Lender shall deliver any such proceeds to the Borrower.
V.19 INDEMNIFICATION. EACH OF THE GUARANTOR AND THE BORROWER
SHALL INDEMNIFY AND HOLD THE LENDER AND ITS SHAREHOLDERS, OFFICERS, DIRECTORS,
EMPLOYEES, AGENTS, ATTORNEYS-IN-FACT, AND AFFILIATES AND EACH TRUSTEE FOR THE
BENEFIT OF THE LENDER UNDER ANY SECURITY INSTRUMENT HARMLESS FROM AND AGAINST
ANY AND ALL CLAIMS, LOSSES, DAMAGES, LIABILITIES, FINES, PENALTIES, CHARGES,
ADMINISTRATIVE AND JUDICIAL PROCEEDINGS AND ORDERS, JUDGMENTS, REMEDIAL
ACTIONS,
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REQUIREMENTS AND ENFORCEMENT ACTIONS OF ANY KIND, AND ALL COSTS AND EXPENSES
INCURRED IN CONNECTION THEREWITH (INCLUDING, WITHOUT LIMITATION, ATTORNEYS'
FEES AND EXPENSES), ARISING DIRECTLY OR INDIRECTLY, IN WHOLE OR IN PART, FROM
(A) THE PRESENCE OF ANY HAZARDOUS SUBSTANCES ON, UNDER, OR FROM ANY PROPERTY OF
THE GUARANTOR OR THE BORROWER, WHETHER PRIOR TO OR DURING THE TERM HEREOF, (B)
ANY ACTIVITY CARRIED ON OR UNDERTAKEN ON OR OFF ANY PROPERTY OF THE GUARANTOR
OR THE BORROWER, WHETHER PRIOR TO OR DURING THE TERM HEREOF, AND WHETHER BY THE
GUARANTOR OR THE BORROWER OR ANY PREDECESSOR IN TITLE, EMPLOYEE, AGENT,
CONTRACTOR, OR SUBCONTRACTOR OF THE GUARANTOR OR THE BORROWER OR ANY OTHER
PERSON AT ANY TIME OCCUPYING OR PRESENT ON SUCH PROPERTY, IN CONNECTION WITH
THE HANDLING, TREATMENT, REMOVAL, STORAGE, DECONTAMINATION, CLEANUP,
TRANSPORTATION, OR DISPOSAL OF ANY HAZARDOUS SUBSTANCES AT ANY TIME LOCATED OR
PRESENT ON OR UNDER SUCH PROPERTY, (C) ANY RESIDUAL CONTAMINATION ON OR UNDER
ANY PROPERTY OF THE GUARANTOR OR THE BORROWER, (D) ANY CONTAMINATION OF ANY
PROPERTY OR NATURAL RESOURCES ARISING IN CONNECTION WITH THE GENERATION, USE,
HANDLING, STORAGE, TRANSPORTATION OR DISPOSAL OF ANY HAZARDOUS SUBSTANCES BY
THE GUARANTOR OR THE BORROWER OR ANY EMPLOYEE, AGENT, CONTRACTOR, OR
SUBCONTRACTOR OF THE GUARANTOR OR THE BORROWER WHILE SUCH PERSONS ARE ACTING
WITHIN THE SCOPE OF THEIR RELATIONSHIP WITH THE GUARANTOR OR THE BORROWER,
IRRESPECTIVE OF WHETHER ANY OF SUCH ACTIVITIES WERE OR WILL BE UNDERTAKEN IN
ACCORDANCE WITH APPLICABLE REQUIREMENTS OF LAW, OR (E) THE PERFORMANCE AND
ENFORCEMENT OF ANY LOAN DOCUMENT, ANY ALLEGATION BY ANY BENEFICIARY OF A LETTER
OF CREDIT OF A WRONGFUL DISHONOR BY THE LENDER OF A CLAIM OR DRAFT PRESENTED
THEREUNDER, OR ANY OTHER ACT OR OMISSION IN CONNECTION WITH OR RELATED TO ANY
LOAN DOCUMENT OR THE TRANSACTIONS CONTEMPLATED THEREBY, WITH THE FOREGOING
INDEMNITY SURVIVING SATISFACTION OF ALL OBLIGATIONS AND THE TERMINATION OF THIS
AGREEMENT.
ARTICLE VI
NEGATIVE COVENANTS
So long as any Obligation remains outstanding or unpaid or
any Commitment exists;
VI.1 Indebtedness. Neither the Guarantor nor the Borrower
shall create, incur, assume, or suffer to exist any Indebtedness, whether by
way of loan or otherwise; provided, however, the foregoing restriction shall
not apply to (a) the Obligations, (b) the Permitted Indebtedness, (c) unsecured
accounts payable incurred in the ordinary course of business, which are
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not unpaid in excess of 60 days beyond invoice date or are being contested in
good faith and as to which such reserve as is required by GAAP has been made,
and (d) as to the Borrower only, crude oil, natural gas, or other hydrocarbon
floor, collar, cap, price protection, or swap agreements, in form and substance
and with a Person acceptable to the Lender, provided that (i) each commitment
issued under such agreement, must also be approved by the Lender, (ii) such
agreements shall not be entered into with respect to Mortgaged Properties
constituting more than 75% of the monthly production as forecast by the Lender,
and (iii) that the strike prices in such agreements are not less than the
prices used by the Lender in its most recent Borrowing Base determination, and
(iv) the Lender shall receive a security interest in the hedging contracts.
VI.2 Contingent Obligations. Neither the Guarantor nor the
Borrower shall create, incur, assume, or suffer to exist any Contingent
Obligation; provided, however, the foregoing restriction shall not apply to the
Guaranty or performance guarantees and performance surety or other bonds
provided in the ordinary course of business.
VI.3 Liens. Neither the Guarantor nor the Borrower shall
create, incur, assume, or suffer to exist any Lien on any of its Property,
whether now owned or hereafter acquired; provided, however, the foregoing
restriction shall not apply to Permitted Liens.
VI.4 Sales of Assets. Without the prior written consent of
the Lender, neither the Guarantor nor the Borrower shall sell, transfer, or
otherwise dispose of, in one or any series of transactions, any Property,
whether now owned or hereafter acquired, or enter into any agreement to do so;
provided, however, the foregoing restriction shall not apply to (a) the sale of
hydrocarbons or inventory in the ordinary course of business, provided that no
contract of the Borrower for the sale of hydrocarbons shall obligate the
Borrower to deliver hydrocarbons produced from any of the Mortgaged Properties
at some future date without receiving full payment therefor within 90 days of
delivery, (b) the sale or other disposition of Property destroyed, lost, worn
out, damaged, or having only salvage value or no longer used or useful in the
business of the Guarantor or the Borrower, or (c) the sale of assets
representing up to ten percent (10%) of the net present value of the Oil and
Gas Properties of the Borrower which comprise the Borrowing Base, provided that
the Borrowing Base shall be reduced, and if necessary, proceeds of such sale in
an amount equal to the loan value attributable to such assets, shall be applied
to reduce amounts outstanding on the Note.
VI.5 Leasebacks. Neither the Guarantor nor the Borrower shall
enter into any agreement to sell or transfer any Property and thereafter rent
or lease as lessee such Property or other Property intended for the same use or
purpose as the Property sold or transferred.
VI.6 Loans or Advances. Neither the Guarantor nor the
Borrower shall make or agree to make or allow to remain outstanding any loan or
advance to any Person in excess of $100,000 in the aggregate; provided,
however, the foregoing restriction shall not apply to (a) advances or
extensions of credit in the form of accounts receivable incurred in the
ordinary course of business and upon terms common in the industry for such
accounts receivable, (b) advances to employees of the Guarantor or the Borrower
for the payment of expenses incurred in the ordinary course of the business of
the Guarantor or the Borrower and (c) advances by the
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Guarantor to Subsidiaries formed for the purpose of acquiring Oil and Gas
Properties financed, in whole or in part, with Indebtedness of any such
Subsidiary which is fully non-recourse to the Guarantor and the Borrower and is
secured, if at all, solely by the acquired Oil and Gas Properties, provided
that the Guarantor is not in breach of Section 6.14 and no other Default or
Event of Default exists or would exist as a result of such advances.
VI.7 Investments. Neither the Guarantor nor the Borrower
shall acquire Investments in excess of $100,000, or purchase or otherwise
acquire all or substantially all of the assets of, any Person; provided,
however, the foregoing restriction shall not apply to the purchase or
acquisition of (a) Oil and Gas Properties, (b) Investments in the form of (i)
debt securities issued or directly and fully guaranteed or insured by the
United States Government or any agency or instrumentality thereof, with
maturities of no more than one year, (ii) commercial paper of a domestic issuer
rated at the date of acquisition at least P-2 by Moody's Investor Service, Inc.
or A-2 by Standard & Poor's Corporation and with maturities of no more than one
year from the date of acquisition, or (iii) repurchase agreements covering debt
securities or commercial paper of the type permitted in this Section,
certificates of deposit, demand deposits, eurodollar time deposits, overnight
bank deposits and bankers' acceptances, with maturities of no more than one
year from the date of acquisition, issued by or acquired from or through the
Lender or any bank or trust company organized under the laws of the United
States or any state thereof and having capital surplus and undivided profits
aggregating at least $100,000,000, (c) other short-term Investments similar in
nature and degree of risk to those described in clause (b) of this Section, (d)
money-market funds or (e) the capital stock of Subsidiaries for the purpose of
acquiring Oil and Gas Properties financed, in whole or in part, with
Indebtedness of any such Subsidiary which is fully non-recourse to the
Guarantor and the Borrower and is secured, if at all, solely by the acquired
Oil and Gas Properties, provided such investment causes no Default or Event of
Default.
VI.8 Dividends, Distributions and Redemptions. Neither the
Guarantor nor the Borrower shall pay any dividend or make any distribution to
any of its shareholders or repurchase or redeem any of its capital stock;
provided, however, the foregoing restriction shall not apply to any dividend
payable wholly in capital stock of the relevant entity.
VI.9 Changes in Structure. Neither the Guarantor nor the
Borrower shall enter into any transaction of consolidation, merger, or
amalgamation; liquidate, wind up, or dissolve (or suffer any liquidation or
dissolution).
VI.10 Transactions with Affiliates. Neither the Guarantor nor
the Borrower shall directly or indirectly, enter into any transaction
(including the sale, lease, or exchange of Property or the rendering of
service) with any of its Affiliates, other than upon fair and reasonable terms
no less favorable than could be obtained in an arm's length transaction with a
Person which was not an Affiliate.
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VI.11 Lines of Business. Neither the Guarantor nor the
Borrower shall expand into any line of business other than those in which it is
engaged as of the date hereof, without the prior written consent of the Lender.
VI.12 Plan Obligations. Neither the Guarantor nor the
Borrower shall assume or otherwise become subject to an obligation to
contribute to or maintain any Plan or acquire any Person which has at any time
had an obligation to contribute to or maintain any Plan.
VI.13 Cash Flow Coverage. The Guarantor shall not permit, as
of the close of any fiscal quarter, the ratio of Cash Flow to Debt Service to
be less than 1.25 to 1.00.
VI.14 Tangible Net Worth. The Guarantor shall not permit, at
the close of any fiscal quarter, its tangible net worth to be less than
$17,000,000, plus (a) 50% of positive Net Income for all quarterly periods
after September 30, 1998 and (b) 100% of equity raised for all quarterly
periods after September 30, 1998. (An allowance of up to $10,000,000 shall be
made for non-cash writedowns of Oil and Gas Properties prior to or at fiscal
year end 1998).
VI.15 Subsidiaries. No new Subsidiaries may be formed without
the prior written consent of the Lender; provided, however, that Subsidiaries
may be formed to purchase Oil and Gas Properties if such purchase is fully
non-recourse to the Guarantor and the Borrower and is secured, if at all,
solely by the acquired Oil and Gas Properties.
ARTICLE VII
EVENTS OF DEFAULT
VII.1 Enumeration of Events of Default. Any of the following
events shall constitute an Event of Default:
(a default shall be made by the Borrower in the payment when
due of any installment of principal or interest under this Agreement
or the Note or in the payment when due of any fee or other sum payable
under any Loan Document and such default as to interest or fees only
shall have continued for three days;
(b default shall be made by the Borrower or the Guarantor in
the due observance or performance of any of their respective
obligations under the Loan Documents, and such default shall continue
for 30 days after the earlier of notice thereof to the Borrower by the
Lender or knowledge thereof by the Borrower;
(c any representation or warranty made by the Borrower or the
Guarantor in any of the Loan Documents proves to have been untrue in
any material respect or any
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representation, statement (including Financial Statements),
certificate, or data furnished or made to the Lender in connection
herewith proves to have been untrue in any material respect as of the
date the facts therein set forth were stated or certified;
(d default shall be made by the Borrower or the Guarantor (as
principal or guarantor or other surety) in the payment or performance
of any bond, debenture, note, or other Indebtedness or under any
credit agreement, loan agreement, indenture, promissory note, or
similar agreement or instrument executed in connection with any of the
foregoing, including, but not limited to, the Borrower's escrow
obligations in connection with its plugging and abandonment liability,
and such default shall remain unremedied for in excess of the period
of grace, if any, with respect thereto;
(e the Borrower or the Guarantor shall be unable to satisfy
any condition or cure any circumstance specified in Article III, the
satisfaction or curing of which is precedent to the right of the
Borrower to obtain a Loan or the issuance of a Letter of Credit, and
such inability shall continue for a period in excess of 30 days;
(f the Borrower or the Guarantor shall (i) apply for or
consent to the appointment of a receiver, trustee, or liquidator of it
or all or a substantial part of its assets, (ii) file a voluntary
petition commencing an Insolvency Proceeding, (iii) make a general
assignment for the benefit of creditors, (iv) be unable, or admit in
writing its inability, to pay its debts generally as they become due,
or (v) file an answer admitting the material allegations of a petition
filed against it in any Insolvency Proceeding;
(g an order, judgment, or decree shall be entered against the
Borrower or the Guarantor by any court of competent jurisdiction or by
any other duly authorized authority, on the petition of a creditor or
otherwise, granting relief in any Insolvency Proceeding or approving a
petition seeking reorganization or an arrangement of its debts or
appointing a receiver, trustee, conservator, custodian, or liquidator
of it or all or any substantial part of its assets, and such order,
judgment, or decree shall not be dismissed or stayed within 30 days;
(h the levy against any significant portion of the Property
of the Borrower or the Guarantor or any execution, garnishment,
attachment, sequestration, or other writ or similar proceeding which
is not permanently dismissed or discharged within 30 days after the
levy;
(i a final and non-appealable order, judgment, or decree
shall be entered against the Borrower or the Guarantor for money
damages and/or Indebtedness due in an amount in excess of $100,000,
and such order, judgment, or decree shall not be dismissed or stayed
within 30 days;
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(j any charges are filed or any other action or proceeding is
instituted by any Governmental Authority against the Borrower or the
Guarantor under the Racketeering Influence and Corrupt Organizations
Statute (18 U.S.C. ss.1961 et seq.), the result of which could be the
forfeiture or transfer of any material Property of the Borrower or the
Guarantor subject to a Lien in favor of the Lender without (i)
satisfaction or provision for satisfaction of such Lien, or (ii) such
forfeiture or transfer of such Property being expressly made subject
to such Lien;
(k the Borrower or the Guarantor shall have (i) concealed,
removed, or diverted, or permitted to be concealed, removed, or
diverted, any part of its Property, with intent to hinder, delay, or
defraud its creditors or any of them, (ii) made or suffered a transfer
of any of its Property which may be fraudulent under any bankruptcy,
fraudulent conveyance, or similar law, (iii) made any transfer of its
Property to or for the benefit of a creditor at a time when other
creditors similarly situated have not been paid, or (iv) shall have
suffered or permitted, while insolvent, any creditor to obtain a Lien
upon any of its Property through legal proceedings or distraint which
is not vacated within 30 days from the date thereof;
(l any Security Instrument shall for any reason not, or cease
to, create valid and perfected first-priority Liens against the
Collateral purportedly covered thereby;
(m the Guarantor shall cease to be the legal and beneficial
owner of all of the issued and outstanding capital stock of the
Borrower; or
(n the occurrence of a Material Adverse Effect and the same
shall remain unremedied for in excess of 30 days after notice given by
the Lender.
VII.2 Remedies. (a Upon the occurrence of an Event of Default
specified in Sections 7.1(f) or 7.1(g), immediately and without notice, (i) all
Obligations shall automatically become immediately due and payable, without
presentment, demand, protest, notice of protest, default, or dishonor, notice
of intent to accelerate maturity, notice of acceleration of maturity, or other
notice of any kind, except as may be provided to the contrary elsewhere herein,
all of which are hereby expressly waived by the Borrower; (ii) the Commitment
shall immediately cease and terminate unless and until reinstated by the Lender
in writing; and (iii) the Lender is hereby authorized at any time and from time
to time, without notice to the Borrower (any such notice being expressly waived
by the Borrower), to set-off and apply any and all deposits (general or
special, time or demand, provisional or final) held by the Lender, and any and
all other indebtedness at any time owing by the Lender to or for the credit or
account of the Borrower against any and all of the Obligations.
(b Upon the occurrence of any Event of Default other than
those specified in Sections 7.1(f) or 7.1(g), (i) the Lender may, by notice to
the Borrower, declare all Obligations
39
<PAGE> 45
immediately due and payable, without presentment, demand, protest, notice of
protest, default, or dishonor, notice of intent to accelerate maturity, notice
of acceleration of maturity, or other notice of any kind, except as may be
provided to the contrary elsewhere herein, all of which are hereby expressly
waived by the Borrower; (ii) the Commitment shall immediately cease and
terminate unless and until reinstated by the Lender in writing; and (iii) the
Lender is hereby authorized at any time and from time to time, without notice
to the Borrower (any such notice being expressly waived by the Borrower), to
set-off and apply any and all deposits (general or special, time or demand,
provisional or final) held by the Lender, and any and all other indebtedness at
any time owing by the Lender to or for the credit or account of the Borrower
against any and all of the Obligations.
(c Upon the occurrence of any Event of Default, the Lender
may, in addition to the foregoing in this Section, exercise any or all of its
rights and remedies provided by law or pursuant to the Loan Documents.
ARTICLE VIII
MISCELLANEOUS
VIII.1 Transfers; Participations. The Lender may, after 5
business days notice to the Borrower, at any time, sell, transfer, assign, or
grant participations in the Obligations or any portion thereof; and the Lender
may forward to each Transferee and prospective Transferee all documents and
information relating to such Obligations, whether furnished by the Borrower or
otherwise obtained, as the Lender determines necessary or desirable. Each of
the Borrower and the Guarantor agrees that each Transferee, regardless of the
nature of any transfer to it, may exercise all rights (including, without
limitation, rights of set-off) with respect to the portion of the Obligations
held by it as fully as if such Transferee were the direct holder thereof,
subject to any agreements between such Transferee and the transferor to such
Transferee.
VIII.2 Survival of Representations, Warranties, and
Covenants. All representations and warranties of the Borrower or the Guarantor
and all covenants and agreements herein made by the Borrower or the Guarantor
shall survive the execution and delivery of the Note and the Security
Instruments and shall remain in force and effect so long as any Obligation is
outstanding or any Commitment exists.
VIII.3 Notices and Other Communications. Except as to verbal
notices expressly authorized herein, which verbal notices shall be confirmed in
writing, all notices, requests, and communications hereunder shall be in
writing (including by telecopy). Unless otherwise expressly provided herein,
any such notice, request, demand, or other communication shall be deemed to
have been duly given or made when delivered by hand, or, in the case of
delivery by mail, when deposited in the mail, certified mail, return receipt
requested, postage prepaid, or, in the case of telecopy notice, when receipt
thereof is acknowledged orally or by written confirmation report, addressed as
follows:
40
<PAGE> 46
(a if to the Lender, to:
Compass Bank
24 Greenway Plaza, 14th Floor
Houston, Texas 77046
Attention: Energy Lending Group
Telephone: (713) 968-8273
Telecopy: (713) 968-8292
(b if to the Borrower to:
PetroQuest Energy One, L.L.C.
PetroQuest Energy, Inc.
625 E. Kaliste Saloom Rd., Suite 400
Lafayette, Louisiana 70508
Attention: Robert R. Brooksher
Telephone: (318) 232-7028
Telecopy: (318) 232-0044
(c if to the Guarantor, to:
PetroQuest Energy, Inc.
625 E. Kaliste Saloom Rd., Suite 400
Lafayette, Louisiana 70508
Attention: Robert R. Brooksher
Telephone: (318) 232-7028
Telecopy: (318) 232-0044
Any party may, by proper written notice hereunder to the
others, change the individuals or addresses to which such notices to it shall
thereafter be sent.
VIII.4 Parties in Interest. Subject to applicable
restrictions contained herein, all covenants and agreements herein contained by
or on behalf of the Borrower, the Guarantor or the Lender shall be binding upon
and inure to the benefit of the Borrower, the Guarantor or the Lender, as the
case may be, and their respective legal representatives, successors, and
assigns.
VIII.5 Rights of Third Parties. All provisions herein are
imposed solely and exclusively for the benefit of the Lender, the Borrower and
the Guarantor. No other Person shall have any right, benefit, priority, or
interest hereunder or as a result hereof or have standing to require
satisfaction of provisions hereof in accordance with their terms, and any or
all of such provisions may be freely waived in whole or in part by the Lender
at any time if in its sole discretion it deems it advisable to do so.
41
<PAGE> 47
VIII.6 Renewals; Extensions. All provisions of this Agreement
relating to the Note shall apply with equal force and effect to each promissory
note hereafter executed which in whole or in part represents a renewal or
extension of any part of the Indebtedness of the Borrower under this Agreement,
the Note, or any other Loan Document.
VIII.7 No Waiver; Rights Cumulative. No course of dealing on
the part of the Lender, its officers or employees, nor any failure or delay by
the Lender with respect to exercising any of its rights under any Loan Document
shall operate as a waiver thereof. The rights of the Lender under the Loan
Documents shall be cumulative and the exercise or partial exercise of any such
right shall not preclude the exercise of any other right. Neither the making of
any Loan nor the issuance of a Letter of Credit shall constitute a waiver of
any of the covenants, warranties, or conditions of the Borrower contained
herein. In the event the Borrower or the Guarantor is unable to satisfy any
such covenant, warranty, or condition, neither the making of any Loan nor the
issuance of a Letter of Credit shall have the effect of precluding the Lender
from thereafter declaring such inability to be an Event of Default as
hereinabove provided.
VIII.8 Survival Upon Unenforceability. In the event any one
or more of the provisions contained in any of the Loan Documents or in any
other instrument referred to herein or executed in connection with the
Obligations shall, for any reason, be held to be invalid, illegal, or
unenforceable in any respect, such invalidity, illegality, or unenforceability
shall not affect any other provision of any Loan Document or of any other
instrument referred to herein or executed in connection with such Obligations.
VIII.9 Amendments; Waivers. Neither this Agreement nor any
provision hereof may be amended, waived, discharged, or terminated orally, but
only by an instrument in writing signed by the party against whom enforcement
of the amendment, waiver, discharge, or termination is sought.
VIII.10 Controlling Agreement. In the event of a conflict
between the provisions of this Agreement and those of any other Loan Document,
the provisions of this Agreement shall control.
VIII.11 Disposition of Collateral. Notwithstanding any term
or provision, express or implied, in any of the Security Instruments, the
realization, liquidation, foreclosure, or any other disposition on or of any or
all of the Collateral shall be in the order and manner and determined in the
sole discretion of the Lender; provided, however, that in no event shall the
Lender violate applicable law or exercise rights and remedies other than those
provided in such Security Instruments or otherwise existing at law or in
equity.
VIII.12 GOVERNING LAW. THIS AGREEMENT AND THE NOTE SHALL BE
DEEMED TO BE CONTRACTS MADE UNDER AND SHALL BE CONSTRUED IN ACCORDANCE WITH AND
GOVERNED BY THE LAWS OF THE STATE OF TEXAS WITHOUT GIVING EFFECT TO PRINCIPLES
THEREOF
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<PAGE> 48
RELATING TO CONFLICTS OF LAW; PROVIDED, HOWEVER, THAT VERNON'S TEXAS CIVIL
STATUTES, ARTICLE 5069, CHAPTER 15 (WHICH REGULATES CERTAIN REVOLVING CREDIT
LOAN ACCOUNTS AND REVOLVING TRIPARTY ACCOUNTS) SHALL NOT APPLY.
VIII.13 JURISDICTION AND VENUE. ALL ACTIONS OR PROCEEDINGS
WITH RESPECT TO, ARISING DIRECTLY OR INDIRECTLY IN CONNECTION WITH, OUT OF,
RELATED TO, OR FROM THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT MAY BE LITIGATED,
AT THE SOLE DISCRETION AND ELECTION OF THE LENDER, IN COURTS HAVING SITUS IN
HOUSTON, HARRIS COUNTY, TEXAS. THE BORROWER HEREBY SUBMITS TO THE JURISDICTION
OF ANY LOCAL, STATE, OR FEDERAL COURT LOCATED IN HOUSTON, HARRIS COUNTY, TEXAS,
AND EACH OF THE BORROWER AND THE GUARANTOR HEREBY WAIVES ANY RIGHTS IT MAY HAVE
TO TRANSFER OR CHANGE THE JURISDICTION OR VENUE OF ANY LITIGATION BROUGHT
AGAINST IT BY THE LENDER IN ACCORDANCE WITH THIS SECTION.
VIII.14 WAIVER OF RIGHTS TO JURY TRIAL. THE BORROWER, THE
GUARANTOR AND THE LENDER HEREBY KNOWINGLY, VOLUNTARILY, INTENTIONALLY,
IRREVOCABLY, AND UNCONDITIONALLY WAIVE ALL RIGHTS TO TRIAL BY JURY IN ANY
ACTION, SUIT, PROCEEDING, COUNTERCLAIM, OR OTHER LITIGATION THAT RELATES TO OR
ARISES OUT OF ANY OF THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT OR THE ACTS OR
OMISSIONS OF THE LENDER IN THE ENFORCEMENT OF ANY OF THE TERMS OR PROVISIONS OF
THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT OR OTHERWISE WITH RESPECT THERETO.
THE PROVISIONS OF THIS SECTION ARE A MATERIAL INDUCEMENT FOR THE LENDER
ENTERING INTO THIS AGREEMENT.
VIII.15 ENTIRE AGREEMENT. THIS AGREEMENT AND THE OTHER
WRITTEN LOAN DOCUMENTS CONSTITUTE THE ENTIRE AGREEMENT AMONG THE PARTIES HERETO
WITH RESPECT TO THE SUBJECT HEREOF AND SHALL SUPERSEDE ANY PRIOR AGREEMENT
AMONG THE PARTIES HERETO, WHETHER WRITTEN OR ORAL, RELATING TO THE SUBJECT
HEREOF, INCLUDING, WITHOUT LIMITATION, THE SUMMARY OF TERMS AND CONDITIONS
DATED AUGUST 7, 1998. FURTHERMORE, IN THIS REGARD, THIS AGREEMENT AND THE OTHER
WRITTEN LOAN DOCUMENTS REPRESENT, COLLECTIVELY, THE FINAL AGREEMENT AMONG THE
PARTIES THERETO AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR,
CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF SUCH PARTIES. THERE ARE NO
UNWRITTEN ORAL AGREEMENTS AMONG SUCH PARTIES.
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<PAGE> 49
VIII.16 Counterparts. For the convenience of the parties,
this Agreement may be executed in multiple counterparts, each of which for all
purposes shall be deemed to be an original, and all such counterparts shall
together constitute but one and the same Agreement.
IN WITNESS WHEREOF, this Agreement is deemed executed
effective as of the date first above written.
BORROWER:
PETROQUEST ENERGY, INC.
(a Louisiana corporation)
By:/s/ Charles T. Goodson
------------------------------------
Charles T. Goodson
President
PETROQUEST ENERGY ONE, L.L.C.
(a Louisiana limited liability company)
By: /s/ Charles T. Goodson
------------------------------------
Charles T. Goodson
President
GUARANTOR:
PETROQUEST ENERGY, INC.
(a Delaware corporation)
By:/s/ Charles T. Goodson
------------------------------------
Charles T. Goodson
President
44
<PAGE> 50
LENDER:
COMPASS BANK
By:/s/ Dorothy Marchand Wilson
------------------------------------
Dorothy Marchand Wilson
Senior Vice President
45
<PAGE> 51
EXHIBIT I
[FORM OF NOTE]
PROMISSORY NOTE
$25,000,000 Houston, Texas September 24, 1998
FOR VALUE RECEIVED and WITHOUT GRACE, the undersigned
("Maker") promises to pay to the order of Compass Bank ("Payee"), at its
banking quarters in Houston, Harris County, Texas, the sum of TWENTY-FIVE
MILLION DOLLARS ($25,000,000) or so much thereof as may be advanced against
this Note pursuant to the Amended and Restated Credit Agreement dated of even
date herewith by and between Maker and Payee (as amended, restated, or
supplemented from time to time, the "Credit Agreement"), together with interest
at the rates and calculated as provided in the Credit Agreement.
Reference is hereby made to the Credit Agreement for matters
governed thereby, including, without limitation, certain events which will
entitle the holder hereof to accelerate the maturity of all amounts due
hereunder. Capitalized terms used but not defined in this Note shall have the
meanings assigned to such terms in the Credit Agreement.
This Note is issued pursuant to, is the "Note" under, and is
payable as provided in the Credit Agreement. Subject to compliance with
applicable provisions of the Credit Agreement, Maker may at any time pay the
full amount or any part of this Note without the payment of any premium or fee,
but such payment shall not, until this Note is fully paid and satisfied, excuse
the payment as it becomes due of any payment on this Note provided for in the
Credit Agreement.
Without being limited thereto or thereby, this Note is
secured by the Security Instruments.
This Note represents, in whole or in part, a renewal of, but
not a novation or discharge of the Indebtedness of the Borrower evidenced by,
the Existing Notes.
THIS NOTE SHALL BE GOVERNED AND CONTROLLED BY THE LAWS OF THE
STATE OF TEXAS WITHOUT GIVING EFFECT TO PRINCIPLES THEREOF RELATING TO
CONFLICTS OF LAW; PROVIDED, HOWEVER, THAT VERNON'S TEXAS CIVIL STATUTES,
ARTICLE 5069, CHAPTER 15 (WHICH REGULATES CERTAIN REVOLVING CREDIT LOAN
ACCOUNTS AND REVOLVING TRIPARTY ACCOUNTS) SHALL NOT APPLY TO THIS NOTE.
PETROQUEST ENERGY, INC.
(a Louisiana corporation)
By:
-------------------------------------
Printed Name:
---------------------------
Title:
----------------------------------
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<PAGE> 52
PETROQUEST ENERGY ONE, L.L.C.
(a Louisiana limited liability company)
By:
------------------------------------
Printed Name:
--------------------------
Title:
---------------------------------
I-ii
<PAGE> 53
EXHIBIT II
[FORM OF BORROWING REQUEST]
Compass Bank
24 Greenway Plaza, Suite 1401
Houston, Texas 77046
Attention: Energy Lending Group
Re: Amended and Restated Credit Agreement dated as of September
24, 1998, by and among PetroQuest Energy, Inc., a Louisiana
corporation, PetroQuest Energy One, L.L.C. a Louisiana
limited liability company, PetroQuest Energy, Inc., a
Delaware corporation, and Compass Bank, a Texas state
chartered banking institution (as amended, restated, or
supplemented from time to time, the "Credit Agreement")
Ladies and Gentlemen:
Pursuant to the Credit Agreement, the Borrower hereby
requests a Loan on the date and in the amount as follows:
Amount: $________
Requested funding date: _________, 19
The undersigned certifies that [s]he is the [___________] of
the Borrower, has obtained all consents necessary, and as such [s]he is
authorized to execute this request on behalf of the Borrower. The undersigned
further certifies, represents, and warrants on behalf of the Borrower that the
Borrower is entitled to receive the requested Loan under the terms and
conditions of the Credit Agreement.
To the best of the knowledge of the undersigned, no Default
or Event of Default exists as of the date hereof.
Each capitalized term used but not defined herein shall have
the meaning assigned to such term in the Credit Agreement.
Very truly yours,
PETROQUEST ENERGY, INC.
(a Louisiana corporation)
By:
-----------------------------
Printed Name:
-------------------
Title:
--------------------------
II-i
<PAGE> 54
PETROQUEST ENERGY ONE, L.L.C.
(a Louisiana limited liability company)
By:
------------------------------------
Printed Name:
--------------------------
Title:
---------------------------------
II-ii
<PAGE> 55
EXHIBIT III
[FORM OF COMPLIANCE CERTIFICATE]
_______, 19
Compass Bank
24 Greenway Plaza, Suite 1401
Houston, Texas 77046
Attention: Energy Lending Group
Re: Amended and Restated Credit Agreement dated as of September
24, 1998, by and among PetroQuest Energy, Inc., a Louisiana
corporation, PetroQuest Energy One, L.L.C. a Louisiana
limited liability company, PetroQuest Energy, Inc., a
Delaware corporation, and Compass Bank, a Texas state
chartered banking institution (as amended, restated, or
supplemented from time to time, the "Credit Agreement")
Ladies and Gentlemen:
Pursuant to applicable requirements of the Credit Agreement,
the undersigned, as a Responsible Officer of the Guarantor, hereby certifies to
you the following information as true and correct as of the date hereof or for
the period indicated, as the case may be:
[1. To the best of the knowledge of the undersigned, no Default or
Event of Default exists as of the date hereof or has occurred since
the date of our previous certification to you, if any.]
[1. To the best of the knowledge of the undersigned, the following
Defaults or Events of Default exist as of the date hereof or have
occurred since the date of our previous certification to you, if any,
and the actions set forth below are being taken to remedy such
circumstances:]
2. The compliance of the Guarantor and the Borrower with the financial
covenants of the Credit Agreement is as follows as of the close of
business on _______________: (a) 6.1 Indebtedness. Neither the
Guarantor nor the Borrower has created, incurred, assumed, or suffered
to exist any Indebtedness, whether by way of loan or otherwise, except
as permitted under Section 6.1 of the Credit Agreement.
(b) 6.13 Cash Flow Coverage.
III-i
<PAGE> 56
Required Actual
1.25 to 1.00 ______ to 1.00
(c) 6.14 Tangible Net Worth.
Required Actual
$___________ $___________
3. No Material Adverse Effect has occurred since the date of the
Financial Statements dated as of __________.
Each capitalized term used but not defined herein shall have
the meaning assigned to such term in the Credit Agreement.
Very truly yours,
PETROQUEST ENERGY, INC.
(a Louisiana corporation)
By:
------------------------------------
Printed Name:
--------------------------
Title:
---------------------------------
PETROQUEST ENERGY ONE, L.L.P.
(a Louisiana limited liability company)
By:
------------------------------------
Printed Name:
--------------------------
Title:
---------------------------------
III-ii
<PAGE> 57
EXHIBIT IV
[FORM OF OPINION OF COUNSEL]
[Closing Date]
Compass Bank
24 Greenway Plaza, Suite 1401
Houston, Texas 77046
Attention: Energy Lending Group
Re: Amended and Restated Credit Agreement dated as of September
24, 1998, by and among PetroQuest Energy, Inc., a Louisiana
corporation, PetroQuest Energy One, L.L.C. a Louisiana
limited liability company, PetroQuest Energy, Inc., a
Delaware corporation, and Compass Bank, a Texas state
chartered banking institution (as amended, restated, or
supplemented from time to time, the "Credit Agreement")
Ladies and Gentlemen:
We have acted as counsel to PetroQuest Energy, Inc., a
Louisiana corporation (the "Borrower"), and PetroQuest Energy, Inc., a Delaware
corporation (the "Guarantor"), in connection with the transactions contemplated
in the Credit Agreement. This Opinion is delivered pursuant to Section 3.1(n)
of the Credit Agreement, and the Lender is hereby authorized to rely upon this
Opinion in connection with the transactions contemplated in the Credit
Agreement. Each capitalized term used but not defined herein shall have the
meaning assigned to such term in the Credit Agreement.
In our representation of the Borrower and the Guarantor, we
have examined an executed counterpart of each of the following (the "Loan
Documents"):
(a the Credit Agreement;
(b the Note;
[INCLUDE IN THIS LISTING ANY RATIFICATIONS OF EXISTING MORTGAGE
DOCUMENT(S) EXECUTED BY AMERICAN EXPLORER AND ANY AMENDMENTS AND
RESTATEMENTS OF EXISTING MORTGAGE DOCUMENTS EXECUTED BY OPTIMA ENERGY
IN FAVOR OF COMERICA]
IV-i
<PAGE> 58
(c Mortgage, Deed of Trust, Indenture, Security Agreement,
Assignment of Production dated of even date herewith from the Borrower
in favor of the Lender (the "Mortgage");
(d Deed of Trust, Security Agreement, Financing Statement and
Assignment of Production dated of even date herewith from the Borrower
in favor of _______________, as Trustee for the Lender (the "Deed of
Trust");
(e Financing Statements from the Borrower, as debtor,
constituent to the Mortgage and the Deed of Trust (the "Financing
Statements");
(f Guaranty dated of even date herewith by the Guarantor in
favor of the Lender; and
(g Security Agreement (Pledge) dated of even date herewith
from the Guarantor in favor of the Lender (the "Stock Pledge").
We have also examined the originals, or copies certified to
our satisfaction, of such other records of the Borrower and the Guarantor,
certificates of public officials and of officers of the Borrower and the
Guarantor, agreements, instruments, and documents as we have deemed necessary
as a basis for the opinions hereinafter expressed.
In making such examinations, we have, with your permission,
assumed:
(a the genuineness of all signatures to the Loan Documents
other than those of the Borrower and the Guarantor;
(b the authenticity of all documents submitted to us as
originals and the conformity with the originals of all documents
submitted to us as copies;
(c that the Lender is authorized and has the power to enter
into and perform its obligations under the Credit Agreement;
(d the due authorization, execution, and delivery of all Loan
Documents by each party thereto other than the Borrower and the
Guarantor; and
(e that the Borrower has title to all Property covered or
affected by the Mortgage or the Deed of Trust, as the case may be.
Based upon the foregoing and subject to the qualifications
set forth herein, we are of the opinion that:
IV-ii
<PAGE> 59
1. Each of the Borrower and the Guarantor is a corporation
duly organized, legally existing, and in good standing under the laws
of its state of incorporation and is duly qualified as a foreign
corporation and is in good standing in all jurisdictions wherein the
ownership of its Property or the operation of its business
necessitates such qualification.
2. The execution and delivery by the Borrower of the Credit
Agreement and the borrowings thereunder, the execution and delivery by
the Borrower of the other Loan Documents to which the Borrower is a
party, the payment and performance by the Borrower of all Obligations
the execution and delivery by the Guarantor of those of the Loan
Documents to which it is a party and the performance of the
obligations of the Guarantor thereunder are within the power of the
Borrower or the Guarantor, as the case may be, have been duly
authorized by all necessary corporate action on the part of the
Borrower or the Guarantor, as the case may be, and do not (a) require
the consent of any Governmental Authority, (b) contravene or conflict
with any Requirement of Law, (c) to our knowledge after due inquiry,
contravene or conflict with any indenture, instrument, or other
agreement to which the Borrower or the Guarantor, as the case may be,
is a party or by which any Property of the Borrower or the Guarantor,
as the case may be, may be presently bound or encumbered, or (d)
result in or require the creation or imposition of any Lien upon any
Property of the Borrower or the Guarantor, as the case may be, other
than as contemplated by the Loan Documents.
3. The Loan Documents to which the Borrower is a party
constitute legal, valid, and binding obligations of the Borrower
enforceable against the Borrower in accordance with their respective
terms.
4. The Loan Documents to which the Guarantor is a party
constitute legal, valid, and binding obligations of the Guarantor
enforceable against the Guarantor in accordance with their respective
terms.
5. The forms of the Mortgage [, THE DEED OF TRUST] and the
Financing Statements and the description of the Mortgaged Property (as
such term is defined in the Mortgage [OR THE DEED OF TRUST, AS THE
CASE MAY BE,] and so used herein) satisfy all applicable Requirements
of Law of the State of Louisiana [OR THE STATE OF TEXAS, AS THE CASE
MAY BE,] and are legally sufficient under the laws of the State of
Louisiana [OR THE STATE OF TEXAS, AS THE CASE MAY be,] to enable the
Lender to realize the practical benefits purported to be afforded by
the Mortgage [OR THE DEED OF TRUST, AS THE CASE MAY BE,].
6. [EACH OF] The Mortgage [AND THE DEED OF TRUST] (a) creates
a lien upon and security interest in all Mortgaged Property to secure
the Indebtedness (as
IV-iii
<PAGE> 60
such term is defined in the Mortgage [OR THE DEED OF TRUST, AS THE
CASE MAY BE,] and so used herein), and (b) provides for nonjudicial
foreclosure remedies customarily used in the State of Louisiana [OR
THE STATE OF TEXAS, AS THE CASE MAY BE].
7. The Mortgage [OR THE DEED OF TRUST, AS THE CASE MAY BE]
and the Financing Statements are in satisfactory form for filing and
recording in the offices described below.
8. The filing and/or recording, as the case may be, of (a)
the Mortgage in the office of the parish [OR COUNTY] clerk of each
parish [OR COUNTY] in the State of Louisiana [OR THE STATE OF TEXAS,
AS THE CASE MAY BE,] in which any portion of the Mortgaged Property is
located, and (b) the Financing Statement in the Uniform Commercial
Code records in parish [OR COUNTY] in the State of Louisiana [OR THE
STATE OF TEXAS, AS THE CASE MAY BE,] in which any portion of the
Mortgaged Property is located [AND IN THE OFFICE OF THE SECRETARY OF
STATE OF THE STATE OF TEXAS] are the only recordings or filings in the
State of Louisiana [OR THE STATE OF TEXAS, AS THE CASE MAY BE,]
necessary to perfect the liens and security interests in the Mortgaged
Property created by the Mortgage [OR THE DEED OF TRUST, AS THE CASE
MAY BE,] or to permit the Lender to enforce in the State of Louisiana
[OR THE STATE OF TEXAS, AS THE CASE MAY BE,] its rights under the
Mortgage [OR THE DEED OF TRUST, AS THE CASE MAY BE]. No subsequent
filing, re-filing, recording, or re-recording will be required in the
State in order to continue the perfection of the liens and security
interests created by the Mortgage [OR THE DEED OF TRUST, AS THE CASE
MAY BE] except that (a) a continuation statement must be filed with
respect to each filed Financing Statement within six months prior to
the expiration of five years from the date of the relevant initial
Financing Statement filing, (b) a subsequent continuation statement
must be filed within six months prior to the expiration of each
subsequent five-year period from the date of each initial financing
statement filing, and (c) amendments or supplements to each filed
Financing Statement and/or additional financing statements may be
required to be filed in the event of a change in the name, identity,
or structure of the Borrower or in the event any such Financing
Statement filing otherwise becomes inaccurate or incomplete.
9. No state or local mortgage recording tax, stamp tax, or
other similar fee, tax, or governmental charge (other than statutory
filing and recording fees to be paid upon filing) is required to be
paid to the State of Louisiana [OR THE STATE OF TEXAS, AS THE CASE MAY
BE,] or any subdivision thereof in connection with the execution,
delivery, filing, or recording of any of the Loan Documents or the
consummation of the transactions contemplated therein.
10. It is not necessary for the Lender to qualify to do
business in the State of Louisiana [OR THE STATE OF TEXAS] or file in
the State of Louisiana [OR THE STATE
IV-iv
<PAGE> 61
OF TEXAS] any designation for service of process or reports solely by
reason of the interests conveyed or assigned to it or for its benefit
under the Mortgage [OR THE DEED OF TRUST, AS THE CASE MAY be,], nor
will such conveyances or assignments alone result in the imposition
upon the Lender of any taxes by the State of Louisiana [OR THE STATE
OF TEXAS, AS THE CASE MAY BE,] or by any subdivision thereof,
including, without limitation, franchise, license, tax on interest
received or income taxes, other than recording and filing fees in
connection with the filings referred to in paragraph 8 above and taxes
which the Lender may owe in the event it becomes the actual and record
owner of any Mortgaged Property situated in the State of Louisiana [OR
THE STATE OF TEXAS, AS THE CASE MAY BE,].
11. The foreclosure of, or exercise of the power of sale
under, the Mortgage [OR THE DEED OF TRUST, AS THE CASE MAY BE] will
not in any manner restrict, affect or impair the liability of the
Borrower with respect to the Indebtedness or the rights and remedies
of the Lender with respect to the foreclosure or enforcement of any
other security interests or liens securing the Indebtedness to the
extent any deficiency remains unpaid after application to the
Indebtedness of the proceeds of such foreclosure or the exercise of
such power of sale.
12. The priority of the liens and security interests created
by the Mortgage [OR THE DEED OF TRUST, AS THE CASE MAY BE] with
respect to Indebtedness incurred by the Borrower on or before the date
on which the Mortgage [OR THE DEED OF TRUST, AS THE CASE MAY BE,] is
filed in the appropriate recording offices referred to hereinabove
will be determined by the dates of such filings. The priority of the
liens and security interests created by the Mortgage [OR THE DEED OF
TRUST, AS THE CASE MAY BE,] with respect to Indebtedness incurred by
the Borrower after the date the Mortgage [OR THE DEED OF TRUST, AS THE
CASE MAY BE,] is recorded also will be determined by the dates of such
filings.
13. The priority of the liens and security interests created
by the Mortgage [OR THE DEED OF TRUST, AS THE CASE MAY BE,] will not
be affected by any prepayment of a portion, but less than all, of the
Indebtedness, or any reduction or increase of the outstanding amount
of the Indebtedness from time to time.
14. The limitations period for enforcement of the Mortgage in
the State is . [THE LIMITATIONS PERIOD FOR ENFORCEMENT OF THE DEED OF
TRUST IN THE STATE OF TEXAS IS ____________________.]
15. The shares of the capital stock of the Borrower described
in and subjected to the security interest of the Stock Pledge (a) are
registered on the books of the Borrower in the name of the Guarantor,
(b) constitute all of the outstanding capital stock of the Borrower,
(c) have been duly authorized and validly issued, (d) are fully paid
and nonassessible, (e) were issued free of preemptive rights, and (f)
to our knowledge, are not subject to any agreements or understandings
with respect to voting or transfer.
IV-v
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16. There are presently outstanding no (a) securities of the
Borrower convertible into or exchangeable for shares of the capital
stock of the Borrower or any other securities of the Borrower, (b)
options or other rights to acquire from the Borrower, and no
obligation of the Borrower to issue, any capital stock, voting
securities or securities convertible into or exchangeable for capital
stock or voting securities of the Borrower, (c) equity equivalents,
interests in the ownership or earnings of the Borrower, or other
similar rights, or (d) obligations of the Borrower to repurchase,
redeem or otherwise acquire any shares of the capital stock of the
Borrower or any other securities of the Borrower.
17. To our knowledge after due inquiry, except as disclosed
in Exhibit V to the Credit Agreement, no litigation or other action of
any nature affecting the Borrower or the Guarantor is pending before
any Governmental Authority or threatened against the Borrower or the
Guarantor. To our knowledge after due inquiry, no unusual or unduly
burdensome restrictions, restraint, or hazard exists by contract,
Requirement of Law, or otherwise relative to the business or
operations of the Borrower or the Guarantor or the ownership and
operation of any Properties of the Borrower or the Guarantor other
than such as relate generally to Persons engaged in business
activities similar to those conducted by the Borrower or the
Guarantor.
18. No authorization, consent, approval, exemption,
franchise, permit or license of, or filing (other than filing of
Security Instruments in appropriate filing offices) with, any
Governmental Authority or any other Person is required to authorize or
is otherwise required in connection with the valid execution and
delivery by the Borrower or the Guarantor of the Loan Documents to
which it is a party or any instrument contemplated thereby, or the
payment or performance by the Borrower of the Obligations.
19. No transaction contemplated by the Loan Documents is in
violation of any regulations promulgated by the Board of Governors of
the Federal Reserve System, including, without limitation, Regulations
G, T, U, or X.
20. Neither the Borrower nor the Guarantor is, or is directly
or indirectly controlled by or acting on behalf of any Person which
is, an "investment company" or an "affiliated person" of an
"investment company" within the meaning of the Investment Company Act
of 1940, as amended.
21. Neither the Borrower nor the Guarantor is a "holding
company," or an "affiliate" of a "holding company" or of a "subsidiary
company" of a "holding company," within the meaning of the Public
Utility Holding Company Act of 1935, as amended.
IV-vi
<PAGE> 63
The opinions expressed herein are subject to the following
qualifications and limitations:
A. We are licensed to practice law only in the State of
Louisiana [, THE STATE OF TEXAS] and other jurisdictions whose laws
are not applicable to the opinions expressed herein; accordingly, the
foregoing opinions are limited solely to the laws of the State of
Louisiana [, THE STATE OF TEXAS], the General Corporation Law of the
State of Delaware and applicable United States federal law.
B. The validity, binding effect, and enforceability of the
Loan Documents may be limited or affected by bankruptcy, insolvency,
moratorium, reorganization, or other similar laws affecting rights of
creditors generally, including, without limitation, statutes or rules
of law which limit the effect of waivers of rights by a debtor or
grantor; provided, however, that the limitations and other effects of
such statutes or rules of law upon the validity and binding effect of
the Loan Documents should not differ materially from the limitations
and other effects of such statutes or rules of law upon the validity
and binding effect of credit agreements, promissory notes, guaranties,
and security instruments generally.
C. The enforceability of the respective obligations of the
Borrower and the Guarantor under the Loan Documents is subject to
general principles of equity (whether such enforceability is
considered in a suit in equity or at law).
This Opinion is furnished us solely for the benefit of the
Lender in connection with the transactions contemplated by the Loan Documents
and is not to be quoted in whole or in part or otherwise referred to or
disclosed in any other transaction.
Very truly yours,
IV-vii
<PAGE> 64
EXHIBIT V
DISCLOSURES
Section 4.8 Liabilities
Litigation
Section 4.12 Environmental Matters
Section 4.17 Refunds
Section 4.18 Gas Contracts
Section 4.20 Casualties
V-i
<PAGE> 1
EXHIBIT 10.7
TERMINATION AGREEMENT
THIS TERMINATION AGREEMENT, dated as of December 16, 1998 is made and
entered into by and between PetroQuest Energy, Inc., a Delaware corporation with
its principal office at 625 E. Kaliste Saloom Road, Suite 400, Lafayette,
Louisiana 70508 (the "Company"), and Charles T. Goodson ("Executive").
R E C I T A L S
A. Company desires to enter into an agreement with Executive whereby
severance benefits will be paid to Executive on a change in control of the
Company and consequent actual or constructive termination of Executive's
employment.
B. This Agreement sets forth the severance benefits which the Company
agrees that it will pay to the Executive if Executive's employment with the
Company terminates under one of the circumstances described herein following a
Change in Control of the Company.
NOW, THEREFORE, in consideration of the foregoing premises and the
mutual covenants contained herein, the parties hereto agree as follows:
1. Term of Agreement. This Agreement shall be effective immediately on
the date hereof and shall continue in effect through December 31, 2001;
provided, however, that commencing on January 1, 2002 and each January 1
thereafter, the term of this Agreement shall automatically be extended for one
additional year unless not later than September 30 of the preceding year, the
Company shall have given notice that it does not wish to extend this Agreement;
provided, further, that notwithstanding any such notice by the Company not to
extend, this Agreement shall automatically be extended for 24 months beyond the
term provided herein if a Change in Control, as defined in Section 3 of this
Agreement, has occurred during the term of this Agreement.
2. Effect on Employment Rights. This Agreement is not part of any
employment agreement that the Company and Executive may have entered. Nothing in
this Agreement shall confer upon Executive any right to continue in the employ
of the Company or interfere with or restrict in any way the rights of the
Company, which are hereby expressly reserved, to terminate for any reason, with
or without cause.
Executive agrees that, subject to the terms and conditions of this
Agreement, in the event of a potential change in control of the Company (as
defined below), Executive will remain in the employ of the Company during the
pendency of any such potential change in control and for a period of one year
after the occurrence of an actual Change in Control. For this purpose, a
"potential change in
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<PAGE> 2
control of the Company" shall be deemed to have occurred if (a) the Company
enters into an agreement the consummation of which would result in the
occurrence of a Change in Control, (b) any person (including the Company)
publicly announces an intention to take or consider taking action which if
consummated would constitute a Change in Control or (c) the Board of Directors
of the Company (the "Board") adopts a resolution to the effect that a potential
change in control of the Company has occurred.
3. Change in Control. For purposes of this Agreement, a "Change in
Control" of the Company shall be deemed to have occurred if any of the events
set forth in any one of the following paragraphs shall occur:
(a) any "person" (as defined in section 3(a)(9) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act") and as
such term is modified in sections 13(d) and 14(d) of the Exchange Act),
excluding the Company or any of its subsidiaries, a trustee or any
fiduciary holding securities under an employee benefit plan of the
Company of any of its subsidiaries, an underwriter temporarily holding
securities pursuant to an offering of such securities or a corporation
owned, directly or indirectly, by stockholders of the Company in
substantially the same proportions as their ownership of the Company,
is or becomes the "beneficial owner" (as defined in Rule 13d-3 under
the Exchange Act), directly or indirectly, of securities of the Company
representing 30% or more of the combined voting power of the Company's
then outstanding securities; or
(b) during any period of not more than two consecutive years,
individuals who at the beginning of much period constitute the Board
and any new director (other than a director designated by a Person who
has entered into an agreement with the Company to effect a transaction
described in clause (a), (c) or (d) of this paragraph) whose election
by the Board or nomination for election by the Company's stockholders
was approved by a vote of at least two-thirds (2/3) of the directors
then still in office who either were directors at the beginning of the
period or whose election or nomination for election was previously so
approved, cease for any reason to constitute a majority thereof; or
(c) the shareholders of the Company approve a merger or
consolidation of the Company with any other corporation, other than (i)
a merger or consolidation which would result in the voting securities
of the Company outstanding immediately prior thereto continuing to
represent (either by remaining outstanding or by being converted into
voting securities of the surviving entity), in combination with the
ownership of any trustee or other fiduciary holder of securities under
an employee benefit plan of the Company, at least 50% of the combined
voting power of the voting securities of the Company or such surviving
entity outstanding immediately after such merger or consolidation, or
(ii) a merger or consolidation effected to implement a recapitalization
of the Company (or similar transaction) in which no person acquires
more than 50% of the combined voting power of the Company's then
outstanding securities; or
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<PAGE> 3
(d) the shareholders of the Company approve a plan of
complete liquidation of the Company or an agreement for the sale or
disposition by the Company of all or substantially all of the Company's
assets.
Notwithstanding the foregoing, no Change in Control shall be deemed to
have occurred if there is consummated any transaction or series of
integrated transactions immediately following which, in the judgment of
the Compensation Committee of the Board, the holders of the Company's
Common Stock immediately prior to such transaction or series of
transactions continue to have the same proportionate ownership in an
entity which owns all or substantially all of the assets of the Company
immediately prior to such transaction or series of transactions.
4. Termination of Employment Following a Change in Control. Executive
shall be entitled to the benefits provided in Section 5 hereof upon the
subsequent termination of Executive's employment by the Company within two years
after a Change in Control which occurs during the term of this Agreement,
provided such termination is (a) by the Company other than for cause, as defined
below, or (b) by Executive for Good Reason, as defined below. Executive shall
not be entitled to the benefits of Section 5, any other provision hereof to the
contrary notwithstanding, if Executive's employment terminates: (i) pursuant to
Executive retiring at age 65, (ii) by reason of Executive's total and permanent
disability, or (iii) by reason or Executive's death. As used herein, "total and
permanent disability" means a condition which prevents Executive from performing
to a significant degree the essential duties of his or her position and is
expected to be of long-term duration or result in death. A determination of
total and permanent disability must be based on competent medical evidence.
(a) Cause.
(i) Definition. Termination by the Company of
Executive's employment for Cause shall mean termination upon
Executive's willful engaging in misconduct which is
demonstrably and materially injurious to the Company and its
subsidiaries taken as a whole. No act, or failure to act, on
Executive's part shall be considered "willful" unless done, or
omitted to be done, by Executive not in good faith and without
reasonable belief that Executive's action or omission was in
the best interest of the Company or its subsidiaries.
Notwithstanding the foregoing, Executive shall not be deemed
to have been terminated for Cause unless and until there shall
have been delivered to Executive a copy of a resolution duly
adopted by the affirmative vote of not less than three
quarters of the entire membership of the Board at a meeting of
the Board called and held for the purpose of making a
determination of whether Cause for termination exists (after
reasonable notice to Executive and an opportunity for
Executive to be heard before the Board), finding that in the
good faith opinion of
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<PAGE> 4
the Board Executive was guilty of misconduct as set forth
above in this subsection 4(a)(i) and specifying the
particulars thereof in detail.
(ii) Remedy by Executive. If the Company gives
Executive a Notice of Termination which states that the basis
for terminating Executive's employment is Cause, Executive
shall have ten days after receipt of such Notice to remedy the
facts and circumstances which provided Cause. The Board (or
any duly authorized Committee thereof) shall make a good faith
reasonable determination immediately after such ten-day period
whether such facts and circumstances have been remedied and
shall communicate such determination in writing to Executive.
If the Board determines that an adequate remedy has not
occurred, then the initial Notice of Termination shall remain
in effect.
(b) Good Reason. After a Change in Control, Executive may
terminate employment with the Company at any time during the term of
this Agreement if Executive has made a good faith reasonable
determination that Good Reason exists for this termination.
(i) Definition. For purposes of this Agreement, "Good
Reason" shall mean any of the following actions, if taken
without the express written consent of Executive:
A. any material change by the Company in
Executive's functions, duties, or responsibilities
which change would cause Executive's position with
the Company to become of less dignity,
responsibility, importance, or scope from the
position and attributes that applied to Executive
immediately prior to the Change in Control;
B. any significant reduction in Executive's
base salary, other than a reduction effected as part
of an across-the-board reduction affecting all
executive employees of the Company;
C. any material failure by the Company to
comply with any of the provisions of this Agreement
(or of any employment agreement between the parties);
D. the Company's requiring Executive to be
based at any office or location more than 45 miles
from the home at which the Executive resides on the
date immediately preceding the Change in Control,
except for travel reasonably required in the
performance of Executive's responsibilities and
commensurate with the amount of travel required of
Executive prior to the Change in Control; or
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<PAGE> 5
E. any failure by the Company to obtain the
express assumption of this Agreement by any successor
or assign of the Company.
Executive's right to terminate employment
for Good Reason pursuant to this subsection 4(b)(I)
shall not be affected by Executive's incapacity due
to physical or mental illness.
(ii) Remedy by Company. If Executive gives the
Company a Notice of Termination which states that the basis
for Executive's termination of employment is Good Reason, the
Company shall have ten days after receipt of such Notice to
remedy the facts and circumstances which provided Good Reason.
Executive shall make a good faith reasonable determination
immediately after such ten-day period whether such facts and
circumstances have been remedied and shall communicate such
determination in writing to the Company. If Executive
determines that adequate remedy has not occurred, then the
initial Notice of Termination shall remain in effect.
(iii) Determination by Executive Presumed Correct.
Any determination by Executive pursuant to this Section 4(b)
that Good Reason exists for Executive's termination of
employment and that adequate remedy has not occurred shall be
presumed correct and shall govern unless the party contesting
the determination shows by a clear preponderance of the
evidence that it was not a good faith reasonable
determination.
(iv) Severance Payment Made Notwithstanding Dispute.
Notwithstanding any dispute concerning whether Good Reason
exists for termination of employment or whether adequate
remedy has occurred, the Company shall immediately pay to
Executive, as specified in Section 5, any amounts otherwise
due under this Agreement. Executive may be required to repay
such amounts to the Company if any such dispute is finally
determined adversely to Executive.
(c) Notice of Termination. Any termination of Executive's
employment by the Company or by Executive hereunder shall be
communicated by a Notice of Termination to the other party hereto. For
purposes of this Agreement, a "Notice of Termination" shall mean a
written notice which shall indicate the specific termination provisions
in this Agreement relied upon any which sets forth (i) in reasonable
detail the facts and circumstances claimed to provide a basis for
termination of Executive's employment under the provision so indicated
and (ii) the date of Executive's termination of employment, which shall
be no earlier than 10 days after such Notice is received by the other
party. Any purported termination of the Executive's employment by the
Company which is not effected pursuant to a Notice of Termination
satisfying the requirements of this Agreement shall not be effective.
In the case of a termination for Cause, the Notice of Termination shall
also satisfy the requirements set forth in Section 4(a)(i).
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<PAGE> 6
5. Severance Payment Upon Termination of Employment. If Executive's
employment with the Company is terminated during the term of this Agreement and
after a Change in Control (a) by the Company other than for Cause, or (b) by
Executive for Good Reason, then Executive shall be entitled to the following:
(a) Lump-Sum Severance Payment. In lieu of any further salary
payments to the Executive for periods subsequent to the Date of
Termination, the Company shall pay to the Executive a lump sum
severance payment, in cash, equal to two (2) (or, if less, the number
of years, including fractions, from the date of Termination until the
Executive would have reached age sixty-five (65)) times the sum of (a)
the Executive's Annual Base Salary in effect on date of termination and
(b) the Executive's most recent Annual Bonus. If the most recent Annual
Bonus was a stock option or a stock grant, the value of the bonus will
be deemed to be the number of option shares times the closing price of
the Company's Common Stock for the 20 trading days prior to
Termination.
(b) Continued Benefits. For a twenty-four (24) month period
(or, if less, the number of months from the Date of Termination until
the Executive would have reached age sixty-five (65)) after the Date of
Termination, the Company shall provide the Executive with life
insurance, health, disability and other welfare benefits ("Welfare
Benefits") substantially similar in all respects to those which the
Executive is receiving immediately prior to the Notice of Termination
(without giving effect to any reduction in such benefits subsequent to
the Potential Change in Control preceding the Change in Control or the
Change in Control which reduction constitutes or may constitute Good
Reason). Benefits otherwise receivable by an Executive pursuant to this
Section shall be reduced to the extent substantially similar benefits
are actually received by or made available to the Executive by any
other employer during the same time period for which such benefits
would be provided pursuant to this Section at a cost to the Executive
that is commensurate with the cost incurred by the Executive
immediately prior to the Executive's Date of Termination (without
giving effect to any increase in costs paid by the Executive after the
Potential Change in Control preceding the Change in Control or the
Change in Control which constitutes or may constitute Good Reason);
provided, however, that if the Executive becomes employed by a new
employer which maintains a medical plan that either (i) does not cover
the Executive or a family member or dependent with respect to a
preexisting condition which was covered under the applicable Company
medical plan, or (ii) does not cover the Executive or a family member
or dependent for a designated waiting period, the Executive's coverage
under the applicable Company medical plan shall continue (but shall be
limited in the event of noncoverage due to a preexisting condition, to
such preexisting condition) until the earlier of the end of the
applicable period of noncoverage under the new employer's plan or the
third anniversary of the Executive's Date of Termination. The Executive
agrees to report to the Company any coverage and benefits actually
received by the Executive or made available to the Executive from such
other employer(s). The Executive shall be entitled to elect to change
his level of
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coverage and/or his choice of coverage options (such as Executive only
or family medical coverage) with respect to the Welfare Benefits to be
provided by the Company to the Executive to the same extent that
actively employed senior executives of the Company are permitted to
make such changes; provided, however, that in the event of any such
changes the Executive shall pay the amount of any cost increase that
would actually be paid by an actively employed executive of the Company
by reason of making the same change in his level of coverage or
coverage options.
(c) Gross-Up Payment. In the event that the Executive becomes
entitled to the Severance Benefits or any other benefits or payments
under this Agreement (other than pursuant to this Section) by reason of
the accelerated vesting of stock options thereunder (together, the
"Total Benefits"), and in the event that any of the Total Benefits will
be subject to the Excise Tax, the Company shall pay to the Executive an
additional amount (the "Gross-Up Payment") such that the net amount
retained by the Executive, after deduction of any Excise Tax on the
Total Benefits and any federal, state and local income tax, Excise Tax
and FICA and Medicare withholding taxes upon the payment provided for
by this Section, shall be equal to the Total Benefits.
For purposes of determining whether any of the Total Benefits
will be subject to the Excise Tax and the amount of such Excise Tax,
(i) any other payments or benefits received or to be received by the
Executive in connection with a Change in Control or the Executive's
termination of employment (whether pursuant to the terms of this
Agreement or any other agreement, plan or arrangement with the Company,
any Person whose actions result in a Change in Control or any Person
affiliated with the Company or such Person) shall be treated as
"parachute payments" within the meaning of Section 280G(b)(2) of the
Cod, and all "excess parachute payments" within the meaning the Section
280G(b)(1) shall be treated as subject to the Excise Tax, unless in the
opinion of tax counsel ("Tax Counsel") selected by the Company's
independent auditors and acceptable to the Executive, such other
payments or benefits (in whole or in part) do not constitute parachute
payments, or such excess parachute payments (in whole or in part)
represent reasonable compensation for services actually rendered within
the meaning of Section 280G(b)(4) of the Code in excess of the Base
Amount, or are otherwise not subject to the Excise Tax, (ii) the amount
of the Total Benefits which shall be treated as subject to the Excise
Tax shall be equal to the lesser of (A) the total amount of the Total
Benefits reduced by the amount of such Total Benefits that in the
opinion of Tax Counsel are not parachute payments, or (B) the amount of
excess parachute payments within the meaning of Section 280G(b)(1)
(after applying clause (i), above), and (iii) the value of any non-cash
benefits or any deferred payment or benefit shall be determined by the
Company's independent auditors in accordance with the principles of
sections 280G(d)(3) and (4) of the Code. For purposes of determining
the amount of the Gross-Up Payment, the Executive shall be deemed to
pay federal income taxes at the highest marginal rate of federal income
taxation in the calendar year in which the Gross-Up Payment is to be
made and state and local income taxes at the highest marginal rate of
taxation in the state and locality of the
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Executive's residence on the Date of Termination, net of the reduction
in federal income taxes which could be obtained from deduction of such
state and local taxes (calculated by assuming that any reduction under
Section 68 of the Code in the amount of itemized deductions allowable
to the Executive applies first to reduce the amount of such state and
local income taxes that would otherwise be deductible by the
Executive).
In the event that the Excise Tax is subsequently determined to be less
than the amount taken into account hereunder at the time of termination of the
Executive's employment, the Executive shall repay to the Company, at the time
that the amount of such reduction in Excise Tax is finally determined, the
portion of the Gross-Up Payment attributable to such reduction (plus that
portion of the Gross-Up Payment attributable to the Excise Tax, federal, state
and local income taxes and FICA and Medicare withholding taxes imposed on the
portion of the Gross-Up Payment being repaid by the Executive to the extent that
such repayment results in a reduction in Excise Tax, FICA and Medicare
withholding taxes and/or federal, state or local income taxes) plus interest on
the amount of such repayment at the rate provided in Section 1274(b)(2)(B) of
the Code. In the event that the Excise Tax is determined to exceed the amount
taken into account hereunder at the time of the termination of the Executive's
employment (including by reason of any payment the existence or amount of which
cannot be determined at the time of the Gross-Up Payment), the Company shall
make an additional Gross-Up Payment, determined as previously described, to the
Executive in respect to such excess (plus any interest, penalties or additions
payable by the Executive with respect to such excess) at the time that the
amount of such excess is finally determined.
(d) Timing of Payments. The payments provided for in Sections
5(a) and 5(c) shall be made not later than the fifth (5th) day
following the Date of Termination; provided, however, that if the
amounts of such payments cannot be finally determined on or before such
day, the Company shall pay to the Executive on such day an estimate, as
determined in good faith by the Company, of the minimum amount of such
payments and shall pay the remainder of such payments (together with
interest at the rate provided in Section 1274(b)(2)(B) of the Code from
the firth (5th) day following the Date of Termination to the payment of
such remainder) as soon as the amount thereof can be determined but in
no event later than the thirtieth (30th) day after the Date of
Termination. In the event that the amount of the estimated payments
exceeds the amount subsequently determined to have been due, such
excess shall constitute a loan by the Company to the Executive, payable
on the fifth (5th) business day after demand by the Company (together
with interest at the rate provided in Section 1274(b)(2)(B) of the Code
from the fifth (5th) day following the Date of Termination to the
repayment of such excess).
6. Reimbursement of Legal Costs. The Company shall pay to the Executive
all legal fees and expenses incurred by the Executive as a result of a
termination which entitles the Executive to any payments under this Agreement
including all such fees and expenses, if any, incurred in contesting or
disputing any Notice of Intent to Terminate under Section 4(a) hereof or in
seeking to obtain or enforce any right or benefit provided by this Agreement or
in connection with any tax audit or
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proceeding to the extent attributable to the application of Section 4999 of the
Code to any payment or benefit provide hereunder. Such payments shall be made
within five (5) business days after delivery of the Executive's respective
written requests for payment accompanied by such evidence of fees and expenses
incurred as the Company reasonably may require.
7. Damages. Executive shall not be required to mitigate damages with
respect to the amount of any payment provided under this Agreement by seeking
other employment or otherwise, nor shall the amount of any payment provided
under this Agreement be reduced by retirement benefits, deferred compensation or
any compensation earned by Executive as a result of employment by another
employer.
8. Successor to Company. The Company shall require any successor or
assign (whether direct or indirect, by purchase, merger, consolidation or
otherwise) to all or substantially all of the business and/or assets of the
Company, by agreement in form and substance satisfactory to Executive,
expressly, absolutely and unconditionally to assume and agree to perform this
Agreement in the same manner and to the same extent that the Company would be
required to perform it if no such succession or assignment had taken place. A
used in this Agreement, "Company" shall mean the Company as hereinbefore defined
and any successor or assign to its business and/or assets as aforesaid which
executes and delivers the agreement provided for in this section or which
otherwise becomes bound by all the terms and provisions of this Agreement by
operation of law.
9. Heirs of Executive. This Agreement shall inure to the benefit of and
be enforceable by Executive's personal and legal representatives, executors,
administrators, successors, heirs, distributees, devisees and legatees. If
Executive should die while any amounts are still payable to Executive hereunder,
all such amounts, unless otherwise provided herein, shall be paid in accordance
with the terms of this Agreement to Executive's devisee, legatee, or other
designee or, if there be so much designee, to Executive's estate.
10. Arbitration. Any dispute, controversy or claim arising under or in
connection with this Agreement, or the breach thereof, shall be settled
exclusively by arbitration in accordance with the Rules of the American
Arbitration Association then in effect. Judgment upon the award rendered by the
arbitrator(s) may be entered in any court of competent jurisdiction. Any
arbitration held pursuant to this section in connection with Executive's
termination of employment shall take place in Houston, Texas at the earliest
possible date. If any proceeding is necessary to enforce or interpret the terms
of this Agreement, or to recover damages for breach thereof, the prevailing
party shall be entitled to reasonable attorneys' fees and necessary costs and
disbursements, not to exceed in the aggregate one percent (1%) of the net worth
of the other party, in addition to any other relief to which he or it may be
entitled.
11. Notice. For purposes of this Agreement, notices and all other
communications provided for in this Agreement shall be in writing and shall be
deemed to have been duly given when
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delivered by messenger or in person, or when mailed by United States registered
mail, return receipt requested, postage prepaid, as follows:
If to the Company: 625 E. Kaliste Saloom Road
Suite 400
Lafayette, Louisiana 70508
Attention: Charles T. Goodson, President
If to the Executive: Charles T. Goodson
304 Keeney Avenue
Lafayette, LA 70501
or such other address as either party may have furnished to the other in writing
in accordance herewith, except that notices of change of address shall be
effective only upon receipt.
12. General Provisions.
(a) Executive's rights and obligations under this Agreement
shall not be transferable by assignment or otherwise, nor shall
Executive's rights be subject to encumbrance or subject to the claims
of the Company's creditors. Nothing in this Agreement shall prevent the
consolidation of the Company with, or its merger into, any other
corporation, or the sale by the Company of all or substantially all of
its properties or assets; and this Agreement shall inure to the benefit
of, be binding upon and be enforceable by, any successor surviving or
resulting corporation, or other entity to which such assets shall be
transferred. This Agreement shall not be terminated by the voluntary or
involuntary dissolution of the Company.
(b) This Agreement and any Employment Agreement with Executive
plus terms of any stock option plans or grants constitutes the entire
agreement between the parties hereto in respect to the rights and
obligations of the parties following a Change in Control. This
Agreement supersedes and replaces all prior oral and written
agreements, understandings, commitments, and practices between the
parties (whether or not fully performed by Executive prior to the date
hereof), which shall be of no further force or effect.
(c) The provisions of this Agreement shall be regarded as
divisible, and if any of said provisions or any part thereof are
declared invalid or unenforceable by a court of competent jurisdiction,
the validity and enforceability of the remainder of such provisions or
parts thereof and the applicability thereof shall not be affected
thereby.
(d) This Agreement may not be amended or modified except by a
written instrument executed by the Company and Executive.
(e) This Agreement and the rights and obligations hereunder
shall be governed by and construed in accordance with the laws of the
State of Texas.
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IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
PetroQuest Energy, Inc.,
a Delaware Corporation
By:/s/ Robert R. Brooksher
---------------------------------
Attest: Robert W. Brooksher
Chief Financial Officer
By:/s/ Sandra L. Martin
---------------------------------
By the authority of the Compensation
Committee of the Board of Directors
of PetroQuest Energy, Inc. on
December 16, 1998.
/s/ Charles T. Goodson
---------------------------------
Charles T. Goodson
11
<PAGE> 1
EXHIBIT 10.8
TERMINATION AGREEMENT
THIS TERMINATION AGREEMENT, dated as of December 16, 1998 is made and
entered into by and between PetroQuest Energy, Inc., a Delaware corporation with
its principal office at 625 E. Kaliste Saloom Road, Suite 400, Lafayette,
Louisiana 70508 (the "Company"), and Alfred J. Thomas, II ("Executive").
R E C I T A L S
A. Company desires to enter into an agreement with Executive whereby
severance benefits will be paid to Executive on a change in control of the
Company and consequent actual or constructive termination of Executive's
employment.
B. This Agreement sets forth the severance benefits which the Company
agrees that it will pay to the Executive if Executive's employment with the
Company terminates under one of the circumstances described herein following a
Change in Control of the Company.
NOW, THEREFORE, in consideration of the foregoing premises and the
mutual covenants contained herein, the parties hereto agree as follows:
1. Term of Agreement. This Agreement shall be effective immediately on
the date hereof and shall continue in effect through December 31, 2001;
provided, however, that commencing on January 1, 2002 and each January 1
thereafter, the term of this Agreement shall automatically be extended for one
additional year unless not later than September 30 of the preceding year, the
Company shall have given notice that it does not wish to extend this Agreement;
provided, further, that notwithstanding any such notice by the Company not to
extend, this Agreement shall automatically be extended for 24 months beyond the
term provided herein if a Change in Control, as defined in Section 3 of this
Agreement, has occurred during the term of this Agreement.
2. Effect on Employment Rights. This Agreement is not part of any
employment agreement that the Company and Executive may have entered. Nothing in
this Agreement shall confer upon Executive any right to continue in the employ
of the Company or interfere with or restrict in any way the rights of the
Company, which are hereby expressly reserved, to terminate for any reason, with
or without cause.
Executive agrees that, subject to the terms and conditions of this
Agreement, in the event of a potential change in control of the Company (as
defined below), Executive will remain in the employ of the Company during the
pendency of any such potential change in control and for a period of one year
after the occurrence of an actual Change in Control. For this purpose, a
"potential change in
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control of the Company" shall be deemed to have occurred if (a) the Company
enters into an agreement the consummation of which would result in the
occurrence of a Change in Control, (b) any person (including the Company)
publicly announces an intention to take or consider taking action which if
consummated would constitute a Change in Control or (c) the Board of Directors
of the Company (the "Board") adopts a resolution to the effect that a potential
change in control of the Company has occurred.
3. Change in Control. For purposes of this Agreement, a "Change in
Control" of the Company shall be deemed to have occurred if any of the events
set forth in any one of the following paragraphs shall occur:
(a) any "person" (as defined in section 3(a)(9) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act") and as
such term is modified in sections 13(d) and 14(d) of the Exchange Act),
excluding the Company or any of its subsidiaries, a trustee or any
fiduciary holding securities under an employee benefit plan of the
Company of any of its subsidiaries, an underwriter temporarily holding
securities pursuant to an offering of such securities or a corporation
owned, directly or indirectly, by stockholders of the Company in
substantially the same proportions as their ownership of the Company,
is or becomes the "beneficial owner" (as defined in Rule 13d-3 under
the Exchange Act), directly or indirectly, of securities of the Company
representing 30% or more of the combined voting power of the Company's
then outstanding securities; or
(b) during any period of not more than two consecutive years,
individuals who at the beginning of much period constitute the Board
and any new director (other than a director designated by a Person who
has entered into an agreement with the Company to effect a transaction
described in clause (a), (c) or (d) of this paragraph) whose election
by the Board or nomination for election by the Company's stockholders
was approved by a vote of at least two-thirds (2/3) of the directors
then still in office who either were directors at the beginning of the
period or whose election or nomination for election was previously so
approved, cease for any reason to constitute a majority thereof; or
(c) the shareholders of the Company approve a merger or
consolidation of the Company with any other corporation, other than (i)
a merger or consolidation which would result in the voting securities
of the Company outstanding immediately prior thereto continuing to
represent (either by remaining outstanding or by being converted into
voting securities of the surviving entity), in combination with the
ownership of any trustee or other fiduciary holder of securities under
an employee benefit plan of the Company, at least 50% of the combined
voting power of the voting securities of the Company or such surviving
entity outstanding immediately after such merger or consolidation, or
(ii) a merger or consolidation effected to implement a recapitalization
of the Company (or similar transaction) in which no person acquires
more than 50% of the combined voting power of the Company's then
outstanding securities; or
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<PAGE> 3
(d) the shareholders of the Company approve a plan of
complete liquidation of the Company or an agreement for the sale or
disposition by the Company of all or substantially all of the Company's
assets.
Notwithstanding the foregoing, no Change in Control shall be deemed to
have occurred if there is consummated any transaction or series of
integrated transactions immediately following which, in the judgment of
the Compensation Committee of the Board, the holders of the Company's
Common Stock immediately prior to such transaction or series of
transactions continue to have the same proportionate ownership in an
entity which owns all or substantially all of the assets of the Company
immediately prior to such transaction or series of transactions.
4. Termination of Employment Following a Change in Control. Executive
shall be entitled to the benefits provided in Section 5 hereof upon the
subsequent termination of Executive's employment by the Company within two years
after a Change in Control which occurs during the term of this Agreement,
provided such termination is (a) by the Company other than for cause, as defined
below, or (b) by Executive for Good Reason, as defined below. Executive shall
not be entitled to the benefits of Section 5, any other provision hereof to the
contrary notwithstanding, if Executive's employment terminates: (i) pursuant to
Executive retiring at age 65, (ii) by reason of Executive's total and permanent
disability, or (iii) by reason or Executive's death. As used herein, "total and
permanent disability" means a condition which prevents Executive from performing
to a significant degree the essential duties of his or her position and is
expected to be of long-term duration or result in death. A determination of
total and permanent disability must be based on competent medical evidence.
(a) Cause.
(i) Definition. Termination by the Company of
Executive's employment for Cause shall mean termination upon
Executive's willful engaging in misconduct which is
demonstrably and materially injurious to the Company and its
subsidiaries taken as a whole. No act, or failure to act, on
Executive's part shall be considered "willful" unless done, or
omitted to be done, by Executive not in good faith and without
reasonable belief that Executive's action or omission was in
the best interest of the Company or its subsidiaries.
Notwithstanding the foregoing, Executive shall not be deemed
to have been terminated for Cause unless and until there shall
have been delivered to Executive a copy of a resolution duly
adopted by the affirmative vote of not less than three
quarters of the entire membership of the Board at a meeting of
the Board called and held for the purpose of making a
determination of whether Cause for termination exists (after
reasonable notice to Executive and an opportunity for
Executive to be heard before the Board), finding that in the
good faith opinion of
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<PAGE> 4
the Board Executive was guilty of misconduct as set forth
above in this subsection 4(a)(i) and specifying the
particulars thereof in detail.
(ii) Remedy by Executive. If the Company gives
Executive a Notice of Termination which states that the basis
for terminating Executive's employment is Cause, Executive
shall have ten days after receipt of such Notice to remedy the
facts and circumstances which provided Cause. The Board (or
any duly authorized Committee thereof) shall make a good faith
reasonable determination immediately after such ten-day period
whether such facts and circumstances have been remedied and
shall communicate such determination in writing to Executive.
If the Board determines that an adequate remedy has not
occurred, then the initial Notice of Termination shall remain
in effect.
(b) Good Reason. After a Change in Control, Executive may
terminate employment with the Company at any time during the term of
this Agreement if Executive has made a good faith reasonable
determination that Good Reason exists for this termination.
(i) Definition. For purposes of this Agreement, "Good
Reason" shall mean any of the following actions, if taken
without the express written consent of Executive:
A. any material change by the Company in
Executive's functions, duties, or responsibilities
which change would cause Executive's position with
the Company to become of less dignity,
responsibility, importance, or scope from the
position and attributes that applied to Executive
immediately prior to the Change in Control;
B. any significant reduction in Executive's
base salary, other than a reduction effected as part
of an across-the-board reduction affecting all
executive employees of the Company;
C. any material failure by the Company to
comply with any of the provisions of this Agreement
(or of any employment agreement between the parties);
D. the Company's requiring Executive to be
based at any office or location more than 45 miles
from the home at which the Executive resides on the
date immediately preceding the Change in Control,
except for travel reasonably required in the
performance of Executive's responsibilities and
commensurate with the amount of travel required of
Executive prior to the Change in Control; or
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<PAGE> 5
E. any failure by the Company to obtain the
express assumption of this Agreement by any successor
or assign of the Company.
Executive's right to terminate employment
for Good Reason pursuant to this subsection 4(b)(I)
shall not be affected by Executive's incapacity due
to physical or mental illness.
(ii) Remedy by Company. If Executive gives the
Company a Notice of Termination which states that the basis
for Executive's termination of employment is Good Reason, the
Company shall have ten days after receipt of such Notice to
remedy the facts and circumstances which provided Good Reason.
Executive shall make a good faith reasonable determination
immediately after such ten-day period whether such facts and
circumstances have been remedied and shall communicate such
determination in writing to the Company. If Executive
determines that adequate remedy has not occurred, then the
initial Notice of Termination shall remain in effect.
(iii) Determination by Executive Presumed Correct.
Any determination by Executive pursuant to this Section 4(b)
that Good Reason exists for Executive's termination of
employment and that adequate remedy has not occurred shall be
presumed correct and shall govern unless the party contesting
the determination shows by a clear preponderance of the
evidence that it was not a good faith reasonable
determination.
(iv) Severance Payment Made Notwithstanding Dispute.
Notwithstanding any dispute concerning whether Good Reason
exists for termination of employment or whether adequate
remedy has occurred, the Company shall immediately pay to
Executive, as specified in Section 5, any amounts otherwise
due under this Agreement. Executive may be required to repay
such amounts to the Company if any such dispute is finally
determined adversely to Executive.
(c) Notice of Termination. Any termination of Executive's
employment by the Company or by Executive hereunder shall be
communicated by a Notice of Termination to the other party hereto. For
purposes of this Agreement, a "Notice of Termination" shall mean a
written notice which shall indicate the specific termination provisions
in this Agreement relied upon any which sets forth (i) in reasonable
detail the facts and circumstances claimed to provide a basis for
termination of Executive's employment under the provision so indicated
and (ii) the date of Executive's termination of employment, which shall
be no earlier than 10 days after such Notice is received by the other
party. Any purported termination of the Executive's employment by the
Company which is not effected pursuant to a Notice of Termination
satisfying the requirements of this Agreement shall not be effective.
In the case of a termination for Cause, the Notice of Termination shall
also satisfy the requirements set forth in Section 4(a)(i).
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<PAGE> 6
5. Severance Payment Upon Termination of Employment. If Executive's
employment with the Company is terminated during the term of this Agreement and
after a Change in Control (a) by the Company other than for Cause, or (b) by
Executive for Good Reason, then Executive shall be entitled to the following:
(a) Lump-Sum Severance Payment. In lieu of any further salary
payments to the Executive for periods subsequent to the Date of
Termination, the Company shall pay to the Executive a lump sum
severance payment, in cash, equal to two (2) (or, if less, the number
of years, including fractions, from the date of Termination until the
Executive would have reached age sixty-five (65)) times the sum of (a)
the Executive's Annual Base Salary in effect on date of termination and
(b) the Executive's most recent Annual Bonus. If the most recent Annual
Bonus was a stock option or a stock grant, the value of the bonus will
be deemed to be the number of option shares times the closing price of
the Company's Common Stock for the 20 trading days prior to
Termination.
(b) Continued Benefits. For a twenty-four (24) month period
(or, if less, the number of months from the Date of Termination until
the Executive would have reached age sixty-five (65)) after the Date of
Termination, the Company shall provide the Executive with life
insurance, health, disability and other welfare benefits ("Welfare
Benefits") substantially similar in all respects to those which the
Executive is receiving immediately prior to the Notice of Termination
(without giving effect to any reduction in such benefits subsequent to
the Potential Change in Control preceding the Change in Control or the
Change in Control which reduction constitutes or may constitute Good
Reason). Benefits otherwise receivable by an Executive pursuant to this
Section shall be reduced to the extent substantially similar benefits
are actually received by or made available to the Executive by any
other employer during the same time period for which such benefits
would be provided pursuant to this Section at a cost to the Executive
that is commensurate with the cost incurred by the Executive
immediately prior to the Executive's Date of Termination (without
giving effect to any increase in costs paid by the Executive after the
Potential Change in Control preceding the Change in Control or the
Change in Control which constitutes or may constitute Good Reason);
provided, however, that if the Executive becomes employed by a new
employer which maintains a medical plan that either (i) does not cover
the Executive or a family member or dependent with respect to a
preexisting condition which was covered under the applicable Company
medical plan, or (ii) does not cover the Executive or a family member
or dependent for a designated waiting period, the Executive's coverage
under the applicable Company medical plan shall continue (but shall be
limited in the event of noncoverage due to a preexisting condition, to
such preexisting condition) until the earlier of the end of the
applicable period of noncoverage under the new employer's plan or the
third anniversary of the Executive's Date of Termination. The Executive
agrees to report to the Company any coverage and benefits actually
received by the Executive or made available to the Executive from such
other employer(s). The Executive shall be entitled to elect to change
his level of
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<PAGE> 7
coverage and/or his choice of coverage options (such as Executive only
or family medical coverage) with respect to the Welfare Benefits to be
provided by the Company to the Executive to the same extent that
actively employed senior executives of the Company are permitted to
make such changes; provided, however, that in the event of any such
changes the Executive shall pay the amount of any cost increase that
would actually be paid by an actively employed executive of the Company
by reason of making the same change in his level of coverage or
coverage options.
(c) Gross-Up Payment. In the event that the Executive becomes
entitled to the Severance Benefits or any other benefits or payments
under this Agreement (other than pursuant to this Section) by reason of
the accelerated vesting of stock options thereunder (together, the
"Total Benefits"), and in the event that any of the Total Benefits will
be subject to the Excise Tax, the Company shall pay to the Executive an
additional amount (the "Gross-Up Payment") such that the net amount
retained by the Executive, after deduction of any Excise Tax on the
Total Benefits and any federal, state and local income tax, Excise Tax
and FICA and Medicare withholding taxes upon the payment provided for
by this Section, shall be equal to the Total Benefits.
For purposes of determining whether any of the Total Benefits
will be subject to the Excise Tax and the amount of such Excise Tax,
(i) any other payments or benefits received or to be received by the
Executive in connection with a Change in Control or the Executive's
termination of employment (whether pursuant to the terms of this
Agreement or any other agreement, plan or arrangement with the Company,
any Person whose actions result in a Change in Control or any Person
affiliated with the Company or such Person) shall be treated as
"parachute payments" within the meaning of Section 280G(b)(2) of the
Cod, and all "excess parachute payments" within the meaning the Section
280G(b)(1) shall be treated as subject to the Excise Tax, unless in the
opinion of tax counsel ("Tax Counsel") selected by the Company's
independent auditors and acceptable to the Executive, such other
payments or benefits (in whole or in part) do not constitute parachute
payments, or such excess parachute payments (in whole or in part)
represent reasonable compensation for services actually rendered within
the meaning of Section 280G(b)(4) of the Code in excess of the Base
Amount, or are otherwise not subject to the Excise Tax, (ii) the amount
of the Total Benefits which shall be treated as subject to the Excise
Tax shall be equal to the lesser of (A) the total amount of the Total
Benefits reduced by the amount of such Total Benefits that in the
opinion of Tax Counsel are not parachute payments, or (B) the amount of
excess parachute payments within the meaning of Section 280G(b)(1)
(after applying clause (i), above), and (iii) the value of any non-cash
benefits or any deferred payment or benefit shall be determined by the
Company's independent auditors in accordance with the principles of
sections 280G(d)(3) and (4) of the Code. For purposes of determining
the amount of the Gross-Up Payment, the Executive shall be deemed to
pay federal income taxes at the highest marginal rate of federal income
taxation in the calendar year in which the Gross-Up Payment is to be
made and state and local income taxes at the highest marginal rate of
taxation in the state and locality of the
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<PAGE> 8
Executive's residence on the Date of Termination, net of the reduction
in federal income taxes which could be obtained from deduction of such
state and local taxes (calculated by assuming that any reduction under
Section 68 of the Code in the amount of itemized deductions allowable
to the Executive applies first to reduce the amount of such state and
local income taxes that would otherwise be deductible by the
Executive).
In the event that the Excise Tax is subsequently determined to be less
than the amount taken into account hereunder at the time of termination of the
Executive's employment, the Executive shall repay to the Company, at the time
that the amount of such reduction in Excise Tax is finally determined, the
portion of the Gross-Up Payment attributable to such reduction (plus that
portion of the Gross-Up Payment attributable to the Excise Tax, federal, state
and local income taxes and FICA and Medicare withholding taxes imposed on the
portion of the Gross-Up Payment being repaid by the Executive to the extent that
such repayment results in a reduction in Excise Tax, FICA and Medicare
withholding taxes and/or federal, state or local income taxes) plus interest on
the amount of such repayment at the rate provided in Section 1274(b)(2)(B) of
the Code. In the event that the Excise Tax is determined to exceed the amount
taken into account hereunder at the time of the termination of the Executive's
employment (including by reason of any payment the existence or amount of which
cannot be determined at the time of the Gross-Up Payment), the Company shall
make an additional Gross-Up Payment, determined as previously described, to the
Executive in respect to such excess (plus any interest, penalties or additions
payable by the Executive with respect to such excess) at the time that the
amount of such excess is finally determined.
(d) Timing of Payments. The payments provided for in Sections
5(a) and 5(c) shall be made not later than the fifth (5th) day
following the Date of Termination; provided, however, that if the
amounts of such payments cannot be finally determined on or before such
day, the Company shall pay to the Executive on such day an estimate, as
determined in good faith by the Company, of the minimum amount of such
payments and shall pay the remainder of such payments (together with
interest at the rate provided in Section 1274(b)(2)(B) of the Code from
the firth (5th) day following the Date of Termination to the payment of
such remainder) as soon as the amount thereof can be determined but in
no event later than the thirtieth (30th) day after the Date of
Termination. In the event that the amount of the estimated payments
exceeds the amount subsequently determined to have been due, such
excess shall constitute a loan by the Company to the Executive, payable
on the fifth (5th) business day after demand by the Company (together
with interest at the rate provided in Section 1274(b)(2)(B) of the Code
from the fifth (5th) day following the Date of Termination to the
repayment of such excess).
6. Reimbursement of Legal Costs. The Company shall pay to the Executive
all legal fees and expenses incurred by the Executive as a result of a
termination which entitles the Executive to any payments under this Agreement
including all such fees and expenses, if any, incurred in contesting or
disputing any Notice of Intent to Terminate under Section 4(a) hereof or in
seeking to obtain or enforce any right or benefit provided by this Agreement or
in connection with any tax audit or
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<PAGE> 9
proceeding to the extent attributable to the application of Section 4999 of the
Code to any payment or benefit provide hereunder. Such payments shall be made
within five (5) business days after delivery of the Executive's respective
written requests for payment accompanied by such evidence of fees and expenses
incurred as the Company reasonably may require.
7. Damages. Executive shall not be required to mitigate damages with
respect to the amount of any payment provided under this Agreement by seeking
other employment or otherwise, nor shall the amount of any payment provided
under this Agreement be reduced by retirement benefits, deferred compensation or
any compensation earned by Executive as a result of employment by another
employer.
8. Successor to Company. The Company shall require any successor or
assign (whether direct or indirect, by purchase, merger, consolidation or
otherwise) to all or substantially all of the business and/or assets of the
Company, by agreement in form and substance satisfactory to Executive,
expressly, absolutely and unconditionally to assume and agree to perform this
Agreement in the same manner and to the same extent that the Company would be
required to perform it if no such succession or assignment had taken place. A
used in this Agreement, "Company" shall mean the Company as hereinbefore defined
and any successor or assign to its business and/or assets as aforesaid which
executes and delivers the agreement provided for in this section or which
otherwise becomes bound by all the terms and provisions of this Agreement by
operation of law.
9. Heirs of Executive. This Agreement shall inure to the benefit of and
be enforceable by Executive's personal and legal representatives, executors,
administrators, successors, heirs, distributees, devisees and legatees. If
Executive should die while any amounts are still payable to Executive hereunder,
all such amounts, unless otherwise provided herein, shall be paid in accordance
with the terms of this Agreement to Executive's devisee, legatee, or other
designee or, if there be so much designee, to Executive's estate.
10. Arbitration. Any dispute, controversy or claim arising under or in
connection with this Agreement, or the breach thereof, shall be settled
exclusively by arbitration in accordance with the Rules of the American
Arbitration Association then in effect. Judgment upon the award rendered by the
arbitrator(s) may be entered in any court of competent jurisdiction. Any
arbitration held pursuant to this section in connection with Executive's
termination of employment shall take place in Houston, Texas at the earliest
possible date. If any proceeding is necessary to enforce or interpret the terms
of this Agreement, or to recover damages for breach thereof, the prevailing
party shall be entitled to reasonable attorneys' fees and necessary costs and
disbursements, not to exceed in the aggregate one percent (1%) of the net worth
of the other party, in addition to any other relief to which he or it may be
entitled.
11. Notice. For purposes of this Agreement, notices and all other
communications provided for in this Agreement shall be in writing and shall be
deemed to have been duly given when
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<PAGE> 10
delivered by messenger or in person, or when mailed by United States registered
mail, return receipt requested, postage prepaid, as follows:
If to the Company: 625 E. Kaliste Saloom Road
Suite 400
Lafayette, Louisiana 70508
Attention: Charles T. Goodson, President
If to the Executive: Alfred J. Thomas, II
136 Teche Drive
Lafayette, LA 70503
or such other address as either party may have furnished to the other in writing
in accordance herewith, except that notices of change of address shall be
effective only upon receipt.
12. General Provisions.
(a) Executive's rights and obligations under this Agreement
shall not be transferable by assignment or otherwise, nor shall
Executive's rights be subject to encumbrance or subject to the claims
of the Company's creditors. Nothing in this Agreement shall prevent the
consolidation of the Company with, or its merger into, any other
corporation, or the sale by the Company of all or substantially all of
its properties or assets; and this Agreement shall inure to the benefit
of, be binding upon and be enforceable by, any successor surviving or
resulting corporation, or other entity to which such assets shall be
transferred. This Agreement shall not be terminated by the voluntary or
involuntary dissolution of the Company.
(b) This Agreement and any Employment Agreement with Executive
plus terms of any stock option plans or grants constitutes the entire
agreement between the parties hereto in respect to the rights and
obligations of the parties following a Change in Control. This
Agreement supersedes and replaces all prior oral and written
agreements, understandings, commitments, and practices between the
parties (whether or not fully performed by Executive prior to the date
hereof), which shall be of no further force or effect.
(c) The provisions of this Agreement shall be regarded as
divisible, and if any of said provisions or any part thereof are
declared invalid or unenforceable by a court of competent jurisdiction,
the validity and enforceability of the remainder of such provisions or
parts thereof and the applicability thereof shall not be affected
thereby.
(d) This Agreement may not be amended or modified except by a
written instrument executed by the Company and Executive.
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(e) This Agreement and the rights and obligations hereunder
shall be governed by and construed in accordance with the laws of the
State of Texas.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
PetroQuest Energy, Inc.,
a Delaware Corporation
By:/s/ Charles T. Goodson
---------------------------------
Attest: Charles T. Goodson
President and CEO
By:/s/ Sandra L. Martin
---------------------------------
By the authority of the Compensation
Committee of the Board of Directors
of PetroQuest Energy, Inc. on
December 16, 1998.
/s/ Alfred J. Thomas, II
---------------------------------
Alfred J. Thomas, II
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EXHIBIT 10.9
TERMINATION AGREEMENT
THIS TERMINATION AGREEMENT, dated as of December 16, 1998 is made and
entered into by and between PetroQuest Energy, Inc., a Delaware corporation with
its principal office at 625 E. Kaliste Saloom Road, Suite 400, Lafayette,
Louisiana 70508 (the "Company"), and Ralph J. Daigle ("Executive").
R E C I T A L S
A. Company desires to enter into an agreement with Executive whereby
severance benefits will be paid to Executive on a change in control of the
Company and consequent actual or constructive termination of Executive's
employment.
B. This Agreement sets forth the severance benefits which the Company
agrees that it will pay to the Executive if Executive's employment with the
Company terminates under one of the circumstances described herein following a
Change in Control of the Company.
NOW, THEREFORE, in consideration of the foregoing premises and the
mutual covenants contained herein, the parties hereto agree as follows:
1. Term of Agreement. This Agreement shall be effective immediately on
the date hereof and shall continue in effect through December 31, 2001;
provided, however, that commencing on January 1, 2002 and each January 1
thereafter, the term of this Agreement shall automatically be extended for one
additional year unless not later than September 30 of the preceding year, the
Company shall have given notice that it does not wish to extend this Agreement;
provided, further, that notwithstanding any such notice by the Company not to
extend, this Agreement shall automatically be extended for 24 months beyond the
term provided herein if a Change in Control, as defined in Section 3 of this
Agreement, has occurred during the term of this Agreement.
2. Effect on Employment Rights. This Agreement is not part of any
employment agreement that the Company and Executive may have entered. Nothing in
this Agreement shall confer upon Executive any right to continue in the employ
of the Company or interfere with or restrict in any way the rights of the
Company, which are hereby expressly reserved, to terminate for any reason, with
or without cause.
Executive agrees that, subject to the terms and conditions of this
Agreement, in the event of a potential change in control of the Company (as
defined below), Executive will remain in the employ of the Company during the
pendency of any such potential change in control and for a period of one year
after the occurrence of an actual Change in Control. For this purpose, a
"potential change in
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control of the Company" shall be deemed to have occurred if (a) the Company
enters into an agreement the consummation of which would result in the
occurrence of a Change in Control, (b) any person (including the Company)
publicly announces an intention to take or consider taking action which if
consummated would constitute a Change in Control or (c) the Board of Directors
of the Company (the "Board") adopts a resolution to the effect that a potential
change in control of the Company has occurred.
3. Change in Control. For purposes of this Agreement, a "Change in
Control" of the Company shall be deemed to have occurred if any of the events
set forth in any one of the following paragraphs shall occur:
(a) any "person" (as defined in section 3(a)(9) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act") and as
such term is modified in sections 13(d) and 14(d) of the Exchange Act),
excluding the Company or any of its subsidiaries, a trustee or any
fiduciary holding securities under an employee benefit plan of the
Company of any of its subsidiaries, an underwriter temporarily holding
securities pursuant to an offering of such securities or a corporation
owned, directly or indirectly, by stockholders of the Company in
substantially the same proportions as their ownership of the Company,
is or becomes the "beneficial owner" (as defined in Rule 13d-3 under
the Exchange Act), directly or indirectly, of securities of the Company
representing 30% or more of the combined voting power of the Company's
then outstanding securities; or
(b) during any period of not more than two consecutive years,
individuals who at the beginning of much period constitute the Board
and any new director (other than a director designated by a Person who
has entered into an agreement with the Company to effect a transaction
described in clause (a), (c) or (d) of this paragraph) whose election
by the Board or nomination for election by the Company's stockholders
was approved by a vote of at least two-thirds (2/3) of the directors
then still in office who either were directors at the beginning of the
period or whose election or nomination for election was previously so
approved, cease for any reason to constitute a majority thereof; or
(c) the shareholders of the Company approve a merger or
consolidation of the Company with any other corporation, other than (i)
a merger or consolidation which would result in the voting securities
of the Company outstanding immediately prior thereto continuing to
represent (either by remaining outstanding or by being converted into
voting securities of the surviving entity), in combination with the
ownership of any trustee or other fiduciary holder of securities under
an employee benefit plan of the Company, at least 50% of the combined
voting power of the voting securities of the Company or such surviving
entity outstanding immediately after such merger or consolidation, or
(ii) a merger or consolidation effected to implement a recapitalization
of the Company (or similar transaction) in which no person acquires
more than 50% of the combined voting power of the Company's then
outstanding securities; or
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(d) the shareholders of the Company approve a plan of
complete liquidation of the Company or an agreement for the sale or
disposition by the Company of all or substantially all of the Company's
assets.
Notwithstanding the foregoing, no Change in Control shall be deemed to
have occurred if there is consummated any transaction or series of
integrated transactions immediately following which, in the judgment of
the Compensation Committee of the Board, the holders of the Company's
Common Stock immediately prior to such transaction or series of
transactions continue to have the same proportionate ownership in an
entity which owns all or substantially all of the assets of the Company
immediately prior to such transaction or series of transactions.
4. Termination of Employment Following a Change in Control. Executive
shall be entitled to the benefits provided in Section 5 hereof upon the
subsequent termination of Executive's employment by the Company within two years
after a Change in Control which occurs during the term of this Agreement,
provided such termination is (a) by the Company other than for cause, as defined
below, or (b) by Executive for Good Reason, as defined below. Executive shall
not be entitled to the benefits of Section 5, any other provision hereof to the
contrary notwithstanding, if Executive's employment terminates: (i) pursuant to
Executive retiring at age 65, (ii) by reason of Executive's total and permanent
disability, or (iii) by reason or Executive's death. As used herein, "total and
permanent disability" means a condition which prevents Executive from performing
to a significant degree the essential duties of his or her position and is
expected to be of long-term duration or result in death. A determination of
total and permanent disability must be based on competent medical evidence.
(a) Cause.
(i) Definition. Termination by the Company of
Executive's employment for Cause shall mean termination upon
Executive's willful engaging in misconduct which is
demonstrably and materially injurious to the Company and its
subsidiaries taken as a whole. No act, or failure to act, on
Executive's part shall be considered "willful" unless done, or
omitted to be done, by Executive not in good faith and without
reasonable belief that Executive's action or omission was in
the best interest of the Company or its subsidiaries.
Notwithstanding the foregoing, Executive shall not be deemed
to have been terminated for Cause unless and until there shall
have been delivered to Executive a copy of a resolution duly
adopted by the affirmative vote of not less than three
quarters of the entire membership of the Board at a meeting of
the Board called and held for the purpose of making a
determination of whether Cause for termination exists (after
reasonable notice to Executive and an opportunity for
Executive to be heard before the Board), finding that in the
good faith opinion of
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the Board Executive was guilty of misconduct as set forth
above in this subsection 4(a)(i) and specifying the
particulars thereof in detail.
(ii) Remedy by Executive. If the Company gives
Executive a Notice of Termination which states that the basis
for terminating Executive's employment is Cause, Executive
shall have ten days after receipt of such Notice to remedy the
facts and circumstances which provided Cause. The Board (or
any duly authorized Committee thereof) shall make a good faith
reasonable determination immediately after such ten-day period
whether such facts and circumstances have been remedied and
shall communicate such determination in writing to Executive.
If the Board determines that an adequate remedy has not
occurred, then the initial Notice of Termination shall remain
in effect.
(b) Good Reason. After a Change in Control, Executive may
terminate employment with the Company at any time during the term of
this Agreement if Executive has made a good faith reasonable
determination that Good Reason exists for this termination.
(i) Definition. For purposes of this Agreement, "Good
Reason" shall mean any of the following actions, if taken
without the express written consent of Executive:
A. any material change by the Company in
Executive's functions, duties, or responsibilities
which change would cause Executive's position with
the Company to become of less dignity,
responsibility, importance, or scope from the
position and attributes that applied to Executive
immediately prior to the Change in Control;
B. any significant reduction in Executive's
base salary, other than a reduction effected as part
of an across-the-board reduction affecting all
executive employees of the Company;
C. any material failure by the Company to
comply with any of the provisions of this Agreement
(or of any employment agreement between the parties);
D. the Company's requiring Executive to be
based at any office or location more than 45 miles
from the home at which the Executive resides on the
date immediately preceding the Change in Control,
except for travel reasonably required in the
performance of Executive's responsibilities and
commensurate with the amount of travel required of
Executive prior to the Change in Control; or
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E. any failure by the Company to obtain the
express assumption of this Agreement by any successor
or assign of the Company.
Executive's right to terminate employment
for Good Reason pursuant to this subsection 4(b)(I)
shall not be affected by Executive's incapacity due
to physical or mental illness.
(ii) Remedy by Company. If Executive gives the
Company a Notice of Termination which states that the basis
for Executive's termination of employment is Good Reason, the
Company shall have ten days after receipt of such Notice to
remedy the facts and circumstances which provided Good Reason.
Executive shall make a good faith reasonable determination
immediately after such ten-day period whether such facts and
circumstances have been remedied and shall communicate such
determination in writing to the Company. If Executive
determines that adequate remedy has not occurred, then the
initial Notice of Termination shall remain in effect.
(iii) Determination by Executive Presumed Correct.
Any determination by Executive pursuant to this Section 4(b)
that Good Reason exists for Executive's termination of
employment and that adequate remedy has not occurred shall be
presumed correct and shall govern unless the party contesting
the determination shows by a clear preponderance of the
evidence that it was not a good faith reasonable
determination.
(iv) Severance Payment Made Notwithstanding Dispute.
Notwithstanding any dispute concerning whether Good Reason
exists for termination of employment or whether adequate
remedy has occurred, the Company shall immediately pay to
Executive, as specified in Section 5, any amounts otherwise
due under this Agreement. Executive may be required to repay
such amounts to the Company if any such dispute is finally
determined adversely to Executive.
(c) Notice of Termination. Any termination of Executive's
employment by the Company or by Executive hereunder shall be
communicated by a Notice of Termination to the other party hereto. For
purposes of this Agreement, a "Notice of Termination" shall mean a
written notice which shall indicate the specific termination provisions
in this Agreement relied upon any which sets forth (i) in reasonable
detail the facts and circumstances claimed to provide a basis for
termination of Executive's employment under the provision so indicated
and (ii) the date of Executive's termination of employment, which shall
be no earlier than 10 days after such Notice is received by the other
party. Any purported termination of the Executive's employment by the
Company which is not effected pursuant to a Notice of Termination
satisfying the requirements of this Agreement shall not be effective.
In the case of a termination for Cause, the Notice of Termination shall
also satisfy the requirements set forth in Section 4(a)(i).
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5. Severance Payment Upon Termination of Employment. If Executive's
employment with the Company is terminated during the term of this Agreement and
after a Change in Control (a) by the Company other than for Cause, or (b) by
Executive for Good Reason, then Executive shall be entitled to the following:
(a) Lump-Sum Severance Payment. In lieu of any further salary
payments to the Executive for periods subsequent to the Date of
Termination, the Company shall pay to the Executive a lump sum
severance payment, in cash, equal to two (2) (or, if less, the number
of years, including fractions, from the date of Termination until the
Executive would have reached age sixty-five (65)) times the sum of (a)
the Executive's Annual Base Salary in effect on date of termination and
(b) the Executive's most recent Annual Bonus. If the most recent Annual
Bonus was a stock option or a stock grant, the value of the bonus will
be deemed to be the number of option shares times the closing price of
the Company's Common Stock for the 20 trading days prior to
Termination.
(b) Continued Benefits. For a twenty-four (24) month period
(or, if less, the number of months from the Date of Termination until
the Executive would have reached age sixty-five (65)) after the Date of
Termination, the Company shall provide the Executive with life
insurance, health, disability and other welfare benefits ("Welfare
Benefits") substantially similar in all respects to those which the
Executive is receiving immediately prior to the Notice of Termination
(without giving effect to any reduction in such benefits subsequent to
the Potential Change in Control preceding the Change in Control or the
Change in Control which reduction constitutes or may constitute Good
Reason). Benefits otherwise receivable by an Executive pursuant to this
Section shall be reduced to the extent substantially similar benefits
are actually received by or made available to the Executive by any
other employer during the same time period for which such benefits
would be provided pursuant to this Section at a cost to the Executive
that is commensurate with the cost incurred by the Executive
immediately prior to the Executive's Date of Termination (without
giving effect to any increase in costs paid by the Executive after the
Potential Change in Control preceding the Change in Control or the
Change in Control which constitutes or may constitute Good Reason);
provided, however, that if the Executive becomes employed by a new
employer which maintains a medical plan that either (i) does not cover
the Executive or a family member or dependent with respect to a
preexisting condition which was covered under the applicable Company
medical plan, or (ii) does not cover the Executive or a family member
or dependent for a designated waiting period, the Executive's coverage
under the applicable Company medical plan shall continue (but shall be
limited in the event of noncoverage due to a preexisting condition, to
such preexisting condition) until the earlier of the end of the
applicable period of noncoverage under the new employer's plan or the
third anniversary of the Executive's Date of Termination. The Executive
agrees to report to the Company any coverage and benefits actually
received by the Executive or made available to the Executive from such
other employer(s). The Executive shall be entitled to elect to change
his level of
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coverage and/or his choice of coverage options (such as Executive only
or family medical coverage) with respect to the Welfare Benefits to be
provided by the Company to the Executive to the same extent that
actively employed senior executives of the Company are permitted to
make such changes; provided, however, that in the event of any such
changes the Executive shall pay the amount of any cost increase that
would actually be paid by an actively employed executive of the Company
by reason of making the same change in his level of coverage or
coverage options.
(c) Gross-Up Payment. In the event that the Executive becomes
entitled to the Severance Benefits or any other benefits or payments
under this Agreement (other than pursuant to this Section) by reason of
the accelerated vesting of stock options thereunder (together, the
"Total Benefits"), and in the event that any of the Total Benefits will
be subject to the Excise Tax, the Company shall pay to the Executive an
additional amount (the "Gross-Up Payment") such that the net amount
retained by the Executive, after deduction of any Excise Tax on the
Total Benefits and any federal, state and local income tax, Excise Tax
and FICA and Medicare withholding taxes upon the payment provided for
by this Section, shall be equal to the Total Benefits.
For purposes of determining whether any of the Total Benefits
will be subject to the Excise Tax and the amount of such Excise Tax,
(i) any other payments or benefits received or to be received by the
Executive in connection with a Change in Control or the Executive's
termination of employment (whether pursuant to the terms of this
Agreement or any other agreement, plan or arrangement with the Company,
any Person whose actions result in a Change in Control or any Person
affiliated with the Company or such Person) shall be treated as
"parachute payments" within the meaning of Section 280G(b)(2) of the
Cod, and all "excess parachute payments" within the meaning the Section
280G(b)(1) shall be treated as subject to the Excise Tax, unless in the
opinion of tax counsel ("Tax Counsel") selected by the Company's
independent auditors and acceptable to the Executive, such other
payments or benefits (in whole or in part) do not constitute parachute
payments, or such excess parachute payments (in whole or in part)
represent reasonable compensation for services actually rendered within
the meaning of Section 280G(b)(4) of the Code in excess of the Base
Amount, or are otherwise not subject to the Excise Tax, (ii) the amount
of the Total Benefits which shall be treated as subject to the Excise
Tax shall be equal to the lesser of (A) the total amount of the Total
Benefits reduced by the amount of such Total Benefits that in the
opinion of Tax Counsel are not parachute payments, or (B) the amount of
excess parachute payments within the meaning of Section 280G(b)(1)
(after applying clause (i), above), and (iii) the value of any non-cash
benefits or any deferred payment or benefit shall be determined by the
Company's independent auditors in accordance with the principles of
sections 280G(d)(3) and (4) of the Code. For purposes of determining
the amount of the Gross-Up Payment, the Executive shall be deemed to
pay federal income taxes at the highest marginal rate of federal income
taxation in the calendar year in which the Gross-Up Payment is to be
made and state and local income taxes at the highest marginal rate of
taxation in the state and locality of the
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Executive's residence on the Date of Termination, net of the reduction
in federal income taxes which could be obtained from deduction of such
state and local taxes (calculated by assuming that any reduction under
Section 68 of the Code in the amount of itemized deductions allowable
to the Executive applies first to reduce the amount of such state and
local income taxes that would otherwise be deductible by the
Executive).
In the event that the Excise Tax is subsequently determined to be less
than the amount taken into account hereunder at the time of termination of the
Executive's employment, the Executive shall repay to the Company, at the time
that the amount of such reduction in Excise Tax is finally determined, the
portion of the Gross-Up Payment attributable to such reduction (plus that
portion of the Gross-Up Payment attributable to the Excise Tax, federal, state
and local income taxes and FICA and Medicare withholding taxes imposed on the
portion of the Gross-Up Payment being repaid by the Executive to the extent that
such repayment results in a reduction in Excise Tax, FICA and Medicare
withholding taxes and/or federal, state or local income taxes) plus interest on
the amount of such repayment at the rate provided in Section 1274(b)(2)(B) of
the Code. In the event that the Excise Tax is determined to exceed the amount
taken into account hereunder at the time of the termination of the Executive's
employment (including by reason of any payment the existence or amount of which
cannot be determined at the time of the Gross-Up Payment), the Company shall
make an additional Gross-Up Payment, determined as previously described, to the
Executive in respect to such excess (plus any interest, penalties or additions
payable by the Executive with respect to such excess) at the time that the
amount of such excess is finally determined.
(d) Timing of Payments. The payments provided for in Sections
5(a) and 5(c) shall be made not later than the fifth (5th) day
following the Date of Termination; provided, however, that if the
amounts of such payments cannot be finally determined on or before such
day, the Company shall pay to the Executive on such day an estimate, as
determined in good faith by the Company, of the minimum amount of such
payments and shall pay the remainder of such payments (together with
interest at the rate provided in Section 1274(b)(2)(B) of the Code from
the firth (5th) day following the Date of Termination to the payment of
such remainder) as soon as the amount thereof can be determined but in
no event later than the thirtieth (30th) day after the Date of
Termination. In the event that the amount of the estimated payments
exceeds the amount subsequently determined to have been due, such
excess shall constitute a loan by the Company to the Executive, payable
on the fifth (5th) business day after demand by the Company (together
with interest at the rate provided in Section 1274(b)(2)(B) of the Code
from the fifth (5th) day following the Date of Termination to the
repayment of such excess).
6. Reimbursement of Legal Costs. The Company shall pay to the Executive
all legal fees and expenses incurred by the Executive as a result of a
termination which entitles the Executive to any payments under this Agreement
including all such fees and expenses, if any, incurred in contesting or
disputing any Notice of Intent to Terminate under Section 4(a) hereof or in
seeking to obtain or enforce any right or benefit provided by this Agreement or
in connection with any tax audit or
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proceeding to the extent attributable to the application of Section 4999 of the
Code to any payment or benefit provide hereunder. Such payments shall be made
within five (5) business days after delivery of the Executive's respective
written requests for payment accompanied by such evidence of fees and expenses
incurred as the Company reasonably may require.
7. Damages. Executive shall not be required to mitigate damages with
respect to the amount of any payment provided under this Agreement by seeking
other employment or otherwise, nor shall the amount of any payment provided
under this Agreement be reduced by retirement benefits, deferred compensation or
any compensation earned by Executive as a result of employment by another
employer.
8. Successor to Company. The Company shall require any successor or
assign (whether direct or indirect, by purchase, merger, consolidation or
otherwise) to all or substantially all of the business and/or assets of the
Company, by agreement in form and substance satisfactory to Executive,
expressly, absolutely and unconditionally to assume and agree to perform this
Agreement in the same manner and to the same extent that the Company would be
required to perform it if no such succession or assignment had taken place. A
used in this Agreement, "Company" shall mean the Company as hereinbefore defined
and any successor or assign to its business and/or assets as aforesaid which
executes and delivers the agreement provided for in this section or which
otherwise becomes bound by all the terms and provisions of this Agreement by
operation of law.
9. Heirs of Executive. This Agreement shall inure to the benefit of and
be enforceable by Executive's personal and legal representatives, executors,
administrators, successors, heirs, distributees, devisees and legatees. If
Executive should die while any amounts are still payable to Executive hereunder,
all such amounts, unless otherwise provided herein, shall be paid in accordance
with the terms of this Agreement to Executive's devisee, legatee, or other
designee or, if there be so much designee, to Executive's estate.
10. Arbitration. Any dispute, controversy or claim arising under or in
connection with this Agreement, or the breach thereof, shall be settled
exclusively by arbitration in accordance with the Rules of the American
Arbitration Association then in effect. Judgment upon the award rendered by the
arbitrator(s) may be entered in any court of competent jurisdiction. Any
arbitration held pursuant to this section in connection with Executive's
termination of employment shall take place in Houston, Texas at the earliest
possible date. If any proceeding is necessary to enforce or interpret the terms
of this Agreement, or to recover damages for breach thereof, the prevailing
party shall be entitled to reasonable attorneys' fees and necessary costs and
disbursements, not to exceed in the aggregate one percent (1%) of the net worth
of the other party, in addition to any other relief to which he or it may be
entitled.
11. Notice. For purposes of this Agreement, notices and all other
communications provided for in this Agreement shall be in writing and shall be
deemed to have been duly given when
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delivered by messenger or in person, or when mailed by United States registered
mail, return receipt requested, postage prepaid, as follows:
If to the Company: 625 E. Kaliste Saloom Road
Suite 400
Lafayette, Louisiana 70508
Attention: Charles T. Goodson, President
If to the Executive: Ralph J. Daigle
106 Running Deer
Maurice, LA 70555
or such other address as either party may have furnished to the other in writing
in accordance herewith, except that notices of change of address shall be
effective only upon receipt.
12. General Provisions.
(a) Executive's rights and obligations under this Agreement
shall not be transferable by assignment or otherwise, nor shall
Executive's rights be subject to encumbrance or subject to the claims
of the Company's creditors. Nothing in this Agreement shall prevent the
consolidation of the Company with, or its merger into, any other
corporation, or the sale by the Company of all or substantially all of
its properties or assets; and this Agreement shall inure to the benefit
of, be binding upon and be enforceable by, any successor surviving or
resulting corporation, or other entity to which such assets shall be
transferred. This Agreement shall not be terminated by the voluntary or
involuntary dissolution of the Company.
(b) This Agreement and any Employment Agreement with Executive
plus terms of any stock option plans or grants constitutes the entire
agreement between the parties hereto in respect to the rights and
obligations of the parties following a Change in Control. This
Agreement supersedes and replaces all prior oral and written
agreements, understandings, commitments, and practices between the
parties (whether or not fully performed by Executive prior to the date
hereof), which shall be of no further force or effect.
(c) The provisions of this Agreement shall be regarded as
divisible, and if any of said provisions or any part thereof are
declared invalid or unenforceable by a court of competent jurisdiction,
the validity and enforceability of the remainder of such provisions or
parts thereof and the applicability thereof shall not be affected
thereby.
(d) This Agreement may not be amended or modified except by a
written instrument executed by the Company and Executive.
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(e) This Agreement and the rights and obligations hereunder
shall be governed by and construed in accordance with the laws of the
State of Texas.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
PetroQuest Energy, Inc.,
a Delaware Corporation
By:/s/ Charles T. Goodson
---------------------------------
Attest: Charles T. Goodson
President and CEO
By:/s/ Sandra L. Martin
---------------------------------
By the authority of the Compensation
Committee of the Board of Directors
of PetroQuest Energy, Inc. on
December 16, 1998.
/s/ Ralph J. Daigle
---------------------------------
Ralph J. Daigle
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EXHIBIT 10.10
TERMINATION AGREEMENT
THIS TERMINATION AGREEMENT, dated as of December 16, 1998 is made and
entered into by and between PetroQuest Energy, Inc., a Delaware corporation with
its principal office at 625 E. Kaliste Saloom Road, Suite 400, Lafayette,
Louisiana 70508 (the "Company"), and Robert R. Brooksher ("Executive").
R E C I T A L S
A. Company desires to enter into an agreement with Executive whereby
severance benefits will be paid to Executive on a change in control of the
Company and consequent actual or constructive termination of Executive's
employment.
B. This Agreement sets forth the severance benefits which the Company
agrees that it will pay to the Executive if Executive's employment with the
Company terminates under one of the circumstances described herein following a
Change in Control of the Company.
NOW, THEREFORE, in consideration of the foregoing premises and the
mutual covenants contained herein, the parties hereto agree as follows:
1. Term of Agreement. This Agreement shall be effective immediately on
the date hereof and shall continue in effect through December 31, 2001;
provided, however, that commencing on January 1, 2002 and each January 1
thereafter, the term of this Agreement shall automatically be extended for one
additional year unless not later than September 30 of the preceding year, the
Company shall have given notice that it does not wish to extend this Agreement;
provided, further, that notwithstanding any such notice by the Company not to
extend, this Agreement shall automatically be extended for 24 months beyond the
term provided herein if a Change in Control, as defined in Section 3 of this
Agreement, has occurred during the term of this Agreement.
2. Effect on Employment Rights. This Agreement is not part of any
employment agreement that the Company and Executive may have entered. Nothing in
this Agreement shall confer upon Executive any right to continue in the employ
of the Company or interfere with or restrict in any way the rights of the
Company, which are hereby expressly reserved, to terminate for any reason, with
or without cause.
Executive agrees that, subject to the terms and conditions of this
Agreement, in the event of a potential change in control of the Company (as
defined below), Executive will remain in the employ of the Company during the
pendency of any such potential change in control and for a period of one year
after the occurrence of an actual Change in Control. For this purpose, a
"potential change in
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control of the Company" shall be deemed to have occurred if (a) the Company
enters into an agreement the consummation of which would result in the
occurrence of a Change in Control, (b) any person (including the Company)
publicly announces an intention to take or consider taking action which if
consummated would constitute a Change in Control or (c) the Board of Directors
of the Company (the "Board") adopts a resolution to the effect that a potential
change in control of the Company has occurred.
3. Change in Control. For purposes of this Agreement, a "Change in
Control" of the Company shall be deemed to have occurred if any of the events
set forth in any one of the following paragraphs shall occur:
(a) any "person" (as defined in section 3(a)(9) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act") and as
such term is modified in sections 13(d) and 14(d) of the Exchange Act),
excluding the Company or any of its subsidiaries, a trustee or any
fiduciary holding securities under an employee benefit plan of the
Company of any of its subsidiaries, an underwriter temporarily holding
securities pursuant to an offering of such securities or a corporation
owned, directly or indirectly, by stockholders of the Company in
substantially the same proportions as their ownership of the Company,
is or becomes the "beneficial owner" (as defined in Rule 13d-3 under
the Exchange Act), directly or indirectly, of securities of the Company
representing 30% or more of the combined voting power of the Company's
then outstanding securities; or
(b) during any period of not more than two consecutive years,
individuals who at the beginning of much period constitute the Board
and any new director (other than a director designated by a Person who
has entered into an agreement with the Company to effect a transaction
described in clause (a), (c) or (d) of this paragraph) whose election
by the Board or nomination for election by the Company's stockholders
was approved by a vote of at least two-thirds (2/3) of the directors
then still in office who either were directors at the beginning of the
period or whose election or nomination for election was previously so
approved, cease for any reason to constitute a majority thereof; or
(c) the shareholders of the Company approve a merger or
consolidation of the Company with any other corporation, other than (i)
a merger or consolidation which would result in the voting securities
of the Company outstanding immediately prior thereto continuing to
represent (either by remaining outstanding or by being converted into
voting securities of the surviving entity), in combination with the
ownership of any trustee or other fiduciary holder of securities under
an employee benefit plan of the Company, at least 50% of the combined
voting power of the voting securities of the Company or such surviving
entity outstanding immediately after such merger or consolidation, or
(ii) a merger or consolidation effected to implement a recapitalization
of the Company (or similar transaction) in which no person acquires
more than 50% of the combined voting power of the Company's then
outstanding securities; or
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(d) the shareholders of the Company approve a plan of
complete liquidation of the Company or an agreement for the sale or
disposition by the Company of all or substantially all of the Company's
assets.
Notwithstanding the foregoing, no Change in Control shall be deemed to
have occurred if there is consummated any transaction or series of
integrated transactions immediately following which, in the judgment of
the Compensation Committee of the Board, the holders of the Company's
Common Stock immediately prior to such transaction or series of
transactions continue to have the same proportionate ownership in an
entity which owns all or substantially all of the assets of the Company
immediately prior to such transaction or series of transactions.
4. Termination of Employment Following a Change in Control. Executive
shall be entitled to the benefits provided in Section 5 hereof upon the
subsequent termination of Executive's employment by the Company within two years
after a Change in Control which occurs during the term of this Agreement,
provided such termination is (a) by the Company other than for cause, as defined
below, or (b) by Executive for Good Reason, as defined below. Executive shall
not be entitled to the benefits of Section 5, any other provision hereof to the
contrary notwithstanding, if Executive's employment terminates: (i) pursuant to
Executive retiring at age 65, (ii) by reason of Executive's total and permanent
disability, or (iii) by reason or Executive's death. As used herein, "total and
permanent disability" means a condition which prevents Executive from performing
to a significant degree the essential duties of his or her position and is
expected to be of long-term duration or result in death. A determination of
total and permanent disability must be based on competent medical evidence.
(a) Cause.
(i) Definition. Termination by the Company of
Executive's employment for Cause shall mean termination upon
Executive's willful engaging in misconduct which is
demonstrably and materially injurious to the Company and its
subsidiaries taken as a whole. No act, or failure to act, on
Executive's part shall be considered "willful" unless done, or
omitted to be done, by Executive not in good faith and without
reasonable belief that Executive's action or omission was in
the best interest of the Company or its subsidiaries.
Notwithstanding the foregoing, Executive shall not be deemed
to have been terminated for Cause unless and until there shall
have been delivered to Executive a copy of a resolution duly
adopted by the affirmative vote of not less than three
quarters of the entire membership of the Board at a meeting of
the Board called and held for the purpose of making a
determination of whether Cause for termination exists (after
reasonable notice to Executive and an opportunity for
Executive to be heard before the Board), finding that in the
good faith opinion of
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the Board Executive was guilty of misconduct as set forth
above in this subsection 4(a)(i) and specifying the
particulars thereof in detail.
(ii) Remedy by Executive. If the Company gives
Executive a Notice of Termination which states that the basis
for terminating Executive's employment is Cause, Executive
shall have ten days after receipt of such Notice to remedy the
facts and circumstances which provided Cause. The Board (or
any duly authorized Committee thereof) shall make a good faith
reasonable determination immediately after such ten-day period
whether such facts and circumstances have been remedied and
shall communicate such determination in writing to Executive.
If the Board determines that an adequate remedy has not
occurred, then the initial Notice of Termination shall remain
in effect.
(b) Good Reason. After a Change in Control, Executive may
terminate employment with the Company at any time during the term of
this Agreement if Executive has made a good faith reasonable
determination that Good Reason exists for this termination.
(i) Definition. For purposes of this Agreement, "Good
Reason" shall mean any of the following actions, if taken
without the express written consent of Executive:
A. any material change by the Company in
Executive's functions, duties, or responsibilities
which change would cause Executive's position with
the Company to become of less dignity,
responsibility, importance, or scope from the
position and attributes that applied to Executive
immediately prior to the Change in Control;
B. any significant reduction in Executive's
base salary, other than a reduction effected as part
of an across-the-board reduction affecting all
executive employees of the Company;
C. any material failure by the Company to
comply with any of the provisions of this Agreement
(or of any employment agreement between the parties);
D. the Company's requiring Executive to be
based at any office or location more than 45 miles
from the home at which the Executive resides on the
date immediately preceding the Change in Control,
except for travel reasonably required in the
performance of Executive's responsibilities and
commensurate with the amount of travel required of
Executive prior to the Change in Control; or
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E. any failure by the Company to obtain the
express assumption of this Agreement by any successor
or assign of the Company.
Executive's right to terminate employment
for Good Reason pursuant to this subsection 4(b)(I)
shall not be affected by Executive's incapacity due
to physical or mental illness.
(ii) Remedy by Company. If Executive gives the
Company a Notice of Termination which states that the basis
for Executive's termination of employment is Good Reason, the
Company shall have ten days after receipt of such Notice to
remedy the facts and circumstances which provided Good Reason.
Executive shall make a good faith reasonable determination
immediately after such ten-day period whether such facts and
circumstances have been remedied and shall communicate such
determination in writing to the Company. If Executive
determines that adequate remedy has not occurred, then the
initial Notice of Termination shall remain in effect.
(iii) Determination by Executive Presumed Correct.
Any determination by Executive pursuant to this Section 4(b)
that Good Reason exists for Executive's termination of
employment and that adequate remedy has not occurred shall be
presumed correct and shall govern unless the party contesting
the determination shows by a clear preponderance of the
evidence that it was not a good faith reasonable
determination.
(iv) Severance Payment Made Notwithstanding Dispute.
Notwithstanding any dispute concerning whether Good Reason
exists for termination of employment or whether adequate
remedy has occurred, the Company shall immediately pay to
Executive, as specified in Section 5, any amounts otherwise
due under this Agreement. Executive may be required to repay
such amounts to the Company if any such dispute is finally
determined adversely to Executive.
(c) Notice of Termination. Any termination of Executive's
employment by the Company or by Executive hereunder shall be
communicated by a Notice of Termination to the other party hereto. For
purposes of this Agreement, a "Notice of Termination" shall mean a
written notice which shall indicate the specific termination provisions
in this Agreement relied upon any which sets forth (i) in reasonable
detail the facts and circumstances claimed to provide a basis for
termination of Executive's employment under the provision so indicated
and (ii) the date of Executive's termination of employment, which shall
be no earlier than 10 days after such Notice is received by the other
party. Any purported termination of the Executive's employment by the
Company which is not effected pursuant to a Notice of Termination
satisfying the requirements of this Agreement shall not be effective.
In the case of a termination for Cause, the Notice of Termination shall
also satisfy the requirements set forth in Section 4(a)(i).
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5. Severance Payment Upon Termination of Employment. If Executive's
employment with the Company is terminated during the term of this Agreement and
after a Change in Control (a) by the Company other than for Cause, or (b) by
Executive for Good Reason, then Executive shall be entitled to the following:
(a) Lump-Sum Severance Payment. In lieu of any further salary
payments to the Executive for periods subsequent to the Date of
Termination, the Company shall pay to the Executive a lump sum
severance payment, in cash, equal to two (2) (or, if less, the number
of years, including fractions, from the date of Termination until the
Executive would have reached age sixty-five (65)) times the sum of (a)
the Executive's Annual Base Salary in effect on date of termination and
(b) the Executive's most recent Annual Bonus. If the most recent Annual
Bonus was a stock option or a stock grant, the value of the bonus will
be deemed to be the number of option shares times the closing price of
the Company's Common Stock for the 20 trading days prior to
Termination.
(b) Continued Benefits. For a twenty-four (24) month period
(or, if less, the number of months from the Date of Termination until
the Executive would have reached age sixty-five (65)) after the Date of
Termination, the Company shall provide the Executive with life
insurance, health, disability and other welfare benefits ("Welfare
Benefits") substantially similar in all respects to those which the
Executive is receiving immediately prior to the Notice of Termination
(without giving effect to any reduction in such benefits subsequent to
the Potential Change in Control preceding the Change in Control or the
Change in Control which reduction constitutes or may constitute Good
Reason). Benefits otherwise receivable by an Executive pursuant to this
Section shall be reduced to the extent substantially similar benefits
are actually received by or made available to the Executive by any
other employer during the same time period for which such benefits
would be provided pursuant to this Section at a cost to the Executive
that is commensurate with the cost incurred by the Executive
immediately prior to the Executive's Date of Termination (without
giving effect to any increase in costs paid by the Executive after the
Potential Change in Control preceding the Change in Control or the
Change in Control which constitutes or may constitute Good Reason);
provided, however, that if the Executive becomes employed by a new
employer which maintains a medical plan that either (i) does not cover
the Executive or a family member or dependent with respect to a
preexisting condition which was covered under the applicable Company
medical plan, or (ii) does not cover the Executive or a family member
or dependent for a designated waiting period, the Executive's coverage
under the applicable Company medical plan shall continue (but shall be
limited in the event of noncoverage due to a preexisting condition, to
such preexisting condition) until the earlier of the end of the
applicable period of noncoverage under the new employer's plan or the
third anniversary of the Executive's Date of Termination. The Executive
agrees to report to the Company any coverage and benefits actually
received by the Executive or made available to the Executive from such
other employer(s). The Executive shall be entitled to elect to change
his level of
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coverage and/or his choice of coverage options (such as Executive only
or family medical coverage) with respect to the Welfare Benefits to be
provided by the Company to the Executive to the same extent that
actively employed senior executives of the Company are permitted to
make such changes; provided, however, that in the event of any such
changes the Executive shall pay the amount of any cost increase that
would actually be paid by an actively employed executive of the Company
by reason of making the same change in his level of coverage or
coverage options.
(c) Gross-Up Payment. In the event that the Executive becomes
entitled to the Severance Benefits or any other benefits or payments
under this Agreement (other than pursuant to this Section) by reason of
the accelerated vesting of stock options thereunder (together, the
"Total Benefits"), and in the event that any of the Total Benefits will
be subject to the Excise Tax, the Company shall pay to the Executive an
additional amount (the "Gross-Up Payment") such that the net amount
retained by the Executive, after deduction of any Excise Tax on the
Total Benefits and any federal, state and local income tax, Excise Tax
and FICA and Medicare withholding taxes upon the payment provided for
by this Section, shall be equal to the Total Benefits.
For purposes of determining whether any of the Total Benefits
will be subject to the Excise Tax and the amount of such Excise Tax,
(i) any other payments or benefits received or to be received by the
Executive in connection with a Change in Control or the Executive's
termination of employment (whether pursuant to the terms of this
Agreement or any other agreement, plan or arrangement with the Company,
any Person whose actions result in a Change in Control or any Person
affiliated with the Company or such Person) shall be treated as
"parachute payments" within the meaning of Section 280G(b)(2) of the
Cod, and all "excess parachute payments" within the meaning the Section
280G(b)(1) shall be treated as subject to the Excise Tax, unless in the
opinion of tax counsel ("Tax Counsel") selected by the Company's
independent auditors and acceptable to the Executive, such other
payments or benefits (in whole or in part) do not constitute parachute
payments, or such excess parachute payments (in whole or in part)
represent reasonable compensation for services actually rendered within
the meaning of Section 280G(b)(4) of the Code in excess of the Base
Amount, or are otherwise not subject to the Excise Tax, (ii) the amount
of the Total Benefits which shall be treated as subject to the Excise
Tax shall be equal to the lesser of (A) the total amount of the Total
Benefits reduced by the amount of such Total Benefits that in the
opinion of Tax Counsel are not parachute payments, or (B) the amount of
excess parachute payments within the meaning of Section 280G(b)(1)
(after applying clause (i), above), and (iii) the value of any non-cash
benefits or any deferred payment or benefit shall be determined by the
Company's independent auditors in accordance with the principles of
sections 280G(d)(3) and (4) of the Code. For purposes of determining
the amount of the Gross-Up Payment, the Executive shall be deemed to
pay federal income taxes at the highest marginal rate of federal income
taxation in the calendar year in which the Gross-Up Payment is to be
made and state and local income taxes at the highest marginal rate of
taxation in the state and locality of the
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Executive's residence on the Date of Termination, net of the reduction
in federal income taxes which could be obtained from deduction of such
state and local taxes (calculated by assuming that any reduction under
Section 68 of the Code in the amount of itemized deductions allowable
to the Executive applies first to reduce the amount of such state and
local income taxes that would otherwise be deductible by the
Executive).
In the event that the Excise Tax is subsequently determined to be less
than the amount taken into account hereunder at the time of termination of the
Executive's employment, the Executive shall repay to the Company, at the time
that the amount of such reduction in Excise Tax is finally determined, the
portion of the Gross-Up Payment attributable to such reduction (plus that
portion of the Gross-Up Payment attributable to the Excise Tax, federal, state
and local income taxes and FICA and Medicare withholding taxes imposed on the
portion of the Gross-Up Payment being repaid by the Executive to the extent that
such repayment results in a reduction in Excise Tax, FICA and Medicare
withholding taxes and/or federal, state or local income taxes) plus interest on
the amount of such repayment at the rate provided in Section 1274(b)(2)(B) of
the Code. In the event that the Excise Tax is determined to exceed the amount
taken into account hereunder at the time of the termination of the Executive's
employment (including by reason of any payment the existence or amount of which
cannot be determined at the time of the Gross-Up Payment), the Company shall
make an additional Gross-Up Payment, determined as previously described, to the
Executive in respect to such excess (plus any interest, penalties or additions
payable by the Executive with respect to such excess) at the time that the
amount of such excess is finally determined.
(d) Timing of Payments. The payments provided for in Sections
5(a) and 5(c) shall be made not later than the fifth (5th) day
following the Date of Termination; provided, however, that if the
amounts of such payments cannot be finally determined on or before such
day, the Company shall pay to the Executive on such day an estimate, as
determined in good faith by the Company, of the minimum amount of such
payments and shall pay the remainder of such payments (together with
interest at the rate provided in Section 1274(b)(2)(B) of the Code from
the firth (5th) day following the Date of Termination to the payment of
such remainder) as soon as the amount thereof can be determined but in
no event later than the thirtieth (30th) day after the Date of
Termination. In the event that the amount of the estimated payments
exceeds the amount subsequently determined to have been due, such
excess shall constitute a loan by the Company to the Executive, payable
on the fifth (5th) business day after demand by the Company (together
with interest at the rate provided in Section 1274(b)(2)(B) of the Code
from the fifth (5th) day following the Date of Termination to the
repayment of such excess).
6. Reimbursement of Legal Costs. The Company shall pay to the Executive
all legal fees and expenses incurred by the Executive as a result of a
termination which entitles the Executive to any payments under this Agreement
including all such fees and expenses, if any, incurred in contesting or
disputing any Notice of Intent to Terminate under Section 4(a) hereof or in
seeking to obtain or enforce any right or benefit provided by this Agreement or
in connection with any tax audit or
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proceeding to the extent attributable to the application of Section 4999 of the
Code to any payment or benefit provide hereunder. Such payments shall be made
within five (5) business days after delivery of the Executive's respective
written requests for payment accompanied by such evidence of fees and expenses
incurred as the Company reasonably may require.
7. Damages. Executive shall not be required to mitigate damages with
respect to the amount of any payment provided under this Agreement by seeking
other employment or otherwise, nor shall the amount of any payment provided
under this Agreement be reduced by retirement benefits, deferred compensation or
any compensation earned by Executive as a result of employment by another
employer.
8. Successor to Company. The Company shall require any successor or
assign (whether direct or indirect, by purchase, merger, consolidation or
otherwise) to all or substantially all of the business and/or assets of the
Company, by agreement in form and substance satisfactory to Executive,
expressly, absolutely and unconditionally to assume and agree to perform this
Agreement in the same manner and to the same extent that the Company would be
required to perform it if no such succession or assignment had taken place. A
used in this Agreement, "Company" shall mean the Company as hereinbefore defined
and any successor or assign to its business and/or assets as aforesaid which
executes and delivers the agreement provided for in this section or which
otherwise becomes bound by all the terms and provisions of this Agreement by
operation of law.
9. Heirs of Executive. This Agreement shall inure to the benefit of and
be enforceable by Executive's personal and legal representatives, executors,
administrators, successors, heirs, distributees, devisees and legatees. If
Executive should die while any amounts are still payable to Executive hereunder,
all such amounts, unless otherwise provided herein, shall be paid in accordance
with the terms of this Agreement to Executive's devisee, legatee, or other
designee or, if there be so much designee, to Executive's estate.
10. Arbitration. Any dispute, controversy or claim arising under or in
connection with this Agreement, or the breach thereof, shall be settled
exclusively by arbitration in accordance with the Rules of the American
Arbitration Association then in effect. Judgment upon the award rendered by the
arbitrator(s) may be entered in any court of competent jurisdiction. Any
arbitration held pursuant to this section in connection with Executive's
termination of employment shall take place in Houston, Texas at the earliest
possible date. If any proceeding is necessary to enforce or interpret the terms
of this Agreement, or to recover damages for breach thereof, the prevailing
party shall be entitled to reasonable attorneys' fees and necessary costs and
disbursements, not to exceed in the aggregate one percent (1%) of the net worth
of the other party, in addition to any other relief to which he or it may be
entitled.
11. Notice. For purposes of this Agreement, notices and all other
communications provided for in this Agreement shall be in writing and shall be
deemed to have been duly given when
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delivered by messenger or in person, or when mailed by United States registered
mail, return receipt requested, postage prepaid, as follows:
If to the Company: 625 E. Kaliste Saloom Road
Suite 400
Lafayette, Louisiana 70508
Attention: Charles T. Goodson, President
If to the Executive: Robert R. Brooksher
125 Heartwood Circle
Lafayette, LA 70503
or such other address as either party may have furnished to the other in writing
in accordance herewith, except that notices of change of address shall be
effective only upon receipt.
12. General Provisions.
(a) Executive's rights and obligations under this Agreement
shall not be transferable by assignment or otherwise, nor shall
Executive's rights be subject to encumbrance or subject to the claims
of the Company's creditors. Nothing in this Agreement shall prevent the
consolidation of the Company with, or its merger into, any other
corporation, or the sale by the Company of all or substantially all of
its properties or assets; and this Agreement shall inure to the benefit
of, be binding upon and be enforceable by, any successor surviving or
resulting corporation, or other entity to which such assets shall be
transferred. This Agreement shall not be terminated by the voluntary or
involuntary dissolution of the Company.
(b) This Agreement and any Employment Agreement with Executive
plus terms of any stock option plans or grants constitutes the entire
agreement between the parties hereto in respect to the rights and
obligations of the parties following a Change in Control. This
Agreement supersedes and replaces all prior oral and written
agreements, understandings, commitments, and practices between the
parties (whether or not fully performed by Executive prior to the date
hereof), which shall be of no further force or effect.
(c) The provisions of this Agreement shall be regarded as
divisible, and if any of said provisions or any part thereof are
declared invalid or unenforceable by a court of competent jurisdiction,
the validity and enforceability of the remainder of such provisions or
parts thereof and the applicability thereof shall not be affected
thereby.
(d) This Agreement may not be amended or modified except by a
written instrument executed by the Company and Executive.
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(e) This Agreement and the rights and obligations hereunder
shall be governed by and construed in accordance with the laws of the
State of Texas.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
PetroQuest Energy, Inc.,
a Delaware Corporation
By:/s/ Charles T. Goodson
---------------------------------
Attest: Charles T. Goodson
President and CEO
By:/s/ Sandra L. Martin
---------------------------------
By the authority of the Compensation
Committee of the Board of Directors
of PetroQuest Energy, Inc. on
December 16, 1998.
/s/ Robert R. Brooksher
---------------------------------
Robert R. Brooksher
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EXHIBIT 10.11
INDEMNIFICATION AGREEMENT
This Indemnification Agreement is entered into and effective as of the
16th day of December, 1998 ("Agreement"), by and between PetroQuest Energy,
Inc., a Delaware corporation ("Company"), and Charles T. Goodson ("Indemnitee"):
WHEREAS, highly competent persons have become more reluctant to serve
corporations as directors, executive officers or in other capacities unless they
are provided, with adequate protection through insurance or adequate
indemnification against inordinate risks of claims and actions against them
arising out of their service to, and activities on behalf of, the corporation;
WHEREAS, the Board of Directors of the Company (the "Board") has
determined that, in order to attract and retain qualified individuals, the
Company will attempt to maintain on an ongoing basis, at its sole expense,
liability insurance to protect persons' serving the Company and its subsidiaries
from certain liabilities. Although the furnishing of such insurance has been a
customary and widespread practice among United States-based corporations and
other business enterprises, the Company believes that, given current market
conditions and trends, such insurance may be available to it in the future only
at higher premiums and with more exclusions. At the same time, directors,
officers and other persons in service to corporations or business enterprises
are being increasingly subjected to expensive and time-consuming litigation
relating to, among other things, matters that traditionally would have been
brought only against the corporation or business enterprise itself;
WHEREAS, the uncertainties relating to such insurance and to
indemnification have increased the difficulty of attracting and retaining such
persons;
WHEREAS, the Board has determined that the increased difficulty in
attracting and retaining such persons is detrimental to the best interests of
the Company's stockholders and that the Company should act to assure such
persons that there will be increased certainty of such protection in the future;
WHEREAS, it is reasonable, prudent and necessary for the Company
contractually to obligate itself to indemnify such persons to the fullest extent
permitted by applicable law so that they will serve or continue to serve the
Company free from undue concern that they will not be so indemnified; and
WHEREAS, Indemnitee is willing to serve, continue to serve and to take
on additional service for or on behalf of the Company on the condition that he
be so indemnified;
NOW, THEREFORE, in consideration of the premises and the covenants
contained herein, the Company and Indemnitee do hereby covenant and agree as
follows:
SECTION 1. Services by Indemnitee. Indemnitee agrees to serve as a
director/executive officer of the Company and, as mutually agreed by Indemnitee
and the Company, as a director,
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officer, employee, agent or fiduciary of other corporations, partnerships, joint
ventures, trusts or other enterprises (including, without limitation, employee
benefit plans). Indemnitee may at any time and for any reason resign from any
such position (subject to any other contractual obligation or any obligation
imposed by operation of law), in which event the Company shall have no
obligation under this Agreement to continue Indemnitee in that position. This
Agreement shall not be deemed an employment contract between the Company (or any
of its subsidiaries) and Indemnitee. Indemnitee specifically acknowledges that
Indemnitee's employment with the Company (or any of its subsidiaries), if any,
is at will, and the Indemnitee may be discharged at any time for any reason,
with or without cause, except as may be otherwise provided in any written
employment contract between Indemnitee and the Company (or any of its
subsidiaries), other applicable formal severance policies duly adopted by the
Board or, with respect to service as a director of the Company, by the Company's
Certificate of incorporation, Bylaws and the General Corporation Law of the
State of Delaware. Notwithstanding, the foregoing, this Agreement shall continue
in force after Indemnitee has ceased to serve as an officer or director of the
Company and no longer serves at the request of the Company as a director,
officer, employee or agent of the Company or any subsidiary of the Company.
SECTION 2. Indemnification--General. The Company shall indemnify, and
advance Expenses (as hereinafter defined) to, Indemnitee (a) as provided in this
Agreement and (b) to the fullest extent permitted by applicable law in effect on
the date hereof and as amended from time to time. The rights of Indemnitee
provided under the preceding sentence shall include, but shall not be limited
to, the rights set forth in the other Sections of this Agreement.
SECTION 3. Proceedings Other than Proceedings by or in the Right of the
Company. Indemnitee shall be entitled to the rights of indemnification provided
in Section 2 and this Section 3 if, by reason of his Corporate Status (as
hereinafter defined), he is, or is threatened to be made, a party to or a
participant in any threatened, pending, or completed Proceeding (as hereinafter
defined), other than a Proceeding by or in the right of the Company. Pursuant to
this Section 3, the Company shall indemnify Indemnitee against, and shall hold
Indemnitee harmless from and in respect of, all Expenses, judgments, penalties,
fines (including excise taxes) and amounts paid in settlement (including all
interest, assessments and other charges paid or payable in connection with or in
respect of such Expenses, judgments, fines, penalties or amounts paid in
settlement) actually and reasonably incurred by him or on his behalf in
connection with such Proceeding or any claim, issue or matter therein, if he
acted in good faith and in a manner he reasonably believed to be in or not
opposed to the best interests of the Company and, with respect to any criminal
Proceeding, had no reasonable cause to believe his conduct was unlawful.
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SECTION 4. Proceedings by or in the Right of the Company. Indemnitee
shall be entitled to the rights of indemnification provided in Section 2 and
this Section 4 if, by reason of his Corporate Status, he is, or is threatened to
be made, a party to or a participant in any threatened, pending or completed
Proceeding brought by or in the right of the Company to procure a judgment in
its favor. Pursuant to this Section 4, the Company shall indemnify Indemnitee
against, and shall hold Indemnitee harmless from and in respect of, all Expenses
actually and reasonably incurred by him or on his behalf in connection with, and
any amounts paid in settlement of, such Proceeding if he acted in good faith and
in a manner he reasonably believed to be in or not opposed to the best interests
of the Company. Notwithstanding the foregoing, no indemnification against such
Expenses shall be made in respect of any claim, issue or matter in such
Proceeding as to which Indemnitee shall have been adjudged to be liable to the
Company if applicable law prohibits such indemnification; provided, however, if
applicable law so permits, indemnification against such Expenses shall
nevertheless be made by the Company in such event if and only to the extent that
the Court of Chancery of the State of Delaware, or the court in which such
Proceeding shall have been brought or is pending, shall determine.
SECTION 5. Indemnification for Expenses of a Party Who Is Wholly or
Partly Successful. Notwithstanding any other provision of this Agreement, to the
extent that Indemnitee is, by reason of his Corporate Status, a party to (or a
participant in) and is successful, on the merits or otherwise, in defense of 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 defense of such Proceeding but is successful, on the merits
or otherwise, as to one or more but less than all claims, issues or matters in
such Proceeding, the Company shall indemnify Indemnitee against all Expenses
actually and reasonably incurred by him or on his behalf in connection with each
successfully resolved claim, issue or matter. For purposes of this Section and
without limitation, the termination of any claim, issue or matter in such a
Proceeding by dismissal, with or without prejudice, shall be deemed to be a
successful result as to such claim, issue or matter.
SECTION 6. Indemnification for Expenses as a Witness. Notwithstanding
any other provision of this Agreement, to the extent that Indemnitee is, by
reason of his Corporate Status, a witness in any Proceeding to which Indemnitee
is not a party, he shall be indemnified against all Expenses actually and
reasonably incurred by him or on his behalf in connection therewith.
SECTION 7. Advancement of Expenses. The Company shall advance all
reasonable Expenses incurred by or on behalf of Indemnitee in connection with
any Proceeding within ten (10) days after the receipt by the Company of a
statement or statements from Indemnitee requesting such advance or advances from
time to time, whether prior to or after final disposition of such Proceeding.
Such statement or statements shall reasonably evidence the Expenses incurred by
Indemnitee and shall include or be preceded or accompanied by an undertaking by
or on behalf of Indemnitee to repay any Expenses advanced if it ultimately shall
be determined, in accordance with this Agreement, that Indemnitee is not
entitled to be indemnified against such Expenses.
SECTION 8. Procedure for Determination of Entitlement to
Indemnification.
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(a) To obtain indemnification under this Agreement, Indemnitee shall
submit to the Company a written request, including therein or therewith such
documentation and information as is reasonably available to Indemnitee and is
reasonably necessary to determine whether and to what extent Indemnitee is
entitled to indemnification. The Secretary of the Company shall, promptly upon
receipt of such a request for indemnification, advise the Board in writing that
Indemnitee has requested indemnification.
(b) On written request by Indemnitee for indemnification pursuant to
the first sentence of Section 8(a), a determination, if required by applicable
law, with respect to Indemnitee's entitlement thereto shall be made in the
specific case: (i) if a Change in Control (as hereinafter defined) shall have
occurred within two (2) years prior to the date of such written request, by
Independent Counsel (as hereinafter defined) in a written opinion to the Board,
a copy of which shall be delivered to Indemnitee; or (ii) if a Change of Control
shall not have occurred within two (2) years prior to the date of such written
request, (A) by a majority vote of the Disinterested Directors (as hereinafter
defined), even though less than a quorum of the Board, or (B) if there are no
such Disinterested Directors, or if such Disinterested Directors so direct, by
Independent Counsel in a written opinion to the Board, a copy of which shall be
delivered to Indemnitee; and, if it is so determined that Indemnitee is entitled
to indemnification, payment to Indemnitee shall be made within ten (10) days
after such determination. Indemnitee shall cooperate with the person, persons or
entity making such determination with respect to Indemnitee's entitlement to
indemnification, including providing to such person, persons or entity on
reasonable advance request any documentation or information which is not
privileged or otherwise protected from disclosure and which is reasonably
available to Indemnitee and reasonably necessary to such determination. Any
costs or expenses (including attorneys' fees and disbursements) incurred by
Indemnitee in so cooperating with the person, persons or entity making such
determination shall be borne by the Company (irrespective of the determination
as to Indemnitee's entitlement to indemnification) and the Company hereby
indemnifies and agrees to hold Indemnitee harmless therefrom.
(c) In the event the determination of entitlement to indemnification
is to be made by Independent Counsel pursuant to Section 8(b), the Independent
Counsel shall be selected as provided in this Section 8(c). If a Change of
Control shall not have occurred within two (2) years prior to the date of
Indemnitee's written request for indemnification pursuant to Section 8(a), the
Independent Counsel shall be selected by the Board, and the Company shall give
written notice to Indemnitee advising him of the identity of the Independent
Counsel so selected. If a Change of Control shall have occurred within two (2)
years prior to the date of Indemnitee's written request for indemnification
pursuant to Section 8(a), the Independent Counsel shall be selected by
Indemnitee (unless Indemnitee shall request that such selection be made by the
Board, in which event the preceding sentence shall apply), and Indemnitee shall
give written notice to the Company advising it of the identity of the
Independent Counsel so selected in either event, Indemnitee or the Company, as
the case may be, may, within ten (10) days after such written notice of
selection shall have been given, deliver to the Company or to Indemnitee, as the
case may be, 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" as defined in section 17, and the
objection shall set forth with particularity the factual basis of such
assertion. If such written objection is so made and
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substantiated, the Independent Counsel so selected may not serve as Independent
Counsel unless and until such objection is withdrawn or a court has determined
that such objection is without merit. If, within twenty (20) days after
submission by Indemnitee of a written request for indemnification pursuant to
Section 8(a), no Independent Counsel shall have been selected and not objected
to, either the Company or Indemnitee may petition the Court of Chancery or other
court of competent jurisdiction for resolution of any objection which shall have
been made by the Company or Indemnitee to the other's selection of Independent
Counsel and/or for the appointment as Independent Counsel of a person selected
by the petitioned court or by such other person as the petitioned court shall
designate, and the person with respect to whom all objections are so resolved or
the person so appointed shall act as Independent Counsel under Section 8(b). The
Company shall pay any and all reasonable fees and expenses of Independent
Counsel incurred by such Independent Counsel in connection with acting pursuant
to Section 8(b), and the Company shall pay all reasonable fees and expenses
incident to the procedures of this Section 8(c), regardless of the manner in
which such Independent Counsel was selected and appointed. If (i) Independent
Counsel does not make any determination respecting Indemnitee's entitlement to
indemnification hereunder within ninety (90) days after receipt by the Company
of a written request therefor and (ii) any judicial proceeding or arbitration
pursuant to Section 10(a)(iii) hereof is then commenced, Independent Counsel
shall be discharged and relieved of any further responsibility in such capacity
(subject to the applicable standards of professional conduct then prevailing).
SECTION 9. Presumptions and Effect of Certain Proceedings.
(a) In making a determination with respect to entitlement to
indemnification hereunder, the Person, Persons or entity making such
determination shall presume that Indemnitee is entitled to indemnification under
this Agreement if Indemnitee has submitted a request for indemnification in
accordance with Section 8(a), and the Company shall have the burden of proof to
overcome that presumption in connection with the making by any person, persons
or entity of any determination contrary to that presumption.
(b) The termination of any Proceeding or of any claim, issue or matter
therein, by judgment, order, settlement or conviction, or on a plea of nolo
contendere or its equivalent, shall not (except as otherwise expressly provided
in this Agreement) 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 which he reasonably believed to be in or not opposed to
the best interests of the Company or, with respect to any criminal Proceeding,
that Indemnitee had reasonable cause to believe that his conduct was unlawful.
(c) Any action taken by Indemnitee in connection with any employee
benefit plan shall, if taken in good faith by Indemnitee and in a manner
Indemnitee reasonably believed to be in the interest of the participants in or
beneficiaries of that plan, be deemed to have been taken in a manner "not
opposed to the best interests of the Company" for all purposes of this
Agreement.
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SECTION 10. Remedies of Indemnitee.
(a) In the event that (i) a determination is made pursuant to Section
8 that Indemnitee is not entitled to indemnification hereunder, (ii) advancement
of Expenses is not timely made pursuant to Section 7, (iii) Independent Counsel
is to determine Indemnitee's entitlement to indemnification hereunder, but does
not make that determination within ninety (90) days after receipt by the Company
of the request for that indemnification, (iv) payment of indemnification is not
made pursuant to section 5 or 6 within ten (10) days after receipt by the
Company of a written request therefor or (v) payment of indemnification is not
made within ten (10) days after a determination has been made that Indemnitee is
entitled to indemnification, Indemnitee shall be entitled to an adjudication
from the Court of Chancery of his entitlement to such indemnification or
advancement of Expenses. Alternatively, Indemnitee, at his option, may seek an
award in arbitration to be conducted by a single arbitrator pursuant to the
Commercial Arbitration Rules of the American Arbitration Association. Indemnitee
shall commence such Proceeding seeking an adjudication or an award in
arbitration within one hundred eighty (180) days following the date on which
Indemnitee first has the right to commence such proceeding pursuant to this
Section 10(a); provided, however, that the foregoing clause shall not apply in
respect of a proceeding brought by Indemnitee to enforce his rights under
Section 5.
(b) In the event that a determination shall have been made pursuant to
Section 8(b) that Indemnitee is not entitled to indemnification, any judicial
proceeding or arbitration commenced pursuant to this Section 10 shall be
conducted in all respects as a de novo trial, or arbitration, on the merits and
Indemnitee shall not be prejudiced by reason of that adverse determination. In
any judicial proceeding or arbitration commenced pursuant to this section 10,
the Company shall have the burden of proving that Indemnitee is not entitled to
indemnification or advancement of Expenses, as the case may be.
(c) If a determination shall have been made pursuant to Section 8(b)
that Indemnitee is entitled to indemnification, the Company shall be bound by
such determination in any judicial proceeding or arbitration commenced pursuant
to this Section 10, absent (i) a misstatement by Indemnitee of a material fact,
or an omission by Indemnitee of a material fact necessary to make Indemnitee's
statement not materially misleading, in connection with the request for
indemnification, or (ii) a prohibition of such indemnification under applicable
law.
(d) In the event that Indemnitee, pursuant to this Section 10, seeks a
judicial adjudication of or an award in arbitration to enforce his rights under,
or to recover damages for breach of, this Agreement, Indemnitee shall be
entitled to recover from the Company, and shall be indemnified by the Company
against, any and all expenses (of the types described in the definition of
Expenses in Section 17) actually and reasonably incurred by him in such judicial
adjudication or arbitration, but only if he prevails therein. If it shall be
determined in said judicial adjudication or arbitration 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.
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<PAGE> 7
SECTION 11. Non-Exclusivity; Survival of Rights; Insurance;
Subrogation.
(a) The rights of indemnification and to receive advancement of
Expenses as provided by this Agreement shall not be deemed exclusive of any
other rights to which Indemnitee may at any time be entitled 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 Agreement or of any provision hereof shall limit or
restrict any right of Indemnitee under this Agreement in respect of any action
taken or omitted by such Indemnitee in his Corporate Status prior to such
amendment, alteration or repeal. To the extent that a change in Delaware law
(whether by statute or judicial decision) permits greater indemnification by
agreement than would be afforded currently under this Agreement, it is the
intent of the parties hereto that Indemnitee shall enjoy by this Agreement the
greater benefits so afforded by such change.
(b) To the extent that the Company maintains an insurance policy or
policies providing liability insurance for directors, officers, employees, or
agents of the Company or of any other corporation, partnership, joint venture,
trust, employee benefit plan or other enterprise which such person serves at the
request of the Company, Indemnitee shall be covered by such policy or policies
in accordance with its or their terms to the maximum extent of the coverage
available for any such director, Officer, employee or agent under such policy or
policies.
(c) In the event of any payment under this Agreement, the Company 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 necessary
to secure such rights, including execution of such documents as are necessary to
enable the Company to bring suit to enforce such rights.
(d) The Company shall not be liable under this Agreement to make any
payment of amounts otherwise indemnifiable hereunder if and to the extent that
Indemnitee has otherwise actually received such payment under any insurance
policy, contract, agreement or otherwise.
(e) The Company's obligation to indemnify or advance Expenses hereunder
to Indemnitee with respect to Indemnitee's service at the request of the Company
as a director, officer, employee or agent of any other corporation, partnership,
joint venture, trust, employee benefit plan or other enterprise shall be reduced
by any amount Indemnitee has actually received as indemnification or advancement
of Expenses from such other corporation, partnership, joint venture, trust,
employee benefit plan or other enterprise.
SECTION 12. Duration of Agreement. This Agreement shall continue until
and terminate upon the later of: (a) ten (10) years after the date that
Indemnitee shall have ceased to serve as a director or officer of the Company or
of any other corporation, partnership, joint venture, trust, employee benefit
plan or other enterprise which Indemnitee served on behalf of the Company; or
(b) the final termination of any Proceeding then pending in respect of which
Indemnitee is granted rights of indemnification or advancement of expenses
hereunder and of any Proceeding commenced by Indemnitee pursuant to Section 10
relating thereto. This Agreement shall be binding upon the Company and its
successors and assigns and shall inure to the benefit of Indemnitee and his
spouse
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(if Indemnitee resides in Texas or another community property state), heirs,
executors and administrators, and this Agreement does not, and shall not be
construed to confer any rights on any person that is not a party to this
Agreement, other than Indemnitee's spouse, and his heirs, executors and assigns.
SECTION 13. Severability. If any provision or provisions of this
Agreement shall be held to be invalid, illegal or unenforceable for any reason
whatsoever: (a) the validity, legality and enforceability of the remaining
provisions of this Agreement (including, without limitation, each portion of any
Section of this Agreement containing any such provision held to be invalid,
illegal or unenforceable which is not itself invalid, illegal or unenforceable)
shall not in any way be affected or impaired thereby; (b) such provision or
provisions shall be deemed reformed to the extent necessary to conform to
applicable law and to give the maximum effect to the intent of the parties
hereto; and (c) to the fullest extent possible, the provisions of this Agreement
(including. without limitation, each portion of any Section of this Agreement
containing any such provision held to be invalid, illegal or unenforceable which
is not itself invalid, illegal or unenforceable) shall be construed so as to
give effect to the intent manifested thereby.
SECTION 14. Exception to Right of Indemnification or Advancement of
Expenses. Notwithstanding any other provision hereof, Indemnitee shall not be
entitled to indemnification or advancement of Expenses under this Agreement with
respect to any Proceeding brought by Indemnitee or any claim therein prior to a
Change in Control, unless the bringing of such Proceeding or making of such
claim shall have been approved by the Board of Directors.
SECTION 15. Identical Counterparts. This Agreement may be executed in
one or more counterparts by means of original or facsimile signatures, each of
which shall for all purposes be deemed to be an original but all of which
together shall constitute one and the same Agreement. Only one such counterpart
signed by the party against whom enforceability is sought needs to be produced
to evidence the existence of this Agreement.
SECTION 16. Headings. The headings of the Sections hereof are inserted
for convenience only and shall not be deemed to constitute part of this
Agreement or to affect the construction thereof.
SECTION 17. Definitions. For purposes of this Agreement:
(a) "Acquiring Person" means any Person who or which,
together with all Affiliates and Associates of such Person, is or are
the Beneficial Owner of twenty-five percent (25%) or more of the shares
of Common Stock then outstanding, but does not include any Exempt
Person; provided, however, that a Person shall not be or become an
Acquiring Person if such Person, together with its Affiliates and
Associates, shall become the Beneficial Owner of twenty-five percent
(25%) or more of the shares of Common Stock then outstanding solely as
a result of a reduction in the number of shares of Common Stock
outstanding due to the repurchase of Common Stock by the Company,
unless and until such time as such Person or any Affiliate or Associate
of such Person shall purchase or otherwise become the
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Beneficial Owner of additional shares of Common Stock constituting one
percent (1%) or more of the then outstanding shares of Common Stock or
any other Person (or Persons) who is (or collectively are) the
Beneficial Owner of shares of Common Stock constituting one percent
(1%) or more of the then outstanding shares of Common Stock shall
become an Affiliate or Associate of such Person, unless, in either such
case, such Person, together with all Affiliates and Associates of such
Person, is not then the Beneficial Owner of twenty-five percent (25%)
or more of the shares of Common Stock then outstanding.
(b) "Affiliate" has the meaning ascribed to that term in
Exchange Act Rule 12b-2.
(c) "Associate" means, with reference to any Person, (i) any
corporation, firm, partnership, association, unincorporated
organization or other entity (other than the Company or a subsidiary of
the Company) of which that Person is an officer or general partner (or
officer or general partner of a general partner) or is, directly or
indirectly, the Beneficial owner of 10% or more of any class of its
equity securities, (ii) any trust or other estate in which that Person
has a substantial beneficial interest or for or of which that Person
serves as trustee or in a similar fiduciary capacity and (iii) any
relative or spouse of that Person, or any relative of that spouse, who
has the same home as that Person.
(d) A specified Person is deemed the "Beneficial Owner" of,
and is deemed to "beneficially own," any securities:
(i) of which that Person or any of that Person's
Affiliates or Associates, directly or indirectly, is the
"beneficial owner" (as determined pursuant to Exchange Act
Rule 13d-3) or otherwise has the right to vote or dispose of,
including pursuant to any agreement, arrangement or
understanding (whether or not in writing); provided, however,
that a Person shall not be deemed the "Beneficial Owner" of,
or to "beneficially own," any security under this subparagraph
as a result of an agreement, arrangement or understanding to
vote that security if that agreement, arrangement or
understanding: (A) arises solely from a revocable proxy or
consent given in response to a public (that is, not including
a solicitation exempted by Exchange Act Rule 14a-2(b)(2))
proxy or consent solicitation made pursuant to, and in
accordance with, the applicable provisions of the Exchange
Act; and (B) is not then reportable by such Person on Exchange
Act Schedule 13D (or any comparable or successor report);
(ii) which that Person or any of that Person's
Affiliates or Associates, directly or indirectly, has the
right or obligation to acquire (whether that right or
obligation is exercisable or effective immediately or only
after the passage of time or the occurrence of an event)
pursuant to any
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agreement, arrangement or understanding (whether or not in
writing) or on the exercise of conversion rights, exchange
rights, other rights, warrants or options, or otherwise;
provided, however, that a Person shall not be deemed the
"Beneficial Owner" of, or to "beneficially own," securities
tendered pursuant to a tender or exchange offer made by that
Person or any of that Person's Affiliates or Associates until
those tendered securities are accepted for purchase or
exchange; or
(iii) which are beneficially owned, directly or
indirectly, by (A) any other Person (or any Affiliate or
Associate thereof) with which the specified Person or any of
the specified Person's Affiliates or Associates has any
agreement, arrangement or understanding (whether or not in
writing) for the purpose of acquiring, holding, voting (except
pursuant to a revocable proxy or consent as described in the
proviso to subparagraph (i) of this definition) or disposing
of any voting securities of the Company or (B) any group (as
that term is used in Exchange Act Rule 13d-5(b)) of which that
specified Person is a member;
PROVIDED, HOWEVER, that nothing in this definition shall cause a Person engaged
in business as an underwriter of securities to be the "Beneficial Owner" of, or
to "beneficially own," any securities acquired through such Person's
participation in good faith in a firm commitment underwriting until the
expiration of forty (40) days after the date of that acquisition. For purposes
of this Agreement, "voting" a security shall include voting, granting a proxy,
acting by consent, making a request or demand relating to corporate action
(including, without limitation, calling a stockholder meeting) or otherwise
giving an authorization (within the meaning of Section 14(a) of the Exchange
Act) in respect of such security.
(e) "Change of Control" means the occurrence of any of the
following events that occurs after the Merger Closing Date: (i) any
Person becomes an Acquiring Person; (ii) at any time the then
Continuing Directors cease to constitute a majority of the members of
the Board; (iii) a merger of the Company with or into, or a sale by the
Company of its properties and assets substantially as an entirety to,
another Person occurs and, immediately after that occurrence, any
Person, other than an Exempt Person, together with all Affiliates and
Associates of such Person, shall be the Beneficial Owner of twenty-five
percent (25%) or more of the total voting power of the then outstanding
Voting Shares of the Person surviving that transaction (in the case or
a merger or consolidation) or the Person acquiring those properties and
assets substantially as an entirety.
(f) "Common Stock" means the common stock, par value $.001 per
share, of the Company.
(g) "Continuing Director" means at any time any individual
who then (i) is a member of the Board and was a member of the Board as
of the Merger Closing
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Date or whose nomination for his first election, or that first
election, to the Board following that date was recommended or approved
by a majority of the then Continuing Directors (acting separately or as
a part of any action taken by the Board or any committee thereof) and
(ii) is not an Acquiring Person, an Affiliate or Associate of an
Acquiring Person or a nominee or representative of an Acquiring Person
or of any such Affiliate or Associate.
(h) "Corporate Status" describes the status of a Person who is
or was a director, officer, employee or agent of the Company or of any
other corporation, partnership, joint venture, trust, employee benefit
plan or other enterprise which such person is or was serving at the
request of the Company. For purposes of this Agreement, "serving at the
request of the Company" includes any service by Indemnitee which
imposes duties on, or involves services by, Indemnitee with respect to
any employee benefit plan or its participants or beneficiaries.
(i) "Court of Chancery" means the Court of Chancery of the
State of Delaware.
(j) "Disinterested Director" means a director of the Company
who is not and was not a party to the Proceeding in respect of which
indemnification is sought by Indemnitee hereunder.
(k) "Exchange Act" means the Securities Exchange Act of 1934,
as amended.
(l) "Exempt Person" means (i), (A) the Company, any subsidiary
of the Company, any employee benefit plan of the Company or of any
subsidiary of the Company and (B) any Person organized, appointed or
established by the Company for or pursuant to the terms of any such
plan or for the purpose of funding any such plan or funding other
employee benefits for employees of the Company or any subsidiary of the
Company and (ii) Indemnitee, any Affiliate or Associate of Indemnitee
or any group (as that term is used in Exchange Act Rule 13d-5(b)) of
which Indemnitee or any Affiliate or Associate of Indemnitee is a
member.
(m) "Expenses" include all 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, all other disbursements or
expenses of the types customarily incurred in connection with
prosecuting, defending, preparing to prosecute or defend,
investigating, being or preparing to be a witness in, or otherwise
participating in, a Proceeding and all interest or finance charges
attributable to any thereof. Should any payments by the Company under
this Agreement be determined to be subject to any federal, state or
local income or excise tax, "Expenses" also shall include such amounts
as are necessary to place Indemnitee in the same after-tax position
(after giving effect to all
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applicable taxes) he would have been in had no such tax been determined
to apply to such payments.
(m) "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 past five (5) years has been, retained to
represent: (i) the Company, its Affiliates 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.
Notwithstanding the foregoing. the term "Independent Counsel" shall not
include any person who, under the applicable standards of professional
conduct then prevailing, would have a conflict of interest in
representing either the Company or Indemnitee in an action to determine
Indemnitee's rights under this Agreement.
(n) "Merger Closing Date" means September 1, 1998.
(o) "Person" means any natural person, sole proprietorship,
corporation, partnership of any kind having a separate legal status,
limited liability company, business trust, unincorporated organization
or association, mutual company, joint stock company, joint venture,
estate, trust, union or employee organization or governmental
authority.
(p) "Proceeding" includes any action, suit, alternate dispute
resolution mechanism, hearing or any other proceeding, whether civil,
criminal, administrative, arbitrative, investigative or mediative, any
appeal in any such action, suit, alternate dispute resolution
mechanism, hearing or other proceeding and any inquiry or investigation
that could lead to any such action, suit, alternate dispute resolution
mechanism, hearing or other proceeding, except one (i) initiated by an
Indemnitee pursuant to Section 10 to enforce his rights hereunder or
(ii) pending on or before the date of this Agreement.
(q) "Voting Shares" means: (i) in the case of any corporation,
stock of that corporation of the class or classes having general voting
power under ordinary circumstances to elect a majority of that
corporation's board of directors; and (ii) in the case of any other
entity, equity interests of the class or classes having general voting
power under ordinary circumstances equivalent to the Voting Shares of a
corporation.
SECTION 18. Modification and Waiver. No supplement, modification or
amendment of this Agreement shall be binding unless executed in writing by both
of the parties hereto. No waiver of any of the provisions of this Agreement
shall be deemed or shall constitute a waiver of any other provisions hereof
(whether or not similar) nor shall such waiver constitute a continuing waiver.
SECTION 19. Notice by Indemnitee. Indemnitee agrees promptly to notify
the Company in writing upon being served with any summons, citation, subpoena,
complaint, indictment, information
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or other document relating to any Proceeding or matter which may be subject to
indemnification or advancement of Expenses covered hereunder; provided, however,
failure to give such notice shall not deprive Indemnitee of his rights to
indemnification and advancement of Expenses under this Agreement unless the
Company is actually and materially prejudiced thereby.
SECTION 20. Notices. All notices, requests, demands and other
communications hereunder shall be in writing and shall be deemed to have been
duly given if (a) delivered by hand and receipted for by the party to whom said
notice or other communication shall have been directed or (b) mailed by
certified or registered mail with postage prepaid, on the third (3rd) business
day after the date on which it is so mailed:
(a) If to Indemnitee, to: P. O. Box 51205
Lafayette, LA 70505
Attention: Charles T. Goodson
(b) If to the Company, to: PetroQuest Energy, Inc.
625 E. Kaliste Saloom Rd., Suite 400
Lafayette, Louisiana 70508
Attention: Corporate Secretary
or to such other address as may have been furnished to Indemnitee by the Company
or to the Company by Indemnitee, as the case way be.
SECTION 21. Contribution. To the fullest extent permissible under
applicable law, if the indemnification provided for in this Agreement is
unavailable to Indemnitee for any reason whatsoever, the Company, in lieu of
indemnifying Indemnitee, shall contribute to the amount incurred by Indemnitee,
whether for judgments, fines, penalties, excise taxes, amounts paid or to be
paid in settlement and/or for Expenses, in connection with any claim relating to
an indemnifiable event under this Agreement, in such proportion as is deemed
fair and reasonable in light of all the circumstances of such Proceeding in
order to reflect: (a) the relative benefits received by the Company and
Indemnitee as a result of the event(s) and/or transaction(s) giving cause to
such Proceeding; and/or (b) the relative fault of the Company (and its
directors, officers, employees and agents) and Indemnitee in connection with
such event(s) and/or transaction(s).
SECTION 22. Governing Law; Submission to Jurisdiction. This Agreement
and the legal relations among the parties shall be governed by, and construed
and enforced in accordance with, the laws of the State of Delaware, without
regard to its conflict of laws rules. Except with respect to any arbitration
commenced by Indemnitee pursuant to Section 10(a), the Company and Indemnitee
hereby irrevocably and unconditionally (a) agree that any action or proceeding
arising
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out of or in connection with this Agreement shall be brought only in the Court
of Chancery and not in any other state or federal court in the United States of
America or any court in any other country, (b) consent to submit to the
exclusive jurisdiction of the Court of Chancery for purposes of any action or
proceeding arising out of or in connection with this Agreement, (c) waive any
objection to the laying of venue of any such action or proceeding in the Court
of Chancery, and (d) waive, and agree not to plead or to make, any claim that
any such action or proceeding brought in the Court of Chancery has been brought
in an improper or otherwise inconvenient forum.
SECTION 23. Miscellaneous. Use of the masculine pronoun shall be deemed
to include usage of the feminine pronoun where appropriate. When used in this
Agreement, the words "herein," "hereof" and words of similar import shall refer
to this Agreement as a whole and not to any provision of this Agreement, and the
word "Section" refers to a Section of this Agreement, unless otherwise
specified.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
the day and year first above written.
PETROQUEST ENERGY, INC.
By: /s/ ROBERT R. BROOKSHER
-----------------------------------------
Name: ROBERT R. BROOKSHER
Title: CHIEF FINANCIAL OFFICER
INDEMNITEE
/s/ CHARLES T. GOODSON
---------------------------------------------
CHARLES T. GOODSON
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EXHIBIT 10.12
INDEMNIFICATION AGREEMENT
This Indemnification Agreement is entered into and effective as of the
16th day of December, 1998 ("Agreement"), by and between PetroQuest Energy,
Inc., a Delaware corporation ("Company"), and Alfred J Thomas, II
("Indemnitee"):
WHEREAS, highly competent persons have become more reluctant to serve
corporations as directors, executive officers or in other capacities unless they
are provided, with adequate protection through insurance or adequate
indemnification against inordinate risks of claims and actions against them
arising out of their service to, and activities on behalf of, the corporation;
WHEREAS, the Board of Directors of the Company (the "Board") has
determined that, in order to attract and retain qualified individuals, the
Company will attempt to maintain on an ongoing basis, at its sole expense,
liability insurance to protect persons' serving the Company and its subsidiaries
from certain liabilities. Although the furnishing of such insurance has been a
customary and widespread practice among United States-based corporations and
other business enterprises, the Company believes that, given current market
conditions and trends, such insurance may be available to it in the future only
at higher premiums and with more exclusions. At the same time, directors,
officers and other persons in service to corporations or business enterprises
are being increasingly subjected to expensive and time-consuming litigation
relating to, among other things, matters that traditionally would have been
brought only against the corporation or business enterprise itself;
WHEREAS, the uncertainties relating to such insurance and to
indemnification have increased the difficulty of attracting and retaining such
persons;
WHEREAS, the Board has determined that the increased difficulty in
attracting and retaining such persons is detrimental to the best interests of
the Company's stockholders and that the Company should act to assure such
persons that there will be increased certainty of such protection in the future;
WHEREAS, it is reasonable, prudent and necessary for the Company
contractually to obligate itself to indemnify such persons to the fullest extent
permitted by applicable law so that they will serve or continue to serve the
Company free from undue concern that they will not be so indemnified; and
WHEREAS, Indemnitee is willing to serve, continue to serve and to take
on additional service for or on behalf of the Company on the condition that he
be so indemnified;
NOW, THEREFORE, in consideration of the premises and the covenants
contained herein, the Company and Indemnitee do hereby covenant and agree as
follows:
SECTION 1. Services by Indemnitee. Indemnitee agrees to serve as a
director/executive officer of the Company and, as mutually agreed by Indemnitee
and the Company, as a director,
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officer, employee, agent or fiduciary of other corporations, partnerships, joint
ventures, trusts or other enterprises (including, without limitation, employee
benefit plans). Indemnitee may at any time and for any reason resign from any
such position (subject to any other contractual obligation or any obligation
imposed by operation of law), in which event the Company shall have no
obligation under this Agreement to continue Indemnitee in that position. This
Agreement shall not be deemed an employment contract between the Company (or any
of its subsidiaries) and Indemnitee. Indemnitee specifically acknowledges that
Indemnitee's employment with the Company (or any of its subsidiaries), if any,
is at will, and the Indemnitee may be discharged at any time for any reason,
with or without cause, except as may be otherwise provided in any written
employment contract between Indemnitee and the Company (or any of its
subsidiaries), other applicable formal severance policies duly adopted by the
Board or, with respect to service as a director of the Company, by the Company's
Certificate of incorporation, Bylaws and the General Corporation Law of the
State of Delaware. Notwithstanding, the foregoing, this Agreement shall continue
in force after Indemnitee has ceased to serve as an officer or director of the
Company and no longer serves at the request of the Company as a director,
officer, employee or agent of the Company or any subsidiary of the Company.
SECTION 2. Indemnification--General. The Company shall indemnify, and
advance Expenses (as hereinafter defined) to, Indemnitee (a) as provided in this
Agreement and (b) to the fullest extent permitted by applicable law in effect on
the date hereof and as amended from time to time. The rights of Indemnitee
provided under the preceding sentence shall include, but shall not be limited
to, the rights set forth in the other Sections of this Agreement.
SECTION 3. Proceedings Other than Proceedings by or in the Right of the
Company. Indemnitee shall be entitled to the rights of indemnification provided
in Section 2 and this Section 3 if, by reason of his Corporate Status (as
hereinafter defined), he is, or is threatened to be made, a party to or a
participant in any threatened, pending, or completed Proceeding (as hereinafter
defined), other than a Proceeding by or in the right of the Company. Pursuant to
this Section 3, the Company shall indemnify Indemnitee against, and shall hold
Indemnitee harmless from and in respect of, all Expenses, judgments, penalties,
fines (including excise taxes) and amounts paid in settlement (including all
interest, assessments and other charges paid or payable in connection with or in
respect of such Expenses, judgments, fines, penalties or amounts paid in
settlement) actually and reasonably incurred by him or on his behalf in
connection with such Proceeding or any claim, issue or matter therein, if he
acted in good faith and in a manner he reasonably believed to be in or not
opposed to the best interests of the Company and, with respect to any criminal
Proceeding, had no reasonable cause to believe his conduct was unlawful.
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SECTION 4. Proceedings by or in the Right of the Company. Indemnitee
shall be entitled to the rights of indemnification provided in Section 2 and
this Section 4 if, by reason of his Corporate Status, he is, or is threatened to
be made, a party to or a participant in any threatened, pending or completed
Proceeding brought by or in the right of the Company to procure a judgment in
its favor. Pursuant to this Section 4, the Company shall indemnify Indemnitee
against, and shall hold Indemnitee harmless from and in respect of, all Expenses
actually and reasonably incurred by him or on his behalf in connection with, and
any amounts paid in settlement of, such Proceeding if he acted in good faith and
in a manner he reasonably believed to be in or not opposed to the best interests
of the Company. Notwithstanding the foregoing, no indemnification against such
Expenses shall be made in respect of any claim, issue or matter in such
Proceeding as to which Indemnitee shall have been adjudged to be liable to the
Company if applicable law prohibits such indemnification; provided, however, if
applicable law so permits, indemnification against such Expenses shall
nevertheless be made by the Company in such event if and only to the extent that
the Court of Chancery of the State of Delaware, or the court in which such
Proceeding shall have been brought or is pending, shall determine.
SECTION 5. Indemnification for Expenses of a Party Who Is Wholly or
Partly Successful. Notwithstanding any other provision of this Agreement, to the
extent that Indemnitee is, by reason of his Corporate Status, a party to (or a
participant in) and is successful, on the merits or otherwise, in defense of 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 defense of such Proceeding but is successful, on the merits
or otherwise, as to one or more but less than all claims, issues or matters in
such Proceeding, the Company shall indemnify Indemnitee against all Expenses
actually and reasonably incurred by him or on his behalf in connection with each
successfully resolved claim, issue or matter. For purposes of this Section and
without limitation, the termination of any claim, issue or matter in such a
Proceeding by dismissal, with or without prejudice, shall be deemed to be a
successful result as to such claim, issue or matter.
SECTION 6. Indemnification for Expenses as a Witness. Notwithstanding
any other provision of this Agreement, to the extent that Indemnitee is, by
reason of his Corporate Status, a witness in any Proceeding to which Indemnitee
is not a party, he shall be indemnified against all Expenses actually and
reasonably incurred by him or on his behalf in connection therewith.
SECTION 7. Advancement of Expenses. The Company shall advance all
reasonable Expenses incurred by or on behalf of Indemnitee in connection with
any Proceeding within ten (10) days after the receipt by the Company of a
statement or statements from Indemnitee requesting such advance or advances from
time to time, whether prior to or after final disposition of such Proceeding.
Such statement or statements shall reasonably evidence the Expenses incurred by
Indemnitee and shall include or be preceded or accompanied by an undertaking by
or on behalf of Indemnitee to repay any Expenses advanced if it ultimately shall
be determined, in accordance with this Agreement, that Indemnitee is not
entitled to be indemnified against such Expenses.
SECTION 8. Procedure for Determination of Entitlement to
Indemnification.
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(a) To obtain indemnification under this Agreement, Indemnitee shall
submit to the Company a written request, including therein or therewith such
documentation and information as is reasonably available to Indemnitee and is
reasonably necessary to determine whether and to what extent Indemnitee is
entitled to indemnification. The Secretary of the Company shall, promptly upon
receipt of such a request for indemnification, advise the Board in writing that
Indemnitee has requested indemnification.
(b) On written request by Indemnitee for indemnification pursuant to
the first sentence of Section 8(a), a determination, if required by applicable
law, with respect to Indemnitee's entitlement thereto shall be made in the
specific case: (i) if a Change in Control (as hereinafter defined) shall have
occurred within two (2) years prior to the date of such written request, by
Independent Counsel (as hereinafter defined) in a written opinion to the Board,
a copy of which shall be delivered to Indemnitee; or (ii) if a Change of Control
shall not have occurred within two (2) years prior to the date of such written
request, (A) by a majority vote of the Disinterested Directors (as hereinafter
defined), even though less than a quorum of the Board, or (B) if there are no
such Disinterested Directors, or if such Disinterested Directors so direct, by
Independent Counsel in a written opinion to the Board, a copy of which shall be
delivered to Indemnitee; and, if it is so determined that Indemnitee is entitled
to indemnification, payment to Indemnitee shall be made within ten (10) days
after such determination. Indemnitee shall cooperate with the person, persons or
entity making such determination with respect to Indemnitee's entitlement to
indemnification, including providing to such person, persons or entity on
reasonable advance request any documentation or information which is not
privileged or otherwise protected from disclosure and which is reasonably
available to Indemnitee and reasonably necessary to such determination. Any
costs or expenses (including attorneys' fees and disbursements) incurred by
Indemnitee in so cooperating with the person, persons or entity making such
determination shall be borne by the Company (irrespective of the determination
as to Indemnitee's entitlement to indemnification) and the Company hereby
indemnifies and agrees to hold Indemnitee harmless therefrom.
(c) In the event the determination of entitlement to indemnification
is to be made by Independent Counsel pursuant to Section 8(b), the Independent
Counsel shall be selected as provided in this Section 8(c). If a Change of
Control shall not have occurred within two (2) years prior to the date of
Indemnitee's written request for indemnification pursuant to Section 8(a), the
Independent Counsel shall be selected by the Board, and the Company shall give
written notice to Indemnitee advising him of the identity of the Independent
Counsel so selected. If a Change of Control shall have occurred within two (2)
years prior to the date of Indemnitee's written request for indemnification
pursuant to Section 8(a), the Independent Counsel shall be selected by
Indemnitee (unless Indemnitee shall request that such selection be made by the
Board, in which event the preceding sentence shall apply), and Indemnitee shall
give written notice to the Company advising it of the identity of the
Independent Counsel so selected in either event, Indemnitee or the Company, as
the case may be, may, within ten (10) days after such written notice of
selection shall have been given, deliver to the Company or to Indemnitee, as the
case may be, 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" as defined in section 17, and the
objection shall set forth with particularity the factual basis of such
assertion. If such written objection is so made and
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substantiated, the Independent Counsel so selected may not serve as Independent
Counsel unless and until such objection is withdrawn or a court has determined
that such objection is without merit. If, within twenty (20) days after
submission by Indemnitee of a written request for indemnification pursuant to
Section 8(a), no Independent Counsel shall have been selected and not objected
to, either the Company or Indemnitee may petition the Court of Chancery or other
court of competent jurisdiction for resolution of any objection which shall have
been made by the Company or Indemnitee to the other's selection of Independent
Counsel and/or for the appointment as Independent Counsel of a person selected
by the petitioned court or by such other person as the petitioned court shall
designate, and the person with respect to whom all objections are so resolved or
the person so appointed shall act as Independent Counsel under Section 8(b). The
Company shall pay any and all reasonable fees and expenses of Independent
Counsel incurred by such Independent Counsel in connection with acting pursuant
to Section 8(b), and the Company shall pay all reasonable fees and expenses
incident to the procedures of this Section 8(c), regardless of the manner in
which such Independent Counsel was selected and appointed. If (i) Independent
Counsel does not make any determination respecting Indemnitee's entitlement to
indemnification hereunder within ninety (90) days after receipt by the Company
of a written request therefor and (ii) any judicial proceeding or arbitration
pursuant to Section 10(a)(iii) hereof is then commenced, Independent Counsel
shall be discharged and relieved of any further responsibility in such capacity
(subject to the applicable standards of professional conduct then prevailing).
SECTION 9. Presumptions and Effect of Certain Proceedings.
(a) In making a determination with respect to entitlement to
indemnification hereunder, the Person, Persons or entity making such
determination shall presume that Indemnitee is entitled to indemnification under
this Agreement if Indemnitee has submitted a request for indemnification in
accordance with Section 8(a), and the Company shall have the burden of proof to
overcome that presumption in connection with the making by any person, persons
or entity of any determination contrary to that presumption.
(b) The termination of any Proceeding or of any claim, issue or matter
therein, by judgment, order, settlement or conviction, or on a plea of nolo
contendere or its equivalent, shall not (except as otherwise expressly provided
in this Agreement) 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 which he reasonably believed to be in or not opposed to
the best interests of the Company or, with respect to any criminal Proceeding,
that Indemnitee had reasonable cause to believe that his conduct was unlawful.
(c) Any action taken by Indemnitee in connection with any employee
benefit plan shall, if taken in good faith by Indemnitee and in a manner
Indemnitee reasonably believed to be in the interest of the participants in or
beneficiaries of that plan, be deemed to have been taken in a manner "not
opposed to the best interests of the Company" for all purposes of this
Agreement.
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SECTION 10. Remedies of Indemnitee.
(a) In the event that (i) a determination is made pursuant to Section
8 that Indemnitee is not entitled to indemnification hereunder, (ii) advancement
of Expenses is not timely made pursuant to Section 7, (iii) Independent Counsel
is to determine Indemnitee's entitlement to indemnification hereunder, but does
not make that determination within ninety (90) days after receipt by the Company
of the request for that indemnification, (iv) payment of indemnification is not
made pursuant to section 5 or 6 within ten (10) days after receipt by the
Company of a written request therefor or (v) payment of indemnification is not
made within ten (10) days after a determination has been made that Indemnitee is
entitled to indemnification, Indemnitee shall be entitled to an adjudication
from the Court of Chancery of his entitlement to such indemnification or
advancement of Expenses. Alternatively, Indemnitee, at his option, may seek an
award in arbitration to be conducted by a single arbitrator pursuant to the
Commercial Arbitration Rules of the American Arbitration Association. Indemnitee
shall commence such Proceeding seeking an adjudication or an award in
arbitration within one hundred eighty (180) days following the date on which
Indemnitee first has the right to commence such proceeding pursuant to this
Section 10(a); provided, however, that the foregoing clause shall not apply in
respect of a proceeding brought by Indemnitee to enforce his rights under
Section 5.
(b) In the event that a determination shall have been made pursuant to
Section 8(b) that Indemnitee is not entitled to indemnification, any judicial
proceeding or arbitration commenced pursuant to this Section 10 shall be
conducted in all respects as a de novo trial, or arbitration, on the merits and
Indemnitee shall not be prejudiced by reason of that adverse determination. In
any judicial proceeding or arbitration commenced pursuant to this section 10,
the Company shall have the burden of proving that Indemnitee is not entitled to
indemnification or advancement of Expenses, as the case may be.
(c) If a determination shall have been made pursuant to Section 8(b)
that Indemnitee is entitled to indemnification, the Company shall be bound by
such determination in any judicial proceeding or arbitration commenced pursuant
to this Section 10, absent (i) a misstatement by Indemnitee of a material fact,
or an omission by Indemnitee of a material fact necessary to make Indemnitee's
statement not materially misleading, in connection with the request for
indemnification, or (ii) a prohibition of such indemnification under applicable
law.
(d) In the event that Indemnitee, pursuant to this Section 10, seeks a
judicial adjudication of or an award in arbitration to enforce his rights under,
or to recover damages for breach of, this Agreement, Indemnitee shall be
entitled to recover from the Company, and shall be indemnified by the Company
against, any and all expenses (of the types described in the definition of
Expenses in Section 17) actually and reasonably incurred by him in such judicial
adjudication or arbitration, but only if he prevails therein. If it shall be
determined in said judicial adjudication or arbitration 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.
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SECTION 11. Non-Exclusivity; Survival of Rights; Insurance;
Subrogation.
(a) The rights of indemnification and to receive advancement of
Expenses as provided by this Agreement shall not be deemed exclusive of any
other rights to which Indemnitee may at any time be entitled 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 Agreement or of any provision hereof shall limit or
restrict any right of Indemnitee under this Agreement in respect of any action
taken or omitted by such Indemnitee in his Corporate Status prior to such
amendment, alteration or repeal. To the extent that a change in Delaware law
(whether by statute or judicial decision) permits greater indemnification by
agreement than would be afforded currently under this Agreement, it is the
intent of the parties hereto that Indemnitee shall enjoy by this Agreement the
greater benefits so afforded by such change.
(b) To the extent that the Company maintains an insurance policy or
policies providing liability insurance for directors, officers, employees, or
agents of the Company or of any other corporation, partnership, joint venture,
trust, employee benefit plan or other enterprise which such person serves at the
request of the Company, Indemnitee shall be covered by such policy or policies
in accordance with its or their terms to the maximum extent of the coverage
available for any such director, Officer, employee or agent under such policy or
policies.
(c) In the event of any payment under this Agreement, the Company 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 necessary
to secure such rights, including execution of such documents as are necessary to
enable the Company to bring suit to enforce such rights.
(d) The Company shall not be liable under this Agreement to make any
payment of amounts otherwise indemnifiable hereunder if and to the extent that
Indemnitee has otherwise actually received such payment under any insurance
policy, contract, agreement or otherwise.
(e) The Company's obligation to indemnify or advance Expenses hereunder
to Indemnitee with respect to Indemnitee's service at the request of the Company
as a director, officer, employee or agent of any other corporation, partnership,
joint venture, trust, employee benefit plan or other enterprise shall be reduced
by any amount Indemnitee has actually received as indemnification or advancement
of Expenses from such other corporation, partnership, joint venture, trust,
employee benefit plan or other enterprise.
SECTION 12. Duration of Agreement. This Agreement shall continue until
and terminate upon the later of: (a) ten (10) years after the date that
Indemnitee shall have ceased to serve as a director or officer of the Company or
of any other corporation, partnership, joint venture, trust, employee benefit
plan or other enterprise which Indemnitee served on behalf of the Company; or
(b) the final termination of any Proceeding then pending in respect of which
Indemnitee is granted rights of indemnification or advancement of expenses
hereunder and of any Proceeding commenced by Indemnitee pursuant to Section 10
relating thereto. This Agreement shall be binding upon the Company and its
successors and assigns and shall inure to the benefit of Indemnitee and his
spouse
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(if Indemnitee resides in Texas or another community property state), heirs,
executors and administrators, and this Agreement does not, and shall not be
construed to confer any rights on any person that is not a party to this
Agreement, other than Indemnitee's spouse, and his heirs, executors and assigns.
SECTION 13. Severability. If any provision or provisions of this
Agreement shall be held to be invalid, illegal or unenforceable for any reason
whatsoever: (a) the validity, legality and enforceability of the remaining
provisions of this Agreement (including, without limitation, each portion of any
Section of this Agreement containing any such provision held to be invalid,
illegal or unenforceable which is not itself invalid, illegal or unenforceable)
shall not in any way be affected or impaired thereby; (b) such provision or
provisions shall be deemed reformed to the extent necessary to conform to
applicable law and to give the maximum effect to the intent of the parties
hereto; and (c) to the fullest extent possible, the provisions of this Agreement
(including. without limitation, each portion of any Section of this Agreement
containing any such provision held to be invalid, illegal or unenforceable which
is not itself invalid, illegal or unenforceable) shall be construed so as to
give effect to the intent manifested thereby.
SECTION 14. Exception to Right of Indemnification or Advancement of
Expenses. Notwithstanding any other provision hereof, Indemnitee shall not be
entitled to indemnification or advancement of Expenses under this Agreement with
respect to any Proceeding brought by Indemnitee or any claim therein prior to a
Change in Control, unless the bringing of such Proceeding or making of such
claim shall have been approved by the Board of Directors.
SECTION 15. Identical Counterparts. This Agreement may be executed in
one or more counterparts by means of original or facsimile signatures, each of
which shall for all purposes be deemed to be an original but all of which
together shall constitute one and the same Agreement. Only one such counterpart
signed by the party against whom enforceability is sought needs to be produced
to evidence the existence of this Agreement.
SECTION 16. Headings. The headings of the Sections hereof
are inserted for convenience only and shall not be deemed to constitute
part of this Agreement or to affect the construction thereof.
SECTION 17. Definitions. For purposes of this Agreement:
(a) "Acquiring Person" means any Person who or which,
together with all Affiliates and Associates of such Person, is or are
the Beneficial Owner of twenty-five percent (25%) or more of the shares
of Common Stock then outstanding, but does not include any Exempt
Person; provided, however, that a Person shall not be or become an
Acquiring Person if such Person, together with its Affiliates and
Associates, shall become the Beneficial Owner of twenty-five percent
(25%) or more of the shares of Common Stock then outstanding solely as
a result of a reduction in the number of shares of Common Stock
outstanding due to the repurchase of Common Stock by the Company,
unless and until such time as such Person or any Affiliate or Associate
of such Person shall purchase or otherwise become the
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Beneficial Owner of additional shares of Common Stock constituting one
percent (1%) or more of the then outstanding shares of Common Stock or
any other Person (or Persons) who is (or collectively are) the
Beneficial Owner of shares of Common Stock constituting one percent
(1%) or more of the then outstanding shares of Common Stock shall
become an Affiliate or Associate of such Person, unless, in either such
case, such Person, together with all Affiliates and Associates of such
Person, is not then the Beneficial Owner of twenty-five percent (25%)
or more of the shares of Common Stock then outstanding.
(b) "Affiliate" has the meaning ascribed to that term in
Exchange Act Rule 12b-2.
(c) "Associate" means, with reference to any Person, (i) any
corporation, firm, partnership, association, unincorporated
organization or other entity (other than the Company or a subsidiary of
the Company) of which that Person is an officer or general partner (or
officer or general partner of a general partner) or is, directly or
indirectly, the Beneficial owner of 10% or more of any class of its
equity securities, (ii) any trust or other estate in which that Person
has a substantial beneficial interest or for or of which that Person
serves as trustee or in a similar fiduciary capacity and (iii) any
relative or spouse of that Person, or any relative of that spouse, who
has the same home as that Person.
(d) A specified Person is deemed the "Beneficial Owner" of,
and is deemed to "beneficially own," any securities:
(i) of which that Person or any of that Person's
Affiliates or Associates, directly or indirectly, is the
"beneficial owner" (as determined pursuant to Exchange Act
Rule 13d-3) or otherwise has the right to vote or dispose of,
including pursuant to any agreement, arrangement or
understanding (whether or not in writing); provided, however,
that a Person shall not be deemed the "Beneficial Owner" of,
or to "beneficially own," any security under this subparagraph
as a result of an agreement, arrangement or understanding to
vote that security if that agreement, arrangement or
understanding: (A) arises solely from a revocable proxy or
consent given in response to a public (that is, not including
a solicitation exempted by Exchange Act Rule 14a-2(b)(2))
proxy or consent solicitation made pursuant to, and in
accordance with, the applicable provisions of the Exchange
Act; and (B) is not then reportable by such Person on Exchange
Act Schedule 13D (or any comparable or successor report);
(ii) which that Person or any of that Person's
Affiliates or Associates, directly or indirectly, has the
right or obligation to acquire (whether that right or
obligation is exercisable or effective immediately or only
after the passage of time or the occurrence of an event)
pursuant to any
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agreement, arrangement or understanding (whether or not in
writing) or on the exercise of conversion rights, exchange
rights, other rights, warrants or options, or otherwise;
provided, however, that a Person shall not be deemed the
"Beneficial Owner" of, or to "beneficially own," securities
tendered pursuant to a tender or exchange offer made by that
Person or any of that Person's Affiliates or Associates until
those tendered securities are accepted for purchase or
exchange; or
(iii) which are beneficially owned, directly or
indirectly, by (A) any other Person (or any Affiliate or
Associate thereof) with which the specified Person or any of
the specified Person's Affiliates or Associates has any
agreement, arrangement or understanding (whether or not in
writing) for the purpose of acquiring, holding, voting (except
pursuant to a revocable proxy or consent as described in the
proviso to subparagraph (i) of this definition) or disposing
of any voting securities of the Company or (B) any group (as
that term is used in Exchange Act Rule 13d-5(b)) of which that
specified Person is a member;
PROVIDED, HOWEVER, that nothing in this definition shall cause a Person engaged
in business as an underwriter of securities to be the "Beneficial Owner" of, or
to "beneficially own," any securities acquired through such Person's
participation in good faith in a firm commitment underwriting until the
expiration of forty (40) days after the date of that acquisition. For purposes
of this Agreement, "voting" a security shall include voting, granting a proxy,
acting by consent, making a request or demand relating to corporate action
(including, without limitation, calling a stockholder meeting) or otherwise
giving an authorization (within the meaning of Section 14(a) of the Exchange
Act) in respect of such security.
(e) "Change of Control" means the occurrence of any of the
following events that occurs after the Merger Closing Date: (i) any
Person becomes an Acquiring Person; (ii) at any time the then
Continuing Directors cease to constitute a majority of the members of
the Board; (iii) a merger of the Company with or into, or a sale by the
Company of its properties and assets substantially as an entirety to,
another Person occurs and, immediately after that occurrence, any
Person, other than an Exempt Person, together with all Affiliates and
Associates of such Person, shall be the Beneficial Owner of twenty-five
percent (25%) or more of the total voting power of the then outstanding
Voting Shares of the Person surviving that transaction (in the case or
a merger or consolidation) or the Person acquiring those properties and
assets substantially as an entirety.
(f) "Common Stock" means the common stock, par value $.001 per
share, of the Company.
(g) "Continuing Director" means at any time any individual
who then (i) is a member of the Board and was a member of the Board as
of the Merger Closing
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Date or whose nomination for his first election, or that first
election, to the Board following that date was recommended or approved
by a majority of the then Continuing Directors (acting separately or as
a part of any action taken by the Board or any committee thereof) and
(ii) is not an Acquiring Person, an Affiliate or Associate of an
Acquiring Person or a nominee or representative of an Acquiring Person
or of any such Affiliate or Associate.
(h) "Corporate Status" describes the status of a Person who is
or was a director, officer, employee or agent of the Company or of any
other corporation, partnership, joint venture, trust, employee benefit
plan or other enterprise which such person is or was serving at the
request of the Company. For purposes of this Agreement, "serving at the
request of the Company" includes any service by Indemnitee which
imposes duties on, or involves services by, Indemnitee with respect to
any employee benefit plan or its participants or beneficiaries.
(i) "Court of Chancery" means the Court of Chancery of the
State of Delaware.
(j) "Disinterested Director" means a director of the Company
who is not and was not a party to the Proceeding in respect of which
indemnification is sought by Indemnitee hereunder.
(k) "Exchange Act" means the Securities Exchange Act of 1934,
as amended.
(l) "Exempt Person" means (i), (A) the Company, any subsidiary
of the Company, any employee benefit plan of the Company or of any
subsidiary of the Company and (B) any Person organized, appointed or
established by the Company for or pursuant to the terms of any such
plan or for the purpose of funding any such plan or funding other
employee benefits for employees of the Company or any subsidiary of the
Company and (ii) Indemnitee, any Affiliate or Associate of Indemnitee
or any group (as that term is used in Exchange Act Rule 13d-5(b)) of
which Indemnitee or any Affiliate or Associate of Indemnitee is a
member.
(m) "Expenses" include all 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, all other disbursements or
expenses of the types customarily incurred in connection with
prosecuting, defending, preparing to prosecute or defend,
investigating, being or preparing to be a witness in, or otherwise
participating in, a Proceeding and all interest or finance charges
attributable to any thereof. Should any payments by the Company under
this Agreement be determined to be subject to any federal, state or
local income or excise tax, "Expenses" also shall include such amounts
as are necessary to place Indemnitee in the same after-tax position
(after giving effect to all
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applicable taxes) he would have been in had no such tax been determined
to apply to such payments.
(m) "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 past five (5) years has been, retained to
represent: (i) the Company, its Affiliates 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.
Notwithstanding the foregoing. the term "Independent Counsel" shall not
include any person who, under the applicable standards of professional
conduct then prevailing, would have a conflict of interest in
representing either the Company or Indemnitee in an action to determine
Indemnitee's rights under this Agreement.
(n) "Merger Closing Date" means September 1, 1998.
(o) "Person" means any natural person, sole proprietorship,
corporation, partnership of any kind having a separate legal status,
limited liability company, business trust, unincorporated organization
or association, mutual company, joint stock company, joint venture,
estate, trust, union or employee organization or governmental
authority.
(p) "Proceeding" includes any action, suit, alternate dispute
resolution mechanism, hearing or any other proceeding, whether civil,
criminal, administrative, arbitrative, investigative or mediative, any
appeal in any such action, suit, alternate dispute resolution
mechanism, hearing or other proceeding and any inquiry or investigation
that could lead to any such action, suit, alternate dispute resolution
mechanism, hearing or other proceeding, except one (i) initiated by an
Indemnitee pursuant to Section 10 to enforce his rights hereunder or
(ii) pending on or before the date of this Agreement.
(q) "Voting Shares" means: (i) in the case of any corporation,
stock of that corporation of the class or classes having general voting
power under ordinary circumstances to elect a majority of that
corporation's board of directors; and (ii) in the case of any other
entity, equity interests of the class or classes having general voting
power under ordinary circumstances equivalent to the Voting Shares of a
corporation.
SECTION 18. Modification and Waiver. No supplement, modification or
amendment of this Agreement shall be binding unless executed in writing by both
of the parties hereto. No waiver of any of the provisions of this Agreement
shall be deemed or shall constitute a waiver of any other provisions hereof
(whether or not similar) nor shall such waiver constitute a continuing waiver.
SECTION 19. Notice by Indemnitee. Indemnitee agrees promptly to notify
the Company in writing upon being served with any summons, citation, subpoena,
complaint, indictment, information
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or other document relating to any Proceeding or matter which may be subject to
indemnification or advancement of Expenses covered hereunder; provided, however,
failure to give such notice shall not deprive Indemnitee of his rights to
indemnification and advancement of Expenses under this Agreement unless the
Company is actually and materially prejudiced thereby.
SECTION 20. Notices. All notices, requests, demands and other
communications hereunder shall be in writing and shall be deemed to have been
duly given if (a) delivered by hand and receipted for by the party to whom said
notice or other communication shall have been directed or (b) mailed by
certified or registered mail with postage prepaid, on the third (3rd) business
day after the date on which it is so mailed:
(a) If to Indemnitee, to: P. O. Box 51205
Lafayette, LA 70505
Attention: Alfred J. Thomas, II
(b) If to the Company, to: PetroQuest Energy, Inc.
625 E. Kaliste Saloom Rd., Suite 400
Lafayette, Louisiana 70508
Attention: Corporate Secretary
or to such other address as may have been furnished to Indemnitee by the Company
or to the Company by Indemnitee, as the case way be.
SECTION 21. Contribution. To the fullest extent permissible under
applicable law, if the indemnification provided for in this Agreement is
unavailable to Indemnitee for any reason whatsoever, the Company, in lieu of
indemnifying Indemnitee, shall contribute to the amount incurred by Indemnitee,
whether for judgments, fines, penalties, excise taxes, amounts paid or to be
paid in settlement and/or for Expenses, in connection with any claim relating to
an indemnifiable event under this Agreement, in such proportion as is deemed
fair and reasonable in light of all the circumstances of such Proceeding in
order to reflect: (a) the relative benefits received by the Company and
Indemnitee as a result of the event(s) and/or transaction(s) giving cause to
such Proceeding; and/or (b) the relative fault of the Company (and its
directors, officers, employees and agents) and Indemnitee in connection with
such event(s) and/or transaction(s).
SECTION 22. Governing Law; Submission to Jurisdiction. This Agreement
and the legal relations among the parties shall be governed by, and construed
and enforced in accordance with, the laws of the State of Delaware, without
regard to its conflict of laws rules. Except with respect to any arbitration
commenced by Indemnitee pursuant to Section 10(a), the Company and Indemnitee
hereby irrevocably and unconditionally (a) agree that any action or proceeding
arising
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out of or in connection with this Agreement shall be brought only in the Court
of Chancery and not in any other state or federal court in the United States of
America or any court in any other country, (b) consent to submit to the
exclusive jurisdiction of the Court of Chancery for purposes of any action or
proceeding arising out of or in connection with this Agreement, (c) waive any
objection to the laying of venue of any such action or proceeding in the Court
of Chancery, and (d) waive, and agree not to plead or to make, any claim that
any such action or proceeding brought in the Court of Chancery has been brought
in an improper or otherwise inconvenient forum.
SECTION 23. Miscellaneous. Use of the masculine pronoun shall be deemed
to include usage of the feminine pronoun where appropriate. When used in this
Agreement, the words "herein," "hereof" and words of similar import shall refer
to this Agreement as a whole and not to any provision of this Agreement, and the
word "Section" refers to a Section of this Agreement, unless otherwise
specified.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
the day and year first above written.
PETROQUEST ENERGY, INC.
By: /s/ CHARLES T. GOODSON
-----------------------------------------
Name: CHARLES T. GOODSON
Title: PRESIDENT & CEO
INDEMNITEE
/S/ ALFRED J. THOMAS, II
---------------------------------------------
ALFRED J. THOMAS, II
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EXHIBIT 10.13
INDEMNIFICATION AGREEMENT
This Indemnification Agreement is entered into and effective as of the
16th day of December, 1998 ("Agreement"), by and between PetroQuest Energy,
Inc., a Delaware corporation ("Company"), and Ralph J. Daigle ("Indemnitee"):
WHEREAS, highly competent persons have become more reluctant to serve
corporations as directors, executive officers or in other capacities unless they
are provided, with adequate protection through insurance or adequate
indemnification against inordinate risks of claims and actions against them
arising out of their service to, and activities on behalf of, the corporation;
WHEREAS, the Board of Directors of the Company (the "Board") has
determined that, in order to attract and retain qualified individuals, the
Company will attempt to maintain on an ongoing basis, at its sole expense,
liability insurance to protect persons' serving the Company and its subsidiaries
from certain liabilities. Although the furnishing of such insurance has been a
customary and widespread practice among United States-based corporations and
other business enterprises, the Company believes that, given current market
conditions and trends, such insurance may be available to it in the future only
at higher premiums and with more exclusions. At the same time, directors,
officers and other persons in service to corporations or business enterprises
are being increasingly subjected to expensive and time-consuming litigation
relating to, among other things, matters that traditionally would have been
brought only against the corporation or business enterprise itself;
WHEREAS, the uncertainties relating to such insurance and to
indemnification have increased the difficulty of attracting and retaining such
persons;
WHEREAS, the Board has determined that the increased difficulty in
attracting and retaining such persons is detrimental to the best interests of
the Company's stockholders and that the Company should act to assure such
persons that there will be increased certainty of such protection in the future;
WHEREAS, it is reasonable, prudent and necessary for the Company
contractually to obligate itself to indemnify such persons to the fullest extent
permitted by applicable law so that they will serve or continue to serve the
Company free from undue concern that they will not be so indemnified; and
WHEREAS, Indemnitee is willing to serve, continue to serve and to take
on additional service for or on behalf of the Company on the condition that he
be so indemnified;
NOW, THEREFORE, in consideration of the premises and the covenants
contained herein, the Company and Indemnitee do hereby covenant and agree as
follows:
SECTION 1. Services by Indemnitee. Indemnitee agrees to serve as a
director/executive officer of the Company and, as mutually agreed by Indemnitee
and the Company, as a director,
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officer, employee, agent or fiduciary of other corporations, partnerships, joint
ventures, trusts or other enterprises (including, without limitation, employee
benefit plans). Indemnitee may at any time and for any reason resign from any
such position (subject to any other contractual obligation or any obligation
imposed by operation of law), in which event the Company shall have no
obligation under this Agreement to continue Indemnitee in that position. This
Agreement shall not be deemed an employment contract between the Company (or any
of its subsidiaries) and Indemnitee. Indemnitee specifically acknowledges that
Indemnitee's employment with the Company (or any of its subsidiaries), if any,
is at will, and the Indemnitee may be discharged at any time for any reason,
with or without cause, except as may be otherwise provided in any written
employment contract between Indemnitee and the Company (or any of its
subsidiaries), other applicable formal severance policies duly adopted by the
Board or, with respect to service as a director of the Company, by the Company's
Certificate of incorporation, Bylaws and the General Corporation Law of the
State of Delaware. Notwithstanding, the foregoing, this Agreement shall continue
in force after Indemnitee has ceased to serve as an officer or director of the
Company and no longer serves at the request of the Company as a director,
officer, employee or agent of the Company or any subsidiary of the Company.
SECTION 2. Indemnification--General. The Company shall indemnify, and
advance Expenses (as hereinafter defined) to, Indemnitee (a) as provided in this
Agreement and (b) to the fullest extent permitted by applicable law in effect on
the date hereof and as amended from time to time. The rights of Indemnitee
provided under the preceding sentence shall include, but shall not be limited
to, the rights set forth in the other Sections of this Agreement.
SECTION 3. Proceedings Other than Proceedings by or in the Right of the
Company. Indemnitee shall be entitled to the rights of indemnification provided
in Section 2 and this Section 3 if, by reason of his Corporate Status (as
hereinafter defined), he is, or is threatened to be made, a party to or a
participant in any threatened, pending, or completed Proceeding (as hereinafter
defined), other than a Proceeding by or in the right of the Company. Pursuant to
this Section 3, the Company shall indemnify Indemnitee against, and shall hold
Indemnitee harmless from and in respect of, all Expenses, judgments, penalties,
fines (including excise taxes) and amounts paid in settlement (including all
interest, assessments and other charges paid or payable in connection with or in
respect of such Expenses, judgments, fines, penalties or amounts paid in
settlement) actually and reasonably incurred by him or on his behalf in
connection with such Proceeding or any claim, issue or matter therein, if he
acted in good faith and in a manner he reasonably believed to be in or not
opposed to the best interests of the Company and, with respect to any criminal
Proceeding, had no reasonable cause to believe his conduct was unlawful.
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SECTION 4. Proceedings by or in the Right of the Company. Indemnitee
shall be entitled to the rights of indemnification provided in Section 2 and
this Section 4 if, by reason of his Corporate Status, he is, or is threatened to
be made, a party to or a participant in any threatened, pending or completed
Proceeding brought by or in the right of the Company to procure a judgment in
its favor. Pursuant to this Section 4, the Company shall indemnify Indemnitee
against, and shall hold Indemnitee harmless from and in respect of, all Expenses
actually and reasonably incurred by him or on his behalf in connection with, and
any amounts paid in settlement of, such Proceeding if he acted in good faith and
in a manner he reasonably believed to be in or not opposed to the best interests
of the Company. Notwithstanding the foregoing, no indemnification against such
Expenses shall be made in respect of any claim, issue or matter in such
Proceeding as to which Indemnitee shall have been adjudged to be liable to the
Company if applicable law prohibits such indemnification; provided, however, if
applicable law so permits, indemnification against such Expenses shall
nevertheless be made by the Company in such event if and only to the extent that
the Court of Chancery of the State of Delaware, or the court in which such
Proceeding shall have been brought or is pending, shall determine.
SECTION 5. Indemnification for Expenses of a Party Who Is Wholly or
Partly Successful. Notwithstanding any other provision of this Agreement, to the
extent that Indemnitee is, by reason of his Corporate Status, a party to (or a
participant in) and is successful, on the merits or otherwise, in defense of 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 defense of such Proceeding but is successful, on the merits
or otherwise, as to one or more but less than all claims, issues or matters in
such Proceeding, the Company shall indemnify Indemnitee against all Expenses
actually and reasonably incurred by him or on his behalf in connection with each
successfully resolved claim, issue or matter. For purposes of this Section and
without limitation, the termination of any claim, issue or matter in such a
Proceeding by dismissal, with or without prejudice, shall be deemed to be a
successful result as to such claim, issue or matter.
SECTION 6. Indemnification for Expenses as a Witness. Notwithstanding
any other provision of this Agreement, to the extent that Indemnitee is, by
reason of his Corporate Status, a witness in any Proceeding to which Indemnitee
is not a party, he shall be indemnified against all Expenses actually and
reasonably incurred by him or on his behalf in connection therewith.
SECTION 7. Advancement of Expenses. The Company shall advance all
reasonable Expenses incurred by or on behalf of Indemnitee in connection with
any Proceeding within ten (10) days after the receipt by the Company of a
statement or statements from Indemnitee requesting such advance or advances from
time to time, whether prior to or after final disposition of such Proceeding.
Such statement or statements shall reasonably evidence the Expenses incurred by
Indemnitee and shall include or be preceded or accompanied by an undertaking by
or on behalf of Indemnitee to repay any Expenses advanced if it ultimately shall
be determined, in accordance with this Agreement, that Indemnitee is not
entitled to be indemnified against such Expenses.
SECTION 8. Procedure for Determination of Entitlement to
Indemnification.
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(a) To obtain indemnification under this Agreement, Indemnitee shall
submit to the Company a written request, including therein or therewith such
documentation and information as is reasonably available to Indemnitee and is
reasonably necessary to determine whether and to what extent Indemnitee is
entitled to indemnification. The Secretary of the Company shall, promptly upon
receipt of such a request for indemnification, advise the Board in writing that
Indemnitee has requested indemnification.
(b) On written request by Indemnitee for indemnification pursuant to
the first sentence of Section 8(a), a determination, if required by applicable
law, with respect to Indemnitee's entitlement thereto shall be made in the
specific case: (i) if a Change in Control (as hereinafter defined) shall have
occurred within two (2) years prior to the date of such written request, by
Independent Counsel (as hereinafter defined) in a written opinion to the Board,
a copy of which shall be delivered to Indemnitee; or (ii) if a Change of Control
shall not have occurred within two (2) years prior to the date of such written
request, (A) by a majority vote of the Disinterested Directors (as hereinafter
defined), even though less than a quorum of the Board, or (B) if there are no
such Disinterested Directors, or if such Disinterested Directors so direct, by
Independent Counsel in a written opinion to the Board, a copy of which shall be
delivered to Indemnitee; and, if it is so determined that Indemnitee is entitled
to indemnification, payment to Indemnitee shall be made within ten (10) days
after such determination. Indemnitee shall cooperate with the person, persons or
entity making such determination with respect to Indemnitee's entitlement to
indemnification, including providing to such person, persons or entity on
reasonable advance request any documentation or information which is not
privileged or otherwise protected from disclosure and which is reasonably
available to Indemnitee and reasonably necessary to such determination. Any
costs or expenses (including attorneys' fees and disbursements) incurred by
Indemnitee in so cooperating with the person, persons or entity making such
determination shall be borne by the Company (irrespective of the determination
as to Indemnitee's entitlement to indemnification) and the Company hereby
indemnifies and agrees to hold Indemnitee harmless therefrom.
(c) In the event the determination of entitlement to indemnification
is to be made by Independent Counsel pursuant to Section 8(b), the Independent
Counsel shall be selected as provided in this Section 8(c). If a Change of
Control shall not have occurred within two (2) years prior to the date of
Indemnitee's written request for indemnification pursuant to Section 8(a), the
Independent Counsel shall be selected by the Board, and the Company shall give
written notice to Indemnitee advising him of the identity of the Independent
Counsel so selected. If a Change of Control shall have occurred within two (2)
years prior to the date of Indemnitee's written request for indemnification
pursuant to Section 8(a), the Independent Counsel shall be selected by
Indemnitee (unless Indemnitee shall request that such selection be made by the
Board, in which event the preceding sentence shall apply), and Indemnitee shall
give written notice to the Company advising it of the identity of the
Independent Counsel so selected in either event, Indemnitee or the Company, as
the case may be, may, within ten (10) days after such written notice of
selection shall have been given, deliver to the Company or to Indemnitee, as the
case may be, 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" as defined in section 17, and the
objection shall set forth with particularity the factual basis of such
assertion. If such written objection is so made and
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<PAGE> 5
substantiated, the Independent Counsel so selected may not serve as Independent
Counsel unless and until such objection is withdrawn or a court has determined
that such objection is without merit. If, within twenty (20) days after
submission by Indemnitee of a written request for indemnification pursuant to
Section 8(a), no Independent Counsel shall have been selected and not objected
to, either the Company or Indemnitee may petition the Court of Chancery or other
court of competent jurisdiction for resolution of any objection which shall have
been made by the Company or Indemnitee to the other's selection of Independent
Counsel and/or for the appointment as Independent Counsel of a person selected
by the petitioned court or by such other person as the petitioned court shall
designate, and the person with respect to whom all objections are so resolved or
the person so appointed shall act as Independent Counsel under Section 8(b). The
Company shall pay any and all reasonable fees and expenses of Independent
Counsel incurred by such Independent Counsel in connection with acting pursuant
to Section 8(b), and the Company shall pay all reasonable fees and expenses
incident to the procedures of this Section 8(c), regardless of the manner in
which such Independent Counsel was selected and appointed. If (i) Independent
Counsel does not make any determination respecting Indemnitee's entitlement to
indemnification hereunder within ninety (90) days after receipt by the Company
of a written request therefor and (ii) any judicial proceeding or arbitration
pursuant to Section 10(a)(iii) hereof is then commenced, Independent Counsel
shall be discharged and relieved of any further responsibility in such capacity
(subject to the applicable standards of professional conduct then prevailing).
SECTION 9. Presumptions and Effect of Certain Proceedings.
(a) In making a determination with respect to entitlement to
indemnification hereunder, the Person, Persons or entity making such
determination shall presume that Indemnitee is entitled to indemnification under
this Agreement if Indemnitee has submitted a request for indemnification in
accordance with Section 8(a), and the Company shall have the burden of proof to
overcome that presumption in connection with the making by any person, persons
or entity of any determination contrary to that presumption.
(b) The termination of any Proceeding or of any claim, issue or matter
therein, by judgment, order, settlement or conviction, or on a plea of nolo
contendere or its equivalent, shall not (except as otherwise expressly provided
in this Agreement) 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 which he reasonably believed to be in or not opposed to
the best interests of the Company or, with respect to any criminal Proceeding,
that Indemnitee had reasonable cause to believe that his conduct was unlawful.
(c) Any action taken by Indemnitee in connection with any employee
benefit plan shall, if taken in good faith by Indemnitee and in a manner
Indemnitee reasonably believed to be in the interest of the participants in or
beneficiaries of that plan, be deemed to have been taken in a manner "not
opposed to the best interests of the Company" for all purposes of this
Agreement.
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SECTION 10. Remedies of Indemnitee.
(a) In the event that (i) a determination is made pursuant to Section
8 that Indemnitee is not entitled to indemnification hereunder, (ii) advancement
of Expenses is not timely made pursuant to Section 7, (iii) Independent Counsel
is to determine Indemnitee's entitlement to indemnification hereunder, but does
not make that determination within ninety (90) days after receipt by the Company
of the request for that indemnification, (iv) payment of indemnification is not
made pursuant to section 5 or 6 within ten (10) days after receipt by the
Company of a written request therefor or (v) payment of indemnification is not
made within ten (10) days after a determination has been made that Indemnitee is
entitled to indemnification, Indemnitee shall be entitled to an adjudication
from the Court of Chancery of his entitlement to such indemnification or
advancement of Expenses. Alternatively, Indemnitee, at his option, may seek an
award in arbitration to be conducted by a single arbitrator pursuant to the
Commercial Arbitration Rules of the American Arbitration Association. Indemnitee
shall commence such Proceeding seeking an adjudication or an award in
arbitration within one hundred eighty (180) days following the date on which
Indemnitee first has the right to commence such proceeding pursuant to this
Section 10(a); provided, however, that the foregoing clause shall not apply in
respect of a proceeding brought by Indemnitee to enforce his rights under
Section 5.
(b) In the event that a determination shall have been made pursuant to
Section 8(b) that Indemnitee is not entitled to indemnification, any judicial
proceeding or arbitration commenced pursuant to this Section 10 shall be
conducted in all respects as a de novo trial, or arbitration, on the merits and
Indemnitee shall not be prejudiced by reason of that adverse determination. In
any judicial proceeding or arbitration commenced pursuant to this section 10,
the Company shall have the burden of proving that Indemnitee is not entitled to
indemnification or advancement of Expenses, as the case may be.
(c) If a determination shall have been made pursuant to Section 8(b)
that Indemnitee is entitled to indemnification, the Company shall be bound by
such determination in any judicial proceeding or arbitration commenced pursuant
to this Section 10, absent (i) a misstatement by Indemnitee of a material fact,
or an omission by Indemnitee of a material fact necessary to make Indemnitee's
statement not materially misleading, in connection with the request for
indemnification, or (ii) a prohibition of such indemnification under applicable
law.
(d) In the event that Indemnitee, pursuant to this Section 10, seeks a
judicial adjudication of or an award in arbitration to enforce his rights under,
or to recover damages for breach of, this Agreement, Indemnitee shall be
entitled to recover from the Company, and shall be indemnified by the Company
against, any and all expenses (of the types described in the definition of
Expenses in Section 17) actually and reasonably incurred by him in such judicial
adjudication or arbitration, but only if he prevails therein. If it shall be
determined in said judicial adjudication or arbitration 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.
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SECTION 11. Non-Exclusivity; Survival of Rights; Insurance;
Subrogation.
(a) The rights of indemnification and to receive advancement of
Expenses as provided by this Agreement shall not be deemed exclusive of any
other rights to which Indemnitee may at any time be entitled 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 Agreement or of any provision hereof shall limit or
restrict any right of Indemnitee under this Agreement in respect of any action
taken or omitted by such Indemnitee in his Corporate Status prior to such
amendment, alteration or repeal. To the extent that a change in Delaware law
(whether by statute or judicial decision) permits greater indemnification by
agreement than would be afforded currently under this Agreement, it is the
intent of the parties hereto that Indemnitee shall enjoy by this Agreement the
greater benefits so afforded by such change.
(b) To the extent that the Company maintains an insurance policy or
policies providing liability insurance for directors, officers, employees, or
agents of the Company or of any other corporation, partnership, joint venture,
trust, employee benefit plan or other enterprise which such person serves at the
request of the Company, Indemnitee shall be covered by such policy or policies
in accordance with its or their terms to the maximum extent of the coverage
available for any such director, Officer, employee or agent under such policy or
policies.
(c) In the event of any payment under this Agreement, the Company 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 necessary
to secure such rights, including execution of such documents as are necessary to
enable the Company to bring suit to enforce such rights.
(d) The Company shall not be liable under this Agreement to make any
payment of amounts otherwise indemnifiable hereunder if and to the extent that
Indemnitee has otherwise actually received such payment under any insurance
policy, contract, agreement or otherwise.
(e) The Company's obligation to indemnify or advance Expenses hereunder
to Indemnitee with respect to Indemnitee's service at the request of the Company
as a director, officer, employee or agent of any other corporation, partnership,
joint venture, trust, employee benefit plan or other enterprise shall be reduced
by any amount Indemnitee has actually received as indemnification or advancement
of Expenses from such other corporation, partnership, joint venture, trust,
employee benefit plan or other enterprise.
SECTION 12. Duration of Agreement. This Agreement shall continue until
and terminate upon the later of: (a) ten (10) years after the date that
Indemnitee shall have ceased to serve as a director or officer of the Company or
of any other corporation, partnership, joint venture, trust, employee benefit
plan or other enterprise which Indemnitee served on behalf of the Company; or
(b) the final termination of any Proceeding then pending in respect of which
Indemnitee is granted rights of indemnification or advancement of expenses
hereunder and of any Proceeding commenced by Indemnitee pursuant to Section 10
relating thereto. This Agreement shall be binding upon the Company and its
successors and assigns and shall inure to the benefit of Indemnitee and his
spouse
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(if Indemnitee resides in Texas or another community property state), heirs,
executors and administrators, and this Agreement does not, and shall not be
construed to confer any rights on any person that is not a party to this
Agreement, other than Indemnitee's spouse, and his heirs, executors and assigns.
SECTION 13. Severability. If any provision or provisions of this
Agreement shall be held to be invalid, illegal or unenforceable for any reason
whatsoever: (a) the validity, legality and enforceability of the remaining
provisions of this Agreement (including, without limitation, each portion of any
Section of this Agreement containing any such provision held to be invalid,
illegal or unenforceable which is not itself invalid, illegal or unenforceable)
shall not in any way be affected or impaired thereby; (b) such provision or
provisions shall be deemed reformed to the extent necessary to conform to
applicable law and to give the maximum effect to the intent of the parties
hereto; and (c) to the fullest extent possible, the provisions of this Agreement
(including. without limitation, each portion of any Section of this Agreement
containing any such provision held to be invalid, illegal or unenforceable which
is not itself invalid, illegal or unenforceable) shall be construed so as to
give effect to the intent manifested thereby.
SECTION 14. Exception to Right of Indemnification or Advancement of
Expenses. Notwithstanding any other provision hereof, Indemnitee shall not be
entitled to indemnification or advancement of Expenses under this Agreement with
respect to any Proceeding brought by Indemnitee or any claim therein prior to a
Change in Control, unless the bringing of such Proceeding or making of such
claim shall have been approved by the Board of Directors.
SECTION 15. Identical Counterparts. This Agreement may be executed in
one or more counterparts by means of original or facsimile signatures, each of
which shall for all purposes be deemed to be an original but all of which
together shall constitute one and the same Agreement. Only one such counterpart
signed by the party against whom enforceability is sought needs to be produced
to evidence the existence of this Agreement.
SECTION 16. Headings. The headings of the Sections hereof are inserted
for convenience only and shall not be deemed to constitute part of this
Agreement or to affect the construction thereof.
SECTION 17. Definitions. For purposes of this Agreement:
(a) "Acquiring Person" means any Person who or which,
together with all Affiliates and Associates of such Person, is or are
the Beneficial Owner of twenty-five percent (25%) or more of the
shares of Common Stock then outstanding, but does not include any
Exempt Person; provided, however, that a Person shall not be or become
an Acquiring Person if such Person, together with its Affiliates and
Associates, shall become the Beneficial Owner of twenty-five percent
(25%) or more of the shares of Common Stock then outstanding solely as
a result of a reduction in the number of shares of Common Stock
outstanding due to the repurchase of Common Stock by the Company,
unless and until such time as such Person or any Affiliate or
Associate of such Person shall purchase or otherwise become the
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Beneficial Owner of additional shares of Common Stock constituting one
percent (1%) or more of the then outstanding shares of Common Stock or
any other Person (or Persons) who is (or collectively are) the
Beneficial Owner of shares of Common Stock constituting one percent
(1%) or more of the then outstanding shares of Common Stock shall
become an Affiliate or Associate of such Person, unless, in either
such case, such Person, together with all Affiliates and Associates of
such Person, is not then the Beneficial Owner of twenty-five percent
(25%) or more of the shares of Common Stock then outstanding.
(b) "Affiliate" has the meaning ascribed to that term in
Exchange Act Rule 12b-2.
(c) "Associate" means, with reference to any Person, (i) any
corporation, firm, partnership, association, unincorporated
organization or other entity (other than the Company or a subsidiary of
the Company) of which that Person is an officer or general partner (or
officer or general partner of a general partner) or is, directly or
indirectly, the Beneficial owner of 10% or more of any class of its
equity securities, (ii) any trust or other estate in which that Person
has a substantial beneficial interest or for or of which that Person
serves as trustee or in a similar fiduciary capacity and (iii) any
relative or spouse of that Person, or any relative of that spouse, who
has the same home as that Person.
(d) A specified Person is deemed the "Beneficial Owner" of,
and is deemed to "beneficially own," any securities:
(i) of which that Person or any of that Person's
Affiliates or Associates, directly or indirectly, is the
"beneficial owner" (as determined pursuant to Exchange Act
Rule 13d-3) or otherwise has the right to vote or dispose of,
including pursuant to any agreement, arrangement or
understanding (whether or not in writing); provided, however,
that a Person shall not be deemed the "Beneficial Owner" of,
or to "beneficially own," any security under this
subparagraph as a result of an agreement, arrangement or
understanding to vote that security if that agreement,
arrangement or understanding: (A) arises solely from a
revocable proxy or consent given in response to a public
(that is, not including a solicitation exempted by Exchange
Act Rule 14a-2(b)(2)) proxy or consent solicitation made
pursuant to, and in accordance with, the applicable
provisions of the Exchange Act; and (B) is not then
reportable by such Person on Exchange Act Schedule 13D (or
any comparable or successor report);
(ii) which that Person or any of that Person's
Affiliates or Associates, directly or indirectly, has the
right or obligation to acquire (whether that right or
obligation is exercisable or effective immediately or only
after the passage of time or the occurrence of an event)
pursuant to any
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agreement, arrangement or understanding (whether or not in
writing) or on the exercise of conversion rights, exchange
rights, other rights, warrants or options, or otherwise;
provided, however, that a Person shall not be deemed the
"Beneficial Owner" of, or to "beneficially own," securities
tendered pursuant to a tender or exchange offer made by that
Person or any of that Person's Affiliates or Associates until
those tendered securities are accepted for purchase or
exchange; or
(iii) which are beneficially owned, directly or
indirectly, by (A) any other Person (or any Affiliate or
Associate thereof) with which the specified Person or any of
the specified Person's Affiliates or Associates has any
agreement, arrangement or understanding (whether or not in
writing) for the purpose of acquiring, holding, voting (except
pursuant to a revocable proxy or consent as described in the
proviso to subparagraph (i) of this definition) or disposing
of any voting securities of the Company or (B) any group (as
that term is used in Exchange Act Rule 13d-5(b)) of which that
specified Person is a member;
PROVIDED, HOWEVER, that nothing in this definition shall cause a Person engaged
in business as an underwriter of securities to be the "Beneficial Owner" of, or
to "beneficially own," any securities acquired through such Person's
participation in good faith in a firm commitment underwriting until the
expiration of forty (40) days after the date of that acquisition. For purposes
of this Agreement, "voting" a security shall include voting, granting a proxy,
acting by consent, making a request or demand relating to corporate action
(including, without limitation, calling a stockholder meeting) or otherwise
giving an authorization (within the meaning of Section 14(a) of the Exchange
Act) in respect of such security.
(e) "Change of Control" means the occurrence of any of the
following events that occurs after the Merger Closing Date: (i) any
Person becomes an Acquiring Person; (ii) at any time the then
Continuing Directors cease to constitute a majority of the members of
the Board; (iii) a merger of the Company with or into, or a sale by the
Company of its properties and assets substantially as an entirety to,
another Person occurs and, immediately after that occurrence, any
Person, other than an Exempt Person, together with all Affiliates and
Associates of such Person, shall be the Beneficial Owner of twenty-five
percent (25%) or more of the total voting power of the then outstanding
Voting Shares of the Person surviving that transaction (in the case or
a merger or consolidation) or the Person acquiring those properties and
assets substantially as an entirety.
(f) "Common Stock" means the common stock, par value $.001 per
share, of the Company.
(g) "Continuing Director" means at any time any individual
who then (i) is a member of the Board and was a member of the Board as
of the Merger Closing
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Date or whose nomination for his first election, or that first
election, to the Board following that date was recommended or approved
by a majority of the then Continuing Directors (acting separately or as
a part of any action taken by the Board or any committee thereof) and
(ii) is not an Acquiring Person, an Affiliate or Associate of an
Acquiring Person or a nominee or representative of an Acquiring Person
or of any such Affiliate or Associate.
(h) "Corporate Status" describes the status of a Person who is
or was a director, officer, employee or agent of the Company or of any
other corporation, partnership, joint venture, trust, employee benefit
plan or other enterprise which such person is or was serving at the
request of the Company. For purposes of this Agreement, "serving at the
request of the Company" includes any service by Indemnitee which
imposes duties on, or involves services by, Indemnitee with respect to
any employee benefit plan or its participants or beneficiaries.
(i) "Court of Chancery" means the Court of Chancery of the
State of Delaware.
(j) "Disinterested Director" means a director of the Company
who is not and was not a party to the Proceeding in respect of which
indemnification is sought by Indemnitee hereunder.
(k) "Exchange Act" means the Securities Exchange Act of 1934,
as amended.
(l) "Exempt Person" means (i), (A) the Company, any subsidiary
of the Company, any employee benefit plan of the Company or of any
subsidiary of the Company and (B) any Person organized, appointed or
established by the Company for or pursuant to the terms of any such
plan or for the purpose of funding any such plan or funding other
employee benefits for employees of the Company or any subsidiary of the
Company and (ii) Indemnitee, any Affiliate or Associate of Indemnitee
or any group (as that term is used in Exchange Act Rule 13d-5(b)) of
which Indemnitee or any Affiliate or Associate of Indemnitee is a
member.
(m) "Expenses" include all 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, all other disbursements or
expenses of the types customarily incurred in connection with
prosecuting, defending, preparing to prosecute or defend,
investigating, being or preparing to be a witness in, or otherwise
participating in, a Proceeding and all interest or finance charges
attributable to any thereof. Should any payments by the Company under
this Agreement be determined to be subject to any federal, state or
local income or excise tax, "Expenses" also shall include such amounts
as are necessary to place Indemnitee in the same after-tax position
(after giving effect to all
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applicable taxes) he would have been in had no such tax been determined
to apply to such payments.
(m) "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 past five (5) years has been, retained to
represent: (i) the Company, its Affiliates 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.
Notwithstanding the foregoing. the term "Independent Counsel" shall not
include any person who, under the applicable standards of professional
conduct then prevailing, would have a conflict of interest in
representing either the Company or Indemnitee in an action to determine
Indemnitee's rights under this Agreement.
(n) "Merger Closing Date" means September 1, 1998.
(o) "Person" means any natural person, sole proprietorship,
corporation, partnership of any kind having a separate legal status,
limited liability company, business trust, unincorporated organization
or association, mutual company, joint stock company, joint venture,
estate, trust, union or employee organization or governmental
authority.
(p) "Proceeding" includes any action, suit, alternate dispute
resolution mechanism, hearing or any other proceeding, whether civil,
criminal, administrative, arbitrative, investigative or mediative, any
appeal in any such action, suit, alternate dispute resolution
mechanism, hearing or other proceeding and any inquiry or investigation
that could lead to any such action, suit, alternate dispute resolution
mechanism, hearing or other proceeding, except one (i) initiated by an
Indemnitee pursuant to Section 10 to enforce his rights hereunder or
(ii) pending on or before the date of this Agreement.
(q) "Voting Shares" means: (i) in the case of any corporation,
stock of that corporation of the class or classes having general voting
power under ordinary circumstances to elect a majority of that
corporation's board of directors; and (ii) in the case of any other
entity, equity interests of the class or classes having general voting
power under ordinary circumstances equivalent to the Voting Shares of a
corporation.
SECTION 18. Modification and Waiver. No supplement, modification or
amendment of this Agreement shall be binding unless executed in writing by both
of the parties hereto. No waiver of any of the provisions of this Agreement
shall be deemed or shall constitute a waiver of any other provisions hereof
(whether or not similar) nor shall such waiver constitute a continuing waiver.
SECTION 19. Notice by Indemnitee. Indemnitee agrees promptly to notify
the Company in writing upon being served with any summons, citation, subpoena,
complaint, indictment, information
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or other document relating to any Proceeding or matter which may be subject to
indemnification or advancement of Expenses covered hereunder; provided, however,
failure to give such notice shall not deprive Indemnitee of his rights to
indemnification and advancement of Expenses under this Agreement unless the
Company is actually and materially prejudiced thereby.
SECTION 20. Notices. All notices, requests, demands and other
communications hereunder shall be in writing and shall be deemed to have been
duly given if (a) delivered by hand and receipted for by the party to whom said
notice or other communication shall have been directed or (b) mailed by
certified or registered mail with postage prepaid, on the third (3rd) business
day after the date on which it is so mailed:
(a) If to Indemnitee, to: P. O. Box 51205
Lafayette, LA 70505
Attention: Ralph J. Daigle
(b) If to the Company, to: PetroQuest Energy, Inc.
625 E. Kaliste Saloom Rd., Suite 400
Lafayette, Louisiana 70508
Attention: Corporate Secretary
or to such other address as may have been furnished to Indemnitee by the Company
or to the Company by Indemnitee, as the case way be.
SECTION 21. Contribution. To the fullest extent permissible under
applicable law, if the indemnification provided for in this Agreement is
unavailable to Indemnitee for any reason whatsoever, the Company, in lieu of
indemnifying Indemnitee, shall contribute to the amount incurred by Indemnitee,
whether for judgments, fines, penalties, excise taxes, amounts paid or to be
paid in settlement and/or for Expenses, in connection with any claim relating to
an indemnifiable event under this Agreement, in such proportion as is deemed
fair and reasonable in light of all the circumstances of such Proceeding in
order to reflect: (a) the relative benefits received by the Company and
Indemnitee as a result of the event(s) and/or transaction(s) giving cause to
such Proceeding; and/or (b) the relative fault of the Company (and its
directors, officers, employees and agents) and Indemnitee in connection with
such event(s) and/or transaction(s).
SECTION 22. Governing Law; Submission to Jurisdiction. This Agreement
and the legal relations among the parties shall be governed by, and construed
and enforced in accordance with, the laws of the State of Delaware, without
regard to its conflict of laws rules. Except with respect to any arbitration
commenced by Indemnitee pursuant to Section 10(a), the Company and Indemnitee
hereby irrevocably and unconditionally (a) agree that any action or proceeding
arising out of or in connection with this Agreement shall be brought only in the
Court of Chancery and not in any other state or federal court in the United
States of America or any court in any other country, (b) consent to submit to
the exclusive jurisdiction of the Court of Chancery for purposes of any action
or proceeding arising
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out of or in connection with this Agreement, (c) waive any objection to the
laying of venue of any such action or proceeding in the Court of Chancery, and
(d) waive, and agree not to plead or to make, any claim that any such action or
proceeding brought in the Court of Chancery has been brought in an improper or
otherwise inconvenient forum.
SECTION 23. Miscellaneous. Use of the masculine pronoun shall be deemed
to include usage of the feminine pronoun where appropriate. When used in this
Agreement, the words "herein," "hereof" and words of similar import shall refer
to this Agreement as a whole and not to any provision of this Agreement, and the
word "Section" refers to a Section of this Agreement, unless otherwise
specified.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
the day and year first above written.
PETROQUEST ENERGY, INC.
By: /s/ CHARLES T. GOODSON
-----------------------------------------
Name: CHARLES T. GOODSON
Title: PRESIDENT & CEO
INDEMNITEE
/S/ RALPH J. DAIGLE
---------------------------------------------
RALPH J. DAIGLE
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EXHIBIT 10.14
INDEMNIFICATION AGREEMENT
This Indemnification Agreement is entered into and effective as of the
16th day of December, 1998 ("Agreement"), by and between PetroQuest Energy,
Inc., a Delaware corporation ("Company"), and Robert R. Brooksher
("Indemnitee"):
WHEREAS, highly competent persons have become more reluctant to serve
corporations as directors, executive officers or in other capacities unless they
are provided, with adequate protection through insurance or adequate
indemnification against inordinate risks of claims and actions against them
arising out of their service to, and activities on behalf of, the corporation;
WHEREAS, the Board of Directors of the Company (the "Board") has
determined that, in order to attract and retain qualified individuals, the
Company will attempt to maintain on an ongoing basis, at its sole expense,
liability insurance to protect persons' serving the Company and its subsidiaries
from certain liabilities. Although the furnishing of such insurance has been a
customary and widespread practice among United States-based corporations and
other business enterprises, the Company believes that, given current market
conditions and trends, such insurance may be available to it in the future only
at higher premiums and with more exclusions. At the same time, directors,
officers and other persons in service to corporations or business enterprises
are being increasingly subjected to expensive and time-consuming litigation
relating to, among other things, matters that traditionally would have been
brought only against the corporation or business enterprise itself;
WHEREAS, the uncertainties relating to such insurance and to
indemnification have increased the difficulty of attracting and retaining such
persons;
WHEREAS, the Board has determined that the increased difficulty in
attracting and retaining such persons is detrimental to the best interests of
the Company's stockholders and that the Company should act to assure such
persons that there will be increased certainty of such protection in the future;
WHEREAS, it is reasonable, prudent and necessary for the Company
contractually to obligate itself to indemnify such persons to the fullest extent
permitted by applicable law so that they will serve or continue to serve the
Company free from undue concern that they will not be so indemnified; and
WHEREAS, Indemnitee is willing to serve, continue to serve and to take
on additional service for or on behalf of the Company on the condition that he
be so indemnified;
NOW, THEREFORE, in consideration of the premises and the covenants
contained herein, the Company and Indemnitee do hereby covenant and agree as
follows:
SECTION 1. Services by Indemnitee. Indemnitee agrees to serve as a
director/executive officer of the Company and, as mutually agreed by Indemnitee
and the Company, as a director,
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officer, employee, agent or fiduciary of other corporations, partnerships, joint
ventures, trusts or other enterprises (including, without limitation, employee
benefit plans). Indemnitee may at any time and for any reason resign from any
such position (subject to any other contractual obligation or any obligation
imposed by operation of law), in which event the Company shall have no
obligation under this Agreement to continue Indemnitee in that position. This
Agreement shall not be deemed an employment contract between the Company (or any
of its subsidiaries) and Indemnitee. Indemnitee specifically acknowledges that
Indemnitee's employment with the Company (or any of its subsidiaries), if any,
is at will, and the Indemnitee may be discharged at any time for any reason,
with or without cause, except as may be otherwise provided in any written
employment contract between Indemnitee and the Company (or any of its
subsidiaries), other applicable formal severance policies duly adopted by the
Board or, with respect to service as a director of the Company, by the Company's
Certificate of incorporation, Bylaws and the General Corporation Law of the
State of Delaware. Notwithstanding, the foregoing, this Agreement shall continue
in force after Indemnitee has ceased to serve as an officer or director of the
Company and no longer serves at the request of the Company as a director,
officer, employee or agent of the Company or any subsidiary of the Company.
SECTION 2. Indemnification--General. The Company shall indemnify, and
advance Expenses (as hereinafter defined) to, Indemnitee (a) as provided in this
Agreement and (b) to the fullest extent permitted by applicable law in effect on
the date hereof and as amended from time to time. The rights of Indemnitee
provided under the preceding sentence shall include, but shall not be limited
to, the rights set forth in the other Sections of this Agreement.
SECTION 3. Proceedings Other than Proceedings by or in the Right of the
Company. Indemnitee shall be entitled to the rights of indemnification provided
in Section 2 and this Section 3 if, by reason of his Corporate Status (as
hereinafter defined), he is, or is threatened to be made, a party to or a
participant in any threatened, pending, or completed Proceeding (as hereinafter
defined), other than a Proceeding by or in the right of the Company. Pursuant to
this Section 3, the Company shall indemnify Indemnitee against, and shall hold
Indemnitee harmless from and in respect of, all Expenses, judgments, penalties,
fines (including excise taxes) and amounts paid in settlement (including all
interest, assessments and other charges paid or payable in connection with or in
respect of such Expenses, judgments, fines, penalties or amounts paid in
settlement) actually and reasonably incurred by him or on his behalf in
connection with such Proceeding or any claim, issue or matter therein, if he
acted in good faith and in a manner he reasonably believed to be in or not
opposed to the best interests of the Company and, with respect to any criminal
Proceeding, had no reasonable cause to believe his conduct was unlawful.
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SECTION 4. Proceedings by or in the Right of the Company. Indemnitee
shall be entitled to the rights of indemnification provided in Section 2 and
this Section 4 if, by reason of his Corporate Status, he is, or is threatened to
be made, a party to or a participant in any threatened, pending or completed
Proceeding brought by or in the right of the Company to procure a judgment in
its favor. Pursuant to this Section 4, the Company shall indemnify Indemnitee
against, and shall hold Indemnitee harmless from and in respect of, all Expenses
actually and reasonably incurred by him or on his behalf in connection with, and
any amounts paid in settlement of, such Proceeding if he acted in good faith and
in a manner he reasonably believed to be in or not opposed to the best interests
of the Company. Notwithstanding the foregoing, no indemnification against such
Expenses shall be made in respect of any claim, issue or matter in such
Proceeding as to which Indemnitee shall have been adjudged to be liable to the
Company if applicable law prohibits such indemnification; provided, however, if
applicable law so permits, indemnification against such Expenses shall
nevertheless be made by the Company in such event if and only to the extent that
the Court of Chancery of the State of Delaware, or the court in which such
Proceeding shall have been brought or is pending, shall determine.
SECTION 5. Indemnification for Expenses of a Party Who Is Wholly or
Partly Successful. Notwithstanding any other provision of this Agreement, to the
extent that Indemnitee is, by reason of his Corporate Status, a party to (or a
participant in) and is successful, on the merits or otherwise, in defense of 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 defense of such Proceeding but is successful, on the merits
or otherwise, as to one or more but less than all claims, issues or matters in
such Proceeding, the Company shall indemnify Indemnitee against all Expenses
actually and reasonably incurred by him or on his behalf in connection with each
successfully resolved claim, issue or matter. For purposes of this Section and
without limitation, the termination of any claim, issue or matter in such a
Proceeding by dismissal, with or without prejudice, shall be deemed to be a
successful result as to such claim, issue or matter.
SECTION 6. Indemnification for Expenses as a Witness. Notwithstanding
any other provision of this Agreement, to the extent that Indemnitee is, by
reason of his Corporate Status, a witness in any Proceeding to which Indemnitee
is not a party, he shall be indemnified against all Expenses actually and
reasonably incurred by him or on his behalf in connection therewith.
SECTION 7. Advancement of Expenses. The Company shall advance all
reasonable Expenses incurred by or on behalf of Indemnitee in connection with
any Proceeding within ten (10) days after the receipt by the Company of a
statement or statements from Indemnitee requesting such advance or advances from
time to time, whether prior to or after final disposition of such Proceeding.
Such statement or statements shall reasonably evidence the Expenses incurred by
Indemnitee and shall include or be preceded or accompanied by an undertaking by
or on behalf of Indemnitee to repay any Expenses advanced if it ultimately shall
be determined, in accordance with this Agreement, that Indemnitee is not
entitled to be indemnified against such Expenses.
SECTION 8. Procedure for Determination of Entitlement to
Indemnification.
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(a) To obtain indemnification under this Agreement, Indemnitee shall
submit to the Company a written request, including therein or therewith such
documentation and information as is reasonably available to Indemnitee and is
reasonably necessary to determine whether and to what extent Indemnitee is
entitled to indemnification. The Secretary of the Company shall, promptly upon
receipt of such a request for indemnification, advise the Board in writing that
Indemnitee has requested indemnification.
(b) On written request by Indemnitee for indemnification pursuant to
the first sentence of Section 8(a), a determination, if required by applicable
law, with respect to Indemnitee's entitlement thereto shall be made in the
specific case: (i) if a Change in Control (as hereinafter defined) shall have
occurred within two (2) years prior to the date of such written request, by
Independent Counsel (as hereinafter defined) in a written opinion to the Board,
a copy of which shall be delivered to Indemnitee; or (ii) if a Change of Control
shall not have occurred within two (2) years prior to the date of such written
request, (A) by a majority vote of the Disinterested Directors (as hereinafter
defined), even though less than a quorum of the Board, or (B) if there are no
such Disinterested Directors, or if such Disinterested Directors so direct, by
Independent Counsel in a written opinion to the Board, a copy of which shall be
delivered to Indemnitee; and, if it is so determined that Indemnitee is entitled
to indemnification, payment to Indemnitee shall be made within ten (10) days
after such determination. Indemnitee shall cooperate with the person, persons or
entity making such determination with respect to Indemnitee's entitlement to
indemnification, including providing to such person, persons or entity on
reasonable advance request any documentation or information which is not
privileged or otherwise protected from disclosure and which is reasonably
available to Indemnitee and reasonably necessary to such determination. Any
costs or expenses (including attorneys' fees and disbursements) incurred by
Indemnitee in so cooperating with the person, persons or entity making such
determination shall be borne by the Company (irrespective of the determination
as to Indemnitee's entitlement to indemnification) and the Company hereby
indemnifies and agrees to hold Indemnitee harmless therefrom.
(c) In the event the determination of entitlement to indemnification
is to be made by Independent Counsel pursuant to Section 8(b), the Independent
Counsel shall be selected as provided in this Section 8(c). If a Change of
Control shall not have occurred within two (2) years prior to the date of
Indemnitee's written request for indemnification pursuant to Section 8(a), the
Independent Counsel shall be selected by the Board, and the Company shall give
written notice to Indemnitee advising him of the identity of the Independent
Counsel so selected. If a Change of Control shall have occurred within two (2)
years prior to the date of Indemnitee's written request for indemnification
pursuant to Section 8(a), the Independent Counsel shall be selected by
Indemnitee (unless Indemnitee shall request that such selection be made by the
Board, in which event the preceding sentence shall apply), and Indemnitee shall
give written notice to the Company advising it of the identity of the
Independent Counsel so selected in either event, Indemnitee or the Company, as
the case may be, may, within ten (10) days after such written notice of
selection shall have been given, deliver to the Company or to Indemnitee, as the
case may be, 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" as defined in section 17, and the
objection shall set forth with particularity the factual basis of such
assertion. If such written objection is so made and
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substantiated, the Independent Counsel so selected may not serve as Independent
Counsel unless and until such objection is withdrawn or a court has determined
that such objection is without merit. If, within twenty (20) days after
submission by Indemnitee of a written request for indemnification pursuant to
Section 8(a), no Independent Counsel shall have been selected and not objected
to, either the Company or Indemnitee may petition the Court of Chancery or other
court of competent jurisdiction for resolution of any objection which shall have
been made by the Company or Indemnitee to the other's selection of Independent
Counsel and/or for the appointment as Independent Counsel of a person selected
by the petitioned court or by such other person as the petitioned court shall
designate, and the person with respect to whom all objections are so resolved or
the person so appointed shall act as Independent Counsel under Section 8(b). The
Company shall pay any and all reasonable fees and expenses of Independent
Counsel incurred by such Independent Counsel in connection with acting pursuant
to Section 8(b), and the Company shall pay all reasonable fees and expenses
incident to the procedures of this Section 8(c), regardless of the manner in
which such Independent Counsel was selected and appointed. If (i) Independent
Counsel does not make any determination respecting Indemnitee's entitlement to
indemnification hereunder within ninety (90) days after receipt by the Company
of a written request therefor and (ii) any judicial proceeding or arbitration
pursuant to Section 10(a)(iii) hereof is then commenced, Independent Counsel
shall be discharged and relieved of any further responsibility in such capacity
(subject to the applicable standards of professional conduct then prevailing).
SECTION 9. Presumptions and Effect of Certain Proceedings.
(a) In making a determination with respect to entitlement to
indemnification hereunder, the Person, Persons or entity making such
determination shall presume that Indemnitee is entitled to indemnification under
this Agreement if Indemnitee has submitted a request for indemnification in
accordance with Section 8(a), and the Company shall have the burden of proof to
overcome that presumption in connection with the making by any person, persons
or entity of any determination contrary to that presumption.
(b) The termination of any Proceeding or of any claim, issue or matter
therein, by judgment, order, settlement or conviction, or on a plea of nolo
contendere or its equivalent, shall not (except as otherwise expressly provided
in this Agreement) 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 which he reasonably believed to be in or not opposed to
the best interests of the Company or, with respect to any criminal Proceeding,
that Indemnitee had reasonable cause to believe that his conduct was unlawful.
(c) Any action taken by Indemnitee in connection with any employee
benefit plan shall, if taken in good faith by Indemnitee and in a manner
Indemnitee reasonably believed to be in the interest of the participants in or
beneficiaries of that plan, be deemed to have been taken in a manner "not
opposed to the best interests of the Company" for all purposes of this
Agreement.
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SECTION 10. Remedies of Indemnitee.
(a) In the event that (i) a determination is made pursuant to Section
8 that Indemnitee is not entitled to indemnification hereunder, (ii) advancement
of Expenses is not timely made pursuant to Section 7, (iii) Independent Counsel
is to determine Indemnitee's entitlement to indemnification hereunder, but does
not make that determination within ninety (90) days after receipt by the Company
of the request for that indemnification, (iv) payment of indemnification is not
made pursuant to section 5 or 6 within ten (10) days after receipt by the
Company of a written request therefor or (v) payment of indemnification is not
made within ten (10) days after a determination has been made that Indemnitee is
entitled to indemnification, Indemnitee shall be entitled to an adjudication
from the Court of Chancery of his entitlement to such indemnification or
advancement of Expenses. Alternatively, Indemnitee, at his option, may seek an
award in arbitration to be conducted by a single arbitrator pursuant to the
Commercial Arbitration Rules of the American Arbitration Association. Indemnitee
shall commence such Proceeding seeking an adjudication or an award in
arbitration within one hundred eighty (180) days following the date on which
Indemnitee first has the right to commence such proceeding pursuant to this
Section 10(a); provided, however, that the foregoing clause shall not apply in
respect of a proceeding brought by Indemnitee to enforce his rights under
Section 5.
(b) In the event that a determination shall have been made pursuant to
Section 8(b) that Indemnitee is not entitled to indemnification, any judicial
proceeding or arbitration commenced pursuant to this Section 10 shall be
conducted in all respects as a de novo trial, or arbitration, on the merits and
Indemnitee shall not be prejudiced by reason of that adverse determination. In
any judicial proceeding or arbitration commenced pursuant to this section 10,
the Company shall have the burden of proving that Indemnitee is not entitled to
indemnification or advancement of Expenses, as the case may be.
(c) If a determination shall have been made pursuant to Section 8(b)
that Indemnitee is entitled to indemnification, the Company shall be bound by
such determination in any judicial proceeding or arbitration commenced pursuant
to this Section 10, absent (i) a misstatement by Indemnitee of a material fact,
or an omission by Indemnitee of a material fact necessary to make Indemnitee's
statement not materially misleading, in connection with the request for
indemnification, or (ii) a prohibition of such indemnification under applicable
law.
(d) In the event that Indemnitee, pursuant to this Section 10, seeks a
judicial adjudication of or an award in arbitration to enforce his rights under,
or to recover damages for breach of, this Agreement, Indemnitee shall be
entitled to recover from the Company, and shall be indemnified by the Company
against, any and all expenses (of the types described in the definition of
Expenses in Section 17) actually and reasonably incurred by him in such judicial
adjudication or arbitration, but only if he prevails therein. If it shall be
determined in said judicial adjudication or arbitration 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.
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SECTION 11. Non-Exclusivity; Survival of Rights; Insurance;
Subrogation.
(a) The rights of indemnification and to receive advancement of
Expenses as provided by this Agreement shall not be deemed exclusive of any
other rights to which Indemnitee may at any time be entitled 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 Agreement or of any provision hereof shall limit or
restrict any right of Indemnitee under this Agreement in respect of any action
taken or omitted by such Indemnitee in his Corporate Status prior to such
amendment, alteration or repeal. To the extent that a change in Delaware law
(whether by statute or judicial decision) permits greater indemnification by
agreement than would be afforded currently under this Agreement, it is the
intent of the parties hereto that Indemnitee shall enjoy by this Agreement the
greater benefits so afforded by such change.
(b) To the extent that the Company maintains an insurance policy or
policies providing liability insurance for directors, officers, employees, or
agents of the Company or of any other corporation, partnership, joint venture,
trust, employee benefit plan or other enterprise which such person serves at the
request of the Company, Indemnitee shall be covered by such policy or policies
in accordance with its or their terms to the maximum extent of the coverage
available for any such director, Officer, employee or agent under such policy or
policies.
(c) In the event of any payment under this Agreement, the Company 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 necessary
to secure such rights, including execution of such documents as are necessary to
enable the Company to bring suit to enforce such rights.
(d) The Company shall not be liable under this Agreement to make any
payment of amounts otherwise indemnifiable hereunder if and to the extent that
Indemnitee has otherwise actually received such payment under any insurance
policy, contract, agreement or otherwise.
(e) The Company's obligation to indemnify or advance Expenses hereunder
to Indemnitee with respect to Indemnitee's service at the request of the Company
as a director, officer, employee or agent of any other corporation, partnership,
joint venture, trust, employee benefit plan or other enterprise shall be reduced
by any amount Indemnitee has actually received as indemnification or advancement
of Expenses from such other corporation, partnership, joint venture, trust,
employee benefit plan or other enterprise.
SECTION 12. Duration of Agreement. This Agreement shall continue until
and terminate upon the later of: (a) ten (10) years after the date that
Indemnitee shall have ceased to serve as a director or officer of the Company or
of any other corporation, partnership, joint venture, trust, employee benefit
plan or other enterprise which Indemnitee served on behalf of the Company; or
(b) the final termination of any Proceeding then pending in respect of which
Indemnitee is granted rights of indemnification or advancement of expenses
hereunder and of any Proceeding commenced by Indemnitee pursuant to Section 10
relating thereto. This Agreement shall be binding upon the Company and its
successors and assigns and shall inure to the benefit of Indemnitee and his
spouse
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(if Indemnitee resides in Texas or another community property state), heirs,
executors and administrators, and this Agreement does not, and shall not be
construed to confer any rights on any person that is not a party to this
Agreement, other than Indemnitee's spouse, and his heirs, executors and assigns.
SECTION 13. Severability. If any provision or provisions of this
Agreement shall be held to be invalid, illegal or unenforceable for any reason
whatsoever: (a) the validity, legality and enforceability of the remaining
provisions of this Agreement (including, without limitation, each portion of any
Section of this Agreement containing any such provision held to be invalid,
illegal or unenforceable which is not itself invalid, illegal or unenforceable)
shall not in any way be affected or impaired thereby; (b) such provision or
provisions shall be deemed reformed to the extent necessary to conform to
applicable law and to give the maximum effect to the intent of the parties
hereto; and (c) to the fullest extent possible, the provisions of this Agreement
(including. without limitation, each portion of any Section of this Agreement
containing any such provision held to be invalid, illegal or unenforceable which
is not itself invalid, illegal or unenforceable) shall be construed so as to
give effect to the intent manifested thereby.
SECTION 14. Exception to Right of Indemnification or Advancement of
Expenses. Notwithstanding any other provision hereof, Indemnitee shall not be
entitled to indemnification or advancement of Expenses under this Agreement with
respect to any Proceeding brought by Indemnitee or any claim therein prior to a
Change in Control, unless the bringing of such Proceeding or making of such
claim shall have been approved by the Board of Directors.
SECTION 15. Identical Counterparts. This Agreement may be executed in
one or more counterparts by means of original or facsimile signatures, each of
which shall for all purposes be deemed to be an original but all of which
together shall constitute one and the same Agreement. Only one such counterpart
signed by the party against whom enforceability is sought needs to be produced
to evidence the existence of this Agreement.
SECTION 16. Headings. The headings of the Sections hereof are inserted
for convenience only and shall not be deemed to constitute part of this
Agreement or to affect the construction thereof.
SECTION 17. Definitions. For purposes of this Agreement:
(a) "Acquiring Person" means any Person who or which,
together with all Affiliates and Associates of such Person, is or are
the Beneficial Owner of twenty-five percent (25%) or more of the shares
of Common Stock then outstanding, but does not include any Exempt
Person; provided, however, that a Person shall not be or become an
Acquiring Person if such Person, together with its Affiliates and
Associates, shall become the Beneficial Owner of twenty-five percent
(25%) or more of the shares of Common Stock then outstanding solely as
a result of a reduction in the number of shares of Common Stock
outstanding due to the repurchase of Common Stock by the Company,
unless and until such time as such Person or any Affiliate or Associate
of such Person shall purchase or otherwise become the
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Beneficial Owner of additional shares of Common Stock constituting one
percent (1%) or more of the then outstanding shares of Common Stock or
any other Person (or Persons) who is (or collectively are) the
Beneficial Owner of shares of Common Stock constituting one percent
(1%) or more of the then outstanding shares of Common Stock shall
become an Affiliate or Associate of such Person, unless, in either such
case, such Person, together with all Affiliates and Associates of such
Person, is not then the Beneficial Owner of twenty-five percent (25%)
or more of the shares of Common Stock then outstanding.
(b) "Affiliate" has the meaning ascribed to that term in
Exchange Act Rule 12b-2.
(c) "Associate" means, with reference to any Person, (i) any
corporation, firm, partnership, association, unincorporated
organization or other entity (other than the Company or a subsidiary of
the Company) of which that Person is an officer or general partner (or
officer or general partner of a general partner) or is, directly or
indirectly, the Beneficial owner of 10% or more of any class of its
equity securities, (ii) any trust or other estate in which that Person
has a substantial beneficial interest or for or of which that Person
serves as trustee or in a similar fiduciary capacity and (iii) any
relative or spouse of that Person, or any relative of that spouse, who
has the same home as that Person.
(d) A specified Person is deemed the "Beneficial Owner" of,
and is deemed to "beneficially own," any securities:
(i) of which that Person or any of that Person's
Affiliates or Associates, directly or indirectly, is the
"beneficial owner" (as determined pursuant to Exchange Act
Rule 13d-3) or otherwise has the right to vote or dispose of,
including pursuant to any agreement, arrangement or
understanding (whether or not in writing); provided, however,
that a Person shall not be deemed the "Beneficial Owner" of,
or to "beneficially own," any security under this subparagraph
as a result of an agreement, arrangement or understanding to
vote that security if that agreement, arrangement or
understanding: (A) arises solely from a revocable proxy or
consent given in response to a public (that is, not including
a solicitation exempted by Exchange Act Rule 14a-2(b)(2))
proxy or consent solicitation made pursuant to, and in
accordance with, the applicable provisions of the Exchange
Act; and (B) is not then reportable by such Person on Exchange
Act Schedule 13D (or any comparable or successor report);
(ii) which that Person or any of that Person's
Affiliates or Associates, directly or indirectly, has the
right or obligation to acquire (whether that right or
obligation is exercisable or effective immediately or only
after the passage of time or the occurrence of an event)
pursuant to any
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agreement, arrangement or understanding (whether or not in
writing) or on the exercise of conversion rights, exchange
rights, other rights, warrants or options, or otherwise;
provided, however, that a Person shall not be deemed the
"Beneficial Owner" of, or to "beneficially own," securities
tendered pursuant to a tender or exchange offer made by that
Person or any of that Person's Affiliates or Associates until
those tendered securities are accepted for purchase or
exchange; or
(iii) which are beneficially owned, directly or
indirectly, by (A) any other Person (or any Affiliate or
Associate thereof) with which the specified Person or any of
the specified Person's Affiliates or Associates has any
agreement, arrangement or understanding (whether or not in
writing) for the purpose of acquiring, holding, voting (except
pursuant to a revocable proxy or consent as described in the
proviso to subparagraph (i) of this definition) or disposing
of any voting securities of the Company or (B) any group (as
that term is used in Exchange Act Rule 13d-5(b)) of which that
specified Person is a member;
PROVIDED, HOWEVER, that nothing in this definition shall cause a Person engaged
in business as an underwriter of securities to be the "Beneficial Owner" of, or
to "beneficially own," any securities acquired through such Person's
participation in good faith in a firm commitment underwriting until the
expiration of forty (40) days after the date of that acquisition. For purposes
of this Agreement, "voting" a security shall include voting, granting a proxy,
acting by consent, making a request or demand relating to corporate action
(including, without limitation, calling a stockholder meeting) or otherwise
giving an authorization (within the meaning of Section 14(a) of the Exchange
Act) in respect of such security.
(e) "Change of Control" means the occurrence of any of the
following events that occurs after the Merger Closing Date: (i) any
Person becomes an Acquiring Person; (ii) at any time the then
Continuing Directors cease to constitute a majority of the members of
the Board; (iii) a merger of the Company with or into, or a sale by the
Company of its properties and assets substantially as an entirety to,
another Person occurs and, immediately after that occurrence, any
Person, other than an Exempt Person, together with all Affiliates and
Associates of such Person, shall be the Beneficial Owner of twenty-five
percent (25%) or more of the total voting power of the then outstanding
Voting Shares of the Person surviving that transaction (in the case or
a merger or consolidation) or the Person acquiring those properties and
assets substantially as an entirety.
(f) "Common Stock" means the common stock, par value $.001 per
share, of the Company.
(g) "Continuing Director" means at any time any individual
who then (i) is a member of the Board and was a member of the Board as
of the Merger Closing
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Date or whose nomination for his first election, or that first
election, to the Board following that date was recommended or approved
by a majority of the then Continuing Directors (acting separately or as
a part of any action taken by the Board or any committee thereof) and
(ii) is not an Acquiring Person, an Affiliate or Associate of an
Acquiring Person or a nominee or representative of an Acquiring Person
or of any such Affiliate or Associate.
(h) "Corporate Status" describes the status of a Person who is
or was a director, officer, employee or agent of the Company or of any
other corporation, partnership, joint venture, trust, employee benefit
plan or other enterprise which such person is or was serving at the
request of the Company. For purposes of this Agreement, "serving at the
request of the Company" includes any service by Indemnitee which
imposes duties on, or involves services by, Indemnitee with respect to
any employee benefit plan or its participants or beneficiaries.
(i) "Court of Chancery" means the Court of Chancery of the
State of Delaware.
(j) "Disinterested Director" means a director of the Company
who is not and was not a party to the Proceeding in respect of which
indemnification is sought by Indemnitee hereunder.
(k) "Exchange Act" means the Securities Exchange Act of 1934,
as amended.
(l) "Exempt Person" means (i), (A) the Company, any subsidiary
of the Company, any employee benefit plan of the Company or of any
subsidiary of the Company and (B) any Person organized, appointed or
established by the Company for or pursuant to the terms of any such
plan or for the purpose of funding any such plan or funding other
employee benefits for employees of the Company or any subsidiary of the
Company and (ii) Indemnitee, any Affiliate or Associate of Indemnitee
or any group (as that term is used in Exchange Act Rule 13d-5(b)) of
which Indemnitee or any Affiliate or Associate of Indemnitee is a
member.
(m) "Expenses" include all 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, all other disbursements or
expenses of the types customarily incurred in connection with
prosecuting, defending, preparing to prosecute or defend,
investigating, being or preparing to be a witness in, or otherwise
participating in, a Proceeding and all interest or finance charges
attributable to any thereof. Should any payments by the Company under
this Agreement be determined to be subject to any federal, state or
local income or excise tax, "Expenses" also shall include such amounts
as are necessary to place Indemnitee in the same after-tax position
(after giving effect to all
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applicable taxes) he would have been in had no such tax been determined
to apply to such payments.
(m) "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 past five (5) years has been, retained to
represent: (i) the Company, its Affiliates 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.
Notwithstanding the foregoing. the term "Independent Counsel" shall not
include any person who, under the applicable standards of professional
conduct then prevailing, would have a conflict of interest in
representing either the Company or Indemnitee in an action to determine
Indemnitee's rights under this Agreement.
(n) "Merger Closing Date" means September 1, 1998.
(o) "Person" means any natural person, sole proprietorship,
corporation, partnership of any kind having a separate legal status,
limited liability company, business trust, unincorporated organization
or association, mutual company, joint stock company, joint venture,
estate, trust, union or employee organization or governmental
authority.
(p) "Proceeding" includes any action, suit, alternate dispute
resolution mechanism, hearing or any other proceeding, whether civil,
criminal, administrative, arbitrative, investigative or mediative, any
appeal in any such action, suit, alternate dispute resolution
mechanism, hearing or other proceeding and any inquiry or investigation
that could lead to any such action, suit, alternate dispute resolution
mechanism, hearing or other proceeding, except one (i) initiated by an
Indemnitee pursuant to Section 10 to enforce his rights hereunder or
(ii) pending on or before the date of this Agreement.
(q) "Voting Shares" means: (i) in the case of any corporation,
stock of that corporation of the class or classes having general voting
power under ordinary circumstances to elect a majority of that
corporation's board of directors; and (ii) in the case of any other
entity, equity interests of the class or classes having general voting
power under ordinary circumstances equivalent to the Voting Shares of a
corporation.
SECTION 18. Modification and Waiver. No supplement, modification or
amendment of this Agreement shall be binding unless executed in writing by both
of the parties hereto. No waiver of any of the provisions of this Agreement
shall be deemed or shall constitute a waiver of any other provisions hereof
(whether or not similar) nor shall such waiver constitute a continuing waiver.
SECTION 19. Notice by Indemnitee. Indemnitee agrees promptly to notify
the Company in writing upon being served with any summons, citation, subpoena,
complaint, indictment, information
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or other document relating to any Proceeding or matter which may be subject to
indemnification or advancement of Expenses covered hereunder; provided, however,
failure to give such notice shall not deprive Indemnitee of his rights to
indemnification and advancement of Expenses under this Agreement unless the
Company is actually and materially prejudiced thereby.
SECTION 20. Notices. All notices, requests, demands and other
communications hereunder shall be in writing and shall be deemed to have been
duly given if (a) delivered by hand and receipted for by the party to whom said
notice or other communication shall have been directed or (b) mailed by
certified or registered mail with postage prepaid, on the third (3rd) business
day after the date on which it is so mailed:
(a) If to Indemnitee, to: P. O. Box 51205
Lafayette, LA 70505
Attention: Robert R. Brooksher
(b) If to the Company, to: PetroQuest Energy, Inc.
625 E. Kaliste Saloom Rd., Suite 400
Lafayette, Louisiana 70508
Attention: Corporate Secretary
or to such other address as may have been furnished to Indemnitee by the Company
or to the Company by Indemnitee, as the case way be.
SECTION 21. Contribution. To the fullest extent permissible under
applicable law, if the indemnification provided for in this Agreement is
unavailable to Indemnitee for any reason whatsoever, the Company, in lieu of
indemnifying Indemnitee, shall contribute to the amount incurred by Indemnitee,
whether for judgments, fines, penalties, excise taxes, amounts paid or to be
paid in settlement and/or for Expenses, in connection with any claim relating to
an indemnifiable event under this Agreement, in such proportion as is deemed
fair and reasonable in light of all the circumstances of such Proceeding in
order to reflect: (a) the relative benefits received by the Company and
Indemnitee as a result of the event(s) and/or transaction(s) giving cause to
such Proceeding; and/or (b) the relative fault of the Company (and its
directors, officers, employees and agents) and Indemnitee in connection with
such event(s) and/or transaction(s).
SECTION 22. Governing Law; Submission to Jurisdiction. This Agreement
and the legal relations among the parties shall be governed by, and construed
and enforced in accordance with, the laws of the State of Delaware, without
regard to its conflict of laws rules. Except with respect to any arbitration
commenced by Indemnitee pursuant to Section 10(a), the Company and Indemnitee
hereby irrevocably and unconditionally (a) agree that any action or proceeding
arising out of or in connection with this Agreement shall be brought only in the
Court of Chancery and not in any other state or federal court in the United
States of America or any court in any other country, (b) consent to submit to
the exclusive jurisdiction of the Court of Chancery for purposes of any action
or proceeding arising
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out of or in connection with this Agreement, (c) waive any objection to the
laying of venue of any such action or proceeding in the Court of Chancery, and
(d) waive, and agree not to plead or to make, any claim that any such action or
proceeding brought in the Court of Chancery has been brought in an improper or
otherwise inconvenient forum.
SECTION 23. Miscellaneous. Use of the masculine pronoun shall be deemed
to include usage of the feminine pronoun where appropriate. When used in this
Agreement, the words "herein," "hereof" and words of similar import shall refer
to this Agreement as a whole and not to any provision of this Agreement, and the
word "Section" refers to a Section of this Agreement, unless otherwise
specified.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
the day and year first above written.
PETROQUEST ENERGY, INC.
By: /s/ CHARLES T. GOODSON
--------------------------------
Name: CHARLES T. GOODSON
Title: PRESIDENT & CEO
INDEMNITEE
/s/ ROBERT R. BROOKSHER
------------------------------------
ROBERT R. BROOKSHER
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EXHIBIT 10.15
INDEMNIFICATION AGREEMENT
This Indemnification Agreement is entered into and effective as of the
16th day of December, 1998 ("Agreement"), by and between PetroQuest Energy,
Inc., a Delaware corporation ("Company"), and Daniel G. Fournerat
("Indemnitee"):
WHEREAS, highly competent persons have become more reluctant to serve
corporations as directors, executive officers or in other capacities unless they
are provided, with adequate protection through insurance or adequate
indemnification against inordinate risks of claims and actions against them
arising out of their service to, and activities on behalf of, the corporation;
WHEREAS, the Board of Directors of the Company (the "Board") has
determined that, in order to attract and retain qualified individuals, the
Company will attempt to maintain on an ongoing basis, at its sole expense,
liability insurance to protect persons' serving the Company and its subsidiaries
from certain liabilities. Although the furnishing of such insurance has been a
customary and widespread practice among United States-based corporations and
other business enterprises, the Company believes that, given current market
conditions and trends, such insurance may be available to it in the future only
at higher premiums and with more exclusions. At the same time, directors,
officers and other persons in service to corporations or business enterprises
are being increasingly subjected to expensive and time-consuming litigation
relating to, among other things, matters that traditionally would have been
brought only against the corporation or business enterprise itself;
WHEREAS, the uncertainties relating to such insurance and to
indemnification have increased the difficulty of attracting and retaining such
persons;
WHEREAS, the Board has determined that the increased difficulty in
attracting and retaining such persons is detrimental to the best interests of
the Company's stockholders and that the Company should act to assure such
persons that there will be increased certainty of such protection in the future;
WHEREAS, it is reasonable, prudent and necessary for the Company
contractually to obligate itself to indemnify such persons to the fullest extent
permitted by applicable law so that they will serve or continue to serve the
Company free from undue concern that they will not be so indemnified; and
WHEREAS, Indemnitee is willing to serve, continue to serve and to take
on additional service for or on behalf of the Company on the condition that he
be so indemnified;
NOW, THEREFORE, in consideration of the premises and the covenants
contained herein, the Company and Indemnitee do hereby covenant and agree as
follows:
SECTION 1. Services by Indemnitee. Indemnitee agrees to serve as a
director/executive officer of the Company and, as mutually agreed by Indemnitee
and the Company, as a director,
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officer, employee, agent or fiduciary of other corporations, partnerships, joint
ventures, trusts or other enterprises (including, without limitation, employee
benefit plans). Indemnitee may at any time and for any reason resign from any
such position (subject to any other contractual obligation or any obligation
imposed by operation of law), in which event the Company shall have no
obligation under this Agreement to continue Indemnitee in that position. This
Agreement shall not be deemed an employment contract between the Company (or any
of its subsidiaries) and Indemnitee. Indemnitee specifically acknowledges that
Indemnitee's employment with the Company (or any of its subsidiaries), if any,
is at will, and the Indemnitee may be discharged at any time for any reason,
with or without cause, except as may be otherwise provided in any written
employment contract between Indemnitee and the Company (or any of its
subsidiaries), other applicable formal severance policies duly adopted by the
Board or, with respect to service as a director of the Company, by the Company's
Certificate of incorporation, Bylaws and the General Corporation Law of the
State of Delaware. Notwithstanding, the foregoing, this Agreement shall continue
in force after Indemnitee has ceased to serve as an officer or director of the
Company and no longer serves at the request of the Company as a director,
officer, employee or agent of the Company or any subsidiary of the Company.
SECTION 2. Indemnification--General. The Company shall indemnify, and
advance Expenses (as hereinafter defined) to, Indemnitee (a) as provided in this
Agreement and (b) to the fullest extent permitted by applicable law in effect on
the date hereof and as amended from time to time. The rights of Indemnitee
provided under the preceding sentence shall include, but shall not be limited
to, the rights set forth in the other Sections of this Agreement.
SECTION 3. Proceedings Other than Proceedings by or in the Right of the
Company. Indemnitee shall be entitled to the rights of indemnification provided
in Section 2 and this Section 3 if, by reason of his Corporate Status (as
hereinafter defined), he is, or is threatened to be made, a party to or a
participant in any threatened, pending, or completed Proceeding (as hereinafter
defined), other than a Proceeding by or in the right of the Company. Pursuant to
this Section 3, the Company shall indemnify Indemnitee against, and shall hold
Indemnitee harmless from and in respect of, all Expenses, judgments, penalties,
fines (including excise taxes) and amounts paid in settlement (including all
interest, assessments and other charges paid or payable in connection with or in
respect of such Expenses, judgments, fines, penalties or amounts paid in
settlement) actually and reasonably incurred by him or on his behalf in
connection with such Proceeding or any claim, issue or matter therein, if he
acted in good faith and in a manner he reasonably believed to be in or not
opposed to the best interests of the Company and, with respect to any criminal
Proceeding, had no reasonable cause to believe his conduct was unlawful.
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SECTION 4. Proceedings by or in the Right of the Company. Indemnitee
shall be entitled to the rights of indemnification provided in Section 2 and
this Section 4 if, by reason of his Corporate Status, he is, or is threatened to
be made, a party to or a participant in any threatened, pending or completed
Proceeding brought by or in the right of the Company to procure a judgment in
its favor. Pursuant to this Section 4, the Company shall indemnify Indemnitee
against, and shall hold Indemnitee harmless from and in respect of, all Expenses
actually and reasonably incurred by him or on his behalf in connection with, and
any amounts paid in settlement of, such Proceeding if he acted in good faith and
in a manner he reasonably believed to be in or not opposed to the best interests
of the Company. Notwithstanding the foregoing, no indemnification against such
Expenses shall be made in respect of any claim, issue or matter in such
Proceeding as to which Indemnitee shall have been adjudged to be liable to the
Company if applicable law prohibits such indemnification; provided, however, if
applicable law so permits, indemnification against such Expenses shall
nevertheless be made by the Company in such event if and only to the extent that
the Court of Chancery of the State of Delaware, or the court in which such
Proceeding shall have been brought or is pending, shall determine.
SECTION 5. Indemnification for Expenses of a Party Who Is Wholly or
Partly Successful. Notwithstanding any other provision of this Agreement, to the
extent that Indemnitee is, by reason of his Corporate Status, a party to (or a
participant in) and is successful, on the merits or otherwise, in defense of 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 defense of such Proceeding but is successful, on the merits
or otherwise, as to one or more but less than all claims, issues or matters in
such Proceeding, the Company shall indemnify Indemnitee against all Expenses
actually and reasonably incurred by him or on his behalf in connection with each
successfully resolved claim, issue or matter. For purposes of this Section and
without limitation, the termination of any claim, issue or matter in such a
Proceeding by dismissal, with or without prejudice, shall be deemed to be a
successful result as to such claim, issue or matter.
SECTION 6. Indemnification for Expenses as a Witness. Notwithstanding
any other provision of this Agreement, to the extent that Indemnitee is, by
reason of his Corporate Status, a witness in any Proceeding to which Indemnitee
is not a party, he shall be indemnified against all Expenses actually and
reasonably incurred by him or on his behalf in connection therewith.
SECTION 7. Advancement of Expenses. The Company shall advance all
reasonable Expenses incurred by or on behalf of Indemnitee in connection with
any Proceeding within ten (10) days after the receipt by the Company of a
statement or statements from Indemnitee requesting such advance or advances from
time to time, whether prior to or after final disposition of such Proceeding.
Such statement or statements shall reasonably evidence the Expenses incurred by
Indemnitee and shall include or be preceded or accompanied by an undertaking by
or on behalf of Indemnitee to repay any Expenses advanced if it ultimately shall
be determined, in accordance with this Agreement, that Indemnitee is not
entitled to be indemnified against such Expenses.
SECTION 8. Procedure for Determination of Entitlement to
Indemnification.
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(a) To obtain indemnification under this Agreement, Indemnitee shall
submit to the Company a written request, including therein or therewith such
documentation and information as is reasonably available to Indemnitee and is
reasonably necessary to determine whether and to what extent Indemnitee is
entitled to indemnification. The Secretary of the Company shall, promptly upon
receipt of such a request for indemnification, advise the Board in writing that
Indemnitee has requested indemnification.
(b) On written request by Indemnitee for indemnification pursuant to
the first sentence of Section 8(a), a determination, if required by applicable
law, with respect to Indemnitee's entitlement thereto shall be made in the
specific case: (i) if a Change in Control (as hereinafter defined) shall have
occurred within two (2) years prior to the date of such written request, by
Independent Counsel (as hereinafter defined) in a written opinion to the Board,
a copy of which shall be delivered to Indemnitee; or (ii) if a Change of Control
shall not have occurred within two (2) years prior to the date of such written
request, (A) by a majority vote of the Disinterested Directors (as hereinafter
defined), even though less than a quorum of the Board, or (B) if there are no
such Disinterested Directors, or if such Disinterested Directors so direct, by
Independent Counsel in a written opinion to the Board, a copy of which shall be
delivered to Indemnitee; and, if it is so determined that Indemnitee is entitled
to indemnification, payment to Indemnitee shall be made within ten (10) days
after such determination. Indemnitee shall cooperate with the person, persons or
entity making such determination with respect to Indemnitee's entitlement to
indemnification, including providing to such person, persons or entity on
reasonable advance request any documentation or information which is not
privileged or otherwise protected from disclosure and which is reasonably
available to Indemnitee and reasonably necessary to such determination. Any
costs or expenses (including attorneys' fees and disbursements) incurred by
Indemnitee in so cooperating with the person, persons or entity making such
determination shall be borne by the Company (irrespective of the determination
as to Indemnitee's entitlement to indemnification) and the Company hereby
indemnifies and agrees to hold Indemnitee harmless therefrom.
(c) In the event the determination of entitlement to indemnification
is to be made by Independent Counsel pursuant to Section 8(b), the Independent
Counsel shall be selected as provided in this Section 8(c). If a Change of
Control shall not have occurred within two (2) years prior to the date of
Indemnitee's written request for indemnification pursuant to Section 8(a), the
Independent Counsel shall be selected by the Board, and the Company shall give
written notice to Indemnitee advising him of the identity of the Independent
Counsel so selected. If a Change of Control shall have occurred within two (2)
years prior to the date of Indemnitee's written request for indemnification
pursuant to Section 8(a), the Independent Counsel shall be selected by
Indemnitee (unless Indemnitee shall request that such selection be made by the
Board, in which event the preceding sentence shall apply), and Indemnitee shall
give written notice to the Company advising it of the identity of the
Independent Counsel so selected in either event, Indemnitee or the Company, as
the case may be, may, within ten (10) days after such written notice of
selection shall have been given, deliver to the Company or to Indemnitee, as the
case may be, 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" as defined in section 17, and the
objection shall set forth with particularity the factual basis of such
assertion. If such written objection is so made and
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substantiated, the Independent Counsel so selected may not serve as Independent
Counsel unless and until such objection is withdrawn or a court has determined
that such objection is without merit. If, within twenty (20) days after
submission by Indemnitee of a written request for indemnification pursuant to
Section 8(a), no Independent Counsel shall have been selected and not objected
to, either the Company or Indemnitee may petition the Court of Chancery or other
court of competent jurisdiction for resolution of any objection which shall have
been made by the Company or Indemnitee to the other's selection of Independent
Counsel and/or for the appointment as Independent Counsel of a person selected
by the petitioned court or by such other person as the petitioned court shall
designate, and the person with respect to whom all objections are so resolved or
the person so appointed shall act as Independent Counsel under Section 8(b). The
Company shall pay any and all reasonable fees and expenses of Independent
Counsel incurred by such Independent Counsel in connection with acting pursuant
to Section 8(b), and the Company shall pay all reasonable fees and expenses
incident to the procedures of this Section 8(c), regardless of the manner in
which such Independent Counsel was selected and appointed. If (i) Independent
Counsel does not make any determination respecting Indemnitee's entitlement to
indemnification hereunder within ninety (90) days after receipt by the Company
of a written request therefor and (ii) any judicial proceeding or arbitration
pursuant to Section 10(a)(iii) hereof is then commenced, Independent Counsel
shall be discharged and relieved of any further responsibility in such capacity
(subject to the applicable standards of professional conduct then prevailing).
SECTION 9. Presumptions and Effect of Certain Proceedings.
(a) In making a determination with respect to entitlement to
indemnification hereunder, the Person, Persons or entity making such
determination shall presume that Indemnitee is entitled to indemnification under
this Agreement if Indemnitee has submitted a request for indemnification in
accordance with Section 8(a), and the Company shall have the burden of proof to
overcome that presumption in connection with the making by any person, persons
or entity of any determination contrary to that presumption.
(b) The termination of any Proceeding or of any claim, issue or matter
therein, by judgment, order, settlement or conviction, or on a plea of nolo
contendere or its equivalent, shall not (except as otherwise expressly provided
in this Agreement) 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 which he reasonably believed to be in or not opposed to
the best interests of the Company or, with respect to any criminal Proceeding,
that Indemnitee had reasonable cause to believe that his conduct was unlawful.
(c) Any action taken by Indemnitee in connection with any employee
benefit plan shall, if taken in good faith by Indemnitee and in a manner
Indemnitee reasonably believed to be in the interest of the participants in or
beneficiaries of that plan, be deemed to have been taken in a manner "not
opposed to the best interests of the Company" for all purposes of this
Agreement.
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SECTION 10. Remedies of Indemnitee.
(a) In the event that (i) a determination is made pursuant to Section
8 that Indemnitee is not entitled to indemnification hereunder, (ii) advancement
of Expenses is not timely made pursuant to Section 7, (iii) Independent Counsel
is to determine Indemnitee's entitlement to indemnification hereunder, but does
not make that determination within ninety (90) days after receipt by the Company
of the request for that indemnification, (iv) payment of indemnification is not
made pursuant to section 5 or 6 within ten (10) days after receipt by the
Company of a written request therefor or (v) payment of indemnification is not
made within ten (10) days after a determination has been made that Indemnitee is
entitled to indemnification, Indemnitee shall be entitled to an adjudication
from the Court of Chancery of his entitlement to such indemnification or
advancement of Expenses. Alternatively, Indemnitee, at his option, may seek an
award in arbitration to be conducted by a single arbitrator pursuant to the
Commercial Arbitration Rules of the American Arbitration Association. Indemnitee
shall commence such Proceeding seeking an adjudication or an award in
arbitration within one hundred eighty (180) days following the date on which
Indemnitee first has the right to commence such proceeding pursuant to this
Section 10(a); provided, however, that the foregoing clause shall not apply in
respect of a proceeding brought by Indemnitee to enforce his rights under
Section 5.
(b) In the event that a determination shall have been made pursuant to
Section 8(b) that Indemnitee is not entitled to indemnification, any judicial
proceeding or arbitration commenced pursuant to this Section 10 shall be
conducted in all respects as a de novo trial, or arbitration, on the merits and
Indemnitee shall not be prejudiced by reason of that adverse determination. In
any judicial proceeding or arbitration commenced pursuant to this section 10,
the Company shall have the burden of proving that Indemnitee is not entitled to
indemnification or advancement of Expenses, as the case may be.
(c) If a determination shall have been made pursuant to Section 8(b)
that Indemnitee is entitled to indemnification, the Company shall be bound by
such determination in any judicial proceeding or arbitration commenced pursuant
to this Section 10, absent (i) a misstatement by Indemnitee of a material fact,
or an omission by Indemnitee of a material fact necessary to make Indemnitee's
statement not materially misleading, in connection with the request for
indemnification, or (ii) a prohibition of such indemnification under applicable
law.
(d) In the event that Indemnitee, pursuant to this Section 10, seeks a
judicial adjudication of or an award in arbitration to enforce his rights under,
or to recover damages for breach of, this Agreement, Indemnitee shall be
entitled to recover from the Company, and shall be indemnified by the Company
against, any and all expenses (of the types described in the definition of
Expenses in Section 17) actually and reasonably incurred by him in such judicial
adjudication or arbitration, but only if he prevails therein. If it shall be
determined in said judicial adjudication or arbitration 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.
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SECTION 11. Non-Exclusivity; Survival of Rights; Insurance;
Subrogation.
(a) The rights of indemnification and to receive advancement of
Expenses as provided by this Agreement shall not be deemed exclusive of any
other rights to which Indemnitee may at any time be entitled 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 Agreement or of any provision hereof shall limit or
restrict any right of Indemnitee under this Agreement in respect of any action
taken or omitted by such Indemnitee in his Corporate Status prior to such
amendment, alteration or repeal. To the extent that a change in Delaware law
(whether by statute or judicial decision) permits greater indemnification by
agreement than would be afforded currently under this Agreement, it is the
intent of the parties hereto that Indemnitee shall enjoy by this Agreement the
greater benefits so afforded by such change.
(b) To the extent that the Company maintains an insurance policy or
policies providing liability insurance for directors, officers, employees, or
agents of the Company or of any other corporation, partnership, joint venture,
trust, employee benefit plan or other enterprise which such person serves at the
request of the Company, Indemnitee shall be covered by such policy or policies
in accordance with its or their terms to the maximum extent of the coverage
available for any such director, Officer, employee or agent under such policy or
policies.
(c) In the event of any payment under this Agreement, the Company 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 necessary
to secure such rights, including execution of such documents as are necessary to
enable the Company to bring suit to enforce such rights.
(d) The Company shall not be liable under this Agreement to make any
payment of amounts otherwise indemnifiable hereunder if and to the extent that
Indemnitee has otherwise actually received such payment under any insurance
policy, contract, agreement or otherwise.
(e) The Company's obligation to indemnify or advance Expenses hereunder
to Indemnitee with respect to Indemnitee's service at the request of the Company
as a director, officer, employee or agent of any other corporation, partnership,
joint venture, trust, employee benefit plan or other enterprise shall be reduced
by any amount Indemnitee has actually received as indemnification or advancement
of Expenses from such other corporation, partnership, joint venture, trust,
employee benefit plan or other enterprise.
SECTION 12. Duration of Agreement. This Agreement shall continue until
and terminate upon the later of: (a) ten (10) years after the date that
Indemnitee shall have ceased to serve as a director or officer of the Company or
of any other corporation, partnership, joint venture, trust, employee benefit
plan or other enterprise which Indemnitee served on behalf of the Company; or
(b) the final termination of any Proceeding then pending in respect of which
Indemnitee is granted rights of indemnification or advancement of expenses
hereunder and of any Proceeding commenced by Indemnitee pursuant to Section 10
relating thereto. This Agreement shall be binding upon the Company and its
successors and assigns and shall inure to the benefit of Indemnitee and his
spouse
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(if Indemnitee resides in Texas or another community property state), heirs,
executors and administrators, and this Agreement does not, and shall not be
construed to confer any rights on any person that is not a party to this
Agreement, other than Indemnitee's spouse, and his heirs, executors and assigns.
SECTION 13. Severability. If any provision or provisions of this
Agreement shall be held to be invalid, illegal or unenforceable for any reason
whatsoever: (a) the validity, legality and enforceability of the remaining
provisions of this Agreement (including, without limitation, each portion of any
Section of this Agreement containing any such provision held to be invalid,
illegal or unenforceable which is not itself invalid, illegal or unenforceable)
shall not in any way be affected or impaired thereby; (b) such provision or
provisions shall be deemed reformed to the extent necessary to conform to
applicable law and to give the maximum effect to the intent of the parties
hereto; and (c) to the fullest extent possible, the provisions of this Agreement
(including. without limitation, each portion of any Section of this Agreement
containing any such provision held to be invalid, illegal or unenforceable which
is not itself invalid, illegal or unenforceable) shall be construed so as to
give effect to the intent manifested thereby.
SECTION 14. Exception to Right of Indemnification or Advancement of
Expenses. Notwithstanding any other provision hereof, Indemnitee shall not be
entitled to indemnification or advancement of Expenses under this Agreement with
respect to any Proceeding brought by Indemnitee or any claim therein prior to a
Change in Control, unless the bringing of such Proceeding or making of such
claim shall have been approved by the Board of Directors.
SECTION 15. Identical Counterparts. This Agreement may be executed in
one or more counterparts by means of original or facsimile signatures, each of
which shall for all purposes be deemed to be an original but all of which
together shall constitute one and the same Agreement. Only one such counterpart
signed by the party against whom enforceability is sought needs to be produced
to evidence the existence of this Agreement.
SECTION 16. Headings. The headings of the Sections hereof are inserted
for convenience only and shall not be deemed to constitute part of this
Agreement or to affect the construction thereof.
SECTION 17. Definitions. For purposes of this Agreement:
(a) "Acquiring Person" means any Person who or which,
together with all Affiliates and Associates of such Person, is or are
the Beneficial Owner of twenty-five percent (25%) or more of the shares
of Common Stock then outstanding, but does not include any Exempt
Person; provided, however, that a Person shall not be or become an
Acquiring Person if such Person, together with its Affiliates and
Associates, shall become the Beneficial Owner of twenty-five percent
(25%) or more of the shares of Common Stock then outstanding solely as
a result of a reduction in the number of shares of Common Stock
outstanding due to the repurchase of Common Stock by the Company,
unless and until such time as such Person or any Affiliate or Associate
of such Person shall purchase or otherwise become the
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Beneficial Owner of additional shares of Common Stock constituting one
percent (1%) or more of the then outstanding shares of Common Stock or
any other Person (or Persons) who is (or collectively are) the
Beneficial Owner of shares of Common Stock constituting one percent
(1%) or more of the then outstanding shares of Common Stock shall
become an Affiliate or Associate of such Person, unless, in either such
case, such Person, together with all Affiliates and Associates of such
Person, is not then the Beneficial Owner of twenty-five percent (25%)
or more of the shares of Common Stock then outstanding.
(b) "Affiliate" has the meaning ascribed to that term in
Exchange Act Rule 12b-2.
(c) "Associate" means, with reference to any Person, (i) any
corporation, firm, partnership, association, unincorporated
organization or other entity (other than the Company or a subsidiary of
the Company) of which that Person is an officer or general partner (or
officer or general partner of a general partner) or is, directly or
indirectly, the Beneficial owner of 10% or more of any class of its
equity securities, (ii) any trust or other estate in which that Person
has a substantial beneficial interest or for or of which that Person
serves as trustee or in a similar fiduciary capacity and (iii) any
relative or spouse of that Person, or any relative of that spouse, who
has the same home as that Person.
(d) A specified Person is deemed the "Beneficial Owner" of,
and is deemed to "beneficially own," any securities:
(i) of which that Person or any of that Person's
Affiliates or Associates, directly or indirectly, is the
"beneficial owner" (as determined pursuant to Exchange Act
Rule 13d-3) or otherwise has the right to vote or dispose of,
including pursuant to any agreement, arrangement or
understanding (whether or not in writing); provided, however,
that a Person shall not be deemed the "Beneficial Owner" of,
or to "beneficially own," any security under this subparagraph
as a result of an agreement, arrangement or understanding to
vote that security if that agreement, arrangement or
understanding: (A) arises solely from a revocable proxy or
consent given in response to a public (that is, not including
a solicitation exempted by Exchange Act Rule 14a-2(b)(2))
proxy or consent solicitation made pursuant to, and in
accordance with, the applicable provisions of the Exchange
Act; and (B) is not then reportable by such Person on Exchange
Act Schedule 13D (or any comparable or successor report);
(ii) which that Person or any of that Person's
Affiliates or Associates, directly or indirectly, has the
right or obligation to acquire (whether that right or
obligation is exercisable or effective immediately or only
after the passage of time or the occurrence of an event)
pursuant to any
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agreement, arrangement or understanding (whether or not in
writing) or on the exercise of conversion rights, exchange
rights, other rights, warrants or options, or otherwise;
provided, however, that a Person shall not be deemed the
"Beneficial Owner" of, or to "beneficially own," securities
tendered pursuant to a tender or exchange offer made by that
Person or any of that Person's Affiliates or Associates until
those tendered securities are accepted for purchase or
exchange; or
(iii) which are beneficially owned, directly or
indirectly, by (A) any other Person (or any Affiliate or
Associate thereof) with which the specified Person or any of
the specified Person's Affiliates or Associates has any
agreement, arrangement or understanding (whether or not in
writing) for the purpose of acquiring, holding, voting (except
pursuant to a revocable proxy or consent as described in the
proviso to subparagraph (i) of this definition) or disposing
of any voting securities of the Company or (B) any group (as
that term is used in Exchange Act Rule 13d-5(b)) of which that
specified Person is a member;
PROVIDED, HOWEVER, that nothing in this definition shall cause a Person engaged
in business as an underwriter of securities to be the "Beneficial Owner" of, or
to "beneficially own," any securities acquired through such Person's
participation in good faith in a firm commitment underwriting until the
expiration of forty (40) days after the date of that acquisition. For purposes
of this Agreement, "voting" a security shall include voting, granting a proxy,
acting by consent, making a request or demand relating to corporate action
(including, without limitation, calling a stockholder meeting) or otherwise
giving an authorization (within the meaning of Section 14(a) of the Exchange
Act) in respect of such security.
(e) "Change of Control" means the occurrence of any of the
following events that occurs after the Merger Closing Date: (i) any
Person becomes an Acquiring Person; (ii) at any time the then
Continuing Directors cease to constitute a majority of the members of
the Board; (iii) a merger of the Company with or into, or a sale by the
Company of its properties and assets substantially as an entirety to,
another Person occurs and, immediately after that occurrence, any
Person, other than an Exempt Person, together with all Affiliates and
Associates of such Person, shall be the Beneficial Owner of twenty-five
percent (25%) or more of the total voting power of the then outstanding
Voting Shares of the Person surviving that transaction (in the case or
a merger or consolidation) or the Person acquiring those properties and
assets substantially as an entirety.
(f) "Common Stock" means the common stock, par value $.001 per
share, of the Company.
(g) "Continuing Director" means at any time any individual
who then (i) is a member of the Board and was a member of the Board as
of the Merger Closing
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Date or whose nomination for his first election, or that first
election, to the Board following that date was recommended or approved
by a majority of the then Continuing Directors (acting separately or as
a part of any action taken by the Board or any committee thereof) and
(ii) is not an Acquiring Person, an Affiliate or Associate of an
Acquiring Person or a nominee or representative of an Acquiring Person
or of any such Affiliate or Associate.
(h) "Corporate Status" describes the status of a Person who is
or was a director, officer, employee or agent of the Company or of any
other corporation, partnership, joint venture, trust, employee benefit
plan or other enterprise which such person is or was serving at the
request of the Company. For purposes of this Agreement, "serving at the
request of the Company" includes any service by Indemnitee which
imposes duties on, or involves services by, Indemnitee with respect to
any employee benefit plan or its participants or beneficiaries.
(i) "Court of Chancery" means the Court of Chancery of the
State of Delaware.
(j) "Disinterested Director" means a director of the Company
who is not and was not a party to the Proceeding in respect of which
indemnification is sought by Indemnitee hereunder.
(k) "Exchange Act" means the Securities Exchange Act of 1934,
as amended.
(l) "Exempt Person" means (i), (A) the Company, any subsidiary
of the Company, any employee benefit plan of the Company or of any
subsidiary of the Company and (B) any Person organized, appointed or
established by the Company for or pursuant to the terms of any such
plan or for the purpose of funding any such plan or funding other
employee benefits for employees of the Company or any subsidiary of the
Company and (ii) Indemnitee, any Affiliate or Associate of Indemnitee
or any group (as that term is used in Exchange Act Rule 13d-5(b)) of
which Indemnitee or any Affiliate or Associate of Indemnitee is a
member.
(m) "Expenses" include all 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, all other disbursements or
expenses of the types customarily incurred in connection with
prosecuting, defending, preparing to prosecute or defend,
investigating, being or preparing to be a witness in, or otherwise
participating in, a Proceeding and all interest or finance charges
attributable to any thereof. Should any payments by the Company under
this Agreement be determined to be subject to any federal, state or
local income or excise tax, "Expenses" also shall include such amounts
as are necessary to place Indemnitee in the same after-tax position
(after giving effect to all
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applicable taxes) he would have been in had no such tax been determined
to apply to such payments.
(m) "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 past five (5) years has been, retained to
represent: (i) the Company, its Affiliates 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.
Notwithstanding the foregoing. the term "Independent Counsel" shall not
include any person who, under the applicable standards of professional
conduct then prevailing, would have a conflict of interest in
representing either the Company or Indemnitee in an action to determine
Indemnitee's rights under this Agreement.
(n) "Merger Closing Date" means September 1, 1998.
(o) "Person" means any natural person, sole proprietorship,
corporation, partnership of any kind having a separate legal status,
limited liability company, business trust, unincorporated organization
or association, mutual company, joint stock company, joint venture,
estate, trust, union or employee organization or governmental
authority.
(p) "Proceeding" includes any action, suit, alternate dispute
resolution mechanism, hearing or any other proceeding, whether civil,
criminal, administrative, arbitrative, investigative or mediative, any
appeal in any such action, suit, alternate dispute resolution
mechanism, hearing or other proceeding and any inquiry or investigation
that could lead to any such action, suit, alternate dispute resolution
mechanism, hearing or other proceeding, except one (i) initiated by an
Indemnitee pursuant to Section 10 to enforce his rights hereunder or
(ii) pending on or before the date of this Agreement.
(q) "Voting Shares" means: (i) in the case of any corporation,
stock of that corporation of the class or classes having general voting
power under ordinary circumstances to elect a majority of that
corporation's board of directors; and (ii) in the case of any other
entity, equity interests of the class or classes having general voting
power under ordinary circumstances equivalent to the Voting Shares of a
corporation.
SECTION 18. Modification and Waiver. No supplement, modification or
amendment of this Agreement shall be binding unless executed in writing by both
of the parties hereto. No waiver of any of the provisions of this Agreement
shall be deemed or shall constitute a waiver of any other provisions hereof
(whether or not similar) nor shall such waiver constitute a continuing waiver.
SECTION 19. Notice by Indemnitee. Indemnitee agrees promptly to notify
the Company in writing upon being served with any summons, citation, subpoena,
complaint, indictment, information
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or other document relating to any Proceeding or matter which may be subject to
indemnification or advancement of Expenses covered hereunder; provided, however,
failure to give such notice shall not deprive Indemnitee of his rights to
indemnification and advancement of Expenses under this Agreement unless the
Company is actually and materially prejudiced thereby.
SECTION 20. Notices. All notices, requests, demands and other
communications hereunder shall be in writing and shall be deemed to have been
duly given if (a) delivered by hand and receipted for by the party to whom said
notice or other communication shall have been directed or (b) mailed by
certified or registered mail with postage prepaid, on the third (3rd) business
day after the date on which it is so mailed:
(a) If to Indemnitee, to: Onebane, Bernard, Torian, Diaz,
McNamara & Abell
P. O. Box 3507
Lafayette, LA 70502-3507
Attention: Daniel G. Fournerat
(b) If to the Company, to: PetroQuest Energy, Inc.
625 E. Kaliste Saloom Rd., Suite 400
Lafayette, Louisiana 70508
Attention: Corporate Secretary
or to such other address as may have been furnished to Indemnitee by the Company
or to the Company by Indemnitee, as the case way be.
SECTION 21. Contribution. To the fullest extent permissible under
applicable law, if the indemnification provided for in this Agreement is
unavailable to Indemnitee for any reason whatsoever, the Company, in lieu of
indemnifying Indemnitee, shall contribute to the amount incurred by Indemnitee,
whether for judgments, fines, penalties, excise taxes, amounts paid or to be
paid in settlement and/or for Expenses, in connection with any claim relating to
an indemnifiable event under this Agreement, in such proportion as is deemed
fair and reasonable in light of all the circumstances of such Proceeding in
order to reflect: (a) the relative benefits received by the Company and
Indemnitee as a result of the event(s) and/or transaction(s) giving cause to
such Proceeding; and/or (b) the relative fault of the Company (and its
directors, officers, employees and agents) and Indemnitee in connection with
such event(s) and/or transaction(s).
SECTION 22. Governing Law; Submission to Jurisdiction. This Agreement
and the legal relations among the parties shall be governed by, and construed
and enforced in accordance with, the laws of the State of Delaware, without
regard to its conflict of laws rules. Except with respect to any arbitration
commenced by Indemnitee pursuant to Section 10(a), the Company and Indemnitee
hereby irrevocably and unconditionally (a) agree that any action or proceeding
arising out of or in connection with this Agreement shall be brought only in the
Court of Chancery and not in any other state or
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federal court in the United States of America or any court in any other country,
(b) consent to submit to the exclusive jurisdiction of the Court of Chancery for
purposes of any action or proceeding arising out of or in connection with this
Agreement, (c) waive any objection to the laying of venue of any such action or
proceeding in the Court of Chancery, and (d) waive, and agree not to plead or to
make, any claim that any such action or proceeding brought in the Court of
Chancery has been brought in an improper or otherwise inconvenient forum.
SECTION 23. Miscellaneous. Use of the masculine pronoun shall be deemed
to include usage of the feminine pronoun where appropriate. When used in this
Agreement, the words "herein," "hereof" and words of similar import shall refer
to this Agreement as a whole and not to any provision of this Agreement, and the
word "Section" refers to a Section of this Agreement, unless otherwise
specified.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
the day and year first above written.
PETROQUEST ENERGY, INC.
By: /s/ CHARLES T. GOODSON
--------------------------------
Name: CHARLES T. GOODSON
Title: PRESIDENT & CEO
INDEMNITEE
/S/ DANIEL G. FOURNERAT
------------------------------------
DANIEL G. FOURNERAT
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EXHIBIT 10.16
INDEMNIFICATION AGREEMENT
This Indemnification Agreement is entered into and effective as of the
16th day of December, 1998 ("Agreement"), by and between PetroQuest Energy,
Inc., a Delaware corporation ("Company"), and William C.
Leuschner ("Indemnitee"):
WHEREAS, highly competent persons have become more reluctant to serve
corporations as directors, executive officers or in other capacities unless they
are provided, with adequate protection through insurance or adequate
indemnification against inordinate risks of claims and actions against them
arising out of their service to, and activities on behalf of, the corporation;
WHEREAS, the Board of Directors of the Company (the "Board") has
determined that, in order to attract and retain qualified individuals, the
Company will attempt to maintain on an ongoing basis, at its sole expense,
liability insurance to protect persons' serving the Company and its subsidiaries
from certain liabilities. Although the furnishing of such insurance has been a
customary and widespread practice among United States-based corporations and
other business enterprises, the Company believes that, given current market
conditions and trends, such insurance may be available to it in the future only
at higher premiums and with more exclusions. At the same time, directors,
officers and other persons in service to corporations or business enterprises
are being increasingly subjected to expensive and time-consuming litigation
relating to, among other things, matters that traditionally would have been
brought only against the corporation or business enterprise itself;
WHEREAS, the uncertainties relating to such insurance and to
indemnification have increased the difficulty of attracting and retaining such
persons;
WHEREAS, the Board has determined that the increased difficulty in
attracting and retaining such persons is detrimental to the best interests of
the Company's stockholders and that the Company should act to assure such
persons that there will be increased certainty of such protection in the future;
WHEREAS, it is reasonable, prudent and necessary for the Company
contractually to obligate itself to indemnify such persons to the fullest extent
permitted by applicable law so that they will serve or continue to serve the
Company free from undue concern that they will not be so indemnified; and
WHEREAS, Indemnitee is willing to serve, continue to serve and to take
on additional service for or on behalf of the Company on the condition that he
be so indemnified;
NOW, THEREFORE, in consideration of the premises and the covenants
contained herein, the Company and Indemnitee do hereby covenant and agree as
follows:
SECTION 1. Services by Indemnitee. Indemnitee agrees to serve as a
director/executive officer of the Company and, as mutually agreed by Indemnitee
and the Company, as a director,
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officer, employee, agent or fiduciary of other corporations, partnerships, joint
ventures, trusts or other enterprises (including, without limitation, employee
benefit plans). Indemnitee may at any time and for any reason resign from any
such position (subject to any other contractual obligation or any obligation
imposed by operation of law), in which event the Company shall have no
obligation under this Agreement to continue Indemnitee in that position. This
Agreement shall not be deemed an employment contract between the Company (or any
of its subsidiaries) and Indemnitee. Indemnitee specifically acknowledges that
Indemnitee's employment with the Company (or any of its subsidiaries), if any,
is at will, and the Indemnitee may be discharged at any time for any reason,
with or without cause, except as may be otherwise provided in any written
employment contract between Indemnitee and the Company (or any of its
subsidiaries), other applicable formal severance policies duly adopted by the
Board or, with respect to service as a director of the Company, by the Company's
Certificate of incorporation, Bylaws and the General Corporation Law of the
State of Delaware. Notwithstanding, the foregoing, this Agreement shall continue
in force after Indemnitee has ceased to serve as an officer or director of the
Company and no longer serves at the request of the Company as a director,
officer, employee or agent of the Company or any subsidiary of the Company.
SECTION 2. Indemnification--General. The Company shall indemnify, and
advance Expenses (as hereinafter defined) to, Indemnitee (a) as provided in this
Agreement and (b) to the fullest extent permitted by applicable law in effect on
the date hereof and as amended from time to time. The rights of Indemnitee
provided under the preceding sentence shall include, but shall not be limited
to, the rights set forth in the other Sections of this Agreement.
SECTION 3. Proceedings Other than Proceedings by or in the Right of the
Company. Indemnitee shall be entitled to the rights of indemnification provided
in Section 2 and this Section 3 if, by reason of his Corporate Status (as
hereinafter defined), he is, or is threatened to be made, a party to or a
participant in any threatened, pending, or completed Proceeding (as hereinafter
defined), other than a Proceeding by or in the right of the Company. Pursuant to
this Section 3, the Company shall indemnify Indemnitee against, and shall hold
Indemnitee harmless from and in respect of, all Expenses, judgments, penalties,
fines (including excise taxes) and amounts paid in settlement (including all
interest, assessments and other charges paid or payable in connection with or in
respect of such Expenses, judgments, fines, penalties or amounts paid in
settlement) actually and reasonably incurred by him or on his behalf in
connection with such Proceeding or any claim, issue or matter therein, if he
acted in good faith and in a manner he reasonably believed to be in or not
opposed to the best interests of the Company and, with respect to any criminal
Proceeding, had no reasonable cause to believe his conduct was unlawful.
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SECTION 4. Proceedings by or in the Right of the Company. Indemnitee
shall be entitled to the rights of indemnification provided in Section 2 and
this Section 4 if, by reason of his Corporate Status, he is, or is threatened to
be made, a party to or a participant in any threatened, pending or completed
Proceeding brought by or in the right of the Company to procure a judgment in
its favor. Pursuant to this Section 4, the Company shall indemnify Indemnitee
against, and shall hold Indemnitee harmless from and in respect of, all Expenses
actually and reasonably incurred by him or on his behalf in connection with, and
any amounts paid in settlement of, such Proceeding if he acted in good faith and
in a manner he reasonably believed to be in or not opposed to the best interests
of the Company. Notwithstanding the foregoing, no indemnification against such
Expenses shall be made in respect of any claim, issue or matter in such
Proceeding as to which Indemnitee shall have been adjudged to be liable to the
Company if applicable law prohibits such indemnification; provided, however, if
applicable law so permits, indemnification against such Expenses shall
nevertheless be made by the Company in such event if and only to the extent that
the Court of Chancery of the State of Delaware, or the court in which such
Proceeding shall have been brought or is pending, shall determine.
SECTION 5. Indemnification for Expenses of a Party Who Is Wholly or
Partly Successful. Notwithstanding any other provision of this Agreement, to the
extent that Indemnitee is, by reason of his Corporate Status, a party to (or a
participant in) and is successful, on the merits or otherwise, in defense of 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 defense of such Proceeding but is successful, on the merits
or otherwise, as to one or more but less than all claims, issues or matters in
such Proceeding, the Company shall indemnify Indemnitee against all Expenses
actually and reasonably incurred by him or on his behalf in connection with each
successfully resolved claim, issue or matter. For purposes of this Section and
without limitation, the termination of any claim, issue or matter in such a
Proceeding by dismissal, with or without prejudice, shall be deemed to be a
successful result as to such claim, issue or matter.
SECTION 6. Indemnification for Expenses as a Witness. Notwithstanding
any other provision of this Agreement, to the extent that Indemnitee is, by
reason of his Corporate Status, a witness in any Proceeding to which Indemnitee
is not a party, he shall be indemnified against all Expenses actually and
reasonably incurred by him or on his behalf in connection therewith.
SECTION 7. Advancement of Expenses. The Company shall advance all
reasonable Expenses incurred by or on behalf of Indemnitee in connection with
any Proceeding within ten (10) days after the receipt by the Company of a
statement or statements from Indemnitee requesting such advance or advances from
time to time, whether prior to or after final disposition of such Proceeding.
Such statement or statements shall reasonably evidence the Expenses incurred by
Indemnitee and shall include or be preceded or accompanied by an undertaking by
or on behalf of Indemnitee to repay any Expenses advanced if it ultimately shall
be determined, in accordance with this Agreement, that Indemnitee is not
entitled to be indemnified against such Expenses.
SECTION 8. Procedure for Determination of Entitlement to
Indemnification.
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(a) To obtain indemnification under this Agreement, Indemnitee shall
submit to the Company a written request, including therein or therewith such
documentation and information as is reasonably available to Indemnitee and is
reasonably necessary to determine whether and to what extent Indemnitee is
entitled to indemnification. The Secretary of the Company shall, promptly upon
receipt of such a request for indemnification, advise the Board in writing that
Indemnitee has requested indemnification.
(b) On written request by Indemnitee for indemnification pursuant to
the first sentence of Section 8(a), a determination, if required by applicable
law, with respect to Indemnitee's entitlement thereto shall be made in the
specific case: (i) if a Change in Control (as hereinafter defined) shall have
occurred within two (2) years prior to the date of such written request, by
Independent Counsel (as hereinafter defined) in a written opinion to the Board,
a copy of which shall be delivered to Indemnitee; or (ii) if a Change of Control
shall not have occurred within two (2) years prior to the date of such written
request, (A) by a majority vote of the Disinterested Directors (as hereinafter
defined), even though less than a quorum of the Board, or (B) if there are no
such Disinterested Directors, or if such Disinterested Directors so direct, by
Independent Counsel in a written opinion to the Board, a copy of which shall be
delivered to Indemnitee; and, if it is so determined that Indemnitee is entitled
to indemnification, payment to Indemnitee shall be made within ten (10) days
after such determination. Indemnitee shall cooperate with the person, persons or
entity making such determination with respect to Indemnitee's entitlement to
indemnification, including providing to such person, persons or entity on
reasonable advance request any documentation or information which is not
privileged or otherwise protected from disclosure and which is reasonably
available to Indemnitee and reasonably necessary to such determination. Any
costs or expenses (including attorneys' fees and disbursements) incurred by
Indemnitee in so cooperating with the person, persons or entity making such
determination shall be borne by the Company (irrespective of the determination
as to Indemnitee's entitlement to indemnification) and the Company hereby
indemnifies and agrees to hold Indemnitee harmless therefrom.
(c) In the event the determination of entitlement to indemnification
is to be made by Independent Counsel pursuant to Section 8(b), the Independent
Counsel shall be selected as provided in this Section 8(c). If a Change of
Control shall not have occurred within two (2) years prior to the date of
Indemnitee's written request for indemnification pursuant to Section 8(a), the
Independent Counsel shall be selected by the Board, and the Company shall give
written notice to Indemnitee advising him of the identity of the Independent
Counsel so selected. If a Change of Control shall have occurred within two (2)
years prior to the date of Indemnitee's written request for indemnification
pursuant to Section 8(a), the Independent Counsel shall be selected by
Indemnitee (unless Indemnitee shall request that such selection be made by the
Board, in which event the preceding sentence shall apply), and Indemnitee shall
give written notice to the Company advising it of the identity of the
Independent Counsel so selected in either event, Indemnitee or the Company, as
the case may be, may, within ten (10) days after such written notice of
selection shall have been given, deliver to the Company or to Indemnitee, as the
case may be, 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" as defined in section 17, and the
objection shall set forth with particularity the factual basis of such
assertion. If such written objection is so made and
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substantiated, the Independent Counsel so selected may not serve as Independent
Counsel unless and until such objection is withdrawn or a court has determined
that such objection is without merit. If, within twenty (20) days after
submission by Indemnitee of a written request for indemnification pursuant to
Section 8(a), no Independent Counsel shall have been selected and not objected
to, either the Company or Indemnitee may petition the Court of Chancery or other
court of competent jurisdiction for resolution of any objection which shall have
been made by the Company or Indemnitee to the other's selection of Independent
Counsel and/or for the appointment as Independent Counsel of a person selected
by the petitioned court or by such other person as the petitioned court shall
designate, and the person with respect to whom all objections are so resolved or
the person so appointed shall act as Independent Counsel under Section 8(b). The
Company shall pay any and all reasonable fees and expenses of Independent
Counsel incurred by such Independent Counsel in connection with acting pursuant
to Section 8(b), and the Company shall pay all reasonable fees and expenses
incident to the procedures of this Section 8(c), regardless of the manner in
which such Independent Counsel was selected and appointed. If (i) Independent
Counsel does not make any determination respecting Indemnitee's entitlement to
indemnification hereunder within ninety (90) days after receipt by the Company
of a written request therefor and (ii) any judicial proceeding or arbitration
pursuant to Section 10(a)(iii) hereof is then commenced, Independent Counsel
shall be discharged and relieved of any further responsibility in such capacity
(subject to the applicable standards of professional conduct then prevailing).
SECTION 9. Presumptions and Effect of Certain Proceedings.
(a) In making a determination with respect to entitlement to
indemnification hereunder, the Person, Persons or entity making such
determination shall presume that Indemnitee is entitled to indemnification under
this Agreement if Indemnitee has submitted a request for indemnification in
accordance with Section 8(a), and the Company shall have the burden of proof to
overcome that presumption in connection with the making by any person, persons
or entity of any determination contrary to that presumption.
(b) The termination of any Proceeding or of any claim, issue or matter
therein, by judgment, order, settlement or conviction, or on a plea of nolo
contendere or its equivalent, shall not (except as otherwise expressly provided
in this Agreement) 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 which he reasonably believed to be in or not opposed to
the best interests of the Company or, with respect to any criminal Proceeding,
that Indemnitee had reasonable cause to believe that his conduct was unlawful.
(c) Any action taken by Indemnitee in connection with any employee
benefit plan shall, if taken in good faith by Indemnitee and in a manner
Indemnitee reasonably believed to be in the interest of the participants in or
beneficiaries of that plan, be deemed to have been taken in a manner "not
opposed to the best interests of the Company" for all purposes of this
Agreement.
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SECTION 10. Remedies of Indemnitee.
(a) In the event that (i) a determination is made pursuant to Section
8 that Indemnitee is not entitled to indemnification hereunder, (ii) advancement
of Expenses is not timely made pursuant to Section 7, (iii) Independent Counsel
is to determine Indemnitee's entitlement to indemnification hereunder, but does
not make that determination within ninety (90) days after receipt by the Company
of the request for that indemnification, (iv) payment of indemnification is not
made pursuant to section 5 or 6 within ten (10) days after receipt by the
Company of a written request therefor or (v) payment of indemnification is not
made within ten (10) days after a determination has been made that Indemnitee is
entitled to indemnification, Indemnitee shall be entitled to an adjudication
from the Court of Chancery of his entitlement to such indemnification or
advancement of Expenses. Alternatively, Indemnitee, at his option, may seek an
award in arbitration to be conducted by a single arbitrator pursuant to the
Commercial Arbitration Rules of the American Arbitration Association. Indemnitee
shall commence such Proceeding seeking an adjudication or an award in
arbitration within one hundred eighty (180) days following the date on which
Indemnitee first has the right to commence such proceeding pursuant to this
Section 10(a); provided, however, that the foregoing clause shall not apply in
respect of a proceeding brought by Indemnitee to enforce his rights under
Section 5.
(b) In the event that a determination shall have been made pursuant to
Section 8(b) that Indemnitee is not entitled to indemnification, any judicial
proceeding or arbitration commenced pursuant to this Section 10 shall be
conducted in all respects as a de novo trial, or arbitration, on the merits and
Indemnitee shall not be prejudiced by reason of that adverse determination. In
any judicial proceeding or arbitration commenced pursuant to this section 10,
the Company shall have the burden of proving that Indemnitee is not entitled to
indemnification or advancement of Expenses, as the case may be.
(c) If a determination shall have been made pursuant to Section 8(b)
that Indemnitee is entitled to indemnification, the Company shall be bound by
such determination in any judicial proceeding or arbitration commenced pursuant
to this Section 10, absent (i) a misstatement by Indemnitee of a material fact,
or an omission by Indemnitee of a material fact necessary to make Indemnitee's
statement not materially misleading, in connection with the request for
indemnification, or (ii) a prohibition of such indemnification under applicable
law.
(d) In the event that Indemnitee, pursuant to this Section 10, seeks a
judicial adjudication of or an award in arbitration to enforce his rights under,
or to recover damages for breach of, this Agreement, Indemnitee shall be
entitled to recover from the Company, and shall be indemnified by the Company
against, any and all expenses (of the types described in the definition of
Expenses in Section 17) actually and reasonably incurred by him in such judicial
adjudication or arbitration, but only if he prevails therein. If it shall be
determined in said judicial adjudication or arbitration 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.
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SECTION 11. Non-Exclusivity; Survival of Rights; Insurance;
Subrogation.
(a) The rights of indemnification and to receive advancement of
Expenses as provided by this Agreement shall not be deemed exclusive of any
other rights to which Indemnitee may at any time be entitled 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 Agreement or of any provision hereof shall limit or
restrict any right of Indemnitee under this Agreement in respect of any action
taken or omitted by such Indemnitee in his Corporate Status prior to such
amendment, alteration or repeal. To the extent that a change in Delaware law
(whether by statute or judicial decision) permits greater indemnification by
agreement than would be afforded currently under this Agreement, it is the
intent of the parties hereto that Indemnitee shall enjoy by this Agreement the
greater benefits so afforded by such change.
(b) To the extent that the Company maintains an insurance policy or
policies providing liability insurance for directors, officers, employees, or
agents of the Company or of any other corporation, partnership, joint venture,
trust, employee benefit plan or other enterprise which such person serves at the
request of the Company, Indemnitee shall be covered by such policy or policies
in accordance with its or their terms to the maximum extent of the coverage
available for any such director, Officer, employee or agent under such policy or
policies.
(c) In the event of any payment under this Agreement, the Company 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 necessary
to secure such rights, including execution of such documents as are necessary to
enable the Company to bring suit to enforce such rights.
(d) The Company shall not be liable under this Agreement to make any
payment of amounts otherwise indemnifiable hereunder if and to the extent that
Indemnitee has otherwise actually received such payment under any insurance
policy, contract, agreement or otherwise.
(e) The Company's obligation to indemnify or advance Expenses hereunder
to Indemnitee with respect to Indemnitee's service at the request of the Company
as a director, officer, employee or agent of any other corporation, partnership,
joint venture, trust, employee benefit plan or other enterprise shall be reduced
by any amount Indemnitee has actually received as indemnification or advancement
of Expenses from such other corporation, partnership, joint venture, trust,
employee benefit plan or other enterprise.
SECTION 12. Duration of Agreement. This Agreement shall continue until
and terminate upon the later of: (a) ten (10) years after the date that
Indemnitee shall have ceased to serve as a director or officer of the Company or
of any other corporation, partnership, joint venture, trust, employee benefit
plan or other enterprise which Indemnitee served on behalf of the Company; or
(b) the final termination of any Proceeding then pending in respect of which
Indemnitee is granted rights of indemnification or advancement of expenses
hereunder and of any Proceeding commenced by Indemnitee pursuant to Section 10
relating thereto. This Agreement shall be binding upon the Company and its
successors and assigns and shall inure to the benefit of Indemnitee and his
spouse
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(if Indemnitee resides in Texas or another community property state), heirs,
executors and administrators, and this Agreement does not, and shall not be
construed to confer any rights on any person that is not a party to this
Agreement, other than Indemnitee's spouse, and his heirs, executors and assigns.
SECTION 13. Severability. If any provision or provisions of this
Agreement shall be held to be invalid, illegal or unenforceable for any reason
whatsoever: (a) the validity, legality and enforceability of the remaining
provisions of this Agreement (including, without limitation, each portion of any
Section of this Agreement containing any such provision held to be invalid,
illegal or unenforceable which is not itself invalid, illegal or unenforceable)
shall not in any way be affected or impaired thereby; (b) such provision or
provisions shall be deemed reformed to the extent necessary to conform to
applicable law and to give the maximum effect to the intent of the parties
hereto; and (c) to the fullest extent possible, the provisions of this Agreement
(including. without limitation, each portion of any Section of this Agreement
containing any such provision held to be invalid, illegal or unenforceable which
is not itself invalid, illegal or unenforceable) shall be construed so as to
give effect to the intent manifested thereby.
SECTION 14. Exception to Right of Indemnification or Advancement of
Expenses. Notwithstanding any other provision hereof, Indemnitee shall not be
entitled to indemnification or advancement of Expenses under this Agreement with
respect to any Proceeding brought by Indemnitee or any claim therein prior to a
Change in Control, unless the bringing of such Proceeding or making of such
claim shall have been approved by the Board of Directors.
SECTION 15. Identical Counterparts. This Agreement may be executed in
one or more counterparts by means of original or facsimile signatures, each of
which shall for all purposes be deemed to be an original but all of which
together shall constitute one and the same Agreement. Only one such counterpart
signed by the party against whom enforceability is sought needs to be produced
to evidence the existence of this Agreement.
SECTION 16. Headings. The headings of the Sections hereof are inserted
for convenience only and shall not be deemed to constitute part of this
Agreement or to affect the construction thereof.
SECTION 17. Definitions. For purposes of this Agreement:
(a) "Acquiring Person" means any Person who or which,
together with all Affiliates and Associates of such Person, is or are
the Beneficial Owner of twenty-five percent (25%) or more of the shares
of Common Stock then outstanding, but does not include any Exempt
Person; provided, however, that a Person shall not be or become an
Acquiring Person if such Person, together with its Affiliates and
Associates, shall become the Beneficial Owner of twenty-five percent
(25%) or more of the shares of Common Stock then outstanding solely as
a result of a reduction in the number of shares of Common Stock
outstanding due to the repurchase of Common Stock by the Company,
unless and until such time as such Person or any Affiliate or Associate
of such Person shall purchase or otherwise become the
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Beneficial Owner of additional shares of Common Stock constituting one
percent (1%) or more of the then outstanding shares of Common Stock or
any other Person (or Persons) who is (or collectively are) the
Beneficial Owner of shares of Common Stock constituting one percent
(1%) or more of the then outstanding shares of Common Stock shall
become an Affiliate or Associate of such Person, unless, in either such
case, such Person, together with all Affiliates and Associates of such
Person, is not then the Beneficial Owner of twenty-five percent (25%)
or more of the shares of Common Stock then outstanding.
(b) "Affiliate" has the meaning ascribed to that term in
Exchange Act Rule 12b-2.
(c) "Associate" means, with reference to any Person, (i) any
corporation, firm, partnership, association, unincorporated
organization or other entity (other than the Company or a subsidiary of
the Company) of which that Person is an officer or general partner (or
officer or general partner of a general partner) or is, directly or
indirectly, the Beneficial owner of 10% or more of any class of its
equity securities, (ii) any trust or other estate in which that Person
has a substantial beneficial interest or for or of which that Person
serves as trustee or in a similar fiduciary capacity and (iii) any
relative or spouse of that Person, or any relative of that spouse, who
has the same home as that Person.
(d) A specified Person is deemed the "Beneficial Owner" of,
and is deemed to "beneficially own," any securities:
(i) of which that Person or any of that Person's
Affiliates or Associates, directly or indirectly, is the
"beneficial owner" (as determined pursuant to Exchange Act
Rule 13d-3) or otherwise has the right to vote or dispose of,
including pursuant to any agreement, arrangement or
understanding (whether or not in writing); provided, however,
that a Person shall not be deemed the "Beneficial Owner" of,
or to "beneficially own," any security under this subparagraph
as a result of an agreement, arrangement or understanding to
vote that security if that agreement, arrangement or
understanding: (A) arises solely from a revocable proxy or
consent given in response to a public (that is, not including
a solicitation exempted by Exchange Act Rule 14a-2(b)(2))
proxy or consent solicitation made pursuant to, and in
accordance with, the applicable provisions of the Exchange
Act; and (B) is not then reportable by such Person on Exchange
Act Schedule 13D (or any comparable or successor report);
(ii) which that Person or any of that Person's
Affiliates or Associates, directly or indirectly, has the
right or obligation to acquire (whether that right or
obligation is exercisable or effective immediately or only
after the passage of time or the occurrence of an event)
pursuant to any
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agreement, arrangement or understanding (whether or not in
writing) or on the exercise of conversion rights, exchange
rights, other rights, warrants or options, or otherwise;
provided, however, that a Person shall not be deemed the
"Beneficial Owner" of, or to "beneficially own," securities
tendered pursuant to a tender or exchange offer made by that
Person or any of that Person's Affiliates or Associates until
those tendered securities are accepted for purchase or
exchange; or
(iii) which are beneficially owned, directly or
indirectly, by (A) any other Person (or any Affiliate or
Associate thereof) with which the specified Person or any of
the specified Person's Affiliates or Associates has any
agreement, arrangement or understanding (whether or not in
writing) for the purpose of acquiring, holding, voting (except
pursuant to a revocable proxy or consent as described in the
proviso to subparagraph (i) of this definition) or disposing
of any voting securities of the Company or (B) any group (as
that term is used in Exchange Act Rule 13d-5(b)) of which that
specified Person is a member;
PROVIDED, HOWEVER, that nothing in this definition shall cause a Person engaged
in business as an underwriter of securities to be the "Beneficial Owner" of, or
to "beneficially own," any securities acquired through such Person's
participation in good faith in a firm commitment underwriting until the
expiration of forty (40) days after the date of that acquisition. For purposes
of this Agreement, "voting" a security shall include voting, granting a proxy,
acting by consent, making a request or demand relating to corporate action
(including, without limitation, calling a stockholder meeting) or otherwise
giving an authorization (within the meaning of Section 14(a) of the Exchange
Act) in respect of such security.
(e) "Change of Control" means the occurrence of any of the
following events that occurs after the Merger Closing Date: (i) any
Person becomes an Acquiring Person; (ii) at any time the then
Continuing Directors cease to constitute a majority of the members of
the Board; (iii) a merger of the Company with or into, or a sale by the
Company of its properties and assets substantially as an entirety to,
another Person occurs and, immediately after that occurrence, any
Person, other than an Exempt Person, together with all Affiliates and
Associates of such Person, shall be the Beneficial Owner of twenty-five
percent (25%) or more of the total voting power of the then outstanding
Voting Shares of the Person surviving that transaction (in the case or
a merger or consolidation) or the Person acquiring those properties and
assets substantially as an entirety.
(f) "Common Stock" means the common stock, par value $.001 per
share, of the Company.
(g) "Continuing Director" means at any time any individual
who then (i) is a member of the Board and was a member of the Board as
of the Merger Closing
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Date or whose nomination for his first election, or that first
election, to the Board following that date was recommended or approved
by a majority of the then Continuing Directors (acting separately or as
a part of any action taken by the Board or any committee thereof) and
(ii) is not an Acquiring Person, an Affiliate or Associate of an
Acquiring Person or a nominee or representative of an Acquiring Person
or of any such Affiliate or Associate.
(h) "Corporate Status" describes the status of a Person who is
or was a director, officer, employee or agent of the Company or of any
other corporation, partnership, joint venture, trust, employee benefit
plan or other enterprise which such person is or was serving at the
request of the Company. For purposes of this Agreement, "serving at the
request of the Company" includes any service by Indemnitee which
imposes duties on, or involves services by, Indemnitee with respect to
any employee benefit plan or its participants or beneficiaries.
(i) "Court of Chancery" means the Court of Chancery of the
State of Delaware.
(j) "Disinterested Director" means a director of the Company
who is not and was not a party to the Proceeding in respect of which
indemnification is sought by Indemnitee hereunder.
(k) "Exchange Act" means the Securities Exchange Act of 1934,
as amended.
(l) "Exempt Person" means (i), (A) the Company, any subsidiary
of the Company, any employee benefit plan of the Company or of any
subsidiary of the Company and (B) any Person organized, appointed or
established by the Company for or pursuant to the terms of any such
plan or for the purpose of funding any such plan or funding other
employee benefits for employees of the Company or any subsidiary of the
Company and (ii) Indemnitee, any Affiliate or Associate of Indemnitee
or any group (as that term is used in Exchange Act Rule 13d-5(b)) of
which Indemnitee or any Affiliate or Associate of Indemnitee is a
member.
(m) "Expenses" include all 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, all other disbursements or
expenses of the types customarily incurred in connection with
prosecuting, defending, preparing to prosecute or defend,
investigating, being or preparing to be a witness in, or otherwise
participating in, a Proceeding and all interest or finance charges
attributable to any thereof. Should any payments by the Company under
this Agreement be determined to be subject to any federal, state or
local income or excise tax, "Expenses" also shall include such amounts
as are necessary to place Indemnitee in the same after-tax position
(after giving effect to all
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applicable taxes) he would have been in had no such tax been determined
to apply to such payments.
(m) "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 past five (5) years has been, retained to
represent: (i) the Company, its Affiliates 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.
Notwithstanding the foregoing. the term "Independent Counsel" shall not
include any person who, under the applicable standards of professional
conduct then prevailing, would have a conflict of interest in
representing either the Company or Indemnitee in an action to determine
Indemnitee's rights under this Agreement.
(n) "Merger Closing Date" means September 1, 1998.
(o) "Person" means any natural person, sole proprietorship,
corporation, partnership of any kind having a separate legal status,
limited liability company, business trust, unincorporated organization
or association, mutual company, joint stock company, joint venture,
estate, trust, union or employee organization or governmental
authority.
(p) "Proceeding" includes any action, suit, alternate dispute
resolution mechanism, hearing or any other proceeding, whether civil,
criminal, administrative, arbitrative, investigative or mediative, any
appeal in any such action, suit, alternate dispute resolution
mechanism, hearing or other proceeding and any inquiry or investigation
that could lead to any such action, suit, alternate dispute resolution
mechanism, hearing or other proceeding, except one (i) initiated by an
Indemnitee pursuant to Section 10 to enforce his rights hereunder or
(ii) pending on or before the date of this Agreement.
(q) "Voting Shares" means: (i) in the case of any corporation,
stock of that corporation of the class or classes having general voting
power under ordinary circumstances to elect a majority of that
corporation's board of directors; and (ii) in the case of any other
entity, equity interests of the class or classes having general voting
power under ordinary circumstances equivalent to the Voting Shares of a
corporation.
SECTION 18. Modification and Waiver. No supplement, modification or
amendment of this Agreement shall be binding unless executed in writing by both
of the parties hereto. No waiver of any of the provisions of this Agreement
shall be deemed or shall constitute a waiver of any other provisions hereof
(whether or not similar) nor shall such waiver constitute a continuing waiver.
SECTION 19. Notice by Indemnitee. Indemnitee agrees promptly to notify
the Company in writing upon being served with any summons, citation, subpoena,
complaint, indictment, information
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or other document relating to any Proceeding or matter which may be subject to
indemnification or advancement of Expenses covered hereunder; provided, however,
failure to give such notice shall not deprive Indemnitee of his rights to
indemnification and advancement of Expenses under this Agreement unless the
Company is actually and materially prejudiced thereby.
SECTION 20. Notices. All notices, requests, demands and other
communications hereunder shall be in writing and shall be deemed to have been
duly given if (a) delivered by hand and receipted for by the party to whom said
notice or other communication shall have been directed or (b) mailed by
certified or registered mail with postage prepaid, on the third (3rd) business
day after the date on which it is so mailed:
(a) If to Indemnitee, to: Leuschner International Resources, Ltd.
2170 Bow Valley Square IV
250 - 6 Avenue S.W.
Calgary, Alberta Canada T2P 3H7
Attention: William C. Leuschner
(b) If to the Company, to: PetroQuest Energy, Inc.
625 E. Kaliste Saloom Rd., Suite 400
Lafayette, Louisiana 70508
Attention: Corporate Secretary
or to such other address as may have been furnished to Indemnitee by the Company
or to the Company by Indemnitee, as the case way be.
SECTION 21. Contribution. To the fullest extent permissible under
applicable law, if the indemnification provided for in this Agreement is
unavailable to Indemnitee for any reason whatsoever, the Company, in lieu of
indemnifying Indemnitee, shall contribute to the amount incurred by Indemnitee,
whether for judgments, fines, penalties, excise taxes, amounts paid or to be
paid in settlement and/or for Expenses, in connection with any claim relating to
an indemnifiable event under this Agreement, in such proportion as is deemed
fair and reasonable in light of all the circumstances of such Proceeding in
order to reflect: (a) the relative benefits received by the Company and
Indemnitee as a result of the event(s) and/or transaction(s) giving cause to
such Proceeding; and/or (b) the relative fault of the Company (and its
directors, officers, employees and agents) and Indemnitee in connection with
such event(s) and/or transaction(s).
SECTION 22. Governing Law; Submission to Jurisdiction. This Agreement
and the legal relations among the parties shall be governed by, and construed
and enforced in accordance with, the laws of the State of Delaware, without
regard to its conflict of laws rules. Except with respect to any arbitration
commenced by Indemnitee pursuant to Section 10(a), the Company and Indemnitee
hereby irrevocably and unconditionally (a) agree that any action or proceeding
arising out of or in connection with this Agreement shall be brought only in the
Court of Chancery and not in any other state or
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federal court in the United States of America or any court in any other country,
(b) consent to submit to the exclusive jurisdiction of the Court of Chancery for
purposes of any action or proceeding arising out of or in connection with this
Agreement, (c) waive any objection to the laying of venue of any such action or
proceeding in the Court of Chancery, and (d) waive, and agree not to plead or to
make, any claim that any such action or proceeding brought in the Court of
Chancery has been brought in an improper or otherwise inconvenient forum.
SECTION 23. Miscellaneous. Use of the masculine pronoun shall be deemed
to include usage of the feminine pronoun where appropriate. When used in this
Agreement, the words "herein," "hereof" and words of similar import shall refer
to this Agreement as a whole and not to any provision of this Agreement, and the
word "Section" refers to a Section of this Agreement, unless otherwise
specified.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
the day and year first above written.
PETROQUEST ENERGY, INC.
By: /s/ CHARLES T. GOODSON
--------------------------------
Name: CHARLES T. GOODSON
Title: PRESIDENT & CEO
INDEMNITEE
/S/ WILLIAM C. LEUSCHNER
------------------------------------
WILLIAM C. LEUSCHNER
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EXHIBIT 10.17
INDEMNIFICATION AGREEMENT
This Indemnification Agreement is entered into and effective as of the
16th day of December, 1998 ("Agreement"), by and between PetroQuest Energy,
Inc., a Delaware corporation ("Company"), and Robert L.
Hodgkinson ("Indemnitee"):
WHEREAS, highly competent persons have become more reluctant to serve
corporations as directors, executive officers or in other capacities unless they
are provided, with adequate protection through insurance or adequate
indemnification against inordinate risks of claims and actions against them
arising out of their service to, and activities on behalf of, the corporation;
WHEREAS, the Board of Directors of the Company (the "Board") has
determined that, in order to attract and retain qualified individuals, the
Company will attempt to maintain on an ongoing basis, at its sole expense,
liability insurance to protect persons' serving the Company and its subsidiaries
from certain liabilities. Although the furnishing of such insurance has been a
customary and widespread practice among United States-based corporations and
other business enterprises, the Company believes that, given current market
conditions and trends, such insurance may be available to it in the future only
at higher premiums and with more exclusions. At the same time, directors,
officers and other persons in service to corporations or business enterprises
are being increasingly subjected to expensive and time-consuming litigation
relating to, among other things, matters that traditionally would have been
brought only against the corporation or business enterprise itself;
WHEREAS, the uncertainties relating to such insurance and to
indemnification have increased the difficulty of attracting and retaining such
persons;
WHEREAS, the Board has determined that the increased difficulty in
attracting and retaining such persons is detrimental to the best interests of
the Company's stockholders and that the Company should act to assure such
persons that there will be increased certainty of such protection in the future;
WHEREAS, it is reasonable, prudent and necessary for the Company
contractually to obligate itself to indemnify such persons to the fullest extent
permitted by applicable law so that they will serve or continue to serve the
Company free from undue concern that they will not be so indemnified; and
WHEREAS, Indemnitee is willing to serve, continue to serve and to take
on additional service for or on behalf of the Company on the condition that he
be so indemnified;
NOW, THEREFORE, in consideration of the premises and the covenants
contained herein, the Company and Indemnitee do hereby covenant and agree as
follows:
SECTION 1. Services by Indemnitee. Indemnitee agrees to serve as a
director/executive officer of the Company and, as mutually agreed by Indemnitee
and the Company, as a director,
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officer, employee, agent or fiduciary of other corporations, partnerships, joint
ventures, trusts or other enterprises (including, without limitation, employee
benefit plans). Indemnitee may at any time and for any reason resign from any
such position (subject to any other contractual obligation or any obligation
imposed by operation of law), in which event the Company shall have no
obligation under this Agreement to continue Indemnitee in that position. This
Agreement shall not be deemed an employment contract between the Company (or any
of its subsidiaries) and Indemnitee. Indemnitee specifically acknowledges that
Indemnitee's employment with the Company (or any of its subsidiaries), if any,
is at will, and the Indemnitee may be discharged at any time for any reason,
with or without cause, except as may be otherwise provided in any written
employment contract between Indemnitee and the Company (or any of its
subsidiaries), other applicable formal severance policies duly adopted by the
Board or, with respect to service as a director of the Company, by the Company's
Certificate of incorporation, Bylaws and the General Corporation Law of the
State of Delaware. Notwithstanding, the foregoing, this Agreement shall continue
in force after Indemnitee has ceased to serve as an officer or director of the
Company and no longer serves at the request of the Company as a director,
officer, employee or agent of the Company or any subsidiary of the Company.
SECTION 2. Indemnification--General. The Company shall indemnify, and
advance Expenses (as hereinafter defined) to, Indemnitee (a) as provided in this
Agreement and (b) to the fullest extent permitted by applicable law in effect on
the date hereof and as amended from time to time. The rights of Indemnitee
provided under the preceding sentence shall include, but shall not be limited
to, the rights set forth in the other Sections of this Agreement.
SECTION 3. Proceedings Other than Proceedings by or in the Right of the
Company. Indemnitee shall be entitled to the rights of indemnification provided
in Section 2 and this Section 3 if, by reason of his Corporate Status (as
hereinafter defined), he is, or is threatened to be made, a party to or a
participant in any threatened, pending, or completed Proceeding (as hereinafter
defined), other than a Proceeding by or in the right of the Company. Pursuant to
this Section 3, the Company shall indemnify Indemnitee against, and shall hold
Indemnitee harmless from and in respect of, all Expenses, judgments, penalties,
fines (including excise taxes) and amounts paid in settlement (including all
interest, assessments and other charges paid or payable in connection with or in
respect of such Expenses, judgments, fines, penalties or amounts paid in
settlement) actually and reasonably incurred by him or on his behalf in
connection with such Proceeding or any claim, issue or matter therein, if he
acted in good faith and in a manner he reasonably believed to be in or not
opposed to the best interests of the Company and, with respect to any criminal
Proceeding, had no reasonable cause to believe his conduct was unlawful.
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SECTION 4. Proceedings by or in the Right of the Company. Indemnitee
shall be entitled to the rights of indemnification provided in Section 2 and
this Section 4 if, by reason of his Corporate Status, he is, or is threatened to
be made, a party to or a participant in any threatened, pending or completed
Proceeding brought by or in the right of the Company to procure a judgment in
its favor. Pursuant to this Section 4, the Company shall indemnify Indemnitee
against, and shall hold Indemnitee harmless from and in respect of, all Expenses
actually and reasonably incurred by him or on his behalf in connection with, and
any amounts paid in settlement of, such Proceeding if he acted in good faith and
in a manner he reasonably believed to be in or not opposed to the best interests
of the Company. Notwithstanding the foregoing, no indemnification against such
Expenses shall be made in respect of any claim, issue or matter in such
Proceeding as to which Indemnitee shall have been adjudged to be liable to the
Company if applicable law prohibits such indemnification; provided, however, if
applicable law so permits, indemnification against such Expenses shall
nevertheless be made by the Company in such event if and only to the extent that
the Court of Chancery of the State of Delaware, or the court in which such
Proceeding shall have been brought or is pending, shall determine.
SECTION 5. Indemnification for Expenses of a Party Who Is Wholly or
Partly Successful. Notwithstanding any other provision of this Agreement, to the
extent that Indemnitee is, by reason of his Corporate Status, a party to (or a
participant in) and is successful, on the merits or otherwise, in defense of 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 defense of such Proceeding but is successful, on the merits
or otherwise, as to one or more but less than all claims, issues or matters in
such Proceeding, the Company shall indemnify Indemnitee against all Expenses
actually and reasonably incurred by him or on his behalf in connection with each
successfully resolved claim, issue or matter. For purposes of this Section and
without limitation, the termination of any claim, issue or matter in such a
Proceeding by dismissal, with or without prejudice, shall be deemed to be a
successful result as to such claim, issue or matter.
SECTION 6. Indemnification for Expenses as a Witness. Notwithstanding
any other provision of this Agreement, to the extent that Indemnitee is, by
reason of his Corporate Status, a witness in any Proceeding to which Indemnitee
is not a party, he shall be indemnified against all Expenses actually and
reasonably incurred by him or on his behalf in connection therewith.
SECTION 7. Advancement of Expenses. The Company shall advance all
reasonable Expenses incurred by or on behalf of Indemnitee in connection with
any Proceeding within ten (10) days after the receipt by the Company of a
statement or statements from Indemnitee requesting such advance or advances from
time to time, whether prior to or after final disposition of such Proceeding.
Such statement or statements shall reasonably evidence the Expenses incurred by
Indemnitee and shall include or be preceded or accompanied by an undertaking by
or on behalf of Indemnitee to repay any Expenses advanced if it ultimately shall
be determined, in accordance with this Agreement, that Indemnitee is not
entitled to be indemnified against such Expenses.
SECTION 8. Procedure for Determination of Entitlement to
Indemnification.
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(a) To obtain indemnification under this Agreement, Indemnitee shall
submit to the Company a written request, including therein or therewith such
documentation and information as is reasonably available to Indemnitee and is
reasonably necessary to determine whether and to what extent Indemnitee is
entitled to indemnification. The Secretary of the Company shall, promptly upon
receipt of such a request for indemnification, advise the Board in writing that
Indemnitee has requested indemnification.
(b) On written request by Indemnitee for indemnification pursuant to
the first sentence of Section 8(a), a determination, if required by applicable
law, with respect to Indemnitee's entitlement thereto shall be made in the
specific case: (i) if a Change in Control (as hereinafter defined) shall have
occurred within two (2) years prior to the date of such written request, by
Independent Counsel (as hereinafter defined) in a written opinion to the Board,
a copy of which shall be delivered to Indemnitee; or (ii) if a Change of Control
shall not have occurred within two (2) years prior to the date of such written
request, (A) by a majority vote of the Disinterested Directors (as hereinafter
defined), even though less than a quorum of the Board, or (B) if there are no
such Disinterested Directors, or if such Disinterested Directors so direct, by
Independent Counsel in a written opinion to the Board, a copy of which shall be
delivered to Indemnitee; and, if it is so determined that Indemnitee is entitled
to indemnification, payment to Indemnitee shall be made within ten (10) days
after such determination. Indemnitee shall cooperate with the person, persons or
entity making such determination with respect to Indemnitee's entitlement to
indemnification, including providing to such person, persons or entity on
reasonable advance request any documentation or information which is not
privileged or otherwise protected from disclosure and which is reasonably
available to Indemnitee and reasonably necessary to such determination. Any
costs or expenses (including attorneys' fees and disbursements) incurred by
Indemnitee in so cooperating with the person, persons or entity making such
determination shall be borne by the Company (irrespective of the determination
as to Indemnitee's entitlement to indemnification) and the Company hereby
indemnifies and agrees to hold Indemnitee harmless therefrom.
(c) In the event the determination of entitlement to indemnification
is to be made by Independent Counsel pursuant to Section 8(b), the Independent
Counsel shall be selected as provided in this Section 8(c). If a Change of
Control shall not have occurred within two (2) years prior to the date of
Indemnitee's written request for indemnification pursuant to Section 8(a), the
Independent Counsel shall be selected by the Board, and the Company shall give
written notice to Indemnitee advising him of the identity of the Independent
Counsel so selected. If a Change of Control shall have occurred within two (2)
years prior to the date of Indemnitee's written request for indemnification
pursuant to Section 8(a), the Independent Counsel shall be selected by
Indemnitee (unless Indemnitee shall request that such selection be made by the
Board, in which event the preceding sentence shall apply), and Indemnitee shall
give written notice to the Company advising it of the identity of the
Independent Counsel so selected in either event, Indemnitee or the Company, as
the case may be, may, within ten (10) days after such written notice of
selection shall have been given, deliver to the Company or to Indemnitee, as the
case may be, 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" as defined in section 17, and the
objection shall set forth with particularity the factual basis of such
assertion. If such written objection is so made and
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<PAGE> 5
substantiated, the Independent Counsel so selected may not serve as Independent
Counsel unless and until such objection is withdrawn or a court has determined
that such objection is without merit. If, within twenty (20) days after
submission by Indemnitee of a written request for indemnification pursuant to
Section 8(a), no Independent Counsel shall have been selected and not objected
to, either the Company or Indemnitee may petition the Court of Chancery or other
court of competent jurisdiction for resolution of any objection which shall have
been made by the Company or Indemnitee to the other's selection of Independent
Counsel and/or for the appointment as Independent Counsel of a person selected
by the petitioned court or by such other person as the petitioned court shall
designate, and the person with respect to whom all objections are so resolved or
the person so appointed shall act as Independent Counsel under Section 8(b). The
Company shall pay any and all reasonable fees and expenses of Independent
Counsel incurred by such Independent Counsel in connection with acting pursuant
to Section 8(b), and the Company shall pay all reasonable fees and expenses
incident to the procedures of this Section 8(c), regardless of the manner in
which such Independent Counsel was selected and appointed. If (i) Independent
Counsel does not make any determination respecting Indemnitee's entitlement to
indemnification hereunder within ninety (90) days after receipt by the Company
of a written request therefor and (ii) any judicial proceeding or arbitration
pursuant to Section 10(a)(iii) hereof is then commenced, Independent Counsel
shall be discharged and relieved of any further responsibility in such capacity
(subject to the applicable standards of professional conduct then prevailing).
SECTION 9. Presumptions and Effect of Certain Proceedings.
(a) In making a determination with respect to entitlement to
indemnification hereunder, the Person, Persons or entity making such
determination shall presume that Indemnitee is entitled to indemnification under
this Agreement if Indemnitee has submitted a request for indemnification in
accordance with Section 8(a), and the Company shall have the burden of proof to
overcome that presumption in connection with the making by any person, persons
or entity of any determination contrary to that presumption.
(b) The termination of any Proceeding or of any claim, issue or matter
therein, by judgment, order, settlement or conviction, or on a plea of nolo
contendere or its equivalent, shall not (except as otherwise expressly provided
in this Agreement) 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 which he reasonably believed to be in or not opposed to
the best interests of the Company or, with respect to any criminal Proceeding,
that Indemnitee had reasonable cause to believe that his conduct was unlawful.
(c) Any action taken by Indemnitee in connection with any employee
benefit plan shall, if taken in good faith by Indemnitee and in a manner
Indemnitee reasonably believed to be in the interest of the participants in or
beneficiaries of that plan, be deemed to have been taken in a manner "not
opposed to the best interests of the Company" for all purposes of this
Agreement.
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SECTION 10. Remedies of Indemnitee.
(a) In the event that (i) a determination is made pursuant to Section
8 that Indemnitee is not entitled to indemnification hereunder, (ii) advancement
of Expenses is not timely made pursuant to Section 7, (iii) Independent Counsel
is to determine Indemnitee's entitlement to indemnification hereunder, but does
not make that determination within ninety (90) days after receipt by the Company
of the request for that indemnification, (iv) payment of indemnification is not
made pursuant to section 5 or 6 within ten (10) days after receipt by the
Company of a written request therefor or (v) payment of indemnification is not
made within ten (10) days after a determination has been made that Indemnitee is
entitled to indemnification, Indemnitee shall be entitled to an adjudication
from the Court of Chancery of his entitlement to such indemnification or
advancement of Expenses. Alternatively, Indemnitee, at his option, may seek an
award in arbitration to be conducted by a single arbitrator pursuant to the
Commercial Arbitration Rules of the American Arbitration Association. Indemnitee
shall commence such Proceeding seeking an adjudication or an award in
arbitration within one hundred eighty (180) days following the date on which
Indemnitee first has the right to commence such proceeding pursuant to this
Section 10(a); provided, however, that the foregoing clause shall not apply in
respect of a proceeding brought by Indemnitee to enforce his rights under
Section 5.
(b) In the event that a determination shall have been made pursuant to
Section 8(b) that Indemnitee is not entitled to indemnification, any judicial
proceeding or arbitration commenced pursuant to this Section 10 shall be
conducted in all respects as a de novo trial, or arbitration, on the merits and
Indemnitee shall not be prejudiced by reason of that adverse determination. In
any judicial proceeding or arbitration commenced pursuant to this section 10,
the Company shall have the burden of proving that Indemnitee is not entitled to
indemnification or advancement of Expenses, as the case may be.
(c) If a determination shall have been made pursuant to Section 8(b)
that Indemnitee is entitled to indemnification, the Company shall be bound by
such determination in any judicial proceeding or arbitration commenced pursuant
to this Section 10, absent (i) a misstatement by Indemnitee of a material fact,
or an omission by Indemnitee of a material fact necessary to make Indemnitee's
statement not materially misleading, in connection with the request for
indemnification, or (ii) a prohibition of such indemnification under applicable
law.
(d) In the event that Indemnitee, pursuant to this Section 10, seeks a
judicial adjudication of or an award in arbitration to enforce his rights under,
or to recover damages for breach of, this Agreement, Indemnitee shall be
entitled to recover from the Company, and shall be indemnified by the Company
against, any and all expenses (of the types described in the definition of
Expenses in Section 17) actually and reasonably incurred by him in such judicial
adjudication or arbitration, but only if he prevails therein. If it shall be
determined in said judicial adjudication or arbitration 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.
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SECTION 11. Non-Exclusivity; Survival of Rights; Insurance;
Subrogation.
(a) The rights of indemnification and to receive advancement of
Expenses as provided by this Agreement shall not be deemed exclusive of any
other rights to which Indemnitee may at any time be entitled 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 Agreement or of any provision hereof shall limit or
restrict any right of Indemnitee under this Agreement in respect of any action
taken or omitted by such Indemnitee in his Corporate Status prior to such
amendment, alteration or repeal. To the extent that a change in Delaware law
(whether by statute or judicial decision) permits greater indemnification by
agreement than would be afforded currently under this Agreement, it is the
intent of the parties hereto that Indemnitee shall enjoy by this Agreement the
greater benefits so afforded by such change.
(b) To the extent that the Company maintains an insurance policy or
policies providing liability insurance for directors, officers, employees, or
agents of the Company or of any other corporation, partnership, joint venture,
trust, employee benefit plan or other enterprise which such person serves at the
request of the Company, Indemnitee shall be covered by such policy or policies
in accordance with its or their terms to the maximum extent of the coverage
available for any such director, Officer, employee or agent under such policy or
policies.
(c) In the event of any payment under this Agreement, the Company 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 necessary
to secure such rights, including execution of such documents as are necessary to
enable the Company to bring suit to enforce such rights.
(d) The Company shall not be liable under this Agreement to make any
payment of amounts otherwise indemnifiable hereunder if and to the extent that
Indemnitee has otherwise actually received such payment under any insurance
policy, contract, agreement or otherwise.
(e) The Company's obligation to indemnify or advance Expenses hereunder
to Indemnitee with respect to Indemnitee's service at the request of the Company
as a director, officer, employee or agent of any other corporation, partnership,
joint venture, trust, employee benefit plan or other enterprise shall be reduced
by any amount Indemnitee has actually received as indemnification or advancement
of Expenses from such other corporation, partnership, joint venture, trust,
employee benefit plan or other enterprise.
SECTION 12. Duration of Agreement. This Agreement shall continue until
and terminate upon the later of: (a) ten (10) years after the date that
Indemnitee shall have ceased to serve as a director or officer of the Company or
of any other corporation, partnership, joint venture, trust, employee benefit
plan or other enterprise which Indemnitee served on behalf of the Company; or
(b) the final termination of any Proceeding then pending in respect of which
Indemnitee is granted rights of indemnification or advancement of expenses
hereunder and of any Proceeding commenced by Indemnitee pursuant to Section 10
relating thereto. This Agreement shall be binding upon the Company and its
successors and assigns and shall inure to the benefit of Indemnitee and his
spouse
7
<PAGE> 8
(if Indemnitee resides in Texas or another community property state), heirs,
executors and administrators, and this Agreement does not, and shall not be
construed to confer any rights on any person that is not a party to this
Agreement, other than Indemnitee's spouse, and his heirs, executors and assigns.
SECTION 13. Severability. If any provision or provisions of this
Agreement shall be held to be invalid, illegal or unenforceable for any reason
whatsoever: (a) the validity, legality and enforceability of the remaining
provisions of this Agreement (including, without limitation, each portion of any
Section of this Agreement containing any such provision held to be invalid,
illegal or unenforceable which is not itself invalid, illegal or unenforceable)
shall not in any way be affected or impaired thereby; (b) such provision or
provisions shall be deemed reformed to the extent necessary to conform to
applicable law and to give the maximum effect to the intent of the parties
hereto; and (c) to the fullest extent possible, the provisions of this Agreement
(including. without limitation, each portion of any Section of this Agreement
containing any such provision held to be invalid, illegal or unenforceable which
is not itself invalid, illegal or unenforceable) shall be construed so as to
give effect to the intent manifested thereby.
SECTION 14. Exception to Right of Indemnification or Advancement of
Expenses. Notwithstanding any other provision hereof, Indemnitee shall not be
entitled to indemnification or advancement of Expenses under this Agreement with
respect to any Proceeding brought by Indemnitee or any claim therein prior to a
Change in Control, unless the bringing of such Proceeding or making of such
claim shall have been approved by the Board of Directors.
SECTION 15. Identical Counterparts. This Agreement may be executed in
one or more counterparts by means of original or facsimile signatures, each of
which shall for all purposes be deemed to be an original but all of which
together shall constitute one and the same Agreement. Only one such counterpart
signed by the party against whom enforceability is sought needs to be produced
to evidence the existence of this Agreement.
SECTION 16. Headings. The headings of the Sections hereof are inserted
for convenience only and shall not be deemed to constitute part of this
Agreement or to affect the construction thereof.
SECTION 17. Definitions. For purposes of this Agreement:
(a) "Acquiring Person" means any Person who or which,
together with all Affiliates and Associates of such Person, is or are
the Beneficial Owner of twenty-five percent (25%) or more of the shares
of Common Stock then outstanding, but does not include any Exempt
Person; provided, however, that a Person shall not be or become an
Acquiring Person if such Person, together with its Affiliates and
Associates, shall become the Beneficial Owner of twenty-five percent
(25%) or more of the shares of Common Stock then outstanding solely as
a result of a reduction in the number of shares of Common Stock
outstanding due to the repurchase of Common Stock by the Company,
unless and until such time as such Person or any Affiliate or Associate
of such Person shall purchase or otherwise become the
8
<PAGE> 9
Beneficial Owner of additional shares of Common Stock constituting one
percent (1%) or more of the then outstanding shares of Common Stock or
any other Person (or Persons) who is (or collectively are) the
Beneficial Owner of shares of Common Stock constituting one percent
(1%) or more of the then outstanding shares of Common Stock shall
become an Affiliate or Associate of such Person, unless, in either such
case, such Person, together with all Affiliates and Associates of such
Person, is not then the Beneficial Owner of twenty-five percent (25%)
or more of the shares of Common Stock then outstanding.
(b) "Affiliate" has the meaning ascribed to that term in
Exchange Act Rule 12b-2.
(c) "Associate" means, with reference to any Person, (i) any
corporation, firm, partnership, association, unincorporated
organization or other entity (other than the Company or a subsidiary of
the Company) of which that Person is an officer or general partner (or
officer or general partner of a general partner) or is, directly or
indirectly, the Beneficial owner of 10% or more of any class of its
equity securities, (ii) any trust or other estate in which that Person
has a substantial beneficial interest or for or of which that Person
serves as trustee or in a similar fiduciary capacity and (iii) any
relative or spouse of that Person, or any relative of that spouse, who
has the same home as that Person.
(d) A specified Person is deemed the "Beneficial Owner" of,
and is deemed to "beneficially own," any securities:
(i) of which that Person or any of that Person's
Affiliates or Associates, directly or indirectly, is the
"beneficial owner" (as determined pursuant to Exchange Act
Rule 13d-3) or otherwise has the right to vote or dispose of,
including pursuant to any agreement, arrangement or
understanding (whether or not in writing); provided, however,
that a Person shall not be deemed the "Beneficial Owner" of,
or to "beneficially own," any security under this subparagraph
as a result of an agreement, arrangement or understanding to
vote that security if that agreement, arrangement or
understanding: (A) arises solely from a revocable proxy or
consent given in response to a public (that is, not including
a solicitation exempted by Exchange Act Rule 14a-2(b)(2))
proxy or consent solicitation made pursuant to, and in
accordance with, the applicable provisions of the Exchange
Act; and (B) is not then reportable by such Person on Exchange
Act Schedule 13D (or any comparable or successor report);
(ii) which that Person or any of that Person's
Affiliates or Associates, directly or indirectly, has the
right or obligation to acquire (whether that right or
obligation is exercisable or effective immediately or only
after the passage of time or the occurrence of an event)
pursuant to any
9
<PAGE> 10
agreement, arrangement or understanding (whether or not in
writing) or on the exercise of conversion rights, exchange
rights, other rights, warrants or options, or otherwise;
provided, however, that a Person shall not be deemed the
"Beneficial Owner" of, or to "beneficially own," securities
tendered pursuant to a tender or exchange offer made by that
Person or any of that Person's Affiliates or Associates until
those tendered securities are accepted for purchase or
exchange; or
(iii) which are beneficially owned, directly or
indirectly, by (A) any other Person (or any Affiliate or
Associate thereof) with which the specified Person or any of
the specified Person's Affiliates or Associates has any
agreement, arrangement or understanding (whether or not in
writing) for the purpose of acquiring, holding, voting (except
pursuant to a revocable proxy or consent as described in the
proviso to subparagraph (i) of this definition) or disposing
of any voting securities of the Company or (B) any group (as
that term is used in Exchange Act Rule 13d-5(b)) of which that
specified Person is a member;
PROVIDED, HOWEVER, that nothing in this definition shall cause a Person engaged
in business as an underwriter of securities to be the "Beneficial Owner" of, or
to "beneficially own," any securities acquired through such Person's
participation in good faith in a firm commitment underwriting until the
expiration of forty (40) days after the date of that acquisition. For purposes
of this Agreement, "voting" a security shall include voting, granting a proxy,
acting by consent, making a request or demand relating to corporate action
(including, without limitation, calling a stockholder meeting) or otherwise
giving an authorization (within the meaning of Section 14(a) of the Exchange
Act) in respect of such security.
(e) "Change of Control" means the occurrence of any of the
following events that occurs after the Merger Closing Date: (i) any
Person becomes an Acquiring Person; (ii) at any time the then
Continuing Directors cease to constitute a majority of the members of
the Board; (iii) a merger of the Company with or into, or a sale by the
Company of its properties and assets substantially as an entirety to,
another Person occurs and, immediately after that occurrence, any
Person, other than an Exempt Person, together with all Affiliates and
Associates of such Person, shall be the Beneficial Owner of twenty-five
percent (25%) or more of the total voting power of the then outstanding
Voting Shares of the Person surviving that transaction (in the case or
a merger or consolidation) or the Person acquiring those properties and
assets substantially as an entirety.
(f) "Common Stock" means the common stock, par value $.001 per
share, of the Company.
(g) "Continuing Director" means at any time any individual
who then (i) is a member of the Board and was a member of the Board as
of the Merger Closing
10
<PAGE> 11
Date or whose nomination for his first election, or that first
election, to the Board following that date was recommended or approved
by a majority of the then Continuing Directors (acting separately or as
a part of any action taken by the Board or any committee thereof) and
(ii) is not an Acquiring Person, an Affiliate or Associate of an
Acquiring Person or a nominee or representative of an Acquiring Person
or of any such Affiliate or Associate.
(h) "Corporate Status" describes the status of a Person who is
or was a director, officer, employee or agent of the Company or of any
other corporation, partnership, joint venture, trust, employee benefit
plan or other enterprise which such person is or was serving at the
request of the Company. For purposes of this Agreement, "serving at the
request of the Company" includes any service by Indemnitee which
imposes duties on, or involves services by, Indemnitee with respect to
any employee benefit plan or its participants or beneficiaries.
(i) "Court of Chancery" means the Court of Chancery of the
State of Delaware.
(j) "Disinterested Director" means a director of the Company
who is not and was not a party to the Proceeding in respect of which
indemnification is sought by Indemnitee hereunder.
(k) "Exchange Act" means the Securities Exchange Act of 1934,
as amended.
(l) "Exempt Person" means (i), (A) the Company, any subsidiary
of the Company, any employee benefit plan of the Company or of any
subsidiary of the Company and (B) any Person organized, appointed or
established by the Company for or pursuant to the terms of any such
plan or for the purpose of funding any such plan or funding other
employee benefits for employees of the Company or any subsidiary of the
Company and (ii) Indemnitee, any Affiliate or Associate of Indemnitee
or any group (as that term is used in Exchange Act Rule 13d-5(b)) of
which Indemnitee or any Affiliate or Associate of Indemnitee is a
member.
(m) "Expenses" include all 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, all other disbursements or
expenses of the types customarily incurred in connection with
prosecuting, defending, preparing to prosecute or defend,
investigating, being or preparing to be a witness in, or otherwise
participating in, a Proceeding and all interest or finance charges
attributable to any thereof. Should any payments by the Company under
this Agreement be determined to be subject to any federal, state or
local income or excise tax, "Expenses" also shall include such amounts
as are necessary to place Indemnitee in the same after-tax position
(after giving effect to all
11
<PAGE> 12
applicable taxes) he would have been in had no such tax been determined
to apply to such payments.
(m) "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 past five (5) years has been, retained to
represent: (i) the Company, its Affiliates 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.
Notwithstanding the foregoing. the term "Independent Counsel" shall not
include any person who, under the applicable standards of professional
conduct then prevailing, would have a conflict of interest in
representing either the Company or Indemnitee in an action to determine
Indemnitee's rights under this Agreement.
(n) "Merger Closing Date" means September 1, 1998.
(o) "Person" means any natural person, sole proprietorship,
corporation, partnership of any kind having a separate legal status,
limited liability company, business trust, unincorporated organization
or association, mutual company, joint stock company, joint venture,
estate, trust, union or employee organization or governmental
authority.
(p) "Proceeding" includes any action, suit, alternate dispute
resolution mechanism, hearing or any other proceeding, whether civil,
criminal, administrative, arbitrative, investigative or mediative, any
appeal in any such action, suit, alternate dispute resolution
mechanism, hearing or other proceeding and any inquiry or investigation
that could lead to any such action, suit, alternate dispute resolution
mechanism, hearing or other proceeding, except one (i) initiated by an
Indemnitee pursuant to Section 10 to enforce his rights hereunder or
(ii) pending on or before the date of this Agreement.
(q) "Voting Shares" means: (i) in the case of any corporation,
stock of that corporation of the class or classes having general voting
power under ordinary circumstances to elect a majority of that
corporation's board of directors; and (ii) in the case of any other
entity, equity interests of the class or classes having general voting
power under ordinary circumstances equivalent to the Voting Shares of a
corporation.
SECTION 18. Modification and Waiver. No supplement, modification or
amendment of this Agreement shall be binding unless executed in writing by both
of the parties hereto. No waiver of any of the provisions of this Agreement
shall be deemed or shall constitute a waiver of any other provisions hereof
(whether or not similar) nor shall such waiver constitute a continuing waiver.
SECTION 19. Notice by Indemnitee. Indemnitee agrees promptly to notify
the Company in writing upon being served with any summons, citation, subpoena,
complaint, indictment, information
12
<PAGE> 13
or other document relating to any Proceeding or matter which may be subject to
indemnification or advancement of Expenses covered hereunder; provided, however,
failure to give such notice shall not deprive Indemnitee of his rights to
indemnification and advancement of Expenses under this Agreement unless the
Company is actually and materially prejudiced thereby.
SECTION 20. Notices. All notices, requests, demands and other
communications hereunder shall be in writing and shall be deemed to have been
duly given if (a) delivered by hand and receipted for by the party to whom said
notice or other communication shall have been directed or (b) mailed by
certified or registered mail with postage prepaid, on the third (3rd) business
day after the date on which it is so mailed:
(a) If to Indemnitee, to: Hodgkinson Equities Corporation
Suite 900 - 595 Howe Street
Vancouver, BC Canada V6C 2T5
Attention: Robert L. Hodgkinson
(b) If to the Company, to: PetroQuest Energy, Inc.
625 E. Kaliste Saloom Rd., Suite 400
Lafayette, Louisiana 70508
Attention: Corporate Secretary
or to such other address as may have been furnished to Indemnitee by the Company
or to the Company by Indemnitee, as the case way be.
SECTION 21. Contribution. To the fullest extent permissible under
applicable law, if the indemnification provided for in this Agreement is
unavailable to Indemnitee for any reason whatsoever, the Company, in lieu of
indemnifying Indemnitee, shall contribute to the amount incurred by Indemnitee,
whether for judgments, fines, penalties, excise taxes, amounts paid or to be
paid in settlement and/or for Expenses, in connection with any claim relating to
an indemnifiable event under this Agreement, in such proportion as is deemed
fair and reasonable in light of all the circumstances of such Proceeding in
order to reflect: (a) the relative benefits received by the Company and
Indemnitee as a result of the event(s) and/or transaction(s) giving cause to
such Proceeding; and/or (b) the relative fault of the Company (and its
directors, officers, employees and agents) and Indemnitee in connection with
such event(s) and/or transaction(s).
SECTION 22. Governing Law; Submission to Jurisdiction. This Agreement
and the legal relations among the parties shall be governed by, and construed
and enforced in accordance with, the laws of the State of Delaware, without
regard to its conflict of laws rules. Except with respect to any arbitration
commenced by Indemnitee pursuant to Section 10(a), the Company and Indemnitee
hereby irrevocably and unconditionally (a) agree that any action or proceeding
arising out of or in connection with this Agreement shall be brought only in the
Court of Chancery and not in any other state or federal court in the United
States of America or any court in any other country, (b) consent to submit
13
<PAGE> 14
to the exclusive jurisdiction of the Court of Chancery for purposes of any
action or proceeding arising out of or in connection with this Agreement, (c)
waive any objection to the laying of venue of any such action or proceeding in
the Court of Chancery, and (d) waive, and agree not to plead or to make, any
claim that any such action or proceeding brought in the Court of Chancery has
been brought in an improper or otherwise inconvenient forum.
SECTION 23. Miscellaneous. Use of the masculine pronoun shall be deemed
to include usage of the feminine pronoun where appropriate. When used in this
Agreement, the words "herein," "hereof" and words of similar import shall refer
to this Agreement as a whole and not to any provision of this Agreement, and the
word "Section" refers to a Section of this Agreement, unless otherwise
specified.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
the day and year first above written.
PETROQUEST ENERGY, INC.
By: /s/ CHARLES T. GOODSON
--------------------------------
Name: CHARLES T. GOODSON
Title: PRESIDENT & CEO
INDEMNITEE
/S/ ROBERT L. HODGKINSON
------------------------------------
ROBERT L. HODGKINSON
14
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
The Board of Directors
PetroQuest Energy, Inc.
We consent to incorporation by reference in the registration statement
(No. 333-65401) on Form S-8 of PetroQuest Energy, Inc. of our report dated
March 13, 1998 (except for note 1, for which the date is March 12, 1999),
relating to the consolidated balance sheet of PetroQuest Energy, Inc. (formerly
Optima Petroleum Corporation) and subsidiaries as of December 31, 1997 and the
consolidated statements of operations, stockholders' equity and cash flows for
the years ended December 31, 1997 and 1996, and all related schedules, which
report appears in the December 31, 1998 annual report on Form 10-K of
PetroQuest Energy, Inc.
KPMG LLP
Vancouver, Canada
March 30, 1999
<PAGE> 1
Exhibit 23.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use (or
incorporation by reference) of our report, dated March 12, 1999, covering our
audit of the consolidated financial statements of PetroQuest Energy, Inc. as of
December 31, 1998 and for the year then ended, included in this Form 10-K, and
incorporated by reference into the Company's previously filed Registration
Statement on Form S-8 (Registration No. 333-65401).
Arthur Andersen LLP
New Orleans, Louisiana
March 31, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM DECEMBER
31,1998 FINANCIAL STATEMENTS INCLUDED IN 1998 10-K AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH 1998 10K.
</LEGEND>
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<EXCHANGE-RATE> 1
<CASH> 1,302,000
<SECURITIES> 0
<RECEIVABLES> 1,016,000
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 2,274,000
<PP&E> 48,502,000
<DEPRECIATION> 31,079,000
<TOTAL-ASSETS> 20,060,000
<CURRENT-LIABILITIES> 4,730,000
<BONDS> 1,300,000
0
0
<COMMON> 19,000
<OTHER-SE> 13,317,000
<TOTAL-LIABILITY-AND-EQUITY> 20,066,000
<SALES> 3,263,000
<TOTAL-REVENUES> 3,377,000
<CGS> 0
<TOTAL-COSTS> 1,568,000
<OTHER-EXPENSES> 17,860,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 116,000
<INCOME-PRETAX> (16,167,000)
<INCOME-TAX> 73,000
<INCOME-CONTINUING> (16,240,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (16,240,000)
<EPS-PRIMARY> (1.20)
<EPS-DILUTED> (1.20)
</TABLE>
