EMPLOYMENT AGREEMENT
This Employment Agreement is made effective as of June 1, 1997, by and
between Fortune Petroleum Corporation, a Delaware corporation ("Employer") and
Xxxxxx X. Xxxxxxxxx ("Employee").
WHEREAS, prior to the date hereof, Employee served in the employ of
Employer in the capacity of president and chief executive officer pursuant to an
employment agreement dated July 1, 1994; and
WHEREAS, the parties desire to abrogate their earlier Employment
Agreement and their respective rights and duties thereunder in favor of the
terms and conditions set forth herein; and
WHEREAS, Employer's Board of Directors desires to recognize Employee's
continuing importance to the ongoing operations of Employer, the value of his
continuing participation in those operations, and desires to provide an
incentive and inducement for Employee to continue in his present capacity,
notwithstanding the possibility of a change of control or ownership of Employer;
and
WHEREAS, Employee is willing, on the terms and conditions set forth
herein, to continue in the employ of Employer for the terms set forth herein.
NOW, THEREFORE, in consideration of the foregoing, and of the mutual and
dependent covenants hereinafter set forth, and other good and valuable
consideration, the receipt of which is hereby acknowledged, the parties hereto
agree as follows:
1. EMPLOYMENT AND DUTIES
---------------------
Employer hereby employs Employee on the terms and conditions hereinafter
set forth as its president and chief executive officer, or such other executive
capacity as the Board of Directors may from time to time prescribe, and Employee
hereby accepts such employment upon such terms and conditions for the period
hereinafter fixed. Employee shall not be required to spend any extended periods
outside the immediate area surrounding Employer's headquarter's office, except
that Employee agrees to make routine business trips of reasonable duration for
the benefit of Employer and its business and in the discharge of Employee's
duties hereunder.
2. PERFORMANCE
-----------
Employee agrees to devote substantially all of his business time and
efforts to the performance of his duties as an executive of Employer as
specified from time to time by the Board of Directors of Employer. During the
term of this Agreement, Employee shall not engage in any business that is
competitive with Employer, either through ownership (other than ownership of
securities of publicly held corporations of which Employee owns less than 5% of
any class of outstanding securities) or as a director, officer, agent, employee
or consultant.
3. BONUS
-----
Employer agrees to award Employee a one-time bonus in the amount of
Thirty-Five Thousand Dollars ($35,000.00) upon entering into this Agreement.
Such bonus shall be paid one-half upon execution of this Agreement and one-half
on January 2, 1998.
4. TERM
----
The period of employment hereunder shall commence on the date hereof and
shall terminate May 31, 2000 (the "Termination Date"), provided, however, that
the term hereof shall be automatically extended on the tenth day of each and
every calendar month during the term of this Agreement for an additional
calendar month so that at the beginning of each and every month during the term
of this Agreement there shall be remaining a term of three (3) years. The
foregoing notwithstanding, either party hereto may deliver to the other a
written notice of termination, to be effective (A) on the Termination Date if
delivered more than six (6) months prior to the Termination Date or (B) the
first day of the calendar month next following six (6) months from the date of
such delivery, if such delivery occurs at any time after a date six (6) months
prior to the Termination Date.
5. COMPENSATION AND EXPENSES
-------------------------
For all services to be rendered by Employee hereunder, Employer agrees
to pay Employee, in a manner consistent with the payment of other employees of
Employer, the sum of One Hundred Sixty Thousand Dollars ($160,000.00) ("Base
Compensation") per year subject to all legally required deductions. Base
Compensation shall be increased by five percent (5%) of Base Compensation per
year for each year of the term hereof. In addition to such annual compensation,
and provided Employee is in the employ of Employer on May 31 of the year in
which the bonus is to be paid, Employer shall award to Employee the additional
performance-based compensation as computed in accordance with the provisions of
Exhibit "A", attached hereto and incorporated herein. Employee shall also be
entitled to participate in other bonus and option plans which may be awarded
from time to time in the absolute discretion of the Board of Directors. Employee
shall also be reimbursed for reasonable expenses incurred on behalf of Employer
upon presentation to Employer of a reasonably detailed statement of the expenses
for which reimbursement is claimed.
6. VACATION
--------
Employee shall have the right to four (4) weeks of vacation each year
from his duties as herein described. During such vacation period, the
compensation payable to Employee pursuant to the provisions hereof shall
continue. Employee's exercise of his rights hereunder shall be consistent with
all policies of Employer relating to the use of vacation time.
7. BENEFITS
--------
Employee shall be provided with an automobile appropriate for his
executive capacity with Employer. Employer shall pay all costs and expenses of
maintaining said automobile, including upkeep, gasoline, and insurance. Employer
shall also continue in force the executive disability policy previously obtained
on behalf of Employee.
In addition to the compensation provided for herein, Employee will also
be entitled to participate in all benefits of employment generally available to
all other executives of Employer on a commensurate basis as may be offered from
time to time by Employer to its other employees similarly situated in
experience, including, without limitation, group health, disability, and life
insurance benefits and participation in any incentive compensation, bonus,
pension, profit sharing, and stock option plans established by Employer.
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8. PROPRIETARY INFORMATION
-----------------------
Employee will not at any time disclose or use, except in the pursuit of
the business of Employer and any subsidiary thereof, any proprietary information
of Employer without regard to whether such information is embodied in writing or
some other physical form. For purposes of this Agreement, the phrase
"proprietary information of Employer" means all information which is known only
to employees of Employer or its subsidiaries or others in a confidential
relationship with Employer and relates to specific technical matters or specific
business matters of Employer.
Employee will not at any time remove from the premises of Employer,
except in the pursuit of the business of Employer, any document, component,
device, record, or other information of Employer, such documents, components,
devices, records, or other information, whether developed by Employee or other
employees of Employer, being the exclusive property of Employer.
9. TERMINATION AND DISABILITY
--------------------------
(A) Employer reserves the right, at its option, to terminate this
Agreement on written notice to Employee in the event Employee (i) is convicted
of a felony or crime involving moral turpitude, (ii) misappropriates funds of
Employer, or (iii) materially breaches of any of the provisions hereof or fails
to materially comply with directives of Employer's board of directors, where
said breach or failure has not been cured within thirty (30) days from the date
of written notice of such breach or failure. In the event of such termination,
Employee agrees, for a subsequent period of one year, to refrain from hiring and
to use his best efforts to cause any entity with which he is affiliated to
refrain from hiring any individual in the employ of Employer on the date of such
termination.
(B) This Agreement shall terminate upon the occurrence of (i) completion
of the term of this Agreement, when a notice of such termination is delivered,
in writing, by either party to the other, pursuant to Section 4, above; (ii)
Employee's death; (iii) the conditions specified in Section 9(A) above; or (iv)
inability of Employee, because of physical or mental disability, to perform
efficiently all of the duties of his employment hereunder for an aggregate of
six (6) months during any twelve (12) month period.
(C) During the period of any such disability as referred to in Section
9(B)(iv), and until employment hereunder is terminated pursuant to its
provisions, Employee shall be entitled to all compensation and other benefits to
which he would otherwise be entitled hereunder had such disability not occurred,
less the aggregate amount of any payments under either disability insurance
policies maintained by Employer or programs of federal or state governments.
Employee agrees to apply for all payments to which he is entitled under said
policies or programs. Employee shall give Employer notice of any disability
hereunder and the receipt of all payments received from said policies or
programs.
(D) Upon termination of Employee's employment hereunder, Employer shall
have no further obligation to Employee.
(E) In the event that, within two years following a change in control,
this Agreement is terminated by either Employer or Employee for any reason,
either voluntary or involuntary, other than for the reasons set forth in Section
9(A), above, Employee shall be entitled to receive a single payment equal to two
(2) years' Base Compensation at the rate provided for in Section 5 above, as
amended from time to time by the Board of Directors, and in effect on the date
of termination. For the purposes of this Agreement, a change in control shall be
deemed to have occurred if, as the result of a tender offer, exchange offer,
merger, consolidation, sale of assets, acquisition of assets, or contested
election of directors, or any combination of the foregoing (a "Transaction"),
the persons who were directors of Employer immediately prior to the Transaction
shall cease to constitute at least two-thirds of the membership of the Board of
Directors of, or of any parent of, or successor to, Employer within two years
after the Transaction.
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In addition, in the event of such termination within two years of a
change of control, (i) the rights of Employee under any applicable retirement,
profit sharing, or stock option plan of Employer shall continue to be governed
by the terms of such plans in existence as of the date of termination, except
that the exercise price of all shares covered by options which are vested in
Employee as of the date of termination shall be reduced to the par value of
Employer's stock, (ii) any amounts due and owing by Employee to Employer
pursuant those two promissory notes each dated January 2, 1996 shall be forgiven
without payment of any kind by Employee, and (iii) Employee shall be entitled to
participate, on substantially the same basis as was provided to Employee prior
to termination, in Employer's group health plans or arrangements for employees
and dependents on a basis commensurate with Employer's employees similarly
situated in experience until Employee shall reach age 65. In the event Employee
cannot qualify for group health coverage, Employer shall provide Employee
individual family coverage on substantially the same basis as was provided to
Employee prior to termination.
In the event of termination of this Agreement under the circumstances
described in this Section 9(E), the arrangements provided for by this Agreement,
by any stock option or other agreement between Employer or any of its
subsidiaries and Employee in effect at the time and by any other applicable plan
of Employer or any of its subsidiaries, including participation in Employer's
group health plans or arrangements as specified in this Section 9(E), will
constitute the entire obligation of Employer to Employee and performance thereof
will constitute full settlement of any claim that Employee might otherwise asset
against Employer on account of such termination.
10. CONSULTATIVE SERVICES
---------------------
Upon termination, as provided in Section 9(B)(i) hereof, of the initial
period of this Agreement or of any extension thereof, Employer agrees to engage
Employee as a consultant for a period of two (2) years after such termination
for the annual sum of forty percent (40%) of the Base Compensation received by
Employee for his last year of employment. Employee agrees to render advisory and
consultative services for said period. Upon termination of such initial
consulting period or any extension thereof, the consulting arrangement set forth
in this Section 10 shall be extended automatically upon the same terms and
conditions for a period of one (1) year, unless written notice of intent not to
so extend is delivered by either party to the other at least thirty (30) days
prior to the expiration of such initial or extended period. As a consultant,
Employee will be acting in the capacity of an independent contractor and not as
an employee of Employer. As an independent contractor, Employee will not receive
any of the benefits described in Section 7 of this Agreement. However, Employer
agrees to provide Employee an office and normal office services and to reimburse
Employee for reasonable expenses incurred on behalf of Employer upon the terms
and conditions set forth in Section 5 hereof.
11. INDEMNITY
---------
To the extent permitted by applicable law, Employer agrees to indemnify
Employee and hold him harmless for any acts or decisions made by him in good
faith while performing services for Employer, and shall maintain coverage for
him under liability insurance policies now in effect or hereafter obtained
during the term of this Agreement covering the other officers and directors of
Employer. Employer shall pay all expenses, including reasonable attorney's fees
and the amounts of court approved settlements, actually incurred by Employee in
connection with the defense of any action, suit, or proceeding, and in
connection with any appeal thereon, which has been or which may be brought
against Employee by reason of Employee's services as a director, officer or
agent of Employer or subsidiary thereof.
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12. NOTICE
------
Unless otherwise directed in writing, any and all notices to Employer
referred to herein shall be sufficient if furnished in writing, sent by
certified mail to the following address:
Fortune Petroleum Corporation
One Commerce Green
000 X. Xxxxxx Xxxx, Xxxxx 000
Xxxxxxx, Xxxxx 00000
and to Employee:
Xxxxxx X. Xxxxxxxxx
000 Xxxxxxx Xxxxx Xxxx
Xxx Xxxxxxxxx, Xxxxx 00000
13. ASSIGNMENT
----------
The rights and benefits of Employer under this Agreement shall only be
transferable by Employer to successors of Employer pursuant to a corporate
reorganization such as a merger or sale of substantially all of the assets of
Employer, and all covenants and agreements hereunder shall inure to the benefit
of, and be enforceable by or against, said successors-in-interest; provided,
however, that Employer shall not enter into a merger or consolidation with and
into another corporation which results in the termination of Employer's separate
corporate existence unless effective provisions shall have been made with the
surviving corporation for the continued employment of Employee generally upon
the same terms and conditions set forth in this Agreement. Notwithstanding any
such provisions, Employee shall be entitled to the rights set forth in Section
9(E), above.
This Agreement is personal to Employee and cannot be assigned, nor may
duties of Employee hereunder be delegated. Any attempted assignment or
delegation by Employee shall render this Agreement null and void at the option
of Employer.
14. BINDING EFFECT
--------------
The terms, conditions, covenants, and agreements set forth herein shall
inure to the benefit of, and be binding upon, the heirs, administrators,
successors, and assigns of each of the parties hereto and upon any corporation,
entity, or person with which any of the parties hereto may become merged,
consolidate, combined, or otherwise affiliated.
15. WAIVER
------
The waiver of either party of a breach of any provision of this
Agreement by the other party shall not operate or be construed as the waiver of
any subsequent breach of such other party.
16. ATTORNEYS' FEES
---------------
In the event that any action is brought to enforce the terms of this
Agreement, the prevailing party shall be entitled to an award of reasonable
attorney's fees and costs.
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17. ENTIRE AGREEMENT
----------------
This Agreement represents the entire agreement between the parties
hereto, and other or prior understandings, agreements, and contracts are hereby
canceled without further liability whatsoever as to either party.
18. AMENDMENT
---------
This Agreement shall not be altered or modified except by further
written agreement between the parties.
19. CHOICE OF LAW
-------------
This Agreement shall be interpreted, construed, and applied according to
the laws of the State of Texas applicable to contracts made and performed within
such State.
IN WITNESS WHEREOF, the parties hereto have entered into this Agreement
as of the date first above written.
FORTUNE PETROLEUM CORPORATION
By: /s/ Xxxx X. Xxxxxxx
-------------------------------------
XXXX X. XXXXXXX
Executive Vice President
/s/ Xxxxxx X. Xxxxxxxxx
-------------------------------------
XXXXXX X. XXXXXXXXX
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EXHIBIT "A"
The initial annual performance bonus as determined hereunder shall be
paid July 1, 1998 and shall be equal to one percent (1%) of the "Calculation
Value Increase", defined as the difference obtained by deducting (i) one hundred
ten percent (110%) of the average of the closing price of Employer's common
stock on the AMEX consolidated market for each trading day in May 1997,
multiplied by the total number of common shares outstanding on the last trading
day of such month (the "Base Value") from (ii) the average of the closing price
of Employer's common stock on the AMEX consolidated market for each trading day
in May 1998, multiplied by the total number of common shares outstanding on the
last trading day of such month (the "Calculation Value"). Each subsequent annual
performance bonus shall be paid on July 1 of each succeeding calendar year, and
shall be based on the Calculation Value Increase as computed above, deducting
from the Calculation Value for the month of May nearest the bonus payment date
the Calculation Value for the next-preceding month of May.
At no time during the term hereof shall the subtrahend in any bonus
calculation be less than the greater of either the largest Calculation Value
previously determined hereunder or the Base Value. Any Calculation Value
Increase determined hereunder shall be reduced by the gross proceeds realized by
Employer, if any, as the result of all new issuances of common stock shares of
Employer during the twelve-month period ending on the last day of May
immediately preceding the bonus payment date, whether realized by the exercise
of stock options or purchase warrants, equity offering, asset acquisition, or
otherwise. No annual performance bonus shall be payable hereunder for any year
in which the Calculation Value Increase is zero or a negative number. The amount
of any annual performance bonus payable hereunder shall not exceed the Base
Compensation paid Employee in the calendar year immediately prior to the year in
which the bonus is payable.
In the event Employer's net income from continuing operations, adjusted
by adding back any non-cash expenses and deducting any non-cash income, where
non-cash expenses and income shall include, but not be limited to, deferred
income taxes; depreciation, depletion and amortization; impairment to oil and
gas properties; non-cash debt conversion expense; non-cash compensation expense;
gain or loss from sale of property and equipment; and other adjustments to
reconcile Employer's net income or loss to net cash provided by or used in
operating activities as reported in the Employer's statements of cash flow
prepared in accordance with generally accepted accounting principles, other than
changes in assets and liabilities ("EBITDA") for the year ended December 31
immediately prior to the date on which the annual performance bonus is to be
paid equals or exceeds, by a multiple of at least twenty (20), the bonus
calculated hereunder, the bonus shall be paid entirely in cash. To the extent
EBITDA at such date is less than twenty (20) times the bonus so calculated, such
bonus shall be paid in cash and stock, with the stock portion being paid in the
same proportion as (i) twenty (20) minus the actual multiple of the bonus to be
paid which EBITDA represents bears to (ii) ten (10); i.e, 20 minus the actual
multiple, all divided by 10. Such stock shall be valued at the per share price
used to determine the Calculation Value for the month of May nearest the
applicable annual performance bonus payment date. The foregoing notwithstanding,
Employer's board of directors shall retain the discretion to increase the cash
and reduce the stock portions of any such bonus. Employer shall withhold and
promptly pay to all appropriate tax agencies applicable taxes on the stock
portion of such bonus at Employee's highest marginal tax rate and shall remit to
Employee the number of shares of common stock calculated net of such
withholding.
Any terms used but not defined herein shall have the meaning ascribed to
them in the employment agreement to which this exhibit is attached.
