EXECUTIVE INCENTIVE ROYALTY AGREEMENT
THIS EXECUTIVE INCENTIVE ROYALTY
AGREEMENT (this “Agreement”) is
entered effective as of the 16th day of March, 2010, between and among FX
ENERGY, INC., a Nevada corporation (the “Company”); the
several executive employees of the Company identified on Schedule I hereto and
who have executed and delivered to the Company counterpart signature pages to
this Agreement (each, a “Participant,” and
together, the “Participants”); and
FX Royalty, LLC, a Utah limited liability company duly constituted and appointed
by the Participants to hold and administer the interests granted to the
Participants pursuant to this Agreement (“Participant
Designee”), on the following:
Premises
The Company desires to maximize the
economic incentive to the Participants to encourage the highest potential
drilling, accelerate and increase production and reserves, maximize the
Company’s profitability, and generally enhance the Company’s ability to
incentivize and retain valuable employees upon whom, in large measure, the
continued profitability of the Company depends. Accomplishing these
goals, particularly through exploration on a limited budget, requires excellent
exploration concepts, well-executed land acquisition strategies, creative
financing, collaborative industry relationships, careful drilling, and prudent
production. The grants set forth in this Agreement provide benefits
only from production to provide an economic incentive for bringing xxxxx online
as quickly as practicable. These grants provide Participants having
managerial, professional, or other key decision-making responsibilities with an
opportunity to participate in the results of successful acquisition,
exploration, and production.
Agreement
Article
I
“Arbitration Decision”
shall mean the decision of the arbitrator or arbitrators resulting from the
dispute resolution process set forth in Article IV.
“Cause” has the
meaning set forth in the particular employee’s written employment agreement with
the Company.
“Code” means the
Internal Revenue Code of 1986, as amended.
“Company” means FX
Energy, Inc., together with its subsidiaries, and any successor
thereto.
“Conveyed Royalty
Interest” shall have the meaning set forth in
Section 2.01.
“Disabled” or “Disability” shall
mean the inability of a person to engage in any substantial, gainful activity or
inability to substantially perform his essential job functions, with or without
reasonable accommodation, as the result of any medically determinable physical
or mental impairment (as determined by a qualified physician reasonably
acceptable to the Company) that is expected to result in death within 24 months
or that is expected to last for a continuous period of not less than 12
months.
“Economic Value” shall
mean, respecting the Conveyed Royalty Interest and respecting the Company’s
retained interest in the same property, the present value, discounted at 10%, of
the estimated future cash flows from estimated quantities of crude oil and
natural gas, based on costs as of the end of the last completed fiscal year and
prices equivalent to the 12-month average for the last completed fiscal year,
from proved and probable reserves contained in such Prospect Areas, as
determined by probabilistic methods in which the full range of values that could
reasonably occur for each unknown parameter from the geoscience and engineering
data is used to generate a full range of possible outcomes and their associated
probabilities of occurrence, in accordance with the most recent adopted version
of the Petroleum Resources Management System developed by industry
organizations, including the Society of Petroleum Engineers, the World Petroleum
Council, the American Association of Petroleum Geologists, and the Society of
Petroleum Evaluation Engineers, and the requirements of SEC Regulation S-X,
Rule 4-10(a)(18), (19), and (22).
“Exchange Act” means
the Securities Exchange Act of 1934, as amended.
“Participant” means a
person named on Schedule I to this Agreement.
“Participant Designee”
means FX Royalty, LLC, a Utah limited liability company duly constituted and
appointed by the Participants to hold and administer the interests granted to
the Participants pursuant to this Agreement.
“Prospect Area” means
an oil or gas exploration area deemed by the Company, in its sole discretion, to
warrant treatment under the Agreement as a separate incentive pool for
Participants, together with the Company’s legal rights to explore for, develop,
and produce oil or gas therefrom, whether by lease, license, usufruct,
concession, farm-in, joint operation or participation, or other interests or
rights. A Prospect Area may, for convenience, include one or more
whole leases, usufructs, or other legal parcels. The acquisition of
additional legal rights that increase the Company’s interest in a particular
previously designated Prospect Area may, at the discretion of the Company at the
time of such acquisition, be either added to the existing Prospect Area or
designated as a separate Prospect Area. A Prospect Area may also
consist of, at the discretion of the Company, acquired interests in prospects,
producing properties, or other oil and gas projects or
opportunities. The Company’s designation of a Prospect Area shall be
conclusive and shall be subject to modification only by the Company, in its sole
and absolute discretion, provided that no such
modification shall alter, impair, or diminish any Conveyed Royalty Interest of
any Participant.
“Royalty Interest”
means an overriding royalty interest or an economic interest equivalent to an
overriding royalty interest in all oil and gas produced at the surface, free of
expenses of operations or production, for so long as the Company has an interest
in such well. Each such Royalty Interest or equivalent shall be
proportionately reduced in proportion to the Company’s Working Interest so that,
for example, a 3% royalty or equivalent interest in a well in which the Company
has a 50% Working Interest shall be reduced to a 1-1/2% royalty or equivalent
interest.
2
“Working Interest”
means an interest that entitles the owner of the interest to explore, develop,
and operate the property; to bear the costs of exploration, development, and
operation; and to share in the production or the proceeds
therefrom. A royalty interest that entitles the holder to an interest
in oil and gas produced, free of expenses of operations or production, is not a
Working Interest.
1.02 Interpretation. Section
headings contained in this Agreement are for reference purposes only and shall
not affect the meaning or interpretation of this Agreement. Except
when the context clearly requires to the contrary: (a) all
references in this Agreement to designated “Sections” are to the
designated Sections and other subdivisions of this Agreement; (b) instances
of gender or entity-specific usage (e.g., “his,” “her,” “its,” or “individual”)
shall not be interpreted to preclude the application of any provision of this
Agreement to any individual or entity; (c) the word “or” shall not be
applied in its exclusive sense; (d) “including” shall mean that the items
listed are illustrative and not exclusive or limiting; (e) references to
laws, regulations, and other governmental rules (collectively, “rules”), as well as
to contracts, agreements, and other instruments (collectively, “instruments”), shall
mean such rules and instruments as in effect at the time of determination
(taking into account any amendments thereto effective at such time without
regard to whether such amendments were enacted or adopted after the Effective
Date) and shall include all successor rules and instruments thereto;
(f) references to “$,” “cash,” or “dollars” shall mean the lawful currency
of the United States; (g) references to “federal” shall be to laws,
agencies, or other attributes of the United States (and not to any state or
locality thereof); (h) the meaning of the terms “domestic” and “foreign”
shall be determined by reference to the United States; (i) references to
“days” shall mean calendar days; references to “business days” shall mean all
days other than Saturdays, Sundays, and days that are legal holidays in the
state of Utah; (j) references to monthly or annual anniversaries shall be
to the actual calendar months or years at issue (taking into account the actual
number of days in any such month or year); (k) days, business days, and
times of day shall be determined by reference to local time in Utah;
(l) the English language version of this Agreement shall govern all
questions of interpretation relating to this Agreement, notwithstanding that
this Agreement may have been translated into, and executed in, other languages;
(m) whenever in this Agreement a person or group is permitted or required
to make a decision in its “discretion” or under a grant of similar authority or
latitude, such person or group shall be entitled to consider only such interests
and factors as it deems appropriate, in its absolute discretion; and
(n) whenever in this Agreement a person or group is permitted or required
to make a decision in its “good faith” or under another express standard, the
person shall act under such express standard and shall not be subject to any
other or different standard imposed by this Agreement or other applicable
law.
Article
II
3
(a) limit
in any way the right of the Company to terminate a Participant’s employment with
the Company at any time;
4
(b) evidence
any agreement or understanding, express or implied, that the Company will employ
a Participant in any particular capacity or for any particular remuneration;
or
(c) require
or obligate the Company to undertake, continue, or not suspend or terminate any
oil or gas exploration, development, or production activities.
Article
III
(a) a
Participant with more than 15 full years of employment with the Company
terminates his employment with the Company voluntarily after reaching age
65;
(b) a
Participant with less than 15 full years of employment with the Company dies
before reaching age 65;
(c) a
Participant with less than 15 full years of employment with the Company becomes
Disabled before reaching age 65; or
(d) the
Company’s employment of a Participant is terminated by the Company without Cause
prior to the Participant’s 15 full years of employment with the Company before
reaching age 65,
then the
participant will be deemed to have terminated employment (for purposes of this
paragraph) at the actual date of termination in case (a) above, or at the date
on which the participant reaches or would have reached age 65 and 15 full years
of employment in cases (b), (c) and (d) above. In all such cases, all
rights of the Participant Designee allocated to a particular Participant as set
forth on Schedule I shall be limited to participating in production from all
xxxxx commenced on or before the date of deemed termination, and all xxxxx
drilled thereafter into fields penetrated by any well commenced on or before the
date of such Termination, death, or Disability. The Company shall
promptly notify the Participant Designee of any limitation of payments allocated
to an individual Participant pursuant to this paragraph, specifying the basis
for such limitation of payments, and shall send a copy of such notice to such
Participant. A leave of absence for a period of up to 24 consecutive
months approved in writing by the Company shall not constitute a termination of
employment for purposes of computing years of service with the
Company. At the request of the Company, the Participant Designee
shall execute and deliver to the Company such confirmatory instruments or
reconveyances as the Company may reasonably request to evidence limitation of
payments allocated to an individual Participant in accordance with the
foregoing.
(a) upon
death pursuant to:
(i) a
will;
(ii) the
laws of descent and distribution; or
(iii) a
beneficiary designation form approved by the Participant Designee and executed
by a Participant that designates the persons to receive, upon the Participant’s
death, the right to payments under this Agreement that the Participant had upon
his death; or
(b) pursuant
to a qualified domestic relations order, as defined under Section 414(p) of
the Code, relating to the provision of child support, alimony payments, or
marital property rights to a spouse, former spouse, child, or other dependent of
the Participant.
6
Article
IV
4.02 Arbitration
Procedures. All proceedings pursuant to this Article IV
shall be conducted in accordance with the laws relating to mediation,
arbitration, or alternative dispute resolution of the state of Utah, as modified
by the terms of this Article IV, supplemented to the extent agreed to by
the parties by the arbitration procedures published by United States Arbitration
& Mediation, without, however, being required to submit such matter to the
jurisdiction of United States Arbitration & Mediation, unless also agreed to
by the parties.
7
8
4.09 Enforcement and
Jurisdiction. Unless all the parties to an arbitration
otherwise consent in writing, the location of the arbitration hearings and the
place of entry of the award shall be in Salt Lake County, Utah. The
parties consent to exclusive jurisdiction of, and agree that sole venue will lie
in, the state and federal courts in and for such county and state, including the
entry of a judgment on the award. The arbitration award shall be
final and binding and shall not be reviewable in any court on any grounds except
corruption, fraud, or for demonstrable partiality or corruption of the
arbitrators. The parties intend to eliminate all other court review
of the award and the arbitration proceedings. Except for proceedings
to enforce or confirm an award or a proceeding brought by all parties to the
dispute to vacate or modify an award, the initiation of any suit relating to a
claim that is arbitrable under this Agreement shall constitute a material breach
of this Agreement. In addition:
(a) The
parties understand that by agreeing to this binding arbitration provision, they
waive their rights to trial by
jury respecting any matter being arbitrated.
(b) Except
as necessary in a judicial proceeding allowable under this Section 4.09,
all matters relating to any arbitration shall be confidential, including the
existence and subject of the arbitration.
Article
V
9
5.05 Governing Law; Limitations;
Venue. The construction and interpretation of this Agreement
shall be governed by the laws of the state of Utah without reference to conflict
of law principles thereof. Any action or other legal proceeding with
respect to the Agreement may be brought only within the period ending on the
earlier of: (a) one year after the date the claimant in such
action or proceeding knows or with the exercise of reasonable care should have
known of the facts giving rise to the claim; or (b) the expiration of the
applicable statute of limitations period under applicable
law. Exclusive jurisdiction over any such actions or legal
proceedings shall reside in the state and federal courts in and for Salt Lake
County, Utah.
DATE: March
16, 2010
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FX
ENERGY, INC.
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Attest:
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/s/
Xxxxx X. Xxxxxx
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By:
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/s/
Xxxxx X. Xxxxxx
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Xxxxx
X. Xxxxxx
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Xxxxx
X. Xxxxxx
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Corporate
Secretary
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President
and Chief Executive Officer
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10
SCHEDULE
I
TO
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Name
of Participant
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Allocation
of Conveyed Royalty Interest
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Xxxxx
X. Xxxxxx
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0.5283%
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Xxxxxx
X. Xxxxxx
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0.4717
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Xxxxxx
X. Xxxxxxx
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0.3019
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Xxxxx
X. Xxxxxxxx
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0.4717
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Xxxx
Xxxxxx
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0.2830
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Others
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0.9434
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3.0000%
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