-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, WfF7Dirrx+zTMmwfSft4+uU8+NFjZsZDjCWwblekV4ochOMliTgI/BJXQb17ECri iqXv7DpGovy1H20utqXJag== 0000950129-98-003975.txt : 19980918 0000950129-98-003975.hdr.sgml : 19980918 ACCESSION NUMBER: 0000950129-98-003975 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 11 CONFORMED PERIOD OF REPORT: 19980901 ITEM INFORMATION: ITEM INFORMATION: FILED AS OF DATE: 19980916 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: PETROQUEST ENERGY INC CENTRAL INDEX KEY: 0000872248 STANDARD INDUSTRIAL CLASSIFICATION: CRUDE PETROLEUM & NATURAL GAS [1311] IRS NUMBER: 980115468 FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K SEC ACT: SEC FILE NUMBER: 000-19020 FILM NUMBER: 98710357 BUSINESS ADDRESS: STREET 1: 625 E KALISTE SALOOM ROAD SUITE 400 STREET 2: VANCOUVER BRITISH COLUMBIA CITY: LAFAYETTE STATE: LA ZIP: 70508 BUSINESS PHONE: (318)232-7028 MAIL ADDRESS: STREET 1: 600 595 HOWE ST STREET 2: VANCOUVER BRITISH COLUMBIA CITY: CANADA V6C 2T5 STATE: A1 FORMER COMPANY: FORMER CONFORMED NAME: OPTIMA PETROLEUM CORP DATE OF NAME CHANGE: 19950726 8-K 1 PETROQUEST ENERGY, INC. - DATED 9/1/98 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 8-K CURRENT REPORT Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Date of Report: (Date of earliest event reported): September 1, 1998 PETROQUEST ENERGY, INC. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) Delaware 1-9020 98-0115468 (State of Incorporation) (Commission File Number) (IRS Employer Identification No.) 625 E. Kaliste Saloom Road, Suite 400 Lafayette, Louisiana 70508 (Address of Registrant's principal executive offices) (318) 232-7028 (Registrant's telephone number, including area code) Optima Petroleum Corporation #600 595 Home Street Vancouver, British Columbia V6C2T5 (Former name or former address, if changed since last report) 2 ITEM 5. OTHER EVENTS Optima Petroleum Corporation, a company originally organized under the Canada Business Corporation Act (the "Company"), held a special meeting of shareholders on August 21, 1998 (the "Special Meeting"). The following matters were acted upon at the Special Meeting and were the subject of a proxy statement filed by the Company with the Securities and Exchange Commission, which was mailed to the Company's Shareholders on or about July 20, 1998: 1. The Company's shareholders approved the Plan and Agreement of 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. (the "Merger"), all of which were owned by Goodson, NAB and Dexco. In connection with the Merger, the Company issued to the owners of Goodson, NAB and Dexco 7,335,001 shares of Company Common Stock (as defined below) 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 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: CSIRs ------- 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 ---------------------------- (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. In addition, Robert R. Brooksher, who became a director and Chief Financial Officer and Secretary of the Company upon completion of the Merger, holds a three year option to acquire 5% of the shares of Common Stock and CSIRs issued in connection with the Merger. 2. The shareholders approved the Company's continuation and domestication from a Canadian corporation to a Delaware corporation (the "Continuation") and 3 approved the Company's change of name. Subsequent to the Special Meeting, the Company filed with the Secretary of State of Delaware a Certificate of Incorporation (the "Certificate of Incorporation") to effectuate the Continuation pursuant to Section 388 of the Delaware General Corporate law changing its jurisdiction of incorporation from a Canadian corporation to a Delaware corporation, changing its name to "PetroQuest Energy, Inc.", and adopting a new certificate of incorporation. 3. The following individuals were elected by the shareholders as additional directors of the Company. Upon completion of the Merger, certain of these individuals will also serve as the executive officers of the Company as set forth below. William C. Leuschner and Robert L. Hodgkinson will continue 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 --
4. The shareholders approved a new stock option plan covering 1,800,000 shares of Common Stock, and approved the amendment of 465,000 currently outstanding options to change their exercise price and expiry date and the cancellation of all other options outstanding under the Company's prior stock option plans. 5. The shareholders approved the acquisition of a 5% working interest in an oil and gas prospect. As a result of the Merger, the Company's Common Stock will continue to be listed and traded on the Toronto Stock Exchange and the NASDAQ National Market. However, the Company's Common Stock will now trade under the symbols "PQU" and "PQUE", respectively. The Company has also relocated its principal executive offices to Lafayette, Louisiana. The Company's new address and telephone number is: 625 E. Kaliste Saloom Road, Suite 400 Lafayette, Louisiana 70508 (318) 232-7028 Pursuant to the new Certificate of Incorporation, the authorized capital stock as of the Merger consists of 75,000,000 shares of common stock, par value $0.001 per share (the "Common Stock"), and 5,000,000 shares of preferred stock, par value $0.001 per share (the "Preferred Stock"). At the time of the Merger, there will be 18,337,347 shares of issued and outstanding Common Stock, and no shares of Preferred Stock will be outstanding. 4 The following is a description of the Company's capital stock. COMMON STOCK. Each share of Common Stock is entitled to one vote in any matter submitted for a vote to the holders of the capital stock of the Company. The Common Stock does not have cumulative voting rights. Subject to the superior rights of any series of Preferred Stock, the holders of Common Stock may receive dividends if, when and as declared by the Board of Directors of the Company (the "Board of Directors") and, upon liquidation of the Company, are entitled to all assets remaining after the satisfaction of liabilities. The Common Stock has no preemptive or other subscription rights. PREFERRED STOCK. The Board of Directors is empowered, without the approval of the stockholders, to authorize the issuance of Preferred Stock in one or more series, to establish the number of shares included in each series, and to fix the relative rights, powers, preferences and limitations of each series. As a result, the Board of Directors has the power to afford the holders of any series of Preferred Stock greater rights, powers, preferences and limitations than the holders of Common Stock. The ability of the Board of Directors to establish the rights, powers, preferences and limitations and to issue Preferred Stock could be used as an anti-takeover device. ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS (a) AND (b) All financial statements and pro forma financials required in connection with the consummation of the Merger have been previously filed by the Company on a Form 8-K, as amended. (c) EXHIBITS 4.1 Certificate of Incorporation 4.2 Bylaws 4.3 Form of Certificate of Contingent Stock Issue Right 4.4 Certificate of Domestication 10.1 1998 Incentive Plan 10.2 Employment Agreement -- Charles T. Goodson 10.3 Employment Agreement -- Alfred J. Thomas, II 10.4 Employment Agreement -- Ralph J. Daigle 10.5 Employment Agreement -- Robert R. Brooksher 99.1 Registration Rights Agreement 5 SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Date: September 16, 1998 PETROQUEST ENERGY, INC. (formerly Optima Petroleum Corporation) By: /s/ ROBERT R. BROOKSHER ---------------------------------- Robert R. Brooksher, Chief Financial Officer and Secretary 6 INDEX OF EXHIBITS
Exhibit Number Description - -------------- ----------- 4.1 Certificate of Incorporation 4.2 Bylaws 4.3 Form of Certificate of Contingent Stock Issue Right 4.4 Certificate of Domestication 10.1 1998 Incentive Plan 10.2 Employment Agreement -- Charles T. Goodson 10.3 Employment Agreement -- Alfred J. Thomas, II 10.4 Employment Agreement -- Ralph J. Daigle 10.5 Employment Agreement -- Robert R. Brooksher 99.1 Registration Rights Agreement
EX-4.1 2 CERTIFICATE OF INCORPORATION 1 EXHIBIT 4.1 CERTIFICATE OF INCORPORATION OF PETROQUEST ENERGY, INC. The undersigned, a natural person acting as incorporator of a corporation under the General Corporation Law of the State of Delaware, as the same exists or may hereafter from time to time be amended (the "DGCL"), hereby makes this Certificate of Incorporation for such corporation. ARTICLE I NAME The name of the corporation is PetroQuest Energy, Inc. (the "Corporation"). ARTICLE II REGISTERED OFFICE AND AGENT The address of its registered office in the State of Delaware is The Corporation Trust Center, 1209 Orange Street, Wilmington, Delaware 19801, New Castle County. The name of its registered agent at such address is The Corporation Trust Company. ARTICLE III PURPOSES The nature of the business or purposes to be conducted or promoted is to engage in any lawful act or activity for which corporations may be organized under the DGCL. ARTICLE IV AUTHORIZED CAPITAL STOCK The aggregate number of shares of all classes of stock which the Corporation shall have authority to issue is 80,000,000 shares, consisting of: (i) 75,000,000 shares of common stock, par value $.001 per share (the "Common Stock"), and (ii) 5,000,000 shares of preferred stock, par value $.001 per share (the "Preferred Stock"). Shares of any class of capital stock of the Corporation may be issued for such consideration and for such corporate purposes as the Board of Directors of the Corporation (the "Board of Directors") may from time to time determine. Each share of Common Stock shall be entitled to one vote. 2 A. Preferred Stock. The Preferred Stock may be divided into and issued from time to time in one or more series as may be fixed and determined by the Board of Directors. The relative rights and preferences of the Preferred Stock of each series shall be such as shall be stated in any resolution or resolutions adopted by the Board of Directors setting forth the designation of the series and fixing and determining the relative rights and preferences thereof (a "Directors' Resolution"). The Board of Directors is hereby authorized to fix and determine the powers, designations, preferences, and relative, participating, optional or other rights, including, without limitation, voting powers, full or limited, preferential rights to receive dividends or assets upon liquidation, rights of conversion or exchange into Common Stock, Preferred Stock of any series or other securities, any right of the Corporation to exchange or convert shares into Common Stock, Preferred Stock of any series or other securities, or redemption provision or sinking fund provisions, as between series and as between the Preferred Stock or any series thereof and the Common Stock, and the qualifications, limitations or restrictions thereof, if any, all as shall be stated in a Directors' Resolution, and the shares of Preferred Stock or any series thereof may have full or limited voting powers, or be without voting powers, all as shall be stated in a Directors' Resolution. Except where otherwise set forth in the Directors' Resolution providing for the issuance of any series of Preferred Stock, the number of shares comprising such series may be increased or decreased (but not below the number of shares then outstanding) from time to time by like action of the Board of Directors. The shares of Preferred Stock of any one series shall be identical with the other shares in the same series in all respects except as to the dates from and after which dividends thereon shall cumulate, if cumulative. B. Reacquired Shares of Preferred Stock. Shares of any series of any Preferred Stock that have been redeemed (whether through the operation of a sinking fund or otherwise), purchased by the Corporation, or which, if convertible or exchangeable, have been converted into, or exchanged for, shares of stock of any other class or classes or any evidences of indebtedness shall have the status of authorized and unissued shares of Preferred Stock and may be reissued as a part of the series of which they were originally a part or may be reclassified and reissued as part of a new series of Preferred Stock or as part of any other series of Preferred Stock, all subject to the conditions or restrictions on issuance set forth in the Directors' Resolution providing for the issuance of any series of Preferred Stock and to any filing required by law. C. Increase in Authorized Preferred Stock. The number of authorized shares of Preferred Stock may be increased or decreased by the affirmative vote of the holders of a majority of the stock of the Corporation entitled to vote without the separate vote of holders of Preferred Stock as a class. ARTICLE V EXISTENCE The existence of the Corporation is to be perpetual. 2 3 ARTICLE VI NO PREEMPTIVE RIGHTS No stockholder shall be entitled, as a matter of right, to subscribe for or acquire additional, unissued or treasury shares of any class of capital stock of the Corporation whether now or hereafter authorized, or any bonds, debentures or other securities convertible into, or carrying a right to subscribe to or acquire such shares, but any shares or other securities convertible into, or carrying a right to subscribe to or acquire such shares may be issued or disposed of by the Board of Directors to such persons and on such terms as in its discretion it shall deem advisable. ARTICLE VII NO CUMULATIVE VOTING At each election of directors, every stockholder entitled to vote at such election shall have the right to vote in person or by proxy the number of shares owned by him for as many persons as there are directors to be elected and for whose election he has a right to vote. No stockholder shall have the right to cumulate his votes in any election of directors. ARTICLE VIII NO STOCKHOLDER ACTION WITHOUT A MEETING Except as otherwise required by law, any action required or permitted to be taken by the stockholders of the Corporation must be effected at an annual or special meeting of stockholders of the Corporation and may not be effected by any consent in writing by such stockholders. A special meeting of stockholders of the Corporation may be called only by the Chairman of the Board, the Chief Executive Officer, the President or the Board of Directors by the written order of a majority of the entire Board of Directors, and not by the stockholders except as otherwise provided by law or the Bylaws of the Corporation ("Bylaws"). ARTICLE IX BOARD OF DIRECTORS The business and affairs of the Corporation shall be managed by or under the direction of the Board of Directors. In addition to the authority and powers conferred upon the Board of Directors by the DGCL or by the other provisions of this Certificate of Incorporation (this "Certificate of Incorporation"), the Board of Directors is hereby authorized and empowered to exercise all such 3 4 powers and do all such acts and things as may be exercised or done by the Corporation, subject to the provisions of the DGCL, this Certificate of Incorporation and the Bylaws; provided, however, that no Bylaws hereafter adopted by the stockholders of the Corporation, or any amendments thereto, shall invalidate any prior act of the Board of Directors that would have been valid if such Bylaws or amendment had not been adopted. A. Number, Election and Terms of Directors. The number of directors which shall constitute the whole Board of Directors shall be fixed from time to time by a majority of the directors then in office. Each director shall hold office until the next annual meeting and shall serve until his successor shall have been duly elected and qualified or until his earlier death, resignation or removal. Election of directors need not be by written ballot unless the Bylaws of the Corporation shall so provide. B. Removal of Directors. No director of the Corporation shall be removed from office as a director by vote or other action of the stockholders or otherwise except for cause, and then only by the affirmative vote of the holders of at least a majority of the voting power of all outstanding shares of capital stock of the Corporation generally entitled to vote in the election of directors, voting together as a single class. Except as may otherwise be provided by law, cause of removal of a director shall be deemed to exist only if: (i) the director whose removal is proposed has been convicted, or where a director is granted immunity to testify where another has been convicted, of a felony by a court of competent jurisdiction and such conviction is no longer subject to direct appeal; (ii) such director has been found by the affirmative vote of a majority of the entire Board of Directors at any regular or special meeting of the Board of Directors called for that purpose or by a court of competent jurisdiction to have been grossly negligent or guilty of misconduct in the performance of his duties to the Corporation in a matter of substantial importance to the Corporation; or (iii) such director has been adjudicated by a court of competent jurisdiction to be mentally incompetent, which mental incompetency directly affects his ability as a director of the Corporation. C. Vacancies. Newly created directorships resulting from any increase in the number of directors and any vacancies on the Board of Directors resulting from death, resignation, removal or other cause shall be filled by the affirmative vote of a majority of the remaining directors then in office, even though less than a quorum of the Board of Directors. Any director elected in accordance with the preceding sentence shall hold office for the remainder of the full term of the class of directors in which the new directorship was created or the vacancy occurred and until such director's successor shall have been elected and qualified or until his earlier death, resignation or removal. No decrease in the number of directors constituting the Board of Directors shall shorten the term of any incumbent director. 4 5 ARTICLE X INDEMNIFICATION A. Mandatory Indemnification. Each person who at any time is or was a director or officer of the Corporation, and is threatened to be or is made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative, arbitrative or investigative (a "Proceeding"), by reason of the fact that such person is or was a director or officer of the Corporation, or is or was serving at the request of the Corporation as a director, officer, partner, venturer, proprietor, member, employee, trustee, agent or similar functionary of another domestic or foreign corporation, partnership, joint venture, sole proprietorship, trust, employee benefit plan or other for-profit or non-profit enterprise, whether the basis of a Proceeding is an alleged action in such person's official capacity or in another capacity while holding such office, shall be indemnified and held harmless by the Corporation to the fullest extent authorized by the DGCL, or any other applicable law as may from time to time be in effect (but, in the case of any such amendment or enactment, only to the extent that such amendment or law permits the Corporation to provide broader indemnification rights than such law prior to such amendment or enactment permitted the Corporation to provide), against all expense, liability and loss (including, without limitation, court costs and attorneys' fees, judgments, fines, excise taxes or penalties, and amounts paid or to be paid in settlement) actually and reasonably incurred or suffered by such person in connection with a Proceeding, and such indemnification shall continue as to a person who has ceased to be a director or officer of the Corporation or a director, officer, partner, venturer, proprietor, member, employee, trustee, agent or similar functionary of another domestic or foreign corporation, partnership, joint venture, sole proprietorship, trust, employee benefit plan or other for-profit or non-profit enterprise, and shall inure to the benefit of such person's heirs, executors and administrators. The Corporation's obligations under this Section A include, but are not limited to, the convening of any meeting, and the consideration of any matter thereby, required by statute in order to determine the eligibility of any person for indemnification. B. Prepayment of Expenses. Expenses incurred by a director or officer of the Corporation in defending a Proceeding shall be paid by the Corporation in advance of the final disposition of such Proceeding to the fullest extent permitted by, and only in compliance with, the DGCL or any other applicable laws as may from time to time be in effect, including, without limitation, any provision of the DGCL which requires, as a condition precedent to such expense advancement, the delivery to the Corporation of an undertaking, by or on behalf of such director or officer, to repay all amounts so advanced if it shall ultimately be determined that such director or officer is not entitled to be indemnified under Section A of this Article X or otherwise. Repayments of all amounts so advanced shall be upon such terms and conditions, if any, as the Corporation's Board of Directors deems appropriate. C. Vesting. The Corporation's obligation to indemnify and to prepay expenses under Sections A and B of this Article X shall arise, and all rights granted to the Corporation's directors and officers hereunder shall vest, at the time of the occurrence of the transaction or event to which a Proceeding relates, or at the time that the action or conduct to which such Proceeding relates was 5 6 first taken or engaged in (or omitted to be taken or engaged in), regardless of when such Proceeding is first threatened, commenced or completed. Notwithstanding any other provision of this Certificate of Incorporation or the Bylaws of the Corporation, no action taken by the Corporation, either by amendment of this Certificate of Incorporation or the Bylaws of the Corporation or otherwise, shall diminish or adversely affect any rights to indemnification or prepayment of expenses granted under Sections A and B of this Article X which shall have become vested as aforesaid prior to the date that such amendment or other corporate action is effective or taken, whichever is later. D. Enforcement. If a claim under Section A or Section B or both Sections A and B of this Article X is not paid in full by the Corporation within thirty (30) days after a written claim has been received by the Corporation, the claimant may at any time thereafter bring suit in a court of competent jurisdiction against the Corporation to recover the unpaid amount of the claim and, if successful in whole or in part, the claimant shall also be entitled to be paid the expense of prosecuting such claim. It shall be a defense to any such suit (other than a suit brought to enforce a claim for expenses incurred in defending any Proceeding in advance of its final disposition where the required undertaking, if any is required, has been tendered to the Corporation) that the claimant has not met the standards of conduct which make it permissible under the DGCL or other applicable law to indemnify the claimant for the amount claimed, but the burden of proving such defense shall be on the Corporation. The failure of the Corporation (including its Board of Directors, independent legal counsel, or stockholders) to have made a determination prior to the commencement of such suit as to whether indemnification is proper in the circumstances based upon the applicable standard of conduct set forth in the DGCL or other applicable law shall neither be a defense to the action nor create a presumption that the claimant has not met the applicable standard of conduct. The termination of any Proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contendere or its equivalent, shall not, of itself, create a presumption that the person did not act in good faith and in a manner which such person reasonably believed to be in or not opposed to the best interests of the Corporation, and, with respect to any criminal Proceeding, had reasonable cause to believe that his conduct was unlawful. E. Nonexclusive. The indemnification provided by this Article X shall not be deemed exclusive of any other rights to which a person seeking indemnification may be entitled under any statute, bylaw, other provisions of this Certificate of Incorporation, agreement, vote of stockholders or disinterested directors or otherwise, both as to action in such person's official capacity and as to action in another capacity while holding such office. F. Permissive Indemnification. The rights to indemnification and prepayment of expenses which are conferred to the Corporation's directors and officers by Sections A and B of this Article X may be conferred upon any employee or agent of the Corporation if, and to the extent, authorized by the Board of Directors. 6 7 G. Insurance. The Corporation shall have power to purchase and maintain insurance, at its expense, on behalf of any person who is or was a director, officer, employee or agent of the Corporation, or is or was serving at the request of the Corporation as a director, officer, partner, venturer, proprietor, member, employee, trustee, agent or similar functionary of another domestic or foreign corporation, partnership, joint venture, sole proprietorship, trust, employee benefit plan or other for-profit or non-profit enterprise against any expense, liability or loss asserted against such person and incurred by such person in any such capacity, or arising out of such person's status as such, whether or not the Corporation would have the power to indemnify such person against such expense, liability or loss under the provisions of this Article X, the Corporation's Bylaws, the DGCL or other applicable law. H. Implementing Arrangements. Without limiting the power of the Corporation to procure or maintain insurance or other arrangement on behalf of any of the persons as described in Section G of this Article X, the Corporation may, for the benefit of persons eligible for indemnification by the Corporation, (i) create a trust fund, (ii) establish any form of self-insurance, (iii) secure its indemnity obligation by grant of a security interest or other lien on the assets of the Corporation, or (iv) establish a letter of credit, guaranty or surety arrangement. ARTICLE XI LIMITED DIRECTOR LIABILITY No director of the Corporation shall be personally liable to the Corporation or to its stockholders for monetary damages for breach of fiduciary duty as a director, provided that this Article XI shall not eliminate or limit the liability of a director: (i) for any breach of the director's duty of loyalty to the Corporation or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) under Section 174 of the DGCL, as it may hereafter be amended from time to time, for any unlawful payment of a dividend or unlawful stock purchase or redemption, or (iv) for any transaction from which the director derived an improper personal benefit. If the DGCL is amended to authorize corporate action further eliminating or limiting the personal liability of directors, then the liability of a director of the Corporation shall be eliminated or limited to the fullest extent permitted by the DGCL, as so amended. No amendment to or repeal of this Article XI will apply to, or have any effect on, the liability or alleged liability of any director of the Corporation for or with respect to any acts or omissions of the director occurring prior to such amendment or repeal. 7 8 ARTICLE XII BYLAWS The Board of Directors is expressly authorized to adopt, amend or repeal the Bylaws of the Corporation, or adopt new Bylaws, without any action on the part of the stockholders, except as may be otherwise provided by applicable law or the Bylaws of the Corporation. ARTICLE XIII ARRANGEMENTS WITH CREDITORS Whenever a compromise or arrangement is proposed between the Corporation and its creditors or any class of them and/or between the Corporation and its stockholders or any class of them, any court of equitable jurisdiction within the State of Delaware may, on the application in a summary way of the Corporation or of any creditor or stockholder thereof, or on the application of any receiver or receivers appointed for the Corporation under Section 291 of Title 8 of the Delaware Code, order a meeting of the creditors or class of creditors, and/or of the stockholders or class of stockholders of the Corporation, as the case may be, to be summoned in such manner as the said court directs. If the majority in number representing three-fourths in value of the creditors or class of creditors, and/or of the stockholders or class of stockholders, of the Corporation, as the case may be, agree to any compromise or arrangement and to any reorganization of the Corporation as a consequence of such compromise or arrangement, the said compromise or arrangement and the said reorganization shall, if sanctioned by the court to which the said application has been made, be binding on all the creditors or class of creditors, and/or on all the stockholders or class of stockholders, of the Corporation, as the case may be, and also on the Corporation. ARTICLE XIV INITIAL BOARD OF DIRECTORS The names and mailing addresses of the initial members of the Board of Directors are: Charles T. Goodson 625 East Kaliste Saloom Road Lafayette, Louisiana 70508 Alfred J. Thomas, II 625 East Kaliste Saloom Road Lafayette, Louisiana 70508 Ralph J. Daigle 625 East Kaliste Saloom Road Lafayette, Louisiana 70508 8 9 Robert R. Brooksher 625 East Kaliste Saloom Road Lafayette, Louisiana 70508 Daniel G. Fournerat Onebane, Bernard, Torian, Diaz, McNamara & Abell Suite 600, Versailles Centre 102 Versailles Boulevard Lafayette, Louisiana 70502 William C. Leuschner Optima Petroleum Corporation 600-595 Howe Street Vancouver, B.C. Canada, V6C 2T5 Robert L. Hodgkinson Optima Petroleum Corporation 600-595 Howe Street Vancouver, B.C. Canada, V6C 2T5 ARTICLE XV INCORPORATOR The name and mailing address of the incorporator, the powers and authority of whom shall cease upon the filing of this Certificate of Incorporation, is: Robert G. Reedy, Esq. Porter & Hedges, L.L.P. 700 Louisiana, 35th Floor Houston, Texas 77002 ARTICLE XVI DOMESTICATION The Corporation (formerly named "Lathwell Resources" until February 5, 1988, and "Optima Energy Corporation" until July 9, 1992 and "Optima Petroleum Corporation" until the date of filing of this Certificate of Incorporation) was incorporated under the laws of British Columbia, Canada, on April 11, 1983, and was continued as a federal Canadian corporation on June 14, 1994. Simultaneously with the filing of this Certificate of Incorporation, the Corporation has filed its Certificate of Domestication with the Secretary of State of the State of Delaware in order to 9 10 domesticate itself in the State of Delaware. This Certificate of Incorporation amends and supersedes in all respects the previously adopted Articles of Incorporation, as amended to date, of the Corporation. Each share of the common stock of the Corporation outstanding on the effective date of this Certificate of Incorporation is hereby converted into one share of the Common Stock without any further action by the Corporation or any stockholder, and the currently outstanding share certificate representing such share of common stock outstanding on the effective date of this Certificate of Incorporation shall represent one share of the Common Stock until such share certificate is surrendered for transfer or reissue. ARTICLE XVII SECTION 203 ELECTION The Corporation expressly elects not to be governed by Section 203 of the DGCL. I, the undersigned, being the incorporator, for the purpose of forming a corporation pursuant to the DGCL, do make this Certificate of Incorporation, hereby declaring under the penalties of perjury that this is my act and deed and that the facts stated herein are true, and accordingly has executed this Certificate of Incorporation on August 21, 1998. /s/ Robert G. Reedy ----------------------------------- Robert G. Reedy, Esq. 10 EX-4.2 3 BYLAWS 1 EXHIBIT 4.2 BYLAWS OF PETROQUEST ENERGY, INC. ARTICLE I OFFICES Section 1. Principal Office. The principal office of PetroQuest Energy, Inc. (the "Corporation") will be in Lafayette, Louisiana. The Board of Directors of the Corporation (the "Board of Directors") may elect to relocate the principal office of the Corporation from time to time as it shall deem necessary and proper. Section 2. Other Offices. The Corporation may also have offices at such other places within or without the State of Delaware as the Board of Directors may from time to time determine or the business of the Corporation may require. ARTICLE II MEETINGS OF STOCKHOLDERS Section 1. Place of Meetings. All meetings of the stockholders will be held at the principal office of the Corporation, or at such other place within or without the State of Delaware as may be determined by the Board of Directors and stated in the notice of the meeting or in a duly executed waiver of notice thereof. Section 2. Annual Meetings. An annual meeting of Stockholders shall be held for the election of directors at such date, time and place, either within or without the State of Delaware, as may be designated by resolution of the Board of Directors from time to time; provided that each successive annual meeting shall be held on a date within 13 months after the date of the preceding annual meeting. Only such business shall be conducted as shall have been properly brought before the meeting. To be properly brought before an annual meeting, business must be (a) specified in the notice of meeting given by or at the direction of the Board of Directors, (b) otherwise properly brought before the meeting or at the direction of the Board of Directors, or (c) otherwise properly brought before the meeting by a stockholder of the Corporation. For business to be properly brought before an annual meeting by a stockholder, the stockholder must have given timely notice thereof in writing to the Secretary of the Corporation. To be timely, a stockholder's notice must be delivered to or mailed and received at the principal executive offices of the Corporation, no less than 60 days nor more than 120 days prior to the anniversary date of the immediately preceding annual meeting; provided, however, that in the event that the date of the annual meeting is changed by more than 30 days from such anniversary date, notice by the 2 stockholder to be timely must be received not later than the close of business on the tenth day following the earlier of the date on which a written statement setting forth the date of such meeting was mailed to stockholders or the date on which it is first disclosed to the public. A stockholder's notice to the Secretary shall set forth as to each matter the stockholder proposes to bring before the annual meeting: (a) a brief description of the business desired to be brought before the annual meeting, (b) the name and address, as they appear on the Corporation's books, of the stockholder proposing such proposal, (c) the class and number of shares of the Corporation that are beneficially owned by the stockholder, and (d) any material interest of the stockholder in such business. In addition, if the stockholder's ownership of shares of the Corporation, as set forth in the notice, is solely beneficial, documentary evidence of such ownership must accompany the notice. Notwithstanding anything else in these Bylaws to the contrary, no business shall be conducted at an annual meeting except in accordance with the procedures set forth in this Section 2. The presiding officer of an annual meeting shall, if the facts warrant, determine and declare to the meeting that any business that was not properly brought before the meeting is out of order and shall not be transacted at the meeting. Section 3. Notice of Annual Meeting. Written or printed notice of the annual meeting, stating the place, day and hour thereof, will be served upon or mailed to each stockholder entitled to vote thereat at such address as appears on the books of the Corporation, not less than ten days nor more than sixty days before the date of the meeting. Section 4. Special Meeting. Except as otherwise required by law or the Certificate of Incorporation, special meetings of the stockholders of the Corporation may be called only by the Chairman of the Board of Directors (the "Chairman of the Board"), the Chief Executive Officer, the President, the Board of Directors by the written order of a majority of the entire Board of Directors or upon the written request of stockholders owning not less than two-thirds of the shares of capital stock of the Corporation issued, outstanding and entitled to vote at such meeting delivered to the President or Secretary that states the purpose or purposes of the proposed meeting. Section 5. Notice of Special Meeting. Written notice of a special meeting of stockholders, stating the place, day and hour and purpose or purposes thereof, will be served upon or mailed to each stockholder entitled to vote thereat at such address as appears on the books of the Corporation, not less than ten days nor more than sixty days before the date of the meeting. Section 6. Business at Special Meeting. Business transacted at all special meetings will be confined to the purpose or purposes stated in the notice. 2 3 Section 7. Stockholder List. At least ten days before each meeting of stockholders, a complete list of the stockholders entitled to vote at such meeting or any adjournment thereof, arranged in alphabetical order, with the address of and the number of shares held by each, will be prepared by the Secretary. Such list, for a period of ten days prior to such meeting, will be kept on file at the registered office of the Corporation and will be subject to inspection by any stockholder at any time during usual business hours. Such list will also be produced and kept open at the time and place of the meeting and shall be subject to the inspection of any stockholder during the whole time of the meeting. Section 8. Quorum. The holders of at least one-half of the shares of capital stock issued and outstanding and entitled to vote thereat, represented in person or by proxy, will constitute a quorum at all meetings of the stockholders for the transaction of business except as otherwise provided by law, the Certificate of Incorporation or these Bylaws. If, however, such quorum is not present or represented at any meeting of the stockholders, the stockholders entitled to vote thereat, represented in person or by proxy, shall have power to adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum shall be present or represented. At any such adjourned meeting at which a quorum is represented, any business may be transacted which might have been transacted at the meeting as originally notified. Section 9. Voting. Unless otherwise provided by law, the Certificate of Incorporation or these Bylaws, each stockholder will have one vote for each share of stock having voting power, registered in his name on the books of the Corporation. When a quorum is present at any meeting, the vote of the holders of a majority of the shares having voting power represented in person or by proxy will decide any question brought before such meeting, unless the question is one upon which, by express provision of law, the Certificate of Incorporation or these Bylaws, a different vote is required, in which case such express provision will govern and control the decision of such question. In the case of a matter submitted for a vote of the stockholders as to which a stockholder approval requirement is applicable under the stockholder approval policy of any stock exchange or quotation system on which the capital stock of the Corporation is traded or quoted, the requirements under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), or any provisions of the Internal Revenue Code, in each case for which no higher voting requirement is specified by the DGCL, the Certificate of Incorporation or these Bylaws, the vote required for approval shall be the requisite vote specified in such stockholder approval policy, the Exchange Act or Internal Revenue Code provision, as the case may be (or the highest such requirement if more than one is applicable). Unless otherwise provided in the Certificate of Incorporation or these Bylaws in accordance with the DGCL, directors shall be elected by a plurality of the votes cast by the holders of 3 4 outstanding shares of capital stock of the Corporation entitled to vote in the election of directors at a meeting of stockholders at which a quorum is present. Section 10. Proxies. At any meeting of the stockholders every stockholder having the right to vote will be entitled to vote in person, or by proxy appointed by an instrument in writing subscribed by such stockholder or his duly authorized attorney in fact and bearing a date not more than eleven months prior to said meeting. ARTICLE III BOARD OF DIRECTORS Section 1. Powers. The business and affairs of the Corporation will be managed by a Board of Directors. The Board of Directors may exercise all such powers of the Corporation and do all such lawful acts and things as are not by law, by the Certificate of Incorporation or these Bylaws directed or required to be exercised or done by the stockholders. Section 2. Number of Directors. The number of directors which constitute the whole Board of Directors will be no more than twelve, as such number shall be determined by resolution of the Board of Directors from time to time; provided, however, that no decrease in the number of directors shall have the effect of shortening the term of any incumbent director; provided further, however, that from and after the first date as of which the Corporation has a class or series of capital stock registered under the Exchange Act, the number of directors which shall constitute the whole Board of Directors shall be not less than three. Section 3. Nomination. Only persons who are nominated in accordance with the procedures set forth in these Bylaws shall be eligible to serve as directors. Nominations of persons for election to the Board of Directors of the Corporation may be made at a meeting of stockholders (a) by or at the direction of the Board of Directors or (b) by any stockholder of the Corporation who is a stockholder of record at the time of giving of notice provided for in this Section 3, who shall be entitled to vote for the election of directors at the meeting and who complies with the notice procedures set forth in this Section 3. Nominations by stockholders shall be made pursuant to timely notice in writing to the Secretary of the Corporation. To be timely, a stockholder's notice shall be delivered to or mailed and received at the principal executive offices of the Corporation (a) in the case of an annual meeting, not less than 60 days nor more than 120 days prior to the first anniversary of the preceding year's annual meeting; provided, however, that in the event that the date of the annual meeting is changed by more than 30 days from such anniversary date, notice by the 4 5 stockholder to be timely must be so received not later than the close of business on the tenth day following the earlier of the date on which a written statement setting forth the date of such meeting was mailed to stockholders or the date on which it is first disclosed to the public, and (b) in the case of a special meeting at which directors are to be elected, not later than the close of business on the tenth day following the earlier of the date on which a written statement setting forth the date of such meeting was mailed to stockholders or the date on which it is first disclosed to the public. Such stockholder's notice shall set forth (a) as to each person whom the stockholder proposes to nominate for election or reelection as a director all information relating to such person that is required to be disclosed in solicitations of proxies for election of directors, or is otherwise required, in each case pursuant to Regulation 14A under the Exchange Act (including such person's written consent to being named in the proxy statement as a nominee and to serving as a director if elected); (b) as to the stockholder giving the notice (i) the name and address, as they appear on the Corporation's books, of such stockholder and (ii) the class and number of shares of the Corporation which are beneficially owned by such stockholder and which are owned of record by such stockholder; and (c) as to the beneficial owner, if any, on whose behalf the nomination is made, (i) the name and address of such person and (ii) the class and number of shares of the Corporation which are beneficially owned by such person. At the request of the Board of Directors, any person nominated by the Board of Directors for election as a director shall furnish to the Secretary of the Corporation that information required to be set forth in a stockholder's notice of nomination which pertains to the nominee. The presiding officer of the meeting shall, if the facts warrant, determine and declare to the meeting that a nomination was not made in accordance with the procedures prescribed by this Section 3 and he shall so declare to the meeting, and the defective nomination shall be disregarded. Section 4. Election and Term. Subject to the requirements of the Certificate of Incorporation, the directors of each class shall be elected at the annual meeting of stockholders, except as provided in Section 5, and each director elected shall hold office until the expiration of his term and until his successor shall be elected and shall qualify. Directors need not be residents of Delaware or stockholders of the Corporation. Section 5. Vacancies. If any vacancy occurs in the Board of Directors caused by death, resignation, retirement, disqualification, or removal from office of any director, or otherwise, or if any new directorship is created by an increase in the authorized number of directors, a majority of the directors then in office, though less than a quorum, or a sole remaining director, may choose a successor or fill the newly created directorship; and a director so chosen shall hold office 5 6 until his term expires and until his successor shall be duly elected and shall qualify, unless sooner displaced. Section 6. Resignation; Removal. Any director may resign at any time. Unless otherwise prescribed by law or the Certificate of Incorporation, a director may be removed from office only for cause and then only by the affirmative vote of the holders of at least a majority of the voting power of all outstanding shares of capital stock of the Corporation generally entitled to vote in the election of directors, voting together as a single class. Except as may otherwise be provided by law, cause of removal of a director shall be deemed to exist only if: (i) the director whose removal is proposed has been convicted, or where a director is granted immunity to testify where another has been convicted, of a felony by a court of competent jurisdiction and such conviction is no longer subject to direct appeal; (ii) such director has been found by the affirmative vote of a majority of the entire Board of Directors at any regular or special meeting of the Board of Directors called for that purpose or by a court of competent jurisdiction to have been grossly negligent or guilty of misconduct in the performance of his duties to the Corporation in a matter of substantial importance to the Corporation; or (iii) such director has been adjudicated by a court of competent jurisdiction to be mentally incompetent, which mental incompetency directly affects his ability as a director of the Corporation. ARTICLE IV MEETINGS OF THE BOARD Section 1. First Meeting. The Board of Directors may hold its first meeting for the purpose of organization and the transaction of business, if a quorum is present, immediately after and at the same place as the annual meeting of the stockholders, and no notice of such meeting shall be necessary; or the Board of Directors may meet at such place and time as is fixed by the consent in writing of all the directors. Section 2. Regular Meetings. Regular meetings of the Board of Directors may be held at such time and place either within or without the State of Delaware and with such notice or without notice as is determined from time to time by the Board of Directors. Section 3. Special Meetings. Special meetings of the Board of Directors may be called by the President or the Chairman of the Board on one days notice to each director, either personally or by mail or telegram. Special meetings will be called by the President or the Chairman of the Board in like manner and on like notice upon the written request of a majority of the Board of Directors. 6 7 Section 4. Quorum and Voting. At all meetings of the Board of Directors, a majority of the directors will be necessary and sufficient to constitute a quorum for the transaction of business; and the act of a majority of the directors present at any meeting at which there is a quorum will be the act of the Board of Directors, except as may be otherwise specifically provided by law, the Certificate of Incorporation or these Bylaws. If a quorum is not present at any meeting of directors, the directors present thereat may adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum is present. Section 5. Telephone Meetings. The Board of Directors may hold meetings in any manner permitted by law. Without limitation, at any meeting of the Board of Directors, a director may attend by telephone, radio, television, interactive media or similar means of communication by means of which all participants can hear each other which permits him to participate in the meeting, and a director so attending will be deemed present at the meeting for all purposes including the determination of whether a quorum is present. Section 6. Action by Written Consent. Any action required or permitted to be taken by the Board of Directors or any committee of the Board of Directors under applicable statutory provisions, the Certificate of Incorporation, or these Bylaws, may be taken without a meeting if a consent in writing, setting forth the action so taken, is signed by all the members of the Board of Directors or such committee, as the case may be, and filed with the minutes of the meetings of the Board of Directors or such committee, as the case may be. ARTICLE V COMMITTEES Section 1. Committees of Directors. The Board of Directors may establish an Audit Committee and a Compensation Committee, and may establish an Executive Committee and such other committees as may be established by resolution of a majority of the whole Board of Directors. Each of such committees shall consist of one or more members of the Board of Directors and shall have a chairman that is selected by the Board of Directors. Members of committees of the Board of Directors shall be elected annually by vote of a majority of the Board of Directors. The Chief Executive Officer shall be an ex-officio nonvoting member of each committee (except the Audit and Compensation Committees) of which he is not an official voting member. With respect to any committee (including the Audit and Compensation Committees) of which the Chief Executive Officer is not an official voting member, the Chief Executive Officer shall be given notice of all committee meetings at the same time notice is given to committee members, and the Chief Executive Officer shall be afforded the opportunity to speak at the committee meeting. Presence of a majority of the committee members (not 7 8 counting any ex-officio nonvoting members) shall constitute a quorum. Committees may act by majority vote of the voting members present at a meeting. Each of such committees shall have and may exercise such of the powers of the Board of Directors in the management of the business and affairs of the Corporation as may be provided in these Bylaws or by resolution of the Board of Directors. Each of such committees may authorize the seal of the Corporation to be affixed to any document or instrument. The Board of Directors may designate one or more directors as alternate members of any such committee, who may replace any absent or disqualified member at any meeting of such committee. Meetings of committees may be called by the chairman of the committee by written, telegraphic or telephonic notice to all members of the committee and the Chief Executive Officer and shall be at such time and place as shall be stated in the notice of such meeting. Any member of a committee may participate in any meeting by means of conference telephone or similar communications equipment. In the absence or disqualification of a member of any committee the chairman of such committee may, if deemed advisable, appoint another member of the Board of Directors to act at the meeting in the place of the disqualified or absent member. The chairman of the committee may fix such other rules and procedures governing conduct of meetings as he shall deem appropriate. Section 2. Audit Committee. The Audit Committee shall consist of not less than two members of the Board of Directors. The Audit Committee shall be responsible for recommending to the entire Board of Directors engagement and discharge of independent auditors of the financial statements of the Corporation, shall review the professional service provided by the independent auditors, shall review the independence of independent auditors, shall review with the auditors the plan and results of the auditing engagement, shall consider the range of audit and non-audit fees, shall review the adequacy of the Corporation's system of internal audit controls, shall review the results of procedures for internal auditing and shall consult with the internal auditor of the Corporation with respect to all aspects of the Corporation's internal auditing program. In addition, the Audit Committee shall direct and supervise special investigations as deemed necessary by the Audit Committee. Section 3. Compensation Committee. The Compensation Committee shall consist of not less than two members of the Board of Directors. The Compensation Committee shall recommend to the Board of Directors the compensation to be paid to officers and key employees of the Corporation and the compensation of the Board of Directors. Except as otherwise provided in any specific plan adopted by the Board of Directors, the Compensation Committee shall be responsible for administration of executive compensation plans, stock option plans and other forms of direct or indirect compensation of officers and key employees, and each member of the Compensation Committee shall have the power and authority to execute and bind the Corporation to such documents, 8 9 agreements and instruments related to such plans and compensation as are approved by the Compensation Committee. In the alternative, the Compensation Committee may authorize any officer of the Corporation to execute such documents, agreements and instruments on behalf of the Corporation. In addition, the Compensation Committee shall review levels of pension benefits and insurance programs for officers and key employees. Section 4. Other Committees. The Board of Directors may similarly create other committees for such terms and with such powers and duties as the Board of Directors deems appropriate except as provided to the contrary by law, the Certificate of Incorporation, or these Bylaws. Section 5. Advisory Directors. The Board of Directors may, by majority vote, appoint one or more advisory directors. Advisory directors shall serve at the Board of Directors' convenience solely to advise the Board of Directors, and shall have no formal responsibilities. No advisory director shall be entitled to vote at meetings of the Board of Directors, nor shall any advisory director be counted when determining whether there is a quorum at meetings of the Board of Directors. Advisory directors shall not be, by virtue of their position as advisory directors, agents of the Corporation, and they shall not have the power to bind the Corporation. ARTICLE VI COMPENSATION OF DIRECTORS Directors, as such, shall receive such compensation for their services and such reimbursement of expenses as shall be determined by the Board of Directors. ARTICLE VII NOTICES Section 1. Methods of Notice. Whenever any notice is required to be given to any stockholder or director under the provisions of any law, the Certificate of Incorporation or these Bylaws, it will not be construed to require personal notice, but such notice may be given in writing by mail addressed to such stockholder or director at such address as appears on the books of the Corporation, and such notice shall be deemed to be given at the time when the same shall be deposited in the United States mail with postage thereon prepaid. Notice to directors may also be given by telegram, by facsimile, by telephone or in person, and notice given by such means shall be deemed given at the time it is delivered. 9 10 Section 2. Waiver of Notice. Whenever any notice is required to be given to any stockholder or director under the provisions of any law, the Certificate of Incorporation or these Bylaws, a waiver thereof in writing signed by the person or persons entitled to said notice, whether before or after the time stated therein, will be deemed equivalent to the giving of such notice. Attendance at any meeting will constitute a waiver of notice thereof except as otherwise provided by law. ARTICLE VIII OFFICERS Section 1. Executive Officers. The officers of the Corporation will consist of either a Chief Executive Officer or a President, Vice President and Secretary, each of whom shall be elected by the Board of Directors. The Board of Directors may also elect a Chairman of the Board, a Chief Executive Officer, a Chief Operating Officer, additional vice presidents, a Treasurer, a Controller and one or more assistant secretaries and assistant treasurers. Any two or more offices may be held by the same person. Section 2. Election and Qualification. The Board of Directors at its first meeting after each annual meeting of stockholders will elect the President, one or more Vice Presidents, a Secretary and a Treasurer, none of whom need be a member of the Board of Directors. Section 3. Other Officers and Agents. The Board of Directors may elect or appoint such other officers, assistant officers and agents as it deems necessary, who will hold their offices for such terms and shall exercise such powers and perform such duties as determined from time to time by the Board of Directors. Section 4. Salaries. The salaries of all officers of the Corporation will be fixed by the Board of Directors except as otherwise directed by the Board of Directors. Section 5. Term, Removal and Vacancies. The officers of the Corporation will hold office until their resignation or their successors are chosen and qualify. Any officer, agent or member of the Executive Committee elected or appointed by the Board of Directors may be removed at any time by the Board of Directors; provided, however, that such removal shall be without prejudice to the contract rights, if any, of such removed party. If any such office becomes vacant for any reason, the vacancy will be filled by the Board of Directors. Section 6. Chairman of the Board. The Chairman of the Board, if one is elected, shall preside at meetings of the Board of Directors and stockholders and shall have such other powers and duties as may from time to time be prescribed by duly adopted resolutions of the Board of Directors. 10 11 Section 7. Chief Executive Officer. The Chief Executive Officer, if one is elected, shall preside at meetings of the Board of Directors and stockholders if there is no Chairman of the Board, and shall supervise and have overall responsibility for the business, administration and operations of the Corporation. In general, he shall perform all duties as from time to time may be assigned to him by the Board of Directors. He shall from time to time make such reports of the affairs of the Corporation as the Board of Directors may require. Section 8. President. The President, if one is elected, shall, subject to the Board of Directors, have general executive charge, management and control of the properties and operations of the Corporation in the ordinary course of its business with all such powers with respect to such responsibilities including the powers of general manager; and the president shall see that all orders and resolutions of the Board of Directors are carried into effect. The president shall have such other powers and duties as may from time to time be prescribed by duly adopted resolution of the Board of Directors. Section 9. Chief Operating Officer. The Chief Operating Officer, if one is elected, shall perform such duties as the Board of Directors and Chief Executive Officer or President, if one or the other is elected, may prescribe. Section 10. Vice President. The Vice Presidents in the order determined by the Board of Directors will, in the absence or disability of the President, perform the duties and exercise the powers of the President, and will perform such other duties as the Board of Directors and President may prescribe. Section 11. Secretary. The Secretary will attend all meetings of the Board of Directors and all meetings of the stockholders and record all votes and the minutes of all proceedings in a book to be kept for that purpose and will perform like duties for the standing committees when required. He will give, or cause to be given, notice of all meetings of the stockholders and special meetings of the Board of Directors, and will perform such other duties as may be prescribed by the Board of Directors and President. He will keep in safe custody the seal of the Corporation and, when authorized by the Board of Directors, affix the same to any instrument requiring it, and when so affixed it shall be attested by his signature or by the signature of an assistant secretary. Section 12. Assistant Secretaries. The assistant secretaries in the order determined by the Board of Directors will perform, in the absence or disability of the Secretary, the duties and exercise the powers of the Secretary and will perform such other duties as the Board of Directors and President may prescribe. 11 12 Section 13. Treasurer. The Treasurer will have the custody of the corporate funds and securities and will keep full and accurate accounts of receipts and disbursements in books belonging to the Corporation and will deposit all monies and other valuable effects in the name and to the credit of the Corporation in such depositories as may be designated by the Board of Directors. He will disburse the funds of the Corporation as may be ordered by the Board of Directors, taking proper vouchers for such disbursements, and will render to the Board of Directors and President, whenever they may require it, an account of all of his transactions as Treasurer and of the financial condition of the Corporation. Section 14. Assistant Treasurers. The Assistant Treasurers in the order determined by the Board of Directors, in the absence or disability of the Treasurer, perform the duties and exercise the powers of the Treasurer and will perform such other duties as the Board of Directors and President may prescribe. Section 15. Officer's Bond. If required by the Board of Directors, any officer will give the Corporation a bond (to be renewed as the Board of Directors may require) in such sum and with such surety or sureties as is satisfactory to the Board of Directors for the faithful performance of the duties of his office and for the restoration to the Corporation, in case of his death, resignation, retirement or removal from office, of all books, papers, vouchers, money and other property of whatever kind in his possession or under his control belonging to the Corporation. ARTICLE IX SHARES AND STOCKHOLDERS Section 1. Certificates Representing Shares. The certificates representing shares of capital stock of the Corporation will be numbered and entered in the books of the Corporation as they are issued. They will exhibit the holder's name and number of shares and will be signed by the Chief Executive Officer, President or Vice-President and the Secretary or an Assistant Secretary. The signature of any such officer may be facsimile if the certificate is countersigned by a transfer agent or registered by a registrar, other than the Corporation itself or an employee of the Corporation. In case any officer who has signed or whose facsimile signature has been placed upon such certificate has ceased to be such officer before such certificate is issued, it may be issued by the Corporation with the same effect as if he were such officer at the date of its issuance. Section 2. Transfer of Shares. Upon surrender to the Corporation of a certificate for shares duly endorsed or accompanied by proper evidence of succession, assignment or authority to transfer, it will be the duty of the Corporation to issue a new certificate to the person entitled thereto, cancel the old certificate and record the transaction upon its books. Notwithstanding the 12 13 foregoing, no transfer will be recognized by the Corporation if such transfer would violate federal or state securities laws, the Certificate of Incorporation, or any stockholders' agreements which may be in effect at the time of the purported transfer. The Corporation may, prior to any such transfer, require an opinion of counsel to the effect that any such transfer does not violate applicable securities laws requiring registration or an exemption from registration prior to any such transfer. Section 3. Fixing Record Date. For the purpose of determining stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, or entitled to receive payment of any dividend, or in order to make a determination of stockholders for any other proper purpose, the Board of Directors may provide that the stock transfer books be closed for a stated period but not to exceed, in any case, sixty days. If the stock transfer books are closed for the purpose of determining stockholders entitled to notice of or to vote at a meeting of stockholders, such books must be closed for at least ten days immediately preceding such meeting. In lieu of closing the stock transfer books, the Board of Directors may fix in advance a date as the record date for any such determination of stockholders, such date, in any case, to be not more than sixty days and, in case of a meeting of stockholders, not less than ten days prior to the date on which the particular action requiring such determination of stockholders is to be taken. If the stock transfer books are not closed and no record date is fixed for the determination of stockholders entitled to notice of or to vote at a meeting of stockholders, or stockholders entitled to receive payment of a dividend, the date on which notice of the meeting is mailed or the date on which the resolution of the Board of Directors declaring such dividend is adopted, as the case may be, will be the record date for such determination of stockholders. When a determination of stockholders entitled to vote at any meeting of stockholders has been made as herein provided, such determination will apply to any adjournment thereof except where the determination has been made through the closing of stock transfer books and the stated period of closing has expired. Section 4. Registered Stockholders. The Corporation is entitled to recognize the exclusive right of a person registered on its books as the owner of the share to receive dividends, and to vote as such owner, and for all other purposes as such owner; and the Corporation is not bound to recognize any equitable or other claim to or interest in such share or shares on the part of any other person, whether or not it has express or other notice thereof, except as otherwise provided by the laws of Delaware. Section 5. Lost Certificate. The Board of Directors may direct a new certificate or certificates to be issued in place of any certificate or certificates theretofore issued by the Corporation alleged to have been lost or destroyed, upon the making of an affidavit of that fact by the person claiming the certificate to be 13 14 lost or destroyed. When authorizing such issue of a new certificate or certificates, the Board of Directors may, in its discretion and as a condition precedent to the issuance thereof, require the owner of such lost or destroyed certificate or certificates, or his legal representatives, to advertise the same in such manner as it shall require and/or give the Corporation a bond in such sum as it may direct as indemnity against any claim that may be made against the Corporation with respect to the certificate alleged to have been lost or destroyed. ARTICLE X GENERAL Section 1. Dividends. The Board of Directors may from time to time declare, and the Corporation pay, dividends on its outstanding shares of capital stock in cash, in property, or in its own shares, except when the declaration or payment thereof would be contrary to law, the Certificate of Incorporation or these Bylaws. Such dividends may be declared at any regular or special meeting of the Board of Directors, and the declaration and payment will be subject to all applicable provisions of law, the Certificate of Incorporation and these Bylaws. Section 2. Reserves. Before payment of any dividend, there may be set aside out of any funds of the Corporation available for dividends such sum or sums as the Board of Directors from time to time, in its absolute discretion, deems proper as a reserve fund to meet contingencies, or for equalizing dividends, or for repairing or maintaining any property of the Corporation, or for such other purpose as the Board of Directors may determine to be in the interest of the Corporation, and the Board of Directors may modify or abolish any such reserve in the manner in which it was created. Section 3. Directors' Annual Statement. The Board of Directors will present at each annual meeting and when called for by vote of the stockholders at any special meeting of the stockholders, a full and clear statement of the business and condition of the Corporation. Section 4. Checks. All checks or demands for money and notes of the Corporation will be signed by such officer or officers or such other person or persons as the Board of Directors may from time to time designate. Section 5. Corporate Records. The Corporation will keep at its registered office or principal place of business, or at the office of its transfer agent or registrar, a record of its stockholders giving the names and addresses of all stockholders and the number and class of shares held by each. All other books and records of the Corporation may be kept at such place or places within or without the State of Delaware as the Board of Directors may from time to time determine. 14 15 Section 6. Seal. The corporate seal will have inscribed thereon the name of the Corporation. The seal may be used by causing it or a facsimile thereof to be impressed, affixed or reproduced. Section 7. Amendment. The Board of Directors shall have the power to make, alter, amend and repeal the Bylaws. Any Bylaws made by the Board of Directors under the powers conferred hereby may be altered, amended or repealed by the directors or by the stockholders; provided, however, that the Bylaws shall not be altered, amended or repealed and no provision inconsistent therewith shall be adopted by stockholder action without the affirmative vote of at least two-thirds of the voting power of the then outstanding shares entitled to vote generally in the election of directors, voting together as a single class. Section 8. Indemnification. Each director, officer and former director or officer of the Corporation, and any person who may have served or who may hereafter serve at the request of the Corporation as a director or officer of another corporation in which it owns shares of capital stock or of which it is a creditor, is hereby indemnified by the Corporation against expenses actually and necessarily incurred by him in connection with the defense of any action, suit or proceeding in which he is made a party by reason of being or having been such director or officer, except in relation to matters as to which he shall be adjudged in such action, suit or proceeding to be liable for negligence or misconduct in the performance of duty. Such indemnification will not be deemed exclusive of any other rights to which such director, officer or other person may be entitled under any agreement, vote of stockholders, or otherwise. Without limitation, nothing in this section shall limit any indemnification provisions in the Certificate of Incorporation. Adopted August 26, 1998 15 EX-4.3 4 FORM OF CERTIFICATE 1 EXHIBIT 4.3 No. --------------------------- CERTIFICATE OF CONTINGENT INTEREST IN COMMON STOCK $0.001 PAR VALUE OF OPTIMA PETROLEUM CORPORATION ISSUED PURSUANT TO PLAN AND AGREEMENT OF MERGER DATED AS OF FEBRUARY __, 1998, BY AND AMONG OPTIMA PETROLEUM CORPORATION, OPTIMA ENERGY (U.S.) CORPORATION, GOODSON EXPLORATION COMPANY, NAB FINANCIAL, L.L.C., DEXCO ENERGY, INC. and AMERICAN EXPLORER, L.L.C. READ THIS CERTIFICATE CAREFULLY THIS CERTIFICATE IS NOT TRANSFERABLE OR ASSIGNABLE EXCEPT AS HEREIN PROVIDED This is to certify that ______________________ is the registered holder of _____________ Units of Contingent Interest with respect to shares of Common Stock, $0.001 par value, of Optima Petroleum Corporation, a Delaware corporation ("Optima Common Stock"), issued pursuant to the provisions of the Plan and Agreement of Merger dated as of February __, 1998. Each Unit of Contingent Interest represents the right to receive the number of shares of Optima Common Stock, if any, that may be distributable upon the terms and subject to the conditions hereinafter set forth. OPTIMA PETROLEUM CORPORATION By: ----------------------------------- Name: --------------------------------- Title: -------------------------------- Dated: , 1998 ------------ 2 This Certificate is one of the Contingent Interest Certificates for an aggregate of 1,667,001 Units of Contingent Interest ("Contingent Stock Issue Rights") issued pursuant to the Plan and Agreement of Merger (the "Merger Agreement") dated as of February ___, 1998, among Optima Petroleum Corporation, a Delaware corporation and previously a corporation constituted under the Canadian Business Corporation Act ("Optima"), Optima Energy (U.S.) Corporation, a Louisiana corporation and wholly-owned subsidiary of Optima and previously a Nevada corporation ("Acquisition Subsidiary"), Goodson Exploration Corporation, a Louisiana corporation ("Goodson"), NAB Financial, L.L.C., a Louisiana limited liability company ("NAB"), Dexco Energy, Inc., a Louisiana corporation ("Dexco") (Goodson, NAP and Dexco collectively referred to herein as the "Target Corporations") and American Explorer, L.L.C., a Louisiana limited liability company and whose membership interests are 100% owned by the Target Corporations (the "Operating Company"), and pursuant to which the Target Corporations were merged (the "Mergers") with and into Acquisition Subsidiary. The terms and conditions upon which the registered holder of this Certificate may become entitled to shares of common stock, $0.001 par value, of Optima ("Optima Common Stock") are set forth below. Capitalized terms used herein and not otherwise defined shall have the meanings set forth in the Merger Agreement. SECTION 1. RIGHTS TO OPTIMA COMMON STOCK Subject to the terms hereof, and subject to the satisfaction of the conditions provided herein, each Unit of Contingent Stock Issue Rights shall entitle the holder thereof to receive, and shall automatically be converted into that number of shares of Optima Common Stock, if any, determined as follows: (i) if an Optima Triggering Event (as hereinafter defined) occurs at any time on or before the third anniversary of the date of issuance of these Contingent Stock Issue Rights (the "Third Anniversary"), each Unit of Contingent Stock Issue Right shall entitle the holder thereof to receive one share of Optima Common Stock on the date the Optima Triggering Event occurs; and (ii) if an Optima Triggering Event does not occur on or before the Third Anniversary, then this Contingent Stock Issue Right shall not entitle the holder to receive any shares of Optima Common Stock and these Contingent Stock Issue Rights shall terminate and be of no further force or effect. For the purposes of this Section 1: (i) an Optima Triggering Event shall have occurred if the Optima Common Stock has a Fair Market Value at or above U.S. $5.00 per share (as adjusted for stock splits, combinations and other similar corporate events) for a period of 20 consecutive trading days; and (ii) the "Fair Market Value" of one share of Optima Common Stock shall mean, for any trading day, (w) the closing sale price for a share of Optima Common 2 3 Stock on such trading day on the Nasdaq National Market System, or (x) if no sale takes place on such day, the average of the closing bid and asked prices on the Toronto Stock Exchange, or (y) if no such sale takes place on either of such exchanges on such day, the average of the closing bid and asked prices of a share of Optima Common Stock on such trading day as quoted on the National Association of Securities Dealers Automated Quotation System ("NASDAQ"), or (z) if not quoted on NASDAQ or such exchanges on such day, the average of the closing bid and asked prices for a share of Optima Common Stock as quoted on any other recognized stock exchange on which such shares are then listed. Upon satisfaction of the conditions specified in Section 1, the registered holder of this Certificate shall be considered a record holder of the number of shares of Optima Common Stock specified in this Section 1. Upon satisfaction of the conditions specified in Section 1, Optima shall issue to the holder of this Certificate, upon surrender of this Certificate to Optima or an agent designated by Optima, that number of shares of Optima Common Stock issuable upon conversion of the number of Contingent Stock Issue Rights represented by this Certificate. SECTION 2. DIVIDENDS No dividends shall be payable with respect to the Optima Common Stock represented by this Certificate until a record date has occurred after the issuance thereof. SECTION 3. REPLACEMENT OF CERTIFICATES Upon receipt of evidence satisfactory to Optima or its agent of the loss, theft, destruction, or mutilation of any Certificate and upon receipt of indemnity reasonable satisfactory to Optima or its agent, Optima shall deliver a new Certificate for the number of Contingent Stock Issue Rights represented by the Certificate so lost, stolen, destroyed, or mutilated. SECTION 4. HOLDER NOT STOCKHOLDER This Certificate does not entitle the holder thereof to any voting or other rights as a stockholder of Optima. SECTION 5. ADJUSTMENT OF OPTIMA COMMON STOCK 5.1 Stock Dividends, Etc. In case Optima shall (1) pay a dividend in shares of Optima Common Stock; (2) subdivide outstanding shares of Optima Common Stock; (3) combine outstanding shares of Optima Common Stock into a smaller number of shares; or (4) issue by reclassification any shares of Common Stock, the number of shares of Optima Common Stock issuable upon conversion of the Contingent Stock Issue Rights represented by this Certificate shall be proportionately adjusted. 3 4 5.2 Merger, Etc. In case of (1) any consolidation or merger of Optima or any of its affiliates with or into another corporation or (2) any sale, transfer, or other disposition of all or substantially all of the property, assets, or business of Optima or its affiliates, as a result of which property (cash or otherwise) shall be payable or distributable to the holders of Optima Common Stock, the Certificate shall thereafter represent the number and class of shares or other securities or property of Optima, or of the corporation or other entity resulting from such consolidation or merger or to which such sale, transfer, or other disposition shall have been made for or into which the Optima Common Stock underlying this Certificate would have been exchanged or converted upon such event if outstanding at the time thereof, with appropriate adjustments to the Triggering Event conditions so as to maintain as nearly as reasonably practicable the intent of the parties hereunder and which adjustments shall be determined in good faith by the Optima Board of Directors. The terms of any such consolidation, merger, sale, transfer, or other disposition shall include appropriate provisions in accordance with the provisions of this Section 5.2. The provisions of this Section 5.2 shall similarly apply to successive consolidations, mergers, sales, transfers, or other dispositions as aforesaid. 5.3 Notice. Whenever an adjustment is made as provided in this Section 5, Optima shall promptly mail to the holder of this Certificate, at the address appearing below unless changed by written notice by the holder, a statement setting forth the adjustment and the facts giving rise thereto. SECTION 6. TRANSFER OF CERTIFICATES Except for transfers to Robert R. Brooksher, this Certificate is not transferable or assignable except by the laws of descent and distribution, by will or by operation of law. SECTION 7. INITIAL ADDRESS FOR NOTICE Notice may be given at the following address: --------------------------------------- --------------------------------------- --------------------------------------- --------------------------------------- SECTION 8. GOVERNING LAW This Certificate shall be governed by and construed in accordance with the laws of the State of Delaware. 4 EX-4.4 5 CERTIFICATE OF DOMESTICATION 1 EXHIBIT 4.4 CERTIFICATE OF DOMESTICATION OF OPTIMA PETROLEUM CORPORATION The undersigned, Ronald P. Bourgeois, Secretary and Chief Financial Officer of Optima Petroleum Corporation (the "Corporation"), a corporation organized and existing under the laws of Canada, in accordance with the provisions of Section 388 of Title 8 of the Delaware Code, does hereby certify as follows: FIRST: The Corporation was first formed on April 11, 1983, in British Columbia, Canada, and was continued as a federal Canadian corporation on June 14, 1994. SECOND: The name of the Corporation immediately prior to the filing of this Certificate of Domestication was Optima Petroleum Corporation. THIRD: The name of the Corporation under which it is filing a Certificate of Incorporation is PetroQuest Energy, Inc. FOURTH: The jurisdiction that constituted the seat, siege social, principal place of business or central administration for the corporation immediately prior to the filing of this Certificate of Domestication was Vancouver, B.C., Canada. FIFTH: A Certificate of Incorporation of PetroQuest Energy, Inc. is being filed contemporaneously with this Certificate of Domestication. IN WITNESS WHEREOF, I being the Secretary and Treasurer of the Corporation, and being duly authorized to sign this Certificate of Domestication on behalf of the Corporation have made, signed and sealed this Certificate of Domestication on this 21st day of August, 1998. OPTIMA PETROLEUM CORPORATION By: /s/ Ronald P. Bourgeois ------------------------------------- Ronald P. Bourgeois, Secretary and Chief Financial Officer EX-10.1 6 1998 INCENTIVE PLAN 1 EXHIBIT 10.1 PETROQUEST ENERGY, INC. 1998 INCENTIVE PLAN (AS EFFECTIVE AUGUST 21, 1998) 2 TABLE OF CONTENTS
PAGE ---- SECTION 1. GENERAL PROVISIONS RELATING TO PLAN GOVERNANCE, COVERAGE AND BENEFITS........................1 1.1 Purpose......................................................................................1 1.2 Definitions..................................................................................2 (a) Appreciation........................................................................2 (b) Authorized Officer..................................................................2 (c) Board...............................................................................2 (d) Cause...............................................................................2 (e) Change in Control...................................................................2 (f) Code................................................................................2 (g) Committee...........................................................................2 (h) Common Stock........................................................................3 (i) Company.............................................................................3 (j) Consultant..........................................................................3 (k) Covered Employee....................................................................3 (l) Disability..........................................................................3 (m) Employee............................................................................4 (n) Employment..........................................................................4 (o) Exchange Act........................................................................4 (p) Fair Market Value...................................................................5 (q) Grantee.............................................................................5 (r) Incentive Award.....................................................................5 (s) Incentive Agreement.................................................................5 (t) Incentive Stock Option..............................................................5 (u) Independent SAR.....................................................................5 (v) Insider.............................................................................5 (w) Nonstatutory Stock Option...........................................................6 (x) Option Price........................................................................6 (y) Outside Director....................................................................6 (z) Parent..............................................................................6 (aa) Plan................................................................................6 (bb) Publicly Held Corporation...........................................................6 (cc) Retirement..........................................................................6 (dd) Share...............................................................................6 (ee) Share Pool..........................................................................6 (ff) Spread..............................................................................6 (gg) Stock Appreciation Right or SAR.....................................................6 (hh) Stock Option or Option..............................................................7 (ii) Subsidiary..........................................................................7
i 3 (jj) Tandem SAR..........................................................................7 1.3 Plan Administration..........................................................................7 (a) Authority of the Committee..........................................................7 (b) Meetings............................................................................7 (c) Decisions Binding...................................................................7 (d) Modification of Outstanding Incentive Awards........................................8 (e) Delegation of Authority.............................................................8 (f) Expenses of Committee...............................................................8 (g) Surrender of Previous Incentive Awards..............................................8 (h) Indemnification.....................................................................9 1.4 Shares of Common Stock Available for Incentive Awards........................................9 1.5 Share Pool Adjustments for Awards and Payouts...............................................10 1.6 Common Stock Available. ...................................................................11 1.7 Participation...............................................................................11 (a) Eligibility........................................................................11 (b) Incentive Stock Option Eligibility.................................................11 1.8 Types of Incentive Awards...................................................................12 1.9 Maximum Term................................................................................12 SECTION 2. STOCK OPTIONS AND STOCK APPRECIATION RIGHTS.................................................12 2.1 Grant of Stock Options......................................................................12 2.2 Stock Option Terms..........................................................................12 (a) Written Agreement..................................................................12 (b) Number of Shares...................................................................12 (c) Exercise Price.....................................................................12 (d) Term...............................................................................13 (e) Exercise...........................................................................13 (f) $100,000 Annual Limit on Incentive Stock Options...................................13 2.3 Stock Option Exercises......................................................................14 (a) Method of Exercise and Payment.....................................................14 (b) Restrictions on Share Transferability..............................................15 (c) Notification of Disqualifying Disposition of Shares from Incentive Stock Options...15 (d) Proceeds of Option Exercise........................................................15 2.4 Stock Appreciation Rights in Tandem with Nonstatutory Stock Options.........................15 (a) Grant..............................................................................15 (b) General Provisions.................................................................16 (c) Exercise...........................................................................16 (d) Settlement.........................................................................16 2.5 Stock Appreciation Rights Independent of Nonstatutory Stock Options.........................16 (a) Grant..............................................................................16 (b) General Provisions.................................................................16 (c) Exercise...........................................................................16
ii 4 (d) Settlement.........................................................................17 2.6 Reload Options..............................................................................17 SECTION 3. PROVISIONS RELATING TO PLAN PARTICIPATION...................................................17 3.1 Plan Conditions.............................................................................17 (a) Incentive Agreement................................................................17 (b) No Right to Employment.............................................................18 (c) Securities Requirements............................................................18 3.2 Transferability.............................................................................19 (a) Non-Transferable Awards and Options................................................19 (b) Ability to Exercise Rights.........................................................19 3.3 Rights as a Stockholder.....................................................................19 (a) No Stockholder Rights..............................................................19 (b) Representation of Ownership........................................................20 3.4 Listing and Registration of Shares of Common Stock..........................................20 3.5 Change in Stock and Adjustments.............................................................20 (a) Changes in Law or Circumstances....................................................20 (b) Exercise of Corporate Powers.......................................................21 (c) Recapitalization of the Company....................................................21 (d) Reorganization of the Company......................................................21 (e) Issue of Common Stock by the Company...............................................22 (f) Acquisition of the Company.........................................................22 (g) Assumption of Outstanding Incentive Awards under the Plan..........................22 (h) Assumption of Incentive Awards by a Successor......................................23 3.6 Termination of Employment, Death, Disability and Retirement.................................23 (a) Termination of Employment..........................................................23 (b) Termination of Employment for Cause................................................24 (c) Retirement.........................................................................24 (d) Disability or Death................................................................24 (e) Continuation.......................................................................25 3.7 Change in Control...........................................................................25 3.8 Exchange of Incentive Awards................................................................27 3.9 Financing...................................................................................27 SECTION 4. GENERAL.....................................................................................27 4.1 Effective Date and Grant Period.............................................................27 4.2 Funding and Liability of Company............................................................28 4.3 Withholding Taxes...........................................................................28 (a) Tax Withholding....................................................................28 (b) Share Withholding..................................................................28 (c) Incentive Stock Options............................................................28 (d) Loans..............................................................................29 4.4 No Guarantee of Tax Consequences............................................................29
iii 5 4.5 Designation of Beneficiary by Participant...................................................29 4.6 Deferrals...................................................................................29 4.7 Amendment and Termination...................................................................29 4.8 Requirements of Law.........................................................................30 4.9 Rule 16b-3 Securities Law Compliance........................................................30 4.10 Compliance with Code Section 162(m).........................................................31 4.11 Successors..................................................................................31 4.12 Miscellaneous Provisions....................................................................31 4.13 Severability................................................................................32 4.14 Gender, Tense and Headings..................................................................32 4.15 Governing Law...............................................................................32
iv 6 PETROQUEST ENERGY, INC. 1998 INCENTIVE PLAN SECTION 1. GENERAL PROVISIONS RELATING TO PLAN GOVERNANCE, COVERAGE AND BENEFITS 1. Purpose The purpose of the Plan is to foster and promote the long-term financial success of PetroQuest Energy, Inc. (the "Company") and its Subsidiaries and to increase stockholder value by: (a) encouraging the commitment of selected key Employees, Consultants and Outside Directors, (b) motivating superior performance of key Employees, Consultants and Outside Directors by means of long-term performance related incentives, (c) encouraging and providing key Employees, Consultants and Outside Directors with a program for obtaining ownership interests in the Company which link and align their personal interests to those of the Company's stockholders, (d) attracting and retaining key Employees, Consultants and Outside Directors by providing competitive incentive compensation opportunities, and (e) enabling key Employees, Consultants and Outside Directors to share in the long-term growth and success of the Company. The Plan provides for payment of various forms of incentive compensation and it is not intended to be a plan that is subject to the Employee Retirement Income Security Act of 1974, as amended (ERISA). The Plan shall be interpreted, construed and administered consistent with its status as a plan that is not subject to ERISA. Subject to approval by the Company's stockholders pursuant to Section 4.1, the Plan shall become effective as of August 21, 1998 (the "EFFECTIVE DATE"). The Plan shall commence on the Effective Date, and shall remain in effect, subject to the right of the Board to amend or terminate the Plan at any time pursuant to Section 4.7, until all Shares subject to the Plan have been purchased or acquired according to its provisions. However, in no event may an Incentive Award be granted under the Plan after the expiration of ten (10) years from the Effective Date. Any Incentive Award granted prior to the Effective Date shall be subject to the subsequent receipt of stockholder approval of the Plan pursuant to Section 4.1. 7 2. Definitions The following terms shall have the meanings set forth below: i. APPRECIATION. The difference between the option exercise price per share of the Nonstatutory Stock Option to which a Tandem SAR relates and the weighted average of the Fair Market Value of a share of Common Stock for the five trading days immediately preceding the date of exercise of the Tandem SAR. ii. AUTHORIZED OFFICER. The Chairman of the Board or the Chief Executive Officer of the Company or any other senior officer of the Company to whom either of them delegate the authority to execute any Incentive Agreement for and on behalf of the Company. No officer or director shall be an Authorized Officer with respect to any Incentive Agreement for himself. iii. BOARD. The Board of Directors of the Company. iv. CAUSE. When used in connection with the termination of a Grantee's Employment, shall mean the termination of the Grantee's Employment by the Company by reason of (i) the conviction of the Grantee by a court of competent jurisdiction as to which no further appeal can be taken of a crime involving moral turpitude or a felony; (ii) the proven commission by the Grantee of an act of fraud upon the Company; (iii) the willful and proven misappropriation of any funds or property of the Company by the Grantee; (iv) the willful, continued and unreasonable failure by the Grantee to perform the material duties assigned to him; (v) the knowing engagement by the Grantee in any direct, material conflict of interest with the Company without compliance with the Company's conflict of interest policy, if any, then in effect; or (vi) the knowing engagement by the Grantee, without the written approval of the Board, in any activity which competes with the business of the Company or which would result in a material injury to the business, reputation or goodwill of the Company. v. CHANGE IN CONTROL. Any of the events described in and subject to Section 3.7. 2 8 vi. CODE. The Internal Revenue Code of 1986, as amended, and the regulations and other authority promulgated thereunder by the appropriate governmental authority. References herein to any provision of the Code shall refer to any successor provision thereto. vii. COMMITTEE. A committee appointed by the Board consisting of not less than two directors as appointed by the Board to administer the Plan. However, if the Company is a Publicly Held Corporation, the Plan shall be administered by a committee appointed by the Board consisting of not less than two directors who fulfill the "non-employee director" requirements of Rule 16b-3 under the Exchange Act and the "outside director" requirements of Section 162(m) of the Code. In either case, the Committee may be the Compensation Committee of the Board, or any subcommittee of the Compensation Committee, provided that the members of the Committee satisfy the requirements of the previous provisions of this paragraph. The Board shall have the power to fill vacancies on the Committee arising by resignation, death, removal or otherwise. The Board, in its sole discretion, may bifurcate the powers and duties of the Committee among one or more separate committees, or retain all powers and duties of the Committee in a single Committee. The members of the Committee shall serve at the discretion of the Board. Notwithstanding the preceding paragraph, the term "Committee" as used in the Plan with respect to any Incentive Award for an Outside Director shall refer to the Board. In the case of an Incentive Award for an Outside Director, the Board shall have all the powers and responsibilities of the Committee hereunder as to such Incentive Award, and any actions as to such Incentive Award may be acted upon only by the Board (unless it otherwise designates in its discretion). When the Board exercises its authority to act in the capacity as the Committee hereunder with respect to an Incentive Award for an Outside Director, it shall so designate with respect to any action that it undertakes in its capacity as the Committee. viii. COMMON STOCK. The common stock of the Company, $.001 par value per share, and any class of common stock into which such common shares may hereafter be converted, reclassified or recapitalized. 3 9 ix. COMPANY. PetroQuest Energy, Inc., a corporation organized under the laws of the State of Delaware, and any successor in interest thereto. x. CONSULTANT. An independent agent, consultant, attorney, an individual who has agreed to become an Employee, or any other individual who is not an Outside Director or employee of the Company (or any Parent or Subsidiary) and who provides ongoing management or consulting services to the Company (or any Parent or Subsidiary). xi. COVERED EMPLOYEE. Only if the Company is a Publicly Held Corporation, a named executive officer who is one of the group of covered employees as defined in Section 162(m) of the Code and Treasury Regulation Section 1.162-27(c) (or its successor). xii. DISABILITY. As determined by the Committee in its discretion exercised in good faith, a physical or mental condition of the Employee that would entitle him to payment of disability income payments under the Company's long term disability insurance policy or plan for employees, as then effective, if any; or in the event that the Grantee is not covered, for whatever reason, under the Company's long-term disability insurance policy or plan, "Disability" means a permanent and total disability as defined in Section 22(e)(3) of the Code. A determination of Disability may be made by a physician selected or approved by the Committee and, in this respect, the Grantee shall submit to an examination by such physician upon request. xiii. EMPLOYEE. Any employee of the Company (or any Parent or Subsidiary) within the meaning of Section 3401(c) of the Code who, in the opinion of the Committee, is one of a select group of executive officers, other officers, or other key personnel of the Company (or any Parent or Subsidiary), who is in a position to contribute materially to the growth and development and to the financial success of the Company (or any Parent or Subsidiary), including, without limitation, officers who are members of the Board. 4 10 xiv. EMPLOYMENT. Employment by the Company (or any Parent or Subsidiary), or by any corporation issuing or assuming an Incentive Award in any transaction described in Section 424(a) of the Code, or by a parent corporation or a subsidiary corporation of such corporation issuing or assuming such Incentive Award, as the parent-subsidiary relationship shall be determined at the time of the corporate action described in Section 424(a) of the Code. In this regard, neither the transfer of a Grantee from Employment by the Company to Employment by any Parent or Subsidiary, nor the transfer of a Grantee from Employment by any Parent or Subsidiary to Employment by the Company, shall be deemed to be a termination of Employment of the Grantee. Moreover, the Employment of a Grantee shall not be deemed to have been terminated because of an approved leave of absence from active Employment on account of temporary illness, authorized vacation or granted for reasons of professional advancement, education, health, or government service, or during military leave for any period (if the Grantee returns to active Employment within 90 days after the termination of military leave), or during any period required to be treated as a leave of absence by virtue of any applicable statute, Company personnel policy or agreement. Whether an authorized leave of absence shall constitute termination of Employment hereunder shall be determined by the Committee in its discretion. Unless otherwise provided in the Incentive Agreement, the term "Employment" for purposes of the Plan will also include compensatory services performed by a Consultant for the Company (or any Parent or Subsidiary) as well as membership on the Board by an Outside Director. xv. EXCHANGE ACT. The Securities Exchange Act of 1934, as amended. xvi. FAIR MARKET VALUE. If the Company is not a Publicly Held Corporation at the time a determination of the Fair Market Value of the Common Stock is required to be made hereunder, the determination of Fair Market Value for purposes of the Plan shall be made by the Committee in its discretion exercised in good faith. In this respect, the 5 11 Committee may rely on such financial data, valuations or experts as it deems advisable under the circumstances. If the Company is a Publicly Held Corporation, the Fair Market Value of one share of Common Stock on the date in question is deemed to be (i) the closing sales price of a share of Common Stock as reported on the principal securities exchange on which Shares are then listed or admitted to trading, or (ii) if not so reported, the average of the closing bid and asked prices for a Share as quoted on the National Association of Securities Dealers Automated Quotation System ("NASDAQ"), or (iii) if not quoted on NASDAQ, the average of the closing bid and asked prices for a Share as quoted by the National Quotation Bureau's "Pink Sheets" or the National Association of Securities Dealers' OTC Bulletin Board System. If there was no public trade of Common Stock on the date in question, Fair Market Value shall be determined by reference to the last preceding date on which such a trade was so reported. xvii. GRANTEE. Any Employee, Consultant or Outside Director who is granted an Incentive Award under the Plan. xviii. INCENTIVE AWARD. A grant of an award under the Plan to a Grantee, including any Nonstatutory Stock Option, Incentive Stock Option, Reload Option and Stock Appreciation Right. xix. INCENTIVE AGREEMENT. The written agreement entered into between the Company and the Grantee setting forth the terms and conditions pursuant to which an Incentive Award is granted under the Plan, as such agreement is further defined in Section 3.1(a). xx. INCENTIVE STOCK OPTION. A Stock Option granted by the Committee to an Employee under Section 2 which is designated by the Committee as an Incentive Stock Option and intended to qualify as an Incentive Stock Option under Section 422 of the Code. xxi. INDEPENDENT SAR. A Stock Appreciation Right described in Section 2.5. xxii. INSIDER. To the extent that the Company is a Publicly Held Corporation, an individual who is, on the relevant date, an officer, director or ten percent (10%) beneficial owner of any class of the Company's equity securities that is registered pursuant to Section 12 of the Exchange Act, all as defined under Section 16 of the Exchange Act. xxiii. NONSTATUTORY STOCK OPTION. A Stock Option granted by the Committee to a Grantee under Section 2 which is not designated by the Committee as an Incentive Stock Option. 6 12 xxiv. OPTION PRICE. The exercise price at which a Share may be purchased by the Grantee of a Stock Option. xxv. OUTSIDE DIRECTOR. A member of the Board who is not, at the time of grant of an Incentive Award, an employee of the Company or any Parent or Subsidiary. xxvi. PARENT. Any corporation (whether now or hereafter existing) which constitutes a "parent" of the Company, as defined in Section 424(e) of the Code. xxvii. PLAN. The PetroQuest Energy, Inc. 1998 Incentive Plan as set forth herein and as it may be amended from time to time. xxviii. PUBLICLY HELD CORPORATION. A corporation issuing any class of common equity securities required to be registered under Section 12 of the Exchange Act. xxix. RETIREMENT. The voluntary termination of Employment from the Company or any Parent or Subsidiary constituting retirement for age on any date after the Employee attains the normal retirement age of 65 years, or such other age as may be designated by the Committee in the Employee's Incentive Agreement. xxx. SHARE. A share of the Common Stock of the Company. xxxi. SHARE POOL. The number of shares authorized for issuance under Section 1.4, as adjusted for awards and payouts under Section 1.5 and as adjusted for changes in corporate capitalization under Section 3.5. xxxii. SPREAD. The difference between the exercise price per Share specified in any Independent SAR grant and the weighted average of the Fair Market Value of a Share for the five trading days immediately preceding the date of exercise of the Independent SAR. xxxiii. STOCK APPRECIATION RIGHT OR SAR. A Tandem SAR described in Section 2.4 or an Independent SAR described in Section 2.5. xxxiv. STOCK OPTION OR OPTION. Pursuant to Section 2, (i) an Incentive Stock Option granted to an Employee, or (ii) a Nonstatutory Stock Option granted to an Employee, Consultant or Outside Director, whereunder such option the Grantee has the right to purchase Shares of Common Stock. In accordance with Section 422 of the Code, no Consultant or Outside Director shall be granted an Incentive Stock Option. xxxv. SUBSIDIARY. Any corporation (whether now or hereafter existing) which constitutes a "subsidiary" of the Company, as defined in Section 424(f) of the Code. 7 13 xxxvi. TANDEM SAR. A Stock Appreciation Right that is granted in connection with a related Stock Option pursuant to Section 2.4, the exercise of which shall require forfeiture of the right to purchase a Share under the related Stock Option (and when a Share is purchased under the Stock Option, the Tandem SAR shall similarly be canceled). a. PLAN ADMINISTRATION i. AUTHORITY OF THE COMMITTEE. Except as may be limited by law and subject to the provisions herein, the Committee shall have full power to (i) select Grantees who shall participate in the Plan; (ii) determine the sizes, duration and types of Incentive Awards; (iii) determine the terms and conditions of Incentive Awards and Incentive Agreements; (iv) determine whether any Shares subject to Incentive Awards will be subject to any restrictions on transfer; (v) construe and interpret the Plan and any Incentive Agreement or other agreement entered into under the Plan; and (vi) establish, amend, or waive rules for the Plan's administration. Further, the Committee shall make all other determinations which may be necessary or advisable for the administration of the Plan. ii. MEETINGS. The Committee shall designate a chairman from among its members who shall preside at all of its meetings, and shall designate a secretary, without regard to whether that person is a member of the Committee, who shall keep the minutes of the proceedings and all records, documents, and data pertaining to its administration of the Plan. Meetings shall be held at such times and places as shall be determined by the Committee and the Committee may hold telephonic meetings. The Committee may take any action otherwise proper under the Plan by the affirmative vote, taken with or without a meeting, of a majority of its members. The Committee may authorize any one or more of their members or any officer of the Company to execute and deliver documents on behalf of the Committee. iii. DECISIONS BINDING. All determinations and decisions made by the Committee shall be made in its discretion pursuant to the provisions of the Plan, and shall be final, conclusive and binding on all persons including the Company, its shareholders, Employees, Grantees, and their estates and beneficiaries. The Committee's decisions and determinations with respect to any Incentive Award need not be uniform and may be made selectively among Incentive Awards and Grantees, whether or not such Incentive Awards are similar or such Grantees are similarly situated. iv. MODIFICATION OF OUTSTANDING INCENTIVE AWARDS. Subject to the stockholder approval requirements of Section 4.7 if applicable, the Committee may, in its discretion, provide for the extension of the exercisability of an Incentive Award, accelerate the vesting or exercisability of an Incentive Award, eliminate or make less restrictive any restrictions contained in an Incentive Award, waive any restriction or other provisions of an Incentive Award, or otherwise amend or modify an Incentive Award in any manner that is either (i) not adverse to the Grantee to whom such Incentive Award was granted or (ii) consented to by 8 14 such Grantee. The Committee may grant an Incentive Award to an individual who it expects to become an Employee within the next six months, with such Incentive Award being subject to such individual actually becoming an Employee within such time period, and subject to such other terms and conditions as may be established by the Committee in its discretion. v. DELEGATION OF AUTHORITY. The Committee may delegate to the Chief Executive Officer and to other senior officers of the Company its duties under this Plan pursuant to such conditions or limitations as the Committee may establish from time to time, except that, if the Company is a Publicly Held Corporation, the Committee may not delegate to any person the authority to (i) grant Incentive Awards, or (ii) take any action which would contravene the requirements of Rule 16b-3 under the Exchange Act or the Performance-Based Exception under Section 162(m) of the Code. vi. EXPENSES OF COMMITTEE. The Committee may employ legal counsel, including, without limitation, independent legal counsel and counsel regularly employed by the Company, and other agents as the Committee may deem appropriate for the administration of the Plan. The Committee may rely upon any opinion or computation received from any such counsel or agent. All expenses incurred by the Committee in interpreting and administering the Plan, including, without limitation, meeting expenses and professional fees, shall be paid by the Company. vii. SURRENDER OF PREVIOUS INCENTIVE AWARDS. The Committee may, in its absolute discretion, grant Incentive Awards to Grantees on the condition that such Grantees surrender to the Committee for cancellation such other Incentive Awards (including, without limitation, Incentive Awards with higher exercise prices) as the Committee directs. Incentive Awards granted on the condition precedent of surrender of outstanding Incentive Awards shall not count against the limits set forth in Section 1.4 until such time as such previous Incentive Awards are surrendered and canceled. Any decision of the Committee to grant Incentive Awards on such a condition precedent shall be deemed an amendment to the Plan and shall be subject to the requirements of Section 4.7 of the Plan regarding approvals of Regulatory Authorities (as defined therein). viii. INDEMNIFICATION. Each person who is or was a member of the Committee, or of the Board, shall be indemnified by the Company against and from any damage, loss, liability, cost and expense that may be imposed upon or reasonably incurred by him in connection with or resulting from any claim, action, suit, or proceeding to which he may be a party or in which he may be involved by reason of any action taken or failure to act under the Plan, except for any such act or omission constituting willful misconduct or gross negligence. Such person shall be indemnified by the Company for all amounts paid by him in settlement thereof, with the Company's approval, or paid by him in satisfaction of any judgment in any such action, suit, or proceeding against him, provided he shall give the Company an opportunity, at its own expense, to handle and defend the same before he undertakes to handle and defend it on his own behalf. The foregoing right of indemnification 9 15 shall not be exclusive of any other rights of indemnification to which such persons may be entitled under the Company's Articles of Incorporation or Bylaws, as a matter of law, or otherwise, or any power that the Company may have to indemnify them or hold them harmless. b. SHARES OF COMMON STOCK AVAILABLE FOR INCENTIVE AWARDS Subject to adjustment under Section 3.5, there shall be available for Incentive Awards under this Plan granted wholly or partly in Common Stock (including rights or Options that may be exercised for or settled in Common Stock) an aggregate of 1,800,000 Shares of Common Stock, of which an aggregate of not more than 500,000 Shares shall be available for Incentive Awards granted to Outside Directors and the remainder shall be available for Incentive Awards to Employees and Consultants. No more than 1,800,000 Shares of Common Stock shall be available for Incentive Stock Options. The number of Shares of Common Stock that are the subject of Incentive Awards under this Plan, that are forfeited or terminated, expire unexercised, are settled in cash in lieu of Common Stock or in a manner such that all or some of the Shares covered by an Incentive Award are not issued to a Grantee or are exchanged for Incentive Awards that do not involve Common Stock, shall again immediately become available for Incentive Awards hereunder. The Committee may from time to time adopt and observe such procedures concerning the counting of Shares against the Plan maximum as it may deem appropriate. The Board and the appropriate officers of the Company shall from time to time take whatever actions are necessary to file any required documents with governmental authorities, stock exchanges and transaction reporting systems to ensure that Shares are available for issuance pursuant to Incentive Awards. If the Company is a Publicly Held Corporation, then unless and until the Committee determines that a particular Incentive Award granted to a Covered Employee is not intended to comply with the Performance-Based Exception, the following rules shall apply to grants of Incentive Awards to Covered Employees: i. Subject to adjustment as provided in Section 3.5, the maximum aggregate number of Shares of Common Stock (including Stock Options and SARs) that may be granted or that may vest, as applicable, in any calendar year pursuant to any Incentive Award held by any individual Covered Employee shall be 500,000 Shares. In addition, the number of Shares of Common Stock that are subject to Incentive Awards granted under the Plan to any one Grantee will not exceed 5% of the Company's issued and outstanding shares of Common Stock. ii. The maximum aggregate cash payout (in SARs) with respect to Incentive Awards granted in any calendar year which may be made to any Covered Employee shall be $5,000,000. iii. With respect to any Stock Option or Stock Appreciation Right granted to a Covered Employee that is canceled or repriced, the number of Shares subject to such Stock 10 16 Option or Stock Appreciation Right shall continue to count against the maximum number of Shares that may be the subject of Stock Options or Stock Appreciation Rights granted to such Covered Employee hereunder and, in this regard, such maximum number shall be determined in accordance with Section 162(m) of the Code. iv. The limitations of subsections (a), (b) and (c) above shall be construed and administered so as to comply with the Performance-Based Exception. c. SHARE POOL ADJUSTMENTS FOR AWARDS AND PAYOUTS. The following Incentive Awards and payouts shall reduce, on a one Share for one Share basis, the number of Shares authorized for issuance under the Share Pool: i. Stock Option; and ii. SAR (except a Tandem SAR). The following transactions shall restore, on a one Share for one Share basis, the number of Shares authorized for issuance under the Share Pool: (a) A Payout of an SAR or Tandem SAR in the form of cash; (b) A cancellation, termination, expiration, forfeiture, or lapse for any reason (with the exception of the termination of a Tandem SAR upon exercise of the related Stock Option, or the termination of a related Stock Option upon exercise of the corresponding Tandem SAR) of any Shares subject to an Incentive Award; and (c) Payment of an Option Price with previously acquired Shares or by withholding Shares which otherwise would be acquired on exercise (i.e., the Share Pool shall be increased by the number of Shares turned in or withheld as payment of the Option Price). d. COMMON STOCK AVAILABLE. The Common Stock available for issuance under the Plan shall be made available from Shares now or hereafter (i) held in the treasury of the Company or (ii) authorized but unissued shares. No fractional shares shall be issued under the Plan; payment for fractional shares shall be made in cash. e. PARTICIPATION i. ELIGIBILITY. The Committee shall from time to time designate those Employees, Consultants and/or Outside Directors, if any, to be granted Incentive Awards under the Plan, the type of Incentive Awards granted, the number of Shares, Stock Options, rights or units, as the case may be, which shall be granted to each such person, and any other 11 17 terms or conditions relating to the Incentive Awards as it may deem appropriate to the extent consistent with the provisions of the Plan. A Grantee who has been granted an Incentive Award may, if otherwise eligible, be granted additional Incentive Awards at any time. ii. INCENTIVE STOCK OPTION ELIGIBILITY. No Consultant or Outside Director shall be eligible for the grant of any Incentive Stock Option. In addition, no Employee shall be eligible for the grant of any Incentive Stock Option who owns or would own immediately before the grant of such Incentive Stock Option, directly or indirectly, stock possessing more than ten percent (10%) of the total combined voting power of all classes of stock of the Company, or any Parent or Subsidiary. This restriction does not apply if, at the time such Incentive Stock Option is granted, the Incentive Stock Option exercise price is at least one hundred and ten percent (110%) of the Fair Market Value on the date of grant and the Incentive Stock Option by its terms is not exercisable after the expiration of five (5) years from the date of grant. For the purpose of the immediately preceding sentence, the attribution rules of Section 424(d) of the Code shall apply for the purpose of determining an Employee's percentage ownership in the Company or any Parent or Subsidiary. This paragraph shall be construed consistent with the requirements of Section 422 of the Code. f. TYPES OF INCENTIVE AWARDS The types of Incentive Awards under the Plan are Stock Options and Stock Appreciation Rights, or any combination of the foregoing. g. MAXIMUM TERM The maximum term for any Incentive Award granted under the Plan is ten years from the date of grant. SECTION 2. STOCK OPTIONS AND STOCK APPRECIATION RIGHTS a. GRANT OF STOCK OPTIONS The Committee is authorized to grant (a) Nonstatutory Stock Options to Employees, Consultants and/or Outside Directors and (b) Incentive Stock Options to Employees only, in accordance with the terms and conditions of the Plan, and with such additional terms and conditions, not inconsistent with the Plan, as the Committee shall determine in its discretion. Successive grants may be made to the same Grantee whether or not any Stock Option previously granted to such person remains unexercised. 12 18 b. STOCK OPTION TERMS i. WRITTEN AGREEMENT. Each grant of an Stock Option shall be evidenced by a written Incentive Agreement. Among its other provisions, each Incentive Agreement shall set forth the extent to which the Grantee shall have the right to exercise the Stock Option following termination of the Grantee's Employment. Such provisions shall be determined in the discretion of the Committee, shall be included in the Grantee's Incentive Agreement, need not be uniform among all Stock Options issued pursuant to the Plan. ii. NUMBER OF SHARES. Each Stock Option shall specify the number of Shares of Common Stock to which it pertains. iii. EXERCISE PRICE. The exercise price per Share of Common Stock under each Stock Option shall be determined by the Committee; provided, however, that in the case of an Incentive Stock Option, such exercise price shall not be less than 100% of the Fair Market Value per Share on the business day immediately preceding the day the Incentive Stock Option is granted. To the extent that the Company is a Publicly Held Corporation and the Stock Option is intended to qualify for the Performance-Based Exception, the exercise price shall not be less than 100% of the Fair Market Value per Share on the date the Stock Option is granted. Each Stock Option shall specify the method of exercise which shall be consistent with the requirements of Section 2.3(a). iv. TERM. In the Incentive Agreement, the Committee shall fix the term of each Stock Option which shall be not more than ten (10) years from the date of grant. In the event no term is fixed, such term shall be ten (10) years from the date of grant. v. EXERCISE. The Committee shall determine the time or times at which a Stock Option may be exercised in whole or in part. Each Stock Option may specify the required period of continuous Employment and/or the performance objectives to be achieved before the Stock Option or portion thereof will become exercisable. Each Stock Option, the exercise of which, or the timing of the exercise of which, is dependent, in whole or in part, on the achievement of designated performance objectives, may specify a minimum level of achievement in respect of the specified performance objectives below which no Stock Options will be exercisable and a method for determining the number of Stock Options that will be exercisable if performance is at or above such minimum but short of full achievement of the performance objectives. All such terms and conditions shall be set forth in the Incentive Agreement. vi. $100,000 ANNUAL LIMIT ON INCENTIVE STOCK OPTIONS. Notwithstanding any contrary provision in the Plan, to the extent that the aggregate Fair Market Value (determined as of the time the Incentive Stock Option is granted) of the Shares of Common Stock with respect to which Incentive Stock Options are exercisable for the first time by any Grantee during any single calendar year (under the Plan and any other stock option plans of the 13 19 Company and its Subsidiaries or Parent) exceeds the sum of $100,000, such Incentive Stock Option shall be treated as a Nonstatutory Stock Option to the extent in excess of the $100,000 limit, and not an Incentive Stock Option, but all other terms and provisions of such Stock Option shall remain unchanged. This paragraph shall be applied by taking Incentive Stock Options into account in the order in which they are granted and shall be construed in accordance with Section 422(d) of the Code. In the absence of such regulations or other authority, or if such regulations or other authority require or permit a designation of the Options which shall cease to constitute Incentive Stock Options, then Incentive Stock Options, only to the extent of such excess and in the order in which they were granted, shall automatically be deemed to be Nonstatutory Stock Options but all other terms and conditions of such Incentive Stock Options, and the corresponding Incentive Agreement, shall remain unchanged. c. STOCK OPTION EXERCISES i. METHOD OF EXERCISE AND PAYMENT. Stock Options shall be exercised by the delivery of a signed written notice of exercise to the Company as of a date set by the Company in advance of the effective date of the proposed exercise. The notice shall set forth the number of Shares with respect to which the Option is to be exercised, accompanied by full payment for the Shares. The Option Price upon exercise of any Stock Option shall be payable to the Company in full either: (i) in cash or its equivalent, or (ii) subject to prior approval by the Committee in its discretion, by tendering previously acquired Shares having an aggregate Fair Market Value at the time of exercise equal to the total Option Price (provided that the Shares which are tendered must have been held for at least six (6) months prior to their tender to satisfy the Option Price), or (iii) subject to prior approval by the Committee in its discretion, by withholding Shares which otherwise would be acquired on exercise having an aggregate value equal to the total Option Price, with such value per share being equal to the weighted average of the Fair Market Value of a share of Common Stock for the five trading days immediately preceding the exercise of the Option, or (iv) subject to prior approval by the Committee in its discretion, by a combination of (i), (ii), and (iii) above. Any payment in Shares of Common Stock shall be effected by the delivery of such Shares to the Secretary of the Company, duly endorsed in blank or accompanied by stock powers duly executed in blank, together with any other documents as the Secretary shall require from time to time. The Committee, in its discretion, also may allow (i) "cashless exercise" as permitted under Federal Reserve Board's Regulation T, 12 CFR Part 220 (or its successor), and subject to applicable securities law restrictions and tax withholdings, or (ii) by any other means which the Committee, in its discretion, determines to be consistent with the Plan's purpose and applicable law. 14 20 As soon as practicable after receipt of a written notification of exercise and full payment, the Company shall deliver to or on behalf of the Grantee, in the name of the Grantee or other appropriate recipient, Share certificates for the number of Shares purchased under the Stock Option. Such delivery shall be effected for all purposes when a stock transfer agent of the Company shall have deposited such certificates in the United States mail, addressed to Grantee or other appropriate recipient. During the lifetime of a Grantee, each Option granted to him shall be exercisable only by the Grantee (or his legal guardian in the event of his Disability) or by a broker-dealer acting on his behalf pursuant to a cashless exercise under the foregoing provisions of this Section 2.3(a). No Option shall be assignable or transferable by Grantee otherwise than by will or by the laws of descent and distribution. ii. RESTRICTIONS ON SHARE TRANSFERABILITY. The Committee may impose such restrictions on any Shares acquired pursuant to the exercise of a Stock Option as it may deem advisable, including, without limitation, restrictions under (i) any buy/sell agreement or right of first refusal, (ii) any applicable federal securities laws, (iii) the requirements of any stock exchange or market upon which such Shares are then listed and/or traded, or (iv) any blue sky or state securities law applicable to such Shares. Any certificate issued to evidence Shares issued upon the exercise of an Incentive Award may bear such legends and statements as the Committee shall deem advisable to assure compliance with federal and state laws and regulations. Any Grantee or other person exercising an Incentive Award may be required by the Committee to give a written representation that the Incentive Award and the Shares subject to the Incentive Award will be acquired for investment and not with a view to public distribution; provided, however, that the Committee, in its sole discretion, may release any person receiving an Incentive Award from any such representations either prior to or subsequent to the exercise of the Incentive Award. iii. NOTIFICATION OF DISQUALIFYING DISPOSITION OF SHARES FROM INCENTIVE STOCK OPTIONS. Notwithstanding any other provision of the Plan, a Grantee who disposes of Shares of Common Stock acquired upon the exercise of an Incentive Stock Option by a sale or exchange either (i) within two (2) years after the date of the grant of the Incentive Stock Option under which the Shares were acquired or (ii) within one (1) year after the transfer of such Shares to him pursuant to exercise, shall promptly notify the Company of such disposition, the amount realized and his adjusted basis in such Shares. iv. PROCEEDS OF OPTION EXERCISE. The proceeds received by the Company from the sale of Shares pursuant to Stock Options exercised under the Plan shall be used for general corporate purposes. 15 21 d. STOCK APPRECIATION RIGHTS IN TANDEM WITH NONSTATUTORY STOCK OPTIONS i. GRANT. The Committee may, at the time of grant of a Nonstatutory Stock Option, or at any time thereafter during the term of the Nonstatutory Stock Option, grant Stock Appreciation Rights with respect to all or any portion of the Shares of Common Stock covered by such Nonstatutory Stock Option. A Stock Appreciation Right in tandem with a Nonstatutory Stock Option is referred to herein as a "Tandem SAR." ii. GENERAL PROVISIONS. The terms and conditions of each Tandem SAR shall be evidenced by an Incentive Agreement. The Option Price per Share of a Tandem SAR shall be fixed in the Incentive Agreement and shall not be less than one hundred percent (100%) of the exercise price per share of the Nonstatutory Stock Option to which it relates. iii. EXERCISE. A Tandem SAR may be exercised at any time the Nonstatutory Stock Option to which it relates is then exercisable, but only to the extent such Nonstatutory Stock Option is exercisable, and shall otherwise be subject to the conditions applicable to such Nonstatutory Stock Option. When a Tandem SAR is exercised, the Nonstatutory Stock Option to which it relates shall terminate to the extent of the number of Shares with respect to which the Tandem SAR is exercised. Similarly, when a Nonstatutory Stock Option is exercised, the Tandem SARs relating to the Shares covered by such Nonstatutory Stock Option exercise shall terminate. Any Tandem SAR which is outstanding on the last day of the term of the related Nonstatutory Stock Option shall be automatically exercised on such date for cash, without the need for any action by the Grantee, to the extent of any Appreciation. iv. SETTLEMENT. Upon exercise of a Tandem SAR, the holder shall receive, for each Share with respect to which the Tandem SAR is exercised, an amount equal to the Appreciation. The Appreciation shall be payable in cash, Common Stock, or a combination of both, as specified in the Incentive Agreement (or in the discretion of the Committee if not so specified). The Appreciation shall be paid within 30 calendar days of the exercise of the Tandem SAR. The number of Shares of Common Stock which shall be issuable upon exercise of a Tandem SAR shall be determined by dividing (1) by (2), where (1) is the number of Shares as to which the Tandem SAR is exercised multiplied by the Appreciation in such shares and (2) is the Fair Market Value of a Share on the exercise date. e. STOCK APPRECIATION RIGHTS INDEPENDENT OF NONSTATUTORY STOCK OPTIONS i. GRANT. The Committee may grant Stock Appreciation Rights independent of Nonstatutory Stock Options ("Independent SARs"). ii. GENERAL PROVISIONS. The terms and conditions of each Independent SAR shall be evidenced by an Incentive Agreement. The exercise price per share of Common Stock shall be not less than one hundred percent (100%) of the Fair Market Value of a Share 16 22 of Common Stock on the business day immediately preceding the day of grant of the Independent SAR. The term of an Independent SAR shall be determined by the Committee. iii. EXERCISE. Independent SARs shall be exercisable at such time and subject to such terms and conditions as the Committee shall specify in the Incentive Agreement for the Independent SAR grant. iv. SETTLEMENT. Upon exercise of an Independent SAR, the holder shall receive, for each Share specified in the Independent SAR grant, an amount equal to the Spread. The Spread shall be payable in cash, Common Stock, or a combination of both, in the discretion of the Committee or as specified in the Incentive Agreement. The Spread shall be paid within 30 calendar days of the exercise of the Independent SAR. The number of Shares of Common Stock which shall be issuable upon exercise of an Independent SAR shall be determined by dividing (1) by (2), where (1) is the number of Shares as to which the Independent SAR is exercised multiplied by the Spread in such Shares and (2) is the Fair Market Value of a Share on the exercise date. f. RELOAD OPTIONS At the discretion of the Committee, the Grantee may be granted under an Incentive Agreement, replacement Stock Options that permit the Grantee to purchase an additional number of Shares equal to the number of previously owned Shares surrendered by the Grantee to pay all or a portion of the Option Price upon exercise of his Stock Options. All such replacement Stock Options shall have an exercise price of not less than 100% of the Fair Market Value of a Share on the business day immediately preceding the day of grant of such replacement Stock Options. 17 23 SECTION 3. PROVISIONS RELATING TO PLAN PARTICIPATION a. PLAN CONDITIONS i. INCENTIVE AGREEMENT. Each Grantee to whom an Incentive Award is granted shall be required to enter into an Incentive Agreement with the Company, in such a form as is provided by the Committee. The Incentive Agreement shall contain specific terms as determined by the Committee, in its discretion, with respect to the Grantee's particular Incentive Award. Such terms need not be uniform among all Grantees or any similarly-situated Grantees. The Incentive Agreement may include, without limitation, vesting, forfeiture and other provisions particular to the particular Grantee's Incentive Award, as well as, for example, provisions to the effect that the Grantee (i) shall not disclose any confidential information acquired during Employment with the Company, (ii) shall abide by all the terms and conditions of the Plan and such other terms and conditions as may be imposed by the Committee, (iii) shall not interfere with the employment or other service of any employee, (iv) shall not compete with the Company or become involved in a conflict of interest with the interests of the Company, (v) shall forfeit an Incentive Award if terminated for Cause, (vi) shall not be permitted to make an election under Section 83(b) of the Code when applicable, and (vii) shall be subject to any other agreement between the Grantee and the Company regarding Shares that may be acquired under an Incentive Award including, without limitation, an agreement restricting the transferability of Shares by Grantee. An Incentive Agreement shall include such terms and conditions as are determined by the Committee, in its discretion, to be appropriate with respect to any individual Grantee. The Incentive Agreement shall be signed by the Grantee to whom the Incentive Award is made and by an Authorized Officer. ii. NO RIGHT TO EMPLOYMENT. Nothing in the Plan or any instrument executed pursuant to the Plan shall create any Employment rights (including without limitation, rights to continued Employment) in any Grantee or affect the right of the Company to terminate the Employment of any Grantee at any time without regard to the existence of the Plan. iii. SECURITIES REQUIREMENTS. The Company shall be under no obligation to effect the registration pursuant to the Securities Act of 1933 of any Shares of Common Stock to be issued hereunder or to effect similar compliance under any state laws. Notwithstanding anything herein to the contrary, the Company shall not be obligated to cause to be issued or delivered any certificates evidencing Shares pursuant to the Plan unless and until the Company is advised by its counsel that the issuance and delivery of such certificates is in compliance with all applicable laws, regulations of governmental authorities, and the requirements of any securities exchange on which Shares are traded. The Committee may require, as a condition of the issuance and delivery of certificates evidencing Shares of Common Stock pursuant to the terms hereof, that the recipient of such Shares make such covenants, agreements and representations, and that such certificates bear such legends, as the Committee, in its discretion, deems necessary or desirable. If the Shares issuable on exercise of an Incentive Award are not registered under the Securities Act of 1933, the Company may imprint on the certificate for such Shares the 18 24 following legend or any other legend which counsel for the Company considers necessary or advisable to comply with the Securities Act of 1933: THE SHARES OF STOCK REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR UNDER THE SECURITIES LAWS OF ANY STATE AND MAY NOT BE SOLD OR TRANSFERRED EXCEPT UPON SUCH REGISTRATION OR UPON RECEIPT BY THE CORPORATION OF AN OPINION OF COUNSEL SATISFACTORY TO THE CORPORATION, IN FORM AND SUBSTANCE SATISFACTORY TO THE CORPORATION, THAT REGISTRATION IS NOT REQUIRED FOR SUCH SALE OR TRANSFER. The Shares issuable on exercise of an Incentive Award shall bear the restrictive legends required by the rules of any stock exchange outside of the United States on which the Shares are traded from time to time, including the following: THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE LISTED ON THE TORONTO STOCK EXCHANGE, HOWEVER, SAID SECURITIES CANNOT BE TRADED THROUGH THE FACILITIES OF SUCH EXCHANGE SINCE THEY ARE NOT FREELY TRANSFERABLE, AND CONSEQUENTLY ANY CERTIFICATE REPRESENTING SUCH SECURITIES IS NOT "GOOD DELIVERY" IN SETTLEMENT OF TRANSACTIONS ON THE TORONTO STOCK EXCHANGE. b. TRANSFERABILITY i. NON-TRANSFERABLE AWARDS AND OPTIONS. No Incentive Award and no right under the Plan, contingent or otherwise, will be (i) assignable, saleable, or otherwise transferable by a Grantee except by will or by the laws of descent and distribution, or (ii) subject to any encumbrance, pledge, lien, assignment or charge of any nature. No transfer by will or by the laws of descent and distribution shall be effective to bind the Company unless the Committee has been furnished with a copy of the deceased Grantee's enforceable will or such other evidence as the Committee deems necessary to establish the validity of the transfer. Any attempted transfer in violation of this Section 3.2(a) shall be void and ineffective. ii. ABILITY TO EXERCISE RIGHTS. Subject to a beneficiary designation pursuant to Section 4.5, only the Grantee (or his legal guardian in the event of Grantee's Disability), or in the event of his death, his estate, may exercise Stock Options, receive cash payments and deliveries of Shares, and otherwise assume the rights of the Grantee. 19 25 c. RIGHTS AS A STOCKHOLDER i. NO STOCKHOLDER RIGHTS. A Grantee of an Incentive Award (or a permitted transferee of such Grantee) shall have no rights as a stockholder with respect to any Shares of Common Stock until the issuance of a stock certificate for such Shares. ii. REPRESENTATION OF OWNERSHIP. In the case of the exercise of an Incentive Award by a person or estate acquiring the right to exercise such Incentive Award by reason of the death or Disability of a Grantee, the Committee may require reasonable evidence as to the ownership of such Incentive Award or the authority of such person and may require such consents and releases of taxing authorities as the Committee may deem advisable. d. LISTING AND REGISTRATION OF SHARES OF COMMON STOCK The exercise of any Incentive Award granted hereunder shall only be effective at such time as counsel to the Company shall have determined that the issuance and delivery of Shares of Common Stock pursuant to such exercise is in compliance with all applicable laws, regulations of governmental authorities and the requirements of any securities exchange on which Shares of Common Stock are traded. The Committee may, in its discretion, defer the effectiveness of any exercise of an Incentive Award in order to allow the issuance of Shares of Common Stock to be made pursuant to registration or an exemption from registration or other methods for compliance available under federal or state securities laws. The Committee shall inform the Grantee in writing of its decision to defer the effectiveness of the exercise of an Incentive Award. During the period that the effectiveness of the exercise of an Incentive Award has been deferred, the Grantee may, by written notice to the Committee, withdraw such exercise and obtain the refund of any amount paid with respect thereto. 20 26 e. CHANGE IN STOCK AND ADJUSTMENTS i. CHANGES IN LAW OR CIRCUMSTANCES. Subject to Section 3.7 (which only applies in the event of a Change in Control), in the event of any change in applicable laws or any change in circumstances which results in or would result in any dilution of the rights granted under the Plan, or which otherwise warrants equitable adjustment because it interferes with the intended operation of the Plan, then, if the Committee should determine, in its absolute discretion, that such change equitably requires an adjustment in the number or kind of shares of stock or other securities or property theretofore subject, or which may become subject, to issuance or transfer under the Plan or in the terms and conditions of outstanding Incentive Awards, such adjustment shall be made in accordance with such determination. Such adjustments may include changes with respect to (i) the aggregate number of Shares that may be issued under the Plan, (ii) the number of Shares subject to Incentive Awards, and (iii) the price per Share for outstanding Incentive Awards. Any adjustment under this paragraph of an outstanding Incentive Stock Option shall be made only to the extent not constituting a "modification" within the meaning of Section 424(h)(3) of the Code unless otherwise agreed to by the Grantee in writing. The Committee shall give notice to each applicable Grantee of such adjustment which shall be effective and binding. ii. EXERCISE OF CORPORATE POWERS. The existence of the Plan or outstanding Incentive Awards hereunder shall not affect in any way the right or power of the Company or its stockholders to make or authorize any or all adjustments, recapitalization, reorganization or other changes in the Company's capital structure or its business or any merger or consolidation of the Company, or any issue of bonds, debentures, preferred or prior preference stocks ahead of or affecting the Common Stock or the rights thereof, or the dissolution or liquidation of the Company, or any sale or transfer of all or any part of its assets or business, or any other corporate act or proceeding whether of a similar character or otherwise. iii. RECAPITALIZATION OF THE COMPANY. Subject to Section 3.7, if while there are Incentive Awards outstanding, the Company shall effect any subdivision or consolidation of Shares of Common Stock or other capital readjustment, the payment of a stock dividend, stock split, combination of Shares, recapitalization or other increase or reduction in the number of Shares outstanding, without receiving compensation therefor in money, services or property, then the number of Shares available under the Plan and the number of Incentive Awards which may thereafter be exercised shall (i) in the event of an increase in the number of Shares outstanding, be proportionately increased and the Fair Market Value of the Incentive Awards awarded shall be proportionately reduced; and (ii) in the event of a reduction in the number of Shares outstanding, be proportionately reduced, and the Fair Market Value of the Incentive Awards awarded shall be proportionately increased. The Committee shall take such action and whatever other action it deems appropriate, in its discretion, so that the value of each outstanding Incentive Award to the Grantee shall not be adversely affected by a corporate event described in this subsection (c). 21 27 iv. REORGANIZATION OF THE COMPANY. Subject to Section .4, if the Company is reorganized, merged or consolidated, or is a party to a plan of exchange with another corporation, pursuant to which reorganization, merger, consolidation or exchange, stockholders of the Company receive any Shares of Common Stock or other securities or property, or if the Company should distribute securities of another corporation to its stockholders, each Grantee shall be entitled to receive, in lieu of the number of unexercised Incentive Awards previously awarded, the number of Stock Options or Stock Appreciation Rights with a corresponding adjustment to the Fair Market Value of said Incentive Awards, to which he would have been entitled if, immediately prior to such corporate action, such Grantee had been the holder of record of a number of Shares equal to the number of the outstanding Incentive Awards payable in Shares that were previously awarded to him. In this regard, the Committee shall take whatever other action it deems appropriate to preserve the rights of Grantees holding outstanding Incentive Awards. v. ISSUE OF COMMON STOCK BY THE COMPANY. Except as hereinabove expressly provided in this Section 3.5 and subject to Section 3.7, the issue by the Company of shares of stock of any class, or securities convertible into shares of stock of any class, for cash or property, or for labor or services, either upon direct sale or upon the exercise of rights or warrants to subscribe therefor, or upon any conversion of shares or obligations of the Company convertible into such shares or other securities, shall not affect, and no adjustment by reason thereof shall be made with respect to, the number of, or Fair Market Value of, any Incentive Awards then outstanding under previously granted Incentive Awards. vi. ACQUISITION OF THE COMPANY. Subject to Section 3.7, in the case of any sale of assets, merger, consolidation or combination of the Company with or into another corporation other than a transaction in which the Company is the continuing or surviving corporation and which does not result in the outstanding Shares being converted into or exchanged for different securities, cash or other property, or any combination thereof (an "Acquisition"), in the absolute discretion of the Committee, any Grantee who holds an outstanding Incentive Award shall have the right (subject to any limitation applicable to the Incentive Award) thereafter and during the term of the Incentive Award, to receive upon exercise thereof the Acquisition Consideration (as defined below) receivable upon the Acquisition by a holder of the number of Shares which would have been obtained upon exercise of the Incentive Award immediately prior to the Acquisition. The term "Acquisition Consideration" shall mean the kind and amount of shares of the surviving or new corporation, cash, securities, evidence of indebtedness, other property or any combination thereof receivable in respect of one Share upon consummation of an Acquisition. The Committee, in its discretion, shall have the authority to take whatever action it deems appropriate to effectuate the provisions of this subsection (f). vii. ASSUMPTION OF OUTSTANDING INCENTIVE AWARDS UNDER THE PLAN. Notwithstanding any other provision of the Plan, the Committee, in its absolute discretion, may 22 28 authorize the assumption and continuation under the Plan of outstanding and unexercised stock options or other types of stock-based incentive awards that were granted under a stock option plan (or other type of stock incentive plan or agreement) that is or was maintained by a corporation or other entity that was merged into, consolidated with, or whose stock or assets were acquired by, the Company as the surviving corporation. Any such action shall be upon such terms and conditions as the Committee, in its discretion, may deem appropriate, including provisions to preserve the holder's rights under the previously granted and unexercised stock option or other stock-based incentive award, such as, for example, retaining an existing exercise price under an outstanding stock option. Any such assumption and continuation of any such previously granted and unexercised incentive award shall be treated as an outstanding Incentive Award under the Plan and shall thus count against the number of Shares reserved for issuance pursuant to Section 1.4. With respect to an incentive stock option (as described in Section 422 of the Code) subject to this subsection (g), no adjustment to such option shall be made to the extent constituting a "modification" within the meaning of Section 424(h)(3) of the Code unless otherwise agreed to by the optionee in writing. viii. ASSUMPTION OF INCENTIVE AWARDS BY A SUCCESSOR. In the event of a dissolution or liquidation of the Company, a sale of all or substantially all of the Company's assets, a merger or consolidation involving the Company in which the Company is not the surviving corporation, or a merger or consolidation involving the Company in which the Company is the surviving corporation but the holders of Shares of Common Stock receive securities of another corporation and/or other property, including cash, the Committee shall, in its absolute discretion, have the right and power to: (i) cancel, effective immediately prior to the occurrence of such corporate event, each outstanding Incentive Award (whether or not then exercisable), and, in full consideration of such cancellation, pay to the Grantee to whom such Incentive Award was granted an amount in cash equal to the excess of (A) the value, as determined by the Committee, in its absolute discretion, of the property (including cash) received by the holder of a Share of Common Stock as a result of such event over (B) the exercise price of such Incentive Award, if any; or (ii) provide for the exchange of each Incentive Award outstanding immediately prior to such corporate event (whether or not then exercisable) for an incentive award on some or all of the property for which such Incentive Award is exchanged and, incident thereto, make an equitable adjustment as determined by the Committee, in its absolute discretion, in the exercise price of the incentive award, if any, or the number of shares or amount of property (including cash) subject to the incentive award or, if appropriate, provide for a cash payment to the Grantee to whom such Incentive Award was granted in consideration for the exchange of the Incentive Award. 23 29 The Committee, in its discretion, shall have the authority to take whatever action it deems appropriate to effectuate the provisions of this subsection (h). f. TERMINATION OF EMPLOYMENT, DEATH, DISABILITY AND RETIREMENT i. TERMINATION OF EMPLOYMENT. Unless otherwise expressly provided in the Grantee's Incentive Agreement, if the Grantee's Employment is terminated for any reason other than due to his death, Disability, Retirement or for Cause, any non-vested portion of any Stock Option or other applicable Incentive Award at the time of such termination shall automatically expire and terminate and no further vesting shall occur. In such event, except as otherwise expressly provided in his Incentive Agreement, the Grantee shall be entitled to exercise his rights only with respect to the portion of the Incentive Award that was vested as of the termination date for a period that shall end on the earlier of (i) the expiration date set forth in the Incentive Agreement with respect to the vested portion of such Incentive Award or (ii) the date that occurs ninety (90) calendar days after his termination date. ii. TERMINATION OF EMPLOYMENT FOR CAUSE. Unless otherwise expressly provided in the Grantee's Incentive Agreement, in the event of the termination of a Grantee's Employment for Cause, all vested and non-vested Stock Options and other Incentive Awards granted to such Grantee shall immediately expire, and shall not be exercisable, as of the commencement of business on the date of such termination. iii. RETIREMENT. Unless otherwise expressly provided in the Grantee's Incentive Agreement, upon the Retirement of any Employee who is a Grantee: (1) any non-vested portion of any outstanding Option or other Incentive Award shall immediately terminate and no further vesting shall occur; and (2) any vested Option or other Incentive Award shall expire on the earlier of (A) the expiration date set forth in the Incentive Agreement for such Incentive Award; or (B) the expiration of (1) one year after the date of Retirement in the case of any Incentive Award other than an Incentive Stock Option, or (2) three months after the date of Retirement in the case of an Incentive Stock Option. iv. DISABILITY OR DEATH. Unless otherwise expressly provided in the Grantee's Incentive Agreement, upon termination of Employment as a result of the Grantee's Disability or death: (1) any nonvested portion of any outstanding Option or other applicable Incentive Award shall immediately terminate upon termination of Employment, as applicable, and no further vesting shall occur; and 24 30 (2) any vested Incentive Award shall expire upon the earlier of either (A) the expiration date set forth in the Incentive Agreement or (B) the first anniversary of the Grantee's termination of Employment, as applicable, as a result of his Disability or death. In the case of any vested Incentive Stock Option held by an Employee following termination of Employment, notwithstanding the definition of "Disability" in Section 1.2, whether the Employee has incurred a "Disability" for purposes of determining the length of the Option exercise period following termination of Employment under this paragraph (d) shall be determined by reference to Section 22(e)(3) of the Code to the extent required by Section 422(c)(6) of the Code. The Committee shall determine whether a Disability for purposes of this subsection (d) has occurred. v. CONTINUATION. Subject to the conditions and limitations of the Plan and applicable law and regulation in the event that a Grantee ceases to be an Employee, Outside Director or Consultant, as applicable, for whatever reason, the Committee and Grantee may mutually agree with respect to any outstanding Option or other Incentive Award then held by the Grantee (i) for an acceleration or other adjustment in any vesting schedule applicable to the Incentive Award, (ii) for a continuation of the exercise period following termination for a longer period than is otherwise provided under such Incentive Award, or (iii) to any other change in the terms and conditions of the Incentive Award. In the event of any such change to an outstanding Inventive Award, a written amendment to the Grantee's Incentive Agreement shall be required. g. CHANGE IN CONTROL Notwithstanding any contrary provision in the Plan, in the event of a Change in Control (as defined below), all of the Stock Options and Stock Appreciation Rights then outstanding shall become 100% vested and immediately and fully exercisable as of the day immediately preceding the Change in Control date unless expressly provided otherwise in the Grantee's Incentive Agreement. Notwithstanding any other provision of this Plan, unless expressly provided otherwise in the Grantee's Incentive Agreement, the provisions of this Section 3.7 may not be terminated, amended, or modified to adversely affect any Incentive Award theretofore granted under the Plan without the prior written consent of the Grantee with respect to his outstanding Incentive Awards subject, however, to the last paragraph of this Section 3.7. For all purposes of this Plan, a "CHANGE IN CONTROL" of the Company shall mean: (a) The acquisition by an individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act (a "PERSON") of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of thirty percent (30%) or more of the total voting power of all the Company's then outstanding securities 25 31 entitled to vote generally in the election of directors to the Board; provided, however, that for purposes of this subsection (a), the following acquisitions shall not constitute a Change in Control: (i) any acquisition by the Company or its Parent or Subsidiaries, (ii) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or its Parent or Subsidiaries, or (iii) any acquisition consummated with the prior approval of the Board. (b) During the period of two consecutive calendar years, individuals who at the beginning of such period constitute the Board, and any new director(s) whose election by the Board or nomination for election by the Company's shareholders was approved by a vote of at least two-thirds of the directors then still in office, who either were directors at the beginning of the two-year period or whose election or nomination for election was previously so approved, cease for any reason to constitute a majority of the Board; or (c) The Company becomes a party to a merger, plan of reorganization, consolidation or share exchange in which either (i) the Company will not be the surviving corporation or (ii) the Company will be the surviving corporation and any outstanding shares of the Company's common stock will be converted into shares of any other company (other than a reincorporation or the establishment of a holding company involving no change of ownership of the Company) or other securities, cash or other property (excluding payments made solely for fractional shares); or (d) The shareholders of the Company approve a merger, plan of reorganization, consolidation or share exchange with any other corporation, and immediately following such merger, plan of reorganization, consolidation or share exchange the holders of the voting securities of the Company outstanding immediately prior thereto hold securities representing fifty percent (50%) or less of the combined voting power of the voting securities of the Company or such surviving entity outstanding immediately after such merger, plan of reorganization, consolidation or share exchange; provided, however, that notwithstanding the foregoing, no Change in Control shall be deemed to have occurred if one-half (1/2) or more of the members of the Board of the Company or such surviving entity immediately after such merger, plan of reorganization, consolidation or share exchange is comprised of persons who served as directors of the Company immediately prior to such merger, plan of reorganization, consolidation or share exchange or who are otherwise designees of the Company; or (e) Upon approval by the Company's stockholders of a complete liquidation and dissolution of the Company or the sale or other disposition of all or substantially all of the assets of the Company other than to a Parent or Subsidiary; or (f) Any other event that a majority of the Board, in its sole discretion, shall determine constitutes a Change in Control. 26 32 Notwithstanding the occurrence of any of the foregoing events of this Section 3.7 which would otherwise result in a Change in Control, the Board may determine in its discretion, if it deems it to be in the best interest of the Company, that an event or events otherwise constituting a Change in Control shall not be considered a Change in Control. Such determination shall be effective only if it is made by the Board prior to the occurrence of an event that otherwise would be or probably would lead to a Change in Control; or after such event if made by the Board a majority of which is composed of directors who were members of the Board immediately prior to the event that otherwise would be or probably would lead to a Change in Control. h. EXCHANGE OF INCENTIVE AWARDS The Committee may, in its discretion, permit any Grantee to surrender outstanding Incentive Awards in order to exercise or realize his rights under other Incentive Awards or in exchange for the grant of new Incentive Awards, or require holders of Incentive Awards to surrender outstanding Incentive Awards (or comparable rights under other plans or arrangements) as a condition precedent to the grant of new Incentive Awards. i. FINANCING The Company may extend and maintain, or arrange for and guarantee, the extension and maintenance of financing to any Grantee to purchase Shares pursuant to exercise of an Incentive Award upon such terms as are approved by the Committee in its discretion. SECTION 4. GENERAL a. EFFECTIVE DATE AND GRANT PERIOD This Plan is adopted by the Board effective as of February 11, 1998 (the "EFFECTIVE DATE"), and was approved by the stockholders of the Company on August 21, 1998. Incentive Awards may be granted under the Plan at any time prior to receipt of such stockholder approval; provided, however, if the requisite stockholder approval is not obtained then any Incentive Awards granted hereunder shall automatically become null and void and of no force or effect. Unless sooner terminated by the Board, no Incentive Award shall be granted under the Plan after ten (10) years from the Effective Date. 27 33 b. FUNDING AND LIABILITY OF COMPANY No provision of the Plan shall require the Company, for the purpose of satisfying any obligations under the Plan, to purchase assets or place any assets in a trust or other entity to which contributions are made, or otherwise to segregate any assets. In addition, the Company shall not be required to maintain separate bank accounts, books, records or other evidence of the existence of a segregated or separately maintained or administered fund for purposes of the Plan. Although bookkeeping accounts may be established with respect to Grantees who are entitled to cash, Common Stock or rights thereto under the Plan, any such accounts shall be used merely as a bookkeeping convenience. The Company shall not be required to segregate any assets that may at any time be represented by cash, Common Stock or rights thereto. The Plan shall not be construed as providing for such segregation, nor shall the Company, the Board or the Committee be deemed to be a trustee of any cash, Common Stock or rights thereto. Any liability or obligation of the Company to any Grantee with respect to an Incentive Award shall be based solely upon any contractual obligations that may be created by this Plan and any Incentive Agreement, and no such liability or obligation of the Company shall be deemed to be secured by any pledge or other encumbrance on any property of the Company. Neither the Company, the Board nor the Committee shall be required to give any security or bond for the performance of any obligation that may be created by the Plan. c. WITHHOLDING TAXES i. TAX WITHHOLDING. The Company shall have the power and the right to deduct or withhold, or require a Grantee to remit to the Company, an amount sufficient to satisfy federal, state, and local taxes, domestic or foreign, required by law or regulation to be withheld with respect to any taxable event arising as a result of the Plan or an Incentive Award hereunder. ii. SHARE WITHHOLDING. With respect to tax withholding required upon the exercise of Stock Options or SARs or upon any other taxable event arising as a result of any Incentive Awards, Grantees may elect, subject to the approval of the Committee in its discretion, to satisfy the withholding requirement, in whole or in part, by having the Company withhold Shares having a Fair Market Value on the date the tax is to be determined equal to the minimum statutory total tax which could be imposed on the transaction. All such elections shall be made in writing, signed by the Grantee, and shall be subject to any restrictions or limitations that the Committee, in its discretion, deems appropriate. iii. INCENTIVE STOCK OPTIONS. With respect to Shares received by a Grantee pursuant to the exercise of an Incentive Stock Option, if such Grantee disposes of any such Shares within (i) two years from the date of grant of such Option or (ii) one year after the transfer of such shares to the Grantee, the Company shall have the right to withhold from any salary, wages or other compensation payable by the Company to the Grantee an amount 28 34 sufficient to satisfy federal, state and local tax withholding requirements attributable to such disqualifying disposition. iv. LOANS. The Committee may provide for loans, on either a short term or demand basis, from the Company to a Grantee who is an Employee or Consultant to permit the payment of taxes required by law. d. NO GUARANTEE OF TAX CONSEQUENCES Neither the Company nor the Committee makes any commitment or guarantee that any federal, state or local tax treatment will apply or be available to any person participating or eligible to participate hereunder. e. DESIGNATION OF BENEFICIARY BY PARTICIPANT Each Grantee may, from time to time, name any beneficiary or beneficiaries (who may be named contingently or successively) to whom any benefit under the Plan is to be paid in case of his death before he receives any or all of such benefit. Each such designation shall revoke all prior designations by the same Grantee, shall be in a form prescribed by the Committee, and will be effective only when filed by the Grantee in writing with the Committee during the Grantee's lifetime. In the absence of any such designation, benefits remaining unpaid at the Grantee's death shall be paid to the Grantee's estate. f. DEFERRALS The Committee may permit a Grantee to defer such Grantee's receipt of the payment of cash or the delivery of Shares that would, otherwise be due to such Grantee by virtue of the lapse or waiver of restrictions with respect to Restricted Stock, or the satisfaction of any requirements or goals with respect to Performance Units, Performance Shares or Other Stock-Based Awards. If any such deferral election is permitted, the Committee shall, in its discretion, establish rules and procedures for such payment deferrals to the extent consistent with the Code. g. AMENDMENT AND TERMINATION The Board shall have complete power and authority to terminate or amend the Plan at any time; provided, however, that the Board shall not, without the approval of the stockholders of the Company within the time period required by applicable law, (a) except as provided in Section 3.5, increase the maximum number of Shares which may be issued under the Plan pursuant to Section 1.4, (b) amend the requirements as to the class of Employees eligible to purchase Common Stock under the Plan, (c) to the extent applicable, increase the maximum limits on Incentive Awards to Covered Employees as set for compliance with the Performance-Based Exception, (d) extend the term of the Plan, or (e) to the extent applicable, decrease the authority granted to the Committee under the Plan in contravention of Rule 16b-3 under the Exchange Act. 29 35 No termination, amendment, or modification of the Plan shall adversely affect in any material way any outstanding Incentive Award previously granted to a Grantee under the Plan, without the written consent of such Grantee or other designated holder of such Incentive Award. This Plan and any amendments hereto are subject to all necessary approvals of the applicable "Regulatory Authorities" and stockholders. "Regulatory Authorities" means all stock exchanges and other organized trading facilities on which the Shares are listed and all securities commissions or similar securities regulatory bodies having jurisdiction over the Company. To the extent that the Committee determines that (a) the listing or qualification requirements of any Regulatory Authority, or (b) the Code (or regulations promulgated thereunder), require stockholder approval in order to maintain compliance with such listing or qualification requirements or to maintain any favorable tax advantages or qualifications, then the Plan shall not be amended in such respect without approval of such Regulatory Authority and/or the Company's stockholders. h. REQUIREMENTS OF LAW The granting of Incentive Awards and the issuance of Shares under the Plan shall be subject to all applicable laws, rules, and regulations, and to such approvals by any governmental agencies or national securities exchanges as may be required. Certificates evidencing shares of Common Stock delivered under this Plan (to the extent that such shares are so evidenced) may be subject to such stop transfer orders and other restrictions as the Committee may deem advisable under the rules and regulations of the Securities and Exchange Commission, any securities exchange or transaction reporting system upon which the Common Stock is then listed or to which it is admitted for quotation, and any applicable federal or state securities law, if applicable. The Committee may cause a legend or legends to be placed upon such certificates (if any) to make appropriate reference to such restrictions. i. RULE 16b-3 SECURITIES LAW COMPLIANCE With respect to Insiders to the extent applicable, transactions under the Plan are intended to comply with all applicable conditions of Rule 16b-3 under the Exchange Act. Any ambiguities or inconsistencies in the construction of an Incentive Award or the Plan shall be interpreted to give effect to such intention. However, to the extent any provision of the Plan or action by the Committee fails to so comply, it shall be deemed null and void to the extent permitted by law and deemed advisable by the Committee in its discretion. 30 36 j. COMPLIANCE WITH CODE SECTION 162(m) If the Company is a Publicly Held Corporation, then unless otherwise determined by the Committee with respect to any particular Incentive Award, it is intended that the Plan comply fully with and meet all the requirements of Section 162(m) of the Code so that any applicable types of Incentive Awards that are granted to Covered Employees shall qualify for the Performance-Based Exception. If any provision of the Plan or an Incentive Agreement would disqualify the Plan or would not otherwise permit the Plan or Incentive Award to comply with the Performance-Based Exception as so intended, such provision shall be construed or deemed amended to conform to the requirements of the Performance-Based Exception to the extent permitted by applicable law and deemed advisable by the Committee; provided that no such construction or amendment shall have an adverse effect on the prior grant of an Incentive Award or the economic value to a Grantee of any outstanding Incentive Award. k. SUCCESSORS All obligations of the Company under the Plan with respect to Incentive Awards granted hereunder shall be binding on any successor to the Company, whether the existence of such successor is the result of a direct or indirect purchase, merger, consolidation, or otherwise, of all or substantially all of the business and/or assets of the Company. l. MISCELLANEOUS PROVISIONS i. No Employee, Consultant, Outside Director, or other person shall have any claim or right to be granted an Incentive Award under the Plan. Neither the Plan, nor any action taken hereunder, shall be construed as giving any Employee, Consultant, or Outside Director any right to be retained in the Employment or other service of the Company or any Parent or Subsidiary. ii. No Shares of Common Stock shall be issued hereunder unless counsel for the Company is then reasonably satisfied that such issuance will be in compliance with federal and state securities laws, if applicable. iii. The expenses of the Plan shall be borne by the Company. iv. By accepting any Incentive Award, each Grantee and each person claiming by or through him shall be deemed to have indicated his acceptance of the Plan. 31 37 m. SEVERABILITY In the event that any provision of this Plan shall be held illegal, invalid or unenforceable for any reason, such provision shall be fully severable, but shall not affect the remaining provisions of the Plan, and the Plan shall be construed and enforced as if the illegal, invalid, or unenforceable provision was not included herein. n. GENDER, TENSE AND HEADINGS Whenever the context so requires, words of the masculine gender used herein shall include the feminine and neuter, and words used in the singular shall include the plural. Section headings as used herein are inserted solely for convenience and reference and constitute no part of the interpretation or construction of the Plan. o. GOVERNING LAW The Plan shall be interpreted, construed and constructed in accordance with the laws of the State of Delaware without regard to its conflicts of law provisions, except as may be superseded by applicable laws of the United States. IN WITNESS WHEREOF, PetroQuest Energy, Inc. has caused this Plan to be duly executed in its name and on its behalf by its duly authorized officer. ATTEST: PETROQUEST ENERGY, INC. By:/s/ Robert R. Brooksher By: /s/ Charles T. Goodson --------------------------------- --------------------------------------- Name: Robert R. Brooksher Name: Charles T. Goodson ------------------------------- ------------------------------------- Title: Chief Financial Officer Title: President & Chief Executive Officer ------------------------------ ------------------------------------ 32 EX-10.2 7 EMPLOYMENT AGREEMENT - CHARLES T. GOODSON 1 EXHIBIT 10.2 EXECUTIVE EMPLOYMENT AGREEMENT THIS AGREEMENT is made and entered into this 1st day of September, 1998 between PetroQuest Energy, Inc., a Delaware corporation having its principal executive office at 625 E. Kaliste Saloom Road, Suite 400, Lafayette, Louisiana 70508 (hereinafter referred to as the "Company"), and Charles T. Goodson (hereinafter referred to as the "Employee"). W I T N E S S E T H: WHEREAS, the Company desires to employ the Employee in an executive capacity and the Employee desires to enter the Company's employ. NOW, THEREFORE, for and in consideration of the mutual promises, covenants and obligations contained herein, and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the Company and the Employee hereby agree as follows: 1. Certain Definitions. As used in this Agreement, the following terms have the meanings prescribed below: Affiliate is used in this Agreement to define a relationship to a person or entity and means a person or entity who, directly or indirectly through one or more intermediaries, controls, is controlled by, or is under common control with, such person or entity. Annual Bonus shall have the meaning assigned thereto in Section 4.2 hereof. Base Salary shall have the meaning assigned thereto in Section 4.1 hereof. Beneficial Owner shall have the meaning assigned thereto in Rule 13(d)-3 under the Exchange Act; provided, however, and without limitation, that any individual, corporation, partnership, group, association or other person or entity that has the right to acquire any Voting Stock at any time in the future, whether such right is (a) contingent or absolute or (b) exercisable presently or at any time in the future, pursuant to any agreement or understanding or upon the exercise or conversion of rights, options or warrants, or otherwise, shall be the Beneficial Owner of such Voting Stock. Cause shall have the meaning assigned thereto in Section 5.3 hereof. Common Stock means the Company's common stock, par value $.001 per share. Confidential Information shall have the meaning assigned thereto in Section 8.2 hereof. 2 Date of Termination means the earliest to occur of (i) the date of the Employee's death, (ii) the date on which the Employee terminates this Agreement for any reason or (iii) the date of receipt of the Notice of Termination, or such later date as may be prescribed in the Notice of Termination in accordance with Section 5.5 hereof. Disability means an illness or other disability which prevents the Employee from discharging his responsibilities under this Agreement for a period of 180 consecutive calendar days, or an aggregate of 180 calendar days in any calendar year, during the Employment Period, all as determined in good faith by the Board of Directors of the Company (or a committee thereof). Effective Date means the date of execution hereof. Employee means Charles T. Goodson, whose business address is 625 E. Kaliste Saloom Road, Suite 400, Lafayette, Louisiana 70508. Exchange Act means the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated by the Securities and Exchange Commission thereunder, all as in effect from time to time during the Employment Period. Company means PetroQuest Energy, Inc., a Delaware corporation, the principal executive office of which is located at 625 E. Kaliste Saloom Road, Suite 400, Lafayette, Louisiana 70508. Employment Period shall have the meaning assigned thereto in Section 3 hereof. Initial Term shall have the meaning assigned thereto in Section 3 hereof. Notice of Termination shall have the meaning assigned thereto in Section 5.5 hereof. Unexpired Term shall have the meaning assigned thereto in Section 6.3(c) hereof. Voting Stock means all outstanding shares of capital stock of the Company entitled to vote generally in an election of directors; provided, however, that if the Company has shares of Voting Stock entitled to more or less than one vote per share, each reference to a proportion of the issued and outstanding shares of Voting Stock shall be deemed to refer to the proportion of the aggregate votes entitled to be cast by the issued and outstanding shares of Voting Stock. Without Cause shall have the meaning assigned thereto in Section 5.4 hereof. 2. General Duties of Company and Employee. 2.1 The Company agrees to employ the Employee, and the Employee agrees to accept employment by the Company and to serve the Company as President and Chief Executive Officer, and shall also serve as a director of the Company. The authority, duties and responsibilities of the 2 3 Employee shall include those described in Exhibit A to this Agreement, and such other or additional duties as may from time to time be assigned to the Employee by the Board of Directors (or a committee thereof) and agreed to by the Employee. While employed hereunder, the Employee shall devote full time and attention during normal business hours to the affairs of the Company and use his best efforts to perform faithfully and efficiently his duties and responsibilities. The Employee may (i) serve on corporate, civic or charitable boards or committees, (ii) deliver lectures, fulfill speaking engagements or teach at educational institutions and (iii) manage personal investments, so long as such activities do not significantly interfere with the performance of the Employee's duties and responsibilities. 2.2 The Employee agrees and acknowledges that he owes a fiduciary duty of loyalty, fidelity and allegiance to act at all times in the best interests of the Company and to do no act and to make no statement, oral or written, which would injure Company's business, its interests or its reputation. 2.3 The Employee agrees to comply at all times during the Employment Period with all applicable policies, rules and regulations of the Company, including, without limitation, the Company's Code of Ethics and the Company's policy regarding trading in the Common Stock, as each is in effect from time to time during the Employment Period. 3. Term. Unless sooner terminated pursuant to other provisions hereof, the Employee's period of employment under this Agreement shall be a period of three years beginning on the Effective Date (the "Initial Term"). After the expiration of the Initial Term, the Employee's period of employment under this Agreement shall be automatically renewed for successive one-year terms on each anniversary of the Effective Date (the Initial Term and any and all renewals thereof are referred to herein collectively as the "Employment Period"). 4. Compensation and Benefits. 4.1 Base Salary. As compensation for services to the Company, the Company shall pay to the Employee until the Date of Termination an annual base salary of $210,000 (the "Base Salary"). The Board of Directors (or a committee thereof), in its discretion, may increase the Base Salary based upon relevant circumstances. The Base Salary shall be payable in equal semi-monthly installments or in accordance with the Company's established policy, subject only to such payroll and withholding deductions as may be required by law and other deductions applied generally to employees of the Company for insurance and other employee benefit plans. 4.2 Bonus. In addition to the Base Salary, the Employee may be awarded, for each fiscal year until the Date of Termination, an annual bonus (either pursuant to a bonus or incentive plan or program of the Company or otherwise) in an amount to be determined by the Board of Directors (or a committee thereof), in its sole discretion (the "Annual Bonus"). Each such Annual Bonus shall be payable at a time to be determined by the Board of Directors (or a committee thereof) in its sole discretion. 3 4 4.3 Incentive, Savings and Retirement Plans. Until the Date of Termination, the Employee shall be eligible to participate in and shall receive all benefits under all executive incentive, savings and retirement plans (including 401(k) plans) and programs currently maintained or hereinafter established by the Company for the benefit of its executive officers and/or employees. 4.4 Welfare Benefit Plan. Until the Date of Termination, the Employee and/or the Employee's family, as the case may be, shall be eligible to participate in and shall receive all benefits under each welfare benefit plan of the Company currently maintained or hereinafter established by the Company for the benefit of its employees. Such welfare benefit plans may include, without limitation, medical, dental, disability, group life, accidental death and travel accident insurance plans and programs. 4.5 Reimbursement of Expenses. The Employee may from time to time until the Date of Termination incur various business expenses customarily incurred by persons holding positions of like responsibility, including, without limitation, travel, entertainment and similar expenses incurred for the benefit of the Company, and will receive a Company credit card for use for such expenses. Subject to the Company's policy regarding the reimbursement of such expenses as in effect from time to time during the Employment Period, which does not necessarily allow reimbursement of all such expenses, the Company shall reimburse the Employee for such expenses from time to time, at the Employee's request, and the Employee shall account to the Company for all such expenses. 4.6 Life Insurance. The Company shall provide to the Executive life insurance on terms that are mutually agreeable to the Company and the Executive. 4.7 Relocation. The Company and the Executive agree that if the Executive is asked to relocate from Lafayette, Louisiana to Houston, Texas, the Company will provide to Executive reimbursement for out of pocket moving expenses incurred in connection with such move, and it will also reimburse the Executive for any loss incurred by the Executive on the sale of his personal residence in Lafayette, Louisiana, with such loss being calculated on the basis of the difference between the Executive's actual costs less the net sales price. 5. Termination. 5.1 Death. This Agreement shall terminate automatically upon the death of the Employee. 5.2 Disability. The Company may terminate this Agreement, upon written notice to the Employee delivered in accordance with Sections 5.5 and 12.1 hereof, upon the Disability of the Employee. 5.3 Cause. The Company may terminate this Agreement, upon written notice to the Employee delivered in accordance with Sections 5.5 and 12.1 hereof, for Cause. For purposes of 4 5 this Agreement, "Cause" means (i) the conviction of the Employee of a felony (which, through lapse of time or otherwise, is not subject to appeal), (ii) the Employee's willful refusal, without proper legal cause, to perform his duties and responsibilities as contemplated in this Agreement or (iii) the Employee's willful engaging in activities which would (A) constitute a breach of any term of this Agreement, the Company's Code of Ethics, the Company's policies regarding trading in the Common Stock or reimbursement of business expenses or any other applicable policies, rules or regulations of the Company, or (B) result in a material injury to the business, condition (financial or otherwise), results of operations or prospects of the Company or its Affiliates (as determined in good faith by the Board of Directors of the Company or a committee thereof). 5.4 Without Cause. The Company may terminate this Agreement Without Cause, upon written notice to the Employee delivered in accordance with Sections 5.5 and 12.1 hereof. For purposes of this Agreement, the Employee will be deemed to have been terminated "Without Cause" if the Employee is terminated by the Company for any reason other than Cause, Disability or death. 5.5 Notice of Termination. Any termination of this Agreement by the Company for Cause, Without Cause or as a result of the Employee's Disability shall be communicated by Notice of Termination to the Employee given in accordance with this Agreement. For purposes of this Agreement, a "Notice of Termination" means a written notice which (i) indicates the specific termination provision in this Agreement relied upon, (ii) sets forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Employee's employment under the provision so indicated and (iii) specifies the termination date, if such date is other than the date of receipt of such notice (which termination date shall not be more than 15 days after the giving of such notice). 6. Obligations of Company upon Termination. 6.1 Cause by Employee. If this Agreement shall be terminated either by the Company for Cause or by the Employee for any reason, the Company shall pay to the Employee, in a lump sum in cash within 30 days after the Date of Termination, the aggregate of the Employee's Base Salary (as in effect on the Date of Termination) through the Date of Termination, if not theretofore paid, and, in the case of compensation previously deferred by the Employee, all amounts of such compensation previously deferred and not yet paid by the Company. All other obligations of the Company and rights of the Employee hereunder shall terminate effective as of the Date of Termination. 6.2 Death or Disability. (a) Subject to the provisions of this Section 6.2, if this Agreement is terminated as a result of the Employee's death or Disability, the Company shall pay to the Employee or his estate, in equal semi-monthly installments, the Employee's Base Salary (as in effect on the Date of Termination) for 12 months after such Date of Termination. The Company may purchase insurance to cover all or any part of the obligation contemplated in the foregoing 5 6 sentence, and the Employee agrees to submit to a physical examination to facilitate the procurement of such insurance. (b) Whenever compensation is payable to the Employee hereunder during a period in which he is partially or totally disabled, and such Disability would (except for the provisions hereof) entitle the Employee to Disability income or salary continuation payments from the Company according to the terms of any plan or program presently maintained or hereafter established by the Company, the Disability income or salary continuation paid to the Employee pursuant to any such plan or program shall be considered a portion of the payment to be made to the Employee pursuant to this Section 6.2 and shall not be in addition hereto. If Disability income is payable directly to the Employee by an insurance company under the terms of an insurance policy paid for by the Company, the amounts paid to the Employee by such insurance company shall be considered a portion of the payment to be made to the Employee pursuant to this Section 6.2 and shall not be in addition hereto. 6.3 Without Cause. If this Agreement shall be terminated by the Company Without Cause: (a) the Company shall pay to the Employee, in a lump sum in cash within 30 days after the Date of Termination, the aggregate of the following amounts: (1) if not theretofore paid, the Employee's Base Salary (as in effect on the Date of Termination) through the Date of Termination; and (2) in the case of compensation previously deferred by the Employee, all amounts of such compensation previously deferred and not yet paid by the Company; (b) the Company shall, promptly upon submission by the Employee of supporting documentation, pay or reimburse to the Employee any costs and expenses (including moving and relocation expenses) paid or incurred by the Employee which would have been payable under Section 4.5 of this Agreement if the Employee's employment had not terminated; and (c) for the 12-month period commencing on the Date of Termination, the Company shall continue benefits to the Employee and/or the Employee's family at least equal to those which would have been provided to them under Section 4.4 if the Employee's employment had not been terminated; and (d) the Company shall pay to the Employee, in equal semi-monthly installments, the Employee's Base Salary (as in effect on the Date of Termination) for 12 months after the Date of Termination. 6 7 7. Employee's Obligation to Avoid Conflicts of Interest. 7.1 In keeping with the Employee's fiduciary duties to the Company, the Employee agrees that he shall not knowingly become involved in a conflict of interest with the Company, or upon discovery thereof, allow such a conflict to continue. The Employee further agrees to disclose to the Company, promptly after discovery, any facts or circumstances which might involve a conflict of interest with the Company. 7.2 The Company and the Employee recognize that it is impossible to provide an exhaustive list of actions or interests which constitute a "conflict of interest." Moreover, the Company and the Employee recognize that there are many borderline situations. In some instances, full disclosure of facts by the Employee to the Company is all that is necessary to enable the Company to protect its interests. In others, if no improper motivation appears to exist and the Company's interests have not suffered, prompt elimination of the outside interest will suffice. In still others, it may be necessary for the Company to terminate the employment relationship. The Company and the Employee agree that the Company's determination as to whether or not a conflict of interest exists shall be conclusive. The Company reserves the right to take such action as, in its judgment, will end the conflict of interest. 7.3 In this connection, it is agreed that any direct or indirect interest in, connection with or benefit from any outside activities, particularly commercial activities, which interest might in any way adversely affect the Company or its Affiliates, involves a possible conflict of interest. Circumstances in which a conflict of interest on the part of the Employee would or might arise, and which should be reported immediately to the Company, include, but are not limited to, the following: (a) Ownership of a material interest in any lender, supplier, contractor, subcontractor, customer or other entity with which the Company does business. (b) Acting in any capacity, including director, officer, partner, consultant, employee, distributor, agent or the like, for any lender, supplier, contractor, subcontractor, customer or other entity with which the Company does business. (c) Acceptance, directly or indirectly, of payments, services or loans from a lender, supplier, contractor, subcontractor, customer or other entity with which the Company does business, including, without limitation, gifts, trips, entertainment or other favors of more than a nominal value, but excluding loans from publicly held insurance companies and commercial or savings banks at market rates of interest. (d) Use of information or facilities to which the Employee has access in a manner which will be detrimental to the Company's interests, such as use for the Employee's own benefit of know-how or information developed through the Company's business activities. 7 8 (e) Disclosure or other misuse of information of any kind obtained through the Employee's connection with the Company. (f) Acquiring or trading in, directly or indirectly, oil and gas properties or interests for his own account or the account of his Affiliates without the prior written consent of the Board of Directors. 8. Employee's Confidentiality Obligation. 8.1 The Employee hereby acknowledges, understands and agrees that all Confidential Information is the exclusive and confidential property of the Company and its Affiliates which shall at all times be regarded, treated and protected as such in accordance with this Section 8. The Employee acknowledges that all such Confidential Information is in the nature of a trade secret. 8.2 For purposes of this Agreement, "Confidential Information" means information, which is used in the business of the Company or its Affiliates and (i) is proprietary to, about or created by the Company or its Affiliates, (ii) gives the Company or its Affiliates some competitive business advantage or the opportunity of obtaining such advantage or the disclosure of which could be detrimental to the interests of the Company or its Affiliates, (iii) is designated as Confidential Information by the Company or its Affiliates, is known by the Employee to be considered confidential by the Company or its Affiliates, or from all the relevant circumstances should reasonably be assumed by the Employee to be confidential and proprietary to the Company or its Affiliates, or (iv) is not generally known by non-Company personnel. Such Confidential Information includes, without limitation, the following types of information and other information of a similar nature (whether or not reduced to writing or designated as confidential): (a) Internal personnel and financial information of the Company or its Affiliates, information regarding oil and gas properties including reserve information, vendor information (including vendor characteristics, services, prices, lists and agreements), purchasing and internal cost information, internal service and operational manuals, and the manner and methods of conducting the business of the Company or its Affiliates; (b) Marketing and development plans, price and cost data, price and fee amounts, pricing and billing policies, bidding, quoting procedures, marketing techniques, forecasts and forecast assumptions and volumes, and future plans and potential strategies (including, without limitation, all information relating to any oil and gas prospect and the identity of any key contact within the organization of any acquisition prospect) of the Company or its Affiliates which have been or are being discussed; (c) Names of customers and their representatives, contracts (including their contents and parties), customer services, and the type, quantity, specifications and content of products and services purchased, leased, licensed or received by customers of the Company or its Affiliates; and 8 9 (d) Confidential and proprietary information provided to the Company or its Affiliates by any actual or potential customer, government agency or other third party (including businesses, consultants and other entities and individuals). 8.3 As a consequence of the Employee's acquisition or anticipated acquisition of Confidential Information, the Employee shall occupy a position of trust and confidence with respect to the affairs and business of the Company and its Affiliates. In view of the foregoing and of the consideration to be provided to the Employee, the Employee agrees that it is reasonable and necessary that the Employee make each of the following covenants: (a) At any time during the Employment Period and thereafter, the Employee shall not disclose Confidential Information to any person or entity, either inside or outside of the Company, other than as necessary in carrying out his duties and responsibilities as set forth in Section 2 hereof, without first obtaining the Company's prior written consent (unless such disclosure is compelled pursuant to court orders or subpoena, and at which time the Employee shall give notice of such proceedings to the Company). (b) At any time during the Employment Period and thereafter, the Employee shall not use, copy or transfer Confidential Information other than as necessary in carrying out his duties and responsibilities as set forth in Section 2 hereof, without first obtaining the Company's prior written consent. (c) On the Date of Termination, the Employee shall promptly deliver to the Company (or its designee) all written materials, records and documents made by the Employee or which came into his possession prior to or during the Employment Period concerning the business or affairs of the Company or its Affiliates, including, without limitation, all materials containing Confidential Information. 9. Disclosure of Information, Ideas, Concepts, Improvements, Discoveries and Inventions. As part of the Employee's fiduciary duties to the Company, the Employee agrees that during his employment by the Company and for a period of three years following the Date of Termination, the Employee shall promptly disclose in writing to the Company all information, ideas, concepts, improvements, discoveries and inventions, whether patentable or not, and whether or not reduced to practice, which are conceived, developed, made or acquired by the Employee, either individually or jointly with others, and which relate to the business, products or services of the Company or its Affiliates, irrespective of whether the Employee used the Company's time or facilities and irrespective of whether such information, idea, concept, improvement, discovery or invention was conceived, developed, discovered or acquired by the Employee on the job, at home, or elsewhere. This obligation extends to all types of information, ideas and concepts, including information, ideas and concepts relating to new types of services, corporate opportunities, acquisition prospects, the identity of key representatives within acquisition prospect organizations, prospective names or service marks for the Company's business activities, and the like. 9 10 10. Ownership of Information, Ideas, Concepts, Improvements, Discoveries and Inventions, and all Original Works of Authorship. 10.1 All information, ideas, concepts, improvements, discoveries and inventions, whether patentable or not, which are conceived, made, developed or acquired by the Employee or which are disclosed or made known to the Employee, individually or in conjunction with others, during the Employee's employment by the Company and which relate to the business, products or services of the Company or its Affiliates (including, without limitation, all such information relating to corporate opportunities, research, financial and sales data, pricing and trading terms, evaluations, opinions, interpretations, acquisition prospects, the identity of customers or their requirements, the identity of key contacts within the customers' organizations or within the organization of acquisition prospects, marketing and merchandising techniques, and prospective names and service marks) are and shall be the sole and exclusive property of the Company. Furthermore, all drawings, memoranda, notes, records, files, correspondence, manuals, models, specifications, computer programs, maps and all other writings or materials of any type embodying any of such information, ideas, concepts, improvements, discoveries and inventions are and shall be the sole and exclusive property of the Company. 10.2 In particular, the Employee hereby specifically sells, assigns, transfers and conveys to the Company all of his worldwide right, title and interest in and to all such information, ideas, concepts, improvements, discoveries or inventions, and any United States or foreign applications for patents, inventor's certificates or other industrial rights which may be filed in respect thereof, including divisions, continuations, continuations-in-part, reissues and/or extensions thereof, and applications for registration of such names and service marks. The Employee shall assist the Company and its nominee at all times, during the Employment Period and thereafter, in the protection of such information, ideas, concepts, improvements, discoveries or inventions, both in the United States and all foreign countries, which assistance shall include, but shall not be limited to, the execution of all lawful oaths and all assignment documents requested by the Company or its nominee in connection with the preparation, prosecution, issuance or enforcement of any applications for United States or foreign letters patent, including divisions, continuations, continuations-in-part, reissues and/or extensions thereof, and any application for the registration of such names and service marks. 10.3 In the event the Employee creates, during the Employment Period, any original work of authorship fixed in any tangible medium of expression which is the subject matter of copyright (such as, videotapes, written presentations on acquisitions, computer programs, drawings, maps, architectural renditions, models, manuals, brochures or the like) relating to the Company's business, products or services, whether such work is created solely by the Employee or jointly with others, the Company shall be deemed the author of such work if the work is prepared by the Employee in the scope of his employment; or, if the work is not prepared by the Employee within the scope of his employment but is specially ordered by the Company as a contribution to a collective work, as a part of a motion picture or other audiovisual work, as a translation, as a supplementary work, as a 10 11 compilation or as an instructional text, then the work shall be considered to be work made for hire, and the Company shall be the author of such work. If such work is neither prepared by the Employee within the scope of his employment nor a work specially ordered and deemed to be a work made for hire, then the Employee hereby agrees to sell, transfer, assign and convey, and by these presents, does sell, transfer, assign and convey, to the Company all of the Employee's worldwide right, title and interest in and to such work and all rights of copyright therein. The Employee agrees to assist the Company and its Affiliates, at all times, during the Employment Period and thereafter, in the protection of the Company's worldwide right, title and interest in and to such work and all rights of copyright therein, which assistance shall include, but shall not be limited to, the execution of all documents requested by the Company or its nominee and the execution of all lawful oaths and applications for registration of copyright in the United States and foreign countries. 11. Employee's Non-Competition Obligation. 11.1 (a) Until the Date of Termination, the Employee shall not, acting alone or in conjunction with others, directly or indirectly, in any of the business territories in which the Company or any of its Affiliates is presently or from time to time during the Employment Period conducting business, invest or engage, directly or indirectly, in any business which is competitive with that of the Company or accept employment with or render services to such a competitor as a director, officer, agent, employee or consultant, or take any action inconsistent with the fiduciary relationship of an employee to his employer; provided, however, that the beneficial ownership by the Employee of up to three percent of the Voting Stock of any corporation subject to the periodic reporting requirements of the Exchange Act shall not violate this Section 11.1(a). (b) In addition to the other obligations agreed to by the Employee in this Agreement, the Employee agrees that until the Date of Termination, he shall not at any time, directly or indirectly, (i) induce, entice or solicit any employee of the Company to leave his employment, (ii) contact, communicate or solicit any customer or acquisition prospect of the Company derived from any customer list, customer lead, mail, printed matter or other information secured from the Company or its present or past employees or (iii) in any other manner use any customer lists or customer leads, mail, telephone numbers, printed material or other information of the Company relating thereto. 11.2 (a) If this Agreement is terminated either by the Company for Cause or by the Employee for any reason, then for a period of one year following the Date of Termination, the Employee shall not, acting alone or in conjunction with others, directly or indirectly, in any of the business territories in which the Company or any of its Affiliates is presently or at the Date of Termination conducting business, invest or engage, directly or indirectly, in any business which is competitive with that of the Company as of the Date of Termination or accept employment with or render services to such a competitor as a director, officer, agent, employee or consultant, or take any action inconsistent with the fiduciary relationship of an employee to his employer; provided, however, that the beneficial ownership by the 11 12 Employee of up to three percent of the Voting Stock of any corporation subject to the periodic reporting requirements of the Exchange Act shall not violate this Section 11.2(a). (b) In addition to the other obligations agreed to by the Employee in this Agreement, the Employee agrees that if this Agreement is terminated either by the Company for Cause or by the Employee for any reason, then for a period of one year following the Date of Termination, he shall not at any time, directly or indirectly, (i) induce, entice or solicit any employee of the Company to leave his employment, (ii) contact, communicate or solicit any customer or acquisition prospect of the Company derived from any customer list, customer lead, mail, printed matter or other information secured from the Company or its present or past employees or (iii) in any other manner use any customer lists or customer leads, mail, telephone numbers, printed material or other information of the Company relating thereto. 11.3 If this Agreement is terminated either by the Company Without Cause, then the Employee shall not be subject to any non-competition obligation. 12. Miscellaneous. 12.1 Notices. All notices and other communications required or permitted hereunder or necessary or convenient in connection herewith shall be in writing and shall be deemed to have been given when delivered by hand or mailed by registered or certified mail, return receipt requested, as follows (provided that notice of change of address shall be deemed given only when received): If to the Company to: 625 E. Kaliste Saloom Road Suite 400 Lafayette, Louisiana 70508 If to the Employee to: 625 E. Kaliste Saloom Road Suite 400 Lafayette, Louisiana 70508 or to such other names or addresses as the Company or the Employee, as the case may be, shall designate by notice to the other party hereto in the manner specified in this Section 12.1. 12.2 Waiver of Breach. The waiver by any party hereto of a breach of any provision of this Agreement shall neither operate nor be construed as a waiver of any subsequent breach by any party. 12 13 12.3 Assignment. This Agreement shall be binding upon and inure to the benefit of the Company, its successors, legal representatives and assigns, and upon the Employee, his heirs, executors, administrators, representatives and assigns; provided, however, the Employee agrees that his rights and obligations hereunder are personal to him and may not be assigned without the express written consent of the Company. 12.4 Entire Agreement; No Oral Amendments. This Agreement, together with any exhibit attached hereto and any document, policy, rule or regulation referred to herein, replaces and merges all previous agreements and discussions relating to the same or similar subject matter between the Employee and the Company and constitutes the entire agreement between the Employee and the Company with respect to the subject matter of this Agreement. This Agreement may not be modified in any respect by any verbal statement, representation or agreement made by any employee, officer, or representative of the Company or by any written agreement unless signed by an officer of the Company who is expressly authorized by the Company to execute such document. 12.5 Enforceability. If any provision of this Agreement or application thereof to anyone or under any circumstances shall be determined to be invalid or unenforceable, such invalidity or unenforceability shall not affect any other provisions or applications of this Agreement which can be given effect without the invalid or unenforceable provision or application. 12.6 Jurisdiction; Arbitration. The laws of the State of Louisiana shall govern the interpretation, validity and effect of this Agreement without regard to the place of execution or the place for performance thereof. Any controversy or claim arising out of or relating to this Agreement, or the breach thereof, shall be settled by arbitration located in Houston, Texas administered by the American Arbitration Association in accordance with its applicable arbitration rules, and the judgment on the award rendered by the arbitrator(s) may be entered in any court having jurisdiction thereof, which judgment shall be binding upon the parties hereto. 12.7 Injunctive Relief. The Company and the Employee agree that a breach of any term of this Agreement by the Employee would cause irreparable damage to the Company and that, in the event of such breach, the Company shall have, in addition to any and all remedies of law, the right to any injunction, specific performance and other equitable relief to prevent or to redress the violation of the Employee's duties or responsibilities hereunder. 13 14 IN WITNESS WHEREOF, the undersigned, intending to be legally bound, have executed this Agreement as of the date first written above. PETROQUEST ENERGY, INC. By: /s/ Alfred J. Thomas, II --------------------------------------- Name: Alfred J. Thomas, II ------------------------------------- Title Chief Operating Officer ------------------------------------- EMPLOYEE: By: /s/ Charles T. Goodson --------------------------------------- Charles T. Goodson 14 EX-10.3 8 EMPLOYMENT AGREEMENT - ALFRED J. THOMAS, II 1 EXHIBIT 10.3 EXECUTIVE EMPLOYMENT AGREEMENT THIS AGREEMENT is made and entered into this 1st day of September, 1998 between PetroQuest Energy, Inc., a Delaware corporation having its principal executive office at 625 E. Kaliste Saloom Road, Suite 400, Lafayette, Louisiana 70508 (hereinafter referred to as the "Company"), and Alfred J. Thomas, II (hereinafter referred to as the "Employee"). W I T N E S S E T H: WHEREAS, the Company desires to employ the Employee in an executive capacity and the Employee desires to enter the Company's employ. NOW, THEREFORE, for and in consideration of the mutual promises, covenants and obligations contained herein, and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the Company and the Employee hereby agree as follows: 1. Certain Definitions. As used in this Agreement, the following terms have the meanings prescribed below: Affiliate is used in this Agreement to define a relationship to a person or entity and means a person or entity who, directly or indirectly through one or more intermediaries, controls, is controlled by, or is under common control with, such person or entity. Annual Bonus shall have the meaning assigned thereto in Section 4.2 hereof. Base Salary shall have the meaning assigned thereto in Section 4.1 hereof. Beneficial Owner shall have the meaning assigned thereto in Rule 13(d)-3 under the Exchange Act; provided, however, and without limitation, that any individual, corporation, partnership, group, association or other person or entity that has the right to acquire any Voting Stock at any time in the future, whether such right is (a) contingent or absolute or (b) exercisable presently or at any time in the future, pursuant to any agreement or understanding or upon the exercise or conversion of rights, options or warrants, or otherwise, shall be the Beneficial Owner of such Voting Stock. Cause shall have the meaning assigned thereto in Section 5.3 hereof. Common Stock means the Company's common stock, par value $.001 per share. Confidential Information shall have the meaning assigned thereto in Section 8.2 hereof. 2 Date of Termination means the earliest to occur of (i) the date of the Employee's death, (ii) the date on which the Employee terminates this Agreement for any reason or (iii) the date of receipt of the Notice of Termination, or such later date as may be prescribed in the Notice of Termination in accordance with Section 5.5 hereof. Disability means an illness or other disability which prevents the Employee from discharging his responsibilities under this Agreement for a period of 180 consecutive calendar days, or an aggregate of 180 calendar days in any calendar year, during the Employment Period, all as determined in good faith by the Board of Directors of the Company (or a committee thereof). Effective Date means the date of execution hereof. Employee means Alfred J. Thomas, II, whose business address is 625 E. Kaliste Saloom Road, Suite 400, Lafayette, Louisiana 70508. Exchange Act means the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated by the Securities and Exchange Commission thereunder, all as in effect from time to time during the Employment Period. Company means PetroQuest Energy, Inc., a Delaware corporation, the principal executive office of which is located at 625 E. Kaliste Saloom Road, Suite 400, Lafayette, Louisiana 70508. Employment Period shall have the meaning assigned thereto in Section 3 hereof. Initial Term shall have the meaning assigned thereto in Section 3 hereof. Notice of Termination shall have the meaning assigned thereto in Section 5.5 hereof. Unexpired Term shall have the meaning assigned thereto in Section 6.3(c) hereof. Voting Stock means all outstanding shares of capital stock of the Company entitled to vote generally in an election of directors; provided, however, that if the Company has shares of Voting Stock entitled to more or less than one vote per share, each reference to a proportion of the issued and outstanding shares of Voting Stock shall be deemed to refer to the proportion of the aggregate votes entitled to be cast by the issued and outstanding shares of Voting Stock. Without Cause shall have the meaning assigned thereto in Section 5.4 hereof. 2. General Duties of Company and Employee. 2.1 The Company agrees to employ the Employee, and the Employee agrees to accept employment by the Company and to serve the Company as Chief Operating Officer, and shall also serve as a director of the Company. The authority, duties and responsibilities of the Employee shall 2 3 include those described in Exhibit A to this Agreement, and such other or additional duties as may from time to time be assigned to the Employee by the Board of Directors (or a committee thereof) and agreed to by the Employee. While employed hereunder, the Employee shall devote full time and attention during normal business hours to the affairs of the Company and use his best efforts to perform faithfully and efficiently his duties and responsibilities. The Employee may (i) serve on corporate, civic or charitable boards or committees, (ii) deliver lectures, fulfill speaking engagements or teach at educational institutions and (iii) manage personal investments, so long as such activities do not significantly interfere with the performance of the Employee's duties and responsibilities. 2.2 The Employee agrees and acknowledges that he owes a fiduciary duty of loyalty, fidelity and allegiance to act at all times in the best interests of the Company and to do no act and to make no statement, oral or written, which would injure Company's business, its interests or its reputation. 2.3 The Employee agrees to comply at all times during the Employment Period with all applicable policies, rules and regulations of the Company, including, without limitation, the Company's Code of Ethics and the Company's policy regarding trading in the Common Stock, as each is in effect from time to time during the Employment Period. 3. Term. Unless sooner terminated pursuant to other provisions hereof, the Employee's period of employment under this Agreement shall be a period of three years beginning on the Effective Date (the "Initial Term"). After the expiration of the Initial Term, the Employee's period of employment under this Agreement shall be automatically renewed for successive one-year terms on each anniversary of the Effective Date (the Initial Term and any and all renewals thereof are referred to herein collectively as the "Employment Period"). 4. Compensation and Benefits. 4.1 Base Salary. As compensation for services to the Company, the Company shall pay to the Employee until the Date of Termination an annual base salary of $210,000 (the "Base Salary"). The Board of Directors (or a committee thereof), in its discretion, may increase the Base Salary based upon relevant circumstances. The Base Salary shall be payable in equal semi-monthly installments or in accordance with the Company's established policy, subject only to such payroll and withholding deductions as may be required by law and other deductions applied generally to employees of the Company for insurance and other employee benefit plans. 4.2 Bonus. In addition to the Base Salary, the Employee may be awarded, for each fiscal year until the Date of Termination, an annual bonus (either pursuant to a bonus or incentive plan or program of the Company or otherwise) in an amount to be determined by the Board of Directors (or a committee thereof), in its sole discretion (the "Annual Bonus"). Each such Annual Bonus shall be payable at a time to be determined by the Board of Directors (or a committee thereof) in its sole discretion. 3 4 4.3 Incentive, Savings and Retirement Plans. Until the Date of Termination, the Employee shall be eligible to participate in and shall receive all benefits under all executive incentive, savings and retirement plans (including 401(k) plans) and programs currently maintained or hereinafter established by the Company for the benefit of its executive officers and/or employees. 4.4 Welfare Benefit Plan. Until the Date of Termination, the Employee and/or the Employee's family, as the case may be, shall be eligible to participate in and shall receive all benefits under each welfare benefit plan of the Company currently maintained or hereinafter established by the Company for the benefit of its employees. Such welfare benefit plans may include, without limitation, medical, dental, disability, group life, accidental death and travel accident insurance plans and programs. 4.5 Reimbursement of Expenses. The Employee may from time to time until the Date of Termination incur various business expenses customarily incurred by persons holding positions of like responsibility, including, without limitation, travel, entertainment and similar expenses incurred for the benefit of the Company, and will receive a Company credit card for use for such expenses. Subject to the Company's policy regarding the reimbursement of such expenses as in effect from time to time during the Employment Period, which does not necessarily allow reimbursement of all such expenses, the Company shall reimburse the Employee for such expenses from time to time, at the Employee's request, and the Employee shall account to the Company for all such expenses. 4.6 Life Insurance. The Company shall provide to the Executive life insurance on terms that are mutually agreeable to the Company and the Executive. 4.7 Relocation. The Company and the Executive agree that if the Executive is asked to relocate from Lafayette, Louisiana to Houston, Texas, the Company will provide to Executive reimbursement for out of pocket moving expenses incurred in connection with such move, and it will also reimburse the Executive for any loss incurred by the Executive on the sale of his personal residence in Lafayette, Louisiana, with such loss being calculated on the basis of the difference between the Executive's actual costs less the net sales price. 5. Termination. 5.1 Death. This Agreement shall terminate automatically upon the death of the Employee. 5.2 Disability. The Company may terminate this Agreement, upon written notice to the Employee delivered in accordance with Sections 5.5 and 12.1 hereof, upon the Disability of the Employee. 5.3 Cause. The Company may terminate this Agreement, upon written notice to the Employee delivered in accordance with Sections 5.5 and 12.1 hereof, for Cause. For purposes of 4 5 this Agreement, "Cause" means (i) the conviction of the Employee of a felony (which, through lapse of time or otherwise, is not subject to appeal), (ii) the Employee's willful refusal, without proper legal cause, to perform his duties and responsibilities as contemplated in this Agreement or (iii) the Employee's willful engaging in activities which would (A) constitute a breach of any term of this Agreement, the Company's Code of Ethics, the Company's policies regarding trading in the Common Stock or reimbursement of business expenses or any other applicable policies, rules or regulations of the Company, or (B) result in a material injury to the business, condition (financial or otherwise), results of operations or prospects of the Company or its Affiliates (as determined in good faith by the Board of Directors of the Company or a committee thereof). 5.4 Without Cause. The Company may terminate this Agreement Without Cause, upon written notice to the Employee delivered in accordance with Sections 5.5 and 12.1 hereof. For purposes of this Agreement, the Employee will be deemed to have been terminated "Without Cause" if the Employee is terminated by the Company for any reason other than Cause, Disability or death. 5.5 Notice of Termination. Any termination of this Agreement by the Company for Cause, Without Cause or as a result of the Employee's Disability shall be communicated by Notice of Termination to the Employee given in accordance with this Agreement. For purposes of this Agreement, a "Notice of Termination" means a written notice which (i) indicates the specific termination provision in this Agreement relied upon, (ii) sets forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Employee's employment under the provision so indicated and (iii) specifies the termination date, if such date is other than the date of receipt of such notice (which termination date shall not be more than 15 days after the giving of such notice). 6. Obligations of Company upon Termination. 6.1 Cause by Employee. If this Agreement shall be terminated either by the Company for Cause or by the Employee for any reason, the Company shall pay to the Employee, in a lump sum in cash within 30 days after the Date of Termination, the aggregate of the Employee's Base Salary (as in effect on the Date of Termination) through the Date of Termination, if not theretofore paid, and, in the case of compensation previously deferred by the Employee, all amounts of such compensation previously deferred and not yet paid by the Company. All other obligations of the Company and rights of the Employee hereunder shall terminate effective as of the Date of Termination. 6.2 Death or Disability. (a) Subject to the provisions of this Section 6.2, if this Agreement is terminated as a result of the Employee's death or Disability, the Company shall pay to the Employee or his estate, in equal semi-monthly installments, the Employee's Base Salary (as in effect on the Date of Termination) for 12 months after such Date of Termination. The Company may purchase insurance to cover all or any part of the obligation contemplated in the foregoing 5 6 sentence, and the Employee agrees to submit to a physical examination to facilitate the procurement of such insurance. (b) Whenever compensation is payable to the Employee hereunder during a period in which he is partially or totally disabled, and such Disability would (except for the provisions hereof) entitle the Employee to Disability income or salary continuation payments from the Company according to the terms of any plan or program presently maintained or hereafter established by the Company, the Disability income or salary continuation paid to the Employee pursuant to any such plan or program shall be considered a portion of the payment to be made to the Employee pursuant to this Section 6.2 and shall not be in addition hereto. If Disability income is payable directly to the Employee by an insurance company under the terms of an insurance policy paid for by the Company, the amounts paid to the Employee by such insurance company shall be considered a portion of the payment to be made to the Employee pursuant to this Section 6.2 and shall not be in addition hereto. 6.3 Without Cause. If this Agreement shall be terminated by the Company Without Cause: (a) the Company shall pay to the Employee, in a lump sum in cash within 30 days after the Date of Termination, the aggregate of the following amounts: (1) if not theretofore paid, the Employee's Base Salary (as in effect on the Date of Termination) through the Date of Termination; and (2) in the case of compensation previously deferred by the Employee, all amounts of such compensation previously deferred and not yet paid by the Company; (b) the Company shall, promptly upon submission by the Employee of supporting documentation, pay or reimburse to the Employee any costs and expenses (including moving and relocation expenses) paid or incurred by the Employee which would have been payable under Section 4.5 of this Agreement if the Employee's employment had not terminated; and (c) for the 12-month period commencing on the Date of Termination, the Company shall continue benefits to the Employee and/or the Employee's family at least equal to those which would have been provided to them under Section 4.4 if the Employee's employment had not been terminated; and (d) the Company shall pay to the Employee, in equal semi-monthly installments, the Employee's Base Salary (as in effect on the Date of Termination) for 12 months after the Date of Termination. 6 7 7. Employee's Obligation to Avoid Conflicts of Interest. 7.1 In keeping with the Employee's fiduciary duties to the Company, the Employee agrees that he shall not knowingly become involved in a conflict of interest with the Company, or upon discovery thereof, allow such a conflict to continue. The Employee further agrees to disclose to the Company, promptly after discovery, any facts or circumstances which might involve a conflict of interest with the Company. 7.2 The Company and the Employee recognize that it is impossible to provide an exhaustive list of actions or interests which constitute a "conflict of interest." Moreover, the Company and the Employee recognize that there are many borderline situations. In some instances, full disclosure of facts by the Employee to the Company is all that is necessary to enable the Company to protect its interests. In others, if no improper motivation appears to exist and the Company's interests have not suffered, prompt elimination of the outside interest will suffice. In still others, it may be necessary for the Company to terminate the employment relationship. The Company and the Employee agree that the Company's determination as to whether or not a conflict of interest exists shall be conclusive. The Company reserves the right to take such action as, in its judgment, will end the conflict of interest. 7.3 In this connection, it is agreed that any direct or indirect interest in, connection with or benefit from any outside activities, particularly commercial activities, which interest might in any way adversely affect the Company or its Affiliates, involves a possible conflict of interest. Circumstances in which a conflict of interest on the part of the Employee would or might arise, and which should be reported immediately to the Company, include, but are not limited to, the following: (a) Ownership of a material interest in any lender, supplier, contractor, subcontractor, customer or other entity with which the Company does business. (b) Acting in any capacity, including director, officer, partner, consultant, employee, distributor, agent or the like, for any lender, supplier, contractor, subcontractor, customer or other entity with which the Company does business. (c) Acceptance, directly or indirectly, of payments, services or loans from a lender, supplier, contractor, subcontractor, customer or other entity with which the Company does business, including, without limitation, gifts, trips, entertainment or other favors of more than a nominal value, but excluding loans from publicly held insurance companies and commercial or savings banks at market rates of interest. (d) Use of information or facilities to which the Employee has access in a manner which will be detrimental to the Company's interests, such as use for the Employee's own benefit of know-how or information developed through the Company's business activities. 7 8 (e) Disclosure or other misuse of information of any kind obtained through the Employee's connection with the Company. (f) Acquiring or trading in, directly or indirectly, oil and gas properties or interests for his own account or the account of his Affiliates without the prior written consent of the Board of Directors. 8. Employee's Confidentiality Obligation. 8.1 The Employee hereby acknowledges, understands and agrees that all Confidential Information is the exclusive and confidential property of the Company and its Affiliates which shall at all times be regarded, treated and protected as such in accordance with this Section 8. The Employee acknowledges that all such Confidential Information is in the nature of a trade secret. 8.2 For purposes of this Agreement, "Confidential Information" means information, which is used in the business of the Company or its Affiliates and (i) is proprietary to, about or created by the Company or its Affiliates, (ii) gives the Company or its Affiliates some competitive business advantage or the opportunity of obtaining such advantage or the disclosure of which could be detrimental to the interests of the Company or its Affiliates, (iii) is designated as Confidential Information by the Company or its Affiliates, is known by the Employee to be considered confidential by the Company or its Affiliates, or from all the relevant circumstances should reasonably be assumed by the Employee to be confidential and proprietary to the Company or its Affiliates, or (iv) is not generally known by non-Company personnel. Such Confidential Information includes, without limitation, the following types of information and other information of a similar nature (whether or not reduced to writing or designated as confidential): (a) Internal personnel and financial information of the Company or its Affiliates, information regarding oil and gas properties including reserve information, vendor information (including vendor characteristics, services, prices, lists and agreements), purchasing and internal cost information, internal service and operational manuals, and the manner and methods of conducting the business of the Company or its Affiliates; (b) Marketing and development plans, price and cost data, price and fee amounts, pricing and billing policies, bidding, quoting procedures, marketing techniques, forecasts and forecast assumptions and volumes, and future plans and potential strategies (including, without limitation, all information relating to any oil and gas prospect and the identity of any key contact within the organization of any acquisition prospect) of the Company or its Affiliates which have been or are being discussed; (c) Names of customers and their representatives, contracts (including their contents and parties), customer services, and the type, quantity, specifications and content of products and services purchased, leased, licensed or received by customers of the Company or its Affiliates; and 8 9 (d) Confidential and proprietary information provided to the Company or its Affiliates by any actual or potential customer, government agency or other third party (including businesses, consultants and other entities and individuals). 8.3 As a consequence of the Employee's acquisition or anticipated acquisition of Confidential Information, the Employee shall occupy a position of trust and confidence with respect to the affairs and business of the Company and its Affiliates. In view of the foregoing and of the consideration to be provided to the Employee, the Employee agrees that it is reasonable and necessary that the Employee make each of the following covenants: (a) At any time during the Employment Period and thereafter, the Employee shall not disclose Confidential Information to any person or entity, either inside or outside of the Company, other than as necessary in carrying out his duties and responsibilities as set forth in Section 2 hereof, without first obtaining the Company's prior written consent (unless such disclosure is compelled pursuant to court orders or subpoena, and at which time the Employee shall give notice of such proceedings to the Company). (b) At any time during the Employment Period and thereafter, the Employee shall not use, copy or transfer Confidential Information other than as necessary in carrying out his duties and responsibilities as set forth in Section 2 hereof, without first obtaining the Company's prior written consent. (c) On the Date of Termination, the Employee shall promptly deliver to the Company (or its designee) all written materials, records and documents made by the Employee or which came into his possession prior to or during the Employment Period concerning the business or affairs of the Company or its Affiliates, including, without limitation, all materials containing Confidential Information. 9. Disclosure of Information, Ideas, Concepts, Improvements, Discoveries and Inventions. As part of the Employee's fiduciary duties to the Company, the Employee agrees that during his employment by the Company and for a period of three years following the Date of Termination, the Employee shall promptly disclose in writing to the Company all information, ideas, concepts, improvements, discoveries and inventions, whether patentable or not, and whether or not reduced to practice, which are conceived, developed, made or acquired by the Employee, either individually or jointly with others, and which relate to the business, products or services of the Company or its Affiliates, irrespective of whether the Employee used the Company's time or facilities and irrespective of whether such information, idea, concept, improvement, discovery or invention was conceived, developed, discovered or acquired by the Employee on the job, at home, or elsewhere. This obligation extends to all types of information, ideas and concepts, including information, ideas and concepts relating to new types of services, corporate opportunities, acquisition prospects, the identity of key representatives within acquisition prospect organizations, prospective names or service marks for the Company's business activities, and the like. 9 10 10. Ownership of Information, Ideas, Concepts, Improvements, Discoveries and Inventions, and all Original Works of Authorship. 10.1 All information, ideas, concepts, improvements, discoveries and inventions, whether patentable or not, which are conceived, made, developed or acquired by the Employee or which are disclosed or made known to the Employee, individually or in conjunction with others, during the Employee's employment by the Company and which relate to the business, products or services of the Company or its Affiliates (including, without limitation, all such information relating to corporate opportunities, research, financial and sales data, pricing and trading terms, evaluations, opinions, interpretations, acquisition prospects, the identity of customers or their requirements, the identity of key contacts within the customers' organizations or within the organization of acquisition prospects, marketing and merchandising techniques, and prospective names and service marks) are and shall be the sole and exclusive property of the Company. Furthermore, all drawings, memoranda, notes, records, files, correspondence, manuals, models, specifications, computer programs, maps and all other writings or materials of any type embodying any of such information, ideas, concepts, improvements, discoveries and inventions are and shall be the sole and exclusive property of the Company. 10.2 In particular, the Employee hereby specifically sells, assigns, transfers and conveys to the Company all of his worldwide right, title and interest in and to all such information, ideas, concepts, improvements, discoveries or inventions, and any United States or foreign applications for patents, inventor's certificates or other industrial rights which may be filed in respect thereof, including divisions, continuations, continuations-in-part, reissues and/or extensions thereof, and applications for registration of such names and service marks. The Employee shall assist the Company and its nominee at all times, during the Employment Period and thereafter, in the protection of such information, ideas, concepts, improvements, discoveries or inventions, both in the United States and all foreign countries, which assistance shall include, but shall not be limited to, the execution of all lawful oaths and all assignment documents requested by the Company or its nominee in connection with the preparation, prosecution, issuance or enforcement of any applications for United States or foreign letters patent, including divisions, continuations, continuations-in-part, reissues and/or extensions thereof, and any application for the registration of such names and service marks. 10.3 In the event the Employee creates, during the Employment Period, any original work of authorship fixed in any tangible medium of expression which is the subject matter of copyright (such as, videotapes, written presentations on acquisitions, computer programs, drawings, maps, architectural renditions, models, manuals, brochures or the like) relating to the Company's business, products or services, whether such work is created solely by the Employee or jointly with others, the Company shall be deemed the author of such work if the work is prepared by the Employee in the scope of his employment; or, if the work is not prepared by the Employee within the scope of his employment but is specially ordered by the Company as a contribution to a collective work, as a part of a motion picture or other audiovisual work, as a translation, as a supplementary work, as a 10 11 compilation or as an instructional text, then the work shall be considered to be work made for hire, and the Company shall be the author of such work. If such work is neither prepared by the Employee within the scope of his employment nor a work specially ordered and deemed to be a work made for hire, then the Employee hereby agrees to sell, transfer, assign and convey, and by these presents, does sell, transfer, assign and convey, to the Company all of the Employee's worldwide right, title and interest in and to such work and all rights of copyright therein. The Employee agrees to assist the Company and its Affiliates, at all times, during the Employment Period and thereafter, in the protection of the Company's worldwide right, title and interest in and to such work and all rights of copyright therein, which assistance shall include, but shall not be limited to, the execution of all documents requested by the Company or its nominee and the execution of all lawful oaths and applications for registration of copyright in the United States and foreign countries. 11. Employee's Non-Competition Obligation. 11.1 (a) Until the Date of Termination, the Employee shall not, acting alone or in conjunction with others, directly or indirectly, in any of the business territories in which the Company or any of its Affiliates is presently or from time to time during the Employment Period conducting business, invest or engage, directly or indirectly, in any business which is competitive with that of the Company or accept employment with or render services to such a competitor as a director, officer, agent, employee or consultant, or take any action inconsistent with the fiduciary relationship of an employee to his employer; provided, however, that the beneficial ownership by the Employee of up to three percent of the Voting Stock of any corporation subject to the periodic reporting requirements of the Exchange Act shall not violate this Section 11.1(a). (b) In addition to the other obligations agreed to by the Employee in this Agreement, the Employee agrees that until the Date of Termination, he shall not at any time, directly or indirectly, (i) induce, entice or solicit any employee of the Company to leave his employment, (ii) contact, communicate or solicit any customer or acquisition prospect of the Company derived from any customer list, customer lead, mail, printed matter or other information secured from the Company or its present or past employees or (iii) in any other manner use any customer lists or customer leads, mail, telephone numbers, printed material or other information of the Company relating thereto. 11.2 (a) If this Agreement is terminated either by the Company for Cause or by the Employee for any reason, then for a period of one year following the Date of Termination, the Employee shall not, acting alone or in conjunction with others, directly or indirectly, in any of the business territories in which the Company or any of its Affiliates is presently or at the Date of Termination conducting business, invest or engage, directly or indirectly, in any business which is competitive with that of the Company as of the Date of Termination or accept employment with or render services to such a competitor as a director, officer, agent, employee or consultant, or take any action inconsistent with the fiduciary relationship of an employee to his employer; provided, however, that the beneficial ownership by the 11 12 Employee of up to three percent of the Voting Stock of any corporation subject to the periodic reporting requirements of the Exchange Act shall not violate this Section 11.2(a). (b) In addition to the other obligations agreed to by the Employee in this Agreement, the Employee agrees that if this Agreement is terminated either by the Company for Cause or by the Employee for any reason, then for a period of one year following the Date of Termination, he shall not at any time, directly or indirectly, (i) induce, entice or solicit any employee of the Company to leave his employment, (ii) contact, communicate or solicit any customer or acquisition prospect of the Company derived from any customer list, customer lead, mail, printed matter or other information secured from the Company or its present or past employees or (iii) in any other manner use any customer lists or customer leads, mail, telephone numbers, printed material or other information of the Company relating thereto. 11.3 If this Agreement is terminated either by the Company Without Cause, then the Employee shall not be subject to any non-competition obligation. 12. Miscellaneous. 12.1 Notices. All notices and other communications required or permitted hereunder or necessary or convenient in connection herewith shall be in writing and shall be deemed to have been given when delivered by hand or mailed by registered or certified mail, return receipt requested, as follows (provided that notice of change of address shall be deemed given only when received): If to the Company to: 625 E. Kaliste Saloom Road Suite 400 Lafayette, Louisiana 70508 If to the Employee to: 625 E. Kaliste Saloom Road Suite 400 Lafayette, Louisiana 70508 or to such other names or addresses as the Company or the Employee, as the case may be, shall designate by notice to the other party hereto in the manner specified in this Section 12.1. 12.2 Waiver of Breach. The waiver by any party hereto of a breach of any provision of this Agreement shall neither operate nor be construed as a waiver of any subsequent breach by any party. 12 13 12.3 Assignment. This Agreement shall be binding upon and inure to the benefit of the Company, its successors, legal representatives and assigns, and upon the Employee, his heirs, executors, administrators, representatives and assigns; provided, however, the Employee agrees that his rights and obligations hereunder are personal to him and may not be assigned without the express written consent of the Company. 12.4 Entire Agreement; No Oral Amendments. This Agreement, together with any exhibit attached hereto and any document, policy, rule or regulation referred to herein, replaces and merges all previous agreements and discussions relating to the same or similar subject matter between the Employee and the Company and constitutes the entire agreement between the Employee and the Company with respect to the subject matter of this Agreement. This Agreement may not be modified in any respect by any verbal statement, representation or agreement made by any employee, officer, or representative of the Company or by any written agreement unless signed by an officer of the Company who is expressly authorized by the Company to execute such document. 12.5 Enforceability. If any provision of this Agreement or application thereof to anyone or under any circumstances shall be determined to be invalid or unenforceable, such invalidity or unenforceability shall not affect any other provisions or applications of this Agreement which can be given effect without the invalid or unenforceable provision or application. 12.6 Jurisdiction; Arbitration. The laws of the State of Louisiana shall govern the interpretation, validity and effect of this Agreement without regard to the place of execution or the place for performance thereof. Any controversy or claim arising out of or relating to this Agreement, or the breach thereof, shall be settled by arbitration located in Houston, Texas administered by the American Arbitration Association in accordance with its applicable arbitration rules, and the judgment on the award rendered by the arbitrator(s) may be entered in any court having jurisdiction thereof, which judgment shall be binding upon the parties hereto. 12.7 Injunctive Relief. The Company and the Employee agree that a breach of any term of this Agreement by the Employee would cause irreparable damage to the Company and that, in the event of such breach, the Company shall have, in addition to any and all remedies of law, the right to any injunction, specific performance and other equitable relief to prevent or to redress the violation of the Employee's duties or responsibilities hereunder. 13 14 IN WITNESS WHEREOF, the undersigned, intending to be legally bound, have executed this Agreement as of the date first written above. PETROQUEST ENERGY, INC. By: /s/ Charles T. Goodson --------------------------------------- Name: Charles T. Goodson ------------------------------------- Title President & Chief Executive Officer ------------------------------------- EMPLOYEE: By: /s/ Alfred J. Thomas, II --------------------------------------- Alfred J. Thomas, II 14 EX-10.4 9 EMPLOYMENT AGREEMENT - RALPH J. DAIGLE 1 EXHIBIT 10.4 EXECUTIVE EMPLOYMENT AGREEMENT THIS AGREEMENT is made and entered into this 1st day of September, 1998 between PetroQuest Energy, Inc., a Delaware corporation having its principal executive office at 625 E. Kaliste Saloom Road, Suite 400, Lafayette, Louisiana 70508 (hereinafter referred to as the "Company"), and Ralph J. Daigle (hereinafter referred to as the "Employee"). W I T N E S S E T H: WHEREAS, the Company desires to employ the Employee in an executive capacity and the Employee desires to enter the Company's employ. NOW, THEREFORE, for and in consideration of the mutual promises, covenants and obligations contained herein, and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the Company and the Employee hereby agree as follows: 1. Certain Definitions. As used in this Agreement, the following terms have the meanings prescribed below: Affiliate is used in this Agreement to define a relationship to a person or entity and means a person or entity who, directly or indirectly through one or more intermediaries, controls, is controlled by, or is under common control with, such person or entity. Annual Bonus shall have the meaning assigned thereto in Section 4.2 hereof. Base Salary shall have the meaning assigned thereto in Section 4.1 hereof. Beneficial Owner shall have the meaning assigned thereto in Rule 13(d)-3 under the Exchange Act; provided, however, and without limitation, that any individual, corporation, partnership, group, association or other person or entity that has the right to acquire any Voting Stock at any time in the future, whether such right is (a) contingent or absolute or (b) exercisable presently or at any time in the future, pursuant to any agreement or understanding or upon the exercise or conversion of rights, options or warrants, or otherwise, shall be the Beneficial Owner of such Voting Stock. Cause shall have the meaning assigned thereto in Section 5.3 hereof. Common Stock means the Company's common stock, par value $.001 per share. Confidential Information shall have the meaning assigned thereto in Section 8.2 hereof. 2 Date of Termination means the earliest to occur of (i) the date of the Employee's death, (ii) the date on which the Employee terminates this Agreement for any reason or (iii) the date of receipt of the Notice of Termination, or such later date as may be prescribed in the Notice of Termination in accordance with Section 5.5 hereof. Disability means an illness or other disability which prevents the Employee from discharging his responsibilities under this Agreement for a period of 180 consecutive calendar days, or an aggregate of 180 calendar days in any calendar year, during the Employment Period, all as determined in good faith by the Board of Directors of the Company (or a committee thereof). Effective Date means the date of execution hereof. Employee means Ralph J. Daigle, whose business address is 625 E. Kaliste Saloom Road, Suite 400, Lafayette, Louisiana 70508. Exchange Act means the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated by the Securities and Exchange Commission thereunder, all as in effect from time to time during the Employment Period. Company means PetroQuest Energy, Inc., a Delaware corporation, the principal executive office of which is located at 625 E. Kaliste Saloom Road, Suite 400, Lafayette, Louisiana 70508. Employment Period shall have the meaning assigned thereto in Section 3 hereof. Initial Term shall have the meaning assigned thereto in Section 3 hereof. Notice of Termination shall have the meaning assigned thereto in Section 5.5 hereof. Unexpired Term shall have the meaning assigned thereto in Section 6.3(c) hereof. Voting Stock means all outstanding shares of capital stock of the Company entitled to vote generally in an election of directors; provided, however, that if the Company has shares of Voting Stock entitled to more or less than one vote per share, each reference to a proportion of the issued and outstanding shares of Voting Stock shall be deemed to refer to the proportion of the aggregate votes entitled to be cast by the issued and outstanding shares of Voting Stock. Without Cause shall have the meaning assigned thereto in Section 5.4 hereof. 2. General Duties of Company and Employee. 2.1 The Company agrees to employ the Employee, and the Employee agrees to accept employment by the Company and to serve the Company as Senior Vice President - Exploration, and shall also serve as a director of the Company. The authority, duties and responsibilities of the 2 3 Employee shall include those described in Exhibit A to this Agreement, and such other or additional duties as may from time to time be assigned to the Employee by the Board of Directors (or a committee thereof) and agreed to by the Employee. While employed hereunder, the Employee shall devote full time and attention during normal business hours to the affairs of the Company and use his best efforts to perform faithfully and efficiently his duties and responsibilities. The Employee may (i) serve on corporate, civic or charitable boards or committees, (ii) deliver lectures, fulfill speaking engagements or teach at educational institutions and (iii) manage personal investments, so long as such activities do not significantly interfere with the performance of the Employee's duties and responsibilities. 2.2 The Employee agrees and acknowledges that he owes a fiduciary duty of loyalty, fidelity and allegiance to act at all times in the best interests of the Company and to do no act and to make no statement, oral or written, which would injure Company's business, its interests or its reputation. 2.3 The Employee agrees to comply at all times during the Employment Period with all applicable policies, rules and regulations of the Company, including, without limitation, the Company's Code of Ethics and the Company's policy regarding trading in the Common Stock, as each is in effect from time to time during the Employment Period. 3. Term. Unless sooner terminated pursuant to other provisions hereof, the Employee's period of employment under this Agreement shall be a period of three years beginning on the Effective Date (the "Initial Term"). After the expiration of the Initial Term, the Employee's period of employment under this Agreement shall be automatically renewed for successive one-year terms on each anniversary of the Effective Date (the Initial Term and any and all renewals thereof are referred to herein collectively as the "Employment Period"). 4. Compensation and Benefits. 4.1 Base Salary. As compensation for services to the Company, the Company shall pay to the Employee until the Date of Termination an annual base salary of $180,000 (the "Base Salary"). The Board of Directors (or a committee thereof), in its discretion, may increase the Base Salary based upon relevant circumstances. The Base Salary shall be payable in equal semi-monthly installments or in accordance with the Company's established policy, subject only to such payroll and withholding deductions as may be required by law and other deductions applied generally to employees of the Company for insurance and other employee benefit plans. 4.2 Bonus. In addition to the Base Salary, the Employee may be awarded, for each fiscal year until the Date of Termination, an annual bonus (either pursuant to a bonus or incentive plan or program of the Company or otherwise) in an amount to be determined by the Board of Directors (or a committee thereof), in its sole discretion (the "Annual Bonus"). Each such Annual Bonus shall be payable at a time to be determined by the Board of Directors (or a committee thereof) in its sole discretion. 3 4 4.3 Incentive, Savings and Retirement Plans. Until the Date of Termination, the Employee shall be eligible to participate in and shall receive all benefits under all executive incentive, savings and retirement plans (including 401(k) plans) and programs currently maintained or hereinafter established by the Company for the benefit of its executive officers and/or employees. 4.4 Welfare Benefit Plan. Until the Date of Termination, the Employee and/or the Employee's family, as the case may be, shall be eligible to participate in and shall receive all benefits under each welfare benefit plan of the Company currently maintained or hereinafter established by the Company for the benefit of its employees. Such welfare benefit plans may include, without limitation, medical, dental, disability, group life, accidental death and travel accident insurance plans and programs. 4.5 Reimbursement of Expenses. The Employee may from time to time until the Date of Termination incur various business expenses customarily incurred by persons holding positions of like responsibility, including, without limitation, travel, entertainment and similar expenses incurred for the benefit of the Company, and will receive a Company credit card for use for such expenses. Subject to the Company's policy regarding the reimbursement of such expenses as in effect from time to time during the Employment Period, which does not necessarily allow reimbursement of all such expenses, the Company shall reimburse the Employee for such expenses from time to time, at the Employee's request, and the Employee shall account to the Company for all such expenses. 4.6 Life Insurance. The Company shall provide to the Executive life insurance on terms that are mutually agreeable to the Company and the Executive. 4.7 Relocation. The Company and the Executive agree that if the Executive is asked to relocate from Lafayette, Louisiana to Houston, Texas, the Company will provide to Executive reimbursement for out of pocket moving expenses incurred in connection with such move, and it will also reimburse the Executive for any loss incurred by the Executive on the sale of his personal residence in Lafayette, Louisiana, with such loss being calculated on the basis of the difference between the Executive's actual costs less the net sales price. 5. Termination. 5.1 Death. This Agreement shall terminate automatically upon the death of the Employee. 5.2 Disability. The Company may terminate this Agreement, upon written notice to the Employee delivered in accordance with Sections 5.5 and 12.1 hereof, upon the Disability of the Employee. 5.3 Cause. The Company may terminate this Agreement, upon written notice to the Employee delivered in accordance with Sections 5.5 and 12.1 hereof, for Cause. For purposes of 4 5 this Agreement, "Cause" means (i) the conviction of the Employee of a felony (which, through lapse of time or otherwise, is not subject to appeal), (ii) the Employee's willful refusal, without proper legal cause, to perform his duties and responsibilities as contemplated in this Agreement or (iii) the Employee's willful engaging in activities which would (A) constitute a breach of any term of this Agreement, the Company's Code of Ethics, the Company's policies regarding trading in the Common Stock or reimbursement of business expenses or any other applicable policies, rules or regulations of the Company, or (B) result in a material injury to the business, condition (financial or otherwise), results of operations or prospects of the Company or its Affiliates (as determined in good faith by the Board of Directors of the Company or a committee thereof). 5.4 Without Cause. The Company may terminate this Agreement Without Cause, upon written notice to the Employee delivered in accordance with Sections 5.5 and 12.1 hereof. For purposes of this Agreement, the Employee will be deemed to have been terminated "Without Cause" if the Employee is terminated by the Company for any reason other than Cause, Disability or death. 5.5 Notice of Termination. Any termination of this Agreement by the Company for Cause, Without Cause or as a result of the Employee's Disability shall be communicated by Notice of Termination to the Employee given in accordance with this Agreement. For purposes of this Agreement, a "Notice of Termination" means a written notice which (i) indicates the specific termination provision in this Agreement relied upon, (ii) sets forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Employee's employment under the provision so indicated and (iii) specifies the termination date, if such date is other than the date of receipt of such notice (which termination date shall not be more than 15 days after the giving of such notice). 6. Obligations of Company upon Termination. 6.1 Cause by Employee. If this Agreement shall be terminated either by the Company for Cause or by the Employee for any reason, the Company shall pay to the Employee, in a lump sum in cash within 30 days after the Date of Termination, the aggregate of the Employee's Base Salary (as in effect on the Date of Termination) through the Date of Termination, if not theretofore paid, and, in the case of compensation previously deferred by the Employee, all amounts of such compensation previously deferred and not yet paid by the Company. All other obligations of the Company and rights of the Employee hereunder shall terminate effective as of the Date of Termination. 6.2 Death or Disability. (a) Subject to the provisions of this Section 6.2, if this Agreement is terminated as a result of the Employee's death or Disability, the Company shall pay to the Employee or his estate, in equal semi-monthly installments, the Employee's Base Salary (as in effect on the Date of Termination) for 12 months after such Date of Termination. The Company may purchase insurance to cover all or any part of the obligation contemplated in the foregoing 5 6 sentence, and the Employee agrees to submit to a physical examination to facilitate the procurement of such insurance. (b) Whenever compensation is payable to the Employee hereunder during a period in which he is partially or totally disabled, and such Disability would (except for the provisions hereof) entitle the Employee to Disability income or salary continuation payments from the Company according to the terms of any plan or program presently maintained or hereafter established by the Company, the Disability income or salary continuation paid to the Employee pursuant to any such plan or program shall be considered a portion of the payment to be made to the Employee pursuant to this Section 6.2 and shall not be in addition hereto. If Disability income is payable directly to the Employee by an insurance company under the terms of an insurance policy paid for by the Company, the amounts paid to the Employee by such insurance company shall be considered a portion of the payment to be made to the Employee pursuant to this Section 6.2 and shall not be in addition hereto. 6.3 Without Cause. If this Agreement shall be terminated by the Company Without Cause: (a) the Company shall pay to the Employee, in a lump sum in cash within 30 days after the Date of Termination, the aggregate of the following amounts: (1) if not theretofore paid, the Employee's Base Salary (as in effect on the Date of Termination) through the Date of Termination; and (2) in the case of compensation previously deferred by the Employee, all amounts of such compensation previously deferred and not yet paid by the Company; (b) the Company shall, promptly upon submission by the Employee of supporting documentation, pay or reimburse to the Employee any costs and expenses (including moving and relocation expenses) paid or incurred by the Employee which would have been payable under Section 4.5 of this Agreement if the Employee's employment had not terminated; and (c) for the 12-month period commencing on the Date of Termination, the Company shall continue benefits to the Employee and/or the Employee's family at least equal to those which would have been provided to them under Section 4.4 if the Employee's employment had not been terminated; and (d) the Company shall pay to the Employee, in equal semi-monthly installments, the Employee's Base Salary (as in effect on the Date of Termination) for 12 months after the Date of Termination. 6 7 7. Employee's Obligation to Avoid Conflicts of Interest. 7.1 In keeping with the Employee's fiduciary duties to the Company, the Employee agrees that he shall not knowingly become involved in a conflict of interest with the Company, or upon discovery thereof, allow such a conflict to continue. The Employee further agrees to disclose to the Company, promptly after discovery, any facts or circumstances which might involve a conflict of interest with the Company. 7.2 The Company and the Employee recognize that it is impossible to provide an exhaustive list of actions or interests which constitute a "conflict of interest." Moreover, the Company and the Employee recognize that there are many borderline situations. In some instances, full disclosure of facts by the Employee to the Company is all that is necessary to enable the Company to protect its interests. In others, if no improper motivation appears to exist and the Company's interests have not suffered, prompt elimination of the outside interest will suffice. In still others, it may be necessary for the Company to terminate the employment relationship. The Company and the Employee agree that the Company's determination as to whether or not a conflict of interest exists shall be conclusive. The Company reserves the right to take such action as, in its judgment, will end the conflict of interest. 7.3 In this connection, it is agreed that any direct or indirect interest in, connection with or benefit from any outside activities, particularly commercial activities, which interest might in any way adversely affect the Company or its Affiliates, involves a possible conflict of interest. Circumstances in which a conflict of interest on the part of the Employee would or might arise, and which should be reported immediately to the Company, include, but are not limited to, the following: (a) Ownership of a material interest in any lender, supplier, contractor, subcontractor, customer or other entity with which the Company does business. (b) Acting in any capacity, including director, officer, partner, consultant, employee, distributor, agent or the like, for any lender, supplier, contractor, subcontractor, customer or other entity with which the Company does business. (c) Acceptance, directly or indirectly, of payments, services or loans from a lender, supplier, contractor, subcontractor, customer or other entity with which the Company does business, including, without limitation, gifts, trips, entertainment or other favors of more than a nominal value, but excluding loans from publicly held insurance companies and commercial or savings banks at market rates of interest. (d) Use of information or facilities to which the Employee has access in a manner which will be detrimental to the Company's interests, such as use for the Employee's own benefit of know-how or information developed through the Company's business activities. 7 8 (e) Disclosure or other misuse of information of any kind obtained through the Employee's connection with the Company. (f) Acquiring or trading in, directly or indirectly, oil and gas properties or interests for his own account or the account of his Affiliates without the prior written consent of the Board of Directors. 8. Employee's Confidentiality Obligation. 8.1 The Employee hereby acknowledges, understands and agrees that all Confidential Information is the exclusive and confidential property of the Company and its Affiliates which shall at all times be regarded, treated and protected as such in accordance with this Section 8. The Employee acknowledges that all such Confidential Information is in the nature of a trade secret. 8.2 For purposes of this Agreement, "Confidential Information" means information, which is used in the business of the Company or its Affiliates and (i) is proprietary to, about or created by the Company or its Affiliates, (ii) gives the Company or its Affiliates some competitive business advantage or the opportunity of obtaining such advantage or the disclosure of which could be detrimental to the interests of the Company or its Affiliates, (iii) is designated as Confidential Information by the Company or its Affiliates, is known by the Employee to be considered confidential by the Company or its Affiliates, or from all the relevant circumstances should reasonably be assumed by the Employee to be confidential and proprietary to the Company or its Affiliates, or (iv) is not generally known by non- Company personnel. Such Confidential Information includes, without limitation, the following types of information and other information of a similar nature (whether or not reduced to writing or designated as confidential): (a) Internal personnel and financial information of the Company or its Affiliates, information regarding oil and gas properties including reserve information, vendor information (including vendor characteristics, services, prices, lists and agreements), purchasing and internal cost information, internal service and operational manuals, and the manner and methods of conducting the business of the Company or its Affiliates; (b) Marketing and development plans, price and cost data, price and fee amounts, pricing and billing policies, bidding, quoting procedures, marketing techniques, forecasts and forecast assumptions and volumes, and future plans and potential strategies (including, without limitation, all information relating to any oil and gas prospect and the identity of any key contact within the organization of any acquisition prospect) of the Company or its Affiliates which have been or are being discussed; (c) Names of customers and their representatives, contracts (including their contents and parties), customer services, and the type, quantity, specifications and content of products and services purchased, leased, licensed or received by customers of the Company or its Affiliates; and 8 9 (d) Confidential and proprietary information provided to the Company or its Affiliates by any actual or potential customer, government agency or other third party (including businesses, consultants and other entities and individuals). 8.3 As a consequence of the Employee's acquisition or anticipated acquisition of Confidential Information, the Employee shall occupy a position of trust and confidence with respect to the affairs and business of the Company and its Affiliates. In view of the foregoing and of the consideration to be provided to the Employee, the Employee agrees that it is reasonable and necessary that the Employee make each of the following covenants: (a) At any time during the Employment Period and thereafter, the Employee shall not disclose Confidential Information to any person or entity, either inside or outside of the Company, other than as necessary in carrying out his duties and responsibilities as set forth in Section 2 hereof, without first obtaining the Company's prior written consent (unless such disclosure is compelled pursuant to court orders or subpoena, and at which time the Employee shall give notice of such proceedings to the Company). (b) At any time during the Employment Period and thereafter, the Employee shall not use, copy or transfer Confidential Information other than as necessary in carrying out his duties and responsibilities as set forth in Section 2 hereof, without first obtaining the Company's prior written consent. (c) On the Date of Termination, the Employee shall promptly deliver to the Company (or its designee) all written materials, records and documents made by the Employee or which came into his possession prior to or during the Employment Period concerning the business or affairs of the Company or its Affiliates, including, without limitation, all materials containing Confidential Information. 9. Disclosure of Information, Ideas, Concepts, Improvements, Discoveries and Inventions. As part of the Employee's fiduciary duties to the Company, the Employee agrees that during his employment by the Company and for a period of three years following the Date of Termination, the Employee shall promptly disclose in writing to the Company all information, ideas, concepts, improvements, discoveries and inventions, whether patentable or not, and whether or not reduced to practice, which are conceived, developed, made or acquired by the Employee, either individually or jointly with others, and which relate to the business, products or services of the Company or its Affiliates, irrespective of whether the Employee used the Company's time or facilities and irrespective of whether such information, idea, concept, improvement, discovery or invention was conceived, developed, discovered or acquired by the Employee on the job, at home, or elsewhere. This obligation extends to all types of information, ideas and concepts, including information, ideas and concepts relating to new types of services, corporate opportunities, acquisition prospects, the identity of key representatives within acquisition prospect organizations, prospective names or service marks for the Company's business activities, and the like. 9 10 10. Ownership of Information, Ideas, Concepts, Improvements, Discoveries and Inventions, and all Original Works of Authorship. 10.1 All information, ideas, concepts, improvements, discoveries and inventions, whether patentable or not, which are conceived, made, developed or acquired by the Employee or which are disclosed or made known to the Employee, individually or in conjunction with others, during the Employee's employment by the Company and which relate to the business, products or services of the Company or its Affiliates (including, without limitation, all such information relating to corporate opportunities, research, financial and sales data, pricing and trading terms, evaluations, opinions, interpretations, acquisition prospects, the identity of customers or their requirements, the identity of key contacts within the customers' organizations or within the organization of acquisition prospects, marketing and merchandising techniques, and prospective names and service marks) are and shall be the sole and exclusive property of the Company. Furthermore, all drawings, memoranda, notes, records, files, correspondence, manuals, models, specifications, computer programs, maps and all other writings or materials of any type embodying any of such information, ideas, concepts, improvements, discoveries and inventions are and shall be the sole and exclusive property of the Company. 10.2 In particular, the Employee hereby specifically sells, assigns, transfers and conveys to the Company all of his worldwide right, title and interest in and to all such information, ideas, concepts, improvements, discoveries or inventions, and any United States or foreign applications for patents, inventor's certificates or other industrial rights which may be filed in respect thereof, including divisions, continuations, continuations-in-part, reissues and/or extensions thereof, and applications for registration of such names and service marks. The Employee shall assist the Company and its nominee at all times, during the Employment Period and thereafter, in the protection of such information, ideas, concepts, improvements, discoveries or inventions, both in the United States and all foreign countries, which assistance shall include, but shall not be limited to, the execution of all lawful oaths and all assignment documents requested by the Company or its nominee in connection with the preparation, prosecution, issuance or enforcement of any applications for United States or foreign letters patent, including divisions, continuations, continuations-in-part, reissues and/or extensions thereof, and any application for the registration of such names and service marks. 10.3 In the event the Employee creates, during the Employment Period, any original work of authorship fixed in any tangible medium of expression which is the subject matter of copyright (such as, videotapes, written presentations on acquisitions, computer programs, drawings, maps, architectural renditions, models, manuals, brochures or the like) relating to the Company's business, products or services, whether such work is created solely by the Employee or jointly with others, the Company shall be deemed the author of such work if the work is prepared by the Employee in the scope of his employment; or, if the work is not prepared by the Employee within the scope of his employment but is specially ordered by the Company as a contribution to a collective work, as a part of a motion picture or other audiovisual work, as a translation, as a supplementary work, as a 10 11 compilation or as an instructional text, then the work shall be considered to be work made for hire, and the Company shall be the author of such work. If such work is neither prepared by the Employee within the scope of his employment nor a work specially ordered and deemed to be a work made for hire, then the Employee hereby agrees to sell, transfer, assign and convey, and by these presents, does sell, transfer, assign and convey, to the Company all of the Employee's worldwide right, title and interest in and to such work and all rights of copyright therein. The Employee agrees to assist the Company and its Affiliates, at all times, during the Employment Period and thereafter, in the protection of the Company's worldwide right, title and interest in and to such work and all rights of copyright therein, which assistance shall include, but shall not be limited to, the execution of all documents requested by the Company or its nominee and the execution of all lawful oaths and applications for registration of copyright in the United States and foreign countries. 11. Employee's Non-Competition Obligation. 11.1 (a) Until the Date of Termination, the Employee shall not, acting alone or in conjunction with others, directly or indirectly, in any of the business territories in which the Company or any of its Affiliates is presently or from time to time during the Employment Period conducting business, invest or engage, directly or indirectly, in any business which is competitive with that of the Company or accept employment with or render services to such a competitor as a director, officer, agent, employee or consultant, or take any action inconsistent with the fiduciary relationship of an employee to his employer; provided, however, that the beneficial ownership by the Employee of up to three percent of the Voting Stock of any corporation subject to the periodic reporting requirements of the Exchange Act shall not violate this Section 11.1(a). (b) In addition to the other obligations agreed to by the Employee in this Agreement, the Employee agrees that until the Date of Termination, he shall not at any time, directly or indirectly, (i) induce, entice or solicit any employee of the Company to leave his employment, (ii) contact, communicate or solicit any customer or acquisition prospect of the Company derived from any customer list, customer lead, mail, printed matter or other information secured from the Company or its present or past employees or (iii) in any other manner use any customer lists or customer leads, mail, telephone numbers, printed material or other information of the Company relating thereto. 11.2 (a) If this Agreement is terminated either by the Company for Cause or by the Employee for any reason, then for a period of one year following the Date of Termination, the Employee shall not, acting alone or in conjunction with others, directly or indirectly, in any of the business territories in which the Company or any of its Affiliates is presently or at the Date of Termination conducting business, invest or engage, directly or indirectly, in any business which is competitive with that of the Company as of the Date of Termination or accept employment with or render services to such a competitor as a director, officer, agent, employee or consultant, or take any action inconsistent with the fiduciary relationship of an employee to his employer; provided, however, that the beneficial ownership by the 11 12 Employee of up to three percent of the Voting Stock of any corporation subject to the periodic reporting requirements of the Exchange Act shall not violate this Section 11.2(a). (b) In addition to the other obligations agreed to by the Employee in this Agreement, the Employee agrees that if this Agreement is terminated either by the Company for Cause or by the Employee for any reason, then for a period of one year following the Date of Termination, he shall not at any time, directly or indirectly, (i) induce, entice or solicit any employee of the Company to leave his employment, (ii) contact, communicate or solicit any customer or acquisition prospect of the Company derived from any customer list, customer lead, mail, printed matter or other information secured from the Company or its present or past employees or (iii) in any other manner use any customer lists or customer leads, mail, telephone numbers, printed material or other information of the Company relating thereto. 11.3 If this Agreement is terminated either by the Company Without Cause, then the Employee shall not be subject to any non-competition obligation. 12. Miscellaneous. 12.1 Notices. All notices and other communications required or permitted hereunder or necessary or convenient in connection herewith shall be in writing and shall be deemed to have been given when delivered by hand or mailed by registered or certified mail, return receipt requested, as follows (provided that notice of change of address shall be deemed given only when received): If to the Company to: 625 E. Kaliste Saloom Road Suite 400 Lafayette, Louisiana 70508 If to the Employee to: 625 E. Kaliste Saloom Road Suite 400 Lafayette, Louisiana 70508 or to such other names or addresses as the Company or the Employee, as the case may be, shall designate by notice to the other party hereto in the manner specified in this Section 12.1. 12.2 Waiver of Breach. The waiver by any party hereto of a breach of any provision of this Agreement shall neither operate nor be construed as a waiver of any subsequent breach by any party. 12 13 12.3 Assignment. This Agreement shall be binding upon and inure to the benefit of the Company, its successors, legal representatives and assigns, and upon the Employee, his heirs, executors, administrators, representatives and assigns; provided, however, the Employee agrees that his rights and obligations hereunder are personal to him and may not be assigned without the express written consent of the Company. 12.4 Entire Agreement; No Oral Amendments. This Agreement, together with any exhibit attached hereto and any document, policy, rule or regulation referred to herein, replaces and merges all previous agreements and discussions relating to the same or similar subject matter between the Employee and the Company and constitutes the entire agreement between the Employee and the Company with respect to the subject matter of this Agreement. This Agreement may not be modified in any respect by any verbal statement, representation or agreement made by any employee, officer, or representative of the Company or by any written agreement unless signed by an officer of the Company who is expressly authorized by the Company to execute such document. 12.5 Enforceability. If any provision of this Agreement or application thereof to anyone or under any circumstances shall be determined to be invalid or unenforceable, such invalidity or unenforceability shall not affect any other provisions or applications of this Agreement which can be given effect without the invalid or unenforceable provision or application. 12.6 Jurisdiction; Arbitration. The laws of the State of Louisiana shall govern the interpretation, validity and effect of this Agreement without regard to the place of execution or the place for performance thereof. Any controversy or claim arising out of or relating to this Agreement, or the breach thereof, shall be settled by arbitration located in Houston, Texas administered by the American Arbitration Association in accordance with its applicable arbitration rules, and the judgment on the award rendered by the arbitrator(s) may be entered in any court having jurisdiction thereof, which judgment shall be binding upon the parties hereto. 12.7 Injunctive Relief. The Company and the Employee agree that a breach of any term of this Agreement by the Employee would cause irreparable damage to the Company and that, in the event of such breach, the Company shall have, in addition to any and all remedies of law, the right to any injunction, specific performance and other equitable relief to prevent or to redress the violation of the Employee's duties or responsibilities hereunder. 13 14 IN WITNESS WHEREOF, the undersigned, intending to be legally bound, have executed this Agreement as of the date first written above. PETROQUEST ENERGY, INC. By: /s/ Charles T. Goodson ---------------------------------------- Name: Charles T. Goodson -------------------------------------- Title President & Chief Executive Officer --------------------------------------- EMPLOYEE: By: /s/ Ralph J. Daigle ---------------------------------------- Ralph J. Daigle 14 EX-10.5 10 EMPLOYMENT AGREEMENT - ROBERT R. BROOKSHER 1 EXHIBIT 10.5 EXECUTIVE EMPLOYMENT AGREEMENT THIS AGREEMENT is made and entered into this _1st_ day of _September_, 1998 between PetroQuest Energy, Inc., a Delaware corporation having its principal executive office at 625 E. Kaliste Saloom Road, Suite 400, Lafayette, Louisiana 70508 (hereinafter referred to as the "Company"), and Robert R. Brooksher (hereinafter referred to as the "Employee"). W I T N E S S E T H: WHEREAS, the Company desires to employ the Employee in an executive capacity and the Employee desires to enter the Company's employ. NOW, THEREFORE, for and in consideration of the mutual promises, covenants and obligations contained herein, and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the Company and the Employee hereby agree as follows: 1. Certain Definitions. As used in this Agreement, the following terms have the meanings prescribed below: Affiliate is used in this Agreement to define a relationship to a person or entity and means a person or entity who, directly or indirectly through one or more intermediaries, controls, is controlled by, or is under common control with, such person or entity. Annual Bonus shall have the meaning assigned thereto in Section 4.2 hereof. Base Salary shall have the meaning assigned thereto in Section 4.1 hereof. Beneficial Owner shall have the meaning assigned thereto in Rule 13(d)-3 under the Exchange Act; provided, however, and without limitation, that any individual, corporation, partnership, group, association or other person or entity that has the right to acquire any Voting Stock at any time in the future, whether such right is (a) contingent or absolute or (b) exercisable presently or at any time in the future, pursuant to any agreement or understanding or upon the exercise or conversion of rights, options or warrants, or otherwise, shall be the Beneficial Owner of such Voting Stock. Cause shall have the meaning assigned thereto in Section 5.3 hereof. Common Stock means the Company's common stock, par value $.001 per share. Confidential Information shall have the meaning assigned thereto in Section 8.2 hereof. 2 Date of Termination means the earliest to occur of (i) the date of the Employee's death, (ii) the date on which the Employee terminates this Agreement for any reason or (iii) the date of receipt of the Notice of Termination, or such later date as may be prescribed in the Notice of Termination in accordance with Section 5.5 hereof. Disability means an illness or other disability which prevents the Employee from discharging his responsibilities under this Agreement for a period of 180 consecutive calendar days, or an aggregate of 180 calendar days in any calendar year, during the Employment Period, all as determined in good faith by the Board of Directors of the Company (or a committee thereof). Effective Date means the date of execution hereof. Employee means Robert R. Brooksher, whose business address is 625 E. Kaliste Saloom Road, Suite 400, Lafayette, Louisiana 70508. Exchange Act means the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated by the Securities and Exchange Commission thereunder, all as in effect from time to time during the Employment Period. Company means PetroQuest Energy, Inc., a Delaware corporation, the principal executive office of which is located at 625 E. Kaliste Saloom Road, Suite 400, Lafayette, Louisiana 70508. Employment Period shall have the meaning assigned thereto in Section 3 hereof. Initial Term shall have the meaning assigned thereto in Section 3 hereof. Notice of Termination shall have the meaning assigned thereto in Section 5.5 hereof. Unexpired Term shall have the meaning assigned thereto in Section 6.3(c) hereof. Voting Stock means all outstanding shares of capital stock of the Company entitled to vote generally in an election of directors; provided, however, that if the Company has shares of Voting Stock entitled to more or less than one vote per share, each reference to a proportion of the issued and outstanding shares of Voting Stock shall be deemed to refer to the proportion of the aggregate votes entitled to be cast by the issued and outstanding shares of Voting Stock. Without Cause shall have the meaning assigned thereto in Section 5.4 hereof. 2. General Duties of Company and Employee. 2.1 The Company agrees to employ the Employee, and the Employee agrees to accept employment by the Company and to serve the Company as Chief Financial Officer and Secretary, and shall also serve as a director of the Company. The authority, duties and responsibilities of the 2 3 Employee shall include those described in Exhibit A to this Agreement, and such other or additional duties as may from time to time be assigned to the Employee by the Board of Directors (or a committee thereof) and agreed to by the Employee. While employed hereunder, the Employee shall devote full time and attention during normal business hours to the affairs of the Company and use his best efforts to perform faithfully and efficiently his duties and responsibilities. The Employee may (i) serve on corporate, civic or charitable boards or committees, (ii) deliver lectures, fulfill speaking engagements or teach at educational institutions and (iii) manage personal investments, so long as such activities do not significantly interfere with the performance of the Employee's duties and responsibilities. 2.2 The Employee agrees and acknowledges that he owes a fiduciary duty of loyalty, fidelity and allegiance to act at all times in the best interests of the Company and to do no act and to make no statement, oral or written, which would injure Company's business, its interests or its reputation. 2.3 The Employee agrees to comply at all times during the Employment Period with all applicable policies, rules and regulations of the Company, including, without limitation, the Company's Code of Ethics and the Company's policy regarding trading in the Common Stock, as each is in effect from time to time during the Employment Period. 3. Term. Unless sooner terminated pursuant to other provisions hereof, the Employee's period of employment under this Agreement shall be a period of three years beginning on the Effective Date (the "Initial Term"). After the expiration of the Initial Term, the Employee's period of employment under this Agreement shall be automatically renewed for successive one-year terms on each anniversary of the Effective Date (the Initial Term and any and all renewals thereof are referred to herein collectively as the "Employment Period"). 4. Compensation and Benefits. 4.1 Base Salary. As compensation for services to the Company, the Company shall pay to the Employee until the Date of Termination an annual base salary of $180,000 (the "Base Salary"). The Board of Directors (or a committee thereof), in its discretion, may increase the Base Salary based upon relevant circumstances. The Base Salary shall be payable in equal semi-monthly installments or in accordance with the Company's established policy, subject only to such payroll and withholding deductions as may be required by law and other deductions applied generally to employees of the Company for insurance and other employee benefit plans. 4.2 Bonus. In addition to the Base Salary, the Employee may be awarded, for each fiscal year until the Date of Termination, an annual bonus (either pursuant to a bonus or incentive plan or program of the Company or otherwise) in an amount to be determined by the Board of Directors (or a committee thereof), in its sole discretion (the "Annual Bonus"). Each such Annual Bonus shall be payable at a time to be determined by the Board of Directors (or a committee thereof) in its sole discretion. 3 4 4.3 Incentive, Savings and Retirement Plans. Until the Date of Termination, the Employee shall be eligible to participate in and shall receive all benefits under all executive incentive, savings and retirement plans (including 401(k) plans) and programs currently maintained or hereinafter established by the Company for the benefit of its executive officers and/or employees. 4.4 Welfare Benefit Plan. Until the Date of Termination, the Employee and/or the Employee's family, as the case may be, shall be eligible to participate in and shall receive all benefits under each welfare benefit plan of the Company currently maintained or hereinafter established by the Company for the benefit of its employees. Such welfare benefit plans may include, without limitation, medical, dental, disability, group life, accidental death and travel accident insurance plans and programs. 4.5 Reimbursement of Expenses. The Employee may from time to time until the Date of Termination incur various business expenses customarily incurred by persons holding positions of like responsibility, including, without limitation, travel, entertainment and similar expenses incurred for the benefit of the Company, and will receive a Company credit card for use for such expenses. Subject to the Company's policy regarding the reimbursement of such expenses as in effect from time to time during the Employment Period, which does not necessarily allow reimbursement of all such expenses, the Company shall reimburse the Employee for such expenses from time to time, at the Employee's request, and the Employee shall account to the Company for all such expenses. 4.6 Life Insurance. The Company shall provide to the Executive life insurance on terms that are mutually agreeable to the Company and the Executive. 4.7 Relocation. The Company and the Executive agree that if the Executive is asked to relocate from Lafayette, Louisiana to Houston, Texas, the Company will provide to Executive reimbursement for out of pocket moving expenses incurred in connection with such move, and it will also reimburse the Executive for any loss incurred by the Executive on the sale of his personal residence in Lafayette, Louisiana, with such loss being calculated on the basis of the difference between the Executive's actual costs less the net sales price. 5. Termination. 5.1 Death. This Agreement shall terminate automatically upon the death of the Employee. 5.2 Disability. The Company may terminate this Agreement, upon written notice to the Employee delivered in accordance with Sections 5.5 and 12.1 hereof, upon the Disability of the Employee. 5.3 Cause. The Company may terminate this Agreement, upon written notice to the Employee delivered in accordance with Sections 5.5 and 12.1 hereof, for Cause. For purposes of 4 5 this Agreement, "Cause" means (i) the conviction of the Employee of a felony (which, through lapse of time or otherwise, is not subject to appeal), (ii) the Employee's willful refusal, without proper legal cause, to perform his duties and responsibilities as contemplated in this Agreement or (iii) the Employee's willful engaging in activities which would (A) constitute a breach of any term of this Agreement, the Company's Code of Ethics, the Company's policies regarding trading in the Common Stock or reimbursement of business expenses or any other applicable policies, rules or regulations of the Company, or (B) result in a material injury to the business, condition (financial or otherwise), results of operations or prospects of the Company or its Affiliates (as determined in good faith by the Board of Directors of the Company or a committee thereof). 5.4 Without Cause. The Company may terminate this Agreement Without Cause, upon written notice to the Employee delivered in accordance with Sections 5.5 and 12.1 hereof. For purposes of this Agreement, the Employee will be deemed to have been terminated "Without Cause" if the Employee is terminated by the Company for any reason other than Cause, Disability or death. 5.5 Notice of Termination. Any termination of this Agreement by the Company for Cause, Without Cause or as a result of the Employee's Disability shall be communicated by Notice of Termination to the Employee given in accordance with this Agreement. For purposes of this Agreement, a "Notice of Termination" means a written notice which (i) indicates the specific termination provision in this Agreement relied upon, (ii) sets forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Employee's employment under the provision so indicated and (iii) specifies the termination date, if such date is other than the date of receipt of such notice (which termination date shall not be more than 15 days after the giving of such notice). 6. Obligations of Company upon Termination. 6.1 Cause by Employee. If this Agreement shall be terminated either by the Company for Cause or by the Employee for any reason, the Company shall pay to the Employee, in a lump sum in cash within 30 days after the Date of Termination, the aggregate of the Employee's Base Salary (as in effect on the Date of Termination) through the Date of Termination, if not theretofore paid, and, in the case of compensation previously deferred by the Employee, all amounts of such compensation previously deferred and not yet paid by the Company. All other obligations of the Company and rights of the Employee hereunder shall terminate effective as of the Date of Termination. 6.2 Death or Disability. (a) Subject to the provisions of this Section 6.2, if this Agreement is terminated as a result of the Employee's death or Disability, the Company shall pay to the Employee or his estate, in equal semi-monthly installments, the Employee's Base Salary (as in effect on the Date of Termination) for 12 months after such Date of Termination. The Company may purchase insurance to cover all or any part of the obligation contemplated in the foregoing 5 6 sentence, and the Employee agrees to submit to a physical examination to facilitate the procurement of such insurance. (b) Whenever compensation is payable to the Employee hereunder during a period in which he is partially or totally disabled, and such Disability would (except for the provisions hereof) entitle the Employee to Disability income or salary continuation payments from the Company according to the terms of any plan or program presently maintained or hereafter established by the Company, the Disability income or salary continuation paid to the Employee pursuant to any such plan or program shall be considered a portion of the payment to be made to the Employee pursuant to this Section 6.2 and shall not be in addition hereto. If Disability income is payable directly to the Employee by an insurance company under the terms of an insurance policy paid for by the Company, the amounts paid to the Employee by such insurance company shall be considered a portion of the payment to be made to the Employee pursuant to this Section 6.2 and shall not be in addition hereto. 6.3 Without Cause. If this Agreement shall be terminated by the Company Without Cause: (a) the Company shall pay to the Employee, in a lump sum in cash within 30 days after the Date of Termination, the aggregate of the following amounts: (1) if not theretofore paid, the Employee's Base Salary (as in effect on the Date of Termination) through the Date of Termination; and (2) in the case of compensation previously deferred by the Employee, all amounts of such compensation previously deferred and not yet paid by the Company; (b) the Company shall, promptly upon submission by the Employee of supporting documentation, pay or reimburse to the Employee any costs and expenses (including moving and relocation expenses) paid or incurred by the Employee which would have been payable under Section 4.5 of this Agreement if the Employee's employment had not terminated; and (c) for the 12-month period commencing on the Date of Termination, the Company shall continue benefits to the Employee and/or the Employee's family at least equal to those which would have been provided to them under Section 4.4 if the Employee's employment had not been terminated; and (d) the Company shall pay to the Employee, in equal semi-monthly installments, the Employee's Base Salary (as in effect on the Date of Termination) for 12 months after the Date of Termination. 6 7 7. Employee's Obligation to Avoid Conflicts of Interest. 7.1 In keeping with the Employee's fiduciary duties to the Company, the Employee agrees that he shall not knowingly become involved in a conflict of interest with the Company, or upon discovery thereof, allow such a conflict to continue. The Employee further agrees to disclose to the Company, promptly after discovery, any facts or circumstances which might involve a conflict of interest with the Company. 7.2 The Company and the Employee recognize that it is impossible to provide an exhaustive list of actions or interests which constitute a "conflict of interest." Moreover, the Company and the Employee recognize that there are many borderline situations. In some instances, full disclosure of facts by the Employee to the Company is all that is necessary to enable the Company to protect its interests. In others, if no improper motivation appears to exist and the Company's interests have not suffered, prompt elimination of the outside interest will suffice. In still others, it may be necessary for the Company to terminate the employment relationship. The Company and the Employee agree that the Company's determination as to whether or not a conflict of interest exists shall be conclusive. The Company reserves the right to take such action as, in its judgment, will end the conflict of interest. 7.3 In this connection, it is agreed that any direct or indirect interest in, connection with or benefit from any outside activities, particularly commercial activities, which interest might in any way adversely affect the Company or its Affiliates, involves a possible conflict of interest. Circumstances in which a conflict of interest on the part of the Employee would or might arise, and which should be reported immediately to the Company, include, but are not limited to, the following: (a) Ownership of a material interest in any lender, supplier, contractor, subcontractor, customer or other entity with which the Company does business. (b) Acting in any capacity, including director, officer, partner, consultant, employee, distributor, agent or the like, for any lender, supplier, contractor, subcontractor, customer or other entity with which the Company does business. (c) Acceptance, directly or indirectly, of payments, services or loans from a lender, supplier, contractor, subcontractor, customer or other entity with which the Company does business, including, without limitation, gifts, trips, entertainment or other favors of more than a nominal value, but excluding loans from publicly held insurance companies and commercial or savings banks at market rates of interest. (d) Use of information or facilities to which the Employee has access in a manner which will be detrimental to the Company's interests, such as use for the Employee's own benefit of know-how or information developed through the Company's business activities. 7 8 (e) Disclosure or other misuse of information of any kind obtained through the Employee's connection with the Company. (f) Acquiring or trading in, directly or indirectly, oil and gas properties or interests for his own account or the account of his Affiliates without the prior written consent of the Board of Directors. 8. Employee's Confidentiality Obligation. 8.1 The Employee hereby acknowledges, understands and agrees that all Confidential Information is the exclusive and confidential property of the Company and its Affiliates which shall at all times be regarded, treated and protected as such in accordance with this Section 8. The Employee acknowledges that all such Confidential Information is in the nature of a trade secret. 8.2 For purposes of this Agreement, "Confidential Information" means information, which is used in the business of the Company or its Affiliates and (i) is proprietary to, about or created by the Company or its Affiliates, (ii) gives the Company or its Affiliates some competitive business advantage or the opportunity of obtaining such advantage or the disclosure of which could be detrimental to the interests of the Company or its Affiliates, (iii) is designated as Confidential Information by the Company or its Affiliates, is known by the Employee to be considered confidential by the Company or its Affiliates, or from all the relevant circumstances should reasonably be assumed by the Employee to be confidential and proprietary to the Company or its Affiliates, or (iv) is not generally known by non-Company personnel. Such Confidential Information includes, without limitation, the following types of information and other information of a similar nature (whether or not reduced to writing or designated as confidential): (a) Internal personnel and financial information of the Company or its Affiliates, information regarding oil and gas properties including reserve information, vendor information (including vendor characteristics, services, prices, lists and agreements), purchasing and internal cost information, internal service and operational manuals, and the manner and methods of conducting the business of the Company or its Affiliates; (b) Marketing and development plans, price and cost data, price and fee amounts, pricing and billing policies, bidding, quoting procedures, marketing techniques, forecasts and forecast assumptions and volumes, and future plans and potential strategies (including, without limitation, all information relating to any oil and gas prospect and the identity of any key contact within the organization of any acquisition prospect) of the Company or its Affiliates which have been or are being discussed; (c) Names of customers and their representatives, contracts (including their contents and parties), customer services, and the type, quantity, specifications and content of products and services purchased, leased, licensed or received by customers of the Company or its Affiliates; and 8 9 (d) Confidential and proprietary information provided to the Company or its Affiliates by any actual or potential customer, government agency or other third party (including businesses, consultants and other entities and individuals). 8.3 As a consequence of the Employee's acquisition or anticipated acquisition of Confidential Information, the Employee shall occupy a position of trust and confidence with respect to the affairs and business of the Company and its Affiliates. In view of the foregoing and of the consideration to be provided to the Employee, the Employee agrees that it is reasonable and necessary that the Employee make each of the following covenants: (a) At any time during the Employment Period and thereafter, the Employee shall not disclose Confidential Information to any person or entity, either inside or outside of the Company, other than as necessary in carrying out his duties and responsibilities as set forth in Section 2 hereof, without first obtaining the Company's prior written consent (unless such disclosure is compelled pursuant to court orders or subpoena, and at which time the Employee shall give notice of such proceedings to the Company). (b) At any time during the Employment Period and thereafter, the Employee shall not use, copy or transfer Confidential Information other than as necessary in carrying out his duties and responsibilities as set forth in Section 2 hereof, without first obtaining the Company's prior written consent. (c) On the Date of Termination, the Employee shall promptly deliver to the Company (or its designee) all written materials, records and documents made by the Employee or which came into his possession prior to or during the Employment Period concerning the business or affairs of the Company or its Affiliates, including, without limitation, all materials containing Confidential Information. 9. Disclosure of Information, Ideas, Concepts, Improvements, Discoveries and Inventions. As part of the Employee's fiduciary duties to the Company, the Employee agrees that during his employment by the Company and for a period of three years following the Date of Termination, the Employee shall promptly disclose in writing to the Company all information, ideas, concepts, improvements, discoveries and inventions, whether patentable or not, and whether or not reduced to practice, which are conceived, developed, made or acquired by the Employee, either individually or jointly with others, and which relate to the business, products or services of the Company or its Affiliates, irrespective of whether the Employee used the Company's time or facilities and irrespective of whether such information, idea, concept, improvement, discovery or invention was conceived, developed, discovered or acquired by the Employee on the job, at home, or elsewhere. This obligation extends to all types of information, ideas and concepts, including information, ideas and concepts relating to new types of services, corporate opportunities, acquisition prospects, the identity of key representatives within acquisition prospect organizations, prospective names or service marks for the Company's business activities, and the like. 9 10 10. Ownership of Information, Ideas, Concepts, Improvements, Discoveries and Inventions, and all Original Works of Authorship. 10.1 All information, ideas, concepts, improvements, discoveries and inventions, whether patentable or not, which are conceived, made, developed or acquired by the Employee or which are disclosed or made known to the Employee, individually or in conjunction with others, during the Employee's employment by the Company and which relate to the business, products or services of the Company or its Affiliates (including, without limitation, all such information relating to corporate opportunities, research, financial and sales data, pricing and trading terms, evaluations, opinions, interpretations, acquisition prospects, the identity of customers or their requirements, the identity of key contacts within the customers' organizations or within the organization of acquisition prospects, marketing and merchandising techniques, and prospective names and service marks) are and shall be the sole and exclusive property of the Company. Furthermore, all drawings, memoranda, notes, records, files, correspondence, manuals, models, specifications, computer programs, maps and all other writings or materials of any type embodying any of such information, ideas, concepts, improvements, discoveries and inventions are and shall be the sole and exclusive property of the Company. 10.2 In particular, the Employee hereby specifically sells, assigns, transfers and conveys to the Company all of his worldwide right, title and interest in and to all such information, ideas, concepts, improvements, discoveries or inventions, and any United States or foreign applications for patents, inventor's certificates or other industrial rights which may be filed in respect thereof, including divisions, continuations, continuations-in-part, reissues and/or extensions thereof, and applications for registration of such names and service marks. The Employee shall assist the Company and its nominee at all times, during the Employment Period and thereafter, in the protection of such information, ideas, concepts, improvements, discoveries or inventions, both in the United States and all foreign countries, which assistance shall include, but shall not be limited to, the execution of all lawful oaths and all assignment documents requested by the Company or its nominee in connection with the preparation, prosecution, issuance or enforcement of any applications for United States or foreign letters patent, including divisions, continuations, continuations-in-part, reissues and/or extensions thereof, and any application for the registration of such names and service marks. 10.3 In the event the Employee creates, during the Employment Period, any original work of authorship fixed in any tangible medium of expression which is the subject matter of copyright (such as, videotapes, written presentations on acquisitions, computer programs, drawings, maps, architectural renditions, models, manuals, brochures or the like) relating to the Company's business, products or services, whether such work is created solely by the Employee or jointly with others, the Company shall be deemed the author of such work if the work is prepared by the Employee in the scope of his employment; or, if the work is not prepared by the Employee within the scope of his employment but is specially ordered by the Company as a contribution to a collective work, as a part of a motion picture or other audiovisual work, as a translation, as a supplementary work, as a 10 11 compilation or as an instructional text, then the work shall be considered to be work made for hire, and the Company shall be the author of such work. If such work is neither prepared by the Employee within the scope of his employment nor a work specially ordered and deemed to be a work made for hire, then the Employee hereby agrees to sell, transfer, assign and convey, and by these presents, does sell, transfer, assign and convey, to the Company all of the Employee's worldwide right, title and interest in and to such work and all rights of copyright therein. The Employee agrees to assist the Company and its Affiliates, at all times, during the Employment Period and thereafter, in the protection of the Company's worldwide right, title and interest in and to such work and all rights of copyright therein, which assistance shall include, but shall not be limited to, the execution of all documents requested by the Company or its nominee and the execution of all lawful oaths and applications for registration of copyright in the United States and foreign countries. 11. Employee's Non-Competition Obligation. 11.1 (a) Until the Date of Termination, the Employee shall not, acting alone or in conjunction with others, directly or indirectly, in any of the business territories in which the Company or any of its Affiliates is presently or from time to time during the Employment Period conducting business, invest or engage, directly or indirectly, in any business which is competitive with that of the Company or accept employment with or render services to such a competitor as a director, officer, agent, employee or consultant, or take any action inconsistent with the fiduciary relationship of an employee to his employer; provided, however, that the beneficial ownership by the Employee of up to three percent of the Voting Stock of any corporation subject to the periodic reporting requirements of the Exchange Act shall not violate this Section 11.1(a). (b) In addition to the other obligations agreed to by the Employee in this Agreement, the Employee agrees that until the Date of Termination, he shall not at any time, directly or indirectly, (i) induce, entice or solicit any employee of the Company to leave his employment, (ii) contact, communicate or solicit any customer or acquisition prospect of the Company derived from any customer list, customer lead, mail, printed matter or other information secured from the Company or its present or past employees or (iii) in any other manner use any customer lists or customer leads, mail, telephone numbers, printed material or other information of the Company relating thereto. 11.2 (a) If this Agreement is terminated either by the Company for Cause or by the Employee for any reason, then for a period of one year following the Date of Termination, the Employee shall not, acting alone or in conjunction with others, directly or indirectly, in any of the business territories in which the Company or any of its Affiliates is presently or at the Date of Termination conducting business, invest or engage, directly or indirectly, in any business which is competitive with that of the Company as of the Date of Termination or accept employment with or render services to such a competitor as a director, officer, agent, employee or consultant, or take any action inconsistent with the fiduciary relationship of an employee to his employer; provided, however, that the beneficial ownership by the 11 12 Employee of up to three percent of the Voting Stock of any corporation subject to the periodic reporting requirements of the Exchange Act shall not violate this Section 11.2(a). (b) In addition to the other obligations agreed to by the Employee in this Agreement, the Employee agrees that if this Agreement is terminated either by the Company for Cause or by the Employee for any reason, then for a period of one year following the Date of Termination, he shall not at any time, directly or indirectly, (i) induce, entice or solicit any employee of the Company to leave his employment, (ii) contact, communicate or solicit any customer or acquisition prospect of the Company derived from any customer list, customer lead, mail, printed matter or other information secured from the Company or its present or past employees or (iii) in any other manner use any customer lists or customer leads, mail, telephone numbers, printed material or other information of the Company relating thereto. 11.3 If this Agreement is terminated either by the Company Without Cause, then the Employee shall not be subject to any non-competition obligation. 12. Miscellaneous. 12.1 Notices. All notices and other communications required or permitted hereunder or necessary or convenient in connection herewith shall be in writing and shall be deemed to have been given when delivered by hand or mailed by registered or certified mail, return receipt requested, as follows (provided that notice of change of address shall be deemed given only when received): If to the Company to: 625 E. Kaliste Saloom Road Suite 400 Lafayette, Louisiana 70508 If to the Employee to: 625 E. Kaliste Saloom Road Suite 400 Lafayette, Louisiana 70508 or to such other names or addresses as the Company or the Employee, as the case may be, shall designate by notice to the other party hereto in the manner specified in this Section 12.1. 12.2 Waiver of Breach. The waiver by any party hereto of a breach of any provision of this Agreement shall neither operate nor be construed as a waiver of any subsequent breach by any party. 12 13 12.3 Assignment. This Agreement shall be binding upon and inure to the benefit of the Company, its successors, legal representatives and assigns, and upon the Employee, his heirs, executors, administrators, representatives and assigns; provided, however, the Employee agrees that his rights and obligations hereunder are personal to him and may not be assigned without the express written consent of the Company. 12.4 Entire Agreement; No Oral Amendments. This Agreement, together with any exhibit attached hereto and any document, policy, rule or regulation referred to herein, replaces and merges all previous agreements and discussions relating to the same or similar subject matter between the Employee and the Company and constitutes the entire agreement between the Employee and the Company with respect to the subject matter of this Agreement. This Agreement may not be modified in any respect by any verbal statement, representation or agreement made by any employee, officer, or representative of the Company or by any written agreement unless signed by an officer of the Company who is expressly authorized by the Company to execute such document. 12.5 Enforceability. If any provision of this Agreement or application thereof to anyone or under any circumstances shall be determined to be invalid or unenforceable, such invalidity or unenforceability shall not affect any other provisions or applications of this Agreement which can be given effect without the invalid or unenforceable provision or application. 12.6 Jurisdiction; Arbitration. The laws of the State of Louisiana shall govern the interpretation, validity and effect of this Agreement without regard to the place of execution or the place for performance thereof. Any controversy or claim arising out of or relating to this Agreement, or the breach thereof, shall be settled by arbitration located in Houston, Texas administered by the American Arbitration Association in accordance with its applicable arbitration rules, and the judgment on the award rendered by the arbitrator(s) may be entered in any court having jurisdiction thereof, which judgment shall be binding upon the parties hereto. 12.7 Injunctive Relief. The Company and the Employee agree that a breach of any term of this Agreement by the Employee would cause irreparable damage to the Company and that, in the event of such breach, the Company shall have, in addition to any and all remedies of law, the right to any injunction, specific performance and other equitable relief to prevent or to redress the violation of the Employee's duties or responsibilities hereunder. 13 14 IN WITNESS WHEREOF, the undersigned, intending to be legally bound, have executed this Agreement as of the date first written above. PETROQUEST ENERGY, INC. By: /s/Charles T. Goodson ----------------------------------------- Name: Charles T. Goodson --------------------------------------- Title President & Chief Executive Officer --------------------------------------- EMPLOYEE: By: /s/Robert R. Brooksher ----------------------------------------- Robert R. Brooksher 14 EX-99.1 11 REGISTRATION RIGHTS AGREEMENT 1 EXHIBIT 99.1 REGISTRATION RIGHTS AGREEMENT THIS REGISTRATION RIGHTS AGREEMENT (this "Agreement") is made and entered into as of September 1_, 1998, among Optima Petroleum Corporation, a Delaware corporation whose name has been changed to PetroQuest Energy, Inc. ("Optima"), and each person listed on the signature pages of this Agreement under the caption "Stockholders" (each a "Stockholder" and, collectively, the "Stockholders"). WHEREAS, pursuant to a Plan and Agreement of Merger dated February 11, 1998 and entered into with Optima (collectively, the "Acquisition Agreements"), each of the Stockholders has received on the date hereof shares of common stock, par value $.001 per share, of Optima ("Common Stock") and contingent stock issue rights to receive additional shares of Common Stock on the occurrence of certain events ("Contingent Shares"), and among other things, Optima will change its name to PetroQuest Energy, Inc.; and WHEREAS, in order to induce the Stockholders to enter into their respective Acquisition Agreements, Optima has agreed to provide registration rights on the terms set forth in this Agreement for the benefit of the Stockholders. NOW, THEREFORE, in consideration of the premises and the mutual covenants and agreements set forth herein, the parties hereto agree as follows: 1. Definitions. The following capitalized terms shall have the meanings assigned to them in this Section 1 or in the parts of this Agreement referred to below: Commission: the Securities and Exchange Commission, and any successor thereto. Exchange Act: the Securities Exchange Act of 1934, as amended, and any successor thereto, and the rules and regulations thereunder. Exempt Offering: as defined in Section 2. 2 Registrable Common: shares of Common Stock that were issued to the Stockholders pursuant to the Acquisition Agreement, the Contingent Shares and any additional shares of Common Stock issued or distributed in respect of any other shares of Registrable Common by way of a stock dividend or distribution or stock split or in connection with a combination of shares, recapitalization, reorganization, merger, consolidation or otherwise. For purposes of this Agreement, shares of Registrable Common will cease to be Registrable Common when and to the extent that (i) a registration statement covering such shares has been declared effective under the Securities Act and such shares have been disposed of pursuant to such effective registration statement, (ii) such shares are sold pursuant to Rule 144 or become saleable under Rule 144(k), or (iii) such shares have been otherwise transferred to a person or entity that is not a Stockholder, other than pursuant to Section 10. Registration Notice: as defined in Section 2. Rule 144: Securities Act Rule 144 (or any similar or successor provision under the Securities Act). Securities Act: the Securities Act of 1933, as amended, and any successor thereto, and the rules and regulations thereunder. Selling Stockholder: as defined in Section 11. 2. Piggyback Registration Rights. At any time when Optima proposes to register any Common Stock under the Securities Act for its own account or for the account of a stockholder of Optima other than a registration relating to the offering or issuance of shares in connection with (i) employee compensation or benefit plans or (ii) one or more acquisition transactions under a Registration Statement on Form S-4 or Form S-1 under the Securities Act (or a successor to Form S-4 or Form S-1) (any such offering or issuance being an "Exempt Offering"), Optima will give each Stockholder written notice of its intent to do so (a "Registration Notice") at least 20 days prior to the filing of the related registration statement with the Commission. Such notice shall specify the approximate date on which Optima proposes to file such registration statement and shall contain a statement that the Stockholders are entitled to participate in such offering and shall set forth the number of shares of Registrable Common that represents the best estimate of the lead managing underwriter (or if not known, Optima) that will be available for sale by the holders of Registrable Common in the proposed offering. If Optima shall have delivered a Registration Notice, each Stockholder shall be entitled to participate on the same terms and conditions as Optima in the public offering to which the Registration Notice relates and to offer and sell shares of Registrable Common therein only to the extent provided in this Section 2. Each Stockholder desiring to participate in such offering shall notify Optima no later than ten days following receipt of the Registration Notice of the aggregate number of shares of Registrable Common that such Stockholder then desires to sell in the public offering. Each Stockholder desiring to participate in the public offering may include shares of Registrable Common in the registration statement relating to such offering, to the extent that the inclusion of such shares shall not reduce the number of shares of Common Stock to be offered and sold by Optima to be included therein. If the lead managing underwriter selected by 2 3 Optima for a public offering determines that marketing factors require a limitation on the number of shares of Registrable Common to be offered and sold in such offering, there shall be included in the offering only that number of shares of Registrable Common, if any, requested to be included in the offering that such lead managing underwriter reasonably and in good faith believes will not jeopardize the success of the offering, provided, however, that if the lead managing underwriter determines that marketing factors require a limitation on the number of shares of Registrable Common to be offered and sold as aforesaid and so notifies Optima and any requesting Stockholder in writing, the number of shares of Registrable Common to be offered and sold by holders desiring to participate in the offering, shall be allocated among such holders on a pro rata basis based on their holdings of Registrable Common. 3. Registration Procedures. In connection with registrations under Section 2, and subject to the terms and conditions contained therein, Optima shall: (a) use its best efforts to prepare and file with the Commission as soon as reasonably practicable, a registration statement with respect to the Registrable Common and use its best efforts to cause such registration to promptly become effective; (b) prepare and file with the Commission such amendments (including post-effective amendments) to such registration statement and supplements to the related prospectus to reflect appropriately the plan of distribution of the securities registered thereunder until the completion of the distribution contemplated by such registration statement or for so long thereafter as a dealer is required by law to deliver a prospectus in connection with the offer and sale of the shares of Registrable Common covered by such registration statement and/or as shall be necessary so that neither such registration statement nor the related prospectus shall contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading and so that such registration statement and the related prospectus will otherwise comply with applicable legal requirements; (c) provide to any Stockholder requesting to include shares of Registrable Common in such registration statement and a single counsel for all holders of Registrable Common requesting to include shares of Registrable Common in such registration statement, which counsel shall be selected by the holders of a majority of shares of Registrable Common requested to be included in such registration statement and shall be reasonably satisfactory to Optima, an opportunity to review and provide comments with respect to such registration statement (and any post-effective amendment thereto) prior to such registration statement (or post-effective amendment) becoming effective; (d) use its best efforts to register and qualify the Registrable Common covered by such registration statement under applicable securities or "Blue Sky" laws of such jurisdictions as the holders shall reasonably request for the distribution of the Registrable Common; 3 4 (e) take such other actions as are reasonable and necessary to comply with the requirements of the Securities Act; (f) furnish such number of prospectuses (including preliminary prospectuses) and documents incident thereto as a Stockholder from time to time may reasonably request; (g) provide to any Stockholder requesting to include Registrable Common in such registration statement and any managing underwriter participating in any distribution thereof, and to any attorney, accountant or other agent retained by such Stockholder or managing underwriter, reasonable access to appropriate officers and directors of Optima to ask questions and to obtain information reasonably requested by any such Stockholder, managing underwriter, attorney, accountant or other agent in connection with such registration statement or any amendment thereto; provided, however, that (i) in connection with any such access or request, any such requesting persons shall cooperate to the extent reasonably practicable to minimize any disruption to the operation by Optima of its business and (ii) any records, information or documents shall be kept confidential by such requesting persons, unless (A) such records, information or documents are in the public domain or otherwise publicly available or (B) disclosure of such records, information or documents is required by court or administrative order or by applicable law (including, without limitation, the Securities Act); (h) notify each Stockholder and the managing underwriters participating in the distribution pursuant to such registration statement promptly (i) when Optima is informed that such registration statement or any post-effective amendment to such registration statement becomes effective, (ii) of any request by the Commission for an amendment or any supplement to such registration statement or any related prospectus, (iii) of the issuance by the Commission of any stop order suspending the effectiveness of such registration statement or of any order preventing or suspending the use of any related prospectus or the initiation or threat of any proceeding for that purpose, (iv) of the suspension of the qualification of any shares of Registrable Common included in such registration statement for sale in any jurisdiction or the initiation or threat of a proceeding for that purpose, (v) of any determination by Optima that any event has occurred which makes untrue any statement of a material fact made in such registration statement or any related prospectus or which requires the making of a change in such registration statement or any, related prospectus in order that the same will not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading, and (vi) of the completion of the distribution contemplated by such registration statement if it relates to an offering by Optima; (i) in the event of the issuance of any stop order suspending the effectiveness of such registration statement or of any order suspending or preventing the use of any related prospectus or suspending the qualification of any shares of Registrable Common included in such registration statement for sale in any jurisdiction, use its best efforts to obtain its withdrawal; 4 5 (j) otherwise use its best efforts to comply with all applicable rules and regulations of the Commission, and make available to its security holders, as soon as reasonably practicable, but not later than fifteen months after the effective date of such registration statement, an earnings statement covering the period of at least twelve months beginning with the first full fiscal quarter after the effective date of such registration statement, which earnings statement shall satisfy the provisions of Section 11 (a) of the Securities Act; (k) use reasonable diligence to cause all shares of Registrable Common included in such registration statement to be listed on any securities exchange (including, for this purpose, the Nasdaq Small-Cap Market) on which the Common Stock is then listed at the initiation of Optima; (l) use reasonable diligence to obtain an opinion from legal counsel (which may include the General Counsel of Optima) in customary form and covering such matters of the type customarily covered by opinions as the underwriters, if any, may reasonably request; (m) provide a transfer agent and registrar for all such Registrable Common not later than the effective date of such registration statement; (n) enter into such customary agreement (including an underwriting agreement in customary form) as the underwriters, if any, may reasonably request in order to expedite or facilitate the disposition of such shares of Registrable Common; and (o) use reasonable diligence to obtain a "comfort letter" from Optima's independent public accountants in customary form and covering such matters of the type customarily covered by comfort letters as the underwriters, if any, may reasonably request. As used in this Section 3 and elsewhere herein, the term "underwriters" does not include any Stockholder. 4. Underwriting Agreement. In connection with each registration pursuant to Section 2 covering an underwritten registered public offering, Optima and each participating Stockholder agree to enter into a written agreement with the managing underwriter in such form and containing such provisions as are customary in the securities business for such an arrangement between such underwriter and companies of Optima's size and investment stature, including provisions for indemnification by Optima and each Selling Stockholder as more fully described in Section 11. 5. Availability of Rule 144. Notwithstanding anything contained herein to the contrary, (including Section 2), Optima shall not be obligated to register shares of Registrable Common or maintain effectiveness of any registration statement covering Registrable Common held by any Stockholder when the resale provisions of Rule 144(k) are available to such Stockholder or such Stockholder is otherwise entitled to sell the shares of Registrable Common held by him or her in a brokerage transaction without registration under the Securities Act and without limitation as to volume or manner of sale or both. 5 6 6. Rule 144 Reporting. With a view to making available the benefits of certain rules and regulations of the Commission which may permit the sale of the shares of Registrable Common held by the Stockholders to the public without registration, Optima agrees to: (a) make and keep public information available (as those terms are understood and defined in Rule 144) at all times from and after 90 days following the effective date of the registration statement; (b) use its best efforts to file with the Commission in a timely manner all reports and other documents required of Optima under the Securities Act and the Exchange Act at any time that it is subject to such reporting requirements; (c) so long as a Stockholder owns any shares of Registrable Common, furnish to the Stockholder forthwith upon request a written statement by Optima as to its compliance with the reporting requirements of Rule 144, the Securities Act and the Exchange Act (at any time that it is subject to such reporting requirements), a copy of the most recent annual or quarterly report of Optima, and such other reports and documents filed in accordance with such reporting requirements as a Stockholder may reasonably request in availing itself of any rule or regulation of the Commission allowing a Stockholder to sell any such securities without registration; and (d) if required by the transfer agent and registrar for the Common Stock, use reasonable diligence to obtain an opinion from legal counsel (which may include the General Counsel of Optima) addressed to such transfer agent and registrar, with respect to any sale of shares of Registerable Common pursuant to Rule 144 (or, at the option of Optima, pay the reasonable fees and expenses of legal counsel retained by a Stockholder to provide such an opinion). 7. Market Standoff. In consideration of the granting to Stockholders of the registration rights pursuant to this Agreement, each Stockholder agrees that, for so long as such Stockholder holds shares of Registrable Common which are not part of a registration as permitted by Section 2, such Stockholder will not sell, transfer or otherwise dispose of, including without limitation through put or short sale arrangements, such shares of Registrable Common in the 30 days prior to the effectiveness of any registration (other than relating to an Exempt Offering) of Common Stock for sale to the public and for up to 90 days following the effectiveness of such registration. 8. Registration Expenses. All expenses incurred in connection with any registration, qualification and compliance under this Agreement (including, without limitation, all registration, filing, qualification, legal, printing and accounting fees, and including all reasonable fees of one counsel acting on behalf of all holders of the securities being registered in such registration) shall be borne by Optima. All underwriting commissions and discounts applicable to shares of Registrable Common included in the registrations under this Agreement shall be borne by the holders of the securities so registered pro rata on the basis of the number of shares so registered. Subject to the foregoing, all expenses incident to Optima's performance of or compliance with this 6 7 Agreement, including, without limitation, all filing fees, fees and expenses of compliance with securities or Blue Sky laws (including, without limitation, fees and disbursements of counsel in connection with Blue Sky qualifications of the Registrable Common), printing expenses, messenger and delivery expenses, internal expenses (including, without limitation, all salaries and expenses of Optima's officers and employees performing legal or accounting duties), the fees and expenses applicable to shares of Registrable Common included in connection with the listing of the securities to be registered on each securities exchange (including, for this purpose, the Nasdaq Small-Cap Market) on which similar securities issued by Optima are then listed at the initiation of Optima, registrar and transfer agents' fees and fees and disbursements of counsel for Optima and its independent certified public accountants, Securities Act liability insurance of Optima and its officers and directors (if Optima elects to obtain such insurance), the fees and expenses of any special experts retained by Optima in connection with such registration and fees and expenses of other persons retained by Optima and incurred in connection with each registration hereunder (but not including, without limitation, any underwriting fees, discounts or commissions attributable to the sale of Registrable Common, and transfer taxes, if any), will be borne by Optima. 9. Participation in Underwritten Registrations. No holder of Registrable Common may participate in any underwritten registration hereunder unless such holder (a) agrees to sell such holder's securities on the basis provided in any underwriting arrangements approved by the persons entitled hereunder to approve such arrangements and (b) completes and executes all questionnaires, powers of attorney, custody agreement, indemnities, underwriting agreement and other documents reasonably required under the terms of such underwriting arrangements. 10. Transfer of Registration Rights; Additional Grants of Registration Rights. The registration rights provided to the holders of Registrable Common under Section 2 hereof may not be transferred to any other person or entity, except to another Stockholder, Robert R. Brooksher or pursuant to the laws of descent and distribution; provided, however, that such transferees are bound by and subject to the terms and conditions contained herein. The Company may, without the prior consent of the Stockholders, extend the registration rights provided for in this Agreement to additional persons or entities who become holders of Common Stock subsequent to the date of this Agreement by entering into one or more addenda to this Agreement with any such stockholders, and, upon execution of any such addenda, any stockholder that is a party thereto shall thereafter be a "Stockholder" for purposes of this Agreement and any shares of Common Stock referred to therein as such shall be shares of "Registrable Common" for purposes of this Agreement. Nothing herein shall limit the ability of Optima to grant to any person or entity any registration or similar rights in the future with respect to Common Stock or other securities of Optima (whether pursuant to the foregoing provision or otherwise). 11. Indemnification and Contribution. (a) Indemnification by the Company. To the extent permitted by law, Optima agrees to indemnify and hold harmless each Stockholder who sells shares of Registrable Common in a registered offering pursuant to Section 2 (a "Selling Stockholder"), from and against any and all losses, claims, damages, liabilities and expenses (including reasonable 7 8 legal expenses) arising out of or based upon any untrue statement or alleged untrue statement of a material fact contained in any registration statement or prospectus relating to the Registrable Common or in any amendment or supplement thereto or in any related preliminary prospectus, or arising out of or based upon any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, except insofar as such losses, claims, damages, liabilities or expenses arise out of, or are based upon, any such untrue statement or omission or allegation thereof based upon information furnished in writing to Optima by such Selling Stockholder or on such Selling Stockholder's behalf expressly for use therein. Notwithstanding the foregoing, Optima's indemnification obligations with respect to any preliminary prospectus shall not inure to the benefit of any Selling Stockholder or underwriter with respect to any loss, claim, damage, liability (or actions in respect thereof) or expense arising out of or based on any untrue statement or alleged untrue statement or omission or alleged omission to state a material fact in such preliminary prospectus, in any case where (i) a copy of the prospectus used to confirm sales of shares of Registrable Common was not sent or given to the person asserting such loss, claim, damage or liability at or prior to the written confirmation of the sale to such person and (ii) such untrue statement or alleged untrue statement or omission or alleged omission was corrected in such prospectus. (b) Conduct of Indemnification Proceedings. Promptly after receipt by a Selling Stockholder of notice of any claim or the commencement of any action or proceeding brought or asserted against such Selling Stockholder in respect of which indemnity may be sought from Optima, such Selling Stockholder shall notify Optima in writing of the claim or the commencement of that action or proceeding; provided, however, that the failure to so notify Optima shall not relieve Optima from any liability that it may have to the Selling Stockholder otherwise than pursuant to the indemnification provisions of this Agreement. If any such claim or action or proceeding shall be brought against a Selling Stockholder and such Selling Stockholder shall have duly notified Optima thereof, Optima shall have the right to assume the defense thereof, including the employment of counsel. Such Selling Stockholder shall have the right to employ separate counsel in any such action and to participate in the defense thereof, but the fees and expenses of such counsel shall be at the expense of such Selling Stockholder unless (i) Optima has agreed to pay such fees and expenses or (ii) the named parties to any such action or proceeding include both such Selling Stockholder and Optima, and such Selling Stockholder shall have been advised by counsel that there may be one or more legal defenses available to such Selling Stockholder which are different from or additional to those available to Optima, in which case, if such Selling Stockholder notifies Optima in writing that it elects to employ separate counsel at the expense of Optima, Optima shall not have the right to assume the defense of such action or proceeding on behalf of such Selling Stockholder; it being understood, however, that Optima shall not, in connection with any one such action or proceeding or separate but substantially similar or related actions or proceedings in the same jurisdiction arising out of the same general allegations or circumstances, be liable for the fees and expenses of more than one separate firm of attorneys (together with appropriate local counsel) at any time for all Selling 8 9 Stockholders. Optima shall not be liable for any settlement of any such action or proceeding effected without Optima's written consent. (c) Indemnification by Holders of Registrable Common. In connection with any registration in which a Selling Stockholder is participating, such Selling Stockholder will furnish to Optima in writing such information and affidavits as Optima reasonably requests for use in connection with any related registration statement or prospectus. To the extent permitted by law, each Selling Stockholder agrees to indemnify and hold harmless Optima, its directors and officers who sign the registration statement relating to shares of Registrable Common offered by such Selling Stockholder and each person, if any, who controls Optima within the meaning of either Section 15 of the Securities Act or Section 20 of the Exchange Act to the same extent as the foregoing indemnity from Optima to such Selling Stockholder, but only with respect to information concerning such Selling Stockholder furnished in writing by such Selling Stockholder or on such Selling Stockholder's behalf expressly for use in any registration statement or prospectus relating to shares of Registrable Common offered by such Selling Stockholder, or any amendment or supplement thereto, or any related preliminary prospectus. In case any action or proceeding shall be brought against Optima or its directors or officers, or any such controlling person, in respect of which indemnity may be sought against such Selling Stockholder, such Selling Stockholder shall have the rights and duties given to Optima, and Optima or its directors or officers or such controlling persons shall have the rights and duties given to such Selling Stockholder, by the preceding paragraph. Each Selling Stockholder also agrees to indemnify and hold harmless any underwriters of the Registrable Common, their partners, officers and directors and each person who controls such underwriters (within the meaning of either Section 15 of the Securities Act or Section 20 of the Exchange Act) on substantially the same basis as that of the indemnification of Optima provided in this Section 11(c). Notwithstanding anything to the contrary herein, in no event shall the amount paid or payable by any Selling Stockholder under this Section 11(c) exceed the amount of proceeds received by such Selling Stockholder from the offering of the Registrable Common. (d) Contribution. If the indemnification provided for in this Section 11 is unavailable to any indemnified party in respect of any losses, claims, damages, liabilities or expenses referred to herein, then each indemnifying party, in lieu of indemnifying such indemnified party, shall contribute to the amount paid or payable by such indemnified party as a result of such losses, claims, damages, liabilities and expenses in such proportion as is appropriate to reflect the relative fault of the indemnifying party and the indemnified parties in connection with the actions that resulted in such losses, claims, damages, liabilities or expenses, as well as any other relevant equitable considerations. The relative fault of such indemnifying party and indemnified parties shall be determined by reference to, among other things, whether any action in question, including any untrue or alleged untrue statement of a material fact or omission or alleged omission to state a material fact relates to information supplied by such indemnified party or indemnified parties and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such action. Optima and the Selling Stockholders agree that it would not be just and equitable if contribution 9 10 pursuant to this Section 11(d) were determined by pro rata allocation or by any other method of allocation that does not take account of the equitable considerations referred to in this Section 11(d). No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. If indemnification is available under this Section 11, the indemnifying parties shall indemnify each indemnified party to the full extent provided in Sections 11(a) and (c) without regard to the relative fault of said indemnifying party or indemnified party or any other equitable consideration provided for in this Section 11(d). 12. Miscellaneous (a) Amendments and Waivers. Except as otherwise provided herein, the provisions of this Agreement may not be amended, modified or supplemented, and waivers or consents to departures from the provisions hereof may not be given, unless Optima has obtained the written consent of holders of at least 51% of the shares of Registrable Common then outstanding. (b) Notices. All notices and other communications provided for or permitted hereunder shall be in writing and shall be deemed to have been duly given if delivered personally or sent by telex or telecopy, or registered or certified mail (return receipt requested), postage prepaid, or courier to the parties at the following addresses (or at such other address for any party as shall be specified by like notice), provided that notices of a change of address shall be effective only upon receipt thereof. Notices sent by mail shall be effective when answered back, notices sent by telecopier shall be effective when receipt is acknowledged, and notices sent by courier guaranteeing next day delivery shall be effective on the next business day after timely delivery by the courier. Notices shall be sent to the following addresses: (i) if to a Stockholder, at the most current address given by such Stockholder to Optima in a writing making specific reference to this Agreement; (ii) if to Optima, at the following address: 625 E. Kaliste Saloom Road Suite 400 Lafayette, Louisiana 70508 (c) Successors and Assigns. This Agreement shall inure to the benefit of and be binding upon the heirs, executors, administrators, successors and assigns of each of the parties. (d) Counterparts. This Agreement may be executed in any number of counterparts and by the parties hereto in separate counterparts, each of which when so 10 11 executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement. (e) Headings. The headings in this Agreement are for convenience of reference only and shall not limit or otherwise affect the meaning hereof. (f) Section References. Unless the context requires otherwise, references in this Agreement to "Sections" are to Sections of this Agreement. (g) Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF DELAWARE APPLICABLE TO CONTRACTS MADE AND TO BE PERFORMED WHOLLY WITHIN THAT STATE. (h) Severability. If any one or more of the provisions contained herein, or the application thereof in any circumstances, is held invalid, illegal or unenforceable in any respect for any reason, the validity, legality and enforceability of any such provision in every other respect and of the remaining provisions contained herein shall not be in any way impaired thereby, it being intended that all the rights and privileges of the Stockholders shall be enforceable to the fullest extent permitted by law. (i) Entire Agreement; Termination. This Agreement is intended by the parties as a final expression of their agreement and intended to be a complete and exclusive statement of the agreement and understanding of the parties hereto in respect of the subject matter contained herein. This Agreement supersedes all prior agreement and understandings between the parties with respect to such subject matter. This Agreement, except the provisions of Section 11 (which shall survive until the expiration of the applicable statutes of limitations) and this Section 12, shall terminate and be of no further force or effect on December 31, 2001. IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first above written. Optima: OPTIMA PETROLEUM CORPORATION By: /s/ Ronald Bourgeois -------------------------------------- Name: Ronald Bourgeois ------------------------------ Title: Chief Financial Officer ----------------------------- 11 12 STOCKHOLDERS: /s/ Charles T. Goodson ------------------------------------ Charles T. Goodson /s/ Alfred J. Thomas, II ------------------------------------ Alfred J. Thomas, II /s/ Ralph J. Daigle ------------------------------------ Ralph J. Daigle /s/ Janell B. Thomas ------------------------------------ Janell B. Thomas /s/ Alfred J. Thomas, III ------------------------------------ Alfred J. Thomas, III /s/ Blaine A. Thomas ------------------------------------ Blaine A. Thomas /s/Natalie A. Thomas ------------------------------------ Natalie A. Thomas 12 -----END PRIVACY-ENHANCED MESSAGE-----