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Exhibit 10.5    
  


 
  EMPLOYMENT AGREEMENT    
  


        This Employment Agreement, dated as of September 1, 1992, is by and between Key Production Company, Inc., a Delaware corporation (hereinafter called
the "Employer"), and Francis H. Merelli (hereinafter called the "Employee"). 


 
 

RECITALS    
  


        The Employer has determined that it is in the best interests of the Employer and its stockholders to employ the Employee as President and Chief Executive Officer
of the Employer to direct the operations of the Employer, and the Employee is willing to accept such employment on the terms and conditions described below. 


 
 

AGREEMENT    
  


        NOW, THEREFORE, in consideration of and subject to the agreements, terms and conditions contained herein, the parties hereto agree as follows: 


 
 

ARTICLE I
  EMPLOYMENT    
  


        Section 1.1.    Employment of the Employee. The Employer hereby employs the Employee, and the Employee
hereby accepts employment by the Employer, upon the terms and conditions hereinafter set
forth. The term "Period of Employment" as used herein shall mean the period from the date of this Agreement until the date of Employee's termination as provided herein. 


        Section
1.2.    Directorship. As soon as practicable after the date of this Agreement, the Employee shall be appointed as a
director of Employer. At each annual meeting of stockholders of the Employer held during the Period of Employment, the Employee shall be nominated by management to be a director of the Employer. 


 
 

ARTICLE II
  DUTIES    
  


        Section 2.1.    Duties. During the Period of Employment, the Employee shall, subject to the authority of
the Employer's Board of Directors (the "Board"), be employed as President and Chief Executive Officer of the Employer, with such duties, responsibilities and authority as are consistent with such
offices, and with such additional responsibilities and duties as may be reasonably assigned to him by the Board, which in each case he shall faithfully and diligently perform. Subject to the authority
of the Board, the Employee shall have executive and operational authority over the business and affairs of the Employer. 



        Section
2.2.    Time to be Devoted to Employment; Etc. Except for vacations, which in no event shall be less than four weeks
each year, and absences due to temporary illness or disability, the Employee shall devote his full time, attention and energies on a full-time basis to the business of the Employer.
Nothing in this Agreement, however, shall preclude the Employee from devoting reasonable periods to (a) engaging in charitable and community activities or (b) managing his personal
investments. 


 
 

ARTICLE III
  COMPENSATION    
  


        Section 3.1.    Base Salary. The Employer shall pay to the Employee a base monthly salary equal to
$12,500 (the "Base Salary"), payable bi-monthly in arrears. The Base Salary may be adjusted as 


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determined by the Board, but shall not be decreased below the Base Salary in existence immediately prior to such adjustment. 



        Section
3.2.    Annual Incentive Bonuses. The Employee shall be eligible for incentive bonuses under any incentive program for
executives of the Employer which is adopted by the Board. 


        Section
3.3.    Reimbursement for Expenses. The Employer shall reimburse the Employee for all reasonable and necessary travel
expenses and other reasonable disbursements made by him for or on behalf of the Employer in the performance of his duties hereunder on the Employer's business, upon presentation by the Employee to the
Employer of appropriate vouchers. 


        Section
3.4.    Incidental Benefits. The Employer shall provide life insurance coverage for the Employee in the face amount of
$500,000, dues for an appropriate club and a covered parking space. 


        Section
3.5.    Employee Benefit Plans. During the Period of Employment, the Employee and his immediate family shall be entitled
to participate, on terms no less favorable than those available to any other senior executive officer of the Employer and his family, in all employee benefit plans adopted by the Employer to which
senior executive officers and their immediate families are entitled to participate. The Employer shall establish, and the Employee shall be eligible to participate in, a health and dental plan and a
long-term disability plan. 


        Section
3.6.    Option Grant. The Board shall grant to the Employee a stock option in the form attached as Exhibit A. 


 
 

ARTICLE IV
  DISABILITY OR DEATH OF THE EMPLOYEE.    
  



        Section 4.1.    Disability. If the Employee is incapacitated or disabled by accident, sickness or
otherwise so as to render him mentally or physically incapable of performing the services required to be performed by him under this Agreement for a period of 90 consecutive days or for a total of
120 days in any twelve-month period, the Employer may, at its option, if payments to the Employee have commenced under the Employer's long-term disability plan, at that time or any
time thereafter, terminate the Period of Employment immediately (provided that both such disability and payments under the Employer's long-term disability plan shall have continued to the
time of termination) upon giving him notice to that effect. Until the Employer shall have terminated the Employee's employment in accordance with the foregoing, the Employee shall be entitled to
receive his compensation, pursuant to Article III notwithstanding any such physical or mental disability. Nothing herein shall limit the Employee's right to receive any amounts to be paid to
the Employee under any disability or employee benefit plan of the Employer, if any, or under any other disability insurance policy or plan covering the Employee. 


        Section
4.2.    Death. If the Employee dies during the Period of Employment, his employment hereunder and the Period of
Employment shall terminate on the date of his death. 


 
 

ARTICLE V
  TERMINATION FOR CAUSE    
  


        The Employer may, by summary notice in writing, terminate the Period of Employment for cause. For the purposes of this Agreement, the term "cause" shall mean: 



        (a)  a
serious breach or any continued default by the Employee in the substantial performance of his duties under this Agreement (other than resulting from his disability)
for a 30-day period after a demand for substantial performance is delivered to the Employee by the Employer, which demand specifies and identifies the manner in which the Employee has not
substantially performed his duties; 



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        (b)  misconduct
by the Employee which is injurious to himself or the Employer, provided that conduct will not be deemed misconduct if it was engaged in by the Employee in
good faith in the belief that it was in, or not opposed to, the interests of the Employer, or was engaged in at the direction of the Board; or 


        (c)  the
intentional commission by the Employee by either: 



        (i)    a
business crime the intended purpose of which was to enrich the Employee at the expense of the Employer; or 


        (ii)  a
felony of which the Employee is convicted or to which he pleads guilty or nolo contendere; 




 
 

ARTICLE VI
  TERMINATION WITHOUT CAUSE    
  


        Section 6.1.    Employer Termination. The Employer may terminate the Period of Employment without cause
at any time by giving the Employee 30 days' prior written notice. Upon the expiration of such 30-day period, the Period of Employment shall terminate. 


        Section
6.2.    Employee Termination. For purposes of this Agreement, the Period of Employment shall be deemed to have been
terminated without cause if the Employee resigns under any of the following conditions: 



        (a)  upon
the Employee's usual place of employment being changed from Denver, Colorado without his consent; 



        (b)  upon
the continued default (including a material reduction in the duties, responsibilities and authority of the Employee as set forth in Article II) by the
Employer in the substantial performance of its obligations hereunder for a 30-day period after a demand for substantial performance is delivered to the Employer by the Employee, which
demand specifies and identifies the manner in which the Employer has not substantially performed its obligations; or 


        (c)  upon
the Employee being directed by the Board to engage in any activity which the Employee, based upon written advice of competent legal counsel, believes would
constitute criminal activity, provided that the Employee gives notice to the Employer providing it with a copy of the written advice of his legal counsel and the Employer does not, within five
business days after its receipt of such notice, withdraw its request that the Employee engage in the activity in question. 



 
 

ARTICLE VII
  EFFECT OF TERMINATION OF PERIOD OF EMPLOYMENT.    
  


        Section 7.1.    Termination for Cause or Voluntarily. Upon termination of the Period of Employment
pursuant to Article V, or by the Employee (except under the conditions set forth in Section 6.2), neither the Employee nor his beneficiaries or estate shall have any further rights or
claims against the Employer under this Agreement except to receive: 



        (a)  the
unpaid portion of the Employee's Base Salary provided for in Section 3.1, computed on a pro rata basis to the date of termination; 


        (b)  reimbursement
for any expenses for which the Employee shall not have theretofore been reimbursed as provided in Section 3.3; and 



        (c)  any
benefits, including the right to continued coverage under the Employer's health plans, which are mandated by law for terminated employees. 



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        Section
7.2.    Termination for Death, Disability or Without Cause. Upon the termination of the Period of Employment pursuant to
Articles IV or VI, neither the Employee nor his beneficiaries or estate shall have any further rights or claims against the Employer under this Agreement except to receive: 



        (a)  24 months'
compensation at the then applicable Base Salary rate, provided that any payments described in this paragraph (a) shall be reduced by any
payments to the Employee under the Employer's long term disability plan; 


        (b)  reimbursement
for any expenses for which the Employee shall not have theretofore been reimbursed as provided in section 3.3; 



        (c)  the
maximum incentive compensation payable in accordance with the provisions of any plan established pursuant to the provisions of section 3.2; and 


        (d)  any
benefits, including the right to continued coverage under the Employer's health plans, which are mandated by law for terminated employees. 




        Section
7.3.    Other Employer Obligations. The provisions of this Article VII shall in no way limit any rights or claims
which the Employee may have by virtue of any other agreements entered into with the Employer. 


 
 

ARTICLE VIII
  REGISTRATION RIGHTS    
  


        The Employee has entered into a Stock Purchase Agreement dated September 1, 1992 with Apache Corporation ("Apache") pursuant to which the Employee has
acquired 70,000 shares of the Employer's common stock, and the commitment by Apache to pay the Employer's out-of-pocket expenses for a registration statement on
Form S-3 (or any successor form) covering the sale of such stock under certain circumstances. The Employer agrees to prepare and file one such registration statement (subject to
approval by a majority of the independent members of the Board as to the timing of filing of the registration statement) upon receipt of (i) assurances from Apache satisfactory to the Employer
that such expenses will be paid, and (ii) customary covenants and agreements of the Employee and any underwriter with respect to registration of such stock. 


 
 

ARTICLE IX
  CONFIDENTIALITY    
  


        The Employee shall not make use of or otherwise reveal any trade secret or confidence of the Employer, including any information about the Employer or its
business which is not generally available to the public including, but not limited to, any such information involving planning, analysis or strategy, or any investor, financial, legal, geological,
geophysical or other proprietary information. Upon termination of employment, the Employee shall promptly surrender all documents, maps, records, data and other information representing, reflecting or
containing trade secrets or confidences. The provisions of this Article IX shall survive for a period of three years after the end of the Period of Employment. 


 
 

ARTICLE X
  INDEMNIFICATION    
  


        The Employer shall indemnify the Employee to the maximum extent possible under applicable Delaware laws covering the indemnification of officers and directors and
shall provide officer and director liability insurance with coverages deemed reasonable and appropriate by the Board. 


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ARTICLE XI
  ARBITRATION    
  


        Section 11.1.    Arbitration. If a dispute arises between the Employer and the Employee as to the
interpretation of this Agreement, the Employer and the Employee agree to submit the matter to binding arbitration in accordance with the Center for Public Resources Rules for
Non-Administered Arbitration of Business Disputes, as modified herein, by a sole arbitrator, in Denver, Colorado, selected in accordance with the provisions of Section 11.2. The
arbitration shall be governed by the United States Arbitration Act, 9 U.S.C. Section 1-16, and judgment upon the award rendered by the arbitrator may be entered by any court having
jurisdiction thereof. 


        Section
11.2.    Selection of Arbitrator. The parties shall have 10 days from the date when written notice is provided to
either party by the other party of a request for arbitration to agree upon a mutually acceptable neutral person not affiliated with either of the parties to act as arbitrator. If no arbitrator has
been selected within such time, the parties agree jointly to request the Center for Public Resources or another mutually agreed-upon organization to supply within 10 days a list of
potential arbitrators with qualifications as specified by the parties in the joint request. Within five days of receipt of the list, the parties shall independently rank the proposed candidates, shall
simultaneously exchange rankings, and shall select as the arbitrator the individual receiving the highest combined ranking who is available to serve. 


        Section
11.3.    Cost of Arbitration. The costs of arbitration shall be apportioned between the Employer and the Employee as
determined by the arbitrator in such manner as the arbitrator deems reasonable taking into account the circumstances of the case, the conduct of the parties during the proceeding and the result of the
arbitration. 


 
 

ARTICLE XII
  MISCELLANEOUS    
  


        Section 12.1.    Necessary Acts. All parties to this Agreement shall perform any and all acts as well as
execute any and all documents that may be reasonably necessary to fully carry out the provisions and intent of this Agreement. 


        Section
12.2.    Notices. All notices, demands, requests or other communications required or permitted by this Agreement or by
law to be served on, given to or delivered to any party hereto by any other party to this Agreement shall be in writing and shall be deemed duly served, given, received and delivered (a) on the
date of service if served personally on the party to whom notice is given, (b) on the day of transmission if sent via facsimile transmission to the facsimile number given below, provided
telephonic confirmation of receipt is obtained promptly after completion of transmission, (c) on the business day after delivery to an overnight courier service or the Express Mail service
maintained by the United States postal service, provided receipt of delivery has been confirmed or 


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(d) five days after being sent by registered or certified mail, provided receipt of delivery is confirmed, first-class postage prepaid, properly addressed to the respective parties as follows: 



	

If to the Employee:	
 	

One Norwest Center

20th Floor

1700 Lincoln

Denver, CO 80203
	

with a copy to:	
 	

Thomas A. Richardson

Holme Roberts & Owen

1700 Lincoln, Suite 4100

Denver, CO 80203

Facsimile No. (303) 866-0200
	

If to the Employer:	
 	

Key Production Company

One Norwest Center

20th Floor

1700 Lincoln

Denver, CO 80203
	

with a copy to:	
 	

Alan Rafte

Bracewell & Patterson

2900 South Tower Pennzoil Place

Houston, Texas 77002

Facsimile No. 713-221-1212






or
to such other address as may be designated by any such addressees by a notice given in conformity herewith. 


        Section
12.3.    Binding on Successors. This Agreement shall inure to the benefit of and be binding on the parties hereto and on
each of their respective heirs, executors, administrators, personal representatives, successors and assignees. 


        Section
12.4.    Choice of Law and Forum. This Agreement shall be construed and governed by the laws, commercial usages and
customs of the State of Colorado, without giving effect to the principles of conflict of laws thereof. In the event that any dispute, action, proceeding or litigation arises between the parties based
on or arising out of this Agreement, or any agreement or instrument delivered pursuant to this Agreement, subject to the arbitration provisions of Article XI the parties agree to submit
themselves to and irrevocably consent to the jurisdiction of the courts of the State of Colorado, and any federal court located in the State of Colorado. 


        Section
12.5.    Headings. The headings of the articles and sections of this Agreement have been inserted solely for convenience
of reference and shall in no way restrict or modify any of the terms or provisions hereof. 



        Section
12.6.    Sole and Only Agreement. This Agreement and the agreements referred to herein constitute the only agreements of
the parties hereto relating to the subject matter hereof. Any prior agreements, promises, negotiations or representations concerning the subject matter of this Agreement not expressly set forth in
this Agreement shall have no force or effect. 


        Section
12.7.    Amendment and Extension. This Agreement may not be amended or extended except by an instrument in writing
signed on behalf of each of the parties hereto. 


        Section
12.8.    Severability. Should any provision or portion of this Agreement be held unenforceable or invalid for any
reason, the remaining provisions and portions of this Agreement shall 


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be unaffected by such holding, unless to do so would alter substantially the intended effect of this Agreement or cause a substantial hardship for any party hereto. 



        Section
12.9.    Counterparts. This Agreement may be executed in counterparts, each of which shall be deemed an original, but
all of which taken together shall constitute one and the same agreement. 


        IN
WITNESS WHEREOF, the parties have duly executed this Agreement as of the date first written above. 



	

 	
 	

KEY PRODUCTION COMPANY, INC.
	

 	
 	

By:	

/s/  RAYMOND PLANK      
	 	 	 	
 Raymond Plank

Chairman of the Board and

Chief Executive Officer
	

 	
 	

EMPLOYEE:
	

 	
 	

/s/  FRANCIS H. MERELLI      
 FRANCIS H. MERELLI




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Exhibit 10.5


EMPLOYMENT AGREEMENT

RECITALS

AGREEMENT

ARTICLE I EMPLOYMENT

ARTICLE II DUTIES

ARTICLE III COMPENSATION

ARTICLE IV DISABILITY OR DEATH OF THE EMPLOYEE.

ARTICLE V TERMINATION FOR CAUSE

ARTICLE VI TERMINATION WITHOUT CAUSE

ARTICLE VII EFFECT OF TERMINATION OF PERIOD OF EMPLOYMENT.

ARTICLE VIII REGISTRATION RIGHTS

ARTICLE IX CONFIDENTIALITY

ARTICLE X INDEMNIFICATION


ARTICLE XI ARBITRATION

ARTICLE XII MISCELLANEOUS