HALLWOOD ENERGY CORPORATION
CHANGE OF CONTROL AGREEMENT
This change of control agreement ("Agreement") is entered into
effective as of __________, 1999, by and between Hallwood Energy Corporation
("HEC") and _________ ("Executive").
WHEREAS, HEC desires to retain certain key employee personnel who are
employed by its wholly owned subsidiary, Hallwood Petroleum, Inc. ("HPI") and,
accordingly, the Board of Directors of HEC has approved HEC entering into a
change of control agreement with Executive in order to encourage Executive's
continued service to HPI and HEC;
NOW, THEREFORE, in consideration of the foregoing and for other good
and valuable consideration, HEC and Executive agree as follows:
1. DEFINITIONS.
(a) "Change in Duties" shall mean the occurrence, within two years
after the date upon which a Change of Control occurs, of any
one or more of the following:
(i) a reduction in Executive's annual salary from the level in effect
immediately prior to the Change of Control:
(ii) failure of HEC or its successor to provide Executive
with an annual bonus, incentive compensation or other
employee benefits (including but not limited to
medical, dental, life insurance, accidental, death
and long-term disability plans) that are materially
consistent with such annual bonuses, incentive
compensation or other employee benefits provided by
HEC or its successor to executives with comparable
duties;
(iii) a significant adverse alteration in the nature or
status of Executive's duties, title,
responsibilities, or the conditions of Executive's
employment from those in effect immediately prior to
such Change in Control; or
(iv) a change in the location of Executive's principal
place of employment by HEC or its successor by more
than 25 miles from the location where Executive was
principally employed immediately prior to the date on
which a Change of Control occurs.
(b) "Change of Control" shall mean the occurrence after the effective date of
this Agreement of:
(i) An acquisition of any voting securities of HEC (the
"Voting Securities") by any "Person" (as the term
person is used for purposes of Section 13(d) or 14(d)
of the Securities Exchange Act of 1934 (the "Exchange
Act")), other than The Hallwood Group Incorporated
and its affiliates immediately after which such
Person has "Beneficial Ownership" (within the meaning
of Rule 13d-3 promulgated under the Exchange Act) of
thirty percent (30%) or more of the combined voting
power of HEC's then outstanding Voting Securities;
(ii) The individuals who, as of the effective date of this Agreement,
are members of the Board of Directors of HEC
(the "Incumbent Board"), cease for any reason to
constitute at least a majority of the members of the
Board of Directors of HEC (the "Board"); provided,
however, that if the election, or nomination for
election by HEC's common stockholders, of any new
director was approved by a vote of at least a
majority of the Incumbent Board, such new director
shall, for purposes of this Agreement, be considered
as a member of the Incumbent Board; provided
further, however, that no individual shall be
considered a member of the Incumbent Board if such
individual initially assumed office as a result of
either an actual or threatened "election contest"
(as described in Rule 14A-11 promulgated under
the Exchange Act) or other actual or threatened
solicitation of proxies or consents by or on behalf
of a Person other than the Board (a "Proxy Contest")
including by reason of any agreement intended to
avoid or settle any Election Contest or Proxy
Contest; or
(iii) Approval by stockholders of HEC of:
(A) A merger, consolidation or reorganization involving HEC, unless:
(1) the stockholders of HEC, immediately
before such merger, consolidation or
reorganization, own directly or
indirectly immediately following
such merger, consolidation or
reorganization, at least fifty
percent (50%) of the combined voting
power of the outstanding voting
securities of the corporation
resulting from such merger or
consolidation or reorganization (the
"Surviving Corporation") in
substantially the same proportion as
their ownership of the Voting
Securities immediately before such
merger, consolidation or
reorganization, and
(2) the individuals who were members of
the Incumbent Board immediately
prior to the execution of the
agreement providing for such merger,
consolidation or reorganization
constitute at least a majority of
the members of the board of
directors of the Surviving
Corporation; or
(B) A complete liquidation or dissolution of HEC; or
(C) An agreement for the sale or other
disposition of all or substantially all of
the assets of HEC to any Person (other than
a transfer to a wholly owned subsidiary).
(iv) Notwithstanding the foregoing, a Change of Control shall not be deemed to
occur solely because any Person (the "Subject Person") acquired beneficial
ownership of more than the permitted percent of the outstanding Voting
Securities as a result of the acquisition of Voting Securities by HEC
which, by reducing the number of Voting Securities outstanding, increases
the proportional number of shares beneficially owned by the Subject Person,
provided that if a Change of Control would occur (but for the operation of
this sentence) as a result of the acquisition of Voting Securities by HEC,
and after such share acquisition by HEC, the Subject Person becomes the
beneficial owner of any additional Voting Securities which increases the
percentage of the then outstanding Voting Securities beneficially owned by
the Subject Person, then a Change of Control shall occur; or
(v) Notwithstanding anything contained in this Agreement
to the contrary, if the Executive's employment is
terminated prior to a Change in Control and the
Executive reasonably demonstrates that such
termination (i) was at the request of a third party
who has indicated an intention or taken steps
reasonably calculated to effect a Change in Control
and who effectuates a Change in Control (a "Third
Party") or (ii) otherwise occurred in connection
with, or in anticipation of, a Change in Control
which actually occurs, then for all purposes of this
Agreement, the date of Change in Control with respect
to the Executive shall mean the date immediately
prior to the date of such termination of the
Executive's employment.
(c) "Code" shall mean the Internal Revenue Code of 1986, as amended.
(d) "Compensation" shall mean the sum of:
(i) Executive's annual salary immediately prior to the date on which a Change
of Control occurs; and
(ii) An annual average bonus computed by dividing the
total cash bonuses received by Executive during the
three years immediately prior to the date on which a
Change of Control occurs by three or, in the event
Executive has been employed by HEC or its
predecessors for less than three years prior to the
date on which a Change of Control occurs, the annual
average bonus shall be computed by dividing the total
cash bonuses received by Executive during the period
of employment immediately prior to the date on which
a Change of Control occurs (the "Period") by the
number, carried to two decimal places, determined by
dividing the number of days in the Period by 365.
(e) "Involuntary Termination" shall mean any termination of
Executive's employment with HEC or its successor other than
(i) Termination for Cause, (ii) termination as a result of
death or disability under circumstances entitling Executive to
benefits under HEC's long-term disability plan, (iii)
Retirement, or (iv) resignation by Executive except
resignation on or before the date which is one hundred eighty
days after the date upon which Executive receives notice of a
Change in Duties.
(f) "Person" shall mean and include an individual, a
partnership, a joint venture, a corporation, a trust, a
limited liability company, an unincorporated organization and
a government or any department or agency thereof.
(f) "Retirement" shall mean Executive's resignation on or after the date
Executive reaches age sixty-five.
(g) "Severance Amount" shall mean an amount equal to ____ times Executive's
Compensation.
(h) Stock Options shall mean options granted to Executive by HEC or its
successor to purchase stock of HEC or its successor.
(i) "Termination for Cause" shall mean an Executive's termination of employment
with HEC or its successor because of:
(i) the continued failure by the Executive to
devote time and effort to the performance of
Executive's duties consistent with
Executive's performance prior to the
occurance of a Chance of Control, after
written demand for improved performance has
been delivered to the Executive by HEC which
specifically identifies how Executive has
not devoted such consitent time and effort
to the performance of Executive's duties; or
(ii) the willful engaging by Executive in misconduct which is materially
injurious to HEC, monetarily or otherwise.
2. SEVERANCE BENEFITS. If Executive's employment by HEC or its
successor is subject to an Involuntary Termination which occurs
within two years after the date upon which a Change of Control
occurs, then Executive shall be entitled to receive, as additional
compensation for services rendered to HEC or its successor,
(a) A lump sum cash payment in an amount equal to Executive's Severance Amount
and,
(b) Notwithstanding any provision to the contrary in any stock option
agreement, or other agreement relating to equity-type compensation that may
be outstanding between the Executive and HEC, all stock options, incentive
stock options, performance shares, and stock appreciation rights under the
1999 Long Term Incentive Plan or any other plan or arrangement then held by
the Executive shall immediately become 100% vested and exercisable, and the
Executive shall become 100% vested in all shares of restricted stock held
by or for the benefit of the Executive; provided, however, that to the
extent HEC is unable to provide for such acceleration of vesting, HEC shall
provide in lieu thereof a lump-sum cash payment equal to the difference
between the total value of such outstanding units, stock options, incentive
stock options, performance shares, stock appreciation rights and shares of
restricted stock (the "Stock Rights") as of the date of the Executive's
termination of employment and the total value of the stock rights in which
the Executive is vested as of the date of his termination of employment.
The value of such accelerated vesting in the Executive stock rights shall
be determined by the Board in good faith based on a valuation performed by
an independent consultant selected by the Board. Notwithstanding any
provision to the contrary in any stock option agreement that may be
outstanding between the Executive and HEC, the Executive's right to
exercise any previously unexercised options under any such stock option
agreement shall not terminate until the latest date on which the option
granted under such agreement would expire under the terms of such agreement
but for the Executive's termination of employment; provided, however, that
to the extent HEC is unable to provide for the extension of the expiration
date of such options, HEC shall provide in lieu thereof a lump-sum cash
payment equal to the value of such extension HEC is unable to provide. Such
values of such accelerated vesting and exercisability shall be determined
by the Board in good faith based on a valuation performed by an independent
consultant selected by the Board.
(c) For a period of eighteen (18) months subsequent to the Executive's
termination of employment, HEC shall at its expense continue on behalf of
the Executive and his dependents and beneficiaries, all medical, dental,
vision, and health benefits and insurance coverage which were being
provided to the Executive at the time of termination of employment. The
benefits provided in this Section 2(c) shall be no less favorable to the
Executive, in terms of amounts and deductibles and costs to him, than the
coverage provided the Executive under the plans providing such benefits at
the time Notice of Termination is given. HEC's obligation hereunder to
provide a benefit shall terminate if the Executive obtains comparable
coverage under a subsequent employer's benefit plan. For purposes of the
preceding sentence, benefits will not be comparable during any waiting
period for eligibility for such benefits or during any period during which
there is a preexisting condition limitation on such benefits. HEC also
shall pay to the Executive a lump sum equal to the amount of any additional
income tax payable by the Executive and attributable to the benefits
provided under this subparagraph (c) at the time such tax is imposed upon
the Executive. In the event that the Executive's participation in any such
coverage is barred under the general terms and provisions of the plans and
programs under which such coverage is provided, or any such coverage is
discontinued or the benefits thereunder are materially reduced, HEC shall
provide or arrange to provide the Executive with benefits substantially
similar to those which the Executive was entitled to receive under such
coverage immediately prior to the Termination Notice. At the end of the
period of coverage set forth above, the Executive shall have the option to
have assigned to him at no cost to the Executive and with no apportionment
of prepaid premiums, any assignable insurance owned by HEC and relating
specifically to the Executive, and the Executive shall be entitled to all
health and similar benefits that are or would have been made available to
the Executive under law.
The severance benefits payable under this Paragraph shall be paid to Executive
on or before the tenth day after the last day of Executive's employment with HEC
or its successor. Any severance benefits paid pursuant to this Paragraph will be
deemed to be a severance payment and not compensation for purposes of
determining benefits under HEC's qualified plans and shall be subject to any
required tax withholding.
3. NO MITIGATION. The Executive shall not be required to mitigate the amount
of any payment provided for in this Agreement by seeking other employment
or otherwise and no such payment shall be offset or reduced by the amount
of any compensation or benefits provided to the Executive in any subsequent
employment.
4. ADDITIONAL PAYMENT BY HEC.
(a) GROSS-UP PAYMENT. In the event it shall be determined that any payment or
distribution of any type by HEC to or for the benefit of the Executive,
whether paid or payable or distributed or distributable pursuant to the
terms of this Plan or otherwise (the "Total Payments"), would be subject to
the excise tax imposed by Section 4999 of the Internal Revenue Code of
1986, as amended (the "Code") or any interest or penalties with respect to
such excise tax (such excise tax, together with any such interest and
penalties, are collectively referred to as the "Excise Tax", then the
Executive shall be entitled to receive an additional payment (a "Gross-Up
Payment") in an amount such that after payment by the Executive of all
taxes (including additional excise taxes under said Section 4999 and any
interest, and penalties imposed with respect to any taxes) imposed upon the
Gross-Up Payment, the Executive retains an amount of the Gross-Up Payment
equal to the Excise Tax imposed upon the Total Payments. HEC shall pay the
Gross-Up Payment to the Executive within twenty (20) business days after
the Termination Date.
(b) DETERMINATION BY ACCOUNTANT. All determinations required to be made under
this Section 4, including whether a Gross-Up Payment is required and the
amount of such Gross-Up Payment, shall be made, at HEC's expense, by the
independent accounting firm retained by HEC on the date of Change in
Control (the "Accounting Firm"), which shall provide detailed supporting
calculations both to HEC and the Executive within fifteen (15) business
days of the Termination Date, if applicable, or such earlier time as is
requested by HEC. If the Accounting Firm determines that no Excise Tax is
payable by the Executive, it shall furnish the Executive with an opinion
that he has substantial authority not to report any Excise Tax on his
federal income tax return. Any determination by the Accounting Firm shall
be binding upon HEC and the Executive. As a result of the uncertainty in
the application of Section 4999 of the Code at the time of the initial
determination by the Accounting Firm hereunder, it is possible that a
Gross-Up Payment which will not have been made by HEC, should have been
made ("Underpayment"), consistent with the calculations required to be made
hereunder. In the event that HEC exhausts its remedies pursuant to this
Section 4 and the Executive thereafter is required to made a payment of any
Excise Tax, the Accounting Firm shall determine, at HEC's expense, the
amount of the Underpayment that has occurred and any Underpayment shall be
promptly paid by HEC to or for the benefit of the Executive.
(c) NOTIFICATION REQUIRED. The Executive shall notify HEC in writing of any
claim by the Internal Revenue Service that, if successful, would require
the payment by HEC of the Gross-Up Payment. Such notification shall be
given as soon as practicable but not later than ten (10) business days
after the Executive knows of such claim and shall appraise HEC of the
nature of such claim and the date on which such claim is requested to be
paid. The Executive shall not pay such claim prior to the expiration of the
thirty (30) day period following the date on which it gives such notice to
HEC (or such shorter period ending on the date that any payment of taxes
with respect to such claim is due). If HEC notifies the Executive in
writing prior to the expiration of such period that it desires to contest
such claim, the Executive shall:
(i) give HEC any information reasonably requested by HEC relating to such
claim,
(ii) take such action in connection with contesting such
claim as HEC shall reasonably request in writing from
time to time, including, without limitation,
accepting legal representation with respect to such
claim by an attorney reasonably selected by HEC,
(iii) cooperate with HEC in good faith in order to effectively contest such
claim,
(iv) permit HEC to participate in any proceedings relating to such claim,
provided, however, that HEC shall bear and pay directly all costs and
expenses (including additional interest and penalties) incurred in
connection with such contest and shall indemnify and hold the Executive
harmless, on an after-tax basis, for any Excise Tax or income tax,
including interest and penalties with respect thereto, imposed as a result
of such representation and payment of costs and expenses. Without
limitation on the foregoing provisions of this Section 4(c), HEC shall
control all proceedings taken in connection with such contest and, at its
sole option, may pursue or forgo any and all administrative appeals,
proceedings, hearings and conferences with the taxing authority in respect
of such claim and may, at its sole option, either direct the Executive to
pay the tax claimed and xxx for a refund, or contest the claim in any
permissible manner, and the Executive agrees to prosecute such contest to a
determination before any administrative tribunal, in a court of initial
jurisdiction and in one or more appellate courts, as HEC shall determine;
provided, however, that if HEC directs the Executive to pay such claim and
xxx for a refund, HEC shall advance the amount of such payment to the
Executive, on an interest-free basis and shall indemnify and hold the
Executive harmless, on an after-tax basis, from any Excise Tax or income
tax, including interest or penalties with respect thereto, imposed with
respect to such advance or with respect to any imputed income with respect
to such advance; and further provided that any extension of the statute of
limitations relating to payment of taxes for the taxable year of the
Executive with respect to which such contested amount is claimed to be due
to limited solely to such contested amount. Furthermore, HEC's control of
the contest shall be limited to issues with respect to which a Gross-Up
Payment would be payable hereunder and the Executive shall be entitled to
settle or contest, as the case may be, any other issue raised by the
Internal Revenue Service or any other taxing authority.
(d) REPAYMENT. If, after the receipt by the Executive of an amount advanced by
HEC pursuant to Section 4(c), the Executive becomes entitled to receive any
refund with respect to such claim, the Executive shall (subject to HEC's
complying with the requirements of Section 4(c) promptly pay to HEC the
amount of such refund (together with any interest paid or credited thereon
after applicable thereto). If, after the receipt by the Executive of an
amount advanced by HEC pursuant to Section 4(c), a determination is made
that the Executive shall not be entitled to any refund with respect to such
claim and HEC does not notify the Executive in writing of its intent to
contest such denial of refund prior to the expiration of thirty days after
such determination then such advance shall be forgiven and shall not be
required to be repaid and the amount of such advance shall offset, to the
extent thereof, the amount of Gross-Up Payment required to be paid.
5. TERM. Within ninety days after June ____, 2002, and within ninety days
after each successive three-year period of time thereafter that this
Agreement is in effect, HEC shall have the right to review this Agreement,
and in its sole discretion either continue and extend this Agreement,
terminate this Agreement, and/or offer Executive a different agreement. HEC
will notify Executive of such action within said ninety-day period. This
Agreement shall remain in effect until so terminated and/or modified by
HEC. Failure of HEC to take any action within said ninety-day period shall
be considered as an extension of this Agreement for an additional
three-year period of time. If a Change of Control occurs while this
Agreement is in effect, then this Agreement shall not be subject to
termination or modification and shall remain in force for a period of three
years after such Change of Control, and if within said three years the
contingency factors occur which would entitle Executive to the benefits as
provided herein, this Agreement shall remain in effect in accordance with
its terms.
GENERAL.
(a) SUCCESSORS. This Agreement shall be binding upon and inure to
the benefit of HEC and any successor of HEC, by merger or
otherwise. This Agreement shall also be binding upon and inure
to the benefit of the Executive and Executive's estate. If
Executive shall die prior to full payment of amounts due
pursuant to this Agreement, such amounts shall be payable
pursuant to the terms of this Agreement, to Executive's
estate.
(b) SEVERABILITY. Any provision in this Agreement which is
prohibited or unenforceable in any jurisdiction by reason of
applicable law shall, as to such jurisdiction, be ineffective
only to the extent of such prohibition or unenforceability
without invalidating or affecting the remaining provisions
hereof, and any such prohibition or unenforceability in any
jurisdiction shall not invalidate or render unenforceable such
provision in any other jurisdiction.
(c) CONTROLLING LAW. This Agreement shall be governed by, and construed in
accordance with, the laws of the State of Colorado.
(d) RELEASE. As a condition to the receipt of any benefit under
Paragraph 2 hereof, Executive shall first execute a release,
in the form established by HEC, releasing HEC, its
shareholders, officers, directors, employees and agents from
any and all claims and from any and all causes of action of
any kind or character, including but not limited to all claims
or causes of action arising out of Executive's employment with
HEC or the termination of such employment.
(e) UNFUNDED OBLIGATION. The obligation to pay amounts under this
Agreement is an unfunded obligation of HEC and no such
obligation shall create a trust or be deemed to be secured by
any pledge or encumbrance on any property of HEC.
(f) NOT A CONTRACT OF EMPLOYMENT. This Agreement shall not be
deemed to constitute a contract of employment, nor shall any
provision hereof effect (i) the right to HEC of discharge
Executive at will or (ii) the terms and conditions of any
other agreement between HEC and Executive except as provided
herein. No severance compensation shall be payable hereunder
as a result of any termination of employment before a Change
of Control.
(g) NONALIENATION. No benefit payable hereunder may be assigned,
pledged or mortgaged and shall not be subject to legal process
or attachment for claims of creditors of Executive except to
the extent required by applicable law.
(h) OTHER SEVERANCE ARRANGEMENTS. If the Executive is entitled to
severance pay and benefits pursuant to this Agreement
following a Change in Control, the following shall apply:
(i) The severance pay and benefits provided for in
Section 2 shall be reduced by the amount of any other
severance or termination pay to which the Executive
may be entitled under any agreement with the Company
or any of its Affiliates
(iii) The Executive's entitlement to any other compensation
or benefits or any indemnification shall be
determined in accordance with the Company's employee
benefit plans and other applicable programs, policies
and practices or any indemnification agreement then
in effect.
(i) FEES AND EXPENSES. HEC shall pay all legal fees and related
expenses (including the costs of experts, evidence and
counsel) reasonably incurred by the Executive as they become
due as a result of the Executive seeking to obtain or enforce
any right or benefit provided by this Agreement.
(j) NOTICE. For the purposes of this Agreement, notices and all
other communications provided for in the Agreement (including
the Notice of Termination) shall be in writing and shall be
deemed to have been duly given when personally delivered or
sent by certified mail, return receipt requested, postage
prepaid, or overnight courier or by facsimile, addresses to
the respective addresses and facsimile numbers last given by
each party to the other, provided that all notices to HEC
shall be directed to the attention of the Board with a copy to
the Secretary of HEC. All notices and communications shall be
deemed to have been received on the date of delivery thereof
or on the third business day after the mailing thereof, except
that notice of change of address shall be effective only upon
receipt.
(k) NON-EXCLUSIVITY OF RIGHTS. Nothing in this Agreement shall
prevent or limit the Executive's continuing or future
participation in any benefit, bonus, incentive or other plan
or program provided by HEC (except for any severance or
termination policies, plans, programs or practices) and for
which the Executive may qualify, nor shall anything herein
limit or reduce such rights as the Executive may have under
any other agreements with HEC (except for any severance or
termination agreements). Amounts which are vested benefits or
which the Executive is otherwise entitled to receive under any
plan or program of HEC shall be payable in accordance with
such plan or program, except as explicitly modified by this
Agreement.
(l) SETTLEMENT OF CLAIMS. HEC's obligation to make the payments
provided for in this Agreement and otherwise to perform its
obligations hereunder shall not be affected by any
circumstances, including, without limitations, any set-off,
counterclaim, recoupment, defense or other right which HEC may
have against the Executive or others.
(m) MUTUAL NON-DISPARAGEMENT. HEC, its affiliates and subsidiaries
agree and HEC shall use its best efforts to cause their
respective executive officers and directors to agree, that
they will not make or publish any statement critical of the
Executive or in any way adversely affecting or otherwise
maligning the Executive's reputation. The Executive agrees
that it will not make or publish any statement critical of
HEC, its affiliates and their respective executive officers
and directors, or in any way adversely affecting or otherwise
maligning the business reputation of any member of HEC, its
affiliates and subsidiaries and their respective officers,
directors and employees.
(n) MISCELLANEOUS. No provision of this Agreement may be modified,
waived or discharged unless such waiver, modification or
discharge is agreed to in writing and signed by the Executive
and HEC. No waiver by either party hereto at any time of any
breach by the other party hereto of, or compliance with, any
condition or provision of this Agreement to be performed by
such other party shall be deemed a waiver of similar or
dissimilar provisions or conditions at the same or at any
prior or subsequent time. No agreement or representations,
oral or otherwise, express or implied, with respect to the
subject matter hereof have been made by either party which are
not expressly set forth in this Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the
______day of __________, 1999.
"EXECUTIVE"
----------------------------------
"HEC"
HALLWOOD ENERGY CORPORATION
-----------------------------------
Schedule for Change of Control Contracts
Signing Executives Effective Date Severance Amount
Xxxxxxx X. Xxxxxxxx June 9, 1999 three times compensation
Xxxxxxx X. Xxxxxxxx June 9, 1999 three times compensation
Xxxxxxx X. Xxxxxx June 9, 1999 two and one-half times
compensation
Xxxxxxxx X. Xxxxxx June 9, 1999 two and one-half times
compensation
Xxxxxx X. Xxxxxxxxxx June 9, 1999 two times compensation
Xxxxx X. Xxxxxx June 9, 1999 two times compensation
Xxxxxxx X. Xxxxxx June 9, 1999 two times compensation
Xxxxxx X. Xxxx June 9, 1999 two times compensation
