EMPLOYMENT AGREEMENT
Exhibit
10.5
EMPLOYMENT
AGREEMENT (this “Agreement”), effective as of May 1, 2007 (“Effective Date”),
between Pegasi Energy Resources Corporation, a Texas corporation (the
“Company”), and W. (Xxxx) X. Xxxxxxxx (the “Employee”).
WHEREAS,
the Board of Directors of the Company (the “Board”) has determined that it is in
the best interests of the Company and its shareholders to employ the Employee
in
the position set forth below, and the Employee desires to serve in that
capacity.
WHEREAS,
it is anticipated that the Company will merge or otherwise combine its business
with a publicly traded shell company (“Pubco” or “Parent”) and that following
the completion of that merger (the “Shell Merger”), the Employee will be
employed by Pubco on the terms as are set forth herein.
NOW,
THEREFORE, in consideration of the foregoing premises, the Company and Employee
hereby agree as follows:
1. Employment
Period. The Company shall employ the Employee, and the Employee shall
serve the Company, on the terms and conditions set forth in this Agreement,
for
the period commencing on the date of the Shell Merger and ending three years
after such date (the “Initial Term” and, together with any subsequent term of
Employment, the “Employment Period”). The term of employment hereunder will
automatically be renewed for successive one-year terms (each such term a
“Renewal Term”) unless either party shall, at least 90 days before the last day
of the Employment Period, provide written notice to the other party that the
Employment Period will not be extended.
2. Position
and Duties.
(a) The
Employee shall serve as Executive Vice President of the Company, reporting
to
the Board, with such duties and responsibilities as are customarily assigned
to
such position, and such other duties and responsibilities not inconsistent
therewith as may be assigned to him from time to time by the Board.
(b) During
the Employment Period, and excluding any periods of vacation and sick leave
to
which the Employee is entitled, the Employee shall devote his full-time efforts
to the business and affairs of the Company and use his best efforts to carry
out
such responsibilities faithfully and efficiently. It shall not be considered
a
violation of the foregoing for the Employee to (i) serve on corporate, civic
or
charitable boards or committees, (ii) deliver lectures or fulfill speaking
engagements, (iii) manage personal investments, (iv) engage in other business
activities, so long as such activities do not materially interfere with the
performance of his responsibilities as an employee of the Company in accordance
with this Agreement or violate the provisions of Section 8 of this Agreement.
The Company acknowledges that the Private Placement Memorandum prepared in
connection with the Shell Merger describes certain personal investments and/or
business activities of Employee, and Company hereby consents to same and
acknowledges that Employee’s pursuit of such business activities does not
conflict with the Company’s business or violate the Covenant Not to Compete set
forth in Section 7 below.
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3. Compensation.
(a) Base
Salary. During the first contract year of the Initial Term, the
Employee shall receive an annual base salary (the “Annual Base Salary”) of
$225,000. Employee will receive an annual salary review by the Board, or an
authorized committee thereof, on or before each anniversary of the Effective
Date. The Annual Base Salary shall be payable in accordance with the Company’s
payroll practices as in effect from time to time. As part of the referenced
annual salary review, the Board or an authorized committee thereof may increase
(but not decrease) the Annual Base Salary above the foregoing amounts at its
discretion.
(b) Bonus.
In addition to the Annual Base Salary, the Board (or its designated
compensation committee) may award Employee an annual bonus at its discretion.
Employee acknowledges that Company does not currently intend to award Employee
any bonuses until Company is profitable.
(c) Benefits.
During the Employment Period, the Employee and the Employee’s direct
family shall be entitled to participate in all benefit programs of the Company
or Parent, including, but not limited to, health insurance coverage, as well
as
all welfare benefit plans, practices, policies and programs provided by the
Company or Parent, including, but not limited to any comprehensive dental plan,
retirement plans and profit sharing programs the Company or Parent may provide
to other employees from time to time.
(d) Expenses.
During the Employment Period, the Employee shall be entitled to receive
prompt reimbursement for all reasonable expenses incurred by the Employee in
carrying out the Employee’s duties under this Agreement, provided that the
Employee complies with the policies, practices and procedures of the Company
for
submission of expense reports, receipts and similar documentation of such
expenses.
(e)
Vacation. During the Employment Period, the Employee shall be entitled
to a paid annual vacation of four weeks and other fringe benefits on such terms
and conditions as may be determined by the Board or authorized committee thereof
from time to time.
4. Termination
of Employment.
(a)
Death or Disability. The Employee’s employment shall terminate
automatically upon the Employee’s death during the Employment Period. The
Company shall be entitled to terminate the Employee’s employment because of the
Employee’s Disability during the Employment Period. “Disability” means that (i)
the Employee has been unable, for a period of three (4) consecutive months
in
any given twelve (12) month period, to perform the Employee’s duties under this
Agreement, as a result of physical or mental illness or injury, and (ii) a
physician selected by the Company or its insurers, and acceptable to the
Employee or the Employee’s guardian or legal representative, has determined that
the Employee’s incapacity is total and permanent. A termination of the
Employee’s employment by the Company for Disability shall be communicated to the
Employee by written notice, and shall be effective on the 60th day after receipt
of such notice by the Employee (the “Disability Effective Date”), unless the
Employee is able to, and does, return to full-time performance of the Employee’s
duties before the Disability Effective Date.
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(b)
By the Company.
(A) The
Company may terminate the Employee’s employment during the
Employment Period for Cause or without Cause. “Cause” means:
(i)
Employee
having, in the reasonable judgment of the Company, committed an act which if
prosecuted and resulting in a conviction would constitute a fraud, embezzlement,
or any felonious offense (specifically excepting simple misdemeanors not
involving acts of dishonesty and all traffic violations);
(ii)
the
Employee’s theft, embezzlement, misappropriation of or intentional and malicious
infliction of damage to the Company’s property or business
opportunity;
(iii)
the
Employee’s repeated abuse of alcohol, drugs or other substances as determined by
an independent medical physician; or
(iv) the
Employee’s engagement in gross dereliction of duties, refusal to perform
assigned duties consistent with his position, his knowing and willful breach
of
any material provision of this Agreement continuing after written notice from
the Company or repeated violation of the Company’s written policies after
written notice.
(B)
A termination of the Employee’s employment by the Company for Cause
shall be effectuated by giving the Employee written notice (“Notice of
Termination for Cause”) of the termination, setting forth the conduct of the
Employee that constitutes Cause. Termination of employment by the Company for
Cause shall be effective on the date when the Notice of Termination for Cause
is
given, unless the notice sets forth a later date (which date shall in no event
be later than 60 days after the notice is given). Employee will be immediately
advised of any allegations of conduct covered by clause (A) above and will
be
provided a period of fifteen (15) days from the date of the written notice
to
defend himself against such allegations and to take any appropriate remedial
action. If Employee shows that the allegations are untrue or takes appropriate
remedial action to address the allegations, the Company will not terminate
the
Employee’s employment for Cause.
(C)
A termination of the Employee’s employment by the Company without Cause
shall be effected by giving the Employee written notice of the termination
at
least 3 months (90 days) prior to the termination date.
(c) By
the Employee.
(A) The
Employee may terminate employment with or without Good Reason.
“Good Reason” means:
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(i)
the
assignment to the Employee of any duties inconsistent in any respect with
paragraph (a) of Section 2 of this Agreement, other than actions that are not
taken in bad faith and are remedied by the Company within thirty (30) days
after
receipt of notice thereof from the Employee;
(ii)
any
failure by the Company to comply with any provision of Section 3 of this
Agreement, other than failures that are not taken in bad faith and are remedied
by the Company within thirty (30) days after receipt of notice thereof from
the
Employee;
(iii)
the
occurrence of a Non-Negotiated Change in Control of the Company (as defined
below); or
(iv)
the
Company’s material breach of this Agreement
For
purposes of this Agreement, “Non-Negotiated Change in Control” means any one or
more of the following occurrences:
(x) Any
individual, corporation (other than the Company, any trustees or other
beneficiary holding securities under any employee benefit plan of the Company,
or any Company owned, directly or indirectly, by the stockholders of the Company
in substantially the same proportions as their ownership of stock of the
Company), partnership, trust, association, pool, syndicate, or any other entity
or any group of persons acting in concert becomes the beneficial owner (within
the meaning of Rule 1 3d-3 under the Securities Exchange Act of 1934) of
securities of the Company possessing more than fifty percent (50%) of the voting
power for the election of directors of the Company;
(y) There
shall be consummated any consolidation, merger, or other business combination
involving the Company or the securities of the Company in which holders of
voting securities of the Company immediately prior to such consummation own,
as
a group, immediately after such consummation, voting securities of the Company
(or, if the Company does not survive such transaction, voting securities of
the
entity surviving such transaction) having less than fifty percent (5 0%) of
the
total voting power in an election of directors of the Company (or such other
surviving corporation); or
(z) There
shall be consummated any sale, lease, exchange, or other transfer (in one
transaction or a series of related transactions) of all, or substantially all,
of the assets of the Company (on a consolidated basis) to a party which is
not
controlled by or under common control with the Company.
(d)
A termination of employment by the Employee for Good Reason shall
be effectuated by giving the Company written notice (“Notice of Termination for
Good Reason”) of the termination, setting forth the event that constitutes Good
Reason. A termination of employment by the Employee for Good Reason shall be
effective on the fifth business day following
the date when the Notice of Termination for Good Reason is given, unless the
notice sets forth a later date (which date shall in no event be later than
30
days after the notice is given).
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(e) A
termination of the Employee’s employment by the Employee without Good Reason
shall be effected by giving the Company written notice of the termination at
least thirty (30) days prior to the termination date.
(f)
Notwithstanding
anything in this Agreement to the contrary, in no event will any amount which
otherwise would be payable under or pursuant to this Agreement be payable to
Employee to the extent such amount, together with all other amounts payable
and
benefits provided to Employee under or pursuant to this Agreement and/or under
any other plan(s), agreements and/or arrangement(s) arising out of Employee’s
employment relationship with Company and/or any direct or indirect subsidiary
of
Company (including without limitation any such amounts payable by any affiliate
of Company or any acquirer of any of the stock or assets of Company or any
affiliate of such acquirer), if paid to Employee, would result in Employee
receiving an “excess parachute payment” for purposes of Section 280G of the
Internal Revenue Code of 1986, as amended. The determination of whether a
payment under or pursuant to this Agreement would result in Employee receiving
an excess parachute payment (but for the provisions of this Section 4) shall
be
made by counsel for Company reasonably selected by Company (after consultation
with Company’s independent auditor) and acceptable to Employee.
(g) No
Waiver. The failure to set forth any fact or circumstance in a Notice
of Termination for Cause or a Notice of Termination for Good Reason shall not
constitute a waiver of the right to assert, and shall not preclude the party
giving notice from asserting, such fact or circumstance in an attempt to enforce
any right under or provision of this Agreement.
(h) Date
of Termination. The “Date of Termination” means the date of the
Employee’s death, the Disability Effective Date, the date on which the
termination of the Employee’s employment by the Company for Cause or by the
Employee for Good Reason is effective, or the date described in Section 4(b)(C)
above in the event the Company gives the Employee notice of a termination of
employment without Cause or the date described in Section 4(e) above in the
event the Employee gives the Company notice of a termination of employment
without Good Reason, as the case may be.
5. Obligations
of the Company upon Termination.
(a)
Termination for Reasons Other Than for Cause, Death or Disability,
or Good Reason. If, during the Employment Period, the
Company terminates the Employee’s employment, for any reason other than for
Cause, Death or Disability, or the Employee terminates his employment for Good
Reason, the Company shall (i) pay two and one half (2 1/2) times the Employee’s
accrued but unpaid portion of the Annual Base Salary (the “Accrued Obligations”)
to the Employee in a lump sum in cash within ten (10) days after the Date of
Termination, (ii) continue to pay (in periodic intervals consistent with
Company’s regular payroll practices) pay two and one half (2 1/2) times the
Annual Base Salary for the remainder of the Employment Period, and (iii) provide
the benefits listed under Section 3 for the remainder of the Employment
Period.
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(b) Termination
as a Result of Employee’s Death or Disability. If the Employee’s
employment is terminated by reason of the Employee’s death or Disability during
the Employment Period, (i) the Company shall pay the Accrued Obligations to
the
Employee or the Employee’s estate or legal representative, as applicable, in a
lump sum in cash within thirty (30) days after the Date of Termination, and
(ii)
the Company shall pay when originally due any Bonus due to the Employee, pro
rated for the period until the Date of Termination, to the Employee or the
Employee’s estate or legal representative.
(c) Termination
for Cause or Other than for Good Reason. If the Employee’s employment
is terminated by the Company for Cause during the Employment Period, or if
the
Employee terminates his employment during the Employment Period other than
for
Good Reason, the Company shall pay Employee the Accrued
Obligations.
6. Non-exclusivity
of Rights. Nothing in this Agreement shall prevent or limit the
Employee’s continuing or future participation in any plan, program, policy or
practice provided by the Company or any of its affiliated companies for which
the Employee may qualify, nor, subject to paragraph (f) of Section 4, shall
anything in this Agreement limit or otherwise affect such rights as the Employee
may have under any contract or agreement with the Company or any of its
affiliated companies. Vested benefits and other amounts that the Employee is
otherwise entitled to receive under any plan, policy, practice or program of,
or
any contract or agreement with, the Company or any of its affiliated companies
on or after the Date of Termination shall be payable in accordance with such
plan, policy, practice, program, contract or agreement, as the case may be,
except as explicitly modified by Section 4(f) of this Agreement, if
applicable.
7. Covenant
of Employee.
(a)
Employee recognizes that the services to be performed by him pursuant
to this Agreement are special, unique and extraordinary. The parties confirm
that it is reasonably necessary for the protection of the Company’s goodwill
that Employee agree, and accordingly, Employee does hereby agree and covenant
(the “Covenant Not to Compete”), that Employee will not, directly or indirectly,
except for the benefit of the Company:
(i)
become
an
officer, director, more than 5% stockholder, partner, employee, proprietor,
creditor or co-venturer of any corporation, firm or business engaged in the
Territory (as hereinafter defined) in the same business as that of the Company
(including the Company’s present and future subsidiaries and affiliates) as such
business shall exist on the day hereof and during the Employment Period;
or
(ii) solicit,
or cause or authorize, directly or indirectly, to be solicited for employment
for or on behalf of himself or third parties, any persons who were at any time
during the Employment Period hereunder, employees of the Company (including
the
Company’s present and future subsidiaries and affiliates) (except for general
solicitations made to the public at large); or
(iii)
employ or cause or authorize, directly or indirectly, to be employed
for
or on
behalf of himself or third parties, any such employees of the
Company
(including
the Company’s present and future subsidiaries and affiliates); or
(iv)
use the tradenames, trademarks, or trade dress of any of the products
of the Company (including the Company’s present and future subsidiaries and
affiliates); or any substantially similar tradename, trademark or trade dress
likely to cause, or having the effect of causing, confusion in the minds of
manufacturers, customers, suppliers and retail outlets and the public
generally.
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The
solicitation or acceptance of orders outside the Territory for shipment to,
or
delivery in, any of part of the Territory shall constitute doing business in
the
Territory in violation of this Covenant.
Employee
acknowledges his intention that the Company shall have the broadest possible
protection of the value of the business in the Territory consistent with public
policy, and it will not violate the intent of the parties if any court should
determine that, consistent with established precedent of the forum state, the
public policy of such state requires a more limited restriction in geographical
area or duration of the aforesaid covenant not to compete, contained in an
appropriate decree.
(b) The
term
of Employee’s Covenant Not to Compete with the Company as set forth in this
Section 7, shall commence on the date of Employee’s last day of employment with
the Company, pursuant to this Agreement or otherwise, regardless of the reason
for the termination of such employment, and shall terminate two years
thereafter. The term of this Covenant Not to Compete as it relates to Employee
under this Section is referred to hereinafter as “Employee’s Term.”
(c) The
territory of this Agreement shall consist of all land at any time held under
lease by the Company (or any affiliate) for mineral exploration or development
(“Leased Land”) and all surrounding land within two (2) miles from any Leased
Land (collectively, the “Territory”).
8. Confidentiality;
Return of Property
(a)
The Employee acknowledges that during the Employment Period he will
receive
confidential information from the Company, the Parent and subsidiaries of the
Company (each
a
“Relevant Entity”). Accordingly, the Employee agrees that during the Employment
Period and thereafter, the Employee and his affiliates shall not, except in
the
performance of his obligations to the Company hereunder or as may otherwise
be
approved in advance by the Company, directly or indirectly, disclose or use
(except for the direct benefit of the Company) any confidential information
that
he may learn or has learned by reason of his association with any Relevant
Entity. Upon termination of this Agreement, the Employee shall promptly return
to the Company any and all properties, records or papers of any Relevant Entity,
that may have been in his possession at the time of termination, whether
prepared by the Employee or others, including, but not limited to, confidential
information and keys. For purposes of this Agreement, “confidential
information” includes all data, analyses, reports, interpretations, forecasts,
documents and information concerning a Relevant Entity and its affairs,
including, without limitation with respect to clients, products, policies,
procedures, methodologies, trade secrets and other
intellectual property, systems, personnel, confidential reports, technical
information, financial information, business transactions, business plans,
prospects or opportunities, (i) that the Company reasonably believes are
confidential or (ii) the disclosure of which could be injurious to a Relevant
Entity or beneficial to competitors of a Relevant Entity, but shall exclude
any
information that (x) the Employee is required to disclose under any applicable
laws, regulations or directives of any government agency, tribunal or authority
having jurisdiction in the matter or under subpoena or other process of law,
(y)
is or becomes publicly available prior to the Employee’s disclosure or use of
the information in a manner violative of the second sentence of this Section
8(a), or (z) is rightfully received by Employee without restriction or
disclosure from a third party legally entitled to possess and to disclose such
information without restriction (other than information that he may learn or
has
learned by reason of his association with any Relevant Entity). For purposes
of
this Agreement, “affiliate” means any entity that, directly or indirectly, is
controlled by, or under common control with, the Employee. For purposes of
this
definition, the terms “controlled” and “under common control with” means the
possession, direct or indirect, of the power to direct or cause the direction
of
the management and policies of such person, whether through the ownership of
voting stock, by contract or otherwise.
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(b)
Injunction. Notwithstanding any other provisions of this
Agreement, Employee acknowledges and agrees that in the event of a violation
or
threatened violation of any of the provisions of this Section 8, Employer shall
have no adequate remedy at law and shall therefore be entitled to enforce each
such provision by temporary or permanent injunctive or mandatory relief obtained
in any court of competent jurisdiction without the necessity of proving damage
or posting any bond or other security, and without prejudice to any other
remedies that may be available at law or in equity.
9. Successors.
(a) This
Agreement is personal to the Employee and, without the prior written consent
of
the Company, shall not be assignable by the Employee otherwise than by will
or
the laws of descent and distribution. This Agreement shall inure to the benefit
of and be enforceable by the Employee’s legal representatives.
(b) This
Agreement shall inure to the benefit of and be binding upon the Company and
its
successors and assigns.
(c) It
is anticipated that the Company will merge or otherwise combine its business
with Pubco and that following the completion of the Shell Merger, the Employee
will be employed by Pubco on the exact same terms as are set forth herein.
The
Company will take whatever action is required and execute any documents that
may
be required to further the intent of this Section 9(c).
10.
Miscellaneous.
(a)
This Agreement shall be governed by, and construed in accordance with,
the laws of the State of Texas, without reference to principles of conflict
of
laws. The captions of this Agreement are not part of the provisions hereof
and
shall have no force or effect. This Agreement
may not be amended or modified except by a written agreement executed by the
parties hereto or their respective successors and legal
representatives.
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(b) All
notices and other communications under this Agreement shall be in writing and
shall be given by hand delivery to the other party or by registered or certified
mail, return receipt requested, postage prepaid, addressed as
follows:
If
to the
Employee:
000
Xxxxxx Xxxx 0000
Xxxxxxx,
Xxxxx 00000
If
to the
Company:
Pegasi
Energy Resources Corporation
000
Xxxxx
Xxxxxxxx, Xxxxx 000
Xxxxx,
Xxxxx 00000
or
to
such other address as either party furnishes to the other in writing in
accordance with this paragraph (b) of Section 10. Notices and communications
shall be effective when actually received by the addressee.
(c) The
invalidity or unenforceability of any provision of this Agreement shall not
affect the validity or enforceability of any other provision of this Agreement.
If any provision of this Agreement shall be held invalid or unenforceable in
part, the remaining portion of such provision, together with all other
provisions of this Agreement, shall remain valid and enforceable and continue
in
full force and effect to the fullest extent consistent with law.
(d) Notwithstanding
any other provision of this Agreement, the Company may withhold from amounts
payable under this Agreement all federal, state, local and foreign taxes that
are required to be withheld by applicable laws or regulations.
(e) The
failure of the Employee or the Company to insist upon strict compliance with
any
provision of, or to assert any right under, this Agreement shall not be deemed
to be a waiver of such provision or right or of any other provision of or right
under this Agreement.
(f) The
Employee and the Company acknowledge that this Agreement supersedes any other
agreement between them concerning the subject matter hereof.
(g) This
Agreement may be executed in one or more counterparts, each of which shall
be
deemed an original, and which together shall constitute one
instrument.
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IN
WITNESS WHEREOF, the Employee has hereunto set the Employee's hand and, pursuant
to the authorization of its Board, the Company has caused this Agreement to
be
executed in its name on its behalf, all as of the day and year first above
written.
|
PEGASI
ENERGY RESOURCES CORPORATION
|
|||
|
|
By:
|
/s/ Xxxxxxx X. Xxxxxxx | |
| Name: Xxxxxxx X. Xxxxxxx | |||
| Title: President and CEO | |||
| EMPLOYEE | |||
| /s/ X. X. Xxxxxxxx | |||
| W. (Xxxx) X. Xxxxxxxx |
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