CHANGE IN CONTROL EXECUTIVE SEVERANCE AGREEMENT

 

EXHIBIT 10.5

 

               CHANGE IN CONTROL EXECUTIVE SEVERANCE AGREEMENT

 

     This Change in Control Executive Severance Agreement (this "Agreement"),

dated and effective May 5, 2005 (the ("Effective Date"), is by and between

Delta Petroleum Corporation, a Colorado corporation (the "Company"), and Kevin

K. Nanke (the "Executive").

 

                             STATEMENT OF PURPOSE

 

     The Company desires, for its continued success, to have the benefit of

services of experienced management personnel like the Executive.   The Board of

Directors of the Company (the "Board") therefore believes that it is in the

best interest of the Company and its shareholders that, in the event of a

prospective Change in Control of the Company, the Executive be reasonably

secure in his employment and position with the Company, so that the Executive

can exercise independent judgment as to the best interest of the Company and

its shareholders, without distraction by any personal uncertainties or risks

regarding the Executive's continued employment with the Company created by the

possibility of such a Change in Control. Therefore, the Company and the

Executive now desire to enter into this Agreement to assure severance benefits

to the Executive in connection with certain terminations of employment upon or

after a Change in Control of the Company.

 

                                   AGREEMENT

 

     In consideration of the statements made in the Statement of Purpose and

the mutual agreements set forth below, the Company and the Executive hereby

enter into this Agreement, as follows:

 

     1.   Definitions and Interpretation.   Various terms used in this Agreement

are defined in Exhibit A; each of the defined terms used in this Agreement

begins with a capital letter. Various interpretative matters for this

Agreement are also set forth in Exhibit A which is an integral part of this

Agreement and incorporated herein by reference.

 

     2.   Term of Agreement.   This Agreement will commence on the Effective

Date and shall continue in effect until December 31, 2006.   At the end of such

period and, if extended at the end of each two-year period commencing January

1st thereafter, the term of this Agreement shall be extended for an additional

two (2) year period but only if the Board delivers written notice at least

sixty (60) days prior to the end of such term, or extended term, to Executive

that the Agreement will be extended for an additional 2-year period.   In the

event that such notice is not provided, the Agreement will terminate at the

end of the term, or extended term, then in progress.   However, in the event a

Change in Control occurs during the original or any extended term, this

Agreement will remain in effect for thirty-six (36) months beyond the end of

the month next following the month in which such Change in Control occurred.

Notwithstanding the foregoing, severance and other benefits shall be provided

under this Agreement only in the event of a Severance Payment Event (as

defined in Exhibit A).   If there is not a Severance Payment Event, then any

severance or other post-termination benefits shall be provided under the terms

and conditions of the Employment Agreement (as defined in Exhibit A) to the

extent applicable.

 

     3.   Severance Benefits. Upon the occurrence of a Severance Payment Event,

in addition to any other severance or employment-termination compensation or

benefits to which the Executive may be entitled from the Company or any

 

 

Subsidiary under the terms of any Plan (other than a severance benefits plan

for employees generally) of which the Executive was a participant or a

beneficiary immediately before the Severance Payment Event, the following

shall occur:

 

          (a)   The Company shall pay the Executive in cash, within five

Business Days after the Severance Payment Event, all of his Base Salary and

all other earned but unpaid cash compensation or entitlements due to the

Executive through (and including) the date of the Severance Payment Event,

including unused earned and accrued vacation pay and unreimbursed reimbursable

business expenses.

 

          (b)   The Company shall make the Severance Payment in cash.   In its

discretion, the Compensation Committee may elect to make the Severance Payment

in a lump sum or in substantially equal monthly payments over 12 months, which

payment(s) shall be paid or commence to be paid within five Business Days

after the Severance Payment Event.

 

          (c)   The Company shall provide or arrange to provide the Executive

(whether or not under any Welfare Benefit Plan then maintained), at the

Company's sole expense and for the Benefit Continuation Period, Welfare

Benefits that are substantially the same the Welfare Benefits provided to the

Executive (and the Executive's spouse, dependents and beneficiaries)

immediately before the Severance Payment Event, except that the Welfare

Benefits to which the Executive is entitled under this subsection (c) will be

subject to the Executive's compliance with the restrictions set out in

Sections 4 through 13, and will be reduced to the extent that comparable

welfare benefits are received by the Executive from an employer other than the

Company or any Subsidiary during the Benefit Continuation Period. (The fact

that the cost of the participation by the Executive, or the Executive's

spouse, dependents or beneficiaries, in any Welfare Benefit Plan was paid

indirectly by the Company, as a reimbursement or a credit to the Executive,

before the Severance Payment Event does not mean that the corresponding

Welfare Benefits were not "provided to the Executive" by the Company for the

purpose of this subsection (c)).   Notwithstanding the foregoing, this

subsection (c) shall not apply if the Severance Payment Event is attributable

to the death of Executive; in such event, the Designated Beneficiary, spouse

and dependents of Executive shall be entitled to whatever rights and benefits

they have under the Plans at the time of death and nothing herein shall be

construed to limit   such rights and benefits.   In the event that the Company

cannot provide coverage under any Welfare Benefit Plan, as described in this

subsection (c), for the entire Benefit Continuation Period, or any portion

thereof, for whatever reason, then the Company shall pay the actuarial

equivalent of the present value of such foregone coverage for Executive (and

his spouse, dependents and beneficiaries, as applicable) directly to Executive

in a cash lump sum payment.   Such determination for each affected Welfare

Benefit Plan shall be made in good faith by the Compensation Committee.

 

           (d)   Each Stock Award outstanding immediately before the Severance

Payment Event and not yet exercised or forfeited (as the case may be) will

automatically accelerate and become fully vested, exercisable, or

nonforfeitable upon the Severance Payment Event, as though all requisite time

had passed to fully vest the Stock Award or cause it to become exercisable or

nonforfeitable.   In addition to Stock Awards, any compensation due under a

performance-based, long-term incentive plan of the Company or a Subsidiary

will automatically accelerate and become fully payable and nonforfeitable upon

the Severance Payment Event, as though all requisite time had passed to fully

vest such compensation and all requisite performance goals attributable

thereto have been fully attained or satisfied.

 

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     In the event of any change to a Welfare Benefits Plan following a

Severance Payment Event, Executive and his spouse, dependents and

beneficiaries, as applicable, shall be treated consistently with the

then-current officers of the Company (or its successor) with respect to the

terms and conditions of coverage and other substantive provisions of the

Welfare Benefits plan.   Executive and his spouse hereby agree to acquire and

maintain any and all coverage for themselves and dependents that either or

both of them are entitled to at any time under (i) a health plan offered by

another employer or (ii) the Medicare program or any other medical coverage

program of the United States or any agency thereof.

 

     Notwithstanding any provision of this Agreement to the contrary, in order

to receive the severance benefits payable under Section 3(c) following a

Severance Payment Event, the Executive must first execute an appropriate

release agreement (on a form provided by the Company) whereby the Executive

agrees to release and waive, in return for such severance benefits, any

federal or state claims or causes of action that he has or may have against

the Company or a Subsidiary including, without limitation, for unlawful

discrimination, harassment or retaliation; provided, however, such release

agreement shall not release any claim or cause of action by or on behalf of

the Executive for (a) any payment or benefit that may be due or payable under

this Agreement or any Plan prior to the receipt thereof, (b) any willful

failure by the Company to cooperate with Executive (i) in exercising his

vested stock options or (ii) in the receipt of the proceeds from, or sale of,

his shares of restricted stock in the Company, each in accordance with the

terms of the respective Plan and stock option and restricted stock agreement,

as applicable, (c) non-payment of salary or benefits to which he is entitled

from the Company as of the Severance Payment Event, or (d) a breach of this

Agreement or the Employment Agreement by the Company.

 

     Notwithstanding any provision hereof to the contrary, the severance

benefits and post-termination restrictive covenants as provided in this

Agreement shall not duplicate, or otherwise be in addition to, similar

severance benefits or covenants provided under the Employment Agreement.   This

Agreement shall control and govern over the Employment Agreement in such

respect but only upon the occurrence of a Severance Payment Event hereunder.

 

     4.   Nondisclosure and Noncompetition. As an inducement to the Company to

enter into this Agreement, the Executive represents to and covenants with or

in favor of the Company his compliance with the restrictive covenants in

Sections 5 through 13, as a condition to the Company's obligation to continue

to provide severance benefits to Executive under Section 3 and to make

Gross-Up Payments to the Executive under Section 14; the Company may refuse to

continue providing those severance benefits or to make any Gross-Up Payment if

there is demonstrable noncompliance by Executive, as reasonably determined in

good faith by the Compensation Committee with notice to Executive and 30 days

to appeal such decision to the Compensation Committee.

 

     5.   Trade Secrets.  

 

         (a)   Access to Trade Secrets.   As of the Effective Date and on an

ongoing basis, the Company agrees to give Executive access to Trade Secrets

which the Executive did not have access to, or knowledge of, before the

Effective Date.  

 

 

 

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         (b)   Access to Specialized Training.   As of the Effective Date and on

an ongoing basis, the Company has provided, and agrees to provide on an

ongoing basis, Executive with Specialized Training which the Executive does

not have access to, or knowledge of, before the Effective Date.  

 

         (c)   Agreement Not to Use or Disclose Trade Secrets.   In exchange for

the Company's promises to provide Executive with access to Trade Secrets and

Specialized Training and the other benefits provided under this Agreement,

Executive agrees that he will not during the Employment Period, or at any time

thereafter, disclose to anyone, including, without limitation, any person,

firm, corporation or other entity, or publish or use for any purpose, any

Trade Secrets and Specialized Training, except as required in the ordinary

course of the Company's business or as authorized by the Board.

 

         (d)   Agreement to Refrain from Defamatory Statements.   Executive

shall refrain, both during the Employment Period and thereafter, from

publishing any oral or written statements about any directors, officers,

employees, agents, investors or representatives of the Company or any

Affiliate that are slanderous, libelous, or defamatory; or that disclose

private or confidential information about the business affairs, directors,

officers, employees, agents, investors or representatives of the Company or

any Affiliate; or that constitute an intrusion into the seclusion or private

lives of any of such directors, officers, employees, agents, investors or

representatives; or that give rise to unreasonable publicity about the private

lives of such persons; or that place any such person in a false light before

the public; or that constitute a misappropriation of the name or likeness of

any such person.   A violation or threatened violation of these restrictive

covenants may be enjoined by a court of law notwithstanding the arbitration

provisions of Section 22.

 

     6.   Duty to Return Company Documents and Property.   Upon termination of

the Employment Period, Executive shall immediately return and deliver to the

Company any and all papers, books, records, documents, memoranda and manuals,

e-mail, electronic or magnetic recordings or data, including all copies

thereof, belonging to the Company or relating to its business, in Executive's

possession, whether prepared by Executive or others.   If at any time after the

Employment Period, Executive determines that he has any Trade Secrets in his

possession or control, Executive shall immediately return them to the Company,

including all copies thereof.

 

     7.   Best Efforts and Disclosure.   Executive agrees that, while he is

employed with the Company, he shall devote his full business time and

attention to the Company's business and shall use his best efforts to promote

its success.   Further, Executive shall promptly disclose to the Company all

ideas, inventions, computer programs, and discoveries, whether or not

patentable or copyrightable, which he may conceive or make, alone or with

others, during the Employment Period, whether or not during working hours, and

which directly or indirectly:

 

         (a)   relate to a matter within the scope, field, duties or

responsibility of Executive's employment with the Company; or

 

         (b)   are based on any knowledge of the actual or anticipated business

or interests of the Company; or

 

         (c)   are aided by the use of time, materials, facilities or

information of the Company.

 

 

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      Executive assigns to the Company, without further compensation, any and

all rights, titles and interest in all such ideas, inventions, computer

programs and discoveries in all countries of the world.   Executive recognizes

that all ideas, inventions, computer programs and discoveries of the type

described above, conceived or made by Executive alone or with others within 12

months after the Employment Termination Date (voluntary or otherwise), are

likely to have been conceived in significant part either while employed by the

Company or as a direct result of knowledge Executive had of proprietary

information or Trade Secrets.   Accordingly, Executive agrees that such ideas,

inventions or discoveries shall be presumed to have been conceived during his

Employment Period, unless and until the contrary is clearly established by the

Executive.

 

     8.   Inventions and Other Works.   Any and all writings, computer software,

inventions, improvements, processes, procedures and/or techniques which

Executive may make, conceive, discover, or develop, either solely or jointly

with any other person or persons, at any time during the Employment Period,

whether at the request or upon the suggestion of the Company or otherwise,

which relate to or are useful in connection with any business now or hereafter

carried on or contemplated by the Company, including developments or

expansions of its present fields of operations, shall be the sole and

exclusive property of the Company.   Executive agrees to take any and all

actions necessary or appropriate so that the Company can prepare and present

applications for copyright or Letters Patent therefor, and secure such

copyright or Letters Patent wherever possible, as well as reissue renewals,

and extensions thereof, and obtain the record title to such copyright or

patents.   Executive shall not be entitled to any additional or special

compensation or reimbursement regarding any such writings, computer software,

inventions, improvements, processes, procedures and techniques.   Executive

acknowledges that the Company from time to time may have agreements with other

persons or entities which impose obligations or restrictions on the Company

regarding inventions made during the course of work thereunder or regarding

the confidential nature of such work.   Executive agrees to be bound by all

such obligations and restrictions, and to take all action necessary to

discharge the obligations of the Company.

 

     9.   Non-Solicitation Restriction.   To protect Trade Secrets, it is

necessary to enter into the following restrictive covenants which are

ancillary to the enforceable promises between the Company and Executive in

Sections 5 through 8 and other provisions of this Agreement.   Only if there is

a Severance Payment Event that results from Executive's voluntary termination

of employment for Good Reason, Executive hereby covenants and agrees that he

will not, directly or indirectly, without the prior written consent of the

Board or the Compensation Committee, either individually or as a principal,

partner, agent, consultant, contractor, employee, or as a director or officer

of any entity, or in any other manner or capacity whatsoever, except on behalf

of the Company, solicit business, or attempt to solicit business, in products

or services competitive with any products or services offered or performed by

the Company or any Subsidiary with respect to any property, drilling program,

or oil or gas development prospect, project or field, in which the Company or

any Subsidiary does business or has any business interest as of the Severance

Payment Event, or either (a) from those individuals or entities with whom the

Company or Subsidiary was involved with, or participated in, any oil or gas

exploration or development project or (b) with respect to any property in

which the Company or Subsidiary had any working, royalty or other interest, at

any time during the two-year period ending on the Employment Termination Date.

The prohibitions set forth in this Section 9 shall remain in effect for a

period of one (1) year following the Employment Termination Date.

 

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     10.   Non-Competition Restriction.   Executive hereby agrees that in order

to protect Trade Secrets, it is necessary to enter into the following

restrictive covenant which is ancillary to the enforceable promises between

the Company and Executive in Sections 5 through 9 and other provisions of this

Agreement.   Only if there is a Severance Payment Event that results from

Executive's voluntary termination of employment for Good Reason, Executive

hereby covenants and agrees that during the Employment Period, and for a

period of one (1) year following the Employment Termination Date due to such

Severance Payment Event, Executive will not, without the prior written consent

of the Board or the Compensation Committee, become interested in any capacity

in which Executive would perform any similar duties to those performed while

at the Company, directly or indirectly (whether as proprietor, stockholder,

director, partner, employee, agent, independent contractor, consultant,

trustee, or in any other capacity), with respect to any property, drilling

program, oil or gas leasehold, project or field, in which the Company or any

Subsidiary participates, or has any investment or other business   interest in,

within the Restricted Territory or within five (5) miles of the boundary of

any existing Company leasehold in the United States in which the Company or

Subsidiary has conducted business at any time within the two-year period

immediately preceding the Severance Payment Event within a two-year period

from such date (a "Competing Enterprise"); provided, however, Executive shall

not be deemed to be participating or engaging in a Competing Enterprise solely

by virtue of his ownership of not more than one percent (1%) of any class of

stock or other securities which are publicly traded on a national securities

exchange or in a recognized over-the-counter market.

 

     11.   No-Recruitment Restriction.   Executive agrees that during the

Employment Period, and for a period of one (1) year following the Employment

Termination Date due to any   Severance Payment Event, Executive will not,

either directly or indirectly, or by acting in concert with others, solicit or

influence, or seek to solicit or influence, any employee or independent

contractor performing services for the Company or any Subsidiary to terminate,

reduce or otherwise adversely affect his or her employment or other

relationship with the Company or any Subsidiary.

 

     12.   Tolling.   If Executive violates any of the restrictions contained in

Sections 5 through 12, then notwithstanding any provision hereof to the

contrary, the restrictive period will be suspended and will not run in favor

of Executive from the time of the commencement of any such violation until the

time when the Executive cures the violation to the reasonable satisfaction of

the Board or Compensation Committee.

 

     13.   Reformation.   If a court or arbitrator rules that any time period or

the geographic area specified in any restrictive covenant in Sections 5

through 12 is unenforceable, then the time period will be reduced by the

number of months, or the geographic area will be reduced by the elimination of

such unenforceable portion, or both, so that the restrictions may be enforced

in the geographic area and for the time to the full extent permitted by law.

 

     14.   Golden Parachute Excise Taxes.

 

          (a)   If all or any portion of the Total Severance Benefits payable

under this Agreement as determined without regard to any additional payments

required under this Section 14 (a "Payment"), would be subject to the Excise

Tax, then the Executive shall be entitled to receive an additional payment

("Gross-Up Payment") from the Company in an amount such that after payment by

the Executive of all taxes (including any interest or penalties imposed with

 

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respect to such taxes), including any income taxes (and any interest and

penalties imposed with respect thereto) and Excise Tax, imposed upon the

Gross-Up Payment, the Executive retains an amount of the Gross-Up Payment

equal to the Excise Tax imposed upon the Payment.

 

          (b)   Subject to subsection (c) of this Section 14, all

determinations required to be made under this Section 14, including whether

and when a Gross-Up Payment is required, the amount of any Gross-Up Payment,

and the assumptions to be used in arriving at such determination, shall be

made by the Accounting Firm, which shall be retained to provide detailed

supporting calculations to the Parties within 20 Business Days of the

Accounting Firm's receipt of written notice from the Company or the Executive

that there has been a Payment or such earlier time as is requested by the

Company. All fees and expenses of the Accounting Firm shall be paid solely by

the Company. Each determination by the Accounting Firm shall be binding upon

the Parties. Any Gross-Up Payment determined to be due to the Executive shall

be paid by the Company within five Business Days of the Company's receipt of

the Accounting Firm's determination. 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, it is possible that Gross-Up Payments

not made by the Company should have been made consistent with the calculations

required to be made under this Section 14 ("Underpayment"). If the Company

exhausts its remedies under subsection (c) of this Section 14 and the

Executive thereafter is required to make a payment of any Excise Tax, the

Accounting Firm shall determine the amount of the Underpayment that has

occurred, and any such Underpayment shall be promptly paid by the Company to

or for the benefit of the Executive.

 

          (c)   The Executive shall Notify the Company of any claim by the

Internal Revenue Service that, if successful, would require the payment by the

Company of the Gross-Up Payment. That Notice shall be given as soon as

practicable, but no later than 20 Business Days after the Executive is

informed in writing of such claim, and shall apprise the Company of the nature

of such claim and the date on which such claim is requested to be paid or

appealed. The Executive shall not pay any amount required by such claim before

the expiration of the 30-day period following the date on which he gives such

Notice (or such shorter period ending on the date that any payment of taxes is

due with respect to such claim). If the Company Notifies the Executive before

the expiration of such period that it desires to contest such claim, the

Executive shall:

 

               (i)   give the Company any information reasonably requested by

the Company relating to such claim;

 

               (ii)   take such action in connection with contesting such claim

as the Company shall reasonably request in writing from time to time,

including accepting representation with respect to such claim by counsel or

accountants (or both) selected by the Company and reasonably acceptable to the

Executive;

 

               (iii)   cooperate with the Company in good faith in order to

effectively contest such claim; and

 

               (iv)   permit the Company to participate in any proceedings

relating to such claim;

 

provided, however, that the Company shall bear and pay directly all costs and

expenses (including additional interest and penalties) incurred in connection

with such contest and shall indemnify the Executive, on an after-tax basis,

 

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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 limiting the foregoing provisions of this

subsection (c), the Company 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, direct the

Executive either to pay the tax claimed and sue for a refund or to 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 the Company

shall determine.   If the Company directs the Executive to pay such claim and

sue for a refund, the Company shall advance the amount of such payment to the

Executive, on an interest-free basis, and shall indemnify the Executive, 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 provided

further, that any extension of the statute of limitations relating to payment

of taxes for the Executive's taxable year with respect to which such contested

amount is claimed to be due is limited solely to such contested amount.

Further, the Company's control of the contest shall be limited to issues with

respect to which a Gross-Up Payment would be payable under this Section 14,

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)   If, after the Executive's receipt of an amount advanced by the

Company under subsection (c) above, the Executive becomes entitled to receive

any refund with respect to such claim, the Executive shall (subject to the

Company's complying with the requirements of subsection (c)) promptly pay to

the Company the amount of such refund (together with any interest paid or

credited thereon after taxes applicable thereto). If, after the Executive's

receipt of an amount advanced by the Company under subsection (c) above, a

determination is made that the Executive is not entitled to any refund with

respect to such claim and the Company does not notify the Executive in writing

of its intent to contest such denial of refund within 30 days after such

determination, then such advance shall be forgiven and not be required to be

repaid and, in such event, the amount of such advance shall offset, to the

extent thereof, the amount of the Gross-Up Payment required to be paid.

 

     For purposes of calculating any income taxes attributable to the Payment,

Executive shall be deemed for all purposes to be paying income taxes at the

highest marginal federal income tax rate, taking into account any applicable

surtaxes and other generally applicable taxes which have the effect of

increasing the marginal federal income tax rate and, if applicable, at the

highest marginal state income tax rate, to which the Payment and Executive are

subject.   An example of the calculation of the Gross-Up Payment is set forth

below.   Assume that the Excise T