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Executive Employment Agreement

Executive Employment Agreement

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LILIS ENERGY, INC. | Brushy Resources, Inc | Lilis Energy, Inc | Starboard Resources, Inc

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Title: EXECUTIVE EMPLOYMENT AGREEMENT
Governing Law: New York     Date: 7/8/2016
Industry: Oil and Gas Operations     Sector: Energy

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Exhibit 10.1

 

EXECUTIVE EMPLOYMENT AGREEMENT

 

This Executive Employment Agreement (“ Agreement ”) is entered into July 5, 2016 by and between Lilis Energy, Inc. (the “ Company ”) and Michael Pawelek (“ Executive ”). Executive and the Company are each referred to individually as a “ Party ” and collectively as the “ Parties .”

 

WHEREAS, Executive and Brushy Resources, Inc., f.k.a. Starboard Resources, Inc., (“ Brushy ”) are parties to the Amended and Restated Executive Employment Agreement, dated August 2014 (the “ Prior Employment Agreement ”).

 

WHEREAS, the Company and Brushy have entered into an Agreement and Plan of Merger, dated as of December 29, 2015, and certain related agreements, whereby Brushy will become a wholly-owned subsidiary of the Company (the “ Merger ”).

 

WHEREAS, in connection with, and contingent upon the consummation of, the Merger, the Parties desire to enter into this Agreement setting forth the terms of the employment relationship between the Parties, commencing upon the effective date of the consummation of the Merger (the “ Effective Date ”).

 

WHEREAS, this Agreement shall replace the Prior Employment Agreement in its entirety.

 

WHEREAS, as consideration for the Executive entering into this Agreement and foregoing the vested and accrued benefits under the Prior Employment Agreement, the Parties are also entering into as of even date herewith an incentive stock option agreement.

 

NOW, THEREFORE, in consideration of the mutual covenants, representations, warranties and agreements contained herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties agree as follows:

 

1.            Employment . Executive’s employment with the Company is subject to the terms set forth herein.

 

2.            Term . Subject to the remaining terms of this Section 2 , this Agreement shall be for an initial term that begins on the Effective Date and continues in effect through December 31, 2017 (the “ Initial Term ”) and, unless terminated sooner as herein provided, shall continue on a year-to-year basis after the Initial Term (each year, a “ Renewal Term ,” and each Renewal Term together with the Initial Term, the “ Term ”). If either Party elects not to renew this Agreement for a Renewal Term, such Party must give a written Notice of Termination to the other Party at least 180 days before the expiration of the then-current Initial Term or Renewal Term, as applicable. In the event that one Party provides the other with a Notice of Termination pursuant to this Section 2 , no further automatic extensions shall occur and this Agreement shall terminate at the end of the then-existing Initial Term or Renewal Term, as applicable, and such Termination shall not result in any entitlement to compensation pursuant to Section 6 or otherwise.

 

3.            Position . During the Term, Executive shall be employed as and hold the title of President of the Company, with such duties and responsibilities that are customary in that position for public companies. As President of the Company, Executive shall report directly to the Chief Executive Officer of the Company and the Board.

 

4.            Scope of Services . During the Term, Executive shall devote substantially all of Executive’s business time, energy and best efforts to carry out Executive’s responsibilities with respect to the business and affairs of the Company and its affiliates. In addition, the Parties acknowledge that Executive may (i) engage in and manage Executive’s passive personal investments, (ii) engage in charitable and civic activities and (iii) engage in such other activities that the Parties mutually agree to; provided , however , that such activities shall be permitted so long as such activities do not conflict with the business and affairs of the Company or interfere with the performance of Executive’s duties hereunder.

 

 

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5.            Compensation and Benefits . In each case during the Term:

 

5.1            Base Salary . The Company shall pay, or cause to be paid, to Executive a base salary (the “ Base Salary ”) as established by or pursuant to authority granted by the Board. Executive’s initial Base Salary shall be $307,000 per year. The Base Salary shall be reviewed annually by or pursuant to authority granted by the Board in connection with its annual review of executive compensation to determine if such Base Salary should be increased (but not decreased) for the following year in recognition of services to the Company. The Base Salary shall be payable at such intervals in conformity with the Company’s prevailing practice as such practice shall be established or modified from time to time.

 

5.2            Cash Incentive Bonus . Executive shall receive a lump-sum cash payment if and to the extent that during the period between the Effective Date and the one-year anniversary of the Effective Date (the “ Measurement Period ”), any of the following conditions set forth in Section 5.2.1 are satisfied, provided that, in addition, at least one of the conditions set forth in Section 5.2.2 is also satisfied (the “ Incentive Bonus ”), in each case as determined by the Board in its sole discretion, to be paid within 30 days after achievement of such conditions:

 

5.2.1

 

(a)          Executive shall be granted a bonus equal to 50% of Base Salary in the event that, during the Measurement Period, the Company has determined that its annualized gross production average for a consecutive 90-day period is equal to or exceeds 1,500 barrels of oil equivalent (“ BOE ”) per day;

 

(b)          without duplication of the amount described in the preceding clause (a), Executive shall be granted a bonus equal to 100% of Base Salary in the event that, during the Measurement Period, the Company has determined that its annualized gross production average for a consecutive 90-day period is equal to or exceeds 2,000 BOE per day;

 

(c)          without duplication of the amounts described in the preceding clauses (a) and (b), Executive shall be granted a bonus equal to 200% of Base Salary in the event that, during the Measurement Period, the Company has determined that its annualized gross production average for a consecutive 90-day period is equal to or exceeds 3,000 BOE per day;

 

(d)          without duplication of the amounts described in the preceding clauses (a), (b) and (c), Executive shall be granted a bonus equal to 300% of Base Salary in the event that, during the Measurement Period, the Company has determined that its annualized gross production average for a consecutive 90-day period is equal to or exceeds 4,000 BOE per day;

 

(e)          without duplication of the amounts described in the preceding clauses (a), (b), (c) and (d), Executive shall be granted a bonus equal to 400% of Base Salary in the event that, during the Measurement Period, the Company has determined that its annualized gross production average for a consecutive 90-day period is equal to or exceeds 5,000 BOE per day; and

 

(f)          without duplication of the amounts described in the preceding clauses (a), (b), (c), (d) and (e), Executive shall be granted a bonus equal to 500% of Base Salary in the event that, during the Measurement Period, the Company has determined that its annualized gross production average for a consecutive 90-day period is equal to or exceeds 6,000 BOE per day.

 

 

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5.2.2

 

(a)          The Company’s common stock maintains a 10-consecutive-day volume weighted average price of:

 

(1)         $2.30 per Share upon 1,500 BOE per day;

 

(2)         $3.00 per Share upon 2,000 BOE per day;

 

(3)         $4.50 per Share upon 3,000 BOE per day;

 

(4)         $6.00 per Share upon 4,000 BOE per day;

 

(5)         $7.50 per Share upon 5,000 BOE per day; or

 

(6)         $9.00 per Share upon 6,000 BOE per day.

 

(b)          The Company maintains an aggregate debt to earnings before interest, taxes, depreciation, depletion, amortization and exploration expenses (“ EBITDAX ”) ratio of 4.5 to 1. EBITDAX shall be calculated by multiplying the Company’s 90-day EBITDAX during the applicable period set forth in Section 5.2.1 by 4.

 

(c)          The Company maintains cash on hand (or equivalents) and/or availability of 10 times (i) the Incentive Bonus payable to Executive plus (ii) any substantially similar incentive bonuses payable to any other service providers of the Company.

 

5.3            Annual Bonuses; Additional Compensation . Without limitation of Section 5.2 , Executive shall be eligible to receive bonuses and awards of equity and non-equity compensation and to participate in annual and long-term compensation plans of the Company in accordance with any plan or decision that the Board, or any committee or other person authorized by the Board, may in its sole discretion determine from time to time. The target annual bonus for Executive shall be determined by the Board in its sole discretion.

 

5.4            Welfare and Benefit Plans . (i) Executive shall be entitled to participate in all savings and retirement plans, practices, policies and programs of the Company and (ii) Executive and Executive’s family, as the case may be, shall be eligible to participate in, and shall receive all benefits under, all welfare benefit plans, practices, policies and programs provided by the Company (including, to the extent provided, medical, prescription, dental, vision, disability, life, accidental death and travel accident insurance plans and programs) (all such plans, practices, policies and programs, the “ Plans ”), in each case pursuant to all terms and conditions of the Plans. Except as provided herein, the Company shall not be required to establish or continue the Plans or take any action to cause Executive to be eligible for any Plans on a basis more favorable than that applicable to its other executive-level employees generally.

 

5.5            Reimbursement . The Company shall reimburse Executive (or, in the Company’s sole discretion, shall pay directly), upon presentation of vouchers and other supporting documentation as the Company may reasonably require, for reasonable out-of-pocket expenses incurred by Executive relating to the business or affairs of the Company or the performance of Executive’s duties hereunder, including reasonable expenses with respect to mileage, entertainment, travel and similar items, dues for membership in professional organizations, and similar professional development expenses, provided that the incurring of such expenses shall have been approved in accordance with the Company’s regular reimbursement procedures and practices in effect from time to time.

 

 

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5.6           Vacation . In addition to statutory holidays, Executive shall be entitled to no less than 20 days of paid vacation each calendar year during the Term. Vacation shall accrue pursuant to the Company’s vacation accrual policy applicable to all employees of the Company, provided that no more than 20 vacation days may be carried over from one calendar year to a subsequent calendar year.

 

5.7           Reservation of Rights . The Company reserves the right to modify, suspend or discontinue any and all of its employee benefit plans, practices, policies and programs at any time in its sole discretion without recourse by Executive so long as such changes are similarly applicable to executive employees at a similar level.

 

6.            Payments upon Termination .

 

6.1           Accrued but Unpaid Salary and Bonus . In the event of a Termination for any reason during the Term, the Company shall pay to Executive (or, in the event of Executive’s death, to Executive’s estate or named beneficiary) (a) any Base Salary, vacation pay and expense reimbursements that are accrued but unpaid as of the date of Termination and (b) (except upon a Termination by the Company for Cause) any earned but unpaid bonus for any prior or current year.

 

6.2           Severance .

 

(a)          Upon an Involuntary Termination during the Term and either prior to a Change in Control or more than one year following a Change in Control, contingent upon Executive’s execution, delivery and non-revocation of a release in form and substance satisfactory to the Company and consistent with the Company’s standard release agreement, which contains a full release of all claims against the Company and certain other provisions, including a reaffirmation of the covenants in Section 12 and Section 13 (the “ Release Agreement ”), Executive shall be entitled to (1) a lump sum severance payment in an amount equal to 12 months of Base Salary in effect immediately prior to the date of Termination and (2) a lump sum payment equal to 12 months of COBRA premiums based on the terms of Company’s group health plan and Executive’s coverage under such plan as of the date of Termination (regardless of any COBRA election actually made by Executive or the actual COBRA coverage period under the Company’s group health plan).

 

(b)          Upon an Involuntary Termination during the Term and within one year following a Change in Control, contingent upon Executive’s execution, delivery and non-revocation of the Release Agreement, Executive shall be entitled to (1) a lump sum severance payment in an amount equal to 24 months of Base Salary in effect immediately prior to the date of Termination and (2) a lump sum payment equal to 24 months of COBRA premiums based on the terms of Company’s group health plan and Executive’s coverage under such plan as of the date of Termination (regardless of any COBRA election actually made by Executive or the actual COBRA coverage period under the Company’s group health plan).

 

(c)          Upon a Termination due to Disability during the Term, contingent upon Executive’s execution, delivery and non-revocation of the Release Agreement, Executive shall be entitled to a lump sum payment equal to six months of COBRA premiums based on the terms of the Company’s group health plan and Executive’s coverage under such plan as of the date of Termination (regardless of any COBRA election actually made by Executive or the actual COBRA coverage period under the Company’s group health plan).

 

(d)          The Company’s obligations under this Section 6.2 are subject to the requirements and time periods set forth in this Section 6.2 and in the Release Agreement. Prior to receiving the payments described in this Section 6.2 , Executive shall execute the Release Agreement on or before the date 21 days (or such longer period to the extent required by law) after the date of Termination. If Executive fails to timely execute and remit the Release Agreement, Executive waives any right to the payments provided under this Section 6.2 . Payments under this Section 6.2 shall be made within fifteen 15 days of Executive’s execution and delivery of the Release Agreement, provided that Executive does not revoke the Release Agreement.

 

 

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(e)          Executive’s rights following a Termination under the terms of any Plan, whether tax-qualified or not, which are not specifically addressed in this Agreement, shall be subject to the terms of such Plan, and this Agreement shall have no effect upon such terms except as specifically provided herein.

 

(f)          Except as specifically provided under Section 6.1 and Section 6.2 , the Company shall have no further obligations to Executive under this Agreement following a Termination. Without limitation of the foregoing, Executive shall not be entitled to any severance benefits under this Agreement in the event of a Termination other than an Involuntary Termination (except as provided in Section 6.1 ). The foregoing shall not limit any of Executive’s rights with regard to any rights to indemnification, advancement or payment of legal fees and costs, and coverage under directors and officers liability insurance.

 

(g)          Notwithstanding anything in this Agreement to the contrary, the Company shall have the right to terminate all payments and benefits owing to Executive pursuant to Section 6.2 upon the Company’s discovery of any material breach by Executive of Executive’s obligations under the Release Agreement or Section 12 or Section 13 .

 

7.            Definitions . Capitalized terms used in this Agreement but not otherwise defined herein shall have the meaning hereby assigned to them as follows:

 

7.1          “ Cause ” means a determination by the Board that Executive has:

 

(a)          in the performance of Executive’s duties with respect to the Company or any of its affiliates, engaged in reckless or willful misconduct or has violated the law, provided that no act or failure to act shall be deemed “willful” unless done, or omitted to be done, by Executive not in good faith and without reasonable belief that Executive’s action or omission was in the best interest of the Company;

 

(b)          refused without proper legal reason to perform Executive’s duties and responsibilities to the Company or any of its affiliates, which continues after notice from the Company to perform such duties and responsibilities (for the purposes of this clause, the phrase “proper legal reason” shall include Executive’s delivery of a Notice of Termination for Good Reason where the assertion by Executive of Termination for Good Reason is for an event that constitutes Good Reason under the terms of this Agreement);

 

(c)          willfully and materially breached any material provision of this Agreement;

 

(d)          committed an act of fraud, embezzlement or breach of a fiduciary duty to the Company or an affiliate of the Company (including the unauthorized disclosure of material confidential or proprietary information of the Company or an affiliate of the Company);

 

(e)          been convicted of (or pleaded no contest to) a felony (other than a crime involving the operation of a motor vehicle not involving a serious injury or death to an individual); or

 

(f)          entered into a cease and desist order with the U.S. Securities and Exchange Commission alleging violation of U.S. or foreign securities laws.

 

Executive shall have 30 days from the date on which Executive receives the Company’s Notice of Termination for Cause under clause (a), (b) or (c) above to remedy any such occurrence otherwise constituting Cause under such clause.

 

In connection with a determination of Cause, a majority of the Board shall make such determination at a meeting of the Board called and held for such purpose (after reasonable notice to Executive and an opportunity for Executive, together with counsel, to be heard before the Board).

 

 

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A Termination for Cause shall be deemed to include a determination by the Board following a Termination that circumstances existing prior to the Termination would have entitled the Company to have terminated Executive’s service for Cause.

 

All rights Executive has or may have under this Agreement shall be suspended automatically during the pendency of any investigation by the Board, or during any negotiations between the Board and Executive, regarding any actual or alleged act or omission by Executive of the type described in this definition of Cause.

 

7.2          “ Change in Control ” has the meaning given to such term in the Lilis Energy, Inc. 2016 Omnibus Incentive Plan.

 

7.3          “ Disability ” means, if, during the Term, Executive is unable to perform substantially and continuously the duties assigned to him due to a disability (as such term is defined or used for purposes of the Company’s long-term disability plan then in effect, or, if no such plan is in effect, by virtue of ill health or other disability for more than 180 consecutive or non-consecutive days out of any consecutive 12-month period).

 

7.4          “ Good Reason ” means the occurrence of any of the following events without Executive’s consent:

 

(a)          a material diminution in Executive’s Base Salary; or

 

(b)          a material diminution in Executive’s authority, duties or responsibilities as an officer, or the Board fails to re-nominate Executive for election to the Board if Executive is a Board member as of the Effective Date or becomes a Board member thereafter;

 

(c)          the relocation of Executive’s principal place of employment by more than 25 miles from the location of Executive’s principal place of employment as of the Effective Date; or

 

(d)          a material breach by the Company of a material provision of this Agreement.

 

Notwithstanding the foregoing provisions o


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