Exhibit 10.1
EXECUTION COPY
THE HOUSTON EXPLORATION COMPANY
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
Amended and Restated on July 25, 2006

 

--------------------------------------------------------------------------------

 

TABLE OF CONTENTS

                      Page     ARTICLE I DEFINITIONS     1  
 
           
1.1
  Actuarial Equivalent     1  
1.2
  Board     1  
1.3
  Bonus     1  
1.4
  Cause     1  
1.5
  Change of Control     2  
1.6
  Company     2  
1.7
  Code     2  
1.8
  Early Retirement Date     2  
1.9
  Effective Date     2  
1.10
  Eligible Employee     2  
1.11
  ERISA     2  
1.12
  Final Average Salary     2  
1.13
  Good Reason     3  
1.14
  Normal Retirement Date     3  
1.15
  Notional Interest     3  
1.16
  Offset Amount     3  
1.17
  Participant     3  
1.18
  Plan     3  
1.19
  Plan Year     3  
1.20
  Plan Administrator     3  
1.21
  Postponed Retirement Date     3  
1.22
  Retirement     4  
1.23
  Retirement Date     4  
1.24
  Specified Employee     4  
1.25
  Termination of Employment     4  
1.26
  Total Compensation     4  
1.27
  Years of Participation     4  
1.28
  Years of Service     4  
 
            ARTICLE II ELIGIBILITY FOR BENEFITS     4  
 
           
2.1
  Eligibility to Participate     4  
2.2
  Entitlement to Benefits     5  
2.3
  Forfeiture of Benefits     6  
 
            ARTICLE III BENEFITS     6  
 
           
3.1
  Amount of Benefit     6  
3.2
  Form of Benefit     7  
3.3
  Payment of Benefits     7  
3.4
  Vesting     7  
3.5
  Payees Under Legal Disability     7  
3.6
  Withholding for Taxes     8  

i

--------------------------------------------------------------------------------

 

TABLE OF CONTENTS

                      Page    
3.7
  Mailing of Payments     8  
3.8
  Grantor Trust     8  
3.9
  Protective Provisions     8  
 
            ARTICLE IV CHANGE OF CONTROL     9  
 
           
4.1
  Entitlement to Benefits     9  
4.2
  Special Administrative Committee     9  
4.3
  Full Vesting     9  
 
            ARTICLE V OPERATION AND ADMINISTRATION OF THE PLAN     9  
 
           
5.1
  Plan Administrator Powers     9  
5.2
  Composition of Plan Administrator     10  
5.3
  Plan Administrator Procedure     10  
5.4
  Notices and Communications     11  
5.5
  Reporting and Disclosure     11  
5.6
  Conflict of Interest     11  
5.7
  Indemnification     11  
 
            ARTICLE VI APPLICATION FOR BENEFITS     11  
 
           
6.1
  Application for Benefits     11  
6.2
  Content of Denial     12  
6.3
  Appeals     12  
6.4
  Arbitration     12  
6.5
  Exhaustion of Remedies     13  
 
            ARTICLE VII MISCELLANEOUS MATTERS     13  
 
           
7.1
  Amendment or Termination     13  
7.2
  Effect of Reorganization or Transfer of Assets     13  
7.3
  Rights of Participants     13  
7.4
  Assignment of Benefits     14  
7.5
  Other Plans     14  
7.6
  Interpretation     14  
7.7
  Receipt or Release     14  
7.8
  Governing Law     15  
7.9
  Section 409A Standards     15  
 
           
Exhibit A Designated Plan Participants
    A-1  

ii

--------------------------------------------------------------------------------

 

THE HOUSTON EXPLORATION COMPANY
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
PREAMBLE
     The principal objective of The Houston Exploration Company Supplemental
Executive Retirement Plan (“Plan”) is to help ensure that the Company provides a
competitive level of benefits in order to attract, retain, and motivate selected
executives. The Plan is designed to provide retirement benefits to selected
employees that will help the Company meet this objective.
     The Plan was adopted effective January 1, 2006 and was amended and restated
as of the Effective Date (as defined below). The Plan was established for the
purpose of providing benefits to a select group of management or highly
compensated employees. The benefits under the Plan are considered unfunded.
Accordingly, it is intended that the Plan be exempt from the requirements of
Parts II, III, and IV of Title I of Employee Retirement Income Security Act of
1974 (“ERISA”) pursuant to Sections 201(2), 301(a)(3), and 401(a)(1) of ERISA.
ARTICLE I
DEFINITIONS
     1.1 Actuarial Equivalent. The “Actuarial Equivalent” of two (2) forms of
benefits shall be determined using the following actuarial assumptions:

     
Interest rate:
  The average of the “applicable interest rate” within the meaning of Section
417(e)(3)(A)(ii)(II) of the Code in effect for the three (3) months preceding
the Plan Year for to which it shall apply (the “Actuarial Equivalent Benefit
Interest Rate”).
 
   
Mortality:
  The “applicable mortality table” within the meaning of Section 417(e)
(3)(A)(ii)(I) of the Code.

     1.2 Board. The Board of Directors of the Company or its delegate.
     1.3 Bonus. “Bonus” shall mean the annual Bonus paid to a participant under
the Company’s annual incentive compensation plan as in effect from time to time.
     1.4 Cause. “Cause” shall (a) have the same meaning as set forth in any
written employment agreement between the Participant and the Company or (b) in
the event that the Participant is not a party to a written employment agreement,
“Cause” shall mean: any failure by the Participant to: (i) perform his principal
duties as so required by the Company, or (ii) comply with any material provision
of the Company’s ethics, code of conduct or other employment policies, after
written notice of such failure has been given to the Participant by the Board
and such failure shall have continued for thirty (30) days after receipt of such
notice, or (iii) a

1

--------------------------------------------------------------------------------

 

Participant’s grossly negligent or intentional misconduct which is either
materially detrimental to the Company’s financial interest and reputation or
would legally prevent the Participant from serving in the capacity he was hired
to serve, or (iv) a conviction or plea of guilty or no contest by the
Participant of a felony or any other criminal offense involving a moral
turpitude any of which has a material adverse affect on a Participant’s ability
to perform the duties of his position or on the financial condition or
profitability of the Company.
     1.5 Change of Control. “Change of Control” shall have the same meaning as
set forth in the Company’s 2004 Long Term Incentive Plan, as amended from time
to time.
     1.6 Company. The Houston Exploration Company.
     1.7 Code. “Code” shall mean the Internal Revenue Code of 1986, as amended.
     1.8 Early Retirement Date.
          (a) The first day of any month coincident with or next following the
month in which the Participant terminates employment with the Company:
               (i) After becoming eligible for early retirement benefits, but
               (ii) Before his Normal Retirement Date.
          (b) A Participant first becomes eligible for early retirement benefits
when:
               (i) He attains age fifty-five (55), and
               (ii) He has at least five (5) full Years of Participation.
     1.9 Effective Date. The effective date of the Plan is January 1, 2006.
     1.10 Eligible Employee. A management level or highly compensated employee
of the Company who is designated to participate in the Plan by the Plan
Administrator.
     1.11 ERISA. The Employee Retirement Income Security Act of 1974, as
amended.
     1.12 Final Average Salary.
          (a) The Participant’s “Final Average Salary” shall mean the average of
the highest consecutive three (3) years of a Participant’s annual base salary
and a Participant’s annual Bonus earned from the Company during the five
(5) year period preceding a Participant’s Termination of Employment measured
from the December 31st immediately prior to the Termination of Employment.
          (b) In the event that the Participant has less than three (3) calendar
years of employment with the Company, his Final Average Salary shall be the
average amount of his annualized base salary and annual Bonus for the entire
period.

2

--------------------------------------------------------------------------------

 

          (c) Notwithstanding Paragraph (a) or (b), on or following a Change of
Control, Final Average Salary shall mean the greater of (i) or (ii), where
(i) is the amount set forth in Section 1.12(a) or Section 1.12(b), as
applicable, determined as of the Participant’s Retirement and (ii) is the amount
set forth in Section 1.12(a) or 1.12(b), as applicable, determined as though
Retirement occurred on the date of a Change of Control.
     1.13 Good Reason. Good Reason” shall (a) have the same meaning as set forth
in any written employment agreement between the Participant and the Company or
(b) in the event that the Participant is not a party to a written employment
agreement, Good Reason shall mean within thirty (30) days following his
knowledge of any of the events set forth below which have not been cured by the
Company within fifteen (15) days following a Participant’s written notice of the
occurrence of any such events: (i) a material and adverse change in (A) the
powers, duties, responsibilities or functions of the Participant or (B) in the
Participant’s reporting responsibilities which in either case of (A) or (B),
occurs on or following a Change of Control or (ii) without the Participant’s
prior written consent, the relocation of the Company’s principal executive
offices outside the greater Houston, Texas metropolitan area or requiring the
Participant to be based other than at such principal executive offices of the
Company.
     1.14 Normal Retirement Date. The Participant’s sixty-fifth (65th) birthday.
     1.15 Notional Interest. As of any particular date shall mean the Actuarial
Equivalent Benefit Interest rate times 1.2, compounded annually.
     1.16 Offset Amount. The Actuarial Equivalent, calculated using the same
form of benefit that is to be paid to the Participant, of six (6%) percent of a
Participant’s Total Compensation earned for each Year of Service assuming such
amounts earned Notional Interest at all times from the date earned through the
date that benefits commence under the Plan. For purposes hereof, amounts shall
be deemed earned for a Year of Service on the January 1 which occurs immediately
following the end of such Year of Service and Notional Interest shall be
calculated with respect to such year commencing as of such on January 1.
     1.17 Participant. An Eligible Employee who has become a participant in the
Plan in accordance with Section 2.1.
     1.18 Plan. The Houston Exploration Supplemental Executive Retirement Plan,
as amended from time to time.
     1.19 Plan Year. The fiscal year of the Plan, which shall be the period
beginning on January 1 and ending on the following December 31; provided, that,
for the Plan’s first Plan Year it shall mean the period from the Effective Date
to December 31, 2006.
     1.20 Plan Administrator. The person, persons or entity appointed by the
Board pursuant to Article V to manage, administer, interpret, and construe the
Plan.
     1.21 Postponed Retirement Date. The first day on which the Participant
terminates employment with the Company following his Normal Retirement Date.

3

--------------------------------------------------------------------------------

 

     1.22 Retirement. The termination of a Participant’s employment with the
Company after he has satisfied the requirements for benefits under Section 2.2
below.
     1.23 Retirement Date. A Participant’s Normal, Early, or Postponed
Retirement Date (whichever is applicable).
     1.24 Specified Employee. A “Specified Employee” shall have the meaning as
set forth in Section 409A of the Code.
     1.25 Termination of Employment. A Participant’s cessation of service with
the Company and affiliates for any reason whatsoever, voluntary or involuntary,
if such termination is within the meaning of Section 409A(a)(2)(A)(i) of the
Code.
     1.26 Total Compensation. For any Year of Service shall mean a Participant’s
annual base salary and annual Bonus paid during such year.
     1.27 Years of Participation. The number of complete and partial Plan Years
that the Participant has been a Participant in the Plan while employed by the
Company, beginning with the first Plan Year in which the Participant commences
participation in the Plan pursuant to Section 2.1 of the Plan. A Participant
will be credited with one (1) full Year of Participation for each Plan Year on
or after the Effective Date during which the Participant completes twelve
(12) months of continuous service for the Company and is a Participant in the
Plan.
     1.28 Years of Service. The number of complete and partial years that a
Participant has been employed by the Company. A Participant will be credited
with one (1) full Year of Service for each computation period during which the
Participant completes twelve (12) months of continuous service for the Company.
A computation period shall be the Plan Year. Except as otherwise set forth in
resolutions of the Board:
          (a) Each Participant will receive credit for all full and partial
Years of Service with the Company prior to commencing participation in the Plan,
and
          (b) A Participant will be credited with any time while he is on a
leave of absence approved by the Company, including disability leave, up to a
maximum of two (2) additional Years of Service.
ARTICLE II
ELIGIBILITY FOR BENEFITS
     2.1 Eligibility to Participate.
          (a) An individual shall become a Participant at the time, and on the
conditions specified by the Plan Administrator.
          (b) The Participants in the Plan as of Effective Date are the
individuals specified in Exhibit A attached hereto. Additional Participants may
be added to Exhibit A by the Plan Administrator without requiring an amendment
to the Plan.

4

--------------------------------------------------------------------------------

 

          (c) If it is subsequently determined that the participation of any
individual in the Plan is inconsistent with the Plan being exempt from the
requirements of Parts II, III, and IV of Title I of ERISA, at the election of
the Plan Administrator, the present value of the current accrued benefit payable
to that individual shall be paid in a lump sum as soon as administratively
possible after such determination is made, but only to the extent that such
payment would not subject the Participant to taxes and penalties under
Section 409A(a)(1)(B) of the Code.
     2.2 Entitlement to Benefits. A Participant shall be entitled to the accrued
benefit determined pursuant to Article III hereof in accordance with the
following:
          (a) Normal Retirement. A Participant who has a Termination of
Employment on or after his Normal Retirement Date will be eligible to retire and
receive accrued benefits under this Plan unless the Participant is a Specified
Employee in which case distribution of such benefits shall commence six
(6) months after such Participant’s Retirement Date, unless it is determined
that commencement of such distribution prior to the expiration of such six
(6) month period would not violate Section 409A of the Code.
          (b) Early Retirement. A Participant who has a Termination of
Employment on or after his Early Retirement Date shall be eligible to retire and
receive accrued benefits at his Early Retirement Date as determined in
accordance with Section 3.1(b) of the Plan. A Participant must commence
distribution of his early retirement benefit upon such termination event and
shall not be permitted to defer receipt of his early retirement benefit, unless
the Participant is a Specified Employee in which case such distribution shall
commence six (6) months after such Participant’s Early Retirement Date, unless
it is determined that commencement of such distribution prior to the expiration
of such six (6) month period would not violate Section 409A of the Code.
          (c) Termination of Employment Prior to Retirement. A Participant who
has a Termination of Employment for a reason other than death prior to attaining
an Early Retirement Date, shall receive his accrued benefit under the Plan based
on his Years of Service as of his Termination of Employment and such benefit
shall commence upon his Normal Retirement Date as provided in Paragraph (a).
          (d) Pre-Retirement Death Benefit. In the event of the Participant’s
death while still employed by the Company or an affiliate and after completing
five (5) full Years of Participation, the Participant’s surviving spouse, if
any, shall be entitled to receive a survivor benefit upon such Participant’s
death. The amount of the benefit payable to the surviving spouse shall be
determined as if:
               (i) The Participant had terminated employment on the day before
his death and
               (ii) Elected to receive his benefit in the form of an Actuarial
Equivalent fifty percent (50%) joint and survivor annuity. The value of the
joint and survivor annuity will be the Actuarial Equivalent of the accrued
benefit to which the Participant would have become entitled assuming he had
survived his earliest retirement date (or the date of death if later), based on
his Years of Service and Final Average Salary through the date of his death.

5

--------------------------------------------------------------------------------

 

          (e) Post-Retirement Death Benefit. In the event of the Participant’s
death after Termination of Employment, no further benefits shall be payable
under the Plan unless the Participant has elected, pursuant to Section 3.2(b),
to have benefits payable over the joint lives of the Participant and the
Participant’s spouse, in which case Actuarial Equivalent benefit payments shall
continue over the life of the Participant’s spouse.
     2.3 Forfeiture of Benefits. Notwithstanding anything herein to the
contrary, the benefit payable hereunder to a Participant shall be forfeited if
he is discharged for Cause or otherwise experiences a Termination of Employment
prior to being vested in his benefit under the Plan.
ARTICLE III
BENEFITS
     3.1 Amount of Benefit. A Participant who is entitled to benefits in
accordance with Article 2 above will be eligible for a monthly retirement
benefit equal to one twelfth (1/12) of the amount determined in accordance with
this Section 3.1.
          (a) The annual retirement benefit payable upon a Termination of
Employment which occurs on or following such Participant’s Normal Retirement
Date will be equal to the difference between (i) and (ii), where (i) is equal to
the product of (A) and (B), where (A) is equal to two and one-half percent
(2.5%) of such Participant’s Final Average Salary and (B) is equal to such
Participant’s total Years of Service, not to exceed twenty (20) and (ii) is the
Offset Amount (the “Normal Retirement Benefit”).
          (b) Notwithstanding Section 3.1(a) hereof, if a Participant qualifies
for early retirement in accordance with Section 1.8(b) of the Plan, upon his
Early Retirement Date, such Participant’s early retirement benefit shall be
equal to the difference between (i) and (ii), where (i) is equal to the product
of (A), (B) and (C), where (A) is equal to two and one-half percent (2.5%) of
such Participant’s Final Average Salary, (B) is equal to such Participant’s
total Years of Service, not to exceed twenty (20) and (C) is equal to the
applicable percentage as set forth in the chart below and (ii) is the Offset
Amount.

          Attained Age at Retirement   Applicable Percentage
65
    100 %
64
    95 %
63
    90 %
62
    85 %
61
    80 %
60
    75 %
59
    70 %
58
    65 %
57
    60 %
56
    55 %
55
    50 %

6

--------------------------------------------------------------------------------

 

     3.2 Form of Benefit.
          (a) Except as provided in Paragraph (b) below, Section 2.2(d) and
Article IV hereof, the benefit determined under this Plan will be payable in the
form of a single life annuity over the life of the Participant.
          (b) In accordance with rules and procedures prescribed by the Plan
Administrator, a Participant may elect within thirty (30) days of first becoming
eligible to participate in the Plan to have his benefit be paid in the form of a
joint and fifty-percent (50%) survivor annuity payable over the joint lives of
the Participant and the Participant’s spouse that will be the Actuarial
Equivalent of the amount of the Participant’s benefit calculated pursuant to
Paragraph (a) above. If a Participant is not married at such time the payment of
benefits are to commence, the benefit shall be calculated in accordance with
Paragraph (a) without regard to any such election. If permissible under
Section 409A of the Code, the Plan Administrator may permit such elections to be
made at a later time.
     3.3 Payment of Benefits.
          (a) Participants are not entitled to receive a distribution of their
benefits prior to Retirement, except as otherwise provided in Article IV of the
Plan.
          (b) Benefits will begin on the first day of the month coincident with
or next following the Participant’s Retirement Date. Benefits will continue to
be paid on the first day of each succeeding month.
          (c) The last payment will be on the first day of the month in which
the retired Participant dies unless the Participant has elected that his benefit
be paid in an optional form in accordance with the provisions of Section 3.2(b)
above.
     3.4 Vesting. A Participant shall be vested 100% in his benefit payable
under this Plan upon the earlier of completing five (5) full Years of
Participation or attaining the age of 65 prior to a Termination of Employment
(the “Vesting Date”). If a Participant is not vested in his benefit under the
Plan upon a Termination of Employment, no benefits shall be paid under the Plan.
If a Participant has a Termination of Employment prior to his Vesting Date, but
is re-employed by the Company within three (3) years thereafter and is still
eligible to participate in the Plan, as determined by the Plan Administrator,
such Participant shall be credited with the same Years of Service and Years of
Participation he had upon such Termination of Employment for purposes of
calculating vesting and benefits hereunder. If a Participant has a Termination
of Employment on or following a Vesting Date and has commenced receiving
benefits under the Plan, upon a re-employment of such Participant by the
Company, unless otherwise determined by the Plan Administrator, such Participant
shall continue to receive such benefits and shall not accrue any additional
Years of Service under the Plan.
     3.5 Payees Under Legal Disability.
          (a) If the Plan Administrator believes that any payee is legally
incapable of giving a valid receipt and discharge for any payment due him, the
Plan Administrator may have

7

--------------------------------------------------------------------------------

 

the payment, or any part of it, made to the person(s) or institution that it
believes is caring for or supporting the payee.
          (b) Any payment under Paragraph (a) above shall be a payment for the
benefit of the payee and shall, to the extent thereof, be a complete discharge
of any liability under the Plan to the payee.
     3.6 Withholding for Taxes. Any payments out of the Plan may be subject to
withholding for taxes as may be required by any applicable federal or state law.
To the extent that the benefit under this Plan is considered wages for income or
employment tax purposes during any period prior to the time benefits become
payable hereunder, the Company may withhold such taxes from the Participant’s
current compensation as may be required by any applicable federal or state law.
     3.7 Mailing of Payments.
          (a) All payments under the Plan shall be delivered in person or mailed
to the last address of the Participant (or, in the case of the death of the
Participant, to the last address of his surviving spouse).
          (b) Each Participant shall be responsible for furnishing the Plan
Administrator with his current address.
     3.8 Grantor Trust. Although the Company is responsible for the payment of
all benefits under the Plan, the Company may, in its discretion, contribute
funds or assets (including insurance policies on the life of any or all
Participants) to a grantor trust for the purpose of paying benefits under this
Plan. Such trust may be irrevocable, but assets of the trust shall be subject to
the claims of creditors of the Company. To the extent any benefits provided
under the terms of the Plan are actually paid from the trust, the Company shall
have no further obligation with respect thereto. To the extent any benefits
provided under the terms of the Plan are not paid from the trust, such benefits
shall remain the obligation of and shall be paid by the Company. The
Participants shall have the status of unsecured creditors insofar as their legal
claim for benefits under the Plan and the Participants shall have no security
interest or preferred claim in or to the assets of any such grantor trust.
     3.9 Protective Provisions. Each Participant, as a condition of
participation, shall be required to cooperate with the Company by furnishing any
and all information requested by the Plan Administrator to facilitate payment of
benefits hereunder by taking such physical examinations as the Plan
Administrator may deem necessary and by taking such other actions as may be
requested by the Plan Administrator. If the Participant refuses to so cooperate,
the Company shall have no further obligation to the Participant under the Plan.

8

--------------------------------------------------------------------------------

 

ARTICLE IV
CHANGE OF CONTROL
     Notwithstanding anything in this Plan to the contrary, the provisions of
this Article IV apply following a Change of Control to all active Participants
in the Plan (“Affected Participants”).
     4.1 Entitlement to Benefits. If the employment of an Affected Participant
is terminated by the Company for any reason other than Cause (or the Affected
Participant voluntarily resigns for Good Reason), at any time within the two
(2) year period following a Change of Control, he shall be paid a lump sum cash
payment equal to the Actuarial Equivalent of the Normal Retirement Benefit
computed according to Section 3.1. Such amount shall be paid six (6) months
following such Termination of Employment if the Participant is a Specified
Employee and payment earlier than such date would violate Section 409A of the
Code.
     4.2 Special Administrative Committee. Within a reasonable period of time
prior to the occurrence of a Change of Control of the Company, an independent
plan administrator (the “Independent Administrator”), shall be appointed to
serve as the Plan Administrator. The Independent Administrator shall be the
independent administrator as so provided for under the trust established
pursuant to Section 3.8 of the Plan. To the extent that the trust does not
provide for such an administrator or no trust exists, then the Board shall
appoint a neutral third party to serve as the Independent Administrator. The
Independent Administrator shall serve in such capacity for the twenty-four
(24) month period following the Change of Control. The Independent Administrator
will perform such duties as to ensure that all benefits provided for under the
Plan shall not be reduced in form and payment prior to, in connection with, or
within twenty-four (24) month period following a Change of Control. The
Independent Administrator shall serve in such capacity in accordance with the
duties and obligations as set forth under Article 5 of the Plan.
     4.3 Full Vesting. An Affected Participant shall become 100% vested in his
benefits upon a Change of Control whether or not he experiences a Termination of
Employment.
ARTICLE V
OPERATION AND ADMINISTRATION OF THE PLAN
     5.1 Plan Administrator Powers. The Plan Administrator shall have all powers
necessary to supervise the administration of the Plan and control its
operations. In addition to any powers and authority conferred on the Plan
Administrator elsewhere in the Plan or by law, the Plan Administrator shall have
the following powers and authority:
          (a) To designate agents to carry out responsibilities relating to the
Plan.
          (b) To employ such legal, actuarial, accounting, clerical, and other
assistance as it may deem appropriate in administering this Plan.

9

--------------------------------------------------------------------------------

 

          (c) To establish rules and procedures for the conduct of the Plan
Administrator’s business and the administration of this Plan.
          (d) To administer this Plan and to decide all questions which may
arise under this Plan. All determinations by the Plan Administrator shall be
binding upon all parties, to the maximum extent permitted by law. The Plan
Administrator shall have discretionary authority in all aspects of the
administration and interpretation of the Plan, including the interpretation and
construction of the Plan and the ability to make determinations of disputed
facts.
          (e) To perform or cause to be performed such further acts as it may
deem to be necessary or appropriate in the administration of the Plan.
     5.2 Composition of Plan Administrator.
          (a) The Plan Administrator (who need not be Participants or even
employees of the Company) shall be appointed by the Board of the Company and
shall continue until termination of such status in accordance with the
provisions of this Article V. In the event the Board does not designate the Plan
Administrator, the Plan Administrator shall be the Company and the Company’s
authorized officers may act on its behalf in a representative capacity.
          (b) The Plan Administrator or any individual member thereof may resign
at any time by giving written notice to the Board, effective as the date stated
in the notice. The Plan Administrator or any individual member thereof may be
removed by the Board at any time.
          (c) In the case of a Plan Administrator or an individual member
thereof who is also an employee of the Company, his status as Plan Administrator
shall terminate as of the effective date of the termination of his employment,
except as otherwise provided in resolutions adopted by the Board.
          (d) Upon the death, resignation, or removal of the Plan Administrator,
the Board may appoint a successor. Notice of the appointment of a successor
member shall be given by the Company in writing to the other members of the Plan
Administrator.
     5.3 Plan Administrator Procedure.
          (a) In the event the Plan Administrator is a committee of two or more
individuals, a majority of the members of the Plan Administrator shall
constitute a quorum. Any action authorized by a majority of the members:
               (i) Present at any meeting, or
               (ii) In writing without a meeting, shall constitute the actions
of the Plan Administrator.
          (b) The Plan Administrator may designate one or more individuals as
authorized to execute any document or documents on behalf of the Plan
Administrator.

10

--------------------------------------------------------------------------------

 

     5.4 Notices and Communications.
          (a) All communications from Participants to the Plan Administrator
shall be in writing, on forms prescribed by the Plan Administrator. These
communications shall be mailed or delivered to the office designated by the Plan
Administrator, and shall be deemed to have been given when received by the Plan
Administrator.
          (b) Each communication from the Plan Administrator to a Participant or
beneficiary shall be in writing and may be delivered in person or by mail. These
communications shall be deemed to have been delivered and received by the
Participant three (3) days after the date when it is deposited in the United
States Mail with postage prepaid, addressed to the Participant or beneficiary at
his last address of record with the Plan Administrator.
     5.5 Reporting and Disclosure. The Company (and not the Plan Administrator)
shall be responsible for the reporting and disclosure of information required to
be reported or disclosed pursuant to ERISA or any other applicable law.
     5.6 Conflict of Interest. Any member of the Plan Administrator who is also
a Participant shall not be qualified to act or vote on any matter relating
solely to himself.
     5.7 Indemnification. To the extent permitted by law, the Certificate of
Incorporation of the Company, the Bylaws of the Company and any indemnity
agreements between the Company and its directors or employees, the Company shall
indemnify each member of the Board and of the Plan Administrator, and any other
employee of the Company with duties under the Plan, against expenses (including
any amount paid in settlement) reasonably incurred by him in connection with any
claims against him by reason of his conduct in the performance of his duties
under the Plan.
ARTICLE VI
APPLICATION FOR BENEFITS
     6.1 Application for Benefits.
          (a) The Plan Administrator may require any person claiming benefits
under the Plan (“Claimant”) to submit an application therefore, together with
such other documents and information as the Plan Administrator may require.
          (b) Within ninety (90) days following receipt of the application and
all necessary documents and information, the Plan Administrator’s authorized
delegate reviewing the claim shall furnish the Claimant with written notice of
the decision rendered with respect to the application.
          (c) Should special circumstances require an extension of time for
processing the claim, written notice of the extension shall be furnished to the
Claimant prior to the expiration of the initial ninety (90) day period.

11

--------------------------------------------------------------------------------

 

               (i) The notice shall indicate the special circumstances requiring
an extension of time and the date by which a final decision is expected to be
rendered.
               (ii) In no event shall the period of the extension exceed ninety
(90) days from the end of the initial ninety (90) day period.
     6.2 Content of Denial. In the case of a denial of the Claimant’s
application, the written notice shall sat forth:
          (a) The specific reasons for the denial;
          (b) References to the Plan provisions upon which the denial is based;
          (c) A description of any additional information or material necessary
for perfection of the application (together with an explanation of why the
material or information is necessary); and
          (d) An explanation of the Plan’s claims review procedure.
     6.3 Appeals.
          (a) In order to appeal the decision rendered with respect to his
application for benefits or with respect to the amount of his benefits, the
Claimant must follow the appeal procedures set forth in this Section 6.3.
          (b) The appeal must be made, in writing within sixty (60) days after
the date of notice of the decision with respect to the application, the Claimant
may request that his application be given full and fair review by the Plan
Administrator. The Claimant may review all pertinent documents and submit issues
and comments in writing in connection with the appeal.
          (c) The decision of the Plan Administrator shall be made promptly, and
not later than sixty (60) days after the Plan Administrator’s receipt of a
request for review, unless special circumstances require an extension of time
for processing. In such a case, a decision shall be rendered as soon as
possible, but not later than sixty (60) days following the expiration of the
initial sixty (60) day period.
          (d) The decision on review shall be in writing and shall include
specific reasons for the decision, written in a manner designed to be understood
by the Claimant, with specific references to the pertinent Plan provisions upon
which the decision is based.
     6.4 Arbitration. If the claim is denied after review, the Applicant shall
submit the claim to binding arbitration. Such arbitration shall be binding and
final. There shall be one arbitrator, who shall be a retired superior court or
federal court judge. The arbitrator shall have the authority only to enforce the
legal and contractual rights of the parties and shall not add to, modify,
disregard or refuse to enforce any contractual provision. The arbitrator shall
have no right, power or jurisdiction to award an Applicant any punitive or
exemplary damages of any kind. All reasonable legal fees and expenses incurred
in connection with such arbitration shall be borne by the non prevailing party.
THE PARTICIPANT AND THE COMPANY

12

--------------------------------------------------------------------------------

 

ACKNOWLEDGE AND AGREE THAT BY BECOMING A PARTICIPANT UNDER THE PLAN, THEY ARE
AGREEING TO THIS ARBITRATION PROVISION AND ARE WAIVING ALL RIGHTS TO A TRIAL BY
JURY.
     6.5 Exhaustion of Remedies. No legal action for benefits under the Plan may
be brought unless and until the Claimant has exhausted his remedies under this
Article VI.
ARTICLE VII
MISCELLANEOUS MATTERS
     7.1 Amendment or Termination.
          (a) The Board may, at its sole discretion, amend or terminate this
Plan at any time or from time to time, in whole or in part by a duly adopted
resolution, provided that, without the consent of each existing Participant, no
amendment or termination may adversely affect that Participant’s rights to
receive accrued benefits as provided in the Plan, as in effect prior to such
amendment or termination.
          (b) The termination of the Plan will result in the immediate vesting
of accrued benefits.
          (c) All benefits will be payable at the time the Participant would
have otherwise been eligible to receive benefits under the provisions of this
Plan in effect before Plan termination. However, the Board may elect to
accelerate the payment of the benefits under the Plan, and to pay such benefits
in the form of lump sum distributions if such election to accelerate the payment
of benefits would not result in a Participant’s benefits becoming subject to the
excise taxes contemplated by Section 409A of the Code. Any lump sum benefits
paid under this Section 7.1(c) will be the Actuarial Equivalent of the benefits
determined under Section 3.1 above, calculated as of the date the Plan is
terminated.
     7.2 Effect of Reorganization or Transfer of Assets.
          (a) In the event of a consolidation, merger, sale, liquidation, or
other transfer of substantially all of the operating assets of the Company to
any other company, the ultimate successor to the business of the Company shall
automatically be deemed to have elected to continue this Plan in full force and
effect, in the same manner as if the Plan had been adopted by resolution of its
board of directors.
          (b) The presumption set forth in Paragraph (a) above shall not apply
if the successor, by resolution of its board of directors, elects not to so
continue this Plan in effect. In such a case, the Plan shall terminate as of the
effective date set forth in the board resolution.
     7.3 Rights of Participants.
          (a) Nothing contained herein will confer on any Participant the right
to be retained in the service of the Company, nor will it interfere with the
Company’s right to discharge or otherwise deal with Participants without regard
to the existence of this Plan. The

13

--------------------------------------------------------------------------------

 

Company reserves the right to terminate the employment of any Participant
without any liability for any claim against the Company except to the extent
provided herein.
          (b) The benefits under the Plan are unfunded. Accordingly, no
Participant shall have a preferred claim on, or a beneficial ownership interest
in, any assets of the Company prior to the time such assets are paid to him in
the form of benefits.
          (c) All rights created under the Plan shall be mere unsecured
contractual rights of Participants against the Company. However, nothing in this
document shall in any way diminish any rights of a Participant to pursue his
rights as a general creditor of Company with respect to his benefits under the
Plan.
     7.4 Assignment of Benefits. To the maximum extent permitted by law, no
benefit under this Plan may be assigned or alienated. Any purported transfer,
assignment, encumbrance, or attachment thereof shall be void and of no effect.
In the event of a dispute involving any individual’s right to receive the
benefit hereunder, the Plan Administrator or the Company may enter an
interpleader action. Payment of the benefit to a court of competent jurisdiction
with proper notice to the appropriate parties in dispute shall be in full
satisfaction of all claims against the Plan Administrator and the Company as to
the Plan, and shall be equivalent to a receipt and release pursuant to
Section 7.7.
     7.5 Other Plans. This Plan shall not affect the right of any Participant to
participate in and receive benefits under and in accordance with the provisions
of any other employee benefit plans which are now or hereafter maintained by the
Company, unless the terms of such other employee benefit plan or plans
specifically provide otherwise.
     7.6 Interpretation.
          (a) The provisions of this Plan shall in all cases be interpreted in a
manner that is consistent with this Plan satisfying the applicable requirements
of ERISA.
          (b) If any provision of the Plan is held invalid or unenforceable, its
invalidity or unenforceability shall not affect any other provisions of the
Plan, and the Plan will be construed and enforced as if the provision had not
been included in it.
          (c) Unless the context clearly indicates otherwise, the masculine
gender shall include the feminine, the singular shall include the plural, and
the plural shall include the singular.
          (d) Article and section headings are for convenience of reference only
and shall not be deemed to be part of the substance of this instrument or in any
way to enlarge or limit the contents of any Article or Section.
     7.7 Receipt or Release. Any payment to a Participant in accordance with the
provisions of this Plan shall, to the extent thereof, be in full satisfaction of
all claims against the Plan Administrator and the Company, and the Plan
Administrator may require such Participant, as a condition precedent to such
payment, to execute a receipt and release to such effect.

14

--------------------------------------------------------------------------------

 

     7.8 Governing Law. Except to the extent preempted by ERISA, this Plan shall
be construed, administered, and governed in all respects in accordance with the
laws of the State of Texas. If any provisions of this instrument shall be held
by a court of competent jurisdiction to be invalid or unenforceable, the
remaining provisions hereof shall continue to be fully effective.
     7.9 Section 409A Standards. The Plan shall be effected, interpreted, and
applied in a manner consistent with the standards for nonqualified deferred
compensation plans established by Section 409A of the Code and its interpretive
regulations and/or guidance (the “Section 409A Standards”). To the extent that
any terms of the Plan would subject any Participant to gross income inclusion,
interest, or additional tax pursuant to, or would be prohibited by, Section 409A
of the Code, those terms are to that extent superseded by the applicable
Section 409A Standards.

15

--------------------------------------------------------------------------------

 

     IN WITNESS WHEREOF The Houston Exploration Company has caused this Plan
document to be executed by its duly authorized officer as of the 25th day of
July, 2006.

            THE HOUSTON EXPLORATION COMPANY
      By:   /s/ Roger B. Rice                    

16

--------------------------------------------------------------------------------

 

         

Exhibit A
Designated Plan Participants
The following designated individuals shall be entitled to the following number
of Years of Service as of the Effective Date.

      Participant   Years of Service
Bergeron
   
 
   
Campbell
   
 
   
Hargett
   
 
   
Hresko
   
 
   
Mueller
   
 
   
Ray
   
 
   
Rice
   
 
   
Sherrick
   
 
   
Westmoreland
   

A-1