Exhibit 10.1

 

SEVERANCE AGREEMENT

 

This Severance Agreement between Edge Petroleum Corporation, a Delaware
corporation (the “Company”), and Gary L. Pittman (“Employee”).

 

WITNESSETH:

 

WHEREAS, the Company desires to retain certain employee personnel and,
accordingly, the Board of Directors of the Company (the “Board”) approved the
Company entering into a severance agreement with Employee in order to encourage
such employee’s continued service to the Company; and

 

WHEREAS, Employee is prepared to commit such services in return for specific
arrangements with respect to severance compensation and other benefits; and

 

WHEREAS, in consideration for Employee’s agreement to enter into this Severance
Agreement, the Company will, upon the occurrence of a Change of Control (as
defined in Section 1(b) of this Agreement), automatically vest any Restricted
Stock Award that is outstanding as of the date of such Change of Control; and

 

WHEREAS, effective immediately, the Company and Employee desire to establish
documentary compliance with Section 409A of the Internal Revenue Code of 1986,
as amended;

 

NOW THEREFORE, in consideration of the foregoing and for other good and valuable
consideration, the Company and Employee agree as follows:

 

1.                                                 Definitions

 

(a)                      “Change in Duties” shall mean the occurrence, within
two years after the date upon which a Change of Control occurs, of any one or
more of the following conditions provided that the Employee has notified the
Company of the existence of such condition within 90 days of its initial
existence and the Company has not cured the condition within 30 days after such
notice is provided (the “Correction Period”):

 

(i)                           A significant reduction in the duties of Employee
from those applicable to the Employee immediately prior to the date on which a
Change of Control occurs; or

 

(ii)                        A material reduction in Employee’s annual salary
from that provided to the Employee immediately prior to the date on which a
Change of Control occurs; or

 

 (iii)                  A change in the location of Employee’s principal place
of employment by the Company by more than 50 miles from the location where he or
she was

 

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principally employed immediately prior to the date on which a Change of Control
occurs.

 

(b)                     “Change of Control” means the occurrence of either of
the following events:

 

(i)                         The Company (A) shall not be the surviving entity in
any merger, consolidation or other reorganization (or survives only as a
subsidiary of an entity other than a previously wholly-owned subsidiary of the
Company) or (B) is to be dissolved and liquidated, and as a result of or in
connection with such transaction which for the avoidance of doubt, applies to
(A) and (B), the persons who were directors of the Company before such
transaction shall cease to constitute a majority of the Board;

 

 (ii)                   Any person or entity, including a “group” as
contemplated by Section 13(d)(3) of the Securities Exchange Act of 1934, as
amended, acquires or gains ownership or control (including, without limitation,
power to vote) of 20% or more of the outstanding shares of the Company’s voting
stock (based upon voting power), and as a result of or in connection with such
transaction, the persons who were directors of the Company before such
transaction shall cease to constitute a majority of the Board; or

 

(iii)                   The Company sells all or substantially all of the assets
of the Company to any other person or entity (other than a wholly-owned
subsidiary of the Company) in a transaction that requires shareholder approval
pursuant to the Texas Business Corporation Act.

 

(c)                     “Code” shall mean the Internal Revenue Code of 1986, as
amended.

 

(d)                    “Compensation” shall mean the greater of:

 

(i)                         Employee’s current annual salary plus his or her
Targeted Bonus Opportunity immediately prior to the date on which a Change of
Control occurs, or

 

(ii)                      Employee’s current annual salary plus his or her
Targeted Bonus Opportunity at the time of his or her Involuntary Termination.

 

(e)                     “Incentive Award” shall mean any grant or award of
restricted stock, stock options or other benefits or awards made to an Employee
under the Incentive Award Plan.

 

(f)                       “Incentive Award Plan” shall mean Edge Petroleum
Corporation 1997 Incentive Plan, as amended, or any successor thereto.

 

(g)                    “Involuntary Termination” shall mean any termination of
Employee’s employment with the Company which:

 

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(i)                         does not result from a resignation by Employee
(other than a resignation pursuant to Clause (ii) of this paragraph (g) or a
resignation at the request of the Company); or

 

(ii)                      results from a resignation by Employee on or before
the date which is thirty days after the expiration of the Correction Period
associated with a Change in Duties; provided, however, the term “Involuntary
Termination” shall not include a Termination for Cause or any termination as a
result of death, disability under circumstances entitling him to benefits under
the Company’s long-term disability plan.

 

(h)                    “Severance Amount” shall mean an amount equal to 2.0
times Employee’s Compensation.

 

(i)                        “Targeted Bonus Opportunity” shall mean the
Employee’s current targeted bonus opportunity, if any, as approved by the
Compensation Committee effective for the year with respect to which such
targeted bonus opportunity, if any, is being determined or for the last year for
which such an opportunity was so approved if one has not been approved for the
current year, expressed as a dollar amount.

 

(j)                        “Termination for Cause” shall mean termination of
Employee’s employment by the Company (or its subsidiaries) by reason of
(a) conviction of the Employee by a court of competent jurisdiction of any
felony or a crime involving moral turpitude; (b) the Employee’s knowing failure
or refusal to follow reasonable instructions of the Board or reasonable
policies, standards and regulations of the Company or its subsidiaries as set
forth in the employee manual or otherwise; (c) the Employee’s continued failure
or refusal to faithfully and diligently perform the usual, customary duties of
his or her employment with the Company or a subsidiary; (d) the Employee
continuously conducting himself or herself in an unprofessional, unethical,
immoral or fraudulent manner; or (e) the Employee’s conduct discredits the
Company or a subsidiary or is detrimental to the reputation, character and
standing of the  Company or a subsidiary.

 

2.                                                 Services.  Employee agrees
that he or she will render services to the Company (as well as any subsidiary
thereof or successor thereto) during the period of his or her employment to the
best of his or her ability and in a prudent and businesslike manner.

 

3.                                                 Severance Benefits.     If
Employee’s employment by the Company or any subsidiary thereof or successor
thereto shall be subject to an Involuntary Termination which occurs within two
years after the date upon which a Change of Control occurs, then Employee shall
be entitled to receive, as additional compensation for services rendered to the
Company (including its subsidiaries), the following severance benefits:

 

(a)                        A lump sum cash payment in an amount equal to
Employee’s Severance Amount.

 

(b)                       Effective as of the date of Involuntary Termination,
Employee shall become fully vested in all outstanding Incentive Awards that had
not previously vested or

 

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otherwise become exercisable as of such date due to restrictions or other
provisions contained in the document granting such Incentive Award, such
restrictions or other provisions in such document notwithstanding.

 

(c)                                Employee and, if applicable, his or her
eligible dependents who are covered under the Company’s medical, dental or
vision plans (collectively, the “Company Group Health Plans”) as of the date on
which Employee’s Involuntary Termination occurs shall be entitled to elect to
continue coverage under the Company Group Health Plans in accordance with
section 4980B of the Code and sections 601-607 et seq. of the Employee
Retirement Income Security Act of 1974, as amended (“COBRA”), or similar
provisions of applicable state continuation coverage laws.  If and to the extent
that Employee and/or his or her eligible dependents elect COBRA coverage then,
during the Continuation Period (defined below), Employee and, if applicable, his
or her covered dependents shall be required to pay the active employee rates
applicable to similarly situated active employees for the applicable type and
level of coverage under the applicable Company Group Health Plans (the “Employee
Contribution”) and the Company shall pay the remainder of any required premium
for the Continuation Period.  For purposes of this Agreement, the “Continuation
Period” shall be the period commencing on the date of Employee’s Involuntary
Termination and ending on the earliest to occur of (i) the expiration of
eighteen months after Employee’s Involuntary Termination (or any additional
period required pursuant to applicable federal or state law), (ii) the date
Employee or, if applicable, his or her covered dependents, is eligible for
medical, dental or vision coverage, as applicable, under another
employer-provided group health plan (with Employee being obligated hereunder to
report such eligibility to the Company within 30 days and certify eligibility
for payments hereunder promptly upon request of the Company), or (iii) the date
on which COBRA coverage (or applicable state continuation coverage, if
applicable) terminates.  The amount and due dates for such payment shall be
communicated to Employee and, if applicable, his or her eligible dependents
within 44 days of the date of Employee’s Involuntary Termination.  The foregoing
is intended to reflect financial agreements between Employee and the Company and
shall not be construed to limit Employee’s rights under COBRA.  The Continuation
Period shall run concurrently with the required COBRA continuation coverage
period (and any period of state continuation coverage required by applicable
law) and shall not extend any person’s COBRA continuation coverage period (or
period of state continuation coverage).

 

(d)                               If the Continuation Period expires pursuant to
Section 3(c)(i) above, then following the expiration of the Continuation Period,
if and to the extent that Employee, and, where applicable, Employee’s covered
dependents were covered by the Company Group Health Plans immediately prior to
termination of the Continuation Period and are not eligible for medical, dental
or vision coverage, as applicable, under another employer-provided group health
plan, Employee shall be entitled to receive a cash lump sum payment equal to
eighteen times the monthly amount, if any, that the Company or its successor (or
any parent or

 

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affiliate of the Company or its successor), as applicable, pays to subsidize
employee medical, dental or vision coverage, as applicable, for similarly
situated active employees and their dependents for the type and level of
coverage that was being provided to Employee and his or her covered dependents,
if applicable, under the Company Group Health Plans (as COBRA coverage)
immediately prior to the end of the Continuation Period (the “Company Subsidy
Amount”) based on the Company subsidy rates in effect in the month immediately
prior to the expiration of the Continuation Period.  Payment of such Company
Subsidy Amount shall be made within 30 days of the expiration of the
Continuation Period.

 

(e)                                  In lieu of any Company-provided continued
life insurance or accidental death and dismemberment coverage following
Employee’s Involuntary Termination, Employee shall receive a payment of $2,000. 
The payment required under this Paragraph 3(e) shall be paid in a lump sum
within 15 days following Employee’s Involuntary Termination.

 

(f)                                    Employee shall be entitled to receive
reimbursement for out-placement services incurred before the end of the second
calendar year following Employee’s Involuntary Termination in connection with
obtaining new employment up to a maximum cost of $6,000, if Employee is seeking
new employment.  Such reimbursement shall be paid within 90 days of the
Company’s receipt of Employee’s request for reimbursement including any required
documentation of expenses.

 

(g)                           The severance benefits payable under this
agreement shall be paid to the Employee on or before the fifth day after the
last day of Employee’s employment with the Company.  Any severance benefits paid
pursuant to this paragraph will be deemed to be a severance payment and not
compensation for the purposes of determining benefits under the Company’s
qualified plans and shall be subject to any required tax withholding.

 

4.                                                 Interest on Late Benefit
Payments.                    If any payment provided for in Paragraph 3(a) or
3(b) hereof is not made when due, the Company shall pay to Employee interest on
the amount payable from the date that such payment should have been made under
such paragraph until such payment is made, which interest shall be calculated at
a rate equal to two percentage points over the prime or base rate of interest
announced by Chase Bank of Texas, N.A. or any successor thereto, at its
principal office in Houston, Texas and shall change when and as such change in
such prime or base rate shall be announced by such bank.

 

5.                                                 Certain Additional Payments
by the Company.  Notwithstanding anything to the contrary in this Agreement, in
the event that any payment or distribution by the Company to or for the benefit
of Employee, whether paid or distributed or distributable pursuant to the terms
of this Agreement or otherwise (a “Payment”), would be subject to the excise tax
imposed by Section 4999 of the Code or any interest or penalties with

 

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respect to such excise tax (such excise tax, together with any such interest or
penalties, are hereinafter collectively referred to as the “Excise Tax”), the
Company shall pay to Employee an additional payment (a “Gross-up Payment”) in an
amount such that after payment by Employee of all taxes (including an interest
or penalties imposed with respect to such taxes), including any Excise Tax
imposed on any Gross-up Payment, Employee retains an amount of the Gross-up
Payment equal to the Excise Tax imposed upon the payment.  The Company and
Employee shall make an initial determination as to whether a Gross-up Payment is
required and the amount of any such Gross-up Payment. Employee shall notify the
Company in writing of any claim by the Internal Revenue Service which, if
successful, would require the Company to make a Gross-up Payment (or a Gross-up
Payment in excess of that, if any, initially determined by the Company and
Employee) within ten days of the receipt of such claim.  The Company shall
notify Employee in writing at least ten days prior to the due date of any
response required with respect to such claim if it plans to contest the claim. 
The Gross-up Payment to Employee shall be made no earlier than the date of the
Payment to which such Gross-up Payment relates and no later than December 31 of
the year following the year during which Employee remits the related taxes.  If
the Company decides to contest such claim, Employee shall cooperate fully with
the Company in such action; provided, however, the Company shall bear and pay
directly or indirectly all cost and expenses (including additional interest and
penalties) incurred in connection with such action and shall indemnify and hold
Employee harmless, on an after-tax basis, for any Excise Tax or income tax,
including interest and penalties with respect thereto, imposed as a result of
the Company’s action.  If, as a result of the Company’s action with respect to a
claim, Employee receives a refund of any amount paid by the Company with respect
to such claim, Employee shall promptly pay such refund to the Company.  If the
Company fails to timely notify Employee whether it will contest such claim or
the Company determines not to contest such claim, then the Company shall
immediately pay to Employee the portion of such claim, if any, which it has not
previously paid to Employee.

 

6.                                                 General.

 

(a)                        Term.  The effective date of this Agreement is
January 26, 2009.  The initial term of this Agreement shall be the period
beginning on said effective date and ending on the two-year anniversary of said
effective date.  Within sixty days after the expiration of this Agreement and
within sixty days after each successive two-year period of time thereafter that
this Agreement is in effect, the Company shall have the right to review this
Agreement, and in its sole discretion either continue and extend this Agreement,
terminate this Agreement, and/or offer Employee a different agreement, and will
notify Employee of such action before the end of said sixty-day time period
mentioned above.  This Agreement shall remain in effect until so terminated
and/or modified by the Company.  Failure of the Company at any time and from
time to time to take any action within any of said sixty-day time periods shall
be considered as an extension of this Agreement for an additional two-year
period of time.  Notwithstanding anything to the contrary contained in this
“sunset provision,” it is agreed that if a Change of Control

 

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occurs while this Agreement is in effect, then this Agreement shall not be
subject to termination or modification under this “sunset provision,” and shall
remain in force for a period of two years after such Change of Control, and if
within said two years the contingency factors occur which would entitle Employee
to the benefits as provided herein, this Agreement shall remain in effect in
accordance with its terms.  If, within such two years after a Change of Control,
the contingency factors that would entitle Employee to said benefits do not
occur, thereupon this two-year “sunset provision” shall again be applicable with
the sixty-day time period for Company action (to either continue, extend,
terminate or offer Employee different agreement shall thereafter commence at the
expiration of said two years after such Change of Control and on each two-year
anniversary date thereafter.

 

(b)                                           Indemnification.  If Employee
shall obtain any money judgment or otherwise prevail with respect to any
litigation brought by Employee or the Company to enforce or interpret any
provision contained herein, the Company, to the fullest extent permitted by
applicable law, hereby indemnifies Employee for his or her reasonable attorneys’
fees and disbursements incurred in such litigation and hereby agrees (i) to pay
in full all such fees and disbursements and (ii) to pay prejudgment interest on
any money judgment obtained by Employee from the earliest date that payment to
Employee should have been made under this Agreement until such judgment shall
have been paid in full, which interest shall be calculated at a rate equal to
two percentage points over the prime or base rate of interest announced by Chase
Bank of Texas, N.A. (or any successor thereto) at its principal office in
Houston, Texas, and shall change when and as any such change in such prime or
base rate shall be announced by such bank.

 

(c)                                  Payment Obligations Absolute.  The
Company’s obligation to pay (or cause one of its subsidiaries to pay) Employee
the amounts and to make the arrangements provided herein shall be absolute and
unconditional and shall not be affected by any circumstances, including, without
limitation, any set-off, counterclaim, recoupment, defense or other right which
the Company (including its subsidiaries) may have against the Employee or anyone
else.  All amounts payable by the Company (including its subsidiaries hereunder)
shall be paid without notice or demand.  Employee shall not be obligated to seek
other employment in mitigation of the amounts payable or arrangements made under
any provision of this Agreement, and, except as provided in Paragraph 3(c),
(d) or (e) hereof, the obtaining of any such other employment shall in no event
effect any reduction of the Company’s obligations to make (or cause to be made)
the payments and arrangements required to be made under this Agreement.

 

(d)                                       Successors.  This Agreement shall be
binding upon and inure to the benefit of the Company and any successor of the
Company, by merger, combination, asset sale or otherwise.  This Agreement shall
also be binding upon and inure to the benefit of Employee and his or her
estate.  If Employee shall die prior to full payment of

 

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amounts due pursuant to this Agreement, such amounts shall be payable pursuant
to the terms of this Agreement to his or her estate.

 

(e)                                    Severability.  Any provision in this
Agreement which is prohibited or un-enforceable in any jurisdiction by reason of
applicable law shall, as to such jurisdiction, be ineffective only to the extent
of such prohibition or unenforceability without invalidating or affecting the
remaining provisions hereof, and any such prohibition or unenforceability in any
jurisdiction shall not invalidate or render unenforceable such provision in any
other jurisdiction.

 

(f)                                      Non-Alienation.  Employee shall not
have any right to pledge, hypothecate, anticipate or assign this Agreement or
the rights hereunder, except by will or the laws of descent and distribution.

 

(g)                                 Notices.  Any notices or other
communications provided for in this Agreement shall be sufficient if in
writing.  In the case of Employee, such notices or communications shall be
effectively delivered if hand delivered to Employee at his or her principal
place of employment or if sent by registered or certified mail to Employee at
the last address he or she has filed with the Company.  In the case of the
Company, such notices or communications shall be effectively delivered if sent
by registered or certified mail to the Company at its principal executive
offices.

 

(h)                                 Controlling Law.  This Agreement shall be
governed by, and construed in accordance with, the laws of the State of Texas. 
Further, Employee agrees that any legal proceeding to enforce the provisions of
this Agreement shall be brought in Houston, Harris County, Texas, and hereby
waives the right to any pleas regarding subject matter or personal jurisdiction
and venue.

 

(i)                                     Release.                Any benefit
payable pursuant to Section 3 herein is subject to Employee’s execution of a
release, without subsequent revocation, within 60 days of Employee’s
termination, in the form established by the Company, releasing the Company, its
shareholders, partners, officers, directors, employees and agents from any and
all claims and from any and all causes of action of any kind or character
(except claims arising under this Agreement), including but not limited to all
claims or causes of action arising out of Employee’s employment with the Company
or, with the exception of rights provided in any other written agreement between
the Company and Employee, the termination of such employment.

 

(j)                                     Full Settlement.  If Employee is
entitled to and receives the benefits provided hereunder, performance of the
obligations of the Company hereunder will constitute full settlement of all
claims that Employee might otherwise assert against the Company on account of
Employee’s termination of employment, except such claims as may be asserted
pursuant to any other agreement between the Company and Employee.

 

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(k)                                  Unfunded Obligation.  The obligation to pay
amounts under this Agreement is an unfunded obligation of the Company (including
its subsidiaries), and no such obligation shall create a trust or be deemed to
be secured by any pledge or encumbrance on any property of the Company
(including its subsidiaries).

 

(l)                                     Not a Contract of Employment.  This
Agreement shall not be deemed to constitute a contract of employment, nor shall
any provision hereof affect (i) the right of the Company (or its subsidiaries)
to discharge Employee at will, subject to the terms of any other agreement
between the Company (or its subsidiaries) and Employee, or (ii) the terms and
conditions of any other agreement between the Company and Employee except as
provided herein.

 

(m)                               Number and Gender.  Wherever appropriate
herein, words used in the singular shall include the plural and the plural shall
include the singular.  The masculine gender where appearing herein shall be
deemed to include the feminine gender.

 

(n)                                 Counterparts.  This Agreement may be
executed in one or more counterparts, each of which shall be deemed to be an
original, but all of which together will constitute one and the same Agreement.

 

(o)                                 Headings.  The headings in this Agreement
are for convenience only and shall be disregarded in construing this Agreement.

 

(p)                                 Section 409A.  This Agreement is intended to
comply with Code Section 409A and any ambiguous provision will be construed in a
manner that is compliant with or exempt from the application of Code
Section 409A.  If any provision of this Agreement would cause Employee to incur
any additional tax or interest under Code Section 409A and accompanying Treasury
regulations and guidance, Employer shall, after consulting with Employee, reform
such provision to comply with Code Section 409A, to the extent permitted under
Code Section 409A; provided, however, that Employer agrees to maintain, to the
maximum extent practicable, the original intent and economic benefit to Employee
of the applicable provision without violating the provisions of Code
Section 409A.  Notwithstanding any provision to the contrary in this Agreement,
if Employee is deemed on his termination date to be a “specified employee”
within the meaning of that term under Section 409A(a)(2)(B) of the Code, then
the payments and benefits under this Agreement that are subject to Code
Section 409A shall be made or provided (subject to the last sentence hereof) on
the later of (A) the payment date set forth in this Agreement or (B) the date
that is the earliest of (i) the expiration of the six-month period measured from
the date of Employee’s Termination of employment or (ii) the date of Employee’s
death (the “Delay Period”).  Payments subject to the Delay Period shall be paid
to Employee without interest for such delay in payment.  Notwithstanding any
provision of this Agreement to the contrary, Employee acknowledges and agrees
that the Company and its employees, officers, directors, Affiliates and
Subsidiaries shall not be liable for, and nothing provided or contained in this
Agreement will be construed to obligate or cause the Company

 

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and/or its employees, officers, directors, Affiliates and Subsidiaries to be
liable for, any tax, interest or penalties imposed on Employee related to or
arising with respect to any violation of Section 409A.

 

IN WITNESS WHEREOF, THE PARTIES HERETO HAVE EXECUTED THIS AGREEMENT ON THE 29TH
DAY OF JANUARY, 2009.

 

 

“Company”

 

 

 

EDGE PETROLEUM CORPORATION

 

 

 

 

 

By:

/s/ John W. Elias

 

 

John W. Elias

 

 

Chairman, President and

 

 

Chief Executive Officer

 

 

 

 

 

“Employee”

 

 

 

 

 

By:

/s/ Gary L. Pittman

 

 

Gary L. Pittman

 

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