Exhibit 10.1

 

 

 

APPROACH RESOURCES INC.

 

KEY EMPLOYEE INCENTIVE PLAN

 

THIS KEY EMPLOYEE INCENTIVE PLAN (the “Plan”) is made and executed by Approach
Resources Inc., a Delaware corporation (the “Company”), effective as of the date
this Plan is approved by the Bankruptcy Court (as defined below), to provide an
opportunity to receive incentive compensation to the Eligible Executives (as
defined below) in connection with certain restructuring events of the Company.

 

ARTICLE I

 

DEFINITIONS

 

1.1Definitions.  Where the following words and phrases appear in the Plan, they
shall have the respective meanings set out below, unless their context clearly
indicates to the contrary.

 

(a)“Affiliate” means an organization that is aggregated and treated as a single
employer with the Company under Code Section 414(b) (controlled group of
corporations) or Code Section 414(c) (group of trades or businesses under common
control), as applicable, but using an “at least 50 percent” rather than an “at
least 80 percent” control level.

(b)“Agent” means the Prepetition Agent and the DIP Agent.

(c)“Annual Base Salary” means the annualized base rate of compensation payable
by the Company or an Affiliate to an Eligible Executive, including any amount
that the Eligible Executive could have received had he or she not elected to
contribute such amount to an employee benefit plan maintained by the Company or
an Affiliate, and excluding all other types of compensation such as overtime
pay, call pay, shift and area differentials, commissions, bonuses, added
premiums, and all other forms of incentive or supplemental pay, employee
benefits, and perquisites paid or provided by the Company or an Affiliate.

(d)“Bank Group” means (1) the holders of the Debtors’ obligations under the DIP
Credit Agreement and (2) the holders of the Company’s obligations under that
certain Amended and Restated Credit Agreement, dated as of May 7, 2014.

(e)“Bankruptcy Code” means title 11 of the United States Code, 11 U.S.C. §§ 101
et seq., as amended from time to time.

(f)“Bankruptcy Court” means the United States Bankruptcy Court for the Southern
District of Texas.

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(g)“Bid Procedures Order” means the Order Approving (A) Bid Procedures; (B) the
Form and Manner of Notice; (C) the Procedures for Determining Cure Amounts for
Executory Contracts and Unexpired Leases; and (D) Granting Related Relief
entered by the Bankruptcy Court on January 9, 2020 under Docket No. 184, as may
be amended, supplemented or modified.

(h)“Board” means the Board of Directors of the Company.

(i)“Cause” means acts or omissions of the Eligible Executive constituting any of
the following: (1) the willful and continued failure by the Eligible Executive
substantially to perform the Eligible Executive’s duties, responsibilities, or
authorities with the Company or an Affiliate (other than any such failure
resulting from the Eligible Executive becoming Permanently Disabled); (2) the
willful engaging by the Eligible Executive in misconduct that is materially
injurious to the Company or any successor thereto (or any Affiliate of the
Company or a successor thereto); (3) any misconduct by the Eligible Executive in
the course and scope of the Eligible Executive’s employment with the Company or
an Affiliate, including but not limited to dishonesty, disloyalty, disorderly
conduct, insubordination, harassment of other employees or third parties, abuse
of alcohol or controlled substances, or other willful violations of the
Company’s personnel policies, rules, or Code of Conduct; or (4) any violation by
the Eligible Executive of any fiduciary duty owed by the Eligible Executive to
the Company or its Affiliates.  For purposes of this paragraph, no act, or
failure to act, on the Eligible Executive’s part shall be considered “willful”
unless done, or omitted to be done, by the Eligible Executive not in good faith
and without reasonable belief that the Eligible Executive’s action or omission
was in the best interest of the Company or an Affiliate.  Notwithstanding the
foregoing, if the Company or an Affiliate determines in its sole discretion that
a cure is possible and appropriate, the Company or an Affiliate will give the
Eligible Executive written notice of the acts or omissions constituting Cause
and no termination of employment shall be for Cause unless and until the
Eligible Executive fails to cure such acts or omissions within 10 days following
receipt of such written notice.  If the Company or an Affiliate determines in
its sole discretion that a cure is not possible and appropriate, the Eligible
Executive shall have no notice or cure rights before the Eligible Executive’s
employment is terminated for Cause.

(j)“Chapter 11 Cases” means the cases under the Bankruptcy Code currently
pending in the United States Bankruptcy Court, Southern District of Texas,
Houston Division, under Case No. 19-36444.

(k)“Code” means the Internal Revenue Code of 1986, as amended.

(l)“Committee” means the Compensation Committee of the Board or such other
committee as may be designated by the Board to administer this Plan, which
Committee shall consist of three or more members.

(m)“Company” means Approach Resources Inc., a Delaware corporation, and its
successors and assigns, including a successor or assignee pursuant to Section
4.7.

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(n)“Credit Bid Right” shall have the meaning ascribed to it in the Bid
Procedures Order.

(o)“Debtors” means the Company and its debtor affiliates, as debtors and debtors
in possession, as set forth in the Chapter 11 Cases.

(p)“DIP Agent” means JPMorgan Chase Bank, N.A., in its capacity as agent under
the DIP Credit Agreement.

(q)“DIP Lenders” means the lenders under the DIP Credit Agreement.

(r)“DIP Credit Agreement” means that certain Senior Secured Super Priority
Debtor-in-Possession Credit Agreement, dated December 18, 2019, by and among any
of the Debtors, the DIP Agent, and the DIP Lenders, as may be amended, modified
or supplemented.

(s)“DIP Order” means the Final Order (I) Authorizing the Debtors to (a) Obtain
Postpetition Financing Secured by Senior Priming Liens and (b) Use Cash
Collateral, (II) Granting Liens and Providing Superpriority Administrative
Expense Status, (III) Granting Adequate Protection, (IV) Modifying the Automatic
Stay, (V) Scheduling a Final Hearing, and (VI) Granting Related Relief entered
by the Bankruptcy Court on December 13, 2019 under Docket No. 110, and as may be
amended, modified or supplemented.

(t) “Eligible Executive” means an Employee listed on Exhibit A to this Plan who
is, at the time of determination, employed on a full-time basis by the Company
or an Affiliate.  Notwithstanding any other provision of this Plan, any Eligible
Executive who ceases to be an Employee for any reason other than a Qualifying
Termination shall be deemed to have been automatically removed from the list of
Eligible Executives on Exhibit A to this Plan, shall no longer be considered to
be an Eligible Executive, and shall no longer be entitled to receive any
Incentive Payment under this Plan.

(u)“Employee” means a person who is treated by the Company or an Affiliate as an
employee for tax purposes.

(v)“Incentive Payment” means the payment described in Section 2.1.

(w)“Payment Event” means the earlier of (1) the closing of a Qualifying Sale or
(2) entry of a confirmation order approving a Qualifying Plan of Reorganization.

(x)“Permanently Disabled” means a medically determinable physical or mental
impairment (1) that prevents the Eligible Executive from performing his or her
essential job functions with or without reasonable accommodation as required by
applicable law and is expected either to result in death or to last for a
continuous period of not less than six months as determined by the Committee, or
(2) for which the Eligible Executive receives disability income benefits from
either the Social Security Administration or a long-term disability insurance
plan maintained by the Company or an Affiliate.

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(y)“Plan of Reorganization” means a plan of reorganization under chapter 11 of
the Bankruptcy Code specifying the treatment of claims against and interests in
the Debtors and providing for the reorganization or liquidation of the Debtors
and which must be acceptable to the Agent.

(z) “Prepetition Agent” means JPMorgan Chase Bank, N.A., in its capacity as
agent under that certain Amended and Restated Credit Agreement, dated as of May
7, 2014.

(aa)“Purchase Price” means the aggregate value of cash, cash equivalents and
non-cash consideration to be provided by a third party (any such non-cash
consideration must be acceptable to the Agent) in connection with a Sale
Transaction; provided, further, in the event the Debtors have received a
Qualifying Bid and are consummating a Sale Transaction with the Agent, with the
Agent exercising the Credit Bid Right, the value of such Sale Transaction shall
be the value ascribed to the otherwise highest and best Qualifying Bid as
determined in good faith by the Board with the consent of the Agent.

(bb)“Qualifying Bid” shall have the meaning ascribed to it in the Bid Procedures
annexed as Exhibit A to the Bid Procedures Order.

(cc)“Qualifying Plan of Reorganization” means any Plan of Reorganization with a
Transaction Value of at least $[***]; provided, however, in the event the
Debtors do not receive a Qualifying Bid (from a party other than the Bank
Group), a Plan of Reorganization which must be acceptable to the Agent shall not
constitute a Qualifying Plan of Reorganization.

(dd)“Qualifying Sale” means any Sale Transaction with a Transaction Value of at
least $[***].

(ee)“Qualifying Termination” means the involuntary termination of an Eligible
Executive’s employment with the Company or an Affiliate either by the Company or
an Affiliate without Cause or due to the Eligible Executive’s death or becoming
Permanently Disabled.  A “Qualifying Termination” thus shall not include any
other termination of an Eligible Executive’s employment with the Company or an
Affiliate, including without limitation a termination by the Company or an
Affiliate for Cause, or a paid suspension of the Eligible Executive pending an
investigation authorized by the Company, an Affiliate, or a governmental
authority, or a determination by the Company or an Affiliate whether the
Eligible Executive has engaged in acts or omissions constituting Cause.

(ff)“Sale Transaction” means, in the event the Debtors receive a Qualifying Bid,
any transaction or series of related transactions that constitute the
disposition to one or more third parties (including, without limitation, any
person, group of persons, partnership, corporation or other entity, and also
including, among others, any of the existing owners or stockholders, employees,
or creditors of the Company and/or the affiliates of each) of (1) all or
substantially all equity interests of the Debtors and/or (2) all or a majority
of the assets or operations of the Debtors, in either case, including, without

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limitation, through a credit bid by the Bank Group, a sale or exchange of
capital stock, options or assets with or without a purchase option, a merger,
consolidation or other business combination, an exchange or tender offer, or any
similar transaction, including, without limitation, any sale transaction under
sections 363, 1129 or any other provision of the Bankruptcy Code.

(gg) “Target Amount” means an Eligible Executive’s target incentive payment
amount, equal to the product of his or her Annual Base Salary determined as of
the date of the Payment Event multiplied by the target percentage set forth on
Exhibit A to this Plan.

(hh)“Transaction Value” means the value of the Debtors, as determined in good
faith by the Board with the consent of the Agent, which, in the case of (1) a
Plan of Reorganization, shall be determined based upon the lesser of the amount
of the credit bid by the Agent exercising the Credit Bid Right and the
enterprise value of the Debtors’ taking into account the nature of the Plan of
Reorganization on the date a confirmation order is entered in respect of such
Plan of Reorganization or (2) a Sale Transaction, shall be determined based upon
the Purchase Price on the date such sale is closed; provided, however, in no
event will the value attributable to a Plan of Reorganization be less than the
value ascribed to the otherwise highest and best Qualifying Bid as determined in
good faith by the Board with the consent of the Agent.  

1.2Number.  Wherever appropriate in this Plan, words used in the singular shall
be considered to include the plural and the plural to include the singular.  

 

1.3Headings.  The headings of Articles and Sections in this Plan are included
solely for convenience and, if there is any conflict between such headings and
the text of the Plan, the text shall control.

 

ARTICLE II

 

INCENTIVE PAYMENT

 

2.1Incentive Payment.  If a Payment Event occurs and an Eligible Executive
either (i) is employed by the Company or an Affiliate on the date of the Payment
Event, or (ii) has experienced a Qualifying Termination at any time prior to the
occurrence of the Payment Event, the Company, or the Affiliate that is, or was
as of the date of the Qualifying Termination, the employer of the Eligible
Executive, shall pay to such Eligible Executive an amount equal to a percentage
of his or her Target Amount determined as of the date of the Payment Event.  The
percentage of an Eligible Executive’s Target Amount applicable for purposes of
determining the amount of any Incentive Payment shall be the payout percentage
determined by the Committee in accordance with Exhibit B to this Plan as soon as
practicable (but in no event later than 15 days) following the Payment
Event.  The Incentive Payment shall be paid to the Eligible Executive in a lump
sum within 30 days after the date of the Payment Event; provided, however, that
in the event the Payment Event is the entry of a confirmation order in respect
of a Plan of Reorganization and the effective date of such Plan of
Reorganization has not occurred, then the Incentive Payment shall not be paid to
the Eligible Executive until the earlier of (1) the effective date of such Plan
of

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Reorganization, or (2) March 15 of the calendar year following the calendar year
in which such confirmation order is entered.

 

2.2Withholding and Deductions.  With respect to any payment to be made to any
Eligible Executive under this Plan, the Company, or its Affiliate if the
Affiliate is making the payment, shall deduct, where applicable, any amounts
authorized by the Eligible Executive and permissible under applicable law, and
shall withhold and report all amounts required to be withheld and reported by
applicable law.

 

2.3Payments after Death.  In the event of the Eligible Executive’s death after
he or she becomes entitled to a payment of an Incentive Payment under this Plan,
any such payment shall be paid, at the time and in the manner such payment
otherwise would have been paid to the Eligible Executive, to the estate of the
Eligible Executive.

 

ARTICLE III

 

ADMINISTRATION OF PLAN

 

3.1  Plan Administrator.  The Plan will be administered by the Committee.  The
Committee may adopt such rules and regulations for the administration of this
Plan as are consistent with the terms hereof, and will keep adequate records of
its proceedings and acts.

 

3.2  Committee’s Powers and Duties.  It shall be a principal duty of the
Committee to see that the Plan is carried out, in accordance with its terms, for
the exclusive benefit of the Eligible Executives entitled to participate in the
Plan.  The Committee shall have full discretionary power to administer the Plan
in all of its details, subject to applicable requirements of law.  For this
purpose, the Committee’s powers shall include, but not be limited to, the
following discretionary authority, in addition to all other powers provided by
the Plan:

 

(a)to make and enforce such rules and regulations as it deems necessary or
proper for the efficient administration of the Plan;

 

(b)to interpret the Plan, its interpretation thereof to be final and conclusive
on all persons claiming benefits under the Plan;

 

(c)to decide all questions concerning the Plan and the eligibility of any person
to participate in the Plan;

 

(d)to make all determinations as to the right of any person under the Plan,
including a right to receive a benefit under this Plan (including without
limitation to determine whether and when there has been a Qualifying
Termination);

 

(e)to appoint such agents, counsel, accountants, consultants, claims
administrators and other persons as may be required to assist in administering
the Plan;

 

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(f)to allocate and delegate its responsibilities under the Plan and to designate
other persons to carry out any of its responsibilities under the Plan, any such
allocation, delegation or designation to be in writing; and

 

(g)to obtain from the Company and its Affiliates and from the Eligible
Executives such information as is necessary for the proper administration of the
Plan.

 

3.3Member’s Own Participation.  No member of the Committee may act, vote, or
otherwise influence a decision of the Committee specifically relating to himself
or herself as a participant in the Plan.

 

3.4Indemnification.  The Company shall indemnify and hold harmless each member
of the Committee against any and all expenses and liabilities arising out of his
or her administrative functions or fiduciary responsibilities with respect to
the Plan, including any expenses and liabilities that are caused by or result
from an act or omission constituting the negligence of such member in the
performance of such functions or responsibilities, but excluding expenses and
liabilities that are caused by or result from such member’s own gross negligence
or willful misconduct.  Expenses against which such member shall be indemnified
hereunder shall include, without limitation, the amounts of any settlement or
judgment, costs, counsel fees, and related charges reasonably incurred in
connection with a claim asserted or a proceeding brought or settlement thereof.

 

3.5Compensation, Bond, and Expenses.  The members of the Committee shall not
receive any additional compensation for their services as members of the
Committee.  To the extent required by applicable law, but not otherwise,
Committee members shall furnish bond or security for the performance of their
duties hereunder.  The Committee may employ such agents, accountants, and legal
counsel (who may be agents, accountants, and legal counsel for the Company) as
may be appropriate for the administration of the Plan.  Any expenses properly
incurred by the Committee incident to the administration, termination or
protection of the Plan, including the cost of furnishing bond, shall be paid by
the Company.

 

ARTICLE IV

 

GENERAL PROVISIONS

 

4.1Funding.  The benefits provided under the Plan shall be unfunded and shall be
provided from the general assets of the Company and its Affiliates.  It is
expected that, with respect to an Eligible Executive who is employed by an
Affiliate at the time a payment becomes due, or was so employed at the time of
his or her prior Qualifying Termination, payments made pursuant to the Plan will
be made by such Affiliate; provided, however, that if the Affiliate fails to pay
any amount when due for any reason, such payment shall be made by the Company,
and the Company and the employing Affiliate shall be and remain jointly and
severally liable for such payment until the payment has been paid in full.

 

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4.2Cost of Plan.  The entire cost of the Plan shall be borne by the Company and
its Affiliates and no contributions shall be required of the Eligible
Executives.

 

4.3Amendment and Termination.  

(a)The Board may at any time terminate, amend or modify the Plan, subject to any
requirement of Bankruptcy Court approval and the consent of the Agent; provided,
however, that except as otherwise provided in this Section 4.3, no termination,
amendment or modification of the Plan shall adversely affect the benefits or
protections provided under the Plan to any individual who is an Eligible
Executive, and any such attempted amendment or termination shall be null and
void ab initio as it relates to such individual.  

(b)Notwithstanding the foregoing provisions of this Section 4.3 and subject to
any requirement of Bankruptcy Court approval and consent of the Agent, if any
compensation or benefit provided by the Plan may result in being subject to the
tax imposed by Section 409A of the Code, the Board may modify the Plan as
necessary or appropriate in the best interests of the Eligible Executives (1) to
exclude such compensation or benefit from being deferred compensation within the
meaning of Section 409A of the Code, or (2) to comply with the provisions of
Section 409A of the Code and its related Code provisions (and the rules,
regulations and other regulatory guidance relating thereto); provided, however,
that no amendment made pursuant to the provisions of this Section 4.3(b) shall
reduce the value of the compensation or benefits that would be payable pursuant
to this Plan with respect to an Eligible Executive without the written consent
of such Eligible Executive.

4.4No Contract of Employment.  The adoption and maintenance of this Plan does
not, and shall not be deemed to, guarantee any Employee’s employment with the
Company or an Affiliate for any specific period and does not alter the at-will
nature of the employment relationship between the Company or an Affiliate and
any Employee who is employed by the Company on an at-will basis.  Accordingly,
any such Employee, the Company, or an Affiliate may terminate the employment
relationship as freely and with the same effect as if the Plan had not been
established at any time, with or without Cause, at the option of either party,
with or without notice.  Any representation contrary to the previous two
sentences shall be invalid unless obtained in writing and signed by a duly
authorized representative of the Board.  

 

4.5Severability.  Any provision in the Plan that is found to be prohibited or
unenforceable by any court of competent  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, any such prohibition or unenforceability in any jurisdiction
shall not invalidate or render unenforceable such provision in any other
jurisdiction, and any such provision shall be reformed by the court and enforced
to the maximum extent permitted under applicable law.

 

4.6Nonalienation.  An Eligible Executive shall have no right or ability to
pledge, hypothecate, anticipate, assign, or otherwise transfer any benefit or
right under the Plan, except by will or the laws of descent and distribution.

 

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4.7Assumption; Successors and Assigns.  The Company shall ensure that any
successor or assignee to all or substantially all the business and/or assets of
the Company, whether direct or indirect, by purchase, merger, consolidation, or
otherwise, assumes and performs the obligations under this Plan, whether by
operation of law or written agreement.  The Plan shall be binding upon the
Company, its Affiliates, and any successor or assignee of the Company or its
Affiliates, and shall inure to the benefit of and be enforceable by the Eligible
Executives.  Any successor or assignee of the Company shall be substituted for
and take the place of the Company for all purposes of this Plan following such
assumption or assignment.

 

4.8Code Section 409A.   This Plan is intended to be exempt from Section 409A of
the Code and the Treasury Regulations and other guidance thereunder and any
ambiguous provisions will be construed in a manner that is consistent with that
intent.  Notwithstanding the foregoing, neither the Company or its Affiliates,
or any director, officer, or employee of the Company or its Affiliates make any
guarantee as to the tax treatment of any payments or benefits to be provided
pursuant to the Plan.

 

4.9Governing Law; Venue; Jury Trial Waiver.  Except during the period during
which the Bankruptcy Court has jurisdiction with respect to the Chapter 11
Cases, during which the Bankruptcy Court shall have exclusive jurisdiction, the
Plan shall be governed and construed in accordance with the laws of the State of
Texas (without giving effect to any choice-of-law rules that may require the
application of the laws of another jurisdiction), except to the extent preempted
by federal law.  In the event that any dispute arising from or related to this
Plan or an Eligible Executive’s employment or termination of employment results
in a lawsuit, (a) the parties agree that the exclusive forum for such lawsuit
shall be in the state or federal courts located in Tarrant County, Texas,
subject to the Company’s or its Affiliates’, the Plan’s, or their
representatives’ right to move such lawsuit to federal court; (b) the Eligible
Executive expressly consents to the exercise of personal jurisdiction by any
state or federal court located in Tarrant County, Texas; and (c) the Company and
each Eligible Executive mutually and irrevocably waive the right to trial by
jury with respect to any legal claims or cause of actions arising out of or
relating to this Plan and agree not to ask for a jury in any such lawsuit.

 

4.10Condition Precedent to Plan Effectiveness.  The Company’s and its
Affiliates’ obligations under this Plan, including any obligations to pay any
Incentive Payments, are contingent upon approval by the Bankruptcy Court.  In
the event that such approval is not obtained, this Plan shall be null and void,
and no party shall be entitled to enforce any rights against the Company or its
Affiliates hereunder.

 

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IN WITNESS WHEREOF, this Plan has been adopted by the Board as of the 19th day
of February, 2020.

 

APPROACH RESOURCES INC.

 

 

By:/s/ Sergei Krylov

Name:Sergei Krylov

Title:President and Chief Executive Officer

 

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EXHIBIT A

TO

APPROACH RESOURCES INC.

KEY EMPLOYEE INCENTIVE PLAN

 

Executives Eligible to Participate and Target Amounts

 

Employee

Target Percentage of Annual Base Salary

Krylov, Sergei

84%

Hoefer, Troy

75%

Dazey, Josh

63%

Shaw, Ian

63%

 

 

 

 

 

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EXHIBIT B

TO

APPROACH RESOURCES INC.

KEY EMPLOYEE INCENTIVE PLAN

 

Determination of Payout Percentage

 

The payout percentage determined in accordance with the schedule below will be
based on the Transaction Value as reasonably determined by the Board with the
consent of the Agent.

 

Transaction Value

Payout Percentage

$[***]

60%

$[***]

100%

$[***]

120%

 

If the Transaction Value is between two levels indicated on the foregoing
schedule, the payout percentage under such schedule will be determined on the
basis of straight-line interpolation between such levels.