Exhibit 10.3
 
SEPARATION AGREEMENT
 
This Separation Agreement (this “Agreement”) is effective as of the 24th day of
April, 2014, by and between Lilis Energy, Inc. (“Lilis” or the “Company”) and W.
Phillip Marcum (“Marcum”). As used herein, “Parties” means, collectively, Lilis
and Marcum, and “Party” means either Lilis or Marcum.
 
RECITALS
 
WHEREAS, Lilis and Marcum are parties to that Employment Agreement dated June
25, 2013 (the “Employment Agreement”);
 
WHEREAS, Lilis and Marcum agree that, on April 18, 2014 (the “Separation Date”),
Marcum resigned for Good Reason (as defined in the Employment Agreement) from
his positions as officer and employee of Lilis and any of its subsidiaries,
including his positions of Chairman and CEO, and on the Board of Directors of
Lilis;
 
WHEREAS, as a result of such resignation, Marcum has the right to severance pay
under the Employment Agreement and to accelerated vesting of the 200,000 stock
options granted pursuant to the Stock Option Award Agreement dated as of June
25, 2013 between the Company and Marcum (the “Stock Option Agreement”) and
Section 4.3 of the Employment Agreement (the “Stock Options”); and
 
WHEREAS, in exchange for the consideration provided herein, Marcum has agreed to
(a) release all claims that Marcum may have against the Company, including all
his remaining rights (if any) in, to and under the Employment Agreement and any
other interests or claims he might have against the Company arising from his
efforts as Chairman and/or CEO, and (b) refrain from competition with the
Company and abide by certain other restrictive covenants, and Lilis has agreed
to provide the payments and other consideration specified herein.
 
NOW, THEREFORE, in consideration of the provisions herein, and other good and
valuable consideration the receipt and sufficiency of which are hereby
acknowledged by Lilis and Marcum, the Parties agree as follows:
 
 
1.
Resignation. Effective as of the Separation Date, in conjunction with various
management changes at the Company which would materially alter his job
description, Marcum resigned for Good Reason (as defined in the Employment
Agreement), and Lilis accepted such resignation, from all his positions as
officer and employee of Lilis and any of its subsidiaries, including his
positions of Chairman and CEO and on the Board of Directors of Lilis.

 
 
2.
Consideration.

 
 
(a)
Pursuant to the Employment Agreement,

 
 
i.
Lilis will pay Marcum fifty-two (52) weeks of continued base salary, at the rate
in effect as of the Separation Date ($220,000), less all applicable state and
federal tax withholdings and other lawful deductions, the first installment of
which will be payable on the Company’s first regular payroll date following the
date on which this agreement becomes fully enforceable pursuant to Section 7(g),
and to continue on the Company’s regular payroll schedule until fully paid out,
provided that the first installment payment shall include all amounts that would
otherwise have been paid to Marcum during the period beginning on the date of
this agreement and ending on the first payment date as if no delay had been
imposed, and

 
 
ii.
The Stock Options shall vest immediately upon execution of this Agreement, and
shall remain exercisable for the term set forth in the Stock Option Agreement.

 
 
(b)
In addition, the Parties agree that

 
 
i.
Lilis will pay Marcum $150,000 in accrued base salary for his service in 2013
(the “Accrued Salary”), less all applicable state and federal tax withholdings
and other lawful deductions, in exchange for Marcum’s forfeiture of the 93,750
shares of restricted common stock of the Company that was issued to Marcum in
June 2013 in lieu of such base salary, in a lump sum no later than June 30,
2014, unless otherwise agreed by Lilis and Marcum, and

 
 
ii.
Marcum shall remain eligible to receive any performance bonus granted by the
Company to its senior executives with respect to Company and/or executive
performance in 2013, and shall be entitled to receive a bonus in the amount of
no less than the greater of 25% of Marcum’s base salary or 50% of the highest
bonus so paid, it being understood that this provision shall not be triggered by
or apply to any bonuses paid to non-executive employees. Any bonus payable to
Marcum pursuant to this Section 2(b) shall be payable to Marcum at the same time
as it is paid to other senior executives.

 
 
 

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iii.
Lilis will pay Marcum’s reasonable out-of-pocket legal fees to one counsel of
his choosing in connection with this Agreement and the transactions contemplated
hereby.

 
 
3.
Other Business and Activities. From and after the Separation Date, subject to
the limitations contained in Section 9, Marcum shall be free to pursue any other
business and activities in any industry. It is expressly acknowledged and agreed
that, except as set forth in Section 9, Marcum shall hereafter have no duty to
present any potential transactions to Lilis or to disclose any other business
information to which he may be privy.

 
 
4.
Relinquishment of Rights. It is expressly acknowledged and agreed that, subject
to the actual receipt by Marcum of the consideration to be delivered pursuant to
Section 2 above and in exchange for such consideration, Marcum and the Company
shall each relinquish, waive, and forfeit (a) all rights he or it may have under
the Employment Agreement and (b) any and all rights or claims he or it may have
to any other salary, bonus or other compensation or otherwise.

 
 
5.
General Release.

 
 
(a)
Marcum, for himself, and Lilis, for itself, and each Party for its respective
affiliates, successors, heirs, subrogees, assigns, principals, agents, partners,
employees, associates, attorneys and representatives, voluntarily, knowingly and
intentionally releases and discharges the other Party and its respective
predecessors, successors, parents, subsidiaries, affiliates and assigns and each
of its respective officers, directors, principals, shareholders, agents,
attorneys, board members, and employees from any and all claims, actions,
liabilities, demands, rights, damages, costs, expenses, and attorneys’ fees
(including but not limited to any claim of entitlement for attorneys’ fees under
any contract, statute, or rule of law allowing a prevailing party or plaintiff
to recover attorneys’ fees), of every kind and description from the date Marcum
became a director of Lilis through the date of execution of this Agreement,
except as set forth in subparagraphs (b) and Section 6 below (the “Released
Claims”).

 
 
(b)
The Released Claims include but are not limited to those which arise out of,
relate to, or are based upon: (i) Marcum’s employment with Lilis and the
termination thereof, (ii) statements, acts or omissions by the Parties whether
in their individual or representative capacities, (iii) express or implied
agreements between the Parties and claims under any severance plan, except as
provided in this Agreement, (iv) any stock or stock option grant, agreement, or
plan, except as provided in this Agreement, (v) all federal, state, and
municipal statutes, ordinances, and regulations, including, but not limited to,
claims of discrimination based on race, color, national origin, age, sex, sexual
orientation, religion, disability, veteran status, whistleblower status, public
policy, or any other characteristic of Marcum under the Age Discrimination in
Employment Act, the Older Workers Benefit Protection Act, the Americans with
Disabilities Act, the Equal Pay Act, Title VII of the Civil Rights Act of 1964
(as amended), the Employee Retirement Income Security Act of 1974, the
Rehabilitation Act of 1973, the Worker Adjustment and Retraining Notification
Act, or any other federal, state, or municipal law prohibiting discrimination or
termination for any reason, (vi) state and federal common law, including but not
limited to claims for breach of contract, defamation, or emotional distress,
(vii) taxes, penalties, or interest assessed against vested or unvested
compensation paid, provided, or granted to Marcum by the Company, including all
such claims that may arise based on the application of Code Section 409A, and
(viii) any claim which was or could have been raised; provided, notwithstanding
anything to the contrary in this Agreement, the “Released Claims” shall not
include rights or obligations under this Agreement, COBRA, any 401(k) plan or
matters arising out of or in connection with claims by governmental authorities
or self-regulatory organizations involving actual or potential violations of the
securities laws, rules or regulations applicable to Lilis.

 
 
6.
Indemnity; Continuing Obligations; Setoff.

 
 
(a)
Indemnity. The Parties specifically agree that notwithstanding anything herein
to the contrary, nothing in this Agreement alters, modifies or amends Marcum’s
rights to indemnification as set out in Lilis’s Certificate of Incorporation or
Bylaws or the Nevada Corporation Law. The Company further agrees that if Marcum
is made a party or is threatened to be made a party to any action, suit or
proceeding, whether civil, criminal, administrative or investigative (a
“Proceeding”) by reason of the fact that Marcum was a trustee, director or
officer of the Company or any predecessor to the Company or any of their
affiliates or served at the request of the Company, any predecessor to the
Company or any of their affiliates as a trustee, director, officer, member,
employee or agent of another corporation or a partnership, joint venture,
limited liability company, trust or other enterprise, including, without
limitation, service with respect to employee benefit plans, whether or not the
basis of such Proceeding is alleged action in an official capacity as a trustee,
director, officer, member, employee or agent while serving as a trustee,
director, officer, member, employee or agent, Marcum shall be indemnified and
held harmless by the Company to the fullest extent authorized by Nevada law, as
the same exists or may hereafter be amended, against all Expenses incurred or
suffered by Marcum in connection therewith, and such indemnification shall inure
to the benefit of his heirs, executors and administrators.

 
 
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(b)
Expenses. As used in this Section 6, the term “Expenses” shall include, without
limitation, damages, losses, judgments, liabilities, fines, penalties, excise
taxes, settlements, and costs, attorneys' fees, accountants' fees, and
disbursements and costs of attachment or similar bonds, investigations, and any
expenses of establishing a right to indemnification under this Agreement.

 
 
(c)
Enforcement. If a claim or request under this Section 6 is not paid by the
Company or on its behalf, within 30 days after a written claim or request has
been received by the Company, Marcum may at any time thereafter bring suit
against the Company to recover the unpaid amount of the claim or request and if
successful in whole or in part, Marcum shall be entitled to be paid also the
expenses of prosecuting such suit. All obligations for indemnification hereunder
shall be subject to, and paid in accordance with, applicable Nevada law.

 
 
(d)
Advances of Expenses. Expenses incurred by Marcum in connection with any
Proceeding shall be paid by the Company in advance upon request of Marcum that
the Company pay such Expenses, but only in the event that Marcum shall have
delivered in writing to the Company (i) an undertaking to reimburse the Company
for Expenses with respect to which Marcum is not entitled to indemnification and
(ii) a statement of his good faith belief that the standard of conduct necessary
for indemnification by the Company has been met.

 
 
(e)
Continuing Obligations. The Parties specifically agree that notwithstanding
anything herein to the contrary, nothing in this Agreement alters, modifies or
amends Marcum’s obligations under that certain Subscription Agreement dated
January 22, 2014, between Lilis and Marcum (the “Subscription Agreement”).
Furthermore, the Parties specifically agree that Marcum shall be liable for any
and all tax obligations in connection with compensation paid to him by Lilis
under this Agreement and/or the Employment Agreement or under any other
arrangement between Marcum and the Company, and that Marcum shall indemnify
Lilis for any failure to withhold the full amount of any withholding tax
obligations that may arise as a result of the payment or deemed payment of such
amounts; provided that such indemnification obligation shall be capped at an
amount equal to the withholding tax that was not withheld and shall not include
any additional penalties or interest that may be assessed against Lilis.

 
 
(f)
Setoff. Marcum shall be entitled to set off the Accrued Salary against any
amounts payable by Marcum to Lilis, including to Marcum’s obligations pursuant
to the Subscription Agreement.

 
 
7.
Representations and Warranties. Each of Marcum and Lilis (except as to
subparagraphs (f) and (g) below), severally and not jointly, warrants and
represents as follows:

 
 
(a)
He or it has read this Agreement and agrees to the conditions and obligations
set forth in it.

 
 
(b)
He or it voluntarily executes this Agreement (i) after having been advised to
consult with legal counsel, (ii) after having had opportunity to consult with
legal counsel and (iii) without being pressured or influenced by any statement,
representation or omission of any person acting on behalf of the other or any of
its officers, directors, employees, agents and attorneys.

 
 
(c)
Marcum has no knowledge of the existence of any lawsuit, charge or proceeding
against Lilis or any of its officers, directors, employees or agents arising out
of or otherwise connected with any of the matters herein released. Lilis has no
knowledge of any lawsuit, charge or proceeding against Marcum arising out of or
otherwise connected with any of the matters herein released.

 
 
(d)
He or it has the individual, corporate, or entity power and authority to execute
and deliver this Agreement and to perform its obligations hereunder and, if such
Party is a corporation, limited liability company or partnership, the execution,
delivery, and performance of this Agreement has been duly authorized by all
necessary corporate, company or partnership action. This Agreement constitutes
the legal, valid, and binding obligation of each Party.

 
 
(e)
Marcum admits, acknowledges, and agrees that, other than the consideration set
forth in this Agreement, Marcum has been fully paid or provided all wages,
compensation, salary, commissions, bonuses, expense reimbursements, stock, stock
options, vacation, change in control benefits, severance benefits, deferred
compensation, or other benefits from Lilis, which are or could be due to Marcum
under the terms of Marcum’s employment or otherwise.  Lilis admits,
acknowledges, and agrees that, other than the duties set forth in this
Agreement, Marcum has fully performed all his duties and obligations to Lilis,
under the Employment Agreement or otherwise.

 
 
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(f)
Applicable law provides that Marcum shall have at least 21 days to consider this
Agreement. In the event that Marcum executes this Agreement prior to the 21st
day after receipt of it, Marcum expressly intends such execution as a waiver of
any rights Marcum has to review the Agreement for the full 21 days. In such
event, Marcum represents that such waiver is voluntary and made without any
pressure, representations or incentives from Lilis for such early execution.

 
 
(g)
Marcum understands that this Agreement waives and releases any claims Marcum may
have under the Age Discrimination in Employment Act. Marcum may revoke this
Agreement for 7 calendar days following its execution, and this Agreement shall
not become enforceable and effective against Marcum or Lilis until 7 calendar
days after such execution. If Marcum chooses to revoke this Agreement, Marcum
must provide written notice to Lilis within 7 calendar days of Marcum’s
execution of this Agreement. If Marcum does not revoke within the 7-day period,
the right to revoke is lost.

 

 
8.
Non-Disparagement.

 
 
(a)
Marcum agrees not to make to any person any statement that disparages the
Company or its directors, officers, employees or affiliates or reflects
negatively upon the Company, including, without limitation, statements regarding
the Company’s financial condition, business practices, employment practices, or
its predecessors, successors, subsidiaries, officers, directors, employees or
affiliates.

 
 
(b)
Lilis agrees not to make to any person any statement that disparages Marcum or
reflects negatively upon Marcum, including, without limitation, statements
regarding Marcum’s financial condition, business practices, performance while at
Lilis or otherwise.

 
 
9.
Non-Compete; Non-Solicitation. During the one year period commencing on the date
of this Agreement, subject to Lilis continuing payments of the Consideration
under Section 2 hereof, Marcum shall not, directly or indirectly through another
person or entity, except on behalf of the Company or an affiliate of the
Company:

 
 
(a)
engage in any investment or business opportunity in the oil and gas exploration
and production industry in the Denver-Julesburg Basin in Colorado, Nebraska or
Wyoming that would reasonably be considered by Lilis to be related to or
competitive with the business of Lilis;

 
 
(b)
disclose any information regarding the Company or its business to the extent
such information is not generally available to the public;

 
 
(c)
induce or attempt to induce any employees of the Company or any affiliate of the
Company to leave the employ of the Company or such affiliate, or in any way
interfere with the relationship between the Company (or such affiliate) and its
employees; or

 
 
(d)
solicit any person who is or was an employee or consultant of the Company or any
affiliate of the Company until three months after such individual’s employment
or consulting relationship with the Company or such affiliate has been
terminated. 

 
The Parties recognize that the performance of the obligations under this Section
9 by Marcum is special, unique and extraordinary in character, and that in the
event of a violation, contravention, breach or threatened breach by Marcum of
the terms and conditions of this Section 9, the Company shall be entitled to
seek the specific performance thereof by Marcum.  The right of the Company to
specific performance is in addition to any and all other remedies available to
it and will not prevent the Company from pursuing, either consecutively or
concurrently, any and all other legal or equitable remedies available to it,
including the recovery of monetary damages.
 
Notwithstanding anything in this Section 9 to the contrary, the Parties further
recognize that Marcum is currently a director and/or officer of two other public
companies, which may or may not be considered competitive to Lilis, and Lilis
agrees that Marcum’s continued services to those public companies will not be
deemed a violation of this Section 9.
 
 
10.
Waiver of Jury Trial. EACH PARTY HERETO HEREBY IRREVOCABLY WAIVES, TO THE
FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT HE OR IT MAY HAVE TO A
TRIAL BY JURY IN ANY LEGAL PROCEEDING DIRECTLY OR INDIRECTLY RELATING TO THIS
AGREEMENT, WHETHER BASED ON CONTRACT, TORT OR ANY OTHER THEORY. EACH PARTY
HERETO (A) CERTIFIES THAT NO AGENT, ATTORNEY, REPRESENTATIVE OR ANY OTHER PERSON
HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PERSON WOULD NOT SEEK
TO ENFORCE THE FOREGOING WAIVER IN THE EVENT OF LITIGATION, AND (B) ACKNOWLEDGES
THAT HE OR IT AND THE OTHER PARTY HERETO HAVE BEEN INDUCED TO ENTER INTO THIS
AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS
SECTION.

 
 
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11.
Section 409A. It is the intention of the parties that compensation or benefits
payable under this Agreement not be subject to the additional tax imposed
pursuant to Section 409A of the Code and this Agreement shall be interpreted
accordingly.  To the extent such potential payments or benefits could become
subject to additional tax under such Section, the parties shall cooperate to
amend this Agreement with the goal of giving Marcum the economic benefits
described herein in a manner that does not result in such tax being
imposed.  Each payment or benefit made pursuant to this Agreement shall be
deemed to be a separate payment for purposes of Code Section 409A and each
payment made in installments shall be treated as a series of separate payments
for purposes of Code Section 409A, to the extent permitted under applicable
law.  In addition, payments or benefits pursuant to this Agreement shall be
exempt from the requirements of Code Section 409A to the maximum extent possible
as “short-term deferrals” pursuant to Treasury Regulation Section
1.409A-1(b)(4), as exempt reimbursements under Treasury Regulation Section
1.409A-1(b)(9)(v), and/or under any other exemption that may be applicable, and
this Agreement shall be construed accordingly.  The parties agree and
acknowledge that Marcum incurred a “separation from service,” as defined in
Section 409A of the Code and the Treasury Regulations thereunder, on the
Separation Date.  If any payment made hereunder within 6 months of the
Separation Date constitutes deferred compensation that would otherwise be
subject to the additional tax imposed pursuant to Section 409A of the Code as a
result of Marcum’s status as a specified employee, then such payment shall
instead be payable on the date that is five (5) days following the earliest to
occur of (i) 6 months after Marcum’s “separation from service,” or (ii) Marcum’s
death.  All taxable reimbursements provided hereunder that are deferred
compensation subject to the requirements of Code Section 409A shall be made not
later than the calendar year following the calendar year in which the expense
was incurred.   Any such taxable reimbursements or any taxable in-kind benefits
provided in one calendar year shall not affect the expenses eligible for
reimbursement or in-kind benefits to be provided in any other taxable year.

 
 
12.
Successors. This Agreement shall be binding upon, and inure to the benefit of,
any successor to Lilis or Marcum.

 
 
13.
Restricted Assignment. Neither Party may assign, transfer, or delegate this
Agreement or any of its or his rights or obligations under this Agreement
without the prior written consent of the other Party. Any attempted assignment,
transfer, or delegation in violation of the preceding sentence shall be void and
of no effect.

 
 
14.
Waiver and Amendment. No term or condition of this Agreement shall be deemed
waived other than by a writing signed by the Party against whom or which
enforcement of the waiver is sought. Without limiting the generality of the
preceding sentence, a Party’s failure to insist upon the other Party’s strict
compliance with any provision of this Agreement or to assert any right that a
Party may have under this Agreement shall not be deemed a waiver of that
provision or that right. Any written waiver shall operate only as to the
specific term or condition waived under the specific circumstances and shall not
constitute a waiver of that term or condition for the future or a waiver of any
other term or condition. No amendment or modification of this Agreement shall be
deemed effective unless stated in a writing signed by the Parties.

 
 
15.
Entire Agreement. This Agreement and the Stock Option Agreement contain the
Parties’ entire agreement regarding the subject matter of this Agreement and
supersedes all prior agreements and understandings between them regarding such
subject matter (except as reserved herein). The Parties have made no agreements,
representations, or warranties regarding the subject matter of this Agreement
that are not set forth in this Agreement.

 
 
16.
Notice. Each notice or other communication required or permitted under this
Agreement shall be in writing and transmitted, delivered, or sent by personal
delivery, prepaid courier or messenger service (whether overnight or same-day),
or prepaid certified United States mail (with return receipt requested),
addressed (in any case) to the other Party at the address set forth as follows:

 
                               If to Marcum,
 
    __________________________________
 
    __________________________________
   
    __________________________________
 
 
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    With a copy to:
 
    Kegler, Brown, Hill & Ritter Co., L.P.A.
    Attention: Paul R. Hess, Esq.
    65 East State Street, Suite 1800
    Columbus, Ohio 43215
 
    If to Lilis,
 
    Lilis Energy, Inc.
    Attention: A. Bradley Gabbard
    1900 Grant Street, Suite #720
    Denver, CO 80203
 
    With a copy to:
 
    Davis Graham & Stubbs LLP
    Attention: Ron Levine
    1550 Seventeenth Street, Suite 500
    Denver, Colorado 80202
 
Each notice or communication so transmitted, delivered, or sent in person, by
courier or messenger service, or by certified United States mail shall be deemed
given, received, and effective on the date delivered to or refused by the
intended recipient (with the return receipt, or the equivalent record of the
courier or messenger, being deemed conclusive evidence of delivery or refusal).
Nevertheless, if the date of delivery is after 5:00 p.m. on a business day, the
notice or other communication shall be deemed given, received, and effective on
the next business day.
 
 
17.
Severability. It is the desire of the Parties hereto that this Agreement be
enforced to the maximum extent permitted by law. Should any provision contained
herein be held unenforceable by a court of competent jurisdiction, the Parties
hereby agree and consent that such provision shall be reformed to create a valid
and enforceable provision to the maximum extent permitted by law; provided,
however, if such provision cannot be reformed, it shall be deemed ineffective
and deleted herefrom without affecting any other provision of this Agreement.
This Agreement should be construed by limiting and reducing it only to the
minimum extent necessary to be enforceable under then applicable law.

 
 
18.
Title and Headings; Construction. Titles and headings to sections hereof are for
the purpose of reference only and shall in no way limit, define or otherwise
affect the provisions hereof. The words “herein,” “hereof,” “hereunder” and
other compounds of the word “here” shall refer to the entire Agreement and not
to any particular provision.

 
 
19.
Governing Law; Jurisdiction. All matters or issues relating to the
interpretation, construction, validity, and enforcement of this Agreement shall
be governed by the laws of the State of Colorado, without giving effect to any
choice-of-law principle that would cause the application of the laws of any
jurisdiction other than Colorado. Jurisdiction and venue of any action or
proceeding relating to this Agreement or any dispute shall be exclusively in
Denver, Colorado.

 
 
20.
Counterparts. This Agreement may be signed in counterparts, with the same effect
as if both Parties had signed the same document. All counterparts shall be
construed together to constitute one, and the same, document.

 
 [Signature page follows.]
 
 
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IN WITNESS WHEREOF, the Parties have executed this Agreement to be effective as
of the date first above written.
 
 
MARCUM:         /s/ W. Phillip Marcum   Name:
W. Phillip Marcum

 

 
LILIS:
     
Lilis Energy, Inc., a Nevada corporation
       
By:
A. Bradley Gabbard
 
Its:
Chief Financial Officer  
Name:
A. Bradley Gabbard

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