**Exhibit (10i)**
EMPLOYMENT AGREEMENT BETWEEN FAR EAST ENERGY CORPORATION AND MICHAEL R.McELWRATH
Far East Energy Corporation, a Nevada corporation (“Company”), and Michael R.McElwrath (“Executive”) hereby agree as follows:
1. The term of this Agreement shall commence and this Agreement shall beeffective as of October 13, 2003*,*and shall terminate on October 13, 2008.Employment of Executive, pursuant to the terms of this Agreement, will continuethereafter only so long as both Company and Executive want it to do so. ThisAgreement may be terminated by the Executive or Company upon thirty (30) dayswritten notice, subject to payment to Executive of the severance, separation orcontractual default payments of Clause 6 below. It is understood that uponexecution of this Agreement, Executive will tender two weeks notice to hiscurrent employer, and that he will commence full-time duties for Company nolater than two weeks from such notice, and that during said two weeks Executivewill endeavor to provide such services to Company as may be possible subject tothe requirements of his current employer.
2. Executive shall be employed by Company as its Chief Executive Officer (CEO)and shall have such duties, responsibilities and authority as shall beconsistent with that position. Executive shall report directly and solely tothe Company’s Board of Directors. Company agrees to nominate Executive forBoard Membership at each annual meeting of the stockholders during hisemployment hereunder. If Executive is not nominated and elected as a BoardMember at any annual meeting, or is removed as CEO or as a Board Member by theaction of the Board or the shareholders (unless for “Cause” as definedhereinbelow), then such non-nomination, non-election, or removal from the Boardor from the position of CEO, shall operate as termination of Executive’semployment and shall trigger the obligation and payment of the lump-sumseparation or termination payment described in Clause 6 below.
3. As a material inducement to Executive to accept the position of CEO of FarEast Energy Corporation, Company shall pay to Executive a signing bonus in theamount of $56,250.00 immediately upon the effective date of this Agreement. Itis expressly declared and stipulated by the Company and Executive that thispayment is not related to any indebtedness which the Company owes to Executive(nor is there any such indebtedness at the date of execution hereof), it isexpressly declared and stipulated by the Company and Executive that this is nota payment to be earned over time by Executive, is not conditioned upon lengthof service or services rendered, and is given solely for the purpose ofinducing Executive to accept employment as CEO of Far East Energy. Without thepayment of this signing bonus, Executive would not accept Employment.
4. Executive shall receive an annual base salary of not less than $225,000,payable in equal semi-monthly installments. Additionally, Executive shall beeligible to receive, at six-month intervals during the life of this Agreement(said intervals measured from the effective date of this Agreement) performancebonuses in the amount of not less than $20,000, with the appropriateperformance criteria to be established by the Compensation Committee of Company(or the Board, if no Compensation Committee exists) in discussions withExecutive. The initial performance criteria for the first six months of
 

 

Executive’s employment shall be established within 120 days after the effectivedate of this Agreement and shall be delivered to the Executive in writingsigned by the necessary representative(s) of the Company. Thereafter, saidcriteria shall be established and delivered in writing to Executive no laterthan the first day of the appropriate six-month period. At least annually, andno later than October 1st of each year, the Compensation Committee (or Board,if there is no Compensation Committee in place) shall review the salary, bonusand other compensation of Executive based upon performance, competitiveness andappropriateness in the industry and make such increases, supplemental bonuspayments, or other incentive awards as it sees fit. In no event, however, willExecutive’s base salary ever be less than an annual rate of $225,000, or shallperformance bonuses which Executive may earn be less than $20,000 per sixmonths. No increase in salary or compensation will operate as a cancellation ofthis Agreement, but merely as an amendment to this Clause 4. In addition to thebase salary and other compensation discussed in this Clause 4. Executive shallbe entitled to receive any benefits and fringes (whether subsidized in part, orpaid for in full by Company) including, but not limited to, medical, dental,life and disability insurance, and 401K Savings and Retirement Plan whichCompany now or in the future pays or subsidizes for any of itsprofessional/technical or management employees, or employees in the same classas Executive.
5. On the effective date of this Agreement, Executive, in consideration forother services rendered, and as a material inducement to Executive to acceptemployment, shall receive options (the “Supplemental Options”) to acquire onemillion two hundred thousand (1,200,000) shares of Far East Energy CorporationCommon Stock at the exercise price of $0.65 per share (the “Supplemental OptionExercise Price”), said Supplemental Options to be awarded pursuant to the StockOption Agreement attached hereto as Exhibit A. With respect to one-half of theshares to be exercised pursuant to each notice of exercise, in lieu of payingthe Supplemental Option Exercise Price in cash, the Executive or his assigns,heirs, executors or administrators or personal or legal representatives mayexercise the Supplemental Options via cashless exercise by converting theSupplemental Option into shares (the “Cashless Exercise Right”) as set forthmore fully in the Stock Option Agreement.
     The Supplemental Options shall vest according to the following schedule,and shall be exercisable, in whole or in part until, October 13, 2013:
 (i) 240,000 of the Supplemental Option shares shall vest on the effectivedate of this Employment Agreement;  (ii) 240,000 of the Supplemental Option shares shal1 vest one year fromthe effective date of this employment agreement;  (iii) 240,000 of the Supplemental Option shares shall vest two years fromthe effective date of this employment agreement;  (iv) 240,000 of the Supplemental Option shares shall vest threeyears the effective date of this employment agreement; and  (v) 240,000 of the Supplemental Option shares shall vest four years fromthe effective date of this employment agreement.
Options that have not previously vested shall vest immediately and fullyupon the death or disability of Executive, or in the event Company ispurchased or a Change of Control of Company occurs. In the event of deathor disability of Executive prior to April 1, 2005, Executive’s estate,heirs, executors,
 

 

administrators, or personal or legal representatives as the case may be,may not offer or sell any securities covered hereby until April 1, 2005.“Change of Control” shall be deemed to have occurred if (l) any “person”or “‘group” is or becomes the “beneficial owner” directly or indirectly,of securities of Company representing 50% or more of the combined votingpower of Company’s then outstanding securities, or (2) the stockholdersof Company approve a merger or consolidation of company with any othercorporation or entity other than a merger or consolidation winch wouldresult in the voting securities of Company continuing to represent morethan 50% of the combined voting power of the voting securities of Companyor such surviving entity outstanding immediately after such merger orconsolidation.
6. As a material inducement to Executive to secure his services as ChiefExecutive Officer, Company agrees that in the event that Executive isterminated by Company for any reason (other than for “‘Cause” as defined hereinbelow), including by reference any termination effected by the occurrences setforth in Clause 2 above, or is terminated after a Change in Control; or in theevent that Company becomes insolvent or seeks rebel or protection throughbankruptcy proceedings, makes a liquidation or distribution of its assets, orsimply ceases operations, all of which (insolvency, bankruptcy, distribution ofassets, and cessation of operations) shall be considered to constituteconstructive termination of Executive, Company shall immediately pay toExecutive a single lump-sum severance or separation payment of One HundredThousand Dollars ($100,000). “Cause” shall mean gross misappropriation or theftof company funds, conviction of a felony, or complete and total abandonment ofduties for thirty consecutive days (other than for reason of disability).Additionally, if Company shall fail to pay any regular semi-monthly base salaryinstallment to Executive and should such failure to pay continue for more than10 days, Executive may, at his option declare this agreement to be in defaultand shall thereupon be entitled to an immediate lump-sum payment equal to OneHundred Thousand Dollars ($100,000). Executive shall retain all of his rightsin, and ownership of, all stock options vested as of the date of termination,or that would vest within thirty, (30) days following the date of terminationor separation, or contractual default.
Any termination by the Company or by Executive shall be communicated inwriting to the other party at least thirty (30) days before the date onwhich the termination is proposed to take effect. With respect to anytermination by the Company for “Cause”, the notice shall set forth indetail the facts and circumstances alleged to provide a basis for suchtermination.
Any controversy or claim arising with regard to tile severance orseparation payment required under this Agreement shall be settled byExpedited Arbitration in accordance with the provisions of the TexasArbitration Act with Texas law being applied. The controversy or claimshall be submitted to an arbitrator appointed by the Presiding Judge ofthe Harris County, Texas Judicial District Court and shall occur withinthirty days of the date of severance, separation, or termination andwithin ten days of the court’s appointment of an arbitrator. The decisionof the arbitrator shall be final and binding upon the parties hereto andshall be delivered in writing signed by the arbitrator to each of theparties hereto. Should the arbitrator rule in favor of Executive, thenany award or sums due and owing to Executive hereunder shall be increasedby an amount equal to one month of Executive’s last effective base salaryfor each month or part thereof that
 

 

has passed beyond the date of Executive’s termination or separation.Should Company fail to comply with the decision of the arbitrator, orshould Company unsuccessfully appeal (any appeal shall be through thecourts of the State of Texas) the decision of the arbitrator, then anyaward or sums due and owing to Executive hereunder shall be increased byan amount equal to one month of Executive’s last effective base salaryfor each month or part thereof that passes beyond the date of thearbitrator’s initial decision or determination. Should the arbitrator inthe initial arbitration proceeding, or any court in any appeal thereofdetermine that Company acted in bad faith, or frivolously, in claiming“Cause” as its reason for termination, or in failing to immediatelytender to Executive the severance or separation payment set forth in thisClause 6, Executive shall be entitled to receive and Company shall beordered to pay to Executive as a penalty an additional One HundredThousand Dollars ($100,000.00) in addition to the One Hundred ThousandDollars ($100,000) initially required, as well as any additional sums dueor awarded hereunder. The prevailing party in the arbitration proceedingor in any appeal shall be entitled to recover attorney’s fees, courtcosts and all associated costs from the non-prevailing party.
7. If the Company shall at any time be merged or consolidated into or with anyother corporation or entity, the provisions of this agreement shall survive anysuch transaction and shall be binding on and inure to the benefit andresponsibility of the corporation resulting from such merger or consolidationof the corporation to which such assets will be transferred (and this provisionshall apply in the event of any subsequent merger, consolidation, or transfer),and the Company, upon the occasion of any of the above-described transactions,shall include in the appropriate agreements the obligation that the paymentsherein agreed to be paid to or for the benefit of Michael R. McElwrath, hisbeneficiaries or estate, shall be paid, and that the provisions of this Clause7 be performed.
8. Executive, will nominate at least two outside Directors to the Board as soonas is possible, intending to accomplish this within ninety (90) toone-hundred-and-eighty (180) days. It is intended that these Directors beprominent individuals within the energy industry.
9. Any controversy or claim arising under this Agreement shall be settled byArbitration in accordance with the provisions of the Texas Arbitration Act withTexas law being applied. To the full extent controllable by stipulation of theparties hereto, this Agreement and the accompanying Stock Option Agreementshall be interpreted under Texas law. The controversy or claim shall besubmitted to an arbitrator appointed by the Presiding Judge of the HarrisCounty, Texas Judicial District Court. The decision of the arbitrator shall befinal and binding upon the parties hereto and shall be delivered in writingsigned by the arbitrator to each of the parties hereto. The prevailing party inthe arbitration proceeding or in any appeal shall be entitled to recoverattorney’s fees, court costs and all associated costs from the non-prevailingparty, if the dispute is related to the severance or separation payment inClause 6 above, the expedited arbitration provisions of Clause 6 shall applyand the provisions of said Clause 6 shall control.
10 Any notice, request, or other communication required or permitted pursuantto this Agreement shall be in writing and shall be deemed duly given whenreceived by the party to whom it shall be given or three days after beingmailed by certified, registered, or express mail, postage prepaid, addressed asfollows:
 

 
      If to Company:   Far East Energy Corporation   400 North Sam Houston Parkway East   Suite 205   Houston, Texas 77060      With copies to:   Woltjen Law Firm   4144 North Central Expressway, Suite 410 Dallas, Texas 75204   Attention: Kevin Woltjen      If to Executive:   Michael R. McElwrath   7 Stargazer Place   The Woodlands, Texas 77381
11. This Agreement may be executed in counterparts, each of which, when takentogether, shall constitute one original Agreement.
     IN WITNESS WHEREOF, Company has caused its duly authorized officer anddirectors to execute and attest to this Agreement, and to apply the corporateseal hereto, and Participant has placed his or her signature hereon, effectiveas of the first date above.     **FAR EAST ENERGY CORPORATION**