EX-10.3


    Exhibit
      10.3

     

    SUPPLEMENTAL
      EMPLOYMENT AGREEMENT

     

    WHEREAS,
      William
      N. Hahne (the
      “Executive”) and KCS Energy, Inc., (the “Company”) are parties to an Employment
      Agreement dated December 1, 2001, as amended by Amendment No. 1 (the “2001
      Agreement”), setting forth certain terms and conditions of employment.


     

    WHEREAS,
      the Executive and the Company desire to modify the terms of the 2001 Agreement
      in a manner that benefits both the Executive and the Company. 

     

    ACCORDINGLY,
      The Executive and the Company agree to enter into a Supplemental Employment
      Agreement (the “Amendment”) containing the following terms and
      conditions:

     

    1.     Because
      the Amendment affects the obligations of the parties under Section 3 of the
      2001
      Agreement, this Amendment constitutes a modification of Section 3 of the 2001
      Agreement made in compliance with Section 14.3 of the 2001 Agreement.
      Accordingly, the Executive and the Company agree that this Amendment serves
      to
      modify the provisions set forth in Section 3 of the 2001 Agreement.

     

    2.     Because
      the Amendment affects the obligations of the parties under Section 4 of the
      2001
      Agreement, this Amendment constitutes a modification of Section 4 of the 2001
      Agreement made in compliance with Section 14.3 of the 2001 Agreement.
      Accordingly, the Executive and the Company agree that this Amendment serves
      to
      modify the provisions set forth in Section 4 of the 2001 Agreement.


     

    3.     Because
      the Amendment affects the obligations of the parties under Section 8 of the
      2001
      Agreement, this Amendment constitutes a modification of Section 8 of the 2001
      Agreement made in compliance with Section 14.3 of the 2001 Agreement.
      Accordingly, the Executive and the Company agree that this Amendment serves
      to
      modify the provisions set forth in Section 8 of the 2001 Agreement.


     

    4.     Because
      the Supplemental Employment Agreement affects the obligations of the parties
      under Section 9 of the 2001 Agreement, this Supplemental Employment Agreement
      constitutes an amendment and modification of Section 9 of the 2001 Agreement
      made in compliance with Section 14.3 of the 2001 Agreement. Accordingly, the
      Executive and the Company agree that this Supplemental Employment Agreement
      serves to modify the provisions set forth in Section 9 (but not Sections 9.1,
      9.2, 9.3, or 9.4 of the 2001 Agreement).

     

    5.     Section
      3
      of the 2001 Agreement is hereby amended by deleting the words “Executive Vice
      President and Chief Operating Officer of the Company” and replacing them with
      the words “President and Chief Operating Officer of the Company.” 

     


    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    


    7.     Section
      4
      of the 2001 Agreement is amended by adding a new provision designated as Section
      4.2, and by renumbering the provision in the 2001 Agreement previously
      designated as 4.2, so that it is now Section 4.3. The Executive and the Company
      agree that the new provision constituting Section 4.2 provides as
      follows:

     

    4.2 
      Any
      bonus
      payable to the Executive pursuant to Section 4.1 shall be paid by the later
      of
      (i) the date that is 2-1/2 months after the end of the calendar year for which
      such bonus is determined and (ii) the date that is 2-1/2 months after the end
      of
      the Company’s taxable year for which such bonus is determined, or as soon after
      the later of such dates as administratively feasible, but in any event before
      the end of the calendar year in which the later of such dates occurs. The
      Company and the Executive agree that a Change in Control should not result
      in
      the forfeiture of any bonus payable in accordance with Section 4.1. Accordingly,
      the Company agrees that any bonus payable to Executive in accordance with
      Section 4.1 shall
      be
      paid as provided in this Section 4.2 if a Change in Control occurs after the
      end
      of the applicable year,
      but
      before the bonus is actually paid. 

     

    8.     The
      Executive and the Company hereby agree that Section 8.4 of the 2001 Agreement
      is
      amended by replacing the provisions found in Section 8.4 of the 2001 Agreement
      and substituting the following terms: 

     

    8.4 
      If
      the
      Company terminates Executive’s employment other than for Cause, death or
      permanent disability or Executive terminates his employment for Good Reason,
      at
      any time within 3 years after a Change in Control, then the Company shall pay
      to
      Executive: (i) an amount equal to three (3) times the greater of (a) Executive’s
      annual base salary in effect as of the Termination Date or (b) Executive’s
      annual base salary in effect immediately preceding the Change in Control; plus
      (ii) an amount equal to three (3) times the greater of (a) the amount of any
      cash bonus payable to the Executive for the year in which the Termination Date
      occurs (provided that if the Executive’s bonus for such year has not been
      determined as of the Termination Date, then the amount of the bonus shall be
      determined as if the Executive earned 100% of the targeted bonus for such year)
      or (b) the amount of the last annual cash bonus paid to the Executive prior
      to
      the Change in Control; plus (iii) the amount of any earned but unpaid salary
      as
      of the Termination Date; plus (iv) the amount of any cash bonus payable to
      the
      Executive pursuant to Section 4.1
      to the
      extent not paid prior to the Termination Date; plus (v) an amount equal to
      the
      greater of (a) a pro rata amount of the Executive’s

     


    
      
        
        

      

      
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    targeted
      bonus for the year in which the Termination Date falls or (b) such bonus for
      such year as may be determined by the compensation committee or the board of
      directors of the Company in their sole discretion; plus (vi) the amount of
      any
      accrued but unpaid vacation pay through the Termination Date.  

     

    9.     The
      Executive and the Company hereby agree that Section 8.7 of the 2001 Agreement
      is
      amended by replacing the provisions found in Section 8.7 of the 2001 Agreement
      and substituting the following terms: 

     

    8.7
       (a)
      Any
      payments due to the Executive pursuant to Section 8.1 shall be made in
      accordance with the timing arrangements under which the Company normally
      compensates its employees.

     

    (b)
       Any salary and vacation pay amounts due to the Executive pursuant to
      Section 8.2 shall be paid in accordance with the timing arrangements under
      which
      the Company normally compensates its employees. Any bonus payments due to the
      Executive pursuant to Section 8.2 shall be made by the later of (i) the date
      that is 2-1/2 months after the end of the calendar year in which the Termination
      Date falls and (ii) the date that is 2-1/2 months after the end of the Company’s
      taxable year in which the Termination Date falls, or as soon after the later
      of
      such dates as administratively feasible, but in any event before the end of
      the
      calendar year in which the later of such dates occurs.

     

    (c)
       In the event any payments
      to Executive required to be made pursuant to Sections 8.3, 8.4., 8.6, or any
      other provision of this Agreement are
      determined, in
      whole
      or in part,
      to
      constitute “nonqualified deferred compensation” (“NQDC”) within the meaning of
      Section 409A of the Internal Revenue Code of 1986, as amended (the “Code”), then
      the portion (which may be all) of such
      payments that constitutes NQDC will not be paid before the date which is six
      (6)
      months after the Executive’s “separation from service” (as such term is defined
      in Section 409A of the Code).
      The
      determination of whether and what amount of any
      payments
      to Executive required to be made pursuant to Sections 8.3, 8.4, 8.6, or any
      other provision of this Agreement constitute
      NQDC shall
      be
      made by the board of directors of the Company in consultation with legal
      counsel, and any such determination shall
      be
      final and binding on the Company and the Executive. The Company makes no
      representation as to whether any such payment or any part thereof constitutes
      or
      may constitute NQDC. Neither the Company nor any of its directors,
      officers,

     


    
      
        
        

      

      
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    employees,
      agents, or professional advisers shall have any liability to the Executive
      or
      any other person for any amounts incurred by the Executive or such other person
      by reason of the determination made by the board of directors of the Company
      pursuant to this Section 8.7(c) or any action taken or omitted by the board
      of
      directors of the Company, the Company or any of the Company’s directors,
      officers, employees, agents, or professional advisers in the course of or as
      a
      result of making such determination.

     

    (d)
       Subject to the provisions of Section 8.7(c), any and
      all
      payments to Executive required to be made under clause (b) of the last sentence
      of Section 8.6 shall be made within five (5) days of Executive’s furnishing the
      Company with evidence of the cost of such insurance, provided that the Executive
      furnishes such evidence within six (6) months after the Termination Date, in
      each case by wire transfer or Company check at Executive’s option.

     

    (e) 
      All payments required to be made to Executive pursuant to this Agreement shall
      be subject to the withholding of such taxes as may be required by law.


     

    11.     In
      accordance with the provisions of Sections 8.3, 8.4, 8.5, and 8.6 of the 2001
      Agreement, Executive may become entitled to certain benefits that may be
      considered a “payment in the nature of compensation” that is contingent on a
      Change in Control. That compensation may be subject to income tax and customary
      payroll taxes, and a portion of those benefits may be subject to excise taxes
      pursuant to the Section 4999 of the Code or any successor statute. If it is
      determined that any compensation owed under Sections 8.3, 8.4, 8.5, and 8.6
      of
      the 2001 Agreement or any other provision of that Agreement would lead to a
      liability to pay excise taxes, the Executive and the Company agree that an
      Accounting Firm designated in accordance with Section 9.1 of the 2001 Agreement
      shall (i)
      determine
      the
      effect of income taxes, excise taxes, if any, and any payroll tax that
      would be incurred
      by the Executive if such
      payments
      were made in accordance with the provisions of Sections 8.3,
      8.4,
      8.5, 8.6, and 9 of the 2001 Agreement or any other provision of that Agreement
      without modification or reduction, and (ii) state whether a reduction in
such
      payments
      or benefits would serve to benefit the Executive on an after-tax basis, and
      (iii) state the amount of reduction in such
      payments
      that would provide the greatest benefit to the Executive on an after-tax basis.
      The Executive and the Company agree that, if the Accounting Firm states that
      a
      reduction in such
      payments
      would serve to benefit the Executive on an after-tax basis, the sum of the
      payments
      required
      to be made
      by the
      Company under Sections 8.3, 8.4, 8.5, and 8.6 of the 2001 Agreement or any
      other
      provision of that Agreement shall be reduced by the amount that the Accounting
      Firm states would provide the greatest benefit to the Executive on an after-tax
      basis, and in such

     


    
      
        
        

      

      
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    case
      no
      Excise Tax Payment will be owed to the Executive under Section 9 of the 2001
      Agreement unless it is later determined that,
      due
      to a change in circumstances (including
      a claim by the Internal Revenue Service) or
      a
      reevaluation, the Executive
      is entitled to receive
      an
      Excise Tax Payment in
      accordance with Section 9 of the 2001 Agreement, in which case such payment
      shall be made to the Executive (or to the Internal Revenue Service on the
      Executive’s behalf) within thirty (30) days after the receipt by the Company of
      such determination. Executive agrees that, if such
      payments
      are
      reduced in accordance with this Amendment, the Company will
      not owe
      him any benefits
      under Sections 8.3, 8.4, 8.5, or 8.6 of the 2001 Agreement in addition
      to,
      or
      greater than,
      the
      amounts determined in accordance with this provision. 

     

    12.     If
      the
      compensation calculated in accordance with Sections 8.3, 8.4, 8.5, 8.6
      or any
      other provision of
      the
      2001 Agreement is reduced in accordance with Section 11 of this Amendment,
      the
      Executive may elect to allocate the reduced amount as a reduction in the
      benefits accruing to him under those
      Sections
      of the
      2001 Agreement
      which
      are determined by the Accounting Firm to lead to a liability to pay excise
      taxes
      pursuant to Section 4999 of the Code or any successor statute. Such election
      shall be made by giving
      written notice to the Company prior to the payment of such benefits. If the
      Executive does not elect to allocate the reduction as provided in this Section
      12,
      then
      the reduction will be allocated among such benefits as may be determined by
      the
      Company.  

     

    13.     This
      Amendment does not modify or otherwise affect any provision of the 2001
      Agreement other
      than as
      expressly set forth in this Amendment, and, except as modified by this
      Amendment, the 2001 Agreement remains in full force and effect. 

     

    
      	 	
              KCS
                Energy, Inc.

            
	 	 
	 	
              By:

            	
              
                /s/
                  James W. Christmas

              

            
	 	 	 
	 	 	 
	 	 	 
	 	
              William
                N. Hahne 

            
	 	 
	 	 
	
            	
              /s/
                William N. Hahne 

            


    

    


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