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Exhibit 10.4    
    

Execution Copy  

AGREEMENT  

        THIS AGREEMENT ("Agreement") is made as of July 31, 2003 (the "Effective
Date"), by and between Samsonite Corporation ("Samsonite"), a Delaware
corporation, and the Pension Benefit Guaranty Corporation ("PBGC"), a United States government
corporation. 

WITNESSETH: 

        WHEREAS,
Samsonite and PBGC are parties to a term sheet dated June 5, 1998, that will be amended and restated and executed before or contemporaneously with this Agreement (as so
amended and restated, the "Restatement"), and under which Samsonite has pledged, and has agreed to pledge, certain collateral for the benefit of the
PBGC to secure liability that could arise in the event of termination of the Retirement Plan (as hereinafter defined); and 

        WHEREAS,
PBGC is a beneficiary of an equal and ratable lien as set forth in that certain Collateral Agency Agreement, dated August 7, 1998, among Bank of America, N.A., as
administrative agent and collateral agent, and Samsonite, Samsonite Company Stores, Inc. and McGregor II, LLC, and certain other security agreements, all of which together will serve as a
guideline for the intercreditor arrangement among the lenders which are parties to the current, proposed "Refinancing" (as such term is defined in the Restatement) and under which the PBGC lien will
be continued after the Refinancing (the "PBGC Lien"); and 

        WHEREAS,
PBGC asserts that as a result of certain cessations of manufacturing operations at the Tucson, Arizona facility in December 2000 and at the Denver, Colorado facility in
April 2001 (the "Cessations of Operations"), Samsonite became liable for certain obligations to the Retirement Plan and to PBGC under
section 4062(e) of ERISA (as hereinafter defined); and 

        WHEREAS,
Samsonite denies that the Cessations of Operations caused such liabilities to arise; and 

        WHEREAS,
the parties hereto have reached understandings with respect to their dispute, 

        NOW,
THEREFORE, for good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, Samsonite and PBGC agree as follows: 

Section I

DEFINITIONS  

        In addition to the terms defined elsewhere herein, the following terms shall have the meanings assigned to them below: 

        "Code" means the Internal Revenue Code of 1986, as amended, 26 U.S.C. Section 1, et
seq., and any successor statute of similar import, together with the regulations thereunder, in each case as in effect from time to time. References to sections of the
Code shall be construed to refer also to any successor sections of similar import. 

        "Controlled Group" has the meaning set forth in section 4001(a)(14) of ERISA. 

        "ERISA" means the Employee Retirement Income Security Act of 1974, as amended, 29 U.S.C. Section 1001, et
seq., and any successor statute of similar import, together with the regulations thereunder, in each case as in effect from time to time. References to sections of ERISA
shall be construed to refer also to any successor sections of similar import. 

        "Funding Interest Rate" means the interest rate used by the Retirement Plan's enrolled actuary for purposes of
section 412(b)(5)(A) of the Code and section 302(b)(5)(A) of ERISA. 

        "Funding Standard Account" means the funding standard account maintained for the Retirement Plan pursuant to section 302 of ERISA
and section 412 of the Code. 

 

        "Maximum Tax Deductible Contribution Amount" means, with respect to a Plan Year, the maximum amount of contributions to the Retirement
Plan for such Plan Year that would be tax deductible pursuant to section 404 of the Code, determined as if the applicable interest rate is the lowest interest rate in the "permissible range"
prescribed by section 412(b)(5)(B)(ii) of the Code, as modified by section 412(l)(7)(C) thereof, to determine "current liability" as defined under section 412 of the
Code. 

        "Plan Year" means the Retirement Plan's plan year, which, as of the date of this Agreement, is the twelve-month period beginning on
January 1 and ending on the following December 31 (or such other period as may be changed in accordance with section 8(k) hereof). 

        "Required Credit Balance" means the credit balance in the Funding Standard Account of the Retirement Plan required by this Agreement as of
the end of each Plan Year through the Term as follows: 

        (1)   for
the Plan Year ending December 31, 2002, the Required Credit Balance shall be $5.3 million plus interest on that amount from January 1, 2002
through December 31, 2002, computed at the Funding Interest Rate; 

        (2)   for
the Plan Year ending December 31, 2003, the Required Credit Balance shall be the Required Credit Balance as of December 31, 2003, plus
$5 million, plus interest on that sum from January 1, 2003 through December 31, 2003, computed at the Funding Interest Rate; 

        (3)   for
each Plan Year thereafter (or part thereof), the Required Credit Balance as of the end of that Plan Year shall equal the Required Credit Balance as of the end of the
prior Plan Year plus interest for the Plan Year or part thereof at the Funding Interest Rate. 

        "Retirement Plan" means the Samsonite Employee Retirement Income Plan (Employer Identification Number 36-3511556, Plan Number
003. The Retirement Plan is the successor by merger and name change effective as of February 28, 2002, to the Samsonite Retirement Income Plan (former Plan Number 001), the Samsonite Luggage
Hourly Plan (former Plan Number 002) and the Samsonite Tucson Hourly Plan (former Plan Number 003). 

        "Statutory Funding Requirements" means the minimum funding requirements for the Retirement Plan under section 302 of ERISA and
section 412 of the Code. 

        "Term" means the period commencing on the Effective Date and ending on April 30, 2006; provided,
however, in the event Samsonite commences, or has commenced against it, any bankruptcy case or other insolvency proceedings, prior to April 30, 2006 and is unable to
obtain approval to assume this Agreement (as provided in section 2(e) hereof) (the number of days between the bankruptcy petition date and the earlier of
(i) April 30, 2006 and (ii) the effective date of any plan of reorganization, being the "Extension Days"), the Term shall in that
event be extended by a number of days equal to the Extension Days. Such extension shall begin to run on (iii) the effective date of any such plan of reorganization, if such date is after
April 30, 2006, or (iv) on April 30, 2006, if such effective date is prior to April 30, 2006. 

Section II

MAINTENANCE OF REQUIRED CREDIT BALANCE  

        a.     During
the Term, Samsonite shall maintain a Required Credit Balance for the Retirement Plan as follows: 

        (1)   Samsonite
shall make all contributions to the Retirement Plan as required by the Statutory Funding Requirements; 

        (2)   Samsonite
shall make such additional contributions to the Retirement Plan during the Term as are necessary to insure that the Required Credit Balance is preserved as of
the end of each Plan Year; and 

2

 

        (3)   Samsonite
shall also make such contributions to the Retirement Plan as are necessary to insure that the Required Credit Balance as of the end of the 2005 Plan Year is so
maintained, plus interest, up to April 30, 2006. 

        b.     Any
contributions necessary to meet the Required Credit Balance for a particular plan year shall be made no later than January 15 following the end of the plan
year (or in the case of the first quarterly payment for the 2006 Plan Year, by May 15, 2006); provided,  however, that nothing in this Agreement shall
accelerate the timing of required installments and other payments required under section 412 of the
Code. 

        c.     Notwithstanding
anything in this Agreement, contributions to the Retirement Plan for any given Plan year will not be required to exceed Retirement Plan's Maximum Tax
Deductible Contribution Amount. If, for any Plan Year during the Term of this Agreement, any contribution Samsonite would be required to make to the Retirement Plan is reduced solely due to the
limitation imposed by the Maximum Tax Deductible Contribution Amount, the amount of the Required Credit Balance will be unaffected even if the actual credit balance in the Funding Standard Account for
that Plan Year is less than the Required Credit Balance. 

        d.     Notwithstanding
anything in this Agreement, as soon as the Term has expired, the entire amount of the Required Credit Balance may be taken into account with immediate
effect from the first day of the first Plan Year that ends after the last day of the Term for purposes of satisfying the Statutory Funding Requirements for the Retirement Plan for such Plan Year and
subsequent Plan Years. 

        e.     Notwithstanding
anything in this Agreement, Samsonite agrees that in the event that it commences, or has commenced against it, any bankruptcy case or other insolvency
proceedings, it will apply to the applicable court having jurisdiction over such proceedings and use its reasonable best efforts to obtain court approval for the assumption of this agreement and for
permission to continue to perform all its obligations hereunder as if such insolvency proceedings had not been commenced. 

Section III

NO EFFECT ON STATUTORY FUNDING REQUIREMENTS OR ENFORCEMENT  

        This Agreement does not alter in any way the determination of the Statutory Funding Requirements for the Retirement Plan, including without limitation the
determination of credit balance amounts and charges and credits to the Funding Standard Account under section 302 of ERISA and section 412 of the Code. Rather, with regard to funding of
the Retirement Plan, this Agreement sets forth agreed-upon restrictions that contractually limit for certain purposes and for specified periods the availability of certain credit balance
amounts in the Funding Standard Account, and those agreed-upon restrictions thus may result in annual contributions to the Retirement Plan with respect to certain periods that exceed the
annual contributions that otherwise would be required with respect to those periods under the Statutory Funding Requirements. Consequently, nothing in this
Agreement shall alter the values, methods and procedures that may be used by Samsonite or the enrolled actuary for the Retirement Plan to determine the Statutory Funding Requirements. 

Section IV

ENFORCEMENT OF CONTRIBUTION CREDIT BALANCE RESTRICTIONS  

        If PBGC determines that the Required Credit Balance restrictions in section 2 of this Agreement have been violated, PBGC's sole recourse shall be as
follows: 

        a.     Notice of Alleged Violation. Upon its determination that Samsonite has violated the provisions of section 2 of this
Agreement for a Plan Year, PBGC shall serve upon Samsonite a written notice specifying the nature and extent of that alleged violation. PBGC's notice shall specify the manner and amount by which, in
its actuary's opinion, Samsonite has violated this Agreement's credit balance maintenance requirements. 

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        b.     Timing of Notice. The notice described in section 4(a) hereof must be delivered to Samsonite no later than
one year from the date PBGC receives, with respect to the Plan Year for which the alleged violation occurs, the information described in section 8 hereof. 

        c.     90-Day Period. For a period of 90 days following PBGC's notice under section 4(a) hereof,
PBGC and Samsonite shall attempt in good faith to resolve the issue raised in PBGC's notice. If PBGC and Samsonite do not resolve the issue as provided in the preceding sentence, PBGC, on or after the
91st day following PBGC's notice under section 4(a) hereof, may file an action in an appropriate court seeking to enforce this Agreement with respect to the issue in dispute. Samsonite
retains any and all defenses and claims it may have in response to any such PBGC action. 

        d.     Limitation. If no notice is delivered by PBGC with respect to a Plan Year within the period specified in
section 4(b) hereof, then PBGC shall be barred from asserting or claiming that Samsonite has violated the Required Credit Balance restrictions applicable to such Plan Year, and, to the
extent (if any) that any such violation has an effect on the determination of charges or credits to the Funding Standard Account in future Plan Years, PBGC is barred from claiming or seeking any
monetary relief with respect to such effects in future Plan Years. 

Section V

RELEASE  

        In consideration of the terms, conditions, mutual covenants and agreements set forth herein, the adequacy and sufficiency of which are hereby acknowledged, PBGC,
on its own behalf, and in every other capacity in which it may now or in the future act, releases and forever discharges Samsonite and all of the members of its Controlled Group from any claim
whatsoever with respect to any and all of Samsonite's and each of its Controlled Group member's liability under section 4062(e) of ERISA and under Title IV of ERISA, if any, with
respect to the Cessations of Operations. 

Section VI

REPRESENTATIONS AND WARRANTIES OF SAMSONITE  

        Samsonite hereby represents and warrants to PBGC that each of the following representations and warranties is true and correct as of the Effective Date. 

        a.     Organization. Samsonite is duly organized under the laws of the State of Delaware and is qualified to do business under
the laws of any state where a failure so to qualify would have a material adverse effect on its operations. Samsonite has full power and authority to enter into and perform its obligations under the
Agreement and to carry out and consummate the transactions contemplated by the Agreement. 

        b.     Authorization. Samsonite's execution, delivery and performance of the Agreement and any other documents to be executed by
Samsonite in connection with the Agreement have been duly authorized by all necessary corporate action. 

        c.     No Legal Bar. Samsonite's execution and delivery of the Agreement, Samsonite's performance of its obligations under the
Agreement, and Samsonite's compliance with the terms and provisions of the Agreement (i) will not violate in any material respect any law applicable to Samsonite or any of its properties, the
consequences of which violation could reasonably be expected to have a material adverse effect on the ability of Samsonite to perform its obligations under the Agreement; and (ii) will not
violate any provision of the Certificate of Incorporation or By-Laws of Samsonite, or any material contract or agreement which is binding on Samsonite or its properties, or result in a
breach of or constitute (with due notice, lapse of time or both) a default under any indenture, agreement, lease or other instrument to which Samsonite is a party, and will not result in or require
the creation of any lien, security interest or other charge or encumbrance upon or with respect to any of its properties. 

        d.     Enforceability. This Agreement shall be duly executed by authorized officers or other representatives of Samsonite. In
addition, this Agreement shall constitute a legal, valid and binding 

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contract
and agreement of Samsonite enforceable by PBGC, and only by PBGC, against Samsonite in accordance with its terms. 

Section VII

REPRESENTATIONS AND WARRANTIES OF PBGC  

        PBGC hereby represents and warrants to Samsonite that each of the following representations and warranties is true and correct as of the Effective Date. 

        a.     Organization. PBGC is a wholly-owned United States government corporation established under Title IV of ERISA. PBGC
has full power and authority to enter into and perform its obligations under the Agreement and to carry out and consummate the transactions contemplated by the Agreement. 

        b.     Authorization. PBGC's execution, delivery and performance of the Agreement have been duly authorized by all necessary
corporate action and are within PBGC's statutory authorization and authority. 

        c.     No Legal Bar. PBGC's execution and delivery of the Agreement, PBGC's performance of its obligations under the Agreement,
PBGC's consummation of the transactions contemplated by the Agreement and PBGC's compliance with the terms and provisions of the Agreement (i) will not violate in any material respect any law
applicable to PBGC or any of its properties; and (ii) will not violate any provision of Title IV of ERISA or PBGC's By-Laws, other applicable statutes, regulations and rules
governing PBGC, or any material contract or agreement which is binding on PBGC or its properties. 

        d.     Enforceability. This Agreement shall be duly executed by authorized officers or other representatives of PBGC. This
Agreement shall constitute a legal, valid and binding contract and agreement of PBGC enforceable against PBGC in accordance with its terms. 

Section VIII

SAMSONITE'S REPORTING OBLIGATIONS  

        Except to the extent duplicative of reporting requirements under the Restatement, Samsonite shall furnish to PBGC the following information during the Term: 

        a.     Forms
5500 when filed with the IRS (but no later than October 15th of the following Plan Year) and Actuarial Valuation Reports as soon as practicable
after the last day of the Plan Year to which the Form 5500 relates, but in no event more than ninety (90) days after the end of such year. 

        b.     Written
notice within ten (10) days after the occurrence of any event of default under any senior secured debt instrument on which Samsonite is potentially liable,
and copies of all notices of the failure to comply with any covenant or any other default given by, or provided to Samsonite by, any party to a senior secured loan, credit, guaranty, pledge, or other
debt instrument to which Samsonite is also a party. 

        c.     Written
notice at least thirty (30) days prior to any sale, transfer or other disposition of assets in a transaction or series of related transactions outside of
the ordinary course of business (collectively, an "Asset Transfer") of Samsonite or any member of the Samsonite Controlled Group, where such assets represent ten percent (10%) or more of the book
value of all assets of the Samsonite Controlled Group on a consolidated basis as of the last day of the immediately preceding fiscal year, or generated ten percent (10%) or more of the consolidated
revenues or operating income of the Samsonite Controlled Group for the immediately preceding fiscal year, which Asset Transfer shall be subject to PBGC's consent, such consent not to be unreasonably
withheld. 

        d.     At
least thirty (30) days' advance written notice of any proposed change (other than a change required by law or a change permitted by Section 1 of the
Restatement) in any of the Retirement Plan's actuarial assumptions or methods from those used for purposes of the 2002 actuarial valuation 

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for
purposes of the minimum funding standard of section 412 of the Code, which changes shall be subject to the PBGC's consent, which consent shall not be unreasonably withheld. 

        e.     A
written statement of the amount and date of contributions made to the Retirement Plan within ten (10) days of payment, or of any failure to make any contribution
required by law within two (2) days of the date on which such contribution is due and payable. 

        f.      A
copy of any reportable event notice to the Director of PBGC's Corporate Finance and Negotiations Department at the same time such notice is filed in accordance with 29
C.F.R. Part 4043, as well as a copy of any notice otherwise required to be filed with the Internal Revenue Service or PBGC concerning the Retirement Plan at the time filing is made. 

        g.     Written
notice within ten (10) days of the adoption of an amendment to the Retirement Plan together with copies of the amendment. 

        h.     Written
notice at least sixty (60) days prior to any change in sponsorship of the Retirement Plan or any plan merger and/or transfer of liabilities or assets
described in section 414(l) of the Code to or from the Retirement Plan (other than a transfer treated as a de minimis merger and/or transfer
under section 414(l) of the Code). Any merger and/or transfer under section 414(l) of the Code shall be made using PBGC safe harbor assumptions. 

        i.      Within
thirty (30) days after the final contribution for the 2002 Plan year is made, but no later than October 31, 2003, a certificate from the Retirement
Plan's enrolled actuary stating the credit balance in the Retirement Plan as of December 31, 2002. 

        j.      By
January 31, 2004 and annually thereafter, a letter from the Retirement Plan's enrolled actuary setting forth the calculation of the Required Credit Balance as
of the immediately preceding December 31 and the amount of the payment required to maintain the Required Credit Balance (assuming in both cases that any additional amounts which are due to be
contributed to the Retirement Plan as minimum funding contributions for such year are actually contributed for such Plan year by September 15th of the following year). The letter should include
a statement that the contribution necessary to maintain the Retirement Plan's Required Credit Balance is not limited by the Maximum Tax Deductible Contribution Amount for the Plan Year, or, if the
contribution is limited, the statement shall contain detail showing the calculations of such limitation. 

        k.     Written
notice at least thirty (30) days prior to any change in the Plan Year for the Retirement Plan, which change shall be subject to PBGC's written consent in
advance, such consent not to be unreasonably withheld. 

Section IX

FEES AND EXPENSES  

        Each of Samsonite and PBGC shall pay its own respective costs, fees and expenses as incurred by it in connection with this Agreement and the transactions
described herein. 

Section X

GENERAL PROVISIONS  

        a.     Limitation of Rights. This Agreement is intended to be and is for the sole and exclusive benefit of Samsonite, the members
of Samsonite's Controlled Group, PBGC and their respective successors and assigns. Nothing expressed or mentioned in or to be implied from the Agreement gives any person other than Samsonite, the
members of Samsonite's Controlled Group, and PBGC any legal or equitable right, remedy or claim against Samsonite or PBGC under or in respect of this Agreement. 

        b.     Severability. If any provision of this Agreement shall be invalid, inoperative or unenforceable as applied in any
particular case, this shall not have the effect of rendering the provision in question inoperative or unenforceable in any other case or circumstance. If any provision of this Agreement shall be
invalid, inoperative or unenforceable in all cases, this shall not have the effect of rendering any 

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other
provision of the Agreement invalid, inoperative, or unenforceable. The invalidity of any portion of this Agreement shall not affect the remaining portions of the Agreement. 

        c.     Notices. All notices, demands, instructions and other communications required or permitted under the Agreement to any
party to the Agreement shall be in writing and shall be personally delivered or sent by registered, certified or express mail, postage prepaid, return receipt requested; telefacsimile (which shall be
immediately followed by the original of such communication); or pre-paid overnight delivery service with confirmed receipt; and shall be deemed to be given for purposes of this Agreement
on the date the writing is received by the intended recipient, or in the case of telefacsimile, on the date transmitted to the intended recipient. Unless otherwise specified in a notice sent or
delivered in accordance with the foregoing provisions of this section, notices, demands, instructions and other communications in writing shall be sent to the parties as indicated below: 

	To Samsonite:	 	L. C. Ross, Esq.

General Counsel

Samsonite Corporation

11200 East 45th Avenue

Denver, CO 80239

Telephone: (303) 373-6625

Telefacsimile: (303) 373-6406
	

with copies to:	
 	

Stephen T. Lindo, Esq.

Willkie Farr & Gallagher

787 7th Avenue

New York, NY 10019

Telephone: (212) 728-8242

Telefacsimile: (212) 728-8111
	

and	
 	

ACOF Management, L.P.

c/o Ares Management, L.P.

1999 Avenue of the Stars

Suite 1900

Los Angeles, CA 90067

Attention: Eric Beckman
	

To PBGC:	
 	

Director, Corporate Finance and Negotiations Department

Pension Benefit Guaranty Corporation

1200 K Street, N.W.

Washington, D.C. 20005-4026

Telephone: 202-326-4070

Telefacsimile: 202-842-2643
	

with a copy to:	
 	

General Counsel

Pension Benefit Guaranty Corporation

1200 K Street, N.W.

Washington, D.C. 20005-4026

Telephone: 202-326-4020

Telefacsimile: 202-326-4112

        d.     Business Days. If the last date (whether measured by calendar days or business days) for performing any act
or exercising any right provided for in the Agreement falls on a Saturday, Sunday or federal holiday, unless otherwise expressly provided in this Agreement, the act may be performed or 

7

 

the
right exercised on the next day that is not a Saturday, Sunday or federal holiday with the same force and effect as if done on the date provided in the Agreement. 

        e.     Counterparts. This Agreement may be executed in one or more counterparts and by different parties on separate
counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. 

        f.      Entire Agreement. This Agreement contains the complete and exclusive statement of the agreement and understanding by and
among the parties hereto and supersedes all prior agreements, understandings, commitments, representations, communications, and proposals, oral or written, between the parties relating to the subject
matter of this Agreement, other than the Restatement or the PBGC Lien, which shall continue in full force and effect, other than as provided in the Restatement. This Agreement may not be amended,
modified, or supplemented except by an instrument in writing executed by the parties to this Agreement. 

        g.     No Admission of Liability. This Agreement is not and shall not be construed as or deemed to be an admission or concession
by or on the part of any party of any liability or non-liability in connection with any matter described in the Agreement, and each party expressly denies any liability to the other. The
basis for this Agreement is the desire of the parties to resolve the controversy between them without litigation. 

        h.     Amendments and Waivers. No amendment of any provision of this Agreement shall be valid unless the amendment is in writing
and signed by the parties hereto. The failure of any party to the Agreement to enforce a provision of the Agreement shall not constitute a waiver of the party's right to enforce that provision of the
Agreement. 

        i.      Headings. The section headings contained in this Agreement are for convenience only and shall not affect the
meaning or interpretation of this Agreement. 

        j.      Governing Law. This Agreement shall be governed by and construed and enforced in accordance with the laws of the District
of Columbia and by ERISA, the Code and other laws of the United States to the extent they preempt District of Columbia law. 

        k.     Binding Effect. This Agreement shall be binding upon Samsonite and PBGC and their respective successors and assigns. 

        l.      Construction. The language used in this Agreement shall be deemed to be the language chosen by the parties to express
their mutual intent, and no rule of strict construction shall be applied against any party hereto. Nor shall any rule of construction that favors a non-draftsman or a government agency be
applied. A reference to any statute shall be deemed also to refer to all rules and regulations promulgated under the statute, unless the context requires otherwise. 

        m.    Assignment. This Agreement may not be assigned in whole or in part by either party without the express written consent of
the other party. 

        n.     No Change to Governing Plan Documents or Plan Administration. This Agreement is not a document or instrument governing the
Retirement Plan, nor does anything in this Agreement amend, supplement or derogate from the documents and instruments governing the Retirement Plan. Further, nothing in this Agreement alters, amends
or otherwise modifies the operation or administration of the Retirement Plan. 

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        IN
WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first written above: 

	
SAMSONITE CORPORATION
	
By:	
 	

 
	 	 	/s/  RICHARD H. WILEY      

	
PENSION BENEFIT GUARANTY CORPORATION
	
By:	
 	

 
	 	 	/s/  ANDREA E. SCHNEIDER      

	 	 	    Andrea E. Schneider
	 	 	    Director, Corporate Finance and Negotiations
	 	 	    Department and Chief Negotiator

9

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Exhibit 10.12    
    

EMPLOYMENT AGREEMENT  

by and between 

CARBON ENERGY CORPORATION  

and 

PATRICK R. McDONALD  

Dated as of October 1, 2002 

TABLE OF CONTENTS  

	 
	 	 
	 	Page

	Article I. Term of Employment	 	1
	 	1.1	 	Position and Employment Period	 	1
	 	1.2	 	Appointment as Director	 	1
	 	1.3	 	Change in Control	 	1
	

Article II. Duties	
 	

3
	 	2.1	 	Duties	 	3
	

Article III. Compensation	
 	

3
	 	3.1	 	Salary	 	3
	 	3.2	 	Options and Restricted Stock	 	3
	 	3.3	 	Benefits; Life Insurance	 	3
	 	3.4	 	Reimbursement of Expenses	 	3
	

Article IV. Death, Disability and Termination	
 	

3
	 	4.1	 	Death	 	3
	 	4.2	 	Disability	 	4
	 	4.3	 	Disability Insurance	 	4
	 	4.4	 	Determination of Disability	 	4
	 	4.5	 	Termination	 	4
	

Article V. Termination Benefits	
 	

5
	 	5.1	 	Severance Payments	 	5
	 	5.2	 	Termination for Cause	 	5
	 	5.3	 	Certain Additional Payments by Company	 	5
	

Article VI. Covenants of Executive	
 	

6
	 	6.1	 	Confidential Information	 	6
	

Article VII. Miscellaneous	
 	

6
	 	7.1	 	Disagreements	 	6
	 	7.2	 	Binding Effect; Benefits	 	6
	 	7.3	 	Notices	 	6
	 	7.4	 	Entire Agreement	 	7
	 	7.5	 	Amendments and Waivers	 	7
	 	7.6	 	Section Headings	 	7
	 	7.7	 	Severability	 	7
	 	7.8	 	Governing Law	 	7
	 	7.9	 	Counterparts; Facsimile	 	7

EMPLOYMENT AGREEMENT  

        THIS EMPLOYMENT AGREEMENT (this "Agreement") is dated and effective as of October 1, 2002 (the "Effective Date"), by and between CARBON ENERGY CORPORATION,
a Colorado corporation, with offices at 1700 Broadway, Suite 1150, Denver, Colorado 80290-1101 ("Company"), and PATRICK R. McDONALD, residing in Colorado ("Executive"). 

RECITALS  

        WHEREAS, Company desires to acquire the services of Executive, and Executive desires to be employed by Company upon the terms and conditions set forth in this
Agreement. 

AGREEMENT  

        NOW THEREFORE, in consideration of these premises and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the
parties hereto do hereby agree as follows: 

Article I.

Term of Employment  

 
 
        1.1    Position and Employment Period.     Company hereby employs Executive as its President and Chief Executive
Officer, and Executive hereby accepts employment with Company, all in accordance with the
terms and conditions hereof, for an initial three-year term commencing on the Effective Date and ending three years from that date, unless otherwise terminated as provided in
Section 1.3 or Articles IV and V. This Agreement shall continue from year to year thereafter unless Company gives written notice of termination to Executive at least three months
preceding the date of termination or Executive gives such notice to Company on or at least three months preceding the date of termination (the initial three-year term is referred to
as the "Initial Employment Period," and together with any subsequent periods of employment pursuant hereto, the "Employment Period"). 

 
 

           1.2    Appointment as Director.     Company agrees that for so long as Executive is an officer of Company,
Company shall nominate and endorse Executive to serve as a director on Company's Board of
Directors. 

 
 

           1.3    Change in Control.     

        (a)    Hostile Change in Control.    

        i.      A
Change in Control (as defined below) is hostile if it is neither solicited by Company nor supported by a majority of Company's then-existing Board of
Directors ("Hostile Change in Control"). Notwithstanding anything herein to the contrary, in the event that a Hostile Change in Control of Company occurs, Company shall have the right to terminate
this Agreement by paying Executive 400% of the Compensation (as defined below). 

        ii.     In
the event that a Hostile Change in Control of Company occurs, Executive shall have the right to terminate this Agreement by written notice to Company and Company
shall immediately pay Executive 400% of the Compensation. 

        (b)    Friendly Change in Control.    

        i.      A
Change in Control (as defined below) is friendly if a majority of Company's then existing Board of Directors supports such Change in Control ("Friendly Change in
Control"). Notwithstanding anything herein to the contrary, in the event that a Friendly Change in Control of Company occurs, Company shall have the right to terminate this Agreement by paying
Executive 300% of the Compensation (as defined below). 

        ii.     In
the event that a Friendly Change in Control of Company occurs, Executive shall have the right to terminate this Agreement by written notice to Company and Company
shall immediately pay Executive 300% of the Compensation.

 

        (c)   In
addition, upon the occurrence of either a Hostile Change in Control of Company or a Friendly Change in Control of Company, the restrictions on any outstanding
incentive awards (including, but not limited to, restricted stock and granted performance shares) granted to Executive under any incentive plan or arrangement shall lapse and such incentive awards
shall become 100% vested, and all stock options and stock appreciation rights granted to Executive shall become immediately exercisable and shall become 100% vested. 

        (d)   Any
amounts required to be paid by Company pursuant to this Section 1.3 shall be paid within five days of Executive's date of termination (the "Termination
Date"). 

        (e)   As
used in this Agreement, the term "Compensation" shall be the arithmetic average of Executive's annual base salary and incentive compensation for the
three years prior to the Termination Date. 

        (f)    "Change
in Control" shall be deemed to have occurred: 

        i.      At
such time as a third person, including a "group" as defined in Section 13(d)(3) of the Securities Exchange Act of 1934, as amended, becomes the beneficial owner
of shares of Company having 50% or more of the total number of votes that may be cast for the election of Directors of Company; or 

        ii.     On
the date on which the stockholders of Company approve: (A) any agreement for a merger or consolidation of Company with another entity, provided that there
shall be no Change in Control if the persons and entities who were the stockholders of Company immediately before such merger or consolidation continue to own directly more than two-thirds
of the outstanding voting securities of the corporation resulting from such merger or consolidation in substantially the same proportion as their ownership of the voting securities of Company
outstanding immediately before such merger or consolidation; or (B) any sale, exchange or other disposition of all or substantially all of Company's assets; or 

        iii.    On
the effective date of any sale, exchange or other disposition of greater than 50% in fair market value of Company's assets, other than in the ordinary course of
business, whether in a single transaction or a series of related transactions; or 

        iv.    At
such time that there is a change in more than a majority of Company's Board of Directors as a result of a proxy contest waged by a third person unaffiliated with
Executive and not endorsed by Executive. 

        v.     A
person, for purposes of this section, means an individual, corporation, partnership, joint venture, trust, unincorporated association or any other form of organization. 

In
determining whether clause (i) of the preceding sentence has been satisfied, the third person owning shares must be someone other than Yorktown Energy Partners III, L.P., Yorktown
Partners LLC, or entities controlled by Yorktown Partners LLC. For this purpose, the term "controlled" means possession, direct or indirect, of the power to direct or cause the direction of the
management and policies of a person, whether (1) through the ownership of more than 50% of the outstanding voting securities of the person, (2) by contract or (3) by a position
such as a general partner or manager. 

        (g)   After
Executive's termination of employment as described in this Section 1.3, Company shall continue to provide for a period of 24 months from the
Termination Date, medical, dental, disability and life insurance coverage to Executive at the same levels of coverage as in effect immediately prior to such date.

 

Article II.

Duties  

 
 
        2.1    Duties.     During the term hereof: 

        (a)   Executive
shall, subject to the succeeding sentence, devote such time as is necessary to perform his duties and shall discharge such duties to the best of his abilities.
During the Employment Period, Executive may invest his personal assets and his time in enterprises other than Company if: (i) such enterprises do not compete with Company in Company's area of
operations and do not require Executive to devote substantial amounts of his time thereto, or (ii) they are enterprises which Company has evaluated and in which it has elected not to invest,
subject to Executive's notification to Company's Board of Directors of Executive's intention to so participate. 

        (b)   Company
shall not, without the written consent of Executive, require Executive to perform services away from the Denver area at such frequency or duration as might, in
the reasonable opinion of Executive, necessitate his moving his residence from the Denver area. 

Article III.

Compensation  

 
 
        3.1    Salary.     Company shall pay Executive a base salary of not less than $242,000 per year plus an adjustment
on each July 1 hereafter for all cost of living increases
(computed by dividing the preceding year's U.S. consumer price index by the year preceding such year's U.S. consumer price index and multiplying such percentage by the then base salary), to be paid at
the usual times for the payment of Company's executives, subject to adjustment as provided herein. Executive's base salary shall be reviewed annually by the Board of Directors of Company and may be
increased, but not decreased. Incentive compensation or bonuses (called in this Agreement incentive compensation) will be determined by the Board of Directors at its discretion. 

 
 

          3.2    Benefits; Life Insurance.     Executive shall be entitled to receive all benefits (such as medical,
dental, disability and life insurance and paid vacation (a maximum of four weeks)).
Executive shall be eligible to participate in all incentive compensation, stock option, performance unit or similar plans or programs as the Board of Directors of Company may determine in its
reasonable discretion based upon Company's compensation practices and Executive's responsibilities and performance. Company shall provide without cost to Executive the following: membership fees and
dues relating to organizations to which Executive has historically belonged and subscription costs for publications relevant to Company's business which Executive has historically received. So long as
Executive is employed under this Agreement and during the 24 months specified in Section 5.1(b), Company shall maintain for the benefit of Executive's estate, and pay the premiums for, a
life insurance policy on Executive's life in the amount of $2,000,000. 

 
 

           3.3    Reimbursement of Expenses.     In addition, Company shall promptly reimburse Executive for all
reasonable and documented out-of-pocket expenses incurred in the
performance of his duties hereunder, including without limitation, expenses for entertainment, travel, management seminars and the like. 

Article IV.

Death, Disability and Termination  

 
 
        4.1    Death.     If Executive dies during the Employment Period, the Employment Period shall thereupon terminate
for all purposes of this Agreement, and Company's obligations
hereunder shall

 
terminate immediately, and Executive's estate or legal representative shall be entitled only to the following: 

        (a)   any
arrearages of salary, through the date of Executive's death; 

        (b)   any
unpaid incentive compensation or compensatory options earned by Executive in respect of any calendar year prior to the calendar year in which occurs the death of
Executive; 

        (c)   any
incentive compensation or compensatory options to be granted, as determined in accordance with this Agreement, earned by Executive in respect of the year in which
occurs the death of Executive; and 

        (d)   any
reimbursable expenses incurred through the date of Executive's death. 

 
 

           4.2    Disability.     If Executive is unable to perform his duties as required under this Agreement by
reason of mental or physical illness or incapacity, Company agrees to continue
all payments due hereunder, including salary, for a period of 180 days from the date of disability. Notwithstanding anything to the contrary contained herein, Executive shall be considered
disabled and Company may terminate this Agreement at any time Executive shall be absent from employment as a result of mental or physical illness or incapacity for a continuous period of
180 days, and all obligations of Company hereunder shall cease upon any such termination. Upon any such termination, Executive shall be entitled only to the following: 

        (a)   any
arrearages of salary, through the date of such termination, including that which is payable as a result of the first sentence of this Section 4.2; 

        (b)   any
unpaid incentive compensation or any options earned by Executive in respect of any calendar year prior to the calendar year in which occurs the disability of
Executive; 

        (c)   any
incentive compensation or options earned by Executive in respect of the year in which occurs the disability of Executive; and 

        (d)   any
reimbursable expenses incurred by Executive. 

 
 

          4.3    Disability Insurance.     While Executive is employed under this Agreement, during the period
specified in Section 5.1(b) and after the period described in
Section 5.1(b) if this Agreement is terminated because of Executive's disability, Company shall provide, for the benefit of Executive, a disability insurance policy, with mutually
agreeable terms determined within 60 days of the Effective Date, the premiums of which shall be paid by Company. 

 
 

           4.4    Determination of Disability.     For purposes of this Agreement, if at any time a question arises as
to the disability of Executive, then Company and Executive shall agree on one physician who is
a member of the American Medical Association to examine Executive and determine if his physical and/or mental condition is such as to render him incapable of performing the usual duties of his
employment with Company. 

 
 

           4.5    Termination.     In addition to the foregoing provisions, the Employment Period and Executive's
employment with Company may be terminated by: 

        (a)   Company
for cause (as defined in Section 5.2), immediately upon determination by the Board of Directors and providing Executive with written notice of
termination; 

        (b)   Executive
following a change in position with Company from that described in Section 1.1 or because of any other material breach of this Agreement by Company,
provided Executive does not voluntarily accept the change in position and notifies Company of his non-acceptance thereof and provided, in the case of any other material breach, Executive
gives a written notification to Company of the material breach and the material breach is not cured within 20 business days of Company's receipt of the notification; or

 

        (c)   either
party upon 30 days prior written notice from the terminating party to the other party. 

Article V.

Termination Benefits  

 
 
        5.1    Severance Payments.     Subject to the provisions of Section 1.3 hereof, (i) if Executive's
employment shall be terminated by the Board of Directors of Company for any
reason other than "for cause" or upon the death or disability of Executive, or (ii) if Executive voluntarily terminates employment in accordance with Section 4.5(b) following a
change in position with Company from that described in Section 1.1 or because of any other material breach of this Agreement by Company, then Company shall pay Executive a termination benefit
as follows: 

        (a)   Company
shall pay Executive in a single lump sum payment in an amount equal to 300% of the Compensation (as defined above) (the "Severance Payments"). The Severance
Payments shall be paid regardless of whether Executive is able to secure alternative employment. In the event Executive should die before payment of all amounts due under this Article V, the
remaining amounts shall be paid to Executive's designated beneficiary, if any, and otherwise to Executive's estate. 

        (b)   Company
shall continue to provide for a period of 24 months from the Termination Date, medical, dental, disability and life insurance coverage to Executive at the
same levels of coverage as in effect immediately prior to such date. 

        (c)   Notwithstanding
anything to the contrary in this or any other agreement, immediately upon termination under the circumstances described in this Section 5.1, all
Executive's options shall become immediately exercisable and shall become 100% vested, all of Executive's restricted stock shall become
immediately 100% vested, and all performance incentives granted to Executive shall become 100% vested. 

        (d)   Executive
shall not be required to mitigate the amount of any payment provided for in this Agreement by seeking other employment or otherwise and no such payment shall
be offset or reduced by the amount of any compensation or benefits provided to Executive in any subsequent employment except as provided herein. 

        (e)   The
Severance Payments and benefits provided in this Agreement shall be in lieu of any other severance pay to which Executive may be entitled under any Company severance
plan, program or arrangement. 

 
 

           5.2    Termination for Cause.     If Executive is terminated for cause, then he shall receive no further
benefits hereunder. "Cause" shall mean a termination on account of (1) repeated
refusal to obey written directions of the Board of Directors or a superior officer (so long as such directions do not involve illegal or immoral acts); (2) repeated acts of substance abuse
which are materially injurious to Company or any of its subsidiaries, (3) fraud or dishonesty that is materially injurious to Company or any of its subsidiaries, (4) breach of any
material obligation of nondisclosure or confidentiality owed to Company or any of its subsidiaries, (5) commission of a criminal offense involving money or other property of Company (excluding
any traffic violations or similar violations), or (6) commission of a criminal offense that constitutes a felony in the jurisdiction in which the offense is committed. 

 
 

           5.3    Certain Additional Payments by Company.     Notwithstanding anything to the contrary in this
Agreement, in the event that any payment or distribution by Company to or for the benefit of the Executive,
whether paid or payable 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
Internal Revenue Code or any interest or penalties with respect to such excise tax (such excise tax, together with any such interest or penalties, are hereinafter collectively referred to as the
"Excise

 
Tax"), Company shall pay to Executive an additional payment (a "Gross-up Payment") in an amount such that after payment by Executive of all taxes (including any interest or penalties
imposed with respect to such taxes), including any Excise Tax imposed on any Gross-up Payment, Executive retains an amount of the Gross-up Payment equal to the Excise Tax
imposed upon the Payments. Company and Executive shall make an initial determination as to whether a Gross-up Payment is required and the amount of any such Gross-up Payment.
Executive shall notify Company immediately in writing of any claim by the Internal Revenue Service which, if successful, would require such Gross-up Payment (or a Gross-up
Payment in excess of that, if any, initially determined by Company and Executive) within five days of the receipt of such claim. Company shall notify Executive in writing at least five days
prior to the due date of any response required with respect to such claim if it plans to contest the claim. If Company decides to contest such claim, Executive shall cooperate fully with Company in
such action; provided, however, Company shall bear and pay directly or indirectly all costs and expenses (including additional interest and penalties) incurred in connection with such action and shall
indemnify and hold Executive 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 Company's
action. If, as a result of Company's action with respect to a claim, Executive receives a refund of any amount paid by Company with respect to such claim, Executive shall promptly pay such refund to
Company. If Company fails to timely notify Executive whether it will contest such claim or Company determines not to contest such claim, then Company shall immediately pay to Executive the portion of
such claim, if any, which it has not previously paid to Executive. 

Article VI.

Covenants of Executive  

 
 
        6.1    Confidential Information.     Executive covenants and agrees that he will not at any time during or after
the termination of his employment, whether under this Agreement, or otherwise, reveal,
divulge or make known to any person any confidential or proprietary information ("Confidential Information") whatsoever made known to Executive by reason of his employment by Company. This
Section 6.1 shall not apply to information made known to Executive by reason of his outside personal business interests or personal investments made in accordance with this Agreement. In the
event of a breach or threatened breach by Executive of the provisions of this Section 6.1, Company shall be entitled, in addition to any remedy hereunder or under any applicable law, to an
injunction restraining Executive from disclosing or using, in whole or in part, any Confidential Information. The covenants contained in this Section 6.1 shall survive the termination or
expiration of this Agreement for a period of 24 months. 

Article VII.

Miscellaneous  

 
 
        7.1    Disagreements.     In the event that Company and Executive shall disagree as to their respective rights and
obligations hereunder, then Company shall pay reasonable counsel fees
incurred by Executive in connection with such disagreement, if Executive prevails in his position. 

 
 

           7.2    Binding Effect; Benefits.     This Agreement shall inure to the benefit of, and shall be binding upon,
 the parties hereto and their respective successors, assigns, heirs and legal
representatives. Insofar as Executive is concerned, this contract may not be assigned. 

 
 

           7.3    Notices.     All notices and other communications which are required or permitted hereunder shall be
in writing and shall be sufficient if mailed by registered or certified
mail, postage prepaid to the address specified herein in the case of Company, Executive's residential address, or such other address as any party hereto shall have specified by notice in writing to
the other party hereto. All such notices and communications shall be deemed to have been received on the date of delivery thereof or the fifth business day after the mailing thereof, whichever is the
earlier.

 

 
 

           7.4    Entire Agreement.     This Agreement contains the entire agreement between the parties hereto and
supersedes all prior agreements and understandings, oral or written, between the
parties hereto with respect to the subject matter hereof. 

 
 

          7.5    Amendments and Waivers.     This Agreement may not be modified or amended except by an instrument or
instruments in writing signed by the party against whom enforcement or any such
modification or amendment is sought. Either party hereto may, by an instrument in writing, waive compliance by the other party with any term or provision of this Agreement on the part of such other
party hereto to be performed or complied with. The waiver by any party hereto of a breach of any term or provision of this Agreement shall not be construed as a waiver of any subsequent breach. 

 
 

          7.6    Section Headings.     The section and other headings contained in this Agreement are for
reference purposes only and shall not be deemed to be a part of this Agreement or to
control or affect the meaning or construction of any provision of this Agreement. 

 
 

           7.7    Severability.     If any term or provision of this Agreement is held or deemed to be invalid or
unenforceable, in whole or in part, by a court of competent jurisdiction, this
Agreement shall be ineffective to the extent of such invalidity or unenforceability without rendering invalid or unenforceable the remaining terms and provisions of this Agreement. 

 
 

           7.8    Governing Law.     This Agreement shall be governed by and construed and enforced in accordance with
the laws of the State of Colorado without regard to its principals regarding
conflicts of law. 

 
 

           7.9    Counterparts; Facsimile.     This Agreement may be executed in any number of counterparts, each of
which shall be deemed an original, and all of which together shall be deemed one and the
same instrument. This Agreement may be delivered by facsimile. 

 

        IN
WITNESS WHEREOF, the parties hereto have duly executed this Agreement on the day and year first above written. 

	

COMPANY:	
 	

CARBON ENERGY CORPORATION
	

 	
 	

By:	
 	

/s/  PETER A. LEIDEL      
 Peter A. Leidel

Chairman

Compensation Committee of the Board of Directors
	

EXECUTIVE:	
 	

By:	
 	

/s/  PATRICK R. MCDONALD      
 Patrick R. McDonald

QuickLinks

Exhibit 10.12

1.1 Position and Employment Period.

1.2 Appointment as Director.

1.3 Change in Control.

2.1 Duties.

3.1 Salary.

3.2 Benefits; Life Insurance.

3.3 Reimbursement of Expenses.

4.1 Death.

4.2 Disability.

4.3 Disability Insurance.

4.4 Determination of Disability.

4.5 Termination.

5.1 Severance Payments.

5.2 Termination for Cause.

5.3 Certain Additional Payments by Company.

6.1 Confidential Information.

7.1 Disagreements.

7.2 Binding Effect; Benefits.

7.3 Notices.

7.4 Entire Agreement.

7.5 Amendments and Waivers.

7.6 Section Headings.

7.7 Severability.

7.8 Governing Law.

7.9 Counterparts; Facsimile.

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