Document:

exv10w5

EXHIBIT 10.5

May 14, 2010

Gary Mabie

_____________________

_____________________

Re: Offer of Employment with Milagro Holdings, LLC (the “Company”)

Dear Gary,

     This letter will confirm the terms of the Company’s offer of employment to you.

Start Date, Term and Initial Review

Commencing on February 8, 2010, and ending on February 8, 2011 (the “Term”), you will be employed
by the Company to furnish your personal services exclusively for the benefit of the Company and its
customers. This agreement may be extended or modified by mutual written agreement and will be
reviewed by the Board on or before September 8, 2010.

Title/Reporting Relationship

The title for this position is Chief Operating Officer and you will report to the board of
directors of the Company (the “Board”).

Responsibilities

Your duties and responsibilities will be such as are reasonably assigned to you by the Board.
While employed by the Company, you will devote full time and attention during normal business hours
to the affairs of the Company and use your best efforts to perform faithfully and efficiently your
duties and responsibilities.

Compensation

Your starting salary will be $240,000 per year (the “Base Salary”), payable in equal semi-monthly
installments or in accordance with the Company’s established policy. Additionally, you will be
eligible for an additional bonus payment that will be based on both personal and Company
performance. Such bonus if earned or paid will be established by the board of directors of the
Company. In addition, the Company

 

 

contemplates establishing a long-term compensation plan. If and when established, you may be
eligible to participate in such a program.

Vacation

You will be entitled to paid vacation equal to twenty days during the Term. The use of any
vacation time not taken will be subject to the Company’s vacation policy as in effect from time to
time.

Plans

You will be eligible to participate in and shall receive all benefits under all incentive, savings
and retirement plans and programs maintained or established by the Company for the benefit of its
employees. In addition, you and/or your family, as the case may be, shall be eligible to
participate in and shall receive all benefits under any medical, dental, disability, group life,
accidental death and travel accident insurance plans and programs in which the Company
participates. The Company shall not be obligated to institute, maintain, or refrain from changing,
amending, or discontinuing, any such program or plan, so long as such actions are similarly
applicable to covered employees generally.

Notwithstanding this, from the date hereof until such time as you are able to participate in the
Company’s medical, dental, disability, group life, accidental death and travel accident insurance
plans and programs, and subject to your compliance with the Company’s policy regarding the
reimbursement of such expenses, you shall be reimbursed up to for all reasonable medical and health
insurance premiums incurred by the you for the benefit of yourself or your family under any
medical, dental, disability, group life, accidental death and travel accident insurance plans and
programs in which you participate. All such reimbursement shall be at your request, and you shall
account to the Company for all such expenses

Reimbursement of Housing Expenses

In recognition that you will be commuting from Denver to Houston during the Term, the Company shall
reimburse you for reasonable housing expenses acceptable to you and the Company. Within thirty
days on the commencement of the Term, you and the Company shall agree on these amounts and these
shall be paid until you and the Company agree that you will relocate to the Houston area. You
shall account to the Company for all such expenses.

Reimbursement of Commuting Expenses

In recognition that you will be commuting from Denver to Houston during the period of your initial
employment, the Company shall reimburse you for reasonable expenses related to the commute
acceptable to you and the Company. These shall be paid until you and the Company agree that you
will relocate to the Houston area. You shall account to the Company for all such expenses.

 

 

Reimbursement of Business Expenses

You may from time to time incur various business expenses customarily incurred by persons holding
positions of like responsibility, including, without limitation, use of a home office, travel,
entertainment and similar expenses incurred for the benefit of the Company. Subject to your
complying with the Company’s policy regarding the reimbursement of such expenses as in effect from
time to time during your employment, which does not necessarily allow reimbursement of all such
expenses, the Company shall reimburse you for such expenses from time to time, at your request, and
you shall account to the Company for all such expenses.

Reimbursement of Relocation Expenses

When you and the Company have agreed on your relocation from Denver to Houston, you will be
reimbursed by the Company for expenses incurred in connection with the relocation as agreed to by
you and the Board. These reimbursements shall be at your request, and you shall account to the
Company for all such expenses.

Severance

If (a) you are terminated by the Company without Cause (as defined below) prior to the end of the
Term, or (b) following a Change of Control Event (as defined below) that occurs during the Term,
(i) your employment with the Company is involuntarily terminated by the Company without Cause prior
to the end of the Term or (ii) you terminate your employment with the Company for any reason during
the thirty (30) day period commencing on the six-month anniversary of such Change of Control Event,
then:

(1) The Company shall pay to you in a lump sum in cash, if not theretofore paid, your Base
Salary (as in effect on the date of termination) through the date of termination.

(2) The Company shall, promptly upon submission by you of supporting documentation, pay or
reimburse to you any costs and expenses paid or incurred by you which would have been
payable under the “Reimbursement of Business Expenses” provision hereof if your employment
had not terminated.

(3) The Company shall, provided that you elect COBRA within the time period required by
law, reimburse your payment of your COBRA premiums through (i) the remainder of the Term
(but in no event longer than six months) or (ii) until you are eligible to participate in
the health insurance plan of another employer, whichever is sooner.

(4) For twelve months (if terminated pursuant to clause (a) above) or twenty-four months
(if terminated pursuant to clause (b) above) following the date of your termination the
Company shall pay to you, in equal semi-monthly installments, your Base Salary (as in
effect on the date of your termination).

 

 

Notwithstanding any of the above to the contrary, you will not be entitled to any of the benefits
or payments provided in subsections (3) or (4) of this provision if (i) you breach your obligations
set forth on Annex A to this letter, or (ii) you fail to execute a release from liability
and waiver of right to sue the Company or its affiliates in a form reasonably acceptable to the
Company.

For purposes of this letter:

“Cause” means (i) the conviction (or plea of nolo contendere or equivalent plea) of you of a felony
(which, through lapse of time or otherwise, is not subject to appeal), (ii) your having engaged in
misconduct causing a violation by the Company of any state or federal laws which results in an
injury to the business, condition (financial or otherwise), results of operations or prospects of
the Company as determined in good faith by the Board or a committee thereof, (iii) your having
engaged in a theft of corporate funds or corporate assets of the Company or in an act of fraud upon
the Company, (iv) an act of personal dishonesty taken by you that was intended to result in your
personal enrichment at the expense of the Company, (v) your refusal, without proper legal cause, to
perform the duties and responsibilities of your position or any other breach by you of this letter,
(vi) your engaging in activities which would constitute a breach of the Company’s business ethics
policy, the Company’s policies regarding trading in its common stock or any other applicable
policies, rules or regulations of the Company or (vii) through inaction, negligence, lack of skills
and/or disregard of your duties and responsibilities, you fail to perform the scope of the duties
and responsibilities of your position, as determined in good faith by the Board or a committee
thereof.

“Change of Control Event” shall mean the occurrence of any of the following: (1) the direct or
indirect sale, transfer, conveyance or other disposition (other than by way of merger or
consolidation), in one or a series of related transactions, of all or substantially all of the
properties or assets of the Company taken as a whole, to any “person” (including any “group”) as
such terms are used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended
(a “Person”); (2) any Person, other than a current holder of Class A Units (as such term is defined
in the Amended and Restated Limited Liability Company Operating Agreement of Holdings, as amended,
dated as of November 30, 2007) of the Company (a “Class A Member”), becomes the ultimate beneficial
owner, directly or indirectly, of 50% or more of the voting power of the ownership interests of the
Company; or (3) the Company consolidates with, or merges with or into, any Person, or any Person
consolidates with, or merges with or into the Company, in any such event pursuant to a transaction
in which any of the outstanding ownership interests of the Company or such other Person is
converted into or exchanged for cash, securities or other property, other than any such transaction
where (A) the ownership interests of the Company outstanding immediately prior to such transaction
which are converted into or exchanged for ownership interests of the surviving or transferee Person
constitute a majority of the outstanding ownership interests of such surviving or transferee Person
(immediately after giving effect to such issuance) and (B) immediately after such transaction, no
Person, other than a current Class A Member,

 

 

becomes, directly or indirectly, the beneficial owner of 50% or more of the voting power of all
classes of ownership interests of the Company.

At-Will Employment

You will be employed as an at-will-employee, which means that, except as set forth under
“Severance” above, your employment may be terminated with no further obligation at any time, at the
election of either you or the Company, for any reason or no reason, with or without any advance
notice.

Conflicts of Interest

You agree to comply with the Company’s conflict of interest policy, including the Company’s
business ethics policy, as in effect from time to time.

Restrictive Covenants

You acknowledge, understand and agree that as a condition to the Company’s execution of this
letter, you are bound by, and shall be obligated to comply with, the covenants set forth on
Annex A to the letter regarding (i) Confidential Information, (ii) Disclosure of
Information, Ideas, Concepts, Improvements, Discoveries and Inventions, (iii) Ownership of
Information, Ideas, Concepts, Improvements, Discoveries and Inventions, and all Original Works of
Authorship and (iv) Non-Solicitation. It is further acknowledged, understood and agreed by that
the covenants made by you as set forth on Annex A are essential elements of your employment
and that, but for your agreement to comply with such covenants, the Company would not have hired
you.

Entire Agreement; No Oral Amendments

This letter, together with any document, policy, rule or regulation referred to herein, replaces
all previous agreements and discussions relating to the same or similar subject matter between you
and the Company and constitutes the entire agreement between you and the Company with respect to
the subject matter of this letter. This letter may not be modified in any respect by any verbal
statement, representation or agreement made by any executive, officer, or representative of the
Company or by any written agreement unless signed by an officer of the Company who is expressly
authorized by the Company to execute such document.

 

 

We look forward to working with you. Please feel free to contact me if you have any questions.

Sincerely yours,

Milagro Holdings, LLC

I hereby accept this offer of employment.

	 	 	 

	/s/ Gary J. Mabie

	 	May 14, 2010
	 

	 	 
	Gary J. Mabie

	 	Date

 

 

ANNEX A

COVENANTS AS TO CONFIDENTIALITY, DISCLOSURE AND OWNERSHIP OF INFORMATION, AND NON-SOLICITATION

Confidential Information

In connection with your position as Chief Operating Officer of the Company, the Company will from
time to time provide you with Confidential Information, as defined below, so that you may perform
the duties and responsibilities of your position. You acknowledge, understand and agree that all
such Confidential Information, whether developed by you or others employed by or in any way
associated with you or the Company, is the exclusive and confidential property of the Company and
shall be regarded, treated and protected as such in accordance with this letter. You acknowledge
that all such Confidential Information is in the nature of a trade secret. Failure to mark any
writing confidential shall not affect the confidential nature of such writing or the information
contained therein.

“Confidential Information” means information, which is used in the business of the Company and (i)
is proprietary to, about or created by the Company, (ii) gives the Company some competitive
business advantage or the opportunity of obtaining such advantage or the disclosure of which could
be detrimental to the interests of the Company, (iii) is designated as Confidential Information by
the Company, is known by you to be considered confidential by the Company, or from all the relevant
circumstances should reasonably be assumed by you to be confidential and proprietary to the
Company, or (iv) is not generally known by non-Company personnel. Confidential Information
excludes, however, any information that is lawfully in the public domain or has been publicly
disclosed by the Company. Such Confidential Information includes, without limitation, the
following types of information and other information of a similar nature (whether or not reduced to
writing or designated as confidential):

(a) Internal personnel and financial information of the Company, vendor information
(including vendor characteristics, services, prices, lists and agreements), purchasing and
internal cost information, internal service and operational manuals, and the manner and
methods of conducting the business of the Company;

(b) Marketing and development plans, price and cost data, price and fee amounts, pricing
and billing policies, quoting procedures, marketing techniques, forecasts and forecast
assumptions and volumes, and future plans and potential strategies (including, without
limitation, all information relating to any acquisition prospect and the identity of any
key contact within the organization of any acquisition prospect) of the Company which have
been or are being discussed;

(c) Names and contact information for customers, suppliers and their representatives,
contracts (including their contents and parties), customer services,

 

 

and the type, quantity, specifications and content of products and services purchased,
leased, licensed or received by customers or suppliers of the Company; and

(d) Confidential and proprietary information provided to the Company by any actual or
potential customer, supplier, government agency or other third party (including businesses,
consultants and other entities and individuals).

You further agree that you shall not make any statement or disclosure to third parties that (i)
would be prohibited by applicable Federal or state laws, or (ii) is intended or reasonably likely
to be detrimental to the Company or any of its subsidiaries or affiliates.

As a consequence of the Company providing you with its Confidential Information, you shall occupy a
position of trust and confidence with respect to the affairs and business of the Company. In view
of the foregoing and of the consideration to be provided to you, you agree that it is reasonable
and necessary that you make each of the following covenants:

(a) During the Term and thereafter, you shall not disclose Confidential Information to any
person or entity, either inside or outside of the Company, other than as necessary in
carrying out your duties and responsibilities to the Company, without first obtaining the
Company’s prior written consent (unless such disclosure is compelled pursuant to court
orders or subpoena, and at which time you shall give prior written notice of such
proceedings to the Company).

(b) During the Term and thereafter, you shall not use, copy or transfer Confidential
Information other than as necessary in carrying out your duties and responsibilities,
without first obtaining the Company’s prior written consent.

(c) On the termination of your employment, you shall promptly deliver to the Company (or
its designee) all written materials, records and documents made by you or which came into
your possession during the Term concerning the business or affairs of the Company,
including, without limitation, all materials containing Confidential Information.

Disclosure of Information, Ideas, Concepts, Improvements, Discoveries and Inventions

As part of your fiduciary duties to the Company and its affiliates, you agree that during the Term,
you shall promptly disclose in writing to the Company all information, ideas, concepts,
improvements, discoveries and inventions, whether patentable or not, and whether or not reduced to
practice, which are conceived, developed, made or acquired by you, either individually or jointly
with others, and which relate to the business, products or services of the Company or its
affiliates, irrespective of whether you used the Company’s time or facilities and irrespective of
whether such information, idea, concept, improvement, discovery or invention was conceived,
developed, discovered or acquired by you on the job, at home, or elsewhere. This obligation
extends to all types of

 

 

information, ideas and concepts, including information, ideas and concepts relating to corporate
opportunities, acquisition prospects, prospective names or service marks for the Company’s business
activities, and the like.

Ownership of Information, Ideas, Concepts, Improvements, Discoveries and Inventions, and all
Original Works of Authorship

All information, ideas, concepts, improvements, discoveries and inventions, whether patentable or
not, which are conceived, made, developed or acquired by you or which are disclosed or made known
to you, individually or in conjunction with others, during the Term and which relate to the
business, products or services of the Company (including, without limitation, all such information
relating to corporate opportunities, research, financial and sales data, pricing and trading terms,
evaluations, opinions, interpretations, acquisition prospects, the identity of customers or their
requirements, the identity of key contacts within the customers’ organizations, marketing and
merchandising techniques, and prospective names and service marks) are and shall be the sole and
exclusive property of the Company. Furthermore, all drawings, memoranda, notes, records, files,
correspondence, manuals, models, specifications, computer programs, maps and all other writings or
materials of any type embodying any of such information, ideas, concepts, improvements, discoveries
and inventions are and shall be the sole and exclusive property of the Company.

In particular, you hereby specifically sell, assign, transfer and convey to the Company all of your
worldwide right, title and interest in and to all such information, ideas, concepts, improvements,
discoveries or inventions, and any United States or foreign applications for patents, inventor’s
certificates or other industrial rights which may be filed in respect thereof, including divisions,
continuations, continuations-in-part, reissues and/or extensions thereof, and applications for
registration of such names and service marks. You shall assist the Company at all times, during
the Term and thereafter, in the protection of such information, ideas, concepts, improvements,
discoveries or inventions, in the United States and all foreign countries, which assistance shall
include, but shall not be limited to, the execution of all lawful oaths and all assignment
documents requested by the Company or its nominee in connection with the preparation, prosecution,
issuance or enforcement of any applications for United States or foreign patents, including
divisions, continuations, continuations in part, reissues and/or extensions thereof, and any
application for the registration of such names and service marks.

In the event you create, during the Term, any original work of authorship fixed in any tangible
medium of expression which is the subject matter of copyright (such as, videotapes, written
presentations on acquisitions, computer programs, drawings, maps, architectural renditions, models,
manuals, brochures or the like) relating to the Company’s business, products or services, whether
such work is created solely by you or jointly with others, the Company shall be deemed the author
of such work if the work is prepared by you in the scope of your employment; or, if the work is not
prepared by you within the scope of your employment but is specially ordered by the Company as a
contribution to a collective work, as a part of a motion picture or other audiovisual work,

 

 

as a translation, as a supplementary work, as a compilation or as an instructional text, then the
work shall be considered to be work made for hire, and the Company shall be the author of such
work. If such work is neither prepared by you within the scope of your employment nor a work
specially ordered and deemed to be a work made for hire, then you hereby agree to sell, transfer,
assign and convey, and by these presents, do sell, transfer, assign and convey, to the Company all
of your worldwide right, title and interest in and to such work and all rights of copyright
therein. You agree to assist the Company and its affiliates, at all times, during the Term and
thereafter, in the protection of the Company’s worldwide right, title and interest in and to such
work and all rights of copyright therein, which assistance shall include, but shall not be limited
to, the execution of all documents requested by the Company or its nominee and the execution of all
lawful oaths and applications for registration of copyright in the United States and foreign
countries.

Non-Solicitation

In addition to the other obligations agreed to by you in this letter, you agree that for six months
following the date of termination of your employment, you shall not directly or indirectly, (i)
hire or attempt to hire any employee of the Company, or induce, entice, encourage or solicit any
employee of the Company to leave his or her employment, or (ii) contact, communicate with or
solicit any distributor, customer or acquisition or business prospect or business opportunity of
the Company for the purpose of causing them to terminate, alter or amend their business
relationship with the Company.

You hereby specifically acknowledge and agree that:

	 	(a)	 	The Company expended and will continue to expend substantial time, money and
effort in developing its business;

	 	(b)	 	You will, in the course of your employment, be personally entrusted with and
exposed to Confidential Information;

	 	(c)	 	The Company, during the Term and thereafter, will be engaged in its highly
competitive business in which many firms compete;

	 	(d)	 	You could, after having access to the Company’s financial records, contracts,
and other Confidential Information and know-how and, after receiving training by and
experience with the Company, become a competitor;

	 	(e)	 	The Company will suffer great loss and irreparable harm if you terminate your
employment and enter, directly or indirectly, into competition with the Company;

	 	(f)	 	The temporal and other restrictions contained in this “Non-Solicitation”
provision are in all respects reasonable and necessary to protect the

 

 

	 	 	 	business goodwill, trade secrets, prospects and other reasonable business interests
of the Company;

	 	(g)	 	The enforcement of this “Non-Solicitation” provision will not work an undue
or unfair hardship on you or otherwise be oppressive to you; it being specifically
acknowledged and agreed by you that you have activities and other business interests
and opportunities which will provide you adequate means of support if the provisions
of this “Non-Solicitation” provision are enforced after your termination; and

	 	(h)	 	The enforcement of this “Non-Solicitation” provision will neither deprive the
public of needed goods or services nor otherwise be injurious to the public.

The parties hereto further agree that if a court of competent jurisdiction determines that the
length of time or any other restriction, or portion thereof, set forth in this “Non-Solicitation”
provision is overly restrictive and unenforceable, the court shall reduce or modify such
restrictions to those which it deems reasonable and enforceable under the circumstances, and as so
reduced or modified, the parties hereto agree that the restrictions of this “Non-Solicitation”
provision shall remain in full force and effect. The parties hereto further agree that if a court
of competent jurisdiction determines that any provision of this “Non-Solicitation” provision is
invalid or against public policy, the remainder of this “Non-Solicitation” provision shall not be
affected thereby, and shall remain in full force and effect.exv10w6

EXHIBIT 10.6

Execution Copy

CONFIDENTIAL & PERSONAL

November 30, 2007

Marshall L. Munsell

1401 McKinney, Suite 925

Houston, Texas 77010

Dear Mr. Munsell,

On behalf of Milagro Holdings, LLC and its subsidiaries (“Holdings” or the “Company”), I am pleased
to extend you an offer of employment as Senior Vice President of Business Development of Holdings
on the terms and conditions as set forth in this offer letter (the “Letter”). You will be
principally based at the Company’s offices at 1401 McKinney, Suite 925, Houston, Texas 77010,
although you will undertake such travel as maybe necessary or desirable to carry out your duties,
the expenses for which you will be paid or reimbursed by the Company in accordance with applicable
Company policy. Your base salary will be $225,000 per year (“Base Salary”), payable in accordance
with the Company’s standard payroll practices. In addition to your Base Salary, you will also be
eligible to participate in the Company’s discretionary bonus program (the “Program”) established
and approved by the Board of Directors of the Company (the “Board”). Pursuant to the Program, your
target bonus for each year will be 100% of your Base Salary, with the actual amount of the bonus
that may be paid to you in respect of each year to be determined by the Board based on the
achievement of annual performance objectives as set forth in the Program and determined by the
Board and will be payable to you so long as you are actively employed by the Company (i) as of the
date the Company makes the determination and (ii) as of the date the Company pays bonuses to senior
executives under the Program (or as otherwise provided below) which payment shall be made as soon
as administratively feasible but no later than March 15 of the calendar year in which the
determination is made. Other than as provided herein, the payment of your bonus, if any, shall be
within the full and sole discretion of the Board.

Employment Period

Your employment pursuant to this Letter shall be effective as of the closing date of the
Acquisition (as defined below) (the “Start Date”) and shall terminate on the first anniversary of
the Start Date; provided that this initial employment period shall automatically renew for
additional one (1) year periods, unless the Company or you gives written notice to the other of
non-renewal of the employment period within the thirty-day
period immediately prior to the end of the then-current Employment Period (as defined below). The
initial one (1) year employment period and any additional one (1) year periods shall be referred to
herein as the “Employment Period.” Notwithstanding the forgoing, you may also voluntarily
terminate your employment

1

 

with the Company at any time. Each party also agrees to give the other
party at least thirty (30) days’ written notice of his or its intention to terminate the employment
described in this Letter.

Position

On and following the Start Date, your position will be Senior Vice President of Business
Development.

Closing Consideration

In consideration of the successful completion of the transactions contemplated by that certain
Agreement of Sale and Purchase dated as of October 15, 2007 by and among Milagro Development I, LP,
Petrohawk Properties, LP, Petrohawk Energy Corporation, KCS Resources, Inc. and One Tec, LLC (the
“Acquisition”), the Company shall pay you a cash bonus of $75,000, reduced by all required taxes
and other withholdings, which amount shall be payable within ten (10) business days from the Start
Date.

Benefits

Following the Start Date and until such time as you are no longer employed by the Company, you
shall be eligible to participate in and receive benefits under the welfare benefit, incentive,
savings and retirement plans, practices, policies and programs provided by the Company and
applicable generally to other executives of the Company subject to the terms and conditions of the
applicable plan documents. You shall be entitled to twenty (20) business days of paid vacation per
year. Unused vacation will not carry over from calendar year to calendar year, unless otherwise
specified in writing by the Board.

Severance

In the event of your termination for any reason, within thirty (30) days after the date of
termination, you will receive your earned and unpaid Base Salary through the date of termination,
your accrued and unused vacation through the date of termination, and reimbursement of all business
expenses upon reasonable written documentation and otherwise in accordance with the Company’s
applicable policy incurred through the date of termination; provided, however, that
in no event will business expenses be paid later than March 15 of the calendar year in which such
expenses were incurred.

Notwithstanding the foregoing, if, (A) during the Employment Period, (i) your employment with the
Company is involuntarily terminated by the Company without Cause or (ii) you terminate your
employment with the Company for Good Reason, you shall be entitled to receive: (a) during the
twelve (12) month period commencing on the
date of termination, salary continuation payments paid in accordance with the standard payroll
practices of the Company at the same rate as your Base Salary; (b) your bonus under the Program,
based upon achievement of performance objectives as set forth in the Program, the extent of such
achievement to be determined by the Board taking into account the performance through such date of
termination and in the Board’s discretion, the expected performance through the remainder of the
then-current performance

2

 

 period, multiplied by a fraction, the numerator of which is the number of
full weeks in the period beginning on the first day of the then-current annual performance period
and ending on your date of termination and the denominator of which is fifty two (the “Pro-Rata
Bonus”); and (c) your continued coverage of health, dental and vision benefits during the period
commencing on the date of termination and ending on the earlier of eighteen (18) months following
such date or the date you become eligible to comparable benefits from a new employer or other
entity, which may be provided by the Company paying your COBRA (as defined below) premiums
(“Continued Health Benefits”); or (B) following a Change of Control Event (as defined below) that
occurs during the Employment Period, (i) your employment with the Company is involuntarily
terminated by the Company without Cause or you terminate your employment with the Company for Good
Reason within the twenty-four (24) month period of such Change of Control Event or (ii) you
terminate your employment with the Company for any reason during the thirty (30) day period
commencing on the sixth-month anniversary of such Change of Control Event, you shall be entitled to
receive: (a) during the twenty-four (24) month period commencing on the date of termination, salary
continuation payments paid in accordance with the standard payroll practices of the Company at the
same rate as your Base Salary; (b) the Pro-Rata Bonus; and (c) Continued Health Benefits.

The salary continuation payments, as described above, the Pro-Rata Bonus and Continued Health
Benefits are subject to and conditioned upon you (1) executing a valid general mutual release and
waiver in a form reasonably acceptable to you and the Company, waiving all claims you may have
against the Company, its successors, assigns, affiliates, executives, officers and directors and
whereby the Company will waive all claims it may have against you (the “Release”) within the time
period specified by the Company but in no event later than sixty (60) days after the date of
termination, and the Release becoming effective and (2) continuing to comply at all times with the
Covenants (as defined below). Following a termination of employment, you will have no duty to
mitigate. No payments hereunder will commence unless and until the Release is signed and
effective, but in no event will a payment be required to be made after the year in which it would
be due if the Release had been signed at the time of your termination of employment. Except as
provided herein, if applicable, and except for any vested benefits under any tax qualified pension
plans of the Company, any vested benefits under any plan, policy or program of the Company pursuant
to which you participate in accordance with the terms and conditions of such plan, policy or
program, and continuation of health insurance benefits on the terms and to the extent required by
Section 4980B of the Internal Revenue Code of 1986, as amended (the “Code”) and Section 601 of the
Employee Retirement Income Security Act of 1974, as amended (which provisions are commonly known as
“COBRA”), the Company shall have no additional obligations under this Letter.

For purposes of this Letter, “Cause” shall mean (i) any refusal or failure by you to perform your
duties and responsibilities in connection with your employment with the Company, after written
notice thereof by the Board and a reasonable opportunity to cure (provided such refusal or failure
is reasonably susceptible to cure); (ii) any act of fraud, embezzlement, theft or misappropriation
by you or your commission of any felony or crime involving moral turpitude; (iii) any gross
negligence or willful misconduct on your part in connection with the performance of your duties and
responsibilities in connection with your employment with the Company; or (iv) any breach by you of
any of the terms contained in this Letter. For this purpose, an act or omission shall not

3

 

be “willful” if conducted in good faith and with a reasonable belief that such conduct is in the best
interests of the Company.

For purposes of this Letter, “Good Reason” shall mean, without your consent, (i) the Company
materially breaches its obligations under this Letter, (ii) any material diminution of your duties
with the Company, (iii) a reduction in your Base Salary, bonus or other compensation or benefits as
set forth in this Letter; or (iv) a relocation of the Company’s offices more than fifty (50) miles
from the Company’s current offices in Houston, Texas as set forth in the opening paragraph of this
Letter.

For purposes of this Letter, “Change of Control Event” shall mean the occurrence of any of the
following: (1) the direct or indirect sale, transfer, conveyance or other disposition (other than
by way of merger or consolidation), in one or a series of related transactions, of all or
substantially all of the properties or assets of the Company taken as a whole, to any “person”
(including any “group”) as such terms are used in Sections 13(d) and 14(d) of the Securities
Exchange Act of 1934, as amended (a “Person”); (2) any Person, other than a current holder of Class
A Units (as such term is defined in the Amended and Restated Limited Liability Company Operating
Agreement of Holdings, dated as of November 30, 2007) of the Company (a “Class A Member”), becomes
the ultimate beneficial owner, directly or indirectly, of 50% or more of the voting power of the
ownership interests of the Company; or (3) the Company consolidates with, or merges with or into,
any Person, or any Person consolidates with, or merges with or into the Company, in any such event
pursuant to a transaction in which any of the outstanding ownership interests of the Company or
such other Person is converted into or exchanged for cash, securities or other property, other than
any such transaction where (A) the ownership interests of the Company outstanding immediately prior
to such transaction which are converted into or exchanged for ownership interests of the surviving
or transferee Person constitute a majority of the outstanding ownership interests of such surviving
or transferee Person (immediately after giving effect to such issuance) and (B) immediately after
such transaction, no Person, other than a current Class A Member, becomes, directly or indirectly,
the beneficial owner of 50% or more of the voting power of all classes of ownership interests of
the Company.

Confirmation

This offer will become valid and effective only upon: (1) your acceptance of this signed offer and
its return to the Company’s attention within three (3) days after the date of this Letter; and (2)
your compliance with the other conditions contained in this Letter.

Confidentiality

The Company shall, during the time that you employed by the Company, (a) disclose or entrust to
you, or provide you access to, or place you in a position to create or develop Confidential
Information belonging to the Company or its affiliates, (b) place you in a position to develop
business goodwill belonging to the Company or its affiliates or (c) disclose or entrust to you
business opportunities to be developed for the Company or its affiliates. During the Employment
Period and thereafter, you agree not to disclose, communicate or divulge to, or use for the direct
or indirect benefit of any person (including yourself), firm, association or other entity (other
than

4

 

the Company or its affiliates) any Confidential Information (as defined below), except to the
extent disclosure is necessary for the discharge of your duties hereunder or is required by a
statute, by a court of law, by any governmental agency having supervisory authority over the
business of the Company or by any administrative or legislative body (including a committee
thereof) with apparent jurisdiction to order him to divulge, disclose or make accessible such
information and provided that you promptly notify the Company of any such requirement.
“Confidential Information” shall mean all information of the Company or any of its affiliates (in
whatever form) which is not generally known to the public, including without limitation any
inventions, processes, strategic plans or reports or other document (in whatever form), methods of
distribution, customer lists or customers’ or trade secrets.

Non-Competition

The Company and you agree to this non-competition provision and the non-solicitation provision
below (i) as part of the consideration for the compensation and benefits to be paid to you
hereunder, (ii) to protect (x) the Confidential Information of the Company or its affiliates
disclosed or entrusted to you by the Company or its affiliates or created or developed by you for
the Company or its affiliates, (y) the business goodwill of the Company or its affiliates developed
through your efforts and/or (z) the business opportunities disclosed or entrusted to you by the
Company or its affiliates and (iii) as an additional incentive for the Company to enter into this
Agreement. During your employment with the Company and for the one-year period following either (i)
the termination of your employment with the Company for Cause or (ii) your voluntary termination of
your employment with the Company (other than for Good Reason), you shall not, directly or
indirectly, become employed by, engage in business with, serve as an agent or consultant to, become
a partner, member, principal, stockholder or other owner (other than a holder of less than 1% of
the outstanding voting shares of any publicly held company) of any Entity (as defined below), or in
any other capacity assist any Entity, that is actively engaged in the Business (as defined below)
within the Restricted Territory (as defined below). The term “Entity” shall mean any individual,
partnership, corporation, limited liability company, unincorporated organization, trust or
joint venture, or a governmental agency or political subdivision. The term “Business” shall mean
the oil and gas exploration and production business. The term “Restricted Territory” shall mean the
area within (i) a one mile radius of each (a) prospect on which the Company and its subsidiaries
are actively pursuing leasing and (b) lease of the Company or its subsidiaries, and (ii) a field
(as defined by the applicable regulatory body of the applicable state) on which the Company or its
subsidiary owns a lease or within which the Company or its subsidiary is actively pursuing leasing,
in the case of each of clause (i) and (ii), as of the date of termination of employment.

Non-Solicitation

During your employment with the Company and for the two-year period following the date of
termination of your employment with the Company for whatever reason (other than in connection with
a Change of Control Event), you agree not to, directly or indirectly, solicit or assist any other
person or entity in soliciting any employee of the Company or any of its affiliates to perform
services for any entity (other than the Company or its affiliates), or attempt to induce (i) any
such employee to leave the employ of the Company or its affiliates or otherwise

5

 

 modify in an adverse manner such employee’s relationship with the Company, or hire or engage on behalf of
himself or any other Entity any employee of the Company or anyone who was employed by the Company
during the twelve-month period preceding such hiring or engagement or (ii) any Entity who is then a
customer, supplier or vendor of the Company or its affiliates to cease being a customer, supplier
or vendor of the Company or any of its affiliates or to divert all or any part of such person’s or
entity’s business from the Company or any of its affiliates. A general public advertisement for
employment by or at your request shall not, by itself, be a violation of this “Non-Solicitation”
Provision.

Non-Disparagement

During your employment with the Company and thereafter, you agree not to defame or disparage the
Company, its affiliates and their officers, directors, members or executives. You agree to
cooperate with the Company in refuting any defamatory or disparaging remarks by any third party
made in respect of the Company or its affiliates or their directors, members, officers or
executives. The Company further agrees not to defame or disparage you and agrees to cooperate with
you in refuting any defamatory or disparaging remarks by any third party made with respect to your
employment with the Company.

Injunctive Relief

It is impossible to measure in money the damages that will accrue to the Company or its affiliates
in the event that you breach any of the “Confidentiality,” “Non-Competition,” “Non-Solicitation”
and “Non-Disparagement” Provisions above (collectively, the “Covenants”). In the event that you
beach any such Covenants, the Company shall be entitled to an injunction restraining you from
violating such Covenants (without posting any bond). If the Company shall institute any action or
proceeding to enforce any such Covenants, you hereby waive the claim or defense that the Company
has an adequate
remedy at law and agree not to assert in any such action or proceeding the claim or defense that
the Company has an adequate remedy at law. The foregoing provisions are in addition to any other
rights at law or equitable relief and shall not act as a waiver by the Company of its right to
pursue any and all additional remedies against you or prejudice the Company’s right to require you
to account for and pay over to the Company and you hereby agree to account for and pay over, the
compensation, profits, monies, accruals or other benefits derived or received by you as a result of
any transaction constituting a breach of any of the Covenants. In the event any restrictions set
forth above are deemed overly broad by any court of competent jurisdiction and therefore
unenforceable, the provisions shall be revised to the extent necessary to make such provisions
enforceable.

Tax Matters

All payments provided herein shall be less applicable withholdings including, but not limited to,
as required under any federal, state and local, domestic and foreign, tax laws. This Letter and the
payments and benefits provided herein are intended to comply with Section 409A of the Code and
shall be construed and operated accordingly. The Company and you will cooperate in good faith for
the operation and the adoption of any amendments to this Letter, including but not limited to
applying the defined terms from Section 409A of the Code (such as separation from

6

 

 service) to the
extent applicable in order to avoid the application of penalty taxes under Section 409A of the
Code.

Amendments

This Letter may be amended only by a writing signed by the Company and you that specifically refers
to this Letter.

Entire Agreement

This Letter shall constitute the entire agreement among the parties hereto with respect to your
employment hereunder, and supersedes and is in full substitution for any and all prior
understandings or agreements with respect to your employment.

Applicable Law

This Letter shall be governed by and construed in accordance with the laws of the State of
Delaware, without regard to conflicts of laws principles thereof.

Construction

This Letter is to be construed as a whole, according to its fair meaning, and not strictly for or
against any of the parties.

Severability

If any provision of this Letter shall be determined by a court to be invalid or unenforceable, the
remaining provisions of this Letter shall not be affected thereby, shall remain in full force and
effect, and shall be enforceable to the fullest extent permitted by applicable law.

Counterparts

This Letter may be executed by the parties in any number of counterparts, each of which shall be
deemed an original, but all of which shall constitute one and the same agreement. A facsimile of a
signature shall be deemed to be and have the effect of an original signature.

* * * * *

Once you have had an opportunity to consider this offer, please indicate your agreement with the
terms and conditions of employment contained herein by signing in the space indicated below. Please
keep a copy of this Letter and return the original to my attention.

(SIGNATURE PAGE FOLLOWS)

7

 

Very truly yours,

	 	 	 

	/s/ Robert L. Cavnar
 

Name:

	 	 
	Title:
	 	 

For and on behalf of

Holdings

*************************************************************

I accept the offer made in this Letter and agree to the terms and conditions upon which it is
based.

	 	 	 

	/s/ Marshall L. Munsell
 

	 	 
	Marshall L. Munsell
	 	 

8

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