Exhibit 10.3
CHANGE OF CONTROL AGREEMENT
This change of control agreement ("Agreement") is entered into effective as
of [_______][___], [____], by and between Canaan Energy Corporation ("Canaan")
and [NAME] ("Executive").
WHEREAS, Canaan desires to retain certain key employee personnel and,
accordingly, the Board of Directors of Canaan has approved Canaan entering into
a change of control agreement with Executive in order to encourage Executive's
continued service to Canaan.
NOW THEREFORE, in consideration of the foregoing and for other good and
valuable consideration, Canaan and Executive agree as follows:
1. DEFINITIONS.
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(a) "Change in Duties" shall mean the occurrence, within two (2) years
after the date upon which a Change of Control occurs, of any one or
more of the following:
(i) a reduction in Executive's annual salary from the level in
effect immediately prior to the Change of Control;
(ii) failure of Canaan or its successor to provide Executive with an
annual bonus, incentive compensation or other employee benefits
(including but not limited to medical, dental, life insurance,
accidental, death and long-term disability plans) that are
materially consistent with such annual bonuses, incentive
compensation or other employee benefits provided by Canaan or
its successor to executives with comparable duties;
(iii) a significant adverse alteration in the nature or status of
Executive's duties, title, responsibilities, or the conditions
of Executive's employment from those in effect immediately prior
to such Change in Control; or
(iv) a change in the location of Executive's principal place of
employment by Canaan or its successor by more than fifty (50)
miles from the location where Executive was principally employed
immediately prior to the date on which a Change of Control
occurs.
(b) "Change of Control" shall mean the occurrence after the effective date
of this Agreement of:
(i) an acquisition (other than directly from Canaan) of any voting
securities of Canaan (the "Voting Securities") by any "Person"
(as the term person is used for purposes of Section 13(d) or
14(d) of the Securities Exchange Act of 1934 (the "Exchange
Act")) immediately after which such Person has "Beneficial
Ownership" (within the meaning of Rule 13d-3 promulgated under
the
Exchange Act) of fifty percent (50%) or more of the combined
voting power of Canaan's then outstanding Voting Securities;
(ii) the individuals who, as of the effective date of this Agreement,
are members of the Board of Directors of Canaan (the "Incumbent
Board"), cease for any reason to constitute at least two-thirds
of the members of the Board of Directors of Canaan (the
"Board"); provided, however, that if the election, or nomination
for election by Canaan's common stockholders, of any new
director was approved by a vote of at least two-thirds of the
Incumbent Board, such new director shall, for purposes of this
Agreement, be considered as a member of the Incumbent Board;
provided further, however, that no individual shall be
considered a member of the Incumbent Board if such individual
initially assumed office as a result of either an actual or
threatened "election contest" (as described in Rule 14A-11
promulgated under the Exchange Act) or other actual or
threatened solicitation of proxies or consents by or on behalf
of a Person other than the Board (a "Proxy Contest") including
by reason of any agreement intended to avoid or settle any
Election Contest or Proxy Contest; or
(iii) consummation of:
(A) A merger, consolidation or reorganization involving Canaan,
unless:
(1) the stockholders of Canaan, immediately before such
merger, consolidation or reorganization, own directly
or indirectly immediately following such merger,
consolidation or reorganization, at least sixty percent
(60%) of the combined voting power of the outstanding
voting securities of the corporation resulting from
such merger or consolidation or reorganization (the
"Surviving Corporation") in substantially the same
proportion as their ownership of the Voting Securities
immediately before such merger, consolidation or
reorganization;
(2) the individuals who were members of the Incumbent Board
immediately prior to the execution of the agreement
providing for such merger, consolidation or
reorganization constitute at least two-thirds of the
members of the board of directors of the Surviving
Corporation; and
(3) no person other than Canaan, any subsidiary, any
employee benefit plan (or any trust forming a part
thereof) maintained by Canaan, the Surviving
Corporation, or any subsidiary, or
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any person who, immediately prior to such merger,
consolidation or reorganization had Beneficial
Ownership of fifty percent (50%) or more of the then
outstanding Voting Securities, has Beneficial Ownership
of fifty percent (50%) or more of the combined voting
power of the Surviving Corporation's then outstanding
voting securities.
(B) a complete liquidation or dissolution of Canaan; or
(C) an agreement for the sale or other disposition of all or
substantially all of the assets of Canaan to any Person
(other than a transfer to a subsidiary).
Notwithstanding the foregoing, a Change of Control shall not be deemed to
occur solely because any Person (the "Subject Person") acquired Beneficial
Ownership of more than the permitted percent of the outstanding Voting
Securities as a result of the acquisition of Voting Securities by Canaan
that, by reducing the number of Voting Securities outstanding, increases
the proportional number of shares Beneficially Owned by the Subject Person,
provided that if a Change of Control would occur (but for the operation of
this sentence) as a result of the acquisition of Voting Securities by
Canaan, and after such share acquisition by Canaan, the Subject Person
becomes the Beneficial Owner of any additional Voting Securities that
increases the percentage of the then outstanding Voting Securities
Beneficially Owned by the Subject Person, then a Change of Control shall
occur.
(c) "Code" shall mean the Internal Revenue Code of 1986, as amended.
(d) "Compensation" shall mean the sum of:
(i) Executive's annual salary at the rate in effect immediately prior
to the date on which a Change of Control occurs; and
(ii) the highest annual bonus received by Executive during the three
(3) years immediately prior to the date on which a Change of
Control occurs.
(e) "Involuntary Termination" shall mean any termination of Executive's
employment with Canaan or its successor other than (i) termination for
cause; (ii) termination as a result of death or disability; (iii)
retirement; or (iv) resignation by Executive except resignation on or
before the date that is ninety (90) days after the date upon which
Executive receives notice of a Change in Duties.
(f) "Retirement" shall mean Executive's resignation on or after the date
Executive reaches age sixty-five (65).
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(g) "Severance Amount" shall mean an amount equal to three (3) times
Executive's Compensation.
(h) "Termination for Cause" shall mean an Executive's termination of
employment with Canaan or its successor because of:
(i) the continued failure by the Executive to devote reasonable time
and effort to the performance of Executive's duties after written
demand for improved performance has been delivered to the
Executive by Canaan that specifically identifies how Executive
has not devoted reasonable time and effort to the performance of
Executive's duties; or
(ii) the willful engaging by Executive in misconduct that is
materially injurious to Canaan, monetarily and otherwise.
2. SEVERANCE BENEFITS. If Executive's employment by Canaan or its successor
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is subject to an Involuntary Termination that occurs within two (2) years after
the date upon which a Change of Control occurs, then Executive shall be entitled
to receive, as additional compensation for services rendered to Canaan or its
successor, a lump sum cash payment in an amount equal to Executive's Severance
Amount but in no event greater than the amount that would be deductible by
Canaan under Code Section 280G, after taking into consideration all payments to
such Executive covered by such section, which shall be limited to those payments
calculated in the manner required under Section 280G an Executive receives or is
deemed to receive (i) under this Agreement; (ii) under the Canaan Stock Option
Plan by reason of the acceleration of any vesting of options granted thereunder;
or (iii) under any other plan or arrangement that would otherwise be considered
a "parachute payment" under Section 280G. Such payment shall be accompanied by
a notice specifying the calculation of the payment as well as the amount of any
"parachute payments" and the Executive's deduction limit under section 280G.
Such notice shall contain sufficient detail to enable the Executive to challenge
Canaan's computation of any payment without significant additional information.
3. TERM. Within ninety (90) days after January 1, 2005, and within ninety
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(90) days after each successive five-year (5) period of time thereafter that
this Agreement is in effect, Canaan shall have the right to review this
Agreement, and in its sole discretion either continue and extend this Agreement,
terminate this Agreement, and/or offer Executive a different agreement. Canaan
will notify Executive of such action within said ninety (90) day period. This
Agreement shall remain in effect until so terminated and/or modified by Canaan.
Failure of Canaan to take any action within said ninety (90) day period shall be
considered as an extension of this Agreement for an additional five-year (5)
period of time. If a Change of Control occurs while this Agreement is in
effect, then this Agreement shall not be subject to termination or modification
and shall remain in force for a period of two (2) years after such Change of
Control, and if within said two (2) years the contingency factors occur that
would entitle Executive to the benefits as provided herein, this Agreement shall
remain in effect in accordance with its terms.
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4. GENERAL.
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(a) Successors. This Agreement shall be binding upon and inure to the
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benefit of Canaan and any successor of Canaan, by merger or otherwise.
This Agreement shall also be binding upon and inure to the benefit of
the Executive and Executive's estate. If Executive shall die prior to
full payment of amounts due pursuant to this Agreement, such amounts
shall be payable pursuant to the terms of this Agreement to
Executive's estate.
(b) Severability. Any provision in this Agreement that is prohibited or
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unenforceable in any jurisdiction by reason of applicable law shall,
as to such jurisdiction, be ineffective only to the extent of such
prohibition or unenforceability without invalidating or affecting the
remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
(c) Controlling Law. This Agreement shall be governed by, and construed
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in accordance with, the laws of the State of Oklahoma.
(d) Release. As a condition to the receipt of any benefit under Paragraph
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2 hereof, Executive shall first execute a release, in the form
established by Canaan, releasing Canaan, its shareholders, officers,
directors, employees and agents from any and all claims and from any
and all causes of action of any kind or character, including but not
limited to all claims or causes of action arising out of Executive's
employment with Canaan or the termination of such employment.
(e) Unfunded Obligation. The obligation to pay amounts under this
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Agreement is an unfunded obligation of Canaan and no such obligation
shall create a trust or be deemed to be secured by any pledge or
encumbrance on any property of Canaan.
(f) Not a Contract of Employment. This Agreement shall not be deemed to
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constitute a contract of employment, nor shall any provision hereof
effect (i) the right of Canaan to discharge Executive at will or (ii)
the terms and conditions of any other agreement between Canaan and
Executive except as provided herein. No severance compensation shall
be payable hereunder as a result of any termination of employment
before a Change of Control.
(g) Nonalienation. No benefit payable hereunder may be assigned, pledged
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or mortgaged and shall not be subject to legal process or attachment
for claims of creditors of Executive except to the extent required by
applicable law.
[SIGNATURES ON FOLLOWING PAGE]
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the
_____ day of ____________, _______.
"EXECUTIVE"
NAME
By: _______________________________________
Title: _______________________________________
Canaan
CANAAN ENERGY CORPORATION
By: _______________________________________
Title: _______________________________________
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