UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED):
December 31, 2008
APPROACH RESOURCES INC.
(Exact name of registrant as specified in its charter)
         
Delaware
(State or other jurisdiction of
incorporation or organization)
  001-33801
(Commission file number)
  51-0424817
(I.R.S. employer identification number)
     
One Ridgmar Centre    
6500 W. Freeway, Suite 800
Fort Worth, Texas
(Address of principal executive office)
  76116
(Zip code)
(817) 989-9000
(Registrant’s telephone number, including area code)
Not applicable
(Former name, former address and former fiscal year, if changed since last report)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2.):
o   Written communication pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
 
o   Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
 
o   Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
 
o   Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
 
 

 


 

Item 5.02 Departure of Directors or Certain Officers; Election of Directors; Appointment of Certain Officers; Compensatory Arrangements of Certain Officers.
(e) Amendments of Compensatory Plans; Compensatory Arrangements of Certain Officers
Effective December 31, 2008, Approach Resources Inc. (the “Company”) executed amendments (collectively, the “Amendments”) to (i) its 2007 Stock Incentive Plan (“Stock Incentive Plan”), (ii) Employment Agreements (“Employment Agreements”) with J. Ross Craft (President and Chief Executive Officer), Steven P. Smart (Executive Vice President and Chief Financial Officer) and Glenn W. Reed (Executive Vice President – Engineering and Operations) , and (iii) Indemnity Agreements (“Indemnity Agreements”) with each of its directors and executive officers. The Amendments affect various participants in the plans and arrangements, including each of the Company’s named executive officers listed in the Company’s proxy statement for its 2008 Annual Meeting of Stockholders: J. Ross Craft (President and Chief Executive Officer), Steven P. Smart (Executive Vice President and Chief Financial Officer) Glenn W. Reed (Executive Vice President – Engineering and Operations), J. Curtis Henderson (Executive Vice President, Secretary and General Counsel) and Ralph P. Manoushagian (Executive Vice President – Land).
The Amendments reflect, among other things, changes necessary to comply with Section 409A of the Internal Revenue Code of 1986, as amended (the “Code”), and the regulations promulgated thereunder (collectively “Section 409A”). Section 409A was enacted in 2004 and governs “nonqualified deferred compensation” arrangements. Section 409A imposes accelerated tax and additional tax on employees and other service providers who are parties to a nonqualified deferred compensation arrangement if the arrangement does not comply with Section 409A. Although Section 409A went into effect in 2005, final regulations were not issued until 2007. Companies must amend affected nonqualified deferred compensation arrangements by December 31, 2008 to ensure compliance with Section 409A.
Amendment to Stock Incentive Plan
The Amendment to the Stock Incentive Plan provides, among other things, for the following:
     (i) Adjustments to outstanding awards and award agreements in the event of a recapitalization or reorganization will be made in accordance with Sections 422, 424 and 409A of the Code;
     (ii) Individuals who provide services to Affiliates (as defined in the Stock Incentive Plan) that are not considered a single employer with the Company under Section 414(b) or (c) of the Code will not be eligible to receive awards under the Stock Incentive Plan until the Affiliate adopts the Stock Incentive Plan as a participating employer;
     (iii) Nonqualified stock options and stock appreciation rights may only be granted to individuals performing services for the Company or other entity in a chain of entities in which each entity has a “controlling interest” in another entity in the chain; and
     (iv) Any Affiliate not considered a single employer with the Company under Section 414(b) or (c) may adopt the Stock Incentive Plan by written instrument delivered to the Compensation and Nominating Committee before the grant of any award subject to Section 409A.
Amendments to Employment Agreements
The Amendments to the Employment Agreements provide, among other things, for the following:

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     With respect to Mr. Craft:
     (i) The amount and timing of expense reimbursements will conform to the requirements of Section 409A;
     (ii) The definition of “Good Reason” is amended to conform to Section 409A, including an extension of the cure period for the Company from 10 to 30 days and the addition of notice and exercise periods in which the Employee must take action;
     (iii) Section 409A prohibits different forms of payment upon different types of separations. Therefore, the Amendment provides that all separation payments will be made at the same time and in the same form for all types of separations. Payments made upon termination by the Company without Cause (as defined in the Employment Agreement), upon election by the Company not to extend the Employment Agreement or upon termination by the Employee for Good Reason (as defined by the Employment Agreement) will be made within 60 days following a Separation of Service (as defined in the Employment Agreement), rather than within 90 days for termination for Good Reason and 24 months after termination without Cause or non-extension by the Company under the original Employment Agreement. The 90-day period was changed to 60 days due to Section 409A;
     (iv) The Amendment clarifies that a payment on Change in Control (as defined in the Employment Agreement) is not intended to be paid in addition to other, salary-based separation payments payable under the Employment Agreement in the event of a termination not for Cause or without Good Reason, and Change in Control payments will be made within 60 days following the Change in Control, rather than 24 months under the original Employment Agreement; and
     (v) Payment of benefits under the Company’s welfare benefits plans after employment will be limited to the period of eligibility under the Consolidated Omnibus Budget Reconciliation Act of 1985 (“COBRA”).
     With respect to Messrs. Smart and Reed:
     (i) The amount and timing of expense reimbursements will conform to the requirements of Section 409A;
     (ii) Section 409A prohibits different forms of payment upon different types of separations. Therefore, the Amendment provides that all separation payments will be made at the same time and in the same form for all types of separations. Payments made upon termination by the Company without Cause, upon election by the Company not to extend the Employment Agreement or upon termination by the Employee for Good Reason will be made within 60 days following a Separation of Service, rather than within 90 days upon breach by the Company and 24 months after termination without Cause or non-extension by the Company under the original Employment Agreement. The 90-day period was changed to 60 days due to Section 409A;
     (iii) Payment of benefits under the Company’s welfare benefits plans after employment will be limited to the period of eligibility under COBRA.
Amendment to Form of Indemnity Agreement
The Company is a party to Indemnity Agreements with each of its directors and executive officers. The indemnity agreements provide that directors and executive officers will be indemnified to the fullest

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extent allowed by law against expenses and settlement amounts paid or incurred by them as a director or executive officer of the Company. The Amendment to the Form Indemnity Agreement for each of the directors and executive officers conforms the amount and timing of expense reimbursements under the Indemnity Agreements to the requirements of Section 409A.
The foregoing description is a summary of the Amendments and does not purport to be a complete statement of the parties’ rights and obligations under the applicable agreements. The foregoing description is qualified in its entirety by reference to the full text of the Amendments, which are filed as Exhibits 10.1 through 10.5 to this Current Report on Form 8-K, respectively, and are incorporated by reference herein.
Item 9.01 Financial Statements and Exhibits.
     
Exhibit No.   Description
10.1
  First Amendment dated as of December 31, 2008 to Approach Resources Inc. 2007 Stock Incentive Plan dated as of June 28, 2007.
 
   
10.2
  First Amendment dated as of December 31, 2008 to Employment Agreement by and between Approach Resources Inc. and J. Ross Craft dated as of January 1, 2003.
 
   
10.3
  First Amendment dated as of December 31, 2008 to Employment Agreement by and between Approach Resources Inc. and Steven
P. Smart dated as of January 1, 2003.
 
   
10.4
  First Amendment dated as of December 31, 2008 to Employment Agreement by and between Approach Resources Inc. and Glenn W. Reed dated as of January 1, 2003.
 
   
10.5
  First Amendment dated as of December 31, 2008 to Form of Indemnity Agreement between the Company and each of its directors and executive officers dated as of July 12, 2007.

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SIGNATURES
     Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
         
  APPROACH RESOURCES INC.
 
 
  By:   /s/ J. Curtis Henderson    
    J. Curtis Henderson   
    Executive Vice President and General Counsel   
 
Date: December 31, 2008

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EXHIBIT INDEX
     
Exhibit No.   Description
10.1
  First Amendment dated as of December 31, 2008 to Approach Resources Inc. 2007 Stock Incentive Plan dated as of June 28, 2007.
 
   
10.2
  First Amendment dated as of December 31, 2008 to Employment Agreement by and between Approach Resources Inc. and J. Ross Craft dated as of January 1, 2003.
 
   
10.3
  First Amendment dated as of December 31, 2008 to Employment Agreement by and between Approach Resources Inc. and Steven
P. Smart dated as of January 1, 2003.
 
   
10.4
  First Amendment dated as of December 31, 2008 to Employment Agreement by and between Approach Resources Inc. and Glenn W. Reed dated as of January 1, 2003.
 
   
10.5
  First Amendment dated as of December 31, 2008 to Form of Indemnity Agreement between the Company and each of its directors and executive officers dated as of July 12, 2007.

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Exhibit 10.1
FIRST AMENDMENT TO THE
APPROACH RESOURCES INC.
2007 STOCK INCENTIVE PLAN
     This First Amendment to the Approach Resources Inc. 2007 Stock Incentive Plan (the “Amendment”) is made effective as of December 31, 2008, by Approach Resources Inc., a Delaware corporation (“Approach”).
W I T N E S S E T H :
     WHEREAS, Approach established the Approach Resources Inc. 2007 Stock Incentive Plan (the “Plan”) effective as of June 28, 2007; and
     WHEREAS, Approach now desires to amend the Plan for compliance with Internal Revenue Code Section 409A and the Treasury Regulations issued thereunder;
     NOW, THEREFORE, pursuant to the authority reserved in Section 14.1, the Plan is amended as follows:
     1. Section 4.2 of the Plan is hereby amended by the addition of the following sentence:
Notwithstanding the provisions of this Section 4.2, outstanding Awards and Award Agreements shall be adjusted in accordance with (A) Sections 422 and 424 of the Code and the regulations thereunder with respect to Incentive Stock Options and (B) Section 409A of the Code and the regulations thereunder with respect to Nonqualified Stock Options, SARs and, to the extent applicable, other Awards.
     2. Article V of the Plan is hereby amended by the addition of the following sentence:
Notwithstanding the foregoing, Employees, Outside Directors and other individuals or entities that provide services to Affiliates that are not considered a single employer with Approach under Code Section 414(b) or Code Section 414(c) shall not be eligible to receive Awards which are subject to Code Section 409A until the Affiliate adopts this Plan as a participating employer in accordance with Section 15.18.
     3. The second sentence of Section 7.1 of the Plan is hereby amended and restated in its entirety as follows:
Nonqualified Stock Options may be granted only to Employees, Outside Directors or other individuals or entities performing services for Approach or a corporation or other type of entity in a chain of corporations or other entities in which each corporation or other entity has a “controlling interest” in another corporation or entity in the chain, starting with Approach and ending with the corporation or other entity for which the Employee, Outside Director or other individual or entity performs services.
     4. The first sentence of Section 8.1(b) of the Plan is hereby amended and restated in its entirety as follows:
SARs may be granted only to Employees, Outside Directors or other individuals or entities performing services for Approach or a corporation or other type of entity in a chain of corporations or other entities in which each corporation or other entity has a

 


 

“controlling interest” in another corporation or entity in the chain, starting with Approach and ending with the corporation or other entity for which the Employee, Outside Director or other individual or entity performs services.
     5. The Plan is hereby amended by the addition of the following as Section 15.18:
     15.18 Participating Affiliates . With the consent of the Committee, any Affiliate that is not considered a single employer with Approach under Code Section 414(b) or Code Section 414(c) may adopt the Plan for the benefit of its Employees by written instrument delivered to the Committee before the grant to the Affiliate’s Employees under the Plan of any Award subject to Code Section 409A.
     6. Except as otherwise specifically set forth herein, all other terms and conditions of the Plan shall remain in full force and effect.
     IN WITNESS WHEREOF, Approach has caused this Amendment to be executed on its behalf by its duly authorized officer as of this the 31 st day of December, 2008.
         
  APPROACH RESOURCES INC.
 
 
  By:   /s/ J. Ross Craft    
    J. Ross Craft, President and Chief Executive Officer   
       
 

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Exhibit 10.2
FIRST AMENDMENT
TO
EMPLOYMENT AGREEMENT
J. Ross Craft
     This First Amendment to Employment Agreement (“Amendment”) is effective December 31, 2008, and serves to modify only those certain terms of the Employment Agreement (“Agreement”) dated and effective January 1, 2003, between Approach Resources Inc. (the “Company”) and J. Ross Craft (the “Employee”), as stated herein.
     1. Paragraph 5(d) of the Agreement is hereby amended by adding the following sentence to the end thereof:
Notwithstanding the foregoing, (i) the amount of expenses eligible for reimbursement during a calendar year may not affect the expenses eligible for reimbursement in any other calendar year, (ii) the reimbursement must be made on or before the last day of the calendar year following the calendar year in which the expense was incurred and (iii) the right to reimbursement shall not be subject to liquidation or exchange for any other benefit.
     2. Paragraph 6(e) of the Agreement is hereby amended by restatement in its entirety to read as follows:
  e.   Good Reason . At his option, Employee may terminate his employment hereunder (a termination for “Good Reason”) in accordance with this paragraph 6(e) in the event any of the following actions are taken without Employee’s consent:
  (i)   a material diminution in Employee’s authority, responsibilities or duties;
 
  (ii)   a material diminution in the authority, duties or responsibilities of the supervisor to whom Employee is required to report, including a requirement that Employee report to an officer or employee instead of reporting directly to the Board (or similar governing body); or
 
  (iii)   any other action or inaction by the Company that constitutes a material breach by the Company of its obligations under this Agreement.
To exercise his right to terminate for Good Reason, Employee must provide written notice to the Company of his belief that Good Reason exists within 90 days of the initial existence of the condition(s) giving rise to Good Reason, and that notice shall describe the condition(s) believed to constitute Good Reason. The Company shall have 30 days to remedy the Good Reason condition(s). If not remedied within that 30-day period, Employee may terminate his employment with the Company; provided, however, that such termination must occur no later than 180 days after the date the initial existence of the condition(s) giving rise to the Good Reason; otherwise, Employee is deemed to have accepted the condition(s), or the Company’s correction of such condition(s), that may have given rise to the existence of Good Reason.
     3. The introductory language prior to subparagraph (a) of Paragraph 7 is hereby amended by restatement in its entirety to read as follows:

 


 

Upon termination of Employee’s employment for one of the following reasons, Employee shall be entitled to the following compensation:
     4. Paragraph 7(b) of the Agreement is amended by restatement in its entirety to read as follows:
  b.   Termination by the Company or by Employee for Good Reason . If (i) Employee’s employment shall be terminated without Cause as provided in paragraph 6(d) or if the Company elects not to extend this Agreement as provided in paragraph 6(f) or (ii) Employee should terminate his employment for Good Reason, then the Company shall pay or provide Employee, in lieu of any further Base Salary payments to Employee:
  (A)   on or before the 20 th day following Employee’s Separation from Service, a lump sum in cash equal to 50% of his Base Salary in effect as of such Separation from Service;
 
  (B)   on or before the 60 th day following Employee’s Separation from Service, a lump sum in cash equal to 150% of Employee’s Base Salary in effect as of such Separation from Service;
 
  (C)   all benefits Employee may be entitled to receive pursuant to any pension or employee benefit plan or other arrangement or life insurance policy maintained by the Company; and
 
  (D)   for a period of 24 months (one year if Employee terminates with Good Reason) or, if less, the period ending on the date Employee is no longer entitled to continuation coverage under the Consolidated Omnibus Budget Reconciliation Act of 1985 (“COBRA”), a continuation of all benefits then applicable to Employee and his immediate family under any employee welfare benefit plan then maintained by the Company, including without limitation health, dental and life insurance benefits; provided that if such continued coverage after the Separation from Service is not permitted under the Company’s plans, then the Company will provide Employee with substantially similar benefits through an insurance policy or reimburse Employee for the full cost of obtaining such insurance which reimbursement amount shall be paid within five (5) days of Employee’s furnishing the Company with evidence of the cost of such insurance, which evidence shall be furnished to the Company by Employee on a monthly basis.
Notwithstanding the foregoing, Employee shall be entitled to the payments and benefits above only if Employee’s termination of employment constitutes a “Separation from Service.” For purposes of this Agreement, “Separation from Service” means separation from service (within the meaning of Code Section 409A and the regulations and other guidance promulgated thereunder) with the group of employers that includes the Company and each of its “Affiliates.” For this purpose, “Affiliate” means any incorporated or unincorporated trade or business or other entity or person, other than the Company, that along with the Company is considered a single employer under Code Section 414(b) or Code Section 414(c), but (i) in applying Code Section 1563(a)(1), (2), and (3) for the purposes of determining a controlled group of corporations under Code Section 414(b), the phrase “at least 50 percent” shall be used instead of the phrase “at least 80 percent” in each place the phrase “at least 80 percent” appears in Code Section

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1563(a)(1), (2), and (3), and (ii) in applying Treasury Regulation Section 1.414(c)-2 for the purposes of determining trades or businesses (whether or not incorporated) that are under common control for the purposes of Code Section 414(c), the phrase “at least 50 percent” shall be used instead of the phrase “at least 80 percent” in each place the phrase “at least 80 percent” appears in Treasury Regulation Section 1.414(c)-2.
     5. Paragraph 7(c) of the Agreement is hereby deleted in its entirety.
     6. Paragraph 8(a) of the Agreement is hereby amended by restatement in its entirety to read as follows:
  a.   If there is a “Change in Control” as defined in this paragraph and Employee is employed on the Change in Control date, then this Agreement will terminate, regardless of whether Employee terminates or experiences a Separation from Service, and the Company shall pay or provide to Employee, in lieu of the payments and benefits provided for in Section 7(b):
  (A)   on or before the 20 th day following the date of the Change in Control, a lump sum in cash equal to 50% of his Base Salary in effect as of the date of the Change in Control;
 
  (B)   on or before the 60 th day following the date of the Change in Control, a lump sum in cash equal to 150% of Employee’s Base Salary in effect as of the date of the Change in Control;
 
  (C)   in the event of Employee’s termination for any reason on or after the date of the Change in Control, all benefits Employee may be entitled to receive pursuant to any pension or employee benefit plan or other arrangement or life insurance policy maintained by the Company; and
 
  (D)   in the event of Employee’s termination for any reason on or after the date of the Change in Control, for a period of 24 months following such termination or, if less, the period ending on the date Employee is no longer entitled to continuation coverage under the Consolidated Omnibus Budget Reconciliation Act of 1985 (“COBRA”), a continuation of all benefits then applicable to Employee and his immediate family under any employee welfare benefit plan then maintained by the Company, including without limitation health, dental and life insurance benefits; provided that if such continued coverage after the Date of Termination is not permitted under the Company’s plans, then the Company will provide Employee with substantially similar benefits through an insurance policy or reimburse Employee for the full cost of obtaining such insurance which reimbursement amount shall be paid within five (5) days of Employee’s furnishing the Company with evidence of the cost of such insurance, which evidence shall be furnished to the Company by Employee on a monthly basis.
     7. Paragraph 9(d) of the Agreement is hereby amended to add the following to the end thereof:
Such interest shall be paid in a lump sum at the same time as the related past due amounts.

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     8. Paragraph 9 of the Agreement is hereby amended to add the following paragraph to the end thereof:
  e.   IRC Section 409A . All or a portion of the severance pay and benefits provided under this Agreement is intended to be exempt from Code Section 409A and any ambiguous provision will be construed in a manner that is compliant with or exempt from the application of Code Section 409A. In particular, such severance pay and benefits are intended to constitute a payment or benefit described in paragraphs (b)(9)(iv) and (v) of Treasury Regulation Section 1.409A-1 and/or severance pay due to involuntary separation from service under Treasury Regulation Section 1.409A-1(b)(9)(iii). Notwithstanding any provision in this Agreement to the contrary, if any payment or benefit provided for herein would be subject to additional taxes and interest under Code Section 409A if Employee’s receipt of such payment or benefit is not delayed until the Section 409A Payment Date, then such payment or benefit will not be provided to Employee (or Employee’s estate, if applicable) until the Section 409A Payment Date. The “Section 409A Payment Date” is the earlier of (a) the date of Employee’s death or (b) the date that is six months and one day after Employee’s Separation from Service. If any payment to Employee is delayed pursuant to the foregoing sentence, such amount instead will be paid, with interest at the rate set out in Section 9(d), on the Section 409A Payment Date. For purposes of Code Section 409A, each payment amount or benefit due under this Agreement will be considered a separate payment and Employee’s entitlement to a series of payments or benefits under this Agreement is to be treated as an entitlement to a series of separate payments. Any amount that Employee is entitled to be reimbursed under this Agreement will be reimbursed to Employee as promptly as practicable and in any event not later than the last day of the calendar year after the calendar year in which the expenses to be reimbursed are incurred, and the amount of the expenses eligible for reimbursement during any calendar year will not affect the amount of expenses eligible for reimbursement in any other calendar year.
     9. The third sentence of paragraph 16 of the Agreement is hereby amended by restatement in its entirety to read as follows:
In the event of Employee’s death, this Agreement shall be enforceable by Employee’s estate, executors, or legal representatives.
     10. Except and only as expressly provided herein, all provisions of the Agreement shall remain unchanged and continue in full force and effect, and are hereby ratified by the parties hereto.

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     IN WITNESS WHEREOF, the Company has caused this Amendment to be executed on its behalf by its duly authorized officer, and the Employee has executed this Amendment, effective as of the date first set forth above.
         
APPROACH RESOURCES INC.   EMPLOYEE
 
       
By:
  /s/ J. Curtis Henderson   /s/ J. Ross Craft
 
       
 
  J. Curtis Henderson   J. Ross Craft
 
  Executive Vice President and General Counsel    

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Exhibit 10.3
FIRST AMENDMENT
TO
EMPLOYMENT AGREEMENT
Steven P. Smart
     This First Amendment to Employment Agreement (“Amendment”) is effective December 31, 2008, and serves to modify only those certain terms of the Employment Agreement (“Agreement”) dated and effective January 1, 2003, between Approach Resources Inc. (the “Company”) and Steven P. Smart (the “Employee”), as stated herein.
     1. Paragraph 5(d) of the Agreement is hereby amended by adding the following sentence to the end thereof:
Notwithstanding the foregoing, (i) the amount of expenses eligible for reimbursement during a calendar year may not affect the expenses eligible for reimbursement in any other calendar year, (ii) the reimbursement must be made on or before the last day of the calendar year following the calendar year in which the expense was incurred and (iii) the right to reimbursement shall not be subject to liquidation or exchange for any other benefit.
     2. Paragraph 7(b) of the Agreement is amended by restatement in its entirety to read as follows:
  b.   Termination by the Company . If Employee’s employment shall be terminated without Cause as provided in paragraph 6(d) or if the Company elects not to extend this Agreement as provided in paragraph 6(e), then the Company shall pay or provide Employee, in lieu of any further Base Salary payments to Employee:
  (A)   on or before the 20 th day following Employee’s Separation from Service, a lump sum in cash equal to 25% of his Base Salary in effect as of such Separation from Service;
 
  (B)   on or before the 60 th day following Employee’s Separation from Service, a lump sum in cash equal to 25% of Employee’s Base Salary in effect as of such Separation from Service;
 
  (C)   all benefits Employee may be entitled to receive pursuant to any pension or employee benefit plan or other arrangement or life insurance policy maintained by the Company; and
 
  (D)   for a period of 6 months following such termination or, if less, the period ending on the date Employee is no longer entitled to continuation coverage under the Consolidated Omnibus Budget Reconciliation Act of 1985 (“COBRA”), a continuation of all benefits then applicable to Employee and his immediate family under any employee welfare benefit plan then maintained by the Company, including without limitation health, dental and life insurance benefits; provided that if such continued coverage after the Date of Termination is not permitted under the Company’s plans, then the Company will provide Employee with substantially similar benefits through an insurance policy or reimburse Employee for the full cost of obtaining such insurance which reimbursement amount shall be paid within five (5) days of Employee’s furnishing the Company

 


 

      with evidence of the cost of such insurance, which evidence shall be furnished to the Company by Employee on a monthly basis.
Notwithstanding the foregoing, Employee shall be entitled to the payments above only if Employee’s termination of employment constitutes a “Separation from Service.” For purposes of this Agreement, “Separation from Service” means separation from service (within the meaning of Code Section 409A and the regulations and other guidance promulgated thereunder) with the group of employers that includes the Company and each of its “Affiliates.” For this purpose, “Affiliate” means any incorporated or unincorporated trade or business or other entity or person, other than the Company, that along with the Company is considered a single employer under Code Section 414(b) or Code Section 414(c), but (i) in applying Code Section 1563(a)(1), (2), and (3) for the purposes of determining a controlled group of corporations under Code Section 414(b), the phrase “at least 50 percent” shall be used instead of the phrase “at least 80 percent” in each place the phrase “at least 80 percent” appears in Code Section 1563(a)(1), (2), and (3), and (ii) in applying Treasury Regulation Section 1.414(c)-2 for the purposes of determining trades or businesses (whether or not incorporated) that are under common control for the purposes of Code Section 414(c), the phrase “at least 50 percent” shall be used instead of the phrase “at least 80 percent” in each place the phrase “at least 80 percent” appears in Treasury Regulation 
Section 1.414(c)-2.
     3. Paragraph 7(c) of the Agreement is hereby deleted in its entirety.
     4. Paragraph 9(d) of the Agreement is hereby amended to add the following to the end thereof:
Such interest shall be paid in a lump sum at the same time as the related past due amounts.
     5. Paragraph 9 of the Agreement is hereby amended to add the following paragraph to the end thereof:
  e.   IRC Section 409A . All or a portion of the severance pay and benefits provided under this Agreement is intended to be exempt from Code Section 409A and any ambiguous provision will be construed in a manner that is compliant with or exempt from the application of Code Section 409A. In particular, such severance pay and benefits are intended to constitute a payment or benefit described in paragraphs (b)(9)(iv) and (v) of Treasury Regulation Section 1.409A-1 and/or severance pay due to involuntary separation from service under Treasury Regulation Section 1.409A-1(b)(9)(iii). Notwithstanding any provision in this Agreement to the contrary, if any payment or benefit provided for herein would be subject to additional taxes and interest under Code Section 409A if Employee’s receipt of such payment or benefit is not delayed until the Section 409A Payment Date, then such payment or benefit will not be provided to Employee (or Employee’s estate, if applicable) until the Section 409A Payment Date. The “Section 409A Payment Date” is the earlier of (a) the date of Employee’s death or (b) the date that is six months and one day after Employee’s Separation from Service. If any payment to Employee is delayed pursuant to the foregoing sentence, such amount instead will be paid, with interest at the rate set out in Section 9(d), on the Section 409A Payment Date. For purposes of Code Section 409A, each payment amount or benefit due under this Agreement will be considered a separate payment and Employee’s entitlement to a series of payments or benefits under this Agreement is to be treated as an entitlement

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      to a series of separate payments. Any amount that Employee is entitled to be reimbursed under this Agreement will be reimbursed to Employee as promptly as practicable and in any event not later than the last day of the calendar year after the calendar year in which the expenses to be reimbursed are incurred, and the amount of the expenses eligible for reimbursement during any calendar year will not affect the amount of expenses eligible for reimbursement in any other calendar year.
     6. The third sentence of paragraph 16 of the Agreement is hereby amended by restatement in its entirety to read as follows:
In the event of Employee’s death, this Agreement shall be enforceable by Employee’s estate, executors, or legal representatives.
     7. Except and only as expressly provided herein, all provisions of the Agreement shall remain unchanged and continue in full force and effect, and are hereby ratified by the parties hereto.
     IN WITNESS WHEREOF, the Company has caused this Amendment to be executed on its behalf by its duly authorized officer, and the Employee has executed this Amendment, effective as of the date first set forth above.
         
APPROACH RESOURCES INC.   EMPLOYEE
 
       
By:
  /s/ J. Curtis Henderson   /s/ Steven P. Smart
 
       
 
  J. Curtis Henderson   Steven P. Smart
 
  Executive Vice President and General Counsel    

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Exhibit 10.4
FIRST AMENDMENT
TO
EMPLOYMENT AGREEMENT
Glenn W. Reed
     This First Amendment to Employment Agreement (“Amendment”) is effective December 31, 2008, and serves to modify only those certain terms of the Employment Agreement (“Agreement”) dated and effective January 1, 2003, between Approach Resources Inc. (the “Company”) and Glenn W. Reed (the “Employee”), as stated herein.
     1. Paragraph 5(d) of the Agreement is hereby amended by adding the following sentence to the end thereof:
Notwithstanding the foregoing, (i) the amount of expenses eligible for reimbursement during a calendar year may not affect the expenses eligible for reimbursement in any other calendar year, (ii) the reimbursement must be made on or before the last day of the calendar year following the calendar year in which the expense was incurred and (iii) the right to reimbursement shall not be subject to liquidation or exchange for any other benefit.
     2. Paragraph 7(b) of the Agreement is amended by restatement in its entirety to read as follows:
  b.   Termination by the Company . If Employee’s employment shall be terminated without Cause as provided in paragraph 6(d) or if the Company elects not to extend this Agreement as provided in paragraph 6(e), then the Company shall pay or provide Employee, in lieu of any further Base Salary payments to Employee:
  (A)   on or before the 20 th day following Employee’s Separation from Service, a lump sum in cash equal to 50% of his Base Salary in effect as of such Separation from Service;
 
  (B)   on or before the 60 th day following Employee’s Separation from Service, a lump sum in cash equal to 150% of Employee’s Base Salary in effect as of such Separation from Service;
 
  (C)   all benefits Employee may be entitled to receive pursuant to any pension or employee benefit plan or other arrangement or life insurance policy maintained by the Company; and
 
  (D)   for a period of 24 months or, if less, the period ending on the date Employee is no longer entitled to continuation coverage under the Consolidated Omnibus Budget Reconciliation Act of 1985 (“COBRA”), a continuation of all benefits then applicable to Employee and his immediate family under any employee welfare benefit plan then maintained by the Company, including without limitation health, dental and life insurance benefits; provided that if such continued coverage after the Separation from Service is not permitted under the Company’s plans, then the Company will provide Employee with substantially similar benefits through an insurance policy or reimburse Employee for the full cost of obtaining such insurance which reimbursement amount shall be paid within five (5) days of

 


 

      Employee’s furnishing the Company with evidence of the cost of such insurance, which evidence shall be furnished to the Company by Employee on a monthly basis.
Notwithstanding the foregoing, Employee shall be entitled to the payments above only if Employee’s termination of employment constitutes a “Separation from Service.” For purposes of this Agreement, “Separation from Service” means separation from service (within the meaning of Code Section 409A and the regulations and other guidance promulgated thereunder) with the group of employers that includes the Company and each of its “Affiliates.” For this purpose, “Affiliate” means any incorporated or unincorporated trade or business or other entity or person, other than the Company, that along with the Company is considered a single employer under Code Section 414(b) or Code Section 414(c), but (i) in applying Code Section 1563(a)(1), (2), and (3) for the purposes of determining a controlled group of corporations under Code Section 414(b), the phrase “at least 50 percent” shall be used instead of the phrase “at least 80 percent” in each place the phrase “at least 80 percent” appears in Code Section 1563(a)(1), (2), and (3), and (ii) in applying Treasury Regulation Section 1.414(c)-2 for the purposes of determining trades or businesses (whether or not incorporated) that are under common control for the purposes of Code Section 414(c), the phrase “at least 50 percent” shall be used instead of the phrase “at least 80 percent” in each place the phrase “at least 80 percent” appears in Treasury Regulation 
Section 1.414(c)-2.
     3. Paragraph 7(c) of the Agreement is hereby deleted in its entirety.
     4. Paragraph 9(d) of the Agreement is hereby amended to add the following to the end thereof:
Such interest shall be paid in a lump sum at the same time as the related past due amounts.
     5. Paragraph 9 of the Agreement is hereby amended to add the following paragraph to the end thereof:
  e.   IRC Section 409A . All or a portion of the severance pay and benefits provided under this Agreement is intended to be exempt from Code Section 409A and any ambiguous provision will be construed in a manner that is compliant with or exempt from the application of Code Section 409A. In particular, such severance pay and benefits are intended to constitute a payment or benefit described in paragraphs (b)(9)(iv) and (v) of Treasury Regulation Section 1.409A-1 and/or severance pay due to involuntary separation from service under Treasury Regulation Section 1.409A-1(b)(9)(iii). Notwithstanding any provision in this Agreement to the contrary, if any payment or benefit provided for herein would be subject to additional taxes and interest under Code Section 409A if Employee’s receipt of such payment or benefit is not delayed until the Section 409A Payment Date, then such payment or benefit will not be provided to Employee (or Employee’s estate, if applicable) until the Section 409A Payment Date. The “Section 409A Payment Date” is the earlier of (a) the date of Employee’s death or (b) the date that is six months and one day after Employee’s Separation from Service. If any payment to Employee is delayed pursuant to the foregoing sentence, such amount instead will be paid, with interest at the rate set out in Section 9(d), on the Section 409A Payment Date. For purposes of Code Section 409A, each payment amount or benefit due under this Agreement will be considered a separate payment and Employee’s entitlement

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      to a series of payments or benefits under this Agreement is to be treated as an entitlement to a series of separate payments. Any amount that Employee is entitled to be reimbursed under this Agreement will be reimbursed to Employee as promptly as practicable and in any event not later than the last day of the calendar year after the calendar year in which the expenses to be reimbursed are incurred, and the amount of the expenses eligible for reimbursement during any calendar year will not affect the amount of expenses eligible for reimbursement in any other calendar year.
     6. The third sentence of paragraph 16 of the Agreement is hereby amended by restatement in its entirety to read as follows:
In the event of Employee’s death, this Agreement shall be enforceable by Employee’s estate, executors, or legal representatives.
     7. Except and only as expressly provided herein, all provisions of the Agreement shall remain unchanged and continue in full force and effect, and are hereby ratified by the parties hereto.
     IN WITNESS WHEREOF, the Company has caused this Amendment to be executed on its behalf by its duly authorized officer, and the Employee has executed this Amendment, effective as of the date first set forth above.
         
APPROACH RESOURCES INC.   EMPLOYEE
 
       
By:
  /s/ J. Curtis Henderson   /s/ Glenn W. Reed
 
       
 
  J. Curtis Henderson   Glenn W. Reed
 
  Executive Vice President and General Counsel    

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Exhibit 10.5
FIRST AMENDMENT TO INDEMNITY AGREEMENT
     This Amendment to Indemnity Agreement is entered into and effective as of December 31, 2008, by and between Approach Resources Inc., a Delaware corporation (the “Company”), and                                           (the “Indemnitee”).
W I T N E S S E T H :
     WHEREAS, the Company and the Indemnitee entered into an Indemnity Agreement effective as of July 12, 2007 (the “Indemnity Agreement”); and
     WHEREAS, the Company and the Indemnitee now desire to amend the Indemnity Agreement for compliance with Section 409A of the Internal Revenue Code and the Treasury Regulations and other guidance thereunder;
     NOW, THEREFORE, in consideration of the premises, the parties do hereby agree as follows:
     1. The Indemnity Agreement is hereby amended to add a new Section 27 to the end thereof to read as follows:
     27. Internal Revenue Code Section 409A. Expenses payable pursuant to this Indemnity Agreement are intended to satisfy the indemnification arrangement exception to Section 409A of the Internal Revenue Code of 1986, as amended (the “Code”). Notwithstanding any provision of this Agreement to the contrary, if any reimbursement of an Expense constitutes deferred compensation subject to Code Section 409A (other than a “tax gross-up payment”), such Expense shall be paid by the end of the calendar year next following the calendar year in which the Expense is incurred, and the amount of such Expenses eligible for reimbursement during any calendar year will not affect the amount of Expenses eligible for reimbursement in any other calendar year. With respect to an Expense that is a “tax gross-up payment” as defined in the Treasury Regulations under Code Section 409A, such tax gross-up payment will be paid to the Indemnitee by the end of the calendar year following the calendar year in which the Indemnitee remits the related taxes to the taxing authority. Any provision of this Agreement to the contrary notwithstanding, if any payment provided for herein would be subject to additional taxes and interest under Code Section 409A and if Indemnitee’s receipt of such payment is not delayed until the Section 409A Payment Date, then such payment will not be provided to Indemnitee (or Indemnitee’s estate, if applicable) until the Section 409A Payment Date. The “Section 409A Payment Date” is the earlier of (a) the date of Indemnitee’s death or (b) the date that is six months and one day after Indemnitee’s “separation from service” as defined in Code Section 409A.
     2. Except as otherwise specifically set forth herein, all other terms and conditions of the Indemnity Agreement shall remain in full force and effect.
     IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed on the date first indicated above.
             
 
           
    APPROACH RESOURCES INC.    
 
           
 
  By:        
 
           
 
  Name:        
 
           
 
  Title:        
 
           
 
           
    INDEMNITEE    
 
           
         
 
           
 
  Name: