Exhibit 10.9
Employment
Agreement
This Employment Agreement (the
“Agreement”) is made and entered into this 31st day of
December, 2008, effective as of January 1, 2008, by and between
Petroleum Development Corporation, a Nevada Corporation (the
“Company”), and Richard W. McCullough (the
“Employee”).
WHEREAS, on the Effective Date (hereinafter
defined), the Company employed Employee in the capacity of Chief
Financial Officer and, effective as of March 9, 2008, in the
capacity of President;
WHEREAS, upon the retirement of Steven R.
Williams as Chief Executive Officer on June 23, 2008, the Company
employed Employee in the additional capacity of Chief Executive
Officer;
WHEREAS, Employee ceased to be Chief Financial
Officer effective as of November 11, 2008 when his successor became
Chief Financial Officer;
WHEREAS, the Company desires to employ the
Employee to perform the duties and services incident to such
positions for the Company, and the Employee wishes to be so
employed by the Company, all upon the terms and conditions set
forth in this Agreement;
NOW THEREFORE, in consideration of the premises
and mutual covenants and obligations set forth herein and for other
good and valuable consideration, the receipt and sufficiency of
which is hereby acknowledged and accepted, the parties hereto,
intending to be legally bound, agree as follows:
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Initial
Term. The
effective date of this Agreement will be January 1, 2008 (the
“Effective Date”), and the initial term will be for the
period beginning on the Effective Date and ending December 31,
2009.
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Automatic
Extensions . The Term of this Agreement will be
extended for an additional twelve (12) months beginning on December
31, 2008 and on each successive December 31 unless either party
provides the other with at least thirty (30) days prior written
notice, or unless the contract has been terminated by the parties
in accordance with the provisions of Section 7 of this
Agreement. The period of time from the Effective Date
until the Termination Date, as defined in Section 7.b., will be the
“Term.”
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Change of
Control . In
the event of a Change of Control, the Term of this Agreement will
automatically be extended to the date that is twenty-four (24)
months after the date of the Change of Control without any action
on the part of the Company or the Employee. Thereafter,
the date of the Change of Control will be treated as the Effective
Date for purposes of further automatic 12-month extensions of the
Agreement under this
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section. “Change of
Control” of the Company will occur on the earliest of the
following events:
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Change in
Ownership : A
change in ownership of the Company occurs on the date that any one
person, or more than one person acting as a group, acquires
ownership of stock of the Company that, together with stock held by
such person or group, constitutes more than 50% of the total fair
market value or total voting power of the stock of the Company,
excluding the acquisition of additional stock by a person or more
than one person acting as a group who is considered to own more
than 50% of the total fair market value or total voting power of
the stock of the Company.
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Change in
Effective Control : A change in effective control of
the Company occurs on the date that either:
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Any one person,
or more than one person acting as a group, acquires (or has
acquired during the l2-month period ending on the date of the most
recent acquisition by such person or persons) ownership of stock of
the Company possessing 30% or more of the total voting power of the
stock of the Company; or
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A majority of
the members of the Board of Directors of the Company (the
“Board”) is replaced during any l2-month period by
directors whose appointment or election is not endorsed by a
majority of the members of the board of directors prior to the date
of the appointment or election; provided, that this paragraph (B)
will apply only to the Company if no other corporation is a
majority shareholder.
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Change in
Ownership of Substantial Assets : A change in the ownership of a
substantial portion of the Company's assets occurs on the date that
any one person, or more than one person acting as a group, acquires
(or has acquired during the l2-month period ending on the date of
the most recent acquisition by such person or persons) assets from
the Company that have a total gross fair market value equal to or
more than 40% of the total gross fair market value of the assets of
the Company immediately prior to such acquisition or acquisitions.
For this purpose, “gross fair market value” means the
value of the assets of the Company, or the value of the assets
being disposed of, determined without regard to any liabilities
associated with such assets. It is the intent that this definition
be construed consistent with the definition of “Change of
Control” as defined under Internal Revenue Code Section 409A
and the applicable Treasury Regulations, as amended from time to
time.
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The place of
employment will be the Company’s headquarters building in
Bridgeport, West Virginia or Denver, Colorado unless the Employee
and the Company agree to an alternative location.
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Position and
Responsibilities
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Position. As of the Effective Date, the
Employee will serve as the Chief Financial Officer and, as of March
9, 2008, President, and in such positions shall report to the Chief
Executive Officer of the Company and be under the general direction
and control of the Chief Executive Officer. Upon the
retirement of Steven R. Williams as Chief Executive Officer,
Employee will also serve as the Chief Executive Officer of the
Company and will report to the Board.
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Responsibilities. The Employee will have obligations,
duties, authority and power to do such acts as are customarily done
by a person holding the same or equivalent positions in
corporations of similar size to the Company. The
Employee shall perform such managerial duties and responsibilities
for the Company as may be reasonably be assigned to him by the
Chief Executive Officer (while serving in the capacity of Chief
Financial Officer or in the capacity of Chief Financial Officer and
President), the Chairman of the Board (while serving in the added
capacity of Chief Executive Officer) and the Board (while serving
in the capacity of Chief Executive Officer and Chairman of the
Board), at no additional compensation, shall serve on the Board and
in other such positions with any subsidiary corporation of the
Company, or any partnership, limited liability company or other
entity in which the Company has an interest (herein collectively
called “Affiliates”), as the Chief Executive Officer or
the Chairman of the Board or the Board as applicable, may from time
to time determine.
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Dedication
of Professional Services . The Employee shall devote
substantially all of his business time, best efforts and attention
to promote and advance the business of the Company and its
Affiliates to perform diligently and faithfully all the duties,
responsibilities and obligations of his positions with the
Company. Employee shall not be employed in any other
business activity, other than with the Company and its Affiliates,
during the Term, whether or not such activity is pursued for gain,
profit or other pecuniary advantage without approval by the
Compensation Committee of the Board (“Compensation
Committee”); provided, however, that this restriction will
not be construed as preventing Employee from investing his or her
personal assets in a business which does not compete with the
Company or its Affiliates, where the form or manner of such
investment will not require services of any significance on the
part of Employee in the operation of the affairs of
the business in
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which
such investment is made and in which his participation is solely
that of a passive investor.
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Adherence to
Standards. Employee shall comply with the
written policies, standards, rules and regulations of the Company
from time to time established for all executive officers of the
Company consistent with Employee's position and level of
authority.
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Minimum
Stock Ownership. Employee shall comply with the
minimum stock ownership requirements for executive officers of the
Company by the fifth anniversary of the effective date of his
employment by the Company (November 13, 2011 being the fifth
anniversary of the effective date of his employment) and until his
Termination Date. These requirements are, for a Chief
Financial Officer, a minimum stock ownership equal to two (2) times
the Employee’s Base Salary, as defined in Section 4.a. (or
such level as adjusted from time to time) and, for a Chief
Executive Officer, a minimum stock ownership equal to three (3)
times the Employee’s Base Salary (or such level as adjusted
from time to time).
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Base
Salary. The
Company shall pay the Employee an annual base salary of $340,000
(the “Base Salary”) commencing on the Effective Date
and ending on the Termination Date. The Base Salary will
be payable in accordance with the ordinary payroll practices of the
Company. The Compensation Committee shall review the
Base Salary annually, and the Base Salary may be changed by the
Compensation Committee in its sole discretion, taking into account
the base salaries, aggregate annual cash compensation, and other
compensation of individuals holding similar positions at other
comparable companies and the performance of the Employee and the
Company.
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Performance
Bonus. In
addition to his Base Salary, the Employee will be eligible to earn
an annual performance bonus (the “Bonus”) during the
Term based on the achievement of corporate performance objectives
as determined by the Compensation Committee in its sole
discretion. The “Target Bonus” will be a
specified percentage of the Base Salary, as set forth in the
Petroleum Development Corporation Short-Term Incentive Compensation
Plan for a given year which may be earned if the Employee meets all
of the criteria established by the Compensation
Committee. However, the Bonus may be less than or more
than the Target Bonus based on the level of performance of the
Employee and the criteria established by and at the sole discretion
of, the Compensation Committee. For 2008, the Target
Bonus will be equal to 90% of the Employee’s Base Salary and
the maximum percentage will be 180% of the Employee’s Base
Salary. The Bonus will be paid in cash no later than
March 15 of the
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following
year. To the extent practicable, the Bonus will meet the
requirements for qualified performance-based compensation under
Internal Revenue Code Section 162(m).
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Retirement
Compensation . For each complete year worked by
the Employee beginning from the effective date of his employment
with the Company (November 13, 2006) and each anniversary thereof,
the Employee will earn and be entitled to receive an annual
retirement payment equal to $7,500 (such annual retirement payment
being the “Retirement Payment”) for each of the ten
years noted below. For example, (i) if the Employee is
employed for four years and three months, the annual Retirement
Payment would be 4 x $7,500 = $30,000, and (ii) if the Employee is
employed for five years and eight months, the annual Retirement
Payment would be 5 x $7,500 = $37,500. The annual
Retirement Payment will be payable to the Employee, or in the event
of the Employee’s death, to his estate, beneficiaries, or
designees, on each of the first ten anniversary dates following the
date the Employee leaves the service of the Company. The
Retirement Payment will be in addition to any deferred
compensation, pension, or other payments the Employee has earned
under this and any other previous and subsequent agreements with
the Company and any other payments he may be due under the
Company’s employee benefit plans. The Retirement
Payment is payable to the Employee even if the Employee's
termination is for Just Cause pursuant to Section 7.c.
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Equity
Compensation Grant. In addition to cash compensation,
the Employee will be eligible to earn equity compensation during
the Term. The amounts and form of all equity
compensation awards shall be determined at the sole discretion of
the Board or its designee and only in accordance with shareholder
approved stock compensation plans. As of the Effective
Date, under the Company’s Long-Term Equity Compensation Plan,
the Employee will receive an award equal in value to $510,000, 50%
of which will be awarded as restricted stock and 50% of which will
be awarded as long-term incentive performance (“LTIP”)
shares. For this purpose, the value of the restricted
stock and the LTIP shares will be determined by the Company’s
compensation consultants and will be based on the average closing
price of the stock of the Company for the month of December,
2007. The restricted stock will vest at the rate of 25%
for each complete year worked by the Employee under this Agreement,
beginning on March 7, 2008 and vesting at the rate of 25% on each
anniversary thereof. The performance shares will vest in
accordance with the timing and performance targets set forth in the
documentation for such LTIP shares. Future awards will
vest on the schedule specified by the Board or its designee at the
time of the award.
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Succession-Related Grant . On the date that Employee assumes
the position of Chief Executive Officer of the Company, the
Employee will
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receive a
one-time award of restricted stock equal in value to
$700,000. For this purpose, the value of the restricted
stock will be determined by the Company’s compensation
consultants and will be based on the average closing price of the
stock of the Company for the month of December,
2007. The restricted stock will vest at the rate of 20%
for each complete year worked by the Employee under this Agreement,
beginning from the Effective Date.
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Other
Compensation. The Employee will continue to be
eligible to participate in all other cash or stock compensation
plans or programs maintained by the Company, as in effect from time
to time, in which other senior executives of the Company are
allowed to participate.
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Recoupment
of Certain Compensation. If the Company has to restate all or
a portion of its financial statements due to the material
noncompliance of the Company with any financial reporting
requirement under the securities laws, the Employee shall, for the
affected years, reimburse the Company for any excess bonus paid to
the Employee pursuant to Section 4.b. The reimbursements
shall be equal to the difference between the bonus paid to him for
the affected years and the bonus that would have been paid to the
Employee had the financial results been properly
reported. Such reimbursement shall be paid to the
Company within ninety days after the Company notifies the Employee
of the amount owed to the Company.
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Participation in Company Benefit
Plans. During
the Term, the Company shall provide the Employee with coverage
under all employee pension and welfare benefit programs, plans and
practices commensurate with his positions in the Company and to the
extent permitted under the respective employee benefit
plan.
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Vacation. The Employee will be entitled to
twenty (20) days of paid vacation in each calendar year, to be
taken at such times as is reasonably determined by the Employee to
be consistent with the Employee’s responsibilities under this
Agreement.
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Expense
Reimbursement. The Employee is authorized to incur
reasonable expenses in carrying out his duties and responsibilities
under this Agreement, including, without limitation, expenses
related to travel, meals, entertaining, and similar items related
to such duties and responsibilities. The Company shall
reimburse the Employee for all such expenses on presentation by
Employee from time to time of appropriately itemized and approved
(consistent with the Company’s policy) accounts of such
expenditures. The Company shall reimburse the Employee
for reasonable dues and expenses of membership in such club or
clubs as the
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Board
reasonably deems necessary for the Employee to entertain on behalf
of the Company and for costs associated with continuing education
and professional dues if approved in advance by the Chief Executive
Officer (by the Board after Employee becomes Chief Executive
Officer). All expense reimbursements for a calendar year
will be paid in the normal course, but no later than March 15 of
the following calendar year.
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Life and
Disability Insurance. The Company will reimburse the
Employee for the cost of life insurance on the Employee in the face
amount of one million dollars ($1,000,000) with a person or persons
named by the Employee as either the owner or the beneficiary as the
Employee directs, and for the cost of a disability policy
consistent with what is provided to other executive officers of the
Company. All reimbursements for a calendar year will be
paid in the normal course, but no later than March 15 of the
following calendar year.
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Health
Insurance. The Company agrees that it will
include the Employee under any hospital, surgical, or group health
plan or policy adopted generally for the benefit of its
employees. The payment of the premiums for the Employee
and his dependents will be determined in accordance with the rules
and regulations adopted by the Company for its
employees. In addition to including the Employee and his
dependents in such plan, the Company shall pay all reasonable
hospital, surgical, medical, dental, and prescription expenses of
the Employee and his dependents not covered by such a
plan. In the event the Company has no group health plan,
the Company agrees to pay all reasonable premiums on any health
insurance policy obtained by the Employee to provide such
coverage.
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Automobile. During the Term, the Employee will
be entitled to use of a Company automobile or payment of a car
allowance in accordance with a plan approved by the Board or its
designee.
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Confidential
Material and Employee Obligations .
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Confidential
Material. The
Employee shall not, directly or indirectly, either during the Term
or thereafter, disclose to anyone (except in the regular course of
the Company's business or as required by law), or use in any
manner, any information acquired by the Employee during his
employment by the Company with respect to any clients or customers
of the Company or any confidential, proprietary or secret aspect of
the Company's operations or affairs unless such information has
become public knowledge other than by reason of actions, direct or
indirect, of the Employee. Information subject to the provisions of
this paragraph will include, without limitation:
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Brokers,
broker/dealer firms, law firms used to prepare Company and
partnership registration statements, due dili
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