Exhibit 10.2.1
SECOND AMENDED AND
RESTATED
EMPLOYMENT
AGREEMENT
THIS AGREEMENT is made
effective December 31, 2008, between CHESAPEAKE ENERGY CORPORATION,
an Oklahoma corporation (the "Company"), and AUBREY K. McCLENDON,
an individual (the "Executive").
W I T N E S S E T H:
WHEREAS, the Company and the
Executive entered into that certain Amended and Restated Employment
Agreement dated effective January 1, 2008 (the “Prior
Agreement”).
WHEREAS, the Board of
Directors has determined that it is in the best interests of the
Company to modify the Executive’s employment arrangement in
order to: (a) maximize the Executive’s incentive to remain an
employee and officer of the Company; and (b) temporarily reduce the
Executive’s minimum stock ownership threshold in order to
permit the Executive sufficient time to increase his holdings of
the Company’s stock given the forced liquidation of a
majority of the Executive’s stock holdings in October
2008.
WHEREAS, as a result of
the Executive’s extraordinary contribution to the joint
venture transactions that were consummated by the Company during
2008 and increased the Company’s intrinsic value by at least
$10 billion, the Board of Directors has also determined that it is
in the best interests of the Company to grant to the Executive an
incentive award in the form of a credit against the joint interest
billings issued in connection with the FWP Program (as hereafter
defined) with a proportionate clawback provision in the event the
Executive resigns or is terminated for Cause during the next five
(5) years.
WHEREAS, the Executive and
the Board of Directors have agreed that the foregoing incentive
award should be conditioned on the following for the initial five
year term of this Agreement: (a) an agreement by the Executive not
to resign or commit an act which would give rise to a termination
for Cause by the Company; and (b) that the Executive’s salary
and semi-annual bonuses will be frozen at current levels and not
exceed the amounts for calendar year 2008.
WHEREAS, the Company and the
Executive desire to amend and restate the Prior Agreement in its
entirety to incorporate the foregoing and other changes to the
employment arrangement between the Company and the
Executive.
NOW THERFORE, in
consideration of the mutual promises herein contained, the Company
and the Executive agree as follows:
1.
Employment . The Company hereby employs the
Executive and the Executive hereby accepts such employment subject
to the terms and conditions contained in this
Agreement. The Executive is engaged as an employee of
the Company and the Executive and the Company do not intend to
create a joint venture, partnership or other relationship that
might impose similar such fiduciary obligations on the Executive or
the Company in the performance of this Agreement.
2.
Executive's Duties . The Executive is employed on
a full-time basis. Throughout the term of
this Agreement, the Executive will use the Executive's best efforts
and due diligence to assist the Company in the objective of
achieving the most profitable operation of the Company and the
Company's affiliated entities consistent with developing and
maintaining a quality business operation.
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Specific
Duties . During the term of this Agreement
the Executive: (a) will serve as Chairman of the Board
and Chief Executive Officer for the Company; (b) will be nominated
for election or appointed to serve as a director of the Company;
(c) will be appointed as an officer of one (1) or more of the
Company’s subsidiaries; and (d) may be nominated for election
or appointed to serve as a director of one (1) or more of the
Company’s subsidiaries. The Executive agrees to
use the Executive's best efforts to perform all of the services
required to fully and faithfully execute the offices and positions
to which the Executive is appointed and such other services as may
be reasonably directed by the Board of Directors of the Company in
accordance with this Agreement.
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Modifications . The precise duties to be performed by the
Executive may be extended or curtailed in the discretion of the
Board of Directors of the Company. However, except for
termination for Cause (as hereinafter defined under paragraph 6.1.2
of this Agreement), the failure of the Executive to be elected, be
reelected or serve as a director of the Company during the term of
this Agreement, the removal of the Executive as a member of the
board of directors of the Company, the withdrawal of the
designation of the Executive as Chairman of the Board and Chief
Executive Officer of the Company or the assignment of the
performance of duties incumbent on the foregoing offices to other
persons without the prior written consent of the Executive will
constitute termination without Cause by the Company.
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Rules and
Regulations . From time
to time, the Company may issue policies and procedures applicable
to employees and the Executive including an Employment Policies
Manual. The Executive agrees to comply with such policies and
procedures, except to the extent such policies are inconsistent
with this Agreement. Such policies and procedures may be
supplemented, modified, changed or adopted without notice in the
sole discretion of the Company at any time. In the event
of a conflict between such policies and procedures and this
Agreement, this Agreement will control unless compliance with this
Agreement will violate any law or regulation applicable to the
Company or its affiliated entities. Any activity by the Executive
that is expressly permitted by this Agreement will not violate such
policies and procedures.
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Stock
Investment . The Executive agrees to hold shares
of the Company’s common stock having an aggregate Investment
Value (as hereafter defined) greater than the designated percentage
of the compensation paid to the Executive under paragraphs 4.1 and
4.2 of this Agreement during such calendar
year. The designated percentage will be two
hundred percent (200%) for calendar year 2009 and five hundred
percent (500%) for the remaining term of this
Agreement. Any shares of common stock acquired by the
Executive prior to the date of this Agreement and still owned by
the Executive during the term of this Agreement may be used to
satisfy the requirement to own common stock including, without
implied limitation, shares of common stock held by Chesapeake
Investments, an Oklahoma Limited Partnership or owned beneficially
through the Executive’s retirement plans. For
purposes of this paragraph, the “Investment Value” of
each share of stock will be as follows: (a) for shares purchased in
the open market, the price paid by the Executive for such shares;
(b) for shares acquired through the exercise of stock options, the
grant of restricted stock or the conversion of other securities
other than through open market purchases, the fair market value of
the common stock on the date the option is exercised, the
restricted stock vests, or the stock is acquired through the
conversion of another security or the date such stock is otherwise
acquired; and (c) for each share acquired prior to the date of this
Agreement, the amount equal to the greater of (i) the amount
determined under clause (a) or (b) as applicable, or (ii) the
closing price for the Company's stock on the New York
Stock Exchange (the "NYSE") on the date of this Agreement adjusted
for subsequent stock splits. This paragraph will automatically
become null and void without notice or action by either party if
the Company’s common stock ceases to be listed on the NYSE,
the National Association of Securities Dealers Automated Quotation
System or other national exchange. The Company has no obligation to
sell to or to purchase from the Executive any of the
Company’s stock in connection with this paragraph 2.4 and has
made no representations or warranties regarding the Company’s
stock, operations or financial condition.
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3.
Other Activities . Except for the activities (the
“Permitted Activities”) permitted under this paragraph
or approved by the Board of Directors, the Executive will not: (a)
engage in activities which require such substantial services on the
part of the Executive that the Executive is unable to perform the
duties assigned to the Executive in accordance with this Agreement;
(b) serve as an officer or director of any publicly held entity; or
(c) directly or indirectly invest in, participate in or acquire an
interest in any oil and gas business, including, without
limitation, (i) producing oil and gas, (ii) drilling,
owning or operating oil and gas leases or wells, (iii) providing
services or materials to the oil and gas industry, (iv) marketing
or refining oil or gas, or (v) owning any interest in any
corporation, partnership, company or entity which conducts any of
the foregoing activities. The Executive is not
restricted from maintaining or making investments, or engaging in
other businesses, enterprises or civic, charitable or public
service functions if such activities, investments, businesses or
enterprises do not result in a violation of clauses (a) through (c)
of this paragraph 3. Notwithstanding the foregoing, the
Executive will be permitted to participate in the following
activities and such activities will be deemed to be approved by the
Company, if such activities are undertaken in strict compliance
with this Agreement.
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Surface
Interests and Gifts . The
foregoing restriction in clause (c) will not prohibit the ownership
of (a) the interests in oil and gas where the Executive acquires,
owns or previously owned the surface of the land covered in whole
or in part by such interest in oil and gas and the ownership,
operation, development or use of the interest in oil and gas is
incidental to the ownership of the surface estate or (b) interests
in oil and gas received by gift or inheritance. For
purposes of this paragraph 3.1: (y) interests in oil and
gas means any interest in oil and gas including, without implied
limitation, any mineral interest, royalty interest, overriding
royalty interest, working interest, net profits interest,
production payment or similar interest in the production of oil and
gas; and (z) the interests in oil and gas permitted to be owned
under this paragraph 3.1 are not required to be acquired
simultaneously with the acquisition of the surface estate, but may
be acquired at any time the Executive owns any interest in the
surface estate.
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Existing
Interests . The Executive has in the past
conducted oil and gas activities individually, through Chesapeake
Investments, an Oklahoma Limited Partnership, and through other
entities owned or controlled by the Executive (collectively, the
“Executive Affiliates”). The Executive will be
permitted to continue to conduct oil and gas activities (including
participation in new wells) directly or through the Executive
Affiliates , but only to the extent such activities are
conducted with respect to oil and gas leases or interests in oil
and gas which the Executive or Executive Affiliates (a) owned or
had the right to acquire as of the date of this Agreement, (b)
acquired or held in accordance with paragraph 3.1 of this Agreement
or (c) acquired from the Company under the FWP Program (as
hereinafter defined), prior employment agreements or any other
written agreement between the Executive, the Company or the
Company's affiliated entities (collectively, the “Prior
Interests”). To the extent Prior Interests or
activities covered by this paragraph 3.2 are operated by the
Company, the Executive agrees to pay any costs or expenses with
respect to the Prior Interests in accordance with the terms of the
Founder Well Participation Program (the “FWP
Program”).
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FWP
Program . The
Executive or the designated Founder Affiliate will be permitted to
participate in the FWP Program in accordance with its
terms. The parties hereto agree the FWP Program cannot
be modified or amended without the prior written consent of the
Board of Directors and the Executive.
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Non Active
Investments . The foregoing restriction in clause
(c) of this paragraph 3 will not prohibit the following activities
by the Executive or the Executive’s
affiliates: (a) an investment in the securities of a
publicly listed company; (b) investment or trading in commodities,
currencies, financial instruments or other derivatives (including,
without implied limitation, short positions,
long positions or positions in options) whether on an
exchange, by private contract or in the over the counter
market; (c) an investment in non public entities which
own de minimis passive interests in E&P Activities (as
hereafter defined) which are incidental to such entity’s
primary non E&P business activity; and (d) an investment in an
investment fund, hedge fund, limited partnership or
other passive investment entity (i) which does not actively engage
in E&P Activities; and (ii) for which the Executive does not
directly or indirectly provide input, advice or management to such
entity, the sponsor of such entity or any portfolio company of such
entity. For purposes of this Agreement the term E&P
Activities means the specific activities listed in sub clauses (i)
or (ii) of clause (c) of paragraph 3 of this Agreement.
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4.
Executive's Compensation . The Company agrees to
compensate the Executive as follows:
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Base
Salary . A
base salary (the "Base Salary"), at an annual rate of not less than
Nine Hundred Seventy-Five Thousand Dollars ($975,000.00), will be
paid to the Executive in equal bi-weekly installments, beginning
January 1, 2009, and continuing during the term of this
Agreement. The Executive agrees that the Base Salary
will not exceed Nine Hundred Seventy-Five Thousand Dollars
($975,000.00) prior to the Executive Termination Date (as hereafter
defined).
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Bonus . In addition to the Base Salary
described in paragraph 4.1 of this Agreement, the Company may
periodically pay bonus compensation to the Executive. Except as
expressly provided in this Agreement, any bonus compensation will
be awarded in the absolute discretion of the Company in such
amounts and at such times as the Compensation Committee of the
Board of Directors of the Company may determine. The
cash bonuses to be paid by the Company under this paragraph for any
calendar year during the term of this Agreement and prior to the
Executive Termination Date will not exceed the Executive’s
cash bonus compensation for calendar year 2008, grants which
approximate One Million Nine Hundred Fifty Thousand Dollars
($1,950,000.00).
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Equity
Compensation . In addition to the compensation set
forth in paragraphs 4.1 and 4.2 of this Agreement, the Executive
may periodically receive grants of stock options, restricted stock
or other equity related awards from the Company’s various
equity compensation plans, subject to the terms and conditions
thereof.
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Benefits . The Company agrees to extend to the
Executive retirement benefits, deferred compensation, reimbursement
of reasonable expenditures for dues, travel and entertainment and
any other benefits the Company provides to other executives or
officers from time to time on the same terms as such benefits are
provided to such individuals. The Company will also
provide the Executive the opportunity to apply for coverage under
the Company's medical, life and disability plans, if
any. If the Executive is accepted for coverage under
such plans, the Company will provide such coverage on the same
terms as is customarily provided by the Company to the plan
participants as modified from time to time. The Company
may condition any such benefits on the Executive paying any amounts
which the Company requires other employees to pay with respect to
such benefits.
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Vacation . The Executive will be entitled to
take up to five (5) weeks of paid vacation each calendar year
during the term of this Agreement. Except as provided in
the Company's general employment policies or as otherwise provided
in this Agreement, no additional compensation will be paid for
failure to take vacation and no vacation may be carried forward
from one calendar year to another.
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Travel . For safety, security and efficiency
the Executive will utilize aircraft owned, leased or chartered by
the Company for business and personal use and will not be required
to reimburse the Company for any cost related to such use. The
Executive will: (a) not owe any additional amounts to
the Company under this paragraph for guests or family members
traveling with the Executive; and (b) pay all personal income taxes
accruing as a result of the personal use of the Company’s
aircraft by the Executive and the Executive’s immediate
family members under this paragraph.
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Accounting
Support . The Executive
will be permitted to utilize the Company’s office facilities,
computer facilities and personnel to provide accounting services,
management services, records maintenance, tax advice, tax return
preparation and other business services for the Executive’s
(and the Executive’s immediate family members’)
personal businesses, investments and activities.
Beginning January 1, 2009, the Executive agrees to pay to the
Company as a partial reimbursement an amount equal to: (a) direct
cash compensation for each Company employee primarily designated to
provide services under this paragraph (consisting of cash salaries,
cash bonuses, and the employer's portion of payroll taxes)
multiplied by the percentage of the time such employee spends
providing such services plus (b) as indirect costs the amount for
each employee under the foregoing clause (a) multiplied by a
percentage determined by the compensation committee of the Board of
Directors and approved by the Executive. Such amounts
related to the provision of secretarial or general administrative
support for the Executive will not be required to be reimbursed in
whole or part under this paragraph.
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2008
Incentive Award . The Company hereby grants to the
Executive, effective as of the date of this Agreement, an incentive
award in the amount of Seventy-five Million Dollars
($75,000,000.00) to be used, applied and recouped in accordance
with the terms of this paragraph (the “Incentive
Award”). The amount of the Incentive Award, less
any applicable federal and state tax withholding amounts, will be
granted to the Executive as a deposit for credit against joint
interest billings issued by the Company with respect to the
Executive’s interest in wells acquired through participation
in the FWP Program, well participation provisions similar to the
FWP Program under prior employment agreements between the Company
and the Executive and the Prior Interests (the “IA JIB
Credit”). The Executive may assign the IA JIB
Credit to any Founder Affiliate (as defined in the FWP Program)
subject to any conditions herein, may designate the application of
the IA JIB Credit to all or part of any unpaid joint interest
billing issued by the Company to the Executive or a Founder
Affiliate and may not use the IA JIB Credit for any other purpose
prior to December 31, 2014. Any unused portion of the IA
JIB Credit existing on December 31, 2014, will be disbursed to the
Executive on written request by the Executive. If, prior
to the Executive Termination Date (as hereafter defined), the
Executive is terminated by the Company for Cause in accordance with
paragraph 6.1.2 of this Agreement or the Executive terminates this
Agreement in violation of paragraph 6.2 of this Agreement, the IA
JIB Credit will be recouped from the Executive by the Company as
follows: (a) any of the IA JIB Credit that has not been
applied to a joint interest billing as of the effective date of the
foregoing termination will be automatically forfeited and no
consideration will be paid or earned by the Executive as a result
of such forfeiture; (b) the Executive will within one hundred
eighty (180) days after the effective date of the foregoing
termination pay to the Company in immediately available funds an
amount equal to the lesser of the following (1) the aggregate
amount of any IA JIB Credit applied to joint interest billings
issued by the Company plus any federal or state taxes withheld by
the Company for the benefit of the Executive from the Incentive
Award or (2) the original Seventy-five Million Dollar
($75,000,000.00) amount of the Incentive Award multiplied by a
percentage equal to (i) the number of full calendar months
remaining between the effective date of the foregoing termination
and the Executive Termination Date, divided by (ii) sixty
(60). The foregoing right of recoupment will only apply
to a termination of this Agreement under paragraph 6.1.2 or a
termination in violation of paragraph 6.2, each as expressly
provided in the foregoing sentence, and will not apply to any other
termination of this Agreement including, without implied
limitation, an Executive FC Termination (as hereafter defined)
under paragraph 6.2 of this Agreement or any termination under
paragraphs 6.3, 6.4 or 6.5.
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Compensation
Review . The
compensation of the Executive will be reviewed not less frequently
than semi-annually by the Compensation Committee of the Board of
Directors of the Company. The compensation of the Executive
prescribed in paragra
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