Exhibit 10.2.1
THIRD AMENDED AND RESTATED
EMPLOYMENT
AGREEMENT
THIS AGREEMENT is made effective
January 1, 2004, 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 July 1, 1998 as amended by the First
Amendment to Amended and Restated Employment Agreement dated
December 31, 1998 and as further amended by the Second Amended and
Restated Employment Agreement dated January 1, 2001 (together the
“Prior Agreements”);
WHEREAS, the Company and the
Executive desire to amend and restate the Prior Agreements in their
entirety.
NOW, THEREFORE, 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 a
fiduciary obligation 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 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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2.1
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Specific
Duties . The Executive
will serve as Chairman of the Board and Chief Executive Officer for
the Company. From time to time, the Executive may be appointed as
an officer of one (1) or more of the Company’s subsidiaries.
During the term of this Agreement, the Executive will be nominated
for election or appointed to serve as a director of the Company and
one (1) or more of the Company’s subsidiaries. The Executive
will 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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2.2
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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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2.3
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Rules and
Regulations . From time
to time, the Company may issue policies applicable to employees and
the Executive including an Employment Policies Manual that
addresses frequently asked questions regarding the Company. The
Executive agrees to comply with such policies, except to the extent
such policies are inconsistent with this Agreement. The policies
and the Employment Policies Manual are subject to change without
notice in the sole discretion of the Company at any time. In the
event of a conflict between such policies and this Agreement, this
Agreement will control over the terms of the Employment Policies
Manual.
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2.4
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Stock
Investment . During the
term of this Agreement, the Executive agrees to hold shares of the
Company’s common stock having an aggregate Investment Value
(as hereafter defined) greater than five hundred percent (500%) of
the compensation paid to the Executive under paragraphs 4.1 and 4.2
of this Agreement during such calendar year. 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. 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 after the Company’s initial public
offering (“IPO”) in February 1993 through the exercise
of stock options or other than through open market purchases, the
fair market value of the common stock on the date the option was
exercised or the stock was acquired; and (c) for shares acquired
prior to the Company’s IPO, the price obtained for stock in
the IPO adjusted for subsequent stock splits. This paragraph will
become null and void if the Company’s common stock ceases to
be listed on the New York Stock Exchange, the National Association
of Securities Dealers Automated Quotation System or other national
exchange. The Company has no obligation to sell 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”) expressly
permitted by paragraphs 3.1 and 3.2 of this Agreement or approved
by the board of directors of the Company, the Executive will not:
(a) engage in business independent of the Executive’s
employment by the Company which requires any substantial portion of
the Executive’s time; (b) serve as an officer or director of
any public corporation, partnership, company, or firm; (c) except
for passive investments that do not violate this Agreement and
require only a minimal portion of the Executive’s time, serve
as a general partner or member of any corporation, partnership,
company or firm; or (d) 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 limitations in this paragraph 3 will
not prohibit an investment by the Executive in publicly traded
securities. Notwithstanding the foregoing, the Executive will be
permitted to participate in the following activities that will be
deemed to be approved by the Company, if such activities are
undertaken in strict compliance with this Agreement. The foregoing
will not prohibit the ownership of royalty interests where the
Executive owns or previously owned the surface of the land covered
by the royalty interest and the ownership of the royalty interest
is incidental to the ownership of the surface estate or the
ownership of royalty, overriding royalty or working interests that
are received by gift, inheritance or were acquired prior to the
Executive’s date of first employment with the
Company.
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3.1
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Existing
Interests . The Executive
has in the past conducted oil and gas activities individually and
through Chesapeake Investments, an Oklahoma Limited Partnership,
and 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 on oil and gas leases or interests
which the Executive or Executive Affiliates owned or had the right
to acquire as of July 1, 2001, or which the Executive or the
Executive Affiliates acquired from the Company under this Agreement
or prior agreements with the Company (collectively, the
“Prior Interests”). To the extent that the oil and gas
interests or activities covered by this paragraph 3.1 are operated
by the Company, the ownership and participation will be subject to
the payment provisions set forth in this paragraph 3.
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3.2
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Company’s
Activities . The
Executive or the designated Executive Affiliate will be permitted
to acquire on the terms and conditions set forth herein an interest
in the governmental, spacing or production unit for each of the
wells (the “Program Wells”) spudded by any of the
Company Entities (as hereafter defined) in any Calendar Quarter (as
hereafter defined) during the Participation Term (as hereafter
defined). The Program Wells include any well spudded during such
Calendar Quarter in which the Company Entities
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participate as a non-operator.
Program Wells will include grass-roots wells only and will exclude
re-entries of existing wells.
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3.2.1
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Election . On or before the date which is thirty (30)
days before the first (1 st ) day of each Calendar Quarter, the
Executive will provide notice to the Compensation Committee of the
Company’s Board of Directors of the Executive’s intent
to participate in Program Wells during the succeeding Calendar
Quarter and the minimum percentage working interest which the
Executive proposes to participate with during such Calendar Quarter
(the “Acquisition Percentage”). The Executive’s
elected Acquisition Percentage for any Calendar Quarter will not
exceed two and one-half percent (2.5%) on an eight-eighths (8/8ths)
basis. If prior to the date specified herein, the Executive fails
to provide notice of the Executive’s intent to participate or
of the Acquisition Percentage for a Calendar Quarter, the amount of
the Acquisition Percentage for the Calendar Quarter will be deemed
to be equal to the Acquisition Percentage for the immediately
preceding Calendar Quarter.
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3.2.2
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Amount of
Participation . On
election to participate and the designation of the Acquisition
Percentage for a Calendar Quarter, the Executive will be deemed to
have elected to participate in each Program Well spudded during
such Calendar Quarter with a working interest equal to the greater
of the following determined on a well-by-well basis (the
“Minimum Participation”): (a) the Acquisition
Percentage for such Program Well (as adjusted for any well under
paragraph 3.2.3); or (b) the Prior Interest of the Executive or the
Executive Affiliates in the drilling unit for such Program Well. If
the foregoing clause (a) is applicable to a Program Well, then the
Company will assign or allocate to the Executive or the designated
Executive Affiliate a unit working interest in the Program Well
sufficient to cause the Executive and the Executive
Affiliates’ combined interest in such Program Well to equal
the Acquisition Percentage (including in such computation any Prior
Interests). The interest to be assigned or allocated under this
paragraph to cause the Executive’s participation to be equal
to the Acquisition Percentage will be derived proportionately from
all the interests owned by the Company in the Program Wells
(including non-consenting interests, back-in interests, leased
royalty interests, overriding royalty interests or other similar
interests) so that the interests assigned or allocated to the
Executive are substantially similar to the interests retained by
the Company. If the Executive elects not to participate in Program
Wells during a Calendar Quarter, then the Executive can elect to
participate or not participate with any Prior Interests under the
existing agreements related to such Prior Interests.
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3.2.3
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Minimum
Company Working Interest Ownership Level . If the combined interests in a specific
Program Well to be assigned or allocated by the Company to the
Executive and Mr. Tom L. Ward under their respective employment
agreements causes the Company’s working interest (determined
after consideration of any carried or reversionary interests) on
the spud date for such Program Well to be less than twelve and
one-half percent (12.5%) on an eight-eighths (8/8ths) basis, then
the Acquisition Percentage for that Program Well will be equal to
zero for purposes of paragraph 3.2.2 of this Agreement. If this
paragraph 3.2.3 prohibits the Executive’s participation in a
Program Well, then Mr. Ward will also not be entitled to
participate in such Program Well under his employment
agreement.
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3.3
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Conditions
of Participation . The
Participation by the Executive in each Program Well will be on no
better terms than the terms agreed to by unaffiliated third party
participants in connection with the participation in such Program
Well or similar wells operated by the Company Entities. The
Acquisition Percentage cannot be changed during any Calendar
Quarter without the prior approval of the members of the
Compensation Committee of the Company’s board of directors.
Any participation by the Executive under paragraph 3.2 is also
conditioned on the Executive’s participation in each Program
Well spudded during such Calendar Quarter in an amount equal to the
Minimum Participation. The Executive hereby agrees to execute and
deliver any documents reasonably requested by the Company and
hereby appoints the Company as the Executive’s agent and
attorney-in-fact to execute and deliver such documents if the
Executive fails or refuses to execute such documents. The Executive
further agrees to pay all joint interest billings promptly after
receipt of the Company’s invoice in accordance with the
applicable joint operating agreement or, in the absence of an
applicable joint operating agreement, the standard joint operating
agreement used by the Company in the ordinary conduct of its
business.
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3.4
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Definitions . For purposes of this Agreement, the term: (a)
“Calendar Quarter” means the three (3) month periods
commencing on the first (1 st ) day of January, April, July and
October; (b) the term “Company Entities” means the
Company, any affiliate or successor to the Company, any entity
which controls, subsequently owns or is under common control with
the Company and any subsidiary corporation, partnership, limited
liability company or other entity owned by, controlled by or under
common control with any of the foregoing (whether direct or
indirect); and (c) “Participation Term” means the term
of this Agreement plus five (5) years after a termination under
paragraphs 6.1.1 or 6.3 of this Agreement.
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4. Executive’s Compensation . The
Company agrees to compensate the Executive as follows:
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4.1
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Base
Salary . A base salary
(the “Base Salary”), in an annual rate of not less than
Eight Hundred Thousand Dollars ($800,000.00), will be paid to the
Executive in equal semi-monthly installments, beginning January 15,
2004, during the term of this Agreement.
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4.2
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Bonus . In addition to the Base Salary described at
paragraph 4.1 of this Agreement, the Company may periodically pay
bonus compensation to the Executive. Any bonus compensation will be
at 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.
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4.3
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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 stock compensation plans, subject to
the terms and conditions thereof.
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4.4
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Benefits . The Company will provide the Executive such
retirement benefits, reimbursement of reasonable expenditures for
dues, travel and entertainment and other benefits on terms
customarily provided by the Company from time to time. 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 following specific benefits will
also be provided to the Executive at the expense of the
Company:
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4.4.1
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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. 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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4.4.2
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Membership Dues
. The Company will reimburse the
Executive for: (a) the monthly dues necessary to maintain a full
membership in (1) golf and/or country club in the Oklahoma City
area selected by the Executive; and (b) the reasonable cost of any
qualified business entertainment at such country club. All other
costs, including, without implied limitation, any initiation costs,
initial membership costs, personal use and business entertainment
unrelated to the Company
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will be the sole obligation of
the Executive and the Company will have no liability with respect
to such amounts.
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4.4.3
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Travel . The Executive will receive a monthly cash
allowance in the amount of Two Thousand Dollars ($2,000.00) to
defer a portion of the Executive’s cost of acquiring,
operating and maintaining an automobile for use in the
Executive’s employment. Additionally, for safety and security
reasons, the Executive will be required to utilize aircraft owned
or leased by the Company for business and personal use in the
Western Hemisphere (including North America, South America and the
surrounding oceans) and will not be required to reimburse the
Company for any cost related to such use. In addition, the
Executive’s immediate family members may use such company
aircraft for their personal use to the same extent. When a family
member travels without the Executive, then the Executive agrees to
reimburse the company for the variable costs of such use. For
purposes of this Agreement, the variable cost of using the
Company’s aircraft means the variable costs directly
identifiable with each use (including fuel, pilot charges, landing
fees, hourly charges under co-ownership arrangements and other such
costs), but specifically excluding any fixed costs of the aircraft
(including acquisition costs and depreciation). The Executive will
pay all personal income taxes accruing as a result of the personal
use of the Company’s aircraft by the Executive under this
paragraph.
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4.4.4
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Accounting
Support . The Executive
will be permitted to utilize the Company’s office space,
computer facilities and personnel to provide accounting services,
records maintenance and tax advice and tax return preparation for
the Executive’s (and his family’s) personal business
investments and activities. The Executive will not be required to
pay any amount to the Company in connection with such accounting
support.
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4.5
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Gross-Up Payment
. In the event it is determined that
any payment or distribution by the Company or the Company Entities
to or for the benefit of the Executive (whether paid or payable or
distributed or distributable pursuant to the terms of this
Agreement or otherwise, but determined without regard to any
additional payments required under this paragraph 4.5) (a
“Payment”) is subject to the excise tax imposed by
Section 4999 of the Internal Revenue Code (the “Code”)
or any interest or penalties related to such excise tax
(collectively, the “Excise Tax”), the Executive will be
entitled to receive an additional payment (a “Gross-Up
Payment”) from the Company. The Gross-Up Payment will be
equal to the amount such that after payment by the Executive of all
taxes (including the Excise Tax, income taxes, interest and
penalties imposed with respect to such taxes) on the
Gross-Up
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Payment, the Executive will
retain an amount of the Gross-Up Payment equal to the Excise Tax
imposed on the Payment.
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4.5.1
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Determination . Subject to the provisions of paragraph 4.5.2
all determinations required to be made under this paragraph 4.5
(including whether and when a Gross-Up Payment is required, the
amount of such Gross-Up Payment and the assumptions to be utilized)
will be made by a nationally recognized certified public accounting
firm designated by the Executive (the “Accounting
Firm”). The Accounting Firm will provide detailed supporting
calculations both to the Company and the Executive within fifteen
(15) business days of the receipt of notice from the Executive that
there has been a Payment, or such earlier time as is reasonably
requested by the Company. In the event that the Accounting Firm is
serving as accountant or auditor for the individual, entity or
group effecting a Change of Control (as hereinafter defined), the
Executive will be entitled to appoint another nationally recognized
accounting firm to make the determinations required under this
paragraph (which accounting firm will then be referred to as the
Accounting Firm hereunder). All fees and expenses of the Accounting
Firm will be paid by the Company. Any Gross-Up Payment required to
be paid under this paragraph 4.5 will be paid by the Company to the
Executive within five (5) days
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