Exhibit 10.2.1

 

 

AMENDED AND RESTATED

 

EMPLOYMENT AGREEMENT

 

THIS AGREEMENT is made effective January 1, 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 Employment
Agreement dated effective October 1, 2007, (the “Prior Agreement”);

 

WHEREAS, the Company and the Executive desire to amend and restate the Prior
Agreement in its entirety to reflect the 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.

 

 

2.1

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.

 

2.2

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.

 

 

2.3

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.

 

 

2.4

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
after the date of this Agreement the price paid by the Executive for such
shares; (b) for shares acquired after the date of this Agreement 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 shares acquired prior to
the date of this Agreement, 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

 

-2-

 

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.

 

3.           Other Activities. Except for the activities (the “Permitted
Activities”) permitted under paragraphs 3.1, 3.2 and 3.3 of this Agreement 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 limitations in this paragraph 3 will not prohibit an investment
by the Executive in publicly traded securities. 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.

 

 

3.1

Surface Interests and Gifts. The foregoing restriction in clause (c) will not
prohibit the ownership of (a) the interests in oil and gas described therein
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 or 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 the surface estate.

 

 

3.2

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

 

-3-

 

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”).

 

 

3.3

FWP Program. The Executive or the designated Executive 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.

 

4.           Executive's Compensation. The Company agrees to compensate the
Executive as follows:

 

 

4.1

Base Salary. A base salary (the "Base Salary"), in 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 July 1, 2007 during the
term of this Agreement.

 

 

4.2

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.

 

 

4.3

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.

 

 

4.4

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

 

-4-

 

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.

 

 

4.5

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.

 

 

4.6

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.

 

 

4.7

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, 2007, the Executive agrees to pay to the Company as a
partial reimbursement an amount equal to: (a) direct costs for each Company
employee primarily designated to provide services under this paragraph
(consisting of cash salaries, cash bonuses, contributions to retirement and
deferred compensation plans, un-reimbursed insurance premiums for the benefit of
the employee 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's
will not be required to be reimbursed in whole or part under this paragraph.

 

 

4.5

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
paragraph 4 of this Agreement (including benefits) may be

 

-5-

 

increased at the discretion of the Compensation Committee of the Board of
Directors of the Company, but may not be reduced without the prior written
consent of the Executive except as expressly provided herein. Notwithstanding
the foregoing, the Board of Directors may reduce the amounts or awards under
paragraph 4.2 or 4.3 of this Agreement on a reasonable basis provided such
decrease is applicable to all executives of the Company and does not result in a
proportionately greater reduction in the amounts or awards to Executive under
such paragraphs as compared to any other executive of the Company or any of the
Company's subsidiaries.

 

5.           Term. In the absence of termination as set forth in paragraph 6
below, this Agreement will extend for a term commencing on the effective date of
this Agreement and ending on December 31, 2012, as extended from time to time
(the "Expiration Date"). Unless the Company provides at least thirty (30) days
prior written notice of non-extension to the Executive, on each December 31
during the term of this Agreement, the term and the Expiration Date will be
automatically extended for one (1) additional year so that the remaining term on
this Agreement will be not less than four (4) and not more than five (5) years.

 

6.           Termination. This Agreement will continue in effect until the
expiration of the term set forth in paragraph 5 of this Agreement unless earlier
terminated pursuant to this paragraph 6.

 

 

6.1

Termination by Company. The Company will have the following rights to terminate
this Agreement:

 

 

6.1.1

Termination without Cause. The Company may terminate this Agreement without
Cause at any time by the service of written notice of termination to the
Executive specifying an effective date of such termination not sooner than
ninety (90) business days after the date of such notice (the "Termination
Date"). In the event the Executive is terminated without Cause (other than a CC
Termination under paragraph 6.3 of this Agreement), the Executive will be
entitled to the following: (a) payment of Base Compensation (as hereafter
defined) in accordance with the Company's policies during the remaining term of
this Agreement, but in any event through the then current Expiration Date; (b)
excepting participation in any retirement or deferred compensation plan
maintained by the Company, continuation of the benefits provided by operation of
paragraphs 4.4, 4.6 and 4.7 of this Agreement at the levels and on the terms
provided on the date of termination hereunder, during the remaining term of this
Agreement, but in any event through the then current Expiration Date; and (c) a
lump sum cash payment for any accrued but unused vacation through the
Termination Date in accordance with the Company’s Employment Policies Manual.
For purposes of this

 

-6-

 

Agreement the term "Base Compensation" means the Executive's current Base Salary
under paragraph 4.1 on the Termination Date plus the bonus compensation received
by the Executive during the twelve (12) month period preceding the Termination
Date. Termination compensation under subsection (a) of this paragraph 6.1.1 will
be paid in accordance with the Company’s then current payroll schedule and any
benefits will be subject to any conditions or obligations in existence at on the
Termination Date.

 

 

6.1.2

Termination for Cause. The Company may terminate this Agreement for Cause. For
purposes of this Agreement, “Cause” means: (a) the willful and continued failure
of the Executive to perform substantially the Executive’s duties with the
Company or one of the Company Entities (other than a failure resulting from
incapacity due to physical or mental illness), after a written demand for
substantial performance is delivered to the Executive by the Board of Directors
which specifically identifies the manner in which the Board of Directors
believes that the Executive has not substantially performed the Executive’s
duties; or (b) the willful engaging by the Executive in illegal conduct, gross
misconduct or a clearly established violation of the Company’s written policies
and procedures, in each case which is materially and demonstrably injurious to
the Company. For purposes of this provision, an act or failure to act, on the
part of the Executive, will not be considered “willful” unless it is done, or
omitted to be done, by the Executive in bad faith or without reasonable belief
that the Executive’s action or omission was in the best interests of the
Company. Any act, or failure to act, based on authority given pursuant to a
resolution duly adopted by the Board of Directors or based on the advice of
counsel for the Company will be conclusively presumed to be done, or omitted to
be done, by the Executive in good faith and in the best interests of the
Company. In the event this Agreement is terminated for Cause, the Company will
not have any obligation to provide any further payments or benefits to the
Executive after the effective date of such termination. This Agreement will not
be deemed to have terminated for Cause unless a written determination specifying
the reasons for such termination is made, approved by a majority of the
independent and disinterested members of the Board of Directors of the Company
and delivered to the Executive. Thereafter, the Executive will have the right
for a period of thirty (30) days to request a Board of Directors meeting to be
held at a mutually agreeable time and location to be attended by the members of
the Board of Directors in person within the following thirty (30) days, at which
meeting the Executive will have an opportunity to be heard. Failing such
determination and opportunity for hearing, any

 

-7-

 

termination of this Agreement will be deemed to have occurred without Cause.

 

 

6.2

Termination by Executive. The Executive may voluntarily terminate this Agreement
with or without Cause by the service of written notice of such termination to
the Company specifying an effective date of such termination ninety (90) days
after the date of such notice, during which time the Executive may use remaining
accrued vacation days, or at the Company’s option, be paid for such days. In the
event this Agreement is terminated by the Executive, neither the Company nor the
Executive will have any further obligations hereunder including, without
limitation, any obligation of the Company to provide any further payments or
benefits to the Executive after the effective date of such termination.

 

 

6.3

Termination After Change in Control. If during the term of this Agreement there
is a "Change of Control" and within three (3) years thereafter there is a CC
Termination (as hereafter defined), then the Executive will be entitled to a
severance payment (in addition to any other rights and other amounts payable to
the Executive under this Agreement or otherwise through the date of the CC
Termination) in an amount equal to three (3) times the Executive's Base
Compensation. If the foregoing amount is not paid within ten (10) days after the
CC Termination, the unpaid amount will bear interest at the per annum rate of
12%.

 

 

6.3.1

Change of Control. For the purpose of this Agreement, a “Change of Control”
means the occurrence of any of the following:

 

(a) The acquisition by any individual, entity or group (within the meaning of
Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended
(the “Exchange Act”)) (a “Person”) of beneficial ownership (within the meaning
of Rule 13d-3 promulgated under the Exchange Act) of 30% or more of either (i)
the then outstanding shares of common stock of the Company (the “Outstanding
Company Common Stock”) or (ii) the combined voting power of the then outstanding
voting securities of the Company entitled to vote generally in the election of
directors (the “Outstanding Company Voting Securities”). For purposes of this
paragraph (a) the following acquisitions by a Person will not constitute a
Change of Control: (i) any acquisition directly from the Company; (ii) any
acquisition by the Company; (iii) any acquisition by any employee benefit plan
(or related trust) sponsored or maintained by the Company or any corporation
controlled by the Company; or (iv) any acquisition by any corporation pursuant
to a transaction which complies with clauses (i), (ii) and (iii) of paragraph
(c) of this paragraph 6.3.1.

 

-8-

 

 

(b) The individuals who, as of the date hereof, constitute the Board of
Directors (the “Incumbent Board”) cease for any reason to constitute at least a
majority of the Board of Directors. Any individual becoming a director
subsequent to the date hereof whose election, or nomination for election by the
Company’s shareholders, is approved by a vote of at least a majority of the
directors then comprising the Incumbent Board will be considered a member of the
Incumbent Board as of the date hereof, but any such individual whose initial
assumption of office occurs as a result of an actual or threatened election
contest with respect to the election or removal of directors or other actual or
threatened solicitation of proxies or consents by or on behalf of a Person other
than the Incumbent Board will not be deemed a member of the Incumbent Board as
of the date hereof.

 

(c) The consummation of a reorganization, merger, consolidation or sale or other
disposition of all or substantially all of the assets of the Company (a
“Business Combination”), unless following such Business Combination: (i) all or
substantially all of the individuals and entities who were the beneficial
owners, respectively, of the Outstanding Company Common Stock and Outstanding
Company Voting Securities immediately prior to such Business Combination
beneficially own, directly or indirectly, more than 60% of, respectively, the
then outstanding shares of common stock and the combined voting power of the
then outstanding voting securities entitled to vote generally in the election of
directors, as the case may be, of the corporation resulting from such Business
Combination (including, without limitation, a corporation which as a result of
such transaction owns the Company or all or substantially all of the Company’s
assets either directly or through one or more subsidiaries) in substantially the
same proportions as their ownership, immediately prior to such Business
Combination of the Outstanding Company Common Stock and Outstanding Company
Voting Securities, as the case may be, (ii) no Person (excluding any corporation
resulting from such Business Combination or any employee benefit plan (or
related trust) of the Company or such corporation resulting from such Business
Combination) beneficially owns, directly or indirectly, 30% or more of,
respectively, the then outstanding shares of common stock of the corporation
resulting from such Business Combination or the combined voting power of the
then outstanding voting securities of such corporation except to the extent that
such ownership existed prior to the Business Combination and (iii) at least a
majority of the members of the board of directors of the corporation resulting
from such Business Combination were members of the Incumbent Board at the time
of the execution of the initial agreement, or of the action of

 

-9-

 

the Board, providing for such Business Combination.

 

(d)    The approval by the shareholders of the Company of a complete liquidation
or dissolution of the Company.

 

 

6.3.2

CC Termination. The term "CC Termination" means any of the following which occur
and for which the Executive notifies the Company that the Executive deems such
action a CC Termination under this paragraph: (a) this Agreement expires in
accordance with its terms; (b) this Agreement is not extended under paragraph 5
of this Agreement and the Executive resigns within one (1) year after such
non-extension; (c) a required relocation more than 25 miles from the Executive’s
then current place of employment; (c) a default by the Company under this
Agreement; (d) the failure by the Company after a Change of Control to obtain
the assumption of this Agreement, without limitation or reduction, by any
successor to the Company or any parent corporation of the Company; or (e) after
a Change of Control has occurred, the Executive agrees to remain employed by the
Company for a period of three (3) months to assist in the transition and
thereafter resigns.

 

 

6.4

Incapacity of Executive. If the Executive suffers from a physical or mental
condition, which in the reasonable judgment of the Company's Board of Directors,
prevents the Executive in whole or in part from performing the duties specified
herein for a period of four (4) consecutive months, the Executive may be
terminated. Although the termination will be deemed as a termination with Cause,
the Executive will be entitled to the compensation provided for in paragraph
6.1.1 of this Agreement with Base Compensation to be reduced by any benefits
payable under any disability plans provided to the Executive at the Company's
expense.

 

 

6.5

Death of Executive. If the Executive dies during the term of this Agreement, the
Company may thereafter terminate this Agreement without compensation to the
Executive's estate except the Company will be obligated to continue for twelve
(12) months after the effective date of such termination to: (a) pay the Base
Salary payments under paragraph 4.1 of this Agreement; and (b) provide
Accounting Support benefits under paragraph 4.7 of this Agreement.

 

 

6.6

Effect of Termination. The termination of this Agreement will terminate all
obligations of the Executive to render services on behalf of the Company,
provided that the Executive will maintain the confidentiality of all information
acquired by the Executive during the term of his employment in accordance with
paragraph 7 of this Agreement. Except as otherwise provided in this paragraph 6,
no accrued bonus, severance pay or other form of compensation will be payable by
the Company to the Executive by reason of

 

-10-

 

the termination of this Agreement. In the event that payments are required to be
made by the Company under this paragraph 6, the Executive will not be required
to seek other employment as a means of mitigating the Company’s obligations
hereunder resulting from termination of the Executive’s employment and the
Company’s obligations hereunder (including payment of severance benefits) will
not be terminated, reduced or modified as a result of the Executive’s earnings
from other employment or self-employment. All keys, entry cards, credit cards,
files, records, financial information, furniture, furnishings, equipment,
supplies and other items relating to the Company will remain the property of the
Company. The Executive will have the right to retain and remove all personal
property and effects that are owned by the Executive and located in the offices
of the Company. All such personal items will be removed from such offices no
later than sixty (60) days after the effective date of termination, and the
Company is hereby authorized to discard any items remaining and to reassign the
Executive's office space after such date. Prior to the effective date of
termination, the Executive will cooperate with the Company to provide for the
orderly termination of the Executive's employment.

 

 

6.7

Equity Compensation and Non-Qualified Deferred Compensation Plan Provisions.
Notwithstanding any provision to the contrary in any option agreement,
restricted stock agreement, plan or other agreement relating to equity based
compensation or non-qualified deferred compensation benefits, in the event of a
termination under paragraph 6.1.1, 6.2 (but only if the Executive is at least 55
years of age on the date of termination under paragraph 6.2), 6.4 or 6.5 of this
Agreement: (a) all units, stock options, incentive stock options, supplemental
matching contributions, performance shares, stock appreciation rights and
restricted stock held by Executive immediately prior to such termination will
immediately become 100% vested; and (b) the Executive's right to exercise any
previously unexercised options will not terminate until the latest date on which
such option would expire but for Executive's termination of employment. To the
extent Company is unable to provide for one or both of the foregoing rights the
Company will provide in lieu thereof a lump-sum cash payment equal to the
difference between the total value of such units, stock options, incentive stock
options, supplemental matching contributions, performance shares, stock
appreciation rights and shares of restricted stock (the "Equity Compensation
Rights") with the foregoing rights as of the date of Executive's termination of
employment and the total value of the Equity Compensation without the foregoing
rights as of the date of the Executive's termination of employment. The
foregoing amounts will be determined by the Board of Directors in good faith
after consultation with the Executive based on a valuation performed by an
independent consultant selected by the Board of Directors.

 

-11-

 

7.           Confidentiality. The Executive recognizes that the nature of the
Executive’s services are such that the Executive will have access to information
which constitutes trade secrets, is of a confidential nature, is of great value
to the Company or is the foundation on which the business of the Company is
predicated. The Executive agrees not to disclose to any person other than the
Company's employees or the Company's legal counsel nor use for any purpose,
other than the performance of this Agreement, any confidential information
(“Confidential Information”). Confidential Information includes data or material
(regardless of form) which is: (a) a trade secret; (b) provided, disclosed or
delivered to Executive by the Company, any officer, director, employee, agent,
attorney, accountant, consultant, or other person or entity employed by the
Company in any capacity, any customer, borrower or business associate of the
Company or any public authority having jurisdiction over the Company of any
business activity conducted by the Company; or (c) produced, developed, obtained
or prepared by or on behalf of Executive or the Company (whether or not such
information was developed in the performance of this Agreement) with respect to
the Company or any assets oil and gas prospects, business activities, officers,
directors, employees, borrowers or customers of the foregoing. However,
Confidential Information will not include any information, data or material
which at the time of disclosure or use was generally available to the public
other than by a breach of this Agreement, was available to the party to whom
disclosed on a non-confidential basis by disclosure or access provided by the
Company or a third party, or was otherwise developed or obtained independently
by the person to whom disclosed without a breach of this Agreement. On request
by the Company, the Company will be entitled to a copy of any Confidential
Information in the possession of the Executive. The Executive also agrees that
the provisions of this paragraph 7 will survive the termination, expiration or
cancellation of this Agreement for a period of one (1) year. The Executive will
deliver to the Company all originals and copies of the documents or materials
containing Confidential Information. For purposes of paragraphs 7, 8, and 9 of
this Agreement, the Company expressly includes any of the Company Entities.

 

8.           Non-competition. During the Executive's employment hereunder and
for the period ending six months after the Executive’s termination in accordance
with this Agreement, the Executive will not: (a) acquire, attempt to acquire or
aid another in the acquisition or attempted acquisition of an interest in oil
and gas assets, oil and gas production, oil and gas leases, minerals interests,
oil and gas wells or other such oil and gas exploration, development or
production activities within any spacing unit in which the Company owns an oil
an gas interest on the date of the resignation or termination of the Executive;
(b) solicit, induce, entice or attempt to entice any employee, contractor,
customer, vendor or subcontractor to terminate or breach any relationship with
the Company or the Company’s affiliates for the Executive’s own account or for
the benefit of another party; and (c) circumvent or attempt to circumvent the
foregoing agreements by any future arrangement or through the actions of a third
party. The foregoing will not prohibit the activities which are expressly
permitted by paragraph 3 of this Agreement.

 

9.           Proprietary Matters. The Executive expressly understands and agrees
that any and all improvements, inventions, discoveries, processes or know-how
that are generated or conceived by the Executive during the term of this
Agreement, whether generated or

 

-12-

 

conceived during the Executive's regular working hours or otherwise, will be the
sole and exclusive property of the Company. Whenever requested by the Company
(either during the term of this Agreement or thereafter), the Executive will
assign or execute any and all applications, assignments and or other instruments
and do all things which the Company deems necessary or appropriate in order to
permit the Company to: (a) assign and convey or otherwise make available to the
Company the sole and exclusive right, title, and interest in and to said
improvements, inventions, discoveries, processes, know-how, applications,
patents, copyrights, trade names or trademarks; or (b) apply for, obtain,
maintain, enforce and defend patents, copyrights, trade names, or trademarks of
the United States or of foreign countries for said improvements, inventions,
discoveries, processes or know-how. However, the improvements, inventions,
discoveries, processes or know-how generated or conceived by the Executive and
referred to above (except as they may be included in the patents, copyrights or
registered trade names or trademarks of the Company, or corporations,
partnerships or other entities which may be affiliated with the Company) will
not be exclusive property of the Company at any time after having been disclosed
or revealed or have otherwise become available to the public or to a third party
on a non-confidential basis other than by a breach of this Agreement, or after
they have been independently developed or discussed without a breach of this
Agreement by a third party who has no obligation to the Company or the Company
Entities.

 

10.         Arbitration. The parties will attempt to promptly resolve any
dispute or controversy arising out of or relating to this Agreement or
termination of the Executive by the Company. Any negotiations pursuant to this
paragraph 10 are confidential and will be treated as compromise and settlement
negotiations for all purposes. If the parties are unable to reach a settlement
amicably, the dispute will be submitted to binding arbitration before a single
arbitrator in accordance with the Employment Dispute Resolution Rules of the
American Arbitration Association. The arbitrator will be instructed and
empowered to take reasonable steps to expedite the arbitration and the
arbitrator's judgment will be final and binding upon the parties subject solely
to challenge on the grounds of fraud or gross misconduct. Except for damages
arising out of a breach of paragraphs 6, 7, 8 or 9 of this Agreement, the
arbitrator is not empowered to award total damages (including compensatory
damages) that exceed 300% of compensatory damages and each party hereby
irrevocably waives any damages in excess of that amount. The arbitration will be
held in Oklahoma County, Oklahoma. Judgment upon any verdict in arbitration may
be entered in any court of competent jurisdiction and the parties hereby consent
to the jurisdiction of, and proper venue in, the federal and state courts
located in Oklahoma County, Oklahoma. The Company will pay the costs and
expenses of the arbitration including, without implied limitation, the fees for
the arbitrators. Unless otherwise expressly set forth in this Agreement, the
procedures specified in this paragraph 10 will be the sole and exclusive
procedures for the resolution of disputes and controversies between the parties
arising out of or relating to this Agreement. Notwithstanding the foregoing, a
party may seek a preliminary injunction or other provisional judicial relief if
in such party's judgment such action is necessary to avoid irreparable damage or
to preserve the status quo.

 

-13-

 

11.

Miscellaneous. The parties further agree as follows:

 

 

11.1

Time.

Time is of the essence of each provision of this Agreement.

 

 

11.2

Notices. Any notice, payment, demand or communication required or permitted to
be given by any provision of this Agreement will be in writing and will be
deemed to have been given when delivered personally or by telefacsimile to the
party designated to receive such notice, or on the date following the day sent
by overnight courier, or on the third (3rd) business day after the same is sent
by certified mail, postage and charges prepaid, directed to the following
address or to such other or additional addresses as any party might designate by
written notice to the other party:

 

 

To the Company:

Chesapeake Energy Corporation

Post Office Box 18496

 

Oklahoma City, OK

73154-0496

Attn: Jennifer M. Grigsby

 

 

To the Executive:

Mr. Aubrey K. McClendon

6902 Avondale Drive

Oklahoma City, Oklahoma 73116

 

 

11.3

Assignment. Neither this Agreement nor any of the parties' rights or obligations
hereunder can be transferred or assigned without the prior written consent of
the other parties to this Agreement.

 

 

11.4

Construction. If any provision of this Agreement or the application thereof to
any person or circumstances is determined, to any extent, to be invalid or
unenforceable, the remainder of this Agreement, or the application of such
provision to persons or circumstances other than those as to which the same is
held invalid or unenforceable, will not be affected thereby, and each term and
provision of this Agreement will be valid and enforceable to the fullest extent
permitted by law. This Agreement is intended to be interpreted, construed and
enforced in accordance with the laws of the State of Oklahoma.

 

 

11.5

Entire Agreement. Except as provided in paragraph 2.3 of this Agreement, this
Agreement constitutes the entire agreement between the parties hereto with
respect to the subject matter herein contained, and no modification hereof will
be effective unless made by a supplemental written agreement executed by all of
the parties hereto.

 

 

11.6

Binding Effect. This Agreement will be binding on the parties and their
respective successors, legal representatives and permitted assigns. In the event
of a merger, consolidation, combination, dissolution or liquidation of

 

-14-

 

the Company, the performance of this Agreement will be assumed by any entity
which succeeds to or is transferred the business of the Company as a result
thereof.

 

 

11.7

Attorneys' Fees. If any party institutes an action, proceeding or arbitration
against any other party relating to the provisions of this Agreement or any
default hereunder, the Company will be responsible for paying the Company’s
legal fees and expenses and the Company will be required to reimburse the
Executive for reasonable expenses and legal fees incurred by the Executive in
connection with the resolution of such action or proceeding, including any costs
of appeal.

 

 

11.8

Supercession. This Agreement is the final, complete and exclusive expression of
the agreement between the Company and the Executive and supersedes and replaces
in all respects any prior employment agreements (including the Prior Agreement).
On execution of this Agreement by the Company and the Executive, the
relationship between the Company and the Executive after the effective date of
this Agreement will be governed by the terms of this Agreement and not by any
other agreements, oral or otherwise.

 

 

11.9

Section 409A Compliance. This Agreement is intended to comply with Section 409A
of the Code and will be construed in accordance with such intent. To the extent
that any benefit to be paid or granted under this Agreement is subject to
Section 409A of the Code, such benefit will be paid or granted in a manner that
will comply with Section 409A of the Code (including any Section 409A guidance
reasonably acceptable to both parties). Any provision of this Agreement that
would cause a benefit to fail to satisfy Section 409A of the Code will have no
force or effect until amended to comply with Section 409A of the Code (which
amendment may be retroactive to the extent permitted by Section 409A of the
Code).

 

IN WITNESS WHEREOF, the undersigned have executed this Agreement effective the
date first above written.

 

CHESAPEAKE ENERGY CORPORATION, an

Oklahoma corporation

 

By:__________________________________

 

Jennifer M. Grigsby, Senior Vice

 

President, Treasurer and Corporate Secretary

 

 

(the "Company")

 

 

-15-

 

By:____________________________________

 

Aubrey K. McClendon, individually

 

 

(the "Executive")

 

 

-16-