Item 5.02 Departure of Directors or
Certain Officers; Election of Directors; Appointment of Certain Officers; Compensatory Arrangements of Certain Officers.
On
February 2, 2021, Whiting Petroleum Corporation (the “Company”, “we”, “us” or “our”)
made changes to its executive compensation program designed to implement an industry-leading compensation structure that aligns
earned payments with shareholder interests. Relative to historical industry practice, the new structure prioritizes greater alignment
with absolute returns to shareholders and places a greater emphasis on bottom line cash generation.
Key
features of the new compensation structure include:
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Short-term incentive metrics focused on returns and long-term cash generation;
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Mandatory stock settlement for our CEO, CFO and COO of any portion of the short-term incentive
paid above-target;
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Long-term incentives heavily weighted toward performance-based awards (70% for our CEO, 60% for
our CFO and COO);
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Use of absolute total stockholder return as the sole performance metric for a significant portion
of our performance-based long-term incentives;
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Elimination of cash severance for our CEO, CFO and COO except in the event of a change in control;
and
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In the event of a change in control, payment of one third of the CEO severance will be in stock
with a mandatory post-termination holding period.
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Changes
to the compensation structure for Lynn A. Peterson, the Company’s Chief Executive Officer, James P. Henderson, the Company’s
Chief Financial Officer, and Charles J. Rimer, the Company’s Chief Operating Officer, are summarized below.
Short-term
incentive
Amounts
that may be earned by the executive officers in respect of their 2021 short-term incentive will be based on free cash flow, operating
efficiency, sustainability, maintenance of production levels and achievement of strategic goals (which relate to balance sheet
management, inventory management, human capital management and absolute total share return (“TSR”)). Short-term incentive
amounts, if any, in excess of target will be payable in stock, with no minimum holding period, for Mr. Peterson, Mr. Henderson,
and Mr. Rimer.
Following
are the 2021 short-term incentive opportunities for Messrs. Peterson, Henderson, and Rimer, expressed as a percentage of base salary:
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Threshold
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Target
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Maximum
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Mr. Peterson
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50
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%
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100
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%
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200
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%
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Mr. Henderson
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50
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%
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85
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%
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150
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%
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Mr. Rimer
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50
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%
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85
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%
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150
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%
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Long-term incentive
Awards
pursuant to the Company’s long-term incentive program were made in a combination of restricted stock units (“RSUs”)
and performance stock units (“PSUs”). Seventy percent (70%) of Mr. Peterson’s long-term incentive consists of
PSUs, and PSUs constitute sixty percent (60%) of the long-term incentive for Mr. Henderson and Mr. Rimer. The RSUs vest in three
equal annual tranches over an approximately three-year period. The PSUs will vest at the end of a three-year performance period
from 0% to 200% of target based on the Company’s absolute and relative TSR over the period. For the relative TSR PSUs, which
constitute one-half (1/2) of the PSUs, target payout at 100% is achieved only if the Company’s relative TSR is at the 60th
percentile of the peer group, and a relative TSR performance at or above the 90th percentile of the Company’s
peer group will result in a 200% payout. Relative TSR performance at the 30th percentile will result in a 50% payout,
and performance below the 30th percentile will result in a 0% vesting. For the absolute TSR PSUs, which constitute the
remaining one-half (1/2) of the PSUs, if the Company’s TSR is at or above 20% annualized over the performance period, the
PSUs will vest at 200%, if the Company’s TSR is below negative 20% annualized over the performance period, 0% of the PSUs
will vest, and if the Company’s TSR is 0% annualized over the performance period, 75% of the PSUs will vest. For both absolute
and relative TSR PSUs, achievement between any of the enumerated levels will result in an interpolated payout.
The
following 2021 long-term incentive awards were made to Messrs. Peterson, Henderson, and Rimer:
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RSUs
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Absolute TSR PSUs
(Target)
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Relative TSR
PSUs
(Target)
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Mr. Peterson
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48,662
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56,772
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56,772
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Mr. Henderson
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24,331
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18,248
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18,248
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Mr. Rimer
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24,331
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18,248
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18,248
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In
addition to the long-term incentive grants described above, Messrs. Peterson, Henderson, and Rimer also each received a one-time
grant of RSUs that cliff vests after five (5) years, in the following amounts: Mr. Peterson – 52,716 RSUs, Mr. Henderson
– 31,883 RSUs, and Mr. Rimer – 33,008 RSUs.
Employment
agreements
Each
executive officer entered into an amended employment agreement. Among other things, the amended agreements (i) eliminate severance
outside of a change in control context, (ii) shorten the period during which the executive has to provide notice of the existence
of a condition constituting “Good Reason” under the agreement from 60 to 30 days (iii) provide for cash severance upon
a termination without cause or for good reason only in connection with a change in control, equal to two times annual salary and
bonus, (iv) provide for post-termination welfare coverage in certain circumstances for up to 18 months (24 months for Mr. Peterson)
and (v) entitle executives to a pro-rated bonus for the year of employment termination under certain circumstances. In addition,
Mr. Peterson’s amended employment agreement provides for an additional severance amount payable in stock upon a termination
without cause or for good reason in connection with a change in control, equal in value to his annual salary and bonus.