<PAGE> 1
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A
(AMENDMENT NO. 1)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED)
FOR THE FISCAL YEAR ENDED JUNE 30, 1996
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES ACT OF 1934 (NO FEE REQUIRED)
Commission File Number: 1-13726
CHESAPEAKE ENERGY CORPORATION
(Exact Name of Registrant as Specified in Its Charter)
DELAWARE 73-1395733
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
6100 NORTH WESTERN AVENUE 73118
OKLAHOMA CITY, OKLAHOMA (Zip Code)
(Address of principal executive offices)
(405) 848-8000
Registrant's telephone number, including area code
Securities registered pursuant to Section 12(b) of the Act:
<TABLE>
<CAPTION>
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
- ------------------------------------ -------------------------------
<S> <C>
Common Stock, par value $.10 New York Stock Exchange
9.125% Senior Notes due 2006 New York Stock Exchange
</TABLE>
Securities registered pursuant to Section 12(g) of the Act:
NONE
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES [X] NO [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendments to
this Form 10-K. [X]
The aggregate market value of Common Stock held by non-affiliates on
October 25, 1996 was $916,467,336. At such date, there were 30,128,321 shares of
Common Stock issued and outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
None
================================================================================
<PAGE> 2
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
INFORMATION REGARDING DIRECTORS
Pursuant to provisions of the Company's Certificate of Incorporation and
Bylaws, the Board of Directors has fixed the number of directors at seven. The
Company's Certificate of Incorporation and Bylaws provide for three classes of
directors serving staggered three-year terms, with each class to be as nearly
equal in number as possible. The Board of Directors has nominated Aubrey K.
McClendon and Shannon T. Self for re-election as directors at the Company's
annual meeting of shareholders scheduled to be held on December 13, 1996. If re-
elected, their terms will expire at the 1999 annual meeting. The following
information is furnished for each person who is a director of the Company.
NOMINEES FOR RE-ELECTION AS DIRECTORS FOR TERMS EXPIRING IN 1999
Aubrey K. McClendon, age 37, has served as Chairman of the Board, Chief
Executive Officer and director of the Company since its inception. From 1982 to
1989, Mr. McClendon was an independent producer of oil and gas in affiliation
with Tom L. Ward, the Company's President and Chief Operating Officer. Mr.
McClendon is a member of the Board of Visitors of the Fuqua School of Business
at Duke University, an Executive Committee member of the Texas Independent
Producers and Royalty Owners Association, a director of Oklahoma Independent
Petroleum Association, and a director of the Louisiana Independent Oil and Gas
Association. Mr. McClendon is a 1981 graduate of Duke University.
Shannon T. Self, age 40, was an advisory director of the Company from June
1992 to February 1993 when he became a director. He is a shareholder of Self,
Giddens & Lees, Inc., Attorneys at Law, in Oklahoma City, Oklahoma, which he
co-founded in 1991. Mr. Self was an associate and shareholder in the law firm of
Hastie and Kirschner, Oklahoma City, from 1984 to 1991 and was employed by
Arthur Young & Co. from 1979 to 1980. Mr. Self is a Certified Public Accountant.
He graduated from the University of Oklahoma in 1979 and from Northwestern
University Law School in 1984.
DIRECTORS WHOSE TERMS EXPIRE IN 1997
Breene M. Kerr, age 67, was an advisory director of the Company from June
1992 to February 1993 when he became a director. In 1969, he founded Kerr
Consolidated, Inc. and remains Chairman and President of this private company
with investments in the oil and gas and trucking industries. Additionally, in
1969, Mr. Kerr co-founded the Resource Analysis and Management Group and
remained its senior partner until 1982. From 1967 to 1969, he was Vice President
of Kerr-McGee Chemical Corporation. From 1951 through 1967, Mr. Kerr worked for
Kerr-McGee Corporation as a geologist and land manager. Mr. Kerr has served as
chairman of the Investment Committee for the Massachusetts Institute of
Technology and is a life member of the Corporation (Board of Trustees) of that
university. He served as a director of Kerr-McGee Corporation from 1957 to 1981.
Mr. Kerr currently is a trustee and serves on the Investment Committee of the
Brookings Institute in Washington, D.C., and has been an associate director
since 1987 of Aven Gas & Oil, Inc., an oil and gas property management company
located in Oklahoma City. Mr. Kerr graduated in 1951 from the Massachusetts
Institute of Technology.
Walter C. Wilson, age 61, was an advisory director of the Company from June
1992 to February 1993 when he became a director. From 1963 to 1974 and from 1978
to the present, Mr. Wilson has been a general agent with Massachusetts Mutual
Life Insurance Company, and currently serves as President of Massachusetts
Mutual Life Insurance Agency of Texas, Inc. From 1974 to 1978, Mr. Wilson was
Senior Vice President of Massachusetts Mutual Life Insurance Company. Mr. Wilson
is a member of the Board of Trustees of Springfield College in Springfield,
Massachusetts, and is a director of Earth Satellite Corporation, a satellite
remote sensing company in Rockville, Maryland, and National Compensation Plans,
Inc., a Houston, Texas company which designs deferred compensation and
retirement plans. Mr. Wilson graduated in 1958 from Dartmouth College.
2
<PAGE> 3
DIRECTORS WHOSE TERMS EXPIRE IN 1998
Tom L. Ward, age 37, has served as President, Chief Operating Officer, and
a director of the Company since its inception. From 1982 to 1989, Mr. Ward was
an independent producer of oil and gas in affiliation with Aubrey K. McClendon,
the Company's Chairman and Chief Executive Officer. Mr. Ward graduated from the
University of Oklahoma in 1981.
E. F. Heizer, Jr., age 67, was an advisory director of the Company from
June 1992 to February 1993 when he became a director. From 1985 to the present,
Mr. Heizer has been a private venture capitalist. He founded Heizer Corp., an
American Stock Exchange-listed business development company, in 1969 and served
as Chairman and Chief Executive Officer from 1969 until 1986, when Heizer
Corporation was reorganized into a number of public and private companies. Mr.
Heizer was assistant treasurer of the Allstate Insurance Company from 1962 to
1969. He was employed by Booz, Allen and Hamilton from 1958 to 1962, Kidder,
Peabody & Co. from 1956 to 1958, and Arthur Andersen & Co. from 1954 to 1956. He
serves on the advisory board of the Kellogg School of Management at Northwestern
University and the Executive Committee of Yale Law School. Mr. Heizer is a
director of two other public companies, Amdahl Corporation, a manufacturer of
computers based in Santa Clara, California, and Material Science Corporation,
Elk Grove, Illinois, which is engaged in coating technology, as well as numerous
private companies. Mr. Heizer graduated in 1951 from Northwestern University and
from Yale University Law School in 1954.
Frederick B. Whittemore, age 65, was an advisory director of the Company
from June 1992 to February 1993 when he became a director. Mr. Whittemore has
been an advisory director of Morgan Stanley & Co. since 1989 and was a managing
director of Morgan Stanley & Co. from 1970 to 1989. He was Vice-Chairman of the
American Stock Exchange from 1982 to 1984. Mr. Whittemore was a partner with
Morgan Stanley & Co. from 1967 to 1970 and an associate from 1958 to 1967. Mr.
Whittemore is a director of Integon Corporation, an insurance company listed on
the New York Stock Exchange, Anglo-American Insurance Company Limited, London,
England, and Southern Pacific Petroleum Corporation, an Australian oil and gas
company. Mr. Whittemore graduated in 1953 from Dartmouth College and from the
Amos Tuck School of Business Administration in 1954.
INFORMATION REGARDING OFFICERS
EXECUTIVE OFFICERS
In addition to Messrs. McClendon and Ward, the following are also executive
officers of the Company.
Marcus C. Rowland, age 44, has served as Vice President -- Finance and
Chief Financial Officer since 1993. From 1990 until his association with the
Company, Mr. Rowland was Chief Operating Officer of Anglo-Suisse, L.P. assigned
to the White Nights Russian Enterprise, a joint venture of Anglo-Suisse, L.P.
and Phibro Energy Corporation, a major foreign operation which was granted the
right to engage in oil and gas operations in Russia. Prior to his association
with White Nights Russian Enterprise, Mr. Rowland owned and managed his own oil
and gas company and prior to that was Chief Financial Officer of a private
exploration company in Oklahoma City from 1981 to 1985. Mr. Rowland is a
Certified Public Accountant and graduated from Wichita State University in 1975.
Steven C. Dixon, age 38, served as Vice President -- Exploration from 1991
to 1995 and was appointed Senior Vice President-Operations in 1995. Mr. Dixon
was a self-employed geological consultant in Wichita, Kansas, from 1983 through
1990. He was employed by Beren Corporation in Wichita, Kansas, from 1980 to 1983
as a geologist. Mr. Dixon graduated from the University of Kansas in 1980.
J. Mark Lester, age 43, served as Vice President -- Exploration from 1989
to 1995 and was appointed Senior Vice President -- Exploration in 1995. From
1986 to 1989, Mr. Lester was employed by Messrs. McClendon and Ward. He was
employed by several independent oil companies in Oklahoma City from 1980 to
1986, and was employed by Union Oil Company of California from 1977 to 1980 as a
geophysicist. Mr. Lester graduated from Purdue University in 1975 and in 1977.
3
<PAGE> 4
Henry J. Hood, age 36, has served as Vice President -- Land and Legal since
1995. Mr. Hood was retained as a consultant to the Company during the prior two
years. He was associated with the Oklahoma City law firm of Watson & McKenzie
from 1987 to 1992. From 1991 to 1992 Mr. Hood was of counsel with the Oklahoma
City law firm of White, Caffey, Galt & Fite. Mr. Hood is a member of the
Oklahoma and Texas Bar Associations. Mr. Hood graduated from Duke University in
1982 and from the University of Oklahoma College of Law in 1985.
Ronald A. Lefaive, age 49, has served as Controller and Chief Accounting
Officer since 1993. From 1991 until his association with the Company, Mr.
Lefaive was Controller for Phibro Energy Production, Inc., an international
exploration and production subsidiary of Phibro Energy Corporation, whose
principal operations were located in Russia. From 1982 to 1991, Mr. Lefaive
served as Assistant Controller, General Auditor and Manager of Management
Information Systems at Conquest Exploration Company in Houston, Texas. Prior to
joining Conquest, Mr. Lefaive held various financial staff and management
positions with The Superior Oil Company from 1980 to 1982 and Shell Oil Company
from 1975 to 1982. Mr. Lefaive is a Certified Public Accountant and graduated
from the University of Houston in 1975.
Martha A. Burger, age 43, has served as Treasurer since 1995 and as Human
Resources Manager since 1996. From 1994 to 1995, she served in various
accounting positions with the Company including Assistant
Controller -- Operations. From 1989 to 1993, Ms. Burger was employed by Hadson
Corporation as Assistant Treasurer and from 1994 to 1995, served as Vice
President and Controller of Hadson. Prior to joining Hadson Corporation, Ms.
Burger was employed by Phoenix Resource Companies, Inc. as Assistant Treasurer
and by Arthur Andersen & Co. Ms. Burger is a Certified Public Accountant and
graduated from the University of Central Oklahoma in 1982 and from Oklahoma City
University in 1992.
OTHER OFFICERS
Thomas S. Price, Jr., age 44, has served as Vice President -- Corporate
Development since 1992 and was a consultant to the Company during the prior two
years. He was employed by Kerr-McGee Corporation, Oklahoma City, from 1988 to
1990 and by Flag-Redfern Oil Company in Oklahoma City from 1984 to 1988. Mr.
Price graduated from the University of Central Oklahoma in 1983, from the
University of Oklahoma in 1989, and from the American Graduate School of
International Management in 1992.
Tony S. Say, age 40, serves as President of Chesapeake Energy Marketing,
Inc. From 1979 to 1986, Mr. Say was employed by Delhi Gas Pipeline Corporation.
From 1986 to 1993, Mr. Say was President and Chief Executive Officer of Clinton
Gas Transmission, Inc., a company he co-founded and later sold to a major
utility in 1993. In 1993, Mr. Say co-founded Princeton Natural Gas Company which
was purchased by Chesapeake Energy Corporation in 1995. Mr. Say is a member of
the Natural Gas Society of Oklahoma and the Natural Gas Society of North Texas
and graduated from the University of Oklahoma in 1979.
Janice A. Dobbs, age 48, has served as Corporate Secretary and Compliance
Manager since 1993. From 1975 until her association with the Company, Ms. Dobbs
was the corporate/securities legal assistant with the law firm of Andrews Davis
Legg Bixler Milsten & Price, Inc. in Oklahoma City. From 1973 to 1975 Ms. Dobbs
was the Administrative Assistant to the President and General Counsel of Texas
International Company, an oil and gas exploration and production company in
Oklahoma City. Ms. Dobbs is a Certified Legal Assistant, an associate member of
the American Bar Association, a member of the Society of Corporate Secretaries
and the Society of Human Resources Management.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
directors and executive officers and persons who beneficially own more than 10%
of the Company's Common Stock to file reports of ownership and subsequent
changes with the Securities and Exchange Commission. There were no violations of
Section 16(a) by such persons for the fiscal year ended June 30, 1996.
4
<PAGE> 5
ITEM 11. EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth for the last three fiscal years the cash
compensation of (i) the Company's chief executive officer and (ii) the six other
most highly compensated executive officers whose total annual salary and bonus
during fiscal 1996 exceeded $100,000:
<TABLE>
<CAPTION>
ANNUAL COMPENSATION SECURITIES
---------------------------------------------- UNDERLYING
OTHER OPTION ALL
ANNUAL AWARDS(B) OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION(A) (# OF SHARES) COMPENSATION(C)
- ------------------------------- ---- -------- ------- --------------- ------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Aubrey K. McClendon 1996 $185,000 $40,000 $65,403 144,000 $ 8,295
Chairman of the Board and 1995 $180,000 $65,400 $57,640 270,000 $ 4,620
Chief Executive Officer 1994 $175,000 $20,000 $52,350 157,500 $ 4,620
Tom L. Ward 1996 $185,000 $40,000 $66,808 144,000 $ 8,368
President and 1995 $180,000 $65,400 $57,340 270,000 $ 4,620
Chief Operating Officer 1994 $175,000 $20,000 $47,580 157,500 $ 4,620
Marcus C. Rowland 1996 $165,000 $20,000 (d) 85,500 $11,333
Vice President -- Finance 1995 $155,000 $45,400 (d) 162,000 $ 4,620
and Chief Financial Officer 1994 $133,333 $20,000 (d) 303,750 $ 2,500
Steven C. Dixon(e) 1996 $125,000 $12,500 (d) 48,750 $ 9,870
Senior Vice President -- 1995 $112,500 $27,900 (d) 92,250 $ 3,510
Operations 1994 $101,500 $10,000 (d) 90,000 $ 2,208
Henry J. Hood(f) 1996 $120,000 $12,000 (d) 25,500 $ 6,400
Vice President -- Land 1995 $120,000(g) $ 6,300 (d) 10,125 --
and Legal
Ronald A. Lefaive(e) 1996 $118,833 $ 7,500 (d) 25,500 $ 8,603
Controller 1995 $111,167 $12,900 (d) 19,125 $ 2,977
1994 $ 94,833 $ 1,000 (d) 9,000 $ 1,750
J. Mark Lester(e) 1996 $110,000 $11,000 (d) 32,250 $ 7,635
Senior Vice President -- 1995 $105,000 $14,800 (d) 40,500 $ 2,063
Exploration 1994 $101,500 $ 7,500 (d) 69,750 $ 2,396
</TABLE>
- ---------------
(a) Represents the cost of personal benefits provided by the Company, including
for fiscal 1996 personal accounting support ($44,608 for Mr. McClendon and
$44,650 for Mr. Ward), personal vehicle ($18,000 each) and country club
membership dues ($2,800 for Mr. McClendon and $4,200 for Mr. Ward).
(b) No awards of restricted stock or payments under long-term incentive plans
were made by the Company to any of the named executives in any period
covered by the table.
(c) These amounts represent Company matching contributions to the Chesapeake
Energy Corporation Savings and Incentive Stock Bonus Plan.
(d) Other annual compensation did not exceed the lesser of $50,000 or 10% of the
executive officers salary and bonus during the year.
(e) Designated an executive officer by the Board of Directors in fiscal 1996.
(f) Mr. Hood became an employee of the Company in 1995 and was designated an
executive officer by the Board of Directors in fiscal 1996.
(g) Includes $60,000 received by Mr. Hood as consulting fees prior to his
employment as an officer.
5
<PAGE> 6
STOCK OPTIONS GRANTED IN FISCAL 1996
The following table sets forth information concerning options to purchase
Common Stock granted in fiscal 1996 to the executive officers named in the
Summary Compensation Table. All amounts represent stock options granted under
the Company's 1994 Stock Option Plan. Options granted to Messrs. McClendon, Ward
and Rowland are non-qualified stock options, and 21,937 shares of the
48,750-share options granted to Mr. Dixon are non-qualified stock options. All
other options are incentive stock options. One-fourth of each option becomes
exercisable on each of the first four grant date anniversaries. The exercise
price of each option represents the market price of the Common Stock on the date
of grant.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL REALIZABLE
----------------------------------------------------------- VALUE AT ASSUMED
PERCENT OF ANNUAL RATES OF STOCK
NUMBER OF TOTAL OPTIONS PRICE APPRECIATION FOR
SECURITIES GRANTED TO EXERCISE OPTION TERM(A)
UNDERLYING EMPLOYEES IN PRICE PER EXPIRATION ----------------------
NAME OPTIONS GRANTED FISCAL 1996 SHARE DATE 5% 10%
- ----------------------- --------------- ------------- --------- ---------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
Aubrey K. McClendon.... 112,500 10.2% $ 11.33 8/31/05 $801,838 $2,032,016
31,500 2.9% $ 35.33 4/04/06 $699,959 $1,773,834
Tom L. Ward............ 112,500 10.2% $ 11.33 8/31/05 $801,838 $2,032,016
31,500 2.9% $ 35.33 4/04/06 $699,959 $1,773,834
Marcus C. Rowland...... 67,500 6.1% $ 11.33 8/31/05 $481,103 $1,219,209
18,000 1.6% $ 35.33 4/04/06 $399,977 $1,013,619
Steven C. Dixon........ 33,750 3.1% $ 11.33 8/31/05 $240,551 $ 609,605
15,000 1.4% $ 35.33 4/04/06 $333,314 $ 844,683
J. Mark Lester......... 22,500 2.0% $ 11.33 8/31/05 $160,368 $ 406,403
9,750 0.9% $ 35.33 4/04/06 $216,654 $ 549,044
Ronald A. Lefaive...... 15,750 1.4% $ 11.33 8/31/05 $112,257 $ 284,482
9,750 0.9% $ 35.33 4/04/06 $216,654 $ 549,044
Henry J. Hood.......... 15,750 1.4% $ 11.33 8/31/05 $112,257 $ 284,482
9,750 0.9% $ 35.33 4/04/06 $216,654 $ 549,044
</TABLE>
- ---------------
(a) The assumed annual rates of stock price appreciation of 5% and 10% are set
by the Securities and Exchange Commission and are not intended as a forecast
of possible future appreciation in stock prices.
AGGREGATED OPTION EXERCISES IN FISCAL 1996 AND FISCAL YEAR-END OPTION VALUES
The following table sets forth information about options exercised by the
named executive officers during the fiscal year ended June 30, 1996 and the
unexercised options to purchase Common Stock held by them at June 30, 1996.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
SHARES OPTIONS AT 6/30/96 OPTIONS AT 6/30/96(A)
ACQUIRED VALUE ---------------------------- ----------------------------
NAME ON EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- --------------------------- ----------- ---------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Aubrey K. McClendon........ -- -- 263,250 346,500 $14,962,544 $16,922,593
Tom L. Ward................ -- -- 263,250 346,500 $14,962,544 $16,922,593
Marcus C. Rowland.......... 166,635 $4,459,212 7,222 267,278 $ 421,508 $13,651,072
Steven C. Dixon............ 1,500 $ 41,083 126,916 139,034 $ 7,338,770 $ 6,923,445
J. Mark Lester............. 32,850 $ 754,997 26,664 80,850 $ 1,564,330 $ 4,016,029
Ronald A. Lefaive.......... 7,031 $ 170,418 1,125 39,844 $ 65,660 $ 1,777,373
Henry J. Hood.............. 7,593 $ 317,406 2,813 33,094 $ 164,179 $ 1,403,302
</TABLE>
6
<PAGE> 7
- ---------------
(a) At June 30, 1996, the closing price of the Common Stock on the New York
Stock Exchange ("NYSE") was $59.92. "In-the-money options" are stock options
with respect to which the market value of the underlying shares of Common
Stock exceeded the exercise price at June 30, 1996. The values shown were
determined by subtracting the aggregate exercise price of such options from
the aggregate market value of the underlying shares of Common Stock on June
30, 1996.
EMPLOYMENT AGREEMENTS
The Company has employment agreements with Messrs. McClendon and Ward, each
of which provides, among other things, for a base salary of not less than
$185,000 for the year beginning July 1, 1995, $250,000 for the year beginning
July 1, 1996 and $300,000 for the year beginning July 1, 1997; bonuses at the
discretion of the disinterested members of the Board of Directors; eligibility
for stock options; and benefits, including an automobile allowance, club
membership and personal accounting support. Each agreement has a term of three
years commencing July 1, 1995, which term is automatically extended for one
additional year on each anniversary date of the agreement, unless the Company
provides 30 days prior notice of non-extension.
The employment agreements between the Company and Messrs. McClendon and
Ward permit them to participate in each well drilled by the Company on terms no
less favorable to the Company than those agreed to by unaffiliated industry
partners. Messrs. McClendon and Ward have participated in all wells drilled by
the Company since its initial public offering in February 1993 and intend to
continue participating in wells drilled by the Company under the terms of their
employment agreements. Thirty days prior to the beginning of each calendar
quarter, Messrs. McClendon and Ward and the disinterested members of the
Compensation Committee of the Board of Directors agree upon the working interest
percentage in all wells spudded during that quarter to be purchased by Messrs.
McClendon and Ward. That percentage may not be adjusted during such quarter
except with the approval of such disinterested directors. No such adjustments
have ever been requested or granted. The participation election by Messrs.
McClendon or Ward may not exceed a 2.5% working interest in a well. Messrs.
McClendon and Ward are obligated to pay within 120 days after billing all costs
and expenses associated with the working interests they acquire under this
arrangement. In addition, for each calendar year during which the employment
agreements are in effect, Messrs. McClendon and Ward each agree to hold shares
of the Company's Common Stock having an aggregate investment value equal to 200%
of his annual base salary and bonus.
The Company has a similar employment agreement with Mr. Rowland. It
provides for a base salary of not less than $160,000 (on an annualized basis)
for the four-month period ended June 30, 1995, $165,000 for the year beginning
July 1, 1995, $180,000 for the year beginning July 1, 1996 and $200,000 for the
year beginning July 1, 1997. The agreement has a term of three years and four
months beginning March 1, 1995, which term is automatically extended for one
additional year on each June 30 beginning in 1996, unless the Company provides
30 days prior notice of non-extension. Mr. Rowland is permitted to participate
in wells drilled by the Company in the same manner as Messrs. McClendon and
Ward, except that Mr. Rowland's working interest participation in a well may not
exceed 1%. Messrs. McClendon, Ward and Rowland may not participate in any well
in which their combined working interests cause the Company's working interest
to be reduced to less than 12.5%. Mr. Rowland agrees to hold shares of the
Company's Common Stock having an aggregate investment value equal to 100% of his
annual base salary and bonus during each calendar year for the term of the
agreement.
Messrs. McClendon, Ward and Rowland have agreed that they will not engage
in oil and gas operations individually except pursuant to the aforementioned
participation in Company wells and as a result of subsequent operations on
properties owned by them or their affiliates as of July 1, 1995 or acquired from
the Company with respect to Messrs. McClendon and Ward and as of March 1, 1993
with respect to Mr. Rowland.
The Company also has employment agreements with Messrs. Dixon, Hood,
Lefaive and Lester. These agreements have a term of three years, except for Mr.
Lefaive's agreement which is for a term of two years, from July 1, 1995, with
annual base salaries of $125,000 for Mr. Dixon, $120,000 for Mr. Hood, $117,500
for Mr. Lefaive and $110,000 for Mr. Lester for the term of their agreements.
The agreements require each of
7
<PAGE> 8
them to acquire and continue to hold shares of the Company's Common Stock having
an annual aggregate investment value equal to 15% for Messrs. Dixon and Lester
and 10% for Messrs. Lefaive and Hood of the annual base salary and bonus
compensation paid to them under their respective agreements.
The Company may terminate any of the employment agreements with its
executive officers at any time without cause; however, upon such termination
Messrs. McClendon, Ward and Rowland are entitled to continue to receive salary
and benefits for the balance of the contract term. Messrs. Dixon, Lester and
Hood are entitled to 90 days compensation and benefits. Each of the employment
agreements for Messrs. McClendon, Ward and Rowland further states that if,
during the term of the agreement, there is a change of control and within one
year (i) the agreement expires and is not extended, (ii) the executive officer
is terminated other than for cause, death or incapacity, or (iii) the executive
resigns as a result of a reassignment of duties inconsistent with his position
or a reduction in his compensation, then the executive will be entitled to a
severance payment in an amount equal to 36 months of base salary compensation.
Change of control is defined in these agreements to include (x) an event which
results in a person acquiring beneficial ownership of securities having 35% or
more of the voting power of the Company's outstanding voting securities, or (y)
within two years of a tender offer or exchange offer for the voting stock of the
Company or as a merger, consolidation, sale of assets or contested election, a
majority of the members of the Company's board of directors is replaced by
directors who were not nominated and approved by the board of directors.
DIRECTORS' COMPENSATION
Directors who are not officers of the Company are paid $2,500 for each
regular meeting of the Board attended, up to a maximum of $10,000 during the
year. Directors are reimbursed for travel and other expenses. Officers who also
serve as directors do not receive fees for serving as directors.
During each fiscal year, each director of the Company who is not an officer
of the Company receives ten-year nonqualified options under the Company's 1992
Nonstatutory Stock Option Plan (the "NSO Plan") to purchase 10,000 shares of
Common Stock at an exercise price equal to the market price on the date of
grant. Accordingly, on October 10, 1995, each director was granted an option for
22,500 shares at an exercise price of $12.95 per share after adjustments for
stock splits.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During fiscal 1996, the Compensation Committee was composed of Aubrey K.
McClendon, Tom L. Ward, E.F. Heizer, Jr. and Frederick B. Whittemore. Mr.
McClendon is Chairman of the Board and Chief Executive Officer of the Company.
Mr. Ward is the Company's President and Chief Operating Officer.
Messrs. McClendon and Ward administer the Company's 1992 stock options
plans. The 1992 Incentive Stock Option Plan was terminated in December 1994. The
only options issued under the 1992 NSO Plan during fiscal 1996 were those to the
Company's outside directors pursuant to an annual formula award provision.
Messrs. McClendon and Ward also administer the Company's 1994 Stock Option Plan
with respect to non-director employee participants. Messrs. Heizer and
Whittemore, together with Shannon T. Self, administer the 1994 Stock Option Plan
with respect to employee participants who are directors.
Messrs. McClendon and Ward participate as working interest owners in the
Company's oil and gas wells pursuant to the terms of their employment agreements
with the Company. See "Employment Agreements." Accounts receivable from Messrs.
McClendon and Ward are generated by joint interest billings relating to such
participation and as a result of miscellaneous expenses paid on their behalf by
the Company. The Company has extended certain registration rights to Messrs.
McClendon and Ward. Mr. Self is a partner in the firm of Self, Giddens & Lees,
Inc., counsel to the Company. See Item 13 of this report.
8
<PAGE> 9
ITEM 12. SECURITY OWNERSHIP OF MANAGEMENT AND CERTAIN BENEFICIAL OWNERS
SECURITY OWNERSHIP
The table below sets forth as of October 25, 1996 (i) the name and address
of each person known by management to own beneficially 5% or more of the
Company's outstanding Common Stock, the number of shares beneficially owned by
each such shareholder and the percentage of outstanding shares owned and (ii)
the number and percentage of outstanding shares of Common Stock beneficially
owned by each of the Company's nominees, directors and executive officers listed
in the Summary Compensation Table below and by all directors and executive
officers of the Company as a group. Unless otherwise noted, the persons named
below have sole voting and investment power with respect to such shares.
<TABLE>
<CAPTION>
COMMON STOCK
---------------------------
NUMBER OF PERCENT OF
BENEFICIAL OWNER SHARES CLASS
- -------------------------------------------------------------------- ---------- ----------
<S> <C> <C>
Tom L. Ward*+....................................................... 5,170,151(a)(b) 17%
6100 North Western Avenue
Oklahoma City, OK 73118
Aubrey K. McClendon*+............................................... 5,122,658(b)(c) 17%
6100 North Western Avenue
Oklahoma City, OK 73118
FMR Corp............................................................ 3,452,725(d) 12%
82 Devonshire Street
Boston, MA 02109
Pilgrim Baxter & Associates......................................... 2,238,350(e) 7%
1255 Drummers Lane
Wayne, PA 19087-1590
Shannon T. Self*.................................................... 1,405,187(f) 5%
2725 Oklahoma Tower
210 Park Avenue
Oklahoma City, OK 73102
E .F. Heizer, Jr.*.................................................. 523,450(g) 2%
Frederick B. Whittemore*............................................ 430,750(g) 1%
Breene M. Kerr*..................................................... 190,000(h) 1%
Steven C. Dixon+.................................................... 157,490(b)(i) 1%
Walter C. Wilson*................................................... 122,500(j) **
Marcus C. Rowland+.................................................. 93,419(b)(k) **
J. Mark Lester+..................................................... 40,377(b)(l) **
Ronald A. Lefaive+.................................................. 10,923(b)(m) **
Henry J. Hood+...................................................... 8,898(b)(n) **
All directors and executive officers as a group..................... 13,278,449(o) 42%
</TABLE>
- ---------------
* Director
+ Executive officer of the Company
** Less than 1%
(a) Includes 923,430 shares held by TLW Investments, Inc., an Oklahoma
corporation of which Mr. Ward is sole shareholder and chief executive
officer, and an aggregate of 325,125 shares which may be acquired pursuant
to currently exercisable stock options granted by the Company.
(b) Includes shares purchased on behalf of the executive officer in the
Chesapeake Energy Corporation Savings and Incentive Stock Bonus Plan (Tom
L. Ward, 1,376 shares; Aubrey K. McClendon,
9
<PAGE> 10
558 shares; Steven C. Dixon, 249 shares; Marcus C. Rowland, 277 shares; J. Mark
Lester, 213 shares; Ronald A. Lefaive, 236 shares and Henry J. Hood, 236
shares).
(c) Includes 254,280 shares held by Chesapeake Investments, an Oklahoma limited
partnership of which Mr. McClendon is sole general partner, and an
aggregate of 325,125 shares which may be acquired pursuant to currently
exercisable stock options granted by the Company.
(d) Ownership as of September 30, 1996, as reported in Schedule 13G filed
October 10, 1996.
(e) Ownership as of October 22, 1996, as reported by an executive officer of
Pilgrim Baxter & Associates.
(f) Includes 7,879 shares held by Pearson Street Limited Partnership, an
Oklahoma limited partnership of which Mr. Self is a general partner and the
remaining partners are members of Mr. Self's immediate family sharing the
same household; 586,800 shares held by Mr. Self as trustee of the Aubrey K.
McClendon Children's Trust; 599,550 shares held by Mr. Self as trustee of
the Tom L. Ward Children's Trust and 210,958 shares which Mr. Self has the
right to acquire pursuant to currently exercisable stock options granted by
the Company.
(g) Includes 183,250 shares such director has the right to acquire pursuant to
currently exercisable stock options granted by the Company.
(h) Includes 10,000 shares such director has the right to acquire pursuant to
currently exercisable stock options granted by the Company.
(i) Includes 147,791 shares subject to currently exercisable stock options
granted by the Company.
(j) Includes 122,500 shares such director has the right to acquire pursuant to
currently exercisable stock options granted by the Company.
(k) Includes 48,375 shares subject to currently exercisable stock options
granted by the Company.
(l) Includes 37,914 shares subject to currently exercisable stock options
granted by the Company.
(m) Includes 8,437 shares subject to currently exercisable stock options
granted by the Company.
(n) Includes 7,875 shares subject to currently exercisable stock options
granted by the Company.
(o) Includes shares subject to options which are currently exercisable.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Legal Counsel. Shannon T. Self, a director of the Company, is a shareholder
in the law firm of Self, Giddens & Lees, Inc., which provides legal services to
the Company. During fiscal 1996, the firm billed the Company approximately
$347,000 for such legal services.
Oil and Gas Operations. Prior to 1989, Messrs. McClendon and Ward and their
affiliates, as independent oil producers, acquired various leasehold and working
interests. In 1989, Chesapeake Operating, Inc. ("COI"), a wholly-owned
subsidiary of the Company, was formed to drill and operate wells in which
Messrs. McClendon and Ward or their affiliates owned working interests. COI
entered into joint operating agreements with Messrs. McClendon and Ward and
other working interest owners and billed each for their respective shares of
expenses and fees.
10
<PAGE> 11
COI continues to operate wells in which directors, executive officers and
related parties own working interests. In addition, directors, executive
officers and related parties have acquired working interests directly and
indirectly from the Company and participated in wells drilled by COI on terms no
less favorable to the Company than available to unrelated parties. The Company's
directors who are not officers have not acquired from the Company interests in
any new wells drilled by the Company since their election as directors in
February 1993 and have no present intention to acquire interests in any new
wells of the Company. The table below presents information about drilling,
completion, equipping and operating costs billed to the person named from July
1, 1995 to June 30, 1996, the largest amount owed by them during the period and
the balance owed at July 1, 1995 and June 30, 1996.
<TABLE>
<CAPTION>
AUBREY K. TOM L . MARCUS C.
MCCLENDON WARD ROWLAND
--------- ------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Balance at July 1, 1995............................... $ 1,712 $2,034 $ 238
Amount billed (to June 30, 1996)...................... $ 3,662 $3,534 $ 171
Largest outstanding balance (month end)............... $ 1,835 $2,283 $ 190
Balance at June 30, 1996.............................. $ 971 $1,288 $ 82
</TABLE>
Miscellaneous. From time to time, the Company pays various expenses
incurred on behalf of Messrs. McClendon and Ward and their affiliates, creating
accounts receivable of the Company. During fiscal 1996, additions to accounts
receivable (excluding joint interest billings, which are described above) from
Messrs. McClendon and Ward and their affiliates were insignificant.
11
<PAGE> 12
SIGNATURE
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this amendment on Form
10-K/A to be signed on its behalf by the undersigned thereunto duly authorized
on October 28, 1996.
CHESAPEAKE ENERGY CORPORATION
By /s/ MARCUS C. ROWLAND
--------------------------------
Marcus C. Rowland
Vice President -- Finance and
Chief Financial Officer
(Principal Financial Officer)
