<PAGE> 1
SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant /x/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement / / Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
/x/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section 240.14a-11(c) or
Section 240.14a-12
Chesapeake Energy Corporation
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/x/ No fee required.
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and
0-11.
(1) Title of each class of securities to which transaction applies:
- --------------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
- --------------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the filing fee
is calculated and state how it was determined):
- --------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
- --------------------------------------------------------------------------------
(5) Total fee paid:
- --------------------------------------------------------------------------------
/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
- --------------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
- --------------------------------------------------------------------------------
(3) Filing Party:
- --------------------------------------------------------------------------------
(4) Date Filed:
- --------------------------------------------------------------------------------
<PAGE> 2
CHESAPEAKE ENERGY CORPORATION
6100 NORTH WESTERN AVENUE
OKLAHOMA CITY, OKLAHOMA 73118
---------------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD DECEMBER 13, 1996
---------------------
TO OUR SHAREHOLDERS:
The 1996 Annual Meeting of Shareholders of Chesapeake Energy Corporation, a
Delaware corporation (the "Company"), will be held at the St. Regis Hotel, 2
East 55th Street, Versailles Suite, New York, New York, on Friday, December 13,
1996, at 10:00 a.m., local time, for the following purposes:
1. To elect two directors for terms expiring in 1999;
2. To consider and act upon a proposal for the Company to change its
state of incorporation from Delaware to Oklahoma, which proposal
includes the following actions
- the Company will be merged with and into Chesapeake Oklahoma
Corporation, the Company's wholly-owned subsidiary,
- the authorized capital stock of the Company will be increased to
100,000,000 shares of common stock, par value $.01 per share, and
10,000,000 shares of preferred stock, par value $.01 per share, and
- certain other changes will be made related to the reincorporation as
described in the accompanying Proxy Statement;
3. To consider and act upon proposals to
- amend the Company's 1992 Nonstatutory Stock Option Plan,
- amend the Company's 1994 Stock Option Plan, and
- adopt the Company's 1996 Stock Option Plan; and
4. To transact such other business as may properly come before the
meeting or any adjournment thereof.
Shareholders of record at the close of business on October 25, 1996 are
entitled to notice of and to vote at the meeting. A complete list of the
shareholders entitled to vote at the meeting will be available for examination
by any shareholder at the Company's executive offices and at Depository Trust
Company, Transfer Agent Drop, 55 Water Street, First Floor, Jeanette Park
Entrance, New York, New York, during ordinary business hours, for a period of at
least ten days prior to the meeting.
The accompanying Proxy Statement contains information regarding the matters
to be considered at the meeting. For reasons outlined therein, the Board of
Directors recommends a vote "FOR" the matters being voted upon.
YOUR PROXY IS IMPORTANT TO ASSURE A QUORUM AT THE MEETING. WHETHER OR NOT
YOU EXPECT TO ATTEND THE MEETING, PLEASE BE SURE THAT THE ENCLOSED PROXY IS
PROPERLY COMPLETED, DATED, SIGNED AND RETURNED WITHOUT DELAY IN THE ENCLOSED
ENVELOPE. IT REQUIRES NO POSTAGE IF MAILED IN THE UNITED STATES.
BY ORDER OF THE BOARD OF DIRECTORS,
/s/ JANICE A. DOBBS
Janice A. Dobbs
Corporate Secretary
Oklahoma City, Oklahoma
November 6, 1996
<PAGE> 3
CHESAPEAKE ENERGY CORPORATION
---------------------
PROXY STATEMENT
---------------------
ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON DECEMBER 13, 1996
GENERAL INFORMATION
This Proxy Statement is furnished in connection with the solicitation of
proxies by the Board of Directors of Chesapeake Energy Corporation, a Delaware
corporation (the "Company"), for use at the Annual Meeting of Shareholders of
the Company (the "Meeting") to be held on the date, at the time and place and
for the purposes set forth in the accompanying Notice of Annual Meeting of
Shareholders, and any adjournment of the Meeting.
This Proxy Statement and accompanying form of proxy, along with the
Company's Annual Report for its fiscal year ended June 30, 1996, are first being
mailed to shareholders on November 6, 1996. Shareholders are referred to the
Annual Report for financial information concerning the activities of the
Company.
The Board of Directors has established October 25, 1996 as the record date
(the "Record Date") to determine shareholders entitled to notice of and to vote
at the Meeting. At the close of business on the Record Date, 30,128,321 shares
of $.10 par value common stock of the Company ("Common Stock") were outstanding.
Each share is entitled to one vote. The holders of a majority of the outstanding
Common Stock, present in person or by proxy, will constitute a quorum for the
transaction of business at the Meeting.
Each proxy which is properly signed, dated and returned to the Company in
time for the Meeting, and not revoked, will be voted in accordance with
instructions contained therein. If no contrary instructions are given, proxies
will be voted "FOR" the election of all nominees as directors and "FOR" approval
of all proposals listed on the proxy. Proxies may be revoked at any time prior
to their being exercised by delivering a written notice of revocation or a later
dated proxy to the Corporate Secretary of the Company. In addition, a
shareholder present at the Meeting may revoke his or her proxy and vote in
person.
Election of each director nominee will be by plurality vote. The
affirmative vote of holders of a majority of the Company's outstanding Common
Stock will be required for approval of (i) the merger of the Company with and
into Chesapeake Oklahoma Corporation, the wholly-owned subsidiary of the Company
(the "Merger") pursuant to the terms set forth in the Certificate of Ownership
and Merger attached hereto as Exhibit "A"; (ii) the amendment of the Company's
1992 Nonstatutory Stock Option Plan; (iii) the amendment of the Company's 1994
Stock Option Plan; and (iv) the adoption of the Company's 1996 Stock Option
Plan. The Company's Corporate Secretary will appoint an inspector of election to
tabulate all votes and to certify the results of all matters voted upon at the
Meeting. It is the Company's policy (i) to count abstentions and broker
non-votes for purposes of determining the presence of a quorum at the Meeting;
(ii) to treat abstentions as shares represented at the Meeting and voting
against a proposal and to disregard broker non-votes in determining results on
proposals requiring a majority vote; and (iii) to consider neither abstentions
nor broker non-votes in determining results of plurality votes.
The cost of soliciting proxies in the enclosed form will be borne by the
Company. In addition to solicitation by mail, officers, employees or agents of
the Company may solicit proxies personally, or by telephone, telegraph,
facsimile transmission or other means of communication. The Company will request
banks and brokers or other similar agents or fiduciaries to transmit the proxy
material to the beneficial owners for their voting instructions and will
reimburse them for their expenses in so doing.
All share information included herein has been adjusted to reflect the
two-for-one stock split effected in December 1994 and the three-for-two stock
splits effected in December 1995 and in June 1996.
<PAGE> 4
ELECTION OF 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 for terms expiring at
the 1999 Annual Meeting of Shareholders, and in each case, until their
successors are elected and qualified. Proxies cannot be voted for a greater
number of persons than the number of nominees named. The nominees are presently
directors of the Company whose terms expire at the Meeting. Other directors who
are remaining on the Board will continue in office in accordance with their
previous elections until the expiration of their terms at the 1997 or 1998
Annual Meeting of Shareholders, as the case may be.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" EACH OF THE NOMINEES FOR
ELECTION TO THE BOARD OF DIRECTORS.
It is the intention of the persons named in the enclosed form of proxy to
vote such proxies for the election of the two nominees. The Board of Directors
expects that each nominee will be available for election but, in the event that
the nominees are not so available, proxies received will be voted for substitute
nominees to be designated by the Board of Directors or, in the event no such
designation is made by the Board, proxies will be voted for a lesser number of
nominees.
INFORMATION REGARDING NOMINEES AND DIRECTORS
The following information is furnished for each person who is nominated for
re-election as a director or who is continuing to serve as a director of the
Company after the Meeting.
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
2
<PAGE> 5
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.
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, Partner Reinsurance Company, Ltd., 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.
THE BOARD OF DIRECTORS AND ITS COMMITTEES
The Board of Directors held four meetings during the Company's fiscal year
ended June 30, 1996, took action by written consent one time, and held two
meetings by telephone conference. The Board of Directors has standing
compensation, stock option and audit committees. It does not have a standing
nominating committee.
The duties of the Compensation Committee are described under "Executive
Compensation -- Compensation Committee Report." Messrs. McClendon, Ward, Heizer
and Whittemore serve on the Compensation Committee. The Compensation Committee
held two meetings during the fiscal year ended June 30, 1996.
The Stock Option Committee, comprised of Messrs. McClendon and Ward,
administers the Company's two 1992 stock option plans. Messrs. McClendon and
Ward also serve on the Regular Stock Option
3
<PAGE> 6
Committee of the 1994 Stock Option Plan (the "1994 Plan") with respect to
non-director employee participants, and Messrs. Heizer, Self and Whittemore
serve on the 1994 Plan's Special Stock Option Committee with respect to employee
participants who are directors. Each committee for the 1994 Plan held two
meetings during fiscal year 1996.
The Audit Committee annually recommends the independent accountant to be
appointed by the Board of Directors as auditor of the Company and its
subsidiaries, and reviews the arrangements for and the results of the auditor's
examination of the Company's books and records, internal accounting control
procedures, and the activities and recommendations of the Company's internal
auditors. It reports to the Board of Directors on Audit Committee activities and
makes such investigations as it deems appropriate. Messrs. Kerr, Self and Wilson
serve on the Audit Committee. The Audit Committee held two meeting during the
fiscal year ended June 30, 1996.
Each director attended all of the Board and committee meetings held while
serving as a director or committee member during fiscal year 1996.
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.
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, Coffey, 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, 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
4
<PAGE> 7
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.
5
<PAGE> 8
SECURITY OWNERSHIP OF MANAGEMENT
AND CERTAIN BENEFICIAL OWNERS
SECURITY OWNERSHIP
The table below sets forth as of the Record Date (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 325,125 shares which may be acquired pursuant to currently
exercisable stock options granted by the Company.
6
<PAGE> 9
(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, 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 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 subject to currently exercisable stock options
granted by the Company.
(h) Includes 10,000 shares subject 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 subject 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.
COMPLIANCE WITH BENEFICIAL OWNERSHIP REPORTING REQUIREMENTS
Section 16(a) of the Securities Exchange Act of 1934 (the "Exchange Act")
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.
Based only on a review of copies of such reports delivered to the Company by
such persons, the Company believes that there were no violations of Section
16(a) by such persons for the fiscal year ended June 30, 1996.
7
<PAGE> 10
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 $65,408 144,000 $ 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 $66,850 144,000 $ 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) Represents 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 with the Company.
8
<PAGE> 11
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 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>
9
<PAGE> 12
- ---------------
(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.
PERFORMANCE GRAPH
The following graph compares the performance of the Company's Common Stock
to the S&P 500 Index and to a group of peer issuers selected by the Company for
the periods indicated. The graph assumes the investment of $100 on February 5,
1993 (the day public trading in the Company's Common Stock commenced) and that
all dividends, if any, were reinvested. The value of the investment at the end
of each year is shown in the graph and in the table which follows:
<TABLE>
<CAPTION>
Chesapeake
Measurement Period Energy Cor- S&P 500 In-
(Fiscal Year Covered) poration Peer Group* dex
<S> <C> <C> <C>
2/5/93 100.00 100.00 100.00
6/30/93 88.66 126.14 104.01
6/30/94 63.92 129.21 105.472
6/30/95 424.74 121.56 132.97
6/30/96 2227.40 157.41 167.54
</TABLE>
* The peer group is comprised of Anadarko Petroleum Corporation, Apache
Corporation, Barrett Resources Corporation, Burlington Resources, Inc., Devon
Energy Corporation, Enron Oil & Gas Company, Flores & Rucks, Inc., The
Louisiana Land and Exploration Company, Newfield Exploration Company, Noble
Affiliates, Inc., Nuevo Energy Company, Parker & Parsley Petroleum Company,
TransTexas Gas Corporation, Union Pacific Resources Corporation, United
Meridian Corporation and Vintage Petroleum, Inc.
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.
10
<PAGE> 13
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 from July 1,
1995, except for Mr. Lefaive's agreement which is for a term of two years and
two months from May 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 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. Hood and Lefaive 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, Hood, Lefaive
and Lester 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 officer
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
11
<PAGE> 14
voting securities, or (y) within two years of a tender offer or exchange offer
for the voting stock of the Company or as a result of 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 "1992 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 (the "1992 ISO Plan") was terminated
in December 1994. The only options issued under the 1992 NSO Plan during fiscal
1996 were those to the Company's non-employee directors pursuant to an annual
formula award provision. Messrs. McClendon and Ward also administer the 1994
Plan with respect to non-director employee participants. Messrs. Heizer and
Whittemore, together with Shannon T. Self, administer the 1994 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 "Certain Transactions."
COMPENSATION COMMITTEE REPORT
The Compensation Committee of the Board of Directors is responsible for
establishing the Company's compensation policies and monitoring the
implementation of the Company's compensation system. The Committee's specific
duties include establishing and periodically reviewing the Company's
compensation policies, overseeing the compensation of the Company's executive
officers, coordinating with the Company's stock option committees in the award
of stock options and the annual review of the Company's benefit plans. The
compensation of the Company's employees consists of several components, each of
which is determined using different methods and objectives. The components
include: (a) base salary; (b) cash bonuses; (c) stock options; and (d) medical
insurance, life insurance and other non-cash benefits. The Committee has
determined not to grant economic interests in the Company's oil and gas assets
as a form of compensation.
EXECUTIVE OFFICER COMPENSATION. At the time of the Company's initial public
offering, the Company's executive officers consisted of Messrs. McClendon, Ward
and Rowland. Their compensation was developed based on the historical
compensation paid by the Company to Messrs. McClendon and Ward, advice from a
number of the Company's professional advisors and negotiation of employment
agreements with such individuals. Because Messrs. McClendon and Ward had
historically received only nominal compensation from the Company, the executive
officers' compensation was substantially below the compensation paid by the
Company's competitors. The Committee believes the executive officers'
compensation should be competitive
12
<PAGE> 15
with the Company's peer group and plans to increase the executive officers'
compensation to comparable levels. The individual components of the executive
officers' compensation and the factors considered in connection with each
component are as follows:
Base Salary. The executive officers' base salary is reviewed annually and
is set for each individual. Although the Committee believes that
performance-based pay elements should be a key element in the executive
officers' compensation package, the Company must also maintain base salary
levels commensurate with the Company's peer group. Thus, the Committee believes
the base salary of the executive officers should be increased to the mean of the
Company's peer group over time. The actual amount of each executive's base
salary will reflect and be adjusted on a subjective basis for such factors as
leadership, commitment, attitude, motivational effect, level of responsibility,
prior experience and extraordinary contributions to the Company.
Cash Bonuses. The Committee believes that cash bonuses should be paid to
the executive officers based on a subjective evaluation of the performance of
the Company and the individual. The amount of cash bonuses was based on a
percentage of the employee's base compensation ranging from 0% to 50% in fiscal
1996. Performance measurements for the Company as a whole include growth in oil
and gas reserves, production, and net income. Performance measurements for each
individual or business segment are dependent on the individual circumstances. It
is anticipated that the bonus percentage will increase as the management level
and responsibility level of the individual increases. The Committee does not
believe bonuses can be awarded based on some predetermined formula so the amount
of each executive officer's cash bonus is based on a subjective evaluation of
many factors such as performance, leadership, commitment, attitude, motivational
effect, level of responsibility, prior experience and extraordinary
contributions to the Company.
Stock Options. The other performance-based compensation provided by the
Company is the issuance of stock options under existing and future stock option
plans. Currently, stock options are granted to a broad range of employees based
on a subjective determination utilizing the factors for base compensation and
cash bonus awards. Because all stock options are issued at the market price of
the Company's Common Stock on the date of issuance and options granted in fiscal
1996 vest at the rate of 25% per year over a period of four years, the options
provide strong incentives for superior long-term performance and continued
retention of the executives by the Company. The Committee coordinates closely
with the Company's stock option committees in issuing the stock options.
Suggested Stock Ownership. The Committee believes it is appropriate for
each executive officer to maintain direct ownership in the Company's Common
Stock, as provided in the individual employment agreements. The Committee
believes that compliance with such stock ownership targets is necessary to
ensure that the interests of the executive officers and shareholders are the
same. Failure to meet such objectives will adversely and materially affect the
performance-based compensation for each executive officer who fails to meet the
stock ownership targets.
Discretion. Individual circumstances and performance can substantially
affect the amount of compensation or benefits to be received by each executive
officer. In general, measuring the efforts or impact of an individual employee
and converting such concepts on an objective basis to a quantifiable increase in
compensation is not possible. However, given the importance of individual effort
to the success of the Company, the lack of objective measurement standards
should not prohibit performance rewards. Accordingly, from time to time, the
Committee may provide extraordinary compensation to an individual employee or
group of employees based on outstanding performance.
Equity Ownership. It is the Committee's belief that a large stock ownership
position should not negatively affect an executive officers' compensation or
stock option awards. Except for stock ownership targets discussed above, the
Committee does not consider the number of options or stock held in determining
compensation.
Policy on Deductibility of Compensation. Section 162(m) of the Internal
Revenue Code limits the tax deduction to $1 million for compensation paid to any
one executive officer, unless certain requirements are met. The Committee
presently intends that all compensation paid to executive officers will meet the
13
<PAGE> 16
requirements for deductibility under Section 162(m). However, the Committee may
award compensation which is not deductible under Section 162(m) if it believes
that such awards would be in the best interest of the Company or its
shareholders.
Compensation of Chief Executive Officer and Chief Operating Officer. Based
on historical operations of the Company, the Chief Executive Officer and Chief
Operating Officer have identical positions with managerial control over
different areas of the Company. Accordingly, the Chief Executive Officer and
Chief Operating Officer have been historically compensated on an equal basis and
the Committee anticipates that such practice will continue in the future. In
each case, the compensation for each of the officers was determined in the same
manner as the compensation for other executive officers of the Company. The base
salary received by each of the officers is substantially below the mean of the
peer group considered by the Compensation Committee. It is anticipated that
additional material raises will be provided in the future. The cash bonuses and
options granted to Messrs. McClendon and Ward were based on the subjective
evaluation of the Company's overall performance, the perceived contributions of
Messrs. McClendon and Ward to that performance and the compensation paid to
other chief executive officers of the Company's peer group.
COMPENSATION COMMITTEE OF THE SPECIAL STOCK OPTION COMMITTEE
BOARD OF DIRECTORS
Frederick B. Whittemore
Aubrey K. McClendon Edgar F. Heizer, Jr.
Tom L. Ward Shannon T. Self
Edgar F. Heizer, Jr.
Frederick B. Whittemore
CERTAIN 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.
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>
14
<PAGE> 17
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.
PROPOSAL TO REINCORPORATE IN OKLAHOMA
The Board of Directors is proposing that the Company change its state of
incorporation from Delaware to Oklahoma. The reasons for the change are to save
approximately $150,000 per year in franchise taxes while retaining corporate
governance laws similar to those of Delaware. These reasons are more fully
explained below under the caption "Purposes for the Reincorporation." The
details of the change from Delaware incorporation to Oklahoma incorporation are
set out in the Certificate of Ownership and Merger which is attached to this
Proxy Statement as Exhibit "A." The Board of Directors has unanimously approved
the Reincorporation, subject to shareholder approval.
The Reincorporation will be accomplished by merging the Company into its
newly-formed Oklahoma subsidiary, Chesapeake Oklahoma Corporation ("Chesapeake
Oklahoma"). The Company will then immediately be renamed Chesapeake Energy
Corporation and continue conducting business as the successor to the Company. If
the Company's stockholders adopt and approve the Reincorporation, Certificates
of Ownership and Merger will be filed with the appropriate offices of the states
of Oklahoma and Delaware. The Reincorporation will take effect at 5:00 p.m.,
C.S.T., on December 31, 1996 (the "Effective Date").
The authorized capital stock of Chesapeake Oklahoma consists of 10,000,000
shares of preferred stock, par value $.01 per share and 100,000,000 shares of
common stock, par value $.01 per share ("Chesapeake Oklahoma Common Stock").
Currently the authorized capital stock of the Company consists of 2,000,000
shares of preferred stock, par value $.01 per share and 45,000,000 shares of
common stock, par value $.10 per share.
The Reincorporation will not result in any change in the number of shares
owned or percentage of ownership of any stockholder of the Company. On the
Effective Date each outstanding share of the Company Common Stock will
automatically be converted into one share of Chesapeake Oklahoma Common Stock.
IT WILL NOT BE NECESSARY FOR STOCKHOLDERS TO EXCHANGE THEIR EXISTING STOCK
CERTIFICATES FOR STOCK CERTIFICATES OF CHESAPEAKE OKLAHOMA.
Each outstanding certificate representing shares of the Company Common
Stock will represent the same number of shares of Chesapeake Oklahoma Common
Stock. On and after the Effective Date the Chesapeake Oklahoma Common Stock will
be traded on the NYSE in full substitution for the shares of the Company Common
Stock under the same stock symbol "CHK." Stock certificates for Chesapeake
Oklahoma Common Stock will be the exact same as stock certificates for the
Company Common Stock, but for the par value ($.01 per share versus $.10 per
share) and the state of incorporation (Oklahoma versus Delaware).
Following the Reincorporation, stock certificates for Company Common Stock
may be delivered in effecting sales through a broker, or otherwise. When
presently outstanding Company Common Stock certificates are presented for
transfer after the Reincorporation, new certificates for the stock of Chesapeake
Oklahoma will be issued. New certificates will also be issued upon the request
of any stockholders, subject to normal requirements as to proper endorsement,
signature guarantee, if required, and payment of applicable taxes.
Approval of the Reincorporation will effect a change in the legal domicile
of the Company and certain other changes of a legal nature, as described in this
Proxy Statement. Reincorporation of the Company will not result in any change in
the business, management, location of the principal executive offices, assets,
liabilities or stockholders' equity of the Company. Chesapeake Oklahoma will
possess all of the assets and be responsible for all of the liabilities of the
Company. The Reincorporation will not change the financial condition of the
Company.
15
<PAGE> 18
The Company is currently governed, and the shareholders rights are defined,
by the laws of the state of Delaware, the Board of Directors and officers, its
Certificate of Incorporation and its Bylaws. In addition, the Company has
adopted the 1992 ISO Plan, the 1992 NSO Plan, the 1994 Plan, the 1996 Stock
Option Plan (as described hereinafter and subject to shareholder approval)
(collectively, the "Plans"), and various other employee benefit plans. With the
exception of amendments to the 1992 NSO Plan and the 1994 Plan, all of these
instruments, governing documents and shareholder rights will be substantially
the same for Chesapeake Oklahoma as they were for the Company. Some of the items
will be exactly the same. Some immaterial changes will be made to the others.
Specifically, the officers and directors of Chesapeake Oklahoma will be the
same people who currently serve as officers and directors of the Company. The
Chesapeake Oklahoma bylaws will be the same as the bylaws of the Company in all
material respects, as will the Plans (except as otherwise described herein for
the 1992 NSO Plan and the 1994 Plan) and other employee benefits. The
certificate of incorporation for Chesapeake Oklahoma will be changed somewhat
primarily to maintain the same rights of stockholders before and after the
Effective Date. Although substantially the same, the statutes governing
corporations in Oklahoma and Delaware are different in some respects. The
changes and differences are set forth below under the caption "Principal
Differences between the Company and Chesapeake Oklahoma."
PURPOSES FOR THE REINCORPORATION
The Board of Directors believes that the best interests of the Company and
its shareholders will be served by changing the Company's state of incorporation
from Delaware to Oklahoma. The Board of Directors is not aware of any divergence
of interest between management and the shareholders in general concerning the
proposal. See paragraph "Security Ownership of Management and Certain Beneficial
Owners." There are two primary factors leading to the decision to reincorporate
in Oklahoma:
Eliminate Delaware Franchise Taxes. The major factor in determining to
reincorporate in Oklahoma is that the $150,000 franchise tax the Company
currently pays annually as a Delaware corporation will be eliminated. The
Company does not transact business in Delaware and would not be required to pay
Delaware franchise taxes if it was not incorporated under the Delaware laws. The
Company currently pays Oklahoma franchise tax because of the property its
subsidiaries own and the business it conducts in the state. No additional
franchise or other taxes will be due to the state of Oklahoma as a result of the
Reincorporation.
Oklahoma Corporate Laws Similar to Delaware's. The Company was incorporated
in 1991 in Delaware, rather than in the Company's home state of Oklahoma,
because the Delaware General Corporation Law (the "Delaware Law") is generally
considered to be pro-business. In addition, as a result of there being many
Delaware corporations, there is a large body of case law defining the Delaware
Law. While the Oklahoma General Corporation Act (the "Oklahoma Act") was
intended to be very similar to the Delaware Law, it was only adopted in 1986. At
the time of incorporation, the Company was not certain that the Oklahoma
legislature would keep the Oklahoma Act current with the Delaware Law. The
Company has now determined that the Oklahoma Act has proven to be substantially
equivalent to the Delaware Law. Furthermore, the Oklahoma legislature has
continued to update the Oklahoma Act to correspond to the Delaware Law. Even
though the Oklahoma courts have not decided the large number of cases as have
the Delaware courts, the Delaware decisions and interpretations would be
instructional and therefore persuasive in Oklahoma courts because of the
similarity of the laws and the perceived expertise of the Delaware judiciary.
Therefore the unique advantages of being incorporated in Delaware rather than
Oklahoma are no longer distinct.
INCREASE IN AUTHORIZED CAPITAL
As part of the Reincorporation, the authorized capital stock of the Company
will be increased. See the discussion under the caption "Principal Differences
in Certificate of Incorporation" below. Currently, the Company has 45,000,000
shares of common stock authorized, of which 30,128,321 were issued and
outstanding on October 25, 1996, an additional 4,100,834 shares were reserved
for issuance upon the exercise of options granted and options which may be
granted under the Company's stock option plans, with an additional 3,000,000
shares to be reserved in connection with the 1996 Stock Option Plan and an
additional
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3,737,500 shares are the subject of a registration statement filed by the
Company for purposes of a proposed offering.* As a result, the Company desires
to increase the number of authorized common stock to allow greater flexibility
for the Company in the future for purposes of stock dividends, stock splits,
stock offerings and acquisitions. Currently the Company does not have any issued
and outstanding shares of preferred stock. The Company desires to increase the
number of shares of preferred stock solely to give it greater flexibility in the
future for its capital needs.
PRINCIPAL DIFFERENCES BETWEEN THE OKLAHOMA ACT AND THE DELAWARE LAW
Control Share Acquisition Act. The Oklahoma legislature enacted the Control
Share Acquisition Act to discourage hostile takeover attempts or the acquisition
of a potentially controlling ownership position without the approval of a
company's board of directors. Since there are no provisions in Delaware law
comparable to the Control Share Acquisition Act, this could represent a change
to the Company shareholders after the Reincorporation. The Company's Board of
Directors does not intend the Reincorporation to result in additional
anti-takeover protections. Therefore, Chesapeake Oklahoma Certificate of
Incorporation includes a provision whereby Chesapeake Oklahoma will be excluded
from the provisions of the Control Share Acquisition Act. The Company's Board of
Directors has no current plans or proposals for additional anti-takeover
measures.
Written Shareholder Consents. As a Delaware corporation, Company
shareholders are permitted to take action by written consent signed by the
holders of outstanding stock having not less than the minimum number of votes
that would be necessary to authorize or take such action at a meeting at which
all shares entitled to vote thereon were present and voted. The Oklahoma Act
contains provisions which requires a publicly-held corporation to obtain
unanimous approval for any actions taken by written shareholder consent, unless
otherwise provided in its Certificate of Incorporation. This unanimous consent
requirement is intended to effectively preclude action by written shareholder
consent and to require any shareholder vote to be taken at a meeting only after
proper notice and appropriate disclosure. To maintain Company shareholder's
voting rights, the Chesapeake Oklahoma Certificate of Incorporation includes a
provision permitting voting by written shareholder consent in accordance with
Oklahoma law.
PRINCIPAL DIFFERENCES IN CERTIFICATE OF INCORPORATION
The authorized capital stock of Chesapeake Oklahoma consists of 10,000,000
shares of preferred stock, par value $.01 per share and 100,000,000 shares of
Chesapeake Oklahoma Common Stock. The authorized capital stock of the Company
consists of 2,000,000 shares of preferred stock, par value $.01 per share and
45,000,000 shares of Common Stock. The par value of the Company Common Stock
will be reduced from $.10 per share to $.01 per share upon conversion into
Chesapeake Oklahoma Common Stock. By reducing the par value of the Chesapeake
Oklahoma Common Stock from $.10 per share to $.01 per share, the Company's Board
of Directors expects to save approximately $9,000 in organizational filing fees
for Chesapeake Oklahoma. The reduced par value realized after the conversion of
the Common Stock into Chesapeake Oklahoma Common Stock should have no impact on
the Company's shareholders.
The other differences in the Certificate of Incorporation of the Company
and Chesapeake Oklahoma are discussed above under the caption "Principal
Differences Between the Oklahoma Act and the Delaware Law."
- ---------------
* A registration statement relating to these securities has been filed with
the Securities and Exchange Commission but has not yet become effective.
These securities may not be sold or may offers to buy be accepted prior
to the time the registration statement becomes effective. This Proxy
Statement shall not constitute an offer to sell or the solicitation of an
offer to buy nor shall there be any sale of the securities in any state
in which such offer, solicitation or sale would be unlawful prior to
registration or qualification under the securities laws of any such
state.
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POSSIBLE DISADVANTAGES OF THE REINCORPORATION PROPOSAL
The Oklahoma Act is relatively new and does not have the defining body of
case law that exists in Delaware. Delaware corporations are often guided by the
extensive body of court decisions interpreting Delaware's corporate law and the
Delaware Chancery Court is a specialized court of original jurisdiction which
adjudicates corporate disputes. Because of Delaware's prominence as a state of
incorporation for many major publicly held corporations, the legislature in
Delaware has demonstrated an ability and willingness to act quickly and
effectively to meeting changing business needs. There is no assurance that the
Oklahoma Legislature will continue to conform the Oklahoma Act to future changes
in the Delaware Law, and it is likely that the Oklahoma courts will not be as
efficient or adept as the Delaware courts in interpreting the Oklahoma Act
because of the few number of disputes and the absence of a specialized corporate
court. However, as noted, the Oklahoma courts are likely to view Delaware
judicial decisions as highly persuasive, due to the similar or identical
statutory provisions of the two states. Further, the Board of Directors of the
Company believes that these potential disadvantages are outweighed by the
possibility that Oklahoma courts represent a more convenient (and possibly more
favorable) forum for litigating corporate disputes than the Delaware courts. The
Oklahoma Legislature has responded to the needs of corporations organized under
the laws of Oklahoma through numerous amendments to the Oklahoma Act since its
enactment, by amending the Oklahoma Act to conform to changes made to the
Delaware Law.
TAX CONSEQUENCES
The Company has received an opinion from its counsel, McAfee & Taft A
Professional Corporation, to the effect that the proposed Reincorporation will
be a tax-free reorganization under the Code. Accordingly, (i) no gain or loss
will be recognized for federal income tax purposes by the shareholders of the
Company as a result of the Reincorporation, and (ii) the basis and holding
period for the stock of Chesapeake Oklahoma received by the shareholders of the
Company will be the same as the basis and holding period of the stock of the
Company exchanged therefor. The Reincorporation will have no federal income tax
effect on the Company. State, local or foreign income tax consequences to
shareholders may vary from the federal tax consequences described above, and
shareholders are advised to consult their own tax advisors as to the effect of
the Reincorporation under applicable state, local or foreign income tax laws
with respect to their own particular circumstances.
ACCOUNTING CONSEQUENCES
The Reincorporation will not result in any financial accounting
consequences except for a decrease of approximately $2.7 million in the Balance
Sheet line item "Common Stock" and an increase of $2.7 million in the Balance
Sheet line item "Other" under Stockholders Equity to reflect the difference in
the par value. Total Stockholders Equity will not change as a result of the
Reincorporation. The existing assets and liabilities of the Company will
continue to be reported at their historical amounts on the books of Chesapeake
Oklahoma.
REGULATORY APPROVALS
There are no regulatory approvals required in connection with the
Reincorporation.
VOTE REQUIRED
Pursuant to the Delaware Law, the affirmative vote of the holders of a
majority of the outstanding shares of the Company's Common Stock is required for
approval of the Reincorporation and the merger which will effectuate the
Reincorporation. A vote to approve the Reincorporation will constitute specific
approval of all other transactions and proceedings relating to the
Reincorporation, including the increase in authorized capital of the Company,
the assumption by Chesapeake Oklahoma of the Company's Plans and all other
employee benefit plans and agreements, and the obligations of the Company under
such plans and agreements and any other liabilities or obligations of the
Company, and the provisions in Chesapeake Oklahoma's Certificate of
Incorporation which differ from those in the Company's Certificate of
Incorporation.
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NO APPRAISAL RIGHTS
Under applicable provisions of the Delaware Law, there are no dissenting
shareholder appraisal rights available in connection with the Reincorporation.
THE BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED THE REINCORPORATION AND THE
MERGER WHICH WILL EFFECTUATE THE PROPOSED REINCORPORATION. THE BOARD OF
DIRECTORS RECOMMENDS A VOTE "FOR" APPROVAL OF THE REINCORPORATION.
PROPOSAL RELATING TO STOCK OPTION PLANS
The Board of Directors is submitting to shareholders three proposals
relating to stock option plans. One of the proposals seeks approval of
amendments to the Company's 1992 NSO Plan. The second proposal seeks approval of
an amendment to the Company's 1994 Plan. The third proposal seeks approval of a
new stock option plan. The full text of the amendments to the 1992 NSO Plan and
the 1994 Plan are set forth below. A copy of the Chesapeake Energy Corporation
1996 Stock Option Plan (the "1996 Plan") is attached to this proxy Statement as
Exhibit "B."
The 1992 NSO Plan amendments relate to permitting limited transferability
of the options granted thereunder. The 1994 Plan amendment relates to permitting
an additional form of payment of the exercise price for nonqualified stock
options granted thereunder.
The new 1996 Plan will permit the granting to employees of incentive or
nonqualified stock options to purchase up to 3,000,000 shares of Common Stock.
The Board of Directors deems the 1996 Plan advisable since there are no shares
remaining available for grants under the 1994 Plan.
PROPOSAL TO AMEND 1992 NSO PLAN
The Board of Directors has adopted amendments to the 1992 NSO Plan
(paragraphs 6.7 and 6.8), subject to shareholder approval at the Meeting. The
purpose of the amendments is to permit limited transferability of the options
granted under the 1992 NSO Plan. Pursuant to the terms of the 1992 NSO Plan,
each member of the Board of Directors who is not an executive officer of the
Company automatically receives nonqualified stock options to purchase 10,000
shares of Common Stock on the second Tuesday of each October at an option price
equal to the fair market value of the Common Stock on the date of grant. There
are 310,000 shares available for future grant under the 1992 NSO Plan. Paragraph
6.7 of the 1992 NSO Plan currently prohibits transferability except by will or
the laws of descent and distribution. Paragraph 6.8 of the 1992 NSO Plan
currently covers the documentation required on the death of an optionee.
Paragraphs 6.7 and 6.8 will be deleted in their entirety and replaced with the
amended paragraphs.
On August 15, 1996, the Securities and Exchange Commission amended certain
rules promulgated under Section 16 of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), including an amendment to Rule 16b-3 to no longer
require restrictions on transferability as a condition to a plan in order for
the grant of options under such plan to be exempt. Although not required to be
effective until November 1, 1996, the Board of Directors elected to be governed
by the new rules on October 15, 1996 when it approved the amendments to the 1992
NSO Plan. Since transferability is now permitted, the Board of Directors
believes that subject to the discretion of the Committee which administers the
1992 NSO Plan, the 1992 NSO Plan should be amended to (i) permit options
thereunder to be transferable by gift to immediate family members or to trusts,
partnerships or other family entities, (ii) provide that subsequent transfers by
transferees are not permitted except for those by will or the laws of descent
and distribution, (iii) permit transfers pursuant to domestic relations orders
and (iv) provide that transferred options continue to be subject to all the
terms and conditions which applied prior to the transfer. The Board of Directors
believes that the amendments to the 1992 NSO Plan will be beneficial to
directors who are participants in the 1992 NSO Plan in that they will provide a
valuable estate planning tool.
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The full text of paragraphs 6.7 and 6.8 as proposed to replace existing
paragraphs 6.7 and 6.8 is set forth below:
6.7 Limited Transferability of Options. The Committee may, in its
discretion, authorize all or a portion of the Options to be granted to an
Optionee who is a Director to be on terms which permit transfer by such
Optionee to (i) the ex-spouse of the Optionee pursuant to the terms of a
domestic relations order, (ii) the spouse, children or grandchildren of the
Optionee ("Immediate Family Members") , (iii) a trust or trusts for the
exclusive benefit of such immediate Family Members, or (iv) a partnership
in which such Immediate Family Members are the only partners. In addition
(x) there may be no consideration for any such transfer, (y) the stock
option agreement pursuant to which such Options are granted must be
approved by the Committee, and must expressly provide for transferability
in a manner consistent with this paragraph, and (z) subsequent transfers of
transferred Options shall be prohibited except those in accordance with
paragraph 6.8 hereof. Following transfer, any such Options shall continue
to be subject to the same terms and conditions as were applicable
immediately prior to transfer, provided that for purposes of paragraphs 6.5
and 6.11 hereof the term "Optionee" shall be deemed to refer to the
transferee. The events of termination of employment of paragraphs 6.5 and
6.11 hereof shall continue to be applied with respect to the original
Option, following which the Options shall be exercisable by the transferee
only to the extent, and for the periods specified in paragraphs 6.5 and
6.11 hereof. No transfer pursuant to this paragraph 6.7 shall be effective
to bind the Company unless the Company shall have been furnished with
written notice of such transfer together with such other documents
regarding the transfer as the Committee shall request.
6.8 Transfers By Will or the Laws of Descent and Distribution. Options
shall be transferable by will or the laws of descent and distribution;
however, no such transfer of an Option by the Optionee shall be effective
to bind the Company unless the Company shall have been furnished with
written notice of such transfer and an authenticated copy of the will
and/or such other evidence as the Committee may deem necessary to establish
the validity of the transfer and the acceptance by the Successor Optionee
of the terms and conditions of such Option.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" APPROVAL OF THE AMENDMENT TO
THE 1992 NSO PLAN.
PROPOSAL TO AMEND 1994 PLAN
The Board of Directors has adopted an amendment to the 1994 Plan (Section
1.12), subject to shareholder approval at the Meeting. The purpose of the
amendment is to authorize the Committee which administers the 1994 Plan to
permit an additional form of payment of the exercise price for nonqualified
stock options granted under the 1994 Plan. Pursuant to the terms of the 1994
Plan, participants can currently pay the exercise price (i) in cash or by check,
(ii) Common Stock of the Company or a combination of cash, check or Common
Stock, or (iii) pursuant to a cashless exercise procedure utilizing a broker.
The amendment to the 1994 Plan will also empower the Committee to authorize
payment of the exercise price of nonqualified stock options by permitting the
participant to have the Company retain from the shares of Common Stock to be
issued upon exercise of the nonqualified stock option that number of shares of
Common Stock (based on fair market value) that would equal the exercise price.
This procedure is currently permitted in the 1994 Plan with respect to the
payment of withholding taxes due upon the exercise of an option, and the Board
believes that it would be beneficial to participants in the 1994 Plan to permit
this procedure with respect to payment of the exercise price of nonqualified
stock options. However, whether a participant is permitted to utilize this
procedure will be within the sole discretion of the Committee which administers
the 1994 Plan. The Committee has not yet determined whether any of the current
nonqualified stock option agreements made pursuant to the 1994 Plan will be
amended to permit this additional form of payment of the exercise price of
nonqualified stock options.
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Set forth below is the full text of the language to be added to Section
1.12 by the amendment to the 1994 Plan:
"... In addition to the foregoing, the Committee may, in its sole
discretion, permit payment of the exercise price of Stock Options
granted under the Plan by the Participant directing the Company to
withhold from the shares of Stock to be delivered to the Participant
upon exercise of the Stock Option shares of Stock having a "fair
market value" as defined in Section 1.6 of the Plan on the date of
payment equal to the amount of the exercise price."
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" APPROVAL OF THE AMENDMENT TO
THE 1994 PLAN.
PROPOSAL TO ADOPT 1996 STOCK OPTION PLAN
General. On October 15, 1996, the Board of Directors subject to shareholder
approval, adopted the 1996 Plan, which authorized the granting of incentive
stock options and nonqualified stock options to employees. The Board of
Directors has reserved 3,000,000 shares of Common Stock for issuance under the
1996 Plan. A description of the 1996 Plan appears below and a copy of the 1996
Plan is attached to this Proxy Statement as Exhibit "B." The description below
is qualified in its entirety by reference to the complete text of the 1996 Plan.
Purpose of the 1996 Plan. The purpose of the 1996 Plan is to create
incentives which are designed to motivate participants to put forth maximum
effort toward the success and growth of the Company and to enable the Company to
attract and retain experienced individuals who by their position, ability and
diligence are able to make important contributions to the Company's success.
Toward these objectives, the 1996 Plan provides for the granting of stock
options intended to be qualified as incentive stock options pursuant to Section
422 of the Code and nonqualified stock options as described in Sections 83 and
421 of the Code. All shares subject to the 1996 Plan will be registered at the
Company's expense under the Securities Act of 1933, as amended.
Plan Administration. For the purposes of administration, the 1996 Plan is
deemed to consist of two separate stock option plans: a "Non-Executive Officer
Plan" which is limited to participants who are not subject to Section 16 of the
Exchange Act and an "Executive Officer Plan" which is limited to participants
who are subject to Section 16 of the Exchange Act. Except for administration and
the category of participants eligible to receive options, the terms of the
Non-Executive Officer Plan and the Executive Officer Plan are identical.
The Non-Executive Officer Plan will be administered by a committee,
designated the Regular Stock Option Committee, of two or more directors of the
Company. Messrs. McClendon and Ward serve as the members of the Regular Stock
Option Committee. The Executive Officer Plan will be administered by a
committee, designated the Special Stock Option Committee, of two or more
directors who meet the definition of "non-employee director" under Rule 16b-3
promulgated under the Exchange Act. Messrs. Heizer and Whittemore serve as the
members of the Special Stock Option Committee. With respect to all decisions
relating to non-executive officer employees, including the grant of options, the
term "Committee", as hereafter used, applies only to the Regular Stock Option
Committee and, with respect to all decisions relating to executive officers,
including the grant of options, the term "Committee", as hereafter used, applies
only to the Special Stock Option Committee.
The Committee is authorized and has complete discretion to formulate
policies, to establish rules and regulations for the administration of the 1996
Plan and to determine the terms of any options granted under the 1996 Plan.
MATERIAL TERMS OF OPTIONS
Option Price. The exercise price of incentive stock options granted under
the 1996 Plan may not be less than 100% of the fair market value of the shares
underlying the options on the date of grant, or 110% of the fair market value of
such shares in the case of an optionee who holds more than 10% of the combined
voting power of the Company's outstanding securities. The exercise price of
nonqualified stock options will be determined
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by the Committee, but may not be less than 75% of the fair market value of the
shares underlying the options on the date of grant. No option may have an
exercise price less than the par value of the shares subject to the option. With
respect to incentive stock options, the aggregate fair market value (determined
as of the grant date) of the stock which any participant may first have the
right to acquire pursuant to the exercise of any incentive stock options in any
calendar year under all incentive stock options of the Company may not exceed
$100,000. In the event options granted to a participant exceed the $100,000
annual limitation, the participant will be deemed to have been granted incentive
stock options with respect to shares within the $100,000 limitation and
nonqualified stock options with respect to shares which cause such limitation to
be exceeded. The fair market value of shares of Common Stock is determined by
reference to the reported closing price on NYSE or such other principal national
securities exchange upon which the stock is listed. As of October 25, 1996, the
closing price per share for the Common Stock on the NYSE was $54.38.
Option Period and Vesting. The maximum period for exercise of an option
will be established by the Committee at the date of grant, but the option period
may not be more than ten years from the date of grant (or five years in the case
of incentive stock options granted to an optionee who holds more than 10% of the
combined voting power of the Company's outstanding securities). An option may be
exercised only to the extent that the optionee is vested in accordance with a
schedule determined by the Committee in its sole discretion.
To the extent exercisable, options granted under the 1996 Plan may be
exercised by the optionee during his or her employment any time within the
option period and within three months after termination of employment, or within
one year of termination if employment terminated as a result of disability. In
the event an optionee's employment is terminated by reason of death, the
personal representative of the deceased employee may exercise the exercisable
portion of such option at any time within three years after the optionee's death
(but not beyond the expiration of the option period). The Committee has
discretion to accelerate the vesting of unvested options in the case of
termination of employment of an optionee.
Payment Upon Exercise. Upon the exercise of an option under the 1996 Plan,
the option price and any required state and federal withholding taxes must be
paid in full, in cash, in Common Stock of the Company (either by delivering
previously owned shares or by directing the Company to withhold shares from
those to be received upon exercise) or a combination of cash and Common Stock.
In addition, the 1996 Plan has a "cashless exercise" feature which permits a
participant to exercise an option by delivering to the Company an irrevocable
instruction to deliver the stock certificate for the shares being purchased,
issued in the name of the participant, representing the shares subject to the
option to a broker authorized to trade in the Common Stock. The broker may then
sell the stock, or a portion thereof, and deliver to the Company the portion of
the sales proceeds to cover the option price and the withholding taxes, if any.
Transferability. Options are not transferable except or by will or by the
laws of descent and distribution.
Adjustments
The 1996 Plan provides for appropriate adjustments in the number of shares
and option price in the event of a recapitalization, stock split, merger,
consolidation, reorganization, combination, liquidation, stock dividend or
similar transaction involving the Company.
Acceleration Upon Corporate Event
Where dissolution or liquidation of the Company or any merger or
combination in which the Company is not a surviving corporation is involved, and
no provision is made for the assumption of outstanding options or the
substitution therefor, each outstanding option granted will terminate, but the
optionee will have the right, immediately prior to such transaction, to exercise
his or her option, in whole or in part, to the extent not previously exercised,
without regard to any vesting provisions. The 1996 Plan also provides that the
Committee may, within its discretion, provide for certain payments to be made by
the Company to a participant in the event acceleration of the vesting of options
is considered a payment subject to the excise tax imposed under Section 4999 of
the Code.
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Termination and Amendment
The 1996 Plan provides for termination at midnight, October 14, 2006, but
will continue with respect to outstanding options as of the time of termination.
Prior to such time, the 1996 Plan may be earlier terminated, altered, changed,
modified or amended by the Board of Directors. Without the approval of
shareholders, however, no action of the Board of Directors may increase the
aggregate number of shares which may be purchased under the 1996 Plan. No
amendment, modification or termination of the Plan may in any manner adversely
affect any option theretofore granted without the consent of the affected
optionee.
Participants
The Company currently has 316 employees who are eligible to participate in
the 1996 Plan, eight of whom are executive officers. Such executive officers may
be granted options by the Special Stock Option Committee, and the other
employees are eligible to be granted options by the Regular Stock Option
Committee. The Committee determines from time to time those persons who are to
be granted options under the 1996 Plan, taking into account the duties of the
respective optionees, their present and potential contributions to the success
of the Company and such other factors as the Committee deems relevant.
Since no decisions have been made with respect to the grants of any options
under the 1996 Plan, it is not possible to determine the future benefits or
dollar amounts to be received by either the named executive officers, the
executive group or the non-executive officer group under the 1996 Plan. The
non-executive director group is not eligible to participate in the 1996 Plan. No
participant may receive options to purchase more than 500,000 shares of Common
Stock under the 1996 Plan during any one year period.
Federal Income Tax Consequences
Under current federal tax law, the following are the federal tax
consequences generally arising with respect to options granted under the 1996
Plan. A participant who is granted an incentive stock option does not realize
any taxable income at the time of the grant or at the time of exercise.
Similarly, the Company is not entitled to any deduction at the time of grant or
at the time of exercise. If the participant makes no disposition of the shares
acquired pursuant to an incentive stock option before the later of two years
from the date of grant of such option and one year of the transfer of such
shares to the participant, any gain or loss realized on a subsequent disposition
of the shares will be treated as a long-term capital gain or loss. Under such
circumstances, the Company will not be entitled to any deduction for federal
income tax purposes.
The participant who is granted a nonqualified stock option does not have
taxable income at the time of grant, but does have taxable income at the time of
exercise equal to the difference between the exercise price of the shares and
the market value of the shares on the date of exercise. The Company is entitled
to a corresponding deduction for the same amount.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" ADOPTION OF THE 1996 PLAN.
INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP served as the Company's independent accountants for
the year ended June 30, 1995. Effective July 1, 1996, Price Waterhouse LLP sold
its Oklahoma City practice to Coopers & Lybrand L.L.P. and resigned as the
Company's independent accountants. The Company's decision to change independent
accountants and retain Coopers & Lybrand L.L.P. was approved by the Audit
Committee of the Board of Directors and by the Board of Directors. During the
period Price Waterhouse LLP was engaged by the Company, Price Waterhouse, LLP
did not issue any report on the Company's financial statements containing an
adverse opinion, disclaimer of opinion, or qualification. There were no
disagreements between the Company and Price Waterhouse LLP on any matter of
accounting principles or practices, financial statement disclosure or auditing
scope or procedure, nor were there any reportable events. Representatives of
Coopers & Lybrand L.L.P. are expected to attend the Meeting. They will have an
opportunity to make a statement if they desire to do so, and will be available
to respond to shareholder questions.
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SHAREHOLDER PROPOSALS
At the annual meeting each year, the Board of Directors submits to
shareholders its nominees for election as directors and may submit other matters
to the shareholders for action. Shareholders of the Company also may submit
proposals for inclusion in proxy material. These proposals must meet the
shareholder eligibility and other requirements of the Securities and Exchange
Commission. In order to be included in proxy material for the Company's 1997
annual meeting, a shareholder's proposal must be received not later than July 1,
1997 by the Company at 6100 North Western Avenue, Oklahoma City, Oklahoma 73118,
Attention: Ms. Janice Dobbs, Corporate Secretary.
In addition, the Bylaws provide that in order for business to be brought
before a shareholders' meeting, a shareholder must deliver written notice to the
Company not less than 60 nor more than 90 days prior to the date of the meeting.
The notice must state the shareholder's name, address and number and class of
shares beneficially owned by the shareholder, and briefly describe the business
to be brought before the meeting, the reasons for conducting such business at
the meeting and any material interest of the shareholder in the proposal.
The Bylaws also provide that if a shareholder intends to nominate a
candidate for election as a director, the shareholder must deliver written
notice of his or her intention to the Company. The notice must be delivered not
less than 60 nor more than 90 days before the date of a meeting of shareholders.
The notice must set forth the name and address and number and class of shares
beneficially owned by the shareholder and the nominee for election as a
director, the age of the nominee, the nominee's business address and experience
during the past five years, any other directorships held by the nominee, the
nominee's involvement in certain legal proceedings during the past five years
and such other information concerning the nominee as would be required to be
included in a proxy statement soliciting proxies for the election of the
nominee. In addition, the notice must include the consent of the nominee to
serve as a director of the Company if elected.
The Bylaws further provide that, notwithstanding the foregoing notice
requirements, in the event that less than 70 days' notice or prior public
disclosure of the date of the meeting is given or made to shareholders, notice
of a shareholder proposal or nominee to be timely must be received no later than
the tenth day following the day on which notice of the date of the meeting was
mailed or public disclosure thereof was made, whichever occurred first.
OTHER MATTERS
The Company's management does not know of any matters to be presented at
the Meeting other than those set forth in the Notice of Annual Meeting of
Shareholders. However, if any other matters properly come before the Meeting,
the persons named in the enclosed proxy intend to vote the shares to which the
proxy relates on such matters in accordance with their best judgment unless
otherwise specified in the proxy.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ JANICE A. DOBBS
Janice A. Dobbs
Corporate Secretary
November 6, 1996
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EXHIBIT A
CERTIFICATE OF OWNERSHIP AND MERGER
MERGING
CHESAPEAKE ENERGY CORPORATION
INTO
CHESAPEAKE OKLAHOMA CORPORATION
CHESAPEAKE ENERGY CORPORATION, a Delaware corporation (the "Corporation"),
DOES HEREBY CERTIFY:
FIRST: That it owns 100% of the issued and outstanding shares of the
capital stock of CHESAPEAKE OKLAHOMA CORPORATION, an Oklahoma corporation
("Chesapeake Oklahoma").
SECOND: That its board of directors at a meeting held on the 15th day of
October, 1996, determined to merge the Corporation into CHESAPEAKE OKLAHOMA
CORPORATION, and did adopt the following resolutions:
WHEREAS, the officers of the Corporation recommended that the
Corporation reincorporate under the laws of the State of Oklahoma and the
Board of Directors, after discussing the issue, has determined that the
reincorporation is in the best interest of the shareholders and the
Corporation; and
WHEREAS, to facilitate the Corporation's reincorporation, the officers
of the Corporation recommended that the Corporation form Chesapeake
Oklahoma Corporation ("Chesapeake Oklahoma") to be organized and exist
under and by virtue of the laws of the State of Oklahoma, with an
authorized capitalization of (i) 100 million shares of common stock, $.01
par value ("Chesapeake Oklahoma Common Stock"), 10 shares of which will be
issued and outstanding prior to the reincorporation, and (ii) 10 million
shares of preferred stock, $.01 par value, no shares of which will be
issued and outstanding prior to the reincorporation (all shares of
Chesapeake Oklahoma Common Stock outstanding prior to the reincorporation
will be held of record and beneficially by the Corporation).
NOW, THEREFORE, BE IT RESOLVED, that the officers of the Corporation
be, and each of them hereby is, authorized and directed to take any and all
actions required to reincorporate the Corporation under the laws of the
State of Oklahoma, including without limitation, the forming of Chesapeake
Oklahoma as a new transitory subsidiary, in accordance with the recitations
set forth herein, the listing of the shares of Chesapeake Oklahoma on the
New York Stock Exchange, the registration of such shares with the
Securities and Exchange Commission and any state securities agency, the
assumption by Chesapeake Oklahoma of all existing plans and registration
statements of the Corporation and such other actions as may be necessary to
the effect that the rights and obligations of Chesapeake Oklahoma will be
virtually identical to the rights and obligations of the Corporation.
WHEREAS, after the formation of Chesapeake Oklahoma, the Board of
Directors deems it advisable and in the best interests of the Corporation
and its shareholders that the Corporation merge with and into Chesapeake
Oklahoma pursuant to Section 1083 of the Oklahoma General Corporation Act
and Section 253 of the Delaware General Corporation Law (the "Merger") and
immediately thereafter for Chesapeake Oklahoma to change its name to
Chesapeake Energy Corporation; and
WHEREAS, the Corporation and Chesapeake Oklahoma will hereinafter be
know as the "Constituent Corporations;" and
WHEREAS, the Board of Directors deems it advisable and in the best
interests of the Corporation and its shareholders that the Corporation be
merged with and into Chesapeake Oklahoma in the manner contemplated herein
(the "Plan") and recommend that the Merger and the Plan be approved and
adopted by the shareholders of the Corporation;
NOW, THEREFORE, BE IT RESOLVED, that the Constituent Corporations will
be merged into a single corporation by the Corporation merging with and
into Chesapeake Oklahoma, which will survive the Merger, pursuant to the
provisions of Section 1083 of the Oklahoma General Corporation Act and
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<PAGE> 28
Section 253 of the Delaware General Corporation Law. Upon such Merger, the
separate existence of the Corporation will cease, and Chesapeake Oklahoma
will become the owner, without transfer, of all rights and property of the
Constituent Corporations, and will be subject to all the liabilities of the
Constituent Corporations in the same manner as if Chesapeake Oklahoma had
itself incurred such liabilities all as provided by the Oklahoma General
Corporation Act.
FURTHER RESOLVED, that, on the Effective Date of the Merger, which
will be 5:00 p.m., CST, on December 31, 1996 (the "Effective Date of the
Merger"), the Certificate of Incorporation and Bylaws of Chesapeake
Oklahoma, as currently in effect, will be the Certificate of Incorporation
and Bylaws of Chesapeake Oklahoma until they are duly amended, except that
the name of Chesapeake Oklahoma will be changed to Chesapeake Energy
Corporation.
FURTHER RESOLVED, that on the Effective Date of the Merger, the
directors and officers of the Corporation will become the directors and
officers of Chesapeake Oklahoma until their successors are duly elected and
qualified.
FURTHER RESOLVED, that on the Effective Date of the Merger (i) each
share of Chesapeake Common Stock issued and outstanding immediately prior
to the Effective Date of the Merger, by virtue of the Merger and without
any action on the part of the holder thereof, will be converted into one
share of Chesapeake Oklahoma Common Stock, (ii) each share of Chesapeake
Oklahoma Common Stock issued and outstanding immediately prior to the
Effective Date of the Merger, by virtue of the Merger and without any
action on the part of the holder thereof, will be cancelled and no payment
will be made in respect thereof, and (iii) upon surrender of any
certificates representing Chesapeake Common Stock, stock certificates
representing Chesapeake Oklahoma Common Stock will be reissued to the
holder thereof.
FURTHER RESOLVED, that this Plan will be submitted to the shareholders
of the Corporation for approval in the manner provided by applicable
Oklahoma and Delaware law. After approval by the vote of the holders
representing not less than a majority of the issued and outstanding shares
of Chesapeake Common Stock entitled to vote on the Merger, the officers
are, and each of them hereby is, authorized and directed to execute and
file with the Secretary of State of the States of Oklahoma and Delaware a
Certificate of Ownership and Merger and to make any such further filings as
may be necessary to effectuate the Merger.
FURTHER RESOLVED, that the officers of the Corporation are authorized
and directed to execute any and all agreements, documents or consents, and
to take any and all actions deemed necessary or desirable to permit the
consummation of the Merger as required by: (a) that certain Indenture dated
as of March 31, 1994, as supplemented, among the Corporation, its
subsidiaries signatory thereto as Subsidiary Guarantors and United States
Trust Company of New York, as trustee; (b) that certain Indenture dated as
of May 15, 1995 among the Corporation, its subsidiaries signatory thereto
as Subsidiary Guarantors and United States Trust Company of New York, as
trustee; and (c) that certain Indenture dated as of April 1, 1996 among the
Corporation, its subsidiaries signatory thereto as Subsidiary Guarantors
and United States Trust Company of New York, as trustee. The execution by
the officers, or any one of them, of any such document or agreement, or the
doing by them of any act in connection with the foregoing matter, will
conclusively establish their authority therefor from this Board and from
the Corporation and the approval, ratification and adoption of any
documents or agreements executed and any action taken.
FURTHER RESOLVED, that the officers of the Corporation be, and they
hereby are, authorized and directed to execute and deliver on behalf of the
Corporation all agreements and documents contemplated by the Plan, together
with any and all documents and related agreements deemed necessary or
desirable by said officer or officers to effectuate the foregoing, each in
accordance with the recitations contained herein, and containing such
further and different terms and conditions as said officer or officers will
deem necessary or desirable to accomplish the objectives set forth herein,
and further, that the execution by the officers, or any one of them, of any
such document or agreement, or the doing by them of any act in connection
with the foregoing matter, will conclusively establish their authority
therefor
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<PAGE> 29
from this Board and from the Corporation and the approval, ratification and
adoption of any documents or agreements executed and any action taken.
THIRD: The merger has been approved by a majority of the outstanding stock
of the Corporation entitled to vote thereon at a meeting duly called and held
after twenty days' notice of the purpose of the meeting mailed to each such
stockholder at his address as it appears in the records of the Corporation.
FOURTH: Chesapeake Oklahoma hereby agrees that it may be served with
process in the state of Delaware in any proceeding for enforcement of any
obligation of any constituent corporation of Delaware, as well as for
enforcement of any obligation of Chesapeake Oklahoma arising from the merger,
including any suit or other proceeding to enforce the right of any shareholders
as determined in appraisal proceedings pursuant to the provisions of Section 262
of the Delaware General Corporation Law, and hereby irrevocably appoints the
Secretary of State of the State of Delaware as its agent to accept service of
process in any such suit or other proceeding. The address to which a copy of
such process shall be mailed by the Secretary of State of Delaware is 6100 N.
Western Avenue, Oklahoma City, OK 73118.
IN WITNESS WHEREOF, the Corporation has caused this Certificate to be
signed by its President and attested to by its Secretary effective the
day of , 1996.
CHESAPEAKE ENERGY CORPORATION
By:
------------------------------------
President
ATTEST:
- ------------------------------------
Secretary
[SEAL]
A-3
<PAGE> 30
EXHIBIT B
CHESAPEAKE ENERGY CORPORATION
1996 STOCK OPTION PLAN
<PAGE> 31
CHESAPEAKE ENERGY CORPORATION
1996 STOCK OPTION PLAN
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ARTICLE I
PURPOSE............................................................................ 1
SECTION 1.1 Purpose............................................................... 1
SECTION 1.2 Establishment......................................................... 1
SECTION 1.3 Shares Subject to the Plan............................................ 1
SECTION 1.4 Shareholder Approval.................................................. 1
ARTICLE II
DEFINITIONS........................................................................ 1
ARTICLE III
ADMINISTRATION..................................................................... 2
SECTION 3.1 Administration of the Plan; the Committee............................. 2
SECTION 3.2 Committee to Make Rules and Interpret Plan............................ 3
ARTICLE IV
GRANT OF OPTIONS................................................................... 3
ARTICLE V
ELIGIBILITY........................................................................ 4
ARTICLE VI
STOCK OPTIONS...................................................................... 4
SECTION 6.1 Grant of Options...................................................... 4
SECTION 6.2 Conditions of Options................................................. 4
SECTION 6.3 Options Not Qualifying as Incentive Stock Options..................... 6
ARTICLE VII
STOCK ADJUSTMENTS.................................................................. 6
ARTICLE VIII
GENERAL............................................................................ 7
SECTION 8.1 Amendment or Termination of Plan
SECTION 8.2 Acceleration of Otherwise Unexercisable Stock Options on Death,
Disability or Other Special Circumstances........................... 7
SECTION 8.3 Nonassignability...................................................... 7
SECTION 8.4 Withholding Taxes..................................................... 7
</TABLE>
i
<PAGE> 32
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
SECTION 8.5 Amendments to Options................................................. 7
SECTION 8.6 Regulatory Approval and Listings...................................... 7
SECTION 8.7 Right to Continued Employment......................................... 8
SECTION 8.8 Reliance on Reports................................................... 8
SECTION 8.9 Construction.......................................................... 8
SECTION 8.10 Governing Law......................................................... 8
ARTICLE IX
ACCELERATION OF OPTIONS UPON CORPORATE EVENT....................................... 8
SECTION 9.1 Procedures for Acceleration and Exercise.............................. 8
SECTION 9.2 Certain Additional Payments by the Company............................ 9
</TABLE>
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<PAGE> 33
ARTICLE I
PURPOSE
SECTION 1.1 Purpose. This Stock Option Plan is established by Chesapeake
Energy Corporation (the "Company") to create incentives which are designed to
motivate Participants to put forth maximum effort toward the success and growth
of the Company and to enable the Company to attract and retain experienced
individuals who by their position, ability and diligence are able to make
important contributions to the Company's success. Toward these objectives, the
Plan provides for the granting of Options to Participants on the terms and
subject to the conditions set forth in the Plan.
SECTION 1.2 Establishment. The Plan is effective as of October 15, 1996
and for a period of 10 years from such date. The Plan will terminate on October
14, 2006, however, it will continue in effect until all matters relating to the
exercise of Options and administration of the Plan have been settled.
SECTION 1.3 Shares Subject to the Plan. Subject to Articles IV, VII and IX
of this Plan, shares of stock covered by Options shall consist of Three Million
(3,000,000) shares of Common Stock.
SECTION 1.4 Shareholder Approval. The Plan shall be approved by the
holders of a majority of the outstanding shares of Common Stock, present, or
represented, and entitled to vote at a meeting called for such purposes, which
approval must occur within the period ending twelve months after the date the
Plan is adopted by the Board. Pending such approval by the shareholders, Options
under the Plan may be granted to Participants, but no such Options may be
exercised prior to receipt of shareholder approval. In the event shareholder
approval is not obtained within such twelve-month period, all such Options shall
be void.
ARTICLE II
DEFINITIONS
SECTION 2.1 "Board" means the Board of Directors of the Company.
SECTION 2.2 "Code" means the Internal Revenue Code of 1986, as amended.
Reference in the Plan to any Section of the Code shall be deemed to include any
amendments or successor provisions to such Section and any regulations under
such Section.
SECTION 2.3 "Common Stock" means the common stock, par value $.10 per
share, of the Company, and after substitution, such other stock as shall be
substituted therefor as provided in Article VII or Article IX of the Plan.
SECTION 2.4 "Date of Grant" means the date on which the granting of an
Option is authorized by the Committee or such later date as may be specified by
the Committee in such authorization.
SECTION 2.5 "Disability" shall have the meaning set forth in Section
22(e)(3) of the Code.
SECTION 2.6 "Eligible Employee" means any employee of the Company, a
Subsidiary or a partnership or limited liability company which the Company
controls.
SECTION 2.7 "Exchange Act" means the Securities Exchange Act of 1934, as
amended.
SECTION 2.8 "Executive Officer Participants" means Participants who are
subject to the provisions of Section 16 of the Exchange Act.
SECTION 2.9 "Fair Market Value" means (A) during such time as the Common
Stock is listed upon the New York Stock Exchange or other exchanges or the
NASDAQ/National Market System, the closing price of the Common Stock on such
stock exchange or exchanges or the NASDAQ/National Market System on the day for
which such value is to be determined, or if no sale of the Common Stock shall
have been made on any such stock exchange or the NASDAQ/National Market System
that day, on the next preceding day on which there was a sale of such Common
Stock or (B) during any such time as the Common Stock is not listed upon an
established stock exchange or the NASDAQ/National Market System, the mean
between
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<PAGE> 34
dealer "bid" and "ask" prices of the Common Stock in the over-the-counter market
on the day for which such value is to be determined, as reported by the National
Association of Securities Dealers, Inc.
SECTION 2.10 "Incentive Stock Option" means an Option within the meaning
of Section 422 of the Code.
SECTION 2.11 "Non-Executive Officer Participants" means Participants who
are not subject to the provisions of Section 16 of the Exchange Act.
SECTION 2.12 "Nonqualified Stock Option" means an Option which is not an
Incentive Stock Option.
SECTION 2.13 "Option" means an Option granted under Article VI of the Plan
and includes both Nonqualified Stock Options and Incentive Stock Options to
purchase shares of Common Stock.
SECTION 2.14 "Option Agreement" means any written instrument that
establishes the terms, conditions, restrictions, and/or limitations applicable
to an Option in addition to those established by this Plan and by the
Committee's exercise of its administrative powers.
SECTION 2.15 "Participant" means an Eligible Employee to whom an Option
has been granted by the Committee under the Plan.
SECTION 2.16 "Plan" means the Chesapeake Energy Corporation 1996 Stock
Option Plan.
SECTION 2.17 "Regular Stock Option Committee" means a committee designated
by the Board which shall consist of not less than two members of the Board.
SECTION 2.18 "Special Stock Option Committee" means a committee designated
by the Board which shall consist of not less than two members of the Board who
meet the definition of "non-employee directors" pursuant to Rule 16b-3, or any
successor rule, promulgated under Section 16 of the Exchange Act.
SECTION 2.19 "Subsidiary" shall have the meaning set forth in Section 424
of the Code.
ARTICLE III
ADMINISTRATION
SECTION 3.1 Administration of the Plan; the Committee. For purposes of
administration, the Plan shall be deemed to consist of two separate stock option
plans, a "Non-Executive Officer Participant Plan" which is limited to
Non-Executive Officer Participants and an "Executive Officer Participant Plan"
which is limited to Executive Officer Participants. Except for administration
and the category of Participants eligible to receive Options, the terms of the
Non-Executive Officer Participant Plan and the Executive Officer Participant
Plan are identical.
The Non-Executive Officer Participant Plan shall be administered by the
Regular Stock Option Committee and the Executive Officer Participant Plan shall
be administered by the Special Stock Option Committee. Accordingly, with respect
to decisions relating to Non-Executive Officer Participants, including the grant
of Options, the term "Committee" shall mean only the Regular Stock Option
Committee; and, with respect to all decisions relating to the Executive Officer
Participants, including the grant of Options, the term "Committee" shall mean
only the Special Stock Option Committee.
Unless otherwise provided in the by-laws of the Company or the resolutions
adopted from time to time by the Board establishing the Committee, the Board may
from time to time remove members from, or add members to, the Committee.
Vacancies on the Committee, however caused, shall be filled by the Board. The
Committee shall hold meetings at such times and places as it may determine. A
majority of the Committee shall constitute a quorum, and the acts of a majority
of the members present at any meeting at which a quorum is present or acts
reduced to or approved in writing by a majority of the members of the Committee
shall be the valid acts of the Committee.
Subject to the provisions of the Plan, the Committee shall have exclusive
power to:
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<PAGE> 35
(a) Select the Participants to be granted Options.
(b) Determine the time or times when Options will be granted.
(c) Determine the form of an Option, whether an Incentive Stock Option
or a Nonqualified Stock Option, the number of shares of Common Stock
subject to the Option, all the terms, conditions (including performance
requirements), restrictions and/or limitations, if any, of an Option,
including the time and conditions of exercise or vesting, and the terms of
any Option Agreement, which may include the waiver or amendment of prior
terms and conditions or acceleration or early vesting under certain
circumstances determined by the Committee.
(d) Determine whether Options will be granted singly or in
combination.
(e) Accelerate the vesting or exercise of an Option when such action
or actions would be in the best interest of the Company.
(f) Take any and all other action it deems necessary or advisable for
the proper operation or administration of the Plan.
SECTION 3.2 Committee to Make Rules and Interpret Plan. The Committee in
its sole discretion shall have the authority, subject to the provisions of the
Plan, to establish, adopt, or revise such rules and regulations and to make all
such determinations relating to the Plan as it may deem necessary or advisable
for the administration of the Plan. The Committee's interpretation of the Plan
or any Options granted pursuant hereto and all decisions and determinations by
the Committee with respect to the Plan shall be final, binding, and conclusive
on all parties.
ARTICLE IV
GRANT OF OPTIONS
The Committee may, from time to time, grant Options to one or more
Participants, provided, however, that:
(a) Subject to Article VII, the aggregate number of shares of Common
Stock made subject to the grant of Options to any Participant in any fiscal
year of the Company may not exceed 500,000.
(b) Any shares of Common Stock related to Options which terminate by
expiration, forfeiture, cancellation or otherwise without the issuance of
shares of Common Stock shall be available again for grant under the Plan.
(d) Common Stock delivered by the Company upon exercise of an Option
under the Plan may be authorized and unissued Common Stock or Common Stock
held in the treasury of the Company or may be purchased on the open market
or by private purchase.
(e) The Committee shall, in its sole discretion, determine the manner
in which fractional shares arising under this Plan shall be treated.
(f) Separate certificates representing Common Stock to be delivered to
a Participant upon the exercise of any Option will be issued to such
Participant.
ARTICLE V
ELIGIBILITY
Subject to the provisions of the Plan, the Committee shall, from time to
time, select from the Eligible Employees those to whom Options shall be granted
and shall determine the type or types of Options to be granted and shall
establish in the related Option Agreements the terms, conditions, restrictions
and/or limitations, if any, applicable to the Options in addition to those set
forth in the Plan and the administrative rules and regulations issued by the
Committee.
3
<PAGE> 36
ARTICLE VI
STOCK OPTIONS
SECTION 6.1 Grant of Options. The Committee may, from time to time,
subject to the provisions of the Plan and such other terms and conditions as it
may determine, grant Options to Participants. These Options may be Incentive
Stock Options or Nonqualified Stock Options, or a combination of both. Each
grant of an Option shall be evidenced by an Option Agreement executed by the
Company and the Participant, and shall contain such terms and conditions and be
in such form as the Committee may from time to time approve, subject to the
requirements of Section 6.2.
SECTION 6.2 Conditions of Options. Each Option so granted shall be subject
to the following conditions:
(a) Exercise Price. As limited by Section 6.2(e) below, each Option
shall state the exercise price which shall be set by the Committee at the
Date of Grant; provided, however, no Nonqualified Stock Option shall be
granted at an exercise price which is less than 75% of the Fair Market
Value of the Common Stock on the Date of Grant.
(b) Form of Payment. The exercise price of an Option may be paid (i)
in cash or by check, bank draft or money order payable to the order of the
Company; (ii) by delivering shares of Common Stock having a Fair Market
Value on the date of payment equal to the amount of the exercise price;
(iii) by directing the Company to withhold from the shares of Common Stock
to be delivered to the Participant upon exercise of the Option shares of
Common Stock having a Fair Market Value on the date of payment equal to the
amount of the exercise price; or (iv) a combination of the foregoing. In
addition to the foregoing, any Option granted under the Plan may be
exercised by a broker-dealer acting on behalf of a Participant if (A) the
broker-dealer has received from the Participant or the Company a notice
evidencing the exercise of such Option and instructions signed by the
Participant requesting the Company to deliver the shares of Common Stock
subject to such Option to the broker-dealer on behalf of the Participant
and specifying the account into which such shares should be deposited, (B)
adequate provision has been made with respect to the payment of any
withholding taxes due upon such exercise or, in the case of an Incentive
Stock Option, upon the premature disposition of such shares and (C) the
broker-dealer and the Participant have otherwise complied with Section
220.3(e)(4) of Regulation T, 12 CFR, Part 220 and any successor rules and
regulations applicable to such exercise.
(c) Exercise of Options. Options granted under the Plan shall be
exercisable, in whole or in such installments and at such times, and shall
expire at such time, as shall be provided by the Committee in the Option
Agreement. Exercise of an Option shall be by written notice stating the
election to exercise in the form and manner determined by the Committee.
Every share of Common Stock acquired through the exercise of an Option
shall be deemed to be fully paid at the time of exercise and payment of the
exercise price.
(d) Other Terms and Conditions. Among other conditions that may be
imposed by the Committee, if deemed appropriate, are those relating to (i)
the period or periods and the conditions of exercisability of any Option;
(ii) the minimum periods during which Participants must be employed by the
Company, its Subsidiaries or a partnership or limited liability company
which is controlled by the Company, or must hold Options before they may be
exercised; (iii) the minimum periods during which shares acquired upon
exercise must be held before sale or transfer shall be permitted; (iv)
conditions under which such Options or shares may be subject to forfeiture;
(v) the frequency of exercise or the minimum or maximum number of shares
that may be acquired at any one time and (vi) the achievement by the
Company of specified performance criteria.
(e) Special Restrictions Relating to Incentive Stock Options. Options
issued in the form of Incentive Stock Options shall not be granted to
directors who are not also Eligible Employees, in addition to being subject
to all applicable terms, conditions, restrictions and/or limitations
established by the Committee, comply with the requirements of Section 422
of the Code (or any successor Section thereto), including, without
limitation, the requirement that the exercise price of an Incentive Stock
Option not be less than
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<PAGE> 37
100% of the Fair Market Value of the Common Stock on the Date of Grant, the
requirement that each Incentive Stock Option, unless sooner exercised,
terminated or cancelled, expire no later than 10 years from its Date of
Grant, the requirement that Incentive Stock Options be granted only to
Eligible Employees of the Company or a Subsidiary, and the requirement that
the aggregate Fair Market Value (determined on the Date of Grant) of the
Common Stock with respect to which Incentive Stock Options are exercisable
for the first time by a Participant during any calendar year (under this
Plan or any other plan of the Company or any Subsidiary) not exceed
$100,000. Incentive Stock Options which are in excess of the applicable
$100,000 limitation will be automatically recharacterized as Nonqualified
Stock Options as provided under Section 6.3 of this Plan. No Incentive
Stock Options shall be granted to any Eligible Employee if, immediately
before the grant of an Incentive Stock Option, such Eligible Employee owns
more than 10% of the total combined voting power of all classes of stock of
the Company or its Subsidiaries (as determined in accordance with the stock
attribution rules contained in Sections 422 and 424(d) of the Code).
Provided, the preceding sentence shall not apply if, at the time the
Incentive Stock Option is granted, the exercise price is at least 110% of
the Fair Market Value of the Common Stock subject to the Incentive Stock
Option, and such Incentive Stock Option by its terms is exercisable no more
than five years from the date such Incentive Stock Option is granted.
(f) Application of Funds. The proceeds received by the Company from
the sale of Common Stock pursuant to Options will be used for general
corporate purposes.
(g) Shareholder Rights. No Participant shall have a right as a
shareholder with respect to any share of Common Stock subject to an Option
prior to purchase of such shares of Common Stock by exercise of the Option.
SECTION 6.3 Options Not Qualifying as Incentive Stock Options. With
respect to all or any portion of any Option granted under this Plan not
qualifying as an "incentive stock option" under Section 422 of the Code, such
Option shall be considered as a Nonqualified Stock Option granted under this
Plan for all purposes. Further, this Plan and any Incentive Stock Options
granted hereunder shall be deemed to have incorporated by reference all the
provisions and requirements of Section 422 of the Code (and the Treasury
Regulations issued thereunder) which are required to provide that all Incentive
Stock Options granted hereunder shall be "incentive stock options" described in
Section 422 of the Code. Further, in the event that the Committee grants
Incentive Stock Options under this Plan to a Participant, and, in the event that
the applicable limitation contained in Section 6.2(e) herein is exceeded, then,
such Incentive Stock Options in excess of such limitation shall be treated as
Nonqualified Stock Options under this Plan subject to the terms and provisions
of the applicable Option Agreement, except to the extent modified to reflect
recharacterization of the Incentive Stock Options as Nonqualified Stock Options.
ARTICLE VII
STOCK ADJUSTMENTS
Subject to the provision of Article IX of this Plan, in the event that the
shares of Common Stock, as presently constituted, shall be changed into or
exchanged for a different number or kind of shares of stock or other securities
of the Company or of another corporation (whether by reason of merger,
consolidation, recapitalization, reclassification, stock split, combination of
shares or otherwise), or if the number of such shares of Common Stock shall be
increased through the payment of a stock dividend, or a dividend on the shares
of Common Stock or rights or warrants to purchase securities of the Company
shall be made, then there shall be substituted for or added to each share
available under and subject to the Plan as provided in Section 1.3 hereof, and
each share theretofore appropriated or thereafter subject or which may become
subject to Options under the Plan, the number and kind of shares of stock or
other securities into which each outstanding share of Common Stock shall be so
changed or for which each such share shall be exchanged or to which each such
share shall be entitled, as the case may be, on a fair and equivalent basis in
accordance with the applicable provisions of Section 424 of the Code; provided,
however, in no such event will such adjustment result in a modification of any
Option as defined in Section 424(h) of the Code. In the event there shall be any
other change in the number or kind of the outstanding shares of Common Stock, or
any stock or other
5
<PAGE> 38
securities into which the Common Stock shall have been changed or for which it
shall have been exchanged, then if the Committee shall, in its sole discretion,
determine that such change equitably requires an adjustment in the shares
available under and subject to the Plan, or in any Option theretofore granted or
which may be granted under the Plan, such adjustments shall be made in
accordance with such determination, except that no adjustment of the number of
shares of Common Stock available under the Plan or to which any Option relates
that would otherwise be required shall be made unless and until such adjustment
either by itself or with other adjustments not previously made would require an
increase or decrease of at least 1% in the number of shares of Common Stock
available under the Plan or to which any Option relates immediately prior to the
making of such adjustment (the "Minimum Adjustment"). Any adjustment
representing a change of less than such minimum amount shall be carried forward
and made as soon as such adjustment together with other adjustments required by
this Article VII and not previously made would result in a Minimum Adjustment.
Notwithstanding the foregoing, any adjustment required by this Article VII which
otherwise would not result in a Minimum Adjustment shall be made with respect to
shares of Common Stock relating to any Option immediately prior to exercise of
such Option.
No fractional shares of Common Stock or units of other securities shall be
issued pursuant to any such adjustment, and any fractions resulting from any
such adjustment shall be eliminated in each case by rounding downward to the
nearest whole share.
ARTICLE VIII
GENERAL
SECTION 8.1 Amendment or Termination of Plan. The Board may suspend or
terminate the Plan at any time. In addition, the Board may, from time to time,
amend the Plan in any manner, but may not without shareholder approval adopt any
amendment which would increase the aggregate number of shares of Common Stock
available under the Plan (except by operation of Article VII); provided, that
any amendment to the Plan shall require approval of the shareholders if, in the
opinion of counsel to the Company, such approval is required by any Federal or
state law or any regulations or rules promulgated thereunder.
SECTION 8.2 Acceleration of Otherwise Unexercisable Stock Options on
Death, Disability or Other Special Circumstances. The Committee, in its sole
discretion, may permit (i) a Participant who terminates employment due to a
Disability; (ii) the personal representative of a deceased Participant; or (iii)
any other Participant who terminates employment upon the occurrence of special
circumstances (as determined by the Committee) to purchase all or any part of
the shares subject to any unvested Option on the date of the Participant's
death, termination of his employment due to a Disability, or as the Committee
otherwise so determines. With respect to Options which have already vested at
the date of such termination or the vesting of which is accelerated by the
Committee in accordance with the foregoing provision, the Participant or the
personal representative of a deceased Participant, shall automatically have the
right to exercise such vested Options within three months of such date of
termination of employment or one year in the case of a Participant suffering a
Disability or three years in the case of a deceased Participant.
SECTION 8.3 Nonassignability. No Option shall be subject in any manner to
alienation, anticipation, sale, transfer, assignment, pledge, or encumbrance,
except for transfer by will or the laws of descent and distribution. Any attempt
to transfer, assign, pledge, hypothecate or otherwise dispose of, or to subject
to execution, attachment or similar process, any Option contrary to the
provisions hereof, shall be void and ineffective, shall give no right to any
purported transferee, and may, at the sole discretion of the Committee, result
in forfeiture of the Option involved in such attempt.
SECTION 8.4 Withholding Taxes. A Participant may pay the amount of taxes
required by law upon the exercise of an Option (i) in cash; (ii) by delivering
to the Company shares of Common Stock having a Fair Market Value on the date of
payment equal to the amount of such required withholding taxes; or (iii) by
directing the Company to withhold from the shares of Common Stock to be
delivered to the Participant upon exercise of the Option shares of Common Stock
having a Fair Market Value on the date of payment equal to the amount of such
required withholding taxes.
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SECTION 8.5 Amendments to Options. The Committee may at any time
unilaterally amend the terms of any Option Agreement, whether or not presently
exercisable or vested, to the extent it deems appropriate; provided, however,
that any such amendment which is adverse to the Participant shall require the
Participant's consent.
SECTION 8.6 Regulatory Approval and Listings. The Company shall use its
best efforts to file with the Securities and Exchange Commission as soon as
practicable following the Effective Date, and keep continuously effective and
usable, a Registration Statement on Form S-8 with respect to shares of Common
Stock subject to Options hereunder. Notwithstanding anything contained in this
Plan to the contrary, the Company shall have no obligation to issue or deliver
certificates representing shares of Common Stock subject to Options prior to:
(a) the obtaining of any approval from, or satisfaction of any waiting
period or other condition imposed by, any governmental agency which the
Committee shall, in its sole discretion, determine to be necessary or
advisable;
(b) the admission of such shares to listing on the stock exchange on
which the Common Stock may be listed; and
(c) the completion of any registration or other qualification of such
shares under any state or Federal law or ruling of any governmental body
which the Committee shall, in its sole discretion, determine to be
necessary or advisable.
SECTION 8.7 Right to Continued Employment. Participation in the Plan shall
not give any Eligible Employee any right to remain in the employ of the Company,
any Subsidiary or any partnership or limited liability company controlled by the
Company. Further, the adoption of this Plan shall not be deemed to give any
Eligible Employee or any other individual any right to be selected as a
Participant or to be granted an Option.
SECTION 8.8 Reliance on Reports. Each member of the Committee and each
member of the Board shall be fully justified in relying or acting in good faith
upon any report made by the independent public accountants of the Company and
its Subsidiaries and upon any other information furnished in connection with the
Plan by any person or persons other than himself. In no event shall any person
who is or shall have been a member of the Committee or of the Board be liable
for any determination made or other action taken or any omission to act in
reliance upon any such report or information or for any action taken, including
the furnishing of information, or failure to act, if in good faith.
SECTION 8.9 Construction. Masculine pronouns and other words of masculine
gender shall refer to both men and women. The titles and headings of the
sections in the Plan are for the convenience of reference only, and in the event
of any conflict, the text of the Plan, rather than such titles or headings,
shall control.
SECTION 8.10 Governing Law. The Plan shall be governed by and construed in
accordance with the laws of the State of Oklahoma except as superseded by
applicable Federal law.
ARTICLE IX
ACCELERATION OF OPTIONS UPON CORPORATE EVENT
SECTION 9.1 Procedures for Acceleration and Exercise. If the Company
shall, pursuant to action by the Board, at any time proposes to dissolve or
liquidate or merge into, consolidate with, or sell or otherwise transfer all or
substantially all of its assets to another corporation and provision is not made
pursuant to the terms of such transaction for the assumption by the surviving,
resulting or acquiring corporation of outstanding Options under the Plan, or for
the substitution of new options therefor, the Committee shall cause written
notice of the proposed transaction to be given to each Participant no less than
forty days prior to the anticipated effective date of the proposed transaction,
and his Option shall become 100% vested and, prior to a date specified in such
notice, which shall be not more than ten days prior to the anticipated effective
date of the proposed transaction, each Participant shall have the right to
exercise his Option to purchase any or all of the Common
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Stock then subject to such Option. Each Participant, by so notifying the Company
in writing, may, in exercising his or her Option, condition such exercise upon,
and provide that such exercise shall become effective at the time of, but
immediately prior to, the consummation of the transaction, in which event such
Participant need not make payment for the Common Stock to be purchased upon
exercise of such Option until five days after written notice by the Company to
such Participant that the transaction has been consummated. If the transaction
is consummated, each Option, to the extent not previously exercised prior to the
date specified in the foregoing notice, shall terminate on the effective date of
such consummation. If the transaction is abandoned, (i) any Common Stock not
purchased upon exercise of such Option shall continue to be available for
purchase in accordance with the other provisions of the Plan and (ii) to the
extent that any Option not exercised prior to such abandonment shall have vested
solely by operation of this Section 9.1, such vesting shall be deemed voided as
of the time such acceleration otherwise occurred pursuant to Section 9.1, and
the vesting schedule set forth in the Participant's Option Agreement shall be
reinstituted, as of the date of such abandonment.
SECTION 9.2 Certain Additional Payments by the Company. The Committee may,
in its sole discretion, provide in any Option Agreement for certain payments by
the Company in the event that acceleration of vesting of any Option under the
Plan is considered a payment by the Company (a "Payment") subject to the excise
tax imposed by Section 4999 of the Code or any interest or penalties with
respect to such excise tax (such excise tax, interest and penalties,
collectively, the "Excise Tax"). An Option Agreement may provide that the
Participant shall be entitled to receive a payment (a "Gross-Up Payment") in an
amount such that after payment by the Participant of all taxes (including any
interest or penalties imposed with respect to such taxes), including any Excise
Tax, imposed upon the Gross-Up Payment, the Participant retains an amount of the
Gross-Up Payment equal to the Excise Tax imposed upon the Payment.
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P R O X Y
CHESAPEAKE ENERGY CORPORATION
ANNUAL MEETING OF SHAREHOLDERS
DECEMBER 13, 1996
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS
The undersigned hereby appoints Aubrey K. McClendon and Tom L. Ward, or
either of them, with full power of substitution, proxies to represent and vote
all shares of Common Stock of Chesapeake Energy Corporation (the "Company")
which the undersigned would be entitled to vote if personally present at the
Company's Annual Meeting of Shareholders to be held on Friday, December 13,
1996, at 10:00 a.m., local time, and at any adjournment thereof, as follows:
<TABLE>
<S> <C> <C>
1. Election of Directors [ ] FOR election of both nominees listed [ ] WITHHOLD AUTHORITY to vote for both nominees
below
Aubrey K. McClendon and Shannon T. Self
(INSTRUCTION: TO WITHHOLD AUTHORITY TO VOTE FOR AN INDIVIDUAL NOMINEE, CROSS OUT THE NOMINEE'S NAME.)
</TABLE>
2. Approval of proposal to change the Company's state of incorporation from
Delaware to Oklahoma and (i) merge the Company with and into Chesapeake
Oklahoma Corporation, the Company's wholly-owned subsidiary, (ii) increase
the authorized capital of the Company to 100,000,000 shares of common stock
and 10,000,000 shares of preferred stock, and (iii) make certain other
changes relating to the reincorporation as described in the accompanying
Proxy Statement
[ ] FOR [ ] AGAINST [ ] ABSTAIN
3. Approval of proposals to amend the Company's 1992 Nonstatutory Stock Option
Plan, the Company's 1994 Stock Option Plan and to adopt the new 1996 Stock
Option Plan
[ ] FOR [ ] AGAINST [ ] ABSTAIN
4. In their discretion, upon any other matters that may properly come before the
meeting or any adjournment thereof.
Unless otherwise directed, this proxy will be voted for both nominees and for
Items 2 and 3.
PLEASE DATE AND SIGN ON THE REVERSE SIDE AND RETURN PROMPTLY USING THE ENCLOSED
ENVELOPE.
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Signature(s) of Shareholder(s)
Date ________________________ , 1996
IMPORTANT: Please date this proxy
and sign exactly as your name
appears on your stock
certificate(s). If stock is held
jointly, signature should include
both names. Executors,
administrators, trustees, guardians
and others signing in a
representative capacity, please give
your full titles.
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