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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A
(AMENDMENT NO. 1)
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended June 30, 1997
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES ACT OF 1934
Commission File Number 1-13726
CHESAPEAKE ENERGY CORPORATION
(Exact Name of Registrant as Specified in Its Charter)
OKLAHOMA 73-1395733
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
6100 NORTH WESTERN AVENUE 73118
OKLAHOMA CITY, OKLAHOMA (Zip Code)
(Address of principal executive offices)
(405) 848-8000
Registrant's telephone number, including area code
Securities registered pursuant to Section 12(b) of the Act:
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
------------------- ---------------------
Common Stock, par value $.01 New York Stock Exchange
9.125% Senior Notes due 2006 New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No ____.
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendments to
this Form 10-K. [ ].
The aggregate market value of Common Stock held by non-affiliates on
October 27, 1997 was $423,923,486. At such date, there were 70,429,017 shares of
Common Stock issued and outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
None
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PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
INFORMATION REGARDING DIRECTORS
Pursuant to provisions of the Company's Certificate of Incorporation and
Bylaws, the Board of Directors has fixed the number of directors at seven. The
Company's Certificate of Incorporation and Bylaws provide for three classes of
directors serving staggered three-year terms, with each class to be as nearly
equal in number as possible. The Board of Directors has nominated Breene M. Kerr
and Walter C. Wilson for re-election as directors at the Company's annual
meeting of shareholders scheduled to be held on December 12, 1997. The following
information is furnished for each person who is a director of the Company.
NOMINEES FOR RE-ELECTION AS DIRECTORS FOR TERMS EXPIRING IN 2000
Breene M. Kerr, age 68, has been a director of the Company since 1993. In
1969, he founded Kerr Consolidated, Inc. and remains Chairman and President of
this private company with investments in the oil and gas and trucking
industries. Additionally, in 1969, Mr. Kerr co-founded the Resource Analysis and
Management Group and remained its senior partner until 1982. From 1967 to 1969,
he was Vice President of Kerr-McGee Chemical Corporation. From 1951 through
1967, Mr. Kerr worked for Kerr-McGee Corporation as a geologist and land
manager. Mr. Kerr has served as Chairman of the Investment Committee for the
Massachusetts Institute of Technology and is a life member of the Corporation
(Board of Trustees) of that university. He served as a director of Kerr-McGee
Corporation from 1957 to 1981. Mr. Kerr currently is a trustee and serves on the
Investment Committee of the Brookings Institute in Washington, D.C., and has
been an associate director since 1987 of Aven Gas & Oil, Inc., an oil and gas
property management company located in Oklahoma City. Mr. Kerr graduated in 1951
from the Massachusetts Institute of Technology.
Walter C. Wilson, age 62, has been a director of the Company since 1993.
From 1963 to 1974 and from 1978 to 1997, Mr. Wilson was a general agent with
Massachusetts Mutual Life Insurance Company. From 1974 to 1978, he was Senior
Vice President of Massachusetts Mutual Life Insurance Company, and from 1958 to
1963, he was an agent with that 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 of Rockville, Maryland and Amerac Energy
Corporation of Houston, Texas. Mr. Wilson graduated in 1958 from Dartmouth
College.
DIRECTORS WHOSE TERMS EXPIRE IN 1998
Tom L. Ward, age 38, has served as President, Chief Operating Officer, and
a director of the Company since its inception in 1989. 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 is a
member of the Board of Trustees of Anderson University in Anderson, Indiana. Mr.
Ward graduated from the University of Oklahoma in 1981.
E. F. Heizer, Jr., age 68, has been a director of the Company since 1993.
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 Amdahl Corporation in Santa Clara,
California, Material Science Corporation, Elk Grove, Illinois, and numerous
private companies. Mr. Heizer graduated in 1951 from Northwestern University and
from Yale University Law School in 1954.
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Frederick B. Whittemore, age 66, has been a director of the Company since
1993. 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 Insurance
Company in Winston-Salem, North Carolina, Partner Reinsurance Company, Ltd. in
Bermuda and Southern Pacific Petroleum, N.L. of Sydney, Australia. Mr.
Whittemore graduated in 1953 from Dartmouth College and from the Amos Tuck
School of Business Administration in 1954.
DIRECTORS WHOSE TERMS EXPIRE IN 1999
Aubrey K. McClendon, age 38, has served as Chairman of the Board, Chief
Executive Officer and director of the Company since its inception in 1989. 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 the 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 41, has been a director of the Company since 1993. He
is a shareholder of Self, Giddens & Lees, Inc., Attorneys at Law, in Oklahoma
City, 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.
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 45, was appointed Senior Vice President - Finance
and Chief Financial Officer in September 1997. He served as Vice President -
Finance and Chief Financial Officer from 1993 to 1997. 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 39, has been Senior Vice President - Operations since
1995 and served as Vice President -Exploration from 1991 to 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 44, has been Senior Vice President - Exploration since
1995 and served as Vice President C Exploration from 1989 to 1995. From 1986 to
1989, Mr. Lester was employed by Messrs. McClendon and Ward. He was employed by
various 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 37, was appointed Senior Vice President - Land and Legal
in September 1997 and served as Vice President - Land and Legal from 1995. Mr.
Hood was retained as a consultant to the Company during the two years prior to
his joining the Company. He was associated with the law firm of Watson &
McKenzie from 1987 to 1992. From 1991 to 1992, Mr. Hood was of counsel with the
Oklahoma City law firm
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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 50, 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 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 44, has served as Treasurer since 1995 and as
Treasurer and 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, 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 45, 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.
Dale W. Bossert, age 53, has served as Vice President - Production since
January 1997. Mr. Bossert was previously employed by Celsius Energy Corporation
as Consulting General Manager - Canada from 1994 to 1996 and by Union Pacific
Resources Company, serving as Vice President - Production from 1989 to 1993 and
as Vice President - Exploration and Production Services from 1993 to 1995. Mr.
Bossert graduated from the University of Alberta in 1966.
Charles W. Imes, age 50, has served as Vice President - Information
Technology since 1997 and served as Director -Management Information Systems
since 1993. From 1983 to 1993, Mr. Imes owned Imes Software Systems and served
as a consultant and supplier of software to the Company from 1990 to 1993. Mr.
Imes graduated from the University of Oklahoma in 1969.
Terry L. Kite, age 43, has served as Vice President - Information
Technology since February 1997. From 1981 to 1996, Mr. Kite served in various
positions in information technology at Amerada Hess Corporation in Houston,
Texas, including Manager - Geoscience and Engineering Systems. Prior to joining
Amerada Hess, Mr. Kite held information systems staff positions with Earth
Science Programming in Tulsa from 1979 to 1980 and with Seismograph Service
Corporation in Tulsa from 1976 to 1979. Mr. Kite graduated from the Colorado
School of Mines in 1976.
Janice A. Dobbs, age 49, 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 American Society of Corporate
Secretaries and the Society of Human Resources Management.
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SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
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.
Executive officers of the Company, Marcus C. Rowland, Steven C. Dixon, J.
Mark Lester, Henry J. Hood, Ronald A. Lefaive and Martha A. Burger were late in
filing Form 4's to report the cancellation of stock options and also failed to
timely report on Form 5 options granted to replace such options.
Shannon T. Self, a director of the Company, has advised the Company that
the acquisition of 52,000 shares of Common Stock acquired through the exercise
of a stock option granted by the Company and the disposition of 50,000 of those
shares of Common Stock of the Company were reported on a late filed Form 4 as a
result of confusion over the effective date of the option exercise.
ITEM 11. EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth for the last three fiscal years the cash
compensation of (i) the Company's chief executive officer and (ii) the five
other most highly compensated executive officers:
<TABLE>
<CAPTION>
ANNUAL COMPENSATION SECURITIES
------------------------------------- UNDERLYING
OTHER OPTION ALL
FISCAL 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..................... 1997 $250,000 $ 20,000 $74,450 463,000 $11,050
Chairman of the Board and 1996 $185,000 $ 40,000 $65,408 288,000 $ 8,295
Chief Executive Officer 1995 $180,000 $ 65,400 $57,640 540,000 $ 4,620
Tom L. Ward............................. 1997 $250,000 $ 20,000 $75,408 463,000 $13,700
President and 1996 $185,000 $ 40,000 $66,850 288,000 $ 8,368
Chief Operating Officer 1995 $180,000 $ 65,400 $57,340 540,000 $ 4,620
Marcus C. Rowland....................... 1997 $185,000 $ 50,000 (d) 36,000 $ 9,500
Senior Vice President -- Finance 1996 $165,000 $ 20,000 (d) 171,000 $11,333
and Chief Financial Officer 1995 $155,000 $ 45,400 (d) 324,000 $ 4,620
Steven C. Dixon......................... 1997 $145,000 $ 45,000 (d) 30,000 $11,500
Senior Vice President -- 1996 $125,000 $ 12,500 (d) 97,500 $ 9,870
Operations 1995 $112,500 $ 27,900 (d) 184,500 $ 3,510
Henry J. Hood........................... 1997 $135,000 $ 30,000 (d) 19,500 $ 2,920
Senior Vice President -- 1996 $120,000 $ 12,000 (d) 51,000 $ 6,400
Land and Legal 1995 $120,000 $ 6,300 (d) 20,250 --
J. Mark Lester.......................... 1997 $132,500 $ 30,000 (d) 19,500 $10,400
Senior Vice President -- 1996 $110,000 $ 11,000 (d) 64,500 $ 7,635
Exploration 1995 $105,000 $ 14,800 (d) 81,000 $ 2,063
</TABLE>
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(a) Represents the cost of personal benefits provided by the Company, including
for fiscal 1997 personal accounting support ($53,000 for Mr. McClendon and
$53,350 for Mr. Ward), personal vehicle ($18,000 each) and country club
membership dues ($3,450 for Mr. McClendon and $4,058 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 officer's salary and bonus during the year.
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STOCK OPTIONS GRANTED IN FISCAL 1997
The following table sets forth information concerning options to purchase
Common Stock granted in fiscal 1997 to the executive officers named in the
Summary Compensation Table. Amounts represent stock options granted under the
Company's 1994 and 1996 Plans and include both incentive and non-qualified 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 (110% of such market price
with respect to incentive stock options granted to Messrs. McClendon and Ward).
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
---------------------------------------------------
PERCENT OF POTENTIAL REALIZABLE VALUE
NUMBER OF TOTAL AT ASSUMED ANNUAL RATES
SECURITIES OPTIONS OF STOCK PRICE APPRECIATION
UNDERLYING GRANTED TO EXERCISE FOR OPTION TERM(A)
OPTIONS EMPLOYEES IN PRICE PER EXPIRATION ---------------------------
NAME GRANTED FISCAL 1997 SHARE DATE 5% 10%
---- ---------- ------------ --------- ---------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Aubrey K. McClendon 15,456(b) 0.4% $28.47 6/13/97 N/A N/A
184,544(b) 5.3% $25.87 6/13/97 N/A N/A
235,176 6.7% $14.75 6/13/07 $958,379 $2,117,765
27,824 0.8% $16.23 6/13/02 $ 83,824 $ 220,993
Tom L. Ward 15,456(b) 0.4% $28.47 6/13/97 N/A N/A
184,544(b) 5.3% $25.87 6/13/97 N/A N/A
235,176 6.7% $14.75 6/13/07 $958,379 $2,117,765
27,824 0.8% $16.23 6/13/02 $ 83,824 $ 220,993
Marcus C. Rowland 36,000 1.0% $14.25 4/25/07 $322,623 $ 817,590
Steven C. Dixon 30,000 0.9% $14.25 4/25/07 $268,852 $ 681,325
J. Mark Lester 19,500 0.5% $14.25 4/25/07 $174,754 $ 442,862
Henry J. Hood 19,500 0.5% $14.25 4/25/07 $174,754 $ 442,862
</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.
(b) Option was cancelled upon grant of replacement option.
AGGREGATED OPTION EXERCISES IN FISCAL 1997 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, 1997 and the
unexercised options to purchase Common Stock held by them at June 30, 1997.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
SHARES OPTIONS AT 6/30/97 OPTIONS AT 6/30/97(A)
ACQUIRED VALUE ---------------------------- ----------------------------
NAME ON EXERCISE REALIZED(B) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ----------------------------- ----------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Aubrey K. McClendon.......... 315,000(c) $4,499,496 402,750 701,750 $2,614,777 $2,437,118
Tom L. Ward.................. -- -- 717,750 701,750 $5,520,373 $2,437,118
Marcus C. Rowland............ 249,750 $4,409,183 -- 399,250 $ -- $ 838,860
Steven C. Dixon.............. -- -- 358,273 253,627 $3,006,497 $ 391,377
Henry J. Hood................ 7,593 $ 317,406 2,813 83,251 $ 47,775 $1,403,302
J. Mark Lester............... 32,850 $ 754,997 26,664 120,514 $ 793,653 $ 233,012
</TABLE>
- ---------------
(a) At June 30, 1997, the closing price of the Common Stock on the New York
Stock Exchange ("NYSE") was $9.94. "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, 1997. 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, 1997.
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<PAGE> 7
(b) Represents amounts determined by subtracting the aggregate exercise price of
such options from the aggregate market value of the underlying shares of
Common Stock on the exercise date.
(c) Mr. McClendon has not sold any of such shares.
EMPLOYMENT AGREEMENTS
The Company has employment agreements with Messrs. McClendon and Ward, each
of which provides, among other things, for an annual base salary of not less
than $300,000 commencing July 1, 1997; bonuses at the discretion of the Board of
Directors; eligibility for stock options; and benefits, including an automobile
and aircraft allowance, club membership and personal accounting support. Each
agreement has a term of three years commencing July 1, 1997, which term is
automatically extended for one additional year on each June 30 unless the
Company provides 30 days prior notice of non-extension.
The employment agreements between the Company and Messrs. McClendon and
Ward permit them to participate in each well drilled by the Company on terms no
less favorable to the Company than those agreed to by unaffiliated industry
partners. Messrs. McClendon and Ward have participated in all wells drilled by
the Company since its initial public offering in February 1993 and intend to
continue participating in wells drilled by the Company under the terms of their
employment agreements. Thirty days prior to the beginning of each calendar
quarter, Messrs. McClendon and Ward and the disinterested members of the
Compensation Committee of the Board of Directors agree upon the working interest
percentage in all wells spudded during that quarter to be purchased by Messrs.
McClendon and Ward. That percentage may not be adjusted during such quarter
except with the approval of such disinterested directors. No such adjustments
have ever been requested or granted. The participation election by Messrs.
McClendon or Ward may not exceed a 2.5% working interest in a well. Messrs.
McClendon and Ward are obligated to pay within 150 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 500%
of his annual base salary and bonus.
The Company has a similar employment agreement with Mr. Rowland. It
provides for an annual base salary of not less than $225,000 commencing July 1,
1997. The agreement has a term of three years beginning July 1, 1997, which term
is automatically extended for one additional year on each June 30 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 and
Lester. These agreements have a term of three years from July 1, 1997, with
annual base salaries of $175,000 for Mr. Dixon, $160,000 for Mr. Lester and
$155,000 for Mr. Hood 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 Mr. Hood of the annual base salary and bonus compensation
paid to them under their respective agreements.
The Company may terminate any of the employment agreements with its
executive officers at any time without cause; however, upon such termination
Messrs. McClendon, Ward and Rowland are entitled to
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<PAGE> 8
continue to receive salary and benefits for the balance of the contract term.
Messrs. Dixon, Hood 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 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
During fiscal year 1997, each director who was not an officer of the
Company received $2,500 for each regular meeting of the Board attended, up to a
maximum of $10,000 during the year. Beginning in fiscal 1998, directors who are
not officers of the Company will receive an annual retainer of $10,000, payable
quarterly, and $1,250 for each meeting of the Board attended. Directors are
reimbursed for travel and other expenses. Officers who also serve as directors
do not receive fees for serving as directors.
During fiscal year 1997, each director who was not an officer of the
Company was granted an option for 20,000 shares (10,000 shares pre-split) at an
exercise price of $30.63 ($61.25 pre-split) per share under the Company's 1992
Nonstatutory Stock Option Plan (the "1992 NSO Plan"). During fiscal year 1998,
each director who is not an officer will receive ten-year non-qualified options
under the 1992 NSO Plan to purchase 15,000 shares of Common Stock, granted on
the first day of each quarter, at an exercise price equal to the market price on
the date of grant.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During fiscal 1997, 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 grant of new options under 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 1997 were those to the Company's non-employee
directors pursuant to an annual formula award provision. Messrs. McClendon and
Ward also administer the 1994 and 1996 Plans with respect to non-director
employee participants. Messrs. Heizer and Whittemore, administer the 1994 and
1996 Plans with respect to executive officers or 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."
ITEM 12. 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
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<PAGE> 9
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*+.............................................. 11,263,072(a)(b) 16%
6100 North Western Avenue
Oklahoma City, OK 73118
Aubrey K. McClendon*+...................................... 11,005,978(b)(c) 15%
6100 North Western Avenue
Oklahoma City, OK 73118
Pilgrim Baxter & Associates................................ 6,821,608(d) 10%
1255 Drummers Lane
Wayne, PA 19087-1590
Neuberger & Berman Management.............................. 4,953,900(e) 7%
605 Third Avenue
New York, NY 10158-3698
FMR Corp................................................... 4,550,050(f) 6%
82 Devonshire Street
Boston, MA 02109
Shannon T. Self*........................................... 2,731,998(g) 4%
E. F. Heizer, Jr.*......................................... 1,054,400(h) 1%
Frederick B. Whittemore*................................... 919,000(i) 1%
Steven C. Dixon+........................................... 407,584(b)(j) **
Breene M. Kerr*............................................ 346,250(k) **
Walter C. Wilson*.......................................... 248,000(l) **
Marcus C. Rowland+......................................... 165,215(b)(m) **
J. Mark Lester+............................................ 106,105(b)(n) **
Henry J. Hood+............................................. 23,162(b)(o) **
All directors and executive officers as a group............ 30,948,588(p) 42%
</TABLE>
- ---------------
* Director
+ Executive officer of the Company
** Less than 1%
(a) Includes 1,846,860 shares held by TLW Investments, Inc., an Oklahoma
corporation of which Mr. Ward is sole shareholder and chief executive
officer, and 841,500 shares which may be acquired pursuant to currently
exercisable stock options granted by the Company.
(b) Includes shares purchased on behalf of the executive officer in the
Chesapeake Energy Corporation Savings and Incentive Stock Bonus Plan (Tom L.
Ward, 3,522 shares; Aubrey K. McClendon, 1,643 shares; Steven C. Dixon, 937
shares; Marcus C. Rowland, 985 shares; J. Mark Lester, 719 shares and Henry
J. Hood, 776 shares).
(c) Includes 508,560 shares held by Chesapeake Investments, an Oklahoma limited
partnership of which Mr. McClendon is sole general partner, and 526,500
shares which may be acquired pursuant to currently exercisable stock options
granted by the Company.
(d) on a Schedule 13F as of June 30, 1997, prepared by Pilgrim Baxter &
Associates.
(e) Based on a Schedule 13F as of June 30, 1997, prepared by Neuberger & Berman
Management.
(f) Based on a Schedule 13G as of June 30, 1997, prepared by FMR Corp.
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<PAGE> 10
(g) Includes 2,382 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; 1,098,600 shares held by Mr. Self as trustee of the Aubrey
K. McClendon Children's Trust, 1,209,100 shares held by Mr. Self as trustee
of the Tom L. Ward Children's Trust and 421,916 shares which Mr. Self has
the right to acquire pursuant to currently exercisable stock options granted
by the Company.
(h) Includes 344,750 shares subject to currently exercisable stock options
granted to Mr. Heizer by the Company.
(i) Includes 374,000 shares subject to currently exercisable stock options
granted to Mr. Whittemore by the Company.
(j) Includes 403,647 shares subject to currently exercisable stock options
granted to Mr. Dixon by the Company.
(k) Includes 27,500 shares subject to currently exercisable stock options
granted to Mr. Kerr by the Company.
(l) Includes 248,000 shares subject to currently exercisable stock options
granted to Mr. Wilson by the Company.
(m) Includes 74,250 shares subject to currently exercisable stock options
granted to Mr. Rowland by the Company.
(n) Includes 100,886 shares subject to currently exercisable stock options
granted to Mr. Lester by the Company.
(o) Includes 20,812 shares subject to currently exercisable stock options
granted to Mr. Hood by the Company.
(p) Includes shares subject to options which are currently exercisable.
ITEM 13. 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 1997, the firm billed the Company approximately
$207,000 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. Other than
interests owned prior to the Company's initial public offering 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 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, 1996 to
June 30, 1997, the largest amount owed by them during the period and the balance
owed at July 1, 1996 and June 30, 1997. No
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interest is charged on amounts owing for such costs, unless such costs are not
paid in a timely manner. The amounts for all oher directors were insignificant.
<TABLE>
<CAPTION>
AUBREY K. TOM L. MARCUS C.
MCCLENDON WARD ROWLAND
--------- ------ ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Balance at July 1, 1996............................ $ 971 $1,288 $ 82
Amount billed (to June 30, 1997)................... $3,662 $3,534 $171
Largest outstanding balance (month end)............ $3,552 $2,997 $ 79
Balance at June 30, 1997........................... $3,552 $2,997 $ 42
</TABLE>
Miscellaneous. From time to time, the Company pays various expenses
incurred on behalf of Messrs. McClendon and Ward and their affiliates, creating
accounts receivable of the Company. During fiscal 1997 additions to accounts
receivable (excluding joint interest billings, which are described above) from
Messrs. McClendon and Ward and their affiliates were insignificant.
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SIGNATURE
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this amendment on Form
10-K/A to be signed on its behalf by the undersigned thereunto duly authorized
on October 28, 1997.
CHESAPEAKE ENERGY CORPORATION
By: /s/ MARCUS C. ROWLAND
----------------------------------
Marcus C. Rowland
Senior Vice President-Finance
and Chief Financial Officer
(Principal Financial Officer)
11
