<PAGE> 1
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a)
of the Securities Exchange Act of 1934
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 ss.240.14a-11(c) or ss.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:
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2) Aggregate number of securities to which transaction applies:
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3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11:
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4) Proposed maximum aggregate value of transaction:
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5) Total fee paid:
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Set forth the amount on which the filing fee is calculated and state how it
was determined.
[ ] 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:
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2) Form, Schedule or Registration Statement No.:
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4) Date Filed:
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<PAGE> 2
CHESAPEAKE ENERGY CORPORATION
6100 NORTH WESTERN AVENUE
OKLAHOMA CITY, OKLAHOMA 73118
---------------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD JUNE 12, 1998
---------------------
TO OUR SHAREHOLDERS:
The 1998 Annual Meeting of Shareholders of Chesapeake Energy Corporation,
an Oklahoma corporation (the "Company"), will be held at the Woodstock Inn,
Woodstock, Vermont, on Friday, June 12, 1998 at 10:00 a.m., local time, for the
following purpose:
1. To elect three directors for terms expiring in the year 2001; and
2. 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 April 24, 1998 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 the place of the
meeting during ordinary business hours for a period of at least ten days prior
to the meeting.
The accompanying Proxy Statement contains information regarding the
director nominees to be voted on at the meeting. The Board of Directors
recommends a vote "FOR" each nominee.
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,
Janice A. Dobbs
Janice A. Dobbs
Corporate Secretary
Oklahoma City, Oklahoma
April 30, 1998
<PAGE> 3
CHESAPEAKE ENERGY CORPORATION
---------------------
PROXY STATEMENT
---------------------
ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON JUNE 12, 1998
GENERAL INFORMATION
This Proxy Statement is furnished in connection with the solicitation of
proxies by the Board of Directors of Chesapeake Energy Corporation, an Oklahoma
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 the transition period from July 1 to December 31,
1997 (the "Transition Period"), are being mailed to shareholders on April 30,
1998. Shareholders are referred to the Annual Report for financial information
concerning the activities of the Company.
The Board of Directors has established April 24, 1998 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, 100,105,598 shares
of $.01 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. 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.
The election of each director nominee will be by plurality vote. 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.
<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 Tom L. Ward,
E.F. Heizer, Jr. and Frederick B. Whittemore for re-election as directors for
terms expiring at the 2001 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 1999 or
2000 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 three 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 2001
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., a publicly traded 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 in charge of Allstate's venture capital operations. 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.
Mr. Heizer is a director of Material Science Corporation, a New York Stock
Exchange listed company in Elk Grove, Illinois, and several private companies.
Mr. Heizer graduated from Northwestern University in 1951 and from Yale
University Law School in 1954.
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 is a director of Ecofin Limited, London; Partner Reinsurance Company,
Bermuda; Maxcor Financial Group Inc., New York; SunLife of New York, New York;
KOS Pharmaceuticals, Inc., Miami, Florida; and Southern Pacific Petroleum,
Australia, NL. Mr. Whittemore graduated from Dartmouth College in 1953 and from
the Amos Tuck School of Business Administration in 1954.
2
<PAGE> 5
DIRECTORS WHOSE TERMS EXPIRE IN 2000
Breene M. Kerr, age 68, has been a director of the Company since 1993. He
is Vice Chairman of Seven Seas Petroleum Corporation, Houston, Texas, an
exploration and production company with operations in Colombia, South America.
In 1969, Mr. Kerr founded Kerr Consolidated, Inc. which was sold in 1996. 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 from the Massachusetts Institute of
Technology in 1951.
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, Springfield, Massachusetts, and is a director
of Earth Satellite Corporation of Rockville, Maryland and "Q" Companies, Inc. of
Houston, Texas. Mr. Wilson graduated in 1958 from Dartmouth College.
DIRECTORS WHOSE TERMS EXPIRE IN 1999
Aubrey K. McClendon, age 38, has served as Chairman of the Board, Chief
Executive Officer and a 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 director of Pan East Petroleum
Corp., a Canadian exploration and production company listed on the Toronto Stock
Exchange. 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 member of the
Visiting Committee of Northwestern University School of Law and a director of
The Rock Island Group, a private computer firm in Oklahoma City. Mr. Self is a
Certified Public Accountant. He graduated from the University of Oklahoma in
1979 and from Northwestern University School of Law in 1984.
THE BOARD OF DIRECTORS AND ITS COMMITTEES
The Board of Directors held five meetings during the year ended December
31, 1997, took action by written consent one time, and held one meeting 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 year ended December 31, 1997.
Messrs. McClendon and Ward serve on committees which administer the
Company's 1992 stock option plans, its 1994 stock option plan (with respect to
all employee participants who are not directors) and its 1996 stock option plan
(with respect to all employee participants who are not executive officers). A
committee
3
<PAGE> 6
comprised of Messrs. Heizer and Whittemore administers the 1994 plan with
respect to employee participants who are directors and the 1996 plan with
respect to employee participants who are executive officers. Each committee for
the 1994 and 1996 plans held two meetings during the year ended December 31,
1997.
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 four meetings during the
year ended December 31, 1997.
Each director attended all of the Board and committee meetings held while
serving as a director or committee member during the year ended December 31,
1997.
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 Executive Vice President and Chief
Financial Officer in March 1998. He served as Senior Vice President and Chief
Financial Officer from September 1997 to March 1998 and as Vice
President - Finance and Chief Financial Officer of the Company from 1993 until
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. Mr.
Rowland 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 45, has been Senior Vice President - Exploration since
1995 and served as Vice President - 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 1997 and served as Vice President - Land and Legal from 1995. Mr. Hood was
retained as a consultant during the two years prior to his joining the Company
and was of counsel with the law firm of White, Coffey, Galt & Fite from 1992 to
1995. Mr. Hood was associated with and a partner of the law firm of Watson &
McKenzie from 1987 to 1992. 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 Senior Vice
President - Accounting, Controller and Chief Accounting Officer since March
1998. From 1993 until March 1998, he served as Controller and Chief Accounting
Officer and 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
4
<PAGE> 7
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 45, 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 1993 to 1994, 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 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 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.
Frank E. Jordan, age 37, has served as Vice President - Operations since
February 1998. From 1994 to 1998, Mr. Jordan served in various engineering
positions with the Company, including District Manager - College Station in 1996
and Vice President - Drilling, Northern Division in 1997. Prior to joining the
Company, Mr. Jordan served as a Drilling Engineer for Sedco Forex Schlumberger
from 1985 to 1989 and as a Production Engineer for Kerr-McGee Corporation from
1991 to 1994. Mr. Jordan is a member of the Society of Petroleum Engineers and
graduated from Texas A & M University in 1984 and in 1990.
Stephen W. Miller, age 41, has served as Vice President - Drilling since
1996 and served as District Manager - College Station District from 1994 to
1996. Mr. Miller held various engineering positions in the oil and gas industry
from 1980 to 1993. Mr. Miller is a registered Professional Engineer in Texas,
and is a member of the Society of Petroleum Engineers and graduated from Texas A
& M University in 1980.
Dale W. Bossert, age 53, has served as Vice President - Production since
1997. Mr. Bossert was previously employed by Celsius Energy Corporation as
Consulting General Manager - Canada in 1996 and by Union Pacific Resources
Company of Fort Worth, Texas from 1978 serving in various capacities, including
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.
Michael A. Johnson, age 32, has served as Vice President - Financial
Reporting since March 1998. From 1993 to March 1998 he served as Assistant
Controller to the Company. From 1991 to 1993, he served as Project Manager for
Phibro Energy Production, Inc., a Russian joint venture. From 1987 to 1991, Mr.
Johnson served as audit manager for Arthur Andersen & Co. Mr. Johnson is a
Certified Public Accountant and graduated from the University of Texas at Austin
in 1987.
Charles W. Imes, age 51, 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 44, 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 from 1976 to 1979. Mr. Kite graduated from the Colorado School of
Mines in 1976.
5
<PAGE> 8
Stephen L. Douglas, age 41, has served as Vice President - Acquisitions
since December 1997. From 1996 until his association with the Company, Mr.
Douglas was Chief Financial Officer of Peak USA and previously served as Chief
Financial Officer of Bechtel Energy Corporation's Russian joint stock company.
From 1992 to 1994, Mr. Douglas was Chief Financial Officer for Phibro Energy
Production, Inc., a Russian joint venture. In 1990, Mr. Douglas served as a
strategic planner and business analyst for FMC, a conglomerate in the oil field
equipment manufacturing business. From 1978 until 1988, Mr. Douglas served in
various finance and accounting positions with Chevron and Gulf. Mr. Douglas is a
Certified Public Accountant and a Certified Management Accountant. He graduated
from New England College in 1978 and from Carnegie Mellon University in 1990.
Tony S. Say, age 41, has served as President of Chesapeake Energy
Marketing, Inc. since 1995. From 1979 to 1986, Mr. Say was employed by Delhi Gas
Pipeline Corporation. In 1993, Mr. Say co-founded Princeton Natural Gas Company
which was purchased by Chesapeake Energy Corporation in 1995. 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. 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 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 with 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.
6
<PAGE> 9
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 more than 5% 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*+........................................... 11,333,751(a)(b) 11%
6100 North Western Avenue
Oklahoma City, OK 73118
Aubrey K. McClendon*+................................... 11,069,376(b)(c) 11%
6100 North Western Avenue
Oklahoma City, OK 73118
Shannon T. Self*........................................ 2,735,748(d) 3%
E.F. Heizer, Jr.*....................................... 1,058,150(e) 1%
Frederick B. Whittemore*................................ 859,550(f) 1%
Steven C. Dixon+........................................ 428,573(b)(g) **
Walter C. Wilson*....................................... 251,750(h) **
Breene M. Kerr*......................................... 204,500(i) **
J. Mark Lester+......................................... 114,202(b)(j) **
Marcus C. Rowland+...................................... 101,171(b)(k) **
Henry J. Hood+.......................................... 25,089(b)(l) **
All directors and executive officers as a group......... 28,222,203(m) 27%
</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 909,000 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, 6,701 shares; Aubrey K. McClendon, 3,544 shares; Steven C. Dixon,
1,451 shares; Marcus C. Rowland, 2,565 shares; J. Mark Lester, 1,434 shares
and Henry J. Hood, 1,520 shares).
(c) Includes 508,560 shares held by Chesapeake Investments, an Oklahoma limited
partnership of which Mr. McClendon is sole general partner, and 594,000
shares which may be acquired pursuant to currently exercisable stock
options granted by the Company.
(d) 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 425,666 shares which Mr. Self has
the right to acquire pursuant to currently exercisable stock options
granted by the Company.
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<PAGE> 10
(e) Includes 348,500 shares subject to currently exercisable stock options
granted to Mr. Heizer by the Company.
(f) Includes 41,750 shares held by Mr. Whittemore as trustee of the Whittemore
Foundation and 377,750 shares subject to currently exercisable stock
options granted to Mr. Whittemore by the Company.
(g) Includes 424,122 shares subject to currently exercisable stock options
granted to Mr. Dixon by the Company.
(h) Includes 251,750 shares subject to currently exercisable stock options
granted to Mr. Wilson by the Company.
(i) Includes 31,250 shares subject to currently exercisable stock options
granted to Mr. Kerr by the Company.
(j) Includes 108,268 shares subject to currently exercisable stock options
granted to Mr. Lester by the Company.
(k) Includes 40,500 shares subject to currently exercisable stock options
granted to Mr. Rowland by the Company.
(l) Includes 21,375 shares subject to currently exercisable stock options
granted to Mr. Hood by the Company.
(m) Includes shares subject to options which are currently exercisable.
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.
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 during the twelve months ended December 31, 1997 which
have not previously been reported.
The Company's proxy statement for the 1997 Annual Meeting of Shareholders
reported that 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 cancelation of stock options and also
failed to timely report on Form 5 options granted to replace such options. It
also disclosed a late Form 4 filing by Shannon T. Self, a director of the
Company (acquisition of 52,000 shares of Common Stock through the exercise of a
stock option granted by the Company and the disposition of 50,000 of those
shares).
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<PAGE> 11
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The Company has changed its fiscal year end to December 31 from June 30.
The following table sets forth for the year ended December 31, 1997 and the
years ended June 30, 1997 and 1996 the 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
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(d) $275,000 $310,000 $171,950 457,800 $ 9,500
Chairman of the Board and 1997 $250,000 $120,000 $ 74,450 463,000 $11,050
Chief Executive Officer 1996 $185,000 $ 40,000 $ 65,408 288,000 $ 8,295
Tom L. Ward 1997(d) $275,000 $310,000 $172,978 457,800 $ 9,500
President and 1997 $250,000 $120,000 $ 75,408 463,000 $13,700
Chief Operating Officer 1996 $185,000 $ 40,000 $ 66,850 288,000 $ 8,368
Marcus C. Rowland 1997(d) $207,500 $155,000 (e) 131,600 $ 9,500
Executive Vice President 1997 $185,000 $ 50,000 (e) 36,000 $ 9,500
and Chief Financial Officer 1996 $165,000 $ 20,000 (e) 171,000 $11,333
Steven C. Dixon 1997(d) $162,500 $105,000 (e) 92,000 $ 9,500
Senior Vice President- 1997 $145,000 $ 45,000 (e) 30,000 $11,500
Operations 1996 $125,000 $ 12,500 (e) 97,500 $ 9,870
J. Mark Lester 1997(d) $150,000 $ 70,000 (e) 69,700 $ 9,500
Senior Vice President- 1997 $132,500 $ 30,000 (e) 19,500 $10,400
Exploration 1996 $110,000 $ 11,000 (e) 64,500 $ 7,635
Henry J. Hood 1997(d) $147,500 $ 60,000 (e) 69,700 $ 9,500
Senior Vice President- 1997 $135,000 $ 30,000 (e) 19,500 $ 9,463
Land and Legal 1996 $120,000 $ 12,000 (e) 51,000 $ 6,400
</TABLE>
(a) Represents the cost of personal benefits provided by the Company, including
for calendar year 1997 personal accounting support ($60,500 each), personal
vehicle ($18,000 each ), travel allowance ($90,000 each) and country club
membership dues ($3,450 for Mr. McClendon and $4,478 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) Represents compensation received during calendar year 1997; includes
compensation received during the six months ended June 30, 1997 and
reported for fiscal year 1997.
(e) Other annual compensation did not exceed the lesser of $50,000 or 10% of
the executive officer's salary and bonus during the year.
9
<PAGE> 12
STOCK OPTIONS GRANTED DURING THE YEAR ENDED DECEMBER 31, 1997
The following table sets forth information concerning options to purchase
Common Stock granted in the year ended December 31, 1997 to the executive
officers named in the Summary Compensation Table. Amounts represent stock
options granted under the Company's 1994 and 1996 stock option plans and include
both incentive and non-qualified stock options. One-fourth of each option which
was not a replacement option becomes exercisable on each of the first four grant
date anniversaries. Replacement options have a five-year vesting period. See
"Option Repricing" below. 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),
unless a higher price is noted.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
---------------------------------------------------------
PERCENT OF POTENTIAL REALIZABLE VALUE
TOTAL OPTIONS AT ASSUMED ANNUAL RATES
NUMBER OF GRANTED TO OF STOCK PRICE APPRECIATION
SECURITIES EMPLOYEES IN EXERCISE FOR OPTION TERM(A)
UNDERLYING YEAR ENDED PRICE PER EXPIRATION ---------------------------
NAME OPTIONS GRANTED 12/31/97 SHARE DATE 5% 10%
- ---- --------------- ------------- --------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Aubrey K. McClendon....... 235,176(b) 4.4% $14.75 8/21/97 N/A N/A
27,824(b) 0.5% $16.23 8/21/97 N/A N/A
300,000 5.6% $ 8.75 7/01/07 $1,650,848 $4,183,574
68,395 1.3% $ 8.04 8/21/02 $ 88,203 $ 255,307
89,405 1.7% $ 7.31 8/21/07 $ 411,014 $1,041,591
Tom L. Ward............... 235,176(b) 4.4% $14.75 8/21/97 N/A N/A
27,824(b) 0.5% $16.23 8/21/97 N/A N/A
300,000 5.6% $ 8.75 7/01/07 $1,650,848 $4,183,574
68,395 1.3% $ 8.04 8/21/02 $ 88,203 $ 255,307
89,405 1.7% $ 7.31 8/21/07 $ 411,014 $1,041,591
Marcus C. Rowland......... 36,000(b) 0.7% $14.25 8/21/97 N/A N/A
80,000 1.5% $ 8.75(c) 8/21/07 $ 252,578 $ 816,821
51,600 1.0% $ 7.31 8/21/07 $ 237,217 $ 601,153
Steven C. Dixon........... 30,000(b) 0.6% $14.25 8/21/97 N/A N/A
50,000 0.9% $ 8.75(c) 8/21/07 $ 157,861 $ 510,513
42,000 0.8% $ 7.31 8/21/07 $ 193,083 $ 489,311
J. Mark Lester............ 19,500(b) 0.4% $14.25 8/21/97 N/A N/A
40,000 0.7% $ 8.75(c) 8/21/07 $ 126,289 $ 408,410
29,700 0.5% $ 7.31 8/21/07 $ 136,537 $ 346,013
Henry J. Hood............. 19,500(b) 0.4% $14.25 8/21/97 N/A N/A
40,000 0.7% $ 8.75(c) 8/21/07 $ 126,289 $ 408,410
29,700 0.5% $ 7.31 8/21/07 $ 136,537 $ 346,013
</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 canceled upon grant of replacement option to purchase 60% of
shares subject to replaced option.
(c) Market price was $7.31 per share of Common Stock on the date of grant.
OPTION REPRICING
The following table sets forth information concerning options to purchase
Common Stock held by executive officers which were repriced since the Company
became a reporting company under the Exchange Act in 1993. Amounts represent new
stock options granted under the Company's 1994 and 1996 stock option plans and
include both incentive and non-qualified stock options. The replacement options
granted in 1994 are fully vested, while those granted on August 21, 1997 vest in
equal annual increments over five years. The
10
<PAGE> 13
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>
LENGTH OF
ORIGINAL
MARKET OPTION TERM
NUMBER OF PRICE OF EXERCISE REMAINING
DATE SECURITIES STOCK AT PRICE AT AT DATE OF
NAME AND OPTIONS UNDERLYING TIME OF TIME OF NEW REPRICING
PRINCIPAL POSITION REPRICED OPTIONS REPRICED REPRICING REPRICING EXERCISE PRICE YEARS DAYS
------------------ -------- ---------------- --------- --------- -------------- ----- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Aubrey K. McClendon 6/13/97(a) 63,000 $14.75 $17.67 $14.75 8 295
Chairman of the Board 6/13/97(a) 27,824 $14.75 $28.47 $16.23 4 183
and Chief Executive 6/13/97(a) 172,176 $14.75 $25.88 $14.75 9 183
Officer 8/21/97 89,405 $ 7.31 $14.75 $ 7.31 9 296
8/21/97 68,395 $ 7.31 $16.23 $ 8.04 4 296
Tom L. Ward 6/13/97(a) 63,000 $14.75 $17.67 $14.75 8 295
President and 6/13/97(a) 27,824 $14.75 $28.47 $16.23 4 183
Chief Operating Officer 6/13/97(a) 172,176 $14.75 $25.88 $14.75 9 183
8/21/97 89,405 $ 7.31 $14.75 $ 7.31 9 296
8/21/97 68,395 $ 7.31 $16.23 $ 8.04 4 296
Marcus C. Rowland 1/21/94 81,000 $ 0.56 $ 1.07 $ 0.56 9 000
Executive Vice 4/25/97(a) 36,000 $14.25 $17.67 $14.25 8 344
President and Chief 8/21/97 21,600 $ 7.31 $14.25 $ 7.31 9 247
Financial Officer
Steven C. Dixon 1/21/94 145,800 $ 0.56 $ 1.07 $ 0.56 9 000
Senior Vice President- 4/25/97(a) 30,000 $14.25 $17.67 $14.25 8 344
Operations 8/21/97 18,000 $ 7.31 $14.25 $ 7.31 9 247
J. Mark Lester 1/21/94 145,800 $ 0.56 $ 1.07 $ 0.56 9 000
Senior Vice President- 4/25/97(a) 19,500 $14.25 $17.67 $14.25 8 344
Exploration 8/21/97 11,700 $ 7.31 $14.25 $ 7.31 9 247
Henry J. Hood 4/25/97(a) 19,500 $14.25 $17.67 $14.25 8 344
Senior Vice President- 8/21/97 11,700 $ 7.31 $14.25 $ 7.31 9 247
Land and Legal
Ronald A. Lefaive 4/25/97(a) 19,500 $14.25 $17.67 $14.25 8 344
Senior Vice President 8/21/97 11,700 $ 7.31 $14.25 $ 7.31 9 247
and Controller
Martha A. Burger 4/25/97(a) 13,500 $14.25 $17.67 $14.25 8 344
Treasurer 8/21/97 8,100 $ 7.31 $14.25 $ 7.31 9 247
</TABLE>
- ---------------
(a) Option was canceled upon grant of replacement option to purchase 60% of
shares subject to replaced option.
11
<PAGE> 14
AGGREGATED OPTION EXERCISES IN YEAR ENDED DECEMBER 31, 1997 AND DECEMBER 31,
1997 OPTION VALUES
The following table sets forth information about options exercised by the
named executive officers during the year ended December 31, 1997 and the
unexercised options to purchase Common Stock held by them at December 31, 1997.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
SHARES OPTIONS AT 12/31/97 OPTIONS AT 12/31/97(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(c) 526,500 772,800 $2,121,080 $950,395
Tom L. Ward............. -- -- 841,500 772,800 $4,276,976 $950,395
Marcus C. Rowland....... 298,556 $4,278,431 -- 320,600 -- $569,726
Steven C. Dixon......... -- -- 403,647 190,253 $2,339,621 $321,715
J. Mark Lester.......... 46,128 $ 851,151 100,886 118,214 $ 519,199 $148,764
Henry J. Hood........... 10,126 $ 174,522 18,562 93,326 $ 37,249 $ 64,055
</TABLE>
- ---------------
(a) At December 31, 1997, the closing price of the Common Stock on the New York
Stock Exchange ("NYSE") was $7.56. "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 December 31, 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
December 31, 1997.
(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.
12
<PAGE> 15
PERFORMANCE GRAPH
The following graph compares the performance of the Company's Common Stock
to the S&P 500 Index and to two groups of peer companies 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 Prior Peer Peer S&P 500
(Fiscal Year Covered) Corporation Group(a) Group(b) Index
<S> <C> <C> <C> <C>
02/05/93 100.00 100.00 100.00 100.00
12/31/93 39.11 118.68 119.43 109.17
12/31/94 259.26 108.76 107.67 110.61
12/31/95 820.96 134.90 132.89 152.17
12/31/96 2060.15 176.68 167.55 187.11
12/31/97 563.75 153.67 150.24 249.54
</TABLE>
(a) The prior peer group is comprised of Anadarko Petroleum Corporation, Apache
Corporation, Barrett Resources Corporation, Burlington Resources, Inc.,
Devon Energy Corporation, Enron Oil & Gas Company, Newfield Exploration
Company, Noble Affiliates, Inc., Nuevo Energy Company, Ocean Energy, Inc.,
Pioneer Natural Resources Company, TransTexas Gas Corporation, Union
Pacific Resources Corporation, United Meridian Corporation and Vintage
Petroleum, Inc. The Louisiana Land and Exploration Company, which was
previously included in this peer group, has been omitted as a result of its
merger into Burlington Resources, Inc. in 1997.
(b) The peer group is comprised of Anadarko Petroleum Corporation, Apache
Corporation, Barrett Resources Corporation, Burlington Resources, Inc.,
Cross Timbers Oil Company, Devon Energy Corporation, Enron Oil & Gas
Company, Louis Dreyfus Natural Gas Corporation, Newfield Exploration
Company, Noble Affiliates, Inc., Nuevo Energy Company, Ocean Energy, Inc.,
Pioneer Natural Resources Company, Seagull Energy Corporation, TransTexas
Gas Corporation, Union Pacific Resources Corporation and Vintage Petroleum,
Inc. Cross Timbers Oil Company, Louis Dreyfus Natural Gas Corporation and
Seagull Energy Corporation have been added to the peer group to replace The
Louisiana Land and Exploration Company, which was merged into Burlington
Resources, Inc. in 1997, and United Meridian Corporation, which was
acquired by Ocean Energy, Inc. in 1998.
13
<PAGE> 16
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; 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 wells 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 and may not
be made if the Company's working interest after elections by Messrs. McClendon,
Ward and Rowland to participate would be reduced to below 12.5%. Messrs.
McClendon and Ward have never elected to participate with more than 1.5% nor
less than 1.0% in any of the Company's drilling. 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. 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, Lester and
Hood. 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 continue to receive salary
and benefits for the balance of the contract term. Messrs. Dixon, Lester and
Hood are entitled to 90 days compensation and benefits. Each of the employment
agreements for Messrs. McClendon, Ward and Rowland further states that if,
during the term of the agreement, there is a
14
<PAGE> 17
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
From January 1, 1997 to June 30, 1997, directors who were not officers of
the Company ("non-management directors") received $2,500 for each regular
meeting of the Board attended, up to a maximum of $10,000. Beginning in July
1997, non-management directors received an annual retainer of $10,000, payable
quarterly, and $1,250 for each meeting of the Board attended. Beginning in April
1998, each non-management director will receive $5,000 for each board meeting
attended, not to exceed $20,000 per year, and an annual retainer of $5,000,
payable quarterly. Directors are reimbursed for travel and other expenses.
Officers who also serve as directors do not receive fees for serving as
directors.
During the year ended December 31, 1997, each non-management director
received ten-year non-qualified options under the Company's 1992 Nonstatutory
Stock Option Plan (the "1992 NSO Plan") to purchase 15,000 shares of Common
Stock at an exercise price equal to the market price on the date of grant.
Options for 3,750 shares were granted on the first business day of each quarter
in 1997 and the first quarter of 1998. Beginning in April 1998, each
non-management director is awarded under the 1992 NSO Plan a ten-year
non-qualified option to purchase 6,250 shares of Common Stock each quarter
(25,000 shares per year) on the first business day of each quarter at an
exercise price equal to the market price on the grant date.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During the year ended December 31, 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 and Mr. Ward is the Company's President and Chief Operating
Officer.
Messrs. McClendon and Ward administer the Company's 1992 stock option
plans. The 1992 Incentive Stock Option Plan was terminated in December 1994
except with respect to the administration of outstanding options. The only
options issued under the 1992 NSO Plan during the year ended December 31, 1997
were those to the Company's non-management directors pursuant to a formula award
provision. See "Directors' Compensation." Messrs. McClendon and Ward also serve
on committees which administer the Company's 1994 stock option plan with respect
to employee participants who are not directors and its 1996 stock option plan
with respect to employee participants who are not executive officers. Messrs.
Heizer and Whittemore serve on committees which administer the 1994 plan with
respect to employee participants who are directors and the 1996 plan with
respect to employee participants who are executive officers.
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. See "Certain Transactions."
15
<PAGE> 18
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 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 semiannually
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 should 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 Committee also believes that the successful
repositioning of the Company through acquisitions during the last six months of
1997 and the resulting increase in the Company's asset base supported an
increase in the base salary of the executive officers during the Transition
Period. The actual amount of each executive's base salary should 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 paid during the
current period was based on the successful repositioning of the Company through
acquisitions negotiated during the Transition Period. Performance measurements
for the Company as a whole include growth in oil and gas reserves, production,
cash flow 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 not less than the
market price of the Company's Common Stock on the date of issuance and options
granted in 1997 vest over a period of not less than 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.
16
<PAGE> 19
Transition Period Performance. The Company's performance for the Transition
Period was significantly below the expectations of management because of
difficulties in the Company's Louisiana drilling program, lower oil prices and
higher industry drilling costs. However, the Company's executive compensation is
still significantly below that of the oil and gas companies that compete with
the Company for employees and projects. Thus, despite the Compensation
Committee's long-term objective of bringing the Company's executive salary and
bonus compensation to a level competitive with the oil and gas industry, based
on the Company's performance during the Transition Period, base compensation
paid to executives were not increased as much as might have otherwise been the
case. In determining the compensation levels during the Transition Period the
Compensation Committee believed it had to consider the number and complexity of
acquisitions while balancing the need to retain employees possessing expertise
in short supply in the oil and gas industry and maintaining a relationship
between compensation and the Company's performance.
Repricing of Stock Options. A substantial component of the Company's
compensation has historically been paid in the form of stock options. As a
result of declining market prices for the Company's common stock during 1997,
management advised that a number of employees were vulnerable to hiring by the
Company's competitors, especially given the increase in the activity level of
the oil and gas industry and the fact that a significant portion of the
industry's historical employee base has retired or entered other careers. Based
on the foregoing, it was determined that it was in the best interests of the
Company to reprice the stock options originally issued to the employees in 1996.
The stock option repricings were approved or ratified by the entire board other
than those board members who are employees and, therefore, participated in the
stock option repricing. The options issued to non-employee directors were not
repriced during the fiscal year.
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 stock ownership
targets for executive officers range from 10% to 500% of annual base salary and
bonus (based on the individual officer's aggregate investment in the stock). 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. 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.
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.
Policy on Deductibility of Compensation. Section 162(m) of the Internal
Revenue Code limits the tax deduction to $1 million for compensation paid by a
publicly held company to its chief executive officer and the company's four
other most highly compensated executive officers, unless certain requirements
are met. The Committee presently intends that all compensation paid to executive
officers will meet the 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
17
<PAGE> 20
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.
<TABLE>
<S> <C>
COMPENSATION COMMITTEE OF THE SPECIAL STOCK OPTION COMMITTEE
BOARD OF DIRECTORS OF THE BOARD OF DIRECTORS
Aubrey K. McClendon Frederick B. Whittemore
Tom L. Ward E. F. Heizer, Jr.
E. F. Heizer, Jr.
Frederick B. Whittemore
</TABLE>
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 the year ended December 31, 1997, the firm billed the
Company approximately $414,314 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 from the Company interests in any new
wells of the Company. The table below presents information about drilling,
completion, equipping and operating costs billed to the persons named from
January 1, 1997 to December 31, 1997, the largest amount owed by them during the
period and the balance owed at December 31, 1996 and December 31, 1997. No
interest is charged on amounts owing for such costs, unless such costs are not
paid in a timely manner. The amounts for all other directors and executive
officers who are joint working interest owners in Company wells were
insignificant.
<TABLE>
<CAPTION>
AUBREY K. TOM L. MARCUS C.
MCCLENDON WARD ROWLAND
--------- ------ ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Balance at December 31, 1996.......................... $1,224 $1,272 $ 35
Amount billed (to December 31, 1997).................. $6,784 $6,759 $142
Largest outstanding balance (month end)............... $4,745 $4,190 $ 60
Balance at December 31, 1997.......................... $ 68 $2,203 $ 36
</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 the year ended December 31, 1997
additions to accounts receivable (excluding joint interest billings, which are
described above) from Messrs. McClendon and Ward and their affiliates were
insignificant.
INDEPENDENT ACCOUNTANTS
Coopers & Lybrand L.L.P. has served as the Company's independent
accountants since July 1, 1996 and has been retained for 1998. 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.
18
<PAGE> 21
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 1999
annual meeting, a shareholder's proposal must be received not later than
December 31, 1998 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
Janice A. Dobbs
Janice A. Dobbs
Corporate Secretary
April 30, 1998
19
<PAGE> 22
- --------------------------------------------------------------------------------
PROXY
CHESAPEAKE ENERGY CORPORATION
ANNUAL MEETING OF SHAREHOLDERS
JUNE 12, 1998
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, June 12, 1998, at
10:00 a.m., local time, and at any adjournment thereof, as follows:
1. ELECTION OF DIRECTORS
[ ] FOR election of all nominees listed below
[ ] WITHHOLD AUTHORITY to vote for all nominees
Tom L. Ward, E.F. Heizer, Jr. and Frederick B. Whittemore
(INSTRUCTION: TO WITHHOLD AUTHORITY TO VOTE FOR AN INDIVIDUAL NOMINEE, WRITE THE
NOMINEE'S NAME ON THE SPACE PROVIDED BELOW.)
- --------------------------------------------------------------------------------
UNLESS OTHERWISE DIRECTED, THIS PROXY WILL BE VOTED FOR ALL NOMINEES LISTED.
2. In their discretion, upon any other matters that may properly come before the
meeting or any adjournment thereof.
(PLEASE SIGN ON REVERSE SIDE)
- --------------------------------------------------------------------------------
<PAGE> 23
- --------------------------------------------------------------------------------
PLEASE DATE AND SIGN AND RETURN PROMPTLY USING THE ENCLOSED ENVELOPE.
DATED:
----------------------------------------------------------------------------,
1998
------------------------------
(Signature)
------------------------------
(Signature)
IMPORTANT: PLEASE DATE THIS
PROXY AND SIGN EXACTLY AS YOUR
NAME APPEARS BELOW. 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. IF A CORPORATION,
PLEASE SIGN IN FULL CORPORATE
NAME BY PRESIDENT OR OTHER
AUTHORIZED OFFICER. IF A
PARTNERSHIP, PLEASE SIGN IN
PARTNERSHIP NAME BY AUTHORIZED
PERSON.
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