<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 SECTION 240.14a-11(c) OR SECTION
240.14a-12
CHESAPEAKE ENERGY CORPORATION
-----------------------------
(NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
------------------------------------------------
(NAME OF PERSON(S) FILING PROXY STATEMENT
IF OTHER THAN THE REGISTRANT)
PAYMENT OF FILING FEE (CHECK THE APPROPRIATE BOX):
[X] NO FEE REQUIRED.
[ ] FEE COMPUTED ON TABLE BELOW PER EXCHANGE ACT RULES 14a-6(i)(4) AND 0-11.
1) TITLE OF EACH CLASS OF SECURITIES TO WHICH TRANSACTION APPLIES:
------------------------------------------------------------------------
2) AGGREGATE NUMBER OF SECURITIES TO WHICH TRANSACTION APPLIES:
------------------------------------------------------------------------
3) PER UNIT PRICE OR OTHER UNDERLYING VALUE OF TRANSACTION COMPUTED
PURSUANT TO EXCHANGE ACT RULE 0-11:
-------------------------------------
4) PROPOSED MAXIMUM AGGREGATE VALUE OF TRANSACTION:
------------------------------------------------------------------------
5) TOTAL FEE PAID:
--------------------------------------------------------
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:
------------------------------------------
2) FORM, SCHEDULE OR REGISTRATION STATEMENT NO.:
--------------------
3) FILING PARTY:
----------------------------------------------------
4) DATE FILED:
------------------------------------------------------
<PAGE> 2
CHESAPEAKE ENERGY CORPORATION
6100 NORTH WESTERN AVENUE
OKLAHOMA CITY, OKLAHOMA 73118
-------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD JUNE 16, 2000
-------------
TO OUR SHAREHOLDERS:
The 2000 Annual Meeting of Shareholders of Chesapeake Energy Corporation,
an Oklahoma corporation (the "Company"), will be held at The Waterford Marriott
Hotel, Ballroom A, 6300 Waterford Boulevard, Oklahoma City, Oklahoma, on Friday,
June 16, 2000 at 11:00 a.m., local time, for the following purposes:
1. To elect one director for a term expiring in the year 2003; 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 26, 2000 are
entitled to notice of and to vote at the meeting. A complete list of
shareholders entitled to vote at the meeting will be available for examination
by any shareholder at the Company's executive offices 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 nominee to be voted on at the meeting. The Board of Directors
recommends a vote "FOR" this nominee.
YOUR VOTE IS IMPORTANT. YOU MAY VOTE IN ANY ONE OF THE FOLLOWING WAYS:
o USE THE TOLL-FREE TELEPHONE NUMBER SHOWN ON THE PROXY CARD;
o USE THE INTERNET WEB SITE SHOWN ON THE PROXY CARD; OR
o MARK, SIGN, DATE AND PROMPTLY RETURN THE ENCLOSED PROXY CARD IN THE
POSTAGE-PAID ENVELOPE.
SHAREHOLDERS WHO ATTEND THE MEETING MAY REVOKE THEIR PROXIES AND VOTE IN PERSON
IF THEY DESIRE.
BY ORDER OF THE BOARD OF DIRECTORS
Martha A. Burger
Secretary
Oklahoma City, Oklahoma
April 27, 2000
<PAGE> 3
CHESAPEAKE ENERGY CORPORATION
PROXY STATEMENT
ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON JUNE 16, 2000
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, the accompanying form of proxy and the Company's
Annual Report for the fiscal year ended December 31, 1999 are being mailed to
shareholders of record on or about April 29, 2000. Shareholders are referred to
the Annual Report for financial information concerning the activities of the
Company.
The Board of Directors has established April 26, 2000 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, 106,803,212 shares
of $.01 par value common stock of the Company ("Common Stock") were outstanding
and entitled to vote at the Meeting. 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.
Registered shareholders can vote their shares via (i) a toll-free telephone
call from the U.S. and Canada; or (ii) the Internet; or (iii) by mailing their
signed proxy card. The telephone and Internet voting procedures are designed to
authenticate shareholders' identities, to allow shareholders to vote their
shares and to confirm that their instructions have been properly recorded. The
Company has been advised by counsel that the procedures which have been put in
place are consistent with the requirements of applicable law. Specific
instructions to be followed by any registered shareholder interested in voting
via telephone or the Internet are set forth on the enclosed proxy card.
Each proxy properly completed and returned to the Company in time for the
Meeting, and not revoked, will be voted in accordance with the instructions
given. If there are no contrary instructions, proxies will be voted "FOR" the
election of the nominee as a director. Proxies may be revoked at any time prior
to the voting of the proxy by (i) the execution and submission of a revised
proxy, (ii) written notice to the Secretary of the Company, or (iii) voting in
person at the Meeting. In the absence of such revocation, shares represented by
the proxies will be voted at the Meeting.
The election of the director nominee will be by plurality vote. The
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,
subject to the right of the holders of the Company's 7% Cumulative Convertible
Preferred Stock to nominate and elect two additional directors upon the
occurrence of a Voting Rights Triggering Event as defined in the Certificate of
Designation. 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 for re-election as a
director for a term expiring at the 2003 Annual Meeting of Shareholders and
until his successor is elected and qualified. Proxies cannot be voted for a
greater number of persons than the number of nominees named. The nominee is
presently a director of the Company whose term expires at the Meeting. Other
directors who are remaining on the Board will continue in office until the
expiration of their terms at the 2001 or 2002 Annual Meeting of Shareholders, as
the case may be. Walter C. Wilson, a director of the Company since 1993, is
retiring from the Board of Directors and therefore is not standing for
re-election. Mr. Wilson's position on the Board of Directors will remain
unfilled until such time as a successor is appointed by the Board or elected by
the shareholders.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE NOMINEE
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 nominee. The Board of Directors
expects that the nominee will be available for election but, in the event that
the nominee is not so available, proxies received will be voted for a substitute
nominee to be designated by the Board of Directors or, in the event no such
designation is made by the Board of Directors, the seat will remain vacant until
a candidate for nomination is identified.
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.
NOMINEE FOR RE-ELECTION AS DIRECTOR FOR A TERM EXPIRING IN 2003
Breene M. Kerr, age 71, has been a director of the Company since 1993. He
is President of Brookside Company, Easton, Maryland. 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 of the Brookings Institution 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.
DIRECTORS WHOSE TERMS EXPIRE IN 2001
Tom L. Ward, age 40, has served as President, Chief Operating Officer and a
director of the Company since co-founding the Company 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.
2
<PAGE> 5
Edgar F. Heizer, Jr., age 70, 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 Corporation, 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 69, has been a director of the Company since
1993. Mr. Whittemore has been an advisory director of Morgan Stanley Dean Witter
& Co. since 1989 and was a managing director or partner of the predecessor firms
of Morgan Stanley Dean Witter & Co. from 1967 to 1989. He was Vice-Chairman of
the American Stock Exchange from 1982 to 1984. Mr. Whittemore is a director of
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.
DIRECTORS WHOSE TERMS EXPIRE IN 2002
Aubrey K. McClendon, age 40, has served as Chairman of the Board, Chief
Executive Officer and a director since co-founding the Company 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. Mr. McClendon is a 1981 graduate of Duke
University.
Shannon T. Self, age 43, has been a director of the Company since 1993. He
is a shareholder in the law firm of Self, Giddens & Lees, Inc., a professional
corporation, 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 for part of 1999 was 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 Law School in 1984.
THE BOARD OF DIRECTORS AND ITS COMMITTEES
During 1999 the Board of Directors held five meetings in person and held
five meetings by telephone conference. The Board of Directors has standing
compensation, stock option, audit and nominating committees.
The duties of the Compensation Committee are described under "Executive
Compensation - Compensation Committee Report." Messrs. Heizer and Whittemore
serve on the Compensation Committee. Messrs. McClendon and Ward also served on
the Compensation Committee until September 1999. The Compensation Committee held
two meetings during 1999.
Messrs. McClendon and Ward serve on committees which administer the
Company's stock option plans with respect to all employee participants who are
not executive officers. A committee comprised of Messrs. Heizer and Whittemore
administers the plans with respect to employee participants who are executive
officers. Each committee held two meetings during the year ended December 31,
1999.
The Audit Committee annually recommends the independent accountants 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
3
<PAGE> 6
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 and Self currently serve on the Audit Committee.
Mr. Wilson was also a member during 1999. The Audit Committee held two meetings
during 1999.
The Nominating Committee periodically reviews and updates the criteria for
Board membership and evaluates the qualifications of each Director candidate
against such criteria. Messrs. McClendon, Kerr and Whittemore serve on the
Nominating Committee. The Nominating Committee held one meeting during 1999.
Each director attended, either in person or by telephone conference, all of
the Board and committee meetings held while serving as a director or committee
member during 1999.
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 47, was appointed Executive Vice President in March
1998 and has been the Company's Chief Financial Officer since 1993. He served as
Senior Vice President from September 1997 to March 1998 and as Vice President -
Finance 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 41, 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 47, 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 self-employed and acted as a consultant to 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 39, was appointed Senior Vice President - Land and Legal
in 1997 and served as Vice President - Land and Legal from 1995 to 1997. Mr.
Hood was retained as a consultant to the Company during the two years prior to
his joining the Company, and he was associated with the law firm of White,
Coffey, Galt & Fite from 1992 to 1995. Mr. Hood was associated with or 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.
Martha A. Burger, age 47, has served as Treasurer since 1995, as Senior
Vice President - Human Resources since March 2000 and as Secretary since
November 1999. She was the Company's Vice President - Human Resources from 1998
until March 2000 and Human Resources Manager from 1996 to 1998. 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 Corporation. Prior to joining Hadson
Corporation, Ms. Burger was employed by The Phoenix Resource Companies, Inc. as
Assistant Treasurer and by Arthur Andersen & Co.
4
<PAGE> 7
Ms. Burger is a Certified Public Accountant and graduated from the University of
Central Oklahoma in 1982 and from Oklahoma City University in 1992.
Michael A. Johnson, age 34, has served as Senior Vice President -
Accounting since March 2000. He served as Vice President of Accounting and
Financial Reporting from March 1998 to March 2000 and as Assistant Controller to
the Company from 1993 to 1998. From 1991 to 1993 Mr. Johnson served as Project
Manager for Phibro Energy Production, Inc., a Russian joint venture. From 1987
to 1991 he 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.
OTHER OFFICERS
Thomas L. Winton, age 53, has served as Senior Vice President - Information
Technology and Chief Information Officer since July 1998. From 1985 until his
association with the Company, Mr. Winton served as the Director, Information
Services Department, at Union Pacific Resources Company ("UPRC"). Prior to that
period Mr. Winton held the positions of Regional Manager - Information Services
from 1984 until 1985 and Manager - Technical Applications Planning and
Development from 1980 until 1984 with UPRC. Mr. Winton also served as an analyst
and supervisor in the Operations Research Division, Conoco Inc., from 1973 until
1980. Mr. Winton graduated from Oklahoma Christian University in 1969, Creighton
University in 1973 and the University of Houston in 1980. Mr. Winton also
completed the Tuck Executive Program, Amos Tuck School of Business, Dartmouth
College in 1987.
Douglas J. Jacobson, age 46, has served as Senior Vice President -
Acquisitions & Divestitures since August 1999. Prior to joining Chesapeake, Mr.
Jacobson was employed by Samson Investment Company from 1980 until August 1999,
where he served as Senior Vice President - Project Development and Marketing
from 1996 until 1999. Mr. Jacobson has served on various Oklahoma legislative
commissions intended to address issues in the oil and gas industry, including
the Commission of Oil and Gas Production Practices and the Natural Gas Policy
Commission. Mr. Jacobson is a Certified Public Accountant and graduated from
John Brown University in 1976 and from the University of Arkansas in 1977.
Thomas S. Price, Jr., age 48, has served as Senior Vice President -
Corporate Development since March 2000, 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 is Vice
Chairman of the Mid-Continent Oil and Gas Association and a member of the
Petroleum Investor Relations Association and the National Investor Relations
Institute. 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.
James C. Johnson, age 42, was appointed President of Chesapeake Energy
Marketing, Inc., a wholly-owned subsidiary of Chesapeake Energy Corporation, in
January 2000. He served as Vice President - Contract Administration for the
Company from 1997 to January 2000 and as Manager - Contract Administration from
1996 to 1997. From 1980 to 1996, Mr. Johnson held various gas marketing and land
positions with Enogex, Inc., Delhi Gas Pipeline Corporation, TXO Production
Corp. and Gulf Oil Corporation. Mr. Johnson is a member of the Natural Gas
Association of Oklahoma and graduated from the University of Oklahoma in 1980.
Stephen W. Miller, age 43, has served as Vice President - Operations 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, is
a member of the Society of Petroleum Engineers and graduated from Texas A & M
University in 1980.
5
<PAGE> 8
SECURITY OWNERSHIP OF MANAGEMENT
AND CERTAIN BENEFICIAL OWNERS
SECURITY OWNERSHIP
The table below sets forth (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, information is given as of the Record Date and
the persons named below have sole voting and/or investment power with respect to
such shares.
<TABLE>
<CAPTION>
BENEFICIAL OWNER COMMON STOCK
- ----------------------------------------- --------------------------------------------------------------------
OUTSTANDING OPTION TOTAL PERCENT OF
SHARES SHARES (a) OWNERSHIP CLASS
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Tom L. Ward(1)(2) ....................... 10,651,551(b)(c) 847,953 11,499,504 10.7%
6100 North Western Avenue
Oklahoma City, OK 73118
Aubrey K. McClendon(1)(2) ............... 9,368,421(c)(d) 847,953 10,216,374 9.5%
6100 North Western Avenue
Oklahoma City, OK 73118
FMR Corp. ............................... 6,100,004 4,917,232(e) 11,017,236(e) 10.3%
82 Devonshire Street
Boston, MA 02109
Franklin Advisers, Inc. ................. 2,380,100 6,366,867(f) 8,746,967(f) 8.2%
777 Mariners Island Boulevard
San Mateo, CA 94404
Loomis, Sayles & Company, L.P. .......... -- 7,130,204(g) 7,130,204(g) 6.7%
One Financial Center
Boston, MA 02111
Edgar F. Heizer, Jr.(1) ................. 709,650 406,000 1,115,650 1.0%
Breene M. Kerr(1) ....................... 423,250(h) 182,500(i) 605,750 (3)
Shannon T. Self(1) ...................... 32,382(j) 451,916(i) 484,298 (3)
Frederick B. Whittemore(1) .............. 481,800(k) 1,185,250(i) 1,667,050 1.5%
Walter C. Wilson(1) ..................... -- 309,250 309,250 (3)
Steven C. Dixon(2) ...................... 17,873(c) 426,434 444,307 (3)
J. Mark Lester(2) ....................... 37,001(c) 125,827 162,828 (3)
Marcus C. Rowland(2) .................... 31,771(c) 28,212 59,983 (3)
All directors and executive officers as a
group ................................. 21,798,739 4,055,834 25,854,573 23.3%
</TABLE>
- ----------
(1) Director
(2) Executive officer of the Company
(3) Less than 1%
6
<PAGE> 9
(a) Represents shares of Common Stock which can be acquired on the Record Date
or 60 days thereafter through the exercise of options or conversion of the
Company's Convertible Preferred Stock.
(b) Includes 1,846,860 shares held by TLW Investments, Inc., an Oklahoma
corporation of which Mr. Ward is sole shareholder and chief executive
officer; 1,098,600 shares held by the Aubrey K. McClendon Children's Trust
of which Mr. Ward is Trustee; and 21,435 shares held by Mr. Ward's
immediate family sharing the same household. Excluded are the shares of
Common Stock beneficially owned by Mr. McClendon which may be attributed to
Mr. Ward based on a jointly filed Schedule 13D. Mr. Ward disclaims such
ownership.
(c) Includes shares purchased on behalf of the executive officer in the
Chesapeake Energy Corporation Savings and Incentive Stock Bonus Plan (Tom
L. Ward, 34,040 shares; Aubrey K. McClendon, 81,121 shares; Steven C.
Dixon, 12,873 shares; J. Mark Lester, 12,501 shares; and Marcus C. Rowland,
16,004 shares).
(d) Includes 508,560 shares held by Chesapeake Investments, an Oklahoma limited
partnership of which Mr. McClendon is sole general partner. Excluded are
the shares beneficially owned by Mr. Ward which may be attributed to Mr.
McClendon based on a jointly filed Schedule 13D. Mr. McClendon disclaims
such ownership.
(e) Consists of 683,500 shares of the Company's Convertible Preferred Stock
which is convertible into 4,917,232 shares of the Company's Common Stock
based upon Schedule 13G/A filed March 10, 2000. Excludes any shares that
might be issuable with respect to accrued and unpaid dividends. The
Schedule 13G/A reports sole power to vote 146,042 shares and sole power to
dispose of all shares.
(f) Consists of 885,000 shares of the Company's Convertible Preferred Stock
which is convertible into 6,366,867 shares of the Company's Common Stock
based upon Schedule 13G filed January 19, 2000. Excludes any shares that
might be issuable with respect to accrued and unpaid dividends. The
Schedule 13G reports sole power to vote 6,061,590 shares, shared power to
vote 326,478 shares and shared power to dispose of all shares.
(g) Represents shares of the Company's Convertible Preferred Stock which is
convertible into 7,130,204 shares of the Company's Common Stock based upon
Schedule 13G filed February 1, 2000. Excludes any shares that might be
issuable with respect to accrued and unpaid dividends.
(h) Includes 250,000 shares held by Talbot Fairfield II Limited Partnership, of
which Mr. Kerr is a general partner.
(i) Includes options to purchase shares of the Company's Common Stock owned by
Messrs. Ward and McClendon issued to Messrs. Kerr, Self and Whittemore
(Breene M. Kerr, 93,750 shares from Aubrey K. McClendon; Shannon T. Self,
18,750 shares from Aubrey K. McClendon; Frederick B. Whittemore, 394,688
shares from Aubrey K. McClendon and 355,312 shares from Tom L. Ward).
(j) Consists of 32,382 shares held by Pearson Street Limited Partnership, an
Oklahoma limited partnership of which Mr. Self is sole general partner and
the remaining partner is Mr. Self's spouse.
(k) Includes 41,750 shares held by Mr. Whittemore as trustee of the Whittemore
Foundation.
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 and written representations
delivered to the Company by such persons, the Company believes that there were
no violations of Section 16(a) by such persons during 1999; except that Mr. Kerr
inadvertently did not report the acquisition of a long call option in the
Company's Common Stock on a Form 4 for September 1999 and Mr. McClendon
inadvertently did not report the sale of a short call option in the Company's
7
<PAGE> 10
Common Stock on a Form 4 for September 1999. Both transactions were subsequently
reported by Messrs. Kerr and McClendon on their year-end 1999 Forms 5.
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
In 1997 the Company changed its fiscal year end to December 31 from June
30. The following table sets forth for the fiscal years ended December 31, 1999
and 1998, the transition period for the six months ended December 31, 1997 and
the fiscal year ended June 30, 1997 the compensation earned in each period by
(i) the Company's chief executive officer, and (ii) the four other most highly
compensated executive officers:
<TABLE>
<CAPTION>
ANNUAL COMPENSATION SECURITIES
-------------------------------------------- UNDERLYING
OTHER OPTION ALL
PERIOD ANNUAL AWARDS (# OF OTHER
NAME AND PRINCIPAL POSITION ENDING SALARY BONUS COMPENSATION(a) SHARES)(b) COMPENSATION(c)
- ---------------------------- --------- ------------ ------------ --------------- ----------- --------------
<S> <C> <C> <C> <C> <C> <C>
Aubrey K. McClendon 12/31/99 $ 350,000 $ 300,000 $ 137,029 500,000 $ 19,500
Chairman of the Board and 12/31/98 $ 350,000 $ 325,000 $ 115,429 1,505,808(d) $ 10,000
Chief Executive Officer 12/31/97 $ 150,000 $ 200,000 $ 92,625 457,800(d) $ --
6/30/97 $ 250,000 $ 310,000 $ 76,950 463,000(d) $ 11,050
Tom L. Ward 12/31/99 $ 350,000 $ 300,000 $ 113,331 500,000 $ 20,000
President and 12/31/98 $ 350,000 $ 325,000 $ 115,977 1,505,808(d) $ 10,000
Chief Operating Officer 12/31/97 $ 150,000 $ 200,000 $ 93,026 457,800(d) $ --
6/30/97 $ 250,000 $ 310,000 $ 77,908 463,000(d) $ 13,700
Marcus C. Rowland 12/31/99 $ 262,500 $ 110,000 $ 41,428 125,000 $ 6,000
Executive Vice President 12/31/98 $ 250,000 $ 175,000 (e) 397,476(d) $ 10,000
and Chief Financial Officer 12/31/97 $ 112,500 $ 100,000 (e) 131,600(d) $ --
6/30/97 $ 185,000 $ 155,000 (e) 36,000(d) $ 9,500
Steven C. Dixon 12/31/99 $ 190,000 $ 55,000 (e) 40,000 $ 11,500
Senior Vice President - 12/31/98 $ 190,000 $ 110,000 (e) 206,120(d) $ 10,000
Operations 12/31/97 $ 87,500 $ 50,000 (e) 92,000(d) $ --
6/30/97 $ 145,000 $ 105,000 (e) 30,000(d) $ 11,500
J. Mark Lester 12/31/99 $ 177,500 $ 55,000 (e) 40,000 $ 11,980
Senior Vice President - 12/31/98 $ 175,000 $ 100,000 (e) 153,691(d) $ 10,000
Exploration 12/31/97 $ 80,000 $ 40,000 (e) 69,700(d) $ 2,660
6/30/97 $ 132,500 $ 70,000 (e) 19,500(d) $ 10,400
</TABLE>
- ----------
(a) Represents the cost of personal benefits provided by the Company, including
for fiscal year 1999 personal accounting support ($65,175 for Messrs.
McClendon and Ward), personal vehicle ($18,000 for Messrs. McClendon and
Ward and $12,000 for Mr. Rowland), travel allowance ($50,000 for Mr.
McClendon, $25,904 for Mr. Ward and $25,000 for Mr. Rowland) and country
club membership dues ($3,854 for Mr. McClendon, $4,252 for Mr. Ward and
$4,428 for Mr. Rowland).
(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) Includes both (i) option grants which were canceled and (ii) replacement
options which were granted at 60% of the original number of options
granted.
(e) Other annual compensation did not exceed the lesser of $50,000 ($25,000 for
the transition period) or 10% of the executive officer's salary and bonus
during the period.
STOCK OPTIONS GRANTED DURING 1999
The following table sets forth information concerning options to purchase
Common Stock granted during 1999 to the executive officers named in the Summary
Compensation Table. Amounts represent stock options granted
8
<PAGE> 11
under the Company's 1994 and 1999 stock option plans and include both incentive
and non-qualified stock options. One-fourth of each option grant becomes
exercisable on each of the first four grant date anniversaries. The exercise
price of each option represents the market price of the Common Stock on the date
of grant.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
-------------------------------------------------------
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 12/31/99 SHARE DATE 5% 10%
- --------------------- --------------- ------------- ----------- ----------- -------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Aubrey K. McClendon 500,000 17.9% $0.94 3/5/09 $ 295,580 $ 749,059
Tom L. Ward 500,000 17.9% $0.94 3/5/09 $ 295,580 $ 749,059
Marcus C. Rowland 125,000 4.5% $0.94 3/5/09 $ 73,895 $ 187,265
Steven C. Dixon 40,000 1.4% $0.94 3/5/09 $ 23,646 $ 59,925
J. Mark Lester 40,000 1.4% $0.94 3/5/09 $ 23,646 $ 59,925
</TABLE>
- ----------
(a) The assumed annual rates of stock price appreciation of 5% and 10% are set
by the Securities and Exchange Commission and are not intended as a
forecast of possible future appreciation in stock prices.
AGGREGATED OPTION EXERCISES IN 1999 AND DECEMBER 31, 1999 OPTION VALUES
The following table sets forth information about options exercised by the
named executive officers during 1999 and the unexercised options to purchase
Common Stock held by them at December 31, 1999.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
SHARES OPTIONS AT 12/31/99 OPTIONS AT 12/31/99(a)
ACQUIRED VALUE ------------------------------- -------------------------------
NAME ON EXERCISE REALIZED(b) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ------------------- -------------- -------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Aubrey K. McClendon -- $ -- 722,953 1,629,355 $ 585,434 $ 2,131,694
Tom L. Ward 315,000 $ 329,544 722,953 1,629,355 $ 585,434 $ 2,131,694
Marcus C. Rowland 139,871 $ 305,642 -- 423,105 -- $ 552,631
Steven C. Dixon -- $ -- 416,434 194,586 $ 504,871 $ 250,833
J. Mark Lester -- $ -- 115,827 155,264 $ 151,094 $ 201,680
</TABLE>
- ----------
(a) At December 31, 1999, the closing price of the Common Stock on the New York
Stock Exchange was $2.38. "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, 1999. 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, 1999.
(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.
9
<PAGE> 12
PERFORMANCE DATA
The following graph compares the performance of the Company's Common Stock
to the S&P 500 Stock Index and to a group of peer companies selected by the
Company for the periods indicated. The graph assumes the investment of $100 on
December 31, 1994 and that all dividends, if any, were reinvested. The value of
the investment at the end of each year is shown in the graph which follows:
<TABLE>
<CAPTION>
12/31/94 12/31/95 12/31/96 12/31/97 12/31/98 12/31/99
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Chesapeake $ 100.00 $ 316.66 $ 794.63 $ 217.45 $ 27.20 $ 68.87
Peer Group (a) $ 100.00 $ 124.08 $ 158.19 $ 138.06 $ 88.21 $ 100.11
S&P 500 Stock Index $ 100.00 $ 137.58 $ 169.17 $ 225.60 $ 290.08 $ 351.12
</TABLE>
The following table compares the performance of the Company's Common Stock
to the S&P 500 Stock Index and to a group of peer companies for the most recent
six annual periods. The data assumes an investment of $100 on December 31, 1993
and that all dividends, if any, were reinvested. The value of the investment at
the end of each of the six periods is shown in the table which follows:
<TABLE>
<CAPTION>
CHESAPEAKE S&P 500
ENERGY PEER STOCK
MEASUREMENT PERIOD CORPORATION GROUP(a) INDEX
- --------------------- ------------ ------------ ------------
<S> <C> <C> <C>
December 31, 1993 $ 100 $ 100 $ 100
December 31, 1994 $ 663 $ 91 $ 101
December 31, 1995 $ 2,099 $ 113 $ 139
December 31, 1996 $ 5,267 $ 144 $ 171
December 31, 1997 $ 1,441 $ 126 $ 229
December 31, 1998 $ 180 $ 80 $ 294
December 31, 1999 $ 456 $ 91 $ 356
</TABLE>
- ----------
(a) The peer group is comprised of Anadarko Petroleum Corporation, Apache
Corporation, Barrett Resources Corporation, Belco Oil & Gas Corp., Benton
Oil & Gas Company, Burlington Resources, Inc., Cabot Oil & Gas Corporation,
Cross Timbers Oil Company, Devon Energy Corporation, EEX Corporation, Enron
Oil & Gas Company, Forcenergy Inc., Forest Oil Corporation, HS Resources,
Inc., KCS Energy, Inc., Louis Dreyfus Natural Gas Corporation, Newfield
Exploration Company, Noble Affiliates, Inc., Nuevo Energy Company, Ocean
Energy, Inc., Pioneer Natural Resources Company, Santa Fe Energy Resources,
Inc., TransTexas Gas
10
<PAGE> 13
Corporation, Union Pacific Resources Group, Inc. and Vintage Petroleum,
Inc. Seagull Energy Corporation was included in the 1998 peer group and was
acquired by Ocean Energy, Inc. in 1999.
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 $350,000, bonuses at the discretion of the Board of Directors, eligibility
for stock options and benefits, including an automobile and travel allowance,
club membership and personal accounting support. Each agreement has a term of
five years commencing July 1, 1998, which term is automatically extended for one
additional year on each June 30 unless one of the parties provides 30 days prior
notice of non-extension. 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.
Under the employment agreements, Messrs. McClendon and Ward are permitted
to participate in all of the wells spudded by or on behalf of the Company during
each calendar quarter. In order to participate, at least 30 days prior to the
beginning of a calendar quarter the executive must notify the disinterested
members of the Compensation Committee whether the executive elects to
participate and, if so, the percentage working interest the executive will take
in each well spudded by or on behalf of the Company during such quarter. The
participation election by Messrs. McClendon or Ward may not exceed a 2.5%
working interest in a well and is not effective for any well where the Company's
working interest after elections by Messrs. McClendon and Ward to participate
would be reduced to below 12.5%. Once an executive elects to participate, the
percentage cannot be adjusted during the calendar quarter without the prior
written consent of the disinterested directors, and no such adjustment has ever
been requested or granted. For each well in which the executive participates,
the Company bills to the executive an amount equal to the executive's
participation percentage multiplied by the costs of drilling and operating
incurred in drilling the well, together with leasehold costs in an amount
determined by the Company to approximate what third parties pay for similar
leasehold in the area of the well. Payment is due within 150 days for invoices
received prior to June 30, 2000 and within 90 days for invoices received
subsequent to such date. The executive also receives a proportionate share of
revenue from the well less certain charges by the Company for marketing the
production. As a result of marketing arrangements with other participants in the
Company's wells to correct the timing of the receipt of revenues, the Company
has advanced to the executives an amount equal to two months production on each
of the wells based on a six-month trailing average of production revenue. As a
result of fluctuations in the price and volume of oil and natural gas from the
wells, such advance now exceeds two months production for the executives'
working interests and payment for well costs are not within terms. The Company
and the executives have agreed that such amount will bear interest, and have
also agreed to a payment schedule to reduce such advance to equal one month's
production by December 31, 2000. In the event an executive is not in compliance
with the foregoing payment obligations, the right to participate in the
Company's wells automatically is suspended until the executive is in compliance.
Messrs. McClendon and Ward 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. Messrs. McClendon and Ward
participated in all wells drilled by the Company from its initial public
offering in February 1993 through December 1998 with either a 1.0%, 1.25% or
1.5% working interest. Messrs. McClendon and Ward did not participate in the
Company's wells during 1999.
The Company has a similar employment agreement with Mr. Rowland that is in
effect through May 31, 2000. It provides for an annual base salary of not less
than $250,000. The Company and Mr. Rowland have agreed to modify the terms of
Mr. Rowland's employment agreement effective June 1, 2000. The modifications
include a two-year contract term, which can be terminated by either party and
provides for a minimum annual base salary of $110,000. Additionally, effective
June 1, 2000, Mr. Rowland will reduce his work schedule and his title will
become Chief Financial Officer and Senior Vice President - Finance. Mr.
Rowland's employment agreement requires him to hold shares of the Company's
Common Stock having an aggregate investment value (as defined)
11
<PAGE> 14
equal to 100% of his annual base salary and bonus; under his new employment
agreement, this requirement will not change. Mr. Rowland has been permitted
under his employment agreement to participate in the Company's oil and gas
drilling operations, although he has not done so since 1997. He will no longer
have the option to participate in the Company's wells, after May 31, 2000.
The Company also has employment agreements with Messrs. Dixon and Lester.
These agreements have a term of three years from July 1, 1997, with minimum
annual base salaries of $175,000 for Mr. Dixon and $160,000 for Mr. Lester. 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%
of their annual base salary and bonus compensation. The Company intends to renew
the contracts upon expiration with similar terms.
The Company may terminate any of the employment agreements with its
executive officers at any time without cause; however, upon such termination
Messrs. McClendon and Ward are entitled to continue to receive salary and
benefits for the balance of the contract term. Upon termination of Mr. Rowland's
existing employment agreement by the Company, he would be entitled to continue
to receive salary and benefits for the balance of the contract term. The
employment agreement with Mr. Rowland that becomes effective June 1, 2000 will
provide for three months compensation and benefits if terminated without cause
by the Company. Messrs. Dixon and Lester are entitled to 12 months compensation
and benefits if their employment is terminated without cause. Each of the
employment agreements for Messrs. McClendon, Ward, Rowland, Dixon and Lester
further state that if, during the term of the agreement, there is a change of
control and (a) within one year the agreement expires and is not extended, (b)
within one year the executive officer resigns as a result of (i) a reduction in
the executive officer's compensation, or (ii) a required relocation more than 25
miles from the executive officer's then current place of employment or (c)
within two years from the effective date of the change of control the executive
officer is terminated other than for cause, death or incapacity, then the
executive officer will be entitled to a severance payment in an amount equal to
60 months of base compensation (as that term is defined in the agreements) for
Messrs. McClendon and Ward, 12 months for Messrs. Dixon and Lester and 36 months
for Mr. Rowland. 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. Mr. Rowland's employment agreement, which will become
effective June 1, 2000, does not provide for benefits payable upon a change of
control.
DIRECTORS' COMPENSATION
During 1999 directors who were not employees of the Company ("non-employee
directors") received cash compensation of $25,000, comprised of an annual
retainer of $5,000, payable in quarterly installments of $1,250, and $5,000 for
each meeting of the Board attended, not to exceed $20,000 per year for Board
meetings attended. Directors are reimbursed for travel and other expenses.
Officers who also serve as directors do not receive fees for serving as
directors. Under the Company's 1992 Nonstatutory Stock Option Plan (the "1992
NSO Plan") on the first business day of each quarter of 1999, non-employee
directors are granted ten-year non-qualified options to purchase 6,250 shares of
Common Stock at an exercise price equal to the market price on the date of
grant. The options are fully exercisable upon grant. Commencing with the second
quarter in 2000 the quarterly option grant to non-employee directors will
increase to 7,500 shares.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee is composed of Messrs. Heizer and Whittemore.
Messrs. McClendon and Ward served on the Compensation Committee until September
1999. 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.
12
<PAGE> 15
The only options issued under the 1992 NSO Plan during the year ended December
31, 1999 were those to the Company's non-employee directors pursuant to a
formula award provision. See "Directors' Compensation." Messrs. McClendon and
Ward also serve on committees which administer the Company's 1994, 1996 and 1999
stock option plans with respect to employee participants who are not executive
officers. Messrs. Heizer and Whittemore serve on committees which administer the
1994, 1996 and 1999 plans 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. A subsidiary of the Company extended loans of $5.0 million each to
Messrs. McClendon and Ward in 1998 which were paid in full in late 1999. See
"Certain Transactions."
COMPENSATION COMMITTEE REPORT
The Compensation Committee of the Board of Directors is responsible for
establishing the Company's compensation policies and monitoring the
implementation of the Company's compensation system. The Committee's specific
duties include establishing and periodically reviewing the Company's
compensation policies, overseeing the compensation of the Company's executive
officers, coordinating with the Company's stock option committees in the award
of stock options and the annual review of the Company's benefit plans. The
compensation of the Company's employees consists of several components, each of
which is determined using different methods and objectives. The components
include: (a) base salary, (b) cash bonuses, (c) stock options, and (d) medical
insurance, life insurance and other non-cash benefits. The Committee has
determined not to grant economic interests in the Company's oil and gas assets
as a form of compensation.
EXECUTIVE OFFICER COMPENSATION. At the time of the Company's initial public
offering, the Company's executive officers consisted of Messrs. McClendon, Ward
and Rowland. Their compensation was developed based on the historical
compensation paid by the Company to Messrs. McClendon and Ward, advice from a
number of the Company's professional advisors and negotiation of employment
agreements with such individuals. Because Messrs. McClendon and Ward had
historically received only nominal compensation from the Company, the executive
officers' compensation was substantially below the compensation paid by the
Company's peer group. The Committee believes the executive officers'
compensation should be competitive with the Company's peer group and over time
has increased the executive officers' compensation to comparable levels. The
executive officers' compensation is designed to encourage both short and
long-term performance aligned with shareholders' interests. 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 must also maintain base salary
levels commensurate with the Company's peer group. The Committee believes the
base salary of the executive officers should be near the mean of the Company's
peer group over time. The actual amount of each executive's base salary reflects
and is 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. The executive
officers' salaries were held flat in 1999 because of the difficult operating
environment caused by low oil and gas prices in the first half of the year.
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 cash bonuses awarded for 1999 were based in
part on the successful return of the Company to profitability, but were reduced
from 1998's level because of the difficult operating environment caused by low
oil and gas prices in the first half of the year. Performance measurements for
the Company as a whole include growth in oil and gas reserves, production and
cash
13
<PAGE> 16
flow. Performance measurements for each individual or business segment are
dependent on the individual circumstances. It is anticipated that an executive
officer's bonus as a percentage of base salary will increase as the management
level and responsibility level of the individual increases and as the size of
the Company increases. The Committee does not believe bonuses can be awarded
based on a 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 virtually all 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 1999 vest over a period of not less than four years, the options provide
strong incentives for 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. The executive officers'
options were reduced in 1999 from 1998 because of the difficult operating
environment caused by low oil and gas prices in the first half of 1999.
1999 Performance. The Company's performance for the year ended December 31,
1999 was significantly improved from 1998. However, the Committee reduced
annualized executive compensation and option grants in 1999 because of the
difficult operating environment experienced in the first half of the year. These
lower compensation levels may have resulted in lower overall executive
compensation in comparison to that of other public oil and gas companies that
compete with the Company for employees and projects. The Committee plans to
restore executive compensation to a more competitive level in 2000.
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 as
computed under the employment agreements). The Committee believes that
compliance with such stock ownership targets is necessary to ensure that the
interests of the executive officers and shareholders are the same. Failure to
meet such objectives will adversely and materially affect the performance-based
compensation for an executive officer who fails to meet the stock ownership
targets. It is the Committee's further belief that a large stock ownership
position should not negatively affect an executive officer's 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.
14
<PAGE> 17
COMPENSATION OF CHIEF EXECUTIVE OFFICER AND CHIEF OPERATING OFFICER. Based
on historical operations of the Company, the Chief Executive Officer and Chief
Operating Officer have identical positions with managerial control over
different areas of the Company. Accordingly, the Chief Executive Officer and
Chief Operating Officer have been historically compensated on an equal basis and
the Committee anticipates that such practice will continue in the future. In
each case, the compensation for each of the officers was determined in the same
manner as the compensation for other executive officers of the Company. The base
salary received by each of the officers is below the trailing mean of the peer
group considered by the Compensation Committee. The cash bonuses and options
granted to Messrs. McClendon and Ward were based on the subjective evaluation of
the Company's growth during a very challenging year for the industry, the
perceived contributions of Messrs. McClendon and Ward to that growth and the
compensation paid to other chief executive officers in the Company's peer group.
The Committee determined that the reduced overall compensation for the Chief
Executive Officer and Chief Operating Officer during 1999 was appropriate even
though the Company's performance in 1999 improved dramatically from 1998's
performance.
<TABLE>
<CAPTION>
COMPENSATION COMMITTEE SPECIAL STOCK OPTION COMMITTEE
OF THE BOARD OF DIRECTORS OF THE BOARD OF DIRECTORS
------------------------- -------------------------
<S> <C>
Edgar F. Heizer, Jr. Edgar F. Heizer, Jr.
Frederick B. Whittemore Frederick B. Whittemore
Aubrey K. McClendon*
Tom L. Ward*
</TABLE>
*Messrs. McClendon and Ward resigned from the Compensation Committee in
September 1999.
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 1999, the firm billed the Company approximately $398,000 for
such legal services.
Oil and Gas Operations. 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 in the past acquired
working interests directly and indirectly from the Company and participated in
wells drilled by COI. The Company's non-employee directors 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, 1999 to December 31, 1999, the largest amount
owed by them during the period and the balances owed by them at December 31,
1998 and 1999. No interest is charged on amounts owing for such costs. 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, 1998 ................ $ 1,541 $ 1,444 $ 18
Amount billed in 1999 ....................... $ 1,421 $ 1,366 $ 68
Largest outstanding balance (month end) ..... $ 1,503 $ 1,718 $ 29
Balance at December 31, 1999 ................ $ 1,426 $ 868 $ 16
</TABLE>
The amounts advanced to the executive officers as of December 31, 1999 to
correct the timing of the receipt of oil and gas revenues on the wells in which
the executive officers participated, including accrued interest, equaled
$959,208 for Mr. McClendon, $932,223 for Mr. Ward and $25,000 for Mr. Rowland.
The amount of these advances in excess of revenue received by the Company and
not disbursed bears interest at 9.125%.
Loans to Executives. In June 1998, the Company extended loans of $5.0
million each to Messrs. McClendon and Ward to pay a portion of the margin debt
incurred by those individuals in connection with their purchase of 730,750
shares each of Company Common Stock in the open market in February 1997 at an
approximate average
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price of $20.24 per share. Each loan initially had a maturity date of December
31, 1998, and was extended to December 31, 1999. In each case the terms of the
loan and the documentation evidencing the loan were negotiated by a committee of
independent directors consisting of Messrs. Heizer and Wilson in conjunction
with separate legal counsel. Interest accrued on each of the loans at an annual
rate of 9.125% and was payable quarterly. Each of the loans was secured by
collateral with an indicated fair market value greater than 150% of the unpaid
principal balance of the loan. In November, 1999, the borrowers repaid the loans
in full by surrendering shares of the Company's Common Stock having a market
value equal to the respective amounts owed (principal amount of $3,847,000 for
Mr. McClendon and $3,688,000 for Mr. Ward).
Purchase of Oil and Gas Assets from Executive. In January 2000, the Company
purchased Mr. Rowland's interests in the oil and gas wells in which he
participated pursuant to his employment agreement. The purchase price for the
oil and gas assets was $465,000 and was determined using a methodology similar
to that used for similar acquisitions of assets from disinterested third
parties. See "Employment Agreements."
INDEPENDENT ACCOUNTANTS
PricewaterhouseCoopers LLP, or its predecessor firms, has served as the
Company's independent accountants since the Company's initial public offering in
1993 and has been retained for 2000. Representatives of PricewaterhouseCoopers
LLP 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.
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 2001
annual meeting, a shareholder's proposal must be received not later than January
1, 2001 by the Company at 6100 North Western Avenue, Oklahoma City, Oklahoma
73118, Attention: Ms. Martha A. Burger, 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.
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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
Martha A. Burger
Secretary
April 27, 2000
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PROXY
CHESAPEAKE ENERGY CORPORATION
ANNUAL MEETING OF SHAREHOLDERS
JUNE 16, 2000
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 16, 2000, at 11:00
a.m., local time, and at any adjournment thereof, as follows:
<TABLE>
<S> <C> <C>
1. Election of Director [ ] FOR election of nominees listed below [ ] WITHHOLD AUTHORITY to vote for nominee
Breene M. Kerr
</TABLE>
(INSTRUCTION: TO WITHHOLD AUTHORITY TO VOTE FOR AN INDIVIDUAL NOMINEE, WRITE THE
NOMINEE'S NAME ON THE SPACE PROVIDED BELOW.)
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2. In their discretion, upon any other matters that may properly come before the
meeting or any adjournment thereof.
Unless otherwise directed, this proxy will be voted for all nominees listed.
PLEASE DATE AND SIGN ON THE REVERSE SIDE AND RETURN PROMPTLY USING THE ENCLOSED
ENVELOPE.
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Signature(s) of Shareholder(s)
Date , 2000
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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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