01—Abstract
Summary
Summary of the 10-K/A filed October 28, 1996. Cited figures are marked; the original filing is the authoritative source.
This is Amendment No. 1 to the annual report for the fiscal year ended June 30, 1996, filed by Chesapeake Energy Corporation (the filing identifies the registrant as Chesapeake, not Expand Energy, and it does not contain a filing date).
The amendment covers only Part III (Items 10 through 13: directors and officers, executive compensation, security ownership, and related-party transactions). It contains no financial statements, operating results, or reserve data, so investors need the original 10-K for those. Governance is concentrated.
Co-founders Aubrey K. McClendon (Chairman and CEO) and Tom L. Ward (President and COO) each beneficially own about 17%a of common stock, and directors and executive officers as a group own about 42%.
Both have employment agreements that allow them to participate in company wells on terms no less favorable than those offered to unaffiliated industry partners, capped at 2.5% working interest per well. Related-party exposure includes about $347,000b in legal fees paid to a firm in which director Shannon T. Self is a shareholder, and joint-interest receivables from McClendon and Ward totaling roughly $2.3 million at June 30, 1996.
Compensation is modest at the base-salary level but backed by large option grants. McClendon's and Ward's fiscal 1996 salaries were $185,000 each, with scheduled increases to $250,000c in FY1997 and $300,000 in FY1998. Options granted in fiscal 1996 were priced at $11.33 and $35.33, and the NYSE closing price on June 30, 1996 was $59.92, which implies substantial in-the-money value for executives.
The non-affiliate market value on October 25, 1996 was about $916 milliond across roughly 30.1 million shares outstanding. Change-of-control provisions for the three senior executives provide 36 months of base salary in severance if triggered.
02—Key points
Key Highlights
- Filing is a Part III-only 10-K/A amendment (Items 10–13) for fiscal year ended June 30, 1996; it contains no financial statements or operating data.
- The registrant is Chesapeake Energy Corporation (NYSE), not Expand Energy as stated in the request; 30,128,321 common shares outstanding and about $916.5 million in non-affiliate market value as of October 25, 1996.
- Insider concentration is high: McClendon and Ward each hold about 17% of common stock, and insiders as a group hold about 42%. FMR Corp. holds about 12%.
- Co-founders McClendon and Ward have employment agreements permitting participation in company wells, with working interest elections capped at 2.5% per well and joint-interest receivables of about $971,000 and $1,288,000 at June 30, 1996.
- Base salaries for McClendon and Ward are $185,000 for fiscal 1996, with contractual increases to $250,000 in FY1997 and $300,000 in FY1998; fiscal 1996 bonuses were $40,000 each.
- Fiscal 1996 option grants were priced at $11.33 and $35.33 per share, versus a June 30, 1996 closing price of $59.92, indicating large realizable value for option holders.
- Change-of-control provisions for McClendon, Ward, and Rowland provide 36 months of base salary severance if a qualifying termination occurs within one year of a change of control (35% voting-power acquisition threshold).
- Related-party legal fees of approximately $347,000 were paid during fiscal 1996 to Self, Giddens & Lees, Inc., a firm co-owned by director Shannon T. Self.
03—Questions
Frequently Asked Questions
Does this filing contain Chesapeake's financial results for fiscal 1996?
No. This 10-K/A Amendment No. 1 only restates Part III (Items 10–13) on directors, executive compensation, security ownership, and related-party transactions. Financial statements and operating results must be found in the original 10-K for the fiscal year ended June 30, 1996.
How much control do insiders have over the company?
Substantial control. McClendon and Ward each beneficially own about 17% of common stock, and directors and executive officers as a group own about 42%. Those figures include shares underlying currently exercisable options, which are counted as beneficially owned.
Do executives benefit from participating in company wells?
Yes. McClendon and Ward may acquire working interests in company wells on terms the filing says are no less favorable than those available to unaffiliated industry partners. Each election is capped at 2.5% per well, and they must pay joint-interest billings within 120 days. Rowland's cap is 1%, and combined insider participation cannot reduce the company's working interest below 12.5%.
What are the potential costs if control changes hands?
If a change of control occurs and the executive is terminated without cause, dies or becomes incapacitated, or resigns after a demotion or pay cut within one year, McClendon, Ward, and Rowland are entitled to 36 months of base salary. A change of control includes acquisition of 35% or more of voting power or a board majority replaced through a tender offer, merger, or contested election.
Are there related-party transactions investors should be aware of?
Yes. During fiscal 1996, Self, Giddens & Lees, Inc., in which director Shannon T. Self is a shareholder, billed about $347,000 for legal services. Separately, joint-interest billings to McClendon and Ward created receivables of about $971,000 and $1,288,000 at June 30, 1996, and the company also paid expenses on their behalf.
04—Continue