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CHK » Topics » Background on Stock Compensation at Chesapeake

This excerpt taken from the CHK DEF 14A filed Apr 29, 2008.

Background on Stock Compensation at Chesapeake

Since our initial public offering in 1993, the Board and management have firmly believed in and encouraged broad employee stock ownership through participation in our stock-based compensation plans across all levels of the Company. In the 11 years that followed, the Company implemented this strategy through semi-annual grants of stock options to all employees. Additionally, our senior management was required to hold certain levels of our common stock as a condition to their continued employment. The success, growth and profitability that the Company experienced over this time period was, we believe, in large measure due to the efforts of the management team and employees. Key performance statistics during the eleven-year period ending in 2003 were as follows:

 

 

•

  

We recorded the 13th best stock price performance among all U.S. public companies, with a 2,500% increase in our stock price (including the reinvestment of dividends);

 

  •  

Our annual revenues increased 9,900%, from $17 million to $1.7 billion;

 

  •  

Our total assets increased 5,700%, from $79 million to $4.6 billion;

 

  •  

Our shareholders’ equity increased 5,400%, from $31 million to $1.7 billion;

 

  •  

Our oil and gas reserves increased 2,200%, from 137 bcfe to 3.2 tcfe; and

 

  •  

Our annual oil and gas production increased 6,600%, from 4 bcfe to 268 bcfe.

In addition to these financial and operational successes, employee retention was among the strongest in the industry over this time period.

In 2004, the Board and management re-evaluated the Company’s equity compensation program and decided to begin utilizing restricted stock in place of stock options for the following reasons:

 

  •  

The Company could realize a substantial reduction in its annual stock usage rate, or “burn rate”, without a reduction in compensation value transferred to the employees;

 

  •  

A lower annual stock usage rate would reduce the dilutive effect of employee stock compensation to our shareholders;

 

  •  

The income statement impact of restricted stock is more predictable, and less volatile, than that of stock options;

 

  •  

The compensation value and tax treatment of restricted stock is easier for employees to measure and understand; and

 

  •  

The ease with which restricted stock is transferred to employees upon vesting (as opposed to an affirmative action by the employee to exercise a stock option) better facilitates and promotes the long-term ownership of our common stock by employees.

The shift to restricted stock was supported by the Company’s management and employees who, together, have delivered strong performance to our shareholders since 2003, as indicated by the following:

 

  •  

Our stock price increased 189% from $13.58 per share on December 31, 2003 to $39.20 per share on December 31, 2007 and was $48.55 on the record date, an increase of 24% from December 31, 2007;

 

  •  

Our annual revenues increased 354% from $1.7 billion in 2003 to $7.8 billion in 2007;

 

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  •  

Our net income available to common shareholders increased 322% from $291 million in 2003 to $1.2 billion in 2007;

 

  •  

Our total assets increased 572% from $4.6 billion at December 31, 2003 to $30.7 billion at December 31, 2007;

 

  •  

Our proved oil and natural gas reserves increased 243% from 3.2 tcfe at December 31, 2003 to 10.9 tcfe at December 31, 2007;

 

  •  

Our annual oil and natural gas production increased 166% from 268 bcfe in 2003 to 714 bcfe in 2007;

 

  •  

We were selected to join the Fortune 500 and the S&P 500 in 2006;

 

  •  

We were recognized by Forbes as “the best managed oil & gas company in the U.S.” in January 2007;

 

  •  

We jumped 126 spots to rank #325 in the Fortune 500 for 2007 and enjoyed the following additional rankings:

 

  •  

#5 within the energy production industry;

 

  •  

#14 for fastest growth in revenues (in one year); and

 

  •  

#14 for most profitable (return on revenue);

 

 

•

  

We were named the Hydrocarbon Producer of the Year at the 9th Annual Platts Global Energy Awards in 2007; and

 

 

•

  

We were recognized in the Fortune 100 Best Companies to Work For® 2008 list.

As the Company’s assets and revenues have grown, so have the number of employees, with the Company now employing over 6,500 employees, an addition of 5,200 employees since 2003, a 400% increase. The rapid growth of the Company, combined with the extreme competition in the industry for top-notch talent, as discussed previously, has dramatically increased the importance of equity-based compensation as a key component for employee recruitment and retention. If the amendment to the LTIP is not approved by shareholders, the Company will no longer be able to provide equity compensation to its employees and directors. Thus the Board and management believe that approval of the amendment to the LTIP is crucial to the Company’s ability to execute its business plan and growth strategy. In their view, stock-based compensation and employee and director stock ownership have greatly contributed to the Company’s growth and success to date and should continue to contribute to its success in the future.

The following is a summary of the material terms of the LTIP as proposed to be amended. The only amendment to the LTIP is the increase in the number of shares of common stock available for issuance.

This excerpt taken from the CHK DEF 14A filed Apr 30, 2007.

Background on Stock Compensation at Chesapeake

Since our initial public offering in 1993, the Board and management have firmly believed in and encouraged broad employee stock ownership through participation in our stock-based compensation plans across all levels of the Company. In the 11 years that followed, the Company implemented this strategy through semi-annual grants of stock options to all employees. Additionally, our senior management is required to hold certain levels of our common stock as a condition to their continued employment. The success, growth and profitability that the Company experienced over this time period was, we believe, in large measure due to the efforts of the management team and employees. Key performance statistics during the eleven-year period ending in 2003 are as follows:

 

 

•

  

We recorded the 13th best stock price performance among all U.S. public companies, with a 2,476% increase in our stock price (including the reinvestment of dividends);

 

  •  

Our annual revenues increased 9,900%, from $17 million to $1.7 billion;

 

  •  

Our total assets increased 5,700%, from $79 million to $4.6 billion;

 

  •  

Our shareholders’ equity increased 5,400%, from $31 million to $1.7 billion;

 

  •  

Our oil and gas reserves increased 2,200%, from 137 bcfe to 3.2 tcfe; and

 

  •  

Our annual oil and gas production increased 6,600%, from 4 bcfe to 268 bcfe.

In addition to these financial and operational successes, employee retention was among the strongest in the industry over this time period.

In 2004, the Board and management re-evaluated the Company’s equity compensation program and decided to begin utilizing restricted stock in place of stock options for the following reasons:

 

  •  

The Company could realize a substantial reduction in its annual stock usage rate or “burn rate”, without a reduction in compensation value transferred to the employees;

 

  •  

A lower annual stock usage rate would reduce the dilutive effect of employee stock compensation to our shareholders;

 

  •  

The income statement impact of restricted stock is more predictable, and less volatile, than that of stock options;

 

  •  

The compensation value and tax treatment of restricted stock is easier for employees to measure and understand; and

 

  •  

The ease with which restricted stock is transferred to employees upon vesting (as opposed to an intentional action by the employee to exercise a stock option) better facilitates and promotes the long-term ownership of our common stock by employees.

The shift to restricted stock was supported by the Company’s management and employees who, together, have delivered strong performance to our shareholders since 2003, as indicated by the following:

 

  •  

Our stock price increased 114% from $13.58 per share on December 31, 2003 to $29.05 per share on December 31, 2006 and was $33.63 on the record date, an increase of 16% from December 31, 2006;

 

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  •  

Our annual revenues increased 327% from $1.7 billion in 2003 to $7.3 billion in 2006;

 

  •  

Our net income available to common shareholders increased 555% from $291 million in 2003 to $1.9 billion in 2006;

 

  •  

Our total assets increased 430% from $4.6 billion at December 31, 2003 to $24.4 billion at December 31, 2006;

 

  •  

Our proved oil and natural gas reserves increased 181% from 3.2 tcfe at December 31, 2003 to 9.0 tcfe at December 31, 2006;

 

  •  

Our annual oil and natural gas production increased 116% from 268 bcfe in 2003 to 578 bcfe in 2006;

 

  •  

We were selected to join the Fortune 500 and the S&P 500 in 2006; and

 

  •  

We were recognized by Forbes as “the best managed oil & gas company in the U.S.” in January 2007.

As the Company’s assets and revenues have grown, so have the number of employees, with the Company now employing almost 5,000 employees, an addition of 3,700 employees since 2003, a 310% increase. The rapid growth of the Company, combined with the extreme competition in the industry for top-notch talent, as discussed previously, has dramatically increased the importance of equity-based compensation as a key component for employee recruitment and retention. Thus the Board and management believe that approval of the amendment to the LTIP is crucial to the Company’s ability to execute its business plan and growth strategy. In their view, stock-based compensation and employee and director stock ownership have greatly contributed to the Company’s growth and success to date and should continue to contribute to its success in the future.

The following is a summary of the material terms of the LTIP as proposed to be amended. The only amendment to the LTIP is the increase in the number of shares of common stock available for issuance.

This excerpt taken from the CHK DEF 14A filed Apr 28, 2006.

Background on Stock Compensation at Chesapeake

Since our initial public offering in 1993, the Board and management have firmly believed in and encouraged broad employee stock ownership through participation in our stock-based compensation plans across all levels of the Company. In the 11 years that followed, the Company implemented this strategy through semi-annual grants of stock options to all employees. The success, growth and profitability that the Company experienced over this time period was, we believe, in large measure due to the efforts of the management team and employees. Key performance statistics during the eleven-year period ending in 2003 are as follows:

 

  •   We recorded the 13th best stock price performance among all U.S. public companies, with a 2,476% increase in our stock price (including the reinvestment of dividends);

 

  •   Our annual revenues increased 9,900%, from $17 million to $1.7 billion;

 

  •   Our total assets increased 5,700%, from $79 million to $4.6 billion;

 

  •   Our shareholders’ equity increased 5,400%, from $31 million to $1.7 billion;

 

  •   Our oil and gas reserves increased 2,200%, from 137 bcfe to 3.2 tcfe; and

 

  •   Our annual oil and gas production increased 6,600%, from 4 bcfe to 268 bcfe.

 

9

Table of Contents

In addition to these financial and operational successes, employee retention was among the strongest in the industry over this time period.

In 2004, the Board and management re-evaluated the Company’s equity compensation program and decided to begin utilizing restricted stock in place of stock options for the following reasons:

 

  •   The Company could realize a substantial reduction in its annual stock usage rate or “burn rate”, without a reduction in compensation value transferred to the employees;

 

  •   A lower annual stock usage rate would reduce the dilutive effect of employee stock compensation to our shareholders;

 

  •   The income statement impact of restricted stock is more predictable, and less volatile, than that of stock options;

 

  •   The compensation value and tax treatment of restricted stock is easier for employees to measure and understand; and

 

  •   The ease with which restricted stock is transferred to employees upon vesting (as opposed to an intentional action by the employee to exercise a stock option) better facilitates and promotes the long-term ownership of our common stock by employees.

The shift to restricted stock was supported by the Company’s management and employees who, together, delivered record-setting performance to shareholders in 2004 and 2005, as indicated by the following:

 

  •   Our stock price increased 134% from $13.58 per share on December 31, 2003 to $31.73 per share on December 31, 2005;

 

  •   Our annual revenues increased 172% from $1.7 billion in 2003 to $4.7 billion in 2005;

 

  •   Our total assets increased 250% from $4.6 billion at December 31, 2003 to $16.1 billion at December 31, 2005;

 

  •   Our shareholders’ equity increased 265% from $1.7 billion at December 31, 2003 to $6.2 billion at December 31, 2005;

 

  •   Our proved oil and gas reserves increased 134% from 3.2 tcfe at December 31, 2003 to 7.5 tcfe at December 31, 2005;

 

  •   Our annual oil and gas production increased 75% from 268 bcfe at December 31, 2003 to 469 bcfe at December 31, 2005; and

 

  •   We were selected to join the Fortune 500 and the S&P 500.

As the Company’s assets and revenues have grown, so have the number of employees, with the Company adding over 1,100 employees in 2005 alone. In addition, increasing competitiveness for technical talent in the energy industry has resulted in equity-based compensation becoming an ever more important component for key employee recruitment and retention. Thus the Board and management believe that approval of the amendment to the LTIP is crucial to the Company’s ability to execute its business plan and growth strategy. In their view, stock-based compensation and employee and director stock ownership have greatly contributed to the Company’s growth and success to date and should continue to contribute to its success in the future.

The following is a summary of the material terms of the LTIP as proposed to be amended. Significant differences from the LTIP as currently in effect are identified.

EXCERPTS ON THIS PAGE:

DEF 14A
Apr 29, 2008
DEF 14A
Apr 30, 2007
DEF 14A
Apr 28, 2006

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