Chesapeake Energy 1999 Annual Report Download - page 64

110% of such value for an optionee who owns more than 10% of the common stock). Options granted become
exercisable at dates determined by the Stock Option Committee of the Board of Directors.
Under the Company's 1992 Nonstatutory Stock Option Plan (the "NSO Plan"), non-qualified options to purchase
common stock may be granted only to directors and consultants of the Company. Subject to any adjustment as
provided by the NSO Plan, the aggregate number of shares which may be issued and sold may not exceed 3,132,000
shares. The maximum period for exercise of an option may not bemore than 10 years from the date of grant, and the
exercise price may not be less than the fair market value of the shares underlying the options on the date of grant.
Options granted become exercisable at dates determined by the Stock Option Committee of the Board of Directors.
The NSO Plan also contains a formula award provision pursuant to which each director who is not an executive
officer receives every quarter a ten-year immediately exercisable option to purchase 6,250 shares of common stock
at an option price equal to the fair market value of the shares on the date of grant. The amount of the award was
changed from 20,000 shares (post-split) to 15,000 shares per year in 1998 and to 25,000 shares per year in 1999. No
options can be granted under the NSO Plan after December 10, 2002.
Under the Company's 1994 Stock Option Plan (the "1994 Plan"), and its 1996 Stock Option Plan (the "1996
Plan"), incentive and nonqualified stock options to purchase Common Stock may be granted to employees and
consultants of the Company and its subsidiaries. Subject to any adjustment as provided by the respective plans, the
aggregate number of shares which may be issued and sold may not exceed 4,886,910 shares under the 1994 Plan and
6,000,000 shares under the 1996 Plan. The maximum period for exercise of an option may not be more than 10
years from the date of grant and the exercise price of nonqualified stock options may not be less than par value and,
under the 1996 Plan, 85% of the fair market value of the shares underlying the optionson the date of grant. Options
granted become exercisable at dates determined by the Stock Option Committee of the Board of Directors. No
options can be granted under the 1994 Plan after October 17, 2004 or under the 1996 Plan after October 14, 2006.
Under the Company's 1999 Stock Option Plan (the "1999 Plan"), nonqualified stock options to purchase
Common Stock may be granted to employees and consultants of the Company and its subsidiaries. Subject to any
adjustment as provided by the plan, the aggregate number of shares which may be issued and soldmay not exceed
3,000,000 shares. The maximum period for exercise of an option may not be more than 10 years from the date of
grant and the exercise price may not be less than the fair market value of the shares underlying the options on the
date of grant; provided, however, nonqualified stock options not exceeding 10% of the options issuable under the
1999 Plan may be granted at an exercise price which is not less than 85% of the grant date fair market value.
Options granted become exercisable at dates determined by the Stock Option Committee of the Board of Directors.
No options can be granted under the 1999 Plan after March 4, 2009.
The Company has elected to follow APB No. 25, Accounting for Stock Issued to Employees and related
interpretations in accounting for its employee stock options. Under APB No. 25, compensation expense is
recognized for the difference between the option price and market value on the measurement date. No compensation
expense has been recognized because the exercise price of the stock options granted under the plans equaled the
market price of the underlying stock on the date of grant.
Pro forma information regarding net income and earnings per share is required by SFAS No. 123 and has been
determined as if the Company had accounted for its employee stock options under the fair value method of the
statement. The fair value for these options was estimated at the date of grant using a Black-Scholes option pricing
model with the following weighted-average assumptions for 1999, 1998, the Transition Period and fiscal 1997,
respectively: interest rates (zero-coupon U.S. government issues with a remaining life equal to the expected term of
the options) of 5.88%, 5.20%, 6.45% and 6.74%; dividend yields of 0.0%, 0.0%, 0.9% and 0.9%; volatility factors
of the expected market price of the Company's common stock of .82, .96, .67 and .60; and weighted-average
expected life of the options of five years.
The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options
which have no vesting restrictions and are fully transferable. In addition, option valuation models require the input
of highly subjective assumptions including the expected stock price volatility. Because the Company's employee
stock options have characteristics significantly different from those of traded options, and because changes in the
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