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Preferred Stock CHESAPEAKE ENERGY CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED <strong>FINANCIAL</strong> STATEMENTS – (Continued) Following is a summary of our preferred stock, including the primary conversion terms as of December 31, 2010: Preferred Stock Series Issue Date 5.75% cumulative convertible non-voting .......... 5.75% (series A) cumulative convertible non-voting .......... 4.50% cumulative convertible .......... 5.00% cumulative convertible (series 2005B) ....... Liquidation Preference per Share Holder’s Conversion Right Conversion Rate Conversion Price May and June 2010 $1,000 Any time 37.0370 $ 27.0000 May 2010 $1,000 Any time 35.7961 $ 27.9360 September 2005 $ 100 Any time 2.2727 $ 43.9998 November 2005 $ 100 Any time 2.5707 $ 38.8993 Company’s Conversion Right From Company’s Market Conversion Trigger (a) May 17, 2015 $ 35.1000 May 17, 2015 $ 36.3168 September 15, 2010 $ 57.1997 November 15, 2010 $ 50.5691 (a) Convertible at the company’s option if the trading price of the company’s common stock equals or exceeds the trigger price for a specified time period or after the conversion date indicated if there are less than 250,000 shares of 4.50% or 5.00% (series 2005B) preferred stock outstanding or 25,000 shares of 5.75% or 5.75% (series A) preferred stock outstanding. The following is a summary of the changes in our preferred shares outstanding for 2010, 2009 and 2008: 5.75% 5.75%(A) 4.50% 5.00% 5.00% (2005B) (2005) 6.25% 4.125% (in thousands) Shares outstanding at January 1, 2010 ............... — — 2,559 2,096 5 — — Preferred stock issuances ..... Conversion/exchange of preferred for common 1,500 1,100 — — — — — stock ..................... — — — — (5) — — Shares outstanding at December 31, 2010 ............ 1,500 1,100 2,559 2,096 — — — Shares outstanding at January 1, 2009 ............... — — 2,559 2,096 5 144 3 Conversion/exchange of preferred for common stock ..................... — — — — — (144) (3) Shares outstanding at December 31, 2009 ............ — — 2,559 2,096 5 — — Shares outstanding at January 1, 2008 ............... — — 3,450 5,750 5 144 3 Conversion/exchange of preferred for common stock ..................... — — (891) (3,654) — — — Shares outstanding at December 31, 2008 ............ — — 2,559 2,096 5 144 3 98
CHESAPEAKE ENERGY CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED <strong>FINANCIAL</strong> STATEMENTS – (Continued) In 2010, 2009 and 2008, shares of our cumulative convertible preferred stock were exchanged for or converted into shares of common stock as summarized below: Year of Exchange/ Conversion Cumulative Convertible Preferred Stock Number of Preferred Shares Number of Common Shares Issued Type of Transaction (in thousands) 2010 5.0% (series 2005) 5 21 Conversion 2009 6.25% 144 1,239 Conversion 4.125% 3 183 1,422 Conversion 2008 5.0% (series 2005B) 3,654 10,443 Exchange 4.5% 891 2,228 Exchange 4.125% — (a) 2 12,673 Conversion (a) Nominal amount. In connection with the exchanges and conversions noted above, we recorded a loss of $67 million in 2008. There were no losses in 2010 and 2009. In general, the loss is equal to the excess of the fair value of all preferred stock exchanged over the fair value of the common stock issuable pursuant to the original terms of the preferred stock. Dividends Dividends declared on our common stock and preferred stock are reflected as adjustments to retained earnings to the extent a surplus of retained earnings will exist after giving effect to the dividends. To the extent retained earnings are insufficient to fund the distributions, such payments constitute a return of contributed capital rather than earnings and are accounted for as a reduction to paid-in capital. Dividends on our outstanding preferred stock are payable quarterly in cash, common stock or a combination thereof. Stock-Based Compensation Plans Under Chesapeake’s Long Term Incentive Plan, restricted stock, stock options, stock appreciation rights, performance shares and other stock awards may be awarded to employees, directors and consultants of Chesapeake. Subject to any adjustments as provided by the plan, the aggregate number of shares of common stock available for awards under the plan may not exceed 37,500,000 shares. The maximum period for exercise of an option or stock appreciation right may not be more than ten years from the date of grant and the exercise price may not be less than the fair market value of the shares underlying the option or stock appreciation right on the date of grant. Awards granted under the plan become vested at specified dates or upon the satisfaction of certain performance or other criteria determined by a committee of the Board of Directors. No awards may be granted under this plan after September 30, 2014. This plan has been approved by our shareholders. There were 87,500 shares of restricted stock issued to our non-employee directors from this plan in each of 2010, 2009 and 2008. Additionally, there were 5.8 million, 4.0 million and 4.5 million restricted shares issued, net of forfeitures, to employees and consultants during 2010, 2009 and 2008, respectively, from this plan. As of December 31, 2010, there were 8.2 million shares remaining available for issuance under the plan. Under Chesapeake’s 2003 Stock Incentive Plan, restricted stock and incentive and nonqualified stock options to purchase our common stock may be awarded to employees and consultants of Chesapeake. Subject to any adjustments as provided by the plan, the aggregate number of shares available for awards under the plan may not exceed 10,000,000 shares. The maximum period for exercise of an option may not be more than ten years from the date of grant and the exercise price may not be less than the fair market value of 99
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2010: A YEAR OF TRANSITION AND ACHI
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1 | FINANCIAL REVIEW 2010 ANNUAL RE
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4 | LETTER TO SHAREHOLDERS DEAR FEL
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6 | LETTER TO SHAREHOLDERS vs. an a
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8 | LETTER TO SHAREHOLDERS Growing
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10 | LETTER TO SHAREHOLDERS with th
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12 | LETTER TO SHAREHOLDERS wet nat
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14 | LETTER TO SHAREHOLDERS Rig lig
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16 | OPERATING AREAS AMERICA’S PR
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2010 ANNUAL REPORT | 19 Unconcerned
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What advantages does CHK’s unique
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2010 ANNUAL REPORT | 23 Employees l
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to selected students pursuing caree
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process is saving the company an av
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OFFICERS » Aubrey K. McClendon Cha
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George Bradley Kim Brady David Bran
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Daniel Alford Kenny Alford Jamie Al
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Danny Games Felipe Garcia Melissa G
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Jeff C. Glenn Jeannie Harris Larry
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Allison Earl Shannon Earley Jeremy
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Michael Bowling Jesse Bowman Matthe
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Terrydon Maroney Maria Marquez Ken
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UNITED STATES SECURITIES AND EXCHAN
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ITEM 1. Business Our Business Part
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Information About Us Our principal
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Build Operating Focus and Scale. We
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Eagle Ford Shale. Chesapeake’s Ea
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Production, Sales, Prices and Expen
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are based on prices, costs and disc
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The table below compares our estima
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Exploration and Development, Acquis
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Our marketing activities, along wit
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govern our operations carry substan
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Title to Properties Our title to pr
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Present Value or PV-10. When used w
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ITEM 1A. Risk Factors Natural gas a
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eserves will require significant ca
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least 1.65 times. Under certain cir
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Our operations may be adversely aff
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Part II ITEM 5. Market for Registra
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Years Ended December 31, 2010 2009
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(c) Includes the effects of realize
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Our goal of a 25% reduction in debt
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customary conditions, including fil
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In 2010, we received cash distribut
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Corporate Credit Facility. Our $4.0
Page 93 and 94: optional repurchase dates, the comm
Page 95 and 96: The estimated fair values of our na
Page 97 and 98: For 2010, we realized an average pr
Page 99 and 100: The following table shows our produ
Page 101 and 102: Interest Expense. Interest expense
Page 103 and 104: The selection and application of ac
Page 105 and 106: Under accounting guidance for incom
Page 107 and 108: Although we believe the expectation
Page 109 and 110: As of December 31, 2010, we had the
Page 111 and 112: We have determined the fair value o
Page 113 and 114: (a) Month LIBOR has been abbreviate
Page 115 and 116: MANAGEMENT’S REPORT ON INTERNAL C
Page 117 and 118: CHESAPEAKE ENERGY CORPORATION AND S
Page 137 and 138: Compressor Leases CHESAPEAKE ENERGY
Page 139 and 140: 5. Income Taxes CHESAPEAKE ENERGY C
Page 143: CHESAPEAKE ENERGY CORPORATION AND S
Page 161 and 162: 11. Divestitures CHESAPEAKE ENERGY
Page 165 and 166: 13. Restructuring Costs CHESAPEAKE
Page 181 and 182: Schedule II Description CHESAPEAKE
Page 183 and 184: PART III ITEM 10. Directors, Execut
Page 185 and 186: Exhibit Number Exhibit Description
Page 191 and 192: CORPORATE INFORMATION Corporate Hea
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