Expand Energy 10-K/A 2019-12-31

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K/A

Amendment No. 1

☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Fiscal Year Ended December 31, 2019

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File No. 1-13726

CHESAPEAKE ENERGY CORPORATION

(Exact name of registrant as specified in its charter)

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☒ No ☐

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Securities Exchange Act. Yes ☐ No ☒

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company" and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large Accelerated Filer ☒ Accelerated Filer ☐ Non-accelerated Filer ☐

Smaller Reporting Company ☐ Emerging Growth Company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

The aggregate market value of our common stock held by non-affiliates on June 28, 2019, was approximately $2.2 billion. As of April 24, 2020, there were 9,783,101 shares of our $0.01 par value common stock outstanding.

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DOCUMENTS INCORPORATED BY REFERENCE

None.

Explanatory Note

Chesapeake Energy Corporation (the “Company,” “Chesapeake” or “we”) filed its Annual Report on Form 10-K for the year ended December 31, 2019 (the “Original 10-K Filing”) with the Securities and Exchange Commission on February 27, 2020. Pursuant to General Instruction G(3) to Form 10-K, the Company incorporated by reference the information required by Part III of Form 10-K from our definitive proxy statement for the 2020 Annual Meeting of Shareholders (the “2020 Proxy Statement”) that we expected to file with the Commission not later than 120 days after the end of the fiscal year covered by the Original 10-K Filing. Because the definitive 2020 Proxy Statement will not be filed with the Commission before such date, the Company is filing this Amendment No. 1 to the Original 10-K Filing (this “Form 10-K/A”) to provide the additional information required by Part III of Form 10-K.

Except for the addition of Part III information and the filing of new certifications by our principal executive officer and principal financial officer, this Form 10-K/A does not amend or otherwise update any other information in the Original 10-K Filing, and the Original 10-K Filing, as amended by this Form 10-K/A, continues to speak as of the date of the Original 10-K Filing. Accordingly, this Form 10-K/A should be read in conjunction with the Original 10-K Filing and with our filings with the SEC subsequent to the Original 10-K Filing.

CHESAPEAKE ENERGY CORPORATION AND SUBSIDIARIES

2019 ANNUAL REPORT ON FORM 10-K/A

TABLE OF CONTENTS

PART III

Our Board of Directors

The Board is elected by the shareholders to oversee their interest in the long-term health and the overall success of our business and its financial strength. The Board serves as the ultimate decision-making body, except for those matters reserved to or shared with shareholders. The Board selects and oversees the members of senior management, who are charged by the Board with conducting our business.

The Chairman presides at all meetings of the Board, as well as executive sessions of non-employee directors, and, in consultation with non-employee directors, our CEO and management, establishes the agenda for each Board meeting. The Board has also delegated certain matters to its four committees, each of which is chaired by an independent director. The Board believes that this leadership structure provides an effective governance framework at this time.

Directors

Executive Officers

The names of executive officers of the Company and their ages, titles and biographies are incorporated by reference from Item 1 of Part I of the Original 10-K Filing.

Board of Director Criteria, Qualifications and Experience

The Board seeks a mix of directors with the qualities that will achieve the ultimate goal of a well-rounded, diverse Board. In accordance with its charter, the Nominating, Governance and Social Responsibility Committee (the “Nominating Committee”) seeks to include diverse candidates in all director searches, taking into account ethnicity, gender, age, cultural background, thought leadership and professional experience. The Nominating Committee and the Board believe that a boardroom with a wide array of talents and perspectives leads to innovation, critical thinking and enhanced discussion. The table below summarizes the qualifications that led to each director’s selection.

Director Qualifications

The Nominating Committee considers all shareholder recommendations for director candidates, evaluating them in the same manner as candidates suggested by other directors or third-party search firms (which the Board retains from time to time, and has retained over the past year, to help identify potential candidates). The Board appointed four new directors since the 2016 annual meeting that were recommended by the Company’s search firm: Ms. Boyland, Mr. Corbett, Ms. Keating, and Mr. Edmunds. In addition, two new directors, Scott Gieselman and David Hayes, were appointed to the Board in 2019 pursuant to Chesapeake’s merger agreement with WildHorse Resource Development Corporation. Messrs. Gieselman and Hayes served as representatives of NGP Energy Capital Management until November 2019 when NGP made a pro rata distribution of its equity interest in Chesapeake to the respective partners of NGP’s investment funds.

To recommend a candidate for our Board, write to the Nominating Committee, c/o James R. Webb, Executive Vice President - General Counsel and Corporate Secretary, Chesapeake Energy Corporation, 6100 N. Western Avenue, Oklahoma City, OK 73118, and include all information that our bylaws require for director nominations.

Board Committees

A significant portion of the Board’s oversight responsibilities is carried out through its four standing committees, each of which is composed solely of independent non-employee directors.

Code of Business Conduct

The Board has adopted a Code of Business Conduct applicable to all directors, officers and employees of the Company, including our principal executive officer, principal financial officer and principal accounting officer. The Code is posted on the Company’s website at http://www.chk.com/responsibility/governance/compliance-and-ethics. Waivers of provisions of the Code as to any director or executive officer and amendments to the Code must be approved by the Audit Committee of the Board. We will post on our website required disclosure about any such waiver or amendment within four business days of such approval.

Compensation Discussion and Analysis

This Compensation Discussion and Analysis, or CD&A, describes the material elements of the compensation of our NEOs and describes the objectives and principles underlying our executive compensation programs, the compensation decisions made last year under those programs and the factors we considered in making those decisions.

2019 Named Executive Officers

President and Chief Executive Officer, or CEO

Executive Vice President and Chief Financial Officer, or CFO

Executive Vice President - Exploration and Production

Executive Vice President - General Counsel and Corporate Secretary

Senior Vice President and Chief Accounting Officer

Compensation Philosophy

How Our Compensation Program is Aligned with Company Performance

Our compensation philosophy, which is set by the Compensation Committee, is meant to align each executive’s compensation with Chesapeake’s short-term and long-term performance.

Compensation Governance

Shareholder Outreach

Chesapeake understands the importance of maintaining a robust shareholder outreach program. Since our 2019 annual meeting, the Chairman of our Compensation Committee, along with management, continued this practice and addressed a variety of topics, including corporate governance, executive compensation, operating and financial performance, corporate strategy and debt reduction efforts. We believe our regular outreach has been productive and our dialogue with a significant number of large shareholders has given us a better understanding of our shareholders’ views on those topics.

Process for Determining Executive Compensation

The Compensation Committee has overall responsibility for approving and evaluating the executive officer compensation plans, policies and programs of the Company. In determining compensation, the Compensation Committee makes an overall assessment of the performance of the NEOs, both individually and as a team, on an annual basis. In 2019, the Compensation Committee’s approach consisted of both: (a) an objective consideration of the Company’s performance relative to predetermined metrics as more fully described beginning on page 19 under the caption “Primary Executive Compensation Elements for 2019”; and (b) a subjective consideration of each NEO’s performance and overall role in the organization, as well as consideration of the median compensation of similarly situated executives among our compensation peer group, which is described on page 17 under the caption “Compensation Peer Group.” In its assessment of the performance of each NEO in 2019, the Compensation Committee considered the following:

Independent Compensation Consultant

Pursuant to its charter, the Compensation Committee may retain a compensation consultant, and is directly responsible for the appointment, compensation and oversight of the work of any compensation consultant that it retains. The Compensation Committee retained Longnecker and Associates, or “L&A,” a national executive compensation consulting firm, as its independent compensation consultant to review and provide recommendations concerning all the components of the Company’s executive compensation program. L&A performs services solely on behalf of the Compensation Committee and has no relationship with the Company or management except as it may relate to performing such services. L&A assists the Compensation Committee in defining the Company’s peer companies for executive compensation and practices, and in benchmarking our executive compensation program against the peer group. L&A also assists the Compensation Committee with all aspects of the design of our executive and director compensation programs to ensure appropriate linkage between pay and performance. The Compensation Committee assessed the independence of L&A pursuant to the standards set forth in the NYSE Listed Company Manual and concluded that no conflict of interest exists that prevents L&A from independently representing the C

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Holdings of Major Shareholders

The following table shows certain information regarding the persons we know to be the beneficial owners of more than five percent of our issued and outstanding common stock (as of the date of such shareholder’s Schedule 13D or Schedule 13G filings with the SEC).

Securities Ownership of Officers and Directors**(a)**

The table below sets forth the beneficial ownership of our directors, executive officers, and all of our directors and executive officers as a group. Unless otherwise indicated, the information is given as of March 16, 2020, and the persons named below have sole voting and/or investment power with respect to such shares.

Equity Compensation Plan Information

The following table sets forth information about the Company’s common stock as of December 31, 2019, that may be issued under equity compensation plans. Amounts reflected in the table below do not reflect the effect of the Company’s recently completed 1-for-200 reverse stock split, which was implemented effective as of the close of business on April 14, 2020:

How We Assess Director Independence

BOARD MEMBERS

All of our Board members (listed in Item 10 above, beginning on page 6) other than our CEO, Mr. Lawler, are independent.

The Board’s guidelines. For a director to be considered independent, the Board, through its Nominating Committee, must determine that he or she does not have any relationship that, in the opinion of the Board, would interfere with his or her independent judgment as a director. The Board’s guidelines for director independence conform to the independence requirements in the NYSE listing standards. In addition to applying these guidelines, the Board considers all relevant facts and circumstances when making an independence determination.

Applying the guidelines in 2019. In determining director independence, the Board considered relevant transactions, relationships and arrangements in assessing independence, including relationships among Board members, their family members and the Company in 2017, 2018, 2019, and the 2020 first quarter, as described below under the caption: “Relationships and Transactions Considered for Director Independence.” In accordance with our Corporate Governance Principles and the NYSE listing standards, the Nominating Committee determined that all transactions and relationships it considered during its review were not material transactions or relationships with the Company and did not impair the independence of any of the independent directors.

COMMITTEE MEMBERS

All members of the Audit Committee, Compensation Committee, Finance Committee and Nominating Committee must be independent, as defined by the Board’s Governance Principles.

The Board has determined that all members of the Audit, Compensation and Nominating Committees, as well as the Finance Committee, are independent and, where applicable, also satisfy these committee-specific independence requirements.

Relationships and Transactions Considered for Director Independence

Transactions with Related Persons

The Company has adopted a written related party transaction policy with respect to any transaction, arrangement or relationship or series of similar transactions, arrangements or relationships (including any indebtedness or guarantee of indebtedness) in which: (1) the aggregate amount involved will or may be expected to exceed $120,000; (2) the Company is a participant; and (3) any of its currently serving directors and executive officers, or those serving as such at any time since the beginning of the last fiscal year, or greater than 5% shareholders, or any of the immediate family members of the foregoing persons, has or will have a direct or indirect material interest. The Audit Committee reviews and approves all interested transactions, as defined above, subject to certain enumerated exceptions that the Audit Committee has determined do not present a “direct or indirect material interest” on behalf of the related party, consistent with the rules and regulations of the SEC. Such transactions are subject to the Company’s Code of Business Conduct. Certain transactions with former executive officers and directors that fall within the enumerated exceptions are reviewed by the Audit Committee. The Audit Committee approves or ratifies only those transactions that it determines in good faith are in, or are not inconsistent with, the best interests of the Company and its shareholders. All transactions described below that do not fall within the enumerated exceptions described in the policy have been reviewed or approved by the Audit Committee.

BP p.l.c.

David C. Lawler, who serves as the Chief Executive Officer of BP p.l.c.’s “Lower 48 Onshore” business, is the brother of Robert D. Lawler, the Company’s CEO. The Company engages in transactions with BP in the ordinary course of business and no such transaction has been determined to be a related party transaction under the Company’s related party transaction policy.

Employment of Family Members

Grant Loxton, the son-in-law of Mr. Corbett, a director of the Company, has been an employee of the Company since May 2011. Mr. Loxton’s total 2018 cash and equity compensation was $402,119. The Company is a significant employer in Oklahoma City. We seek to fill positions with qualified employees, whether or not they are related to our executive officers or directors. We compensate employees who have such relationships within what we believe to be the current market rate for their position and provide benefits consistent with our policies that apply to similarly situated employees. Compensation arrangements for family members of related parties are approved by the Compensation Committee.

A summary of fees paid to our independent registered public accounting firm, PricewaterhouseCoopers LLP (“PwC”), for fiscal years 2018 and 2019 is set forth below:

PwC Fees for 2018 and 2019

The Audit Committee is directly responsible for the appointment, compensation, retention and oversight of the work of the independent auditor for the purpose of preparing or issuing audit reports or performing other services for the Company. The independent auditor reports directly to the Audit Committee. The Audit Committee pre-approves audit and non-audit services provided by the Company’s independent registered public accounting firm. In addition to separately approved services, the Audit Committee’s pre-approval policy provides for pre-approval of specifically described audit and non-audit services and related fee levels on an annual basis. The policy authorizes the Audit Committee to delegate to one or more of its members pre-approval authority with respect to permitted services. The Audit Committee reviews the services performed pursuant to its pre-approval policy at its next scheduled quarterly meeting.

Exhibits. The exhibits listed below in the Index of Exhibits are filed, furnished or incorporated by reference pursuant to the requirements of Item 601 of Regulation S-K.

INDEX OF EXHIBITS

Signature

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.