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CHESAPEAKE ENERGY CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued) Equity-Classified Awards Restricted Stock. We grant restricted stock units to employees and non-employee directors. Prior to 2014, we also granted restricted stock awards as equity compensation. We refer to both types of awards as restricted stock. A summary of the changes in unvested restricted stock during 2016, 2015 and 2014 is presented below.

Unvested restricted stock as of January 1, 2016 ........................ Granted ................................................................................... Vested ..................................................................................... Forfeited ................................................................................. Unvested restricted stock as of December 31, 2016...................

Shares of Unvested Restricted Stock (in thousands) 10,455 4,604 (4,692) (1,275) 9,092

Weighted Average Grant Date Fair Value $ $ $ $ $

17.31 4.58 17.23 13.91 11.39

Unvested restricted stock as of January 1, 2015 ........................ Granted ....................................................................................... Vested ......................................................................................... Forfeited ...................................................................................... Unvested restricted stock as of December 31, 2015...................

10,091 7,095 (4,157) (2,574) 10,455

$ $ $ $ $

21.20 13.90 21.70 16.98 17.31

Unvested restricted stock as of January 1, 2014 ........................ Granted ....................................................................................... Vested ......................................................................................... Forfeited ...................................................................................... Unvested restricted stock as of December 31, 2014...................

13,400 5,049 (4,803) (3,555) 10,091

$ $ $ $ $

23.38 25.92 27.17 28.09 21.20

The aggregate intrinsic value of restricted stock that vested during 2016 was approximately $21 million based on the stock price at the time of vesting. As of December 31, 2016, there was approximately $50 million of total unrecognized compensation expense related to unvested restricted stock. The expense is expected to be recognized over a weighted average period of approximately 1.5 years. Stock Options. In 2016, 2015 and 2014, we granted members of senior management stock options that vest ratably over a three-year period. Each stock option award has an exercise price equal to the closing price of the Company’s common stock on the grant date. Outstanding options expire seven to ten years from the date of grant. We utilize the Black-Scholes option pricing model to measure the fair value of stock options. The expected life of an option is determined using the simplified method. Volatility assumptions are estimated based on an average of historical volatility of Chesapeake stock over the expected life of an option. The risk-free interest rate is based on the U.S. Treasury rate in effect at the time of the grant over the expected life of the option. The dividend yield is based on an annual dividend yield, taking into account the Company's dividend policy, over the expected life of the option. The Company used the following weighted average assumptions to estimate the grant date fair value of the stock options granted in 2016. Expected option life – years .................................................................................................................. Volatility ................................................................................................................................................. Risk-free interest rate ............................................................................................................................ Dividend yield ........................................................................................................................................

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6.0 46.07% 1.70% —%

Profile for Chesapeake Energy

2016 Annual Report  

2016 Annual Report