Chesapeake Energy 2012 Annual Report Download - page 56

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exercise price equal to the closing price of the Company's common stock on the grant date, and vest one-third on each
of the third, fourth and fifth anniversaries of the grant date. The options are subject to accelerated vesting if the executive
is terminated (other than for cause) during the vesting period; however, no accelerated vesting will occur if the executive
retires or voluntarily resigns prior to vesting.
On February 20, 2013, we announced that our Board of Directors had received the results of its previously
announced review of the financing arrangements between Mr. McClendon (and the entities through which he participates
in the Founder Well Participation Program (FWPP)) and third parties identified as having a financial relationship with
us, as well as other matters. The review, which was led by the Audit Committee of the Board with the assistance of
independent counsel retained by the independent members of the Board in April 2012, has been substantially completed.
In connection with the review, millions of pages of documents were collected and reviewed and more than 50 interviews
of Chesapeake and third-party personnel were conducted.
Among the transactions reviewed were the 2008-2012 financing arrangements between EIG Global Energy
Partners (EIG) and affiliates of Mr. McClendon regarding financing of his participation in the FWPP, as well as the
preferred stock investments by EIG in CHK Utica, L.L.C. and CHK Cleveland Tonkawa, L.L.C. See Noncontrolling
Interests in Note 8 of the notes to our consolidated financial statements included in Item 8 of this report for further
discussion of the preferred stock investment transactions. The review of the financing arrangements did not reveal
any improper benefit to Mr. McClendon or increased cost to the Company as a result of the overlap in the financial
relationships.
The review also covered:
• other relationships in which both Mr. McClendon and the Company conducted business with the same
financial institutions;
• the trading activities of the Heritage Hedge Fund (co-founded by Mr. McClendon) through 2007, when the
Heritage Hedge Fund ceased operations; and
• other matters, including issues regarding administration of the FWPP, and a 1998 loan to Mr. McClendon
by then Board member Frederick B. Whittemore.
Based on the documents reviewed and interviews conducted, no intentional misconduct by Mr. McClendon or
any of the Company's management was found by the Board concerning these relationships and/or these transactions
and issues.
We also announced on February 20, 2013 that our Board of Directors had concluded that the Company did not
violate antitrust laws in connection with the acquisition of Michigan oil and gas rights in 2010. As described in Item 3
and in Note 4 of the notes to our consolidated financial statements included in Item 8 of this report, in June 2012 we
received a subpoena duces tecum from the Antitrust Division, Midwest Field Office, of the United States Department
of Justice, and demands for documents and information from state governmental agencies, investigating possible
antitrust violations arising from 2010 leasing activities. The Board commenced its own investigation of these allegations
in June 2012 and based its conclusion on a thorough review conducted independently by outside counsel and
cooperation with the Department of Justice.
On February 25, 2013, we announced we had entered into an agreement whereby Sinopec International Petroleum
Exploration and Production Corporation (Sinopec) will purchase a 50% undivided interest in 850,000 of our net oil and
natural gas leasehold acres in the Mississippi Lime play in northern Oklahoma (425,000 acres net to Sinopec). The
total consideration for the transaction will be $1.02 billion in cash, of which approximately 93% will be received upon
closing. Payment of the remaining proceeds will be subject to certain customary title contingencies. Production from
these assets (including Mississippi Lime and other formations), net to our interest and prior to Sinopec's purchase,
averaged approximately 34 thousand barrels of oil equivalent per day in the 2012 fourth quarter and, as of December
31, 2012, there was approximately 140 million barrels of oil equivalent of net proved reserves associated with the
assets. All future exploration and development costs in the joint venture will be shared proportionately between the
parties with no drilling carries involved. As the operator of the project, we will conduct all leasing, drilling, completion,
operations and marketing for the joint venture. The transaction is anticipated to be completed in the 2013 second
quarter.