Chesapeake Energy 2012 Annual Report Download - page 80

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of Chesapeake during a calendar year, but he is not allowed to participate only in selected wells. A participation election
is required to be received by the Compensation Committee of Chesapeake's Board of Directors not less than 30 days
prior to the start of each calendar year. His participation is permitted only under the terms outlined in the FWPP, which,
among other things, limits his individual participation to a maximum working interest of 2.5% in a well and prohibits
participation in situations where Chesapeake's working interest would be reduced below 12.5% as a result of his
participation. In addition, the Company is reimbursed for costs associated with leasehold acquired by Mr. McClendon
as a result of his well participation. In conjunction with certain sales of natural gas and oil properties by the Company,
affiliates of Mr. McClendon have sold interests in the same properties and on the same terms as those that applied to
the interests sold by the Company, and proceeds were paid to the sellers based on their respective ownership.
On December 31, 2008, we entered into a new five-year employment agreement with Mr. McClendon that contained
a one-time well cost incentive award to him. The total cost of the award to Chesapeake was $75 million plus employment
taxes in the amount of approximately $1 million. The incentive award was subject to a clawback equal to any unvested
portion of the award if during the initial five-year term of the employment agreement, Mr. McClendon resigned from
the Company or was terminated for cause by the Company. We are recognizing the incentive award as general and
administrative expense over the five-year vesting period for the clawback resulting in an expense of approximately
$15 million per year beginning in 2009. The net incentive award after deduction of applicable withholding and
employment taxes of approximately $44 million was fully applied against costs attributable to interests in Company
wells acquired by Mr. McClendon or his affiliates under the FWPP. On January 29, 2013, the Company announced
that Mr. McClendon had agreed to retire from the Company on the earlier to occur of April 1, 2013 or the time at which
his successor is appointed. Mr. McClendon's participation rights under the FWPP are expected to continue through
the expiration of the FWPP on June 30, 2014, and the incentive award clawback applicable to 2013 will not apply. See
Note 21 for additional information on the terms of his separation from the Company.
In 2011, Chesapeake entered into a license and naming rights agreement with The Professional Basketball Club,
LLC (PBC) for the arena in downtown Oklahoma City. PBC is the owner of the Oklahoma City Thunder basketball
team, a National Basketball Association franchise and the arena's primary tenant. Mr. McClendon has a 19.2% equity
interest in PBC. Under the terms of the agreement, Chesapeake has committed to pay fees ranging from $3 million to
$4 million per year through 2023 for the arena naming rights and other associated benefits. In addition, since 2008,
Chesapeake has been a founding sponsor of the Oklahoma City Thunder, initially under successive one-year contracts.
In 2011, it entered into a 12-year sponsorship agreement, committing to pay an average annual fee of $3 million for
advertising, use of an arena suite and other benefits. Chesapeake also has committed to purchase tickets to all
2012-2013 home games. In 2012 and 2011, the Company paid PBC approximately $7 million and $6 million, respectively,
for naming rights fees, sponsorship fees and game tickets, and for 2013, the amount payable for such 2012-2013
season fees and tickets is approximately $3 million, not including any amounts for playoff tickets.
Pursuant to a court-approved litigation settlement with certain plaintiff shareholders described under Litigation
and Regulatory Proceedings in Item 3 of this report, the sale of an antique map collection that occurred in December
2008 between Mr. McClendon and the Company will be rescinded. Mr. McClendon will pay the Company approximately
$12 million plus interest, and the Company will reconvey the map collection to Mr. McClendon. The transaction is
scheduled to be completed not later than 30 days after entry of a final non-appealable judgment.