Chesapeake Energy 2013 Annual Report Download - page 68

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Accounting guidance for recognizing and measuring uncertain tax positions prescribes a threshold condition that
a tax position must meet for any of the benefit of the uncertain tax position to be recognized in the financial statements.
Guidance is also provided regarding de-recognition, classification and disclosure of these uncertain tax positions.
Based on this guidance, we regularly analyze tax positions taken or expected to be taken in a tax return based on the
threshold condition prescribed. Tax positions that do not meet or exceed this threshold condition are considered
uncertain tax positions. We accrue interest related to these uncertain tax positions which is recognized in interest
expense. Penalties, if any, related to uncertain tax positions would be recorded in other expenses. Additional information
about uncertain tax positions appears in Note 6 of the notes to our consolidated financial statements included in Item
8 of this report.
Disclosures About Effects of Transactions with Related Parties
Former Chief Executive Officer
On April 1, 2013, Aubrey K. McClendon, the co-founder of the Company, ceased serving as President and CEO
and as a director of the Company pursuant to his agreement with the Board of Directors announced on January 29,
2013. Since Chesapeake was founded in 1989, Mr. McClendon and his affiliates have acquired working interests in
virtually all of our natural gas and oil properties by participating in our drilling activities under the terms of Mr. McClendon’s
employment agreements and, since 2005, the Founder Well Participation Program (FWPP). The Company is
reimbursed for costs associated with leasehold acquired under the FWPP, and well costs are charged to FWPP interests
based on percentage ownership. On April 30, 2012, the Company's Board of Directors and Mr. McClendon agreed to
terminate the FWPP 18 months before the end of the 10-year term approved by our shareholders in June 2005. Mr.
McClendon has elected to participate in the FWPP through the expiration of the FWPP on June 30, 2014 at the maximum
2.5% working interest permitted, the same participation percentage that Mr. McClendon has elected every year since
2004. The Compensation Committee of the Board of Directors, which administers and interprets the FWPP, is reviewing
with the assistance of independent counsel the prior administration of the plan. As of December 31, 2013 and 2012,
we had accrued accounts receivable from Mr. McClendon of $62 million and $23 million, respectively, representing
FWPP joint interest billings. 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 the proceeds were paid to the sellers based on their respective ownership
percentages. These interests were acquired through the FWPP.
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 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. The incentive award was subject to a clawback
provision 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 recognized 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 incentive award clawback did not apply to Mr. McClendon’s
termination in 2013. See Note 17 of the notes to our consolidated financial statements included in Item 8 of this report
for additional information on the terms of Mr. McClendon’s separation from the Company.
On July 26, 2013, the Company and Mr. McClendon rescinded the December 2008 sale of an antique map
collection pursuant to the terms of a settlement agreement terminating pending shareholder litigation that was approved
by the District Court of Oklahoma County, Oklahoma on January 30, 2012 and affirmed on appeal. The Company
returned the subject maps to Mr. McClendon, and Mr. McClendon paid the Company $12 million plus interest.