Chesapeake Energy 1993 Annual Report Download - page 32

CHESAPEAKE ENERGY CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
In February 1993, a $2.15 million.(plus costs and interest) judgment was entered against the Company
'and its two principal shareholders, TheCompany and the other defendants have appealed the judgment. The
two principal shareholders have indemnified the Company against any liability with respect to the judgment
and the appeal
The Company, together with certain of its executive officers, its directors and others, are defendants in
three class action suits based upon alleged misstatements in the Company's February .19.9 3 prospectus used
in connection with the initial public offering of its common stock A Memorandum of Understanding has been
executed by the parties fully settling the claims against the defendants subject to approval by the court of a
definitive settlement agreement. The settlement,. if approved by the court, would require a $485,000 payment
by the Company and indemnification of the Company by Its two principal shareholders for any liability
resuhing from the judgment described in the preceding paragraph and for post judgment fees and expenses
incurred by the Company As of June 30 1993 the Company has provided a reserve for its estimated cost of
settlement
The Company's subsidiary, GO!, is a defendant in a pending action seeking approximately $15 million in
damages for alleged failure to'drill wells under a farmout agreement entered into in 1991. COl asserts as a:
defense that it had the option but not the obligation to drill the wells and that in any event it was excused
from drilling because of a lease cancellation action instituted by the plaintiffs lessor covering a substantial
portion of the lands covered by the farmout agreement.
A subsidiary of the Company, C01, sold 'fractional undivided working interests in many of the wells it has
drilled to oil and gas companies and individual investors Offers and sales of such interests are generally
subject to the registration and anti fraud provisions of federal and state securities laws None of the offers and
sales of working interests made by COl were registered under the Securities Act or any state securities laws
Various individuals and corporations who purchased fractional undivided working interests in specific oil
and gas properties from COI and purchasers of interests from COI have asserted claims against the Company
As of September 24 1993 there were no suits pending against the Company for securities violations arising
out of such sales although there can be no assurance that claims will not be asserted in the future
The Company has employment contracts with its two principal shareholders and its chief financial officer
which provide for annual base salaries bonus compensation and various benefits The contracts provide for
the continuation of salary nd benefits for the respective terms of the agreements in the event of termination
of employment wlthQut cause One agreement expires February 28 1995 and the others expire June 30
1995
Due to the nature of the oil and gasbusiness, the Company and its subsidiaries are exposed to possible
environmental risks. The Company has implemented various policies and procedures to avoid environmental
contamination and risks from environmental contamination. The Company is not aware of any potential
environmental issues or claims. 0
5 INCOME TAXES' :
As discussed in Note I, the Company has adopted SFAS No. 1.09, "Accounting for Income Taxes'. The
components of the income tax provision fOr each of the periods are as follows (in thousand of'dollars)
Years Ended June 30,
1993 1992 1991
22
($ in thousands)
Current: $ $ 145 :$0
Deferred (99) .1,192 163
TOTAL .(59.9) $1,337 $243