Chesapeake Energy 1998 Annual Report Download - page 29

negotiations of contracts with governmental entities, and
import and export regulations.
In addition, in the event of a dispute, we may be required to litigate the dispute in Canadian courts since we may not
be able to sue foreign persons in a United States court.
Pending Legal Proceedings Could Have a Material Adverse Effect.
The Company is a defendant in two purported class actions based on federal and state securities fraud claims. In
addition, we are defending claims of patent infringement in another pending action. While no prediction can be
made as to the outcome of these matters or the amount of damages that might be awarded, if any, an adverse result
in any of them could be material to our fmancial results. See Item 3. Legal Proceedings.
The Loss of Either the CEO or the COO Could Adversely Affect Operations.
Our operations are dependent upon our Chief Executive Officer, Aubrey K. McClendon, and our Chief
Operating Officer, Tom L. Ward. The unexpected loss of the services of either of these executive officers could
have a detrimental effect on our operations. The Company maintains $20 million key man life insurance policies on
the life of each of Messrs. McClendon and Ward.
Transactions with Executive Officers May Create Conflicts of Interest.
Messrs. McClendon and Ward have rights to participate in wells we drill during any succeeding quarter, and
they participated in every well we have drilled through December 31, 1998. As a result of their participation, they
routinely have significant accounts payable to the Company for joint interest billings. As of December 31, 1998,
Messrs. McClendon and Ward had payables to the Company of $2.8 million and $2 4 million, respectively, in
connection with such participation. Additionally, Messrs. McClendon and Ward have loans due on December 31,
1999 to CEMIL in the principal amounts of $4.9 million and $5.0 million (as of December 31, 1998), respectively.
Such loans, which were first made in July 1998, are collateralized and carry an annual interest rate of 9.125%. As
of March 30, 1999, Messrs. McClendon's and Ward's loans have been reduced to $4.3 million and $4 6 million,
respectively. The existence of these loans and the rights to participate in wells we drill could present a conflict of
interest with respect to Messrs. McClendon and Ward.
The Ownershzp of a Sign flcant Percentage of Stock by Insiders Could Influence the Outcome of Shareholder Votes.
At March 26, 1999, our Board of Directors and senior management beneficially owned an aggregate of
27,923,997 shares of common stock (including outstanding vested options), which represented approximately 28%
of our outstanding shares. The ownership of Messrs. McClendon and Ward and their children's trusts accounted for
25% of the outstanding common stock. As a result, Messrs. McClendon and Ward, together with other officers and
directors of the Company, are in a position to significantly influence matters requiring the vote or consent of our
shareholders.
The Company Could be Adversely Affected if Our Computer Systems or Those of Our Vendors Are Not Year 2000
Compliant.
Year 2000 issues exist when dates are recorded in computers using two digits, rather than four, and are then used
for arithmetic operations, comparisons or sorting. A two-digit recording may recognize a date using "00" as 1900
rather than 2000, which could cause our computer systems to perform inaccurate computations. Year 2000 issues
relate not only to our systems, but also to those used by our suppliers. We anticipate that system replacements and
modifications will resolve any Year 2000 issues that may exist with our suppliers or their suppliers. However, we.
cannot guarantee that such replacements or modifications will be completed successfully or on time and, as a result,
any failure to complete such modifications on tune could materially affect our fmancial and operating results in a
negative way. Please read the additional discussion regarding the Year 2000 issue and the potential impact on our
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