Chesapeake Energy 1998 Annual Report Download - page 39

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and others. The action was brought purportedly on behalf of investors who purchased Bayard common stock in, or
traceable to, Bayard's initial public offering in November 1997. The defendants include officers and directors of
Bayard who signed the registration statement, selling shareholders (mcludmg the Company) and underwriters of the
offering Total proceeds of the offering were $254 million, of winch the Company received net proceeds of $90
million.
In May 1998, two additional purported class actions filed in January and February 1998 in the District Court for
Oklahoma County, Oklahoma were dismissed without prejudice pursuant to stipulation of all parties. On May 12,
1998, the plaintiffs in the dismissed cases became co-lead plaintiffs in Yuan v. Bayard, etal.
Plamliffs allege that the Company, winch owned 30 1% ofBayard's outstandmg common stock prior to the offering,
was a controthng person of Bayard Plamtiffs also allege that the Company had estabhshed an mterlockmg financial
relationship with Bayard and was a customer of Bayard's drilling services under allegedly below-market terms
Plaintiffs also note the fact that Messrs. McClendon, Ward and Rowland, executive officers and directors of the
Company, were formerly directors of Bayard. Plaintiffs assert that the Bayard prospectus contained material omissions
and misstateiiients relating to (i) the Company's financial "problems" and their impact on Bayard's operating results, (ii)
increased costs associated with Bayard's growth strategy, (iii) undisclosed pending related-party transactions betWeen
Bayard and third parties other than the Company, (iv) Bayard's planned use of offering proceeds and (v) Bayard's
capiial expenditures and liquidity. The alleged defective disclosures are claimed to have resulted in a decline in
Bayard's share price following the public offering.
Plaintiffs seek a determination that the suit is a proper class action and damages in an unspecified amount or
rescission, together with interest and costs of litigation, including attorneys' fees. The Company believes the claims
against it in this action are without merit. On September 11, 1998, the Company and the other named defendants ified a
motion to dismiss. No estimate of loss or range of estimate of loss, if any, can be made at this time. Bayard has
subsequently agreed to merge into a wholly-owned, newly created, special purpose subsidiary of Nabors Industries, Inc.
UPRC Patent Suit. On October 15, 1996, Union Pacific Resources Company ("UPRC") filed suit against the
Company in the U.S. District Court for the Northern District of Texas, Fort Worth Division, alleging (i) infringement
and inducing infringement of UPRC's claims to a patent for an invention involving a method of maintaining a borehole
in a stratigraphic zone during drilling, (ii) tortious interference with contracts between UPRC and certain of its former
employees regarding the confidentiality of propnetary mformation of UPRC and (m) misappropriation of such
proprietary information. On May 20, 1998, two orders were entered granting the Company suniniasy judgment on
several issues. The court ruled as a matter of law that UPRC's tort claims for misappropriation of trade secrets and
tortious interference with business relations are barred by the statute of limitations. Further, the court found that
UPRCs claim for inducement to infringe its patent for a drillbit steering method is barred as to any wells drilled by the
Company prior to August 14, 1995. The only issues remaining in the case involve the validity, potential inflingement
and value, if any, of UPRCs patent.
UPRC's claims against the Company in UPRC v. Chesapeake Energy Corporation, et al. are based on services
provided to the Company by a third party vendor controlled by former UPRC employees UPRC is seeking injunctive
relief, damages of an unspecified amount, including actual, enhancec consequential and punitive damages, interest,
costs and attorneys' fees. The Company believes that it has meritorious defenses to UPRC's allegations and has
petitioned the court to declare the UPRC patent invalid. Various motions for suinmaiy judgment filed by both parties
are pending. While no prediction can be made as to the outcome of the matter or the amount of damages that might be
awarded, if any, damage estimates have been made in reports of experts filed in the proceeding. Experts for UPRC
claim that damages could be as much as $18 million, while Company experts state that the amount should not exceed
$25,000, in each case based on the experts view of a reasonable royalty for use of the patent. The case has been set for
trial in June 1999 on the issue of liability.
ITEM 4. Submission of Matters to a Vote of Security Holders
Not applicable
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