Chesapeake Energy 1997 Annual Report Download - page 63

CHESAPEAKE ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
callable U.S. Government Securities in the amount of $55.0 million was irrevocably deposited in trust to
satisfy the Company's obligations, including accrued but unpaid interest through the date of defeasance of
$1.3 million.
4. Contingencies and Commitments
The Company and certain of its officers and directors are currently involved in various purported class
actions alleging violations of the Securities Exchange Act of 1934. The plaintiffs assert that the defendants
made materially false and misleading statements and failed to disclose material facts about thesuccess of the
Company's exploration efforts, principally in the Louisiana Trend. As a result, the complaints allege, the price
of the Company's common stock was artificially inflated during periods beginning as early as January 25, 1996
and ending on June 27, 1997, when the Company issued a press release announcing disappointing drilling
results in the Louisiana Trend and a full-cost ceiling writedown to be reflected in its June 30, 1997 financial
statements. The plaintiffs further allege that certain of the named individual defendants sold common stock
during the class period when they knew or should have known adverse nonpublic information. Each case seeks
a determination that the suit is a proper class action, certification of the plaintiff as a class representative and
damages in an unspecified amount, together with costs of litigation, including attorneys' fees. The Company
and the individual defendants believe that these actions are without merit, and intend to defend against them
vigorously.
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 (a) infringement and
inducing infringement of UPRC's claim to a patent (the "UPRC Patent") for an invention involving a
method of maintaining a borehole in a stratigraphic zone during drilling, and (b) tortious interference with
certain business relations between UPRC and certain of its former employees. UPRC's claims against the
Company are based on services provided by a third party vendor to the Company. UPRC is seeking injunctive
relief, damages of an unspecified amount, including actual, enhanced, consequential and punitive damages,
interest, costs and attorneys' fees. The Company believes that it has meritorious defenses to UPRC's
allegations and has requested the court to declare the UPRC Patent invalid. The Company has also filed a
motion to limit the scope of UPRC's claims and for summary judgment. No prediction can be made as to the
outcome of the matter.
The Company is currently involved in various other routine disputes incidental to its business operations.
While it is not possible to determine the ultimate disposition of these matters, management, after consultation
with legal counsel, is of the opinion that the final resolution of all such currently pending or threatened
litigation is not likely to have a material adverse effect on the consolidated financial position or results of
operations of the Company.
The Company has employment contracts with its two principal shareholders and its chief financial officer
and various other senior management personnel which provide for annual base salaries, bonus compensation
and various benefits. The contracts provide for the continuation of salary and benefits for the respective terms
of the agreements in the event of termination of employment without cause. These agreements expire at
various times from June 30, 1998 through June 30, 2000.
Due to the nature of the oil and gas business, 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
material environmental issues or claims.
As of June 30, 1997, the Company had guaranteed $1.3 million of debt owed by Peak.
46