Chesapeake Energy 2012 Annual Report Download - page 46

36
August 21, 2012. Discovery in the case is proceeding. We are currently unable to assess the probability of loss or
estimate a range of potential loss associated with the case.
A derivative action was also filed in the District Court of Oklahoma County, Oklahoma on March 10, 2009 against
certain current and former directors and officers of the Company asserting breaches of fiduciary duties relating to
alleged material omissions in the registration statement for the July 2008 offering. On October 22, 2012, the court
issued an order staying the derivative action until resolution of the federal class action. A second derivative action
relating to the July 2008 offering was filed against certain current and former directors and officers of the Company in
the U.S. District Court for the Western District of Oklahoma on September 6, 2011. This action also asserts breaches
of fiduciary duties with respect to alleged material omissions in the offering registration statement. On November 30,
2011, the Company filed a motion to dismiss the action, which was denied on September 28, 2012. Pursuant to court
order, nominal defendant Chesapeake filed an answer on October 12, 2012. By stipulation between the parties, the
individual defendants are not required to answer the complaint unless and until the plaintiff establishes standing to
pursue claims derivatively.
2008 CEO Compensation and Related Party Transaction. Three derivative actions were filed in the District Court
of Oklahoma County, Oklahoma on April 28, May 7 and May 20, 2009 against the Company’s directors alleging, among
other things, breaches of fiduciary duties relating to the 2008 compensation of the Company’s CEO, Aubrey K.
McClendon, and seeking unspecified damages, equitable relief and disgorgement. These three derivative actions were
consolidated and a Consolidated Derivative Shareholder Petition naming Chesapeake as a nominal defendant was
filed on June 23, 2009. Chesapeake’s motion to dismiss was granted on February 26, 2010, and the Oklahoma Court
of Civil Appeals affirmed the dismissal on August 26, 2011. The plaintiffs filed a petition for writ of certiorari with the
Oklahoma Supreme Court on September 13, 2011. The appeal is currently stayed pending resolution of the settlement
referenced in the following paragraph.
On January 30, 2012, the District Court of Oklahoma County, Oklahoma approved a settlement between the
parties in the consolidated derivative action, as well as a case on appeal at the Oklahoma Court of Civil Appeals
requesting inspection of Company books and records relating to the December 2008 employment agreement with
Mr. McClendon. The principal terms of the settlement include the rescission of the sale of an antique map collection
that occurred in December 2008 between Mr. McClendon and the Company, whereby Mr. McClendon will pay the
Company approximately $12 million plus interest and the Company will reconvey the map collection to Mr. McClendon,
and the adoption and/or implementation of a variety of corporate governance measures. The court awarded attorney
fees and expenses to plaintiffs’ counsel in the amount of $3.75 million. Pursuant to the settlement, the consolidated
derivative action and books and records action were dismissed with prejudice against all defendants. On February 29,
2012, certain shareholders filed a petition in error with the Oklahoma Supreme Court opposing the terms of the
settlement. Their appeal was fully briefed as of October 24, 2012.
On September 6 and 8, 2011, in separate derivative actions filed in the U.S. District Court for the Western District
of Oklahoma against certain of the Company’s current and former directors, two shareholders alleged that the
Chesapeake Board wrongfully refused their demands to investigate purported breaches of fiduciary duties relating to
Mr. McClendon’s 2008 compensation and, as a result, each of these shareholders asserts he is entitled to seek relief
on behalf of the Company. These federal derivative actions were consolidated on December 23, 2011 and on March 14,
2012 were stayed until 30 days after the Supreme Court of Oklahoma resolves the appeal of the settlement of the
consolidated derivative action and books and records action.
FWPP, Conflict of Interest and Other Matters. From April 19 to June 29, 2012, 13 substantially similar shareholder
derivative actions were filed in the U.S. District Court for the Western District of Oklahoma against the Company and
its directors alleging, among other things, violations of Section 14 of the Securities Exchange Act of 1934 and Rule
14a-9 promulgated thereunder for purported material misstatements in the Company’s 2009 and subsequent proxy
statements related to Mr. McClendon’s participation in the Founder Well Participation Program (FWPP) and breaches
of fiduciary duties, corporate waste, and unjust enrichment against the Board for failing to make proper disclosures in
the proxy statements and failing to properly monitor Mr. McClendon’s personal use of assets acquired pursuant to the
FWPP. As described in Note 6, in conjunction with Mr. McClendon's employment agreement with the Company, the
FWPP provides Mr. McClendon a contractual right through June 2014 to participate and invest as a working interest
owner (with up to a 2.5% working interest) in new wells drilled on the Company's leasehold. On July 13, 2012, these
13 shareholder actions were consolidated into a single case. On April 27, 2012, a shareholder derivative action was
filed in the District Court of Oklahoma County, Oklahoma setting forth substantially similar claims to those alleged in
the federal shareholder actions. Plaintiffs in both the federal consolidated derivative action and the state court derivative
action stipulated to stay their cases pending a ruling on the motion to dismiss filed in the federal securities class action