Chesapeake Energy 2000 Annual Report Download - page 109

agreement in effect for a period of one year after such termination. In the event of a change in control, as defined, of
Gothic, the President had the right to terminate his employment agreement with Gothic within sixty days thereafter,
whereupon Gothic would be obligated to pay to him a sum equal to three years of his base salary under the
agreement, plus a lump sum payment of $250,000. The President resigned from Gothic effective January 16, 2001,
upon completion of the Chesapeake Merger.
Gothic also entered into an employment agreement with its Chief Financial Officer effective January 1, 1999.
The Chief Financial Officer received a base salary of $187,500 per year. In addition, he was to receive a cash bonus
as was determined by Gothic's Board of Directors. The CFO was also entitled to participate in such incentive
compensation and benefit programs as Gothic made available. The term of the agreement was for a period of three
years and at the end of the first year and at the end of each succeeding year the agreement was automatically
extended for one year such that at the end of each year there would automatically be three years remaining on the
term of the agreement. The CFO could terminate the agreement at the end of the initial term and any succeeding
term on not less than six months notice. In the event the employment agreement was terminated by Gothic (other
than for cause, as defined), the CFO was entitled to receive a payment representing all salary due under the
remaining full term of his agreement, and Gothic was obligated to continue his medical insurance and other benefits
provided under the agreement in effect for a period of one year after such termination. In the event of a change in
control, as defined, of Gothic, the CFO had the right to terminate his employment with Gothic within sixty days
thereafter, whereupon Gothic would be obligated to pay to him a sum equal to three years base salary, plus a lump
sum payment of $200,000. The Chief Financial Officer resigned from Gothic effective January 16, 2001, upon
completion of the Chesapeake Merger.
The above employment agreements were amended in connection with the Merger whereby the executives each
received a severance payment equal to their year 2000 base salary, and entered into consulting and non-compete
agreements with Chesapeake.
Gothic leases its corporate offices and certain office equipment and automobiles under non-cancelable
operating leases. Rental expense under non-cancelable operating leases was $190,000, $240,000 and $345,000 for
the years ended December 31, 1998, 1999 and 2000, respectively.
Remaining minimum annual rentals under non-cancelable lease agreements subsequent to December 31, 2000
are as follows:
2001 $295,000
2002 $282,000
2003 $267,000
2004 $247,000
Gothic is not a defendant in any pending legal proceedings other than routine litigation incidental to its
business. While the ultimate results of these proceedings cannot be predicted with certainty, Gothic does not believe
that the outcome of these matters will have a material adverse effect on Gothic's financial position or results of
operations.
Benefit Plan
Gothic maintained a 401 (k) plan for the benefit of its employees. The plan was implemented in October 1997.
The plan permitted employees to make contributions on a pre-tax salary reduction basis. Gothic made limited
matching contributions to the plan, and also made other discretionary contributions. Gothic's contributions for 1998,
1999 and 2000 were $62,000, $85,000 and $81,000, respectively. The plan was terminated in December 2000.
Major Customers
During the year ended December 31, 2000, Gothic was a party to contracts whereby it sold approximately 60%
of its natural gas production to CMS Continental Natural Gas Corporation ("Continental"), and approximately
64% of its oil production to Duke Energy, Inc. Gothic has a ten-year marketing agreement, whereby the majority of
the natural gas associated with properties acquired from Amoco in January 1998 will be sold to Continental, at
market prices, under this agreement.
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