Chesapeake Energy 2000 Annual Report Download - page 69

plaintiffs have sought to recover conversion damages, exemplary damages, attorneys' fees and interest. The
defendants have asserted that any cessation of production was excused and have pled affirmative defenses of
limitations, waiver, temporary estoppel, laches and title by adverse possession. Four of the 13 cases have been tried,
and there have been appellate decisions in three of them. In January 2001, the principal plaintiffs in eight of ten
cases tried or pending in the District Court of Moore County, Texas, 69th Judicial District agreed to settle their
claims. We do not consider our portion of the settlement consideration material to our financial condition or results
of operations.
There are five related West Panhandle cessation cases which continue to be pending, two in the District Court
of Moore County, Texas, 69th Judicial District, one in the District Court of Carson County, Texas, 100th Judicial
District, and two in the U.S. District Court, Northern District of Texas, Amarillo Division. In one of the Moore
County cases, CP and the other defendants have appealed a January 2000 judgment notwithstanding verdict in favor
of plaintiffs. In addition to quieting title to the lease (including existing gas wells and all attached equipment) in
plaintiffs, the court awarded actual damages against CP in the amount of $716,400 and exemplary damages in the
amount of $25,000. The court further awarded, jointly and severally from all defendants, $160,000 in attorneys' fees
and interest and court costs. On March 28, 2001, the Amarillo Court of Appeals reversed and rendered the
judgment in favor of CP and the other defendants, finding that the subject leases had been revived as a matter of
law, making all other issues moot. In the other Moore County, Texas case, in June 1999, the court granted plaintiffs'
motion for summary judgment in part, finding that the lease had terminated due to the cessation of production,
subject to the defendants' affirmative defenses. In February 2001, the court granted plaintiffs' motion for summary
judgment on defendants' affirmative defenses but reversed its ruling that the lease had terminated as a matter of law.
In one of the U.S. District Court cases, after a trial in May 1999, the jury found plaintiffs' claims were barred by the
payment of shut-in royalties, laches and revivor. Plaintiffs have moved for a new trial. There are motions pending in
the remaining two cases and no trial date has been set.
We have previously established an accrued liability we believe will be sufficient to cover the estimated costs of
litigation for each of the pending cases and the settlement consideration under the terms of the settlement
agreement mentioned above. Because of the inconsistent verdicts reached by the juries in the four cases tried to date
and because the amount of damages sought is not specified in all of the pending cases, the outcome of any future
trials and the amount of damages that might ultimately be awarded could differ from management's estimates. CP
and the other defendants intend to vigorously defend against the plaintiffs' claims.
Chesapeake 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 Chesapeake.
Chesapeake has employment contracts with its chief executive officer, chief operating officer and 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 varying terms in the event
of termination of employment without cause. The agreements with the chief executive officer and chief operating
officer have terms of five years commencing July 1, 2000. The term of each agreement is automatically extended for
one additional year on each June 30 unless one of the parties provides 30 days notice of non-extension. The
agreements with the chief financial officer and other senior managers expire on June 30, 2003.
Due to the nature of the oil and gas business, Chesapeake and its subsidiaries are exposed to possible
environmental risks. Chesapeake has implemented various policies and procedures to avoid environmental
contamination and risks from environmental contamination. Chesapeake is not aware of any potential material
environmental issues or claims.
-58-