<PAGE>
SECURITIES AND EXCHANGE COMMISSION
AMENDMENT NO. 1 TO
FORM S-3
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
GOTHIC ENERGY CORPORATION
(Exact Name of Registrant as specified in its Charter)
OKLAHOMA 22-2663839
(State or other jurisdiction (IRS Employer Identification Number)
of incorporation or organization)
5727 SOUTH LEWIS AVENUE, SUITE 700, TULSA, OKLAHOMA 74105
(918) 749-5666
(Address, including zip code, and telephone number, including area code, of
Registrant's principal executive offices)
MICHAEL K. PAULK, PRESIDENT
5727 SOUTH LEWIS AVENUE, SUITE 700, TULSA, OKLAHOMA 74105
(918) 749-5666
(Name, address, including zip code, and telephone number, including area code,
of Agent for service)
With a Copy to:
WILLIAM S. CLARKE, ESQUIRE
457 NORTH HARRISON STREET, SUITE 103, PRINCETON, NEW JERSEY 08540
(609) 921-3663
Approximate date of commencement of proposed sale to public:
FROM TIME TO TIME AFTER THIS REGISTRATION STATEMENT BECOMES EFFECTIVE.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ] __________
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ] __________
If delivery of the Prospectus is expected to be made pursuant to Rule
434, please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
TITLE OF EACH CLASS OF PROPOSED MAXIMUM PROPOSED MAXIMUM
SECURITIES TO BE AMOUNT TO BE OFFERING PRICE AGGREGATE AMOUNT OF
REGISTERED REGISTERED PER UNIT (1) OFFERING PRICE REGISTRATION FEE
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, 2,335,864 $ 2.625 $6,130,330 $1,860.00
$.01 par value
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7-1/2% Cumulative
Convertible Preferred 5,540 $1,250.00 $7,271,250 $2,203.00
Stock, $.05 par value
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Common Stock
$.01 par value (2) 2,770,000
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Common Stock 1,000,000 $ 3.19 $3,190,000 $ 967.00
Purchase Warrants
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Common Stock 200,000 $ 2.25 $ 450,000 $ 137.00
Purchase Warrants
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Common Stock, 1,200,000 $ 2.625 $3,150,000 $ 955.00
$.01 par value (3)
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TOTAL $6,122.00
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</TABLE>
(1) Estimated solely for the purpose of calculating the Registration Fee
pursuant to Rule 457(c) based on the average of the high and low sale prices of
the shares of Common Stock as reported on the Nasdaq SmallCap Market on February
28, 1997.
(2) Shares of Common Stock issuable on conversion of the 7-1/2% Cumulative
Convertible Preferred Stock.
(3) Shares of Common Stock issuable on exercise of Warrants.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE
SECURITIES ACT OF 1933, OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
<PAGE>
PROSPECTUS
GOTHIC ENERGY CORPORATION
This Prospectus relates to the resale of up to 5,240 shares of 7 1/2%
Cumulative Convertible Preferred Stock, par value $.05 per share (the "Preferred
Stock"), 1,200,000 common stock purchase warrants (the "Warrants"), and
6,305,364 shares of Common Stock, par value $.01 per share (the "Common Stock"),
including 3,970,000 shares of Common Stock issued or issuable on conversion of
the Preferred Stock and exercise of the Warrants, of Gothic Energy Corporation,
an Oklahoma corporation (the "Company"). Herein, the Common Stock, Preferred
Stock and Warrants are collectively referred to as the "Securities." The Common
Stock is traded on the Nasdaq SmallCap Market with a trading symbol of "GOTH"
and application has been made to trade the Preferred Stock on the Nasdaq
SmallCap Market. No assurance can be given that the Preferred Stock will be
accepted for trading on the Nasdaq SmallCap Market. On February 28, 1997, the
last sale price of the Common Stock as reported on the Nasdaq SmallCap Market
was $2-5/8 . The shares of Preferred Stock, Common Stock and Warrants may be
offered (the "Offering") for sale by certain persons who are securityholders of
the Company or by pledgees (the "Selling Securityholders") who were issued such
shares in transactions not involving a public offering. The Securities are being
registered under the Securities Act of 1933, as amended (the "Securities Act")
on behalf of the Selling Securityholders in order to permit the public sale or
other distribution of the Securities.
The shares of Preferred Stock, Common Stock and Warrants may be sold or
distributed from time to time by or for the account of the Selling
Securityholders through underwriters or dealers, through brokers or other
agents, or directly to one or more purchasers, including pledgees, at market
prices prevailing at the time of sale or at prices otherwise negotiated. This
Prospectus may also be used, with the Company's consent, by donees of the
Selling Securityholders, or by other persons acquiring shares and who wish to
offer and sell such Securities requiring or making desirable its use. The
Company will receive no portion of the proceeds from the sale of the securities
offered hereby and will bear certain expenses incident to their registration.
See "Selling Securityholders" and "Plan of Distribution."
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<PAGE>
INVESTORS SHOULD CAREFULLY CONSIDER CERTAIN RISKS AND OTHER CONSIDERATIONS
RELATING TO THE SECURITIES OF THE COMPANY. SEE "RISK FACTORS" STARTING ON PAGE
16 OF THIS PROSPECTUS.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
APRIL _____, 1997
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<PAGE>
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN OR
INCORPORATED BY REFERENCE IN THIS PROSPECTUS IN CONNECTION WITH THE OFFER MADE
BY THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS
MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR THE SELLING
SECURITYHOLDERS. NEITHER THE DELIVERY OF THE PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS
NOT BEEN ANY CHANGE IN THE FACTS SET FORTH IN THIS PROSPECTUS OR IN THE AFFAIRS
OF THE COMPANY SINCE THE DATE HEREOF. THIS PROSPECTUS DOES NOT CONSTITUTE AN
OFFER OR SOLICITATION BY ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER OR
SOLICITATION IS NOT AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH OFFER OR
SOLICITATION IS NOT QUALIFIED TO DO SO OR TO ANYONE TO WHOM IT IS UNLAWFUL TO
MAKE SUCH OFFER OR SOLICITATION.
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<PAGE>
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and the rules and
regulations promulgated thereunder, and, in accordance therewith, files reports,
proxy and information statements and other information with the Securities and
Exchange Commission (the "Commission"). These reports, proxy and information
statements and other information concerning the Company can be inspected and
copied at the public reference facilities maintained by the Commission at Room
1024, 450 Fifth Street, Northwest, Washington, DC 20549; and at the Commission's
regional offices located at 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661 and at Seven World Trade Center, Suite 1300, New York, New York
10048. Copies of such material can also be obtained from the Commission at
prescribed rates through its Public Reference Section at 450 Fifth Street,
Northwest, Washington, DC 20549. The Commission maintains a Web site that
contains reports, proxy and information statements and other information
regarding issuers that file electronically with the Commission and the address
of that Web site is http://www.sec.gov. The Common Stock is traded on the Nasdaq
SmallCap Market ("Nasdaq"). Information filed by the Company with Nasdaq may be
inspected at the offices of Nasdaq at 1735 "K" Street, Northwest, Washington, DC
20006.
The Company has filed with the Commission a Registration Statement on Form
S-3 under the Securities Act of 1933, as amended ("Securities Act") with respect
to the securities offered hereby (including all amendments and supplements
thereto, the "Registration Statement"). This Prospectus, which forms a part of
the Registration Statement, does not contain all of the information set forth in
the Registration Statement, certain parts of which have been omitted in
accordance with the rules and regulations of the Commission. Statements
contained herein concerning the provisions of certain documents are not
necessarily complete and, in each instance, reference is made to the copy of
such document filed as an exhibit to the Registration Statement or otherwise
filed with the Commission. Each such statement is qualified in its entirety by
such reference. The Registration Statement and the exhibits thereto can be
inspected and copied at the public reference facilities and regional offices of
the Commission and at the offices of Nasdaq referred to above.
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<PAGE>
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
The following documents filed by the Company with the Commission are hereby
incorporated by reference in this Prospectus:
(a) The Annual Report of the Company on Form 10-KSB for the fiscal year
ended December 31, 1996; and
(b) The Current Reports of the Company on Form 8-K dated February 18, 1997
and April 16, 1997.
All documents filed by the Company pursuant to Section 13(a), 13(c), 14 or
15(d) of the Exchange Act, subsequent to the date of this Prospectus and prior
to the termination of the offerings to which this Prospectus relates shall be
deemed to be incorporated by reference in this Prospectus and to be a part
hereof from the date of filing of such documents. Any statement in a document
incorporated or deemed to be incorporated by reference herein shall be deemed to
be modified or superseded by this Prospectus to the extent that a statement
contained herein or in any other subsequently filed document which also is or is
deemed to be incorporated by reference herein modifies or supersedes such
statement. Any such statement so modified or superseded shall not be deemed,
except as so modified or superseded, to constitute a part of this Prospectus.
The Company hereby undertakes to provide without charge copies of all
documents incorporated herein by reference (other than exhibits to such
documents unless such exhibits are specifically incorporated by reference in
such documents) to each person, including any beneficial owner, to whom a copy
of this Prospectus has been delivered on the written or oral request of such
person to:
Michael K. Paulk, President
Gothic Energy Corporation
5727 South Lewis Avenue - Suite 700
Tulsa, Oklahoma 74105
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<PAGE>
TABLE OF CONTENTS
Available Information.......................................... 1
Incorporation of Certain Information by Reference.............. 2
Table of Contents.............................................. 3
The Company.................................................... 4
Risk Factors................................................... 12
Use of Proceeds................................................ 16
Selling Securityholders........................................ 17
Plan of Distribution........................................... 20
Description of Capital Stock................................... 21
Legal Matters.................................................. 25
Experts........................................................ 25
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<PAGE>
THE COMPANY
Gothic Energy Corporation (the "Company") is an independent energy company
primarily engaged in the acquisition, exploitation, enhancement, development and
operation of oil and gas producing properties. The Company owns, as of the date
hereof, working interests in 697 wells, of which 358 are operated by the
Company. The Company estimates its net proved reserves at December 31, 1996 to
be 1.2 million barrels of oil and 64.5 billion cubic feet of natural gas.
Approximately 90% of the Company's proved reserves at an equivalent Mcf. basis
are natural gas. The Company's operations are conducted in Oklahoma, Texas,
Arkansas and Kansas. The majority of oil and gas wells in which the Company has
an interest have produced beyond the point in time where substantial production
declines are normally expected. Accordingly, production rates on a majority of
the Company's wells generally will be marked by a consistency of production
rates throughout the remaining production life. The Company redirected its
business efforts to the oil and gas business commencing in the last quarter of
1994. Since 1994, the Company has acquired the following properties:
Oil and Gas Properties acquired through December 31, 1996
Egolf Acquisition: On January 19, 1995, the Company completed the
-----------------
acquisition from the Egolf Company of working interests in 208 oil and gas wells
located in Western Oklahoma (the "Egolf Acquisition") for a total purchase price
of $1,584,000 plus one-year common stock purchase warrants to purchase 100,000
shares of the Company's common stock at an exercise price of $2.50 per share.
The warrants expired unexercised. All of the acreage acquired in the Egolf
Acquisition is held by production.
Johnson Ranch Acquisition: Effective May 31, 1995, the Company completed
-------------------------
the acquisition from Johnson Ranch Partners of working interests in 69 oil and
gas wells in Loving County, Texas (the "Johnson Ranch Acquisition"). The
purchase price was $7,250,000 plus 1,000,000 shares of Common Stock valued at
$2.69 per share, the closing market price on the date the acquisition was
completed. Substantially all of the acreage acquired in the Johnson Ranch
Acquisition is held by production.
Buttonwood Acquisition: Pursuant to an agreement dated September 27, 1995
----------------------
between the Company and Buttonwood Energy Corporation ("Buttonwood"), the
Company acquired on January 30, 1996, by merger of a subsidiary of the Company
into Buttonwood, all of the issued and outstanding shares of Buttonwood (the
"Buttonwood Acquisition"). The merger consideration was $18,912,500 payable in
cash. The Company paid to Buttonwood on November 15, 1995 $1,000,000 as
consideration for
-8-
<PAGE>
the grant of the option to be applied to the merger consideration. Concurrently
with entering into the option agreement on September 27, 1995, the parties
terminated without being exercised a similar option purchased by the Company in
March 1995 for $1,850,000. The remaining $17,912,500 was paid to Buttonwood on
the closing of the transaction. Buttonwood, through its wholly owned
subsidiaries, owned interests in 750 oil and gas wells in Oklahoma, Arkansas,
Texas and Kansas and operated 140 of the wells. All of Buttonwood's 61,897 net
leasehold acres are held by production.
Comstock Acquisition: On May 16, 1996, the Company completed the
--------------------
acquisition, effective as of January 1, 1996, from Comstock Oil and Gas, Inc.
and Comstock Offshore Energy, Inc. (the "Comstock Acquisition"), of various
working interest in 145 producing oil and gas properties. The Company operates
70 of the wells. The purchase price for the properties acquired was $6.6
million, subject to certain post-closing adjustments which reduced the amount
paid to $6,430,195. Substantially all of the properties acquired are located in
the Anadarko Basin of western Oklahoma and the Arkoma Basin of eastern Oklahoma
and Arkansas.
Stratum Acquisition: On May 20, 1996, the Company acquired from Stratum
-------------------
Group Energy Capital, L.P. and Stratum Corp. (the "Stratum Acquisition"),
effective April 1, 1996, the overriding royalty interest of 7% of the net
revenues derived from the properties acquired in the Johnson Ranch Acquisition.
This royalty interest had been conveyed to Stratum as additional consideration
for financing provided by Stratum to the Company in May 1995 for the Johnson
Ranch Acquisition. The purchase price was $800,000.
Various Working Interest Acquisitions: On August 5, 1996, the Company
-------------------------------------
completed the acquisition, from various sellers, of working interests in
approximately 120 wells in the Anadarko Basin of Western Oklahoma, and the
Arkoma Basin of Eastern Oklahoma and Arkansas (the "Working Interest
Acquisitions"). The effective date of the acquisition was May 1, 1996. The
Company operates 70 of the wells in which the interests were acquired. The
aggregate purchase price for these wells was $3,270,000.
Athena Acquisition: On December 27, 1996, the Company completed the
------------------
acquisition, effective as of November 1, 1996, from Athena Energy, Inc. of
various working interests in 85 producing oil and gas properties (the "Athena
Acquisition"). The Company operates approximately 30 of the wells. The
purchase price for the properties acquired was $4.2 million, subject to certain
adjustments. Substantially all the properties acquired are located in western
Oklahoma and the Texas Panhandle.
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<PAGE>
Subsequent to year end, substantially all of the non-operated well interests
acquired from Athena were sold for net proceeds of approximately $210,000.
Excluding the Egolf Acquisition and the Johnson Ranch Acquisition, the
foregoing acquisitions are referred to herein as the "1996 Acquisitions."
Acquisitions Subsequent to Year-End 1996
The Norse Acquisition: On February 18, 1997, the Company acquired from
---------------------
Norse Exploration, Inc., and Norse Pipeline, Inc. (collectively, "Norse"),
various working interests in 11 oil and gas producing properties and, through
the acquisition of the outstanding capital stock of Norse Pipeline, Inc., its
40.09% general partnership interest in the Sycamore Gas System (the "Sycamore
System"), an Oklahoma gathering system, processing plant and storage facility.
The oil and gas wells and the gathering system are located in the Springer Field
in Carter County, Oklahoma. The total purchase price was $10,750,000, plus two-
year warrants to purchase 200,000 shares of the Company's Common Stock at a per
share exercise price of $2.50, of which the Company paid a deposit of $1,075,000
toward the purchase price in December 1996. The estimated fair value of such
warrants at the date of acquisition was approximately $254,000.
The Huffman Acquisition: The Company also on February 18, 1997, acquired
-----------------------
from H. Huffman & Company ("Huffman"), an Oklahoma limited partnership, various
working interests in 13 oil and gas producing properties and an additional
10.97% interest in the Sycamore System. The oil and gas wells are located in the
same producing area as the properties acquired from Norse. The total purchase
price for the assets acquired was $3,950,000, of which the Company paid a
deposit of $287,500 toward the purchase price in December 1996.
Horizon Acquisition: The Company also acquired, on February 18, 1997, from
-------------------
Horizon Gas Partners, L.P. and HSRTW, Inc. (collectively, "Horizon"), various
working and royalty interests in approximately 100 oil and gas producing
properties. The producing properties are located in Major and Blaine counties of
Oklahoma. The purchase price was $10,000,000.
The effective date of all three acquisitions was January 1, 1997.
Proposed Pittencrieff Acquisition: On April 16,1997, the Company announced
---------------------------------
that it had signed a letter of intent with Pittencrieff Resources plc, a U.K.
company, for Gothic to make an offer to purchase, in accordance with the
Takeover Code of the
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<PAGE>
United Kingdom, all of the outstanding capital stock of Pittencrieff. The making
of the offer is subject to various conditions including, among others, the
completion by Gothic of acquisition financing. The aggregate purchase price for
the shares, assuming all shares are tendered, is (Pounds)34.5 million (UK)
(approximately $56,342,000 US, based on exchange rates in effect on April
16,1997), or 60 pence (UK) (approximately $0.979 US) per share. Pittencrieff is
an oil and gas exploration and production company with various interests in
approximately 1,600 producing oil and gas wells in the United States and Canada.
Pittencrieff is the operator of approximately 330 of these wells.
Oil and Gas Property Dispositions
Management of the Company reviews the properties acquired and from time to
time disposes of wells that are deemed to be unprofitable, fail to meet
management's operating requirements or, under certain circumstances, are
operated by other persons. From time to time, the Company disposes of wells
operated by the Company where the well does not meet operating requirements.
During the year ended December 31, 1996, the Company disposed of various
interests in an aggregate of 514 properties for a total sales price of
$3,111,298. Of such amount, $2,402,096 was applied to reduce outstanding
indebtedness and $709,202 was used for working capital purposes.
FINANCING TRANSACTIONS
The Company financed its oil and gas acquisition activities through the
completion of the following transactions:
Bank One Loan Agreement: On January 19, 1996, the Company entered into a
-----------------------
Loan Agreement with Bank One, Texas, N.A., (the "January 1996 Loan Agreement")
which, reflecting subsequent amendments, enabled the Company to borrow, as of
December 31, 1996, and subject to meeting certain borrowing base requirements
and other conditions, a maximum aggregate of $25,000,000, consisting of a
$20,000,000 revolving loan and a $5,000,000 acquisition note. On January 30,
1996, $11,000,000 was used to finance a portion of the purchase price for the
Buttonwood Acquisition and repay outstanding indebtedness. Additional proceeds
of $7,230,195 were used on May 16, 1996 to finance the Comstock Acquisition and
the Stratum Acquisition, and on July 31, 1996, proceeds of $2,792,200 were used
to finance the acquisition of well interests from various sellers. In December
1996, additional proceeds of $5,505,701 were used to finance the $4,214,406
purchase price for the Athena Acquisition, and $1,291,295 of the down payments
for the Norse and Huffman Acquisitions. The Company has repaid principal in the
amount of $4,784,096 under the borrowing facility
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<PAGE>
since January 30, 1996. The terms of the January 1996 Loan Agreement provided
for amortization payments, as of December 31, 1996, at the rate of $240,000 per
month under the revolving loan commencing September 1, 1996, with all
outstanding principal and interest due and payable on January 30, 1999. Of the
$5,000,000 acquisition note, $3,010,000 was outstanding at year end and was due
on March 31, 1997. Under the terms of the January 1996 Loan Agreement, as in
effect at December 31, 1996, interest was payable, at the option of the Company,
either at the rate of 1% over the lending bank's base rate or up to 3.75% (based
on the principal balance outstanding) over the rate for borrowed dollars by the
lending bank in the London Interbank market and the indebtedness was
collateralized by first liens on all of the Company's oil and gas properties.
The January 1996 Loan Agreement included various affirmative and negative
covenants, including, among others, the requirements that the Company (i),
maintain a ratio of current assets to current liabilities, as defined, of no
less than 1.0 to 1.0, (ii) maintain a debt service coverage ratio of net cash
flow per quarter to required quarterly reduction of indebtedness of not less
than 1.10 to 1.0, (iii) maintain minimum tangible net worth at the end of each
fiscal quarter of $10,250,000, plus certain percentages of net income and
proceeds received from the sale of securities, and (iv) maintain selling,
general and administrative expenses per quarter not in excess of 25% of
consolidated net revenues. Material breaches of these or other covenants which
were not cured or waived could have resulted in a default under the loan
agreement resulting in the indebtedness becoming immediately due and payable and
empowering the lender to foreclose against the collateral for the loan. During
the year ended December 31, 1996 the Company requested and obtained a waiver of
the provision requiring a 1:1 ratio of current assets to current liabilities for
the year ended December 31, 1996 and for quarter ended September 30, 1996, the
restriction on general and administrative expenses for the quarter ended March
31, 1996, and a covenant violated as a result of the termination of a former
officer of the Company.
Public Offering. On January 30 and March 11, 1996, the Company sold for
---------------
net proceeds aggregating approximately $12,966,000 an aggregate of 7,635,000
shares of Common Stock and 7,635,000 five-year redeemable common stock purchase
warrants (herein referred to as the "Public Offering"). The warrants are
exercisable at a price of $2.40 per share of Common Stock. In connection with
the offering, the underwriter was granted an option to acquire 230,000 units
(each unit consisting of three shares of common stock and three five-year
redeemable common stock purchase warrants) exercisable at a price of $9.90 per
unit. All of the proceeds of the sale of these securities were used in
conjunction with the Buttonwood Energy Acquisition.
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<PAGE>
Preferred Stock Financing. The Company issued and sold on January 30, 1996
-------------------------
an aggregate of 5,540 shares of its 7 1/2% Cumulative Convertible Preferred
Stock for a total consideration of $5,540,000, of which $4,250,000, less
$252,570 in fees, was paid in cash, and $1,290,000 was paid by exchange of
$1,290,000 of outstanding principal amount of indebtedness for 1,290 shares of 7
1/2% Cumulative Preferred Stock (herein referred to as the "Preferred Stock
Financing"). The Company also issued 28,667 shares of Common Stock to one of the
purchasers as a fee for facilitating the preferred stock financing. The shares
are convertible, commencing December 31, 1996, into shares of the Company's
Common Stock at a conversion price per share of Common Stock equal to the lesser
of (i) $2.00 or (ii) a price equal to the average of the closing prices of the
Company's Common Stock during the 30 business days prior to the day the shares
are converted less a discount of 12 1/2%. The number of shares of Common Stock
to be issued on conversion is determined by multiplying the number of shares of
7 1/2% Cumulative Convertible Preferred Stock to be converted by $1,000 and
dividing the result by the conversion price in effect. The shares pay a
cumulative preferred dividend of 7 1/2% of the stated value per annum payable
semi-annually. The shares of 7 1/2% Cumulative Convertible Preferred Stock have
no voting rights. The holders of 51% of the shares issuable on conversion of the
7 1/2% Cumulative Convertible Preferred Stock have the right to require the
Company to file a registration statement under the Securities Act of 1933, as
amended, commencing December 31, 1996 to enable the public sale of those shares
of Common Stock.
Credit Facility. On February 17, 1997, the Company and Bank One, Texas,
---------------
N.A., entered into a Restated Loan Agreement (the "Credit Facility") which
currently enables the Company to borrow from time to time and subject to meeting
certain borrowing base requirements and other conditions, a maximum aggregate of
$75,000,000. As of February 17, 1997, the aggregate available to be borrowed
under the Credit Facility is comprised of a $32,000,000 borrowing availability
(the "Borrowing Base") based on the Company's oil and gas reserves, a
$10,000,000 special advance facility (the "Special Advance Facility") and a
$2,000,000 special drilling facility (the "Special Drilling Facility").
On February 18, 1997, the Company drew down both the Borrowing Base and the
Special Advance Facility for a total of $41,668,000. These funds were used to
repay all existing indebtedness then outstanding owing to the bank in the amount
of $21,264,000, to finance the cash consideration paid for the three February
18, 1997 acquisitions discussed above which aggregated $19,404,000 and to pay a
$1,000,000 loan fee to Bank One, Texas, N.A. The terms of the Credit Facility
currently provide for amortization payments at the rate of $240,000 on March 1,
1997 and increasing to $475,000 per month commencing April 1, 1997, with all
outstanding principal and
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<PAGE>
interest related to the Borrowing Base is due and payable on January 30, 1999.
The $10,000,000 Special Advance Facility is due on September 1, 1997. Interest
is payable, at the option of the Company, either at the rate of 1% over the
lending bank's base rate or up to 3.75% (based on the principal balance
outstanding) over the rate for borrowed dollars by the lending bank in the
London Interbank market. The indebtedness is collateralized by first liens on
all of the Company's oil and gas properties. The Credit Facility includes
various affirmative and negative covenants, including, among others, the
requirements that the Company (i), maintain a ratio of current assets to current
liabilities, as defined, of no less than 1.0 to 1.0, (ii) maintain a debt
service coverage ratio of net cash flow per quarter to required quarterly
reduction of indebtedness of not less than 1.10 to 1.0, (iii) maintain minimum
tangible net worth at the end of each fiscal quarter of $10,250,000, plus
certain percentages of net income and proceeds received from the sale of
securities, and (iv) maintain selling, general and administrative expenses per
quarter of not in excess of 25% of consolidated net revenues for the quarter
ended March 31, 1997 and 20% of consolidated net revenues for all subsequent
quarters. The Company is obligated under the terms of its Credit Facility to
enter into commodity hedges covering not less than 75% of the Company's proved
developed production of oil and natural gas for a period of not less than twelve
months with minimum floor prices to be mutually agreed upon by the Company and
Bank One, Texas, N.A., with counterparties acceptable to the bank. These
commodity hedges are required to be in place no later than March 4, 1997.
Material breaches of these or other covenants which are not cured or waived
could result in a default under the Credit Facility resulting in this
indebtedness becoming immediately due and payable and empowering the lender to
foreclose against the collateral for the loan. In the event certain promissory
notes owing to the bank by Messrs. Michael Paulk and John Rainwater in the
aggregate amount of $316,000 are not paid when due on December 31, 1997, the
Company has agreed that such amounts will be drawn against the Company's Credit
Facility and Messrs. Paulk and Rainwater will be obligated to the Company for
such sums.
Bridge Financing. In order to provide the remaining funds necessary to
----------------
complete the Norse, Huffman, and Horizon acquisitions, on February 18, 1997 two
investors loaned to the Company the aggregate sum of $4,500,000 represented by
the Company's promissory notes. Of the aggregate amount, $2,500,000 bears
interest at 5% per annum and matures on April 18, 1997, with the remaining
$2,000,000 bearing interest at 12% per annum and maturing on October 31, 1997.
In the event the principal and accrued interest is not paid when due, such
amount is automatically converted into a number of shares of the Company's
Common Stock determined by dividing such amount by a sum equal to 75% of the
closing bid price for the Company's Common Stock on the five (5) days prior to
the maturity date, with respect to the
-14-
<PAGE>
$2,500,000 obligation, and on the maturity date with respect to the $2,000,000
obligation. As additional consideration for making the loan, the investors also
purchased at a price of $.01 per share a total of 250,000 shares of the
Company's common stock. The fair market value of the Company's Common Stock was
$2.63 per share on the date of issuance.
The Company is an Oklahoma corporation incorporated on October 11, 1996.
The Company's predecessor was incorporated on November 19, 1985 under the laws
of the State of New Jersey and was thereafter reincorporated as a Delaware
corporation on June 23, 1994. On October 22, 1996, the Company was
reincorporated as an Oklahoma corporation by merger of the Delaware predecessor
into the Oklahoma corporation. The Company's principal office is at 5727 South
Lewis Avenue, Suite 700, Tulsa, Oklahoma 74105, and its telephone number is
(918) 749-5666.
Prior to November 30, 1994, the Company was engaged in the publication of
the Pike County Dispatch, a weekly newspaper distributed throughout Pike County,
Pennsylvania and surrounding areas of New Jersey and New York. On November 30,
1994, the Company sold all of the outstanding stock of the subsidiary which
operated the Pike County Dispatch.
-15-
<PAGE>
RISK FACTORS
An investment in the Company's Securities involves a high degree of risk.
In addition to general investment risks and those factors set forth elsewhere in
this Prospectus, prospective investors should consider, among other things, the
following factors:
1. Limited Operating History; History of Losses; Accumulated Deficit. The
-----------------------------------------------------------------
Company has a short operating history in the oil and gas industry, having
entered that business in November 1994 after being engaged in an entirely
different business prior thereto. Except for the fiscal quarters ended June 30,
1996, September 30, 1996 and December 31, 1996, during which its net income
available for common shares was $108,386, $112,121 and $476,990, respectively,
the Company has achieved losses during the time it has been engaged in oil and
gas operations and also during all other periods since its organization in 1985.
It can be expected that the Company may continue to experience losses. In order
to achieve material profits and generate cash flow, the Company will be
dependent upon acquiring or developing additional oil and gas properties. There
can be no assurance that it will be able to do so. At December 31, 1996, the
Company's accumulated deficit was $17,823,175.
2. Limited Available Capital; Need for Additional Financing. The
--------------------------------------------------------
Company's plans include the acquisition of producing oil and gas properties
located in the Anadarko, Arkoma and Delaware geological basins in Oklahoma,
Texas and New Mexico. Without raising additional capital, the Company will be
unable to acquire additional producing oil and gas properties and its ability to
develop its existing oil and gas properties will be limited to the extent of its
available cash flow. Accordingly, in order for the Company to achieve its
business objective and achieve material profits from operations, it will be
necessary to generate additional cash flow from operations, raise additional
capital or enter into joint oil and gas well development arrangements.
Management intends to fund future acquisitions and develop its oil and gas
reserves using cash flow from operations as well as public and private sales of
debt and equity securities and joint oil and gas well development arrangements,
among other possible sources. Except for borrowing availability, if any, under
its existing credit facility, the Company has no present arrangements for future
borrowings and its cash flow from operations is not expected to be adequate to
provide the funds needed for these purposes. There can be no assurance that
these sources will provide funds in sufficient amounts to allow the Company to
successfully implement its present business strategy of additional property
acquisition or the development of its oil and gas reserves. The Company has no
present definitive agreements to raise additional
-16-
<PAGE>
capital from the sale of its securities or joint development arrangements,
however, negotiations in this regard are ongoing. No assurance can be given as
to the availability or terms of any such additional financing or joint
development arrangements or that such terms as are available may not be dilutive
to the interests of the Company's stockholders.
3. Industry Conditions; Impact on Company's Profitability. The
------------------------------------------------------
profitability and revenues of the Company are dependent, to a significant
extent, upon prevailing spot market prices for oil and gas. In the past, oil
and gas prices and markets have been volatile. Prices are subject to wide
fluctuations in response to changes in supply of and demand for oil and gas,
market uncertainty and a variety of additional factors that are beyond the
control of the Company. Such factors include supply and demand, political
conditions, weather conditions, government regulations, the price and
availability of alternative fuels and overall economic conditions. Gas prices
have fluctuated significantly over the past twelve months.
4. Acquisition Strategy. The Company is engaged in an ongoing program of
--------------------
seeking to acquire additional oil and gas properties and negotiations with
various parties are ongoing from time to time with a view to acquiring
additional properties. There can be no assurance that the negotiations the
Company engages in seeking to acquire additional oil and gas properties will
result in acquisitions of properties or that the terms of such acquisitions will
be favorable to the Company or prove to be profitable. The process of
integrating any properties that are acquired into the Company's operations may
result in unforeseen difficulties and may require a disproportionate amount of
management's attention and the Company's resources. In connection with
acquisitions, the Company could become subject to significant contingent
liabilities arising from the activities of the acquired properties to the extent
the Company assumes, or an acquired entity becomes liable for, unknown or
contingent liabilities or in the event that such liabilities are imposed on the
Company under theories of successor liability.
5. Credit Facility Covenants and Agreements. The principal outstanding
----------------------------------------
under the Company's loan agreement with Bank One, Texas, N.A., as such loan
agreement was restated on February 17, 1997, must be amortized at the rate of
$240,000 per month on March 1, 1997 and increasing to $475,000 per month
thereafter, commencing April 1, 1997, with the entire outstanding balance of the
Borrowing Base due January 30, 1999. The $10,000,000 Special Advance Facility is
due on September 1, 1997. The Credit Facility is secured by first mortgages on
all of the Company's oil and gas properties. The loan agreement relating to the
Credit Facility contains various affirmative and negative covenants including,
among others,
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<PAGE>
the requirements that the Company maintain certain ratios of current assets to
current liabilities, debt service coverage ratio, minimum tangible net worth,
restrictions on selling, general and administrative expenses and the payment of
dividends, and a covenant that the Company maintain twelve-month hedges for at
least 75% of its proved production. Material breaches of these or other
covenants which are not cured or waived could result in a default under the loan
agreement resulting in this indebtedness becoming immediately due and payable
and empowering the lender to foreclose against the collateral for the loan.
Under such circumstances, the Company's stockholders could lose their entire
investment. There can be no assurance that the Company will remain in compliance
with all of its covenants and agreements in the Credit Facility. The Company's
borrowings under the Credit Facility as well as its projected borrowing are, to
a large extent, a function of the value of the Company's oil and gas reserves
which are the primary component used in determining the amount of borrowing
available to the Company. Changes in the Company's cash needs or borrowing
availability could negatively impact the Company's reserve development plans or
its ability to meet its obligations as they come due. Negative revisions in oil
and gas reserves could require reductions in the principal amounts or otherwise
reduce funds available to be borrowed under the Credit Facility. During the year
ended December 31, 1996 the Company requested and obtained a waiver of the
provision requiring a 1:1 ratio of current assets to current liabilities for the
year ended December 31, 1996 and for quarter ended September 30, 1996, the
restriction on general and administrative expenses for the quarter ended March
31, 1996, and a covenant violated as a result of the termination of a former
officer of the Company.
6. Reliance on Estimates of Proved Reserves; Depletion of Reserves.
---------------------------------------------------------------
There are numerous uncertainties inherent in estimating quantities of Proved
Reserves and in projecting future rates of production and timing of development
expenditures, including many factors beyond the control of the producer. Oil and
gas reserve engineering is a subjective process of estimating underground
accumulations of oil and gas that cannot be measured in an exact way, and
estimates by other engineers might differ from those used and relied on by the
Company. The accuracy of any reserve estimate is a function of the quality of
available data and of engineering and geological interpretation and judgment.
The Company's annual report on Form 10-KSB for the year ended December 31, 1996
contains estimates of the Company's proved oil and gas reserves and the
projected future net cash flows therefrom. Actual future production, oil and gas
prices, revenue, capital expenditures, taxes and operating expenses may vary
substantially from those assumed in making estimates, and the Company's reserves
may be subject to material upward or downward revision and the rate of
production from oil and gas properties declines as reserves are depleted. In
addition, the Company's ability to develop its reserves will be dependent upon
the timely availability
-18-
<PAGE>
of financing for this purpose without which the Company's ability to produce the
projected amounts of oil and gas will be adversely affected thereby adversely
affecting the projected future net cash flows.
7. Dependence on Other Operators. With respect to wells not operated by
-----------------------------
the Company in which it has a working interest, the independent operators are,
in some cases, privately-held companies who may have limited financial
resources. If a third party operator experiences financial difficulty and fails
to pay for materials and services in a timely manner, the wells operated by such
third party operators could be subject to material and workmen's liens. In such
event, the Company would incur costs in discharging such liens.
8. Reliance on Key Personnel. The Company is dependent upon the services
-------------------------
of its President, Michael K. Paulk, and Vice-President of Corporate Development,
John Rainwater. The loss of their services could have a material adverse effect
upon the Company.
9. Competition. The oil and gas industry is highly competitive. The
-----------
Company competes with major integrated and independent oil and gas companies in
acquiring properties. Many competitors have resources substantially exceeding
the resources of the Company.
10. Operational Hazards; Environmental Concerns; Insurance and Government
---------------------------------------------------------------------
Regulations. The oil and gas industry involves a number of operating risks,
- -----------
such as the risks of fire, blowouts, explosions, cratering, pipe failure, casing
collapse and abnormally pressured formations, the occurrence of any of which
could materially and adversely affect the Company. The business is also subject
to environmental hazards including oil spills, gas leaks, ruptures and
discharges of toxic gases, which could expose the Company to substantial
liability due to environmental damage. The Company maintains insurance against
some, but not all, potential risks, and does not carry insurance covering
environmental impairment liabilities. The Company can provide no assurance that
the insurance it carries will be adequate to cover any loss or exposure to
liability, or that such insurance will continue to be available on terms
acceptable to the Company. In addition, oil and gas production is subject to
regulation under federal, state and local laws. The Company's operations are
also subject to various other federal, state and local government laws and
regulations, which may be changed from time to time in response to economic or
political factors. There can be no assurance that present or future regulation
will not adversely affect the operations of the Company.
-19-
<PAGE>
11. Dividends Unlikely. The Company has never declared or paid dividends
------------------
on its Common Stock and currently does not intend to pay dividends in the
foreseeable future. The payment of dividends in the future will be at the
discretion of the Board of Directors. In addition, the Company's Credit Facility
contains a provision which prohibits the payment of dividends except for cash
dividends on preferred stock provided no event of default exists under the
Credit Facility.
12. Limited Liability of Directors. The Company's Certificate of
------------------------------
Incorporation limits the liability of Directors to the maximum extent permitted
by Oklahoma law. Oklahoma law provides that Directors of a corporation will not
be liable to the corporation or its stockholders for expenses incurred in
derivative or third party actions arising from a breach of their fiduciary duty
as Directors, except in certain circumstances. Accordingly, except in such
circumstances, the Company's Directors will not be liable to the Company or its
stockholders for beach of such duty.
USE OF PROCEEDS
This Prospectus relates solely to the securities being offered and sold for
the account of the Selling Securityholders. The Company will not receive any of
the proceeds from the sale of the securities being offered by the Selling
Securityholders but will pay all expenses related to the registration of the
securities. The proceeds, if any, received from the exercise of any Warrants
included among the Securities will be used for general corporate purposes. See
"Selling Securityholders."
-20-
<PAGE>
SELLING SECURITYHOLDERS
The following table sets forth the aggregate numbers of securities
beneficially owned by each Selling Securityholder as of April 25, 1997 and the
aggregate number of securities registered hereby that each Selling
Securityholder may offer and sell pursuant to this Prospectus. Because the
Selling Securityholders may sell all or a portion of the securities at any time
and from time to time after the date hereof, no estimate can be made of the
number of shares of Preferred Stock and Common Stock and Common Stock Purchase
Warrants that each Selling Securityholder may retain upon the completion of the
Offering. The material relationships of the Selling Securityholders are
described in the footnotes to the following table and more fully described in
this Prospectus (including the information incorporated by reference in this
Prospectus). The Securities have been included in this Prospectus pursuant to
contractual rights granted to the Selling Securityholders to have their
Securities registered under the Securities Act, which contractual rights
contain, with respect to certain of the Selling Securitholders, mutual
indemnification provisions.
<TABLE>
<CAPTION>
TOTAL NUMBER OF SECURITIES TO BE
SECURITIES OWNED PRIOR TO OFFERED FOR SELLING
THIS OFFERING SECURITYHOLDERS' ACCOUNT
- -----------------------------------------------------------------------------------------------------------
COMMON COMMON
PREFERRED STOCK COMMON PREFERRED STOCK COMMON
NAME OF SELLING SECURITYHOLDER STOCK PURCHASE STOCK STOCK PURCHASE STOCK
WARRANTS WARRANTS
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
B-MAC Trading, Inc. 100 --- 50,000 (1) 100 --- 50,000 (1)
- -----------------------------------------------------------------------------------------------------------
Benitz & Partners 950 --- 675,000 950 --- 675,000
(1)(9) (1)(10)
- -----------------------------------------------------------------------------------------------------------
C. Channing Buckland 125 --- 62,500 (1) 125 --- 62,500 (1)
- -----------------------------------------------------------------------------------------------------------
Choi & Choi HK Limited 400 --- 200,000 (1) 400 --- 200,000 (1)
- -----------------------------------------------------------------------------------------------------------
Gregory Chorny 100 --- 50,000 (1) 100 --- 50,000 (1)
- -----------------------------------------------------------------------------------------------------------
Finsbury Advisors (Cayman) Ltd. 200 --- 100,000 (1) 200 --- 100,000 (1)
- -----------------------------------------------------------------------------------------------------------
Jodamada Corporation 300 --- 150,000 (1) 300 --- 150,000 (1)
- -----------------------------------------------------------------------------------------------------------
Raymond Milton 100 --- 50,000 (1) 100 --- 50,000 (1)
- -----------------------------------------------------------------------------------------------------------
Susan Milton 100 --- 50,000 (1) 100 --- 50,000 (1)
- -----------------------------------------------------------------------------------------------------------
Murdoch & Co. 300 --- 150,000 (1) 300 --- 150,000 (1)
- -----------------------------------------------------------------------------------------------------------
Mary Murphy 200 --- 100,000 (1) 200 --- 100,000 (1)
</TABLE>
-21-
<PAGE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
COMMON COMMON
PREFERRED STOCK COMMON PREFERRED STOCK COMMON
NAME OF SELLING SECURITYHOLDER STOCK PURCHASE STOCK STOCK PURCHASE STOCK
WARRANTS WARRANTS
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Clarion Capital Corporation (2) 500 --- 250,000 (1) 500 --- 250,000 (1)
115,000 115,000
- -------------------------------------------------------------------------------------------------------------
D.Morea 166,666 166,666 (3) --- 166,666 (3)
386,667 --- 386,667
- -------------------------------------------------------------------------------------------------------------
Thesis Group, Inc. 150 --- 75,000 (1) 150 --- 75,000 (1)
- -------------------------------------------------------------------------------------------------------------
Trans Euro Investments Limited 200 --- 100,000 (1) 200 --- 100,000 (1)
- -------------------------------------------------------------------------------------------------------------
Welcome Opportunities Fund, Ltd. 125 --- 62,500 (1) 125 --- 62,500 (1)
- -------------------------------------------------------------------------------------------------------------
Dundee Bancorp Inc. 540 --- 270,000 540 --- 270,000
- -------------------------------------------------------------------------------------------------------------
Choi & Choi II K Limited 550 --- 275,000 550 --- 275,000
- -------------------------------------------------------------------------------------------------------------
Hemisphere Trust Company 200 --- 100,000 200 --- 100,000
- -------------------------------------------------------------------------------------------------------------
Gaines, Berland Inc. (4) --- 200,000 200,000 (3) --- 200,000 200,000 (3)
- -------------------------------------------------------------------------------------------------------------
Kulen Capital, L.P. --- --- 1,000,000 --- --- 1,000,000
- -------------------------------------------------------------------------------------------------------------
Loire Sextant, S.A. --- --- 235,000 --- --- 235,000
- -------------------------------------------------------------------------------------------------------------
Stratum Group, L.P. --- 1,000,000 1,000,000(3) --- 1,000,000 1,000,000(3)
- -------------------------------------------------------------------------------------------------------------
Wall Street Group --- 29,531 29,531(3) --- --- 29,531 (3)
- -------------------------------------------------------------------------------------------------------------
Apollo Capital Management Group, --- --- 200,000 --- --- 200,000
L.L.P.
- -------------------------------------------------------------------------------------------------------------
The Seedling Fund, L.P. --- --- 100,000 --- --- 100,000
- -------------------------------------------------------------------------------------------------------------
Robert Badding --- 2,500 2,500 (3) --- --- 2,500 (3)
- -------------------------------------------------------------------------------------------------------------
Bill Burke --- 5,000 5,000 (3) --- --- 5,000 (3)
- -------------------------------------------------------------------------------------------------------------
Terry Fields --- 5,000 5,000 (3) --- --- 5,000 (3)
- -------------------------------------------------------------------------------------------------------------
James LaMunyon --- 5,000 5,000 (3) --- --- 5,000 (3)
- -------------------------------------------------------------------------------------------------------------
Daniel Manucci --- 5,000 5,000 (3) --- --- 5,000 (3)
- -------------------------------------------------------------------------------------------------------------
David Moore --- 5,000 5,000 (3) --- --- 5,000 (3)
- -------------------------------------------------------------------------------------------------------------
Sven Nilsson --- 2,500 2,500 (3) --- --- 2,500 (3)
- -------------------------------------------------------------------------------------------------------------
Carl Smith --- 5,000 5,000 (3) --- --- 5,000 (3)
</TABLE>
-22-
<PAGE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
COMMON COMMON
PREFERRED STOCK COMMON PREFERRED STOCK COMMON
NAME OF SELLING SECURITYHOLDER STOCK PURCHASE STOCK STOCK PURCHASE STOCK
WARRANTS WARRANTS
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
John Smith --- 2,500 2,500 (3) --- --- 2,500 (3)
- ----------------------------------------------------------------------------------------------------------
Dr. Joseph Smith --- 5,000 5,000 (3) --- --- 5,000 (3)
- ----------------------------------------------------------------------------------------------------------
Greg Weeks --- 5,000 5,000 (3) --- --- 5,000 (3)
- ----------------------------------------------------------------------------------------------------------
Charles Wendland --- 5,000 5,000 (3) --- --- 5,000 (3)
- ----------------------------------------------------------------------------------------------------------
Glen Cushman (7) --- (6) 10,000 (6) --- --- 10,000 (6)
- ----------------------------------------------------------------------------------------------------------
Sue Doty-Lloyd (7) --- (6) 30,000 (6) --- --- 30,000 (6)
- ----------------------------------------------------------------------------------------------------------
James Mulvihill (8) --- (6) 10,000 (6) --- --- 10,000 (6)
- ----------------------------------------------------------------------------------------------------------
TOTALS 5,140 1,448,697 6,305,364 5,140 1,200,000 6,305,364
- ----------------------------------------------------------------------------------------------------------
</TABLE>
_________________________
(1) Shares of Common Stock issuable on conversion of the Preferred Stock.
(2) Mr. Morton A. Cohen, a Director of the Company, is President and Chairman
of Clarion Capital Corporation, a small business investment company.
(3) Shares of Common Stock issuable on exercise of Common Stock Purchase
Warrants.
(4) The warrant to purchase 200,000 shares was issued to Gaines, Berland Inc.
("GBI") for services rendered in connection with the Comstock Acquisition.
In addition, principals of GBI hold options exercisable at $9.90 per Unit
to purchase an aggregate of 230,000 Units, which on exercise include
690,000 shares of the Company's Common Stock and 690,000 Common Stock
Purchase Warrants exercisable at $2.40 per share, all of which securities
have been registered under the Securities Act (Registration Number 33-
99190) and may be sold by the holders. GBI disclaims beneficial ownership
of such Units, shares and warrants. GBI served as underwriter of a public
offering of the Company's securities which was consummated on January 30,
1996 with an over-allotment option closing in March 1996. As compensation
for serving in such capacity, GBI received an aggregate of approximately
$1,297,950 in commissions, $458,100 pursuant to a non-accountable expense
allowance and the option to purchase the 230,000 Units, in accordance with
an underwriting agreement between the Company and GBI, dated January 24,
1996.
(5) Option to purchase shares of Common Stock.
(6) Shares issuable on exercise of option.
(7) Such persons were Directors of the Company prior to April 17, 1995.
(8) Mr. Mulvihill was a Director of the Company prior to October 28, 1994.
(9) Includes 200,000 shares issued on conversion of shares of Preferred Stock.
-23-
<PAGE>
PLAN OF DISTRIBUTION
The Selling Securityholders may sell or distribute some or all of the
Preferred Stock, Common Stock and Common Stock Purchase Warrants from time to
time through underwriters or dealers or brokers or other agents or directly to
one or more purchasers, including pledgees, in transactions (which may involve
block transactions) on the Nasdaq SmallCap Market or in privately negotiated
transactions (including sales pursuant to pledges), or in a combination of such
transactions. Such transactions may be effected by the Selling Securityholders
at market prices prevailing at the time of sale, at prices related to such
prevailing market prices, at negotiated prices, or at fixed prices, which may be
changed. Brokers, dealers, agents or underwriters participating in such
transactions as agent may receive compensation in the form of discounts,
concessions or commissions from the Selling Securityholder (and, if they act as
agent for the purchaser of such shares, from such purchaser). Such discounts,
concessions or commissions as to a particular broker, dealer, agent or
underwriter might be in excess of those customary in the type of transaction
involved.
The Selling Securityholders and any such underwriters, brokers, dealers or
agents that participate in such distribution may be deemed to be "underwriters"
within the meaning of the Securities Act, and any discounts, commissions or
concessions received by any such underwriters, brokers, dealers or agents might
be deemed to be underwriting discounts and commissions under the Securities Act.
Neither the Company nor the Selling Securityholders can presently estimate the
amount of such compensation. The Company knows of no existing arrangements
between any Selling Securityholder and any other Selling Securityholder,
underwriter, broker, dealer or other agent relating to the sale or distribution
of the Securities.
Under applicable rules and regulations currently in effect under the
Exchange Act, any person engaged in a distribution of any of the shares of
Preferred Stock, Common Stock or Common Stock Purchase Warrants may not
simultaneously engage in market activities with respect to the Preferred Stock,
Common Stock or Common Stock Purchase Warrants for a period of nine business
days prior to the commencement of such distribution. In addition, and without
limiting the foregoing, the Selling Securtityholders will be subject to
applicable provisions of the Exchange Act and the rules and regulations
thereunder, including without limitation Rules 10b-5, 10b-6 and 10b-7, which
provisions may limit the timing of purchases and sales of any of the shares of
Preferred Stock, Common Stock or Common Stock Purchase Warrants by the Selling
Securityholders. All of the foregoing may affect the marketability of the
Preferred Stock, Common Stock or Common Stock Purchase Warrants.
-24-
<PAGE>
The Company will pay substantially all of the expenses incident to this
offering of the Securities by the Selling Securityholders to the public other
than commissions and discounts of underwriters, brokers, dealers or agents. Each
Selling Securityholder may indemnify any broker, dealer, agent or underwriter
that participates in transactions involving sales of the Securities against
certain liabilities, including liabilities arising under the Securities Act.
DESCRIPTION OF CAPITAL STOCK
GENERAL
Under its Certificate of Incorporation, the total number of shares of all
classes of stock that the Company has authority to issue is 100,500,000
consisting of 500,000 shares of preferred stock, par value $.05 per share, and
100,000,000 shares of common stock, $.01 par value.
PREFERRED STOCK
Up to 500,000 shares of preferred stock, par value $.05 per share, may be
issued from time to time in one or more series. The Board of Directors, without
further approval of the stockholders, is authorized to fix the rights and terms
relating to dividends, conversion, voting, redemption, liquidation preferences,
sinking funds and any other rights, preferences, privileges and restrictions
applicable to each such series of preferred stock. The issuance of preferred
stock, while providing flexibility in connection with possible financings,
acquisitions and other corporate purposes, could, among other things, adversely
affect the voting power of the holders of Common Stock and, under certain
circumstances, be used as a means of discouraging, delaying or preventing a
change in control of the Company. Other than the shares of 7 1/2% Cumulative
Convertible Preferred Stock, the Company has no shares of preferred stock
outstanding.
7 1/2% Cumulative Convertible Preferred Stock. The Company has outstanding
5,540 shares of 7 1/2% Cumulative Convertible Preferred Stock. The shares of 7
1/2% Cumulative Convertible Preferred Stock are convertible, commencing December
31, 1996, into shares of the Company's common stock at a conversion price per
share of common stock equal to the lesser of (i) $2.00 or (ii) a price equal to
the average of the
-25-
<PAGE>
closing prices of the Company's common stock during the 30 business days prior
to the day the shares are converted less a discount of 12 1/2%. The number of
shares of common stock to be issued on conversion is determined by multiplying
the number of shares of 7 1/2% Cumulative Convertible Preferred Stock to be
converted by $1,000 and dividing the result by the conversion price in effect.
In the event that at any time after January 24, 1998 the market price for the
shares of the Company's common stock exceeds $4 per share, provided the shares
to be issued on conversion have been registered under the Securities Act, the
Company has the right to automatically convert all the shares of 7 1/2%
Cumulative Convertible Preferred Stock into shares of common stock at a
conversion price per share of common stock equal to the lesser of (i) $2.00 or
(ii) a price equal to the average of the closing prices of the Company's common
stock during the 30 business days prior the day the shares are converted less a
discount of 12 1/2%. In the event of such an automatic conversion, all the
shares outstanding would be converted and the conversion price per share of
common stock would not exceed $2.00. The shares of 7 1/2% Cumulative Convertible
Preferred Stock pay a cumulative dividend, payable semi-annually on June 30 and
December 31, commencing June 30, 1996, of 7 1/2% based on the liquidation value
(the "Liquidation Value") of $1,000 per share. The Company has the right to
redeem the shares of 7 1/2% Cumulative Convertible Preferred Stock at their
Liquidation Value plus accrued and unpaid dividends at any time commencing
January 24, 1998 upon giving 30 days prior written notice and, in the event of
the sale of all or substantially all the assets of the Company or a merger or
consolidation of the Company, other than with a subsidiary, the shares of 7 1/2%
Cumulative Convertible Preferred Stock must be redeemed. The shares of 7 1/2%
Cumulative Convertible Preferred Stock do not have any voting rights except as
required by law. The shares of 7 1/2% Cumulative Convertible Preferred Stock
have a preferential right in the event of the liquidation or dissolution of the
Company to receive their Liquidation Value and after payment of such sum are not
entitled to receive any other sums.
COMMON STOCK
The holders of common stock are entitled to one vote per share on all
matters voted on by stockholders, including elections of Directors, and, except
as otherwise required by law or provided in any resolution adopted by the Board
of Directors with respect to any series of preferred stock establishing the
powers, designations, preferences and relative, participating, option or other
special rights of such series ("Preferred Stock Designation"), the holders of
such shares exclusively possess all voting power. The Certificate of
Incorporation does not provide for cumulative voting in the election of
directors. Subject to any preferential rights of any outstanding series of
-26-
<PAGE>
preferred stock, the holders of common stock are entitled to such distributions
as may be declared from time to time by the Board of Directors from funds
available therefor, and upon liquidation are entitled to receive pro rata all
assets of the Company available for distribution to such holders. All shares of
common stock outstanding are fully paid and non-assessable and the holders
thereof have no preemptive rights.
COMMON STOCK PURCHASE WARRANTS
Stratum Warrants
Stratum Group, L.P. holds Warrants to purchase 1,000,000 shares of the
Company's Common Stock (herein referred to as the "Stratum Warrants"). Each
Stratum Warrant entitles the registered holder to purchase from time to time
until the expiration of such warrants one (1) share of Common Stock at a price,
as of February 28, 1997, of $3.19 per share. The Stratum Warrants expire at the
close of business on June 2, 2000. The exercise price of the Stratum Warrants is
subject to adjustment, under certain circumstances, including, among others,
payment of a dividend or other distribution on the Company's Common Stock in
shares of Common Stock, a subdivision or combination of outstanding shares of
Common Stock or a reclassification of the Company's Common Stock. In addition,
if the Company issues shares of Common Stock, or rights, options or warrants
entitling any person to subscribe for or purchase shares of Common Stock at a
price per share less than the current market price per share of Common Stock as
of the issue date of such shares or rights, options or warrants, the exercise
price in effect thereafter is adjusted to be an amount equal to the result
determined by multiplying the exercise price in effect prior to such date by a
fraction, the numerator of which is the number of shares of Common Stock
outstanding on the date of issuance of such shares or rights, option or
warrants, plus the number of shares which the aggregate offering price of the
total number of shares of Common Stock so offered would purchase at such current
market price, and the denominator of which is the number of shares of Common
Stock outstanding on the date of issuance of such shares or rights, options or
warrants, plus the number of additional shares of Common Stock offered for
subscription or purchase. Such adjustments are made, subject to certain
limitations, for each such issuance during the term of the Stratum Warrants. Any
consideration received for Common Stock, rights, options and warrants is taken
into effect in determining the price at which such shares are issuable or the
options, warrants and rights are exercisable. For the purposes of such
adjustment, the issuance of rights, options or warrants to subscribe for or
purchase securities convertible into Common Stock is deemed to be the issuance
of
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<PAGE>
rights, options or warrants to purchase the shares of Common Stock into which
such securities are convertible at an aggregate offering price equal to the
aggregate offering price for such securities, plus the minimum aggregate amount
payable upon conversion of such securities into shares of Common Stock. For
purposes of computing the current market price, such price is deemed to be the
average of the daily closing prices for thirty (30) consecutive trading days
preceding the day in question. In the event such rights, options, warrants or
conversion or exchange privileges expire without having been exercised, the
exercise price and number of shares issuable is readjusted.
In the event of a consolidation, or merger of the Company, subject to
certain exceptions, or sale or transfer of all or substantially all the assets
of the Company, the holder of a Stratum Warrant has the right to thereafter
exercise such warrants for the kind and amount of securities, cash and other
property receivable upon such consolidation, merger, sale or transfer by a
holder of the number of shares of Common Stock for which the Stratum Warrants
may have been exercised immediately prior thereto.
The Stratum Warrants have been included in the registration statement filed
under the Securities Act of which this Prospectus is a part.
Gaines Berland Warrants
Gaines, Berland Inc. holds a Warrant to purchase 200,000 shares of Common
Stock issued as a fee in connection with the Comstock Acquisition (herein
referred to as the "Gaines Berland Warrant"). The Gaines Berland Warrant
entitles the holder to purchase up to 200,000 shares of the Company's Common
Stock at an exercise price of $2.25 per share. Such Warrant expires on August
19, 2001. The exercise price and number of shares of Common Stock issuable on
exercise are subject to adjustment in certain circumstances, including in the
event of stock dividends, recapitalizations, reclassifications, split-ups,
combinations, mergers or consolidations of the Company. The exercise price of
the Gaines Berland Warrant is not subject to adjustment for issuances of Common
Stock at less than its exercise price or market price.
In lieu of payment of the exercise price in cash, the holder of a Gaines
Berland Warrant has the right to convert such Warrant, in whole or in part, into
shares of Common Stock. Upon exercise of such right, the Company will issue to
the holder a number of shares of Common Stock equal to the quotient obtained by
dividing the value (as defined) of the portion of the warrant being exchanged by
the exercise price. The value is determined by subtracting the exercise price
multiplied by the number of shares of Common Stock being converted from the
market price for the Company's Common Stock multiplied by the number of shares
being converted.
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<PAGE>
The Gaines Berland Warrants have been included in the registration
statement filed under the Securities Act of which this Prospectus is a part.
LEGAL MATTERS
The validity of the securities offered hereby will be passed upon for the
Company by William S. Clarke, P.A., 457 North Harrison Street, Suite 103,
Princeton, New Jersey 08540.
EXPERTS
The consolidated balance sheet of the Company as of December 31, 1996, and
the related consolidated statements of operations, changes in stockholders'
equity and cash flows for each of the two years in the period ended December 31,
1996, incorporated by reference in this Prospectus and in the Registration
Statement of which this Prospectus forms a part, have been incorporated herein
in reliance on the report of Coopers & Lybrand L.L.P., independent accountants,
given on the authority of that firm as experts in accounting and auditing.
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<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14: OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The estimated expenses in connection with the issuance and distribution of
the securities to be registered are as follows:
Securities and Exchange
Commission Registration Fee $ 6,122.00
Blue Sky Fees and Expenses $ 1,500.00
Printing $ 2,500.00
Legal fees of Counsel
for the Registrant $ 7,500.00
Accounting Fees $ 5,500.00
Miscellaneous $ 1,878.00
----------
TOTAL $25,000.00
==========
ITEM 15: INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 1031 of the Oklahoma General Corporation Act and Article VI of the
Registrant's By-Laws provide for indemnification of present and former officers,
directors, employees and agents.
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<PAGE>
ITEM 16: EXHIBITS
(3) (a) Certificate of Incorporation of the Registrant(1)
(b) Certificate of Designation filed October 17, 1996(2)
(c) Certificate of Ownership and Merger filed October 22, 1996(2)
(d) By-Laws of the Registrant(1)
(5) Opinion of William S. Clarke, P.A.(2)
(23) Consent of Coopers & Lybrand(2)
- -----------------------------------
(1) Incorporated by reference to the Registrant's Quarterly Report on Form 10-
QSB for the fiscal quarter ended September 30, 1996
(2) Previously filed.
ITEM 17: UNDERTAKINGS
(a) The small business issuer will:
1. File, during any period in which it offers or sells securities, a
post-effective amendment to this registration statement to:
(i) Include any prospectus required by Section 10(a)(3) of the
Securities Act;
(ii) Reflect in the prospectus any facts or events which,
individually or together, represent a fundamental change in the information in
the registration statement; and
(iii) Include any additional or changed material information on
the plan of distribution.
2. For determining liability under the Securities Act, treat each
post-effective amendment as a new registration statement of the securities
offered, and the offering of the securities at that time to be the initial bona
fide offering.
3. File a post-effective amendment to remove from registration any of
the securities that remain unsold at the end of the offering.
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<PAGE>
(b) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 (the "Act) may be permitted to directors, officers and
controlling persons of the small business issuer pursuant to the provisions of
the Oklahoma General Corporation Act, the Registrant's Articles of
Incorporation, or otherwise, the small business issuer has been advised that in
the opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities (other
than the payment by the small business issuer of expenses incurred or paid by a
director, officer or controlling person of the small business issuer in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the small business issuer will, unless in the opinion of its counsel
the matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed by
the final adjudication of such issue.
(c) The Registrant hereby undertakes that, for purposes of determining any
liability under the Securities Act of 1933, each filing of the Registrant's
annual report pursuant to Section 13(a) or Section 15(d) of the Securities
Exchange Act of 1934 that is incorporated by reference to this Registration
Statement shall be deemed to be a new Registration Statement relating to the
securities offered herein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
(d) The Registrant hereby undertakes to deliver, or cause to be delivered
with the Prospectus, to each person to whom the Prospectus is sent or given the
latest annual report to security holders that is incorporated by reference in
the Prospectus and proxy or information statement furnished pursuant to and
meeting the requirements of Rule 14a-3 or Rule 14c-3 under the Securities
Exchange Act of 1934; and, where interim financial information required to be
presented by Article 3 of Regulation S-X are not set forth in the Prospectus, to
deliver, or cause to be delivered to each person to whom the Prospectus is sent
or given, the latest quarterly report that is specifically incorporated by
reference in the Prospectus to provide such interim financial information.
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SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3, and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized in the City of Tulsa, State of Oklahoma, on April 29, 1997.
GOTHIC ENERGY CORPORATION
By: /s/ Michael K. Paulk
--------------------------------------------------
Michael K. Paulk, President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
/s/ Michael K. Paulk President and Director April 29, 1997
- ------------------------- (Principal Executive, Financial
Michael K. Paulk and Accounting Officer)
/s/ John J. Fleming Director April 29, 1997
- -------------------------
John J. Fleming
/s/ John L. Rainwater Director April 29, 1997
- -------------------------
John L. Rainwater
/s/ Morton A. Cohen Director April 29, 1997
- -------------------------
Morton A. Cohen
/s/ Brian E. Bayley Director April 29, 1997
- -------------------------
Brian E. Bayley
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