<PAGE>
SECURITIES AND EXCHANGE COMMISSION
AMENDMENT NO. 2 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 of (IRS Employer Identification Number)
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. [ ]
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, 2,189,031 $ 2.625 $5,746,206 $1,741.00
$.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 2,770,000
$.01 par value (2)
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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)
- -----------------------------------------------------------------------------------------------
TOTAL $6,003.00
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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 issued or 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 4,590 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
6,159,000 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 June 2, 1997, the last
sale price of the Common Stock as reported on the Nasdaq SmallCap Market was $2.
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."
<PAGE>
INVESTORS SHOULD CAREFULLY CONSIDER CERTAIN RISKS AND OTHER CONSIDERATIONS
RELATING TO THE SECURITIES OF THE COMPANY. SEE "RISK FACTORS" STARTING ON PAGE
15 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.
JUNE _____, 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, including financial statements, 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, including amendment
thereto, for the fiscal year ended December 31, 1996;
(b) The Quarterly Report of the Company on Form 10-QSB for the quarter
ended March 31, 1997; and
(c) The Current Reports of the Company on Form 8-K, including amendments
thereto, 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.............................. 4
Incorporation of Certain Information by Reference.. 5
Table of Contents.................................. 6
The Company........................................ 7
Risk Factors....................................... 15
Use of Proceeds.................................... 19
Selling Securityholders............................ 20
Plan of Distribution............................... 23
Description of Capital Stock....................... 24
Legal Matters...................................... 28
Experts............................................ 28
-6-
<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 March 31, 1997
to be 2.5 million barrels of oil and 87.6 billion cubic feet of natural gas.
Approximately 85% 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 the grant of the option to be applied to the merger
consideration. Concurrently with
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<PAGE>
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. Subsequent to year end, substantially all of
the non-operated well interests acquired from Athena were sold for net proceeds
of approximately $210,000.
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<PAGE>
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 December 11, 1996, the Company entered into a
---------------------
purchase and sale agreement with Norse Exploration, Inc., and Norse Pipeline,
Inc. (collectively, "Norse"), to acquire various working interests in 11 oil and
gas producing properties and 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 December 13, 1996, entered
-----------------------
into a purchase and sale agreement with H. Huffman & Company ("Huffman"), an
Oklahoma limited partnership, to acquire 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 entered into a purchase and sale
-------------------
agreement on January 22, 1997 with Horizon Gas Partners, L.P. and HSRTW, Inc.
(collectively, "Horizon"), to acquire 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, with the
formal closing of the transactions occurring on February 18, 1997.
-9-
<PAGE>
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 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
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<PAGE>
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.
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
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<PAGE>
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 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
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<PAGE>
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. 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. 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. At March 31, 1997, the Company did not have the
required hedge contracts in place as required by the Credit Facility; however,
the Company has asked for and received a waiver from Bank One of the covenant
requiring hedges. Since March 31, 1997, the Company has met the required hedging
requirements and is now in compliance. The Company also asked for and received a
waiver from Bank One for the 1.0:1.0 current ratio covenant as the Company was
not in compliance at March 31, 1997. 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 matured on April 18, 1997; however, the Company has
made an agreement with the lender to extend the maturity date to July 31, 1997
for additional consideration of 100,000 shares of the Company's Common Stock.
The remaining $2,000,000 bears interest at 12% per annum and matures 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
-13-
<PAGE>
the Company's Common Stock on the five (5) days prior to the maturity date, with
respect to the $2,500,000 obligation, and on the maturity date with respect to
the $2,000,000 obligation. As additional consideration for making the loans, 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 also paid a fee
of $250,000 for the $2,500,000 loan. As consideration for extending the maturity
date of the $2,500,000 loan, the Company agreed to issue an additional 100,000
shares of Common Stock for $.01 per share. At that time, the market price of the
stock was $2.25 per share.
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.
-14-
<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 December
31, 1996 and March 31, 1997, when its net income available for common shares was
$261,145 and $423,794, 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 March 31, 1997, the Company's accumulated deficit was
$17,399,381.
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
-15-
<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. At March 31, 1997, the Company did not have the required
hedge contracts in place as required by the Credit Facility; however, the
Company has asked for and received a waiver from Bank One of the covenant
requiring hedges. Since March 31, 1997, the Company has met the required hedging
requirements and is now in compliance. The Company also asked for and received a
waiver from Bank One for the 1.0:1.0 current ratio covenant as the Company was
not in compliance at March 31, 1997.
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
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<PAGE>
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 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
-18-
<PAGE>
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.
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."
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<PAGE>
SELLING SECURITYHOLDERS
The following table sets forth the aggregate numbers of securities
beneficially owned by each Selling Securityholder as of June 1, 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 STOCK PREFERRED STOCK COMMON STOCK
NAME OF SELLING SECURITYHOLDER STOCK PURCHASE STOCK PURCHASE
WARRANTS WARRANTS
------------------------------ --------- -------- ------------ --------- -------- ------------
<S> <C> <C> <C> <C> <C> <C>
B-MAC Trading, Inc. 100 --- 50,000 /(1)/ 100 --- 50,000 /(1)/
Benitz & Partners 800 --- 400,000 800 --- 400,000
/(1)(9)/ /(1)(9)/
28,667 28,667
C. Channing Buckland 125 --- 62,500 /(1)/ 125 --- 62,500 /(1)/
Choi & Choi HK Limited 550 --- 275,000/(1)(9)/ 550 --- 275,000/(1)(9)/
200,000 200,000
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)/
</TABLE>
-20-
<PAGE>
<TABLE>
<CAPTION>
COMMON COMMON
PREFERRED STOCK COMMON STOCK PREFERRED STOCK COMMON STOCK
NAME OF SELLING SECURITYHOLDER STOCK PURCHASE STOCK PURCHASE
WARRANTS WARRANTS
- ------------------------------ --------- -------- ------------ --------- -------- ------------
<S> <C> <C> <C> <C> <C> <C>
Mary Murphy 200 --- 100,000 /(1)/ 200 --- 100,000 /(1)/
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
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. --- --- 335,000 --- --- 335,000
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 /(3)/ --- --- 2,500 /(3)/
Bill Burke --- --- 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 /(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>
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<PAGE>
<TABLE>
<CAPTION>
COMMON COMMON
PREFERRED STOCK COMMON STOCK PREFERRED STOCK COMMON STOCK
NAME OF SELLING SECURITYHOLDER STOCK PURCHASE STOCK PURCHASE
WARRANTS WARRANTS
- ------------------------------ --------- -------- ------------ --------- -------- ------------
<S> <C> <C> <C> <C> <C> <C>
John Smith --- --- 2,500 /(3)/ --- --- 2,500 /(3)/
Dr. Joseph Smith --- --- 5,000 /(3)/ --- --- 5,000 /(3)/
Greg Weeks --- --- 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 4,590 1,423,697 6,159,031 4,590 1,200,000 6,159,031
</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 shares previously issued on conversion of shares of Preferred
Stock.
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<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.
-23-
<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
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<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
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<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 rights, options or warrants to purchase the shares of Common Stock into which
such
-26-
<PAGE>
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.
-27-
<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.
The historical schedules of gross revenues and direct operating expenses of
the Norse and Horizon Properties for the year 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.
With respect to the unaudited interim financial information as of and
for the period ended March 31, 1997, incorporated by reference in this
Prospectus, the independent accountants have reported that they have applied
limited procedures in accordance with professional standards for a review of
such information. However, their separate report included in the Company's
quarterly report on Form 10-QSB for the quarter ended March 31, 1997, and
incorporated by reference herein, states that they did not audit and they do not
express an opinion on that interim financial information. Accordingly, the
degree of reliance on their report on such information should be restricted in
light of the limited nature of the review procedures applied. The
-28-
<PAGE>
accountants are not subject to the liability provisions of Section 11 of the
Securities Act of 1933 for their report on the unaudited interim financial
information because that report is not a "report" or a "part" of the
registration statement prepared or certified by the accountants within the
meaning of Sections 7 and 11 of the Act.
-29-
<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:
<TABLE>
<CAPTION>
<S> <C>
Securities and Exchange $ 6,003.00
Commission Registration Fee
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 $ 1,997.00
----------
TOTAL $25,000.00
==========
</TABLE>
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.
Part II-1
<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)/
(10) (a) Warrant (as amended) to purchase 1,000,000 shares of Common Stock
issued to Stratum Group, LL.C./(3)/
(b) Warrant to purchase 200,000 shares of Common Stock issued to
Gaines, Berland Inc. /(3)/
(15) Letter regarding Unaudited Interim Financial Information /(3)/
(23) Consent of Coopers & Lybrand, L.L.P./(3)/
- -----------------------------------
(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.
(3) Filed with Amendment No. 2.
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.
Part II-2
<PAGE>
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.
(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.
Part II-3
<PAGE>
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 June 3, 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 June 3, 1997
- -------------------------- (Principal Executive, Financial
Michael K. Paulk and Accounting Officer)
/s/ John J. Fleming Director June 3, 1997
- --------------------------
John J. Fleming
/s/ John L. Rainwater Director June 3, 1997
- --------------------------
John L. Rainwater
/s/ Morton A. Cohen Director June 3, 1997
- --------------------------
Morton A. Cohen
/s/ Brian E. Bayley Director June 3, 1997
- --------------------------
Brian E. Bayley
Part II-4
<PAGE>
EXHIBIT 10(A)
SEE LEGEND ON PAGE 18 HEREOF. SUCH LEGEND SHALL APPEAR ON THIS WARRANT
CERTIFICATE UNTIL THE WARRANTS ARE REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED, OR UNLESS GOTHIC ENERGY CORPORATION DETERMINES OTHERWISE
IN COMPLIANCE WITH APPLICABLE LAW.
GOTHIC ENERGY CORPORATION
WARRANTS FOR THE PURCHASE OF SHARES OF
COMMON STOCK OF GOTHIC ENERGY CORPORATION
- --------------------------------------------------------------------------------
No. 1A 1,000,000 Warrants
For value received, Gothic Energy Corporation, a Delaware corporation
(the "Company"), hereby certifies that Stratum Group, L.P., a Delaware limited
partnership (successor by merger to Stratum Group, L.L.C., a Delaware limited
liability company), or permitted assigns (the "Holder") is entitled, subject to
the provisions of this warrant certificate (this "Warrant Certificate")
representing 1,000,000 warrants (the "Warrants"), to purchase from the Company,
at the times specified herein, 1,000,000 fully paid and non-assessable shares of
common stock of the Company, $0.01 par value, at a purchase price per share
equal to the Exercise Price (as hereinafter defined). The number of shares of
Common Stock to be received upon the exercise of a Warrant and the price to be
paid for a share of Common Stock are subject to adjustment from time to time as
hereinafter set forth.
(a) Definitions. The following terms, as used herein, have the
-----------
following meanings:
"Common Stock" means the common stock, $0.01 par value, of the
Company, and capital stock of any class or classes into which such Common Stock
or any such other class may thereafter be changed or reclassified.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Exercise Price" means $3.25 per Warrant Share, such Exercise Price to
be adjusted from time to time as provided herein.
"Expiration Date" means 4:00 p.m., New York time, on June 2, 2000.
"Securities" means the Warrant Shares and the Warrants, collectively.
"Securities Act" means the Securities Act of 1933, as amended.
<PAGE>
"Stratum Group" means Stratum Group, L.P., a Delaware limited
partnership (successor by merger to Stratum Group, L.L.C., a Delaware limited
liability company).
"Warrant Shares" means the shares of Common Stock deliverable upon
exercise of the Warrants, as adjusted from time to time.
(b) Vesting, Exercise and Duration of Warrants.
------------------------------------------
(1) The Holder of this Warrant Certificate shall have the right to
exercise 1,000,000 Warrants in whole or in part (but not as to a fractional
Warrant Share) at any time, or from time to time until the Expiration Date or,
if such day is a day on which banking institutions in The City of New York are
authorized by law to close, then on the next Succeeding day that shall not be
such a day, by presentation and surrender hereof to the Company with the
Purchase Form annexed hereto duly executed and accompanied by proper payment of
the Exercise Price for the number of Warrant Shares specified in such form, all
subject to the terms and conditions hereof.
(2) The Exercise Price must be paid in U.S. dollars in cash, bank
cashier's check or bank draft payable to the order of the Company. Upon receipt
by the Company of this Warrant Certificate and the Purchase Form, together with
the applicable Exercise Price, at the Company's office designated for such
purpose, in proper form for exercise, the Holder shall be deemed to be the
holder of record of the Warrant Shares, notwithstanding that the stock transfer
books of the Company shall then be closed or that certificates representing such
Warrant Shares shall not then be actually delivered to the Holder. The Company
shall pay any and all documentary, stamp or similar issue or transfer taxes of
the United States, or any state thereof payable in respect of the issue or
delivery of the Warrant Shares. The Company shall not be required, however, to
pay any tax or other charge imposed in connection with any transfer involved in
the issue of any certificate for Warrant Shares, and in such case the Company
shall not be required to issue or deliver any stock certificate until such tax
or other charge has been paid or it has been established to the Company's
satisfaction that no tax or other charge is due.
If the Holder exercises the Warrants in part, this Warrant
Certificate shall be surrendered by Holder to the Company and a new Warrant
Certificate of the same tenor and for the unexercised number of Warrants which
was not surrendered shall be executed by the Company. The Company shall
register the new Warrant Certificate in such name or names as may be directed
in writing by the Holder and deliver the new Warrant Certificate to the person
or persons entitled to receive the same.
Upon surrender of this Warrant Certificate in conformity with the
foregoing provisions, the Company shall transfer to the Holder of this Warrant
Certificate
-2-
<PAGE>
appropriate evidence of ownership of any shares of Common Stock or
other securities or property (including any money) to which the Holder is
entitled, registered or otherwise placed in, or payable to the order of, such
name or names as may be directed in writing by the Holder, and shall deliver
such evidence of ownership and any other securities or property (including any
money) to the person or persons entitled to receive the same, together with an
amount in cash in lieu of any fraction of a share as provided in paragraph (f)
below.
(c) Restrictive Legend. Any shares of Common Stock issued pursuant to
------------------
exercise of any Warrants shall bear the following legend, unless such shares of
Common Stock have been registered under the Securities Act or unless the Company
determines otherwise in compliance with applicable law:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR SECURITIES LAWS OF ANY
STATE AND NEITHER THE SECURITIES NOR ANY INTEREST THEREIN MAY BE SOLD OR
OTHERWISE TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN APPLICABLE
EXEMPTION THEREUNDER."
(d) Reservation of Shares. The Company hereby agrees that at all
---------------------
times there shall be reserved for issuance and delivery upon exercise of the
Warrants such number of its authorized but unissued shares of its Common Stock
or other securities of the Company from time to time issuable upon exercise of
the Warrants as will be sufficient to permit the exercise in full of the
Warrants. All such shares shall be duly authorized and, when issued upon such
exercise, shall be validly issued, fully paid and non-assessable, free and clear
of all liens, security interests, charges and other encumbrances or restrictions
on sale and free and clear of all preemptive or similar rights.
(e) Fractional Shares. No fractional shares or scrip representing
-----------------
fractional shares shall be issued upon the exercise of any Warrant. With
respect to any fraction of a share called for upon any exercise hereof, the
Company shall pay to the Holder an amount in cash equal to such fraction
multiplied by the current market value (as defined in paragraph (h)(5) herein)
of such share.
(f) Exchange, Transfer, Assignment or Loss of Warrant Certificate.
-------------------------------------------------------------
The Company will, from time to time, register the transfer of any outstanding
Warrant Certificate upon its records. Each taker and holder of this Warrant
Certificate by taking or holding the same, consents and agrees that prior to any
transfer of this Warrant Certificate, the holder hereof shall give written
notice to the Company of such holder's intention to effect such transfer. Each
such
-3-
<PAGE>
notice shall describe the manner and circumstances of the proposed transfer
in sufficient detail. The Company shall register such transfer upon surrender
of such Warrant Certificate to the Company for transfer, accompanied by
appropriate instruments of transfer duly executed by the holder or the holder's
duly authorized attorney. Upon any such registration of transfer, a new Warrant
Certificate shall be issued in the name of the transferee, and the surrendered
Warrant Certificate shall be cancelled. Each Warrant Certificate evidencing the
transferred Warrants shall bear, unless the same has been registered under the
Securities Act, the restrictive legend set forth in paragraph (c) herein.
Upon receipt by the Company of evidence satisfactory to it (in the
exercise of its reasonable discretion) of the loss, theft, destruction or
mutilation of this Warrant Certificate, and (in the case of loss, theft or
destruction) of reasonably satisfactory indemnification, and upon surrender and
cancellation of this Warrant Certificate, if mutilated, the Company shall
execute and deliver a new Warrant Certificate of like tenor and date. Any such
new Warrant Certificate executed and delivered shall constitute an additional
contractual obligation on the part of the Company, whether or not the warrant so
lost, stolen, destroyed or mutilated shall be at any time enforceable by anyone.
The provisions of this paragraph (f) are exclusive and shall preclude (to the
extent lawful) all other rights or remedies with respect to the replacement of
mutilated, lost, stolen, or destroyed Warrant Certificates.
(g) Rights of the Holder. Prior to the exercise of any Warrant, the
--------------------
Holder shall not, by virtue hereof, be entitled to any rights of a shareholder
of the Company, including, without limitation, the right to vote, to give or
withhold consent to any corporate action of the Company, to receive dividends or
other distributions, to exercise any preemptive or similar right or to receive
any notice of meetings of shareholders or any notice of any proceedings of the
Company except as may be specifically provided for herein.
(h) Anti-Dilution Provisions. The Exercise Price in effect at any
------------------------
time, and the number of Warrant Shares which may be purchased upon the exercise
hereof, shall be subject to change or adjustment as follows:
(1) In case the Company shall (i) pay a dividend or make other
distribution on its Common Stock in shares of Common Stock, (ii) subdivide its
outstanding Common Stock, (iii) combine its outstanding Common Stock into a
smaller number of shares of Common Stock, or (iv) issue by reclassification of
its Common Stock (whether pursuant to a merger or consolidation or otherwise)
any other shares representing common equity of the Company, then the Exercise
Price for the Warrants in effect immediately prior thereto shall be adjusted so
that the holder of the Warrant Certificate surrendered for exercise after the
record date fixing shareholders to be affected by such event shall be entitled
to purchase the number of Warrant Shares which he would have owned or have been
entitled to receive after the happening of any of
-4-
<PAGE>
the events described above, had such Warrants been exercised immediately prior
to such record date. An adjustment made pursuant to this clause (1) shall become
effective immediately after the record date in the case of a dividend and shall
become effective immediately after the effective date in the case of a
subdivision, combination or reclassification.
(2) In case the Company shall issue shares of Common Stock to any
Person, or rights, options or warrants to any Persons entitling such Persons 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 defined in subparagraph
(h)(5) below) as of the issue date such shares of Common Stock or rights,
options or warrants to any such Person, the Exercise Price to be in effect after
such issuance or date shall be determined by multiplying the Exercise Price in
effect immediately prior to such issue date by a fraction, the numerator of
which shall be the number of shares of Common Stock outstanding on the date of
issuance of such shares of Common Stock or rights, options or warrants plus the
number of shares of Common Stock 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 shall be the number of shares of
Common Stock outstanding on the date of issuance of such shares of Common Stock
or rights, options or warrants plus the number of additional shares of Common
Stock offered for subscription or purchase. Such adjustment shall be made
successively whenever any such Common Stock or rights, options or warrants are
issued, and shall become effective immediately after such issue date. In
determining whether any shares of Common Stock or any rights, options or
warrants entitle the holders to subscribe for or purchase shares of Common Stock
at less than such current market price, and in determining the aggregate
offering price of such shares of Common Stock, there shall be taken into account
any consideration received by the Company for such shares of Common Stock or
such rights, options or warrants, the value of such consideration, if other than
cash, to be determined by the Board of Directors. For the purposes of this
subparagraph (2), the issuance of rights, options or warrants to subscribe for
or purchase securities convertible into Common Stock shall be deemed to be the
issuance of 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 of such securities plus the minimum aggregate
amount (if any) payable upon conversion of such securities into shares of Common
Stock.
(3) In case the Company shall distribute to all holders of shares of
its Common Stock (whether pursuant to a merger or consolidation or otherwise)
evidence of its indebtedness or assets (including securities issued by the
Company or by any other entity, but excluding (x) any shares referred to in
subparagraph (h)(1) above, and (y) any shares of Common Stock or rights, options
or warrants referred to in subparagraph (h)(2) above), then in each such case
the Exercise Price to be in effect after such distribution shall be determined
by multiplying the Exercise Price in effect immediately prior to such record
date by a fractions the numerator of which shall be the current market price per
share of Common Stock (as defined in subparagraph
-5-
<PAGE>
(h)(5) below) less the then fair market value (as determined by the Board of
Directors, whose determination shall be conclusive) of the portion of the assets
or evidences of indebtedness so distributed applicable to one share of Common
Stock, and the denominator of which shall be such current market price per share
of Common Stock (as defined in subparagraph (h)(5) below) as of the date of such
distribution. Such adjustment shall become effective immediately after the
record date for the determination of shareholders entitled to receive such
distribution.
(4) In case the Company shall issue shares of Common Stock to any
holders of shares of Common Stock pursuant to any dividend reinvestment or
similar plan at a price less than the current market price per share of Common
Stock (as defined in subparagraph (h)(5) below) on the date of issuance of such
shares pursuant to such dividend reinvestment or similar plan, then in each such
case the Exercise Price to be in effect after the date of issuance of such
shares shall be determined by multiplying the Exercise Price in effect
immediately prior to such issuance by a fraction whose numerator shall be the
number of shares of Common Stock outstanding on such date of issuance plus the
number of shares of Common Stock which the aggregate purchase price of shares
being purchased on such date of issuance pursuant to such dividend reinvestment
or similar plan would purchase at such current market price, and whose
denominator shall be the number of shares of Common Stock outstanding on the
date of issuance of such shares plus the number of additional shares of Common
Stock so issued pursuant to such dividend reinvestment plan. Such adjustment
shall be made whenever such shares are issued and shall be effective as of the
date immediately after such date of issuance.
(5) For the purpose of any computation under subparagraphs (h)(2), (3)
and (4) above, the current market price per share of Common Stock at any date
shall be deemed to be the average of the daily Closing Prices for 30 consecutive
Trading Days (as defined below) immediately preceding the day in question, after
appropriate adjustment for stock distribution, subdivisions, combinations or
reclassifications occurring within the said 30-day period. The term "Closing
Price" on any day shall mean the reported last sale price per share of Common
Stock on such day or, in case no such sale takes place on such day, the average
of the reported closing bid and asked prices, in each case on the principal
national securities exchange on which the Common Stock is listed or admitted to
trading, or, if the Common Stock is not listed or admitted to trading on any
national securities exchange, the average of the closing bid and asked prices in
the over-the-counter market as reported by the National Association of
Securities Dealers' Automated Quotation System, or, if not so reported, as
reported by the National Quotation Bureau, Incorporated, or any successor
thereof, or, if not so reported, the average of the closing bid and asked prices
as furnished by any member of the National Association of Securities Dealers,
Inc. selected from time to time by the Company for that purpose; and the term
"Trading Day" shall mean a day on which the principal national securities
exchange on which the Common Stock is listed or admitted to trading is open for
the transaction of business or, if the Common Stock is not listed or admitted to
trading on any national securities exchange, a Monday, Tuesday, Wednesday,
Thursday, or Friday on which banking institutions in the City of New York, New
York are not authorized or obligated by law or executive order to close.
-6-
<PAGE>
(6) Upon the expiration of any rights, options, warrants or conversion
or exchange privileges, if any thereof shall not have been exercised, the
Exercise Price and the number of shares of Common Stock purchasable upon the
exercise of the Warrants shall, upon such expiration, be readjusted and shall
thereafter, upon any future exercise, be such as they would have been had they
been originally adjusted (or had the original adjustment not been required, as
the case may be) as if (A) the only shares of any class or series of Common
Stock so issued were the shares of such class or series of Common Stock, if any,
actually issued or sold upon the exercise of such rights, options, warrants or
conversion or exchange rights and (B) such shares of such class or series of
Common Stock, if any, were issued or sold for the consideration actually
received by the Company upon such exercise plus the consideration, if any,
actually received by the Company for issuance, sale or grant of all such rights,
options, warrants or conversion or exchange rights whether or not exercised;
provided that no such readjustment shall have the effect of increasing the
Exercise Price by an amount, or decreasing the number of shares purchasable upon
exercise of the Warrants by a number, in excess of the amount or number of the
adjustment initially made in respect to the issuance, sale or grant of such
rights, options, warrants or conversion or exchange rights.
(7) In the event that at any time, as a result of an adjustment made
pursuant to subparagraphs (h)(1) and (3) above, the Holder shall become entitled
to receive any shares of the capital stock of the Company other than Common
Stock, thereafter the number of such other shares so receivable upon exercise of
the Warrants shall be subject to adjustment from time to time in a manner and on
terms as nearly equivalent as practicable to the provisions with respect to the
Common Stock contained in subparagraphs (h)(1) to (5), inclusive, above,
subparagraph (h)(8) or (9) below, and the provisions of this Warrant Certificate
with respect to the Common Stock shall apply on like terms to any such other
shares.
(8) In case:
(i) the Company shall authorize the issuance to all holders of
its Common Stock of rights or warrants to subscribe for or purchase shares of
its Common Stock or of any other subscription rights or warrants; or
(ii) the Company shall authorize the distribution to all holders
of its Common Stock (whether pursuant to a merger or consolidation or otherwise)
of evidences of its indebtedness or assets (other than dividends paid in or
distributions of the Company's capital stock for which the Exercise Price shall
have been adjusted pursuant to subparagraph (h)(1) above; or
-7-
<PAGE>
(iii) of any capital reorganization or reclassification of the
Common Stock (other than a change in par value of the Common Stock) or of any
consolidation or merger to which the Company is a party and for which approval
of any stockholders of the Company is required (other than a consolidation or
merger in which the Company is the continuing corporation and that does not
result in any reclassification or change of the Common Stock outstanding), or of
the conveyance or transfer of the properties and assets of the Company
substantially as an entirety; or
(iv) of the voluntary or involuntary dissolution, liquidation or
winding-up of the Company; or
(v) the Company proposes to take any action (other than actions
of the character described in subparagraph (h)(1) above) that would require an
adjustment of the Exercise Price pursuant to this paragraph (h);
then the Company shall cause to be mailed by registered mail to the Holder, at
the earliest practicable time (and in any event not less than 20 days prior to
the applicable record or effective date hereinafter specified), a notice stating
(A) the date as of which the holders of Common Stock of record to be entitled to
receive any such rights, options, warrants or distributions are to be
determined, or (B) the date on which any such consolidation, merger, conveyance,
transfer, dissolution, liquidation or winding-up is expected to become
effective, and the date as of which it is expected that holders of Common Stock
of record shall be entitled to exchange their shares of Common Stock for
securities or other property, if any, deliverable upon such reorganization,
reclassification, consolidation, merger, conveyance, transfer, dissolution,
liquidation or winding-up.
(9) Whenever reference is made in this paragraph (h) to the issue of
shares of Common Stock, the term "Common Stock" shall include any equity
securities of any class of the Company hereinafter authorized which shall not be
limited to a fixed sum or percentage in respect of the right of the holders
thereof to participate in dividends or distributions of assets upon the
voluntary or involuntary liquidation, dissolution or winding-up of the Company.
(10) Notwithstanding any provision to the contrary in this paragraph
(h), the Exercise Price in effect at any time, and the number of Warrant Shares
which may be purchased upon the exercise hereof, shall not be subject to change
or adjustment in either of the following cases:
(A) In case the Company shall issue shares of Common Stock to any
Person, or rights, options or warrants to any Persons entitling such Persons to
subscribe for or purchase shares of Common Stock, at a price per share at least
equal to or greater than the current
-8-
<PAGE>
market price per share of Common Stock (as defined in subparagraph (h)(5) below)
as of the issue date such shares of Common Stock or rights, options or warrants
to any such Person; or
(B) In case the Company purchases any assets (an "Asset
Purchase") and provides all or some of the consideration for such Asset Purchase
in shares of Common Stock; provided, however, that any asset so purchased by the
Company is purchased at a price which is at or below the fair market value of
such asset; and provided, further, that any shares of Common Stock provided as
consideration by the Company any such Asset Purchase is issued at a price or
valued at a price at least equal to or greater than the current market price per
share of Common Stock (as defined in subparagraph (h) (5) above) as of the date
of issuance of such shares of Common Stock,
(i) Officers' Certificate. Whenever any adjustment in the Exercise
---------------------
Price is made, the Company shall forthwith (A) file in the custody of its
Secretary or an Assistant Secretary at its principal office, a statement
describing the adjustment and the method of calculation used, together with an
opinion rendered by an independent firm of public accountants of recognized
standing, who may be the Company's regularly engaged auditors, that such
adjustment was properly calculated in accordance with the provisions of
paragraph (h) and (B) cause a copy of such statement to be mailed to the Holder.
(j) Consolidation, Merger, or Sale of Assets. In case of any
----------------------------------------
consolidation of the Company with, or merger of the Company into, any other
Person, any merger of another Person into the Company (other than a merger which
does not result in any reclassification, conversion, exchange or cancellation of
outstanding shares of Common Stock of the Company) or any sale or transfer of
all or substantially all of the assets of the Company, the Holder of this
Warrant Certificate shall have the right thereafter to exercise the 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 of the Company for which the Warrants may have been exercised
immediately prior to such consolidation, merger, sale or transfer, assuming such
holder of Common Stock of the Company (i) is not a Person with which the Company
consolidated or into which the Company merged or which merged into the Company
or to which such sale or transfer was made, as the case may be ("Constituent
Person"), or an Affiliate of a constituent Person and (ii) failed to exercise
his rights of election, if any, as to the kind or amount of securities, cash and
other property receivable upon such consolidation, merger, sale or transfer
(provided that if the kind or amount of securities, cash and other property
receivable upon such consolidation, merger, sale or transfer is not the same for
each share of Common Stock of the Company held immediately prior to such
consolidation, merger, sale or transfer by other than a constituent Person or an
Affiliate thereof and in respect of which such rights of election shall not have
been exercised ("non-electing share"), then for the purpose of this Section the
kind and amount of securities, cash and other property receivable upon such
consolidation,
-9-
<PAGE>
merger, sale or transfer by each non-electing share shall be deemed to be the
kind and amount so receivable per share by a plurality of the non-electing
shares). Adjustments for events subsequent to the effective date of such a
consolidation, merger and sale of assets shall be as nearly equivalent as may be
practicable to the adjustments provided for in this Warrant Certificate. In any
such event, effective provisions shall be made in the certificate or articles of
incorporation of the resulting or surviving corporation, in any contract of
sale, conveyance, lease or transfer, or otherwise so that the provisions set
forth herein for the protection of the rights of Warrant holders shall
thereafter continue to be applicable; and any such resulting or surviving
corporation shall expressly assume the obligation to deliver, upon exercise,
such shares of stock, other securities, cash and property. The provisions of
this paragraph (j) shall similarly apply to successive consolidations, mergers,
sales, leases or transfers.
(k) Listing on Securities Exchange and Governmental Requirements.
------------------------------------------------------------
(1) The Company shall list the Warrant Shares on each national
securities exchange on which any Common Stock may at any time be listed, subject
to official notice of issuance upon the exercise of the Warrants, and shall
maintain, so long as any other shares of its Common Stock shall be so listed,
such listing of all shares of Common Stock from time to time issuable upon the
exercise of the Warrants; and the Company shall so list on each national
securities exchange, and shall maintain such listing of, any other shares of
capital stock of the Company issuable upon the exercise of the Warrants if and
so long as any shares of capital stock of the same class shall be listed on such
national securities exchange by the Company. The Company shall list the
Warrants on each national securities exchange on which any warrants to purchase
Common Stock may at any time be listed and shall maintain, so long as any other
warrants to purchase Common Stock shall be so listed, such listing of all
Warrants. Any such listing shall be at the Company's expense.
(2) If any Warrant Shares require registration or approval of any
governmental authority before the Warrant Shares may be validly and lawfully
issued, the Company will, in good faith and with reasonable dispatch after
surrender of the Warrant Certificate to the Company, secure such registration or
approval; provided that in no event shall Warrant Shares be issued, and the
Company shall have the authority to suspend the exercise of any or all Warrants
to purchase Warrant Shares requiring such registration or approval, until such
registration or approval shall have been obtained. All Warrants as to which
exercise is requested during such suspension shall be exercisable at the
Exercise Price and upon the other conditions in effect on the date of exercise.
If any such period of suspension continues past the Expiration Date, the Company
shall recognize, upon the removal of such suspension, the exercise of all
Warrants for which the certificates representing such Warrants with the exercise
forms duly completed and executed had been received on or before the Expiration
Date.
-10-
<PAGE>
(l) Required Registration and Qualification of Securities.
-----------------------------------------------------
(1) (a) The Holder may, at any time or from time to time, in each
case on or after June 2, 1996 and before the Expiration Date, make a written
request for registration under the Securities Act of all or part of the
Securities (a "Demand Registration"). Such request will specify the number of
Securities proposed to be sold and will also specify the intended method of
disposition thereof. A registration will not count as a Demand Registration
until it has become effective under the Securities Act and, if applicable, the
Exchange Act.
(b) Notwithstanding the provisions of subparagraph (1)(1)(a)
above, the Company shall not be obligated to effect:
(i) any Demand Registration at the request of the Holder
if the Current Market Price (as defined below in this Section (1)(1)(b)) per
share of Common Stock as of the date of the Holder's request for Demand
Registration is below $3.00 (the "Strike Price"). For the purpose of any
computation under this sub-paragraph, the "Current Market Price" per share of
Common Stock at any date shall be deemed to be the average of the daily Closing
Prices (as such term is defined in subparagraph (h)(5) above) for ten (10)
consecutive Trading Days (as such term is defined in subparagraph (h)(5) above)
immediately preceding the day in question. The Strike Price will be
appropriately adjusted for stock issuances, stock distributions, subdivisions,
combinations or reclassifications in accordance with the applicable provisions
of paragraph (h) above (except that, for the purpose of any computation under
this sub-paragraph, references to Exercise Price in paragraph (h) above shall be
deemed to be references to Strike Price);
(ii) any Demand Registration at the request of the Holder
during the period from the time of the public announcement by the Company of a
public offering of Common Stock registered under the Securities Act (an "Active
Public Offering"), to the time when such Active Public Offering has either been
(a) closed or (b) terminated or otherwise withdrawn or not acted upon; provided
further that if the time period between the public announcement of any Active
Public Offering and any of the events specified in clause (b) above exceeds 150
calendar days, the Holder may, at the Holder's option, make a request for Demand
Registration to the Company and such request will be acted upon and honored by
the Company; or
(iii) more than one Demand Registration in any year (as
defined below) with respect to the Securities. For the purposes of this
subparagraph (iii), a "year" commences on June 2 of that year (starting June 2,
1996) and ends on June 1 of the following year (ending June 1, 2000).
-11-
<PAGE>
(c) If the Holder so elects, the offering of such Securities
pursuant to such Demand Registration shall be in the form of an underwritten
offering. The Holder shall select the book-running and other managing
underwriters in connection with such offering and any additional investment
bankers and managers to be used in connection with the offering. Such book
running and other managing underwriters shall be reasonably satisfactory to the
Company.
(2) (a) If the Company or any security holder of the Company
proposes to register any securities of Company under the Securities Act and if
the registration form proposed to be used may be used for the registration of
Securities, the Company will thereupon give prompt written notice to the Holder
of its intention to proceed with the registration (hereinafter a "Piggy-Back
Registration"), and, upon the written request of the Holder made within 30 days
after the receipt of any such notice, the Company will use its best efforts to
cause all such Securities to be included in such Incidental Registration.
(b) If at any time the Company proposes to register any of its
securities and the Securities Act shall then permit the registration thereunder
for the future sale of Securities, the Company will give written notice to the
Holder of its intention to do so (hereinafter, a "Shelf Registration" and
collectively with a Piggy Back Registration, an "Incidental Registration") and,
upon the written request of the Holder made within 30 days after the receipt of
any such notice, the Company will use its best efforts to include among the
securities which it then proposes to register, and to cause to be registered
under such laws and regulations, all Securities specified in such request and,
upon any such registration becoming effective, the Company will give notice
thereof in writing to the Holder.
(c) The rights of the Holder to, or exercise by the Holder of,
Piggy Back Registration or Shelf Registration are in addition to, and are not,
and will not be, in any way conditioned by, the Holder's Demand Registration
fights or the exercise thereof.
(3) If a Demand Registration or an Incidental Registration is in
connection with an underwritten public offering, and if the book-running and
managing underwriters advise the Company in writing that in their opinion the
amount of securities requested to be included in such registration exceeds the
amount of such securities which can be sold in such offering, the Company will
include in such offering the amount of securities requested to be included which
in the opinion of such underwriters can be sold as follows: (A) in the case of a
Demand Registration, the amount of Securities to be offered and sold for the
account of the Holder shall be reduced, but only after the amount of securities,
if any, to be offered and sold for the account the Company and any other holders
with registration rights who are seeking to sell in such offering has been
reduced to zero; or (B) in case of an Incidental Registration, (i) first, all of
the securities shall be included which are proposed to be sold by the Company,
and (ii) second, the Securities shall be included which are proposed to be sold
by the Holder pro rata with other holders with registration fights who are
seeking to sell in such offering.
-12-
<PAGE>
(4) Whenever the Company is required by the provisions of
subparagraphs (l)(1) or (l)(2) above to effect the registration of any of the
Securities under the Securities Act, the Company will, at its sole expense
(except for fees of Holder's counsel, its accountants and its underwriters,
referred to in clause (i) below, in connection with such registration) and as
expeditiously as is possible:
(i) prepare and file with the Securities and Exchange Commission
(the "Commission") a registration statement with respect to such securities
(which, in the case of a Demand Registration, will be on any form for which the
Company then qualifies and which counsel for the Company shall deem appropriate
and available for the sale of the Securities to be registered thereunder in
accordance with the intended method of distribution thereof, and use reasonable
efforts to cause such filed registration statement to become and remain
effective for a period of not less than 90 days) and in connection with any such
registration (whether a Demand Registration or an Incidental Registration) the
Company will give the Holder, its underwriters, if any, their respective counsel
and accountants the opportunity to participate in the preparation of such
registration statement, each prospectus included therein or filed with the
Commission, and each amendment thereof or supplement thereto, and will give each
of them such access to its books and records and such opportunities to discuss
the business of Company with its officers and the independent public accountants
who have certified its financial statements as shall be necessary in the opinion
of the Holder's and such underwriters' respective counsel, to conduct a
reasonable investigation within the meaning of the Securities Act;
(ii) prepare and file with the Commission such amendments and
supplements to any such registration statement and the prospectus used in
connection therewith as may be necessary to keep such registration statement
effective and the prospectus current and to comply with the provisions of the
Securities Act and the Exchange Act with respect to the sale of all securities
covered by such registration statement whenever the seller of such securities
shall desire to sell the same;
(iii) furnish to the Holder such numbers of copies of preliminary
prospectuses and prospectuses and each supplement or amendment thereto and such
other documents as the Holder or any underwriters of the Holder may reasonably
request in order to facilitate the sale or other disposition of the Securities
being sold by the Holder in conformity with (A) the requirements of the
Securities Act and (B) the Holder's proposed method of distribution;
-13-
<PAGE>
(iv) register or qualify the Securities covered by such
registration statement under the securities or blue sky laws of such
jurisdictions within the United States as the Holder shall request, and do such
other reasonable acts and things as may be required of it to enable the Holder
to consummate the sale or other disposition in such jurisdictions of the
Securities; provided, however, that the Company shall not be required to (A)
qualify as a foreign corporation or consent to a general and unlimited service
of process in any such jurisdiction or (B) qualify as a dealer in securities;
and provided further that, if the federal registration is in connection with an
underwritten offering, the Company shall not be required to register or qualify
in any jurisdiction not included in the underwriting unless Holder agrees to
bear the resultant expense;
(v) otherwise use its best efforts to comply with all applicable
rules and regulations of the Commission, and make available to its security
holders as soon as reasonably practicable, but not later than sixteen (16)
months after the effective date of the registration statement, an earnings
statement covering a period of at least twelve (12) months beginning after the
effective date of the registration statement, which earnings statement shall
satisfy the provisions of Section 11(a) of the Securities Act;
(vi) (a) notify the Holder at any time when a prospectus relating
to the registration is required to be delivered under the Securities Act, upon
discovery that, or upon the happening of any event as a result of which, the
prospectus included in such registration statement, as then in effect, includes
an untrue statement of a material fact or omits to state any material fact
required to be stated therein or necessary to make the statements therein not
misleading in the light of the circumstances under which they were made, at the
request of such Holder promptly prepare and furnish to the Holder a reasonable
number of copies of a supplement to or an amendment of such prospectus as may be
necessary so that, as thereafter delivered to the purchasers of such securities,
such prospectus shall not include any untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary to make
the statements therein not misleading in the light of the circumstances under
which they were made; and
(b) in the event the Company shall give such notice and the
registration to which such prospectus relates is a Demand Registration, the
Company shall extend the period during which such registration statement shall
be maintained effective as provided in subparagraph (1)(4)(i) hereof by the
number of days during the period from and including the date of the giving of
such notice to the date when the Company shall make available to the Holder such
supplemented or amended prospectus;
-14-
<PAGE>
(vii) After the filing of any registration statement (whether with
respect to a Demand Registration or an Incidental Registration), the Company
will promptly notify the Holder of any stop order issued or, to the knowledge of
the Company, threatened to be issued by the Commission and take all necessary
actions required to prevent the entry of such stop order or to remove it if
entered;
(viii) The Company will enter into customary agreements (including
an underwriting agreement in customary form and satisfactory in form and
substance to the Company in its reasonable judgment) and take such other actions
as are reasonably required in order to expedite or facilitate the sale of such
Securities; and
(ix) Keep the Holder advised in writing as to initiation and
progress of any registration.
(5) In connection with any registration or qualification of securities
under subparagraphs (1)(1) or (1)(2) above, the Company agrees to indemnify the
Holder and each officer and director of Holder and each person or entity, if
any, who controls the Holder within the meaning of Section 15 of the Securities
Act, against all losses, claims, damages, liabilities and expenses (including
reasonable costs of investigation) caused by any untrue, or alleged untrue,
statement of a material fact contained in any registration statement,
preliminary prospectus, prospectus or notification or offering circular (as
amended or supplemented if Company shall have furnished any amendments or
supplements thereto) or caused by any omission, or alleged omission, to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading, except insofar as such losses, claims,
damages, liabilities or expenses are caused by any untrue statement or alleged
untrue statement or omission or alleged omission based on information furnished
in writing to the Company by the Holder expressly for use therein.
(6) Upon the exercise of the registration fights pursuant to this
paragraph (1), the Holder agrees to supply to the Company such information as
may be required by applicable law for the Company to register or qualify the
Warrants or the Warrant Shares as set forth in this paragraph (1) and the Holder
agrees to indemnify and hold harmless the Company and each of its officers who
signs such registration statement and each person or entity, if any, who
controls the Company within the meaning of Section 15 of the Securities Act,
against all losses, claims, damages or liabilities which are caused by any
untrue, or alleged untrue statement of a material fact contained in information
furnished in writing to the Company by the Holder expressly for use therein.
-15-
<PAGE>
(m) Reports to the Holder.
---------------------
(1) The Company will supply without cost to the Holder within
fifteen (15) days after the Company is required to file the same with the
Commission, copies of the annual reports and quarterly reports which the Company
may be required to file with the Commission pursuant to Section 13 or Section
15(d) of the Exchange Act.
(2) If the Company is not required to file such reports with the
Commission, the Company shall supply without cost to the Holder as soon as
practicable, such reports as the Company shall supply to its other
securityholders.
(n) Notices. Any notice, demand or delivery authorized by this
-------
Warrant Certificate shall be sufficiently given or made when mailed if sent by
first-class mail, postage prepaid, addressed to the Holder or to the Company as
follows:
If to the Company:
Gothic Energy Corporation
5727 South Lewis Avenue, Suite 700,
Tulsa, Oklahoma 74105
Attention: Michael Paulk, President
If to the Holder:
Stratum Group, L.P.
650 Fifth Avenue
New York, New York 10019
Attention: Richard E. Bani
or such other address as shall have been furnished to the party giving or
making such notice, demand or delivery.
(o) Applicable Law. This Warrant Certificate and all rights arising
--------------
hereunder shall be construed and determined in accordance with the laws of the
State of New York, and the performance thereof shall be governed and enforced in
accordance with such laws.
(p) Amendments, Waivers. Any provision of this Warrant Certificate
-------------------
may be amended or waived if, and only if, such amendment or waiver is in writing
and signed, in the case of an amendment, by the Holder and the Company, or in
the case of a waiver, by the party against whom the waiver is to be effective.
No failure or delay by either party in exercising any
-16-
<PAGE>
right, power or privilege hereunder shall operate as a waiver thereof nor shall
any single or partial exercise thereof preclude any other or further exercise
thereof or the exercise of any other right, power or privilege. The rights and
remedies herein provided shall be cumulative and not exclusive of any rights or
remedies provided by law.
(q) Agreement of Holder. By acceptance of this Warrant Certificate
-------------------
and the Warrants represented thereby the Holder hereby agrees to be bound by the
terms and conditions contained herein.
(r) Miscellaneous. This Warrant Certificate amends, and is issued by
-------------
the Company to Stratum Group (or permitted assigns) in exchange for, the warrant
certificate No. 1 and warrant certificate No. 2, dated as of February 7, 1996,
issued by the Company in favor of Stratum Group (or permitted assigns) with
respect to the Securities.
-17-
<PAGE>
IN WITNESS WHEREOF, the Company has duly caused this Warrant
Certificate to be signed and attested by its duly authorized officers and to be
dated as of May 15, 1996.
Attest: GOTHIC ENERGY CORPORATION
By:
- ------------------------------ ----------------------------
John Rainwater, Vice-President Michael Paulk, President
Assistant Secretary
Consented To and Accepted:
Stratum Group, L.P.
By:
------------------------------------
Joseph M. Rinaldi, CEO and President
By:
------------------------------------
Richard E. Bani, SVP and CFO
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR SECURITIES
LAWS OF ANY STATE AND NEITHER THE SECURITIES NOR ANY INTEREST THEREIN MAY BE
SOLD, PLEDGED, HYPOTHECATED OR OTHERWISE TRANSFERRED EXCEPT PURSUANT TO (1)
REGISTRATION IN COMPLIANCE WITH THE SECURITIES ACT AND APPLICABLE STATE LAWS, OR
(2) THE OPINION OF COUNSEL, SATISFACTORY IN FORM AND SUBSTANCE TO THE COMPANY
AND ITS COUNSEL, TO THE EFFECT THAT SUCH REGISTRATION IS NOT REQUIRED.
-18-
<PAGE>
ASSIGNMENT FORM
(To be executed if Holder desires to transfer a Warrant)
For value received, the undersigned hereby sells, assigns and transfer to:
- ------------------------------------------------------------------------------
(Please print or type name)
- ------------------------------------------------------------------------------
(Please insert social security or other identifying number)
- ------------------------------------------------------------------------------
(Address)
- ------------------------------------------------------------------------------
(City, State, Zip Code)
Warrants represented by this Warrant Certificate, and does hereby irrevocably
appoint
----------------------------------------------------------------------
- ------------------------------------------------------------------------------
Attorney, to transfer such rights on the books of the Company with full power of
substitution.
Date:
/(1)/
---------------------------------------------
(Signature of Owner)
---------------------------------------------
Type or Print Name of Owner
---------------------------------------------
Street Address of Owner
---------------------------------------------
City, State, Zip Code of Owner
/(1)/ The Signature must correspond with the name as written upon the face of
the within Warrant Certificate in every particular, without alteration or
enlargement or any change whatever.
-19-
<PAGE>
EXERCISE SUBSCRIPTION FORM
(To be executed only upon exercise of Warrants)
To: GOTHIC ENERGY CORPORATION
The undersigned irrevocably exercises Warrants for the purchase of
-----------
shares of Common Stock, $0.01 par value, of Gothic Energy Corporation (the
"Common Stock") at $3.50 per share of Common Stock and herewith makes payment of
$ (such payment being made in U.S. Dollars in cash or in
---------------
immediately available funds payable to the order of Gothic Energy Corporation),
all on the terms and conditions specified in the within Warrant Certificate,
surrenders this Warrant Certificate and all right, title and interest therein to
Gothic Energy Corporation and directs that the shares of Common Stock
deliverable upon the exercise of these Warrants be registered or placed in the
name and at the address specified below and delivered thereto.
Date:
/(1)/
------------------------------------------
(Signature of Owner)
------------------------------------------
Type or Print Name of Owner
------------------------------------------
Street Address of Owner
------------------------------------------
City, State, Zip Code of Owner
/(1)/ The Signature must correspond with the name as written upon the face of
the within Warrant Certificate in every particular, without alteration or
enlargement or any change whatever.
-20-
<PAGE>
Securities and/or Check to be Issued to:
----------------------------------------
- --------------------------------------------------------------------------------
Please insert Social Security or Identifying Number:
----------------------------
Name:
---------------------------------------------------------------------------
Address:
------------------------------------------------------------------------
City, State, Zip Code:
---------------------------------------------------------
Any Unexercised Warrants Evidenced by the Within Warrant Certificate to be
Issued to:
---------------------------------------------------------------------
- --------------------------------------------------------------------------------
Please insert Social Security or Identifying Number:
----------------------------
Name:
--------------------------------------------------------------------------
Address:
------------------------------------------------------------------------
City, State, Zip Code:
---------------------------------------------------------
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<PAGE>
EXHIBIT 10(B)
THE REGISTERED HOLDER OF THIS WARRANT, BY ITS ACCEPTANCE
HEREOF, AGREES THAT IT WILL NOT SELL, TRANSFER OR ASSIGN
THIS WARRANT EXCEPT AS HEREIN PROVIDED.
VOID AFTER 5:00PM EASTERN TIME, AUGUST 19, 2001
WARRANT
FOR THE PURCHASE OF
200,000 SHARES OF COMMON STOCK
OF
GOTHIC ENERGY CORPORATION
1. WARRANT
This certifies that in consideration of $10.00 and other good and
valuable consideration, duly paid by or on behalf of Gaines, Berland Inc.
("Holder"), as registered owner of this Warrant, to Gothic Energy Corporation
("Company"), Holder is entitled, at any time or from time to time at or after
August 19, 1996 ("Commencement Date"), and at or before 5:00PM, Eastern Time
August 19, 2001 ("Expiration Date"), but not thereafter, to subscribe for,
purchase and receive, in whole or in part, up to two hundred thousand (200,000)
shares of Common Stock of the Company, $0.01 par value ("Common Stock"). If the
Expiration Date is a day on which banking Institutions are authorized by law to
close, then this Warrant may be exercised on the next succeeding day which is
not such a day in accordance with the terms herein. During the period ending on
the Expiration Date, the Company agrees not to take any action that would
terminate the Warrant. This Warrant is initially exercisable at $2.25 per share
of Common Stock purchased: provided, however, that upon the occurrence of any of
the events specified in Section 6 hereof, the rights granted by this Warrant,
including the exercise price and the number of shares of Common Stock to be
received upon such exercise, shall be adjusted as therein specified. The term
"Exercise Price" shall mean the initial exercise price or the adjusted exercise
price, depending on the context, of a share of Common Stock. The term
"Securities" shall mean the shares of Common Stock issuable upon exercise of
this Warrant.
<PAGE>
2. EXERCISE
2.1 Exercise Form. In order to exercise this Warrant, the exercise
-------------
form attached hereto must be duly executed and completed and delivered to the
Company, together with this Warrant and payment of the Exercise Price for the
Securities being purchased. If the subscription rights represented hereby shall
not be exercised at or before 5:00PM, Eastern time, on the Expiration Date, this
Warrant shall become and be void without further force or effect, and all rights
represented hereby shall cease and expire.
2.2 Legend. Each certificate for Securities purchased under this
------
Warrant shall bear a legend as follows, unless such Securities have been
registered under the Securities Act of 1933, as amended ("Act"):
"The securities represented by this certificate have not been registered
under the Securities Act of 1933, as amended ("Act") or applicable state
law. The securities may not be offered for sale, sold or otherwise
transferred except pursuant to an effective registration statement under
the Act, or pursuant to an exemption from registration under the Act and
applicable state law."
2.3 Conversion Right.
----------------
2.3. Determination of Amount. In lieu of the payment of the Exercise
-----------------------
Price in cash, the Holder shall have the right (but not the obligation) to
convert this Warrant, in whole or in part, into Common Stock ("Conversion
Right"), as follows: upon exercise of the Conversion Right, the Company shall
deliver to the Holder (without payment by the Holder of any of the Exercise
Price) that number of shares of Common Stock equal to the quotient obtained by
dividing (x) the "Value" (as defined below) of the portion of the Warrant being
converted at the time the Conversion Right is exercised by (y) the Exercise
Price. The "Value" of the portion of the Warrant being converted shall equal
the remainder derived from subtracting (a) the Exercise Price multiplied by the
number of shares of Common Stock being converted from (b) the Market Price of
the Common Stock multiplied by the number of shares of Common Stock being
converted. As used herein, the term "Market Price" at any date shall be deemed
to be the last reported sale price of the Common Stock on such date, or, in case
no such reported sale takes place on such day, the average of the last reported
sale prices for the Immediately preceding three trading days, in either case as
officially reported by the principal securities exchange on which the Common
Stock is listed or admitted to trading, or, if the Common Stock is not listed or
admitted to trading on any national securities exchange or if any such exchange
on which the Common Stock is listed is not its principal trading market, the
last reported sale price as furnished by the National Association of Securities
Dealers, Inc. ("NASD") through the Nasdaq National Market or SmallCap Market,
or, if applicable, the OTC Bulletin Board, or if the
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<PAGE>
Common Stock is not listed or admitted to trading on any of the foregoing
markets, or similar organization, as determined in good faith by resolution of
the Board of Directors of the Company, based on the best information available
to it.
2.3.2 Exercise of Conversion. The Conversion Right may be exercised
----------------------
by the Holder on any business day on or after the Commencement Date and not
later than the Expiration Date by delivering the Warrant with a duly executed
exercise form attached hereto with the conversion section completed to the
Company, exercising the Conversion Right and specifying the total number of
shares of Common Stock the Holder will purchase pursuant to such conversion.
3. TRANSFER.
3.1 General Restrictions. The registered Holder of this Warrant, by
--------------------
its acceptance hereof, agrees that it will not sell, transfer or assign or
hypothecate this Warrant to anyone except upon compliance with, or pursuant to
exemptions from, applicable securities laws. In order to make any permitted
assignment, the Holder must deliver to the Company the assignment form attached
hereto duly executed and completed, together with this Warrant and payment of
all transfer taxes, if any, payable in connection therewith. The Company shall
immediately transfer this Warrant on the books of the Company and shall execute
and deliver a new Warrant or Warrants of like tenor to the appropriate
assignee(s) expressly evidencing the right to purchase the aggregate number of
shares of Common Stock purchasable hereunder or such portion of such number as
shall be contemplated by any such assignment.
3.2 Restrictions Imposed by the Securities Act. This Warrant and the
------------------------------------------
Securities underlying this Warrant shall not be transferred unless and until (i)
the Company has received the opinion of counsel for the Holder that such
securities may be sold pursuant to an exemption from registration under the Act,
and applicable state law. the availability of which is established to the
reasonable satisfaction of the Company, or (ii) a registration statement
relating to such Securities has been filed by the Company and declared effective
by the Securities and Exchange Commission and compliance with applicable state
law.
4. NEW WARRANTS TO BE ISSUED.
4.1 Partial Exercise or Transfer. Subject to the restrictions in
----------------------------
Section 3 hereof, this Warrant may be exercised or assigned in whole or in part.
In the event of the exercise or assignment hereof in part only. upon surrender
of this Warrant for cancellation, together with the duly executed exercise or
assignment form and funds (or conversion equivalent) sufficient to pay any
Exercise Price and/or transfer tax, the Company shall cause to be delivered to
the Holder without charge a new Warrant of like tenor to this Warrant in the
name of the Holder evidencing the right of the Holder to purchase the aggregate
number of shares of Common Stock and Warrants purchasable hereunder as to which
this Warrant has not been exercised or assigned.
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<PAGE>
4.2 Lost Certificate. Upon receipt by the Company of evidence
----------------
satisfactory to it of the loss, theft, destruction or mutilation of this Warrant
and of reasonably satisfactory indemnification, the Company shall execute and
deliver a new Warrant of like tenor and date. Any such new Warrant executed and
delivered as a result of such loss, theft, mutilation or destruction shall
constitute a substitute contractual obligation on the part of the Company.
5. REGISTRATION RIGHTS.
5.1 "Piggy-Back" Registration.
-------------------------
5.1.1 Grant of Right. The Holders of this Warrant shall have the
--------------
right for a period of seven years from the Commencement Date to include all or
any part of this Warrant and the shares of Common Stock underlying this Warrant
(collectively, the "Registrable Securities") as part of any registration of
securities filed by the Company (other than in connection with a transaction
contemplated by Rule 145(a) promulgated under the Act or pursuant to Form S-8 or
any equivalent form); provided, however, that if, In the written opinion of the
Company's managing underwriter or underwriters, if any, for such offering (the
"Underwriter"), the inclusion of the Registrable Securities, when added to the
securities being registered by the Company or the selling stockholder(s). will
exceed the maximum amount of the Company's securities which can be marketed (i)
at a price reasonably related to their then current market value, or (ii)
without materially and adversely affecting the entire offering, the Company
shall nevertheless register all or any portion of the Registrable Securities
required to be so registered but such Registrable Securities shall not be sold
by the Holders until 90 days after the registration statement for such offering
has become effective; and provided further that, if any securities are
registered for sale on behalf of other stockholders in such offering and such
stockholders have not agreed to defer such sale until the expiration of such 90-
day period, the number of securities to be sold by all stockholders In such
public offering during such 90-day period shall be apportioned pro rata among
all such selling stockholders, including all holders of the Registrable
Securities, according to the total amount of securities of the Company proposed
to be sold by said selling stockholders, including all holders of the
Registrable Securities.
5.1.2 Terms. The Company shall bear all fees and expenses attendant
-----
to registering the Registrable Securities, but the Holders shall pay any and all
underwriting commissions and the expenses of any legal counsel selected by the
Holders to represent them in connection with the sale of the Registrable
Securities. In the event of such a proposed registration, the Company shall
furnish the then Holders of outstanding Registrable Securities with not less
than thirty days written notice prior to the proposed date of filing of such
-4-
<PAGE>
registration statement. Such notice to the Holders shall continue to be given
for each registration statement filed by the Company until such time as all of
the Registrable Securities have been sold by the Holder. The holders of the
Registrable Securities shall exercise the "piggy-back" rights provided for
herein by giving written notice, within twenty days of the receipt of the
Company's notice of its Intention to file a registration statement, The Company
shall cause any registration statement filed pursuant to the above "piggy-back"
rights to remain effective for at least nine months from the date that the
Holders of the Registrable Securities are first given the opportunity to sell
all of such securities. Nothing contained in this Warrant shall be construed
as, requiring any Holder to exercise this Warrant or any part thereof prior to
the initial filing of any registration statement or the effectiveness thereof.
5.2 General Terms
-------------
5.2.1 Indemnification.
---------------
(a) The Company shall indemnify the Holder(s) of the Registrable
Securities to be sold pursuant to any registration statement hereunder and any
underwriter or person deemed to be an underwriter under the Act and each person.
if any, who controls such Holders or underwriters or persons deemed to be
underwriters within the meaning of Section 16 of the Act or Section 20(a) of the
Securities Exchange Act of 1934, as amended ("Exchange Act"), against all loss,
claim, damage, expense or liability (including all reasonable attorneys' fees
and other expenses reasonably incurred in investigating, preparing or defending
against any claim whatsoever) to which any of them may become subject under the
Act, the Exchange Act or otherwise, arising from such registration statement.
The Holder(s) of the Registrable Securities to be sold pursuant to such
registration statement, and their successors and assigns, shall severally, and
not jointly, indemnify the Company, against all loss, claim, damage, expense or
liability (including all reasonable attorneys' fees and other expenses
reasonably incurred in investigating, preparing or defending against any claim
whatsoever) to which they may become subject under the Act, the Exchange Act or
otherwise, arising from information furnished by or on behalf of such Holders,
in writing, for specific inclusion in such registration statement.
(b) If any action is brought against a party hereto,
("Indemnified Party") in respect of which indemnity may be sought against the
other party ("Indemnifying Party"), such Indemnified Party shall promptly notify
Indemnifying Party in writing of the institution of such action and Indemnifying
Party shall assume the defense of such action. including the employment and fees
of counsel reasonably satisfactory to the Indemnified Party. Such Indemnified
Party shall have the right to employ its or their own counsel in any such case,
but the fees and expenses of such counsel shall be at the expense of such
Indemnified Party unless (i) the employment of such counsel shall have been
authorized in writing by Indemnifying Party in connection with the defense of
such action, or (ii) Indemnifying Party shall not have
-5-
<PAGE>
employed counsel to defend such action, or (iii) such Indemnified Party shall
have been advised by counsel that there may be one or more legal defenses
available to it which may result in a conflict between the Indemnified Party and
Indemnifying Party (in which case Indemnifying Party shall not have the right to
direct the defense of such action on behalf of the Indemnified Party), in any of
which events. the reasonable fees and expenses of not more than one additional
firm of attorneys designated in writing by the Indemnified Party shall be borne
by Indemnifying Party. Notwithstanding anything to the contrary contained
herein, if Indemnified Party shall assume the defense of such action as provided
above, Indemnifying Party shall not be liable for any settlement of any such
action effected without its written consent.
(c) It the indemnification or reimbursement provided for
hereunder is finally judicially determined by a court of competent jurisdiction
to be unavailable to an Indemnified Party (other than as a consequence of a
final judicial determination of willful misconduct, bad faith or gross
negligence of such Indemnified Party), then Indemnifying Party agrees, in lieu
of indemnifying such Indemnified Party, to contribute to the amount paid or
payable by such Indemnified Party (i) in such proportion as is appropriate to
reflect the relative benefits received, or sought to be received, by
Indemnifying Party on the one hand and by such Indemnified Party on the other or
(ii) if (but only if) the allocation provided in clause (i) of this sentence is
not permitted by applicable law, in such proportion as is appropriate to reflect
not only the relative benefits referred to in such clause (i) but also the
relative fault of Indemnifying Party and of such indemnified Party; provided,
however, that in no event shall the aggregate amount contributed by a Holder
exceed the profit. if any, earned by such Holder as a result of the exercise by
him of the Warrants and the sale by him of the underlying shares of Common
Stock.
(d) The rights accorded to Indemnified Parties hereunder shall be
in addition to any rights that any Indemnified Party may have at common law, by
separate agreement or otherwise.
5.2.2 Exercise of Warrants. Nothing contained in this Warrant shall
--------------------
be construed as requiring the Holder(s) to exercise their Warrants prior to or
after the initial filing of any registration statement or the effectiveness
thereof.
5.2.3 Documents Delivered to Holders. The Company shall furnish to
------------------------------
each Holder participating in any of the foregoing offerings and to each
Underwriter of any such offering, if any, a signed counterpart addressed to such
Holder or Underwriter, of (i) an opinion of counsel to the Company, dated the
effective date of such registration statement (and, if such registration
includes an underwritten public offering, an opinion dated the date of the
closing under any underwriting agreement related thereto), and (ii) a "cold
comfort" letter dated the effective date of such registration statement (and, if
such registration includes an underwritten public offering, a letter dated the
date of the closing under the underwriting agreement) signed by
-6-
<PAGE>
the independent public accountants who have issued a report on the Company's
financial statements included in such registration statement, in each case
covering substantially the same matters with respect to such registration
statement (and the prospectus included therein) and, in the case of such
accountants' letter, with respect to events subsequent to the date of such
financial statements, as are customarily covered in opinions of issuers counsel
and in accountants' letters delivered to underwriters in underwritten public
offerings of securities. The Company shall also deliver promptly to each Holder
participating in the offering requesting the correspondence and memoranda
described below and to the managing underwriter copies of all correspondence
between the Commission and the Company, its counsel or auditors and all
memoranda relating to discussions with the Commission or its staff with respect
to the registration statement and permit each Holder and underwriter to do such
investigation, upon reasonable advance notice, with respect to information
contained in or omitted from the registration statement as it deems reasonably
necessary to comply with applicable securities laws or rules of the NASD. Such
investigation shall include access to books, records and properties and
opportunities to discuss the business of the Company with its officers and
independent auditors, all to such reasonable extent and at such reasonable times
and as often as any such Holder shall reasonably request.
6. ADJUSTMENTS.
6.1 Adjustments to Exercise Price and Number of Securities. The
------------------------------------------------------
Exercise Price and the number of shares of Common Stock underlying this Warrant
shall be subject to adjustment from time to time as hereinafter set forth:
6.1.1 Stock Dividends - Recapitalization, Reclassification, Split-
-----------------------------------------------------------
Ups. If, after the date hereof, and subject to the provisions of Section 6.2
below, the number of outstanding shares of Common Stock is increased by a stock
dividend on the Common Stock payable in shares of Common Stock or by a split-up,
recapitalization or reclassification of shares of Common Stock or other similar
event, then, on the effective date thereof, the number of shares of Common Stock
issuable on exercise of this Warrant shall be increased in proportion to such
increase in outstanding shares.
6.1.2 Aggregation of Shares. If after the date hereof, and subject
---------------------
to the provisions of Section 6.3, the number of outstanding shares of Common
Stock is decreased by a consolidation, combination or reclassification of shares
of Common Stock or other similar event, then, upon the effective date thereof,
the number of shares of Common Stock issuable on exercise of this Warrant shall
be decreased in proportion to such decrease in outstanding shares.
-7-
<PAGE>
6.1.3 Adjustments in Exercise Price. Whenever the number of shares
-----------------------------
of Common Stock purchasable upon the exercise of this Warrant is adjusted, as
provided in this Section 6.1, the Exercise Price shall be adjusted (to the
nearest cent) by multiplying such Exercise Price immediately prior to such
adjustment by a fraction (x) the numerator of which shall be the number of
shares of Common Stock purchasable upon the exercise of this Warrant immediately
prior to such adjustment, and (y) the denominator of which shall be the number
of shares of Common Stock so purchasable immediately thereafter.
6.1.4 Replacement of Securities upon Reorganization, etc. In case of
--------------------------------------------------
any reclassification or reorganization of the outstanding shares of Common Stock
other than a change covered by Section 6. 1.1 hereof or which solely affects the
par value of such shares of Common Stock, or in the case of any merger or
consolidation of the Company with or into another corporation (other than a
consolidation or merger in which the Company is the continuing corporation and
which does not result in any reclassification or reorganization of the
outstanding shares of Common Stock), or in the case of any sale or conveyance to
another corporation or entity of the property of the Company as an entirety or
substantially as an entirety In connection with which the Company is dissolved,
the Holder of this Warrant shall have the right thereafter (until the expiration
of the right of exercise of this Warrant) to receive upon the exercise hereof,
for the same aggregate Exercise Price payable hereunder immediately prior to
such event, the kind and amount of shares of stock or other securities or
property (including cash) receivable upon such reclassification, reorganization,
merger or consolidation, or upon a dissolution following any such sale or other
transfer, by a Holder of the number of shares of Common Stock of the Company
obtainable upon exercise of this Warrant immediately prior to such event: and If
any reclassification also results in a change in shares of Common Stock covered
by Sections 6.1.1 or 6.1.2, then such adjustment shall be made pursuant to
Sections 6.1.1, 6.1.2, 6.1.3 and this Section 6.1.4. The provisions of this
Section 6.1.4 shall similarly apply to successive reclassifications,
reorganizations, mergers or consolidations, sales or other transfers.
6.1.5 Changes in Form of Warrant. This form of Warrant need not be
--------------------------
changed because of any change pursuant to this Section, and Warrants issued
after such change may state the same Exercise Price and the same number of
shares of Common Stock and Warrants as are stated in the Warrants initially
issued pursuant to this Agreement. The acceptance by any Holder of the Issuance
of new Warrants reflecting a required or permissive change shall not be deemed
to waive any rights to a prior adjustment or the computation thereof.
6.2 Elimination of Fractional Interests. The Company shall not be
-----------------------------------
required to Issue certificates representing fractions of shares of Common Stock
upon the exercise of this Warrant, nor shall It be required to issue scrip or
pay cash In lieu of any fractional interests, it being the intent of the parties
that all fractional interests shall be eliminated by rounding any fraction up to
the nearest whole number of shares of Common Stock or other securities,
properties or rights.
-8-
<PAGE>
7. RESERVATION AND LISTING.
The Company shall at all times reserve and keep available out of its
authorized shares of Common Stock, solely for the purpose of Issuance upon
exercise of this Warrant, such number of shares of Common Stock or other
securities, properties or rights as shall be issuable upon the exercise thereof.
The Company covenants and agrees that. upon exercise of the Warrants and payment
of the Exercise Price therefor, all shares of Common Stock and other securities
issuable upon such exercise shall be duly and validly issued, fully paid and
non-assessable and not subject to preemptive rights of any stockholder. As long
as the Warrants shall be outstanding, the Company shall use its best efforts to
cause all shares of Common Stock issuable upon exercise of the Warrants to be
listed (subject to official notice of issuance) on all securities exchanges (or,
if applicable on Nasdaq) on which the Common Stock is then listed and/or quoted.
8. CERTAIN NOTICE REQUIREMENTS.
8.1 Holders Right to Receive Notice. Nothing herein shall be
-------------------------------
construed as conferring upon the Holders the right to vote or consent or to
receive notice as a stockholder for the election of directors or any other
matter, or as having any rights whatsoever as a stockholder of the Company. If,
however, at any time prior to the expiration of the Warrants and their exercise,
any of the events described in Section 8.2 shall occur, then, in one or more of
said events, the Company shall give written notice of such event at least
fifteen days prior to the date fixed as a record date or the date of closing the
transfer books for the determination of the stockholders entitled to such
dividend, distribution, conversion or exchange of securities or subscription
rights, or entitled to vote on such proposed dissolution, liquidation, winding
up or sale. Such notice shall specify such record date or the date of the
closing of the transfer books, as the case may be.
8.2 Events Requiring Notice. The Company shall be required to give
-----------------------
the notice described in this Section 8 upon one or more of the following events:
(i) if the Company shall take a record of the holders of its shares of Common
Stock for the purpose of entitling them to receive a dividend or distribution
payable otherwise than in cash, or a cash dividend or distribution payable
otherwise than out of retained earnings, as indicated by the accounting
treatment of such dividend or distribution on the books of the Company, or (ii)
the Company shall offer to all the holders of its Common Stock any additional
shares of capital stock of the Company or securities convertible into or
exchangeable for shares of capital stock of the Company, or any option, right or
warrant to subscribe therefor, or (iii) a merger or reorganization in which the
Company is not the surviving party, or (iv) a dissolution, liquidation or
winding up of the Company (other than in connection with a consolidation or
merger) or a sale of all or substantially all of its property, assets and
business shall be proposed.
-9-
<PAGE>
8.3 Notice of Change in Exercise Price. The Company shall, promptly
----------------------------------
after an event requiring a change In the Exercise Price pursuant to Section 6
hereof, send notice to the Holders of such event and change ("Price Notice").
The Price Notice shall describe the event causing the change and the method of
calculating same and shall be certified as being true and accurate by the
Company's President and Chief Financial Officer.
8.4 Transmittal of Notices. All notices, requests, consents and
----------------------
other communications under this Warrant shall be In writing and shall be deemed
to have been duly made on the date of delivery if delivered personally or sent
by overnight courier, with acknowledgment of receipt by the party to which
notice is given, or on the fifth day after mailing if mailed to the party to
whom notice is to be given. by registered or certified mail, return receipt
requested, postage prepaid and properly addressed as follows: (i) if to the
registered Holder of this Warrant, to the address of such Holder as shown on the
books of the Company, or (ii) if to the Company, to its principal executive
office.
9. MISCELLANEOUS.
9.1 Headings. The headings contained herein are for the sole purpose
--------
of convenience of reference, and shall not in any way limit or affect the
meaning or Interpretation of any of the terms or provisions of this Warrant.
9.2 Entire Agreement. This Warrant (together with the other
----------------
agreements and documents being delivered pursuant to or in connection with this
Warrant) constitutes the entire agreement of the parties hereto with respect to
the subject matter hereof, and supersedes all prior agreements and
understandings of the parties, oral and written, with respect to the subject
matter hereof.
9.3 Binding Effect. This Warrant shall inure solely to the benefit
--------------
of and shall be binding upon, the Holder and the Company and their respective
successors, legal representatives and assigns, and no other person shall have or
be construed to have any legal or equitable right, remedy or claim under or in
respect of or by virtue of this Warrant or any provisions herein contained.
9.4 Governing Law; Submission to Jurisdiction. This Warrant shall be
-----------------------------------------
governed by and construed and enforced in accordance with the law of the State
of New York, without giving effect to conflict of laws. The Company hereby
agrees that any action, proceeding or claim against it a (arising out of, or
relating in any way to this Warrant shall be brought and enforced in the courts
of the State of New York or of the United States of America for the Southern
District of New York, and irrevocably submits to such jurisdiction, which
jurisdiction shall be exclusive. The Company hereby waives any objection to
such exclusive jurisdiction and that such courts
-10-
<PAGE>
represent an inconvenient forum. Any process or summons to be served upon the
Company may be served by transmitting a copy thereof by registered or certified
mail, return receipt requested, postage prepaid, addressed to it at the address
set forth in Section 8 hereof. Such mailing shall be deemed personal service and
shall be legal and binding upon the Company in any action, proceeding or claim.
The Company agrees that the prevailing party(ies) in any such action shall be
entitled to recover from the other party(ies) all of its reasonable attorneys'
fees and expenses relating to such action or proceeding and/or incurred in
connection with the preparation therefor.
9.6 Waiver, Etc. The failure of the Company or the Holder to at any
------------
time enforce any of the provisions of this Warrant shall not be deemed or
construed to be a waiver of any such provision, nor to in any way affect the
validity of this Warrant or any provision hereof or the right of the Company or
any Holder to thereafter enforce each and every provision of this Warrant. No
waiver of any breach, non-compliance or non-fulfillment of any of the provisions
of this Warrant shall be effective unless set forth in a written instrument
executed by the party or parties against whom or which enforcement of such
waiver is sought; and no waiver of any such breach, non-compliance or non-
fulfillment shall be construed or deemed to be a waiver of any other or
subsequent breach, non-compliance or non-fulfillment.
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed by its
duly authorized officer as of the 19th day of August, 1995.
GOTHIC ENERGY CORPORATION
By:
---------------------------------------
Michael Paulk, President
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<PAGE>
FORM TO BE USED TO EXERCISE WARRANT
To: Gothic Energy Corporation
5727 South Lewis Avenue - Suite 700
Tulsa, Oklahoma 74105
, 19
------------ ----
The undersigned hereby elects irrevocably to exercise the within
Warrant and to purchase shares of Common Stock of Gothic Energy
--------
Corporation and hereby makes payment of $ (at the rate of
---------------
$ per share of Common Stock) in payment of the Exercise Price pursuant
----------
thereto. Please issue the Common Stock as to which this Warrant is exercised in
accordance with the instructions given below.
- OR -
The undersigned hereby elects irrevocably to convert its rights to
purchase shares of Common Stock purchasable under the within Warrant
----------
into shares of Common Stock of Gothic Energy Corporation (based on a
----------
"Market Price" of $ per share of Common Stock). Please issue the
---------------
Common Stock in accordance with the instructions given below.
/(1)/
- ------------------------------ ----------------------------------
(Signature Guaranteed) (Signature )
INSTRUCTIONS FOR REGISTRATION OF SECURITIES
Name:
--------------------------------------------------------------------------
(Print in Block Letters or Type)
Address:
------------------------------------------------------------------------
City, State, Zip Code:
----------------------------------------------------------
/(1)/ The Signature to this form must correspond with the name as written upon
the face of the within Warrant in every particular, without alteration or
enlargement or any change whatsoever, and must be guaranteed by a bank,
other than a savings bank, or by a trust company or by a firm having
membership on a registered national securities exchange.
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<PAGE>
FORM TO BE USED TO ASSIGN WARRANT
ASSIGNMENT
(To be executed by the Registered Holder to effect a
transfer of the within Warrant)
For value received, does hereby sell, assign and
-------------------------
transfer unto the right to purchase shares
------------------------- ----------
of Common Stock of Gothic Energy Corporation ("Company") evidenced by the within
Warrant and does hereby authorize the Company to transfer such right on the
books of the Company.
Date:
/(1)/
----------------------------------------
(Signature of Owner)
----------------------------------------
Type or Print Name of Owner
----------------------------------------
Street Address of Owner
----------------------------------------
City, State, Zip Code of Owner
/(1)/ The Signature to this form must correspond with the name as written upon
the face of the within Warrant in every particular, without alteration or
enlargement or any change whatsoever.
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<PAGE>
EXHIBIT 15
GOTHIC ENERGY CORPORATION AND SUBSIDIARIES
LETTER REGARDING UNAUDITED INTERIM FINANCIAL INFORMATION
Securities and Exchange Commission
450 Fifth Street, Northwest
Washington, DC 20549
Re: GOTHIC ENERGY CORPORATION AND SUBSIDIARIES
REGISTRATION ON FORM S-3/A
Gentlemen:
We are aware that our report dated May 13, 1997 on our review of the
interim financial information of Gothic Energy Corporation for the period ended
March 31,1997 is incorporated by reference in the Company's Registration
Statement on Form S-3/A (File No. 333-23239). Pursuant to Rule 436(c) under the
Securities Act of 1933, this report should not be considered a part of the
Registration Statement prepared or certified by us within the meaning of
Sections 7 and 11 of that Act.
COOPERS & LYBRAND, L.L.P.
Tulsa, Oklahoma
June 6, 1997
<PAGE>
EXHIBIT 23
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the Prospectus
constituting part of this Registration Statement on Form S-3/A (File No. 333-
23239) of our report dated February 24, 1997, on our audits of the consolidated
financial statements of Gothic Energy Corporation and Subsidiaries. We also
consent to the reference to our firm under the caption "Experts."
We also consent to the incorporation by reference in the Prospectus
constituting part of this Registration Statement on Form S-3/A of Gothic Energy
Corporation (File No. 333-23239) of our report dated April 30, 1997 on our audit
of the historical schedule of gross revenues and direct operating expenses of
the Norse and Horizon Properties for the year ended December 31, 1996. We also
consent to the reference to our firm under the caption "Experts."
COOPERS & LYBRAND, L.L.P.
Tulsa, Oklahoma
June 6, 1997
