<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K/A
AMENDMENT TO CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Date of Report - February 18, 1997
GOTHIC ENERGY CORPORATION
Commission file number 0-19753
An Oklahoma Corporation IRS Employer No. 22-2663839
5727 S. Lewis Ave.
Tulsa, Oklahoma 74105-7148
Telephone Number (918) 749-5666
AMENDMENT NO. 2
The undersigned hereby amends the following items, financial statements,
exhibits or other portions of its Current Report on Form 8-K dated February 18,
1997, as set forth in the pages attached hereto:
Item 7. Financial Statements and Exhibits
<PAGE>
FORM 8-K/A
GOTHIC ENERGY CORPORATION
TABLE OF CONTENTS
Item 7. Financial Statements and Exhibits
---------------------------------
(a) Financial Statements of Business Acquired
Set forth below are the financial statements appearing in this report:
Page in
Norse and Horizon Properties This Report
----------------------------------------------------------------------
Report of Independent Accountants F-1
Historical Schedule of Gross Revenues
and Direct Operating Expenses of the
Norse and Horizon Properties for the Years Ended
December 31, 1996 and 1995 F-2
Notes to the Historical Schedule of Gross
Revenues and Direct Operating
Expenses of the Norse and Horizon Properties F-3
Huffman Properties
------------------
Unaudited Historical Schedule of Gross Revenues
and Direct Operating Expenses of the Huffman Properties
for the years ended December 31, 1996 and 1995 F-5
Notes to the Unaudited Historical Schedule of Gross Revenues
and Direct Operating Expenses of the Huffman Properties F-6
(b) Pro Forma Financial Information - Gothic Energy Corporation
Set forth below is the pro forma financial
information appearing in this report:
Unaudited Pro Forma Consolidated Condensed
Balance Sheet as of December 31, 1996 P-1
Unaudited Pro Forma Consolidated Condensed
Statement of Operations for the Year Ended
December 31, 1996 P-2
Notes to Unaudited Pro Forma Consolidated
Condensed Financial Statements P-3
(c) Exhibits - Consent of Independent Accountants
<PAGE>
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements of Business Acquired.
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Board of Directors
Gothic Energy Corporation
We have audited the accompanying historical schedule of gross revenues and
direct operating expenses of the Norse and Horizon Properties, as defined in
Note 1, (the "Schedule") for the year ended December 31, 1996. The Schedule is
the responsibility of the Company's management. Our responsibility is to
express an opinion on the Schedule based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the Schedule is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the Schedule. An audit also includes assessing
the accounting principles used and significant estimates made by management, as
well as evaluating the overall presentation of the Schedule. We believe that
our audit provides a reasonable basis for our opinion.
The accompanying historical schedule of gross revenues and direct operating
expenses of the Norse and Horizon Properties was prepared for the purpose of
complying with the rules and regulations of the Securities and Exchange
Commission (for inclusion in the Form 8-K of Gothic Energy Corporation dated
February 18, 1997) as described in Note 2 and is not intended to be a complete
presentation of the Norse and Horizon Properties' revenues and expenses.
In our opinion, the Schedule referred to above presents fairly, in all
material respects, the gross revenues and direct operating expenses described in
Note 2 of the Norse and Horizon Properties for the year ended December 31, 1996,
in conformity with generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
Tulsa, Oklahoma
April 30, 1997
F-1
<PAGE>
GOTHIC ENERGY CORPORATION
HISTORICAL SCHEDULE OF GROSS REVENUES
AND DIRECT OPERATING EXPENSES OF THE
NORSE AND HORIZON PROPERTIES
<TABLE>
<CAPTION>
FOR THE YEAR ENDED FOR THE YEAR ENDED
DECEMBER 31, 1996 DECEMBER 31, 1995
------------------ ------------------
(UNAUDITED)
<S> <C> <C> <C> <C>
NORSE HORIZON NORSE HORIZON
----- ------- ----- -------
Gross revenues $3,392,000 $2,915,000 $2,094,000 $2,011,000
Direct lease operating
expenses 128,000 549,000 102,000 736,000
Direct gas system expenses 2,166,000 - 1,368,000 -
---------- ---------- ---------- ----------
Excess of gross revenues over
direct expenses $1,098,000 $2,366,000 $ 624,000 $1,275,000
========== ========== ========== ==========
</TABLE>
The accompanying notes are
an integral part of this schedule.
F-2
<PAGE>
GOTHIC ENERGY CORPORATION
NOTES TO THE HISTORICAL SCHEDULE OF GROSS REVENUES
AND DIRECT OPERATING EXPENSES OF THE
NORSE AND HORIZON PROPERTIES
1. THE PROPERTIES
On December 11, 1996, Gothic Energy Corporation ("Gothic"), 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 a 40.09% interest in
the related 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 Gothic's Common Stock at a per share
exercise price of $2.50. The estimated fair value of such warrants at the
date of acquisition was approximately $254,000. Gothic paid a deposit of
$1,075,000 toward the purchase price in December 1996.
Gothic 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 these acquisitions was January 1, 1997, with
the formal closing of the transactions occurring on February 18, 1997.
2. BASIS OF PRESENTATION
The schedule presents the historical gross revenues and direct
operating expenses related to the properties acquired. Expenses such as
depreciation, depletion and amortization, general and administrative
expenses and income taxes have not been included in the schedule because
such costs have historically not been directly attributed to nor allocated
to the operations of these properties.
3. SUPPLEMENTAL OIL AND GAS INFORMATION (UNAUDITED)
ESTIMATED QUANTITIES - Oil and natural gas reserves cannot be measured
exactly. Estimates of oil and natural reserves require extensive judgments
of reservoir engineering data and are generally less precise than other
estimates made in connection with financial disclosures.
Proved reserves are those quantities which, upon analysis of
geological and engineering data, appear with reasonable certainty to be
recoverable in the future from known oil and natural gas reservoirs under
existing economic and operating conditions. Proved developed reserves are
those reserves which can be expected to be recovered through existing wells
with existing equipment and operating methods. Proved undeveloped reserves
are those reserves which are expected to be recovered from new wells on
undrilled acreage or from existing wells where a relatively major
expenditure is required.
F-3
<PAGE>
GOTHIC ENERGY CORPORATION
NOTES TO THE HISTORICAL SCHEDULE OF GROSS REVENUES
AND DIRECT OPERATING EXPENSES OF THE
NORSE AND HORIZON PROPERTIES
3. SUPPLEMENTAL OIL AND GAS INFORMATION (UNAUDITED), CONTINUED
Estimated quantities of proved oil and natural gas reserves acquired
from Norse and Horizon at January 1, 1997 (the date at which the
most recent reserve report was available) were:
<TABLE>
<CAPTION>
Norse Horizon
---------- ----------
<S> <C> <C>
PROVED RESERVES: Oil (Bbls) 82,197 29,999
Gas (Mcf) 12,281,263 12,467,010
PROVED DEVELOPED
RESERVES: Oil (Bbls) 44,609 29,999
Gas (Mcf) 4,763,488 12,467,010
</TABLE>
STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS OF PROVED OIL AND
GAS RESERVES-("SMOG")-Estimates of oil and natural gas reserves require
extensive judgments of reservoir engineering data as explained above.
Assigning monetary values to such estimates does not reduce the
subjectivity and changing nature of such reserve estimates. Indeed, the
uncertainties inherent in the disclosure are compounded by applying
additional estimates of the rates and timing of production and the costs
that will be incurred in developing and producing the reserves. The
information set forth herein is therefore subjective and, since judgments
are involved, may not be comparable to estimates submitted by other oil and
natural gas producers. In addition, since prices and costs do not remain
static and no price or cost escalations or de-escalations have been
considered, the results are not necessarily indicative of the estimated
fair market value of estimated proved reserves nor of estimated future cash
flows. Accordingly, these estimates are expected to change as future
information becomes available.
Future net cash inflows are based on the future production of proved
reserves of crude oil and natural gas as estimated by petroleum engineers
by applying current prices of oil and gas to estimated future production of
proved reserves. Prices used in determining future cash inflows for oil and
natural gas as of December 31, 1996, were $24.20 per barrel and $2.65 per
mcf, respectively. Subsequent to December 31, 1996, the "spot market" price
of natural gas decreased to below $2.00 per mcf which would have a
significant impact on the SMOG values.
Future net cash flows are then calculated by reducing such estimated cash
inflows by the estimated future expenditures (based on current costs) to be
incurred in developing and producing the proved reserves and by the
estimated future income taxes. Estimated future income taxes are computed
by applying the appropriate year-end tax rate to the future pretax net cash
flows relating to the estimated proved oil and gas reserves. The estimated
future income taxes give effect to permanent differences and tax credits
and allowances.
The SMOG is based on criteria established by Financial Accounting Standards
Statement No. 69, "Accounting for Oil and Gas Producing Activities" and is
not intended to be a "best estimate" of the fair value of the acquired oil
and gas properties. For this to be the case, forecasts of future economic
conditions, varying price and cost estimates, varying discount rates and
consideration of other than proved reserves (i.e., probable reserves),
would have to be incorporated into the valuations.
Included in the estimated standardized measure of future cash flows are
certain capital projects. Gothic estimates the capital required to develop
undeveloped oil and gas reserves relating to the acquired Norse and Horizon
properties over the next three years to be approximately $4.9 million,
including $3.2 million during the year ending December 31, 1997. Bank One
established a special drilling advance fund of $2 million which Gothic can
draw upon during 1997 to fund its drilling costs. Gothic does not have any
present arrangements to raise additional funds and there can be no
assurance that it will be able to do so on satisfactory terms. If such
capital is not employed, the estimated future cash flows will be impacted.
The SMOG for the acquired properties is as follows (in thousands):
<TABLE>
<CAPTION>
Norse Horizon
---------- ----------
<S> <C> <C>
Future cash flows $ 35,230 46,232
Future production costs and development
costs (8,340) (7,356)
Future income tax expense (6,133) (10,973)
---------- ----------
Future net cash flows 20,757 27,903
10% annual discount for estimated timing
of cash flows (9,444) (14,255)
---------- ----------
Standardizing measure of discounted
future net cash flows relating to
proved oil and natural gas reserves $ 11,313 $ 13,648
========== ==========
</TABLE>
F-4
<PAGE>
GOTHIC ENERGY CORPORATION
UNAUDITED HISTORICAL SCHEDULE OF GROSS REVENUES
AND DIRECT OPERATING EXPENSES OF THE
HUFFMAN PROPERTIES
<TABLE>
<CAPTION>
FOR THE YEAR ENDED FOR THE YEAR ENDED
DECEMBER 31, 1996 DECEMBER 31, 1995
------------------ ------------------
<S> <C> <C>
Gross revenues $ 1,156,000 $ 711,000
Direct lease operating
expenses 134,000 61,000
Direct gas system expenses 593,000 374,000
------------ ----------
Excess of gross revenues
over direct expenses $ 429,000 $ 276,000
============ ==========
</TABLE>
The accompanying notes are an integral part of this schedule.
F-5
<PAGE>
GOTHIC ENERGY CORPORATION
NOTES TO THE UNAUDITED HISTORICAL SCHEDULE OF GROSS REVENUES
AND DIRECT OPERATING EXPENSES OF THE
HUFFMAN PROPERTIES
1. THE PROPERTIES
On December 13, 1996, Gothic 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.
The effective date of this acquisition was January 1, 1997 with the
formal closing of the transaction occurring on February 18, 1997.
2. BASIS OF PRESENTATION
The schedule presents the historical gross revenues and direct
operating expenses related to the properties acquired. Expenses such as
depreciation, depletion and amortization, general and administration
expenses and income taxes have not been included in the schedule because
such costs have historically not been directly attributed to nor allocated
to the operations of these properties.
3. SUPPLEMENTAL OIL AND GAS INFORMATION
ESTIMATED PROVED RESERVES - Proved reserves are estimated quantities of
crude oil and natural gas which geological and engineering data demonstrate
with reasonable certainty to be recoverable in future years from known
reservoirs under existing economic and operating conditions. Proved
developed reserves are those which are expected to be recovered through
existing wells with existing equipment and operating methods.
F-6
<PAGE>
GOTHIC ENERGY CORPORATION
NOTES TO THE UNAUDITED HISTORICAL SCHEDULE OF GROSS REVENUES
AND DIRECT OPERATING EXPENSES OF THE
HUFFMAN PROPERTIES
3. SUPPLEMENTAL OIL GAS INFORMATION, CONTINUED
Estimated quantities of proved oil and natural gas reserves acquired
from Huffman at January 1, 1997 (the date at which the most recent reserve
report was available) were:
<TABLE>
<CAPTION>
HUFFMAN
-------
<S> <C>
Proved Reserves: Oil (Bbls) 29,506
Gas (Mcf) 4,408,487
Proved Developed Reserves: Oil (Bbls) 16,013
Gas (Mcf) 1,709,903
</TABLE>
STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS OF PROVED OIL AND GAS
RESERVES - The standardized measure of discounted future net cash flows
("SMOG") of the Huffman Properties was calculated using December 31, 1996 prices
and costs, and year-end statutory tax rates, adjusted for permanent differences,
that relate to existing proved oil and natural gas reserves. The SMOG for the
acquired properties is as follows (in thousands):
<TABLE>
<CAPTION>
HUFFMAN
-------
<S> <C>
Future cash flows $ 12,646
Future production costs and development costs (2,994)
Future income tax expense (2,167)
--------
Future net cash flows 7,485
10% annual discount for estimated timing of
cash flows (3,824)
--------
Standardizing measure of discounted future
net cash flows relating to proved oil and
natural gas reserves $ 3,661
========
</TABLE>
Included in the estimated standardized measure of future cash flows are
certain capital projects. Gothic estimates the capital required to develop
undeveloped oil and gas reserves relating to the acquired Huffman Properties
over the next three years to be approximately $1.7 million, including $1.2
million during the year ending Dec. 31, 1997.
The process of estimating oil and gas reserves is complex, requiring
significant subjective decisions in the evaluation of available geological,
engineering, and economic data for each reservoir. The data for a given
reservoir may change substantially over time as a result of, among other things,
additional development activity, production history, and viability of production
under varying economic conditions; consequently, material revisions to existing
reserve estimates may occur in the near future. Although every reasonable effort
has been made to ensure that the reserve estimates reported herein represent the
most accurate assessment possible, the significance of the subjective decisions
required and variances in available data for various reservoirs make these
estimates generally less precise than other estimates presented in connection
with financial statement disclosures.
F-7
<PAGE>
(B) PRO FORMA FINANCIAL INFORMATION - GOTHIC ENERGY CORPORATION
GOTHIC ENERGY CORPORATION
UNAUDITED PRO FORMA CONSOLIDATED
CONDENSED BALANCE SHEET
AS OF DECEMBER 31, 1996
<TABLE>
<CAPTION>
HISTORICAL PROFORMA
---------- -------------------------------
GOTHIC ADJUSTMENTS COMBINED
--------------------------------------------------
<S> <C> <C> <C>
ASSETS
- ------
Current assets:
Cash and cash equivalents $ 206,000 $ (109,000)/(b)/ $ 97,000
Oil and gas receivable 2,802,000 - 2,802,000
Receivable from officers and employees 52,000 - 52,000
Assets held for sale 210,000 - 210,000
Other 79,000 - 79,000
----------- ----------- -----------
Total current assets 3,349,000 (109,000) 3,240,000
Property and equipment:
Oil and gas properties on full cost method 39,858,000 18,546,000 /(a)/ 58,404,000
Gas gathering and processing system - 5,045,000 /(a)/ 5,045,000
Equipment, furniture and fixtures 328,000 - 328,000
Accumulated depreciation, depletion
and amortization (3,636,000) - (3,636,000)
----------- ----------- -----------
Property and equipment, net 36,550,000 23,591,000 60,141,000
Other assets, net 1,567,000 2,079,000/(c)/ 3,646,000
----------- ----------- -----------
Total assets $41,466,000 $25,561,000 $67,027,000
=========== =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Current liabilities:
Accounts payable trade 1,337,000 - 1,337,000
Revenues payable 1,978,000 - 1,978,000
Accrued liabilities 512,000 - 512,000
Current portion long-term debt 5,928,000 14,320,000/(b)/ 20,248,000
----------- ----------- -----------
Total current liabilities 9,755,000 14,320,000 24,075,000
Long-term debt 15,854,000 10,104,000/(b)/ 25,958,000
Gas imbalance liability 1,025,000 - 1,025,000
Stockholder's equity:
Preferred stock, par value $.05,
authorized 500,000 shares; issued and
outstanding 5,540 shares 1,000 - 1,000
Common stock, $.01 par value,
authorized 100,000,000 shares; issued and
outstanding 12,381,857 shares (12,731,857
pro forma shares) 124,000 4,000/(d)/ 128,000
Additional paid in capital 33,322,000 1,133,000/(d)/ 34,455,000
Accumulated deficit (18,615,000) - (18,615,000)
----------- ----------- -----------
Total stockholder's equity 14,832,000 1,137,000 15,969,000
----------- ----------- -----------
Total liabilities and stockholders' equity $41,466,000 $25,561,000 $67,027,000
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of the unaudited
pro forma consolidated condensed financial statements.
P-1
<PAGE>
GOTHIC ENERGY CORPORATION
UNAUDITED PRO FORMA CONSOLIDATED
CONDENSED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
HISTORICAL PROFORMA
----------------------------------------------------------- ---------------------------
GOTHIC NORSE/(f)/ HORIZON/(f)/ HUFFMAN/(f)/ ADJUSTMENTS COMBINED
------ ---------- ------------ ------------ ----------- --------
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Oil and gas sales $10,385,000 $3,392,000 $2,915,000 $1,156,000 - $17,848,000
Well operations 1,062,000 - - - 167,000/(e)/ 1,229,000
Interest and other income 68,000 - - - - 68,000
----------- ---------- ---------- ---------- ----------- -----------
Total revenues 11,515,000 3,392,000 2,915,000 1,156,000 167,000 19,145,000
Costs and expenses:
Lease operating expenses 4,807,000 128,000 549,000 134,000 - 5,618,000
Gas system expenses - 2,166,000 - 593,000 - 2,759,000
Depletion, depreciation
and amortization 2,856,000 - - - 1,695,000/(g)/ 4,551,000
General and
administrative expense 1,782,000 - - - - 1,782,000
Provision for impairment of
oil and gas properties 5,050,000 - - - - 5,050,000
Interest expense and
debt issuance costs 1,528,000 - - - 4,093,000/(h)/ 5,621,000
----------- ---------- ---------- ---------- ----------- -----------
Income (loss) before income taxes
and extraordinary item (4,508,000) 1,098,000 2,366,000 429,000 (5,621,000) (6,236,000)
Income tax benefit 2,993,000 - - - - 2,993,000
----------- ---------- ---------- ---------- ----------- -----------
Income (loss) before
extraordinary item $(1,515,000) 1,098,000 2,366,000 429,000 (5,621,000) (3,243,000)
Preferred dividend 381,000 - - - - 381,000
Preferred dividend - amortization
of discount 792,000 - - - - 792,000
----------- ---------- ---------- ---------- ----------- -----------
Income (loss) before
extraordinary item available
for common shares $(2,688,000) $1,098,000 $2,366,000 $ 429,000 $(5,621,000) $(4,416,000)
=========== ========== ========== ========== =========== ===========
Income (loss) before
extraordinary item per common
share $ $(0.23) - $ (0.37)
=========== ===========
Weighted average shares
outstanding (both primary and
fully diluted) 11,663,117 350,000/(i)/ 12,013,117
=========== ========= ===========
</TABLE>
The accompanying notes are an integral part of the unaudited
pro forma consolidated condensed financial statements.
P-2
<PAGE>
GOTHIC ENERGY CORPORATION
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED
CONDENSED FINANCIAL STATEMENTS
1. THE PROPERTIES
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 a 40.09% interest in the related 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. The estimated fair value of such warrants at the date of acquisition
was approximately $254,000. The Company paid a deposit of $1,075,000 toward
the purchase price in December 1996.
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.
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.
Financing for the acquisitions was provided primarily by bank
borrowings. 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 current maximum
aggregate available to be borrowed under the Credit Facility is $44,000,000
and is comprised of a $32,000,000 borrowing availability (the "borrowing
base") based on the Company's oil and gas reserve reports, a $10,000,000
special advance facility (the "Special Advance Facility") and a $2,000,000
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. An aggregate of $1,291,295 of the previously paid
deposits against the purchase price for the Norse and Huffman acquisitions
had been borrowed from the bank in December 1996 against the Company's
borrowing availability at the time.
P-3
<PAGE>
GOTHIC ENERGY CORPORATION
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED
CONDENSED FINANCIAL STATEMENTS
The remaining funds necessary to complete the acquisitions were
provided by loans to the Company from two investors. On February 18, 1997,
such persons 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, Gothic has made an agreement with the lender to extend the
maturity date to July 31, 1997 for additional consideration of 100,000
shares of Gothic's common stock. The remaining $2,000,000 bearing interest
at 12% per annum and maturing on October 31, 1997. In the event the
principal and accrued interest is not paid when due, such amount is
automatically converted into a number of shares of the Company's Common
Stock determined by dividing such amount by a sum equal to 75% of the
closing bid price for the Company's Common Stock on the five (5) days prior
to the maturity date, with respect to the $2,500,000 obligation, and on the
maturity date with respect to the $2,000,000 obligation. As additional
consideration for making the loan, the investors also purchased at a price
of $.01 per share a total of 250,000 shares of the Company's common stock.
The fair value of the Company's common stock was $2.63 per share on the
date such shares were issued. As consideration for extending the maturity
date of the $2,500,000 loan, Gothic agreed to issue an additional 100,000
shares of common stock for $.01 per share when the fair value of the stock
was $2.25 per share. Also, Gothic paid a $250,000 fee for the $2,500,000
loan.
2. BASIS OF PRESENTATION
The accompanying unaudited Pro Forma Consolidated Condensed Balance
Sheet and Statement of Operations are presented to reflect the consummation
of the Norse, Horizon and Huffman Property acquisitions in January 1997 as
if these transactions had occurred as of December 31, 1996 for purposes of
the balance sheet and at January 1, 1996, for purposes of the statement of
operations, and may not be indicative of the results that would have
occurred if the acquisitions had been effective on the dates indicated or
of the results that may be obtained in the future. As a result of the Norse
and Huffman acquisitions, Gothic will own an aggregate 51.06% interest in
the Sycamore System. The gross margins realized by the Sycamore System
during 1996 and 1995 were 21% and 15%, respectively. Changes in the
gross margin are directly correlated to the market price of natural gas and
gas liquids and thus outside the control of Gothic. Gothic does not
anticipate significant future capital outlays related to the Sycamore
System. Of the combined $14,954,000 purchase price of the Norse and Huffman
acquisitions, $5,045,000 was allocated to the Sycamore System. The purchase
price was allocated to the Sycamore System and to the oil and gas
properties based on their estimated fair value. Due to the fact that the
minority interest owner is the Managing General Partner of the Sycamore
System and as such has full control of operations, Gothic will account for
its interest in the Sycamore System under the proportionate consolidation
method, recording its proportionate share of assets, liabilities, revenues
and expenses. The accompanying unaudited Pro Forma Consolidated Condensed
Balance Sheet and Statement of Operations should be read in conjunction
with the financial statements and notes to consolidated financial
statements of the Registrant for the year ended December 31, 1996, and the
Historical Schedule of Gross Revenues and Direct Operating Expenses of the
Norse, Horizon and Huffman Properties for the years ended December 31, 1996
and 1995.
3. PRO FORMA ADJUSTMENTS
The accompanying unaudited Pro Forma Consolidated Condensed Balance
Sheet and Statement of Operations include the following adjustments:
(a) Adjustment to reflect the Norse acquisition for $9,929,000, net of the
down payment, the Horizon acquisition for $10,000,000, and the Huffman
acquisition for $3,662,000, net of the down payment, as discussed in
Note 1.
(b) Adjustment to debt to reflect the Company's restated Credit Facility
with Bank One and the Bridge Financing used to complete the Norse,
Horizon and Huffman acquisitions. Net cash of $109,000 was provided by
working capital.
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GOTHIC ENERGY CORPORATION
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED
CONDENSED FINANCIAL STATEMENTS
3. PRO FORMA ADJUSTMENTS (CONTINUED)
(c) Adjustment to deferred loan costs to reflect $950,000 in fees
associated with the restating of the Bank One Credit Facility,
$655,000 as the estimated fair value of the 250,000 shares of common
stock issued as part of the Bridge Financing, the $250,000 fee paid in
cash related to the Bridge Financing and $224,000 as the estimated
fair value of the 100,000 shares of common stock issued to extend the
$2.5 million note.
(d) Adjustment to reflect the $655,000 as the estimated fair value of the
250,000 shares of Common Stock issued as part of the Bridge Financing,
the $254,000 as the estimated fair value of the warrants to purchase
200,000 shares of Common Stock issued as part of the Norse
Acquisition, and $224,000 as the estimated fair value of the 100,000
shares of common stock issued to extend the $2.5 million note.
(e) Adjustment to well operations revenue to reflect additional revenues
as a result of operating approximately 30 wells acquired from Horizon.
(f) Oil and natural gas revenues and operating costs represent historical
revenues and direct operating expenses related to the properties
acquired from Norse, Horizon and Huffman.
(g) Depreciation, depletion and amortization ("DD&A") was calculated using
a DD&A rate based on production for 1996, and estimated acquired
reserves at the beginning of the year, under the full cost method of
accounting for oil and gas properties and the straight line method for
the related Sycamore System.
(h) Adjustment to interest expense to reflect debt incurred to purchase
the properties and amortization of discounts and debt issuance costs.
(i) To adjust for 250,000 shares issued as additional debt costs on debt
incurred to purchase properties and 100,000 shares issued to extend
the maturity date of the $2,500,000 loan.
(j) The proforma financial information does not include $1,500,000 of
imputed discount (based on the market price of Gothic's common stock
at the date of issuance of the convertible debt) nor the 2,281,369
shares (based on the market price at the date of issuance of the
convertible date) which may be issued upon the automatic conversion of
the $4,500,000 of convertible debt if not paid at final maturity.
Gothic intends to repay this debt prior to conversion, but currently
does not have a credit facility in place to fund these payments.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
GOTHIC ENERGY CORPORATION
APRIL 30, 1997 BY: /S/ MICHAEL PAULK
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MICHAEL PAULK
PRESIDENT AND CHIEF EXECUTIVE OFFICER
S-1
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EXHIBIT 23
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration statement on
Form S-3 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, which report is included in this Form 8-K/A.
COOPERS & LYBRAND L.L.P.
Tulsa, Oklahoma
June 6, 1997
