<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (date of earliest event reported): MARCH 31, 1998
Gothic Energy Corporation
(Exact name of Registrant as specified in its Charter)
OKLAHOMA 0-19753 22-2663839
- -------------------------------------------------------------------------------
(State of incorporation (Commission File Number) (IRS Employer ID No.)
or organization)
5727 SOUTH LEWIS AVENUE - SUITE 700 - TULSA, OKLAHOMA 74105
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(Address of principal executive offices)
(918) 749-5666
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(Registrant's telephone number, including area code)
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(Former name or former address, if changed since last report)
<PAGE>
ITEM 5. OTHER EVENTS
On March 31, 1998, Gothic Energy Corporation ("Gothic") entered into
agreements with Chesapeake Gothic Corp and Chesapeake Acquisition Corporation,
wholly owned subsidiaries of Chesapeake Energy Corporation ("Chesapeake"), with
an expected closing date of April 27, 1998, pursuant to which Gothic will (i)
execute a participation agreement granting a 50% interest in substantially all
of Gothic's undeveloped acreage, (ii) sell for $20.0 million, subject to closing
adjustments, a 50% interest in Gothic's natural gas and oil properties in the
Arkoma basin, and (iii) sell 50,000 shares of Series B Preferred Stock, having a
liquidation value of $50.0 million, and ten-year warrants to purchase, at an
exercise price of $0.01 per share, 2,439,246 shares of Gothic's Common Stock.
The transactions with Chesapeake are part of a series of transactions that
are intended to recapitalize Gothic through (i) the creation of Gothic
Production Corporation ("GPC"), a wholly owned subsisiary of Gothic, and the
transfer of all of Gothic's natural gas and oil assets to GPC, (ii) the issuance
by Gothic of the shares of Series B Preferred Stock, (iii) the sale of the
Arkoma basin properties, (iv) the execution of the participation agreement, (v)
the issuance by GPC of $235.0 million principal amount of Senior Secured Notes,
(vi) the issuance by Gothic of Senior Secured Discount Notes intended to result
in net proceeds of approximately $60.0 million, and (vii) the repayment and/or
redemption of substantially all of Gothic's outstanding debt and preferred
securities (together, the "Recapitalization"). All of such transactions will be
consummated simultaneously and each transaction will be conditioned on the
consummation of all the other transactions. The Recapitalization transactions
are expected to result in proceeds to Gothic of approximately $365.0 million.
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<PAGE>
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS:
(c) Exhibits.
EXHIBIT NUMBER DESCRIPTION
10.1 Press Release dated March 31, 1998
10.2 Securities Purchase Agreement dated as
of March 31, 1998 by and among Gothic
Energy Corporation, Chesapeake Gothic
Corp. and Chesapeake Acquisition
Corporation
10.3 Sale and Participation Agreement dated
March 31, 1998 between Chesapeake
Gothic Corporation, Gothic Energy of
Texas, Inc. and Gothic Production
Corporation
10.4 Oil and Gas Asset Purchase Agreement
dated March 31, 1998 among Chesapeake
Gothic Corp., Chesapeake Acquisition
Corporation and Gothic Energy
Corporation
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<PAGE>
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
Dated: April 14, 1998 By: /s/ Michael K. Paulk
--------------------------------------
Michael K. Paulk, President
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<PAGE>
EXHIBIT 10.1
March 31, 1998
NEWS FOR IMMEDIATE RELEASE
Gothic Energy Corporation Announces Recapitalization Plan and Hiring of New
Senior Officers
Tulsa, Oklahoma - Gothic Energy Corporation announced today a plan of
recapitalization for its existing debt and preferred securities. The plan
includes (i) the reorganization of Gothic through the creation of a wholly-owned
subsidiary, Gothic Production Company ("Gothic Production"), to hold Gothic's
oil and gas assets, (ii) a series of transactions with Chesapeake Energy
Corporation ("Chesapeake") which include the sale of certain of the Company's
Arkoma assets for $20 million, the formation of a five year participation
agreement involving the development of all of the Company's existing acreage in
the Mid-Continent, and the issuance by Gothic of $50 million of Series B
Preferred Stock to Chesapeake (together, the "Chesapeake Transactions"), (iii)
the issuance by Gothic and Gothic Production of approximately $295 million of
new senior notes, and (iv) the repayment and/or refinancing of substantially all
of Gothic's currently existing debt and preferred securities (together, the
"Recapitalization"). The Recapitalization is expected to be completed by late
April.
In addition, Gothic announced that it had successfully completed a consent
solicitation with holders of its 12 1/4% Senior Notes due 2004 and its Series A
Preferred Stock whereby those holders agreed to certain amendments that will
facilitate the Recapitalization.
The Company also announced that it had hired Steven P. Ensz as Vice President -
Finance and Chief Financial Officer and John P. Coughlon as Senior Geologist.
Mr. Ensz, who was most recently with Anglo-Suisse, Inc. ("Anglo-Suisse"), has
extensive experience in the oil and gas business and is a certified public
accountant. Mr. Coughlon, most recently with Amoco Production Company
("Amoco"), was actively involved in the exploitation of the assets recently
acquired by Gothic from Amoco and has extensive knowledge of the Company's Mid-
Continent area oil and gas producing properties.
The Recapitalization
- --------------------
In connection with the Recapitalization, Gothic and Gothic Production currently
intend to issue approximately $295 million of new senior notes in private
placement transactions subject to rule 144A. Such securities will not be
registered under the Securities Act of 1933, as amended, and will not be able to
be resold in the United States by the purchasers absent such registration or an
applicable exemption. The proceeds from this intended issuance, when combined
with the $70 million of proceeds from the Chesapeake Transactions, is expected
to allow Gothic to repay and/or refinance all of its currently outstanding bank
and other debt and preferred securities.
Chesapeake Transactions
- -----------------------
The Chesapeake Transactions, which are contingent upon the completion of the
Recapitalization, provide for the following:
. the formation of a participation agreement which provides Chesapeake the
right, for a five year period, to participate in up to 50% of the Company's
development and exploration projects on all of its existing acreage and to
act as operator during the drilling and completion in any well which Gothic
operates and in which Chesapeake chooses to participate;
. the sale of 50% of Gothic's oil and gas assets in the Arkoma Basin for $20
million;
. the purchase by Chesapeake of $50 million of Gothic's newly-issued Series B
Preferred Stock due 2008, with related warrants to purchase 2,439,246 shares
of Gothic's common stock with an exercise price of $0.01 per share; and
. the right for Chesapeake to designate for election one member to Gothic's
Board of Directors.
<PAGE>
Page Two
3/31/98 News Release
Chesapeake is an independent oil and natural gas producer headquartered in
Oklahoma City, Oklahoma. Chesapeake's operations are focused on exploratory and
development drilling and producing property and corporate acquisitions in major
onshore producing areas of the United States and Canada.
New Senior Officers
- -------------------
Steven P. Ensz joined the Company in March from a position as Vice President -
Finance at Anglo-Suisse, a Houston-based developer of international oil and
natural gas projects. Prior to joining Anglo-Suisse in 1991, Mr. Ensz acted as
an independent financial consultant to the oil and gas industry and was
President of Waterford Energy, a privately-held oil and natural gas company with
operations in the Mid-Continent, from 1983 to 1990. Prior to joining Waterford,
Mr. Ensz was a partner at Oak, Simon & Ott, a public accounting firm. Mr. Ensz
received a Bachelor of Business Adminstration degree in accounting from Wichita
State University and is a certified public accountant.
John P. Coughlon also joined the Company in March. Previously, Mr. Coughlon was
a senior staff geologist at Amoco and was actively involved in the development
of the assets purchased by Gothic in January. Prior to joining Amoco in 1994,
Mr. Coughlon worked as a geologist with Tower Energy, NICOR Oil and Gas and
Mobil Oil Corporation. Mr. Coughlon has over 14 years of experience in the Mid-
Continent region and extensive knowledge of many of the areas in which the
Company is actively involved. He received a Bachelor of Science in Geology from
the University of Iowa and a Master of Science in Geology from the University of
Texas at El Paso.
Management Comments
- -------------------
Mike Paulk, President and founder of Gothic, stated, "We believe the
Recapitalization will provide Gothic with the long-term capital it needs to
provide a foundation for its continued growth. We believe that the
Recapitalization will allow the Company to direct its resources fully to our two
main objectives - developing our existing asset base and maintaining our low
production cost. The Chesapeake Transactions create for Gothic a partnership
with an active and knowledgeable drilling partner that should provide support
for the successful implementation of the Company's Mid-Continent drilling
program. Further, the Chesapeake Transactions provide the base investment for
the Recapitalization, which should provide the Company with the financial
flexibility to pursue its objectives."
"The addition of two new members to the management team of the quality of Steve
Ensz and John Coughlon will provide the Company with the additional skills
needed to appropriately exploit an asset base that has grown by over 300% since
mid-1997. Gothic now has the necessary group of employees, all with significant
experience in the areas in which the Company's assets are concentrated, to fully
exploit the opportunities before it."
This Press Release may contain statements which constitute forward-looking
statements within the meaning of the Private Securities Litigation Reform Act of
1995, including statements regarding the plans, intentions, beliefs and current
expectations of the Company, its directors, or its officers with respect to the
future business activities and operating performance of the Company. Investors
are cautioned that any such forward-looking statements are not guarantees of
future performance and involve risks and uncertainties, and that actual results
may differ materially from those in the forward-looking statements as a result
of various factors. Important factors that could cause such differences are
described in the Company's periodic filings with the Securities and Exchange
Commission, including the Company's annual report on Form 10-KSB and quarterly
reports on Form 10-QSB.
Gothic Energy Corporation is an oil and natural gas acquisition, exploitation,
development and production company headquartered in Tulsa, Oklahoma. Additional
information may be obtained by contacting Michael Paulk or Steven Ensz at (918)
749-5666.
<PAGE>
EXHIBIT 10.2
===============================================================================
SECURITIES PURCHASE AGREEMENT
DATED AS OF MARCH 31, 1998
BY AND AMONG
GOTHIC ENERGY CORPORATION,
CHESAPEAKE GOTHIC CORP.
AND
CHESAPEAKE ACQUISITION CORPORATION
===============================================================================
<PAGE>
TABLE OF CONTENTS
Page
----
ARTICLE I
DEFINITIONS
Section 1.1 Definitions.................................... 1
Section 1.2. Accounting Terms; Financial Statements......... 3
ARTICLE II
ISSUE OF SECURITIES; PURCHASE AND SALE OF
SECURITIES; RIGHTS OF HOLDERS OF SECURITIES
Section 2.1. Issue of Securities............................ 4
Section 2.2. Purchase and Sale of Securities................ 4
ARTICLE III
REPRESENTATIONS AND WARRANTIES
Section 3.1. Representations and Warranties of the Company.. 5
Section 3.2. Representations and Warranties of the
Purchaser and Purchaser's Parent............... 9
ARTICLE IV
CONDITIONS PRECEDENT TO CLOSING
Section 4.1. Conditions Precedent to Obligations of the
Purchaser......................................11
Section 4.2. Conditions Precedent to Obligations of the
Company........................................12
ARTICLE V
COVENANTS
Section 5.1. Furnishing of Information......................13
Section 5.2. Use of Proceeds................................13
Section 5.3. Board Representation...........................13
<PAGE>
Section 5.4. Standstill Agreement...........................14
Section 5.5. Confidentiality................................14
Section 5.6. Conduct and Preservation of Business...........14
Section 5.7. Preferential Right.............................15
Section 5.8. Execution of Basic Documents...................15
ARTICLE VI
MISCELLANEOUS
Section 6.1. Termination....................................16
Section 6.2. No Waiver; Modifications in Writing............16
Section 6.3. Communications.................................16
Section 6.4. Costs, Expenses and Taxes......................16
Section 6.5. Determinations.................................17
Section 6.6. Execution in Counterparts......................17
Section 6.7. Binding Effect; Assignment.....................17
Section 6.8. GOVERNING LAW..................................17
Section 6.9. Severability of Provisions.....................17
Section 6.10. Headings.......................................17
Section 6.11. Public Announcements...........................17
Schedule 3.1(d)(A) Subsidiaries
Schedule 3.1(d)(B) Options, Warrants, Convertible Securities, etc.
Schedule 3.1(d)(C) Registration Rights
Exhibit 1 Certificate of Designation
Exhibit 2 Form of Common Stock Warrant
Exhibit 3 Participation Agreement
Exhibit 4 Arkoma Agreement
Exhibit 5 Registration Rights Agreement
Exhibit 6 Form of Opinion of Company Counsel
<PAGE>
This Securities Purchase Agreement (this "Agreement"), dated as of
March 31, 1998, is made by and among Gothic Energy Corporation, an Oklahoma
corporation (the "Company"), Chesapeake Gothic Corp., an Oklahoma corporation
(the "Purchaser"), and Chesapeake Acquisition Corporation, an Oklahoma
corporation ("Purchaser's Parent").
In consideration of the mutual covenants and agreements set forth herein
and for good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, the parties agree as follows:
ARTICLE I
DEFINITIONS
-----------
Section 1.1 Definitions. As used in this Agreement, and unless the
context requires a different meaning, the following terms have the meanings
indicated:
"Act" means the Securities Act of 1933, as amended, and the rules
and regulations of the Commission thereunder.
"Affiliate" of any specified Person means any other Person which
directly or indirectly through one or more intermediaries controls, or is
controlled by, or is under common control with, such specified Person. For
purposes of this definition, "control" (including, with correlative meanings,
the terms "controlling," "controlled by" and "under common control with"), as
used with respect to any Person, means the possession, directly or indirectly,
of the power to direct or cause the direction of the management or policies of
such Person, whether through the ownership of voting securities, by agreement or
otherwise; provided, however, that, beneficial ownership of at least 10% of the
voting securities of a Person shall be deemed to be control.
"Agreement" means this Agreement, as the same may be amended,
supplemented or modified in accordance with the terms hereof and in effect.
"Basic Documents" means, collectively, the Certificate of
Designation, the Common Stock Warrant, the Participation Agreement, the Arkoma
Agreement, the Registration Rights Agreement and this Agreement.
"Business Day" means each Monday, Tuesday, Wednesday, Thursday and
Friday which is not a day on which banking institutions in New York City are
authorized or obligated by law to close.
"Capitalized Lease Obligation" means an obligation to pay rent or
other amounts under a lease of property, real or personal, that is required to
be capitalized for financial reporting
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<PAGE>
purposes in accordance with GAAP, and the amount of such obligation shall be the
capitalized amount thereof determined in accordance with GAAP.
"Certificate of Designation" means the Certificate of Designation
duly adopted by the Board of Directors of the Company setting forth the rights,
preferences and priorities of the Preferred Stock and filed with, and accepted
for filing, so as to be effective, by the Secretary of the State of Oklahoma
prior to the Closing hereunder and which is in the form of Exhibit 1 attached
hereto.
"Closing" has the meaning provided therefor in Section 2.2 of this
Agreement.
"Commission" means the Securities and Exchange Commission or any
similar agency then having jurisdiction to enforce the Act.
"Common Stock" means the Common Stock of the Company, $.01 par
value per share.
"Common Stock Warrant" means the warrant to be issued to the
Purchaser to purchase shares of Common Stock of the Company.
"Company" has the meaning provided therefor in the preamble of this
Agreement.
"Default" means any event, act or condition which, with notice or
lapse of time or both, would constitute an Event of Default.
"ERISA" has the meaning provided therefor in Section 3.1 of this
Agreement.
"Event of Default" means a material breach of any representation,
warranty or covenant of any of the Basic Documents that has not been remedied
within 30 days of receipt of notice of such breach by the defaulting party.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended, and the rules and regulations of the Commission thereunder.
"Exchange Act Filings" means the Company's Form 10-KSB for the year
ended December 31, 1997 filed under the Exchange Act, a draft copy of which has
been provided to Purchaser and a filed copy of which shall be provided to
Purchaser prior to the Closing.
"Information" has the meaning provided therefor in Section 2.1 of
this Agreement.
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<PAGE>
"Lien" means, with respect to any property or assets of any Person,
any mortgage or deed of trust, pledge, hypothecation, assignment, deposit
arrangement, security interest, lien, charge, easement, encumbrance, preference,
priority or other security agreement or preferential arrangement of any kind or
nature whatsoever on or with respect to such property or assets (including
without limitation, any Capitalized Lease Obligation, conditional sales, or
other title retention agreement having substantially the same economic effect as
any of the foregoing).
"Material Adverse Effect" means, with respect to the Company and its
Subsidiaries, a material adverse effect on the business, condition (financial or
otherwise), results of operations or prospects of the Company and its
Subsidiaries, taken as a whole.
"Memorandum" means the Gothic Energy Corporation Confidential
Private Placement Memorandum, dated February 20, 1998.
"Notes" means some combination of senior notes, senior secured
notes or zero coupon notes to be issued by the Company in an aggregate principal
amount not less than $285 million.
"Person" means any individual, corporation, partnership, limited
liability company, joint venture, association, joint-stock company, trust,
unincorporated organization or other legal entity.
"Preferred Stock" means the Senior Redeemable Preferred Stock,
Series B, of the Company, $.05 par value per share.
"Purchaser" has the meaning provided therefor in the preamble of
this Agreement.
"Registration Rights Agreement" means that certain Registration
Rights Agreement to be entered into by and between the Company and the
Purchaser in the form attached hereto as Exhibit 5.
"Securities" has the meaning provided therefor in Section 2.1 of
this Agreement.
"State" means each of the states of the United States of America,
the District of Columbia and the Commonwealth of Puerto Rico.
"State Commission" means any agency of any State having
jurisdiction to enforce such State's securities laws.
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<PAGE>
"Subsidiaries" means of any specified Person, any corporation,
partnership, limited liability company, joint venture, association or other
business entity, whether now existing or hereafter organized or acquired, (i) in
the case of a corporation, of which more than 50% of the total voting power of
the capital stock entitled (without regard to the occurrence of any contingency)
to vote in the election of directors, officers or trustees thereof is held by
such first-named Person or any of its Subsidiaries; or (ii) in the case of a
partnership, limited liability company, joint venture, association or other
business entity, with respect to which such first-named Person or any of its
subsidiaries has the power to direct or cause the direction of the management
and policies of such entity by contract or otherwise or if in accordance with
generally accepted accounting principles such entity is consolidated with the
first-named Person for financial statement purposes.
"Time of Purchase" has the meaning provided therefor in Section
2.2 of this Agreement.
"Warrant Shares" has the meaning provided therefor in Section 2.1
of this Agreement.
Section 1.2. Accounting Terms; Financial Statements. All accounting
terms used herein not expressly defined in this Agreement shall have the
respective meanings given to them in accordance with sound accounting practice.
The term "sound accounting practice, shall mean such accounting practice as, in
the opinion of the independent accountants regularly retained by the Company,
conforms at the time to generally accepted accounting principles in the United
States applied on a consistent basis except for changes with which such
accountants concur. All determinations to which accounting principles apply
shall be made in accordance with sound accounting practice.
ARTICLE II
ISSUE OF SECURITIES; PURCHASE AND SALE OF
SECURITIES; RIGHTS OF HOLDERS OF SECURITIES
-------------------------------------------
Section 2.1. Issue of Securities. The Company has authorized (i) the
issuance of up to $50,000,000 aggregate liquidation value of the Preferred Stock
(the "Preferred Shares"), (ii) the issuance of a Common Stock Warrant to
purchase 2,439,246 shares of Common Stock at an exercise price of $.01 per share
(the "Warrant Shares") in the form attached hereto as Exhibit 2, (iii) the
execution, delivery and performance of that certain Sale and Participation
Agreement to be entered into between the Company and the Purchaser (the
"Participation Agreement") in the form attached hereto as Exhibit 3 and (iv)
the execution, delivery and performance of that certain
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<PAGE>
Oil and Gas Asset Purchase Agreement to be entered into between the Company and
the Purchaser (the "Arkoma Agreement") in the form attached hereto as Exhibit 4.
The Preferred Stock will have the rights, preferences and priorities set forth
in the Certificate of Designation. The aggregate liquidation value of the
Preferred Stock will increase to the extent of accrued dividends paid in
additional shares of Preferred Stock. The Common Stock Warrant will be
substantially in the form as set out as Exhibit 2 attached hereto. The Preferred
Stock, the Common Stock Warrants and the Warrant Shares are collectively
referred to herein as the "Securities."
The Securities will be offered without being registered under the
Act, in reliance on exemptions therefrom, including the exemption provided by
Section 4(2) of the Act.
In connection with the sale of the Securities, the Company has
provided the Purchaser with certain information including the Memorandum, the
Exchange Act Filings and a summary of the terms of the Preferred Stock (the
"Information.")
Section 2.2. Purchase and Sale of Securities . Subject to the terms and
conditions herein set forth, the Company agrees that it will sell to the
Purchaser, and the Purchaser and Purchaser's Parent agree that Purchaser will
purchase from the Company at the Time of Purchase the Securities.
The Securities shall have the terms set forth herein, in the
Certificate of Designation and the Common Stock Warrant, respectively.
The purchase and sale of $50,000,000 liquidation value of Preferred
Stock and Common Stock Warrant pursuant to this Agreement will take place at a
closing (the "Closing") at the offices of the Company, or at such other
location as the parties may agree, on or before 10:00 A.M., New York City time,
on April 27, 1998. The time at which the Closing is concluded is referred to
herein as the "Time of Purchase."
Delivery of the Securities to be purchased by the Purchaser pursuant
to this Agreement shall be made at the Closing by the Company delivering
definitive certificates representing the Securities to the Purchaser, in either
case, against payment therefor in immediately available same-day funds to an
account previously specified by the Company in writing. Any tax on the issuance
of the Securities will be paid by the Company at the Time of Purchase pursuant
to Section 6.4 hereof.
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<PAGE>
ARTICLE III
REPRESENTATIONS AND WARRANTIES
------------------------------
Section 3.1. Representations and Warranties of the Company. The Company
represents and warrants to the Purchaser and Purchaser's Parent as of the date
hereof and as of the Time of Purchase as follows:
(a) The Information provided to the Purchaser will not, at the
Time of Purchase, contain any untrue statement of a material fact or omit to
state a material fact necessary to make the statements therein, in the light of
the circumstances under which they were made, not misleading.
(b) The audited consolidated financial statements of the Company and
its Subsidiaries, together with related notes and schedules thereto, included in
the Exchange Act Filings fairly represent in all material respects the financial
condition of the Company and its Subsidiaries as of the dates indicated and the
results of operations and cash flows for the periods therein specified in
conformity with generally accepted accounting principles consistently applied
throughout the periods involved (except as otherwise stated therein). Coopers &
Lybrand, which reported upon the audited financial statements and schedules
included in the Exchange Act Filings, is an independent public accounting firm
as required by the Act and the rules and regulations thereunder.
(c) The Company is a corporation duly organized, validly existing
and in good standing under the laws of the State of Oklahoma. Each of the
Company's Subsidiaries, including Gothic Production Corporation, a wholly-owned
Subsidiary of the Company formed for the purpose of becoming the primary
operating Subsidiary of the Company and owning substantially all of the
Company's assets, is a corporation duly incorporated or organized, validly
existing and in good standing under the laws of their respective jurisdictions
of incorporation. Each of the Company and its Subsidiaries is duly qualified and
in good standing as a foreign corporation, and is authorized to do business, in
each jurisdiction in which the ownership or leasing of any property or the
nature of its business makes such qualification necessary and in which the
failure so to qualify would have a Material Adverse Effect.
(d) The authorized capital stock of the Company consists of
100,500,000 shares, of which 100,000,000 shares, par value $.01 per share, are
designated "Common Stock" and 500,000 shares, par value $.05 per share, are
designated "Preferred Stock." The Company has 16,261,640 shares of Common Stock
issued and outstanding and 37,000 shares of Senior Redeemable Preferred Stock,
Series A, issued and outstanding. All of the issued and outstanding shares of
capital stock of the Company and its Subsidiaries are validly issued, fully paid
and non-
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<PAGE>
assessable and were not issued in violation of any preemptive or similar rights.
The Company has no Subsidiaries other than those listed on Schedule 3.1(d)(A)
attached hereto. All of the capital stock of the Company's subsidiaries is
owned by the Company, free and clear of any Liens. Except as described on
Schedule 3.1(d)(B) attached hereto, there are no outstanding securities,
subscriptions, options, warrants, rights, convertible securities or other
binding agreements or commitments of any character obligating the Company or its
Subsidiaries to issue any securities other than the Common Stock Warrant.
Except as described in the Information, no Person other than the Purchaser has
any rights to the registration of capital stock or other securities of the
Company, under the Act or otherwise. Except as disclosed in the Information,
there is no agreement, understanding or arrangement among the Company or its
Subsidiaries and its respective stockholders or any other person relating to (i)
the ownership or disposition of any capital stock of the Company or any of its
Subsidiaries, (ii) the election of directors of the Company or any of its
Subsidiaries or (iii) the governance of the Company's or any such Subsidiary's
affairs; and no such agreements, arrangements or understandings will be breached
or violated as a result of the execution and delivery of, or the consummation of
the transactions contemplated by, this Agreement or the other Basic Documents.
The Company has reserved for issuance upon exercise of the Common Stock Warrant
shares of Common Stock sufficient in number for the full exercise thereof at the
initial exercise price, and the Warrant Shares will, upon issuance, be fully
paid, non-assessable and free of preemptive rights and will not be subject to
any restrictions on the transfer thereof, except for such restrictions set forth
herein and in the Warrant Agreement and under the Act. Except as set forth on
Schedule 3.1(d)(C) attached hereto, there are no outstanding registration rights
with respect to any shares of capital stock of the Company.
(e) The Certificate of Designation has been duly authorized by the
Company, its board of directors and all required stockholder action and when
executed and delivered by the Company and filed with the Secretary of State of
the State of Oklahoma will constitute a valid and legally binding agreement of
the Company, enforceable against it in accordance with its terms, except that
the enforcement thereof may be subject to bankruptcy, insolvency,
reorganization, fraudulent conveyance, moratorium or similar laws now or
hereafter in effect relating to creditors' rights and remedies generally and
general principles of equity and the discretion of the court before which any
proceeding therefor may be brought. The Certificate of Incorporation of the
Company, by virtue of the filing of the Certificate of Designation, sets forth
the rights, preferences and priorities of the Preferred Stock.
(f) This Agreement has been duly authorized by the Company and, when
executed and delivered by the Company (assuming the due authorization, execution
and delivery by the Purchaser), will constitute a valid and legally binding
agreement of the Company, enforceable against it in accordance with its terms,
except as such enforceability may be limited by (i) bankruptcy, insolvency,
fraudulent conveyance, reorganization, moratorium or similar laws
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<PAGE>
now or hereafter in effect relating to creditors' rights and remedies generally
and (ii) general equitable principles whether asserted in an action at law or in
equity, and that such enforceability may be subject to the discretion of the
court before which any proceedings therefor may be brought.
(g) The Common Stock Warrant and the Warrant Shares have been duly
authorized by the Company and, when the Common Stock Warrant is executed by the
Company and issued by the Company to the Purchaser in accordance with the terms
of this Agreement, the Common Stock Warrant will constitute the valid and
legally binding obligation of the Company enforceable in accordance with its
terms, except as such enforceability may be limited by (i) bankruptcy,
insolvency, fraudulent conveyance, reorganization, moratorium or similar laws
now or hereafter in effect relating to creditors' rights and remedies generally
and (ii) general equitable principles, whether asserted in an action at law or
in equity, and that such enforceability may be subject to the discretion of the
court before which any proceedings therefor may be brought.
(h) The Company has all requisite corporate power and authority to
(i) execute, deliver and perform its obligations under this Agreement and each
of the other Basic Documents, (ii) execute, deliver and perform its obligations
under all other agreements and instruments executed and delivered by the Company
pursuant to or in connection with this Agreement and each of the other Basic
Documents and (iii) issue the Securities pursuant hereto in the manner and for
the purpose contemplated by this Agreement. The execution and delivery by the
Company of this Agreement and each of the other Basic Documents, and the
consummation of the transactions contemplated hereby and thereby, have been duly
and validly authorized by the Company.
(i) Except as set forth in the Memorandum and the Exchange Act
Filings, subsequent to the date as of which information is given in the Exchange
Act Filings and immediately prior to the Time of Purchase, there has not been
(i) any event or condition that has had or that would reasonably be expected to
have a Material Adverse Effect on the Company and its Subsidiaries, taken as a
whole, (ii) any transaction entered into by the Company or any Subsidiary, other
than in the ordinary course of business, that is material to the Company and its
Subsidiaries, taken as a whole, or (iii) any dividend or distribution of any
kind declared, paid or made by the Company on its Common Stock that has not been
approved by the Purchaser in writing.
(j) There is no action, suit, investigation or proceeding,
governmental or otherwise, pending or, to the best knowledge of the Company,
threatened to which the Company or any of its Subsidiaries is or would be a
party or of which the properties of the Company or its Subsidiaries are or may
be subject, that (i) seeks to restrain, enjoin, prevent the consummation of or
otherwise challenge the issuance and sale of the Securities by the Company or
any of the other
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transactions contemplated by this Agreement, (ii) questions the legality or
validity of any such transactions or seeks to recover damages or obtain other
relief in connection with any such transactions or (iii) would have a Material
Adverse Effect on the Company and its Subsidiaries, taken as a whole.
(k) The execution, delivery and performance by the Company of this
Agreement and the other Basic Documents, and the issuance and sale by the
Company of the Securities and the execution, delivery and performance by the
Company of all other agreements and instruments to be executed and delivered by
the Company pursuant hereto or thereto or in connection herewith or therewith,
and compliance by the Company with the terms and provisions hereof and thereof,
do not and will not (i) violate any provision of any law, rule or regulation
(including, without limitation, Regulation G, T, U or X of the Board of
Governors of the Federal Reserve System), order, writ, judgment, decree,
determination or award presently in effect or in effect at the Time of Purchase
having applicability to the Company or any of its Subsidiaries, (ii) conflict
with, result in a breach of or constitute a default under the certificate of
incorporation or by-laws of the Company or any of its Subsidiaries, or, as of
the Time of Purchase, any indenture or loan or credit agreement, or any other
agreement or instrument to which the Company or any of its Subsidiaries is a
party or by which the Company or any of its Subsidiaries or any of their
respective properties may be bound or affected, or (iii) except as contemplated
by this Agreement and the other Basic Documents, result in, or require the
creation or imposition of, any Lien upon or with respect to any of the
properties now owned or hereafter acquired by the Company or any of its
Subsidiaries, except, in the case of clause (i), (ii) or (iii) of this Section
3.1(k), where such violation, conflict, default or creation or imposition of any
Lien would not (individually or in the aggregate) have a Material Adverse Effect
on the Company and its Subsidiaries, taken as a whole.
(l) Each agreement or instrument executed and delivered by the
Company in connection with this Agreement has been duly and validly authorized,
executed and delivered by the Company and constitutes or will constitute a
legal, valid and binding obligation of the Company, enforceable against the
Company in accordance with its terms, except as such enforceability may be
limited by (i) bankruptcy, insolvency, fraudulent conveyance, reorganization,
moratorium or similar laws now or hereafter in effect relating to creditors'
rights and remedies generally and (ii) general equitable principles, whether
asserted in an action at law or in equity, and that such enforceability may be
subject to the discretion of the court before which any proceedings therefor may
be brought.
(m) Immediately after giving effect to the consummation of the
transactions contemplated by this Agreement, neither the Company nor any of its
Subsidiaries (i) will be in violation of its respective certificate of
incorporation or by-laws, (ii) will be in default (nor will an event occur which
with notice or passage of time or both would constitute such a default)
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<PAGE>
under or in violation of any indenture or loan or credit agreement or any other
material agreement or instrument to which it is a party or by which it or any of
its properties may be bound or affected, (iii) will be in violation of any order
of any court, arbitrator or governmental body or subject to or party to any
order of any court or governmental authority arising out of any action, suit or
proceeding under any statute or other law respecting antitrust, monopoly,
restraint of trade, unfair competition or similar matters or (iv) will have
violated or be in violation of any such statute, rule or regulation of any
governmental authority, which default or violation (individually or in the
aggregate) would (x) affect the legality, validity or enforceability of this
Agreement or any of the other Basic Documents or (y) have a Material Adverse
Effect on the Company and its Subsidiaries, taken as a whole.
(n) No authorization, consent, approval, license, qualification or
formal exemption from, nor any filing, declaration or registration with, any
court, governmental agency or regulatory authority or any securities exchange is
required in connection with the execution, delivery or performance by the
Company or any of its Subsidiaries (to the extent they are a party thereto) of
this Agreement or any of the other Basic Documents, except (i) as may be
required under state securities or "blue sky" laws or the laws of any foreign
jurisdiction in connection with the offer and sale of the Securities or (ii) as
would not (individually or in the aggregate) have a Material Adverse Effect on
the Company and its Subsidiaries, taken as a whole or (iii) as would not have a
material adverse effect on the value of the Purchaser's rights under the Basic
Documents. All such authorizations, consents, approvals, licenses,
qualifications, exemptions, filings, declarations and registrations which are
required to have been obtained or made as of the Time of Purchase have been
obtained or made, as the case may be, and are in full force and effect and not
the subject of any pending or, to the knowledge of the Company, threatened
attack by appeal, direct proceeding or otherwise.
(o) The Company and each of its Subsidiaries has good and valid
title to, or valid and enforceable leasehold interests in, all properties and
assets identified in the Memorandum or the Exchange Act Filings as owned by each
of them which are material to the business of the Company and its Subsidiaries,
taken as a whole, free and clear of all Liens, except such Liens as are
described in the Memorandum or the Exchange Act Filings or on Schedule 3.1(o)
hereto. All of the leases material to the business of the Company and the
Subsidiaries, taken as a whole, and under which the Company or any Subsidiary
holds properties described in the Memorandum or the Exchange Act Filings, are
valid and binding as leased by them, with such exceptions as are not material
and do not materially interfere with the use made and proposed to be made of
such properties by the Company and its Subsidiaries.
(p) All tax returns required to be filed by the Company or any of
its Subsidiaries in any jurisdiction (including foreign jurisdictions) have been
so filed and all taxes, assessments, fees and other charges including, without
limitation, withholding taxes, penalties,
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and interest ("Taxes") due or claimed to be due have been paid, other than those
Taxes being contested in good faith and those Taxes for which adequate reserves
or accruals have been established in accordance with generally accepted
accounting principles, except where the failure to file such returns or to pay
such Taxes is not reasonably likely to have, singly or in the aggregate, a
Material Adverse Effect on the Company and its Subsidiaries, taken as a whole.
The Company knows of no actual or proposed additional tax assessments for any
fiscal period against the Company or any of its Subsidiaries that, individually
or in the aggregate, would have a Material Adverse Effect on the Company and its
Subsidiaries, taken as a whole.
(q) Each of the Company and its Subsidiaries is in substantial
compliance with all laws, rules and regulations applicable to the Company, and
each such Subsidiary, and the Company and its Subsidiaries own or possess and
are operating in compliance in all material respects with the terms, provisions,
conditions, restrictions and limitations contained in all licenses, franchises,
approvals, certificates and permits from all Federal, State, territorial,
foreign and local governmental and regulatory authorities which are necessary to
own or lease and operate their respective properties and assets and to conduct
their respective businesses, except where the failure to comply with any of the
foregoing would not have a Material Adverse Effect on the Company and its
Subsidiaries, taken as a whole.
(r) Assuming the accuracy of the Purchaser's representations and
warranties set forth in Section 3.2 hereof and the due performance by the
Purchaser of the covenants and agreements set forth in Section 3.2 hereof, the
sale of the Securities to the Purchaser in the manner contemplated by this
Agreement does not require registration of the Securities under the Act.
Section 3.2. Representations and Warranties of the Purchaser and
Purchaser's Parent.
(a) Each of the Purchaser and Purchaser's Parent represents and
warrants to, and covenants and agrees with, the Company that: (1) the Securities
to be acquired by the Purchaser hereunder are being acquired for its own account
or an account with respect to which it exercises sole investment discretion and
it or any such account is a "qualified institutional buyer" as defined in Rule
144A promulgated under the Act ("QIB") or an "Accredited Investor" as defined
under Regulation D promulgated under the Act and has no intention of
distributing or reselling such Securities or any part thereof in any transaction
which would be in violation of the securities laws of the United States of
America or any state; (2) each of the Purchaser and Purchaser's Parent
acknowledges that the Securities have not been or will not be registered under
the Act and that the Securities may not be offered or sold within the United
States or to, or for the account or benefit of, United States persons, except as
set forth below; (3) Purchaser shall not resell or otherwise transfer any of
such Securities within two (2) years after the original issuance of the
Securities, except (A) to the Company or any of its Subsidiaries, (B) inside the
United
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States to a QIB in compliance with Rule 144A promulgated under the Act, (C)
inside the United States to an "Accredited Investor" that, prior to such
transfer, furnishes (or has furnished on its behalf by a United States broker-
dealer) to the Company a signed letter containing certain representations and
agreements relating to the restrictions on transfer of the Securities, (D)
outside the United States in compliance with Rule 904 promulgated under the Act,
(E) pursuant to any other exemption from registration provided under the Act (if
available) including Rule 144 promulgated thereunder or (F) pursuant to an
effective registration statement under the Act, and (4) Purchaser will give to
each person to whom it transfers the Securities notice of any restrictions on
transfer of such Securities; and subject, nevertheless, to the disposition of
the Purchaser's property being at all times within its control. If the
Purchaser should in the future decide to dispose of any of the Securities, the
Purchaser understands and agrees that it may do so only in compliance with the
Act, as then in effect, and that stop-transfer instructions to that effect will
be in effect with respect to the Securities. If the Purchaser should decide to
transfer or otherwise dispose of the Securities, the Purchaser shall comply with
the requirements set forth in the relevant Basic Documents. The Purchaser
agrees to the imprinting, so long as required by the terms of the relevant Basic
Document, of the applicable legends contained in the Common Stock Warrant on
each certificate representing the Common Stock Warrant or Warrant Shares.
(b) Each of the Purchaser and Purchaser's Parent also represents
that no part of the funds to be used to purchase the Securities to be purchased
by the Purchaser constitutes assets of any employee benefit plan, except as
otherwise disclosed in writing to the Company on or prior to the Closing Date.
As used in this Section 3.2(b), the term "employee benefit plan" shall have the
meaning assigned to such term in Section 3 of ERISA.
(c) Each of the Purchaser and Purchaser's Parent also represents and
warrants to the Company that (i) the Purchaser is a wholly-owned subsidiary of
Purchaser's Parent, (ii) each of the Purchaser and Purchaser's Parent has
received and reviewed the Information; (iii) each of Purchaser and Purchaser's
Parent has authorized the purchase of the Securities; and (iv) the purchase of
Securities does not violate the Purchaser's charter, by-laws, or other
organizational documents or any law or regulation to which it is subject.
ARTICLE IV
CONDITIONS PRECEDENT TO CLOSING
-------------------------------
Section 4.1. Conditions Precedent to Obligations of the Purchaser. The
obligation of the Purchaser to purchase the Securities to be purchased by it
hereunder is subject, at the Time of Purchase, to the satisfaction of the
following conditions:
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(a) The Purchaser shall have received an opinion, addressed to it in
form and substance reasonably satisfactory to the Purchaser and dated the Time
of Purchase, of William S. Clarke, P.A., counsel to the Company, substantially
in the form of Exhibit 5 attached hereto.
(b) In rendering such opinion in accordance with Section 4.1(a)
hereof, such counsel may rely as to factual matters upon certificates or other
documents furnished by officers and directors of the Company and its
Subsidiaries as well as representations of the Purchaser and by government
officials, and upon such other documents as such counsel deems appropriate as a
basis for its opinion. Such counsel may specify the jurisdictions in which it
is admitted to practice and that it is not admitted to practice in any other
jurisdiction and is not an expert in the law of any other jurisdictions. To the
extent such opinion concerns the laws of any other such jurisdiction, such
counsel may rely upon the opinion of counsel (reasonably satisfactory to the
Purchaser) admitted to practice in such jurisdiction. Any opinion relied upon
by such counsel as aforesaid shall be delivered to the Purchaser together with
the opinion of such counsel, which opinion shall state that such counsel
believes that it and the Purchaser's reliance thereon is justified.
(c) The representations and warranties made by the Company herein
shall be true and correct in all material respects (except for changes expressly
provided for in this Agreement) on and as of the Time of Purchase, with the same
effect as though such representations and warranties had been made on and as of
the Time of Purchase, and the Company shall have complied in all material
respects with all agreements as set forth in or contemplated hereunder and in
the other Basic Documents required to be performed by it at or prior to the Time
of Purchase.
(d) Except as set forth in the Information, subsequent to the date
of the Exchange Act Filings and immediately prior to the Time of Purchase, (i)
there shall not have been any change, or any development involving a prospective
change, which has affected or may affect materially and adversely the
businesses, properties or prospects or the financial condition or the results of
operations of the Company and its Subsidiaries, taken as a whole; and (ii) the
Company and its Subsidiaries shall have conducted their respective businesses
only in the ordinary course.
(e) At the Time of Purchase and after giving effect to the
consummation of the transactions contemplated by this Agreement and the other
Basic Documents, there shall exist no Default or Event of Default.
(f) As to the Purchaser, the purchase of and payment for the
Securities by the Purchaser hereunder or under the Common Stock Warrant (i)
shall not be prohibited or enjoined temporarily or permanently by any applicable
law or governmental regulation (including, without
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limitation, Regulation G, T, U or X of the Board of Governors of such Federal
Reserve System), (ii) shall not subject the Purchaser to any penalty, or in its
reasonable judgment, other onerous condition under or pursuant to any applicable
law or governmental regulation (provided, however, that such regulation, law or
onerous condition was not in effect as of the date of this Agreement), and (iii)
shall be permitted by the laws and regulations of the jurisdictions to which it
is subject.
(g) At the Time of Purchase, the Purchaser shall have received a
certificate, dated as of the Time of Purchase, from the Company stating that the
conditions specified in Sections 4.1(a), (b) and (c) hereof have been satisfied
or duly waived at the Time of Purchase.
(h) Each of the Basic Documents shall be substantially in the form
attached hereto and the Basic Documents shall have been executed and delivered
by all the respective parties thereto and shall be in full force and effect.
(i) The issuance and sale by the Company, or a Subsidiary, of an
aggregate of $285 million principal amount of notes.
(j) The redemption by the Company of its $100,000,000 12 1/4%
Series A and Series B Senior Notes due 2004 at 101% of the aggregate principal
amount thereof.
(k) The redemption by the Company of its Senior Redeemable Preferred
Stock, Series A at 101% of the aggregate principal amount thereof.
(l) The execution of a new credit facility providing the Company
sufficient resources to participate under the terms of the Participation
Agreement.
(m) The Time of Purchase shall not be later than 5:00 P.M., New York
City time, on April 27, 1998, subject to extension if the Purchaser agrees to
extend the Time of Purchase upon request to do so by the Company.
(n) All proceedings taken in connection with the issuance of the
Securities and the transactions contemplated by this Agreement and the other
Basic Documents, and all documents and papers relating thereto, shall be
reasonably satisfactory to the Company and the Purchaser. The Purchaser shall
have received copies of such papers and documents as it may reasonably request
in connection therewith, all in form and substance reasonably satisfactory to
it.
(o) The Certificate of Designation shall have been duly filed with
the Secretary of State of the State of Oklahoma.
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<PAGE>
Section 4.2. Conditions Precedent to Obligations of the Company. The
obligations of the Company to issue and sell the Securities pursuant to this
Agreement are subject, at the Time of Purchase, to the satisfaction of the
following conditions:
(a) The representations and warranties made by the Purchaser and
Purchaser's Parent herein shall be true and correct in all material respects at
and as of the Time of Purchase, with the same effect as though such
representations and warranties had been made on and as of the Time of Purchase.
(b) The issuance or sale of the Securities by the Company shall not
be enjoined under the laws of any jurisdiction to which the Company is subject
(temporarily or permanently) at the Time of Purchase.
(c) Each of the Basic Documents shall be satisfactory in form and
substance to the Company and shall have been duly authorized, executed and
delivered by all respective parties thereto and shall be in full force and
effect and counsel to the Company shall have received a copy of each of such
documents duly executed and delivered by such parties.
(d) The issuance and sale by the Company, or a Subsidiary, of an
aggregate of $285 million principal amount of notes.
(e) The redemption by the Company of its $100,000,000 12 1/4%
Series A and Series B Senior Notes due 2004 at 101% of the aggregate principal
amount thereof.
(f) The redemption by the Company of its Senior Redeemable Preferred
Stock, Series A at 101% of the aggregate principal amount thereof.
(g) The execution of a new credit facility providing the Company
sufficient resources to participate under the terms of the Participation
Agreement.
ARTICLE V
COVENANTS
---------
Section 5.1. Furnishing of Information. The Company will furnish to the
Purchaser, as long as the Purchaser owns any Preferred Stock, the information
required by the Certificate of Designation.
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Section 5.2. Use of Proceeds. The Company will use the proceeds from
the issuance and sale of the Securities to redeem the Senior Redeemable
Preferred Stock, Series A, of the Company, $.05 par value per share, to pay fees
and expenses related thereto and to the issuance of the Securities and the Notes
and to reduce bank debt.
Section 5.3. Board Representation. (a) So long as the Purchaser owns
50% or more of the outstanding shares of Preferred Stock, such party shall be
entitled to designate that number of members for election to the Board of
Directors of the Company so that Purchaser or Purchaser's Parent, as the case
may be, shall be able to designate not less than 20% of the members of the Board
of Directors of the Company.
(b) In lieu of the right to designate members to the Company's Board
of Directors and (i) so long as Purchaser or Purchaser's Parent, as the case may
be, owns at least 20% of the outstanding shares of Preferred Stock or (ii)
during the term of the Participation Agreement, Purchaser may appoint an
observer who will be entitled to receive notice of, and will have the right to
attend, all meetings of the Board of Directors of the Company and all committees
thereof. Copies of all written information delivered to members of the Board of
Directors of the Company or any committee thereof shall be concurrently
delivered to any such observer. During the time that an observer has been and
continues to be appointed under this paragraph, the Purchaser agrees that any
confidential information disclosed to the observer in the course of such
person's service as an observer will be subject to the limitations on use and
disclosure that would apply if the observer were a director of the Company. All
reasonable expenses of any such observer will be paid by the Company.
Section 5.4. Standstill Agreement. Until March 1, 2000, except as
contemplated by the Basic Agreements or unless such shall have been specifically
invited in writing by the Board of Directors of the Company, neither the
Purchaser or Purchaser's Parent nor any of the Purchaser's or Purchaser's
Parent's Representatives, as defined below, will in any manner, directly or
indirectly, (a) effect or seek, offer or propose (whether publicly or otherwise)
to effect, or cause or participate in or in any way assist any other person to
effect or seek, offer or propose (whether publicly or otherwise) to effect or
participate in, (i) any acquisition of any securities (or beneficial ownership
thereof) or assets of the Company or any of its subsidiaries; (ii) any tender or
exchange offer or merger or other business combination involving the Company or
any of its subsidiaries; (iii) any recapitalization, restructuring, liquidation,
dissolution or other extraordinary transaction with respect to the Company or
any of its subsidiaries; or (iv) any "solicitation" of "proxies" (as such terms
are used in the proxy rules of the Securities and Exchange Commission) or
consents to vote any voting securities of the Company, (b) form, join or in any
way participate in a "group" (as defined under the Securities Exchange Act of
1934, as amended), (c) otherwise act, alone or in concert with others, to seek
to control or influence the management, Board of Directors or policies of the
Company, (d) take any action which might
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force the Company to make a public announcement regarding any of the types of
matters set forth in (a) above, or (e) enter into any arrangements with any
third party with respect to any of the foregoing. The Purchaser, Purchaser's
Parent, their Representatives and Affiliates shall not during any such period
request the Company (or its directors, officers, employees or agents), directly
or indirectly, to amend or waive any provision of this paragraph (including this
sentence). "Representatives" shall mean Purchaser's or Purchaser's Parent's
directors, officers, employees, partners, Affiliates, agents, advisors or
representatives.
Section 5.5. Confidentiality. Following the Closing, the Purchaser,
Purchaser's Parent and their Affiliates shall maintain the confidentiality of
all information received from the Company, except (i) information in the public
domain or independently received from a third party with a right to disclose
such information or (ii) to the extent that disclosure is required by law.
Section 5.6. Conduct and Preservation of Business. Except as provided
in this Agreement, during the period from the date hereof to the Closing, the
Company (i) shall conduct its operations according to its ordinary course of
business consistent with past practice; (ii) shall use its reasonable best
efforts to preserve, maintain and protect its properties; and (iii) shall use
its reasonable best efforts to preserve intact its business organization.
Section 5.7. Preferential Right. So long as the Purchaser or the
Purchaser's Parent owns 50% or more of the outstanding shares of Preferred
Stock, in the event the Company proposes to issue any of its securities (other
than debt securities with no equity feature), the Purchaser shall have the
preferential right to subscribe for and purchase such securities in a proportion
equal to the greater of (i) the number of shares of Common Stock, together with
the Warrant Shares issuable upon exercise of the Warrant, owned by Purchaser to
the total number of outstanding shares of Common Stock and (ii) 20% of the
Common Stock; provided, however, that this right shall not apply to securities
issued: (a) as a stock dividend or upon any subdivision of shares of Common
Stock, provided that the securities pursuant to such stock dividend or
subdivision are limited to additional shares of Common Stock; (b) pursuant to
subscriptions, warrants, options, convertible securities or other rights which
are listed in Schedule 3.1(d)(B) as being outstanding on the date of this
Agreement; (c) solely in consideration for the acquisition (whether by merger or
otherwise) by the Company or any of its subsidiaries of stock or assets of any
other entity; (d) pursuant to a firm commitment underwritten public offering and
(e) pursuant to the exercise of newly-issued options to purchase Common Stock
granted to directors, officers, employees or consultants of the Company in
connection with their service to the Company, not to exceed in the aggregate 2.5
million shares (appropriately adjusted to reflect stock splits, stock dividends,
combinations of shares and the like with respect to the Common Stock). The
Company's written notice to the Purchaser shall describe the securities proposed
to be issued by the Company and specify the number, price and payment terms.
The Purchaser may accept the
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Company's offer as to the full number of securities offered to it or any lesser
number, by written notice thereof given by it to the Company prior to the
expiration of 15 days, in which event the Company shall promptly sell and the
Purchaser shall buy, upon the terms specified, the number of securities agreed
to be purchased by the Purchaser; provided, notwithstanding the other provisions
of this Section, in connection with a Rule 144A offering, the Company may sell
the entire amount offered to one or more initial purchasers (the "Initial
Purchaser") so long as the company causes the Initial Purchaser to offer the
same number of securities to the Purchaser that the Company would otherwise be
required to offer the Purchaser and on the same terms and in the same manner as
the Initial Purchaser offers such securities to other investors. The Company
shall be free at any time prior to 90 days after the date of its notice of offer
to the Purchaser, to offer and sell to any third party or parties the number of
such securities not agreed by the Purchaser to be purchased by the Purchaser, at
a price and on payment terms no less favorable to the Company than those
specified in such notice of offer to the Purchaser. However, if such third
party sale or sales are not consummated within such 90-day period, the Company
shall not sell such securities as shall not have been purchased within such
period without again complying with this Section 5.7.
Section 5.8. Execution of Basic Documents. At the Closing, the parties
shall execute and deliver to one another the Basic Documents.
ARTICLE VI
MISCELLANEOUS
-------------
Section 6.1. Termination. This Agreement may be terminated (as to the
party electing to so terminate it) at any time prior to the Time of Purchase:
(a) by the Company if any of the conditions specified in Section 4.2
hereof have not been met or waived by the Company pursuant to the terms of this
Agreement;
(b) by the Purchaser or Purchaser's Parent if any of the conditions
specified in Section 4.1 hereof have not been met or waived pursuant to the
terms of this Agreement.
Section 6.2. No Waiver; Modifications in Writing. No failure or delay
on the part of the Company or the Purchaser in exercising any right, power or
remedy hereunder shall operate as a waiver thereof, nor shall any single or
partial exercise of any right, power or remedy preclude any other or further
exercise thereof or the exercise of any other right, power or remedy. The
remedies provided for herein are cumulative and are not exclusive of any
remedies that may be available to the Company or the Purchaser at law or in
equity or otherwise. Prior to the Time
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of Purchase, no amendment, modification, termination of any provision or waiver
of or consent to any departure by the Company from any provision of the Basic
Documents shall be effective unless signed in writing by the party entitled to
the benefit thereof. Except as otherwise provided herein, after the Time of
Purchase, no amendment, modification, termination of any provision or waiver of
or consent to any departure by the Company from any provision of the Basic
Documents shall be effective unless signed in writing by or on behalf of the
holders of a majority of shares of Preferred Stock outstanding. Any amendment,
supplement or modification of or to any provision of the Basic Documents, any
waiver of any provision of the Basic Documents, and any consent to any departure
by the Company from the terms of any provision of the Basic Documents, shall be
effective only in the specific instance and for the specific purpose for which
made or given. Except where notice is specifically required by this Agreement,
no notice to or demand on the Company in any case shall entitle the Company to
any other or further notice or demand in similar or other circumstances.
Section 6.3. Communications. Unless otherwise provided herein, any
notice or other communications herein required or permitted to be given shall be
in writing and may be personally served, telecopied, telexed or sent by mail and
shall be deemed to have been given when delivered in person upon receipt of
telecopy or telex against receipt of answer back or four Business Days after
depositing it in the mail registered or certified, with postage prepaid and
properly addressed. For the purposes hereof, the addresses of the parties
hereto (until notice of a change thereof is delivered as provided in this
Section 6.3) shall be set forth under each party's name on the signature pages
hereto.
Section 6.4. Costs, Expenses and Taxes. Each of the Company and the
Purchaser agrees to pay all costs and expenses incurred by them, respectively,
in connection with the negotiation, preparation, printing, typing, reproduction,
execution and delivery of this Agreement and each of the other Basic Documents,
any amendment or supplement to or modification of any of the foregoing and any
and all other documents furnished pursuant hereto or thereto or in connection
herewith or therewith. In addition, the Company shall pay any and all stamp,
transfer and other similar taxes payable or determined to be payable in
connection with the execution and delivery of this Agreement or any other Basic
Document or the issuance of the Securities, and shall save and hold the
Purchaser harmless from and against any and all liabilities with respect to or
resulting from any delay in paying, or omission to pay, such taxes.
Section 6.5. Determinations. All determinations to be made by the
Company or the Purchaser hereunder in its opinion or judgment or with its
approval or otherwise shall be made by it in its sole discretion.
Section 6.6. Execution in Counterparts. This Agreement may be executed
in any number of counterparts and by different parties hereto on separate
counterparts, each of which
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counterparts, when so executed and delivered, shall be deemed to be an original
and all of which counterparts, taken together, shall constitute but one and the
same Agreement.
Section 6.7. Binding Effect; Assignment. The rights and obligations of
the Purchaser under this Agreement may not be assigned to any other Person
except with the prior consent of the Company. Except as expressly provided in
this Agreement, this Agreement shall not be construed so as to confer any right
or benefit upon any Person other than the parties to this Agreement, and their
respective successors and assigns. This Agreement shall be binding upon the
Company and the Purchaser, and their successors and assigns; provided, however,
that the Company's rights under Section 5.4 shall not be assignable.
SECTION 6.8. GOVERNING LAW. THIS AGREEMENT SHALL BE DEEMED TO BE A
CONTRACT MADE UNDER THE LAWS OF THE STATE OF OKLAHOMA, AND FOR ALL PURPOSES
SHALL BE CONSTRUED IN ACCORDANCE WITH THE LAWS OF SAID STATE, WITHOUT REGARD TO
PRINCIPLES OF CONFLICTS OF LAW.
Section 6.9. Severability of Provisions. Any provision of this
Agreement which is prohibited or unenforceable in any jurisdiction shall, as to
such jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof or
affecting the validity or enforceability of such provision in any other
jurisdiction.
Section 6.10. Headings. The Article and Section headings and Table of
Contents used or contained in this Agreement are for convenience of reference
only and shall not affect the construction of this Agreement.
Section 6.11. Public Announcements. The Purchaser and the Company will
each prepare and issue their own press releases related to this Agreement;
however, each party will have the right to approve the other party's press
release.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed as of the date first written above.
GOTHIC ENERGY CORPORATION
By: __________________________________________
Michael K. Paulk, President
Notice Address:
5727 South Lewis Avenue, Suite 700
Tulsa, Oklahoma 74105
Telephone: (918) 749-5666
Telecopy: (918) 749-5882
CHESAPEAKE GOTHIC CORP., as Purchaser
By: __________________________________________
Aubrey K. McClendon, President
Notice Address:
CHESAPEAKE ACQUISITION CORPORATION,
as Purchaser's Parent
By: __________________________________________
Aubrey K. McClendon, President
Notice Address:
CHESAPEAKE\AGREEMENTS\Securities Purchase.April98
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<PAGE>
CERTIFICATE OF DESIGNATION OF
PREFERENCES AND RIGHTS OF
SENIOR REDEEMABLE PREFERRED STOCK, SERIES B
(par value $.05 per share)
OF
GOTHIC ENERGY CORPORATION
____________________
Pursuant to Section 1032G of the
Oklahoma General Corporation Act
____________________
GOTHIC ENERGY CORPORATION, a corporation organized and existing under the
Oklahoma General Corporation Act (the "Corporation"), does hereby certify that,
pursuant to authority conferred upon the Board of Directors by the Certificate
of Incorporation of the Corporation, and pursuant to the provisions of Section
1032G of the Oklahoma General Corporation Act, said Board of Directors duly
adopted a resolution on March _____, 1998, which approved the filing of this
Certificate of Designation and which resolution remains in full force and effect
as of the date hereof.
Pursuant to such resolution and the authority conferred upon the Board of
Directors by the Certificate of Incorporation of the Corporation, there is
hereby created a series of preferred stock of the Corporation, which series
shall have the following powers, preferences and relative, participating,
optional or other special rights, and the qualifications, limitations or
restrictions thereof, in addition to those set forth in the Certificate of
Incorporation of the Corporation:
1. Certain Definitions. As used herein, the following terms shall have
the following meanings (with terms defined in the singular having comparable
meanings when used in the plural and vice versa), unless the context otherwise
requires:
"Business Day" means a day that is not a Saturday, a Sunday or a day on
which banking institutions in the State of New York are not required to be open.
"Common Stock" of any Person means all capital stock of such Person that is
generally entitled to (i) vote in the election of directors of such Person if
such Person is a corporation or (ii) if such Person is not a corporation, vote
or otherwise participate in the selection of the governing body, partners,
managers or others that will control the management and policies of such Person.
<PAGE>
"Corporation" means Gothic Energy Corporation, an Oklahoma corporation.
"Dividend Payment Date" means April 1, July 1, October 1 and January 1,
commencing July 1, 1998, unless such day is not a Business Day, in which case
the Dividend Payment Date shall be the immediately succeeding Business Day.
"Dividend Rate" has the meaning specified in Section 3 hereof.
"Dividend Record Date" means a day 15 days preceding the Dividend Payment
Date.
"Exchange Act" means the Securities Exchange Act of 1934, as amended, and
all rules and regulations promulgated thereunder.
"Fair Market Value" means with respect to the Corporation's Common Stock
the average of the closing prices of such security's sales on all domestic
securities exchanges on which such security may at the time be listed, or, if
there have been no sales on any such exchange on any day, the average of the
highest bid and lowest asked prices on all such exchanges at the end of such
day, or, if on any day such security is not so listed, the average of the
representative bid and asked prices quoted in the NASDAQ System as of 4:00 P.M.,
New York time, on such day, or, if on any day such security is not quoted in the
NASDAQ System, the average of the highest bid and lowest asked prices on such
day in the domestic over-the-counter market as reported by the National
Quotation Bureau, Incorporated, or any similar successor organization, in each
such case averaged over a period of ten days consisting of the day as of which
"Fair Market Value" is being determined and the nine consecutive business days
prior to such day; provided, that if such security is listed on any domestic
securities exchange, the term "business days" as used in this sentence means
business days on which such exchange is open for trading. If at any time such
security is not listed on any domestic securities exchange or quoted in the
NASDAQ System or the domestic over-the-counter market, the "Fair Market Value"
shall be the fair value thereof determined jointly by the Corporation and the
Holders of a majority of the Series B Preferred Stock then outstanding;
provided, that if such parties are unable to reach agreement within a reasonable
period of time, such fair value shall be determined by an appraiser jointly
selected by the Corporation and the Holders of a majority of the Series B
Preferred Stock then outstanding. The determination of such appraiser shall be
final and binding on the Corporation and the Holders, and the fees and expenses
of such appraiser shall be paid jointly by the Corporation and the Holders.
"Holder" means a registered holder of shares of Series B Preferred Stock.
"Liquidation Preference" means $1,000 per share of Series B Preferred Stock
plus, for purposes of Section 8 hereof, depending on whether such share is
issued or accrued, in each case, accrued and unpaid dividends, whether or not
declared, if any, thereon through the date such Liquidation Preference is paid.
- 2 -
<PAGE>
"Person" means any individual, corporation, partnership, limited liability
company, joint venture, association, joint-stock company, trust, unincorporated
organization or other legal entity.
"Preferred Stock" means any capital stock of a Person, however designated,
which entitles the holder thereof to a preference with respect to dividends,
distributions or liquidation proceeds of such Person over the holders of other
classes of capital stock issued by such Person.
"Redemption Date" when used with respect to any shares of Series B
Preferred Stock means the date fixed for such redemption of such shares of
Series B Preferred Stock pursuant to Section 6 hereof.
"Redemption Notice" has the meaning specified in Section 7(C) hereof.
"SEC" means the United States Securities and Exchange Commission as
constituted from time to time or any successor performing substantially the same
functions.
"Securities Act" means the Securities Act of 1933, as amended, and all
rules and regulations promulgated thereunder.
"Series B Preferred Stock" means the Senior Redeemable Preferred Stock,
Series B, par value $.05 per share, of the Corporation.
2. Designation. The series of preferred stock established hereby shall
be designated the "Senior Redeemable Preferred Stock, Series B" (and shall be
referred to herein as the "Series B Preferred Stock") and the authorized number
of shares of Series B Preferred Stock shall be 165,000 shares.
3. Dividends. Holders will be entitled to receive, when, as and if
declared by the Board of Directors, out of funds legally available therefor,
dividends payable at a rate per annum (the "Dividend Rate") of 12% of the
aggregate Liquidation Preference of the Series B Preferred Stock payable in
additional shares of Series B Preferred Stock having an aggregate Liquidation
Preference equal to the amount of such dividends due on any Dividend Payment
Date ("PIK" Stock"); provided, however, that after April 1, 2000, at the
Corporation's option, the dividends payable on any Dividend Payment Date on each
share of Series B Preferred Stock may be paid in cash. Dividends will be
cumulative and will accrue from the date of issuance and be payable quarterly in
arrears as provided in the immediately preceding sentence on each Dividend
Payment Date, commencing on July 1, 1998. Dividends, whether or not declared,
will cumulate until declared and paid, when declaration and payment may be for
all or part of the then-accumulated dividends. Each dividend shall be payable to
Holders of record as they appear on the stock books of the Corporation on each
Dividend Record Date. Accumulated and unpaid dividends payable in Series B
Preferred Stock will accrue dividends from the relevant Dividend
- 3 -
<PAGE>
Payment Date and be payable quarterly to the same extent as issued shares of
Series B Preferred Stock. Dividends shall cease to accrue with respect to shares
of the Series B Preferred Stock on any Redemption Date with respect to such
shares of Series B Preferred Stock redeemed on any such date.
No dividends shall be declared or paid or set apart for payment on any
Junior Stock (as defined) (other than dividends payable in Common Stock) for any
period unless (the "Junior Distribution Condition") the Corporation has declared
and paid in cash dividends on the Series B Preferred Stock for eight (8)
consecutive quarters. When dividends are not paid in full upon the Preferred
Stock, all dividends declared upon shares of the Preferred Stock shall be
declared pro rata. Unless the Junior Distribution Conditions have been
satisfied, no dividends (other than dividends payable in Common Stock) shall be
declared or paid or set apart for payment or other distribution upon any Junior
Stock, nor shall any Junior Stock be redeemed, purchased or otherwise acquired
by the Corporation for any consideration (or any payment made to or available
for a sinking fund for the redemption of any shares of such stock) by the
Corporation.
4. Ranking. The Series B Preferred Stock shall, with respect to dividend
rights and rights on liquidation, winding-up and dissolution, rank senior to all
classes of Common Stock of the Corporation and senior to all other classes or
series of any class of Preferred Stock of the Corporation, whether currently
outstanding or issued hereafter (collectively, the "Junior Stock").
5. Conversion. The Preferred Stock shall be convertible as follows:
(A) Optional Conversion. The Series B Preferred Stock shall be
convertible, without the payment of any additional consideration by the Holders,
at the option of the Holders upon 90 days' prior written notice to the
Corporation, on or after April 30, 2000 at the office of the Corporation or any
transfer agent for the Series B Preferred Stock, into the number of fully paid
and non-assessable shares of Common Stock determined by dividing the Liquidation
Preference by the greater of [the lesser of (i) the average closing price for
the Common Stock on the three trading days up to and including the date of
signing and (ii) the average closing price for the Common Stock on the three
trading days prior to the Closing Date] and the Fair Market Value of the
Corporation's Common Stock in effect at the time of conversion.
Notwithstanding the foregoing, no Holder or "group" (as defined
under the Exchange Act) of Holders shall be able to convert any shares of Series
B Preferred Stock pursuant to this Section 5(A) to the extent that the
conversion of such shares would cause such Holder or "group" of Holders to own
or be deemed to own by The Nasdaq Stock Market more than 19.9% of the
outstanding Common Stock of the Corporation prior to such conversion.
(B) Merger, Consolidation or Disposition of Assets. Notwithstanding
anything to the contrary contained in Section 5(A) in case a third party makes a
tender offer for in excess of 50% of the outstanding Common Stock, or the
Corporation shall merge or
- 4 -
<PAGE>
consolidate into another corporation, or shall sell, transfer or otherwise
dispose of all or substantially all of its property, assets or business to
another corporation and pursuant to the terms of such tender merger,
consolidation or disposition, cash or shares of common stock of the successor or
acquiring corporation are to be received by or distributed to the holders of all
or part of the Common Stock of the Corporation, then each Holder of a share of
the Series B Preferred Stock shall have the right thereafter to receive, upon
conversion of such share of Series B Preferred Stock at Fair Market Value
conditional upon the consummation of such transaction, such cash or shares of
Common Stock constituting the cash or number of shares of common stock of the
successor or acquiring corporation, as the case may be, receivable upon or as a
result of such merger, consolidation or disposition of assets by a holder of the
number shares of Common Stock into which one (1) share of the Series B Preferred
Stock could be converted immediately prior to such event.
(C) Mechanisms of Conversion. Before any Holder of the Series B
Preferred Stock shall be entitled to convert the same into Common Stock, the
Holder shall give 90 days' prior written notice to the Corporation and shall
surrender to the Corporation at the office of the Corporation or of any transfer
agent for the Series B Preferred Stock, the certificate or certificates
representing such Series B Preferred Stock, accompanied by written notice to the
Corporation that the Holder elects to convert all or a specified number of such
shares and stating therein his name or the name or names of his nominees in
which he wishes the certificate or certificates for Common Stock to be issued.
The Corporation shall, as soon as practicable thereafter, issue and deliver at
such office to such Holder of the Series B Preferred Stock or to his nominee or
nominees a certificate representing the number of shares of Common Stock to
which such Holder shall be entitled as aforesaid and, if less than the full
number of shares of the Series B Preferred Stock evidenced by such surrendered
certificate or certificates are being converted, a new certificate or
certificates, of like tenor, for the number of shares of the Series B Preferred
Stock evidenced by such surrendered certificates less the number of such shares
being converted. Dividends shall continue to accrue on shares of Series B
Preferred Stock from the date of the notice of conversion through the date of
conversion.
(D) Fractional Shares. No fractional shares or scrip representing
fractional shares shall be issued upon conversion of any Series B Preferred
Stock. If the conversion of any shares of Series B Preferred Stock results in a
fraction of a share of Common Stock, an amount equal to such fraction multiplied
by the Fair Market Value per share of Common Stock on the day of delivery to the
Corporation of notice of conversion of such shares or dividends, as applicable,
shall be promptly paid by the Corporation to the Holder of such shares in
immediately available funds.
6. Voting Rights. Except as required by the Oklahoma General Corporation
Act, or as set forth herein, the Holders shall not be entitled to vote on any
matter submitted to a vote of stockholders of the Corporation. On any matters
on which the Holders shall be so entitled to vote, they shall be entitled to one
vote for each share held. Except for the issuance of 50,000
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<PAGE>
shares of the Series B Preferred Stock to Chesapeake Gothic Corp., an Oklahoma
corporation, pursuant to that certain Securities Purchase Agreement dated March
31, 1998, any remaining shares of Series B Preferred Stock can only be issued as
PIK Stock and may not be issued for any other purpose or in any other manner
without the prior approval of Holders of 75% of the Series B Preferred Stock.
7. Redemption.
(A) Optional Redemption. (i) At any time prior to April 30, 2000,
the Series B Preferred Stock may be redeemed (subject to contractual and other
restrictions with respect thereto and the legal availability of funds therefor)
at the option of the Corporation in whole or, from time to time, in part, in the
manner provided in Section 7(C) hereof at 105% of the Liquidation Preference of
the Series B Preferred Stock so redeemed, payable in cash out of the net
proceeds from a public or private offering of any equity security (as defined in
the Exchange Act), plus accrued and unpaid dividends (whether or not declared),
which shall also be paid in cash (whether or not otherwise payable in cash) to
the Redemption Date.
(ii) At any time on or after April 30, 2000, the Series B
Preferred Stock may be redeemed (subject to contractual and other restrictions
with respect thereto and the legal availability of funds therefor) at the option
of the Corporation in whole or, from time to time, in part, in the manner
provided in Section 7(C) hereof at any time at a redemption price equal to the
Liquidation Preference of the Series B Preferred Stock so redeemed, payable in
cash, plus accrued and unpaid dividends (whether or not declared), which shall
also be paid in cash (whether or not otherwise payable in cash) to the
Redemption Date.
(B) Mandatory Redemption. The Corporation shall redeem all
outstanding shares of Series B Preferred Stock on June 30, 2008 at a redemption
price equal to the Liquidation Preference thereof, payable in cash or, at the
option of the Corporation, in shares of Common Stock of the Corporation at Fair
Market Value, plus accrued and unpaid dividends (whether or not declared).
(C) Procedure for Redemption.
(i) In the event of a redemption of less than all of the Series B
Preferred Stock, the shares so redeemed will be determined by the Corporation
pro rata according to the number of shares held by each Holder.
(ii) The Corporation shall send a written notice of redemption
(the "Redemption Notice") by first-class mail, postage prepaid, not fewer than 3
days nor more than 30 days prior to the applicable Redemption Date to each
Holder as of the record date fixed for such redemption of Series B Preferred
Stock at such Holder's address as the same appears on the stock books of the
Corporation; provided, however, that no failure to give such notice to any
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<PAGE>
Holder or Holders nor any deficiency therein shall affect the validity of the
procedure for the redemption of any shares of Series B Preferred Stock to be
redeemed except as to the Holder or Holders to whom the Corporation has failed
to give said notice or except as to the Holder or Holders whose notice was
defective. The Redemption Notice shall state:
(A) whether all or less than all the outstanding shares of
Series B Preferred Stock are to be redeemed and the total number of shares of
Series B Preferred Stock being redeemed;
(B) the number of shares of Series B Preferred Stock held of
record by that specific Holder that the Corporation intends to redeem;
(C) the applicable Redemption Date;
(D) the manner and place or places at which payment for the
shares called for redemption will, upon presentation and surrender to the
Corporation of the Series B Preferred Stock Certificates evidencing the shares
being redeemed, be made; and
(E) that dividends on the shares of Series B Preferred Stock
being redeemed shall cease to accrue on the applicable Redemption Date.
(iii) On the applicable Redemption Date, the full applicable
redemption price shall become payable for the shares of Series B Preferred Stock
being redeemed on the applicable Redemption Date. As a condition of payment of
the applicable redemption price, each Holder of Series B Preferred Stock must
surrender a Series B Preferred Stock Certificate or Certificates representing
the shares of Series B Preferred Stock being redeemed by the Corporation in the
manner and at the place designated in the applicable Redemption Notice. The
full applicable redemption price for such shares properly tendered for payment
shall be paid to the person whose name appears on such certificate or
certificates as the owner thereof, on and after the applicable Redemption Date
when and as certificates for the shares being redeemed are properly tendered for
payment. Each surrendered Series B Preferred Stock Certificate shall be
canceled and retired. In the event that less than all of the shares represented
by any such certificate are redeemed, a new certificate shall be issued
representing the unredeemed shares.
(iv) On the applicable Redemption Date, unless the Corporation
defaults in the payment of the applicable redemption price, dividends will cease
to accrue with respect to the shares of Series B Preferred Stock called for
redemption, regardless of whether the Holder has surrendered the Series B
Preferred Stock certificate representing same. All rights of Holders of such
redeemed shares will terminate except for the right to receive the applicable
redemption price.
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<PAGE>
8. Information.
So long as any of the Series B Preferred Stock remains outstanding,
the Corporation shall provide to each Holder, within ten (10) days of filing,
such periodic and other reports as the Corporation is required to file under the
Exchange Act. Such reports shall be mailed to the Holder at its address as it
appears on the stock records of the Corporation or such other address as the
Holder may have provided.
9. Payment on Liquidation.
(A) Upon any voluntary or involuntary liquidation, dissolution or
winding-up of the Corporation, Holders of Series B Preferred Stock will be
entitled to receive an amount in cash equal to the Liquidation Preference,
before any distribution is made on any Common Stock or other Preferred Stock of
the Corporation. After payment of the full amount of the Liquidation Preference
to which they are entitled, Holders of Series B Preferred Stock will not be
entitled to any further participation in any distribution of assets of the
Corporation.
(B) For the purposes of this Section 9, neither the voluntary sale,
conveyance, exchange or transfer (for cash, shares of stock, securities or other
consideration) of all or substantially all the property or assets of the
Corporation nor the consolidation or merger of the Corporation with one or more
corporations shall be deemed a voluntary or involuntary liquidation, dissolution
or winding-up of the Corporation, unless such sale, conveyance, exchange or
transfer shall be in connection with a dissolution or winding-up of the business
of the Corporation.
10. Exclusion of Other Rights. Except as may otherwise be required by the
Oklahoma General Corporation Act, shares of the Series B Preferred Stock shall
not have any preferences or relative, participating, optional or other special
rights, other than those specifically set forth in this Certificate of
Designation (as such Certificate may be amended from time to time) and in the
Corporation's Certificate of Incorporation, as amended. Except as otherwise
provided in writing, no shares of Series B Preferred Stock shall have any
preemptive or subscription rights whatsoever as to any securities of the
Corporation.
11. Reissuance of Preferred Stock. Shares of Series B Preferred Stock
that have been issued and reacquired by the Corporation in any manner, including
shares purchased or redeemed, shall (upon compliance with any applicable
provisions of the Oklahoma General Corporation Act) have the status of
authorized and unissued shares of Preferred Stock undesignated as to series and
may be redesignated and reissued as part of any series of Preferred Stock,
except the Series B Preferred Stock.
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<PAGE>
12. Business Day. If any payment or redemption shall be required by the
terms hereof to be made on a day that is not a Business Day, such payment,
redemption or exchange shall be made on the immediately succeeding Business Day.
13. Headings of Subdivisions. The headings of the various subdivisions
hereof are for convenience of reference only and shall not affect the
interpretation of any of the provisions hereof.
14. Severability of Provisions. If any right, preference or limitation of
the Series B Preferred Stock set forth in this Certificate of Designation (as
such Certificate may be amended from time to time) is invalid, unlawful or
incapable of being enforced by reason of any rule or law or public policy, all
other rights, preferences and limitations set forth in this Certificate of
Designation (as so amended) which can be given effect without the invalid,
unlawful or unenforceable right, preference or limitation shall, nevertheless,
remain in full force and effect, and no right, preference or limitation herein
set forth shall be deemed dependent upon any other such right, preference or
limitation unless so expressed herein.
15. Notice. All notices and other communications provided for or
permitted to be given to the Corporation hereunder shall be made by hand
delivery, next-day air courier or certified, first-class mail to the Corporation
at its principal executive offices (currently located at 5727 South Lewis
Avenue, Suite 700, Tulsa Oklahoma 74105).
16. Amendments. Any provisions of this Certificate of Designation may be
amended by the Corporation, or waived by the Holders, in each case with the
written consent of Holders representing a majority of the outstanding shares of
Series B Preferred Stock.
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<PAGE>
IN WITNESS WHEREOF, Gothic Energy Corporation has caused this Certificate
of Designation of Preferences and Rights of its Series B Preferred Stock to be
signed and attested by its duly authorized officers, this _____ day of March,
1998.
Attest: GOTHIC ENERGY CORPORATION
By:
- ----------------------------------- ------------------------------------
Name: Michael Paulk, President
Secretary
CHESAPEAKE\AGREEMENTS\CertificateOfDesignation.April98
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<PAGE>
THE SECURITIES REPRESENTED BY THIS WARRANT AND THE COMMON STOCK ISSUABLE THEREBY
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT"), OR ANY STATE OR OTHER APPLICABLE SECURITIES LAWS AND,
ACCORDINGLY, THE SECURITIES REPRESENTED BY THIS WARRANT MAY NOT BE RESOLD,
PLEDGED, OR OTHERWISE TRANSFERRED, EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT UNDER, OR IN A TRANSACTION EXEMPT FROM REGISTRATION UNDER, THE
SECURITIES ACT AND IN ACCORDANCE WITH ANY STATE OR OTHER APPLICABLE SECURITIES
LAWS.
WARRANT
to Purchase Common Stock of
GOTHIC ENERGY CORPORATION
Expiring on April ___, 2008
Date of Issuance: April ___, 1998 Certificate No. W-CHE-1
This Warrant to purchase Common Stock (the "Warrant") certifies that for
value received, Chesapeake Gothic Corp., an Oklahoma corporation, or its
registered assigns (the "Holder"), is entitled to subscribe for and purchase
from the Company (as hereinafter defined), in whole or in part, 2,439,246 duly
authorized, validly issued, fully paid and non-assessable shares of Common Stock
(as hereinafter defined) at the Exercise Price (as hereinafter defined),
subject, however, to the provisions and upon the terms and conditions
hereinafter set forth. This Warrant and all rights hereunder shall expire at
5:00 PM, Tulsa, Oklahoma time, on April ___, 2008.
As used herein, the following terms shall have the meanings set forth
below:
"Company" shall mean Gothic Energy Corporation, an Oklahoma corporation,
and shall also include any successor thereto with respect to the obligations
hereunder, by merger, consolidation or otherwise.
"Common Stock" shall mean and include the Company's Common Stock, par value
$0.01 per share, irrespective of class unless otherwise specified, authorized on
the date of the original issue of this Warrant and shall also include (i) in
case of any reorganization, reclassification, consolidation, merger, share
exchange or sale, transfer or other disposition of assets of the character
referred to in Section 3.2 hereof, the stock or securities provided for in
<PAGE>
such Section 3.2, and (ii) any other shares of common stock of the Company into
which such shares of Common Stock may be converted.
"Convertible Securities" shall mean any stock or securities (directly or
indirectly) convertible into or exchangeable for Common Stock.
"Exercise Price" shall mean the purchase price of $.01 per share of Common
Stock payable upon exercise of the Warrant.
"Options" means any rights or options to subscribe for or purchase Common
Stock or Convertible Securities.
"Person" means any individual, corporation, partnership, limited liability
company, joint venture, association, joint stock company, trust, unincorporated
organization or government or any agency or political subdivision thereof.
"Securities Act" means the Securities Act of 1933, as amended.
"Warrant" shall mean this Warrant, and any one or more Warrants into which
this Warrant may be exchanged or converted ("Warrants"), representing the right
to purchase up to 2,439,246 Warrant Shares, or such greater or lesser amounts as
may result pursuant to the adjustments provided for herein.
"Warrant Shares" shall mean the shares of Common Stock or other securities
purchased or purchasable by the holder hereof upon the exercise of the Warrants,
taking into account all adjustments provided for herein.
ARTICLE I
EXERCISE OF WARRANTS
1.1 Exercise Period.
The Warrant represented hereby may be exercised by the Holder hereof,
in whole or in part, at any time and from time to time on or after the date
hereof until 5:00 PM, Tulsa, Oklahoma time, on April ___, 2008.
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<PAGE>
1.2 Method of Exercise.
To exercise the Warrants, the Holder hereof shall deliver to the
Company, at the Warrant Office designated in Section 2.1 hereof, (i) a written
notice in the form of the Subscription Notice attached as Exhibit I hereto,
stating therein the election of such holder to exercise the Warrant in the
manner provided in the Subscription Notice; (ii) payment in full of the Exercise
Price in cash or by bank check or wire transfer for all Warrant Shares purchased
hereunder, or a written notice (a "Cashless Exercise" notice) to the Company
that such Holder is exercising the Warrant (or a portion thereof) by authorizing
the Company to withhold from issuance a number of Warrant Shares issuable upon
such exercise of the Warrant which, when multiplied by the Exercise Price, is
equal to the Exercise Price for the total number of Warrant Shares to which such
exercise relates (and such withheld shares shall no longer be issuable under
this Warrant); (iii) if this Warrant is not registered in the name of the
Holder, an Assignment or Assignments in the form set forth in Exhibit II hereto
evidencing the assignment of this Warrant to the current Holder; and (iv) this
Warrant. The Warrants shall be deemed to be exercised on the date of receipt by
the Company of the Subscription Notice, accompanied by payment for the Warrant
Shares and surrender of this Warrant, as aforesaid, and such date is referred to
herein as the "Exercise Date". Upon such exercise, the Company shall, as
promptly as practicable and in any event within five (5) business days, issue
and deliver to such holder a certificate or certificates for the full number of
the Warrant Shares purchased by such holder hereunder, and shall, unless the
Warrant has expired, deliver to the holder hereof (within such five (5) day
period) a new Warrant representing the right to purchase the number of Warrant
Shares, if any, with respect to which the Warrant shall not have been previously
exercised, but in all other respects identical to this Warrant. As permitted by
applicable law, the Person in whose name the certificates for Common Stock are
to be issued shall be deemed to have become a holder of record of such Common
Stock on the Exercise Date and shall be entitled to all of the benefits of such
holder on the Exercise Date, including without limitation, the right to receive
dividends and other distributions for which the record date falls on or after
the Exercise Date and the right to exercise voting rights.
1.3 Expenses and Taxes. The Company shall pay all expenses and taxes
(including, without limitation, all documentary, stamp, transfer or other
transactional taxes), other than income taxes payable by the Holder,
attributable to the preparation, issuance or delivery of the Warrant and of the
issuance of the Warrant Shares.
1.4 Reservation of Shares. The Company shall reserve at all times so long
as the Warrant remains outstanding, free from preemptive rights, out of its
authorized but unissued shares of Common Stock, solely for the purpose of
effecting the exercise of the Warrant, a sufficient number of shares of Common
Stock to provide for the exercise of the Warrant. The Company shall take all
such actions as may be necessary to assure that all such Warrant Shares
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may be so issued without violation of any applicable law or governmental
regulation or any requirements of any domestic securities exchange or automated
quotation system upon which shares of Common Stock may be listed or quoted
(except for official notice of issuance, which shall be immediately delivered by
the Company upon each such issuance). The Company shall take all such actions as
may be necessary to assure that all such Warrant Shares shall be authorized,
approved for and listed on any national securities exchange or quotation system
on which the Company's Common Stock is listed or quoted. The Company shall not
take any action which would cause the number of authorized but unissued shares
of Common Stock to be less than the number of such shares required to be
reserved hereunder for issuance upon exercise of the Warrant. The Company will
from time to time take all action as may be necessary to assure that the par
value of the Common Stock is at all times equal to or less than the Exercise
Price.
1.5 Valid Issuance. All Warrant Shares that may be issued upon any
exercise of the Warrant will, upon issuance by the Company, be duly and validly
issued, fully paid and non-assessable and free from all taxes, liens and charges
with respect to the issuance thereof and, without limiting the generality of the
foregoing, the Company shall take no action or fail to take any action which
will cause a contrary result (including, without limitation, any action that
would cause the Exercise Price then in effect to be less than the par value, if
any, of the Common Stock).
1.6 Purchase Agreement. The Warrant represented hereby is part of a duly
authorized issuance and sale of warrants to purchase Common Stock pursuant to
that certain Securities Purchase Agreement dated March 31, 1998 (the
"Agreement"), between the Company and the Holder.
1.7 Acknowledgment of Rights. At the time of the exercise of the Warrants
in accordance with the terms hereof and upon the written request of the Holder
hereof, the Company will acknowledge in writing its continuing obligation to
afford to such Holder any rights (including, without limitation, any right to
registration of the Warrant Shares) to which such Holder shall continue to be
entitled after such exercise in accordance with the provisions of this Warrant;
provided, however, that if the holder hereof shall fail to make any such
request, such failure shall not affect the continuing obligation of the Company
to afford to such Holder any such rights.
1.8 No Fractional Shares. The Company shall not be required to issue
fractional shares of Common Stock (or other securities) on the exercise of this
Warrant. If more than one Warrant shall be presented for exercise at the same
time by the same Holder, the number of full Warrant Shares which shall be
issuable upon such exercise shall be computed on the basis of the aggregate
number of whole Warrant Shares purchasable on exercise of the Warrants so
presented.
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1.9 Assistance and Cooperation. The Company shall not close its books
against the transfer of this Warrant or of any Warrant Share in any manner which
interferes with the timely exercise of this Warrant. The Company shall assist
and cooperate with any Holder required to make any governmental filings or
obtain any governmental approvals prior to or in connection with any exercise of
this Warrant (including, without limitation, making any filings required to be
made by the Company).
1.10 Delayed Exercise. Notwithstanding any other provision hereof, if an
exercise of any portion of this Warrant is to be made in connection with a
registered public offering or the sale of the Company, the exercise of any
portion of this Warrant may, at the election of the Holder hereof, be
conditioned upon the consummation of the public offering or sale of the Company
in which case such exercise shall not be deemed to be effective until the
consummation of such transaction.
ARTICLE II
TRANSFER
2.1 Warrant Office. The Company shall maintain an office for certain
purposes specified herein (the "Warrant Office"), which office shall initially
be the Company's offices at 5727 South Lewis Avenue, Suite 8700, Tulsa, Oklahoma
74105, and may subsequently be such other office of the Company or of any
transfer agent of the Common Stock in the continental United States as to which
written notice has previously been given to the holder hereof. The Company shall
maintain, at the Warrant Office, a register for the Warrants in which the
Company shall record the name and address of the Person in whose name this
Warrant has been issued, as well as the name and address of each permitted
assignee of the rights of the registered owner hereof.
2.2 Ownership of Warrants. The Company may deem and treat the Person in
whose name the Warrant is registered as the Holder and owner hereof
(notwithstanding any notations of ownership or writing hereon made by anyone
other than the Company) for all purposes and shall not be affected by any notice
to the contrary until presentation of this Warrant for registration of transfer
as provided in this Article II. Notwithstanding the foregoing, the Warrants
represented hereby, if otherwise properly assigned in compliance with this
Article II (i.e., but for registration of the transfer at the Warrant Office),
may be exercised by an assignee for the purchase of Warrant Shares without
having a new Warrant issued.
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2.3 Restrictions on Transferability of Warrant. Subject to the transfer
conditions referred to herein, this Warrant and all rights hereunder (including,
but not limited to, Registration Rights under Article VI) are transferable, in
whole or in part, without charge to the Holder, upon surrender of this Warrant
with a properly executed Assignment (in the form of Exhibit II hereto) at the
Warrant Office of the Company. The Company agrees to maintain at the Warrant
Office books for the registration and transfer of the Warrants. The Company
shall, from time to time, register the transfer of the Warrants in such books
upon surrender of any such Warrant at the Warrant Office accompanied by a
properly executed Assignment and written instructions for transfer satisfactory
to the Company. Upon any such transfer and upon payment by the holder or its
transferee of any applicable transfer taxes, a new Warrant shall be issued to
the transferee and the surrendered Warrant shall be canceled by the Company. The
Company shall pay all taxes (other than securities transfer taxes or income
taxes) and all other expenses and charges payable in connection with the
transfer of the Warrants pursuant to this Section 2.3. Prior to any transfer as
provided herein, the transferor shall provide written notice to the Company.
2.4 Warrant Exchangeable for Different Denominations. This Warrant is
exchangeable, upon the surrender hereof, by the Holder at the Warrant Office of
the Company, for new Warrants of like tenor representing in the aggregate the
purchase rights hereunder, and each of such new Warrants shall represent such
portion of such rights as is designated by the Holder at the time of such
surrender. The date the Company initially issues this Warrant shall be deemed to
be the "Date of Issuance" hereof regardless of the number of times new
certificates representing the unexpired and unexercised rights formerly
represented by this Warrant shall be issued. All Warrants representing portions
of the rights hereunder are referred to herein as the "Warrants."
2.5 Compliance with Securities Laws. Notwithstanding any other provisions
contained in this Warrant, the Holder hereof understands and agrees that the
following restrictions and limitations shall be applicable to all Warrant Shares
and to all resales or other transfers thereof pursuant to the Securities Act:
2.5.1 The holder hereof agrees that the Warrant and Warrant Shares
shall not be sold or otherwise transferred unless the Warrant or Warrant Shares
are registered under the Securities Act and applicable state securities or blue
sky laws or are sold in a transaction that is exempt therefrom.
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<PAGE>
2.5.2 A legend in substantially the following form will be placed on
the certificate(s) evidencing the Warrant Shares:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR
ANY STATE OR OTHER APPLICABLE SECURITIES LAWS
AND, ACCORDINGLY, THE SECURITIES REPRESENTED
BY THIS CERTIFICATE MAY NOT BE RESOLD, PLEDGED,
OR OTHERWISE TRANSFERRED, EXCEPT PURSUANT TO
AN EFFECTIVE REGISTRATION STATEMENT UNDER, OR
IN A TRANSACTION EXEMPT FROM REGISTRATION
UNDER, THE SECURITIES ACT AND IN ACCORDANCE
WITH ANY STATE OR OTHER APPLICABLE SECURITIES
LAWS."
2.5.3 Stop transfer instructions will be imposed with respect to the
Warrant Shares so as to restrict resale or other transfer thereof not in
accordance with this Section 2.5.
ARTICLE III
ANTI-DILUTION
3. Adjustment Effectuating Anti-Dilution. The number of shares of Common
Stock (i.e., Warrant Shares) obtainable upon exercise of this Warrant shall be
subject to adjustment from time to time as provided in this Article III.
3.1. Adjustment of Warrant Number of Shares. The number of Warrant
Shares purchasable upon the exercise of the Warrant shall be subject to
adjustment as follows:
(a) In the case the Company shall issue rights, options or warrants
entitling recipients thereof to subscribe for or purchase shares of Common Stock
at a price per share which is lower than the Fair Market Value per share of
Common Stock (as defined in paragraph (c) of this Section 3.1) as of the date of
issuance, the number of Warrant Shares thereafter purchasable upon the exercise
of each Warrant shall be determined by multiplying the number of Warrant Shares
theretofore purchasable upon exercise of each Warrant by a fraction, of which
the numerator shall be the number of shares of Common Stock outstanding on the
date of issuance of such rights, options or warrants plus the number of
additional shares of Common Stock offered for subscription or purchase or
pursuant to such rights, options or warrants, and of which the
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denominator shall be the number of shares of Common Stock outstanding on the
date of issuance of such rights, options 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 Fair Market Value. Such adjustment shall be
made whenever such rights, options or warrants are issued, and shall become
effective retroactively immediately after the date of such issuance.
(b) In the case the Company shall issue evidences of its indebtedness
or assets (excluding cash dividends or distributions out of earnings) or rights,
options or warrants or convertible securities containing the right to subscribe
for or purchase shares of Common Stock (excluding those referred to in paragraph
(a) of this Section 3.1) then in each case the number of Warrant Shares
thereafter purchasable upon the exercise of each Warrant shall be determined by
multiplying the number of Warrant Shares theretofore purchasable upon exercise
of the Warrant, by a fraction, of which the numerator shall be the then Fair
Market Value per share of Common Stock (as defined in paragraph (c) of this
Section 3.1) on the date of such distribution, and of which the denominator
shall be such Fair Market Value per share of Common Stock, less the then fair
value (as determined by the Board of Directors of the Company, whose
determination shall be conclusive) of the portion of the assets or evidences of
indebtedness so distributed or of such subscription rights, options or warrants,
or of such convertible securities applicable to one share of Common Stock. Such
adjustment shall be made whenever any such distribution is made, and shall
become effective on the date of distribution retroactive to the date of the
distribution.
(c) For the purposes of this Section 3.1, "Fair Market Value" shall
mean with respect to the Company's Common Stock the average of the closing
prices of such security's sales on all domestic securities exchanges on which
such security may at the time be listed, or, if there have been no sales on any
such exchange on any day, the average of the highest bid and lowest asked prices
on all such exchanges at the end of such day, or, if on any day such security is
not so listed, the average of the representative bid and asked prices quoted in
the NASDAQ System as of 4:00 P.M., New York time, on such day, or, if on any day
such security is not quoted in the NASDAQ System, the average of the highest bid
and lowest asked prices on such day in the domestic over-the-counter market as
reported by the National Quotation Bureau, Incorporated, or any similar
successor organization, in each such case averaged over a period of ten days
consisting of the day as of which "Fair Market Value" is being determined and
the nine consecutive business days prior to such day; provided, that if such
security is listed on any domestic securities exchange, the term "business days"
as used in this sentence means business days on which such exchange is open for
trading. If at any time such security is not listed on any domestic securities
exchange or quoted in the NASDAQ System or the domestic over-the-counter market,
the "Fair Market Value" shall be the fair value thereof determined jointly by
the Company and the Holder; provided, that if such parties are unable to reach
agreement within a reasonable period of time, such fair value shall be
determined by an appraiser jointly selected by
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<PAGE>
the Company and the Holder. The determination of such appraiser shall be final
and binding on the Company and the Holder, and the fees and expenses of such
appraiser shall be paid jointly by the Company and the Holder.
(d) No adjustment in the number of Warrant Shares purchasable
hereunder shall be required unless such adjustment would require an increase or
decrease of at least 1% in the number of Warrant Shares purchasable upon the
exercise of each Warrant; provided, however, that any adjustments which by
reason of this paragraph (d) are not required to be made shall be carried
forward and taken into account in any subsequent adjustment.
3.2 Stock Splits and Reverse Splits. In the event that the Company shall
at any time subdivide its outstanding shares of Common Stock into a greater
number of shares (by stock split, stock dividend, recapitalization or
otherwise), the number of Warrant Shares purchasable pursuant to this Warrant
immediately prior to such subdivision shall be proportionately increased.
Conversely, in the event that the outstanding shares of Common Stock shall at
any time be combined into a smaller number of shares (by reverse stock split or
otherwise), the number of Warrant Shares purchasable upon the exercise of this
Warrant immediately prior to such combination shall be proportionately reduced.
3.3 Reorganizations and Asset Sales. If any capital recapitalization,
reorganization or reclassification of the capital stock of the Company, or any
consolidation, merger or share exchange of the Company with another Person, or
the sale, transfer or other disposition of all or substantially all of its
assets to another Person shall be effected in such a way that a holder of Common
Stock of the Company shall be entitled to receive capital stock, securities or
assets with respect to or in exchange for their shares, then the following
provisions shall apply:
3.3.1 As a condition of such recapitalization, reorganization,
reclassification, consolidation, merger, share exchange, sale, transfer or other
disposition (except as otherwise provided below in this Section 3.3), lawful and
adequate provisions (in form and substance satisfactory to the Holders of
Warrants representing a majority of the Warrant Shares obtainable upon exercise
of all of the Warrants then outstanding) shall be made whereby the holder of
Warrants shall thereafter have the right to purchase and receive upon the terms
and conditions specified in this Warrant and in lieu of or addition to (as the
case may be) the Warrant Shares immediately theretofore receivable upon the
exercise of the rights represented hereby, such shares of capital stock,
securities or assets as may be issued or payable with respect to or in exchange
for a number of outstanding shares of such Common Stock equal to the number of
Warrant Shares immediately theretofore so receivable had such recapitalization,
reorganization, reclassification, consolidation, merger, share exchange or sale
not taken place, and in any such case appropriate provision (in form and
substance satisfactory to the Holders of Warrants representing a majority of the
Warrant Shares obtainable upon exercise of all of the Warrants
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<PAGE>
then outstanding) shall be made with respect to the rights and interests of such
Holder(s) to the end that the provisions hereof shall thereafter be applicable,
as nearly as possible, in relation to any shares of capital stock, securities or
assets thereafter deliverable upon the exercise of Warrants.
3.3.2 The Company shall not effect any such consolidation, merger,
share exchange, sale, transfer or other disposition unless prior to or
simultaneously with the consummation thereof the successor Person (if other than
the Company) resulting from such consolidation, share exchange or merger or the
Person purchasing or otherwise acquiring such assets shall have assumed by
written instrument executed and mailed or delivered to each of the Holders
hereof at the last address of such holder appearing on the books of the Company,
(i) the obligation to deliver to such holder such shares of capital stock,
securities or assets as, in accordance with the foregoing provisions, such
holder may be entitled to receive, and (ii) all other liabilities and
obligations of the Company hereunder. As a condition to any consolidation, share
exchange or merger, such successor Person must assume the Company's obligations
hereunder by written instrument and issue a new warrant revised to reflect the
modifications in this Warrant effected pursuant to this Section 3.3.
3.4 Notice of Adjustment. Whenever the number of Warrant Shares issuable
upon the exercise of the Warrants shall be adjusted as herein provided, or the
rights of the Holder hereof shall change by reason of other events specified
herein, the Company shall compute the adjusted number of Warrant Shares in
accordance with the provisions hereof and shall prepare an Officer's Certificate
setting forth the adjusted number of Warrant Shares issuable upon the exercise
of the Warrants or specifying the other shares of stock, securities or assets
receivable as a result of such change in rights, and showing in reasonable
detail the facts and calculations upon which such adjustments or other changes
are based. The Company shall promptly cause to be mailed to the holder hereof
copies of such Officer's Certificate together with a notice stating that the
number of Warrant Shares purchasable upon exercise of the Warrants have been
adjusted and setting forth the adjusted number of Warrant Shares purchasable
upon the exercise of the Warrants.
3.5 Notices to Holders. In case at any time the Company proposes:
(i) to declare any dividend upon its Common Stock payable in capital
stock or make any dividend or other distribution to the holders of its Common
Stock;
(ii) to offer for subscription pro rata to all of the holders of its
Common Stock any additional shares of capital stock of any class or other
rights;
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<PAGE>
(iii) to effect any capital reorganization, or reclassification of
the capital stock of the Company, or consolidation, merger or share exchange of
the Company with another Person, or sale, transfer or other disposition of all
or substantially all of its assets; or
(iv) to effect a voluntary or involuntary dissolution, liquidation or
winding up of the Company,
then, in any one or more of such cases, the Company shall give the Holder hereof
(a) at least 20 days' (but not more than 90 days') prior written notice of the
date on which the books of the Company shall close or a record shall be taken
for such dividend, distribution or subscription rights or for determining rights
to vote in respect of such issuance, recapitalization, reorganization,
reclassification, consolidation, merger, share exchange, sale, transfer,
disposition, dissolution, liquidation or winding up, and (b) in the case of any
such issuance, recapitalization, reorganization, reclassification,
consolidation, merger, share exchange, sale, transfer, disposition, dissolution,
liquidation or winding up, at least 20 days' (but not more than 90 days') prior
written notice of the date when the same shall take place. Such notice in
accordance with the foregoing clause (a) shall also specify, in the case of any
such dividend, distribution or subscription rights, the date on which the
holders of Common Stock shall be entitled thereto, and such notice in accordance
with the foregoing clause (b) shall also specify the date on which the holders
of Common Stock shall be entitled to exchange their Common Stock, as the case
may be, for securities or other property deliverable upon such reorganization,
reclassification, consolidation, merger, share exchange, sale, transfer,
disposition, dissolution, liquidation or winding up, as the case may be.
ARTICLE IV
Liquidating Dividends
If the Company declares or pays a dividend upon the Common Stock payable
otherwise than in cash out of earnings or earned surplus (determined in
accordance with generally accepted accounting principles, consistently applied)
except for a stock dividend payable in shares of Common Stock (a "Liquidating
Dividend"), then the Company shall pay to the Holder of this Warrant at the time
of payment thereof the Liquidating Dividend which would have been paid to such
Holder on the Common Stock had this Warrant been fully exercised immediately
prior to the date on which a record is taken for such Liquidating Dividend, or,
if no record is taken, the date as of which the record holders of Common Stock
entitled to such dividends are to be determined.
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<PAGE>
ARTICLE V
Reporting Requirements
5.1 Rule 144 and 144A Reporting Information. With a view to making
available the benefits of certain rules and regulations of the SEC which may at
times permit the sale of the Warrant or Warrant Shares to the public or other
persons without registration, the Company shall use its reasonable best efforts
to:
5.1.1 make and keep public information available, as contemplated by
Rule 144 under the Securities Act;
5.1.2 file with the SEC in a timely manner all reports and other
documents required of the Company under the Securities Act and the Exchange Act;
and
5.1.3 furnish to each Holder of Warrant Shares promptly upon request
(A) a written statement by the Company as to its compliance with the reporting
requirements of such Rule 144 of the Securities Act and the Exchange Act, (B)
copies of all SEC filings made by the Company within the previous one (1) year
period and any press releases issued by the Company since the date of the last
such filing, and (C) copies of all Rule 144A information with respect to the
Company.
ARTICLE VI
MISCELLANEOUS
6.1 Entire Agreement. This Warrant and the Purchase Agreement contains
the entire agreement between the Holder hereof and the Company with respect to
the Warrant Shares purchasable upon exercise hereof and supersedes all prior
arrangements or understandings with respect thereto.
6.2 Governing Law. This Warrant shall be governed by and construed in
accordance with the laws (other than the laws of conflicts) of the State of
Oklahoma.
6.3 Amendment and Waiver. Except as otherwise provided herein, the
provisions of the Warrants may be amended and the Company may take any action
herein prohibited, or omit to perform any act herein required to be performed by
it, only if the Company has obtained the written consent of the Holders of
Warrants representing a majority of the Warrant Shares obtainable upon exercise
of the Warrants; provided that no such action may change the Exercise
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Price of the Warrants or the number of shares or class of stock obtainable upon
exercise of each Warrant. Notwithstanding the foregoing, the Company may, at
its option, reduce the Exercise Price of the Warrants, increase the number of
shares of stock obtainable upon exercise of each Warrant, or extend the Term of
the Warrant for such period as it may determine.
6.4 Illegality. In the event that any one or more of the provisions
contained in this Warrant shall be determined to be invalid, illegal or
unenforceable in any respect for any reason, the validity, legality and
enforceability of any such provision in any other respect and the remaining
provisions of this Warrant shall not, at the election of the party for whom the
benefit of the provision exists, be in any way impaired.
6.5 Copy of Warrant. A copy of this Warrant shall be filed among the
records of the Company.
6.6 Notice. Any notice or other document required or permitted to be
given or delivered to the Holder hereof shall be in writing and delivered at, or
sent by certified or registered mail to such Holder at, the last address shown
on the books of the Company maintained at the Warrant Office for the
registration of this Warrant or at any more recent address of which the Holder
hereof shall have notified the Company in writing. Any notice or other document
required or permitted to be given or delivered to the Company, other than such
notice or documents required to be delivered to the Warrant Office, shall be
delivered at, or sent by certified or registered mail to, the offices of the
Company at 5727 South Lewis Avenue, Suite 700, Tulsa, Oklahoma 74105, or such
other address within the continental United States of America as shall have been
furnished by the Company to the Holder of this Warrant.
6.7 Limitation of Liability; Not Stockholders. No provision of this
Warrant shall be construed as conferring upon the Holder hereof the right to
vote, consent, receive dividends or receive notices (other than as herein
expressly provided) in respect of meetings of stockholders for the election of
directors of the Company or any other matter whatsoever as a stockholder of the
Company. No provision hereof, in the absence of affirmative action by the holder
hereof to purchase shares of Common Stock, and no mere enumeration herein of the
rights or privileges of the holder hereof, shall give rise to any liability of
such Holder for the purchase price of any shares of Common Stock or as a
stockholder of the Company, whether such liability is asserted by the Company or
by creditors of the Company.
6.8 Exchange, Loss, Destruction, etc. of Warrant. Upon receipt of
evidence satisfactory to the Company of the loss, theft, mutilation or
destruction of this Warrant, and in the case of any such loss, theft or
destruction upon delivery of a bond of indemnity or such other security in such
form and amount as shall be reasonably satisfactory to the Company, or in the
event of such mutilation upon surrender and cancellation of this Warrant, the
Company will
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make and deliver a new warrant of like tenor, in lieu of such lost, stolen,
destroyed or mutilated Warrant. Any warrant issued under the provisions of this
Section 7.8 in lieu of any Warrant alleged to be lost, destroyed or stolen, or
in lieu of any mutilated Warrant, shall constitute an original contractual
obligation on the part of the Company. This Warrant shall be promptly canceled
by the Company upon the surrender hereof in connection with any exchange or
replacement. The Company shall pay all taxes (other than securities transfer
taxes or income taxes) and all other expenses and charges payable in connection
with the preparation, execution and delivery of warrants pursuant to this
Section 7.8.
6.9 Headings. The Article and Section and other headings herein are for
convenience only and are not a part of this Warrant and shall not affect the
interpretation thereof.
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed in
its name.
GOTHIC ENERGY CORPORATION
Dated: April ___, 1998 By:
---------------------------------
Michael Paulk, President
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Exhibit I
SUBSCRIPTION NOTICE
-------------------
The undersigned, the holder of the attached Warrant (Certificate No.
W-__________), hereby elects to subscribe to exercise purchase rights
represented thereby and to purchase thereunder, __________ shares of the Common
Stock covered by such Warrant, and herewith makes payment in full for such
shares pursuant to Section 1.2 of such Warrant, and requests (a) that
certificates for such shares (and any other securities or other property
issuable upon such exercise) be issued in the name of, and delivered to
_________________________ and (b) if such shares shall not include all of the
shares issuable as provided in such Warrant, that a new warrant of like tenor
and date for the balance of the shares of Common Stock issuable thereunder be
delivered to the undersigned.
Dated:
--------------------------------------------
--------------------------------------------
Address
--------------------------------------------
City, State, Zip Code
<PAGE>
Exhibit II
ASSIGNMENT
----------
For value received, _________________________, hereby sells, assigns, and
transfers unto _________________________ the within Warrant, together with all
right, title and interest therein, and does hereby irrevocably constitute and
appoint _________________________ attorney, to transfer such Warrant on the
books of the Company, with full power of substitution.
Dated:
----------------------------------------
<PAGE>
REGISTRATION RIGHTS AGREEMENT
DATED AS OF APRIL ___, 1998
BY AND BETWEEN
GOTHIC ENERGY CORPORATION
AND
CHESAPEAKE GOTHIC CORP.
<PAGE>
TABLE OF CONTENTS
Page
----
1. Definitions.............................................................. 1
2. Demand Registrations..................................................... 2
3. Piggyback Registrations.................................................. 3
4. Maintaining Effectiveness of Registration Statement...................... 4
5. Expenses of Registration................................................. 5
6. Registration Procedures.................................................. 5
7. Indemnification.......................................................... 7
8. Certain Information......................................................10
9. Miscellaneous............................................................10
(a) No Inconsistent Agreements........................................10
(b) Amendments and Waivers............................................10
(c) Notices...........................................................11
(d) Successors and Assigns............................................11
(e) Rules 144 and 144A................................................11
(f) Counterparts......................................................11
(g) Headings..........................................................11
(h) GOVERNING LAW.....................................................12
(i) Severability......................................................12
(j) Entire Agreement..................................................12
Exhibit A
<PAGE>
This Registration Rights Agreement (this "Agreement") is made and entered
into as of April ___, 1998, by and between Gothic Energy Corporation, an
Oklahoma corporation (the "Company"), and Chesapeake Gothic Corp., an Oklahoma
corporation (the "Purchaser").
This Agreement is made pursuant to the Securities Purchase Agreement, dated
as of March 31, 1998, by and among the Company, the Purchaser and Chesapeake
Acquisition Corporation (the "Purchase Agreement"), relating to the sale by the
Company to the Purchaser of $50,000,000 in aggregate liquidation value of its
Senior Redeemable Preferred Stock, Series B, par value $.05 per share (the
"Preferred Stock"), along with warrants (the "Warrants") for the purchase of
2,439,246 shares (the "Warrant Shares") of its Common Stock, par value $.01 per
share ("Common Stock"). In order to induce the Purchaser to enter into the
Purchase Agreement, the Company has agreed to provide to the Purchaser and its
Affiliates (the "Holders") the registration rights set forth in this Agreement.
The execution of this Agreement is a condition to the obligations of the
Purchaser to purchase the Preferred Stock and Warrants under the Purchase
Agreement.
In consideration of the foregoing, the parties hereto agree as follows:
1. Definitions. As used in this Agreement, the following capitalized
defined terms shall have the following meanings:
"Affiliate" of any specified Person means any other Person which
directly or indirectly through one or more intermediaries controls, or is
controlled by, or is under common control with, such specified Person. For
purposes of this definition, "control" (including, with correlative meanings,
the terms "controlling," "controlled by" and "under common control with"), as
used with respect to any Person, means the possession, directly or indirectly,
of the power to direct or cause the direction of the management or policies of
such Person, whether through the ownership of voting securities, by agreement or
otherwise; provided, however, that, beneficial ownership of at least 10% of the
voting securities of a Person shall be deemed to be control.
"Commission" shall mean the Securities and Exchange Commission or any
other federal agency at the time administering the Securities Act.
"Preferred Stock" shall mean the Senior Redeemable Preferred Stock,
Series B, of the Company, $.05 par value per share.
"Registrable Securities" shall mean (i) the Warrant Shares; (ii) the
Preferred Stock; (iii) Preferred Stock which has been converted to Common Stock;
and (iv) any Common Stock issued or issuable at any time or from time to time in
respect of any of the interests specified in (i) through (iii) hereof upon a
stock split, stock dividend, recapitalization or other similar event involving
the Company, of any Holder, until such Registrable Securities are registered
pursuant to a Registration Statement or until such securities are able to be
sold under Rule 144(k) (or successor Rule) under the Securities Act without
restriction.
<PAGE>
The terms "register", "registered", and "registration" refer to a
registration effected by preparing and filing a registration statement in
compliance with the Securities Act, and the declaration or ordering by the
Commission of the effectiveness of such registration statement.
"Registration Expenses" shall mean all expenses, other than Selling
Expenses (as defined below), incurred by the Company in complying with this
Agreement, including, without limitation, all registration, qualification and
filing fees, exchange listing fees, printing expenses, escrow fees, fees and
disbursements of counsel for the Company and all auditors, blue sky fees and
expenses, the expense of any special audits incident to or required by any such
registration (but excluding the compensation of regular employees of the Company
which shall be paid in any event by the Company).
"Securities Act" means the Securities Act of 1933, as amended.
"Selling Expenses" shall mean all underwriting discounts, selling
commissions and stock transfer taxes applicable to the sale of Registrable
Securities registered by any Holder and all fees and disbursements of counsel
for such Holders.
2. Demand Registrations.
(a) Registration of Immediate Offering. At any time after September
30, 1998, the Holders of at least 50% of the Registrable Securities (hereinafter
the "Majority Holders") may request registration by the Company under the
Securities Act of the resale by such Holders of all or any portion of their
Registrable Securities (an "Immediate Offering Registration"); provided,
however, that, with respect to Common Stock, such request for registration
includes such number of shares equal to or greater than 5% of the issued and
outstanding shares of Common Stock on the date of request; and provided further,
that, with respect to Preferred Stock, such request for registration includes
such number of shares equal to or greater than 50% of the issued and outstanding
shares of Preferred Stock on the date of request. A request for an Immediate
Offering Registration shall specify the approximate number of Registrable
Securities requested to be registered by the requesting Holders. Within 10 days
after receipt of such request, the Company shall give written notice of such
requested registration to all other Holders of Registrable Securities and shall
include in such registration all Registrable Securities with respect to which
the Company has received written requests for inclusion therein within 30 days
after delivery of the Company's notice.
(b) Registration of Delayed or Continuous Offering. At any time
after September 30, 1998, the Majority Holders may request registration by the
Company under the Securities Act of all or any portion of their Registrable
Securities for resale in a delayed or continuous offering to the extent
permitted by Rule 415 (or any successor rule thereto) under the Securities Act
(a "Shelf Registration"). A registration statement for a Shelf Registration
shall
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provide for resale by the Holders in the manner or manners designated in writing
to the Company by them (including, without limitation, one or more underwritten
offerings). Within 10 days after the receipt of such request, the Company shall
give similar written notice of such requested registration to all other Holders
of Registrable Securities and shall include in such registration all Registrable
Securities with respect to which the Company has received written requests for
inclusion therein within 30 days after delivery of the Company's notice.
(c) Number of Demand Registrations. The Majority Holders shall be
entitled to request two (2) Immediate Offering Registrations; provided, a
registration shall not count as one of the permitted Immediate Offering
Registrations until it has become and remained effective for the prescribed time
period. In addition, the Majority Holders shall be entitled to one (1) Shelf
Registration; provided, a registration shall not count as the permitted Shelf
Registration until it has become and remained effective for the prescribed time
period. For purposes of this Agreement, an Immediate Offering Registration and
a Shelf Registration shall each constitute and be referred to as "Demand
Registration."
(d) Priority on Demand Registrations. The Company shall not include
in any Demand Registration any securities which are not Registrable Securities
without the prior written consent of the Holders of at least 75% of the
Registrable Securities initially requesting such registration. If a Demand
Registration is an underwritten offering and the managing underwriters advise
the Company in writing that in their opinion the number of Registrable
Securities and, if permitted hereunder, other securities requested to be
included in such offering exceeds the number of shares, if any, which can be
sold in an orderly manner in such offering within a price range acceptable to
the Majority Holders initially requesting registration, subject, however, to the
terms of any other agreement entered into prior to the date hereof to which the
Company shall be a party, the Company shall include in such registration prior
to the inclusion of any securities which are not Registrable Securities the
number of Registrable Securities requested to be included which in the opinion
of such underwriters can be sold in an orderly manner within the price range of
such offering, pro rata among the respective Holders of Registrable Securities,
on the basis of the amount of shares requested for inclusion by each such
Holder, then, after the inclusion of all such Registrable Securities, the
Company shall include any other securities requested for inclusion.
(e) Selection of Underwriters. The Majority Holders initially
requesting registration in any Demand Registration hereunder shall have the
right to select the investment banker(s) and manager(s) to administer the
offering, subject to the Company's approval which shall not be unreasonably
withheld.
3. Piggyback Registrations.
(a) Right to Piggyback. At any time after September 30, 1998,
whenever the Company proposes to register any of its securities under the
Securities Act (other than pursuant
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to a registration on Form S-4 or Form S-8) and the registration form to be used
may be used for the registration of Registrable Securities (a "Piggyback
Registration"), the Company shall give prompt written notice (in any event
within five (5) business days after its receipt of notice of any exercise of
demand registration rights other than under this Agreement) to all Holders of
Warrants or Registrable Securities of its intention to effect such a
registration and shall include in such registration all Registrable Securities
with respect to which the Company has received written requests for inclusion
therein within 30 days after the receipt of the Company's notice.
(b) Priority on Primary Registrations. If a Piggyback Registration
is an underwritten primary registration on behalf of the Company, and the
managing underwriters advise the Company in writing that in their opinion the
number of securities requested to be included in such registration exceeds the
number which can be sold in an orderly manner in such offering within a price
range acceptable to the Company, the Company shall include in such registration,
subject, however, to the terms of any other agreement entered into prior to the
date hereof to which the Company shall be a party, (i) first, the securities the
Company proposes to sell, (ii) second, the Registrable Securities requested to
be included in such registration, subject to pro rata cut back among the Holders
thereof, and (iii) third, other securities requested to be included in such
registration.
(c) Priority on Secondary Registrations. If a Piggyback Registration
is an underwritten secondary registration on behalf of holders of the Company's
securities, and the managing underwriters advise the Company in writing that in
their opinion the number of securities requested to be included in such
registration exceeds the number which can be sold in an orderly manner in such
offering within a price range acceptable to the holders initially requesting
such registration, the Company shall include in such registration, subject,
however, to the terms of any other agreement entered into prior to the date
hereof to which the Company shall be a party, (i) first, the securities
requested to be included therein by the holders requesting such registration,
(ii) second, the Registrable Securities requested to be included in such
registration, pro rata among the Holders of such securities on the basis of the
number of securities so requested to be included therein, and (iii), third,
other securities requested to be included in such registration.
(d) Right of Holder to Withdraw. A Holder who has given notice to
the Company under Section 3(a) requesting inclusion of any Registrable
Securities in a Piggyback Registration shall, on five (5) business days notice
to the Company, have the right to withdraw its Registrable Securities from the
Piggyback Registration.
(e) Right of Company to Withdraw. The Company shall, on five
business days notice to all holders who have given notice to the Company under
Section 3(a) requesting inclusion of their Registrable Securities in a Piggyback
Registration have the right to withdraw any registration statement filed
pursuant to this Section 3 for a Piggyback Registration at any time prior to the
effective date thereof.
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<PAGE>
4. Maintaining Effectiveness of Registration Statement.
(a) The Company shall use its reasonable best efforts to keep any
registration statement prepared and filed pursuant to this Agreement
continuously effective under the Securities Act from the initial effectiveness
thereof until the earliest to occur of (i) the date when all Registrable
Securities registered thereunder have been sold in the manner set forth and as
contemplated in the registration statement, or (ii) the date when counsel to the
Company or other counsel of such Holders' choosing shall render an opinion
addressed to the Holders whose Registrable Securities are registered thereunder,
to the effect that all remaining Registrable Securities are freely transferable
in the open market without limitations as to volume and manner of sale, and
without being required to file any forms or reports with the Commission under
the Securities Act or the rules and regulations thereunder of the Company (such
period being referred to as the "Effectiveness Period").
(b) If the registration statement filed pursuant to this Agreement
ceases to be effective for any reason at any time during the Effectiveness
Period, the Company shall use its reasonable best efforts to obtain the prompt
withdrawal of any order suspending the effectiveness thereof, and in any event
shall within 45 days of such cessation of effectiveness amend such registration
statement in a manner reasonable expected to obtain the withdrawal of the order
suspending the effectiveness thereof, or file an additional registration
statement covering all of the Registrable Securities originally registered. If
an additional registration statement is filed, the Company shall use its
reasonable best efforts to cause such registration statement to be declared
effective as soon as practicable after such filing and to keep such registration
statement continuously effective for the remainder of the Effectiveness Period.
5. Expenses of Registration. All Registration Expenses shall be borne by
the Company. Unless otherwise stated herein, all Selling Expenses relating to
securities registered on behalf of the Holders shall be borne by the Holders.
The Company shall pay all Registration Expenses in connection with any
registration initiated under this Article whether or not it has become effective
and whether or not such registration has counted as one of the permitted
registrations.
6. Registration Procedures. In the case of each registration,
qualification or compliance effected by the Company pursuant hereto, the Company
will keep the Holders advised in writing as to the initiation of each
registration, qualification and compliance and as to the completion thereof. At
its expense, the Company will:
(a) Prepare and file with the Commission a registration statement
with respect to such securities and use its commercially reasonable efforts to
cause such registration statement to become and remain effective until the
distribution described in such registration statement has been completed;
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<PAGE>
(b) Notify each Holder of Registrable Securities of the effectiveness
of each registration statement filed hereunder and prepare and file with the
Commission such amendments and supplements to such registration statement and
the prospectus used in connection therewith as may be necessary to keep such
registration statement effective for the period of time set forth in Section 4,
as applicable, and to comply with the provisions of the Securities Act with
respect to the disposition of all securities covered by such registration
statement during such period in accordance with the intended methods of
disposition by the sellers thereof set forth in such registration statement.
(c) Furnish to each Holder such number of copies of the registration
statement, each supplement and amendment thereto, and the prospectus included
therein, including a preliminary prospectus, in conformity with the requirements
of the Securities Act, and such other documents as such Holder may reasonably
request in order to facilitate the public sale of the shares by such Holder, and
promptly furnish to each Holder notice of any stop-order or similar notice
issued by the Commission or any state agency charged with the regulation of
securities, and notice of any Nasdaq or securities exchange listing.
(d) Use its reasonable best efforts to register or qualify such
Registrable Securities under the securities or blue sky laws of such
jurisdictions as any seller reasonably requests and do any and all other acts
and things which may be reasonably necessary or advisable to enable such seller
to consummate the disposition in such jurisdictions of the Registrable
Securities owned by such seller.
(e) Use its best efforts to cause the Warrant Shares, together with
any shares of Common Stock issuable upon such conversion of Preferred Stock, to
be listed on the Nasdaq SmallCap Market or such other Securities Exchange on
which the Common Stock is approved for listing.
(f) Notify each seller of such Registrable Securities, at any time
when a prospectus relating thereto is required to be delivered under the
Securities Act, of the existence of facts or the happening of any event (without
necessarily identifying such facts or event to such sellers) as a result of
which the prospectus included in such registration statement contains an untrue
statement of a material fact or omits any fact necessary to make the statements
therein not misleading, and, at the request of any such seller, the Company
shall prepare a supplement or amendment to such prospectus so that, as
thereafter delivered to the purchasers of such Registrable Securities, such
prospectus shall not contain an untrue statement of a material fact or omit to
state any fact necessary to make the statements therein not misleading.
(g) Enter into such customary agreements (including underwriting
agreements in customary form) and take all such other actions as the Majority
Holders of the Registrable Securities being sold or the underwriters, if any,
reasonably request in order to expedite or
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<PAGE>
facilitate the disposition of such Registrable Securities in any underwritten
offering of Registrable Securities.
(h) Make available for reasonable inspection by any seller of
Registrable Securities, any underwriter participating in any disposition
pursuant to such registration statement and any attorney, accountant or other
agent retained by any such seller or underwriter, such financial and other
records, corporate documents and properties of the Company as are customarily
made available to such persons on a confidential basis by the issuer in
connection with a registered public offering of securities similar to the
Registrable Securities, and cause the Company's officers, directors, employees
and independent accountants to supply all information reasonably requested by
any such seller, underwriter, attorney, accountant or agent in connection with
such registration statement.
(i) 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, an earnings statement covering the
period of at least twelve months beginning with the first day of the Company's
first full calendar quarter after the effective date of the registration
statement, which earnings statement shall satisfy the provisions of Section
11(a) of the Securities Act and Rule 158 thereunder.
7. Indemnification.
(a) To the extent permitted by law, the Company will indemnify each
Holder, each of their respective officers and directors and partners, and each
person controlling a Holder within the meaning of the Securities Act, with
respect to which registration, qualification or compliance has been effected
pursuant to this Agreement, and each underwriter, if any, and each person who
controls any underwriter within the meaning of the Securities Act, against all
expenses, claims, losses, damages or liabilities (or actions in respect
thereof), including any of the foregoing incurred in settlement of any
litigation, commenced or threatened, to the extent such expenses, claims,
losses, damages or liabilities arise out of or are based on any untrue statement
(or alleged untrue statement) of a material fact contained in any registration
statement, prospectus, offering circular or other similar document, or any
amendment or supplement thereto, incident to any such registration,
qualification or compliance, or based on any omission (or alleged omission) to
state therein a material fact required to be stated therein or necessary to make
the statements therein, in light of the circumstances in which they were made,
not misleading, or any violation by the Company of the Securities Act or any
rule or regulation promulgated under the Securities Act applicable to the
Company in connection with any such registration, qualification or compliance,
and the Company will reimburse each Holder, each of their respective officers
and directors and partners, and each person controlling a Holder, each such
underwriter and each person who controls any such underwriter, for any legal and
any other expenses reasonably incurred in connection with investigating,
preparing or defending any such claim, loss, damage, liability or action;
provided, however, that the indemnity contained herein
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<PAGE>
shall not apply to amounts paid in settlement of any claim, loss, damage,
liability or expense if settlement is effected without the consent of the
Company (which consent shall not unreasonably be withheld); provided, further,
that the Company will not be liable in any such case to the extent that any such
claim, loss, damage, liability or expense arises out of or is based on any
untrue statement or omission or alleged untrue statement or omission, made in
reliance upon and in conformity with written information furnished to the
Company by the Holders or such controlling person specifically for use therein.
Notwithstanding the foregoing, insofar as the foregoing indemnity relates to any
such untrue statement (or alleged untrue statement) or omission (or alleged
omission) made in the preliminary prospectus but eliminated or remedied in the
amended prospectus on file with the Commission at the time the registration
statement becomes effective or in the final prospectus filed with the Commission
pursuant to the applicable rules of the Commission or in any supplement or
addendum thereto, the indemnity agreement herein shall not inure to the benefit
of any underwriter if a copy of the final prospectus filed pursuant to such
rules, together with all supplements and addenda thereto, was not furnished to
the person or entity asserting the loss, liability, claim or damage at or prior
to the time such furnishing is required by the Securities Act.
(b) To the extent permitted by law, each Holder will, if securities
held by such Holder are included in the securities as to which such
registration, qualification or compliance is being effected pursuant to terms
hereof, severally but not jointly, indemnify the Company, each of its directors
and officers, each person who controls the Company or such underwriter within
the meaning of the Securities Act, and each other person selling the Company's
securities covered by such registration statement, each of such person's
officers and directors and each person controlling such persons within the
meaning of the Securities Act, against all claims, losses, damages and
liabilities (or actions in respect thereof) arising out of or based on any
untrue statement (or alleged untrue statement) of a material fact contained in
any such registration statement, prospectus, offering circular or other
document, or 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, or any violation by such Holder of any rule or regulation
promulgated under the Securities Act applicable to such Holder and relating to
action or inaction required of such Holder in connection with any such
registration, qualification or compliance, and will reimburse the Company, such
other persons, such directors, officers, persons, or control persons for any
legal or other expenses reasonably incurred in connection with investigating or
defending any such claim, loss, damage, liability or action, in each case to the
extent, but only to the extent, that such untrue statement (or alleged untrue
statement) or omission (or alleged omission) is made in such registration
statement, prospectus, offering circular or other document in reliance upon and
in conformity with written information furnished to the Company by such Holder
specifically for use therein; provided, however, that the indemnity contained
herein shall not apply to amounts paid in settlement of any claim, loss, damage,
liability or expense if settlement is effected without the consent of such
Holder (which consent shall not be unreasonably withheld). Notwithstanding the
foregoing, the liability of such Holder under this subsection (b) shall be
limited in an amount equal to the net proceeds from the sale of Registrable
Securities
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<PAGE>
sold by such Holder, unless such liability arises out of or is based on willful
conduct by such Holder. In addition, insofar as the foregoing indemnity relates
to any such untrue statement (or alleged untrue statement) or omission (or
alleged omission) made in the preliminary prospectus but eliminated or remedied
in the amended prospectus on file with the Commission at the time the
registration statement becomes effective or in the final prospectus filed
pursuant to applicable rules of the Commission or in any supplement or addendum
thereto, the indemnity agreement herein shall not inure to the benefit of the
Company if a copy of the final prospectus filed pursuant to such rules, together
with all supplements and addenda thereto, was not furnished to the person or
entity asserting the loss, liability, claim or damage at or prior to the time
such furnishing is required by the Securities Act.
(c) Notwithstanding the foregoing subsections (a) and (b), each party
entitled to indemnification under this Section 7 (the "Indemnified Party") shall
give notice to the party required to provide indemnification (the "Indemnifying
Party") promptly after such Indemnified Party has actual knowledge of any claim
as to which indemnity may be sought, and shall permit the Indemnifying Party to
assume the defense of any such claim or any litigation resulting therefrom,
provided that counsel for the Indemnifying Party, who shall conduct the defense
of such claim or litigation, shall be approved by the Indemnified Party (whose
approval shall not unreasonably be withheld), and the Indemnified Party may
participate in such defense at such party's expense, and provided further that
the failure of any Indemnified Party to give notice as provided herein shall not
relieve the Indemnifying Party of its obligations under this Agreement unless
the failure to give such notice is materially prejudicial to an Indemnifying
Party's ability to defend such action and provided further, that the
Indemnifying Party shall not assume the defense for matters as to which there is
a conflict of interest or as to which the Indemnifying Party is asserting
separate or different defenses, which defenses are inconsistent with the
defenses of the Indemnified Party (in which case the Indemnifying Party shall
pay for one separate counsel for those Indemnified Parties with whom such
conflict exists). No Indemnifying Party, in the defense of any such claim or
litigation, shall, except with the consent of each Indemnified Party, consent to
entry of any judgment or enter into any settlement which does not include as an
unconditional term thereof the giving by the claimant or plaintiff to such
Indemnified Party of a release from all liability in respect to such claim or
litigation. No Indemnified Party shall consent to entry of any judgment or enter
into any settlement without the consent of each Indemnifying Party. The failure
of an Indemnifying Party to give notice to the Indemnified Party of its election
to assume and control the defense of any action for which notice has been given
to the Indemnifying Party in accordance with this paragraph within 30 days after
receipt of such notice shall constitute an election by the Indemnifying Party
not to assume and control the defense of such action. An Indemnifying Party who
is not entitled to, or elects not to, assume the defense of a claim shall not be
obligated to pay the fees and expenses of more than one counsel for all parties
indemnified by such Indemnifying Party with respect to such claim, unless in the
reasonable judgment of any Indemnified Party a conflict of interest may exist
between such Indemnified Party and any other of such Indemnified Parties or the
Indemnifying
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Party with respect to such claim, in which event the Indemnifying Party shall be
obligated to pay the fees and expenses of one separate counsel for such
Indemnified Parties.
(d) If the indemnification provided for in this Section 7 is
unavailable to an Indemnified Party in respect of any losses, claims, damages or
liabilities referred to therein, then each Indemnifying Party, in lieu of
indemnifying such Indemnified Party, shall contribute to the amount paid or
payable by such Indemnified Party as a result of such losses, claims, damages or
liabilities (i) in such proportion as is appropriate to reflect the relative
benefits received by the Company, on the one hand, and each respective
shareholder offering securities in the offering (the "Selling Security Holder"),
on the other, from the offering of the Company's securities, or (ii) if the
allocation provided by clause (i) above is not permitted by applicable law, in
such proportion as is appropriate to reflect not only the relative benefits
referred to in clause (i) above but also the relative fault of the Company, on
the one hand, and each Selling Security Holder, on the other, in connection with
the statements or omissions which resulted in such losses, claims, damages or
liabilities, as well as any other relevant equitable considerations. The
relative benefits received by the Company, on the one hand, and each Selling
Security Holder, on the other, shall be the net proceeds from the offering
(before deducting expenses) received by the Company, on the one hand, and each
Selling Security Holder, on the other. The relative fault of the Company, on the
one hand, and each Selling Security Holder, on the other, shall be determined by
reference to, among other things, whether the untrue or alleged untrue statement
of material fact or the omission or alleged omission to state a material fact
relates to information supplied by the Company or by such Selling Security
Holder and the parties' relevant intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission. The Company and
each Selling Security Holder agree that it would not be just and equitable if
contribution pursuant to this Section were based solely upon the number of
entities from whom contribution was requested or by any other method of
allocation which does not take account of the equitable considerations referred
to above in this Section. Notwithstanding the provisions of this Section, no
Selling Security Holder shall be required to contribute any amount or make any
other payments under this Agreement which in the aggregate exceed the proceeds
received by such Selling Security Holder. No person guilty of fraudulent
misrepresentation (within the meaning of the Securities Act) shall be entitled
to contribution from any person who was not guilty of such fraudulent
misrepresentation.
(e) The indemnification provided for under this Agreement shall
remain in full force and effect regardless of any investigation made by or on
behalf of the Indemnified Party or any officer, director or controlling person
of such Indemnified Party and shall survive the transfer of securities.
8. Certain Information.
(a) Each Holder agrees, with respect to any Registrable Securities
included in any registration, to furnish to the Company such information
regarding such Holder, the
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Registrable Securities and the distribution proposed by such Holder as the
Company may reasonably request in writing and as shall be required in connection
with any registration, qualification or compliance referred to herein.
(b) The failure of a Holder to furnish the information requested
pursuant to this Section shall not affect the obligation of the Company to any
other selling security holders who furnish such information unless, in the
reasonable opinion of counsel to the Company, such failure impairs or may impair
the legality of the Registration Statement or the underlying offering.
9. Miscellaneous.
(a) No Inconsistent Agreements. The Company has not entered into nor
will the Company on or after the date of this Agreement enter into any agreement
which is inconsistent with the rights granted to the Holders of Registrable
Securities in this Agreement or otherwise conflicts with the provisions hereof.
The rights granted to the Holders hereunder do not in any way conflict with and
are not inconsistent with the rights granted to the holders of the Company's
other issued and outstanding securities, if any, under any such agreements.
(b) Amendments and Waivers. The provisions of this Agreement,
including the provisions of this paragraph, may not be amended, modified or
supplemented, and waivers or consents to departures from the provisions hereof
may not be given unless the Company has obtained the written consent of Holders
of at least a majority in aggregate number of the outstanding Registrable
Securities affected by such amendment, modification, supplement, waiver or
consent; provided, however, a waiver or consent to departure from the provisions
hereof that relates exclusively to the rights of Holders of Registrable
Securities whose securities are being sold pursuant to a Registration Statement
and that does not directly or indirectly affect the rights of other Holders of
Registrable Securities may be given by the Holders of a majority of the
Registrable Securities proposed to be sold.
(c) Notices. All notices and other communications provided for or
permitted hereunder shall be made in writing by hand delivery, registered first-
class mail, telex, telecopier, or any courier guaranteeing overnight delivery
(i) if to a Holder, at the most current address given by such Holder to the
Company by means of a notice given in accordance with the provisions of this
Section 9(c), which address initially is, with respect to each Purchaser, the
address set forth in the Purchase Agreement; and (ii) if to the Company,
initially at the Company's address set forth in the Purchase Agreement and
thereafter at such other address, notice of which is given in accordance with
the provisions of this Section 9(c).
All such notices and communications shall be deemed to have been
duly given: (i) at the time delivered by hand, if personally delivered, five (5)
Business Days after being deposited in the mail, postage prepaid, if mailed;
(ii) when answered back, if telexed; (iii)
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when receipt is acknowledged, if telecopied; and (iv) on the next Business Day,
if timely delivered to an air courier guaranteeing overnight delivery.
(d) Successors and Assigns. This Agreement shall inure to the benefit
of any successor, assign or transferee of any Holder; provided, however, that
nothing herein shall be deemed to permit any assignment, transfer or other
disposition of Registrable Securities in violation of the terms and conditions
of this Agreement or the Purchase Agreement.
(e) Rules 144 and 144A. The Company covenants that it will file the
reports required to be filed by it under the Securities Act and the Exchange Act
and the rules and regulations adopted by the Commission thereunder in a timely
manner and, if at any time the Company is not required to file such reports, it
will, upon the request of any Holder of Registrable Securities, make publicly
available other information of a like nature so long as necessary to permit
sales pursuant to Rule 144 or Rule 144A. The Company further covenants that so
long as any Registrable Securities remain outstanding to make available to any
Holder of Registrable Securities in connection with any sale thereof, the
information required by Rule 144A(d)(4) promulgated under the Securities Act in
order to permit resales of such Registrable Securities pursuant to (a) such Rule
144A or (b) any similar rule or regulation hereafter adopted by the Commission.
(f) Counterparts. This Agreement may be executed in any number of
counterparts and by the parties hereto in separate counterparts, each of which
when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
(g) Headings. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.
(H) GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED
IN ACCORDANCE WITH THE LAWS OF THE STATE OF OKLAHOMA, AS APPLIED TO CONTRACTS
MADE AND PERFORMED WITHIN THE STATE OF OKLAHOMA, WITHOUT REGARD TO PRINCIPLES OF
CONFLICTS OF LAW. EACH OF THE PARTIES HERETO AGREES TO SUBMIT TO THE
JURISDICTION OF THE COURTS OF THE STATE OF OKLAHOMA IN ANY ACTION OR PROCEEDING
ARISING OUT OF OR RELATING TO THIS AGREEMENT.
(i) Severability. In the event that any one or more of the provisions
contained herein, or the application thereof in any circumstance, is held
invalid, illegal or unenforceable, the validity, legality and enforceability of
any such provision in every other respect and of the remaining provisions
contained herein shall not be affected or impaired thereby.
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<PAGE>
(j) Entire Agreement. This Agreement, together with the Purchase
Agreement, is intended by the parties as a final expression of their agreement,
and is intended to be a complete and exclusive statement of the agreement and
understanding of the parties hereto in respect of the subject matter contained
herein and therein.
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<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first written above.
GOTHIC ENERGY CORPORATION
(the "Company")
By:
------------------------------
Michael Paulk, President
CHESAPEAKE GOTHIC CORP.
(the "Purchaser")
By:
------------------------------
Aubrey K. McClendon, President
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<PAGE>
EXHIBIT 10.3
SALE AND PARTICIPATION AGREEMENT
between
CHESAPEAKE GOTHIC CORP.
and
GOTHIC ENERGY CORPORATION,
GOTHIC ENERGY OF TEXAS, INC.
and
GOTHIC PRODUCTION COMPANY
Effective March 31, 1998
SELF, GIDDENS & LEES, INC.
ATTORNEYS AND COUNSELORS
2725 Oklahoma Tower . 210 Park Avenue . Oklahoma City, Oklahoma 73102-5604
Telephone (405) 232-3001 . Telecopier (405) 232-5553
<PAGE>
TABLE OF CONTENTS
Page
----
1. Sale............................................................. 2
1.1 Existing Acreage.......................................... 2
1.2 Related Interests......................................... 2
1.3 Reconveyance Obligation................................... 3
2. Additional Purchase Price........................................ 3
3. Initial Closing.................................................. 3
3.1 Closing Date.............................................. 3
3.2 Gothic Parties' Deliveries................................ 3
3.3 Chesapeake's Deliveries................................... 4
3.4 Possession................................................ 4
3.5 Cost...................................................... 4
4. Representations and Warranties................................... 4
4.1 Organization, Good Standing, Etc.......................... 4
4.2 Authority................................................. 5
4.3 No Assumption of Obligations.............................. 5
4.4 Absence of Liabilities.................................... 5
4.5 Contracts................................................. 5
4.6 Consents and Approvals.................................... 6
4.7 Litigation................................................ 6
4.8 Title..................................................... 6
4.9 Oil and Gas Leases in Good Standing....................... 7
4.10 Taxes..................................................... 7
4.11 Contracts, Consents and Preferential Rights............... 7
4.12 Environmental and Safety Matters.......................... 7
4.13 Payout and Gas Balancing.................................. 8
4.14 Affiliate Transactions.................................... 8
4.15 Full Disclosure........................................... 8
5. Chesapeake's Representations and Warranties...................... 8
6. Covenants........................................................ 9
6.1 Access to Information..................................... 9
6.2 Inspection................................................ 9
6.3 Consents.................................................. 9
6.4 Conditions................................................ 9
6.5 Subordination............................................. 9
6.6 Title and Information..................................... 10
7. Gothic Party Acquisitions........................................ 10
7.1 Existing Agreements....................................... 11
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7.2 Acquisition Acreage Option................................ 11
7.3 Acquisition Acreage....................................... 12
7.4 Acquisition Costs......................................... 12
7.5 Acquisition Closings...................................... 12
8. Chesapeake AMI Acquisitions...................................... 13
8.1 Gothic Parties' Option.................................... 13
8.2 Definitions............................................... 14
8.3 Acquisition Closings...................................... 14
9. Lease Maintenance................................................ 14
9.1 Maintenance............................................... 14
9.2 Renewals; Re-leasing...................................... 15
10. Development...................................................... 15
10.1 Proposed Well Information................................. 15
10.2 Participation Election.................................... 16
10.3 Resubmissions............................................. 16
10.4 Operations................................................ 17
10.5 Third Party Wells......................................... 17
10.6 Limitations............................................... 18
11. Chesapeake's Conditions Precedent................................ 18
12. Gothic Parties' Conditions Precedent............................. 19
13. Default; Remedy.................................................. 20
14. Term............................................................. 20
15. Confidentiality.................................................. 21
16. Audits, Access and Information................................... 21
17. Gothic Parties' Indemnification.................................. 21
18. Chesapeake's Indemnification..................................... 22
19. No Partnership................................................... 22
20. Miscellaneous.................................................... 22
20.1 Notices................................................... 22
20.2 Entire Agreement.......................................... 23
20.3 Binding Effect............................................ 23
20.4 Severability.............................................. 23
20.5 Counterpart Execution..................................... 23
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<PAGE>
20.6 Survival.................................................. 24
20.7 Assignment................................................ 24
20.8 Governing Law............................................. 24
20.9 Construction.............................................. 24
20.10 Memorandum of Agreement................................... 24
20.11 Press Release............................................. 24
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<PAGE>
SALE AND PARTICIPATION AGREEMENT
--------------------------------
THIS AGREEMENT is entered into effective the 31st day of March, 1998, between
CHESAPEAKE GOTHIC CORP., an Oklahoma corporation ("Chesapeake"), and GOTHIC
ENERGY CORPORATION, an Oklahoma corporation ("Gothic"), GOTHIC ENERGY OF TEXAS,
INC., an Oklahoma corporation ("Gothic Texas"), and GOTHIC PRODUCTION COMPANY,
an Oklahoma corporation ("Gothic Production").
W I T N E S S E T H :
WHEREAS, Gothic and Chesapeake Energy Corporation, an Oklahoma corporation,
entered into that certain letter of intent dated March 18, 1998 (the "Letter of
Intent"), in order to provide funding to allow the Gothic Parties to fund the
development of the Gothic Parties' oil and gas interests (the "Financing
Transaction") by: (i) issuing Gothic preferred stock to Chesapeake (the
"Preferred Stock"), (ii) issuing warrants for Gothic common stock to Chesapeake,
(iii) conveying to Chesapeake fifty percent (50%) of the Gothic Parties' oil and
gas assets in the Arkoma Basin and (iv) conveying to Chesapeake fifty percent
(50%) of the Gothic Parties' undeveloped oil and gas assets in the Participation
Area;
WHEREAS, Gothic, Gothic Texas and Gothic Production together with various
affiliate corporations, partnerships, limited liability companies and other
entities (jointly and severally the "Gothic Parties") own as of the date of this
Agreement interests in oil, gas and mineral leases (the "Existing Acreage")
covering lands located in whole or in part in Oklahoma, Texas, New Mexico,
Arkansas and Kansas including, without implied limitation, the oil, gas and
mineral leases described at Schedule "A" attached as a part hereof;
WHEREAS, as part of the Financing Transaction and subject to the terms and
conditions of this Agreement, Chesapeake has agreed to acquire and Gothic has
agreed to convey to Chesapeake on the terms set forth in this Agreement an
undivided fifty percent (50%) interest in the Existing Acreage, the Related
Interests (as hereinafter defined) and the Acquisition Acreage (as hereinafter
defined); and
WHEREAS, Gothic and Chesapeake also desire to provide for the development of
all of the Existing Acreage, the Related Interests and the Acquisition Acreage
(collectively, the "Gothic Interests") covering lands (the "Participation Area")
located in whole or in part in Oklahoma, Texas, New Mexico, Arkansas and Kansas,
but excluding lands described as the Pecos Slope Acreage as outlined in the plat
at Schedule "B" attached hereof.
NOW, THEREFORE, in consideration of the mutual covenants and promises
contained herein and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereby agree as
follows:
<PAGE>
1. Sale. The purchase and sale of the Existing Acreage and the Related
Interests will be consummated on the following terms:
1.1 Existing Acreage. The Gothic Parties agree to sell and Chesapeake
agrees to purchase an undivided fifty percent (50%) interest of the
Gothic Parties' right, title and interest in and to the Existing
Acreage as of the date of this Agreement less and except: (a) the
interest of the Gothic Parties in any existing wellbore which on the
date of the Letter of Intent was producing oil and gas in commercial
quantities which interest includes oil, gas and other hydrocarbons
produced from such well bore and any revenue related thereto; (b) the
interest of the Gothic Parties in the wellbore of wells drilling and
or completed as of the date of this Agreement which are listed at
Schedule 1.1 attached as a part hereof which interest includes oil,
gas and other hydrocarbons produced from such wellbore and any revenue
related thereto; and (c) any Gothic Interest that is covered by that
certain Oil and Gas Asset Purchase Agreement of even date herewith
between Chesapeake and Gothic covering oil and gas interests in the
Arkoma Basin (the "Arkoma Purchase Agreement"). Notwithstanding the
foregoing, the Gothic Parties agree to convey to Chesapeake a non-
exclusive easement to utilize for the further development of the
Gothic Interests any such producing wellbore that the Gothic Parties
intend to plug or abandon. For purposes of this Agreement a well will
be deemed to be "producing oil and gas in commercial quantities" if
such well has produced or is capable of producing oil and gas in
sufficient quantities to yield a return in excess of lifting expenses
for the ninety (90) days prior to the determination date.
1.2 Related Interests. The Gothic Parties agree to sell and Chesapeake
agrees to purchase an undivided fifty percent (50%) interest of the
Gothic Parties' right, title and interest in and to any Related
Interests as of the date of this Agreement less and except: (a) any
interest of the Gothic Parties in any wellbore which on the date of
the Letter of Intent was producing oil and gas in commercial
quantities which interest includes oil, gas and other hydrocarbons
produced from such well bore and any revenue related thereto; (b) the
interest of the Gothic Parties in the wellbore of wells drilling and
or completed as of the date of this Agreement which are listed at
Schedule 1.1 attached as a part hereof which interest includes oil,
gas and other hydrocarbons produced from such wellbore and any revenue
related thereto; and (c) any Gothic Interest that is covered by the
Arkoma Purchase Agreement. For purposes of this Agreement "Related
Interests" means a non-cost bearing interest in oil, gas and other
hydrocarbons owned by the Gothic Parties on the date of this Agreement
which covers lands located in whole or in part in: (a) a governmental
production unit containing Existing Acreage; and (b) lands covered by
the Existing Acreage. The term Related Interests also includes,
without implied limitation, mineral interests, royalty interests,
overriding royalty interests, net profits interests, production
payments, any such interests acquired from Amoco Production Company
under that certain Purchase and Sale Agreement with Gothic dated
November 24, 1997 (the "Amoco Agreement"), and the interests described
at Schedule "1.2" attached as a part hereof.
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<PAGE>
1.3 Reconveyance Obligation. Effective on April 30, 2003, (the
"Reconveyance Date"), Chesapeake hereby agrees to reconvey to the
Gothic Parties any Gothic Interests conveyed to Chesapeake under
paragraphs 1.1 or 1.2 of this Agreement other than the Gothic
Interests that: (a) cover any lands included in a governmental
production unit for a Proposed Well (as hereinafter defined) proposed
prior to the Reconveyance Date and spudded prior to December 31, 2003;
(b) cover any lands included in a governmental production unit for any
well spudded after the date of this Agreement but prior to the
Reconveyance Date; (c) were reconveyed to the Gothic Parties, sold by
Chesapeake in accordance with this Agreement or farmed out by
Chesapeake (or otherwise conveyed) in accordance with this Agreement
prior to the Reconveyance Date; or (d) were acquired by Chesapeake
pursuant to the Arkoma Purchase Agreement. To consummate the foregoing
reconveyance Chesapeake will execute and deliver to the Gothic Parties
an assignment in substantially the form at Schedule "1.3" attached as
a part hereof and will warrant title by, through and under Chesapeake,
but not otherwise. For purposes of this Agreement the term
"governmental production unit" means the area of land as to which
parties with interest therein are bound to share the minerals produced
from a well on a specified basis and as to which those having the
right to conduct drilling or mining operations therein are bound to
share investment and operating costs on a specified basis. A
governmental production unit may be formed by agreement or by order of
an agency of the state or federal government empowered to do so and
includes drilling units, spacing units, pooled units and proration
units.
2. Additional Purchase Price. In addition to the Financing Transaction and any
consideration relating thereto Chesapeake agrees to pay to the Gothic Parties as
additional consideration for the Gothic Interests to be conveyed to Chesapeake
the sum of Ten Million, Five Hundred Thousand Dollars ($10,500,000.00) (the
"Additional Purchase Price"). The Additional Purchase Price will be paid by
Chesapeake to the Gothic Parties on the Closing Date as hereinafter defined.
3. Initial Closing. Subject to the terms and conditions set forth in this
Agreement, the Gothic Parties and Chesapeake agree that the purchase and sale of
the Gothic Parties' interest in the Existing Acreage and the Related Interests
will be consummated as follows:
3.1 Closing Date. The sale will close on or before April 27, 1998 (the
"Closing Date"). The closing will take place by wire transfer of funds
and telefacsimile of documents with next day delivery of hard copies
of closing documents.
3.2 Gothic Parties' Deliveries. On the Closing Date the Gothic Parties
will deliver or cause to be delivered: (a) special warranty
assignments and conveyances in substantially the form of Schedule
"3.2" attached as a part hereof conveying to Chesapeake the fifty
percent (50%) interest in the Existing Acreage and the Related
Interests; (b) any title curative documents required by this Agreement
including, without implied limitation, the Subordination Agreement (as
hereinafter defined); (c) any letters in lieu of transfer covering the
interests to be assigned to Chesapeake and reasonably acceptable to
Chesapeake; and (d) such additional
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<PAGE>
documents as might be reasonably requested by Chesapeake. Where
appropriate each of the foregoing documents will be duly executed,
acknowledged and filed by Chesapeake.
3.3 Chesapeake's Deliveries. On the Closing Date Chesapeake will: (a) pay
the Additional Purchase Price in immediately available funds; and (b)
deliver or cause to be delivered any documents reasonably requested by
the Gothic Parties. Where appropriate each of the foregoing documents
will be duly executed, acknowledged and filed by Chesapeake.
3.4 Possession. Possession of the interests to be conveyed to Chesapeake
in the Existing Acreage and the Related Interests together with
unrestricted access to any information required to be provided under
this Agreement will be provided to Chesapeake on the Closing Date,
free from all parties claiming rights to possession of or having
claims against such Gothic Interests arising by, through or under the
Gothic Parties. Effective on the Closing Date, beneficial ownership
and the risk of loss of the interests in the Existing Acreage and the
Related Interests to be conveyed to Chesapeake under this Agreement
will pass from the Gothic Parties to Chesapeake.
3.5 Cost. The Gothic Parties will pay the following closing costs: (a) the
Gothic Parties' attorneys' fees; (b) any investment banking fees
incurred in connection with this transaction; (c) the cost of
documentary stamps to be affixed to any deeds conveying title to
Chesapeake; and (d) any other charge imposed for the transfer of any
item comprising the Existing Acreage or the Related Interests.
Chesapeake will pay only the following closing costs: (y) Chesapeake's
attorneys' fees; and (z) the cost of recording all documents.
4. Representations and Warranties. As an inducement to Chesapeake to enter
into this Agreement, the Gothic Parties represent and warrant to Chesapeake that
as of the date of this Agreement and the Closing Date:
4.1 Organization, Good Standing, Etc. Each of the Gothic Parties is a
corporation duly organized, validly existing and in good standing
under the laws of the state of the formation for such party and has
the corporate power to own such party's property and to carry on such
party's business as now being conducted. Each of the Gothic Parties
has the power to execute and deliver this Agreement and to consummate
the transactions contemplated hereby. Each of the Gothic Parties is
duly qualified and/or licensed, as may be required, and in good
standing in each of the jurisdictions in which the Gothic Interests
are located. The Gothic Parties are not in default under or in
violation of any provision of the Gothic Parties' certificates of
incorporation or bylaws.
4.2 Authority. Each of the Gothic Parties has taken all necessary action
to authorize the execution, delivery and performance of this Agreement
and has adequate power, authority and legal right to enter into,
execute, deliver and perform the transactions contemplated by this
Agreement. This Agreement is legal, valid and
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<PAGE>
binding with respect to the Gothic Parties and is enforceable in
accordance with its terms. On execution, delivery and performance of
this Agreement in accordance with its terms, Chesapeake will acquire
all of the Gothic Interests to be conveyed to Chesapeake free of all
claims, liens, encumbrances and liabilities by, through or under the
Gothic Parties including, without limitation, any mortgages, liens or
security interests granted by the Gothic Parties in connection with
the BancOne Loan (as hereinafter defined).
4.3 No Assumption of Obligations. Except as set forth in Schedule "4.3"
attached as a part hereof, the execution and consummation of this
Agreement by Chesapeake will not obligate Chesapeake with respect to
(or result in the assumption by Chesapeake of) any obligation of the
Gothic Parties arising prior to the Closing Date under or with respect
to, any liability, agreement or commitment relating to the Gothic
Interests including, without implied limitation, any obligation to pay
to or share with any third party any portion of the hydrocarbons
attributable to the Gothic Interests to be conveyed to Chesapeake.
4.4 Absence of Liabilities. Except as set forth in Schedule "4.4" attached
as a part hereof: (a) the Gothic Parties have no debt, liability,
obligation or commitment, absolute or contingent, known or unknown,
relating to or connected with the Gothic Interests to be conveyed to
Chesapeake; (b) neither Chesapeake nor the Gothic Interests will be
subject to or liable for any claim, debt, liability, lien,
encumbrance, obligation, guaranty, commitment or gas imbalance on the
Closing Date; and (c) any such claims, debts, liabilities, obligations
or commitments will be the sole responsibility of the Gothic Parties
and the Gothic Parties hereby agree to indemnify and hold harmless
Chesapeake from all such matters. The Gothic Parties have complied and
will continue to comply with all applicable federal, state or local
statutes, laws and regulations.
4.5 Contracts. The Gothic Parties have delivered copies or provided
unrestricted access to Chesapeake of true copies (or descriptions, in
the case of oral agreements) of all of the contracts and agreements
relating to the Gothic Interests, including, without limitation, all
marketing and production sales contracts. Except as set forth in
Schedule "4.5" attached as a part hereof, there are no other material
contracts, commitments or agreements in effect related to the Gothic
Interests that have not been disclosed to Chesapeake in writing
including, without implied limitation, marketing or production sales
contracts that will in any way prevent or hinder Chesapeake from
taking in kind Chesapeake's share of production from the Gothic
Interests and selling such production to the person selected by
Chesapeake. Except as set forth in Schedule "4.5" attached as a part
hereof: (a) such contracts and agreements are in full force and
effect; (b) no event of default or event which would become an event
of default with the giving of notice or passage of time has occurred;
and (c) no condition presently exists which would give any party to
any such contract the right to terminate such contract. There are no
other material contracts, commitments or agreements in effect related
to the Gothic Interests that have not been disclosed to Chesapeake in
writing.
-5-
<PAGE>
4.6 Consents and Approvals. No notice to, filing with, or authorization,
consent or approval of any governmental entity, person or other entity
is necessary for the consummation of the transactions contemplated by
this Agreement. The execution, delivery, performance and consummation
of this Agreement does not and will not: (a) violate, conflict with or
constitute a default or an event that, with notice or lapse of time or
both, would be a default, breach or violation under any term or
provision of any instrument, agreement, contract, commitment, license,
promissory note, conditional sales contract, indenture, mortgage, deed
of trust, lease or other agreement, instrument or arrangement to which
the Gothic Parties are a party or by which the Gothic Parties or the
Gothic Interests are bound; (b) violate, conflict with or constitute a
breach of any statute, regulation or judicial or administrative order,
award, judgment or decree to which the Gothic Parties are a party or
to which the Gothic Parties or the Gothic Interests are bound; or (c)
result in the creation or imposition of any adverse claim or interest,
lien, encumbrance, charge, equity or restriction of any nature
whatsoever, upon or affecting the Gothic Parties, the Gothic Interests
or Chesapeake.
4.7 Litigation. Except as disclosed in Schedule "4.7" attached as a part
hereof, there is: (a) no action, suit or proceeding pending,
threatened or contemplated against the Gothic Parties or the Gothic
Interests; and (b) no proceeding, investigation, charges, audit or
inquiry threatened or pending before or by any federal, state,
municipal or other governmental court, department, commission, board,
bureau, agency or instrumentality which might result in an adverse
effect on the Gothic Parties or the Gothic Interests. The Gothic
Parties hereby agree to indemnify and hold harmless Chesapeake with
respect to any and all litigation and proceedings including, without
limitation, the matters described in Schedule "4.7."
4.8 Title. Except as set forth in Schedule "4.8" attached as a part
hereof, the Gothic Parties own, possess and hold good and defensible
title beneficially and of record in and to the respective Gothic
Interests free and clear of all claims, liens, encumbrances,
conditions, gas imbalances, restrictions, calls on production,
obligations to pay to or share with third parties any revenue or other
matter adversely affecting the value or ownership of the Gothic
Interests. All of the oil, gas and related interests of every kind and
character owned by the Gothic Parties or any of the Gothic Parties'
direct or indirect subsidiaries which are located in the Participation
Area are described in Schedules "A" and "1.2" attached as a part
hereof. There does not exist any lien, claim, encumbrance, restriction
or other matter which might cause Chesapeake to not receive for its
own account free and clear of all liens, claims and encumbrances the
percentage of the fair market value of all hydrocarbons produced,
saved or used from each of the Gothic Interests to be conveyed to
Chesapeake.
4.9 Oil and Gas Leases in Good Standing. Except as disclosed in Schedule
"4.9" attached as a part hereof: (a) to the best of the Gothic
Parties' knowledge all oil and gas leases which were acquired by the
Gothic Parties under the Amoco Agreement are in full force and effect,
and the Gothic Parties are not in default
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<PAGE>
thereunder; and (b) all other oil and gas leases which are material
singly or in the aggregate are in full force and effect, and the
Gothic Parties are not in default thereunder.
4.10 Taxes. All ad valorem, property, production, severance and similar
taxes and assessments based on or measured by the ownership of
property comprising the Gothic Interests or the production or removal
of hydrocarbons or the receipt of proceeds therefrom have been timely
paid when due and are not in arrears.
4.11 Contracts, Consents and Preferential Rights. The Gothic Parties have
described in Schedule "4.11" attached as a part hereof: (a) all
partnership, joint venture, farmin/farmout, dry hole, bottom hole,
acreage contribution, area of mutual interest, purchase and/or
acquisition agreements of which any terms remain executory which
materially affect the Gothic Interests; (b) all other executory
contracts to which the Gothic Parties are a party which materially
affect any item of the Gothic Interests; (c) all governmental or court
approvals and third party contractual consents required in order to
consummate the transactions contemplated by this Agreement; (d) all
agreements pursuant to which third parties have preferential rights or
similar rights to acquire any portion of the Gothic Interests upon the
sale contemplated by this Agreement; and (e) all other contracts and
agreements which are in any single case or in the aggregate of
material importance to the Gothic Interests.
4.12 Environmental and Safety Matters. Except as set forth in Schedule
"4.12" attached as a part hereof and insofar as it pertains to the
Gothic Inter ests:
4.12.1 The Gothic Parties are not aware, and have not received notice
from any person, entity or governmental body, agency or
commission, of any release, disposal, event, condition,
circumstance, activity, practice or incident concerning any
land, facility, asset or property that: (a) interferes with
or prevents compliance or continued compliance by the Gothic
Parties (or by Chesapeake after the Closing Date) with any
United States, state or local law, regulation, code or
ordinance or the terms of any license or permit issued
pursuant thereto; or (b) gives rise to or results in any
common law or other liability of the Gothic Parties to any
person, entity or governmental body, agency or commission
for damage or injury to natural resources, wildlife, human
health or the environment which would have a material
adverse effect on the Gothic Parties in each case.
4.12.2 The Gothic Parties are not aware of any civil, criminal or
administrative action, lawsuit, demand, litigation, claim,
hearing, notice of violation, investigation or proceeding,
pending or threatened, against the Gothic Parties or the
operator of any of the lands, facilities, assets and
properties owned or formerly owned, operated, leased or used
by the Gothic Parties as a result of the
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<PAGE>
violation or breach of any federal, state or local law,
regulation, code or ordinance or any duty arising at common
law to any person, entity or governmental body, singly or in
the aggregate, which if determined adversely would have a
material adverse effect on the Gothic Parties.
4.13 Payout and Gas Balancing. Schedule "4.13" attached as a part hereof,
contains a complete and accurate list of: (a) the status of any
"payout" balance as of December 31, 1997, for each of the Gothic
Interests that is subject to a reversion or other adjustment at some
level of cost recovery or payout (or passage of time or other event,
other than cessation of production); and (b) all over or under gas
imbalances relating to the Gothic Interests as of December 31, 1997.
4.14 Affiliate Transactions. There are no transactions affecting any of the
Gothic Interests between the Gothic Parties and any of the Gothic
Parties' affiliates, except as set forth in Schedule "4.14" attached
as a part hereof.
4.15 Full Disclosure. This Agreement, any schedule referenced in or
attached to this Agreement, any document furnished to Chesapeake under
this Agreement and any certification furnished to Chesapeake under
this Agreement does not contain any untrue statement of a material
fact and does not omit to state a material fact necessary to make the
statements made, in the circumstances under which they were made, not
misleading. To the best knowledge of each Seller all of the
representations, warranties and covenants in this Agreement: (a) are
true and correct as of the date made; (b) will be true and correct as
of the Closing Date; and (c) will survive and not be waived,
discharged, released, modified, terminated or affected by any due
diligence by Chesapeake.
5. Chesapeake's Representations and Warranties. Chesapeake is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Oklahoma and has all requisite corporate power and authority to own,
lease, and operate its properties and to conduct its business as now being
conducted. Chesapeake has full corporate power and authority to execute, deliver
and perform this Agreement.
6. Covenants. The parties agree to perform the following prior to the Closing
Date:
6.1 Access to Information. During the period commencing on the date of
this Agreement and ending on the Closing Date, the Gothic Parties will
afford Chesapeake and Chesapeake's authorized representatives full
access during normal business hours to the properties, books, records,
employees, accountants and lawyers of the Gothic Parties to make such
investigation as Chesapeake desires regarding the Gothic Interests and
furnish such financial, operating data, information and responses as
Chesapeake might reasonably request with respect to the Gothic
Interests.
6.2 Inspection. Prior to the Closing Date Chesapeake will conduct such
investigation and inspection with respect to the Gothic Interests as
Chesapeake deems
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appropriate. If Chesapeake determines in good faith that the Gothic
Interests are unsatisfactory for any reason whatsoever, Chesapeake
will provide written notice to the Gothic Parties setting forth
Chesapeake's objections. The Gothic Parties agree to use the Gothic
Parties' best efforts to satisfy Chesapeake's objections.
6.3 Consents. The parties will use their best efforts to obtain all
licenses, permits, consents, approvals, authorizations, qualifications
and orders of governmental authorities and parties to contracts with
the Gothic Parties as are necessary for the consummation of the
transactions contemplated by this Agreement. However, no contract will
be amended to increase the amount payable thereunder and no burden to
the Gothic Parties or Chesapeake will be increased to obtain any
consent, approval or authorization.
6.4 Conditions. The Gothic Parties and Chesapeake will use their
respective best efforts to cause the conditions in paragraphs 11 and
12 to be satisfied.
6.5 Subordination. Certain lenders have extended or will extend credit to
the Gothic Parties which is secured by one (1) or more mortgages,
liens, security interests and encumbrances covering all or part of the
Gothic Interests, including, without implied limitation, the credit
extended pursuant to that certain Third Amended and Restated Credit
Agreement between the Gothic Parties and BancOne, N.A. dated March 30,
1998 (the "BancOne Loan") and the notes to be issued by the Gothic
Parties as a condition precedent under paragraph 4.1(j) of the
Securities Purchase Agreement. The Gothic Parties hereby agree as
follows with respect to the BancOne Loan and any other loan secured by
the Gothic Interests: (a) any and all mortgages, liens, security
interests or other encumbrances granted in connection with or securing
the BancOne Loan or any other loan will be terminated and released
with respect to any Gothic Interest to be assigned or conveyed to
Chesapeake in connection with this Agreement on or before the date
such Gothic Interest is conveyed to Chesapeake; (b) the Gothic Parties
will cause to be delivered and executed on or before the Closing Date
a subordination agreement (the "Subordination Agreement") in form and
substance satisfactory to Chesapeake subordinating any claim,
mortgage, lien, security interest or other encumbrance on the Gothic
Interests to be conveyed to Chesapeake after the Closing Date securing
the BancOne Loan or any other loan to the Chesapeake Claims; and (c)
the Gothic Parties will take such commercially reasonable actions as
might be requested by Chesapeake to ensure that all amounts owing by
the Gothic Parties with respect to any well drilled on the Gothic
Interests will be paid in full in accordance with this Agreement and
any related agreements. For purposes of this Agreement "Chesapeake
Claims" means any interest in or claim against the Gothic Parties or
the Gothic Interests which is owned or claimed by Chesapeake
including, without implied limitation, any ownership interest in the
Gothic Interests, any right to acquire one (1) or more of the Gothic
Interests and any interest or amounts claimed by Chesapeake or any
other person with respect to the acquisition, ownership or development
of the Gothic Interests whether as operator or owner.
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6.6 Title and Information. During the term of this Agreement the Gothic
Parties agree to provide to Chesapeake unrestricted access to and
permit Chesapeake to make copies of the following (whether in paper or
computerized form): (a) all title information relating to the Gothic
Interests which is in the possession of or available to the Gothic
Parties; (b) any additional title information relating to the Gothic
Interests, if as and when obtained by or made available to the Gothic
Parties; and (c) any technical information relating to the Gothic
Interests which is in the possession of or available to the Gothic
Parties including, without implied limitation, geological, seismic,
engineering and land information, data, records or files. The Gothic
Parties will convey title to the Gothic Interests free and clear from
all liens, security interests and mortgages securing the BancOne Loan
or any other loans or liabilities and will warrant title by, through
or under the Gothic Parties but not otherwise. The Gothic Parties
agree that none of the Gothic Interests will be subject to any
overriding royalty interests in favor of the Gothic Parties or their
respective affiliates, employees or consultants. As used in this
Agreement: (i) "affiliate" means, as to any person, each officer or
director of such person and each other person that directly or
indirectly (through one (1) or more intermediaries) controls, is
controlled by or is under common control with such person; and (ii)
"person" means an individual, corporation, partnership, limited
liability company, association, joint stock company, trust, associate
(as defined in regulations promulgated by the Securities and Exchange
Commission) or other legally recognizable entity.
7. Gothic Party Acquisitions. Chesapeake and the Gothic Parties agree to the
creation of the Participation Area and the right of Chesapeake to participate in
future acquisitions on the following terms:
7.1 Existing Agreements. The Gothic Parties represent and warrant that:
(a) the Existing Acreage and the Related Interests constitute all oil,
gas and mineral interests owned by the Gothic Parties in the
Participation Area as of the date of this Agreement; (b) except as
disclosed in Schedule "7.1" attached as a part hereof the Gothic
Parties have not entered into, are not parties to or in any way
subject to any option, participation agreement, area of mutual
interest agreement or similar agreement which burdens any acreage
within the Participation Area as of the date hereof; and (c) except in
connection with a third party farmin (which applies only to the
acreage being acquired under such farmin agreement) the Gothic Parties
will not enter into any option, participation agreement, area of
mutual interest agreement or similar agreement covering the
Participation Area which has an adverse effect on Chesapeake or any of
Chesapeake's rights or benefits under this Agreement. Notwithstanding
the foregoing, the Gothic Parties and Chesapeake hereby agree that the
Pecos Slope Acreage is excluded from the Participation Area and will
not be governed by or subject to the provisions of this Agreement.
7.2 Acquisition Acreage Option. The Gothic Parties hereby grant to
Chesapeake the option to purchase up to an undivided fifty percent
(50%) interest in all Acquisition Acreage acquired or to be acquired
by the Gothic Parties after the date hereof. If during the term of
this Agreement the Gothic Parties or any affiliate of
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the Gothic Parties (a) enter into a definitive purchase and sale
agreement, contract, lease or other agreement providing for the
acquisition of any Acquisition Acreage; (b) have the right to acquire
Acquisition Acreage including, without implied limitation, any right
under any joint operating agreement, any unitization order or
agreement, any forced pooling order, area of mutual interest agreement
or any other agreement or order, or (c) actually acquires Acquisition
Acreage for which a prior notice has not been provided to Chesapeake,
then the Gothic Parties will give written notice to Chesapeake of such
acquisition within ten (10) days after such agreement is executed and
the earnest money deposit, if any, is paid by the Gothic Parties (an
"Acquisition Notice"). The Acquisition Notice will set forth and
include: (a) the location of all of the Acquisition Acreage as
reflected on an accompanying plat; (b) an itemized statement of
Acquisition Costs (as hereinafter defined) and amount of acreage
covered by the Acquisition Notice; (c) the date of the acquisition and
a copy of any letters of intent, purchase contracts, agreements,
mineral leases and assignments; (d) all of the terms of such
acquisition (including leasehold burdens and drilling commitments);
(e) all title information in the possession of or available to the
Gothic Parties; (f) all seismic, geological or engineering information
relating to such Acquisition Acreage which is in the possession of or
available to the Gothic Parties; and (g) any other information
reasonably requested by Chesapeake. The foregoing information will be
made available to Chesapeake for review and photocopying. At
Chesapeake's option, to be exercised within fifteen (15) days after
receipt of a complete Acquisition Notice, Chesapeake will have the
right to acquire up to an undivided fifty percent (50%) interest in
the Acquisition Acreage acquired or to be acquired by the Gothic
Parties. The purchase price (the "Acquisition Price") for the
Acquisition Acreage to be acquired by Chesapeake will be the amount
equal to the portion of the Acquisition Costs equal to the percentage
of the Acquisition Acreage which Chesapeake elects to acquire under
this paragraph 7.2.
7.3 Acquisition Acreage. As used in this Agreement "Acquisition Acreage"
will mean and include any and all right, title or interest acquired by
the Gothic Parties in any manner (whether owned directly, indirectly,
beneficially or otherwise) in and to the following property,
contractual or other interests located in whole or in part within the
Participation Area: (i) any right of, contract for or lease for the
development and/or production of oil, gas and other hydrocarbons
including, without limitation, leasehold interests, working interests,
net revenue interests, overriding royalty interests, net profits
interests and production payments; (ii) any mineral, royalty or non-
participating royalty interests; (iii) any interests of the type
described in (i) or (ii) which may be earned or acquired by conducting
drilling, seismic or other operations or activities; and (iv) any
ownership interest in, indebtedness of and any option or other right
to acquire any of the foregoing in any person which owns any of the
foregoing interests in oil, gas and other hydrocarbons which are
located in whole or in part in the Participation Area including,
without implied limitation, any stock in any person, any membership
interests in partnerships or limited liability companies or interests
in business trusts.
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7.4 Acquisition Costs. As used in this Agreement "Acquisition Costs" means
the sum of the amounts paid to unaffiliated third parties for: (a)
leases or interests in oil and gas, including, but not limited to
bonuses, brokers' commissions, geological consulting fees, engineering
fees and the costs of any equipment or other assets purchased in
conjunction with the acquisition of such leases; (b) title insurance
or title examination costs, filing fees, recording costs, transfer
taxes, if any, and like charges in connection with the acquisition of
such leases; and (c) geological, geophysical, seismic, land,
engineering, drafting, accounting, legal and other like costs and
expenses incurred in connection with the acquisition of such leases.
As soon as practical after delivery of an Acquisition Notice, but in
any event not later than five (5) business days prior to the payment
of the Acquisition Price by Chesapeake, the Gothic Parties will
deliver to Chesapeake documentation supporting the calculation of the
Acquisition Costs for verification by Chesapeake.
7.5 Acquisition Closings. In the event Chesapeake elects to acquire all or
part of the Acquisition Acreage covered by an Acquisition Notice,
within fifteen (15) days after Chesapeake provides the notice of its
election to participate (or the next business day, if such day does
not fall on a business day) the acquisition will be closed by
Chesapeake paying the Acquisition Price for such Acquisition Acreage
and the Gothic Parties assigning to Chesapeake the Acquisition Acreage
to be acquired by Chesapeake by delivering an assignment in
substantially the form attached at Schedule "7.5" attached as a part
hereof. Chesapeake will record such assignment with appropriate
governmental authorities at Chesapeake's expense. If the Gothic
Parties are waiting on a farmout or third party assignment, the Gothic
Parties will make the assignment to Chesapeake within twenty (20) days
after the Gothic Parties receive such farmout or assignment or at
Chesapeake's request direct such assignment to be made by the seller
of the Acquisition Acreage directly to Chesapeake.
8. Chesapeake AMI Acquisitions. Chesapeake and the Gothic Parties agree to the
creation of the area of mutual interest (the "Chesapeake AMI") covering the
Gothic Parties' current 3D seismic projects in Oklahoma in the East Cement
Field, the West Cement Field, the Coyote Hill Prospect, the Northern Canadian
Prospect and the Calumet Prospects as outlined at Schedule "8" attached as a
part hereof and the right of the Gothic Parties to participate in future
acquisitions on the following terms:
8.1 Gothic Parties' Option. Chesapeake hereby grants to the Gothic Parties
as a group the option to purchase up to an undivided fifty percent
(50%) interest in Chesapeake Acreage (as hereinafter defined) to be
acquired by Chesapeake pursuant to an agreement entered into with an
unaffiliated third party after the Closing Date reduced by any
existing or future area of mutual interest agreement which Chesapeake
enters into with an unaffiliated third party covering all or part of
the Chesapeake Acreage. If Chesapeake or any affiliate of Chesapeake
enters into a definitive agreement or contract during the term of this
Agreement providing for the acquisition of any Chesapeake Acreage in
the Chesapeake AMI, Chesapeake will give written notice to the Gothic
Parties of the acquisition within ten (10) days after such agreement
is executed and the earnest money deposit, if
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any, is paid by Chesapeake (a "CGC Acquisition Notice"). The CGC
Acquisition Notice will set forth and include: (a) the location of all
of the Chesapeake Acreage as reflected on an accompanying plat; (b) an
itemized statement of CGC Acquisition Costs (as hereinafter defined)
and amount of acreage covered by the CGC Acquisition Notice; (c) the
date of the acquisition and a copy of any letters of intent, purchase
contracts, agreements, mineral leases and assignments; (d) all of the
terms of such acquisition (including leasehold burdens and drilling
commitments); (e) all title information in the possession of or
available to Chesapeake; and (f) and any other information reasonably
requested by the Gothic Parties. The foregoing information will be
made available to the Gothic Parties for review and photocopying. At
the Gothic Parties' option, to be exercised within fifteen (15) days
after receipt of each CGC Acquisition Notice, the Gothic Parties will
have the right to acquire up to an undivided fifty percent (50%)
interest in the Chesapeake Acreage acquired by Chesapeake as reduced
by any existing or future area of mutual interest agreement which
Chesapeake enters into with an unaffiliated third party covering all
or part of the Chesapeake Acreage. The purchase price (the "Gothic
Price") for the Chesapeake Acreage to be acquired by the Gothic
Parties will be the amount equal to the portion of the CGC Acquisition
Costs equal to the percentage of the Chesapeake Acreage which the
Gothic Parties elect to acquire under this paragraph 8.1.
8.2 Definitions. As used in this Agreement "Chesapeake Acreage" will mean
and include any and all right, title or interest acquired by
Chesapeake or Chesapeake's affiliates in and to the following
undeveloped interests in oil and gas located within the Chesapeake
AMI: (a) any contract or lease for the development and/or production
of oil, gas and other hydrocarbons including, without limitation,
leasehold interests, working interests, net revenue interests,
overriding royalty interests, net profits interests and production
payments; (b) any mineral, royalty or non-participating royalty
interests; and (c) any interests of the type described in (a) or (b)
which may be earned or acquired by conducting drilling, seismic or
other operations or activities. To qualify as Chesapeake Acreage the
oil and gas interest (x) must be a direct undeveloped interest in oil
and gas rather than an interest in a person, (y) cannot lie within the
governmental production unit for a well producing oil and gas in
commercial quantities in which Chesapeake is acquiring an interest in
the same transaction and (z) must be acquired by Chesapeake directly
from the landowner or from a person or company selling the oil and gas
interest in the ordinary course of business pursuant to a farmout
arrangement or pursuant to a pooling order entered by the appropriate
governmental authority. As used in this Agreement "CGC Acquisition
Costs" means any Acquisition Costs incurred by Chesapeake in the
acquisition of Chesapeake Acreage.
8.3 Acquisition Closings. In the event the Gothic Parties elect to acquire
all or part of the Chesapeake Acreage covered by a CGC Acquisition
Notice, within fifteen (15) days after the Gothic Parties provide
their election to participate (or the next business day, if such day
does not fall on a business day) the acquisition will be closed by the
Gothic Parties paying the Gothic Price for such Chesapeake Acreage and
Chesapeake assigning to the Gothic Parties the Chesapeake Acreage to
be
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acquired by the Gothic Parties by delivering an assignment in
substantially the form attached at Schedule "8.3" attached as a part
hereof. The Gothic Parties will record such assignment with the
appropriate governmental authorities at the Gothic Parties' expense.
If Chesapeake is waiting on a farmout or third party assignment,
Chesapeake will make the assignment to the Gothic Parties within
twenty (20) days after Chesapeake receives such farmout or assignment
or at the Gothic Parties' request direct such assignment to be made by
the seller of the Chesapeake Acreage directly to the Gothic Parties.
9. Lease Maintenance. During the term of this Agreement, except as otherwise
provided herein, the Gothic Parties agree to maintain the Existing Acreage,
the Related Interests and the Acquisition Acreage as follows:
9.1 Maintenance. The Gothic Parties agree to take the actions necessary to
maintain the oil and gas leases covering the Existing Acreage, the
Related Interests and the Acquisition Acreage in which Chesapeake and
the Gothic Parties own an interest in full force and effect for the
respective terms thereof, including, without implied limitation,
payment of delay rentals, taxes and other reasonable expenses
(collectively, the "Maintenance Expenses") necessary to maintain the
rights of Chesapeake and the Gothic Parties under the Existing
Acreage, the Related Interests and the Acquisition Acreage. Not less
than sixty (60) days prior to the date the Maintenance Expenses are
due, the Gothic Parties will inform Chesapeake whether the Gothic
Parties are going to take the actions necessary to maintain such
Existing Acreage, Related Interests or Acquisition Acreage. In the
event the Gothic Parties notify Chesapeake of the Gothic Parties'
intent to take the actions necessary to maintain the Existing Acreage,
the Related Interests or the Acquisition Acreage, within twenty (20)
days after receipt of an invoice therefor, Chesapeake will: (a) pay to
the Gothic Parties an amount equal to Chesapeake's proportionate share
of such Maintenance Expenses based on Chesapeake's percentage
ownership of the affected Existing Acreage, Related Interests and
Acquisition Acreage; or (b) assign all of Chesapeake's interest in
such Existing Acreage, Related Interests and Acquisition Acreage to
the Gothic Parties pursuant to the form of assignment at Schedule
"9.1A" attached as a part hereof. In the event the Gothic Parties
decide not to maintain any Existing Acreage, Related Interests or
Acquisition Acreage, within twenty (20) days after written request by
Chesapeake, the Gothic Parties will assign all of the Gothic Parties'
interest in such Existing Acreage, Related Interests or Acquisition
Acreage to Chesapeake pursuant to the form of assignment at Schedule
"9.1B" attached as a part hereof.
9.2 Renewals; Re-leasing. If prior to the reconveyance by Chesapeake under
paragraph 1.3 of this Agreement any of the Existing Acreage, the
Related Interests or Acquisition Acreage is renewed or any of the
acreage covered thereby is re-leased by the Gothic Parties, the Gothic
Parties will offer Chesapeake its pro rata share thereof at a price
equal to the Acquisition Costs for such renewal or re-leasing.
10. Development. The Gothic Parties and Chesapeake agree to jointly develop and
operate
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the Existing Acreage, the Related Interests and the Acquisition Acreage on
the terms and conditions set forth in this paragraph 10. From time to time
during the term of this Agreement, either Chesapeake or the Gothic Parties
(the "Proposing Party") may by written notice to the other party: (a)
designate a governmental production unit from the Existing Acreage and/or
the Acquisition Acreage (a "Prospect"); and (b) subject to the limitations
in paragraph 10.6 propose the drilling and completion of one (1) or more
wells on such Prospect (a "Proposed Well").
10.1 Proposed Well Information. With respect to each Proposed Well, the
Proposing Party will deliver to the other party to this Agreement (the
"Receiving Party") a Proposed Well information package with the notice
which will include the following: a brief geological presentation, a
map designating the Prospect, an AFE for the Proposed Well, signature
pages for the joint operating agreement (the "Joint Operating
Agreement") for the Proposed Well and signature pages for the
Memorandum of Joint Operating Agreement. The Joint Operating Agreement
will be in the form at Schedule "10.1" attached as a part hereof.
10.2 Participation Election. The Receiving Party will notify the Proposing
Party in writing whether the Receiving Party elects to participate in
the Proposed Well with all or part of the Receiving Party's interest
in any Existing Acreage, Related Interests and Acquisition Acreage
within fifteen (15) days after receipt of the Proposed Well
information package, unless otherwise extended in writing by the
Proposing Party. If the Receiving Party elects to participate in the
Proposed Well, the Receiving Party will deliver to the Proposing
Party: (a) an executed Joint Operating Agreement signature page for
such Proposed Well; (b) an executed AFE for such Proposed Well; and
(c) an executed Memorandum of Joint Operating Agreement for such well
which will be promptly filed by the Proposing Party in the appropriate
governmental office. In the event the Receiving Party is a Gothic
Party and the Gothic Party elects not to participate with all or part
of the Existing Acreage, Related Interests or Acquisition Acreage
retained by the Gothic Parties (the "Retained Interest") in any
Proposed Well or fails to elect to participate within the required
time period, the Gothic Parties will be deemed to have: (i) elected
not to participate in the Proposed Well; and (ii) agreed to farmout
all of the Retained Interest included in the Prospect for such
Proposed Well to Chesapeake at a net revenue interest equal to the
existing net revenue interest of such Gothic Party with no overriding
royalty interest being retained by the Gothic Party. The acreage
earned pursuant to any such farmout will be limited to the Retained
Interest included in the governmental production unit for the Proposed
Well as finally approved by the appropriate governmental authority and
will be deemed earned on the earlier of the completion of such well as
a producing well or the drilling of such well to the total proposed
depth. The Gothic Parties agree to assign to Chesapeake the interest
earned under the foregoing farmout within thirty (30) days after such
interest is earned and to execute such additional documents as
Chesapeake, as the Proposing Party, reasonable requests to evidence
and convey any farmouts earned pursuant to this Agreement including an
outright assignment to Chesapeake of such interest coupled with an
obligation to reconvey such interest if such interest is not earned in
accordance with this paragraph 10.2.
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10.3 Resubmissions. In the event the Proposed Well is not spudded within
one hundred eighty (180) days following the Receiving Party's
election, or deemed election, to participate or not participate
therein, the Receiving Party's election under paragraph 10.2 will be
voided and the Proposing Party will be required to repropose such
Proposed Well in accordance with this paragraph 10.3. On such
reproposal the Receiving Party will be entitled to make a new
election under paragraph 10.2 of this Agreement.
10.4 Operations. Except for the Proposed Wells in which Chesapeake elects
not to participate or a well containing Gothic Interests for which a
third party not affiliated with the Gothic Parties was previously
appointed and is continuing to act as the operator, Chesapeake will
be appointed the operator on all Proposed Wells pursuant to the Joint
Operating Agreement and the parties agree to vote all of their
interests in such Proposed Well for Chesapeake as operator. With
respect to each Proposed Well in which the Gothic Parties have
elected to participate with at least twenty-five percent (25%) of the
Existing Acreage and Acquisition Acreage in the Retained Interest for
such well, the Gothic Parties will have the right to provide a
request for a resignation to Chesapeake within five (5) days after
the later of the following to occur: (a) first sale of production
from such Proposed Well; or (b) the completion of all proposed
drilling and completion of the Proposed Well as a producing oil or
gas well. If the Gothic Parties and Chesapeake have sufficient votes
together to ensure that a Gothic Party will be appointed as the
operator of such Proposed Well, Chesapeake agrees to resign as the
operator of such Proposed Well on the appointment of such Gothic
Party as the operator of the Proposed Well which resignation and
appointment will be effective on the first day of the month following
the satisfaction of all the foregoing conditions. The right of the
Gothic Parties to require Chesapeake to resign as operator will in no
event apply to any wells now or hereafter drilled or operated in the
Townships 4N-19E, 4N-20E, 5N-19E and 5N-20E except for Sections 1-7
in Township 5N-19E in the Arkoma Basin. If the Gothic Party appointed
as operator of a Proposed Well subsequently proposes to resign as the
operator of such Proposed Well, the Gothic Parties agree to use the
Gothic Parties' best efforts to cause Chesapeake or Chesapeake's
designee to be appointed as successor operator including, without
implied limitation, voting all of the Gothic Parties' interests in
such Proposed Well for Chesapeake as successor operator.
10.5 Third Party Wells. In the event an independent third party proposes a
well in a governmental production unit that includes Retained
Interests the Gothic Parties will within five (5) days after the
Gothic Parties receive notice of the proposal provide written notice
of the well proposal to Chesapeake and will, thereafter, notify
Chesapeake in writing in not less than ten (10) days after the Gothic
Parties receive the proposal if the Gothic Parties elect to
participate in such third party well or elect not to participate in
such third party well. For purposes of this Agreement the term
Proposal includes any forced pooling action or other unitization by
order of any governmental agency. In the event the Gothic Parties do
not elect to participate with all or part of the Retained Interest in
such well or fail to notify Chesapeake of the Gothic Parties'
decision to participate within the
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required time period, the Gothic Parties will at Chesapeake's
election be deemed to have agreed to farmout the Retained Interest
included in the Prospect for such third party well to Chesapeake on
terms no less favorable to Chesapeake than the terms the third party
proposing the well offered to the Gothic Parties in the initial
written well proposal. Notwithstanding the foregoing, a well will not
be a third party proposed well and will be deemed a Proposed Well and
subsequent to the farmout provisions at paragraph 10.2 of this
Agreement if: (a) Chesapeake or the Gothic Parties propose the well
in accordance with this Agreement prior to receipt of the written
well proposal from a third party; (b) after the well is proposed by
the third party Chesapeake or the Gothic Parties are or have the
right to become the operator of the well; or (c) the well is proposed
by the third party at the instigation of the Gothic Parties or
Chesapeake. The acreage earned pursuant to any such farmout will be
limited to the Retained Interest included in the governmental
production unit for the third party well as finally approved by the
appropriate governmental authority and will be deemed earned on the
earlier of the completion of such Proposed Well as a producing well
or the drilling of such Proposed Well to the total proposed depth.
The Gothic Parties agree to execute such additional documents as
Chesapeake reasonably requests, to assign to Chesapeake the interest
earned under the foregoing farmout within thirty (30) days after such
interest is earned and to execute such additional documents as
Chesapeake, reasonably requests to evidence and convey any farmouts
earned pursuant to this Agreement including an outright assignment to
Chesapeake of such interest coupled with an obligation to reconvey
such interest if such interest is not earned in accordance with this
paragraph. The Gothic Parties agree to cooperate with Chesapeake in
order to permit Chesapeake to exercise the rights under this
paragraph 10.5 including providing notice to Chesapeake of the Gothic
Parties' election not to participate in such well in sufficient time
for Chesapeake to elect to acquire such interest under this paragraph
10.5.
10.6 Limitations. The parties agree that the number of Proposed Wells to
be proposed by Chesapeake under this paragraph 10 will be limited to
the number of Proposed Wells proposed during such period under this
paragraph 10 that result in a Gothic AFE Amount of not more than: (a)
Fifteen Million Dollars ($15,000,000.00) during calendar year 1998;
and (b) Twenty-five Million Dollars ($25,000,000.00) during calendar
year 1999. The Gothic AFE Amount for any year will be equal to the
cumulative sum of the following amounts for each Proposed Well
proposed by Chesapeake to be drilled during such year: (y) the AFE
for such Proposed Well, multiplied by (z) the Gothic Parties'
percentage Retained Interest in such Proposed Well at the time the
proposal is made by Chesapeake. Chesapeake will be entitled to
withdraw a Proposed Well before such Proposed Well is spudded in
order to substitute a different Proposed Well in order to minimize
any adverse impact from this paragraph 10.6.
11. Chesapeake's Conditions Precedent. The obligation of Chesapeake to
consummate the transactions contemplated by this Agreement is subject to the
satisfaction or waiver (subject to applicable law) on or before the Closing Date
of each of the following conditions:
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11.1 No preliminary or permanent injunction or other order will have
been issued by any court of competent jurisdiction or any regulatory
body preventing consummation of the transactions contemplated by this
Agreement;
11.2 No action will have been commenced or threatened against the
Gothic Parties, Chesapeake or any of their respective affiliates,
associates, officers or directors seeking damages arising from, or to
prevent or challenge the transactions contemplated by this Agreement;
11.3 All representations and warranties of the Gothic Parties
contained herein will be true and correct in all material respects;
11.4 The Gothic Parties will have performed or satisfied as of the
Closing Date all obligations, covenants, agreements and conditions
contained in this Agreement to be performed or complied with by the
Gothic Parties;
11.5 All actions, proceedings, instruments and documents required to
carry out the transactions contemplated hereby will have been
reasonably satisfactory to Chesapeake's counsel, including, without
limitation, releases of any and all liens, claims, security interests
or other encumbrances covering any of the Gothic Interests, and the
Gothic Parties will have delivered such additional certificates and
other documents as Chesapeake reasonably requests including, without
limitation, such certificates of the Gothic Parties dated as of the
Closing Date evidencing compliance with the conditions set forth in
this paragraph 11;
11.6 Chesapeake shall have received and reviewed all schedules to be
provided by the Gothic Parties and such schedules shall not be
materially different than reasonably anticipated by Chesapeake; and
11.7 All of the transactions contemplated by the Arkoma Purchase
Agreement and the Securities Purchase Agreement of even date herewith
between the Gothic Parties and Chesapeake (the "Related Agreements")
shall have been consummated on the terms and conditions set forth in
the Related Agreements.
12. Gothic Parties' Conditions Precedent. The obligation of the Gothic Parties
to consummate the transactions contemplated by this Agreement is subject to the
satisfaction, on or before the Closing Date of each of the following conditions,
any or all of which may be waived in whole or in part:
12.1 No preliminary or permanent injunction or other order will have been
issued by any court of competent jurisdiction or any governmental or
regulatory body preventing consummation of the transactions
contemplated by this Agreement;
12.2 No action will have been commenced or threatened against the
Gothic Parties, Chesapeake or any of their respective affiliates,
associates, officers or directors seeking damages arising from, to
prevent or to challenge the transactions contemplated by this
Agreement;
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12.3 All representations and warranties of Chesapeake contained herein
will be true and correct in all material respects;
12.4 Chesapeake will have performed in all material respects all
obligations, agreements and conditions contained in this Agreement to
be performed or complied with by Chesapeake; and
12.5 The Gothic Parties will have received such certificates of
Chesapeake, dated the Closing Date, signed by officers of Chesapeake
and others to evidence compliance with the conditions set forth in
this paragraph 12.
12.6 All of the transactions contemplated by the Related Agreements
shall have been consummated on the terms and conditions set forth in
the Related Agreements.
13. Default; Remedy. In the event that either party fails to perform such
party's obligations hereunder (except as excused by the other party's default),
the party claiming default will make written demand for performance. If the
defaulting party fails to comply with such written demand within five (5)
business days after receipt thereof, the non-defaulting party will have the
option to waive such default or to exercise any other remedy available at law or
in equity. The remedies provided by this Agreement are cumulative and will not
exclude any other remedy to which a party might be entitled under this
Agreement. In the event that a party elects to selectively and successfully
enforce such party's rights under this Agreement, such action will not be deemed
a waiver or discharge of any other remedy. During the pendency of any default
or disputes, this Agreement will be deemed to be in full force and effect except
with respect to information to be provided under paragraph 16 hereof which on a
material default will be limited to the information required to be provided
under the Joint Operating Agreement and drilling proposals as provided in this
Agreement.
14. Term. Except as otherwise provided in this Agreement, the terms of this
Agreement relating to the rights and obligations of the parties to offer to sell
and to acquire interests in the Acquisition Acreage in the Participation Area
under paragraph 7 hereof and interests in the Chesapeake Acreage in the
Chesapeake AMI under paragraph 8 hereof will commence on March 31, 1998, and
continue until April 30, 2003 (the "Termination Date"). The remaining terms of
this Agreement relating to the Participation Area and the development of the
Existing Acreage, the Related Interests and the Acquisition Acreage will
continue until the earlier of the following to occur: (i) the development or
expiration of all of the Existing Acreage, the Related Interests and the
Acquisition Acreage; or (ii) the mutual agreement of the parties. Termination of
this Agreement will not affect any rights, titles or interests of the Gothic
Parties or Chesapeake in any Proposed Well for which drilling operations have
been proposed, committed, commenced or completed or the obligation of the Gothic
Parties or Chesapeake to fund such party's share of costs and make assignments
with respect thereto pursuant to this Agreement. Notwithstanding the foregoing,
any lease, contract or letter of intent entered into by the Gothic Parties prior
to the Termination Date, will be offered to Chesapeake in accordance with the
terms hereof.
15. Confidentiality. Until April 30, 2003, absent the other party's written
consent, neither party to this Agreement, or any of its affiliates, successors
or assigns, will release to any person,
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<PAGE>
not an interest owner, any geological, geophysical, reservoir, engineering,
production, title, cost or technical information pertaining to the progress,
tests or results of any well or any other written or documentary proprietary
information. Any announcements, news releases or disclosures of proprietary
information to the public concerning the proposed or actual operations and/or
actions taken or being considered pursuant to this Agreement will be made only
after notification to the other party hereto. This confidentiality provision
will not apply to: (a) reports to governmental agencies or others to which a
party is required by law to disclose such information; (b) disclosures to
reputable engineering firms, financial institutions, gas transmission companies
or other bona fide potential purchasers of hydrocarbon reserves; (c) disclosures
to other working interest owners or potential working interest owners or either
party's or any such interest owner's respective advisors, consultants or
potential funding sources; or (d) reports or disclosures to shareholders or
pursuant to SEC regulations or guidelines; or (e) disclosures pursuant to
existing exploration or area of mutual interest agreements to which one of the
parties to this agreement are parties as of the date of this Agreement.
16. Audits, Access and Information. The Gothic Parties will provide Chesapeake
reasonable access during normal business hours to information acquired in the
course of performance of this Agreement, including relevant seismic information,
if any, done for each Proposed Well. With respect to any Proposed Well, if any
party makes or causes to be made logs, cores, formation tests, drill stem tests
or production or other tests, each will promptly furnish the results thereof to
the other party hereto. The Gothic Parties and Chesapeake will have access to
any Proposed Well, including the derrick floor, at all reasonable times, but at
the Gothic Parties' or Chesapeake's sole risk and expense, to witness all
activities conducted by the operator of such well. Unless otherwise mutually
agreed, the Gothic Parties and Chesapeake will have no less than twelve (12)
operations meetings per calendar year. In addition, Chesapeake will have access
to the Gothic Parties' personnel including, without implied limitation, any
employees and consultants that provide services regarding land, geology,
operations, finance, marketing and legal.
17. Gothic Parties' Indemnification. The Gothic Parties agree to defend,
indemnify and hold harmless Chesapeake and its directors, officers, agents and
employees (the "CGC Indemnified Parties") for, from and against all losses,
diminution in value, damages, claims, liabilities, debts, obligations and
expenses (including interest, reasonable legal fees, and expenses of litigation)
in any way related to, arising from or connected with (whether known or
unknown): (a) any of the Gothic Interests or the operation thereof and arising
or related to the period before such Gothic Interest is assigned or conveyed to
Chesapeake of record; (b) any of the Retained Interests and the operation or
ownership thereof; (c) any of the wellbores or other interests and rights which
are retained by the Gothic Parties and not assigned to Chesapeake; (d) any
contractual liability or obligation assumed or entered into by the Gothic
Parties prior to the date of this Agreement; and (e) any breach or default in
performance by the Gothic Parties of any covenant or obligation set forth in
this Agreement or any related document. In addition to the foregoing, the
Gothic Parties will pay to the CGC Indemnified Parties interest on the amount of
any loss, damage, claim, liability, debt, obligation or expense the payment of
which is or becomes due to the CGC Indemnified Parties by the Gothic Parties,
such interest to be at a floating rate of interest equal to the prime rate
published from time to time in The Wall Street Journal. The remedies provided
by this paragraph 18 are in addition to, and not in lieu of, such other remedies
as may be available under applicable laws. Claims for indemnification will be
paid by the Gothic Parties within ten
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<PAGE>
(10) days after notification thereof. At the election of the CGC Indemnified
Parties the Gothic Parties agree to assume the defense of the CGC Indemnified
Parties on terms and conditions reasonably acceptable to the CGC Indemnified
Parties.
18. Chesapeake's Indemnification. Chesapeake agrees to defend, indemnify and
hold harmless the Gothic Parties and their directors, officers, agents and
employees (the "Gothic Indemnified Parties") for, from and against all losses,
damages, claims, liabilities, debts, obligations and expenses (including
interest, reasonable legal fees, and expenses of litigation) in any way related
to, arising from or connected with (whether known or unknown): (a) any of the
Gothic Interests conveyed to Chesapeake under this Agreement or the operation
thereof and arising after such Gothic Interest is assigned or conveyed to
Chesapeake of record; and (b) any breach of default in performance by Chesapeake
of any covenant or obligation set forth in this Agreement or any related
document. In addition to the foregoing, Chesapeake will pay to the Gothic
Indemnified Parties interest on the amount of any loss, damage, claim,
liability, debt, obligation or expense the payment of which is or becomes due to
the Gothic Indemnified Parties by Chesapeake, such interest to be at a floating
rate of interest equal to the prime rate published from time to time in The Wall
Street Journal. The remedies provided by this paragraph 18 are in addition to,
and not in lieu of, such other remedies as may be available under applicable
laws. Claims for indemnification will be paid by Chesapeake within ten (10) days
after notification thereof.
19. No Partnership. Neither this Agreement nor any other agreement between the
Gothic Parties and Chesapeake creates, nor will it be construed as creating, a
mining partnership, commercial partnership, partnership relationship or joint
venture. The liability of the parties hereto will be several and not joint or
collective. Each of the parties hereto elects under the Internal Revenue Code of
1986, as amended (the "Code"), to be excluded from the application of all of the
provisions of Subchapter K of Chapter 1 of Subtitle A of the Code. Subject to
the Gothic Parties' obligations under this Agreement to assign the Gothic
Interests to Chesapeake, the parties may engage in or possess any interest in
any other business venture of any nature or description, independently or with
others, including, but not limited to, the acquisition ownership, financing,
leasing, operation, or development of oil and gas interests. The Gothic Parties
will not have any right to participate in any such venture or activity conducted
or to be conducted by Chesapeake or the property, oil and gas interests, income
or profits related thereto or derived therefrom.
20. Miscellaneous. It is further agreed as follows:
20.1 Notices. Any notice, payment, demand or communication required or
permitted to be given by any provision of this Agreement will be in
writing and will be deemed to have been given when delivered
personally to the party designated to receive such notice, or on the
first business day following the date sent by overnight courier or
telefacsimile, or on the third (3rd) business day after the same is
sent by certified mail, postage and charges prepaid, directed to the
following addresses or to such other or additional addresses as any
party might designate by written notice to the other party:
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<PAGE>
To Chesapeake: Chesapeake Gothic Corp.
6100 North Western Avenue
Oklahoma City, Oklahoma 73118
Attn: Aubrey K. McClendon
Telephone (405) 848-8000
Fax No. (405) 848-8588
To Gothic Parties: Gothic Energy Corporation
5727 South Lewis, Suite 700
Tulsa, Oklahoma 74105-7148
Attn: Michael K. Paulk
Telephone (918) 749-5666
Fax No. (918) 749-5882
20.2 Entire Agreement. This Agreement, the Related Agreements and the
instruments to be delivered pursuant to the foregoing constitute the
entire agreement between Chesapeake and the Gothic Parties relating
to the sale and development of the Gothic Interests and there are no
agreements, understandings, warranties or representations between the
Gothic Parties and Chesapeake except as set forth therein. Neither
this Agreement nor any of the provisions hereof can be changed,
waived, discharged or terminated, except by an instrument in writing
signed by the party against whom enforcement of the change, waiver,
discharge or termination is sought. The failure by any party to
insist on strict performance of the obligations created by this
Agreement will not be a waiver of any right to demand strict
compliance with this Agreement at any later time.
20.3 Binding Effect. This Agreement will inure to the benefit of and bind
the respective successors and permitted assigns of the parties
hereto, including, without limitation, any party deemed to become an
affiliate of the Gothic Parties either by merger or the acquisition
of capital stock or equity interests.
20.4 Severability. If any clause or provision of this Agreement is
illegal, invalid or unenforceable under any present or future law,
the remainder of this Agreement will not be affected thereby. It is
the intention of the parties that if any such provision is held to be
illegal, invalid or unenforceable, there will be added in lieu
thereof a provision as similar in terms to such provision as is
possible to make such provision legal, valid and enforceable.
20.5 Counterpart Execution. This Agreement may be executed in
counterparts, each of which will be deemed an original document but
all of which will constitute a single document. This Agreement will
not be binding on or constitute evidence of a contract between the
parties until such time as a counterpart of this Agreement has been
executed by each party and a copy thereof delivered to the other
parties to this Agreement.
20.6 Survival. The covenants, representations and warranties of the
parties herein contained will be effective on the Closing Date and
will survive closing.
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<PAGE>
20.7 Assignment. The rights and obligations of the Gothic Parties under
this Agreement and the Gothic Parties interest in the Gothic
Interests cannot be assigned in whole or in part without the prior
written consent of Chesapeake.
20.8 Governing Law. This Agreement is executed, delivered and intended to
be performed in the State of Oklahoma, and the substantive laws of
the State of Oklahoma will govern the validity, construction and
enforcement of the Agreement.
20.9 Construction. Nothing contained in this Agreement will be construed
to constitute the parties as joint venturers or to constitute a
partnership. The descriptive headings of the paragraphs of this
Agreement are for convenience only and are not to be used in the
construction of the content of this Agreement. In the event of a
conflict between the provisions of this Agreement and the provisions
of the Joint Operating Agreement, this Agreement will control to the
extent of such conflict.
20.10 Memorandum of Agreement. For purposes of public notification,
Chesapeake and the Gothic Parties will execute and file of record in
each county where the Gothic Interests are located a Memorandum of
Agreement in the form at Schedule "20.10" attached as a part hereof.
20.11 Press Release. Each party will prepare and issue its own press
releases relating to this Agreement, provided, however, each party
will have the right to approve the other party's proposed press
release.
IN WITNESS WHEREOF, this Agreement has been executed by the parties
on the dates hereafter indicated to be effective on the date first above
written.
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<PAGE>
CHESAPEAKE GOTHIC CORP., an Oklahoma corporation
By
----------------------------------------------
Aubrey K. McClendon, President
Date Executed:
----------------------------------
("Chesapeake")
GOTHIC ENERGY CORPORATION, an Oklahoma
corporation
By
----------------------------------------------
Michael K. Paulk, President
Date Executed:
----------------------------------
("Gothic")
GOTHIC ENERGY OF TEXAS, INC., an Oklahoma
corporation
By
----------------------------------------------
Michael K. Paulk, President
Date Executed:
----------------------------------
("Gothic Texas)
GOTHIC PRODUCTION COMPANY, an Oklahoma
corporation
By
----------------------------------------------
Michael K. Paulk, President
Date Executed:
----------------------------------
("Gothic Production")
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<PAGE>
EXHIBIT 10.4
OIL AND GAS
ASSET PURCHASE AGREEMENT
between
GOTHIC ENERGY CORPORATION
and
CHESAPEAKE GOTHIC CORP.
Effective January 1, 1998
SELF, GIDDENS & LEES, INC.
ATTORNEYS AND COUNSELORS
2725 Oklahoma Tower . 210 Park Avenue .
Oklahoma City, Oklahoma 73102-5604
Telephone (405) 232-3001 . Telecopier (405) 232-5553
<PAGE>
TABLE OF CONTENTS
-----------------
Page
1. Sale Agreement........................................................... 1
2. Purchase Price........................................................... 3
2.1 Cash at Closing................................................... 3
2.2 Allocation........................................................ 3
3. Representations and Warranties........................................... 3
3.1 Organization, Good Standing, Etc.................................. 3
3.2 Authority......................................................... 3
3.3 No Assumption of Obligations...................................... 3
3.4 Absence of Liabilities............................................ 4
3.5 Contracts......................................................... 4
3.6 Consents and Approvals............................................ 4
3.7 Litigation........................................................ 5
3.8 Title............................................................. 5
3.9 Foreign Person.................................................... 5
3.10 Broker's or Finder's Fees......................................... 6
3.11 Permits........................................................... 6
3.12 Compliance with Laws.............................................. 6
3.13 Oil and Gas Leases in Good Standing............................... 6
3.14 Taxes............................................................. 6
3.15 Contracts, Consents and Preferential Rights....................... 6
3.16 Tax Partnerships.................................................. 7
3.17 Financial Statements.............................................. 7
3.18 Insurance......................................................... 7
3.19 Planned Future Commitments........................................ 7
3.20 Environmental and Safety Matters.................................. 7
3.21 Powers of Attorney................................................ 8
3.22 Plugging Status................................................... 8
3.23 Equipment......................................................... 8
3.24 Payout and Gas Balancing.......................................... 8
3.25 Affiliate Transactions............................................ 8
3.26 Intangible Property............................................... 8
3.27 Full Disclosure................................................... 9
4. Purchaser's Representations and Warranties............................... 9
5. Covenants................................................................ 9
5.1 Access to Information............................................. 9
5.2 Inspection........................................................ 9
5.3 Title Adjustments................................................. 9
5.4 Conduct of Businesses.............................................10
5.5 Consents..........................................................10
5.6 Conditions........................................................10
5.7 Capital Expenditures..............................................10
<PAGE>
6. Purchaser's Conditions Precedent.........................................11
7. Seller's Conditions Precedent............................................12
8. The Closing..............................................................13
8.1 Purchaser's Deliveries............................................13
8.1.1 Payment..................................................13
8.1.2 Evidence of Authority....................................13
8.1.3 Closing Memorandum.......................................13
8.1.4 Additional Documents.....................................13
8.2 Seller's Deliveries...............................................13
8.2.1 Assignments..............................................13
8.2.4 Evidence of Authority....................................14
8.2.5 Closing Memorandum.......................................14
8.2.6 Additional Documents.....................................14
8.3 Costs.............................................................14
9. Adjustments..............................................................14
10. Operations...............................................................14
11. Indemnification..........................................................15
12. Termination..............................................................17
13. Default..................................................................17
14. Miscellaneous............................................................17
14.1 Time..............................................................17
14.2 Notices...........................................................17
14.3 Representations and Warranties....................................18
14.4 Cooperation.......................................................18
14.5 Press Release.....................................................19
14.6 Choice of Law.....................................................19
14.7 Headings..........................................................19
14.8 Entire Agreement..................................................19
14.9 Assignment........................................................19
14.10 Amendment.........................................................19
14.11 Severability......................................................19
14.12 Attorney Fees.....................................................19
14.13 Waiver............................................................19
14.14 No Third Party Beneficiaries......................................20
14.15 Execution in Counterparts.........................................20
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<PAGE>
Schedule "1.1" Properties
Schedule "3.3" Obligations
Schedule "3.4" Liabilities
Schedule "3.5" Contracts
Schedule "3.7" Litigation
Schedule "3.8" Title
Schedule "3.12" Violations of Law
Schedule "3.13" Oil and Gas Leases
Schedule "3.15" Contracts
Schedule "3.16" Tax Partnerships
Schedule "3.17" Financial Statements
Schedule "3.19" Planned Future Commitments
Schedule "3.20" Environmental & Safety Matters
Schedule "3.24" Payout and Gas Balancing
Schedule "3.25" Affiliate Transactions
Exhibit "6.7" Participation Agreement
Exhibit "8.2.1" Assignments and Conveyances
Exhibit "8.2.3A" Letters in Lieu of Transfer Orders
Exhibit "8.2.3B" Notice of Change of Operations and Ballots
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<PAGE>
OIL AND GAS ASSET PURCHASE AGREEMENT
------------------------------------
THIS AGREEMENT is entered into the 31st day of March, 1998,
effective January 1, 1998, among CHESAPEAKE GOTHIC CORP., an Oklahoma
corporation, CHESAPEAKE ACQUISITION CORPORATION, an Oklahoma corporation
(collectively, referred to herein as the "Purchaser"), and GOTHIC ENERGY
CORPORATION, an Oklahoma corporation (the "Seller").
B A C K G R O U N D :
A. The Seller owns various interests (the "Interests") in oil and gas
properties located in Atoka, Haskell, Latimer, LeFlore and Pittsburg Counties,
Oklahoma and Crawford, Franklin, Johnson and Logan Counties, Arkansas (the
"Arkoma Basin") including, without implied limitation, those listed at Schedule
"1.1" attached hereto as a part hereof.
B. The Purchaser desires to acquire and the Seller desires to sell an
undivided fifty percent (50%) of the Interests together with all assets, rights,
properties and claims which are used in or related to the ownership, operation
or maintenance of the Interests (the "Properties") as provided in this
Agreement.
NOW, THEREFORE, in consideration of the mutual covenants herein
contained and other good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, the parties agree as follows:
1. Sale Agreement. Subject to the terms and conditions of this Agreement, the
Purchaser agrees to purchase and the Seller agrees to sell absolute ownership of
an undivided fifty percent (50%) of all of the Seller's right, title and
interest in the Interests effective at 7:00 a.m. on January 1, 1998 (the
"Effective Date"), free and clear of all liens, claims and encumbrances. The
Properties include, without limitation, the following:
1.1 An undivided fifty percent (50%) interest in all of Seller's right,
title and interest in, to and under the leases, overriding royalty
interests, fee mineral interests, mineral rights, fee royalty
interests, carried interests, net revenue interests, net profits
interests, licenses, production payments, permits and other
interests and agreements relating to the lands in the Arkoma Basin
whether developed or undeveloped (the "Lands") including, without
limitation, the Lands described in Schedule "1.1" attached hereto as
a part hereof.
1.2 An undivided fifty percent (50%) interest in all of Seller's right,
title and interest in all Hydrocarbons produced from or allocated to
the Properties and sold after the Effective Date. The term
"Hydrocarbons" means and includes oil, gas, casinghead gas,
condensate, natural gas liquids and all components of the foregoing.
<PAGE>
1.3 An undivided fifty percent (50%) interest in all of Seller's
interest in and to all documents, agreements and contracts relating
to the Properties or Lands including, without limitation, the
Purchase and Sale Agreement dated November 24, 1997 between the
Seller and Amoco Production Company ("Amoco") with respect to any
Interests in the Arkoma Basin (the "Amoco Agreement"), leases,
operating agreements, gas balancing agreements, oil, gas and
condensate purchase and sale agreements, processing, gathering,
compression and transportation agreements, joint venture agreements,
farmout agreements, farmin agreements, dry hole agreements, bottom
hole agreements, acreage contribution agreements, area of mutual
interest agreements, easements, permits, salt water disposal
agreements, surface agreements, unitization or pooling agreements,
warranties, covenants, indemnities and representations from third
parties.
1.4 An undivided fifty percent (50%) interest in all of Seller's
interest in and to all real, personal and mixed, movable, immovable,
tangible and intangible property, and all other fixtures and
improvements appurtenant to or used in connection with the Interests
or Lands, including, without implied limitation, all wells,
fixtures, equipment, claims, rights and causes of action against
third parties whether asserted and unasserted or known and unknown.
1.5 An undivided fifty percent (50%) interest in all of Seller's
interest and estate in and to or derived under any oil, gas and
mineral unitization, pooling and communitization agreements,
declarations or orders relating to the Interests or Lands, and the
units, pools or communitized areas, if any, created thereby
(including, without limitation, all units, pools or communitized
areas formed under orders, regulations, rules or other official acts
of any federal, state or other governmental agency having or
asserting jurisdiction) and all interests in any wells within the
units, pools or communitized areas associated with the Interests or
Lands.
1.6 An undivided fifty percent (50%) interest in all of Seller's
interests in all permits, franchises, easements, rights-of-way,
contract rights, intangible rights, inchoate rights, choses in
action, rights under warranties made by prior owners of the
Interests or Lands, and other third parties, rights accruing under
applicable statutes of limitation or prescription and other rights,
estates and hereditaments incident or relating to the Interests or
Lands, or any of the foregoing items set forth in this description
of the Properties.
1.7 Access to and the right to copy all books, land records, geology
records, geophysical records and other business records relating to
the Interests or the Lands including, without implied limitation,
title opinions, abstracts of title, curative documents, division of
interest statements, accounting records, joint interest billings,
revenue decks and other computerized data, well files, land
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<PAGE>
files, logs, test data, production records, geologic and geophysical
records, maps and all other records, materials and files related to
the Interests or Lands (the "Records").
2. Purchase Price. Subject to the adjustments and prorations hereafter
described, the total purchase price to be paid by the Purchaser to the Seller
for the purchase of the Properties is the sum of Twenty Million Dollars
($20,000,000.00) (the "Purchase Price"). The Purchase Price will be adjusted and
paid as follows:
2.1 Cash at Closing. On the Closing Date (as hereafter defined), the
Purchaser will pay to the Seller the Purchase Price as adjusted
under paragraphs 5.2, 5.3 and 9 of this Agreement in immediately
available funds.
2.2 Allocation. Any adjustments to the Purchase Price under paragraphs
5.2, 5.3 or 9 of this Agreement will be deducted from the Purchase
Price. The Purchaser will allocate the Purchase Price among the
Properties according to sound accounting practices and such
allocation will be delivered to the Seller within three (3) days
after execution of this Agreement.
3. Representations and Warranties. As an inducement to the Purchaser to enter
into this Agreement, the Seller represents and warrants to the Purchaser that as
of the date of this Agreement and the Closing Date:
3.1 Organization, Good Standing, Etc. The Seller is a corporation duly
organized, validly existing and in good standing under the laws of
the State of Delaware and has the corporate power to own the
Seller's property and to carry on the Seller's business as now being
conducted. The Seller has the power to execute and deliver this
Agreement and to consummate the transaction contemplated hereby. The
Seller is duly qualified and/or licensed, as may be required, and in
good standing in each of the jurisdictions in which the Interests
are located. The Seller is not in default under or in violation of
any provision of the Seller's certificate of incorporation or
bylaws.
3.2 Authority. The Seller has taken all necessary action to authorize
the execution, delivery and performance of this Agreement and has
adequate power, authority and legal right to enter into, execute,
deliver and perform the transactions contemplated by this Agreement.
This Agreement is legal, valid and binding with respect to the
Seller and is enforceable in accordance with its terms. On
execution, delivery and performance of this Agreement in accordance
with its terms, the Purchaser will acquire all of the Properties
free of all claims, liens, encumbrances and liabilities.
3.3 No Assumption of Obligations. Except as set forth in Schedule "3.3"
attached hereto as a part hereof, the execution and consummation of
this Agreement by
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<PAGE>
the Purchaser will not obligate the Purchaser with respect to (or
result in the assumption by the Purchaser of) any obligation of the
Seller arising prior to the Effective Date under or with respect to,
any liability, agreement or commitment relating to the Properties
including, without implied limitation, to pay to or share with any
third party any portion of the Hydrocarbons attributable to the
Properties.
3.4 Absence of Liabilities. Except as set forth in Schedule "3.4"
attached hereto as a part hereof to the best of the Seller's
knowledge: (a) the Seller has no debt, liability, obligation or
commitment, absolute or contingent, known or unknown, relating to or
connected with the Properties; (b) neither the Purchaser nor the
Properties will be subject to or liable for any claim, debt,
liability, lien, encumbrance, obligation, guaranty, commitment on
the Closing Date; and (c) any such claims, debts, liabilities,
obligations or commitments will be the sole responsibility of the
Seller and the Seller hereby agrees to indemnify and hold harmless
the Purchaser from all such matters. The Seller has complied and
will continue to comply with all applicable federal, state or local
statutes, laws and regulations.
3.5 Contracts. The Seller has delivered to the Purchaser true copies (or
descriptions, in the case of oral agreements) of all of the
contracts and agreements relating to the Properties, including,
without limitation, all marketing and production sales contracts.
Except as provided in Schedule 3.5 attached hereto as a part hereof
no such marketing or production sales contracts will in any way
prevent or hinder the Purchaser in taking in kind the Purchaser's
share of production from the Properties. There are no other material
contracts, commitments or agreements in effect related to the
Properties that have not been disclosed to the Purchaser in writing.
Except as set forth in Schedule "3.5," to the best of the Seller's
knowledge: (a) such contracts and agreements are in full force and
effect; (b) no event of default or event which would become an event
of default with the giving of notice or passage of time has
occurred; and (c) no condition presently exists which would give any
party to any such contract the right to terminate such contract.
There are no other material contracts, commitments or agreements in
effect related to the Properties that have not been disclosed to the
Purchaser in writing.
3.6 Consents and Approvals. No notice to, filing with, or authorization,
consent or approval of any governmental entity, person or other
entity is necessary for the consummation of the transactions
contemplated by this Agreement. The execution, delivery, performance
and consummation of this Agreement does not and will not: (a)
violate, conflict with or constitute a default or an event that,
with notice or lapse of time or both, would be a default, breach or
violation under any term or provision of any instrument, agreement,
contract,
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<PAGE>
commitment, license, promissory note, conditional sales contract,
indenture, mortgage, deed of trust, lease or other agreement,
instrument or arrangement to which the Seller is a party or by which
the Seller or, to the best of the Seller's knowledge the Properties
are bound; (b) violate, conflict or constitute a breach of any
statute, regulation or judicial or administrative order, award,
judgment or decree to which the Seller is a party or to which the
Seller or, to the best of the Seller's knowledge the Properties are
bound; or (c) result in the creation or imposition of any adverse
claim or interest, lien, encumbrance, charge, equity or restriction
of any nature whatever, upon or affecting the Seller, or to the best
of the Seller's knowledge, the Properties or the Purchaser.
3.7 Litigation. Except as disclosed in Schedule "3.7" attached hereto as
a part hereof, there is to the best of the Seller's knowledge and
subject to the Seller's rights under the Amoco Agreement: (a) no
action, suit or proceeding pending, threatened or contemplated
against the Seller or the Properties; and (b) no proceeding,
investigation, charges, audit or inquiry threatened or pending
before or by any federal, state, municipal or other governmental
court, department, commission, board, bureau, agency or
instrumentality which might result in an adverse effect on the
Seller or the Properties. The Seller hereby agrees to indemnify and
hold harmless the Purchaser with respect to any and all litigation
and proceedings including, without limitation, the matters described
in Schedule "3.7."
3.8 Title. Except as set forth in Schedule "3.8" attached hereto as a
part hereof, the Seller owns, possesses and holds good and
defensible title beneficially and of record in and to the respective
Properties free and clear of all claims, liens, encumbrances,
conditions, restrictions, calls on production, obligations to pay to
or share with third parties any revenue or other matter adversely
affecting the value or ownership of the Properties. All of the oil,
gas and related interests of every kind and character owned by the
Seller or any of the Seller's direct or indirect subsidiaries which
are located in the Arkoma Basin are described in Schedule "1.1"
hereto. The Seller is entitled to receive not less than the "Net
Revenue Interest" set forth on Schedule "1.1" of all Hydrocarbons
produced, saved and marketed from the Properties without reduction,
suspension or termination of such interest throughout the duration
of the productive life of such Properties and is in no event
obligated to bear any of the costs and expenses related to the
maintenance, development or operation (including, without
limitation, the costs and expenses of plugging and abandoning any
wells and removal and salvage of any equipment and facilities) of
the Properties throughout the productive life of the Properties in
excess of the "Working Interest" set forth in Schedule "1.1." To the
best of the Seller's knowledge, Amoco has been receiving the
percentage of the fair market value of all Hydrocarbons produced,
saved or used from each of the Properties equal to the Net Revenue
Interest designated on Schedule "1.1" for such Property.
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To the best of the Seller's knowledge, there are no suspended
revenues or any basis to suspend revenues from the Properties. To
the best of the Seller's knowledge, there does not exist any lien,
claim, encumbrance, restriction or other matter which might cause
the Purchaser to not receive for its own account free and clear of
all liens, claims and encumbrances the percentage of the fair market
value of all Hydrocarbons produced, saved or used from each of the
Properties after the Effective Date equal to the Net Revenue
Interest designated on Schedule "1.1."
3.9 Foreign Person. The Seller is not a "foreign person" as that term is
defined under the Internal Revenue Code of 1986.
3.10 Broker's or Finder's Fees. The Seller has not incurred any
liability, contingent or otherwise, for broker's or finder's fees in
respect of this Agreement for which the Purchaser will have any
responsibility whatsoever.
3.11 Permits. On the Closing Date, the Seller will have all approvals,
authorizations, consents, licenses, orders, franchises, rights,
registrations and permits of all governmental agencies, whether
federal, state or local, United States or foreign, required to
permit the operation of the Seller's business as presently conducted
(the "Permits") and each will be in full force and effect and will
have been duly and validly issued, except where the absence of
which, singly or in the aggregate, would not have a material adverse
effect on the Properties. The execution and delivery of this
Agreement and the consummation of the transactions contemplated
hereby will not result in any revocation, cancellation, suspension
or modification of any such Permit except where such revocation,
cancellation, suspension or modification would not have a material
adverse effect on the Properties. On the Closing Date, there will be
no outstanding violation of any of the Permits.
3.12 Compliance with Laws. Except as disclosed in Schedule "3.12," the
Seller is not in violation of any applicable law, ordinance,
regulation, writ, judgment, decree or order of any court or
government or governmental unit in connection with the Properties,
the consequences of which singly or in the aggregate would have a
material adverse effect on the Seller or the Properties.
3.13 Oil and Gas Leases in Good Standing. Except as disclosed in Schedule
"3.13" attached hereto as a part hereof, to the best of the Seller's
knowledge all oil and gas leases which are material singly or in the
aggregate are in full force and effect, and the Seller is not in
default thereunder.
3.14 Taxes. All ad valorem, property, production, severance and similar
taxes and assessments based on or measured by the ownership of
property comprising the Properties or the production or removal of
hydrocarbons or the receipt of
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proceeds therefrom have been timely paid when due and are not in
arrears.
3.15 Contracts, Consents and Preferential Rights. To the best of the
Seller's knowledge, the Seller has described in Schedule "3.15"
attached hereto as a part hereof: (a) all partnership, joint
venture, farmin/farmout, dry hole, bottom hole, acreage
contribution, area of mutual interest, purchase and/or acquisition
agreements of which any terms remain executory which materially
affect the Properties; (b) all other executory contracts to which
the Seller is a party which materially affect any item of the
Properties; (c) all governmental or court approvals and third party
contractual consents required in order to consummate the
transactions contemplated by this Agreement; (d) all agreements
pursuant to which third parties have preferential rights or similar
rights to acquire any portion of the Properties upon the sale
contemplated by this Agreement; and (e) all other contracts and
agreements which are in any single case of material importance to
the Properties.
3.16 Tax Partnerships. None of the Properties is treated for income tax
purposes as being owned by a partnership except as disclosed in
Schedule "3.16" attached hereto as a part hereof.
3.17 Financial Statements. The Seller has provided to the Purchaser all
reserve reports, cash flow and operational information in the
Seller's possession relating to the Properties and to the best of
the Seller's knowledge since the respective dates of such items no
material adverse change has occurred with respect to the Properties.
To the best of the Seller's knowledge, the Seller has no liabilities
of any kind whatsoever relating to the Properties, whether accrued,
contingent or otherwise except as disclosed in Schedule "3.17"
attached hereto as a part hereof and trade payables arising in the
ordinary course of business.
3.18 Insurance. The Seller will maintain or cause to be maintained
through the Closing Date, with financially sound and reputable
insurers, insurance to the extent and against such hazards and
liabilities and in such types and amounts as is commonly maintained
by entities similarly situated.
3.19 Planned Future Commitments. The Seller has not planned or budgeted
future expenditure commitments relating to the Properties prior to
the Closing Date (drilling of wells, workovers, contract
settlements, pipeline projects, production facilities, etc.) in
excess of Twenty-Five Thousand Dollars ($25,000.00) in the aggregate
which are not disclosed in Schedule "3.19" attached hereto as a part
hereof.
3.20 Environmental and Safety Matters. Except as set forth in Schedule
"3.20" attached hereto as a part hereof and insofar as it pertains
to the Properties:
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3.20.1 The Seller is not aware, and has not received notice from
any person, entity or governmental body, agency or
commission, of any release, disposal, event, condition,
circumstance, activity, practice or incident concerning any
land, facility, asset or property that: (a) interferes with
or prevents compliance or continued compliance by the Seller
(or by the Purchaser after the Closing Date) with any United
States, state or local law, regulation, code or ordinance or
the terms of any license or permit issued pursuant thereto;
or (b) gives rise to or results in any common law or other
liability of the Seller to any person, entity or
governmental body, agency or commission for damage or injury
to natural resources, wildlife, human health or the
environment which would have a material adverse effect on
the Seller in each case.
3.20.2 The Seller is not aware of any civil, criminal or
administrative action, lawsuit, demand, litigation, claim,
hearing, notice of violation, investigation or proceeding,
pending or threatened, against the Seller or operator of any
of the lands, facilities, assets and properties owned or
formerly owned, operated, leased or used by the Seller as a
result of the violation or breach of any federal, state, or
local law, regulation, code or ordinance or any duty arising
at common law to any person, entity or governmental body,
singly or in the aggregate, which if determined adversely
would have a material adverse effect on the Seller.
3.21 Powers of Attorney. There are no outstanding powers of attorney
relating to or affecting any of the Properties.
3.22 Plugging Status. To the best of the Seller's knowledge, all wells on
the Properties that have been permanently plugged and abandoned have
been so plugged and abandoned in accordance in all material respects
with all applicable requirements of each governmental authority
having jurisdiction over the Seller and the Properties.
3.23 Equipment. To the best of the Seller's knowledge, the equipment has
been installed, maintained and operated by the operator thereof as a
prudent operator in accordance with oil and gas industry standards
and is currently in a state of repair so as to be adequate for
normal operations of the Properties.
3.24 Payout and Gas Balancing. To the best of the Seller's knowledge,
Schedule "3.24" attached hereto as a part hereof, contains a
complete and accurate list of: (a) the status of any "payout"
balance as of December 31, 1997, for each of the Properties that is
subject to a reversion or other adjustment at some level
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of cost recovery or payout (or passage of time or other event, other
than cessation of production); and (b) all over or under gas
imbalances relating to the Properties as of December 31, 1997.
3.25 Affiliate Transactions. There are no transactions affecting any of
the Properties between the Seller and any of the Seller's
affiliates, except as set forth in Schedule "3.25" attached hereto
as a part hereof. As used in this Agreement, "affiliate" means, with
respect to any person or entity, each other person or entity
directly or indirectly controlling, controlled by or under common
control with such person.
3.26 Intangible Property. To the best of the Seller's knowledge, there
are no material trademarks, trade names, patents, service marks,
brand names, computer programs, data bases, industrial designs,
copyrights or other intangible properties that are necessary for the
operation, or continued operation, or for the ownership and
operation, or continued ownership and operation, of any of the
Properties.
3.27 Full Disclosure. This Agreement, any schedule referenced in or
attached to this Agreement, any document furnished to the Purchaser
under this Agreement and any certification furnished to the
Purchaser under this Agreement does not contain any untrue statement
of a material fact and does not omit to state a material fact
necessary to make the statements made, in the circumstances under
which they were made, not misleading. All of the representations,
warranties and covenants in this Agreement: (a) are true and correct
as of the date made; (b) will be true and correct as of the Closing
Date; and (c) will survive and not be waived, discharged, released,
modified, terminated or affected by any due diligence by the
Purchaser.
4. Purchaser's Representations and Warranties. The Purchaser is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Oklahoma and has all requisite corporate power and authority to own,
lease, and operate its properties and to conduct its business as now being
conducted. The Purchaser has full corporate power and authority to execute,
deliver and perform this Agreement.
5. Covenants. The parties agree to perform the following prior to the Closing
Date:
5.1 Access to Information. During the period commencing on the date of
this Agreement and ending on the Closing Date, the Seller will
afford the Purchaser and the Purchaser's authorized representatives
full access during normal business hours to the properties, books,
records, employees, accountants and lawyers of the Seller to make
such investigation as the Purchaser desires regarding the Properties
and furnish such financial, operating data, information and
responses as the Purchaser might reasonably request with respect to
the
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Properties.
5.2 Inspection. Prior to the Closing Date the Purchaser will conduct
such investigation and inspection with respect to the Properties as
the Purchaser deems appropriate. If the Purchaser determines that by
comparing the Reserve Report to more accurate title, net revenue and
net working interests information, the amount of reserves
attributable to the Properties is less than ninety-five percent
(95%) of the amount set forth in the Reserve Report, the Purchase
Price will be adjusted by an amount equal to the amount by which
such discrepancies exceed five percent (5%) of the Purchase Price.
5.3 Title Adjustments. In addition to any other remedies available to
the Purchaser, if a casualty or title defect exists with respect to
one (1) or more of the Properties which the Seller refuses to or
cannot cure on or before August 1, 1998, then the Purchase Price
will be adjusted downward as provided herein with such adjustment
being accounted for in the post closing allocations under paragraph
9 of this Agreement. If the casualty or title defect is an
encumbrance or charge which is undisputed and liquidated the
decrease in the Purchase Price will be the amount necessary to
satisfy such charge and remove the title defect. In all other cases,
the amount of the decrease in the Purchase Price will be the amount
determined by multiplying (a) the percentage of the specific
Property affected by the casualty or title defect by (b) the
allocation of the Purchase Price to that specific Property. As used
in this Agreement, "title defect" means: (a) the Seller's title at
the Effective Date or at the Closing Date is subject to a mortgage,
deed of trust, lien or security interest; (b) any of the interests
in the Properties are subject to being reduced by virtue of the
exercise by a third party of any preferential purchase rights,
reversionary or back-in interest, farmout of other than wellbore
rights or other similar rights; or (c) any claim, encumbrance,
defect or other matter which: (i) would cause the Purchaser to
receive (free and clear of all royalties, overriding royalties, net
profits interests or other burdens on or measured by production of
hydrocarbons and associated gases) less than one hundred percent
(100%) of the "Net Revenue Interests" set forth in Schedule "1.1" of
all oil, gas, sulfur and associated liquid and gaseous hydrocarbons
and other associated gases produced, saved and marketed from the
Properties for the productive life of such Properties; or (ii) would
obligate the Purchaser to bear costs and expenses relating to the
maintenance, development or operation of any of the Properties in an
amount greater than the "Working Interests" set forth in Schedule
"1.1" during the productive life of such Property.
5.4 Conduct of Businesses. Prior to the Closing Date, the Seller will
operate the Properties in a businesslike manner in accordance with
the Seller's prior practices and will use the Seller's best efforts
to maintain and preserve the Properties. In addition, unless the
Purchaser otherwise consents in writing (a)
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the Seller has not and will not transfer, sell, mortgage, pledge,
encumber or dispose of any of the Properties; or (b) make, permit
any amendment or permit the termination of any material contract,
agreement or commitment relating to the Properties. The Seller and
the Seller's affiliates, advisors or representatives will not,
directly or indirectly, encourage, initiate, engage in discussions
or negotiations with, or provide any information to, any
corporation, partnership, person or other entity or group concerning
the sale of the Properties.
5.5 Consents. The parties will use their best efforts to obtain all
licenses, permits, consents, approvals, authorizations,
qualifications and orders of governmental authorities and parties to
contracts with the Seller as are necessary for the consummation of
the transactions contemplated by this Agreement. However, no
contract will be amended to increase the amount payable thereunder
and no burden to the Seller or the Purchaser will be increased to
obtain any consent, approval or authorization.
5.6 Conditions. The Seller and the Purchaser will use their respective
best efforts to cause the conditions in paragraphs 6 and 7 to be
satisfied.
5.7 Capital Expenditures. The Seller will not incur or make any
commitment to incur any costs or expenses relating to the Properties
in excess of Twenty-Five Thousand Dollars ($25,000.00) unless the
Purchaser otherwise consents thereto in writing, which consent will
not be unreasonably withheld.
6. Purchaser's Conditions Precedent. The obligation of the Purchaser to
consummate the transactions contemplated by this Agreement is subject to the
satisfaction or waiver (subject to applicable law) on or before the Closing Date
of each of the following conditions:
6.1 No preliminary or permanent injunction or other order will have been
issued by any court of competent jurisdiction or any regulatory body
preventing consummation of the transactions contemplated by this
Agreement;
6.2 No action will have been commenced or threatened against the Seller,
Purchaser or any of their respective affiliates, associates,
officers or directors seeking damages arising from, or to prevent or
challenge the transactions contemplated by this Agreement;
6.3 All representations and warranties of the Seller contained herein
will be true and correct in all material respects;
6.4 The Seller will have performed or satisfied as of the Closing Date
all obligations, covenants, agreements and conditions contained in
this Agreement to be performed or complied with by the Seller;
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6.5 All actions, proceedings, instruments and documents required to
carry out the transactions contemplated hereby will have been
satisfactory to the Purchaser's counsel, including, without
limitation, corporate resolutions authorizing the transactions
contemplated hereby, and releases of any and all liens, claims,
security interests or other encumbrances affecting any of the
Properties, and the Seller will have delivered such additional
certificates and other documents as the Purchaser reasonably
requests including, without limitation, such certificates of the
Seller dated as of the Closing Date evidencing compliance with the
conditions set forth in this paragraph 6;
6.6 The Purchaser shall have received and reviewed all Schedules to be
provided by the Seller and such Schedules shall not be materially
different than anticipated by the Purchaser as determined in the
Purchaser's reasonable judgment;
6.7 All of the transactions contemplated by the Sale and Participation
Agreement in the form of Exhibit "6.7" (the "Participation
Agreement") and the Securities Purchase Agreement of even date
herewith between the Seller and the Purchaser (the "Related
Agreements") shall have been consummated on the terms and conditions
set forth in the Related Agreements;
6.8 The Seller shall have obtained and delivered to the Purchaser
consents to the transactions contemplated by this Agreement from the
parties whose consent is required by contract or otherwise;
6.9 There shall not have occurred since December 31, 1997 any material
loss or damage to any of the Properties;
6.10 The Purchaser shall have received from legal counsel to the
Purchaser an opinion dated the Closing Date, in form and substance
satisfactory to the Purchaser's counsel, to the effect that: (a)
the Seller is a corporation duly incorporated and validly existing
and in good standing under the laws of the State of Oklahoma; (b)
the Seller has the corporate power to carry on its business as not
being conducted; (c) the Seller has the requisite corporate power
and authority and has taken all requisite corporate action necessary
to enable the Seller to execute and deliver this Agreement and to
consummate the transactions contemplated hereby; and (d) this
Agreement has been duly and validly executed and delivered by the
Seller and is enforceable against the Seller in accordance with its
terms; and
6.11 As of the Closing Date, the Seller shall not have sold, assigned,
transferred or otherwise conveyed any of the Interests to any person
except as disclosed to and approved by the Purchaser.
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7. Seller's Conditions Precedent. The obligation of the Seller to consummate
the transactions contemplated by this Agreement is subject to the satisfaction,
on or before the Closing Date of each of the following conditions, any or all of
which may be waived in whole or in part:
7.1 No preliminary or permanent injunction or other order will have been
issued by any court of competent jurisdiction or any governmental or
regulatory body preventing consummation of the transactions
contemplated by this Agreement;
7.2 No action will have been commenced or threatened against the Seller,
the Purchaser or any of their respective affiliates, associates,
officers or directors seeking damages arising from, to prevent or to
challenge the transactions contemplated by this Agreement;
7.3 All representations and warranties of the Purchaser contained herein
will be true and correct in all material respects;
7.4 The Purchaser will have performed in all material respects all
obligations, agreements and conditions contained in this Agreement
to be performed or complied with by the Purchaser; and
7.5 The Seller will have received such certificates of the Purchaser,
dated the Closing Date, signed by officers of the Purchaser and
others to evidence compliance with the conditions set forth in this
paragraph 7.
7.6 All of the transactions contemplated by the Related Agreements shall
have been consummated on the terms and conditions set forth in the
Related Agreements.
8. The Closing. Unless extended in writing executed by the Seller and the
Purchaser, the transactions contemplated by this Agreement will be consummated
at 10:00 a.m. local time in the offices of the Purchaser on or before April 27,
1998 (the "Closing Date").
8.1 Purchaser's Deliveries. On the Closing Date, the Purchaser will
deliver or cause to be delivered to the Seller the following items
(all documents will be duly executed and acknowledged where
required):
8.1.1 Payment. The portion of the Purchase Price due under
paragraph 2 as adjusted under paragraphs 5.3 and 9 of this
Agreement;
8.1.2 Evidence of Authority. Such corporate resolutions,
certificates of good standing, incumbency certificates and
other evidence of authority with respect to the Purchaser as
might be reasonably requested by the Seller;
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8.1.3 Closing Memorandum. A memorandum setting forth the items
delivered and accounting for the payments made on the
Closing Date; and
8.1.4 Additional Documents. Such additional documents as might be
reasonably requested by the Seller to consummate this
Agreement.
8.2 Seller's Deliveries. On the Closing Date, the Seller will deliver or
cause to be delivered to the Purchaser the following items (all
documents will be duly executed and acknowledged where required):
8.2.1 Assignments. Assignments and conveyances in substantially
the form of Exhibit "8.2.1" attached hereto as a part hereof
conveying to the Purchaser all of the Seller's right, title
and interest in and to the Properties;
8.2.2 Releases. Releases and termination statements with respect
to any and all liens, claims, security interests and other
encumbrances covering any of the Properties;
8.2.3 Notices. Letters in lieu of transfer orders addressed to all
purchasers of production from the Properties in the form of
Exhibit "8.2.3A" attached hereto as a part hereof and
notices of change of operations and ballots (where
applicable) in the form of Exhibit "8.2.3B" attached hereto
as a part hereof.
8.2.4 Evidence of Authority. Such corporate resolutions,
certificates of good standing, incumbency certificates and
other evidence of authority with respect to the Seller as
might be reasonably requested by the Purchaser;
8.2.5 Closing Memorandum. A memorandum setting forth the items
delivered and accounting for the payments made on the
Closing Date; and
8.2.6 Additional Documents. The Records and such additional
documents as might be reasonably requested by the Purchaser
to consummate this Agreement.
8.3 Costs. The Seller will pay the following closing costs: (a) the
Seller's attorneys' fees, investment banker's fees and bank fees;
(b) the cost of recording all mortgage or other lien releases and
the cost of documentary stamps to be affixed to any deeds conveying
title to the Properties to the Purchaser; and (c) any other charge
imposed for the transfer of any item
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comprising the Properties. The Purchaser will pay only the following
closing costs: (y) the Purchaser's attorneys' fees; and (z) the cost
of recording the transfer documents.
9. Adjustments. All receipts and disbursements with respect to the Properties
will be prorated as of the Effective Date as follows: (a) gross proceeds from
sales of Hydrocarbons prior to the Effective Date attributable to the Properties
will be the property of and payable to the Seller; (b) gross proceeds from sales
of Hydrocarbons after the Effective Date attributable to the Properties will be
the property of and payable to the Purchaser; (c) all costs, expenses and
expenditures attributed directly to the Properties and arising prior to the
Effective Date will be the obligation of the Seller; (d) all costs, expenses and
expenditures attributed directly to the Properties and arising after the
Effective Date will be the obligation of the Purchaser; and (e) all real and
personal property ad valorem taxes and special assessments for the Properties
payable for any taxable period prior to the calendar year in which the Closing
Date occurs will be the obligation of the Seller. At least ten (10) days prior
to the Closing Date the Seller will provide the Purchaser with an itemized
statement of all preferential purchase rights which have been exercised by third
parties. All exercised preferential purchase rights will be treated as an
adjustment to the Purchase Price on the Closing Date. On or before August 1,
1998, the Purchaser and the Seller will account for and agree on all of the
foregoing adjustments and any adjustments required under paragraph 5.3 of this
Agreement and the net adjustment will be paid to the appropriate party on or
before the fifth (5th) day thereafter.
10. Operations. Subject to the rights of unaffiliated third parties, the Seller
and the Purchaser hereby agree that with respect to their respective interests
in the existing wells in the Arkoma Basin: (a) the Purchaser will be appointed
the operator on all wells now or hereafter located in townships 4N-19E, 4N-20E,
5N-19E and 5N-20E, except for wells located in Sections 1-7, 5N-19E; and (b) the
Seller will remain the operator of all wells located in Sections 1-7, 5N-19E and
the remainder of the Arkoma Basin. Township references in this paragraph are to
the Indian Meridian, State of Oklahoma. The operational rights and obligations
with respect to future development in the Arkoma Basin will be determined in
accordance with the Participation Agreement, including, without limitation the
provisions of paragraph 10 of the Participation Agreement.
11. Indemnification. The Seller and the Purchaser hereby agree to indemnify
each other as follows:
11.1 Seller Indemnity. The Seller agrees to pay, defend, indemnify,
reimburse and hold harmless the Purchaser and its directors,
officers, agents and employees (the "Purchaser Indemnified Parties")
for, from and against any loss, damage, claim, liability, debt,
obligation or expense (including interest, reasonable legal fees,
and expenses of litigation) incurred or suffered or paid by, imposed
upon, resulting to or threatened against any of the Purchaser
Indemnified Parties or the Properties which directly or indirectly
results from, arises out of or in connection with, is based upon, or
exists by reason of: (a) the execution,
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delivery, validity and enforceability of this Agreement; (b) the
performance of this Agreement by the Seller; (c) the Purchaser not
obtaining one hundred percent (100%) ownership of the interest
agreed to be conveyed in the Properties; (d) any misrepresentation
of facts relating to the Seller or the Properties (whether contained
in this Agreement or any other document delivered or required to be
delivered pursuant to this Agreement) or any other representation or
warranty made by the Seller in this Agreement; (e) the existence of
any facts or circumstances which constitute a breach, violation or
inaccuracy of, incorrectness in, or conflict with any representation
or warranty by Seller relating to the Properties; (f) the litigation
described in Schedule "3.7" and any other claims or liabilities
relating to the Properties arising prior to the Effective Date; or
(g) the ownership or operation of the Properties prior to the
Effective Date or any breach or default in performance by the Seller
of any covenant or obligation set forth in this Agreement, the
Related Agreements or any related document.
11.2 Purchaser Indemnity. The Purchaser agrees to pay, defend, indemnify,
reimburse and hold harmless the Seller and its directors, officers,
agents, and employees (the "Seller Indemnified Parties") for, from
and against any loss, damage, claim, liability, debt, obligation or
expense (including interest, reasonable legal fees, and expenses of
litigation) incurred or suffered or paid by, imposed upon, resulting
to or threatened against any of the Seller Indemnified Parties which
directly or indirectly results from, arises out of or in connection
with, is based upon or exists by reason of: (a) the performance of
this Agreement by the Purchaser; (b) any misrepresentation of facts
relating to the Purchaser (whether contained in this Agreement or
any other document delivered or required to be delivered pursuant to
this Agreement) or any other representation or warranty made by the
Purchaser in this Agreement; or (c) any claims or liabilities
relating to the Properties arising after the Effective Date,
provided, however, any such claims and liabilities arising prior to
the Closing Date which are outside the ordinary course of ownership
and operation of the Properties shall have been disclosed to the
Purchaser and subject to adjustment under paragraph 5.3 of this
Agreement.
11.3 Indemnification Procedure. If any party hereto discovers or
otherwise becomes aware of an indemnification claim arising under
this Agreement, such indemnified party will give written notice to
the indemnifying party, specifying such claim, and may thereafter
exercise any remedies available to such party under this Agreement;
provided, however, that the failure of any indemnified party to give
notice as provided herein will not relieve the indemnifying party of
any obligations hereunder, to the extent the indemnifying party is
not materially prejudiced thereby. Further, promptly after receipt
by an indemnified party hereunder of written notice of the
commencement of any action or proceeding with respect to which a
claim for indemnification may be
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made against any indemnifying party, the indemnified party will give
written notice to the latter of the commencement of such action;
provided, however, that the failure of any indemnified party to give
notice as provided herein will not relieve the indemnifying party of
any obligations hereunder, to the extent the indemnifying party is
not materially prejudiced thereby.
11.4 Defense. If any such action is brought against an indemnified party,
the indemnifying party will be entitled to participate in and to
assume the defense thereof to the extent that it may wish, with
counsel reasonably satisfactory to such indemnified party, and after
such notice from the indemnifying party to such indemnified party of
its election so to assume the defense thereof, the indemnifying
party shall not be liable to such indemnified party for any legal or
other expenses subsequently incurred by the latter in connection
with the defense thereof unless the indemnifying party has failed to
assume the defense of such claim and to employ counsel reasonably
satisfactory to such indemnified person. Notwithstanding any of the
foregoing to the contrary, the indemnified party will be entitled to
select its own counsel and assume the defense of any action brought
against it if the indemnifying party fails to select counsel
reasonably satisfactory to the indemnified party, the expenses of
such defense is to be paid by the indemnifying party. No
indemnifying party shall consent to entry of any judgment or enter
into any settlement with respect to a claim without the consent of
the indemnified party, which consent shall not be unreasonably
withheld, or unless such judgment or settlement includes as an
unconditional term thereof the giving by the claimant or plaintiff
to such indemnified party of a release from all liability with
respect to such claim. No indemnified party shall consent to entry
of any judgment or enter into any settlement of any such action, the
defense of which has been assumed by an indemnifying party, without
the consent of such indemnifying party, which consent shall not be
unreasonably withheld.
11.5 Interest. In addition to the foregoing, the indemnifying party will
pay to the indemnified party interest on the amount of any loss,
damage, claim, liability, debt, obligation or expense the payment of
which is not paid within ten (10) days after notification by the
indemnified party by the indemnifying party, such interest to be at
a floating rate of interest equal to the prime rate published from
time to time in The Wall Street Journal. The remedies provided by
this paragraph 11 are in addition to, and not in lieu of, such other
remedies as may be available under applicable laws. Claims for
indemnification will be paid by the indemnifying party within ten
(10) days after notification thereof.
12. Termination. This Agreement may be terminated and the transactions
contemplated hereby may be abandoned by: (a) mutual consent of the Seller and
the Purchaser; (b) the Purchaser, if the Purchaser is not in default and the
conditions set forth in paragraph 6 of this Agreement have not been satisfied by
the Seller or waived by the Purchaser; or (c) the Seller, if
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the Seller is not in default, and the conditions precedent set forth in
paragraph 7 of this Agreement have not been satisfied or waived by the Seller.
In the event of termination, written notice thereof will be given to the other
party or parties specifying the provision pursuant to which such termination is
made. On termination pursuant to this paragraph 12, this Agreement will become
void and have no effect, and there will be no liability hereunder on the part of
the Purchaser or the Seller or any of their respective officers, directors,
employees, agents, stockholders or principals.
13. Default. If a party fails to perform any obligation contained in this
Agreement, the party claiming default will serve written notice to the other
party specifying the nature of such default and demanding performance. If the
Seller fails to cure such default within ten (10) days after receipt thereof,
the Purchaser will have the option to waive such default, to demand specific
performance, to exercise any other remedy available at law or in equity or to
terminate this Agreement. If the Purchaser fails to cure such default within ten
(10) days after receipt thereof, the Seller will have the option to waive such
default, terminate this Agreement or exercise any other remedy available at law
or in equity. The Purchaser is entitled to enforce this Agreement by specific
performance without the necessity of demonstrating inadequacy of damages or
irreparable harm.
14. Miscellaneous. It is further agreed as follows:
14.1 Time. Time is of the essence of this Agreement.
14.2 Notices. Any notice, demand or communication required or permitted
to be given by any provision of this Agreement will be in writing
and will be deemed to have been given and received when delivered
personally or by telefacsimile to the party designated to receive
such notice, or on the date following the day sent by overnight
courier, or on the third (3rd) business day after the same is sent
by certified mail, postage and charges prepaid, directed to the
following addresses or to such other or additional addresses as any
party might designate by written notice to the other parties:
To the Purchaser: Chesapeake Gothic Corp.
6100 North Western
Oklahoma City, Oklahoma 73118
Attn: Mr. Aubrey K. McClendon
Telephone: (405) 848-8000
Fax: (405) 848-8588
Chesapeake Acquisition Corporation
6100 North Western
Oklahoma City, Oklahoma 73118
Attn: Mr. Aubrey K. McClendon
Telephone: (405) 848-8000
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Fax: (405) 848-8588
With a copy to: Self, Giddens & Lees, Inc.
2725 Oklahoma Tower
210 Park Avenue
Oklahoma City, OK 73102
Attn: C. Ray Lees, Esquire
Telephone: (405) 232-3001
Fax: (405) 232-5553
To the Seller: Gothic Energy Corporation
5727 South Lewis Avenue
Tulsa, Oklahoma 74105-7148
Attn: Michael K. Paulk
Telephone: (918) 749-5666
Fax: (918) 749-5882
With a copy to: Pray, Walker, Jackman, Williamson
& Marlar, A P.C.
Attn: Ira L. Edwards, Jr., Esquire
100 W. 5th Street, Suite 900
Tulsa, Oklahoma 74103-4218
Telephone: (918) 581-5500
Fax: (918) 581-5599
14.3 Representations and Warranties. The respective representations and
warranties of the Seller and the Purchaser contained in this
Agreement, any certificate or any other document delivered prior to
or on the Closing Date will not be deemed waived or otherwise
affected by any investigation made by any party hereto. Each and
every such representation and warranty will survive the Closing Date
and will not be terminated or extinguished. This paragraph 14.3 will
have no effect on any other obligation of the parties hereto,
whether to be performed before or after the Closing Date.
14.4 Cooperation. Prior to and at all times following the termination of
this Agreement the parties agree to execute and deliver, or cause to
be executed and delivered, such documents and do, or cause to be
done, such other acts and things as might reasonably be requested by
any party to this Agreement to assure that the benefits of this
Agreement are realized by the parties.
14.5 Press Release. The Purchaser and the Seller will each prepare and
issue their own press releases relating to this Agreement and the
sale of the Properties, however, each party will have the right to
approve the other party's proposed press release.
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14.6 Choice of Law. This Agreement will be interpreted, construed and
enforced in accordance with the laws of the State of Oklahoma.
14.7 Headings. The paragraph headings contained in this Agreement are for
reference purposes only and are not intended to affect in any way
the meaning or interpretation of this Agreement.
14.8 Entire Agreement. This Agreement, the Related Agreements and any
document executed in connection herewith or therewith on or after
the date of this Agreement constitute the entire agreement between
the parties with respect to the subject matters hereof and thereof.
14.9 Assignment. It is agreed that the parties may not assign such
party's rights nor delegate such party's duties under this Agreement
without the express written consent of the other party to this
Agreement.
14.10 Amendment. Neither this Agreement, nor any of the provisions hereof
can be changed, waived, discharged or terminated, except by an
instrument in writing signed by the party against whom enforcement
of the change, waiver, discharge or termination is sought.
14.11 Severability. If any clause or provision of this Agreement is
illegal, invalid or unenforceable under any present or future law,
the remainder of this Agreement will not be affected thereby. It is
the intention of the parties that if any such provision is held to
be illegal, invalid or unenforceable, there will be added in lieu
thereof a provision as similar in terms to such provisions as is
possible and to be legal, valid and enforceable.
14.12 Attorney Fees. If any party institutes an action or proceeding
against any other party relating to the provisions of this
Agreement, the party to such action or proceeding which does not
prevail will reimburse the prevailing party therein for the
reasonable expenses of attorneys' fees and disbursements incurred by
the prevailing party.
14.13 Waiver. Waiver of performance of any obligation or term contained in
this Agreement by any party, or waiver by one party of the other's
default hereunder will not operate as a waiver of performance of any
other obligation or term of this Agreement or a future waiver of the
same obligation or a waiver of any future default.
14.14 No Third Party Beneficiaries. This Agreement has been and is made
solely for the benefit of and shall be binding upon the parties
hereto and their respective successors and permitted assigns and no
other person will acquire or have any
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rights under or by virtue of this Agreement.
14.15 Execution in Counterparts. This Agreement may be executed in any
number of counterparts, each of which when so executed and delivered
will be deemed an original and which together will constitute one
and the same instrument.
IN WITNESS WHEREOF, the Seller and the Purchaser have executed this
Agreement on the date to be effective on the Effective Date.
CHESAPEAKE GOTHIC CORP., an Oklahoma corporation
By
------------------
Aubrey K. McClendon, President
CHESAPEAKE ACQUISITION CORPORATION, an Oklahoma
corporation
By
------------------
Aubrey K. McClendon, President
(the "Purchaser")
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GOTHIC ENERGY CORPORATION, a Delaware corporation
By
------------------
Michael K. Paulk, President
(the "Seller")
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