<PAGE>
FILE NUMBER 333-38679
As filed with the Securities and Exchange Commission on September 24, 1998
SECURITIES AND EXCHANGE COMMISSION
AMENDMENT NO. 1
FORM S-3
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
GOTHIC ENERGY CORPORATION
(Exact Name of Registrant as specified in its Charter)
OKLAHOMA 22-2663839
(State or other jurisdiction (IRS Employer
of incorporation or organization) Identification Number)
5727 SOUTH LEWIS AVENUE, SUITE 700, TULSA, OKLAHOMA 74105
(918) 749-5666
(Address, including zip code, and telephone number, including area code, of
Registrant's principal executive offices)
MICHAEL PAULK, PRESIDENT
5727 SOUTH LEWIS AVENUE, SUITE 700, TULSA, OKLAHOMA 74105
(918) 749-5666
(Name, address, including zip code, and telephone number, including area code,
of Agent for service)
With a Copy to:
WILLIAM S. CLARKE, ESQUIRE
457 NORTH HARRISON STREET, SUITE 103, PRINCETON, NEW JERSEY 08540
(609) 921-3663
Approximate date of commencement of proposed sale to public:
FROM TIME TO TIME AFTER THIS REGISTRATION STATEMENT BECOMES EFFECTIVE.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the Prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
- -----------------------------------------------------------------------------------------------
TITLE OF EACH CLASS OF PROPOSED MAXIMUM PROPOSED MAXIMUM
SECURITIES TO BE AMOUNT TO BE OFFERING PRICE AGGREGATE AMOUNT OF
REGISTERED REGISTERED PER UNIT /(1)/ OFFERING PRICE REGISTRATION FEE
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock 1,400,000 $3.00 $4,200,000 $ 1,273.00
Purchase Warrants
- -----------------------------------------------------------------------------------------------
Common Stock, 1,400,000 /(2)/ /(2)/ /(2)/
$.01 par value /(2)/
- -----------------------------------------------------------------------------------------------
Common Stock 825,029 $2.40 $1,980,070 $ 584
Purchase Warrants
- -----------------------------------------------------------------------------------------------
Common Stock, 825,029 /(2)/ /(2)/ /(2)/
$.01 par value
- -----------------------------------------------------------------------------------------------
TOTAL $1,857.00 /(3)/
- -----------------------------------------------------------------------------------------------
</TABLE>
- ---------------------
(1) The Registration Fee has been calculated pursuant to Rule 457(g) based on
the exercise price of the warrants.
(2) Shares of Common Stock issuable on exercise of Common Stock Purchase
Warrants.
(3) Of which $1,273,00 was previously paid.
PURSUANT TO RULE 429 UNDER THE SECURITIES ACT OF 1933, AS AMENDED, THE
PROSPECTUS INCLUDED HEREIN IS A COMBINED PROSPECTUS ALSO RELATING TO THE
REGISTRANT'S REGISTRATION STATEMENT ON FORM SB-2 (FILE NO. 33-99190).
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933, OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
<PAGE>
Subject to Completion, dated September 24, 1998
PROSPECTUS
GOTHIC ENERGY CORPORATION
Gothic Energy Corporation acquires, develops, exploits, explores for and
produces natural gas and oil. We further describe these activities beginning on
page 6 and the risks relating to an investment in Gothic beginning on page 11.
This Prospectus may be used in connection with the resale by the holders of
certain securities of Gothic. These securities include 1,400,000 warrants to
purchase Gothic common stock at $3.00 per share and 825,029 warrants to purchase
Gothic common stock at $2.40 per share. This Prospectus also may be used in
connection with the resale by the holders of the shares of common stock that may
be purchased on exercise of the warrants. However, this Prospectus may not be
used in connection with the purchase of common stock on exercise of the warrants
by persons who purchased their warrants where this Prospectus could not be used
in connection with the transaction. The exercise price for the warrants is
payable either in cash or by surrender of shares of common stock having a
current market value equal to the exercise price. The $3.00 warrants expire on
September 1, 2004 and the $2.40 warrants expire on May 1, 2005. We refer to the
common stock, the $3.00 warrants and the $2.40 warrants collectively as the
"Securities."
The common stock is traded on the Nasdaq SmallCap Market with a trading
symbol of "GOTH." On September 21, 1998, the last sale price of the common stock
as reported on the Nasdaq SmallCap Market was $0.6875. We have provided the
high and low bid prices for the common stock by calendar quarter commencing
January 1, 1996 on page 21.
The Securities may be sold from time to time by or for the account of the
selling securityholders through underwriters or dealers, through brokers or
other agents, or directly to one or more purchasers, including pledgees, at
market prices prevailing at the time of sale or at otherwise negotiated prices.
This Prospectus may also be used, with Gothic's consent, by donees of the
selling securityholders, or by other persons acquiring shares and who wish to
offer and sell their Securities requiring or making desirable its use. Gothic
will receive no portion of the proceeds from the sale of the Securities and will
bear certain expenses related to the preparation of this Prospectus. We have
provided more information on the identity of the selling securityholders (who we
refer to as the "Selling Securityholders") on page 23 and the manner in which
they may sell their Securities on page 24.
CONSIDER CAREFULLY THE RISK FACTORS BEGINNING ON PAGE 11 OF THIS
PROSPECTUS.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED THESE SECURITIES OR DETERMINED THAT THIS PROSPECTUS IS
TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
SEPTEMBER [_____], 1998
<PAGE>
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS DOCUMENT AND
INCORPORATED BY REFERENCE TO THE DOCUMENTS LISTED ON PAGE 4. WE HAVE NOT
AUTHORIZED ANYONE TO PROVIDE YOU WITH INFORMATION THAT IS DIFFERENT. YOU SHOULD
NOT ASSUME THAT BY DELIVERING THIS PROSPECTUS TO YOU OR BY YOU PURCHASING ANY OF
THE SECURITIES THAT THERE HAS BEEN NO CHANGE IN THE FACTS CONTAINED IN THIS
PROSPECTUS OR THE AFFAIRS OF GOTHIC SINCE THE DATE ON THE COVER OF THIS
PROSPECTUS. THIS PROSPECTUS IS NOT AN OFFER OR SOLICITATION BY ANYONE IN ANY
JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED OR IN WHICH
THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO OR TO ANY
PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION.
Gothic's warrants exercisable at $3.00 per share (which we refer to as the
"1997 Warrants") were sold together with $100,000,000 principal amount of
Gothic's 12 1/4% senior notes due 2004 (which we refer to as the "Senior Notes")
(we refer to the sale of the 1997 Warrants and Senior Notes as the "1997
Offering") by Gothic on September 9, 1997 in a transaction not registered under
the Securities Act of 1933, as amended (the "Securities Act"), in reliance upon
the exemption provided in Section 4(2) of the Securities Act. Gothic sold
$100,000,000 principal amount of Senior Notes and 1,400,000 1997 Warrants in
100,000 units of securities, each unit consisting of $1,000 principal amount of
outstanding Senior Notes and 14 1997 Warrants with each such warrant
representing the right to purchase one share of Common Stock at a price of $3.00
per share to persons who resold the securities to "qualified institutional
buyers" pursuant to Rule 144A under the Securities Act. The Senior Notes and
1997 Warrants became separately transferrable on November 3, 1997.
Gothic's warrants exercisable at $2.40 per share (which we refer to as the
"1998 Warrants") were sold together with $104,000,000 principal amount of
Gothic's 14-1/8% Senior Secured Discount Notes due 2006 (which we refer to as
the "Discount Notes") (we refer to the sale of the 1998 Warrants and Discount
Notes as the "1998 Offering") by Gothic on April 21, 1998 in a transaction not
registered under the Securities Act, in reliance upon the exemption provided in
Section 4(2) of the Securities Act. Gothic sold $104,000,000 principal amount
of Notes and 825,029 1998 Warrants in 104,000 units of securities, each unit
consisting of $1,000 principal amount of Discount Notes and 7.933 1998 Warrants
with each such warrant representing the right to purchase one share of Common
Stock at a price of $2.40 per share. The Discount Notes and 1998 Warrants
became separately transferrable on June 18, 1998.
-2-
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
Table of Contents............................................................ 3
Available Information and Incorporation of Certain Information by Reference.. 4
Summary...................................................................... 6
Business Strategy............................................................ 7
Recent Developments.......................................................... 8
Risk Factors................................................................. 11
Cautionary Statement for Purposes of the "Safe Harbor" Provisions of the
Private Securities Litigation Reform Act of 1995........................ 19
Capitalization............................................................... 20
Price Range of Common Sock; Dividends Policy................................. 21
Use of Proceeds.............................................................. 22
Selling Securityholders...................................................... 23
Plan of Distribution......................................................... 24
Description of Capital Stock................................................. 25
Legal Matters................................................................ 29
Independent Public Accountants............................................... 29
Glossary..................................................................... 31
</TABLE>
-3-
<PAGE>
AVAILABLE INFORMATION AND
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
Gothic is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and the rules and
regulations promulgated thereunder, and, in accordance therewith, files reports,
proxy and information statements and other information with the Securities and
Exchange Commission (the "Commission"). These reports, proxy and information
statements and other information concerning Gothic can be inspected and copied
at the public reference facilities maintained by the Commission at Room 1024,
450 Fifth Street, Northwest, Washington, DC 20549; and at the Commission's
regional offices located at 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661 and at Seven World Trade Center, Suite 1300, New York, New York
10048. Copies of such material can also be obtained from the Commission at
prescribed rates through its Public Reference Section at 450 Fifth Street,
Northwest, Washington, DC 20549. The Commission maintains a Web site that
contains reports, proxy and information statements and other information
regarding issuers that file electronically with the Commission and the address
of that Web site is http://www.sec.gov. The Common Stock is traded on the Nasdaq
SmallCap Market ("Nasdaq"). Information filed by Gothic with Nasdaq may be
inspected at the offices of Nasdaq at 1735 "K" Street, Northwest, Washington, DC
20006.
Gothic has filed with the Commission a Registration Statement on Form S-3
under the Securities Act of 1933, as amended ("Securities Act") with respect to
the securities offered hereby (including all amendments and supplements thereto,
the "Registration Statement"). This Prospectus, which forms a part of the
Registration Statement, does not contain all of the information set forth in the
Registration Statement, certain parts of which have been omitted in accordance
with the rules and regulations of the Commission. Statements contained herein
concerning the provisions of certain documents are not necessarily complete and,
in each instance, reference is made to the copy of such document filed as an
exhibit to the Registration Statement or otherwise filed with the Commission.
Each such statement is qualified in its entirety by such reference. The
Registration Statement and the exhibits thereto can be inspected and copied at
the public reference facilities and regional offices of the Commission and at
the offices of Nasdaq referred to above.
The following documents, including financial statements, filed by Gothic
with the Commission are hereby incorporated by reference in this Prospectus:
(a) The Annual Report of Gothic on Form 10-KSB for the fiscal year
ended December 31, 1997;
(b) The Quarterly Reports of Gothic on Form 10-QSB for the quarters
ended March 31, 1998 and June 30, 1998;
(c) The Current Reports of Gothic on Form 8-K dated May 16, 1996, Form
8-K/A filed July 30, 1996, Form 8-K dated December 27, 1996, Form 8-K dated
February 18, 1997, Form 8-K/A filed June 6, 1997, Form 8-K dated April 16,
1997, Form 8-K dated June 30, 1997, Form 8-K dated September 9, 1997 and
Form 8-K/A filed on October 3, 1997, Form 8-K dated November 25, 1997, Form
8-K dated January 23, 1998, Form 8-K/A filed January 30, 1998, Form 8-K/A
filed February 6, 1998, Form 8-K/A filed February 25, 1998, Form 8-K/A
filed April 8, 1998, Form 8-K dated March 31, 1998, and Form 8-K dated
April 27, 1998.
-4-
<PAGE>
All documents filed by Gothic pursuant to Section 13(a), 13(c), 14 or 15(d)
of the Exchange Act, subsequent to the date of this Prospectus and prior to the
termination of the offerings to which this Prospectus relates shall be deemed to
be incorporated by reference in this Prospectus and to be a part hereof from the
date of filing of such documents. Any statement in a document incorporated or
deemed to be incorporated by reference herein shall be deemed to be modified or
superseded by this Prospectus to the extent that a statement contained herein or
in any other subsequently filed document which also is or is deemed to be
incorporated by reference herein modifies or supersedes such statement. Any
such statement so modified or superseded shall not be deemed, except as so
modified or superseded, to constitute a part of this Prospectus.
Gothic hereby undertakes to provide without charge copies of all documents
incorporated herein by reference (other than exhibits to such documents unless
such exhibits are specifically incorporated by reference in such documents) to
each person, including any beneficial owner, to whom a copy of this Prospectus
has been delivered on the written or oral request of such person to:
Michael Paulk, President
Gothic Energy Corporation
5727 South Lewis Avenue - Suite 700
Tulsa, Oklahoma 74105
-5-
<PAGE>
Unless otherwise indicated, all financial and quantitative information
provided in this Prospectus on a "pro forma basis" give effect, on the date and
for the periods indicated, to certain acquisitions effected by Gothic during
1997, the Amoco Acquisition (as defined herein) and related financings, the
completion of the Recapitalization (as defined herein) and the application of
the estimated net proceeds therefrom. We believe that certain terms relating to
the natural gas and oil business used in this prospectus may be understood only
by persons who are industry experts. We have defined these terms in the
"Glossary" beginning on page 31.
SUMMARY
Gothic Energy Corporation ("Gothic") is an independent energy company
primarily engaged, through its wholly owned subsidiary, Gothic Production
Corporation ("GPC"), in the acquisition, development, exploitation, exploration
and production of natural gas and oil. Gothic commenced natural gas and oil
operations in 1994 with a business strategy emphasizing acquisitions of long-
lived, proved producing natural gas properties with significant development and
exploitation potential. As a result of this strategy, Gothic has grown
primarily through 14 acquisitions of producing natural gas and oil properties
(including the Amoco Acquisition) for total consideration of $337.8 million.
Reflecting this successful growth, Gothic is currently pursuing a business
strategy emphasizing the development and exploitation of its existing asset
base, maintenance of low cost operations and selective strategic acquisitions.
As of June 30, 1998, Gothic had proved reserves of 320.4 Bcfe, of which
approximately 93% were natural gas, with a PV-10 of approximately $280.7
million. These reserves, of which 81% were classified as proved developed, had
an estimated Reserve Life of approximately 11.1 years.
Gothic's natural gas and oil reserves and acreage are principally located
in the Anadarko, Arkoma and Permian/Delaware basins, which are historically
prolific basins with multiple producing horizons and long-lived reserves. These
basins generally provide significant development and exploitation potential
through low-risk infill drilling and the implementation of new workover,
drilling and recompletion technologies. Gothic has initiated a comprehensive
development and exploitation program designed to increase its natural gas and
oil reserves, production, earnings, cash flow and net asset value by enhancing
proved producing reserves and converting proved undeveloped reserves to proved
producing reserves. During the twelve months ended June 30, 1998, since the
inception of this program, Gothic drilled 30 wells, 24 of which have been
completed and are producing. In addition, Gothic has entered into a
participation agreement involving the drilling of substantially all of its
undeveloped acreage with Chesapeake Energy Corporation ("Chesapeake") which will
support Gothic's comprehensive development and exploitation program. Gothic has
not engaged in any material exploration activities, but intends to devote a
limited amount of capital in the future to pursue "controlled-risk" exploration
opportunities.
At June 30, 1998, Gothic held an interest in approximately 620,000 gross
acres (310,000 net acres) and had an interest in 1,254 gross wells (559 net
wells). Gothic serves as operator of approximately 635 of the wells in which it
has an interest. Operated wells account for approximately 75% of the PV-10 of
Gothic's proved reserves as of June 30, 1998.
-6-
<PAGE>
BUSINESS STRATEGY
Gothic's objective is to increase its reserves, production, earnings, cash
flow and net asset value through a growth strategy that includes (i) developing,
exploiting and exploring its natural gas and oil properties, (ii) maintaining a
low operating cost structure, and (iii) acquiring strategic natural gas and oil
properties in a disciplined manner.
DEVELOPMENT, EXPLOITATION AND EXPLORATION
Gothic seeks to maximize the value of its natural gas and oil properties
through development drilling, workovers, recompletions, reductions in operating
costs and enhanced operating efficiencies. Gothic's core areas are characterized
by properties with multiple pay zones that allow for integrated analysis of
stratigraphic, seismic and well control data to identify development and
exploitation opportunities. Through such analysis, Gothic has, as of June 30,
1998, identified 224 development and exploitation projects within its
properties, of which 104 have been assigned proved undeveloped reserves.
Gothic's 1998 development drilling program includes plans to spend approximately
$20.0 to $25.0 million to drill approximately 30 to 40 wells, many of which are
infill development wells on proved undeveloped locations. Gothic also
continually evaluates and pursues exploitation opportunities, including workover
and recompletion projects. Gothic intends to devote a limited amount of capital
in the future to pursue "controlled-risk" exploration opportunities by drilling
on undeveloped acreage in areas in close proximity to producing properties.
Gothic believes geological and geophysical data, including 3-D and 2-D seismic
surveys acquired in the Amoco Acquisition, will enable it to reduce costs and
risks associated with drilling activities throughout its core areas.
MAINTAIN LOW COST OPERATIONS
Gothic is able to directly control operating and drilling costs as the
operator of wells comprising approximately 75% of the PV-10 of proved reserves
as of June 30, 1998. In addition, Gothic has been able to reduce per unit
operating costs by eliminating unnecessary field and corporate overhead costs
and by divesting marginal and non-strategic properties with limited development
potential. Lease operating expenses have decreased 64%, from $1.29 per Mcfe of
production in 1995 to $0.47 per Mcfe for the six months ended June 30, 1998.
Further, general and administrative expenses per Mcfe of production have
decreased 90%, from $1.15 per Mcfe to $0.11 per Mcfe over the same period.
Gothic intends to further improve the efficiency of and reduce the operating
costs associated with well operations through the use of advanced wireless
technology licensed to Gothic as part of the Amoco Acquisition. This technology
enables Gothic to remotely monitor well operations, thereby reducing the need
for on-site monitoring personnel. Gothic intends to deploy this technology
throughout many of its producing properties in the Anadarko and Arkoma basins.
STRATEGIC ACQUISTIONS
Gothic intends to pursue additional strategically attractive acquisitions
to the extent its capital structure allows. With the completion of the Amoco
Acquisition, however, Gothic has reduced the emphasis on acquisitions in its
current business strategy. Gothic has increased its reserves through
acquisitions, having added 424.9 Bcfe through 14 acquisitions, since November
1994, at a total acquisition cost of $337.8 million, or an average cost of $0.80
per Mcfe. Gothic utilizes a disciplined acquisition strategy, focusing its
acquisition efforts on producing natural gas properties within its core areas
with (i) relatively long-lived natural gas production, (ii) quantifiable
-7-
<PAGE>
development and exploitation potential, (iii) low risk exploration potential,
(iv) historically low operating expenses or the potential to reduce operating
expenses, (v) close proximity to Gothic's existing production or in areas where
Gothic has the ability to develop operating economies of scale and (vi)
geological, geophysical and other technical and operating characteristics with
which management of Gothic has expertise. Gothic applies strict economic and
reserve risk criteria in evaluating acquisitions of natural gas and oil
properties and companies.
RECENT DEVELOPMENTS
THE RECAPITALIZATION
On April 27, 1998, Gothic completed a series of transactions intended to
recapitalize Gothic through (i) the creation of GPC and transfer of all of
Gothic's natural gas and oil assets to GPC, (ii) the issuance by Gothic of
shares of Series B Preferred Stock, (iii) the sale of assets for $20.0 million,
subject to closing adjustments, (iv) the execution of a participation agreement
granting a 50% interest in substantially all of Gothic's undeveloped acreage,
(v) the issuance by GPC of the Senior Secured Notes (as defined), (vi) the
issuance by Gothic of the Discount Notes, and (vii) the repayment and/or
refinancing of substantially all of Gothic's then existing debt and preferred
securities (together, the "Recapitalization").
Certain transactions undertaken in the Recapitalization are described in
greater detail below:
Corporate Restructuring. GPC was organized as a wholly owned subsidiary of
Gothic. At the closing of the Recapitalization, Gothic transferred to GPC its
ownership of all its natural gas and oil properties. The outstanding capital
stock of GPC held by Gothic was pledged to secure Gothic's obligations under the
Discount Notes. The natural gas and oil assets owned by GPC secure its
obligations under the Credit Facility (as defined) and the Senior Secured Notes.
The Chesapeake Transaction. On April 27, 1998, Gothic completed several
agreements with Chesapeake pursuant to which Gothic (i) sold a 50% interest in
substantially all of Gothic's undeveloped acreage, (ii) sold 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) sold 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. In addition to providing Gothic with additional
capital to facilitate the completion of the Recapitalization, the Chesapeake
Transaction is intended to provide technical expertise, a historic drilling
track record and the financial resources to implement Gothic's comprehensive
development and exploitation program in the Mid-Continent region.
-8-
<PAGE>
Financing Transactions. The following financing transactions were
completed as part of the Recapitalization:
14-1/8% Senior Secured Discount Notes....... Gothic sold approximately $60.2
million initial principal amount
($104.0 million principal amount
at maturity) of Discount Notes
secured by the outstanding capital
stock of GPC held by Gothic,
together with the 1998 Warrants.
11-1/8% Senior Secured Notes................ GPC sold $235.0 million principal
amount of Senior Secured Notes.
Series B Preferred Stock and Warrants....... Gothic sold 50,000 shares of
Series B Preferred Stock, having a
liquidation preference of $50.0
million, and ten-year common stock
purchase warrants exercisable at
$0.01 per share to purchase
2,439,246 shares of Common Stock.
Arkoma Property Sales....................... Gothic sold for $20.0 million,
subject to closing adjustments, a
50% interest in its natural gas
and oil properties in the Arkoma
basin.
Credit Facility............................. GPC entered into the Credit
Facility which provides, among
other things, for an initial
borrowing availability to GPC of
approximately $25.0 million.
Repayments and Redemptions. The net proceeds of approximately $350.5
million from the Recapitalization described above were applied to repay or
redeem the following:
12 1/4% Senior Notes........................ These notes, outstanding in the
principal amount of approximately
$99.3 million, were redeemed for
approximately $102.3 million,
inclusive of a 1% redemption
premium and accrued interest.
Series A Preferred Stock.................... These shares were redeemed for
$38.7 million, inclusive of a 1%
redemption premium and payment-in-
kind dividends through the
redemption date.
Former Credit Facility...................... An aggregate of $206.4 million of
bank indebtedness was repaid.
-9-
<PAGE>
THE AMOCO ACQUISITION
On January 23, 1998, Gothic purchased from Amoco Production Company, a
subsidiary of Amoco Corporation, natural gas producing properties located in the
Anadarko and Arkoma basins of Oklahoma (the "Amoco Acquisition"). The
consideration paid consisted of $237.5 million in cash, subject to certain post-
closing adjustments, warrants to purchase 1.5 million shares of Gothic's common
stock exercisable at $3.00 per share, and the transfer of certain producing
properties owned by Gothic having a value of less than $1.8 million. The
purchase had an effective date of December 1, 1997. The Amoco Acquisition
involved interests in 821 gross wells, operation of 291 of the properties and
approximately 240.0 Bcfe of proved reserves with a PV-10 of approximately $230.1
million as of December 31, 1997. Of the proved reserves acquired, 96% were
natural gas and 71% were producing with net daily production of approximately 60
Mmcfe. The cash portion of the consideration for the Amoco Acquisition was
financed with approximately $216.4 million of borrowings under Gothic's former
credit facility, including $156.4 million borrowed under a three-year Revolving
Loan and $60.0 million borrowed under a six-month Bridge Loan. In addition,
Gothic issued 37,000 shares of Series A Preferred Stock with an aggregate
liquidation preference of $37.0 million both to pay a portion of the cash
consideration for the Amoco Acquisition and to pay related fees and expenses.
-10-
<PAGE>
RISK FACTORS
In addition to the other information set forth elsewhere in this
Prospectus, the following factors relating to Gothic should be considered by
prospective investors when evaluating an investment in the securities offered
hereby.
SUBSTANTIAL INDEBTEDNESS
At June 30, 1998, Gothic had $296.7 million of long-term indebtedness as
compared to stockholders' equity of $2.1 million. This level of indebtedness
may pose substantial risks to Gothic and the holders of its securities,
including the possibility that Gothic may not generate sufficient cash flow to
pay the principal of and interest on the Credit Facility and the Senior Secured
Notes and the risk of default thereunder. Gothic's historical earnings were
insufficient to cover fixed charges, including preferred dividends, by $5.7
million and $3.9 million for the years ended December 31, 1996 and 1997,
respectively, and by $17.8 million for the six months ended June 30, 1998. On a
pro forma basis, the earnings of Gothic were insufficient to cover fixed charges
by $19.4 million for the year ended December 31, 1997. If Gothic is
unsuccessful in increasing its proved reserves or realizing production from its
proved undeveloped reserves, the future net revenue from existing proved
reserves may not be sufficient to pay the principal of and interest on its
indebtedness in accordance with their terms. Gothic's levels of indebtedness may
also adversely affect its ability to incur additional indebtedness and finance
its future operations and capital needs, and may limit its ability to pursue
other business opportunities. The Discount Notes, the Senior Secured Notes, the
Credit Facility and their respective indentures contain financial and other
restrictive covenants which could limit Gothic's operating and financial
flexibility and, if violated, would result in an event of default which could
preclude Gothic's access to credit under the Credit Facility or otherwise have a
material adverse effect on Gothic. A default under the Credit Facility could
lead to a foreclosure against the assets that collateralize such indebtedness.
In addition, the terms of Gothic's indebtedness contain provisions whereby a
default under one loan agreement may also constitute a default under other
indebtedness. Accordingly, if Gothic should default under the terms of one loan
agreement such default could also constitute an event of default under other
indebtedness which could result in all of such indebtedness becoming immediately
due and payable. There are currently no defaults under any of Gothic's
outstanding indebtedness.
LIMITATION ON THE PAYMENT OF FUNDS TO GOTHIC BY GPC
Gothic's cash flow, and consequently its ability to pay dividends and to
service debt, including its obligations under the Discount Notes, is dependent
upon the cash flows of GPC and the payment of funds by GPC to Gothic in the form
of loans, dividends, or otherwise. GPC has no obligation, contingent or
otherwise, to pay any amounts due pursuant to the Discount Notes or to make any
funds available therefor. In addition, the Credit Facility and the indenture
governing Gothic's Senior Secured Notes impose, and agreements entered into in
the future may impose, significant restrictions on the payment of dividends and
the making of loans by GPC to Gothic. Under the Credit Facility and Senior
Secured Notes, subject to certain financial covenants, GPC is permitted to pay
dividends to Gothic equal to the semi-annual interest payments due on the
Discount Notes; provided that upon a notice of default or event of default under
the Credit Facility or Senior Secured Notes, GPC will be prohibited from paying
such dividends until the date such default or event of default is cured or
waived. Accordingly, in such an event, repayment of the Discount Notes may
depend upon the ability of Gothic to effect an offering of capital stock or to
refinance the Discount Notes. A default under the Discount Notes would have a
material adverse effect on holders of Gothic's Common Stock.
-11-
<PAGE>
RESTRICTIONS IMPOSED BY LENDERS
The instruments governing the indebtedness of Gothic impose significant
operating and financial restrictions on Gothic. Such restrictions will affect,
and in many respects significantly limit or prohibit, among other things, the
ability of Gothic to incur additional indebtedness, pay dividends, repay
indebtedness prior to its stated maturity, sell assets or engage in mergers or
acquisitions. These restrictions could also limit the ability of Gothic to
effect future financings, make needed capital expenditures, withstand a future
downturn in Gothic's business or the economy in general, or otherwise conduct
necessary corporate activities. A failure by Gothic to comply with these
restrictions could lead to a default under the terms of such indebtedness. In
the event of default, the holders of such indebtedness could elect to declare
all of the funds borrowed pursuant thereto to be due and payable together with
accrued and unpaid interest. In such event, there can be no assurance that
Gothic would be able to make such payments or borrow sufficient funds from
alternative sources to make any such payment. If GPC were unable to repay all
amounts declared due and payable under the Credit Facility or Senior Secured
Notes, the lenders thereunder could proceed against the collateral granted to
satisfy the indebtedness and other obligations due and payable. If the Credit
Facility indebtedness or Senior Secured Notes were to be accelerated, there can
be no assurance that the assets of Gothic would be sufficient to repay in full
such indebtedness and the other indebtedness of Gothic. Even if additional
financing could be obtained, there can be no assurance that it would be on terms
that are favorable or acceptable to Gothic. In addition, Gothic's obligations
under the Credit Facility and Senior Secured Notes are secured by substantially
all of the assets of GPC. The pledge of such collateral to existing lenders
could impair Gothic's ability to obtain favorable financing from other sources.
ABILITY TO MANAGE GROWTH
Although individual members of management have significant experience in
the natural gas and oil industry, Gothic has been engaged in the natural gas and
oil business for less than four years and has a limited operating history upon
which investors may base their evaluation of Gothic's performance. As a result
of its brief operating history and rapid growth, the operating results from
Gothic's historical periods are not readily comparable and, as a consequence of
the Amoco Acquisition, are not expected to be indicative of future results.
There can be no assurance that Gothic will continue to experience growth in, or
maintain its current level of, revenues, natural gas and oil reserves or
production. Gothic's natural gas and oil operations to date have focused on the
acquisition of producing natural gas and oil properties. Gothic's business plan
and reserve reports include the drilling of approximately 30 to 40 development
wells during 1998.
The Amoco Acquisition and any future growth of Gothic's natural gas and oil
reserves, production and operations will place significant demands on Gothic's
operational, administrative and financial resources, and the increased scope of
operations will present challenges to Gothic due to increased management time
and resources required. Gothic's future performance and profitability will
depend in part on its ability to successfully integrate the operational,
financial and administrative functions of acquired properties into Gothic's
operations, to hire additional personnel and to implement necessary enhancements
to its management systems to respond to changes in its business. There can be
no assurance that Gothic will be successful in these efforts. The inability of
Gothic to integrate acquired properties, to hire additional personnel or to
enhance its management systems could have a material adverse effect on Gothic's
results of operations.
-12-
<PAGE>
VOLATILITY OF NATURAL GAS AND OIL PRICES; POTENTIAL FULL COST WRITE DOWN
Gothic's revenues, profitability, cash flow, ability to service debt and
future growth will be substantially dependent on prevailing prices for natural
gas and oil. The amounts of and prices obtainable for Gothic's natural gas and
oil production will be affected by market factors beyond Gothic's control. Such
factors include the extent of domestic production, the level of imports of
foreign natural gas and oil, the general level of market demand on a regional,
national and worldwide basis, domestic and foreign economic conditions that
determine levels of industrial production, political events in foreign oil
producing regions, and variations in governmental regulations and tax laws or
the imposition of new governmental requirements upon the natural gas and oil
industry, among other factors. Prices for natural gas and oil are subject to
worldwide fluctuation in response to relatively minor changes in supply of and
demand for natural gas and oil, market uncertainty and a variety of additional
factors that are beyond the control of Gothic. Any significant decline in
natural gas and oil prices would have a material adverse effect upon Gothic,
including the inability of Gothic to fund planned operations and capital
expenditures, write downs of the carrying value of its natural gas and oil
properties, and Gothic's inability to meet debt service requirements resulting
in defaults under bank loans and other indebtedness. In addition, the
marketability of Gothic's natural gas and oil production will depend in part
upon the availability, proximity and capacity of gathering systems, pipelines
and processing facilities.
Subsequent to June 30, 1998, the natural gas industry experienced a
significant decline in natural gas prices. Gothic's reserves were determined at
June 30, 1998 using a natural gas price of approximately $2.25 per Mcf. At
September 21, 1998, the natural gas price received by Gothic fell to
approximately $2.07 per Mcf. Had the September 21, 1998 prices been used in the
evaluation, the decline in natural gas prices would have resulted in a provision
to reduce the carrying value of Gothic's oil and natural gas properties of
approximately $25.0 million. Based on rules promulgated by the Commission,
Gothic evaluates impairment of its natural gas and oil properties, based on
prevailing prices as of the end of each quarter, and accordingly, the actual
amount of impairment, if any, will not be determinable until the end of the
third quarter.
RISK OF HEDGING ACTIVITIES
In an attempt to reduce its sensitivity to energy price volatility, Gothic
uses swap arrangements that generally result in a fixed price for sales of its
natural gas and oil production over periods of up to 12 months. If Gothic's
reserves are not produced at rates equivalent to the hedged position, Gothic
would be required to satisfy its obligations under hedging contracts on
potentially unfavorable terms without the ability to hedge that risk through
sales of comparable quantities of its own production. Hedging contracts limit
the benefits Gothic will realize if actual prices rise above the contract
prices. In addition, hedging contracts are subject to the risk that the other
party may prove unable or unwilling to perform its obligations under such
contracts. Any significant non-performance could have a material adverse
financial effect on Gothic. These arrangements provide for Gothic to exchange a
floating market price for a fixed contract price. Payments are made by Gothic
when the floating price exceeds the fixed price for a contract month and
payments are received when the fixed price exceeds the floating price.
Settlements on these swaps are based on the difference between the approximate
average closing NYMEX price for a contract month and the fixed contract price
for the same month.
Gothic was required under the terms of its credit facility in effect prior
to the Recapitalization to enter into hedging agreements covering Gothic's
natural gas production. Because of this hedging activity, Gothic's financial
risk resulting from possible declines in the price of natural gas has been
reduced; however, Gothic's ability to benefit from increases in the price of
natural gas is limited. While Gothic is no longer required under the terms of
its bank loan agreement to maintain any minimum amounts of hedging agreements,
Gothic expects it will continue
-13-
<PAGE>
to enter into such agreements in the future. Any reduction in hedging activity
will subject Gothic to more significant fluctuations in production revenues
resulting from price volatility.
During 1998, Gothic had swap agreements relating to the sale of 5,000 Mcf
per day at a price of $2.55 per Mcf and 15,000 Mcf per day at a price of $2.45
per Mcf during the period January 1, 1998 through March 31, 1998. In February
1998, Gothic entered into swap agreements relating to the sale of 62,000 Mcf per
day during the period April 1, 1998 through October 31,1998 at an average price
of $2.09 per Mcf. Swap agreements relating to 7,000 Mcf per day were cancelled
in June 1998. Of the remaining 55,000 Mcf per day, 25,000 Mcf per day is
subject to a "call spread" agreement which provides that Gothic will receive
additional payments if the actual sales price of natural gas is between $2.30
and $2.70 per Mcf during the period. The swap agreements for the period April
through October 1998 cover approximately 80% of Gothic's current natural gas
production. In addition, Gothic has entered into a swap agreement relating to
the sale of 60,000 Mcf per day at a "floor" price of $2.10 per Mcf during the
period November 1998 through March 1999.
REPLACEMENT OF RESERVES
Gothic's success is substantially dependent on its ability to replace and
expand its natural gas and oil reserves through the acquisition of producing
properties and the exploitation and development of its properties, which
activities involve substantial risk. Without successful acquisition or drilling
ventures, Gothic will be unable to replace the reserves being depleted by
production, and its assets and revenues, including the reserves, will decline.
Gothic's strategy includes increasing its reserve base through continued
exploitation of its existing properties, exploration of new and existing
properties and acquisitions of producing properties. There can be no assurance
that Gothic's acquisition and development activities will result in the
replacement of, or additions to, Gothic's reserves. Similarly, there can be no
assurance that Gothic will have sufficient capital to engage in its acquisition
or development activities. Successful acquisition of producing properties
generally requires accurate assessments of recoverable reserves, future natural
gas and oil prices, operating costs, potential environmental and other
liabilities and other factors. Such assessments are necessarily inexact, and as
estimates their accuracy is inherently uncertain.
ACQUISITION RISKS
Gothic's rapid growth since it commenced natural gas and oil operations has
been largely the result of acquisitions of producing properties. Gothic expects
to continue to evaluate and pursue acquisition opportunities available on terms
management considers favorable to Gothic. The successful acquisition of
producing properties requires an assessment of recoverable reserves, future
natural gas and oil prices, operating costs, potential environmental and other
liabilities and other factors beyond Gothic's control. This assessment is
necessarily inexact and its accuracy is inherently uncertain. In connection
with such an assessment, Gothic performs a review of the subject properties it
believes to be generally consistent with industry practices. This review,
however, will not reveal all existing or potential problems, nor will it permit
a buyer to become sufficiently familiar with the properties to assess fully
their deficiencies and capabilities. Inspections may not be performed on every
well, and structural and environmental problems are not necessarily observable
even when an inspection is undertaken. Gothic generally assumes pre-closing
liabilities, including environmental liabilities, and generally acquires
interests in the properties on an "as is" basis. With respect to its
acquisitions to date, Gothic has no material commitments for capital
expenditures to comply with existing environmental requirements. There can be no
assurance that Gothic's acquisitions will be successful. Any unsuccessful
acquisition could have a material adverse effect on Gothic.
-14-
<PAGE>
DRILLING AND OPERATING RISKS
Drilling activities are subject to many risks, including the risk that no
commercially productive reservoirs will be encountered. There can be no
assurance that new wells drilled by Gothic will be productive or that Gothic
will recover all or any portion of its investment. Drilling for natural gas and
oil may involve unprofitable efforts, not only from dry wells, but from wells
that are productive but do not produce sufficient net revenues to return a
profit after drilling, operating and other costs. The cost of drilling,
completing and operating wells is often uncertain. Gothic's drilling operations
may be curtailed, delayed or canceled as a result of numerous factors, many of
which are beyond Gothic's control, including economic conditions, mechanical
problems, title problems, weather conditions, compliance with governmental
requirements and shortages or delays of equipment and services. Gothic's future
drilling activities may not be successful and, if unsuccessful, such failure may
have a material adverse effect on Gothic's future results of operations or
financial condition.
In addition to the substantial risk that wells drilled will not be
productive, hazards such as unusual or unexpected geologic formations,
pressures, downhole fires, mechanical failures, blowouts, cratering, explosions,
uncontrollable flows of natural gas, oil or well fluids, pollution and other
physical and environmental risks are inherent in natural gas and oil exploration
and production. These hazards could result in substantial losses to Gothic due
to injury and loss of life, severe damage to and destruction of property and
equipment, pollution and other environmental damage and suspension of
operations. Gothic, as protection against operating hazards, maintains
insurance coverage against some, but not all, potential losses, as is common in
the natural gas and oil industry. Gothic does not fully insure against all risks
associated with its business either because such insurance is not available or
because the cost thereof is considered prohibitive. The occurrence of an event
that is not covered, or not fully covered, by insurance could have a material
adverse effect on Gothic's financial condition and results of operations.
UNCERTAINTY OF ESTIMATES OF RESERVES AND FUTURE NET REVENUES; SIGNIFICANT
UNDEVELOPED RESERVES
There are numerous uncertainties inherent in estimating quantities of
proved reserves, including many factors beyond the control of Gothic.
Information as to Gothic's reserves represents estimates based on reports
prepared by Gothic's independent petroleum engineers, as well as internally
generated reports. Petroleum engineering is not an exact science. Information
relating to proved natural gas and oil reserves is based upon engineering
estimates derived after analysis of information furnished by Gothic or the
operator of the property. Estimates of economically recoverable natural gas and
oil reserves and of future net cash flows necessarily depend upon a number of
variable factors and assumptions, such as historical production from the area
compared with production from other producing areas, the assumed effects of
regulations by governmental agencies and assumptions concerning future natural
gas and oil prices, future operating costs, severance and excise taxes, capital
expenditures and workover and remedial costs, all of which may in fact vary
considerably from actual results. Natural gas and oil prices, which fluctuate
over time, may also affect proved reserve estimates. For these reasons,
estimates of the economically recoverable quantities of natural gas and oil
attributable to any particular group of properties, classifications of such
reserves based on risk of recovery and estimates of the future net cash flows
expected therefrom prepared by different engineers or by the same engineers at
different times may vary substantially. Actual production, revenues and
expenditures with respect to Gothic's reserves will likely vary from estimates,
and such variances may be material. Approximately 15% of Gothic's estimated PV-
10 of proved reserves as of June 30, 1998 are classified as undeveloped. Either
inaccuracies in estimates of proved undeveloped reserves or the inability to
fund development could result in substantially reduced reserves. In addition,
the timing of receipt of estimated future net revenues from proved undeveloped
reserves will be dependent upon the timing and implementation of drilling and
development activities estimated by Gothic for purposes of the reserve report.
-15-
<PAGE>
POSSIBLE DELISTING OF COMMON STOCK FROM THE NASDAQ SMALLCAP MARKET
In order for Gothic's Common Stock to continue to be traded on the Nasdaq
Small Cap Market, it must continue to meet the listing requirements of the
Nasdaq SmallCap Market and maintain certain minimum financial and corporate
governance requirements. Continued inclusion on the SmallCap Market generally
requires that (i) Gothic maintain (A) at least $2.0 million in net tangible
assets ("net tangible assets" equals total assets less total liabilities and
goodwill) or (B) a $35.0 million market capitalization or (C) generate net
income of at least $500,000 in two of the three prior years; (ii) there be at
least 500,000 shares in the public float valued at $1.0 million or more; (iii)
the minimum bid price of the Common Stock be $1.00 per share; (iv) the Common
Stock have at least two active market makers; (v) the Common Stock be held by at
least 300 holders; and (vi) Gothic have at last two independent directors.
As of September 11, 1998, Gothic's Common Stock had traded at a price below
$1.00 per share for the prior thirty (30) consecutive trade dates. Therefore,
its shares of Common Stock are subject to delisting. Gothic must demonstrate
compliance with the minimum $1.00 bid price on or before December 11, 1998 and
if it fails to do so, its shares will be delisted. In addition, there can be no
assurance that Gothic's net tangible assets will not in the future decline below
$2.0 million which can be expected to result in a delisting of Gothic's Common
Stock from the SmallCap Market. At June 30, 1998, Gothic's total assets
exceeded its total liabilities by $2.1 million, and losses from operations
during the quarter ended September 30, 1998 may cause Gothic's net tangible
assets to decline below $2.0 million. If Gothic's shares are delisted for any
reason, trading, if any, in the Common Stock would thereafter be conducted in
the over-the-counter markets in the so-called "pink sheets" or the NASD's
"Electronic Bulletin Board." Consequently, the liquidity of Gothic's securities
could be impaired through a more limited market for Gothic's securities,
possible delays in the timing of the transactions and lower prices for Gothic's
securities than might otherwise be attained.
FUTURE CAPITAL REQUIREMENTS
Gothic has made, and will continue to make, substantial capital
expenditures for the acquisition, development and production of natural gas and
oil reserves, particularly since a portion of the proved reserves of Gothic
consists of proved undeveloped reserves, which require significant capital
expenditures to develop. Gothic has budgeted capital expenditures of
approximately $20.0 to $25.0 million for the year ending December 31, 1998.
Gothic is not contractually committed to expend these funds. Gothic currently
expects that available cash, cash flows from operations, proceeds from the
private or public sale of debt or equity securities, borrowings under the Credit
Facility, and sales of certain natural gas and oil properties will be sufficient
to fund debt service requirements and planned capital expenditures for its
existing properties through 1998. However, Gothic may need to raise additional
capital to fund acquisitions and the development thereof, which capital may not
be available to Gothic.
Under the terms of the Chesapeake Transaction, both Gothic and Chesapeake
are permitted to designate acreage for development drilling by giving written
notice thereof to the other party. In order for Gothic to participate in any
drilling proposals submitted by Chesapeake in the acreage which is the subject
of the participation agreement, Gothic will need to have available sufficient
funds or borrowing availability to participate in the proposed drilling
activity. Certain terms of the participation agreement limit the number of
wells to be proposed by Chesapeake to the amount that would require capital
expenditures by Gothic of $15.0 million in 1998 and $25.0 million in 1999. In
the event Gothic should not have funds available at the time, Gothic's interest
in the well could be forfeited.
-16-
<PAGE>
Gothic may seek additional capital, if required, from traditional reserve
base borrowing, equity and debt offerings or joint ventures to further develop
and exploit its properties and to acquire additional properties, subject to the
limitations contained in the terms of its outstanding indebtedness, the Credit
Facility, the Discount Notes and the Senior Secured Notes. Gothic's ability to
access additional capital will depend on its continued success in developing its
natural gas and oil reserves and the status of the capital markets at the time
such capital is sought. Accordingly, there can be no assurance that capital will
be available to Gothic from any source or that, if available, it will be at
prices or on terms acceptable to Gothic. Should Gothic be unable to access the
capital markets or should sufficient capital not be available, the development
and exploitation of Gothic's properties could be delayed or reduced and,
accordingly, natural gas and oil revenues and operating results may be adversely
affected.
RELIANCE ON KEY PERSONNEL
Gothic is dependent upon the services of its Chief Executive Officer and
President, Michael Paulk. The loss of his services could have a material
adverse effect upon Gothic. Gothic has entered into an employment agreement
with Mr. Paulk, expiring on December 31, 1999. In addition, Gothic has obtained
a policy of life insurance on Mr. Paulk in the amount of $1.0 million, naming
GPC as beneficiary.
GOVERNMENTAL REGULATION
Gothic's operations are affected by extensive regulation pursuant to
various federal, state and local laws and regulations relating to the
exploration for and development, production, gathering and marketing of natural
gas and oil and the release of materials into the environment or otherwise
relating to protection of the environment. In particular, Gothic's natural gas
and oil exploration, development and production and its activities in connection
with storage and transportation of liquid hydrocarbons are subject to stringent
environmental regulation by governmental authorities. Such regulations have
increased the costs of planning, designing, drilling, installing, operating and
abandoning natural gas and oil wells and other related facilities.
Although Gothic believes that its operations are in general compliance with
all such laws and regulations, including applicable environmental laws and
regulations, risks of substantial costs and liabilities are inherent in natural
gas and oil operations, and there can be no assurance that significant costs and
liabilities will not be incurred in the future. Moreover, it is possible that
other developments, such as increasingly strict environmental laws, regulations
and enforcement policies thereunder, and claims for damages to property,
employees, other persons and the environment resulting from Gothic's operations,
could result in substantial costs and liabilities in the future.
The discharge of natural gas, oil or other pollutants into the air, soil or
water may give rise to significant liabilities on the part of Gothic to the
government and third parties and may require Gothic to incur substantial costs
of remediation. Moreover, Gothic has agreed to indemnify sellers of producing
properties purchased by Gothic, including Amoco, among others, against
environmental claims associated with such properties. No assurance can be given
that existing environmental laws or regulations, as currently interpreted or
reinterpreted in the future, or future laws or regulations will not materially
adversely affect Gothic's results of operations and financial condition or that
material indemnity claims will not arise against Gothic with respect to
properties acquired by Gothic.
-17-
<PAGE>
COMPETITION
The natural gas and oil industry is highly competitive. Gothic competes in
acquisitions and the development, production and marketing of natural gas and
oil with major oil companies, other independent natural gas and oil concerns,
and individual producers and operators. Many of these competitors have
substantially greater financial and other resources than Gothic. Furthermore,
the natural gas and oil industry competes with other industries in supplying the
energy and fuel needs of industrial, commercial and other consumers.
-18-
<PAGE>
CAUTIONARY STATEMENT FOR PURPOSES OF THE
"SAFE HARBOR" PROVISIONS OF
THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
With the exception of historical matters, the matters discussed in this
Prospectus are "forward-looking statements" as defined under the Securities
Exchange Act of 1934, as amended, that involve risks and uncertainties. The
words "anticipate," "believe," "expect," "plan," "intend," "estimate,"
"project," "forecasts," "will, "could," "may" and similar expressions are
intended to identify forward-looking statements. Forward-looking statements
include, but are not limited to, statements under the following headings:
"Business Strategy," "Risk Factors;" "- Ability to Manage Growth," "-
Volatility of Oil and Natural Gas Prices and Markets," "- Risk of Hedging
Activities," "- Replacement of Reserves," "Acquisition Risks," "- Uncertainty of
Estimates of Reserves and Future Net Revenues; Significant Undeveloped Reserves"
and "- Future Capital Requirements." Such forward-looking statements relate to
Gothic's capital requirements, business strategy, ability to attain and maintain
profitability and cash flow, dependence upon the acquisition of and ability to
acquire additional oil and gas properties or entering into joint oil and gas
well development arrangements, access to debt and equity capital and
availability of joint venture development arrangements, estimates as to its
needs for additional capital and the times at which such additional capital will
be required, expectations as to the sources of this capital and funds, ability
to successfully implement its business strategy, ability to identify and
integrate successfully any additional producing oil and gas properties it
acquires and whether such properties can be operated profitably, ability to
maintain compliance with covenants of its various loan documents and other
agreements pursuant to which securities have been issued, ability to borrow
funds or maintain levels of borrowing availability under credit arrangements,
statements about proved reserves or borrowing availability based on proved
reserves and future net cash flows and the present value thereof and
Supplementary Oil and Gas Information in Note 10 to Notes to Consolidated
Financial Statements. Gothic cautions readers that various risk factors
referred to above and described in this Prospectus (see "Risk Factors") could
cause Gothic's operating results to differ materially from those expressed in
any forward-looking statements made by Gothic and could adversely affect
Gothic's ability to pursue its business strategy.
-19-
<PAGE>
CAPITALIZATION
The following table sets forth the cash and cash equivalents and the
capitalization of Gothic at June 30, 1998. The data should be read in
conjunction with the historical financial statements of Gothic incorporated
herein by reference.
<TABLE>
<CAPTION>
AS OF JUNE 30, 1998
(IN THOUSANDS)
-----------------------
<S> <C>
Cash and cash equivalents $ 8,010
=======================
Total debt, including current portion
Credit Facility $ 0
11-1/8% Senior Secured Notes due 2005 235,000
14-1/8% Senior Secured Discount Notes due 2006 61,735
-----------------------
TOTAL DEBT $296,735
Stockholders' equity
Series B preferred stock, par value $0.05, authorized 165,000 shares;
50,000 shares issued and outstanding 31,834
Common Stock, $0.01 par value, 100,000,000 shares authorized;
16,261,640 shares issued and outstanding 162
Additional paid-in capital 42,997
Accumulated deficit (72,723)
Note receivable (169)
-----------------------
TOTAL STOCKHOLDERS' EQUITY 2,101
-----------------------
TOTAL CAPITALIZATION $298,836
=======================
</TABLE>
-20-
<PAGE>
PRICE RANGE OF COMMON STOCK; DIVIDEND POLICY
Gothic's Common Stock is quoted on the NASDAQ SmallCap Market under the
symbol GOTH. The following table sets forth the high and low bid quotations on
the NASDAQ SmallCap Market for Gothic's Common Stock by calendar quarter for the
period January 1, 1996 through September 21, 1998. See "Risk Factors - Possible
Delisting of Common Stock from the Nasdaq SmallCap Market."
<TABLE>
<CAPTION>
BID
---------------------------
CALENDAR QUARTER HIGH LOW
-------------------------------------------------------------
<S> <C> <C>
1996
First Quarter 2-3/4 1-9/16
Second Quarter 3 2-1/4
Third Quarter 2-3/4 2
Fourth Quarter 2-13/16 2-1/8
1997
First Quarter 3 2-3/8
Second Quarter 2-1/2 1-3/4
Third Quarter 2-11/16 1-7/8
Fourth Quarter
1998
First Quarter 3-1/16 1-13/16
Second Quarter 2-3/8 1-3/16
Third Quarter 1-19/32 9/16
(through September 21)
</TABLE>
The foregoing amounts, represent inter-dealer quotations without adjustment
for retail markups, markdowns or commissions and do not represent the prices of
actual transactions. On September 21, 1998, the closing bid quotations for the
Common Stock, as reported on the NASDAQ SmallCap Market, was $11/16.
As of June 30, 1998, Gothic had approximately 125 shareholders of record
and believes that it has in excess of 500 beneficial holders.
Gothic does not intend to pay any dividends on its Common Stock for the
foreseeable future. Any determination as to the payment of dividends on the
Common Stock in the future will be made by the Board of Directors and will
depend on a number of factors, including future earnings, capital requirements,
financial condition and future prospects of Gothic as well as restrictions in
Gothic's current or future financing agreements and such other factors as the
Board of Directors may deem relevant. Under the terms of Gothic's Credit
Facility it is prohibited from paying cash dividends on its Common Stock and the
terms of the Senior Secured Notes and the Discount Notes impose restrictions on
Gothic's ability to pay cash dividends.
-21-
<PAGE>
Gothic is an Oklahoma corporation incorporated on October 11, 1996.
Gothic's predecessor was incorporated on November 19, 1985 under the laws of the
State of New Jersey and was thereafter reincorporated as a Delaware corporation
on June 23, 1994. On October 22, 1996, Gothic was reincorporated as an Oklahoma
corporation by merger of the Delaware predecessor into the Oklahoma corporation.
Gothic's principal office is at 5727 South Lewis Avenue, Suite 700, Tulsa,
Oklahoma 74105, and its telephone number is (918) 749-5666.
USE OF PROCEEDS
This Prospectus relates solely to the securities being offered and sold for
the account of the Selling Securityholders. Gothic will not receive any of the
proceeds from the sale of the securities being offered by the Selling
Securityholders but will pay all expenses related to the registration of the
securities. The proceeds, if any, received from the exercise of any 1997
Warrants or the 1998 Warrants included among the Securities will be used for
general corporate purposes. If all the 1997 Warrants were exercised, Gothic
would receive proceeds of $4,200,000. If all the 1998 Warrants were exercised,
Gothic would receive proceeds of $1,980,000. There can be no assurance that any
of such 1997 Warrants or 1998 Warrants will be exercised. See "Selling
Securityholders."
In the event all of the 7,635,000 1996 Public Offering Warrants were
exercised at their current exercise price of $2.40 per share, Gothic would
realize gross proceeds of $18,324,000. Any proceeds received from the exercise
of the 1996 Public Offering Warrants will be used for general corporate
purposes. See "Description of Capital Stock - 1996 Public Offering Warrants."
-22-
<PAGE>
SELLING SECURITYHOLDERS
The following table sets forth the names of the record holders of the 1997
Warrants and the 1998 Warrants as of September 14, 1998. Only beneficial
holders of 1997 Warrants and the 1998 Warrants may sell such warrants or the
shares of Common Stock issuable on exercise thereof pursuant to this Prospectus.
Gothic will from time to time, by one or more supplements to this Prospectus,
include the names of the beneficial holders of Securities who are Selling
Securityholders, the amounts of Securities owned prior to this offering and the
total number of Securities to be offered, and a description of any material
relationship such Selling Securitholder had with Gothic during the three-year
period preceding the date of this Prospectus. Because the Selling
Securityholders may sell all or a portion of the securities at any time and from
time to time after the date hereof, no estimate can be made of the number of
shares of Common Stock and Warrants that each Selling Securityholder may retain
upon the completion of the sale of the securities pursuant to this Prospectus.
The Securities have been included in this Prospectus pursuant to contractual
rights granted to the Selling Securityholders to have their Securities
registered under the Securities Act, which contractual rights contain, with
respect to certain of the Selling Securityholders, mutual indemnification
provisions.
<TABLE>
<CAPTION>
NAME OF RECORD HOLDERS 1997 WARRANTS 1998 WARRANTS
- -------------------------------------------------- --------------- ---------------
<S> <C> <C>
Cede & Co. 1,400,000 -0-
Bank of New York -0- 376,174
Bank of America -0- 31,732
Bear Stearns Securities Corp. -0- 15,072
Donaldson Lufkin & Jenrette Securities Corp. -0- 333,186
Investors Bank & Trust -0- 40,656
Ivy Bond Fund -0- 6,941
Morgan Stanley Trust Co. -0- 20,475
Morgan Stanley & Co., Inc. -0- 793
--------------- ---------------
TOTALS 1,400,000 825,029
</TABLE>
Gothic will pay the expenses of registering the 1997 Warrants, the 1998
Warrants and Common Stock being sold hereunder.
-23-
<PAGE>
PLAN OF DISTRIBUTION
The Selling Securityholders may sell or distribute some or all of the
Securities from time to time through underwriters or dealers or brokers or other
agents or directly to one or more purchasers, including pledgees, in
transactions (which may involve block transactions) on the Nasdaq SmallCap
Market or in privately negotiated transactions (including sales pursuant to
pledges), or in a combination of such transactions. Such transactions may be
effected by the Selling Securityholders at market prices prevailing at the time
of sale, at prices related to such prevailing market prices, at negotiated
prices, or at fixed prices, which may be changed. Brokers, dealers, agents or
underwriters participating in such transactions as agent may receive
compensation in the form of discounts, concessions or commissions from the
Selling Securityholder (and, if they act as agent for the purchaser of such
shares, from such purchaser). Such discounts, concessions or commissions as to a
particular broker, dealer, agent or underwriter might be in excess of those
customary in the type of transaction involved.
The Selling Securityholders and any such underwriters, brokers, dealers or
agents that participate in such distribution may be deemed to be "underwriters"
within the meaning of the Securities Act, and any discounts, commissions or
concessions received by any such underwriters, brokers, dealers or agents might
be deemed to be underwriting discounts and commissions under the Securities Act.
Neither Gothic nor any Selling Securityholders can presently estimate the amount
of such compensation. Gothic knows of no existing arrangements between any
Selling Securityholder and any other Selling Securityholder, underwriter,
broker, dealer or other agent relating to the sale or distribution of the
Securities.
Under applicable rules and regulations currently in effect under the
Exchange Act, any person engaged in a distribution of any of the Securities may
not simultaneously engage in market activities with respect to the Common Stock,
the 1997 Warrants or the 1998 Warrants for a period of nine business days prior
to the commencement of such distribution. In addition, and without limiting the
foregoing, the Selling Securtityholders will be subject to applicable provisions
of the Exchange Act and the rules and regulations thereunder, including without
limitation Regulation M thereunder, which provisions may limit the timing of
purchases and sales of any of the securities by the Selling Securityholders.
All of the foregoing may affect the marketability of the Securities.
Gothic will pay substantially all of the expenses incident to this offering
of the Securities by the Selling Securityholders to the public other than
commissions and discounts of underwriters, brokers, dealers or agents. Each
Selling Securityholder may indemnify any broker, dealer, agent or underwriter
that participates in transactions involving sales of the Securities against
certain liabilities, including liabilities arising under the Securities Act.
-24-
<PAGE>
DESCRIPTION OF CAPITAL STOCK
GENERAL
Under its Certificate of Incorporation, the total number of shares of all
classes of stock that Gothic has authority to issue is 100,500,000 consisting of
500,000 shares of preferred stock, par value $.05 per share, and 100,000,000
shares of common stock, $.01 par value.
PREFERRED STOCK
Up to 500,000 shares of preferred stock, par value $.05 per share, may be
issued from time to time in one or more series. The Board of Directors, without
further approval of the stockholders, is authorized to fix the rights and terms
relating to dividends, conversion, voting, redemption, liquidation preferences,
sinking funds and any other rights, preferences, privileges and restrictions
applicable to each such series of preferred stock. The issuance of preferred
stock, while providing flexibility in connection with possible financings,
acquisitions and other corporate purposes, could, among other things, adversely
affect the voting power of the holders of Common Stock and, under certain
circumstances, be used as a means of discouraging, delaying or preventing a
change in control of Gothic. As of June 30, 1998, Gothic has authorized the
issuance of 165,000 shares of preferred stock as Series B Preferred Stock, of
which 50,000 shares are issued and outstanding. Gothic has no present plans to
issue any additional shares of preferred stock.
COMMON STOCK
The holders of common stock are entitled to one vote per share on all
matters voted on by stockholders, including elections of Directors, and, except
as otherwise required by law or provided in any resolution adopted by the Board
of Directors with respect to any series of preferred stock establishing the
powers, designations, preferences and relative, participating, option or other
special rights of such series ("Preferred Stock Designation"), the holders of
such shares exclusively possess all voting power. The Certificate of
Incorporation does not provide for cumulative voting in the election of
directors. Subject to any preferential rights of any outstanding series of
preferred stock, the holders of common stock are entitled to such distributions
as may be declared from time to time by the Board of Directors from funds
available therefor, and upon liquidation are entitled to receive pro rata all
assets of Gothic available for distribution to such holders. All shares of
common stock outstanding are fully paid and non-assessable and the holders
thereof have no preemptive rights.
COMMON STOCK PURCHASE WARRANTS
The 1997 Warrants
General. The 1997 Warrants were issued pursuant to a Warrant Agreement
(the "1997 Warrant Agreement"), dated as of September 9, 1997, between Gothic
and American Stock Transfer & Trust Company, as warrant agent (the "Warrant
Agent). The 1997 Warrants are exercisable at a price of $3.00 per share,
payable in cash or by surrender of shares of Common Stock having a current
market value equal to the exercise price, and will expire on September 1, 2004
(the "Warrant Expiration Date"). The 1997 Warrants entitle the holders thereof
to purchase in the aggregate 1,400,000 shares of Common Stock. The holders of
the 1997 Warrants (the "1997 Warrantholders") are entitled to exercise all or a
portion of their 1997 Warrants at any time after November 3, 1997,
-25-
<PAGE>
and on or prior to the 1997 Warrant Expiration Date at which time all
unexercised 1997 Warrants will expire. This summary does not purport to be a
complete description of the 1997 Warrants or the 1997 Warrant Agreement and is
subject to the detailed provisions of, and qualified in its entirety by
reference to, the 1997 Warrants and the 1997 Warrant Agreement (including the
definitions contained therein).
Merger or Liquidation of Gothic. In the event of any merger, consolidation
or other combination of Gothic with another entity, provision must be made for
1997 Warrantholders to receive, upon the exercise of 1997 Warrants, and in lieu
of shares of Common Stock, such securities or assets as would be issued or paid
in respect of shares of Common Stock upon such merger, consolidation or other
combination. In the event of any voluntary or involuntary liquidation,
dissolution or winding up of Gothic, upon the exercise of such 1997 Warrants,
each 1997 Warrantholder shall be entitled to share, with respect to the 1997
Warrant Shares issuable upon exercise of his 1997 Warrants, equally and ratably
in any cash or non-cash distributions payable to holders of Common Stock of
Gothic. 1997 Warrantholders will not be entitled to receive payment of any such
distribution until payment of the exercise price is made, and the 1997 Warrant
is surrendered, to the Warrant Agent in accordance with the terms of provisions
of the 1997 Warrant Agreement.
Anti-Dilution Adjustments. The number of shares of Common Stock issuable
upon exercise of a 1997 Warrant and the exercise price will be adjusted upon the
occurrence of certain events including, without limitation, the payment of a
dividend on, or the making of any distribution in respect of, capital stock of
Gothic, payment of which is made in (a) shares of Gothic's capital stock
(including Common Stock), or (b) evidences of indebtedness or assets of Gothic.
An adjustment will also be made in the event of a combination, subdivision or
reclassification of the Common Stock. Adjustments will be made whenever and as
often as any specified event requires an adjustment to occur.
Amendment. From time to time, Gothic and the Warrant Agent, without the
consent of the 1997 Warrantholders, may amend or supplement the 1997 Warrant
Agreement for certain purposes, including curing defects or inconsistencies or
adding to the covenants and agreements of Gothic or surrendering any of Gothic's
rights or powers under the Agreement, provided that any such change does not
materially adversely affect the rights of any 1997 Warrantholder. Any amendment
or supplement to the 1997 Warrant Agreement that has a material adverse effect
on the interests of the 1997 Warrantholders will require the written consent of
the holders of a majority of the then outstanding 1997 Warrants. The consent of
each 1997 Warrantholder affected shall be required for any amendment pursuant to
which the exercise price would be increased or the number of shares of Common
Stock purchasable upon exercise of 1997 Warrants would be decreased (other than
pursuant to adjustments provided in the 1997 Warrant Agreement).
Reports. Within 15 days after Gothic files them with the Commission,
Gothic will deliver to the Warrant Agent and make available to the 1997
Warrantholders upon request to Gothic, copies of its annual and quarterly
reports and of the information, documents and reports which Gothic or any
Subsidiary is required to file with the Commission pursuant to Section 13 or
15(d) of the Exchange Act. At any time that Gothic is not subject to the
reporting requirements of Section 13 or 15(d) of the Exchange Act, Gothic will
file with the Commission and provide to the Warrant Agent and the 1997
Warrantholders such annual and quarterly reports and such information and other
reports which are specified in Sections 13 and 15(d) of the Exchange Act. Gothic
will also make such reports available to prospective purchasers of the 1997
Warrants and shares of Common Stock issuable on exercise of the 1997 Warrants,
securities analysts and broker-dealers upon their request.
-26-
<PAGE>
Form of 1997 Warrants. Prior to November 3, 1997, the 1997 Warrants were
evidenced by the Senior Notes. After November 3, 1997, 1997 Warrants are
evidenced by a warrant certificate, which was issued to holders of record of the
Senior Notes as of the Separation Date, in the event the Senior Notes
represented ownership of 1997 Warrants on such date.
Miscellaneous. The 1997 Warrant will not entitle the holder thereof to any
of the rights of a holder of capital stock of Gothic, including, without
limitation, the right to vote at or receive notice of meetings of the
stockholders or Gothic, except that 1997 Warrantholders will be entitled to
receive any cash dividends or other cash distributions paid in respect of the
Common Stock on the basis of the number of shares of Common Stock issuable upon
the exercise of their 1997 Warrants.
The 1998 Warrants
General. The 1998 Warrants were issued pursuant to a Warrant Agreement (the
"1998 Warrant Agreement"), dated as of April 21, 1998, between Gothic and
American Stock Transfer & Trust Company, as warrant agent (the "Warrant Agent).
The 1998 Warrants are exercisable at a price of $2.40 per share, payable in cash
or by surrender of shares of Common Stock having a current market value equal to
the exercise price, and will expire on May 1, 2005 (the "1998 Warrant Expiration
Date"). The 1998 Warrants entitle the holders thereof to purchase in the
aggregate 825,029 shares of Common Stock. The holders of the 1998 Warrants (the
"1998 Warrantholders") are entitled to exercise all or a portion of their 1998
Warrants at any time after June 18, 1998, and on or prior to the 1998 Warrant
Expiration Date at which time all unexercised 1998 Warrants will expire. This
summary does not purport to be a complete description of the 1998 Warrants or
the 1998 Warrant Agreement and is subject to the detailed provisions of, and
qualified in its entirety by reference to, the 1998 Warrants and the 1998
Warrant Agreement (including the definitions contained therein).
Merger or Liquidation of Company. In the event of any merger, consolidation
or other combination of Gothic with another entity, provision must be made for
1998 Warrantholders to receive, upon the exercise of 1998 Warrants, and in lieu
of shares of Common Stock, such securities or assets as would be issued or paid
in respect of shares of Common Stock upon such merger, consolidation or other
combination. In the event of any voluntary or involuntary liquidation,
dissolution or winding up of Gothic, upon the exercise of such 1998 Warrants,
each 1998 Warrantholder shall be entitled to share, with respect to the 1998
Warrant Shares issuable upon exercise of his 1998 Warrants, equally and ratably
in any cash or non-cash distributions payable to holders of Common Stock of
Gothic. 1998 Warrantholders will not be entitled to receive payment of any such
distribution until payment of the exercise price is made, and the 1998 Warrant
is surrendered, to the Warrant Agent in accordance with the terms of provisions
of the 1998 Warrant Agreement.
Anti-Dilution Adjustments. The number of shares of Common Stock issuable
upon exercise of a 1998 Warrant and the exercise price will be adjusted upon the
occurrence of certain events including, without limitation, the payment of a
dividend on, or the making of any distribution in respect of, capital stock of
Gothic, payment of which is made in (a) shares of Gothic's capital stock
(including Common Stock), or (b) evidences of indebtedness or assets of Gothic.
An adjustment will also be made in the event of a combination, subdivision or
reclassification of the Common Stock. Adjustments will be made whenever and as
often as any specified event requires an adjustment to occur.
Amendment. From time to time, Gothic and the Warrant Agent, without the
consent of the 1998 Warrantholders, may amend or supplement the 1998 Warrant
Agreement for certain purposes, including curing defects or inconsistencies or
adding to the covenants and agreements of Gothic or surrendering any of Gothic's
rights or powers under the Agreement, provided that any such change does not
materially adversely affect the rights
-27-
<PAGE>
of any 1998 Warrantholder. Any amendment or supplement to the 1998 Warrant
Agreement that has a material adverse effect on the interests of the 1998
Warrantholders will require the written consent of the holders of a majority of
the then outstanding 1998 Warrants. The consent of each 1998 Warrantholder
affected shall be required for any amendment pursuant to which the exercise
price would be increased or the number of shares of Common Stock purchasable
upon exercise of 1998 Warrants would be decreased (other than pursuant to
adjustments provided in the 1998 Warrant Agreement).
Reports. Within 15 days after Gothic files them with the Commission,
Gothic will deliver to the Warrant Agent and make available to the 1998
Warrantholders upon request to Gothic, copies of its annual and quarterly
reports and of the information, documents and reports which Gothic or any
Subsidiary is required to file with the Commission pursuant to Section 13 or
15(d) of the Exchange Act. At any time that Gothic is not subject to the
reporting requirements of Section 13 or 15(d) of the Exchange Act, Gothic will
file with the Commission and provide to the Warrant Agent and the 1998
Warrantholders such annual and quarterly reports and such information and other
reports which are specified in Sections 13 and 15(d) of the Exchange Act. Gothic
will also make such reports available to prospective purchasers of the 1998
Warrants and shares of Common Stock issuable on exercise of the 1998 Warrants,
securities analysts and broker-dealers upon their request.
Form of 1998 Warrants. Prior to June 18, 1998 Date, the 1998 Warrants were
evidenced by the Discount Notes. After June 18, 1998, 1998 Warrants are
evidenced by a warrant certificate, which was issued to holders of record of the
Discount Notes as of the Separation Date, in the event the Discount Notes
represented ownership of 1998 Warrants on such date.
Miscellaneous. The 1998 Warrant will not entitle the holder thereof to any
of the rights of a holder of capital stock of Gothic, including, without
limitation, the right to vote at or receive notice of meetings of the
stockholders or Gothic, except that 1998 Warrantholders will be entitled to
receive any cash dividends or other cash distributions paid in respect of the
Common Stock on the basis of the number of shares of Common Stock issuable upon
the exercise of their 1998 Warrants.
1996 Public Offering Warrants
In January 1996, Gothic issued in an underwritten public offering of its
securities an aggregate of 7,635,000 common stock purchase warrants (the "1996
Public Offering Warrants"). Each 1996 Public Offering Warrant entitles the
registered holder to purchase one share of Common Stock at a price of $2.40 per
share, subject to adjustment in certain circumstances, through January 30, 2001.
The 1996 Public Offering Warrants are redeemable by Gothic, at the option
of Gothic, with the prior consent of Gaines Berland, Inc. at a price of $0.01
per 1996 Public Offering Warrant at any time after the 1996 Public Offering
Warrants become exercisable, upon not less than 15 business days' prior written
notice, provided that the last sales price of the Common Stock equals or exceeds
200% of the then-exercise price of the 1996 Public Offering Warrants (the
"Redemption Threshold") for the 20 consecutive trading days ending on the third
day prior to the notice of redemption to warrantholders. The warrantholders
have the right to exercise the 1996 Public Offering Warrants until the close of
business on the date fixed for redemption.
The 1996 Public Offering Warrants were issued in registered form under a
Warrant Agreement between Gothic and American Stock Transfer & Trust Company as
Warrant Agent dated January 24, 1996. The exercise price, number of shares of
Common Stock issuable on exercise of the 1996 Public Offering Warrants and
Redemption Threshold are subject to adjustment in certain circumstances,
including in the event of a stock dividend,
-28-
<PAGE>
recapitalization, reorganization, merger or consolidation of Gothic. However,
the 1996 Public Offering Warrants are not subject to adjustment for issuance of
Common Stock at a price below their exercise price.
The 1996 Public Offering Warrants may be exercised upon surrender of the
Warrant Certificate representing the 1996 Public Offering Warrants on or prior
to the expiration date at the offices of the Warrant Agent, with the exercise
form on the reverse side of the Warrant Certificate completed and executed as
indicated, accompanied by full payment of the exercise price (by certified
check, payable to Gothic) for the number of 1996 Public Offering Warrants being
exercised. The warrantholders do not have the rights or privileges of holders
of Common Stock.
No 1996 Public Offering Warrants will be exercisable unless at the time of
exercise Gothic has filed with the Securities and Exchange Commission a current
prospectus covering the shares of Common Stock issuable upon exercise of such
1996 Public Offering Warrants and such shares have been registered or qualified
or are exempt from the securities laws of the state of residence of the holder
of such 1996 Public Offering Warrants.
No fractional shares will be issued upon exercise of the 1996 Public
Offering Warrants. Gothic will pay to such warrantholder, in lieu of the
issuance of any fractional share which is otherwise issuable to such
warrantholder, an amount in cash based on the market value of the Common Stock
on the last trading day prior to the exercise date.
This Prospectus also relates to the issuance of shares of Common Stock by
Gothic on exercise of the 1996 Public Offering Warrants.
LEGAL MATTERS
The validity of the securities offered hereby will be passed upon for
Gothic by William S. Clarke, P.A., 457 North Harrison Street, Suite 103,
Princeton, New Jersey 08540.
INDEPENDENT PUBLIC ACCOUNTANTS
The consolidated balance sheet of Gothic as of December 31, 1997, and the
related consolidated statements of operations, changes in stockholders' equity
and cash flows for each of the two years in the period ended December 31, 1997,
incorporated by reference in this Prospectus and in the Registration Statement
of which this Prospectus forms a part, have been incorporated herein in reliance
on the report of PricewaterhouseCoopers LLP, independent accountants, given on
the authority of that firm as experts in accounting and auditing.
The historical schedule of gross revenues and direct lease operating
expenses of the Comstock Properties for the year ended December 31, 1995,
incorporated by reference in this Prospectus and in the Registration Statement
of which this Prospectus forms a part, have been incorporated herein in reliance
on the report of PricewaterhouseCoopers LLP, independent accountants, given on
the authority of that firm as experts in accounting and auditing.
-29-
<PAGE>
The historical schedule of gross revenues and direct operating expenses of
the Norse and Horizon Properties for the year ended December 31, 1996,
incorporated by reference in this Prospectus and in the Registration Statement
of which this Prospectus forms a part, have been incorporated herein in reliance
on the report of PricewaterhouseCoopers LLP, independent accountants, given on
the authority of that firm as experts in accounting and auditing.
The historical schedule of gross revenues and direct lease operating
expenses of the HS Properties for the years ended December 31, 1996 and 1995,
incorporated by reference in this Prospectus and in the Registration Statement
of which this Prospectus forms a part, have been incorporated herein in reliance
on the report of PricewaterhouseCoopers LLP, independent accountants, given on
the authority of that firm as experts in accounting and auditing.
The historical schedule of gross revenues and direct lease operating
expenses of the Amoco Properties for the years ended December 31, 1997 and 1996,
incorporated by reference in this Prospectus and in the Registration Statement
of which this Prospectus forms a part, have been incorporated herein in reliance
on the report of PricewaterhouseCoopers LLP, independent accountants, given on
the authority of that firm as experts in accounting and auditing.
With respect to the unaudited interim financial information as of and for
the periods ended March 31, 1998 and June 30, 1998, incorporated by reference in
this Prospectus, the independent accountants have reported that they have
applied limited procedures in accordance with professional standards for a
review of such information. However, their separate report included in Gothic's
quarterly reports on Form 10-QSB for the quarters ended March 31, 1998 and June
30, 1998, and incorporated by reference herein, states that they did not audit
and that they do not express an opinion on that interim financial information.
Accordingly, the degree of reliance on their report on such information should
be restricted in light of the limited nature of the review procedures applied.
The accountants are not subject to the liability provisions of Section 11 of the
Securities Act for their report on the unaudited interim financial information
because that report is not a "report" or a "part" of the registration statement
prepared or certified by the accountants within the meaning of Sections 7 and 11
of the Securities Act.
-30-
<PAGE>
GLOSSARY
Wherever used herein, the following terms shall have the meanings
specified.
Bbl - One stock tank barrel, or 42 US gallons liquid volume, used herein in
reference to crude oil or other liquid hydrocarbons.
Bcf - One billion cubic feet.
Bcfe - One billion cubic feet of natural gas equivalent.
Behind Pipe - Hydrocarbons in a potentially producing horizon penetrated by
a well bore the production of which has been postponed pending the production of
hydrocarbons from another formation penetrated by the well bore. These
hydrocarbons are classified as proved but non-producing reserves.
Boe - Barrels of oil equivalent (converting six Mcf of natural gas to one
Bbl of oil).
Developed Acreage - Acres which are allocated or assignable to producing
wells or wells capable of production.
Development Well - A well drilled within the proved area of an oil and
natural gas reservoir to the depth of a stratigraphic horizon known to be
productive.
Dry Well - A well found to be incapable of producing either oil or natural
gas in sufficient quantities to justify completion as an oil or natural gas
well.
EBITDA - Earnings (excluding discontinued operations, extraordinary items,
charges resulting from changes in accounting and significant non-recurring
revenues and expenses) before interest expense, provision for (or benefit for)
income taxes, depletion, depreciation and amortization expenses, and the
provision for impairment of oil and natural gas properties. EBITDA is not a
measure of cash flow as determined by generally accepted accounting principles.
EBITDA information has been included in the Offering Memorandum because EBITDA
is a measure used by certain investors in determining historical ability to
service indebtedness. EBITDA should not be considered as an alternative to, or
more meaningful than, net income or cash flows as determined in accordance with
generally accepted accounting principles as an indicator of operating
performance or liquidity.
Exploratory Well - A well drilled to find and produce oil or natural gas in
an unproved area, to find a new reservoir in a field previously found to be
productive of oil or natural gas in another reservoir, or to extend a known
reservoir.
Gross Acres or Gross Wells - The total acres or wells, as the case may be,
in which a working interest is owned.
Infill Well - A well drilled between known producing wells to better
exploit the reservoir
Mbbl - One thousand Bbl.
Mmbbl - One million Bbl.
-31-
<PAGE>
Mboe - One thousand barrels of oil equivalent.
Mcf - One thousand cubic feet.
Mcfe - One thousand cubic feet of natural gas equivalent, using the ratio
of one Bbl of crude oil to six Mcf of natural gas.
Mmcf - One million cubic feet.
Mmcfe - One million cubic feet of natural gas equivalent.
Net Acres or Net Wells - The sum of the fractional working interests owned
in gross acres or gross wells.
NYMEX- New York Mercantile Exchange.
Oil and Natural Gas Lease - An instrument by which a mineral fee owner
grants to a lessee the right for a specific period of time to explore for oil
and natural gas underlying the lands covered by the lease and the right to
produce any oil and natural gas so discovered generally for so long as there is
production in economic quantities from such lands.
Overriding Royalty Interest - A fractional undivided interest in an oil and
natural gas property entitling the owner to a share of oil and natural gas
production, in addition to the usual royalty paid to the owner, free of costs of
production.
PDNP - Proved developed, non-producing or behind the pipe reserves.
Productive Well - A well that is producing oil or natural gas or that is
capable of production.
Proved Developed Reserves - Reserves that can be expected to be recovered
through existing wells with existing equipment and operating methods.
Proved Reserves - The estimated quantities of crude oil, natural gas and
natural gas liquids which geological and engineering data demonstrate with
reasonable certainty to be recoverable in future years from known reservoirs
under existing economic and operating conditions.
Proved Undeveloped Reserves or PUD - Reserves that are expected to be
recovered from new wells on undrilled acreage, or from existing wells where a
relatively major expenditure is required for completion.
PV-10 - The discounted future net cash flows for proved oil and natural gas
reserves computed on the same basis as the Standardized Measure, but without
deducting income taxes, which is not in accordance with generally accepted
accounting principles. PV-10 is an important financial measure for evaluating
the relative significance of oil and natural gas properties and acquisitions,
but should not be construed as an alternative to the SEC PV-10 (as determined in
accordance with generally accepted accounting principles).
Royalty Interest - An interest in an oil and natural gas property entitling
the owner to a share of oil and natural gas production free of costs of
production.
-32-
<PAGE>
Secondary Recovery - A method of oil and natural gas extraction in which
energy sources extrinsic to the reservoir are utilized.
SEC PV-10 - The estimated future net cash flows from proved oil and natural
gas reserves computed using prices and costs. at the dates indicated, after
income taxes and discounted at 10%.
Undeveloped Acreage - Lease acreage on which wells have not been drilled or
completed to a point that would permit the production of commercial quantities
of oil and natural gas regardless of whether such acreage contains proved
reserves.
Working Interest - The operating interest which gives the owner the right
to drill, produce and conduct operating activities on the property and a share
of production, subject to all royalties, overriding royalties and other burdens
and to all costs of exploration. development and operations and all risks in
connection therewith
-33-
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14: OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The estimated expenses in connection with the issuance and distribution of
the securities to be registered are as follows:
Securities and Exchange $ 1,857.00
Commission Registration Fee
Blue Sky Fees and Expenses $ 500.00
Printing $ 500.00
Legal fees of Counsel
for the Registrant $ 2,500.00
Accounting Fees $ 3,500.00
Miscellaneous $ 3,643.00
----------
TOTAL $12,500.00
==========
ITEM 15: INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 1031 of the Oklahoma General Corporation Act and Article VI of the
Registrant's By-Laws provide for indemnification of present and former officers,
directors, employees and agents.
ITEM 16: EXHIBITS
The information required by this Item 16 is set forth in the Index to
Exhibits accompanying this Registration Statement and is incorporated herein by
reference.
Part II-1
<PAGE>
ITEM 17: UNDERTAKINGS
(a) The small business issuer will:
1. File, during any period in which it offers or sells securities, a
post-effective amendment to this registration statement to:
(i) Include any prospectus required by Section 10(a)(3) of the
Securities Act;
(ii) Reflect in the prospectus any facts or events which,
individually or together, represent a fundamental change in the information in
the registration statement; and
(iii) Include any additional or changed material information on
the plan of distribution.
2. For determining liability under the Securities Act, treat each
post-effective amendment as a new registration statement of the securities
offered, and the offering of the securities at that time to be the initial bona
fide offering.
3. File a post-effective amendment to remove from registration any
of the securities that remain unsold at the end of the offering.
(b) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 (the "Act") may be permitted to directors, officers and controlling
persons of the small business issuer pursuant to the provisions of the Oklahoma
General Corporation Act, the Registrant's Articles of Incorporation, or
otherwise, the small business issuer has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public policy
as expressed in the Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the small business issuer of expenses incurred or paid by a director, officer or
controlling person of the small business issuer in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the small business
issuer will, unless in the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy as
expressed in the Securities Act and will be governed by the final adjudication
of such issue.
(c) The Registrant hereby undertakes that, for purposes of determining any
liability under the Securities Act of 1933, each filing of the Registrant's
annual report pursuant to Section 13(a) or Section 15(d) of the Securities
Exchange Act of 1934 that is incorporated by reference to this Registration
Statement shall be deemed to be a new Registration Statement relating to the
securities offered herein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
(d) The Registrant hereby undertakes to deliver, or cause to be delivered
with the Prospectus, to each person to whom the Prospectus is sent or given the
latest annual report to security holders that is incorporated by reference in
the Prospectus and proxy or information statement furnished pursuant to and
meeting the requirements of Rule 14a-3 or Rule 14c-3 under the Securities
Exchange Act of 1934; and, where interim financial information required to be
presented by Article 3 of Regulation S-X are not set forth in the Prospectus, to
deliver, or cause to be delivered to each person to whom the Prospectus is sent
or given, the latest quarterly report that is specifically incorporated by
reference in the Prospectus to provide such interim financial information.
Part II-2
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized in the City of Tulsa, State of Oklahoma,
on the 24/th/ day of September , 1998.
GOTHIC ENERGY CORPORATION
By: /s/ Michael Paulk
------------------------------------
Michael Paulk, President and
Chief Executive Officer
Part II-3
<PAGE>
GOTHIC ENERGY CORPORATION
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that each of the undersigned directors and
officers of Gothic Energy Corporation, an Oklahoma corporation, which is filing
a Registration Statement on Form S-3 with the Securities and Exchange
Commission, Washington, D.C. 20549 under the provisions of the Securities Act of
1933, as amended (the "Securities Act"), hereby constitutes and appoints Michael
K. Paulk and Steven P. Ensz, and each of them, the individual's true and lawful
attorneys-in-fact and agents, with full power of substitution and re-
substitution, for the person and in his name, place and stead, in any and all
capacities, to sign such Registration Statement and any or all amendments,
including post-effective amendments, to the Registration Statement, including a
Prospectus or an amended Prospectus therein and any registration statement for
the same offering that is to be effective upon filing pursuant to Rule 462(b)
under the Securities Act, and all other documents in connection therewith to be
filed with the Securities and Exchange Commission, granting unto said attorneys-
in-fact and agents, and each of them, full power and authority to do and perform
each and every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact as
agents or any of them, or their substitute or substitutes, may lawfully do or
cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
/s/ Michael Paulk Director, President and Chief September 24, 1998
- --------------------------- Executive Officer
Michael Paulk (Principal Executive Officer)
/s/ Steven P. Ensz Vice-President - Finance, September 24, 1998
- --------------------------- Chief Financial Officer
Steven P. Ensz (Principal Accounting and
Financial Officer)
/s/ John J. Fleming Director September 24, 1998
- ---------------------------
John J. Fleming
/s/ Brian E. Bayley Director September 24, 1998
- ---------------------------
Brian E. Bayley
Part II-4
<PAGE>
GOTHIC ENERGY CORPORATION
REGISTRATION STATEMENT ON FORM S-3
INDEX TO EXHIBITS
EXHIBIT NUMBER
- ------------------
3.1 Certificate of Incorporation of Gothic Energy Newco,
Inc.("Gothic"), an Oklahoma corporation (filed as Exhibit 3.1
to the Registration Statement on Form S-4 filed October 14,
1997 (file number 333-37839)).
3.2 Bylaws of Gothic (filed as Exhibit 3.2 to the Registration
Statement on Form S-4 filed October 14, 1997 (file number
333-37839)).
4.1 Warrant Agreement between Gothic and American Stock Transfer
& Trust Company, as Warrant Agent, dated as of September 9,
1997 (filed as Exhibit 4.1 to Gothic's Current Report on Form
8-K for September 9, 1997).
4.2 Warrant Agreement between Gothic and American Stock Transfer
& Trust Company, as Warrant Agent, dated as of April 21, 1998
(filed as Exhibit 10.8 to Gothic's Current Report on Form 8-K
for April 27, 1998)
5.1 Opinion of William S. Clarke, P.A.
15.1 Letter from PricewaterhouseCoopers LLP Regarding Unaudited
Interim Financial Statements.
23.1 Consent of PricewaterhouseCoopers LLP
23.2 Consent of William S. Clarke, P.A. (included in Exhibit 5.1).
24.1 Power of Attorney (included on the signature pages of this
Registration Statement).
<PAGE>
EXHIBIT 5.1
WILLIAM S. CLARKE, P.A.
ATTORNEY-AT-LAW
457 NORTH HARRISON STREET - SUITE 103
PRINCETON, NEW JERSEY 08540
__________
TELEPHONE: (609) 921-3663
FAX: (609) 921-3933
September 24, 1998
Gothic Energy Corporation
5727 South Lewis Avenue - Suite 700
Tulsa, Oklahoma 74105
Gentlemen:
I have acted as counsel for Gothic Energy Corporation (the "Company") in
connection with the preparation of a Registration Statement filed by the Company
under the Securities Act of 1933, as amended (File No. 333-38679) relating to a
proposed public offering by certain holders thereof of 1,400,000 Common Stock
Purchase Warrants (the "1997 Warrants") and 1,400,000 shares of Common Stock,
$.01 par value issuable on exercise of the 1997 Warrants, and 825,029 Common
Stock Purchase Warrants (the "1998 Warrants") and 825,029 shares of Common
Stock, $.01 par value, issuable on exercise of the 1998 Warrants. Herein, the
shares of Common Stock issuable on exercise of the 1997 Warrants and the 1998
Warrants are referred to as the "Stock."
In my capacity as counsel to you, I have examined the original, certified,
conformed photostats or xerox copies of all such agreements, certificates of
public officials, certificates of officers, representatives of the Company and
others and such other documents as I have deemed necessary or relevant as a
basis for the opinions herein expressed. In all such examinations I have
assumed the genuineness of all signatures on original and certified documents
and the conformity to original and certified documents of all copies submitted
to me as conformed, photostat or duplicate copies. As to various questions of
fact material to such opinions, I have relied upon statements or certificates of
officials and representatives of the Company and others.
On the basis of such examination, I advise you that, in my opinion (i) the
1997 Warrants and the 1998 Warrants are validly issued and binding obligations
of the Company in accordance with their terms, and (ii) the shares of Stock,
when sold, issued and paid for in accordance with the terms of the 1997 Warrants
and the 1998 Warrants, will be legally issued, fully paid and non-assessable.
I consent to the filing of this opinion as an exhibit to the Registration
Statement and to the reference of my firm in the prospectus forming a part of
such Registration Statement.
Very truly yours,
William S. Clarke, P.A.
By: /s/ William S. Clarke
---------------------------------
William S. Clarke
<PAGE>
EXHIBIT 15.1
GOTHIC ENERGY CORPORATION AND SUBSIDIARY
LETTER REGARDING UNAUDITED INTERIM FINANCIAL INFORMATION
Securities and Exchange Commission
450 Fifth Street, Northwest
Washington, DC 20549
Re: GOTHIC ENERGY CORPORATION AND SUBSIDIARY
REGISTRATION ON FORM S-3
Gentlemen:
We are aware that our reports dated May 15, 1998 and August 10, 1998, on
our reviews of the interim financial information of Gothic Energy Corporation
for the periods ended March 31, 1998 and June 30, 1998 are incorporated by
reference in the Company's Registration Statement on Form S-3 (File No. 333-
38679). Pursuant to Rule 436(c) under the Securities Act of 1933, these reports
should not be considered a part of the Registration Statement prepared or
certified by us within the meaning of Sections 7 and 11 of that Act.
PRICEWATERHOUSECOOPERS LLP
Tulsa, Oklahoma
September 23, 1998
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the Prospectus constituting
part of this Registration Statement on Form S-3 (File No. 333-38679) of our
report dated March 13, 1998, on our audits of the consolidated financial
statements of Gothic Energy Corporation and Subsidiaries.
We also consent to the incorporation by reference in the Prospectus
constituting part of this Registration Statement on Form S-3 of Gothic Energy
Corporation (File No. 333-38679) of our report dated March 4, 1998 on our audit
of the historical schedule of gross revenues and direct lease operating expenses
of the Amoco Properties for the years ended December 31, 1997 and 1996.
We also consent to the incorporation by reference in the Prospectus
constituting part of this Registration Statement on Form S-3 of Gothic Energy
Corporation (File No. 333-38679) of our report dated July 11, 1997 on our audit
of the historical schedule of gross revenues and direct lease operating expenses
of the HS Properties for the years ended December 31, 1996 and 1995.
We also consent to the incorporation by reference in the Prospectus
constituting part of this Registration Statement on Form S-3 of Gothic Energy
Corporation (File No. 333-38679) of our report dated April 30, 1997 on our audit
of the historical schedule of gross revenues and direct operating expenses of
the Norse and Horizon Properties for the year ended December 31, 1996.
We also consent to the incorporation by reference in the Prospectus
constituting part of this Registration Statement on Form S-3 of Gothic Energy
Corporation (File No. 333-38679) of our report dated July 19, 1996 on our audit
of the historical schedule of gross revenues and direct lease operating expenses
of the Comstock Properties for the year ended December 31, 1995.
We also consent to the reference to our firm under the caption "Independent
Public Accountants."
PRICEWATERHOUSECOOPERS LLP
Tulsa, Oklahoma
September 23, 1998
