<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
[X] Filed by Registrant.
Filed by Party other than the Registrant
Check the appropriate box:
[X] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only
(as permitted by Rule 14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to (S)240.14a-11(c) or (S)240.14a-12
GOTHIC ENERGY CORPORATION
(Name of Registrant as Specified in Its Charter)
Not Applicable
(Name of Person(s) Filing Proxy Statement if other than Registrant)
Payment of Filing Fee (check the appropriate box):
[X] No fee required.
[ ] $500 per each party to the controversy pursuant to Exchange
Act Rule 14a-6(i)(4) and 0-11.
1) Title of each class of securities to which transaction applies:
-----------------------------------------------------------------------
2) Aggregate number of securities to which transaction applies:
-----------------------------------------------------------------------
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
-----------------------------------------------------------------------
4) Proposed maximum aggregate value of transaction:
--------------------
5) Total Fee Paid:
-----------------------------------------------------
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the Fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
--------------------------------------------
2) Form, Schedule or Registration Statement Number:
-----------------------
3) Filing Party:
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4) Date Filed:
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<PAGE>
GOTHIC ENERGY CORPORATION
5727 South Lewis Avenue - Suite 700
Tulsa, Oklahoma 74105
Notice of Annual Meeting of Shareholders
October 5, 1999
Notice is hereby given that the Annual Meeting of Shareholders of Gothic
Energy Corporation (the "Company") will be held at the Doubletree Hotel at
Warren Place, 6110 South Yale, Tulsa, Oklahoma 74136, on Tuesday, October 5,
1999, at 10:00AM, for the following purposes:
1. To elect three (3) directors of the Company to hold office until the
next Annual Meeting of Shareholders in 2000 and until their respective
successors are elected and qualified;
2. To consider and vote on a proposal to approve the adoption of the 1999
Stock Incentive Plan; and
3. To transact such other business as may properly come before the
meeting, or any adjournments thereof.
Information with respect to the above is set forth in the Proxy Statement
which accompanies this Notice. Only holders of shares of the Company's Common
Stock of record at the close of business on September 2, 1999 (the "Record
Date") are entitled to notice of and to vote at the Meeting.
We hope that all of our shareholders who can conveniently do so will attend
the Meeting. Shareholders who do not expect to be able to attend the Meeting
are requested to mark, date and sign the enclosed proxy and return the same in
the enclosed addressed envelope which requires no postage and is intended for
your convenience.
R. Andrew McGuire, Secretary
Dated: September 9, 1999
<PAGE>
GOTHIC ENERGY CORPORATION
Proxy Statement
Annual Meeting of Shareholders
The enclosed proxy is solicited by the Board of Directors of Gothic Energy
Corporation, an Oklahoma corporation (the "Company"), from the holders of shares
of Common Stock, $.01 par value ("Common Stock") to be voted at the Annual
Meeting of Shareholders (the "Meeting") to be held at the Doubletree Hotel at
Warren Place, 6110 South Yale, Tulsa, Oklahoma 74136, on Tuesday October 5,
1999, at 10:00AM, and at any adjournments thereof.
The only business which the Board of Directors intends to present or knows
that others will present at the Meeting is (i) the election of three Directors
of the Company to hold office until the next Annual Meeting of Shareholders in
2000 and until their successors have been elected and qualified, and (ii) to
consider and vote on a proposal to approve the adoption of the 1999 Stock
Incentive Plan. Management does not know of any other business to be brought
before the Meeting but it is intended that as to any other business, a vote may
be cast pursuant to the proxy in accordance with the judgment of the person or
persons acting thereunder. If proxies in the enclosed form are properly
executed and returned, the Common Stock represented thereby will be voted at the
Meeting in accordance with the shareholder's direction. Unless otherwise
specified, proxies in the enclosed form will be voted for the election of three
Directors named as nominees. Any shareholder giving a proxy has the power to
revoke it at any time before the proxy is voted by revoking it in writing, by
executing a later dated proxy or appearing at the Meeting and voting in person.
Any writing revoking a proxy should be addressed to R. Andrew McGuire, Secretary
of the Company, at the address set forth below.
The Directors to be elected at the Meeting will be elected by a plurality
of the votes cast by the holders of Common Stock present in person or by proxy
and entitled to vote. The proposal to approve the adoption of the 1999 Stock
Incentive Plan requires the affirmative vote of a majority of the shareholders
present in person or represented by a proxy at the meeting and entitled to vote.
With regard to the election of Directors, votes may be cast for or withheld from
each nominee. Votes that are withheld will have no effect on the outcome of the
election because Directors will be elected by a plurality of votes cast.
Under the rules of the New York Stock Exchange, brokers who hold shares in
street name have the authority to vote on certain routine matters on which they
have not received instructions from beneficial owners. Brokers holding shares
of the Company's Common Stock in street name who do not receive instructions are
entitled to vote on the election of Directors.
Only holders of record of Common Stock as of the close of business on
September 2, 1999 are entitled to vote at the Meeting or any adjournments
thereof. On such date, the Company had outstanding voting securities having the
right to vote at the meeting consisting of
<PAGE>
18,685,765 shares of Common Stock, each of which shares is entitled to one (1)
vote on all proposals submitted to a vote of shareholders at the Meeting.
The Company's principal executive office address is Gothic Energy
Corporation, 5727 South Lewis Avenue, Suite 700, Tulsa, Oklahoma 74105, and its
telephone number is (918) 749-5666. This Proxy Statement and the enclosed Form
of Proxy will be mailed to the Company's shareholders on or about September 9,
1999.
1. ELECTION OF DIRECTORS
At the Meeting, it is proposed to elect three Directors to hold office
until the next Annual Meeting of Shareholders in 2000 and until their respective
successors are elected and qualified. It is intended that, unless otherwise
indicated, the shares of Common Stock represented by proxies solicited by the
Board of Directors will be voted for the election as Directors of the three
nominees hereinafter named. If, for any reason, any of said nominees shall
become unavailable for election, which is not now anticipated, the proxies will
be voted for the other nominees and may be voted for a substitute nominee
designated by the Board of Directors. Each nominee has indicated that he is
willing and able to serve as a Director if elected, and, accordingly, the Board
of Directors does not have in mind any substitute.
The nominees as Director, their ages and position with the Company are as
follows:
Name Age Position With Company
---- --- ---------------------
John J. Fleming 58 Chairman of the Board and
Director
Michael K. Paulk 50 President and Director
Brian E. Bayley 46 Director
John J. Fleming: Mr. Fleming was elected a Director of the Company in
October 1994. Mr. Fleming is currently President of Bonanza Energy Ltd.,
engaged in oil and gas exploration and diversified investments. From August
1995 through December 1998, he was Chairman, President and Chief Executive
Officer of Profco Resources Ltd., engaged in oil and gas exploration. In
December 1998, it merged with GHP Exploration Ltd. to form TransAtlantic
Petroleum Corp. Mr. Fleming was Chairman of the Board of American Natural
Energy Corporation ("ANEC") from August 1993 to July 1994. He has been involved
in the oil and gas industry as president, chairman or chief executive officer of
a number of corporations for more
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<PAGE>
than the past fifteen years. Mr. Fleming is also a Director of Imco Recycling
Inc., Newfoundland Capital Corporation, CHC Helicopter Corporation,
TransAtlantic Petroleum Corp., and Poco Petroleum Ltd.
Michael K. Paulk: Mr. Paulk was elected President and Director of the
Company in October 1994. Mr. Paulk has been engaged in the oil and gas industry
for more than fifteen years. He was President of ANEC from its inception in
1985 until his resignation in September 1994 after its acquisition by Alexander
Energy Corporation in July 1994.
Brian E. Bayley: Mr. Bayley was elected a Director of the Company in
February 1996. He has been President of Quest Management Corp., a private
management company, since December 1996, and of Quest Ventures Ltd., a private
merchant banking company, since December 1996. Prior to April 1997, Mr. Bayley
held a variety of positions with Quest Oil & Gas Inc., including Vice President,
Corporate Administration from September 1986 to October 1990, President and
Chief Executive Officer from October 1990 to October 1996, and Secretary from
October 1996 to April 1997. He was a Director from November 1990 to April 1997.
Mr. Bayley is a Director of a number of other corporations, none of which are
reporting companies under the Securities Exchange Act of 1934, as amended.
Director and Officer Securities Reports
The Federal securities laws require the Company's Directors and executive
officers, and persons who own more than ten percent (10%) of a registered class
of the Company's equity securities to file with the Securities and Exchange
Commission initial reports of ownership and reports of changes in ownership of
any equity securities of the Company. Copies of such reports are required to be
furnished to the Company. To the Company's knowledge, based solely on a review
of the copies of such reports and other information furnished to the Company,
all persons subject to these reporting requirements filed the required reports
on a timely basis with respect to the Company's year ended December 31, 1998.
-3-
<PAGE>
EXECUTIVE OFFICERS AND SIGNIFICANT EMPLOYEES
The Company's executive officers and other employees who are expected to
make a significant contribution to the Company are as follows:
Name Age Position With Company
- - ---- --- ---------------------
Michael K. Paulk 50 President
Steven P. Ensz 47 Vice-President, Finance and
Chief Executive Officer
James S. Blair 47 Vice-President, Corporate
Development
Bennett G. Shelton 42 Vice-President of Land and Contract
Administration
Richard O. Mulford 46 Vice-President of Operations
Robert G. Snead 62 Geologist
John Coughlon 42 Geologist
David Evans 43 Petroleum Engineer
R.L. Hilbun 51 Full-Time Consultant, Drilling
and Completion Engineer
R. Andrew McGuire 33 Secretary and Controller
Michael K. Paulk: Mr. Paulk's employment background is described above.
Steven P. Ensz: Mr. Ensz has been Vice-President, Finance and Chief
Financial Officer of the Company since March 18, 1998 and is responsible for the
financial activities of the Company. From July 1991 to February 1998, he was
Vice-President, Finance of Anglo-Suisse, Inc., an oil and natural gas
exploration and producing company. From December 1983 to June 1991, he held
various positions within the energy industry, including President of Waterford
Energy, an independent oil and gas producer. Prior to December 1983, he was a
partner with Oak, Simon & Ott, CPAs. He is a certified public accountant.
James S. Blair: Mr. Blair has been Vice-President, Corporate Development
of the Company since June 1997 and is responsible for the management and
coordination of acquisition and divestiture activities. From January 1989 to
June 1997, he was Vice-President, Land and Acquisitions of Toreador Royalty
Corporation where he was responsible for implementing the Company's
restructuring plan, and in charge of increasing production through acquisitions
and joint ventures. From May 1988 to January 1989, he was Vice-President of
Business Development of German Oil Company, and from 1980 to May 1988, he was
employed by Tenneco Oil Company where he was involved with business development
and acquisitions.
-4-
<PAGE>
Bennett G. Shelton: Mr. Shelton was elected Vice-President of Land and
Contract Administration on December 9, 1998. Prior there, he was employed by
the Company as Land Contracts Manager since May 1995. From August 1994 to May
1995, he was a Senior Landman with AEOK and prior thereto he was a Land and
Acquisition Manager with ANEC. Prior to April 1991, he was a staff landman with
Santa Fe Minerals, Inc. for approximately ten years. Mr. Shelton was elected a
Vice-President on December 9, 1998.
Richard O. Mulford: Mr. Mulford was elected Vice-President of Operations
on December 9, 1998. From April 1995 to November 1998, he was employed as
Operations Manager of the Company. From April 1985 to April 1995, he was a
Production Superintendent with ANEC and has been employed in the oil and natural
gas industry since 1978.
Robert G. Snead: Mr. Snead, who has served as a geologist for the Company
on a full-time consulting basis since April 1997, was hired as a full-time
employee effective September 1, 1997. Between early 1994 and April 1997, he was
employed as an independent geologist and from 1985 to 1994 was the Senior Vice-
President/ Exploration Manager of LOGO, Inc., an oil and natural gas well
operating company.
John Coughlon: Mr. Coughlon has been employed by the Company since March
1998. Prior thereto, he was, commencing in December 1994, employed by Amoco
Production Company, most recently as Senior Staff Geologist. From October 1993
to December 1994 he served as Geological Consultant/Principle of Tower Energy
Corporation, and prior thereto he was, from July 1987 to October 1993, Senior
Geologist for Nicor Oil & Gas, and from April 1980 to July 1987 he was employed
by Mobil Oil Corp.
David Evans: Mr. Evans was hired by the Company as a petroleum engineer in
November 1997. Prior thereto, he was Production Manager for Petroleum
Properties Management Co. from March 1996 to October 1997. From April 1992 to
March 1996, he was Engineering Manager for AEOK and from September 1987 to April
1992 he was Vice-President of Exploration and Production for Bradmar Petroleum
Corporation.
R.L. Hilbun: Mr. Hilbun is a full-time consultant to the Company serving
as a drilling and completion engineer. He has served in this capacity since
March 1997. Prior thereto, commencing in 1982, he was Vice-President,
Operations of PSEC, Inc., a natural gas and oil well operating company. He has
been employed in the natural gas and oil industry since 1970.
R. Andrew McGuire: Mr. McGuire has been employed by the Company as
Controller since November 1994. Mr. McGuire is also Secretary of the Company.
From February 1991 to
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<PAGE>
October 1994, he was employed as Accounting Manager of ANEC. From May 1988 to
February 1991, he was employed by OXY-USA, Inc., a subsidiary of Occidental
Petroleum Corp., as an accountant. Mr. McGuire is a certified public accountant.
EXECUTIVE COMPENSATION
The following table sets forth the annual and long-term compensation paid
during the Company's three fiscal years ended December 31, 1998 to the Company's
chief executive officer and all other executive officers who received
compensation exceeding $100,000 and who served in such capacities at December
31, 1998:
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Annual Compensation
__________________________________________________________________________________________
Compensation
----------------------------------
Other Long-Term
Name and Annual Awards/ All Other
Principal Position Year Salary Bonus Comp. Option (#) Comp.
- - -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Michael K. Paulk 1998 $180,000 $150,000 -0- 375,000 -0-
1997 $150,000 $150,000 -0- -0- -0-
1996 $107,458 $ 50,000 -0- 125,000 -0-
Steven P. Ensz(1) 1998 $118,750 $100,000 -0- 125,000 -0-
James S. Blair(2) 1998 $107,950 -0- -0- -0- -0-
1997 $ 59,500 -0- -0- 100,000 -0-
</TABLE>
______________
(1) Mr. Ensz was employed by the Company in March 1998.
(2) Mr. Blair was employed by the Company in June 1997.
-6-
<PAGE>
Option Grants in Year Ended December 31, 1998.
- - ----------------------------------------------
The following table provides information with respect to the above named
executive officers regarding options granted to such persons during the
Company's year ended December 31, 1998.
<TABLE>
<CAPTION>
% of Total Options/ Market
Number of Securities SARs Granted to Exercise or Price on
Underlying SARs/ Employees in Base Price Expiration Date of
Name Options Granted (#) Fiscal Year ($/Share) Date Grant
- - --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Michael K. Paulk 375,000(1) 42% $2.00 4/28/2003 $2.00
Steven P. Ensz 125,000(2) 14% $2.00 4/28/2003 $2.00
</TABLE>
__________________________
(1) Of which, options to purchase 187,500 shares become exercisable on April
28, 1999 and options to purchase the remaining 187,500 shares become
exercisable on April 28, 2000, provided, however, such options become
immediately fully exercisable in the event of a "change of control," as
defined, of the Company. On December 9, 1998, the exercise price of such
options was repriced to $0.40 per share.
(2) Of which, options to purchase 62,500 shares become exercisable on April 28,
1999 and options to purchase the remaining 62,500 shares become exercisable
on April 28, 2000, provided, however, such options become immediately fully
exercisable in the event of a "change of control," as defined, of the
Company. On December 9, 1998, the exercise price of such options was
repriced to $0.40 per share.
Stock Option Holdings at December 31, 1998.
- - ------------------------------------------
The following table provides information with respect to the above named
executive officers regarding Company options held at the end of the Company's
year ended December 31, 1998 (such officers did not exercise any options during
the most recent fiscal year).
<TABLE>
<CAPTION>
Value of Unexercised
Number of Unexercised Options In-the-Money Options
at December 31,1998(1) at December 31, 1998 (2)
Name Exercisable Unexercisable Exercisable Unexercisable
- - -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Michael K. Paulk 375,000 375,000 -0- -0-
Steven P. Ensz -0- 125,000 -0- -0-
James S. Blair 50,000 50,000 -0- -0-
</TABLE>
____________________________
(1) The options are exercisable at $0.40 per share, which reflects the
repricing discussed below.
(2) Based on the closing sales price on December 31,1998 of $5/16.
On February 3, 1999, options to purchase 250,000 shares exercisable at
$0.53 per share were granted to each of Mr. Paulk and Mr. Ensz.
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<PAGE>
Option Repricing
On December 9, 1998, the Board of Directors of the Company authorized the
amendment of the terms of all of the options granted to employees under its
stock option plans to reduce the exercise price to $0.40 per share, the fair
market value of its outstanding shares of Common Stock on that date. At the
time, the Company had outstanding options to purchase a total of 2,695,000
shares held by 24 employees, three officers and two Directors with exercise
prices ranging from $1.50 to $2.56 per share. The options granted to Messrs.
Paulk, Ensz, and Blair were repriced on the basis of the substantial declines
commencing in mid-1998 in the prevailing market prices for natural gas and oil
which impacted the market price for the Company's securities.
Employment Agreements
The Company has entered into an employment agreement with Michael Paulk
effective January 1, 1999 pursuant to which he is employed as the President of
the Company. Mr. Paulk currently receives a base salary of $189,000 per year.
In addition, he is to receive a cash bonus as may be determined by the Company's
Board of Directors. Mr. Paulk is also entitled to participate in such incentive
compensation and benefit programs as the Company makes available. The term of
Mr. Paulk's agreement is for a period of three years and at the end of the first
year and at the end of each succeeding year the agreement is automatically
extended for one year such that at the end of each year there will automatically
be three years remaining on the term of the agreement. Mr. Paulk can terminate
the agreement at the end of the initial term and any succeeding term on not less
than six months notice. In the event the employment agreement is terminated by
the Company (other than for cause, as defined), Mr. Paulk is entitled to receive
a payment representing all salary due under the remaining full term of his
agreement and the Company is obligated to continue his medical insurance and
other benefits provided under the agreement in effect for a period of one year
after such termination. In the event of a change in control, as defined, of the
Company, Mr. Paulk has the right to terminate his employment agreement with the
Company within sixty days thereafter, whereupon the Company would be obligated
to pay to him a sum equal to three years his base salary under the agreement
plus a lump sum payment of $250,000.
-8-
<PAGE>
The Company has also entered into an employment agreement with Steven P. Ensz
effective January 1, 1999 pursuant to which he is employed as the Vice President
and Chief Financial Officer of the Company. Mr. Ensz currently receives a base
salary of $157,500 per year. In addition, he is to receive a cash bonus as may
be determined by the Company's Board of Directors. Mr. Ensz is also entitled to
participate in such incentive compensation and benefit programs as the Company
makes available. The term of Mr. Ensz' agreement is for a period of three years
and at the end of the first year and at the end of each succeeding year the
agreement is automatically extended for one year such that at the end of each
year there will automatically be three years remaining on the term of the
agreement. Mr. Ensz can terminate the agreement at the end of the initial term
and any succeeding term on not less than six months notice. In the event the
employment agreement is terminated by the Company (other than for cause, as
defined), Mr. Ensz is entitled to receive a payment representing all salary due
under the remaining full term of his agreement and the Company is obligated to
continue his medical insurance and other benefits provided under the agreement
in effect for a period of one year after such termination. In the event of a
change in control, as defined, of the Company, Mr. Ensz has the right to
terminate his employment agreement with the Company within sixty days
thereafter, whereupon the Company would be obligated to pay to him a sum equal
to three years his base salary under the agreement plus a lump sum payment of
$200,000.
Directors Compensation
Each non-employee Director of the Company received a fee of $15,000 for
serving in that capacity during 1998, and each non-employee Director is
reimbursed for his out-of-pocket expenses in attending meetings.
Certain Relationships and Related Transactions
Mr. Paulk is indebted to the Company in the amount of $179,000 under an
interest bearing promissory note dated September 1, 1997 due, as extended, on
January 31, 2000.
On January 23, 1998, the Company completed the Amoco Acquisition pursuant to
which, among other things, the Company issued to Amoco a five-year common stock
purchase warrant to purchase 1.5 million shares of Common Stock exercisable at
$3.00 per share.
On April 27, 1998, the Company completed a transaction with Chesapeake Energy
Corporation ("Chesapeake") pursuant to which it (i) executed a participation
agreement granting to Chesapeake a 50% interest in substantially all of the
Company's undeveloped acreage, (ii) sold for $20.0 million a 50% interest in the
Company's natural gas and oil properties in the
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<PAGE>
Arkoma basin, and (iii) sold 50,000 shares of Series B Preferred Stock and a
common stock purchase warrant. The Series B Preferred Stock had a liquidation
value of $50.0 million and a dividend rate per annum equal to 12 1/2% of the
aggregate liquidation preference payable in additional shares of Series B
Preferred Stock, provided that, after April 1, 2000, at the Company's option,
dividends may be paid in cash. On June 30, 2008, the Series B Preferred Stock is
mandatorily redeemable in shares of Common Stock valued at the fair market value
on the date of redemption. The Company has the option at any time prior to April
30, 2000 to redeem the Series B Preferred Stock, in whole or in part, at 105% of
the liquidation preference payable in cash out of the net proceeds of a public
or private offering of any equity security. After April 30, 2000, the Series B
Preferred Stock can be redeemed, in whole or in part, at a redemption price
equal to the liquidation preference. After April 20, 2000, the Series B
Preferred Stock is convertible into a number of shares of Common Stock
determined by dividing the liquidation preference by the higher of $2.04167 or
the fair market value on the date the Series B Preferred Stock is converted.
Notwithstanding the foregoing, no holder or group can convert the Series B
Preferred Stock to the extent that the conversion of such shares would cause
such holder or group to own more than 19.9% of the Company's outstanding Common
Stock. The shares of Series B Preferred Stock have no voting rights except as
required by Oklahoma law. At December 31, 1998, reflecting dividends paid,
Chesapeake held 54,187 shares of Series B Preferred Stock. The Series B
Preferred Stock ranks senior to all classes of Common Stock and other series and
classes of preferred stock with respect to dividend rights and rights on
liquidation, winding up and dissolution.
The warrant sold to Chesapeake entitled it to purchase 2,439,246 shares of the
Company's Common Stock at an exercise price of $0.01 per share, subject to
certain adjustments, and was to have expired on April 27, 2008. On August 17,
1999 Chesapeake fully exercised the common stock purchase warrant pursuant to
the cashless exercise provisions of the warrant and was issued 2,394,125 shares
of the Company's common stock.
So long as Chesapeake holds 50% or more of the outstanding shares of Series B
Preferred Stock, it is granted certain preferential rights with respect to the
purchase of securities of the Company and is entitled to designate for election
to the Company's Board of Directors not less than 20% of the members of the
Board of Directors of the Company. Chesapeake has not designated any persons
for election through August 31, 1999. The Company's agreement with Chesapeake
also contains standstill provisions through March 1, 2000 restricting Chesapeake
from engaging in certain acquisition or other similar business combination
transactions or seeking to influence or control the Company.
Pursuant to the Participation Agreement between the Company and Chesapeake,
the Company sold Chesapeake the right through April 30, 2003 to participate in
up to 50% of the Company's interest in the development of any of the Company's
non-producing leasehold
-10-
<PAGE>
interests (other than the Arkoma basin and certain New Mexico properties).
Chesapeake also was sold the right to participate in up to 50% of the Company's
interest in any subsequently acquired properties. During the year ended December
31, 1998, Chesapeake elected to participate to the extent of 50% of the
Company's interest in the development of 26 non-producing properties and no
acquired properties.
2. APPROVE ADOPTION OF 1999 STOCK INCENTIVE PLAN
In August 1999, the Company adopted the 1999 Stock Incentive Plan (the
"Plan"). The Plan was adopted by the Board of Directors of the Company and is
subject to approval by the stockholders of the Company. Under the Plan,
4,000,000 shares of Common Stock have been reserved for issuance on exercise of
options granted under the Plan. In no event, however, may any one participant in
the Plan receive option grants, separately exercisable stock appreciation rights
or direct stock issuances for more than 1,000,000 shares of Common Stock in the
aggregate per calendar year.
The Plan is divided into five separate components: (i) the Discretionary
Option Grant Program under which eligible individuals in the Company's employ or
service (including officers and consultants) may, at the discretion of the Plan
Administrator, be granted options to purchase shares of Common Stock at an
exercise price equal to not less than the fair market value of the Common Stock
on the date of grant, (ii) the Stock Issuance Program under which such
individuals may, in the Plan Administrator's discretion, be issued shares of
Common Stock directly, through the purchase of such shares at a price not less
than their fair market value at the time of issuance or as a bonus tied to the
performance of services, (iii) the Salary Investment Option Grant Program which
may, in the Plan Administrator's sole discretion, be activated for one or more
calendar years and, if so activated, will allow executive officers and other
highly compensated employees the opportunity to apply a portion of their base
salary to the acquisition of special below-market stock option grants, (iv) the
Automatic Option Grant Program under which option grants will automatically be
made at periodic intervals to eligible, non-employee members of the Board of
Directors to purchase shares of Common Stock at an exercise price equal to their
fair market value on the grant date and (v) the Director Fee Option Grant
Program which may, in the Plan Administrator's sole discretion, be activated for
one or more calendar years and, if so activated, will allow non-employee Board
members the opportunity to apply a portion of any annual retainer fee otherwise
payable to them in cash each year to the acquisition of special below-market
option grants.
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<PAGE>
The Discretionary Option Grant Program and the Stock Issuance Program
initially will be administered by the Board of Directors. The Board of
Directors, as Plan Administrator, will have the discretion to determine which
eligible individuals are to receive option grants or stock issuances under those
programs, the time or times when such option grants or stock issuances are to be
made, the number of shares subject to each such grant or issuance, the status of
any granted option as either an incentive stock option or a non-statutory stock
option under U.S. federal tax laws, the vesting schedule to be in effect for the
option grant or stock issuance and the maximum term for which any granted option
is to remain outstanding. The Board of Directors will also have the authority to
select the executive officers and other highly compensated employees who may
participate in the Salary Investment Option Grant Program in the event that
program is activated for one or more calendar years, but the Board of Directors
will not exercise any administrative discretion with respect to option grants
made under the Salary Investment Option Grant Program or under the Automatic
Option Grant Program or Director Fee Option Grant Program for the non-employee
Board members. All grants under those three latter programs will be made in
strict compliance with the express provisions of each such program.
The exercise price for the shares of Common Stock subject to option grants
made under the Plan may be paid in cash or in shares of Common Stock valued at
fair market value on the exercise date. The option may also be exercised through
a same-day sale program without any cash outlay by the optionee. In addition,
the Plan Administrator may provide financial assistance to one or more optionees
in the exercise of their outstanding options or the purchase of their unvested
shares by allowing such individuals to deliver a full-recourse, interest-bearing
promissory note in payment of the exercise price and any associated withholding
taxes incurred in connection with such exercise or purchase.
Stock appreciation rights are authorized for issuance under the Discretionary
Option Grant Program which provide the holders with the election to surrender
their outstanding options for an appreciation distribution from the Company
equal to the excess of (i) the fair market value of the vested shares of Common
Stock subject to the surrendered option over (ii) the aggregate exercise price
payable for such shares. Such appreciation distribution may be made in cash or
in shares of Common Stock.
In the event that the Company is acquired by merger or sale of
substantially all of its assets or securities possessing more than 50% of the
total combined voting power of the Company's outstanding securities, each
outstanding option under the Discretionary Option Grant Program which is not to
be assumed by the successor corporation or otherwise continued in effect will
automatically accelerate in full, and all unvested shares under the
Discretionary Option Grant and Stock Issuance Programs will immediately vest,
except to the extent the Company's repurchase rights with respect to those
shares are assigned to the successor corporation or otherwise continued in
effect. The Plan Administrator will have complete
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<PAGE>
discretion to grant one or more options under the Discretionary Option Grant
Program which will become exercisable on an accelerated basis for all of the
option shares upon (i) an acquisition or other change in control of the Company,
whether or not those options are assumed or continued in effect, or (ii) the
termination of the optionee's service within a designated period (not to exceed
18 months) following an acquisition or other change in control in which those
options are assumed or continued in effect. The vesting of outstanding shares
under the Stock Issuance Program may be accelerated upon similar terms and
conditions. The Plan Administrator is also authorized under the Discretionary
Option Grant and Stock Issuance Programs to grant options and to structure
repurchase rights so that the shares subject to those options or repurchase
rights will immediately vest in connection with a change in the majority of the
Board of Directors of the Company by reason of one or more contested elections
for Board membership, with such vesting to occur either at the time of such
change in control or upon the subsequent termination of the individual's service
within a designated period following such change in control.
In the event the Plan Administrator elects to activate the Salary
Investment Option Grant Program for one or more calendar years, each executive
officer and other highly compensated employees of the Company selected for
participation may elect, prior to the start of the calendar year, to reduce his
or her base salary for that calendar year by a specified dollar amount not less
than $12,000 nor more than $60,000. If such election is approved by the Plan
Administrator, the individual will automatically be granted, on the first
trading day in January of the calendar year for which that salary reduction is
to be in effect, a non-statutory option to purchase that number of shares of
Common Stock determined by dividing the salary reduction amount by two-thirds of
the fair market value per share of Common Stock on the grant date. The option
will be exercisable at a price per share equal to one-third of the fair market
value of the option shares on the grant date. As a result, the total spread on
the option shares at the time of grant (the fair market value of the option
shares on the grant date less the aggregate exercise price payable for those
shares) will be equal to the amount of salary invested in that option. The
option will become exercisable for the option shares in a series of 12 equal
monthly installments over the calendar year for which the salary reduction is to
be in effect and will be subject to full and immediate vesting upon certain
changes in the ownership or control of the Company.
Under the Automatic Option Grant Program, each individual who first becomes
a non-employee Board member at any time after August 23, 1999, the Plan
Effective Date, whether by appointment by the Board of Directors or election of
the stockholders, will automatically receive an option grant for 100,000 shares
as of the date such individual joins the Board, provided such individual has not
been in the prior employ of the Company. In addition, on the date of each Annual
Stockholders Meeting of the Company held after the Plan Effective Date, each
non-employee Board member who is to continue to serve as a non-employee Board
member will automatically be granted an option to purchase 10,000 shares of
Common Stock, provided such individual has served on the Board for at least six
months. Each automatic grant for the non-
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<PAGE>
employee Board members will have a term of 5 years, subject to earlier
termination following the optionee's cessation of Board service. Each automatic
option will be immediately exercisable for all of the option shares; however,
any unvested shares purchased under the option will be subject to repurchase by
the Company, at the exercise price paid per share, should the optionee cease
Board service prior to vesting in those shares. The shares subject to each
initial 100,000-share automatic option grant will vest over a three-year period
in successive equal annual installments upon the individual's completion of each
year of Board service measured from the option grant date. Each 10,000-share
automatic option grant will vest upon the individual's completion of one year of
Board service measured from the option grant date. However, the shares subject
to each automatic grant will immediately vest in full upon certain changes in
control or ownership of the Company or upon the optionee's death or disability
while a Board member.
Should the Director Fee Option Grant Program be activated in the future,
each non-employee Board member will have the opportunity to apply all or a
portion of any annual retainer fee otherwise payable in cash to the acquisition
of a below-market option grant. The option grant will automatically be made on
the first trading day in January in the year for which the retainer fee would
otherwise be payable in cash. The option will have an exercise price per share
equal to one-third of the fair market value of the option shares on the grant
date, and the number of shares subject to the option will be determined by
dividing the amount of the retainer fee applied to the program by two-thirds of
the fair market value per share of Common Stock on the grant date. As a result,
the total spread on the option (the fair market value of the option shares on
the grant date less the aggregate exercise price payable for those shares) will
be equal to the portion of the retainer fee invested in that option. The option
will become exercisable for the option shares in a series of 12 equal monthly
installments over the calendar year for which the election is to be in effect.
However, the option will become immediately exercisable for all the option
shares upon (i) certain changes in the ownership or control of the Company or
(ii) the death or disability of the optionee while serving as a Board member.
The shares subject to each option under the Salary Investment Option Grant
and Automatic Option Grant and Director Fee Option Grant Programs will
immediately vest upon (i) an acquisition of the Company by merger or asset sale,
(ii) the successful completion of a tender offer for more than 50% of the
Company's outstanding voting stock or (iii) a change in the majority of the
Board effected through one or more contested elections for Board membership.
Limited stock appreciation rights will automatically be included as part of each
grant made under the Automatic Option Grant, Salary Investment Option Grant and
Director Fee Option Grant Programs and may be granted to one or more officers of
the Company as part of their option grants under the Discretionary Option Grant
Program. Options with such a limited stock appreciation right may be surrendered
to the Company upon the successful completion of a hostile tender offer for more
than 50% of the Company's outstanding voting stock. In return for the
surrendered option, the optionee will be entitled to a cash distribution from
the Company in
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<PAGE>
an amount per surrendered option share equal to the excess of (i) the highest
price per share of Common Stock paid in connection with the tender offer over
(ii) the exercise price payable for such share.
The Board of Directors of the Company may amend or modify the Plan at any
time, subject to any required stockholder approval. The Plan will terminate on
the earliest of (i) 10 years after the Plan Effective Date, (ii) the date on
which all shares available for issuance under the Plan have been issued as
fully-vested shares or (iii) the termination of all outstanding options in
connection with certain changes in control or ownership of the Company.
There are no options outstanding under the Plan as of September 2, 1999.
MANAGEMENT RECOMMENDS A VOTE IN FAVOR OF THE PROPOSAL
Adoption of the Proposal requires the affirmative vote of a majority of the
votes cast at the meeting.
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<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Set forth below is information concerning the Common Stock ownership of all
persons known by the Company to own beneficially 5% or more of the Company's
Common Stock, and the Common Stock ownership of each Director of the Company and
all Directors and officers of the Company as a group, as of September 2, 1999.
As of September 2, 1999, the Company had 18,685,765 shares of Common Stock
outstanding.
<TABLE>
<CAPTION>
Name and Address of Beneficial
Holder, Identity of Group (1) (2) Amount (3) Percent of Class
-------------------------------------- ------------------ ------------------
<S> <C> <C>
Michael Paulk 1,174,891(4) 6.0%
John Fleming 550,000(5) 2.9%
Brian E. Bayley 550,000(6) 2.9%
Stratum Group, L.L.C. (7) 1,000,000(8) 5.1%
650 Fifth Avenue
New York, New York 10019
Carl C. Icahn (7) 1,600,000 8.6%
High River Limited Partnership (7)
Riverdale LLC (7)
Little Meadow Corp. (7)
100 South Bedford Road
Mount Kisco, New York 10549
Amoco Corporation (7) 1,500,000(9) 7.4%
200 East Randolph Drive
Chicago, Illinois 60601
Chesapeake Energy Corporation 2,394,125 12.8%
6100 North Western Avenue
Oklahoma City, Oklahoma 73118
All Officers and Directors as a Group 3,004,891 14.0%
(7 persons)
</TABLE>
________________________________
(1) This tabular information is intended to conform with Rule 13d-3 promulgated
under the Securities Exchange Act of 1934 relating to the determination of
beneficial ownership of securities. The tabular information gives effect to
the exercise of warrants or options exercisable within 60 days of the date
of this table owned in each
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<PAGE>
case by the person or group whose percentage ownership is set forth opposite
the respective percentage and is based on the assumption that no other
person or group exercise their option.
(2) The address of Mr. Paulk is c/o the Company, 5727 South Lewis Avenue, Suite
700, Tulsa, Oklahoma 74105. The address of Mr. Fleming is 1550, 340 12th
Avenue SW, Calgary, Alberta T2R 1L5. The address of Mr. Bayley is c/o Quest
Management Corp., 1095 West Pender Street-Suite 850, Vancouver, British
Columbia, Canada V6E 2M6.
(3) Except as otherwise noted, shares beneficially owned by each person as of
September 2, 1999 were owned of record and each person had sole voting and
investment power with respect to all shares beneficially held by such
person.
(4) Includes (i) 375,000 shares issuable upon exercise of options at an exercise
price of $0.40 per share, of which an option to purchase 250,000 shares
expires on October 4, 1999 and an option to purchase 125,000 shares expires
on July 16, 2001 and (ii) 375,000 shares issuable upon exercise of an option
at an exercise price of $0.40 per share, expiring April 28, 2003, of which
187,500 shares became exercisable on April 28, 1999 and the remaining
187,500 shares become exercisable on April 28, 2000. Also includes 250,000
shares issuable on exercise of an option at an exercise price of $0.53 per
share expiring February 4, 2004, of which 125,000 shares become exercisable
on February 4, 2000 and the remaining 125,000 shares become exercisable on
February 4, 2001. In the event of a "change of control" of the Company, as
defined in the option agreements, such remaining options become immediately
exercisable.
(5) Includes 100,000 shares issuable on exercise of an option at an exercise
price of $0.40 per share which is exercisable during the five-year period
beginning July 11, 1995, 50,000 shares issuable on exercise of an option at
an exercise price of $0.40 per share which is exercisable during the five-
year period beginning July 16, 1996, 150,000 shares issuable on exercise of
an option at an exercise price of $0.40 per share which is exercisable
during the five year period beginning April 28, 1998, and 250,000 shares
issuable on exercise of an option at an exercise price of $0.53 per share
which is exercisable during the five-year period beginning February 4, 1999.
(6) Includes 150,000 shares issuable on exercise of an option at an exercise
price of $0.40 per share which is exercisable during the five-year period
beginning July 16, 1996, 150,000 shares issuable on exercise of an option at
an exercise price of $0.40 per share which is exercisable during the five-
year period beginning April 28, 1998, and 250,000 shares issuable on
exercise of an option at an exercise price of $0.53 per share which is
exercisable during the five-year period beginning February 4, 1999.
(7) Based on information contained in Schedule 13D provided by such person.
(8) Issuable on exercise of common stock purchase warrants at $2.67 per share,
as adjusted. The general partner of Stratum Group, L.P. is Stratum Finance,
L.L.C. and the members of Stratum Finance, L.L.C. are Energy Investment
Partners, a New York general partnership, Joseph M. Rinaldi, Michael W.
Walker, Richard E. Bani, John C. Alvardo, Curt S. Taylor, and Betsy D.
Cotton. Stratum Finance, L.L.C. is managed by Energy Investment Partners,
which has four votes, Joseph M. Rinaldi, who has one vote, and Michael W.
Walker, appointed by the natural person members of Stratum Finance, L.L.C.,
who has one vote. Energy Investment Partners has three general partners,
SGLLC Partners, L.P. ("SGLLC"), SGLLC Partners Offshore, L.P. ("Offshore")
and The Beacon Group Energy Investment Fund, L.P. ("Fund"). The sole general
partner of each of SGLLC and Offshore is SG-GP, L.P. whose sole general
partner is Energy Fund GPI, Inc. ("GPI"). The sole general partner of Fund
is Beacon Energy Investors, L.P. ("Investors"). The sole general partner of
Investors is BEIGP, Inc. ("BEIGP"). The names of the officers and Directors
of both GPI and BEIGP are Geoffrey Boisi, John McWilliams, Preston Miller,
Harold Pote, Faith Rosenfeld, Robert Semmens, David Remmington, Thomas
Mendell and Frank Murray.
(9) Issuable on exercise of common stock purchase warrants at $2.59 per share,
as adjusted.
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<PAGE>
COMMITTEES AND MEETINGS OF THE BOARD OF DIRECTORS
The Company's Board of Directors has a Compensation Committee consisting of
Messrs. Fleming and Bayley and an Audit Committee consisting of Messrs. Fleming
and Bayley. The Compensation Committee makes determinations on behalf of the
Board of Directors concerning salaries and incentive compensation for officers
and employees of and consultants to the Company. The Audit Committee considers
the retention of the Company's independent accountants, reviews the Company's
annual financial statements and discusses the financial statements with the
Company's independent accountants, reviews the independence of accountants
conducting the audit, review the services of independent accountants, discusses
with management and the independent accountants the Company's accounting system
and related systems of internal control and consults as necessary with the
independent accountants and the Company's financial staff. The Board of
Directors does not have a nominating committee.
The Company's Board of Directors held five (5) meetings during the year
ended December 31, 1998. The compensation committee held two (2) meetings in
1998 and the audit committee held one (1) meeting in 1998.
SUBMISSION OF SHAREHOLDERS' PROPOSALS FOR 2000 ANNUAL MEETING
Any proposals which shareholders intend to present for a vote of
shareholders at the Company's 2000 Annual Meeting and which such shareholders
desire to have included in the Company's proxy statement and form of proxy
relating to that meeting must be sent to the Company's executive office and
received by the Company not later than May 10, 2000.
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<PAGE>
GENERAL
The cost of soliciting proxies will be borne by the Company. In addition
to solicitation by use of the mails, certain officers and regular employees may
solicit proxies personally and by telephone and the Company will request banks,
brokerage houses and nominees and fiduciaries to forward soliciting material to
their principals and will reimburse them for their reasonable out-of-pocket
expenses.
The Company's Annual Report on Form 10-KSB for the year ended December 31,
1998, including financial statements, is being mailed to shareholders herewith.
By Order of the Board of Directors
R. Andrew McGuire, Secretary
Dated: September 9, 1999
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<PAGE>
Appendix: Form of Proxy
GOTHIC ENERGY CORPORATION
5727 South Lewis Avenue - Suite 700
Tulsa, Oklahoma 74105
This Proxy Is Solicited On Behalf Of The Board Of Directors
The undersigned hereby appoints Mr. Michael K. Paulk and Mr. R. Andrew
McGuire, and each of them, as proxies, each with the power to appoint his
substitute, and hereby authorizes them to represent and vote, as designated
below, all the shares of common stock of Gothic Energy Corporation held of
record by the undersigned on September 2, 1999 at the annual meeting of
shareholders to be held on October 5, 1999 or any adjournment thereof.
1. Election of Directors
[ ] For all nominees listed below (except as marked to contrary
below)
[ ] Withhold Authority to vote for all nominees listed below
Instruction: To withhold authority to vote for any individual nominee, strike a
line through the nominee's name in the list below.
John J. Fleming Brian E. Bayley
Michael K. Paulk
2. The proposal to approve the adoption of the 1999 Stock Incentive
Plan.
[ ] In Favor [ ] Against [ ] Abstain
3. In their discretion, the Proxies are authorized to vote upon such other
business as may properly come before the meeting.
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<PAGE>
This Proxy, when properly executed, will be voted in the manner directed by
the undersigned stockholder. If no direction is made, this Proxy will be voted
for each of the Proposals.
Please sign EXACTLY as name appears below. Please mark, sign, date and
return the Proxy Card promptly using the enclosed envelope.
When shares are held by joint tenants, both should sign. When signing as
attorney, as executor, administrator, trustee, or guardian, please give full
title as such. If a corporation, please sign in full corporate name by
president or other authorized officer. If a partnership, please sign in
partnership name by authorized person.
Dated: , 1999
-------------- --------------------------------
Signature
Title (if required)
--------------------------------
Signature (if held jointly)
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