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EXHIBIT 99.5
June 30, 2000
VIA TELEFACSIMILE
Mr. Michael K. Paulk
President
Gothic Energy Corporation
Gothic Production Company
6120 South Yale Avenue
Tulsa, Oklahoma 74136
Dear Mr. Paulk:
This letter of intent summarizes the principal terms of the proposed
acquisition by Chesapeake Energy Corporation, an Oklahoma corporation
("Chesapeake"), of Gothic Energy Corporation, an Oklahoma corporation
("Gothic"), and Gothic Production Company, an Oklahoma corporation and wholly
owned subsidiary of Gothic ("Production" and together with Gothic, the "Gothic
Parties"). The proposed acquisition and the terms and conditions of the
transaction are as follows:
1. Merger. The proposed transaction will be consummated as a merger
(the "Merger") of a wholly owned subsidiary of Chesapeake with Gothic. It is the
intent of the parties that the Merger will be tax free to the shareholders of
Gothic and the Merger will be structured accordingly. In connection with the
Merger, the holders of shares of Gothic common stock, par value $.01 ("GEC
Stock"), other than Chesapeake or any wholly owned subsidiary of Chesapeake,
will receive in the aggregate 4.0 million shares of Chesapeake common stock, par
value $.01 (the "CHK Stock") to be allocated among Gothic's shareholders on the
basis of the number of shares of GEC Stock owned by such shareholders. As part
of the Merger all stock options for GEC Stock issued to any officer, employee,
director or independent contractor under Gothic's stock option plans will be
converted concurrently with the Merger or will be terminated, canceled and
released as of the closing of the Merger. It is the intent of the parties that
on consummation of the Merger Chesapeake or Chesapeake's designated subsidiaries
will own all of the outstanding capital stock of Gothic. The CHK Stock to be
received by Gothic's shareholders in the Merger will be registered under the
Securities Act of 1933, and consequently the proxy statement for Gothic's
shareholders meeting will comply with the requirements for a Form S-4
Registration Statement under the Securities Act of 1933.
Exhibit "99.5"
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2. Merger Agreements. On the execution and delivery of this letter by
each of the parties: (a) Chesapeake will commence preparation of a definitive
merger agreement (the "Agreement"); (b) the parties will make reasonable efforts
to prepare and file all required filings under the Hart-Scott-Rodino Antitrust
Improvements Act (the "HSR Act"); and (c) the parties will use reasonable
efforts to prepare, file and make effective a proxy statement covering the
Merger and attempt to secure the requisite shareholder approval by Gothic's
shareholders. The Agreement will contain comprehensive representations,
warranties, covenants and terms as usual and customary in transactions of this
nature. The consummation of the Merger and the parties' obligations under the
Agreement will be subject to the usual and customary conditions to a transaction
of this nature, including, but not limited to: (x) consents to the Merger by any
governmental regulatory agencies whose consent is necessary including, without
implied limitation, compliance with the HSR Act; (y) approval of the Merger by
Gothic's shareholders; and (z) any consents to the assignment of any material
contracts or agreements which are reasonably determined by Chesapeake to be
necessary.
3. Access. Subsequent to the execution of this letter through the
closing of the Merger, the Gothic Parties will cause the officers, directors,
employees, accountants, engineers, investment bankers, legal counsel and all
other representatives and agents of the Gothic Parties (the "Gothic
Representatives") to provide full and free access to the books, contracts,
assets, records, businesses and representatives of the Gothic Parties as
Chesapeake may request in connection with Chesapeake's review and investigation
of the Gothic Parties. The Gothic Parties and the Gothic Representatives will
cooperate fully with Chesapeake and Chesapeake's representatives in completing
Chesapeake's due diligence of the Gothic Parties.
4. Conduct of Business. Until the execution and delivery of the
Agreement, the Gothic Parties will continue to conduct the operations and
businesses of such parties in the ordinary course and will not engage in or
permit any extraordinary transactions without the prior written consent of
Chesapeake. The Gothic Parties hereby agree that transactions outside the
ordinary course include, without limitation, the sale of assets other than in
the ordinary course of business, the modification of any material employment
relationship, any increase in compensation for any executive officer (other than
the exercise of stock options previously issued pursuant to existing employment
arrangements), any distributions with respect to any capital stock of Gothic
(excluding any exercise of any existing option, warrant or other derivative
security in accordance with its terms) and the termination of or default under
any material agreements or contracts. The parties agree that the pursuit of
existing litigation by the Gothic Parties will be considered in the ordinary
course of business but settlement of any litigation where the Gothic Parties are
required to admit liability, transfer any assets or incur similar obligations
will require the prior written approval of Chesapeake.
5. Exclusive Dealing. On or before the earlier of August 15, 2000, or
termination of this letter of intent with the written consent of both parties
under paragraph 10 herein, the Gothic Parties will not, directly or indirectly,
through any representative or otherwise, solicit or entertain offers from,
initiate or participate in negotiations with or encourage, discuss or consider
any proposal from any person regarding the Acquisition (as hereafter defined)
of: (a) any shares of the capital stock of the Gothic Parties; (b) any of the
Gothic Parties or the Gothic Parties' businesses or operations; or (c) any
assets of the Gothic Parties other than to unaffiliated third parties for value
in the ordinary
Exhibit "99.5"
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course of business. For purposes of this letter of intent the term "Acquisition"
means any person acquiring, directly or indirectly, an interest in the Gothic
Parties or any business, operation or asset of the Gothic Parties including,
without implied limitation, any such action by purchase, merger, reorganization,
consolidation, lease, contract or operation of law. Gothic further agrees not to
provide any information concerning the Gothic Parties with respect to any of the
foregoing. In the event any person should solicit, initiate negotiations or make
inquiries relative to any Acquisition the Gothic Parties will immediately notify
Chesapeake in writing.
6. Break-up Fee. In the event that any of the Gothic Parties breach
paragraph 5 of this letter of intent or terminate this letter of intent after
August 15, 2000, and within one (1) year after the date of this letter of intent
any of the Gothic Parties enters into a letter of intent or other agreement
relating to the Acquisition of a material portion of the capital stock of any of
the Gothic Parties or any assets, operations or business, in whole or in part,
whether directly or indirectly, through purchase, merger, consolidation, or
otherwise (other than sales of inventory or immaterial assets in the ordinary
course), then the Gothic Parties will pay to Chesapeake the sum of $10 million
(the "Break-up Fee") in immediately available funds. The Break-up Fee is not
Chesapeake's exclusive remedy in the event of a breach by the Gothic Parties of
any Binding Provision (as hereafter defined) and in such event Chesapeake will
be entitled to exercise any and all rights and remedies provided by law or in
equity. The Break-up Fee will not be payable by the Gothic Parties in the event
that this letter of intent is terminated solely as a result of the failure to
obtain the required governmental consents.
7. Restructure Agreement. On or about June 5, 2000, Gothic entered into
that certain Agreement in Respect of Restructuring of Gothic Energy Corporation
14 1/8% Series B Senior Secured Discount Notes (the "Restructure Agreement")
with certain holders of the Gothic Energy Corporation 14 1/8% Series B Senior
Secured Discount Notes (the "Notes") which provided for the restructure of
Gothic by filing for protection under the United States Bankruptcy Code (the
"Bankruptcy Code") using a prepackaged bankruptcy plan. Subsequent thereto
Chesapeake Energy Marketing, Inc., an Oklahoma corporation and a wholly owned
subsidiary of Chesapeake ("CEMI"), acquired and continues to hold the Notes that
were held by the persons that executed and delivered the Restructure Agreement.
Based on current circumstances Gothic does not plan to file for protection under
the Bankruptcy Code on or before July 20, 2000, as required by the Restructure
Agreement and requests that Chesapeake and CEMI terminate the Restructure
Agreement. Accordingly, Chesapeake (for its own account and on behalf of CEMI)
and Gothic by the execution and delivery of this letter of intent: (a) jointly
and irrevocably terminate the Restructure Agreement; (b) release all parties to
the Restructure Agreement from any and all obligations thereunder and any
related agreements; and (c) hereby agree to execute or cause to be executed any
documents necessary or appropriate to evidence the termination of the
Restructure Agreement and the release the obligations arising thereunder.
8. Option. Effective March 27, 2000, Chesapeake Exploration Limited
Partnership, an Oklahoma limited partnership ("CELP"), granted to the Gothic
Parties an option (the "Option") to acquire all of the Gothic capital stock
owned by CELP subject to various conditions which included the Gothic Parties
filing for protection under the Bankruptcy Code, affirming various agreements
with Chesapeake and confirming a plan of reorganization. Because neither of the
Gothic Parties
Exhibit "99.5"
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intend to file a bankruptcy petition and may desire to propose wells in
contravention of the terms of the Option, the Gothic Parties hereby irrevocably
terminate and release the Option and any and all obligations of CELP under the
Option including, without implied limitation, any obligation of CELP to convey
any capital stock or security issued by the Gothic Parties and owned by CELP or
any affiliated entity. In addition, CELP hereby releases the Gothic Parties from
any and all obligations under the Option, whether express or implied, including
any obligation of any of the Gothic Parties to file a bankruptcy petition or
seek confirmation of a bankruptcy plan. Chesapeake (for its own account and on
behalf of CELP) and the Gothic Parties by the execution and delivery of this
letter of intent hereby agree to execute or cause to be executed any documents
necessary or appropriate to evidence the termination of the Option and the
release of the obligations arising thereunder. The termination of the Option
will not affect or terminate any provision of that certain Option Purchase
Agreement dated February 28, 2000, among the Gothic Parties and CELP.
9. Costs. Chesapeake and the Gothic Parties will be responsible for the
costs and expenses incurred by such parties (including any broker, finder's or
investment banking fees) incurred in connection with this letter of intent or
the transaction contemplated by this letter of intent. Notwithstanding the
foregoing: (a) any fees under the HSR Act will be paid fifty percent by
Chesapeake and fifty percent by the Gothic Parties; and (b) if a party
institutes an action or proceeding against any other party under this letter of
intent the unsuccessful party to such action or proceeding will reimburse the
prevailing party for the reasonable attorneys' fees and disbursements incurred
by the prevailing party. Gothic's remedy in the event that Chesapeake terminates
this letter of intent after August 15, 2000 (other than as a result of a breach
of this letter of intent by the Gothic Parties or the failure to satisfy the
conditions under paragraph 2 of this letter of intent), and within one (1) year
after the date of this letter of intent the Gothic Parties have not entered into
an Acquisition of the Gothic Parties at a higher price than the value of the CHK
Stock on the date of this letter of intent, Chesapeake will pay to the Gothic
Parties $1.0 million as a reimbursement of the Gothic Parties' expenses and
damages in connection with this proposed transaction.
10. Liability. Except for paragraphs 3 through 10 inclusive (the
"Binding Provisions") which are intended to create binding obligations, it is
understood that no legal obligation or liability is created by this letter of
intent and that the legal obligations and liabilities of the parties are to
arise only on the duly authorized execution and delivery of the Agreement. The
terms of this letter of intent can only be amended or modified in a writing
signed by all parties hereto. Except as expressly set forth in the Binding
Provisions or the Agreement, no past or future action, course of conduct,
failure to act with respect to the Merger, the failure to negotiate or the
failure to consummate the Merger will give rise to or serve as the basis for any
liability of the parties. This letter of intent will terminate on the written
consent by all of the parties hereto or by written notice of any party after
August 15, 2000. The termination of this letter of intent will not affect the
liability of a party for the breach of any of the Binding Provisions prior to
such termination or the breach of any provision set forth in paragraphs 6, 7, 8,
9 or 10 of this letter of intent, which will survive termination of this letter
of intent.
If the foregoing meets with your approval, please sign and return one
copy of this letter of intent to our offices no later than 5:00 p.m., June 30,
2000. Each of the parties agrees that this letter of intent may be signed in
counterparts or by facsimile without affecting the validity or
Exhibit "99.5"
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enforceablity of this letter of intent. On receipt of a signed letter of intent,
we will commence preparation of the Agreement for your review and release the
joint press release in accordance with the rules of the New York Stock Exchange.
Best Regards,
/s/ MARCUS C. ROWLAND
Marcus C. Rowland
Chief Financial Officer
AGREED TO AND ACCEPTED this 30th day of June, 2000.
GOTHIC ENERGY CORPORATION,
an Oklahoma corporation
By /s/ MICHAEL K. PAULK
-----------------------------
Michael K. Paulk, President
GOTHIC PRODUCTION COMPANY,
an Oklahoma corporation
By /s/ MICHAEL K. PAULK
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Michael K. Paulk, President
Exhibit "99.5"
