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Filed by: Chesapeake Energy Corporation
Pursuant to Rule 425 of the Securities Act of
1933, as amended
Subject Company: Gothic Energy Corporation
Commission File No.: 0-19753
Chesapeake Energy Corporation and Gothic Energy Corporation plan to
file a preliminary and definitive prospectus/proxy statement and other relevant
documents concerning the proposed transaction referenced in the foregoing
information with the Securities and Exchange Commission. We urge investors to
carefully read the definitive prospectus/proxy statement, and any other
relevant documents filed with the SEC, because they will contain important
information. The prospectus/proxy statement will be sent to stockholders of
Gothic Energy Corporation seeking their approval of the proposed transaction.
Investors may obtain free of charge a copy of the definitive prospectus/proxy
(when it is available) and other documents filed by Chesapeake Energy
Corporation and Gothic Energy Corporation with the SEC at the SEC's web site,
www.sec.gov. In addition, documents filed with the SEC by Chesapeake Energy
Corporation will be available free of charge upon written request to Chesapeake
Energy Corporation, 6100 North Western Avenue, Oklahoma City, Oklahoma 73118,
Attention: Marcus C. Rowland or call us at (405) 848-8000. Documents filed with
the SEC by Gothic Energy Corporation will be available free of charge from
Gothic Energy Corporation, 6120 South Yale Avenue, Suite 1200, Tulsa, Oklahoma
74136.
CONTACT: MARC ROWLAND
CHIEF FINANCIAL OFFICER
405-879-9232
FOR IMMEDIATE RELEASE TOM PRICE, JR.
SEPTEMBER 11, 2000 SR. VP - CORPORATE DEVELOPMENT
405-879-9257
CHESAPEAKE ENERGY CORPORATION COMPLETES
DEFINITIVE MERGER AGREEMENT TO ACQUIRE
GOTHIC ENERGY CORPORATION
CHESAPEAKE CONTINUES TO IMPROVE BALANCE SHEET;
COMMON STOCKHOLDERS' EQUITY SHOULD INCREASE BY $800 MILLION IN 2000
OKLAHOMA CITY, OKLAHOMA, SEPTEMBER 11, 2000 - Chesapeake Energy Corporation
(NYSE: CHK) today announced it has entered into a definitive plan of merger
with Gothic Energy Corporation (OTCBB: GOTH) consistent with the preliminary
agreement announced on June 30, 2000. Chesapeake expects the merger to be
completed on or about January 15, 2001 subject to normal regulatory approvals
and a Gothic shareholders vote.
Chesapeake has also obtained a standby commitment for expanded credit
facilities to facilitate completion of the merger. Bear, Stearns & Co. Inc. has
agreed to provide a $275 million facility, which consists of a $100 million
revolving credit line that will replace the company's existing revolver, and a
$175 million term credit facility which will be used to
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purchase any Gothic Production Company senior secured notes tendered by
noteholders exercising their change of control rights.
PREFERRED STOCK EXCHANGES, EARNINGS AND
COMMON STOCK ISSUANCE IN GOTHIC TRANSACTION WILL
INCREASE COMMON SHAREHOLDERS' EQUITY BY $800 MILLION IN 2000
One of Chesapeake's primary goals during 2000 was to significantly improve its
balance sheet while also continuing to increase its reserves and production.
Based on current gas prices and the status of various transactions and
initiatives, Chesapeake now expects its common shareholders' equity to improve
by $800 million during the year 2000. This significant increase in common
shareholders' equity has been or will be accomplished through the following:
o During the first eight months of 2000, Chesapeake exchanged $200 million
of its $230 million of preferred stock and $23 million of accrued
dividends for 43.4 million shares of common stock.
o During the fourth quarter, Chesapeake expects to record an income tax
benefit of up to $375 million through the restoration of deferred tax
assets which had been previously written off in 1997 and 1998.
o Chesapeake has issued or plans to issue over $100 million in common stock
to Gothic's shareholders and noteholders.
o Based on current gas prices, Chesapeake expects its net income in 2000 to
exceed $125 million, bringing the total increase in common stockholders'
equity (pro forma for the Gothic merger) to $800 million during 2000.
Additional balance sheet enhancements are expected in 2001 from
anticipated earnings growth and further preferred retirement and debt
reduction initiatives.
GOTHIC TRANSACTION UPDATE
As previously announced, Chesapeake has agreed to acquire Gothic for $345
million. The consideration is comprised of i) 4.0 million shares of Chesapeake
common stock to be issued to Gothic's common shareholders, ii) $23 million in
cash and $58 million in Chesapeake common stock to acquire Gothic Production
Company's $104 million of 14.125% senior discount notes and iii) the assumption
of Gothic's $235 million of 11.125% senior secured notes. To date, Chesapeake
has acquired $20 million of the senior secured notes in exchange for Chesapeake
common stock.
Chesapeake's acquisition price of $345 million values Gothic's 310 billion
cubic of natural gas equivalent (bcfe) of proved reserves at $1.05 per mcfe
after allocation of $20 million of the purchase price to Gothic's leasehold
inventory, 3-D seismic inventory, lease operating telemetry system and other
assets.
Chesapeake's merger with Gothic should be beneficial for both Chesapeake and
Gothic shareholders for a number of reasons:
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o Gothic's 80,000 mcfe per day of production will increase Chesapeake's daily
production by 22% to 440,000 mcfe per day;
o Gothic's 310 bcfe of proved reserves will increase Chesapeake's proved
reserves by 25% to 1,650 bcfe (88% of which will be natural gas);
o Gothic's producing properties are located almost exclusively in
Chesapeake's core Mid-Continent operating area and have average lifting
costs of less than $0.20 per mcfe which should lower Chesapeake's already
low lifting costs of $0.40 per mcfe;
o Chesapeake expects to generate annual cost savings of up to $10 million
from reduced general and administrative and lease operating expenses.
Although the agreement to purchase Gothic is subject to the approval by
Gothic's shareholders, both Boards of Directors have unanimously approved the
transaction. Gothic plans to hold a special shareholders' meeting as soon as
possible following effectiveness of the Form S-4 registration statement, which
Chesapeake anticipates filing in the next two weeks.
Gothic presently has 23.3 million common shares outstanding. Of the outstanding
Gothic common shares, Chesapeake owns 2.4 million shares and will not
participate in the exchange for the 4.0 million Chesapeake common shares to be
received by Gothic's other shareholders. Chesapeake has proxies to vote
2,974,891 shares of Gothic's management and directors ownership in favor of the
agreement. Bear, Stearns & Co. Inc. advised Chesapeake and CIBC World Markets
advised Gothic.
Chesapeake Energy Corporation and Gothic Energy Corporation plan to file a
preliminary and definitive prospectus/proxy statement and other relevant
documents concerning the proposed transaction referenced in the foregoing
information with the Securities and Exchange Commission. We urge investors to
carefully read the definitive prospectus/proxy statement, and any other
relevant documents filed with the SEC, because they will contain important
information. The prospectus/proxy statement will be sent to stockholders of
Gothic Energy Corporation seeking their approval of the proposed transaction.
Investors may obtain free of charge a copy of the definitive prospectus/proxy
(when it is available) and other documents filed by Chesapeake Energy
Corporation and Gothic Energy Corporation with the SEC at the SEC's web site,
www.sec.gov. In addition, documents filed with the SEC by Chesapeake Energy
Corporation will be available free of charge upon written request to Chesapeake
Energy Corporation, 6100 North Western Avenue, Oklahoma City, Oklahoma 73118,
Attention: Marcus C. Rowland or call us at (405) 848-8000. Documents filed with
the SEC by Gothic Energy Corporation will be available free of charge from
Gothic Energy Corporation, 6120 South Yale Avenue, Suite 1200, Tulsa, Oklahoma
74136.
The information in this release includes certain forward-looking statements
that are based on assumptions that in the future may prove not to have been
accurate. Those statements, and Chesapeake Energy Corporation's business and
prospects, are subject to a number of risks, including production variances
from expectations, uncertainties about estimates of reserves, volatility of oil
and gas prices, the need to develop and replace reserves, the substantial
capital expenditures required to fund operations, environmental risks, drilling
and operating risks, risks related to exploratory and developmental drilling,
competition, government regulation, and the ability of the company to implement
its business strategy. These and other risks are described in the company's
documents and reports that are available from the United States Securities and
Exchange Commission, including the report filed on Form 10-K for the year ended
December 31, 1999 and the report filed on Form 10-Q for the quarter ended June
30, 2000.
Chesapeake Energy Corporation is the 10th largest independent natural gas
producer in the U.S (pro forma for Gothic). Headquartered in Oklahoma City, the
company's operations are focused on exploring, developing and acquiring natural
gas reserves in the Mid-Continent region of the United States. The company's
Internet address is www.chkenergy.com.
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