<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 13D
(Amendment No. 3)
Under the Securities Exchange Act of 1934
GOTHIC ENERGY CORPORATION
-------------------------
(Name of Issuer)
Common Stock, par value $.01
------------------------------
(Title of Class of Securities)
383482106
--------------
(CUSIP Number)
Shannon Self, Esquire
Self, Giddens & Lees, Inc.
2725 Oklahoma Tower
210 Park Avenue
Oklahoma City, Oklahoma 73102
(405) 232-3001
-------------------------------------------------
(Name, Address and Telephone Number of Person
Authorized to Receive Notices and Communications)
April 4, 2000
-------------------------------------------------------
(Date of Event Which Requires Filing of this Statement)
If the filing person has previously filed a statement on Schedule 13G to report
the acquisition which is the subject of this Schedule 13D, and is filing this
schedule because of Rule 13d-1(b)(3) or (4), check the following box. [ ]
NOTE: Six (6) copies of this statement, including all exhibits, should be filed
with the Commission. See Rule 13d-1(a) for other parties to whom copies are to
be sent.
* The remainder of this cover page shall be filled out for a reporting person's
initial filing on this form with respect to the subject class of securities,
and for any subsequent amendment containing information which would alter
disclosures provided in a prior cover page.
The information required on the remainder of this cover page shall not be
deemed to be "filed" for the purpose of Section 18 of the Securities Exchange
Act of 1934 ("Act") or otherwise subject to the liabilities of that section of
the Act but shall be subject to all other provisions of the Act (however, see
the Notes).
Page 1 of 7 Pages
<PAGE> 2
CUSIP NO. 383482106
<TABLE>
<S> <C> <C>
(1) Names of Reporting Persons, S.S. or I.R.S. Identification Nos. Chesapeake Exploration Limited
of Above Persons Partnership, an Oklahoma limited
partnership, successor by merger to
Chesapeake Mid-Continent Corp., an
Oklahoma corporation
73-1384282
(2) Check the Appropriate Box if a Member of a Group (See (a) [ ]
Instructions) (b) [x]
(3) SEC Use Only
(4) Source of Funds (See Instructions) AF,WC
(5) Check if Disclosure of Legal Proceedings is Required Pursuant [ ]
to Items 2(d) or 2(e)
(6) Citizenship or Place of Organization Oklahoma
Number of Shares (7) Sole Voting Power 32,275,287
Beneficially Owned (8) Shared Voting Power -
By Each Reporting (9) Sole Disposition 32,275,287
Person With: (10) Shared Dispositive Power -
(11) Aggregate Amount Beneficially Owned by Each Reporting Person 32,275,287
(12) Check if the Aggregate Amount in Row (11) Excludes Certain [ ]
Shares (See Instructions)
(13) Percent of Class Represented by Amount in Row (11) 66.46%
(14) Type of Reporting Person (See Instructions) PN
</TABLE>
Page 2 of 7 Pages
<PAGE> 3
CUSIP NO. 383482106
Preliminary Statement
This Amendment No. 3 to Schedule 13D amends and restates: (a) the Schedule 13D
dated September 15, 1999, and filed by Chesapeake Mid-Continent Corp., an
Oklahoma corporation ("Chesapeake Mid-Continent"), as successor by merger to
Chesapeake Gothic Corp., an Oklahoma Corporation ("Chesapeake Gothic"); (b)
Amendment No. 1 to Schedule 13D filed on September 23, 1999, by Chesapeake
Mid-Continent; and (c) Amendment No. 2 to Schedule 13D filed on October 8, 1999
by Chesapeake Mid-Continent.
Item 1. Security and Issuer.
The common stock par value $.01 per share (the "Common Stock"), of
Gothic Energy Corporation, an Oklahoma corporation ("Gothic"). Gothic's
principal executive offices are located at 6120 South Yale Avenue,
Ste. 1200, Tulsa, Oklahoma 74136.
Item 2. Identity and Background.
Chesapeake Exploration Limited Partnership ("CELP") is an Oklahoma
limited partnership having as its general partner Chesapeake
Operating, Inc., an Oklahoma corporation ("COI"), and having as its
limited partner Chesapeake Energy Corporation, an Oklahoma corporation
("Chesapeake Energy"). CELP and Chesapeake Mid-Continent were merged
with CELP as the surviving entity. CELP, COI and Chesapeake
Mid-Continent are wholly owned subsidiaries of Chesapeake Energy and
are located at 6100 North Western Avenue, Oklahoma City, Oklahoma
73118, and are engaged in the ownership, development and operation of
oil and gas assets in North America. The executive officers and
directors of COI and Chesapeake Energy are set forth below. Each
individual designated by an asterisk is a director or officer of COI
and Chesapeake Energy.
Aubrey K. McClendon *
Director and Chief Executive Officer
6100 North Western
Oklahoma City, Oklahoma 73118
Tom L. Ward *
Director and Chief Operating Officer
6200 North Western
Oklahoma City, Oklahoma 73118
Marcus C. Rowland *
Chief Financial Officer
6100 North Western
Oklahoma City, Oklahoma 73118
Page 3 of 7 Pages
<PAGE> 4
CUSIP NO. 383482106
Edgar F. Heizer, Jr.
Director
261 Bluff's Edge Drive
Lake Forest, Illinois 60045
Breene M. Kerr
Director
115 Bay Street
Easton, Maryland 21601-2703
Shannon Self
Director
2725 Oklahoma Tower
210 Park Avenue
Oklahoma City, Oklahoma 73102
Frederick B. Whittemore
Director
1221 Avenue of the Americas
New York, New York 10020
Walter C. Wilson
Director
2001 Kirby Drive, Suite 1107
Houston, Texas 77019
CELP, COI, Chesapeake Energy and each of the listed individuals have
not, during the last five years, been convicted in a criminal
proceeding and have not been or become subject to a judgment, decree
or final order enjoining future violations of, or prohibiting or
mandating activities subject to, federal or state securities laws or
finding any violation with respect to such laws. Each individual is a
United States citizen.
Item 3. Source and Amount of Funds or Other Consideration
On April 27, 1998, Chesapeake Gothic and certain affiliated entities
made a strategic investment in Gothic (the "Transaction") and in
connection therewith Chesapeake Gothic or certain affiliates acquired
Gothic's Series B Senior Preferred Stock (the "Preferred Stock"),
certain oil and gas interests, the right to participate in certain oil
and gas development activities of Gothic under that certain Sale and
Participation Agreement dated March 31, 1998 (the "Participation
Agreement"), and a warrant (the "Warrant") for 2,439,246 shares of
Common Stock at an exercise price of $.01 per share. The Preferred
Stock, together with any Preferred Stock received as in-kind dividends
on such Preferred Stock, is convertible into Common Stock at the option
of CELP on ninety (90) days prior written notice after April 30, 2000.
CELP'S right to convert the Preferred Stock is limited to the extent
the conversion would cause CELP to own or be deemed to own more than
19.9% of the outstanding Common Stock and is subject to Gothic's prior
right to redeem such Preferred Stock. The Preferred Stock is
convertible into shares of Common Stock equal to the liquidation
preference for the Preferred Stock divided by the greater of the fair
market value of the Common Stock or $2.04167. The consideration for the
Page 4 of 7 Pages
<PAGE> 5
CUSIP NO. 383482106
Transaction was provided by Chesapeake Energy and its affiliated
entities from working capital and the proceeds from one or more bond
financing transactions.
Subsequent to the Transaction, Chesapeake Gothic merged into
Chesapeake Mid-Continent with Chesapeake Mid-Continent as the
surviving entity. On August 18, 1999, Chesapeake Mid-Continent
exercised the Warrant on a net basis by surrendering 45,121 warrants
and receiving 2,394,125 shares of Common Stock, which represented
approximately 14.7% of the then outstanding Common Stock. Effective
December 31, 1999, Chesapeake Mid-Continent merged into CELP, with
CELP being the surviving entity and the continuing holder of the
Common Stock and the Preferred Stock.
Item 4. Purpose of Transaction
The Preferred Stock, the Warrant, the underlying Common Stock to be
acquired from the exercise of the Warrant or the conversion of the
Preferred Stock and the other interests described in Item 3 of this
Schedule 13D, were acquired in the Transaction as investments by CELP's
predecessors in interest. On September 13, 1999, Gothic announced that
Gothic was exploring alternatives to restructure Gothic's debt and
equity, which included the possible sale of assets, the issuance of new
debt or the issuance of new equity securities. In connection with a
potential restructure of its balance sheet proposed by Gothic, on
February 28, 2000, CELP and Gothic entered into an agreement (the "OP
Agreement") pursuant to which CELP agreed to grant to Gothic an option
(the "Option") to redeem the Preferred Stock and Common Stock held by
CELP in exchange for the assignment to CELP of certain undeveloped
leasehold interests covered by the Participation Agreement. The grant
of the Option under the terms of the OP Agreement and the subsequent
exercise of the Option are subject to a number of conditions. The
conditions were satisfied under the OP Agreement and the Option was
granted by CELP to Gothic on April 4, 2000, effective March 27, 2000.
As part of the consideration to be received by CELP for the grant of
the Option under the OP Agreement: (a) the Participation Agreement was
extended for three years to April 30, 2006; (b) CELP was granted a
right of first refusal on property dispositions by Gothic or it
affiliates; (c) COI was permitted to become operator of 28 wells
operated by Gothic; and (d) Chesapeake Energy was granted the first
right to drill, complete and operate oil and gas wells located in
certain areas covered by the Participation Agreement.
Subject to the terms of the Transaction, the OP Agreement, the Option
and any related agreements, CELP may in the future: (i) purchase
additional shares of Common Stock, debt securities or other equity
securities of Gothic, (ii) sell all or part of the Common Stock or the
Preferred Stock; (iii) communicate with management of Gothic regarding
Gothic's business plans and the evaluation of Gothic's strategic
alternatives as indicated above; or (iv) enter into additional
transactions in connection with Gothic or Gothic's assets. CELP has
the right to appoint one director to Gothic's board of directors, but
to date has declined to exercise that right. Except as set forth
above, CELP has no present plans or intentions relating to the
transactions described in subparagraphs (a) through (j) of Item 4 of
Schedule 13D.
Page 5 of 7 Pages
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CUSIP NO. 383482106
Item 5. Interest in Securities of the Issuer.
(a) CELP owns 2,394,125 shares of Common Stock resulting from the
exercise of the Warrant and 61,007 shares of Preferred Stock
convertible into 29,881,162 shares of Common Stock after 90 days
written notice delivered subsequent to April 30, 2000. Based on the
18,685,765 shares of Common Stock reflected as issued and outstanding
in Gothic's Form 10K filed on March 30, 2000, the 2,394,125 shares of
Common Stock held by CELP represents 12.81% of the outstanding Common
Stock. If the Preferred Stock could be converted on the date of this
Schedule 13D, the Common Stock held by CELP immediately after the
conversion would represent 64.46% of the outstanding Common Stock after
giving effect to the issuance of the Common Stock as a result of the
conversion of the Preferred Stock. However, CELP can only convert
shares of the Preferred Stock that would cause CELP or its affiliates
to own no more than 19.9% of the outstanding Common Stock of Gothic.
(b) CELP has the sole power to vote or dispose of the shares of Common
Stock currently owned by CELP and acquired from the exercise of the
Warrant. CELP has the sole power to dispose of the Preferred Stock,
but will not have the right to vote or dispose of the Common Stock to
be received from the conversion of the Preferred Stock until such
Preferred Stock is converted.
(c) CELP has the right to receive dividends which have accrued on the
Preferred Stock, which dividends can be paid by Gothic on an in-kind
basis. In addition to the foregoing, CELP and Gothic entered into the
OP Agreement on February 27, 2000, and consummated the OP Agreement by
issuing the Option on April 4, 2000, effective March 28, 2000.
(d) Inapplicable.
(e) Inapplicable.
Item 6. Contracts, Agreements, Underwritings or Relationships With Respect to
Securities of the Issuer.
The Preferred Stock can be converted to Common Stock within 90 days
after receipt by Gothic of written notice of exercise delivered by
CELP after April 30, 2000. The holders of at least 50% of Common Stock
underlying the Warrant, the Preferred Stock and related shares
described in the Registration Rights Agreement can request the
registration of such Common Stock under the Securities Act at any time
after September 30, 1998. In addition, as part of the Transaction
CELP's predecessors and Gothic entered into a standstill agreement
that prohibited certain actions by CELP and its affiliates prior to
March 31, 2000, including prohibitions against acquiring additional
securities of Gothic or taking actions to change or influence the
control of Gothic. Gothic and CELP entered into the OP Agreement and
may enter into the Option. The remaining agreements entered into as
part of or subsequent to the Transaction were entered into and
performed in the ordinary course of the oil and gas exploration and
development business.
Page 6 of 7 Pages
<PAGE> 7
CUSIP NO. 383482106
Item 7. Materials to be filed as Exhibits.
1. The Warrant dated April 27, 1998, to purchase Common Stock of Gothic
issued to Chesapeake Gothic was attached as Exhibit 99.1 to the
Schedule 13D dated September 15, 1999, filed by Chesapeake
Mid-Continent.
2. The Option Purchase Agreement dated February 28, 2000, between Gothic
Energy Corporation, an Oklahoma corporation, Gothic Production Company,
an Oklahoma corporation, and Chesapeake Exploration Limited
Partnership, an Oklahoma limited partnership, successor in interest by
merger to Chesapeake Gothic Corp., is attached hereto as Exhibit
"99.2."
3. The Option dated March 27, 2000, between Gothic Energy Corporation, an
Oklahoma corporation, Gothic Production Company, an Oklahoma
corporation, and Chesapeake Exploration Limited Partnership, an
Oklahoma limited partnership, successor in interest by merger to
Chesapeake Gothic Corp., is attached hereto as Exhibit "99.3."
SIGNATURE
After reasonable inquiry and to the best of my knowledge and belief, I certify
that the information set forth in this statement is true, complete and correct.
DATED: April 6, 2000
Chesapeake Exploration Limited Partnership, an
Oklahoma limited partnership
By Chesapeake Operating, Inc., an Oklahoma
corporation, as general partner
By /s/Aubrey K. McClendon
------------------------------------
Aubrey K. McClendon
Chief Executive Officer
Page 7 of 7 Pages
<PAGE> 8
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C>
99.2 OPTION PURCHASE AGREEMENT
99.3 OPTION AGREEMENT
</TABLE>
<PAGE> 1
OPTION PURCHASE AGREEMENT
THIS AGREEMENT is made this 28th day of February, 2000,
between GOTHIC ENERGY CORPORATION, an Oklahoma corporation ("GEC"), GOTHIC
PRODUCTION COMPANY, an Oklahoma corporation ("GPC" and, jointly and severally
with GEC, the "Buyer"), and CHESAPEAKE EXPLORATION LIMITED PARTNERSHIP, an
Oklahoma limited partnership, successor in interest by merger to Chesapeake
Gothic Corp. (the "Seller").
R E C I T A L S :
WHEREAS, the Seller owns (a) 61,007.474 shares of GEC's
Senior Redeemable Preferred Stock, Series B, $0.05 par value per share, (b) the
right to receive accrued and unpaid dividends on such Preferred Stock payable
in kind, and (c) 2,394,125 shares of GEC's Common Stock, $0.01 par value per
share (collectively, the "GEC Securities");
WHEREAS, the Seller and one or more of the wholly owned
subsidiaries of Chesapeake Energy Corporation (collectively, the "CEC
Parties"), and the Buyer and the Buyer's affiliated entities (collectively, the
"Gothic Parties") are parties to that certain Sale and Participation Agreement
dated as of March 31, 1998, as amended (the "Participation Agreement") pursuant
to which: (a) the Seller acquired an undivided fifty percent (50%) interest in
certain oil, gas and related assets from the Gothic Parties, (b) the CEC
Parties and the Gothic Parties provided for the maintenance, joint development
and operation of the Existing Acreage, the Related Interests and the
Acquisition Acreage (as those terms are defined in the Participation
Agreement), and (c) an area of mutual interest was created among the CEC
Parties and the Gothic Parties covering lands located in the States of
Arkansas, Kansas, New Mexico (excluding the Pecos Slope Acreage), Oklahoma and
Texas;
WHEREAS, the Buyer desires to purchase an option to
acquire all of the Seller's GEC Securities (the "Option") pursuant to the
Option Agreement in the form at Schedule "A" attached as a part hereof (the
"Option Agreement") which the Seller is willing to sell to the Buyer in
exchange for certain modifications to the Participation Agreement and the
performance of certain other agreements and documents set forth herein, all
subject to the terms and conditions set forth in this Agreement;
WHEREAS, one or more of the Discount Noteholders (as
hereinafter defined) have made the execution and delivery of this Agreement and
the Option a condition precedent to the Discount Noteholders entering into
agreements to convert the debt held by such parties to equity of the Buyer.
NOW, THEREFORE, in consideration of the mutual covenants
herein contained and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties agree as follows:
Exhibit "99.2"
Page 1 of 9 Pages
<PAGE> 2
2. Purchase and Sale. Subject to the terms and conditions set forth in
this Agreement, the Seller hereby agrees to sell the Option and the Buyer
hereby agrees to purchase the Option and perform the Purchase Consideration.
3. Purchase Consideration. Upon satisfaction or waiver of the conditions
precedent set forth in paragraph 3 hereof in accordance with the terms thereof,
and in consideration for the sale of the Option to the Buyer and as a condition
precedent to the effectiveness of such grant, the Buyer will cause the Gothic
Parties to take the following actions (the"Purchase Consideration") on the
Closing Date (as hereinafter defined):
3.1 Operations. The Gothic Parties will take all actions
necessary to turn over to the CEC Parties operations on: (a)
the wells identified at Schedule "2.1" attached as a part
hereof; and (b) all wells which have been or are currently
being developed under the Participation Agreement and all
other wells now or hereafter proposed which are located in:
(i) Meade and Clark Counties, Kansas, and (ii) Texas, Beaver,
Harper, Ellis, Woods, Woodward, Dewey, Major, Blaine
(Township 19N only), Custer, Grady, Pittsburg, Haskell,
Latimer (except for Sections 19-36 of Township 3N Range 20E)
and LeFlore Counties, Oklahoma, by permanently resigning as
operator and waiving any rights under the Participation
Agreement to become operator of such wells in the future. On
the Closing Date the Gothic Parties will execute and deliver
resignation of operator letters in form and substance
satisfactory to the Seller and will vote all of the Gothic
Parties' interests in such properties for the Chesapeake
Parties as successor operator (the "Operator Documents").
3.2 Extensions and Right of First Refusal. The Gothic Parties take
all actions necessary to: (a) extend the term of the
reassignment obligation under paragraph 1.3 of the
Participation Agreement until April 30, 2006; (b) extend the
Termination Date (as defined in paragraph 14 of the
Participation Agreement) until April 30, 2006, for the portion
of the Participation Area included in the States of Arkansas,
Kansas and Oklahoma and the portion of the State of Texas
located north of latitude 34(degrees)N; (c) amend the default
and remedies provisions under paragraph 13 of the
Participation Agreement; and (d) grant the CEC Parties
preferential purchase and related rights with respect to sales
of assets covered by the Participation Agreement. In order to
evidence such extension, the parties will execute and deliver
the Amendment Documents (as defined below) simultaneously with
the execution of this Agreement.
4. Conditions Precedent to Option Grant. Unless waived in writing by the
Buyer and the Seller, the sale of the Option pursuant to this Agreement is
subject to the satisfaction of all of the following conditions precedent on or
before March 14, 2000 (the "Condition Satisfaction Period"), unless extended in
writing by the Seller:
4.1 Authorization. The terms of this Agreement and the Option
will have been duly authorized by the respective Boards of
Directors of the Buyer and the Seller.
Exhibit "99.2"
Page 2 of 9 Pages
<PAGE> 3
4.2 Consents. The Buyer and the Seller will have received
required written consents to the terms and conditions of this
Agreement from the holders of the Buyer's 14 1/8% Senior
Secured Discount Notes (the "Discount Noteholders"), Bank
One, Texas, N.A., and any other necessary parties.
4.3 No Actions. No actions will have been taken or threatened to
prevent any party from entering into of this Agreement,
performing this Agreement or seeking other relief as a result
of this Agreement.
4.4 Discount Noteholders. The Discount Noteholders and the Gothic
Parties will have executed and delivered the instruments
necessary to evidence the agreement of the Discount
Noteholders to convert all of the notes held by the Discount
Noteholders into equity of the Buyer.
4.5 Additional Documents. The Gothic Parties and the CEC Parties
will have each executed and delivered to the other parties
such additional documents and instruments as might be
reasonably requested by the Buyer or the Seller to consummate
this Agreement.
4.6 JIB Payments. The Gothic Parties and the CEC Parties will
have each paid current all joint interest billings owing to
the parties as required by the Joint Operating Agreements
attached to the Participation Agreement.
5. Closing. Unless extended in writing by the Seller, the transactions
contemplated by this Agreement will be consummated on the date (the "Closing
Date") which is two (2) business days after the date all of the conditions
under paragraph 3 of this Agreement have been satisfied in full or waived in
writing by the Buyer and the Seller.
5.1 Seller's Deliveries. Subject to the terms and conditions of
this Agreement and the performance of the Buyer's obligations
under paragraph 4.2 of this Agreement, on the Closing Date
the Seller will deliver or cause to be delivered to the Buyer
the following items (all documents will be duly executed and
acknowledged where required):
5.1.1 Option. The Option and the Amendment Documents (as
hereinafter defined);
5.1.2 Evidence of Authority. Such resolutions,
certificates of good standing, incumbency
certificates and other evidence of authority with
respect to the Seller as might be reasonably
requested by the Buyer;
5.1.3 Additional Documents. Such additional documents as
might be reasonably requested by Gothic to
consummate this Agreement.
Exhibit "99.2"
Page 3 of 9 Pages
<PAGE> 4
5.2 Buyer's Deliveries. On the Closing Date, the Buyer will
deliver or cause to be delivered to the Seller the following
items (all documents will be duly executed and acknowledged
where required):
5.2.1 Purchase Consideration. The Gothic Parties will have
each executed and delivered to the Seller the Second
Amendment to Participation Agreement in the form of
Schedule "4.2.1" attached hereto as a part hereof
and the other documents contemplated thereby (the
"Amendment Documents"), the Operator Documents and
any other documents required to evidence the
Purchase Consideration;
5.2.2 Evidence of Authority. Such corporate resolutions,
certificates of good standing, incumbency
certificates and other evidence of authority with
respect to each of the Gothic Parties as might be
reasonably requested by the Seller;
5.2.3 Additional Documents. Such additional documents as
might be reasonably requested by the Seller to
consummate this Agreement.
6. Seller Representations and Warranties. The Seller hereby represents
and warrants to the Buyer that:
5.1 Title. The Seller has good and valid title to the GEC
Securities, free and clear of all liens, claims and
encumbrances.
5.2 Authority and Reliance. The Seller has taken all necessary
action to authorize the execution, delivery and performance
of this Agreement, the Amendment Documents, the Operator
Documents and the Option Agreement and has adequate power,
authority and legal right to enter into, execute, deliver and
perform this Agreement and to issue the Option as
contemplated hereby.
5.3 Consents. No consent, approval, license, qualification or
formal exemption from, nor any filing, declaration or
registration with, any court, governmental agency or
regulatory authority or any securities exchange is required
in connection with the execution, delivery or performance by
the Seller of this Agreement.
5.4 Litigation. There is no action, suit, investigation or
proceeding, governmental or otherwise, pending or, to the
best knowledge of the Seller, threatened to which any of the
CEC Parties is or would be a party which seeks to restrain,
enjoin, prevent the consummation of or otherwise challenge
this Agreement or the Seller's granting of the Option or
questions the legality or validity of any such transactions
or seeks to recover damages or obtain other relief in
connection with any such transactions.
Exhibit "99.2"
Page 4 of 9 Pages
<PAGE> 5
7. Buyer Representations and Warranties. The Buyer hereby represents and
warrants to the Seller that:
7.1 Authority and Reliance. The Buyer has taken all necessary
action to authorize the execution, delivery and performance
of this Agreement, the Amendment Documents, the Operator
Documents and the Option Agreement and has all requisite
corporate power, authority and legal right to enter into,
execute, deliver and perform this Agreement, the Amendment
Documents, the Operator Documents and the Option Agreement.
The Buyer further represents and warrants that, in purchasing
the Option, the Buyer has relied upon independent
investigations made by the Buyer or the Buyer's
representatives, that the Buyer has had sufficient
opportunities to make inquiries of the Seller and that the
Buyer and such representatives have been given the
opportunity to examine all documents concerning the terms and
conditions of the Option. The Buyer represents and warrants
that the Buyer is experienced in the oil and gas business,
has knowledge and experience in business and financial
matters and is competent to evaluate the value of the Option
and the benefits and risks relating to the purchase of the
Option and the Buyer has determined that the consideration
being given by the Buyer is the fair value equivalent of the
consideration being received by the Buyer for the granting of
the Option.
7.2 Consents. The Buyer has obtained and provided to the Seller
all consents, approvals or waivers necessary or appropriate
for the Buyer to enter into this Agreement and to consummate
the transactions contemplated hereby. No other authorization,
consent, approval, license, qualification or formal exemption
from, nor any filing, declaration or registration with, any
court, governmental agency or regulatory authority or any
securities exchange is required in connection with the
execution, delivery or performance by the Gothic Parties of
this Agreement.
7.3 Litigation. There is no action, suit, investigation or
proceeding, governmental or otherwise, pending or, to the
best knowledge of the Buyer, threatened to which any of the
Gothic Parties is or would be a party which seeks to
restrain, enjoin, prevent the consummation of or otherwise
challenge this Agreement or the Buyer's purchase of the
Option or questions the legality or validity of any such
transactions or seeks to recover damages or obtain other
relief in connection with any such transactions.
8. Default; Failure of Conditions. In the event either party fails to
perform such party's obligations hereunder (except as excused by another
party's default) (the "Defaulting Party") such failure will constitute an event
of default under this Agreement and the other party (the "Other Party") will
have the right to exercise any and all remedies available at law or in equity
unless such default is waived by the Other Party or cured by the Defaulting
Party within five (5) business days after receipt of notice of such default.
The remedies provided by this Agreement are cumulative and will not exclude any
other remedy to which the Other Party might be entitled under this Agreement or
applicable law. In the event the Other Party elects to selectively and
successfully enforce the
Exhibit "99.2"
Page 5 of 9 Pages
<PAGE> 6
Other Party's rights under this Agreement, such action will not be deemed a
waiver or discharge of any other remedy. During the pendency of any default or
disputes, this Agreement will be deemed to be in full force. Notwithstanding
anything herein to the contrary, on the occurrence of a default or other breach
of this Agreement by the Buyer, the Seller may terminate the Option and the
Option Agreement in the sole and absolute discretion of the Seller.
9. Standstill. Each of the parties irrevocably agree that the
negotiation, preparation, execution and delivery of this Agreement and any
preliminary discussions with any person regarding this Agreement, the Option or
any similar transaction will not and did not violate any standstill,
nonsolicitation or similar agreement including, without implied limitation,
paragraph 5.4 of the Securities Purchase Agreement among the Buyer, Chesapeake
Acquisition Corporation and Chesapeake Gothic Corp. dated March 31, 1998 (the
"Securities Purchase Agreement"), and relating to the purchase of the GEC
Securities by affiliates of the Seller. The Buyer hereby releases, acquits and
forever discharges the CEC Parties and the CEC Parties' directors, officers,
shareholders, partners, members, employees, agents, attorneys, parent
corporations, subsidiary corporations, affiliates and such parties' respective
successors and assigns from any and all claims, whether asserted or assertable,
known or unknown, and all actions, debts, suits, causes of action, both at law
and in equity, demands, defenses, offsets, liabilities, losses, obligations or
damages directly or indirectly related to any violation or alleged violation of
the Securities Purchase Agreement arising out of any action, inaction, contact,
discussions or matter prior to the date of this Agreement including, without
implied limitation, any violation or alleged violation of any standstill or
confidentiality agreement set forth in the Securities Purchase Agreement or
otherwise.
10. Deferral of Operations Turnovers. Notwithstanding anything to the
contrary in this Agreement or in the Participation Agreement, during the
Condition Satisfaction Period, the Seller will not be required to turnover
operations on any wells located in the areas described in paragraph 2.1 of this
Agreement including, without limitation, the Della 1-9 well.
11. Miscellaneous. It is further agreed as follows:
11.1 Time. Time is of the essence of this Agreement.
11.2 Notices. Any notice, demand or communication required or
permitted to be given by any provision of this Agreement will
be in writing and will be deemed to have been given and
received when delivered personally or by telefacsimile to the
party designated to receive such notice, or on the date
following the day sent by overnight courier, or on the third
(3rd) business day after the same is sent by certified mail,
postage and charges prepaid, directed to the following
addresses or to such other or additional addresses as any
party might designate by written notice to the other parties:
Exhibit "99.2"
Page 6 of 9 Pages
<PAGE> 7
To the Buyer: Gothic Energy Corporation
6120 South Yale Avenue, Suite 1200
Tulsa, Oklahoma 74136
Attn: Michael K. Paulk
Telephone (918) 749-5666
Fax No. (918) 749-5882
With a copy to: Pray, Walker, Jackman, Williamson & Marlar
900 OneOk Plaza
100 West 5th Street
Tulsa, Oklahoma 74103-4218
Attn: Ira L. Edwards, Jr.
Telephone (918) 581-5500
Fax No. (918) 581-5599
To the Seller: Chesapeake Energy Corporation
6100 North Western Avenue
Oklahoma City, Oklahoma 73118
Attn: Aubrey K. McClendon
Telephone (405) 879-9226
Fax No. (405) 848-8588
With a copy to: Self, Giddens & Lees, Inc.
2725 Oklahoma Tower
210 Park Avenue
Oklahoma City, Oklahoma 73102
Attn: Ray Lees
Telephone (405) 232-3001
Fax: (405) 232-5553
11.3 Press Release. Except to the extent required by applicable
disclosure requirements, all press releases relating to this
Agreement and the transactions contemplated by this Agreement
will be approved by the Buyer and the Seller prior to
dissemination.
11.4 Choice of Law. This Agreement will be interpreted, construed
and enforced in accordance with the laws of the State of
Oklahoma and will be deemed for such purposes to have been
made, executed and performed in Oklahoma County, Oklahoma.
All claims, disputes and other matters in question arising
out of or relating to this Agreement will be decided by
proceedings instituted and litigated in the District Court of
Oklahoma County, Oklahoma, or the United States District
Court for the Western District of Oklahoma.
Exhibit "99.2"
Page 7 of 9 Pages
<PAGE> 8
11.5 Headings. The paragraph headings contained in this Agreement
are for reference purposes only and are not intended to
affect in any way the meaning or interpretation of this
Agreement.
11.6 No Oral Agreements. There are no unwritten oral agreements,
understandings, warranties or representations with respect to
the subject matter of this Agreement.
11.7 Assignment. It is agreed that neither party may assign such
party's rights nor delegate such party's duties under this
Agreement without the express written consent of the other
party to this Agreement.
11.8 Amendment. Neither this Agreement, nor any of the provisions
hereof can be changed, waived, discharged or terminated,
except by an instrument in writing signed by the party
against whom enforcement of the change, waiver, discharge or
termination is sought.
11.9 Severability. If any clause or provision of this Agreement is
illegal, invalid or unenforceable under any present or future
law, the remainder of this Agreement will not be affected
thereby. It is the intention of the parties that if any such
provision is held to be illegal, invalid or unenforceable,
there will be added in lieu thereof a provision as similar in
terms to such provisions as is possible to cause such
provision to be legal, valid and enforceable.
11.10 Attorney Fees. If any party institutes an action or
proceeding against any other party relating to the provisions
of this Agreement, the party to such action or proceeding
which does not prevail will reimburse the prevailing party
therein for the reasonable expenses of attorneys' fees and
disbursements incurred by the prevailing party.
11.11 Waiver. Waiver of performance of any obligation or term
contained in this Agreement by any party, or waiver by one
party of the other's default hereunder must be in writing and
will not operate as a waiver of performance of any other
obligation or term of this Agreement or constitute a future
waiver of the same obligation or a waiver of any future
default.
IN WITNESS WHEREOF, the Seller and the Buyer have executed
this Agreement as of the date first above written.
GOTHIC ENERGY CORPORATION, an Oklahoma corporation
By /s/ Michael K. Paulk
-----------------------------------------------
Michael K. Paulk, President
Exhibit "99.2"
Page 8 of 9 Pages
<PAGE> 9
GOTHIC PRODUCTION COMPANY, an Oklahoma corporation
By /s/ Michael K. Paulk
------------------------------------------
Michael K. Paulk, President
(jointly and severally referred to herein as
the "Buyer")
CHESAPEAKE EXPLORATION LIMITED PARTNERSHIP,
an Oklahoma limited partnership
By: Chesapeake Operating, Inc.,
General Partner
By /s/ Aubrey K. McClendon
----------------------------------
Aubrey K. McClendon,
Chief Executive Officer
(the "Seller")
Exhibit "99.2"
Page 9 of 9 Pages
<PAGE> 1
OPTION AGREEMENT
THIS AGREEMENT is made this 27th day of March, 2000,
between GOTHIC ENERGY CORPORATION, an Oklahoma corporation ("GEC"), GOTHIC
PRODUCTION COMPANY, an Oklahoma corporation ("GPC"and, jointly and severally
with GEC, "Gothic"), and CHESAPEAKE EXPLORATION LIMITED PARTNERSHIP, an
Oklahoma limited partnership, successor in interest by merger to Chesapeake
Gothic Corp. ("Chesapeake").
R E C I T A L S :
WHEREAS, Chesapeake owns (a) 61,007.474 shares of GEC's
Senior Redeemable Preferred Stock, Series B, $0.05 par value per share, (b) the
right to receive accrued and unpaid dividends on such Preferred Stock payable
in kind, and (c) 2,394,125 shares of GEC's Common Stock, $0.01 par value per
share (collectively, the "GEC Securities");
WHEREAS, Chesapeake or one or more of the wholly owned
subsidiaries of Chesapeake Energy Corporation (collectively, the "CEC
Parties"), and Gothic and its affiliated entities (collectively, the "Gothic
Parties") are parties to that certain Sale and Participation Agreement dated as
of March 31, 1998, as amended (the "Participation Agreement") pursuant to
which: (a) Chesapeake acquired an undivided fifty percent (50%) interest in
certain oil, gas and related assets from the Gothic Parties, (b) the CEC
Parties and the Gothic Parties provided for the maintenance, joint development
and operation of the Existing Acreage, the Related Interests and the
Acquisition Acreage (as those terms are defined in the Participation
Agreement), and (c) an area of mutual interest was created among the CEC
Parties and the Gothic Parties covering lands located in whole or in part in
the States of Arkansas, Kansas, New Mexico (excluding the Pecos Slope Acreage),
Oklahoma and Texas; and
WHEREAS, Gothic has purchased an option to acquire all of
Chesapeake's GEC Securities which Chesapeake has granted, such option to be
evidenced by and subject to the terms and conditions set forth in this
Agreement.
NOW, THEREFORE, in consideration of receipt of the
consideration set forth in that certain Option Purchase Agreement of even date
herewith, the mutual covenants herein contained and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
the parties agree as follows:
1. Option Agreement. Chesapeake hereby grants to Gothic the right and
option to purchase all of the GEC Securities owned by Chesapeake (the "Option")
in strict accordance with the terms and conditions of this Agreement.
2. Term. Unless Fully Exercised in strict accordance with all of the
terms and conditions set forth in this Agreement, unless extended in writing by
Chesapeake, the Option will expire on the earlier of: (i) January 31, 2001, at
5:00 p.m. Oklahoma City, Oklahoma time; or (ii) thirty (30) days after the
confirmation order of the plan of bankruptcy for Gothic (the "Option Period"),
and all rights and obligations of Chesapeake and the Gothic Parties under this
Agreement will expire and terminate
Exhibit "99.3"
Page 1 of 17 Pages
<PAGE> 2
without any further notice or action. The Option will be deemed "Fully
Exercised" if, and only if, each of the following actions is completed before
the expiration of the Option Period: (a) receipt by Chesapeake of the exercise
notice under paragraph of this Agreement; (b) satisfaction in full by the
Gothic Parties of all conditions precedent set forth in this Agreement; and (c)
full and complete performance by the Gothic Parties of the Exercise
Consideration (as defined below) including, without implied limitation, the
execution, delivery and recordation (where appropriate) of the Conveyance
Documents and the Restated Participation Agreement (as those terms are defined
below).
3. Exercise. Gothic may exercise the Option at any time prior to the
expiration of the Option Period by delivery to Chesapeake of a written notice
advising Chesapeake of Gothic's intent to exercise the Option. On receipt of
such notice of intent to exercise: (a) this Agreement will be deemed a legally
binding agreement by Gothic to purchase the GEC Securities from Chesapeake
prior to the expiration of the Option Period on the terms and conditions stated
in this Agreement; and (b) this Agreement will be deemed to be a legally
binding agreement by Chesapeake to sell the GEC Securities to Gothic prior to
the expiration of the Option Period under the terms and conditions stated in
this Agreement. Notwithstanding the foregoing, Chesapeake will have no
obligation to assign or deliver any interest in the GEC Securities to Gothic
until the Option is Fully Exercised.
4. Exercise Consideration. The payment of the "Exercise Consideration"
means the performance by Gothic of all of the following agreements in
accordance herewith:
4.1 Sale and Conveyance. As a portion of the Exercise
Consideration the Gothic Parties will convey and assign to
the CEC Parties all of the Gothic Parties' right, title and
interest in and to the Properties (as defined below) free and
clear of any and all liens, claims and encumbrances. The
Properties assigned to the CEC Parties will be assigned
pursuant to the form of assignment at Schedule "(a)" attached
as a part hereof with appropriate schedules attached to
describe the Properties as set forth in Schedule "4.1(b)"
attached hereto as a part hereof (the "Property Schedules")
and the Properties located within the CHK Area (as
hereinafter defined) will be released from the terms of the
Participation Agreement in all respects.
4.2 Participation Agreement. The Gothic Parties and the CEC
Parties will enter into the Amended and Restated
Participation Agreement in the form of Schedule "4.2" attached
as a part hereof (the "Restated Participation Agreement")
which will amend and replace the Participation Agreement to
the extent set forth in the Restated Participation Agreement.
4.3 Definitions. For purposes of this Agreement the term
"Properties" means the following: (a) any right to any
reconveyance in favor of the Gothic Parties under paragraph
1.3 of the Participation Agreement, any reversion or any
other interest owned by the Gothic Parties under the
Participation Agreement in the fifty percent (50%) interest
in the Existing Acreage, the Related Interests and the
Acquisition Acreage (as those terms are defined in the
Participation Agreement) previously
Exhibit "99.3"
Page 2 of 17 Pages
<PAGE> 3
conveyed to the CEC Parties together with any related
interests or property rights acquired by the CEC Parties so
that the CEC Parties own such interest in any and all
acreage, interests and property rights acquired in connection
with the Participation Agreement free and clear of all
re-assignment obligations, reversionary interests or any
other terms or obligations under the Participation Agreement;
(b) except for the Gothic Wellbore Interests (as defined
below) but specifically including any other wells
participated in by the Gothic Parties pursuant to paragraph
5.8 of this Agreement, all of the Gothic Parties' right,
title and interest in all oil, gas and mineral interests of
every kind and character within the CHK Area (as defined
below) together with any related interests and property
rights including, without limitation, any interest in farmout
agreements, contribution agreements, exploration agreements,
access agreements, the Existing Acreage, the Related
Interests, the Acquisition Acreage and other agreements to
acquire such interests which are owned by the Gothic Parties
in the CHK Area; and (c) the right to operations of all wells
in the CHK Area including, without limitation, any well
containing the Gothic Wellbore Interests. For purposes of
this Agreement: (y) the term "CHK Area" means: (i) Meade and
Clark Counties, Kansas, and (ii) Texas, Beaver, Harper,
Ellis, Woods, Woodward, Dewey, Major, Blaine (Townships in
19N only), Custer, Grady (Townships in 7N, 8N and 9N only),
Pittsburg, Haskell, Latimer (excluding Sections 25, 34, 35
and 36 in Township 3 North, Range 19 East, Sections 19, 22,
23, 24, 26, 27, 28, 29, 30, 31, 32, 33, 34, 35 and 36 in
Township 3 North, Range 20 East and Sections 19, 20, 27, 28,
31, 32, 33, and 34 in Township 3 North, Range 21 East) and
LeFlore Counties, Oklahoma; and (z) the term "Gothic Wellbore
Interests" means the Gothic Parties' interests in the
following wellbores (but excluding any interest in any
acreage within the applicable governmental production unit):
(i) any wellbores in the CHK Area which were producing in
paying quantities as of February 1, 2000, and (ii) the next
wellbores to be drilled in the designated quarter section of
the governmental spacing units as described in Schedule "4.3"
attached hereto as a part hereof which includes four (4)
locations in Custer County, Oklahoma, six (6) locations in
Pittsburg County, Oklahoma, four (4) locations in Latimer
County, Oklahoma and one (1) location in Major County,
Oklahoma.
5. Conditions Precedent to Exercise. Unless waived in writing by
Chesapeake in Chesapeake's sole discretion, the right of Gothic to exercise the
Option is subject to the satisfaction of all of the following conditions
precedent:
5.1 Plan of Reorganization. A plan of reorganization for Gothic
will have been confirmed under the United States Bankruptcy
Code, as amended, on terms and conditions which approve,
without modification, this Agreement, the Restated
Participation Agreement and all of the other instruments,
agreements, conveyances, certificates, memoranda and other
documents to be entered into upon the exercise of the Option
and the consummation of the provisions of this Agreement (the
"Conveyance Documents").
Exhibit "99.3"
Page 3 of 17 Pages
<PAGE> 4
5.2 Approvals. Chesapeake and Gothic will have received written
consents and approvals to the terms and conditions of this
Agreement and the Conveyance Documents in form and substance
satisfactory to Chesapeake from the holders of the Gothic's
14 1/8% Senior Secured Discount Notes, the holders of the
Gothic's Senior Notes, Bank One, Texas, N.A., and any other
necessary parties deemed necessary or prudent by Chesapeake.
5.3 Lien Releases. Chesapeake will have received lien releases
and other documents required to assure Chesapeake that the
Properties and the other interests to be acquired by the CEC
Parties under the Conveyance Documents will be free and clear
of all liens, claims and encumbrances.
5.4 Conveyance Documents. The Conveyance Documents will have been
duly executed, acknowledged (where appropriate) and delivered
by the Gothic Parties and the CEC Parties, the Conveyance
Documents will include a certificate making and reaffirming
each of the representations, warranties, covenants and
agreements set forth in this Agreement, and the covenants and
conditions precedent set forth therein will have been
satisfied.
5.5 Litigation. No actions, suits or litigation will have been
threatened or filed seeking to prevent the consummation of
the transactions contemplated by the Conveyance Documents or
seeking damages or other relief as a result of the Conveyance
Documents or the consummation of the transactions
contemplated thereby and: (a) no preliminary or permanent
injunction or other order will have been issued by any court
of competent jurisdiction or any regulatory body preventing
consummation of the transactions contemplated by this
Agreement or the Conveyance Documents; (b) no action will
have been commenced or threatened against Chesapeake, Gothic
or any of their respective affiliates, associates, officers
or directors seeking damages arising from, to prevent or
challenge the transactions contemplated by this Agreement and
the Conveyance Documents; (c) all representations and
warranties of Gothic contained herein will be true and
correct in all material respects on and as of the date of the
exercise of the Option; and (d) the Gothic Parties will have
performed or satisfied on and as of the date of the exercise
of the Option, all obligations, covenants, agreements and
conditions contained in this Agreement and the Conveyance
Documents to be performed or complied with by the Gothic
Parties.
5.6 Lease Maintenance. The Gothic Parties will have maintained in
full force and effect all of the oil, gas and mineral leases,
farmout agreements, joint development agreements, joint
operating agreements and other oil and gas related interests
covered by the Participation Agreement in full force and
effect and will not have rejected or terminated any of such
interests or breached any of the terms or conditions
applicable thereto.
Exhibit "99.3"
Page 4 of 17 Pages
<PAGE> 5
5.7 No Default. The Gothic Parties will have not defaulted under
this Agreement, the Participation Agreement or the Option
Purchase Agreement, each of the Gothic Parties'
representations and warranties will be true and correct in
all material respects and there will not have occurred any
event that would constitute an event of default with the
passage of time.
5.8 Participation. The Gothic Parties will not have proposed any
wells to be drilled in or on any governmental production unit
(as defined in the Participation Agreement) containing any of
the Properties in the CHK Area as to which drilling
operations had not commenced prior to February 1, 2000 and,
with respect to any wells (other than the Gothic Wellbore
Interests) proposed by the Chesapeake Parties or third
parties spudded after February 1, 2000 ("Interim Wells"), in
the event the Gothic Parties elect to participate therein,
all of the interests of the Gothic Parties in such Interim
Wells and the governmental spacing units with respect thereto
will, at Chesapeake's election, be included in the Properties
to be conveyed to Chesapeake pursuant to paragraph 10.2.1 of
this Agreement. In the event the Gothic Parties elect not to
participate in any such Interim Wells, the Gothic Parties
will have farmed out, assigned or otherwise conveyed to the
Chesapeake Parties, the Gothic Parties' interests in any such
Interim Wells and the governmental spacing units pursuant to
the Participation Agreement.
5.9 JIB Payments. The Gothic Parties will have paid current all
joint interest billings owing to the CEC Parties as required
by the Joint Operating Agreements attached to the
Participation Agreement.
5.10 Motion to Affirm. Within forty-five (45) days after the
filing of the petition in bankruptcy for one or more of the
Gothic Parties, the Gothic Parties will have filed a motion
and will thereafter diligently pursue entry of an order in
such bankruptcy proceeding to irrevocably affirm this
Agreement, the Option, the Conveyance Documents, the
Participation Agreement and the Restated Participation
Agreement in all respects.
6. Chesapeake Representations and Warranties. Chesapeake hereby
represents and warrants to Gothic that as of the date of this Agreement and
until the Option is exercised in accordance with the terms and conditions of
this Agreement or the Option Period has expired without the Option being
exercised:
6.1 Ownership. Chesapeake has and will have good and valid title
to the GEC Securities, free and clear of all liens, claims
and encumbrances. No person or entity other than the CEC
Parties has or will have any interest in the GEC Securities
either of record or beneficially.
6.2 Authority. Chesapeake has taken all necessary action to
authorize the execution, delivery and performance of this
Agreement and has adequate corporate power,
Exhibit "99.3"
Page 5 of 17 Pages
<PAGE> 6
authority and legal right to enter into, execute, deliver and
perform this Agreement and to consummate the transactions
contemplated hereby.
6.3 Absence of Liabilities. Except as approved by Gothic in
writing prior to the Closing Date: (a) Chesapeake has no
debt, liability, obligation or commitment, absolute or
contingent, known or unknown, relating to or connected with
the GEC Securities; (b) the GEC Securities will not be
subject to or liable for any claim, debt, liability, lien,
encumbrance, obligation, guaranty or commitment of Chesapeake
on the Closing Date; and (c) any such claims, debts,
liabilities, obligations or commitments will be the sole
responsibility of Chesapeake and Chesapeake hereby agrees to
indemnify and hold harmless Gothic from all such matters.
6.4 Consents and Approvals. No notice to, filing with, or
authorization, consent or approval of any governmental
entity, person or other entity is necessary for the
consummation of the transactions contemplated by this
Agreement. The execution, delivery, performance and
consummation of this Agreement does not and will not: (a)
violate, conflict with or constitute a default or an event
that, with notice or lapse of time or both, would be a
default, breach or violation under any term or provision of
any instrument, agreement, contract, commitment, license,
promissory note, conditional sales contract, indenture,
mortgage, deed of trust, lease or other agreement, instrument
or arrangement to which Chesapeake is a party or by which
Chesapeake or, to the best of Chesapeake's knowledge, the GEC
Securities are bound; (b) violate, conflict or constitute a
breach of any statute, regulation or judicial or
administrative order, award, judgment or decree to which
Chesapeake is a party or to which Chesapeake or, to the best
of Chesapeake's knowledge the GEC Securities are bound; or
(c) result in the creation or imposition of any adverse claim
or interest, lien, encumbrance, charge, equity or restriction
of any nature whatever, upon or affecting Chesapeake, or to
the best of Chesapeake's knowledge, the GEC Securities or
Gothic.
7. Gothic Representations and Warranties. Gothic hereby represents and
warrants to Chesapeake that as of the date of this Agreement and as of the
Closing Date:
7.1 Authority and Reliance. Gothic has taken all necessary action
to authorize the execution, delivery and performance of this
Agreement and has all requisite corporate power, authority
and legal right to enter into, execute, deliver and perform
this Agreement and to consummate the transactions
contemplated hereby and to own, lease, and operate its
properties and to conduct its business as now being
conducted. Gothic represents and warrants that Gothic is
experienced in the oil and gas business and has knowledge and
experience in business and financial matters and, with
respect to investments generally and, in particular,
investments generally comparable to the Option and the GEC
Securities, Gothic is competent to evaluate the value of each
of the GEC Securities and the Exercise Price and the benefits
and risks relating to this Agreement and Gothic has
determined that the
Exhibit "99.3"
Page 6 of 17 Pages
<PAGE> 7
consideration being given by Gothic is the fair value
equivalent of the consideration being received by Gothic for
the purchase and exercise of the Option. If Gothic exercises
the Option, Gothic's representations and warranties hereunder
will extend fully to the exercise of the Option as if made on
the date the Option is exercised.
7.2 Consents. Gothic has obtained and provided to Chesapeake all
consents, approvals or waivers necessary or appropriate for
Gothic to enter into this Agreement and to consummate the
transactions contemplated hereby. No other authorization,
consent, approval, license, qualification or formal exemption
from, nor any filing, declaration or registration with, any
court, governmental agency or regulatory authority or any
securities exchange is required in connection with the
execution, delivery or performance by the Gothic Parties of
this Agreement.
7.3 Litigation. There is no action, suit, investigation or
proceeding, governmental or otherwise, pending or, to the
best of Gothic's knowledge, threatened to which any of the
Gothic Parties is or would be a party or of which the
Properties, the Properties or other assets of the Gothic
Parties is or would be subject.
7.4 Properties. All of the oil, gas and related interests of
every kind and character owned by the Gothic Parties or any
of the Gothic Parties' direct or indirect subsidiaries which
are located in the CHK Area are described in Schedule "7.4"
attached as a part hereof.
8. Covenants. Unless waived in writing, the parties agree to the
following during the Option Period:
8.1 Conduct of Businesses. Prior to the exercise of the Option or
expiration of the Option Period, the Gothic Parties will
operate in a businesslike manner in accordance with prior
practices and will maintain and preserve all of the assets
and businesses of the Gothic Parties including the
Properties.
8.2 Properties. The Gothic Parties have not and will not: (a)
transfer, sell, mortgage, pledge, encumber or dispose of any
assets covered by this Agreement or the Restated
Participation Agreement, except for the existing mortgages
which have been subordinated to the interests of Chesapeake
pursuant to the Participation Agreement; or (b) except in the
ordinary course of business consistent with past business
practices, make or permit any amendment or termination of any
material contract, agreement or commitment affecting the
assets covered by this Agreement or the Restated
Participation Agreement.
8.3 Consents. The parties will use their best efforts to obtain,
all licenses, permits, consents, approvals, authorizations,
qualifications and orders of governmental authorities and
parties to contracts with the Gothic Parties as are necessary
for the
Exhibit "99.3"
Page 7 of 17 Pages
<PAGE> 8
consummation of the transactions contemplated by this
Agreement or are reasonably requested by Chesapeake.
8.4 Litigation. Promptly on learning thereof, each party to this
Agreement will notify the other party of any litigation, suit
or administrative proceeding that could reasonably be
expected to have a material adverse affect on the ability of
the parties to consummate the transactions contemplated by
this Agreement or the Conveyance Documents, or otherwise
adversely affect any of the businesses, affairs, assets,
prospects, operations or conditions, financial or otherwise,
of the parties, whether or not the claim is considered to be
covered by insurance. Gothic and Chesapeake each agree to not
to agree to or join in the pursuit of any injunctive relief
prohibiting the transactions contemplated by this Agreement.
8.5 Plan of Reorganization. Gothic will not propose or consent to
any plan of reorganization which materially conflicts with
any of the terms and conditions of this Agreement, the
Conveyance Documents or the Restated Participation Agreement
and will not dispute or seek to modify or rescind this
Agreement in any bankruptcy proceeding or other action
affecting Gothic. The Gothic Parties will simultaneously
provide to Chesapeake copies of all notices, filings and
other documents relating to the Gothic Parties bankruptcy,
reorganization or any proposed plan of reorganization
including, without limitation, all communications to, from or
among any of the Gothic Parties, any formal or informal
committees of creditors or security holders or any creditors
of the Gothic Parties, whether before or after the filing of
bankruptcy.
8.6 GEC Securities. Chesapeake will not transfer, sell, pledge,
encumber or dispose of any of the GEC Securities.
9. Representations and Warranties for the Properties. As an inducement to
Chesapeake to enter into this Agreement and accept the assignment of the
interests in the Properties, Gothic represents and warrants to Chesapeake that
as of the date of this Agreement and the Closing Date:
9.1 No Assumption of Obligations. Except as approved by
Chesapeake in writing prior to the Closing Date, the
execution and consummation of this Agreement will not
obligate Chesapeake with respect to (or result in the
assumption by Chesapeake of) any obligation of Gothic arising
prior to the Closing Date under or with respect to, any
liability, agreement or commitment relating to the Properties
including, without implied limitation, to pay to or share
with any third party any portion of the Hydrocarbons
attributable to the Properties. The term "Hydrocarbons" means
and includes oil, gas, casinghead gas, condensate, natural
gas liquids and all components of the foregoing.
9.2 Absence of Liabilities. Except as approved by Chesapeake in
writing prior to the Closing Date: (a) Gothic has no debt,
liability, obligation or commitment, absolute or contingent,
known or unknown, relating to or connected with the
Properties;
Exhibit "99.3"
Page 8 of 17 Pages
<PAGE> 9
(b) neither Chesapeake nor the Properties will be subject to
or liable for any claim, debt, liability, lien, encumbrance,
obligation, guaranty or commitment on the Closing Date; and
(c) any such claims, debts, liabilities, obligations or
commitments will be the sole responsibility of Gothic and
Gothic hereby agrees to indemnify and hold harmless
Chesapeake from all such matters. Gothic has complied and
will continue to comply with all applicable federal, state or
local statutes, laws and regulations.
9.3 Contracts. Gothic has delivered to Chesapeake true copies (or
descriptions, in the case of oral agreements) of all of the
contracts and agreements relating to the Properties
including, without limitation, all marketing and production
sales contracts. Except as approved by Chesapeake in writing
prior to the Closing Date, no such marketing or production
sales contracts will in any way prevent or hinder Chesapeake
in taking in kind Chesapeake's share of production from the
Properties. There are no other material contracts,
commitments or agreements in effect related to the Properties
that have not been disclosed to Chesapeake in writing. To the
best of Gothic's knowledge: (a) such contracts and agreements
are in full force and effect; (b) no event of default or
event which would become an event of default with the giving
of notice or passage of time has occurred; and (c) no
condition presently exists which would give any party to any
such contract the right to terminate such contract. There are
no other material contracts, commitments or agreements in
effect related to the Properties.
9.4 Consents and Approvals. No notice to, filing with, or
authorization, consent or approval of any governmental
entity, person or other entity is necessary for the
consummation of the transactions contemplated by this
Agreement. The execution, delivery, performance and
consummation of this Agreement does not and will not:
violate, conflict with or constitute a default or an event
that, with notice or lapse of time or both, would be a
default, breach or violation under any term or provision of
any instrument, agreement, contract, commitment, license,
promissory note, conditional sales contract, indenture,
mortgage, deed of trust, lease or other agreement, instrument
or arrangement to which Gothic is a party or by which Gothic
or, to the best of Gothic's knowledge, the Properties are
bound; violate, conflict or constitute a breach of any
statute, regulation or judicial or administrative order,
award, judgment or decree to which Gothic is a party or to
which Gothic or, to the best of Gothic's knowledge the
Properties are bound; or result in the creation or imposition
of any adverse claim or interest, lien, encumbrance, charge,
equity or restriction of any nature whatever, upon or
affecting Gothic, or to the best of Gothic's knowledge, the
Properties or Chesapeake.
9.5 Litigation. To the best of Gothic's knowledge there is: (a)
no action, suit or proceeding pending, threatened or
contemplated against Gothic or the Properties; and (b) no
proceeding, investigation, charge, audit or inquiry
threatened or pending before or by any federal, state,
municipal or other governmental court,
Exhibit "99.3"
Page 9 of 17 Pages
<PAGE> 10
department, commission, board, bureau, agency or
instrumentality which might result in an adverse effect on
Gothic or the Properties. Gothic hereby agrees to indemnify
and hold harmless Chesapeake with respect to any and all
litigation and proceedings.
9.6 Title. Gothic owns, possesses and holds good and defensible
title beneficially and of record in and to the respective
Properties free and clear of all claims, liens, encumbrances,
conditions, restrictions, calls on production, obligations to
pay to or share with third parties any revenue or other
matter adversely affecting the value or ownership of the
Properties. All of the oil, gas and related interests of
every kind and character owned by Gothic or any of Gothic's
affiliates which are located in the CHK Area are described in
the Conveyance Documents. Gothic is entitled to receive not
less than the "Net Revenue Interest" set forth in the
Conveyance Documents of all Hydrocarbons produced, saved and
marketed from the Properties without reduction, suspension or
termination of such interest throughout the duration of the
productive life of such Properties and is in no event
obligated to bear any of the costs and expenses related to
the maintenance, development or operation (including, without
limitation, the costs and expenses of plugging and abandoning
any wells and removal and salvage of any equipment and
facilities) of the Properties throughout the productive life
of the Properties in excess of the "Working Interest" set
forth in Conveyance Documents. To the best of Gothic's
knowledge, there are no suspended revenues or any basis to
suspend revenues from the Properties. To the best of Gothic's
knowledge, there does not exist any lien, claim, encumbrance,
restriction or other matter which might cause Chesapeake to
not receive for its own account free and clear of all liens,
claims and encumbrances the percentage of the fair market
value of all Hydrocarbons produced, saved or used from each
of the Properties after the Closing Date equal to the Net
Revenue Interest designated in the Conveyance Documents.
9.7 Foreign Person. Gothic is not a "foreign person" as that term
is defined under the Internal Revenue Code of 1986.
9.8 Oil and Gas Leases in Good Standing. Except as approved by
Chesapeake in writing prior to the Closing Date, to the best
of Gothic's knowledge all oil and gas leases which are
material singly or in the aggregate are in full force and
effect, and Gothic is not in default thereunder.
9.9 Taxes. All ad valorem, property, production, severance and
similar taxes and assessments based on or measured by the
ownership of property comprising the Properties or the
production or removal of hydrocarbons or the receipt of
proceeds therefrom have been timely paid when due and are not
in arrears.
9.10 Contracts, Consents and Preferential Rights. Gothic has
disclosed to Chesapeake in writing after the date hereof by
reference to this paragraph: (a) all partnership, joint
venture, farmin/farmout, dry hole, bottom hole, acreage
contribution, area
Exhibit "99.3"
Page 10 of 17 Pages
<PAGE> 11
of mutual interest, purchase and/or acquisition agreements of
which any terms remain executory which materially affect the
Properties; (b) all other executory contracts to which Gothic
is a party which materially affect any item of the
Properties; (c) all governmental or court approvals and third
party contractual consents required in order to consummate
the transactions contemplated by this Agreement; (d) all
agreements pursuant to which third parties have preferential
rights or similar rights to acquire any portion of the
Properties upon the sale contemplated by this Agreement; and
(e) all other contracts and agreements which are in any
single case of material importance to the Properties.
9.11 Tax Partnerships. None of the Properties is treated for
income tax purposes as being owned by a partnership.
9.12 Environmental Conditions. Gothic is not aware, and has not
received notice from any person, entity or governmental body,
agency or commission, of any release, disposal, event,
condition, circumstance, activity, practice or incident
concerning any land, facility, asset or property that: (a)
interferes with or prevents compliance or continued
compliance by Gothic (or by Chesapeake after the Closing
Date) with any federal, state or local law, regulation, code
or ordinance or the terms of any license or permit issued
pursuant thereto; or (b) gives rise to or results in any
common law or other liability of Gothic to any person, entity
or governmental body, agency or commission for damage or
injury to natural resources, wildlife, human health or the
environment which would have a material adverse effect on
Gothic in each case. Gothic is not aware of any civil,
criminal or administrative action, lawsuit, demand,
litigation, claim, hearing, notice of violation,
investigation or proceeding, pending or threatened, against
Gothic or operator of any of the lands, facilities, assets
and properties owned or formerly owned, operated, leased or
used by Gothic as a result of the violation or breach of any
federal, state, or local law, regulation, code or ordinance
or any duty arising at common law to any person, entity or
governmental body, singly or in the aggregate, which if
determined adversely would have a material adverse effect on
Gothic.
9.13 Plugging Status. To the best of Gothic's knowledge, all wells
on the Properties that have been permanently plugged and
abandoned have been so plugged and abandoned in accordance in
all material respects with all applicable requirements of
each governmental authority having jurisdiction over Gothic
and the Properties.
9.14 Affiliate Transactions. There are no transactions affecting
any of the Properties between Gothic and any of Gothic's
affiliates. As used in this Agreement, "affiliate" means,
with respect to any person or entity, each other person or
entity directly or indirectly controlling, controlled by or
under common control with such person.
Exhibit "99.3"
Page 11 of 17 Pages
<PAGE> 12
9.15 Full Disclosure. This Agreement, any schedule referenced in
or attached to this Agreement, any document furnished to
Chesapeake under this Agreement and any certification
furnished to Chesapeake under this Agreement does not contain
any untrue statement of a material fact and does not omit to
state a material fact necessary to make the statements made,
in the circumstances under which they were made, not
misleading. All of the representations, warranties and
covenants in this Agreement: (a) are true and correct as of
the date made; (b) will be true and correct as of the Closing
Date; and (c) will survive and not be waived, discharged,
released, modified, terminated or affected by any due
diligence by Chesapeake.
10. Closing. Unless the Option Period has expired or the closing is
extended in writing by Gothic and Chesapeake, the transactions contemplated by
this Agreement will be consummated on the date (the "Closing Date") which is
five (5) business days after the later of: (a) the notice of intent to exercise
under paragraph of this Agreement; or (b) the date all of the conditions under
this Agreement have been satisfied in full.
10.1 Chesapeake's Deliveries. Subject to the terms and conditions
of this Agreement, on the Closing Date Chesapeake will
deliver or cause to be delivered to Gothic the following
items (all documents will be duly executed and acknowledged
where required):
10.1.1 GEC Securities. Conditioned on the Option being
Fully Exercised, the GEC Securities due under
paragraph of this Agreement together with stock
powers with all signatures guaranteed in the form
attached hereto as Schedule "10.1.1";
10.1.2 Evidence of Authority. Such resolutions,
certificates of good standing, incumbency
certificates and other evidence of authority with
respect to Chesapeake as might be reasonably
requested by Gothic;
10.1.3 JIB Payments. Current payment of all joint interest
billings owing to the Gothic Parties as required by
the Joint Operating Agreements attached to the
Participation Agreement;
10.1.4 Closing Memorandum. A memorandum setting forth the
items delivered and accounting for the payments made
on the Closing Date;
10.1.5 Additional Documents. Such additional documents as
might be reasonably requested by Gothic to
consummate this Agreement; and
10.1.6 Interim Wells. In the event Chesapeake elects to
include the Gothic Parties' interests in the Interim
Wells in the Properties pursuant to paragraph 5.8
hereof, Chesapeake will pay to the Gothic Parties an
Exhibit "99.3"
Page 12 of 17 Pages
<PAGE> 13
amount equal to the Gothic Parties' unrecovered
drilling costs for such Interim Wells.
10.2 Gothic's Deliveries. On the Closing Date, Gothic will deliver
or cause to be delivered to Chesapeake the following items
(all documents will be duly executed and acknowledged where
required):
10.2.1 Assignments. The Conveyance Documents in
substantially the form and substance satisfactory to
Chesapeake conveying to Chesapeake all of Gothic
Parties' right, title and interest in and to the
Properties including, without limitation, all of the
right, title and interest in and to the Interim
Wells in the event Chesapeake elects to include the
Interim Wells in the Properties pursuant to
paragraph 5.8 hereof;
10.2.2 Releases. Releases and termination statements with
respect to any and all liens, claims, security
interests and other encumbrances covering any of the
Properties including a release of any reconveyance
rights in favor of the Gothic Parties under the
Participation Agreement;
10.2.3 Evidence of Authority. Such corporate resolutions,
certificates of good standing, incumbency
certificates and other evidence of authority with
respect to each of the Gothic Parties as might be
reasonably requested by Chesapeake;
10.2.4 Closing Memorandum. A memorandum setting forth the
items delivered and accounting for the payments made
on the Closing Date;
10.2.5 Additional Documents. Such additional documents as
might be reasonably requested by Chesapeake to
consummate this Agreement.
10.3 Costs. Gothic will pay the following closing costs: (a)
Gothic's attorneys' fees, investment banker's fees and bank
fees; (b) the cost of recording all mortgage or other lien
releases and the cost of documentary stamps to be affixed to
any deeds conveying title to the Properties to Chesapeake;
and (c) any other charge imposed by any governmental
authority for the transfer of any item comprising the
Properties. Chesapeake will pay only Chesapeake's attorneys'
fees and the cost of recording the Conveyance Documents.
Chesapeake and the Gothic Parties each agree to use their
respective best efforts to take any and all reasonable action
to minimize the recording costs and other charges associated
with the consummation of the transactions contemplated by
this Agreement.
10.4 Files and Data. As of the Closing Date and at all times
thereafter during the term of the Restated Participation
Agreement, Gothic will make available to
Exhibit "99.3"
Page 13 of 17 Pages
<PAGE> 14
Chesapeake for copying, at Chesapeake's expense, all files,
records, reports and other data relating to the Properties.
11. Default. In the event either party fails to perform such party's
obligations hereunder (except as excused by another party's default) (the
"Defaulting Party") such failure will constitute an event of default under this
Agreement and the other party (the "Other Party") will have the right to
exercise any and all remedies available at law or in equity including, without
limitation, specific performance of this Agreement or any one or more of the
provisions herein contained, unless such default is waived by the Other Party
or cured by the Defaulting Party within five (5) business days after receipt of
notice of such default. The remedies provided by this Agreement are cumulative
and will not exclude any other remedy to which the Other Party might be
entitled under this Agreement or applicable law. In the event the Other Party
elects to selectively and successfully enforce the Other Party's rights under
this Agreement, such action will not be deemed a waiver or discharge of any
other remedy. During the pendency of any default or disputes, this Agreement
will be deemed to be in full force and effect. Notwithstanding anything herein
to the contrary, on the occurrence of a default or other breach of this
Agreement by Gothic, Chesapeake may terminate the Option in the sole and
absolute discretion of Chesapeake.
12. Miscellaneous. It is further agreed as follows:
12.1 Time. Time is of the essence of this Agreement.
12.2 Notices. Any notice, demand or communication required or
permitted to be given by any provision of this Agreement will
be in writing and will be deemed to have been given and
received when delivered personally or by telefacsimile to the
party designated to receive such notice, or on the date
following the day sent by overnight courier, or on the third
(3rd) business day after the same is sent by certified mail,
postage and charges prepaid, directed to the following
addresses or to such other or additional addresses as any
party might designate by written notice to the other parties:
To Gothic: Gothic Energy Corporation
6120 South Yale Avenue, Suite 1200
Tulsa, Oklahoma 74136
Attn: Michael K. Paulk
Telephone (918) 749-5666
Fax No. (918) 749-5882
With a copy to: Pray, Walker, Jackman, Williamson & Marlar
900 OneOk Plaza
100 West 5th Street
Tulsa, Oklahoma 74103-4218
Attn: Ira L. Edwards, Jr.
Telephone (918) 581-5500
Fax No. (918) 581-5599
Exhibit "99.3"
Page 14 of 17 Pages
<PAGE> 15
To Chesapeake: Chesapeake Energy Corporation
6100 North Western Avenue
Oklahoma City, Oklahoma 73118
Attn: Aubrey K. McClendon
Telephone (405) 879-9226
Fax No. (405) 848-8588
With a copy to: Self, Giddens & Lees, Inc.
2725 Oklahoma Tower
210 Park Avenue
Oklahoma City, Oklahoma 73102
Attn: Ray Lees
Telephone (405) 232-3001
Fax: (405) 232-5553
12.3 Cooperation. At all times during the Option Period the
parties agree to execute and deliver, or cause to be executed
and delivered, such documents and do, or cause to be done,
such other acts and things as might reasonably be requested
by the other party to this Agreement to assure that the
benefits of this Agreement are realized by the parties.
12.4 Press Release. Except to the extent required by applicable
disclosure requirements, all press releases relating to this
Agreement and the transactions contemplated by this Agreement
and the Conveyance Documents will be approved by Gothic and
Chesapeake prior to dissemination.
12.5 Choice of Law. This Agreement will be interpreted, construed
and enforced in accordance with the laws of the State of
Oklahoma and will be deemed for such purposes to have been
made, executed and performed in Oklahoma County, Oklahoma.
All claims, disputes and other matters in question arising
out of or relating to this Agreement will be decided by
proceedings instituted and litigated in the District Court of
Oklahoma County, Oklahoma or the United States District Court
for the Western District of Oklahoma.
12.6 Headings. The paragraph headings contained in this Agreement
are for reference purposes only and are not intended to
affect in any way the meaning or interpretation of this
Agreement.
12.7 Entire Agreement. This Agreement and any document executed in
connection herewith on or after the date of this Agreement
constitute the entire agreement between the parties with
respect to the subject matter hereof and there are no
agreements, understandings, warranties or representations
except as set forth herein.
Exhibit "99.3"
Page 15 of 17 Pages
<PAGE> 16
12.8 Assignment. It is agreed that the parties may not assign such
party's rights nor delegate such party's duties under this
Agreement without the express written consent of the other
parties to this Agreement.
12.9 Amendment. Neither this Agreement, nor any of the provisions
hereof can be changed, waived, discharged or terminated,
except by an instrument in writing signed by the party
against whom enforcement of the change, waiver, discharge or
termination is sought.
12.10 Severability. If any clause or provision of this Agreement is
illegal, invalid or unenforceable under any present or future
law, the remainder of this Agreement will not be affected
thereby. It is the intention of the parties that if any such
provision is held to be illegal, invalid or unenforceable,
there will be added in lieu thereof a provision as similar in
terms to such provisions as is possible to cause such
provision to be legal, valid and enforceable.
12.11 Attorney Fees. If any party institutes an action or
proceeding against any other party relating to the provisions
of this Agreement, the party to such action or proceeding
which does not prevail will reimburse the prevailing party
therein for the reasonable expenses of attorneys' fees and
disbursements incurred by the prevailing party.
12.12 Waiver. Waiver of performance of any obligation or term
contained in this Agreement by any party, or waiver by one
party of the other's default hereunder will not operate as a
waiver of performance of any other obligation or term of this
Agreement or a future waiver of the same obligation or a
waiver of any future default.
Exhibit "99.3"
Page 16 of 17 Pages
<PAGE> 17
IN WITNESS WHEREOF, Chesapeake and Gothic have executed this
Agreement as of the date first above written.
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
--------------------
Michael K. Paulk, President
(jointly and severally referred to herein
as "Gothic")
CHESAPEAKE EXPLORATION LIMITED PARTNERSHIP, an
Oklahoma limited partnership
By: Chesapeake Operating, Inc., General Partner
By /s/ Aubrey K. McClendon
-----------------------
Aubrey K. McClendon,
Chief Executive Officer
("Chesapeake")
Exhibit "99.3"
Page 17 of 17 Pages
