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EXHIBIT 2.7
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (this "Agreement") is made and
entered into this 8th day of September, 2000, by and among CHESAPEAKE ENERGY
CORPORATION, an Oklahoma corporation ("Parent"), CHESAPEAKE MERGER 2000 CORP.,
an Oklahoma corporation ("Sub"), and GOTHIC ENERGY CORPORATION, an Oklahoma
corporation ("Gothic").
RECITALS
WHEREAS, the board of directors of each of Parent, Sub and
Gothic has determined that it is in the best interest of its respective
stockholders for Parent to acquire Gothic by means of the merger of Sub with and
into Gothic upon the terms and subject to the conditions set forth in this
Agreement;
WHEREAS, for federal income tax purposes, the parties hereto
intend that such merger qualify as a tax free "reorganization" within the
meaning of Section 368 of the Internal Revenue Code of 1986, as amended;
WHEREAS, the board of directors of Gothic has approved the
execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby and has resolved and agreed to recommend that
the stockholders of Gothic approve the same; and
WHEREAS, Parent, Sub and Gothic desire to make certain
representations, warranties, covenants and agreements in connection with such
merger and also to prescribe various conditions to such merger.
NOW, THEREFORE, for and in consideration of the recitals and the
mutual covenants and agreements set forth in this Agreement, the parties hereto
hereby agree as follows:
1. Definitions. As used in this Agreement, each of the following terms has the
meaning given in this paragraph or in the paragraphs referred to below:
1.1 Affiliate(s). With respect to any Person, each other Person that
directly or indirectly (through one or more intermediaries or
otherwise) controls, is controlled by, or is under common
control with such Person.
1.2 Agreement. This Agreement and Plan of Merger, as amended,
supplemented or modified from time to time.
1.3 Alternative Proposal. As defined in paragraph 5.4.2.
1.4 Bank Credit Agreement. The Loan Agreement dated April 27, 1998,
by and among Gothic, the Gothic Subsidiary and Bank One Corp.,
as amended May 7, 1999 and March 27, 2000.
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1.5 CERCLA. The Comprehensive Environmental Response, Compensation
and Liability Act of 1980, as amended.
1.6 Certificate of Merger. The Certificate of Merger, prepared and
executed in accordance with the applicable provisions of the
OGCA, filed with the Secretary of State of Oklahoma to reflect
the consummation of the Merger.
1.7 Closing. The closing of the Merger and the consummation of the
other transactions contemplated by this Agreement.
1.8 Closing Date. Unless otherwise agreed by the Parent and Gothic
in writing, the date on which the Closing occurs, which will be
the later of: (a) the first business day following the day on
which the Gothic Stockholder Meeting is held and the conditions
to the Merger are satisfied or waived; or (b) January 15, 2001.
1.9 Code. The Internal Revenue Code of 1986, as amended.
1.10 Confidentiality Agreement. The letter agreements dated January
18, 1999 and October 7, 1999 between Gothic and Parent relating
to Gothic's furnishing of information to Parent in connection
with Parent's evaluation of a possible transaction between
Parent and Gothic, as modified by that certain letter agreement
dated June 6, 2000 relating to Gothic's permission for the
Parent to negotiate the purchase of the Senior Discount Notes.
1.11 Contract Employee. As defined in paragraph 5.14.
1.12 Defensible Title. Such right, title and interest to an asset
that is: (a) evidenced by an instrument or instruments filed of
record in accordance with the conveyance and recording laws of
the applicable jurisdiction to the extent necessary to prevail
against competing claims of bona fide purchasers for value
without notice; (b) subject to Permitted Encumbrances; and (c)
free and clear of all other Liens, claims, infringements,
burdens or other defects.
1.13 Dissenting Stockholders. Any holder or holders of Gothic Common
Stock who validly perfect appraisal rights under Section 1091 of
the OGCA.
1.14 Effective Time. As defined in paragraph 2.6.
1.15 Environmental Law. Any federal, state, local or foreign statute,
code, ordinance, rule, regulation, policy, guideline, permit,
consent, approval, license, judgment, order, writ, decree,
injunction or other authorization relating to: (a) emissions,
discharges, releases or threatened releases of Hazardous
Materials into the natural environment (including, without
limitation, ambient air, soil, sediments, land surface or
subsurface, buildings or facilities, surface water, groundwater,
publicly-owned treatment works, septic systems or land); (b) the
generation, treatment, storage, disposal, use, handling,
manufacture,
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transportation or shipment of Hazardous Materials; or (c) the
pollution of the environment, solid waste or operation or
reclamation of mines.
1.16 ERISA. The Employee Retirement Income Security Act of 1974, as
amended from time to time.
1.17 Exchange. The New York Stock Exchange, Inc.
1.18 Exchange Act. The Securities Exchange Act of 1934, as amended
from time to time.
1.19 Exchange Agent. UMB Bank, N.A., the transfer agent for shares of
Parent Common Stock.
1.20 Exchange Fund. As defined in paragraph 2.4.1.
1.21 Exchange Ratio. The quotient obtained by dividing the Merger
Consideration by the Gothic Aggregate Number as of the date of
the computation.
1.22 GAAP. Generally accepted accounting principles, as recognized by
the U.S. Financial Accounting Standards Board (or any generally
recognized successor).
1.23 Gothic. Gothic Energy Corporation, an Oklahoma corporation.
1.24 Gothic Aggregate Number. The number equal to: (a) the total
number of shares of Gothic Common Stock that are issued and
outstanding as of the Effective Time; plus (b) the aggregate
number of shares of Gothic Common Stock issuable as of the
Effective Time under the in the money Gothic Warrants identified
in Section 1.24 of the Gothic Disclosure Schedule; less (c) to
the extent included in clause (a) above, any Gothic Common Stock
owned by the Parent Companies as of the date of this Agreement
or issuable to the Parent Companies with respect to any
convertible securities, options, warrants or other rights to
acquire Gothic Common Stock.
1.25 Gothic Certificate. A certificate representing shares of Gothic
Common Stock.
1.26 Gothic Common Stock. Gothic's common stock, $0.01 par value per
share.
1.27 Gothic Companies. Gothic and the Gothic Subsidiary.
1.28 Gothic Disclosure Schedule. The disclosure schedule attached
hereto entitled Gothic Disclosure Schedule and any documents
listed on such disclosure schedule or expressly incorporated
therein by reference.
1.29 Gothic Employee(s). As defined in paragraph 5.14.
1.30 Gothic Employee Benefit Plans. As defined in paragraph 3.15.
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1.31 Gothic Financial Statements. The audited and unaudited
consolidated financial statements of the Gothic Companies
(including the related notes) included (or incorporated by
reference) in Gothic's Annual Report on Form 10-K for the year
ended December 31, 1999, and Gothic's Quarterly Report on Form
10-Q for the quarter ended June 30, 2000, in each case as filed
with the SEC.
1.32 Gothic Material Agreements. The: (a) Bank Credit Agreement; (b)
Senior Secured GPC Notes; (c) Senior Discount Notes; (d) all
agreements or instruments filed as material contracts with the
Gothic SEC Documents; or (e) any other written or oral
agreements, contracts, commitments or understandings to which
any of the Gothic Companies is a party, by which any of the
Gothic Companies is directly or indirectly bound, or to which
any asset of any of the Gothic Companies may be subject,
involving total value, consideration or obligation in excess of
One Million Dollars ($1,000,000.00).
1.33 Gothic Permits. As defined in paragraph 3.12.
1.34 Gothic Plans. The stock option plans and related agreements
listed on Section 2.3.4 of the Gothic Disclosure Schedule.
1.35 Gothic Preferred Stock. Gothic's Series B Senior Redeemable
Preferred Stock, par value $.05 per share, together with the
right to receive accrued and unpaid dividends.
1.36 Gothic Proposal. The proposal to approve this Agreement and the
Merger, which proposal is to be presented to the stockholders of
Gothic in the Proxy Statement/Prospectus.
1.37 Gothic Representative. Any director, officer, employee, agent,
advisor (including legal, accounting and financial advisors),
Affiliate or other representative of any of the Gothic
Companies.
1.38 Gothic SEC Documents. As defined in paragraph 3.5.
1.39 Gothic Severance Policy. As defined in paragraph 5.14.
1.40 Gothic Stock Option(s). Any unexpired option or other right to
purchase Gothic Common Stock issued under the Gothic Plans and
outstanding as of the Effective Time (regardless of whether
vested, unvested or currently exercisable).
1.41 Gothic Stockholder Meeting. The meeting of the stockholders of
Gothic for the purpose of voting on this Agreement and the
Merger.
1.42 Gothic Subsidiary. Gothic Production Corporation, an Oklahoma
corporation.
1.43 Gothic Warrants. Any unexpired warrants or other right to
acquire Gothic Common Stock or any security convertible or
exchangeable into Gothic Common Stock
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(excluding all Gothic Stock Options and the Gothic Preferred
Stock) and outstanding as of the Effective Time (regardless of
whether vested, unvested or currently exercisable).
1.44 Governmental Authority. Any national, state, county or municipal
government, (whether domestic or foreign), agency, board,
bureau, commission, court, department or other instrumentality
of any such government, or any arbitrator in any case that has
jurisdiction over any of the Gothic Companies, Parent or Sub or
any of their respective properties or assets.
1.45 Hazardous Material. Any: (a) "hazardous substance" as defined by
CERCLA; (b) "hazardous waste" as defined by the Resource
Conservation and Recovery Act, as amended; (c) hazardous,
dangerous or toxic chemical, material, waste or substance,
within the meaning of and regulated by any Environmental Law;
(d) radioactive material, including any naturally occurring
radioactive material, and any source, special or byproduct
material as defined in 42 U.S.C. 2011 et seq. and any amendments
or authorizations thereof; (e) asbestos-containing materials in
any form or condition; or (f) polychlorinated biphenyls in any
form or condition.
1.46 HSR Act. The Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended from time to time.
1.47 Hydrocarbons. Oil, condensate, gas, casinghead gas and other
liquid or gaseous hydrocarbons.
1.48 Indemnified Parties. As defined in paragraph 5.13.
1.49 Irrevocable Proxy. The irrevocable proxy in the form attached
hereto as Exhibit "1.49" to be executed by the shareholders of
Gothic who are on Gothic's board of directors and the executive
officers of Gothic granting to Parent the right to vote such
holders' Gothic Common Stock in connection with the
stockholders' vote concerning the Merger and any and all related
matters.
1.50 Lien(s). Any lien, mortgage, security interest, pledge, deposit,
production payment, restriction, burden, encumbrance, rights of
a vendor under any title retention or conditional sale
agreement, or lease or other arrangement substantially
equivalent thereto.
1.51 Major Gothic Stockholder(s). Any holders of Gothic Common Stock
who are Affiliates of Gothic and who, as a result of the Merger,
will hold in excess of three percent (3%) of the issued and
outstanding shares of Parent Common Stock.
1.52 Material Adverse Effect. When used with respect to: (a) Gothic,
is an event or condition that has an adverse financial impact of
more than One Million Dollars ($1,000,000.00) on the Gothic
Companies (taken as a whole) or a result or consequence that
would materially and adversely affect the condition (financial
or
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otherwise), results of operations or businesses of the Gothic
Companies (taken as a whole) or the aggregate value of their
assets, would materially impair the ability of the Gothic
Companies (taken as a whole) to own, hold, develop and operate
their assets, or would impair Gothic's ability to perform its
obligations hereunder or consummate the transactions
contemplated hereby; and (b) Parent, is an event or condition
that has an adverse financial impact of more than Five Million
Dollars ($5,000,000.00) on the Parent Companies (taken as a
whole) or a result or consequence that would materially and
adversely affect the condition (financial or otherwise), results
of operations or businesses of the Parent Companies (taken as a
whole) or the aggregate value of their assets, would materially
impair the ability of the Parent Companies (taken as a whole) to
own, hold, develop and operate their assets, or would impair
Parent's or Sub's ability to perform its obligations hereunder
or consummate the transactions contemplated hereby.
1.53 Merger. As defined in paragraph 2.
1.54 Merger Consideration. Four Million (4,000,000) shares of Parent
Common Stock.
1.55 Net Revenue Interests. Gothic's overall interest in Hydrocarbons
produced from or attributable to Gothic's Oil and Gas Interests,
after deducting all lessor's royalties, overriding royalties,
production payments, and other interests or burdens on
Hydrocarbons produced from Gothic's oil and gas properties or
any well thereon.
1.56 OGCA. The Oklahoma General Corporation Act, as amended.
1.57 Oil and Gas Interests. Any and all: (a) direct and indirect
interests in and rights with respect to oil, gas, mineral and
related properties and assets of any kind and nature, direct or
indirect, including working, royalty and overriding royalty
interests, production payments, operating rights, net profits
interests, other non-working interests and non-operating
interests; (b) interests in and rights with respect to
Hydrocarbons and other minerals or revenues therefrom and
contracts in connection therewith and claims and rights thereto
(including oil and gas leases, operating agreements, unitization
and pooling agreements and orders, division orders, transfer
orders, mineral deeds, royalty deeds, oil and gas sales,
exchange and processing contracts and agreements and interests
related to any of the foregoing), surface interests, fee
interests, reversionary interests, reservations and concessions;
(c) easements, rights of way, licenses, permits, leases, and
other interests associated with, appurtenant to, or necessary
for the operation of any of the foregoing; and (d) interests in
fixtures, equipment and machinery (including well equipment and
machinery), oil and gas production, gathering, transmission,
compression, treating, processing and storage facilities
(including tanks, tank batteries, pipelines and gathering
systems), pumps, water plants, electric plants, gasoline and gas
processing plants, refineries and other tangible personal
property and fixtures associated with, appurtenant to, or
necessary for the operation of any of the foregoing.
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1.58 Ownership Interests. The ownership interests of Gothic in its
assets, as set forth in Section 1.58 of the Gothic Disclosure
Schedule.
1.59 Parent. Chesapeake Energy Corporation, an Oklahoma corporation.
1.60 Parent Benefit Plans. "Employee benefit plans" within the
meaning of Section 3(3) of ERISA, which the Parent Companies
maintain or sponsor or with respect to which the Parent
Companies have any material liability (actual, contingent,
primary or secondary), and all other: (a) director or employee
compensation or benefit plans, programs or arrangements; (b)
stock purchase, stock option, severance, bonus, incentive and
deferred compensation plans; (c) written employment or
consulting contracts; and (d) change-in-control agreements which
the Parent Companies maintain, sponsor or are a party to or with
respect to which the Gothic Companies have or could have any
material liability.
1.61 Parent Certificate. A certificate representing shares of Parent
Common Stock.
1.62 Parent Common Stock. Parent's common stock, par value $0.01 per
share.
1.63 Parent Companies. Parent and the Parent Subsidiaries.
1.64 Parent Disclosure Schedule. The disclosure schedule attached
hereto entitled Parent Disclosure Schedule and any documents
listed on such disclosure schedule and expressly incorporated
therein by reference.
1.65 Parent Employee Benefit Plan(s). As defined in paragraph 4.17.
1.66 Parent Financial Statements. The audited and unaudited
consolidated financial statements of the Parent Companies
(including the related notes) included (or incorporated by
reference) in Parent's Annual Report on Form 10-K for the year
ended December 31, 1999, and Parent's Quarterly Report on Form
10-Q for the quarter ended June 30, 2000, in each case as filed
with the SEC.
1.67 Parent Permits. As defined in paragraph 4.13.
1.68 Parent Preferred Stock. Parent's preferred stock, par value
$0.01 per share.
1.69 Parent Representative. Any director, officer, employee, agent,
advisor (including legal, accounting and financial advisors),
Affiliate or other representative of Parent or Parent
Subsidiaries.
1.70 Parent SEC Documents. As defined in paragraph 4.5.
1.71 Parent Subsidiaries. Sub and all other direct or indirect wholly
owned subsidiaries of Parent.
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1.72 Permitted Encumbrances. Any: (a) Liens for Taxes, assessments or
other governmental charges or levies that are not at the
particular time in question due and delinquent, foreclosure,
distraint, sale or other similar proceedings have not been
commenced or if commenced, have been stayed or are being
contested in good faith by appropriate proceedings and if any of
the Gothic Companies will have set aside on its books such
reserves (segregated to the extent required by sound accounting
practices) as may be required by GAAP or otherwise determined by
its board of directors to be adequate with respect thereto; (b)
Liens of carriers, warehousemen, mechanics, laborers,
materialmen, landlords, vendors, workmen and operators arising
by operation of law in the ordinary course of business or by a
written agreement existing as of the date hereof and necessary
or incident to the exploration, development, operation and
maintenance of Hydrocarbon properties and related facilities and
assets for sums not yet due or being contested in good faith by
appropriate proceedings, if any of the Gothic Companies will
have set aside on its books such reserves (segregated to the
extent required by sound accounting practices) as may be
required by GAAP or otherwise determined by its board of
directors to be adequate with respect thereto; (c) Liens
incurred in the ordinary course of business in connection with
worker's compensation, unemployment insurance and other social
security legislation (other than ERISA); (d) Liens incurred in
the ordinary course of business to secure the performance of
bids, tenders, trade contracts, leases, statutory obligations,
surety and appeal bonds, performance and repayment bonds and
other obligations of a like nature; (e) Liens, easements,
rights-of-way, restrictions, servitudes, permits, conditions,
covenants, exceptions, reservations and other similar
encumbrances incurred in the ordinary course of business or
existing on property and not (i) reducing the Gothic Net Revenue
Interest set forth in Section 1.58 of the Gothic Disclosure
Schedule, (ii) increasing the Gothic Working Interests in any
Oil and Gas Interest set forth in Section 1.58 of the Gothic
Disclosure Schedule or (iii) impairing the value of the assets
of any of the Gothic Companies or interfering with the ordinary
conduct of the business of any of the Gothic Companies or rights
to any of their assets; (f) Liens created or arising by
operation of law to secure a party's obligations as a purchaser
of oil and gas; (g) all rights to consent by, required notices
to, filings with, or other actions by any Governmental Authority
to the extent customarily obtained subsequent to Closing; (h)
farmout, carried working interest, joint operating, unitization,
royalty, overriding royalty, sales and similar agreements
relating to the exploration or development of, or production
from, Hydrocarbon properties entered into in the ordinary course
of business; (i) any defects, irregularities or deficiencies in
title to easements, rights-of-way or other surface use
agreements that do not (x) reduce the Gothic Net Revenue
Interests set forth in Section 1.58 of the Gothic Disclosure
Schedule, (y) increase the Gothic Working Interests in any Oil
and Gas Interest set forth in Section 1.58 of the Gothic
Disclosure Schedule or (z) adversely affect the value of any
asset of any of the Gothic Companies; (j) preferential rights to
purchase and Third-Party Consents disclosed in Section 1.72 of
the Gothic Disclosure Schedule; (k) Liens arising under or
created pursuant to the Bank Credit Agreement and the Senior
Secured GPC Notes; and (l) Liens specifically described in
Section 1.72 of the Gothic Disclosure Schedule.
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1.73 Person(s). Any natural person, corporation, company, limited or
general partnership, joint stock company, joint venture,
association, limited liability company, limited liability
partnership, trust, bank, trust company, land trust, business
trust or other entity or organization, whether or not a
Governmental Authority.
1.74 Proxy Statement/Prospectus. A proxy statement in a definitive
form relating to the Gothic Stockholder Meeting, which proxy
statement will be included as a prospectus in the Registration
Statement.
1.75 Registration Statement. The Registration Statement on Form S-4
to be filed by Parent in connection with the issuance of Parent
Common Stock pursuant to the Merger.
1.76 Returns. As defined in paragraph 3.14.1.
1.77 SEC. The Securities and Exchange Commission.
1.78 Securities Act. The Securities Act of 1933, as amended from time
to time.
1.79 Senior Discount Notes. The 14 1/8% Series B Senior Secured
Discount Notes Due 2006 issued by Gothic and the related
indenture, collateral documents and other agreements and
instruments in connection therewith.
1.80 Senior Secured GPC Notes. The 11 1/8% Senior Secured Notes due
2005 issued by the Gothic Subsidiary and the related indenture,
collateral documents and other agreements and instruments in
connection therewith.
1.81 Sub. Chesapeake Merger 2000 Corp., an Oklahoma corporation and
wholly-owned subsidiary of Parent.
1.82 Sub Common Stock. Sub's common stock, par value $1.00 per share.
1.83 Superior Proposal. As defined in paragraph 5.4.2.
1.84 Surviving Corporation. As defined in paragraph 2.1.
1.85 Tax(es). Any and all taxes, fees, levies, duties, tariffs,
imposts, and other charges of any kind (together with any and
all interest, penalties, additions to tax and additional amounts
imposed with respect thereto) imposed by any Governmental
Authority or taxing authority including, without limitation,
taxes or other charges on or with respect to income, franchises,
windfall or other profits, gross receipts, property, sales, use,
capital stock, payroll, employment, social security, workers'
compensation, unemployment compensation, or net worth, taxes or
other charges in the nature of excise, withholding, ad valorem,
stamp, transfer, value added, or gains taxes, license,
registration and documentation fees, and custom duties, tariffs,
and similar charges.
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1.86 Third-Party Consent. The consent or approval of any Person other
than Gothic, Parent, Sub or any Governmental Authority.
1.87 Working Interest. Gothic's share of all of the costs, expenses,
burdens, and obligations of any type or nature attributable to
Gothic's interests in its oil and gas properties or any well
thereon.
2. Merger. Subject to the terms and conditions set forth in this Agreement, at
the Effective Time, Sub will be merged with and into Gothic in accordance with
the provisions of this Agreement and the OGCA. Such merger is referred to herein
as the "Merger."
2.1 Effect of the Merger. Upon the effectiveness of the Merger, the
separate existence of Sub will cease and Gothic, as the
surviving corporation in the Merger (the "Surviving
Corporation"), will continue its corporate existence under the
laws of the State of Oklahoma. The Merger will have the effects
specified in this Agreement and the OGCA.
2.2 Governing Instruments, Directors and Officers of the Surviving
Corporation. As of the Effective Time: (a) the certificate of
incorporation of Sub including the Amended and Restated
Certificate of Designation of Preferences and Rights of the
Gothic Preferred Stock in the form attached hereto as Exhibit
"2.2," as in effect immediately prior to the Effective Time,
will be the certificate of incorporation of the Surviving
Corporation until duly amended in accordance with the terms of
the certificate of incorporation and applicable law; (b) the
name of the Surviving Corporation will be Gothic Energy
Corporation, however, at the option of Parent, the name of the
Surviving Corporation may be changed; (c) the bylaws of Sub, as
in effect immediately prior to the Effective Time, will be the
bylaws of the Surviving Corporation until duly amended in
accordance with the terms of the bylaws and applicable law; and
(d) the directors and officers of Sub at the Effective Time will
be the directors and officers, respectively, of the Surviving
Corporation from the Effective Time until their respective
successors have been duly elected or appointed in accordance
with the certificate of incorporation and bylaws of the
Surviving Corporation and applicable law.
2.3 Effect on Securities. As of the Effective Time, by virtue of the
Merger and without any action on the part of any holder thereof,
the Sub Common Stock, the Gothic Common Stock and other Gothic
securities will be treated as follows subject to the terms and
conditions of this Agreement:
2.3.1 Sub Common Stock. Each share of Sub Common Stock
outstanding immediately prior to the Effective Time
will be automatically converted into and become one
(1) share of common stock of the Surviving
Corporation. As a result of the Merger the foregoing
stock will represent one hundred percent (100%) of
the issued and outstanding capital stock of the
Surviving Corporation immediately after the Effective
Time.
2.3.2 Gothic Common Stock. As of the Effective Time, by
virtue of the Merger and automatically without any
action on the part of any holder thereof, each
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share of Gothic Common Stock that is issued and
outstanding immediately prior to the Effective Time
(other than shares of Gothic Common Stock held by
Dissenting Stockholders, shares of Gothic Common
Stock held by the Parent Companies as of the date of
this Agreement and shares of Gothic Common Stock held
by the Parent Companies as a result of the conversion
of Gothic Preferred Stock) will be automatically
converted into a portion of a share of validly
issued, fully paid and non-assessable Parent Common
Stock equal to the Exchange Ratio. Each share of
Gothic Common Stock converted under this paragraph
2.3.2 will be canceled and retired, cease to exist
and no longer be outstanding. Any holder of a Gothic
Certificate representing any such share of Gothic
Common Stock will cease to have any rights with
respect thereto except the right to receive the share
of Parent Common Stock to be issued in exchange
therefor (along with any cash in lieu of fractional
shares of Parent Common Stock as provided in
paragraph 2.4.5 and any unpaid dividends and
distributions with respect to such shares of Parent
Common Stock as provided in paragraph 2.4.3, without
interest), on the surrender of such Gothic
Certificate in accordance with paragraph 2.4.
Notwithstanding anything herein to the contrary as of
the Effective Time, by virtue of the Merger: (a) no
shares of Parent Common Stock or other consideration
will be paid or payable in exchange for shares of
Gothic Common Stock that are issued and held as
treasury stock, if any, and all of the foregoing
shares of Gothic Common Stock will be automatically
canceled and retired, cease to exist and no longer be
outstanding; (b) no shares of Parent Common Stock or
other consideration will be paid or payable in
exchange for shares of Gothic Common Stock that are
owned by the Parent Companies and all of the
foregoing shares of Gothic Common Stock will remain
outstanding and in full force and effect; and (c) any
obligations relating to the payment of the purchase
price for Gothic Common Stock will not be discharged
and will constitute valid and binding obligations
owned by the Surviving Corporation.
2.3.3 Gothic Preferred Stock. As of the Effective Time, by
virtue of the Merger, all of the shares of Gothic
Preferred Stock and all rights with respect thereto
will remain outstanding and in full force and effect
in accordance with the Certificate of Designation of
Preferences and Rights of the Gothic Preferred Stock
as amended by the Amended and Restated Certificate of
Designation of Preferences and Rights of Gothic
Preferred Stock attached hereto as Exhibit "2.2"
pursuant to which the right to convert the Gothic
Preferred Stock into Gothic Common Stock will be
eliminated. Notwithstanding anything herein to the
contrary, no shares of Parent Common Stock or other
consideration will be paid or payable to any holder
of Gothic Preferred Stock in exchange for Gothic
Preferred Stock.
2.3.4 Options and Warrants. Section 2.3.4 of the Gothic
Disclosure Schedule lists: (a) each of the Gothic
Plans; (b) each Gothic Stock Option outstanding
specifying the Gothic Plan under which such Gothic
Stock Option was issued, the number of shares of
Gothic Common Stock covered by such Gothic Stock
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Option, the term of such Gothic Stock Option, the
vesting schedule for such Gothic Stock Option and the
exercise price for such Gothic Stock Option; and (c)
each Gothic Warrant outstanding specifying the
agreement under which such Gothic Warrant was issued,
the number of shares of Gothic Common Stock covered
by such Gothic Warrant, the term of such Gothic
Warrant and the exercise price for each share of
Gothic Common Stock which can be acquired thereunder
(in each case after giving effect to the Merger and
all previous transactions). As of the Effective Time,
as a result of the Merger, each Gothic Stock Option
and Gothic Warrant described in the foregoing clauses
(b) and (c) of this paragraph 2.3.4 will be assumed
by Parent under the operative documents for such
Gothic Stock Option and Gothic Warrant and converted
into options or warrants to purchase the whole number
of shares of Parent Common Stock determined in
accordance with the terms and conditions of the
documents evidencing such Gothic Stock Option or
Gothic Warrant. Except as expressly stated otherwise
in this Agreement, the parties agree that the terms,
exercisability, vesting schedule, vesting
commencement date, status as an "incentive stock
option" under Section 422 of the Code, if applicable,
and all other terms and conditions of any Gothic
Stock Option or Gothic Warrant will otherwise be
unchanged as a result of the transactions
contemplated by this Agreement, except by operation
of law. The parties agree that to the extent that any
of the Gothic Stock Options have not been exercised
or terminated prior to the Effective Time, any
cashless exercise rights under any of the Gothic
Stock Options will be terminated prior to the Merger
and will not be included in the terms assumed by the
Parent. Without limiting the foregoing, except as
expressly disclosed in Section 2.3.4 of the Gothic
Disclosure Schedule, Gothic further hereby represents
and warrants to Parent that: (i) all adjustments
required to be made to the number of shares issuable
or the exercise price for exercise under each of the
Gothic Stock Options and Gothic Warrants has been
accurately made as disclosed in Section 2.3.4 of the
Gothic Disclosure Schedule; (ii) all required notices
have been given to the holders of the Gothic Stock
Options and the Gothic Warrants including, without
limitation, adjustment notices; and (iii) no Gothic
Stock Options or Gothic Warrants will vest, nor will
the vesting schedule of any Gothic Stock Options or
Gothic Warrants accelerate, as a result of the
transactions contemplated by this Agreement. As of
the Effective Time, as a result of the Merger, other
than those Gothic Stock Options or Gothic Warrants
assumed by the Parent in accordance with this
paragraph 2.3.4, the provisions in any of the Gothic
Plans or any other program, arrangement, option,
warrant or other agreement providing for the issuance
or grant of any interest in respect of the capital
stock of the Gothic Companies will be canceled, cease
to exist and no longer be outstanding as of the
Effective Time and Gothic will take all action
necessary to ensure that following the Effective Time
no Person will have any right thereunder to acquire
equity securities of Gothic, the Surviving
Corporation or any subsidiary thereof.
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<PAGE> 13
2.3.5 Dissenting Stockholder Shares. Except as provided
herein, any issued and outstanding shares of Gothic
Common Stock held by a Dissenting Stockholder will be
converted into the right to receive such
consideration as may be determined to be due to such
Dissenting Stockholder pursuant to the OGCA. If a
Dissenting Stockholder effectively withdraws the
demand for appraisal or loses the right of appraisal
as provided under the OGCA, the shares of Gothic
Common Stock held by such Dissenting Stockholder will
be deemed to be converted under paragraph 2.3.2 of
this Agreement (without interest). Gothic will
provide prompt notice to the Parent of any written
demands for appraisal, withdrawals of demands for
appraisal and any other instruments served pursuant
to the OGCA and will provide to the Parent the
opportunity to direct all negotiations and
proceedings with respect to demands for appraisal
under the OGCA. Absent the prior written consent of
Parent and Sub, Gothic will not negotiate, settle or
offer to settle any demand for appraisal, provided,
however that any and all payments made to settle such
appraisal rights or made pursuant to the OGCA will be
made solely out of Gothic assets and neither Parent
nor Sub will have any liability therefor.
Notwithstanding anything contained in this paragraph
2.3.5, if the Merger is rescinded or abandoned or if
the stockholders of Gothic revoke the authority to
effect the Merger, then the right of any Dissenting
Stockholder to receive such consideration as may be
determined to be due in respect of such Dissenting
Stockholder's Gothic Common Stock pursuant to the
OGCA will cease.
2.4 Exchange of Certificates. The exchange of Gothic Common Stock
for Parent Common Stock will be consummated as follows:
2.4.1 Exchange Fund. Immediately after the Effective Time,
Parent will deposit with the Exchange Agent, for the
benefit of the holders of shares of Gothic Common
Stock and for exchange in accordance with this
Agreement, certificates representing the Merger
Consideration to be issued in exchange for shares of
Gothic Common Stock pursuant to paragraph 2.4.2, less
the number of shares of Parent Common Stock which:
(i) would have been issuable to Dissenting
Stockholders; (ii) will be subject to pledge
agreement by directors of the Gothic Companies
securing loans from the Gothic Companies for the
acquisition of Gothic Common Stock; and (iii) will be
issuable on exercise of the Gothic Warrants listed in
Section 1.24 of the Gothic Disclosure Schedule. Such
shares of Parent Common Stock delivered to the
Exchange Agent, together with any dividends or
distributions with respect thereto (as provided in
paragraph 2.4.3), are referred to herein as the
"Exchange Fund." The Exchange Agent, pursuant to
irrevocable instructions consistent with the terms of
this Agreement, will deliver the Parent Common Stock
to be issued or paid pursuant to paragraph 2.4.2 out
of the Exchange Fund, and the Exchange Fund will not
be used for any other purpose whatsoever. The
Exchange Fund will not be entitled to vote or
exercise any rights of ownership with respect to the
Parent Common Stock held by it from
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<PAGE> 14
time to time hereunder, except that it will receive
and hold all dividends or other distributions paid or
distributed with respect thereto for the account of
Persons entitled thereto.
2.4.2 Notice and Surrender. As soon as reasonably
practicable after the Effective Time, Parent will
cause the Exchange Agent to mail to each holder of
record of a Gothic Certificate that, immediately
prior to the Effective Time, represented shares of
Gothic Common Stock which were converted into the
right to receive Parent Common Stock pursuant to
paragraph 2.3.2, a letter of transmittal to be used
to effect the exchange of such Gothic Certificate for
a Parent Certificate (and cash in lieu of fractional
shares), along with instructions for using such
letter of transmittal to effect such exchange. The
letter of transmittal (or the instructions thereto)
will specify that delivery of any Gothic Certificate
will be effected, and the risk of loss and title
thereto will pass, only upon delivery of such Gothic
Certificate to the Exchange Agent and will be in such
form and have such other provisions as Parent may
reasonably specify. Upon surrender to the Exchange
Agent of a Gothic Certificate for cancellation,
together with a duly completed and executed letter of
transmittal and any other required documents
(including, in the case of any Person constituting an
"affiliate" of Gothic for purposes of Rule 145(c) and
(d) under the Securities Act, a written agreement
from such Person as described in paragraph 5.10, if
not previously delivered to Parent): (a) the holder
of such Gothic Certificate will be entitled to
receive in exchange therefor a Parent Certificate
representing the number of whole shares of Parent
Common Stock that such holder has the right to
receive pursuant to paragraph 2.3.2, any cash in lieu
of fractional shares of Parent Common Stock as
provided in paragraph 2.4.5, and any unpaid dividends
and distributions that such holder has the right to
receive pursuant to paragraph 2.4.3 (after giving
effect to any required withholding of Taxes); and (b)
the Gothic Certificate so surrendered will forthwith
be canceled. No interest will be paid or accrued on
the cash in lieu of fractional shares or unpaid
dividends and distributions, if any, payable to
holders of Gothic Certificates. In the event of a
transfer of ownership of Gothic Common Stock that is
not registered in the transfer records of Gothic, a
Parent Certificate representing the appropriate
number of shares of Parent Common Stock (along with
any cash in lieu of fractional shares and any unpaid
dividends and distributions that such holder has the
right to receive) may be issued or paid to a
transferee if the Gothic Certificate representing
such shares of Gothic Common Stock is presented to
the Exchange Agent accompanied by all documents
required to evidence and effect such transfer and to
evidence that any applicable stock transfer Taxes
have been paid. Until surrendered as contemplated by
this paragraph 2.4.2, each Gothic Certificate will be
deemed at any time after the Effective Time to
represent only the right to receive upon such
surrender a Parent Certificate representing shares of
Parent Common Stock as provided in paragraph 2.3.2
(along with any cash in lieu of fractional shares and
any unpaid dividends and distributions to the extent
specified herein).
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<PAGE> 15
2.4.3 Dividends and Distributions. No dividends or other
distributions with respect to Parent Common Stock
declared or made after the Effective Time with a
record date after the Effective Time will be paid to
the holder of any unsurrendered Gothic Certificate.
Subject to the effect of applicable laws: (i) at the
time of the surrender of a Gothic Certificate for
exchange in accordance with the provisions of this
paragraph 2.4, there will be paid to the surrendering
holder, without interest, the amount of dividends or
other distributions (having a record date after the
Effective Time but on or prior to surrender and a
payment date on or prior to surrender) theretofore
paid with respect to the number of whole shares of
Parent Common Stock that such holder is entitled to
receive (less the amount of any withholding Taxes
that may be required with respect thereto); and (ii)
at the appropriate payment date, there will be paid
to the surrendering holder, without interest, the
amount of dividends or other distributions (having a
record date after the Effective Time but on or prior
to surrender and a payment date subsequent to
surrender) payable with respect to the number of
whole shares of Parent Common Stock that such holder
receives (less the amount of any withholding Taxes
that may be required with respect thereto).
2.4.4 Full Satisfaction. All shares of Parent Common Stock
issued upon the surrender for exchange of shares of
Gothic Common Stock in accordance with the terms
hereof (including any cash paid pursuant to paragraph
2.4.3 or 2.4.5) will be deemed to have been issued in
full satisfaction of all rights pertaining to such
shares of Gothic Common Stock. After the Effective
Time, there will be no further registration of
transfers on the Surviving Corporation's stock
transfer books of the shares of Gothic Common Stock
that were outstanding immediately prior to the
Effective Time. If, after the Effective Time, a
Gothic Certificate is presented to the Surviving
Corporation or Parent for any reason, it will be
canceled and exchanged as provided in this paragraph
2.4.
2.4.5 Fractional Shares. No Parent Certificate or scrip
representing fractional shares of Parent Common Stock
will be issued in the Merger and, except as provided
in this paragraph 2.4.5, no dividend or other
distribution, stock split or interest will relate to
any such fractional shares, and such fractional share
will not entitle the owner thereof to vote or to any
other rights of a stockholder of Parent. In lieu of
any fractional security, each holder of shares of
Gothic Common Stock who would otherwise have been
entitled to a fraction of a share of Parent Common
Stock upon surrender of the Gothic Certificate(s)
representing such Gothic Common Stock for exchange
pursuant to this paragraph 2.4 will be paid an amount
in cash (without interest) equal to such holder's
proportionate interest in the amount of the net
proceeds from the sale or sales by the Exchange Agent
in accordance with the provisions of this paragraph
2.4.5, on behalf of all such holders, of the
aggregate fractional shares of Parent Common Stock
issued pursuant to paragraph 2.3. As soon as
practicable following the Effective Time, the
Exchange Agent will
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<PAGE> 16
determine the excess of: (a) the number of whole
shares of Parent Common Stock delivered to the
Exchange Agent by Parent pursuant to paragraph 2.4.1;
over (b) the aggregate number of whole shares of
Parent Common Stock to be distributed to holders of
Gothic Common Stock pursuant to paragraph 2.3.2 (such
excess being herein called the "Excess Securities")
and the Exchange Agent, as agent for the former
holders of Gothic Common Stock, will sell the Excess
Securities at the prevailing prices on the Exchange.
The sale of the Excess Securities by the Exchange
Agent will be executed on the Exchange through one or
more member firms of the Exchange and will be
executed in round lots to the extent practicable.
Parent will pay all commissions, transfer taxes and
other out-of-pocket transaction costs, including the
expenses and compensation of the Exchange Agent,
incurred in connection with such sale of Excess
Securities. Until the net proceeds of such sale of
Excess Securities have been distributed to the former
stockholders of Gothic, the Exchange Agent will hold
such proceeds and dividends in trust for such former
stockholders. As soon as practicable after the
determination of the amount of cash to be paid to
former stockholders of Gothic in lieu of any
fractional interests, the Exchange Agent will make
available in accordance with this Agreement such
amounts to any such former stockholders.
2.4.6 Unclaimed Exchange Fund. Any portion of the Exchange
Fund and cash held by the Exchange Agent in
accordance with the terms of this paragraph 2.4 that
remains unclaimed by the former stockholders of
Gothic for a period of one (1) year following the
Effective Time will be delivered to Parent, upon
demand. Thereafter, any former stockholders of Gothic
who have not theretofore complied with the provisions
of this paragraph 2.4 will look only to Parent for
payment of their claim for Parent Common Stock, any
cash in lieu of fractional shares of Parent Common
Stock and any dividends or distributions with respect
to Parent Common Stock (all without interest).
2.4.7 No Liability. Neither Parent, Sub, Gothic, the
Surviving Corporation, the Exchange Agent nor any
other Person will be liable to any former holder of
shares of Gothic Common Stock for any amount properly
delivered to any public official pursuant to any
applicable abandoned property, escheat or similar
law. Any amounts remaining unclaimed by former
holders of Gothic Common Stock for a period of three
(3) years following the Effective Time (or such
earlier date immediately prior to the time at which
such amounts would otherwise escheat to or become
property of any Governmental Authority) will, to the
extent permitted by applicable law, become the
property of Parent, free and clear of any claims or
interest of any such holders or their successors,
assigns or personal representatives previously
entitled thereto.
2.4.8 Lost, Stolen or Destroyed Certificates. If any Gothic
Certificate is lost, stolen or destroyed, upon the
making of an affidavit of that fact by the Person
claiming such Gothic Certificate to be lost, stolen
or destroyed and, if required
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<PAGE> 17
by Parent, the posting by such Person of a bond, in
such reasonable amount as Parent may direct, as
indemnity against any claim that may be made against
Parent with respect to such Gothic Certificate, the
Exchange Agent will issue in exchange for such lost,
stolen or destroyed Gothic Certificate the shares of
Parent Common Stock (along with any cash in lieu of
fractional shares pursuant to paragraph 2.4.5 and any
unpaid dividends and distributions pursuant to
paragraph 2.4.3) deliverable with respect thereto
pursuant to this Agreement.
2.4.9 Encumbered Shares. All shares of Gothic Common Stock
which were acquired by directors of the Gothic
Companies through a loan or purchase money sale by
any of the Gothic Companies secured by a pledge
agreement covering such Gothic Common Stock will be
converted into shares of Parent Common Stock in
accordance with the provisions of paragraph 2.3.2
hereof and will continue to secure such indebtedness
until it is paid in full in accordance with the terms
thereof. Upon payment in full of the entire unpaid
purchase price therefor plus all accrued unpaid
interest thereon such Parent Common Stock will be
delivered in accordance with the instructions of the
pledgor thereof. At the option of the Parent, a
legend may be included on the Gothic Certificate or
the Parent Certificate disclosing the existence of
the unpaid obligation and the Lien on the Parent
Common Stock to secure the payment of such
indebtedness.
2.5 Closing. The Closing will take place on the Closing Date at such
time and place as is agreed upon by Parent and Gothic.
2.6 Effective Time of the Merger. The Merger will become effective
immediately when the Certificate of Merger is accepted for
filing by the Secretary of State of Oklahoma or at such time
thereafter as is provided in the Certificate of Merger (the
"Effective Time"). The Certificate of Merger will be filed on
the Closing Date as soon as practicable after the Closing;
provided, however, that the Certificate of Merger may be filed
prior to the Closing Date or prior to the Closing so long as it
provides for an Effective Time that occurs after the Closing.
2.7 Taking of Necessary or Further Action. Each of Parent, Sub and
Gothic will use all reasonable efforts to take all such actions
as may be necessary or appropriate in order to effectuate the
Merger under the OGCA as promptly as commercially practicable.
If, at any time after the Effective Time, any further action is
necessary or desirable to carry out the purposes of this
Agreement and to vest the Surviving Corporation with full right,
title and possession to all assets, property, rights,
privileges, powers and franchises of either Sub or Gothic, the
officers and directors of the Surviving Corporation are fully
authorized, in the name of the Surviving Corporation or
otherwise to take, and will take all such lawful and necessary
action.
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<PAGE> 18
3. Gothic Representations and Warranties. Except as set forth in the Gothic
Disclosure Schedule, Gothic hereby represents and warrants to Parent and Sub
that:
3.1 Corporate Organization. Each of the Gothic Companies: (a) is a
corporation duly organized, validly existing and in good
standing under the laws of its state of incorporation; (b) has
all requisite corporate power and authority to own, lease and
operate its properties and assets and to carry on its business
as it is presently being conducted; and (c) is duly qualified to
do business as a foreign corporation, and is in good standing,
in each jurisdiction where the character of the properties owned
or leased by it or the nature of its activities makes such
qualification necessary (except where any failure to be so
qualified as a foreign corporation or to be in good standing
would not, individually or in the aggregate, have a Material
Adverse Effect on Gothic). Copies of the certificate or articles
of incorporation and bylaws of each of the Gothic Companies have
heretofore been delivered to Parent and such copies are accurate
and complete as of the date hereof.
3.2 Authority and Enforceability. The board of directors of Gothic
(at a meeting duly called and held) has: (a) determined that the
Merger is advisable; and (b) resolved to approve the Merger and
recommend the approval and adoption of this Agreement by
Gothic's stockholders. Gothic is not governed by the Control
Share Acquisition Act, Sections 1145 through 1155 of Title 18 of
the Oklahoma Statutes and Section 1090.3 of the OGCA. Gothic has
the requisite corporate power and authority to execute and
deliver this Agreement and (with respect to consummation of this
Agreement and the Merger, subject to the approval of the
stockholders of Gothic) to consummate the transactions
contemplated hereby. The execution and delivery of this
Agreement and (with the approval by the stockholders of Gothic)
the consummation of the transactions contemplated hereby have
been duly and validly authorized by all necessary corporate
action on the part of Gothic, including approval by the board of
directors of Gothic, and no other corporate proceedings on the
part of Gothic are necessary to authorize the execution or
delivery of this Agreement or (with approval by the stockholders
of Gothic) to consummate the transactions contemplated hereby.
This Agreement has been duly and validly executed and delivered
by Gothic (with respect to consummation of this Agreement and
the Merger, subject to the approval by the stockholders of
Gothic and assuming that this Agreement constitutes a valid and
binding obligation of Parent and Sub) and constitutes a valid
and binding obligation of Gothic, enforceable against Gothic in
accordance with its terms.
3.3 No Violations. Except as set forth in Section 3.3 of the Gothic
Disclosure Schedule, the execution and delivery of this
Agreement does not, and the consummation of the transactions
contemplated hereby and compliance by Gothic with the provisions
hereof will not, conflict with, result in any violation of or
default (with or without notice or lapse of time or both) under,
give rise to a right of termination, cancellation or
acceleration of any obligation (excluding any change of control
put or acceleration) or to the loss of a material benefit under,
or result in the creation of any Lien on any of the properties
or assets of the Gothic Companies under, any provision of: (a)
the certificate of incorporation or bylaws of the Gothic
Companies; (b) any loan or credit agreement, note, bond,
mortgage, indenture, lease, permit, concession, franchise,
license or other agreement or instrument applicable to the
Gothic Companies; or (c) assuming the consents, approvals,
authorizations or permits and filings or notifications referred
to in
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<PAGE> 19
paragraph 3.4 are duly and timely obtained or made, any
judgment, order, decree, statute, law, ordinance, rule or
regulation applicable to the Gothic Companies or any of their
respective properties or assets, other than, in the case of
clause (b) or (c) above, any such conflict, violation, default,
right, loss or Lien that, individually or in the aggregate,
would not have a Material Adverse Effect on Gothic.
3.4 Consents and Approvals. No consent, approval, order or
authorization of, registration, declaration, or filing with, or
permit from, any Governmental Authority is required by or with
respect to Gothic in connection with the execution and delivery
of this Agreement by Gothic or the consummation by Gothic of the
transactions contemplated hereby except for the following: (a)
any such consent, approval, order, authorization, registration,
declaration, filing or permit which the failure to obtain or
make would not, individually or in the aggregate, have a
Material Adverse Effect on Gothic or Gothic's ability to
consummate the transactions contemplated hereby in accordance
with this Agreement; (b) the filing of the Certificate of Merger
with the Secretary of State of Oklahoma pursuant to the
provisions of the OGCA; (c) the filing, if necessary, of a
pre-merger notification report by Parent under the HSR Act and
the expiration or termination of the applicable waiting period;
(d) the filing with the SEC of the Proxy Statement/Prospectus
and such other reports under Section 13(a) of the Exchange Act
and such other compliance with the Exchange Act and the
Securities Act and the rules and regulations of the SEC
thereunder as may be required in connection with this Agreement
and the transactions contemplated hereby and the obtaining from
the SEC of such orders as may be so required; and (e) such
filings and approvals as may be required by any applicable state
securities, "blue sky" or takeover laws or Environmental Laws.
No Third-Party Consent is required by or with respect to Gothic
in connection with the execution and delivery of this Agreement
or the consummation of the transactions contemplated hereby,
except for: (i) any such Third-Party Consent which the failure
to obtain would not, individually or in the aggregate, have a
Material Adverse Effect on Gothic or Gothic's ability to
consummate the transactions contemplated in this Agreement; (ii)
the valid approval of this Agreement and the Merger by the
stockholders of Gothic; and (iii) any consent, approval or
waiver required by the terms of the Bank Credit Agreement, which
consent, approval or waiver Gothic undertakes to seek and obtain
promptly after the date of this Agreement.
3.5 Gothic SEC Documents. Parent has had or will have available to
it a true, correct and complete copy of each report, schedule,
registration statement and definitive proxy statement filed by
Gothic with the SEC since December 31, 1997, and prior to the
Effective Time (the "Gothic SEC Documents"), which are all the
documents (other than preliminary material) that Gothic was or
will be required to file with the SEC since such date. Except as
set forth in Section 3.5 of the Gothic Disclosure Schedule, as
of their respective dates, the Gothic SEC Documents complied or
will comply in all material respects with the requirements of
the Securities Act or the Exchange Act, as the case may be, and
the rules and regulations of the SEC thereunder applicable to
such Gothic SEC Documents, and none of the Gothic SEC Documents
contained or will contain any untrue statement of a material
fact or omitted or will omit to state a material fact
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<PAGE> 20
required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which
they were made, not misleading.
3.6 Financial Statements. The Gothic Financial Statements were
prepared in accordance with the applicable published rules and
regulations of the SEC with respect thereto and in accordance
with GAAP applied on a consistent basis during the periods
involved (except as may be indicated in the notes thereto or, in
the case of unaudited statements, as permitted by Rule 10-01 of
Regulation S-X of the SEC) and fairly present in all material
respects, in accordance with applicable requirements of GAAP (in
the case of unaudited statements, subject to normal, recurring
adjustments), the consolidated financial position of the Gothic
Companies as of their respective dates and the consolidated
results of operations and the consolidated cash flows of the
Gothic Companies for the periods presented therein. There are no
material imbalances of production from the oil and gas
properties of the Gothic Companies whether required to be
disclosed pursuant to GAAP or otherwise.
3.7 Capital Structure. The authorized capital stock of Gothic
consists of 100,000,000 shares of Gothic Common Stock and
500,000 shares of Gothic Preferred Stock. As of September 5,
2000: (a) 23,305,076 shares of Gothic Common Stock were validly
issued and outstanding; (b) 14,796,297 shares of Gothic Common
Stock were reserved for issuance pursuant to the Gothic Plans
and the Gothic Warrants, of which Gothic Stock Options and
Gothic Warrants to purchase a total of 14,731,297 shares of
Gothic Common Stock were issued and outstanding; (c) except for
the Gothic Preferred Stock owned by the Parent Companies, there
were no shares of Gothic Preferred Stock validly issued and
outstanding; and (d) no shares of Gothic Common Stock were held
by Gothic as treasury stock and no shares of Gothic Preferred
Stock were held by Gothic as treasury stock. Gothic will notify
Parent in writing simultaneously with any change after September
5, 2000, in any of the numbers of securities set forth in the
immediately preceding sentence together with a detailed
explanation of the event giving rise to such change. The
authorized capital stock of the Gothic Subsidiary consists of
50,000 shares of common stock, $1.00 par value per share, of
which 100 shares are validly issued and outstanding and are now
and as of the Effective Time will be owned by Gothic. Except as
described in subpart (a) above or in Section 2.3.4 of the Gothic
Disclosure Schedule, there are: (i) no outstanding shares of
capital stock or other voting securities of Gothic; (ii) no
outstanding securities of Gothic or any other Person convertible
into or exchangeable or exercisable for shares of capital stock
or other voting securities of any Gothic Company; and (iii) no
outstanding subscriptions, options, warrants, calls, rights
(including preemptive rights, stock appreciation rights, phantom
stock rights, conversion rights, commitments, understandings or
agreements to which any Gothic Company is a party or by which it
is bound) obligating any Gothic Company to issue, deliver, sell,
purchase, redeem or acquire shares of capital stock or other
securities of any Gothic Company or obligating any Gothic
Company to grant, extend or enter into any such subscription,
option, warrant, call, right, commitment, understanding or
agreement. All outstanding shares of capital stock of each of
the Gothic Companies are validly issued, fully paid and
nonassessable and not subject to any preemptive right. Except as
set forth in Section 3.7 of the Gothic Disclosure Schedule, as
of the date
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<PAGE> 21
hereof there is no, and at the Effective Time there will not be
any, stockholder agreement, voting trust or other agreement or
understanding to which any of the Gothic Companies is a party or
by which it is bound relating to the voting of any shares of the
capital stock of any of the Gothic Companies.
3.8 Governmental Regulation. None of the Gothic Companies is subject
to regulation under the Public Utility Holding Company Act of
1935, the Federal Power Act, the Interstate Commerce Act, the
Investment Company Act of 1940 or any state public utilities
laws.
3.9 Litigation. Except as set forth in Section 3.9 of the Gothic
Disclosure Schedule, there is no litigation, arbitration,
investigation or other proceeding of any Governmental Authority
or other Person pending or, to the knowledge of Gothic,
threatened against any of the Gothic Companies or their
respective assets which, if adversely determined, could
reasonably be expected to have a Material Adverse Effect on any
of the Gothic Companies or Gothic's ability to consummate the
transactions contemplated hereby in accordance with this
Agreement. Gothic has no knowledge of any facts that are likely
to give rise to any litigation, arbitration, investigation or
other proceeding of any Governmental Authority or other Person
which, individually or in the aggregate, is reasonably likely to
have a Material Adverse Effect on any of the Gothic Companies or
Gothic's ability to consummate the transactions contemplated
hereby in accordance with this Agreement. No Gothic Company is
subject to any outstanding injunction, judgment, order, decree
or ruling (other than routine oil and gas field regulatory
orders and any injunction, judgment, order, decree or ruling
that, either individually or in the aggregate, would not have a
Material Adverse Effect on any of the Gothic Companies or
Gothic's ability to consummate the transactions contemplated
hereby in accordance with this Agreement). There is no
litigation, investigation or other proceeding of any
Governmental Authority or other Person pending or, to the
knowledge of Gothic, threatened against or affecting any of the
Gothic Companies that questions the validity or enforceability
of this Agreement or any other document, instrument or agreement
to be executed and delivered by Gothic in connection with the
transactions contemplated hereby.
3.10 Brokers. Except for the agreement attached hereto as Section
3.10 of the Gothic Disclosure Schedule, no broker, finder,
investment banker or other Person is or will be, in connection
with the transactions contemplated by this Agreement, entitled
to any brokerage, finder's or other fee or compensation based on
any arrangement or agreement made by or on behalf of Gothic for
which the Gothic Companies or Parent or Sub will have any
obligation or liability.
3.11 Absence of Certain Changes or Events. Except as set forth in
Section 3.11 of the Gothic Disclosure Schedule, since March 31,
2000, Gothic has conducted its business only in the ordinary
course of business consistent with past practices and, since
such date, there has not been any event (financial or otherwise,
whether or not in the ordinary course of business), circumstance
or condition that: (a) would be reasonably likely to have a
Material Adverse Effect on any of the Gothic Companies or
Gothic's ability to
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<PAGE> 22
consummate the transactions contemplated hereby in accordance
with this Agreement; or (b) would have required the consent of
Parent pursuant to paragraph 5.1 had such event occurred after
the date of this Agreement (other than changes, including
changes in commodity prices, generally affecting the oil and gas
industry, changes resulting from exploration or development
results reported in the ordinary course of business and changes
arising from the announcement of the Merger).
3.12 Compliance with Laws, Material Agreements and Permits. None of
the Gothic Companies is in violation of, or in default under,
and no event has occurred that (with notice or the lapse of time
or both) would constitute a violation of or default under: (a)
its certificate or articles of incorporation or bylaws or other
governing document: (b) any applicable law, rule, regulation,
order, writ, decree or judgment of any Governmental Authority;
or (c) any Gothic Material Agreement, except (in the case of
clause (b) or (c) above) for any violation or default that would
not, individually or in the aggregate, have a Material Adverse
Effect on any of the Gothic Companies or Gothic's ability to
consummate the transactions contemplated hereby in accordance
with this Agreement. Each of the Gothic Companies has obtained
and holds all permits, licenses, variances, exemptions, orders,
franchises, approvals and authorizations of all Governmental
Authorities necessary for the lawful conduct of its business or
the lawful ownership, use and operation of its assets ("Gothic
Permits"), except for Gothic Permits which the failure to obtain
or hold would not, individually or in the aggregate, have a
Material Adverse Effect on any of the Gothic Companies or
Gothic's ability to consummate the transactions contemplated
hereby in accordance with this Agreement. Each of the Gothic
Companies is in compliance with the terms of its Gothic Permits,
except where the failure to comply would not, individually or in
the aggregate, have a Material Adverse Effect on any of the
Gothic Companies or Gothic's ability to consummate the
transactions contemplated hereby in accordance with this
Agreement. No investigation or review by any Governmental
Authority with respect to any of the Gothic Companies is pending
or, to the knowledge of Gothic, threatened, other than those the
outcome of which would not, individually or in the aggregate,
have a Material Adverse Effect on any of the Gothic Companies or
Gothic's ability to consummate the transactions contemplated
hereby in accordance with this Agreement. To the knowledge of
Gothic, no party to any Gothic Material Agreement is in material
breach of the terms, provisions and conditions of such Gothic
Material Agreement.
3.13 No Restrictions. Except as otherwise set forth in Section 3.13
of the Gothic Disclosure Schedule, none of the Gothic Companies
is a party to: (a) any agreement, indenture or other instrument
that contains restrictions with respect to the payment of
dividends or other distributions with respect to its capital
stock; (b) any financial arrangement with respect to or creating
any indebtedness to any Person (other than indebtedness
reflected in the Gothic Financial Statements or indebtedness
incurred in the ordinary course of business); (c) any agreement,
contract or commitment relating to the making of any advance to,
or investment in, any Person (other than advances in the
ordinary course of business); (d) any guaranty or other
contingent liability with respect to any indebtedness or
obligation of any Person (other than guaranties undertaken in
the ordinary course of business and other than the endorsement
of negotiable instruments
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for collection in the ordinary course of business); or (e) any
agreement, contract or commitment limiting in any respect its
ability to compete with any Person or otherwise conduct business
of any line or nature.
3.14 Taxes. Except as set forth in Section 3.14 of the Gothic
Disclosure Schedule:
3.14.1 The Gothic Companies and any affiliated, combined or
unitary group of which Gothic or any subsidiary is or
was a member has properly completed and timely
(taking into account any extensions) filed all
material federal, state, local and foreign returns,
declarations, reports, estimates, information returns
and statements ("Returns") required to be filed in
respect of any Tax and has timely paid all Taxes that
are shown by such Returns to be due and payable and
the Returns correctly and accurately (except for one
or more matters the aggregate effect of which is not
material) reflect the facts regarding the income,
business and assets, operations, activities, status
or other matters of the Gothic Companies required to
be shown thereon or any other information required to
be shown thereon and are not subject to penalties
under Section 6662 of the Code, relating to
accuracy-related penalties, or any corresponding
provision of applicable state, local or foreign tax
law or any predecessor provision. The Gothic
Companies have established reserves that are adequate
in the aggregate for the payment of all material
Taxes not yet due and payable with respect to the
results of operations of each the Gothic Companies
through the date hereof, and have complied in all
material respects with all applicable laws, rules and
regulations relating to the payment and withholding
of Taxes and the filing of material federal, state or
local Returns.
3.14.2 Section 3.14.2 of the Gothic Disclosure Schedule sets
forth the last taxable period through which the
federal income Tax Returns of the Gothic Companies
have been examined by the IRS. Except to the extent
being contested in good faith, all material
deficiencies asserted as a result of such
examinations and any examination by any applicable
state or local taxing authority have been paid, fully
settled or adequately provided for in Gothic's most
recent audited financial statements. No material Tax
audits or other administrative proceedings or court
proceedings are presently pending with regard to any
Taxes for which any of the Gothic Companies would be
liable, and no material deficiency which has not yet
been paid for any such Taxes has been proposed,
asserted or assessed against any of the Gothic
Companies with respect to any period. No claim has
been asserted by an authority in any jurisdiction
where the Gothic Companies do not file Returns that
any Gothic Company is subject to Tax in that
jurisdiction.
3.14.3 None of the Gothic Companies has executed or entered
into (or prior to the close of business on the
Closing Date will execute or enter into) with the IRS
or any taxing authority: (a) any agreement extending
the period for assessment or collection of any Tax
for which any of the Gothic Companies is liable for
any period that is open under the applicable statute
of limitations; or (b) a
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closing agreement pursuant to Section 7121 of the
Code or any similar provision of state or local
income tax law that relates to any of the Gothic
Companies for the current or any future taxable
period. None of the Gothic Companies has made an
election under Section 341(f) of the Code or has
agreed to have Section 341(f)(2) of the Code apply to
any disposition of a subsection (f) asset (as such
term is defined in Section 341(f)(4) of the Code)
owned by any of the Gothic Companies. None of the
Gothic Companies is a party to, is bound by or has
any obligation under any tax sharing agreement or
similar agreement or arrangement. None of the Gothic
Companies is a party to any agreement or other
arrangement that would result separately or in the
aggregate in the payment of any "excess parachute
payments" within the meaning of Section 280G of the
Code.
3.14.4 There are no Liens for Taxes (other than for current
Taxes not yet due and payable) on the assets of any
of the Gothic Companies.
3.14.5 Except for the group of which Gothic is presently a
member, none of the Gothic Companies has ever been a
member of an "affiliated group of corporations"
within the meaning of Section 1504 of the Code, other
than as a common parent corporation.
3.14.6 After the date hereof, no election which is
inconsistent with past practices with respect to
Taxes will be made without the written consent of
Parent.
3.14.7 None of the assets of any of the Gothic Companies is
property that is required to be treated as being
owned by any other person pursuant to the "safe
harbor lease" provisions of former Section 168(f)(8)
of the Code.
3.14.8 None of the assets of the Gothic Companies directly
or indirectly secures any debt the interest on which
is tax-exempt under Section 103(a) of the Code. None
of the assets of any of the Gothic Companies is
"tax-exempt use property" within the meaning of
Section 168(h) of the Code.
3.14.9 None of the Gothic Companies has agreed to make nor
is it required to make any adjustment under Section
481(a) of the Code by reason of a change in
accounting method or otherwise which will have any
adverse effect on any Tax for a period which ends
after December 31, 1999.
3.14.10 None of the Gothic Companies has participated in an
international boycott within the meaning of Section
999 of the Code.
3.14.11 None of the Gothic Companies has had a permanent
establishment in any foreign country, as defined in
any applicable tax treaty or convention between the
United States and such foreign country.
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3.14.12 Section 3.14.12 of the Gothic Disclosure Schedule
identifies each arrangement to which any of the
Gothic Companies is a party and which is a
partnership for federal income tax purposes and which
was required to file an income tax return for a
taxable year of such partnership which ended in 1999
(taking into account any election which permitted
such arrangement not to file a return).
3.14.13 Gothic did not have an excess loss account in any
subsidiary which had on December 31, 1999, assets
with a fair market value in excess of $500,000.
3.15 Employee Benefit Plans. (a) Section 3.15(a) of the Gothic
Disclosure Schedule lists: (i) the "employee benefit plans"
(within the meaning of Section 3(3) of ERISA), which any of the
Gothic Companies maintains or sponsors or with respect to which
any of the Gothic Companies has any material liability (actual
or contingent, primary or secondary); and (ii) all other (A)
director or employee compensation or benefit plans, programs or
arrangements, (B) stock purchase, stock option, severance,
bonus, incentive and deferred compensation plans, (C) written
employment or consulting contracts, and (D) change-in-control
agreements which any of the Gothic Companies maintains, sponsors
or is a party to or with respect to which any of the Gothic
Companies has or could have any material liability (such plans,
programs, arrangements, contracts and agreements are
collectively referred to herein as the "Gothic Employee Benefit
Plans"). (b) Except as set forth on Section 3.15(b) of the
Gothic Disclosure Schedule: (i) the reserves reflected in the
balance sheet contained in the unaudited financial statements
for the period ending June 30, 2000 (together with all footnotes
attached thereto, the "Balance Sheet") relating to any unfunded
benefits under the Gothic Employee Benefit Plans were adequate
in the aggregate under GAAP as of June 30, 2000; and (ii)
neither Gothic nor any of its subsidiaries has incurred any
material unfunded liability in respect of any such Gothic
Employee Benefit Plans since that date. (c) There are no suits,
investigations or claims (other than undisputed claims for
benefits) pending or, to the knowledge of Gothic threatened (or
any basis therefor) relating to or for benefits under the Gothic
Employee Benefit Plans, except for those suits or claims set
forth in Section 3.15(c) of the Gothic Disclosure Schedule or
which, individually or in the aggregate, are immaterial. (d)
Each Gothic Employee Benefit Plan has been established and
administered in all material respects in accordance with its
terms, and in all material respects in compliance with the
applicable provisions of ERISA, the Code and other applicable
laws, rules and regulations and each Gothic Employee Benefit
Plan which is intended to be qualified within the meaning of
Code Section 401(a) is so qualified. (e) Except as set forth in
Section 3.15(e) of the Gothic Disclosure Schedule: (i) no Gothic
Employee Benefit Plan currently has any "accumulated funding
deficiency" as such term is defined in ERISA Section 302 and
Code Section 412 (whether or not waived); (ii) no event or
condition exists or is expected to occur which is a reportable
event within the meaning of ERISA Section 4043 with respect to
any Gothic Employee Benefit Plan that is subject to Title IV of
ERISA and with respect to which the 30-day notice requirement
has not been waived; (iii) each member of Gothic's Controlled
Group (as defined below) has made all required premium payments
when due to the Pension Benefit Guaranty Corporation
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<PAGE> 26
("PBGC"); (iv) neither Gothic nor any member of its Controlled
Group is subject to any liability to the PBGC for any Gothic
Employee Benefit Plan termination; (v) no amendment has occurred
which requires Gothic or any member of its Controlled Group to
provide security pursuant to Code Section 401(a)(29); and (vi)
neither Gothic nor any member of its Controlled Group has
engaged in a transaction which is reasonably likely to subject
it to liability under ERISA Section 4069. For the purposes of
this paragraph 3.15, the term "Controlled Group" means all
corporations, trades or businesses which, together with Gothic,
are treated as a single employer under Section 414 of the Code.
(f) No Gothic Employee Benefit Plan is a multiemployer plan
(within the meaning of Section 3(37) of ERISA) and neither
Gothic nor any member of its Controlled Group has incurred or is
reasonably likely to incur any liability to any multiemployer
plan nor has or is engaged in a transaction which is reasonably
expected to subject Gothic or any member of its Controlled Group
to any liability under ERISA Section 4212(c). (g) Except as set
forth in Section 3.15(g) of the Gothic Disclosure Schedule, each
Gothic Employee Benefit Plan described in subpart (a)(i) above
can be unilaterally terminated at any time by the Gothic
Companies without material liability to any of the Gothic
Companies.
3.16 Environmental Matters. (a) Except as set forth in Section 3.16
of the Gothic Disclosure Schedule: (i) the reserves reflected in
the Gothic Financial Statements relating to environmental
matters were adequate under GAAP as of June 30, 2000, and
neither Gothic nor any other Gothic Company has incurred any
material liability in respect of any environmental matter since
that date; and (ii) the Gothic SEC Documents include all
information relating to environmental matters required to be
included therein under the rules and regulations of the SEC
applicable thereto. (b) Except as set forth in Section 3.16 of
the Gothic Disclosure Schedule, to the knowledge of Gothic: (i)
each of the Gothic Companies has conducted its business and
operated its assets, and is conducting its business and
operating its assets, in material compliance with all
Environmental Laws; (ii) none of the Gothic Companies has been
notified by any Governmental Authority that any of the
operations or assets of any of the Gothic Companies is the
subject of any investigation or inquiry by any Governmental
Authority evaluating whether any material remedial action is
needed to respond to a release of any Hazardous Material or to
the improper storage or disposal (including storage or disposal
at offsite locations) of any Hazardous Material; (iii) none of
the Gothic Companies and no other Person has filed any notice
under any federal, state or local law indicating that (A) any of
the Gothic Companies is responsible for the improper release
into the environment, or the improper storage or disposal of any
Hazardous Material, or (B) any Hazardous Material is improperly
stored or disposed of upon any property of any of the Gothic
Companies; (iv) none of the Gothic Companies has any material
contingent liability in connection with a release into the
environment at or on the property now or previously owned or
leased by any of the Gothic Companies, or the storage or
disposal of any Hazardous Material; (v) none of the Gothic
Companies has received any claim, complaint, notice, inquiry or
request for information which remains unresolved as of the date
hereof with respect to any alleged violation of any
Environmental Law or regarding potential liability under any
Environmental Law relating to operations or conditions of any
facilities or property owned, leased or
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operated by any of the Gothic Companies; (vi) there are no
sites, locations or operations at which any of the Gothic
Companies is currently undertaking, or has completed, any
remedial or response action relating to any such disposal or
release, as required by Environmental Laws; and (vii) all
underground storage tanks and solid waste disposal facilities
owned or operated by the Gothic Companies are used and operated
in material compliance with Environmental Laws.
3.17 Vote Required. The affirmative vote of the holders of a majority
of the outstanding shares of Gothic Common Stock and Gothic
Preferred Stock voting as one class is the only vote of the
holders of any class or series of Gothic capital stock or other
voting securities necessary to approve this Agreement, the
Merger and the transactions contemplated hereby.
3.18 Gothic Board of Directors Actions. The board of directors of
Gothic has by requisite vote of all directors present: (a)
determined that the Merger is advisable; (b) approved the Merger
in accordance with the provisions of Section 1081 of the OGCA
and the transactions contemplated by this Agreement; and (c)
recommended the approval of this Agreement and the Merger by the
holders of Gothic Common Stock and directed that the Merger be
submitted for consideration by the holders of Gothic Common
Stock and Gothic Preferred Stock at a meeting of such
stockholders contemplated by paragraph 5.5 hereof.
3.19 Employment Contracts and Benefits. Except as otherwise set forth
in Section 3.19 of the Gothic Disclosure Schedule or otherwise
provided for in any Gothic Employee Benefit Plan: (a) none of
the Gothic Companies is subject to or obligated under any
consulting, employment, severance, termination or similar
arrangement, any employee benefit, incentive or deferred
compensation plan with respect to any Person, or any bonus,
profit sharing, pension, stock option, stock purchase or similar
plan or other arrangement or other fringe benefit plan entered
into or maintained for the benefit of employees or any other
Person; and (b) no employee of any of the Gothic Companies or
any other Person owns, or has any rights granted by any of the
Gothic Companies to acquire, any interest in any of the assets
or business of any of the Gothic Companies. Section 3.19 of the
Gothic Disclosure Schedule sets forth all indebtedness,
promissory notes and other obligations owing by any employee,
officer or non-employee director of the Gothic Companies
including, without limitation, by employee, officer or
non-employee director, the principal amount thereof, the
interest rate applicable thereto, any collateral securing
payment thereof, the payment terms and the maturity date
thereof.
3.20 Labor Matters. No employees of any of the Gothic Companies are
represented by any labor organization. No labor organization or
group of employees of any of the Gothic Companies has made a
demand for recognition or certification as a union or other
labor organization, and there are no representation or
certification proceedings or petitions seeking a representation
proceeding presently pending or threatened in writing to be
brought or filed with the National Labor Relations Board or any
other labor relations tribunal or authority. There are no
organizing activities involving any of the Gothic Companies
pending with any labor organization or group of employees of any
of the
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Gothic Companies. Each of the Gothic Companies is in material
compliance with all laws, rules, regulations and orders relating
to the employment of labor, including all such laws, rules,
regulations and orders relating to wages, hours, collective
bargaining, discrimination, civil rights, safety and health,
workers' compensation and the collection and payment of
withholding or social security Taxes and similar Taxes, except
where the failure to comply would not, individually or in the
aggregate, have a Material Adverse Effect on the Gothic
Companies.
3.21 Insurance. Each of the Gothic Companies maintains, and through
the Closing Date will maintain, insurance with reputable
insurers (or pursuant to prudent self-insurance programs) in
such amounts and covering such risks as are in accordance with
normal industry practice for companies engaged in businesses
similar to those of the Gothic Companies and owning properties
in the same general area in which the Gothic Companies conduct
their businesses. Each of the insurance policies currently
maintained by the Gothic Companies is described in Section 3.21
of the Gothic Disclosure Schedule. Each of the Gothic Companies
may terminate each of its insurance policies or binders at or
after the Closing and will incur no penalties or other material
costs in doing so. None of the such policies or binders was
obtained through the use of false or misleading information or
the failure to provide the insurer with all information
requested in order to evaluate the liabilities and risks
insured. There is no material default with respect to any
provision contained in any such policy or binder, nor has any of
the Gothic Companies failed to give any notice or present any
claim under any such policy or binder in due and timely fashion.
There are no billed but unpaid premiums past due under any such
policy or binder. Except as otherwise set forth in Section 3.21
of the Gothic Disclosure Schedule: (a) there are no outstanding
claims under any such policies or binders and, to the knowledge
of Gothic, there has not occurred any event that might
reasonably form the basis of any claim against or relating to
any of the Gothic Companies that is not covered by any of such
policies or binders; (b) no notice of cancellation or
non-renewal of any such policies or binders has been received;
and (c) there are no performance bonds outstanding with respect
to any of the Gothic Companies.
3.22 Intangible Property. Except as set forth in Section 3.22 of the
Gothic Disclosure Schedule, there are no material trademarks,
trade names, patents, service marks, brand names, computer
programs, databases, industrial designs, copyrights or other
intangible property that are necessary for the operation, or
continued operation, of the business of any of the Gothic
Companies or for the ownership and operation, or continued
ownership or operation, of any of their assets, for which the
Gothic Companies do not hold valid and continuing authority in
connection with the use thereof. Section 3.22 of the Gothic
Disclosure Schedule lists each seismic agreement to which any of
the Gothic Companies is a party.
3.23 Title to Assets. The Gothic Companies (individually or
collectively) have Defensible Title to all Oil and Gas Interests
of Gothic included or reflected in the Ownership Interests and
all of their other assets, subject only to Permitted
Encumbrances. Each Oil and Gas Interest included or reflected in
the Ownership Interests entitles the Gothic
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Companies (individually or collectively) to receive not less
than the undivided Net Revenue Interest set forth in (or derived
from) the Ownership Interests of all Hydrocarbons produced,
saved and sold from or attributable to such Oil and Gas
Interest, and the portion of such costs and expenses of
operation and development of such Oil and Gas Interest that is
borne or to be borne by the Gothic Companies (individually or
collectively) is not greater than the undivided Working Interest
set forth in (or derived from) the Ownership Interests.
3.24 Opinion of Financial Advisor. On the date of execution of this
Agreement, the board of directors of Gothic will receive the
opinion of CIBC Worldmarkets that, as of such date, the
consideration contemplated by paragraph 2.3.2 is fair from a
financial point of view to the holders of Gothic Common Stock.
3.25 Oil and Gas Operations. Except as otherwise set forth in Section
3.25 of the Gothic Disclosure Schedule: (a) all wells included
in the Oil and Gas Interests of Gothic have been drilled and (if
completed) completed, operated and produced in accordance with
generally accepted oil and gas field practices and in compliance
in all material respects with applicable oil and gas leases and
applicable laws, rules, regulations, except where the failure or
violation could not reasonably be expected to have a Material
Adverse Effect on Gothic or Gothic's ability to consummate the
transactions contemplated hereby in accordance with this
Agreement; and (b) proceeds from the sale of Hydrocarbons
produced from Gothic's Oil and Gas Interests are being received
by the Gothic Companies in a timely manner and are not being
held in suspense for any reason (except for amounts,
individually or in the aggregate, not in excess of $250,000 and
held in suspense in the ordinary course of business).
3.26 Financial and Commodity Hedging. Section 3.26 of the Gothic
Disclosure Schedule accurately summarizes the outstanding
Hydrocarbon and financial hedging positions of the Gothic
Companies (including fixed price controls, collars, swaps, caps,
hedges and puts) as of the date reflected on the Gothic
Disclosure Schedule. After July 1, 2000, Gothic has not entered
into and will not enter into any new hedging positions without
Parent's prior written consent, which will not be unreasonably
withheld.
3.27 Books and Records. All books, records and files of the Gothic
Companies (including those pertaining to Gothic's Oil and Gas
Interests, wells and other assets, the production, gathering,
transportation and sale of Hydrocarbons, and corporate,
accounting, financial and employee records): (a) have been
prepared, assembled and maintained in accordance with usual and
customary policies and procedures; and (b) fairly and accurately
reflect the ownership, use, enjoyment and operation by the
Gothic Companies of their respective assets.
3.28 Other Entities. Gothic has no direct or indirect equity interest
in any corporation, partnership, limited liability company,
joint venture, business association or other entity other than
the entities included in the Gothic Companies (other than joint
venture, joint operating or ownership arrangements entered into
in the ordinary course of business or other partnerships that,
individually or in the aggregate, are not material to the
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operations or businesses of the Gothic Companies, taken as a
whole). Except as disclosed in Section 3.28 of the Gothic
Disclosure Schedule, and except as may be required under the
securities laws of any jurisdiction: (i) all of the outstanding
capital stock of, or other ownership interests in, each
subsidiary of Gothic, has been validly issued, is (in the case
of capital stock) fully paid and nonassessable and (in the case
of partnership interests) not subject to current or future
capital calls, and is owned by Gothic, directly or indirectly,
free and clear of any lien and free of any other charge, claim,
encumbrance, limitation or restriction (including any
restriction on the right to vote, sell or otherwise dispose of
such capital stock or other ownership interests); and (ii) there
are not now, and at the Effective Time there will not be, any
outstanding subscriptions, options, warrants, calls, rights,
convertible securities or other agreements or commitments of any
character relating to the issued or unissued capital stock or
other securities of any of Gothic's subsidiaries, or otherwise
obligating Gothic or any such subsidiary to issue, transfer or
sell any such securities or to make any payments in respect of
any of its securities or its equity.
3.29 Account Information. Section 3.29 of the Gothic Disclosure
Schedule contains an accurate list of the names and addresses of
every bank and other financial institution in which any Gothic
Company maintains an account (whether checking, savings or
otherwise), lock box or safe deposit box, and the account
numbers and Persons having signature authority or legal access
thereto.
3.30 Powers of Attorney. There are no outstanding powers of attorney
relating to or affecting any Gothic Company.
3.31 Plugging Status. All wells operated by any Gothic Company 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 the Gothic Companies and the Oil and Gas
Interests.
3.32 No Knowledge of Breach of Representations. Gothic has no actual
knowledge that any of the representations of Parent or Sub
contained in this Agreement are untrue as of the date of this
Agreement. If and to the extent that Gothic has any such
knowledge as of the date of this Agreement, Gothic will not
assert any remedy under this Agreement for breach of such
representation (including, but not limited to, any right to not
close the Merger due to a failure to satisfy the condition to
Closing set forth in Section 6.3.1 arising solely as a result of
any such breach).
3.33 Proxy Statement/Prospectus; Registration Statement. None of the
information supplied or to be supplied by Gothic for inclusion
or incorporation by reference in (1) the Proxy
Statement/Prospectus and any amendments or supplements thereto,
or (2) the Registration Statement and any amendments or
supplements thereto, will, at the respective times such
documents are filed, (i) in the case of the Proxy
Statement/Prospectus, at the time the Proxy Statement/Prospectus
or any amendment or supplement thereto is first mailed to
stockholders of Gothic, at the time such
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stockholders vote on approval and adoption of this Agreement and
at the Effective Time, contain any untrue statement of a
material fact or omit to state any material fact required to be
stated therein or necessary in order to make the statements made
therein, in light of the circumstances under which they were
made, not misleading and (ii) in the case of the Registration
Statement, when it becomes effective under the Securities Act,
contain any untrue statement of a material fact or omit to state
any material fact required to be stated therein or necessary to
make the statements therein not misleading. If at any time prior
to Effective Time any event with respect to any of the Gothic
Companies or their officers and directors will occur which is
required to be described in an amendment of, or a supplement to,
the Proxy Statement/Prospectus or the Registration Statement,
such event will be so described, and such amendment or
supplement will be promptly filed with the SEC and, as required
by law, disseminated to the stockholders of Gothic. The
Registration Statement will comply (with respect to Gothic) as
to form in all material respects with the provisions of the
Securities Act, and the Proxy Statement/Prospectus will comply
(with respect to Gothic) as to form in all material respects
with the provisions of the Exchange Act.
3.34 Equipment. All equipment constituting part of the Oil and Gas
Interests has been installed, maintained, and operated by the
Gothic Companies as a prudent operator in accordance with oil
and gas industry standards, and is currently in a state of
repair so as to be adequate for normal operations by the Gothic
Companies, except where the failure to do so would not,
individually or in the aggregate, have a Material Adverse Effect
on the Gothic Companies (taken as a whole).
3.35 Current Commitments. Section 3.35 of the Gothic Disclosure
Schedule and the expenses specifically permitted under the terms
of paragraph 5.1.10 contain a true and reasonably complete list
as of July 31, 2000, of all oral or written commitments for
capital expenditures of more than $50,000 with respect to any of
the wells or the Oil and Gas Interests for which all of the
activities anticipated in such commitments will not have been
completed by the Effective Time. Except for those set forth in
Section 3.35 of the Gothic Disclosure Schedule, as of Closing
there will be no oral or written commitments for capital
expenditures with respect to the Oil and Gas Interests.
3.36 Payout Balances. Section 3.36 of the Gothic Disclosure Schedule
contains a reasonably complete and accurate list of the status,
as of June 30, 2000 with respect to Gothic Company operated
wells and as of March 31, 2000 with respect to third party
operated wells, of: (a) the "payout" balance for each Oil and
Gas Interest that is subject to a reversion or other adjustment
at some level of cost recovery or payout (or passage of time or
other event, other than cessation of production); and (b) all
gas balancing obligations and rights for each Oil and Gas
Interest which is subject to a gas balancing overage or
underage.
3.37 Full Disclosure. The representations, warranties or other
statements by all Gothic Companies in this Agreement or in the
Gothic Disclosure Schedule or Exhibits hereto or any documents
distributed generally to Gothic's stockholders, taken as a
whole, do
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not contain any untrue statement of a material fact or omit to
state a material fact necessary to make the statements contained
therein not misleading.
3.38 Certain Agreements. There are no contracts, agreements,
arrangements or understandings to which any of the Gothic
Companies is a party which create, govern or purport to govern
the right of another party (other than Parent or Sub) to acquire
any of the Gothic Companies.
3.39 Affiliate Transactions. There are no transactions between any of
the Gothic Companies and any of their respective Affiliates,
which are required to be disclosed in the Gothic SEC Documents
which are not disclosed.
3.40 Employees, Officers and Directors Loans. With respect to each
loan by any of the Gothic Companies to any officer, director or
employee of any of the Gothic Companies: (a) prior to the
execution of this Agreement each officer and employee has
executed and delivered to the Gothic Companies a letter in the
form set forth in Section 3.40 of the Gothic Disclosure Schedule
irrevocably directing the Gothic Companies to apply the
severance payments due to such officers and employees to the
payment in full of such loans; and (b) prior to the execution of
this Agreement each non-employee director of the Gothic
Companies has executed and delivered to Gothic a pledge
agreement in the form set forth in Section 3.40 of the Gothic
Disclosure Schedule pledging to Gothic the Gothic Common Stock
acquired with such loan (the "Pledged Stock"), has delivered
possession of the Pledged Stock to Gothic and taken any
additional or other actions appropriate to create and maintain a
first perfected security interest in such Gothic Common Stock in
favor of Gothic. On or before the Closing Date: (y) the Gothic
Companies will first apply the severance payments due to such
officers and employees against the unpaid principle balance and
any accrued but unpaid interest owing under such officers and
employees' loans, with any remaining amount to be paid in
accordance with the terms and conditions of the Gothic severance
policy; and (z) the Gothic Companies will deliver any remaining
unpaid promissory notes, the pledge agreements for the
non-employee directors and the Pledged Stock for the
non-employee directors to Parent together with the promissory
notes secured thereby. The Gothic Companies will: (i) take any
and all action necessary to maintain in full force and effect
the foregoing promissory notes, instruction letters, pledge
agreements and first perfected security interests in all Pledged
Stock; (ii) not amend, forgive, waive compliance with or
otherwise release any rights under any of the foregoing except
on payment in full of the applicable obligation; and (iii)
assist in the collection and enforcement of the foregoing
agreements and obligations. All of the parties hereto agree that
the first perfected security interest in the Pledged Stock will
continue in all of the Parent Common Stock which is exchanged or
exchangeable for the Pledged Stock pursuant to this Agreement.
Gothic hereby acknowledges and agrees that any failure to comply
with the provisions of this paragraph 3.40 by Michael Paulk,
Steven Ensz or the non-employee directors at any time to and
including the Closing Date will constitute a Material Adverse
Effect.
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4. Parent and Sub Representations and Warranties. Except as set forth in the
Parent Disclosure Schedule, Parent and Sub hereby jointly and severally
represent and warrant to Gothic that:
4.1 Corporate Organization. Each of Parent and Sub: (a) is a
corporation duly organized, validly existing and in good
standing under the laws of its state of incorporation; (b) has
all requisite corporate power and authority to own, lease and
operate its properties and assets and to carry on its business
as it is presently being conducted; and (c) is duly qualified to
do business as a foreign corporation, and is in good standing,
in each jurisdiction where the character of the properties owned
or leased by it or the nature of its activities makes such
qualification necessary (except where any failure to be so
qualified as a foreign corporation or to be in good standing
would not, individually or in the aggregate, have a Material
Adverse Effect on Parent). Copies of the certificate or articles
of incorporation and bylaws of each of Parent and Sub have
heretofore been delivered to Gothic, and such copies are
accurate and complete as of the date hereof.
4.2 Authority and Enforceability. Each of Parent and Sub has the
requisite corporate power and authority to execute and deliver
this Agreement and (with respect to consummation of this
Agreement and the Merger, subject to the approval of the Parent
as the sole stockholder of Sub) to consummate the transactions
contemplated hereby. The execution and delivery of this
Agreement and the consummation of the transactions contemplated
hereby have been duly and validly authorized by all necessary
corporate action on the part of Parent and Sub, including
approval by the respective boards of directors of Parent and Sub
and by Parent as the sole stockholder of Sub, and no other
corporate proceedings on the part of Parent or Sub are necessary
to authorize the execution or delivery of this Agreement or
(with approval by the Parent as the stockholder of Sub) to
consummate the transactions contemplated hereby. This Agreement
has been duly and validly executed and delivered by each of
Parent and Sub and (with respect to consummation of this
Agreement and the Merger, assuming that this Agreement
constitutes a valid and binding obligation of Gothic)
constitutes a valid and binding obligation of each of Parent and
Sub, enforceable against Parent and Sub in accordance with its
terms.
4.3 No Violations. The execution and delivery of this Agreement does
not, and the consummation of the transactions contemplated
hereby and compliance by Parent and Sub with the provisions
hereof will not, conflict with, result in any violation of or
default (with or without notice or lapse of time or both) under,
give rise to a right of termination, cancellation or
acceleration of any obligation or to the loss of a material
benefit under, or result in the creation of any Lien on any of
the properties or assets of Parent or any Parent Subsidiary
under, any provision of: (a) the certificate of incorporation or
bylaws of Parent or Sub or any provision of the comparable
charter or organizational documents of any Parent Subsidiary;
(b) any loan or credit agreement, note, bond, mortgage,
indenture, lease, permit, concession, franchise, license or
other agreement or instrument applicable to Parent or any Parent
Subsidiary; or (c) assuming the consents, approvals,
authorizations or permits and filings or notifications referred
to in paragraph 4.4 are duly and timely obtained or made, any
judgment, order, decree, statute, law, ordinance, rule or
regulation applicable to Parent or any Parent Subsidiary
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or any of their respective properties or assets, other than, in
the case of clause (b) or (c) above, any such conflict,
violation, default, right, loss or Lien that has been waived or
consented to or that, individually or in the aggregate, would
not have a Material Adverse Effect on Parent or Parent's or
Sub's ability to consummate the transactions contemplated hereby
in accordance with this Agreement.
4.4 Consents and Approvals. No consent, approval, order or
authorization of, registration, declaration, or filing with, or
permit from, any Governmental Authority is required by or with
respect to Parent or Sub in connection with the execution and
delivery of this Agreement by Parent or Sub or the consummation
by Parent and Sub of the transactions contemplated hereby except
for the following: (a) any such consent, approval, order,
authorization, registration, declaration, filing or permit which
the failure to obtain or make would not, individually or in the
aggregate, have a Material Adverse Effect on Parent or Parent's
or Sub's ability to consummate the transactions contemplated
hereby in accordance with this Agreement; (b) the filing of the
Certificate of Merger with the Secretary of State of Oklahoma
pursuant to the provisions of the OGCA; (c) the filing, if
necessary, of a pre-merger notification report by Parent under
the HSR Act and the expiration or termination of the applicable
waiting period; (d) the filing with the SEC of the Proxy
Statement/Prospectus and the Registration Statement and such
reports under Section 13(a) of the Exchange Act and such other
compliance with the Exchange Act and the Securities Act and the
rules and regulations of the SEC thereunder as may be required
in connection with this Agreement and the transactions
contemplated hereby and the obtaining from the SEC of such
orders as may be so required; (e) the filing with the Exchange
of a listing application relating to the shares of Parent Common
Stock to be issued pursuant the Merger and the obtaining from
the Exchange of its approval thereof; (f) such filings and
approvals as may be required by any applicable state securities,
"blue sky" or takeover laws or Environmental Laws; and (g) the
valid approval of this Agreement and the Merger by the board of
directors of Parent and Sub.
4.5 Parent SEC Documents. Gothic has had available to it a true,
correct and complete copy of each report, schedule, registration
statement and definitive proxy statement filed by Parent with
the SEC since December 31, 1998, and prior to the date of this
Agreement (the "Parent SEC Documents"), which are all the
documents (other than preliminary material) that Parent was
required to file with the SEC since such date. As of their
respective dates, the Parent SEC Documents complied in all
material respects with the requirements of the Securities Act or
the Exchange Act, as the case may be, and the rules and
regulations of the SEC thereunder applicable to such Parent SEC
Documents, and none of the Parent SEC Documents contained any
untrue statement of a material fact or omitted to state a
material fact required to be stated therein or necessary to make
the statements therein, in light of the circumstances under
which they were made, not misleading.
4.6 Financial Statements. The Parent Financial Statements were
prepared in accordance with the applicable published rules and
regulations of the SEC with respect thereto and in accordance
with GAAP applied on a consistent basis during the periods
involved (except as may be indicated in the notes thereto or, in
the case of unaudited statements,
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as permitted by Rule 10-01 of Regulation S-X of the SEC) and
fairly present in all material respects, in accordance with
applicable requirements of GAAP (in the case of unaudited
statements, subject to normal, recurring adjustments), the
consolidated financial position of Parent and the Parent
Subsidiaries as of their respective dates and the consolidated
results of operations and the consolidated cash flows of Parent
and the Parent Subsidiaries for the periods presented therein.
4.7 Capital Structure. The authorized capital stock of Parent
consists of 250,000,000 shares of Parent Common Stock and
10,000,000 shares of preferred stock of which 148,768,103 shares
of Parent Common Stock and 624,037 shares of preferred stock
were issued and outstanding as of August 23, 2000. The
authorized capital stock of Sub consists of 1,000 shares of Sub
Common Stock. Except as set forth in the two preceding sentences
and in Section 4.7 of the Parent Disclosure Schedule, there are:
(a) no outstanding shares of capital stock or other voting
securities of Parent (other than shares issued since August 23,
2000, upon the exercise of outstanding options described in
Section 4.7 of the Parent Disclosure Schedule); (b) no
outstanding securities of Parent convertible into or
exchangeable or exercisable for shares of capital stock or other
voting securities of Parent; and (c) no outstanding
subscriptions, options, warrants, calls, rights (including
preemptive rights, commitments, understandings or agreements to
which Parent is a party or by which it is bound) obligating
Parent to issue, deliver, sell, purchase, redeem or acquire
shares of capital stock or other voting securities of Parent (or
securities of Parent) or obligating Parent to grant, extend or
enter into any such subscription, option, warrant, call, right,
commitment, understanding or agreement. All outstanding shares
of Parent capital stock are, and (when issued) the shares of
Parent Common Stock to be issued pursuant to the Merger will be,
validly issued, fully paid and nonassessable and not subject to
any preemptive right. There are 1,000 shares of Sub Common Stock
issued and outstanding, all of which are owned by Parent. All
outstanding shares of Sub Common Stock are validly issued, fully
paid and nonassessable and not subject to any preemptive right.
As of the date hereof there is no, and at the Effective Time
there will not be any, stockholder agreement, voting trust or
other agreement or understanding to which Parent is a party or
by which it is bound relating to the voting of any shares of the
capital stock of Parent.
4.8 Governmental Regulation. Neither Parent nor any of the Parent
Subsidiaries is subject to regulation under the Public Utility
Holding Company Act of 1935, the Federal Power Act, the
Interstate Commerce Act, the Investment Company Act of 1940 or
any state public utilities laws.
4.9 Litigation. Except as set forth in Section 4.9 of the Parent
Disclosure Schedule, there is no litigation, arbitration,
investigation or other proceeding of any Governmental Authority
or other Person pending or, to the knowledge of Parent,
threatened against Parent or a Parent Subsidiary or their
respective assets which, if adversely determined, could
reasonably be expected to have a Material Adverse Effect on
Parent or Parent's ability to consummate the transactions
contemplated hereby in accordance with this Agreement. Parent
has no knowledge of any facts that are likely to give rise to
any litigation, arbitration, investigation or other proceeding
of any Governmental Authority
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or other Person which, individually or in the aggregate, is
reasonably likely to have a Material Adverse Effect on Parent or
Parent's ability to consummate the transactions contemplated
hereby in accordance with this Agreement. No Parent Company is
subject to any outstanding injunction, judgment, order, decree
or ruling (other than routine oil and gas field regulatory
orders and any injunction, judgment, order, decree or ruling
that, either individually or in the aggregate, would not have a
Material Adverse Effect) on Parent or Parent's ability to
consummate the transactions contemplated hereby in accordance
with this Agreement. There is no litigation, investigation or
other proceeding of any Governmental Authority or other Person
pending or, to the knowledge of Parent, threatened against or
affecting Parent, Sub or a Parent Subsidiary that questions the
validity or enforceability of this Agreement or any other
document, instrument or agreement to be executed and delivered
by Parent or Sub in connection with the transactions
contemplated hereby.
4.10 Interim Operations of Sub. Sub was formed solely for the purpose
of engaging in the transactions contemplated by this Agreement
and has not engaged in any business or activity (or conducted
any operations) of any kind, entered into any agreement or
arrangement with any Person, or incurred, directly or
indirectly, any material liabilities or obligations, except in
connection with its incorporation, the negotiation of this
Agreement, the Merger and transactions contemplated hereby.
4.11 Brokers. Other than Bear, Stearns & Co. Inc. (the "Financial
Advisor"), no broker, finder, investment banker or other Person
is or will be, in connection with the transactions contemplated
by this Agreement, entitled to any brokerage, finder's or other
fee or compensation based on any arrangement or agreement made
by or on behalf of Parent or Sub and for which Parent or Sub or
any of the Gothic Companies will have any obligation or
liability.
4.12 Absence of Certain Changes. Except as set forth in Section 4.12
of the Parent Disclosure Schedule, since June 30, 2000, the
Parent Companies have conducted their businesses only in the
ordinary course of business consistent with past practices and,
since such date, there has not been any event (financial or
otherwise, whether or not in the ordinary course of business),
circumstance or condition that: (a) would be reasonably likely
to have a Material Adverse Effect on Parent or Parent's ability
to consummate the transactions contemplated hereby in accordance
with this Agreement; or (b) would have required the consent of
Gothic pursuant to paragraph 5.2 had such event occurred after
the date of this Agreement (other than changes, including
changes in commodity prices generally affecting the oil and gas
industry, changes resulting from exploration or development
results reported in the ordinary course of business and changes
arising from the announcement of the Merger).
4.13 Compliance with Laws and Permits. None of the Parent Companies
is in violation of, or in default under, and no event has
occurred that (with notice or the lapse of time or both) would
constitute a violation of or default under: (a) its certificate
or articles of incorporation or bylaws or partnership agreement
or other governing document; or (b) any applicable law, rule,
regulation, order, writ, decree or judgment of any
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Governmental Authority, except (in the case of clause (b) above)
for any violation or default that would not, individually or in
the aggregate, have a Material Adverse Effect on Parent or
Parent's or Sub's ability to consummate the transactions
contemplated hereby in accordance with this Agreement. Each of
the Parent Companies has obtained and holds all permits,
licenses, variances, exemptions, orders, franchises, approvals
and authorizations of all Governmental Authorities necessary for
the lawful conduct of its business or the lawful ownership, use
and operation of its assets ("Parent Permits"), except for
Parent Permits which the failure to obtain or hold would not,
individually or in the aggregate, have a Material Adverse Effect
on Parent or Parent's or Sub's ability to consummate the
transactions contemplated hereby in accordance with this
Agreement. Each of the Parent Companies is in compliance with
the terms of its Parent Permits, except where the failure to
comply would not, individually or in the aggregate, have a
Material Adverse Effect on Parent or Parent's or Sub's ability
to consummate the transactions contemplated hereby in accordance
with this Agreement. No investigation or review by any
Governmental Authority with respect to any of the Parent
Companies is pending or, to the knowledge of Parent, threatened,
other than those the outcome of which would not, individually or
in the aggregate, have a Material Adverse Effect on Parent or
Parent's or Sub's ability to consummate the transactions
contemplated hereby in accordance with this Agreement.
4.14 No Restrictions. Except as otherwise set forth in Section 4.14
of the Parent Disclosure Schedule, none of the Parent Companies
is a party to: (a) any agreement, indenture or other instrument
that contains restrictions with respect to the payment of
dividends or other distributions with respect to its capital
stock; (b) any financial arrangement with respect to or creating
any indebtedness to any Person (other than indebtedness
reflected in the Parent Financial Statements or indebtedness
incurred in the ordinary course of business); (c) any agreement,
contract or commitment relating to the making of any advance to,
or investment in, any Person (other than advances in the
ordinary course of business); (d) any guaranty or other
contingent liability with respect to any indebtedness or
obligation of any Person (other than guaranties undertaken in
the ordinary course of business and other than the endorsement
of negotiable instruments for collection in the ordinary course
of business); or (e) any agreement, contract or commitment
limiting in any respect its ability to compete with any Person
or otherwise conduct business of any line or nature.
4.15 Taxes. Except as set forth in Section 4.15 of the Parent
Disclosure Schedule:
4.15.1 Parent and each Parent Subsidiary, and any
affiliated, combined or unitary group of which Parent
or any Parent Subsidiary is or was a member has
properly completed and timely (taking into account
any extensions) filed all material federal, state,
local and foreign returns, declarations, reports,
estimates, information returns and statements
("Parent Returns") required to be filed in respect of
any Tax and has timely paid all Taxes that are shown
by such Parent Returns to be due and payable. The
Parent Returns correctly and accurately (except for
one or more matters the aggregate effect of which is
not material) reflect the facts regarding the income,
business and assets,
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operations, activities, status or other matters of
Parent required to be shown thereon or any other
information required to be shown thereon and are not
subject to penalties under Section 6662 of the Code,
relating to accuracy-related penalties, or any
corresponding provision of applicable state, local or
foreign tax law or any predecessor provision. Parent
and each Parent Subsidiary has established reserves
that are adequate in the aggregate for the payment of
all material Taxes not yet due and payable with
respect to the results of operations of Parent and
each Parent Subsidiary through the date hereof Parent
and each Parent Subsidiary have complied in all
material respects with all applicable laws, rules and
regulations relating to the payment and withholding
of Taxes and the filing of material federal, state or
local Parent Returns.
4.15.2 Section 4.15.2 of the Parent Disclosure Schedule sets
forth the last taxable period through which the
federal income Tax Returns of Parent and each Parent
Subsidiary have been examined by the IRS. Except to
the extent being contested in good faith, all
material deficiencies asserted as a result of such
examinations and any examination by any applicable
state or local taxing authority have been paid, fully
settled or adequately provided for in Parent's most
recent audited financial statements. No material
federal, state or local income or franchise tax
audits or other administrative proceedings or court
proceedings are presently pending with regard to any
Taxes for which Parent or any of the Parent
Subsidiaries would be liable, and no material
deficiency which has not yet been paid for any such
Taxes has been proposed, asserted or assessed against
Parent or any of the Parent Subsidiaries with respect
to any period. No claim has been asserted by any
authority in any jurisdiction where the Parent
Companies do not file Returns that any Parent Company
is subject to Tax in that jurisdiction.
4.15.3 Except as disclosed on Section 4.15.3 of the Parent
Disclosure Schedule, neither Parent nor any Parent
Subsidiary has executed or entered into (or prior to
the close of business on the Closing Date will
execute or enter into) with the IRS or any taxing
authority: (i) any agreement extending the period for
assessment or collection of any Tax for which Parent
or any Parent Subsidiary is liable for any period
that is open under the applicable statute of
limitations; or (ii) a closing agreement pursuant to
Section 7121 of the Code or any similar provision of
state or local income tax law that relates to Parent
or any Parent Subsidiary for the current or any
future taxable period. Neither Parent nor any Parent
Subsidiary has made an election under Section 341(f)
of the Code or has agreed to have Section 341(f)(2)
of the Code apply to any disposition of a subsection
(f) asset (as such term is defined in Section
341(f)(4) of the Code) owned by Parent or any Parent
Subsidiary. Neither Parent nor any Parent Subsidiary
is a party to, is bound by or has any obligation
under any tax sharing agreement or similar agreement
or arrangement. Neither Parent nor any Parent
Subsidiary is a party to any agreement or other
arrangement that, as a consequence of the Merger
would
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result separately or in the aggregate in the payment
of any "excess parachute payments" within the meaning
of Section 280G of the Code.
4.15.4 There are no liens for Taxes (other than for current
Taxes not yet due and payable) on the assets of
Parent or any Parent Subsidiary.
4.15.5 Except for the group of which Parent is presently a
member, neither Parent nor any Parent Subsidiary has
ever been a member of an "affiliated group of
corporations" within the meaning of Section 1504 of
the Code, other than as a common parent corporation.
4.15.6 After the date hereof, no election which is
inconsistent with past practices with respect to
Taxes will be made without the written consent of
Gothic.
4.15.7 None of the assets of Parent or any Parent Subsidiary
is property that Parent is required to treat as being
owned by any other person pursuant to the "safe
harbor lease" provisions of former Section 168(f)(8)
of the Code.
4.15.8 None of the assets of Parent or any Parent Subsidiary
directly or indirectly secures any debt the interest
on which is tax-exempt under Section 103(a) of the
Code.
4.15.9 None of the assets of Parent or any Parent Subsidiary
is "tax-exempt use property" within the meaning of
Section 168(h) of the Code.
4.15.10 Neither Parent nor any Parent Subsidiary has agreed
to make nor is it required to make any adjustment
under Section 481(a) of the Code by reason of a
change in accounting method or otherwise which will
have any Material Adverse Effect on any Tax for a
period which ends after December 31, 1999.
4.16 Environmental Matters. Except as set forth in Section 4.16 of
the Parent Disclosure Schedule or the Parent SEC Documents: (i)
the reserves reflected in the Parent Financial Statements
relating to environmental matters were adequate under GAAP as of
June 30, 2000, and neither Parent nor any of the Parent
Subsidiaries has incurred any material liability in respect of
any environmental matter since that date; and (ii) the Parent
SEC Documents include all information relating to environmental
matters required to be included therein under the rules and
regulations of the SEC applicable thereto. Except as set forth
in Section 4.16 of the Parent Disclosure Schedule or the Parent
SEC Documents, to the knowledge of Parent: (a) each of the
Parent Companies has conducted its business and operated its
assets, and is conducting its business and operating its assets,
in material compliance with all Environmental Laws; (b) none of
the Parent Companies has been notified by any Governmental
Authority that any of the operations or assets of any of the
Parent Companies is the subject of any investigation or inquiry
by any Governmental Authority evaluating whether any material
remedial action is needed to respond to a release of any
Hazardous Material or to the improper storage or disposal
(including storage or disposal at offsite locations) of any
Hazardous
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Material; (c) none of the Parent Companies and no other Person
has filed any notice under any federal, state or local law
indicating that: (i) any of the Parent Companies is responsible
for the improper release into the environment, or the improper
storage or disposal of any Hazardous Material; or (ii) any
Hazardous Material is improperly stored or disposed of upon any
property of any of the Parent Companies; (d) none of the Parent
Companies has any material contingent liability in connection
with a release into the environment at or on the property now or
previously owned or leased by any of the Parent Companies or the
storage or disposal of any Hazardous Material; (e) none of the
Parent Companies has received any claim, complaint, notice,
inquiry or request for information which remains unresolved as
of the date hereof with respect to any alleged violation of any
Environmental Law or regarding potential liability under any
Environmental Law relating to operations or conditions of any
facilities or property owned, leased or operated by any of the
Parent Companies; (f) there are no sites, locations or
operations at which any of the Parent Companies is currently
undertaking, or has completed, any remedial or response action
relating to any such disposal or release, as required by
Environmental Laws; and (g) all underground storage tanks and
solid waste disposal facilities owned or operated by the Parent
Companies are used and operated in material compliance with
Environmental Laws.
4.17 Employment Contracts and Benefits. Section 4.17 of the Parent
Disclosure Schedule sets forth each of the Parent's employee
benefit plans ("Parent Employee Benefit Plan") and except as
otherwise set forth in Section 4.17 of the Parent Disclosure
Schedule or otherwise provided for in any Parent Employee
Benefit Plan: (a) none of the Parent Companies is subject to or
obligated under any consulting, employment, severance,
termination or similar arrangement, any employee benefit,
incentive or deferred compensation plan with respect to any
Person, or any bonus, profit sharing, pension, stock option,
stock purchase or similar plan or other arrangement or other
fringe benefit plan entered into or maintained for the benefit
of employees of any other Person; and (b) no employee of any of
the Parent Companies owns, or has any rights granted by any of
the Parent Companies to acquire, any interest in any of the
assets or business of any of the Parent Companies.
4.18 Labor Matters. No employees of any of the Parent Companies are
represented by any labor organization. No labor organization or
group of employees of any of the Parent Companies has made a
demand for recognition or certification as a union or other
labor organization, and there are no representation or
certification proceedings or petitions seeking a representation
proceeding presently pending or threatened in writing to be
brought or filed with the National Labor Relations Board or any
other labor relations tribunal or authority. There are no
organizing activities involving any of the Parent Companies
pending with any labor organization or group of employees of any
of the Parent Companies. Each of the Parent Companies is in
material compliance with all laws, rules, regulations and orders
relating to the employment of labor, including all such laws,
rules, regulations and orders relating to wages, hours,
collective bargaining, discrimination, civil rights, safety and
health, workers' compensation and the collection and payment of
withholding or Social Security Taxes and similar Taxes, except
where
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the failure to comply would not, individually or in the
aggregate, have a Material Adverse Effect on Parent.
4.19 Insurance. Each of the Parent Companies maintains, and through
the Closing Date will maintain, insurance with reputable
insurers (or pursuant to prudent self-insurance programs) in
such amounts and covering such risks as are in accordance with
normal industry practice for companies engaged in businesses
similar to those of the Parent Companies and owning properties
in the same general area in which the Parent Companies conduct
their businesses. None of the policies or binders was obtained
through the use of false or misleading information or the
failure to provide the insurer with all information requested in
order to evaluate the liabilities and risks insured. There is no
material default with respect to any provision contained in any
such policy or binder, nor has any of the Parent Companies
failed to give any notice or present any claim under any such
policy or binder in due and timely fashion.
4.20 Intangible Property. Except as set forth in Section 4.20 of the
Parent Disclosure Schedule, there are no material trademarks,
trade names, patents, service marks, brand names, computer
programs, databases, industrial designs, copyrights or other
intangible property that are necessary for the operation, or
continued operation, of the business of any of the Parent
Companies or for the ownership and operation, or continued
ownership or operation, of any their assets, for which the
Parent Companies do not hold valid and continuing authority in
connection with the use thereof.
4.21 Opinion of Financial Advisor. The board of directors of Parent
has received the opinion dated as of the date hereof of the
Financial Advisor addressed to such board of directors that the
Merger is fair from a financial point of view to the holders of
Parent Common Stock.
4.22 Books and Records. All books, records and files of the Parent
Companies (including those pertaining to Parent's Oil and Gas
Interests, wells and other assets, the production, gathering,
transportation and sale of Hydrocarbons, and corporate,
accounting, financial and employee records): (a) have been
prepared, assembled and maintained in accordance with usual and
customary policies and procedures; and (b) fairly and accurately
reflect the ownership, use, enjoyment and operation by the
Parent Companies of their respective assets.
4.23 Employee Benefit Plans. Each Parent Benefit Plan has been
established and administered in all material respects in
accordance with its terms, and in all material respects in
compliance with the applicable provisions of ERISA, the Code and
other applicable laws, rules and regulations and each Parent
Benefit Plan which is intended to be qualified within the
meaning of Code Section 401(a) is so qualified. Except as set
forth in Section 4.23(b) of the Parent Disclosure Schedule: (i)
no Parent Benefit Plan currently has any "accumulated funding
deficiency" as such term is defined in ERISA Section 302 and
Code Section 412 (whether or not waived); (ii) no event or
condition exists or is expected to occur which is a reportable
event within the meaning of ERISA Section 4043 with respect to
any Parent Benefit Plan that is subject to Title IV of
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ERISA and with respect to which the 30-day notice requirement
has not been waived; (iii) each member of Parent's Controlled
Group (as defined below) has made all required premium payments
when due to the PBGC; (iv) neither Parent nor any member of its
Controlled Group is subject to any liability to the PBGC for any
Parent Benefit Plan termination; (v) no amendment has occurred
which requires Parent or any member of its Controlled Group to
provide security pursuant to Code Section 401(a)(29); and (vi)
neither Parent nor any member of its Controlled Group has
engaged in a transaction which is reasonably likely to subject
it to liability under ERISA Section 4069. For the purposes of
this paragraph 4.23, the term "Controlled Group" means all
corporations, trades or businesses which, together with Parent,
are treated as a single employer under Section 414 of the Code.
4.24 Proxy Statement/Prospectus; Registration Statement. None of the
information supplied or to be supplied by Parent for inclusion
or incorporation by reference in (1) the Proxy
Statement/Prospectus, and any amendments or supplements thereto,
or (2) the Registration Statement, and any amendments or
supplements thereto, will, at the respective times such
documents are filed, (i) in the case of the Proxy
Statement/Prospectus, at the time the Proxy Statement/Prospectus
or any amendment or supplement thereto is first mailed to
stockholders of Gothic, at the time such stockholders vote on
approval and adoption of this Agreement and at the Effective
Time, contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or
necessary in order to make the statements made therein, in light
of the circumstances under which they were made, not misleading
and, (ii) in the case of the Registration Statement, when it
becomes effective under the Securities Act, contain any untrue
statement of a material fact or omit to state any material fact
required to be stated therein or necessary to make the
statements therein not misleading. If at any time prior to
Effective Time any event with respect to any of the Parent
Companies or their officers and directors will occur which is
required to be described in an amendment of, or a supplement to,
the Proxy Statement/Prospectus or the Registration Statement,
such event will be so described, and such amendment or
supplement will be promptly filed with the SEC and, as required
by law, disseminated to the stockholders of Gothic. The
Registration Statement will comply (with respect to Parent) as
to form in all material respects with the provisions of the
Securities Act, and the Proxy Statement/Prospectus will comply
(with respect to Parent) as to form in all material respects
with the provisions of the Exchange Act.
4.25 No Knowledge of Breach of Representations. Parent has no actual
knowledge that any of Gothic's representations contained in this
Agreement are untrue as of the date of this Agreement. If and to
the extent that Parent has any such knowledge as of the date of
this Agreement, Parent will not assert any remedy under this
Agreement for breach of such representation (including, but not
limited to, any right to not close the Merger due to a failure
to satisfy the condition to Closing set forth in paragraph 6.2.1
arising solely as a result of any such breach).
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5. Covenants. From the date hereof until the Effective Time, Parent, Sub and
Gothic hereby covenant and agree as follows:
5.1 Conduct of Gothic Business Pending Closing. From the date hereof
until the Effective Time, Gothic covenants and agrees that,
unless Parent otherwise agrees in writing, the businesses of the
Gothic Companies will be conducted only in, and the Gothic
Companies will not take any action except in, the ordinary
course of business and in a manner consistent with past
practice, and Gothic will use its reasonable best efforts to
preserve substantially intact the business organization of the
Gothic Companies, to keep available the services of the current
officers, employees and consultants of the Gothic Companies and
to preserve the goodwill of those current relationships of the
Gothic Companies with customers, suppliers and other Persons
with which the Gothic Companies have significant business
relations. By way of amplification and not limitation, except as
contemplated by this Agreement, the Gothic Companies will not,
between the date of this Agreement and the Effective Time,
directly or indirectly do, or propose to do, any of the
following without the prior written consent of Parent:
5.1.1 Amend or otherwise change the certificate of
incorporation or bylaws or equivalent organizational
documents of the Gothic Companies;
5.1.2 Issue, sell, pledge, dispose of, grant, encumber, or
authorize the issuance, sale, pledge, disposition,
grant or encumbrance of: (a) any shares of any class
of capital stock of the Gothic Companies, or any
options, warrants, convertible securities or other
rights of any kind to acquire any shares of such
capital stock, or any other ownership interest
(including, without limitation, any phantom
interest), of the Gothic Companies (except for the
issuance of shares of Gothic Common Stock issuable on
conversion of the Gothic Preferred Stock and issuable
pursuant to Gothic Stock Options and Gothic Warrants
outstanding on the date hereof and disclosed in the
Gothic Disclosure Schedule); or (b) any assets of the
Gothic Companies, except for sales of products in the
ordinary course of business;
5.1.3 Declare, set aside, make or pay any dividend or other
distribution, payable in cash, stock, property or
otherwise, with respect to any of its capital stock
(except for such declarations, set asides, dividends
and other distributions made from the Gothic
Subsidiary to Gothic or payment-in-kind dividends to
Parent on the Gothic Preferred Stock);
5.1.4 Reclassify, combine, split, subdivide or redeem,
purchase or otherwise acquire, directly or
indirectly, any capital stock or amend or modify any
warrant or other right to acquire any capital stock;
5.1.5 (a) Acquire (including, without limitation, by
merger, consolidation, or acquisition of stock or
assets) any corporation, partnership, other business
organization or any division thereof or any material
amount of assets other than in the ordinary course of
business; (b) incur any indebtedness for borrowed
money in excess of the existing borrowing base under
the current Bank Credit Agreement or issue any debt
securities or assume, guarantee or endorse, or
otherwise as an accommodation become responsible for,
the
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obligations of any Person, or make any loans,
advances or capital contribution to, or investments
in, any other Person (other than such of the
foregoing as are made by Gothic to or in a
wholly-owned subsidiary of Gothic), except in the
ordinary course of business and consistent with past
practice, but in no event in excess of $1.0 million;
or (c) enter into or amend any contract, agreement,
commitment or arrangement with respect to any matter
set forth in this paragraph 5.1.5;
5.1.6 Increase the compensation payable or to become
payable to any officers or employees, except for
increases in accordance with past practices in
salaries or wages of employees of the Gothic
Companies who are not officers of the Gothic
Companies, or grant any severance or termination pay
to, or enter into any employment or severance
agreement with, any director, officer or other
employee of the Gothic Companies, or establish,
adopt, enter into, modify or amend any collective
bargaining, bonus, profit sharing, thrift,
compensation, stock option except as set forth in
paragraph 2.3.4, restricted stock, pension,
retirement, deferred compensation, employment,
termination, severance phantom stock plan or other
plan, agreement, trust, fund, policy or arrangement
for the benefit of any director, officer or employee;
5.1.7 Make any material Tax election or settle or
compromise any material federal, state, local or
foreign income Tax liability;
5.1.8 Pay, discharge or satisfy any claim, liability or
obligation (absolute, accrued, asserted or
unasserted, contingent or otherwise), other than the
payment, discharge or satisfaction, in the ordinary
course of business and consistent with past practice,
of liabilities reflected or reserved against in the
Gothic Financial Statements or subsequently incurred
in the ordinary course of business and consistent
with past practices;
5.1.9 Settle or compromise any pending or threatened suit,
action or claim which is material or which relates to
any of the transactions contemplated hereby, except
if such settlement or compromise would not have a
Material Adverse Effect;
5.1.10 Undertake: (a) any capital commitment outside
Arkansas, Kansas, Oklahoma and that portion of the
State of Texas located north of latitude 34 degrees N
(the "Midcontinent Area"); (b) any new land or lease
initiatives; (c) any capital expenditures in the
Midcontinent Area in an individual amount greater
than $75,000 or, when aggregated with all other
capital commitments, in an aggregate amount greater
than $500,000, unless such capital expenditure is in
an oil and gas well proposed by a Parent Company or
proposed by a third party and participated in by a
Parent Company; or (d) any new well proposals or
regulatory or governmental action with respect to any
well activities; provided, however, the restrictions
on capital expenditures set forth in this paragraph
5.1.10 will not apply to the McClellan MOC Federal 21
Well, the
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McClellan MOC Federal 22 Well or the Sinclair 2-4
Well so long as such wells are drilled to the depths
and in accordance with the terms set forth in the
respective AFEs for such wells dated April 25, 2000,
June 19, 2000 and July 18, 2000;
5.1.11 Take or cause to be taken any action which would
disqualify the Merger as a 368 Reorganization for Tax
purposes;
5.1.12 Amend, modify, terminate, waive or permit to lapse
any material right of first refusal, preferential
right, right of first offer or any other material
right of any of the Gothic Companies; or
5.1.13 Take or offer or propose to take, or agree to take in
writing, or otherwise, any of the actions described
in paragraphs 5.1.1 through 5.1.12 of this paragraph
5.1 or any action which would result in any of the
conditions to the Merger not being satisfied.
5.2 Conduct of Parent Business Pending Closing. From the date hereof
until the Effective Time, Parent covenants and agrees that,
except to the extent contemplated in the Parent SEC Documents,
as set forth below, or as otherwise agreed to in writing, the
businesses of Parent and the Parent Subsidiaries will be
conducted only in, and Parent and the Parent Subsidiaries will
not take any action except in, the ordinary course of business
and in a manner consistent with past practice, and Parent will
use its reasonable best efforts to preserve substantially intact
the business organization of Parent and the Parent Subsidiaries,
to keep available the services of the current officers,
employees and consultants of Parent and the Parent Subsidiaries
and to preserve the goodwill of those current relationships of
Parent and the Parent Subsidiaries with customers, suppliers and
other Persons with which Parent or any Parent Subsidiary has
significant business relations. By way of amplification and not
limitation, except as contemplated by this Agreement, Parent
will not, between the date of this Agreement and the Effective
Time, directly or indirectly do, or propose to do, any of the
following without the prior written consent of Gothic:
5.2.1 Amend or otherwise change the certificate of
incorporation (excluding any certificate of
elimination filed with respect to the Parent
Preferred Stock) or bylaws of Parent;
5.2.2 Reclassify, combine, split, subdivide or redeem,
purchase or otherwise acquire, directly or
indirectly, any Parent Common Stock; or
5.2.3 Take or cause to be taken any action which would
disqualify the Merger as a 368 Reorganization for Tax
purposes.
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5.3 Access to Information. The Parent Companies and the Gothic
Companies agree that:
5.3.1 Gothic will (and will cause each of the other Gothic
Companies to) afford to Parent and Parent
Representatives (including, without limitation,
directors, officers and employees of Parent and its
Affiliates, and counsel, accountants and other
professionals retained by Parent) such access, during
normal business hours throughout the period prior to
the Effective Time, to Gothic's books, records
(including, without limitation, Tax returns and work
papers of Gothic's independent auditors), properties,
personnel and to such other information as Parent
reasonably requests and will permit Parent to make
such inspections as Parent may reasonably request and
will cause the officers of all of the Gothic
Companies to furnish Parent with such financial and
operating data and other information with respect to
the business, properties and personnel of the Gothic
Companies as Parent may from time to time reasonably
request, provided, however, that no investigation
pursuant to this paragraph 5.3 will affect or be
deemed to modify any of the representations or
warranties made by Gothic in this Agreement.
5.3.2 If and to the extent necessary for the preparation of
the opinion specified in paragraph 3.24 hereof, the
Parent Companies will afford to Gothic's financial
advisors reasonable access during normal business
hours to the executive officers of the Parent
Companies, provided that such advisors first execute
a confidentiality agreement satisfactory to the
Parent Companies and their counsel and conduct such
investigation in a manner that does not interfere
unreasonably with the schedules of the Parent
Companies' executive officers.
5.4 No Solicitation. Immediately following the execution of this
Agreement, the Gothic Companies:
5.4.1 Will (and will cause each of the Gothic
Representatives to) terminate any and all existing
activities, discussions and negotiations with third
parties (other than Parent) with respect to any
possible transaction involving any proposal to
acquire all or any part of the Gothic Common Stock or
all or a material portion of the assets, business or
equity interest of Gothic (other than the
transactions contemplated by this Agreement), whether
by merger, purchase of assets, tender offer, exchange
offer or otherwise.
5.4.2 Will not (and will cause the Gothic Representatives
not to), directly or indirectly: (a) solicit,
initiate or encourage the submission of, any offer or
proposal to acquire all or more than three percent
(3%) of the Gothic Common Stock or all or any
material portion of the assets, business or equity
interests of Gothic or any other transaction the
consummation of which would or could reasonably be
expected to impede, interfere with, prevent or
materially delay the consummation of the Merger
(other than the transactions contemplated by this
Agreement), whether by merger, purchase of assets,
tender offer, exchange offer or otherwise (an
"Alternative Proposal"); (b) engage in negotiations
or discussions concerning or provide any non-public
information to any Person relating to an Alternative
Proposal; or (c) agree to,
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approve or recommend, or otherwise facilitate any
effort or attempt to make or implement, any
Alternative Proposal, or withdraw its recommendation
of the Merger, provided, however, that: (i) Gothic's
board of directors may take and disclose to the
stockholders of Gothic a position contemplated by
Rule 14e-2(a) promulgated under the Exchange Act with
regard to an Alternative Proposal; and (ii) following
receipt from a third party (without any solicitation,
initiation or encouragement, directly or indirectly,
by Gothic or any Gothic Representatives) of a bona
fide written Alternative Proposal, (x) Gothic may,
upon written notice to Parent, engage in discussions
or negotiations with such third party and may furnish
such third party non-public information concerning
Gothic, and Gothic's business, properties and assets
if, prior to furnishing such information to such
third party, such third party executes a
confidentiality agreement in reasonably customary
form and on terms, including so called "standstill"
provisions, satisfactory in form and substance to
Parent and (y) the board of directors of Gothic may
recommend such Alternative Proposal or withdraw,
modify or not make its recommendation referred to in
paragraph 3.18, if and only to the extent that
Gothic's board of directors determines in good faith
that: (1) based on the advice of Gothic's counsel,
the failure to recommend such Alternative Proposal
would constitute a breach of the board's fiduciary
duties; and (2) based on the advice of Gothic's
financial advisor, such Alternative Proposal, if
consummated, would result in a transaction more
favorable to Gothic's stockholders from a financial
point of view than the transaction contemplated by
this Agreement (a "Superior Proposal") and the Person
making such Superior Proposal has the financial
means, or the ability to obtain the necessary
financing, to conclude such transaction.
5.4.3 Will promptly notify Parent after receipt by Gothic
or any of the Gothic Representatives of any
Alternative Proposal, any inquiries indicating that
any Person is considering making or wishes to make an
Alternative Proposal or any requests for nonpublic
information and the terms and conditions of any
proposals or offers and the status of any actions,
including any discussions, taken pursuant to such
Alternative Proposal. Gothic agrees that it will keep
Parent informed, on a current basis, of the status
and terms of any such Alternative Proposal and of any
discussions or negotiations regarding same.
5.4.4 Will cause each of the Irrevocable Proxies to be
executed and delivered to Parent within ten (10) days
after the execution of this Agreement, all in form
and substance satisfactory to Parent and its legal
counsel.
Nothing in this paragraph 5.4 will permit Gothic to terminate
this Agreement or to change or withdraw its recommendation
except as specifically provided in paragraph 7.1.
5.5 Gothic Stockholder Meeting. Gothic will take all action
necessary in accordance with applicable law and its certificate
of incorporation and bylaws to convene a meeting of
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its stockholders as promptly as practicable after the date
hereof for the purpose of voting on this Agreement and the
Merger. The board of directors of Gothic will recommend approval
of this Agreement and the Merger (unless Gothic's board of
directors determines in good faith based on the advice of
Gothic's financial advisor that Gothic has received a Superior
Proposal from a Person with the financial means or ability to
obtain the necessary financing to conclude such transaction,
subject, however, to the provisions of paragraph 7 hereof) and
will take all lawful action to solicit such approval, including
timely mailing the Proxy Statement/Prospectus to the
stockholders of Gothic.
5.6 Parent Tax Determination. As a condition precedent to the
mailing of the Proxy Statement/Prospectus, Parent will have made
a good faith determination to the effect that: (a) the Merger
should be treated for federal income tax purposes as a
reorganization within the meaning of Section 368(a) of the Code;
(b) each of Parent and Sub should be a party to such
reorganization within the meaning of Section 368(b) of the Code;
and (c) no gain or loss should be recognized by Parent or Sub as
a result of the Merger.
5.7 Registration Statement and Proxy Statement/Prospectus. With
respect to the Registration Statement and the Proxy
Statement/Prospectus, the parties agree that:
5.7.1 Parent and Gothic will cooperate and promptly prepare
(i) a Preliminary Proxy Statement and (ii) the
Registration Statement, and Gothic and Parent will
file the Preliminary Proxy Statement and the
Registration Statement with the SEC as soon as
practicable after the date hereof. Parent will use
its commercially reasonable efforts, and Gothic will
cooperate with Parent (including furnishing all
information concerning Gothic and the holders of
Gothic Common Stock as may be reasonably requested by
Parent), to have the Registration Statement declared
effective under the Securities Act as promptly as
practicable after such filing. Parent will use its
best efforts, and Gothic will cooperate with Parent,
to obtain all necessary state securities laws or
"blue sky" permits, approvals and registrations in
connection with the issuance of Parent Common Stock
pursuant to the Merger.
5.7.2 Parent and Gothic will cause the Registration
Statement (including the Proxy Statement/Prospectus),
at the time it becomes effective under the Securities
Act, to comply as to form in all material respects
with the applicable provisions of the Securities Act,
the Exchange Act and the rules and regulations of the
SEC thereunder.
5.7.3 Gothic hereby covenants and agrees with Parent that:
(a) the Registration Statement (at the time it
becomes effective under the Securities Act and at the
Effective Time) will not contain an untrue statement
of material fact or omit to state a material fact
required to be stated therein or necessary to make
the statements therein not misleading (provided,
however, that this clause (a) will apply only to
information contained in the Registration Statement
that was
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supplied by Gothic specifically for inclusion
therein); and (b) the Proxy Statement/Prospectus (at
the time it is first mailed to stockholders of
Gothic, at the time of the Gothic Stockholder
Meeting, and at the Effective Time) will not contain
an untrue statement of a material fact or omit to
state a material fact required to be stated therein
or necessary in order to make the statements therein,
in light of the circumstances under which they are
made, not misleading (provided, however, that this
clause (b) will only apply to any information
contained in the Proxy Statement/Prospectus that was
supplied by Gothic specifically for inclusion
therein). If, at any time prior to the Effective
Time, any event with respect to Gothic, or with
respect to other information supplied by Gothic
specifically for inclusion in the Registration
Statement, occurs and such event is required to be
described in an amendment to the Registration
Statement, Gothic will promptly notify Parent of such
occurrence and will cooperate with Parent in the
preparation and filing of such amendment. If, at any
time prior to the Effective Time, any event with
respect to Gothic, or with respect to other
information included in the Proxy
Statement/Prospectus, occurs and such event is
required to be described in a supplement to the Proxy
Statement/Prospectus, such event will be so described
and such supplement will be promptly prepared, filed
and disseminated.
5.7.4 Parent hereby covenants and agrees with Gothic that:
(a) the Registration Statement (at the time it
becomes effective under the Securities Act and at the
Effective Time) will not contain an untrue statement
of material fact or omit to state a material fact
required to be stated therein or necessary to make
the statements therein not misleading (provided,
however, that this clause (a) will apply only to
information contained in the Registration Statement
that was supplied by Parent specifically for
inclusion therein); and (b) the Proxy
Statement/Prospectus (at the time it is first mailed
to stockholders of Gothic, at the time of the Gothic
Stockholder Meeting, and at the Effective Time) will
not contain an untrue statement of a material fact or
omit to state a material fact required to be stated
therein or necessary in order to make the statements
therein, in light of the circumstances under which
they are made, not misleading (provided, however,
that this clause (b) will only apply to any
information contained in the Proxy
Statement/Prospectus that was supplied by Parent
specifically for inclusion therein). If, at any time
prior to the Effective Time, any event with respect
to Parent, or with respect to other information
supplied by Parent specifically for inclusion in the
Registration Statement, occurs and such event is
required to be described in an amendment to the
Registration Statement, Parent will promptly notify
Gothic of such occurrence and will prepare and file
such amendment. If, at any time prior to the
Effective Time, any event with respect to Parent, or
with respect to other information included in the
Proxy Statement/Prospectus, occurs and such event is
required to be described in a supplement to the Proxy
Statement/Prospectus, such event will be so described
and such supplement will be promptly prepared, filed
and disseminated.
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5.7.5 Neither the Registration Statement nor the Proxy
Statement/Prospectus nor any amendment or supplement
thereto will be filed or disseminated to the
stockholders of Gothic without the approval of both
Parent and Gothic which approval will not be
unreasonably withheld. Parent will advise Gothic,
promptly after it receives notice thereof, of the
time when the Registration Statement has become
effective under the Securities Act, the issuance of
any stop order with respect to the Registration
Statement, the suspension of the qualification of the
Parent Common Stock issuable in connection with the
Merger for offering or sale in any jurisdiction or
any comments or requests for additional information
by the SEC with respect to the Registration
Statement.
5.8 Stock Exchange Listing. Parent will use its best efforts to list
on the Exchange or such other exchange on which Parent Common
Stock is then primarily traded, upon notice of issuance, the
Parent Common Stock to be issued pursuant to the Merger.
5.9 Additional Arrangements. Subject to the terms and conditions
herein provided, each of Gothic and Parent will take, or cause
to be taken, all action and will do, or cause to be done, all
things necessary, appropriate or desirable under applicable laws
and regulations or under applicable governing agreements to
consummate and make effective the transactions contemplated by
this Agreement, including using its best efforts to obtain all
necessary waivers, consents and approvals and effecting all
necessary registrations and filings. Each of Gothic and Parent
will take, or cause to be taken, all action or will do, or cause
to be done, all things necessary, appropriate or desirable to
cause the covenants and conditions applicable to the
transactions contemplated hereby to be performed or satisfied as
soon as practicable. In addition, if any Governmental Authority
will have issued any order, decree, ruling or injunction, or
taken any other action that would have the effect of
restraining, enjoining or otherwise prohibiting or preventing
the consummation of the transactions contemplated hereby, each
of Gothic and Parent will use its reasonable efforts to have
such order, decree, ruling or injunction or other action
declared ineffective as soon as practicable.
5.10 Agreements of Affiliates. At least 30 days prior to the
Effective Time, Gothic will cause to be prepared and delivered
to Parent a list identifying all Persons who, at the time of the
Gothic Stockholder Meeting, may be deemed to be "affiliates" of
Gothic as that term is used in paragraphs (c) and (d) of Rule
145 under the Securities Act or are Major Gothic Stockholders.
Upon written request by Parent, Gothic will use its best efforts
to cause each Person who is identified as a Major Gothic
Stockholder or an "affiliate" of Gothic in such list to execute
and deliver to Parent, on or prior to the Closing Date, a
written agreement, in the form attached hereto as Exhibit "5.10"
(if such Person has not executed and delivered an agreement
substantially to the same effect contemporaneously with the
execution of this Agreement). Parent will be entitled to place
legends as specified in such agreements on the Parent
Certificates representing any Parent Common Stock to be issued
in the Merger to affiliates of Gothic or Major Gothic
Stockholders. Parent agrees to use its commercially reasonable
efforts to publish, or cause to be published, within 180 days
after the Closing a quarterly earnings report, an effective
registration statement filed with the SEC, a report to the SEC
on
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Form 10-K, 10-Q or 8-K, or any other public filing or
announcement which includes the results of at least 30 days of
combined operations of Parent and Gothic.
5.11 Public Announcements. Prior to Closing, Gothic will consult with
Parent before issuing any press release or otherwise making any
public statements with respect to the transactions contemplated
by this Agreement and will not issue any press release or make
any such public statement prior to obtaining the written
approval of Parent; provided, however, that such approval will
not be required where such release or announcement is required
by applicable law; and provided further, that Gothic may respond
to inquiries by the press or others regarding the transactions
contemplated by this Agreement, so long as such responses are
consistent with previously issued press releases.
5.12 Notification of Certain Matters. Gothic will give prompt notice
to Parent of: (a) any representation or warranty of Gothic
contained in this Agreement being untrue or inaccurate when
made; (b) the occurrence of any event or development that would
cause (or could reasonably be expected to cause) any
representation or warranty of Gothic contained in this Agreement
to be untrue or inaccurate on the Closing Date; or (c) any
failure of Gothic to comply with or satisfy any covenant,
condition, or agreement to be complied with or satisfied by it
hereunder. Parent will give prompt notice to Gothic of: (i) any
representation or warranty of Parent contained in this Agreement
being untrue or inaccurate when made; (ii) the occurrence of any
event or development that would cause (or could reasonably be
expected to cause) any representation or warranty of Parent
contained in this Agreement to be untrue or inaccurate on the
Closing Date; or (iii) any failure of Parent to comply with or
satisfy any covenant, condition, or agreement to be complied
with or satisfied by it hereunder.
5.13 Indemnification. From and after the Effective Time, Parent
agrees that:
5.13.1 Parent will indemnify and hold harmless each present
and former director and/or officer of Gothic,
determined as of the Effective Time (the "Indemnified
Parties"), that is made a party or threatened to be
made a party to any threatened, pending or completed,
action, suit, proceeding or claim, whether civil,
criminal, administrative or investigative, by reason
of the fact that he or she was a director or officer
of the Gothic Companies prior to the Effective Time
and arising out of actions or omissions of the
Indemnified Party in any such capacity occurring at
or prior to such Effective Time (a "Claim") against
any costs or expenses (including reasonable
attorneys' fees), judgments, fines, losses, claims,
damages or liabilities reasonably incurred in
connection with any Claim, whether asserted or
claimed prior to, at or after the Effective Time, to
the fullest extent that Gothic would have been
permitted under Oklahoma law, the certificate of
incorporation or bylaws of Gothic or written
indemnification agreements in effect at the date
hereof, including provisions therein relating to the
advancement of expenses incurred in the defense of
any action or suit.
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5.13.2 Any Indemnified Party wishing to claim
indemnification under paragraph 5.13.1, upon learning
of any such Claim, will promptly notify Parent
thereof, but the failure to so notify Parent will not
relieve Parent of any liability it may have to such
Indemnified Party if such failure does not materially
prejudice Parent. In the event of any such Claim
(whether arising before or after the Effective Time):
(a) Parent will have the right to assume the defense
thereof and Parent will not be liable to such
Indemnified Party for any legal expenses of other
counsel or any other expenses subsequently incurred
by such Indemnified Party in connection with the
defense thereof, except that if Parent elects not to
assume such defense, the Indemnified Party may retain
counsel reasonably satisfactory to Parent, and Parent
will pay reasonable fees and expenses of such counsel
for the Indemnified Party; provided, however, that
Parent will be obligated pursuant to this paragraph
5.13.2 to pay for only one firm or counsel for all
Indemnified Parties unless the use of one counsel for
such Indemnified Parties would present such counsel
with a conflict of interest; (b) such Indemnified
Parties will cooperate in the defense of any such
matter; and (c) Parent will not be liable for any
settlement effected without its prior written
consent, which consent will not be unreasonably
withheld; and provided, further, however, that Parent
will not have any obligation hereunder to any
Indemnified Party when and if a court of competent
jurisdiction will ultimately determine, and such
determination will have become final and
non-appealable, that the indemnification of such
Indemnified Party in the manner contemplated hereby
is prohibited by applicable law. If such indemnity is
not available with respect to any Indemnified Party,
then Parent and the Indemnified Party will contribute
to the amount payable in such proportion as is
appropriate to reflect relative faults and benefits,
with any allocation of respective "fault" otherwise
allocable to Gothic being allocated to Parent.
5.14 Employee and Severance Matters. Attached as Section 5.14 of the
Gothic Disclosure Schedule is: (a) a current list of each of the
Gothic Companies' employees (the "Gothic Employees"); (b) a copy
of Gothic's severance policy (the "Gothic Severance Policy");
(c) a severance package table which lists the cost of all
severance pay to be paid to each of the Gothic Employees; (d) a
list of Gothic Employees with written employment agreements (the
"Contract Employees"); and (e) a list of all contract pumpers
and other independent contractors (the "Independent
Contractors") and a summary of the terms of such arrangements
including, without limitation, any severance package. On or
immediately prior to the Closing Date, Gothic will pay the
severance pay as indicated on the severance package table to the
Gothic Employees. Notwithstanding the immediately preceding
sentence, Gothic will not pay such severance pay to: (i) any
Gothic Employee who is not a Contract Employee and to whom
Parent or Sub offers a substantially comparable job (as
determined by Parent in its reasonable discretion) with equal or
better base salary at such employee's current location; (ii) any
Contract Employee who chooses not to terminate his employment
agreement with Gothic on the Closing Date; (iii) any Independent
Contractor who is covered by the Gothic Severance Policy and
chooses not to terminate his contract with Gothic on the Closing
Date; (iv) Michael Paulk or Steve Ensz except in accordance with
their respective employment
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agreements and the termination agreements attached hereto as
part of Section 5.14 of the Gothic Disclosure Schedule; or (v)
any Gothic Employee who does not execute a severance agreement
in substantially the form required by the severance policy. With
respect to any Gothic Employee who is not paid severance pay on
or immediately prior to the Effective Date, all the terms and
provisions of the Gothic Severance Policy and the Contract
Employees' employment agreements will continue in full force and
effect.
5.15 Restructuring of Merger. Upon the mutual agreement of Parent and
Gothic so long as no breach of any of the representations and
warranties set forth herein has occurred, the Merger may be
restructured in the form of a forward subsidiary merger of
Gothic into Sub, with Sub being the Surviving Corporation, or as
a merger of Gothic into Parent, with Parent being the Surviving
Corporation. In addition, (so long as no breach of any of the
representations and warranties of the Parent set forth herein
has occurred, such restructure will not adversely affect the tax
consequences of the Merger and such restructure will not cause a
violation of paragraph 6.2.6 that is not waived by the Parent),
at the election of the Parent, the Merger may be restructured in
the form of a share acquisition under Section 1090.1 of the
OGCA. In such event, this Agreement will be deemed appropriately
modified to reflect such form of merger. Regardless of the form
of the Merger, Gothic, Parent and Sub acknowledge and agree that
the effect of the Merger is that Gothic is being acquired by
Parent.
5.16 Payment of Expenses. Except as set forth in this paragraph 5.16,
all expenses incurred in connection with this Agreement will be
paid by the party incurring such expenses, whether or not the
Merger is consummated, except that Parent and Gothic each will
pay one-half of all Expenses (as defined below) relating to
printing, filing and mailing the Registration Statement and the
Proxy Statement/Prospectus and all SEC and other regulatory
filing fees incurred in connection with the Registration
Statement and the Proxy Statement/Prospectus. "Expenses" as used
in this Agreement will include all reasonable out-of-pocket
expenses (including, without limitation, all fees and expenses
of counsel, accountants, experts and consultants to a party
hereto and its affiliates) incurred by a party or on its behalf
in connection with or related to the authorization, preparation,
negotiation, execution and performance of this Agreement, the
preparation, printing, filing and mailing of the Registration
Statement and the Proxy Statement/Prospectus, the solicitation
of stockholder approvals and all other matters related to the
closing of the Merger.
5.17 Gothic Termination Fee. Parent and Gothic agree that: (a) if
Gothic terminates this Agreement pursuant to pursuant to
paragraph 7.1.4(a); or (b) if Parent terminates this Agreement
pursuant to paragraph 7.1.5; or (c) if (i) Gothic or Parent
terminates this Agreement pursuant to paragraph 7.1.2 due to the
failure of Gothic's stockholders to approve and adopt this
Agreement, the Merger and the transactions contemplated hereby,
and (ii) at the time of such failure to so approve and adopt
this Agreement, the Merger and the transactions contemplated
hereby, there exists an Alternative Proposal with respect to
Gothic and, prior to or within seven (7) months of the
termination of this Agreement, Gothic enters into a definitive
agreement with any third party with respect to such Alternative
Proposal with respect to Gothic; then Gothic will pay to
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Parent an amount equal to $10,000,000 (the "Gothic Termination
Fee"). The Gothic Termination Fee will be paid prior to, and
will be a pre-condition to effectiveness of termination of this
Agreement pursuant to paragraph 7.1.4 and 7.1.5 and the Gothic
Termination Fee will be paid to Parent on the next business day
after a definitive agreement is entered into with a third party
with respect to an Alternative Proposal if this Agreement is
terminated pursuant to paragraph 7.1.2. Any payment of a Gothic
Termination Fee required to be made pursuant to this paragraph
5.17 will be made not later than two (2) business days after
termination of this Agreement. All payments under this paragraph
5.17 will be made by wire transfer of immediately available
funds to an account designated by Parent.
5.18 Dissenting Stockholder Payments. Any and all payments made to
settle appraisal rights of Dissenting Stockholders or made
pursuant to the OGCA will be made solely out of Gothic assets
and neither Parent nor Sub will have any liability therefor.
6. Conditions Precedent. The obligations of the parties under this Agreement
will be subject to the following conditions precedent:
6.1 Conditions to Each Party's Obligation to Effect the Merger. The
respective obligations of each party to effect the Merger will
be subject to the satisfaction, at or prior to the Closing Date,
of the following conditions:
6.1.1 Stockholder Approval. This Agreement and the Merger
will have been duly and validly approved and adopted
by a majority of the outstanding Gothic Common Stock
and Gothic Preferred Stock voting as one class.
6.1.2 Other Approvals. If applicable, the waiting period
applicable to the consummation of the Merger under
the HSR Act will have expired or been terminated and
all filings required to be made prior to the
Effective Time with, and all consents, approvals,
permits and authorizations required to be obtained
prior to the Effective Time from, any Governmental
Authority in connection with the execution and
delivery of this Agreement and the consummation of
the transactions contemplated hereby by Gothic,
Parent and Sub will have been made or obtained (as
the case may be), except where the failure to obtain
such consents, approvals, permits and authorizations
would not be reasonably likely to result in a
Material Adverse Effect on Parent (assuming the
Merger has taken place) or to materially and
adversely affect the consummation of the Merger.
6.1.3 Securities Law Matters. The Registration Statement
will have become effective under the Securities Act
and will be effective at the Effective Time, and no
stop order suspending such effectiveness will have
been issued, no action, suit, proceeding or
investigation by the SEC to suspend such
effectiveness will have been initiated and be
continuing, and all necessary approvals under state
securities laws relating to the issuance or trading
of the Parent Common Stock to be issued in the Merger
will have been received.
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6.1.4 No Injunctions or Restraints. No temporary
restraining order, preliminary or permanent
injunction or other order issued by any court of
competent jurisdiction or other legal restraint or
prohibition preventing the consummation of the Merger
will be in effect; provided, however, that prior to
invoking this condition, each party will have
complied fully with its obligations under paragraph
5.9 and, in addition, will use all reasonable efforts
to have any such decree, ruling, injunction or order
vacated, except as otherwise contemplated by this
Agreement.
6.1.5 Financing Conditions. All of the terms and conditions
set forth in the financing commitment dated September
8, 2000, among Bear Stearns & Co., Inc. and the
Parent relating to the Merger will have been
satisfied, such financing commitment will be in full
force and effect as to each of the lenders which is a
party thereto and all of the funding required to
consummate the transactions contemplated hereby
(including the payment of any obligations of the
Gothic Companies as a result of this transaction
together with any transaction costs) and covered by
such financing commitment will be available to be
disbursed to Parent in accordance with the terms of
such financing commitment.
6.1.6 Bond Indenture Compliance. Prior to the Closing Date,
the Gothic Companies will deliver or cause to be
delivered to the trustee under the Senior Secured GPC
Notes indenture the Officers' Certificate in the form
set forth in Section 6.1.6 of the Gothic Disclosure
Schedule together with all opinions and other
required documentation and will have provided
executed copies thereof to the Parent along with the
calculations upon which such Officers' Certificate is
based and all such items will be true and correct in
all respects.
6.2 Conditions to Obligations of Parent and Sub. The obligations of
Parent and Sub to effect the Merger are subject to the
satisfaction of the following conditions, any or all of which
may be waived in whole or in part by Parent and Sub:
6.2.1 Representations and Warranties. The representations
and warranties of Gothic set forth in this Agreement
and the Gothic Disclosure Schedule will be true and
correct as of the Closing Date as though made on and
as of that time, and Parent will have received a
certificate signed by the chief executive officer of
Gothic to such effect; provided, however, that the
condition set forth in this paragraph 6.2.1 will be
deemed to be satisfied even if one or more of such
representations and warranties are not true and
correct, so long as the failure of such
representations and warranties to be true and correct
(in the aggregate) does not result in a Material
Adverse Effect on any of the Gothic Companies.
6.2.2 Performance of Covenants and Agreements by Gothic.
Gothic will have performed in all material respects
all covenants and agreements required to be performed
by it under this Agreement at or prior to the Closing
Date, and
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Parent will have received a certificate signed by the
chief executive officer of Gothic to such effect.
6.2.3 Letters from Gothic Affiliates. Parent will have
received from each Person named in the list referred
to in paragraph 5.10 an executed copy of the
agreement described in paragraph 5.10.
6.2.4 Tax Determination. The determination described in
paragraph 5.6 will not have been withdrawn, revoked
or modified.
6.2.5 No Adverse Change. From the date of this Agreement
through the Closing, there will not have occurred any
change in the condition (financial or otherwise),
operations or business of any of the Gothic Companies
that would have or would be reasonably likely to have
a Material Adverse Effect on any of the Gothic
Companies (other than changes in commodity prices,
changes generally affecting the oil and gas industry,
changes resulting from exploration or development
results reported in the ordinary course of business
and changes arising from the announcement of the
Merger).
6.2.6 Dissenting Stockholders. Holders of more than five
percent (5%) of the outstanding shares of Gothic
Common Stock will not have exercised, nor will they
have any continued right to exercise, appraisal,
dissenters' or similar rights under applicable law
with respect to their shares by virtue of the Merger.
6.2.7 Resignations. Each of the officers and directors of
each Gothic Company will have resigned.
6.2.8 Releases. Each officer and director of the Gothic
Companies will have executed and delivered a Release
in substantially the form attached hereto as Exhibit
"6.2.8."
6.2.9 Opinion of Counsel. Parent will have received from:
(a) Pray, Walker, Jackman, Williamson & Marlar,
counsel to Gothic, an opinion in form and substance
as set forth in Exhibit "6.2.9(a)" attached hereto
addressed to Parent and dated as of the Closing Date,
and (b) William Clarke, counsel to Gothic, an opinion
in form and substance as set forth in Exhibit
"6.2.9(b)" attached hereto addressed to Parent and
dated as of the Closing Date.
6.2.10 Loans and Pledges. As of the Closing Date, the pledge
agreements referred to in paragraph 3.40 hereof
covering all of the Pledged Stock will remain in full
force and effect and the officer and employee letters
directing payment of the loans to officers and
employees to be made out of severance payments will
remain in full force and effect with respect to no
less than eighty percent (80%) of the aggregate
unpaid balances of all such officer and employee
loans.
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6.3 Conditions to Obligation of Gothic. The obligation of Gothic to
effect the Merger is subject to the satisfaction of the
following conditions, any or all of which may be waived in whole
or in part by Gothic:
6.3.1 Representations and Warranties. The representations
and warranties of Parent and Sub set forth in
paragraph 4 will be true and correct as of the
Closing Date as though made on and as of that time,
and Gothic will have received a certificate signed by
the chief executive officer or the chief financial
officer of Parent to such effect; provided, however,
that the condition set forth in this paragraph 6.3.1
will be deemed to be satisfied even if one or more of
such representations and warranties are not true and
correct, so long as the failure of such
representations and warranties to be true and correct
(in the aggregate) does not result in a Material
Adverse Effect on Parent and/or Sub.
6.3.2 Performance of Covenants and Agreements by Parent and
Sub. Parent and Sub will have performed in all
material respects all covenants and agreements
required to be performed by them under this Agreement
at or prior to the Closing Date, and Gothic will have
received a certificate signed by the chief executive
officer or the chief financial officer of Parent to
such effect.
6.3.3 Listing. The shares of Parent Common Stock issuable
pursuant to the Merger will have been authorized for
listing on the Exchange or such other exchange on
which the Parent Common Stock is traded, subject to
official notice of issuance.
6.3.4 No Adverse Change. From the date of this Agreement
through the Closing, there will not have occurred any
change in the condition (financial or otherwise),
operations or business of the Parent Companies taken
as a whole that would have or would be reasonably
likely to have a Material Adverse Effect on the
Parent Companies (other than changes in commodity
prices, changes generally affecting the oil and gas
industry, changes resulting from exploration and
development results reported in the ordinary course
of business and changes arising from the announcement
of the Merger).
6.3.5 Opinion of Counsel. Gothic will have received from
Self, Giddens & Lees, Inc., counsel to Parent, an
opinion in form and substance as set forth in Exhibit
"6.3.5" attached hereto addressed to Gothic, and
dated as of the Closing Date.
7. Termination. This Agreement may be terminated and the Merger may be abandoned
at any time prior to the Effective Time, whether before or after approval of
this Agreement and the Merger by the stockholders of Gothic on the following
terms.
7.1 Termination Rights. Any termination of this Agreement will be
by:
7.1.1 Mutual Consent. By mutual written consent of Parent
and Gothic;
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7.1.2 Date Certain. By either Gothic or Parent if: (a) the
Merger has not been consummated by June 30, 2001
(provided, however, that the right to terminate this
Agreement pursuant to this clause (a) will not be
available to any party whose breach of any
representation or warranty or failure to perform any
covenant or agreement under this Agreement has been
the cause of or resulted in the failure of the Merger
to occur on or before such date); (b) any
Governmental Authority has issued an order, decree or
ruling or taken any other action permanently
restraining, enjoining or otherwise prohibiting the
Merger and such order, decree, ruling or other action
has become final and nonappealable (provided,
however, that the right to terminate this Agreement
pursuant to this clause (b) will not be available to
any party until such party has used all reasonable
efforts to remove such injunction, order or decree);
or (c) this Agreement and the Merger have not been
approved by the holders of a majority of the
outstanding Gothic Common Stock and Gothic Preferred
Stock voting as one class at the Gothic Stockholder
Meeting or at any adjournment thereof;
7.1.3 By Parent. By Parent if: (a) there has been a breach
of any of the representations and warranties made by
Gothic in this Agreement or the Gothic Disclosure
Schedule the aggregate of which would have a Material
Adverse Effect on Gothic (provided, however, that
Parent will not be entitled to terminate this
Agreement pursuant to this clause (a) unless Parent
has given Gothic prior written notice of such breach
and Gothic has failed to cure such breach within
fifteen (15) days after such written notice, and the
condition described in paragraph 6.2.1, other than
the provision thereof relating to the certificate
signed by the chief executive officer of Gothic,
would not be satisfied if the Closing were to occur
on the day on which Parent gives Gothic notice of
such termination); or (b) Gothic has failed to comply
in any material respect with any of its covenants or
agreements contained in this Agreement and such
failure has not been, or cannot be, cured within ten
(10) days after notice and demand for cure thereof;
7.1.4 By Gothic. By Gothic if: (a) as a result of a
Superior Proposal received by Gothic from a Person
other than a party to this Agreement or any of its
Affiliates, Gothic's board of directors determines in
good faith based on the advice of legal counsel that
their fiduciary obligations under applicable law
require that such Superior Proposal be accepted;
provided, however, that prior to the effective date
of any such termination, Gothic will provide Parent
with an opportunity (of not less than three (3) full
business days) to make such adjustments in the terms
and conditions of this Agreement or the Merger as
would enable Gothic to proceed with the transactions
contemplated hereby; provided, further, that it will
be a condition to the effectiveness of termination by
Gothic pursuant to this paragraph 7.1.4, that Gothic
will have paid the Gothic Termination Fee to Parent
required by paragraph 5.17; or (b) there has been a
breach of the representations and warranties made by
Parent in paragraph 4 of this Agreement the aggregate
of which would have a Material
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Adverse Effect on Parent (provided, however, that
Gothic will not be entitled to terminate this
Agreement pursuant to this clause (b) unless Gothic
has given Parent at least fifteen (15) days prior
written notice of such breach and Parent has failed
to cure such breach within such 15-day period, and
the condition described in Section 6.3.1, other than
the provision thereof relating to the certificate
signed by the chief executive officer or chief
financial officer of Parent, would not be satisfied
if the Closing were to occur on the day on which
Gothic gives Parent notice of such termination); or
(c) Parent has failed to comply in any material
respect with any of its covenants or agreements
contained in this Agreement and such failure has not
been, or cannot be, cured within a reasonable time
after notice and demand for cure thereof; or
7.1.5 Superior Proposal. By Parent if the board of
directors of Gothic: (a) accepts a Superior Proposal
in accordance with paragraph 5.4.2; or (b) withdraws
or modifies in a manner adverse to Parent, its
approval or recommendation of this Agreement or the
Merger, or, on request by Parent, fails to reaffirm
such approval or recommendation.
7.2 Effect of Termination. If this Agreement is terminated by either
Gothic or Parent pursuant to the provisions of paragraph 7.1,
this Agreement will forthwith become void and there will be no
further obligation on the part of any party hereto or its
respective Affiliates, directors, officers or stockholders
except pursuant to, the provisions of this paragraph 7.2 and
paragraphs 5.7.3, 5.7.4 and 5.17 (which will continue pursuant
to their terms). The termination of this Agreement will not
relieve any party hereto from any liability for damages incurred
as a result of a breach by such party of its representations,
warranties, covenants, agreements or other obligations hereunder
occurring prior to such termination, provided, however, that for
any termination hereof as a result of any of the matters
outlined in: (a) subparts (b) or (c) of paragraph 7.1.4, the
Parent Companies' aggregate liability will not exceed
$1,000,000.00; and (b) paragraph 7.1.3, the Gothic Companies'
aggregate liability will not exceed $1,000,000.00.
8. Miscellaneous. It is further agreed as follows:
8.1 Nonsurvival of Representations, Warranties, Covenants and
Agreements. None of the representations, warranties, covenants
or agreements contained in this Agreement or in any instrument
delivered pursuant to this Agreement, and no agreements or
obligations arising under the Confidentiality Agreement, will
survive the consummation of the Merger, except for the
agreements contained in paragraphs 2, 5.13, 5.14, 5.17, 7 and in
this paragraph 8 and the agreements delivered pursuant to
paragraph 5.10.
8.2 Amendment. This Agreement may be amended by the parties hereto
at any time before or after approval of the Merger and this
Agreement by the stockholders of Gothic; provided, however, that
after any such approval, no amendment will be made that by law
requires further approval by such stockholders without such
further approval. This
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Agreement may not be amended except by a written instrument
signed on behalf of each of the parties hereto.
8.3 Notices. Any notice or other communication required or permitted
hereunder will be in writing and either delivered personally, by
facsimile transmission or by registered or certified mail
(postage prepaid and return receipt requested) and will be
deemed given when received (or, if mailed, five (5) business
days after the date of mailing) at the following addresses or
facsimile transmission numbers (or at such other address or
facsimile transmission number for a party as will be specified
by like notice):
To Parent or Sub: Chesapeake Energy Corporation
6100 North Western Avenue
Oklahoma City, Oklahoma 73118
Attention: Aubrey K. McClendon
Telephone: 405-848-8000
Facsimile: 405-848-8588
With a copy to: Self, Giddens & Lees, Inc.
2725 Oklahoma Tower
210 Park Avenue
Oklahoma City, Oklahoma 73102
Attention: C. Ray Lees
Telephone: 405-232-3001
Facsimile: 405-232-5553
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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) 477-8045
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
and
William Clarke
457 North Harrison Street, Suite 103
Princeton, New Jersey 08540
Telephone:(609) 921-3663
Facsimile: (609) 921-3933
8.4 Counterparts. This Agreement may be executed in two or more
counterparts, all of which will be considered one and the same
agreement and will become effective when two or more
counterparts have been signed by each of the parties and
delivered to the other parties, it being understood that all
parties need not sign the same counterpart.
8.5 Severability. Any term or provision of this Agreement that is
invalid or unenforceable in any jurisdiction will, as to such
jurisdiction, be ineffective to the extent of such invalidity or
unenforceability without rendering invalid or unenforceable the
remaining terms and provisions of this Agreement or affecting
the validity or enforceability of any of the terms or provisions
of this Agreement in any other jurisdiction. If any provision of
this Agreement is so broad as to be unenforceable, such
provision will be interpreted to be only so broad as is
enforceable.
8.6 Entire Agreement; No Third Party Beneficiaries. This Agreement
(together with the documents and instruments delivered by the
parties in connection with this Agreement): (a) constitutes the
entire agreement and supersedes all other prior agreements and
understandings, both written and oral, among the parties with
respect to the subject matter hereof; and (b) except as provided
in paragraph 2 or paragraphs 5.13 or 5.14, is solely for the
benefit of the parties hereto and their respective successors,
legal representatives and assigns and does not confer on any
other Person any rights or remedies hereunder.
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8.7 Applicable Law. This Agreement will be governed in all respects,
including validity, interpretation and effect, by the laws of
the State of Oklahoma regardless of the laws that might
otherwise govern under applicable principles of conflicts of
laws thereof.
8.8 No Remedy in Certain Circumstances. Each party agrees that,
should any court or other competent authority hold any provision
of this Agreement or part hereof to be null, void or
unenforceable, or order any party to take any action
inconsistent herewith or not to take an action consistent
herewith or required hereby, the validity, legality and
enforceability of the remaining provisions and obligations
contained or set forth herein will not in any way be affected or
impaired thereby, unless the foregoing inconsistent action or
the failure to take an action constitutes a material breach of
this Agreement or makes this Agreement impossible to perform, in
which case this Agreement will terminate pursuant to paragraph 7
hereof. Except as otherwise contemplated by this Agreement, to
the extent that a party hereto took an action inconsistent
herewith or failed to take action consistent herewith or
required hereby pursuant to an order or judgment of a court or
other competent Governmental Authority, such party will not
incur any liability or obligation unless such party breached its
obligation under paragraph 5.9 or did not in good faith seek to
resist or object to the imposition or entering of such order or
judgment.
8.9 Enforcement of Agreement. The parties hereto agree that
irreparable damage would occur in the event that any of the
provisions of this Agreement were not performed in accordance
with the terms hereof or were otherwise breached. Accordingly,
the parties hereto hereby agree that each party hereto will be
entitled to specific performance of the terms and provisions
hereof in addition to any other remedy at law or in equity.
8.10 Assignment. Neither this Agreement nor any of the rights,
interests or obligations hereunder will be assigned by any of
the parties hereto (whether by operation of law or otherwise)
without the prior written consent of the other parties, except
that Sub may assign, in its sole discretion, any or all of its
rights, interests and obligations hereunder to any newly formed
direct or indirect wholly-owned subsidiary of Parent. Subject to
the preceding sentence, this Agreement will be binding upon,
inure to the benefit of and be enforceable by the parties and
their respective successors and assigns.
8.11 Waivers. At any time prior to the Effective Time, the parties
hereto may, to the extent legally allowed: (a) extend the time
for the performance of any of the obligations or other acts of
the other parties hereto; (b) waive any inaccuracies in the
representations and warranties contained herein or in any
document delivered pursuant hereto; and (c) waive performance of
any of the covenants or agreements, or satisfaction of any of
the conditions, contained herein. Any agreement on the part of a
party hereto to any such extension or waiver will be valid only
if set forth in a written instrument signed on behalf of such
party. Except as provided in this Agreement, no action taken
pursuant to this Agreement, including any investigation by or on
behalf of any party, will be deemed to constitute a waiver by
the party taking such action of compliance with any
representations, warranties, covenants or agreements contained
in this Agreement. The waiver by any party hereto of a breach of
any provision hereof will not operate or be
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construed as a waiver of any prior or subsequent breach of the
same or any other provisions hereof.
8.12 References and Titles. All references in this Agreement to
Exhibits, Schedules, Sections, paragraphs, subsections and other
subdivisions refer to the corresponding Exhibits, Schedules,
Sections, paragraphs, subsections and other subdivisions of or
to this Agreement and/or the schedules attached hereto unless
expressly provided otherwise. Except for the defined terms in
paragraph 1, titles appearing at the beginning of any Sections,
paragraphs, subsections or other subdivisions of this Agreement
are for convenience only, do not constitute any part of this
Agreement, and will be disregarded in construing the language
hereof.
8.13 Incorporation. Exhibits and Schedules referred to herein are
attached to and by this reference incorporated herein for all
purposes.
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SIGNATURE PAGE
(Agreement and Plan of Merger)
IN WITNESS WHEREOF, the parties have executed and delivered this
Agreement as of the date first above written.
GOTHIC ENERGY CORPORATION, an Oklahoma
corporation
By: /s/ Michael Paulk
------------------------------------
Michael Paulk, President
("Gothic")
<PAGE> 65
SIGNATURE PAGE
(Agreement and Plan of Merger)
IN WITNESS WHEREOF, the parties have executed and delivered this
Agreement as of the date first above written.
CHESAPEAKE ENERGY CORPORATION, an Oklahoma
corporation
By: /s/ Marcus C. Rowland
-------------------------------------------
Marcus C. Rowland, Executive Vice President
("Parent")
CHESAPEAKE MERGER 2000 CORP., an Oklahoma
corporation
By: /s/ Marcus C. Rowland
------------------------------------------
Marcus C. Rowland, Vice President
("Sub")
<PAGE> 66
LIST OF EXHIBITS
Exhibit 1.49 Agreement and Limited Irrevocable Proxy
Exhibit 2.2 Amended and Restated Certificate of Designations of
Preferences and Rights of Senior Redeemable Preferred
Stock, Series B
Exhibit 5.10 Form of Affiliate Letter for Affiliates of Gothic
Energy Corporation
Exhibit 6.2.8 Release
Exhibit 6.2.9(a) Opinion of Counsel to Gothic Energy Corporation
Exhibit 6.2.9(b) Opinion of Counsel to Gothic Energy Corporation
Exhibit 6.3.5 Opinion of Counsel to Chesapeake Energy Corporation
LIST OF GOTHIC DISCLOSURE SCHEDULES
Schedule 1.24 Gothic Aggregate Number
Schedule 1.58 Ownership Interests
Schedule 1.72 Permitted Encumbrances
Schedule 2.3.4 Options and Warrants
Schedule 3.1 Corporate Organization
Schedule 3.3 No Default Violations
Schedule 3.5 SEC Documents
Schedule 3.7 Capital Structure
Schedule 3.9 Litigation
Schedule 3.10 Brokers
Schedule 3.11 Absence of Certain Changes or Events
Schedule 3.13 No Restrictions
Schedule 3.14 Taxes
Schedule 3.15 Employee Benefit Plans
Schedule 3.16 Environmental Matters
Schedule 3.19 Employee Contracts and Benefits
Schedule 3.21 Insurance
Schedule 3.22 Intangible Property
Schedule 3.25 Oil and Gas Operations
Schedule 3.26 Financial and Commodity Hedging
Schedule 3.28 Other Entities
Schedule 3.29 Account Information
Schedule 3.35 Current Commitments
Schedule 3.36 Payout and Gas Balancing
Schedule 3.40 Employees, Officers and Directors' Loans
Schedule 5.14 Employee and Severance Matters
Schedule 6.1.6 Bond Indenture Compliance
<PAGE> 67
LIST OF CHESAPEAKE DISCLOSURE SCHEDULES
Section 4.7 Capital Structure
Section 4.9 Litigation
Section 4.12 Absence of Certain Changes
Section 4.14 No Restrictions
Section 4.15 Taxes
Section 4.15.2 Tax Examinations
Section 4.15.3 Tax Agreements
Section 4.16 Environmental Matters
Section 4.17 Employment Contracts and Benefits
Section 4.20 Intangible Property
Section 4.23(b) Employee Benefit Plans
